Quarterly report pursuant to Section 13 or 15(d)

Debt

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Debt
 3 Months Ended
Mar. 31, 2024
Debt Disclosure [Abstract]  
Debt Debt
As of March 31, 2024 and December 31, 2023, the Company had the following available and outstanding debt:
(in thousands) March 31, 2024 December 31, 2023
  Total Available Principal
Carrying Value (1)
Total Available Principal
Carrying Value (1)
SBA Debentures (2)
$ 175,000  $ 175,000  $ 170,469  $ 175,000  $ 175,000  $ 170,323 
July 2024 Notes 105,000  105,000  104,902  105,000  105,000  104,828 
February 2025 Notes 50,000  50,000  49,895  50,000  50,000  49,866 
June 2025 Notes 70,000  70,000  69,798  70,000  70,000  69,757 
June 2025 3-Year Notes 50,000  50,000  49,810  50,000  50,000  49,771 
March 2026 A Notes 50,000  50,000  49,818  50,000  50,000  49,795 
March 2026 B Notes 50,000  50,000  49,802  50,000  50,000  49,776 
September 2026 Notes 325,000  325,000  322,585  325,000  325,000  322,339 
January 2027 Notes 350,000  350,000  346,266  350,000  350,000  345,935 
2031 Asset-Backed Notes 150,000  150,000  148,691  150,000  150,000  148,544 
2033 Notes 40,000  40,000  38,962  40,000  40,000  38,935 
MUFG Bank Facility (2)
400,000  136,000  136,000  400,000  61,000  61,000 
SMBC Facility (2)(3)
400,000  215,000  215,000  400,000  94,000  94,000 
Total $ 2,215,000  $ 1,766,000  $ 1,751,998  $ 2,215,000  $ 1,570,000  $ 1,554,869 
(1)Except for the SMBC Facility and MUFG Bank Facility, all carrying values represent the principal amount outstanding less the remaining unamortized debt issuance costs and unaccreted premium or discount, if any, associated with the debt as of the balance sheet date.
(2)Availability subject to the Company meeting the borrowing base requirements.
(3)Includes $175.0 million of available commitment through the letter of credit facility as of March 31, 2024 and December 31, 2023.
Debt issuance costs, net of accumulated amortization, were as follows as of March 31, 2024 and December 31, 2023:
(in thousands) March 31, 2024 December 31, 2023
SBA Debentures $ 4,531  $ 4,677 
July 2024 Notes 98  172 
February 2025 Notes 105  134 
June 2025 Notes 202  243 
June 2025 3-Year Notes 190  229 
March 2026 A Notes 182  205 
March 2026 B Notes 198  224 
September 2026 Notes 2,415  2,661 
January 2027 Notes 3,734  4,065 
2031 Asset-Backed Notes 1,309  1,456 
2033 Notes 1,038  1,065 
MUFG Bank Facility(1)
3,120  3,540 
SMBC Facility (1)
1,595  1,775 
Total $ 18,717  $ 20,446 
(1)The MUFG Bank Facility and SMBC Facility, are line-of-credit arrangements, the debt issuance costs associated with these instruments are included within Other assets on the Consolidated Statements of Assets and Liabilities in accordance with ASC Subtopic 835-30.
