Forward-Looking Statements The information contained in this section should be read in conjunction with our consolidated financial statements and related notes and schedules thereto appearing elsewhere in this Quarterly Report on Form 10-Q. Except as otherwise specified, references to "the Company", "we", "us", and "our" refer toTriplePoint Venture Growth BDC Corp. and its subsidiaries. This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as "anticipates," "expects," "intends," "plans," "will," "may," "continue," "believes," "seeks," "estimates," "would," "could," "should," "targets," "projects," and variations of these words and similar expressions are intended to identify forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q include statements as to: • our and our portfolio companies' future operating results and financial condition, including the ability of us and our portfolio companies to achieve our respective objectives;
• our business prospects and the prospects of our portfolio companies;
• our relationships with third parties, including but not
limited to
lenders and venture capital investors, including other
investors in
our portfolio companies;
• the impact and timing of our unfunded commitments;
• the expected market for venture capital investments;
• the performance of our existing portfolio and other
investments we
may make in the future;
• the impact of investments that we expect to make;
• actual and potential conflicts of interest withTriplePoint Capital LLC ("TPC"),TriplePoint Advisers LLC ("Adviser") and its senior investment team and Investment Committee;
• our contractual arrangements and relationships with third parties;
• the dependence of our future success on theU.S. and global economies, including with respect to the industries in which we invest;
• our expected financings and investments;
• the ability of our Adviser to attract, retain and have access to highly talented professionals, including our Adviser's senior management team; • our ability to qualify and maintain our qualification as a RIC and as a BDC; • the adequacy of our available liquidity, cash resources and working capital and compliance with covenants under our borrowing arrangements; and • the timing of cash flows, if any, from the operations of our portfolio companies. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation: • changes in laws and regulations, changes in political,
economic or
industry conditions, and changes in the interest rate
environment or
other conditions affecting the financial and capital markets, including with respect to changes resulting from or in
response to,
or potentially even the absence of changes as a result of, the impact of the Coronavirus ("COVID-19") pandemic; • the length and duration of the COVID-19 outbreak inthe United States as well as worldwide, and the magnitude of its impact and time required for economic recovery, including with respect to the impact of travel restrictions and other isolation and quarantine measures on the ability of the Adviser's investment
professionals to
conduct in-person diligence on, and otherwise monitor,
existing and
future investments; • an economic downturn and the time period required for robust economic recovery therefrom, including the current economic downturn as a result of the impact of the COVID-19 pandemic, which has already generally had a material impact on our portfolio companies' results of operations and financial condition and will likely continue to have a material impact on our portfolio companies' results of operations and financial condition, for its duration, which could lead to the loss of some or all of our investments in such portfolio companies and have a material adverse effect on our results of operations and financial condition; • a contraction of available credit, an inability or
unwillingness of
our lenders to fund their commitments to us and/or an
inability to
access capital markets or additional sources of liquidity, including as a result of the impact and duration of the COVID-19 pandemic, could have a material adverse effect on our results of operations and financial condition and impair our lending and investment activities; 42
-------------------------------------------------------------------------------- • interest rate volatility could adversely affect our results, particularly given that we use leverage as part of our
investment
strategy; • currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather thanU.S. dollars; • risks associated with possible disruption in our or our
portfolio
companies' operations due to wars and other forms of conflict, terrorist acts, security operations and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes and global health epidemics; and • the risks, uncertainties and other factors we identify in "Risk Factors" in our most recent Annual Report on Form 10-K under Part I, Item 1A, in our quarterly reports on Form 10-Q, including this report, and in our other filings with theSEC that we make
from time
to time. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include, without limitation, our ability to originate new loans and investments, borrowing costs and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report on Form 10-Q should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. Overview We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the 1940 Act. We have elected to be treated, and intend to qualify annually, as a RIC under Subchapter M of the Code forU.S. federal income tax purposes. Our shares are currently listed on theNew York Stock Exchange (the "NYSE") under the symbol "TPVG". The 2022 Notes are currently listed on the NYSE under the symbol "TPVY". We were formed to expand the venture growth stage business segment of TPC's investment platform. TPC is widely recognized as a leading global financing provider devoted to serving venture capital-backed companies with creative, flexible and customized debt financing, equity capital and complementary services throughout their lifespan. TPC is located onSand Hill Road inSilicon Valley and has a primary focus in technology, life sciences and other high growth industries. Our investment objective is to maximize our total return to stockholders primarily in the form of current income and, to a lesser extent, capital appreciation by lending primarily with warrants to venture growth stage companies focused in technology, life sciences and other high growth industries backed by TPC's select group of leading venture capital investors. We commenced investment activities onMarch 5, 2014 . In order to expedite the ramp-up of our investment activities and further our ability to meet our investment objectives, onMarch 5, 2014 , we acquired our initial portfolio. OnMarch 11, 2014 , we completed our initial public offering and received$141.6 million of net proceeds in connection with the initial public offering and a concurrent private placement, net of the portion of the underwriting sales load and offering costs we paid. In 2015, we completed a follow-on public offering of our common stock raising$95.9 million after offering costs. InOctober 2017 , we sold in a private placement transaction 1,594,007 shares of our common stock to certain investment funds managed by theAlternative Investments & Manager Selection Group of Goldman Sachs Asset Management, L.P. and 73,855 shares of our common stock to certain of our executive officers, for total gross proceeds of$22.6 million . InAugust 2018 , we completed a public offering and a concurrent private placement offering of an aggregate 6,925,000 shares of our common stock, raising$94.6 million after offering costs. InJanuary 2020 , we completed follow-on public offering of an aggregate 5,750,000 shares of our common stock, raising$78.2 million after offering costs. COVID-19 Developments The COVID-19 pandemic, and the related effect on theU.S. and global economies, including the current economic downturn and the uncertainty associated with the timing and likelihood of economic recovery, has had adverse consequences for the business operations of some of our portfolio companies and has adversely affected, and threatens to continue to adversely affect, our operations and the operations of the Adviser. While we have been monitoring, and continue to monitor, the COVID-19 pandemic and its impact on our and our portfolio companies' business, we have continued to raise capital, maintain appropriate levels of available liquidity, support and monitor our existing portfolio companies, fund existing unfunded commitments, and selectively deploy capital in new investment opportunities in venture growth stage companies. As a result of our focus on maintaining adequate liquidity amid current market uncertainty, our interest expense has increased from comparable prior year periods due to maintaining a higher weighted average outstanding principal balance on borrowings and increased cash reserves. In addition, while we have not seen a material reduction in demand in the venture growth stage market, we do expect to see reduced originations during fiscal year 2020, as compared to fiscal year 2019 levels, as we and others, including potential venture growth stage portfolio companies, navigate the current challenging environment. We have seen, and expect to continue to see, certain of our portfolio companies experience financial distress and, depending on the duration of the COVID-19 pandemic and the extent of its disruption to operations, expect that certain of our portfolio companies may default on their financial obligations to us and their other capital providers. The effects of the COVID-19 pandemic have also impeded, and may continue 43 -------------------------------------------------------------------------------- to impede, the ability of certain of our portfolio companies to raise additional capital and/or pursue asset sales or otherwise execute strategic transactions, which could have a material adverse effect on the valuation of our investments in such companies. Portfolio companies operating in certain industries may be more susceptible to these risks than other portfolio companies in other industries in light of the effects