UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended June 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 814-00702

 

HERCULES CAPITAL, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Maryland

 

74-3113410

(State or Jurisdiction of

Incorporation or Organization)

 

(IRS Employer

 Identification Number)

 

400 Hamilton Ave., Suite 310

Palo Alto, California

(Address of Principal Executive Offices)

 

94301

(Zip Code)

 

(650) 289-3060

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, par value $0.001 per share

HTGC

New York Stock Exchange

6.25% Notes due 2033

HCXY

New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with a new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

On July 22, 2022, there were 127,238,854 shares outstanding of the Registrant’s common stock, $0.001 par value.

 

 


 

HERCULES CAPITAL, INC.

FORM 10-Q TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

3

 

Item 1.

 

 

Consolidated Financial Statements

 

3

 

 

 

Consolidated Statements of Assets and Liabilities as of June 30, 2022 (unaudited) and December 31, 2021

 

3

 

 

 

Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021 (unaudited)

 

4

 

 

 

Consolidated Statements of Changes in Net Assets for the three and six months ended June 30, 2022 and 2021 (unaudited)

 

5

 

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited)

 

6

 

 

 

Consolidated Schedule of Investments as of June 30, 2022 (unaudited)

 

7

 

 

 

Consolidated Schedule of Investments as of December 31, 2021

 

18

 

 

 

Notes to Consolidated Financial Statements (unaudited)

 

29

Item 2.

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

61

Item 3.

 

 

Quantitative and Qualitative Disclosures About Market Risk

 

77

Item 4.

 

 

Controls and Procedures

 

78

 

PART II. OTHER INFORMATION

 

79

 

Item 1.

 

Legal Proceedings

 

79

Item 1A.

 

 

Risk Factors

 

79

Item 2.

 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

80

Item 3.

 

Defaults Upon Senior Securities

 

80

Item 4.

 

 

Mine Safety Disclosures

 

80

Item 5.

 

 

Other Information

 

80

Item 6.

 

 

Exhibits and Financial Statement Schedules

 

81

 

SIGNATURES

 

86

 

 

 

 


 

PART I: FINANCIAL INFORMATION

In this Quarterly Report, the “Company,” “Hercules,” “we,” “us” and “our” refer to Hercules Capital, Inc. its wholly owned subsidiaries, and its affiliated securitization trust unless the context otherwise requires.

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except per share data)

 

June 30, 2022

 

 

December 31, 2021

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Investments, at fair value:

 

 

 

 

 

 

Non-control/Non-affiliate investments (cost of $2,667,854 and $2,293,398, respectively)

 

$

2,632,403

 

 

$

2,351,560

 

Control investments (cost of $87,228 and $84,039, respectively)

 

 

82,875

 

 

 

73,504

 

Affiliate investments (cost of $8,245 and $13,547, respectively)

 

 

3,613

 

 

 

9,458

 

Total investments, at fair value (cost of $2,763,327 and $2,390,984, respectively; amounts related to a VIE $234,170 and $0, respectively)

 

 

2,718,891

 

 

 

2,434,522

 

Cash and cash equivalents

 

 

115,309

 

 

 

133,115

 

Restricted cash (amounts related to a VIE $3,371 and $0, respectively)

 

 

3,371

 

 

 

3,150

 

Interest receivable

 

 

22,112

 

 

 

17,365

 

Right of use asset

 

 

6,349

 

 

 

6,761

 

Other assets

 

 

3,691

 

 

 

5,100

 

Total assets

 

$

2,869,723

 

 

$

2,600,013

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Debt (net of debt issuance costs - Note 5; amounts related to a VIE $147,663 and $0, respectively)

 

$

1,498,612

 

 

$

1,236,303

 

Accounts payable and accrued liabilities

 

 

36,711

 

 

 

47,781

 

Operating lease liability

 

 

6,660

 

 

 

7,382

 

Total liabilities

 

$

1,541,983

 

 

$

1,291,466

 

 

 

 

 

 

 

 

Net assets consist of:

 

 

 

 

 

 

Common stock, par value

 

$

128

 

 

$

117

 

Capital in excess of par value

 

 

1,242,618

 

 

 

1,091,907

 

Total distributable earnings

 

 

84,994

 

 

 

216,523

 

Total net assets

 

$

1,327,740

 

 

$

1,308,547

 

Total liabilities and net assets

 

$

2,869,723

 

 

$

2,600,013

 

 

 

 

 

 

 

 

Shares of common stock outstanding ($0.001 par value and 200,000,000 authorized)

 

 

127,285

 

 

 

116,619

 

Net asset value per share

 

$

10.43

 

 

$

11.22

 

 

 

See notes to consolidated financial statements

 

3


 

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share data)

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Investment income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

$

67,511

 

 

$

60,276

 

 

$

127,601

 

 

$

123,258

 

Control investments

 

 

1,144

 

 

 

1,029

 

 

 

2,259

 

 

 

1,828

 

Affiliate investments

 

 

76

 

 

 

1

 

 

 

1,123

 

 

 

2

 

Total interest income

 

 

68,731

 

 

 

61,306

 

 

 

130,983

 

 

 

125,088

 

Fee income:

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

 

3,367

 

 

 

8,238

 

 

 

6,256

 

 

 

13,207

 

Control investments

 

 

17

 

 

 

15

 

 

 

33

 

 

 

23

 

Total fee income

 

 

3,384

 

 

 

8,253

 

 

 

6,289

 

 

 

13,230

 

Total investment income

 

 

72,115

 

 

 

69,559

 

 

 

137,272

 

 

 

138,318

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

12,698

 

 

 

14,490

 

 

 

24,345

 

 

 

29,240

 

Loan fees

 

 

1,492

 

 

 

2,220

 

 

 

3,334

 

 

 

5,020

 

General and administrative

 

 

4,322

 

 

 

4,068

 

 

 

8,140

 

 

 

7,664

 

Tax expenses

 

 

1,821

 

 

 

1,746

 

 

 

2,533

 

 

 

3,184

 

Employee compensation:

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

11,060

 

 

 

8,349

 

 

 

19,389

 

 

 

18,153

 

Stock-based compensation

 

 

3,661

 

 

 

2,926

 

 

 

8,085

 

 

 

5,670

 

Total employee compensation

 

 

14,721

 

 

 

11,275

 

 

 

27,474

 

 

 

23,823

 

Total gross operating expenses

 

 

35,054

 

 

 

33,799

 

 

 

65,826

 

 

 

68,931

 

Expenses allocated to the Adviser Subsidiary

 

 

(3,070

)

 

 

(1,204

)

 

 

(4,472

)

 

 

(2,137

)

Total net operating expenses

 

 

31,984

 

 

 

32,595

 

 

 

61,354

 

 

 

66,794

 

Net investment income

 

 

40,131

 

 

 

36,964

 

 

 

75,918

 

 

 

71,524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gain (loss) and net change in unrealized appreciation (depreciation):

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gain (loss):

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

 

(2,133

)

 

 

47,861

 

 

 

(4,600

)

 

 

55,631

 

Affiliate investments

 

 

 

 

 

(62,143

)

 

 

3,772

 

 

 

(62,143

)

Loss on debt extinguishment

 

 

 

 

 

 

 

 

(3,686

)

 

 

 

Total net realized gain (loss)

 

 

(2,133

)

 

 

(14,282

)

 

 

(4,514

)

 

 

(6,512

)

Net change in unrealized appreciation (depreciation):

 

 

 

 

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

 

(51,749

)

 

 

3,075

 

 

 

(90,698

)

 

 

21,097

 

Control investments

 

 

4,728

 

 

 

(5,255

)

 

 

6,182

 

 

 

(3,553

)

Affiliate investments

 

 

(1,295

)

 

 

62,229

 

 

 

(542

)

 

 

64,338

 

Total net change in unrealized appreciation (depreciation)

 

 

(48,316

)

 

 

60,049

 

 

 

(85,058

)

 

 

81,882

 

Total net realized gain (loss) and net change in unrealized appreciation (depreciation)

 

 

(50,449

)

 

 

45,767

 

 

 

(89,572

)

 

 

75,370

 

Net increase (decrease) in net assets resulting from operations

 

$

(10,318

)

 

$

82,731

 

 

$

(13,654

)

 

$

146,894

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net investment income before investment gains and losses per common share:

 

Basic

 

$

0.32

 

 

$

0.32

 

 

$

0.62

 

 

$

0.62

 

Change in net assets resulting from operations per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.09

)

 

$

0.71

 

 

$

(0.12

)

 

$

1.27

 

Diluted

 

$

(0.09

)

 

$

0.65

 

 

$

(0.12

)

 

$

1.21

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

124,255

 

 

 

114,654

 

 

 

121,292

 

 

 

114,480

 

Diluted

 

 

124,255

 

 

 

129,572

 

 

 

121,292

 

 

 

122,188

 

Distributions paid per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.48

 

 

$

0.39

 

 

$

0.96

 

 

$

0.76

 

 

 

See notes to consolidated financial statements

 

4


 

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(unaudited)

(amounts in thousands)

 

 

 

 

 

 

Capital in

 

 

Distributable

 

 

 

 

 

Common Stock

 

 

excess

 

 

Earnings

 

 

Net

 

For the Three Months Ended June 30, 2022

Shares

 

 

Par Value

 

 

of par value

 

 

(loss)

 

 

Assets

 

Balance as of March 31, 2022

 

123,194

 

 

$

124

 

 

$

1,178,019

 

 

$

155,305

 

 

$

1,333,448

 

Net increase (decrease) in net assets resulting from operations

 

 

 

 

 

 

 

 

 

 

(10,318

)

 

 

(10,318

)

Public offering, net of offering expenses

 

4,061

 

 

 

4

 

 

 

61,851

 

 

 

 

 

 

61,855

 

Issuance of common stock due to stock option exercises

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retired shares from net issuance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under restricted stock plan

 

23

 

 

 

 

 

 

 

 

 

 

 

 

 

Retired shares for restricted stock vesting

 

(54

)

 

 

 

 

 

(894

)

 

 

 

 

 

(894

)

Distributions reinvested in common stock

 

61

 

 

 

 

 

 

921

 

 

 

 

 

 

921

 

Distributions

 

 

 

 

 

 

 

 

 

 

(59,993

)

 

 

(59,993

)

Stock-based compensation (1)

 

 

 

 

 

 

 

2,721

 

 

 

 

 

 

2,721

 

Balance as of June 30, 2022

 

127,285

 

 

$

128

 

 

$

1,242,618

 

 

$

84,994

 

 

$

1,327,740

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2021

$

116,619

 

 

$

117

 

 

$

1,091,907

 

 

$

216,523

 

 

$

1,308,547

 

Net increase (decrease) in net assets resulting from operations

 

 

 

 

 

 

 

 

 

 

(13,654

)

 

 

(13,654

)

Public offering, net of offering expenses

 

8,921

 

 

 

9

 

 

 

147,095

 

 

 

 

 

 

147,104

 

Issuance of common stock due to stock option exercises

 

37

 

 

 

 

 

 

454

 

 

 

 

 

 

454

 

Retired shares from net issuance

 

(2

)

 

 

 

 

 

(32

)

 

 

 

 

 

(32

)

Issuance of common stock under restricted stock plan

 

788

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Retired shares for restricted stock vesting

 

(180

)

 

 

 

 

 

(4,588

)

 

 

 

 

 

(4,588

)

Distributions reinvested in common stock

 

121

 

 

 

 

 

 

1,946

 

 

 

 

 

 

1,946

 

Issuance of common stock from conversion of 2022 Convertible Notes

 

981

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Distributions

 

 

 

 

 

 

 

 

 

 

(117,875

)

 

 

(117,875

)

Stock-based compensation (1)

 

 

 

 

 

 

 

5,838

 

 

 

 

 

 

5,838

 

Balance as of June 30, 2022

$

127,285

 

 

$

128

 

 

$

1,242,618

 

 

$

84,994

 

 

$

1,327,740

 

(1)
Stock-based compensation includes $36 thousand and $76 thousand of restricted stock and option expense related to director compensation for the three and six months ended June 30, 2022, respectively.

(amounts in thousands)

 

 

 

 

 

 

 

Capital in

 

 

Distributable

 

 

 

 

 

 

Common Stock

 

 

excess

 

 

Earnings

 

 

Net

 

For the Three Months Ended June 30, 2021

 

Shares

 

 

Par Value

 

 

of par value

 

 

(loss)

 

 

Assets

 

Balance as of March 31, 2021

 

 

115,768

 

 

$

116

 

 

$

1,160,519

 

 

$

154,759

 

 

$

1,315,394

 

Net increase (decrease) in net assets resulting from operations

 

 

 

 

 

 

 

 

 

 

 

82,731

 

 

 

82,731

 

Public offering, net of offering expenses

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Issuance of common stock due to stock option exercises

 

 

41

 

 

 

 

 

 

888

 

 

 

 

 

 

888

 

Retired shares from net issuance

 

 

(12

)

 

 

 

 

 

(486

)

 

 

 

 

 

(486

)

Issuance of common stock under restricted stock plan

 

 

36

 

 

 

 

 

 

 

 

 

 

 

 

 

Retired shares for restricted stock vesting

 

 

(33

)

 

 

 

 

 

(725

)

 

 

 

 

 

(725

)

Distributions reinvested in common stock

 

 

67

 

 

 

 

 

 

1,070

 

 

 

 

 

 

1,070

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

(45,158

)

 

 

(45,158

)

Stock-based compensation (1)

 

 

 

 

 

 

 

 

2,647

 

 

 

 

 

 

2,647

 

Balance as of June 30, 2021

 

 

115,867

 

 

$

116

 

 

$

1,163,910

 

 

$

192,332

 

 

$

1,356,358

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2020

 

 

114,726

 

 

$

115

 

 

$

1,158,198

 

 

$

133,391

 

 

$

1,291,704

 

Net increase (decrease) in net assets resulting from operations

 

 

 

 

 

 

 

 

 

 

 

146,894

 

 

 

146,894

 

Public offering, net of offering expenses

 

 

 

 

 

 

 

 

(198

)

 

 

 

 

 

(198

)

Issuance of common stock due to stock option exercises

 

 

263

 

 

 

 

 

 

3,633

 

 

 

 

 

 

3,633

 

Retired shares from net issuance

 

 

(62

)

 

 

 

 

 

(1,089

)

 

 

 

 

 

(1,089

)

Issuance of common stock under restricted stock plan

 

 

960

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Retired shares for restricted stock vesting

 

 

(154

)

 

 

 

 

 

(3,906

)

 

 

 

 

 

(3,906

)

Distributions reinvested in common stock

 

 

134

 

 

 

 

 

 

2,110

 

 

 

 

 

 

2,110

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

(87,953

)

 

 

(87,953

)

Stock-based compensation (1)

 

 

 

 

 

 

 

 

5,163

 

 

 

 

 

 

5,163

 

Balance as of June 30, 2021

 

 

115,867

 

 

$

116

 

 

$

1,163,910

 

 

$

192,332

 

 

$

1,356,358

 

(1)
Stock-based compensation includes $25 thousand and $50 thousand of restricted stock and option expense related to director compensation for the three and six months ended June 30, 2021, respectively.

See notes to consolidated financial statements

 

5


 

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(amounts in thousands)

For the Six Months Ended June 30,

 

 

2022

 

 

2021

 

Cash flows used in operating activities:

 

 

 

 

 

Net increase (decrease) in net assets resulting from operations

$

(13,654

)

 

$

146,894

 

Adjustments to reconcile net increase in net assets resulting from
operations to net cash provided by (used in) operating activities:

 

 

 

 

 

Purchases of investments

 

(790,706

)

 

 

(629,146

)

Fundings assigned to Adviser Funds

 

189,806

 

 

 

75,286

 

Principal and fee repayments received and proceeds from the sale of debt investments

 

237,178

 

 

 

394,801

 

Proceeds from the sale of equity investments

 

7,749

 

 

 

70,596

 

Net unrealized (appreciation) depreciation

 

85,058

 

 

 

(81,882

)

Net realized (gain) loss on investments

 

828

 

 

 

6,512

 

Accretion of paid-in-kind principal

 

(9,943

)

 

 

(4,990

)

Accretion of loan discounts

 

(1,982

)

 

 

(1,789

)

Accretion of loan discount on convertible notes

 

112

 

 

 

336

 

Accretion of loan exit fees

 

(12,057

)

 

 

(11,372

)

Change in loan income, net of collections

 

7,119

 

 

 

14,846

 

Unearned fees related to unfunded commitments

 

1,819

 

 

 

(2,503

)

Realized loss on debt extinguishment

 

364

 

 

 

 

Amortization of debt issuance costs

 

2,570

 

 

 

3,840

 

Depreciation and amortization

 

110

 

 

 

187

 

Stock-based compensation and amortization of restricted stock grants (1)

 

5,838

 

 

 

5,163

 

Change in operating assets and liabilities:

 

 

 

 

 

Interest receivable

 

(4,768

)

 

 

14

 

Other assets

 

482

 

 

 

1,978

 

Accrued liabilities

 

(12,630

)

 

 

(956

)

Net cash provided by (used in) operating activities

 

(306,707

)

 

 

(12,185

)

 

 

 

 

 

 

Cash flows used in investing activities:

 

 

 

 

 

Purchases of capital equipment

 

(74

)

 

 

(12

)

Net cash used in investing activities

 

(74

)

 

 

(12

)

 

 

 

 

 

 

Cash flows provided by (used in) financing activities:

 

 

 

 

 

Issuance of common stock

 

148,721

 

 

 

 

Offering expenses

 

(1,617

)

 

 

(198

)

Retirement of employee shares, net

 

(4,166

)

 

 

(1,362

)

Distributions paid

 

(115,929

)

 

 

(85,843

)

Issuance of debt

 

1,124,237

 

 

 

590,495

 

Repayment of debt

 

(854,374

)

 

 

(700,658

)

Debt issuance costs

 

(6,076

)

 

 

(553

)

Fees paid for credit facilities and debentures

 

(1,600

)

 

 

(3,093

)

Net cash provided by (used in) financing activities

 

289,196

 

 

 

(201,212

)

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

(17,585

)

 

 

(213,409

)

Cash, cash equivalents, and restricted cash at beginning of period

 

136,265

 

 

 

237,622

 

Cash, cash equivalents, and restricted cash at end of period

$

118,680

 

 

$

24,213

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information and non-cash investing and financing activities:

 

Interest paid

$

22,642

 

 

$

28,711

 

Income tax, including excise tax, paid

$

7,281

 

 

$

3,624

 

Distributions reinvested

$

1,946

 

 

$

2,110

 

(1)
Stock-based compensation includes $76 thousand and $50 thousand of restricted stock and option expense related to director compensation for the six months ended June 30, 2022 and 2021, respectively.

The following table presents a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Statements of Assets and Liabilities that sum to the total of the same such amounts in the Consolidated Statements of Cash Flows:

 

For the Six Months Ended June 30,

 

(Dollars in thousands)

2022

 

 

2021

 

Cash and cash equivalents

$

115,309

 

 

$

18,447

 

Restricted cash

 

3,371

 

 

 

5,766

 

Total cash, cash equivalents, and restricted cash presented in the Consolidated Statements of Cash Flows

$

118,680

 

 

$

24,213

 

See “Note 2 – Summary of Significant Accounting Policies” for a description of restricted cash and cash equivalents.

See notes to consolidated financial statements

 

6


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2022 (unaudited)

(dollars in thousands)

 

Portfolio Company

 

Type of
Investment

Maturity Date

Interest Rate and Floor (1)

 

Principal
Amount

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Debt Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Communications & Networking

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aryaka Networks, Inc.

 

Senior Secured

July 2026

PRIME + 3.25% or Floor rate of 6.75%, PIK Interest 1.05%, 3.55% Exit Fee

 

$

5,000

 

 

$

4,921

 

 

$

4,921

 

 

(17)(19)

Cytracom Holdings LLC

 

Senior Secured

February 2025

3-month LIBOR + 9.31% or Floor rate of 10.31%

 

$

8,955

 

 

 

8,784

 

 

 

8,732

 

 

(11)(17)(18)

Rocket Lab Global Services, LLC

 

Senior Secured

June 2024

PRIME + 4.90% or Floor rate of 8.15%, PIK Interest 1.25%, 3.40% Exit Fee

 

$

84,046

 

 

 

84,334

 

 

 

86,602

 

 

(13)(14)(16)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

98,039

 

 

 

100,255

 

 

 

Subtotal: Communications & Networking (7.55%)*

 

 

 

 

 

 

98,039

 

 

 

100,255

 

 

 

Consumer & Business Products

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grove Collaborative, Inc.

 

Senior Secured

April 2025

PRIME + 5.50% or Floor rate of 8.75%, 8.75% Exit Fee

 

$

23,520

 

 

 

23,515

 

 

 

23,897

 

 

(19)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

23,515

 

 

 

23,897

 

 

 

Subtotal: Consumer & Business Products (1.80%)*

 

 

 

 

 

 

23,515

 

 

 

23,897

 

 

 

Diversified Financial Services

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gibraltar Business Capital, LLC

 

Unsecured

September 2026

Interest rate FIXED 14.50%

 

$

15,000

 

 

 

14,687

 

 

 

13,434

 

 

(7)

 

 

Unsecured

September 2026

FIXED 11.50%

 

$

10,000

 

 

 

9,837

 

 

 

9,241

 

 

(7)

Total Gibraltar Business Capital, LLC

 

 

 

 

 

$

25,000

 

 

 

24,524

 

 

 

22,675

 

 

 

Hercules Adviser LLC

 

Unsecured

June 2025

FIXED 5.00%

 

$

12,000

 

 

 

12,000

 

 

 

12,000

 

 

(7)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

36,524

 

 

 

34,675

 

 

 

Subtotal: Diversified Financial Services (2.61%)*

 

 

 

 

 

 

36,524

 

 

 

34,675

 

 

 

Drug Discovery & Development

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chemocentryx, Inc.

 

Senior Secured

December 2022

PRIME + 3.30% or Floor rate of 8.05%, 6.25% Exit Fee

 

$

18,951

 

 

 

20,132

 

 

 

20,132

 

 

(10)(13)

Nabriva Therapeutics

 

Senior Secured

June 2023

PRIME + 4.30% or Floor rate of 9.80%, 9.95% Exit Fee

 

$

4,051

 

 

 

4,636

 

 

 

4,636

 

 

(5)(10)(13)

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

24,768

 

 

 

24,768

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Akero Therapeutics, Inc.

 

Senior Secured

January 2027

PRIME + 3.65% or Floor rate of 7.65%, 5.85% Exit Fee

 

$

5,000

 

 

 

4,946

 

 

 

4,946

 

 

(10)(17)

Albireo Pharma, Inc.

 

Senior Secured

July 2024

PRIME + 5.90% or Floor rate of 9.15%, 6.95% Exit Fee

 

$

10,000

 

 

 

10,325

 

 

 

10,342

 

 

(10)(11)

Aldeyra Therapeutics, Inc.

 

Senior Secured

October 2023

PRIME + 3.10% or Floor rate of 8.60%, 6.95% Exit Fee

 

$

15,000

 

 

 

15,755

 

 

 

15,629

 

 

(11)

Applied Genetic Technologies Corporation

 

Senior Secured

April 2024

PRIME + 6.50% or Floor rate of 9.75%, 6.95% Exit Fee

 

$

17,824

 

 

 

18,531

 

 

 

18,358

 

 

(13)

Aveo Pharmaceuticals, Inc.

 

Senior Secured

September 2024

PRIME + 6.40% or Floor rate of 9.65%, 6.95% Exit Fee

 

$

40,000

 

 

 

41,235

 

 

 

41,013

 

 

(11)(15)

Axsome Therapeutics, Inc.

 

Senior Secured

October 2026

PRIME + 5.70% or Floor rate of 8.95%, 5.31% Exit Fee

 

$

81,725

 

 

 

81,147

 

 

 

80,292

 

 

(10)(12)(16)

Bicycle Therapeutics PLC

 

Senior Secured

October 2024

PRIME + 5.60% or Floor rate of 8.85%, 5.00% Exit Fee

 

$

11,500

 

 

 

11,685

 

 

 

11,671

 

 

(5)(10)(11)(12)

BiomX, INC

 

Senior Secured

September 2025

PRIME + 5.70% or Floor rate of 8.95%, 6.55% Exit Fee

 

$

9,000

 

 

 

9,076

 

 

 

8,932

 

 

(5)(10)(11)

BridgeBio Pharma, Inc.

 

Senior Secured

November 2026

FIXED 9.00%, 2.00% Exit Fee

 

$

36,733

 

 

 

36,352

 

 

 

34,542

 

 

(13)(14)

Cellarity, Inc.

 

Senior Secured

June 2026

PRIME + 5.70% or Floor rate of 8.95%, 3.75% Exit Fee

 

$

30,000

 

 

 

29,628

 

 

 

29,469

 

 

(13)(15)

Century Therapeutics, Inc.

 

Senior Secured

April 2024

PRIME + 6.30% or Floor rate of 9.55%, 3.95% Exit Fee

 

$

10,000

 

 

 

10,158

 

 

 

10,199

 

 

(11)

Chemocentryx, Inc.

 

Senior Secured

February 2025

PRIME + 3.25% or Floor rate of 8.50%, 7.15% Exit Fee

 

$

5,000

 

 

 

5,196

 

 

 

5,039

 

 

(10)(13)

Codiak Biosciences, Inc.

 

Senior Secured

October 2025

PRIME + 5.00% or Floor rate of 8.25%, 5.50% Exit Fee

 

$

25,000

 

 

 

25,605

 

 

 

24,880

 

 

(11)

 

See notes to consolidated financial statements

 

7


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2022 (unaudited)

(dollars in thousands)

 

Portfolio Company

 

Type of
Investment

Maturity Date

Interest Rate and Floor (1)

 

Principal
Amount

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Corium, Inc.

 

Senior Secured

September 2026

PRIME + 5.70% or Floor rate of 8.95%, 7.75% Exit Fee

 

$

132,675

 

 

$

132,588

 

 

$

134,641

 

 

(13)(16)

Eloxx Pharmaceuticals, Inc.

 

Senior Secured

April 2025

PRIME + 6.25% or Floor rate of 9.50%, 6.55% Exit Fee

 

$

12,500

 

 

 

12,595

 

 

 

12,355

 

 

(15)

enGene, Inc.

 

Senior Secured

July 2025

PRIME + 5.00% or Floor rate of 8.25%, 6.35% Exit Fee

 

$

11,000

 

 

 

10,913

 

 

 

10,859

 

 

(5)(10)(13)

Finch Therapeutics Group, Inc.

 

Senior Secured

November 2026

PRIME + 4.05% or Floor rate of 7.55%, 5.50% Exit Fee

 

$

15,000

 

 

 

14,905

 

 

 

14,905

 

 

(17)

G1 Therapeutics, Inc.

 

Senior Secured

November 2026

PRIME + 5.90% or Floor rate of 9.15%, 9.86% Exit Fee

 

$

58,125

 

 

 

58,271

 

 

 

58,517

 

 

(11)(12)(15)(17)

Geron Corporation

 

Senior Secured

October 2024

PRIME + 5.75% or Floor rate of 9.00%, 6.55% Exit Fee

 

$

18,500

 

 

 

18,894

 

 

 

18,896

 

 

(10)(12)(13)

Hibercell, Inc.

 

Senior Secured

May 2025

PRIME + 5.40% or Floor rate of 8.65%, 4.95% Exit Fee

 

$

17,000

 

 

 

17,175

 

 

 

17,067

 

 

(13)(15)

HilleVax, Inc.

 

Senior Secured

May 2027

PRIME + 1.05% or Floor rate of 4.55%, PIK Interest 2.85%, 7.15% Exit Fee

 

$

4,014

 

 

 

4,001

 

 

 

4,001

 

 

(14)(15)(17)

Humanigen, Inc.

 

Senior Secured

March 2025

PRIME + 5.50% or Floor rate of 8.75%, 6.75% Exit Fee

 

$

20,000

 

 

 

20,433

 

 

 

19,989

 

 

(9)(10)

Kaleido Biosciences, Inc.

 

Senior Secured

January 2024

PRIME + 6.10% or Floor rate of 9.35%, 7.55% Exit Fee

 

$

5,296

 

 

 

6,458

 

 

 

1,838

 

 

(8)

Locus Biosciences, Inc.

 

Senior Secured

July 2025

PRIME + 6.10% or Floor rate of 9.35%, 4.95% Exit Fee

 

$

8,000

 

 

 

8,047

 

 

 

7,979

 

 

(15)

Madrigal Pharmaceutical, Inc.

 

Senior Secured

May 2026

PRIME + 3.95% or Floor rate of 7.45%, 5.35% Exit Fee

 

$

34,000

 

 

 

33,668

 

 

 

33,668

 

 

(10)

Phathom Pharmaceuticals, Inc.

 

Senior Secured

October 2026

PRIME + 2.25% or Floor rate of 5.50%, PIK Interest 3.35%, 7.50% Exit Fee

 

$

93,217

 

 

 

92,866

 

 

 

91,496

 

 

(10)(12)(14)(15)(16)(17)(22)

Redshift Bioanalytics, Inc.

 

Senior Secured

April 2025

PRIME + 4.25% or Floor rate of 7.50%, 3.80% Exit Fee

 

$

1,500

 

 

 

1,480

 

 

 

1,480

 

 

(15)(17)

Scynexis, Inc.

 

Senior Secured

March 2025

PRIME + 5.80% or Floor rate of 9.05%, 3.95% Exit Fee

 

$

18,667

 

 

 

18,512

 

 

 

18,353

 

 

(12)(13)

Seres Therapeutics, Inc.

 

Senior Secured

October 2024

PRIME + 6.40% or Floor rate of 9.65%, 4.98% Exit Fee

 

$

37,500

 

 

 

38,383

 

 

 

38,476

 

 

(12)(13)

Syndax Pharmaceutics Inc.

 

Senior Secured

April 2024

PRIME + 6.00% or Floor rate of 9.25%, 4.99% Exit Fee

 

$

20,000

 

 

 

20,745

 

 

 

20,782

 

 

(12)(17)

Tarsus Pharmaceuticals, Inc.

 

Senior Secured

February 2027

PRIME + 5.20% or Floor rate of 8.45%, 4.75% Exit Fee

 

$

8,250

 

 

 

8,237

 

 

 

8,237

 

 

(10)(13)(17)

TG Therapeutics, Inc.

 

Senior Secured

January 2026

PRIME + 2.15% or Floor rate of 5.40%, PIK Interest 3.45%, 5.95% Exit Fee

 

$

47,150

 

 

 

46,650

 

 

 

46,326

 

 

(10)(12)(14)

uniQure B.V.

 

Senior Secured

December 2025

PRIME + 4.70% or Floor rate of 7.95%, 7.28% Exit Fee

 

$

70,000

 

 

 

71,697

 

 

 

72,721

 

 

(5)(10)(11)(12)(16)

Unity Biotechnology, Inc.

 

Senior Secured

August 2024

PRIME + 6.10% or Floor rate of 9.35%, 6.25% Exit Fee

 

$

20,000

 

 

 

20,897

 

 

 

20,889

 

 

(13)

Valo Health, LLC

 

Senior Secured

May 2024

PRIME + 6.45% or Floor rate of 9.70%, 3.85% Exit Fee

 

$

11,021

 

 

 

11,187

 

 

 

11,122

 

 

(11)(13)

Viridian Therapeutics, Inc.

 

Senior Secured

October 2026

PRIME + 4.20% or Floor rate of 7.45%, 4.76% Exit Fee

 

$

2,000

 

 

 

1,997

 

 

 

1,997

 

 

(10)(13)(17)

X4 Pharmaceuticals, Inc.

 

Senior Secured

July 2024

PRIME + 3.75% or Floor rate of 8.75%, 8.80% Exit Fee

 

$

32,500

 

 

 

33,240

 

 

 

32,991

 

 

(11)(12)(13)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

1,003,478

 

 

 

994,897

 

 

 

Subtotal: Drug Discovery & Development (76.80%)*

 

 

 

 

 

 

1,028,246

 

 

 

1,019,665

 

 

 

Healthcare Services, Other

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Better Therapeutics, Inc.

 

Senior Secured

August 2025

PRIME + 5.70% or Floor rate of 8.95%, 5.95% Exit Fee

 

$

12,000

 

 

 

12,024

 

 

 

11,938

 

 

(15)

Blue Sprig Pediatrics, Inc.

 

Senior Secured

November 2026

1-month LIBOR + 5.00% or Floor rate of 6.00%, PIK Interest 4.45%

 

$

25,590

 

 

 

25,249

 

 

 

24,805

 

 

(13)(14)(17)

Carbon Health Technologies, Inc.

 

Senior Secured

March 2025

PRIME + 5.60% or Floor rate of 8.85%, 4.61% Exit Fee

 

$

46,125

 

 

 

46,219

 

 

 

45,378

 

 

(12)(17)(19)

Equality Health, LLC

 

Senior Secured

February 2026

PRIME + 6.25% or Floor rate of 9.50%, PIK Interest 1.55%

 

$

44,473

 

 

 

44,076

 

 

 

43,978

 

 

(12)(14)(17)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

127,568

 

 

 

126,099

 

 

 

Subtotal: Healthcare Services, Other (9.50%)*

 

 

 

 

 

 

127,568

 

 

 

126,099

 

 

 

 

See notes to consolidated financial statements

 

8


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2022 (unaudited)

(dollars in thousands)

 

Portfolio Company

 

Type of
Investment

Maturity Date

Interest Rate and Floor (1)

 

Principal
Amount

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Information Services

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capella Space Corp.

 

Senior Secured

November 2024

PRIME + 5.00% or Floor rate of 8.25%, PIK Interest 1.10%, 7.00% Exit Fee

 

$

20,137

 

 

$

20,079

 

 

$

19,870

 

 

(14)(15)(19)

Signal Media Limited

 

Senior Secured

June 2025

PRIME + 5.50% or Floor rate of 9.00%, 3.45% Exit Fee

 

$

750

 

 

 

736

 

 

 

736

 

 

(5)(10)(17)

Yipit, LLC

 

Senior Secured

September 2026

1-month LIBOR + 9.08% or Floor rate of 10.08%

 

$

31,875

 

 

 

31,318

 

 

 

30,575

 

 

(17)(18)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

52,133

 

 

 

51,181

 

 

 

Subtotal: Information Services (3.85%)*

 

 

 

 

 

 

52,133

 

 

 

51,181

 

 

 

Internet Consumer & Business Services

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SeatGeek, Inc.

 

Senior Secured

June 2023

PRIME + 5.00% or Floor rate of 10.50%, PIK Interest 0.50%

 

$

60,761

 

 

 

60,343

 

 

 

60,343

 

 

(12)(13)(14)(16)

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

60,343

 

 

 

60,343

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AppDirect, Inc.

 

Senior Secured

April 2026

PRIME + 5.50% or Floor rate of 8.75%, 9.70% Exit Fee

 

$

30,790

 

 

 

31,589

 

 

 

31,560

 

 

(12)(17)

Carwow LTD

 

Senior Secured

December 2024

PRIME + 4.70% or Floor rate of 7.95%, PIK Interest 1.45%, 4.95% Exit Fee

 

£

18,728

 

 

 

25,671

 

 

 

22,672

 

 

(5)(10)(14)

Convoy, Inc.

 

Senior Secured

March 2026

PRIME + 3.20% or Floor rate of 6.45%, PIK Interest 1.95%, 4.55% Exit Fee

 

$

73,258

 

 

 

71,826

 

 

 

71,826

 

 

(14)(16)(19)

Jobandtalent USA, Inc.

 

Senior Secured

February 2025

1-month SOFR + 8.75% or Floor rate of 9.75%, 3.00% Exit Fee

 

$

14,000

 

 

 

13,746

 

 

 

13,746

 

 

(5)(10)

Nextroll, Inc.

 

Senior Secured

July 2023

PRIME + 3.75% or Floor rate of 7.75%, PIK Interest 2.95%, 1.95% Exit Fee

 

$

21,933

 

 

 

21,933

 

 

 

21,933

 

 

(12)(19)

Rhino Labs, Inc.

 

Senior Secured

March 2024

PRIME + 5.50% or Floor rate of 8.75%, PIK Interest 2.25%

 

$

16,313

 

 

 

16,034

 

 

 

16,131

 

 

(14)(15)

RVShare, LLC

 

Senior Secured

December 2026

1-month LIBOR + 5.50% or Floor rate of 6.50%, PIK Interest 4.00%

 

$

18,302

 

 

 

17,973

 

 

 

17,771

 

 

(13)(14)(15)(17)

SeatGeek, Inc.

 

Senior Secured

May 2026

PRIME + 7.00% or Floor rate of 9.75%, PIK Interest 0.50%

 

$

25,009

 

 

 

24,827

 

 

 

25,183

 

 

(12)(13)(14)(16)

Skyword, Inc.

 

Senior Secured

September 2024

PRIME + 3.88% or Floor rate of 9.38%, PIK Interest 1.90%, 4.00% Exit Fee

 

$

12,546

 

 

 

12,836

 

 

 

12,693

 

 

(14)

Tectura Corporation

 

Senior Secured

July 2024

PIK Interest 5.00%

 

$

10,680

 

 

 

240

 

 

 

 

 

(7)(8)(14)

 

 

Senior Secured

July 2024

FIXED 8.25%

 

$

8,250

 

 

 

8,250

 

 

 

8,208

 

 

(7)

 

 

Senior Secured

July 2024

PIK Interest 5.00%

 

$

13,023

 

 

 

13,023

 

 

 

 

 

(7)(8)(14)

Total Tectura Corporation

 

 

 

 

 

$

31,953

 

 

 

21,513

 

 

 

8,208

 

 

 

Thumbtack, Inc.

 

Senior Secured

April 2026

PRIME + 4.95% or Floor rate of 8.20%, PIK Interest 1.50%, 3.95% Exit Fee

 

$

10,027

 

 

 

9,921

 

 

 

9,921

 

 

(12)(14)(17)

Veem, Inc.

 

Senior Secured

March 2025

PRIME + 4.00% or Floor rate of 7.25%, PIK Interest 1.25%, 4.50% Exit Fee

 

$

5,011

 

 

 

4,917

 

 

 

4,917

 

 

(13)(14)

 

 

Senior Secured

March 2025

PRIME + 4.50% or Floor rate of 7.95%, PIK Interest 1.50%, 4.50% Exit Fee

 

$

5,000

 

 

 

4,883

 

 

 

4,883

 

 

 

Total Veem, Inc.

 

 

 

 

 

$

10,011

 

 

 

9,800

 

 

 

9,800

 

 

 

Worldremit Group Limited

 

Senior Secured

February 2025

3-month LIBOR + 9.25% or Floor rate of 10.25%, 3.00% Exit Fee

 

$

94,500

 

 

 

93,829

 

 

 

92,081

 

 

(5)(10)(12)(16)(19)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

371,498

 

 

 

353,525

 

 

 

Greater than 5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Houzz, Inc.

 

Convertible Debt

May 2028

PIK Interest 5.50%

 

$

21,252

 

 

 

21,252

 

 

 

19,552

 

 

(9)(14)

Subtotal: Greater than 5 Years Maturity

 

 

 

 

 

 

21,252

 

 

 

19,552

 

 

 

Subtotal: Internet Consumer & Business Services (32.64%)*

 

 

 

 

 

 

453,093

 

 

 

433,420

 

 

 

Manufacturing Technology

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bright Machines, Inc.

 

Senior Secured

November 2022

PRIME + 5.70% or Floor rate of 8.95%, 6.95% Exit Fee

 

$

15,000

 

 

 

15,509

 

 

 

15,509

 

 

(11)(19)

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

15,509

 

 

 

15,509

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MacroFab, Inc.

 

Senior Secured

March 2026

PRIME + 4.35% or Floor rate of 7.60%, PIK Interest 1.25%, 4.50% Exit Fee

 

$

17,029

 

 

 

16,470

 

 

 

16,487

 

 

(12)(14)

Ouster, Inc.

 

Senior Secured

May 2026

PRIME + 6.15% or Floor rate of 9.40%, 7.45% Exit Fee

 

$

7,000

 

 

 

6,948

 

 

 

6,948

 

 

(10)(13)(17)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

23,418

 

 

 

23,435

 

 

 

Subtotal: Manufacturing Technology (2.93%)*

 

 

 

 

 

 

38,927

 

 

 

38,944

 

 

 

 

 

See notes to consolidated financial statements

 

9


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2022 (unaudited)

(dollars in thousands)

 

Portfolio Company

 

Type of
Investment

Maturity Date

Interest Rate and Floor (1)

 

Principal
Amount

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Medical Devices & Equipment

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lucira Health, Inc.

 

Senior Secured

February 2026

PRIME + 5.50% or Floor rate of 8.75%, 5.25% Exit Fee

 

$

15,000

 

 

$

14,865

 

 

$

14,865

 

 

(13)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

14,865

 

 

 

14,865

 

 

 

Subtotal: Medical Devices & Equipment (1.12%)*

 

 

 

 

 

 

14,865

 

 

 

14,865

 

 

 

Semiconductors

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fungible, Inc.

 

Senior Secured

December 2024

PRIME + 5.00% or Floor rate of 8.25%, 4.95% Exit Fee

 

$

20,000

 

 

 

19,348

 

 

 

19,363

 

 

(15)(19)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

19,348

 

 

 

19,363

 

 

 

Subtotal: Semiconductors (1.46%)*

 

 

 

 

 

 

19,348

 

 

 

19,363

 

 

 

Software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Delphix Corp.

 

Senior Secured

February 2023

PRIME + 5.50% or Floor rate of 10.25%, 7.00% Exit Fee

 

$

60,000

 

 

 

62,749

 

 

 

64,200

 

 

(12)(16)(19)

Khoros (p.k.a Lithium Technologies)

 

Senior Secured

October 2022

6-month LIBOR + 8.00% or Floor rate of 9.00%

 

$

56,208

 

 

 

56,076

 

 

 

56,076

 

 

(17)

Pymetrics, Inc.

 

Senior Secured

October 2022

Interest Rate PRIME + 5.50% or Floor rate of 8.75%, PIK Interest 1.75%, 4.00% Exit Fee

 

$

9,191

 

 

 

9,518

 

 

 

9,518

 

 

(14)

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

128,343

 

 

 

129,794

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3GTMS, LLC

 

Senior Secured

February 2025

3-month LIBOR + 9.28% or Floor rate of 10.28%

 

$

10,833

 

 

 

10,671

 

 

 

10,567

 

 

(17)(18)

Agilence, Inc.

 

Senior Secured

October 2026

1-month LIBOR + 9.00% or Floor rate of 10.00%

 

$

9,353

 

 

 

9,112

 

 

 

8,914

 

 

(12)(17)

Annex Cloud

 

Senior Secured

February 2027

BSBY + 9.00% or Floor rate of 10.00%

 

$

8,500

 

 

 

8,272

 

 

 

8,272

 

 

(13)(17)

Brain Corporation

 

Senior Secured

April 2025

PRIME + 3.70% or Floor rate of 6.95%, PIK Interest 1.00%, 3.95% Exit Fee

 

$

15,078

 

 

 

15,052

 

 

 

14,981

 

 

(13)(14)(15)(17)

Campaign Monitor Limited

 

Senior Secured

November 2025

3-month LIBOR + 8.90% or Floor rate of 9.90%

 

$

33,000

 

 

 

32,518

 

 

 

33,000

 

 

(13)(19)

Catchpoint Systems, Inc.

 

Senior Secured

June 2026

1-month SOFR + 8.75% or Floor rate of 9.75%

 

$

10,200

 

 

 

10,025

 

 

 

10,025

 

 

(17)(18)

Ceros, Inc.

 

Senior Secured

September 2026

6-month LIBOR + 8.89% or Floor rate of 9.89%

 

$

17,978

 

 

 

17,518

 

 

 

17,146

 

 

(17)(18)

CloudBolt Software, Inc.

 

Senior Secured

October 2024

PRIME + 6.70% or Floor rate of 9.95%, 3.45% Exit Fee

 

$

10,000

 

 

 

9,961

 

 

 

9,938

 

 

(11)(12)(19)

Copper CRM, Inc

 

Senior Secured

March 2025

PRIME + 4.50% or Floor rate of 8.25%, PIK Interest 1.95%, 4.50% Exit Fee

 

$

10,044

 

 

 

9,967

 

 

 

9,846

 

 

(13)(14)

Cybermaxx Intermediate Holdings, Inc.

 

Senior Secured

August 2026

6-month LIBOR + 9.28% or Floor rate of 10.28%

 

$

8,000

 

 

 

7,819

 

 

 

7,951

 

 

(13)(17)

Dashlane, Inc.

 

Senior Secured

July 2025

PRIME + 3.05% or Floor rate of 7.55%, PIK Interest 1.10%, 4.95% Exit Fee

 

$

31,761

 

 

 

32,041

 

 

 

31,972

 

 

(11)(13)(14)(17)(19)

Demandbase, Inc.

 

Senior Secured

August 2025

PRIME + 2.25% or Floor rate of 5.50%, PIK Interest 3.00%, 3.51% Exit Fee

 

$

28,125

 

 

 

27,707

 

 

 

27,595

 

 

(13)(17)(19)

Eigen Technologies Ltd.

 

Senior Secured

April 2025

PRIME + 5.10% or Floor rate of 8.35%, 2.95% Exit Fee

 

$

1,800

 

 

 

1,789

 

 

 

1,789

 

 

(5)(10)(13)(17)

Enmark Systems, Inc.

 

Senior Secured

September 2026

6-month LIBOR + 6.83% or Floor rate of 7.83%, PIK Interest 2.19%

 

$

8,088

 

 

 

7,902

 

 

 

7,836

 

 

(11)(14)(17)(18)

Esentire, Inc.

 

Senior Secured

May 2024

3-month LIBOR + 9.96% or Floor rate of 10.96%

 

$

8,500

 

 

 

8,400

 

 

 

8,386

 

 

(5)(10)(11)(18)

Esme Learning Solutions, Inc.

 

Senior Secured

February 2025

PRIME + 5.50% or Floor rate of 8.75%, PIK Interest 1.50%, 3.00% Exit Fee

 

$

5,026

 

 

 

4,832

 

 

 

4,768

 

 

(14)

Gryphon Networks Corp.

 

Senior Secured

January 2026

3-month LIBOR + 9.69% or Floor rate of 10.69%

 

$

5,232

 

 

 

5,118

 

 

 

5,030

 

 

(11)(17)

Ikon Science Limited

 

Senior Secured

October 2024

3-month LIBOR + 9.00% or Floor rate of 10.00%

 

$

6,738

 

 

 

6,577

 

 

 

6,594

 

 

(5)(10)(17)(18)

 

See notes to consolidated financial statements

 

10


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2022 (unaudited)

(dollars in thousands)

 

Portfolio Company

 

Type of
Investment

Maturity Date

Interest Rate and Floor (1)

 

Principal
Amount

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Imperva, Inc.

 

Senior Secured

January 2027

3-month LIBOR + 7.75% or Floor rate of 8.75%

 

$

20,000

 

 

$

19,863

 

 

$

19,482

 

 

(19)

Kazoo, Inc. (p.k.a. YouEarnedIt, Inc.)

 

Senior Secured

July 2023

3-month SOFR + 10.15% or Floor rate of 11.15%

 

$

10,888

 

 

 

10,719

 

 

 

10,698

 

 

(18)

Logicworks

 

Senior Secured

January 2024

PRIME + 7.50% or Floor rate of 10.75%

 

$

14,500

 

 

 

14,348

 

 

 

14,330

 

 

(12)

Mixpanel, Inc.

 

Senior Secured

August 2024

PRIME + 4.70% or Floor rate of 7.95%, PIK Interest 1.80%, 3.00% Exit Fee

 

$

20,618

 

 

 

20,598

 

 

 

21,394

 

 

(12)(14)(19)

Mobile Solutions Services

 

Senior Secured

December 2025

6-month LIBOR + 9.87% or Floor rate of 10.87%

 

$

5,500

 

 

 

5,367

 

 

 

5,342

 

 

(17)(18)

 

 

Senior Secured

December 2025

6-month LIBOR + 9.06% or Floor rate of 10.06%

 

$

12,168

 

 

 

11,892

 

 

 

11,803

 

 

(17)(18)

Total Mobile Solutions Services

 

 

 

 

 

$

17,668

 

 

 

17,259

 

 

 

17,145

 

 

 

Nuvolo Technologies Corporation

 

Senior Secured

July 2025

PRIME + 5.25% or Floor rate of 8.25%, 2.04% Exit Fee

 

$

17,500

 

 

 

17,489

 

 

 

17,504

 

 

(12)(13)(17)(19)

Pollen, Inc.

 

Senior Secured

November 2023

PRIME + 4.75% or Floor rate of 8.00%, PIK Interest 0.50%, 4.50% Exit Fee

 

$

7,476

 

 

 

7,613

 

 

 

7,489

 

 

(14)

 

 

Senior Secured

November 2023

PRIME + 5.25% or Floor rate of 8.50%, PIK Interest 1.35%, 4.50% Exit Fee

 

$

13,130

 

 

 

13,247

 

 

 

13,380

 

 

(14)(15)

Total Pollen, Inc.

 

 

 

 

 

$

20,606

 

 

 

20,860

 

 

 

20,869

 

 

 

Riviera Partners LLC

 

Senior Secured

April 2027

3-month SOFR + 7.53% or Floor rate of 8.53%

 

$

26,250

 

 

 

25,635

 

 

 

25,635

 

 

(17)(18)

ShadowDragon, LLC

 

Senior Secured

December 2026

3-month LIBOR + 9.00% or Floor rate of 10.00%

 

$

6,000

 

 

 

5,842

 

 

 

5,780

 

 

(17)(18)

Tact.ai Technologies, Inc.

