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 March 31, 2020

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

5.25% Notes due 2025

HCXZ

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 April 29, 2020, there were 110,615,986 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 March 31, 2020 and December 31, 2019 (unaudited)

  

3

 

 

 

Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (unaudited)

  

5

 

 

 

Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2020 and 2019 (unaudited)

  

6

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited)

  

7

 

 

 

Consolidated Schedule of Investments as of March 31, 2020 (unaudited)

  

9

 

 

 

Consolidated Schedule of Investments as of December 31, 2019 (unaudited)

  

20

 

 

 

Notes to Consolidated Financial Statements (unaudited)

  

30

Item 2.

 

 

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

  

64

Item 3.

 

 

Quantitative and Qualitative Disclosures About Market Risk

  

80

Item 4.

 

 

Controls and Procedures

  

81

 

PART II. OTHER INFORMATION

  

82

 

Item 1.

 

Legal Proceedings

  

82

Item 1A.

 

 

Risk Factors

 

82

Item 2.

 

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

84

Item 3.

 

Defaults Upon Senior Securities

  

84

Item 4.

 

 

Mine Safety Disclosures

  

84

Item 5.

 

 

Other Information

  

84

Item 6.

 

 

Exhibits and Financial Statement Schedules

  

85

 

SIGNATURES

  

88

 

 

 

 

2


 

PART I: FINANCIAL INFORMATION

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

 

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(unaudited)

(in thousands, except per share data)

 

 

 

March 31, 2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments (cost of $2,312,460 and $2,248,524, respectively)

 

$

2,238,479

 

 

$

2,232,972

 

Control investments (cost of $65,213 and $65,333, respectively)

 

 

51,775

 

 

 

59,746

 

Affiliate investments (cost of $88,584 and $88,175, respectively)

 

 

12,226

 

 

 

21,808

 

Total investments in securities, at value (cost of $2,466,256 and $2,402,032, respectively)

 

 

2,302,480

 

 

 

2,314,526

 

Cash and cash equivalents

 

 

34,282

 

 

 

64,393

 

Restricted cash

 

 

22,060

 

 

 

50,603

 

Interest receivable

 

 

19,137

 

 

 

20,207

 

Right of use asset (2)

 

 

11,078

 

 

 

11,659

 

Other assets

 

 

7,714

 

 

 

580

 

Total assets

 

$

2,396,751

 

 

$

2,461,968

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

22,450

 

 

$

30,306

 

Operating lease liability (2)

 

 

11,144

 

 

 

11,538

 

SBA Debentures, net (principal of $110,250 and $149,000, respectively) (1)

 

 

109,725

 

 

 

148,165

 

2022 Notes, net (principal of $150,000 and $150,000, respectively) (1)

 

 

148,645

 

 

 

148,514

 

July 2024 Notes, net (principal of $105,000 and $105,000, respectively) (1)

 

 

103,721

 

 

 

103,685

 

February 2025 Notes, net (principal of $50,000 and $0, respectively) (1)

 

 

49,442

 

 

 

 

2025 Notes, net (principal of $75,000 and $75,000, respectively) (1)

 

 

73,066

 

 

 

72,970

 

2033 Notes, net (principal of $40,000 and $40,000, respectively) (1)

 

 

38,528

 

 

 

38,501

 

2027 Asset-Backed Notes, net (principal of $200,000 and $200,000, respectively) (1)

 

 

197,377

 

 

 

197,312

 

2028 Asset-Backed Notes, net (principal of $250,000 and $250,000, respectively) (1)

 

 

247,444

 

 

 

247,395

 

2022 Convertible Notes, net (principal of $230,000 and $230,000, respectively) (1)

 

 

227,004

 

 

 

226,614

 

Credit Facilities

 

 

71,125

 

 

 

103,919

 

Total liabilities

 

$

1,299,671

 

 

$

1,328,919

 

 

 

 

 

 

 

 

 

 

Net assets consist of:

 

 

 

 

 

 

 

 

Common stock, par value

 

 

111

 

 

 

108

 

Capital in excess of par value

 

 

1,182,080

 

 

 

1,145,106

 

Total distributable earnings (loss)

 

 

(85,111

)

 

 

(12,165

)

Total net assets

 

$

1,097,080

 

 

$

1,133,049

 

Total liabilities and net assets

 

$

2,396,751

 

 

$

2,461,968

 

 

 

 

 

 

 

 

 

 

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

 

 

110,601

 

 

 

107,364

 

Net asset value per share

 

$

9.92

 

 

$

10.55

 

 

(1)

The Company’s SBA debentures, 2022 Notes, July 2024 Notes, February 2025 Notes, 2025 Notes, 2033 Notes, 2027 Asset-Backed Notes, 2028 Asset-Backed Notes, and 2022 Convertible Notes, as each term is defined herein, are presented net of the associated debt issuance costs for each instrument. See “Note 4 – Borrowings”.

(2)

See “Note 2 – Summary of Significant Accounting Policies” for a description of Right of use asset and Operating lease liability.

See notes to consolidated financial statements

3


 

The following table presents the assets and liabilities of our consolidated securitization trusts for the 2027 Asset-Backed Notes and the 2028 Asset-Backed Notes (see Note 4), which are variable interest entities, or VIEs. The assets of our securitization VIEs can only be used to settle obligations of our consolidated securitization VIEs, these liabilities are only the obligations of our consolidated securitization VIEs, and the creditors (or beneficial interest holders) do not have recourse to our general credit. These assets and liabilities are included in the Consolidated Statements of Assets and Liabilities above.

 

(Dollars in thousands)

 

March 31, 2020

 

 

December 31, 2019

 

Assets

 

 

 

 

 

 

 

 

Restricted Cash

 

$

22,060

 

 

$

50,603

 

2027 Asset-Backed Notes, investments in securities, at value (cost of $297,682 and $283,891, respectively)

 

 

295,981

 

 

 

283,658

 

2028 Asset-Backed Notes, investments in securities, at value (cost of $365,755 and $347,295, respectively)

 

 

363,561

 

 

 

347,929

 

Total assets

 

$

681,602

 

 

$

682,190

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

2027 Asset-Backed Notes, net (principal of $200,000 and $200,000, respectively) (1)

 

$

197,377

 

 

$

197,312

 

2028 Asset-Backed Notes, net (principal of $250,000 and $250,000, respectively) (1)

 

 

247,444

 

 

 

247,395

 

Total liabilities

 

$

444,821

 

 

$

444,707

 

 

(1)

The Company’s 2027 Asset-Backed Notes and the 2028 Asset-Backed Notes are presented net of the associated debt issuance costs. See “Note 4 – Borrowings”.

See notes to consolidated financial statements

4


 

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Investment income:

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

$

65,338

 

 

$

53,941

 

Control investments

 

 

646

 

 

 

1,024

 

Affiliate investments

 

 

220

 

 

 

508

 

Total interest income

 

 

66,204

 

 

 

55,473

 

Fee income

 

 

 

 

 

 

 

 

Commitment, facility and loan fee income

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

 

4,196

 

 

 

2,450

 

Control investments

 

 

5

 

 

 

4

 

Affiliate investments

 

 

 

 

 

88

 

Total commitment, facility and loan fee income

 

 

4,201

 

 

 

2,542

 

One-time fee income

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

 

3,214

 

 

 

780

 

Total one-time fee income

 

 

3,214

 

 

 

780

 

Total fee income

 

 

7,415

 

 

 

3,322

 

Total investment income

 

 

73,619

 

 

 

58,795

 

Operating expenses:

 

 

 

 

 

 

 

 

Interest

 

 

14,532

 

 

 

12,555

 

Loan fees

 

 

1,794

 

 

 

3,009

 

General and administrative

 

 

 

 

 

 

 

 

Legal expenses

 

 

899

 

 

 

663

 

Tax expenses

 

 

1,135

 

 

 

298

 

Other expenses

 

 

4,025

 

 

 

3,192

 

Total general and administrative

 

 

6,059

 

 

 

4,153

 

Employee compensation

 

 

 

 

 

 

 

 

Compensation and benefits

 

 

8,214

 

 

 

6,623

 

Stock-based compensation

 

 

2,440

 

 

 

3,422

 

Total employee compensation

 

 

10,654

 

 

 

10,045

 

Total operating expenses

 

 

33,039

 

 

 

29,762

 

Net investment income

 

 

40,580

 

 

 

29,033

 

Net realized gain (loss) on investments

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

 

6,967

 

 

 

4,555

 

Total net realized gain (loss) on investments

 

 

6,967

 

 

 

4,555

 

Net change in unrealized appreciation (depreciation) on investments

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

 

(58,430

)

 

 

32,091

 

Control investments

 

 

(7,851

)

 

 

(2,875

)

Affiliate investments

 

 

(9,989

)

 

 

(1,219

)

Total net unrealized appreciation (depreciation) on investments

 

 

(76,270

)

 

 

27,997

 

Total net realized and unrealized gain (loss)

 

 

(69,303

)

 

 

32,552

 

Net increase (decrease) in net assets resulting from operations

 

$

(28,723

)

 

$

61,585

 

 

 

 

 

 

 

 

 

 

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

 

Basic

 

$

0.37

 

 

$

0.30

 

Change in net assets resulting from operations per common share:

 

 

 

 

 

 

 

 

Basic

 

$

(0.27

)

 

$

0.64

 

Diluted

 

$

(0.27

)

 

$

0.64

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

108,955

 

 

 

96,218

 

Diluted

 

 

108,955

 

 

 

96,508

 

Distributions paid per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.40

 

 

$

0.31

 

 

See notes to consolidated financial statements

5


 

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(unaudited)

(dollars and shares in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

Distributable

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

excess

 

 

Earnings

 

 

Treasury

 

 

Net

 

For the Three Months Ended March 31, 2020

Shares

 

 

Par Value

 

 

of par value

 

 

(loss)

 

 

Stock

 

 

Assets

 

Balance at December 31, 2019

 

107,364

 

 

$

108

 

 

$

1,145,106

 

 

$

(12,165

)

 

$

 

 

$

1,133,049

 

Net increase (decrease) in net assets resulting from operations

 

 

 

 

 

 

 

 

 

 

(28,723

)

 

 

 

 

 

(28,723

)

Public offering, net of offering expenses

 

2,441

 

 

 

2

 

 

 

34,960

 

 

 

 

 

 

 

 

 

34,962

 

Issuance of common stock due to stock option exercises

 

29

 

 

 

 

 

 

362

 

 

 

 

 

 

 

 

 

362

 

Retired shares from net issuance

 

(24

)

 

 

 

 

 

(376

)

 

 

 

 

 

 

 

 

(376

)

Issuance of common stock under restricted stock plan

 

749

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Retired shares for restricted stock vesting

 

(17

)

 

 

 

 

 

(880

)

 

 

 

 

 

 

 

 

(880

)

Distributions reinvested in common stock

 

59

 

 

 

 

 

 

827

 

 

 

 

 

 

 

 

 

827

 

Distributions

 

 

 

 

 

 

 

 

 

 

(44,223

)

 

 

 

 

 

(44,223

)

Stock-based compensation (1)

 

 

 

 

 

 

 

2,082

 

 

 

 

 

 

 

 

 

2,082

 

Balance at March 31, 2020

 

110,601

 

 

$

111

 

 

$

1,182,080

 

 

$

(85,111

)

 

$

 

 

$

1,097,080

 

 

(1)

Stock-based compensation includes $21 of restricted stock and option expense related to director compensation for the three months ended March 31, 2020.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

Distributable

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

excess

 

 

Earnings

 

 

Treasury

 

 

Net

 

For the Three Months Ended March 31, 2019

 

Shares

 

 

Par Value

 

 

of par value

 

 

(loss)(2)

 

 

Stock

 

 

Assets

 

Balance at December 31, 2018

 

 

96,501

 

 

$

96

 

 

$

1,052,269

 

 

$

(92,859

)

 

$

(4,062

)

 

$

955,444

 

Net increase (decrease) in net assets resulting from operations

 

 

 

 

 

 

 

 

 

 

 

61,585

 

 

 

 

 

 

61,585

 

Public offering, net of offering expenses

 

 

 

 

 

 

 

 

(21

)

 

 

 

 

 

 

 

 

(21

)

Issuance of common stock due to stock option exercises

 

 

13

 

 

 

 

 

 

154

 

 

 

 

 

 

 

 

 

154

 

Retired shares from net issuance

 

 

(11

)

 

 

 

 

 

(159

)

 

 

 

 

 

 

 

 

(159

)

Issuance of common stock under restricted stock plan

 

 

48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement of common stock under repurchase plan

 

 

 

 

 

 

 

 

(4,062

)

 

 

 

 

 

4,062

 

 

 

 

Retired shares for restricted stock vesting

 

 

(55

)

 

 

 

 

 

(691

)

 

 

 

 

 

 

 

 

(691

)

Distributions reinvested in common stock

 

 

47

 

 

 

 

 

 

632

 

 

 

 

 

 

 

 

 

632

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

(29,900

)

 

 

 

 

 

(29,900

)

Stock-based compensation (1)

 

 

 

 

 

 

 

 

3,305

 

 

 

 

 

 

 

 

 

3,305

 

Balance at March 31, 2019

 

 

96,543

 

 

$

96

 

 

$

1,051,427

 

 

$

(61,174

)

 

$

 

 

$

990,349

 

 

(1)

Stock-based compensation includes $7 of restricted stock and option expense related to director compensation for the three months ended March 31, 2019.

(2)

Certain prior year numbers have been adjusted to conform with the SEC final rules on disclosure updates and simplification effective November 5, 2018. See Note 11.

 

See notes to consolidated financial statements

6


 

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(dollars in thousands)

 

 

For the Three Months Ended March 31,

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net increase (decrease) in net assets resulting from operations

$

(28,723

)

 

$

61,585

 

Adjustments to reconcile net increase in net assets resulting from

operations to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Purchase of investments

 

(233,612

)

 

 

(239,702

)

Principal and fee payments received on investments

 

167,511

 

 

 

65,845

 

Proceeds from the sale of investments

 

17,076

 

 

 

9,830

 

Net unrealized depreciation (appreciation) on investments

 

76,270

 

 

 

(27,997

)

Net realized loss (gain) on investments

 

(6,967

)

 

 

(4,555

)

Accretion of paid-in-kind principal

 

(2,130

)

 

 

(2,099

)

Accretion of loan discounts

 

(1,147

)

 

 

(737

)

Accretion of loan discount on convertible notes

 

168

 

 

 

168

 

Accretion of loan exit fees

 

(6,265

)

 

 

(5,199

)

Change in deferred loan origination revenue

 

1,319

 

 

 

3,754

 

Unearned fees related to unfunded commitments

 

(463

)

 

 

992

 

Amortization of debt fees and issuance costs

 

1,332

 

 

 

2,653

 

Depreciation

 

126

 

 

 

51

 

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

 

2,082

 

 

 

3,305

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Interest and fees receivable

 

1,070

 

 

 

(1,407

)

Prepaid expenses and other assets

 

(4,100

)

 

 

(9,272

)

Accounts payable

 

(16

)

 

 

(198

)

Accrued liabilities

 

(8,233

)

 

 

1,417

 

Net cash provided by (used in) operating activities

 

(24,702

)

 

 

(141,566

)

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of capital equipment

 

(29

)

 

 

(83

)

Net cash provided by (used in) investing activities

 

(29

)

 

 

(83

)

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Issuance of common stock, net

 

34,963

 

 

 

(43

)

Retirement of employee shares

 

(896

)

 

 

(676

)

Distributions paid

 

(43,396

)

 

 

(29,268

)

Issuance of 2028 Asset-Backed Notes

 

 

 

 

250,000

 

Issuance of February 2025 Notes

 

50,000

 

 

 

 

Repayments of 2024 Notes

 

 

 

 

(83,510

)

Repayments of Long-Term SBA Debentures

 

(38,750

)

 

 

 

Borrowings of credit facilities

 

242,026

 

 

 

110,834

 

Repayments of credit facilities

 

(274,819

)

 

 

(119,523

)

Cash paid for debt issuance costs

 

(618

)

 

 

(2,965

)

Fees paid for credit facilities and debentures

 

(2,433

)

 

 

(2,443

)

Net cash provided by (used in) financing activities

 

(33,923

)

 

 

122,406

 

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

 

(58,654

)

 

 

(19,243

)

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

 

114,996

 

 

 

45,857

 

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

$

56,342

 

 

$

26,614

 

 

 

 

 

 

 

 

 

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

 

Distributions reinvested

 

827

 

 

 

632

 

 

(1)

Stock-based compensation includes $21 and $7 of restricted stock and option expense related to director compensation for the three months ended March 31, 2020 and 2019, respectively.


See notes to consolidated financial statements

7


 

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 Three Months Ended March 31,

 

(Dollars in thousands)

2020

 

 

2019

 

Cash and cash equivalents

$

34,282

 

 

$

16,465

 

Restricted cash

 

22,060

 

 

 

10,149

 

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

$

56,342

 

 

$

26,614

 

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

 

See notes to consolidated financial statements

8


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2020

(unaudited)

(dollars in thousands)

 

 

 

Portfolio Company

Sub-Industry

Type of

Investment (1)

Maturity

Date

Interest Rate and Floor (2)

Principal

Amount

 

Cost (3)

 

Value (4)

 

Debt Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

Communications & Networking

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Cytracom Holdings LLC (18)

Communications & Networking

Senior Secured

February 2025

Interest rate 3-month LIBOR + 9.25% or Floor rate of 10.25%

$

7,000

 

$

6,793

 

$

6,793

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

6,793

 

 

6,793

 

Subtotal: Communications & Networking (0.62%)*

 

 

 

 

6,793

 

 

6,793

 

Diversified Financial Services

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Gibraltar Business Capital, LLC (7)

Diversified Financial Services

Unsecured

March 2023

Interest rate FIXED 14.50%

$

15,000

 

 

14,794

 

 

14,794

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

14,794

 

 

14,794

 

Subtotal: Diversified Financial Services (1.35%)*

 

 

 

 

 

 

14,794

 

 

14,794

 

Drug Delivery

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Antares Pharma Inc. (10)(11)(15)(17)

Drug Delivery

Senior Secured

July 2022

Interest rate PRIME + 4.50% or Floor rate of 8.50%, 4.14% Exit Fee

$

40,000

 

 

40,741

 

 

39,890

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

40,741

 

 

39,890

 

Subtotal: Drug Delivery (3.64%)*

 

 

 

 

40,741

 

 

39,890

 

Drug Discovery & Development

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Axovant Gene Therapies Ltd. (p.k.a. Axovant Sciences Ltd.) (5)(10)(11)

Drug Discovery & Development

Senior Secured

March 2021

Interest rate PRIME + 6.80% or Floor rate of 11.55%

$

15,731

 

 

15,640

 

 

15,640

 

Metuchen Pharmaceuticals LLC (14)

Drug Discovery & Development

Senior Secured

October 2020

Interest rate PRIME + 7.25% or Floor rate of 10.75%, PIK Interest 1.35%, 2.25% Exit Fee

$

11,192

 

 

12,200

 

 

12,065

 

Stealth Bio Therapeutics Corp. (5)(10)(11)

Drug Discovery & Development

Senior Secured

January 2021

Interest rate PRIME + 5.50% or Floor rate of 9.50%, 6.68% Exit Fee

$

14,797

 

 

15,928

 

 

15,928

 

Subtotal: Under 1 Year Maturity

 

 

 

 

43,768

 

 

43,633

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Acacia Pharma Inc. (5)(10)(11)

Drug Discovery & Development

Senior Secured

January 2022

Interest rate PRIME + 4.50% or Floor rate of 9.25%, 3.95% Exit Fee

$

8,902

 

 

9,077

 

 

9,011

 

Aldeyra Therapeutics, Inc. (11)

Drug Discovery & Development

Senior Secured

October 2023

Interest rate PRIME + 3.10% or Floor rate of 9.10%, 6.95% Exit Fee

$

15,000

 

 

15,059

 

 

15,027

 

Aveo Pharmaceuticals, Inc. (11)

Drug Discovery & Development

Senior Secured

July 2021

Interest rate PRIME + 4.70% or Floor rate of 9.45%, 5.40% Exit Fee

$

6,889

 

 

7,250

 

 

7,233

 

 

Drug Discovery & Development

Senior Secured

July 2021

Interest rate PRIME + 4.70% or Floor rate of 9.45%, 3.00% Exit Fee

$

6,889

 

 

7,141

 

 

7,185

 

Total Aveo Pharmaceuticals, Inc.

 

 

 

 

$

13,778

 

 

14,391

 

 

14,418

 

BridgeBio Pharma LLC (12)(13)(16)

Drug Discovery & Development

Senior Secured

January 2023

Interest rate PRIME + 3.85% or Floor rate of 8.85%, 6.35% Exit Fee

$

35,000

 

 

35,835

 

 

35,696

 

 

Drug Discovery & Development

Senior Secured

January 2023

Interest rate PRIME + 2.85% or Floor rate of 8.60%, 5.75% Exit Fee

$

20,000

 

 

20,351

 

 

20,461

 

 

Drug Discovery & Development

Senior Secured

January 2023

Interest rate PRIME + 3.10% or Floor rate of 9.10%, 5.75% Exit Fee

$

20,000

 

 

20,168

 

 

20,272

 

Total BridgeBio Pharma LLC

 

 

 

 

$

75,000

 

 

76,354

 

 

76,429

 

Chemocentryx, Inc. (10)(15)(17)

Drug Discovery & Development

Senior Secured

December 2022

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

$

20,000

 

 

20,401

 

 

20,567

 

 

Drug Discovery & Development

Senior Secured

February 2024

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

$

5,000

 

 

4,956

 

 

4,956

 

Total Chemocentryx, Inc.

 

 

 

 

$

25,000

 

 

25,357

 

 

25,523

 

Codiak Biosciences, Inc. (11)(17)

Drug Discovery & Development

Senior Secured

October 2024

Interest rate PRIME + 3.75% or Floor rate of 9.00%, 5.50% Exit Fee

$

10,000

 

 

9,989

 

 

9,970

 

Constellation Pharmaceuticals, Inc. (12)

Drug Discovery & Development

Senior Secured

April 2023

Interest rate PRIME + 2.55% or Floor rate of 8.55%, 6.35% Exit Fee

$

30,000

 

 

30,308

 

 

30,738

 

Dermavant Sciences Ltd. (5)(10)(13)

Drug Discovery & Development

Senior Secured

June 2022

Interest rate PRIME + 4.45% or Floor rate of 9.95%, 6.95% Exit Fee

$

20,000

 

 

20,245

 

 

20,295

 

Eidos Therapeutics, Inc. (10)(13)(17)

Drug Discovery & Development

Senior Secured

October 2023

Interest rate PRIME + 3.25% or Floor rate of 8.50%, 5.95% Exit Fee

$

8,750

 

 

8,771

 

 

8,771

 

Genocea Biosciences, Inc. (11)

Drug Discovery & Development

Senior Secured

May 2021

Interest rate PRIME + 3.00% or Floor rate of 8.00%, 13.43% Exit Fee

$

12,922

 

 

13,595

 

 

13,595

 

Kaleido Biosciences, Inc. (13)

Drug Discovery & Development

Senior Secured

January 2024

Interest rate PRIME + 4.20% or Floor rate of 8.95%, 7.55% Exit Fee

$

22,500

 

 

22,517

 

 

22,517

 

Mesoblast (5)(10)(11)

Drug Discovery & Development

Senior Secured

March 2022

Interest rate PRIME + 4.95% or Floor rate of 9.70%, 6.95% Exit Fee

$

50,000

 

 

51,902

 

 

51,972

 

Motif BioSciences Inc. (5)(8)(10)

Drug Discovery & Development

Senior Secured

September 2021

Interest rate PRIME + 5.50% or Floor rate of 10.00%, 2.87% Exit Fee

$

6,738

 

 

6,732

 

 

 

Nabriva Therapeutics (5)(10)

Drug Discovery & Development

Senior Secured

June 2023

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

$

5,000

 

 

5,071

 

 

5,098

 

See notes to consolidated financial statements

9


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2020

(unaudited)

(dollars in thousands)

 

 

Portfolio Company

Sub-Industry

Type of

Investment (1)

Maturity

Date

Interest Rate and Floor (2)

Principal

Amount

 

Cost (3)

 

Value (4)

 

Paratek Pharmaceuticals, Inc. (11)(15)(16)

Drug Discovery & Development

Senior Secured

September 2021

Interest rate PRIME + 2.75% or Floor rate of 8.50%, 4.13% Exit Fee

$

60,000

 

$

62,075

 

$

62,211

 

 

Drug Discovery & Development

Senior Secured

August 2022

Interest rate PRIME + 2.10% or Floor rate of 7.85%, 6.95% Exit Fee

$

10,000

 

 

10,298

 

 

10,338

 

Total Paratek Pharmaceuticals, Inc.

 

 

 

$

70,000

 

 

72,373

 

 

72,549

 

Replimune Group, Inc. (5)(10)(11)(17)

Drug Discovery & Development

Senior Secured

August 2023

Interest rate PRIME + 2.75% or Floor rate of 8.75%, 4.95% Exit Fee

$

10,000

 

 

10,013

 

 

10,044

 

Seres Therapeutics, Inc. (11)

Drug Discovery & Development

Senior Secured

November 2023

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

$

25,000

 

 

24,907

 

 

24,907

 

Syndax Pharmaceutics Inc. (13)

Drug Discovery & Development

Senior Secured

September 2023

Interest rate PRIME + 5.10% or Floor rate of 9.85%, 4.99% Exit Fee

$

20,000

 

 

19,929

 

 

19,929

 

TG Therapeutics, Inc. (10)(13)

Drug Discovery & Development

Senior Secured

March 2022

Interest rate PRIME + 4.75% or Floor rate of 10.25%, 3.25% Exit Fee

$

30,000

 

 

29,890

 

 

30,029

 

Tricida, Inc. (11)(15)(16)(17)

Drug Discovery & Development

Senior Secured

April 2023

Interest rate PRIME + 2.35% or Floor rate of 8.35%, 11.92% Exit Fee

$

60,000

 

 

61,090

 

 

61,689

 

uniQure B.V. (5)(10)(11)

Drug Discovery & Development

Senior Secured

June 2023

Interest rate PRIME + 3.35% or Floor rate of 8.85%, 7.72% Exit Fee

$

35,000

 

 

36,219

 

 

36,526

 

Verastem, Inc. (11)

Drug Discovery & Development

Senior Secured

December 2022

Interest rate PRIME + 4.25% or Floor rate of 9.75%, 5.25% Exit Fee

$

5,000

 

 

5,052

 

 

5,090

 

 

Drug Discovery & Development

Senior Secured

December 2022

Interest rate PRIME + 4.25% or Floor rate of 9.75%, 5.25% Exit Fee

$

5,000

 

 

5,070

 

 

5,109

 

 

Drug Discovery & Development

Senior Secured

December 2022

Interest rate PRIME + 4.25% or Floor rate of 9.75%, 5.25% Exit Fee

$

5,000

 

 

5,093

 

 

5,141

 

 

Drug Discovery & Development

Senior Secured

December 2022

Interest rate PRIME + 4.25% or Floor rate of 9.75%, 5.25% Exit Fee

$

10,000

 

 

10,114

 

 

10,190

 

 

Drug Discovery & Development

Senior Secured

December 2022

Interest rate PRIME + 4.25% or Floor rate of 9.75%, 5.25% Exit Fee

$

10,000

 

 

10,086

 

 

10,162

 

Total Verastem, Inc.

 

 

 

 

$

35,000

 

 

35,415

 

 

35,692

 

X4 Pharmaceuticals, Inc. (11)

Drug Discovery & Development

Senior Secured

July 2023

Interest rate PRIME + 3.75% or Floor rate of 8.75%, 7.18% Exit Fee

$

25,000

 

 

25,181

 

 

25,175

 

Yumanity Therapeutics, Inc. (11)

Drug Discovery & Development

Senior Secured

January 2024

Interest rate PRIME + 4.00% or Floor rate of 8.75%, 5.25% Exit Fee

$

15,000

 

 

14,811

 

 

14,660

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

639,196

 

 

634,564

 

Subtotal: Drug Discovery & Development (61.82%)*

 

 

 

 

 

 

682,964

 

 

678,197

 

Electronics & Computer Hardware

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Glo AB (5)(8)(10)(13)(14)

Electronics & Computer Hardware

Senior Secured

February 2021

Interest rate PRIME + 6.20% or Floor rate of 10.45%, PIK Interest 1.75%, 5.03% Exit Fee

$

6,635

 

 

7,149

 

 

2,783

 

Subtotal: Under 1 Year Maturity

 

 

 

 

7,149

 

 

2,783

 

Subtotal: Electronics & Computer Hardware (0.25%)*

 

 

 

 

 

 

7,149

 

 

2,783

 

Healthcare Services, Other

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Oak Street Health (11)(16)

Healthcare Services, Other

Senior Secured

December 2022

Interest rate PRIME + 5.00% or Floor rate of 9.75%, 5.95% Exit Fee

$

80,000

 

 

81,642

 

 

82,039

 

The CM Group LLC (17)

Healthcare Services, Other

Senior Secured

June 2024

Interest rate 1-month LIBOR + 8.35% or Floor rate of 9.35%

$

9,429

 

 

9,275

 

 

8,852

 

Velocity Clinical Research, Inc. (17)(18)

Healthcare Services, Other

Senior Secured

November 2024

Interest rate 3-month LIBOR + 9.08% or Floor rate of 10.08%

$

7,481

 

 

7,220

 

 

7,220

 

 

Healthcare Services, Other

Senior Secured

November 2024

Interest rate 3-month LIBOR + 9.08% or Floor rate of 10.08%

$

1,985

 

 

1,912

 

 

1,912

 

 

Healthcare Services, Other

Senior Secured

November 2024

Interest rate 3-month LIBOR + 9.08% or Floor rate of 10.08%

$

453

 

 

426

 

 

426

 

Total Velocity Clinical Research, Inc.

 

 

 

$

9,919

 

 

9,558

 

 

9,558

 

Subtotal: 1-5 Years Maturity

 

 

 

 

100,475

 

 

100,449

 

Subtotal: Healthcare Services, Other (9.16%)*

 

 

 

 

 

 

100,475

 

 

100,449

 

Information Services

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Planet Labs, Inc. (11)

Information Services

Senior Secured

June 2022

Interest rate PRIME + 5.50% or Floor rate of 11.00%, 3.00% Exit Fee

$

20,000

 

 

19,619

 

 

19,571

 

Sapphire Digital, Inc. (p.k.a. MDX Medical, Inc.) (14)(15)(19)

Information Services

Senior Secured

June 2021

Interest rate PRIME + 2.75% or Floor rate of 9.50%, PIK Interest 1.70%, 2.80% Exit Fee

$

15,621

 

 

15,799

 

 

15,773

 

Yipit, LLC (17)(18)

Information Services

Senior Secured

May 2024

Interest rate 3-month LIBOR + 7.99% or Floor rate of 7.99%

$

10,625

 

 

10,426

 

 

10,084

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

45,844

 

 

45,428

 

Subtotal: Information Services (4.14%)*

 

 

 

 

 

 

 

45,844

 

 

45,428

 

Internet Consumer & Business Services

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements

10


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2020

(unaudited)

(dollars in thousands)

 

 

Portfolio Company

Sub-Industry

Type of

Investment (1)

Maturity

Date

Interest Rate and Floor (2)

Principal

Amount

 

Cost (3)

 

Value (4)

 

Greenphire, Inc.

Internet Consumer & Business Services

Senior Secured

January 2021

Interest rate 3-month LIBOR + 8.00% or Floor rate of 9.00%

$

1,612

 

$

1,612

 

$

1,612

 

 

Internet Consumer & Business Services

Senior Secured

January 2021

Interest rate PRIME + 3.75% or Floor rate of 8.75%

$

2,000

 

 

2,000

 

 

2,000

 

Total Greenphire, Inc.

 

 

 

 

$

3,612

 

 

3,612

 

 

3,612

 

Snagajob.com, Inc. (13)(14)

Internet Consumer & Business Services

Senior Secured

August 2020

Interest rate PRIME + 5.15% or Floor rate of 9.15%, PIK Interest 1.95%, 2.55% Exit Fee

$

42,886

 

 

43,702

 

 

43,691

 

 

Internet Consumer & Business Services

Senior Secured

August 2020

Interest rate PRIME + 5.65% or Floor rate of 10.65%, PIK Interest 1.95%, 2.55% Exit Fee

$

5,159

 

 

5,219

 

 

5,209

 

Total Snagajob.com, Inc.

 

 

 

 

$

48,045

 

 

48,921

 

 

48,900

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

52,533

 

 

52,512

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

AppDirect, Inc. (11)(19)

Internet Consumer & Business Services

Senior Secured

January 2022

Interest rate PRIME + 5.70% or Floor rate of 9.95%, 3.45% Exit Fee

$

20,000

 

 

20,350

 

 

20,070

 

Arctic Wolf Networks, Inc. (13)(19)

Internet Consumer & Business Services

Senior Secured

April 2023

Interest rate 3-month LIBOR + 7.75% or Floor rate of 10.10%, 7.55% Exit Fee

$

30,000

 

 

30,415

 

 

30,182

 

Cloudpay, Inc. (5)(10)(11)

Internet Consumer & Business Services

Senior Secured

April 2022

Interest rate PRIME + 4.05% or Floor rate of 8.55%, 6.95% Exit Fee

$

15,000

 

 

15,392

 

 

15,228

 

Contentful, Inc. (5)(10)(11)(14)(17)

Internet Consumer & Business Services

Senior Secured

July 2022

Interest rate PRIME + 2.95% or Floor rate of 7.95%, PIK Interest 1.25%, 3.55% Exit Fee

$

3,806

 

 

3,820

 

 

3,783

 

ePayPolicy Holdings, LLC (11)(17)

Internet Consumer & Business Services

Senior Secured

December 2024

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

$

8,000

 

 

7,768

 

 

7,475

 

EverFi, Inc. (11)(14)(16)

Internet Consumer & Business Services

Senior Secured

May 2022

Interest rate PRIME + 3.90% or Floor rate of 9.15%, PIK Interest 2.30%

$

82,628

 

 

82,354

 

 

81,628

 

Houzz, Inc. (13)(14)

Internet Consumer & Business Services

Senior Secured

November 2022

Interest rate PRIME + 3.20% or Floor rate of 8.45%, PIK Interest 2.50%, 4.50% Exit Fee

$

50,432

 

 

50,239

 

 

49,782

 

Intent (p.k.a. Intent Media, Inc.) (12)

Internet Consumer & Business Services

Senior Secured

September 2021

Interest rate PRIME + 5.13% or Floor rate of 10.13%, 2.00% Exit Fee

$

15,200

 

 

15,165

 

 

12,971

 

Nextroll, Inc. (14)(19)

Internet Consumer & Business Services

Senior Secured

June 2022

Interest rate PRIME + 3.85% or Floor rate of 9.35%, PIK Interest 2.95%, 3.50% Exit Fee

$

20,455

 

 

20,505

 

 

20,445

 

Patron Technology (13)(18)

Internet Consumer & Business Services

Senior Secured

June 2024

Interest rate 3-month LIBOR + 8.30% or Floor rate of 9.30%

$

32,500

 

 

31,655

 

 

29,993

 

 

Internet Consumer & Business Services

Senior Secured

June 2024

Interest rate 3-month LIBOR + 8.30% or Floor rate of 9.30%

$

2,500

 

 

2,500

 

 

2,414

 

 

Internet Consumer & Business Services

Senior Secured

June 2024

Interest rate 3-month LIBOR + 8.30% or Floor rate of 9.30%

$

6,750

 

 

6,560

 

 

6,383

 

Total Patron Technology

 

 

 

 

$

41,750

 

 

40,715

 

 

38,790

 

Postmates, Inc. (19)

Internet Consumer & Business Services

Senior Secured

September 2022

Interest rate PRIME + 3.85% or Floor rate of 8.85%, 8.05% Exit Fee

$

20,000

 

 

20,464

 

 

20,174

 

SeatGeek, Inc. (14)(16)

Internet Consumer & Business Services

Senior Secured

June 2023

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

$

60,076

 

 

58,765

 

 

57,144

 

Skyword, Inc. (14)

Internet Consumer & Business Services

Senior Secured

September 2023

Interest rate PRIME + 3.88% or Floor rate of 9.38%, PIK Interest 1.25%, 4.00% Exit Fee

$

12,080

 

 

11,985

 

 

11,823

 

Tectura Corporation (7)(8)(9)(14)

Internet Consumer & Business Services

Senior Secured

June 2021

PIK Interest 5.00%

$

10,680

 

 

240

 

 

 

 

Internet Consumer & Business Services

Senior Secured

June 2021

Interest rate FIXED 8.25%

$

8,250

 

 

8,250

 

 

8,250

 

 

Internet Consumer & Business Services

Senior Secured

June 2021

PIK Interest 5.00%

$

13,023

 

 

13,023

 

 

281

 

Total Tectura Corporation

 

 

 

 

$

31,953

 

 

21,513

 

 

8,531

 

Varsity Tutors LLC (13)(14)

Internet Consumer & Business Services

Senior Secured

August 2023

Interest rate PRIME + 5.25% or Floor rate of 10.75%, PIK Interest 0.55%, 3.00% Exit Fee

$

39,101

 

 

38,927

 

 

38,901

 

Wheels Up Partners LLC (11)

Internet Consumer & Business Services

Senior Secured

July 2022

Interest rate 3-month LIBOR + 8.55% or Floor rate of 9.55%

$

16,310

 

 

16,221

 

 

15,955

 

Xometry, Inc. (13)

Internet Consumer & Business Services

Senior Secured

May 2022

Interest rate PRIME + 3.95% or Floor rate of 8.70%, 7.09% Exit Fee

$

11,000

 

 

11,402

 

 

11,380

 

 

Internet Consumer & Business Services

Senior Secured

May 2022

Interest rate PRIME + 3.95% or Floor rate of 8.70%, 3.95% Exit Fee

$

4,000

 

 

4,011

 

 

4,011

 

Total Xometry, Inc.