of the COVID-19 pandemic. Some of our portfolio companies have already taken steps to significantly reduce, modify, or alter business strategies and operations, and we expect that additional portfolio companies may take similar steps if subjected to prolonged and severe financial distress, which may impair their business on a permanent basis. In addition, due to the completion of equity rounds by certain portfolio companies at lower valuations than rounds completed prior to the onset of the COVID-19 pandemic, we have experienced unrealized depreciation on certain of our warrant and equity investments despite the relevant companies' ability to mitigate disruptions on their business strategies and operations. There can be no assurance that future equity rounds completed by our portfolio companies will be at levels greater than or equal to previous rounds, which may result in net unrealized depreciation on our warrant and equity portfolio in future periods. In part due to these COVID-19-related developments, the fair value of certain of our portfolio investments as ofJune 30, 2020 and our expected recoveries for certain investments have decreased as compared to their fair value and expected recoveries as ofDecember 31, 2019 , and there may be further decreases in the fair values of our portfolio investments going forward. As ofJune 30, 2020 , we had two portfolio companies in which our investments were on nonaccrual status (all of which were generally caused by events unrelated to the COVID-19 pandemic), with an aggregate cost and fair value of$31.8 million and$16.5 million , respectively. The various effects of the COVID-19 pandemic, including those discussed above, increase the risk that we will place additional investments on non-accrual status in the future. As ofJune 30, 2020 , we are permitted under the 1940 Act, as a BDC, to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least 150% after such borrowing. In addition, the indenture governing the 2022 Notes contains certain covenants, including covenants (i) requiring our compliance with the asset coverage requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a) of the 1940 Act (after giving effect to any exemptive relief granted to us by theSEC ); and (ii) if our asset coverage has been below the 1940 Act minimum asset coverage requirements (after giving effect to any exemptive relief granted to us by theSEC ) for more than six consecutive months, prohibiting the declaration of any cash dividend or distribution on our common stock (except to the extent necessary for us to maintain our treatment as a RIC under Subchapter M of the Code), or purchasing any of our common stock, unless, at the time of the declaration of the dividend or distribution or the purchase, and after deducting the amount of such dividend, distribution, or purchase, we are in compliance with the 1940 Act asset coverage requirements (after giving effect to any exemptive relief granted to us by theSEC ). The Credit Facility also includes certain covenants, including without limitation, a covenant requiring 150% asset coverage in accordance with the 1940 Act, and the Note Purchase Agreement governing the 2025 Notes contains certain covenants, including without limitation, a minimum asset coverage ratio of 150%, a minimum interest coverage ratio of 125%, and a minimum stockholders' equity threshold. Moreover, the fixed rate of the 2025 Notes is subject to a 1.00% increase in the event that a Below Investment Grade Event (as defined in the Note Purchase Agreement) occurs, which risk is increased as a result of the impact of the COVID-19 pandemic. See "Note 6. Borrowings" in the notes to consolidated financial statements for more information regarding the terms of the Credit Facility, the 2022 Notes, and the 2025 Notes. As discussed below under "Results of Operations," our net asset value per share as ofJune 30, 2020 decreased as compared to our net asset value per share as ofDecember 31, 2019 , in part due to the aggregate unrealized depreciation of our investment portfolio caused by the immediate adverse economic effects of the COVID-19 pandemic and uncertainty regarding the extent and duration of its impact. Any significant increase in aggregate unrealized depreciation of our investment portfolio or further significant reductions in our net asset value as a result of the effects of the COVID-19 pandemic or otherwise increases the risk of failing to meet the 1940 Act asset coverage requirements and breaching covenants under the Credit Facility, under the indenture governing the 2022 Notes, and under the Note Purchase Agreement governing the 2025 Notes, or otherwise triggering an event of default under the relevant borrowing arrangement. Any such breach of covenant or event of default, if we are not able to obtain a waiver from the required lenders or debt holders, would have a material adverse effect on our business, liquidity, financial condition, results of operations and ability to pay distributions to our stockholders. See "Risk Factors" in this Quarterly Report on Form 10-Q and our Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2020 , as well as "Risk Factors" in Part I of our Annual Report on Form 10K for the year endedDecember 31, 2019 , for more information. As ofJune 30, 2020 , we were in compliance with the asset coverage requirements under the 1940 Act, and we were not in breach of any covenants under the Credit Facility, under the indenture governing the 2022 Notes, or under the Note Purchase Agreement governing the 2025 Notes. We do not expect to breach any of these covenants in the near term assuming that conditions do not materially deteriorate further or for a prolonged period of time. We will continue to monitor the rapidly evolving situation relating to the COVID-19 pandemic and related guidance fromU.S. and international authorities, including federal, state and local public health authorities. Given the dynamic nature of this situation and the fact that there may be developments outside of our control that require us or our portfolio companies to adjust plans of operation, we cannot reasonably estimate the full impact of COVID-19 on our financial condition, results of operations or cash flows in the future. However, it could have a material adverse impact for a prolonged period of time on our future net investment income, particularly with respect to our interest income, the fair value of our portfolio investments, and the results of operations and financial condition of us and our portfolio companies. See "Risk Factors" in this Quarterly Report on Form 10-Q for more information. Portfolio Composition, Investment Activity and Asset Quality Portfolio Composition We originate and invest primarily in venture growth stage companies. Companies at the venture growth stage have distinct characteristics differentiating them from venture capital-backed companies at other stages in their development lifecycle. We invest primarily in (i) growth capital loans that have a secured collateral position and that are generally used by venture growth stage companies to finance their continued expansion and growth, (ii) equipment financings, which may be structured as loans or leases, that have a secured collateral position on specified mission- 44 -------------------------------------------------------------------------------- critical equipment, (iii) on a select basis, revolving loans that have a secured collateral position and that are typically used by venture growth stage companies to advance against inventory, components, accounts receivable, contractual or future billings, bookings, revenues, sales or cash payments and collections including proceeds from a sale, financing or the equivalent and (iv) direct equity investments in venture growth stage companies. In connection with our growth capital loans, equipment financings and revolving loans, we generally receive warrant investments that allow us to participate in any equity appreciation of our borrowers and enhance our overall investment returns. As ofJune 30, 2020 , we had 206 investments in 69 companies. Our investments included 114 debt investments, 69 warrant investments, and 23 direct equity and related investments. As ofJune 30, 2020 , the aggregate cost and fair value of these investments were$708.5 million and$692.9 million , respectively. As ofJune 30, 2020 , three of our portfolio companies were publicly traded. As ofJune 30, 2020 , the 114 debt investments had an aggregate fair value of$652.5 million and a weighted average loan to enterprise value ratio at the time of underwriting of 9.3%. Enterprise value of a portfolio company is estimated based on information available, including any information regarding the most recent rounds of equity funding, at the time of origination. As ofDecember 31, 2019 , we had 187 investments in 68 companies. Our investments included 102 debt investments, 64 warrant investments, and 21 direct equity and related investments. As ofDecember 31, 2019 , the aggregate cost and fair value of these investments were$660.7 million and$653.1 million , respectively. As ofDecember 31, 2019 , two of our portfolio companies were publicly traded. As ofDecember 31, 2019 , the 102 debt investments had an aggregate fair value of$604.5 million and a weighted average loan to enterprise value ratio at the time of underwriting of 9.3%. Enterprise value of a portfolio company is estimated based on information available, including any information regarding the most recent rounds of equity funding, at the time of origination. The following tables show information on the cost and fair value of our investments in companies along with the number of companies in our portfolio as ofJune 30, 2020 andDecember 31, 2019 : June 30, 2020 Investments by Type Net Unrealized Number of Number of (dollars in thousands) Cost Fair Value Gains (losses) Investments Companies Debt investments$ 676,950 $ 652,533 $ (24,417 ) 114 37 Warrant investments 18,993 20,996$ 2,003 69 61 Equity investments 12,597 19,324$ 6,727 23 21 Total Investments in Portfolio Companies$ 708,540 $ 692,853 $ (15,687 ) 206 69 (1) _______________
(1)Represents non-duplicative number of companies.
