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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED September 30, 2014

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

COMMISSION FILE NUMBER:  001-36328

 


 

TriplePoint Venture Growth BDC Corp.

(Exact name of registrant as specified in its charter)

 


 

MARYLAND

 

46-3082016

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

TriplePoint Venture Growth BDC Corp.

2755 Sand Hill Road, Suite 150, Menlo Park, California 94025

(Address of principal executive office)

 

(650) 854-2090

(Registrant’s telephone number, including area code)

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer x

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

The number of shares of the issuer’s common stock, $0.01 par value, outstanding as of October 24, 2014 was 9,891,575

 

 

 



Table of Contents

 

TriplePoint Venture Growth BDC Corp.

TABLE OF CONTENTS

 

 

 

PAGE

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

Consolidated Statement of Assets and Liabilities as of September 30, 2014

3

 

Consolidated Statement of Operations for the Three Months Ended September 30, 2014 and the Period from March 5, 2014 (Commencement of Operations) to September 30, 2014

4

 

Consolidated Statement of Changes in Net Assets for the Period from March 5, 2014 (Commencement of Operations) to September 30, 2014

5

 

Consolidated Statement of Cash Flows for the Period from March 5, 2014 (Commencement of Operations) to September 30, 2014

6

 

Consolidated Schedule of Investments as of September 30, 2014

7

 

Notes to Consolidated Financial Statements as of September 30, 2014

12

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

Forward-Looking Statements

27

 

Overview

28

 

Portfolio Composition, Investment Activity and Asset Quality

30

 

Results of Operations

33

 

Critical Accounting Policies

35

 

Liquidity and Capital Resources

38

 

Recent Developments

40

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

Item 4.

Controls and Procedures

41

 

 

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

42

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 3.

Defaults Upon Senior Securities

42

Item 4.

Mine Safety Disclosures

42

Item 5.

Other Information

42

Item 6.

Exhibits

42

SIGNATURES

43

 

2



Table of Contents

 

PART I—FINANCIAL INFORMATION

 

Item 1.                      Financial Statements

 

TRIPLEPOINT VENTURE GROWTH BDC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES

(condensed and unaudited)

(dollars in thousands, except per share data)

 

 

 

As of September 30, 2014

 

Assets

 

 

 

Investments at fair value (amortized cost of $245,489)

 

$

247,717

 

Short-term investments at fair value (cost of $50,000)

 

49,998

 

Cash

 

7,543

 

Restricted cash

 

2,374

 

Deferred credit facility costs

 

3,184

 

Prepaid expenses

 

218

 

Total Assets

 

311,034

 

 

 

 

 

Liabilities

 

 

 

Revolving credit facility payable

 

109,000

 

Payable for U.S. Treasury bill assets

 

50,000

 

Base management fee payable

 

850

 

Income incentive fee payable

 

938

 

Accrued capital gains incentive fee

 

512

 

Payable to directors and officers

 

109

 

Other accrued expenses and liabilities

 

4,829

 

Total Liabilities

 

166,238

 

 

 

 

 

Commitments and Contingencies (Note 7)

 

 

 

 

 

 

 

Net Assets

 

$

144,796

 

 

 

 

 

Preferred stock, par value $0.01 per share (50,000,000 shares authorized; no shares issued and outstanding)

 

$

 

Common stock, par value $0.01 per share (450,000,000 shares authorized; 9,891,575 shares issued and outstanding)

 

99

 

Paid-in capital in excess of par value

 

142,188

 

Net investment income

 

6,946

 

Accumulated net unrealized gains

 

2,561

 

Dividend distributions

 

(6,998

)

Net Assets

 

$

144,796

 

 

 

 

 

Net Asset Value per Share

 

$

14.64

 

 

See accompanying notes to consolidated financial statements.

 

3



Table of Contents

 

TRIPLEPOINT VENTURE GROWTH BDC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(condensed and unaudited)

(dollars in thousands, except per share data)

 

 

 

For the Three Months Ended
September 30, 2014

 

For the period from
March 5, 2014
(Commencement of
Operations) to
September 30, 2014

 

Investment Income

 

 

 

 

 

Interest income from investments

 

$

7,802

 

$

14,504

 

Other income

 

56

 

152

 

Total investment and other income

 

7,858

 

14,656

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

Base management fee

 

850

 

1,668

 

Income incentive fee

 

938

 

1,157

 

Capital gains incentive fee

 

230

 

512

 

Interest expense and amortization of fees

 

1,370

 

2,300

 

Administration agreement expenses

 

344

 

737

 

General and administrative expenses

 

604

 

1,336

 

Total Operating Expenses

 

4,336

 

7,710

 

 

 

 

 

 

 

Net investment income

 

3,522

 

6,946

 

 

 

 

 

 

 

Net realized gains

 

 

 

Net change in unrealized gains on investments

 

1,151

 

2,561

 

 

 

 

 

 

 

Net Increase in Net Assets Resulting from Operations

 

$

4,673

 

$

9,507

 

 

 

 

 

 

 

Basic and diluted net investment income per share

 

$

0.36

 

$

0.70

 

Basic and diluted net increase in net assets per share

 

$

0.47

 

$

0.96

 

Basic and diluted weighted average shares of common stock outstanding

 

9,872,564

 

9,858,725

 

 

See accompanying notes to consolidated financial statements.

 

4



Table of Contents

 

TRIPLEPOINT VENTURE GROWTH BDC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS

(condensed and unaudited)

(dollars in thousands)

 

 

 

For the period from
March 5, 2014
(Commencement of
Operations) to
September 30, 2014

 

Net Assets

 

 

 

Net assets as of March 5, 2014

 

$

25

 

Net increase in net assets resulting from operations

 

9,507

 

Dividend distributions

 

(6,998

)

Common stock issuance, net

 

142,262

 

Net assets as of September 30, 2014

 

$

144,796

 

 

 

 

 

Capital Share Activity:

 

 

 

Common stock outstanding as of March 5, 2014

 

1,668

 

Common stock issued

 

9,889,907

 

Common stock outstanding as of September 30, 2014

 

9,891,575

 

 

See accompanying notes to consolidated financial statements.

 

5



Table of Contents

 

TRIPLEPOINT VENTURE GROWTH BDC CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(condensed and unaudited)

(dollars in thousands)

 

 

 

For the period from March 5,
2014 (Commencement of
Operations) to September 30, 2014

 

Cash Flows from Operating Activities:

 

 

 

Net increase in net assets resulting from operations

 

$

9,507

 

Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:

 

 

 

Fundings and purchases of investments

 

(243,099

)

Purchases and sales of short-term investments, net

 

(50,000

)

Principal payments on investments

 

1,049

 

Net change in unrealized gains on investments

 

(2,226

)

Amortization and accretion of premiums and discounts, net

 

(343

)

Accretion of end-of-term payments

 

(3,096

)

Amortization of deferred credit facility costs

 

643

 

Change in restricted cash

 

(2,374

)

Change in operating assets and liabilities:

 

 

 

Payable for U.S. Treasury bill assets

 

50,000

 

Prepaid expenses

 

(218

)

Base management fee

 

850

 

Income incentive fee payable

 

938

 

Accrued capital gains incentive fee

 

512

 

Payable to directors and officers

 

109

 

Other accrued expenses and liabilities

 

3,641

 

 

 

 

 

Net cash used in operating activities

 

(234,107

)

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

Borrowing under bridge facility

 

121,662

 

Repayment of bridge facility

 

(121,662

)

Borrowings under revolving credit facility

 

109,000

 

Dividend distributions, net

 

(6,284

)

Deferred credit facility costs

 

(2,639

)

Net proceeds from issuance of common stock

 

141,548

 

 

 

 

 

Net cash provided by financing activities

 

241,625

 

 

 

 

 

Net change in cash

 

7,518

 

Cash at beginning of period

 

25

 

Cash at end of period

 

$

7,543

 

 

 

 

 

Non-Cash Financing Activities:

 

 

 

Accrued deferred credit facility cost

 

$

1,188

 

 

 

 

 

Supplemental Information:

 

 

 

Cash paid during period for interest

 

$

1,414

 

Dividend distributions reinvested

 

$

714

 

 

See accompanying notes to consolidated financial statements.

 

6



Table of Contents

 

TRIPLEPOINT VENTURE GROWTH BDC CORP. AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

(condensed and unaudited)

(dollars in thousands)

As of September 30, 2014

 

Venture Growth Stage Company

 

Industry

 

Type of Investment

 

Outstanding
Principal

 

Cost

 

Fair Value

 

Maturity
Date

 

Debt Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

Aerohive Networks, Inc.

 

Wireless Communications Equipment

 

Growth Capital Loan
(9.25% interest rate, 6.00% EOT payment)

 

$

2,500

 

$

2,549

 

$

2,580

 

12/31/2015

 

 

 

 

 

Growth Capital Loan
(10.25% interest rate, 6.75% EOT payment)

 

7,500

 

7,584

 

7,847

 

12/31/2017

 

Aerohive Networks, Inc. Total

 

 

 

 

 

10,000

 

10,133

 

10,427

 

 

 

AirStrip Technologies, Inc.

