Q3 2024 Trinity Capital Inc Earnings Call
Jim: Good morning, ladies and gentlemen. My name is Jim and I will be your conference operator today. At this time, I would like to welcome everyone to Trinity Capital's third quarter 2024 earnings conference call.
Jim: All participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. All participants have been placed in a listen-only mode. Pardon me, I just already said that. As I stated, the call will be open for your questions after the prepared remarks. It is now my pleasure to turn the call over to Ben Malcolmson, Head of Investor Relations for Trinity Capital. Please go ahead.
Ben Malcolmson: Thank you and welcome to Trinity Capital's earnings conference call for the third quarter of 2024. Today we are joined by Kyle Brown, Chief Executive Officer, Michael Testa, Chief Financial Officer, and Jerry Harder, Chief Operating Officer.
Ben Malcolmson: Also joining us for the Q&A portion of the call are Ron Kundich, Chief Credit Officer, and Sarah Stanley, Chief Compliance Officer and General Counsel.
Speaker Change: Before we begin, I would like to remind everyone that certain statements made during this call may be deemed forward-looking statements under federal securities laws.
Speaker Change: Because these forward-looking statements involve known and unknown risks and uncertainties, we encourage you to refer to our most recent SEC filings for information on some of these risk factors.
Speaker Change: Trinity Capital assumes no obligation or responsibility to update any forward-looking statements.
Speaker Change: Now, allow me to turn the call over to Trinity Capital's CEO, Kyle Brown.
Kyle Brown: Thank you, Ben. Thanks, everyone, for joining us today.
Kyle Brown: In the third quarter, our strategies performed strongly, helping us deliver record results. Top highlights from Q3 include record net investment income of $29 million, a 26% increase versus Q3 of last year.
Kyle Brown: Net asset value grew to $757 million, up 11% from $680 million last quarter.
Kyle Brown: Platform AUM reached a record $2 billion. In Q3 we made a record $459 million in investments, gross fundings, which was largely driven by $406 million of secured loans, and included debt investments to 11 new portfolio companies.
Kyle Brown: Trinity paid a cash dividend of 51 cents per share representing our 19th consecutive quarter of a consistent or increased dividend.
Kyle Brown: We're proud of our performance in Q3, as our five distinct business verticals continue to fuel our growth and take market share. As a reminder, our verticals are Tech Lending, Equipment Finance, Life Science, Warehouse Financing, and Sponsor Finance, which focuses on private equity-backed businesses.
Kyle Brown: Each of our business verticals has its own experience team to lead originations, credit and portfolio management functions, giving them the ability to scale efficiently.
Kyle Brown: Our strategic growth initiatives have generated extraordinary momentum, highlighting our commitment to expanding the platform.
Kyle Brown: Trinity Capital is first an alternative asset management company as well as a direct lender. We continue to see efficiencies of scaling our balance sheet at the public company level and we're now hyper-focused on building out our asset management business to invest in our various business verticals.
Kyle Brown: We're different than externally managed BDCs in that when you buy our stock, you're buying into a pool of diversified assets, yes, but you're also buying into a management company. We are not like externally managed BDCs that are simply a pool of assets.
Kyle Brown: It's also important to note that because we're an internally managed BDC, our employees, management, and board all own the same shares as our investors. This maintains 100% alignment with our shareholders and a focus on delivering growing returns for our investors.
Kyle Brown: Earlier this year, we expanded into Europe, giving us increased global exposure and better access to an active tech landscape, which in turn allows us to support high-growth companies across multiple continents.
Kyle Brown: We intend to replicate the success that we've had here in the U.S. with our complimentary lending businesses in Europe and beyond.
Kyle Brown: Regarding deployment, we maintain a strong investment pipeline, including $606 million in unfunded commitments, leaving us well-positioned for our continued growth. As a reminder, a vast majority of Trinity's unfunded commitments are subject to ongoing diligence and approval by our Investment Committee.
Kyle Brown: Credit and underwriting, portfolio management are all fundamental to our success over the long term.
