Q1 2023 TriplePoint Venture Growth BDC Corp. Earnings Call

Speaker 1: And that we.

Speaker 2: the Triple Point Venture Growth BDC Corporation first quarter 2023 earnings conference call.

Speaker 2: At this time, all lines have been placed in a listen only mode.

Speaker 2: After the speakers remarks, there will be an opportunity to ask questions and instructions will follow at that time. This conference is being recorded and a replay of this call will be available in an audio webcast on the Trip a Point Venture Growth website.

Speaker 2: Company Management is pleased to share with you the company's results for the first quarter of 2023. Today representing the company is Jim Labai, Chief Executive Officer and Chairman of the Board, Sergeant Srivastava, President and Chief Investment Officer and Chris Matthew, Chief Financial Officer.

Speaker 2: Before I turn the call over to Mr. LeBae, I'd 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 during this call, management will make certain statements that relate to future events or the company's future performance or financial condition which are considered forward-looking statements under federal securities law.

Speaker 2: 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 Ford-looking statements or projections unless required by law. Investors are cautioned not to place undue reliance on any Ford-looking statements made during the call, which reflect management's opinions only as of today.

Speaker 2: To obtain copies of our latest SEC filings, please visit the company's website at www.TPVG.com. Now I'd like to turn the conference over to Mr. LeBae.

Speaker 3: We grew the portfolio to nearly 1 billion and generated net investment income or NII of 53 cents per share, continuing to demonstrate the earnings power of our portfolio. NII for the quarter exceeded our quarterly distribution of 40 cents per share. Including TPVG's most recent distribution increase in March of this year, we have now increased our quarterly distribution 11 percent since the third quarter of 2022.

Speaker 3: Based on our net income during the quarter, we realize the 17.8% ROE, which is the second consecutive quarter we've been above the 17% ROE level.

Speaker 3: While credit was impacted this quarter, given the current down cycle and macroeconomic market conditions, our team is working through these events in this cycle as it's part of the multi-decade experience in venture lending and our long-term tracker group. Given the unprecedented developments at both Silicon Valley Bank and Signature Bank last quarter, and extending right into this quarter at first Republic Bank, there are significant and lasting impacts from these events. And we expect these developments will continue to have a monumental effect.

Speaker 3: on our market. The demise of Silicon Valley Bank was a very unfortunate situation from an institutional and a human perspective.

Speaker 3: From a market perspective, it is turning into a major game changer that has significantly and potentially permanently altered the competitive landscape for venture lending.

Speaker 3: While some banks are in the process of stepping in to fill the void created by SCB, their focus has been on traditional bank services, such as depository, credit card, investment management and other services. In terms of venture lending, given this emerging post-SCB environment, bank appetites have changed and we have witnessed considerable tightening. As we discussed in the past, this is a highly specialized business in venture lending as significant barriers to entry.

Speaker 3: We have a number of high-quality lending opportunities to companies back by our select venture partners, where we are or will be replacing a major market participant who's no longer active or as active, and where we're becoming the new source for lending. The pipeline is continuing to bill, as these are not overnight situations, and will continue to be part of our portfolio growth and build out over the next few quarters and well into the future years. Turning to the current venture markets during the first quarter, we've continued to see lower venture capital investment activity, quarter over quarter.

Speaker 3: driven by no surprise, primarily by the tightening monetary policy and the downturn in public company multiples and valuations.

Speaker 3: We're in a cycle. We're in a period of valuation resets for venture growth stage companies.

Speaker 3: Given this market backdrop, however, based on conversations with some of our venture capital partners, there's already early signs in a very widespread belief that investment momentum will pick up later this year and into 2024, especially given the $300 billion in a pitch book NVCA's estimated dry powder.

Speaker 3: that venture capital funds still have it their disposal. Although VCs continue to focus on existing companies and tell us they're continuing to wait out this market volatility, there's now a growing and strong sense among them forecasting better times ahead.

Speaker 3: With that said, across our sponsors platform, we are finding new pockets of venture capital investment activities starting to pop up, and witnessing investment appetite starting to increase in tech investing. And it's not only in such fields as generative AI, but in several other sectors as well.

Speaker 3: We continue to find the deals are still getting done. It's simply been taking longer and a slower pace.

