Quarterly report [Sections 13 or 15(d)]

Investments

v3.25.1
Investments
 3 Months Ended
Mar. 31, 2025
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 months ended March 31, 2025 and 2024.
(in thousands) For the Three Months Ended March 31, 2025
Portfolio Company(1)
Type Fair Value as of March 31, 2025 Interest & Dividend Income Fee Income Net Change in Unrealized Appreciation (Depreciation) Realized Gain (Loss)
Control Investments
Coronado Aesthetics, LLC Control $ 47  $ —  $ —  $ (22) $ — 
Gibraltar Acquisition LLC(2)
Control 58,900  1,567  39  (941) — 
Hercules Adviser LLC(3)
Control 45,017  1,900  —  2,827  — 
Tectura Corporation Control 11,770  170  —  113  — 
Total Control Investments $ 115,734  $ 3,637  $ 39  $ 1,977  $ — 
(in thousands) For the Three Months Ended March 31, 2024
Portfolio Company(1)
Type Fair Value as of March 31, 2024 Interest & Dividend Income Fee Income Net Change in Unrealized Appreciation (Depreciation) Realized Gain (Loss)
Control Investments
Coronado Aesthetics, LLC Control $ 283  $ —  $ —  $ 21  $ — 
Gibraltar Acquisition, LLC(2)
Control 57,931  1,033  36  (4,621) — 
Hercules Adviser LLC(3)
Control 41,884  1,752  —  1,171  — 
Tectura Corporation Control 12,117  172  —  600  — 
Total Control Investments $ 112,215  $ 2,957  $ 36  $ (2,829) $ — 
(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 March 31, 2025 and March 31, 2024, 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 - Description of Business” for additional disclosure.
Portfolio Composition
The following table shows the fair value of the Company’s portfolio of investments by asset class as of March 31, 2025 and December 31, 2024:
(in thousands) March 31, 2025 December 31, 2024
Investments at
Fair Value		 Percentage of
Total Portfolio		 Investments at
Fair Value		 Percentage of
Total Portfolio
Senior Secured Debt $ 3,674,498  93.6  % $ 3,419,044  93.4  %
Unsecured Debt 64,736  1.7  % 75,557  2.1  %
Preferred Stock 52,662  1.3  % 53,802  1.5  %
Common Stock 94,088  2.4  % 74,855  2.0  %
Warrants 31,473  0.8  % 30,500  0.8  %
Investment Funds & Vehicles 6,993  0.2  % 6,220  0.2  %
Total $ 3,924,450  100.0  % $ 3,659,978  100.0  %
A summary of the Company’s investment portfolio, at value, by geographic location as of March 31, 2025 and December 31, 2024 is shown as follows:
(in thousands) March 31, 2025 December 31, 2024
Investments at
Fair Value		 Percentage of
Total Portfolio		 Investments at
Fair Value		 Percentage of
Total Portfolio
United States $ 3,489,550  88.9  % $ 3,288,737  89.9  %
Netherlands 132,889  3.4  % 59,157  1.6  %
United Kingdom 119,905  3.1  % 142,183  3.9  %
Switzerland 56,421  1.5  % —  0.0  %
Germany 49,417  1.3  % 49,255  1.3  %
Israel 44,321  1.1  % 88,066  2.4  %
Canada 16,229  0.4  % 16,251  0.4  %
Denmark 9,111  0.2  % 9,284  0.3  %
Ireland 4,647  0.1  % 4,649  0.1  %
Singapore 1,590  0.0  % 1,996  0.1  %
Other 370  0.0  % 400  0.0  %
Total $ 3,924,450  100.0  % $ 3,659,978  100.0  %
The following table shows the fair value of the Company’s portfolio by industry sector as of March 31, 2025 and December 31, 2024:
(in thousands) March 31, 2025 December 31, 2024
Investments at
Fair Value		 Percentage of
Total Portfolio 		Investments at
Fair Value		 Percentage of
Total Portfolio
Software $ 1,262,813  32.2  % $ 1,081,100  29.5  %
Drug Discovery & Development 1,119,941  28.5  % 1,080,390  29.5  %
Healthcare Services, Other 625,556  15.9  % 610,184  16.7  %
Consumer & Business Services 374,561  9.6  % 372,641  10.2  %
Electronics & Computer Hardware 167,370  4.3  % 162,888  4.5  %
Diversified Financial Services 117,366  3.0  % 113,491  3.1  %
Medical Devices & Equipment 75,238  1.9  % 74,962  2.0  %
Space Technologies 49,527  1.3  % 45,700  1.2  %
Biotechnology Tools 34,819  0.9  % 35,434  1.0  %
Communications & Networking 27,601  0.7  % 27,700  0.8  %
Information Services 24,923  0.6  % 24,356  0.7  %
Sustainable and Renewable Technology 22,396  0.6  % 27,696  0.8  %
Manufacturing Technology 20,653  0.5  % 1,162  0.0  %
Consumer & Business Products 1,139  0.0  % 1,497  0.0  %
Semiconductors 425  0.0  % 704  0.0  %
Media/Content/Info 114  0.0  % 63  0.0  %
Drug Delivery 8  0.0  % 10  0.0  %
Total $ 3,924,450  100.0  % $ 3,659,978  100.0  %
No single portfolio investment represents more than 10% of the fair value of the Company’s total investments as of March 31, 2025 or December 31, 2024.
