Q4 2021 Triplepoint Venture Growth BDC Corp Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the Triple point venture growth B D. C Corp, fourth quarter 2021 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.
We'll be available in the audio webcast on the Triple point venture growth website.
Company management is pleased to share with you.
The company's results for the fourth quarter and full fiscal year of 2021 today, representing the company is Jim <unk>, Chief Executive Officer, and Chairman of the Board schedule Srivastava, President and Chief Investment Officer, and Chris Mathieu Chief Financial Officer before I turn the call over to Mr. La Bay I would like to direct your attention to.
The customary safe Harbor disclosure in the company's press release regarding forward looking statements and remind you that this that during this call management will make certain statements that relate to the future events or the company's future performance or financial condition, which are considered forward looking statements under federal Securities law.
You are asked to refer to the company's most recent filings with the Securities and Exchange Commission for important factors that could cause actual results to differ materially from these statements. The company does not undertake any obligation to update any forward looking statements or projections unless required by law investors are cautioned not to place undue reliance on.
Any forward looking statements made during the call, which reflect management's opinions only as of today to obtain copies of the latest SEC filings. Please visit the company's website at Www Dot T. P. B D. Dot com now I would like to turn the conference over to Mr. Jim Lebesgue. Please go ahead.
Thank you operator, good afternoon, everyone and thank you for joining T. P V Ge's fourth quarter and full year 2021 earnings call.
2021 was a year in which we generated strong results and returns for shareholders as we executed against the playbook, we established at the beginning of the year.
This culminated in the fourth quarter, which included achieving several new record since our IPO, including portfolio size signed term sheets and closed debt financing commitment.
We continue to capitalize on the thriving venture capital environment throughout the year, while building a significant pipeline and maintaining T. P V Gees proven and disciplined approach of working with select venture capital investors.
For the fourth quarter, we grew the investment portfolio to a record 865 million.
And achieved a weighted average portfolio yield of almost 15%.
Our fundings exceeded our target range and represented the second highest funding quarter since our IPO.
In the quarter, we more than doubled our debt financing commitments over the previous quarter.
Achieve leverage within our target range and continued to diversify the portfolio.
Our portfolio of high quality technology, driven venture growth stage companies also remained very healthy with strong credit quality.
The quarter was topped off by delivering net investment income of 42 cents per share over earning our dividend.
Our net asset value or NAV also grew on a quarterly as well as a yearly basis.
The NAV accretion during the year continued to benefit from the equity investments in warrant Kickers that we negotiate as part of our debt commitment.
Demonstrating the strong upside potential of the portfolio as well as reflecting the many attractive rounds that our portfolio companies closed during the year.
As we originate new loans, we continue to pick up additional equity and warrant Kickers that we believe will further drive capital gains upside in our portfolio.
And create long term shareholder value.
In terms of market opportunities here in 2022 we're encouraged by the outlook for venture lending and for T. P V G.
The Choppiness and rotations in today's public technology markets can benefit our venture lending business.
Which is somewhat counterintuitive and not necessarily apparent on the surface.
There are several factors behind how these market uncertainties are generating increased demand for venture lending.
First the venture capital markets remain robust, providing us with an excellent operating environment in which to execute.
By all account 2021 was a record breaking year in venture market.
Total venture deal value was 330 billion almost double that of 2020.
The markets, especially strong for growth stage companies within the late stage venture capital market segment in which we operate.
Where the total deal count in 2021 with over 5000 deals representing some 228 billion in investment.
So far this year the momentum continues.
Venture capital deal investment activity, particularly among our select group of leading investors has continued unabated here into early 2022 .
Second there are several trends that we're seeing in today's market, which is driving incremental demand for T. P V G.
The longer timelines for spec in IPO transactions are prompting some companies to evaluate debt solutions.
This increase timing to exit creates and fuels opportunities for our debt financing.
In other cases, many companies have completed equity rounds last year are either now seeking that are seeking to upsize your debt with us or returning to T. P V. G for additional debt capital as a way to complement and enhance their equity raises in light of their future financing strategies.
Especially given the potential for unknown shifts that occur.
Could occur in future private or the public market valuations.
And still other cases, there's a number of companies out there seeking additional runway for future equity round timing purposes.
And so I think of it last year was really call. It the year of the equity raise and although companies are still raising equity capital. We are witnessing a swing towards layering in more debt financing this year in the strategies that many many companies.
This serves as another strong driver to the steadily growing pipeline we have.
Finally already again early into this year, we're already seeing increased acquisition and consolidation opportunities as another continuing driver.