Kyle Brown: We have a unique structure characterized by collaboration between originations, credit, and portfolio teams to manage our inbound opportunities and active portfolio companies. We remain very selective and adhere to a rigorous diligence process. Only a small percentage of inbound deals reach the underwriting stage.
Kyle Brown: This proactive approach greatly mitigates risk and positions us to excel in all macroeconomic cycles.
Speaker Change: At Trinity, we pride ourselves on three core principles, exhibiting uncommon care for our employees, customers, and stakeholders.
Speaker Change: Two, serving our clients by being partners rather than just money, and three, by providing outsized returns for our shareholders.
Speaker Change: Investing in our teams and systems is key to our growth and enabling us to further diversify our investments to create a best-in-class direct lending platform.
Speaker Change: We are excited about the future and look forward to continuing to capitalize on our momentum as we continue to maximize value for our shareholders. And with that, I'll turn the call over to Michael Testa, our CFO, to discuss financial results in more detail. Michael?
Michael Testa: Thank you, Kyle. In the third quarter, we achieved a record total investment income of $61.8 million, resulting in a 33% increase over the same period in 2023.
Michael Testa: Our effective yield on the portfolio for Q3 was once again an industry-leading 16.1%, and our core yield, which excludes fee income, was strong at 14.9%.
Michael Testa: on
Michael Testa: Net investment income for the third quarter was $29 million or $0.54 per basic share compared to $23 million or $0.58 per basic share in the same period of the prior year.
Michael Testa: The increase of $6 million, or 26% year-over-year net investment income growth, is primarily attributable to the continued earnings power of Trinity's growing platform, while the decrease in net investment income per share is mostly attributable to the shares issued over the past year.
Speaker Change: Thank you.
Speaker Change: Our net investment income per share represents 106% coverage of our quarterly distribution.
Speaker Change: Our estimated undistributed taxable income is approximately $64.5 million, or $1.12 per share.
Speaker Change: We continue to reinvest this capital for the benefit of our investors while maintaining a consistent and meaningful distribution.
Speaker Change: Thank you.
Speaker Change: Our platform continues to generate strong returns for our BDC shareholders with ROAE of 16.2 percent.
Speaker Change: based on net investment income over the average equity and ROAA of 7.1% based on net investment income over average total assets.
Speaker Change: As of September 30th, 2024, our NAV was $757 million.
Speaker Change: up from $680 million as of June 30th, 2024.
Speaker Change: And our corresponding NAV per share was $13.13 at the end of June 3, an increase from $13.12 as of June 30, 2024.
Speaker Change: The increase in net assets per share was primarily due to the net investment income exceeding the declared dividend and a creative ATM offering.
Speaker Change: partially offset by the portfolio activity and new RSA issuances in September.
Speaker Change: During the quarter, we continue to strengthen our balance sheet enhanced liquidity to a variety of capital markets activities.
Speaker Change: We expanded our ATM program, and in Q3 we raised $80 million in gross proceeds and an accretive premium to NAV to fund our ongoing portfolio growth.
Speaker Change: We further upsize our credit facility to $510 million in total commitments, which is diversified across a total of 13 banks.
Speaker Change: Thank you for watching.
Speaker Change: We raised $115 million through the issuance of investment-grade unsecured notes maturing in 2029.
Speaker Change: And these notes are callable after two years and trade under the ticker TRINI.
Speaker Change: And subsequent to end the quarter we further enhance our liquidity position by raising a hundred and forty two and a half million dollars of unsecured private placement notes.
Speaker Change: with maturities ranging from 2027 to 2029.
Speaker Change: Our reliance on unsecured debt continues to be at a conservative level, and adjusted for the recent private placement issuance is under 30%.
Speaker Change: We also continue to realize the benefits of a co-investment in a joint venture and vehicles under the RIA subsidiary, which in Q3 provide approximately $1.6 million, or $0.03 per share, of incremental income to the BDC.
