Quarterly report pursuant to Section 13 or 15(d)

Investments

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Investments
 3 Months Ended
Mar. 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 three months ended March 31, 2024 and 2023.
(in thousands) 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) $ — 
(in thousands) Three Months Ended March 31, 2023
Portfolio Company(1)
Type Fair Value as of March 31, 2023 Interest Income Fee Income
Net Change in Unrealized Appreciation (Depreciation)
Realized Gain (Loss)
Control Investments
Coronado Aesthetics, LLC Control $ 256  $ —  $ —  $ (63) $ — 
Gibraltar Acquisition, LLC (p.k.a. Gibraltar Business Capital, LLC) Control 40,701  796  19  3,735  — 
Hercules Adviser LLC Control 36,595  150  —  5,442  — 
Tectura Corporation Control 7,774  170  —  (268) — 
Total Control Investments $ 85,326  $ 1,116  $ 19  $ 8,846  $ — 
(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, 2024 and March 31, 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 March 31, 2024 and December 31, 2023:
(in thousands) March 31, 2024 December 31, 2023
Investments at
Fair Value		 Percentage of
Total Portfolio		 Investments at
Fair Value		 Percentage of
Total Portfolio
Senior Secured Debt $ 3,312,225  92.7  % $ 2,987,577  92.0  %
Unsecured Debt 70,745  2.0  % 69,722  2.2  %
Preferred Stock 52,309  1.5  % 53,038  1.6  %
Common Stock 97,890  2.7  % 99,132  3.1  %
Warrants 32,693  0.9  % 33,969  1.0  %
Investment Funds & Vehicles 5,779  0.2  % 4,608  0.1  %
Total $ 3,571,641  100.0  % $ 3,248,046  100.0  %
A summary of the Company’s investment portfolio, at value, by geographic location as of March 31, 2024 and December 31, 2023 is shown as follows:
(in thousands) March 31, 2024 December 31, 2023
Investments at
Fair Value		 Percentage of
Total Portfolio		 Investments at
Fair Value		 Percentage of
Total Portfolio
United States $ 3,181,414  89.1  % $ 2,861,615  88.1  %
United Kingdom 230,240  6.5  % 222,136  6.9  %
Netherlands 90,894  2.5  % 89,995  2.8  %
Israel 46,710  1.3  % 52,868  1.6  %
Canada 16,392  0.5  % 15,730  0.5  %
Denmark 4,211  0.1  % 4,173  0.1  %
Germany 1,166  0.0  % 1,144  0.0  %
Other 614  0.0  % 385  0.0  %
Total $ 3,571,641  100.0  % $ 3,248,046  100.0  %
The following table shows the fair value of the Company’s portfolio by industry sector as of March 31, 2024 and December 31, 2023:
(in thousands) March 31, 2024 December 31, 2023
Investments at
Fair Value		 Percentage of
Total Portfolio 		Investments at
Fair Value		 Percentage of
Total Portfolio
Drug Discovery & Development $ 1,223,365  34.3  % $ 1,257,699  38.7  %
Software 833,917  23.4  % 764,985  23.6  %
Consumer & Business Services 537,431  15.1  % 525,973  16.2  %
Healthcare Services, Other 480,002  13.4  % 300,079  9.3  %
Information Services 128,282  3.6  % 126,605  3.9  %
Diversified Financial Services 111,526  3.1  % 114,722  3.5  %
Electronics & Computer Hardware 76,014  2.1  % 20,324  0.6  %
Medical Devices & Equipment 55,332  1.6  % 22,096  0.7  %
Biotechnology Tools 50,351  1.4  % 48,381  1.5  %
Communications & Networking 29,482  0.8  % 29,400  0.9  %
Sustainable and Renewable Technology 21,052  0.6  % 9,581  0.3  %
Media/Content/Info 12,084  0.3  % 12,704  0.4  %
Manufacturing Technology 8,486  0.2  % 11,006  0.3  %
Consumer & Business Products 2,676  0.1  % 2,589  0.1  %
Semiconductors 998  0.0  % 1,205  0.0  %
Surgical Devices 622  0.0  % 676  0.0  %
Drug Delivery 21  0.0  % 21  0.0  %
Total $ 3,571,641  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 March 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 “Drug Discovery & Development”, “Software”, “Consumer & Business Services”, “Healthcare Services, Other”, and “Information 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, 2024 and December 31, 2023, the Company’s ten largest portfolio companies represented approximately 29.9% and 29.7% of the total fair value of the Company’s investments in portfolio companies, respectively. As of March 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 March 31, 2024, the Company had four equity investments representing approximately 48.4% 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 March 31, 2024 and December 31, 2023:
Percentage of debt investments (at fair value), as of
March 31, 2024 December 31, 2023
Senior Secured First Lien
All assets including intellectual property 57.8  % 52.3  %
All assets with negative pledge on intellectual property 19.3  % 24.0  %
“Last-out” with security interest in all of the assets 11.3  % 12.5  %
Total senior secured first lien position 88.4  % 88.8  %
Second lien 9.5  % 8.9  %
Unsecured 2.1  % 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 March 31, 2024 and December 31, 2023:
(in thousands) Fair Value
Derivative Instrument Statement Location March 31, 2024 December 31, 2023
Foreign currency forward contract Accounts payable and accrued liabilities $ 537  $ 766 
Total $ 537  $ 766 
Net realized and unrealized gains and losses on derivative instruments recorded by the Company during the three months ended March 31, 2024 and 2023 are in the following locations in the Consolidated Statements of Operations:
(in thousands)   Three Months Ended March 31,
Derivative Instrument Statement Location 2024 2023
Foreign currency forward contract Net realized gain (loss) - Non-control / Non-affiliate investments $ —  $ — 
Foreign currency forward contract Net change in unrealized appreciation (depreciation) - Non-control / Non-affiliate investments 229  — 
  Total $ 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,
  2024 2023
Contractual interest income $ 90,714  $ 82,791 
Exit fee interest income 11,880  9,382 
PIK interest income 9,897  5,528 
Dividend income 1,600  — 
Other investment income (1)
1,688  2,196 
Total interest and dividend income $ 115,779  $ 99,897 
(in thousands) Three Months Ended March 31,
2024 2023
Recurring fee income $ 2,455  $ 2,040 
Fee income - expired commitments 647  243 
Accelerated fee income - early repayments 2,672  2,910 
Total fee income $ 5,774  $ 5,193 
(1)Other investment income includes OID interest income and interest recorded on other assets.
As of March 31, 2024 and December 31, 2023, unamortized capitalized fee income was recorded as follows:
(in millions) March 31,
2024		 December 31,
2023
Offset against debt investment cost $ 37.0  $ 32.9 
Deferred obligation contingent on funding or other milestone 10.6  9.4 
Total Unamortized Fee Income $ 47.6  $ 42.3 
As of March 31, 2024 and December 31, 2023, loan exit fees receivable were recorded as follows:
(in millions) March 31,
2024		 December 31,
2023
Included within debt investment cost $ 36.8  $ 35.9 
Deferred receivable related to expired commitments 5.0  4.3 
Total Exit Fees Receivable $ 41.8  $ 40.2