Q4 2023 TriplePoint Venture Growth BDC Corp Earnings Call
Good afternoon, ladies and gentlemen.
Operator: Good afternoon, ladies and gentlemen. Welcome to the TriplePoint Venture Growth BDC Corp fourth quarter 2023 earnings conference call. At this time, all lines have been placed in a listen-only mode.
Welcome to the Triple point venture gross P. D. C Corp, fourth quarter 2023 earnings conference call.
At this time all lines have been placed in a listen only mode.
Operator: After the speaker's remarks, there will be an opportunity to ask questions, and instructions will follow at that time. The conference is being recorded, and a replay of the call will be available in an audio webcast on the TriplePoint Venture Growth website. Company Management is pleased to share with you the company's results for the fourth quarter and full fiscal year of 2023. Today, representing the company is Jim Labe, Chief Executive Officer and Chairman of the Board.
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 the call will be available and an audio webcast on the triple point venture Growth's website.
Company management is pleased to share with you the company's results for the fourth quarter and full fiscal year of 'twenty twenty-three today, representing the company is Jim Levee, Chief Executive Officer, and chairman of the board.
Suzhou Srivastava, President and Chief investment Officer, and Chris Mathieu Chief Financial Officer.
Operator: Sajal Srivastava, President and Chief Investment Officer, and Chris Mathieu, Chief Financial Officer. Before I turn the call over to Mr. Labe, 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. 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.
Before I turn the call over to Mr. La Bay 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.
We 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.
James P. Labe: 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 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. Labe. Please go ahead.
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 our latest SEC filings. Please visit the company's website at Www Dot T. P V G dotcom.
Now I'd like to turn the conference over to Mr. Leblanc. Please go ahead.
Thanks, Good afternoon, everyone and welcome to the T. P V Ge's fourth quarter earnings call.
James P. Labe: Thanks. Good afternoon, everyone, and welcome to TPVG's fourth-quarter earnings call. As expected, venture capital markets continued to be challenging during the fourth quarter. Consistent with what we have seen and been talking about over the last year, the venture industry continues to be affected by macroeconomic uncertainty. Restrictive Monetary Policies, Inflationary Supply Chain Issues, Public vs.
As expected venture capital markets continued to be challenging during the fourth quarter.
Listen to what we have seen and been talking about over the last year. The venture industry continues to be affected by macroeconomic uncertainties restricted monetary policies inflationary supply chain issues public versus private market valuation disconnects are changing investment landscape to you.
James P. Labe: Private Market Valuation Disconnect, changing investment landscape, geopolitical, and other issues. These market challenges, which are impacting venture growth stage companies especially hard, contributed to our NAV decline. We'll cover the contributing factors, including the effects certain industry sectors have had on a number of our companies, some realized losses, and the unrealized quarterly markdowns on the debt portfolio and unrealized markdowns on the warrants in equity portfolios given current market headwinds. Against this backdrop, we remain focused on our established and in-place priorities, which we believe will enable us to navigate through these current market conditions, including maintaining our earnings power and Turning to our earnings power, we generated Q4 net investment income of $17.3 million, or $0.47 per share, enabling us once again to over-earn our $0.40 per share regular quarterly dividend, including the first quarter dividends. Cumulative dividends to shareholders since going public almost 10 years ago now total $15.05 per share. During this time, we've exceeded our distributions on a cumulative basis and continue to maintain sizable spillover income.
Political and other issues.
These market challenges, which are impacting venture growth stage companies, especially hard contributed to our NAV decline.
We'll cover the contributing factors, including the effects certain industry sectors have had on a number of our companies some realized losses and the unrealized quarterly markdowns in the debt portfolio and unrealized markdowns on the warrant and equity portfolios given current market headwinds.
Against this backdrop, we remain focused on our established and in place priorities, which we believe will enable us to navigate through these current market conditions, including maintaining our earnings power and our strong liquidity managing the portfolio and positioning T. P V G for the future.
Turning to our earnings power, we generated Q4 net investment income of $17 3 million or <unk> 47 cents per share, enabling us once again to over earn or 40 cents per share regular quarterly dividend.
Including the first quarter dividend Q.
Cumulative dividends to shareholders since going public almost 10 years ago now totaled $15.05 per share.
During this time, we've exceeded our distributions on accumulative basis and continue to maintain sizable spillover income.
For the fourth quarter T. P V T. Once again maintained a strong weighted average portfolio yield as we generated a 15.6% weighted average annualized yield that was largely driven by continued favorable interest rate and supplemented by additional income from loan prepayments.
James P. Labe: For the fourth quarter, TPVG once again maintained a strong weighted average portfolio yield as we generated a 15.6% weighted average annualized yield that was largely driven by continued favorable interest rates and supplemented by additional income from loan prepayment. During the quarter, we enhanced our liquidity as we continued to experience repayment activity and modestly utilized our ATM program. Notably, TPVG's liquidity now exceeds our unfunded commitment and provides us with the capacity to capitalize on new investment opportunities, especially when the market begins to recover. While we've been allocating limited capital to TPVG, we expect to increase our allocations in the second half of this year. Turning to the venture markets, 2023 proved to be a very challenging year. Pick up almost any venture industry research publication, such as CB Insights or the NVCA's Pitchbook, and you'll find headers covering 2023, such as U.S. venture capital deal volume being at 10-year lows, late-stage deal sizes falling more than half since 2021, and venture unicorn investing being at 10-year lows. VC down rounds last year were at their highest level since 2017.
Payments.
During the quarter when the hamster liquidity as we continue to experience repayment activity and modestly utilized or ATM program.
Notably T. P V cheese liquidity now exceeds our unfunded commitment and provides us with the capacity to capitalize on new investment opportunities, especially when the market begins to recover.
Well, we've been allocating limited capital to T. P V. G. We expect to increase our allocations in the second half of this year.
Turning to the venture market 2023 proved to be a very challenging year pickup.
Pick up almost any venture industry research publication, such as C. B insights or the N V. C. A S pitch book and you'll find hitters covering 2023, such as U S venture capital deal volume being at 10 year lows late stage deal sizes following more than half since 2021.
And venture Unicorn investing being at 10 year lows.
V C down rounds last year were at their highest level since 2017.
James P. Labe: Total 2023 U.S. deal value was a staggering $175 billion less than 2021, and venture capital-backed companies, shutdowns, and bankruptcies. 2023 also had the fewest annual VC-backed IPOs since 2013, a prime vehicle for exits for venture growth stage companies. And last quarter saw a 50% decline in quarterly deal value for VC company acquisitions. To quote the words recently stated by a prominent venture capitalist, it's been a venture win. We believe the dramatic drop in deal investment activity and the public-private market and valuation disconnect have affected the growth stages and its investors the most. Non-traditional investors and other investors in the growth market have paused or remain on the sidelines.
Totaled 2023 U S steel value was a staggering 175 billion less than 2021 and.
In venture capital backed company shut downs in bankruptcies increase.
2023 also had the fewest annual VC backed ipos since 2013.
Our prime vehicle for exits for venture growth stage companies and last quarter saw a 50% decline in quarterly deal value for V C company acquisitions.
To quote the word stated recently by a prominent venture capitalists, it's been adventure winter.