 

 

 

 

$

15,000

 

 

15,413

 

 

15,391

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

470,011

 

 

448,273

 

Subtotal: Internet Consumer & Business Services (45.65%)*

 

 

 

 

 

 

522,544

 

 

500,785

 

Media/Content/Info

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements

11


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2020

(unaudited)

(dollars in thousands)

 

 

Portfolio Company

Sub-Industry

Type of

Investment (1)

Maturity

Date

Interest Rate and Floor (2)

Principal

Amount

 

Cost (3)

 

Value (4)

 

Bustle (14)(15)

Media/Content/Info

Senior Secured

June 2023

Interest rate PRIME + 4.35% or Floor rate of 9.35%, PIK Interest 1.95%, 4.34% Exit Fee

$

20,734

 

$

20,801

 

$

20,636

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

20,801

 

 

20,636

 

Subtotal: Media/Content/Info (1.88%)*

 

 

 

 

 

 

 

20,801

 

 

20,636

 

Medical Devices & Equipment

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Sebacia, Inc. (11)(15)

Medical Devices & Equipment

Senior Secured

January 2021

Interest rate PRIME + 4.35% or Floor rate of 8.85%, 6.05% Exit Fee

$

11,000

 

 

11,558

 

 

11,558

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

11,558

 

 

11,558

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Flowonix Medical Incorporated (11)

Medical Devices & Equipment

Senior Secured

October 2021

Interest rate PRIME + 4.00% or Floor rate of 9.00%, 7.95% Exit Fee

$

7,561

 

 

8,248

 

 

8,205

 

Intuity Medical, Inc. (11)(15)

Medical Devices & Equipment

Senior Secured

June 2021

Interest rate PRIME + 5.00% or Floor rate of 9.25%, 6.95% Exit Fee

$

11,970

 

 

12,837

 

 

12,733

 

Optiscan Biomedical, Corp. (6)(9)

Medical Devices & Equipment

Convertible Debt

July 2021

Interest rate FIXED 8.00%

$

408

 

 

408

 

 

407

 

Quanterix Corporation (11)

Medical Devices & Equipment

Senior Secured

October 2021

Interest rate PRIME + 2.75% or Floor rate of 8.00%, 0.96% Exit Fee

$

7,688

 

 

7,626

 

 

7,572

 

Rapid Micro Biosystems, Inc. (11)(15)

Medical Devices & Equipment

Senior Secured

April 2022

Interest rate PRIME + 5.15% or Floor rate of 9.65%, 7.25% Exit Fee

$

18,000

 

 

18,695

 

 

18,695

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

47,814

 

 

47,612

 

Subtotal: Medical Devices & Equipment (5.39%)*

 

 

 

 

 

 

59,372

 

 

59,170

 

Semiconductors

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Achronix Semiconductor Corporation

Semiconductors

Senior Secured

December 2020

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

$

25,000

 

 

25,000

 

 

25,000

 

Subtotal: Under 1 Year Maturity

 

 

 

 

25,000

 

 

25,000

 

Subtotal: Semiconductors (2.28%)*

 

 

 

 

 

 

 

25,000

 

 

25,000

 

Software

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Lightbend, Inc. (14)(15)

Software

Senior Secured

June 2020

Interest rate PRIME + 4.25% or Floor rate of 9.25%, PIK Interest 2.00%, 12.95% Exit Fee

$

2,037

 

 

2,076

 

 

2,076

 

Pollen, Inc. (15)

Software

Senior Secured

October 2020

Interest rate PRIME + 4.25% or Floor rate of 8.50%, 5.95% Exit Fee

$

7,000

 

 

7,364

 

 

7,364

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

9,440

 

 

9,440

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

3GTMS, LLC. (18)

Software

Senior Secured

February 2025

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

$

10,000

 

 

9,727

 

 

9,727

 

Abrigo (18)

Software

Senior Secured

March 2023

Interest rate 3-month LIBOR + 7.88% or Floor rate of 8.88%

$

39,203

 

 

38,597

 

 

37,833

 

 

Software

Senior Secured

March 2023

Interest rate 3-month LIBOR + 5.92% or Floor rate of 6.92%

$

2,356

 

 

2,303

 

 

2,303

 

Total Abrigo

 

 

 

 

$

41,559

 

 

40,900

 

 

40,136

 

Businessolver.com, Inc. (11)(16)

Software

Senior Secured

May 2023

Interest rate 3-month LIBOR + 7.50% or Floor rate of 8.50%

$

58,650

 

 

57,833

 

 

56,237

 

 

Software

Senior Secured

May 2023

Interest rate 1-month LIBOR + 7.50% or Floor rate of 8.50%

$

7,650

 

 

7,499

 

 

7,499

 

Total Businessolver.com, Inc.

 

 

 

 

$

66,300

 

 

65,332

 

 

63,736

 

Clarabridge, Inc. (12)(13)(14)(17)

Software

Senior Secured

April 2022

Interest rate PRIME + 4.80% or Floor rate of 8.55%, PIK Interest 2.25%

$

48,543

 

 

48,224

 

 

47,192

 

Cloud 9 Software (13)

Software

Senior Secured

April 2024

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

$

10,000

 

 

9,841

 

 

9,634

 

Cloudian, Inc. (11)

Software

Senior Secured

November 2022

Interest rate PRIME + 3.25% or Floor rate of 8.25%, 9.75% Exit Fee

$

15,000

 

 

15,462

 

 

15,233

 

Couchbase, Inc. (11)(15)(19)

Software

Senior Secured

May 2023

Interest rate PRIME + 5.25% or Floor rate of 10.75%, 3.75% Exit Fee

$

50,000

 

 

49,724

 

 

49,531

 

Dashlane, Inc. (11)(14)(17)(19)

Software

Senior Secured

April 2022

Interest rate PRIME + 4.05% or Floor rate of 8.55%, PIK Interest 1.10%, 8.50% Exit Fee

$

10,208

 

 

10,541

 

 

10,385

 

 

Software

Senior Secured

March 2023

Interest rate PRIME + 4.05% or Floor rate of 8.55%, PIK Interest 1.10%, 4.95% Exit Fee

$

10,109

 

 

9,999

 

 

9,770

 

Total Dashlane, Inc.

 

 

 

 

$

20,317

 

 

20,540

 

 

20,155

 

Delphix Corp. (13)(16)(19)

Software

Senior Secured

February 2023

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

$

60,000

 

 

58,727

 

 

57,872

 

Envisage Technologies, LLC (18)

Software

Senior Secured

March 2025

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

$

9,750

 

 

9,493

 

 

9,493

 

Evernote Corporation (11)(14)(15)(19)

Software

Senior Secured

July 2021

Interest rate PRIME + 5.45% or Floor rate of 8.95%

$

5,549

 

 

5,506

 

 

5,454

 

See notes to consolidated financial statements

12


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2020

(unaudited)

(dollars in thousands)

 

 

Portfolio Company

Sub-Industry

Type of

Investment (1)

Maturity

Date

Interest Rate and Floor (2)

Principal

Amount

 

Cost (3)

 

Value (4)

 

 

Software

Senior Secured

July 2021

Interest rate PRIME + 6.00% or Floor rate of 9.50%, PIK Interest 1.25%

$

4,139

 

$

4,084

 

$

4,045

 

 

Software

Senior Secured

July 2022

Interest rate PRIME + 6.00% or Floor rate of 9.50%, PIK Interest 1.25%

$

5,094

 

 

5,038

 

 

4,964

 

Total Evernote Corporation

 

 

 

 

$

14,782

 

 

14,628

 

 

14,463

 

Ikon Science Limited (5)(10)(11)(17)(18)

Software

Senior Secured

October 2024

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

$

7,000

 

 

6,701

 

 

6,701

 

Insurance Technologies Corporation (11)(18)

Software

Senior Secured

January 2025

Interest rate 3-month LIBOR + 8.27% or Floor rate of 9.27%

$

17,000

 

 

16,538

 

 

16,288

 

Jolt Software, Inc. (14)

Software

Senior Secured

October 2022

Interest rate PRIME + 3.00% or Floor rate of 8.50%, PIK Interest 1.75%, 4.50% Exit Fee

$

7,539

 

 

7,531

 

 

7,503

 

Kazoo, Inc. (p.k.a. YouEarnedIt, Inc.) (11)(18)

Software

Senior Secured

July 2023

Interest rate 1-month LIBOR + 8.65% or Floor rate of 9.65%

$

8,763

 

 

8,580

 

 

8,256

 

Khoros (p.k.a Lithium Technologies) (11)

Software

Senior Secured

October 2022

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

$

12,000

 

 

11,848

 

 

11,442

 

 

Software

Senior Secured

October 2022

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

$

43,000

 

 

42,294

 

 

40,719

 

Total Khoros (p.k.a Lithium Technologies)

 

 

 

$

55,000

 

 

54,142

 

 

52,161

 

Lastline, Inc. (19)

Software

Senior Secured

July 2022

Interest rate PRIME + 5.45% or Floor rate of 10.95%

$

6,000

 

 

5,852

 

 

5,816

 

Lightbend, Inc. (14)(15)

Software

Senior Secured

February 2022

Interest rate PRIME + 4.25% or Floor rate of 9.25%, PIK Interest 2.00%, 3.00% Exit Fee

$

16,593

 

 

16,579

 

 

16,487

 

Mobile Solutions Services (18)

Software

Senior Secured

October 2024

Interest rate 6-month LIBOR + 8.80% or Floor rate of 9.80%

$

5,500

 

 

5,336

 

 

5,336

 

 

Software

Senior Secured

October 2024

Interest rate 3-month LIBOR + 8.80% or Floor rate of 9.80%

$

367

 

 

367

 

 

367

 

Total Mobile Solutions Services

 

 

 

$

5,867

 

 

5,703

 

 

5,703

 

Nuvolo Technologies Corporation (19)

Software

Senior Secured

October 2022

Interest rate PRIME + 6.25% or Floor rate of 11.75%

$

15,000

 

 

14,800

 

 

14,824

 

OrthoFi, Inc. (13)(18)

Software

Senior Secured

April 2024

Interest rate 3-month LIBOR + 8.28% or Floor rate of 9.28%

$

17,853

 

 

17,438

 

 

16,720

 

 

Software

Senior Secured

April 2024

Interest rate 6-month LIBOR + 8.28% or Floor rate of 9.28%

$

1,667

 

 

1,667

 

 

1,667

 

Total OrthoFi, Inc.

 

 

 

 

$

19,520

 

 

19,105

 

 

18,387

 

Regent Education (14)

Software

Senior Secured

January 2022

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

$

3,171

 

 

3,239

 

 

2,092

 

Salsa Labs, Inc. (11)

Software

Senior Secured

April 2023

Interest rate 3-month LIBOR + 8.15% or Floor rate of 9.15%

$

6,000

 

 

5,920

 

 

5,829

 

 

Software

Senior Secured

April 2023

Interest rate 3-month LIBOR + 8.15% or Floor rate of 9.15%

$

500

 

 

500

 

 

494

 

Total Salsa Labs, Inc.

 

 

 

 

$

6,500

 

 

6,420

 

 

6,323

 

Tact.ai Technologies, Inc. (14)

Software

Senior Secured

February 2023

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

$

5,004

 

 

4,750

 

 

4,750

 

ThreatConnect, Inc. (13)(18)

Software

Senior Secured

May 2024

Interest rate 3-month LIBOR + 8.26% or Floor rate of 9.26%

$

4,500

 

 

4,371

 

 

4,348

 

 

Software

Senior Secured

May 2024

Interest rate 3-month LIBOR + 8.26% or Floor rate of 9.26%

$

1,800

 

 

1,800

 

 

1,800

 

Total ThreatConnect, Inc.

 

 

 

$

6,300

 

 

6,171

 

 

6,148

 

Vela Trading Technologies (11)(18)

Software

Senior Secured

July 2022

Interest rate 3-month LIBOR + 9.50% or Floor rate of 10.50%

$

18,845

 

 

18,506

 

 

18,456

 

ZeroFox, Inc.

Software

Senior Secured

January 2023

Interest rate PRIME + 4.75% or Floor rate of 10.25%, 3.00% Exit Fee

$

15,000

 

 

14,977

 

 

14,861

 

ZocDoc (11)(19)

Software

Senior Secured

August 2021

Interest rate PRIME + 6.20% or Floor rate of 10.95%, 2.00% Exit Fee

$

30,000

 

 

30,306

 

 

30,354

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

582,498

 

 

572,282

 

Greater than 5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

Campaign Monitor Limited (11)(17)(19)

Software

Senior Secured

November 2025

Interest rate 1-month LIBOR + 8.50% or Floor rate of 9.50%

$

29,333

 

 

28,697

 

 

27,385

 

 

Software

Senior Secured

November 2025

Interest rate 1-month LIBOR + 8.50% or Floor rate of 9.50%

$

688

 

 

672

 

 

662

 

Total Campaign Monitor Limited

 

$

30,021

 

 

29,369

 

 

28,047

 

Imperva, Inc. (19)

Software

Senior Secured

January 2027

Interest rate 1-month LIBOR + 7.75% or Floor rate of 8.75%

$

20,000

 

 

19,811

 

 

19,447

 

Subtotal: Greater than 5 Years Maturity

 

 

 

 

 

 

 

49,180

 

 

47,494

 

Subtotal: Software (57.35%)*

 

 

 

 

 

 

 

641,118

 

 

629,216

 

Sustainable and Renewable Technology

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements

13


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2020

(unaudited)

(dollars in thousands)

 

 

Portfolio Company

Sub-Industry

Type of

Investment (1)

Maturity

Date

Interest Rate and Floor (2)

Principal

Amount

 

Cost (3)

 

Value (4)

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) (6)(8)(14)

Sustainable and Renewable Technology

Senior Secured

December 2020

Interest rate FIXED 6.48%, PIK Interest 6.48%, 6.67% Exit Fee

$

10,000

 

$

10,775

 

$

8,509

 

 

Sustainable and Renewable Technology

Senior Secured

December 2020

PIK Interest 10.00%

$

683

 

 

683

 

 

 

 

Sustainable and Renewable Technology

Senior Secured

December 2020

Interest rate FIXED 8.85%, PIK Interest 8.85%

$

1,492

 

 

1,492

 

 

1,492

 

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

 

 

 

$

12,175

 

 

12,950

 

 

10,001

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

12,950

 

 

10,001

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Impossible Foods, Inc. (12)(13)

Sustainable and Renewable Technology

Senior Secured

July 2022

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

$

50,000

 

 

52,244

 

 

52,301

 

Proterra, Inc. (11)(14)(19)

Sustainable and Renewable Technology

Senior Secured

May 2021

Interest rate PRIME + 5.05% or Floor rate of 10.55%, PIK Interest 1.75%

$

10,146

 

 

10,111

 

 

10,147

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

62,355

 

 

62,448

 

Subtotal: Sustainable and Renewable Technology (6.60%)*

 

 

 

 

 

 

75,305

 

 

72,449

 

Total: Debt Investments (200.13%)*

 

 

 

 

 

 

2,242,900

 

 

2,195,590

 

 

 

See notes to consolidated financial statements

14


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2020

(unaudited)

(dollars in thousands)

Portfolio Company

 

Sub-Industry

 

Type of

Investment (1)

 

Series

 

Shares

 

 

Cost (3)

 

 

Value (4)

 

Equity Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Communications & Networking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Peerless Network Holdings, Inc.

 

Communications & Networking

 

Equity

 

Preferred Series A

 

 

1,135,000

 

 

$

1,230

 

 

$

2,935

 

Subtotal: Communications & Networking (0.27%)*

 

 

 

 

 

 

 

 

1,230

 

 

 

2,935

 

Diversified Financial Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gibraltar Business Capital, LLC (7)

 

Diversified Financial Services

 

Equity

 

Common Stock

 

 

830,000

 

 

 

1,884

 

 

 

1,914

 

 

 

Diversified Financial Services

 

Equity

 

Preferred Series A

 

 

10,602,752

 

 

 

26,122

 

 

 

26,536

 

Total Gibraltar Business Capital, LLC

 

 

 

 

 

 

 

 

11,432,752

 

 

 

28,006

 

 

 

28,450

 

Subtotal: Diversified Financial Services (2.59%)*

 

 

 

 

 

 

 

 

28,006

 

 

 

28,450

 

Drug Delivery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AcelRx Pharmaceuticals, Inc. (4)

 

Drug Delivery

 

Equity

 

Common Stock

 

 

176,730

 

 

 

1,329

 

 

 

209

 

BioQ Pharma Incorporated (15)

 

Drug Delivery

 

Equity

 

Preferred Series D

 

 

165,000

 

 

 

500

 

 

 

576

 

Kaleo, Inc.

 

Drug Delivery

 

Equity

 

Preferred Series B

 

 

82,500

 

 

 

1,007

 

 

 

2,769

 

Neos Therapeutics, Inc. (4)(15)

 

Drug Delivery

 

Equity

 

Common Stock

 

 

125,000

 

 

 

1,500

 

 

 

94

 

PDS Biotechnology Corporation (p.k.a. Edge Therapeutics, Inc.) (4)

 

Drug Delivery

 

Equity

 

Common Stock

 

 

2,498

 

 

 

309

 

 

 

2

 

Subtotal: Drug Delivery (0.33%)*

 

 

 

 

 

 

 

 

4,645

 

 

 

3,650

 

Drug Discovery & Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aveo Pharmaceuticals, Inc. (4)(15)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

190,175

 

 

 

1,714

 

 

 

688

 

Axovant Gene Therapies Ltd. (p.k.a. Axovant Sciences Ltd.) (4)(5)(10)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

16,228

 

 

 

1,269

 

 

 

40

 

BridgeBio Pharma LLC (4)(16)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

203,579

 

 

 

2,000

 

 

 

5,904

 

Cerecor, Inc. (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

119,087

 

 

 

1,000

 

 

 

295

 

Concert Pharmaceuticals, Inc. (4)(10)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

70,796

 

 

 

1,367

 

 

 

626

 

Dare Biosciences, Inc. (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

13,550

 

 

 

1,000

 

 

 

12

 

Dynavax Technologies (4)(10)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

20,000

 

 

 

550

 

 

 

71

 

Eidos Therapeutics, Inc. (4)(10)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

15,000

 

 

 

255

 

 

 

735

 

Genocea Biosciences, Inc. (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

27,932

 

 

 

2,000

 

 

 

48

 

Paratek Pharmaceuticals, Inc. (4)(16)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

76,362

 

 

 

2,744

 

 

 

240

 

Rocket Pharmaceuticals, Ltd. (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

944

 

 

 

1,500

 

 

 

13

 

Savara, Inc. (4)(15)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

11,119

 

 

 

203

 

 

 

24

 

uniQure B.V. (4)(5)(10)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

17,175

 

 

 

332

 

 

 

815

 

X4 Pharmaceuticals, Inc. (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

83,334

 

 

 

641

 

 

 

833

 

Subtotal: Drug Discovery & Development (0.94%)*

 

 

 

 

 

 

 

 

16,575

 

 

 

10,344

 

Healthcare Services, Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23andMe, Inc.

 

Healthcare Services, Other

 

Equity

 

Common Stock

 

 

360,000

 

 

 

5,094

 

 

 

4,336

 

Chromadex Corporation (4)

 

Healthcare Services, Other

 

Equity

 

Common Stock

 

 

44,264

 

 

 

157

 

 

 

144

 

Subtotal: Healthcare Services, Other (0.41%)*

 

 

 

 

 

 

 

 

5,251

 

 

 

4,480

 

Internet Consumer & Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Blurb, Inc.

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series B

 

 

220,653

 

 

 

175

 

 

 

48

 

Contentful, Inc. (5)(10)

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series D

 

 

217

 

 

 

500

 

 

 

458

 

Countable Corporation (p.k.a. Brigade Group, Inc.)

 

Internet Consumer & Business Services

 

Equity

 

Common Stock

 

 

9,023

 

 

 

93

 

 

 

 

DoorDash, Inc.

 

Internet Consumer & Business Services

 

Equity

 

Common Stock

 

 

105,000

 

 

 

6,051

 

 

 

10,480

 

Lyft, Inc. (4)

 

Internet Consumer & Business Services

 

Equity

 

Common Stock

 

 

200,738

 

 

 

10,487

 

 

 

5,390

 

Nextdoor.com, Inc.

 

Internet Consumer & Business Services

 

Equity

 

Common Stock

 

 

328,190

 

 

 

4,854

 

 

 

4,430

 

OfferUp, Inc.

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series A

 

 

286,080

 

 

 

1,663

 

 

 

1,220

 

 

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series A-1

 

 

108,710

 

 

 

632

 

 

 

462

 

Total OfferUp, Inc.

 

 

 

 

 

 

 

 

394,790

 

 

 

2,295

 

 

 

1,682

 

Oportun (4)

 

Internet Consumer & Business Services

 

Equity

 

Common Stock

 

 

37,393

 

 

 

500

 

 

 

394

 

Tectura Corporation (7)

 

Internet Consumer & Business Services

 

Equity

 

Common Stock

 

 

414,994,863

 

 

 

900

 

 

 

 

 

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series BB

 

 

1,000,000

 

 

 

 

 

 

 

Total Tectura Corporation

 

 

 

 

 

 

 

 

415,994,863

 

 

 

900

 

 

 

 

Subtotal: Internet Consumer & Business Services (2.09%)*

 

 

 

 

 

 

 

 

25,855

 

 

 

22,882

 

Medical Devices & Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Flowonix Medical Incorporated

 

Medical Devices & Equipment

 

Equity

 

Preferred Series AA

 

 

221,893

 

 

 

1,500

 

 

 

 

Gelesis, Inc.

 

Medical Devices & Equipment

 

Equity

 

Common Stock

 

 

227,013

 

 

 

 

 

 

456

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series A-1

 

 

191,210

 

 

 

425

 

 

 

405

 

See notes to consolidated financial statements

 

15


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2020

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment (1)

 

Series

 

Shares

 

 

Cost (3)

 

 

Value (4)

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series A-2

 

 

191,626

 

 

$

500

 

 

$

394

 

Total Gelesis, Inc.

 

 

 

 

 

 

 

 

609,849

 

 

 

925

 

 

 

1,255

 

Medrobotics Corporation (15)

 

Medical Devices & Equipment

 

Equity

 

Preferred Series E

 

 

136,798

 

 

 

250

 

 

 

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series F

 

 

73,971

 

 

 

155

 

 

 

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series G

 

 

163,934

 

 

 

500

 

 

 

 

Total Medrobotics Corporation

 

 

 

 

 

 

 

 

374,703

 

 

 

905

 

 

 

 

Optiscan Biomedical, Corp. (6)

 

Medical Devices & Equipment

 

Equity

 

Preferred Series B

 

 

61,855

 

 

 

3,000

 

 

 

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series C

 

 

19,273

 

 

 

655

 

 

 

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series D

 

 

551,038

 

 

 

5,257

 

 

 

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series E

 

 

507,103

 

 

 

4,240

 

 

 

1,818

 

Total Optiscan Biomedical, Corp.

 

 

 

 

 

 

 

 

1,139,269

 

 

 

13,152

 

 

 

1,818

 

Outset Medical, Inc.

 

Medical Devices & Equipment

 

Equity

 

Preferred Series B

 

 

232,061

 

 

 

527

 

 

 

430

 

ViewRay, Inc. (4)(15)

 

Medical Devices & Equipment

 

Equity

 

Common Stock

 

 

36,457

 

 

 

333

 

 

 

91

 

Subtotal: Medical Devices & Equipment (0.33%)*

 

 

 

 

 

 

 

 

17,342

 

 

 

3,594

 

Software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CapLinked, Inc.

 

Software

 

Equity

 

Preferred Series A-3

 

 

53,614

 

 

 

51

 

 

 

58

 

Docker, Inc.

 

Software

 

Equity

 

Common Stock

 

 

20,000

 

 

 

4,283

 

 

 

16

 

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

 

Software

 

Equity

 

Preferred Series 2

 

 

458,841

 

 

 

1,000

 

 

 

1,759

 

 

 

Software

 

Equity

 

Preferred Series 3

 

 

93,620

 

 

 

300

 

 

 

415

 

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

 

 

 

 

 

 

 

 

552,461

 

 

 

1,300

 

 

 

2,174

 

HighRoads, Inc.

 

Software

 

Equity

 

Common Stock

 

 

190

 

 

 

307

 

 

 

 

Palantir Technologies

 

Software

 

Equity

 

Preferred Series D

 

 

9,535

 

 

 

47

 

 

 

37

 

 

 

Software

 

Equity

 

Preferred Series E

 

 

1,749,089

 

 

 

10,489

 

 

 

6,826

 

 

 

Software

 

Equity

 

Preferred Series G

 

 

326,797

 

 

 

2,211

 

 

 

1,275

 

Total Palantir Technologies

 

 

 

 

 

 

 

 

2,085,421

 

 

 

12,747

 

 

 

8,138

 

Sprinklr, Inc.

 

Software

 

Equity

 

Common Stock

 

 

700,000

 

 

 

3,749

 

 

 

3,087

 

Subtotal: Software (1.23%)*

 

 

 

 

 

 

 

 

 

 

 

 

22,437

 

 

 

13,473

 

Surgical Devices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gynesonics, Inc. (15)

 

Surgical Devices

 

Equity

 

Preferred Series B

 

 

219,298

 

 

 

250

 

 

 

6

 

 

 

Surgical Devices

 

Equity

 

Preferred Series C

 

 

656,538

 

 

 

282

 

 

 

18

 

 

 

Surgical Devices

 

Equity

 

Preferred Series D

 

 

1,991,157

 

 

 

712

 

 

 

60

 

 

 

Surgical Devices

 

Equity

 

Preferred Series E

 

 

2,786,367

 

 

 

429

 

 

 

99

 

 

 

Surgical Devices

 

Equity

 

Preferred Series F

 

 

1,523,693

 

 

 

118

 

 

 

117

 

 

 

Surgical Devices

 

Equity

 

Preferred Series F-1

 

 

2,418,125

 

 

 

150

 

 

 

160

 

Total Gynesonics, Inc.

 

 

 

 

 

 

 

 

9,595,178

 

 

 

1,941

 

 

 

460

 

TransMedics Group, Inc. (p.k.a Transmedics, Inc.) (4)

 

Surgical Devices

 

Equity

 

Common Stock

 

 

162,617

 

 

 

2,550

 

 

 

1,964

 

Subtotal: Surgical Devices (0.22%)*

 

 

 

 

 

 

 

 

 

 

 

 

4,491

 

 

 

2,424

 

Sustainable and Renewable Technology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impossible Foods, Inc.

 

Sustainable and Renewable Technology

 

Equity

 

Preferred Series E-1

 

 

188,611

 

 

 

2,000

 

 

 

2,066

 

Modumetal, Inc.

 

Sustainable and Renewable Technology

 

Equity

 

Preferred Series A-1

 

 

103,584

 

 

 

500

 

 

 

4

 

Proterra, Inc.

 

Sustainable and Renewable Technology

 

Equity

 

Preferred Series 5

 

 

99,280

 

 

 

500

 

 

 

251

 

Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) (6)

 

Sustainable and Renewable Technology

 

Equity

 

Common Stock

 

 

488

 

 

 

61,502

 

 

 

 

Subtotal: Sustainable and Renewable Technology (0.21%)*

 

 

 

 

 

 

 

 

64,502

 

 

 

2,321

 

Total: Equity Investments (8.62%)*

 

 

 

 

 

 

 

 

190,334

 

 

 

94,553

 

Warrant Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Communications & Networking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Peerless Network Holdings, Inc.

 

Communications & Networking

 

Warrant

 

Common Stock

 

 

3,328

 

 

 

 

 

 

5

 

Spring Mobile Solutions, Inc.

 

Communications & Networking

 

Warrant

 

Common Stock

 

 

2,834,375

 

 

 

418

 

 

 

 

Subtotal: Communications & Networking (0.00%)*

 

 

 

 

 

 

 

 

418

 

 

 

5

 

Consumer & Business Products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gadget Guard (15)

 

Consumer & Business Products

 

Warrant

 

Common Stock

 

 

1,662,441

 

 

 

228

 

 

 

 

Intelligent Beauty, Inc.

 

Consumer & Business Products

 

Warrant

 

Preferred Series B

 

 

190,234

 

 

 

230

 

 

 

248

 

The Neat Company

 

Consumer & Business Products

 

Warrant

 

Common Stock

 

 

54,054

 

 

 

365

 

 

 

 

Whoop, Inc.

 

Consumer & Business Products

 

Warrant

 

Preferred Series C

 

 

68,627

 

 

 

18

 

 

 

27

 

Subtotal: Consumer & Business Products (0.03%)*

 

 

 

 

 

 

 

 

841

 

 

 

275

 

Drug Delivery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerami Therapeutics (p.k.a. Dance Biopharm, Inc.) (15)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

110,882

 

 

 

74

 

 

 

 

BioQ Pharma Incorporated

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

459,183

 

 

 

1

 

 

 

670

 

Neos Therapeutics, Inc. (4)(15)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

70,833

 

 

 

285

 

 

 

 

PDS Biotechnology Corporation (p.k.a. Edge Therapeutics, Inc.) (4)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

3,929

 

 

 

390

 

 

 

 

Pulmatrix Inc. (4)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

2,515

 

 

 

116

 

 

 

 

ZP Opco, Inc. (4)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

2,035

 

 

 

102

 

 

 

 

See notes to consolidated financial statements

16


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2020

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment (1)

 

Series

 

Shares

 

 

Cost (3)

 

 

Value (4)

 

Subtotal: Drug Delivery (0.06%)*

 

 

 

 

 

 

 

 

 

 

 

$

968

 

 

$

670

 

Drug Discovery & Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acacia Pharma Inc. (4)(5)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

201,330

 

 

 

304

 

 

 

175

 

ADMA Biologics, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

89,750

 

 

 

295

 

 

 

20

 

Brickell Biotech, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

9,005

 

 

 

119

 

 

 

 

Cerecor, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

22,328

 

 

 

70

 

 

 

1

 

Concert Pharmaceuticals, Inc. (4)(10)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

61,273

 

 

 

178

 

 

 

68

 

CTI BioPharma Corp. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

29,239

 

 

 

165

 

 

 

 

CytRx Corporation (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

105,694

 

 

 

160

 

 

 

 

Dermavant Sciences Ltd. (5)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

223,642

 

 

 

101

 

 

 

322

 

Dicerna Pharmaceuticals, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

200

 

 

 

28

 

 

 

 

Evofem Biosciences, Inc. (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

7,806

 

 

 

266

 

 

 

15

 

Genocea Biosciences, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

41,176

 

 

 

165

 

 

 

11

 

Motif BioSciences Inc. (4)(5)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

121,337,041

 

 

 

281

 

 

 

 

Myovant Sciences, Ltd. (4)(5)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

73,710

 

 

 

460

 

 

 

132

 

Ology Bioservices, Inc. (15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

171,389

 

 

 

838

 

 

 

 

Paratek Pharmaceuticals, Inc. (4)(15)(16)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

94,841

 

 

 

204

 

 

 

15

 

Sorrento Therapeutics, Inc. (4)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

306,748

 

 

 

889

 

 

 

82

 

Stealth Bio Therapeutics Corp. (4)(5)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

500,000

 

 

 

158

 

 

 

173

 

TG Therapeutics, Inc. (4)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

147,058

 

 

 

563

 

 

 

787

 

Tricida, Inc. (4)(15)(16)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

131,998

 

 

 

1,102

 

 

 

1,214

 

Urovant Sciences, Ltd. (4)(5)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

99,777

 

 

 

383

 

 

 

333

 

X4 Pharmaceuticals, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

108,334

 

 

 

673

 

 

 

282

 

Yumanity Therapeutics, Inc.

 

Drug Discovery & Development

 

Warrant

 

Class B Preferred Units

 

 

34,946

 

 

 

110

 

 

 

14

 

Subtotal: Drug Discovery & Development (0.33%)*

 

 

 

 

 

 

 

 

7,512

 

 

 

3,644

 

Electronics & Computer Hardware

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

908 Devices, Inc. (15)

 

Electronics & Computer Hardware

 

Warrant

 

Preferred Series D

 

 

79,856

 

 

 

101

 

 

 

25

 

Subtotal: Electronics & Computer Hardware (0.00%)*

 

 

 

 

 

 

 

 

101

 

 

 

25

 

Information Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

InMobi Inc. (5)(10)

 

Information Services

 

Warrant

 

Common Stock

 

 

65,587

 

 

 

82

 

 

 

 

Netbase Solutions, Inc.

 

Information Services

 

Warrant

 

Preferred Series 1

 

 

60,000

 

 

 

356

 

 

 

315

 

Planet Labs, Inc.

 

Information Services

 

Warrant

 

Common Stock

 

 

274,160

 

 

 

565

 

 

 

100

 

RichRelevance, Inc.

 

Information Services

 

Warrant

 

Preferred Series E

 

 

112,612

 

 

 

98

 

 

 

 

Sapphire Digital, Inc. (p.k.a. MDX Medical, Inc.) (15)

 

Information Services

 

Warrant

 

Common Stock

 

 

2,812,500

 

 

 

283

 

 

 

90

 

Subtotal: Information Services (0.05%)*

 

 

 

 

 

 

 

 

 

 

 

 

1,384

 

 

 

505

 

Internet Consumer & Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aria Systems, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series G

 

 

231,535

 

 

 

73

 

 

 

 

Blurb, Inc. (15)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series C

 

 

234,280

 

 

 

636

 

 

 

16

 

Cloudpay, Inc. (5)(10)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series B

 

 

6,763

 

 

 

54

 

 

 

8

 

Contentful, Inc. (5)(10)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series C

 

 

82

 

 

 

1

 

 

 

20

 

Fastly, Inc. (4)

 

Internet Consumer & Business Services

 

Warrant

 

Common Stock

 

 

76,098

 

 

 

71

 

 

 

568

 

First Insight, Inc. (15)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series B

 

 

75,917

 

 

 

96

 

 

 

93

 

Houzz, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Common Stock

 

 

529,661

 

 

 

20

 

 

 

3

 

Intent (p.k.a. Intent Media, Inc.)

 

Internet Consumer & Business Services

 

Warrant

 

Common Stock

 

 

140,077

 

 

 

168

 

 

 

 

Interactions Corporation

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series G-3

 

 

68,187

 

 

 

204

 

 

 

421

 

Just Fabulous, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series B

 

 

206,184

 

 

 

1,102

 

 

 

780

 

Lendio, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series D

 

 

127,032

 

 

 

39

 

 

 

7

 

LogicSource

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series C

 

 

79,625

 

 

 

30

 

 

 

44

 

Oportun (4)

 

Internet Consumer & Business Services

 

Warrant

 

Common Stock

 

 

23,514

 

 

 

78

 

 

 

57

 

Postmates, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Common Stock

 

 

189,865

 

 

 

317

 

 

 

51

 

RumbleON, Inc. (4)

 

Internet Consumer & Business Services

 

Warrant

 

Common Stock

 

 

102,768

 

 

 

87

 

 

 

 

SeatGeek, Inc. (16)

 

Internet Consumer & Business Services

 

Warrant

 

Common Stock

 

 

1,379,761

 

 

 

842

 

 

 

435

 

ShareThis, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series C

 

 

493,502

 

 

 

547

 

 

 

 

See notes to consolidated financial statements

17


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2020

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment (1)

 

Series

 

Shares

 

 

Cost (3)

 

 

Value (4)

 

Skyword, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series B

 

 

444,444

 

 

$

83

 

 

$

17

 

Snagajob.com, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series A

 

 

1,800,000

 

 

 

782

 

 

 

7

 

 

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series B

 

 

1,211,537

 

 

 

62

 

 

 

2

 

Total Snagajob.com, Inc.

 

 

 

 

 

 

 

 

3,011,537

 

 

 

844

 

 

 

9

 

Tapjoy, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series D

 

 

748,670

 

 

 

316

 

 

 

 

The Faction Group LLC

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series AA

 

 

8,076

 

 

 

234

 

 

 

354

 

Thumbtack, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Common Stock

 

 

190,953

 

 

 

553

 

 

 

219

 

Xometry, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series B

 

 

87,784

 

 

 

47

 

 

 

79

 

Subtotal: Internet Consumer & Business Services (0.29%)*

 

 

 

 

 

 

 

 

6,442

 

 

 

3,181

 

Media/Content/Info

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Machine Zone, Inc.

 

Media/Content/Info

 

Warrant

 

Common Stock

 

 

1,552,710

 

 

 

1,959

 

 

 

62

 

Napster

 

Media/Content/Info

 

Warrant

 

Common Stock

 

 

715,755

 

 

 

384

 

 

 

 

WP Technology, Inc. (Wattpad, Inc.) (5)(10)

 

Media/Content/Info

 

Warrant

 

Common Stock

 

 

255,818

 

 

 

4

 

 

 

 

Zoom Media Group, Inc.

 

Media/Content/Info

 

Warrant

 

Preferred Series A

 

 

1,204

 

 

 

348

 

 

 

 

Subtotal: Media/Content/Info (0.01%)*

 

 

 

 

 

 

 

 

 

 

 

 

2,695

 

 

 

62

 

Medical Devices & Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aspire Bariatrics, Inc. (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series B-1

 

 

112,858

 

 

 

455

 

 

 

 

Flowonix Medical Incorporated

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series AA

 

 

155,325

 

 

 

362

 

 

 

 

 

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series BB

 

 

725,806

 

 

 

351

 

 

 

 

Total Flowonix Medical Incorporated

 

 

 

 

 

 

 

 

881,131

 

 

 

713

 

 

 

 

Gelesis, Inc.

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series A-1

 

 

74,784

 

 

 

78

 

 

 

113

 

InspireMD, Inc. (4)(5)(10)

 

Medical Devices & Equipment

 

Warrant

 

Common Stock

 

 

23

 

 

 

 

 

 

 

Intuity Medical, Inc. (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series 5

 

 

1,819,078

 

 

 

294

 

 

 

159

 

Medrobotics Corporation (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series E

 

 

455,539

 

 

 

370

 

 

 

 

NinePoint Medical, Inc.

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series A-1

 

 

587,840

 

 

 

170

 

 

 

 

Optiscan Biomedical, Corp. (6)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series E

 

 

74,424

 

 

 

572

 

 

 

 

Outset Medical, Inc.

