Q3 2020 Hercules Capital Inc Earnings Call
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Ladies and gentlemen, todays conference is scheduled to begin momentarily piece continue to standby incomplete patients.
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At this time, all participants lines are not listen only mode.
The advantage of today's conference is being recorded.
After the speaker's presentation, there will be a question and answer session.
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I would now like to hand, the conference over to your speaker for today. So Michael Hara. Thank you Sir Please go ahead.
Thank you Jay Good afternoon, everyone and welcome to Hercules Conference call for the third quarter of 2020.
With us on the call today from Hercules are Scott Hussein, CEO, and Chief investment Officer, and Seth Meyers CFO.
Hercules third quarter 2020 financial results were released just after todays market close and can be accessed from Hercules Investor Relations section of H.T.D. Si Dot com.
We have arranged for a replay of the call at Hercules webpage or by using the telephone number and pass code provided in todays earnings release.
During this call we may make forward looking statements based on current expectations actual financial results filed with the Securities and Exchange Commission may differ from those contained herein due to timing delays between the date of this release and.
And in the confirmation and final audit results. In addition, the statements contained in this release that are not purely historical are forward looking statements.
These forward looking statements are not a guarantee of future performance and are.
Q3 was a very strong quarter on multiple fronts for Hercules capital, particularly origination activity, where we used our balance sheet strength and liquidity position to be aggressive on select high quality investment opportunities.
Our world class investment team and industry, leading originations platform closed a record level of Q3 commitments and fundings.
We were able to maintain our strong liquidity position and balance sheet. Despite the right off of two previously impaired loans that were on non accrual.
Overall, our credit performance during the quarter was solid and we continue to feel good about how our credit book is positioned.
Let me recap some of the key highlights of our performance for Q3.
We originated more than $514 million of new debt and equity commitments and delivered gross fundings of nearly 266 million.
In Q3 or investment related activity reflected our focus on diversification and controlled growth.
Or unique and dual focus on technology and life Sciences continues to provide us with a competitive advantage and the ability to deliver a strong investment activity in any market environment, when we see attractive opportunities.
Our third quarter fundings included tenant new and five existing portfolio companies.
We saw strong performance from both our technology and life Sciences teams with respect to new desk commitments, although our funding and commitment activity was against skewed slightly more towards life Sciences companies.
We are continuing to see attractive proprietary investment opportunities across our existing portfolio and we expect to continue to be aggressive in terms of providing additional funding to those companies within our portfolio that are demonstrating strong growth and performance metrics.
Despite the fact that we are only through three quarters of 2020 Hercules capital has managed to deliver over $1 billion of new commitments for the third consecutive year, highlighting the resiliency of our diversified business model and the scale that we have achieved.
During the third quarter, we had that investment portfolio growth of four $8 million it cost and $48 2 million at fair value.
Early loan repayments were $191 million, which was up from 85 million in Q2 and above our guidance of $100 million to $150 million.
The increase in early loan repayments during Q3 resulted in higher fee income as compared to Q too.
In Q3, we generated total investment income of $70.3 million and net investment income of 38 7 million or 34 per share, resulting in 106% coverage of the based cash distribution.
Year to date, we have generated total investment income of 211 9 million an increase of seven 4% year over year and net investment income of 115 million an increase of 11, 4% year over year.
Year to date, we have also grown the that investment portfolio by 114 million at cost. Despite 427 million of early loan repayments and the challenges associated with this pandemic.
We believe that this has been driven by the tremendous depth and talent across our investment team and our long term commitment to the venture and growth stage lending space.
On a cumulative basis since inception, we have now committed in excess of $11 billion of capital to venture and growth stage companies and accomplishments that I would like to congratulate our investment team and all of our employees on achieving.
Credit quality on the that investment portfolio improved nicely in Q3 with a weighted average internal credit rating of 222 as compared to 230 in queue too.
Overall, our grade one and two credits increased to 64, 4% in Q3 versus 59, 7% in queue too.
Great three credits decreased slightly to 34.1% in Q3 versus 38, 3% in queue too.
Our rated for and rated five credits made up less than 1.5% of the entire debt portfolio fair value.
