Hercules Capital, Inc. Quarterly report [Sections 13 or 15(d)]

Quarterly report [Sections 13 or 15(d)]

Fair Value of Financial Instruments (Tables)

Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2025

Schedule of Investments Measured at Fair Value on Recurring Basis

Investments measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations as of March 31, 2025 and December 31, 2024.


(in thousands)	Balance as of March 31, 2025		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Description
Cash and cash equivalents
Money Market Fund(1)	$	26,000	$	26,000	$	—	$	—

Other assets and liabilities
Escrow and Other Investment Receivables	$	1,966	$	—	$	—	$	1,966
Accounts Payable and Accrued Liabilities	(972)		—		—		(972)

Investments
Senior Secured Debt	$	3,674,498	$	—	$	—	$	3,674,498
Unsecured Debt	64,736		—		—		64,736
Preferred Stock	52,662		—		—		52,662
Common Stock(2)	94,088		35,194		—		58,894
Warrants	31,473		—		10,888		20,585
	$	3,917,457	$	35,194	$	10,888	$	3,871,375
Investment Funds & Vehicles measured at Net Asset Value(3)	6,993
Total Investments, at fair value	$	3,924,450
Derivative Instruments(4)	(301)
Total Investments including cash and cash equivalents and derivative instruments	$	3,950,149


(in thousands)	Balance as of December 31, 2024		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Description
Cash and cash equivalents
Money Market Fund(1)	$	21,100	$	21,100	$	—	$	—

Other assets and liabilities
Escrow and Other Investment Receivables	$	152	$	—	$	—	$	152
Accounts Payable and Accrued Liabilities	(1,012)		$	—	$	—	(1,012)

Investments
Senior Secured Debt	$	3,419,044	$	—	$	—	$	3,419,044
Unsecured Debt	75,557		—		—		75,557
Preferred Stock	53,802		—		—		53,802
Common Stock(2)	74,855		30,262		—		44,593
Warrants	30,500		—		8,677		21,823
	$	3,653,758	$	30,262	$	8,677	$	3,614,819
Investment Funds & Vehicles measured at Net Asset Value(3)	6,220
Total Investments, at fair value	$	3,659,978
Derivative Instruments(4)	538
Total Investments including cash and cash equivalents and derivative instruments	$	3,681,616

(1)This investment is included in Cash and cash equivalents in the accompanying Consolidated Statements of Assets and Liabilities.

(2)Common stock includes non-voting security in the form of a promissory note with a lien on shares of issuer's common stock.

(3)In accordance with U.S. GAAP, certain investments are measured at fair value using the NAV per share (or its equivalent) as a practical expedient and are not categorized within the fair value hierarchy as per ASC 820. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the accompanying Consolidated Statements of Assets and Liabilities.

(4)Derivative Instruments are carried at fair value and are a Level 2 security within the Company's fair value hierarchy.

Schedule of Reconciliation Changes for Financial Assets and Liabilities Measured at Fair Value on Recurring Basis

The table below presents a reconciliation of changes for all financial assets and liabilities measured at fair value on a recurring basis, excluding accrued interest components, using significant unobservable inputs (Level 3) for the three months ended March 31, 2025 and 2024.


(in thousands)	Balance as of January 1, 2025		Net Realized Gains (Losses)(1)		Net Change in Unrealized Appreciation (Depreciation)(2)		Purchases(5)		Sales		Repayments(6)		Gross Transfers into Level 3(3)*		Gross Transfers out of Level 3(3)*		Balance as of March 31, 2025

Investments
Senior Secured Debt	$	3,419,044	$	(48)	$	(25,181)	$	428,830	$	—	$	(148,147)	$	—	$	—	$	3,674,498
Unsecured Debt	75,557		—		65		1,336		—		—		—		(12,222)		64,736
Preferred Stock	53,802		—		(3,953)		2,813		—		—		—		—		52,662
Common Stock	44,593		(670)		(2,014)		—		(331)		—		17,316		—		58,894
Warrants	21,823		(63)		(1,527)		352		—		—		—		—		20,585
Other Assets and Liabilities
Escrow and Other Investment Receivables	152		56		—		1,814		(56)		—		—		—		1,966
Accounts Payable and Accrued Liabilities	(1,012)		—		358		44		(362)		—		—		—		(972)
Total	$	3,613,959	$	(725)	$	(32,252)	$	435,189	$	(749)	$	(148,147)	$	17,316	$	(12,222)	$	3,872,369


