Q2 2020 Triplepoint Venture Growth BDC Corp Earnings Call
[music].
Good afternoon, and welcome to the Truth Bush Conference calls.
Okay.
The recent only mode.
And your need assistance, please I know culprit actually crush the sparky followed by zero.
After today's presentation, there will be an opportunity to ask questions to ask a question you made press Star then one on your telephone [laughter] to withdraw your question. Please press Star then too.
Please note that pieces that is being recorded I would now like to turned to coal [laughter] over to Jim loved a brief Jim go ahead.
Thanks, operator, and good afternoon, everyone.
I'd like to start by mentioning that some of us over in remote locations affected by the tropical storm, which has made its way and continuing to make its way up the east coast and apologize in advance for any technical issues now where that may arise during the call.
On behalf of TPVG, we hope that our shareholders and their families are healthy and continue to stay that way.
Our first priority is protecting the health of our employees and supporting our portfolio companies. During this global pandemic.
As a global firm, we continue to work closely with our venture capital partners entrepreneur worse and investors within the venture ecosystem.
For this past quarter, we continue to follow the playbook that we all outlined in the first quarter.
Although this was a light quarter by volume it reflected are cautious approach and our goal of maintaining stability in this market.
We believe this was the right approach given uncertain times.
Our business as you can see held up well during the quarter as we continue to whether through this economic environment.
The quarter, our net investment income or and I was more than 11.5 million or 38 cents per share, which more than covered our dividend and we also achieved the weighted average annualized portfolio yield up 13.7% for the quarter.
Most significantly we benefited during the quarter from a powerful component to our returned.
One that is part of our differentiated venture lending business model and attests to the quality of the select venture capital backed companies in which we invest.
This is the equity component of our lending transactions, so Joe likes to call it the secret sauce.
These are typically stock warrant position equity investments or even a combination of both that we negotiate as part of our venture lending transaction.
During the quarter, we recognized almost 20 million in realized gains alone through the sale of the publicly held stock that we received in crowd strike.
As a result to date, we've already generated an 86% internal rate of return since our initial debt investment and crowd strike.
And that's not including that Theres still more to follow as we continue to hold shares in the company.
This equity component is another benefit related to our venture lending business and crowd strike, there's not a one trick pony.
The joins the club with a long list of other successful portfolio company equity exits we've had companies such as new Tenax rain dollar Shave club tilt pack and others.
And as such we will get into.
There are many more companies in the portfolio in the work.
Touching one Chris will also get into more detail, but overall our portfolio maintained its resiliency and we're pleased with the outlook for the last half of this year.
Many companies in our portfolio were stronger.
We have significantly extended their runway through cost reductions in capital inflows, whether equity or debt.
As a result of implementing strategies and plans in response to this pandemic.
Quite a few of our companies are now beating these plans in fact, implying that the situation is not as bad as they had forecasted a few months ago.
This has already led to a healthier TPVG portfolio of companies with lower burn rate stronger liquidity positions and extended operating cash runway.
In fact more than two thirds of our portfolio companies have raised capital since we started this year and through this covert period. So far for an impressive total of more than 1.6 billion a proceeds to date.
And the quarters in 72% of our company said more than 12 months of cash on hand or were in the process of closing additional capital.
Well, we will continue to assess the market. It continues to be active and more and more deals are getting done and we are now busy at work handling in uptick in originations demand and for C. Actively deploying increased amounts of capital in the second half.
Many of our select leading venture capital funds, those with which we've had these long standing profitable relationships are telling me that they've worked through what many are calling the three month Cogs.
This was a period of working through their existing investments in the first round of management and stabilization of their portfolios. During this cope with period.
Nowadays by enlarge their portfolio companies have adapted to the new environment.
Our select funds have also raised more than $50 billion since 2018.
Which 30 billion up this was raised last year in through the first half of this year, we can't ignore this uh huh.
Powder, there's five of these new multibillion dollar phones that closed in 2020 here alone already.
So as a result, there's no lack of equity capital our select feces, not only continue to support their companies and have capital generally reserved for this purpose so called dry powder as they think of it.
But they are now turning towards new investments in the market and beginning to source and actively close new deal.
As a result, while we are carefully maintaining a balance here in the second half and continue to follow our playbook, we have already turned up our originations by a notch and foresee a continued increase in these originations right through the end of this year given this notable pickup in investment activity.
Given the enormous amount of equity and now more stabilized portfolio.
These venture capital investments are surfacing and increasing numbers in dollars.
I don't want to mislead anyone in and what you think we're all out of the woods, yet, but certainly <unk>. We have made it through the first phase in the venture ecosystem and now there's many new investment opportunities that are coming up in both technology and life Sciences that are growing out of this unfortunate.
And damage.
In many of them or in fact aimed at the post covert period. These include safe office environment and tell a minute.
Tele medicine, and many new virtual in digital services that address the post cobot period.