 

Senior Secured

February 2024

PRIME + 4.00% or Floor rate of 8.75%, PIK Interest 2.00%, 5.50% Exit Fee

 

$

5,238

 

 

 

5,414

 

 

 

5,314

 

 

(14)

ThreatConnect, Inc.

 

Senior Secured

May 2026

3-month LIBOR + 9.00% or Floor rate of 10.00%

 

$

11,088

 

 

 

10,803

 

 

 

10,755

 

 

(12)(17)(18)

Udacity, Inc.

 

Senior Secured

September 2024

PRIME + 4.50% or Floor rate of 7.75%, PIK Interest 2.00%, 3.00% Exit Fee

 

$

51,412

 

 

 

51,440

 

 

 

52,103

 

 

(12)(14)

VideoAmp, Inc.

 

Senior Secured

February 2025

PRIME + 3.70% or Floor rate of 6.95%, PIK Interest 1.25%, 5.25% Exit Fee

 

$

62,787

 

 

 

61,482

 

 

 

61,482

 

 

(13)(14)(15)(19)

Zimperium, Inc.

 

Senior Secured

May 2027

3-month SOFR + 8.95% or Floor rate of 9.95%

 

$

16,313

 

 

 

15,960

 

 

 

15,960

 

 

(17)(18)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

522,993

 

 

 

523,061

 

 

 

Greater than 5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alchemer LLC

 

Senior Secured

May 2028

3-month SOFR + 7.89% or Floor rate of 8.89%

 

$

15,125

 

 

 

14,767

 

 

 

14,767

 

 

(17)(18)

Dispatch Technologies, Inc.

 

Senior Secured

April 2028

3-month SOFR + 8.01% or Floor rate of 8.76%

 

$

7,500

 

 

 

7,281

 

 

 

7,281

 

 

(17)(18)

Subtotal: Greater than 5 Years Maturity

 

 

 

 

 

 

22,048

 

 

 

22,048

 

 

 

Subtotal: Software (50.83%)*

 

 

 

 

 

 

673,384

 

 

 

674,903

 

 

 

Sustainable and Renewable Technology

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impossible Foods, Inc.

 

Senior Secured

July 2022

PRIME + 3.95% or Floor rate of 8.95%, 9.00% Exit Fee

 

$

2,265

 

 

 

6,764

 

 

 

6,764

 

 

(12)

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

6,764

 

 

 

6,764

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ampion, PBC.

 

Senior Secured

May 2025

PRIME + 4.70% or Floor rate of 7.95%, PIK Interest 1.45%, 3.95% Exit Fee

 

$

4,008

 

 

 

3,919

 

 

 

3,895

 

 

(13)(14)

Pineapple Energy LLC

 

Senior Secured

December 2024

PIK Interest 10.00%

 

$

3,078

 

 

 

3,078

 

 

 

2,940

 

 

(6)(14)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

6,997

 

 

 

6,835

 

 

 

Subtotal: Sustainable and Renewable Technology (1.02%)*

 

 

 

 

 

 

13,761

 

 

 

13,599

 

 

 

Total: Debt Investments (192.12%)*

 

 

 

 

 

$

2,579,403

 

 

$

2,550,866

 

 

 

 

See notes to consolidated financial statements

 

11


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2022 (unaudited)

(dollars in thousands)

Portfolio Company

 

Type of
Investment

Acquisition Date (4)

Series (3)

 

Shares

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Equity Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Communications & Networking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Peerless Network Holdings, Inc.

 

Equity

10/21/2020

Common Stock

 

 

3,328

 

 

$

 

 

$

18

 

 

 

 

 

Equity

4/11/2008

Preferred Series A

 

 

1,135,000

 

 

 

1,230

 

 

 

6,233

 

 

 

Total Peerless Network Holdings, Inc.

 

 

 

 

 

 

1,138,328

 

 

 

1,230

 

 

 

6,251

 

 

 

Subtotal: Communications & Networking (0.47%)*

 

 

 

 

 

1,230

 

 

 

6,251

 

 

 

Consumer & Business Products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grove Collaborative, Inc.

 

Equity

4/30/2021

Common Stock

 

 

61,300

 

 

 

433

 

 

 

221

 

 

(4)(20)

TechStyle, Inc.

 

Equity

4/30/2010

Common Stock

 

 

42,989

 

 

 

128

 

 

 

126

 

 

 

Subtotal: Consumer & Business Products (0.03%)*

 

 

 

 

 

561

 

 

 

347

 

 

 

Diversified Financial Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gibraltar Business Capital, LLC

 

Equity

3/1/2018

Common Stock

 

 

830,000

 

 

 

1,884

 

 

 

974

 

 

(7)

 

 

Equity

3/1/2018

Preferred Series A

 

 

10,602,752

 

 

 

26,122

 

 

 

15,415

 

 

(7)

Total Gibraltar Business Capital, LLC

 

 

 

 

 

 

11,432,752

 

 

 

28,006

 

 

 

16,389

 

 

 

Hercules Adviser LLC

 

Equity

3/26/2021

Member Units

 

 

1

 

 

 

35

 

 

 

23,181

 

 

(7)

Newfront Insurance Holdings, Inc.

 

Equity

9/30/2021

Preferred Series D-2

 

 

210,282

 

 

 

403

 

 

 

467

 

 

 

Subtotal: Diversified Financial Services (3.02%)*

 

 

 

 

 

28,444

 

 

 

40,037

 

 

 

Drug Delivery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AcelRx Pharmaceuticals, Inc.

 

Equity

12/10/2018

Common Stock

 

 

176,730

 

 

 

1,329

 

 

 

43

 

 

(4)

Aytu BioScience, Inc.

 

Equity

3/28/2014

Common Stock

 

 

13,600

 

 

 

1,500

 

 

 

10

 

 

(4)

BioQ Pharma Incorporated

 

Equity

12/8/2015

Preferred Series D

 

 

165,000

 

 

 

500

 

 

 

36

 

 

 

PDS Biotechnology Corporation

 

Equity

4/6/2015

Common Stock

 

 

2,498

 

 

 

309

 

 

 

9

 

 

(4)

Subtotal: Drug Delivery (0.01%)*

 

 

 

 

 

3,638

 

 

 

98

 

 

 

Drug Discovery & Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Albireo Pharma, Inc.

 

Equity

9/14/2020

Common Stock

 

 

25,000

 

 

 

1,000

 

 

 

497

 

 

(4)(10)

Applied Molecular Transport

 

Equity

4/6/2021

Common Stock

 

 

1,000

 

 

 

42

 

 

 

3

 

 

(4)(10)

Avalo Therapeutics, Inc.

 

Equity

8/19/2014

Common Stock

 

 

119,087

 

 

 

1,000

 

 

 

60

 

 

(4)

Aveo Pharmaceuticals, Inc.

 

Equity

7/31/2011

Common Stock

 

 

190,179

 

 

 

1,715

 

 

 

1,248

 

 

(4)

Axsome Therapeutics, Inc.

 

Equity

5/9/2022

Common Stock

 

 

127,021

 

 

 

4,165

 

 

 

3,992

 

 

(4)(10)(16)(20)

Bicycle Therapeutics PLC

 

Equity

10/5/2020

Common Stock

 

 

98,100

 

 

 

1,871

 

 

 

1,646

 

 

(4)(5)(10)

BridgeBio Pharma, Inc.

 

Equity

6/21/2018

Common Stock

 

 

231,329

 

 

 

2,255

 

 

 

2,100

 

 

(4)

Chemocentryx, Inc.

 

Equity

6/15/2020

Common Stock

 

 

17,241

 

 

 

1,000

 

 

 

427

 

 

(4)(10)

Concert Pharmaceuticals, Inc.

 

Equity

2/13/2019

Common Stock

 

 

70,796

 

 

 

1,367

 

 

 

298

 

 

(4)(10)

Dare Biosciences, Inc.

 

Equity

1/8/2015

Common Stock

 

 

13,550

 

 

 

1,000

 

 

 

17

 

 

(4)

Dynavax Technologies

 

Equity

7/22/2015

Common Stock

 

 

20,000

 

 

 

550

 

 

 

252

 

 

(4)(10)

Hibercell, Inc.

 

Equity

5/7/2021

Preferred Series B

 

 

3,466,840

 

 

 

4,250

 

 

 

3,159

 

 

(15)

HilleVax, Inc.

 

Equity

5/3/2022

Common Stock

 

 

235,295

 

 

 

4,000

 

 

 

2,572

 

 

(4)

Humanigen, Inc.

 

Equity

3/31/2021

Common Stock

 

 

43,243

 

 

 

800

 

 

 

76

 

 

(4)(10)

Kaleido Biosciences, Inc.

 

Equity

2/10/2021

Common Stock

 

 

86,585

 

 

 

1,000

 

 

 

 

 

(4)

NorthSea Therapeutics

 

Equity

12/15/2021

Preferred Series C

 

 

983

 

 

 

2,000

 

 

 

1,539

 

 

(5)(10)

Paratek Pharmaceuticals, Inc.

 

Equity

2/26/2007

Common Stock

 

 

76,362

 

 

 

2,744

 

 

 

147

 

 

(4)

Rocket Pharmaceuticals, Ltd.

 

Equity

8/22/2007

Common Stock

 

 

944

 

 

 

1,500

 

 

 

13

 

 

(4)

Savara, Inc.

 

Equity

8/11/2015

Common Stock

 

 

11,119

 

 

 

203

 

 

 

17

 

 

(4)

Sio Gene Therapies, Inc.

 

Equity

2/2/2017

Common Stock

 

 

16,228

 

 

 

1,269

 

 

 

6

 

 

(4)

Tarsus Pharmaceuticals, Inc.

 

Equity

5/5/2022

Common Stock

 

 

155,555

 

 

 

2,100

 

 

 

2,271

 

 

(4)(10)

Tricida, Inc.

 

Equity

2/28/2018

Common Stock

 

 

68,816

 

 

 

863

 

 

 

666

 

 

(4)

uniQure B.V.

 

Equity

1/31/2019

Common Stock

 

 

17,175

 

 

 

332

 

 

 

320

 

 

(4)(5)(10)(16)

Valo Health, LLC

 

Equity

12/11/2020

Preferred Series B

 

 

510,308

 

 

 

3,000

 

 

 

4,172

 

 

 

X4 Pharmaceuticals, Inc.

 

Equity

11/26/2019

Common Stock

 

 

198,277

 

 

 

1,641

 

 

 

191

 

 

(4)

Subtotal: Drug Discovery & Development (1.93%)*

 

 

 

 

 

41,667

 

 

 

25,689

 

 

 

Electronics & Computer Hardware

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Skydio, Inc.

 

Equity

3/8/2022

Preferred Series E

 

 

248,900

 

 

 

1,500

 

 

 

1,207

 

 

 

Subtotal: Electronics & Computer Hardware (0.09%)*

 

 

 

 

 

1,500

 

 

 

1,207

 

 

 

Healthcare Services, Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23andMe, Inc.

 

Equity

3/11/2019

Common Stock

 

 

825,732

 

 

 

5,094

 

 

 

2,048

 

 

(4)

Carbon Health Technologies, Inc.

 

Equity

3/30/2021

Preferred Series C

 

 

217,880

 

 

 

1,687

 

 

 

1,166

 

 

 

Subtotal: Healthcare Services, Other (0.24%)*

 

 

 

 

 

6,781

 

 

 

3,214

 

 

 

 

See notes to consolidated financial statements

 

12


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2022 (unaudited)

(dollars in thousands)

 

Portfolio Company

 

Type of
Investment

Acquisition Date (4)

Series (3)

 

Shares

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Information Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Planet Labs, Inc.

 

Equity

6/21/2019

Common Stock

 

 

547,880

 

 

$

615

 

 

$

2,373

 

 

(4)

Yipit, LLC

 

Equity

12/30/2021

Preferred Series E

 

 

41,021

 

 

 

3,825

 

 

 

2,235

 

 

 

Zeta Global Corp.

 

Equity

11/20/2007

Common Stock

 

 

295,861

 

 

 

 

 

 

1,337

 

 

(4)

Subtotal: Information Services (0.45%)*

 

 

 

 

 

4,440

 

 

 

5,945

 

 

 

Internet Consumer & Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Black Crow AI, Inc. affiliates

 

Equity

3/24/2021

Preferred Note

 

 

3

 

 

 

3,000

 

 

 

3,000

 

 

(21)

Carwow LTD

 

Equity

12/15/2021

Preferred Series D-4

 

 

199,742

 

 

 

1,151

 

 

 

395

 

 

(5)(10)

Contentful Global, Inc.

 

Equity

12/22/2020

Preferred Series C

 

 

41,000

 

 

 

138

 

 

 

282

 

 

(5)(10)

 

 

Equity

11/20/2018

Preferred Series D

 

 

108,500

 

 

 

500

 

 

 

800

 

 

(5)(10)

Total Contentful Global, Inc.

 

 

 

 

 

 

149,500

 

 

 

638

 

 

 

1,082

 

 

 

DoorDash, Inc.

 

Equity

12/20/2018

Common Stock

 

 

81,996

 

 

 

945

 

 

 

5,262

 

 

(4)

Lyft, Inc.

 

Equity

12/26/2018

Common Stock

 

 

100,738

 

 

 

5,263

 

 

 

1,338

 

 

(4)

Nerdy Inc.

 

Equity

9/17/2021

Common Stock

 

 

100,000

 

 

 

1,000

 

 

 

198

 

 

(4)(20)

Nextdoor.com, Inc.

 

Equity

8/1/2018

Common Stock

 

 

1,019,255

 

 

 

4,854

 

 

 

3,374

 

 

(4)

OfferUp, Inc.

 

Equity

10/25/2016

Preferred Series A

 

 

286,080

 

 

 

1,663

 

 

 

457

 

 

 

 

 

Equity

10/25/2016

Preferred Series A-1

 

 

108,710

 

 

 

632

 

 

 

174

 

 

 

Total OfferUp, Inc.

 

 

 

 

 

 

394,790

 

 

 

2,295

 

 

 

631

 

 

 

Oportun

 

Equity

6/28/2013

Common Stock

 

 

48,365

 

 

 

577

 

 

 

400

 

 

(4)

Reischling Press, Inc.

 

Equity

7/31/2020

Common Stock

 

 

1,163

 

 

 

15

 

 

 

 

 

 

Rhino Labs, Inc.

 

Equity

1/24/2022

Preferred Series B-2

 

 

7,063

 

 

 

1,000

 

 

 

954

 

 

 

Savage X Holding, LLC

 

Equity

4/30/2010

Class A Units

 

 

42,137

 

 

 

13

 

 

 

213

 

 

 

Tectura Corporation

 

Equity

5/23/2018

Common Stock

 

 

414,994,863

 

 

 

900

 

 

 

 

 

(7)

 

 

Equity

6/6/2016

Preferred Series BB

 

 

1,000,000

 

 

 

 

 

 

 

 

(7)

Total Tectura Corporation

 

 

 

 

 

 

415,994,863

 

 

 

900

 

 

 

 

 

 

TFG Holding, Inc.

 

Equity

4/30/2010

Common Stock

 

 

42,989

 

 

 

89

 

 

 

122

 

 

 

Uber Technologies, Inc.

 

Equity

12/1/2020

Common Stock

 

 

32,991

 

 

 

318

 

 

 

675

 

 

(4)

Subtotal: Internet Consumer & Business Services (1.33%)*

 

 

 

 

 

22,058

 

 

 

17,644

 

 

 

Medical Devices & Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coronado Aesthetics, LLC

 

Equity

10/15/2021

Common Units

 

 

180,000

 

 

 

 

 

 

10

 

 

(7)

 

 

Equity

10/15/2021

Preferred Series A-2

 

 

5,000,000

 

 

 

250

 

 

 

412

 

 

(7)

Total Coronado Aesthetics, LLC

 

 

 

 

 

 

5,180,000

 

 

 

250

 

 

 

422

 

 

 

Flowonix Medical Incorporated

 

Equity

11/3/2014

Preferred Series AA

 

 

221,893

 

 

 

1,500

 

 

 

 

 

 

Gelesis, Inc.

 

Equity

11/30/2009

Common Stock

 

 

1,716,107

 

 

 

1,003

 

 

 

2,616

 

 

(4)(20)

ViewRay, Inc.

 

Equity

12/16/2013

Common Stock

 

 

36,457

 

 

 

332

 

 

 

97

 

 

(4)

Subtotal: Medical Devices & Equipment (0.24%)*

 

 

 

 

 

3,085

 

 

 

3,135

 

 

 

Semiconductors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Achronix Semiconductor Corporation

 

Equity

7/1/2011

Preferred Series C

 

 

277,995

 

 

 

160

 

 

 

416

 

 

 

Subtotal: Semiconductors (0.03%)*

 

 

 

 

 

160

 

 

 

416

 

 

 

Software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3GTMS, LLC

 

Equity

8/9/2021

Common Stock

 

 

1,000,000

 

 

 

1,000

 

 

 

725

 

 

 

CapLinked, Inc.

 

Equity

10/26/2012

Preferred Series A-3

 

 

53,614

 

 

 

51

 

 

 

13

 

 

 

Docker, Inc.

 

Equity

11/29/2018

Common Stock

 

 

20,000

 

 

 

4,284

 

 

 

 

 

 

Druva Holdings, Inc.

 

Equity

10/22/2015

Preferred Series 2

 

 

458,841

 

 

 

1,000

 

 

 

1,432

 

 

 

 

 

Equity

8/24/2017

Preferred Series 3

 

 

93,620

 

 

 

300

 

 

 

333

 

 

 

Total Druva Holdings, Inc.

 

 

 

 

 

 

552,461

 

 

 

1,300

 

 

 

1,765

 

 

 

HighRoads, Inc.

 

Equity

1/18/2013

Common Stock

 

 

190

 

 

 

307

 

 

 

 

 

 

Lightbend, Inc.

 

Equity

12/4/2020

Common Stock

 

 

38,461

 

 

 

265

 

 

 

10

 

 

 

Palantir Technologies

 

Equity

9/23/2020

Common Stock

 

 

1,418,337

 

 

 

8,670

 

 

 

12,864

 

 

(4)

SingleStore, Inc.

 

Equity

11/25/2020

Preferred Series E

 

 

580,983

 

 

 

2,000

 

 

 

1,322

 

 

 

 

 

Equity

8/12/2021

Preferred Series F

 

 

52,956

 

 

 

280

 

 

 

149

 

 

 

Total SingleStore, Inc.

 

 

 

 

 

 

633,939

 

 

 

2,280

 

 

 

1,471

 

 

 

Sprinklr, Inc.

 

Equity

3/22/2017

Common Stock

 

 

700,000

 

 

 

3,748

 

 

 

7,077

 

 

(4)

Verana Health, Inc.

 

Equity

7/8/2021

Preferred Series E

 

 

952,562

 

 

 

2,000

 

 

 

1,365

 

 

 

Subtotal: Software (1.90%)*

 

 

 

 

 

23,905

 

 

 

25,290

 

 

 

 

See notes to consolidated financial statements

 

13


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2022 (unaudited)

(dollars in thousands)

 

Portfolio Company

 

Type of
Investment

Acquisition Date (4)

Series (3)

 

Shares

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Surgical Devices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gynesonics, Inc.

 

Equity

1/18/2007

Preferred Series B

 

 

219,298

 

 

$

250

 

 

$

 

 

 

 

 

Equity

6/16/2010

Preferred Series C

 

 

656,538

 

 

 

282

 

 

 

 

 

 

 

 

Equity

2/8/2013

Preferred Series D

 

 

1,991,157

 

 

 

712

 

 

 

 

 

 

 

 

Equity

7/14/2015

Preferred Series E

 

 

2,786,367

 

 

 

429

 

 

 

 

 

 

 

 

Equity

12/18/2018

Preferred Series F

 

 

1,523,693

 

 

 

118

 

 

 

 

 

 

 

 

Equity

12/18/2018

Preferred Series F-1

 

 

2,418,125

 

 

 

150

 

 

 

 

 

 

Total Gynesonics, Inc.

 

 

 

 

 

 

9,595,178

 

 

 

1,941

 

 

 

 

 

 

Subtotal: Surgical Devices (0.00%)*

 

 

 

 

 

1,941

 

 

 

 

 

 

Sustainable and Renewable Technology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impossible Foods, Inc.

 

Equity

5/10/2019

Preferred Series E-1

 

 

188,611

 

 

 

2,000

 

 

 

2,805

 

 

 

Modumetal, Inc.

 

Equity

6/1/2015

Common Stock

 

 

1,035

 

 

 

500

 

 

 

 

 

 

NantEnergy, LLC

 

Equity

8/31/2013

Common Units

 

 

59,665

 

 

 

102

 

 

 

 

 

 

Pineapple Energy LLC

 

Equity

12/10/2020

Common Stock

 

 

498,978

 

 

 

5,167

 

 

 

673

 

 

(4)(6)(20)

Pivot Bio, Inc.

 

Equity

6/28/2021

Preferred Series D

 

 

593,080

 

 

 

4,500

 

 

 

2,919

 

 

 

Proterra, Inc.

 

Equity

5/28/2015

Common Stock

 

 

457,841

 

 

 

543

 

 

 

2,124

 

 

(4)

Subtotal: Sustainable and Renewable Technology (0.64%)*

 

 

 

 

 

12,812

 

 

 

8,521

 

 

 

Total: Equity Investments (10.38%)*

 

 

 

 

$

152,222

 

 

$

137,794

 

 

 

Warrant Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Communications & Networking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aryaka Networks, Inc.

 

Warrant

6/28/2022

Common Stock

 

 

229,611

 

 

$

123

 

 

$

123

 

 

 

Spring Mobile Solutions, Inc.

 

Warrant

4/19/2013

Common Stock

 

 

2,834,375

 

 

 

418

 

 

 

 

 

 

Subtotal: Communications & Networking (0.01%)*

 

 

 

 

 

541

 

 

 

123

 

 

 

Consumer & Business Products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gadget Guard, LLC

 

Warrant

6/3/2014

Common Stock

 

 

1,662,441

 

 

 

228

 

 

 

 

 

 

TechStyle, Inc.

 

Warrant

7/16/2013

Preferred Series B

 

 

206,185

 

 

 

1,101

 

 

 

789

 

 

 

The Neat Company

 

Warrant

8/13/2014

Common Stock

 

 

54,054

 

 

 

365

 

 

 

 

 

 

Whoop, Inc.

 

Warrant

6/27/2018

Preferred Series C

 

 

686,270

 

 

 

18

 

 

 

1,182

 

 

 

Subtotal: Consumer & Business Products (0.15%)*

 

 

 

 

 

1,712

 

 

 

1,971

 

 

 

Drug Delivery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerami Therapeutics Holdings, Inc.

 

Warrant

9/30/2015

Common Stock

 

 

110,882

 

 

 

74

 

 

 

 

 

 

BioQ Pharma Incorporated

 

Warrant

10/27/2014

Common Stock

 

 

459,183

 

 

 

1

 

 

 

 

 

 

PDS Biotechnology Corporation

 

Warrant

8/28/2014

Common Stock

 

 

3,929

 

 

 

390

 

 

 

 

 

(4)

Subtotal: Drug Delivery (0.00%)*

 

 

 

 

 

465

 

 

 

 

 

 

Drug Discovery & Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ADMA Biologics, Inc.

 

Warrant

12/21/2012

Common Stock

 

 

89,750

 

 

 

295

 

 

 

1

 

 

(4)

Akero Therapeutics, Inc.

 

Warrant

6/15/2022

Common Stock

 

 

18,360

 

 

 

56

 

 

 

67

 

 

(4)(10)

Albireo Pharma, Inc.

 

Warrant

6/8/2020

Common Stock

 

 

5,311

 

 

 

61

 

 

 

29

 

 

(4)(10)

Axsome Therapeutics, Inc.

 

Warrant

9/25/2020

Common Stock

 

 

40,396

 

 

 

880

 

 

 

593

 

 

(4)(10)(16)(20)

Brickell Biotech, Inc.

 

Warrant

2/18/2016

Common Stock

 

 

9,005

 

 

 

119

 

 

 

1

 

 

(4)

Cellarity, Inc.

 

Warrant

12/8/2021

Preferred Series B

 

 

100,000

 

 

 

287

 

 

 

164

 

 

(15)

Century Therapeutics, Inc.

 

Warrant

9/14/2020

Common Stock

 

 

16,112

 

 

 

37

 

 

 

12

 

 

(4)

Dermavant Sciences Ltd.

 

Warrant

5/31/2019

Common Stock

 

 

223,642

 

 

 

101

 

 

 

132

 

 

(5)(10)(12)

enGene, Inc.

 

Warrant

12/30/2021

Preferred Series 3

 

 

133,692

 

 

 

72

 

 

 

28

 

 

(5)(10)

Evofem Biosciences, Inc.

 

Warrant

6/11/2014

Common Stock

 

 

520

 

 

 

266

 

 

 

 

 

(4)

Madrigal Pharmaceutical, Inc.

 

Warrant

5/9/2022

Common Stock

 

 

10,131

 

 

 

177

 

 

 

245

 

 

(4)(10)

Myovant Sciences, Ltd.

 

Warrant

10/16/2017

Common Stock

 

 

73,710

 

 

 

460

 

 

 

186

 

 

(4)(5)(10)

Paratek Pharmaceuticals, Inc.

 

Warrant

8/1/2018

Common Stock

 

 

426,866

 

 

 

520

 

 

 

26

 

 

(4)

Phathom Pharmaceuticals, Inc.

 

Warrant

9/17/2021

Common Stock

 

 

64,687

 

 

 

848

 

 

 

46

 

 

(4)(10)(15)(16)

Redshift Bioanalytics, Inc.

 

Warrant

3/23/2022

Preferred Series E

 

 

142,653

 

 

 

7

 

 

 

5

 

 

(15)

Scynexis, Inc.

 

Warrant

5/14/2021

Common Stock

 

 

106,035

 

 

 

296

 

 

 

30

 

 

(4)

Stealth Bio Therapeutics Corp.

 

Warrant

6/30/2017

Common Stock

 

 

500,000

 

 

 

158

 

 

 

 

 

(4)(5)(10)

TG Therapeutics, Inc.

 

Warrant

2/28/2019

Common Stock

 

 

231,613

 

 

 

1,033

 

 

 

168

 

 

(4)(10)(12)

Tricida, Inc.

 

Warrant

3/27/2019

Common Stock

 

 

31,352

 

 

 

280

 

 

 

21

 

 

(4)

Valo Health, LLC

 

Warrant

6/15/2020

Common Units

 

 

102,216

 

 

 

256

 

 

 

324

 

 

 

X4 Pharmaceuticals, Inc.

 

Warrant

3/18/2019

Common Stock

 

 

108,334

 

 

 

673

 

 

 

7

 

 

(4)

Yumanity Therapeutics, Inc.

 

Warrant

12/20/2019

Common Stock

 

 

15,414

 

 

 

110

 

 

 

 

 

(4)

Subtotal: Drug Discovery & Development (0.16%)*

 

 

 

 

 

6,992

 

 

 

2,085

 

 

 

 

See notes to consolidated financial statements

 

14


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2022 (unaudited)

(dollars in thousands)

 

Portfolio Company

 

Type of
Investment

Acquisition Date (4)

Series (3)

 

Shares

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Electronics & Computer Hardware

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

908 Devices, Inc.

 

Warrant

3/15/2017

Common Stock

 

 

49,078

 

 

$

101

 

 

$

436

 

 

(4)

Skydio, Inc.

 

Warrant

11/8/2021

Common Stock

 

 

622,255

 

 

 

557

 

 

 

1,674

 

 

 

Subtotal: Electronics & Computer Hardware (0.16%)*

 

 

 

 

 

658

 

 

 

2,110

 

 

 

Healthcare Services, Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vida Health, Inc.

 

Warrant

3/28/2022

Common Stock

 

 

100,618

 

 

 

114

 

 

 

60

 

 

 

Subtotal: Healthcare Services, Other (0.00%)*

 

 

 

 

 

114

 

 

 

60

 

 

 

Information Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capella Space Corp.

 

Warrant

10/21/2021

Common Stock

 

 

176,200

 

 

 

207

 

 

 

74

 

 

(15)

INMOBI Inc.

 

Warrant

11/19/2014

Common Stock

 

 

65,587

 

 

 

82

 

 

 

 

 

(5)(10)

NetBase Solutions, Inc.

 

Warrant

8/22/2017

Preferred Series 1

 

 

60,000

 

 

 

356

 

 

 

421

 

 

 

Signal Media Limited

 

Warrant

6/29/2022

Common Stock

 

 

94,857

 

 

 

35

 

 

 

35

 

 

(5)(10)

Subtotal: Information Services (0.04%)*

 

 

 

 

 

680

 

 

 

530

 

 

 

Internet Consumer & Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aria Systems, Inc.

 

Warrant

5/22/2015

Preferred Series G

 

 

231,535

 

 

 

74

 

 

 

 

 

 

Carwow LTD

 

Warrant

12/14/2021

Common Stock

 

 

174,163

 

 

 

164

 

 

 

52

 

 

(5)(10)

Cloudpay, Inc.

 

Warrant

4/10/2018

Preferred Series B

 

 

6,763

 

 

 

54

 

 

 

233

 

 

(5)(10)

Convoy, Inc.

 

Warrant

3/30/2022

Common Stock

 

 

165,456

 

 

 

974

 

 

 

610

 

 

(16)

First Insight, Inc.

 

Warrant

5/10/2018

Preferred Series B

 

 

75,917

 

 

 

95

 

 

 

44

 

 

 

Houzz, Inc.

 

Warrant

10/29/2019

Common Stock

 

 

529,661

 

 

 

20

 

 

 

 

 

 

Landing Holdings Inc.

 

Warrant

3/12/2021

Common Stock

 

 

11,806

 

 

 

116

 

 

 

50

 

 

(15)

Lendio, Inc.

 

Warrant

3/29/2019

Preferred Series D

 

 

127,032

 

 

 

39

 

 

 

60

 

 

 

Rhino Labs, Inc.

 

Warrant

3/12/2021

Common Stock

 

 

13,106

 

 

 

470

 

 

 

450

 

 

(15)

RumbleON, Inc.

 

Warrant

4/30/2018

Common Stock

 

 

5,139

 

 

 

88

 

 

 

2

 

 

(4)

Savage X Holding, LLC

 

Warrant

6/27/2014

Class A Units

 

 

206,185

 

 

 

 

 

 

1,040

 

 

 

SeatGeek, Inc.

 

Warrant

6/12/2019

Common Stock

 

 

1,379,761

 

 

 

842

 

 

 

2,254

 

 

(16)

ShareThis, Inc.

 

Warrant

12/14/2012

Preferred Series C

 

 

493,502

 

 

 

547

 

 

 

 

 

 

Skyword, Inc.

 

Warrant

8/23/2019

Preferred Series B

 

 

444,444

 

 

 

83

 

 

 

3

 

 

 

Snagajob.com, Inc.

 

Warrant

4/20/2020

Common Stock

 

 

600,000

 

 

 

16

 

 

 

101

 

 

(12)

 

 

Warrant

6/30/2016

Preferred Series A

 

 

1,800,000

 

 

 

782

 

 

 

209

 

 

(12)

 

 

Warrant

8/1/2018

Preferred Series B

 

 

1,211,537

 

 

 

62

 

 

 

127

 

 

(12)

Total Snagajob.com, Inc.

 

 

 

 

 

 

3,611,537

 

 

 

860

 

 

 

437

 

 

 

TFG Holding, Inc.

 

Warrant

6/27/2014

Common Stock

 

 

206,185

 

 

 

 

 

 

22

 

 

 

The Faction Group LLC

 

Warrant

11/3/2014

Preferred Series AA

 

 

8,076

 

 

 

234

 

 

 

481

 

 

 

Thumbtack, Inc.

 

Warrant

5/1/2018

Common Stock

 

 

267,225

 

 

 

844

 

 

 

579

 

 

 

Veem, Inc.

 

Warrant

3/31/2022

Common Stock

 

 

98,428

 

 

 

126

 

 

 

59

 

 

 

Worldremit Group Limited

 

Warrant

2/11/2021

Preferred Series D

 

 

77,215

 

 

 

129

 

 

 

845

 

 

(5)(10)(16)

 

 

Warrant

8/27/2021

Preferred Series E

 

 

1,868

 

 

 

26

 

 

 

14

 

 

(5)(10)(16)

Total Worldremit Group Limited

 

 

 

 

 

 

79,083

 

 

 

155

 

 

 

859

 

 

 

Subtotal: Internet Consumer & Business Services (0.54%)*

 

 

 

 

 

5,785

 

 

 

7,235

 

 

 

Manufacturing Technology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bright Machines, Inc.

 

Warrant

3/31/2022

Common Stock

 

 

196,335

 

 

 

151

 

 

 

67

 

 

 

MacroFab, Inc.

 

Warrant

3/23/2022

Common Stock

 

 

1,111,111

 

 

 

528

 

 

 

598

 

 

 

Xometry, Inc.

 

Warrant

5/9/2018

Common Stock

 

 

87,784

 

 

 

47

 

 

 

1,906

 

 

(4)

Subtotal: Manufacturing Technology (0.19%)*

 

 

 

 

 

726

 

 

 

2,571

 

 

 

Media/Content/Info

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Zoom Media Group, Inc.

 

Warrant

12/21/2012

Preferred Series A

 

 

1,204

 

 

 

348

 

 

 

 

 

 

Subtotal: Media/Content/Info (0.00%)*

 

 

 

 

 

348

 

 

 

 

 

 

Medical Devices & Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aspire Bariatrics, Inc.

 

Warrant

1/28/2015

Common Stock

 

 

22,572

 

 

 

455

 

 

 

 

 

 

Flowonix Medical Incorporated

 

Warrant

11/3/2014

Preferred Series AA

 

 

155,325

 

 

 

362

 

 

 

 

 

(12)

 

 

Warrant

9/21/2018

Preferred Series BB

 

 

725,806

 

 

 

351

 

 

 

 

 

(12)

Total Flowonix Medical Incorporated

 

 

 

 

 

 

881,131

 

 

 

713

 

 

 

 

 

 

Intuity Medical, Inc.

 

Warrant

12/29/2017

Preferred Series B-1

 

 

3,076,323

 

 

 

294

 

 

 

23

 

 

 

Lucira Health, Inc.

 

Warrant

2/4/2022

Common Stock

 

 

59,642

 

 

 

110

 

 

 

5

 

 

(4)

Outset Medical, Inc.

 

Warrant

9/27/2013

Common Stock

 

 

62,794

 

 

 

401

 

 

 

350

 

 

(4)

Tela Bio, Inc.

 

Warrant

3/31/2017

Common Stock

 

 

15,712

 

 

 

61

 

 

 

-

 

 

(4)

Subtotal: Medical Devices & Equipment (0.03%)*

 

 

 

 

 

2,034

 

 

 

378

 

 

 

 

See notes to consolidated financial statements

 

15


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2022 (unaudited)

(dollars in thousands)

 

Portfolio Company

 

Type of
Investment

Acquisition Date (4)

Series (3)

 

Shares

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Semiconductors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Achronix Semiconductor Corporation

 

Warrant

6/26/2015

Preferred Series D-2

 

 

750,000

 

 

$

99

 

 

$

932

 

 

 

Fungible, Inc.

 

Warrant

12/16/2021

Common Stock

 

 

800,000

 

 

 

751

 

 

 

135

 

 

(15)

Subtotal: Semiconductors (0.08%)*

 

 

 

 

 

850

 

 

 

1,067

 

 

 

Software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bitsight Technologies, Inc.

 

Warrant

11/18/2020

Common Stock

 

 

29,691

 

 

 

284

 

 

 

552

 

 

 

Brain Corporation

 

Warrant

10/4/2021

Common Stock

 

 

194,629

 

 

 

165

 

 

 

88

 

 

(15)

CloudBolt Software, Inc.

 

Warrant

9/30/2020

Common Stock

 

 

211,342

 

 

 

117

 

 

 

16

 

 

 

Cloudian, Inc.

 

Warrant

11/6/2018

Common Stock

 

 

477,454

 

 

 

71

 

 

 

15

 

 

 

Couchbase, Inc.

 

Warrant

4/25/2019

Common Stock

 

 

105,350

 

 

 

462

 

 

 

740

 

 

(4)

Dashlane, Inc.

 

Warrant

3/11/2019

Common Stock

 

 

453,641

 

 

 

353

 

 

 

263

 

 

 

Delphix Corp.

 

Warrant

10/8/2019

Common Stock

 

 

718,898

 

 

 

1,594

 

 

 

2,634

 

 

(16)

Demandbase, Inc.

 

Warrant

8/2/2021

Common Stock

 

 

727,047

 

 

 

545

 

 

 

328

 

 

 

DNAnexus, Inc.

 

Warrant

3/21/2014

Preferred Series C

 

 

909,091

 

 

 

97

 

 

 

50

 

 

 

DroneDeploy, Inc.

 

Warrant

6/30/2022

Common Stock

 

 

95,911

 

 

 

278

 

 

 

278

 

 

 

Eigen Technologies Ltd.

 

Warrant

4/13/2022

Common Stock

 

 

250

 

 

 

5

 

 

 

4

 

 

(5)(10)

Esme Learning Solutions, Inc.

 

Warrant

1/27/2022

Common Stock

 

 

56,765

 

 

 

198

 

 

 

105

 

 

 

Evernote Corporation

 

Warrant

9/30/2016

Common Stock

 

 

62,500

 

 

 

107

 

 

 

13

 

 

 

Lightbend, Inc.

 

Warrant

2/14/2018

Preferred Series D

 

 

89,685

 

 

 

131

 

 

 

 

 

 

Mixpanel, Inc.

 

Warrant

9/30/2020

Common Stock

 

 

82,362

 

 

 

252

 

 

 

333

 

 

 

Nuvolo Technologies Corporation

 

Warrant

3/29/2019

Common Stock

 

 

70,000

 

 

 

172

 

 

 

218

 

 

 

Poplicus, Inc.

 

Warrant

5/28/2014

Common Stock

 

 

132,168

 

 

 

 

 

 

 

 

 

Pymetrics, Inc.

 

Warrant

9/15/2020

Common Stock

 

 

150,943

 

 

 

77

 

 

 

56

 

 

 

RapidMiner, Inc.

 

Warrant

11/28/2017

Preferred Series C-1

 

 

4,982

 

 

 

24

 

 

 

7

 

 

 

Reltio, Inc.

 

Warrant

6/30/2020

Common Stock

 

 

69,120

 

 

 

215

 

 

 

289

 

 

 

SignPost, Inc.

 

Warrant

1/13/2016

Series Junior 1 Preferred

 

 

474,019

 

 

 

314

 

 

 

 

 

 

SingleStore, Inc.

 

Warrant

4/28/2020

Preferred Series D

 

 

312,596

 

 

 

103

 

 

 

334

 

 

 

Tact.ai Technologies, Inc.

 

Warrant

2/13/2020

Common Stock

 

 

1,041,667

 

 

 

206

 

 

 

168

 

 

 

Udacity, Inc.

 

Warrant

9/25/2020

Common Stock

 

 

486,359

 

 

 

218

 

 

 

147

 

 

 

VideoAmp, Inc.

 

Warrant

1/21/2022

Common Stock

 

 

152,048

 

 

 

1,275

 

 

 

611

 

 

(15)

ZeroFox, Inc.

 

Warrant

5/7/2020

Preferred Series C-1

 

 

648,350

 

 

 

101

 

 

 

540

 

 

 

Subtotal: Software (0.59%)*

 

 

 

 

 

7,364

 

 

 

7,789

 

 

 

Surgical Devices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gynesonics, Inc.

 

Warrant

12/5/2012

Preferred Series C

 

 

33,670

 

 

 

13

 

 

 

 

 

 

TransMedics Group, Inc.

 

Warrant

11/7/2012

Common Stock

 

 

64,440

 

 

 

139

 

 

 

1,044

 

 

(4)

Subtotal: Surgical Devices (0.08%)*

 

 

 

 

 

152

 

 

 

1,044

 

 

 

Sustainable and Renewable Technology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agrivida, Inc.

 

Warrant

6/20/2013

Preferred Series D

 

 

471,327

 

 

 

120

 

 

 

 

 

 

Ampion, PBC

 

Warrant

4/15/2022

Common Stock

 

 

18,472

 

 

 

52

 

 

 

46

 

 

 

Fulcrum Bioenergy, Inc.

 

Warrant

9/13/2012

Preferred Series C-1

 

 

280,897

 

 

 

274

 

 

 

765

 

 

 

Halio, Inc.

 

Warrant

4/22/2014

Preferred Series A

 

 

325,000

 

 

 

155

 

 

 

97

 

 

 

 

 

Warrant

4/7/2015

Preferred Series B

 

 

131,883

 

 

 

63

 

 

 

32

 

 

 

Total Halio, Inc.

 

 

 

 

 

 

456,883

 

 

 

218

 

 

 

129

 

 

 

Polyera Corporation

 

Warrant

12/11/2012

Preferred Series C

 

 

311,612

 

 

 

338

 

 

 

 

 

 

Subtotal: Sustainable and Renewable Technology (0.07%)*

 

 

 

 

 

1,002

 

 

 

940

 

 

 

Total: Warrant Investments (2.10%)*

 

 

 

 

 

29,423

 

 

 

27,903

 

 

 

Total Investments in Securities (204.60%)*

 

 

 

 

$

2,761,048

 

 

$

2,716,563

 

 

 

Investment Funds & Vehicles Investments

 

 

 

 

 

 

 

 

 

 

 

Drug Discovery & Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forbion Growth Opportunities Fund I C.V.

 

Investment Funds & Vehicles

11/16/2020

 

 

 

 

 

 

2,084

 

 

 

2,136

 

 

(5)(10)(17)

Forbion Growth Opportunities Fund II C.V.

 

Investment Funds & Vehicles

6/23/2022

 

 

 

 

 

 

195

 

 

 

192

 

 

(5)(10)(17)

Subtotal: Drug Discovery & Development (0.18%)*

 

 

 

 

$

2,279

 

 

$

2,328

 

 

 

Total: Investment Funds & Vehicles Investments (0.18%)*

 

 

 

 

$

2,279

 

 

$

2,328

 

 

 

Total Investments before Cash and Cash Equivalents (204.78%)*

 

 

 

 

$

2,763,327

 

 

$

2,718,891

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash & Cash Equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GS Financial Square Government Fund

 

Cash & Cash Equivalents

 

FGTXX/38141W273

 

 

 

 

 

51,000

 

 

 

51,000

 

 

 

JPMorgan U.S. Government Money Market

 

Cash & Cash Equivalents

 

Capital (OGVXX)

 

 

 

 

 

39,000

 

 

 

39,000

 

 

 

Total: Investments in Cash & Cash Equivalents (6.78%)*

 

 

 

 

$

90,000

 

 

$

90,000

 

 

 

Total: Investments after Cash and Cash Equivalents (211.55%)*

 

 

 

 

$

2,853,327

 

 

$

2,808,891

 

 

 

 

See notes to consolidated financial statements

 

16


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2022 (unaudited)

(dollars in thousands)

 

* Value as a percent of net assets. All amounts are stated in U.S. Dollars unless otherwise noted. The Company uses the Standard Industrial Code for classifying the industry grouping of its portfolio companies.

(1)
Interest rate PRIME represents 4.75% as of June 30, 2022. 1-month LIBOR, 3-month LIBOR and 6-month LIBOR represent 1.7867%, 2.2851%, and 2.93514%, respectively, as of June 30, 2022.
(2)
Gross unrealized appreciation, gross unrealized depreciation, and net unrealized appreciation for federal income tax purposes totaled $74.5 million, $116.7 million and $(42.3) million, respectively. The tax cost of investments is $2.8 billion.
(3)
Preferred and common stock, warrants, and equity interest are generally non-income producing.
(4)
Except for warrants in 26 publicly traded companies and common stock in 41 publicly traded companies, all investments are restricted as of June 30, 2022 and were valued at fair value using Level 3 significant unobservable inputs as determined in good faith by the Company’s valuation committee (the “Valuation Committee”) and approved by the board of directors (the “Board”).
(5)
Non-U.S. company or the company’s principal place of business is outside the United States.
(6)
Affiliate investment as defined under the Investment Company Act of 1940, as amended, (the “1940 Act”) in which Hercules owns at least 5% but generally less than 25% of the company’s voting securities.
(7)
Control investment as defined under the 1940 Act in which Hercules owns at least 25% of the company’s voting securities or has greater than 50% representation on its board.
(8)
Debt is on non-accrual status as of June 30, 2022, and is therefore considered non-income producing. Note that as of June 30, 2022, only the PIK, or payment-in-kind, portion is on non-accrual for the Company’s debt investment in Tectura Corporation.
(9)
Denotes that all or a portion of the debt investment is convertible debt.
(10)
Indicates assets that the Company deems not “qualifying assets” under section 55(a) of 1940 Act. Qualifying assets must represent at least 70% of the Company’s total assets at the time of acquisition of any additional non-qualifying assets.
(11)
Denotes that all or a portion of the debt investment is pledged as collateral under the SMBC Facility (as defined in “Note 5 — Debt”).
(12)
Denotes that all or a portion of the investment is pledged as collateral under the MUFG Bank Facility (as defined in “Note 5 — Debt”).
(13)
Denotes that all or a portion of the debt investment secures the 2031 Asset-Backed Notes (as defined in “Note 5 — Debt”).
(14)
Denotes that all or a portion of the debt investment principal includes accumulated PIK interest and is net of repayments.
(15)
Denotes that all or a portion of the investment in this portfolio company is held by Hercules Capital IV, L.P., the Company’s wholly owned small business investment company.
(16)
Denotes that the fair value of the Company’s total investments in this portfolio company represent greater than 5% of the Company’s total net assets as of June 30, 2022.
(17)
Denotes that there is an unfunded contractual commitment available at the request of this portfolio company as of June 30, 2022 (Refer to “Note 11 - Commitments and Contingencies”).
(18)
Denotes unitranche debt with first lien “last-out” senior secured position and security interest in all assets of the portfolio company whereby the “last-out” portion will be subordinated to the “first-out” portion in a liquidation, sale or other disposition.
(19)
Denotes second lien senior secured debt.
(20)
Denotes all or a portion of the public equity or warrant investment was acquired in a transaction exempt from registration under the Securities Act of 1933 (“Securities Act”) and may be deemed to be “restricted securities” under the Securities Act.
(21)
Denotes investment in a non-voting security in the form of a promissory note. The terms of the notes provide the Company with a lien on the issuers' shares of Common Stock for Black Crow AI, Inc., subject to release upon repayment of the outstanding balance of the notes. As of June 30, 2022, the Black Crow AI, Inc. affiliates promissory notes had an outstanding balance of $3.0 million.
(22)
Denotes the security holds rights to royalty fee income associated with certain products of the portfolio company. The approximate cost and fair value of the royalty contract are $4.6 million and $4.6 million, respectively.

See notes to consolidated financial statements

 

17


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)

 

Portfolio Company

 

Type of
Investment

Maturity Date

Interest Rate and Floor (1)

 

Principal
Amount

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Debt Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Communications & Networking

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cytracom Holdings LLC

 

Senior Secured

February 2025

3-month LIBOR + 9.31% or Floor rate of 10.31%

 

$

9,000

 

 

$

8,802

 

 

$

8,725

 

 

(11)(16)(17)

Rocket Lab Global Services, LLC

 

Senior Secured

June 2024

PRIME + 4.90% or Floor rate of 8.15%, PIK Interest 1.25%, 3.25% Exit Fee

 

$

88,542

 

 

 

88,286

 

 

 

90,505

 

 

(13)(15)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

97,088

 

 

 

99,230

 

 

 

Subtotal: Communications & Networking (7.58%)*

 

 

 

 

 

 

97,088

 

 

 

99,230

 

 

 

Consumer & Business Products

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grove Collaborative, Inc.

 

Senior Secured

April 2025

PRIME + 5.50% or Floor rate of 8.75%, 6.75% Exit Fee

 

$

23,520

 

 

 

23,162

 

 

 

23,298

 

 

(18)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

23,162

 

 

 

23,298

 

 

 

Subtotal: Consumer & Business Products (1.78%)*

 

 

 

 

 

 

23,162

 

 

 

23,298

 

 

 

Diversified Financial Services

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Newfront Insurance Holdings, Inc.

 

Convertible Note

August 2022

PIK Interest 0.19% or Floor rate of 0.19%

 

$

403

 

 

 

403

 

 

 

403

 

 

(9)

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

403

 

 

 

403

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gibraltar Business Capital, LLC

 

Unsecured

September 2026

FIXED 14.50%

 

$

15,000

 

 

 

14,662

 

 

 

13,818

 

 

(7)

 

 

Unsecured

September 2026

FIXED 11.50%

 

$

10,000

 

 

 

9,823

 

 

 

9,394

 

 

(7)

Total Gibraltar Business Capital, LLC

 

 

 

 

 

$

25,000

 

 

 

24,485

 

 

 

23,212

 

 

 

Hercules Adviser LLC

 

Unsecured

May 2023

FIXED 5.00%

 

$

8,850

 

 

 

8,850

 

 

 

8,850

 

 

(7)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

33,335

 

 

 

32,062

 

 

 

Subtotal: Diversified Financial Services (2.48%)*

 

 

 

 

 

 

33,738

 

 

 

32,465

 

 

 

Drug Discovery & Development

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chemocentryx, Inc.