For the three months ended March 31, 2024, the components of interest expense, related fees, and cash paid for interest expense for debt were as follows:
(in thousands) Three Months Ended March 31, 2024
Description
Interest expense(1)
Amortization of debt issuance cost (loan fees) Unused facility and other fees (loan fees) Total interest expense and fees Cash paid for interest expense
SBA Debentures $ 1,137  $ 146  $ —  $ 1,283  $ 2,275 
July 2024 Notes 1,252  74  —  1,326  2,504 
February 2025 Notes 535  29  —  564  1,070 
June 2025 Notes 754  40  —  794  — 
June 2025 3-Year Notes 750  39  —  789  — 
March 2026 A Notes 563  24  —  587  1,125 
March 2026 B Notes 569  26  —  595  1,138 
September 2026 Notes 2,175  203  —  2,378  4,265 
January 2027 Notes 3,079  207  —  3,286  5,906 
2031 Asset-Backed Notes 1,903  100  —  2,003  1,856 
2033 Notes 625  27  —  652  625 
MUFG Bank Facility 1,933  447  609  2,989  1,566 
SMBC Facility 2,349  180  246  2,775  1,754 
Total $ 17,624  $ 1,542  $ 855  $ 20,021  $ 24,084 

(1)Interest expense includes amortization of original issue discounts for the three months ended March 31, 2024 of $42 thousand, $126 thousand, and $47 thousand related to the September 2026 Notes, January 2027 Notes, and 2031 Asset-Backed Notes, respectively.
For the three months ended March 31, 2023, the components of interest expense, related fees, and cash paid for interest expense for debt were as follows:
(in thousands) Three Months Ended March 31, 2023
Description
Interest expense(1)
Amortization of debt issuance cost (loan fees) Unused facility and other fees (loan fees) Total interest expense and fees Cash paid for interest expense
SBA Debentures $ 1,125  $ 144  $ —  $ 1,269  $ 2,262 
July 2024 Notes 1,252  74  —  1,326  2,504 
February 2025 Notes 535  29  —  564  1,070 
June 2025 Notes 754  40  —  794  — 
June 2025 3-Year Notes 750  39  —  789  — 
March 2026 A Notes 563  24  —  587  1,125 
March 2026 B Notes 569  26  —  595  1,139 
September 2026 Notes 2,174  204  —  2,378  4,266 
January 2027 Notes 3,079  207  —  3,286  5,906 
2031 Asset-Backed Notes 1,903  100  —  2,003  1,856 
2033 Notes 625  27  —  652  625 
MUFG Bank Facility 1,713  442  617  2,772  1,837 
SMBC Facility 1,583  153  203  1,939  1,250 
Total $ 16,625  $ 1,509  $ 820  $ 18,954  $ 23,840 

(1)Interest expense includes amortization of original issue discounts for the three months ended March 31, 2023 of $42 thousand, $126 thousand, and $47 thousand related to the September 2026 Notes, January 2027 Notes, and 2031 Asset-Backed Notes, respectively.
As of March 31, 2024 and December 31, 2023, the Company was in compliance with the terms of all borrowing arrangements. There are no sinking fund requirements for any of the Company’s debt.
SBA Debentures
The Company held the following SBA debentures outstanding principal balances as of March 31, 2024 and December 31, 2023:
(in thousands)
Issuance/Pooling Date		 Maturity Date
Interest Rate (1)
March 31, 2024 December 31, 2023
March 26, 2021 September 1, 2031 1.58% $ 37,500  $ 37,500 
June 25, 2021 September 1, 2031 1.58% 16,200  16,200 
July 28, 2021 September 1, 2031 1.58% 5,400  5,400 
August 20, 2021 September 1, 2031 1.58% 5,400  5,400 
October 21, 2021 March 1, 2032 3.21% 14,000  14,000 
November 1, 2021 March 1, 2032 3.21% 21,000  21,000 
November 15, 2021 March 1, 2032 3.21% 5,200  5,200 
November 30, 2021 March 1, 2032 3.21% 20,800  20,800 
December 20, 2021 March 1, 2032 3.21% 10,000  10,000 
December 23, 2021 March 1, 2032 3.21% 10,000  10,000 
December 28, 2021 March 1, 2032 3.21% 5,000  5,000 
January 14, 2022 March 1, 2032 3.21% 4,500  4,500 
January 21, 2022 March 1, 2032 3.21% 20,000  20,000 
Total SBA Debentures     $ 175,000  $ 175,000 
(1)Interest rates are determined initially at issuance and reset to a fixed rate at the debentures pooling date. The rates are inclusive of annual SBA charges.