We believe the dramatic drop in deal investment activity in the public private market valuation disconnect is affected the growth stages and its investors the most.
Non traditional investors and other investors in the growth market have paused to remain on the sidelines.
James P. Labe: This change has also affected our growth stage companies, many of which had planned for either an IPO or potential acquisition in the one to three year time period or so after their last financing round. Given the market downturn, our priority remains on closely managing our portfolio. Our teams maintain close contact with our companies and their venture investors, while remaining heads down working through credit situations.
This change is also affected our growth stage companies, many of which had plan for either an IPO or potential acquisition in the one to three year time period or so after the last financing round.
Given the market downturn, our priority remains and closely managing our portfolio.
Our teams maintained close contact with our companies and their venture investors, while remaining heads down working through credit situations, given the challenging capital raising environment for venture growth companies for some companies. We believe we will see continued pressure on valuations and the potential for insight.
James P. Labe: Given the challenging capital-raising environment for venture growth companies, for some companies, we believe we will see continued pressure on valuations and the potential for inside rounds. Meanwhile, some companies are further reducing burn and executing on a path to profitability. Still others, however, as Sajal will get into more detail, are raising outside capital around. It's about effectively operating in the new market reality given the compressed multiples and reduced exit opportunities I've been outlining. However, investors continue to migrate to sectors with more favorable multiples and outlooks than the sectors of the past, given these market conditions. Our select venture capital investors continue to shift into and have an increasing investment focus on fields such as AI, cybersecurity, climate, and digital health. Additionally, there's increased or renewed interest in vertical software. Hardware and Robotics. Semiconductors, Applied Tech, Clean Tech, Environmental or Sustainability Technologies, and Aerospace. Sam.
And.
Some companies are further reducing burn in.
And executing on a path to profitability.
Still others whoever as such we will get into more detail of raising outside capital around.
It's about effectively operating in the new market reality, given the compressed multiples and reduced exit opportunities I've been outlining.
Investors continue to migrate to sectors with more favorable multiples and outlooks in the sector. So the past given these market conditions.
Our select venture capital investors continue to shift into and have increasing investment focus in fields, such as AI cyber security climate and digital health.
There's increased to renewed interest in vertical software hardware and robotics semiconductors applied tech clean tech environmental or sustainability technologies in aerospace as examples.
While we continue our effort to diversify across sectors and limit our geographic exposure.
James P. Labe: While we continue our efforts to diversify across sectors and limit our geographic exposure, there are a number of our portfolio companies that are already operating in these favorable investment categories, with some making considerable progress. As an example, portfolio companies such as Corlite, Loft Orbital, Hover, Arcadia Power, Flash, Kodero, and others are making notable progress in achieving their plans, and they're reflective of these in favor industries. We're also pleased to highlight a few notable portfolio company developments. This includes Metropolis, which announced its acquisition of SP Plus and secured $1.7 billion in equity and debt, which is subject to regulatory approval and expected to close by year's end. Another company, Cohesity, announced its planned acquisition of Veritas' data protection business for a combined value of $7 billion.
There are a number of our portfolio companies that are already operating in these favorable investment categories with some making considerable progress.
As an example portfolio companies such as core light laughter orbital hover Arcadia power Flash co darrow's overtime and others are making notable progress in achieving their plans and they are reflective of these in favor industries.
We're also pleased to highlight a few notable portfolio company development. This.
This includes Metropolis, which announced its acquisition of SP, plus and secured $1 7 billion in equity and debt, which is subject to regulatory approval and expect it to close by year's end.
Another company Cohesively announced its planned acquisition of Veritas is data protection business with a combined value of $7 billion.
There's a few other portfolio companies, which have received active term sheets for very large equity rounds, where we expect to see more development in this current quarter.
James P. Labe: There are a few other portfolio companies which have received active term sheets for very large equity rounds where we expect to see more development in this current quarter. Another priority is to focus on enhancing our long-term positioning in the venture lending market, with 2023 behind us, and while we believe the industry slowdown will still continue through much of 2024.
Another priority is to focus on enhancing our long term positioning in the venture lending market with.
With 2023 behind Us and while we believe the industry slow down will still continue through much of 'twenty 'twenty four we're focusing on what we expect to be a more promising year for T. P V G.
James P. Labe: We're focusing on what we expect to be a more promising year for TPVG. We will continue to position ourselves to capitalize on new investment opportunities, those that reflect today's market for venture growth stage companies. We were encouraged by the more than 70% increase in signed term sheets last quarter versus the previous quarter. Already this quarter, to date, we have more than 70 million additional signed terms.
We will continue to position ourselves to capitalize on new investment opportunities those that reflect today's market for venture growth stage companies.
We're encouraged by the more than 70% increase in signed term sheets last quarter versus the previous quarter.
Already this quarter to date, we have more than 70 million of additional signed term sheets.
We intend to remain on our path of diversifying the portfolio in sector rotation, we have been describing on these calls.
James P. Labe: We intend to remain on our path of diversifying the portfolio and sector rotation we have been describing on these calls and expect to be less active in e-commerce and making investments outside of the U.S. We will further focus on investing in companies that have recently raised fresh capital, have ample cash runways, have backing from our select venture investors, have prudent management teams, and whose business models have attractive unit economics and high retention, and, ideally, these companies that We'll also continue to evaluate hold sizes, debt-to-equity ratios, deal structures, and other key methods in this market. In summary, 2023 was a tough year for the venture capital industry. And while we expect the venture growth stage will continue to have challenges in the near term, the path to stabilization for many companies continues in this environment.
And expect to be less active in ecommerce and making investments outside of the U S.
We will further focus on investing in companies that have recently raised fresh capital have ample cash runways have backing from our select venture investors.
Prudent management teams and whose business models have attractive unit economics, and high retention rate and ideally.
These companies that have large enterprise customers.
We'll also continue to evaluate hold sizes debt to equity ratios deal structures and other key metrics in this market.
In summary, 2023 was a tough year for the venture capital industry.
And while we expect the venture growth stage, we'll continue to have challenges in the near term.
The path to stabilization for many companies continues in this environment and.
James P. Labe: And we believe it will result in the potential for additional positive developments, recoveries, and outcomes for our portfolio. We remain active in the market and continue to build a pipeline consisting of venture growth companies positioned for strength under the current conditions, which are all critical elements for the long term that we believe position us to build NAV and create sustainable shareholder value. We believe that once the IPO markets come back and M&A activity picks back up to more average levels, it will be a marked change for venture growth stage companies, especially those companies within our portfolio that are outperforming in this market. It will also attract growth stage investors to come back into the market. As this year progresses, we will concentrate on delivering strong investment income, over-earning our dividend, building our pipeline, managing our portfolio and credit quality, and building on our strong liquidity. With that, I'll turn the call over to Sajal. Thank you, Jim, and good afternoon.
And we believe it will result in the potential for additional positive developments recoveries and outcomes for our portfolio.
We remain active in the market and continue to build a pipeline consisting of venture growth companies position for strained under the current conditions.
Which are all critical elements for the long term that we believe position us to build NAV and create sustainable shareholder value.
We believe that once the IPO market has come back in M&A activity picks back up to more average levels.