Speaker 3: Within the pipeline, we also continue to have demand for venture lending from companies planning out their timetables and also encompassing debt in their financing strategies and capitalization plans.

Speaker 3: Some of these companies are seeking financing for opportunistic acquisitions, or previously equity-only companies which are continuing the turn towards debt and layering in as part of their Go Forward plans. Venture growth stage companies that raised equity over the last year or so at attractive activate value waste.

Speaker 3: Having stated all these opportunities, however, TPVG is going to continue to remain selective, as we concentrate on opportunistically ourselves investing in what we believe to be the highest quality venture growth stage companies.

Speaker 3: Consistent with our approach, we will focus on companies that have recently raised capital, have meaningful revenue scale, and whose plans in the next one to two years will position them to perform well in this volatile economic environment and under these current challenges.

Speaker 3: Despite the macroeconomic environment, inflationary concerns in the broader economy, a number of TPVG portfolio companies continue to grow.

Speaker 3: With some experiencing tailwinds, achieving profitability.

Speaker 3: We're pretty optimistic on the outlook for many of these diverse investments that we funded in 2022, and the portfolio benefits from investments in these sectors as diversified as network detection, frontier tech space, enterprise vertical software, fintech, and

Speaker 3: Next generation sports digital media and others to name a few. To wrap up, the exit of SCB during the end of March will have significant and lasting impacts on the market over the long term and create multi-year opportunities.

Speaker 3: We add these opportunities already underway for us in the wake of the SVB development. To the widespread belief that investment momentum will pick up later this year and into 2024, and along with our select venture capital partners, forecast better times ahead. Based on our track record of working with these select venture capital partners and our success in investing approximately 10 billion venture loans at the triple point platform level,

Speaker 3: We will continue to draw on our differentiated platform and our experienced team to maintain the quality of our investment portfolio as well as to capitalize on these developments in a disciplined fashion over the long term to create sustainable, shareholder value.

Speaker 3: With that, I'll turn the call now over to Sajal.

Speaker 2: Thank you, Jim, and good afternoon. As Jim discussed, we continue to remain active in the venture lending market at our platform, Triple Point Capital, and maintain our extremely selective and focused approach with 199 million of signed term sheets with venture growth stage companies in Q1.

Speaker 2: Given TBVG's leverage position, we are selectively allocating new commitments to TBVG with a majority going to other vehicles on the triple point capital platform, and as a result for the first quarter closed debt commitments at TBVG's total $4 million.

Speaker 2: During the first quarter, we funded 57.6 million in debt investments to 11 portfolio companies, landing at the lower end of our guided range for the quarter, which carried an adjusted weighted average annualized portfolio yield of 14.1% at origination. Of the obligores funded during the quarter, roughly half generate annual...

Speaker 4: quarterly increase.

Speaker 4: Our Q1 portfolio yield does not yet reflect the two 25 basis point rate increases announced in February and March, which will more meaningfully impact portfolio yield starting in Q2. As a result, we are optimistic for another quarter of increased portfolio yield.

Speaker 4: and for Portfolio Yield to continue to stay strong in 2023 given the right environment.

Speaker 4: Although we didn't have any prepayments in Q1, they continue to be a part of the business, and we still expect at least one to two customer prepayments per quarter, with one previously announced prepayment expectation of four Duroc's 30 million loan in conjunction with closing their take private transaction in addition to others in the works.

Speaker 4: In terms of our expectations for fundings in Q2, with our reduced allocation of new commitments to TPBG and low utilization of existing unfunded commitments,

Speaker 4: Our forecast for gross investment fundings is in the range of $25 to $75 million for the second quarter down from our prior guidance of $50 to $100 million.

Speaker 4: with the potential to grow as we increase our allocation of new commitment to TPVG.

Speaker 4: portfolio by increasing the number of funded borrowers to 59 as compared to 48 one year ago.

Speaker 4: In addition, our top 10 obligors represent 32% of our total debt investments as compared to 40% one year ago.

Speaker 4: While not typical for venture growth stage companies, more than half of our top 10 avogores are either EBITDA positive or are projected to achieve EBITDA.

Speaker 4: with the venture banking market during the quarter.

Speaker 4: In Q1, seven portfolio companies raised approximately $64 million of capital. This brings the total to 32 portfolio companies, raising over $1.6 million of capital in the past year.