 

Senior Secured

December 2022

PRIME + 3.30% or Floor rate of 8.05%, 6.25% Exit Fee

 

$

18,951

 

 

 

20,036

 

 

 

20,036

 

 

(10)

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

20,036

 

 

 

20,036

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Albireo Pharma, Inc.

 

Senior Secured

July 2024

PRIME + 5.90% or Floor rate of 9.15%, 6.95% Exit Fee

 

$

10,000

 

 

 

10,229

 

 

 

10,268

 

 

(10)(11)

Aldeyra Therapeutics, Inc.

 

Senior Secured

October 2023

PRIME + 3.10% or Floor rate of 8.60%, 6.95% Exit Fee

 

$

15,000

 

 

 

15,639

 

 

 

15,653

 

 

 

Applied Genetic Technologies Corporation

 

Senior Secured

April 2024

PRIME + 6.50% or Floor rate of 9.75%, 6.95% Exit Fee

 

$

20,000

 

 

 

20,416

 

 

 

20,339

 

 

 

Aveo Pharmaceuticals, Inc.

 

Senior Secured

September 2024

PRIME + 6.40% or Floor rate of 9.65%, 6.95% Exit Fee

 

$

40,000

 

 

 

40,842

 

 

 

40,776

 

 

(11)(14)

Axsome Therapeutics, Inc.

 

Senior Secured

October 2026

PRIME + 5.70% or Floor rate of 8.95%, 5.82% Exit Fee

 

$

50,000

 

 

 

49,542

 

 

 

48,859

 

 

(10)(12)

Bicycle Therapeutics PLC

 

Senior Secured

October 2024

PRIME + 5.60% or Floor rate of 8.85%, 5.00% Exit Fee

 

$

24,000

 

 

 

24,271

 

 

 

24,454

 

 

(5)(10)(11)(12)(16)

BiomX, INC

 

Senior Secured

September 2025

PRIME + 5.70% or Floor rate of 8.95%, 6.55% Exit Fee

 

$

9,000

 

 

 

8,980

 

 

 

8,980

 

 

(5)(10)(11)

BridgeBio Pharma, Inc.

 

Senior Secured

November 2026

FIXED 9.00%, 2.00% Exit Fee

 

$

38,000

 

 

 

37,462

 

 

 

37,462

 

 

 

Cellarity, Inc.

 

Senior Secured

June 2026

PRIME + 5.70% or Floor rate of 8.95%, 3.75% Exit Fee

 

$

30,000

 

 

 

29,422

 

 

 

29,422

 

 

(14)

Center for Breakthrough Medicines Holdings, LLC

 

Senior Secured

May 2023

PRIME + 5.50% or Floor rate of 8.75%, 7.50% Exit Fee

 

$

5,000

 

 

 

5,005

 

 

 

5,005

 

 

 

Century Therapeutics

 

Senior Secured

April 2024

PRIME + 6.30% or Floor rate of 9.55%, 3.95% Exit Fee

 

$

10,000

 

 

 

10,075

 

 

 

10,361

 

 

(11)

 

See notes to consolidated financial statements

 

18


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)

 

Portfolio Company

 

Type of
Investment

Maturity Date

Interest Rate and Floor (1)

 

Principal
Amount

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Chemocentryx, Inc.

 

Senior Secured

February 2025

PRIME + 3.25% or Floor rate of 8.50%, 7.15% Exit Fee

 

$

5,000

 

 

$

5,161

 

 

$

5,070

 

 

(10)

Codiak Biosciences, Inc.

 

Senior Secured

October 2025

PRIME + 5.00% or Floor rate of 8.25%, 5.50% Exit Fee

 

$

25,000

 

 

 

25,459

 

 

 

25,316

 

 

(11)

Corium, Inc.

 

Senior Secured

September 2026

PRIME + 5.70% or Floor rate of 8.95%, 7.75% Exit Fee

 

$

91,500

 

 

 

90,997

 

 

 

90,997

 

 

(15)

Eloxx Pharmaceuticals, Inc.

 

Senior Secured

April 2025

PRIME + 6.25% or Floor rate of 9.50%, 6.55% Exit Fee

 

$

12,500

 

 

 

12,443

 

 

 

12,443

 

 

(14)

enGene, Inc.

 

Senior Secured

July 2025

PRIME + 5.00% or Floor rate of 8.25%, 6.35% Exit Fee

 

$

7,000

 

 

 

6,858

 

 

 

6,858

 

 

(5)(10)

G1 Therapeutics, Inc.

 

Senior Secured

November 2026

PRIME + 5.90% or Floor rate of 9.15%, 9.86% Exit Fee

 

$

58,125

 

 

 

57,873

 

 

 

57,874

 

 

(10)(11)(12)(14)(16)

Geron Corporation

 

Senior Secured

October 2024

PRIME + 5.75% or Floor rate of 9.00%, 6.55% Exit Fee

 

$

32,500

 

 

 

32,704

 

 

 

32,744

 

 

(10)(12)

Hibercell, Inc.

 

Senior Secured

May 2025

PRIME + 5.40% or Floor rate of 8.65%, 4.95% Exit Fee

 

$

17,000

 

 

 

17,041

 

 

 

17,014

 

 

(14)

Humanigen, Inc.

 

Senior Secured

March 2025

PRIME + 5.50% or Floor rate of 8.75%, 6.75% Exit Fee

 

$

20,000

 

 

 

20,235

 

 

 

19,985

 

 

(9)(10)

Kaleido Biosciences, Inc.

 

Senior Secured

January 2024

PRIME + 6.10% or Floor rate of 9.35%, 7.55% Exit Fee

 

$

22,500

 

 

 

23,505

 

 

 

23,384

 

 

(12)

Locus Biosciences

 

Senior Secured

July 2025

PRIME + 6.10% or Floor rate of 9.35%, 4.95% Exit Fee

 

$

8,000

 

 

 

7,977

 

 

 

7,900

 

 

(14)

Nabriva Therapeutics

 

Senior Secured

June 2023

PRIME + 4.30% or Floor rate of 9.80%, 6.95% Exit Fee

 

$

5,000

 

 

 

5,500

 

 

 

5,459

 

 

(5)(10)

Phathom Pharmaceuticals, Inc.

 

Senior Secured

October 2026

PRIME + 2.25% or Floor rate of 5.50%, PIK Interest 3.35%, 7.50% Exit Fee

 

$

87,116

 

 

 

86,075

 

 

 

86,075

 

 

(10)(12)(13)(14)(15)(16)

Scynexis, Inc.

 

Senior Secured

March 2025

PRIME + 5.80% or Floor rate of 9.05%, 3.95% Exit Fee

 

$

16,000

 

 

 

15,826

 

 

 

15,778

 

 

 

Seres Therapeutics, Inc.

 

Senior Secured

November 2023

PRIME + 4.40% or Floor rate of 9.65%, 4.85% Exit Fee

 

$

24,051

 

 

 

24,777

 

 

 

25,183

 

 

 

Syndax Pharmaceutics Inc.

 

Senior Secured

April 2024

PRIME + 6.00% or Floor rate of 9.25%, 4.99% Exit Fee

 

$

20,000

 

 

 

20,646

 

 

 

20,653

 

 

(12)(16)

TG Therapeutics, Inc.

 

Senior Secured

January 2026

PRIME + 2.15% or Floor rate of 5.40%, PIK Interest 3.45%, 5.95% Exit Fee

 

$

51,450

 

 

 

50,470

 

 

 

50,470

 

 

(10)

uniQure B.V.

 

Senior Secured

December 2025

PRIME + 4.70% or Floor rate of 7.95%, 7.28% Exit Fee

 

$

77,500

 

 

 

78,755

 

 

 

78,755

 

 

(5)(10)(11)(12)(15)

Unity Biotechnology, Inc.

 

Senior Secured

August 2024

PRIME + 6.10% or Floor rate of 9.35%, 6.25% Exit Fee

 

$

22,701

 

 

 

23,293

 

 

 

23,627

 

 

(9)

Valo Health, LLC (p.k.a. Integral Health Holdings, LLC)

 

Senior Secured

May 2024

PRIME + 6.45% or Floor rate of 9.70%, 3.85% Exit Fee

 

$

11,500

 

 

 

11,547

 

 

 

11,492

 

 

(11)

X4 Pharmaceuticals, Inc.

 

Senior Secured

July 2024

PRIME + 3.75% or Floor rate of 8.75%, 8.80% Exit Fee

 

$

32,500

 

 

 

34,140

 

 

 

34,085

 

 

(11)(12)

Yumanity Therapeutics, Inc.

 

Senior Secured

January 2024

PRIME + 4.00% or Floor rate of 8.75%, 5.92% Exit Fee

 

$

12,732

 

 

 

13,256

 

 

 

13,187

 

 

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

916,421

 

 

 

915,928

 

 

 

Subtotal: Drug Discovery & Development (71.53%)*

 

 

 

 

 

 

936,457

 

 

 

935,964

 

 

 

Healthcare Services, Other

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Better Therapeutics, Inc.

 

Senior Secured

August 2025

PRIME + 5.70% or Floor rate of 8.95%, 5.95% Exit Fee

 

$

8,000

 

 

 

7,966

 

 

 

7,966

 

 

(14)(16)

Blue Sprig Pediatrics, Inc.

 

Senior Secured

November 2026

3-month LIBOR + 5.00% or Floor rate of 6.00%, PIK Interest 4.45%

 

$

25,022

 

 

 

24,653

 

 

 

24,653

 

 

(13)(16)

Carbon Health Technologies, Inc.

 

Senior Secured

March 2025

PRIME + 5.60% or Floor rate of 8.85%, 4.61% Exit Fee

 

$

46,125

 

 

 

45,964

 

 

 

45,964

 

 

(16)(18)

Equality Health, LLC

 

Senior Secured

February 2026

PRIME + 6.25% or Floor rate of 9.50%, PIK Interest 1.55%

 

$

35,444

 

 

 

35,141

 

 

 

35,056

 

 

(12)(13)(16)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

113,724

 

 

 

113,639

 

 

 

Subtotal: Healthcare Services, Other (8.68%)*

 

 

 

 

 

 

113,724

 

 

 

113,639

 

 

 

Information Services

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capella Space

 

Senior Secured

November 2024

PRIME + 5.00% or Floor rate of 8.25%, PIK Interest 1.10%, 4.00% Exit Fee

 

$

20,025

 

 

 

19,751

 

 

 

19,424

 

 

(13)(14)(18)

Yipit, LLC

 

Senior Secured

September 2026

1-month LIBOR + 9.08% or Floor rate of 10.08%

 

$

45,900

 

 

 

45,022

 

 

 

45,022

 

 

(16)(17)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

64,773

 

 

 

64,446

 

 

 

Subtotal: Information Services (4.93%)*

 

 

 

 

 

 

64,773

 

 

 

64,446

 

 

 

 

See notes to consolidated financial statements

 

19


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)

 

Portfolio Company

 

Type of
Investment

Maturity Date

Interest Rate and Floor (1)

 

Principal
Amount

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Internet Consumer & Business Services

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nextroll, Inc.

 

Senior Secured

June 2022

PRIME + 3.75% or Floor rate of 7.00%, PIK Interest 2.95%, 3.50% Exit Fee

 

$

21,555

 

 

$

22,164

 

 

$

22,164

 

 

(12)(13)(18)

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

22,164

 

 

 

22,164

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AppDirect, Inc.

 

Senior Secured

August 2024

PRIME + 5.90% or Floor rate of 9.15%, 7.95% Exit Fee

 

$

30,790

 

 

 

31,416

 

 

 

32,248

 

 

 

Carwow LTD

 

Senior Secured

December 2024

PRIME + 4.70% or Floor rate of 7.95%, PIK Interest 1.45%, 4.95% Exit Fee

 

£

21,250

 

 

 

28,632

 

 

 

28,632

 

 

(5)(10)(13)

ePayPolicy Holdings, LLC

 

Senior Secured

December 2024

3-month LIBOR + 8.50% or Floor rate of 9.50%

 

$

8,169

 

 

 

8,011

 

 

 

7,967

 

 

(11)(16)

Houzz, Inc.

 

Convertible Debt

May 2028

PIK Interest 5.50%

 

$

20,676

 

 

 

20,676

 

 

 

20,425

 

 

(9)(13)

Rhino Labs, Inc.

 

Senior Secured

March 2024

PRIME + 5.50% or Floor rate of 8.75%, PIK Interest 2.25%

 

$

16,136

 

 

 

15,765

 

 

 

15,876

 

 

(13)(14)

RVShare, LLC

 

Senior Secured

December 2026

1-month LIBOR + 5.50% or Floor rate of 6.50%, PIK Interest 4.00%

 

$

15,000

 

 

 

14,701

 

 

 

14,701

 

 

(14)(16)

SeatGeek, Inc.

 

Senior Secured

June 2023

PRIME + 5.00% or Floor rate of 10.50%, PIK Interest 0.50%

 

$

60,607

 

 

 

59,983

 

 

 

60,316

 

 

(13)

Skyword, Inc.

 

Senior Secured

September 2024

PRIME + 3.88% or Floor rate of 9.38%, PIK Interest 1.90%, 4.00% Exit Fee

 

$

12,426

 

 

 

12,665

 

 

 

12,521

 

 

(13)

Tectura Corporation

 

Senior Secured

July 2024

PIK Interest 5.00%

 

$

10,680

 

 

 

240

 

 

 

 

 

(7)(8)(13)

 

 

Senior Secured

July 2024

FIXED 8.25%

 

$

8,250

 

 

 

8,250

 

 

 

8,250

 

 

(7)(8)

 

 

Senior Secured

July 2024

PIK Interest 5.00%

 

$

13,023

 

 

 

13,023

 

 

 

19

 

 

(7)(8)(13)

Total Tectura Corporation

 

 

 

 

 

$

31,953

 

 

 

21,513

 

 

 

8,269

 

 

 

Thumbtack, Inc.

 

Senior Secured

September 2023

PRIME + 3.45% or Floor rate of 8.95%, PIK Interest 1.50%, 3.95% Exit Fee

 

$

25,618

 

 

 

25,965

 

 

 

26,372

 

 

(12)(13)

Zepz (p.k.a. Worldremit Group Limited)

 

Senior Secured

February 2025

3-month LIBOR + 9.25% or Floor rate of 10.25%, 3.00% Exit Fee

 

$

103,000

 

 

 

101,674

 

 

 

100,472

 

 

(5)(10)(12)(15)(18)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

341,001

 

 

 

327,799

 

 

 

Subtotal: Internet Consumer & Business Services (26.74%)*

 

 

 

 

 

 

363,165

 

 

 

349,963

 

 

 

Manufacturing Technology

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bright Machines, Inc.

 

Senior Secured

November 2022

PRIME + 5.70% or Floor rate of 8.95%, 6.95% Exit Fee

 

$

15,000

 

 

 

14,995

 

 

 

14,995

 

 

(18)

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

14,995

 

 

 

14,995

 

 

 

Subtotal: Manufacturing Technology (1.15%)*

 

 

 

 

 

 

14,995

 

 

 

14,995

 

 

 

Semiconductors

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fungible Inc.

 

Senior Secured

December 2024

PRIME + 5.00% or Floor rate of 8.25%, 4.95% Exit Fee

 

$

20,000

 

 

 

19,072

 

 

 

19,072

 

 

(14)(18)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

19,072

 

 

 

19,072

 

 

 

Subtotal: Semiconductors (1.46%)*

 

 

 

 

 

 

19,072

 

 

 

19,072

 

 

 

Software

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Khoros (p.k.a Lithium Technologies)

 

Senior Secured

October 2022

6-month LIBOR + 8.00% or Floor rate of 9.00%

 

$

56,208

 

 

 

55,834

 

 

 

55,834

 

 

(16)

Pymetrics, Inc.

 

Senior Secured

October 2022

PRIME + 5.50% or Floor rate of 8.75%, PIK Interest 1.75%, 4.00% Exit Fee

 

$

9,667

 

 

 

9,845

 

 

 

9,845

 

 

(13)

Regent Education

 

Senior Secured

January 2022

FIXED 10.00%, PIK Interest 2.00%, 7.94% Exit Fee

 

$

2,951

 

 

 

3,064

 

 

 

2,608

 

 

(8)(13)

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

68,743

 

 

 

68,287

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3GTMS, LLC.

 

Senior Secured

February 2025

6-Month LIBOR + 9.28% or Floor rate of 10.28%

 

$

10,000

 

 

 

9,812

 

 

 

9,656

 

 

(16)(17)

Agilence, Inc.

 

Senior Secured

October 2026

1-month LIBOR + 9.00% or Floor rate of 10.00%

 

$

9,400

 

 

 

9,138

 

 

 

9,138

 

 

(16)

 

See notes to consolidated financial statements

 

20


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)

 

Portfolio Company

 

Type of
Investment

Maturity Date

Interest Rate and Floor (1)

 

Principal
Amount

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Brain Corporation

 

Senior Secured

April 2025

PRIME + 3.70% or Floor rate of 6.95%, PIK Interest 1.00%, 3.95% Exit Fee

 

$

10,016

 

 

$

9,943

 

 

$

9,943

 

 

(13)(14)(16)

Campaign Monitor Limited

 

Senior Secured

November 2025

6-month LIBOR + 7.90% or Floor rate of 11.15%

 

$

33,000

 

 

 

32,459

 

 

 

33,000

 

 

(18)

Ceros, LLC

 

Senior Secured

September 2026

3-month LIBOR + 8.89% or Floor rate of 9.89%

 

$

17,978

 

 

 

17,474

 

 

 

17,474

 

 

(16)(17)

Cloud 9 Software

 

Senior Secured

April 2024

3-month LIBOR + 8.20% or Floor rate of 9.20%

 

$

9,953

 

 

 

9,856

 

 

 

9,953

 

 

(12)

CloudBolt Software, Inc.

 

Senior Secured

October 2024

PRIME + 6.70% or Floor rate of 9.95%, 2.95% Exit Fee

 

$

10,000

 

 

 

9,923

 

 

 

10,035

 

 

(11)(12)(18)

Cybermaxx Intermediate Holdings, Inc.

 

Senior Secured

August 2026

6-month LIBOR + 9.28% or Floor rate of 10.28%

 

$

8,000

 

 

 

7,801

 

 

 

7,801

 

 

(16)

Dashlane, Inc.

 

Senior Secured

July 2025

PRIME + 3.05% or Floor rate of 7.55%, PIK Interest 1.10%, 7.10% Exit Fee

 

$

20,719

 

 

 

21,807

 

 

 

21,734

 

 

(11)(13)(16)(18)

Delphix Corp.

 

Senior Secured

February 2023

PRIME + 5.50% or Floor rate of 10.25%, 5.00% Exit Fee

 

$

60,000

 

 

 

61,736

 

 

 

62,345

 

 

(12)(15)(18)

Demandbase, Inc.

 

Senior Secured

August 2025

PRIME + 5.25% or Floor rate of 8.50%, 2.00% Exit Fee

 

$

16,875

 

 

 

16,463

 

 

 

16,463

 

 

(16)(18)

Enmark Systems

 

Senior Secured

September 2026

6-Month LIBOR + 6.83% or Floor rate of 7.83%, PIK Interest 2.19%

 

$

8,000

 

 

 

7,798

 

 

 

7,798

 

 

(11)(16)(17)

Esentire, Inc.

 

Senior Secured

May 2024

3-month LIBOR + 9.96% or Floor rate of 10.96%

 

$

21,000

 

 

 

20,699

 

 

 

20,750

 

 

(5)(10)(11)(17)

Gryphon Networks Corp.

 

Senior Secured

January 2026

3-month LIBOR + 9.69% or Floor rate of 10.69%

 

$

5,232

 

 

 

5,106

 

 

 

5,088

 

 

(11)(16)

Ikon Science Limited

 

Senior Secured

October 2024

3-month LIBOR + 9.00% or Floor rate of 10.00%

 

$

6,913

 

 

 

6,719

 

 

 

6,767

 

 

(5)(10)(16)(17)

Kazoo, Inc. (p.k.a. YouEarnedIt, Inc.)

 

Senior Secured

July 2023

3-month LIBOR + 10.14% or Floor rate of 11.14%

 

$

8,571

 

 

 

8,403

 

 

 

8,375

 

 

(17)

Logicworks

 

Senior Secured

January 2024

PRIME + 7.50% or Floor rate of 10.75%

 

$

10,000

 

 

 

9,862

 

 

 

9,965

 

 

(12)(16)

Mixpanel, Inc.

 

Senior Secured

August 2024

PRIME + 4.70% or Floor rate of 7.95%, PIK Interest 1.80%, 3.00% Exit Fee

 

$

20,431

 

 

 

20,292

 

 

 

21,030

 

 

(12)(13)(18)

Mobile Solutions Services

 

Senior Secured

December 2025

6-month LIBOR + 9.87% or Floor rate of 10.87%

 

$

19,074

 

 

 

18,575

 

 

 

18,834

 

 

(16)(17)

Nuvolo Technologies Corporation

 

Senior Secured

July 2025

PRIME + 7.70% or Floor rate of 10.95%, 1.75% Exit Fee

 

$

15,000

 

 

 

14,967

 

 

 

15,017

 

 

(12)(18)

Pollen, Inc.

 

Senior Secured

November 2023

PRIME + 4.75% or Floor rate of 8.00%, PIK Interest 0.50%, 4.50% Exit Fee

 

$

7,457

 

 

 

7,528

 

 

 

7,314

 

 

(13)

 

 

Senior Secured

November 2023

PRIME + 5.25% or Floor rate of 8.50%, PIK Interest 1.35%, 4.50% Exit Fee

 

$

13,041

 

 

 

13,005

 

 

 

13,092

 

 

(13)(14)

Total Pollen, Inc.

 

 

 

 

 

$

20,498

 

 

 

20,533

 

 

 

20,406

 

 

 

Reltio, Inc.

 

Senior Secured

July 2023

PRIME + 5.70% or Floor rate of 8.95%, PIK Interest 1.70%, 4.95% Exit Fee

 

$

10,248

 

 

 

10,336

 

 

 

10,542

 

 

(13)(18)

ShadowDragon, LLC

 

Senior Secured

December 2026

3-month LIBOR + 9.00% or Floor rate of 10.00%

 

$

6,000

 

 

 

5,828

 

 

 

5,828

 

 

(16)(17)

Tact.ai Technologies, Inc.

 

Senior Secured

February 2024

PRIME + 4.00% or Floor rate of 8.75%, PIK Interest 2.00%, 5.50% Exit Fee

 

$

5,185

 

 

 

5,305

 

 

 

5,245

 

 

(13)

ThreatConnect, Inc.

 

Senior Secured

May 2026

3-month LIBOR + 9.00% or Floor rate of 10.00%

 

$

11,144

 

 

 

10,831

 

 

 

10,859

 

 

(12)(16)(17)

Udacity, Inc.

 

Senior Secured

September 2024

PRIME + 4.50% or Floor rate of 7.75%, PIK Interest 2.00%, 3.00% Exit Fee

 

$

50,895

 

 

 

50,646

 

 

 

51,722

 

 

(12)(13)

Zimperium, Inc.

 

Senior Secured

July 2024

1-month LIBOR + 8.95% or Floor rate of 9.95%

 

$

15,633

 

 

 

15,347

 

 

 

15,347

 

 

(12)(17)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

437,659

 

 

 

441,115

 

 

 

Greater than 5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Imperva, Inc.

 

Senior Secured

January 2027

3-month LIBOR + 7.75% or Floor rate of 8.75%

 

$

20,000

 

 

 

19,851

 

 

 

20,000

 

 

(18)

Subtotal: Greater than 5 Years Maturity

 

 

 

 

 

 

19,851

 

 

 

20,000

 

 

 

Subtotal: Software (40.46%)*

 

 

 

 

 

 

526,253

 

 

 

529,402

 

 

 

 

See notes to consolidated financial statements

 

21


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)

 

Portfolio Company

 

Type of
Investment

Maturity Date

Interest Rate and Floor (1)

 

Principal
Amount

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Sustainable and Renewable Technology

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impossible Foods, Inc.

 

Senior Secured

July 2022

PRIME + 3.95% or Floor rate of 8.95%, 9.00% Exit Fee

 

$

15,022

 

 

$

19,379

 

 

$

19,378

 

 

(12)

Pineapple Energy LLC

 

Senior Secured

January 2022

FIXED 10.00%

 

$

280

 

 

 

280

 

 

 

247

 

 

(6)(9)(16)

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

19,659

 

 

 

19,625

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pineapple Energy LLC

 

Senior Secured

December 2023

PIK Interest 10.00%

 

$

7,500

 

 

 

7,500

 

 

 

7,500

 

 

(6)(8)(13)(16)

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

7,500

 

 

 

7,500

 

 

 

Subtotal: Sustainable and Renewable Technology (2.07%)*

 

 

 

 

 

 

27,159

 

 

 

27,125

 

 

 

Total: Debt Investments (168.86%)*

 

 

 

 

 

$

2,219,586

 

 

$

2,209,599

 

 

 

 

 

See notes to consolidated financial statements

 

22


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)

 

 

Portfolio Company

 

Type of
Investment

Acquisition Date (4)

Series (3)

Shares

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Equity Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Communications & Networking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Peerless Network Holdings, Inc.

 

Equity

10/21/2020

Common Stock

 

3,328

 

 

$

 

 

$

18

 

 

 

 

 

Equity

4/11/2008

Preferred Series A

 

1,135,000

 

 

 

1,230

 

 

 

6,242

 

 

 

Total Peerless Network Holdings, Inc.

 

 

 

 

 

1,138,328

 

 

 

1,230

 

 

 

6,260

 

 

 

Subtotal: Communications & Networking (0.48%)*

 

 

 

 

1,230

 

 

 

6,260

 

 

 

Consumer & Business Products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TechStyle, Inc. (p.k.a. Just Fabulous, Inc.)

 

Equity

4/30/2010

Common Stock

 

42,989

 

 

 

128

 

 

 

447

 

 

 

Subtotal: Consumer & Business Products (0.03%)*

 

 

 

 

128

 

 

 

447

 

 

 

Diversified Financial Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gibraltar Business Capital, LLC

 

Equity

3/1/2018

Common Stock

 

830,000

 

 

 

1,884

 

 

 

1,225

 

 

(7)

 

 

Equity

3/1/2018

Preferred Series A

 

10,602,752

 

 

 

26,122

 

 

 

19,393

 

 

(7)

Total Gibraltar Business Capital, LLC

 

 

11,432,752

 

 

 

28,006

 

 

 

20,618

 

 

 

Hercules Adviser LLC

 

Equity

3/26/2021

Member Units

 

1

 

 

 

35

 

 

 

11,990

 

 

(7)

Subtotal: Diversified Financial Services (2.49%)*

 

 

 

 

28,041

 

 

 

32,608

 

 

 

Drug Delivery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AcelRx Pharmaceuticals, Inc.

 

Equity

12/10/2018

Common Stock

 

176,730

 

 

 

1,329

 

 

 

99

 

 

(4)

Aytu BioScience, Inc. (p.k.a. Neos Therapeutics, Inc.)

 

Equity

3/28/2014

Common Stock

 

13,600

 

 

 

1,500

 

 

 

18

 

 

(4)

BioQ Pharma Incorporated

 

Equity

12/8/2015

Preferred Series D

 

165,000

 

 

 

500

 

 

 

168

 

 

 

PDS Biotechnology Corporation (p.k.a. Edge Therapeutics, Inc.)

 

Equity

4/6/2015

Common Stock

 

2,498

 

 

 

309

 

 

 

20

 

 

(4)

Subtotal: Drug Delivery (0.02%)*

 

 

 

 

3,638

 

 

 

305

 

 

 

Drug Discovery & Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Albireo Pharma, Inc.

 

Equity

9/14/2020

Common Stock

 

25,000

 

 

 

1,000

 

 

 

582

 

 

(4)(10)

Applied Molecular Transport

 

Equity

4/6/2021

Common Stock

 

1,000

 

 

 

42

 

 

 

14

 

 

(4)(10)

Avalo Therapeutics, Inc. (p.k.a. Cerecor, Inc.)

 

Equity

8/19/2014

Common Stock

 

119,087

 

 

 

1,000

 

 

 

202

 

 

(4)

Aveo Pharmaceuticals, Inc.

 

Equity

7/31/2011

Common Stock

 

190,179

 

 

 

1,715

 

 

 

892

 

 

(4)

Bicycle Therapeutics PLC

 

Equity

10/5/2020

Common Stock

 

98,100

 

 

 

1,871

 

 

 

5,971

 

 

(4)(5)(10)

BridgeBio Pharma, Inc.

 

Equity

6/21/2018

Common Stock

 

231,329

 

 

 

2,255

 

 

 

3,859

 

 

(4)

Chemocentryx, Inc.

 

Equity

6/15/2020

Common Stock

 

17,241

 

 

 

1,000

 

 

 

628

 

 

(4)(10)

Concert Pharmaceuticals, Inc.

 

Equity

2/13/2019

Common Stock

 

70,796

 

 

 

1,367

 

 

 

223

 

 

(4)(10)

Dare Biosciences, Inc.

 

Equity

1/8/2015

Common Stock

 

13,550

 

 

 

1,000

 

 

 

27

 

 

(4)

Dynavax Technologies

 

Equity

7/22/2015

Common Stock

 

20,000

 

 

 

550

 

 

 

281

 

 

(4)(10)

Genocea Biosciences, Inc.

 

Equity

11/20/2014

Common Stock

 

27,933

 

 

 

2,000

 

 

 

32

 

 

(4)

Hibercell, Inc.

 

Equity

5/7/2021

Preferred Series B

 

3,466,840

 

 

 

4,250

 

 

 

3,264

 

 

(14)

Humanigen, Inc.

 

Equity

3/31/2021

Common Stock

 

43,243

 

 

 

800

 

 

 

161

 

 

(4)(10)

Kaleido Biosciences, Inc.

 

Equity

2/10/2021

Common Stock

 

86,585

 

 

 

1,000

 

 

 

207

 

 

(4)

NorthSea Therapeutics

 

Equity

12/15/2021

Preferred Series C

 

983

 

 

 

2,000

 

 

 

2,000

 

 

(5)(10)

Paratek Pharmaceuticals, Inc.

 

Equity

2/26/2007

Common Stock

 

76,362

 

 

 

2,744

 

 

 

343

 

 

(4)

Rocket Pharmaceuticals, Ltd.

 

Equity

8/22/2007

Common Stock

 

944

 

 

 

1,500

 

 

 

21

 

 

(4)

Savara, Inc.

 

Equity

8/11/2015

Common Stock

 

11,119

 

 

 

202

 

 

 

14

 

 

(4)

Sio Gene Therapies, Inc. (p.k.a. Axovant Gene Therapies Ltd.)

 

Equity

2/2/2017

Common Stock

 

16,228

 

 

 

1,269

 

 

 

21

 

 

(4)(10)

Tricida, Inc.

 

Equity

2/28/2018

Common Stock

 

68,816

 

 

 

863

 

 

 

658

 

 

(4)

uniQure B.V.

 

Equity

1/31/2019

Common Stock

 

17,175

 

 

 

332

 

 

 

356

 

 

(4)(5)(10)(15)

Valo Health, LLC (p.k.a. Integral Health Holdings, LLC)

 

Equity

12/11/2020

Preferred Series B

 

510,308

 

 

 

3,000

 

 

 

4,650

 

 

 

X4 Pharmaceuticals, Inc.

 

Equity

11/26/2019

Common Stock

 

198,277

 

 

 

1,641

 

 

 

454

 

 

(4)

Subtotal: Drug Discovery & Development (1.90%)*

 

 

 

 

33,401

 

 

 

24,860

 

 

 

Healthcare Services, Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23andMe, Inc.

 

Equity

3/11/2019

Common Stock

 

825,732

 

 

 

5,094

 

 

 

5,500

 

 

(4)

Carbon Health Technologies, Inc.

 

Equity

3/30/2021

Preferred Series C

 

217,880

 

 

 

1,687

 

 

 

1,864

 

 

 

Subtotal: Healthcare Services, Other (0.56%)*

 

 

 

 

6,781

 

 

 

7,364

 

 

 

Information Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Planet Labs, Inc.

 

Equity

6/21/2019

Common Stock

 

547,880

 

 

 

615

 

 

 

3,369

 

 

(4)

Yipit, LLC

 

Equity

12/30/2021

Preferred Series E

 

41,021

 

 

 

3,825

 

 

 

3,825

 

 

 

Zeta Global Corp.

 

Equity

11/20/2007

Common Stock

 

295,861

 

 

 

 

 

 

2,220

 

 

(4)(19)

Subtotal: Information Services (0.72%)*

 

 

 

 

4,440

 

 

 

9,414

 

 

 

 

 

 

See notes to consolidated financial statements

 

23


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)

 

Portfolio Company

 

Type of
Investment

Acquisition Date (4)

Series (3)

Shares

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Internet Consumer & Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Black Crow AI, Inc.

 

Equity

3/24/2021

Preferred Series Seed

 

872,797

 

 

$

1,000

 

 

$

1,120

 

 

(6)

Black Crow AI, Inc. affiliates

 

Equity

3/24/2021

Preferred Note

 

3

 

 

 

3,000

 

 

 

3,000

 

 

(20)

Brigade Group, Inc.

 

Equity

3/1/2013

Common Stock

 

9,023

 

 

 

93

 

 

 

 

 

 

Carwow LTD

 

Equity

12/15/2021

Preferred Series D-4

 

199,742

 

 

 

1,151

 

 

 

608

 

 

(5)(10)

Contentful Global, Inc. (p.k.a. Contentful, Inc.)

 

Equity

12/22/2020

Preferred Series C

 

41,000

 

 

 

138

 

 

 

506

 

 

(5)(10)

 

 

Equity

11/20/2018

Preferred Series D

 

108,500

 

 

 

500

 

 

 

1,388

 

 

(5)(10)

Total Contentful Global, Inc. (p.k.a. Contentful, Inc.)

 

 

149,500

 

 

 

638

 

 

 

1,894

 

 

 

DoorDash, Inc.

 

Equity

12/20/2018

Common Stock

 

81,996

 

 

 

945

 

 

 

12,209

 

 

(4)

Lyft, Inc.

 

Equity

12/26/2018

Common Stock

 

100,738

 

 

 

5,263

 

 

 

4,305

 

 

(4)

Nerdy Inc.

 

Equity

9/17/2021

Common Stock

 

100,000

 

 

 

1,000

 

 

 

450

 

 

(4)

Nextdoor.com, Inc.

 

Equity

8/1/2018

Common Stock

 

1,019,255

 

 

 

4,854

 

 

 

6,624

 

 

(4)(19)

OfferUp, Inc.

 

Equity

10/25/2016

Preferred Series A

 

286,080

 

 

 

1,663

 

 

 

1,791

 

 

 

 

 

Equity

10/25/2016

Preferred Series A-1

 

108,710

 

 

 

632

 

 

 

680

 

 

 

Total OfferUp, Inc.

 

 

 

 

 

394,790

 

 

 

2,295

 

 

 

2,471

 

 

 

Oportun

 

Equity

6/28/2013

Common Stock

 

48,365

 

 

 

577

 

 

 

980

 

 

(4)

Reischling Press, Inc. (p.k.a. Blurb, Inc.)

 

Equity

7/31/2020

Common Stock

 

1,163

 

 

 

15

 

 

 

 

 

 

Savage X Holding, LLC

 

Equity

4/30/2010

Class A Units

 

42,137

 

 

 

13

 

 

 

71

 

 

 

Tectura Corporation

 

Equity

5/23/2018

Common Stock

 

414,994,863

 

 

 

900

 

 

 

 

 

(7)

 

 

Equity

6/6/2016

Preferred Series BB

 

1,000,000

 

 

 

 

 

 

 

 

(7)

Total Tectura Corporation

 

 

415,994,863

 

 

 

900

 

 

 

 

 

 

TFG Holding, Inc.

 

Equity

4/30/2010

Common Stock

 

42,989

 

 

 

89

 

 

 

216

 

 

 

Uber Technologies, Inc. (p.k.a. Postmates, Inc.)

 

Equity

12/1/2020

Common Stock

 

32,991

 

 

 

318

 

 

 

1,383

 

 

(4)

Subtotal: Internet Consumer & Business Services (2.70%)*

 

 

 

 

22,151

 

 

 

35,331

 

 

 

Medical Devices & Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coronado Aesthetics, LLC

 

Equity

10/15/2021

Common Units

 

180,000

 

 

 

 

 

 

65

 

 

(7)

 

 

Equity

10/15/2021

Preferred Series A-2

 

5,000,000

 

 

 

250

 

 

 

500

 

 

(7)

Total Coronado Aesthetics, LLC

 

 

5,180,000

 

 

 

250

 

 

 

565

 

 

 

Flowonix Medical Incorporated

 

Equity

11/3/2014

Preferred Series AA

 

221,893

 

 

 

1,500

 

 

 

 

 

 

Gelesis, Inc.

 

Equity

11/30/2009

Common Stock

 

227,013

 

 

 

 

 

 

3,351

 

 

 

 

 

Equity

12/30/2011

Preferred Series A-1

 

243,432

 

 

 

503

 

 

 

3,593

 

 

 

 

 

Equity

12/31/2011

Preferred Series A-2

 

191,626

 

 

 

500

 

 

 

2,828

 

 

 

Total Gelesis, Inc.

 

 

662,071

 

 

 

1,003

 

 

 

9,772

 

 

 

Medrobotics Corporation

 

Equity

9/12/2013

Preferred Series E

 

136,798

 

 

 

250

 

 

 

 

 

 

 

 

Equity

10/22/2014

Preferred Series F

 

73,971

 

 

 

155

 

 

 

 

 

 

 

 

Equity

10/16/2015

Preferred Series G

 

163,934

 

 

 

500

 

 

 

 

 

 

Total Medrobotics Corporation

 

 

374,703

 

 

 

905

 

 

 

 

 

 

ViewRay, Inc.

 

Equity

12/16/2013

Common Stock

 

36,457

 

 

 

333

 

 

 

201

 

 

(4)

Subtotal: Medical Devices & Equipment (0.81%)*

 

 

 

 

3,991

 

 

 

10,538

 

 

 

Semiconductors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Achronix Semiconductor Corporation

 

Equity

7/1/2011

Preferred Series C

 

277,995

 

 

 

160

 

 

 

725

 

 

 

Subtotal: Semiconductors (0.06%)*

 

 

 

 

160

 

 

 

725

 

 

 

Software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3GTMS, LLC.

 

Equity

8/9/2021

Common Stock

 

1,000,000

 

 

 

1,000

 

 

 

985

 

 

 

CapLinked, Inc.

 

Equity

10/26/2012

Preferred Series A-3

 

53,614

 

 

 

51

 

 

 

65

 

 

 

 

 

 

See notes to consolidated financial statements

 

24


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)

 

Portfolio Company

 

Type of
Investment

Acquisition Date (4)

Series (3)

Shares

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Docker, Inc.

 

Equity

11/29/2018

Common Stock

 

20,000

 

 

$

4,284

 

 

$

3

 

 

 

Druva Holdings, Inc. (p.k.a. Druva, Inc.)

 

Equity

10/22/2015

Preferred Series 2

 

458,841

 

 

 

1,000

 

 

 

2,387

 

 

 

 

 

Equity

8/24/2017

Preferred Series 3

 

93,620

 

 

 

300

 

 

 

529

 

 

 

Total Druva Holdings, Inc. (p.k.a. Druva, Inc.)

 

 

552,461

 

 

 

1,300

 

 

 

2,916

 

 

 

HighRoads, Inc.

 

Equity

1/18/2013

Common Stock

 

190

 

 

 

307

 

 

 

 

 

 

Lightbend, Inc.

 

Equity

12/4/2020

Common Stock

 

38,461

 

 

 

265

 

 

 

5

 

 

 

Palantir Technologies

 

Equity

9/23/2020

Common Stock

 

1,418,337

 

 

 

8,670

 

 

 

25,828

 

 

(4)

SingleStore, Inc. (p.k.a. memsql, Inc.)

 

Equity

11/25/2020

Preferred Series E

 

580,983

 

 

 

2,000

 

 

 

2,239

 

 

 

 

 

Equity

8/12/2021

Preferred Series F

 

52,956

 

 

 

279

 

 

 

240

 

 

 

Total SingleStore, Inc. (p.k.a. memsql, Inc.)

 

 

633,939

 

 

 

2,279

 

 

 

2,479

 

 

 

Sprinklr, Inc.

 

Equity

3/22/2017

Common Stock

 

700,000

 

 

 

3,749

 

 

 

11,109

 

 

(4)

Verana Health, Inc.

 

Equity

7/8/2021

Preferred Series E

 

952,562

 

 

 

2,000

 

 

 

1,697

 

 

 

Subtotal: Software (3.45%)*

 

 

 

 

23,905

 

 

 

45,087

 

 

 

Surgical Devices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gynesonics, Inc.

 

Equity

1/18/2007

Preferred Series B

 

219,298

 

 

 

250

 

 

 

9

 

 

 

 

 

Equity

6/16/2010

Preferred Series C

 

656,538

 

 

 

282

 

 

 

26

 

 

 

 

 

Equity

2/8/2013

Preferred Series D

 

1,991,157

 

 

 

712

 

 

 

81

 

 

 

 

 

Equity

7/14/2015

Preferred Series E

 

2,786,367

 

 

 

429

 

 

 

131

 

 

 

 

 

Equity

12/18/2018

Preferred Series F

 

1,523,693

 

 

 

118

 

 

 

123

 

 

 

 

 

Equity

12/18/2018

Preferred Series F-1

 

2,418,125

 

 

 

150

 

 

 

173

 

 

 

Total Gynesonics, Inc.

 

 

9,595,178

 

 

 

1,941

 

 

 

543

 

 

 

Subtotal: Surgical Devices (0.04%)*

 

 

 

 

1,941

 

 

 

543

 

 

 

Sustainable and Renewable Technology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impossible Foods, Inc.

 

Equity

5/10/2019

Preferred Series E-1

 

188,611

 

 

 

2,000

 

 

 

3,430

 

 

 

Modumetal, Inc.

 

Equity

6/1/2015

Common Stock

 

1,035

 

 

 

500

 

 

 

 

 

 

NantEnergy, LLC (p.k.a. Fluidic, Inc.)

 

Equity

8/31/2013

Common Units

 

59,665

 

 

 

102

 

 

 

 

 

 

Pineapple Energy LLC

 

Equity

12/10/2020

Class A Units

 

3,000,000

 

 

 

4,767

 

 

 

591

 

 

(6)

Pivot Bio, Inc.

 

Equity

6/28/2021

Preferred Series D

 

593,080

 

 

 

4,500

 

 

 

3,164

 

 

 

Proterra, Inc.

 

Equity

5/28/2015

Common Stock

 

457,841

 

 

 

543

 

 

 

4,043

 

 

(4)

Subtotal: Sustainable and Renewable Technology (0.86%)*

 

 

 

 

12,412

 

 

 

11,228

 

 

 

Total: Equity Investments (14.12%)*

 

 

 

 

 

 

 

$

142,219

 

 

$

184,710

 

 

 

Warrant Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Communications & Networking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Spring Mobile Solutions, Inc.

 

Warrant

4/19/2013

Common Stock

 

2,834,375

 

 

$

418

 

 

$

 

 

 

Subtotal: Communications & Networking (0.00%)*

 

 

 

 

418

 

 

 

 

 

 

Consumer & Business Products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grove Collaborative, Inc.

 

Warrant

4/30/2021

Common Stock

 

83,625

 

 

 

433

 

 

 

326

 

 

 

Penumbra Brands, LLC (p.k.a. Gadget Guard)

 

Warrant

6/3/2014

Common Stock

 

1,662,441

 

 

 

228

 

 

 

 

 

 

TechStyle, Inc. (p.k.a. Just Fabulous, Inc.)

 

Warrant

7/16/2013

Preferred Series B

 

206,185

 

 

 

1,101

 

 

 

2,181

 

 

 

The Neat Company

 

Warrant

8/13/2014

Common Stock

 

54,054

 

 

 

365

 

 

 

 

 

 

Whoop, Inc.

 

Warrant

6/27/2018

Preferred Series C

 

686,270

 

 

 

18

 

 

 

1,847

 

 

 

Subtotal: Consumer & Business Products (0.33%)*

 

 

 

 

2,145

 

 

 

4,354

 

 

 

Drug Delivery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerami Therapeutics (p.k.a. Dance Biopharm, Inc.)

 

Warrant

9/30/2015

Common Stock

 

110,882

 

 

 

74

 

 

 

 

 

 

BioQ Pharma Incorporated

 

Warrant

10/27/2014

Common Stock

 

459,183

 

 

 

1

 

 

 

62

 

 

 

PDS Biotechnology Corporation (p.k.a. Edge Therapeutics, Inc.)

 

Warrant

8/28/2014

Common Stock

 

3,929

 

 

 

390

 

 

 

1

 

 

(4)

Subtotal: Drug Delivery (0.00%)*

 

 

 

 

465

 

 

 

63

 

 

 

Drug Discovery & Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acacia Pharma Inc.

 

Warrant

6/29/2018

Common Stock

 

201,330

 

 

 

305

 

 

 

6

 

 

(4)(5)(10)

ADMA Biologics, Inc.

 

Warrant

12/21/2012

Common Stock

 

89,750

 

 

 

295

 

 

 

1

 

 

(4)

 

 

See notes to consolidated financial statements

 

25


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)

 

Portfolio Company

 

Type of
Investment

Acquisition Date (4)

Series (3)

Shares

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Albireo Pharma, Inc.

 

Warrant

6/8/2020

Common Stock

 

5,311

 

 

$

61

 

 

$

42

 

 

(4)(10)

Axsome Therapeutics, Inc.

 

Warrant

9/25/2020

Common Stock

 

15,541

 

 

 

681

 

 

 

142

 

 

(4)(10)

Brickell Biotech, Inc.

 

Warrant

2/18/2016

Common Stock

 

9,005

 

 

 

119

 

 

 

 

 

(4)

Cellarity, Inc.

 

Warrant

12/8/2021

Preferred Series B

 

100,000

 

 

 

287

 

 

 

287

 

 

(14)

Century Therapeutics

 

Warrant

9/14/2020

Common Stock

 

16,112

 

 

 

37

 

 

 

64

 

 

(4)

Concert Pharmaceuticals, Inc.

 

Warrant

6/8/2017

Common Stock

 

61,273

 

 

 

178

 

 

 

3

 

 

(4)(10)

Dermavant Sciences Ltd.

 

Warrant

5/31/2019

Common Stock

 

223,642

 

 

 

101

 

 

 

354

 

 

(10)(12)

enGene, Inc.

 

Warrant

12/30/2021

Preferred Series 3 Class C

 

84,714

 

 

 

64

 

 

 

64

 

 

(5)(10)

Evofem Biosciences, Inc.

 

Warrant

6/11/2014

Common Stock

 

7,806

 

 

 

266

 

 

 

 

 

(4)

Genocea Biosciences, Inc.

 

Warrant

4/24/2018

Common Stock

 

41,176

 

 

 

165

 

 

 

1

 

 

(4)

Motif Bio PLC

 

Warrant

1/27/2020

Common Stock

 

121,337,041

 

 

 

282

 

 

 

 

 

(10)

Myovant Sciences, Ltd.

 

Warrant

10/16/2017

Common Stock

 

73,710

 

 

 

460

 

 

 

267

 

 

(4)(10)

Paratek Pharmaceuticals, Inc.

 

Warrant

6/27/2017

Common Stock

 

432,240

 

 

 

546

 

 

 

427

 

 

(4)

Phathom Pharmaceuticals, Inc.

 

Warrant

9/17/2021

Common Stock

 

64,687

 

 

 

848

 

 

 

307

 

 

(4)(10)(14)(15)

Scynexis, Inc.

 

Warrant

5/14/2021

Common Stock

 

90,887

 

 

 

188

 

 

 

142

 

 

(4)

Stealth Bio Therapeutics Corp.

 

Warrant

6/30/2017

Common Stock

 

500,000

 

 

 

158

 

 

 

 

 

(4)(10)

TG Therapeutics, Inc.

 

Warrant

2/28/2019

Common Stock

 

231,613

 

 

 

1,033

 

 

 

2,172

 

 

(4)(10)(12)

Tricida, Inc.

 

Warrant

3/27/2019

Common Stock

 

31,352

 

 

 

280

 

 

 

20

 

 

(4)

Valo Health, LLC (p.k.a. Integral Health Holdings, LLC)

 

Warrant

6/15/2020

Common Units

 

102,216

 

 

 

256

 

 

 

441

 

 

 

X4 Pharmaceuticals, Inc.

 

Warrant

3/18/2019

Common Stock

 

108,334

 

 

 

673

 

 

 

2

 

 

(4)

Yumanity Therapeutics, Inc.

 

Warrant

12/20/2019

Common Stock

 

15,414

 

 

 

110

 

 

 

3

 

 

(4)

Subtotal: Drug Discovery & Development (0.36%)*

 

 

 

 

7,393

 

 

 

4,745

 

 

 

Electronics & Computer Hardware

 

 

 

 

 

 

 

 

 

 

 

 

 

 

908 Devices, Inc.

 

Warrant

3/15/2017

Common Stock

 

49,078

 

 

 

101

 

 

 

618

 

 

(4)

Skydio, Inc.

 

Warrant

11/8/2021

Common Stock

 

124,451

 

 

 

557

 

 

 

422

 

 

 

Subtotal: Electronics & Computer Hardware (0.08%)*

 

 

 

 

658

 

 

 

1,040

 

 

 

Information Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capella Space

 

Warrant

10/21/2021

Common Stock

 

176,200

 

 

 

207

 

 

 

139

 

 

(14)

InMobi Inc.