Speaker Change: During Q3, we syndicated 41 million dollars to these vehicles.
Speaker Change: As of September 30th, we had more than $250 million of assets under management in these private vehicles.
Speaker Change: providing incremental capital for growth and accretive returns to our shareholders.
Speaker Change: Our net leverage ratio, which represents principal debt outstanding plus cash on hand, was 1.2 times as of September 30, 2024.
Speaker Change: Our strong liquidity position with diverse capital sources, both from capital raised by the BDC and through our wholly owned RIA subsidiary, provide Trinity with the flexibility to manage a strong pipeline and be opportunistic in the marketplace.
Speaker Change: I'll now turn the call over to our COO Jerry Harder to discuss our portfolio performance and platform in more detail. Jerry.
Jerry Harder: Thank you, Michael.
Jerry Harder: Since our last earnings call, Trinity has continued to focus on executing across our five business verticals, which strengthen and diversify our platform, while enhancing our ability to offer customized financing solutions to our evolving client base of growth-oriented companies.
Jerry Harder: At the end of the third quarter, on a cost basis, our total portfolio consisted of approximately 76% secured loans, 18% equipment financing, 4% equity, and 2% warrants.
Jerry Harder: The composition of our portfolio remained consistent with prior quarters, with diversification across investment type, transaction size, industry, and geography.
Jerry Harder: Our portfolio is segmented across 22 industry categories, with our largest industry exposure, finance and insurance, representing 18.1 percent of the portfolio at cost.
Jerry Harder: This exposure is spread across 15 borrowers and includes both term loans and asset-backed warehouse facilities.
Jerry Harder: Our next largest industry concentrations are medical devices and space technology, representing 11.4% and 9.8% of the portfolio at cost, respectively.
Jerry Harder: Life Sciences related industries collectively made up 26.3% of our total portfolio on a cost basis.
Jerry Harder: Among our five business verticals, the detailed breakdown of our fundings in Q3 was as follows.
Jerry Harder: 39.8% to tech lending.
Jerry Harder: 15.7% warehouse financing
Jerry Harder: 9.1% to Equipment Financing and 5.4% to Sponsor Finance.
Jerry Harder: As of the end of Q3, our largest debt financing is to Solaris Corporation, which represents 3% of our debt portfolio and 2.8% of our total portfolio on a cost basis.
Jerry Harder: Now turning our focus to credit. The credit quality of our portfolio improved quarter-over-quarter with approximately 98.6% of our portfolio performing on a fair value basis.
Jerry Harder: Our average internal credit rating for the third quarter stood at 2.9 based on our 1-5 rating system, with 5 indicating very strong performance.
Jerry Harder: This rating is an increase from the average credit rating in each of the last four quarters and is attributable to a combination of credit upgrades to existing portfolio companies as well as strong originations of new credits within the third quarter.
Jerry Harder: As a percentage of the debt portfolio on a cost basis, credits within the lowest two tiers remain virtually unchanged from Q2.
Jerry Harder: Quarter over quarter, while the number of portfolio companies on non-accrual increased from four to five, our non-accrual credits decreased on both a cost and fair value basis.
Jerry Harder: Our portfolio company Nexi was removed from non-accrual as a transaction was fully realized in Q3 at a very slight decrease versus our Q2 net asset value.
Jerry Harder: Two smaller credits, Sun Basket and FormLogic, were placed on non-accrual within the quarter.
Jerry Harder: At the end of Q3, our non-accrual credits had a total fair value of approximately $22.2 million, representing 1.4% of the total debt portfolio, a slight decrease from Q2.
Jerry Harder: At quarter end, 80% of our total principal outstanding was backed by first position liens on enterprise, equipment, or both.
Jerry Harder: For our financings covered by all asset liens, the weighted average loan-to-value sits at 22.1%, while over two-thirds of these companies have a loan-to-value of less than 15%.
Jerry Harder: These statistics demonstrate that our portfolio companies are generally not over levered and are in a healthy position to service the debt even in instances when our loan may not be in first position.