Speaker 4: We expect to see fundraising activity gradually pick up within our portfolio quarter over quarter over the course of the year.

Speaker 4: Our equity and more portfolio grew as well with 155 more inequity investments as of Q1 23 as compared to 128 investments as of one year ago.

Speaker 4: As a March 31st, we held warrants in 107 companies up from 86 companies as of Q122 and held equity investments in 48 companies up from 42 companies as of Q122 with a total cost and fair value of 71 million and 93 million respectively.

Speaker 4: During the quarter, we saw reduction in the fair value of our worn in equity positions, reflecting market conditions, as well as down-rounds in some cases, despite strong underlying <expletive> formats for many of our portfolio companies.

Speaker 4: It's important to note that we continue to have numerous companies that are growing and expanding and executing according to and many cases ahead of plan as well as achieving EBITDA, particularly those companies in the fintech, software, enterprise and travel segments, which is why we continue to expect our cumulative warn and equity investments.

Speaker 4: to generate realized gains in excess of our cumulative realized losses over the long term.

Speaker 4: In terms of outlook for the portfolio, in credit quality.

Speaker 4: Given the environment for direct equity fundraising,

Speaker 4: The playbook for most of our portfolio companies is to continue to grow, but to do so thoughtfully, while optimizing their cash burn rates to extend their runway to either achieve profitability or for a future equity rate. With this background, as of the end of the quarter, approximately 84% of our portfolio is ranked at our two best.

Speaker 4: credit scores, which means that they are performing at or above expectations despite market conditions. And we upgraded one company from category two to category one with the principal balance of 15 million. As Jim mentioned, credit was impacted during the quarter due to conditions in the equity fundraising market.

Speaker 4: which we believe were also impacted by events in the venture banking market.

Speaker 4: We downgraded demand, also known as LUKO, an InsureTech company with a principal balance of $17 million from Category 2 to Category 3 due to delays in its strategic financing process.

Speaker 4: We also downgraded Renault Run, a construction technology and logistics company with a principal balance of $3 million from Category 2 to Category 3.

Speaker 4: RENORUN has filed for creditor protection in Canada to facilitate a sale and liquidation process.

Speaker 4: and we look to our recovery on our loan, both from their cash on hand and other potential asset sales, including the entire enterprise and asset and IP sort.

Speaker 4: Underground Enterprises, an e-commerce retail with principal balance of $6 million, was downgraded from Category 2 to Category 3 and is filed for Chapter 7 bankruptcy protection.

Speaker 4: We provided an inventory-based financing facility to the company and looked to recovery on our loan from the underlying inventory as well as other potential asset sales, including the entire enterprise and IP.

Speaker 4: Payfavor, also known as Pill Club, an online pharmacy with the principal balance of $20 million, filed for Chapter 11 bankruptcy protection with the intent to continue operations and potentially reorganize as a standalone enterprise or sell to another company.

Speaker 4: This is an ongoing situation and we expect more developments to occur in the near term that could result in substantial or full recovery of our load.

Speaker 4: Also during the quarter,

Speaker 4: VanMoof, an eBuy company with a principal balance of $23 million, and Health IQ, an InsureTech company with a principal balance of $25 million, which were both previously rated 3, were downgraded to category 4 as they continue to navigate through challenges in our sectors and businesses.

Speaker 4: VanMoof, an eBuy company with a principal balance of $23 million, and HealthIQ, an InsureTech company with a principal balance of $25 million, which were both previously rated 3, were downgraded to category 4 as they continue to navigate through challenges in their sectors and businesses, as well as developments in their strategic financing processes.

Speaker 4: We are in a challenging period of time for venture capital investing and for public technology companies that expect some obligors to experience stress. As we have demonstrated before, our teams have effectively managed through these situations. As a reminder, since DBBG's inception now 10 years ago, we have been working with the global military without a developer in the United States. However, this until now

Speaker 4: Our cumulative net loss rate remains 103% of cumulative commitments for 32 basis points for random, then 2% of fundings or 22 basis points for random.

Speaker 4: In closing, we remain focused on all aspects of our business and 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 relationships with our select venture capital partners. With that, I'll now turn the call over to Chris.

Speaker 5: Great. Thank you, Sajjal, and hello, everybody. During the first quarter, we grew core income yields from our loan portfolio. We continued to diversify the portfolio. And while we had elevated leverage as of quarter end, we now sit with a record portfolio size, a diversified capital structure, and a range of other capital structures.