 

Medical Software and Information Services

 

Growth Capital Loan
(8.75% interest rate, 9.00% EOT payment)

 

5,000

 

5,149

 

5,164

 

10/31/2016

 

 

 

 

 

Growth Capital Loan

 

5,000

 

5,062

 

5,071

 

3/31/2017

 

 

 

 

 

(8.75% interest rate, 9.00% EOT payment)

 

 

 

 

 

 

 

 

 

 

 

 

 

Growth Capital Loan

 

5,000

 

4,997

 

4,999

 

7/31/2017

 

 

 

 

 

(8.75% interest rate, 9.00% EOT payment)

 

 

 

 

 

 

 

 

 

AirStrip Technologies, Inc. Total

 

 

 

15,000

 

15,208

 

15,234

 

 

 

Birchbox, Inc.

 

E-Commerce — Personal Goods

 

Growth Capital Loan
(10.75% interest rate, 8.00% EOT payment)

 

2,000

 

1,994

 

2,159

 

5/31/2017

 

 

 

 

 

Growth Capital Loan

 

3,000

 

2,983

 

3,239

 

6/30/2017

 

 

 

 

 

(10.75% interest rate, 8.00% EOT payment)

 

 

 

 

 

 

 

 

 

Birchbox, Inc. Total

 

 

 

 

 

5,000

 

4,977

 

5,398

 

 

 

Cambridge Broadband Network Limited (1) (3)

 

Wireless Communications Equipment

 

Growth Capital Loan
(11.50% interest rate, 9.50% EOT payment)

 

6,000

 

5,837

 

5,837

 

9/30/2017

 

Coraid, Inc.

 

Data Storage

 

Growth Capital Loan

 

5,000

 

5,030

 

5,043

 

12/31/2016

 

 

 

 

 

(10.00% interest rate, 6.00% EOT payment)

 

 

 

 

 

 

 

 

 

 

 

 

 

Growth Capital Loan

 

10,000

 

9,789

 

9,798

 

6/30/2017

 

 

 

 

 

(10.00% interest rate, 6.00% EOT payment)

 

 

 

 

 

 

 

 

 

Coraid, Inc. Total

 

 

 

 

 

15,000

 

14,819

 

14,841

 

 

 

 

See accompanying notes to consolidated financial statements.

 

7



Table of Contents

 

TRIPLEPOINT VENTURE GROWTH BDC CORP. AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS
(condensed and unaudited)

(dollars in thousands)

As of September 30, 2014

 

Venture Growth Stage Company

 

Industry

 

Type of Investment

 

Outstanding
Principal

 

Cost

 

Fair Value

 

Maturity
Date

 

Debt Investments (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

EndoChoice, Inc.

 

Medical Device and Equipment

 

Growth Capital Loan
(11.75% interest rate, 8.00% EOT payment)

 

$

10,000

 

$

10,041

 

$

10,053

 

2/28/2018

 

 

 

 

 

Growth Capital Loan
(11.75% interest rate, 8.00% EOT payment)

 

10,000

 

9,987

 

9,993

 

2/28/2018

 

 

 

 

 

Growth Capital Loan
(11.75% interest rate, 8.00% EOT payment)

 

10,000

 

9,947

 

9,945

 

2/28/2018

 

EndoChoice, Inc. Total

 

 

 

 

 

30,000

 

29,975

 

29,991

 

 

 

Harvest Power, Inc.

 

Biofuels/ Biomass

 

Growth Capital Loan
(12.00% interest rate, 9.00% EOT payment)

 

20,000

 

20,501

 

20,492

 

11/30/2016

 

Hayneedle, Inc.

 

E-Commerce — Household Goods

 

Growth Capital Loan
(12.50% interest rate, 12.00% EOT payment)

 

15,000

 

15,012

 

15,004

 

8/31/2017

 

 

 

 

 

Growth Capital Loan

 

5,000

 

5,016

 

5,024

 

12/31/2017

 

 

 

 

 

(12.75% interest rate, 16.00% EOT payment)

 

 

 

 

 

 

 

 

 

Hayneedle, Inc. Total

 

 

 

 

 

20,000

 

20,028

 

20,028

 

 

 

HouseTrip Limited (1) (3)

 

Travel and Arrangement / Tourism

 

Growth Capital Loan
(10.00% interest rate, 5.00% EOT payment)

 

10,000

 

9,872

 

9,896

 

11/30/2016

 

InMobi, Inc. (1) (3)

 

Advertising / Marketing

 

Growth Capital Loan
(9.00% interest rate, 5.00% EOT payment)

 

3,000

 

3,046

 

3,057

 

3/31/2016

 

 

 

 

 

Growth Capital Loan
(9.00% interest rate, 5.00% EOT payment)

 

2,000

 

2,012

 

2,016

 

6/30/2016

 

 

 

 

 

Revolver Loan
(Prime + 5.75% interest rate, 6.00% EOT payment)

 

5,000

 

5,078

 

5,077

 

12/31/2015

 

 

 

 

 

Revolver Loan
(Prime + 5.75% interest rate, 6.00% EOT Payment)

 

2,000

 

2,024

 

2,024

 

12/31/2015

 

 

 

 

 

Revolver Loan
 (Prime + 5.75% interest rate, 6.00% EOT payment)

 

3,000

 

3,027

 

3,027

 

12/31/2015

 

 

 

 

 

Revolver Loan
(Prime + 5.75% interest rate, 6.00% EOT payment)

 

8,000

 

8,053

 

8,053

 

12/31/2015

 

InMobi, Inc. Total

 

 

 

 

 

23,000

 

23,240

 

23,254

 

 

 

 

See accompanying notes to consolidated financial statements.

 

8



Table of Contents

 

TRIPLEPOINT VENTURE GROWTH BDC CORP. AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS
(condensed and unaudited)

(dollars in thousands)

As of September 30, 2014

 

Venture Growth Stage Company

 

Industry

 

Type of Investment

 

Outstanding
Principal

 

Cost

 

Fair Value

 

Maturity
Date

 

Debt Investments (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

Lattice Engines, Inc.

 

Business Applications Software

 

Growth Capital Loan
(8.50% interest rate, 8.00% EOT payment)

 

$

5,000

 

$

5,127

 

$

5,140

 

12/31/2016

 

 

 

 

 

Growth Capital Loan (8.50% interest rate, 8.00% EOT payment)

 

2,500

 

2,513

 

2,519

 

3/31/2017

 

Lattice Engines, Inc. Total

 

 

 

 

 

7,500

 

7,640

 

7,659

 

 

 

Mind Candy Limited (1) (3)

 

Entertainment

 

Growth Capital Loan
(12.00% interest rate, 9.50% EOT payment)

 

10,000

 

9,685

 

9,692

 

6/30/2017

 

ModCloth, Inc.

 

E-Commerce — Clothing and Accessories

 

Growth Capital Loan
(10.50% interest rate, 10.00% EOT payment)

 

1,000

 

1,040

 

1,044

 

6/30/2016

 

 

 

 

 

Growth Capital Loan (10.50% interest rate, 10.00% EOT payment)

 

2,000

 

2,072

 

2,079

 

7/31/2016

 

 

 

 

 

Growth Capital Loan

 

2,000

 

2,030

 

2,034

 

8/31/2017

 

 

 

 

 

(12.00% interest rate, 10.50% EOT payment)

 

 

 

 

 

 

 

 

 

 

 

 

 

Growth Capital Loan

 

5,000

 

5,045

 

5,053

 

11/30/2017

 

 

 

 

 

(12.00% interest rate, 11.00% EOT payment)

 

 

 

 

 

 

 

 

 

 

 

 

 

Growth Capital Loan

 

5,000

 

4,997

 

5,004

 

2/28/2018

 

 

 

 

 

(12.00% interest rate, 11.50% EOT payment)

 

 

 

 

 

 

 

 

 

 

 

 

 

Growth Capital Loan

 

5,000

 

4,865

 

4,873

 

6/30/2017

 

 

 

 

 

(12.00% interest rate, 7.50% EOT payment)

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment Financing (1)

 

895

 

921

 

912

 

8/31/2016

 

 

 

 

 

(7.50% interest rate, 15.00% EOT payment)

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment Financing (1)

 

311

 

318

 

316

 

10/31/2016

 

 

 

 

 

(7.50% interest rate, 15.00% EOT payment)

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment Financing (1)

 

149

 

150

 

150

 

3/31/2017

 

 

 

 

 

(7.50% interest rate, 15.00% EOT payment)

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment Financing (1)

 

19

 

20

 

20

 

6/30/2017

 

 

 

 

 

(7.50% interest rate, 15.00% EOT payment)

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment Financing (1)

 

13

 

12

 

12

 

7/31/2017

 

 

 

 

 

(7.50% interest rate, 15.00% EOT payment)

 

 

 

 

 

 

 

 

 

ModCloth, Inc. Total

 

 

 

 

 

21,387

 

21,470

 

21,497

 

 

 

 

See accompanying notes to consolidated financial statements.

 

9



Table of Contents

 

TRIPLEPOINT VENTURE GROWTH BDC CORP. AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS
(condensed and unaudited)

(dollars in thousands)

As of September 30, 2014

 

Venture Growth Stage Company

 

Industry

 

Type of Investment

 

Outstanding
Principal

 

Cost

 

Fair Value

 

Maturity
Date

 

Debt Investments (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

SimpliVity Corporation

 

Database Software

 

Growth Capital Loan
(10.00% interest rate,

 

$

7,000

 

$

6,817

 

$

6,815

 

6/30/2018

 

 

 

 

 

8.50% EOT payment)

 

 

 

 

 

 

 

 

 

TechMediaNetwork, Inc.