December 31, 2019 Investments by Type Net Unrealized Number of Number of (dollars in thousands) Cost Fair Value Gains (losses) Investments Companies Debt investments$ 630,724 $ 604,518 $ (26,206 ) 102 38 Warrant investments 18,150 22,090$ 3,940 64 58 Equity investments 11,801 26,521$ 14,720 21 20 Total Investments in Portfolio Companies$ 660,675 $ 653,129 $ (7,546 ) 187 68 (1) _______________
(1)Represents non-duplicative number of companies.
45 -------------------------------------------------------------------------------- The following tables show the fair value of the portfolio of investments, by industry and the percentage of the total investment portfolio, as ofJune 30, 2020 andDecember 31, 2019 :June 30, 2020 Investments in Portfolio Companies by Industry Percentage of Total (dollars in thousands)? At Fair Value
Investments
Business Applications Software$ 89,870 13.0 % Financial Institution and Services 50,046 7.2 E-Commerce - Clothing and Accessories 41,491 6.0 Network Systems Management Software 40,820 5.9 Security Services 35,853 5.2 Consumer Products and Services 35,828 5.2 E-Commerce - Personal Goods 32,786 4.7 Entertainment 30,328 4.4 Household & Office Goods 30,228 4.4 Social/Platform Software 30,069 4.3 Real Estate Services 30,024 4.3 Travel & Leisure 29,853 4.3 Business to Business Marketplace 29,548 4.3 Buildings and Property 29,530 4.3 Shopping Facilitators 25,743 3.7 Healthcare Technology Systems 22,077 3.2 Other Financial Services 19,832 2.9 Food & Drug 16,138 2.3 Database Software 14,764 2.1 Consumer Retail 11,401 1.6 Consumer Non-Durables 10,652 1.5 Commercial Services 10,086 1.5 Human Resources/Recruitment 9,944 1.4 Multimedia and Design Software 9,812 1.4 Communications Software 2,000 0.3 Restaurant / Food Service 1,500 0.2 General Media and Content 1,160 0.2 Building Materials/Construction Machinery 591 0.1 Educational/Training Software 441 0.1 Transportation 221 * Conferencing Equipment / Services 205 * Advertising / Marketing 12 * Medical Software and Information Services - - % Total portfolio company investments$ 692,853 100.0 %
_______________
* Amount represents less than 0.05% of the total portfolio investments.
46 --------------------------------------------------------------------------------December 31, 2019 Investments in Portfolio Companies by Industry Percentage of Total (dollars in thousands)? At Fair Value
Investments
Business Applications Software $ 74,937 11.5 % Consumer Products and Services 50,664 7.8 Financial Institution and Services 47,042 7.2 Security Services 45,252 6.9 E-Commerce - Clothing and Accessories 42,539 6.5 Business to Business Marketplace 38,504 5.9 Entertainment 34,346 5.3 Network Systems Management Software 34,188 5.2 Household & Office Goods 32,298 4.9 Buildings and Property 30,459 4.7 Social / Platform Software 30,248 4.6 Real Estate Services 23,076 3.5 Healthcare Technology Systems 21,410 3.3 Other Financial Services 20,344 3.1 Travel & Leisure 20,311 3.1 Shopping Facilitators 15,745 2.4 E-Commerce - Personal Goods 15,300 2.3 Database Software 14,891 2.3 Food & Drug 12,687 1.9 Consumer Non-Durables 10,626 1.6 Consumer Retail 10,158 1.6 Commercial Services 9,998 1.5 Human Resources/Recruitment 9,975 1.5 Communications Software 2,000 0.3 Biofuels / Biomass 1,797 0.3 Restaurant / Food Service 1,593 0.2 General Media and Content 1,073 0.2 Building Materials / Construction Machinery 500 0.1 Educational / Training Software 434 0.1 Conferencing Equipment / Services 205 * Transportation 193 * Wireless Communications Equipment 188 * Advertising / Marketing 148 * Medical Software and Information Services - - Total portfolio company investments$ 653,129 100.0 %
_______________
* Amount represents less than 0.05% of the total portfolio investments.