Well today's market conditions favorably increased demand as we look to our existing portfolio companies.
We're very pleased with the strong position that they're in.
They have substantial cash runway on hand.
T. P V T portfolio companies raised a staggering $5 8 billion of fresh equity capital last year.
Another promising factors that many of these portfolio companies actually stand to benefit in this inflationary environment, along with the labor shortages in the supply chain backups.
It's driving many businesses to invest in or accelerate their purchase of the efficiency enhancing I T products and services that are offered by our portfolio companies.
T. P V G portfolio companies provide elegant technology solutions through productivity and supply chain software AI security identity robotics, and other technologies that help customers greatly increase the efficiency and the turnaround time as well as helping.
Drive down the cost of their businesses.
In other words, we believe the fundamentals continue to remain as good as they've ever been for privately held venture capital backed tech companies.
Not only is the result of those earlier Covid initiated development, which did favor the further adoption of new technology products and services.
But now also in this rising cost environment in today's market.
In enterprise Tech the prolonged supply chain disruptions and labor shortages are prompting a lot of businesses to invest in automation and robotics technology and it even more accelerating rate.
Within health Tech, we're seeing increased traction in telemedicine pharmaceutical deliveries connected fitness products, and then consumer Tech and Fintech insured Tech prop Tech technology has permanently changed consumer behavior in a way that enables these companies to benefit from faster than ever.
Market acceptance of new products and services.
Yeah.
The ecosystem continues to be favorable for venture lending, while the barriers to entry remain high.
<unk> to preserve T. P V Gs advantages and our ability to capitalize in today's market.
Reputation references and relationships continue to drive our business.
And we believe that based on our long track record of Celgene and I working together for what is now more than 22 years through many of these cycles as well as with our deep industry relationships. It gives us a significant niche in the market.
To wrap up.
Our success last year as a result of our consistent execution of the playbook.
Our relationships with a select group of top tier V sees an entrepreneur has continues to provide us with unparalleled access to high quality deal flow.
With the recent completion of our third investment grade offering we have significant liquidity now to continue funding and closing financings within our large and growing pipeline of high quality venture growth companies.
We believe our portfolio and business is strategically positioned for the future.
And we're excited about the outlook for this year.
We believe 2022 will be the year of continued execution growth.
And performance and we remain poised to provide strong returns to our shareholders.
Let me now turn the call over to you subtle.
Thank you Jim and good afternoon, we are pleased with our execution in 2020 one against the quarterly playbook, we put together based on the resilience of the venture equity in venture lending markets. Despite the pandemic and our disciplined approach to growth and this quarter's investor deck, which you can find on our website.
We included a new slide slide number 16, which I think does a great job summarizing the results of our playbook, along with key performance indicators, which I'm proud to say all improved every single quarter in 2021.
In particular, our fundings core portfolio yield without the impact of prepayments.
Size and diversity of our funded portfolio the value of our warrant and equity investments, our net asset value and our leverage valley leverage ratio all increased each quarter, while our portfolio loan to value portfolio credit score and percentage of loans on nonaccrual decreased each quarter.
Our playbook and performance not only demonstrated the core differentiators of our venture growth stage lending strategy, but also the benefit of the 22 year track record that Jim and I have together the.
Quality and perseverance of our team and equally important the benefit of being sponsored by Triple when capital a well established highly regarded and proven global investment platform.
During the fourth quarter Triple point capital signed a record 725 million of term sheets with venture growth stage companies and we closed $232 million of debt commitments to 16 companies at T. P V G.
We received warrants valued at $3 million in 18 portfolio companies and made equity investments totaling $2 7 million in five portfolio companies.
For the full year Triple point capital signed a record $1 5 billion of term sheets with venture growth stage companies and we closed a $541 million of debt commitments with 34 companies at T. P. V. G of which 27 were new obligor and seven were existing Apple of course.
We also acquired warrant investments, representing $8 5 million of value and made $5 2 million of equity investments.
During the fourth quarter, we funded 161 million in debt investments to 19 companies, representing an increase of 38% from the third quarter and exceeding the target range we provided.
The debt investments funded during the quarter carried a weighted average portfolio yield of 14.4% at origination.
During the full year, we funded $411 million of debt investments to 39 companies with a weighted average portfolio yield of 13, 5% at origination.
Also during Q4, we had $61 million of loan prepayments, resulting in an overall weighted average portfolio yield of 14, 9%.
Excluding prepayments core portfolio yield was 12, 3% up from 12, 1% in Q3.