B, a mark change for venture growth stage companies, especially those companies within our portfolio that are outperforming in this market.
It will also attract growth stage investors should come back into the market.
As this year progresses, we will concentrate on delivering strong investment income over earning our dividend building, our pipeline managing our portfolio and credit quality and building on our strong liquidity.
With that I'll turn the call over to Sergio.
Thank you Jim and good afternoon, let me begin by reviewing our performance in Q4 and full year 2023, as well as highlight key expectations for 2024.
Sajal K. Srivastava: Let me begin by reviewing our performance in Q4 and full year 2023 as well as highlight key expectations for 2024. Regarding investment portfolio activity during Q4, TriplePoint Capital signed $100 million in term sheets with venture growth stage companies, compared to $58 million in term sheets in Q3, reflecting an increase in the strength of our pipeline, which we believe will result in higher investment activity in 2024. For the full year, TriplePoint Capital signed 471 million term sheets with venture growth stage companies.
Regarding investment portfolio activity during Q4 should avoid capital's nine 100 million in term sheets with venture growth stage companies compared to 58 million of term sheets in Q3, reflecting the increase in the strength of our pipeline, which we believe will result in higher investment activity in 2024.
For the full year Triple Quad capital side, 471 million and term sheets with venture growth stage companies.
Sajal K. Srivastava: With regard to new investment allocation to TPBG during the fourth quarter, given both current market conditions and TPBG's leverage ratio, we allocated a modest $4.2 million in new commitments to two companies to TPBG, compared to $5.6 million to three companies in Q3. The commitments made during the fourth quarter were to existing portfolio companies. For the full year, we closed $31.5 million of debt commitments with 10 companies at TPBG, of which two were new companies and eight were existing portfolios. During the fourth quarter, TPBG funded $24.4 million in debt investments to six portfolio companies, up from $12.7 million in Q3. This funding level came in at the lower end of our guided range for the quarter, reflecting a lower utilization of unfunded commitments.
With regards to new investment allocation to TPG during the fourth quarter, given the current market conditions and <unk> leverage ratio reallocated, a modest $4 2 million new commitments with two companies to TPG.
Compared to $5 6 million to three companies in Q3 <unk>.
The commitments made during the fourth quarter were to existing portfolio companies for.
For the full year, we closed 31 $5 million of debt commitments with 10 companies at <unk> of which two are nuc.
Eight existing portfolio companies.
During the fourth quarter <unk> funded $24 4 million in debt investments to six portfolio companies up from $12 7 million in Q3 <unk>.
This funding level came in at the lower end of our guided range for the quarter, reflecting a lower utilization of unfunded commitments.
Sajal K. Srivastava: These funded investments carried a weighted average annualized portfolio yield of 18.8% at origination, up from 14.2% in Q3. For the full year, we funded $135 million to 23 companies with a 15.6 weighted average portfolio yield at origination. During Q4, we had $33.7 million of loans repayments resulting in an overall weighted average portfolio yield of 15.6%, up from 15.1% in Q3. Excluding prepayments, core portfolio yield was 14.4%, up from 14.1% in Q3. For the full year, we had $104.7 million of loan prepayments resulting in an overall weighted average portfolio yield of 15.4%, up from 14.7% in 2022. Core portfolio yield excluding With regard to fundraising activity, five portfolio companies with debt outstanding raised $157 million during the quarter, up materially from $47 million last quarter, bringing our total to 19 companies with outstanding debt, raising $594 million during Q3. This data does not include Metropolis's announced financing acquisition, which is expected to close in 2024.
These funded investments carried a weighted average annualized portfolio yield at 18, 8% at origination up from 14, 2% in Q3.
For the full year, we funded $125 3 million to 23 companies with a $15 six weighted average portfolio yield at origination.
During Q4, we had $33 7 million of loan repayments, resulting in an overall weighted average portfolio yield of 15, 6% up from 15, 1% in Q3.
Excluding prepayments core portfolio yield was 14, 4% up from 14, 1% in Q3.
For the full year, we had $104 7 million in loan prepayments, resulting in an overall weighted average portfolio yield of 15, 4% up from 14, 7% in 'twenty two.
Core portfolio yield excluding prepayments was 14, 7% for the full year up from 13, 4% in 2022.
With regards to fundraising activity five portfolio companies with debt outstanding raised $157 million during the quarter up materially from $47 million last quarter, bringing our total to 19 companies with outstanding debt raising $594 million during Q3.
This data does not include Metropolis is announced financing the acquisition, which is expected to close in 2024.
Sajal K. Srivastava: In 2022, 36 portfolio companies raised over $2.4 billion of capital. As we look to 2024, we are beginning to see capital raising activity within our portfolio picking up, with two portfolio companies already having raised over $445 million of capital here in Q1, and a number of portfolio companies are either in active fundraising discussions or expecting to launch a fundraising process shortly. We are seeing round sizes increase, and in a few cases, valuations higher than prior rounds.
2022, 36 portfolio companies raised over $2 4 billion of capital.
As we look to 2024.
Turning to see capital raising activity within our portfolio are picking up with two portfolio companies already having raised over $445 million of capital here in Q1, and a number of portfolio companies are either in active fund raising discussions or expecting to launch fundraising process. Shortly.
We are seeing round sizes increase and in a few cases valuations higher than prior rounds.
Sajal K. Srivastava: This fundraising activity should bode well for the long-term credit quality of our portfolio companies, as well as for the potential value of our Warren and Equity portfolio. With regard to exit activity, during the quarter, our portfolio company, Alec, also known as Lola, was acquired by existing portfolio company Forum Brands, and our loan to Lola was assumed by Forum Brands in full. However, closed M&A events for the full year were flat with 2022 levels, and IPOs within our portfolio were down from 2022. As of December 31st, 2023, we held warrants in 97 companies and held equity investments in 46 companies with a total cost of $70 million and a fair value of $72 million. Our Warren and Equity portfolio experienced a $15.5 net unrealized reduction in fair value, or $0.43 per share for the quarter, and $23.6 million, or $0.66 per share for the full year, driven primarily by the disparity between private and public market multiples for fair value companies that have not raised new rounds, as well as, in some cases, the impact of down valuations from new capital.
This fundraising activity should bode well for the long term credit quality of our portfolio companies as well as for the potential value of our warrant and equity portfolio.
With regards to exit activity during the quarter our portfolio company. Alex also known as Lola was acquired by existing portfolio company Foreign brands under a long term Lola was assumed by foreign brands in full.
Does the M&A events for the full year were flat with 2022 levels and Ipos within our portfolio were down from 2022.
As of December 31, 2023, we held warrants at 97 companies and held equity investments in 46 countries with a total cost of $70 million at fair value of $72 million.
Our warrant and equity portfolio experienced a $15 five net unrealized reduction in fair value or <unk> 43 per share for the quarter at $23 6 million or <unk> 66 per share for the full year, driven primarily by the disparity between private and public market multiples.
With fair value companies that have not raised new routes as well as in some cases, the impacted down valuations for new capital raise.