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series A

 

 

500,000

 

 

 

402

 

 

 

116

 

Sebacia, Inc.

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series D

 

 

778,301

 

 

 

133

 

 

 

3

 

SonaCare Medical, LLC

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series A

 

 

6,464

 

 

 

188

 

 

 

 

Tela Bio, Inc. (4)

 

Medical Devices & Equipment

 

Warrant

 

Common Stock

 

 

15,712

 

 

 

61

 

 

 

2

 

Subtotal: Medical Devices & Equipment (0.04%)*

 

 

 

 

 

 

 

 

3,436

 

 

 

393

 

Semiconductors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Achronix Semiconductor Corporation

 

Semiconductors

 

Warrant

 

Preferred Series C

 

 

360,000

 

 

 

160

 

 

 

3

 

 

 

Semiconductors

 

Warrant

 

Preferred Series D-2

 

 

750,000

 

 

 

99

 

 

 

265

 

Total Achronix Semiconductor Corporation

 

 

 

 

 

 

 

 

1,110,000

 

 

 

259

 

 

 

268

 

Subtotal: Semiconductors (0.02%)*

 

 

 

 

 

 

 

 

 

 

 

 

259

 

 

 

268

 

Software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actifio, Inc.

 

Software

 

Warrant

 

Common Stock

 

 

73,584

 

 

 

249

 

 

 

23

 

 

 

Software

 

Warrant

 

Preferred Series F

 

 

31,673

 

 

 

343

 

 

 

33

 

Total Actifio, Inc.

 

 

 

 

 

 

 

 

105,257

 

 

 

592

 

 

 

56

 

BryterCX, Inc. (p.k.a. ClickFox, Inc.) (15)

 

Software

 

Warrant

 

Preferred Series B

 

 

492,877

 

 

 

152

 

 

 

 

 

 

Software

 

Warrant

 

Preferred Series C

 

 

592,019

 

 

 

730

 

 

 

 

 

 

Software

 

Warrant

 

Preferred Series C-A

 

 

2,218,214

 

 

 

231

 

 

 

 

Total BryterCX, Inc. (p.k.a. ClickFox, Inc.)

 

 

 

 

 

 

 

 

3,303,110

 

 

 

1,113

 

 

 

 

Cloudian, Inc.

 

Software

 

Warrant

 

Common Stock

 

 

477,454

 

 

 

72

 

 

 

14

 

Couchbase, Inc.

 

Software

 

Warrant

 

Common Stock

 

 

263,377

 

 

 

462

 

 

 

277

 

Dashlane, Inc.

 

Software

 

Warrant

 

Common Stock

 

 

346,747

 

 

 

303

 

 

 

259

 

Delphix Corp. (16)

 

Software

 

Warrant

 

Common Stock

 

 

718,898

 

 

 

1,593

 

 

 

761

 

DNAnexus, Inc.

 

Software

 

Warrant

 

Preferred Series C

 

 

909,091

 

 

 

97

 

 

 

37

 

Evernote Corporation

 

Software

 

Warrant

 

Common Stock

 

 

62,500

 

 

 

106

 

 

 

27

 

Fuze, Inc. (15)

 

Software

 

Warrant

 

Preferred Series F

 

 

256,158

 

 

 

89

 

 

 

 

Lastline, Inc.

 

Software

 

Warrant

 

Common Stock

 

 

363,636

 

 

 

133

 

 

 

40

 

Lightbend, Inc. (15)

 

Software

 

Warrant

 

Preferred Series C-1

 

 

854,787

 

 

 

130

 

 

 

68

 

Message Systems, Inc. (15)

 

Software

 

Warrant

 

Preferred Series C

 

 

503,718

 

 

 

334

 

 

 

473

 

Nuvolo Technologies Corporation

 

Software

 

Warrant

 

Common Stock

 

 

30,000

 

 

 

43

 

 

 

54

 

OneLogin, Inc. (15)

 

Software

 

Warrant

 

Common Stock

 

 

381,620

 

 

 

304

 

 

 

357

 

See notes to consolidated financial statements

18


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2020

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment (1)

 

Series

 

Shares

 

 

Cost (3)

 

 

Value (4)

 

Poplicus, Inc.

 

Software

 

Warrant

 

Common Stock

 

 

132,168

 

 

$

 

 

$

 

RapidMiner, Inc.

 

Software

 

Warrant

 

Preferred Series C-1

 

 

4,982

 

 

 

24

 

 

 

7

 

Signpost, Inc.

 

Software

 

Warrant

 

Series Junior 1 Preferred

 

 

474,019

 

 

 

314

 

 

 

 

Tact.ai Technologies, Inc.

 

Software

 

Warrant

 

Common Stock

 

 

1,041,667

 

 

 

206

 

 

 

122

 

ZeroFox, Inc.

 

Software

 

Warrant

 

Preferred Series C-1

 

 

487,804

 

 

 

57

 

 

 

80

 

Subtotal: Software (0.24%)*

 

 

 

 

 

 

 

 

 

 

 

 

5,972

 

 

 

2,632

 

Specialty Pharmaceuticals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alimera Sciences, Inc. (4)

 

Specialty Pharmaceuticals

 

Warrant

 

Common Stock

 

 

114,513

 

 

 

861

 

 

 

6

 

Subtotal: Specialty Pharmaceuticals (0.00%)*

 

 

 

 

 

 

 

 

 

 

 

 

861

 

 

 

6

 

Surgical Devices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gynesonics, Inc. (15)

 

Surgical Devices

 

Warrant

 

Preferred Series C

 

 

151,123

 

 

 

67

 

 

 

3

 

 

 

Surgical Devices

 

Warrant

 

Preferred Series D

 

 

1,575,965

 

 

 

320

 

 

 

14

 

Total Gynesonics, Inc.

 

 

 

 

 

 

 

 

1,727,088

 

 

 

387

 

 

 

17

 

TransMedics Group, Inc. (p.k.a Transmedics, Inc.) (4)

 

Surgical Devices

 

Warrant

 

Common Stock

 

 

64,441

 

 

 

139

 

 

 

182

 

Subtotal: Surgical Devices (0.02%)*

 

 

 

 

 

 

 

 

 

 

 

 

526

 

 

 

199

 

Sustainable and Renewable Technology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agrivida, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series D

 

 

471,327

 

 

 

120

 

 

 

 

Calera, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series C

 

 

44,529

 

 

 

513

 

 

 

 

Fulcrum Bioenergy, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series C-1

 

 

280,897

 

 

 

275

 

 

 

351

 

Kinestral Technologies, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series A

 

 

325,000

 

 

 

155

 

 

 

77

 

 

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series B

 

 

131,883

 

 

 

63

 

 

 

23

 

Total Kinestral Technologies, Inc.

 

 

 

 

 

 

 

 

456,883

 

 

 

218

 

 

 

100

 

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

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series D

 

 

61,804

 

 

 

102

 

 

 

 

Polyera Corporation (15)

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series C

 

 

311,609

 

 

 

337

 

 

 

 

Proterra, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Common Stock

 

 

36,630

 

 

 

1

 

 

 

 

 

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series 4

 

 

477,517

 

 

 

41

 

 

 

21

 

Total Proterra, Inc.

 

 

 

 

 

 

 

 

514,147

 

 

 

42

 

 

 

21

 

Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) (6)

 

Sustainable and Renewable Technology

 

Warrant

 

Class A Units

 

 

1

 

 

 

 

 

 

 

Subtotal: Sustainable and Renewable Technology (0.04%)*

 

 

 

 

 

 

1,607

 

 

 

472

 

Total: Warrant Investments (1.12%)*

 

 

 

 

 

 

33,022

 

 

 

12,337

 

Total: Investments in Securities (209.87%)*

 

 

 

 

 

$

2,466,256

 

 

$

2,302,480

 

 

*

Value as a percent of net assets

(1)

Preferred and common stock, warrants, and equity interests are generally non-income producing.

(2)

Interest rate PRIME represents 3.25% at March 31, 2020. 1-month LIBOR, 3-month LIBOR and 12-month LIBOR represent 0.99%, 1.45% and 1.00%, respectively, at March 31, 2020.

(3)

Gross unrealized appreciation, gross unrealized depreciation, and net unrealized depreciation for federal income tax purposes totaled $38.8 million, $184.0 million and $145.2 million, respectively. The tax cost of investments is $2.4 billion.

(4)

Except for warrants in 30 publicly traded companies and common stock in 22 publicly traded companies, all investments are restricted at March 31, 2020 and were valued at fair value using Level 3 significant unobservable inputs as determined in good faith by the Company’s board of directors (the “Board of Directors”). No unrestricted securities of the same issuer are outstanding. The Company uses the Standard Industrial Code for classifying the industry grouping of its portfolio companies.

(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 at March 31, 2020, and is therefore considered non-income producing. Note that at March 31, 2020, only the PIK, or payment-in-kind, portion is on non-accrual for the Company’s debt investment in Solar Spectrum Holdings LLC (p.k.a. Sungevity Inc.), Tectura Corporation, and Glo AB.

(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 secures the notes offered in the Debt Securitization (as defined in Note 4).

(12)

Denotes that all or a portion of the debt investment is pledged as collateral under the Wells Facility (as defined in Note 4).

(13)

Denotes that all or a portion of the debt investment is pledged as collateral under the Union Bank Facility (as defined in Note 4).

(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 Technology III, L.P., or HT III, the Company’s wholly owned small business investment company, or SBIC, subsidiary.

(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 assets at March 31, 2020.

(17)

Denotes that there is an unfunded contractual commitment available at the request of this portfolio company at March 31, 2020. Refer to Note 10.

(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.

 

 

 

See notes to consolidated financial statements

19


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2019

(unaudited)

(dollars in thousands)

Portfolio Company

Sub-Industry

Type of

Investment (1)

Maturity

Date

Interest Rate and Floor (2)

Principal

Amount

 

Cost (3)

 

Value (4)

 

Debt Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

Biotechnology Tools

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Exicure, Inc. (11)

Biotechnology Tools

Senior Secured

March 2020

Interest rate PRIME + 6.45% or Floor rate of 9.95%, 5.52% Exit Fee

$

4,999

 

$

5,067

 

$

5,067

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

5,067

 

 

5,067

 

Subtotal: Biotechnology Tools (0.45%)*

 

 

 

 

 

5,067

 

 

5,067

 

Diversified Financial Services

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Gibraltar Business Capital, LLC (7)

Diversified Financial Services

Unsecured

March 2023

Interest rate FIXED 14.50%

$

15,000

 

 

14,780

 

 

14,780

 

Pico Quantitative Trading LLC (18)

Diversified Financial Services

Senior Secured

June 2024

Interest rate 1-month LIBOR + 8.60% or Floor rate of 9.60%

$

30,000

 

 

29,556

 

 

28,773

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

44,336

 

 

43,553

 

Subtotal: Diversified Financial Services (3.84%)*

 

 

 

 

 

44,336

 

 

43,553

 

Drug Delivery

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Antares Pharma Inc. (10)(11)(15)

Drug Delivery

Senior Secured

July 2022

Interest rate PRIME + 4.50% or Floor rate of 4.50%, 4.14% Exit Fee

$

40,000

 

 

40,626

 

 

40,773

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

40,626

 

 

40,773

 

Subtotal: Drug Delivery (3.60%)*

 

 

 

 

 

40,626

 

 

40,773

 

Drug Discovery & Development

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Metuchen Pharmaceuticals LLC (14)

Drug Discovery & Development

Senior Secured

October 2020

Interest rate PRIME + 7.25% or Floor rate of 10.75%, PIK Interest 1.35%, 2.25% Exit Fee

$

12,775

 

 

13,730

 

 

13,731

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

13,730

 

 

13,731

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Acacia Pharma Inc. (5)(10)(11)

Drug Discovery & Development

Senior Secured

January 2022

Interest rate PRIME + 4.50% or Floor rate of 9.25%, 3.95% Exit Fee

$

10,000

 

 

10,115

 

 

10,043

 

Aldeyra Therapeutics, Inc

Drug Discovery & Development

Senior Secured

October 2023

Interest rate PRIME + 3.10% or Floor rate of 9.10%, 6.95% Exit Fee

$

15,000

 

 

14,969

 

 

14,969

 

Aveo Pharmaceuticals, Inc. (11)

Drug Discovery & Development

Senior Secured

July 2021

Interest rate PRIME + 4.70% or Floor rate of 9.45%, 5.40% Exit Fee

$

8,084

 

 

8,404

 

 

8,340

 

 

Drug Discovery & Development

Senior Secured

July 2021

Interest rate PRIME + 4.70% or Floor rate of 9.45%, 3.00% Exit Fee

$

8,084

 

 

8,280

 

 

8,274

 

Total Aveo Pharmaceuticals, Inc.

$

16,168

 

 

16,684

 

 

16,614

 

Axovant Gene Therapies Ltd. (p.k.a. Axovant Sciences Ltd.) (5)(10)(11)

Drug Discovery & Development

Senior Secured

March 2021

Interest rate PRIME + 6.80% or Floor rate of 11.55%

$

15,731

 

 

15,608

 

 

15,608

 

BridgeBio Pharma LLC (12)(13)(16)

Drug Discovery & Development

Senior Secured

January 2023

Interest rate PRIME + 3.85% or Floor rate of 8.85%, 6.35% Exit Fee

$

35,000

 

 

35,684

 

 

35,721

 

 

Drug Discovery & Development

Senior Secured

January 2023

Interest rate PRIME + 2.85% or Floor rate of 8.60%, 5.75% Exit Fee

$

20,000

 

 

20,264

 

 

20,495

 

 

Drug Discovery & Development

Senior Secured

January 2023

Interest rate PRIME + 3.10% or Floor rate of 9.10%, 5.75% Exit Fee

$

20,000

 

 

20,062

 

 

20,284

 

Total BridgeBio Pharma LLC

$

75,000

 

 

76,010

 

 

76,500

 

Chemocentryx, Inc. (10)(15)

Drug Discovery & Development

Senior Secured

December 2022

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

$

20,000

 

 

20,306

 

 

20,501

 

Codiak Biosciences, Inc. (11)(17)

Drug Discovery & Development

Senior Secured

October 2024

Interest rate PRIME + 3.75% or Floor rate of 9.00%, 5.50% Exit Fee

$

10,000

 

 

9,955

 

 

9,955

 

Constellation Pharmaceuticals, Inc. (12)(17)

Drug Discovery & Development

Senior Secured

April 2023

Interest rate PRIME + 2.55% or Floor rate of 8.55%, 6.35% Exit Fee

$

30,000

 

 

30,139

 

 

30,636

 

Dermavant Sciences Ltd. (5)(10)(13)

Drug Discovery & Development

Senior Secured

June 2022

Interest rate PRIME + 4.45% or Floor rate of 9.95%, 6.95% Exit Fee

$

20,000

 

 

20,085

 

 

20,113

 

Eidos Therapeutics, Inc. (10)(17)

Drug Discovery & Development

Senior Secured

October 2023

Interest rate PRIME + 3.25% or Floor rate of 8.50%, 5.95% Exit Fee

$

8,750

 

 

8,728

 

 

8,728

 

Genocea Biosciences, Inc. (11)

Drug Discovery & Development

Senior Secured

May 2021

Interest rate PRIME + 3.00% or Floor rate of 8.00%, 13.43% Exit Fee

$

12,922

 

 

13,502

 

 

13,542

 

Kaleido Biosciences, Inc.

Drug Discovery & Development

Senior Secured

January 2024

Interest rate PRIME + 4.20% or Floor rate of 8.95%, 7.55% Exit Fee

$

22,500

 

 

22,372

 

 

22,373

 

Mesoblast (5)(10)(11)

Drug Discovery & Development

Senior Secured

March 2022

Interest rate PRIME + 4.95% or Floor rate of 9.45%, 6.95% Exit Fee

$

50,000

 

 

51,552

 

 

51,547

 

Motif BioSciences Inc. (5)(8)(10)

Drug Discovery & Development

Senior Secured

September 2021

Interest rate PRIME + 5.50% or Floor rate of 10.00%, 2.87% Exit Fee

$

6,738

 

 

6,732

 

 

 

Nabriva Therapeutics (5)(10)

Drug Discovery & Development

Senior Secured

June 2023

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

$

35,000

 

 

35,259

 

 

35,536

 

Paratek Pharmaceuticals, Inc. (11)(15)(16)

Drug Discovery & Development

Senior Secured

September 2021

Interest rate PRIME + 2.75% or Floor rate of 8.50%, 4.13% Exit Fee

$

60,000

 

 

61,905

 

 

62,131

 

 

Drug Discovery & Development

Senior Secured

August 2022

Interest rate PRIME + 2.10% or Floor rate of 7.85%, 6.95% Exit Fee

$

10,000

 

 

10,241

 

 

10,295

 

Total Paratek Pharmaceuticals, Inc.

$

70,000

 

 

72,146

 

 

72,426

 

See notes to consolidated financial statements

 

20


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2019

(unaudited)

(dollars in thousands)

 

Portfolio Company

Sub-Industry

Type of

Investment (1)

Maturity

Date

Interest Rate and Floor (2)

Principal

Amount

 

Cost (3)

 

Value (4)

 

Replimune Group, Inc. (5)(10)(11)

Drug Discovery & Development

Senior Secured

August 2023

Interest rate PRIME + 2.75% or Floor rate of 8.75%, 4.95% Exit Fee

$

10,000

 

$

9,974

 

$

9,974

 

Seres Therapeutics, Inc. (11)

Drug Discovery & Development

Senior Secured

November 2023

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

$

25,000

 

 

24,804

 

 

24,804

 

Stealth Bio Therapeutics Corp. (5)(10)(11)

Drug Discovery & Development

Senior Secured

January 2021

Interest rate PRIME + 5.50% or Floor rate of 9.50%, 6.68% Exit Fee

$

16,509

 

 

17,502

 

 

17,501

 

TG Therapeutics, Inc. (10)(13)

Drug Discovery & Development

Senior Secured

March 2022

Interest rate PRIME + 4.75% or Floor rate of 10.25%, 3.25% Exit Fee

$

30,000

 

 

29,726

 

 

29,849

 

Tricida, Inc. (11)(15)(16)(17)

Drug Discovery & Development

Senior Secured

April 2023

Interest rate PRIME + 2.35% or Floor rate of 8.35%, 11.92% Exit Fee

$

60,000

 

 

60,442

 

 

61,193

 

uniQure B.V. (5)(10)(11)

Drug Discovery & Development

Senior Secured

June 2023

Interest rate PRIME + 3.35% or Floor rate of 8.85%, 7.72% Exit Fee

$

35,000

 

 

36,090

 

 

36,419

 

Urovant Sciences, Ltd. (5)(10)(13)

Drug Discovery & Development

Senior Secured

March 2023

Interest rate PRIME + 4.65% or Floor rate of 10.15%, 4.25% Exit Fee

$

45,000

 

 

44,622

 

 

44,622

 

Verastem, Inc. (11)

Drug Discovery & Development

Senior Secured

December 2022

Interest rate PRIME + 4.25% or Floor rate of 9.75%, 5.25% Exit Fee

$

5,000

 

 

5,028

 

 

5,073

 

 

Drug Discovery & Development

Senior Secured

December 2022

Interest rate PRIME + 4.25% or Floor rate of 9.75%, 5.25% Exit Fee

$

5,000

 

 

5,048

 

 

5,094

 

 

Drug Discovery & Development

Senior Secured

December 2022

Interest rate PRIME + 4.25% or Floor rate of 9.75%, 5.25% Exit Fee

$

5,000

 

 

5,060

 

 

5,083

 

 

Drug Discovery & Development

Senior Secured

December 2022

Interest rate PRIME + 4.25% or Floor rate of 9.75%, 5.25% Exit Fee

$

10,000

 

 

10,066

 

 

10,157

 

 

Drug Discovery & Development

Senior Secured

December 2022

Interest rate PRIME + 4.25% or Floor rate of 9.75%, 5.25% Exit Fee

$

10,000

 

 

10,035

 

 

10,125

 

Total Verastem, Inc.

$

35,000

 

 

35,237

 

 

35,532

 

X4 Pharmaceuticals, Inc. (11)(17)

Drug Discovery & Development

Senior Secured

July 2023

Interest rate PRIME + 2.75% or Floor rate of 8.75%, 7.98% Exit Fee

$

20,000

 

 

20,088

 

 

20,165

 

Yumanity Therapeutics, Inc.

Drug Discovery & Development

Senior Secured

January 2024

Interest rate PRIME + 4.00% or Floor rate of 8.75%, 5.25% Exit Fee

$

15,000

 

 

14,732

 

 

14,732

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

717,379

 

 

713,882

 

Subtotal: Drug Discovery & Development (64.22%)*

 

 

 

 

 

731,109

 

 

727,613

 

Electronics & Computer Hardware

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Glo AB (5)(10)(13)(14)

Electronics & Computer Hardware

Senior Secured

February 2021

Interest rate PRIME + 6.20% or Floor rate of 10.45%, PIK Interest 1.75%, 5.03% Exit Fee

$

8,215

 

 

8,730

 

 

4,410

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

8,730

 

 

4,410

 

Subtotal: Electronics & Computer Hardware (0.39%)*

 

 

 

 

 

8,730

 

 

4,410

 

Healthcare Services, Other

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Oak Street Health (11)(16)

Healthcare Services, Other

Senior Secured

June 2022

Interest rate PRIME + 5.00% or Floor rate of 9.75%, 5.95% Exit Fee

$

80,000

 

 

81,190

 

 

81,270

 

The CM Group LLC (17)

Healthcare Services, Other

Senior Secured

June 2024

Interest rate 1-month LIBOR + 8.35% or Floor rate of 9.35%

$

9,429

 

 

9,268

 

 

9,114

 

Velocity Clinical Research, Inc. (18)

Healthcare Services, Other

Senior Secured

November 2024

Interest rate 3-month LIBOR + 9.08% or Floor rate of 10.08%

$

7,500

 

 

7,226

 

 

7,226

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

97,684

 

 

97,610

 

Subtotal: Healthcare Services, Other (8.61%)*

 

 

 

 

 

97,684

 

 

97,610

 

Information Services

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Planet Labs, Inc. (11)

Information Services

Senior Secured

June 2022

Interest rate PRIME + 5.50% or Floor rate of 11.00%, 3.00% Exit Fee

$

20,000

 

 

19,526

 

 

19,583

 

Sapphire Digital, Inc. (p.k.a. MDX Medical, Inc.) (14)(15)(19)

Information Services

Senior Secured

June 2021

Interest rate PRIME + 2.75% or Floor rate of 9.50%, PIK Interest 1.70%, 2.80% Exit Fee

$

15,554

 

 

15,647

 

 

15,682

 

Yipit, LLC (17)(18)

Information Services

Senior Secured

May 2024

Interest rate 3-month LIBOR + 7.99% or Floor rate of 8.99%

$

10,625

 

 

10,415

 

 

10,272

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

45,588

 

 

45,537

 

Subtotal: Information Services (4.02%)*

 

 

 

 

 

45,588

 

 

45,537

 

Internet Consumer & Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Snagajob.com, Inc. (13)(14)

Internet Consumer & Business Services

Senior Secured

August 2020

Interest rate PRIME + 5.15% or Floor rate of 9.15%, PIK Interest 1.95%, 2.55% Exit Fee

$

42,676

 

 

43,344

 

 

43,344

 

 

Internet Consumer & Business Services

Senior Secured

August 2020

Interest rate PRIME + 5.65% or Floor rate of 10.65%, PIK Interest 1.95%, 2.55% Exit Fee

$

5,134

 

 

5,127

 

 

5,127

 

Total Snagajob.com, Inc.

$

47,810

 

 

48,471

 

 

48,471

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

48,471

 

 

48,471

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements

21


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2019

(unaudited)

(dollars in thousands)

 

Portfolio Company

Sub-Industry

Type of

Investment (1)

Maturity

Date

Interest Rate and Floor (2)

Principal

Amount

 

Cost (3)

 

Value (4)

 

AppDirect, Inc. (11)(19)

Internet Consumer & Business Services

Senior Secured

January 2022

Interest rate PRIME + 5.70% or Floor rate of 9.95%, 3.45% Exit Fee

$

20,000

 

$

20,288

 

$

20,239

 

Arctic Wolf Networks, Inc. (13)(19)

Internet Consumer & Business Services

Senior Secured

April 2023

Interest rate 3-month LIBOR + 7.75% or Floor rate of 10.10%, 7.55% Exit Fee

$

30,000

 

 

30,214

 

 

30,280

 

Cloudpay, Inc. (5)(10)(11)

Internet Consumer & Business Services

Senior Secured

April 2022

Interest rate PRIME + 4.05% or Floor rate of 8.55%, 6.95% Exit Fee

$

15,000

 

 

15,304

 

 

15,169

 

Contentful, Inc. (5)(10)(11)(14)

Internet Consumer & Business Services

Senior Secured

July 2022

Interest rate PRIME + 2.95% or Floor rate of 7.95%, PIK Interest 1.25%, 3.55% Exit Fee

$

3,794

 

 

3,793

 

 

3,786

 

ePayPolicy Holdings, LLC (17)

Internet Consumer & Business Services

Senior Secured

December 2024

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

$

8,000

 

 

7,758

 

 

7,758

 

EverFi, Inc. (11)(14)(16)

Internet Consumer & Business Services

Senior Secured

May 2022

Interest rate PRIME + 3.90% or Floor rate of 9.15%, PIK Interest 2.30%

$

72,208

 

 

71,905

 

 

72,277

 

Greenphire, Inc.

Internet Consumer & Business Services

Senior Secured

January 2021

Interest rate 3-month LIBOR + 8.00% or Floor rate of 9.00%

$

1,612

 

 

1,612

 

 

1,610

 

 

Internet Consumer & Business Services

Senior Secured

January 2021

Interest rate PRIME + 3.75% or Floor rate of 8.75%

$

2,000

 

 

2,000

 

 

2,000

 

Total Greenphire, Inc.

$

3,612

 

 

3,612

 

 

3,610

 

Houzz, Inc. (14)

Internet Consumer & Business Services

Senior Secured

November 2022

Interest rate PRIME + 3.20% or Floor rate of 8.45%, PIK Interest 2.50%, 4.50% Exit Fee

$

50,115

 

 

49,720

 

 

49,720

 

Intent (p.k.a. Intent Media, Inc.) (12)

Internet Consumer & Business Services

Senior Secured

September 2021

Interest rate PRIME + 5.13% or Floor rate of 10.13%, 2.00% Exit Fee

$

15,200

 

 

15,141

 

 

15,034

 

Lendio, Inc. (11)(19)

Internet Consumer & Business Services

Senior Secured

April 2023

Interest rate PRIME + 4.45% or Floor rate of 9.95%, 5.25% Exit Fee

$

5,000

 

 

4,985

 

 

4,999

 

Nextroll, Inc. (14)(19)

Internet Consumer & Business Services

Senior Secured

June 2022

Interest rate PRIME + 3.85% or Floor rate of 9.35%, PIK Interest 2.95%, 3.50% Exit Fee

$

20,303

 

 

20,268

 

 

20,459

 

Patron Technology (18)

Internet Consumer & Business Services

Senior Secured

June 2024

Interest rate 3-month LIBOR + 8.30% or Floor rate of 9.30%

$

35,750

 

 

34,776

 

 

35,400

 

 

Internet Consumer & Business Services

Senior Secured

June 2024

Interest rate 3-month LIBOR + 8.30% or Floor rate of 9.30%

$

1,500

 

 

1,500

 

 

1,500

 

Total Patron Technology

$

37,250

 

 

36,276

 

 

36,900

 

Postmates, Inc. (19)

Internet Consumer & Business Services

Senior Secured

September 2022

Interest rate PRIME + 3.85% or Floor rate of 8.85%, 8.05% Exit Fee

$

20,000

 

 

20,313

 

 

20,274

 

SeatGeek, Inc. (14)(17)

Internet Consumer & Business Services

Senior Secured

June 2023

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

$

23,043

 

 

22,382

 

 

22,471

 

Skyword, Inc. (14)

Internet Consumer & Business Services

Senior Secured

September 2023

Interest rate PRIME + 3.88% or Floor rate of 9.38%, PIK Interest 1.25%, 2.75% Exit Fee

$

12,042

 

 

11,886

 

 

11,886

 

Tectura Corporation (7)(8)(9)(14)

Internet Consumer & Business Services

Senior Secured

June 2021

Interest rate FIXED 6.00%, PIK Interest 3.00%

$

21,407

 

 

21,407

 

 

9,586

 

 

Internet Consumer & Business Services

Senior Secured

June 2021

PIK Interest 8.00%

$

10,680

 

 

240

 

 

 

Total Tectura Corporation

$

32,087

 

 

21,647

 

 

9,586

 

Varsity Tutors LLC (14)

Internet Consumer & Business Services

Senior Secured

August 2023

Interest rate PRIME + 5.25% or Floor rate of 10.75%, PIK Interest 0.55%, 3.00% Exit Fee

$

35,052

 

 

34,822

 

 

34,822

 

Wheels Up Partners LLC (11)

Internet Consumer & Business Services

Senior Secured

July 2022

Interest rate 3-month LIBOR + 8.55% or Floor rate of 9.55%

$

17,129

 

 

17,026

 

 

16,988

 

Xometry, Inc. (13)(19)

Internet Consumer & Business Services

Senior Secured

November 2021

Interest rate PRIME + 3.95% or Floor rate of 8.45%, 7.09% Exit Fee

$

11,000

 

 

11,345

 

 

11,401

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

418,685

 

 

407,659

 

Subtotal: Internet Consumer & Business Services (40.26%)*

 

 

 

 

 

467,156

 

 

456,130

 

Media/Content/Info

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Bustle (14)(15)

Media/Content/Info

Senior Secured

June 2023

Interest rate PRIME + 4.35% or Floor rate of 9.35%, PIK Interest 1.95%, 4.34% Exit Fee

$

20,632

 

 

20,647

 

 

20,786

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

20,647

 

 

20,786

 

Subtotal: Media/Content/Info (1.83%)*

 

 

 

 

 

20,647

 

 

20,786

 

Medical Devices & Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Flowonix Medical Incorporated (11)

Medical Devices & Equipment

Senior Secured

October 2021

Interest rate PRIME + 4.00% or Floor rate of 9.00%, 7.95% Exit Fee

$

7,561

 

 

8,178

 

 

8,158

 

Intuity Medical, Inc. (11)(15)

Medical Devices & Equipment

Senior Secured

June 2021

Interest rate PRIME + 5.00% or Floor rate of 9.25%, 6.95% Exit Fee

$

14,188

 

 

14,906

 

 

14,810

 

Quanterix Corporation (11)

Medical Devices & Equipment

Senior Secured

October 2021

Interest rate PRIME + 2.75% or Floor rate of 8.00%, 0.96% Exit Fee

$

7,688

 

 

7,683

 

 

7,728

 

Rapid Micro Biosystems, Inc. (11)(15)

Medical Devices & Equipment

Senior Secured

April 2022

Interest rate PRIME + 5.15% or Floor rate of 9.65%, 7.25% Exit Fee

$

18,000

 

 

18,586

 

 

18,454

 

See notes to consolidated financial statements

22


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2019

(unaudited)

(dollars in thousands)

 

Portfolio Company

Sub-Industry

Type of

Investment (1)

Maturity

Date

Interest Rate and Floor (2)

Principal

Amount

 

Cost (3)

 

Value (4)

 

Sebacia, Inc. (11)(15)

Medical Devices & Equipment

Senior Secured

January 2021

Interest rate PRIME + 4.35% or Floor rate of 8.85%, 6.05% Exit Fee

$

11,000

 

$

11,503

 

$

11,426

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

60,856

 

 

60,576

 

Subtotal: Medical Devices & Equipment (5.35%)*

 

 

 

 

 

60,856

 

 

60,576

 

Semiconductors

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Elenion Technologies Corporation (13)(14)

Semiconductors

Senior Secured

February 2022

Interest rate PRIME + 4.25% or Floor rate of 9.75%, PIK Interest 2.25%, 5.00% Exit Fee

$

10,187

 

 

10,316

 

 

10,316

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

10,316

 

 

10,316

 

Subtotal: Semiconductors (0.91%)*

 

 

 

 

 

10,316

 

 

10,316

 

Software

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Delphix Corp. (19)

Software

Senior Secured

September 2020

Interest rate PRIME + 5.25% or Floor rate of 10.25%, 7.00% Exit Fee

$

10,000

 

 

9,878

 

 

9,878

 

Evernote Corporation (11)(14)(15)(19)

Software

Senior Secured

October 2020

Interest rate PRIME + 5.45% or Floor rate of 8.95%

$

5,549

 

 

5,494

 

 

5,494

 

Lightbend, Inc. (14)(15)

Software

Senior Secured

June 2020

Interest rate PRIME + 4.25% or Floor rate of 9.25%, PIK Interest 2.00%, 12.95% Exit Fee

$

2,026

 

 

2,026

 

 

2,026

 

Pollen, Inc. (15)

Software

Senior Secured

October 2020

Interest rate PRIME + 4.25% or Floor rate of 8.50%, 5.95% Exit Fee

$

7,000

 

 

7,339

 

 

7,339

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

24,737

 

 

24,737

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Abrigo (18)

Software

Senior Secured

March 2023

Interest rate 3-month LIBOR + 7.88% or Floor rate of 8.88%

$

39,303

 

 

38,649

 

 

38,826

 

 

Software

Senior Secured

March 2023

Interest rate 3-month LIBOR + 5.92% or Floor rate of 6.92%

$

2,362

 

 

2,304

 

 

2,304

 

Total Abrigo

$

41,665

 

 

40,953

 

 

41,130

 

Businessolver.com, Inc. (11)(16)

Software

Senior Secured

May 2023

Interest rate 3-month LIBOR + 7.50% or Floor rate of 8.50%

$

58,650

 

 

57,776

 

 

57,760

 

 

Software

Senior Secured

May 2023

Interest rate 3-month LIBOR + 7.50% or Floor rate of 8.50% and Interest rate PRIME + 6.5% or Floor rate of 8.50%

$

2,550

 

 

2,550

 

 

2,550

 

Total Businessolver.com, Inc.

$

61,200

 

 

60,326

 

 

60,310

 

Clarabridge, Inc. (12)(13)(14)(17)

Software

Senior Secured

April 2022

Interest rate PRIME + 4.80% or Floor rate of 8.55%, PIK Interest 2.25%

$

48,268

 

 

47,907

 

 

48,006

 

Cloud 9 Software (13)(17)

Software

Senior Secured

April 2024

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

$

9,500

 

 

9,332

 

 

9,374

 

Cloudian, Inc. (11)

Software

Senior Secured

November 2022

Interest rate PRIME + 3.25% or Floor rate of 8.25%, 9.75% Exit Fee

$

15,000

 

 

15,323

 

 

15,211

 

Couchbase, Inc. (11)(15)(19)

Software

Senior Secured

May 2023

Interest rate PRIME + 5.25% or Floor rate of 10.75%, 3.75% Exit Fee

$

50,000

 

 

49,575

 

 

49,932

 

Dashlane, Inc. (11)(14)(17)(19)

Software

Senior Secured

April 2022

Interest rate PRIME + 4.05% or Floor rate of 8.55%, PIK Interest 1.10%, 8.50% Exit Fee

$

10,180

 

 

10,457

 

 

10,481

 

 

Software

Senior Secured

March 2023

Interest rate PRIME + 4.05% or Floor rate of 8.55%, PIK Interest 1.10%, 4.95% Exit Fee

$

10,081

 

 

9,920

 

 

9,899

 

Total Dashlane, Inc.

$

20,261

 

 

20,377

 

 

20,380

 

Evernote Corporation (11)(14)(15)(19)

Software

Senior Secured

July 2021

Interest rate PRIME + 6.00% or Floor rate of 9.50%, PIK Interest 1.25%

$

4,126

 

 

4,055

 

 

4,038

 

 

Software

Senior Secured

July 2022

Interest rate PRIME + 6.00% or Floor rate of 9.50%, PIK Interest 1.25%

$

5,077

 

 

5,012

 

 

5,065

 

Total Evernote Corporation

$

9,203

 

 

9,067

 

 

9,103

 

Ikon Science Limited (5)(10)(18)

Software

Senior Secured

October 2024

Interest rate LIBOR + 9.00% or Floor rate of 10.00%

$

7,000

 

 

6,688

 

 

6,688

 

Insurance Technologies Corporation (11)(18)

Software

Senior Secured

March 2023

Interest rate 3-month LIBOR + 7.90% or Floor rate of 8.90%

$

13,750

 

 

13,526

 

 

13,330

 

Jolt Software, Inc. (14)

Software

Senior Secured

October 2022

Interest rate PRIME + 3.00% or Floor rate of 8.50%, PIK Interest 1.75%, 4.50% Exit Fee

$

5,017

 

 

5,004

 

 

5,004

 

Kazoo, Inc. (p.k.a. YouEarnedIt, Inc.) (11)(18)

Software

Senior Secured

July 2023

Interest rate 1-month LIBOR + 8.65% or Floor rate of 9.65%

$

8,785

 

 

8,589

 

 

8,531

 

Khoros (p.k.a Lithium Technologies) (11)

Software

Senior Secured

October 2022

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

$

12,000

 

 

11,835

 

 

11,825

 

 

Software

Senior Secured

October 2022

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

$

43,000

 

 

42,233

 

 

42,049

 

Total Khoros (p.k.a Lithium Technologies)

$

55,000

 

 

54,068

 

 

53,874

 

Lastline, Inc. (19)

Software

Senior Secured

July 2022

Interest rate PRIME + 5.45% or Floor rate of 10.95%

$

6,000

 

 

5,834

 

 

5,844

 

See notes to consolidated financial statements

23


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2019

(unaudited)

(dollars in thousands)

 

Portfolio Company

Sub-Industry

Type of

Investment (1)

Maturity

Date

Interest Rate and Floor (2)

Principal

Amount

 

Cost (3)

 

Value (4)

 

Lightbend, Inc. (14)(15)

Software

Senior Secured

February 2022

Interest rate PRIME + 4.25% or Floor rate of 9.25%, PIK Interest 2.00%, 3.00% Exit Fee

$

16,509

 

$

16,384

 

$

16,333

 

Mobile Solutions Services (17)(18)

Software

Senior Secured

October 2024

Interest rate 3-month LIBOR + 8.80% or Floor rate of 9.80%

$

5,500

 

 

5,329

 

 

5,329

 

Nuvolo Technologies Corporation (19)

Software

Senior Secured

October 2022

Interest rate PRIME + 6.25% or Floor rate of 11.75%

$

13,000

 

 

12,815

 

 

12,877

 

OrthoFi, Inc. (13)(18)

Software

Senior Secured

April 2024

Interest rate 3-month LIBOR + 8.28% or Floor rate of 9.28%

$

17,853

 

 

17,417

 

 

17,283

 

Quid, Inc. (11)(14)(15)

Software

Senior Secured

November 2022

Interest rate PRIME + 4.45% or Floor rate of 9.95%, PIK Interest 2.25%, 3.61% Exit Fee

$

13,251

 

 

13,235

 

 

13,235

 

Regent Education (14)

Software

Senior Secured

January 2022

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

$

3,155

 

 

3,214

 

 

1,773

 

Salsa Labs, Inc. (11)(17)

Software

Senior Secured

April 2023

Interest rate 3-month LIBOR + 8.15% or Floor rate of 9.15%

$

6,000

 

 

5,915

 

 

5,959

 

 

Software

Senior Secured

April 2023

Interest rate 3-month LIBOR + 8.15% or Floor rate of 9.15%

$

150

 

 

150

 

 

151

 

Total Salsa Labs, Inc.

