Quarterly report pursuant to Section 13 or 15(d)

Investments

v3.24.3
Investments
 9 Months Ended
Sep. 30, 2024
Schedule of Investments [Abstract]  
Investments Investments
Control and Affiliate Investments
As required by the 1940 Act, the Company classifies its investments by level of control. “Control investments” are defined in the 1940 Act as investments in those companies that the Company is deemed to “control”. Under the 1940 Act, the Company is generally deemed to “control” a company in which it has invested if it owns 25% or more of the voting securities of such company or has greater than 50% representation on its board. “Affiliate investments” are investments in those companies that are “affiliated companies” of the Company, as defined in the 1940 Act, which are not control investments. The Company is deemed to be an “affiliate” of a company in which it has invested if it owns 5% or more, but generally less than 25%, of the voting securities of such company. “Non-control/non-affiliate investments” are investments that are neither control investments nor affiliate investments. For purposes of determining the classification of its investments, the Company has included consideration of any voting securities or board appointment rights held by the Adviser Funds.
The following table summarizes the Company’s realized gains and losses and changes in unrealized appreciation and depreciation on control and affiliate investments for the three and nine months ended September 30, 2024 and 2023.
(in thousands) Three Months Ended September 30, 2024 Nine Months Ended September 30, 2024
Portfolio Company(1)
Type Fair Value as of September 30, 2024 Interest & Dividend Income Fee Income Net Change in Unrealized Appreciation (Depreciation) Realized Gain (Loss) Interest & Dividend Income Fee Income Net Change in Unrealized Appreciation (Depreciation) Realized Gain (Loss)
Control Investments
Coronado Aesthetics, LLC Control $ 319  $ —  $ —  $ 133  $ —  $ —  $ —  $ 57  $ — 
Gibraltar Acquisition LLC(2)
Control 57,302  1,359  36  (74) —  3,926  108  (6,365) — 
Hercules Adviser LLC(3)
Control 43,433  1,954  —  705  —  5,457  —  2,720  — 
Tectura Corporation Control 12,043  174  —  509  —  518  —  526  — 
Total Control Investments $ 113,097  $ 3,487  $ 36  $ 1,273  $ —  $ 9,901  $ 108  $ (3,062) $ — 
(in thousands) Three Months Ended September 30, 2023 Nine Months Ended September 30, 2023
Portfolio Company(1)
Type Fair Value as of September 30, 2023 Interest Income Fee Income Net Change in Unrealized Appreciation (Depreciation) Realized Gain (Loss) Interest Income Fee Income Net Change in Unrealized Appreciation (Depreciation) Realized Gain (Loss)
Control Investments
Coronado Aesthetics, LLC Control $ 247  $ —  $ —  $ (50) $ —  $ —  $ —  $ (72) $ — 
Gibraltar Acquisition, LLC(2)
Control 55,992  772  22  (1,726) —  2,299  60  4,676  — 
Hercules Adviser LLC(3)
Control 40,668  153  —  1,507  —  455  —  9,515  — 
Tectura Corporation Control 6,243  174  —  (830) —  516  —  (1,799) — 
Total Control Investments $ 103,150  $ 1,099  $ 22  $ (1,099) $ —  $ 3,270  $ 60  $ 12,320  $ — 
(1)In accordance with Rules 3-09, 4-08(g), and Rule 10-01(b)(1) of Regulation S-X, (“Rule 3-09”, “Rule 4-08(g)”, and “Rule 10-01(b)(1)”, respectively), the Company must determine if its unconsolidated subsidiaries are considered “significant subsidiaries”. As of September 30, 2024 and September 30, 2023, there were no unconsolidated subsidiaries that are considered “significant subsidiaries”.
(2)Gibraltar Acquisition LLC is a wholly-owned subsidiary, which is the holding company for their wholly-owned affiliated portfolio companies, Gibraltar Business Capital, LLC and Gibraltar Equipment Finance, LLC. The subsidiary has no significant assets or liabilities, other than their equity and debt investments and equity interest in Gibraltar Business Capital, LLC and Gibraltar Equipment Finance, LLC, respectively.
(3)Hercules Adviser LLC is owned by Hercules Capital Management LLC and presented with Hercules Partner Holdings, LLC which are both wholly owned by the Company. Please refer to “Note 1” for additional disclosure.
