Q4 2020 Triplepoint Venture Growth BDC Corp Earnings Call
Yeah.
[music].
Good afternoon, ladies and gentlemen, and welcome to Triple point venture growth BDC fourth quarter 2020 earnings conference call. At this time all lines have been placed in a listen only mode. After the Speakers' remarks, there will be an opportunity to ask questions and instructions will follow at that time. This conference call is being recorded and a replay of the call will be available.
On an audio webcast on the Triple point venture growth BDC website.
Management is pleased to share with you the company's results for the fourth quarter and full fiscal year 2020.
Today, representing the company, Jim <unk>, Chief Executive Officer, and Chairman of the Board Douglas.
Federal Srivastava, President and Chief investment Officer, and Chris Mathieu Chief Financial Officer.
Before I turn the call over to Mr. <unk> I would like to direct your attention for the customary safe Harbor disclosure in the company's press release regarding forward looking statements and remind you that during this call management may make certain statements that relate to future events or the company's future performance or financial condition, which are considered future looking forward looking statements under the federal <unk>.
Securities Law.
You are asked to refer to the company's most recent filings with the security 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 not caution to place undue reliance on any forward looking statements made during the call, which reflects managements opinions only as of today.
To obtain copies of our latest SEC filings. Please visit the company's website at Www Dot T. P V G Dot com.
Now I will turn the call every day Mr. Weber.
Thank you operator, good afternoon, and thanks for joining us for our fourth quarter and year end 2020 earnings call.
2020 was clearly an unprecedented year in we would like to acknowledge our dedicated professionals for their unrelenting commitment last year.
As well as to take this opportunity to thank our venture capital partners and entrepreneurs for their ongoing support and collaboration which remains a core differentiator for us.
And also a critical driver in our success.
Before we review the quarter and talk about 2020, I'd like to mention that the Triple point team is off to the races in a big way in 2021 already.
This past Monday, we closed $200 million in our private notes offering in.
In January we Upsized, our revolving credit facilities, and we continue to see liquidity events in the portfolio. This year.
The pipeline and deals under evaluation are also continuing to grow significantly in.
In our strategic financing expansion plans are underway.
This is the power of the Triple point platform at work and we are demonstrating our experience and leadership in the venture lending market bar none.
The great start to this year is all part of the continuing story coming off a very successful 2020.
The strong results in 2020 in fact amid the global pandemic highlights further our unique triple point venture lending platform.
Quality and resilience of our portfolio and our long standing relationships with other select venture capital investors.
We're pleased with the performance of the portfolio and the significant progress we have made advancing our playbook quarter by quarter for all of last year, including deploying capital strategically and taking steps to position T. P V G for growth.
Well Christian soldier will go on in greater detail on the quarter and year's end result, I wanted to share just a few of the key 2020 performance highlights.
We realized almost $30 million of growth capital gains last year, not only offsetting our credit losses, but more importantly, it served as a basis of making another special distribution to our shareholders. While also allowing for significant spillover income generating into this.
This year.
This was the third time in fact that we have made a special distribution to shareholders over the last six years.
We also over earned our dividend for the year and the amount over earned increased each successive quarter as the year unfolded.
This was the fourth year in a row that T. P. V. G has over earned its distributions for the year.
Cumulatively in fact, we are also over earned our distributions since the date of our IPO and achieve this important objective.
During the year, our portfolio continued to generate strong yields and we continued our focus to diversify it and further strengthen its credit quality.
Finally, we enhanced our liquidity position markedly through a number of capital financing transactions during the year.
Which Chris and Todd you will get a lot more into.
The significant progress we made last year has now set the stage as I mentioned for 2021 and beyond.
Given the power of our differentiated platform, our longstanding relationships and reputation with our select venture capital investors and the most experienced and best in class management team and venture lending, we are well positioned to capitalize on the strong demand we're seeing from the venture growth stage companies for.
For all of our debt financing solutions.
Today's market conditions as folks probably know remain highly favorable as well.
Venture capital market is coming off its strongest year ever on record new investment activity is robust according to the NVCA or national venture Capital Association venture capital investment in the United States broke another record in 2020 topping $150 billion for.
For the first time.
Further venture capital firms raised approximately 74 billion last year, which includes several of our select venture capital investors, whose funds collectively raise more than $20 billion of that.
For our venture growth stage companies, which operate in the late stage venture capital market segment. The total deal count was estimated at more than 3400 deals covering more than $100 billion that was invested last year.
And the spike in exit and liquidity events for VC backed companies in the last half, particularly of 2020, including the emergence of specs as the IPO exits have further fueled the favorable venture market conditions.
The market strength from 2020 has continued so far unabated here into 2021.
We expect demand for venture lending to remain strong.
Most companies have adapted to the new environment in 2020 is behind them.
Our companies remain bullish on their plans and the opportunities this year and what soon may seem to be the emerging post COVID-19 stages.
As we survey the landscape, we are identifying new investment opportunities that have risen over the last year due to changes in how people live.
Work and use technology.
As highlighted throughout the pandemic the technology sector is extremely resilient and we expect to benefit from the continued investment in this space as we provide loans and invest primarily in technology driven companies and industries.
Many of our companies are in direct to consumer goods and services virtual collaboration businesses cloud based enterprise solutions Internet security real estate technology and several other sectors experienced outside growth in this environment.
We believe that these will continue to be major drivers for us going forward and when combined with our sponsors exceptional reputation our experienced team and the power of the Triple point platform. All of these factors translate into exciting new opportunities.