$

6,150

 

 

6,065

 

 

6,110

 

ThreatConnect, Inc. (13)(17)(18)

Software

Senior Secured

May 2024

Interest rate 3-month LIBOR + 8.26% or Floor rate of 9.26%

$

4,500

 

 

4,365

 

 

4,387

 

Vela Trading Technologies (11)(18)

Software

Senior Secured

July 2022

Interest rate 3-month LIBOR + 10.50% or Floor rate of 11.50%

$

19,095

 

 

18,721

 

 

18,721

 

ZeroFox, Inc.

Software

Senior Secured

January 2023

Interest rate PRIME + 4.75% or Floor rate of 10.25%, 3.00% Exit Fee

$

15,000

 

 

14,927

 

 

14,948

 

ZocDoc (11)(19)

Software

Senior Secured

August 2021

Interest rate PRIME + 6.20% or Floor rate of 10.95%, 2.00% Exit Fee

$

30,000

 

 

30,241

 

 

30,287

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

489,282

 

 

488,000

 

Greater than 5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Campaign Monitor Limited (11)(17)(19)

Software

Senior Secured

November 2025

Interest rate 1-month LIBOR + 8.50% or Floor rate of 9.50%

$

29,333

 

 

28,676

 

 

28,511

 

 

Software

Senior Secured

November 2025

Interest rate 1-month LIBOR + 8.50% or Floor rate of 9.50%

$

688

 

 

672

 

 

672

 

Total Campaign Monitor Limited

$

30,021

 

 

29,348

 

 

29,183

 

Imperva, Inc. (19)

Software

Senior Secured

January 2027

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

$

20,000

 

 

19,806

 

 

19,806

 

Subtotal: Greater than 5 Years Maturity

 

 

 

 

 

 

 

 

49,154

 

 

48,989

 

Subtotal: Software (49.58%)*

 

 

 

 

 

563,173

 

 

561,726

 

Sustainable and Renewable Technology

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

Impossible Foods, Inc. (12)(13)

Sustainable and Renewable Technology

Senior Secured

January 2022

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

$

50,000

 

 

51,843

 

 

51,780

 

Proterra, Inc. (11)(14)(19)

Sustainable and Renewable Technology

Senior Secured

May 2021

Interest rate PRIME + 5.05% or Floor rate of 10.55%, PIK Interest 1.75%

$

10,101

 

 

10,059

 

 

10,100

 

Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) (6)(8)(14)(19)

Sustainable and Renewable Technology

Senior Secured

December 2020

Interest rate FIXED 6.73%, PIK Interest 6.73%, 6.67% Exit Fee

$

10,000

 

 

10,775

 

 

10,512

 

 

Sustainable and Renewable Technology

Senior Secured

December 2020

PIK Interest 10.00%

$

683

 

 

683

 

 

664

 

 

Sustainable and Renewable Technology

Senior Secured

December 2020

Interest rate FIXED 8.85%, PIK Interest 8.85%

$

1,492

 

 

1,492

 

 

1,439

 

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

$

12,175

 

 

12,950

 

 

12,615

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

74,852

 

 

74,495

 

Subtotal: Sustainable and Renewable Technology (6.57%)*

 

 

 

 

 

74,852

 

 

74,495

 

Total: Debt Investments (189.63%)*

 

 

 

 

 

2,170,140

 

 

2,148,592

 

See notes to consolidated financial statements

24


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2019

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment (1)

 

Series

 

Shares

 

 

Cost (3)

 

 

Value (4)

Equity Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Communications & Networking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Peerless Network Holdings, Inc.

 

Communications & Networking

 

Equity

 

Preferred Series A

 

 

1,135,000

 

 

$

1,230

 

 

$

3,955

Subtotal: Communications & Networking (0.35%)*

 

 

 

1,230

 

 

 

3,955

Diversified Financial Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gibraltar Business Capital, LLC (7)

 

Diversified Financial Services

 

Equity

 

Common Stock

 

 

830,000

 

 

 

1,884

 

 

 

2,380

 

 

Diversified Financial Services

 

Equity

 

Preferred Series A

 

 

10,602,752

 

 

 

26,122

 

 

 

33,000

Total Gibraltar Business Capital, LLC

 

 

 

 

 

 

 

 

11,432,752

 

 

 

28,006

 

 

 

35,380

Subtotal: Diversified Financial Services (3.11%)*

 

 

 

 

 

28,006

 

 

 

35,380

Drug Delivery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AcelRx Pharmaceuticals, Inc. (4)

 

Drug Delivery

 

Equity

 

Common Stock

 

 

176,730

 

 

 

1,329

 

 

 

373

BioQ Pharma Incorporated (15)

 

Drug Delivery

 

Equity

 

Preferred Series D

 

 

165,000

 

 

 

500

 

 

 

768

Kaleo, Inc.

 

Drug Delivery

 

Equity

 

Preferred Series B

 

 

82,500

 

 

 

1,007

 

 

 

3,067

Neos Therapeutics, Inc. (4)(15)

 

Drug Delivery

 

Equity

 

Common Stock

 

 

125,000

 

 

 

1,500

 

 

 

189

PDS Biotechnology Corporation (p.k.a. Edge Therapeutics, Inc.) (4)

 

Drug Delivery

 

Equity

 

Common Stock

 

 

2,498

 

 

 

309

 

 

 

7

Subtotal: Drug Delivery (0.39%)*

 

 

 

 

 

 

4,645

 

 

 

4,404

Drug Discovery & Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aveo Pharmaceuticals, Inc. (4)(15)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

1,901,791

 

 

 

1,715

 

 

 

1,189

Axovant Gene Therapies Ltd. (p.k.a. Axovant Sciences Ltd.) (4)(5)(10)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

16,228

 

 

 

1,269

 

 

 

83

BridgeBio Pharma LLC (4)(16)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

203,579

 

 

 

2,000

 

 

 

7,135

Cerecor, Inc. (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

119,087

 

 

 

1,000

 

 

 

642

Concert Pharmaceuticals, Inc. (4)(10)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

70,796

 

 

 

1,367

 

 

 

653

Dare Biosciences, Inc. (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

13,550

 

 

 

1,000

 

 

 

11

Dynavax Technologies (4)(10)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

20,000

 

 

 

550

 

 

 

114

Eidos Therapeutics, Inc. (4)(10)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

15,000

 

 

 

255

 

 

 

861

Genocea Biosciences, Inc. (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

27,932

 

 

 

2,000

 

 

 

58

Insmed, Incorporated (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

50,771

 

 

 

717

 

 

 

1,212

Melinta Therapeutics (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

10,364

 

 

 

2,000

 

 

 

6

Paratek Pharmaceuticals, Inc. (4)(16)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

76,362

 

 

 

2,744

 

 

 

307

Rocket Pharmaceuticals, Ltd. (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

944

 

 

 

1,500

 

 

 

21

Savara, Inc. (4)(15)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

11,119

 

 

 

203

 

 

 

50

uniQure B.V. (4)(5)(10)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

17,175

 

 

 

332

 

 

 

1,231

X4 Pharmaceuticals, Inc. (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

83,334

 

 

 

640

 

 

 

891

Subtotal: Drug Discovery & Development (1.28%)*

 

 

 

 

 

 

19,292

 

 

 

14,464

Healthcare Services, Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23andMe, Inc.

 

Healthcare Services, Other

 

Equity

 

Common Stock

 

 

360,000

 

 

 

5,094

 

 

 

5,196

Chromadex Corporation (4)

 

Healthcare Services, Other

 

Equity

 

Common Stock

 

 

44,264

 

 

 

157

 

 

 

191

Subtotal: Healthcare Services, Other (0.48%)*

 

 

 

 

 

 

5,251

 

 

 

5,387

Information Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DocuSign, Inc. (4)

 

Information Services

 

Equity

 

Common Stock

 

 

251,000

 

 

 

3,871

 

 

 

13,795

Subtotal: Information Services (1.22%)*

 

 

 

 

 

 

3,871

 

 

 

13,795

Internet Consumer & Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Blurb, Inc.

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series B

 

 

220,653

 

 

 

175

 

 

 

46

Contentful, Inc. (5)(10)

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series D

 

 

217

 

 

 

500

 

 

 

443

Countable Corporation (p.k.a. Brigade Group, Inc.)

 

Internet Consumer & Business Services

 

Equity

 

Common Stock

 

 

9,023

 

 

 

93

 

 

 

DoorDash, Inc.

 

Internet Consumer & Business Services

 

Equity

 

Common Stock

 

 

105,000

 

 

 

6,051

 

 

 

14,422

Lyft, Inc. (4)

 

Internet Consumer & Business Services

 

Equity

 

Common Stock

 

 

200,738

 

 

 

10,487

 

 

 

8,636

Nextdoor.com, Inc.

 

Internet Consumer & Business Services

 

Equity

 

Common Stock

 

 

328,190

 

 

 

4,854

 

 

 

6,692

OfferUp, Inc.

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series A

 

 

286,080

 

 

 

1,663

 

 

 

1,470

 

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series A-1

 

 

108,710

 

 

 

632

 

 

 

559

Total OfferUp, Inc.

 

 

 

 

 

 

 

 

394,790

 

 

 

2,295

 

 

 

2,029

Oportun (4)

 

Internet Consumer & Business Services

 

Equity

 

Common Stock

 

 

37,393

 

 

 

500

 

 

 

890

Tectura Corporation (7)

 

Internet Consumer & Business Services

 

Equity

 

Common Stock

 

 

414,994,863

 

 

 

900

 

 

 

 

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series BB

 

 

1,000,000

 

 

 

 

 

 

Total Tectura Corporation

 

 

 

 

 

 

 

 

415,994,863

 

 

 

900

 

 

 

Subtotal: Internet Consumer & Business Services (2.92%)*

 

 

 

 

 

 

25,855

 

 

 

33,158

Medical Devices & Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Flowonix Medical Incorporated

 

Medical Devices & Equipment

 

Equity

 

Preferred Series AA

 

 

221,893

 

 

 

1,500

 

 

 

Gelesis, Inc.

 

Medical Devices & Equipment

 

Equity

 

Common Stock

 

 

227,013

 

 

 

 

 

 

679

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series A-1

 

 

191,210

 

 

 

425

 

 

 

598

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series A-2

 

 

191,626

 

 

 

500

 

 

 

584

Total Gelesis, Inc.

 

 

 

 

 

 

 

 

609,849

 

 

 

925

 

 

 

1,861

Medrobotics Corporation (15)

 

Medical Devices & Equipment

 

Equity

 

Preferred Series E

 

 

136,798

 

 

 

250

 

 

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series F

 

 

73,971

 

 

 

155

 

 

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series G

 

 

163,934

 

 

 

500

 

 

 

Total Medrobotics Corporation

 

 

 

 

 

 

 

 

374,703

 

 

 

905

 

 

 

See notes to consolidated financial statements

25


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2019

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment (1)

 

Series

 

Shares

 

 

Cost (3)

 

 

Value (4)

Optiscan Biomedical, Corp. (6)

 

Medical Devices & Equipment

 

Equity

 

Preferred Series B

 

 

61,855

 

 

$

3,000

 

$

 

463

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series C

 

 

19,273

 

 

 

655

 

 

 

127

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series D

 

 

551,038

 

 

 

5,257

 

 

 

3,784

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series E

 

 

507,103

 

 

 

4,239

 

 

 

4,610

Total Optiscan Biomedical, Corp.

 

 

 

 

 

 

 

 

1,139,269

 

 

 

13,151

 

 

 

8,984

Outset Medical, Inc.

 

Medical Devices & Equipment

 

Equity

 

Preferred Series B

 

 

232,061

 

 

 

527

 

 

 

615

ViewRay, Inc. (4)(15)

 

Medical Devices & Equipment

 

Equity

 

Common Stock

 

 

36,457

 

 

 

333

 

 

 

154

Subtotal: Medical Devices & Equipment (1.03%)*

 

 

 

 

 

 

 

 

17,341

 

 

 

11,614

Software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CapLinked, Inc.

 

Software

 

Equity

 

Preferred Series A-3

 

 

53,614

 

 

 

51

 

 

 

95

Docker, Inc.

 

Software

 

Equity

 

Common Stock

 

 

20,000

 

 

 

4,284

 

 

 

22

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

 

Software

 

Equity

 

Preferred Series 2

 

 

458,841

 

 

 

1,000

 

 

 

1,883

 

 

Software

 

Equity

 

Preferred Series 3

 

 

93,620

 

 

 

300

 

 

 

432

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

 

 

 

 

 

 

 

 

552,461

 

 

 

1,300

 

 

 

2,315

HighRoads, Inc.

 

Software

 

Equity

 

Common Stock

 

 

190

 

 

 

307

 

 

 

Palantir Technologies

 

Software

 

Equity

 

Preferred Series D

 

 

9,535

 

 

 

47

 

 

 

49

 

 

Software

 

Equity

 

Preferred Series E

 

 

1,749,089

 

 

 

10,489

 

 

 

8,932

 

 

Software

 

Equity

 

Preferred Series G

 

 

326,797

 

 

 

2,211

 

 

 

1,668

Total Palantir Technologies

 

 

 

 

 

 

 

 

2,085,421

 

 

 

12,747

 

 

 

10,649

Sprinklr, Inc.

 

Software

 

Equity

 

Common Stock

 

 

700,000

 

 

 

3,749

 

 

 

4,159

Subtotal: Software (1.52%)*

 

 

 

 

 

 

 

 

22,438

 

 

 

17,240

Surgical Devices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gynesonics, Inc. (15)

 

Surgical Devices

 

Equity

 

Preferred Series B

 

 

219,298

 

 

 

250

 

 

 

7

 

 

Surgical Devices

 

Equity

 

Preferred Series C

 

 

656,538

 

 

 

282

 

 

 

21

 

 

Surgical Devices

 

Equity

 

Preferred Series D

 

 

1,991,157

 

 

 

712

 

 

 

70

 

 

Surgical Devices

 

Equity

 

Preferred Series E

 

 

2,786,367

 

 

 

429

 

 

 

121

 

 

Surgical Devices

 

Equity

 

Preferred Series F

 

 

1,523,693

 

 

 

118

 

 

 

148

 

 

Surgical Devices

 

Equity

 

Preferred Series F-1

 

 

2,418,125

 

 

 

150

 

 

 

201

Total Gynesonics, Inc.

 

 

 

 

 

 

 

 

9,595,178

 

 

 

1,941

 

 

 

568

TransMedics Group, Inc. (p.k.a Transmedics, Inc.) (4)

 

Surgical Devices

 

Equity

 

Common Stock

 

 

162,617

 

 

 

2,550

 

 

 

3,091

Subtotal: Surgical Devices (0.32%)*

 

 

 

 

 

 

 

 

4,491

 

 

 

3,659

Sustainable and Renewable Technology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impossible Foods, Inc.

 

Sustainable and Renewable Technology

 

Equity

 

Preferred Series E-1

 

 

188,611

 

 

 

2,000

 

 

 

1,496

Modumetal, Inc.

 

Sustainable and Renewable Technology

 

Equity

 

Preferred Series A-1

 

 

103,584

 

 

 

500

 

 

 

8

Proterra, Inc.

 

Sustainable and Renewable Technology

 

Equity

 

Preferred Series 5

 

 

99,280

 

 

 

500

 

 

 

493

Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) (6)

 

Sustainable and Renewable Technology

 

Equity

 

Common Stock

 

 

488

 

 

 

61,502

 

 

 

Subtotal: Sustainable and Renewable Technology (0.18%)*

 

 

 

 

 

 

 

 

64,502

 

 

 

1,997

Total: Equity Investments (12.80%)*

 

 

 

 

 

 

 

 

 

 

 

 

196,922

 

 

 

145,053

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Communications & Networking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Peerless Network Holdings, Inc.

 

Communications & Networking

 

Warrant

 

Common Stock

 

 

3,328

 

 

 

 

 

 

7

Spring Mobile Solutions, Inc.

 

Communications & Networking

 

Warrant

 

Common Stock

 

 

2,834,375

 

 

 

418

 

 

 

Subtotal: Communications & Networking (0.00%)*

 

 

 

 

 

 

 

 

418

 

 

 

7

Consumer & Business Products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gadget Guard (15)

 

Consumer & Business Products

 

Warrant

 

Common Stock

 

 

1,662,441

 

 

 

228

 

 

 

Intelligent Beauty, Inc.

 

Consumer & Business Products

 

Warrant

 

Preferred Series B

 

 

190,234

 

 

 

230

 

 

 

475

The Neat Company

 

Consumer & Business Products

 

Warrant

 

Common Stock

 

 

54,054

 

 

 

365

 

 

 

Whoop, Inc.

 

Consumer & Business Products

 

Warrant

 

Preferred Series C

 

 

68,627

 

 

 

18

 

 

 

55

Subtotal: Consumer & Business Products (0.05%)*

 

 

 

 

 

 

 

 

841

 

 

 

530

Drug Delivery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerami Therapeutics (p.k.a. Dance Biopharm, Inc.) (15)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

110,882

 

 

 

74

 

 

 

Agile Therapeutics, Inc. (4)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

180,274

 

 

 

730

 

 

 

113

BioQ Pharma Incorporated

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

459,183

 

 

 

1

 

 

 

928

Neos Therapeutics, Inc. (4)(15)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

70,833

 

 

 

285

 

 

 

PDS Biotechnology Corporation (p.k.a. Edge Therapeutics, Inc.) (4)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

3,929

 

 

 

390

 

 

 

Pulmatrix Inc. (4)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

2,515

 

 

 

116

 

 

 

ZP Opco, Inc. (4)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

3,618

 

 

 

265

 

 

 

Subtotal: Drug Delivery (0.09%)*

 

 

 

 

 

 

 

 

1,861

 

 

 

1,041

Drug Discovery & Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acacia Pharma Inc. (4)(5)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

201,330

 

 

 

304

 

 

 

109

ADMA Biologics, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

89,750

 

 

 

295

 

 

 

39

Brickell Biotech, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

9,005

 

 

 

119

 

 

 

Cerecor, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

22,328

 

 

 

70

 

 

 

12

Concert Pharmaceuticals, Inc. (4)(10)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

61,273

 

 

 

178

 

 

 

75

See notes to consolidated financial statements

26


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2019

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment (1)

 

Series

 

Shares

 

 

Cost (3)

 

 

Value (4)

CTI BioPharma Corp. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

29,239

 

 

$

165

 

$

 

CytRx Corporation (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

105,694

 

 

 

160

 

 

 

Dare Biosciences, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

17,190

 

 

 

369

 

 

 

Dermavant Sciences Ltd. (5)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

223,642

 

 

 

101

 

 

 

108

Dicerna Pharmaceuticals, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

200

 

 

 

28

 

 

 

Evofem Biosciences, Inc. (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

7,806

 

 

 

266

 

 

 

19

Genocea Biosciences, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

41,176

 

 

 

165

 

 

 

15

Immune Pharmaceuticals (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

10,742

 

 

 

164

 

 

 

Melinta Therapeutics (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

8,109

 

 

 

625

 

 

 

Motif BioSciences Inc. (4)(5)(10)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

73,452

 

 

 

282

 

 

 

Myovant Sciences, Ltd. (4)(5)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

73,710

 

 

 

460

 

 

 

485

Ology Bioservices, Inc. (15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

171,389

 

 

 

838

 

 

 

Paratek Pharmaceuticals, Inc. (4)(15)(16)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

94,841

 

 

 

204

 

 

 

20

Sorrento Therapeutics, Inc. (4)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

306,748

 

 

 

889

 

 

 

270

Stealth Bio Therapeutics Corp. (4)(5)(10)

 

Drug Discovery & Development

 

Warrant

 

American Depositary Shares

 

 

41,667

 

 

 

158

 

 

 

2

TG Therapeutics, Inc. (4)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

147,058

 

 

 

564

 

 

 

920

Tricida, Inc. (4)(15)(16)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

131,998

 

 

 

1,102

 

 

 

2,667

Urovant Sciences, Ltd. (4)(5)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

99,777

 

 

 

383

 

 

 

715

X4 Pharmaceuticals, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

108,334

 

 

 

673

 

 

 

302

XOMA Corporation (4)(10)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

9,063

 

 

 

279

 

 

 

6

Yumanity Therapeutics, Inc.

 

Drug Discovery & Development

 

Warrant

 

Class B Preferred Units

 

 

34,946

 

 

 

110

 

 

 

114

Subtotal: Drug Discovery & Development (0.51%)*

 

 

 

 

 

 

 

 

8,951

 

 

 

5,878

Electronics & Computer Hardware

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

908 Devices, Inc. (15)

 

Electronics & Computer Hardware

 

Warrant

 

Preferred Series D

 

 

79,856

 

 

 

101

 

 

 

52

Subtotal: Electronics & Computer Hardware (0.00%)*

 

 

 

 

 

 

 

 

101

 

 

 

52

Information Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

InMobi Inc. (5)(10)

 

Information Services

 

Warrant

 

Common Stock

 

 

65,587

 

 

 

82

 

 

 

Netbase Solutions, Inc.

 

Information Services

 

Warrant

 

Preferred Series 1

 

 

60,000

 

 

 

356

 

 

 

416

Planet Labs, Inc.

 

Information Services

 

Warrant

 

Common Stock

 

 

274,160

 

 

 

565

 

 

 

224

RichRelevance, Inc.

 

Information Services

 

Warrant

 

Preferred Series E

 

 

112,612

 

 

 

98

 

 

 

Sapphire Digital, Inc. (p.k.a. MDX Medical, Inc.) (15)

 

Information Services

 

Warrant

 

Common Stock

 

 

2,812,500

 

 

 

283

 

 

 

122

Subtotal: Information Services (0.07%)*

 

 

 

 

 

 

 

 

1,384

 

 

 

762

Internet Consumer & Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aria Systems, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series G

 

 

231,535

 

 

 

73

 

 

 

Blurb, Inc. (15)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series C

 

 

234,280

 

 

 

636

 

 

 

13

Cloudpay, Inc. (5)(10)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series B

 

 

6,763

 

 

 

54

 

 

 

18

Contentful, Inc. (5)(10)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series C

 

 

82

 

 

 

1

 

 

 

17

Fastly, Inc. (4)

 

Internet Consumer & Business Services

 

Warrant

 

Common Stock

 

 

76,098

 

 

 

71

 

 

 

617

First Insight, Inc. (15)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series B

 

 

75,917

 

 

 

96

 

 

 

151

Houzz, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Common Stock

 

 

529,661

 

 

 

20

 

 

 

14

Intent (p.k.a. Intent Media, Inc.)

 

Internet Consumer & Business Services

 

Warrant

 

Common Stock

 

 

140,077

 

 

 

168

 

 

 

214

Interactions Corporation

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series G-3

 

 

68,187

 

 

 

204

 

 

 

445

Just Fabulous, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series B

 

 

206,184

 

 

 

1,102

 

 

 

1,622

Lendio, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series D

 

 

127,032

 

 

 

39

 

 

 

14

LogicSource

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series C

 

 

79,625

 

 

 

30

 

 

 

122

Oportun (4)

 

Internet Consumer & Business Services

 

Warrant

 

Common Stock

 

 

23,514

 

 

 

78

 

 

 

279

Postmates, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Common Stock

 

 

189,865

 

 

 

317

 

 

 

83

RumbleON, Inc. (4)

 

Internet Consumer & Business Services

 

Warrant

 

Common Stock

 

 

102,768

 

 

 

87

 

 

 

6

SeatGeek, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Common Stock

 

 

689,880

 

 

 

662

 

 

 

596

ShareThis, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series C

 

 

493,502

 

 

 

547

 

 

 

Skyword, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series A

 

 

444,444

 

 

 

83

 

 

 

43

Snagajob.com, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series A

 

 

1,800,000

 

 

 

782

 

 

 

40

 

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series B

 

 

1,211,537

 

 

 

62

 

 

 

15

Total Snagajob.com, Inc.

 

 

 

 

 

 

 

 

3,011,537

 

 

 

844

 

 

 

55

Tapjoy, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series D

 

 

748,670

 

 

 

316

 

 

 

2

The Faction Group LLC

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series AA

 

 

8,076

 

 

 

234

 

 

 

395

Thumbtack, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Common Stock

 

 

190,953

 

 

 

553

 

 

 

958

Xometry, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series B

 

 

87,784

 

 

 

47

 

 

 

180

Subtotal: Internet Consumer & Business Services (0.52%)*

 

 

 

 

 

 

 

 

6,262

 

 

 

5,844

Media/Content/Info

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Machine Zone, Inc.

 

Media/Content/Info

 

Warrant

 

Common Stock

 

 

1,552,710

 

 

 

1,960

 

 

 

285

Napster

 

Media/Content/Info

 

Warrant

 

Common Stock

 

 

715,755

 

 

 

384

 

 

 

WP Technology, Inc. (Wattpad, Inc.) (5)(10)

 

Media/Content/Info

 

Warrant

 

Common Stock

 

 

255,818

 

 

 

3

 

 

 

Zoom Media Group, Inc.

 

Media/Content/Info

 

Warrant

 

Preferred Series A

 

 

1,204

 

 

 

348

 

 

 

Subtotal: Media/Content/Info (0.03%)*

 

 

 

 

 

 

 

 

2,695

 

 

 

285

Medical Devices & Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to consolidated financial statements

27


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2019

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment (1)

 

Series

 

Shares

 

 

Cost (3)

 

 

Value (4)

Aspire Bariatrics, Inc. (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series B-1

 

 

112,858

 

 

$

455

 

 

$

Flowonix Medical Incorporated

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series AA

 

 

155,325

 

 

 

362

 

 

 

 

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series BB

 

 

725,806

 

 

 

351

 

 

 

Total Flowonix Medical Incorporated

 

 

 

 

 

 

 

 

881,131

 

 

 

713

 

 

 

Gelesis, Inc.

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series A-1

 

 

74,784

 

 

 

78

 

 

 

172

InspireMD, Inc. (4)(5)(10)

 

Medical Devices & Equipment

 

Warrant

 

Common Stock

 

 

1,105

 

 

 

 

 

 

Intuity Medical, Inc. (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series 5

 

 

1,819,078

 

 

 

294

 

 

 

338

Medrobotics Corporation (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series E

 

 

455,539

 

 

 

370

 

 

 

NinePoint Medical, Inc.

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series A-1

 

 

587,840

 

 

 

170

 

 

 

38

Optiscan Biomedical, Corp. (6)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series E

 

 

74,424

 

 

 

572

 

 

 

209

Outset Medical, Inc.

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series A

 

 

500,000

 

 

 

402

 

 

 

382

Sebacia, Inc.

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series D

 

 

778,301

 

 

 

133

 

 

 

4

SonaCare Medical, LLC

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series A

 

 

6,464

 

 

 

188

 

 

 

Tela Bio, Inc. (4)

 

Medical Devices & Equipment

 

Warrant

 

Common Stock

 

 

15,712

 

 

 

61

 

 

 

8

Subtotal: Medical Devices & Equipment (0.10%)*

 

 

 

 

 

 

 

 

3,436

 

 

 

1,151

Semiconductors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Achronix Semiconductor Corporation

 

Semiconductors

 

Warrant

 

Preferred Series C

 

 

360,000

 

 

 

160

 

 

 

6

 

 

Semiconductors

 

Warrant

 

Preferred Series D-2

 

 

750,000

 

 

 

99

 

 

 

330

Total Achronix Semiconductor Corporatio

 

 

 

 

 

 

1,110,000

 

 

 

259

 

 

 

336

Elenion Technologies Corporation

 

Semiconductors

 

Warrant

 

Preferred Series C

 

 

225

 

 

 

8

 

 

 

6

Subtotal: Semiconductors (0.03%)*

 

 

 

 

 

 

 

 

267

 

 

 

342

Software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actifio, Inc.

 

Software

 

Warrant

 

Common Stock

 

 

73,584

 

 

 

249

 

 

 

93

 

 

Software

 

Warrant

 

Preferred Series F

 

 

31,673

 

 

 

343

 

 

 

91

Total Actifio, Inc.

 

 

 

 

 

 

 

 

105,257

 

 

 

592

 

 

 

184

BryterCX, Inc. (p.k.a. ClickFox, Inc.) (15)

 

Software

 

Warrant

 

Preferred Series B

 

 

492,877

 

 

 

152

 

 

 

 

 

Software

 

Warrant

 

Preferred Series C

 

 

592,019

 

 

 

730

 

 

 

 

 

Software

 

Warrant

 

Preferred Series C-A

 

 

2,218,214

 

 

 

230

 

 

 

1

Total BryterCX, Inc. (p.k.a. ClickFox, Inc.)

 

 

 

 

 

 

3,303,110

 

 

 

1,112

 

 

 

1

CareCloud orporation (15)

 

Software

 

Warrant

 

Common Stock

 

 

13,499

 

 

 

258

 

 

 

Cloudian, Inc.

 

Software

 

Warrant

 

Common Stock

 

 

477,454

 

 

 

71

 

 

 

24

Couchbase, Inc.

 

Software

 

Warrant

 

Common Stock

 

 

263,377

 

 

 

462

 

 

 

409

Dashlane, Inc.

 

Software

 

Warrant

 

Common Stock

 

 

346,747

 

 

 

303

 

 

 

424

Delphix Corp.

 

Software

 

Warrant

 

Common Stock

 

 

203,541

 

 

 

407

 

 

 

529

DNAnexus, Inc.

 

Software

 

Warrant

 

Preferred Series C

 

 

909,091

 

 

 

97

 

 

 

68

Evernote Corporation

 

Software

 

Warrant

 

Common Stock

 

 

62,500

 

 

 

106

 

 

 

67

Fuze, Inc. (15)

 

Software

 

Warrant

 

Preferred Series F

 

 

256,158

 

 

 

89

 

 

 

Lastline, Inc.

 

Software

 

Warrant

 

Common Stock

 

 

363,636

 

 

 

133

 

 

 

136

Lightbend, Inc. (15)

 

Software

 

Warrant

 

Preferred Series C-1

 

 

854,787

 

 

 

130

 

 

 

122

Message Systems, Inc. (15)

 

Software

 

Warrant

 

Preferred Series C

 

 

503,718

 

 

 

334

 

 

 

731

Nuvolo Technologies Corporation

 

Software

 

Warrant

 

Common Stock

 

 

30,000

 

 

 

43

 

 

 

73

OneLogin, Inc. (15)

 

Software

 

Warrant

 

Common Stock

 

 

381,620

 

 

 

305

 

 

 

602

Poplicus, Inc.

 

Software

 

Warrant

 

Common Stock

 

 

132,168

 

 

 

 

 

 

Quid, Inc. (15)

 

Software

 

Warrant

 

Preferred Series D

 

 

71,576

 

 

 

1

 

 

 

 

 

Software

 

Warrant

 

Preferred Series E

 

 

40,261

 

 

 

1

 

 

 

Total Quid, Inc.

 

 

 

 

 

 

 

 

111,837

 

 

 

2

 

 

 

RapidMiner, Inc.

 

Software

 

Warrant

 

Preferred Series C-1

 

 

4,982

 

 

 

24

 

 

 

20

RedSeal Inc. (15)

 

Software

 

Warrant

 

Preferred Series C-Prime

 

 

640,603

 

 

 

66

 

 

 

2

Signpost, Inc.

 

Software

 

Warrant

 

Series Junior 1 Preferred

 

 

474,019

 

 

 

314

 

 

 

ZeroFox, Inc.

 

Software

 

Warrant

 

Preferred Series C-1

 

 

486,263

 

 

 

57

 

 

 

87

Subtotal: Software (0.31%)*

 

 

 

 

 

 

 

 

4,905

 

 

 

3,479

Specialty Pharmaceuticals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alimera Sciences, Inc. (4)

 

Specialty Pharmaceuticals

 

Warrant

 

Common Stock

 

 

114,513

 

 

 

861

 

 

 

36

Subtotal: Specialty Pharmaceuticals (0.00%)*

 

 

 

 

 

 

 

 

861

 

 

 

36

Surgical Devices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gynesonics, Inc. (15)

 

Surgical Devices

 

Warrant

 

Preferred Series C

 

 

180,480

 

 

 

74

 

 

 

4

 

 

Surgical Devices

 

Warrant

 

Preferred Series D

 

 

1,575,965

 

 

 

320

 

 

 

13

Total Gynesonics, Inc.

 

 

 

 

 

 

 

 

1,756,445

 

 

 

394

 

 

 

17

TransMedics Group, Inc. (p.k.a Transmedics, Inc.) (4)

 

Surgical Devices

 

Warrant

 

Common Stock

 

 

64,441

 

 

 

139

 

 

 

444

Subtotal: Surgical Devices (0.04%)*

 

 

 

 

 

 

 

 

533

 

 

 

461

Sustainable and Renewable Technology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agrivida, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series D

 

 

471,327

 

 

 

120

 

 

 

Calera, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series C

 

 

44,529

 

 

 

513

 

 

 

Fulcrum Bioenergy, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series C-1

 

 

280,897

 

 

 

275

 

 

 

537

GreatPoint Energy, Inc. (15)

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series D-1

 

 

393,212

 

 

 

548

 

 

 

Kinestral Technologies, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series A

 

 

325,000

 

 

 

155

 

 

 

168

See notes to consolidated financial statements

28


HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2019

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment (1)

 

Series

 

Shares

 

 

Cost (3)

 

 

Value (4)

 

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series B

 

 

131,883

 

 

$

63

 

$

 

52

Total Kinestral Technologies, Inc.

 

 

 

 

 

 

 

 

456,883

 

 

 

218

 

 

 

220

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

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series D

 

 

61,804

 

 

 

102

 

 

 

Polyera Corporation (15)

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series C

 

 

311,609

 

 

 

338

 

 

 

Proterra, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Common Stock

 

 

36,630

 

 

 

1

 

 

 

4

 

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series 4

 

 

477,517

 

 

 

41

 

 

 

252

Total Proterra, Inc.

 

 

 

 

 

 

 

 

514,147

 

 

 

42

 

 

 

256

Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) (6)

 

Sustainable and Renewable Technology

 

Warrant

 

Class A Units

 

 

0.69

 

 

 

 

 

 

TAS Energy, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series AA

 

 

428,571

 

 

 

299

 

 

 

Subtotal: Sustainable and Renewable Technology (0.09%)*

 

 

 

 

 

 

 

 

2,455

 

 

 

1,013

Total: Warrant Investments (1.84%)*

 

 

 

 

 

 

 

 

 

 

 

 

34,970

 

 

 

20,881

Total Investments in Securities (204.27%)*

 

 

 

 

 

 

 

 

 

$

2,402,032

 

 

$

2,314,526

 

*

Value as a percent of net assets

(1)

Preferred and common stock, warrants, and equity interests are generally non-income producing.

(2)

Interest rate PRIME represents 4.75% at December 31, 2019. 1-month LIBOR, 3-month LIBOR, and 12-month LIBOR represent, 1.76%, 1.91%, and 2.00%, respectively, at December 31, 2019.

(3)

Gross unrealized appreciation, gross unrealized depreciation, and net unrealized depreciation for federal income tax purposes totaled $70.3 million, $144.1 million, and $73.8 million, respectively. The tax cost of investments is $2.4 billion.

(4)

Except for warrants in 35 publicly traded companies and common stock in 25 publicly traded companies, all investments are restricted at December 31, 2019 and were valued at fair value using Level 3 significant unobservable inputs as determined in good faith by the Company’s board of directors (the “Board of Directors”). No unrestricted securities of the same issuer are outstanding. The Company uses the Standard Industrial Code for classifying the industry grouping of its portfolio companies.

(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 at December 31, 2019 and is therefore considered non-income producing. Note that only the PIK portion is on non-accrual for the Company’s debt investments in Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.), and 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 secures the notes offered in the Debt Securitization (as defined in Note 4).

(12)

Denotes that all or a portion of the debt investment is pledged as collateral under the Wells Facility (as defined in Note 4).

(13)

Denotes that all or a portion of the debt investment is pledged as collateral under the Union Bank Facility (as defined in Note 4).

(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 HT III, the Company’s wholly owned small business investment company, or SBIC, subsidiary.

(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 assets at December 31, 2019.

(17)

Denotes that there is an unfunded contractual commitment available at the request of this portfolio company at December 31, 2019. Refer to Note 10.

(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.

 

 

 

 

 

See notes to consolidated financial statements

29


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. Description of Business and Basis of Presentation

Hercules Capital, Inc. (the “Company”) is a specialty finance company focused on providing senior secured loans to high-growth, innovative venture capital-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, Hartford, CT, and San Diego, CA. 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, or RIC, under Subchapter M of the Code (see Note 5). As an investment company, the Company follows accounting and reporting guidance as set forth in Topic 946 (“Financial Services – Investment Companies”) of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification, as amended (“ASC”).