Speaker 5: and ample liquidity to meet our targeted funding range. Let me drill down a bit more and share an update on the financial results for the first quarter of 2023.

Speaker 5: Total investment income was $33 million as compared to $27 million for the first quarter of 2022. Our core portfolio yield, which excludes the impact of loan prepayment income, was 14.7% on total debt investments as compared to 12.7% for the first quarter of 2022. The onboarding yields continue to be strong and stable.

Speaker 5: Operating expenses were $15 million as compared to $13.8 million for the first quarter of 2022. These expenses consisted of $9 million of interest expense, $4.3 million of management fees, and $1.6 million of G&A expenses.

Speaker 5: Due to the shareholder-friendly structure of our total return requirement under the incentive fee structure, our income incentive fee expense was reduced by $3.7 million during the first quarter.

Speaker 5: We earned net investment income of $18.6 million, or 53 cents per share, compared to 44 cents per share in the same period last year.

Speaker 5: Net change in unrealized losses on investments for the first quarter was $10.9 million, consisting of $6.6 million of net unrealized losses on the debt portfolio, and $4.2 million of net unrealized losses on the warrant and equity portfolio, resulting from fair value adjustments. Starting this year, options will also come from buyers and sellers combining information

Speaker 5: Total net assets were $414 million or $11.69 per share compared to $420 million or $11.88 per share as of December 31, 2022.

Speaker 5: Our Board of Directors declared a regular quarterly dividend of 40 cents per share. The dividend is from ordinary income to stockholders of record as of June 15th to be paid on June 30th.

Speaker 5: In addition to over earning the first quarter dividend, we continue to retain spillover income which totaled $27 million or 70 cents per share at the end of the period to support additional regular and supplemental dividends in the future.

Speaker 5: Now, let's move to our investment commitments.

Speaker 5: We ended the quarter with $254 million of unfunded investment commitments, of which an aggregate of $73 million was dependent upon the portfolio company reaching certain milestones.

Speaker 5: Of this total amount, 152 million, or 60% of this total, will expire during 2023.

Speaker 5: Now, just a quick update on our balance sheet leverage and overall liquidity. As of March 31st, an aggregate of $395 million was outstanding in fixed rate investment grade term notes.

Speaker 5: and $220 million was outstanding on the revolving credit facility.

Speaker 5: In connection with the term notes, DBRS issued an investment grade rating in connection with those transactions and recently reaffirmed our investment grade standing at a triple B.

Speaker 5: We ended the quarter with a leverage ratio of 1.49 times.

Speaker 5: As of quarter-end, the company had total liquidity of $188 million, consisting of $58 million in cash and $130 million available under the revolving credit facility.

Speaker 5: In addition to this liquidity, the existing seasoned and diversified portfolio provides predictable cash flows, which bodes well for sustained liquidity throughout 2023. Specifically, we have more than $130 million of contractual cash flows from the existing portfolio scheduled to flow back to the company.

Speaker 5: in 2023 and more than $400 million throughout 2024.

Speaker 5: I'd also like to remind you that loan prepayments are a natural part of our venture lending model and while they vary from quarter to quarter, we expect that they will have one to two customers.

Speaker 5: prepay in any particular quarter over the long term. As an example, as Sajal had mentioned, we have line of sight on companies such as ForgeRock, which is expected to prepay all of its loans in Q2 or Q3 this year in an aggregate amount of $30 million.

Speaker 5: In November , we announced the launch of an ATM stock issuance program, and although we have not issued any shares under that program as of today, we do look to issue shares over the coming year.

Speaker 5: So this completes our prepared remarks and we'd be happy to take questions from you. And so operator, could you please open the line at this time?

Speaker 2: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker 2: And to withdraw a question, please press star then 2. This time we will pause just momentarily to assemble our roster.

Speaker 2: And our first question will come from Finian O'Shea with Wells Fargo. Please go ahead with your question. Hi, everyone. Good afternoon. Question on leverage. Sabjal, I know you gave a couple of guideposts on fundings and repays with Ford, Durock, and such, but where does that overall impact the

Speaker 6: bring you for say next quarter and then where do you want the BDC to be in terms of net leverage right now?