The following table shows the financing product type of our debt investments as
of
June 30, 2020 December 31, 2019 Percentage of Percentage of Debt Investments By Financing Product Total Debt Total Debt (dollars in thousands) Fair Value Investments Fair Value Investments Growth capital loans$ 645,955 99.0 %$ 599,030 99.1 % Revolver loans 6,578 1.0 5,488 0.9 Total debt investments$ 652,533 100.0 %$ 604,518 100.0 % Investment Activity During the three months endedJune 30, 2020 , we entered into debt commitments with two new portfolio companies and two existing portfolio companies totaling$13.9 million , funded 10 debt investments for$20.5 million in principal value, acquired warrant investments representing$0.2 million of value and made equity investments of$0.1 million . During the three months endedJune 30, 2019 , we entered into 47 -------------------------------------------------------------------------------- debt commitments with five new portfolio companies and four existing portfolio companies totaling$98.4 million , funded 17 debt investments for$72.5 million in principal value, acquired warrant investments representing$0.7 million of value and made equity investments of$1.7 million . During the six months endedJune 30, 2020 , we entered into debt commitments with four new portfolio companies and six existing portfolio companies totaling$116.5 million , funded 27 debt investments for$99.3 million in principal value, acquired warrant investments representing$1.2 million of value and made equity investments of$1.5 million . During the six months endedJune 30, 2019 , we entered into debt commitments with 10 new portfolio companies and eight existing portfolio companies totaling$289.3 million , funded 30 debt investments for$162.1 million in principal value, acquired warrant investments representing$2.5 million of value and made equity investments of$2.2 million . The following table shows the total portfolio investment activity for the three and six months endedJune 30, 2020 and 2019: For the Three Months Ended June 30, For the Six Months Ended June 30, (in thousands) 2020 2019 2020 2019
Beginning portfolio at fair value
20,126 71,082 97,151 158,721 Scheduled principal amortization (12,134 ) (8,367 ) (17,947 ) (21,327 ) Principal prepayments and early repayments (25,105 ) (42,551 ) (26,105 ) (100,104 ) Accretion of debt investment fees 4,266 1,741 8,048 4,976 Payment-in-kind coupon 2,764 291 3,616 1,062 New warrant investments 153 710 1,227 2,524 New equity investments 125 1,662 1,545 2,162 Proceeds and dispositions of investments (20,658 ) 20 (20,658 ) (302 ) Net realized gains (losses) 1,277 (17 ) 988 (46 ) Net unrealized gains (losses) on investments 8,884 13,755 (8,141 ) 14,938
Ending portfolio at fair value
_______________
(1)Debt balance is net of fees and discounts applied to the loan at origination. As ofJune 30, 2020 , our unfunded commitments to 14 companies totaled$180.4 million . During the three and six months endedJune 30, 2020 ,$14.0 million and$69.3 million , respectively, in unfunded commitments expired or were terminated. As ofDecember 31, 2019 , our unfunded commitments to 16 companies totaled$226.1 million . During the year endedDecember 31, 2019 ,$167.1 million in unfunded commitments expired or were terminated. The following table shows additional information on our unfunded commitments regarding milestones, expirations, and types of loans as ofJune 30, 2020 andDecember 31, 2019 : Unfunded Commitments(1) (in thousands) June 30, 2020 December 31, 2019 Dependent on milestones$ 33,333 $ 59,333 Expiring during: 2020 151,333 188,083 2021 29,034 38,000 Total$ 180,367 $ 226,083 _______________ (1)Does not include backlog of potential future commitments. Our credit agreements contain customary lending provisions that allow us relief from funding obligations for previously made commitments in instances where the underlying company experiences material adverse events that affect the financial condition or business outlook for the company. Since these commitments may expire without being drawn upon, unfunded commitments do not necessarily represent future cash requirements or future earning assets for us. We generally expect 50% - 75% of our gross unfunded commitments to eventually be drawn before the expiration of their corresponding availability periods. The fair value at the inception of the delay draw credit agreements with our portfolio companies 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 reflects the fair value of these future funding commitments. As ofJune 30, 2020 andDecember 31, 2019 , the fair value for these unfunded commitments totaled$1.6 million and$2.2 million , respectively, and was included in "other accrued expenses and liabilities" in our consolidated statements of assets and liabilities. Our level of investment activity can vary substantially from period to period as our Adviser chooses to slow or accelerate new business originations depending on market conditions, rate of investment of TPC's select group of leading venture capital investors, our Adviser's knowledge, expertise and experience, our funding capacity (including availability under the Credit Facility and our ability or inability to raise equity or debt capital), and other market dynamics. 48 -------------------------------------------------------------------------------- The following table shows the debt commitments, fundings of debt investments (principal balance) and equity investments and non-binding term sheet activity for the three and six months endedJune 30, 2020 and 2019: For the Three Months Ended For the Six Months Ended Commitments and Fundings June 30, June 30, (in thousands) 2020 2019 2020 2019 Debt Commitments New portfolio companies$ 10,000 $ 62,000 $ 75,000 $ 192,000 Existing portfolio companies 3,915 36,363 41,488 97,323 Total(1)$ 13,915 $ 98,363 $ 116,488 $ 289,323 Funded Debt Investments$ 20,507 $ 72,538 $ 99,267 $ 162,055 Equity Investments$ 125 $ 1,662 $ 1,545 $ 2,162 Non-Binding Term Sheets$ 92,890 $ 203,638 $ 172,421 $ 453,661 _______________ (1)Includes backlog of potential future commitments. We may enter into commitments with certain portfolio companies that permit an increase in the commitment amount in the future in the event that conditions to such increases are met ("backlog of potential future commitments"). If such conditions to increase are met, these amounts may become unfunded commitments if not drawn prior to expiration. As ofJune 30, 2020 andDecember 31, 2019 , this backlog of potential future commitments totaled$9.1 million and$15.5 million , respectively. Asset Quality Consistent with TPC's existing policies, our Adviser maintains a credit watch list which places borrowers into five risk categories based on our Adviser's senior investment team's judgment, where 1 is the highest rating and all new loans are generally assigned a rating of 2. Category Category Definition Action Item Clear (1) Performing above expectations Review quarterly. and/or strong financial or enterprise profile, value or coverage. White (2) Performing at expectations and/or Contact portfolio company reasonably close to it. Reasonable periodically in no event less than financial or enterprise profile, quarterly. value or coverage. Generally, all new loans are initially graded White. Yellow (3) Performing generally below Contact portfolio company monthly expectations and/or some proactive or more frequently as determined concern. Adequate financial or by our Adviser's Investment enterprise profile, value or Committee; contact
venture capital
coverage. investors. Orange (4) Needs close attention due to Contact portfolio company weekly performance materially below or more frequently as determined expectations, weak financial by our Adviser's Investment and/or enterprise profile, concern Committee; contact
venture capital
regarding additional capital or investors regularly; our Adviser exit equivalent. forms a workout group to minimize risk of loss. Red (5) Serious concern/trouble due to Maximize value from assets. pending or actual default or equivalent. May experience partial and/or full loss. The following table shows the credit rankings for the portfolio companies that had outstanding debt obligations to us as ofJune 30, 2020 andDecember 31, 2019 : June 30, 2020 December 31, 2019 Percentage of Number of Percentage of Number of Credit Category Total Debt Portfolio Total Debt Portfolio (dollars in thousands) Fair Value Investments Companies Fair Value Investments Companies Clear (1)$ 116,596 17.9 % 7$ 121,866 20.2 % 8 White (2) 415,232 63.6 24 425,016 70.3 23 Yellow (3) 104,205 16.0 4 31,103 5.1 3 Orange (4) 15,000 2.3 1 22,956 3.8 1 Red (5) 1,500 0.2 1 3,577 0.6 3$ 652,533 100.0 % 37$ 604,518 100.0 % 38 As ofJune 30, 2020 andDecember 31, 2019 , the weighted average investment ranking of our debt investment portfolio was 2.03 and 1.94, respectively. During the three months endedJune 30, 2020 , portfolio company credit category changes, excluding fundings and repayments, consisted of the following: one portfolio company with an aggregate principal balance of$15.0 million was upgraded from White (2) to Clear (1); one portfolio company with an aggregate principal balance of$10.0 million was upgraded from Yellow (3) to White (2); one portfolio company with an aggregate principal balance of$21.6 million was downgraded from White (2) to Yellow (3); and two portfolio companies with an aggregate principal balance of$17.0 million were removed from Red (5) as a result of the finalization of asset sales. 