Well this new investment activity is promising and providing increased future lending opportunities.
There are also remains other needs for venture lending at venture growth stage companies as well.
These include financing lines for opportunistic acquisitions pre IPO lines for planning and timing purposes, and helping in the timing and optimization of balance sheet as companies navigate uncertainty in equity round valuations in their financing strategies.
Finally, we're also finding specific opportunities out there at select VC backed companies. These are ones that have significant scale, but these days a challenge topline.
Many have been profitable historically or flush with equity capital and never previously considered venture lending, but right now they're very worthy candidates.
That's a final note as Chris will get into our liquidity remains strong.
Along with the fresh equity and debt capital we raised in the first quarter. This year, we have ample capacity to meet all our unfunded commitment and we did not experience any significant credit deterioration or have any new non accruals this past quarter.
To add to this we do not presently foresee the need to utilize the 50 million dollar backstop facility from our manager. This this is one that we announced an established in the previous quarter again more of a precaution in keeping with our conservative and best in class practices has a BDC.
To wrap up safety remains our first priority and our advisor Triplepoint capital has been operating and continues to run 100% remotely.
Well, we're pleased with the portfolios health in our progress we will continue to work through the impact of the current economic environment and operate by our playbook.
We have the right team to manage our portfolio and maintain its stability as well as the liquidity to manage through this period.
And we are now responding to the increased demand in the marketplace.
With the initial shock of Covance and its impact having been worked through we're now getting deals done we're busy deploying increased amounts of capital in handling this increasing originations activity and look forward to a strong finish for the year.
Right now our three ours the foundation over from have never been more important.
Relationships reputation and references.
These are more important than ever in our venture eco system as we continue to work with our venture investors entrepreneurs and portfolio companies.
We wish all of you continued good health during this period.
Let me now I'll turn the call over to sell Joel.
So Joe are you, yes, there I'm sorry, sorry, everyone was dropped thank you Jim man.
Good afternoon.
Implication to the Herky I hope all of our stakeholders and their families remain safe and healthy during these challenging times, just so your where I am okay as well as a as Jim mentioned managing our existing portfolio has always been our highest priority, but he is even more important during periods of.
A significant volatility we are proud on a number of fronts of the performance and developments within the portfolio, which we believe reflects the uniqueness of our investment strategy the quality and durability of our portfolio companies the potential for additional returns and value accretion from our investments.
Over the long term and of course, the experience and efforts of our team.
During the second quarter, we signed 93 million of term sheets with venture growth stage companies, a triplepoint capital up from 80 million of signed term sheets during the prior quarter and closed 14 million of debt commitments with four companies at TPVG.
As Jim mentioned, a critical benefit of the Triplepoint capital platform is our frequent communication with our select group of venture capital firms and our platforms robust activity in the venture lending markets as demonstrated by our higher level of signed venture growth stage term sheets quarter over quarter.
Furthermore, by having multiple vehicles of investment capital and our co invest Exemptive relief order, our sponsor is able to allocate and co invest dynamically across its vehicles based on investment strategy capital available for investment and portfolio diversification and concentration targets.
And limits since the start of coated TPVG has benefited from our platforms highly selective and continued deal flow from our best relationships, but acquired smaller allocations of these opportunities as we focused on maintaining flexibility and liquidity as we whether the coffee crisis.
As we look to the rest of the year as Jim mentioned, given TPVG substantial and growing liquidity position, we expect TPVG to take a larger portion of new debt commitment co investments.
During the quarter, we funded 21 million of debt investments to seven companies with a 14.4% weighted average yield. We also invested 125000 of equity in one company and received the warrant in four companies valued at 200000.
Our 21 million of fundings this quarter was down from our 79 million of debt investment fundings in Q1.
Our reduced level of fundings to date demonstrates the strong cash position and operating runway that exist at many of our portfolio companies as well as the trust and confidence they and their venture capital investors have been us is consistent and dependable financing partner.
As we look to the rest of the year, we expect to see fundings returned to the 50 to 100 million range per quarter by Q4.
During Q2, we had 25 million in portfolio company principal prepayments, which resulted in an overall weighted average portfolio yield a 13.7% for the quarter.
Excluding prepayments core portfolio yield was stable and impressive 12.7%. Despite the 125 basis point reduction in the U.S. prime rate in March.
So far in Q3, we've had 29 million of prepayments, which have generated approximately 1 million of accelerated income.
Although we expected prepayment activity to be milder, we believe the higher levels reflect continued durability of our portfolio companies and the venture blending market as a whole.
We also received 12 million of scheduled principal amortization during the second quarter, demonstrating the short term and amortizing nature of our loans, which serves as an additional source of liquidity for TPVG each quarter.
As the end of Q2, 30% of our funded debt investments were fixed rate loans, and 70% were floating rate loans.
I was floating rate loans, 96% have a prime floor set to foreigner quarter or higher.
