Runway Growth Credit Fund Inc. - Form 8-K Summary
Business Context and Reporting Period
This Current Report (Form 8-K) was filed on June 6, 2019, covering events occurring on May 31, 2019. Runway Growth Credit Fund Inc. (the "Company"), a Maryland corporation, is an emerging growth company. The filing details the entry into a new material definitive credit agreement and the termination of prior financing arrangements.
Key Financial Metrics and Debt Structure
The filing does not provide specific revenue, profit, cash flow, or margin figures for the period. The primary financial disclosure relates to the Company's new debt facility:
- Facility Size: Maximum aggregate principal amount of $100 million, with an accordion feature allowing expansion to $200 million subject to lender agreement.
- Interest Rate: Three-month adjusted LIBOR (floor of 0%) plus an applicable margin ranging from 2.50% to 3.00% per annum, dependent on utilization and the number of unaffiliated obligors.
- Fees: Unused commitment fee of 0.50% per annum; minimum earnings fee of 3.00% payable annually starting May 31, 2021, on unused commitments below 60% of aggregate commitments.
- Term: Availability period expires May 31, 2022, followed by a two-year amortization period. Stated maturity date is May 31, 2024.
- Collateral: Secured by a perfected first priority security interest in substantially all of the Company's assets and portfolio investments.
Material Changes Versus Prior Period
On May 31, 2019, the Company terminated its previous demand loan agreement and revolving loan agreement with CIBC Bank USA (collectively, the "Subscription Credit Facilities"). These prior facilities were secured by the Company's rights to capital commitments from private investors. The new Credit Agreement replaces these facilities with a borrowing base determined by eligible loan investments, advance rates, and concentration limits.
Guidance, Covenants, and Risks
The filing outlines significant covenants and risks associated with the new Credit Agreement:
- Financial Covenants: The Company must maintain tangible net worth exceeding the greater of $125 million (plus 75% of equity sale proceeds) or the loan balance of the four largest obligors. An asset coverage ratio of at least 150% and an interest coverage ratio of 2.00 to 1.00 are required.
- Operational Covenants: Requirements include maintaining BDC and RIC status, ensuring net income is not negative for two consecutive quarters or any trailing 12-month period, and retaining Runway Growth Capital LLC as the investment adviser.
- Risks: There is no assurance that lenders will agree to increase the facility under the accordion feature. The agreement includes standard events of default, including nonpayment, misrepresentation, and key person departures.
Investor Verification Checklist
- Verify the Company's current utilization rate of the new $100 million facility to determine the applicable interest margin.
- Confirm compliance with the tangible net worth and asset coverage ratio covenants as of the most recent fiscal quarter.
- Review the composition of the collateral portfolio to ensure it meets the "eligible loan investments" criteria for the borrowing base.
- Monitor the status of the investment adviser relationship with Runway Growth Capital LLC to avoid covenant breaches.
- Assess the impact of the minimum earnings fee (starting May 2021) on future cash flows if utilization remains below 60%.