49 -------------------------------------------------------------------------------- Results of Operations Comparison of operating results for the three and six months endedJune 30, 2020 and 2019 An important measure of our financial performance is net increase (decrease) in net assets resulting from operations, which includes net investment income (loss), net realized gains (losses) and net unrealized gains (losses). Net investment income (loss) is the difference between our income from interest, dividends, fees and other investment income and our operating expenses including interest on borrowed funds. Net realized gains (losses) on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost. Net unrealized gains (losses) on investments is the net change in the fair value of our investment portfolio. For the three months endedJune 30, 2020 , our net increase in net assets resulting from operations was$21.2 million , which was comprised of$11.5 million of net investment income and$9.7 million of net realized and unrealized gains. For the three months endedJune 30, 2019 , our net increase in net assets resulting from operations was$23.9 million , which was comprised of$10.1 million of net investment income and$13.7 million of net realized and unrealized gains. On a per share basis for the three months endedJune 30, 2020 , net investment income was$0.38 per share and the net increase in net assets from operations was$0.69 per share, as compared to net investment income of$0.41 per share and a net increase in net assets from operations of$0.96 per share for the three months endedJune 30, 2019 . For the six months endedJune 30, 2020 , our net increase in net assets resulting from operations was$16.1 million , which was comprised of$23.8 million of net investment income and$7.7 million of net realized and unrealized losses. For the six months endedJune 30, 2019 , our net increase in net assets resulting from operations was$34.9 million , which was comprised of$20.0 million of net investment income and$14.9 million of net realized and unrealized gains. On a per share basis for the six months endedJune 30, 2020 , net investment income was$0.78 per share and the net increase in net assets from operations was$0.53 per share, as compared to net investment income of$0.81 per share and a net increase in net assets from operations of$1.41 per share for the six months endedJune 30, 2019 . Investment Income Total investment and other income for the three months endedJune 30, 2020 was$23.8 million as compared to$18.9 million for the three months endedJune 30, 2019 . The increase in total investment and other income for the three months endedJune 30, 2020 , compared to the comparable period of 2019, is primarily due to higher weighted average principal outstanding on our income-bearing debt investment portfolio, partially offset by a lower effective yield due to lower prepayment activity and a decrease in the Prime Rate. Total investment income for the six months endedJune 30, 2020 was$44.6 million as compared to$36.4 million for the six months endedJune 30, 2019 . The increase in total investment income for the six months endedJune 30, 2020 , compared to the comparable period of 2019, is primarily due to higher weighted average principal outstanding on our income-bearing debt investment portfolio, partially offset by a lower effective yield due to lower prepayment activity and a decrease in the Prime Rate. For the three months endedJune 30, 2020 , we recognized$0.5 million in other income, consisting of$0.1 million due to the termination or expiration of unfunded commitments and$0.4 million from the realization of certain fees paid by portfolio companies and other income related to prepayment activity. For the three months endedJune 30, 2019 , we recognized$1.0 million in other income, primarily consisting of$0.9 million from amortization of certain fees paid by portfolio companies and other income. For the six months endedJune 30, 2020 , we recognized$1.1 million in other income, consisting of$0.7 million due to the termination or expiration of unfunded commitments and$0.4 million from the realization of certain fees paid by portfolio companies and other income related to prepayment activity. For the six months endedJune 30, 2019 , we recognized$1.4 million in other income, consisting of$0.3 million from the termination or expiration of unfunded commitments and$1.1 million from amortization of certain fees paid by portfolio companies and other income. Operating Expenses Total operating expenses consist of base management fee, income incentive fee, capital gains incentive fee, interest expense and amortization of fees, administration agreement expenses, and general and administrative expenses. In determining the base management fee, our Adviser has agreed to excludeU.S. Treasury bill assets acquired at the end of each applicable quarter from the calculation of the gross assets. We anticipate operating expenses will increase over time as our portfolio continues to grow. However, we anticipate operating expenses, as a percentage of totals assets and net assets, will generally decrease over time as our portfolio and capital base expand. We expect base management and income incentive fees will increase as we grow our asset base and our earnings. The capital gains incentive fee will depend on realized and unrealized gains and losses. Interest expenses will generally increase as we utilize more of the Credit Facility and issue additional debt securities, and we generally expect expenses under the administration agreement and general and administrative expenses to increase over time to meet the additional requirements associated with servicing a larger portfolio. Total operating expenses for the three months endedJune 30, 2020 were$12.3 million as compared to$8.8 million for the three months endedJune 30, 2019 . Total operating expenses for the six months endedJune 30, 2020 were$20.9 million as compared to$16.4 million for the six months endedJune 30, 2019 . Base management fees totaled$3.2 million and$2.1 million for the three months endedJune 30, 2020 and 2019, respectively, and$6.0 million and$3.8 million for the six months endedJune 30, 2020 and 2019, respectively. Base management fees for the three and six months endedJune 30, 2020 , as compared to the three and six months endedJune 30, 2019 , increased primarily due to an increase in the average size of our portfolio between periods. 50 -------------------------------------------------------------------------------- Income incentive fees totaled$2.9 million and$2.5 million for the three months endedJune 30, 2020 and 2019, respectively, and$2.9 million and$5.0 million for the six months endedJune 30, 2020 and 2019, respectively. For the six months endedJune 30, 2020 , our income incentive fee was reduced by$2.4 million due to the total return requirement under the income component of our incentive fee structure, which resulted in a corresponding increase of$2.4 million in net investment income. There was no capital gains incentive fee expense calculated for the three and six months endedJune 30, 2020 and 2019. Interest expense and fees on our borrowings for the three months endedJune 30, 2020 and 2019 totaled$4.3 million and$3.0 million , respectively, and$8.5 million and$5.2 million for the six months endedJune 30, 2020 and 2019, respectively. Interest expense and fees for the three months endedJune 30, 2020 , as compared to the three months endedJune 30, 2019 increased due to a higher weighted average outstanding principal balance on borrowings, as well as the issuance of the 2025 Notes, offset by a decrease in interest rates. Interest expense and fees for the six months endedJune 30, 2020 , as compared to the six months endedJune 30, 2019 increased due to a higher weighted average outstanding principal balance on borrowings, as well as the issuance of the 2025 Notes, offset by a decrease in interest rates. Administration agreement and general and administrative expenses totaled$1.8 million and$1.2 million for the three months endedJune 30, 2020 and 2019, respectively, and$3.5 million and$2.3 million for the six months endedJune 30, 2020 and 2019, respectively. The increase for the three and six months endedJune 30, 2020 , as compared to the three and six months endedJune 30, 2019 , was primarily due to higher overhead allocation between periods and increased use of professional services. Net Realized Gains and Losses and Net Unrealized Gains and Losses Realized gains and losses are included in net realized gains (losses) on investments in the consolidated statements of operations. During the three months endedJune 30, 2020 , we recognized net realized gains on investments of$0.8 million , consisting of$19.4 million of realized gains from the sale of publicly traded shares held inCrowdStrike, Inc. offset by$18.0 of realized losses from the finalization of asset sales and removal of two obligors,Cambridge Broadband Network Limited andHarvest Power, Inc. , rated Red (5) on our credit watch list, and$0.6 million of other net realized losses. During the three months endedJune 30, 2019 , we recognized net realized losses on investments of approximately$17,000 , as a result of changes in foreign currency between the time of investment and liquidation. During the six months endedJune 30, 2020 , we recognized net realized gains on investments of$0.5 million , consisting of$19.4 million of realized gains from the sale of publicly traded shares held inCrowdStrike, Inc. offset by$18.0 of realized losses from the finalization