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 Technology III, L.P. (“HT III”) and Hercules Technology IV, L.P. (“HT IV”) are Delaware limited partnerships that were formed in September 2009 and December 2010, respectively. On May 26, 2010, HT III was licensed to operate as small business investment companies (“SBICs”) under the authority of the Small Business Administration (“SBA”). Hercules Technology II, L.P. (“HT II”) was a Delaware limited partnership formed in January 2005 to operate as a SBIC. On July 13, 2018, the Company completed repayment of the remaining outstanding HT II debentures and subsequently surrendered the SBA license with respect to HT II and dissolved the entity.

As an SBIC, HT III is subject to a variety of regulations concerning, among other things, the size and nature of the companies in which it may invest and the structure of those investments. HT IV was formed in anticipation of receiving an additional SBIC license; however, the Company has not received such license, and HT IV currently has no material assets or liabilities. The Company also formed Hercules Technology SBIC Management, LLC (“HTM”), a limited liability company, in November 2003. HTM is a wholly owned subsidiary of the Company and serves as the limited partner and general partner of HT III (see Note 4 to the Company’s consolidated financial statements).

The Company also established wholly owned subsidiaries, all of which are structured as Delaware corporations or limited liability companies, to hold portfolio companies organized as limited liability companies, or LLCs (or other forms of pass-through entities). These subsidiaries are consolidated for financial reporting purposes and in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), and the portfolio investments held by these subsidiaries are included in the Company’s consolidated financial statements and recorded at fair value. These taxable subsidiaries are not consolidated with Hercules 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.

The consolidated financial statements include the accounts of the Company, its subsidiaries and its consolidated securitization VIEs. All significant inter-company accounts and transactions have been eliminated in consolidation. As provided under Regulation S-X and ASC Topic 946, the Company will not 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 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 and 10 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 presentation of consolidated financial statements for the interim periods have been included. The current period’s results of operations

 

30


 

 

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 period ended December 31, 2019. 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.

Financial statements prepared on a U.S. GAAP basis require management to make estimates and assumptions that affect the amounts and disclosures reported in the consolidated financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.

 

2. Summary of Significant Accounting Policies

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its subsidiaries and all VIEs of 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 the date of this report, the VIEs consolidated by the Company are its securitization VIEs formed in conjunction with the issuance of the 2027 Asset-Backed Notes and the 2028 Asset-Backed Notes (as defined herein). See “Note 4 – Borrowings”.

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.

At March 31, 2020, approximately 96.1% of the Company’s total assets represented investments in portfolio companies whose fair value is determined in good faith by the Board of Directors. 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 Board of Directors. 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 (“Fair Value Measurements”). The Company’s debt securities are primarily invested in venture capital-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 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 approved by the Board of Directors 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 its Board of Directors 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.

31


 

 

The Company intends to continue to engage one or more independent valuation firm(s) to provide management with assistance regarding the Company’s determination of the fair value of selected portfolio investments each quarter unless directed by the Board of Directors to cancel such valuation services. Specifically, on a quarterly basis, the Company will identify portfolio investments with respect to which an independent valuation firm will assist in valuing. The Company selects these portfolio investments based on 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 Board of Directors. The Board of Directors are ultimately, and solely, responsible for determining the fair value of the Company’s investments in good faith.  

ASC Topic 820 establishes a framework for measuring the fair value of assets and liabilities and outlines a fair value hierarchy which prioritizes the inputs used to measure fair value and the effect of fair value measures on earnings. 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. ASC Topic 820 defines fair value 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.

The Company has categorized 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.

32


 

 

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 March 31, 2020 and December 31, 2019.

 

(in thousands)

 

Balance

March 31,

 

 

Quoted Prices In

Active Markets For

Identical Assets

 

 

Significant

Other Observable

Inputs

 

 

Significant

Unobservable

Inputs

 

Description

 

2020

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Senior Secured Debt

 

$

2,180,388

 

 

$

 

 

$

 

 

$

2,180,388

 

Unsecured Debt

 

 

15,202

 

 

 

 

 

 

 

 

 

15,202

 

Preferred Stock

 

 

51,206

 

 

 

 

 

 

 

 

 

51,206

 

Common Stock

 

 

43,347

 

 

 

18,632

 

 

 

 

 

 

24,715

 

Warrants

 

 

12,337

 

 

 

 

 

 

4,122

 

 

 

8,215

 

Escrow Receivable

 

 

2,320

 

 

 

 

 

 

 

 

 

2,320

 

Total

 

$

2,304,800

 

 

$

18,632

 

 

$

4,122

 

 

$

2,282,046

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Balance

December 31,

 

 

Quoted Prices In

Active Markets For

Identical Assets

 

 

Significant

Other Observable

Inputs

 

 

Significant

Unobservable

Inputs

 

Description

 

2019

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Senior Secured Debt

 

$

2,133,812

 

 

$

 

 

$

 

 

$

2,133,812

 

Unsecured Debt

 

 

14,780

 

 

 

 

 

 

 

 

 

14,780

 

Preferred Stock

 

 

69,717

 

 

 

 

 

 

 

 

 

69,717

 

Common Stock

 

 

75,336

 

 

 

41,789

 

 

 

 

 

 

33,547

 

Warrants

 

 

20,881

 

 

 

 

 

 

7,159

 

 

 

13,722

 

Escrow Receivable

 

 

955

 

 

 

 

 

 

 

 

 

955

 

Total

 

$

2,315,481

 

 

$

41,789

 

 

$

7,159

 

 

$

2,266,533

 

The table below presents a reconciliation 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 three months ended March 31, 2020 and the year ended December 31, 2019.

 

(in thousands)

 

Balance

January 1, 2020

 

 

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

March 31, 2020

 

Senior Debt

 

$

2,133,812

 

 

$

 

 

$

(25,762

)

 

$

239,783

 

 

$

 

 

$

(167,445

)

 

$

 

 

$

 

 

$

2,180,388

 

Unsecured Debt

 

 

14,780

 

 

 

 

 

 

 

 

 

422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,202

 

Preferred Stock

 

 

69,717

 

 

 

 

 

 

(18,511

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

51,206

 

Common Stock

 

 

33,547

 

 

 

1,240

 

 

 

(8,832

)

 

 

 

 

 

(1,240

)

 

 

 

 

 

 

 

 

 

 

 

24,715

 

Warrants

 

 

13,722

 

 

 

(1,053

)

 

 

(5,728

)

 

 

1,855

 

 

 

(581

)

 

 

 

 

 

 

 

 

 

 

 

8,215

 

Escrow Receivable

 

 

955

 

 

 

31

 

 

 

 

 

 

1,376

 

 

 

(42

)

 

 

 

 

 

 

 

 

 

 

 

2,320

 

Total

 

$

2,266,533

 

 

$

218

 

 

$

(58,833

)

 

$

243,436

 

 

$

(1,863

)

 

$

(167,445

)

 

$

 

 

$

 

 

$

2,282,046

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Balance

January 1, 2019

 

 

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

December 31, 2019

 

Senior Debt

 

$

1,719,091

 

 

$

(5,513

)

 

$

(2,424

)

 

$

1,031,832

 

 

$

 

 

$

(609,174

)

 

$

 

 

$

 

 

$

2,133,812

 

Unsecured Debt

 

 

14,401

 

 

 

 

 

 

329

 

 

 

50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,780

 

Preferred Stock

 

 

68,625

 

 

 

(1,146

)

 

 

12,566

 

 

 

4,638

 

 

 

(16

)

 

 

 

 

 

 

 

 

(14,950

)

 

 

69,717

 

Common Stock

 

 

24,241

 

 

 

(750

)

 

 

4,962

 

 

 

5,094

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33,547

 

Warrants

 

 

22,673

 

 

 

6,270

 

 

 

(7,922

)

 

 

3,532

 

 

 

(8,981

)

 

 

 

 

 

3

 

 

 

(1,853

)

 

 

13,722

 

Escrow Receivable

 

 

970

 

 

 

(875

)

 

 

 

 

 

897

 

 

 

(37

)

 

 

 

 

 

 

 

 

 

 

 

955

 

Total

 

$

1,850,001

 

 

$

(2,014

)

 

$

7,511

 

 

$

1,046,043

 

 

$

(9,034

)

 

$

(609,174

)

 

$

3

 

 

$

(16,803

)

 

$

2,266,533

 

 

(1)

Included in net realized gains or 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)

There was no activity of transfers into or out of Level 3 during the three months ended March 31, 2020.

(4)

Transfers out of Level 3 during the year ended December 31, 2019 relate to the initial public offerings of Lightspeed POS, Inc., Lyft, Inc., Avedro, Inc., Stealth Bio Therapeutics Corp., X4 Pharmaceuticals, Inc., BridgeBio Pharma LLC, Pinterest, Inc., TransMedics Group, Inc., Fastly, Inc., Brickell Biotech, Inc., Oportun, and Tela Bio, Inc.. Transfers into Level 3 for the year ended December 31, 2019 relate to the delisting of Motif BioSciences Inc. common stock.

(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.

(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.

33


 

 

For the three months ended March 31, 2020, approximately $18.5 million and $8.8 million in net unrealized depreciation was recorded for preferred stock and common stock Level 3 investments, respectively, relating to assets still held at the reporting date. For the same period, approximately $26.4 million and $7.4 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 year ended December 31, 2019, approximately $11.6 million and $4.6 million in net unrealized appreciation was recorded for preferred stock and common stock Level 3 investments, respectively, relating to assets still held at the reporting date. For the same period, approximately $5.9 million and $1.5 million in net unrealized depreciation was recorded for debt and warrant Level 3 investments, respectively, relating to assets still held at the reporting date.

The following tables provide quantitative information about the Company’s Level 3 fair value measurements as of March 31, 2020 and December 31, 2019. 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.

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

Three Debt Investments

 

Fair Value at

March 31, 2020

(in thousands)

 

 

Valuation

Techniques/Methodologies

 

Unobservable Input (1)

 

Range

 

Weighted

Average (2)

 

Pharmaceuticals

 

$

63,415

 

 

Originated Within 4-6 Months

 

Origination Yield

 

10.92% - 12.10%

 

11.87%

 

 

 

 

565,550

 

 

Market Comparable Companies

 

Hypothetical Market Yield

 

9.27% - 16.31%

 

11.38%

 

 

 

 

 

 

 

 

 

Premium/(Discount)

 

(0.25%) - 1.00%

 

 

 

 

 

 

 

 

 

Liquidation (3)

 

Probability weighting of alternative outcomes

 

0.00% - 100.00%

 

 

 

 

Technology

 

 

22,181

 

 

Originated Within 4-6 Months

 

Origination Yield

 

9.46% - 13.37%

 

12.64%

 

 

 

 

1,018,956

 

 

Market Comparable Companies

 

Hypothetical Market Yield

 

9.89% - 20.63%

 

13.34%

 

 

 

 

 

 

 

 

 

Premium/(Discount)

 

(0.5%) - 0.75%

 

 

 

 

 

 

 

15,063

 

 

Liquidation (3)

 

Probability weighting of alternative outcomes

 

33.33% - 50.00%

 

 

 

 

Sustainable and Renewable Technology

 

 

21,527

 

 

Market Comparable Companies

 

Hypothetical Market Yield

 

10.69% - 13.59%

 

12.06%

 

 

 

 

 

 

 

 

 

Premium/(Discount)

 

0.00% - 0.25%

 

 

 

 

 

 

 

12,783

 

 

Liquidation (3)

 

Probability weighting of alternative outcomes

 

30.00% - 100.00%

 

 

 

 

Medical Devices

 

 

68,398

 

 

Market Comparable Companies

 

Hypothetical Market Yield

 

10.16% - 15.77%

 

12.55%

 

 

 

 

 

 

 

 

 

Premium/(Discount)

 

(0.25%) - 1.00%

 

 

 

 

Lower Middle Market

 

 

227,241

 

 

Market Comparable Companies

 

Hypothetical Market Yield

 

11.61% - 16.35%

 

12.33%

 

 

 

 

 

 

 

 

 

Premium/(Discount)

 

0.00% - 0.25%

 

 

 

 

 

 

 

8,532

 

 

Liquidation (3)

 

Probability weighting of alternative outcomes

 

25.00% - 75.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Investments Where Fair Value Approximates Cost

 

 

 

 

72,070

 

 

Debt Investments originated within 3 months

 

 

 

 

 

 

 

 

 

18,696

 

 

Imminent Payoffs (4)

 

 

 

 

 

 

 

 

 

 

 

81,178

 

 

Debt Investments Maturing in Less than One Year

 

 

 

$

2,195,590

 

 

Total Level Three 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 “Healthcare Services, Other” and “Drug Discovery & Development” industries in the Consolidated Schedule of Investments.

 

Technology, above, is comprised of debt investments in the “Software”, “Media/Content/Info”, “Internet Consumer & Business Services”, “Semiconductors”, “Communications & Networking”, “Medical Devices & Equipment”, and “Information Services” industries in the Consolidated Schedule of Investments.

 

Sustainable and Renewable Technology, above, is comprised of debt investments in the “Sustainable and Renewable Technology”, “Internet Consumer & Business Services”, and “Electronics & Computer Hardware” industries in the Consolidated Schedule of Investments.

 

Medical Devices, above, is comprised of debt investments in the “Drug Delivery” and “Medical Devices & Equipment” industries in the Consolidated Schedule of Investments.

 

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 in the Consolidated Schedule of Investments.

(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)

Imminent payoffs represent debt investments that the Company expects to be fully repaid within the next three months, prior to their scheduled maturity date.

34


 

 

Investment Type - Level

Three Debt Investments

 

Fair Value at

December 31, 2019

(in thousands)

 

 

Valuation Techniques/Methodologies

 

Unobservable Input (1)

 

Range

 

 

Weighted

Average (2)

 

Pharmaceuticals

 

$

34,898

 

 

Originated Within 4-6 Months

 

Origination Yield

 

10.87% - 12.01%

 

 

11.38%

 

 

 

 

563,725

 

 

Market Comparable Companies

 

Hypothetical Market Yield

 

9.26% - 14.06%

 

 

11.43%

 

 

 

 

 

 

 

 

 

Premium/(Discount)

 

(0.50%) - 0.50%

 

 

 

 

 

 

 

 

 

 

Liquidation (3)

 

Probability weighting of alternative outcomes

 

0.00% - 100.00%

 

 

 

 

 

Technology

 

 

21,365

 

 

Originated Within 4-6 Months

 

Origination Yield

 

9.40% - 13.04%

 

 

12.33%

 

 

 

 

844,169

 

 

Market Comparable Companies

 

Hypothetical Market Yield

 

10.56% - 16.13%

 

 

12.36%

 

 

 

 

 

 

 

 

 

Premium/(Discount)

 

(0.50%) - 0.50%

 

 

 

 

 

 

 

 

1,773

 

 

Liquidation (3)

 

Probability weighting of alternative outcomes

 

40.00% - 60.00%

 

 

 

 

 

Sustainable and Renewable Technology

 

 

34,115

 

 

Market Comparable Companies

 

Hypothetical Market Yield

 

11.49% - 21.59%

 

 

13.67%

 

 

 

 

 

 

 

 

 

Premium/(Discount)

 

(0.50%) - 3.00%

 

 

 

 

 

 

 

 

4,410

 

 

Liquidation (3)

 

Probability weighting of alternative outcomes

 

50.00%

 

 

 

 

 

Medical Devices

 

 

101,349

 

 

Market Comparable Companies

 

Hypothetical Market Yield

 

9.13% - 14.74%

 

 

12.07%

 

 

 

 

 

 

 

 

 

Premium/(Discount)

 

(0.50%) - 0.50%

 

 

 

 

 

Lower Middle Market

 

 

34,822

 

 

Originated Within 4-6 Months

 

Origination Yield

 

13.24%

 

 

13.24%

 

 

 

 

188,841

 

 

Market Comparable Companies

 

Hypothetical Market Yield

 

10.71% - 16.02%

 

 

13.09%

 

 

 

 

 

 

 

 

 

Premium/(Discount)

 

(0.50%) - 0.00%

 

 

 

 

 

 

 

 

9,587

 

 

Liquidation (3)

 

Probability weighting of alternative outcomes

 

20.00% - 80.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Investments Where Fair Value Approximates Cost

 

 

 

 

149,358

 

 

Debt Investments originated within 3 months

 

 

 

 

 

 

 

 

 

 

 

78,052

 

 

Imminent Payoffs (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

82,128

 

 

Debt Investments Maturing in Less than One Year

 

 

 

$

2,148,592

 

 

Total Level Three 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 “Healthcare Services, Other”, “Biotechnology Tools”, “Drug Delivery”, and “Drug Discovery & Development” industries in the Consolidated Schedule of Investments.

 

Technology, above, is comprised of debt investments in the “Software”, “Media/Content/Info”, “Internet Consumer & Business Services”, “Semiconductors”, “Diversified Financial Services”, and “Information Services” industries in the Consolidated Schedule of Investments.

 

Sustainable and Renewable Technology, above, is comprised of debt investments in the “Sustainable and Renewable Technology”, “Internet Consumer & Business Services”, and “Electronics & Computer Hardware” industries in the Consolidated Schedule of Investments.

 

Medical Devices, above, is comprised of debt investments in the “Drug Delivery”, and “Medical Devices & Equipment” industries in the Consolidated Schedule of Investments.

 

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 in the Consolidated Schedule of Investments.

(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)

Imminent payoffs represent debt investments that the Company expects to be fully repaid within the next three months, prior to their scheduled maturity date.

35


 

 

 

Investment Type - Level Three

Equity and Warrant Investments

 

Fair Value at

March 31, 2020

(in thousands)

 

 

Valuation Techniques/

Methodologies

 

Unobservable Input (1)

 

Range

 

Weighted Average (6)

 

Equity Investments

 

$

8,384

 

 

Market Comparable Companies

 

EBITDA Multiple (2)

 

5.1x - 5.4x

 

5.3x

 

 

 

 

 

 

 

 

 

Revenue Multiple (2)

 

0.5x - 12.1x

 

4.6x

 

 

 

 

 

 

 

 

 

Discount for Lack of Marketability (3)

 

18.26% - 28.39%

 

22.29%

 

 

 

 

 

 

 

 

 

Average Industry Volatility (4)

 

62.13% - 126.43%

 

87.76%

 

 

 

 

 

 

 

 

 

Risk-Free Interest Rate

 

0.17% - 0.25%

 

0.17%

 

 

 

 

 

 

 

 

 

Estimated Time to Exit (in months)

 

11 - 29

 

 

12

 

 

 

 

6,934

 

 

Market Adjusted OPM Backsolve

 

Market Equity Adjustment (5)

 

(74.32%) - (1.95%)

 

(32.63%)

 

 

 

 

 

 

 

 

 

Average Industry Volatility (4)

 

29.60% - 92.17%

 

79.34%

 

 

 

 

 

 

 

 

 

Risk-Free Interest Rate

 

0.59% - 2.65%

 

0.91%

 

 

 

 

 

 

 

 

 

Estimated Time to Exit (in months)

 

5 - 37

 

 

19

 

 

 

 

 

 

Liquidation

 

Revenue Multiple (2)

 

2.0x - 2.6x

 

2.3x

 

 

 

 

60,603

 

 

Other (7)

 

 

 

 

 

 

 

 

Warrant Investments

 

 

6,024

 

 

Market Comparable Companies

 

EBITDA Multiple (2)

 

5.1x - 12.2x

 

12.2x

 

 

 

 

 

 

 

 

 

Revenue Multiple (2)

 

0.1x - 8.5x

 

3.4x

 

 

 

 

 

 

 

 

 

Discount for Lack of Marketability (3)

 

8.09% - 31.38%

 

23.51%

 

 

 

 

 

 

 

 

 

Average Industry Volatility (4)

 

39.06% - 76.58%

 

63.53%

 

 

 

 

 

 

 

 

 

Risk-Free Interest Rate

 

0.06% - 0.33%

 

0.23%

 

 

 

 

 

 

 

 

 

Estimated Time to Exit (in months)

 

1 - 47

 

 

23

 

 

 

 

2,191

 

 

Market Adjusted OPM Backsolve

 

Market Equity Adjustment (5)

 

(78.59%) - (1.95%)

 

(27.05%)

 

 

 

 

 

 

 

 

 

Average Industry Volatility (4)

 

29.60% - 100.76%

 

77.87%

 

 

 

 

 

 

 

 

 

Risk-Free Interest Rate

 

1.44% - 2.67%

 

0.98%

 

 

 

 

 

 

 

 

 

Estimated Time to Exit (in months)

 

6 - 38

 

 

19

 

Total Level Three

Warrant and Equity Investments

 

$

84,136

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The significant unobservable inputs used in the fair value measurement of the Company’s warrant and equity-related securities are revenue and/or EBITDA multiples, market equity adjustment factors, and discounts for lack of marketability. Additional inputs used in the Black Scholes option pricing model (“OPM”) include industry volatility, risk free interest rate and estimated time to exit. 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 industry volatility used by market participants when pricing the investment.

(5)

Represents the range of changes in industry valuations since the portfolio company's last external valuation event.

(6)

Weighted averages are calculated based on the fair market value of each investment.

(7)

The fair market value of these investments is derived based on recent private market and merger and acquisition transaction prices.

36


 

 

 

Investment Type - Level Three

Equity and Warrant Investments

 

Fair Value at

December 31, 2019

(in thousands)

 

 

Valuation Techniques/

Methodologies

 

Unobservable Input (1)

 

Range

 

Weighted Average (6)

 

Equity Investments

 

$

45,205

 

 

Market Comparable Companies

 

EBITDA Multiple (2)

 

5.4x

 

5.4x

 

 

 

 

 

 

 

 

 

Revenue Multiple (2)

 

0.5x - 13.6x

 

4.0x

 

 

 

 

 

 

 

 

 

Discount for Lack of Marketability (3)

 

15.92% - 25.07%

 

19.31%

 

 

 

 

 

 

 

 

 

Average Industry Volatility (4)

 

54.15% - 106.47%

 

74.87%

 

 

 

 

 

 

 

 

 

Risk-Free Interest Rate

 

1.59% - 1.60%

 

1.59%

 

 

 

 

 

 

 

 

 

Estimated Time to Exit (in months)

 

11 - 31

 

 

11

 

 

 

 

14,910

 

 

Market Adjusted OPM Backsolve

 

Market Equity Adjustment (5)

 

(19.78%) - 26.70%

 

8.17%

 

 

 

 

 

 

 

 

 

Average Industry Volatility (4)

 

32.48% - 90.07%

 

79.18%

 

 

 

 

 

 

 

 

 

Risk-Free Interest Rate

 

1.42% - 2.68%

 

1.94%

 

 

 

 

 

 

 

 

 

Estimated Time to Exit (in months)

 

11 - 40

 

 

16

 

 

 

 

 

 

Liquidation

 

Revenue Multiple (2)

 

2.0x - 4.0x

 

3.0x

 

 

 

 

43,149

 

 

Other (7)

 

 

 

 

 

 

 

 

Warrant Investments

 

 

9,074

 

 

Market Comparable Companies

 

EBITDA Multiple (2)

 

5.4x - 14.7x

 

14.6x

 

 

 

 

 

 

 

 

 

Revenue Multiple (2)

 

0.4x - 13.4x

 

9.9x

 

 

 

 

 

 

 

 

 

Discount for Lack of Marketability (3)

 

8.42% - 35.81%

 

19.46%

 

 

 

 

 

 

 

 

 

Average Industry Volatility (4)

 

35.81% - 97.06%

 

57.26%

 

 

 

 

 

 

 

 

 

Risk-Free Interest Rate

 

1.57% - 1.66%

 

1.60%

 

 

 

 

 

 

 

 

 

Estimated Time to Exit (in months)

 

4 - 48

 

 

21

 

 

 

 

4,648

 

 

Market Adjusted OPM Backsolve

 

Market Equity Adjustment (5)

 

(42.45%) - 23.22%

 

7.05%

 

 

 

 

 

 

 

 

 

Average Industry Volatility (4)

 

26.31% - 98.99%

 

62.78%

 

 

 

 

 

 

 

 

 

Risk-Free Interest Rate

 

1.61% - 2.73%

 

1.78%

 

 

 

 

 

 

 

 

 

Estimated Time to Exit (in months)

 

7 - 39

 

 

18

 

Total Level Three Warrant and Equity Investments

 

$

116,986

 

 

 

 

 

 

 

 

 

 

 

(1)

The significant unobservable inputs used in the fair value measurement of the Company’s warrant and equity-related securities are revenue and/or EBITDA multiples, market equity adjustment factors, and discounts for lack of marketability. Additional inputs used in the OPM include industry volatility, risk free interest rate and estimated time to exit. 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.

(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 industry volatility used by market participants when pricing the investment.

(5)

Represents the range of changes in industry valuations since the portfolio company's last external valuation event.

(6)

Weighted averages are calculated based on the fair market value of each investment.

(7)

The fair market value of these investments is derived based on recent private market and merger and acquisition transaction prices.

Debt Investments

The Company follows the guidance set forth in ASC Topic 820 which establishes a framework for measuring the fair value of assets and liabilities and outlines a fair value hierarchy, which prioritizes the inputs used to measure fair value and the effect of fair value measures on earnings. The Company’s debt securities are primarily invested in venture capital-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 is no known or accessible market or market indexes for debt instruments for these investment securities to be traded or exchanged. In addition, the Company may, from time to time, invest in public debt of companies that meet the Company’s investment objectives. These investments are considered Level 2 assets.

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 applies a procedure for debt investments that assumes the sale of each investment 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

37


 

 

determine 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.

Under this process, 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 its syndicated debt investments 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-related securities from the borrower. The Company determines the cost basis of the warrants or other equity-related 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-related 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.

Debt investments that are traded on a public exchange are valued at the prevailing market price as of the valuation date.

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

The Company estimates the fair value of warrants using a Black Scholes OPM. At each reporting date, privately held warrant and equity-related securities are valued based on an analysis of various factors including, but not limited to, the portfolio company’s operating performance and financial condition and 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-related 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.

Cash, Restricted Cash, and Cash Equivalents

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. Restricted cash and cash equivalents include amounts that are collected and are held by trustees who have been appointed as custodians of the assets securing certain of the Company’s financing transactions.

Other Assets

Other assets generally consist of prepaid expenses, deferred financing costs net of accumulated amortization, fixed assets net of accumulated depreciation, deferred revenues and deposits and other assets, including escrow receivable.

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

38


 

 

balances and the contractual maturity date. As of both March 31, 2020 and December 31, 2019, there were no material past due escrow receivables. The escrow receivable balance as of March 31, 2020 and December 31, 2019 was approximately $2.3 million and $955,000, respectively, and was fair valued and held in accordance with ASC Topic 820.

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 10 – Commitments and Contingencies”.

Portfolio Composition

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.

39


 

 

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 months ended March 31, 2020 and 2019.

 

(in thousands)

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2020

 

Portfolio Company

 

Type

 

Fair Value at

March 31, 2020

 

 

Interest Income

 

 

Fee Income

 

 

Net Change in Unrealized (Depreciation)/ Appreciation

 

 

Realized Gain/(Loss)

 

Control Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gibraltar Business Capital, LLC

 

Control

 

$

43,244

 

 

$

559

 

 

$

5

 

 

$

(6,930

)

 

$

 

Tectura Corporation

 

Control

 

 

8,531

 

 

 

87

 

 

 

 

 

 

(921

)

 

 

 

Total Control Investments

 

$

51,775

 

 

$

646

 

 

$

5

 

 

$

(7,851

)

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Optiscan BioMedical, Corp.

 

Affiliate

 

$

2,225

 

 

$

5

 

 

$

 

 

$

(7,375

)

 

$

 

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

 

Affiliate

 

 

10,001

 

 

 

215

 

 

 

 

 

 

(2,614

)

 

 

 

Total Affiliate Investments

 

$

12,226

 

 

$

220

 

 

$

 

 

$

(9,989

)

 

$

 

Total Control & Affiliate Investments

 

$

64,001

 

 

$

866

 

 

$

5

 

 

$

(17,840

)

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2019

 

Portfolio Company

 

Type

 

Fair Value at

March 31, 2019

 

 

Interest Income

 

 

Fee Income

 

 

Net Change in Unrealized (Depreciation)/ Appreciation

 

 

Realized

Gain/(Loss)

 

Control Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gibraltar Business Capital, LLC

 

Control

 

$

44,653

 

 

$

551

 

 

$

4

 

 

$

5,150

 

 

$

 

Tectura Corporation

 

Control

 

 

10,260

 

 

 

473

 

 

 

 

 

 

(8,025

)

 

 

 

Total Control Investments

 

$

54,913

 

 

$

1,024

 

 

$

4

 

 

$

(2,875

)

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Optiscan BioMedical, Corp.

 

Affiliate

 

$

8,730

 

 

$

 

 

$

 

 

$

121

 

 

$

 

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

 

Affiliate

 

 

14,337

 

 

 

508

 

 

 

88

 

 

 

(1,340

)

 

 

 

Total Affiliate Investments

 

$

23,067

 

 

$

508

 

 

$

88

 

 

$

(1,219

)

 

$

 

Total Control & Affiliate Investments

 

$

77,980

 

 

$

1,532

 

 

$

92

 

 

$

(4,094

)

 

$

 

The following table shows the fair value of the Company’s portfolio of investments by asset class as of March 31, 2020 and December 31, 2019:

 

March 31, 2020

 

 

December 31, 2019

 

(in thousands)

Investments at

Fair Value

 

 

Percentage of

Total Portfolio

 

 

Investments at

Fair Value

 

 

Percentage of

Total Portfolio

 

Senior Secured Debt

$

1,361,716

 

 

 

59.1

%

 

$

1,348,468

 

 

 

58.3

%

Senior Secured Debt with Warrants

 

831,009

 

 

 

36.1

%

 

 

806,225

 

 

 

34.8

%

Unsecured Debt

 

15,202

 

 

 

0.7

%

 

 

14,780

 

 

 

0.6

%

Preferred Stock

 

51,206

 

 

 

2.2

%

 

 

69,717

 

 

 

3.0

%

Common Stock

 

43,347

 

 

 

1.9

%

 

 

75,336

 

 

 

3.3

%

Total

$

2,302,480

 

 

 

100.0

%

 

$

2,314,526

 

 

 

100.0

%

40


 

 

The increase in senior secured debt and senior secured debt with warrants, as a percentage of the total portfolio, during the period is primarily due to an increase in new debt investments that include detachable equity enhancement features.

A summary of the Company’s investment portfolio, at value, by geographic location as of March 31, 2020 and December 31, 2019 is shown as follows:

 

March 31, 2020

 

 

December 31, 2019

 

(in thousands)

Investments at

Fair Value

 

 

Percentage of

Total Portfolio

 

 

Investments at

Fair Value

 

 

Percentage of

Total Portfolio

 

United States

$

2,106,993

 

 

 

91.5

%

 

$

2,039,900

 

 

 

88.2

%

United Kingdom

 

77,930

 

 

 

3.4

%

 

 

123,735

 

 

 

5.3

%

Australia

 

51,972

 

 

 

2.3

%

 

 

51,547

 

 

 

2.2

%

Netherlands

 

37,342

 

 

 

1.6

%

 

 

37,650

 

 

 

1.6

%

Cayman Islands

 

16,101

 

 

 

0.7

%

 

 

17,503

 

 

 

0.8

%

Ireland

 

5,098

 

 

 

0.2

%

 

 

35,536

 

 

 

1.5

%

Germany

 

4,261

 

 

 

0.2

%

 

 

4,245

 

 

 

0.2

%

Sweden

 

2,783

 

 

 

0.1

%

 

 

4,410

 

 

 

0.2

%

Total

$

2,302,480

 

 

 

100.0

%

 

$

2,314,526

 

 

 

100.0

%

The following table shows the fair value of the Company’s portfolio by industry sector at March 31, 2020 and December 31, 2019:

 

March 31, 2020

 

 

December 31, 2019

 

(in thousands)

Investments at

Fair Value

 

 

Percentage of

Total Portfolio

 

 

Investments at

Fair Value

 

 

Percentage of

Total Portfolio

 

Drug Discovery & Development

$

692,185

 

 

 

30.1

%

 

$

747,955

 

 

 

32.2

%

Software

 

645,321

 

 

 

28.0

%

 

 

582,445

 

 

 

25.2

%

Internet Consumer & Business Services

 

526,848

 

 

 

22.9

%

 

 

495,132

 

 

 

21.4

%

Healthcare Services, Other

 

104,929

 

 

 

4.6

%

 

 

102,997

 

 

 

4.5

%

Sustainable and Renewable Technology

 

75,242

 

 

 

3.3

%

 

 

77,505

 

 

 

3.3

%

Medical Devices & Equipment

 

63,157

 

 

 

2.7

%

 

 

73,341

 

 

 

3.2

%

Information Services

 

45,933

 

 

 

2.0

%

 

 

60,094

 

 

 

2.6

%

Drug Delivery

 

44,210

 

 

 

1.9

%

 

 

46,218

 

 

 

2.0

%

Diversified Financial Services

 

43,244

 

 

 

1.9

%

 

 

78,933

 

 

 

3.4

%

Semiconductors

 

25,268

 

 

 

1.1

%

 

 

10,658

 

 

 

0.5

%

Media/Content/Info

 

20,698

 

 

 

0.9

%

 

 

21,071

 

 

 

0.9

%

Communications & Networking

 

9,733

 

 

 

0.4

%

 

 

3,962

 

 

 

0.2

%

Electronics & Computer Hardware

 

2,808

 

 

 

0.1

%

 

 

4,462

 

 

 

0.2

%

Surgical Devices

 

2,623

 

 

 

0.1

%

 

 

4,120

 

 

 

0.2

%

Consumer & Business Products

 

275

 

 

 

0.0

%

 

 

530

 

 

 

0.0

%

Specialty Pharmaceuticals

 

6

 

 

 

0.0

%

 

 

36

 

 

 

0.0

%

Biotechnology Tools

 

 

 

 

0.0

%

 

 

5,067

 

 

 

0.2

%

Total

$

2,302,480

 

 

 

100.0

%

 

$

2,314,526

 

 

 

100.0

%

No single portfolio investment represents more than 10% of the fair value of the Company’s total investments as of March 31, 2020 and December 31, 2019.

Unconsolidated Significant Subsidiary

In accordance with Rule 10-01(b)(1) of Regulation S-X, which applies for interim reports on Form 10-Q, the Company must determine if its unconsolidated subsidiaries are considered “significant subsidiaries”. There are two tests utilized to determine if its subsidiaries are considered significant subsidiaries: the income test and the investment test. The Company is required to provide summarized income statement information of an unconsolidated subsidiary in an interim report if either of the two tests exceed 20%. After performing the income analysis for the three months ended March 31, 2020, the Company’s investment in Gibraltar Business Capital, LLC exceeded the 20% threshold under Rule 10-01(b)(1) of Regulation S-X. Accordingly, the following table shows summarized unaudited financial information for Gibraltar Business Capital, LLC:

 

 

 

 

Three months ended March 31,

 

(in thousands)

 

 

2020

 

 

2019

 

Revenue

 

 

$

3,706

 

 

$

3,100

 

Net operating income

 

 

 

363

 

 

 

205

 

Net profit

 

 

 

270

 

 

 

90

 

41


 

 

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. At March 31, 2020, approximately 83.0% of the Company’s debt investments were in a senior secured first lien position, with 41.8% secured by a first priority security in all of the assets of the portfolio company, including its intellectual property, 31.2% 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, 0.7% of the Company’s debt investments were senior secured by the equipment of the portfolio company and 9.3% of the Company’s debt investments 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 16.3% of the Company’s debt investments were secured by a second priority security interest in the portfolio company’s assets, and 0.7% were unsecured.

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. When a loan becomes 90 days or more past due, or if management otherwise does not expect that principal, interest, and other obligations due will be collected in full, the Company will generally place the loan on non-accrual status and cease recognizing interest income on that loan until all principal and interest due has been paid or the Company believes the portfolio company has demonstrated the ability to repay the Company’s current and future contractual obligations. Any uncollected interest related to prior periods is reversed from income in the period that collection of the interest receivable is determined to be doubtful. However, the Company may make exceptions to this policy if the investment has sufficient collateral value and is in the process of collection.

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 $41.5 million of unamortized fees at March 31, 2020, of which approximately $34.6 million was included as an offset to the cost basis of the Company’s current debt investments and approximately $6.9 million was deferred contingent upon the occurrence of a funding or milestone. At December 31, 2019, the Company had approximately $42.0 million of unamortized fees, of which approximately $34.6 million was included as an offset to the cost basis of the Company’s current debt investments and approximately $7.4 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 $3.2 million and $780,000 in one-time fee income during the three months ended March 31, 2020 and 2019, 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. At March 31, 2020, the Company had approximately $40.1 million in exit fees receivable, of which approximately $36.4 million was included as a component of the cost basis of the Company’s current debt investments and approximately $3.7 million was a deferred receivable related to expired commitments. At December 31, 2019, the Company had approximately $33.5 million in exit fees receivable, of which approximately $31.9 million was included as a component of the cost basis of its current debt investments and approximately $1.6 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 $2.0 million and $2.1 million in PIK income during the three months ended March 31, 2020 and 2019, respectively.

42


 

 

To maintain the Company’s ability to be subject to tax as a RIC, 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 months ended March 31, 2020 and 2019.

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. The Company believes that the carrying amounts of its financial instruments, consisting 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 borrowings 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 borrowings is based on observable market trading prices or quotations and unobservable market rates as applicable for each instrument.

Based on market quotations on or around March 31, 2020, the 2022 Notes, 2027 Asset-Backed Notes, 2028 Asset-Backed Notes, and 2022 Convertible Notes were quoted for 0.953, 0.979, 0.977, and 0.918 per dollar at par value, respectively. At March 31, 2020, the 2025 Notes and 2033 Notes were trading on the NYSE for $24.50 and $23.26 per unit at par value, respectively. The par value at underwriting for the 2025 Notes and 2033 Notes was $25.00 per unit. 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 SBA debentures, July 2024 Notes, and February 2025 Notes were approximately $113.9 million, $112.3 million, and $52.8 million, respectively, compared to the principal amounts of $110.3 million, $105.0 million, and $50.0 million, respectively, as of March 31, 2020. The fair value of the outstanding borrowings under the Union Bank Facility and the Wells Facility is equal to their principal outstanding balances as of March 31, 2020.