I'd like to wrap up with some closing comments and observations.
We are proud of the steps we took during the past year that have enabled us to post strong results in these uncertain times and also to advance important objectives that will drive our future success.
Specifically as we look to the year ahead, you have heard we are advantageously positioned to accelerate our growth and continue to provide shareholders with exceptional long term returns.
Our teams are active and today's venture markets the strong prospects for our venture lending business model, our reputation driven industry leading platform.
And some new use cases and expanded financing products with our enhanced ability to scale the business to take advantage of the strong fundamentals of the venture ecosystem have made us more excited today than we've ever been.
We look forward to continuing to work closely with our portfolio companies on our select venture capital investors and entrepreneurs.
Many of whom have emerged from a very challenging year and are now on a very strong position and extremely promising 2021 in front of them.
While we are pleased with our progress. We also remain disciplined during these times and we will continue to abide by the principles of triple points good old for ours.
Reputation relationships references and returns.
I will now turn the call over to essential.
Yeah.
Thank you Jim and good afternoon, as we look back to 2020, we were pleased with our performance during a very challenging period of time, our outperformance on so many fronts was a direct result of the more than 21 year track record that Jim and I have together the <unk>.
They book, we put together in response to the pandemic, having been through periods of significant volatility together before.
The quality and perseverance of our team and equally important being sponsored by a well established highly regarded and proven global investment platform Triple on capital. Our playbook for 2020 was to take a quarter by quarter approach and in Q1, despite coming off a particularly strong 2019, we took actions to set T. P V G up to weather.
For the storm and further sharpened our focus on our team our portfolio companies in our venture capital relationships as well as strategically raised equity and our first investment grade debt offering to give us significant liquidity.
In Q2 investors really began to see the benefit of our differentiated venture growth stage lending approach, a resilient portfolio and in particular the benefit of our sponsor relationship whereby our platform stepped up with a $50 million backstop facility to provide its supportive TPG and enhance our financial strength while tea.
<unk> never needed to use the facility. We appreciate the commitment during a volatile period.
Q3 was generally consistent with Q2, but based on feedback from our venture capital partners activity of our investment team and continue real time strategic planning, we began to see we began to shift to offense again so to speak the.
This strategy paid off in Q4 with a strong finish for 2020 debt has set us up for success and growth here in 2021.
In every quarter of 2020, we generated income in excess of our distribution and increased our portfolio yield even more importantly throughout the year, we demonstrated the core differentiators of venture growth stage lending related to both credit quality and the realized warrant and equity gains we generated.
More specifically during the fourth quarter Triple point capital signed $172 million of term sheets with venture growth stage companies and closed $73 million of debt commitments to six companies at TPG.
We received warrants valued at $2 million in 11 portfolio companies and made equity investments of half a million dollars and three portfolio companies.
For the full year, TPC signed $490 million of term sheets with venture growth stage companies and we closed $277 million of debt commitments with 23 companies at T. P. V. G. We acquired warrant investments, representing $3 8 million of value and made equity investments of $2 3 million.
During the fourth quarter, we funded $67 million on debt investments to nine companies, representing an increase of 77% from the third quarter the.
The debt investments funded during the quarter carried a weighted average annualized portfolio yield of 14, 3% at origination.
During the year, we funded $205 million debt investments 20 for companies with a weighted average annualized portfolio yield of 13, 5% at origination.
During Q4, we had loan repayments of $74 million and as a result, we achieved an overall weighted average portfolio yield of 15, 2% for the quarter ex.
Excluding prepayments core portfolio was 12, 2%.
In 2020, we had $203 million for millions in.
<unk> company prepayments, resulting in an overall weighted average portfolio of 13, 8% for the yield excluding prepayments core portfolio yield was 12, 5% for the full year.
At the end of the year, our 69 portfolio companies were spread across 31 sub sectors with our largest concentration in business application software, which represents nearly 12% of our portfolio.
As Jim mentioned, we continue to see strong equity fundraising activity in our portfolio, which is a testament to its quality during the quarter five portfolio company companies raised over $200 million of capital. This brings our total to 27 portfolio companies raising over $3 billion of capital during 2020 with more than 70% of our P.
Portfolio companies, having 12 months or more of cash runway.
Moving on to credit quality, the weighted average investment ranking of our debt investment portfolio was essentially flat with the prior quarter's rating of 2.1.
Under our rating system loans are rated from one to five with one being the strength strongest credit quality and new loans are generally weighted to initially.
During the quarter one portfolio company was upgraded from category two to one one company was upgraded from category three to two as a result of closing of financing and one company was removed from category three as a result of its acquisition and prepayment of our loan in full.
We downgraded one company from category two to three given their continued impact from Covid and one company no tell was downgraded from category three to five.
We downgraded no tell to category five in the fourth quarter. After they're unsuccessful attempts to rate to both raise an external round of financing and complete a strategic sale. The company filed for bankruptcy in January of 'twenty 'twenty. One however, prior to the filing we sold our loans to a third party for a 50% cash recovery.
And a potential equity kicker which will be finalized when the bankruptcy process is completed and the new company emerges.
Importantly, the credit situation is now behind us.
I would like to highlight that our Q4 Mark represents our cash recovery in Q1 from the loan sale only and not the potential future value for the equity kicker when finalized.
Unrealized losses on notes held during the quarter were offset by unrealized gains from improved performance and upgrades on other watch list other gores.
As well as continued strong realized and unrealized gains from our equity and warrant investments during the quarter, we sold our remaining positions in crowd strike in medallion as well as realized gains from the sale of freshly to Nestle generating $4 2 million in total from these three companies.