All the new floating rate loans, we're originating have the same targeted yields as our existing loans, but have floor set at the current prime rate and therefore have higher spreads and will benefit if and when the prime rate increases.
We're also pleased to report than our portfolio companies continue to have success raising follow on equity capital with six portfolio companies raising over 250 million of equity capital in private rounds. During the second quarter, which provides them with additional cash runway. This is in addition to the nine portfolio companies raising over one.
Point 3 billion of equity during Q1.
So far in Q3, we've had two portfolio companies raise equity rounds with more in the works.
Moving onto a credit quality the weighted average investment ranking of our debt investment portfolio was flat with the prior quarters rating of 2.0.
Under our rating system loans are rated from one to five with one being the strongest credit quality and new loans are typically initially rated too.
During the quarter, one company was upgraded from category two to one.
One company was upgraded from three to two and one company was downgraded from two to three.
Consistent with Q1, no obligors were added to categories, four or five and no obligors were placed on nonaccrual during the second quarter.
With regard to the company's you category five during the CLO quarter, we closed out prior credit situations with harvest power and Cambridge broad.
Which completed asset sales, resulting in recoveries consistent with our prior quarter marks and remove those obligors from category five on our watch list and from our non accruals.
That leaves only munchery in category Fives, and we expect to finalize the recovery process in Q3, and then remove them from our watch list and non accruals.
We have one company rated four on our watch list Rowley, a music technology company during the quarter. We further marked down our loans on Rowley, reflecting the impact of coated on some of our recovery assumptions associated with the ongoing turnaround of the company.
During Q3 the company has made good progress and we expect to see some favorable trends over the next couple of quarters.
During the quarter, we sold 80% of our holdings in crowd strike, resulting in 19.4 million of realized gains.
As a reminder, in 2016, we provided initial 25 million loan commitment to crowd strike and as part of our continued partnership with them increased our commitment overtime to 40 million as their business group.
Our loans included an equity kicker in the form of a warrant and the right to invest in their next round of private financing.
In 2017, as they prepare to our loan resulting in an IR on our loan a 34%.
In June 2019 crowd strike when public at $34 your share and during Q2 20, we sold 220000 shares with an average sale price of $90.80 per share Ruggles, resulting as Jim mentioned in a total IR of 86% since our initial loan funding.
We ended the quarter, we still we're holding on to over 56000 shares of craft strike.
These realized gains from crowd strike were offset by the realized losses from Cambridge in hard harvest is part of removing them from a watch list along with other realizations, resulting in net realized gains of 800000 for the quarter, while credit losses are part of the business. The beauty of venture lending is the additional return and value creation.
And potential that exists due to the warrants and equity investments, which should not only offset these losses, but also generate gains in access and credit losses overtime.
System with our sponsors track record, but again it generate requires a longer horizon than the term of our loans for these gains to materialize as we've seen from crowd strike.
Net unrealized gain on investments for the second quarter were 8.9 million, resulting from the reversal of previously recorded unrealized losses on loans to Cambridge, and harvest 2.5 million evaluation adjustments related to mark to market related changes and credit related adjustments, partially offset by the reversal of premier.
We recorded unrealized gains associated with the shares of crowd strike sold during the quarter.
As of June Thirtyth, our top five positions represented 25.8% of the total debt investment portfolio on a fair value basis relatively flat from 20 point, what 25.3% last quarter and down from 36.6% in Q2 2019, we continue to focus on building the scale of TV.
Gee, while diversifying our portfolio. Thanks in part to overall portfolio gross prepayments and utilization of our co investment capabilities.
Before I hand, the call over to Chris I'd like to spend a few minutes reviewing the TPVG investment track record since the IPO of TPVG and 2014, we have made 2.5 billion of commitments to approximately 100 portfolio companies of that 2.5 billion. We have funded 1.5 billion.
And so far and that funded portfolio has generated 300, you thought 345 million of gross investment income and 181 million of net investment income after all fees and expenses.
Our debt investments have generated quarterly portfolio yields of 12.7% at the lowest and 19.9 at the highest this same portfolio has had 18 million of cumulative net credit losses. After factoring in the realized gains from our way.
Warrant and equity investments translating into a net loss rate of 0.7% on commitments and 1.2% on fundings and keep in mind, we are sitting on another $7 million to $8 million worth of publicly traded stock in crowd striking medallia.
That we have yet to mature met yet to realize.
But more importantly, we currently hold 92 warrant and equity investments with a current cost basis, a 41 million, which we expect will generate returns in excess of our credit losses and create meaningful net asset value as we have demonstrated that our platform we believe.
Steve This is a very powerful additional source of long term return for us and our investors, but we are still in the earning early innings, but a triplepoint we play to win.
With that I'll now turn the call over to Chris to highlight some of the financial metrics achieved during the quarter.
