Q3 2020 Triplepoint Venture Growth BDC Corp Earnings Call

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Okay W. W. T P V G dot com.

Now I would like to turn the call over to Mister <unk>.

Thank you operator, and good afternoon, everyone. We hope that our shareholders and their families are healthy and are staying that way during this pandemic.

Our priority is protecting the health of our employees and together with our venture capital partners and entrepreneurs supporting our portfolio companies. During this uncertain time.

The more sustainable parts of the economy today and isn't an area for investment for the foreseeable future.

Yeah.

Or select group of bleeding venture capital investors and the funds with whom we have had these long standing profitable relationships have also raised more than $50 billion since 2018.

Which 35 of that alone was raised last year and this year to date, including several of our select funds, which closed new multibillion dollar funds here in 2020.

Believe me this provides plenty of dry powder to support our existing portfolio companies as well as for all this new and growing investment activity.

Another trend that we're benefiting from in this environment is a continued liquidity in fund raising by companies as well as the exit activity that everyone is seeing out there with venture capital back technology companies. This year.

Certain times and are mindful of Covid potential impact.

Most of our portfolio companies have adapted to this environment, but we are closely monitoring the portfolio for any challenges that may arise.

Fortunately, we have the right team to manage our portfolio and maintain its stability.

Turning to the quarter and to some of our solid performance for this past quarter.

We over earned our distribution to shareholders.

Up five times from the $14 million of close debt commitments during the second quarter.

<unk> and also serves as a meaningful source of liquidity for TPVG each quarter.

As of the end of September 30% of our debt investments were fixed rate loans, and 70% were floating rate loans of those floating rate loans, 90% have prime floors set to four and a quarter or higher.

All the new floating rate loans that were originating have the same targeted yields as our existing loans, but have floors set at the current prime rate and therefore have higher spreads.

By the realized lost from the disposition of Muntrie, resulting in net realized gains a 4.1 million for the quarter.

$10 for the three for the third quarter of 2020 as compared to eight 6 million for the third quarter of 2019.

Total operating expenses for the quarter consisted of three $5 million of interest expense three $3 million of management fees, three $1 million of incentive fees and $1 million of general and administrative expenses the.

For unfunded commitments have an index rate of use primary with a floor set to 3.25% or higher.

We continue to maintain strong liquidity to fund our new origination activity as we head towards year and some of this strength has come from proactive efforts this year, including the accretive sale of common stock in January generating $80 million and the closing of our first investment grade unsecured debt in March generating 70 million.

We believe our high quality portfolio continues to have a positive impact on our liquidity position, which is generated strong loan prepayments in principle loan amortization during the first nine months of the year.

In addition to a strong current liquidity the existing seasoned and diversified portfolio has contractual cash flows over the next five quarters of $274 million, which bodes well for the sustained liquidity well into 2021, this strong liquidity and our modest leverage physician gives us.

Dependable funding capacity in excess of our existing unfunded commitments to grow the portfolio.

As of September 30th the company had total current liquidity of $214 million, consisting of $26 million in cash and $188 million of availability under our revolving credit facility.

We continue to have the flexibility under our existing accordion feature to expand the current $300 million commitment to an additional $100 million.

The revolving credit facility as compared to fixed rate that allows us to efficiently manage our interest expense and reduced outstanding balances when prepayments occur within our portfolio.

<unk> outstanding balances as of September 30th $257 million, consisting of $75 million of exchanged listed fixed rate baby bonds, which mature in 2022 $70 million, a private term that which matures in 2025 and $112 million outstanding under our multiyear.

Revolving credit facility.

Given our aggregate borrowings as of September 30, we've reported a leverage ratio of just 0.63 times leverage or an asset coverage ratio of 259% at the low end of our leverage target of one times leverage.

We have generated NII of $1 18 per share and have paid distributions of one dollar eight per share. So 10 per share of income in excess of our distributions with more than a quarter to go and that is after the impact of issuing five 7 million new shares in January in connection with the public equity offering.

On top of that we have $7.3 million of spillover income from 2019.

In addition, our NAV as of September 30th of 13 28 per share is only six inch share six cents per share lower than our NAV pre covid as of December 31st 2019.

During the third quarter, we just we distributed 36 cents.

Per share from ordinary income as part of our regular quarterly distribution net net investment income provided 110% coverage of the quarterly distribution despite leverage being at the lower end of our target range and further we have undistributed earnings spillover from net investment income of approximately $10 million.

Or another 33 per share to support additional distributions to shareholders in the future.

Pleased to announce that for the fourth quarter of 2020, our board of directors has declared a distribution of 36 per share on October 29th to shareholders of record as of November 27th the payment date for this distribution will be on December 14th.

This completes our prepared remarks and now at this time, we'd be happy to take your questions and so operator could you. Please queue up the line for questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

If you are using it to get them. Please pick up your handset before passing licking.