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.

The following tables provide additional information about the fair value and level in the fair value hierarchy of the Company’s outstanding borrowings at March 31, 2020 and December 31, 2019:  

 

(in thousands)

 

 

 

 

 

Identical Assets

 

 

Observable Inputs

 

 

Unobservable Inputs

 

Description

 

March 31, 2020

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

SBA Debentures

 

$

113,894

 

 

$

 

 

$

 

 

$

113,894

 

2022 Notes

 

 

142,890

 

 

 

 

 

 

142,890

 

 

 

 

2025 Notes

 

 

73,500

 

 

 

 

 

 

73,500

 

 

 

 

2033 Notes

 

 

37,216

 

 

 

 

 

 

37,216

 

 

 

 

July 2024 Notes

 

 

112,313

 

 

 

 

 

 

 

 

 

112,313

 

February 2025 Notes

 

 

52,800

 

 

 

 

 

 

 

 

 

52,800

 

2027 Asset-Backed Notes

 

 

195,742

 

 

 

 

 

 

195,742

 

 

 

 

2028 Asset-Backed Notes

 

 

244,297

 

 

 

 

 

 

244,297

 

 

 

 

2022 Convertible Notes

 

 

211,025

 

 

 

 

 

 

211,025

 

 

 

 

Wells Facility

 

 

 

 

 

 

 

 

 

 

 

 

Union Bank Facility

 

 

71,125

 

 

 

 

 

 

 

 

 

71,125

 

Total

 

$

1,254,802

 

 

$

 

 

$

904,670

 

 

$

350,132

 

 

43


 

 

(in thousands)

 

 

 

 

 

Identical Assets

 

 

Observable Inputs

 

 

Unobservable Inputs

 

Description

 

December 31, 2019

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

SBA Debentures

 

$

152,963

 

 

$

 

 

$

 

 

$

152,963

 

2022 Notes

 

 

151,215

 

 

 

 

 

 

151,215

 

 

 

 

July 2024 Notes

 

 

107,028

 

 

 

 

 

 

 

 

 

107,028

 

2025 Notes

 

 

77,430

 

 

 

 

 

 

77,430

 

 

 

 

2033 Notes

 

 

42,160

 

 

 

 

 

 

42,160

 

 

 

 

2027 Asset-Backed Notes

 

 

200,750

 

 

 

 

 

 

200,750

 

 

 

 

2028 Asset-Backed Notes

 

 

251,094

 

 

 

 

 

 

251,094

 

 

 

 

2022 Convertible Notes

 

 

234,922

 

 

 

 

 

 

234,922

 

 

 

 

Wells Facility

 

 

 

 

 

 

 

 

 

 

 

 

Union Bank Facility

 

 

103,919

 

 

 

 

 

 

 

 

 

103,919

 

Total

 

$

1,321,481

 

 

$

 

 

$

957,571

 

 

$

363,910

 

4. Borrowings

Outstanding Borrowings

At March 31, 2020 and December 31, 2019, the Company had the following available and outstanding borrowings:

 

 

March 31, 2020

 

 

December 31, 2019

 

(in thousands)

Total Available

 

 

Principal

 

 

Carrying Value (1)

 

 

Total Available

 

 

Principal

 

 

Carrying Value (1)

 

SBA Debentures (2)

$

110,250

 

 

$

110,250

 

 

$

109,725

 

 

$

149,000

 

 

$

149,000

 

 

$

148,165

 

2022 Notes

 

150,000

 

 

 

150,000

 

 

 

148,645

 

 

 

150,000

 

 

 

150,000

 

 

 

148,514

 

2025 Notes

 

75,000

 

 

 

75,000

 

 

 

73,066

 

 

 

75,000

 

 

 

75,000

 

 

 

72,970

 

2033 Notes

 

40,000

 

 

 

40,000

 

 

 

38,528

 

 

 

40,000

 

 

 

40,000

 

 

 

38,501

 

July 2024 Notes

 

105,000

 

 

 

105,000

 

 

 

103,721

 

 

 

105,000

 

 

 

105,000

 

 

 

103,685

 

February 2025 Notes

 

50,000

 

 

 

50,000

 

 

 

49,442

 

 

 

 

 

 

 

 

 

 

2027 Asset-Backed Notes

 

200,000

 

 

 

200,000

 

 

 

197,377

 

 

 

200,000

 

 

 

200,000

 

 

 

197,312

 

2028 Asset-Backed Notes

 

250,000

 

 

 

250,000

 

 

 

247,444

 

 

 

250,000

 

 

 

250,000

 

 

 

247,395

 

2022 Convertible Notes

 

230,000

 

 

 

230,000

 

 

 

227,004

 

 

 

230,000

 

 

 

230,000

 

 

 

226,614

 

Wells Facility (3)

 

75,000

 

 

 

 

 

 

 

 

 

75,000

 

 

 

 

 

 

 

Union Bank Facility (3)

 

400,000

 

 

 

71,125

 

 

 

71,125

 

 

 

200,000

 

 

 

103,919

 

 

 

103,919

 

Total

$

1,685,250

 

 

$

1,281,375

 

 

$

1,266,077

 

 

$

1,474,000

 

 

$

1,302,919

 

 

$

1,287,075

 

 

 

(1)

Except for the Wells Facility and 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 loan as of the balance sheet date.

(2)

At March 31, 2020 and December 31, 2019, the total available borrowings under the SBA debentures were $110.3 million and $149.0 million, respectively.

(3)

Availability subject to the Company meeting the borrowing base requirements.

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. Debt issuance costs, net of accumulated amortization, were as follows as of March 31, 2020 and December 31, 2019:

 

(in thousands)

 

March 31, 2020

 

 

December 31, 2019

 

SBA Debentures

 

$

525

 

 

$

835

 

2022 Notes

 

 

930

 

 

 

1,020

 

2025 Notes

 

 

1,934

 

 

 

2,030

 

2033 Notes

 

 

1,472

 

 

 

1,499

 

July 2024 Notes

 

 

1,279

 

 

 

1,315

 

February 2025 Notes

 

 

558

 

 

 

 

2027 Asset-Backed Notes

 

 

2,623

 

 

 

2,688

 

2028 Asset-Backed Notes

 

 

2,556

 

 

 

2,605

 

2022 Convertible Notes

 

 

1,709

 

 

 

1,932

 

Wells Facility (1)

 

 

329

 

 

 

373

 

Union Bank Facility (1)

 

 

3,428

 

 

 

1,497

 

Total

 

$

17,343

 

 

$

15,794

 

44


 

 

 

(1)

As the Wells Facility and Union Bank 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.

Long-Term SBA Debentures

On May 26, 2010, HT III received a license to operate as a SBIC under the SBIC program in which HT III can borrow funds from the SBA against eligible investments and additional contributions to regulatory capital. On March 1, 2020, the Company paid down $38.7 million of SBA debentures. With the Company’s net investment of $74.5 million in HT III as of March 31, 2020, HT III has the approved capacity to issue a total of $110.3 million of SBA guaranteed debentures, of which $110.3 million was outstanding as of March 31, 2020. As the Company is past its investment period for HT III, it will no longer make any future commitments to new portfolio companies. The Company will only satisfy contractually agreed follow-on fundings to existing portfolio companies and may seek to early pay-off a portion or all of the outstanding debentures as per the available liquidity in HT III.

As of March 31, 2020, HT III has paid the SBA commitment fees and facility fees of approximately $1.5 million and $3.6 million, respectively. As of March 31, 2020, the Company held investments in HT III in 35 companies with a fair value of approximately $178.4 million, accounting for approximately 7.7% of the Company’s total investment portfolio at March 31, 2020. HT III held approximately $193.3 million in tangible assets which accounted for approximately 8.1% of the Company’s total assets at March 31, 2020.

SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. 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.

HT III is periodically examined and audited by the SBA’s staff to determine its compliance with SBA regulations. HT III was in compliance with the terms of the SBIC’s leverage as of March 31, 2020 as a result of having sufficient capital as defined under the SBA regulations. The average amount of debentures outstanding for the three months ended March 31, 2020 for HT III were approximately $136.1 million with an average interest rate of approximately 2.81%.

For the three months ended March 31, 2020 and 2019, the components of interest expense and related fees and cash paid for interest expense for the SBA debentures are as follows:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

Interest expense

 

$

956

 

 

$

1,259

 

Amortization of debt issuance cost (loan fees)

 

 

310

 

 

 

128

 

Total interest expense and fees

 

$

1,266

 

 

$

1,387

 

Cash paid for interest expense

 

$

2,533

 

 

$

2,519

 

The Company reported the following SBA debentures outstanding principal balances as of March 31, 2020 and December 31, 2019: 

 

(in thousands)

Issuance/Pooling Date

 

Maturity Date

 

Interest Rate (1)

 

 

March 31, 2020

 

 

December 31, 2019

 

September 22, 2010

 

September 1, 2020

 

3.50%

 

 

$

 

 

$

10,000

 

March 29, 2011

 

March 1, 2021

 

4.37%

 

 

 

 

 

 

28,750

 

September 21, 2011

 

September 1, 2021

 

3.16%

 

 

 

25,000

 

 

 

25,000

 

March 21, 2012

 

March 1, 2022

 

3.28%

 

 

 

25,000

 

 

 

25,000

 

March 21, 2012

 

March 1, 2022

 

3.05%

 

 

 

11,250

 

 

 

11,250

 

September 19, 2012

 

September 1, 2022

 

3.05%

 

 

 

24,250

 

 

 

24,250

 

March 27, 2013

 

March 1, 2023

 

3.16%

 

 

 

24,750

 

 

 

24,750

 

Total SBA Debentures

 

 

 

 

 

 

 

$

110,250

 

 

$

149,000

 

 

(1)

Interest rate includes annual charge.

45


 

 

2022 Notes

On October 23, 2017, the Company issued $150.0 million in aggregate principal amount of 4.625% Notes due 2022 (the “2022 Notes”). The 2022 Notes were issued pursuant to the Fourth Supplemental Indenture to the Base Indenture, dated October 23, 2017 (the “2022 Notes Indenture”), between the Company and U.S. Bank, National Association, as trustee (the “2022 Trustee”). The sale of the 2022 Notes generated net proceeds of approximately $147.4 million, including a public offering discount of $826,500. Aggregate estimated offering expenses in connection with the transaction, including the underwriter’s discounts and commissions of approximately $975,000, were approximately $1.8 million.

The 2022 Notes mature on October 23, 2022, unless previously repurchased in accordance with their terms. The 2022 Notes bear interest at a rate of 4.625% per year payable semiannually in arrears on April 23 and October 23 of each year, commencing on April 23, 2018.

The 2022 Notes are unsecured obligations of the Company that rank senior in right of payment to all of the Company’s existing and future indebtedness that is expressly subordinated, or junior, in right of payment to the 2022 Notes. The 2022 Notes are not guaranteed by any of the Company’s current or future subsidiaries. The 2022 Notes rank pari passu, or equally, in right of payment with all of the Company’s existing and future liabilities that are not so subordinated, or junior. The 2022 Notes effectively rank subordinated, or junior, to any of the Company’s secured indebtedness (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness. The 2022 Notes rank structurally subordinated, or junior, to all existing and future indebtedness (including trade payables) incurred by subsidiaries, financing vehicles or similar facilities of the Company.

The Company may redeem some or all of the 2022 Notes at any time, or from time to time, at the redemption price set forth under the terms of the indenture after September 23, 2022. No sinking fund is provided for the 2022 Notes. The 2022 Notes were issued in denominations of $2,000 and integral multiples of $1,000 thereof. As of March 31, 2020, the Company was in compliance with the terms of the 2022 Notes Indenture.

As of March 31, 2020 and December 31, 2019, the components of the carrying value of the 2022 Notes were as follows:

 

(in thousands)

 

March 31, 2020

 

 

December 31, 2019

 

Principal amount of debt

 

$

150,000

 

 

$

150,000

 

Unamortized debt issuance cost

 

 

(930

)

 

 

(1,020

)

Original issue discount, net of accretion

 

 

(425

)

 

 

(466

)

Carrying value of 2022 Notes

 

$

148,645

 

 

$

148,514

 

For the three months ended March 31, 2020 and 2019, the components of interest expense and related fees and cash paid for interest expense for the 2022 Notes are as follows:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

Interest expense

 

$

1,939

 

 

$

1,734

 

Amortization of debt issuance cost (loan fees)

 

 

90

 

 

 

90

 

Accretion of original issue discount

 

 

41

 

 

 

41

 

Total interest expense and fees

 

$

2,070

 

 

$

1,865

 

Cash paid for interest expense

 

$

 

 

$

 

2024 Notes

On July 14, 2014, the Company and U.S. Bank, N.A. (the “2024 Trustee”), entered into the Third Supplemental Indenture (the “Third Supplemental Indenture”) to the Base Indenture between the Company and the 2024 Trustee, dated July 14, 2014, relating to the Company’s issuance, offer and sale of $100.0 million aggregate principal amount of 6.25% unsecured notes due 2024 (the “2024 Notes”).

On October 24, 2017, the Board of Directors approved a redemption of $75.0 million of outstanding aggregate principal amount of the 2024 Notes, which were redeemed on November 23, 2017. On February 9, 2018, the Board of Directors approved a redemption of $100.0 million of outstanding aggregate principal amount of the 2024 Notes, which were redeemed on April 2, 2018. Further, on December 7, 2018, the Board of Directors approved a full redemption, in two equal transactions, of $83.5 million of the outstanding aggregate principal amount of the 2024 Notes. The 2024 Notes were fully redeemed on January 14, 2019 and February 4, 2019.

46


 

 

For the three months ended March 31, 2020 and 2019, the components of interest expense and related fees and cash paid for interest expense for the 2024 Notes are as follows:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

Interest expense

 

$

 

 

$

210

 

Amortization of debt issuance cost (loan fees)

 

 

 

 

 

1,686

 

Amortization of original issue premium

 

 

 

 

 

110

 

Total interest expense and fees

 

$

 

 

$

2,006

 

Cash paid for interest expense

 

$

 

 

$

1,305

 

July 2024 Notes

On July 16, 2019, the Company issued $105.0 million in aggregate principal amount of 4.77% notes due 2024 (the “July 2024 Notes”) to qualified institutional investors in a private placement pursuant to a note purchase agreement. The sale of the July 2024 Notes generated net proceeds of approximately $103.5 million. Aggregate estimated offering expenses in connection with the transaction, including fees and commissions, were approximately $1.5 million.

The July 2024 Notes have a fixed interest rate of 4.77% and are due on July 16, 2024, unless redeemed, purchased or prepaid prior to such date by the Company or its affiliates in accordance with their terms. Interest on the July 2024 Notes is due semiannually and 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.

As of March 31, 2020 and December 31, 2019, the components of the carrying value of the July 2024 Notes were as follows:

 

(in thousands)

 

March 31, 2020

 

 

December 31, 2019

 

Principal amount of debt

 

$

105,000

 

 

$

105,000

 

Unamortized debt issuance cost

 

 

(1,279

)

 

 

(1,315

)

Carrying value of July 2024 Notes

 

$

103,721

 

 

$

103,685

 

For the three months ended March 31, 2020 and 2019, the components of interest expense and related fees and cash paid for interest expense for the July 2024 Notes are as follows:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

Interest expense

 

$

1,252

 

 

$

 

Amortization of debt issuance cost (loan fees)

 

 

73

 

 

 

 

Total interest expense and fees

 

$

1,325

 

 

$

 

Cash paid for interest expense

 

$

2,504

 

 

$

 

As of March 31, 2020, the Company was in compliance with the terms of the note purchase agreement governing the July 2024 Notes.

February 2025 Notes

On February 5, 2020, the Company issued $50.0 million in aggregate principal amount of senior unsecured notes due February 2025 (the “February 2025 Notes”) to qualified institutional investors in a private placement pursuant to a note purchase agreement (“2025 Note Purchase Agreement”). The sale of the February 2025 Notes generated net proceeds of approximately $49.4 million. Aggregate estimated offering expenses in connection with the transaction, including fees and commissions, were approximately $576,000.

The February 2025 Notes have a fixed interest rate of 4.28% and are due February 2025, unless redeemed, purchased or prepaid prior to such date by the Company or its affiliates in accordance with their terms. Interest on the February 2025 Notes is due

47


 

 

semiannually and 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.

The 2025 Note Purchase Agreement also provides for the issuance of an additional $70.0 million aggregate principal amount of senior unsecured notes due June 2025 with a fixed interest rate of 4.31% per year that are expected to be issued in June 2020 (subject to the satisfaction of customary closing conditions contained in the 2025 Note Purchase Agreement).

As of March 31, 2020 and December 31, 2019, the components of the carrying value of the February 2025 Notes were as follows:

 

(in thousands)

 

March 31, 2020

 

 

December 31, 2019

 

Principal amount of debt

 

$

50,000

 

 

$

 

Unamortized debt issuance cost

 

 

(558

)

 

 

 

Carrying value of February 2025 Notes

 

$

49,442

 

 

$

 

For the three months ended March 31, 2020 and 2019, the components of interest expense and related fees and cash paid for interest expense for the February 2025 Notes are as follows:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

Interest expense

 

$

333

 

 

$

 

Amortization of debt issuance cost (loan fees)

 

 

17

 

 

 

 

Total interest expense and fees

 

$

350

 

 

$

 

Cash paid for interest expense

 

$

 

 

$

 

As of March 31, 2020, the Company was in compliance with the terms of the 2025 Note Purchase Agreement.

2025 Notes

On April 26, 2018, the Company issued $75.0 million in aggregate principal amount of 5.25% notes due 2025 (the “2025 Notes”). The 2025 Notes were issued pursuant to the Fifth Supplemental Indenture to the Base Indenture, dated April 26, 2018 (the “2025 Notes Indenture”), between the Company and U.S. Bank, National Association, as trustee. The sale of the 2025 Notes generated net proceeds of approximately $72.4 million. Aggregate estimated offering expenses in connection with the transaction, including the underwriter’s discount and commissions, were approximately $2.6 million.

The 2025 Notes will mature on April 30, 2025, unless previously repurchased in accordance with their terms. The 2025 Notes bear interest at a rate of 5.25% per year payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year, commencing on July 30, 2018 and trade on the NYSE under the symbol “HCXZ”. The 2025 Notes are the Company’s direct 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 2025 Notes at any time, or from time to time, at the redemption price set forth under the terms of the indenture after April 30, 2021. No sinking fund is provided for the 2025 Notes. The 2025 Notes were issued in denominations of $25 and integral multiples of $25 thereof. As of March 31, 2020, the Company was in compliance with the terms of the 2025 Notes Indenture.

As of March 31, 2020 and December 31, 2019, the components of the carrying value of the 2025 Notes were as follows:

 

(in thousands)

 

March 31, 2020

 

 

December 31, 2019

 

Principal amount of debt

 

$

75,000

 

 

$

75,000

 

Unamortized debt issuance cost

 

 

(1,934

)

 

 

(2,030

)

Carrying value of 2025 Notes

 

$

73,066

 

 

$

72,970

 

For the three months ended March 31, 2020 and 2019, the components of interest expense and related fees and cash paid for interest expense for the 2025 Notes are as follows:

 

48


 

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

Interest expense

 

$

984

 

 

$

984

 

Amortization of debt issuance cost (loan fees)

 

 

95

 

 

 

95

 

Total interest expense and fees

 

$

1,079

 

 

$

1,079

 

Cash paid for interest expense

 

$

984

 

 

$

984

 

2033 Notes

On September 24, 2018, the Company issued $40.0 million in aggregate principal amount of 6.25% notes due 2033 (the “2033 Notes”). The 2033 Notes were issued pursuant to the Sixth Supplemental Indenture to the Base Indenture, dated September 24, 2018 (the “2033 Notes Indenture”), between the Company and U.S. Bank, National Association, as trustee. The sale of the 2033 Notes generated net proceeds of approximately $38.4 million. Aggregate estimated offering expenses in connection with the transaction, including the underwriter’s discount and commissions were approximately $1.6 million.

The 2033 Notes will mature on October 30, 2033, unless previously repurchased in accordance with their terms. The 2033 Notes bear interest at a rate of 6.25% per year payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year, commencing on October 30, 2018 and trade on the NYSE under the symbol “HCXY.”

The 2033 Notes are the Company’s direct 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 indenture after October 30, 2023. No sinking fund is provided for the 2033 Notes. The 2033 Notes were issued in denominations of $25 and integral multiples of $25 thereof. As of March 31, 2020, the Company was in compliance with the terms of the 2033 Notes Indenture.


49


 

 

As of March 31, 2020 and December 31, 2019, the components of the carrying value of the 2033 Notes were as follows:

 

(in thousands)

 

March 31, 2020

 

 

December 31, 2019

 

Principal amount of debt

 

$

40,000

 

 

$

40,000

 

Unamortized debt issuance cost

 

 

(1,472

)

 

 

(1,499

)

Carrying value of 2033 Notes

 

$

38,528

 

 

$

38,501

 

For the three months ended March 31, 2020 and 2019, the components of interest expense and related fees and cash paid for interest expense for the 2033 Notes are as follows:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

Interest expense

 

$

625

 

 

$

625

 

Amortization of debt issuance cost (loan fees)

 

 

27

 

 

 

27

 

Total interest expense and fees

 

$

652

 

 

$

652

 

Cash paid for interest expense

 

$

625

 

 

$

625

 

2027 Asset-Backed Notes

On November 1, 2018, the Company completed a term debt securitization in connection with which an affiliate of the Company made an offering of $200.0 million in aggregate principal amount of fixed rate asset-backed notes (the “2027 Asset-Backed Notes”).

The 2027 Asset-Backed Notes were issued by Hercules Capital Funding Trust 2018-1 (the “2018 Securitization Issuer”) pursuant to a note purchase agreement, dated as of October 25, 2018, by and among the Company, Hercules Capital Funding 2018-1 LLC, as trust depositor, the 2018 Securitization Issuer, and Guggenheim Securities, LLC, as initial purchaser, 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. The securitization has a reinvestment period with a scheduled termination date of October 20, 2020 during which time principal collections may be reinvested into additional eligible loans. Interest on the 2027 Asset-Backed Notes will be paid, to the extent of funds available, at a fixed rate of 4.605% per annum. The 2027 Asset-Backed Notes have a stated maturity of November 22, 2027.

At both March 31, 2020 and December 31, 2019, the 2027 Asset-Backed Notes had an outstanding principal balance of $200.0 million.

For the three months ended March 31, 2020 and 2019, the components of interest expense and related fees and cash paid for interest expense for the 2027 Asset-Backed Notes are as follows:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

Interest expense

 

$

2,303

 

 

$

2,303

 

Amortization of debt issuance cost (loan fees)

 

 

65

 

 

 

68

 

Total interest expense and fees

 

$

2,368

 

 

$

2,371

 

Cash paid for interest expense

 

$

2,303

 

 

$

2,303

 

Under the terms of the 2027 Asset-Backed Notes, the Company is required to maintain a reserve cash balance, funded through proceeds from the sale of the 2027 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 2027 Asset-Backed Notes. The Company has segregated these funds and classified them as restricted cash. At March 31, 2020 and December 31, 2019, there was approximately $10.8 million and $20.9 million, respectively, of funds segregated as restricted cash related to the 2027 Asset-Backed Notes.

As of March 31, 2020, the Company was in compliance with the terms of the note purchase agreement governing the 2027 Asset-Backed Notes.

2028 Asset-Backed Notes

On January 22, 2019, the Company completed a term debt securitization in connection with which an affiliate of the Company made an offering of $250.0 million in aggregate principal amount of fixed rate asset-backed notes (the “2028 Asset-Backed Notes”).

50


 

 

The 2028 Asset-Backed Notes were issued by Hercules Capital Funding Trust 2019-1 (the 2019 Securitization Issuer”) pursuant to a note purchase agreement, dated as of January 14, 2019, by and among the Company, Hercules Capital Funding 2019-1 LLC, as trust depositor, the 2019 Securitization Issuer, and Guggenheim Securities, LLC, as initial purchaser, MUFG Securities Americas Inc., as a co-manager, Wells Fargo Securities, LLC., as a co-manager, 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. The securitization has a reinvestment period with a scheduled termination date of January 2021 during which time principal collections may be reinvested into additional eligible loans. Interest on the 2028 Asset-Backed Notes will be paid, to the extent of funds available, at a fixed rate of 4.703% per annum. The 2028 Asset-Backed Notes have a stated maturity of February 22, 2028.

At both March 31, 2020 and December 31, 2019, the 2028 Asset-Backed Notes had an outstanding principal balance of $250.0 million.

For the three months ended March 31, 2020 and 2019, the components of interest expense and related fees and cash paid for interest expense for the 2028 Asset-Backed Notes are as follows:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

Interest expense

 

$

2,939

 

 

$

2,254

 

Amortization of debt issuance cost (loan fees)

 

 

54

 

 

 

51

 

Total interest expense and fees

 

$

2,993

 

 

$

2,305

 

Cash paid for interest expense

 

$

2,939

 

 

$

1,927

 

Under the terms of the 2028 Asset-Backed Notes, the Company is required to maintain a reserve cash balance, funded through proceeds from the sale of the 2028 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 2028 Asset-Backed Notes. The Company has segregated these funds and classified them as restricted cash. At March 31, 2020 and December 31, 2019, there was approximately $11.3 million and $29.7 million, respectively, of funds segregated as restricted cash related to the 2028 Asset-Backed Notes.

As of March 31, 2020, the Company was in compliance with the terms of the note purchase agreement governing the 2028 Asset-Backed Notes.

Convertible Notes

2022 Convertible Notes

On January 25, 2017, the Company issued $230.0 million in aggregate principal amount of 4.375% Convertible Notes due 2022 (the “2022 Convertible Notes”), which amount includes the additional $30.0 million aggregate principal amount of 2022 Convertible Notes issued pursuant to the initial purchaser’s exercise in full of its overallotment option. The 2022 Convertible Notes were issued pursuant to an Indenture, dated January 25, 2017 (the “2022 Convertible Notes Indenture”), between the Company and U.S. Bank, National Association, as trustee (the “2022 Trustee”). The sale of the 2022 Convertible Notes generated net proceeds of approximately $225.5 million, including $4.5 million of debt issuance costs.

The 2022 Convertible Notes mature on February 1, 2022, unless previously converted or repurchased in accordance with their terms. The 2022 Convertible Notes bear interest at a rate of 4.375% per year payable semiannually in arrears on February 1, and August 1 of each year, commencing on August 1, 2017.

The 2022 Convertible Notes are unsecured obligations of the Company and rank senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the 2022 Convertible Notes; equal in right of payment to the Company’s existing and future indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries, financing vehicles or similar facilities.

Prior to the close of business on the business day immediately preceding August 1, 2021, holders may convert their 2022 Convertible Notes only under certain circumstances set forth in the 2022 Convertible Notes Indenture. On or after August 1, 2021 until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert their 2022 Convertible Notes at any time. Upon conversion, the Company will pay or deliver, as the case may be, at its election, cash, shares of its common stock or a combination of cash and shares of its common stock. The conversion rate is initially 60.9366 shares of common stock per $1,000 principal amount of 2022 Convertible Notes (equivalent to an initial conversion price of approximately $16.41 per

51


 

 

share of common stock). The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, if certain corporate events occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its 2022 Convertible Notes in connection with such a corporate event in certain circumstances. As of March 31, 2020, the conversion rate was 60.9366 shares of common stock per $1,000 principal amount of Convertible Senior Notes (equivalent to an adjusted conversion price of approximately $16.41 per share of common stock).

The Company may not redeem the 2022 Convertible Notes at its option prior to maturity. No sinking fund is provided for the 2022 Convertible Notes. In addition, if certain corporate events occur, holders of the 2022 Convertible Notes may require the Company to repurchase for cash all or part of their 2022 Convertible Notes at a repurchase price equal to 100% of the principal amount of the 2022 Convertible Notes to be repurchased, plus accrued and unpaid interest through, but excluding, the required repurchase date.

The 2022 Convertible Notes are accounted for in accordance with ASC Subtopic 470-20 (“Debt Instruments with Conversion and Other Options”). In accounting for the 2022 Convertible Notes, the Company estimated at the time of issuance that the values of the debt and the embedded conversion feature of the 2022 Convertible Notes were approximately 98.5% and 1.5%, respectively. The original issue discount of 1.5% or $3.4 million, attributable to the conversion feature of the 2022 Convertible Notes was recorded in “capital in excess of par value” in the Consolidated Statements of Assets and Liabilities. As a result, the Company records interest expense comprised of both stated interest expense as well as accretion of the original issue discount resulting in an estimated effective interest rate of approximately 4.76%.

As of March 31, 2020 and December 31, 2019, the components of the carrying value of the 2022 Convertible Notes were as follows:

 

(in thousands)

 

March 31, 2020

 

 

December 31, 2019

 

Principal amount of debt

 

$

230,000

 

 

$

230,000

 

Unamortized debt issuance cost

 

 

(1,709

)

 

 

(1,932

)

Original issue discount, net of accretion

 

 

(1,287

)

 

 

(1,454

)

Carrying value of 2022 Convertible Notes

 

$

227,004

 

 

$

226,614

 

For the three months ended March 31, 2020 and 2019, the components of interest expense, fees and cash paid for interest expense for the 2022 Convertible Notes were as follows:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

Interest expense

 

$

2,516

 

 

$

2,516

 

Amortization of debt issuance cost (loan fees)

 

 

223

 

 

 

223

 

Accretion of original issue discount

 

 

168

 

 

 

168

 

Total interest expense and fees

 

$

2,907

 

 

$

2,907

 

Cash paid for interest expense

 

$

5,031

 

 

$

5,031

 

As of March 31, 2020, the Company was in compliance with the terms of the indentures governing the 2022 Convertible Notes.

Credit Facilities

As of March 31, 2020 and December 31, 2019, the Company has two available credit facilities, the Wells Facility and the Union Bank Facility (together, the “Credit Facilities”).

Wells Facility

On June 29, 2015, the Company, through a special purpose wholly owned subsidiary, Hercules Funding II LLC (“Hercules Funding II”), entered into an Amended and Restated Loan and Security Agreement (the “Wells Facility”) with Wells Fargo Capital Finance, LLC, as a lender and as the arranger and the administrative agent, and the lenders party thereto from time to time.

On January 11, 2019, Hercules Funding II entered into the Seventh Amendment to the Wells Facility, or the Wells Facility Seventh Amendment. The Wells Facility Seventh Amendment, among other things, amends certain key provisions of the Wells Facility to reduce the current interest rate to LIBOR plus 3.00% with an interest rate floor of 3.00%. The Wells Facility Seventh Amendment also extends the maturity date to January 2023, unless terminated earlier in accordance with its terms. In addition, the Wells Fargo Capital Finance, LLC has committed $75.0 million in credit capacity with an accordion feature, in which the Company

52


 

 

can increase the credit line up to an aggregate of $125.0 million, funded by additional lenders and with the agreement of Wells Fargo and subject to other customary conditions. The Wells Facility has an advance rate of 55% against eligible debt investments, and it is secured by all of the assets of Hercules Funding II. The Wells Facility requires payment of a non-use fee of up to 0.375% depending on the average monthly outstanding balance under the facility relative to the maximum amount of commitments at such time.

The Wells Facility also includes various financial and other covenants applicable to the Company and the Company’s subsidiaries, in addition to those applicable to Hercules Funding II, including covenants relating to certain changes of control of the Company and Hercules Funding II. Among other things, these covenants also require the Company to maintain certain financial ratios, including a maximum debt to worth ratio, minimum interest coverage ratio, and a minimum tangible net worth ratio.

On July 2, 2019, Hercules Funding II entered into the Eighth Amendment to the Wells Facility, or the Wells Facility Eighth Amendment. The Wells Facility Eighth Amendment amends certain provisions of the Wells Facility to, among other things, revise certain provisions thereof to further permit a third party special servicer to act as servicer after an event of default instead of the Company with respect to split-funded notes receivable owned by Hercules Funding II and an affiliate thereof (including Hercules Funding IV LLC).

The Wells Facility provides for customary events of default, including, without limitation, with respect to payment defaults, breach of representations and covenants, certain key person provisions, cross acceleration provisions to certain other debt, lien, and judgment limitations, and bankruptcy.

As of both March 31, 2020 and December 31, 2019, the Company had no borrowings outstanding on the Wells Facility.

For the three months ended March 31, 2020 and 2019, the components of interest expense and related fees and cash paid for interest expense for the Wells Facility were as follows:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

Interest expense

 

$

25

 

 

$

167

 

Amortization of debt issuance cost (loan fees)

 

 

44

 

 

 

77

 

Total interest expense and fees

 

$

69

 

 

$

244

 

Cash paid for interest expense

 

$

25

 

 

$

125

 

As of March 31, 2020, the Company was in compliance with the terms of the Wells Facility.

Union Bank Facility

On 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 “Union Bank Facility”) with MUFG Union Bank, as the arranger and administrative agent, and the lenders party to the Union Bank Facility from time to time. The Union Bank Facility replaced the Company’s credit facility (the “2019 Union Bank Facility”) entered into on February 20, 2019 with MUFG Union Bank, as the arranger and administrative agent, and the lenders party thereto. The 2019 Union Bank Facility replaced the Company’s credit facility (the “Prior Union Bank Facility”) entered into on May 5, 2016 with MUFG Union Bank, as the arranger and administrative agent, and the lenders party thereto. Any references to amounts related to the Union Bank Facility prior to February 20, 2020 were incurred and relate to the Prior Union Bank Facility or the 2019 Union Bank Facility, as applicable.

Under the Union Bank Facility, the lenders have made commitments of $400.0 million. The Union Bank Facility contains an accordion feature, in which the Company can increase the credit line up to an aggregate of $200.0 million, funded by existing or additional lenders and with the agreement of MUFG Union Bank and subject to other customary conditions. There can be no assurances that additional lenders will join the Union Bank Facility to increase available borrowings. Borrowings under the Union Bank Facility generally bear interest at a rate per annum equal to LIBOR plus 2.50%. The Union Bank Facility matures on February 22, 2023 plus a 12-month amortization period, unless sooner terminated in accordance with its terms. The Union Bank Facility is secured by all of the assets of Hercules Funding IV.

The Union Bank Facility requires payment of a non-use fee during the revolving credit availability period as follows: (i) 0.50% if less than or equal to 50% utilization; (ii) 0.375% if more than 50% utilization but less than or equal to 80% utilization; and (iii) 0.20% if more than 80% is utilized.

The Union 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

53


 

 

Hercules Funding IV. Among other things, these covenants also 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 Union 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.

As of March 31, 2020, the Company had borrowings outstanding of $71.1 million on the Union Bank Facility. The Company had borrowings outstanding of $103.9 million on the Union Bank Facility at December 31, 2019.

For the three months ended March 31, 2020 and 2019, the components of interest expense and related fees and cash paid for interest expense for the previous and current Union Bank Facility were as follows:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

Interest expense

 

$

451

 

 

$

184

 

Amortization of debt issuance cost (loan fees)

 

 

284

 

 

 

330

 

Total interest expense and fees

 

$

735

 

 

$

514

 

Cash paid for interest expense

 

$

545

 

 

$

148

 

As of March 31, 2020, the Company was in compliance with the terms of the Union Bank Facility.

5. 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 U.S. 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 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.

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 of Directors 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.

During the three months ended March 31, 2020, the Company declared and paid a distribution of $0.40 per share. 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 our distributions taxable year-to-date as of March 31, 2020, 100% would be from our 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 2020 distributions to stockholders will be.

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 our ordinary income (taking into account certain deferrals and elections) for each calendar year, (2) 98.2% of our 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, or 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).

54


 

 

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 March 31, 2020 was approximately $40.4 million or $0.37 per share. Taxable net realized gains for the same period were $9.0 million or approximately $0.08 per share. Taxable income for the three months ended March 31, 2019 was approximately $32.2 million or $0.33 per share. Taxable net realized gains for the same period were $3.2 million or approximately $0.03 per share.

For the three months ended March 31, 2020, the Company paid approximately $2.3 million of income tax, including excise tax, and had $765 accrued but unpaid tax expense, as of the balance sheet date. For the three months ended March 31, 2019, the Company paid approximately $1.1 million of income tax, including excise tax, and had $80,000 accrued but unpaid tax expense as of the balance sheet date.

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.

6. Stockholders’ Equity

On September 7, 2017, the Company entered into an At-The-Market, or ATM equity distribution agreement, or the Prior Equity Distribution Agreement, with JMP Securities LLC, or JMP. The Prior Equity Distribution Agreement, provided that the Company may offer and sell up to 12.0 million shares of its common stock from time to time through JMP, as its sales agent.

On May 6, 2019, the Company terminated the Prior Equity Distribution Agreement and entered into a new ATM equity distribution agreement, or the Equity Distribution Agreement. As a result, the remaining shares that were available under the Prior Equity Distribution agreement are no longer available for issuance. The Equity Distribution Agreement provides that the Company may offer and sell up to 12.0 million shares of its common stock from time to time through JMP, as its sales agent. 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, 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.

During the three months ended March 31, 2020, the Company sold approximately 2.4 million shares of common stock under the Equity Distribution Agreement. For the same period, the Company received total accumulated net proceeds of approximately $35.1 million, including $362,000 of offering expenses, from these sales. During the three months ended March 31, 2019, there were no shares of common stock sold under the 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 March 31, 2020, approximately 5.6 million shares remain available for issuance and sale under the Equity Distribution Agreement.

In addition to selling shares through the Equity Distribution Agreement, from time to time the Company may sell its shares through underwritten public offerings. On June 14, 2018, the Company closed its underwritten public offering of 6.9 million shares of common stock, including an over-allotment option to purchase an additional 900,000 shares of common stock (“June 2018 Equity Offering”). The offering generated net proceeds, before expenses, of $81.3 million, including the underwriting discount and commissions of $2.6 million.

55


 

 

On June 17, 2019, the Company closed its underwritten public offering of 5.8 million shares of common stock, including an over-allotment option to purchase an additional 750,000 shares of common stock (“June 2019 Equity Offering”). The offering generated net proceeds, before expenses, of $70.5 million, including the underwriting discount and commissions of $2.2 million.