(in thousands)	Balance as of January 1, 2024		Net Realized Gains (Losses)(1)		Net Change in Unrealized Appreciation (Depreciation)(2)		Purchases(5)		Sales		Repayments(6)		Gross Transfers into Level 3(4)*		Gross Transfers out of Level 3(4)*		Balance as of March 31, 2024
Investments
Senior Secured Debt	$	2,987,577	$	—	$	(104)	$	498,787	$	—	$	(174,035)	$	—	$	—	$	3,312,225
Unsecured Debt	69,722		—		481		542		—		—		—		—		70,745
Preferred Stock	53,038		—		(2,326)		1,597		—		—		—		—		52,309
Common Stock	41,790		—		(1,752)		—		—		—		—		—		40,038
Warrants	22,088		904		(2,113)		1,232		(2,829)		—		—		—		19,282
Other Assets
Escrow and Other Investment Receivables	10,888		13		7,353		—		(13,234)		—		—		—		5,020
Total	$	3,185,103	$	917	$	1,539	$	502,158	$	(16,063)	$	(174,035)	$	—	$	—	$	3,499,619

* The Company recognizes transfers as of the transaction date.

(1)Included in net realized gains (losses) in the accompanying Consolidated Statements of Operations.

(2)Included in net change in unrealized appreciation (depreciation) in the accompanying Consolidated Statements of Operations.

(3)Transfers out of Level 3 during the three months ended March 31, 2025 related to the conversion of the Company's Level 3 debt investments in Hercules Adviser LLC and Carbon Health Technologies, Inc., into common stock Level 3 investments. Transfers into Level 3 during the three months ended March 31, 2025 included the conversion of 23andMe, Inc. Level 1 common stock into Level 3 common stock due to bankruptcy and delisting.

(4)There were no transfers into or out of Level 3 during the three months ended March 31, 2024.

(5)Amounts listed above are inclusive of loan origination fees received at the inception of the loan which are deferred and amortized into fee income as well as the accretion of existing loan discounts and fees during the period. Escrow receivable purchases may include additions due to proceeds held in escrow from the liquidation of Level 3 investments. Amounts are net of purchases assigned to the Adviser Funds.

(6)Amounts listed above include the acceleration and payment of loan discounts and loan fees due to early payoffs or restructures along with regularly scheduled amortization.

Schedule of Unrealized Gain (Loss) on Investments

The following table presents the net unrealized appreciation (depreciation) recorded for debt, preferred stock, common stock and warrant Level 3 investments relating to assets still held at the reporting date.


(in millions)	Three Months Ended March 31,
	2025		2024
Debt investments	$	(23.4)	$	0.4
Preferred stock	(4.0)		(2.3)
Common stock	(2.3)		(1.8)
Warrant investments	(1.6)		0.7

Schedule of Quantitative Information of Fair Value Measurements

The following tables provide quantitative information about the Company’s Level 3 fair value measurements as of March 31, 2025 and December 31, 2024. In addition to the techniques and inputs noted in the tables below, according to the Company’s valuation guidelines, the Company may also use other valuation techniques and methodologies when determining the Company’s fair value measurements. The tables below are not intended to be all-inclusive, but rather provide information on the significant Level 3 inputs as they relate to the Company’s fair value measurements. See the accompanying Consolidated Schedule of Investments for the fair value of the Company’s investments. The methodology for the determination of the fair value of the Company’s investments is discussed in “Note 2 – Summary of Significant Accounting Policies”. The significant unobservable input used in the fair value measurement of the Company’s escrow receivables is the amount recoverable at the contractual maturity date of the escrow receivable.