 

Warrant

11/19/2014

Common Stock

 

65,587

 

 

 

82

 

 

 

 

 

(10)

Netbase Solutions, Inc.

 

Warrant

8/22/2017

Preferred Series 1

 

60,000

 

 

 

356

 

 

 

418

 

 

 

Subtotal: Information Services (0.04%)*

 

 

 

 

645

 

 

 

557

 

 

 

Internet Consumer & Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aria Systems, Inc.

 

Warrant

5/22/2015

Preferred Series G

 

231,535

 

 

 

74

 

 

 

 

 

 

Carwow LTD

 

Warrant

12/14/2021

Common Stock

 

174,163

 

 

 

164

 

 

 

160

 

 

(5)(10)

Cloudpay, Inc.

 

Warrant

4/10/2018

Preferred Series B

 

6,763

 

 

 

54

 

 

 

348

 

 

(5)(10)

First Insight, Inc.

 

Warrant

5/10/2018

Preferred Series B

 

75,917

 

 

 

96

 

 

 

105

 

 

 

Houzz, Inc.

 

Warrant

10/29/2019

Common Stock

 

529,661

 

 

 

20

 

 

 

116

 

 

 

Interactions Corporation

 

Warrant

6/16/2015

Preferred Series G-3

 

68,187

 

 

 

204

 

 

 

505

 

 

 

Landing Holdings Inc.

 

Warrant

3/12/2021

Common Stock

 

11,806

 

 

 

116

 

 

 

141

 

 

(14)

Lendio, Inc.

 

Warrant

3/29/2019

Preferred Series D

 

127,032

 

 

 

39

 

 

 

84

 

 

 

LogicSource

 

Warrant

3/21/2016

Preferred Series C

 

79,625

 

 

 

30

 

 

 

210

 

 

 

Rhino Labs, Inc.

 

Warrant

3/12/2021

Common Stock

 

13,106

 

 

 

470

 

 

 

77

 

 

(14)

RumbleON, Inc.

 

Warrant

4/30/2018

Common Stock

 

5,139

 

 

 

88

 

 

 

33

 

 

(4)

SeatGeek, Inc.

 

Warrant

6/12/2019

Common Stock

 

1,379,761

 

 

 

842

 

 

 

1,140

 

 

 

ShareThis, Inc.

 

Warrant

12/14/2012

Preferred Series C

 

493,502

 

 

 

547

 

 

 

 

 

 

Skyword, Inc.

 

Warrant

8/23/2019

Preferred Series B

 

444,444

 

 

 

83

 

 

 

7

 

 

 

Snagajob.com, Inc.

 

Warrant

4/20/2020

Common Stock

 

600,000

 

 

 

16

 

 

 

121

 

 

(12)

 

 

Warrant

6/30/2016

Preferred Series A

 

1,800,000

 

 

 

782

 

 

 

171

 

 

(12)

 

 

Warrant

8/1/2018

Preferred Series B

 

1,211,537

 

 

 

62

 

 

 

90

 

 

(12)

Total Snagajob.com, Inc.

 

 

3,611,537

 

 

 

860

 

 

 

382

 

 

 

Tapjoy, Inc.

 

Warrant

7/1/2014

Preferred Series D

 

748,670

 

 

 

317

 

 

 

443

 

 

 

The Faction Group LLC

 

Warrant

11/3/2014

Preferred Series AA

 

8,076

 

 

 

234

 

 

 

650

 

 

 

 

 

See notes to consolidated financial statements

 

26


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)

 

Portfolio Company

 

Type of
Investment

Acquisition Date (4)

Series (3)

Shares

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Thumbtack, Inc.

 

Warrant

5/1/2018

Common Stock

 

190,953

 

 

$

552

 

 

$

786

 

 

 

Xometry, Inc.

 

Warrant

5/9/2018

Common Stock

 

87,784

 

 

 

47

 

 

 

3,038

 

 

(4)

Zepz (p.k.a. Worldremit Group Limited)

 

Warrant

2/11/2021

Preferred Series D

 

77,215

 

 

 

129

 

 

 

1,962

 

 

(5)(10)(15)

 

 

Warrant

8/27/2021

Preferred Series E

 

1,868

 

 

 

26

 

 

 

25

 

 

(5)(10)(15)

Total Zepz (p.k.a. Worldremit Group Limited)

 

 

79,083

 

 

 

155

 

 

 

1,987

 

 

 

Subtotal: Internet Consumer & Business Services (0.78%)*

 

 

 

 

4,992

 

 

 

10,212

 

 

 

Media/Content/Info

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Zoom Media Group, Inc.

 

Warrant

12/21/2012

Preferred Series A

 

1,204

 

 

 

348

 

 

 

 

 

 

Subtotal: Media/Content/Info (0.00%)*

 

 

 

 

348

 

 

 

 

 

 

Medical Devices & Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aspire Bariatrics, Inc.

 

Warrant

1/28/2015

Common Stock

 

22,572

 

 

 

455

 

 

 

 

 

 

Flowonix Medical Incorporated

 

Warrant

11/3/2014

Preferred Series AA

 

155,325

 

 

 

363

 

 

 

 

 

(12)

 

 

Warrant

9/21/2018

Preferred Series BB

 

725,806

 

 

 

351

 

 

 

 

 

 

Total Flowonix Medical Incorporated

 

 

881,131

 

 

 

714

 

 

 

 

 

 

Intuity Medical, Inc.

 

Warrant

12/29/2017

Preferred Series B-1

 

3,076,323

 

 

 

294

 

 

 

264

 

 

 

Medrobotics Corporation

 

Warrant

3/13/2013

Preferred Series E

 

455,539

 

 

 

370

 

 

 

 

 

 

Outset Medical, Inc.

 

Warrant

9/27/2013

Common Stock

 

62,794

 

 

 

401

 

 

 

1,797

 

 

(4)

SonaCare Medical, LLC

 

Warrant

9/28/2012

Preferred Series A

 

6,464

 

 

 

188

 

 

 

 

 

 

Tela Bio, Inc.

 

Warrant

3/31/2017

Common Stock

 

15,712

 

 

 

61

 

 

 

13

 

 

(4)

Subtotal: Medical Devices & Equipment (0.16%)*

 

 

 

 

2,483

 

 

 

2,074

 

 

 

Semiconductors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Achronix Semiconductor Corporation

 

Warrant

6/26/2015

Preferred Series D-2

 

750,000

 

 

 

99

 

 

 

1,950

 

 

 

Fungible Inc.

 

Warrant

12/16/2021

Common Stock

 

800,000

 

 

 

751

 

 

 

751

 

 

(14)

Subtotal: Semiconductors (0.21%)*

 

 

 

 

850

 

 

 

2,701

 

 

 

Software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bitsight Technologies, Inc.

 

Warrant

11/18/2020

Common Stock

 

29,691

 

 

 

284

 

 

 

1,272

 

 

 

Brain Corporation

 

Warrant

10/4/2021

Common Stock

 

194,629

 

 

 

165

 

 

 

132

 

 

(14)

CloudBolt Software, Inc.

 

Warrant

9/30/2020

Common Stock

 

211,342

 

 

 

117

 

 

 

85

 

 

 

Cloudian, Inc.

 

Warrant

11/6/2018

Common Stock

 

477,454

 

 

 

71

 

 

 

33

 

 

 

Couchbase, Inc.

 

Warrant

4/25/2019

Common Stock

 

105,350

 

 

 

462

 

 

 

1,343

 

 

(4)(19)

Dashlane, Inc.

 

Warrant

3/11/2019

Common Stock

 

560,536

 

 

 

404

 

 

 

415

 

 

 

Delphix Corp.

 

Warrant

10/8/2019

Common Stock

 

718,898

 

 

 

1,594

 

 

 

3,275

 

 

(15)

Demandbase, Inc.

 

Warrant

8/2/2021

Common Stock

 

483,248

 

 

 

404

 

 

 

443

 

 

 

DNAnexus, Inc.

 

Warrant

3/21/2014

Preferred Series C

 

909,091

 

 

 

97

 

 

 

102

 

 

 

Evernote Corporation

 

Warrant

9/30/2016

Common Stock

 

62,500

 

 

 

106

 

 

 

65

 

 

 

Fuze, Inc.

 

Warrant

6/30/2017

Preferred Series F

 

256,158

 

 

 

89

 

 

 

 

 

 

Lightbend, Inc.

 

Warrant

2/14/2018

Preferred Series D

 

89,685

 

 

 

131

 

 

 

 

 

 

Mixpanel, Inc.

 

Warrant

9/30/2020

Common Stock

 

82,362

 

 

 

252

 

 

 

906

 

 

 

Nuvolo Technologies Corporation

 

Warrant

3/29/2019

Common Stock

 

50,000

 

 

 

88

 

 

 

283

 

 

 

Poplicus, Inc.

 

Warrant

5/28/2014

Common Stock

 

132,168

 

 

 

 

 

 

 

 

 

Pymetrics, Inc.

 

Warrant

9/15/2020

Common Stock

 

150,943

 

 

 

77

 

 

 

218

 

 

 

RapidMiner, Inc.

 

Warrant

11/28/2017

Preferred Series C-1

 

4,982

 

 

 

24

 

 

 

54

 

 

 

Reltio, Inc.

 

Warrant

6/30/2020

Common Stock

 

69,120

 

 

 

215

 

 

 

637

 

 

 

Signpost, Inc.

 

Warrant

1/13/2016

Series Junior 1 Preferred

 

474,019

 

 

 

314

 

 

 

 

 

 

SingleStore, Inc. (p.k.a. memsql, Inc.)

 

Warrant

4/28/2020

Preferred Series D

 

312,596

 

 

 

103

 

 

 

704

 

 

 

Tact.ai Technologies, Inc.

 

Warrant

2/13/2020

Common Stock

 

1,041,667

 

 

 

206

 

 

 

162

 

 

 

Udacity, Inc.

 

Warrant

9/25/2020

Common Stock

 

486,359

 

 

 

218

 

 

 

345

 

 

 

ZeroFox, Inc.

 

Warrant

5/7/2020

Preferred Series C-1

 

648,350

 

 

 

101

 

 

 

603

 

 

 

Zimperium, Inc.

 

Warrant

7/2/2021

Common Stock

 

20,563

 

 

 

72

 

 

 

56

 

 

 

Subtotal: Software (0.85%)*

 

 

 

 

5,594

 

 

 

11,133

 

 

 

 

See notes to consolidated financial statements

 

27


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2021

(dollars in thousands)

 

Portfolio Company

 

Type of
Investment

Acquisition Date (4)

Series (3)

Shares

 

 

Cost (2)

 

 

Value

 

 

Footnotes

Surgical Devices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gynesonics, Inc.

 

Warrant

2/8/2012

Preferred Series C

 

151,123

 

 

$

67

 

 

$

6

 

 

 

TransMedics Group, Inc. (p.k.a Transmedics, Inc.)

 

Warrant

11/7/2012

Common Stock

 

64,440

 

 

 

139

 

 

 

480

 

 

(4)

Subtotal: Surgical Devices (0.04%)*

 

 

 

 

206

 

 

 

486

 

 

 

Sustainable and Renewable Technology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agrivida, Inc.

 

Warrant

6/20/2013

Preferred Series D

 

471,327

 

 

 

120

 

 

 

 

 

 

Fulcrum Bioenergy, Inc.

 

Warrant

9/13/2012

Preferred Series C-1

 

280,897

 

 

 

274

 

 

 

699

 

 

 

Halio, Inc. (p.k.a. Kinestral Technologies, Inc.)

 

Warrant

4/22/2014

Preferred Series A

 

325,000

 

 

 

155

 

 

 

249

 

 

 

 

 

Warrant

4/7/2015

Preferred Series B

 

131,883

 

 

 

63

 

 

 

86

 

 

 

Total Halio, Inc. (p.k.a. Kinestral Technologies, Inc.)

 

 

456,883

 

 

 

218

 

 

 

335

 

 

 

Polyera Corporation

 

Warrant

12/11/2012

Preferred Series C

 

311,609

 

 

 

338

 

 

 

 

 

 

Subtotal: Sustainable and Renewable Technology (0.08%)*

 

 

 

 

950

 

 

 

1,034

 

 

 

Total: Warrant Investments (2.93%)*

 

 

 

$

27,147

 

 

$

38,399

 

 

 

Total: Investments in Securities (185.91%)*

 

 

 

$

2,388,952

 

 

$

2,432,708

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment Funds & Vehicles

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forbion Growth Opportunities Fund I C.V.

 

Investment Funds & Vehicles

11/16/2020

 

 

 

 

 

2,032

 

 

 

1,814

 

 

(5)(10)(16)

Total: Investments in Investment Funds & Vehicles (0.14%)*

 

 

 

$

2,032

 

 

$

1,814

 

 

 

Total: Investments (186.05%)*

 

 

 

$

2,390,984

 

 

$

2,434,522

 

 

 

* Value as a percent of net assets. All amounts are stated in U.S. Dollars unless otherwise noted. The Company uses the Standard Industrial Code for classifying the industry grouping of its portfolio companies.

(1)
Interest rate PRIME represents 3.25% as of December 31, 2021. 1-month LIBOR, 3-month LIBOR, and 6-month LIBOR represent, 0.14%, 0.24%, and 0.26%, respectively, as of December 31, 2021.
(2)
Gross unrealized appreciation, gross unrealized depreciation, and net unrealized depreciation for federal income tax purposes totaled $121.0 million, $75.7 million, and $45.3 million, respectively. The tax cost of investments is $2.4 billion.
(3)
Preferred and common stock, warrants, and equity interests are generally non-income producing.
(4)
Except for warrants in 26 publicly traded companies and common stock in 36 publicly traded companies, all investments are restricted as of December 31, 2021 and were valued at fair value using Level 3 significant unobservable inputs as determined in good faith by the Company’s Board.
(5)
Non-U.S. company or the company’s principal place of business is outside the United States.
(6)
Affiliate investment as defined under the 1940 Act in which Hercules owns at least 5% but generally less than 25% of the company’s voting securities.
(7)
Control investment as defined under the 1940 Act in which Hercules owns at least 25% of the company’s voting securities or has greater than 50% representation on its board.
(8)
Debt is on non-accrual status as of December 31, 2021, and is therefore considered non-income producing. Note that only the PIK portion is on non-accrual for the Company’s debt investment in Tectura Corporation and Pineapple Energy LLC.
(9)
Denotes that all or a portion of the debt investment is convertible debt.
(10)
Indicates assets that the Company deems not “qualifying assets” under section 55(a) of 1940 Act. Qualifying assets must represent at least 70% of the Company’s total assets at the time of acquisition of any additional non-qualifying assets.
(11)
Denotes that all or a portion of the debt investment is pledged as collateral under the SMBC Facility (as defined in “Note 5 — Debt”).
(12)
Denotes that all or a portion of the investment is pledged as collateral under the Union Bank Facility (as defined in “Note 5 — Debt”).
(13)
Denotes that all or a portion of the debt investment principal includes accumulated PIK interest and is net of repayments.
(14)
Denotes that all or a portion of the investment in this portfolio company is held by HC IV, the Company’s wholly owned SBIC subsidiary.
(15)
Denotes that the fair value of the Company’s total investments in this portfolio company represent greater than 5% of the Company’s total net assets as of December 31, 2021.
(16)
Denotes that there is an unfunded contractual commitment available at the request of this portfolio company as of December 31, 2021. Refer to “Note 11 — Commitments and Contingencies”.
(17)
Denotes unitranche debt with first lien “last-out” senior secured position and security interest in all assets of the portfolio company whereby the “last-out” portion will be subordinated to the “first-out” portion in a liquidation, sale or other disposition.
(18)
Denotes second lien senior secured debt.
(19)
Denotes all or a portion of the public equity or warrant investment was acquired in a transaction exempt from registration under the Securities Act of 1933 (“Securities Act”) and may be deemed to be “restricted securities” under the Securities Act.
(20)
Denotes investment in a non-voting security in the form of a promissory note. The terms of the notes provide the Company with a lien on the issuers' shares of Common Stock in portfolio company Black Crow AI, Inc., subject to release upon repayment of the outstanding balance of the notes. As of September 30, 2021, the Black Crow AI, Inc. affiliates promissory notes had an outstanding balance of $3.0 million.

See notes to consolidated financial statements

 

28


 

HERCULES CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. Description of Business

Hercules Capital, Inc. (the “Company”) is a specialty finance company focused on providing senior secured loans to high-growth, innovative venture capital-backed and institutional-backed companies in a variety of technology, life sciences, and sustainable and renewable technology industries. The Company sources its investments through its principal office located in Palo Alto, CA, as well as through its additional offices in Boston, MA, New York, NY, Bethesda, MD, San Diego, CA, and London, United Kingdom. The Company was incorporated under the General Corporation Law of the State of Maryland in December 2003.

The Company is an internally managed, non-diversified closed-end investment company that has elected to be regulated as a Business Development Company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). From incorporation through December 31, 2005, the Company was subject to tax as a corporation under Subchapter C of the Internal Revenue Code of 1986, as amended (the “Code”). Effective January 1, 2006, the Company elected to be treated for tax purposes as a Regulated Investment Company (“RIC”) under Subchapter M of the Code (see “Note 6 - Income Taxes”).

The Company does not currently use Commodity Futures Trading Commission (“CFTC”) derivatives. However, to the extent that it uses CFTC derivatives in the future, it intends to do so below prescribed levels and will not market itself as a “commodity pool” or a vehicle for trading such instruments. The Company has claimed an exclusion from the definition of the term “commodity pool operator” under the Commodity Exchange Act (“CEA”), pursuant to Rule 4.5 under the CEA. The Company is not, therefore, subject to registration or regulation as a "commodity pool operator" under the CEA.

Hercules Capital IV, L.P. (“HC IV”) is our wholly owned Delaware limited partnership that was formed in December 2010. HC IV received a license to operate as a Small Business Investment Company (“SBIC”) under the authority of the Small Business Administration (“SBA”) on October 27, 2020. SBICs are subject to a variety of regulations concerning, among other things, the size and nature of the companies in which they may invest and the structure of those investments. Hercules Technology SBIC Management, LLC (“HTM”), is a wholly owned limited liability company subsidiary of the Company, which was formed in November 2003 and serves as the general partner of HC IV.

The Company has also established certain wholly owned subsidiaries, all of which are structured as Delaware corporations or Limited Liability Companies (“LLCs”), to hold portfolio companies organized as LLCs (or other forms of pass-through entities). These subsidiaries are consolidated for financial reporting purposes and in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). These subsidiaries are taxable entities and are not consolidated with Hercules for income tax purposes. The Company's taxable subsidiaries may generate income tax expense, or benefit, and tax assets and liabilities as a result of their ownership of certain portfolio investments.

In May 2020, Hercules Adviser LLC (the “Adviser Subsidiary”) was formed as a wholly owned Delaware limited liability subsidiary of the Company to provide investment advisory and related services to investment vehicles (“Adviser Funds”) owned by one or more unrelated third-party investors (“External Parties”). The Adviser Subsidiary receives fee income for the services provided to the Adviser Funds. The Company was granted no-action relief by the staff of the Securities and Exchange Commission (“SEC”) to allow the Adviser Subsidiary to register as a registered investment adviser under the Investment Advisers Act of 1940, as amended (“Advisers Act”).

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated interim financial statements have been prepared in conformity with U.S. GAAP for interim financial information, and pursuant to the requirements for reporting on Form 10-Q and Articles 6, 10 and 12 of Regulation S-X. Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in accordance with U.S. GAAP are omitted. In the opinion of management, all adjustments consisting solely of normal recurring accruals considered necessary for the fair statement of consolidated financial statements for the interim periods have been included. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the full fiscal year. Therefore, the interim unaudited consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021. The year-end Consolidated Statements of Assets and Liabilities data was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The Company’s functional currency is U.S. dollars (“USD”) and these consolidated financial statements have been prepared in that currency.

As an investment company, the Company follows accounting and reporting guidance as set forth in Topic 946 Financial Services – Investment Companies (“ASC Topic 946”) of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification, as amended (“ASC”). As provided under Regulation S-X and ASC Topic 946, the Company will not

 

29


 

consolidate its investment in a portfolio company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Rather, an investment company’s interest in portfolio companies that are not investment companies should be measured at fair value in accordance with ASC Topic 946. The Adviser Subsidiary is not an investment company as defined in ASC Topic 946 and further, the Adviser Subsidiary provides investment advisory services exclusively to the Adviser Funds which are owned by External Parties. As such pursuant to ASC Topic 946, the Adviser Subsidiary is accounted for as a portfolio investment of the Company held at fair value and is not consolidated.

Financial statements prepared on a U.S. GAAP basis require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income, expenses, gains and losses during the reported periods. Changes in the economic and regulatory environment, financial markets, the credit worthiness of our portfolio companies, other macro-economic developments (for example, global pandemics, natural disasters, terrorism, international conflicts and war), and any other parameters used in determining these estimates and assumptions could cause actual results to differ from these estimates and assumptions.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company, its consolidated subsidiaries, and Variable Interest Entities (“VIE”) for which the Company is the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.

A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the party with both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb the losses or the right to receive benefits that could be significant to the VIE.

To assess whether the Company has the power to direct the activities of a VIE that most significantly impact its economic performance, the Company considers all the facts and circumstances including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes identifying the activities that most significantly impact the VIE’s economic performance and identifying which party, if any, has power over those activities. In general, the party that makes the most significant decisions affecting the VIE is determined to have the power to direct the activities of a VIE. To assess whether the Company has the obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE, the Company considers all of its economic interests, including debt and equity interests, servicing rights and fee arrangements, and any other variable interests in the VIE. If the Company determines that it is the party with the power to make the most significant decisions affecting the VIE, and the Company has a potentially significant interest in the VIE, then it consolidates the VIE.

The Company performs periodic reassessments, usually quarterly, of whether it is the primary beneficiary of a VIE. The reassessment process considers whether the Company has acquired or divested the power to direct the activities of the VIE through changes in governing documents or other circumstances. The Company also reconsiders whether entities previously determined not to be VIEs have become VIEs, based on certain events, and therefore are subject to the VIE consolidation framework.

As of June 30, 2022, the Company's Consolidated Financial Statements included the accounts of the securitization trust, a VIE, formed in conjunction with the issuance of the 2031 Asset-Backed Notes (as defined in “Note 5 – Debt”). The Company held no interests in a VIE as of December 31, 2021. The assets of the Company's securitization VIE are restricted to be used to settle obligations of its consolidated securitization VIE, which are disclosed parenthetically on the Consolidated Statements of Assets and Liabilities. The liabilities are the only obligations of its consolidated securitization VIE, and the creditors (or beneficial interest holders) do not have recourse to the Company's general credit.

Fair Value Measurements

The Company follows guidance in ASC Topic 820, Fair Value Measurement (“ASC Topic 820”), where fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a framework for measuring the fair value of assets and liabilities and outlines a three-tier hierarchy which maximizes the use of observable market data input and minimizes the use of unobservable inputs to establish a classification of fair value measurements. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the information available. The inputs or methodology used for valuing assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities. ASC Topic 820 also requires disclosure for fair value measurements based on the level within the hierarchy of the information used in the valuation. ASC Topic 820 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value.

 

30


 

The Company categorizes all investments recorded at fair value in accordance with ASC Topic 820 based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by ASC Topic 820 and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets at the measurement date. The types of assets carried at Level 1 fair value generally are equities listed in active markets.

Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset in connection with market data at the measurement date and for the extent of the instrument’s anticipated life. Fair valued assets that are generally included in this category are publicly held debt investments and warrants held in a public company.

Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset at the measurement date. It includes prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. Generally, assets carried at fair value and included in this category are the debt investments and warrants and equities held in a private company.

Valuation of Investments

The most significant estimate inherent in the preparation of the Company’s consolidated financial statements is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded.

As of June 30, 2022, approximately 94.7% of the Company’s total assets represented investments in portfolio companies whose fair value is determined in good faith by the Company's Valuation Committee and approved by the Board. Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value is as determined in good faith by the valuation designee of the Board. The Company’s investments are carried at fair value in accordance with the 1940 Act and ASC Topic 946 and measured in accordance with ASC Topic 820. The Company’s debt securities are primarily invested in venture capital-backed and institutional-backed companies in technology-related industries including technology, drug discovery and development, biotechnology, life sciences, healthcare, and sustainable and renewable technology at all stages of development. Given the nature of lending to these types of businesses, substantially all of the Company’s investments in these portfolio companies are considered Level 3 assets under ASC Topic 820 because there generally is no known or accessible market or market indexes for these investment securities to be traded or exchanged. As such, the Company values substantially all of its investments at fair value as determined in good faith pursuant to a consistent valuation policy established by the Board in accordance with the provisions of ASC Topic 820 and the 1940 Act. Due to the inherent uncertainty in determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments determined in good faith by the Company's Valuation Committee and approved by the Board may differ significantly from the value that would have been used had a readily available market existed for such investments, and the differences could be material.

In accordance with procedures established by its Board, the Company values investments on a quarterly basis following a multistep valuation process. Pursuant to the amended SEC Rule 2a-5 of the 1940 Act, the Board has designated the Company’s Valuation Committee as the “valuation designee”. The quarterly Board approved multi-step valuation process is described below:

(1)
The Company’s quarterly valuation process begins with each portfolio company being initially valued by the investment professionals responsible for the portfolio investment;
(2)
Preliminary valuation conclusions and business-based assumptions, along with any applicable fair value marks provided by an independent firm, are reviewed with the Company’s investment committee and certain member(s) of credit group as necessary;
(3)
The Valuation Committee reviews the preliminary valuations recommended by the investment committee and certain member(s) of the credit group of each investment in the portfolio and determines the fair value of each investment in the Company’s portfolio in good faith and recommends the valuation determinations to the Audit Committee of the Board;
(4)
The Audit Committee of the Board provides oversight of the quarterly valuation process in accordance with Rule 2a-5, which includes a review of the quarterly reports prepared by the Valuation Committee, reviews the fair valuation determinations made by the Valuation Committee, and approves such valuations for inclusion in public reporting and disclosures, as appropriate; and
(5)
The Board, upon the recommendation of the Audit Committee, discusses valuations and approves the fair value of each investment in the Company’s portfolio.

Investments purchased within the preceding two calendar quarters before the valuation date and debt investments with remaining maturities within 12 months or less may each be valued at cost with interest accrued or discount accreted/premium amortized to the date of maturity, unless such valuation, in the judgment of the Company, does not represent fair value. In this case such investments shall be valued at fair value as determined in good faith by the Valuation Committee and approved by the Board. Investments that are not publicly traded or whose market quotations are not readily available are valued at fair value as determined in good faith by the Valuation Committee and approved by the Board.

 

31


 

As part of the overall process noted above, the Company engages one or more independent valuation firm(s) to provide management with assistance in determining the fair value of selected portfolio investments each quarter. In selecting which portfolio investments to engage an independent valuation firm, the Company considers a number of factors, including, but not limited to, the potential for material fluctuations in valuation results, size, credit quality, and the time lapse since the last valuation of the portfolio investment by an independent valuation firm. The scope of services rendered by the independent valuation firm is at the discretion of the Valuation Committee and subject to approval of the Board, and the Company may engage an independent valuation firm to value all or some of our portfolio investments. In determining the fair value of a portfolio investment in good faith, the Company recognizes these determinations are made using the best available information that is knowable or reasonably knowable. In addition, changes in the market environment, portfolio company performance and other events that may occur over the duration of the investments may cause the gains or losses ultimately realized on these investments to be materially different than the valuations currently assigned. The change in fair value of each individual investment is recorded as an adjustment to the investment's fair value and the change is reflected in unrealized appreciation or depreciation.

Debt Investments

The Company’s debt securities are primarily invested in venture capital-backed and institutional-backed companies in technology-related industries including technology, drug discovery and development, biotechnology, life sciences, healthcare, and sustainable and renewable technology at all stages of development. Given the nature of lending to these types of businesses, substantially all of the Company’s investments in these portfolio companies are considered Level 3 assets under ASC Topic 820 because there generally is no known or accessible market or market indexes for debt instruments for these investment securities to be traded or exchanged. The Company may, from time to time, invest in public debt of companies that meet the Company’s investment objectives, and to the extent market quotations or other pricing indicators (i.e. broker quotes) are available, these investments are considered Level 1 or 2 assets in line with ASC Topic 820.

In making a good faith determination of the value of the Company’s investments, the Company generally starts with the cost basis of the investment, which includes the value attributed to the original issue discount (“OID”), if any, and payment-in-kind (“PIK”) interest or other receivables which have been accrued as earned. The Company then applies the valuation methods as set forth below.

The Company assumes the sale of each debt security in a hypothetical market to a hypothetical market participant where buyers and sellers are willing participants. The hypothetical market does not include scenarios where the underlying security was simply repaid or extinguished, but includes an exit concept. The Company determines the yield at inception for each debt investment. The Company then uses senior secured, leveraged loan yields provided by third party providers to calibrate the change in market yields between inception of the debt investment and the measurement date. Industry specific indices and other relevant market data are used to benchmark and assess market-based movements for reasonableness. As part of determining the fair value, the Company also evaluates the collateral for recoverability of the debt investments. The Company considers each portfolio company’s credit rating, security liens and other characteristics of the investment to adjust the baseline yield to derive a credit adjusted hypothetical yield for each investment as of the measurement date. The anticipated future cash flows from each investment are then discounted at the hypothetical yield to estimate each investment’s fair value as of the measurement date. The Company’s process includes an analysis of, among other things, the underlying investment performance, the current portfolio company’s financial condition and market changing events that impact valuation, estimated remaining life, current market yield and interest rate spreads of similar securities as of the measurement date.

The Company values debt securities that are traded on a public exchange at the prevailing market price as of the valuation date. For syndicated debt investments, for which sufficient market data is available and liquidity, the Company values debt securities using broker quotes and bond indices amongst other factors. If there is a significant deterioration of the credit quality of a debt investment, the Company may consider other factors to estimate fair value, including the proceeds that would be received in a liquidation analysis.

The Company records unrealized depreciation on investments when it believes that an investment has decreased in value, including where collection of a debt investment is doubtful or, if under the in-exchange premise, when the value of a debt investment is less than amortized cost of the investment. Conversely, where appropriate, the Company records unrealized appreciation if it believes that the underlying portfolio company has appreciated in value and, therefore, that its investment has also appreciated in value or, if under the in-exchange premise, the value of a debt investment is greater than amortized cost.

When originating a debt instrument, the Company generally receives warrants or other equity securities from the borrower. The Company determines the cost basis of the warrants or other equity securities received based upon their respective fair values on the date of receipt in proportion to the total fair value of the debt and warrants or other equity securities received. Any resulting discount on the debt investments from recordation of the warrant or other equity instruments is accreted into interest income over the life of the debt investment.

Equity Securities and Warrants

Securities that are traded in the over-the-counter markets or on a stock exchange will be valued at the prevailing bid price at period end. The Company has a limited amount of equity securities in public companies. In accordance with the 1940 Act, unrestricted

 

32


 

publicly traded securities for which market quotations are readily available are valued at the closing market quote on the measurement date.

At each reporting date, privately held warrant and equity securities are valued based on an analysis of various factors including, but not limited to, the portfolio company’s operating performance and financial condition, general market conditions, price to enterprise value or price to equity ratios, discounted cash flow, valuation comparisons to comparable public companies or other industry benchmarks. When an external event occurs, such as a purchase transaction, public offering, or subsequent equity sale, the pricing indicated by that external event is utilized to corroborate the Company’s valuation of the warrant and equity securities. The Company periodically reviews the valuation of its portfolio companies that have not been involved in a qualifying external event to determine if the enterprise value of the portfolio company may have increased or decreased since the last valuation measurement date. Absent a qualifying external event, the Company estimates the fair value of warrants using a Black Scholes OPM. For certain privately held equity securities, the income approach is used, in which the Company converts future amounts (for example, cash flows or earnings) to a net present value. The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that the Company may take into account include, as relevant: applicable market yields and multiples, the portfolio company’s capital structure, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, and enterprise value among other factors.

Investment Funds & Vehicles

The Company applies the practical expedient provided by the ASC Topic 820 relating to investments in certain entities that calculate net asset value (“NAV”) per share (or its equivalent). ASC Topic 820 permits an entity holding investments in certain entities that either are investment companies, or have attributes similar to an investment company, and calculate NAV per share or its equivalent for which the fair value is not readily determinable, to measure the fair value of such investments on the basis of that NAV per share, or its equivalent, without adjustment. Investments which are valued using NAV per share as a practical expedient are not categorized within the fair value hierarchy as per ASC Topic 820.

Cash, Cash Equivalents, and Restricted Cash

Cash and cash equivalents consist solely of funds deposited with financial institutions and short-term liquid investments in money market deposit accounts. Cash and cash equivalents are carried at cost, which approximates fair value. As of June 30, 2022, the Company held $590 thousand (Cost basis $587 thousand) of foreign cash. As of December 31, 2021, the Company held $95 thousand (Cost basis $93 thousand) of foreign cash. Restricted cash includes amounts that are held as collateral securing certain of the Company’s financing transactions, including amounts held in a securitization trust by trustees related to our 2031 Asset-Backed Notes (refer to “Note 5 – Debt”).

Other Assets

Other assets generally consist of prepaid expenses, debt issuance costs on our Credit Facilities net of accumulated amortization, fixed assets net of accumulated depreciation, deferred revenues and deposits and other assets, including escrow receivables.

Escrow Receivables

Escrow receivables are collected in accordance with the terms and conditions of the escrow agreement. Escrow balances are typically distributed over a period greater than one year and may accrue interest during the escrow period. Escrow balances are measured for collectability on at least a quarterly basis and fair value is determined based on the amount of the estimated recoverable balances and the contractual maturity date. As of both June 30, 2022 and December 31, 2021, there were no material past due escrow receivables. The approximate fair value in accordance with ASC Topic 820 of the escrow receivable balance as of June 30, 2022 and December 31, 2021 was $0.6 million and $0.6 million, respectively.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in right of use (“ROU”) assets, and operating lease liability obligations in our Consolidated Statements of Assets and Liabilities. The Company recognizes a ROU asset and an operating lease liability for all leases, with the exception of short-term leases which have a term of 12 months or less. ROU assets represent the right to use an underlying asset for the lease term and operating lease liability obligations represent the obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at lease commencement date based on the present value of lease payments over the lease term. The Company has lease agreements with lease and non-lease components and has separated these components when determining the ROU assets and the related lease liabilities. As most of the Company’s leases do not provide an implicit rate, the Company estimated its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The ROU asset also includes any lease payments made and excludes lease incentives and lease direct costs. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. See “Note 11 – Commitments and Contingencies”.

 

33


 

Income Recognition

The Company records interest income on an accrual basis and recognizes it as earned in accordance with the contractual terms of the loan agreement, to the extent that such amounts are expected to be collected. OID initially represents the value of detachable equity warrants obtained in conjunction with the acquisition of debt securities and is accreted into interest income over the term of the loan as a yield enhancement. Debt investments are placed on non-accrual status when it is probable that principal, interest or fees will not be collected according to contractual terms. When a debt investment is placed on non-accrual status, the Company ceases to recognize interest and fee income until the portfolio company has paid all principal and interest due or demonstrated the ability to repay its current and future contractual obligations to the Company. The Company may not apply the non-accrual status to a loan where the investment has sufficient collateral value to collect all of the contractual amount due and is in the process of collection. Interest collected on non-accrual investments are generally applied to principal.

Fee income, generally collected in advance, includes loan commitment and facility fees for due diligence and structuring, as well as fees for transaction services and management services rendered by the Company to portfolio companies and other third parties. Loan commitment and facility fees are amortized into income over the contractual life of the loan. Management fees are generally recognized as income when the services are rendered. Loan origination fees are capitalized and then amortized into interest income using the effective interest rate method. In certain loan arrangements, warrants or other equity interests are received from the borrower as additional origination fees. The Company had approximately $50.2 million of unamortized fees as of June 30, 2022, of which approximately $41.1 million was included as an offset to the cost basis of its current debt investments and approximately $9.1 million was deferred contingent upon the occurrence of a funding or milestone. As of December 31, 2021, the Company had approximately $42.9 million of unamortized fees, of which approximately $36.5 million was included as an offset to the cost basis of the Company’s current debt investments and approximately $6.4 million was deferred contingent upon the occurrence of a funding or milestone.

The Company recognizes nonrecurring fees amortized over the remaining term of the loan commencing in the quarter relating to specific loan modifications. Certain fees may still be recognized as one-time fee income, including prepayment penalties, fees related to select covenant default, waiver fees and acceleration of previously deferred loan fees and OID related to early loan pay-off or material modification of the specific debt outstanding. The Company recorded approximately $0.5 million and $3.0 million in one-time fee income during the three months ended June 30, 2022 and 2021, respectively. The Company recorded approximately $0.8 million and $4.5 million in one-time fee income during the six months ended June 30, 2022 and 2021, respectively.

In addition, the Company may also be entitled to an exit fee that is amortized into income over the life of the loan. Loan exit fees to be paid at the termination of the loan are accreted into interest income over the contractual life of the loan. As of June 30, 2022, the Company had approximately $41.0 million in exit fees receivable, of which approximately $36.6 million was included as a component of the cost basis of its current debt investments and approximately $4.4 million was a deferred receivable related to expired commitments. As of December 31, 2021, the Company had approximately $35.0 million in exit fees receivable, of which approximately $29.6 million was included as a component of the cost basis of its current debt investments and approximately $5.4 million was a deferred receivable related to expired commitments.

The Company has debt investments in its portfolio that contain a PIK provision. Contractual PIK interest, which represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term, is generally recorded on an accrual basis to the extent such amounts are expected to be collected. The Company will generally cease accruing PIK interest if there is insufficient value to support the accrual or management does not expect the portfolio company to be able to pay all principal and interest due. The Company recorded approximately $5.0 million and $2.6 million in PIK income during the three months ended June 30, 2022 and 2021, respectively. The Company recorded approximately $9.9 million and $5.2 million in PIK income during the six months ended June 30, 2022 and 2021, respectively.

To maintain the Company’s RIC status for taxation purposes, PIK and exit fee income generally must be accrued and distributed to stockholders in the form of dividends for U.S. federal income tax purposes even though the cash has not yet been collected. Amounts necessary to pay these distributions may come from available cash or the liquidation of certain investments.

In certain investment transactions, the Company may provide advisory services. For services that are separately identifiable and external evidence exists to substantiate fair value, income is recognized as earned, which is generally when the investment transaction closes. The Company had no income from advisory services in the three and six months ended June 30, 2022 and 2021.

Equity Offering Expenses

The Company’s offering expenses are charged against the proceeds from equity offerings when received as a reduction of capital upon completion of an offering of registered securities.

 

34


 

Debt

The debt of the Company is carried at amortized cost which is comprised of the principal amount borrowed net of any unamortized discount and debt issuance costs. Discounts and issuance costs are accreted to interest expense and loan fees, respectively, using the straight-line method, which closely approximates the effective yield method, over the remaining life of the underlying debt obligations (see “Note 5 – Debt”). Accrued but unpaid interest is included within Accounts payable and accrued liabilities on the Consolidated Statements of Assets and Liabilities. In the event that the debt is extinguished, either partially or in full, before maturity, the Company recognizes the gain or loss in the Consolidated Statement of Operations within net realized gains (losses) as a “Loss on debt extinguishment”.

Debt Issuance Costs

Debt issuance costs are fees and other direct incremental costs incurred by the Company in obtaining debt financing and are recognized as prepaid expenses and amortized over the life of the related debt instrument using the effective yield method or the straight-line method, which closely approximates the effective yield method. In accordance with ASC Subtopic 835-30, Interest – Imputation of Interest, debt issuance costs are presented as a reduction to the associated liability balance on the Consolidated Statements of Assets and Liabilities, except for debt issuance costs associated with line-of-credit arrangements.

Stock Based Compensation

The Company has issued and may, from time to time, issue stock options, restricted stock, and other stock based compensation awards to employees and directors. Management follows the guidance set forth under ASC Topic 718, to account for stock-based compensation awards granted. Under ASC Topic 718, compensation expense associated with stock-based compensation is measured at the grant date based on the fair value of the award and is recognized over the vesting period. Determining the appropriate fair value model and calculating the fair value of stock-based awards at the grant date requires judgment. This includes certain assumptions such as stock price volatility, forfeiture rate, expected outcome probability, and expected option life, as applicable to each award. In accordance with ASC Topic 480, certain stock awards are classified as a liability. The compensation expense associated with these awards is recognized in the same manner as all other stock-based compensation. The award liability is recorded as deferred compensation and included in Accounts payable and accrued liabilities.

Income Taxes

The Company intends to operate so as to qualify to be subject to tax as a RIC under Subchapter M of the Code and, as such, will not be subject to federal income tax on the portion of taxable income (including gains) distributed as dividends for U.S. federal income tax purposes to stockholders. Taxable income includes the Company’s taxable interest, dividend and fee income, reduced by certain deductions, as well as taxable net realized gains. Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation, as such gains or losses are not included in taxable income until they are realized.

As a RIC, the Company will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless the Company makes distributions treated as dividends for U.S. federal income tax purposes in a timely manner to its stockholders in respect of each calendar year of an amount at least equal to the Excise Tax Avoidance Requirement, as defined below. The Company will not be subject to this excise tax on any amount on which the Company incurred U.S. federal corporate income tax (such as the tax imposed on a RIC’s retained net capital gains).

Depending on the level of taxable income earned in a taxable year, the Company may choose to carry over taxable income in excess of current taxable year distributions treated as dividends for U.S. federal income tax purposes from such taxable income into the next taxable year and incur a 4% excise tax on such taxable income, as required. The maximum amount of excess taxable income that may be carried over for distribution in the next taxable year under the Code is the total amount of distributions treated as dividends for U.S. federal income tax purposes paid in the following taxable year, subject to certain declaration and payment guidelines. To the extent the Company chooses to carry over taxable income into the next taxable year, distributions declared and paid by the Company in a taxable year may differ from the Company’s taxable income for that taxable year as such distributions may include the distribution of current taxable year taxable income, the distribution of prior taxable year taxable income carried over into and distributed in the current taxable year, or returns of capital.

We account for income taxes in accordance with the provisions of ASC Topic 740 Income Taxes, under which income taxes are provided for amounts currently payable and for amounts deferred based upon the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of the enacted tax law. Valuation allowances may be used to reduce deferred tax assets to the amount likely to be realized. We intend to timely distribute to our stockholders substantially all of our annual taxable income for each year, except that we may retain certain net capital gains for reinvestment and, depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax.

Because federal income tax regulations differ from U.S. GAAP, distributions in accordance with tax regulations may differ from net investment income and net realized gains recognized for financial reporting purposes. Differences may be permanent or

 

35


 

temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their appropriate tax character. Permanent differences may also result from the change in the classification of certain items, such as the treatment of short-term gains as ordinary income for tax purposes. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Also, tax legislation requires that income be recognized for tax purposes no later than when recognized for financial reporting purposes, with certain exceptions.

Earnings Per Share (“EPS”)

Basic EPS is calculated by dividing net earnings applicable to common stockholders by the weighted average number of common shares outstanding. Common shares outstanding includes common stock and restricted stock for which no future service is required as a condition to the delivery of the underlying common stock. Diluted EPS includes the determinants of basic EPS and, in addition, reflects the dilutive effect of the common stock deliverable pursuant to stock options and to restricted stock for which future service is required as a condition to the delivery of the underlying common stock. In accordance with ASC 260-10-45-60A, the Company uses the two-class method in the computation of basic EPS and diluted EPS, if applicable.

Comprehensive Income

The Company reports all changes in comprehensive income in the Consolidated Statements of Operations. The Company did not have other comprehensive income for the three and six months ended June 30, 2022 or 2021. The Company’s comprehensive income is equal to its net increase in net assets resulting from operations.

Distributions

Distributions to common stockholders are approved by the Board on a quarterly basis and the distribution payable is recorded on the ex-dividend date. The Company maintains an “opt out” dividend reinvestment plan that provides for reinvestment of the Company’s distribution on behalf of the Company’s stockholders, unless a stockholder elects to receive cash. As a result, if the Company declares a distribution, cash distributions will be automatically reinvested in additional shares of its common stock unless the stockholder specifically “opts out” of the dividend reinvestment plan and chooses to receive cash distributions. During the three and six months ended June 30, 2022, the Company issued 61,145 shares and 121,471 shares, respectively, of common stock to stockholders in connection with the dividend reinvestment plan. During the three and six months ended June 30, 2021, the Company issued 66,946 shares and 133,943 shares, of common stock to stockholders in connection with the dividend reinvestment plan.

Segments

The Company lends to and invests in portfolio companies in various technology-related industries including technology, drug discovery and development, biotechnology, life sciences, healthcare, and sustainable and renewable technology. The Company separately evaluates the performance of each of its lending and investment relationships. However, because each of these loan and investment relationships has similar business and economic characteristics, they have been aggregated into a single reportable segment.

Recent Accounting Pronouncements

In March 2022, the FASB issued ASU 2022-02, “Financial Instruments Credit Losses (Topic 326)”, which is intended to address issues identified during the post-implementation review of ASU 2016-13, “Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The amendment, among other things, eliminates the accounting guidance for troubled debt restructurings by creditors in Subtopic 310-40, “Receivables Troubled Debt Restructurings by Creditors”, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The new guidance is effective for interim and annual periods beginning after December 15, 2022. The Company does not anticipate the new standard to have a material impact to the consolidated financial statements and related disclosures.

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820) Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”, which was issued to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The new guidance is effective for interim and annual periods beginning after December 15, 2023. The Company is currently evaluating the impact of the new standard on the Company's consolidated financial statements and related disclosures.

 

36


 

3. Fair Value of Financial Instruments

Fair value estimates are made at discrete points in time based on relevant information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Investments measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations as of June 30, 2022 and December 31, 2021.

 

(in thousands)

 

Balance as of
June 30,

 

 

Quoted Prices in
Active Markets for
Identical Assets

 

 

Significant
Other Observable
Inputs

 

 

Significant
Unobservable
Inputs

 

Description

 

2022

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Money Market Fund

 

$

90,000

 

 

$

90,000

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

 

 

 

 

Escrow Receivables

 

$

642

 

 

$

 

 

$

 

 

$

642

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

 

 

 

 

 

 

 

 

 

 

 

Senior Secured Debt

 

$

2,496,639

 

 

$

 

 

$

 

 

$

2,496,639

 

Unsecured Debt

 

 

54,227

 

 

 

 

 

 

 

 

 

54,227

 

Preferred Stock

 

 

49,858

 

 

 

 

 

 

 

 

 

49,858

 

Common Stock

 

 

87,936

 

 

 

52,529

 

 

 

7,027

 

 

 

28,380

 

Warrants

 

 

27,903

 

 

 

 

 

 

5,913

 

 

 

21,990

 

 

 

$

2,716,563

 

 

$

52,529

 

 

$

12,940

 

 

$

2,651,094

 

Investment Funds & Vehicles measured at Net Asset Value (1)

 

 

2,328

 

 

 

 

 

 

 

 

 

 

Total Investments excluding cash equivalents

 

$

2,718,891

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments including cash equivalents

 

$

2,808,891

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Balance as of
December 31,

 

 

Quoted Prices in
Active Markets for
Identical Assets

 

 

Significant
Other Observable
Inputs

 

 

Significant
Unobservable
Inputs

 

Description

 

2021

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Other assets

 

 

 

 

 

 

 

 

 

 

 

 

Escrow Receivables

 

$

561

 

 

$

 

 

$

 

 

$

561

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments

 

 

 

 

 

 

 

 

 

 

 

 

Senior Secured Debt

 

$

2,156,709

 

 

$

 

 

$

 

 

$

2,156,709

 

Unsecured Debt

 

 

52,890

 

 

 

 

 

 

 

 

 

52,890

 

Preferred Stock

 

 

69,439

 

 

 

 

 

 

 

 

 

69,439

 

Common Stock

 

 

115,271

 

 

 

84,460

 

 

 

8,843

 

 

 

21,968

 

Warrants

 

 

38,399

 

 

 

 

 

 

10,922

 

 

 

27,477

 

 

 

$

2,432,708

 

 

$

84,460

 

 

$

19,765

 

 

$

2,328,483

 

Investment Funds & Vehicles measured at Net Asset Value (1)

 

 

1,814

 

 

 

 

 

 

 

 

 

 

Total Investments excluding cash equivalents

 

$

2,434,522

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments including cash equivalents

 

$

2,434,522

 

 

 

 

 

 

 

 

 

 

(1)
In accordance with U.S. GAAP, certain investments are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient and are not categorized within the fair value hierarchy as per ASC 820. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the accompanying Consolidated Statement of Assets and Liabilities.

 

37


 

The table below presents a reconciliation of changes for all financial assets and liabilities measured at fair value on a recurring basis, excluding accrued interest components, using significant unobservable inputs (Level 3) for the six months ended June 30, 2022 and 2021.