SBICs are subject to a variety of regulations and oversight by the SBA concerning the size and nature of the companies in which they may invest as well as the structures of those investments. The SBA as part of its oversight periodically examines and audits to determine SBICs compliance with SBA regulations. Our SBIC was in compliance with all SBIC terms, including those pertaining to the SBA Debentures as of March 31, 2024 and December 31, 2023.
HC IV received its license to operate as a SBIC on October 27, 2020. The license has a 10-year term. Through the license, HC IV has access to $175.0 million of capital through the SBA debenture program, in addition to the Company’s regulatory capital commitment of $87.5 million to HC IV. As of March 31, 2024 and December 31, 2023, HC IV has issued a total of $175.0 million in SBA guaranteed debentures.
As of March 31, 2024, the Company held 27 investments through HC IV, with a fair value of approximately $324.3 million, accounting for approximately 9.1% of the Company’s total investment portfolio. Further, HC IV held approximately $350.4 million in tangible assets which accounted for approximately 9.5% of the Company’s total assets as of March 31, 2024.
As of December 31, 2023, the Company held 25 investments through HC IV, with a fair value of approximately $331.5 million, accounting for approximately 10.2% of the Company’s total investment portfolio. Further, HC IV held approximately $341.8 million in tangible assets which accounted for approximately 10.0% of the Company’s total assets as of December 31, 2023.
July 2024 Notes
On July 16, 2019, the Company issued $105.0 million in aggregate principal amount of 4.77% interest-bearing unsecured notes due on July 16, 2024 (the “July 2024 Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement notes offering. Interest on the July 2024 Notes is due semiannually. The July 2024 Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.
February 2025 Notes
On February 5, 2020, the Company issued $50.0 million in aggregate principal amount of 4.28% interest-bearing unsecured notes due February 5, 2025 (the “February 2025 Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement notes offering. Interest on the February 2025 Notes is due semiannually. The February 2025 Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.
June 2025 Notes
On June 3, 2020, the Company issued $70.0 million in aggregate principal amount of 4.31% interest-bearing unsecured notes due June 3, 2025 (the “June 2025 Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement notes offering. Interest on the June 2025 Notes is due semiannually. The June 2025 Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.
June 2025 3-Year Notes
On June 23, 2022, the Company issued $50.0 million in aggregate principal amount of 6.00% interest-bearing unsecured notes due June 23, 2025 (the “June 2025 3-Year Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement notes offering. Interest on the June 2025 3-Year Notes is due semiannually. The June 2025 3-Year Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.
March 2026 A Notes
On November 4, 2020, the Company issued $50.0 million in aggregate principal amount of 4.50% interest-bearing unsecured notes due March 4, 2026 (the “March 2026 A Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement notes offering. Interest on the March 2026 A Notes is due semiannually. The March 2026 A Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.
March 2026 B Notes
On March 4, 2021, the Company issued $50.0 million in aggregate principal amount of 4.55% interest-bearing unsecured notes due March 4, 2026 (the “March 2026 B Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement pursuant note offering. Interest on the March 2026 B Notes is due semiannually. The March 2026 B Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.
September 2026 Notes
On September 16, 2021, the Company issued $325.0 million in aggregate principal amount of 2.625% interest-bearing unsecured notes due September 16, 2026 (the “September 2026 Notes”), unless repurchased in accordance with the terms of the Seventh Supplemental Indenture, dated September 16, 2021. Interest on the September 2026 Notes is payable semi-annually in arrears on March 16 and September 16 of each year. The September 2026 Notes are general unsecured obligations and rank pari passu, or equally in right of payment, with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.