 

General Media and Content

 

Growth Capital Loan
(9.25% interest rate,

 

2,500

 

2,516

 

2,522

 

3/31/2017

 

 

 

 

 

8.00% EOT payment)

 

 

 

 

 

 

 

 

 

 

 

 

 

Growth Capital Loan

 

2,500

 

2,465

 

2,464

 

9/30/2017

 

 

 

 

 

(9.25% interest rate, 8.00% EOT payment)

 

 

 

 

 

 

 

 

 

TechMediaNetwork, Inc. Total  

 

 

 

 

 

5,000

 

4,981

 

4,986

 

 

 

Thrillist Media Group, Inc. (2)

 

General Media and Content

 

Growth Capital Loan
(Prime + 8.50% interest rate, 9.00% EOT

 

5,000

 

4,549

 

4,548

 

9/30/2017

 

 

 

 

 

payment)

 

 

 

 

 

 

 

 

 

Virtual Instruments Corporation

 

Network Systems Management Software

 

Growth Capital Loan
(9.50% interest rate, 9.25% EOT payment)

 

5,000

 

5,057

 

5,069

 

12/31/2016

 

 

 

 

 

Growth Capital Loan

 

5,000

 

5,039

 

5,049

 

1/31/2017

 

 

 

 

 

(9.50% interest rate, 9.25% EOT payment)

 

 

 

 

 

 

 

 

 

 

 

 

 

Growth Capital Loan

 

5,000

 

5,020

 

5,030

 

2/28/2017

 

 

 

 

 

(9.50% interest rate, 9.25% EOT payment)

 

 

 

 

 

 

 

 

 

Virtual Instruments Corporation Total

 

 

 

15,000

 

15,116

 

15,148

 

 

 

Xirrus, Inc.

 

Wireless Communications Equipment

 

Growth Capital Loan
(11.50% interest rate, 8.50% EOT payment)

 

2,663

 

2,755

 

2,776

 

6/30/2016

 

 

 

 

 

Growth Capital Loan (11.50% interest rate,

 

4,564

 

4,689

 

4,727

 

12/31/2016

 

 

 

 

 

8.50% EOT payment)

 

 

 

 

 

 

 

 

 

 

 

 

 

Growth Capital Loan

 

5,000

 

4,967

 

5,041

 

3/31/2017

 

 

 

 

 

(11.50% interest rate, 8.50% EOT payment)

 

 

 

 

 

 

 

 

 

Xirrus, Inc. Total

 

 

 

 

 

12,227

 

12,411

 

12,544

 

 

 

Total Debt Investments

 

 

 

 

 

$

237,114

 

$

237,259

 

$

238,287

 

 

 

 

See accompanying notes to consolidated financial statements.

 

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TRIPLEPOINT VENTURE GROWTH BDC CORP. AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS
(condensed and unaudited)

(dollars in thousands)

As of September 30, 2014

 

Venture Growth Stage Company 

 

Industry

 

Type of Warrant or Equity

 

Shares

 

Cost

 

Fair Value

 

Warrants

 

 

 

 

 

 

 

 

 

 

 

Aerohive Networks, Inc.

 

Wireless Communications Equipment

 

Common Stock

 

33,993

 

$

153

 

$

18

 

AirStrip Technologies, Inc.

 

Medical Software and Information Services

 

Preferred Stock

 

31,063

 

112

 

95

 

Birchbox, Inc.

 

E-Commerce — Personal Goods

 

Preferred Stock

 

49,829

 

566

 

1,487

 

Cambridge Broadband Network Limited (1) (3)

 

Wireless Communications Equipment

 

Preferred Shares

 

33,000

 

95

 

95

 

Coraid, Inc.

 

Data Storage

 

Preferred Stock

 

157,710

 

317

 

300

 

ECPM Holdings, LLC

 

Medical Device and Equipment

 

Class A Units

 

947,508

 

224

 

224

 

Harvest Power, Inc.

 

Biofuels/Biomass

 

Common Stock

 

67,935

 

77

 

77

 

Hayneedle, Inc.

 

E-Commerce — Household Goods

 

Common Stock

 

400,000

 

468

 

375

 

HouseTrip SA (1) (3)

 

Travel and Arrangement / Tourism

 

Preferred Share

 

212,804

 

93

 

93

 

InMobi Pte Ltd. (1) (3)

 

Advertising / Marketing

 

Ordinary Shares

 

48,500

 

35

 

22

 

Inspirato, LLC (2)

 

Travel and Leisure

 

Preferred Units

 

1,994

 

37

 

43

 

Lattice Engines, Inc.

 

Business Applications Software

 

Preferred Stock

 

191,935

 

39

 

27

 

Mind Candy, Inc. (1) (3)

 

Entertainment

 

Preferred Stock

 

287,187

 

751

 

732

 

ModCloth, Inc.

 

E-Commerce — Clothing and Accessories

 

Common Stock

 

419,620

 

545

 

500

 

Nutanix, Inc. (2)

 

Database Software

 

Preferred Stock

 

45,000

 

77

 

213

 

One Kings Lane, Inc. (2)

 

E-Commerce - Household Goods

 

Preferred Stock

 

13,635

 

29

 

29

 

Shazam Entertainment Limited (1) (2) (3)

 

MultiMedia / Streaming Software

 

Ordinary Share

 

2,669,479

 

134

 

125

 

SimpliVity Corporation

 

Database Software

 

Preferred Stock

 

252,890

 

299

 

299

 

TechMediaNetwork, Inc.

 

General Media and Content

 

Preferred Stock

 

72,234

 

31

 

31

 

Thrillist Media Group, Inc. (2)

 

General Media and Content

 

Common Stock

 

283,401

 

712

 

712

 

Virtual Instruments Corporation

 

Network Systems Management Software

 

Preferrence Shares

 

694,788

 

612

 

593

 

Xirrus, Inc.

 

Wireless Communications Equipment

 

Preferred Stock

 

2,159,631

 

325

 

269

 

Total Warrants

 

 

 

 

 

 

 

$

5,730

 

$

6,359

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity Investments (2)

 

 

 

 

 

 

 

 

 

 

 

BirchBox, Inc

 

E-Commerce — Personal Goods

 

Preferred Stock

 

2,839

 

$

250

 

$

250

 

Inspirato, LLC (1) (4)

 

Travel and Leisure

 

Preferred Units

 

1,948

 

250

 

250

 

MongoDB, Inc.

 

Software Development Tools

 

Common Stock

 

74,742

 

1,000

 

1,000

 

Nutanix, Inc.

 

Database Software

 

Preferred Stock

 

137,202

 

1,000

 

1,571

 

Total Equity Investments

 

 

 

 

 

 

 

$

2,500

 

$

3,071

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments in Portfolio Companies 

 

 

 

 

 

$

245,489

 

$

247,717

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost

 

Fair Value

 

Short-Term Investments (2)

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Bills

 

 

 

 

 

 

 

$

50,000

 

$

49,998

 

Total Short-Term Investments

 

 

 

 

 

 

 

$

50,000

 

$

49,998

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Investments

 

 

 

 

 

 

 

$

295,489

 

$

297,715

 

 

See accompanying notes to consolidated financial statements.

 

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TRIPLEPOINT VENTURE GROWTH BDC CORP. AND SUBSIDIARIES

CONSOLIDATED SCHEDULE OF INVESTMENTS

(condensed and unaudited)

As of September 30, 2014

 

NOTES TO CONSOLIDATED SCHEDULE OF INVESTMENTS

 

Notes applicable to the investments presented in the foregoing table:

 

Unless otherwise noted, all of the investments in the foregoing table are in entities that are domiciled in the United States and/or have a principal place of business in the United States.

 

No investment represents a 5% or greater interest in any outstanding class of voting security of the portfolio company.

 

None of the portfolio companies have (i) been in payment default, (ii) extended the original maturity of its loan, (iii) converted from cash pay interest to payment-in-kind interest, or (iv) entered into a material amendment to its loan agreement related to deteriorating financial performance.

 

As of September 30, 2014, unless otherwise noted, certain of the Company’s debt investments and certain of the Company’s warrants, with an aggregate fair value of approximately $239.0 million, were pledged for borrowings under the Company’s revolving credit facility.

 

Notes applicable to the debt investments presented in the foregoing table:

 

Interest rate is the annual interest rate on the debt investment and does not include any original issue discount, end-of-term (EOT) payment, or any additional fees related to the investments, such as deferred interest, commitment fees or prepayment fees.

 

The EOT payments are contractual and fixed interest payments due in cash at the maturity date of the loan, including upon prepayment, and are a fixed percentage of the original principal balance of the loan unless otherwise noted. The EOT payment is amortized and recognized as non-cash income over the loan or lease prior to its payment.

 

Notes applicable to the equipment financings presented in the foregoing table:

 

At the end of the term of certain equipment financings, the lessee has the option to purchase the underlying assets at fair market value in certain cases subject to a cap, return the equipment or continue to finance the assets. The fair market values for these financings have been estimated as a percentage of original cost for purposes of the EOT payment value.

 

Notes applicable to the warrants presented in the foregoing table:

 

Warrants are associated with funded debt instruments as well as certain commitments to provide future funding.