Portfolio Composition
The following table shows the fair value of the Company’s portfolio of investments by asset class as of September 30, 2024 and December 31, 2023:
(in thousands) September 30, 2024 December 31, 2023
Investments at
Fair Value		 Percentage of
Total Portfolio		 Investments at
Fair Value		 Percentage of
Total Portfolio
Senior Secured Debt $ 3,306,724  92.9  % $ 2,987,577  92.0  %
Unsecured Debt 73,854  2.1  % 69,722  2.2  %
Preferred Stock 47,342  1.3  % 53,038  1.6  %
Common Stock 95,693  2.7  % 99,132  3.1  %
Warrants 30,023  0.8  % 33,969  1.0  %
Investment Funds & Vehicles 6,877  0.2  % 4,608  0.1  %
Total $ 3,560,513  100.0  % $ 3,248,046  100.0  %
A summary of the Company’s investment portfolio, at value, by geographic location as of September 30, 2024 and December 31, 2023 is shown as follows:
(in thousands) September 30, 2024 December 31, 2023
Investments at
Fair Value		 Percentage of
Total Portfolio		 Investments at
Fair Value		 Percentage of
Total Portfolio
United States $ 3,219,874  90.4  % $ 2,861,615  88.1  %
United Kingdom 174,566  4.9  % 222,136  6.9  %
Israel 77,767  2.2  % 52,868  1.6  %
Netherlands 59,562  1.7  % 89,995  2.8  %
Canada 16,441  0.5  % 15,730  0.5  %
Ireland 4,513  0.1  % —  0.0  %
Denmark 4,176  0.1  % 4,173  0.1  %
Singapore 1,999  0.1  % —  0.0  %
Germany 1,219  0.0  % 1,144  0.0  %
Other 396  0.0  % 385  0.0  %
Total $ 3,560,513  100.0  % $ 3,248,046  100.0  %
The following table shows the fair value of the Company’s portfolio by industry sector as of September 30, 2024 and December 31, 2023:
(in thousands) September 30, 2024 December 31, 2023
Investments at
Fair Value		 Percentage of
Total Portfolio 		Investments at
Fair Value		 Percentage of
Total Portfolio
Drug Discovery & Development $ 1,125,617  31.6  % $ 1,257,699  38.7  %
Software 1,018,236  28.6  % 764,985  23.6  %
Healthcare Services, Other 574,750  16.1  % 300,079  9.3  %
Consumer & Business Services 355,831  10.0  % 525,973  16.2  %
Diversified Financial Services 112,709  3.2  % 114,722  3.5  %
Electronics & Computer Hardware 96,125  2.7  % 20,324  0.6  %
Information Services 81,266  2.3  % 126,605  3.9  %
Medical Devices & Equipment 56,153  1.6  % 22,096  0.7  %
Space Technologies 46,082  1.3  % —  0.0  %
Biotechnology Tools 35,311  1.0  % 48,381  1.5  %
Sustainable and Renewable Technology 27,858  0.8  % 9,581  0.3  %
Communications & Networking 26,465  0.7  % 29,400  0.9  %
Manufacturing Technology 2,096  0.1  % 11,006  0.3  %
Consumer & Business Products 1,285  0.0  % 2,589  0.1  %
Semiconductors 655  0.0  % 1,205  0.0  %
Media/Content/Info 55  0.0  % 12,704  0.4  %
Drug Delivery 19  0.0  % 21  0.0  %
Surgical Devices —  0.0  % 676  0.0  %
Total $ 3,560,513  100.0  % $ 3,248,046  100.0  %
No single portfolio investment represents more than 10% of the fair value of the Company’s total investments as of September 30, 2024 or December 31, 2023.
Concentrations of Credit Risk
As of September 30, 2024, the Company’s customers are primarily privately held companies and public companies which are active in the “Drug Discovery & Development”, “Software”, “Healthcare Services, Other”, “Consumer & Business Services”, and “Diversified Financial Services” sectors. These sectors are characterized by high margins, high growth rates, consolidation and product and market extension opportunities. Value for companies in these sectors is often vested in intangible assets and intellectual property.
Industry and sector concentrations vary as new loans are recorded and loans are paid off. Investment income, consisting of interest, fees, and recognition of gains on equity and warrant or other equity interests, can fluctuate materially when a loan is paid off or a related warrant or equity interest is sold. Investment income recognized in any given year can be highly concentrated among several portfolio companies.