Investment Type - Level 3 Debt Investments	Fair Value as of March 31, 2025 (in thousands)		Valuation Techniques/ Methodologies	Unobservable Input(1)	Range	Weighted Average(2)
Pharmaceuticals	$	787,506	Market Comparable Companies	Hypothetical Market Yield	8.78% - 16.34%	12.90%
				Premium/(Discount)	(2.50%) - 3.00%	0.17%
	73,719		Liquidation(3)	Probability weighting of alternative outcomes	10.00% - 90.00%	80.32%

Technology	1,281,565		Market Comparable Companies	Hypothetical Market Yield	9.81% - 21.18%	13.21%
				Premium/(Discount)	(1.00%) - 5.00%	0.17%
	27,673		Convertible Note Analysis	Probability weighting of alternative outcomes	1.00% - 70.00%	50.94%
	53,584		Liquidation(3)	Probability weighting of alternative outcomes	10.00% - 72.50%	60.35%

Sustainable and Renewable Technology	19,903		Market Comparable Companies	Hypothetical Market Yield	15.78% - 15.78%	15.78%
				Premium/(Discount)	0.50% - 0.50%	0.50%

Medical Devices	59,851		Market Comparable Companies	Hypothetical Market Yield	11.81% - 12.77%	12.26%
				Premium/(Discount)	0.00% - 0.50%	0.26%

Lower Middle Market	585,224		Market Comparable Companies	Hypothetical Market Yield	10.43% - 17.48%	13.63%
				Premium/(Discount)	(0.75%) - 2.25%	0.58%

Debt Investments for which Cost Approximates Fair Value
	516,515		Debt Investments originated within 6 months
	214,238		Imminent Payoffs(4)
	82,666		Debt Investments Maturing in Less than One Year
	36,790		Debt Investments in Wholly-Owned Subsidiaries
	$	3,739,234	Total Level 3 Debt Investments
Escrow and Other Investment Receivables	1,966		Expected Proceeds
Accounts Payable and Accrued Liabilities	(972)		Liquidation(3)	Probability weighting of alternative outcomes	20.00% - 50.00%	39.79%
	$	3,740,228	Total Level Three Debt Investments and Other Investment Receivables (Payables)

(1)The significant unobservable inputs used in the fair value measurement of the Company’s debt securities are hypothetical market yields and premiums/(discounts). The hypothetical market yield is defined as the exit price of an investment in a hypothetical market to hypothetical market participants where buyers and sellers are willing participants. The premiums/(discounts) relate to company specific characteristics such as underlying investment performance, security liens, and other characteristics of the investment. Significant increases (decreases) in the inputs in isolation may result in a significantly lower (higher) fair value measurement, depending on the materiality of the investment.

Debt investments in the industries noted in the Company’s Consolidated Schedule of Investments are included in the industries noted above as follows:

•Pharmaceuticals, above, is comprised of debt investments in the “Drug Discovery & Development” and “Healthcare Services, Other” industries.

•Technology, above, is comprised of debt investments in the “Communications & Networking”, “Information Services”, “Consumer & Business Services”, “Media/Content/Info”, “Space Technologies”, and “Software” industries.

•Sustainable and Renewable Technology, above, is comprised of debt investments in the “Sustainable and Renewable Technology” industry.

•Medical Devices, above, is comprised of debt investments in the “Medical Devices & Equipment” industry.

•Lower Middle Market, above, is comprised of debt investments in the “Healthcare Services – Other”, “Consumer & Business Services”, “Diversified Financial Services”, “Sustainable and Renewable Technology”, and “Software” industries.

(2)The weighted averages are calculated based on the fair market value of each investment.

(3)The significant unobservable input used in the fair value measurement of impaired debt securities and other investment receivables (payables) is the probability weighting of alternative outcomes.

(4)Imminent Payoffs represent debt investments that the Company expects to be fully repaid within the next three months, prior to their scheduled maturity date.


Investment Type - Level 3 Debt Investments	Fair Value as of December 31, 2024 (in thousands)		Valuation Techniques/ Methodologies	Unobservable Input(1)	Range	Weighted Average(2)
Pharmaceuticals	$	947,065	Market Comparable Companies	Hypothetical Market Yield	8.42% - 16.19%	12.03%
				Premium/(Discount)	(2.50%) - 3.00%	0.13%
	55,344		Liquidation(3)	Probability weighting of alternative outcomes	20.00% - 80.00%	75.53%

