Quarterly report pursuant to Section 13 or 15(d)

Debt

v3.24.3
Debt
 9 Months Ended
Sep. 30, 2024
Debt Disclosure [Abstract]  
Debt Debt
As of September 30, 2024 and December 31, 2023, the Company had the following available and outstanding debt:
(in thousands) September 30, 2024 December 31, 2023
  Total Available Principal
Carrying Value(1)
Total Available Principal
Carrying Value(1)
SBA Debentures(2)(4)
$ 350,000  $ 175,000  $ 170,763  $ 175,000  $ 175,000  $ 170,323 
July 2024 Notes —  —  —  105,000  105,000  104,828 
February 2025 Notes 50,000  50,000  49,952  50,000  50,000  49,866 
June 2025 Notes 70,000  70,000  69,879  70,000  70,000  69,757 
June 2025 3-Year Notes 50,000  50,000  49,887  50,000  50,000  49,771 
March 2026 A Notes 50,000  50,000  49,866  50,000  50,000  49,795 
March 2026 B Notes 50,000  50,000  49,854  50,000  50,000  49,776 
September 2026 Notes 325,000  325,000  323,075  325,000  325,000  322,339 
January 2027 Notes 350,000  350,000  346,932  350,000  350,000  345,935 
2031 Asset-Backed Notes 150,000  150,000  148,985  150,000  150,000  148,544 
2033 Notes 40,000  40,000  39,016  40,000  40,000  38,935 
MUFG Bank Facility(2)
400,000  240,000  240,000  400,000  61,000  61,000 
SMBC Facility(2)(3)
400,000  201,000  201,000  400,000  94,000  94,000 
Total $ 2,285,000  $ 1,751,000  $ 1,739,209  $ 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)“Total Available” includes $175.0 million of available commitment through the letter of credit facility as of September 30, 2024 and December 31, 2023.
(4)As of September 30, 2024, the total available debt under the SBA Debentures was $350.0 million, of which $175.0 million was available to HC IV and $175.0 million was available to SBIC V. As of December 31, 2023, the total available debt under the SBA debentures was $175.0 million, all of which was available to HC IV.
Debt issuance costs, net of accumulated amortization, were as follows as of September 30, 2024 and December 31, 2023:
(in thousands) September 30, 2024 December 31, 2023
SBA Debentures $ 4,237  $ 4,677 
July 2024 Notes —  172 
February 2025 Notes 48  134 
June 2025 Notes 121  243 
June 2025 3-Year Notes 113  229 
March 2026 A Notes 134  205 
March 2026 B Notes 146  224 
September 2026 Notes 1,925  2,661 
January 2027 Notes 3,068  4,065 
2031 Asset-Backed Notes 1,015  1,456 
2033 Notes 984  1,065 
MUFG Bank Facility(1)
2,220  3,540 
SMBC Facility(1)
1,235  1,775 
Total $ 15,246  $ 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 and nine months ended September 30, 2024, the components of interest expense, related fees, and cash paid for interest expense for debt were as follows:
(in thousands) Three Months Ended September 30, 2024 Nine Months Ended September 30, 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
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 $ 1,149  $ 147  $ —  $ 1,296  $ 2,300  $ 3,424  $ 439  $ —  $ 3,863  $ 4,575 
July 2024 Notes 202  24  —  226  2,504  2,706  172  —  2,878  5,008 
February 2025 Notes 535  29  —  564  1,070  1,605  86  —  1,691  2,140 
June 2025 Notes 755  40  —  795  —  2,263  121  —  2,384  1,508 
June 2025 3-Year Notes 750  38  —  788  —  2,250  116  —  2,366  1,500 
March 2026 A Notes 563  24  —  587  1,125  1,688  71  —  1,759  2,250 
March 2026 B Notes 568  25  —  593  1,138  1,706  77  —  1,783  2,276 
September 2026 Notes 2,174  205  —  2,379  4,266  6,523  612  —  7,135  8,531 
January 2027 Notes 3,080  208  —  3,288  5,906  9,236  622  —  9,858  11,812 
2031 Asset-Backed Notes 1,903  100  —  2,003  1,856  5,710  300  —  6,010  5,568 
2033 Notes 625  27  —  652  625  1,875  81  —  1,956  1,875 
MUFG Bank Facility 4,105  443  329  4,877  3,875  8,181  1,328  1,572  11,081  7,596 
SMBC Facility 3,961  180  174  4,315  4,020  9,989  540  599  11,128  9,582 
Total $ 20,370  $ 1,490  $ 503  $ 22,363  $ 28,685  $ 57,156  $ 4,565  $ 2,171  $ 63,892  $ 64,221 