Sajal K. Srivastava: $12.6 million, or roughly 80% of the reduction in fair value during Q4, was attributable to three of our financial technology companies, Revolut, World Remit, and Upgrade, given the considerable time that has elapsed since their last private rounds of financing, which were raised at peak periods for valuation multiples for financial technology companies, compared with the current range of valuation multiples for publicly traded financial technology companies. We now generally utilize current market comparables and multiples to value them based on available actual performance rather than projected performance as well.
$12 6 million or roughly 80% of the reduction in fair value. During Q4 was attributable to three of our financial technology companies Resolute will permit and upgrade given the considerable time that has elapsed since their last private round of financing which are raised at peak.
Periods for valuation multiples for financial technology companies compared with the current range of valuation multiples for publicly traded financial technology companies. We know generally utilized current market comparable with multiples to value them based on available actual performance rather than projected performance as well.
Generally speaking, although our marks this quarter valued these fintech companies significant discounts from their last round valuations. We believe they all have the potential for meaningful upside when they ultimately experienced an exit event, whereas the potentially raise future rounds of financing.
Sajal K. Srivastava: Generally speaking, although our marks this quarter value these fintech companies at significant discounts from their last round valuations, we believe they all have the potential for meaningful upside when they ultimately experience an exit event or as they potentially raise future rounds of financing. It should be noted that yesterday's announcement by Monzo, another financial technology portfolio company, of raising $430 million at a $5 billion post-money valuation will be a helpful data point not only for our fair value mark for Monzo here in Q1, but also for supporting the value of our other private financial technology companies. We continue to have a number of portfolio companies that are growing and executing either according to or, in many cases, ahead of plan, including some that are achieving positive EBIT. These include companies in the software, enterprise, cyber, health and wellness, travel, as well as FinTech segments, which is why we continue to anticipate the potential for gains from our Warren and Equity investments. Cohesity, Metropolis, and Monzo are all great examples of events occurring or on track to occur in 2024 that could drive value for our portfolio.
It should be noted that yesterday's announcements by Monzo, another financial technology portfolio company of raising $430 million at a $5 billion post money valuation will be a helpful data point not only for our fair value Mark for Monzo here in Q1, but also for supporting the value of IRA.
Other private financial technology companies.
We continue to have a number of portfolio companies that are growing and executing either according to or in many cases ahead of plan, including some that are achieving positive EBITDA.
Include companies in the software enterprise cyber health and wellness travel as well as Fintech segments, which is why we continue to anticipate the potential for gains from our warrant and equity investments.
Cohesively Metropolis amount.
All great examples of events occurring we're on track to occur in 2024 that could drive value for our portfolio.
Sajal K. Srivastava: Turning to realized losses, all of our realized losses during Q4 were from companies that had been on our watch list as of Q3. Events have now concluded at these companies, with approximately two-thirds of the actual losses realized in the fourth quarter having already previously been reflected on an unrealized basis in prior quarters, but given unanticipated developments at a few of these companies during the quarter, additional losses were incurred. The first one, Demand, also known as LUCO, was previously rated Category 5.
Turning to realized losses, all of our realized losses. During Q4 were from companies that had been on our watch list as of Q3.
<unk> now have been concluded in these countries with approximately two thirds of the actual losses realized in the fourth quarter, having already previously been reflected on an unrealized basis in prior quarters, but given unanticipated developments at a few of these companies during the quarter additional losses Werent.
Kurt.
First one demand also known as Newco was previously rated category.
Sajal K. Srivastava: LUCO announced last year that it was going to be acquired by Admiral Insurance, as well as its intent to sell certain business units and assets to other parties through a bankruptcy process. Unfortunately, Admiral walked from the acquisition days prior to closing. LUCO, however, was able to quickly find another insurance company, Allianz Direct, to agree to acquire the company for a lower price.
Newco announced last year that it was going to be acquired by Admiral insurance as well its intent to sell certain business units and assets to other parties through a bankruptcy process.
Unfortunately, Admiral walk from the acquisition age prior to closing the company. However was able to quickly find another insurance company Ali on direct to agree to acquire the company for a lower price, but in the surprise to all the parties involved with the bankruptcy court rejected the agreement and the companies ultimately liquidate.
Sajal K. Srivastava: But, as a surprise to all the parties involved, the Bankruptcy Court rejected the agreement, and the company was ultimately liquidated. We realize a loss of $17 million, of which $6 million has been previously recognized on an unrealized basis, and an additional $11 million was recognized during the quarter, given the unanticipated rejection, and have removed the company from our watchlist. Mystery Tackle Box was previously rated Category 3.
We realized a loss of $17 million of which $6 million has been previously recognized on an unrealized basis and an additional $11 million was recognized during the quarter given the unanticipated rejection and removes the company from a watch list.
History tackle box, which previously rated category three.
Sajal K. Srivastava: In Q4, we realized a loss to include both previously recognized amounts and our remaining $4 million exposure as of Q3, given a failed M&A process and negative developments during the quarter in their subsequent asset sale to a third party, and have removed the loan from our wallet. Untitled Labs, which operated under the name Made Renovations, was previously rated Category 5. In Q4, we reduced our expectation for recovery to $500,000 and realized a loss equal to our remaining exposure of $2.2 million and amounts previously recognized on an unrealized basis given negative developments during the quarter and their subsequent asset sale to a third party, and we have removed the company from our watchlist. Finally, during the quarter, VanMoof, a Category 5 loan, closed its sale to MA Micro Holdings.
In Q4, we realized the loss to include both the previously recognized the mountains and our remaining 4 million exposure as of Q3, given a failed M&A process and negative developments during the quarter and their subsequent asset sales to third party and it removes the loan from our Washington.
Untitled labs, which operated under the name made renovations with previously rated category in.
In Q4, we reduced our expectation for recovery to 500000 and realized a loss equal to our remaining exposure $2 2 million as announced previously recognized an unrealized basis.
Negative developments during the quarter and their subsequent asset sale to a third party and have removed the company from our watch list.
Finally during the quarter, then move a category five loan closed its sale to MA Micro holdings, our investment in the New company include a combination of debt investments and a convertible loan position.
Sajal K. Srivastava: Our investment in the new company included a combination of debt investments and a convertible loan position. We value these investments consistent with our fair value marks as of Q3 of $5.1 million and realize the loss in Q4 equal to the amounts previously recognized on an unrealized basis. The convertible investment has the potential for future upside if the company grows in value over time or in an exit event. MA Micro Holdings has been added to Category 4 on the watch list, and Venmoof has been removed.
The value of these investments consistent with our fair value marks ended Q3, $5 1 million and realized the loss in Q4 equal to the amounts previously recognized on an unrealized basis.
The convertible investment has the potential for future upside as the <unk>.
Company grows in value overtime oriented exit events.
And then your micro holdings has been added to category four on the watch list and then move has been removed.
Sajal K. Srivastava: Our final recoveries have been lower than what we've experienced historically. We believe this is due to the conditions in both the M&A and venture capital markets, where given the combination of fewer active M&A players and the lack of viable alternatives for companies, such as raising more equity capital, acquirers have had greater negotiating power and have walked away or are willing to walk away from yields, resulting in lower recoveries despite the revenue profile, invested capital, customer validation, and even intellectual property of our portfolio. With regard to credit watch list activity for the rest of the portfolio, during the quarter, we upgraded one name from Category 2 to Category 1 as a result of the closing act. Three companies were downgraded from Category 2 to Category 3, primarily due to sector concerns or a short runway in conjunction with their financing or strategic advantage. Although two of the three have now signed term sheets for those.