In 2020 , one we had $161 million of loan prepayments, resulting in an overall weighted average portfolio yield of 13, 7% for the year.
Excluding prepayments core portfolio yield was 12, 1% for the full year.
As at the end of the year, our 91 portfolio companies were spread across 35 sub sectors with our largest concentration in business application software, which represents nearly 13% of our portfolio.
During the year, we increased the number of funded portfolio companies by 50% to 49 outstanding Albacores as of Q4 as compared to 33 as of Q4 2020.
As Jim mentioned, we continue to see strong equity fund raising activity in our portfolio, which is a testament to its quality during the quarter 13 portfolio companies raised over 2 billion of capital.
The total to 33 portfolio companies raising over $5 8 billion of capital during 2021 on top of 29 companies raising over 3 billion in 2020.
Moving to credit quality this quarter, we achieved one of our best quarterly credit quality rankings with a weighted average credit ranking of 1.87 compared to 1.94 as of the end of Q3 and 2.13 as of the end of Q4 'twenty.
During Q4 and the entire fiscal year no new obligor as were added to category four or five and no new obligor, which were placed on nonaccrual.
During Q4 five portfolio companies were upgraded from category two to one and two portfolio companies were downgraded from category two to three but we're pleased to report that one of these companies has already raised capital and the other company has achieved positive adjusted EBITDA.
As of year end, we held warrants in 81 companies up from 64 companies as of Q4, 2020 and held equity investments in 40 companies up from 24 companies as of Q4 2020, with a total cost and fair value of 63 million and $108 million respectively. This hub.
$8 million of fair value is double the fair value of our warrant and equity investments as if Q4 'twenty.
$50 million.
2021 was an unprecedented year for gains for from our warrant and equity portfolio with some of our most positive movers, including revolute.
MIT and upgrade due to private rounds of financing and for drunken toast due to ipos, resulting in $36 1 million of net realized and unrealized gain on investments or $1 17 per share for the year.
We continue to be excited for the monetization of these upside components and kickers associated with our high yielding debt investments overtime.
Consistent with the track record of our sponsor, we expect warrant and equity investments to generate realized gains significantly in excess of any realized losses.
All of this performance culminated in an increase in our net asset value of one O four per share to 14, one per share from our net asset value of 12 97 per share as of December 'twenty 'twenty, which is also an increase from our pre pandemic net asset value of $13 34 per share in December 2019.
<unk>.
To take a step back 'twenty 'twenty. One was also an exceptional year for our sponsored Triple point capital and the Triple point platform as a whole.
Can triple point capital continues to be both the industry leader and the largest non bank lender to technology companies across the globe backed by who we believe are the best venture capital funds, having signed term sheets across the platform and across all technology strategies of more than 2.5 billion in 2020.
One.
Keep in mind Triple points mandate is not to be everything to everyone, but rather a partner to the best technology focused venture capital funds and the platforms performance in 2021 reflects a huge addressable market. These funds represent and our strong relationships with them.
The Triple point platforms are unmatched brand and reputation differentiated approach growing AUM on a global basis and diversified funding vehicles has benefited T. P V. G in numerous ways, including access to Sidney if significant venture growth stage deal flow.
Crossover investment from our Blue chip institutional investors across vehicles.
And also from portfolio diversification in 'twenty 'twenty, 190% of T. P. V. Gs deals were co investments with other platform vehicles, enabling T V. G to meet the large and growing needs of venture growth stage companies, regardless of transaction size, while maintaining a robust and.
Diversified portfolio.
With regards to portfolio growth here in 2022.
Our range forecast for gross investment fundings for the full year is between 400 and 600 million.
With Q1, similar to last year likely in the range of $50 million to $75 million for the quarter due to seasonality.
A range of 50 to 100 million for Q2.
And then increasing to a range of 100 to 200 million each quarter on a gross basis for the third and fourth quarters as Jim mentioned, we believe that the current market volatility creates demand for additional capital, including venture debt and we expect this to translate into strong fundings over the second half of the year, but we will.
Not compromise our disciplined quality for portfolio growth's sake.
With regards to loan prepayments they continue to be a part of the business and we appreciate getting our capital back as well as the accelerated income that is generated here in Q1, we've already had loan prepayment activity from Casper as a result of its take private transaction from saundra as a result of its back and from virtual.
<unk> and others.
Closing, we are proud of our performance in 2021 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 nurturing strong.
Our relationships with our select venture capital partners.
I'll now turn the call over to Chris.
Great great. Thanks, a subtle and Hello, everybody.
