TriplePoint Venture Growth BDC Corp. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless stated otherwise. TriplePoint is an externally managed BDC focused primarily on loans, often with warrants, to venture-growth companies in technology and other high-growth industries.
Key financial results
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Investment and other income | $33.6 million | $27.3 million |
| Net investment income | $18.6 million; $0.53 per share | $13.5 million; $0.44 per share |
| Net realized and unrealized losses | $10.9 million | $7.8 million |
| Net increase in net assets from operations | $7.7 million; $0.22 per share | $5.7 million; $0.18 per share |
| Distributions declared per share | $0.40 | $0.36 |
| Annualized NII / average NAV | 17.8% | 12.6% |
| Annualized expenses / average NAV | 14.4% | 12.8% |
- Interest income rose to $32.3 million from $25.9 million, reflecting a larger average income-producing debt portfolio and higher yields. Weighted-average debt portfolio yield was 14.7%, versus 15.5%; excluding prepayment effects, it was 14.7%, versus 12.7%.
- Interest expense and fee amortization increased to $9.2 million from $5.1 million, primarily due to higher average revolving borrowings and interest rates, and the 2027 Notes.
- Unrealized investment losses were $10.9 million, versus $4.7 million. Realized losses were $33,000, versus $3.1 million. Q1 2023 NII included the benefit of no income incentive fee; the total-return provision reduced the otherwise applicable fee by $3.7 million.
Portfolio, balance sheet and liquidity
- At March 31, 2023, investments had $1.004 billion cost and $982.8 million fair value, compared with $959.4 million and $949.3 million at December 31, 2022. The portfolio comprised 336 investments across 120 companies; debt investments were $890.1 million fair value.
- NAV was $414.0 million, or $11.69 per share, down from $419.9 million, or $11.88 per share, at year-end. Debt fair value was $42.3 million below cost; total investments were $21.0 million below cost.
- Cash and cash equivalents were $57.3 million, plus $0.3 million restricted cash. Operating cash flow was negative $33.0 million, primarily reflecting investment funding and portfolio cash flows; financing provided $31.3 million, including $45.0 million net revolver borrowings and $13.6 million distributions paid.
- Gross borrowings were $615.0 million: $220.0 million under the revolving facility and $395.0 million of unsecured notes. The revolver had $130.0 million of unused capacity. Asset coverage was 167%, above the 150% statutory minimum; the company reported compliance with borrowing covenants.
- Unfunded commitments were $254.5 million to 29 companies, down from $324.0 million to 37 companies at year-end; $72.9 million was milestone-dependent. Management estimates 50%–75% of gross commitments will ultimately be drawn. Revolver availability and cash are intended to support operating needs and commitments.
Changes, outlook and risks
- Credit quality weakened: the average debt investment ranking moved to 2.12 from 2.06. Three companies were on non-accrual at quarter-end, with $77.1 million cost and $45.7 million fair value, versus one company and $9.1 million fair value at year-end. During the quarter, four companies were downgraded from White to Yellow and two from Yellow to Orange.
- After quarter-end, Hey Favor (The Pill Club), Underground Enterprises and RenoRun filed for bankruptcy or creditor protection. Their quarter-end investment fair values were $19.7 million, $5.9 million and $2.7 million, respectively. These subsequent developments are important to potential portfolio valuation and credit-loss assessments.
- Consumer Products and Services was the largest industry exposure at 17.5% of portfolio fair value; E-Commerce—Clothing and Accessories was 13.3%. Approximately 60.7% of debt principal was floating-rate, generally Prime-based. Management’s sensitivity analysis estimates a 100-basis-point rate increase would raise annualized NII by $3.4 million, assuming the portfolio and borrowings remain unchanged; the company had no interest-rate or currency hedges.
- Management gave no earnings or yield guidance. It stated that cash, available facility capacity and expected portfolio cash flows should be adequate for operations and commitments. It also cited market volatility, higher rates, limited capital availability, portfolio-company reliance on venture funding or exits, foreign-exchange movements and financial-institution/venture-banking disruption as risks.
- For April 1–May 2, the company closed $6.4 million of additional debt commitments and funded $12.9 million of investments; $27.0 million of signed term sheets remained non-binding and subject to diligence, approvals and allocation policies. The Board declared a further $0.40-per-share distribution payable June 30, 2023.
Most important facts for investors to verify
- Subsequent bankruptcy and creditor-protection developments, recoveries and any resulting changes to valuations for Hey Favor, Underground Enterprises and RenoRun.
- Progression of Yellow/Orange-rated and non-accrual investments, including portfolio-company liquidity and dependence on follow-on financing or exits.
- Fair-value assumptions: most investments are Level 3, based on significant unobservable inputs; quarterly unrealized marks materially affected NAV.
- Capacity to fund commitments and distributions while managing $615.0 million gross debt, rising financing costs and 167% asset coverage.
- Sustainability and tax character of the $0.40 quarterly distribution; the filing estimated $27.2 million, or $0.77 per share, of undistributed taxable NII at quarter-end.