Our final recoveries have been lower than what we've experienced historically, we believe this is due to the conditions in both the M&A and venture capital markets, where given the combination of fewer active M&A players and the lack of viable alternatives for companies such as raising more equity capital acquired have had greater.
<unk> power.
Walked away or are willing to walk away from deals, resulting in lower recoveries. Despite the revenue profile invested capital customer validation and even intellectual property of our portfolio.
With regards to credit watch list activity for the rest of the portfolio during the quarter, we upgraded <unk> from category two to category one as a result of closing.
Three companies were downgraded from category two to category three primarily due to the sector concern.
<unk> runway in connection conjunction with their financing or strategic events. Although two of the three have now signed term sheets for those events.
Sajal K. Srivastava: The majority of the companies in Category 3 comprise e-commerce and consumer portfolio companies, which, as we explained last quarter, are experiencing continued challenges as they manage through ongoing market and sector-specific issues, as well as difficulty in the fundraising and M&A market. Two companies were downgraded to Category 4 during the quarter due to developments in their fundraising and or strategic events. However, both have raised incremental capital and are making progress. The remaining two Category 4 companies include Roli, which had a strong 2023, including substantial revenue growth and incremental capital raises, and Project 1920, also known as CENREV, which continues to pursue strategic and other fundraising efforts. Underground Enterprises, our Category 5 loan, continues through its liquidation process, and we expect to finalize a recovery and remove it from Category 5 over the course of this year.
The majority of the companies in category three comprise ecommerce and consumer portfolio companies, which as we explained last quarter are experiencing continued challenges as they manage through ongoing market and sector specific issues as well as difficulty in the fund raising and M&A markets.
Two companies were downgraded to category four during the quarter due to developments in their fund raising <unk> strategic events. However, both have raised incremental capital and are making progress.
The remaining two category four companies include really which had a strong 2023, including substantial revenue growth and incremental capital raises and project 19, 'twenty also known as <unk>, which continues to pursue strategic and other fundraising efforts.
Underground enterprises, a category five loan continues to its liquidation process and we expect to finalize our recovery and remove it from category five over the course of this year.
With regards to our objectives and goals in 2024 as mentioned earlier, we believe that the venture capital market conditions may improve over the course of the year.
Sajal K. Srivastava: With regard to our objectives and goals for 2024, as mentioned earlier, we believe that the venture capital market conditions may improve over the course of the year. In terms of our expectations for portfolio growth, our forecast for quarterly gross investment funding is in the range of $25 to $50 million for each quarter. Given our existing significant liquidity position and our expectations for at least one prepayment per quarter, we believe that by returning to portfolio growth and by focusing on smaller hold sizes, we will continue to pursue our goals of increased portfolio diversification and industry sector rebalancing. As we look to onboard loans, we intend to maintain our strong yield profile, not only by holding spreads, but also by continuing to incorporate fixed rate investments, which, along with anticipated portfolio growth, will bode well for our ability to continue to cover our dividends.
In terms of our expectations for portfolio growth forecast for quarterly gross investment fundings is in the range of $25 million to $50 million for each quarter.
Given our existing significant liquidity position and our expectations for at least one prepayments per quarter do you believe that by returning to portfolio growth.
By focusing on smaller hole sizes, we continue along our goals of increased portfolio diversification and industry sector rebalancing.
As we look to Onboarding, new loans, we intend to maintain our strong yield profile not only by holding spreads, but also by continuing to incorporate fixed rate investments, which along with anticipated portfolio growth will bode well for our ability to continue to cover dividend.
Our priority will be to continue to monitor our existing portfolio and manage existing credit situation and the potential for improving market conditions in the private markets should be helpful.
Sajal K. Srivastava: Our priority will be to continue to monitor our existing portfolio and manage existing credit situations, and the potential for improving market conditions in the private and public markets should be helpful. In closing, we remain focused on all aspects of our business and will continue to follow our long-term playbook of generating strong returns for our shareholders, growing net asset value, and further nurturing strong relationships with our select venture capital partners in order to build a high-quality and durable portfolio for what we believe could be a peak period for venture capital and venture lending returns. That's it. I will now turn the call over to Chris. Thank you, Sajal, and hello everyone.
In closing we remain focused on all aspects of our business and we will continue to follow our long term playbook are generating strong returns for our shareholders growing net asset value and further nurturing strong relationships with our select venture capital partners in order to build a high quality and durable portfolio for what we believe could.
We are developing peak period for venture capital and venture lending returns with that I will now turn the call over to Chris.
Thank you, sorry, Joe and Hello, everyone.
Christopher M. Mathieu: During the fourth quarter, we continued to generate strong interest income from our diversified loan portfolio. This was driven by increased yields compared to those at origination as a result of multiple increases in the U.S. prime rate since March 22. Leverage increased in the quarter as prepayments totaling $34 million were offset by a decline in net asset value. At the same time, we made further progress reducing unfunded commitment levels in the fourth quarter, and as a result, TPBG has significant liquidity at its disposal to support our existing portfolio companies, satisfy our unfunded commitments, and make selective new investments. For the fourth quarter, total investment income was $33 million, with a portfolio yield of 15.6% as compared to $35 million, with a portfolio yield of 15.3% for the prior year period. Total investment income for the full year of 23 increased 15% to a record $137 million.
During the fourth quarter, we continued to generate strong interest income from our diversified loan portfolio.
This was driven by increased yields compared to those that origination as a result of multiple increases in the U S. Prime rate since March of 'twenty two.
Leverage increased in the quarter as prepayments totaling $34 million were offset by a decline in net asset value.
At the same time, we made further progress reducing unfunded commitment levels in the fourth quarter and as a result, TPG has significant liquidity at the ready to support our existing portfolio companies satisfy our unfunded commitments and make selective new investments for.
For the fourth quarter total investment income was $33 million with a portfolio yield of 15, 6% as compared to $35 million with a portfolio yield of 15, 3% for the prior year period.
Total investment income for the full year of <unk> 23 increased 15% to a record $137 million this compared to $119 million for the prior year period.
Christopher M. Mathieu: This compared to $119 million for the prior year period. For the fourth quarter, total operating expenses were $15.7 million, as compared to $14.5 million for the prior year period. These expenses consisted of $8.3 million of interest expense, $4.5 million of base management fees, $600,000 of administrative expenses, and $2.3 million of G&A expense. Due to the shareholder-friendly total return requirement under the incentive fee structure, there were no incentive fees this quarter
For the fourth quarter total operating expenses were $15 7 million as compared to $14 5 million for the prior year period. These.
These expenses consisted of $8 3 million of interest expense $4 5 million of base management fees $600000 of administrative expense and $2 3 million of G&A expense.
Due to the shareholder friendly total return requirement under the incentive fee structure, there were no incentive fees this quarter.