of asset sales and removal of two obligors,Cambridge Broadband Network Limited andHarvest Power, Inc. , rated Red (5) on our credit watch list, and$0.9 million of other net realized losses. During the six months endedJune 30, 2019 , we recognized net realized losses on investments of approximately$46,000 , as a result of changes in foreign currency between the time of investment and liquidation. Unrealized gains and losses are included in net change in unrealized gains (losses) on investments in the consolidated statements of operations. Net change in unrealized gains during the three months endedJune 30, 2020 was$8.9 million , resulting from the reversal of$18.0 million of previously recorded unrealized losses from the finalization of asset sales and removal of two obligors rated Red (5) on our credit watch list and by$2.5 million of net unrealized gains from mark-to-market related changes and credit-related adjustments, partially offset by the reversal of$11.6 million of previously recorded unrealized gains associated with the shares ofCrowdStrike, Inc. sold during the quarter. Net change in unrealized gains during the three months endedJune 30, 2019 was$13.8 million , which primarily consisted of net unrealized gains of$14.0 million on the investment portfolio related to mark to market activity attributed to one portfolio company, following its initial public offering, offset by net unrealized losses of$0.3 million as a result of changes in funds held in foreign currency for investment and a decline in the price of our equity in one portfolio company. Net change in unrealized losses during the six months endedJune 30, 2020 was$8.1 million , resulting primarily from valuation adjustments related to market yields and credit-related adjustments, the reversal of$11.6 million of previously recorded unrealized gains associated with the shares of CrowdStrike, Inc. sold during the quarter, partially offset by the reversal of$18.0 million of previously recorded unrealized losses from the finalization of asset sales and removal of two obligors rated Red (5) on our credit watch list. Net change in unrealized gains during the six months endedJune 30, 2019 was$14.9 million , which consisted of$17.1 million of net unrealized gains on the investment portfolio related to valuation adjustments primarily from our investment in one portfolio company following its initial public offering, as well as appreciation in our investment in another publicly traded portfolio company, offset by the reversal and recognition of previously recorded net unrealized gains of$1.9 million into income or realized gains due to the disposition of five portfolio companies and net unrealized losses of$0.3 million as a result of changes in funds held in foreign currency for investment. Net change in realized and unrealized gains or losses in subsequent periods may be volatile as it depends on changes in the market, changes in the underlying performance of our portfolio companies and their respective industries, and other market factors. Portfolio Yield and Total Return Investment income includes interest income on our debt investments utilizing the effective yield method including cash interest income as well as the amortization of any purchase premium, accretion of purchase discount, original issue discount, facilities fees, and the amortization and payment of the end-of-term ("EOT") payments. For the three and six months endedJune 30, 2020 , interest income totaled$23.3 million and$43.5 million , respectively, representing a weighted average annualized portfolio yield on total debt investments for the period held of 13.7% and 13.2%, respectively. For the three and six months endedJune 30, 2019 , interest income totaled$17.9 million , and$35.0 million , respectively, representing a weighted average annualized portfolio yield on total debt investments for the period held of 16.5% and 16.4%, respectively. 51 -------------------------------------------------------------------------------- We calculate weighted average annualized portfolio yields for periods shown as the annualized rates of the interest income recognized during the period divided by the average amortized cost of debt investments in the portfolio during the period. The weighted average yields reported for these periods are annualized and reflect the weighted average yields to maturities. Should the portfolio companies choose to repay their loans earlier, our weighted average yields will increase for those debt investments affected but may reduce our weighted average yields on the remaining portfolio in future quarters. The yield on our total debt portfolio, excluding the impact of prepayments, was 12.7% and 12.7%, respectively, for the three and six months endedJune 30, 2020 . The yield on our total debt portfolio, excluding the impact of prepayments, was 13.7% and 13.7%, respectively, for the three and six months endedJune 30, 2019 . The following table shows the weighted average annualized portfolio yield on our total debt portfolio comprising of cash interest income, accretion of the net purchase discount, facilities fees and the value of warrant investments received, accretion of EOT payments and the accelerated receipt of EOT payments on prepayments:
Returns on Net Asset Value and For the Three Months Ended
For the Six Months EndedJune 30 , Total Assets Portfolio Yield(1) 2020 2019 2020 2019 Weighted average annualized portfolio yield on total debt investments(2) 13.7 % 16.5 % 13.2 % 16.4 % Coupon income 10.1 % 10.6 % 10.0 % 10.6 % Accretion of discount 0.9 % 0.8 % 1.0 % 0.9 % Accretion of end-of-term payments 1.7 % 2.3 % 1.7 % 2.2 % Impact of prepayments during the period 1.0 % 2.8 % 0.5 % 2.7 % Prime Rate at end of period(3) 3.25 % 5.50 % 3.25 % 5.50 %
_______________
(1) The yields for periods shown are the annualized rates of interest income
or the components of interest income recognized during the period divided
by the average amortized cost of debt investments in the portfolio during
the period.
(2) The weighted average portfolio yields on total debt investments reflected
above do not represent actual investment returns to our stockholders.
(3) Included as a reference point for coupon income and weighted average portfolio yield. Our weighted average annualized portfolio yield on debt investments may be higher than an investor's yield on an investment in shares of our common stock. Our weighted average annualized portfolio yield on debt investments does not reflect operating expenses that may be incurred by us. In addition, our weighted average annualized portfolio yield on debt investments and total return figures disclosed in this Quarterly Report on Form 10-Q do not consider the effect of any sales commissions or charges that may be incurred in connection with the sale of shares of our common stock. Our weighted average annualized portfolio yield on debt investments and total return based on NAV do not represent actual investment returns to stockholders. Our weighted average annualized portfolio yield on debt investments and total return figures are subject to change and, in the future, may be greater or less than the rates in this Quarterly Report on Form 10-Q. Total return based on NAV is the change in ending NAV per share plus distributions per share paid during the period assuming participation in our dividend reinvestment plan divided by the beginning NAV per share for such period. Total return based on stock price is the change in the ending stock price of our common stock plus distributions paid during the period assuming participation in our dividend reinvestment plan divided by the beginning stock price of our common stock for such period. The total return is for the period shown and is not annualized. For the three and six months endedJune 30, 2020 , our total return per period based on the change in NAV plus distributions reinvested as of the distribution date per share was 6.3% and 8.9%, respectively, and our total return per period based on the change in stock price plus distributions reinvested as of the distribution date was 85.7% and (20.3)%, respectively. For the three and six months endedJune 30, 2019 , our total return per period based on the change in NAV plus distributions reinvested as of the distribution date per share was 10.2% and 10.9%, respectively, and our total return per period based on the change in stock price plus distributions reinvested as of the distribution date was 9.1% and 37.9%, respectively. 52 --------------------------------------------------------------------------------
The table below shows our return on average total assets and return on average
NAV for the three and six months ended
Returns on Net Asset Value and For the Three Months Ended June 30, For the Six Months Ended June 30, Total Assets (dollars in thousands) 2020 2019 2020 2019 Net investment income $ 11,536 $ 10,123 $ 23,773 $ 20,038 Net increase (decrease) in net assets $ 21,222 $ 23,861 $ 16,104 $ 34,930 Average net asset value(1)$ 402,488 $ 337,318 $ 403,421 $ 337,366 Average total assets(1)$ 766,742 $ 525,645 $ 745,565 $ 497,375 Net investment income to average net asset value(2) 11.5 % 12.0 % 11.9 % 12.0 % Net increase (decrease) in net assets to average net asset value(2) 21.2 % 28.4 % 8.0 % 20.9 % Net investment income to average total assets(2) 6.1 % 7.7 % 6.4 % 8.1 % Net increase (decrease) in net assets to average total assets(2) 11.1 % 18.2 % 4.3 % 14.2 %
_______________
(1) The average net asset values and the average total assets are computed
based on daily balances.