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 March 31, 2025 and December 31, 2024, the Company’s ten largest portfolio companies represented approximately 30.4% and 31.6% of the total fair value of the Company’s investments in portfolio companies, respectively. As of March 31, 2025 and December 31, 2024, the Company had six and six portfolio companies, respectively, that represented 5% or more of the Company’s net assets. As of March 31, 2025, the Company had four equity investments representing 61.3% 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, 2024, the Company had three equity investments which represented 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.
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 March 31, 2025 and December 31, 2024:
Percentage of debt investments (at fair value), as of
March 31, 2025 December 31, 2024
Senior Secured First Lien
All assets including intellectual property 69.0  % 67.1  %
All assets with negative pledge on intellectual property 13.8  % 14.2  %
“Last-out” with security interest in all of the assets 8.1  % 9.7  %
Total senior secured first lien position 90.9  % 91.0  %
Second lien 7.4  % 6.8  %
Unsecured 1.7  % 2.2  %
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 March 31, 2025 and December 31, 2024:
(in thousands) Fair Value
Derivative Instrument Statement Location March 31, 2025 December 31, 2024
Foreign currency forward contract Other assets $ —  $ 538 
Foreign currency forward contract Accounts payable and accrued liabilities 301  — 
Total $ 301  $ 538 
Net realized and unrealized gains and losses on derivative instruments recorded by the Company during the three months ended March 31, 2025 and 2024 are in the following locations in the Consolidated Statements of Operations:
(in thousands)   Three Months Ended March 31,
Derivative Instrument Statement Location 2025 2024
Foreign currency forward contract Net change in unrealized appreciation (depreciation) - Non-control / Non-affiliate investments $ (840) $ 229 
  Total $ (840) $ 229 
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 March 31,
  2025 2024
Contractual interest income $ 87,817  $ 90,714 
Exit fee interest income 10,228  11,880 
PIK interest income 13,473  9,897 
Dividend income 2,400  1,600 
Other investment income(1)
1,654  1,688 
Total interest and dividend income $ 115,572  $ 115,779 
Recurring fee income $ 2,680  $ 2,455 
Fee income - expired commitments 317  647 
Accelerated fee income - early repayments 942  2,672 
Total fee income $ 3,939  $ 5,774 
(1)Other investment income includes OID interest income and interest recorded on other assets.
As of March 31, 2025 and December 31, 2024, unamortized capitalized fee income was recorded as follows:
(in millions) March 31,
2025		 December 31,
2024
Offset against debt investment cost $ 37.2  $ 36.9 
Deferred obligation contingent on funding or other milestone 10.2  9.1 
Total Unamortized Fee Income $ 47.4  $ 46.0 
As of March 31, 2025 and December 31, 2024, loan exit fees receivable were recorded as follows:
(in millions) March 31,
2025		 December 31,
2024
Included within debt investment cost $ 41.5  $ 39.2 
Deferred receivable related to expired commitments 2.9  3.0 
Total Exit Fees Receivable $ 44.4  $ 42.2