Jerry Harder: Here to date through September 30th, our portfolio companies have collectively raised 2.9 billion dollars of equity, already surpassing the total amount of portfolio raised in all of 2023.
Jerry Harder: 32 of Trinity's portfolio companies raised equity in Q3 versus 26 in Q2 and 22 in Q1. These encouraging stats speak to our portfolio's quality and ability to secure funding in an evolving market.
Jerry Harder: In closing, we want to emphasize that our credit quality and portfolio management are of the utmost importance to Trinity.
Jerry Harder: One of Trinity's hallmarks is that our staff members think and operate like shareholders, and we always strive for resolutions that benefit both our investors and our partners.
Jerry Harder: At this time, we'd like to open the line for questions. Operator?
Speaker Change: Thank you. Ladies and gentlemen, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing the pound key. Once again, that is the star and 1 to ask a question. We'll hear first today from Casey Alexander at CompassPoint.
Casey Alexander: Good afternoon. I guess it's still morning here, so good morning. Thank you for taking my question.
Casey Alexander: I think this is sort of a multi-part question, but, you know, it's an extraordinary amount of originations during the quarter, and investors have sort of been trained to be somewhat wary of growth that comes at that kind of pace.
Casey Alexander: And so, I'm curious.
Casey Alexander: one of them which is an equipment finance company. And so I think it's just something that investors are always going to keep an eye on when you're growing at that pace. And we'd really like to hear from you how you intend to keep that credit quality pristine when you're growing at such a rapid pace.
Speaker Change: The way we think about it is, you know, the diversification across our business verticals. And, you know, we've got extremely experienced individuals who are focusing on these verticals.
Speaker Change: both leading the vertical market and also leading the credit within the vertical market. So, you know, we built Trinity intentionally to scale.
Speaker Change: And, you know, our credit quality is going to show itself over time, as it has, you know, throughout our track record. So, you know, we very much want our investors to believe that, that we built this to scale, and we're going to show folks that we have.
Speaker Change: My next question relates to that. Because of the large amount of originations that you had in this quarter, you also sold a considerable amount of stock through the equity ATM program and actually increased shares outstanding by more than 10% quarter over quarter.
Speaker Change: If you think about that, that seems like an amount that maybe might be more appropriate for a syndicated stock offering as opposed to being out in the market every day with an ATM program of that size.
Speaker Change: How do you balance the scales of where you raise equity and the manner in which you raise equity relative to that rate of growth?
Speaker Change: Yeah, Casey, this is Kyle. We're being opportunistic, raising both equity and debt.
Speaker Change: We're looking at the opportunities in front of us and we're taking advantage of them. This is a really efficient way to raise equity.
Speaker Change: We're doing it on balance sheet at the public company level. We're doing it off balance sheets under the RIA.
Speaker Change: And we're doing it in a way that's accretive to investors. So we'll continue to deploy capital if the opportunity is there. We'll continue to raise equity and debt when the opportunity is there. We're going to do it in the most efficient manner.
Speaker Change: in a way that's good for investors, which I think we've shown.
Speaker Change: Thank you.
Speaker Change: I'm not sure that entirely answers my question.
Speaker Change: because the question was how do you balance between an ATM versus a syndicated equity offering knowing that when you're raising equity to that extent being out in the market every day has some impact on the valuation of the stock
Speaker Change: You're talking about doing an overnight opposed to an ATM, Casey? Correct. Correct. Yeah. I mean, we've done a fair bit of that. I mean, we've been doing it for five years now, and I guess every time we do an ATM, or every time we do an overnight, the stock has...
Speaker Change: Thank you.
Speaker Change: have been affected in a big way. That's probably affected shareholders in a more negative way. And it's more costly. I mean, we use the ATM, it's a 1% fee, 1% to raise equity. We do it overnight, it's at a cost of 6% to 8%.
Speaker Change: So, if we can access the ATM, it costs a lot less, it saves money for shareholders.