During the fourth quarter, we continued to significantly grow portfolio assets, while operating and admin expenses were stable, we continue to see favorable utilization rates on new debt commitments to our portfolio companies, we deployed capital using our attractive sources of leverage and increase the overall leverage ratio to our current target levels.
Yeah.
While maintaining excellent credit quality in the portfolio and we entered 'twenty two with a record portfolio size, a diversified capital structure and ample liquidity at the ready let.
Let me take a take you through an update on the financial results for the fourth quarter and the full year of 2021.
Total investment income was $25 million for the fourth quarter with a portfolio yield of 14, 9% on total debt investments as compared to $23 million or 15, 2% for the prior year period total investment income was 87 million for the full year, 2020 , one as compared to 90.
1 million for the prior year period.
We are pleased that the onboarding yields continued to be strong and stable and given the prepayments we reported a weighted average portfolio yield of 14, 9% for the quarter and 13, 7% for the full year.
We reported a new record for portfolio fair value of 865 million at year end, an increase of 37% from a year ago.
Given much of the growth in the portfolio occurred in the second half of the year. The full benefit was not yet felt in Q4. While this was certainly a great outcome, we expect to see increased benefit of a larger portfolio, including a continued growth in quarterly interest income and NII in 2022 as we have now.
[noise] reached more scale in the debt investment portfolio.
Total operating expenses were $13 million for the fourth quarter as compared to $11 5 million for the prior year period.
Consistent with prior periods operating expenses for the fourth quarter consisted of interest expense base management fees incentive fees and general and administrative expenses total operating expenses for the full year of 2021 were 46 million as compared to 43 million in the prior year period the increase.
And overall operating expenses is primarily driven by an increase in portfolio assets, an increase in the use of attractive leverage and growth in pre incentive fee income.
Net investment income or NII at year end was 12.9 billion or 42 cents per share for the fourth quarter compared to $11 9 million or 39 cents per share for the prior year period.
Net investment income was $41 million or $1 33 per share for the full year.
Third to $47 9 million or $1 57 per share for the prior year period.
There was little volatility in the realized and unrealized gains for the fourth quarter with just $1 million of net gains in the period.
Net asset value increased quarter over quarter and year to date.
Net increase in net assets, resulting from operations was $13 9 million or <unk> 45 per share for the fourth quarter, while for the full year net increase and net assets, resulting from operations was $76 6 million or $2 47 per share.
2021 compares favorably to 'twenty, 'twenty, where net increase and net assets from operations was 35 million or $1 16 per share.
Net asset value at year end was $434 million or $14.01 per share an increase of $1 four or eight 8% increase compared to 400 million or $12 97 per share is up with the prior year end.
I'm pleased to announce that our board of directors has declared a regular quarterly distribution of 36 cents per share to stockholders of record as of March 15th and will be paid on March 31st in addition to over earning the dividend. This quarter. We continued to retain significant spillover income, which now totals $12 $5 million or <unk> 40 per share.
Sure at the end of the year to support additional regular and special supplemental distributions in the future.
As we continue to experienced portfolio growth overtime and further record portfolio loan prepayments, we expect to maintain net investment income at levels that cover current regular quarterly distributions consistent with our long term track record and I also note that in this current period NII to dividend coverage was 113 per.
<unk> for the fourth quarter.
And so I just discussed and for modeling purposes, We expect total annual gross fundings in 2022 to be in the range of 400 to 600 million with our pace of fundings, increasing over the course of the year.
Now, let's move to unfunded investment commitments. We're pleased to note that we continue to experience high utilization rates on new commitments during the fourth quarter.
Given the robust pipeline that we mentioned earlier, we ended the quarter with $191 million of unfunded commitments to 22 portfolio companies of the 191 million $131 million of that total will expire during 'twenty, two and the remainder will expire in 'twenty three or later.
70% of these unfunded commitments have contractual floating interest rates, all of which have a prime rate floors set to 3.25% or higher.
This compares to the existing loan portfolio outstanding, which had 52% contractual floating interest rates.
So now just a quick update on our credit facility, our term notes and overall liquidity.
As of year end, there was $270 million outstanding on our fixed rate investment grade term notes and another 200 million outstanding on our floating rate credit facility.
We ended the year with a 1.08 times leverage ratio also known as an asset coverage ratio of 192% with the growth in the debt investment portfolio. During the year, we successfully reached our target leverage as of the end of the year.
As far as 22 goes we've recorded $89 million of portfolio loan prepayments already this year, which has generated more than $3 million of accelerated income strong prepayment activity. In January has added to an already strong liquidity base and as of today with the consideration of the newly issued.