Great. Thank you central and Hello, everyone. Let me take you through an update on the results for the second quarter.
Total investment and other income or $23.8 million for the second quarter 2020, as compared to $20.8 million for the first quarter.
The weighted average annualized portfolio yield was 13.7% on a total debt investments for the second quarter.
The increase in total investment income was primarily driven by a higher average portfolio size and fees earned from prepayments during the quarter.
Total operating expenses were $12.3 million for the second quarter as compared to 8.6 million for the first quarter.
Total operating expenses for the second quarter consisted of $4.3 million of interest expense 3.2 million of base management fees to your point 9 million of incentive fees and 1.8 million of general and administrative expenses. The increase in overall operating expenses is.
Primarily driven by an increase in management fees and interest expense from a larger average investment portfolio and an income incentive fee during the second quarter.
Net investment income for the second quarter was $11.5 million or 38 cents per share compared to 12.2 million or 41 cents per share in.
Sure.
As we previously discussed in detail total net realized gains on investments totaled $801000 and net unrealized gains on invest that's for the second quarter or $8.9 million.
The net increase in net assets from operations for the quarter was 21.2 million or 69 cents per share compared to a net decrease of $5.1 million or 17 cents per share in the first quarter.
At quarter end total assets were $719 million, including 693 million of investments at fair value and 23 million in cash.
We ended the quarter with total net asset value or NAV of $405.5 million were $13 in 17 cents per share compared to 395 million or $12. An 85 cents per share as of March 31st an increase of 2.5% quarter over.
Quarter.
We reported on commitments totaling $180 million.
151 million or 84% of its total will expire during twentytwenty and $29 million will expire. During 2021. In addition, all of our unfunded commitments have a prime rate floor set to three in a quarter percent or higher.
We believe we have a strong liquidity position as of quarter end. Some of this has been from our proactive efforts such as our accretive $80 million public equity raise in January our 70 million dollar private term notes funded in March and our $50 million advisor back credit facility in May.
The remaining positive impact of our strong liquidity position has been from our high quality portfolio, which was generate which has generated strong loan prepayments and loan amortization payments during the first half of 2020.
This enhanced liquidity and our overall lower leverage profile gives us capacity in excess of our existing unfunded commitments to grow the portfolio.
As of June Thirtyth, the company had total liquidity of $165 million, consisting of 23 million in cash and an additional 142 million of availability under our revolving credit facility.
We continue to have the flexibility under an existing accordion feature to expand the current 300 million dollar commitment under our revolving facility by up to an additional $100 million.
Aggregate outstanding borrowings as of June Thirtyth with 303 million.
Consisting of $75 million up at retail fixed rate baby bonds, which maturing 2022, which are listed on the New York stock exchange $70 million of private term debt, which matures in 2025, and a $158 million outstanding under our revolving credit facility.
Given our aggregate borrowing as of June Thirtyth, we reported a leverage ratio of just 0.75 times leverage or an asset coverage ratio of 234%.
During the second quarter, we distributed 36 cents per share from ordinary income as part of our regular quarterly distribution.
Pleased to announce that for the third quarter Twentytwenty. Our board of directors has declared a distribution of 36 cents per share on September 15th to stockholders of record as of August 31st.
We're also pleased to note that while we covered our distributions for the quarter with ordinary income. We're also continuing to estimate spillover income as of June thirtyth of approximately $8.9 million or 29 cents per share to support additional distributions in the future.
Well this completes our prepared remarks now at this time, we'd be happy to take your questions and so operator could you. Please open the line at this time.
We will now begin the question answer session to ask a question you made press Star then one on your telephone keypad, you're using its speakerphone. Please pick up her had set before pressing the keys to withdraw your question. Please proceed.
Pardon too.
At this time, well pause momentarily to assemble our roster.
Operator before we take our first question, we missed the safe Harbor language at the beginning of the cost so I'd like to direct everyone's attention to the customary safe Harbor disclosure in our press release regarding forward looking statements and remind everyone that during this call management has made and.
We'll make certain statements that relate to future events or the company's future performance or financial condition, which maybe considered forward looking statements under federal Securities Law. You are asked to refer to the company's most recent filing with the Securities and Exchange Commission for important factors that could cause actual results to differ materially from these statements the company does.
Not undertake any obligation to update any forward looking statements or projections unless required by law investors are cautioned not to place undue reliance on any forward looking statements made during the call, which reflects management's opinions only as of today to attain copies of our latest FCC filings. Please visit the company's website at www Dot TPVG dot.
Tom with that operator, well take your first question.
Our first question comes from fee emotionally from Wells Fargo. Please Mr. <unk> you can proceed.
Hi, good afternoon everybody.
First question.
Jim I think you mentioned.
Life Sciences, and remark is that indicative on while you're looking at opportunities in that area.
No no I wouldn't say generally we're going to continue with the technology is the overwhelming a bowcan focus a of our portfolio is always and.