Speaker Change: All right, thank you for taking my questions.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Christopher Nolan at Ladenburg-Tullman. Go ahead, please.
Christopher Nolan: Hey guys. Hey Chris. Mike, what was the driver of the realized loss in the quarter?
Speaker Change: Yeah, that was one of the positions we noted Jerry's remark. That was Nexi that was realized this quarter. Again, we had marked that down fair value in the past quarters, so from a NAB perspective it was neutral on that realization. You saw an unrealized flip. So yeah, that was the big driver there.
Speaker Change: Great. Next question is, operating expenses, it seems to be growing. Where are you guys making your investments and what's the run rate we should expect for coming quarters?
Speaker Change: Yeah, I think Q3, you saw that tick off. Again, we've been making hires throughout the first half of the year and into this quarter, as Jerry said, going out.
Speaker Change: the five different verticals and each of the team underneath that. So I think Q3 is probably a good run rate you'll see for the next quarter or so.
Speaker Change: Great. Final question. For these off-balance sheet vehicles, what's your threshold in terms of an IRR?
Speaker Change: I know you're looking at various strategies, but try to see what's the minimum IRR that you seek from them.
Speaker Change: I mean right now since it's a co-investment vehicle the return should be very similar to you know the return on an investment in trend stocks.
Speaker Change: So, I think the profile, again, we expect having fees also to increase the IRR in these off-balance sheet vehicles.
Speaker Change: But yeah, I think overall to the investor of that off-pouchy vehicle, it would be very similar to Trim.
Speaker Change: That's it for me. Thank you.
Speaker Change: Thank you. Thanks Chris.
Speaker Change: Bryce Rowe with B Riley you have our next question
Bryce Rowe: Awesome. Thank you. Good morning.
Bryce Rowe: A couple questions here, maybe just a piggyback on Chris's question about expenses.
Bryce Rowe: Obviously, in growth mode, you've been growing the expense base.
Speaker Change: Maine, Hercules, Capital Southwest is a much lower kind of operating leverage Ratio of expense ratio well below 2% and at least two of those three cases
Speaker Change: Kyle, maybe you can just comment on...
Speaker Change: When do you think you might see the inflection point in terms of your leverage ratio or expense ratio from a three to four percent level right now and maybe working its way down, at what point will we start to see that inflect?
Kyle Brown: Yeah, I think, listen, I mean, it's apples and oranges when you're comparing us to even the capital southwest. I mean, we've got 100 employees, nearly 100 employees, and they've got 30, you know.
Kyle Brown: We have fundamentally just different businesses.
Kyle Brown: And so, we're building this business right now, we are hiring.
Kyle Brown: Our expenses, we're not optimizing for lowering our expenses right now for earnings. We're growing earnings.
Kyle Brown: You will see that as we continue to scale. You'll see that number come down. But we've been able to continue to build a team higher in advance.
Kyle Brown: and grow earnings for investors at the same time. And I think you're going to continue to see that. There will be efficiencies of scale.
Kyle Brown: You will see, like Main Street, they have a thriving off-balance sheet, probably a management business now.
Kyle Brown: and they've been able to downstream some of their expenses there you'll see that with us as well and so you know I think I think over the next 12 months you'll see that number probably from a ratio percentage come down
Kyle Brown: but we are we are growing this business if opportunity is there for us to continue growing we're gonna keep doing it we're gonna keep hiring ahead of that like we've done historically while also increasing returns for investors at the same time we've been able to do that
Speaker Change: yeah understood not not trying to say that you know I get the apples to oranges but just thinking about holistically the benefit of internally managed and you know why why why internally managed BDCs trade at a premium and I think that's part of it the fact that you can capture operating leverage as you as you grow so you'll see them
Speaker Change: You'll see that with us. You'll see that leverage. You'll also see that as we continue to manage more money off balance sheet and generate more management fees and incentive fees. You'll see that...
Speaker Change: that benefit as being an internally managed business as well there.
Speaker Change: Yeah, okay.