During the quarter, we rode off to impaired loans that had been on nonaccrual.
In Q3, we had five that investments on nonaccrual with accumulative investment cost and fair value of approximately 23.5 million and six $2 million, respectively, or 0.9% and 0.3% as a percentage of the company's total investment.
Portfolio at cost and value respectively.
Again this quarter I would like to provide an update on three specific areas of our business that we believe are important for our shareholders and stakeholders in this environment and detailed specific thing that we're doing to best position the company.
First employee wellbeing and the continuity of our business.
Our emphasis remains on the wellbeing of our employees and the continuity of our business operations, while the pandemic continues.
To date, we have not experienced any material interruptions to our business or our ability to operate and we are currently assuming that the majority of our workforce will remain in a work from home setting through the rest of the year and perhaps longer.
While certain of our offices have been able to reopen and with capacity restrictions, we are continuing to prioritize the safety and well being of our employees, while doing our best to ensure that the business continues to operate in the normal course and without any material interruption.
We have also opportunistically continue to make investments in our team and our systems to best position the company long term.
Liquidity and balance sheet strength.
We are continuing to prioritize liquidity.
Despite record Q3 fundings, we ended Q3 with $465.1 million of liquidity, which provides us with substantial coverage of are available unfunded commitments of $243 million and the ability to fund our ongoing anticipated business activity.
This continues to give us the ability to be aggressive on new deals and take advantage of any potential market dislocation. When we believe that it is prudent to do so.
Early payoffs and ordinary course principal payments have always been a source of liquidity for our business and was again the case in Q3, where we received approximately $211 million of early payoffs and amortization.
At this time, we expect early payoff in queue for to be between $100 million and $150 million. Although this number could change materially.
Our balance sheet with strong heading into this crisis and it remains strong today with near record liquidity and know near term liability maturity in our that stack.
Subsequent to quarter and we officially received our third SBA license, which provides us with an additional up to $175 million of flexible capital and extends our longstanding relationship with the SBA.
Finally portfolio and credit quality.
We continue to believe that it will take time to ascertain the true impact of this crisis and then a diversified balance sheet bolt with respect to assets and liabilities will serve us well.
Having ample liquidity remains an important factor for our portfolio companies that we continue to closely monitor.
When looking at our entire outstanding debt investment portfolio, we estimate that approximately 81% of the portfolio. Currently has 12 plus months of liquidity with another 11% with six to 12 months of liquidity currently on the balance sheet.
Loans that have three months or less of liquidity makeup approximately 4% of our outstanding debt portfolio.
Oh, the loans with 12, plus months of liquidity over 76% or approximately 60% of our entire debt portfolio. Currently has 18 plus months of liquidity on balance sheet.
Within our life Sciences portfolio, we continue to have 13 that investments with a cost basis in excess of $25 million.
Each of these 13 companies currently have cash on hand to fund their businesses for it for approximately 12 plus months.
And our technology portfolio nine of our 10 largest investments at cost has cash on balance sheet for at least 12 months based on the most recent reporting that we have.
Capital raising across our portfolio remains strong.
Since our last earnings call 14 of our desk portfolio companies raised new capital totaling over one $7 billion.
Since the beginning of COVID-19, and a knighted states. We have had 43 of our current that portfolio companies raised a total of approximately $5 billion of new capital.
Year to date, we have had 10 M&A events sick.
Six companies that have completed their initial public offerings, including four in the last 90 days and three additional companies that are currently in registration.
Our top 10 that investments continue to make up only 27% of our debt portfolio at fair value.
While each of these companies will continue to be impacted to a varying degree by the current situation.
Paul currently have at least 12 plus months of liquidity on balance sheet as of the most recent reporting that we have.
Our desk portfolio continues to be overweight towards drug discovery and development and software companies two sectors that we expect to perform better on a relative basis. During this period and based on what we know as of today.
Approximately 90% of our current life sciences that investments at costs are in publicly traded companies.
These public companies have a weighted average public market capitalization of approximately $1.5 billion as of September 30th.
