Hercules grows debt portfolio to $1.28bn

The California-based BDC focused on venture capital-backed and emerging companies came close to its $1.35 billion portfolio target last quarter.

Hercules Capital grew its total debt investment portfolio to $1.28 billion at the end of the third quarter, the business development corporation announced on Thursday in its third-quarter earnings call.

The Palo Alto, California-based BDC, focused on companies seeking growth capital, saw a year-on-year increase in its investment portfolio, up from $1.1 billion in total debt investments at the end of third quarter of last year.

Hercules made a total of $129.9 million in new debt investments over the quarter, including a $12 million senior loan to the pharmaceutical company Auris Medical, a $22.5 million loan to software company Mattersight, a $6 million loan to software company EverNote. However, the firm’s net debt investment portfolio growth over that period, on a cost basis, was only $20 million, “driven by a higher volume of unscheduled early principal repayments”, the announcement said.

The average loan in the portfolio is $13.7 million, though the company has done significantly large loans, including a hefty $103 million loan to media company MachineZone last May. Of the $1.28 billion in debt, 91 percent, or $1.16 billion, are senior, first-lien loans, while 93 percent of them, or $1.19 billion, are floating rate. Nearly all have interest rate floors, typically under 11 percent.

While Hercules did not hit its debt investment target of $1.35 billion, the company expects to hit the mark by year end or early January 2017, according to the third-quarter earnings report.

Manuel A. Henriquez, chairman and chief executive officer of Hercules, said: “Our ability to access multiple different sources of liquidity has afforded us a competitive advantage of maintaining a level of flexibility to grow our debt investment portfolio while many others find themselves unable to grow or gain access to either the debt or equity capital markets.”

Henriquez added that the company ended the last quarter with nearly $264 million of dry powder for new investments with “plenty of headroom to grow our regulatory leverage”, which currently stands at 62.7 percent. BDCs have a legal leverage limit of 1:1. The effective yield on the BDC’s total debt investment portfolio reached 14.6 percent over the quarter, up slightly from the previous quarter’s yield of 14.4 percent.

The portfolio includes loans to 89 companies in technology, life sciences, and renewable energy industry seeking growth or venture capital with an amortising maturity schedule of three to three-and-a-half years. Since its founding in December 2003, Hercules has committed more than $6.3 billion to over 360 entrepreneurial and venture capital firms seeking growth funding.