 

Specific notes applicable to specific investments in the foregoing table:

 

(1)  Investment is a non-qualifying asset under Section 55(a) of the Investment Company Act of 1940, as amended (the “1940 Act”). As of September 30, 2014, non-qualifying assets as a percentage of total assets was 16.5%.

 

(2)  As of September 30, 2014, these debt investments, warrants, equity investments, and short-term investments were not pledged as collateral as part of the Company’s revolving credit facility.

 

(3)  Entity is not domiciled in the United States and does not have its principal place of business in the United States.

 

(4)  Investment is owned by TPVG Investment LLC, a wholly owned taxable subsidiary of the Company.

 

See accompanying notes to consolidated financial statements.

 

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TRIPLEPOINT VENTURE GROWTH BDC CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(condensed and unaudited)

 

Note 1. Organization

 

TriplePoint Venture Growth BDC Corp. (the “Company”), a Maryland corporation, was formed on June 28, 2013 and priced its initial public offering and commenced investment operations on March 5, 2014. The Company is structured as an externally-managed non-diversified, closed-end investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). As a BDC, the Company expects to qualify annually as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

 

The Company was formed to expand the venture growth stage business segment of TriplePoint Capital LLC’s (the “Sponsor”) investment platform. The Company’s investment objective is to maximize total return to stockholders primarily in the form of current income and, to a lesser extent, capital appreciation by primarily lending to venture growth stage companies focused in technology, life sciences and other high growth industries backed by the Sponsor’s select group of leading venture capital investors.  The Company is externally managed by TPVG Advisers LLC (the “Adviser”) which is registered as an investment adviser under the 1940 Act and is a wholly owned subsidiary of the Sponsor. The Adviser is responsible for sourcing, reviewing and structuring investment opportunities, underwriting and performing due diligence on investments and monitoring the investment portfolio on an ongoing basis. The Adviser was organized in August 2013 and, pursuant to an investment advisory agreement entered into between the Company and the Adviser, the Company pays the Adviser a base management fee and an incentive fee for its services. The Company has also entered into an administration agreement with TPVG Administrator LLC (the “Administrator”), a wholly owned subsidiary of the Adviser, and pays fees and expenses for services provided.

 

The Company has two wholly owned subsidiaries; TPVG Variable Funding Company LLC (the “Financing Subsidiary”), a bankruptcy remote special purpose entity established for utilizing the Company’s revolving credit facility, and TPVG Investment LLC, an entity established for holding certain of the Company’s investments in order to benefit from the tax treatment of these investments and create a tax structure that is more advantageous with respect to the Company’s RIC status. These subsidiaries are consolidated in the financial statements of the Company.

 

Note 2. Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation

 

The accompanying financial statements of the Company and related financial information have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and include the accounts of the Company and its consolidated subsidiaries. The consolidated financial statements reflect all adjustments and reclassifications that are necessary for the fair representation of financial results as of and for the periods presented. All intercompany account balances and transactions have been eliminated.

 

Use of Estimates

 

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires estimates and assumptions to be made that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. Changes in the economic environment, financial markets, creditworthiness of portfolio companies and any other parameters used in determining these estimates could cause actual results to differ from those estimates.

 

Investments

 

Investment transactions are recorded on a trade-date basis. The Company applies fair value to all its investments. Fair value is a market-based measure considered from the perspective of the market’s participant who holds the financial instrument rather than an entity specific measure. When market assumptions are not readily available, the Company’s own assumptions are set to reflect those that the Adviser believes market participants would use in pricing the financial instruments on the measurement date.

 

The availability of observable inputs can vary depending on the financial instrument and is affected by a variety of factors. To the extent the valuation is based on models or inputs that are less observable the determination of fair value requires more judgment. The Company’s valuation methodology is approved by the Company’s Board of Directors (the “Board”) and the Board is responsible for the fair values determined. As markets change, new types of investments are made, or pricing for certain investments becomes more or less observable, the Board may refine its valuation methodologies appropriately.

 

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Table of Contents

 

Cash and Cash Equivalents

 

The Company places its cash with financial institutions and at times, cash held in such accounts may exceed the Federal Deposit Insurance Corporation insured limit. The Company may invest a portion of its cash in money market funds, within the limitations of the 1940 Act.

 

Deferred Credit Facility Costs

 

Deferred credit facility costs represent fees and other expenses incurred in connection with the Company’s revolving credit facility. These amounts are amortized and included in interest expense in the consolidated statements of operations over the estimated term of the facility.

 

Other Accrued Expenses and Liabilities

 

Other accrued expenses and liabilities include interest payable, accounts payable, unfunded commitment liabilities, and commitment deposits received. Unfunded commitment liabilities reflect the fact that the Company is a party to certain delay draw credit agreements with its portfolio companies, which requires the Company to make future advances at the borrowers’ discretion during a defined loan availability period. The Company’s credit agreements contain customary lending provisions which allow the Company relief from funding previously made commitments in instances where the underlying portfolio company experiences materially adverse events that affect the financial condition or business outlook for the portfolio company. In certain instances, the borrower may be required to achieve certain milestones before they may request a future advance. The unfunded obligation associated with these credit agreements is equal to the amount by which the contractual funding commitment exceeds the sum of the amount of funded debt unless the availability period has expired. The fair value at the inception of the agreement of the delay draw credit agreements approximates the fair value of the warrants received to enter into these agreements, taking into account the remaining terms of the agreements and the counterparties’ credit profile. The unfunded commitment liability included in the Company’s consolidated statement of assets and liabilities reflects the fair value of these future funding commitments.

 

Paid-in Capital

 

The Company records the proceeds from the sale of its common stock on a net basis to capital stock and paid-in capital in excess of par value, excluding all offering costs.

 

Income Recognition

 

Interest income, adjusted for amortization of market premium and accretion of market discount, is recorded on an accrual basis to the extent that the Company expects to collect such amounts. Original issue discount, principally representing the estimated fair value of detachable equity or warrants obtained in conjunction with the Company’s debt investments, and market discount or premium are capitalized and accreted or amortized into interest income over the life of the respective security using the effective interest method. Loan origination fees received in connection with the closing of investments are reported as unearned income which is included as amortized cost of the investment; the unearned income from such fees is accreted over the contractual life of the loan based on the effective interest method as interest income. Upon prepayment of a loan or debt security, unamortized loan origination fees and unamortized market discounts are recorded as interest income. End-of-term (EOT) payments are contractual and fixed interest payments due in cash at the maturity date of the loan, including upon prepayment, and are a fixed percentage of the original principal balance of the loan unless otherwise noted. Interest is accrued during the life of the loan on the EOT payment using the effective interest method as non-cash income. The EOT payment generally ceases accruing to the extent the borrower is unable to pay the remaining principal and interest due.

 

Other income includes certain fees paid by portfolio companies and the recognition of the value of unfunded commitments that expired during the reporting period.

 

Realized/Unrealized Gains or Losses

 

The Company measures realized gains or losses from the repayment or sale of investments using the specific identification method. The amortized cost basis of investments represents the original cost adjusted for the accretion/amortization of discounts and premiums and upfront loan origination fees. The Company reports changes in fair value of investments that are measured at fair value as a component of net change in unrealized appreciation (depreciation) on investments in the consolidated statement of operations.

 

Management Fees

 

The Company accrues for the base management fee and incentive fee. The accrual for incentive fee includes the recognition of incentive fees on unrealized capital gains, even though such incentive fees are neither earned nor payable to the Adviser until the gains are both realized and in excess of unrealized depreciation on investments.

 

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Table of Contents

 

U.S. Federal Income Taxes

 

The Company intends to elect to be treated, and intends to qualify annually thereafter, as a RIC under Subchapter M the Code, for U.S. federal income tax purposes, beginning with the Company’s taxable year ending December 31, 2014. Generally, a RIC is not subject to U.S. federal income taxes on distributed income and gains if it distributes at least 90% of its net ordinary income and net short-term capital gains in excess of its net long-term capital losses, if any, to its stockholders. Additionally, a RIC must distribute at least 98% of its ordinary income and 98.2% of its capital gain net income on an annual basis and any net ordinary income and net capital gains for preceding years that were not distributed during such years and on which the RIC previously paid no U.S. federal income tax to avoid a U.S. federal excise tax. The Company intends to distribute sufficient dividends to maintain the Company’s RIC status each year and does not anticipate paying any material U.S. federal income taxes in the future.

 

Dividends and Distributions

 

Dividends to common stockholders are recorded on the date the Board declares a dividend. The Board determines the amount of dividends to be paid each quarter based on a variety of factors including estimates of future earnings. Net realized capital gains, if any, are intended to be distributed at least annually. The Company will calculate both its current and accumulated earnings and profits on a tax basis in order to determine the amount of any distribution that constituted a return of capital to the Company’s stockholders and that while such distributions are not taxable, they may result in higher capital gains taxes when the shares are eventually sold.

 

Organizational and Offering Costs

 

The Company incurred $1.75 million in offering costs in completing its initial public offering, which were charged against paid-in capital. Organizational and offering costs in excess of this amount were paid by the Adviser. None of the expenses borne by the Adviser in connection with the Company’s initial public offering above the $1.75 million threshold are subject to recoupment from the Company. Following the Company’s initial public offering, it expects to be responsible for all of its ongoing organizational and offering expenses.