Based on the public market capitalization for these companies the weighted average ratio of public equity value to our debt at cost equals 39.9 times as of September 30th.
In our technology portfolio, approximately 64% of our companies are classified as software or have a software driven contractual recurring revenue model.
These companies are estimated weighted average that two annual recurring revenue attachment point as of the most recent reporting period continues to be less than one times, which we believe is conservative.
The venture capital ecosystem continues to raise funds and make investments selectively as we have seen in the latest reports.
Through the first three quarters of the year venture capital funds raised a total of $56.6 billion and invested over a record 112 billion in the United States. According to data gathered by pitch book and the National venture Capital Association.
That cash continues to put them in a strong position as the pandemic indoors.
This data also reflects the mini portfolio companies that we work with that have raised capital during the most recent quarter.
Our focus continues to be on maintaining an appropriate level of liquidity actively managing our credit book and working with our companies and financial partners proactively.
Our investment team has continued to be incredibly busy evaluating an active pipeline that currently exceeds $1 billion a potential investments but.
But our bar for new deals remains high and we continue to be selective and prudent with capital deployment.
Finally, I would like to discuss our shareholder distribution.
With our that investment portfolio at 228 billion. It cost are NII per share of 30, <unk> and Q3 generated 106% coverage of our quarterly based distribution of 32 cents per share.
In addition to our seventh consecutive quarterly cash distribution of 32 per share. We're also declaring a supplemental distribution of two cents per share.
In addition to our quarterly net investment income in Q3 covering are based distribution. We are also fortunate to have undistributed earnings spillover of approximately $78.2 million or 68 per share subject to final tax filings.
This provides us with additional flexibility with respect to our variable based distribution going forward.
And the ability to continuing to invest in our team and in our platform.
In closing.
These continue to be unique and challenging times for everyone I would like to acknowledge and thank each of our dedicated and talented employees for maintaining their spirit.
And focus.
We send our most sincere wishes to all of those who are being affected by this unprecedented pandemic and we hope for the wellbeing and safety of all thank.
Thank you very much everyone and I will now turn the call over to Seth.
Thank you Scott and good afternoon, ladies and gentlemen.
With another solid quarter behind US we are continuing to think ahead and focus on strengthening our balance sheet enhancing our liquidity position, maintaining a well diversified portfolio and making investments in our people processes systems as.
As publicly announced yesterday, we received approval from the SBA for a new Spic's license, providing us with $175 million a attractive financing for qualified investments.
This increases are already significant quarter and available liquidity and insurers, we are well prepared to take advantage of any and all opportunities to expand the portfolio should they need our stringent standards.
Today I'll focus on the following areas.
Income statement performance and highlights and unrealized and realized activity leveraging liquidity and finally the outlook.
With that and let's turn our attention to the income statement performance and highlights.
Net investment income was 38 7 million or 34 per share in Q3, an increase of 3 million or two per share compared to the prior quarter.
Total investment income was 73 million an increase of three 5% compared to the prior quarter. The main driver for the increased total and net investment income during the Q3 was an increase in fee income driven by higher payoffs to Scott mentioned.
Are effective in core yields in the second quarter, or 12.6% and 11, 3%, respectively compared to 12.2% and at 11.5% in the second quarter.
Primary driver for the increase in the effective yield was again related to the higher payoffs. The koryo decreased slightly due primarily to the a reduction in expired commitments compared to the second quarter.
Turning to expenses are total operating expenses for the quarter decreased again, 231, 6 million compared to $32 $3 million and the prior quarter inch.
Interest expense and fees decreased slightly to 16 $6 million from $16.7 million and the prior quarter commensurate with the reduced use of the credit facility.
SG&A expenses decreased 215 million from $15.6 million and the prior quarter to decrease was driven by lower legal and SG&A expenses.
They are weighted average cost of that was 5.1% a small increase compared to the prior quarter now, let's switch the focus to niv unrealized and realized activity.
During the quarter are increased seven per share to $10.26 per share. This represents a navvy increase per share of.
Seven tenths of a percent.
The main drivers for the increase or the net change and unrealized depreciation of $52.8 million, including the reversal of prior unrealized losses of 37 8 million, mainly due to the recognition of 48 5 million of realized losses.