Speaker 5: Sure. Chris, do you want to actually take this question? Sure. Yeah. So, we're at 1.49 gross leverage. We do have cash on the balance sheet to essentially fund all of the current expected fundings for the next quarter. So, Q2, we don't expect to increase leverage, but rather just use the liquidity on balance sheet.

Speaker 5: We'd look to the prepayments that we mentioned, as well as just normal cash flows from the portfolio in Q3 and into Q4, so really not expecting much movement in overall leverage over the next quarter or two. Depending on the prepayment activity, that will depend on what we would look like at the end of the year as far as overall.

Speaker 6: Ben from previously underwritten unfunded commitments.

Speaker 4: Yeah, but I'd say here in Q1 and Q2, it's 90-plus percent from existing unfunded commitments, given the slower pace of allocation to TPBG.

Speaker 6: Any just final question, any color you can give us on how much that reflects liquidity at the borrower level?

Speaker 4: Yeah, great question. So I would say, given what I would say is lower expected utilization than we anticipated, I think it's a function of the work that our portfolio companies are doing to balance this growth versus cash burn rate.

Speaker 4: In this environment, it's not growth at all costs, as I said earlier. I think it's a balance between appropriate levels of growth and having sufficient cash runway, plus having line of sight to EBITDA profitability or beyond. So, I'd say it's a lower utilization, it's just reflection of lower cash burn rates and more effective use of their existing...

Speaker 7: Just first looking at asset quality, looking at your release, you have zero investments right now in the red category, but as you mentioned, three companies filed for bankruptcy since quarter end. And Sal, you mentioned some comments on recovery for those investments, but can you dig a little deeper into that as to what types of recovery?

Speaker 7: what types of recovery you might expect on those investments on either a percentage or dollar basis and then your confidence layer Again, obviously these are ongoing situations and so it's hard to be

Speaker 4: assuming facts and circumstances as of today in developments that we expect to occur.

Speaker 7: Great. Thanks, Aldo. And then just religiously, do you speak to kind of your credit quality outlook broadly in the portfolio just in the current environment separate from those investments? And then just on thoughts if if you think we would be seeing if you we might see additional bankruptcies over the near term just given the environment.

Speaker 4: Yeah, let me start and then I'll ask Jim to jump in. So I'd say, listen, I think a critical outlook for venture lending, venture debt, is a direct equity investment environment. And so I would say Q1 is absolutely a challenging environment for direct equity investing. I think, as Jim mentioned, due to market conditions and...

Speaker 4: critical factors in the equity world and I think it was that further exacerbated by the developments as Jim mentioned in the venture banking environment. So if you add that, the month of March was very much a challenging time for both VCs and venture banks and companies as they were sort of navigating the volatility and the uncertainty in that environment. And so...

Speaker 4: one of the worst quarters from a direct equity investment environment because of all of those factors.

Speaker 4: As we look to Q2, Q3 and beyond, as Jim mentioned, I think our select VCs are deploying capital, they're being selective how they're deploying capital, and so we have indicators to see that, listen, we think it's going to stabilize and then pick up, ideally over the course of this year and into 2024.

Speaker 4: As we look to credit outlook, again, I think the really good news is that our portfolio companies have been preparing and have been cutting burn, managing one way, adding capital to their balance sheets. And again, I think a critical element was the other venture banking developments and the volatility and the uncertainty in Q1 brought a lot of things to the head. So I think we're expecting stability.

Speaker 4: when it comes to the rest of the portfolio. But again, it's all critical on direct equity investment activity, stabilizing and picking up over the course of the year for those companies that may not be profitable or have sufficient runway into 2024 and beyond.

Speaker 3: Yeah, and I think you covered it nicely. I can't really add much other than, again, there's been a pullback by some of the venture funds, no surprise in this market. But there's also, at the same time, companies are going through some stressful situations and continue to conserve cash, moderate their burn rates.

Speaker 3: It revised growth plans to more moderate growth plans and work on the path to profitability. But it's also got to be balanced by not only amount of dry powder, but you know within the portfolio as I mentioned there's a number of companies that are experiencing some tailwinds in this environment.

Speaker 3: an uptick, which given this environment, you know, is maybe some signs of where things are headed. But it's just working through the situations, and the outlook looks pretty good in terms of the end of the year 24 for tech investing.

