Business Context and Reporting Period
Company: Runway Growth Credit Fund Inc. (a Maryland corporation and Business Development Company)
Reporting Period: Quarterly period ended March 31, 2021
Business Overview: The Company is an externally managed, non-diversified closed-end investment company that invests primarily in senior secured term loans, second lien secured loans, and warrants/equity of small, fast-growing private companies in the United States. It is managed by Runway Growth Capital LLC (RGC).
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total Investments (Fair Value) | $615,147,590 | $411,431,962 |
| Total Investment Income | $16,422,773 | $14,820,857 |
| Net Investment Income | $11,481,732 | $9,643,587 |
| Net Increase in Net Assets from Operations | $9,371,328 | $1,747,244 |
| Net Asset Value (NAV) per Share | $14.77 | $14.25 |
| Total Debt (Credit Facilities) | $117,000,000 | $99,000,000 |
| Cash and Cash Equivalents | $1,780,788 | $16,814,362 |
| Dividends Declared | $11,623,199 | $10,324,486 |
Material Changes vs. Prior Period
- Operational Performance: Net increase in net assets resulting from operations improved significantly to $9.37 million in Q1 2021 compared to $1.75 million in Q1 2020. This was driven by higher interest income and a reduction in realized losses.
- Investment Portfolio: Total investments increased to $615.1 million from $411.4 million year-over-year. The portfolio is heavily weighted toward Senior Secured Term Loans (87.7% of total investments).
- Realized Gains/Losses: The Company reported a net realized loss of $199,223 in Q1 2021, a substantial improvement from the $6.72 million net realized loss in Q1 2020.
- Liquidity: Cash and cash equivalents decreased to $1.78 million from $14.89 million at the end of 2020, primarily due to the purchase of investments ($53.9 million) and U.S. Treasury Bills ($25.0 million).
- Leverage: Borrowings under credit facilities increased to $117 million from $99 million at the end of 2020.
Guidance, Outlook, Risks, and Unusual Items
- Asset Quality: As of March 31, 2021, seven loans to Mojix, Inc. (aggregate principal $11.5 million) were placed on non-accrual status, representing 2.14% of net assets. The fair value of these loans was $10.1 million.
- LIBOR Transition Risk: The Company faces risks related to the cessation of LIBOR settings after December 31, 2021. 96.9% of the debt portfolio bears interest at variable rates based on LIBOR or Prime. The Company may need to renegotiate agreements, potentially resulting in lower interest rates or higher borrowing costs.
- COVID-19 Impact: Management notes that the pandemic continues to create uncertainty regarding the fair value of portfolio investments and the ability of portfolio companies to service debt. Valuations incorporate assumptions regarding the pandemic's impact.
- Subsequent Events:
- Longtail Ad Solutions (JW Player) prepaid $30 million principal plus fees/interest totaling $31.86 million.
- Massdrop, Inc. prepaid $20.47 million principal plus fees/interest totaling $21.72 million.
- A dividend of $0.37 per share was declared on April 29, 2021.
Investor Verification Checklist
- Non-Accrual Status: Verify the status and potential recovery value of the Mojix, Inc. loans ($11.5M principal) currently on non-accrual.
- LIBOR Exposure: Assess the Company's strategy for transitioning 96.9% of its variable-rate debt portfolio away from LIBOR and the potential impact on yield.
- Liquidity Position: Monitor cash balances ($1.78M) against unfunded loan commitments ($58.1M) and upcoming debt maturities.
- Valuation Methodology: Review the Level 3 fair value measurements ($564M), which rely on unobservable inputs and management judgment, particularly for warrants and private debt.
- Fee Structure: Note the recent Board approval of a Second Amended and Restated Investment Advisory Agreement, which may alter management and incentive fee calculations pending shareholder approval.