Christopher M. Mathieu: Total operating expenses for the full year of 23 totaled $63.7 million as compared to $55.9 million for the prior year period, a 14% increase. For the fourth quarter, net investment income totaled $17.3 million or $0.47 per share compared to $20.5 million or $0.58 per share for the prior year period. Total Investment Income for the full year of 2023 increased 16%, totaling $73.8 million as compared to $63.6 million for the prior year period. For the fourth quarter, net realized losses on investments totaled $52 million.
Total operating expenses for the full year of 'twenty, three totaled $63 $7 million as compared to $55 9 million for the prior year period.
14% increase.
For the fourth quarter net investment income totaled $17 $3 million or <unk> 47 per share compared to $20 5 million or <unk> 58 per share for the prior year period.
Total investment income.
For the full year of 2023 increased 16% totaling $73 $8 million as compared to $63 6 million for the prior year period.
For the fourth quarter net realized losses on investments totaled $52 million. This was primarily in connection with the write off of investments of four portfolio companies of note $32 5 million or 63% of this amount was previously included in unrealized losses and was reclassified from unrealized.
Christopher M. Mathieu: This was primarily in connection with the write-off of investments in four portfolio companies. Of note, $32.5 million, or 63% of this amount, was previously included in unrealized losses and was reclassified from unrealized to realized. As such, $32.5 million of the net realized losses in Q4 had no impact on net asset value.
<unk> two realized as such $32 $5 million of the net realized losses in Q4 had no impact on net asset value.
For the fourth quarter net change in unrealized gains on investments was $6 million consisting of $34 1 million from the reversal of previously recorded unrealized losses from investments realized during the period.
Christopher M. Mathieu: For the fourth quarter, the net change in unrealized gains on investments was $6 million, consisting of $34.1 million from the reversal of previously recorded unrealized losses from investments realized during the period, reduced by $12.6 million of net unrealized losses on the existing debt investment portfolio and $15.5 million of net unrealized losses on the existing inequity portfolio, resulting all from fair value adjustments. As of year-end, its net asset value was $346.3 million, or $9.21 per share. We declared a regular quarterly dividend of 40 cents per share with a record date of March 14th to be paid on March 29th.
Reduced by $12 $6 million of net unrealized losses on the existing debt investment portfolio and $15 $5 million of net unrealized losses on the existing warrant and equity portfolio, resulting all from fair value adjustments.
As of year end net asset value was $346 $3 million or $9 21 per share.
We declared a regular quarterly dividend of <unk> 40 per share with a record date of March 14th to be paid on March 29.
Based on our success over earning the dividend, we have undistributed spillover income of $41 $5 million or $1 10 per share as of year end.
Given the ongoing elevated yields and size of the income producing loan portfolio dividend coverage remains strong throughout all of 2023.
We believe that given the historically strong level of over earn dividends and substantial level of spillover income the current level of regular quarterly dividends are expected to be stable.
Christopher M. Mathieu: Based on our success in earning the dividend, we have undistributed spillover income of $41.5 million, or $1.10 per share, as of year end. Given the ongoing elevated yields and size of the income-producing loan portfolio, dividend coverage remains strong throughout all of 2023. We believe that given the historically strong level of over-earned dividends and substantial level of spillover income, the current level of regular quarterly dividends is expected to be stable. Now, just an update on unfunded investment commitments, the balance sheet leverage, and overall liquidity. We ended the year with $118 million of floating rate, unfunded investment commitments, of which $29 million was dependent upon a portfolio company reaching certain milestones. This level of commitments represents a 64% decline from a year ago and bodes well for new investment capacity in 2024. As of December 31st, 2023, approximately 60% of the principal balance of the debt portfolio in our portfolio is due to interest at floating rates. As of year-end, an aggregate of $610 million of debt was outstanding, consisting of $395 million of fixed-rate, investment-grade term notes and $215 million outstanding on our floating rate revolving credit facility.
Now just a update on unfunded investment commitments, the balance sheet leverage and overall liquidity.
We ended the year with $118 million of floating rate unfunded investment commitments of which $29 million was dependent upon the portfolio company, reaching certain milestones.
This level of commitments represents a 64% decline from a year ago and bodes well for new investment capacity in 2024.
As of December 31, 2023, approximately 60% in principal balance of the debt portfolio.
Pork in our portfolio for interest at floating rates.
As of year end, an aggregate of $610 million of debt was outstanding consisting of $395 million of fixed rate investment grade term notes.
$215 million outstanding on our floating rate revolving credit facility.
We ended the year with a $1 76 gross leverage ratio and our net leverage ratio, which is net of cash on hand was 127 times.
Given the reduced unfunded commitment levels, the near term prepayments already discussed and selective ongoing use of the ATM program, we expect to Delever the balance sheet during the first half of 2024.
As of year end, the company had liquidity of $307 million, consisting of $172 million in cash and $135 million available under the revolving credit facility.
Christopher M. Mathieu: We ended the year with a 1.76 gross leverage ratio, and our net leverage ratio, which is net of cash on hand, was 1.27 times. Given the reduced unfunded commitment levels, the near-term prepayments already discussed, and selective ongoing use of the ATM program, we expect to de-lever the balance sheet during the first half of 2024. As of year end, the company had liquidity of $307 million, consisting of $172 million in cash and $135 million available under the revolving credit facility, similar to prior quarters.
Similar to prior quarters.
Near quarter end, we drew down on our credit facility to enhance our investment flexibility pursuant to their certain 1940 Act requirements.
Right. After the end of the quarter, we paid down the credit facility decreased leverage and increased availability under the credit facility for future draws as appropriate.
We continue to access the capital markets by using our ATM program and during the quarter, we raised $15 $2 million and for the full year raised $21 4 million under the ATM program.
Christopher M. Mathieu: Near quarter end, we drew down on our credit facility to enhance our investment flexibility pursuant to certain 1940 Act requirements. Right after the end of the quarter, we paid down the credit facility, decreased leverage, and increased availability under the credit facility for future draws as appropriate. We continue to access the capital markets by using our ATM program, and during the quarter, we raised $15.2 million, and for the full year, we raised $21.4 million under the ATM program.
At this point this completes our prepared remarks and operator could you. Please open the line for questions at this time.
Yeah.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
And our first question comes from Brian Mckenna of citizens JMP. Please go ahead.
Operator: At this point, this completes our prepared remarks, and operator, could you please open the line for questions at this time? 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 key.
Okay, great. Thank so you had well over a dollar per share of net realized and unrealized losses in the quarter.
And that drove an 11% decline in NAV E, bringing a year over year decline of 23%. So I guess is there a way to think about future losses across the portfolio moving moving forward or are we getting near the entities write downs and losses and I'm just trying to think through the trajectory of and from here and ultimately when you.
Operator: To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. And our first question comes from Brian McKenna of Citizens JMP. Please go ahead.
Brian McKenna: Okay, great, thanks. So you had well over a dollar per share of net realized and unrealized losses in the quarter, and that drove an 11% decline in NAV, bringing the year-over-year decline to 23%.
When do you think it will start to inflect higher.
Okay.
Yeah, Hi, Brian it's subtle here, so I'd say again.
No.
The reduction in NAV. If you look through it. There is also 66 cents of that is related to fair value marks on our warrant and equity positions. So as you look right again, the cost basis in the fair value of our warrant and equity investment portfolio basically equal and if you look over the years historically.