The Company has issued stock options for common stock subject to future issuance, of which 442,737 and 449,116 were outstanding at March 31, 2020 and December 31, 2019, respectively.

7. Equity Incentive Plans

The Company and its stockholders authorized and adopted the 2004 Equity Incentive Plan (the “2004 Plan”) for purposes of attracting and retaining the services of its executive officers and key employees. The Company and its stockholders have authorized and adopted the 2006 Non-Employee Director Plan (the “2006 Plan”) for purposes of attracting and retaining the services of its Board of Directors. On June 21, 2017, the 2006 Plan expired in accordance with its terms and no additional awards may be granted under the 2006 Plan.

On May 13, 2018, the Board of Directors further amended and restated the 2004 Plan and renamed it the Hercules Capital, Inc. Amended and Restated 2018 Equity Incentive Plan (the “2018 Equity Incentive Plan”). Under the 2004 Plan, prior to the amendment and restatement, the Company was authorized to issue 12.0 million shares of common stock. The 2018 Equity Incentive Plan, among other things, increased the number of shares available for issuance to eligible participants by an additional 6.7 million shares. Unless earlier terminated by the Board, the 2018 Equity Incentive Plan will terminate on May 12, 2028. On May 13, 2018, the Board of Directors adopted the Hercules Capital, Inc. 2018 Non-employee Director Plan (the “Director Plan”). The Director Plan provides equity compensation in the form of restricted stock to the Company’s non-employee directors. Subject to certain adjustments, the maximum aggregate number of shares of stock that may be authorized for issuance as restricted stock awards granted under the Director Plan is 300,000 shares. Unless earlier terminated by the Board, the Director Plan will terminate on May 12, 2028. The 2018 Equity Incentive Plan and the Director Plan were each approved by stockholders on June 28, 2018. Except for the Retention PSUs (as described below), these employees awards generally vest 33% one year after the date of grant and ratably over the succeeding 24 months.

On May 29, 2018, the Company filed an exemptive application with the SEC and an amendment to the application on September 27, 2018, with respect to the 2018 Equity Incentive Plan and the Director Plan for exemptive relief from certain provisions of the 1940 Act. On January 30, 2019, the Company received approval from the SEC on its request for exemptive relief 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 Equity Incentive Plan. The exemptive order also allows participants in the Director Plan and the 2018 Equity Incentive 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 following table summarizes the common stock options activities for the three months ended March 31, 2020 and 2019:

 

 

Three Months Ended March 31,

 

 

2020

 

 

2019

 

 

Common

Stock

Options

 

 

Weighted

Average

Exercise Price

 

 

Common

Stock

Options

 

 

Weighted

Average

Exercise Price

 

Outstanding at December 31,

 

449,116

 

 

$

13.32

 

 

 

481,032

 

 

$

13.40

 

Granted

 

24,000

 

 

$

14.48

 

 

 

49,000

 

 

$

12.60

 

Exercised

 

(29,267

)

 

$

12.36

 

 

 

(13,501

)

 

$

11.39

 

Forfeited

 

(1,112

)

 

$

13.61

 

 

 

(1,613

)

 

$

12.16

 

Expired

 

 

 

$

 

 

 

(51,999

)

 

$

14.85

 

Outstanding at March 31,

 

442,737

 

 

$

13.44

 

 

 

462,919

 

 

$

13.21

 

Shares Expected to Vest at March 31,

 

149,985

 

 

$

13.55

 

 

 

189,346

 

 

$

13.51

 

All options may be exercised for a period ending seven to ten years after the date of grant. At March 31, 2020, options for approximately 442,737 shares were outstanding at a weighted average exercise price of approximately $13.44 per share with weighted average of remaining contractual term of 4.53 years and zero aggregate intrinsic value. At March 31, 2020, options for approximately 292,752 shares were exercisable at a weighted average exercise price of approximately $13.55 per share with weighted average of remaining contractual term of 3.71 years and zero aggregate intrinsic value.

56


 

 

The Company determined that the fair value of options granted under the 2018 Equity Incentive Plan during the three months ended March 31, 2020 and 2019 was approximately $6,000 and $18,000, respectively. During the three months ended March 31, 2020 and 2019, approximately $9,000 and $11,000 of share-based cost due to stock option grants was expensed, respectively. As of March 31, 2020, there was approximately $49,000 of total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 1.91 years.

The Company follows ASC Topic 718 to account for stock options 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, including estimating stock price volatility, forfeiture rate and expected option life. The fair value of options granted is based upon a Black Scholes option pricing model using the assumptions in the following table for each of the three months ended March 31, 2020 and 2019 is as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Expected Volatility

 

15.71%

 

 

18.40%

 

Expected Dividends

 

10%

 

 

10%

 

Expected term (in years)

 

 

4.5

 

 

 

4.5

 

Risk-free rate

 

0.35% - 1.66%

 

 

2.18% - 2.62%

 

During the three months ended March 31, 2020 and 2019, the Company granted 677,887 shares and 48,116 shares, respectively, of restricted stock awards pursuant to the 2018 Equity Incentive Plan and the Director Plan. The Company determined that the fair values, based on grant date close price, of restricted stock awards granted under the 2018 Equity Incentive Plan and the Director Plan during the three months ended March 31, 2020 and 2019 were approximately $9.5 million and $597,000, respectively. As of March 31, 2020, there were approximately $10.3 million of total unrecognized compensation costs related to restricted stock awards. These costs are expected to be recognized over a weighted average period of 2.64 years.

The following table summarizes the activities for the Company’s unvested restricted stock awards for the three months ended March 31, 2020 and 2019:

 

 

Three Months Ended March 31,

 

 

2020

 

 

2019

 

 

Restricted

Stock Awards

 

 

Weighted Average

Grant Date

Fair Value

 

 

Restricted

Stock Awards

 

 

Weighted Average

Grant Date

Fair Value

 

Unvested at December 31,

 

178,509

 

 

$

12.88

 

 

 

380,870

 

 

$

12.95

 

Granted

 

677,887

 

 

$

14.00

 

 

 

48,116

 

 

$

12.40

 

Vested

 

(23,035

)

 

$

12.73

 

 

 

(152,018

)

 

$

12.78

 

Forfeited

 

(8,627

)

 

$

14.15

 

 

 

 

 

$

 

Unvested at March 31,

 

824,734

 

 

$

13.79

 

 

 

276,968

 

 

$

12.95

 

During the three months ended March 31, 2020, the Company did not grant restricted stock units pursuant to the 2018 Equity Incentive Plan. The Company granted approximately 922,494 shares of restricted stock units during three months ended March 31, 2019. The Company also granted approximately 25,382 shares and 46,321 shares, respectively, of distribution equivalent units pursuant to the 2018 Equity Incentive Plan. The Company determined that the fair values, based on grant date close price, of restricted stock units granted under the 2018 Equity Incentive Plan during the three months ended March 31, 2020 and 2019, were approximately $340,000 and $12.7 million, respectively. As of March 31, 2020, there were approximately $4.1 million of total unrecognized compensation costs related to restricted stock units. These costs are expected to be recognized over a weighted average period of 1.74 years.

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The following table summarizes the activities for the Company’s unvested restricted stock units for the three months ended March 31, 2020 and 2019:

 

 

Three Months Ended March 31,

 

 

2020

 

 

2019

 

 

Restricted

Stock Units

 

 

Weighted Average

Grant Date

Fair Value

 

 

Restricted

Stock Units

 

 

Weighted Average

Grant Date

Fair Value

 

Unvested at December 31,

 

603,837

 

 

$

13.13

 

 

 

732,533

 

 

$

13.50

 

Granted

 

 

 

$

 

 

 

922,494

 

 

$

13.14

 

Distribution Equivalent Unit Granted

 

25,382

 

 

$

 

 

 

46,321

 

 

$

 

Vested (1)

 

(182,595

)

 

$

13.36

 

 

 

(202,064

)

 

$

13.37

 

Forfeited

 

(6,873

)

 

$

12.97

 

 

 

(450

)

 

$

14.21

 

Unvested at March 31,

 

439,751

 

 

$

13.05

 

 

 

1,498,834

 

 

$

13.29

 

 

(1)

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

During the three months ended March 31, 2020, the Company expensed approximately $1.6 million of compensation expense related to restricted stock awards and restricted stock units. The Company had approximately $2.2 million in compensation expense related to restricted stock awards and restricted stock units during the three months ended March 31, 2019.

On May 2, 2018, the Company granted long-term Retention Performance Stock Unit awards (the “Retention PSUs”) under the 2004 Plan and separate cash bonus awards with similar terms (the “Cash Awards”) to senior personnel. The awards are designed to provide incentives that increase along with the total shareholder return (“TSR”). On May 2, 2018, the target number of Retention PSUs granted to senior personnel was 1,299,757 in the aggregate and the target amount of the Cash Awards granted to senior personnel was $4.0 million in the aggregate. As of March 31, 2020, there were 487,409 Retention PSUs outstanding at target and the target amount of the Cash Awards was $3.0 million in the aggregate. During the three months ended March 31, 2020, no Retention PSUs at target were forfeited. The Retention PSUs and Cash Awards do not vest until the fourth anniversary “cliff vest” of the grant date (or a change in control of the Company, if earlier) and the Retention PSUs must generally be held and not disposed of until the fifth anniversary of the grant date, except in the event of death, disability or a change in control (the “Performance Period”). Distribution equivalent units will accrue in respect only of the Retention PSUs in the form of additional Retention PSUs, but will not be paid unless the Retention PSUs to which such distribution equivalent units relate actually vest. The Cash Awards are not eligible to accrue distribution equivalent units.

The Company follows ASC Topic 718 (“Compensation – Stock Compensation”) to account for the Retention PSUs and Cash Awards granted. Under ASC Topic 718, compensation cost associated with Retention PSUs is measured at the grant date based on the fair value of the award and is recognized over the Performance Period. As the Cash Awards are settled in cash, the award is expensed as a liability, and will be re-measured at each reporting period until the Performance Period is complete. The compensation expense for these awards is based on the per unit grant date valuation using a Monte-Carlo simulation multiplied by the target payout level. The payout level is calculated based the Company’s TSR relative to specified BDCs during the performance period.

As of March 31, 2020, all outstanding Retention PSUs and Cash Awards were unvested and there were approximately $3.6 million of total unrecognized compensation costs related to the Retention PSUs. These costs are expected to be recognized over a weighted average remaining vesting period of 2.09 years. As of March 31, 2020, there was approximately $1.7 million of accumulated compensation expense related to the Cash Awards. The accumulated expense related to the Cash Awards is included within the Consolidated Statements of Assets and Liabilities.

58


 

 

8. Earnings Per Share

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

 

 

 

Three Months Ended March 31,

 

(in thousands, except per share data)

 

2020

 

 

2019

 

Numerator

 

 

 

 

 

 

 

 

Net increase (decrease) in net assets resulting from operations

 

$

(28,723

)

 

$

61,585

 

Less: Distributions declared-common and restricted shares

 

 

(44,223

)

 

 

(29,900

)

Undistributed earnings (loss)

 

 

(72,946

)

 

 

31,685

 

Undistributed earnings (loss)-common shares

 

 

(72,946

)

 

 

31,610

 

Add: Distributions declared-common shares

 

 

43,884

 

 

 

29,829

 

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

 

$

(29,062

)

 

$

61,439

 

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

108,955

 

 

 

96,218

 

Common shares issuable

 

 

 

 

 

290

 

Weighted average common shares outstanding assuming dilution

 

 

108,955

 

 

 

96,508

 

 

 

 

 

 

 

 

 

 

Change in net assets per common share

 

 

 

 

 

 

 

 

Basic

 

$

(0.27

)

 

$

0.64

 

Diluted

 

$

(0.27

)

 

$

0.64

 

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 months ended March 31, 2020, as the Company had a net loss, the effect of the 2022 Convertible Notes, outstanding common stock options, restricted stock units and awards, and Retention PSUs under the treasury stock method was anti-dilutive and, accordingly, is excluded from the calculation of diluted loss per share. For the three months ended March 31, 2019, the effect of the 2022 Convertible Notes was anti-dilutive and, accordingly, was excluded from the calculation of diluted earnings per share.

The calculation of change in net assets resulting from operations per common share—assuming dilution, excludes all anti-dilutive shares. For the three months ended March 31, 2020, the number of anti-dilutive shares, as calculated based on the weighted average closing price of the Company’s common stock for the periods, consisted of 3.6 million shares of 2022 Convertible Notes, 42,066 shares of unvested common stock options, 139,660 shares of unvested restricted stock units, 35,208 shares of unvested restricted stock awards, and 197,274 shares of unvested Retention PSUs. For the three months ended March 31, 2019, the number of anti-dilutive shares, as calculated based on the weighted average closing price of the Company’s common stock for the periods, consisted of 4.0 million shares related to 2022 Convertible Notes, 38,728 shares of unvested common stock options, no shares of unvested restricted stock units, and no shares of unvested Retention PSUs.

At both March 31, 2020 and December 31, 2019, 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.

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9. Financial Highlights

Following is a schedule of financial highlights for the three months ended March 31, 2020 and 2019:  

 

 

Three Months Ended March 31,

 

 

2020

 

 

2019

 

Per share data (1):

 

 

 

 

 

 

 

Net asset value at beginning of period

$

10.55

 

 

$

9.90

 

Net investment income

 

0.37

 

 

 

0.30

 

Net realized gain (loss) on investments

 

0.06

 

 

 

0.05

 

Net unrealized appreciation (depreciation) on investments

 

(0.70

)

 

 

0.29

 

Total from investment operations

 

(0.27

)

 

 

0.64

 

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

 

0.01

 

 

 

(0.01

)

Distributions of net investment income (6)

 

(0.40

)

 

 

(0.31

)

Distributions of capital gains (6)

 

 

 

 

 

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

 

0.03

 

 

 

0.04

 

Net asset value at end of period

$

9.92

 

 

$

10.26

 

 

 

 

 

 

 

 

 

Ratios and supplemental data:

 

 

 

 

 

 

 

Per share market value at end of period

$

7.64

 

 

$

12.66

 

Total return (3)

 

(44.48

%)

 

 

17.22

%

Shares outstanding at end of period

 

110,601

 

 

 

96,543

 

Weighted average number of common shares outstanding

 

108,955

 

 

 

96,218

 

Net assets at end of period

$

1,097,080

 

 

$

990,349

 

Ratio of total expense to average net assets (4)

 

11.38

%

 

 

12.41

%

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

 

13.98

%

 

 

12.10

%

Portfolio turnover rate (5)

 

8.65

%

 

 

4.27

%

Weighted average debt outstanding

$

1,262,452

 

 

$

1,078,538

 

Weighted average debt per common share

$

11.59

 

 

$

11.21

 

 

(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 three months ended March 31, 2020 and 2019 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 three months ended March 31, 2020 and 2019 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.

10. Commitments and Contingencies

The Company’s commitments and contingencies consist primarily of unused commitments to extend credit in the form of loans to the Company’s portfolio companies. A portion of these unfunded contractual commitments as of March 31, 2020 are dependent upon the portfolio company reaching certain milestones before the debt commitment becomes available. Furthermore, the Company’s credit agreements contain customary lending provisions which allow the Company relief from funding obligations for previously made commitments in instances where the underlying company experiences materially adverse events that affect the financial condition or business outlook for the Company. 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 milestones.

At March 31, 2020, the Company had approximately $134.7 million of unfunded commitments, including undrawn revolving facilities, which were available at the request of the portfolio company and unencumbered by milestones.

The Company also had approximately $78.8 million of non-binding term sheets outstanding at March 31, 2020. Non-binding outstanding term sheets are subject to completion of the Company’s 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. Not all non-binding term sheets are expected to close and do not necessarily represent future cash requirements.

60


 

 

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.

As of March 31, 2020, the Company’s unfunded contractual commitments available at the request of the portfolio company, including undrawn revolving facilities, and unencumbered by milestones are as follows:

 

(in thousands)

 

 

 

 

Portfolio Company

 

Unfunded

Commitments (1)

 

The Wing

 

$

30,000

 

Codiak Biosciences, Inc.

 

 

15,000

 

Tricida, Inc.

 

 

15,000

 

Chemocentryx, Inc.

 

 

15,000

 

Contentful, Inc.

 

 

11,250

 

Eidos Therapeutics, Inc.

 

 

11,250

 

Antares Pharma Inc.

 

 

10,000

 

Replimune Group, Inc.

 

 

10,000

 

Dashlane, Inc.

 

 

5,000

 

Clarabridge, Inc.

 

 

5,000

 

Campaign Monitor Limited

 

 

2,979

 

The CM Group LLC

 

 

1,750

 

Ikon Science Limited

 

 

1,050

 

Velocity Clinical Research, Inc.

 

 

750

 

Yipit, LLC

 

 

425

 

ePayPolicy Holdings, LLC

 

 

250

 

Total

 

$

134,704

 

 

(1)

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.

The Company’s contractual obligations as of March 31, 2020 include:  

 

 

 

Payments due by period (in thousands)

 

Contractual Obligations (1)

 

Total

 

 

Less than 1 year

 

 

1 - 3 years

 

 

3 - 5 years

 

 

After 5 years

 

Borrowings (2)(3)

 

$

1,281,375

 

 

$

 

 

$

490,250

 

 

$

226,125

 

 

$

565,000

 

Lease and License Obligations (4)

 

 

13,200

 

 

 

3,309

 

 

 

5,954

 

 

 

2,425

 

 

 

1,512

 

Total

 

$

1,294,575

 

 

$

3,309

 

 

$

496,204

 

 

$

228,550

 

 

$

566,512

 

 

(1)

Excludes commitments to extend credit to the Company’s portfolio companies.

(2)

Includes $110.3 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, $75.0 million of the 2025 Notes, $40.0 million of the 2033 Notes, $200.0 million of the 2027 Asset-Backed Notes, $250.0 million of the 2028 Asset-Backed Notes, $230.0 million of the 2022 Convertible Notes, and $71.1 million outstanding under the Union Bank Credit Facility as of March 31, 2020. There were no outstanding borrowings under the Wells Facility as of March 31, 2020.

(3)

Amounts represent future principal repayments and not the carrying value of each liability. See Note 4 to the Company’s consolidated financial statements.

(4)

Facility leases and licenses including short-term leases.

Certain premises are leased or licensed under agreements which expire at various dates through June 2027. Total rent expense, including short-term leases, amounted to approximately $775,000 during the three months ended March 31, 2020. Total rent expense amounted to approximately $588,000 during the three months ended March 31, 2019. 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 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.

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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 March 31, 2020:

 

(in thousands)

 

Three Months Ended March 31, 2020

 

Total operating lease cost

 

$

735

 

Cash paid for amounts included in the measurement of lease liabilities

 

$

550

 

ROU assets obtained in exchange for lease liabilities

 

$

 

 

 

 

As of March 31, 2020

 

Weighted-average remaining lease term (in years)

 

 

4.76

 

Weighted-average discount rate

 

 

5.45

%

The following table shows future minimum lease payments under the Company’s operating leases and a reconciliation to the operating lease liability as of March 31, 2020:

 

(in thousands)

 

 

 

 

Remainder of 2020

 

$

2,246

 

2021

 

 

2,903

 

2022

 

 

3,002

 

2023

 

 

2,293

 

2024

 

 

693

 

Thereafter

 

 

1,512

 

Total lease payments

 

 

12,648

 

Less: imputed interest

 

 

(1,505

)

Total operating lease liability

 

$

11,144

 

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.

11. Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to Disclosure Requirements for Fair Value Measurement”, which is intended to improve the effectiveness of fair value measurement disclosures. The amendment, among other things, affects certain disclosure requirements related to transfers between level 1 and level 2 of the fair value hierarchy, and level 3 fair value measurements as they relate to valuation process, unrealized gains and losses, measurement uncertainty, and significant unobservable inputs. The new guidance is effective for interim and annual periods beginning after December 15, 2019. The Company partially adopted the standard effective July 1, 2019 and fully adopted this standard effective January 1, 2020, which did not have a material impact, on its consolidated financial statements and related disclosures for the periods presented.

In August 2018, the Securities and Exchange Commission (“SEC”) issued Final Rule Release No. 33-10532 - “Disclosure Update and Simplification.” This rule amends various SEC disclosure requirements that have been determined to be redundant, duplicative, overlapping, outdated, or superseded. The changes are generally expected to reduce or eliminate certain disclosures; however, the amendments did expand interim period disclosure requirements related to changes in stockholders' equity. This final rule is effective on November 5, 2018. The Company has adopted these amendments as currently required and these are reflected in its consolidated financial statements and related disclosures. Certain prior year information has been adjusted to conform with these amendments.

In March 2020, the FASB issued ASU 2020-04, Reference rate reform (Topic 848) - Facilitation of the effects of reference rate reform on financial reporting. The amendments in this update provide optional expedients and exceptions for applying U.S. GAAP to certain contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform and became effective upon issuance for all entities. The Company has agreements that have LIBOR as a reference rate with certain portfolio companies and also with certain lenders. These agreements include language for choosing an alternative successor rate if LIBOR reference is no longer considered to be appropriate. Such contract modifications are required to be evaluated in determining whether the modifications result in the establishment of new contracts or the continuation of existing contracts. The Company adopted this amendment as of March 12, 2020 and plans to apply the amendments in this update to account

62


 

 

for contract modifications due to changes in reference rates and does not believe that it will have a material impact on its consolidated financial statements and disclosures.

 

12. Subsequent Events

On April 27, 2020, the Board of Directors declared a cash distribution of $0.32 per share to be paid on May 21, 2020 to stockholders of record as of May 14, 2020.

COVID-19

The Company has been closely monitoring the COVID-19 pandemic, its broader impact on the global economy and the more recent impacts on the U.S. economy. As of May 4, 2020, there is no indication of a reportable subsequent event impacting the Company’s financial statements for the three months ended March 31, 2020. The Company continues to observe and respond to the evolving COVID-19 environment and its potential impact on areas across its business.

 


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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:

 

the effect and consequences of the novel coronavirus (“COVID-19”) public health crisis on matters including global, U.S. and local economies, our business operations and continuity, potential disruption to our portfolio companies, tightened availability to capital and financing, the health and productivity of our employees, the ability of third-party providers to continue uninterrupted service, and the regulatory environment in which we operate;

 

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 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 losses.

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 Securities and Exchange Commission (“SEC”) on February 20, 2020 and under “Forward-Looking Statements” of this Item 2.


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Recent COVID-19 Developments

We are closely monitoring the impact of the outbreak of COVID-19 on all aspects of our business, including how it will impact our portfolio companies, employees, due diligence and underwriting processes, and financial markets. While COVID-19 had a negative impact on our net income for the quarter, other key financial components such as total investment income and net investment income increased as compared to previous periods. Given the fluidity of the situation, we cannot estimate the long-term impact of COVID-19 on our business, future results of operations, financial position or cash flows at this time. The extent to which our operations may be impacted by the COVID-19 pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the outbreak and actions by government authorities to contain the outbreak or treat its impact. Furthermore, the impacts of a potential worsening of global economic conditions and the continued disruptions to and volatility in the financial markets remain unknown.

Overview

We are a specialty finance company focused on providing senior secured loans to high-growth, innovative venture capital-backed companies in a variety of technology, life sciences, and sustainable and renewable technology industries. 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, Hartford, CT, and San Diego, CA.

Our goal is to be the leading structured debt financing provider for venture capital-backed companies in 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. We invest primarily in private companies but also have investments in public companies.

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 provide “unitranche” loans, which are loans that combine both senior and mezzanine debt, generally in a first lien position.

Our investment objective is to maximize our portfolio total return by generating current income from our debt investments and capital appreciation from our warrant and equity-related investments. Our primary business objectives are to increase our net income, net operating income, and NAV by investing in structured debt with warrants and equity of venture capital-backed companies in technology-related industries with attractive current yields and the potential for equity appreciation and realized gains. 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 directly to venture capital-backed companies in technology-related industries is generally used for growth and general working capital purposes as well as in select cases for acquisitions or recapitalizations.

We also make investments in qualifying small businesses through HT III, which is our wholly owned SBIC. HT III holds approximately $193.3 million in tangible assets which accounted for approximately 8.1% of our total assets at March 31, 2020.

We have qualified as and have elected to be treated for tax purposes as a RIC under Subchapter M of the Code. Pursuant to this election, we generally will not be subject to corporate-level taxes on any income and gains that we distribute as dividends for federal income tax purposes to our stockholders. However, our qualification and election to be treated as a RIC requires that we 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 are 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.

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. Consistent with requirements under the 1940 Act, we invest primarily in United-States based companies and to a lesser extent in foreign companies.

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We regularly engage in discussions with third parties with respect to various potential transactions. We may acquire an investment or a portfolio of investments or an entire company or sell a portion 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 including, without limitation, the approval of our board of directors and required regulatory or third party consents and, in certain cases, the approval of our stockholders. 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 $2.3 billion at both March 31, 2020 and December 31, 2019. The fair value of our debt investment portfolio at March 31, 2020 was approximately $2.2 billion, compared to a fair value of approximately $2.1 billion at December 31, 2019. The fair value of the equity portfolio at March 31, 2020 was approximately $94.5 million, compared to a fair value of approximately $145.0 million at December 31, 2019. The fair value of the warrant portfolio at March 31, 2020 was approximately $12.4 million, compared to a fair value of approximately $20.9 million at December 31, 2019.

Portfolio Activity

Our investments in portfolio companies take a variety of forms, including unfunded contractual commitments and funded investments. From time to time, 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. Not all debt commitments represent future cash requirements. Similarly, 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. Not all non-binding term sheets are expected to close and do not necessarily represent future cash requirements.

Our portfolio activity for the three months ended March 31, 2020 and the year ended December 31, 2019 was comprised of the following:  

 

(in millions)

 

March 31, 2020

 

 

December 31, 2019

 

Debt Commitments (1)

 

 

 

 

 

 

 

 

New portfolio company

 

$

82.0

 

 

$

1,101.3

 

Existing portfolio company

 

 

174.8

 

 

 

355.8

 

Total

 

$

256.8

 

 

$

1,457.1

 

Funded and Restructured Debt Investments (2)

 

 

 

 

 

 

 

 

New portfolio company

 

$

76.7

 

 

$

640.6

 

Existing portfolio company

 

 

156.9

 

 

 

367.3

 

Total

 

$

233.6

 

 

$

1,007.9

 

Funded Equity Investments

 

 

 

 

 

 

 

 

New portfolio company

 

$

 

 

$

6.1

 

Existing portfolio company

 

 

 

 

 

11.7

 

Total

 

$

 

 

$

17.8

 

Unfunded Contractual Commitments (3)

 

 

 

 

 

 

 

 

Total

 

$

134.7

 

 

$

133.7

 

Non-Binding Term Sheets

 

 

 

 

 

 

 

 

New portfolio company

 

$

50.0

 

 

$

50.0

 

Existing portfolio company

 

 

28.8

 

 

 

144.0

 

Total

 

$

78.8

 

 

$

194.0

 

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(1)

Includes restructured loans and renewals in addition to new commitments.

(2)

Funded amounts include borrowings on revolving facilities.

(3)

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.

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 three months ended March 31, 2020, we received approximately $167.5 million in aggregate principal repayments. Of the approximately $167.5 million of aggregate principal repayments, approximately $17.0 million were scheduled principal payments and approximately $150.5 million were early principal repayments related to eight portfolio companies. Of the approximately $150.5 million early principal repayments, approximately $70.0 million were early repayments due to merger and acquisition transactions for three portfolio companies.

Total portfolio investment activity (inclusive of unearned income and excluding activity related to taxes payable, and escrow receivables) as of and for the three months ended March 31, 2020 and the year ended December 31, 2019 was as follows:

 

(in millions)

 

March 31, 2020

 

 

December 31, 2019

 

Beginning portfolio

 

$

2,314.5

 

 

$

1,880.4

 

New fundings and restructures

 

 

233.6

 

 

 

1,025.7

 

Warrants not related to current period fundings

 

 

 

 

 

0.8

 

Principal payments received on investments

 

 

(17.0

)

 

 

(73.4

)

Early payoffs

 

 

(150.5

)

 

 

(526.8

)

Accretion of loan discounts and paid-in-kind principal

 

 

10.9

 

 

 

43.3

 

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

 

 

0.1

 

 

 

(9.7

)

New loan fees

 

 

(2.7

)

 

 

(15.3

)

Sale of investments

 

 

(17.0

)

 

 

(29.1

)

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

 

 

6.9

 

 

 

6.0

 

Net change in unrealized appreciation (depreciation)

 

 

(76.3

)

 

 

12.6

 

Ending portfolio

 

$

2,302.5

 

 

$

2,314.5

 

As of March 31, 2020, we held debt, warrants, or equity positions in four companies that have filed registration statements on Form S-1 with the SEC in contemplation of potential initial public offerings. All four companies filed confidentially under the JOBS Act. 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.

Changes in Portfolio

We generate revenue in the form of interest income, primarily from our investments in debt securities, and 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-related 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 March 31, 2020, our debt investments generally have a term of between two and seven years and typically bear interest at a rate ranging from approximately 7.9% to approximately 15.7%. 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 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 $41.5 million of unamortized fees at March 31, 2020, of which approximately $34.6 million was included as an offset to the cost basis of our current debt investments and approximately $6.9 million was deferred contingent upon the occurrence of a funding or milestone. At December 31, 2019, we had approximately $42.0 million of unamortized fees, of which approximately $34.6 million was included as

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an offset to the cost basis of our current debt investments and approximately $7.4 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. At March 31, 2020, we had approximately $40.1 million in exit fees receivable, of which approximately $36.4 million was included as a component of the cost basis of our current debt investments and approximately $3.7 million was a deferred receivable related to expired commitments. At December 31, 2019, we had approximately $33.5 million in exit fees receivable, of which approximately $31.9 million was included as a component of the cost basis of our current debt investments and approximately $1.6 million was a deferred receivable related to expired commitments.

We have debt investments in our portfolio that contain a PIK provision. 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 ability to be subject to tax as a RIC, this non-cash source of income must be distributed to stockholders with other sources of income in the form of dividend distributions even though we have not yet collected the cash. Amounts necessary to pay these distributions may come from available cash or the liquidation of certain investments. We recorded approximately $2.0 million and $2.1 million in PIK income during the three months ended March 31, 2020 and 2019, respectively.

The core yield on our debt investments, which excludes the effects of fee and income accelerations attributed to early payoffs, restructuring, loan modifications and other one-time events and includes income from expired commitments, was 11.8% and 12.7% during the three months ended March 31, 2020 and 2019, respectively. The effective yield on our debt investments, which includes the effects of fee and income accelerations attributed to early payoffs, restructuring, loan modifications and other one-time events, was 13.6% and 13.0% for the three months ended March 31, 2020 and 2019, respectively. The effective yield is derived by dividing total investment income by the weighted average earning investment portfolio assets outstanding during the quarter, excluding non-interest earning assets such as warrants and equity investments. Both the core yield and effective yield may be higher than what our common stockholders may realize as the core yield and effective yield do not reflect our expenses and any sales load paid by our common stockholders. The total yield on our investment portfolio was 12.3% and 11.5% during the three months ended March 31, 2020 and 2019, respectively. The total yield is derived by dividing total investment income by the weighted average investment portfolio assets outstanding during the quarter, including non-interest earning assets such as warrants and equity investments at amortized cost.

The total return for our investors was approximately (44.5%) and 17.2% during the three months ended March 31, 2020 and 2019, 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 must be paid by investors. See “Note 9 – Financial Highlights” included in the notes to our consolidated financial statements appearing elsewhere in this report.

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. As of March 31, 2020, approximately 88.9% of the fair value of our portfolio was composed of investments in five industries: 30.1% was composed of investments in the "Drug Discovery & Development" industry, 28.0% was composed of investments in the "Software" industry, 22.9% was composed of investments in the "Internet Consumer & Business Services" industry, 4.6% was composed of investments in the "Healthcare Services, Other" industry, and 3.3% was composed of investments in the "Sustainable and Renewable Technology" industry.

Industry and sector concentrations vary as new loans are recorded and loans pay off. Loan revenue, consisting of interest, fees, and recognition of gains on equity and warrants or other equity-related 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 three months ended March 31, 2020 and the year ended December 31, 2019, our ten largest portfolio companies represented approximately 29.0% and 27.8% of the total fair value of our investments in portfolio companies, respectively. At March 31, 2020 and December 31, 2019, we had eight and six investments, respectively, that represented 5% or more of our net assets. At March 31, 2020, we had five equity investments representing approximately 61.7% of the total fair value of our equity investments, and each represented 5% or more of the total fair value of our equity investments. At December 31, 2019, we had six equity investments which represented approximately 63.3% of the total fair value of our equity investments, and each represented 5% or more of the total fair value of our equity investments. No single portfolio investment represents more than 10% of the fair value of our total investments as of March 31, 2020 and December 31, 2019.

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As of March 31, 2020, approximately 97.8% of the debt investment portfolio was priced at floating interest rates or floating interest rates with a Prime or LIBOR-based interest rate floor. Changes in interest rates, including Prime and LIBOR rates, may affect the interest income and the value of our investment portfolio for portfolio investments with floating rates. We believe we are well positioned to benefit should market interest rates rise in the future.

Our investments in senior secured debt with warrants have detachable equity enhancement features, typically in the form of warrants or other equity-related 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 March 31, 2020, we held warrants in 110 portfolio companies, with a fair value of approximately $12.4 million. The fair value of our warrant portfolio decreased by approximately $8.5 million, as compared to a fair value of $20.9 million at December 31, 2019 primarily related to the decrease in fair value of portfolio companies.

Our existing warrant holdings would require us to invest approximately $71.7 million to exercise such warrants as of March 31, 2020. Warrants may appreciate or depreciate in value depending largely upon the underlying portfolio company’s performance and overall market conditions. Accordingly, we may experience losses from our warrant portfolio.

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 March 31, 2020 and December 31, 2019, respectively:

 

(in thousands)

 

March 31, 2020

 

 

December 31, 2019

 

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

 

12

 

$

390,426

 

 

 

17.7

%

 

14

 

$

387,327

 

 

 

18.0

%

2

 

35

 

 

818,128

 

 

 

37.3

%

 

52

 

 

1,180,536

 

 

 

55.0

%

3

 

41

 

 

917,249

 

 

 

41.8

%

 

23

 

 

509,940

 

 

 

23.7

%

4

 

6

 

 

54,316

 

 

 

2.5

%

 

6

 

 

69,016

 

 

 

3.2

%

5

 

4

 

 

15,471

 

 

 

0.7

%

 

2

 

 

1,773

 

 

 

0.1

%

 

 

98

 

$

2,195,590

 

 

 

100.0

%

 

97

 

$

2,148,592

 

 

 

100.0

%

As of March 31, 2020 and December 31, 2019, our debt investments had a weighted average investment grading of 2.34 and 2.15 on a cost basis, respectively. Our policy is to lower the grading on our portfolio companies as they approach the point in time when they will require additional equity capital. Additionally, we may downgrade our portfolio companies if they are not meeting our financing criteria or are underperforming relative to their respective business plans. Various companies in our portfolio will require additional funding in the near term or have not met their business plans and therefore have been downgraded until their funding is complete or their operations improve.

As the COVID-19 situation continues to evolve, we are maintaining close communications with our portfolio companies to proactively assess and manage potential risks across our debt investment portfolio. We have also increased oversight and analysis of credits in vulnerable industries in an attempt to improve loan performance and reduce credit risk.

Results of Operations

Comparison of the three months ended March 31, 2020 and 2019

Investment Income

Interest Income

Total investment income for the three months ended March 31, 2020 was approximately $73.6 million as compared to approximately $58.8 million for the three months ended March 31, 2019.

Interest income for the three months ended March 31, 2020 totaled approximately $66.2 million as compared to approximately $55.5 million for the three months ended March 31, 2019. The increase in interest income for the three months ended March 31, 2020 as compared to the same period ended March 31, 2019 is primarily attributable to an increase in recurring interest income caused by

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an increase in the weighted average principal outstanding of loans, and an increase in the acceleration of interest income due to early loan repayments.

Of the $66.2 million in interest income for the three months ended March 31, 2020, approximately $60.8 million represents recurring income from the contractual servicing of our loan portfolio and approximately $5.4 million represents income related to the acceleration of income due to early loan repayments and other one-time events during the period. Income from recurring interest and the acceleration of interest income due to early loan repayments represented approximately $55.1 million and $412,000, respectively, of the $55.5 million interest income for the three months ended March 31, 2019.

The following table shows the PIK-related activity for the three months ended March 31, 2020 and 2019, at cost:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2020

 

 

2019

 

Beginning PIK interest receivable balance

 

$

14,498

 

 

$

12,717

 

PIK interest income during the period

 

 

2,047

 

 

 

2,146

 

PIK accrued (capitalized) to principal but not

recorded as income during the period

 

 

 

 

 

 

Payments received from PIK loans

 

 

(1,059

)

 

 

(549

)

Realized gain (loss)

 

 

 

 

 

 

Ending PIK interest receivable balance

 

$

15,486

 

 

$

14,314

 

The slight decrease in PIK interest income during the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 is due to a decrease in the weighted average principal outstanding for loans on accrual which bear PIK interest.

Fee Income

Fee income from commitment, facility and loan related fees for the three months ended March 31, 2020 totaled approximately $7.4 million as compared to approximately $3.3 million for the three months ended March 31, 2019. The increase in fee income for the three months ended March 31, 2020 is primarily due to an increase in the facilities fees and one-time fees due to early repayments.

Of the $7.4 million in fee income for the three months ended March 31, 2020, approximately $2.9 million represents income from recurring fee amortization and approximately $4.5 million represents income related to the acceleration of unamortized fees due to early repayments, including one-time fees of $3.2 million for the period. Income from recurring fee amortization and the acceleration of unamortized fees due to early loan repayments represented $2.1 million and $1.2 million, respectively, of the $3.3 million in income for the three months ended March 31, 2019.

In certain investment transactions, we may earn income from advisory services; however, we had no income from advisory services in the three months ended March 31, 2020 or 2019.

