Annual report pursuant to Section 13 and 15(d)

Investments

v3.25.0.1
Investments
 12 Months Ended
Dec. 31, 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 years ended December 31, 2024, 2023, and 2022.
(in thousands) For the Year Ended December 31, 2024
Portfolio Company(1)
Type Fair Value as of
December 31, 2024		 Interest & Dividend Income Fee Income Net Change in Unrealized Appreciation (Depreciation) Realized Gain (Loss)
Control Investments
Coronado Aesthetics, LLC Control $ 69  $ —  $ —  $ (193) $ — 
Gibraltar Acquisition LLC(3)
Control 59,263  5,301  146  (4,983) — 
Hercules Adviser LLC(4)
Control 42,190  7,410  —  1,477  — 
Tectura Corporation Control 11,657  692  —  140  — 
Total Control Investments $ 113,179  $ 13,403  $ 146  $ (3,559) $ — 
(in thousands)     For the Year Ended December 31, 2023
Portfolio Company(1)
Type Fair Value as of
December 31, 2023		 Interest Income Fee Income Net Change in Unrealized Appreciation (Depreciation) Realized Gain (Loss)
Control Investments
Coronado Aesthetics, LLC Control $ 262  $ —  $ —  $ (57) $ — 
Gibraltar Acquisition LLC(3)
Control 62,512  3,344  95  9,656  — 
Hercules Adviser LLC(4)
Control 40,713  608  —  9,560  — 
Tectura Corporation Control 11,517  690  —  3,475  — 
Total Control Investments $ 115,004  $ 4,642  $ 95  $ 22,634  $ — 
(in thousands)     For the Year Ended December 31, 2022
Portfolio Company(1)
Type Fair Value as of
December 31, 2022		 Interest
Income		 Fee Income Net Change in Unrealized Appreciation (Depreciation) Realized Gain (Loss)
Control Investments
Coronado Aesthetics, LLC Control $ 319  $ —  $ —  $ (246) $ — 
Gibraltar Business Capital, LLC Control 36,944  3,385  68  (6,968) — 
Hercules Adviser LLC Control 31,153  546  —  7,163  — 
Tectura Corporation Control 8,042  690  —  (227) — 
Total Control Investments $ 76,458  $ 4,621  $ 68  $ (278) $ — 
Affiliate Investments
Black Crow AI, Inc.(2)
Affiliate $ —  $ —  $ —  $ (120) $ 3,772 
Pineapple Energy LLC(2)
Affiliate —  1,204  —  4,209  (2,014)
Total Affiliate Investments $ —  $ 1,204  $ —  $ 4,089  $ 1,758 
Total Control & Affiliate Investments $ 76,458  $ 5,825  $ 68  $ 3,811  $ 1,758 
(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 December 31, 2024, December 31, 2023, and December 31, 2022 there were no unconsolidated subsidiaries that are considered “significant subsidiaries”.
(2)As of September 30, 2022, Black Crow AI, Inc. and Pineapple Energy LLC were no longer affiliates as defined under the 1940 Act.
(3)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.
(4)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 December 31, 2024 and December 31, 2023:
(in thousands) December 31, 2024 December 31, 2023
Investments at
Fair Value		 Percentage of
Total Portfolio 		Investments at
Fair Value		 Percentage of
Total Portfolio
Senior Secured Debt $ 3,419,044  93.4  % $ 2,987,577  92.0  %
Unsecured Debt 75,557  2.1  % 69,722  2.2  %
Preferred Stock 53,802  1.5  % 53,038  1.6  %
Common Stock 74,855  2.0  % 99,132  3.1  %
Warrants 30,500  0.8  % 33,969  1.0  %
Investment Funds & Vehicles 6,220  0.2  % 4,608  0.1  %
Total $ 3,659,978  100.0  % $ 3,248,046  100.0  %
A summary of the Company’s investment portfolio, at value, by geographic location as of December 31, 2024 and December 31, 2023 is shown as follows:
(in thousands) December 31, 2024 December 31, 2023
Investments at
Fair Value		 Percentage of
Total Portfolio		 Investments at
Fair Value		 Percentage of
Total Portfolio
United States $ 3,288,737  89.9  % $ 2,861,615  88.1  %
United Kingdom 142,183  3.9  % 222,136  6.9  %
Israel 88,066  2.4  % 52,868  1.6  %
Netherlands 59,157  1.6  % 89,995  2.8  %
Germany 49,255  1.3  % 1,144  0.0  %
Canada 16,251  0.4  % 15,730  0.5  %
Denmark 9,284  0.3  % 4,173  0.1  %
Ireland 4,649  0.1  % —  0.0  %
Singapore 1,996  0.1  % —  0.0  %
Other 400  0.0  % 385  0.0  %
Total $ 3,659,978  100.0  % $ 3,248,046  100.0  %
The following table shows the fair value of the Company’s portfolio by industry sector as of December 31, 2024 and December 31, 2023:
(in thousands) December 31, 2024 December 31, 2023
  Investments at
Fair Value		 Percentage of
Total Portfolio 		Investments at
Fair Value		 Percentage of
Total Portfolio
Software $ 1,081,100  29.5  % $ 764,985  23.6  %
Drug Discovery & Development 1,080,390  29.5  % 1,257,699  38.7  %
Healthcare Services, Other 610,184  16.7  % 300,079  9.3  %
Consumer & Business Services 372,641  10.2  % 525,973  16.2  %
Electronics & Computer Hardware 162,888  4.5  % 20,324  0.6  %