<unk> debt this week and the resulting pay down on our credit facility, we have a leverage ratio of approximately <unk> nine times. We continue to have the overall target leverage range of one times to one two times leverage.
The revolving credit facility as compared to a fixed term debt allows us to efficiently manage our interest expense by reducing our outstanding debt from time to time on prepayments occur within the portfolio.
As of year end the company had total liquidity of 209 million consisting of cash of $59 million and $150 million under our revolving credit facility. In addition to the strong liquidity the existing seasoned and diversified portfolio provides cash flows, which bodes well for sustained liquidity through.
Out 2022.
We continue to see ongoing contractual repayments of principal and also loan prepayments as a natural and important part of the high quality and diversified lending portfolio that we have.
As we reported on Monday, we successfully closed and funded our third investment grade private notes offering and received $125 million. This fixed rate five year term debt provides additional accretive financing for the benefit of our shareholders, notably the pricing on the notes reflected a 310 basis point spread to the value of the U S.
Five year Treasury on the daily priced representing a tightening or improvement of 85 basis points from the spread on our last deal. We did back in March of 2021.
And a 97 basis point improvement to our issuance we did in March of 2020.
With this transaction now complete it brings us to 395 million in total private term debt with the proceeds of this offering we did fully paid down our revolving credit facility, which we expect to draw upon when needed to further grow the portfolio with accretive leverage over time for the benefit of our shareholders.
With the completion of the financing this week and against the backdrop of rising interest rates are 100% of our current outstanding leverage is at a fixed rate.
52%.
Our debt portfolio was floating rate.
And so we stand to benefit from higher rates over time with this transaction now complete we have three layers of term debt maturities with the earliest to occur in 2025.
So this completes our prepared remarks and so at this point, we'd like to take questions. So operator, if you could prepare the line.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys and to withdraw your question. Please press Star then two.
And our first question will come from Finian O'shea with Wells Fargo Securities. Please go ahead.
Hey, everyone. Good afternoon.
Our first question for Jim and saw Joel you talked about the the opportunity opening up even more so post quarter.
With market conditions.
Are you seeing them.
In real time.
Proved mentioned and.
Items like warrants E O T a coupon or any of the above.
How are the the conditions for for Nu.
New origination and term sheets.
Yeah, let me take it so I would say listen.
Looked at the assets, we on boarded in the quarter, a 14.4% weighted average portfolio yield. So so I'd say, we've always done our best to maximize both the the debt pricing and the warrant structure as well as any other covenants.
Element. So so I'd say, yes, we're always looking to take advantage of opportunity to increase rates and increase our warrant coverage.
A very well appreciate that and just on this quarter. Yeah. Overall overall fundings were obviously very strong.
And at least in good part due to due to your delay draw unfunded profile.
And that was largely before before more significant volatility.
A little.
Little bit did start you know on the on the interest rate side.
Before year end, but.
Nothing like we've seen in the first quarter.
So was there any sort of.
Macro impact or was a lot of the city of synchronic or.
Due to the <unk>.
The vintage of the unfunded profile and if theres any color you could provide there.
Yes, I would say, it's none of the above so I would say.
The if we look at the breakdown of the fundings in the quarter. It actually had a significant or was a significant portion of it was due to the new commitments. We closed in the quarter, which were actually obviously were transactions that we sourced and signed pre earlier in the quarter or in the in Q3. So I would say you know the seasonality we owe.
We've seen in Q4 is more driven by end of year as companies close out their budgets finish their financing plans, let's say the Braves equity now they raise debt I think the second element as they look to boost their balance sheets for year end purposes for audit for potential fund raising activity in future years or in the next year.
[noise] to then contrast in terms of the volatility that we're seeing here in 'twenty two again its in our K Fort for here for you know year to date, our fundings have been light. So again. It just shows you the resiliency and the difference of venture lending as an asset class venture growth stage lending, we're not seeing any excess or <unk>.
Kris and fundings and that's why again, we're guiding to Q1 to be a she can be consistent with prior years as being a seasonally low quarter for us so not impacted by the volatility from a funding perspective.
Sure helpful and as supposed to one final if I may.
Fault.
You know.
Assuming the the the the bond the new bonds days.
None of your others seem to be too near maturity.
That equates to a pretty a pretty generous.
Capital structure, you know, we're giving you the ability to.
We will lever up to you know almost anything within <unk>.
Perhaps regulatory guidelines is there any.
Does this change the direction of what Youre willing and able to.