January 2027 Notes
On January 20, 2022, the Company issued $350.0 million in aggregate principal amount of 3.375% interest-bearing unsecured notes due January 20, 2027 (the “January 2027 Notes”), unless repurchased in accordance with the terms of the Eight Supplemental Indenture, dated January 20, 2022. Interest on the January 2027 Notes is payable semi-annually in arrears on January 20 and July 20 of each year. The January 2027 Notes are general unsecured obligations and rank pari passu, or equally in right of payment, with all outstanding and future unsecured unsubordinated indebtedness issued by the Company. The Company may redeem some or all of the January 2027 Notes at any time, or from time to time, at the redemption price set forth under the terms of the January 2027 Notes Indenture.
2031 Asset-Backed Notes
On June 22, 2022, the Company completed a term debt securitization in connection with which an affiliate of the Company issued $150.0 million in aggregate principal amount of 4.95% interest-bearing asset-backed notes due on July 20, 2031 (the “2031 Asset-Backed Notes”). The 2031 Asset-Backed Notes were issued by Hercules Capital Funding Trust 2022-1 LLC (the “2022 Securitization Issuer”) pursuant to a note purchase agreement, dated as of June 22, 2022, by and among the Company, Hercules Capital Funding 2022-1 LLC, as trust depositor, the 2022 Securitization Issuer, and U.S. Bank Trust Company, N. A., as trustee, and are backed by a pool of senior loans made to certain portfolio companies of the Company and secured by certain assets of those portfolio companies and are to be serviced by the Company. Interest on the 2031 Asset-Backed Notes will be paid, to the extent of funds available.
Under the terms of the 2031 Asset-Backed Notes, the Company is required to maintain a reserve cash balance, funded through proceeds from the sale of the 2031 Asset-Backed Notes and through interest and principal collections from the underlying securitized debt portfolio, which may be used to pay monthly interest and principal payments on the 2031 Asset-Backed Notes. The Company has segregated these funds and classified them as restricted cash. As of March 31, 2024 and December 31, 2023, there was approximately $10.1 million and $17.1 million, respectively, of funds segregated as restricted cash related to the 2031 Asset-Backed Notes.
2033 Notes
On September 24, 2018, the Company issued $40.0 million in aggregate principal amount of 6.25% interest-bearing unsecured notes due October 30, 2033 (the “2033 Notes”), unless repurchased in accordance with the terms of the Sixth Supplemental Indenture to the Base Indenture, dated September 24, 2018. Interest on the 2033 Notes is payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year. The 2033 Notes trade on the NYSE under the symbol “HCXY.” The 2033 Notes are general unsecured obligations and rank pari passu, or equally in right of payment, with all outstanding and future unsecured unsubordinated indebtedness issued by the Company. The Company may redeem some or all of the 2033 Notes at any time, or from time to time, at the redemption price set forth under the terms of the 2033 Notes indenture after October 30, 2023.
Credit Facilities
As of March 31, 2024 and December 31, 2023, the Company has two available credit facilities, the MUFG Bank Facility and the SMBC Facility (together, the “Credit Facilities”). For the three months ended March 31, 2024 and year ended December 31, 2023, the weighted average interest rate was 7.76% and 7.41%, respectively, and the average debt outstanding under the Credit Facilities was $220.9 million and $192.3 million, respectively.
MUFG Bank Facility
On January 13, 2023, the Company entered into a third amended credit facility agreement, which amends the agreement dated as of June 10, 2022. The Company, through a special purpose wholly owned subsidiary, Hercules Funding IV LLC (“Hercules Funding IV”), as borrower, entered into the credit facility (the “MUFG Bank Facility”) with MUFG Bank Ltd. as the arranger and administrative agent, and the lenders party to the MUFG Bank Facility from time to time.