Technology	1,365,943		Market Comparable Companies	Hypothetical Market Yield	10.21% - 20.58%	13.10%
				Premium/(Discount)	(0.75%) - 4.50%	0.20%
	26,869		Convertible Note Analysis	Probability weighting of alternative outcomes	1.00% - 70.00%	50.66%
	51,004		Liquidation(3)	Probability weighting of alternative outcomes	22.00% - 78.00%	66.34%

Sustainable and Renewable Technology	21,102		Market Comparable Companies	Hypothetical Market Yield	12.41% - 15.44%	15.25%
				Premium/(Discount)	0.25% - 3.50%	0.45%

Medical Devices	59,645		Market Comparable Companies	Hypothetical Market Yield	11.79% - 12.75%	12.24%
				Premium/(Discount)	0.00% - 0.50%	0.26%

Lower Middle Market	636,258		Market Comparable Companies	Hypothetical Market Yield	10.27% - 21.00%	14.12%
				Premium/(Discount)	(0.25%) - 5.00%	1.07%

Debt Investments for which Cost Approximates Fair Value
	242,833		Debt Investments originated within 6 months
	4,141		Imminent Payoffs(4)
	36,185		Debt Investments Maturing in Less than One Year
	48,212		Debt Investments in Wholly-Owned Subsidiaries
	$	3,494,601	Total Level 3 Debt Investments
Accounts Payable and Accrued Liabilities	(1,012)		Liquidation(3)	Probability weighting of alternative outcomes	20.00% - 50.00%	38.44%
	$	3,493,589	Total Level Three Debt Investments and Other Investment Receivables (Payables)

Debt investments in the industries noted in the Company’s Consolidated Schedule of Investments are included in the industries noted above as follows:

•Pharmaceuticals, above, is comprised of debt investments in the “Drug Discovery & Development” and “Healthcare Services, Other” industries.

•Sustainable and Renewable Technology, above, is comprised of debt investments in the “Sustainable and Renewable Technology” industry.

•Medical Devices, above, is comprised of debt investments in the “Medical Devices & Equipment” industry.

(2)The weighted averages are calculated based on the fair market value of each investment.

(3)The significant unobservable input used in the fair value measurement of impaired debt securities and other investment receivables (payables) is the probability weighting of alternative outcomes.

(4)Imminent payoffs represent debt investments that the Company expects to be fully repaid within the next three months, prior to their scheduled maturity date.

Investment Type - Level 3 Equity and Warrant Investments

Fair Value as of
March 31, 2025
(in thousands)

Valuation Techniques/
Methodologies

Unobservable Input(1)

Range

Weighted Average(5)

Equity Investments

48,390

Market Comparable Companies

Revenue Multiple(2)

0.2x - 16.5x

7.0x

Tangible Book Value Multiple(2)

1.6x - 1.6x

1.6x

Discount for Lack of Marketability(3)

16.31% - 92.53%

33.34%

7,237

Market Adjusted OPM Backsolve

Market Equity Adjustment(4)

(97.68%) - (0.65%)

(30.32%)

50,151

Discounted Cash Flow

Discount Rate(7)

11.55% - 32.94%

29.55%

5,778

Other(6)

Warrant Investments

18,779

Market Comparable Companies

Revenue Multiple(2)

0.5x - 12.9x

4.3x

Discount for Lack of Marketability(3)

7.36% - 32.40%

24.28%

1,806

Market Adjusted OPM Backsolve

Market Equity Adjustment(4)

(70.08%) - 54.33%

(3.87%)

Total Level 3 Equity and Warrant Investments

132,141

(1)The significant unobservable inputs used in the fair value measurement of the Company’s warrant and equity securities are revenue and/or earnings multiples (e.g. EBITDA, EBT, ARR), market equity adjustment factors, and discounts for lack of marketability. Significant increases/(decreases) in the inputs in isolation would result in a significantly higher/(lower) fair value measurement, depending on the materiality of the investment. For some investments, additional consideration may be given to data from the last round of financing or merger/acquisition events near the measurement date. The significant unobservable input used in the fair value measurement of impaired equity securities is the probability weighting of alternative outcomes.

(2)Represents amounts used when the Company has determined that market participants would use such multiples when pricing the investments.

(3)Represents amounts used when the Company has determined market participants would take into account these discounts when pricing the investments.

(4)Represents the range of changes in industry valuations since the portfolio company's last external valuation event.