Speaker Change: you know, originations picking up and especially here in the third quarter, just...
Speaker Change: of Originations, you know, can you sustain this level of Originations, you know, over the foreseeable future or will it be kind of more ebbs and flows in terms of what the overall number looks like?
Speaker Change: We are, you know, if you break down the originations between our different business verticals, you'll see it's pretty balanced.
Speaker Change: Each of those verticals is growing at a nice clip right now. We do think the Originations is sustainable.
Speaker Change: We are a little bit ahead of plan but it's it's really not we don't feel like we're over our skis from an origination standpoint.
Speaker Change: Thank you.
Speaker Change: Most of those deals, you know, our credit and our underwriting is as focused as ever and we're not seeing some increased percentage of deals get across the finish line. This is exactly how we've done things historically.
Speaker Change: The amount of deals that are crossing the finish line, that percentage has not changed. So, we're seeing a larger top of funnel because we've expanded business verticals.
Speaker Change: and and so as we continue to build out these these businesses we think the Originations is sustainable for us.
Speaker Change: Yeah.
Speaker Change: Last one for me, when you look at
Speaker Change: Maybe the the breakdown of the portfolio. It looks like the the warrant portfolio saw a nice uptick
Speaker Change: both from a cost basis and fair value basis perspective. Is that just purely a function of getting warrants with with some of the new originations?
Speaker Change: Yeah, I mean, yeah, that's, you know.
Speaker Change: You see...
You know, we have a large war portfolio, so as the market improves, that can go up.
Speaker Change: and so we're seeing some of the benefits of that there.
Speaker Change: Yeah, okay. All right. Thanks so much.
Speaker Change: You got it.
Speaker Change: Matthew Hurwitz at Jeffries, please go ahead.
Speaker Change: Might be good to have some detail on those two companies.
and any other puts and takes.
Speaker Change: Sure. Hey Matthew, this is Ron Koenig, Chief Credit Officer. Thanks for the question.
The two companies that were added to the non-accrual last quarter, you know, one of them was a small equipment financing, and the other one was an aged term loan in our venture debt practice. I'd call it a, you know...
Speaker Change: And I think that's a quote unquote normal transition, right? Nothing abnormal about those two credits, they just...
got to a point where
Speaker Change: We prudently put him on nonaccrual. Of course, next he rolled off as a result of...
Speaker Change: You know, recognizing that transaction during the quarter. The most important note is, as we look at our non-accruals,
That credit bucket decreased on both a cost and a fair market value basis, Q3 versus Q2. So, you know, consistent with the other things you've heard in the Q&A here, you know, the underwriting rigor remains strong at the top of the funnel or at the top of the portfolio, if you will.
Speaker Change: And important to note that each vertical, as Jerry alluded to, has its own distinct team. And included in that team is a portfolio management team that manages each portfolio and their experts in their respective verticals.
Speaker Change: okay great thanks and then could you just provide what what the timeline typically is to get from a signed term sheet to a to a commitment and then from a commitment to a funded loan I can see that they've all grown nicely but
Speaker Change: We'll be right back. ... ... ... ... ... ... ...
Speaker Change: Yeah, if you could...
Speaker Change: provide some color there.
Speaker Change: Yeah, it really depends on the business, but I think generally speaking, you know, 90 to 120 days from start to finish, you know.
Speaker Change: I see, so from signed term sheets of funding, okay.
Speaker Change: Oh, sorry to interrupt you, it's the funding.
Speaker Change: Yeah, 45, 45 days.
Okay okay great and then last if I could just ask how you think about the dividend and when to increase it
Speaker Change: There's some discussion of rates impacting earnings, so just your thoughts there.
Speaker Change: Yeah, I think we've, you know, we've kept the dividend steady. We certainly could have increased it, but we're really focused on just keeping it stable, building earnings per share,
Speaker Change: And then we'll, you know, with the board, decide on when to increase it. So, our goal as an internally managed BDC...
with managed funds now is to grow earnings over time and grow the dividend over time. So that is our that is our stated goal. We'll decide on a quarterly basis when to when to bring that up as we see earnings continue to drive forward.