I was commenting in general how in the overall environment. Those are areas that are on the increase but but in this environment, but having said that.
There are many technologies medical technologies health care technologies.
Technologies related to that we're actively involved with already and looking at now as new investments. So there's always a fine line, but right now our game plan is not in that the pure let's say.
Bio sciences in those areas unless it is you know activity because we're always following our select venture capital investors, who are predominantly technology.
Oh sure just thank you cannot just clarifying.
And <unk>.
Another question Sajil or Jim.
On the.
Second quarter the post coated.
Capital raises.
Can you give us some high level color is that.
No less than wouldn't normally be on schedule or were they more than would normally be on schedule more urgent type wages and well second parts of out.
Understanding venture capital structures can be.
Very nuanced in bespoke are there are there any instances where new roundwood.
I would effectively dilute walk on or ahead of your physician.
Yeah, Great Great question Fin, let me start and then Jim Please jump in so so I would say you know I think going into Q2, an area of concern for for many of US was the ability for investors V season, the like to conduct.
Due diligence remotely using zoom a you know as we saw Q1.
You know a number the rounds that equity rounds that close during Q1 were rounds that had started before sheltering in place diligence has been done teams have been met and person and so I think we were pleased to see the rate of new investment activity in Q2 and here in Q3 with funding processes that.
Started in the midst of co vid, where investors have not met management teams and person there and our issuing term sheets.
Electronically and and so I think that's a promising sign we're nowhere near the same level of activity for new investment that we were you know a year ago and pre cove it but nevertheless, a promising sign I would say fund with regards to the nature of the rounds I would say generally speaking.
We're seeing those companies that are benefiting from tailwinds from Covidien or no doubt continued have the ability to raise equity capital and follow on rounds of financing.
There are definitely some companies with bumps along the way where existing investors are showing their support and they're putting in more capital I typically that's in the form of convertible debt versus a traditional equity fund financing because they don't want to set valuations.
Your next comment in terms of the impact of these financing to us. So the beauty of the business right were lenders were secured we're senior to all the capital from the Vcs, whether or not its its equity capital or convertible debt that capital is always even if its convertible debt is junior to us but.
But I do think given the realities of Cove. It valuations are all over the place and so I would say the impact to us has not been any impact to our security positions from that incremental capital, but the impact has been if you look at the worn in equity book There're a number of companies which closed.
Either flat or lower valuations than their prior rounds, where investors had the opportunity to take advantage if market conditions and as a result, the warrants and equity book I talked about that 41 million at cost Oh, you know had some markdowns on the equity basis on an interim basis as result of flat to down rounds, but no change.
In our where we sit in a the prefs structure as a result of those financings.
Yeah, and I I think schedule covered that nicely. These these are generally not emergency round kinda situations and if anything there are helping through the new environment Kinda plans, which generally are as I said lower burn rate much longer a cash runway we have companies some of them three years plus.
So the cash on hand, and more let's say realistic plans, which are aimed towards cash flow breakeven or a profitability using existing cash so theres a little bit more I guess, I'd say flexibility and same this in view of the.
The economic environment and yeah, we're not aware of in any venture capital equity in any kind of circumstance coming in front of our our debt.
Oh really helpful. As always thank you alone just.
Final question can you expand you can go into our portfolio company.
Looking at Carnegie Yeah.
That's a decent size maturity at the end of 2020 <unk>.
18.7 million.
My understanding is that's.
Loans for international students.
Which I'd imagine you know that my limited information.
Pretty challenged is there any on Texas or or you know uncle you can provide on.
The status of that lender obligation.
Yeah I'll take the first cut so just to clarify that say a lender to international a graduate students. So.
I'd say trotter GE lens to those graduate students attend the top tier business School Engineering School and law schools. So the folks that have a higher likelihood of of getting jobs, a regardless of crises. So I would say the very focused approach or thoughtful approach there not.
Lending to undergrads, they're not lending to just any graduate programs, but very focused on.
Those degrees or particularly again business schools engineering schools, and then a small percentage of law schools and then a top schools only so I'd say the good news is very focused and higher quality, a company or Oh, sorry, obligor base than a traditional student.
<unk>.
Okay. That's helpful. That's all for me. Thank you.
Great. Thanks.
Our next question comes from charge Baja loan the from the Dutch Bank.
Please George you can make a question.
Great. Thank you.
Messed up a point in your prepared remarks, you mentioned some spillover income for the dividend can you just stuck with things like that from here.
Sure Chris to wherever that.
Sure. So through the quarter ended June 30, we had some 2019 spill over into 2020, so as we covered and more so covered our dividend in Q1 in Q2. So spillover income in the aggregate is a estimated at 8.9 million.
That's about 29 pennies per share.
Right.
Thank you and you know just.
You think about near the current environment and maybe how you know saga when you referenced obviously it becomes more difficult to do due diligence he is and.