 

Per Share Information

 

Basic and diluted earnings per common share are calculated using the weighted average number of common shares outstanding for the period presented. For the period presented, basic and diluted earnings per share are the same since there are no potentially dilutive securities outstanding.

 

Note 3. Related Party Agreements and Transactions

 

Acquisition of Initial Portfolio

 

On March 5, 2014, the Company acquired from the Sponsor and certain of its subsidiaries, a select portfolio of investments in venture growth stage companies originated through the Sponsor consisting of funded debt and direct equity investments, future funding commitments and warrants associated with both the funded debt investments and future funding commitments. This initial portfolio included 23 secured loans with an aggregate outstanding principal amount of approximately $119.2 million, two equity investments of approximately $2.0 million and warrants to purchase shares in 15 portfolio companies of approximately $3.2 million. The valuation of this initial portfolio was conducted by the Board in consultation with the Adviser and consideration of valuations performed by a third party valuation firm.

 

The funding for the acquisition of this portfolio was provided through a credit facility (the “Bridge Facility”) with Deutsche Bank AG, New York Branch (“Deutsche Bank”). The fees and expenses associated with entering into the Bridge Facility were covered by the Sponsor. The Bridge Facility, along with the interest expense incurred thereon, was repaid in full on March 11, 2014, with a portion of the proceeds from the initial public offering.

 

Investment Advisory Agreement

 

Prior to the commencement of operations, the Board approved an investment advisory agreement (the “Advisory Agreement”). Subject to the overall supervision of the Board and in accordance with 1940 Act, the Adviser manages the day-to-day operations and provides investment advisory services to the Company. Under the terms of the Advisory Agreement, the Adviser:

 

·                                          determines the composition of the Company’s portfolio, the nature and timing of the changes to the Company’s portfolio and the manner of implementing such changes;

·                                          identifies, evaluates and negotiates the structure of the investments the Company makes;

·                                          executes, closes, services and monitors the investments the Company makes;

·                                          determines the securities and other assets that the Company purchases, retains or sells;

·                                          performs due diligence on prospective investments; and

·                                          provides the Company with such other investment advisory, research and related services as the Company may, from time to time, reasonably require for the investment of its funds.

 

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Table of Contents

 

Pursuant to the Advisory Agreement, the Company has agreed to pay the Adviser a fee for its investment advisory and management services consisting of two components — a base management fee and an incentive fee. The cost of both the base management fee and incentive fee is ultimately borne by the Company’s stockholders.

 

The base management fee is calculated at an annual rate of 1.75% of the Company’s average adjusted gross assets, including assets purchased with borrowed funds. For services rendered under the Advisory Agreement, the base management is payable quarterly in arrears. The base management fee is calculated based on the average value of the Company’s gross assets at the end of its two most recently completed calendar quarters. Such amount is appropriately adjusted (based on the actual number of days elapsed relative to the total number of days in such calendar quarter) for any share issuance or repurchases during a calendar quarter. Base management fees for any partial month or quarter are appropriately pro-rated.

 

The incentive fee, which provides the Adviser with a share of the income it generates for the Company, consists of two components — investment income and capital gains — which are largely independent of each other, with the result that one component may be payable even if the other is not payable.

 

Under the investment income component, the Company pays the Adviser 20.0% of the amount by which the Company’s pre-incentive fee net investment income for the quarter exceeds a hurdle rate of 2.0% (which is 8.0% annualized) of the Company’s net assets at the end of the immediately preceding calendar quarter, subject to a “catch-up” provision pursuant to which the Adviser receives all of such income in excess of the 2.0% level but less than 2.5% and subject to a total return requirement. The effect of the “catch-up” provision is that, subject to the total return provision discussed below, if pre-incentive fee net investment income exceeds 2.5% in any calendar quarter, the Adviser receives 20.0% of the Company’s pre-incentive fee net investment income as if the 2.0% hurdle rate did not apply. The foregoing incentive fee is subject to a total return requirement, which provides that no incentive fee in respect of the Company’s pre-incentive fee net investment income is payable except to the extent that 20.0% of the cumulative net increase in net assets resulting from operations since the effective date of the Company’s election to be treated as a BDC exceeds the cumulative incentive fees accrued and/or paid since the effective date of the Company’s election to be treated as a BDC. In other words, any investment income incentive fee that is payable in a calendar quarter is limited to the lesser of (i) 20.0% of the amount by which the Company’s pre-incentive fee net investment income for such calendar quarter exceeds the 2.0% hurdle, subject to the “catch-up” provision and (ii) (x) 20.0% of the cumulative net increase in net assets resulting from operations since the effective date of the Company’s election to be treated as a BDC minus (y) the cumulative incentive fees accrued and/or paid since the effective date of the Company’s election to be treated as a BDC. For the foregoing purpose, the “cumulative net increase in net assets resulting from operations” is the sum of the Company’s pre-incentive fee net investment income, realized gains and losses and unrealized appreciation and depreciation since the effective date of the Company’s election to be treated as a BDC. The Company elected to be treated as a BDC on March 5, 2014.

 

Pre-incentive fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Because of the structure of the incentive fee, it is possible that the Company may pay an incentive fee in a quarter where it incurs a loss, subject to the total return requirement described in the preceding paragraph. For example, if the Company receives pre-incentive fee net investment income in excess of the quarterly minimum hurdle rate, the Company may pay the applicable incentive fee even if it has incurred a loss in that quarter due to realized and unrealized capital losses subject to the total return requirement. The Company’s net investment income used to calculate this component of the incentive fee is also included in the amount of the Company’s assets used to calculate the 1.75% base management fee. These calculations are appropriately pro-rated for any period of less than three months and adjusted for any share issuance or repurchase during the current quarter.

 

Under the capital gains component of the incentive fee, the Company pays the Adviser at the end of each calendar year 20.0% of the Company’s aggregate cumulative realized capital gains from inception through the end of that year, computed net of aggregate cumulative realized capital losses and aggregate cumulative unrealized depreciation through the end of such year, less the aggregate amount of any previously paid capital gains incentive fees. For the foregoing purpose, the Company’s “aggregate cumulative realized capital gains” does not include any unrealized appreciation. It should be noted that the Company accrues an incentive fee for accounting purposes taking into account any unrealized appreciation in accordance with GAAP. The capital gains component of the incentive fee is not subject to any minimum return to stockholders. If such amount is negative, then no capital gains incentive fee is payable for such year. Additionally, if the Advisory Agreement is terminated as of a date that is not a calendar year end, the termination date will be treated as though it were a calendar year end for purposes of calculating and paying the capital gains incentive fee.

 

The base management fee accrued and payable, income incentive fee accrued and payable, and capital gains incentive fee accrued are included in the Company’s consolidated financial statements and summarized in the table below. The Adviser has agreed not to include the U.S. Treasury bills acquired at the end of each of the first three quarters of 2014 in the calculation of gross assets for purposes of determining its base management fee. There were no realized capital gains since the inception of the Company and, thus, no capital gains incentive fee was earned or is payable. The Company did have unrealized appreciation during these periods, and, as a result, accrued a capital gains incentive fee for both the three months ended September 30, 2014, and the period from March 5, 2014 (commencement of operations) to September 30, 2014.

 

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Table of Contents

 

Management and Incentive Fee 
(dollars in thousands)

 

For the Three Months Ended
September 30, 2014

 

For the period from March 5, 2014
(commencement of operations)
to September 30, 2014

 

 

 

 

 

 

 

Base management fee accrued and payable or paid

 

$

 850

 

$

 1,668

 

 

 

 

 

 

 

Income incentive fee accrued and payable or paid

 

$

 938

 

$

 1,157

 

 

 

 

 

 

 

Capital gains incentive fee accrued

 

$

 230

 

$

 512

 

 

Administration Agreement

 

Prior to the commencement of operations, the Board approved an administration agreement (the “Administration Agreement”). The Administration Agreement provides that the Administrator is responsible for furnishing the Company with office facilities and equipment and provide the Company with clerical, bookkeeping, recordkeeping services and other administrative services at such facilities. Under the Administration Agreement, the Administrator performs, or oversees, or arranges for, the performance of the Company’s required administrative services, which includes being responsible for the financial and other records which the Company is required to maintain and preparing reports to the Company’s stockholders and reports and other materials filed with the SEC and any other regulatory authority. In addition, the Administrator assists the Company in determining and publishing net asset value, overseeing the preparation and filing of the Company’s tax returns and printing and disseminating reports and other materials to the Company’s stockholders, and generally oversees the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others. Under the Administration Agreement, the Administrator also provides managerial assistance on the Company’s behalf to those companies that have accepted the Company’s offer to provide such assistance.

 

Payments under the Administration Agreement are equal to an amount equal to the Company’s allocable portion (subject to the review of the Board) of the Administrator’s overhead resulting from its obligations under the Administration Agreement, including rent and the allocable portion of the cost of the chief compliance officer and chief financial officer and their respective staffs. In addition, if requested to provide significant managerial assistance to the Company’s portfolio companies, the Administrator is paid an additional amount based on the services provided, which shall not exceed the amount the Company receives from such companies for providing this assistance.

 

The Administrator engages a sub-administrator to provide certain administrative services. For the three months ended September 30, 2014, and for the period from March 5, 2014 (commencement of operations) to September 30, 2014, expenses paid or payable by the Company to the Administrator under the Administration Agreement were approximately $0.3 million and $0.7 million, respectively, of which approximately $59,000 and $179,000, respectively, were paid or payable to third party service providers.