From a track record perspective, since our IPO almost seven years ago T. P. V. G's net credit losses are $11 4 million, which represents zero point for percent of our cumulative commitments and 0.7% of our cumulative fundings or roughly 10 basis.
This points per year.
As of December 31, 2020, we held warrants and 60 for companies and equity investments in 'twenty for companies with a total cost and fair value of $49 1 million and $50 4 million respectively.
2020 was an unprecedented year for realizing gains from our warrant and equity portfolio and given the strong market conditions and activities already underway in 2020. One we are optimistic for the continued on lacking of substantial value for these assets over time.
In fact, a couple of notable events in Q1. So far include Hims is successful spec merger completion views anticipated completion of their spec merger and group Internets, Who's who goes by truck space announced spec merger.
Our equity and warrant positions in these three companies are valued at $1 9 million as of 12 31. In addition, several other portfolio companies are in active fund raising and strategic discussions.
We continue to be excited for the near term monetization of these very special components associated with our high yielding debt investments and over the long term, we expect warrants and equity investments to generate realized gains in excess of our realized losses, which is consistent with the track record of Triple point capital whose platform wide real.
<unk> gains are multiples of its platform wide credit losses, which is unmatched in the industry.
As we look to credit in 2021.
We saw last year that venture capital backed companies in general we're extremely resilient to the impact of the pandemic, but there were a few subsectors in our portfolio such as travel real estate and capital markets dependent fintech companies that were negatively impacted.
Monitoring and working with our companies and the sub sectors and their VC investors was a key element of our playbook as we closed out last year, we feel we resolved or exited many if not all of those situations. So that we can focus 2021 on new investments.
More broadly as we look to 'twenty 'twenty, one we believe our execution in 2020 and year to date here in 2021 has provided us with a strong foundation and momentum for advancing our goal of increasing the size of our investment portfolio and the scale and diversification of T. P V G. While meeting the needs of our select venture capital firms in there.
Our venture growth stage portfolio companies.
As Jim mentioned, the key tailwind for us on our sponsors exceptional reputation relationships and collaborative approach, which were only further demonstrated during the volatility of 2020, along with a particularly robust venture capital equity fundraising and investment environment, which is translating into a strong pipeline for.
For us.
In addition, based on our extensive relationships with our select VC investors and the growing needs of their portfolio companies. We've been working on some new use cases and financing structures for some other fintech e-commerce and software portfolio companies as well as certain companies with exceptional scale and we'll roll out some of these financings on AR.
Water basis here in 'twenty one.
Our expectation this year for portfolio growth is for quarterly fundings to start in the $50 million to $75 million range per quarter on a gross basis for Q1, and Q2, and then increase to a $100 million to $150 million range per quarter on a gross basis for the third and fourth quarters.
With regards to Prepays, they continue to be a part of the business and we appreciate getting our capital back as well as the accelerated income, but it doesn't help our goal to maintain a scaled and for fully diversified portfolio and so we're working on ways to maintain our investments after companies raised large rounds of financing.
On a liquidity front, while closing with the closing of T. V. G second investment grade private notes offering combined with our recent success extending and expanding our revolving credit facility. We have lowered our cost of capital increased our liquidity position and diversified and broadened our funding sources. We are pleased to have had to have had more than 30 inverse.
And the notes offering this week and to now have eight banks in our revolving credit facility.
We intend to take advantage of this leverage to fund portfolio growth for us for US here in 'twenty 'twenty. One we also intend to continue to benefit from our Exemptive relief order to co invest with other entities in the triple point flat for them.
And further diversify as we scale as well as take advantage of some of the JV and syndication partnerships among us our sponsor and our strategic partners.
With regards to the dividend we're proud to have declared our third special dividend since our IPO funded primarily from the realized more on an equity gains and to still have generated net investment income in excess of our distributions during a year like 2020, while operating at such a low leverage we continue to have significant spillover income but more.
Importantly, as we reach a more consistent scale of our portfolio and we see more frequent realized gains we expect to review both on a regular and special dividend policies in.
In closing we are proud of our performance during 2020 and are excited to pursue our objectives for this year, but we will maintain a deliberate and disciplined approach to growth and we will continue to follow our long term playbook with a focus on generating strong returns for shareholders meeting the needs of venture growth stage companies and further and nurturing strong.
<unk> with our select venture capital partners.
Now I'll turn it over to Chris.
Great. Thanks, subtle and Hello, everybody before I get into the quarterly figures I would like to again highlight just a few other milestones reached for the year 2020, as we ended the year on a strong note for the full year 2020, we had a record high total investment income of $91 $2 million and a record high.
NII of $47 $9 million, we enhanced our overall liquidity on both sides of the balance sheet diversified the portfolio fully covered our quarterly distributions and increased spillover income even after the declaration of a special dividend.
Let me take you through on update on the financial results for the fourth quarter and full year 2020.
Total investment income was 23 million for the fourth quarter of 2020, our increase of 10% as compared to $21 million for the fourth quarter 2019 totaled.
Total investment income was $91 million for the full year 2020, or an increase of 24% as compared to $73 million in 2019.
Totaling up total operating expenses were $11 5 million for the fourth quarter of 2020 as compared to $10 million for the fourth quarter of 2019 total operating expenses for the full year 2020 were $43 $3 million as compared to $35 1 million for the full year of 2019 the increase.
Here on overall operating expenses is primarily driven by an increase in the asset base.