And out, earning the dividend paid in the quarter.
Or $52.8 million of unrealized appreciation was driven by the mark to market portfolio on our equity in warrant portfolio as well as yield adjustments on our debt portfolio.
The key drivers for unrealized depreciation where approximately 95 million of mark to market appreciation, including reversals of prior depreciation due to sail <unk> right off and the equity in Warren portfolio.
And 43 3 million of appreciation on the loan portfolio, which included 35 $9 million of reversal of prior depreciation largely attributable to the recognition of a loss on one portfolio company that had previously been impaired Amazon nonaccrual.
Excluding the reversal of prior impairments and other depreciation on loans paid off the loan portfolio experienced the seven 5 million yield based appreciation.
Net realized losses in the third quarter or 48 $5 million to price of 47, and a half million dollars from the two lone positions that Scott mentioned previously.
Two $3 million of net losses from the right off or its exploration of.
Certain legacy warrants offset by $1.3 million of net gains from the disposal of equity positions that.
The realized losses reduced our loans on nonaccrual to less than 1% of the investment portfolio on a cost basis as both loans were previously on nonaccrual.
Next leverage and liquidity.
At the end of the quarter, our gap and regulatory leverage was $111, four and $102 nine respectively, which increased compared to the prior quarter due to the increased fundings in the quarter.
Netting out cash on the balance sheet or gap and regulatory leverage was 109% and 100.6% percent respectively.
We continue to manage the business with a targeted leveraged ceiling of approximately 125% on a regulatory basis.
We ended the quarter with liquidity of more than 465 million or liquidity continues to be enhanced by our normal course monthly principal and interest collections as well as early payoffs as a reminder, or early payoffs and normal amortization provided us with significant monthly inflows that we can.
Use to delever win and as needed.
Finally on the the outlook points.
Our core yield guidance of 11% to 12% continues to apply for the remainder of 2020.
For the fourth quarter, we expect SG&A expenses of 15 to 16 million, which is slightly lower than my prior guidance.
We expect our fourth quarter borrowing costs to increase modestly due to the significant funding in the third quarter.
Although very difficult to predict as Scott communicated, we expect $100 million to $150 million and prepayment activity in the fourth quarter.
And then finally as mentioned earlier.
We have received the approval of the SBA new license, providing is $175 million a attractive financing for qualified investments.
This will not only help us increase our available liquidity, but also contribute to our decreasing weighted average borrowing costs.
In closing, we delivered a solid quarter in Q3 and going forward. We will continue to focus on things that we believe will position us.
Best given the current operating environment.
I will now turn the call over to the operator to begin the Q&A part of our call AJ over to you.
And as a reminder for participants to ask a question you will need two months star than the number one on its own form.
Again, that's star than the number one on this on the phone.
<unk> bye, what we can find the Q&A roster.
First question comes from the line of Christina No from Piper Simon Your lines now open.
Good evening. Thank you for taking my question so first.
Credit quality grades improved nicely in the corner.
What looks to be migration of green three.
Covid Green two bucket for in a lot of in some instances can you give us a little bit more detail on where you saw improvements and credit quality and industry really again and.
Then on the other side, if there's any other industry that are still struggling or you're watching a little bit more closely.
Sure first thanks for the question.
With respect to the migration the biggest driver of the shifts in grade three loans actually had to do with the fundraising elements that we've talked about I think as you know, we're a little bit conservative in how we grade the portfolio. So we will downgrade alone to a rated three credit if it is approaching a capital race and again this.
Quarter, we saw some pretty significant activity on the capital raising side across the portfolio, including with respect to a couple of rated three credits and as a result of those companies completing those raises we upgraded certain of those credits.
<unk> two loans and that's what drove.
The majority of that migration in the quarter and that's also what led to the.
The change from 230 to 222 and a quarter.
Really no specific.
Credit trends that I could speak to in the quarter, there's obviously certain sectors in our portfolio and sort of in the macro environment that we're continuing to watch and monitor a little bit more closely I think in terms of how we feel about the environment. You can continue to look at how we're positioning the portfolio, we're continuing to be very aggressive in certain areas that.