 

Note 4. Investments

 

The Company measures the value of its investments at fair value in accordance with Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosure, or “ASC Topic 820,” issued by the Financial Accounting Standards Board, or “FASB.” Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

The Valuation Committee of the Board is responsible for assisting the Board in valuing investments that are not publicly traded or for which current market values are not readily available. Investments for which market quotations are readily available are valued using market quotations, which are generally obtained from independent pricing services, broker-dealers or market makers. With respect to portfolio investments for which market quotations are not readily available, the Board, with the assistance of the Adviser and its senior investment team and independent valuation agents, is responsible for determining, in good faith, the fair value in accordance with the valuation policy approved by the Board. If more than one valuation method is used to measure fair value, the results are evaluated and weighted, as appropriate, considering the reasonableness of the range indicated by those results. The Adviser considers a range of fair values based upon the valuation techniques utilized and generally selects a value within that range that most represents fair value based on current market conditions as well as other factors the Adviser’s senior investment team considers relevant. The Board makes this fair value determination on a quarterly basis and any other time when a decision regarding the fair value of the portfolio investments is required. A determination of fair value involves subjective judgments and estimates and depends on the facts and circumstances. Due to the inherent uncertainty of determining the fair value of portfolio investments that do not have a readily available market value, the fair value of the investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

 

ASC Topic 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. ASC Topic 820 also provides guidance regarding a fair value hierarchy, which prioritizes information used to measure fair value and the effect of fair value measurements on earnings and provides for enhanced disclosures determined by the level within the hierarchy of information used in the valuation. In accordance with ASC Topic 820, these inputs are summarized in the three levels listed below.

 

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Level 1—Valuations are based on quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.

 

Level 2—Valuations are based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly and model-based valuation techniques for which all significant inputs are observable.

 

Level 3—Valuations are based on inputs that are unobservable and significant to the overall fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models incorporating significant unobservable inputs, such as discounted cash flow models and other similar valuations techniques. The valuation of Level 3 assets and liabilities generally requires significant management judgment due to the inability to observe inputs to valuation.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of observable input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and it considers factors specific to the investment.

 

Under ASC 820, the fair value measurement also assumes that the transaction to sell an asset occurs in the principal market for the asset or, in the absence of a principal market, the most advantageous market for the asset, which may be a hypothetical market, and excludes transaction costs. The principal market for any asset is the market with the greatest volume and level of activity for such asset in which the reporting entity would or could sell or transfer the asset. In determining the principal market for an asset or liability, it is assumed that the reporting entity has access to such market as of the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable and willing and able to transact.

 

With respect to investments for which market quotations are not readily available, the Board undertakes a multi-step valuation process each quarter, as described below:

 

· The quarterly valuation process begins with each portfolio company or investment being initially valued by the Adviser’s professionals that are responsible for the portfolio investment;

 

· Preliminary valuation conclusions are then documented and discussed with the Adviser’s senior investment team;

 

· The Valuation Committee then reviews these preliminary valuations and makes fair value recommendations to the Board;

 

· At least once annually, the valuation for each portfolio investment will be reviewed by an independent valuation firm. However, the Board does not intend to have de minimis investments of less than 1.0% of the Company’s gross assets (up to an aggregate of 10% of the Company’s gross assets) independently reviewed; and

 

· The Board then discusses valuations and determines, in good faith, the fair value of each investment in the Company’s portfolio based on the input of the Adviser, the respective independent valuation firms and the Valuation Committee.

 

Debt Investments

 

The debt investments identified on the consolidated schedule of investments are loans and equipment financings made to venture growth stage companies focused in technology, life sciences and other high growth industries which are backed by a select group of leading venture capital investors. These investments are considered Level 3 assets under ASC Topic 820 because there is no known or accessible market or market indices for these types of debt instruments and thus the Adviser’s senior management team must estimate the fair value of these investment securities based on models utilizing unobservable inputs.

 

To estimate the fair value of debt investments, the Company compares the cost basis of each debt investment, which includes original issue discount, to the resulting fair value determined using a discounted cash flow model, unless another model is more appropriate based on the circumstances at the measurement date. The discounted cash flow approach entails analyzing the interest rate spreads for recently completed financing transactions which are similar in nature to these debt investments, in order to determine a comparable range of effective market interest rates. The range of interest rate spreads utilized is based on borrowers with similar credit profiles. All remaining expected cash flows of the investment are discounted using this range of interest rates to determine a range of fair values for the debt investment.

 

This valuation process includes, among other things, evaluating the underlying investment performance and the portfolio company’s current financial condition and ability to raise additional capital, as well as macro-economic events that may impact valuations. These events include, but are not limited to, current market yields and interest rate spreads of similar securities as of the measurement date. Changes in these unobservable inputs could result in significantly different fair value measurements.

 

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Under certain circumstances, an alternative technique may be used to value certain debt investments that better reflected the fair value of the investment, such as the price paid or realized in a recently completed transaction or a binding offer received in an arm’s length transaction, the use of multiple probability weighted cash flow models when the expected future cash flows contain elements of variability or estimates of proceeds that would be received in a liquidation scenario.

 

Warrants

 

The fair value of the warrants is primarily estimated using a Black Scholes option pricing model. Privately held warrants and equity-related securities are valued based on an analysis of various factors, but not limited to, the following:

 

·                  Underlying enterprise value of the issuer is estimated based on information available, including any information regarding the most recent rounds of borrower funding. Valuation techniques to determine enterprise value include market multiple approaches, income approaches or approaches that utilize recent rounds of financing and the portfolio company’s capital structure to determine enterprise value. Valuation techniques are also utilized to allocate the enterprise fair value of a portfolio company to the specific class of common or preferred stock exercisable in the warrant. Such techniques take into account the rights and preferences of the portfolio company’s securities, expected exit scenarios, and volatility associated with such outcomes to allocate the fair value to the specific class of stock held in the portfolio. Such techniques included option pricing models, including back solve techniques, probability weighted expected return models and other techniques as determined to be appropriate.

 

·                  Volatility, or the amount of uncertainty or risk about the size of the changes in the warrant price, is based on comparable publicly traded companies within indices similar in nature to the underlying company issuing the warrant. Increases (decreases) in this unobservable input could result in a significantly higher (lower) fair value.

 

·                  The risk-free interest rates are derived from the U.S. Treasury yield curve. The risk-free interest rates are calculated based on a weighted average of the risk-free interest rates that correspond closest to the expected remaining life of the warrant.  Increases (decreases) in this unobservable input could result in a significantly higher (lower) fair value.

 

·                  Other adjustments, including a marketability discount on private company warrants, are estimated based on the Adviser’s judgment about the general industry environment. Changes in this unobservable input could result in a significantly different fair value.

 

·                  Historical portfolio experience on cancellations and exercises of warrants are utilized as the basis for determining the estimated life of the warrants in each financial reporting period. Warrants may be exercised in the event of acquisitions, mergers or initial public offerings, and cancelled due to events such as bankruptcies, restructuring activities or additional financings. These events cause the expected remaining life assumption to be shorter than the contractual term of the warrants.  Increases (decreases) in this unobservable input could result in a significantly higher (lower) fair value.

 

Under certain circumstances alternative techniques may be used to value certain warrants that better reflect the warrants’ fair values, such as an expected settlement of a warrant in the near term, a model that incorporates a put feature associated with the warrant, or the price paid or realized in a recently completed transaction or binding offer received in an arm’s length transaction. The fair value may be determined based on the expected proceeds to be received from such settlement or based on the net present value of the expected proceeds from the put option.

 

These valuation methodologies involve a significant degree of judgment. There is no single standard for determining the estimated fair value of investments which do not have an active public market. Valuations of privately held investments are inherently uncertain, as they are based on estimates, and their values may fluctuate over time. The determination of fair value may differ materially from the values that would have been used if an active market for these investments existed. In some cases, the fair value of such investments is best expressed as a range of values derived utilizing different methodologies from which a single estimate may then be determined.

 

Equity Investments

 

The fair value of an equity investment in a privately held company is initially the amount invested. The Company adjusts the fair value of equity investments in private companies upon the completion of a new third party round of equity financing subsequent to its investment. The Company may make adjustments to fair value, absent a new equity financing event, based upon positive or negative changes in a portfolio company’s financial or operational performance. The Company may also reference comparable transactions and/or secondary market transactions of comparable companies to estimate fair value. These valuation methodologies involve a significant degree of judgment. The fair value of an equity investment in a publicly traded company is based upon the closing public share price on the date of measurement. These assets are recorded at fair value on a recurring basis. There is no single standard for determining the estimated fair value of investments which do not have an active public market. Valuations of privately held investments are inherently uncertain, as they are based on estimates, and their values may fluctuate over time. The determination of fair value may differ materially from the values that would have been used if an active market for

 

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these investments existed. In some cases, the fair value of such investments is best expressed as a range of values derived utilizing different methodologies from which a single estimate may then be determined.

 

The following is a summary by investment type of the fair value according to inputs used in valuing investments listed in the accompanying consolidated schedule of investments as of September 30, 2014.