Net investment income for the fourth quarter was $11 9 million or <unk> 39 per share compared to $11 $1 million or <unk> 45 per share in the fourth quarter of 2019.
Net investment income for the full year of 2020 was $47 $9 million or $1 57 per share compared to $83 million or one.
$1 54 per share for the full year of 2019.
NII per share for the quarter and for the year was impacted by a higher share count given the equity offering we completed in January of 2020.
During the fourth quarter the company recorded $4 million of net realized gains on investments primarily.
Consisting of realized gains from the sale of publicly traded shares held in crowd strike and medallion.
And realized gains from the acquisition of freshly Inc. By Nestle during the full year of 2020, the company recorded $28 $8 million of gross realized gains on investments and $8 6 million on a net basis.
Net unrealized losses on investments for the fourth quarter and for the full year resulted primarily from the reversal and recognition of previously recorded unrealized gains and fair value adjustments on the existing portfolio.
As of year end, the company's net asset value was $400 million or $12 and <unk> 97 per share as compared to $332 million or $13 34 per share as of a year ago 2019 the.
The change in the company's net assets for share in 2020 included the 10 cents per share impact of the special dividend as well as the higher share count as a result of our $80 million equity offering back in January of 2020.
During the fourth quarter, we declared our regular quarterly distribution of <unk> 36 per share from ordinary income and the additional special dividend of <unk> 10 per share sourced from the net realized capital gains earned and recorded in 2020.
In the fourth quarter, we covered our current regular quarterly distributions by 108% and for the full year, we covered our current regular distribution by 109% before declaring a special dividend.
I'm pleased to announce that for the first quarter of 'twenty. One our board of directors has declared another <unk> 36 per share on.
On February 24th to stockholders of record as of March 15th to be paid on March 31st. After this declaration. We continue to have significant estimated undistributed taxable earnings with spillover income of $16 $2 million or <unk> 53 per share at the end of the year to support additional distributions in the.
Future.
We reported unfunded commitments totaling $132 million of which 92% for $122 million of this total will expire during 2021, if not drawn prior to exploration. In addition, all of our unfunded commitments have a prime rate floor set to three 5% or higher.
Aggregate outstanding borrowings as of year end for $263 million and consisted of $75 million of fixed rate baby bonds $70 million on private term debt and $118 million outstanding under our revolving credit facility.
With the aggregate borrowings as of year end, our leverage ratio is six six times or an asset coverage ratio of 252%.
As of year end the company had total liquidity of 252 million, which was almost double our unfunded commitments consisting of $45 million in cash and $207 million of availability under our revolving credit facility.
We successfully amended the revolving credit facility in December by increasing the commitments from 300 million to $325 million and we extended the revolving periods in November of 2022 and extended the maturity date to may of 2024.
We were pleased to announce that we also expanded our lenders syndicate just after year end and in January further increased our total commitments under the revolver by another $25 million, bringing the total commitment to $350 million. While we continue to have the flexibility to increase the lines for $400 million under our existing accordion.
<unk> feature.
We have advanced.
The liquidity of the company and we have enhanced our funding capacity and flexibility to fund investments with the closing of our $200 million private notes offering debt subtle and Jim mentioned earlier.
We fully paid down our revolving credit facility. This week by $100 million and we plan to use some other proceeds this week from this week's offering to redeem all of our outstanding 575% notes.
Due 2022, and these baby bonds, which are listed on the New York Stock exchange are expected to be extinguished within the next 60 days.
We have again successfully extended the maturity of our borrowing at an attractive cost of capital and importantly, we are refinancing our most expensive term debt the baby bonds with 22% cheaper notes.
Currently with the private notes offering this week D. B R. S maintained its investment grade rating on T V G. Given the strength and diversity of our portfolio and a reasonable level of leverage we maintain.
We continue our journey on the execution of our leverage strategy, where we are migrating from largely a floating rate liability structure to an attractive blend of fixed and floating rate instruments and a more balanced allocation between our revolving credit facility and long term notes.
Our weighted average term to maturity has been extended and the earliest term debt maturity will be now 2025, followed by 2026 for the most recent offering.
So this completes our prepared remarks and at this time, we'd be happy to take any questions that you have and so operator could you. Please open the line for questions at this time.
And we will now begin the question and answer session to ask for your question. You May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two and once again that is star then one to ask a question.
At this time, we will pause momentarily to assemble the roster.
And our first question today will come from Devin Ryan with JMP Securities. Please go ahead.
Alright, great good afternoon, everyone.
Hi, David.
So really appreciate all the outlook commentary, but I want to dig in a little bit more.
On the portfolio and leverage levels right now.
It's still well below the target of one times and so you've got a lot of capacity.
I appreciate some of the commentary on investment expectation.
But how are you thinking about kind of overall portfolio growth or potential for that in 2021, just given some of the commentary kind of on the prepayment side and maybe a little bit elevated exit.
Activity kind of how that all plays through on that and tied into that kind of the impact on how we should be thinking about it in the portfolio yield with that.
Great I'll start and then Chris.
Chris and Jim Please jump in so so Devin I think we definitely have line of sight on portfolio growth. This year, obviously, you Wanna be balance since we're focused on.
Quality.
On a return thresholds and things of that nature, but given the pipeline that we have term sheets outstanding plus the unfunded commitments that we have or backlog coming into this year, we feel pretty confident in terms of our ability to grow the investment portfolio and so we view using both.
The term debt offering as well as our revolver is the primary sources of portfolio growth and then we'll take it from there as.
