Business Context and Reporting Period
Company: TriplePoint Venture Growth BDC Corp. (TPVG)
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 2021
Business Overview: TPVG is an externally managed, closed-end, non-diversified business development company (BDC) regulated under the Investment Company Act of 1940. It invests primarily in venture growth-stage companies in technology, life sciences, and other high-growth industries, utilizing a strategy of lending with warrants to maximize total return through current income and capital appreciation.
Key Financial Metrics
| Metric | Q3 2021 (3 Months) | YTD 2021 (9 Months) | YTD 2020 (9 Months) |
|---|---|---|---|
| Total Investment Income | $21.2 million | $61.5 million | $67.8 million |
| Net Investment Income | $9.9 million | $28.2 million | $36.0 million |
| Net Realized & Unrealized Gains/Losses | $29.0 million | $34.5 million | ($5.4 million) |
| Net Increase in Net Assets from Operations | $38.9 million | $62.7 million | $30.5 million |
| Net Asset Value (NAV) per Share | $13.92 | $13.92 | $13.28 |
| Total Assets | $795.1 million | $795.1 million | $683.5 million |
| Total Liabilities | $363.8 million | $363.8 million | $283.1 million |
| Cash and Cash Equivalents | $23.1 million | $23.1 million | $25.7 million |
| Weighted Average Portfolio Yield (Debt) | 12.3% (Annualized) | 13.2% (Annualized) | 13.4% (Annualized) |
Material Changes vs. Prior Period
- Portfolio Growth: Total investments at fair value increased to $767.0 million as of September 30, 2021, from $633.8 million at December 31, 2020. The portfolio now consists of 199 investments across 81 companies.
- Debt Restructuring: The Company redeemed its entire $74.75 million aggregate principal amount of 2022 Notes in April 2021, incurring a realized loss of $0.7 million. Concurrently, it issued $200.0 million in 2026 Notes in March 2021.
- Operating Expenses: Total operating expenses for the nine months ended September 30, 2021, were $33.3 million, an increase from $31.8 million in the prior year period, primarily driven by interest expense on the new 2026 Notes.
- Realized Losses: The Company recognized net realized losses of $18.8 million for the nine months ended September 30, 2021. This was primarily due to a $15.6 million realized loss from the sale of its investment in Knotel, Inc., which was removed from the portfolio.
- Unrealized Gains: Significant unrealized gains of $54.0 million were recorded for the nine months ended September 30, 2021, driven by fair value adjustments on the warrant and equity portfolio and the reversal of previously recorded unrealized losses on Knotel, Inc.
Guidance, Outlook, and Risks
- Outlook: Management continues to monitor the impact of the COVID-19 pandemic on portfolio companies. While one portfolio company (Luminary Roli Limited) is on non-accrual status with a fair value of $14.5 million, the Company remains in compliance with all covenants and asset coverage requirements (222% as of September 30, 2021).
- Liquidity: The Company maintains a $350 million revolving credit facility with $265 million of unused capacity as of September 30, 2021. Cash and cash equivalents totaled $23.1 million.
- Unfunded Commitments: Unfunded commitments totaled $156.6 million to 21 portfolio companies, with $40.8 million dependent on milestones.
- Risks: Key risks include the potential for increased defaults due to economic conditions, interest rate volatility affecting net investment income, and the inherent uncertainty in valuing private investments (Level 3 assets). The Company has no hedging transactions in place for interest rate or foreign currency risk.
- Subsequent Events: Following the quarter end, Rent the Runway, Inc. completed its IPO, and Enjoy Technology, Inc. completed its SPAC merger. The Company funded $14.0 million in new investments and received $28.3 million in principal prepayments between October 1 and November 3, 2021.
Investor Verification Checklist
- Non-Accrual Status: Verify the status and potential recovery value of the $14.5 million investment in Luminary Roli Limited, which is on non-accrual.
- Debt Maturity Profile: Review the maturity schedule of the $200 million 2026 Notes and the $70 million 2025 Notes to assess refinancing risks.
- Valuation Methodology: Scrutinize the Level 3 valuation inputs for the $756 million of private investments, particularly the warrant and equity portfolios which drove significant unrealized gains.
- Unfunded Commitments: Assess the likelihood of drawing down the $156.6 million in unfunded commitments and the associated capital deployment timeline.
- Asset Coverage: Confirm continued compliance with the 150% asset coverage ratio required under the 1940 Act, especially given the leverage utilized.