Leverage the portfolio at.
Chris do you want take that one yeah, yeah. So I think our targets are the same you know we're.
Kind of looking at 111 times leverage I think you're right. It does give us the greater flexibility to get there and stay there by having that floor on the term debt, which the earliest maturity is three years out so theres three four and five year maturities now on on the liability side. So that's that's good for US and then we can ebb and flow with the revolver, but.
Yeah with that with that greater flexibility, it's really just a guess is better treasury.
Management, I would say as opposed to trying to Jack up the leverage.
Yeah.
Great. Thanks, so much.
The next question will come from Crispin Love with Piper Sandler. Please go ahead.
Thanks, and good afternoon, congrats on a great quarter here.
Just first can you speak to some of the key drivers of the strength that we saw in the fourth quarter and and what I'm, what I'm getting out here.
Net investment income driven more by the three Q fundings that were that were pretty healthy or the or the <unk> fundings and then also what would that mean for.
First quarter net investment income would it make sense to see a slight pullback from the 42 that number that we thought.
In the quarter given seasonality and other factors are when do you expect the <unk> funding and outlook to keep that NII somewhat steady.
Chris I'll take that one yeah.
Yeah, I think clearly the late fundings that happened in Q3 provided full benefit in Q4 as they were outstanding for the full period Onboarding yields remained consistent.
With just larger gross assets, we enjoyed better use of our credit facility better or are we for sure in Q4 as we as we grew the book a lot of the fundings in Q4. We're also back end loaded so a lot of fundings in December .
And that bodes very very well for Q1 and Q2 as those fundings that happened in December where we may only have had two or three weeks of NIM.
Those we now have full quarterly benefit.
Pulling down that a little bit of that is the the prepayments I mentioned that largely occurred in India.
The January timeframe, so that pickup of of accelerated income on those deals will will offset a little bit on the topline gross interest but.
But yes definitely as we see the the growth in the portfolio of prior period prior quarter work clearly helps future periods.
Alright. Thanks, that's that's helpful color.
And then you added nine portfolio companies in the quarter I guess.
Nine and.
After looking at my model. It seems like that's the most edition that you've had and that comes off of even a solid number of ads in the third quarter. So what do you see as some of the the reason for the large number of portfolio company at that partly a catch up as kind of some deals that got pushed to later during COVID-19 .
Just a healthy beat the environment or anything else that you would call out.
Well, Yeah, I'll Oh go ahead Jim.
No I was just going to say I think it's a reflection of the healthy robust venture environment for sure but its also many of the drivers that we talked about the uncertainties with potential public and private market valuations in the future a little bit of some of todays market and inflationary.
Other concerns but also.
With all of the equity being raised last year.
Financing strategies being put together for for this year encompass slip start, adding and bringing in a little bit more debt to our structures, but but there's such a I know you wanted to add something so that yeah, I would just say more specifically to for Q4 purposes again I think that's just the.
The natural end of year that we see in Q4, the seasonality of again companies looking to boost their balance sheets I think there's strong commitments that were closed some of it was from unfunded commitments that expired at year end, but I think again, it's just more of the you.
No we had guided at the beginning of the year than the second half was going to be very busy and we were building up to a very busy second half and so we delivered on that is is what I'd say as expected.
Great. Thanks, Jim.
Just one quick one more of a clarification on the guide I.
I think I just missed the tail end of <unk>.
Your remarks in the prepared remarks, but so what I have is that for $400 million to $600 million gross fundings for the year.
The range of 50 to 75 for the first quarter and then did you give a number for the second quarter that youre expecting.
Correct, Yeah. So again similar to last year, we just see that the pick up you know the first half is generally slower than the second half just given the again the fund raising.
The environment and the buildup and the need for cash towards the end of the year. So we said 50 to 75 for Q1 50 to 100 for Q2, and then 100 to 200 million again all of this these are gross numbers not including the impact of prepayments for Q3 and Q4.
Perfect. Thanks, that's helpful.
The next question will come from Kevin <unk> with JMP Securities. Please go ahead.
Hi, good afternoon, and thank you for taking my questions.
Other venture lenders have recently talked about how equity market volatility has led to an increase in companies looking to debt solutions out the equity markets are less attractive right now you touched on this a bit in your prepared remarks, but just curious if you're seeing a similar trend.
Jim Yeah, Yeah, absolutely, it's part of the market dynamics are today and it is accounting for some of the increased pipeline and increased activity and deal flow. We see absolutely is a reflection of today's market.