How has your kind of underwriting and due diligence process involved and also just in terms of term like I have the terms really shifted meaningfully you just any additional context around how how maybe the underwriting process or maybe the terms that you're seeing or the types of deals that you're seeing maybe a ball from what you're saying.
Creek open.
Yeah, Let me start and then Jim please jump in so so I'd say George one of the great things of of our approaches.
We we only lend to companies backed by our select group of leading venture capital investors and there's a reason behind that strategy.
Those.
Portfolio companies in loans to companies backed by those Ah.
Top tier vcs outperform not only during bull markets, but more importantly, our data in our track record shows that their portfolio companies outperformed during more challenging times and so so I'd say what hasn't changed is the fact that we focus on our select V season, and we think that's a critical element of validation risk mitigation and credit supply.
Board by focusing on higher quality sponsors and they're better portfolio companies with regards to kind of market dynamics in pricing and structures.
Say an engine can will jump in as well is that you know I would say that the market conditions haven't materially changed a pre covidien midst of covered I would say that markets continued to be robust from demand from debt also a it with regards to equity investment activity as we've articulated so so we havent.
Seen material changes in spread we continue to see activity banking nonbank and so I think that's what's also holdings structures in terms, we haven't seen rates go lower we haven't seen rates generally go higher but again, we're only commenting on companies backed by our sponsors if we were at a push.
Yields up in my opinion, it would imply that we were taking higher risk or lending to lower quality companies, which now is not our approach if anything in this environment. We've raised the bar in terms of the profile of companies new companies that were lending to where you know were <unk>, particularly focused on only lending to companies that.
Our either.
Seeing tailwinds or no impact from Cove. It if we have a company that's in the sector, that's materially impacted or a company that's been materially negatively impacted by cove. It on that automatically challenges us from lending to them or restricts us from money to them plus cash runway, we lend to companies that have cash if they're out of <unk>.
Cash it are there soon at a cash we're not going to lend to them. So holding the bar if not raising it with regards to existing cash runway on cash on hand is another way that we again have a and improved our our underwriting targets and metrics in this environment, Jim anything Dan <unk>.
Yeah, I can just thick oded and also quickly add that you know investment to sell Joe's point investments today are in that covert period, and we take that into account. That's obviously, a you know benefit.
Absolutely no sacrifice in our investment a disappointing it all our due diligence process. So well. It's the same rigorous thing there's no you know fall out as a result at the current economic environment.
In investment discipline or quality, and if anything and instead of meetings, we're still conducting them they happen to be online, but we're not taking any short cuts or Ah you know any anything different on that front and then finally in terms of pricing I would agree that really really isn't that change there's continued up.
Attunitys here, there hasn't been any kind of deterioration in there won't be a triple point because this market is not about pricing. A this is a very specialized market. There's very few and far between players that understand have the track record and it's more about the reputation references and relationship.
Then it is you know with someone 50 basis points lower I mean, these things maybe more middle market BDC and middle market traditional lenders for would venture lending, they're very high barriers and it's very specialized due diligence and a this is not about pricing and spreads and.
Those kinds of things this is about quality deals and reputation and running with the best a venture capital backed companies in our select venture investors, who we work with one of them. The other day, a was commenting students and 36 years, we put together.
Right. That's helpful. Thank you for those comment then yeah last question for me and your response just now you did reference you have a different and business model and you know that the dynamics of of venture lending here relative to kind of your traditional BDC blenders.
As we think about.
Yeah, the current environment and as we spoken to into other folks in this space as they've reported earnings obviously, the nomics are different but as borrowers have asked for really you know they they've given US a center and a hobby conversations have gone I just was wondering it in a hypothetical scenario where <unk>.
One of your positions with was asking sure some some form of relief or some sort of.
You know a amendment to a covenant how it a conversation like that go typically and we think about traditional BDC lenders they might that's for additional capital from part from the sponsor or you know a few quarters of currently around me sort of happening.
Can you just kind of help me understand how that might differ in the venture lending space versus your traditional BDC has yet as we think about the current environment.
Yeah, Georgia, Great question I'd, only first say, we'd want to reveal all of our secrets us all right. That's some of our sponsors they be listening or if he versions of the [laughter]. So I always say.
At a high level you know the Triplepoint approach a in fact as a means it's even in our filings were very collaborative there's a reason why we choose to work with the sponsors that we do these are sponsors that we have a longstanding existing relationships with it as Jim mentioned went 130 plus years and so I think one of the good things.
As we know how they think they know how we think.
Given we've worked together a number scenarios we have multiple portfolio companies. It's not just one off lending opportunities within their portfolios. So we're very much a trusted collaborative.
Partner for them in their portfolio companies and so it's it's just again, it's it's being transparent. It's it's trying to solve the problem minutes, but it's also not about being a push over right. There's a very different risk return profile for venture lending versus venture equity and there's a role in place and objectives that we have versus they have and I'd say.