We think are relatively speaking insulated. We obviously have made a significant portion of the life Sciences side and took drug discovery drug development companies. That's always been a focus for us, but we saw substantial activity. There in Q3, and we also continue to be fairly aggressive in terms of funding on the technology side of businesses that have a song.
Where component where the revenue continues to be contractual and long term recurring in nature.
Okay, Thanks, and one on the record quarter of originations and fundings you mentioned that you are the activity with.
And.
Some new borrowers and then five existing.
Are you starting to see more opportunities with new companies compared to earlier in the year is we're moving along kind of during the pandemic and would you expect that to continue with with more opportunities with with new.
Borrowers or is it kind of just kind of tough to to forecast that I think it is difficult to forecast out just given the continued volatility in the markets, but what I can tell you is that our pipeline since the beginning of the year has remained a very strong I mean, our pipeline on a quarterly basis has been approximately 1 billion.
In some cases north of $1 billion. So there's no lack of deals and no lack of activity in terms of what our team is evaluating and screening early on in the pandemic. So when you look at sort of late Q1, and then certainly in queue to we.
We were very selective and really will only focusing on a certain profile of company. We did continue to be selective in Q3, but we actually saw a handful of companies, where we had legacy relationships later stage company that we actually didn't think we're going to be looking for secured debt financing, but in a couple of cases despite having.
Very strong balance sheets, we saw opportunities for well back company's strong balance sheets that wanted to put some additional capital and runway extension on the balance sheet and we were able to take advantage of that in Q3. The pipeline right. Now remains strong the team is off to a really solid start in terms of queue for activity.
If you look in the press release, we disclosed that we've already closed about an additional $85 million of commitments. We have another $50 million of commitments that are signed that are going through diligence that we expect to close of near term. So we continue to feel good about the amount of activity that we're seeing but we will absolutely continue to be selective imprudent and really just try to.
<unk> on the best deals that we see.
Alright, Thanks for taking my questions and congrats on a great quarter.
Thank you.
Next question comes from the lack of Jon Hamm Jeffries is now open.
Scott.
Very much.
Scott just kind of hearing you talk about the credit quality to credit grade and a lot of it fixed around the visibility too.
And the liquidity at the comfort the investment level.
And then.
<unk>.
Just sort of commitment pipeline.
Those both seem really strong and it gives you a good visibility into.
Capital of employment and credit quality.
It makes it seems like it may be good it's been there for a while I'm wondering if you can you do.
That means there's some attribution of that may be competitive positioning or is it just good fundamental trends kind of in the market you're lending to or how do you how do you attribute that.
So I think and I've said this consistently in my remarks over the years and I'll say it again I think a lot of it just has to do with the quality and talent that we have is an organization.
This is a very deep experienced investment team.
This team has been together for a long time, we've got great leadership, we've got great oversight and it's a very deep diversified broad team and I think that goes a long way in terms of driving the results that we've had over a very long period of time and I think it's going to be critical in terms of the continued success.
Success and sustainability of the business.
We'll also tell you that.
The fundamentals of our ecosystem continue to be very strong despite the realities of what's going on at a macro level. When you look at the year to date <unk> investment activity, you're at $112 billion through three quarters right. That's a record number and you're still got a full quarter to go you are.
Also seeing tremendous activity at the V C level in terms of fundraising. So there's just a lot of liquidity that is still flowing into these companies and not.
Not all of these companies are going to be able to sort of skate through this on on harmed, but certainly having a strong balance sheet and being able to weather a storm from a liquidity perspective, we believe is essential in terms of continued success.
Okay.
And then we have.
I just haven't asked about the slow surely can see some of the details, but maybe you can you give us an update on Gibraltar in what's going on there.
Sure.
Can't say a law because it's it's obviously.
Excuse me a portfolio company, but.
Do put out their own statements from time to time, it's a company that continues to perform very well, we're very pleased with the performance and the growth that they've seen this environment is actually pretty conducive for strong credit oriented ABL lenders and that's exactly what you are brought through so very pleased with their performance. Obviously you can see.