Okay that makes sense and then just a follow up question on my model. So based on the disclosure on interest rate risk and increase in rates would have an immediate positive impact on net investment income growth. Just curious if you could share what the weighted average prime Florida or floating rate investments.
Chris.
The weighted average prime floor almost everything in the portfolio now is at three in a quarter.
Okay. Okay. That's helpful. I'll leave it there congratulations on a really nice quarter.
The next question will come from Casey Alexander with Compass point. Please go ahead.
Yeah, Hi, good afternoon, I'm not quite sure that he.
He asked that question entirely the right way.
I wanted to ask it a little different about first quarter I mean.
You know that the.
You know interesting total income was up 34% quarter over quarter.
We know what the portfolio balance was coming into the quarter. So my question is is in terms of the Prepays that you had during the first fourth quarter was there a loan or two loans that had a.
A higher than normal amount of prepayment.
Accelerated prepayment income that boosted that quarter relative to other quarters.
Chris.
Yeah. So we did have prepays and I would say not outsized two other quarters. So there's different there's different components right theres accelerated income from E O Ts and some have prepayment fees and some have both so it's really a it's a it's a combination.
So I think a couple of maybe maybe six months ago or a year ago. We did talk about vintage matters and so you can have a loan that is earlier in its life cycle, where you get a bigger pick up from end of term payments, which are fixed percentages of alone that have not yet accreted into income sometimes you pick up.
More income on an earlier prepay if something's gone you know 75% of its original loan term you pick up less accelerated income. So those are the type of things that kind of our little muddying of the of the analysis right I get that so what I'm asking is where there are some that that that you know prepaid very early in their <unk>.
Life, and thus generated a much higher percentage of accelerated income than normal.
Casey I'm looking at Q4 I'm just.
The largest prepayments class pass, which was again a seasoned asset so not one that we would expect that generated exceptional or it wasn't early in the lifecycle. So I'd say no. There there werent any in Q4 now here in Q1, and I think you and others have written about with Casper, obviously with Casper, we had a fee.
Built in so that 3 million number here that we've guided in in Q1 reflects you know a significant amount from Casper given how that loan was structured as a result of their take private transaction.
Can I ask about Casper, because I mean, you guys have definitely broken new ground with Bdcs I mean, I think back to when you you had an infinite return on warrants because you had a company that got taken over before your loan ever funded and in this case youre announcing the funding of alone and at the same time announcing that.
Prepayment of the loan because you did a $9 million loan on November 22nd and you're announcing the prepayment of it and that loan had a six and a half months maturity to it with a 10% prepayment that doesn't sound like a venture debt loan. So I'm curious about the nature of that specific loan in our earning 20% on a six.
A half a month piece of paper.
Yeah, obviously, it take private it's not a normal thing that we see in our portfolio and so that's one of our credit team jumped on saw an opportunity and again, we felt made a lot of sense and so I'd say, yes, we are not in the business of take private runway extension financing that was an anomaly to support you know an existing portfolio company through a.
As you can as you said a transaction, where we had clear line of sight on.
Yeah Okay.
That's what I assumed it was well I mean opportunistically, it's a great return for the shareholders. So.
Congratulations on on that one the 89 million Prepays in the first quarter do you know how much of that came out of the clear category or or or not.
Yeah. So all of those were clear.
All of those were clear that we we anticipated that those would be prepaid prior to reporting and so as a subsequent event we knew that those were coming through.
Alright, so absent other things moving up into the clear category. During the first quarter, we should we it would be reasonable to expect a clear category to come down a little bit when you report Q1.
That's right.
Yeah, Okay, great alright. Thank you. Thank you for taking my questions I appreciate it.
The next question will come from Christopher Nolan with Ladenburg Thalmann. Please go ahead.
Hey, guys congratulations.
Congratulations on the quarter I'm, Chris in your comments.
You've mentioned that dividend coverage you expected different coverage by NII in 2022.
And that's a change from earlier verbiage in earlier calls, where you said dividend coverage would be.
Covered by E. P S long term.
Was that intentional.
I think what I said was that we covered with you.
We covered our dividend with NII in the fourth quarter and.
And that we would.
Our consistent messages that we would cover our dividends quarter over quarter over the long term with a combination of current period NII and the spillover income that we have so that's that was consistent.
Okay, and then I guess the basic question is.
Excuse me prepayments I mean.
This is a headwind for you guys and going forward I mean do you think you can maintain these leverage levels I mean, it sounds like.
You say that the first quarter. Your overall investment balance is actually going to decline quarter over quarter, given the $89 million.