(in thousands)

Balance as of
January 1, 2022

 

Net Realized
Gains (Losses)
(1)

 

Net Change in
Unrealized
Appreciation
(Depreciation)
(2)

 

Purchases (5)

 

Sales

 

Repayments (6)

 

Gross
Transfers
into
Level 3
(3)

 

Gross
Transfers
out of
Level 3
(3)

 

Balance as of
June 30, 2022

 

Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior Secured Debt

$

2,156,709

 

$

(1,883

)

$

(16,525

)

$

599,596

 

$

(73,500

)

$

(164,254

)

$

 

$

(3,504

)

$

2,496,639

 

Unsecured Debt

 

52,890

 

 

 

 

(2,025

)

 

3,362

 

 

 

 

 

 

 

 

 

 

54,227

 

Preferred Stock

 

69,439

 

 

2,867

 

 

(14,157

)

 

2,903

 

 

(4,772

)

 

 

 

 

 

(6,422

)

 

49,858

 

Common Stock

 

21,968

 

 

(93

)

 

10,240

 

 

 

 

 

 

 

 

207

 

 

(3,942

)

 

28,380

 

Warrants

 

27,477

 

 

409

 

 

(8,120

)

 

4,391

 

 

(2,167

)

 

 

 

 

 

 

 

21,990

 

Other Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Escrow Receivable

 

561

 

 

312

 

 

 

 

167

 

 

(398

)

 

 

 

 

 

 

 

642

 

Total

$

2,329,044

 

$

1,612

 

$

(30,587

)

$

610,419

 

$

(80,837

)

$

(164,254

)

$

207

 

$

(13,868

)

$

2,651,736

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Balance as of
January 1, 2021

 

Net Realized
Gains (Losses)
(1)

 

Net Change in
Unrealized
Appreciation
(Depreciation)
(2)

 

Purchases (5)

 

Sales

 

Repayments (6)

 

Gross
Transfers
into
Level 3
(4)

 

Gross
Transfers
out of
Level 3
(4)

 

Balance as of
June 30, 2021

 

Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior Secured Debt

$

2,079,465

 

$

(1,627

)

$

10,789

 

$

536,147

 

$

 

$

(407,719

)

$

 

$

 

$

2,217,055

 

Unsecured Debt

 

14,970

 

 

 

 

(1,258

)

 

12,609

 

 

 

 

 

 

 

 

 

 

26,321

 

Preferred Stock

 

58,981

 

 

 

 

50,470

 

 

11,514

 

 

(61,732

)

 

 

 

 

 

(1,267

)

 

57,966

 

Common Stock

 

27,398

 

 

(60,904

)

 

13,292

 

 

3,371

 

 

60,900

 

 

 

 

 

 

(16,025

)

 

28,032

 

Warrants

 

21,483

 

 

1,593

 

 

11,768

 

 

1,352

 

 

(3,120

)

 

 

 

 

 

(1,020

)

 

32,056

 

Other Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Escrow Receivable

 

65

 

 

584

 

 

(1,515

)

 

2,446

 

 

(584

)

 

 

 

 

 

 

 

996

 

Total

$

2,202,362

 

$

(60,354

)

$

83,546

 

$

567,439

 

$

(4,536

)

$

(407,719

)

$

 

$

(18,312

)

$

2,362,426

 

(1)
Included in net realized gains (losses) in the accompanying Consolidated Statements of Operations.
(2)
Included in net change in unrealized appreciation (depreciation) in the accompanying Consolidated Statements of Operations.
(3)
Transfers out of Level 3 during the six months ended June 30, 2022 related to the initial public offerings of Gelesis, Inc., Pineapple Energy, LLC, and the conversion of Level 3 debt investments into common stock investments. Transfers into Level 3 during the six months ended June 30, 2022 related to the decline of liquidity of Kaleido Biosciences, Inc. shares.
(4)
Transfers out of Level 3 during the six months ended June 30, 2021, related to the initial public offerings of Proterra, Inc., 23andMe, Inc., Sprinklr, Inc., Century Therapeutics, and Xometry, Inc.
(5)
Amounts listed above are inclusive of loan origination fees received at the inception of the loan which are deferred and amortized into fee income as well as the accretion of existing loan discounts and fees during the period. Escrow receivable purchases may include additions due to proceeds held in escrow from the liquidation of level 3 investments. Amounts are net of purchases assigned to the Adviser Funds.
(6)
Amounts listed above include the acceleration and payment of loan discounts and loan fees due to early payoffs or restructures along with regularly scheduled amortization.

For the six months ended June 30, 2022, approximately $14.9 million in net unrealized depreciation and $10.2 million in net unrealized appreciation relating to assets still held at the reporting date were recorded for preferred stock and common stock Level 3 investments, respectively. For the same period, approximately $17.7 million and $8.6 million in net unrealized depreciation was recorded for debt and warrant Level 3 investments, respectively, relating to assets still held at the reporting date.

For the six months ended June 30, 2021, approximately $10.5 million in net unrealized depreciation and $13.3 million in net unrealized appreciation relating to assets still held at the reporting date were recorded for preferred stock and common stock Level 3 investments, respectively. For the same period, approximately $8.5 million and $10.8 million in net unrealized appreciation was recorded for debt and warrant Level 3 investments, respectively, relating to assets still held at the reporting date.

 

 

38


 

The following tables provide quantitative information about the Company’s Level 3 fair value measurements as of June 30, 2022 and December 31, 2021. In addition to the techniques and inputs noted in the tables below, according to the Company’s valuation policy, the Company may also use other valuation techniques and methodologies when determining the Company’s fair value measurements. The tables below are not intended to be all-inclusive, but rather provide information on the significant Level 3 inputs as they relate to the Company’s fair value measurements. See the accompanying Consolidated Schedule of Investments for the fair value of the Company’s investments. The methodology for the determination of the fair value of the Company’s investments is discussed in “Note 2 – Summary of Significant Accounting Policies”. The significant unobservable input used in the fair value measurement of the Company’s escrow receivables is the amount recoverable at the contractual maturity date of the escrow receivable.

Investment Type - Level 3
Debt Investments

Fair Value as of
June 30, 2022
(in thousands)

 

 

Valuation
Techniques/Methodologies

Unobservable Input (1)

Range

Weighted
Average
(2)

 

 

 

 

 

 

 

 

Pharmaceuticals

$

9,717

 

 

Originated Within 4-6 Months

Origination Yield

9.95% - 10.67%

10.06%

 

 

931,149

 

 

Market Comparable Companies

Hypothetical Market Yield

11.06% - 16.12%

12.94%

 

 

 

 

 

Premium/(Discount)

(1.00%) - 1.00%

(0.08%)

 

 

1,838

 

 

Liquidation

Collateral Recoverability

0.00% - 85.00%

85.00%

 

 

 

 

 

 

 

 

Technology

 

161,302

 

 

Originated Within 4-6 Months

Origination Yield

10.84% - 12.64%

11.29%

 

 

701,631

 

 

Market Comparable Companies

Hypothetical Market Yield

10.43% - 18.21%

13.01%

 

 

 

 

 

Premium/(Discount)

(1.25%) - 1.50%

(0.18%)

 

 

19,552

 

 

Convertible Note Analysis

Probability weighting of alternative outcomes

1.00% - 50.00%

35.40%

 

 

 

 

 

 

 

 

Sustainable and Renewable Technology

 

2,940

 

 

Market Comparable Companies

Hypothetical Market Yield

12.56%

12.56%

 

 

 

 

 

Premium/(Discount)

0.75%

0.75%

 

 

 

 

 

 

 

 

Medical Devices

 

14,865

 

 

Originated Within 4-6 Months

Origination Yield

11.22%

11.22%

 

 

 

 

 

 

 

 

Lower Middle Market

 

275,821

 

 

Market Comparable Companies

Hypothetical Market Yield

11.40% - 16.76%

12.54%

 

 

 

 

 

Premium/(Discount)

(2.00%) - 0.75%

(0.56%)

 

 

8,208

 

 

Liquidation (3)

Probability weighting of alternative outcomes

20.00% - 80.00%

80.00%

 

 

 

 

 

 

 

 

 

 

 

 

Debt Investments Where Fair Value Approximates Cost

 

 

165,940

 

 

Debt Investments originated within 3 months

 

 

 

 

64,200

 

 

Imminent Payoffs (4)

 

 

 

 

 

193,703

 

 

Debt Investments Maturing in Less than One Year

 

$

2,550,866

 

 

Total Level 3 Debt Investments

(1)
The significant unobservable inputs used in the fair value measurement of the Company’s debt securities are hypothetical market yields and premiums/(discounts). The hypothetical market yield is defined as the exit price of an investment in a hypothetical market to hypothetical market participants where buyers and sellers are willing participants. The premiums/(discounts) relate to company specific characteristics such as underlying investment performance, security liens, and other characteristics of the investment. Significant increases (decreases) in the inputs in isolation may result in a significantly lower (higher) fair value measurement, depending on the materiality of the investment.

Debt investments in the industries noted in the Company’s Consolidated Schedule of Investments are included in the industries noted above as follows:

Pharmaceuticals, above, is comprised of debt investments in the “Drug Discovery & Development” and “Healthcare Services, Other” industries.
Technology, above, is comprised of debt investments in the “Communications & Networking”, “Information Services”, “Internet Consumer & Business Services”, “Media/Content/Info” and “Software” industries.
Lower Middle Market, above, is comprised of debt investments in the “Healthcare Services, Other”, “Internet Consumer & Business Services”, “Diversified Financial Services”, “Sustainable and Renewable Technology”, and “Software” industries.
(2)
The weighted averages are calculated based on the fair market value of each investment.
(3)
The significant unobservable input used in the fair value measurement of impaired debt securities is the probability weighting of alternative outcomes.
(4)
Expected realizable value represent debt investments that the Company expects to be fully repaid within the next three months, prior to their scheduled maturity date.

 

39


 

Investment Type - Level 3
Debt Investments

Fair Value as of
December 31, 2021
(in thousands)

 

 

Valuation Techniques/Methodologies

Unobservable Input (1)

Range

Weighted
Average
(2)

Pharmaceuticals

$

206,461

 

 

Originated Within 4-6 Months

Origination Yield

11.23% - 12.84%

11.40%

 

 

451,587

 

 

Market Comparable Companies

Hypothetical Market Yield

9.69% - 13.89%

11.34%

 

 

 

 

 

Premium/(Discount)

(0.50%) - 0.75%

0.06%

 

 

 

 

 

 

 

 

Technology

 

109,904

 

 

Originated Within 4-6 Months

Origination Yield

11.12% - 11.68%

11.39%

 

 

654,320

 

 

Market Comparable Companies

Hypothetical Market Yield

8.98% - 14.54%

11.64%

 

 

 

 

 

Premium/(Discount)

(0.50%) - 0.75%

0.12%

 

 

2,608

 

 

Liquidation (3)

Probability weighting of alternative outcomes

20.00% - 50.00%

40.48%

 

 

20,425

 

 

Convertible Note Analysis

Probability weighting of alternative outcomes

1.00% - 35.00%

32.95%

 

 

 

 

 

 

 

 

Sustainable and Renewable Technology

 

247

 

 

Convertible Note Analysis

Probability weighting of alternative outcomes

40.00% - 60.00%

51.84%

 

 

7,500

 

 

Expected Realizable Value (4)

Probability weighting of alternative outcomes

100% - 100%

100.00%

 

 

 

 

 

 

 

 

Lower Middle Market

 

3,100

 

 

Originated Within 4-6 Months

Origination Yield

5.17% - 5.17%

5.17%

 

 

81,566

 

 

Market Comparable Companies

Hypothetical Market Yield

12.23% - 16.01%

13.22%

 

 

 

 

 

Premium/(Discount)

0.00% - 1.50%

0.43%

 

 

90,504

 

 

Expected Realizable Value (4)

Probability weighting of alternative outcomes

30.00% - 70.00%

57.74%

 

 

 

 

 

Hypothetical Market Yield

10.64% - 10.64%

10.64%

 

 

 

 

 

Premium/(Discount)

(1.00%) - (1.00%)

(1.00%)

 

 

8,269

 

 

Liquidation (3)

Probability weighting of alternative outcomes

20.00% - 80.00%

80.00%

 

 

 

 

 

 

 

 

 

 

 

 

Debt Investments Where Fair Value Approximates Cost

 

 

441,524

 

 

Debt Investments originated within 3 months

 

 

 

 

131,584

 

 

Debt Investments Maturing in Less than One Year

 

$

2,209,599

 

 

Total Level 3 Debt Investments

(1)
The significant unobservable inputs used in the fair value measurement of the Company’s debt securities are hypothetical market yields and premiums/(discounts). The hypothetical market yield is defined as the exit price of an investment in a hypothetical market to hypothetical market participants where buyers and sellers are willing participants. The premiums/(discounts) relate to company specific characteristics such as underlying investment performance, security liens, and other characteristics of the investment. Significant increases (decreases) in the inputs in isolation may result in a significantly lower (higher) fair value measurement, depending on the materiality of the investment.

Debt investments in the industries noted in the Company’s Consolidated Schedule of Investments are included in the industries noted above as follows:

Pharmaceuticals, above, is comprised of debt investments in the “Drug Discovery & Development” and “Healthcare Services, Other” industries.
Technology, above, is comprised of debt investments in the “Communications & Networking”, “Information Services”, “Internet Consumer & Business Services”, “Media/Content/Info” and “Software” industries.
Lower Middle Market, above, is comprised of debt investments in the “Healthcare Services, Other”, “Internet Consumer & Business Services”, “Diversified Financial Services”, “Sustainable and Renewable Technology”, and “Software” industries.
(2)
The weighted averages are calculated based on the fair market value of each investment.
(3)
The significant unobservable input used in the fair value measurement of impaired debt securities is the probability weighting of alternative outcomes.
(4)
Expected realizable value represent debt investments that the Company expects to be fully repaid within the next three months, prior to their scheduled maturity date.

 

 

40


 

Investment Type - Level 3 Equity and Warrant Investments

 

Fair Value as of
June 30, 2022
(in thousands)

 

 

Valuation Techniques/
Methodologies

 

Unobservable Input (1)

 

Range

 

Weighted Average (5)

Equity Investments

 

$

26,789

 

 

Market Comparable Companies

 

EBITDA Multiple (b)

 

12.9x - 12.9x

 

12.9x

 

 

 

 

 

 

 

Revenue Multiple (2)

 

0.6x - 7.3x

 

4.3x

 

 

 

 

 

 

 

Tangible Book Value Multiple (2)

 

1.9x - 1.9x

 

1.9x

 

 

 

 

 

 

 

Discount for Lack of Marketability (3)

 

11.1% - 32.97%

 

18.83%

 

 

 

18,384

 

 

Market Adjusted OPM Backsolve

 

Market Equity Adjustment (4)

 

(97.67%) - 39.06%

 

(6.06%)

 

 

 

23,181

 

 

Discounted Cash Flow

 

Discount Rate (7)

 

19.50% - 28.64%

 

24.30%

 

 

 

 

 

Liquidation

 

Revenue Multiple (2)

 

2.1x - 2.1x

 

2.1x

 

 

 

 

 

 

 

Discount for Lack of Marketability (3)

 

84.00% - 84.00%

 

84.00%

 

 

 

9,884

 

 

Other (6)

 

 

 

 

 

 

Warrant Investments

 

 

12,093

 

 

Market Comparable Companies

 

EBITDA Multiple (2)

 

12.9x - 12.9x

 

12.9x

 

 

 

 

 

 

 

Revenue Multiple (2)

 

0.6x - 9.3x

 

3.5x

 

 

 

 

 

 

 

Discount for Lack of Marketability (3)

 

2.75% - 34.73%

 

21.29%

 

 

 

9,357

 

 

Market Adjusted OPM Backsolve

 

Market Equity Adjustment (4)

 

(97.67%) - 39.06%

 

(13.96%)

 

 

 

540

 

 

Other(6)

 

 

 

 

 

 

Total Level 3
Warrant and Equity Investments

 

$

100,228

 

 

 

 

 

 

 

 

 

(1)
The significant unobservable inputs used in the fair value measurement of the Company’s warrant and equity securities are revenue and/or earnings multiples (e.g. EBITDA, EBT, ARR), market equity adjustment factors, and discounts for lack of marketability. Significant increases/(decreases) in the inputs in isolation would result in a significantly higher/(lower) fair value measurement, depending on the materiality of the investment. For some investments, additional consideration may be given to data from the last round of financing or merger/acquisition events near the measurement date. The significant unobservable input used in the fair value measurement of impaired equity securities is the probability weighting of alternative outcomes.
(2)
Represents amounts used when the Company has determined that market participants would use such multiples when pricing the investments.
(3)
Represents amounts used when the Company has determined market participants would take into account these discounts when pricing the investments.
(4)
Represents the range of changes in industry valuations since the portfolio company's last external valuation event.
(5)
Weighted averages are calculated based on the fair market value of each investment.
(6)
The fair market value of these investments is derived based on recent private market and merger and acquisition transaction prices.
(7)
The discount rate used is based on current portfolio yield adjusted for uncertainty of actual performance and timing in capital deployments.

 

 

41


 

Investment Type - Level 3 Equity and Warrant Investments

 

Fair Value as of
December 31, 2021
(in thousands)

 

 

Valuation Techniques/
Methodologies

 

Unobservable Input (1)

 

Range

 

Weighted Average (5)

Equity Investments

 

$

26,587

 

 

Market Comparable Companies

 

EBITDA Multiple (2)

 

20.6x - 20.6x

 

20.6x

 

 

 

 

 

 

 

Revenue Multiple (2)

 

1.0x - 18.4x

 

11.8x

 

 

 

 

 

 

 

Tangible Book Value Multiple (2)

 

2.5x - 2.5x

 

2.5x

 

 

 

 

 

 

 

Discount for Lack of Marketability (3)

 

18.81% - 34.69%

 

25.53%

 

 

 

24,910

 

 

Market Adjusted OPM Backsolve

 

Market Equity Adjustment (4)

 

(88.67%) - 47.22%

 

0.81%

 

 

 

11,990

 

 

Discounted Cash Flow

 

Discount Rate (7)

 

15.93% - 25.30%

 

20.46%

 

 

 

 

 

Liquidation

 

Revenue Multiple (2)

 

2.1x - 2.1x

 

2.1x

 

 

 

 

 

 

 

Discount for Lack of Marketability (3)

 

84.00% - 84.00%

 

84.00%

 

 

 

27,920

 

 

Other (6)

 

 

 

 

 

 

Warrant Investments

 

 

14,517

 

 

Market Comparable Companies

 

EBITDA Multiple (2)

 

20.6x - 26.0x

 

20.7x

 

 

 

 

 

 

 

Revenue Multiple (2)

 

0.6x - 9.5x

 

4.5x

 

 

 

 

 

 

 

Discount for Lack of Marketability (3)

 

18.81% - 37.35%

 

26.93%

 

 

 

11,914

 

 

Market Adjusted OPM Backsolve

 

Market Equity Adjustment (4)

 

(88.67%) - 47.22%

 

(7.76%)

 

 

 

1,046

 

 

Other(6)

 

 

 

 

 

 

Total Level 3 Warrant and Equity Investments

 

$

118,884

 

 

 

 

 

 

 

 

 

(1)
The significant unobservable inputs used in the fair value measurement of the Company’s warrant and equity securities are revenue and/or earnings multiples (e.g. EBITDA, EBT, ARR), market equity adjustment factors, and discounts for lack of marketability. Significant increases/(decreases) in the inputs in isolation would result in a significantly higher/(lower) fair value measurement, depending on the materiality of the investment. For some investments, additional consideration may be given to data from the last round of financing or merger/acquisition events near the measurement date. The significant unobservable input used in the fair value measurement of impaired equity securities is the probability weighting of alternative outcomes.
(2)
Represents amounts used when the Company has determined that market participants would use such multiples when pricing the investments.
(3)
Represents amounts used when the Company has determined market participants would take into account these discounts when pricing the investments.
(4)
Represents the range of changes in industry valuations since the portfolio company's last external valuation event.
(5)
Weighted averages are calculated based on the fair market value of each investment.
(6)
The fair market value of these investments is derived based on recent market transactions.
(7)
The discount rate used is based on current portfolio yield adjusted for uncertainty of actual performance and timing in capital deployments.

The Company believes that the carrying amounts of its financial instruments, other than investments and debt, which consist of cash and cash equivalents, receivables including escrow receivables, accounts payable and accrued liabilities, approximate the fair values of such items due to the short maturity of such instruments. The debt obligations of the Company are recorded at amortized cost and not at fair value on the Consolidated Statements of Assets and Liabilities. The fair value of the Company’s outstanding debt obligations are based on observable market trading prices or quotations and unobservable market rates as applicable for each instrument.

As of June 30, 2022, the 2033 Notes were trading on the New York Stock Exchange (“NYSE”) at $25.24 per unit at par value. The par value at underwriting for the 2033 Notes was $25.00 per unit. Based on market quotations on or around June 30, 2022, the 2031 Asset-Backed Notes were quoted for 0.995. The fair values of the SBA debentures, July 2024 Notes, February 2025 Notes, June 2025 Notes, June 2025 3-Year Notes, March 2026 A Notes, March 2026 B Notes, September 2026, and January 2027 Notes are calculated based on the net present value of payments over the term of the notes using estimated market rates for similar notes and remaining terms. The fair values of the outstanding debt under the MUFG Bank Facility and the SMBC Facility are equal to their outstanding principal balances as of June 30, 2022.

 

42


 

The following tables provide additional information about the approximate fair value and level in the fair value hierarchy of the Company’s outstanding borrowings as of June 30, 2022 and December 31, 2021:

 

 

June 30, 2022

 

(in thousands)

 

Carrying

 

 

Approximate

 

 

Identical Assets

 

 

Observable Inputs

 

 

Unobservable Inputs

 

Description

 

Value

 

 

Fair Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

SBA Debentures

 

$

169,442

 

 

$

173,814

 

 

$

 

 

$

 

 

$

173,814

 

July 2024 Notes

 

 

104,385

 

 

 

102,907

 

 

 

 

 

 

 

 

 

102,907

 

February 2025 Notes

 

 

49,694

 

 

 

47,673

 

 

 

 

 

 

 

 

 

47,673

 

June 2025 Notes

 

 

69,515

 

 

 

65,332

 

 

 

 

 

 

 

 

 

65,332

 

June 2025 3-Year Notes

 

 

49,479

 

 

 

48,745

 

 

 

 

 

 

 

 

 

48,745

 

March 2026 A Notes

 

 

49,653

 

 

 

46,748

 

 

 

 

 

 

 

 

 

46,748

 

March 2026 B Notes

 

 

49,621

 

 

 

46,836

 

 

 

 

 

 

 

 

 

46,836

 

September 2026 Notes

 

 

320,867

 

 

 

277,061

 

 

 

 

 

 

 

 

 

277,061

 

January 2027 Notes

 

 

343,939

 

 

 

306,563

 

 

 

 

 

 

 

 

 

306,563

 

2031 Asset-Backed Notes

 

 

147,663

 

 

 

149,250

 

 

 

 

 

 

149,250

 

 

 

 

2033 Notes

 

 

38,772

 

 

 

40,384

 

 

 

 

 

 

40,384

 

 

 

 

MUFG Bank Facility(1)

 

 

82,000

 

 

 

82,000

 

 

 

 

 

 

 

 

 

82,000

 

SMBC Facility

 

 

23,582

 

 

 

23,582

 

 

 

 

 

 

 

 

 

23,582

 

Total

 

$

1,498,612

 

 

$

1,410,895

 

 

$

 

 

$

189,634

 

 

$

1,221,261

 

 

 

 

December 31, 2021

 

(in thousands)

 

Carrying

 

 

Approximate

 

 

Identical Assets

 

 

Observable Inputs

 

 

Unobservable Inputs

 

Description

 

Value

 

 

Fair Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

SBA Debentures

 

$

145,498

 

 

$

151,471

 

 

$

 

 

$

 

 

$

151,471

 

2022 Notes

 

 

149,563

 

 

 

152,906

 

 

 

 

 

 

152,906

 

 

 

 

July 2024 Notes

 

 

104,238

 

 

 

110,496

 

 

 

 

 

 

 

 

 

110,496

 

February 2025 Notes

 

 

49,637

 

 

 

51,983

 

 

 

 

 

 

 

 

 

51,983

 

June 2025 Notes

 

 

69,433

 

 

 

72,031

 

 

 

 

 

 

 

 

 

72,031

 

March 2026 A Notes

 

 

49,605

 

 

 

52,646

 

 

 

 

 

 

 

 

 

52,646

 

March 2026 B Notes

 

 

49,570

 

 

 

52,751

 

 

 

 

 

 

 

 

 

52,751

 

September 2026 Notes

 

 

320,376

 

 

 

315,495

 

 

 

 

 

 

 

 

 

315,495

 

2033 Notes

 

 

38,718

 

 

 

42,672

 

 

 

 

 

 

42,672

 

 

 

 

2022 Convertible Notes

 

 

229,740

 

 

 

236,049

 

 

 

 

 

 

236,049

 

 

 

 

Union Bank Facility(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SMBC Facility

 

 

29,925

 

 

 

29,925

 

 

 

 

 

 

 

 

 

29,925

 

Total

 

$

1,236,303

 

 

$

1,268,425

 

 

$

 

 

$

431,627

 

 

$

836,798

 

(1)
The June 2022 amendment of the MUFG Bank Facility replaced the Union Bank Facility via an amendment which changed the lead lender.

4. Investments

Control and Affiliate Investments

As required by the 1940 Act, the Company classifies its investments by level of control. “Control investments” are defined in the 1940 Act as investments in those companies that the Company is deemed to “control”. Under the 1940 Act, the Company is generally deemed to “control” a company in which it has invested if it owns 25% or more of the voting securities of such company or has greater than 50% representation on its board. “Affiliate investments” are investments in those companies that are “affiliated companies” of the Company, as defined in the 1940 Act, which are not control investments. The Company is deemed to be an “affiliate” of a company in which it has invested if it owns 5% or more, but generally less than 25%, of the voting securities of such company. “Non-control/non-affiliate investments” are investments that are neither control investments nor affiliate investments. For purposes of determining the classification of its investments, the Company has included consideration of any voting securities or board appointment rights held by the Adviser Funds.

 

43


 

The following table summarizes the Company’s realized gains and losses and changes in unrealized appreciation and depreciation on control and affiliate investments for the three and six months ended June 30, 2022 and 2021.

(in thousands)

 

 

 

 

 

 

Three Months Ended June 30, 2022

 

 

Six Months Ended June 30, 2022

 

Portfolio Company(1)

 

Type

 

Fair Value as of June 30, 2022

 

 

Interest Income

 

 

Fee Income

 

 

Net Change in Unrealized Appreciation (Depreciation)

 

 

Realized Gain (Loss)

 

 

Interest Income

 

 

Fee Income

 

 

Net Change in Unrealized Appreciation (Depreciation)

 

 

Realized Gain (Loss)

 

Control Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coronado Aesthetics, LLC

 

Control

 

$

422

 

 

$

 

 

$

 

 

$

(192

)

 

$

 

 

$

 

 

$

 

 

$

(143

)

 

$

 

Gibraltar Business Capital, LLC

 

Control

 

 

39,064

 

 

 

844

 

 

 

17

 

 

 

(3,578

)

 

 

 

 

 

1,678

 

 

 

33

 

 

 

(4,805

)

 

 

 

Hercules Adviser LLC

 

Control

 

 

35,181

 

 

 

128

 

 

 

 

 

 

8,637

 

 

 

 

 

 

239

 

 

 

 

 

 

11,191

 

 

 

 

Tectura Corporation

 

Control

 

 

8,208

 

 

 

172

 

 

 

 

 

 

(139

)

 

 

 

 

 

342

 

 

 

 

 

 

(61

)

 

 

 

Total Control Investments

 

$

82,875

 

 

$

1,144

 

 

$

17

 

 

$

4,728

 

 

$

 

 

$

2,259

 

 

$

33

 

 

$

6,182

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Black Crow AI, Inc.

 

Affiliate

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

(120

)

 

$

3,772

 

Pineapple Energy LLC

 

Affiliate

 

 

3,613

 

 

 

76

 

 

 

 

 

 

(1,295

)

 

 

 

 

 

1,123

 

 

 

 

 

 

(422

)

 

 

 

Total Affiliate Investments

 

$

3,613

 

 

$

76

 

 

$

 

 

$

(1,295

)

 

$

 

 

$

1,123

 

 

$

 

 

$

(542

)

 

$

3,772

 

Total Control & Affiliate Investments

 

$

86,488

 

 

$

1,220

 

 

$

17

 

 

$

3,433

 

 

$

 

 

$

3,382

 

 

$

33

 

 

$

5,640

 

 

$

3,772

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

Three Months Ended June 30, 2021

 

 

Six Months Ended June 30, 2021

 

Portfolio Company

 

Type

 

Fair Value as of June 30, 2021

 

 

Interest Income

 

 

Fee Income

 

 

Net Change in Unrealized Appreciation (Depreciation)

 

 

Realized Gain (Loss)

 

 

Interest Income

 

 

Fee Income

 

 

Net Change in Unrealized Appreciation (Depreciation)

 

 

Realized Gain (Loss)

 

Control Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gibraltar Business Capital, LLC

 

Control

 

$

44,194

 

 

$

843

 

 

$

15

 

 

$

(6,125

)

 

$

 

 

$

1,472

 

 

$

23

 

 

$

(14,215

)

 

$

 

Hercules Adviser LLC

 

Control

 

 

13,923

 

 

 

14

 

 

 

 

 

 

1,019

 

 

 

 

 

 

14

 

 

 

 

 

 

10,888

 

 

 

 

Tectura Corporation

 

Control

 

 

8,374

 

 

 

172

 

 

 

 

 

 

(149

)

 

 

 

 

 

342

 

 

 

 

 

 

(226

)

 

 

 

Total Control Investments

 

$

66,491

 

 

$

1,029

 

 

$

15

 

 

$

(5,255

)

 

$

 

 

$

1,828

 

 

$

23

 

 

$

(3,553

)

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Black Crow AI, Inc.

 

Affiliate

 

$

1,309

 

 

$

 

 

$

 

 

$

54

 

 

$

 

 

$

 

 

$

 

 

$

2,094

 

 

$

 

Pineapple Energy LLC

 

Affiliate

 

 

8,441

 

 

 

1

 

 

 

 

 

 

32

 

 

 

 

 

 

2

 

 

 

 

 

 

61

 

 

 

 

Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.)

 

Affiliate

 

 

 

 

 

 

 

 

 

 

 

62,143

 

 

 

(62,143

)

 

 

 

 

 

 

 

 

62,183

 

 

 

(62,143

)

Total Affiliate Investments

 

$

9,750

 

 

$

1

 

 

$

 

 

$

62,229

 

 

$

(62,143

)

 

$

2

 

 

$

 

 

$

64,338

 

 

$

(62,143

)

Total Control & Affiliate Investments

 

$

76,241

 

 

$

1,030

 

 

$

15

 

 

$

56,974

 

 

$

(62,143

)

 

$

1,830

 

 

$

23

 

 

$

60,785

 

 

$

(62,143

)

(1)
In accordance with Rules 3-09, 4-08(g), and Rule 10-01(b)(1) of Regulation S-X, (“Rule 3-09”, “Rule 4-08(g)”, and “Rule 10-01(b)(1)”, respectively), the Company must determine if its unconsolidated subsidiaries are considered “significant subsidiaries”. As of June 30, 2022, the Hercules Adviser, LLC qualified as a significant subsidiary pursuant to Rule 10-01(b)(1). The total revenue, operating income, and net income were $3.5 million and $0.2 million, $(1.9) million and $(2.3) million, and $(1.8) million and $(1.8) million, respectively, for the six months ended June 30, 2022 and 2021. As of June 30, 2021, there were no unconsolidated subsidiaries that are considered “significant subsidiaries”.

Portfolio Composition

The following table shows the fair value of the Company’s portfolio of investments by asset class as of June 30, 2022 and December 31, 2021:

 

June 30, 2022

 

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Investments at
Fair Value

 

 

Percentage of
Total Portfolio

 

 

Investments at
Fair Value

 

 

Percentage of
Total Portfolio

 

Senior Secured Debt

$

2,496,639

 

 

 

91.8

%

 

$

2,156,709

 

 

 

88.6

%

Unsecured Debt

 

54,227

 

 

 

2.0

%

 

 

52,890

 

 

 

2.2

%

Preferred Stock

 

49,858

 

 

 

1.9

%

 

 

69,439

 

 

 

2.8

%

Common Stock

 

87,936

 

 

 

3.2

%

 

 

115,271

 

 

 

4.7

%

Warrants

 

27,903

 

 

 

1.0

%

 

 

38,399

 

 

 

1.6

%

Investment Funds & Vehicles

 

2,328

 

 

 

0.1

%

 

 

1,814

 

 

 

0.1

%

Total

$

2,718,891

 

 

 

100.0

%

 

$

2,434,522

 

 

 

100.0

%

 

 

44


 

A summary of the Company’s investment portfolio, at value, by geographic location as of June 30, 2022 and December 31, 2021 is shown as follows:

 

June 30, 2022

 

 

December 31, 2021

 

(in thousands)

Investments at
Fair Value

 

 

Percentage of
Total Portfolio

 

 

Investments at
Fair Value

 

 

Percentage of
Total Portfolio

 

United States

$

2,455,229

 

 

 

90.4

%

 

$

2,138,184

 

 

 

87.8

%

United Kingdom

 

152,699

 

 

 

5.6

%

 

 

169,407

 

 

 

7.0

%

Netherlands

 

76,908

 

 

 

2.8

%

 

 

82,925

 

 

 

3.4

%

Canada

 

19,273

 

 

 

0.7

%

 

 

27,673

 

 

 

1.1

%

Israel

 

8,932

 

 

 

0.3

%

 

 

8,980

 

 

 

0.4

%

Ireland

 

4,636

 

 

 

0.2

%

 

 

5,459

 

 

 

0.2

%

Germany

 

1,082

 

 

 

0.0

%

 

 

1,894

 

 

 

0.1

%

Other

 

132

 

 

 

0.0

%

 

 

 

 

 

0.0

%

Total

$

2,718,891

 

 

 

100.0

%

 

$

2,434,522

 

 

 

100.0

%

The following table shows the fair value of the Company’s portfolio by industry sector as of June 30, 2022 and December 31, 2021:

 

June 30, 2022

 

 

December 31, 2021

 

(in thousands)

Investments at
Fair Value

 

 

Percentage of
Total Portfolio

 

 

Investments at
Fair Value

 

 

Percentage of
Total Portfolio

 

Drug Discovery & Development

$

1,049,767

 

 

 

38.6

%

 

$

967,383

 

 

 

39.7

%

Software

 

707,982

 

 

 

26.0

%

 

 

585,622

 

 

 

24.1

%

Internet Consumer & Business Services

 

458,299

 

 

 

16.8

%

 

 

395,506

 

 

 

16.3

%

Healthcare Services, Other

 

129,373

 

 

 

4.3

%

 

 

121,003

 

 

 

5.0

%

Communications & Networking

 

106,629

 

 

 

3.9

%

 

 

105,490

 

 

 

4.3

%

Diversified Financial Services

 

74,712

 

 

 

2.8

%

 

 

65,073

 

 

 

2.7

%

Information Services

 

57,656

 

 

 

2.1

%

 

 

74,417

 

 

 

3.1

%

Manufacturing Technology

 

41,515

 

 

 

1.0

%

 

 

14,995

 

 

 

1.2

%

Consumer & Business Products

 

26,215

 

 

 

1.5

%

 

 

28,099

 

 

 

0.6

%

Sustainable and Renewable Technology

 

23,060

 

 

 

0.9

%

 

 

39,387

 

 

 

1.6

%

Semiconductors

 

20,846

 

 

 

1.2

%

 

 

22,498

 

 

 

0.5

%

Medical Devices & Equipment

 

18,378

 

 

 

0.8

%

 

 

12,612

 

 

 

0.9

%

Electronics & Computer Hardware

 

3,317

 

 

 

0.1

%

 

 

1,040

 

 

 

0.0

%

Surgical Devices

 

1,044

 

 

 

0.0

%

 

 

1,029

 

 

 

0.0

%

Drug Delivery

 

98

 

 

 

0.0

%

 

 

368

 

 

 

0.0

%

Total

$

2,718,891

 

 

 

100.0

%

 

$

2,434,522

 

 

 

100.0

%

No single portfolio investment represents more than 10% of the fair value of the Company’s total investments as of June 30, 2022 or December 31, 2021.

Concentrations of Credit Risk

The Company’s customers are primarily privately held companies and public companies which are active in the “Drug Discovery & Development", "Software”, “Internet Consumer & Business Services”, “Healthcare Services, Other”, and “Communications & Networking" sectors. These sectors are characterized by high margins, high growth rates, consolidation and product and market extension opportunities. Value for companies in these sectors is often vested in intangible assets and intellectual property.

Industry and sector concentrations vary as new loans are recorded and loans are paid off. Loan revenue, consisting of interest, fees, and recognition of gains on equity and warrant or other equity interests, can fluctuate materially when a loan is paid off or a related warrant or equity interest is sold. Revenue recognition in any given year can be highly concentrated among several portfolio companies.

For the six months ended June 30, 2022 and the year ended December 31, 2021, the Company’s ten largest portfolio companies represented approximately 31.4% and 30.5% of the total fair value of the Company’s investments in portfolio companies, respectively. As of June 30, 2022 and December 31, 2021, the Company had nine and six portfolio companies, respectively, that represented 5% or more of the Company’s net assets. As of June 30, 2022, the Company had four equity investments representing approximately 43.2% of the total fair value of the Company’s equity investments, and each represented 5% or more of the total fair value of the Company’s equity investments. As of December 31, 2021, the Company had six equity investments which represented approximately 49.6% of the total fair value of the Company’s equity investments, and each represented 5% or more of the total fair value of such investments.

 

45


 

Investment Collateral

In the majority of cases, the Company collateralizes its investments by obtaining a first priority security interest in a portfolio company’s assets, which may include its intellectual property. In other cases, the Company may obtain a negative pledge covering a company’s intellectual property. As of June 30, 2022, approximately 74.3% of the Company’s debt investments at fair value were in a senior secured first lien position, with 37.1% secured by a first priority security in all of the assets of the portfolio company, including its intellectual property, 29.0% secured by a first priority security in all of the assets of the portfolio company and the portfolio company was prohibited from pledging or encumbering its intellectual property, and 8.2% of the Company’s debt investments at fair value were in a first lien “last-out” senior secured position with a security interest in all of the assets of the portfolio company, whereby the “last-out” loans will be subordinated to the “first-out” portion of the unitranche loan in a liquidation, sale or other disposition. Another 23.6% of the Company’s debt investments at fair value were secured by a second priority security interest in the portfolio company’s assets, and 2.1% were unsecured.

As of December 31, 2021, approximately 77.0% of the Company’s debt investments at fair value were in a senior secured first lien position, with 37.5% secured by a first priority security in all of the assets of the portfolio company, including its intellectual property, 31.6% secured by a first priority security in all of the assets of the portfolio company and the portfolio company was prohibited from pledging or encumbering its intellectual property and 7.9% of the Company’s debt investments at fair value were in a first lien “last-out” senior secured position with security interest in all of the assets of the portfolio company, whereby the “last-out” loans will be subordinated to the “first-out” portion of the unitranche loan in a liquidation, sale or other disposition. Another 20.6% of the Company’s debt investments at fair value were secured by a second priority security interest in the portfolio company’s assets, and 2.4% were unsecured.

5. Debt

As of June 30, 2022 and December 31, 2021, the Company had the following available and outstanding debt:

 

June 30, 2022

 

December 31, 2021

 

(in thousands)

Total Available

 

Principal

 

Carrying Value (1)

 

Total Available

 

Principal

 

Carrying Value (1)

 

SBA Debentures

$

175,000

 

$

175,000

 

$

169,442

 

$

175,000

 

$

150,500

 

$

145,498

 

2022 Notes

 

 

 

 

 

 

 

150,000

 

 

150,000

 

 

149,563

 

July 2024 Notes

 

105,000

 

 

105,000

 

 

104,385

 

 

105,000

 

 

105,000

 

 

104,238

 

February 2025 Notes

 

50,000

 

 

50,000

 

 

49,694

 

 

50,000

 

 

50,000

 

 

49,637

 

June 2025 Notes

 

70,000

 

 

70,000

 

 

69,515

 

 

70,000

 

 

70,000

 

 

69,433

 

June 2025 3-Year Notes

 

50,000

 

 

50,000

 

 

49,479

 

 

 

 

 

 

 

March 2026 A Notes

 

50,000

 

 

50,000

 

 

49,653

 

 

50,000

 

 

50,000

 

 

49,605

 

March 2026 B Notes

 

50,000

 

 

50,000

 

 

49,621

 

 

50,000

 

 

50,000

 

 

49,570

 

September 2026 Notes

 

325,000

 

 

325,000

 

 

320,867

 

 

325,000

 

 

325,000

 

 

320,376

 

January 2027 Notes

 

350,000

 

 

350,000

 

 

343,939

 

 

 

 

 

 

 

2031 Asset-Backed Notes

 

150,000

 

 

150,000

 

 

147,663

 

 

 

 

 

 

 

2033 Notes

 

40,000

 

 

40,000

 

 

38,772

 

 

40,000

 

 

40,000

 

 

38,718

 

2022 Convertible Notes

 

 

 

 

 

 

 

230,000

 

 

230,000

 

 

229,740

 

MUFG Bank Facility (2)(3)

 

545,000

 

 

82,000

 

 

82,000

 

 

400,000

 

 

 

 

 

SMBC Facility (2)

 

225,000

 

 

23,582

 

 

23,582

 

 

100,000

 

 

29,925

 

 

29,925

 

Total

$

2,185,000

 

$

1,520,582

 

$

1,498,612

 

$

1,745,000

 

$

1,250,425

 

$

1,236,303

 

 

(1)
Except for the SMBC Facility and MUFG Bank Facility (f.k.a. Union Bank Facility), all carrying values represent the principal amount outstanding less the remaining unamortized debt issuance costs and unaccreted premium or discount, if any, associated with the debt as of the balance sheet date.
(2)
Availability subject to the Company meeting the borrowing base requirements.
(3)
The June 2022 amendment of the MUFG Bank Facility replaced the Union Bank Facility via an amendment which changed the lead lender.

 

46


 

Debt issuance costs, net of accumulated amortization, were as follows as of June 30, 2022 and December 31, 2021:

(in thousands)

 

June 30, 2022

 

 

December 31, 2021

 

SBA Debentures

 

$

5,558

 

 

$

5,002

 

2022 Notes

 

 

 

 

 

300

 

July 2024 Notes

 

 

615

 

 

 

762

 

February 2025 Notes

 

 

306

 

 

 

363

 

June 2025 Notes

 

 

485

 

 

 

567

 

June 2025 3-Year Notes

 

 

521

 

 

 

 

March 2026 A Notes

 

 

347

 

 

 

395

 

March 2026 B Notes

 

 

379

 

 

 

430

 

September 2026 Notes

 

 

4,133

 

 

 

4,624

 

January 2027 Notes

 

 

6,061

 

 

 

 

2031 Asset-Backed Notes

 

 

2,337

 

 

 

 

2033 Notes

 

 

1,228

 

 

 

1,282

 

2022 Convertible Notes

 

 

 

 

 

149

 

MUFG Bank Facility (1)

 

 

1,587

 

 

 

1,239

 

SMBC Facility (1)

 

 

1,649

 

 

 

922

 

Total

 

$

25,206

 

 

$

16,035

 

(1)
The MUFG Bank Facility (f.k.a. Union Bank Facility) and SMBC Facility, are line-of-credit arrangements, the debt issuance costs associated with these instruments are included within Other assets on the Consolidated Statements of Assets and Liabilities in accordance with ASC Subtopic 835-30.

For the three and six months ended June 30, 2022, the components of interest expense, related fees, losses on debt extinguishment and cash paid for interest expense for debt were as follows:

 

 

Three Months Ended June 30, 2022

 

 

Six Months Ended June 30, 2022

 

(in thousands)
Description

 

Interest expense(1)

 

Amortization of debt issuance cost (loan fees)

 

Unused facility and other fees (loan fees)

 

Total interest expense and fees

 

Cash paid for interest expense

 

 

Interest expense(1)

 

Amortization of debt issuance cost (loan fees)(2)

 

Unused facility and other fees (loan fees)

 

Total interest expense and fees

 

Cash paid for interest expense

 

SBA Debentures

 

$

1,138

 

$

146

 

$

 

$

1,284

 

$

 

 

$

1,688

 

$

286

 

$

 

$

1,974

 

$

749

 

2022 Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

1,011

 

 

50

 

 

 

 

1,061

 

 

2,293

 

July 2024 Notes

 

 

1,252

 

 

74

 

 

 

 

1,326

 

 

 

 

 

2,504

 

 

148

 

 

 

 

2,652

 

 

2,504

 

February 2025 Notes

 

 

535

 

 

28

 

 

 

 

563

 

 

 

 

 

1,070

 

 

57

 

 

 

 

1,127

 

 

1,070

 

June 2025 Notes

 

 

755

 

 

41

 

 

 

 

796

 

 

1,509

 

 

 

1,509

 

 

81

 

 

 

 

1,590

 

 

1,509

 

June 2025 3-Year Notes

 

 

67

 

 

4

 

 

 

 

71

 

 

 

 

 

67

 

 

4

 

 

 

 

71

 

 

-

 

March 2026 A Notes

 

 

562

 

 

24

 

 

 

 

586

 

 

 

 

 

1,125

 

 

48

 

 

 

 

1,173

 

 

1,125

 

March 2026 B Notes

 

 

568

 

 

26

 

 

 

 

594

 

 

 

 

 

1,137

 

 

52

 

 

 

 

1,189

 

 

1,138

 

September 2026 Notes

 

 

2,175

 

 

204

 

 

 

 

2,379

 

 

 

 

 

4,349

 

 

408

 

 

 

 

4,757

 

 

4,266

 

January 2027 Notes

 

 

3,078

 

 

207

 

 

 

 

3,285

 

 

 

 

 

5,473

 

 

368

 

 

 

 

5,841

 

 

-

 

2031 Asset-Backed Notes

 

 

169

 

 

9

 

 

 

 

178

 

 

 

 

 

169

 

 

9

 

 

 

 

178

 

 

-

 

2033 Notes

 

 

625

 

 

27

 

 

 

 

652

 

 

625

 

 

 

1,250

 

 

54

 

 

 

 

1,304

 

 

1,250

 

2022 Convertible Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

923

 

 

149

 

 

 

 

1,072

 

 

5,004

 

MUFG Bank Facility(2)

 

 

1,369

 

 

175

 

 

395

 

 

1,939

 

 

1,215

 

 

 

1,483

 

 

412

 

 

962

 

 

2,857

 

 

1,215

 

SMBC Facility

 

 

405

 

 

64

 

 

68

 

 

537

 

 

283

 

 

 

587

 

 

113

 

 

133

 

 

833

 

 

519

 

Total

 

$

12,698

 

$

1,029

 

$

463

 

$

14,190

 

$

3,632

 

 

$

24,345

 

$

2,239

 

$

1,095

 

$

27,679

 

$

22,642

 

(1)
Interest expense includes amortization of original issue discounts for the three months ended June 30, 2022 of $42 thousand, $126 thousand, and $4 thousand related to the September 2026 Notes, January 2027 Notes, and 2031 Asset-Backed Notes, respectively. For the six months ended June 30, 2022, $23 thousand, $112 thousand, $84 thousand, $223 thousand, and $4 thousand related to the 2022 Notes, 2022 Convertible Notes, September 2026 Notes, January 2027 Notes, and 2031 Asset-Backed Notes, respectively.
(2)
The June 2022 amendment of the MUFG Bank Facility replaced the Union Bank Facility via an amendment which changed the lead lender.

 

 

47


 

For the three and six months ended June 30, 2021, the components of interest expense and related fees and cash paid for interest expense for debt were as follows:

 

 

Three Months Ended June 30, 2021

 

 

Six Months Ended June 30, 2021

 

(in thousands)
Description

 

Interest expense(1)

 

Amortization of debt issuance cost (loan fees)

 

Unused facility and other fees (loan fees)

 

Total interest expense and fees

 

Cash paid for interest expense

 

 

Interest expense(1)

 

Amortization of debt issuance cost (loan fees)

 

Unused facility and other fees (loan fees)

 

Total interest expense and fees

 

Cash paid for interest expense

 

SBA Debentures

 

$

521

 

$

102

 

$

 

$

623

 

$

536

 

 

$

1,113

 

$

317

 

$

 

$

1,430

 

$

2,089

 

2022 Notes

 

 

1,775

 

 

90

 

 

 

 

1,865

 

 

3,468

 

 

 

3,551

 

 

180

 

 

 

 

3,731

 

 

3,469

 

July 2024 Notes

 

 

1,252

 

 

74

 

 

 

 

1,326

 

 

 

 

 

2,504

 

 

148

 

 

 

 

2,652

 

 

2,504

 

February 2025 Notes

 

 

535

 

 

29

 

 

 

 

564

 

 

 

 

 

1,070

 

 

57

 

 

 

 

1,127

 

 

1,070

 

April 2025 Notes(2)

 

 

984

 

 

95

 

 

 

 

1,079

 

 

984

 

 

 

1,969

 

 

190

 

 

 

 

2,159

 

 

1,968

 

June 2025 Notes

 

 

754

 

 

40

 

 

 

 

794

 

 

1,509

 

 

 

1,509

 

 

81

 

 

 

 

1,590

 

 

1,509

 

March 2026 A Notes

 

 

563

 

 

24

 

 

 

 

587

 

 

 

 

 

1,125

 

 

46

 

 

 

 

1,171

 

 

750

 

March 2026 B Notes

 

 

569

 

 

26

 

 

 

 

595

 

 

 

 

 

739

 

 

34

 

 

 

 

773

 

 

 

2033 Notes

 

 

625

 

 

27

 

 

 

 

652

 

 

625

 

 

 

1,250

 

 

54

 

 

 

 

1,304

 

 

1,250

 

2027 Asset-Backed Notes(2)

 

 

1,474

 

 

204

 

 

 

 

1,678

 

 

1,492

 

 

 

3,249

 

 

850

 

 

 

 

4,099

 

 

3,329

 

2028 Asset-Backed Notes(2)

 

 

2,567

 

 

283

 

 

 

 

2,850

 

 

2,600

 

 

 

5,459

 

 

616

 

 

 

 

6,075

 

 

5,529

 

2022 Convertible Notes

 

 

2,684

 

 

223

 

 

 

 

2,907

 

 

 

 

 

5,367

 

 

446

 

 

 

 

5,813

 

 

5,031

 

Wells Facility(2)

 

 

 

 

44

 

 

157

 

 

201

 

 

 

 

 

 

 

88

 

 

313

 

 

401

 

 

 

MUFG Bank Facility(3)

 

 

187

 

 

327

 

 

475

 

 

989

 

 

138

 

 

 

335

 

 

653

 

 

947

 

 

1,935

 

 

213

 

Total

 

$

14,490

 

$

1,588

 

$

632

 

$

16,710

 

$

11,352

 

 

$

29,240

 

$

3,760

 

$

1,260

 

$

34,260

 

$

28,711

 

(1)
Interest expense includes amortization of original issue discounts of $41 thousand and $168 thousand relate to the 2022 Notes and 2022 Convertible Notes, respectively, for the three months ended June 30, 2021; and $82 thousand and $336 thousand for the 2022 Notes and 2022 Convertible Notes, respectively, for the six months ended June 30, 2021.
(2)
The April 2025 Notes, 2027 Asset-Backed Notes and 2028 Asset-Backed Notes were retired on July 1, 2021 and October 20, 2021, respectively. The Wells Facility was terminated on November 29, 2021.
(3)
The June 2022 amendment of the MUFG Bank Facility replaced the Union Bank Facility via an amendment which changed the lead lender.