Operating Expenses

Our operating expenses are comprised of interest and fees on our borrowings, general and administrative expenses and employee compensation and benefits. Our operating expenses totaled approximately $33.0 million and $29.8 million during the three months ended March 31, 2020 and 2019, respectively.

Interest and Fees on our Borrowings

Interest and fees on our borrowings totaled approximately $16.3 million and $15.6 million for the three months ended March 31, 2020 and 2019, respectively. Interest and fee expense during the three months ended March 31, 2020, as compared to the same periods ended March 31, 2019, increased due to the issuance of our July 2024 Notes in July 2019 and the issuance of our February 2025 Notes in February 2020, as well as interest related to our 2028 Asset-Backed Notes.

We had a weighted average cost of debt, comprised of interest and fees, of approximately 5.2% and 5.8% for the three months ended March 31, 2020 and 2019, respectively. The decrease in the weighted average cost of debt for the three months ended March 31, 2020, as compared to the same period ended March 31, 2019, is primarily driven by a reduction in the weighted average principal outstanding on our higher yielding debt instruments compared to the prior period.

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General and Administrative Expenses

General and administrative expenses include legal fees, consulting fees, accounting fees, printer fees, insurance premiums, taxes, rent, expenses associated with the workout of underperforming investments and various other expenses. Our general and administrative expenses increased to $6.1 million from $4.2 million for the three months ended March 31, 2020 and 2019, respectively. The increase in general and administrative expenses for the three months ended March 31, 2020 is mainly due to an increase in income taxes, rent, termination, legal, and marketing related expenses.

Employee Compensation

Employee compensation and benefits totaled $8.2 million for the three months ended March 31, 2020 as compared to $6.6 million for the three months ended March 31, 2019. The increase between the three months ended March 31, 2020 and 2019 was primarily due to increased variable compensation and payroll related expenses.

Employee stock-based compensation totaled $2.4 million for the three months ended March 31, 2020 as compared to $3.4 million for the three months ended March 31, 2019. The decrease between the three months ended March 31, 2020 and 2019 was primarily due to a settlement with our former Chairman and Chief Executive Officer, and elimination of associated stock-based compensation expense.

Net Investment Realized Gains and Losses and Net Unrealized Appreciation and Depreciation

Realized gains or losses 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. Net change in unrealized appreciation or depreciation 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.

A summary of realized gains and losses for the three months ended March 31, 2020 and 2019 is as follows:

 

 

Three Months Ended March 31,

 

(in thousands)

2020

 

 

2019

 

Realized gains

$

12,188

 

 

$

8,838

 

Realized losses

 

(5,221

)

 

 

(4,283

)

Net realized gains (losses)

$

6,967

 

 

$

4,555

 

During the three months ended March 31, 2020, we recognized net realized gains of $7.0 million on the portfolio. During the three months ended March 31, 2020, we recorded gross realized gains of $12.2 million primarily from the sale of our public equity holdings. These gains were partially offset by gross realized losses of $5.2 million primarily from the liquidation or write-off of our equity or warrant positions during the period.

During the three months ended March 31, 2019, we recognized net realized gains of $4.5 million on the portfolio. During the three months ended March 31, 2019, we recorded gross realized gains of $8.8 million primarily from the sale of our holdings due to merger and acquisition transactions. These gains were offset by gross realized losses of $4.3 million primarily from the liquidation or write-off of our debt, equity, and warrant positions during the period.

The net unrealized appreciation and depreciation of our investments is based on the fair value of each investment determined in good faith by our Board of Directors. The following table summarizes the change in net unrealized appreciation or depreciation of investments for the three months ended March 31, 2020 and 2019:

 

 

Three Months Ended March 31,

 

(in thousands)

2020

 

 

2019

 

Gross unrealized appreciation on portfolio investments

$

14,320

 

 

$

50,829

 

Gross unrealized depreciation on portfolio investments

 

(86,523

)

 

 

(21,019

)

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

 

(4,067

)

 

 

(1,880

)

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

 

(76,270

)

 

 

27,930

 

Other net unrealized appreciation (depreciation)

 

 

 

 

67

 

Total net unrealized appreciation (depreciation) on investments

$

(76,270

)

 

$

27,997

 

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During the three months ended March 31, 2020, we recorded $76.3 million of net unrealized depreciation, all of which was net unrealized depreciation from our debt, equity and warrant investments. We recorded $25.8 million of net unrealized depreciation on our debt investments which was primarily related to $26.5 million of net unrealized depreciation on the debt portfolio partially offset by $683,000 of unrealized appreciation due to the reversal of unrealized depreciation upon pay-off of our portfolio companies.

We recorded $43.9 million of net unrealized depreciation on our equity investments and $6.6 million of net unrealized depreciation on our warrant investments during the three months ended March 31, 2020. This net unrealized depreciation of $50.5 million was primarily attributable to $45.8 million of unrealized depreciation on the equity and warrant portfolio and $4.7 million of unrealized depreciation due to the reversal of unrealized appreciation upon acquisition or liquidation of our equity and warrant investments.

During the three months ended March 31, 2019, we recorded $28.0 million of net unrealized appreciation, of which $27.9 million was net unrealized appreciation from our debt, equity and warrant investments. We recorded $3.1 million of net unrealized appreciation on our debt investments which was attributable to $2.6 million of unrealized appreciation due to the reversal of unrealized depreciation upon pay-off or write-off and $553,000 of net unrealized appreciation on the debt portfolio.

We recorded $23.1 million of net unrealized appreciation on our equity investments and $1.7 million of net unrealized appreciation on our warrant investments during the three months ended March 31, 2019. This net unrealized appreciation of $24.8 million was primarily attributable to $29.3 million of unrealized appreciation on the equity and warrant portfolio partially offset by $4.5 million of unrealized depreciation due to the reversal of unrealized appreciation upon acquisition or liquidation of our equity and warrant investments.

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.

Because federal income tax regulations differ from accounting principles generally accepted in the United States, 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 March 31, 2020, we had a net decrease in net assets resulting from operations of approximately $28.7 million and for the three months ended March 31, 2019, we had a net increase in net assets resulting from operations of approximately $61.6 million.

Both the basic and fully diluted net change in net assets per common share were $(0.27) per share for the three months ended March 31, 2020. Both the basic and fully diluted net change in net assets per common share were $0.64 per share for the three months ended March 31, 2019.

For the purpose of calculating diluted earnings per share for three months ended March 31, 2020, as we had a net loss, the effect of the 2022 Convertible Notes, outstanding options, restricted stock units and awards and Retention PSUs under the treasury stock method is anti-dilutive and accordingly, is excluded from the calculation of diluted loss per share. The effect of the 2022 Convertible

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Notes was excluded from these calculations for the three months ended March 31, 2019 as our share price was less than the conversion price in effect which results in anti-dilution.

Financial Condition, Liquidity, and Capital Resources

Our liquidity and capital resources are derived from our SBA debentures, 2022 Notes, July 2024 Notes, February 2025 Notes, 2025 Notes, 2033 Notes, 2027 Asset-Backed Notes, 2028 Asset-Backed Notes, 2022 Convertible Notes, Credit Facilities 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 borrowings 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, ATM, and private offerings of securities, by securitizing a portion of our investments, or by borrowing from the SBA through our SBIC subsidiaries.

We may from time to time seek to retire or repurchase our common stock through cash purchases, as well as retire, cancel or purchase our outstanding debt through cash purchases and/or exchanges, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. The amounts involved may be material.

On January 25, 2017, we issued $230.0 million in aggregate principal amount of 2022 Convertible Notes, which amount includes the additional $30.0 million aggregate principal amount issued pursuant to the initial purchaser’s exercise in full of its overallotment option. The sale generated net proceeds of approximately $225.5 million, including $4.5 million of debt issuance costs. Aggregate issuances costs include the initial purchaser’s discount of approximately $5.2 million, offset by the reimbursement of $1.2 million by the initial purchaser.

On October 23, 2017, we issued $150.0 million in aggregate principal amount of the 2022 Notes pursuant to the 2022 Notes Indenture. The sale of the 2022 Notes generated net proceeds of approximately $147.4 million, including a public offering discount of $826,500. Aggregate estimated offering expenses in connection with the transaction, including the underwriter’s discount and commissions of approximately $975,000, were approximately $1.8 million.

On April 26, 2018, we issued $75.0 million in aggregate principal amount of the 2025 Notes pursuant to the 2025 Notes Indenture. The sale of the 2025 Notes generated net proceeds of approximately $72.4 million. Aggregate estimated offering expenses in connection with the transaction, including the underwriter’s discount and commissions were approximately $2.6 million.

On May 25, 2018, we entered into the amendment to the Union Bank Facility. The amendment amends certain provisions of the Union Bank Facility to increase the commitments thereunder from $75.0 million to $100.0 million.

On June 14, 2018, we closed the June 2018 Equity Offering. The offering generated net proceeds, before expenses, of $81.3 million, including the underwriting discount and commissions of $2.6 million.

On July 13, 2018, we completed repayment of the remaining outstanding HT II debentures and subsequently surrendered the SBA license with respect to HT II.

On July 31, 2018, we entered into a further amendment to the Wells Facility to extend the maturity date and fully repay the pro-rata portion of outstanding balances of Alostar Bank of Commerce and Everbank Commercial Finance Inc., thereby resigning both as lenders and terminating their commitments thereunder.

On September 20, 2018, we issued $40.0 million in aggregate principal amount of the 2033 Notes pursuant to the 2033 Notes Indenture. The sale of the 2033 Notes generated net proceeds of approximately $38.4 million. Aggregate estimated offering expenses in connection with the transaction, including the underwriter’s discount and commissions were approximately $1.6 million.

On November 1, 2018, we issued $200.0 million in aggregate principal amount of the 2027 Asset-Backed Notes. The sale of the 2027 Asset-Backed Notes generated net proceeds of approximately $197.0 million. Aggregate estimated offering expenses in connection with the transaction, including the underwriter’s discount and commissions were approximately $3.0 million.

On December 7, 2018, our Board of Directors approved a full redemption, in two equal transactions, of $83.5 million of the outstanding aggregate principal amount of the 2024 Notes. The 2024 Notes were fully redeemed on January 14, 2019 and February 4, 2019.

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On December 17, 2018, our Board of Directors authorized a stock repurchase plan permitting us to repurchase up to $25.0 million of our common stock until June 18, 2019, after which the plan expired. We had no common stock repurchases during 2019. During the year ended December 31, 2018, we repurchased 376,466 shares of our common stock at an average price per share of $10.77 and a total cost of approximately $4.1 million.

On January 11, 2019, Hercules Funding II entered into the Wells Facility Seventh Amendment. The Wells Facility Seventh Amendment, among other things, amends certain key provisions of the Wells Facility to reduce the current interest rate to LIBOR plus 3.00% with an interest rate floor of 3.00% and extends the maturity date to January 2023. In addition, the Wells Fargo Capital Finance, LLC has committed $75.0 million in credit capacity under a $125.0 million accordion credit facility, subject to borrowing base, leverage and other restrictions.

On January 22, 2019, we issued $250.0 million in aggregate principal amount of the 2028 Asset-Backed Notes. The sale of the 2028 Asset-Backed Notes generated net proceeds of approximately $247.1 million. Aggregate estimated offering expenses in connection with the transaction, including the underwriter’s discount and commissions were approximately $2.9 million.

On February 20, 2019, we, through a special purpose wholly owned subsidiary, Hercules Funding IV, as borrower, entered the 2019 Union Bank Facility. The 2019 Union Bank Facility replaced the Prior Union Bank Facility. Any references to amounts related to the 2019 Union Bank Facility prior to February 20, 2019 were incurred and relate to the Prior Union Bank Facility. Under the 2019 Union Bank Facility, the lenders have made commitments of $200.0 million.

On May 6, 2019, we terminated the Prior Equity Distribution Agreement and entered into the Equity Distribution Agreement. As a result, the remaining shares that were available under the Prior Equity Distribution agreement are no longer available for issuance. The Equity Distribution Agreement provides that we may offer and sell up to 12.0 million shares of our common stock from time to time through JMP, as our sales agent. 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.

On June 17, 2019, we closed the June 2019 Equity Offering. The offering generated net proceeds, before expenses, of $70.5 million, including the underwriting discount and commissions of $2.2 million.

On June 28, 2019, Hercules Funding IV entered into the Union Bank Facility Amendment to the 2019 Union Bank Facility. The Union Bank Facility Amendment amends certain provisions of the 2019 Union Bank Facility to, among other things, (i) delete the financial covenant with respect to maintaining minimum portfolio funding liquidity, (ii) add a covenant prohibiting Hercules Funding IV from acquiring or owning unfunded commitments to makers of certain notes receivable, and (iii) revise certain provisions thereof to further permit a third party special servicer to act as servicer after an event of default instead of us with respect to split-funded notes receivable owned by Hercules Funding IV and an affiliate thereof (including Hercules Funding II).

On July 16, 2019, we issued $105.0 million in aggregate principal amount of July 2024 Notes. The sale of the July 2024 Notes generated net proceeds of approximately $103.5 million. Aggregate estimated offering expenses in connection with the transaction, including the underwriter’s discount and commissions, were approximately $1.5 million.

On February 5, 2020, we issued $50.0 million in aggregate principal amount of February 2025 Notes pursuant to the “2025 Note Purchase Agreement.” The sale of the February 2025 Notes generated net proceeds of approximately $49.4 million. Aggregate estimated offering expenses in connection with the transaction, including the underwriter’s discount and commissions, were approximately $576,000. The 2025 Note Purchase Agreement also provides for the issuance of an additional $70.0 million aggregate principal amount of senior unsecured notes due June 2025 that are expected to be issued in June 2020 (subject to the satisfaction of customary closing conditions contained in the 2025 Note Purchase Agreement).

On February 20, 2020, we, through a special purpose wholly owned subsidiary, Hercules Funding IV, as borrower, entered the Union Bank Facility. The Union Bank Facility replaced the 2019 Union Bank Facility. Any references to amounts related to the Union Bank Facility from February 20, 2019 to February 20, 2020 were incurred and relate to the 2019 Union Bank Facility. Under the Union Bank Facility, the lenders have made commitments of $400.0 million.

On March 1, 2020, we paid down $38.7 million of SBA debentures.

During the three months ended March 31, 2020, we sold 2.4 million shares of common stock under the Equity Distribution Agreement. As of March 31, 2020, approximately 5.6 million shares remain available for issuance and sale under the Equity Distribution Agreement.

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At March 31, 2020, we had $110.3 million of SBA debentures, $150.0 million of 2022 Notes, $105.0 million of July 2024 Notes, $50.0 million of February 2025 Notes, $75.0 million of 2025 Notes, $40.0 million of 2033 Notes, $200.0 million of 2027 Asset-Backed Notes, $250.0 million of 2028 Asset-Backed Notes, and $230.0 million of 2022 Convertible Notes payable, along with no outstanding borrowings on the Wells Facility, and $71.1 million of borrowings outstanding on the Union Bank Facility.

At March 31, 2020, we had $438.2 million in available liquidity, including $34.3 million in cash and cash equivalents. We had available borrowing capacity of $75.0 million under the Wells Facility and $328.9 million under the Union Bank Facility, both subject to existing terms, borrowing base, advance rates and regulatory requirements. We primarily invest cash on hand in interest bearing deposit accounts.

At March 31, 2020, we had $74.5 million of capital outstanding in restricted accounts related to our SBIC. With our net investment of $74.5 million in HT III, we have the approved capacity to issue a total of $110.3 million of SBA guaranteed debentures. At March 31, 2020, we have issued $110.3 million in SBA guaranteed debentures in our SBIC subsidiaries. As we are past our investment period for HT III, we will no longer make any future commitments to new portfolio companies. We will only satisfy contractually agreed follow-on fundings to existing portfolio companies and may seek to early pay-off a portion or all of the outstanding debentures as per the available liquidity in HT III.

At March 31, 2020, we had approximately $22.1 million of restricted cash, which consists of collections of interest and principal payments on assets that are securitized. In accordance with the terms of the related securitized 2027 Asset-Backed Notes and 2028 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.

During the three months ended March 31, 2020, 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 three months ended March 31, 2020, our operating activities used $24.7 million of cash and cash equivalents, compared to $141.6 million used during the three months ended March 31, 2019. This $116.9 million decrease in cash used in operating activities is primarily related to an increase of $101.7 million in principal and fee payments received on investments.

During the three months ended March 31, 2020, our investing activities used approximately $29,000 of cash, compared to $83,000 used during the three months ended March 31, 2019. The $54,000 decrease in cash used in investing activities was due to a decrease in purchase of capital equipment.

During the three months ended March 31, 2020, our financing activities used $33.9 million of cash, compared to $122.4 million provided during the three months ended March 31, 2019. The net change of $156.3 million increase in cash used by financing activities was primarily due to $38.7 million increase in repayment of long-term SBA debentures, $14.1 million increase in distribution paid, and $24.1 million increase in repayment of the Credit Facilities. This is partially offset by $50.0 million of the issuance of February 2025 Notes in February 2020 and $35.0 million increase in issuance of common stock.

As of March 31, 2020, our net assets totaled $1.1 billion, with a NAV per share of $9.92. 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.

As described 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 the COVID-19 continues to unfold, we will continue to evaluate our overall liquidity position and take proactive steps to maintain the appropriate liquidity position based upon the current circumstances.

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The SBCAA, which was signed into law in March 2018, decreased the minimum asset coverage ratio in Section 61(a) of the 1940 Act for business development companies from 200% to 150% (subject to either stockholder approval or approval of both a majority of the board of directors and a majority of directors who are not interested persons). On September 4, 2018 and December 6, 2018, our Board of Directors, 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 a result, effective December 7, 2018, the asset coverage ratio under the 1940 Act applicable to us decreased from 200% to 150%, permitting us to incur additional leverage. As of March 31, 2020, our asset coverage ratio under our regulatory requirements as a BDC was 193.5% excluding our SBA debentures as a result of our exemptive order from the SEC that 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 185.5% at March 31, 2020.

Refer to “Note 4 – Borrowings” included in the notes to our consolidated financial statements appearing elsewhere in this report for a discussion of our borrowings.

Commitments

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 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.

At March 31, 2020, we had approximately $134.7 million of unfunded commitments, including undrawn revolving facilities, which were available at the request of the portfolio company and unencumbered by milestones. We intend to use cash flow from normal and early principal repayments, and proceeds from borrowings and notes to fund these commitments.

We also had approximately $78.8 million of non-binding term sheets outstanding to one new company and three existing companies, 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.

Contractual Obligations

The following table shows our contractual obligations as of March 31, 2020:

 

 

 

Payments due by period (in thousands)

 

Contractual Obligations (1)

 

Total

 

 

Less than 1 year

 

 

1 - 3 years

 

 

3 - 5 years

 

 

After 5 years

 

Borrowings (2)(3)

 

$

1,281,375

 

 

$

 

 

$

490,250

 

 

$

226,125

 

 

$

565,000

 

Lease and License Obligations (4)

 

 

13,200

 

 

 

3,309

 

 

 

5,954

 

 

 

2,425

 

 

 

1,512

 

Total

 

$

1,294,575

 

 

$

3,309

 

 

$

496,204

 

 

$

228,550

 

 

$

566,512

 

 

(1)

Excludes commitments to extend credit to our portfolio companies.

(2)

Includes $110.3 million 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 February 2025 Notes, $75.0 million of the 2025 Notes, $40.0 million of the 2033 Notes, $200.0 million of the 2027 Asset-Backed Notes, $250.0 million of the

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2028 Asset-Backed Notes, $230.0 million of the 2022 Convertible Notes, and $71.1 million under the Union Bank Credit Facility as of March 31, 2020. There were no outstanding borrowings under the Wells Facility as of March 31, 2020.

(3)

Amounts represent future principal repayments and not the carrying value of each liability. See Note 4 to the Company’s consolidated financial statements.

(4)

Facility leases and licenses including short-term leases.

Certain premises are leased or licensed under agreements which expire at various dates through June 2027. Total rent expense, including short-term leases, amounted to approximately $775,000 during the three months ended March 31, 2020 and approximately $588,000 during the three months ended March 31, 2019.

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 of Directors 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 of Directors may choose to pay an additional special distribution, or fifth distribution, 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, 2019, 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 2020 distributions to stockholders will actually be.

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 of Directors 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

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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 borrowings. 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

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.

Valuation of Investments

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

At March 31, 2020, approximately 96.1% of our total assets represented investments in portfolio companies whose fair value is determined in good faith by the Board of Directors. 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 Board of Directors. Our investments are carried at fair value in accordance with the 1940 Act and ASC Topic 946 and measured in accordance with ASC Topic 820. Our debt securities are primarily invested in venture capital-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 our investments in these portfolio companies are considered Level 3 assets under ASC Topic 820 because there is no known or accessible market or market indexes for these investment securities to be traded or exchanged. As such, we value substantially all of our investments at fair value as determined in good faith pursuant to a consistent valuation policy by our Board of Directors 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 our investments determined in good faith by our Board of Directors 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.

We intend to continue to engage one or more independent valuation firm(s) to provide us with valuation assistance regarding our determination of the fair value of selected portfolio investments each quarter unless directed by the Board of Directors to cancel

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such valuation services. Specifically, on a quarterly basis, we will identify portfolio investments with respect to which an independent valuation firm will assist in valuing. We select these portfolio investments based on a number of factors, including, but not limited to, the potential for material fluctuations in valuation results, credit quality and the time lapse since the last valuation of the portfolio investment by an independent valuation firm. The scope of the services rendered by an independent valuation firm is at the discretion of the Board of Directors. Our Board of Directors is ultimately, and solely, responsible for determining the fair value of our investments in good faith.

Refer to “Note 2 – Summary of Significant Accounting Policies” included in the notes to our consolidated financial statements appearing elsewhere in this report for a discussion of our valuation policies for the three months ended March 31, 2020.

Income Recognition

See “— Changes in Portfolio” for a discussion of our income recognition policies and results during the three months ended March 31, 2020. See “— Results of Operations” for a comparison of investment income for the three months ended March 31, 2020 and 2019.

Stock Based Compensation

We have issued and may, from time to time, issue stock options and restricted stock to employees under the 2018 Equity Incentive Plan and the Director Plan. We follow the guidelines set forth under ASC Topic 718 to account for stock options 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, including estimating stock price volatility, forfeiture rate and expected option life.

Subsequent Events

On April 27, 2020, the Board of Directors declared a cash distribution of $0.32 per share to be paid on May 21, 2020 to stockholders of record as of May 14, 2020.

COVID-19

 

We have been closely monitoring the COVID-19 pandemic, its broader impact on the global economy and the more recent impacts on the U.S. economy. As of May 4, 2020, there is no indication of a reportable subsequent event impacting our financial statements for the three months ended March 31, 2020. We continue to observe and respond to the evolving COVID-19 environment and its potential impact on areas across our business.

 

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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 LIBOR and Prime rates, to the extent our debt investments include variable interest rates. As of March 31, 2020, approximately 97.8% of the loans in our portfolio had variable rates based on floating Prime or LIBOR rates with a floor. Our borrowings under the Credit Facilities bear interest at a floating rate and the borrowings under our SBA debentures, 2022 Notes, July 2024 Notes, February 2025 Notes, 2025 Notes, 2033 Notes, 2027 Asset-Backed Notes, 2028 Asset-Backed Notes, and 2022 Convertible Notes 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 March 31, 2020, 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 borrowings.

 

(in thousands)

 

Interest

 

 

Interest

 

 

Net

 

 

 

 

 

Basis Point Change

 

Income

 

 

Expense

 

 

Income

 

 

EPS

 

(75)

 

$

(2,067

)

 

$

(84

)

 

$

(1,983

)

 

$

(0.02

)

(50)

 

$

(1,444

)

 

$

(56

)

 

$

(1,388

)

 

$

(0.01

)

(25)

 

$

(728

)

 

$

(28

)

 

$

(700

)

 

$

(0.01

)

25

 

$

1,224

 

 

$

28

 

 

$

1,196

 

 

$

0.01

 

50

 

$

2,509

 

 

$

56

 

 

$

2,453

 

 

$

0.02

 

75

 

$

3,912

 

 

$

84

 

 

$

3,828

 

 

$

0.04

 

100

 

$

5,553

 

 

$

112

 

 

$

5,441

 

 

$

0.05

 

200

 

$

15,442

 

 

$

224

 

 

$

15,218

 

 

$

0.14

 

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 three months ended March 31, 2020, 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 borrowings under our SBA debentures, 2022 Notes, July 2024 Notes, February 2025 Notes, 2025 Notes, 2033 Notes, 2027 Asset-Backed Notes, 2028 Asset-Backed Notes, 2022 Convertible Notes and 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 borrowers. 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 would 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, SBA debentures, 2022 Notes, July 2024 Notes, February 2025 Notes, 2025 Notes, 2033 Notes, 2027 Asset-Backed Notes, 2028 Asset-Backed Notes, 2022 Convertible Notes, and Credit Facilities, refer to Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition, Liquidity and Capital Resources - Outstanding Borrowings” in this quarterly report on Form 10-Q and “Note 4 – Borrowings” included in the notes to our consolidated financial statements appearing elsewhere in this report.

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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 Exchange Act. 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.

 

 

 

81


 

 

PART II: OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

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, 2019 filed with the Securities and Exchange Commission on February 20, 2020 (the “Annual Report”).

The effects of the outbreak of COVID-19 has negatively affected the global economy and the United States economy, and may disrupt our operations, which could have an adverse effect on our business, financial condition and results of operations.

The ongoing COVID-19 global and national health emergency has caused significant disruption in the United States and global economies and financial markets. The spread of COVID-19 has caused quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability. The COVID-19 outbreak may disrupt our operations through its impact on our employees, our portfolio companies and their businesses, and certain industries in which our portfolio companies operate.  Disruptions to our portfolio companies may impair their ability to fulfill their obligations to us and could result in increased risk of delinquencies, defaults, declining collateral values associated with our existing loans, and impairments or losses on our loans. Further, the spread of the COVID-19 outbreak has caused severe disruptions in the United States economy and may materially disrupt financial activity generally and in the areas in which we operate. This would likely result in a decline in demand for our loans which would negatively impact our liquidity position and our growth strategy.  Any one or more of these developments could have a material adverse effect on our business, operations, consolidated financial condition, and consolidated results of operations.  We are taking precautions to protect the safety and well-being of our employees. However, no assurance can be given that the steps being taken will be deemed to be adequate or appropriate, nor can we predict the level of disruption which will occur to our employees’ ability to service the portfolio. 

The extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and spread of the pandemic and related restrictions on travel and transportation, all of which are uncertain and cannot be predicted. An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition.

Our common stock price may be volatile or trade below its NAV per share, which may cause a decline in your investment or limit our ability to raise additional equity capital.

The stock markets have recently experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of shares of our common stock, regardless of our operating performance, and cause the value of your investment to decline.

If our common stock is trading below its NAV per share, we will generally not be able to issue additional shares of our common stock at its market price without first obtaining the approval for such issuance from our stockholders and our independent directors. If our common stock trades below NAV, the higher cost of equity capital may result in it being unattractive to raise new equity, which may limit our ability to grow. The risk of trading below NAV is separate and distinct from the risk that our NAV per share may decline. We cannot predict whether shares of our common stock will trade above, at or below our NAV.

Additionally, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation or other derivative shareholder lawsuits. We may be the target of this type of litigation in the future.

82


 

 

Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business regardless of the outcome.

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 March 31, 2020 that represent greater than 5% of our net assets:

 

 

March 31, 2020

 

(in thousands)

Fair Value

 

 

Percentage of Net Assets

 

BridgeBio Pharma LLC

$

82,333

 

 

 

7.5

%

Oak Street Health

 

82,039

 

 

 

7.5

%

EverFi, Inc.

 

81,628

 

 

 

7.4

%

Paratek Pharmaceuticals, Inc.

 

72,804

 

 

 

6.6

%

Businessolver.com, Inc.

 

63,736

 

 

 

5.8

%

Tricida, Inc.

 

62,903

 

 

 

5.7

%

Delphix Corp.

 

58,633

 

 

 

5.3

%

SeatGeek, Inc.

 

57,579

 

 

 

5.2

%

 

BridgeBio Pharma LLC is a clinical-stage biopharmaceutical company that discovers and develops drugs for patients with genetic diseases.

 

Oak Street Health operates primary care clinics and healthcare centers that provides healthcare facilities for Medicare eligible beneficiaries, and it serves patients in the United States.

 

EverFi, Inc. is a technology company that offers a web-based media platform to teach and certify students in the core concepts of financial literacy, from student loan defaults and sub-prime mortgages to credit card debt and rising bankruptcy rates.

 

Paratek Pharmaceuticals, Inc. is a biopharmaceutical company focused on the development and commercialization of innovative therapies based upon its expertise in novel tetracycline chemistry.

 

Businessolver.com, Inc. is a technology company that provides a cloud-based SaaS platform for employee benefit administration designed to manage and monitor enrollment and payroll dashboards with real-time data.

 

Tricida, Inc. is a biopharmaceutical company that focuses on the discovery and clinical development of novel therapeutics to address renal, metabolic, and cardiovascular diseases.

 

Delphix Corp. is a technology company that develops database virtualization software solutions.

 

SeatGeek, Inc. is a technology company that develops online ticket search engines for live entertainment such as sports, concerts, and other events.

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.

83


 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Dividend Reinvestment Plan

During the three months ended March 31, 2020, we issued 58,713 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 $827,000.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4.

MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5.

OTHER INFORMATION

Not Applicable

84


 

 

ITEM 6.

EXHIBITS

Exhibit
Number

Description

 

3.1

 

Amended and Restated Bylaws of Hercules Capital, Inc., dated March 19, 2020.(1)

 

10.1

 

Loan and Security Agreement, dated February 20, 2020 by and among Hercules Funding IV LLC, as borrower, MUFG Union Bank, N.A., as the administrative agent, lender and swingline lender and the lenders part thereto from time to time.(2)

 

10.2

 

Sale and Servicing Agreement, dated as of February 20, 2020, by and among Hercules Funding IV LLC, as borrower, Hercules Capital, Inc., as originator and servicer, and MUFG Union Bank, N.A., as agent.(2)

 

10.4

Note Purchase Agreement, dated February 5, 2020, by and among Hercules Capital, Inc. and the Purchasers party thereto.(3)

 

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)

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on March 20, 2020.

(2)

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on February 20, 2020.

(3)

Previously filed as part of the Current Report on Form 8-K of the Company, as filed on February 6, 2020.

85


 

 

Schedule 12 – 14

HERCULES CAPITAL, INC.

SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES

For the Three Months Ended March 31, 2020

(in thousands)

 

Portfolio Company

 

Investment (1)

 

Amount of Interest Credited to Income (2)

 

 

Realized Gain (Loss)

 

 

As of December 31, 2019 Fair Value

 

 

Gross Additions (3)

 

 

Gross Reductions (4)

 

 

Net Change in Unrealized Appreciation/ (Depreciation)

 

 

As of March 31, 2020 Fair Value

 

Control Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Majority Owned Control Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gibraltar Business Capital, LLC (7)

 

Unsecured Debt

 

$

559

 

 

$

 

 

$

14,780

 

 

$

14

 

 

$

 

 

$

 

 

$

14,794

 

 

 

Preferred Stock

 

 

 

 

 

 

 

 

33,000

 

 

 

 

 

 

 

 

 

(6,464

)

 

 

26,536

 

 

 

Common Stock

 

 

 

 

 

 

 

 

2,380

 

 

 

 

 

 

 

 

 

(466

)

 

 

1,914

 

                Total Majority Owned Control Investments

 

$

559

 

 

$

 

 

$

50,160

 

 

$

14

 

 

$

 

 

$

(6,930

)

 

$

43,244

 

Other Control Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tectura Corporation(5)

 

Senior Debt

 

$

87

 

 

$

 

 

$

9,586

 

 

$

 

 

$

(134

)

 

$

(921

)

 

$

8,531

 

 

 

Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Other Control Investments

 

$

87

 

 

$

 

 

$

9,586

 

 

$

 

 

$

(134

)

 

$

(921

)

 

$

8,531

 

Total Control Investments

 

$

646

 

 

$

 

 

$

59,746

 

 

$

14

 

 

$

(134

)

 

$

(7,851

)

 

$

51,775

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Optiscan BioMedical, Corp.

 

Convertible Debt

 

$

5

 

 

$

 

 

$

 

 

$

407

 

 

$

 

 

$

 

 

$

407

 

 

 

Preferred Warrants

 

 

 

 

 

 

 

 

209

 

 

 

 

 

 

 

 

 

(209

)

 

 

 

 

 

Preferred Stock

 

 

 

 

 

 

 

 

8,984

 

 

 

 

 

 

 

 

 

(7,166

)

 

 

1,818

 

Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) (6)

 

Senior Debt

 

 

215

 

 

 

 

 

 

12,615

 

 

 

 

 

 

 

 

 

(2,614

)

 

 

10,001

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Affiliate Investments

 

$

220

 

 

$

 

 

$

21,808

 

 

$

407

 

 

$

 

 

$

(9,989

)

 

$

12,226

 

Total Control and Affiliate Investments

 

$

866

 

 

$

 

 

$

81,554

 

 

$

421

 

 

$

(134

)

 

$

(17,840

)

 

$

64,001

 

 

(1)

Stock and warrants are generally non-income producing and restricted.

(2)

Represents the total amount of interest 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, 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.

(6)

As of September 30, 2017, the Company's investment in Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) became classified as an affiliate investment due to a reduction in equity ownership. Note that this investment was classified as a control investment as of June 30, 2017 after the Company obtained a controlling financial interest.

(7)

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.

86


 

 

Schedule 12 – 14

HERCULES CAPITAL, INC.

SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES

As of March 31, 2020

(in thousands)

 

Portfolio Company

 

Industry

 

Type of Investment (1)

 

Maturity Date

 

Interest Rate and Floor

 

Principal

or Shares

 

 

Cost

 

 

Value (2)

 

Control Investments

 

Majority Owned Control Investments

 

Gibraltar Business Capital, LLC

 

Diversified Financial Services

 

Unsecured Debt

 

March 2023

 

Interest rate FIXED 14.50%

 

$

15,000

 

 

$

14,794

 

 

$

14,794

 

 

 

Diversified Financial Services

 

Preferred Series A Equity

 

 

 

 

 

 

10,602,752

 

 

 

26,122

 

 

 

26,536

 

 

 

Diversified Financial Services

 

Common Stock

 

 

 

 

 

 

830,000

 

 

 

1,884

 

 

 

1,914

 

Total Gibraltar Business Capital, LLC

 

 

$

42,800

 

 

$

43,244

 

Total Majority Owned Control Investments (3.94%)*

 

 

$

42,800

 

 

$

43,244

 

Other Control Investments

 

Tectura Corporation

 

Internet Consumer & Business Services

 

Senior Secured Debt

 

June 2021

 

PIK Interest 5.00%

 

$

10,680

 

 

$

240

 

 

$

 

 

 

Internet Consumer & Business Services

 

Senior Secured Debt

 

June 2021

 

Interest rate FIXED 8.25%

 

$

8,250

 

 

 

8,250

 

 

 

8,250

 

 

 

Internet Consumer & Business Services

 

Senior Secured Debt

 

June 2021

 

PIK Interest 5.00%

 

$

13,023

 

 

 

13,023

 

 

 

281

 

 

 

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

 

 

$

8,531

 

Total Other Control Investments (0.78%)*

 

 

$

22,413

 

 

$

8,531

 

Total Control Investments (4.72%)*

 

 

$

65,213

 

 

$

51,775

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate Investments

 

Optiscan BioMedical, Corp.

 

Medical Devices & Equipment

 

Convertible Debt

 

July 2021

 

Interest rate FIXED 8.00%

 

 

408

 

 

$

408

 

 

$

407

 

 

 

Medical Devices & Equipment

 

Preferred Series B Equity

 

 

 

 

 

 

61,855

 

 

 

3,000

 

 

 

 

 

 

Medical Devices & Equipment

 

Preferred Series C Equity

 

 

 

 

 

 

19,273

 

 

 

655

 

 

 

 

 

 

Medical Devices & Equipment

 

Preferred Series D Equity

 

 

 

 

 

 

551,038

 

 

 

5,257

 

 

 

 

 

 

Medical Devices & Equipment

 

Preferred Series E Equity

 

 

 

 

 

 

507,103

 

 

 

4,240

 

 

 

1,818

 

 

 

Medical Devices & Equipment

 

Preferred Series E Warrants

 

 

 

 

 

 

74,424

 

 

 

572

 

 

 

 

Total Optiscan BioMedical, Corp.

 

 

$

14,132

 

 

$

2,225

 

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

 

Sustainable and Renewable Technology

 

Senior Secured Debt

 

December 2020

 

Interest rate FIXED 6.48%, PIK Interest 6.48%, 6.67% Exit Fee

 

$

10,000

 

 

$

10,775

 

 

$

8,509

 

 

 

Sustainable and Renewable Technology

 

Senior Secured Debt

 

December 2020

 

PIK Interest 10.00%

 

$

683

 

 

 

683

 

 

 

 

 

 

Sustainable and Renewable Technology

 

Senior Secured Debt

 

December 2020

 

Interest rate FIXED 8.85%, PIK Interest 8.85%

 

$

1,492

 

 

 

1,492

 

 

 

1,492

 

 

 

Sustainable and Renewable Technology

 

Common Stock

 

 

 

 

 

 

488

 

 

 

61,502

 

 

 

 

 

 

Sustainable and Renewable Technology

 

Class A Warrants

 

 

 

 

 

 

1

 

 

 

 

 

 

 

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

 

 

$

74,452

 

 

$

10,001

 

Total Affiliate Investments (1.11%)*

 

 

$

88,584

 

 

$

12,226

 

Total Control and Affiliate Investments (5.83%)*

 

 

$

153,797

 

 

$

64,001

 

 

*

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.

87


 

 

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: May 4, 2020

 

/S/ SCOTT BLUESTEIN

 

 

Scott Bluestein

 

 

President, Chief Executive Officer, and

Chief Investment Officer

 

 

Dated: May 4, 2020

 

/S/ SETH H. MEYER 

 

 

Seth H. Meyer

 

 

Chief Financial Officer, and

Chief Accounting Officer

 

88