(2) Percentage is presented on an annualized basis.
Critical Accounting Policies The preparation of our financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. We consider valuation of investments, income recognition, realized / unrealized gains or losses andU.S. federal income taxes to be our critical accounting policies and estimates. These critical accounting policies and estimates, and any changes thereto, are discussed under "Note 2. Significant Accounting Policies" and "Note 4. Investments" in the notes to consolidated financial statements included in our Annual Report on Form 10-K filed with theSEC onMarch 4, 2020 and under "Note 4. Investments" in the notes to consolidated financial statements included in this Quarterly Report on Form 10-Q. Any changes to the policies are disclosed in the notes to the consolidated financial statements in this Quarterly Report on Form 10-Q. Liquidity and Capital Resources We believe that our current cash and cash equivalents on hand, our available borrowing capacity under the Credit Facility and our anticipated cash flows from operations, including from contractual monthly portfolio company payments and cash flows, prepayments, and the ability to liquidate publicly traded investments, will be adequate to meet our cash needs for our daily operations. In addition, we also currently have available up to$25.0 million in commitments from the Adviser under an unsecured revolving loan agreement (the "Adviser Revolver"), any advance under which must be approved by the Adviser in advance in its sole discretion. This "Liquidity and Capital Resources" section should be read in conjunction with "COVID-19 Developments" above and the disclosure referenced in "Risk Factors" below in this Quarterly Report on Form 10-Q. Cash Flows During the six months endedJune 30, 2020 , net cash used by operating activities, consisting primarily of purchases, sales and repayments of investments and the items described in "Results of Operations," was$25.1 million , and net cash provided by financing activities was$21.6 million due to net proceeds received from ourJanuary 2020 public follow-on offering of common stock and the issuance of the 2025 Notes inMarch 2020 , partially offset by net repayments under the Credit Facility of$104.3 million and$21.3 million in distributions paid. As ofJune 30, 2020 , cash, including restricted cash, was$23.0 million . During the six months endedJune 30, 2019 , net cash used in operating activities, consisting primarily of purchases, sales and repayments of investments and the items described in "Results of Operations," was$30.4 million , and net cash provided by financing activities was$44.8 million due to borrowings under the Credit Facility of$62.8 million , offset by$16.8 million in distributions paid and costs incurred in connection with the amendment and renewal of the Credit Facility inMay 2019 , which are deferred and expensed over the term of the Credit Facility. As ofJune 30, 2019 , cash, including restricted cash, was$24.4 million . Capital Resources and Borrowings As a BDC, we generally have an ongoing need to raise additional capital for investment purposes. As a result, we expect, from time to time, to access the debt and equity markets when we believe it is necessary and appropriate to do so. In this regard, we continue to explore various options for obtaining additional debt or equity capital for investments. This may include expanding or extending the Credit Facility or the issuance of additional shares of our common stock or debt securities. If we are unable to obtain leverage or raise equity capital on terms that are acceptable to us, our ability to grow our portfolio could be substantially impacted. 53 -------------------------------------------------------------------------------- Credit Facility We have$300 million in total commitments available under the Credit Facility, subject to various covenants and borrowing base requirements. The Credit Facility also includes an accordion feature, which allows us to increase the size of the Credit Facility to up to$400 million . The revolving period under the Credit Facility expires onMay 31, 2021 and the maturity date of the Credit Facility isNovember 30, 2022 . Borrowings under the Credit Facility bear interest at the sum of (i) a floating rate based on certain indices, including LIBOR and commercial paper rates, plus (ii) a margin of 2.80% if facility utilization is greater than or equal to 75%, 2.90% if utilization is greater than or equal to 50%, 3.00% if utilization is less than 50% and 4.5% during the amortization period. See "Note 6. Borrowings" in the notes to consolidated financial statements for more information regarding the terms of the Credit Facility. As ofJune 30, 2020 andDecember 31, 2019 , we had outstanding borrowings of$158.0 million and$262.3 million , respectively, under the Credit Facility, excluding deferred credit facility costs of$1.0 million and$1.6 million , respectively, which is included in the consolidated statements of assets and liabilities. We had$142.0 million and$37.7 million of remaining capacity on our Credit Facility as ofJune 30, 2020 andDecember 31, 2019 , respectively. 2022 Notes OnJuly 14, 2017 , we completed a public offering of$65.0 million in aggregate principal amount of the 2022 Notes and received net proceeds of$62.8 million , after the payment of fees and offering costs. OnJuly 24, 2017 , as a result of the underwriters' full exercise of their option to purchase additional 2022 Notes, we issued an additional$9.75 million in aggregate principal amount of the 2022 Notes and received net proceeds of$9.5 million , after the payment of fees and offering costs. The interest on the 2022 Notes, which accrues at an annual rate of 5.75%, is payable quarterly onJanuary 15 ,April 15 ,July 15 andOctober 15 . The maturity date of the 2022 Notes isJuly 15, 2022 . As ofJune 30, 2020 andDecember 31, 2019 , we have recorded in the consolidated statements of assets and liabilities our liability for the 2022 Notes, net of deferred issuance costs, of$73.7 million and$73.5 million , respectively. See "Note 6. Borrowings" in the notes to consolidated financial statements for more information regarding the 2022 Notes. 2025 Notes OnMarch 19, 2020 , we completed a private offering of$70.0 million in aggregate principal amount of the 2025 Notes and received net proceeds of$69.1 million , after the payment of fees and offering costs. The interest on the 2025 Notes, which accrues at an annual rate of 4.50%, is payable semiannually onMarch 19 andSeptember 19 each year, beginning onSeptember 19, 2020 . The maturity date of the 2025 Notes isMarch 19, 2025 . As ofJune 30, 2020 , we have recorded in the consolidated statements of assets and liabilities our liability for the 2025 Notes, net of deferred issuance costs, of$69.0 million . See "Note 6. Borrowings" in the notes to consolidated financial statements for more information regarding the 2025 Notes. Adviser Revolver OnMay 6, 2020 , we entered into the Adviser Revolver with the Adviser, which has a maximum credit limit of$50.0 million , with$25.0 million currently available and an accordion feature for an additional$25.0 million in commitments from the Adviser. Any advance of funds under the Adviser Revolver, and any exercise of the accordion feature, must be approved by the Adviser in advance in its sole discretion. The Adviser Revolver expires onDecember 31, 2020 , and borrowings thereunder bear an annual interest rate of 6.0%, payable quarterly. Any of our obligations under the Adviser Revolver are unsecured and are expressly subordinated and junior in right of payment to all of our other indebtedness for borrowed funds. As ofJune 30, 2020 , we had no outstanding borrowings under the Adviser Revolver. Asset Coverage Requirements OnJune 21, 2018 , our stockholders voted at a special meeting of stockholders to approve a proposal to authorize us to be subject to a reduced asset coverage ratio of at least 150% under the 1940 Act. As a result of the stockholder approval at the special meeting, effectiveJune 22, 2018 , our applicable minimum asset coverage ratio under the 1940 Act has been decreased to 150% from 200%. Thus, we are permitted under the 1940 Act, under specified conditions, to issue multiple classes of debt and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 150% immediately after each such issuance. As ofJune 30, 2020 , our asset coverage for borrowed amounts was 234%. Contractual Obligations The following table shows a summary of our payment obligations for repayment of debt as ofJune 30, 2020 : June 30, 2020 Payments Due By Period Less than 1 (in thousands) Total year 1-3 years 3-5 years More than 5 years Credit Facility$ 158,000 $ -$ 158,000 $ - $ - 2022 Notes 74,750 - 74,750 - - 2025 Notes 70,000 - - 70,000 - Total$ 302,750 $ -$ 232,750 $ 70,000 $ - 54