The fair value that we have as of the end of Q3 and continue to believe that that's a long term holding that we're going to be very happy with going forward.
Okay.
Last question is just Jimmy U Q3, you had a really strong.
Funding quarter, if I recall, usually Q3 was seasonally week quarter, just because people tended to take.
<unk> and Q3 for vacation.
It seasonality changing because of the covid and people being locked down and how do you think about investing.
Investing.
In the near term.
It's a great question you are absolutely correct. If I mean, if you look at our business and I think 15 of the last 16 years Q3 has historically been our slowest quarter in terms of capital deployment.
That obviously changed this year I think 2020 is different in many ways and whether we can attribute the strong funding and commitment performance that we saw in the quarter to what's going on with with Covid or not I think it's hard to say, but what I can tell you about our performance in Q3, you'll be think about what we.
Said on the Q1 call. If you think about what we said in the queue to call. We we're really focusing on strengthening our liquidity position, making sure that we have the strongest possible balance sheet, because we knew that there would be a time when when the market would come back and there will be opportunities that we thought were attractive and we want it to be able to take advantage of them.
That's what happened in Q3, our team did a great job had been pursuing a couple of companies for a long time. These were companies and deals that we really liked and we used our balance sheet to win those deals and you saw that in our numbers and whether that will happen again in queue for I think it's probably too early to say at this point, but we're obviously pleased with the fact that.
We've already done $85 million of commitments through the first 2728 days of October and we've got another $50 million of commitments that are signed up that we expect to close near term here.
Okay. Thanks, very much for the color guard.
Next question comes from the beginning in the shade from Wells Fargo, New lines now open.
Hi, good afternoon, Thanks for taking my question.
First one star can you update us on the.
Strategic initiatives you were pursuing on.
And the RIAA I think you've had a no action letter.
Permitting you to do that for a little while now.
But just an update we haven't seen anything yet obviously.
On how you are thinking about setting up something like that.
Sure. Thanks, and so we're not going to make any public comments in terms of the activity outside of what we what we've already disclosed in terms of the AK that we did put out you.
You are absolutely correct that we did receive.
No action Exemptive relief from the SEC to be able to create a registered investment advisor as a wholly owned subsidiary of the public BDC. We have gone ahead, and we've done that and now we're in the exploration stage, where we're going to explore a variety of attractive opportunities that we think will be available to us there's really.
Nothing that we're prepared to speak to that would provide any more specificity or clarity to that.
In general I would say that what we're doing here is very consistent with what Seth and I have been communicating publicly to our shareholders stakeholders and analysts.
Since Q1 of 2019, which is that we are actively looking for ways to expand and diversify and grow the Hercules capital business, but we are absolutely committed to doing it in a way that is beneficial to our shareholders and that's exactly why we pursued the structure that we announced in the 8-K that you're referencing.
And that's what we're spending our time right now focused on.
Sure. It helps thank you and then.
I used this small follow on any high level.
Commentary on the exit this quarter, obviously those those two names were already.
Mark down but.
Obviously, that's a.
Pretty big right off.
To exit those names.
At all related to.
The challenges.
Bed Covid migraine funding might be more stricter.
Was this just trying to.
A garden variety exit that you guys.
Do once in a blue Moon.
A commentary there would be appreciated.
Sure. So a couple of things the number one.
And we've always had this we never look at realized activity, whether it's realized gains or realized losses on a quarterly basis, we look at it over a pretty long term horizon. Then when you think about our credit performance now over.
15, plus years, we have net cumulative realized losses of $65 million. So our our annual loss rate as of Q3 is four basis points and that's the number that were obviously.
Very proud of.
We had realized gains in the portfolio in Q1, we had realized gains in the portfolio in Q2, and we will obviously see where we ended up at the end of the year, but we tend not to focus on a quarterly basis with respect to the two situations that we referenced both of those loans were previously impaired both of those.
Loans were previously placed on nonaccrual one of the companies did not have anything to do with Covid. It was a company that had been on nonaccrual for two plus years.