Diversified Financial Services 113,491  3.1  % 114,722  3.5  %
Medical Devices & Equipment 74,962  2.0  % 22,096  0.7  %
Space Technologies 45,700  1.2  % —  0.0  %
Biotechnology Tools 35,434  1.0  % 48,381  1.5  %
Communications & Networking 27,700  0.8  % 29,400  0.9  %
Sustainable and Renewable Technology 27,696  0.8  % 9,581  0.3  %
Information Services 24,356  0.7  % 126,605  3.9  %
Consumer & Business Products 1,497  0.0  % 2,589  0.1  %
Manufacturing Technology 1,162  0.0  % 11,006  0.3  %
Semiconductors 704  0.0  % 1,205  0.0  %
Media/Content/Info 63  0.0  % 12,704  0.4  %
Drug Delivery 10  0.0  % 21  0.0  %
Surgical Devices —  0.0  % 676  0.0  %
Total $ 3,659,978  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 December 31, 2024 or December 31, 2023.
Concentrations of Credit Risk
The Company’s customers are primarily privately held companies and public companies which are active in the “Software", "Drug Discovery & Development”, “Healthcare Services, Other”, and “Consumer & Business 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 December 31, 2024 and December 31, 2023, the Company’s ten largest portfolio companies represented approximately 31.6% and 29.7% of the total fair value of the Company’s investments in portfolio companies, respectively. As of December 31, 2024 and December 31, 2023, the Company had six and five portfolio companies, respectively, that represented 5% or more of the Company’s net assets. As of December 31, 2024, the Company had three equity investments representing approximately 49.7% of the total fair value of the Company’s equity investments, and each represented 5% or more of the total fair value of the Company’s equity investments. As of December 31, 2023, the Company had five equity investments which represented approximately 56.5% of the total fair value of the Company’s equity investments, and each represented 5% or more of the total fair value of such investments.
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 December 31, 2024 and December 31, 2023:
Percentage of debt investments (at fair value), as of
December 31, 2024 December 31, 2023
Senior Secured First Lien
All assets including intellectual property 67.1  % 52.3  %
All assets with negative pledge on intellectual property 14.2  % 24.0  %
“Last-out” with security interest in all of the assets 9.7  % 12.5  %
Total senior secured first lien position 91.0  % 88.8  %
Second lien 6.8  % 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 December 31, 2024 and December 31, 2023:
(in thousands) Fair Value
Derivative Instrument Statement Location December 31, 2024 December 31, 2023
Foreign currency forward contract Other assets $ 538  $ — 
Foreign currency forward contract Accounts payable and accrued liabilities —  766 
Total $ 538  $ 766 
Net realized and unrealized gains and losses on derivative instruments recorded by the Company during the years ended December 31, 2024 and December 31, 2023 are in the following locations in the Consolidated Statements of Operations:
(in thousands) Year Ended December 31,
Derivative Instrument Statement Location 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 1,305  (766)
Total $ 456  $ (766)
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) Year Ended December 31,
2024 2023 2022
Contractual interest income $ 355,470  $ 351,883  $ 249,375 
Exit fee interest income 44,448  45,747  32,063 
PIK interest income 51,270  24,670  20,455 
Dividend income 7,900  1,400  — 
Other investment income(1)
8,107  10,725  5,365 
Total interest and dividend income $ 467,195  $ 434,425  $ 307,258 
Recurring fee income $ 9,507  $ 8,835  $ 7,834 
Fee income - expired commitments 2,442  1,695  1,502 
Accelerated fee income - early repayments 14,447  15,713  5,094 
Total fee income $ 26,396  $ 26,243  $ 14,430 
(1)Other investment income includes OID interest income and interest recorded on other assets.
As of December 31, 2024 and 2023, unamortized capitalized fee income was recorded as follows:
(in millions) As of December 31,
2024 2023
Offset against debt investment cost $ 36.9  $ 32.9 
Deferred obligation contingent on funding or other milestone 9.1  9.4 
Total Unamortized Fee Income $ 46.0  $ 42.3 
As of December 31, 2024 and 2023, loan exit fees receivable were recorded as follows:
(in millions) As of December 31,
2024 2023
Included within debt investment cost $ 39.2  $ 35.9 
Deferred receivable related to expired commitments 3.0  4.3 
Total Exit Fees Receivable $ 42.2  $ 40.2