HTGC posts stable results at the end of 2018

Despite muted NII growth and a slight decline in NAV, the BDC saw strong returns during the fourth quarter.

Hercules Capital (HTGC) posted steady results for the fourth quarter and the year, despite breaking its own record for capital commitments during 2018.

The Palo Alto-based venture debt business development company’s net asset value per share was down $0.06 from the end of 2017, and decreased from $10.38 in the third quarter to $9.90 at the end of 2018. Its net investment income was up from $0.31 to $0.32 between the third and fourth quarters and is up $0.02 from the end of 2017.

The declines in NAV can be partially attributed to $600,000 of recorded losses during the quarter. The depletion was caused by $2 million in losses from the liquidation, write-off or warrant expirations across eight portfolio companies, and was offset by $1.4 billion of realised gains during the quarter.

Despite a muted NII and NAV, the BDC posted strong returns, with a weighted average yield of 13.5 percent across its portfolio during the fourth quarter. The firm deployed more than $249 million in new commitments during the fourth quarter, which contributed to the firms record-breaking $1.21 billion of new commitments during 2018.

“Honestly, it’s a pretty amazing achievement,” Manuel Henriquez, the founder, chairman and chief executive officer of Hercules said on the fourth-quarter earnings call.

The HTGC portfolio is now comprised of 78.6 percent senior-secured first-lien loans, 13.6 percent second-lien loans, 6.4 percent equity and 1.4 percent warrant positions. More than 97 percent of the portfolio is floating-rate loans.

In December, the firm successfully voted to increase its debt-to-equity ratio from 2:1 to 1:1. The firm plans to gradually transition into higher-leveraged loans without changing its core strategy, Henriquez said on the earnings call.

Henriquez also announced that David Lund, who had served as interim chief financial officer for the BDC, will be retiring, and Seth Meyer will take over as CFO on 4 March. Meyer was formerly the CFO of Swiss RE’s commercial insurance business for more than six years.

Hercules Capital was founded in 2003 and has committed more than $8.5 billion in debt commitments since inception. The BDC has more than $1.9 billion in assets under management.