So let's try a question please press diving too.

At this time, no pause momentarily to assemble the roster.

No first question. The first question comes from opinion essay from Wells Fargo place.

Hi, everyone desk and gross revenue on.

I was just.

First question high level.

Appreciating the the robust.

Some leverage profiled as such.

This quarter, we saw a little bit.

Lower commitments and then.

You were selling some stock in the market is this at all indicative of any near term desire to.

January liquidity position the company for more.

Conservative outlook at any sense or maybe it's one off but any comment you.

Have there to to describe those sort of.

Pattern, we saw this quarter. Thank you sure I've been a social here I'll start and then please.

Jim and Chris jump in so fit I'd say the the deleveraging that occurred this quarter was was more as a result of our portfolio companies. So the.

Prepayment activity and this scheduled principal amortization, so so not necessarily conscious of us proactively looking to maintain a large cash reserves are deleverage ourselves I think the benefit of using warehouse facilities is that we're able when we do get prepayment activities were able to pay down our Chris.

Lines Delever save on interest expense, our shareholders benefit from that but but I would say really it was more of a function of our portfolio companies. I would then counter and say I think an important thing to notice is at our level of term sheets signed term sheets have been relatively consistent if not growing quarter over quarter, but the rate of commit.

<unk> of TPG has increased as our liquidity has increased are unfunded reduced in so so I'd say, it's the opposite I think we're we're seeing strong market conditions as Jim talked about in the V C equity ecosystem in the venture lending ecosystem and so.

Think we're positioning for continued growth in demand, which we're seeing not only here in Q4, but going into 2020 as well Jim Chrisny. So yeah, I I can only add that.

I think the word caution cautious may have been applicable.

During the early <unk> covid unsaid in quarters, but there's absolutely not a pattern here and if anything agree with judge or not only have the commitments been up this past quarter versus a previous one, but we're pretty much positioning and gearing up as well as staffing up now for increased originations.

And the growth activity, we see so so there is not a pattern.

But at least we're aware of.

Yeah, Yeah yeah.

Oh of course, I was just talking about this.

Lola and the balance sheets.

Yes, but that's all very helpful. Thanks, just another small question on the loan.

Go Euro I think you had it is small.

Conger.

Follow on.

Was that in conjunction they raised a large round or were you sort of.

Jumping in on that or is that something that.

That's normal for you to invested a follow on or is that.

Consistent with with your call investment style, a color and have there and that's all for me. Thank you guys.

Good question, Yeah pen. So as you saw could go your did announce a capital raised during the quarter and given that.

Between three to six portfolio companies raising equity so that that number is always theoretically should should increase as quarters go on.

Okay, Great. That's helpful. And then in terms of finding new ways of Orange your diligence over the past seven months are.

The pandemic have there been any changes in how you've done diligence or you find new ways to perform not in a remote work environment.

Great Jim do you want take that.

Yeah, Yeah, and I was just going to provide.

Provide the same numbers his previous Ah So too did on that question. It is nice to meet you as well, yes. So at the.

End of the day, the due diligence process hasn't changed and if anything it's probably little more advantageous because everything is remote we're able to pretty easily contact investors customer references all the things that we do and typically more because of the.

The current environment affording those opportunities so the level of work the level of investment Committee details.

Is is not only the same it's it even more improved and it's always been which is a very very high level.

Okay. Thank you that's helpful. And then lastly, I know on previous calls you mentioned that steel pricing hasn't materially changed since the onset of a fact that Mike I'm just curious if you've seen an improvement in documentation over that period or all.

Do you want to grab that says no sure. Yeah, you know I would say venture let that.

So one of the benefits of our platform is you know we have pretty thorough.

Explore elaborate loan docs and pretty consistent I think consistent some pretty important aspect of being a premier lender and so I would say we have not seen any material change in the structure legal or financial or covenant profile of our loans and I think that's something that are company's portfolio companies and v. species VC.

Sponsors think very highly of that consistency, so I'd say, they've always been not tight and lender friendly and balanced and no particular changes.

Over the past couple of quarters.

Okay makes sense not that for me congrats on a strong quarter and actually you guys as well.

<unk>.

Okay.

Our next question comes from Christopher Nolan of Ladenburg.

Following please go ahead.

Hey, guys Ladenburg Thalmann.

But did you or Chris did you guys mentioned, what the prepayment estimate is for the fourth quarter. If you did I missed it.

The adventure ecosystem has has really held up during this downturn.

Yes.

Oh go ahead, you can start.

Yeah, I was going to say, alright, again, I think where Jim and I are now in our 22nd year of working together across two leading platforms. We've seen a fair shares of cycles and so I think it's too early to get overly confident are excited about the pandemic is as far from over you know where second wave through.

Wave.

So so I think we're we're pleased to see that the thesis that we had articulated to our investors of how working with these select V C's and the better select V. C's in their portfolio companies and our experienced and track record. The thesis was that these funds in their portfolio Cup.