As of June 30, 2022 and December 31, 2021, the Company was in compliance with the terms of all borrowing arrangements. There are no sinking fund requirements for any of the Company’s debt.

SBA Debentures

The Company reported the following SBA debentures outstanding principal balances as of June 30, 2022 and December 31, 2021:

(in thousands)
Issuance/Pooling Date

 

Maturity Date

 

Interest Rate (1)

 

June 30, 2022

 

 

December 31, 2021

 

March 26, 2021

 

September 1, 2031

 

1.58%

 

$

37,500

 

 

$

37,500

 

June 25, 2021

 

September 1, 2031

 

1.58%

 

 

16,200

 

 

 

16,200

 

July 28, 2021

 

September 1, 2031

 

1.58%

 

 

5,400

 

 

 

5,400

 

August 20, 2021

 

September 1, 2031

 

1.58%

 

 

5,400

 

 

 

5,400

 

October 21, 2021

 

March 1, 2032

 

3.21%

 

 

14,000

 

 

 

14,000

 

November 1, 2021

 

March 1, 2032

 

3.21%

 

 

21,000

 

 

 

21,000

 

November 15, 2021

 

March 1, 2032

 

3.21%

 

 

5,200

 

 

 

5,200

 

November 30, 2021

 

March 1, 2032

 

3.21%

 

 

20,800

 

 

 

20,800

 

December 20, 2021

 

March 1, 2032

 

3.21%

 

 

10,000

 

 

 

10,000

 

December 23, 2021

 

March 1, 2032

 

3.21%

 

 

10,000

 

 

 

10,000

 

December 28, 2021

 

March 1, 2032

 

3.21%

 

 

5,000

 

 

 

5,000

 

January 14, 2022

 

March 1, 2032

 

3.21%

 

 

4,500

 

 

 

 

January 21, 2022

 

March 1, 2032

 

3.21%

 

 

20,000

 

 

 

 

Total SBA Debentures

 

 

 

 

 

$

175,000

 

 

$

150,500

 

(1)
Interest rates are fixed rates set based on the pooling date of each debenture. The rates shown above are inclusive of annual SBA charges.

SBICs are subject to a variety of regulations and oversight by the SBA concerning the size and nature of the companies in which they may invest as well as the structures of those investments. The SBA as part of its oversight periodically examines and audits to determine SBICs compliance with SBA regulations. Our SBIC was in compliance with all SBIC terms, including those pertaining to the SBA Debentures as of June 30, 2022 and December 31, 2021.

HC IV received its license to operate as a SBIC on October 27, 2020. The license has a 10-year term. Through the license, HC IV has access to $175.0 million of capital through the SBA debenture program, that is in addition to the Company’s regulatory capital commitment of $87.5 million to HC IV. As of June 30, 2022, HC IV has issued a total of $175.0 million in SBA guaranteed debentures and has paid the SBA commitment fees and facility fees of approximately $1.75 million and $4.2 million, respectively.

 

48


 

As of June 30, 2022, the Company held investments in HC IV in 17 companies with a fair value of approximately $272.9 million, accounting for approximately 10.0% of the Company’s total investment portfolio. Further, HC IV held approximately $278.4 million in tangible assets which accounted for approximately 9.7% of the Company’s total assets as of June 30, 2022.

2022 Notes

On October 23, 2017, the Company issued $150.0 million in aggregate principal amount of 4.625% interest-bearing unsecured notes that mature on October 23, 2022 (the “2022 Notes”), unless repurchased in accordance with their terms. Interest on the 2022 Notes is due semiannually in arrears on April 23 and October 23 of each year, commencing on April 23, 2018. On February 22, 2022, pursuant to the redemption terms of the 2025 Notes indenture, the Company fully repaid the aggregate outstanding $150.0 million of principal and $2.3 million of accrued interest. In addition, the Company paid $3.3 million of prepayment premium fees, which together with the accelerated recognition of $0.3 million of debt issuance costs was recognized as a realized loss on extinguishment of the debt.

2022 Convertible Notes

On January 25, 2017, the Company issued $230.0 million in aggregate principal amount of 4.375% interest-bearing unsecured notes due on February 1, 2022 (the “2022 Convertible Notes”), unless previously converted or caused to repurchase the notes in accordance with their terms by the holders of the 2022 Convertible Notes. The $230.0 million issued aggregate principal of the 2022 Convertible Notes includes an additional $30.0 million aggregate principal amount issued pursuant to the initial purchaser’s exercise in full of its overallotment option. Interest on the 2022 Convertible Notes is due semiannually in arrears on February 1 and August 1 of each year. On February 1, 2022, the Company fully repaid the aggregate outstanding $230.0 million principal, $5.0 million of accrued interest and fees, and issued 981,169 shares related to noteholders who elected to convert pursuant to the redemption terms of the 2022 Convertible Notes indenture.

July 2024 Notes

On July 16, 2019, the Company issued $105.0 million in aggregate principal amount of 4.77% interest-bearing unsecured notes due on July 16, 2024 (the “July 2024 Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement notes offering. Interest on the July 2024 Notes is due semiannually. The July 2024 Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.

February 2025 Notes

On February 5, 2020, the Company issued $50.0 million in aggregate principal amount of 4.28% interest-bearing unsecured notes due February 5, 2025 (the “February 2025 Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement notes offering. Interest on the February 2025 Notes is due semiannually. The February 2025 Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.

June 2025 Notes

On June 3, 2020, the Company issued $70.0 million in aggregate principal amount of 4.31% interest-bearing unsecured notes due June 3, 2025 (the “June 2025 Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement notes offering. Interest on the June 2025 Notes is due semiannually. The June 2025 Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.

June 2025 3-Year Notes

On June 23, 2022, the Company issued $50.0 million in aggregate principal amount of 6.00% interest-bearing unsecured notes due June 23, 2025 (the “June 2025 3-Year Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement notes offering. Interest on the June 2025 3-Year Notes is due semiannually. The June 2025 3-Year Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.

March 2026 A Notes

On November 4, 2020, the Company issued $50.0 million in aggregate principal amount of 4.5% interest-bearing unsecured notes due March 4, 2026 (the “March 2026 A Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement notes offering. Interest on the March 2026 A Notes is due semiannually. The March 2026 A Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.

 

49


 

March 2026 B Notes

On March 4, 2021, the Company issued $50.0 million in aggregate principal amount of 4.55% interest-bearing unsecured notes due March 4, 2026 (the “March 2026 B Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement pursuant note offering. The sale of the March 2026 B Notes generated net proceeds of approximately $49.5 million. Aggregate offering expenses in connection with the transaction, including fees and commissions, were approximately $0.5 million. Interest on the March 2026 B Notes is due semiannually. The March 2026 B Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.

September 2026 Notes

On September 16, 2021, the Company issued $325.0 million in aggregate principal amount of 2.625% interest-bearing unsecured notes due September 16, 2026 (the “September 2026 Notes”), unless repurchased in accordance with the terms of the Seventh Supplemental Indenture, dated September 16, 2021. The issuance of the September 2026 Notes generated net proceeds of approximately $320.1 million. The aggregate offering expenses in connection with the transaction, including the underwriter’s discount and commissions, were approximately $4.1 million of costs and $0.8 million related to the discount. Interest on the September 2026 Notes is payable semi-annually in arrears on March 16 and September 16 of each year, commencing on March 16, 2022. The September 2026 Notes are general unsecured obligations and rank pari passu, or equally in right of payment, with all outstanding and future unsecured unsubordinated indebtedness issued by the Company. The Company may redeem some or all of the September 2026 Notes at any time, or from time to time, at the redemption price set forth under the terms of the September 2026 Notes Indenture.

January 2027 Notes

On January 20, 2022, the Company issued $350.0 million in aggregate principal amount of 3.375% interest-bearing unsecured notes due January 20, 2027 (the “January 2027 Notes”), unless repurchased in accordance with the terms of the Eight Supplemental Indenture, dated January 20, 2022. The issuance of the January 2027 Notes generated net proceeds of approximately $343.4 million. The aggregate offering expenses in connection with the transaction, including the underwriter’s discount and commissions, were approximately $4.1 million of costs and $2.5 million related to the discount. Interest on the January 2027 Notes is payable semi-annually in arrears on January 20 and July 20 of each year, commencing on July 20, 2022. The January 2027 Notes are general unsecured obligations and rank pari passu, or equally in right of payment, with all outstanding and future unsecured unsubordinated indebtedness issued by the Company. The Company may redeem some or all of the January 2027 Notes at any time, or from time to time, at the redemption price set forth under the terms of the January 2027 Notes Indenture.

2031 Asset-Backed Notes

On June 22, 2022, the Company completed a term debt securitization in connection with which an affiliate of the Company issued $150.0 million in aggregate principal amount of 4.95% interest-bearing asset-backed notes due on July 20, 2031 (the “2031 Asset-Backed Notes”). The 2031 Asset-Backed Notes were issued by Hercules Capital Funding Trust 2022-1 LLC (the “2022 Securitization Issuer”) pursuant to a note purchase agreement, dated as of June 22, 2022, by and among the Company, Hercules Capital Funding 2022-1 LLC, as trust depositor, the 2022 Securitization Issuer, and U.S. Bank Trust Company, N. A., as trustee, and are backed by a pool of senior loans made to certain portfolio companies of the Company and secured by certain assets of those portfolio companies and are to be serviced by the Company. Interest on the 2031 Asset-Backed Notes will be paid, to the extent of funds available.

Under the terms of the 2031 Asset-Backed Notes, the Company is required to maintain a reserve cash balance, funded through proceeds from the sale of the 2031 Asset-Backed Notes and through interest and principal collections from the underlying securitized debt portfolio, which may be used to pay monthly interest and principal payments on the 2031 Asset-Backed Notes. The Company has segregated these funds and classified them as restricted cash. As of June 30, 2022, there was approximately $3.4 million and none as of December 31, 2021 of funds segregated as restricted cash related to the 2031 Asset-Backed Notes.

2033 Notes

On September 24, 2018, the Company issued $40.0 million in aggregate principal amount of 6.25% interest-bearing unsecured notes due October 30, 2033 (the “2033 Notes”), unless repurchased in accordance with the terms of the Sixth Supplemental Indenture to the Base Indenture, dated September 24, 2018. Interest on the 2033 Notes is payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year. The 2033 Notes trade on the NYSE under the symbol “HCXY.” The 2033 Notes are general unsecured obligations and rank pari passu, or equally in right of payment, with all outstanding and future unsecured unsubordinated indebtedness issued by the Company. The Company may redeem some or all of the 2033 Notes at any time, or from time to time, at the redemption price set forth under the terms of the 2033 Notes Indenture after October 30, 2023.

Credit Facilities

As of June 30, 2022 and December 31, 2021, the Company has two available credit facilities, the MUFG Bank Facility and the SMBC Facility (together, the “Credit Facilities”). For the six months ended June 30, 2022 and year ended December 31, 2021, the

 

50


 

weighted average interest rate was 3.42% and 2.54%, respectively, and the average debt outstanding under the Credit Facilities was $121.0 million and $28.8 million, respectively.

MUFG Bank Facility

On June 10, 2022, the Company entered into a second amended credit facility agreement, which amends the agreement dated as of February 20, 2020. The Company, through a special purpose wholly owned subsidiary, Hercules Funding IV LLC (“Hercules Funding IV”), as borrower, entered into the credit facility (the “MUFG Bank Facility”) with MUFG Bank Ltd. (formerly MUFG Union Bank and known as the “Union Bank Facility”) as the arranger and administrative agent, and the lenders party to the MUFG Bank Facility from time to time.

Under the MUFG Bank Facility, the lenders have made commitments of $545.0 million, which is an increase from $400.0 million as of December 31, 2021. The MUFG Bank Facility contains an accordion feature, in which the Company can increase the credit line up to an aggregate of $600.0 million, funded by existing or additional lenders and with the agreement of MUFG Bank and subject to other customary conditions. There can be no assurances that additional lenders will join the MUFG Bank Facility to increase available borrowings. Debt under the MUFG Bank Facility generally bears interest at a rate per annum equal to SOFR plus 2.60% for SOFR loans with a one-month interest period and 2.65% for SOFR loans with a three-month interest period. The MUFG Bank Facility matures on February 22, 2024, unless sooner terminated in accordance with its terms. The MUFG Bank Facility is secured by all of the assets of Hercules Funding IV. The MUFG Bank Facility requires payment of a non-use fee during the revolving credit availability period.

The MUFG Bank Facility also includes financial and other covenants applicable to the Company and the Company’s subsidiaries, in addition to those applicable to Hercules Funding IV, including covenants relating to certain changes of control of Hercules Funding IV. Among other things, these covenants require the Company to maintain certain financial ratios, including a minimum interest coverage ratio with respect to Hercules Funding IV and a minimum tangible net worth in an amount that is in excess of $723.0 million.

The MUFG Bank Facility provides for customary events of default, including with respect to payment defaults, breach of representations and covenants, servicer defaults, certain key person provisions, cross default provisions to certain other debt, lien and judgment limitations, and bankruptcy.

SMBC Facility

On June 14, 2022, the Company entered into a second amendment to a revolving credit agreement, which amends the revolving credit agreement, dated as of November 9, 2021, with Sumitomo Mitsui Banking Corporation (the “SMBC Facility”), as administrative agent, and the lenders and issuing banks to the SMBC Facility. As of June 30, 2022, the SMBC Facility provides for borrowings in U.S. dollars and certain agreed upon foreign currencies of up to $225.0 million, from which the Company may access subject to certain conditions. As of December 31, 2021, the Company had access to $100.0 million, subject to certain conditions. Additionally, the SMBC Facility provides for the issuance of letters of credit on the account of the Company or its designee in U.S. dollars and certain agreed upon foreign currencies in an aggregate face amount not to exceed $15.0 million. The Company’s obligations under the SMBC Facility may in the future be guaranteed by certain of the Company’s subsidiaries and primarily secured by a first priority security interest (subject to certain exceptions) in only certain specified property and assets of the Company and the subsidiary guarantors thereunder. Availability under the SMBC Facility will terminate on November 7, 2025, and the outstanding loans under the SMBC Facility will mature on November 9, 2026. Borrowings under the SMBC Facility are subject to compliance with a borrowing base and an aggregate portfolio balance.

Interest under the SMBC Facility is determined by the nature and denomination of the borrowing. Interest rates are determined by the appropriate benchmark rate (SOFR, EURIBOR, Prime, CDOR, or TIBOR) as applicable for the type of borrowing plus an applicable margin adjustment which can range from 0.875% to 2.0% per annum subject to certain conditions. In addition to interest, the SMBC Facility is subject to a non-usage fee of 0.375% per annum (based on the immediately preceding period’s average usage) on the unused portion of the commitment under the SMBC Facility during the revolving period. The Company is required to pay letter of credit participation fees and a fronting fee on the average daily amount of any lender’s exposure with respect to any letters of credit issued under the SMBC Facility.

The SMBC Facility contains customary events of default with customary cure and notice provisions, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenant, cross-default and cross-acceleration to other indebtedness and bankruptcy. The SMBC Facility also includes financial and other covenants applicable to the Company and the Company’s subsidiaries, including covenants relating to minimum stockholders' equity, asset coverage ratios, and our status as a RIC.

 

 

 

51


 

 

6. Income Taxes

To qualify and be subject to tax as a RIC, the Company is required to meet certain income and asset diversification tests in addition to distributing dividends of an amount generally at least equal to 90% of its investment company taxable income, as defined by the Code and determined without regard to any deduction for distributions paid, to its stockholders. The amount to be paid out as a distribution is determined by the Board each quarter and is based upon the annual earnings estimated by the management of the Company. To the extent that the Company’s earnings fall below the amount of dividend distributions declared, however, a portion of the total amount of the Company’s distributions for the fiscal year may be deemed a return of capital for tax purposes to the Company’s stockholders.

As previously noted, federal income tax regulations differ from U.S. GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Permanent differences are reclassified among capital accounts in the financial statements to reflect their appropriate tax character. Permanent differences may also result from the change in the classification of short-term gains as ordinary income for tax purposes. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future. Also, income is required to be recognized for tax purposes no later than when recognized for financial reporting purposes, with certain exceptions.

As a RIC, the Company will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless the Company makes distributions treated as dividends for U.S. federal income tax purposes in a timely manner to its stockholders in respect of each calendar year of an amount at least equal to the sum of (1) 98% of its ordinary income (taking into account certain deferrals and elections) for each calendar year, (2) 98.2% of its capital gain net income (adjusted for certain ordinary losses) for the 1-year period ending October 31 of each such calendar year and (3) any ordinary income and capital gain net income realized, but not distributed, in preceding calendar years (the “Excise Tax Avoidance Requirement”). The Company will not be subject to this excise tax on any amount on which the Company incurred U.S. federal corporate income tax (such as the tax imposed on a RIC’s retained net capital gains).

Depending on the level of taxable income earned in a taxable year, the Company may choose to carry over taxable income in excess of current taxable year distributions from such taxable income into the next taxable year and incur a 4% excise tax on such taxable income, as required. The maximum amount of excess taxable income that may be carried over for distribution in the next taxable year under the Code is the total amount of distributions paid in the following taxable year, subject to certain declaration and payment guidelines. To the extent the Company chooses to carry over taxable income into the next taxable year, distributions declared and paid by the Company in a taxable year may differ from the Company’s taxable income for that taxable year as such distributions may include the distribution of current taxable year taxable income, the distribution of prior taxable year taxable income carried over into and distributed in the current taxable year, or returns of capital.

The Company has taxable subsidiaries which hold certain portfolio investments in an effort to limit potential legal liability and/or comply with source-income type requirements contained in the RIC tax provisions of the Code. These taxable subsidiaries are consolidated for U.S. GAAP and the portfolio investments held by the taxable subsidiaries are included in the Company’s consolidated financial statements and are recorded at fair value. These taxable subsidiaries are not consolidated with the Company for income tax purposes and may generate income tax expense, or benefit, and tax assets and liabilities as a result of their ownership of certain portfolio investments. Any income generated by these taxable subsidiaries generally would be subject to tax at normal corporate tax rates based on its taxable income.

Taxable income for the three months ended June 30, 2022, was approximately $40.0 million or $0.32 per share. Taxable net realized gains for the same period were $(1.7) million or approximately $(0.02) per share. Taxable income for the three months ended June 30, 2021, was approximately $47.2 million or $0.41 per share. Taxable net realized gains for the same period were $48.6 million or approximately $0.42 per share.

Taxable income for the six months ended June 30, 2022, was approximately $73.1 million or $0.60 per share. Taxable net realized gains for the same period were $2.0 million or approximately $0.02 per share. Taxable income for the six months ended June 30, 2021, was approximately $82.1 million or $0.72 per share. Taxable net realized gains for the same period were $57.5 million or approximately $0.50 per share.

For the three and six months ended June 30, 2022, the Company paid approximately $0.2 million and $7.3 million of income tax, respectively, including excise tax, and had $2.4 million of accrued but unpaid tax expense as of June 30, 2022. For the three and six months ended June 30, 2021, the Company paid approximately $0.1 million and $3.6 million of income tax, including excise tax, and had $2.6 million accrued but unpaid tax expense as of June 30, 2021.

The Company intends to timely distribute to its stockholders substantially all of its annual taxable income for each year, except that it may retain certain net capital gains for reinvestment and, depending upon the level of taxable income earned in a year, may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax.

 

52


 

During the three and six months ended June 30, 2022, the Company declared and paid distributions of $0.48 and $0.96 per share, respectively. The determination of the tax attributes of the Company’s distributions is made annually as of the end of the Company’s taxable year generally based upon its taxable income for the full taxable year and distributions paid for the full taxable year. As a result, a determination made on a quarterly basis may not be representative of the actual tax attributes of the Company’s distributions for a full taxable year. If the Company had determined the tax attributes of its distributions taxable year-to-date as of June 30, 2022, 100% would be from its current and accumulated earnings and profits. However, there can be no certainty to stockholders that this determination is representative of what the actual tax attributes of the Company’s fiscal year of 2022 distributions to stockholders will be.

7. Stockholders’ Equity

On May 9, 2022, the Company entered into an At-The-Market (“ATM”) equity distribution agreement with JMP Securities LLC (“JMP”) and Jefferies LLC (“Jeffries”) (the “2022 Equity Distribution Agreement”). The 2022 Equity Distribution Agreement provides that the Company may offer and sell up to 17.5 million shares of its common stock from time to time through JMP or Jeffries, as its sales agents. Sales of the Company’s common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “at the market,” as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), including sales made directly on the NYSE or similar securities exchange or sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated prices. The 2022 Equity Distribution Agreement replaces the ATM equity distribution agreement between the Company and JMP executed on July 2, 2020 (the “2020 Equity Distribution Agreement”).

Under the 2020 Equity Distribution Agreement, the Company sold approximately 0.7 million and 5.6 million shares, respectively, of common stock under during the three and six months ended June 30, 2022. From the sale of shares under the 2020 Equity Distribution Agreement, the Company received total accumulated net proceeds of approximately $13.3 million and $98.5 million, including $0.2 million and $1.6 million of offering expenses, respectively for each period. Under the 2022 Equity Distribution agreement the Company sold approximately 3.3 million of common stock for both the three and six months ended June 30, 2022. From the sale of shares, the Company received total accumulated net proceeds of approximately $48.6 million including $0.5 million of offering expenses for both the three and six months ended June 30, 2022. During the three and six months ended June 30, 2021, there were no shares sold under the existing equity distribution agreement.

The Company generally uses net proceeds from these offerings to make investments, to repurchase or pay down liabilities and for general corporate purposes. As of June 30, 2022, approximately 14.2 million shares remain available for issuance and sale under the 2022 Equity Distribution Agreement. The 2020 Equity Distribution Agreement is no longer effective. The Company has issued stock options for common stock subject to future issuance, of which 194,571 and 210,569 were outstanding as of June 30, 2022 and December 31, 2021, respectively.

8. Equity Incentive Plans

The Company grants equity-based awards to employees and non-employee directors for the purpose of attracting and retaining the services of its executive officers, key employees, and members of the Board. The Company’s equity-based awards are granted under the 2018 Equity Incentive Plan (the “2018 Plan”) for employees and 2018 Non-Employee Director Plan (the “Director Plan”) for non-employee directors. The 2018 Plan and the Director Plan were approved by stockholders on June 28, 2018, and authorize us to issue up to 18.7 million shares of common stock and 300,000 shares of restricted stock under the 2018 Plan and Director Plan, respectively. Unless earlier terminated by the Board, the 2018 Plan and Director Plan will terminate on May 12, 2028. Outstanding awards issued under plans that precede the 2018 Plan and Director Plan remain outstanding, unchanged and subject to the terms of such plans and their respective award agreements, until the vesting, expiration or lapse of such awards in accordance with their terms.

The Company has received exemptive relief from the SEC that permits it to issue restricted stock to non-employee directors under the Director Plan and restricted stock and restricted stock units to certain of its employees, officers, and directors (excluding non-employee directors) under the 2018 Plan. The exemptive order also allows participants in the Director Plan and the 2018 Plan to (i) elect to have the Company withhold shares of its common stock to pay for the exercise price and applicable taxes with respect to an option exercise (“net issuance exercise”) and/or (ii) permit the holders of restricted stock to elect to have the Company withhold shares of its stock to pay the applicable taxes due on restricted stock at the time of vesting. Each individual employee would be able to make a cash payment to satisfy applicable tax withholding at the time of option exercise or vesting on restricted stock.

The Company has granted equity-based awards that have service and performance conditions. Certain of the Company’s equity-based awards are classified as liability awards in accordance with ASC Topic 718, Compensation – Stock Compensation. All of the Company’s equity-based awards require future service, and are expensed over the relevant service period. The Company does not estimate forfeitures, and reverses all unvested costs associated with equity-based awards in the period they are forfeited. For the three months ended June 30, 2022, and 2021, the Company recognized $3.7 million and $2.9 million of stock based compensation expense in the Consolidated Statement of Operations, respectively. For the six months ended June 30, 2022, and 2021, the Company recognized $8.1 million and $5.7 million of stock based compensation expense in the Consolidated Statement of Operations,

 

53


 

respectively. As of June 30, 2022, and 2021, approximately $19.1 million and $20.6 million of total unrecognized compensation costs expected to be recognized over the next 2.0 and 2.0 years, respectively.

Service-Vesting Awards

The Company grants equity-based awards which have service conditions, and generally begin to vest one-third after one year after the date of grant and ratably over the succeeding 2 years in accordance with the individual award terms (the “Service Vesting Awards”). The grant date fair value of Service Vesting Awards granted during the six months ended June 30, 2022, and 2021, were approximately $10.7 million, and $11.1 million, respectively.

The Company has granted restricted stock equity awards in the form of restricted stock awards and restricted stock units. The Company determines the grant date fair values of restricted stock equity awards using the grant date stock close price. The activities for the Company's unvested restricted stock equity awards for each of the six months ended June 30, 2022, and 2021, are summarized below:

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

 

Shares

 

Weighted Average Grant Date
Fair Value per Share

 

 

Shares

 

Weighted Average Grant Date
Fair Value per Share

 

Unvested Shares Beginning of Period

 

 

1,037,848

 

$

14.51

 

 

 

989,100

 

$

13.69

 

Granted

 

 

610,541

 

$

17.39

 

 

 

745,087

 

$

14.76

 

Vested (1)

 

 

(463,408

)

$

14.39

 

 

 

(411,576

)

$

13.74

 

Forfeited

 

 

(17,108

)

$

15.89

 

 

 

(47,445

)

$

14.40

 

Unvested Shares End of Period

 

 

1,167,873

 

$

16.05

 

 

 

1,275,166

 

$

14.32

 

 

(1) With respect to certain restricted stock equity awards granted prior to January 1, 2019, receipt of the shares of the Company’s common stock underlying vested restricted stock equity awards will be deferred for four years from grant date unless certain conditions are met. Accordingly, such vested restricted stock equity awards will not be issued as common stock upon vesting until the completion of the deferral period.

In addition to the restricted stock equity based awards, the Company has also issued stock options to certain employees. The fair value of options granted during the six months ended June 30, 2022 and 2021, was approximately $83,000 and $40,000, respectively. During the six months ended June 30, 2022 and 2021, approximately $30,000, and $14,000, of share-based cost due to stock option grants was expensed, respectively.

Performance-Vesting Awards

The Company has granted equity-based awards, which have market and performance conditions in addition to a service condition (“Performance Awards”). The value of these awards may increase dependent on increases to the Company’s total stockholder return (“TSR”). The total compensation will be determined by the Company’s TSR relative to specified BDCs during a specified performance period. Depending on the results achieved during the specified performance period, the actual number of shares that a grant recipient receives at the end of the period may range from 0% to 200% of the target shares granted. The Performance Awards typically vest after four years, and generally may not be disposed until one year post vesting. The Company determines the fair values of the Performance Awards at the grant date using a Monte-Carlo simulation multiplied by the target payout level and is recognized over the service period. During the six months ended June 30, 2022, all 487,409 Performance Award shares vested. Additionally, 241,770 distribution equivalent units (“DEUs”) were issued with a grant date fair value of $4.0 million. During the six months ended June 30, 2021, there were no Performance Awards or DEUs granted or vested. As of June 30, 2022 and 2021, there were no and 487,409 shares of unvested Performance Awards.

Liability Classified Awards

The Company has granted equity-based awards which are subject to both service and performance conditions. These awards are settled either in cash or a fixed dollar value of shares, subject to the terms of each individual award, and therefore classified as liability awards (the “Liability Awards”). The remaining maximum total potential value of the Liability Awards granted is $5.2 million, which assumes all performance conditions are met for each Liability award. If the performance conditions are not met, the total compensation expense related to the Liability Awards may be less than the maximum granted value of the awards. The awards are recorded as deferred compensation within Accounts Payable and Accrued Liabilities included on the Consolidated Statement of Assets and Liabilities.

Certain Liability Awards are structured similar to the Performance Awards, and increase in value with corresponding increases to the Company’s TSR and vest after four years. The Company remeasures the value of these awards each period based on the Company’s TSR achieved to date. Certain other Liability Awards are linked to attainment of investment funding goals. The Company determines the fair value of these Liability Awards based on the expected probability of the performance conditions being met and recognized over the service period. As of June 30, 2022, the Company determined that the weighted average expected probability of the performance conditions being met within each Liability Award was 100%. The expected probability is re-evaluated each period, and may be adjusted to reflect changes in this assumption. These other Liability Awards vest over a three year service term.

 

54


 

As of June 30, 2022, all Liability Awards are unvested and there was approximately $3.2 million of total unrecognized compensation costs expected to be recognized over a weighted average period of 1.8 years. For the six months ended June 30, 2022, there was approximately $2.3 million of compensation expense related to the Liability Awards recognized in the Consolidated Statement of Operations and $2.0 million accrued within Accounts Payable and Accrued Liabilities in the Consolidated Statements of Assets and Liabilities. During the six months ended June 30, 2022 and 2021, $6.0 million and $0 of the Liability Awards vested.

As of June 30, 2021, all Liability Awards are unvested and there was approximately $3.9 million of total unrecognized compensation costs expected to be recognized over a weighted average period of 2.3 years. For the six months ended June 30, 2021, there was approximately $0.6 million of compensation expense related to the Liability Awards recognized in the Consolidated Statement of Operations and $4.6 million accrued within Accounts Payable and Accrued Liabilities in the Consolidated Statements of Assets and Liabilities. No Liability Awards vested during the periods presented.

9. Earnings Per Share

Shares used in the computation of the Company’s basic and diluted earnings per share are as follows:

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(in thousands, except per share data)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in net assets resulting from operations

 

$

(10,318

)

 

$

82,731

 

 

$

(13,654

)

 

$

146,894

 

Less: Distributions declared-common and restricted shares

 

 

(59,993

)

 

 

(45,158

)

 

 

(117,875

)

 

 

(87,953

)

(Over-)Undistributed earnings (loss)

 

 

(70,311

)

 

 

37,573

 

 

 

(131,529

)

 

 

58,941

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Undistributed earnings-common shares

 

 

(70,311

)

 

 

37,200

 

 

 

(131,529

)

 

 

58,341

 

Add: Distributions declared-common shares

 

 

59,431

 

 

 

44,710

 

 

 

116,693

 

 

 

87,059

 

Numerator for basic and diluted change in net assets per common share

 

$

(10,880

)

 

$

81,910

 

 

$

(14,836

)

 

$

145,400

 

Add: Income impact of assumed conversion of 2022 Convertible Notes

 

 

 

 

 

2,906

 

 

 

 

 

 

2,906

 

Numerator for basic and diluted change in net assets per common share

 

$

(10,880

)

 

$

84,816

 

 

$

(14,836

)

 

$

148,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

124,255

 

 

 

114,654

 

 

 

121,292

 

 

 

114,480

 

Incremental shares from assumed conversion of 2022 Convertible Notes

 

 

 

 

 

14,189

 

 

 

 

 

 

7,094

 

Common shares issuable

 

 

 

 

 

729

 

 

 

 

 

 

614

 

Weighted average common shares outstanding assuming dilution

 

 

124,255

 

 

 

129,572

 

 

 

121,292

 

 

 

122,188

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net assets per common share

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.09

)

 

$

0.71

 

 

$

(0.12

)

 

$

1.27

 

Diluted

 

$

(0.09

)

 

$

0.65

 

 

$

(0.12

)

 

$

1.21

 

In the table above, unvested share-based payment awards that have non-forfeitable rights to distributions or distribution equivalents are treated as participating securities for calculating earnings per share. Unvested common stock options and restricted stock units are also considered for the purpose of calculating diluted earnings per share. For the three and six months ended June 30, 2022, as the Company had a net loss, the effect of unvested stock options, restricted stock units and awards, and Performance Awards were anti-dilutive, and therefore have been excluded from the calculation of diluted loss per share.

As disclosed in “Note 5 – Debt”, on February 1, 2022, the Company fully repaid the 2022 Convertible Notes. As these notes were fully repaid, there is no dilutive impact for the current period ended June 30, 2022. For the three and six months ended June 30, 2021, the average closing price of the Company's common stock was higher than the conversion price of the 2022 Convertible Notes and therefore, the effect of the 2022 Convertible Notes was dilutive and, accordingly, was included in the calculation of diluted earnings per share using the if-converted method.

The calculation of change in net assets resulting from operations per common share assuming dilution, excludes all anti-dilutive shares. For the three and six months ended June 30, 2022, and 2021, the number of anti-dilutive shares, as calculated based on the weighted average closing price of the Company’s common stock for the periods, are as follows:

(in thousands)

 

Three months ended June 30,

 

 

Six Months Ended June 30,

 

Anti-dilutive Securities

 

2022

 

 

2021

 

 

2022

 

 

2021

 

2022 Convertible Notes

 

 

 

 

 

 

 

 

 

 

 

 

Unvested common stock options

 

 

16

 

 

 

 

 

 

24

 

 

 

88

 

Restricted stock units*

 

 

2

 

 

 

 

 

 

17

 

 

 

 

Unvested restricted stock awards

 

 

 

 

 

 

 

 

 

 

 

725

 

Performance awards*

 

 

1,685

 

 

 

 

 

 

1,116

 

 

 

 

*Included in these amounts are shares related to certain equity-based awards, which are fully-vested but have not been delivered and thus not outstanding for purposes of calculating earnings per share.

As of both June 30, 2022 and December 31, 2021, the Company was authorized to issue 200.0 million shares of common stock with a par value of $0.001. Each share of common stock entitles the holder to one vote.

 

55


 

10. Financial Highlights

Following is a schedule of financial highlights for the six months ended June 30, 2022 and 2021:

 

Six Months Ended June 30,

 

 

2022

 

 

2021

 

Per share data (1):

 

 

 

 

 

Net asset value at beginning of period

$

11.22

 

 

$

11.26

 

Net investment income

 

0.62

 

 

 

0.62

 

Net realized gain (loss)

 

(0.04

)

 

 

(0.06

)

Net unrealized appreciation (depreciation)

 

(0.70

)

 

 

0.71

 

Total from investment operations

 

(0.12

)

 

 

1.27

 

Net increase (decrease) in net assets from capital share transactions (1)

 

0.23

 

 

 

(0.11

)

Distributions of net investment income (6)

 

(0.96

)

 

 

(0.76

)

Stock-based compensation expense included in investment income (2)

 

0.06

 

 

 

0.05

 

Net asset value at end of period

$

10.43

 

 

$

11.71

 

 

 

 

 

 

 

Ratios and supplemental data (in thousands, except per share data):

 

 

 

 

 

Per share market value at end of period

$

13.49

 

 

$

17.06

 

Total return (3)

 

(13.72

)%

 

 

23.66

%

Shares outstanding at end of period

 

127,285

 

 

 

115,867

 

Weighted average number of common shares outstanding

 

121,292

 

 

 

114,480

 

Net assets at end of period

$

1,327,740

 

 

$

1,356,358

 

Ratio of total expense to average net assets (4)

 

9.13

%

 

 

10.12

%

Ratio of net investment income before investment gains and losses to average net assets (4)

 

11.30

%

 

 

10.84

%

Portfolio turnover rate (5)

 

8.88

%

 

 

19.26

%

Weighted average debt outstanding

$

1,386,242

 

 

$

1,267,032

 

Weighted average debt per common share

$

11.43

 

 

$

11.07

 

(1)
All per share activity is calculated based on the weighted average shares outstanding for the relevant period, except net increase (decrease) in net assets from capital share transactions, which is based on the common shares outstanding as of the relevant balance sheet date.
(2)
Stock option expense is a non-cash expense that has no effect on net asset value. Pursuant to ASC Topic 718, net investment income includes the expense associated with the granting of stock options which is offset by a corresponding increase in paid-in capital.
(3)
The total return for the six months ended June 30, 2022, and 2021, equals the change in the ending market value over the beginning of the period price per share plus distributions paid per share during the period, divided by the beginning price assuming the distribution is reinvested on the date of the distribution. As such, the total return is not annualized. The total return does not reflect any sales load that must be paid by investors.
(4)
The ratios are calculated based on weighted average net assets for the relevant period and are annualized.
(5)
The portfolio turnover rate for the six months ended June 30, 2022, and 2021, equals the lesser of investment portfolio purchases or sales during the period, divided by the average investment portfolio value during the period. As such, portfolio turnover rate is not annualized.
(6)
Includes distributions on unvested restricted stock awards.

11. Commitments and Contingencies

The Company’s commitments and contingencies consist primarily of unfunded commitments to extend credit in the form of loans to the Company’s portfolio companies. A portion of these unfunded contractual commitments as of June 30, 2022, are dependent upon the portfolio company reaching certain milestones before the debt commitment becomes available. Furthermore, the Company’s credit agreements with its portfolio companies generally contain customary lending provisions which allow the Company relief from funding obligations for previously made unfunded commitments in instances where the underlying portfolio company experiences materially adverse events that affect its financial condition or business outlook. Since a portion of these commitments may expire without being drawn, unfunded contractual commitments do not necessarily represent future cash requirements. As such, the Company’s disclosure of unfunded contractual commitments includes only those which are available at the request of the portfolio company and unencumbered by future or unachieved milestones.

As of June 30, 2022, and December 31, 2021, the Company had approximately $488.9 million and $286.8 million, respectively, of unfunded commitments, including undrawn revolving facilities, which were available at the request of the portfolio company and unencumbered by future or unachieved milestones. These amounts also exclude unfunded commitments related to the portion of portfolio company investments assigned to or directly committed by the Adviser Funds as described in "Note -12 Related Party Transactions".

The fair value of the Company’s unfunded commitments is considered to be immaterial as the yield determined at the time of underwriting is expected to be materially consistent with the yield upon funding, given that interest rates are generally pegged to market indices and given the existence of milestones, conditions and/or obligations imbedded in the borrowing agreements.

 

56


 

As of June 30, 2022, and December 31, 2021, the Company’s unfunded contractual commitments available at the request of the portfolio company, including undrawn revolving facilities, and unencumbered by milestones were as follows:

(in thousands)

 

Unfunded Commitments (1) as of

 

Portfolio Company

 

June 30, 2022

 

 

December 31, 2021

 

Debt Investments:

 

 

 

 

 

 

Phathom Pharmaceuticals, Inc.

 

$

66,500

 

 

$

43,250

 

Thumbtack, Inc.

 

 

40,000

 

 

 

 

Vida Health

 

 

40,000

 

 

 

 

Skydio, Inc.

 

 

37,500

 

 

 

37,500

 

HilleVax, Inc.

 

 

36,000

 

 

 

 

Aryaka Networks, Inc.

 

 

20,000

 

 

 

 

Blue Sprig Pediatrics, Inc.

 

 

20,000

 

 

 

30,000

 

Finch Therapeutics Group, Inc.

 

 

20,000

 

 

 

 

G1 Therapeutics, Inc.

 

 

19,375

 

 

 

19,375

 

Locus Robotics Corporation

 

 

18,281

 

 

 

 

Syndax Pharmaceutics Inc.

 

 

15,000

 

 

 

30,000

 

Dronedeploy, Inc.

 

 

12,500

 

 

 

 

Carbon Health Technologies, Inc.

 

 

11,625

 

 

 

11,625.0

 

RVShare, LLC

 

 

10,500

 

 

 

13,500.0

 

AppDirect, Inc.

 

 

10,000

 

 

 

 

Dashlane, Inc.

 

 

10,000

 

 

 

19,300.0

 

Nuvolo Technologies Corporation

 

 

10,000

 

 

 

 

Equality Health, LLC

 

 

8,750

 

 

 

17,500

 

Tarsus Pharmaceuticals, Inc.

 

 

8,250

 

 

 

 

Viridian Therapeutics, Inc.

 

 

8,000

 

 

 

 

Ouster, Inc.

 

 

7,000

 

 

 

 

Akero Therapeutics, Inc.

 

 

5,001

 

 

 

 

Alamar Biosciences, Inc.

 

 

5,000

 

 

 

 

Brain Corporation

 

 

5,000

 

 

 

20,000

 

Ceros, Inc.

 

 

3,845

 

 

 

3,845

 

Signal Media Limited

 

 

3,750

 

 

 

 

Demandbase, Inc.

 

 

3,750

 

 

 

9,375

 

Riviera Partners LLC

 

 

3,500

 

 

 

 

Redshift Bioanalytics, Inc.

 

 

3,500

 

 

 

 

Catchpoint Systems, Inc.

 

 

3,400

 

 

 

 

Yipit, LLC

 

 

2,250

 

 

 

2,250

 

Eigen Technologies Ltd.

 

 

1,950

 

 

 

 

Khoros (p.k.a Lithium Technologies)

 

 

1,811

 

 

 

1,812

 

ThreatConnect, Inc.

 

 

1,600

 

 

 

1,600

 

Dispatch Technologies, Inc.

 

 

1,250

 

 

 

 

Zimperium, Inc.

 

 

1,088

 

 

 

 

Ikon Science Limited

 

 

1,050

 

 

 

1,050

 

Alchemer LLC

 

 

890

 

 

 

 

3GTMS, LLC

 

 

833

 

 

 

1,583

 

Agilence, Inc.

 

 

800

 

 

 

800

 

Mobile Solutions Services

 

 

743

 

 

 

424

 

Cybermaxx Intermediate Holdings, Inc.

 

 

471

 

 

 

471

 

Enmark Systems, Inc.

 

 

457

 

 

 

457

 

Annex Cloud

 

 

386

 

 

 

 

ShadowDragon, LLC

 

 

333

 

 

 

333

 

Gryphon Networks Corp.

 

 

268

 

 

 

268

 

Cytracom Holdings LLC

 

 

225

 

 

 

225

 

Bicycle Therapeutics PLC

 

 

 

 

 

10,000

 

Better Therapeutics, Inc.

 

 

 

 

 

4,000

 

Logicworks

 

 

 

 

 

2,000

 

ePayPolicy Holdings, LLC

 

 

 

 

 

250

 

Pineapple Energy LLC

 

 

 

 

 

120

 

Total Unfunded Debt Commitments:

 

 

482,432

 

 

 

282,913

 

 

 

 

 

 

 

 

Investment Funds & Vehicles:(2)

 

 

 

 

 

 

Forbion Growth Opportunities Fund I C.V.

 

 

3,456

 

 

 

3,839

 

Forbion Growth Opportunities Fund II C.V.

 

 

3,039

 

 

 

 

Total Unfunded Commitments in Investment Funds & Vehicles:

 

 

6,495

 

 

 

3,839

 

 

 

 

 

 

 

 

Total Unfunded Commitments

 

$

488,927

 

 

$

286,752

 

(1)
For debt investments, amounts represent unfunded commitments, including undrawn revolving facilities, which are available at the request of the portfolio company. Amount excludes unfunded commitments which are unavailable due to the borrower having not met certain milestones. These amounts also exclude

 

57


 

$127.6 million and $34.9 million of unfunded commitments as of June 30, 2022, and December 31, 2021, respectively, to portfolio companies related to loans assigned to or directly committed by the Adviser Funds as described in "Note -12 Related Party Transactions".
(2)
For investment funds and vehicles, the amount represents uncalled capital commitments in a private equity fund.

The following table provides additional information on the Company’s unencumbered unfunded commitments regarding milestones, expirations and type:

(in thousands)

 

June 30, 2022

 

 

December 31, 2021

 

Unfunded Debt Commitments:

 

 

 

 

 

 

Expiring during:

 

 

 

 

 

 

2022

 

$

236,843

 

 

$

199,681

 

2023

 

 

131,575

 

 

 

43,675

 

2024

 

 

93,575

 

 

 

25,800

 

2025

 

 

1,801

 

 

 

2,232

 

2026

 

 

11,525

 

 

 

11,525

 

2027

 

 

4,974

 

 

 

 

2028

 

 

2,139

 

 

 

 

Total Unfunded Debt Commitments

 

 

482,432

 

 

 

282,913

 

Unfunded Commitments in Investment Funds & Vehicles:

 

 

 

 

 

 

Expiring during:

 

 

 

 

 

 

2030

 

 

3,456

 

 

 

3,839

 

2032

 

 

3,039

 

 

 

 

Total Unfunded Commitments in Investment Funds & Vehicles

 

 

6,495

 

 

 

3,839

 

Total Unfunded Commitments

 

$

488,927

 

 

$

286,752

 

The following tables provide the Company’s contractual obligations as of June 30, 2022 and December 31, 2021:

As of June 30, 2022:

 

Payments due by period (in thousands)

 

Contractual Obligations (1)

 

Total

 

 

Less than 1 year

 

 

1 - 3 years

 

 

3 - 5 years

 

 

After 5 years

 

Debt (2)(3)

 

$

1,520,582

 

 

$

 

 

$

357,000

 

 

$

798,582

 

 

$

365,000

 

Lease and License Obligations (4)

 

 

7,438

 

 

 

3,185

 

 

 

2,352

 

 

 

1,901

 

 

 

 

Total

 

$

1,528,020

 

 

$

3,185

 

 

$

359,352

 

 

$

800,483

 

 

$

365,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2021:

 

Payments due by period (in thousands)

 

Contractual Obligations (1)

 

Total

 

 

Less than 1 year

 

 

1 - 3 years

 

 

3 - 5 years

 

 

After 5 years

 

Debt (5)(3)

 

$

1,250,425

 

 

$

380,000

 

 

$

105,000

 

 

$

574,925

 

 

$

190,500

 

Lease and License Obligations (4)

 

 

8,283

 

 

 

3,120

 

 

 

2,958

 

 

 

1,427

 

 

 

778

 

Total

 

$

1,258,708

 

 

$

383,120

 

 

$

107,958

 

 

$

576,352

 

 

$

191,278

 

(1)
Excludes commitments to extend credit to the Company’s portfolio companies and uncalled capital commitments in an investment fund.
(2)
Includes $175.0 million in principal outstanding under the SBA Debentures, $105.0 million of the July 2024 Notes, $50.0 million of the February 2025 Notes, $70.0 million of the June 2025 Notes, $50.0 million of the June 2025 3-Year Notes, $50.0 million of the March 2026 A Notes, $50.0 million of the March 2026 B Notes, $150.0 million of the 2031 Asset-Backed Notes, $40.0 million of the 2033 Notes, $325.0 million of the September 2026 Notes and $350.0 million of the January 2027 Notes as of June 30, 2022. There was also $23.6 million outstanding under the SMBC Facility and $82.0 million outstanding under the MUFG Bank Facility as of June 30, 2022.
(3)
Amounts represent future principal repayments and not the carrying value of each liability. See “Note 5 – Debt”.
(4)
Facility leases and licenses including short-term leases.
(5)
Includes $150.5 million in principal outstanding under the SBA Debentures, $150.0 million of the 2022 Notes, $105.0 million of the July 2024 Notes, $50.0 million of the February 2025 Notes, $70.0 million of the June 2025 Notes, $50.0 million of the March 2026 A Notes, $50.0 million of the March 2026 B Notes, $40.0 million of the 2033 Notes, $325.0 million of the September 2026 Notes, and $230.0 million of the 2022 Convertible Notes as of December 31, 2021. There was also $29.9 million outstanding under the SMBC Facility and no amounts outstanding under the Union Facility as of December 31, 2021.

Certain premises are leased or licensed under agreements which expire at various dates through December 2028. For the three and six months ended June 30, 2022, total rent expense, including short-term leases, amounted to approximately $0.8 million and $1.6 million, respectively. For the three and six months ended June 30, 2021, total rent expense, including short-term leases, amounted to approximately $0.8 million and $1.6 million, respectively. The Company recognizes an operating lease liability and a ROU asset for all leases, with the exception of short-term leases. The lease payments on short-term leases are recognized as rent expense on a straight-line basis. The discount rate applied to measure each ROU asset and lease liability is based on the Company’s incremental weighted average cost of debt. The Company considers the general economic environment and its credit rating and factors in various financing and asset specific adjustments to ensure the discount rate applied is appropriate to the intended use of the underlying lease. While some of the leases contained options to extend and terminate, it is not reasonably certain that either option will be utilized and therefore, only the payments in the initial term of the leases were included in the lease liability and ROU asset.