Under the MUFG Bank Facility, the lenders have made commitments of $400.0 million, which may be further increased via an accordion feature up to an aggregate $600.0 million, funded by existing or additional lenders and with the agreement of MUFG Bank and subject to other customary conditions. There can be no assurances that additional lenders will join the MUFG Bank Facility to increase available borrowings. Debt under the MUFG Bank Facility generally bears interest at a rate per annum equal to SOFR plus 2.75% for SOFR loans. The MUFG Bank Facility matures on January 13, 2026, plus a twelve-month amortization period, unless sooner terminated in accordance with its terms. The MUFG Bank Facility is secured by all of the assets of Hercules Funding IV. The MUFG Bank Facility requires payment of a non-use fee during the revolving credit availability period.
The MUFG Bank Facility also includes financial and other covenants applicable to the Company and the Company’s subsidiaries, in addition to those applicable to Hercules Funding IV, including covenants relating to certain changes of
control of Hercules Funding IV. Among other things, these covenants require the Company to maintain certain financial ratios, including a minimum interest coverage ratio and a minimum tangible net worth with respect to Hercules Funding IV. The MUFG Bank Facility provides for customary events of default, including with respect to payment defaults, breach of representations and covenants, servicer defaults, certain key person provisions, cross default provisions to certain other debt, lien and judgment limitations, and bankruptcy.
SMBC Facility
On June 14, 2022, the Company entered into a second amendment to a revolving credit agreement, which amends the revolving credit agreement, dated as of November 9, 2021, with Sumitomo Mitsui Banking Corporation (the “SMBC Facility”), as administrative agent, and the lenders and issuing banks to the SMBC Facility. As of March 31, 2024, the SMBC Facility provides for borrowings in U.S. dollars and certain agreed upon foreign currencies of up to $225.0 million, from which the Company may access subject to certain conditions. The SMBC Facility contains an accordion feature, in which the Company can increase the credit line up to an aggregate of $500.0 million, funded by existing or additional lenders and with the agreement of SMBC Bank and subject to other customary conditions. Availability under the SMBC Facility will terminate on November 7, 2025, and the outstanding loans under the SMBC Facility will mature on November 9, 2026. Borrowings under the SMBC Facility are subject to compliance with a borrowing base and an aggregate portfolio balance. The Company’s obligations under the SMBC Facility may in the future be guaranteed by certain of the Company’s subsidiaries and primarily secured by a first priority security interest (subject to certain exceptions) in only certain specified property and assets of the Company and the subsidiary guarantors thereunder.
Additionally in January 2023, the Company entered into a Letter of Credit Facility Agreement (the “SMBC LC Facility”) with Sumitomo Mitsui Banking Corporation that provides for a letter of credit facility with a final maturity date ending on January 13, 2026 and a commitment amount of $175.0 million as amended. Further, the SMBC LC Facility includes an accordion provision to increase the commitment up to $400.0 million, subject to certain conditions. The Company’s obligations under the SMBC LC Facility may in the future be guaranteed by certain of the Company’s subsidiaries and is primarily secured by a first priority security interest (subject to certain exceptions) in only certain specified property and assets of the Company and any subsidiary guarantors thereunder.
Interest under the SMBC Facility is determined by the nature and denomination of the borrowing. Interest rates are determined by the appropriate benchmark rate (SOFR, EURIBOR, Prime, CDOR, or TIBOR) as applicable for the type of borrowing plus an applicable margin adjustment which can range from 0.875% to 2.0% per annum subject to certain conditions. In addition to interest, the SMBC Facility is subject to a non-usage fee of 0.375% per annum (based on the immediately preceding period’s average usage) on the unused portion of the commitment under the SMBC Facility during the revolving period. The Company is required to pay letter of credit participation fees and a fronting fee on the average daily amount of any lender’s exposure with respect to any letters of credit issued under the SMBC Facility.
The SMBC Facility contains customary events of default with customary cure and notice provisions, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenant, cross-default and cross-acceleration to other indebtedness and bankruptcy. The SMBC Facility also includes financial and other covenants applicable to the Company and the Company’s subsidiaries, including covenants relating to minimum stockholders' equity, asset coverage ratios, and our status as a RIC.