Speaker 2: Thank you, I really appreciate the comments Jim and Sajal. And our next question will come from Kevin Foltz with JMP Securities. Please go ahead with your question. Hi, good afternoon and thank you for taking my question. There is a figure in the PitchBook NBCA venture monitor that highlights –

Speaker 6: 2022. I'm curious what your view is on the shift in capital availability for late-stage companies, both what you're seeing in the market and within your own portfolio and what that could mean in terms of portfolio company liquidity should the trend in capital demand to supply remain and bounce start I guess even to to your right further. Thank you. Yeah Kevin. It's a

Speaker 4: And so I think the challenge is, again, as Jim alluded to, there is a mismatch in terms of where prior round valuations were during 21 and 22 for a number of these companies and where multiples are today. And so the playbook for those companies is to discuss how justified businesses are.

Speaker 4: you know, you've got to make the decision, you know, will you grow into your current valuation? And if so, then the playbook is listen, how can we extend runway, you know, add some incremental capital from your existing investors to get to the and then, you know, hope for some multiple recovery, but but fundamentally it's just a function of time.

Speaker 4: And your valuation is not an obstacle for raising incremental capital. I think for other companies where, listen, they were valued on robust multiples that may not come back or on growth rates that are not capable in this environment, they have to make the hard decision of...

Speaker 4: Do you do the down rounds? Do you do other forms of financing, flat rounds with prefs? So I think that it's a valuation issue for a number of companies. And then I'd add the other element of it is the participants in that...

Speaker 4: stage of the market included venture funds, PE funds, edge funds, crossover funds. And so I'd say again, given the multiple compression, a number of those non traditional participants, you know, experienced major marks, mark downs on their public book, have mark downs on their private book. And so they're currently not as active as they used to be. And so that's also what's causing it.

Speaker 4: out in the next quarter or so, but later this year into 24 is a number of those factors all improve and come together.

Speaker 3: They also tend to be opportunities for us to look at. The key is selectivity and being highly selective, but these are actually opportunities as well for our venture lending in the pipeline.

Speaker 2: Great. I appreciate your insight there, and I'll leave it there. Thank you. And our next question will come from Ryan Lynch with KBW. Please go ahead with your question. Hey, good afternoon. My first one just has to do with,

Speaker 7: Given your current levered ratio of 1.49 times and around 175 million of unfunded commitments at art art's aligned or any certain milestones.

Speaker 7: Is it fair to assume that throughout the majority of 2023 that new fund means will primarily be to existing portfolio companies and you'll use repayments and prepayments pretty much to just deleverage the balance sheet? Yes, I think it is.

Speaker 8: Yeah, I think that's right Okay

Speaker 7: And then the other one that I had, I'd love to just hear, and then I get it's sensitive, but so if you can't come, you know, whatever you can say, it's fine. But, you know, I'm curious to hear your thoughts on, you know, an investment like the pill club. I mean, there's been articles out there that talk about the bankruptcy and a huge decline in revenue as well as huge legal fees.

Speaker 7: in that business. I can't see, I don't see it's financial, so I don't know if they're sitting on a bunch of cash or something like that or your loan is over collateralized, but something like that. But I guess what gives you the confidence to mark that investment, you know, where it is as well as there's other loans in the portfolio that are...

Speaker 4: Yeah, Ryan, let me answer that. I think a great question. So I have to remember that, you know, they're easier paths to, you know, if you wanted to shut down the company, you don't necessarily go through the bankruptcy process. So from our perspective, in collaboration with the companies, the investors, the select these C-Fonds, you look at when there's value, there's interest in those assets, there's value in those.

Speaker 4: in our playbooks with our teams. And so I would say the, you know, and then as you look to the method by which you look to recovery, as you said, right, there are various assets these companies have. In certain cases when we are doing inventory financing, we are secured not only by a formula-based financing for that inventory, so we are not financing 100%. Generally it's a discount. So we are secured by that underlying inventory.

Speaker 4: Plus, we have the enterprise too. So as you look to recovery, it's great. The underlying asset that we financed and then the value, the business, the intellectual property, whatever it may be. When you look to, again, other scenarios, there's a liquidity, there's cash. So again, you look through the benefit of liquidation processes in orderly way.