You know as we see portfolio amortization and Prepays, we as mentioned on my right up we do you.
You know have some thoughts on how we can you know keep those high quality assets from those companies that raise huge rounds of financing to to not pre pay us and that's some of my thoughts to help mitigate its a balance situation of wanting to get prepays to get your capital back as a lender and get that accelerated income, but at the same time, keeping a large diversified.
The high quality portfolio is also very important and so.
You know I think we'll continue to always have prepays its a nature of the beast, but our goal. This year is two to two to do what we can in a smart way to to slow that down a bit Chris anything to add.
Yeah, I would just say I think youre right. It is a it's a constant challenge between portfolio growth, which is a great thing given the spreads that we have on our business, but also prepayment income with the fee acceleration and prepayment fees are also a nice kickers for enhancing the the the NII for the year. So.
On the Prepays are hard to.
Project, they are built into the portfolio and with a mature portfolio that we have here.
I would expect those to continue I'm, just not sure of the frequency and velocity of when they come.
Okay terrific, that's great color and then just a follow up maybe taking a step back.
On your overall thoughts on the implications.
Implications.
It's kind of bolt on.
Stock market, obviously, you have a few on portfolio companies that are either.
I think the expectation is that.
This trend.
But maybe it's a little bit hot right now, but it's really structurally not going anywhere and so I'm curious kind of how you guys view that as you know whether it's an opportunity.
Or if it changes at all how youre thinking about underwriting.
To frame for even kind of the overall investment funnel just the bigger picture because it feels like obviously, we've seen a pretty big acceleration over the past year on this going to be a lot to come over over this upcoming year and perhaps you know that this back raised isn't necessarily going anywhere.
Let me start and then Jim I think you've got to have great insights from the sponsor world. So David Great question, you know I think one of our bankers are used the word a spec factory referred to our platform since I think we're approaching almost two dozen.
Both announced and soon to be announce the spec exit across the global the Triple point capital platform. So so I would say again, it's a testament to the quality of the VC sponsors that we work with have again focusing on on the select group of venture capital investors and so I think you know keep in mind, we're a lender so as a lender.
You know, we look to liquidity for portfolio companies as a great thing so if they're raising capital on the private markets or the public markets.
We're indifferent and we like more cash in and it helps our service our debt for.
From the other perspective right, we have that we've talked about the the football field analogy and playing for the end zone or the touchdown right and so our spec as an exit event.
Liquidity for our equity Kickers in our warrants and so we view that where we're appreciative to have an exit event and if it means that our portfolio companies can go public faster through a spec because then they can through a traditional IPO I think conceptually we're supportive or we're indifferent, we'll let the our select.
Our select Vcs and other board members determined which exit path.
They prefer but I'd say from our perspective as a lender.
We have nothing against them.
We're supportive of exit in general and we're supportive of more liquidity for our portfolio companies Jim on how about your thoughts.
Yes.
Guess what comes to my mind is that we're not running our business. These days on spec fever or the portfolio is not based on all kinds of suppositions hypothetical cases of when and if there'll be a spec I mean currently specs are certainly in favor.
It depends on who you talk to whether they're going to last for a month for 10 years, and we're not going to get into a run our business based on that kind of speculation, but with I think it's 75 billion plus out there.
Which is.
Out there looking for targets 250 plus vehicles.
A bunch of our select and other venture funds themselves have specs and for most of the companies sell jewelry mentioned, we have over 20, now one way or another at the platform level in the process and more even growing.
It's not just for what we call Moonshot technology companies R&D company's electric batteries and so forth, but it's also for a number of revenue generating company, some which are doing extremely well.
And cash flow positive, which are also getting out and as you go across the board in spec land.
Would the venture funds for some companies, it's a great way to get out earlier instead of going through that long year, plus cycle and process and again these could be good revenue generating companies while for others. It takes away that whole it administrative issue on a hassle of of <unk>.
Going to raise that next equity round so.
Again, we think it's a good trend right now, but we're not dependent on running our business on it.
Okay. Thank you guys I appreciate you taking my questions and congrats on a nice ended the year.
Thank you.
And our next question will come from Finian O'shea with Wells Fargo Securities. Please go ahead.
Hi, everyone. Thank you.
Just to continue on that interest in dialogue there with.
With this back work yet.
Apparently taking.
Digging further from.
Pre IPO downs for earlier stage.
Then you have as you mentioned the high level of.
V C capital raising.
You have new venture lenders raising funds.
Can you just tie all this together and talk about what the.
The competition is like for a venture growth stage loan right now.
Yeah, I'll take a first stab at debt, so Joe feel free to add but.
Having been in this in my case over 30 years in subs on line doing this together for 'twenty two plus.
This business is not about rate so it's not about interest terms.
And it's a very specialized market.
Yes, there's some very attractive returns in this and in obviously in good times, it's going to attract various names and entrants, but we've been through the cycles, we've seen folks come and go and at the end of the day, it's about the experience. It's about the expertise it's about the reputation the references in relation.
On ships about the firm it's not about you know.
What's the spread what's the percentage over this or that.
Or for many cases, not even about the name as much as about the party the reputation the team the deal flow and there's a reason that we believe we're the leader in this segment.
Yes, maybe I could add something so I think what we're seeing is particularly coming off the <unk>.
The resiliency of the pandemic to the venture in the Tech ecosystem and then signs of you know hopefully recovery of the global economy. As you talked about you know the capital markets are heating up. So so I think what that's causing is a catalyst for for companies to grow and so I think that's kind of the fundamental.