Sajal K. Srivastava: So I guess, is there a way to think about future losses across the portfolio moving forward? Are we getting near the end of these write-downs and losses? And I'm just trying to think through the trajectory of NAV from here and, ultimately, when you think it will start to inflect higher. Yeah, Brian, Sajal here.
Fair value is traded significantly higher so we believe there is.
Room for that to come back.
For us to have deemed excess an unrealized basis unrealized basis.
On a fair value basis as market conditions improve.
With regards to credit again, I think our our credit scores reflect our current view on our existing obligor or is it based on current market conditions and so again, we're seeing some good data points with the increase in equity raising activity of our existing portfolio companies discussed some of the specifics for some of these companies and each of them.
Sajal K. Srivastava: So, I mean, I'd say again, the reduction in NEV, if you look through it, there's also $0.66 of that is related to fair value marks on our Warren Equity position. So, if you look right again, the cost basis and the fair value of our Warren Equity investment portfolio are basically equal. And if you look over the years, historically, that fair value is traded significantly higher.
Credit ratings.
And in term sheets and positive developments and so again the market is challenging we continue to remain proactive and diligent and manage this environment, but again as conditions improve we expect both credit profile and fair values to improve as well.
Okay, great. Thanks, and then just on leverage I appreciate some of the color there.
Sajal K. Srivastava: So, we believe there is room for that to come back and for us to have gains in excess on an unrealized basis and realized basis on a fair value basis as market conditions improve. With regard to credit, again, I think our credit scores reflect our current view on our existing obligors based on current market conditions. And so, again, we're seeing some good data points with the increase in equity raising activity of our existing portfolio companies. We discussed some of the specifics for some of the companies in each of the credit ratings on signed term sheets and positive developments. And so, again, the market is challenging. We continue to remain proactive and diligent in managing this environment.
Some of the dynamics kind of post year end here, but you kind of just looking at leverage.
Remains pretty elevated here so.
Youre still working through some of these write downs and losses, which obviously isn't helping leverage picture, but I mean, I know you have the ATM, but would you look to raise some equity capital here.
Are you some of the cash on hand, maybe to pay down some of the upcoming maturities I mean, I'm just trying to think through.
How this ultimately starts towards lower.
Yeah. So I think as we mentioned in some of our prepared remarks, we do have some near term expectations on prepayments given some of the broader market updates that we gave.
Sajal K. Srivastava: But again, as conditions improve, we expect both the credit profile and fair values to improve as well. Okay, great, thanks. And then just on leverage, I appreciate, you know, some of the color there and, you know, some of the dynamic kind of post-year end here, but you're kind of just looking at leverage, you know; it remains pretty elevated here. So, you know, you're still working through some of these write-downs and losses, which obviously isn't helping the leverage picture. But I mean, I know you have the ATM, but would you look to raise some equity capital here? You know, or use some of the cash on hand, maybe to pay down some of the upcoming maturities? I mean, I'm just trying to think through, uh... you know how this ultimately will end. Yeah, so I think, as we mentioned in some of our prepared remarks, we do have some near-term expectations on prepayments given some of the broader market updates that we gave. We also are selectively using the ATM program, but we're not currently expecting, given the overall cost to do an overnight or something in that vein, that's not something we're looking at right now.
We also are selectively using the ATM program, but we're not currently expecting given the the overall cost to do an overnight or something in that vein. That's not something we're looking at right. Now again remember that net Leverages 127, I think thats pretty close to the range, where most firms as well as us are targeting work.
Our target is $1 two five on a net basis so.
I think we're on track, but there's still more work to do as we head into the first kind of finish up the first half of 2024.
Alright, I will leave it there thank you very much.
Yeah.
The next question comes from Casey Alexander of Compass point. Please go ahead.
Yeah, I just have one question.
Can it be appropriate to sell one 5 million shares into the market through the ATM program with the knowledge that significant material losses are on the way and a significantly lower niv is going to be presented to shareholders. When you report this quarter.
Yes, <unk> I'll take this so again the ATM is a program that acts on its own so it set and it operates on or do you have any ability you have the ability to shut it down.
Sajal K. Srivastava: Again, remember that net leverage is 1.27. I think that's pretty close to the range where most firms, as well as us, are targeting, where our target is 1.25 on a net basis. So I think we're on track, but there's still more work to do as we head into the first, kind of finish up the first half of 2024. All right, I'll leave it there. Thank you very much. The next question comes from Casey Alexander of CompassPoint. Please go ahead.
And then as we said as developments are learned are known then we adjust and act accordingly.
Alright, thank you.
That's it.
The next question comes from Christopher Nolan of Ladenburg Thalmann. Please go ahead.
I guess I missed it what would the unfunded commitments to date.
Casey Jay Alexander: Yeah, I just have one question. How can it be appropriate to sell 1.5 million shares into the market through the ATM program with the knowledge that significant material losses are on the way and a significantly lower NAV is going to be presented to shareholders when you report this quarter? Yeah, KJ, Sajal, I'll take this.
Hum.
Of the changed at all since 12 31.
We didn't see at 12 31, they were 118 million of unfunded and we didn't report on kind of where they are.
Since then as far as new fundings.
And.
Yes, let me actually.
So we had new fundings of $12 4 million since the end of the year and that would go against the $118 million and then we had new commitments of $10 million, so kind of a decline of two point.
Sajal K. Srivastava: So again, the ATM is a program that acts on its own, so it's set, and it operates on its own. You have the ability to shut it down. Yeah, and then, as we said, as developments are learned and known, then we adjust and act accordingly. All right, thank you. That's it. The next question comes from Christopher Nolan of Ladenburg-Salmon. Please go ahead.
On your comment of deleveraging is that gonna be basically running.
Basically living investments in the portfolio run off or to use some of the.
Elevated cash liquidity to pay down borrowings.
So it's actually both so we've already done the pay down of a substantial amount of the cash that was on balance sheet as of the end of the year.
Christopher Whitbread Patrick Nolan: In case I missed it, what were the unfunded commitments to date? They've changed it all since 1231. At 1231, there were 118 million unfunded, and we didn't report on kind of where they were since then as far as new funding. So we had new funding of $12.4 million since the end of the year, and that would go against the $118 million. And then we had new commitments of $10 million, so kind of a net decline of $2.4 million. On your comments about deleveraging, is that going to be basically running... Basically letting investments in the portfolio run off, or using some of the elevated cash liquidity to pay down borrowers. So actually both.
To a much much lower single digit million carrying cash balance.
And then so that's part that's temporary and then we are just letting the portfolio amortize and prepay naturally and as such will mentioned during his prepared remarks, we've had at the low end of the funding range and that's intentional as we look to delever below the net 127.
127 times leverage.
Okay. That's it for me thank you.
Okay.
The next question comes from Paul Johnson of <unk>. Please go ahead.
Yeah. Good evening guys. Thanks for taking my questions I realize you've already provided.
Some good commentary on the watch list movements.
During the quarter or the internal rating movements.
But if I kind of look at it quarter over quarter, no investments rated yellow or below.
Yeah.