It's sort of a it's a drug discovery drug development asset we made the decision that we were actually going to foreclose on the assets. So we've taken possession of the asset and we'll look to monetize that when the market becomes a little bit more favorable the other one in our view was 100% linked to Covid. It was a business that.
Was materially negatively impacted by Covid. It was one of only a small number of loans in our portfolio that we believe fit.
Fit that criteria and it will because of the fact that in that case to sponsor chose not to fund. It if the company was forced into a an exit scenario and.
The results were obviously not favorable to us, but there's really nothing else that I can add in that regard.
Okay. Thanks, so much sir thanks.
And as a reminder to ask a question. Please press the star one on your telephone next question comes from Devin arrived from JMP Securities now open.
Hi, This is Kevin faults on for Devon, Congratulations on a strong quarter and.
In regards to record queue through new that that could be equipments can you speak to how you are able to have such a strong quarter, despite largely virtual environments to pose significant challenges and performing due diligence.
Sure. Thank Kevin So two things and I would reiterate what I said when when when John asked the question a little while ago I think the credit really goes to our investment team the.
The team has worked around the clock and has been incredibly productive. Despite the fact that most of us continue to be remote.
Thankfully, we are a technology driven company, we've got great systems, and we've got great infrastructure in place. So we've been able to communicate and not just with our existing portfolio companies and each other but also with with new companies and in this environment. There are a lot of things that you can do from a virtual perspective that allows you to.
Due diligence in the ordinary course of the other thing that I would mention which I think is important.
We did 10, new deals and we did five deals for our existing portfolio companies. So you're going to continue to see a very strong mix of fundings for new deals and portfolio companies. Obviously on the portfolio companies side, we already have the relationship and we've done that in person diligence historically and when you look at the new deals that we did.
In several of the cases, these where companies that we had looked at and evaluated historically and we had deep relationships with the teams in with the investors so a little bit a little bit of a head start in terms of diligence that I think allowed us to be.
You know a little bit more creative than some others might've been able to be in this environment.
Okay, great. Thank you very much that's all my questions. Thank.
Kevin.
Next question comes from the line of Christopher Nolan from leading Berg Thalmann Your line available.
Hey, guys.
So it's a auto correct that the two credits which room.
This quarter motif in.
Petrol.
Correct.
Okay, and then on the two new.
Non accrual from tend to know how to scan any detail that you can share with us.
Sure. After scan is actually it's a small convertible notes and that's a company that we've had it's not a secured debt position. It's a it's a convertible note position.
We've been in equity holder in that company for some time.
They filed chapter 11, so we made the decision to put that convertible note on nonaccrual in the status and with respect to intent again, that's accompany that's obviously been impacted by Covid. It is one of the small number of portfolios in our company, that's being materially impacted by Covid, but we've been working very closely with the investors there.
And with the management team there and we did make a decision to put it on nonaccrual, but we're actively working on.
Some strategic alternatives with that company as we speak.
A follow up question on over the portfolio yields seem to be holding up relatively well is this better than you expected or worse swimming and what do you attribute that to.
I think it's in line with with what we expected. If you look at the guidance that set has given I think since Q1, we have guided folks to 11% to 12% core yield last quarter. We were at 11 five this quarter. We're at 11, three so really right in the middle of our core yield guidance.
Right now 98 plus percent of our entire portfolio is at its contractual interest rate floor. So as we've said there really is no further yields degradation work or interest rate degradation that we expect to see and in situations, where we have opportunities to make.
Make accommodations to our company's as long as they are performing we're obviously trying to take advantage of getting some additional yield where appropriate to help keep that poor yields within our target range of 11% to 12%.
And then what's the spillover income.
For a quarter.
For the quarter, so we have $68 per share.
That is spillover that's cumulative though.
For the quarter, we paid out earnings great.
Great. So for me it fixed.
Thanks, Chris.
Next question comes from the line of Orion Mensch from K B W. Your line is now open.
Good afternoon, and thanks for taking my questions first of all I just wanted to step back and just talk about the broader venture capital ecosystem.
Been pretty surprising 2020, how strong that you can systems back you guys provide a slide that.
Capital investment at two views already surpassed what it did in 2019 and fund raising is basically.