As of September 30, 2024 and December 31, 2023, the Company’s ten largest portfolio companies represented approximately 30.6% and 29.7% of the total fair value of the Company’s investments in portfolio companies, respectively. As of September 30, 2024 and December 31, 2023, the Company had five and five portfolio companies, respectively, that represented 5% or more of the Company’s net assets. As of September 30, 2024 and December 31, 2023, the Company had four and five equity investments, respectively, that represented 5% or more of the total fair value of the Company’s equity investments. These equity investments represented approximately 52.9% and 56.5% of the total fair value of the Company’s equity investments as of September 30, 2024 and December 31, 2023, respectively.
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. The Company's investments were collateralized as follows as of September 30, 2024 and December 31, 2023:
Percentage of debt investments (at fair value), as of
September 30, 2024 December 31, 2023
Senior Secured First Lien
All assets including intellectual property 63.1  % 52.3  %
All assets with negative pledge on intellectual property 16.1  % 24.0  %
“Last-out” with security interest in all of the assets 10.3  % 12.5  %
Total senior secured first lien position 89.5  % 88.8  %
Second lien 8.3  % 8.9  %
Unsecured 2.2  % 2.3  %
Total debt investments at fair value 100.0  % 100.0  %
Derivative Instruments
The Company enters into forward currency contracts from time to time to help mitigate the impact that an adverse change in foreign exchange rates would have on the value of the Company’s investments denominated in foreign currencies. The following is a summary of the fair value and location of the Company’s derivative instruments in the Consolidated Statements of Assets and Liabilities held as of September 30, 2024 and December 31, 2023:
(in thousands) Fair Value
Derivative Instrument Statement Location September 30, 2024 December 31, 2023
Foreign currency forward contract Other assets $ —  $ — 
Foreign currency forward contract Accounts payable and accrued liabilities 1,168  766 
Total $ 1,168  $ 766 
Net realized and unrealized gains and losses on derivative instruments recorded by the Company during the three and nine months ended September 30, 2024 and 2023 are in the following locations in the Consolidated Statements of Operations:
(in thousands)   Three Months Ended September 30, Nine Months Ended September 30,
Derivative Instrument Statement Location 2024 2023 2024 2023
Foreign currency forward contract Net realized gain (loss) - Non-control / Non-affiliate investments $ —  $ —  $ (849) $ — 
Foreign currency forward contract Net change in unrealized appreciation (depreciation) - Non-control / Non-affiliate investments (1,356) 784  (402) 230 
  Total $ (1,356) $ 784  $ (1,251) $ 230 
Investment Income
The Company’s investment portfolio generates interest, fee, and dividend income. The composition of the Company’s interest income and fee income is as follows:
(in thousands) Three Months Ended September 30, Nine Months Ended September 30,
  2024 2023 2024 2023
Contractual interest income $ 90,288  $ 89,747  $ 268,441  $ 258,685 
Exit fee interest income 12,047  10,904  34,519  34,340 
PIK interest income 12,706  6,652  37,870  17,999 
Dividend income 2,100  —  5,800  — 
Other investment income(1)
1,909  3,036  5,728  8,198 
Total interest and dividend income $ 119,050  $ 110,339  $ 352,358  $ 319,222 
(1)Other investment income includes OID interest income and interest recorded on other assets.
(in thousands) Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Recurring fee income $ 2,423  $ 2,243  $ 7,081  $ 6,418 
Fee income - expired commitments 413  300  1,790  651 
Accelerated fee income - early repayments 3,362  3,862  10,578  11,774 
Total fee income $ 6,198  $ 6,405  $ 19,449  $ 18,843 
As of September 30, 2024 and December 31, 2023, unamortized capitalized fee income was recorded as follows:
(in millions) September 30,
2024		 December 31,
2023
Offset against debt investment cost $ 36.7  $ 32.9 
Deferred obligation contingent on funding or other milestone 9.7  9.4 
Total Unamortized Fee Income $ 46.4  $ 42.3 
As of September 30, 2024 and December 31, 2023, loan exit fees receivable were recorded as follows:
(in millions) September 30,
2024		 December 31,
2023
Included within debt investment cost $ 37.0  $ 35.9 
Deferred receivable related to expired commitments 3.4  4.3 
Total Exit Fees Receivable $ 40.4  $ 40.2