The most important factor right venture back companies Tech companies are growing they're growing which means they need capital and so that capital.
And if anything because of the environment, they're in they're actually turning up a burn right. So when we saw in the midst of COVID-19 companies or portfolio companies. Other tech and venture backed companies were cutting burn cutting marketing spent cutting head count to preserve runway now we're seeing again signs of growth acceleration increase in burn.
Learn which is causing the demand for more capital. So as you know right. There two sides of the equation. There is the equity side on the debt side. So our thesis has always been to venture backed companies get equity from quality sponsors right. That's important that's a critical source of capital for your business on the strategic value associated.
With certain venture capital firms and private equity funds you want them in your cap table and then the roll of venture debt is to minimize the dilution of the total raise and to complement the equity capital. So don't over raise equity raise it from the right parties. The right sponsors the right valuations and then layer on venture debt.
So that you get to the total capital needs of your business, but you entrepreneur minimize or.
The total dilution that you take them and at the same time for the existing vcs in the existing sponsors right. We helped boost their returns as well by preserving their ownership and also reducing the check size that they necessarily have the right as well. So it's got a win win from the entrepreneurs perspective from the existing investors perspective and.
Again, given the current environment, that's causing that demand for debt as Jim said listen.
Competition, there's always going to be competition, if there wasn't a we'd sort of be scratching our heads, but I think we all we offer more than just money, which I think is the theme that Jim was coming with particularly the way that we handle on ourselves during not only the last year's volatility, but the cycles before that and I think you know our VC sponsors recognizing.
Value trusted partnerships being there in good times and bad long term track Records you know on the venture World in particular on the Tech World, It's about pedigree and reputation.
Portfolio companies don't pick certain D CS or certain sponsors because they gave them the highest valuation or are they wrote the biggest check right. It's the track record. It's the value add and so we think of our thesis has always been that the entrepreneurs that value reputation track record on long term partnership for the ones that we want to work with and and that's how we run our business. So.
Okay.
I can only add as a footnote and you've hit the competitive nerd question here competitive nerve question that is but.
So it's a subtle says it's definitely a.
Alan on the equity debt spectrum in the competition.
Vince at the venture growth stage, primarily remains equity it's not.
Other so called venture lenders as much as for companies with so much equity out there and so many alternative hitting that right spectrum of.
The amount of a triple point debt in the amount of equity.
Sure I think it's all very helpful and just a follow up.
I guess for I think both Jim and <unk> mentioned, a new new funding.
Sensing products new products.
Can you just give us.
Any color on on this platform growth on.
How it relates to the BDC and actually.
Let me throw it in there.
I think I also see the term life Sciences more on your website correct me, if that's not new but just to make sure you addressed that as well.
Tell us about the new products.
Yeah, well I'll start so first of all I can tell you all of our products for that.
Oh World knows so I'd, just generally say as we said listen we've given our expertise and track record on the relationships. You know we've just in the pattern recognition and the needs of our companies. We've identified certain sectors. I think we mentioned again in the consumer Fintech and software in particular those companies have.
Growing and unique needs given the the asset base, the burn profile and the exit profile and so.
For many years have been pretty good other financing products for them and given our large platform have you know multiple vehicles and an allocated appropriately and so we just see a growing opportunity to help those companies with their growth and really to target our capital for the specific use a use case that they're focused on.
And so I think it is.
It's exciting it's a pretty nifty and we've had some real successes and I think the other key is we're definitely seeing are companies again going back for this thesis of growth and scale I mean, our companies are getting bigger several hundred million dollars' worth of reoccurring revenue and they want to continue to be a triple point portfolio company and so you know the.
The needs of a company like that are very different than a company. That's just on the cusp of the the $20 million to $25 million.
For growth stage, you know a limit for us or qualifying that metric and so it's important for us to have the broad products and needs for for those earlier growth in those later growth whatever you want to call them in and so I think that's the exciting thing for us.
And I would only add.
You know to the extent life Sciences is a large word a big sector and means for lots of different folks, but we are definitely had been active in call. It the digital health sector health and wellness as a number of T. P V. G portfolio companies in that broader definition then what.
We do on that segment as a function of what our select investors do and that is an area that's starting to grow and.
So certainly platform wide so not just T. P V G, particularly at the early stages, we're seeing a little bit more activity and are.
Continuing to work in that market to an extent as well.
Okay very well thank you.
And our next question will come from Casey Alexander with Compass point. Please go ahead.
Yeah, Hi, good afternoon, Jim I think your slip of the tongue competitive nerds was an attempt to describe every single person on this call. So [laughter] take it back.
Congratulations on the 200 million dollar financing.
Not surprised to see a lot of people are gonna be sad to see the.
The baby bonds go bye everyone.
Everybody certainly enjoyed those do you know what the.
And this is for Chris actually do you know what the remaining.
Deferred amortization of offering costs on the baby bonds is gonna be I assume that'll be a second quarter charge.
But yes, so that'll be a charge as a.
A cost from a realized loss from extinguishment of debt.
So not part of NII will be below the line about 600000.
Okay that would be below the line.
600000, great. Thank you.
Seeing as yourself described as these back factory does the preponderance of Spacs hitting your portfolio of companies is that gonna make it create some difficulty for you to get to the target leverage ratio because generally when a company is bought by a specter of Dutch additional investors brought.
In who bring substantial capital and at the end of the day the lenders to the non.
Non public company get taken out so is that going to make it difficult to get to the target leverage ratio or create some difficulty.