Speaker 4: right? There's a way when they're strong, solid fundamentals of these businesses, but they may have unsecured claims or creditors. And so going through the chapter 11 process in general is a way to again cleanse, clean up, restructure, secure debt, and then come back and again, give it another shot or sell to other companies.

Speaker 4: So again, I think that it's our team's assessment of the playbook, the path, and the underlying assets, and in collaboration with our companies, we determine the course of action, and that's how we look to set our fair values based on our assessment of the probabilities and the likelihoods and the values of those assets. We're veteran wise and occupancy wise in your report, incredibly detailed, really appreciate

Speaker 7: that position just because it seems like most of the indicators today seeing that things are just going to get tighter sort of throughout the year with

Speaker 7: probably continually fairly high rates of slowdown in the economy. There's obviously some stress in the lending system, and then probably some realized losses in some venture capital equity portfolios. So it just seems that obviously I know you'd like that investment activity.

Speaker 3: term and these are typically 10-year plus investment funds and they're looking at the future. They're not looking at this quarter or today's interest rate increase or so. Those are not factors. What are the factors are? Well one, there's about 300 billion plus of dry powder that is looking to get deployed.

Speaker 3: Two, we are headed in terms of my rounds towards more of a call it a rational or reasonable valuation type market after the highs of the recent past. And so there's another momentum for investing. Three is tech investing is not dead. If anything you know from what I did in Project

Speaker 3: It, you know, as folks look towards efficiencies, particularly if we head more towards a recession and everything else, as artificial AI, which is all-day conversations, and kind of the new environment here post the last very high couple of years of...

Speaker 3: valuations is something that's very appealing because these are investments in three, five years or whatever may be IPOs and so there's opportunities and I'll just finish, feel free to add, but some of the best investments we've done historically here at TriplePoint as well as within the venture lending decades.

Speaker 3: have been investing in these down cycle periods. We're in a down cycle and some of the best tech successes of the past were born perhaps 2008, nine and so forth. So there's a lot of things shaping up ripe for venture capital investing in later this year, next year and in the future.

Speaker 4: Yeah, I mean, I'll only add two things. One is, you know, we're also gleaning these insights, Ryan, from conversations with the funds themselves. And I'd say it's a function. What we're seeing is the clear, the more experienced funds that have weathered the storm that have been through cycles definitely view, you know, this environment as having the potential for opportunities to help students get along well.

Speaker 4: So to their LPs, venture fund raising, given the fundraising that's gone on and the marketing and the messaging, they're also signaling that they do expect it to pick up and that they expect 23 ventages, 24 ventages, really to be some of their better ventages given the environment.

Speaker 7: Okay, I appreciate the time this afternoon. And our next question will come from Casey Alexander with Compass Point. Please go ahead with your question. Hi, good afternoon. Is it safe to say that Renault Run, Underground, and Hayfever will all go on non-accrual in the second quarter?

Speaker 5: Yeah, unless something happens more immediate, that would be a fair assumption.

Speaker 5: Okay. Secondly, in relation to hay favor and rolling back to medley health, in both cases, there were some form of management fraud that contributed to the situation. And it looks to me like they came out of the same underwriting pod.

Speaker 4: 170 borrowers at TPBG. We've had credit losses in roughly 10 to 11. Our loss rates are 3% of commitments, 2% of funding. So I would say the data speaks for itself that our underwriting and our track record over the long term works and so I'd say that's my first answer.

Speaker 4: I would say again we're not suggesting at both companies where they're fraud. I think Medley it's again in the public in the filings not suggesting fraud at hay favor and again I think all are unique circumstances and situations. All right.

Speaker 8: Okay, I'll stop there for now. Thanks. And our next question will come from Christopher Nolan with Leidenberg-Thulman. Please go ahead with your question.

Speaker 3: Okay, so high MOOC and high Q, which I believe are both non-accrual this quarter.

Speaker 4: are completely separate from that? They did not file for bankruptcy, correct. OK, any details you can provide on that, or is that something that? Again, as we mentioned in the prepared remarks, I think they were downgraded due to just challenges in their market environments and some of their performance, as well as their financing processes.

Speaker 3: to thank everyone for listening and participating in today's call. We look forward to talking with you all again next quarter. Thanks again and everyone have a nice day.

Speaker 3: today's call. We look forward to talking with you all again next quarter. Thanks again and everyone have a nice day. Goodbye.

Speaker 2: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.