Every situations case specific but I would generally in broadly say you know a sponsor putting in more money is a great signed a validation right. We that's what all of US is lenders regardless of whatever middle market venture insect segment you are in seeing a sponsor put in more capital.
It is great and is important not only from a cash runway perspective, but also it shows you know sponsors don't have endless applies a capital onto the fact that there are putting more money into an existing investment show support shows that they do believe that they're going to make return right. That's a signal and itself as the lender we are senior too.
All their equity capital on the only way they make returns if we get paid off and so I would say our approach collaborative we're trying to you know we're not trying to kick the can and three in six months and then have the conversation again I think conceptually we're trying to solve.
Longer term problems, but I think the differences, though too is in venture lending. The expectation is these companies should be raising rounds every 12 to 24 months and so what we're trying to solve for is how do we give this company enough time to achieve additional milestones to validate the next round of financing is kinda.
Plan a plan B is how do we give this company enough time for milestones aren't to complete a strategic process or you know option. Three is how do we give us given enough time to.
Enable ourselves to foreclose on assets and yet and liquid assets. So so I think the those are the scenario as we look for in and I think that's how we play it with our sponsors.
Yeah, and I would agree I would second that approach and that we're all in this together as the approach the investors lenders the entrepreneurs who companies <unk> to work through one when things don't go according to plan and during this environment.
Great. That's helpful color and that's all equipped for me. This afternoon reshape <unk>. That's my question.
Our next question comes from Casey Alexander from Compass point. Please Casey you May proceed.
Hi, good afternoon.
I have a few questions one is.
Why in its true this pandemic.
Unlike the last time the stock traded at a significant discount has the company not chosen to at least put in place of backup share repurchase program and potentially take advantage of the significant discount than stock.
Yeah, I think Casey as we said last quarter liquidity is at a premium we see other sponsors other platforms doing.
I would say non shareholder friendly things too to get access to more capital and so I would say from our perspective, given our funding capacity unfunded commitments, making sure and ensuring we have sufficient liquidity to meet those needs is tantamount in priority number one and then as we come out of the crisis.
And we feel we have reserve capital or access capital a shareholder buybacks would make sense, but again, we're still in the middle to the pandemic. We don't know when it's going to end and we're not going to sacrifice a long term success of the BDC and the precious liquidity that we have well.
That's a tough to answer that Joe when you hold onto a highly volatile assets such as crowd strike.
You know if liquidity where that precious didn't crowds strike would have been sold as soon as you saw the dynamics of the pandemic.
No I think again for us maintaining enough liquidity to meet our unfunded obligations to have again the magnitude of unfunded.
Commitments that we had coming out of Q1, that's why our advisor put a backstop facility in place was to ensure that if all the unfunded commitments came in we had sufficient liquidity to do that we've now kind of crossed over through the end of Q2 here in Q3, and we're now in a position where everything came in more than excess capacity, which again.
We don't envision that happening. So now we would make sense to that to think about and consider but not during Q1 or Q2.
Well I think your shareholders would appreciate it my second question.
Relates to no tell no tell reported really significant losses in 2019 has had tremendous problems specific to the pandemic I mean, if I'm not thinking through any problem of their own and has been trying to raising additional capital and at least according to press.
Reports is thus far been unsuccessful <unk> and yet you still kind of have that marked at 98 can you tell us where that is in the credit risk buckets, and maybe give us some color as to what's going on with no tell.
Yeah.
I can start and then Jim jump in so so again, we can't comment specifically on portfolio company situations, but they are rated yellow in our credit watch list.
And so you know again I think the difference for us as a lender cash runway is always an important metric. So those companies that may be negatively impacted by cove. It. There's no doubt that you take that into account from our fair value perspective, but then we look to cash runway sponsor support.
And their ability to raise incremental capital and service our debt has for how we look at a higher credit in our value for the credit and so.
That's how we look at no tell.
Yeah, Mike I can only add that it it is yellow or it is not anything or lower than that and that a these are privately held company. So as you know we're not really in a position to talk about the status.
Of these but I would say, we earn close touch with all of our companies in this category and we'll stick by we feel.
For many of these companies that will be there is continued support we close touch with investors and.
I think we can I have to leave it at that as it is a privately held company.
Okay. Thank you for taking my questions.
Well.
Our next question comes from Ryan Lynch. Her KBW. Please them through Ryan you May proceed.
Hey, good afternoon, and thanks for taking my questions.
Oh I wanted to first just talk about maybe you could use a a broader framework, where you get specifically talk about not crowd strike, if you'd like but but do you guys have a general.
Framework, a process or how you guys determined lantus Sal publicly traded.
Equity investment like that I mean, you guys sold a portion of that position or kind of great investment for you guys are you guys also held onto a portion of it. So can you talk about what was the decision that no one on either they're just considerably. So I'll just a portion of it but hold on to combat or just a general broader framework of what does the processor.