 

Investment Type

 

As of September 30, 2014

 

(dollars in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

Debt investments

 

$

 —

 

$

 —

 

$

 238,287

 

238,287

 

Warrants

 

 

 

6,359

 

6,359

 

Equity investments

 

 

 

3,071

 

3,071

 

Short-term investments

 

49,998

 

 

 

49,998

 

Total investments

 

$

49,998

 

$

 —

 

$

 247,717

 

297,715

 

 

During the three month period ended September 30, 2014 and for the period from March 5, 2014 (commencement of operations) to September 30, 2014, there were no transfers in or out of any levels.

 

The following table presents additional information about Level 3 investments measured at fair value for the three months ended September 30, 2014, and for the period from March 5, 2014 (commencement of operations) to September 30, 2014. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the net unrealized gains and losses for assets within the Level 3 category may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

 

Level 3

 

For the Three Months Ended September 30, 2014

 

Investment Activity

 

 

 

 

 

Equity

 

Total

 

(dollars in thousands)

 

Debt Investments

 

Warrants

 

Investments

 

Investments

 

 

 

 

 

 

 

 

 

 

 

Fair value as of June 30, 2014

 

$

 197,970

 

$

 5,498

 

$

 2,250

 

$

 205,718

 

Fundings of investments, at cost

 

38,909

 

921

 

250

 

40,080

 

Principal payments received on investments

 

(809

)

 

 

(809

)

Amortization and accretion of fixed income premiums and discounts, net

 

1,911

 

 

 

1,911

 

Realized gains

 

 

 

 

 

Net change in unrealized appreciation included in earnings

 

306

 

(60

)

571

 

817

 

Net change in unrealized appreciation on Level 3 investments still held as of September 30, 2014

 

$

 238,287

 

$

 6,359

 

$

 3,071

 

$

 247,717

 

 

Level 3

 

For the period from March 5, 2014 (Commencement of Operations)
to September 30, 2014

 

Investment Activity

 

 

 

 

 

Equity

 

Total

 

(dollars in thousands)

 

Debt Investments

 

Warrants

 

Investments

 

Investments

 

 

 

 

 

 

 

 

 

 

 

Fair value as of March 5, 2014

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

Fundings of investments, at cost (1)

 

234,869

 

5,730

 

2,500

 

243,099

 

Principal payments received on investments

 

(1,049

)

 

 

(1,049

)

Amortization and accretion of fixed income premiums and discounts, net

 

3,439

 

 

 

3,439

 

Realized gains

 

 

 

 

 

Net change in unrealized appreciation included in earnings

 

1,028

 

629

 

571

 

2,228

 

Net change in unrealized appreciation on Level 3 investments still held as of September 30, 2014

 

$

 238,287

 

$

 6,359

 

$

 3,071

 

$

 247,717

 

 


(1)                     Purchases and fundings of investments include the purchase of the Company’s initial portfolio on March 5, 2014, and fundings of additional investments during the period from March 5, 2014 (commencement of operations) to September 30, 2014.

 

Realized and unrealized gains and losses are included in net realized gains on investments and net change in unrealized gains on investments in the consolidated statement of operations. The change in net unrealized gains for Level 3 investments still held at September 30,

 

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2014, was approximately $2.2 million, which was comprised of approximately $1.0 million net unrealized gains from debt investments, approximately $0.6 million net unrealized gains from warrants, and approximately $0.6 million net unrealized gains from equity investments. In addition to the unrealized gain and losses for Level 3 investments there were unrealized losses of approximately $2,000 on U.S. Treasury bills and unrealized gains on unfunded commitments of approximately $0.3 million as of September 30, 2014.

 

The following table provides a summary of quantitative information about the Level 3 fair value measurements of investments as of September 30, 2014. In addition to the techniques and inputs noted in the table below, the Company may also use other valuation techniques and methodologies when determining fair value measurements. The table below is not intended to be all inclusive, but rather provide information on significant Level 3 inputs as they relate to the fair value measurements of investments.

 

Level 3 Investments

 

As of September 30, 2014

 

(dollars in thousands)

 

Fair Value

 

Valuation Technique

 

Unobservable Inputs

 

Range (Weighted Average)

 

 

 

 

 

 

 

 

 

 

 

Debt investments

 

$

 238,287

 

Discounted Cash Flows

 

Discount Rate

 

10.75% - 19.54% (14.61%)

 

 

 

 

 

 

 

 

 

 

 

Warrants

 

6,124

 

Black Scholes Option Pricing Model

 

Share Price and Equity Value

 

N/A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue Multiples

 

0.80x – 8.00x (2.71x)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Cost of Capital

 

24.00% – 30.50% (27.10%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Volatility

 

41.15% - 70.00% (53.02%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term

 

0.50– 4.00 Years (2.34 Years)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount for Lack of Marketability

 

0.00% - 27.00% (14.09%)

 

 

 

 

 

 

 

 

 

 

 

 

 

213

 

Option-Pricing Method and Probability-Weighted Expected Return Method

 

Volatility

 

Term

 

70.00%

 

0.75 – 2.00 Years (1.12 Years)

 

 

 

 

 

 

 

 

 

 

 

 

 

22

 

Monte-Carlo Method

 

Volatility

 

60.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term

 

2.00 Years

 

 

 

 

 

 

 

 

 

 

 

Equity investments

 

1,571

 

Option-Pricing Method and Probability-Weighted Expected Return Method

 

Volatility

 

Term

 

70.00%

 

0.75 - 2.00 Years (1.12 Years)

 

 

 

 

 

 

 

 

 

 

 

 

 

1,500

 

Market Approach

 

Price Paid

 

N/A

 

Total investments

 

$

 247,717

 

 

 

 

 

 

 

 

As of September 30, 2014, the fair values for all the Company’s debt investments were estimated using discounted cash flow models based on anticipated cash flows and a discount rate deemed most appropriate for each investment given the facts and circumstances specific to each portfolio company and market yields at the reporting date. For all but two warrant positions, fair values were estimated using an Option-Pricing Method that values individual equity classes based on their economic rights and preferences using the Black Scholes Option-Pricing Model.  One warrant position was valued using the Monte-Carlo Method to account for the possibility of a strike price reset based on future performance of that company’s common stock. One warrant position and one equity investment were valued using a combination of the Option-Pricing Method and the Probability-Weighted Expected Return Method given the outlook for that company. The other equity investments were valued using the market approach. The range of the various assumptions and weighted averages of these assumptions are summarized in the table above.

 

As of September 30, 2014, the fair value of debt investments, in the aggregate, closely approximated cost basis given that the portfolio was recently acquired or originated by the Company. Over time, it is expected that fair values and cost bases for these investments may vary.

 

As of September 30, 2014, the Company had pledged certain of its debt investments and certain of its warrants with an aggregate fair value of approximately $239.0 million for borrowings under its revolving credit facility.

 

Note 5. Credit Risk

 

Debt investments may be affected by business, financial market or legal uncertainties. Prices of investments may be volatile, and a variety of factors that are inherently difficult to predict, such as domestic economic and political developments, may significantly affect the value of these investments. In addition, the value of these investments may fluctuate as the general level of interest rates fluctuate.

 

In many instances, the portfolio company’s ability to repay the debt investments is dependent on additional funding by its venture capital investors, a future sale or an initial public offering. The value of these investments may be detrimentally affected to the extent a borrower defaults on its obligations, there is insufficient collateral and/or there are extensive legal and other costs incurred in collecting on a defaulted loan.

 

As of September 30, 2014, the Company had no delinquencies and no credit losses on any of its debt investments.

 

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Note 6. Borrowings

 

Bridge Facility

 

On February 21, 2014, the Company entered into a credit agreement with Deutsche Bank for the purpose of acquiring its initial portfolio.  On March 5, 2014, the Company borrowed approximately $121.7 million under this facility. On March 11, 2014, the Company paid this borrowing in full with a portion of the net proceeds received in the Company’s initial public offering. The Company paid approximately $25,000 of interest on this facility. All other fees and expenses associated with entering into this facility were paid by the Sponsor.

 

Revolving Credit Facility

 

On February 21, 2014, the Company, along with its Financing Subsidiary as borrower, entered into a credit agreement with Deutsche Bank acting as administrative agent and a lender, and KeyBank National Association, Everbank Commercial Lender Finance, Inc., and AloStar Bank of Commerce, as other lenders, which provided the Company with a $150.0 million commitment, subject to borrowing base requirements. On August 8, 2014, the Company amended its Credit Facility to increase the total commitments available there under by $50.0 million to $200.0 million in aggregate.

 

Borrowings under this revolving credit facility bear interest at the sum of (i) the commercial paper rate for certain specified lenders and 30-day LIBOR for other lenders or, if LIBOR is unavailable, the higher of Deutsche Bank’s commercial lending rate or the Federal Funds Rate plus 0.50% plus (ii) a margin of 3.5% during the revolving period and 4.5% during the amortization period. Borrowings under this revolving credit facility are secured only by the assets of the Financing Subsidiary. The Company agreed to pay to Deutsche Bank a syndication fee in 12 monthly installments, of approximately 1% of the committed facility amount. The Company also agreed to pay Deutsche Bank a fee to act as administrative agent under this revolving credit facility and to pay each lender (i) a commitment fee of 0.65% multiplied by such lender’s commitment on the effective date in 12 equal monthly installments and (ii) a fee of approximately 0.75% per annum of any unused borrowings under this credit facility on a monthly basis. This revolving credit facility contains affirmative and restrictive covenants, including but not limited to an advance rate limitation of approximately 55% of the applicable net loan balance of assets held by the Financing Subsidiary, maintenance of minimum net worth at an agreed level, a ratio of total assets to total indebtedness of not less than approximately 2:1, a key man clause relating to Messrs. Labe and Srivastava and eligibility requirements, including but not limited to geographic and industry concentration limitations and certain loan grade classifications. Furthermore, events of default under this credit facility include, among other things, (i) a payment default; (ii) a change of control; (iii) bankruptcy; (iv) a covenant default; and, (v) the Company’s failure to maintain compliance with RIC provisions at all times. As of September 30, 2014, the Company was in compliance with all covenants under this credit facility.