Speaker Change: Thank you. Thank you. Thank you.
Speaker Change: Okay, thanks.
Speaker Change: You bet.
Speaker Change: Thank you.
Speaker Change: Vinnie and O'Shea with Wells Fargo Securities, please go ahead, your line is open.
Hey everyone, good morning. A lot of discussion on internal today.
Speaker Change: But seeing you're only getting maybe a touch of credit for that in your stock price, we're seeing if there's any appetite to flip over to external and how you would look at that sort of debate. Thank you.
Speaker Change: No, we're not doing it. We're not thinking about it.
This internal structure is ideal for what we do. We have done a great job of raising capital through the public markets, through the capital markets. We've delivered a best-in-class return to investors.
Speaker Change: We have delivered over $8 per share since we went public. We've raised over a billion dollars of equity in debt. We're now raising money off balance sheet. All of the management fees and incentive fees 100% go to investors.
Speaker Change: We can drive up earnings per share. We can drive up and be best-in-class ROE.
We are an asset management company.
Speaker Change: in a BDC wrapper and it is awesome for investors. We are not ever going to do that. We're not thinking about it. And we are this growth story with a really consistent and great dividend spin. So that's what shareholders need to know. That's what they need to understand. And hopefully over time, we'll get the price that we deserve, which is much higher than where it is right now.
and I think our shareholders are pretty excited about what we're doing.
Speaker Change: Very good. Thanks so much. That's all for me.
Our next question will come from Paul Johnson at KBW.
Paul Johnson: Yeah, good morning, thanks for taking my questions. Just wanted to ask, I'm sorry if you said it on the call, I just didn't catch it, but how are the...
Just the AUM and collectively in the JV and the RIA, how's that been scaling? I think it was close to about 500 million last quarter. Is there any growth there this quarter versus last?
Yeah, Paul, this is Mike. We did syndicate close to $40 million this quarter. Our off-balance sheet just continues to ramp, so I think you'll see that.
Paul Johnson: Again, in the joint venture, there is a bit of seasoning that goes on, so a lot of the prior quarter fundings get syndicated the following quarter.
Paul Johnson: So, you'll see that next quarter from this quarter in the joint venture, but then also the vehicle, the private vehicle under the RA subsidiary, that's just going to continue to ramp. We are looking to obtain leverage at a bank facility for that.
building up capacity in that vehicle as well.
Thank you.
Okay, thanks for that. And then one question on the improvement in the credit rating. I think Bryce may have asked this question, but so the improvement of 2.9 versus 2.7
Is that primarily just due to the strong growth this quarter, or were there meaningful upgrades and...
and Credit Ratings. And my second question to that would be...
Paul Johnson: Can you just remind us, you know, for any new investment, I guess for a new company, new platform investment, where do those get placed in terms of the sort of default credit rating initially when it's placed into the portfolio?
Speaker Change: You know at one decimal place like a bigger jump than it is, but nonetheless You know we did have you know we spoke in our Prepared remarks about the amount of capital there are portfolio companies raised like they had a great quarter right in terms of capital raising and so
Paul Johnson: The two biggest factors within our credit rating system are cash runway and performance to plan. And so, you know, you can imagine...
Paul Johnson: Cash Runway, you know, improving for a number of credits that did raise capital. When we bring in new credits...
You know, they will generally land.
around that high end of what we call performing, so in that 2.9, 3.0 range. We like our new credits to show us for a bit before we place them in one of the upper tiers.
You know, I think we did bring in a very strong cohort this quarter. So I think the uptick was, you know, a function of capital raising, companies, portfolio companies performing well, and strong originations, kind of in equal parts.
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Got it, thanks, that's very helpful. And then just a quick question on the European expansion. I guess, how is the foreign exposure, how would that affect
The non-qualified assets in the portfolio, I don't think it's a very big piece of the portfolio, but would that require any kind of second credit facility or any sort of multi-credit facility to
Paul Johnson: To be able to expand that business and how would that flow through, I guess, the interest statement, because I think I may have seen that some of those loans pay in dollars, but you could expand on that would be helpful.