Yeah, Casey I think it depends on the the the profile of the company. If we look at maybe our historical Spacs those who'd been companies that have paid us off some some time ago and so I would say, it's a function of the of the bar that is set for for specs and so.
And the platform, we had a portfolio company 11 years ago, we learnt in the originally to them. So I would say so far.
We have not seen a case, where an obligor with existing loans outstanding AR has pursued this back merger. It's been some time after our debt paid off and so so we haven't had any near term impact from existing debt outstanding, but but yet to the extent that they can attract cheaper capital although again.
I'd say most of the time these pipes for equity not necessarily debt and so there's an opportunity clearly to if you know the credit and if you have a history there to provide capital in a potential Despect company post IPO.
Okay, great. Thank you.
I'm curious.
About prodigy.
On it.
In that.
Prodigy came down to the 11th hour before they were able to pay essentially at maturity.
And and it was clearly a little bit of a dicey situation and one that you had marked down in the in the credit bucket.
So.
Hugh you then extended a new loan at a lower rate than the last hurrah loan and picking and so I'm just curious as to the cupboard because those are sort of an incongruous combination of facts that would result in a new loan at a lower rate, but but picking the interest.
Yeah. So so good good cash kind of keeps you. So so yes during the quarter, we restructured our loans with with prodigy, which is for those.
International graduate student lending business.
And actually as you pointed out it was a.
They raised a significant amount of capital during Q3 and Q4 on the leverage side as well as other capital for the company.
So a portion so we restructured a portion of our loans plus we actually did a convert a portion of our loans into a preferred equity tranche into the company.
And so the I think it really.
The impressive thing is that the based on the company's kind of activities and progress. We are actually set up really well for long term success. Their portfolio has actually held up pretty well and I think more importantly, the securitization markets have come back on.
Quite favorable so I think were you know.
Our Mark is the same on aggregate essentially from where we were Q for Q3 for Q4, so reflecting a little bit of the for noise in some of the other factors, but more importantly, I think again the company is set up for.
Long term success in our opinion.
You have.
Sort of a timeframe in mind at which you think you might be able to take it off of Pik.
It it actually has a structure and so I.
I don't think it's but yes, we do expect it to come off pick them prior to it.
In the near future.
Okay.
Next I'd like to ask.
If anything what you guys think you learned from the <unk> experience and and I ask that in light of the fact that I asked about it over several quarters. It was still marked in the in the mid to high nineties.
And ultimately resulted in a 50% pay off was there or was there something to be learned I mean, we all gained from experience.
And making mistakes, which I certainly make my fair share of them, what what possibly could you guys have learned from the <unk> experience.
Yeah, Let me start and then Jim please jump in so so I would say again hotel is was quite the victims of Covid and sheltering in place right. This company raised hundreds of millions of dollars of equity from Premier venture capital funds sovereign wealth funds and large real estate organization. So it had the backing of.
Of you know some some very sophisticated intelligent equity investors as well as I saw on the leverage side and so I think as we discussed during the write up.
You know the company had attempts and offers or had attempts for extra liquidity and strategic and pursue them and they were unsuccessful. So I think our mark during that period of time represented you know on.
Our assessment of the the fact pattern the facts and circumstances and the likelihood associated with those events and once those events are you now.
The probabilities associated with them.
Reduced then you know our fair value reflects that so I would say listen I think we had hoped for a recovery sooner than we had hoped for events to to occur be it equity be it strategic M&A and when that those didn't that's when I think the I think the takeaways, we moving fast right things change things change quickly and so I.
You know its interesting scenario here, where if you look we've had success of working through challenged credits I'll pick on mine Candy I'll pick on some other names some that we exited in the quarter in fact on full repayment and I think the difference here with with no tell was one hey, we assessed the situation the complexity of it the lungs.
Near term and long term needs of the company and we determine listen this isn't one where it makes sense for us to stay and put more capital in kind of have our workout teams and our investment teams kind of be engaged for for more we said listen we assessed it and an opportunity came in and we took advantage of it so listen no no credit manage.
<unk> perfect and we never said, we were I think as we look to the entry point of that credit we all of our underwriting supported lending for that company and lending the amounts that we did I don't think any of us could've factored in Covid I don't think any of us could've factored in the fact pattern of no tell that not the whole world knows about and it is what it is.
But I think we're proud of how we handled it and how timely we did it and the ultimate recovery I mean, the company filed for bankruptcy and so we got a 50% return plus we have some upside potential. So I think it's not a drag on our team. It's on a drag on more capital from us and so all things being considered it it was a it's something that's behind us and resolved and yes, we're not.
Happy about taking a loss, we never should be but you.
You know I think we're optimistic of our existing warrant and equity portfolios ability to recover those losses as we've done in the past Jim anything that's great yeah. Thank.
For that Oh.
Go ahead I'm sorry.
Well actually my comments were pretty much mirror, what Sergio said and in terms of what would be different most likely nothing because it's a it's a COVID-19 casualty and no. One would have force for saw Covid COVID-19 coming so and there were certainly multiple it's a.
Privately held company and so there's just so much we can say, but as Sergio mentioned there were multiple equity signed term sheets debt term sheets et cetera, and are things just didn't work out and all things considered to use social as exact words.
We actually as credit managers.
I think when you look at the larger picture had not only a very good recovery here, but there's still more to go and then we'll see where that goes on on a portion of it.
As well as from any perspective, we avoided what might otherwise have been years of bankruptcy proceedings and costs and so on and so forth.