Already located in 2019 years, what are you tribute.
Strength of this market. Despite you know obviously the.
Gnomic background.
I think when you look at the venture market going back 20, plus years, it's always proven to be very resilient. There were certainly a couple of periods, where you saw significant pullbacks.
But since sort of the pullback that you saw for 12 13 14 years ago, you've seen very consistent steady growth in a couple of different market environments. I think the other thing that you're seeing now is when you think about what's going on it's sort of a global level. There's just a tremendous transition to technology enabled solutions at all levels of.
Corporations and so the demand for technology that demand on the life Sciences side for innovation, and new drugs and new therapies.
Doesn't really get impacted by Covid right and so that's why you are continuing to see a tremendous amount of these can capital and public equity capital flow into these types of businesses.
Okay.
Makes sense.
And then this quarter I mean, historically your guys' unfunded commitments have.
Bounce around but generally been around 150 million this quarter, it jumped up to $243 million plumbing commitments.
Is there any change in kind of the nature of how you guys are making commitments are you guys, making new investments with larger commitment sizes or is that just more.
Greater volume work greater number of commitments that were just made recently, that's making that number a little bit higher than looking at them.
Right I think it's the latter certainly no material change in terms of how we're underwriting or how we're thinking about things. If you look at the business over the last five years are unfunded commitments as a percentage of our total assets has always been somewhere between six and 12% right now it's about 95% or <unk>.
<unk>, 8%, so still very much in line with where it has been the change quarter over quarter was really driven by a few of those companies that I had referenced earlier, where these were larger later stage more substantial companies that have very strong balance sheets. So when we were structuring those deals we used probably a little bit of a higher percentage of on.
And the commitment than we typically do but it's certainly not indicative of any general material change in terms of how we're underwriting or thinking about credit longer term.
Okay.
Those are all my questions I appreciate the times afternoon, great. Thanks, Ryan.
As a reminder to ask a question. Please press star one on your telephone.
And the last question comes from the line of Casey Alexander from Comcast Point. Your line is now open.
All right. Good afternoon, just a couple of questions. One I think the press release refers to the fact that you did fill some of your equity positions. During the quarter were there any of the larger positions liquidated during the quarter and are you doing that to sort of reduce the volatility of the portfolio.
We do not sell any of the larger more substantial equity positions. The few monetization that we had in Q3, we're just a handful of smaller less substantial names.
Okay great.
The new Spi subsidiary.
You know requires a funding commitment of $87 million of equity how do you plan to do this because I.
I'm not sure I remember how you do in the past, we do a portion of an equity and then take down some debentures against that.
You fund the whole equity invest that and then start to take down the debentures. What's your plan there the former Casey. So you had it right at the beginning so what we'll do is.
As we want to draw down the debentures will put in additional equity into.
Into the SPV and drawdown, what we need as we need it.
So we have that ability did kind of lever adult.
Alright, great.
Lastly, and I probably wouldn't ask this question. If you were an externally manage PDC.
But your discussion about a remote working environment has the Hercules team learned to work smarter could that result in a reduced real estate footprint for the company and some operating efficiencies over the longer term.
So.
TBD I mean, we're still trying to all figure this out and as I think all organizations are and like other organizations. We have long term lease commitments and will evaluated as we see what.
What the duration of this eventually emerges.
But I wouldn't commit to any efficiencies at this time related to leasing square footage and things like that that could emerge over time, we certainly see other organizations that are taking that decision, but at this time, we have not.
Alright, Thanks for taking my questions I appreciate it thanks Casey.
As a reminder to ask a question. Please press star one on your telephone.
We do not have any questions at this time, Sir please continue.
Thank you operator, and thanks to everyone for joining our call today, we look forward to reporting our progress on our next Q4 and year and earnings call also we will be virtually attending the JMP Securities financial services, and real estate conference and the Jeffrey stiff annual European.
Bdc's summit in November if you are interested in meeting with us in any of those events. Please contact JMP securities or jeffries for their respective events or Michael HERA. Thank you and have a great day.
Maybe you guys and I'm in this concludes today's conference call. Thank you for participating you may now disconnect.
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