 

 

58


 

The following table sets forth information related to the measurement of the Company’s operating lease liabilities and supplemental cash flow information related to operating leases as of June 30, 2022, and 2021:

(in thousands)

 

Three Months Ended June 30, 2022

 

 

Three Months Ended June 30, 2021

 

 

Six Months Ended June 30, 2022

 

 

Six Months Ended June 30, 2021

 

Total operating lease cost

 

$

744

 

 

$

738

 

 

$

1,441

 

 

$

1,476

 

Cash paid for amounts included in the measurement of lease liabilities

 

$

1,175

 

 

$

578

 

 

$

1,769

 

 

$

1,737

 

 

 

 

As of June 30, 2022

 

 

As of June 30, 2021

 

Weighted-average remaining lease term (in years)

 

 

4.18

 

 

 

3.79

 

Weighted-average discount rate

 

 

4.61

%

 

 

5.41

%

The following table shows future minimum lease payments under the Company’s operating leases and a reconciliation to the operating lease liability as of June 30, 2022:

(in thousands)

 

As of June 30, 2022

 

2022

 

$

1,876

 

2023

 

 

2,500

 

2024

 

 

848

 

2025

 

 

887

 

Thereafter

 

 

1,804

 

Total lease payments

 

 

7,915

 

Less: imputed interest

 

 

(1,255

)

Total operating lease liability

 

$

6,660

 

The Company may, from time to time, be involved in litigation arising out of its operations in the normal course of business or otherwise. Furthermore, third parties may try to seek to impose liability on the Company in connection with the activities of its portfolio companies. While the outcome of any current legal proceedings cannot at this time be predicted with certainty, the Company does not expect any current matters will materially affect the Company’s financial condition or results of operations; however, there can be no assurance whether any pending legal proceedings will have a material adverse effect on the Company’s financial condition or results of operations in any future reporting period.

12. Related Party Transactions

As disclosed in “Note 2 – Summary of Significant Accounting Policies”, the Adviser Subsidiary is accounted for as a portfolio investment of the Company held at fair value. Refer to “Note 4 – Investments” for information related to income, gains and losses recognized related to the Company’s investment.

In 2021, the Adviser Subsidiary entered into investment management agreements with its privately-offered Adviser Funds, and it receives management fees based on the assets under management of the Adviser Funds and may receive incentive fees based on the performance of the Adviser Funds. Additionally, the Company entered into a shared services agreement (“Sharing Agreement”) with the Adviser Subsidiary, through which the Adviser Subsidiary will utilize human capital resources (including administrative functions) and other resources and infrastructure (including office space and technology) of the Company. Under the terms of the Sharing Agreement, the Company allocates the related expenses of shared services to the Adviser Subsidiary based on direct time spent, investment activity, and proportion of assets under management depending on the nature of the expense. The Company’s total expenses for the three and six months ended June 30, 2022, are net of expenses allocated to the Adviser Subsidiary of $3.1 million and $4.5 million, respectively. As of June 30, 2022, the Company owed $0.2 million to the Adviser Subsidiary. The Company’s total expenses for the three and six months ended June 30, 2021, are net of expenses allocated to the Adviser Subsidiary of $1.2 million and $2.1 million, respectively. As of December 31, 2021, there was $0.1 million receivable from the Adviser Subsidiary.

In addition, the Company may from time-to-time make investments alongside the Adviser Funds or assign a portion of investments to the Adviser Funds in accordance with the Company’s allocation policy. During the six months ended June 30, 2022, $440.0 million of all investment commitments of the Company and the Adviser Subsidiary were assigned to or directly committed by the Adviser Funds. During the six months ended June 30, 2022, fundings of $189.8 million were assigned to, directly originated, or funded by the Adviser Funds. The Company received $88.2 million from the Adviser Funds relating to the assigned investments during the six months ended June 30, 2022. Additionally, on May 31, 2022, the Company sold $73.5 million of assets to the Adviser Funds and realized a $0.1 million gain.

During the six months ended June 30, 2021, $104.8 million of all investment commitments of the Company and the Adviser Subsidiary were assigned to or directly committed by the Adviser Funds, respectively. During the six months ended June 30, 2021, fundings of $79.9 million were assigned to, directly originated, or funded by the Adviser Funds. The Company received $75.6 million from the Adviser Funds relating to the assigned investments during the six months ended June 30, 2021.

 

 

59


 

13. Subsequent Events

Dividend Distribution Declaration

On July 20, 2022, the Board declared a cash distribution of $0.35 per share to be paid on August 16, 2022 to stockholders of record as of August 9, 2022. In addition to the cash distribution, and as part of the declared supplemental cash distribution of $0.60 per share to be paid in four quarterly distributions of $0.15, the Board declared a supplemental cash distribution of $0.15 per share to be paid on August 16, 2022 to stockholders of record as of August 9, 2022. Including the $0.15 per share supplemental cash distribution paid to stockholders of record as of March 9, 2022 and May 17, 2022, the Board has declared a total of $0.45 per share of the $0.60 per share supplemental cash distribution declared on July 20, 2022.

 

 

60


 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The matters discussed in this report, as well as in future oral and written statements by management of Hercules Capital, Inc., that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Important assumptions include our ability to originate new investments, achieve certain margins and levels of profitability, the availability of additional capital, and the ability to maintain certain debt to asset ratios. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans or objectives will be achieved. The forward-looking statements contained in this report include statements as to:

our current and future management structure;
our future operating results;
our business prospects and the prospects of our prospective portfolio companies;
the impact of investments that we expect to make;
our informal relationships with third parties including in the venture capital industry;
the expected market for venture capital investments and our addressable market;
the dependence of our future success on the general economy and its impact on the industries in which we invest;
our ability to access debt markets and equity markets;
the occurrence and impact of macro-economic developments (for example, global pandemics, natural disasters, terrorism, international conflicts and war) on us and our portfolio companies;
the ability of our portfolio companies to achieve their objectives;
our expected financings and investments;
our regulatory structure and tax status;
our ability to operate as a BDC, a SBIC, and a RIC;
the adequacy of our cash resources and working capital;
the timing of cash flows, if any, from the operations of our portfolio companies;
the timing, form and amount of any distributions;
the impact of fluctuations in interest rates on our business;
the valuation of any investments in portfolio companies, particularly those having no liquid trading market; and
our ability to recover unrealized depreciation on investments.

You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this report.

The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this report. In addition to historical information, the following discussion and other parts of this report contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under Item 1A— “Risk Factors” of Part II of this quarterly report on Form 10-Q, Item 1A— “Risk Factors” of our annual report on Form 10-K filed with the SEC on February 22, 2022 and under “Forward-Looking Statements” of this Item 2.

Use of Non-GAAP Measures

Throughout this MD&A, we present our financial condition and results of operations in the way we believe will be most meaningful and representative of our business results. Some of the measurements we use are “non-GAAP financial measures” under SEC rules and regulations. GAAP is the acronym for “generally accepted accounting principles” in the United States. The non-GAAP financial measures we present may not be comparable to similarly-named measures reported by other companies.

 

61


 

Overview

We are a specialty finance company focused on providing senior secured loans to high-growth, innovative venture capital-backed and institutional-backed companies in a variety of technology, life sciences, and sustainable and renewable technology industries. Our goal is to be the leading structured debt financing provider for venture capital-backed and institutional-backed companies in a variety of technology-related industries requiring sophisticated and customized financing solutions. Our strategy is to evaluate and invest in a broad range of technology-related industries including technology, drug discovery and development, biotechnology, life sciences, healthcare, and sustainable and renewable technology and to offer a full suite of growth capital products. We invest primarily in structured debt with warrants and, to a lesser extent, in senior debt and equity investments. Our portfolio is comprised of, and we anticipate that our portfolio will continue to be comprised of, investments primarily in technology related companies at various stages of their development.

We are structured as an internally managed, non-diversified, closed-end investment company that has elected to be regulated as a BDC under the 1940 Act. As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” which includes securities of private U.S. companies, cash, cash equivalents, and high-quality debt investments that mature in one year or less. Consistent with requirements under the 1940 Act, we invest primarily in United-States based companies and to a lesser extent in foreign companies. We source our investments through our principal office located in Palo Alto, CA, as well as through our additional offices in Boston, MA, New York, NY, Bethesda, MD, San Diego, CA, and London, United Kingdom.

We have elected to be treated for tax purposes as RIC under Subchapter M of the Code. As a RIC, we generally will not be subject to U.S. federal income tax on the portion of our investment company taxable income and net capital gain (i.e., net realized long-term capital gains in excess of net realized short-term capital losses) that we distribute (or are deemed to distribute) as dividends for U.S. federal income tax purposes to stockholders with respect to that taxable year. We will be subject to a 4% non-deductible U.S. federal excise tax on certain undistributed taxable income and capital gains unless we make distributions treated as dividends for U.S. federal income tax purposes in a timely manner to our stockholders in respect of each calendar year subject to certain requirements as defined for RICs. In order to qualify as a RIC requires that we must comply with provisions contained in Subchapter M of the Code. For example, as a RIC we must earn 90% or more of our gross income during each taxable year from qualified sources, typically referred to as “good income,” as well as satisfy certain quarterly asset diversification and annual income distribution requirements.

We have established Hercules Adviser LLC, a wholly owned registered investment adviser subsidiary. The Adviser Subsidiary provides investment advisory and related services to the Adviser Funds and External Parties. The Adviser Subsidiary is not consolidated for reporting purposes as noted in “Note 1 Description of Business”. In addition to the Adviser Subsidiary, we have established other wholly owned subsidiaries which are consolidated for reporting. However, certain of these subsidiaries are not consolidated for income tax purposes and may generate income tax expense or benefit, as well as tax assets and liabilities as a result of their ownership of certain portfolio investments.

Our primary business objectives are to increase our net income, net investment income, and NAV by investing in debt, typically with warrants or equity, of venture capital-backed and institutional-backed companies in a variety of technology-related industries at attractive current yields and the potential for equity appreciation and realized gains. We aim to achieve our business objectives by maximizing our portfolio total return through generation of current income from our debt investments and capital appreciation from our warrant and equity investments. Our equity ownership in our portfolio companies may exceed 25% of the voting securities of such companies, which represents a controlling interest under the 1940 Act. In some cases, we receive the right to make additional equity investments in our portfolio companies in connection with future equity financing rounds. Capital that we provide is generally used for growth and general working capital purposes as well as in select cases for acquisitions or recapitalizations. We invest primarily in private companies but also have investments in public companies.

We invest primarily in structured debt with warrants and, to a lesser extent, in senior debt and equity investments. We use the term “structured debt with warrants” to refer to any debt investment, such as a senior or subordinated secured loan, that is coupled with an equity component, including warrants, options or other rights to purchase or convert into common or preferred stock. Our structured debt with warrants investments typically are secured by some or all of the assets of the portfolio company. We also invest in “unitranche” loans, which are loans that combine both senior and mezzanine debt, generally in a first lien position. In addition to our debt investments, we regularly engage in discussions with third parties with respect to various potential transactions to explore all alternatives. Through such alternatives we may acquire an investment, a portfolio of investments, an entire company, or sell portions of our portfolio on an opportunistic basis.

We, our subsidiaries or our affiliates, may also agree to manage certain other funds that invest in debt, equity or provide other financing or services to companies in a variety of industries for which we may earn management or other fees for our services. We may also invest in the equity of these funds, along with other third parties, from which we would seek to earn a return and/or future incentive allocations. Some of these transactions could be material to our business. Consummation of any such transaction will be subject to completion of due diligence, finalization of key business and financial terms (including price) and negotiation of final definitive documentation as well as a number of other factors and conditions which may include, depending on the transaction and without limitation, the approval of our Board, required regulatory or third-party consents, and/or the approval of our stockholders.

 

62


 

Accordingly, there can be no assurance that any such transaction would be consummated. Any of these transactions or funds may require significant management resources either during the transaction phase or on an ongoing basis depending on the terms of the transaction.

Portfolio and Investment Activity

The total fair value of our investment portfolio was approximately $2.7 billion and $2.4 billion as of June 30, 2022 and December 31, 2021, respectively. The fair value of our debt investment portfolio as of June 30, 2022 was approximately $2.6 billion, compared to a fair value of approximately $2.2 billion at December 31, 2021. The fair value of the equity portfolio as of June 30, 2022 was approximately $137.8 million, compared to a fair value of approximately $184.7 million as of December 31, 2021. The fair value of the warrant portfolio as of June 30, 2022 was approximately $27.9 million, compared to a fair value of approximately $38.4 million as of December 31, 2021.

Portfolio Activity

Our investments in portfolio companies take a variety of forms, including unfunded contractual commitments and funded investments. Not all debt commitments represent future cash requirements. Unfunded contractual commitments depend upon a portfolio company reaching certain milestones before the debt commitment is available to the portfolio company, which is expected to affect our funding levels. These commitments are subject to the same underwriting and ongoing portfolio maintenance as the on-balance sheet financial instruments that we hold. Debt commitments generally fund over the two succeeding quarters from close. From time to time, unfunded contractual commitments may expire without being drawn and thus do not represent future cash requirements.

Prior to entering into a contractual commitment, we generally issue a non-binding term sheet to a prospective portfolio company. Non-binding term sheets are subject to completion of our due diligence and final investment committee approval process, as well as the negotiation of definitive documentation with the prospective portfolio companies. These non-binding term sheets generally convert to contractual commitments in approximately 90 days from signing and some portion may be assigned or allocated to or directly originated by the Adviser Funds prior to or after closing. Not all non-binding term sheets are expected to close and do not necessarily represent future cash requirements.

During the six months ended June 30, 2022, Hercules and the Adviser Funds directly committed or originated an aggregate total of $1,659.2 million of investment commitments. Of the aggregated total directly committed or originated by Hercules and the Adviser Funds, $440.0 million of investment commitments were directly committed or originated by the Adviser Funds. Of the aggregate total direct fundings or originations, $189.8 million of debt, equity, and warrant fundings during the period, were assigned to, directly funded or originated by the Adviser Funds.

During the six months ended June 30, 2021, Hercules and the Adviser Funds directly committed or originated an aggregate total of $971.8 million of investment commitments. Of the aggregated total directly committed or originated by Hercules and the Adviser Funds, $104.8 million of investment commitments were directly committed or originated by the Adviser Funds. Of the aggregate total direct fundings or originations, $79.9 million of debt, equity, and warrant fundings during the period, were assigned to, directly funded or originated by the Adviser Funds.

 

63


 

Our portfolio activity for the six months ended June 30, 2022 and June 30, 2021 was comprised of the following:

(in millions)

 

June 30, 2022

 

 

June 30, 2021

 

Gross Debt Commitments Originated by Hercules Capital and the Adviser Funds (1)

 

 

 

 

 

 

New portfolio company

 

$

1,290.5

 

 

$

639.7

 

Existing portfolio company

 

 

349.0

 

 

 

316.7

 

Sub-total

 

$

1,639.5

 

 

$

956.4

 

Less: Debt commitments assigned to or directly committed by the Adviser Funds (3)

 

 

(436.8

)

 

 

(102.8

)

Net Total Debt Commitments

 

$

1,202.7

 

 

$

853.6

 

Gross Debt Fundings by Hercules Capital and the Adviser Funds (2)

 

 

 

 

 

 

New portfolio company

 

$

508.7

 

 

$

442.8

 

Existing portfolio company

 

 

265.4

 

 

 

174.9

 

Sub-total

 

$

774.1

 

 

$

617.7

 

Less: Debt fundings assigned to or directly funded by the Adviser Funds (3)

 

 

(186.6

)

 

 

(77.9

)

Net Total Debt Fundings

 

$

587.5

 

 

$

539.8

 

Equity Investments and Investment Funds and Vehicles Fundings by Hercules Capital and the Adviser Funds

 

 

 

 

 

 

New portfolio company

 

$

5.0

 

 

$

13.3

 

Existing portfolio company

 

 

11.6

 

 

 

2.9

 

Sub-total

 

$

16.6

 

 

$

16.2

 

Less: Equity fundings assigned to or directly funded by the Adviser Funds (3)

 

 

(3.2

)

 

 

(2.0

)

Net Total Equity and Investments Funds and Vehicle Fundings

 

$

13.4

 

 

$

14.2

 

Unfunded Contractual Commitments (4)

 

 

 

 

 

 

Total

 

$

488.9

 

 

$

327.3

 

Non-Binding Term Sheets

 

 

 

 

 

 

New portfolio company

 

$

387.5

 

 

$

154.5

 

Existing portfolio company

 

 

1.0

 

 

 

3.0

 

Total

 

$

388.5

 

 

$

157.5

 

(1)
Includes restructured loans and renewals in addition to new commitments.
(2)
Funded amounts include borrowings on revolving facilities.
(3)
Commitments and fundings include amounts assigned to, directly committed or originated, funded by the Adviser Funds, as applicable.
(4)
Amount represents unfunded commitments, including undrawn revolving facilities, which are available at the request of the portfolio company. Amount excludes unfunded commitments which are unavailable due to the borrower having not met certain milestones. This excludes $127.6 million and $7.8 million, of unfunded commitments as of June 30, 2022, and 2021, respectively, to portfolio companies related to loans assigned to or directly committed by the Adviser Funds.

We receive principal payments on our debt investment portfolio based on scheduled amortization of the outstanding balances. In addition, we receive principal repayments for some of our loans prior to their scheduled maturity date. The frequency or volume of these early principal repayments may fluctuate significantly from period to period. During the six months ended June 30, 2022, we received approximately $161.5 million in aggregate principal repayments. Of the approximately $161.5 million of aggregate principal repayments, approximately $43.6 million were scheduled principal payments and approximately $117.9 million were early principal repayments related to 14 portfolio companies. $17.5 million of the early principal repayments was an early repayment due to merger and acquisition transaction of one portfolio company. Additionally, on May 31, 2022, we sold $73.5 million of assets and realized a $0.1 million gain.

Total portfolio investment activity (inclusive of unearned income and excluding activity related to taxes payable and escrow receivables) as of and for the six months ended June 30, 2022 and June 30, 2021 was as follows:

(in millions)

 

June 30, 2022

 

 

June 30, 2021

 

Beginning portfolio

 

$

2,434.5

 

 

$

2,354.1

 

New fundings and restructures

 

 

790.7

 

 

 

634.0

 

Fundings assigned to or directly funded by the Adviser Funds(1)

 

 

(189.8

)

 

 

(79.9

)

Warrants not related to current period fundings

 

 

0.8

 

 

 

0.8

 

Principal repayments received on investments

 

 

(43.6

)

 

 

(37.8

)

Early payoffs

 

 

(117.9

)

 

 

(359.4

)

Proceeds from sale of debt investments

 

 

(73.5

)

 

 

 

Proceeds from sale of equity investments

 

 

(9.8

)

 

 

(70.1

)

Accretion of loan discounts and paid-in-kind principal

 

 

26.3

 

 

 

21.1

 

Net acceleration of loan discounts and loan fees due to early payoff or restructure

 

 

(2.7

)

 

 

(10.5

)

New loan fees

 

 

(6.8

)

 

 

(7.4

)

Gain (loss) on investments due to sales or write offs

 

 

(1.3

)

 

 

(7.2

)

Net change in unrealized appreciation (depreciation)

 

 

(88.0

)

 

 

83.4

 

Ending portfolio

 

$

2,718.9

 

 

$

2,521.1

 

 

(1)
Funded amounts include $101.6 million and $4.3 million direct fundings of investments made by the Adviser Funds, for the six months ended June 30, 2022 and June 30, 2021, respectively.

As of June 30, 2022, we held debt, warrants, or equity positions in one company that has filed a registration statement on Form S-1 with the SEC in contemplation of a potential initial public offering, and one company that has filed a definitive agreement for a reverse merger initial public offering with a special purpose acquisition company. There can be no assurance that companies that have yet to complete their initial public offerings will do so in a timely manner or at all.

 

64


 

The following table presents certain selected information regarding our debt investment portfolio as of June 30, 2022 and December 31, 2021:

 

 

June 30, 2022

 

 

December 31, 2021

 

Number of portfolio companies with debt outstanding

 

 

110

 

 

 

92

 

Percentage of debt bearing a floating rate

 

 

94.9

%

 

 

94.0

%

Percentage of debt bearing a fixed rate

 

 

5.1

%

 

 

6.0

%

Weighted average core yield (1)

 

 

11.3

%

 

 

11.4

%

Weighted average effective yield (2)

 

 

11.5

%

 

 

12.9

%

Prime rate at the end of the period

 

 

4.75

%

 

 

3.25

%

(1)
The core yield is a Non-GAAP financial measure. The core yield on our debt investments excludes the effects of fee and income accelerations attributed to early payoffs, restructuring, loan modifications, other one-time events, and includes income from expired commitments. Please refer to the "Portfolio Yield" section below for further discussion of this measure.
(2)
The effective yield on our debt investments includes the effects of fee and income accelerations attributed to early payoffs, restructuring, loan modifications, and other one-time events. The effective yield is derived by dividing total investment income by the weighted average earning investment portfolio assets outstanding during the year, excluding non-interest earning assets such as warrants and equity investments.

Income from Portfolio

We generate revenue in the form of interest income, primarily from our investments in debt securities, and fee income, which is primarily comprised of commitment and facility fees. Interest income is recognized in accordance with the contractual terms of the loan agreement to the extent that such amounts are expected to be collected. Fees generated in connection with our debt investments are recognized over the life of the loan or, in some cases, recognized as earned. In addition, we generate revenue in the form of capital gains, if any, on warrants or other equity securities that we acquire from our portfolio companies. Our investments generally range from $15.0 million to $40.0 million, although we may make investments in amounts above or below that range. As of June 30, 2022, our debt investments generally have a term of between two and five years and typically bear interest at a rate ranging from approximately 5.8% to approximately 12.3%. In addition to the cash yields received on our debt investments, in some instances, our debt investments may also include any of the following: exit fees, balloon payment fees, commitment fees, success fees, PIK provisions or prepayment fees which may be required to be included in income prior to receipt.

Interest on debt securities is generally payable monthly, with amortization of principal typically occurring over the term of the investment. In addition, our loans may include an interest-only period ranging from three to eighteen months or longer. In limited instances in which we choose to defer amortization of the loan for a period of time from the date of the initial investment, the principal amount of the debt securities and any accrued but unpaid interest become due at the maturity date.

Loan origination and commitment fees are generally received in full at the inception of a loan are deferred and amortized into fee income as an enhancement to the related loan’s yield over the contractual life of the loan. We recognize nonrecurring fees amortized over the remaining term of the loan commencing in the quarter relating to specific loan modifications. We had approximately $50.2 million of unamortized fees as of June 30, 2022, of which approximately $41.1 million was included as an offset to the cost basis of our current debt investments and approximately $9.1 million was deferred contingent upon the occurrence of a funding or milestone. As of December 31, 2021, we had approximately $42.9 million of unamortized fees, of which approximately $36.5 million was included as an offset to the cost basis of our current debt investments and approximately $6.4 million was deferred contingent upon the occurrence of a funding or milestone.

Loan exit fees to be paid at the termination of the loan are accreted into interest income over the contractual life of the loan. As of June 30, 2022, we had approximately $41.0 million in exit fees receivable, of which approximately $36.6 million was included as a component of the cost basis of our current debt investments and approximately $4.4 million was a deferred receivable related to expired commitments. As of December 31, 2021, we had approximately $35.0 million in exit fees receivable, of which approximately $29.6 million was included as a component of the cost basis of our current debt investments and approximately $5.4 million was a deferred receivable related to expired commitments.

We have debt investments in our portfolio that earn PIK interest. The PIK interest, computed at the contractual rate specified in each loan agreement, is recorded as interest income and added to the principal balance of the loan on specified capitalization dates. To maintain our status as a RIC, the non-cash PIK income must be distributed to stockholders with other sources of income in the form of dividend distributions even though we have not yet collected any cash from the borrower. Amounts necessary to pay these distributions may come from available cash or the liquidation of certain investments. We recorded approximately $5.0 million and $2.6 million in PIK income during the three months ended June 30, 2022 and 2021, respectively. We recorded approximately $9.9 million and $5.2 million in PIK income during the six months ended June 30, 2022 and 2021, respectively.

 

 

65


 

Portfolio Yield

We report our financial results on a GAAP basis. We monitor the performance of our total investment portfolio and total debt portfolio using both GAAP and Non-GAAP financial measures. In particular, we evaluate performance through monitoring the portfolio yields as we consider them to be effective indicators, for both management and stockholders, of the financial performance of our total investment portfolio and total debt portfolio. The key metrics that we monitor with respect to yields are as described below:

“Total Yield” - The total yield is derived by dividing GAAP basis 'Total investment income' by the weighted average GAAP basis value of investment portfolio assets outstanding during the year, including non-interest earning assets such as warrants and equity investments at amortized cost.
“Effective Yield” on total debt investments - The effective yield is derived by dividing GAAP basis 'Total investment income' by the weighted average GAAP basis value of debt investment portfolio assets at amortized cost outstanding during the year.
“Core Yield” on total debt investments – The core yield is a Non-GAAP financial measure. The core yield is derived by dividing “Core investment income” by the weighted average GAAP basis value of debt investment portfolio assets at amortized cost outstanding during the year. “Core investment income” adjusts GAAP basis 'Total investment income' to exclude fee and other income accelerations attributed to early payoffs, deal restructuring, loan modifications, and other one-time income events, but includes income from expired commitments.

 

 

Three months ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

Total Yield

 

 

10.8

%

 

 

11.8

%

Effective Yield

 

 

11.5

%

 

 

12.7

%

Core Yield (Non-GAAP)

 

 

11.3

%

 

 

11.5

%

We believe that these measures are useful for our stockholders as it provides the yield of our portfolio to allow a more meaningful comparison with our competitors. As noted above, Core Yield, a Non-GAAP financial measure, is derived by dividing Core investment income, as defined above, by the weighted average GAAP basis value of debt investment portfolio assets at amortized cost outstanding. The reconciliation to calculate “Core investment income” from GAAP basis 'Total investment income' are as follows:

(in thousands)

 

Three months ended

 

 

 

June 30, 2022

 

 

June 30, 2021

 

GAAP Basis:

 

 

 

 

 

 

Total investment income

 

$

72,115

 

 

$

69,560

 

Less: fee and income accelerations attributed to early payoffs, restructuring, loan modifications, and other one-time events, but including income from expired commitments

 

 

(1,322

)

 

 

(6,870

)

Non-GAAP Basis:

 

 

 

 

 

 

Core investment income

 

$

70,793

 

 

$

62,690

 

We believe the Core Yield is useful for our investors as it provides the yield at which our debt investments are originated and eliminates one-off items that can fluctuate significantly from period to period, thereby allowing for a more meaningful comparison over time. Although the Core Yield, a Non-GAAP financial measure, is intended to enhance our stockholders’ understanding of our performance, the Core Yield should not be considered in isolation from or as an alternative to the GAAP financial metrics presented. The aforementioned Non-GAAP financial measure may not be comparable to similar Non-GAAP financial measures used by other companies.

Another financial measure that we monitor is the total return for our investors, was approximately (13.7)% and 23.7% during the six months ended June 30, 2022 and 2021, respectively. The total return equals the change in the ending market value over the beginning of the period price per share plus distributions paid per share during the period, divided by the beginning price assuming the distribution is reinvested on the date of the distribution. The total return does not reflect any sales load that may be paid by investors. See “Note 10 – Financial Highlights” included in the notes to our consolidated financial statements appearing elsewhere in this report.

 

66


 

Portfolio Composition

Our portfolio companies are primarily privately held companies and public companies which are active in sectors characterized by high margins, high growth rates, consolidation and product and market extension opportunities.

The following table presents the fair value of the Company’s portfolio by industry sector as of June 30, 2022 and December 31, 2021:

 

June 30, 2022

 

 

December 31, 2021

 

(in thousands)

Investments at
 Fair Value

 

 

Percentage of
 Total Portfolio

 

 

Investments at
 Fair Value

 

 

Percentage of
 Total Portfolio

 

Drug Discovery & Development

$

1,049,767

 

 

 

38.6

%

 

$

967,383

 

 

 

39.7

%

Software

 

707,982

 

 

 

26.0

%

 

 

585,622

 

 

 

24.1

%

Internet Consumer & Business Services

 

458,299

 

 

 

16.8

%

 

 

395,506

 

 

 

16.3

%

All other industries (1)

 

502,843

 

 

 

18.6

%

 

 

486,011

 

 

 

19.9

%

Total

$

2,718,891

 

 

 

100.0

%

 

$

2,434,522

 

 

 

100.0

%

(1)
See “Note 4 – Investments” for complete list of industry sectors and corresponding amounts of investments at fair value as a percentage of the total portfolio. As of June 30, 2022, the fair value as a percentage of total portfolio does not exceed 5.0% for any individual industry sector other than “Drug Discovery & Development”, “Software”, or “Internet Consumer & Business Services”.

Industry and sector concentrations vary as new loans are recorded and loans are paid off. Loan revenue, consisting of interest, fees, and recognition of gains on equity and warrants or other equity interests, can fluctuate materially when a loan is paid off or a warrant or equity interest is sold. Revenue recognition in any given year can be highly concentrated in several portfolio companies.

For the six months ended June 30, 2022 and the year ended December 31, 2021, our ten largest portfolio companies represented approximately 31.4% and 30.5% of the total fair value of our investments in portfolio companies, respectively. As of June 30, 2022 and December 31, 2021, we had nine and six investments that represented 5% or more of our net assets, respectively. As of June 30, 2022, we had four equity investments representing approximately 43.2% of the total fair value of our equity investments, and each represented 5% or more of the total fair value of our equity investments. As of December 31, 2021, we had six equity investments which represented approximately 49.6% of the total fair value of our equity investment portfolio, and each represented 5% or more of the total fair value of our equity investments. No single portfolio investment represented more than 10% of the fair value of our total investments as of June 30, 2022 and December 31, 2021.

As of June 30, 2022 and December 31, 2021, approximately 94.9% and 94.0% of the debt investment portfolio was priced at floating interest rates or floating interest rates with a Prime, LIBOR, SOFR, or BSBY-based interest rate floor, respectively. Changes in interest rates, including Prime, LIBOR, SOFR, BSBY rates, may affect the interest income and the value of our investment portfolio for portfolio investments with floating rates.

Our investments in structured debt have detachable equity enhancement features, typically in the form of warrants or other equity securities designed to provide us with an opportunity for capital appreciation. These features are treated as OID and are accreted into interest income over the term of the loan as a yield enhancement. Our warrant coverage generally ranges from 3% to 20% of the principal amount invested in a portfolio company, with a strike price generally equal to the most recent equity financing round. As of June 30, 2022, we held warrants in 103 portfolio companies, with a fair value of approximately $27.9 million. The fair value of our warrant portfolio decreased by approximately $10.5 million, as compared to a fair value of $38.4 million as of December 31, 2021, primarily related to the decrease in fair value of the portfolio companies.

Our existing warrant holdings would require us to invest approximately $69.9 million to exercise such warrants as of June 30, 2022. Warrants may appreciate or depreciate in value depending largely upon the underlying portfolio company’s performance and overall market conditions. As attractive investment opportunities arise, we may exercise certain of our warrants to purchase stock, and could ultimately monetize our investments. Of the warrants that we have monetized since inception, we have realized multiples in the range of approximately 1.02x to 42.71x based on the historical rate of return on our investments. We may also experience losses from our warrant portfolio in the event that warrants are terminated or expire unexercised.

Portfolio Grading

We use an investment grading system, which grades each debt investment on a scale of 1 to 5 to characterize and monitor our expected level of risk on the debt investments in our portfolio with 1 being the highest quality. The following table shows the distribution of our outstanding debt investments on the 1 to 5 investment grading scale at fair value as of June 30, 2022 and December 31, 2021, respectively:

(in thousands)

 

June 30, 2022

 

 

December 31, 2021

 

Investment Grading

 

Number of Companies

 

Debt Investments
at Fair Value

 

 

Percentage of
Total Portfolio

 

 

Number of Companies

 

Debt Investments
at Fair Value

 

 

Percentage of
Total Portfolio

 

1

 

16

 

$

484,015

 

 

 

19.0

%

 

15

 

$

408,975

 

 

 

18.5

%

2

 

58

 

 

1,312,243

 

 

 

51.4

%

 

47

 

 

1,208,323

 

 

 

54.7

%

3

 

33

 

 

739,794

 

 

 

29.0

%

 

28

 

 

581,424

 

 

 

26.3

%

4

 

2

 

 

12,976

 

 

 

0.5

%

 

1

 

 

8,269

 

 

 

0.4

%

5

 

1

 

 

1,838

 

 

 

0.1

%

 

1

 

 

2,608

 

 

 

0.1

%

 

 

110

 

$

2,550,866

 

 

 

100.0

%

 

92

 

$

2,209,599

 

 

 

100.0

%

 

 

67


 

As of June 30, 2022, our debt investments had a weighted average investment grading of 2.13 on a cost basis, as compared to 2.10 as of December 31, 2021. Changes in a portfolio company's investment grading may be a result of changes in portfolio company's performance and/or timing of expected liquidity events. For instance, we may downgrade a portfolio company if it is not meeting our financing criteria or are underperforming relative to their respective business plans. We may also downgrade a portfolio company as it approaches a point in time when it will require additional equity capital to continue operations. Conversely, we may upgrade a portfolio company's investment grading when it is exceeding our financial performance expectations and/or is expected to mature/repay in full due to a liquidity event. The overall downgrade of the portfolio's weighted average investment grading is reflective of the impact the current macroeconomic environment.

As the recent macro-economic events continue to cause disruption in the capital markets and to businesses, we are continuing to monitor and work with the management teams and stakeholders of our portfolio companies to navigate the significant market, operational, and economic challenges created by these events. This includes increasing our proactive assessments of credit performance, in an effort to manage potential risks across our debt investment portfolio.

Non-accrual Investments

The following table shows the amortized cost of our performing and non-accrual investments as of June 30, 2022 and December 31, 2021:

 

 

As of June 30,

 

 

As of December 31,

 

 

 

2022

 

 

2021

 

(in millions)

 

Amortized Cost

 

 

Percentage of Total Portfolio at Amortized Cost

 

 

Amortized Cost

 

 

Percentage of Total Portfolio at Amortized Cost

 

Performing

 

$

2,743

 

 

 

99.3

%

 

$

2,367

 

 

 

99.0

%

Non-accrual

 

 

20

 

 

 

0.7

%

 

 

24

 

 

 

1.0

%

Total Investments

 

$

2,763

 

 

 

100.0

%

 

$

2,391

 

 

 

100.0

%

Debt investments are placed on non-accrual status when it is probable that principal, interest, or fees will not be collected according to contractual terms. When a debt investment is placed on non-accrual status, we cease to recognize interest and fee income until the portfolio company has paid all principal and interest due or demonstrated the ability to repay our current and future contractual obligations. We may not apply the non-accrual status to a loan where the investment has sufficient collateral value to collect all of the contractual amount due and is in the process of collection. Interest collected on non-accrual investments are generally applied to principal.

Macroeconomic Market Developments

Our investment portfolio continues to be focused on industries and sectors that are generally expected to be more resilient to economic cycles. However, the U.S and global capital markets continue to evolve as a result of the increasing market volatility caused by the ongoing COVID-19 pandemic, recent geopolitical events, and the related supply chain and inflation issues. We are continuing to closely monitor the impact of these macro market developments on all aspects of our business, including impacts to our portfolio companies, employees, due diligence and underwriting processes, and financial markets. As a result, pressure on liquidity and financial results to certain of our portfolio companies have persisted, and our portfolio companies may draw on most, if not all, of the unfunded portion of any revolving or delayed draw term loans made by us, subject to availability under the terms of such loans. The extent to which the ongoing macroeconomic market events will continue to affect the financial condition and liquidity of our portfolio companies’ results of operations are highly uncertain and cannot be predicted.

Equally the extent of the impact of the COVID-19 pandemic, geopolitical events, and related supply chain and inflation issues have on our own operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend to a large extent on future developments regarding the duration and severity of these matters. Inflation has not historically had a significant effect on our results of operations in any of the reporting periods presented herein. However, the impact that these macroeconomic events have on our portfolio companies could have a negative impact on the fair value of our investments in these portfolio companies. Further, an extended period of global supply chain and economic disruption, including inflation, could materially affect our business, results of operations, access to sources of liquidity and financial condition. Given the fluidity of these market events, neither our management nor our Board is able to predict the full impact of the current macroeconomic events on our business, future results of operations, financial position, or cash flows at this time.

Results of Operations

Refer below for a discussion of our operating results for three and six months ended June 30, 2022 as compared to the same periods for 2021.

Investment Income

Total investment income for the three and six months ended June 30, 2022 was approximately $72.1 million and $137.3 million, respectively as compared to approximately $69.6 million and $138.3 million, respectively for the three and six months ended June 30,

 

68


 

2021. Investment income is primarily composed of interest income earned on our debt investments and fee income from commitments, facilities, and other loan related fees.

Interest Income

The following table summarizes the components of interest income for the three and six months ended June 30, 2022 and 2021:

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(in thousands)

2022

 

 

2021

 

 

2022

 

 

2021

 

Contractual interest income

$

56,063

 

 

$

51,083

 

 

$

105,607

 

 

$

100,303

 

Exit fee interest income

 

6,655

 

 

 

6,754

 

 

 

13,381

 

 

 

17,571

 

PIK interest income

 

4,968

 

 

 

2,650

 

 

 

9,943

 

 

 

5,211

 

Other interest income (1)

 

1,045

 

 

 

819

 

 

 

2,052

 

 

 

2,003

 

Total interest income

$

68,731

 

 

$

61,306

 

 

$

130,983

 

 

$

125,088

 

 

(1)
Other interest income includes OID interest income and interest recorded on other assets.

Interest income for the three months ended June 30, 2022 totaled approximately $68.7 million as compared to approximately $61.3 million for the three months ended June 30, 2021. Interest income for the six months ended June 30, 2022 total approximately $131.0 million as compared to approximately $125.1 million for the six months ended June 30, 2021. The increase in interest income for the three and six months ended June 30, 2022 as compared to the same periods ended June 30, 2021, was primarily attributable to a higher weighted average principal outstanding.

Interest income is comprised of recurring interest income from the contractual servicing of loans and non-recurring interest income that is related to the acceleration of income due to early loan repayments and other one-time events during the period. The following table summarizes recurring and non-recurring interest income for the three and six months ended June 30, 2022 and 2021:

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(in thousands)

2022

 

 

2021

 

 

2022

 

 

2021

 

Recurring interest income

$

68,453

 

 

$

60,039

 

 

$

129,495

 

 

$

118,167

 

Non-recurring interest income

 

278

 

 

 

1,267

 

 

 

1,488

 

 

 

6,921

 

Total interest income

$

68,731

 

 

$

61,306

 

 

$

130,983

 

 

$

125,088

 

The following table shows the PIK-related activity for the six months ended June 30, 2022 and 2021, at cost:

 

 

Six Months Ended June 30,

 

(in thousands)

 

2022

 

 

2021

 

Beginning PIK interest receivable balance

 

$

11,801

 

 

$

14,817

 

PIK interest income during the period

 

 

9,943

 

 

 

5,211

 

Payments received from PIK loans

 

 

(4,159

)

 

 

(2,793

)

Realized gain (loss)

 

 

(367

)

 

 

(49

)

Ending PIK interest receivable balance

 

$

17,218

 

 

$

17,186

 

The increase in PIK interest income during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021 is primarily due to an increase in the weighted average principal outstanding of loans which earn PIK interest. PIK accrued (capitalized) to principal but not recorded as income during the six months ended June 30, 2022 and 2021 includes the portion of PIK receivable that is capitalized as principal on the restructuring of loans, as applicable. Payments on PIK loans are normally received only in the event of payoffs. As of both June 30, 2022 and December 31, 2021 represented less than 1% of total debt investments.

Fee Income

Fee income from commitment, facility and loan related fees for the three and six months ended June 30, 2022 totaled approximately $3.4 million and $6.3 million, respectively, as compared to approximately $8.3 million and $13.2 million, for the three and six months ended June 30, 2021, respectively. The decrease in fee income for the three and six months ended June 30, 2022 is primarily due to a decrease in the acceleration of unamortized fees, and one-time fees as a result of a lower volume of early repayments on our loan portfolio.

Fee income is comprised or recurring fee income from commitment, facility, and loan related fees, acceleration of fee income due to expired commitments, and acceleration of fee income due to early loan repayments during the period. The following table summarizes the components of fee income for the three and six months ended June 30, 2022 and 2021:

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(in thousands)

2022

 

 

2021

 

 

2022

 

 

2021

 

Recurring fee income

$

1,907

 

 

$

1,856

 

 

$

3,686

 

 

$

3,722

 

Accelerated fee income - expired commitments

 

433

 

 

 

702

 

 

 

521

 

 

 

1,318

 

Accelerated fee income - early repayments

 

1,044

 

 

 

5,695

 

 

 

2,082

 

 

 

8,190

 

Total fee income

$

3,384

 

 

$

8,253

 

 

$

6,289

 

 

$

13,230

 

In certain investment transactions, we may earn income from advisory services; however, we had no income from advisory services in the three and six months ended June 30, 2022 or 2021.

 

69


 

Operating Expenses

Our operating expenses are comprised of interest and fees on our debt borrowings, general and administrative expenses, and employee compensation and benefits. During the three and six months ended June 30, 2022 and 2021, our net operating expenses totaled approximately $32.0 million and $32.6 million, respectively for the three month periods, and approximately $61.4 million and $66.8 million, respectively for the six months.

Interest and Fees on our Debt

Interest and fees on our debt totaled approximately $14.2 million and $16.7 million for the three months ended June 30, 2022 and 2021, respectively. Our lower weighted average borrowing costs during the three months ended June 30, 2022, resulted in a decline of interest and fee expenses as compared to the three months ended June 30, 2021. Interest and fees on our debt totaled approximately $27.7 million and $34.3 million for the six months ended June 30, 2022 and 2021, respectively. Our lower weighted average borrowing costs during the six months ended June 30, 2022, resulted in a decline of interest and fee expenses as compared to the six months ended June 30, 2021.

We had a weighted average cost of debt of approximately 4.0% and 5.4% for the three months ended June 30, 2022 and 2021, respectively and 4.0% and 5.4%, for the six months ended June 30, 2022, and 2021, respectively. The weighted average cost of debt includes interest and fees on our debt, but excludes the impact of fee accelerations due to the extinguishment of debt. The decrease in the weighted average cost of debt for the three months ended June 30, 2022, as compared to 2021, was attributable to our refinancing activities undertaken over the past 18 months.

General and Administrative Expenses and Tax Expenses

General and administrative expenses include legal fees, consulting fees, accounting fees, printer fees, insurance premiums, rent, expenses associated with the workout of underperforming investments, and various other expenses. Our general and administrative expenses increased to $4.3 million from $4.1 million for the three months ended June 30, 2022 and 2021, respectively and increased to $8.1 million from $7.7 million for the six months ended. The increase in general and administrative expenses for the three and six months ended June 30, 2022 is primarily attributable to an increase in information technology related expenses. Tax expenses primarily relate to excise tax accruals. Tax expenses were $1.8 million and $1.7 million during the three months ended June 30, 2022 and 2021, respectively and $2.5 million and $3.2 million for six months ended June 30, 2022 and 2021, respectively.

Employee Compensation

Employee compensation and benefits totaled approximately $11.1 million and $19.4 million, for the three and six months ended June 30, 2022 as compared to approximately $8.3 million and $18.2 million respectively, for the three and six months ended June 30, 2021. The increase between the three and six months ended June 30, 2022 and 2021 was primarily due to a increase in variable compensation.

Employee stock-based compensation totaled approximately $3.7 million and $8.1 million, for the three and six months ended June 30, 2022 as compared to approximately $2.9 million and $5.7 million, respectively for the three and six months ended June 30, 2021. The increase between the comparative periods was primarily attributable to the issuance of additional stock-based compensation awards and higher weighted average grant date fair value.

Expenses allocated to the Adviser Subsidiary

In March 2021, we entered into a shared services agreement with the Adviser Subsidiary (the “Sharing Agreement”), pursuant to which the Adviser Subsidiary utilizes our human capital resources, including deal professional, finance, and administrative functions, as well as other resources including infrastructure assets such as office space and technology. Under the terms of the Sharing Agreement, we allocate the related expenses of shared services to the Adviser Subsidiary. Our total net operating expenses for the three months ended June 30, 2022 and 2021, are net of expenses allocated to the Adviser Subsidiary of $3.1 million and $1.2 million, respectively and $4.5 million and $2.1 million for six months ended June 30, 2022 and 2021, respectively. The increase in expenses allocated to the Adviser Subsidiary is a result of higher average assets under management and higher allocations to the Adviser Funds. As of June 30, 2022, $0.2 million was payable to the Adviser Subsidiary related to investment transaction related allocations during the period. As of December 31, 2021, $0.1 million was due from the Adviser Subsidiary.

Net Realized Gains and Losses and Net Change in Unrealized Appreciation and Depreciation

Realized gains or losses on investments are measured by the difference between the net proceeds from the repayment or sale and the cost basis of an investment without regard to unrealized appreciation or depreciation previously recognized, and includes investments written off during the period, net of recoveries. Realized loss on debt extinguishment relates to additional fees, costs, and accelerated recognition of remaining debt issuance costs, which are recognized in the event debt is extinguished before its stated maturity. The net change in unrealized appreciation or depreciation on investments primarily reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

 

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A summary of net realized gains and losses for the three and six months ended June 30, 2022 and 2021 is as follows:

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(in thousands)

2022

 

 

2021

 

 

2022

 

 

2021

 

Realized gains

$

1,170

 

 

$

47,861

 

 

$

6,213

 

 

$

57,365

 

Realized losses

 

(3,249

)

 

 

(62,143

)

 

 

(6,987

)

 

 

(63,877

)

Realized foreign exchange gains (losses)

 

(54

)

 

 

 

 

 

(54

)

 

 

 

Realized loss on debt extinguishment

 

 

 

 

 

 

 

(3,686

)

 

 

 

Net realized gains (losses)

$

(2,133

)

 

$

(14,282

)

 

$

(4,514

)

 

$

(6,512

)

During the three and six months ended June 30, 2022, we recognized net realized losses of $2.1 million and $4.5 million. The net realized loss was comprised of gross realized gains of $1.2 million and $6.2 million primarily from the sale of our equity position in Black Crow AI, Inc. Our gains were offset by gross realized losses of $3.2 million and $7.0 million primarily from the write-off of our investments in Regent Education, Medrobotics Corporation, and Genocea Biosciences, Inc. during the period. In addition, as part of the retirement of the 2022 Notes in Q1 2022, we incurred a $3.7 million loss on debt extinguishment. The realized loss on debt extinguishment was related to fees, accrued interest, and the acceleration of debt issuance costs amortization, and is included as a realized loss within the “Loss on debt extinguishment” on the Consolidated Statement of Operations.

During the three and six months ended June 30, 2021, we recognized net realized losses of $14.3 million and $6.5 million on the portfolio, respectively. The net realized losses were comprised of gross realized gains of $47.9 million and $57.4 million, respectively, primarily from the sale of DoorDash, Inc. and TransMedics Group, Inc. Our gains were offset by gross realized losses of $62.1 million and $63.9 million, respectively, primarily from the write-off of our investment in Solar Spectrum Holdings, LLC, during the period. There were no debt extinguishment losses recognized during the three and six months ended June 30, 2021.