 

At September 30, 2014, the Company had outstanding borrowings of $109.0 million under its revolving credit facility, which is included in the Company’s consolidated statement of assets and liabilities. Interest expense on these borrowings includes the interest cost charged on borrowings, the unused fee on the credit facility, paying and administrative agent fees, and the amortization of deferred credit facility fees and expenses. For the three months ended September 30, 2014, interest expense on the revolving credit facility totaled approximately $1.4 million, consisting of approximately $0.9 million of interest expense, approximately $0.2 million of unused facilities expense, and approximately $0.3 million of amortization of deferred credit facility costs and other fees. For the period from March 5, 2014 (commencement of operations) to September 30, 2014, interest expense on the revolving credit facility totaled approximately $2.3 million, consisting of approximately $1.2 million of interest expense, approximately $0.4 million of unused facilities expense, and approximately $0.7 million of amortization of deferred credit facility costs and other fees.

 

Other Payables

 

On September 29, 2014, the Company purchased $50.0 million of U.S. Treasury bills for settlement on October 1, 2014. The associated payable is included in the Company’s consolidated statement of assets and liabilities.

 

Note 7. Commitments

 

As of September 30, 2014, the Company’s unfunded commitments to 13 companies totaled $138.0 million, of which $43.5 million are dependent upon the companies reaching certain milestones before the debt commitment becomes available to them. Of the $138.0 million of unfunded commitments, $36.5 million will expire during 2014 and $101.5.0 million will expire during 2015 if not drawn prior to expiration. As of September 30, 2014, $116.0 million of the Company’s unfunded commitments were with technology-related companies and $22.0 million were with non-technology related companies. In addition, $131.0 million represent commitments for growth capital loans and $7.0 million for revolving loans. Since these commitments may expire without being drawn upon, unfunded commitments do not necessarily represent future cash requirements or future earning assets for the Company. It is generally expected that less than 75% of the Company’s unfunded commitments will eventually be drawn. The table below provides the Company’s unfunded commitments by customer as of September 30, 2014.

 

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Unfunded Commitments

 

As of

 

(dollars in thousands)

 

September 30, 2014

 

 

 

 

 

Aerohive Networks, Inc.

 

$

 10,000

 

Birchbox, Inc.

 

12,000

 

Cambridge Broadband Network Limited

 

1,000

 

HouseTrip Limited

 

10,000

 

InMobi, Inc.

 

2,000

 

Inspirato LLC

 

10,000

 

Lattice Engines, Inc.

 

2,500

 

Mind Candy Limited

 

15,000

 

Nutanix, Inc.

 

20,000

 

Shazam Entertainment Limited

 

20,000

 

SimpliVity Corporation

 

23,000

 

Thrillist Media Group, Inc.

 

5,000

 

Virtual Instruments Corporation

 

7,500

 

Total

 

$

 138,000

 

 

The fair value at the inception of the agreement of the delay draw credit agreements is equal to the fees and/or warrants received to enter into these agreements, taking into account the remaining terms of the agreements and the counterparties’ credit profile. The unfunded commitment liability and commitment deposits reflect the fair value of these future funding commitments. As of September 30, 2014, the fair value for these unfunded commitments totaled approximately $1.3 million and is included in the Company’s consolidated statement of assets and liabilities.

 

Note 8. Operating Expenses

 

On March 5, 2014, the Company acquired an initial portfolio, elected to be regulated as a BDC, and priced its initial public offering. Certain general and administrative expenses associated with being a public company were incurred beginning on this date, including directors’ fees and insurance. The Company also borrowed money through the Bridge Facility and began incurring interest expense. On March 11, 2014, the Company received the proceeds from the initial public offering and repaid the Bridge Facility in full. The Adviser and Administrator agreed to begin accruing certain fees and expenses under the Advisory Agreement and the Administration Agreement (including the base management fee and certain administrative expenses) beginning March 11, 2014, the date the proceeds from the initial public offering were received.

 

Note 9. Financial Highlights

 

The financial highlights presented below are for the three months ended September 30, 2014, and for the period from March 5, 2014 (commencement of operations) to September 30, 2014. There are no prior periods shown as the Company did not have any operating or investment activity prior to March 5, 2014.

 

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Financial Highlights
(dollars in thousands, except per share data)

 

For the Three 
Months Ended September 30, 2014 
or as of September 30, 2014

 

For the period from
March 5, 2014
(commencement of operations)
to September 30, 2014,
 or as of September 30, 2014

 

 

 

 

 

 

 

Per Share Data

 

 

 

 

 

Initial public offering price (1)

 

$

 —

 

$

 15.00

 

Front end sales charges (1)

 

 

(0.44

)

Net proceeds (1)

 

 

 

14.56

 

Offering costs (1)

 

 

(0.18

)

Net asset value at beginning of period

 

14.49

 

14.38

 

Net investment income

 

0.36

 

0.70

 

Net change in unrealized gain on investments

 

0.11

 

0.26

 

Dividend distributions

 

(0.32

)

(0.71

)

Other

 

 

0.01

 

Net asset value at end of period

 

$

 14.64

 

$

 14.64

 

 

 

 

 

 

 

Net investment income per share

 

$

 0.36

 

$

 0.70

 

Net increase in net assets per share

 

$

 0.47

 

$

 0.96

 

 

 

 

 

 

 

Weighted average shares of common stock outstanding for period

 

9,872,564

 

9,858,725

 

Shares of common stock outstanding at end of period

 

9,891,575

 

9,891,575

 

 

 

 

 

 

 

Ratios / Supplemental Data

 

 

 

 

 

Net asset value at beginning of period

 

$

 142,951

 

$

 141,572

 

Net asset value at end of period

 

$

 144,796

 

$

 144,796

 

Average net asset value

 

$

 143,702

 

$

 143,370

 

 

 

 

 

 

 

Total return based on net asset value per share (2)

 

3.3

%

6.9

%

Net asset value per share at beginning of period

 

$

 14.49

 

$

 14.38

 

Dividends per share during period

 

$

 0.32

 

$

 0.71

 

Net asset value per share at end of period

 

$

 14.64

 

$

 14.64

 

 

 

 

 

 

 

Total return based on stock price (3)

 

(8.8

)%

2.2

%

Stock price at beginning of period

 

$

 16.38

 

$

 15.00

 

Dividends per share paid during period

 

$

 0.32

 

$

 0.71

 

Stock price at end of period

 

$

 14.61

 

$

 14.61

 

 

 

 

 

 

 

Weighted average portfolio yield (4)

 

14.5

%

14.4

%

Coupon income (4)

 

10.9

%

11.0

%

Accretion of discount (4)

 

0.4

%

0.3

%

Accretion of end-of-term payments (4)

 

3.2

%

3.1

%

 

 

 

 

 

 

Net investment income to average net asset value (5)

 

9.7

%

8.4

%

Net increase in net assets to average net asset value (5)

 

12.9

%

11.5

%

 

 

 

 

 

 

Total operating expenses to average net asset value (5)

 

12.0

%

9.3

%

Operating expenses excluding incentive fees to average net asset value (5)

 

8.8

%

7.3

%

Income component of incentive fees to average net asset value (5)

 

2.6

%

1.4

%

Capital gains component of incentive fees to average net asset value (5)

 

0.6

%

0.6

%

 


(1)         The presentation of these line items has been recast from versions previously filed in the Company’s quarterly reports on Form 10-Q for the periods ended March 31, 2014 and June 30, 2014 in order to disaggregate the impact of front end sales charges from the offering costs in connection with the Company’s initial public offering.

 

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(2)         Total return based on net asset value (NAV) is the change in ending NAV per share plus dividends per share paid during the period assuming participation in the Company’s dividend reinvestment plan divided by the beginning NAV per share. The NAV per share as of March 5, 2014 (commencement of operations) is the NAV per share immediately after the Company’s initial public offering. The total return is for the period shown and is not annualized.

(3)         Total return based on stock price is the change in the ending stock price of the Company’s common stock plus dividends paid during the period assuming participation in the Company’s dividend reinvestment plan divided by the beginning stock price of the Company’s common stock. The stock price as of March 5, 2014 (commencement of operations) is the issuance price per share of the Company’s initial public offering. The total return is for the period shown and is not annualized.

(4)         Weighted average portfolio yields for periods shown are the annualized rates of interest income recognized during the period divided by the average amortized cost of debt investments in the portfolio at the beginning of each month in the period.

(5)         Percentage is presented on an annualized basis.

 

Note 10. Net Increase in Net Assets per Share

 

The following information sets forth the computation of basic and diluted earnings per common share for the three months ended September&n