News at the venture growth stages outperformed not only during good times, but also during more challenging times and so I'd say that we're not surprised in a sense that you know we're showing the performance that we have because again that was always the thesis the best deals go to the best V. C's and so we should see better track record I would say I think.

We are pleased but not surprised to see the rate of equity investment activity for the venture asset class as a whole there's no doubt that are again, our experienced across the cycles. You know the the company started during periods without periods of volatility I mean, Jim and I can go back to you know.

Facebook and Youtube then you know Netflix back in the day prior cycles and so we're not surprised to see premier venture funds deploy capital during periods of volatility to take advantage of dislocation valuations and potentially you know less competition on the V. C side. So so I think.

Sort of it's playing out but we're not getting overly confident it's you know I think part of that's why we were keeping also substantial liquidity to be able to take advantage of opportunity. But also you know the world can change things can change and so we just always wanted to be prepared Jim anything to add.

Yeah, it's very hard to because maybe after 22 years, we we think of like an.

Absolutely you know V. C is not always good times, but it's so it's a long word to use during this phase, but it's really the quality of our companies on the V. C's Ah. We continue on I've always work with which is part of managing through whatever we want to call. It. This this new norm.

And adjusting of the plans to profitability and in many of the things underway, which results in some performance and.

Again, we talked earlier about the the uptick in growth in new investments and some of the Covid area investments and we've been through cycles and been through this before and if you stick to the the better venture capital back companies and the better venture capital funds, which is.

At the heart of our model you know you make it through these periods and then some.

Okay.

It's helpful commentary.

Then.

And your guys' press release.

<unk> fourthquarter hands is going public Ah through a merger with a spak.

I just wanted to <unk> you have you guys.

Your opinion on and obviously, there's been a huge increase in spak formation outwardly over the last year.

And I wanted to know do you think that the increased formation of those.

Is going to be large enough that he could actually potentially even have a meaningful impact on D. C back companies extra strategies or is it simply just a another structure of you know the that of a company that would you know alrighty that would likely be taken out just be you know a different structure.

And Ikea or an acquisition or something like that do you think about the increased formation of a <unk> is going to have a meaningful impact on the ability of the furniture back companies to have more opportunities. Yeah. It's a it's a very good question right. So I'd say the high level I I think we are pleased and welcome the emergence of specs.

I think it's still very early as an asset class or an exit class I guess better better phrase there've been some initial transactions within our Triple point platform I think we're up to four or five portfolio companies that have either completed or a announced these merger events.

I think it's still early in terms of four well, let's wear multiple hats. So as a lender I think we're pleased because usually these events or take out events for our debt and so it's an opportunity for us to get our capital back. It's the exited the touchdown that we play too and so we get our loans back we get our acceleration of income.

Fantastic.

I think as we look to our equity Kickers, it's a little balanced in the sense that yes. These are some some great valuations are occurring with with these back liquidity events, but they do require longer a roll forward or lockup periods for existing investors than a traditional I P O.

And so at least we've seen in general nine to 12 months versus the usual 180 days for a typical I P O.

I then thank to your other comment of you know are the companies that are going through this back process companies that would've gone public or may not have gone public and is this a new I think it's still too early to tell I I definitely think that.

Specs or an interesting form of exit, but you still have to be I P. Already you can't just decided tomorrow you Wanna go public is it's back and so I think there's a fair amount of prep work that companies have to do in order to be ready and so then the question is do you go public on your own do you go for this back or again and then it has merger like.

<unk> qualities and so would you take an all cash deal versus.

And so I think again, it's it's still too early I think our V. C spot partners are really kind of seeing the data points seeing some of the the track record from existing events and I think we'll learn more to see but I think generally a positive thing because again, it causes growth and acceleration and theoretically the the need for more that for companies.

To accelerate growth to get ready for us back exit.

Sure.

I would only add you know specs have emerged here during covid and I would agree with tell July I think it's a little speculative to see what the long term or or even kind of near term effects on venture capital legs. It's overall is is going to be I think the majority of the exits.

For making the rounds or continue going to continue to be ipos and m&a's, but you know this is a factor now and there will be some fax. It just not at least currently seen as a a huge major significant exit and then the future but again it's.

Speculative, what we'll see where it goes and it does have to be companies that are IPO already absolutely uh-huh.

Okay. Yeah I appreciate your guys' color commentary you guys have a great great insight into that that market. So thank you for that those are all my questions. So I. Appreciate your time I'll have a great afternoon.

Right.

That's gonna include that question and answer session I would like to kind of comic back of like the general a day a closing remark.

Okay. Thank you operator, we'd like to thank our stakeholders and all our triple point friends and everyone on the line for listening or participating in a call and we hope everyone continues to remain healthy and look forward to talking with you next quarter. Thanks a lot.

Goodbye.

That concludes today's coffee you may now disconnect.