The net change in unrealized appreciation and depreciation on investments is based on the fair value of each investment determined in good faith by our Valuation Committee and approved by the Board. The following table summarizes the movements in net change in unrealized appreciation or depreciation for the three and six months ended June 30, 2022 and 2021:

 

For the three months ended June 30,

 

 

Six Months Ended June 30,

 

(in thousands)

2022

 

 

2021

 

 

2022

 

 

2021

 

Gross unrealized appreciation

$

19,274

 

 

$

56,815

 

 

$

38,814

 

 

$

114,071

 

Gross unrealized depreciation

 

(70,283

)

 

 

(24,589

)

 

 

(127,456

)

 

 

(53,040

)

Reversal of prior period net unrealized appreciation (depreciation) upon a realization event

 

2,867

 

 

 

29,338

 

 

 

3,894

 

 

 

22,366

 

Net unrealized appreciation (depreciation) on debt, equity, warrant and fund investments

 

(48,142

)

 

 

61,564

 

 

 

(84,748

)

 

 

83,397

 

Other net unrealized appreciation (depreciation)

 

(174

)

 

 

(1,515

)

 

 

(310

)

 

 

(1,515

)

Total net unrealized appreciation (depreciation)

$

(48,316

)

 

$

60,049

 

 

$

(85,058

)

 

$

81,882

 

During the three months ended June 30, 2022 and 2021, we recorded approximately $48.3 million of net unrealized depreciation and $60.0 million of net unrealized appreciation on our investments, respectively. During the six months ended June 30, 2022, and 2021, we recorded approximately $85.0 million of net unrealized depreciation and $81.9 million of net unrealized appreciation on our investments, respectively. The following table summarizes the key drivers of change in net unrealized appreciation (depreciation) of investments for the three months ended June 30, 2022 and 2021:

 

For the three months ended June 30,

 

 

For the Six Months Ended June 30,

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

(in thousands)

Debt

 

Equity, Warrants
and
Investment Funds

 

Total

 

 

Debt

 

Equity, Warrants
and
Investment Funds

 

Total

 

 

Debt

 

Equity, Warrants
and
Investment Funds

 

Total

 

 

Debt

 

Equity, Warrants
and
Investment Funds

 

Total

 

Valuation appreciation (depreciation)

$

(7,544

)

$

(43,465

)

$

(51,009

)

 

$

(4,646

)

$

36,872

 

$

32,226

 

 

$

(15,507

)

$

(73,135

)

$

(88,642

)

 

$

2,414

 

$

58,617

 

$

61,031

 

Reversal of prior period net unrealized appreciation (depreciation) upon a realization event

 

(14

)

 

2,881

 

 

2,867

 

 

 

6,111

 

 

23,227

 

 

29,338

 

 

 

(164

)

 

4,058

 

$

3,894

 

 

 

7,116

 

 

15,250

 

 

22,366

 

Other net unrealized appreciation (depreciation)

 

13

 

 

(187

)

 

(174

)

 

 

 

 

(1,515

)

 

(1,515

)

 

 

35

 

 

(345

)

 

(310

)

 

 

 

 

(1,515

)

 

(1,515

)

Net realized appreciation (depreciation)

$

(7,545

)

$

(40,771

)

$

(48,316

)

 

$

1,465

 

$

58,584

 

$

60,049

 

 

$

(15,636

)

$

(69,422

)

$

(85,058

)

 

$

9,530

 

$

72,352

 

$

81,882

 

Income and Excise Taxes

We account for income taxes in accordance with the provisions of ASC Topic 740 Income Taxes, under which income taxes are provided for amounts currently payable and for amounts deferred based upon the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of the enacted tax law. Valuation allowances may be used to reduce deferred tax assets to the amount likely to be realized. We intend to timely distribute to our stockholders substantially all of our annual taxable income for each year, except that we may retain certain net capital gains for reinvestment and, depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax.

 

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Because federal income tax regulations differ from U.S. GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their appropriate tax character. Permanent differences may also result from the classification of certain items, such as the treatment of short-term gains as ordinary income for tax purposes. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future.

Net Change in Net Assets Resulting from Operations and Earnings Per Share

For the three months ended June 30, 2022 and 2021, we had net changes in net assets of approximately $10.3 million decrease and a $82.7 million increase resulting from operations, respectively. For the six months ended June 30, 2022 and 2021, our net changes in net assets were approximately $13.7 million decrease and a $146.9 million increase resulting from operations, respectively. For the three and six months ended June 30, 2022, the basic net change in net assets per common share was $(0.09) and $(0.12) per share, and for the three and six months ended June 30, 2021 $0.71 and $1.27 per share. On a fully diluted basis, the net change in net assets per common share was $(0.09) and $(0.12) per share and $0.65 and $1.21 per share, for the same periods each respectively.

Hercules Adviser LLC

Hercules Adviser LLC, the Adviser Subsidiary, receives fee income for the services provided to the Adviser Funds. The Adviser Subsidiary’s contribution to our net investment income is derived from dividend income declared by the Adviser Subsidiary and interest income earned on loans to the Adviser Subsidiary. For the three and six months ended June 30, 2022 and 2021, no dividends were declared by the Adviser Subsidiary.

The Adviser Subsidiary has entered into investment management agreements (the “IMAs”) with the Adviser Funds. Pursuant to the IMAs, the Adviser Subsidiary provides investment advisory and management services to the Adviser Funds in exchange for an asset-based fee and certain incentive fees. The Adviser Funds are privately offered investment funds exempt from registration under the 1940 Act that invest in debt and equity investments in venture or institutionally backed technology related and life sciences companies.

Financial Condition, Liquidity, Capital Resources and Obligations

Our liquidity and capital resources are derived from our debt borrowings and cash flows from operations, including investment sales and repayments, and income earned. Our primary use of funds from operations includes investments in portfolio companies and payments of fees and other operating expenses we incur. We have used, and expect to continue to use, our debt and the proceeds from the turnover of our portfolio and from public and private offerings of securities to finance our investment objectives. We may also raise additional equity or debt capital through registered offerings off a shelf registration, At-the-Market (“ATM”), and private offerings of securities, by securitizing a portion of our investments, or by borrowing from the SBA through our SBIC subsidiary. This “Financial Condition, Liquidity and Capital Resources” section should be read in conjunction with the “COVID-19 Developments” section above.

During the six months ended June 30, 2022, we principally funded our operations from (i) cash receipts from interest, dividend, and fee income from our investment portfolio and (ii) cash proceeds from the realization of portfolio investments through the repayments of debt investments and the sale of debt and equity investments, (iii) debt offerings along with borrowings on our credit facilities, and (iv) equity offerings.

During the six months ended June 30, 2022, our operating activities used $306.7 million of cash and cash equivalents, compared to $12.2 million used during the six months ended June 30, 2021. This $294.5 million increase in cash used in operating activities was primarily driven by a $157.6 million decrease in principal, fee repayments, and proceeds received from the sale of debt investments, $62.8 million fewer proceeds received from the sale of equity investments, plus a net increase of $47.0 million in purchases of investments (net of assignments to Adviser Funds).

During the six months ended June 30, 2022, our investing activities used approximately $74 thousand of cash, compared to $12 thousand used during the six months ended June 30, 2021. The $62 thousand increase in cash used in investing activities was due to an increase in purchases of capital equipment.

During the six months ended June 30, 2022, our financing activities provided $289.2 million of cash, compared to $201.2 million used in financing activities during the six months ended June 30, 2021. The $490.4 million increase of cash flows from financing activities was primarily due to $1,124.2 million of new debt issuances related to the issuance of our January 2027 Notes, June 2025 3-Year Notes, 2031 Asset-Backed Notes, SBA Debenture borrowings, and increased utilization of our Credit Facilities during the six months ended June 30, 2022. The debt issuances were used in our operating activities and to repay the $230.0 million of 2022 Convertible Notes and $150.0 million to retire the 2022 Notes. Additionally, we issued $147.1 million of ATM equity (net of offering costs) during the six months ended June 30, 2022. We did not issue any common stock issued during the six months ended June 30, 2021. The amounts offset the $30.1 million increase in dividend distributions, which totaled $115.9 million during the six months ended June 30, 2022, compared to $85.8 million during the six months ended June 30, 2021.

 

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As of June 30, 2022, our net assets totaled $1.3 billion, with a NAV per share of $10.43. We intend to continue to operate in order to generate cash flows from operations, including income earned from investments in our portfolio companies. Our primary use of funds will be investments in portfolio companies and cash distributions to holders of our common stock.

Available liquidity and capital resources as of June 30, 2022

As of June 30, 2022, we had $779.7 million in available liquidity, including $115.3 million in cash and cash equivalents. We had available borrowing capacity of $201.4 million under the SMBC Facility and $463.0 million under the MUFG Bank Facility. In addition, the MUFG Bank Facility has accordion provision through which the available borrowing capacity can be increased by $55.0 million, subject to certain conditions.

The 1940 Act permits BDCs to incur borrowings, issue debt securities, or issue preferred stock unless immediately after the borrowings or issuance the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock is less than 200% (or 150% if certain requirements are met). On September 4, 2018 and December 6, 2018, our Board, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) and our stockholders, respectively, approved the application to us of the 150% minimum asset coverage ratio set forth in Section 61(a)(2) of the 1940 Act. As of June 30, 2022, our asset coverage ratio under our regulatory requirements as a BDC was 198.4% excluding our SBA debentures. Our exemptive order from the SEC allows us to exclude all SBA leverage from our asset coverage ratio. As a result of the SEC exemptive order, our ratio of total assets on a consolidated basis to outstanding indebtedness may be less than 150%, which while providing increased investment flexibility, also may increase our exposure to risks associated with leverage. Total asset coverage when including our SBA debentures was 187.1% as of June 30, 2022.

As of June 30, 2022, we had $105.6 million outstanding under our Credit Facilities, which are floating interest rate obligations. As of June 30, 2022, the remaining $1,415.0 million of debt outstanding are all fixed interest rate debt obligations.

During the six months ended June 30, 2022, we issued $350 million in aggregate principal amount of January 2027 Notes, which generated net proceeds of approximately $343.4 million. The net proceeds from the January 2027 Notes generated was primarily used to repay the 2022 Convertible Notes and to retire the 2022 Notes. In addition, we issued $150 million and $50 million in aggregate principal which generated net proceeds of approximately $147.7 million and $49.5 million related to the 2031 Asset-Backed Notes and June 2025 3-Year Notes, respectively. We also borrowed the remaining $24.5 million of capital available through our SBIC, and raised $147.1 million through ATM equity offerings of common shares.

Lastly, as of June 30, 2022, $3.4 million of cash was classified as restricted cash. Our restricted cash relates to amounts that are held as collateral securing certain of the Company’s financing transactions, including collections of interest and principal payments on assets that are securitized related to the 2031 Asset-Backed Notes. Based on current characteristics of the securitized debt investment portfolios, the restricted funds may be used to pay monthly interest and principal on the securitized debt with any excess distributed to us or available for our general operations. Refer to “Note 5 – Debt” included in the notes to our consolidated financial statements appearing elsewhere in this report for additional discussion of our debt obligations.

As detailed above, our diverse and well-structured balance sheet is designed to provide a long-term focused and sustainable investment platform. Currently, we believe we have ample liquidity to support our near-term capital requirements. As the impact of recent macro-economic events, including the COVID-19 pandemic, war in Ukraine, and the related disruption to markets and business continues to impact the economy, we will continue to evaluate our overall liquidity position and take proactive steps to maintain the appropriate liquidity position based upon the current circumstances.

Equity Offerings

On May 9, 2022, we entered into an ATM equity distribution agreement (the “2022 Equity Distribution Agreement”)with JMP and Jeffries (the “Sales Agents”). The 2022 Equity Distribution Agreement provides that we may offer and sell up to 17.5 million shares of our common stock from time to time through the Sales Agents. Sales of our common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “at the market,” as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE or similar securities exchange or sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated prices. The 2022 Equity Distribution Agreement replaces the ATM equity distribution agreement between the Company and JMP executed on July 2, 2020 (the “2020 Equity Distribution Agreement”).

Under the 2020 Equity Distribution Agreement the Company sold approximately 0.7 million and 5.6 million shares, respectively, of common stock under during the three and six months ended June 30, 2022. From the sale of shares under the 2020 Equity Distribution Agreement the Company received total accumulated net proceeds of approximately $13.3 million and $98.5 million, including $0.2 million and $1.6 million of offering expenses, respectively for each period. Under the 2022 Equity Distribution agreement the Company sold approximately 3.3 million of common stock for both the three and six months ended June 30, 2022. From the sale of shares the Company received total accumulated net proceeds of approximately $48.6 million including $0.5 million of offering expenses for both the three and six months ended June 30, 2022. During the three and six months ended June 30, 2021, there were no shares sold under the existing equity distribution agreement.

 

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Commitments and Obligations

Our significant cash requirements generally relate to our debt obligations. As of June 30, 2022, we had $1,520.6 million of debt outstanding, which includes $357.0 million within 1 to 3 years, and $1,163.6 million beyond 3 years. In addition to our debt obligations, in the normal course of business, we are party to financial instruments with off-balance sheet risk. These consist primarily of unfunded contractual commitments to extend credit, in the form of loans, to our portfolio companies. Unfunded contractual commitments to provide funds to portfolio companies are not reflected on our balance sheet.

Our unfunded contractual commitments may be significant from time to time. A portion of these unfunded contractual commitments are dependent upon the portfolio company reaching certain milestones before the debt commitment becomes available. Furthermore, our credit agreements contain customary lending provisions which allow us relief from funding obligations for previously made unfunded commitments in instances where the underlying company experiences materially adverse events that affect the financial condition or business outlook for the company. These commitments will be subject to the same underwriting and ongoing portfolio maintenance as are the on-balance sheet financial instruments that we hold. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. As such, our disclosure of unfunded contractual commitments includes only those which are available at the request of the portfolio company and unencumbered by milestones. Refer to “Note 11 – Commitments and Contingencies” included in the notes to our consolidated financial statements appearing elsewhere in this report for additional discussion of our unfunded commitments.

As of June 30, 2022, we had approximately $488.9 million of unfunded commitments, including undrawn revolving facilities, which were available at the request of the portfolio company and unencumbered by future or unachieved milestones, as well as uncalled capital commitments to make investments in a private equity fund. This excludes $127.6 million of unfunded commitments which represent the portion of portfolio company commitments assigned to or directly committed by the Adviser Funds. We intend to use cash flow from normal and early principal repayments, and proceeds from borrowings and notes to fund these commitments.

As of June 30, 2022, we also had approximately $388.5 million of non-binding term sheets outstanding to nine new companies and one existing company, which generally convert to contractual commitments within approximately 90 days of signing. Non-binding outstanding term sheets are subject to completion of our due diligence and final investment committee approval process, as well as the negotiation of definitive documentation with the prospective portfolio companies. Not all non-binding term sheets are expected to close and do not necessarily represent future cash requirements.

The fair value of our unfunded commitments is considered to be immaterial as the yield determined at the time of underwriting is expected to be materially consistent with the yield upon funding, given that interest rates are generally pegged to market indices and given the existence of milestones, conditions and/or obligations imbedded in the borrowing agreements.

Indemnification Agreements

We have entered into indemnification agreements with our directors and executive officers. The indemnification agreements are intended to provide our directors and executive officers the maximum indemnification permitted under Maryland law and the 1940 Act. Each indemnification agreement provides that we shall indemnify the director or executive officer who is a party to the agreement, or an “Indemnitee,” including the advancement of legal expenses, if, by reason of his or her corporate status, the Indemnitee is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed proceeding, to the maximum extent permitted by Maryland law and the 1940 Act. We and our executives and directors are covered by Directors and Officers Insurance, with the directors and officers being indemnified by us to the maximum extent permitted by Maryland law subject to the restrictions in the 1940 Act.

Distributions

Our Board maintains a variable distribution policy with the objective of distributing four quarterly distributions in an amount that approximates 90% - 100% of our taxable quarterly income or potential annual income for a particular taxable year. In addition, at the end of our taxable year, our Board may choose to pay additional special distributions, so that we may distribute approximately all of our annual taxable income in the taxable year in which it was earned, or may elect to maintain the option to spill over our excess taxable income into the following taxable year as part of any future distribution payments.

Distributions from our taxable income (including gains) to a stockholder generally will be treated as a dividend for U.S. federal income tax purposes to the extent of such stockholder’s allocable share of our current or accumulated earnings and profits. Distributions in excess of our current and accumulated earnings and profits would generally be treated first as a return of capital to the extent of a stockholder’s tax basis in our shares, and any remaining distributions would be treated as a capital gain. The determination of the tax attributes of our distributions is made annually as of the end of our taxable year based upon our taxable income for the full taxable year and distributions paid for the full taxable year. As a result, any determination of the tax attributes of our distributions made on a quarterly basis may not be representative of the actual tax attributes of our distributions for a full taxable year.

Of the distributions declared during the year ended December 31, 2021, 100% were distributions derived from our current and accumulated earnings and profits. There can be no certainty to stockholders that this determination is representative of what the tax attributes of our 2022 distributions to stockholders will actually be.

 

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We maintain an “opt out” dividend reinvestment plan that provides for reinvestment of our distribution on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if our Board authorizes, and we declare, a cash distribution, then our stockholders who have not “opted out” of our dividend reinvestment plan will have their cash distribution automatically reinvested in additional shares of our common stock, rather than receiving the cash distributions.

Shortly after the close of each calendar year information identifying the source of the distribution (i.e., paid from ordinary income, paid from net capital gains on the sale of securities, and/or a return of paid-in-capital surplus which is a nontaxable distribution, if any) will be provided to our stockholders subject to information reporting. To the extent our taxable earnings fall below the total amount of our distributions for any taxable year, a portion of those distributions may be deemed a tax return of capital to our stockholders.

We expect to qualify to be subject to tax as a RIC under Subchapter M of the Code. In order to be subject to tax as a RIC, we are required to satisfy certain annual gross income and quarterly asset composition tests, as well as make distributions to our stockholders each taxable year treated as dividends for federal income tax purposes of an amount at least equal to 90% of the sum of our investment company taxable income, determined without regard to any deduction for dividends paid, plus our net tax-exempt income, if any. Upon being eligible to be subject to tax as a RIC, we would be entitled to deduct such distributions we pay to our stockholders in determining the overall components of our “taxable income.” Components of our taxable income include our taxable interest, dividend and fee income, reduced by certain deductions, as well as taxable net realized securities gains. Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses and generally excludes net unrealized appreciation or depreciation as such gains or losses are not included in taxable income until they are realized. In connection with maintaining our ability to be subject to tax as a RIC, among other things, we have made and intend to continue to make the requisite distributions to our stockholders each taxable year, which generally should relieve us from corporate-level U.S. federal income taxes.

As a RIC, we will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income and gains unless we make distributions treated as dividends for U.S. federal income tax purposes in a timely manner to our stockholders in respect of each calendar year of an amount at least equal to the Excise Tax Avoidance Requirement. We will not be subject to this excise tax on any amount on which we incurred U.S. federal corporate income tax (such as the tax imposed on a RIC’s retained net capital gains).

Depending on the level of taxable income earned in a taxable year, we may choose to carry over taxable income in excess of current taxable year distributions treated as dividends for U.S. federal income tax purposes from such taxable income into the next taxable year and incur a 4% excise tax on such taxable income, as required. The maximum amount of excess taxable income that may be carried over for distribution in the next taxable year under the Code is the total amount of distributions treated as dividends for U.S. federal income tax purposes paid in the following taxable year, subject to certain declaration and payment guidelines. To the extent we choose to carry over taxable income into the next taxable year, distributions declared and paid by us in a taxable year may differ from our taxable income for that taxable year as such distributions may include the distribution of current taxable year taxable income, the distribution of prior taxable year taxable income carried over into and distributed in the current taxable year, or returns of capital.

We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our debt. Our ability to make distributions will be limited by the asset coverage requirements under the 1940 Act.

We intend to timely distribute to our stockholders substantially all of our annual taxable income for each year, except that we may retain certain net capital gains for reinvestment and, depending upon the level of taxable income earned in a year, we may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax.

Critical Accounting Policies and Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and revenues and expenses during the period reported. On an ongoing basis, our management evaluates its estimates and assumptions, which are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. Changes in our estimates and assumptions could materially impact our results of operations and financial condition.

For a description of our critical accounting policies, refer to “Note 2 – Summary of Significant Accounting Policies” included in the notes to our consolidated financial statements appearing elsewhere in this report. We consider the most significant accounting policies to be those related to our Valuation of Investments, Fair Valuation Measurements, Income Recognition, and Income Taxes. The valuation of investments is our most significant critical estimate. The most significant input to this estimate is the yield interest rate, which includes the hypothetical market yield plus premium or discount adjustment, used in determining the fair value of our debt investments. The following table shows the approximate increase (decrease) to the fair value of our debt investments from hypothetical change to the yield interest rates used for each valuation, assuming no other changes:

 

75


 

(in thousands)

 

Change in unrealized

 

Basis Point Change

 

appreciation (depreciation)

 

(100)

 

$

35,738

 

(50)

 

$

18,587

 

50

 

$

(19,105

)

100

 

$

(37,614

)

For a further discussion and disclosure of key inputs and considerations related to this estimate, refer to “Note 3 – Fair Value of Financial Instruments” included in the notes to our consolidated financial statements appearing elsewhere in this report.

 

76


 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to financial market risks, including changes in interest rates. Interest rate risk is defined as the sensitivity of our current and future earnings to interest rate volatility, variability of spread relationships, the difference in re-pricing intervals between our assets and liabilities and the effect that interest rates may have on our cash flows. Changes in interest rates may affect both our cost of funding and our interest income from portfolio investments, cash and cash equivalents and idle fund investments. Our investment income will be affected by changes in various interest rates, including Prime, LIBOR, SOFR, and BSBY rates, to the extent our debt investments include variable interest rates. As of June 30, 2022, approximately 94.9% of the loans in our portfolio had variable rates based on floating Prime, LIBOR, SOFR, or BSBY rates with a floor. As of June 30, 2022, approximately 14.2% of our debt investments have variable rates based on LIBOR. Additionally, all of our LIBOR rate based debt securities have interest rate floors. We are actively considering and discussing the preferred alternative benchmark with our portfolio companies and prioritize the inclusion of LIBOR fallback language in our documentation. The Alternative Reference Rates Committee ("ARRC") has recommended for US based debt securities to use the SOFR rate as the alternative benchmark. Our debt borrowings under the Credit Facilities bear interest at a floating rate, all other outstanding debt borrowings bear interest at a fixed rate. Changes in interest rates can also affect, among other things, our ability to acquire and originate loans and securities and the value of our investment portfolio.

Based on our Consolidated Statements of Assets and Liabilities as of June 30, 2022, the following table shows the approximate annualized increase (decrease) in components of net assets resulting from operations of hypothetical base rate changes in interest rates, assuming no changes in our investments and debt:

(in thousands)

 

Interest

 

 

Interest

 

 

Net

 

 

 

 

Basis Point Change

 

Income

 

 

Expense

 

 

Income

 

 

EPS

 

(75)

 

$

(15,133

)

 

$

(1,496

)

 

$

(13,637

)

 

$

(0.11

)

(50)

 

$

(10,494

)

 

$

(997

)

 

$

(9,497

)

 

$

(0.08

)

(25)

 

$

(5,391

)

 

$

(499

)

 

$

(4,892

)

 

$

(0.04

)

25

 

$

6,069

 

 

$

499

 

 

$

5,570

 

 

$

0.04

 

50

 

$

12,225

 

 

$

997

 

 

$

11,228

 

 

$

0.09

 

75

 

$

18,393

 

 

$

1,496

 

 

$

16,897

 

 

$

0.14

 

100

 

$

24,790

 

 

$

1,995

 

 

$

22,795

 

 

$

0.18

 

200

 

$

50,272

 

 

$

3,990

 

 

$

46,282

 

 

$

0.37

 

We do not currently engage in any hedging activities. However, we may, in the future, hedge against interest rate fluctuations and foreign currency by using standard hedging instruments such as futures, options, and forward contracts. While hedging activities may insulate us against changes in interest rates and foreign currency, they may also limit our ability to participate in the benefits of lower interest rates with respect to our borrowed funds and higher interest rates with respect to our portfolio of investments. During the six months ended June 30, 2022, we did not engage in interest rate or foreign currency hedging activities.

Although we believe that the foregoing analysis is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in the credit market, credit quality, size and composition of the assets in our portfolio. It also does not adjust for other business developments, including our debt borrowings and use of our Credit Facilities that could affect the net increase in net assets resulting from operations, or net income. It also does not assume any repayments from our portfolio companies. Accordingly, no assurances can be given that actual results would not differ materially from the statement above.

Because we currently borrow, and plan to borrow in the future, money to make investments, our net investment income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds may increase, which could reduce our net investment income if there is not a corresponding increase in interest income generated by variable rate assets in our investment portfolio. For additional information regarding the interest rate associated with each of our debt borrowings and Credit Facilities, refer to Item 2 “Financial Condition, Liquidity and Capital Resources” in this quarterly report on Form 10-Q and “Note 5 – Debt” included in the notes to our consolidated financial statements appearing elsewhere in this report.

 

 

 

77


 

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our chief executive and chief financial officers, under the supervision and with the participation of our management, conducted an evaluation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. As of the end of the period covered by this quarterly report on Form 10-Q, our chief executive and chief financial officers have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive and chief financial officers, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financing reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act that occurred during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

78


 

PART II: OTHER INFORMATION

We may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While the outcome of any current legal proceedings cannot at this time be predicted with certainty, we do not expect any current matters will materially affect our financial condition or results of operations; however, there can be no assurance whether any pending legal proceedings will have a material adverse effect on our financial condition or results of operations in any future reporting period.

ITEM 1A. RISK FACTORS

In addition to the risks discussed below, important risk factors that could cause results or events to differ from current expectations are described in Part I, Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 22, 2022 (the “Annual Report”) and Part II, Item 1A “Risk Factors” of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 filed with the SEC on May 5, 2022.

Our financial results could be negatively affected if a significant portfolio investment fails to perform as expected.

Our total investment in companies may be significant individually or in the aggregate. As a result, if a significant investment in one or more companies fails to perform as expected, our financial results could be more negatively affected and the magnitude of the loss could be more significant than if we had made smaller investments in more companies. The following table shows the fair value of the totals of investments held in portfolio companies at June 30, 2022 that represent greater than 5% of our net assets:

 

June 30, 2022

 

(in thousands)

Fair Value

 

 

Percentage of Net Assets

 

Corium, Inc.

$

134,641

 

 

 

10.1

%

Worldremit Group Limited

$

92,940

 

 

 

7.0

%

Phathom Pharmaceuticals, Inc.

$

91,542

 

 

 

6.9

%

SeatGeek, Inc.

$

87,780

 

 

 

6.6

%

Rocket Lab Global Services, LLC

$

86,602

 

 

 

6.5

%

Axsome Therapeutics, Inc.

$

84,877

 

 

 

6.4

%

uniQure B.V.

$

73,041

 

 

 

5.5

%

Convoy, Inc.

$

72,436

 

 

 

5.5

%

Delphix Corp.

$

66,834

 

 

 

5.0

%

Corium, Inc. develops, engineers, and manufactures drug delivery products and devices that utilize the skin and mucosa as a primary means of transport.
Worldremit Group Limited is a global online money transfer business.
Phathom Pharmaceuticals, Inc. is a biopharmaceutical company focused on the development and commercialization of novel treatments for gastrointestinal diseases and disorders.
SeatGeek, Inc. is a mobile-focused ticket platform that enables users to buy and sell tickets for live sports, concerts and theater events.
Rocket Lab Global Services, LLC is a commercial space provider of high-frequency, low-cost launches.
Axsome Therapeutics, Inc. is a biopharmaceutical company developing novel therapies for the management of central nervous system disorders for which there are limited treatment options.
uniQure B.V. is a leader in the field of gene therapy, developing proprietary therapies to treat patients with severe genetic diseases of the central nervous system and liver.
Convoy, Inc. is a developer for on-demand shipment services.
Delphix Corp. is a provider of a Data as a Service platform intended to help enterprises to accelerate cloud migrations, custom development and ERP rollouts.

Our financial results could be materially adversely affected if these portfolio companies or any of our other significant portfolio companies encounter financial difficulty and fail to repay their obligations or to perform as expected.

 

79


 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Dividend Reinvestment Plan

During the six months ended June 30, 2022, we issued 121,471 shares of common stock to stockholders in connection with the dividend reinvestment plan. These issuances were not subject to the registration requirements of the Securities Act. The aggregate value of the shares of our common stock issued under our dividend reinvestment plan was approximately $1.9 million.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5. OTHER INFORMATION

Not Applicable

 

80


 

ITEM 6. EXHIBITS

 

Exhibit
Number

Description

 

 

4.1*

Indenture, dated as of June 22, 2022, between Hercules Capital Funding Trust 2022-1, as Issuer, and U.S. Bank Trust Company National Association, as Trustee.

 

 

4.2*

Amended and Restated Trust Agreement, dated as of June 22, 2022, between Hercules Capital Funding 2022-1 LLC, as Trust Depositor, and Wilmington Trust, National Association, as Owner Trustee.

 

 

10.1

Second Amendment to Revolving Credit Agreement, dated as of June 14, 2022, among Hercules Capital, Inc., the lenders party thereto and Sumitomo Mitsui Banking Corporation, as administrative agent (1)

 

 

10.2

Second Amendment to Loan and Security Agreement, dated as of June 10, 2022, among Hercules Funding IV LLC, the lenders from time to time party thereto, MUFG Union Bank, N.A., s resigning agent, and MUFG Bank, Ltd. (as successor to MUFG Union Bank, N.A.), as administrative agent. (1)

 

 

10.3*

Sale and Servicing Agreement, dated as of June 22, 2022, by and among Hercules Capital Funding Trust 2022-1, as Issuer, Hercules Capital, Inc., as Seller and Servicer, Hercules Capital Funding 2022-1 LLC, as Trust Depositor, U.S. Bank Trust Company, National Association, as Trustee and Securities Intermediary, and U.S. Bank National Association, as Backup Servicer and Custodian.

 

 

10.4*

Sale and Contribution Agreement, dated as of June 22, 2022, between Hercules Capital, Inc., as Seller, and Hercules Capital Funding 2022-1 LLC, as Trust Depositor.

 

 

10.5*

Note Purchase Agreement, dated as of June 22, 2022, by and among Hercules Capital, Inc., as Originator and Servicer, Hercules Capital Funding 2022-1 LLC, as Trust Depositor, Hercules Capital Funding Trust 2022-1, as Issuer, and American Family Life Assurance Company of Columbus, Allianz Life Insurance Company of North America, Compsource Mutual Insurance Company, The Lincoln National Life Insurance Company, Massachusetts Mutual Life Insurance Company, Great American Life Insurance Company, and Fidelity & Guaranty Life Insurance Company, as Purchasers.

 

 

10.6*

Administration Agreement, dated June 22, 2022, by and among Hercules Capital, Inc., as Administrator, Hercules Capital Funding Trust 2022-1, as Issuer, Wilmington Trust National Association, as Owner Trustee, and U.S. Bank Trust Company, National Association, as Trustee.

 

 

10.7*

Second Supplement to the Note Purchase Agreement, dated as of June 23, 2022, by and among Hercules Capital, Inc. and the Additional Purchasers party thereto.

 

 

31.1*

Chief Executive Officer Certification Pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

31.2*

Chief Financial Officer Certification Pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

32.1*

Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

32.2*

Chief Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

* Filed herewith.

(1) Incorporated by reference to Exhibits 10.1 and 10.2, as applicable, to the Company's Form 8-K (File No. 814-00702), filed on June 15, 2022.

 

 

81


 

Schedule 12 – 14

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES

For the Six Months Ended June 30, 2022 (unaudited)

 

(in thousands)

 

Investment (1)

 

Amount of Interest and Fees Credited to Income (2)

 

 

Realized Gain (Loss)

 

 

Fair Value as of
December 31, 2021

 

 

Gross Additions (3)

 

 

Gross Reductions (4)

 

 

Net Change in Unrealized Appreciation/ (Depreciation)

 

 

Fair Value as of June 30, 2022

 

Portfolio Company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Control Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Majority Owned Control Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Coronado Aesthetics, LLC (10)

 

Preferred Stock

 

$

 

 

$

 

 

$

500

 

 

$

 

 

$

 

 

$

(88

)

 

$

412

 

 

 

Common Stock

 

 

 

 

 

 

 

 

65

 

 

 

 

 

 

 

 

 

(55

)

 

 

10

 

Gibraltar Business Capital, LLC (5)

 

Unsecured Debt

 

 

1,711

 

 

 

 

 

 

23,212

 

 

 

39

 

 

 

 

 

 

(576

)

 

 

22,675

 

 

 

Preferred Stock

 

 

 

 

 

 

 

 

19,393

 

 

 

 

 

 

 

 

 

(3,978

)

 

 

15,415

 

 

 

Common Stock

 

 

 

 

 

 

 

 

1,225

 

 

 

 

 

 

 

 

 

(251

)

 

 

974

 

Hercules Adviser LLC (6)

 

Unsecured Debt

 

 

239

 

 

 

 

 

 

8,850

 

 

 

3,150

 

 

 

 

 

 

 

 

 

12,000

 

 

 

Member Units

 

 

 

 

 

 

 

 

11,990

 

 

 

 

 

 

 

 

 

11,191

 

 

 

23,181

 

 Total Majority Owned Control Investments

 

 

 

$

1,950

 

 

$

 

 

$

65,235

 

 

$

3,189

 

 

$

 

 

$

6,243

 

 

$

74,667

 

Other Control Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tectura Corporation(7)

 

Senior Debt

 

$

342

 

 

$

 

 

$

8,269

 

 

$

 

 

$

 

 

$

(61

)

 

$

8,208

 

 

 

Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Other Control Investments

 

 

 

$

342

 

 

$

 

 

$

8,269

 

 

$

 

 

$

 

 

$

(61

)

 

$

8,208

 

Total Control Investments

 

$

2,292

 

 

$

 

 

$

73,504

 

 

$

3,189

 

 

$

 

 

$

6,182

 

 

$

82,875

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Black Crow AI, Inc. (8)

 

Preferred Stock

 

$

 

 

$

3,772

 

 

$

1,120

 

 

$

 

 

$

(1,000

)

 

$

(120

)

 

$

 

Pineapple Energy LLC (9)

 

Senior Debt

 

 

1,123

 

 

 

 

 

 

7,747

 

 

 

78

 

 

 

(4,781

)

 

 

(104

)

 

 

2,940

 

 

 

Common Stock

 

 

 

 

 

 

 

 

591

 

 

 

400

 

 

 

 

 

 

(318

)

 

 

673

 

Total Affiliate Investments

 

$

1,123

 

 

$

3,772

 

 

$

9,458

 

 

$

478

 

 

$

(5,781

)

 

$

(542

)

 

$

3,613

 

Total Control and Affiliate Investments

 

$

3,415

 

 

$

3,772

 

 

$

82,962

 

 

$

3,667

 

 

$

(5,781

)

 

$

5,640

 

 

$

86,488

 

(1)
Stock and warrants are generally non-income producing and restricted.
(2)
Represents the total amount of interest, fees, or dividends credited to income for the period an investment was an affiliate or control investment.
(3)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, paid-in-kind interest or dividends, the amortization of discounts and closing fees and the exchange of one or more existing securities for one or more new securities.
(4)
Gross reductions include decreases in the cost basis of investments resulting from principal repayments or sales and the exchange of one or more existing securities for one or more new securities. Gross reductions also include previously recognized depreciation on investments that become control or affiliate investments during the period.
(5)
As of March 31, 2018, the Company's investment in Gibraltar Business Capital, LLC became classified as a control investment as a result of obtaining a controlling financial interest.
(6)
Hercules Adviser LLC is a wholly owned subsidiary providing investment management and other services to the Adviser Funds and other External Parties.
(7)
As of March 31, 2017, the Company's investment in Tectura Corporation became classified as a control investment as of result of obtaining more than 50% representation on the portfolio company's board. In May 2018, the Company purchased common shares, thereby obtaining greater than 25% of voting securities of Tectura as of June 30, 2018.
(8)
During the six months ended June 30, 2022, the Company sold its investments in Black Crow AI, Inc., as a result it is no longer an affiliate investment.
(9)
As of December 11, 2020, the Company investment in Pineapple Energy LLC became classified as an affiliate investment as a result of obtaining more than 5% but less than 25% of the voting securities of the portfolio company.
(10)
As of December 31, 2021, the Company's investment in Coronado Aesthetics, LLC became classified as a control investment as a result of obtaining more than 25% of the voting securities of the portfolio company.

 

 

 

82


 

Schedule 12 – 14

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES

For the Six Months Ended June 30, 2021 (unaudited)

 

(in thousands)

 

Investment (1)

 

Amount of Interest and Fees Credited to Income (2)

 

 

Realized Gain (Loss)

 

 

Fair Value as of
December 31, 2020

 

 

Gross Additions (3)

 

 

Gross Reductions (4)

 

 

Net Change in Unrealized Appreciation/ (Depreciation)

 

 

Fair Value as of
June 30, 2021

 

Portfolio Company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Control Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Majority Owned Control Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gibraltar Business Capital, LLC (5)

 

Unsecured Debt

 

$

1,495

 

 

$

 

 

$

14,970

 

 

$

9,609

 

 

$

 

 

$

(1,258

)

 

$

23,321

 

 

 

Preferred Stock

 

 

 

 

 

 

 

 

31,554

 

 

 

 

 

 

 

 

 

(12,085

)

 

 

19,469

 

 

 

Common Stock

 

 

 

 

 

 

 

 

2,276

 

 

 

 

 

 

 

 

 

(872

)

 

 

1,404

 

Hercules Adviser LLC (6)

 

Unsecured Debt

 

 

14

 

 

 

 

 

 

 

 

 

3,000

 

 

 

 

 

 

 

 

 

3,000

 

 

 

Member Units

 

 

 

 

 

 

 

 

 

 

 

35

 

 

 

 

 

 

10,888

 

 

 

10,923

 

 Total Majority Owned Control Investments

 

 

 

$

1,509

 

 

$

 

 

$

48,800

 

 

$

12,644

 

 

$

 

 

$

(3,327

)

 

$

58,117

 

Other Control Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tectura Corporation(7)

 

Senior Debt

 

$

342

 

 

$

 

 

$

8,600

 

 

$

 

 

$

 

 

$

(226

)

 

$

8,374

 

 

 

Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Other Control Investments

 

 

 

$

342

 

 

$

 

 

$

8,600

 

 

$

 

 

$

 

 

$

(226

)

 

$

8,374

 

Total Control Investments

 

$

1,851

 

 

$

 

 

$

57,400

 

 

$

12,644

 

 

$

 

 

$

(3,553

)

 

$

66,491

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Black Crow AI, Inc. (8)

 

Preferred Stock

 

$

 

 

$

 

 

$

 

 

$

1,000

 

 

$

 

 

$

309

 

 

$

1,309

 

 

 

Convertible Debt

 

 

 

 

 

 

 

 

 

 

 

2,208

 

 

 

(3,993

)

 

 

1,785

 

 

 

 

Pineapple Energy LLC (9)

 

Senior Debt

 

 

2

 

 

 

 

 

 

7,500

 

 

 

40

 

 

 

 

 

 

 

 

 

7,540

 

 

 

Common Stock

 

 

 

 

 

 

 

 

840

 

 

 

 

 

 

 

 

 

61

 

 

 

901

 

Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) (10)

 

Senior Debt

 

 

 

 

 

(641

)

 

 

 

 

 

 

 

 

(681

)

 

 

681

 

 

 

 

 

 

Common Stock

 

 

 

 

 

(61,502

)

 

 

 

 

 

 

 

 

(61,502

)

 

 

61,502

 

 

 

 

Total Affiliate Investments

 

$

2

 

 

$

(62,143

)

 

$

8,340

 

 

$

3,248

 

 

$

(66,176

)

 

$

64,338

 

 

$

9,750

 

Total Control and Affiliate Investments

 

$

1,853

 

 

$

(62,143

)

 

$

65,740

 

 

$

15,892

 

 

$

(66,176

)

 

$

60,785

 

 

$

76,241

 

(1)
Stock and warrants are generally non-income producing and restricted.
(2)
Represents the total amount of interest, fees, or dividends credited to income for the period an investment was an affiliate or control investment.
(3)
Gross additions include increases in the cost basis of investments resulting from new portfolio investments, paid-in-kind interest or dividends, the amortization of discounts and closing fees and the exchange of one or more existing securities for one or more new securities.
(4)
Gross reductions include decreases in the cost basis of investments resulting from principal repayments or sales and the exchange of one or more existing securities for one or more new securities. Gross reductions also include previously recognized depreciation on investments that become control or affiliate investments during the period.
(5)
As of March 31, 2018, the Company's investment in Gibraltar Business Capital, LLC became classified as a control investment as a result of obtaining a controlling financial interest.
(6)
Hercules Adviser LLC is a wholly-owned subsidiary providing investment management and other services to External Parties.
(7)
As of March 31, 2017, the Company's investment in Tectura Corporation became classified as a control investment as of result of obtaining more than 50% representation on the portfolio company's board. In May 2018, the Company purchased common shares, thereby obtaining greater than 25% of voting securities of Tectura as of June 30, 2018.
(8)
As of March 23, 2021, the Company's investment in Black Crow AI, Inc. became classified as an affiliate investment as a result of obtaining more than 5% but less than 25% of the voting securities of the portfolio company.
(9)
As of December 11, 2020, the Company’s investment in Pineapple Energy LLC became classified as an affiliate investment as a result of obtaining more than 5% but less than 25% of the voting securities of the portfolio company.
(10)
As of June 30, 2021, the Company’s investments in Solar Spectrum Holdings LLC (f.k.a. Sungevity, Inc.) were written off for a realized loss.

 

 

83


 

Schedule 12 – 14

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES

As of June 30, 2022 (unaudited)

 

(in thousands)

 

Industry

 

Type of Investment (1)

 

Maturity Date

 

Interest Rate and Floor

 

Principal or Shares

 

 

Cost

 

 

Value (2)

 

Portfolio Company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Control Investments

 

Majority Owned Control Investments

 

Coronado Aesthetics, LLC

 

Medical Devices & Equipment

 

Preferred Series A Equity

 

 

 

 

 

 

5,000,000

 

 

$

250

 

 

$

412

 

 

 

Medical Devices & Equipment

 

Common Stock

 

 

 

 

 

 

180,000

 

 

 

 

 

 

10

 

Total Coronado Aesthetics, LLC

 

 

$

250

 

 

$

422

 

Gibraltar Business Capital, LLC

 

Diversified Financial Services

 

Unsecured Debt

 

September 2026

 

Interest rate FIXED 14.50%

 

$

15,000

 

 

$

14,687

 

 

$

13,434

 

 

 

Diversified Financial Services

 

Unsecured Debt

 

September 2026

 

Interest rate FIXED 11.50%

 

$

10,000

 

 

 

9,837

 

 

 

9,241

 

 

 

Diversified Financial Services

 

Preferred Series A Equity

 

 

 

 

 

 

10,602,752

 

 

 

26,122

 

 

 

15,415

 

 

 

Diversified Financial Services

 

Common Stock

 

 

 

 

 

 

830,000

 

 

 

1,884

 

 

 

974

 

Total Gibraltar Business Capital, LLC

 

 

$

52,530

 

 

$

39,064

 

Hercules Adviser LLC

 

 

 

Unsecured Debt

 

June 2025

 

Interest rate FIXED 5.00%

 

$

12,000

 

 

$

12,000

 

 

$

12,000

 

 

 

 

 

Member Units

 

 

 

 

 

 

1

 

 

 

35

 

 

 

23,181

 

Total Hercules Adviser LLC

 

 

$

12,035

 

 

$

35,181

 

Total Majority Owned Control Investments (5.62%)*

 

 

$

64,815

 

 

$

74,667

 

Other Control Investments

 

Tectura Corporation

 

Internet Consumer & Business Services

 

Senior Secured Debt

 

July 2024

 

PIK Interest 5.00%

 

$

10,680

 

 

$

240

 

 

$

 

 

 

Internet Consumer & Business Services

 

Senior Secured Debt

 

July 2024

 

Interest rate FIXED 8.25%

 

$

8,250

 

 

 

8,250

 

 

 

8,208

 

 

 

Internet Consumer & Business Services

 

Senior Secured Debt

 

July 2024

 

PIK Interest 5.00%

 

$

13,023

 

 

 

13,023

 

 

 

 

 

 

Internet Consumer & Business Services

 

Preferred Series BB Equity

 

 

 

 

 

 

1,000,000

 

 

 

 

 

 

 

 

 

Internet Consumer & Business Services

 

Common Stock

 

 

 

 

 

 

414,994,863

 

 

 

900

 

 

 

 

Total Tectura Corporation

 

 

$

22,413

 

 

$

8,208

 

Total Other Control Investments (0.62%)*

 

 

$

22,413

 

 

$

8,208

 

Total Control Investments (6.24%)*

 

 

$

87,228

 

 

$

82,875

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate Investments

 

Pineapple Energy LLC

 

Sustainable and Renewable Technology

 

Senior Secured Debt

 

 December 2024

 

PIK Interest 10.00%

 

$

3,078

 

 

$

3,078

 

 

$

2,940

 

 

 

Sustainable and Renewable Technology

 

Common Stock

 

 

 

 

 

 

498,978

 

 

 

5,167

 

 

 

673

 

Total Pineapple Energy LLC

 

 

$

8,245

 

 

$

3,613

 

Total Affiliate Investments (0.27%)*

 

 

$

8,245

 

 

$

3,613

 

Total Control and Affiliate Investments (6.51%)*

 

 

$

95,473

 

 

$

86,488

 

* Value as a percent of net assets

(1)
Stock and warrants are generally non-income producing and restricted.
(2)
All of the Company’s control and affiliate investments are Level 3 investments valued using significant unobservable inputs. This is with the exception for Pineapple Energy LLC common stock, which is held as a Level 2 investment.

 

 

84


 

(10)

 

 

Schedule 12 – 14

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES

As of and for the year ended December 31, 2021

 

(in thousands)

 

Industry

 

Type of Investment (1)

 

Maturity Date

 

Interest Rate and Floor

 

Principal or Shares

 

 

Cost

 

 

Value (2)

 

Portfolio Company

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Control Investments

 

        Majority Owned Control Investments

 

 

 

 

 

 

 

 

 

Coronado Aesthetics, LLC

 

Medical Devices & Equipment

 

Preferred Series A Equity

 

 

 

 

 

 

5,000,000

 

 

$

250

 

 

$

500

 

 

 

Medical Devices & Equipment

 

Common Stock

 

 

 

 

 

 

180,000

 

 

 

 

 

 

65

 

Total Coronado Aesthetics, LLC

 

 

 

 

$

250

 

 

$

565

 

Gibraltar Business Capital, LLC

 

Diversified Financial Services

 

Unsecured Debt

 

September 2026

 

Interest rate FIXED 14.50%

 

$

15,000

 

 

$

14,662

 

 

$

13,818

 

 

 

Diversified Financial Services

 

Unsecured Debt

 

September 2026

 

Interest rate FIXED 11.50%

 

$

10,000

 

 

 

9,823

 

 

 

9,394

 

 

 

Diversified Financial Services

 

Preferred Series A Equity

 

 

 

 

 

 

10,602,752

 

 

 

26,122

 

 

 

19,393

 

 

 

Diversified Financial Services

 

Common Stock

 

 

 

 

 

 

830,000

 

 

 

1,884

 

 

 

1,225

 

Total Gibraltar Business Capital, LLC

 

 

 

 

$

52,491

 

 

$

43,830

 

Hercules Adviser LLC

 

Diversified Financial Services

 

Unsecured Debt

 

May 2023

 

Interest rate FIXED 5.00%

 

$

8,850

 

 

$

8,850

 

 

$

8,850

 

 

 

Diversified Financial Services

 

Member Units

 

 

 

 

 

 

1

 

 

 

35

 

 

 

11,990

 

Total Hercules Adviser LLC

 

 

 

 

$

8,885

 

 

$

20,840

 

Total Majority Owned Control Investments (4.99%)*

 

 

 

 

$

61,626

 

 

$

65,235

 

Other Control Investments

 

 

 

 

 

 

 

 

 

Tectura Corporation

 

Internet Consumer & Business Services

 

Senior Secured Debt

 

July 2024

 

PIK Interest 5.00%

 

$

10,680

 

 

$

240

 

 

$

 

 

 

Internet Consumer & Business Services

 

Senior Secured Debt

 

July 2024

 

Interest rate FIXED 8.25%

 

$

8,250

 

 

 

8,250

 

 

 

8,250

 

 

 

Internet Consumer & Business Services

 

Senior Secured Debt

 

July 2024

 

PIK Interest 5.00%

 

$

13,023

 

 

 

13,023

 

 

 

19

 

 

 

Internet Consumer & Business Services

 

Preferred Series BB Equity

 

 

 

 

 

 

1,000,000

 

 

 

 

 

 

 

 

 

Internet Consumer & Business Services

 

Common Stock

 

 

 

 

 

 

414,994,863

 

 

 

900

 

 

 

 

Total Tectura Corporation

 

 

 

 

$

22,413

 

 

$

8,269

 

Total Other Control Investments (0.63%)*

 

 

 

 

$

22,413

 

 

$

8,269

 

Total Control Investments (5.62%)*

 

 

 

 

$

84,039

 

 

$

73,504

 

Affiliate Investments

 

 

 

 

 

 

 

 

 

Black Crow AI, Inc.

 

Internet Consumer & Business Services

 

Preferred Series Seed

 

 

 

 

 

 

872,797

 

 

$

1,000

 

 

$

1,120

 

Pineapple Energy LLC

 

Sustainable and Renewable Technology

 

Senior Secured Debt

 

 December 2023

 

PIK Interest 10.00%

 

$

7,500

 

 

 

7,500

 

 

 

7,500

 

 

 

Sustainable and Renewable Technology

 

Senior Secured Debt

 

January 2022

 

Interest rate FIXED 10.00%

 

$

280

 

 

 

280

 

 

 

247

 

 

 

Sustainable and Renewable Technology

 

Common Stock

 

 

 

 

 

 

3,000,000

 

 

 

4,767

 

 

 

591

 

Total Pineapple Energy LLC

 

 

 

 

$

12,547

 

 

$

8,338

 

     Total Affiliate Investments (0.72%)*

 

 

$

13,547

 

 

$

9,458

 

     Total Control and Affiliate Investments (6.34%)*

 

 

$

97,586

 

 

$

82,962

 

* Value as a percent of net assets

(1)
Stock and warrants are generally non-income producing and restricted.
(2)
All of the Company’s control and affiliate investments are Level 3 investments valued using significant unobservable inputs.

 

 

85


 

SIGNATURES

Pursuant to the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

HERCULES CAPITAL, INC. (Registrant)

 

 

 

Dated: July 28, 2022

 

/S/ SCOTT BLUESTEIN

 

 

Scott Bluestein

 

 

President, Chief Executive Officer, and

Chief Investment Officer

 

 

Dated: July 28, 2022

 

/S/ SETH H. MEYER

 

 

Seth H. Meyer

 

 

Chief Financial Officer, and

Chief Accounting Officer

 

 

86