Triplepoint Venture Growth BDC Corp. annual report, FY2022

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TriplePoint Venture Growth BDC Corp. — FY2022 Form 10-K

Reporting period: Fiscal year ended December 31, 2022. TriplePoint is an externally managed BDC and RIC focused primarily on secured lending, often with warrants, to venture-growth companies in technology and other high-growth industries.

Financial and portfolio performance

  • Income and earnings: Investment and other income was $119.4 million, up from $87.4 million in 2021. Net investment income rose to $63.6 million, or $1.94 per share, from $41.1 million, or $1.33 per share. Despite higher income, operations produced a $20.1 million net decrease in net assets, or $0.61 per share, versus a $76.6 million increase in 2021.
  • Losses and portfolio marks: 2022 net realized investment losses were $46.0 million and net unrealized losses were $37.6 million. Realized losses primarily reflected dispositions involving Medly Health and Pencil and Pixel. Fair value of investments was $949.3 million, below cost of $959.4 million; in 2021 fair value was $865.3 million, above cost of $837.8 million.
  • Returns and NAV: NAV per share fell to $11.88 from $14.01. Total return based on NAV, including reinvested distributions, was negative 3.3%; total return based on share price was negative 33.7%. Net investment income was 14.5% of average NAV; total expenses were 12.8% of average NAV.
  • Cash flow and liquidity: Operating activities used $100.9 million, while financing activities provided $101.0 million. Cash and restricted cash totaled $59.3 million at year-end. The credit facility had $175.0 million of stated unused capacity, subject to covenants and borrowing-base requirements.
  • Debt and leverage: Principal debt outstanding was $570.0 million: $175.0 million under the revolving facility and $395.0 million of notes due 2025–2027. Asset coverage was 174%, above the 150% statutory minimum. Interest expense and debt-fee amortization increased to $26.8 million from $17.4 million.
  • Portfolio and credit: The portfolio comprised 327 investments across 121 companies, with $853.0 million fair value in debt investments. One portfolio company was on non-accrual, with $29.5 million cost and $9.1 million fair value. The weighted average debt risk rating worsened to 2.06 from 1.87; 10.4% of debt fair value was rated Yellow and 1.1% Orange, with none rated Red.
  • Commitments and distributions: Unfunded commitments were $324.0 million to 37 companies, up from $191.7 million; $88.9 million depended on milestones. 2022 distributions were $1.55 per share, including a $0.10 special distribution. A $0.40 first-quarter 2023 distribution was declared, an increase from $0.37.

Material changes versus 2021

  • Investment income and net investment income increased, supported by a larger income-bearing portfolio, higher yields, and prepayments. The weighted average annualized portfolio yield rose to 14.7% from 13.7%.
  • Results shifted from gains to losses: net realized and unrealized losses totaled $83.6 million in 2022, compared with net gains of $35.5 million in 2021. The 2022 unrealized losses affected both debt and warrant/equity holdings.
  • Debt outstanding increased by $100 million, principally reflecting the issuance of $125 million of 5.00% notes due 2027, partly offset by lower credit-facility borrowings. Interest expense rose materially.
  • Portfolio fair value increased, but the portfolio’s net unrealized position moved from a $27.5 million gain at cost-to-fair-value comparison in 2021 to a $10.1 million loss in 2022. The portfolio expanded from 91 to 121 companies.
  • The share price ended 2022 at $10.43, below year-end NAV of $11.88; the filing reports the stock traded at both a premium and a discount during the year.

Outlook, risks, and unusual items

  • Outlook: No specific earnings or portfolio-growth guidance is provided. Management said cash, facility availability, operating cash flows, portfolio payments and prepayments were expected to meet operating needs and unfunded commitments. From January 1 through February 28, 2023, the company funded $29.8 million of new investments; additional term sheets remained subject to diligence and approval.
  • Key risks: Venture borrowers may need additional equity capital and face uncertain exits, economic conditions, inflation, and higher rates. Rising rates may increase portfolio income but also borrowers’ debt-service burden and defaults; the company’s debt investments are predominantly floating-rate while some borrowings are floating-rate. Investments are largely illiquid and Level 3, making reported fair values judgment-dependent.
  • Funding and distribution risks: Unfunded commitments rose to $324.0 million, while year-end facility availability was $175.0 million. Commitments may not all be drawn, but the filing estimates 50%–75% of gross unfunded commitments may ultimately be drawn. RIC distribution requirements, leverage limits, and non-cash accrued income can constrain liquidity and distributions.
  • Other notable matters: The company recorded $726,000 of federal excise tax for 2022 and reported $22.5 million of estimated undistributed taxable net investment income. Its credit facility was amended in July 2022 to replace LIBOR with SOFR and extend revolving and maturity dates. The auditor issued an unqualified opinion and identified Level 3 investment valuation as a critical audit matter; it did not audit internal control effectiveness.

Important facts for investors to verify

  • Whether the $324.0 million of unfunded commitments can be funded on schedule given $175.0 million of stated facility availability, cash on hand, and borrowing-base constraints.
  • The status, expected recoveries, and valuation assumptions for the non-accrual investment and the holdings associated with 2022 realized and unrealized losses.
  • How continued rate changes affect both borrower credit quality and the company’s net investment income, funding costs, and covenant headroom.
  • The assumptions behind Level 3 valuations, particularly discount rates, borrower cash flows, enterprise values, and warrant/equity exit scenarios.
  • Whether the $0.40 quarterly distribution is sustainable from cash income after expenses and debt service, and how undistributed taxable income and excise taxes affect cash available for investment.
  • Compliance with the 150% asset-coverage requirement and debt covenants, including the facility’s May 2024 revolving-period end and November 2025 maturity.