TriplePoint Venture Growth BDC Corp. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. TriplePoint is an externally managed business development company (BDC) that lends primarily to venture-growth companies, often alongside warrants, and has elected regulated investment company (RIC) tax treatment.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Investment and other income | $29.7 million | $21.2 million | $84.5 million | $61.5 million |
| Net investment income | $16.9 million; $0.51/share | $9.9 million; $0.32/share | $43.1 million; $1.35/share | $28.2 million; $0.91/share |
| Net realized and unrealized gains (losses) | $(16.4) million | $29.0 million | $(51.3) million | $34.5 million |
| Change in net assets from operations | $0.4 million; $0.01/share | $38.9 million; $1.26/share | $(8.3) million; $(0.26)/share | $62.7 million; $2.03/share |
| Distributions declared per share | $0.36 | $0.36 | $1.08 | $1.08 |
- At September 30, total assets were $983.6 million, investments at fair value were $962.4 million, and net assets were $447.9 million. NAV was $12.69/share, down from $14.01 at year-end 2021.
- Gross debt outstanding was $516.0 million: $121.0 million on the revolving credit facility and $395.0 million of notes. The facility had $229.0 million of unused capacity. Asset coverage for borrowed amounts was 187%; the company reported compliance with borrowing covenants.
- Cash and cash equivalents were $6.9 million, plus $8.1 million restricted cash. Nine-month operating cash flow was $(107.3) million, largely reflecting investment funding; financing cash flow was $63.1 million.
- Interest expense and fee amortization rose to $7.2 million in Q3 and $18.4 million for nine months, versus $4.1 million and $12.6 million in the comparable periods. Management attributed the increase to higher borrowings and rates, including the 2027 Notes issuance.
- Annualized weighted-average debt portfolio yield was 13.8% for Q3 and 14.5% for nine months, compared with 12.3% and 13.2%, respectively, in 2021. These are portfolio yields, not shareholder returns.
Material changes and portfolio developments
- Income increased year over year, mainly due to a larger average income-bearing debt portfolio, higher yields, and, for the nine-month period, increased prepayment activity. The gains-to-losses reversal drove lower total operating results despite stronger net investment income.
- Investment fair value rose to $962.4 million from $865.3 million at December 31, 2021, while the portfolio expanded to 318 investments across 116 companies from 246 investments across 91 companies. Portfolio debt fair value was $856.7 million.
- Nine-month unrealized losses were $34.3 million, including losses on debt, warrants and equity, and foreign currency adjustments. Q3 realized losses of $13.2 million primarily reflected the sale of Pencil and Pixel; nine-month realized losses also included the Casper Sleep investment sale.
- One $29.5 million-cost investment was on non-accrual, with fair value of $8.4 million. At quarter-end, 10.0% of debt fair value was rated Yellow or Orange, compared with 7.0% at year-end 2021; the weighted-average debt rating moved from 1.87 to 2.04 (higher ratings indicate greater concern).
- Unfunded commitments increased to $331.1 million for 37 companies from $191.7 million for 22 companies; $128.4 million depended on milestones. The company estimates 50%–75% of gross unfunded commitments are eventually drawn.
- In August, the company issued 4.16 million common shares in a follow-on offering for $55.3 million net proceeds. A new $50 million at-the-market (ATM) program was established September 30; the full amount remained available at quarter-end.
Outlook, risks and unusual items
- No specific earnings or investment guidance was provided. Management said liquidity consisted of cash, available facility capacity, expected operating cash flows and potential ATM proceeds, and believed resources would meet operating needs and fund commitments.
- After quarter-end, the board declared a regular quarterly distribution of $0.37/share, up from $0.36, payable December 30, 2022. The company estimated $18.5 million, or $0.52/share, of undistributed taxable net investment income at September 30.
- After quarter-end, ForgeRock agreed to be acquired for $23.25/share; the company estimated the deal could add $2.6 million to the value of its warrant holdings. From October 1 through November 1, it funded $27.9 million of investments and received $33.8 million in principal prepayments, generating over $1.0 million of accelerated income. It also reported preliminary negative developments at Medly Health that could lead to a credit downgrade.
- Material risks include portfolio-company credit deterioration, inflation and rising rates, limited access to capital markets or lender funding, foreign-currency movements, and reliance on venture investors or future financings to support borrower repayment. Approximately 62.3% of debt principal was floating-rate; the company had no interest-rate or currency hedges.
- Most investments were Level 3 fair-value estimates, involving significant unobservable inputs and judgment. Non-qualifying assets were 28.8% of total assets, and most portfolio investments were restricted from sale. The filing also notes COVID-19 uncertainty and potential impacts on borrowers, portfolio values, liquidity and distributions.
- The company recognized $0.5 million of excise-tax accrual for the first nine months. It reported no material pending legal proceedings and effective disclosure controls.
Important facts for investors to verify
- Credit quality and recoverability of the non-accrual exposure, Yellow/Orange loans, and Medly Health investment.
- Valuation assumptions and sensitivity for Level 3 holdings, especially given the year-to-date unrealized losses and foreign-currency impacts.
- Liquidity needs to fund the $331.1 million unfunded commitment portfolio alongside distributions, and the amount of commitments likely to be drawn.
- Effect of floating-rate assets versus floating-rate facility borrowings on net investment income as rates change; confirm current borrowing costs and asset-coverage headroom.
- Whether the $0.37 quarterly distribution is sustainable from taxable income and cash generation, and the potential dilution and cost of ATM share issuance.