Okay, great. Thank you for that lastly, just any update on Rowley.
Yeah, I mean, we if you look at the value accretive quarter over quarter for for release, So it's not out of the woods, but if.
If you've seen some very favorable product reviews, and some awards that they won for their product in Q4. So we continue to be balanced, but we feel again.
Conditions continuing to improve it really.
Alright, great. Thank you for taking my questions I really appreciate it.
Thank you Casey Thank you.
And our next question will come from Christopher Nolan with Ladenburg Thalmann. Please go ahead, hey, guys.
As Jim what is the company is growing what investments do you see offered the best operating leverage for.
For your company.
Well by operating leverage could you elaborate.
Sure, which one.
<unk> can grow revenues for then they grow expenses.
Oh well.
I'm not sure we're at the level, where we'd want to again. These are privately held companies get into into individual names one of the biggest I'm.
I'm not talking about triple pointed out what investments you on making your existing business back in systems people or whatever you can.
Actually grow the triple points business.
Yeah, so from that standpoint, we're talking about growing and scaling and so across the platform and again T. P V. G. As a focus here, but we are in a a staff up mode, a hiring mode and originations mode.
Increase social talked about how our plans for some.
Financing products, new ones expansions are I'd say, not only underway, but but well underway and so we are building.
And continue to build the infrastructure. There's just so much we want to say in terms of the expansion in the European markets.
It's always a tradeoff between.
The cost of growing in growth itself, but.
I think that's how I view it I would just add Chris.
Chris for so so as we look to what's.
It's it's the sponsor really our venture capital fund relationships are so critical right because.
They're investing in their.
Their portfolio companies that turn into potential and prospective portfolio companies for us and so you know and it killed key element to the platform strategy is lending to all stages of portfolio companies. Early later growth T V. G focuses.
Solely on the venture growth stage, so so the leverage and the benefit to TPG is as our sponsor is active in the early in the later stages. There's other segments those portfolio companies translate its like a farm system right. So as they grow and develop they become potential TPG portfolio companies and so the leverage and scale.
Is not only continuing to foster and build our and deepen our select VC relationships from deal flow for growth stage obligor ours, but it's also to continue to foster our early stage and later stage business segments for the platform because again those portfolio companies will one day grow up hopefully grow up.
To be T. P V G portfolio companies and so I think that's a critical element to that and that's why as we then elaborated on that.
One vector or a couple of vectors of growth and then you know to quote some of our consumer e-commerce portfolio companies right.
Driving up a L. T V right, you've got a certain CAC right, there's a time and Theres a credit underwriting and then driving up lifetime value and the way you drive up lifetime value is either multiple credit facilities with that portfolio company or multiple different financing products and so that's what we're focused on and as we talked about some of these new.
Strategies and structures, it's driving up LTV potential with our existing portfolio companies and potential new ones and so that's what we're excited about.
Okay. That's it for me thank you.
And our next question will come from Ryan Lynch with K VW. Please go ahead.
Hey, good afternoon on two questions. The first one is on prodigy.
Year preferred shares I don't believe that they have any yield component to that can you confirm that and then assuming that pay down I would assume that the structure of that would then allow you to participate on the upside and potentially gain.
On the value of net investment if that company's performance.
Turned out to perform well.
Yeah. So so Ryan they do have a yield component associated with them and they do have a senior ranking in the cap table. So.
They're not traditional equity we don't have them.
Board seats or anything like that we're not on a control position.
And so I think that's kind of on one of the benefits is a it's a very much a hybrid like structure.
What is the yield on that.
In our 10-K.
Chris do you have on hand.
Yeah, it's 8% Pik.
System with the debt.
Okay.
And then.
Yeah on the other one that I add on was you talked about quarterly funding going from $50 to 75 nine in Q1 and Q2 for 100 day $150 million. Thank you for I guess, what sort of assumptions or changes in the market environment are you, making relative to what that market environment looks like today that they can.
As you the confidence that youll be able to debt basically double your fundings in the back half of 2021.
Yeah, So Ryan I would say if if we were to look at the track record of TPG and let's say, if we crossed out 'twenty 'twenty and if you looked at where we were 2019 basically we're articulating.
A pattern you've seen before and so it's a.
A couple of factors. So one it's not some hope for promise of great. These guys have got to generate in back half of the year and that's where we've got a billion plus kind of pipeline as it is what it is is a couple of things. One is generally a portfolio companies drawn debt towards the end of the year, if right because they want to use it before it expires they want it.
Their balance sheets for yearend audit purposes, and because if theyre going to a fund raise in the next year or so so that's why the second half of the year is generally a larger fundings than the first half of the year and then I think the other part of it is just you know there's this pent up on.
Fund raising of of people that were waiting to see how twenty-twenty panned out before they looked to raise more debt on raise more equity capital and so where we're also seeing that right now as we look to kind of the portfolio and the continued increase in demand that we're seeing there. So I'd say no change in methodology no.
Huge assumptions no hiring lots of people to go find pipeline. We've got line of sight to it it's kind of consistent with what we've demonstrated in prior growth years.
Okay understood.
Thanks for taking my questions.
Great.
And this will conclude our question and answer session I'd like to turn the conference back over to Jim Labe for any closing remarks.
Okay. Thank you operator, I'd like to thank as always for stakeholders in all of our Triple point friends.
I'd like to think there's quite a few on the line and everyone else for listening are participating in our call and we hope everyone continues to remain healthy and look forward to talking with you next quarter.
Thanks, everyone Goodbye.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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Yeah.