(1)Interest expense includes amortization of original issue discounts for the three months ended September 30, 2024 of $42 thousand, $126 thousand, and $47 thousand related to the September 2026 Notes, January 2027 Notes, and 2031 Asset-Backed Notes, respectively. Interest expense includes amortization of original issue discounts for the nine months ended September 30, 2024 of $125 thousand, $377 thousand, and $141 thousand, related to the September 2026 Notes, January 2027 Notes, and 2031 Asset-Backed Notes, respectively.
For the three and nine months ended September 30, 2023, the components of interest expense, related fees, and cash paid for interest expense for debt were as follows:
(in thousands) Three Months Ended September 30, 2023 Nine Months Ended September 30, 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
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 $ 1,150  $ 146  $ —  $ 1,296  $ 2,300  $ 3,412  $ 436  $ —  $ 3,848  $ 4,562 
July 2024 Notes 1,252  74  —  1,326  2,505  3,756  222  —  3,978  5,009 
February 2025 Notes 535  29  —  564  1,070  1,605  86  —  1,691  2,140 
June 2025 Notes 754  40  —  794  —  2,263  121  —  2,384  1,509 
June 2025 3-Year Notes 750  39  —  789  —  2,250  117  —  2,367  1,500 
March 2026 A Notes 563  24  —  587  1,125  1,688  71  —  1,759  2,250 
March 2026 B Notes 569  26  —  595  1,138  1,706  78  —  1,784  2,275 
September 2026 Notes 2,174  203  —  2,377  4,266  6,523  611  —  7,134  8,532 
January 2027 Notes 3,079  207  —  3,286  5,906  9,236  621  —  9,857  11,812 
2031 Asset-Backed Notes 1,902  101  —  2,003  1,857  5,709  301  —  6,010  5,570 
2033 Notes 625  27  —  652  625  1,875  81  —  1,956  1,875 
MUFG Bank Facility 1,247  443  709  2,399  1,240  4,323  1,327  2,017  7,667  4,673 
SMBC Facility 1,828  180  276  2,284  1,715  5,891  513  715  7,119  5,703 
Total $ 16,428  $ 1,539  $ 985  $ 18,952  $ 23,747  $ 50,237  $ 4,585  $ 2,732  $ 57,554  $ 57,410 

(1)Interest expense includes amortization of original issue discounts for the three months ended September 30, 2023 of $42 thousand, $126 thousand, and $47 thousand related to the September 2026 Notes, January 2027 Notes, and 2031 Asset-Backed Notes, respectively. Interest expense includes amortization of original issue discounts for the nine months ended September 30, 2023, of $125 thousand, $377 thousand, and $141 thousand, related to the September 2026 Notes, January 2027 Notes, and 2031 Asset-Backed Notes, respectively.
The overall weighted average cost of debt for the Company was approximately 5.1% and 4.8% for the three months ended September 30, 2024 and 2023, respectively and 5.0% and 4.8% for the nine months ended September 30, 2024 and 2023, respectively. The weighted average cost of debt includes interest and fees on the Company's debt but excludes the impact of fee accelerations due to the extinguishment of debt, as applicable. As of September 30, 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 September 30, 2024 and December 31, 2023:
(in thousands)
Issuance/Pooling Date		 Maturity Date
Interest Rate(1)
September 30, 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 September 30, 2024 and December 31, 2023.
HC IV received its license to operate as an 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, subject to maintaining certain conditions. As of September 30, 2024 and December 31, 2023, HC IV has issued a total of $175.0 million in SBA guaranteed debentures.
On July 9, 2024, SBIC V received its license to operate as an SBIC. This is Hercules' fourth SBIC license, through which the Company has access to $175.0 million of SBA debentures, subject to meeting certain conditions. The license has a 10-year term and SBA debentures bear fixed interest based on the treasury rate plus a spread applicable for the period the debentures are drawn. As of the latest debenture pooling date in September 2024, SBA debentures were issued with an interest rate of approximately 4.509%. The actual rates may vary depending on the timing of drawdown and pooling period.
The following table summarizes information related to our SBICs as of September 30, 2024 and December 31, 2023.
September 30, 2024 December 31, 2023
Description HC IV SBIC V HC IV SBIC V
Number of investments held 28 1 25 — 
Fair value of investments (in millions) $ 352.4 $ 11.2 $ 331.5 $ — 
Percentage of fair value of investments based on the Company's total investment portfolio 9.9  % 0.3  % 10.2  % 0.0  %
Tangible assets (in millions) $ 369.7 $ 13.3 $ 341.8 $ — 
Percentage of tangible assets based on the Company's total assets 10.1  % 0.4  % 10.0  % 0.0  %
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. On July 16, 2024, the Company fully repaid the aggregate outstanding $105.0 million principal and $2.5 million of accrued interest pursuant to the terms of the July 2024 Notes.
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 September 30, 2024 and December 31, 2023, there was approximately $5.1 million and $17.1 million, respectively, of funds segregated as restricted cash related to the 2031 Asset-Backed Notes. The reinvestment period for 2031 Asset-Backed Notes ended on July 20, 2024, and as a result all principal payments received from portfolio companies will no longer be eligible for reinvestment and will be utilized to pay down the outstanding principal amount.
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 September 30, 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 nine months ended September 30, 2024 and year
ended December 31, 2023, the weighted average interest rate was 7.79% and 7.41%, respectively, and the average debt outstanding under the Credit Facilities was $311.0 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 September 30, 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, CORRA, 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.