Yeah, Paul, I'll start and then the rest of the team can chime in. From a non-qualified bucket, as you mentioned, European or foreign investments would fall under there. Right now that bucket is, overall, all the non-qualified assets are about 13%. So, plenty of room in that bucket to continue to fund.
Paul Johnson: Those assets that are foreign right now all our majority of our loans and Financings are all in US dollars
As you mentioned, we do have the ability to lend in a foreign denominated currency, which we could utilize a credit facility in that foreign currency to minimize the FX risk. Our goal there is just to repeat what we've done here.
with that with with the size of that bucket you know we have the ability to raise capital in a vehicle that's dedicated just to that purpose so we have a really great opportunity to grow it we have a great opportunity to raise you know additional capital dedicated to those investments
Got it. Thanks for that. And then I would imagine that you're looking at, you know, a lot of new sponsors for that market. I guess if that's true, I mean, what is kind of the threshold for a new deal, a new sponsor? Is there a deeper diligence process just because it's a new market?
Paul Johnson: How does that work?
Yeah, I mean, Ron, you can you can jump in as well here, but, you know, we're not doing anything that...
Paul Johnson: that we haven't done historically. So we've been doing business in Europe at a smaller scale for 10 years.
And so deals have to go through the same exact process.
This is Rod. It's the same underwriting rigor that we use here in the States. You know, the gentleman we we've brought on to lead that effort is a venture debt pro who's been lending to venture-backed companies out there for
Over a decade. So he's a known quantity. He's known to us. We didn't hire a stranger, right? We hired...
that we have some track record with on a personal level as well, so you know the question is a good one, but you know for now it's
You know, same marching orders, same underwriting criteria. Jerry mentioned a couple of the portfolio criteria earlier in an earlier answer, so.
Same process. And as we build out that team, we're going to bring in...
Paul Johnson: individuals who are experienced doing business in that geography. We're not looking to send over, you know, from from Phoenix or the Bay Area. We're going to grow that team with with folks that are in market.
Paul Johnson: in the UK.
Got it. Appreciate that. It's helpful. It's all for me. Thanks.
Speaker Change: Thank you.
Our next question comes from Doug Harder with UBS
Paul Johnson: Thanks.
Doug Harder: I'm hoping you could talk about your outlook to continue to grow the RIA channel and, you know, kind of how we should think about the operating leverage for that to fall to the bottom line for TRIN shareholders.
Hey Doug, yeah we're really focused on raising capital for the RIA both as a kind of co-investment vehicle for across the platform and then also raising capital specifically for our different verticals.
and getting the appropriate leverage for the different risks that each of those businesses take.
That's a big focus for us now and into next year.
Our goal there is to raise capital where we can charge management fees and incentive fees.
all of which will float our investors.
It's going to be a big part of our future. I can't give you specific numbers.
I hope to give you more detailed information in the not-so-distant future.
But raising capital is a slog. It's difficult. It's hard. It takes a long time to raise capital privately, and we have been at it for a while. We've seen some success. We hope to see more of it in the not-so-distant future.
Speaker Change: Great. Thank you.
Paul Johnson: That.
Speaker Change: And that concludes our Q&A portion for today's conference. I'm pleased to turn the floor back to CEO Kyle Brown for any additional or closing remarks.
Kyle Brown: Thank you. We're proud of the third quarter results and look forward to updating you on our 2024 results.
during our next call in February. Also, we look forward to seeing many of you at our investor event in Manhattan on November 19th. If you'd like to attend, please contact our head of investor relations, Ben Malcolmson. I'd like to thank everybody for participating in our call today. We appreciate your interest and investment in Trinity Capital. Have a great rest of your day. Thanks.
Ladies and gentlemen, this does conclude today's conference and we thank you all for your participation. You may now disconnect.