Framework and you guys used to determine what did you actually had a publicly traded equity investment.
Sure I'll start and then Jim and Chris Please jump in so Ryan as you know we are subject to lock ups. So for the majority if not all of our portfolio companies. When they go public were subject to the hundred 80 day lockup as our other insiders employees another investor So at a minimum we're sitting on.
Our positions for at least six months and then any of those folks at familiar with the venture World Post Lockups. That's when funds start distributing to their out piece to lock in their returns and so you'd actually see a downward pressure on on the stocks or shortly or.
Right after the lockup expires, so listen we're not a hedge fund our policy is as we've said is to liquidate in an orderly fashion.
In a reasonable time period after our lockups expired, but we also have the benefit of not being pressure to lock in returns not being pressure to distribute to Lps immediately like traditional funds are and so we want to time it appropriately so that we don't I get disadvantaged by the pressure.
From a funds and other investors in those companies, but again our model is not to hold these positions for material period of time after a the lockup expires.
Clearly with Q1 this year, our priority was managing or debt investment book [laughter], among other things and so staying if if you had to S fab and our discussions internally clearly credit number one our employees spent maybe employees number one portfolio number two credit portfolio and the public portfolio.
Obviously significant amount of volatility obviously, we have conversations with research analysts get the reports talk to other folks are good and to get insights and so it's a balanced but I'd say generally orderly process and then I think but the larger positions you know crowd strike it was.
Particularly large position I think our perspective was we still believe there's you know there's some real value of that company and so we wanted to take the majority of our money off the table the house money.
And and 20 million as Jim said was equal to the amount that they actually drew from our loan of the 40 million commitment and then leave a little bit left and see how close in the next quarter too.
Okay.
That makes sense any other crops trying to spend on fan out all run position.
As far as your unfunded commitments go you guys provided a nice disclosure about 180 million.
Outstanding, but it looks like quite a bit expire.
At the end of this year is your intention to kind of take get that number will work out while some of those to expire or are you comfortable running at this balance and you guys. What we'll continually go out there and kind of you know as you guys see good opportunities to judge to ramp up that that commitments number debts.
Hold it or a static just trying to get an indication on how comfortable you guys all with the unfunded commitment level today, given a large amount of runoff is coming towards the end of the year.
Yeah, Great question I'll start and then christened Jim please jump in so you're absolutely right I mean, there's.
Yeah, we have the benefit of of underlying knowledge with these companies. So 180 million material amount burns off by the end of this year and as Youve parse through the list I mean, there also a number of companies Ryan which are sitting on huge positions of stockpiles of cash I'll pick on cohesively, which is it raised a 300 brown.
$1 round of equity financing in Q1 and so.
It's a balance we're taking real time analytics in terms of our portfolio companies understanding and expectations on them on utilization and so the good news is we're part of a larger platform. That's always in the marketing originating and has multiple pools of capital to allocate so triple points always in market working with our sponsors in their portfolio companies.
Rejecting the best deals and then as it comes to TPVG, we allocate those venture growth stage transactions and the appropriate bite size for TPVG based on capital available portfolio diversification other concentrations and so as.
As you saw in Q2 held back materially from TPVG. His perspective on the bite size given the unfunded commitments to liquidity. The fact that we had to put it in a backstop just in case wanting to have maximum flexibility and liquidity and as we saw a much lower utilization as we see these unfundeds burn off.
We're now turning to spigot back on for TPVG as we indicated the prepared remarks and growing those unfunded commitments, but we want to be mindful that they could all come in at the same time and it's a balance between milestone and I'm milestone. So so I would say we're looking to replenish.
But we're not looking to grow it to 400 million per se because Ah you know, especially in light of where the capital markets are right now you can't rely on future financing to be a source of funding for your portfolio you need to make sure you have all the liquidity from existing resources either on an ongoing.
Portfolio amortizing in order to to live up to your obligations and obviously credit facilities.
Yeah, I would I regret it it's absolutely a balance balance it's always been a balance <unk>, we're not ever managing are running our business. According to our unfunded that that's not however, having said that especially here during the pandemic.
We thought it was very mindful and thoughtful particularly to our shareholders to you know ticket close watch on that in and be cautious on the cautious side.
Okay.
Understood.
Appreciate the times afternoon.
Thanks Ryan.
That concludes our question answer session I would like to turn the conference back over to Chew up they for any closing remarks.
Thanks, operator.
Ensure I'd like to say, we will continue to focus on maintaining many of the things we've been talking about in this call flexibility and liquidity as we continue to work through this pandemic I'm not going to close again by expressing my appreciation to everyone on the line for your continued interest.
And we wish you continued good health and talk to you speak with you again really soon.
Take care and thank you goodbye.
The conference has now been concluded thanks for attending today's presentation you may now it's correct.
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