Christopher M. Mathieu: So we've already done the pay down of a substantial amount of the cash that was on the balance sheet as of the end of the year to a much, much lower single digit million carrying cash balance. And then so that's part that's temporary. And then we are just letting the portfolio amortize and prepay naturally. And as Sajal mentioned during his prepared remarks, we've had a low end of the funding range. And that's intentional as we look to de-lever below the net 127, a 1.27 times leverage. Okay, that's it for me. Thank you. The next question comes from Paul Johnson of KBW. Please go ahead.
Last quarter was $13 seven this quarter was 21, 7% of the total portfolio. So a big jump there.
Obviously, an unfair values lives accounting for.
For the write downs as well.
You know I guess.
Given that change in the <unk>.
You've mentioned I mean, how can you get.
You know comfortable and get the market confidence.
You guys have stabilized situations you've identified as troubled in.
Yes, there is.
There's a plant floor here and there.
Paul Conrad Johnson: Good evening, guys. Thanks for taking my questions. I realize you've already provided some good commentary on the watchlist movements during the quarter, internal rating movements, but if I kind of look at it quarter over quarter, investments rated yellow or below, last quarter was 13.7; this quarter was 21.7% of the total portfolio, so a big jump there. It's obviously unfair values, so it's accounting for the write-downs as well.
Yeah.
Yes, the way I think we look at it is multi factored right. So the first element is as Jim described in detail in the market conditions. So we are in the.
The winter of all things venture capital. So I think a critical element is in particular, the technology sub sector of venture capital in the venture growth stage in particular of these companies that.
Raised large rounds at high valuation during peak periods that were seeing these companies.
Sajal K. Srivastava: I guess given that change and the stuff that you've mentioned, I mean, how can you get.., you know, comfortable and make the market confident that you guys have stabilized the situations you identified as troubled and that there are.., plans for the future here in the air. Yeah, you know, the way I think we look at it is it's multifactored, right? So the first element is, as Jim described in detail, the market condition. So we are in the winter of all things venture capital. So I think a critical element is, in particular, the technology subsector of venture capital and the venture growth stage, in particular, of these companies that, you know, raise large rounds at high valuations during peak periods. So we're seeing these companies are getting more impacted than companies at other stages of the venture capital lifespan.
We are getting more impacted than companies that other stages of the venture capital lifespan. So I'd say a significant amount is related to the venture capital or the equity investment activity and so as we see data points of promising activity of capital raises and increasing capital raises.
Does that gives us confidence in terms of the overall outlook for the industry or the sector and the portfolio I think the second element of what we've talked about is one of the reasons why we've seen.
Fair amount of challenge to has been this.
The weak IPO and M&A markets in particular, the M&A market that we described a number of scenarios of transactions.
Essentially collapsing because of the dynamics of these acquisitions were at times and more robust times. These transactions would have closed that would've closed that.
Sajal K. Srivastava: So I'd say a significant amount is related to venture capital and equity investment activity. And as we see data points of promising activity in capital raises and increasing capital raises, that gives us confidence in terms of the overall outlook for the industry, the sector, and the portfolio. I think the second element of what we talked about is, you know, one of the reasons why we've seen, you know, a fair amount of challenge, too, has been this, the weak IPO and M&A markets, in particular, the M&A markets, and we described a number of scenarios of transactions, essentially collapsing, because of the dynamics of these acquisitions, where at times, in more robust times, you know, We look at it on a specific name basis and consider facts and circumstances from our perspective. So very much, it's hard to generalize for a category to say if it's in a certain category, it naturally implies, you know, where it's going to end up.
Higher values I think the last piece is we look at the watch list itself.
Hurricane and we look at it on a specific name basis in facts and circumstances from our perspective, so very much it's hard to generalize for a category to say if it's in a certain category naturally implies.
Directionally, it's going to end up I would say very much we look at for each of our Reds oranges and yellows as each specific name what the outlook is for those companies market appropriately from a credit rating and from a fair value perspective, and then make sure. Our teams are as proactive as they can be to manage through those situations.
I think as I described during the call I think the good news of some positive outlook is that some positive events are happening within those companies and those ratings term sheets and events happening, but until they happen and close given this environment, we need to remain cautious and optimistic.
And then when those events close then move them up and upgrade them.
Got it thanks for that.
Christopher M. Mathieu: I would say, very much, we look at, for each of our reds, oranges, and yellows, each specific name, what the outlook is for those companies, market appropriately from a credit rating and from a fair value perspective, and then make sure our teams are as proactive as they can be to manage those situations. I think, as I described during the call, I think the good news or some positive outlook is that some positive events are happening within those companies, in those ratings, term sheets, and events are happening, but until they happen and close, given this environment, you know, we need to remain cautious and optimistic, proactive, and then when those events close, move them up and up, and many more. I got it.
And then last question for me.
Yeah.
On dividends.
At this point on.
This quarter's NAV, it's about a 17% yield.
On that where the current dividend rate is that.
He can talk about you're probably going to be deleveraging at least in the first half of this year.
No.
I guess, what can you say kind of thoughts around that.
Yeah level and your confidence to generate no.
Right.
Yes, so I would say to say two things one is when you think about the elevation of the yields in 60% of our portfolio is floating rate 40% is fixed.
There's also a substantial portion of our.
Christopher M. Mathieu: Thanks for that. And then last question for me on dividends. At this point, on this quarter's NAV, it's about a 17% yield on NAV where the current dividend rate is bad. You know, you talked about you're probably going to be deleveraging at least in the first half of this year. You know, I guess what you can say about the kind of thoughts around that level and your confidence to generate, you know, that level? Yeah, so I would say two things. One is, when you think about the elevation of the yields in, you know, 60% of our portfolio is floating rate, and 40% is fixed. There's also a substantial portion of our leverage that is fixed rate, so the net interest margin is pretty well protected for at least some period of time in a declining rate environment, so we're pretty comfortable with that.
Leverage that is fixed rate. So the net interest margin is pretty well protected for at least some period of time and a decline.
Declining rate environment, So we're pretty comfortable with that.
Also with the declining leverage there is some room. So one of the things to think about is when I in 'twenty two 'twenty three when yields were going up the dividend was increased but it was not.
Simply increased during those periods.
And as a result, you've seen that the spillover income continue.
For almost two years to increase so I think theres substantial ordinary income that's stored to maintain a stable dividend.
But the ordinary income or NII is expected to be pretty stable as well given the strength of the income producing portfolio.
Christopher M. Mathieu: Also with the declining leverage there is some room so one of the things to think about is when in 22 and 23 when yields were going up the dividend was increased but it was not excessively increased during those periods and as a result you've seen that the spillover income continue for almost two years to increase so I think there's substantial ordinary income that's stored to maintain a stable dividend but the ordinary income or NII is expected to be pretty stable as well given that the strength of the income producing portfolio.
Thanks, that's all for me.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Mr. Jim <unk> for any closing remarks.
Thank you operator.
I'd like 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 have a nice day.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Yeah.
[music].
Christopher M. Mathieu: Thanks for talking to me. This concludes our question and answer session. I would like to turn the conference back over to Mr. Jim Labe for any closing remarks. Thank you, operator. As always, I'd like 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 have a nice day. The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.