(5)Weighted averages are calculated based on the fair market value of each investment.

(6)The fair market value of these investments is derived based on recent private market and merger and acquisition transaction prices.

(7)The discount rate used is based on current portfolio yield adjusted for uncertainty of actual performance and timing in capital deployments.

Investment Type - Level 3 Equity and Warrant Investments

Fair Value as of
December 31, 2024
(in thousands)

Valuation Techniques/
Methodologies

Unobservable Input(1)

Range

Weighted Average(5)

Equity Investments

45,420

Market Comparable Companies

Revenue Multiple(2)

0.4x - 16.8x

9.1x

Tangible Book Value Multiple(2)

1.7x - 1.7x

1.7x

Discount for Lack of Marketability(3)

17.64% - 92.80%

36.12%

12,374

Market Adjusted OPM Backsolve

Market Equity Adjustment(4)

(96.57%) - 24.76%

(17.57%)

34,677

Discounted Cash Flow

Discount Rate(7)

12.17% - 33.34%

30.21%

5,924

Other(6)

Warrant Investments

18,302

Market Comparable Companies

Revenue Multiple(2)

0.8x - 14.1x

4.5x

Discount for Lack of Marketability(3)

14.72% - 34.35%

26.76%

3,521

Market Adjusted OPM Backsolve

Market Equity Adjustment(4)

(56.36%) - 24.76%

1.33%

Total Level 3 Equity and Warrant Investments

120,218

(2)Represents amounts used when the Company has determined that market participants would use such multiples when pricing the investments.

(3)Represents amounts used when the Company has determined market participants would take into account these discounts when pricing the investments.

(4)Represents the range of changes in industry valuations since the portfolio company's last external valuation event.

(5)Weighted averages are calculated based on the fair market value of each investment.

(6)The fair market value of these investments is derived based on recent market transactions.

(7)The discount rate used is based on current portfolio yield adjusted for uncertainty of actual performance and timing in capital deployments.

Schedule of Fair Value Hierarchy of Outstanding Borrowings

The following tables provide additional information about the approximate fair value and level in the fair value hierarchy of the Company’s outstanding borrowings as of March 31, 2025 and December 31, 2024:


(in thousands)	March 31, 2025
Description	Carrying Value		Approximate Fair Value		Identical Assets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
SBA Debentures	$	287,049	$	268,236	$	—	$	—	$	268,236


June 2025 Notes	69,960		70,637		—		—		70,637
June 2025 3-Year Notes	49,965		50,678		—		—		50,678
March 2026 A Notes	49,913		49,012		—		—		49,012
March 2026 B Notes	49,905		49,036		—		—		49,036
September 2026 Notes	323,566		305,377		—		—		305,377
January 2027 Notes	347,598		330,404		—		—		330,404
2028 Convertible Notes	278,503		282,109		—		282,109		—
2031 Asset-Backed Notes	116,272		113,433		—		113,433		—
2033 Notes	39,070		40,368		—		40,368		—

MUFG Bank Facility	105,000		105,000		—		—		105,000
SMBC Facility	259,822		260,006		—		—		260,006
Total	$	1,976,623	$	1,924,296	$	—	$	435,910	$	1,488,386


(in thousands)	December 31, 2024
Description	Carrying Value		Approximate Fair Value		Identical Assets (Level 1)		Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
SBA Debentures	$	271,371	$	260,436	$	—	$	—	$	260,436

February 2025 Notes	49,981		50,698		—		—		50,698
June 2025 Notes	69,919		69,308		—		—		69,308
June 2025 3-Year Notes	49,926		49,713		—		—		49,713
March 2026 A Notes	49,889		49,052		—		—		49,052
March 2026 B Notes	49,880		49,087		—		—		49,087
September 2026 Notes	323,321		302,244		—		—		302,244
January 2027 Notes	347,265		327,928		—		—		327,928
2031 Asset-Backed Notes	118,769		115,031		—		115,031		—
2033 Notes	39,043		40,272		—		40,272		—
MUFG Bank Facility	116,000		116,000		—		—		116,000
SMBC Facility	283,591		283,591		—		—		283,591
Total	$	1,768,955	$	1,713,360	$	—	$	155,303	$	1,558,057