Prepays and guidance in the first quarter of $50 million to $75 million in.
Gross fundings.
Yeah, Kristen So let me take a cut listen I think we are fundamentally driven by credit quality. So.
I would say you know, having prepayment activity or strong prepayment. It during a period of volatility is is a good thing and we're pleased with that and then again I think from a funding perspective expecting this one to be a lighter quarter from a funding despite the volatility and everything going on in the world. We again believe is a demonstration of that.
You know the just the the strengths of our venture growth stage lending strategy and the quality of the companies. We work with so I would say the up and down leverage as it it's part of the business in it and I think that's why again, we look.
Look to balance our cap structure with term debt and the revolver. So we have the ability to to kind of benefit from when they're quick ramp ups and then when they're prepays and and then I think being thoughtful and disciplined how we build our cap structure and not you know.
Raising too soon or too late is also our approach.
Great. Thanks, Joe.
The next question will come from Ryan Lynch with K B W. Please go ahead.
Yeah.
Hey, good afternoon and.
Thanks for taking my question.
The first one.
A follow up question, what would you kind of it Scott.
As far as.
Hum.
Operating earnings of interest income in Q in Q1, So you have $3 million you guys disclosed.
Prepayment income.
Thus far in Q1.
Can you guys just give us some perspective can you provide what the total level of prepayment income was.
Fourth quarter, just so that we kind of have.
Some sort of level set comparison of.
Where that works.
Yeah. So so in Q4 accelerated prepayment income was in the four and a half million range kind of in the aggregate.
Okay, now competitive with bringing on the back burner.
Q1, thus far right, yeah apples to apples that's right.
Okay.
The other couple.
A couple of items that have yet, but on kind of your quarter to date and it kind of goes broader than just let me do it.
First quarter by when I say, something like $432 million.
DTC direct originations across their platform.
Is there any way for me to.
Just to kind of understand and again this will fluctuate on a quarter to quarter, probably on your capital availability.
How much would I expect that those commitment would be allocated.
T E G and again I know that.
Depend on how much capital you guys have.
At the B E meters available liquidity at the BDC leverage blocked most of the space, but is there a way like I can get a ballpark or just what should I expect an IP of $432 million commitment number across the platform, which drives that kind of flowing from a commitment standpoint to the BDC.
Yeah, Ryan let me so so I'd say generally speaking T. B V. G does and should participate in all of those transactions because it's a part of its venture growth stage and it's in the venture growth stage strategy, a strategy, which is T. B V. G focuses on I think the impact is again the hold sizes in the ports.
Palio diversification. So you know again, depending on and I don't have the insight on how lumpy that at 422 million is I don't think it's $400 million transactions, but let's say if it was $400 million or $1 22, right. Obviously, you know we would TPG would get up to its hold size and that's it.
And so we would see in that scenario. If these are lumpy deals that would be the scenario, where T. B V. G would get the least amount by virtue. The fact that it would only be up to its hold size and these are big deals, but to the extent that there are more normal in the $20 million to $50 million range. Then you would see a bigger percentage of that for 'twenty two.
Uh-huh I mean would you say, maybe you don't answer that's fine, but where would you say that you would generally gets diversified.
All pool commitment would be with TPG beginning the majority like over 50% are under 50%.
It's hard to say again, all of our growth stage vehicles. They they co invest together so one doesn't get priority over the other they they they go together. So again, it's a function. It's a it's a allocation based as you said on hold size transaction size portfolio industry exposure things like that so hard to quantify without.
Looking at the underlying individual transactions, but I think again.
The Great news as you know two months into the year, we've already got another $422 million kind of a new business origination and that doesn't include you know what.
Backlog from last year that didn't close yet.
Or the difficulties last year, that's now closing this year.
I Gotcha, and then just one last one.
Did you guys say that your leverage target is.
One times to one two times debt to equity.
I guess, one is that correct that your leverage target and then that change recently here.
A different number.
Christina.
Yeah, it's been it's been consistently one to one one times leverage and we.
We've spoken that from time to time, given the profile of prepayments.
Consistently occurring within the portfolio that if we went to 1.2.
We would expect it to come back down into our our 111 times. So that's been consistent for quite a while now.
Okay.
That's all for me I appreciate the time this afternoon and a nice quarter.
Thank you. This concludes our question and answer session I would like to turn the conference back over to Mr. Jim <unk> for any closing remarks. Please go ahead.
Thank you operator, and as always I'd like to thank everyone for participating in the call.
We'd also look forward to talking with you again next quarter with some good news as well.
Thanks again take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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