-------------------------------------------------------------------------------- Off-Balance Sheet Arrangements Commitments We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. As ofJune 30, 2020 andDecember 31, 2019 , our unfunded commitments totaled$180.4 million to 14 portfolio companies and$226.1 million to 16 portfolio companies, respectively, of which$33.3 million and$59.3 million , respectively, was dependent upon the portfolio companies reaching certain milestones before the debt commitment becomes available to them. Our credit agreements contain customary lending provisions that allow us relief from funding obligations for previously made commitments in instances where the underlying portfolio company experiences material adverse events that affect the financial condition or business outlook for the portfolio company. The following table shows our unfunded commitments by portfolio company as ofJune 30, 2020 and 2019: Unfunded Commitments(1) (in thousands) June 30, 2020 December 31, 2019 BlueVine Capital, Inc.$ 30,000 $ 30,000 Capsule Corp. 30,000 10,000 Cohesity, Inc. 30,000 - Hims, Inc. 25,000 25,000 Freshly Inc. 15,000 18,000 OfferUp Inc. 10,000 20,000 Transfix, Inc. 10,000 10,000 Curology, Inc. 9,000 15,000 Grove Collaborative, Inc. 5,333 21,750 Pencil and Pixel, Inc. 5,000 - Signifyd, Inc. 4,000 10,000 Farmer's Business Network, Inc. 3,034 - Sonder USA, Inc. 3,000 8,333 Mind Candy Limited 1,000 - Toast, Inc. - 35,000 Moda Operandi, Inc. - 10,000 Nurx Inc. - 5,000 OneSource Virtual, Inc. - 5,000 Brooklinen, Inc. - 3,000 Total$ 180,367 $ 226,083 _____________
(1) Does not include backlog of potential future commitments. Refer to
"Investment Activity" above.
Distributions
We have elected to be treated, and intend to qualify annually, as a RIC under the Code. To obtain and maintain RIC tax treatment, we must distribute at least 90% of our net ordinary income and net realized short-term capital gains in excess of our net realized long-term capital losses, if any, to our stockholders. In order to avoid a non-deductible 4%U.S. federal excise tax on certain of our undistributed income, we would need to distribute during each calendar year an amount at least equal to the sum of: (a) 98% of our ordinary income (not taking into account any capital gains or losses) for such calendar year; (b) 98.2% of the amount by which our capital gains exceed our capital losses (adjusted for certain ordinary losses) for a one-year period ending onOctober 31 of the calendar year (unless an election is made by us to use our taxable year); and (c) certain undistributed amounts from previous years on which we paid noU.S. federal income tax. For the tax years endedDecember 31, 2019 and 2018, we were subject to a 4%U.S. federal excise tax and we may be subject to this tax in future years. In such cases, we will be liable for the tax only on the amount by which we do not meet the foregoing distribution requirement. To the extent our taxable earnings fall below the total amount of our distributions for the year, a portion of those distributions may be deemed a return of capital to our stockholders. Our Adviser monitors available taxable earnings, including net investment income and realized capital gains, to determine if a return of capital may occur for the year. The tax character of distributions will be determined at the end of the taxable year. Stockholders should read any written disclosure accompanying a dividend payment carefully and should not assume that the source of any distribution is our taxable ordinary income or capital gains. The specific tax characteristics of our distributions will be reported to stockholders after the end of the taxable year. The following table shows our cash distributions per share that have been authorized by our Board since our initial public offering toJune 30, 2020 . FromMarch 5, 2014 (commencement of operations) toDecember 31, 2015 , and during the years endedDecember 31, 2017 andDecember 31, 2018 , distributions represent ordinary income as our earnings exceeded distributions. Approximately$0.24 per share of the distributions during the year endedDecember 31, 2016 represented a return of capital. During the year endedDecember 31, 2019 , distributions represent ordinary income and long term capital gains. Depending on the duration of the COVID-19 pandemic and the extent of its impact on our portfolio companies' operations and our net investment income, any future distributions to our stockholders may be for amounts less than our 55 -------------------------------------------------------------------------------- historical distributions, may be made less frequently than historical practices, and may be made in part cash and part stock (as per each stockholder's election), subject to a limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 10% of the aggregate declared distribution for distributions declared on or beforeDecember 31, 2020 , and at least 20% of the aggregate declared distribution for distributions declared on or afterJanuary 1, 2021 . Period Ended Date Announced Record Date Payment Date Per Share Amount March 31, 2014 April 3, 2014 April 15, 2014 April 30, 2014 $ 0.09 (1)
0.30 September 30, 2014 August 11, 2014 August 29, 2014 September 16, 2014 0.32 December 31, 2014 October 27, 2014 November 28, 2014 December 16, 2014 0.36 December 31, 2014 December 3, 2014 December 22, 2014 December 31, 2014 0.15 (2)
0.36
0.36 September 30, 2015 August 11, 2015 August 31, 2015 September 16, 2015 0.36 December 31, 2015 November 10, 2015 November 30, 2015 December 16, 2015 0.36
0.36
0.36 September 30, 2016 August 8, 2016 August 31, 2016 September 16, 2016 0.36 December 31, 2016 November 7, 2016 November 30, 2016 December 16, 2016 0.36
0.36
0.36 September 30, 2017 August 8, 2017 August 31, 2017 September 15, 2017 0.36 December 31, 2017 November 6, 2017 November 17, 2017 December 1, 2017 0.36
0.36
0.36 September 30, 2018 August 1, 2018 August 31, 2018 September 14, 2018 0.36 December 31, 2018 October 31, 2018 November 30, 2018 December 14, 2018 0.36 December 31, 2018 December 6, 2018 December 20, 2018 December 28, 2018 0.10 (2)
0.36
0.36 September 30, 2019 July 31, 2019 August 30, 2019 September 16, 2019 0.36 December 31, 2019 October 30, 2019 November 29, 2019 December 16, 2019 0.36
0.36
0.36 Total cash distributions $ 9.24 _____________
(1) The amount of this initial distribution reflected a quarterly distribution
rate of
pricing of our initial public offering on
operations), through
(2) Represents a special distribution.
For the three and six months endedJune 30, 2020 and for the year endedDecember 31, 2019 , distributions paid were comprised of interest-sourced distributions (qualified interest income) in amounts equal to 100.0%, 100.0% and 98.8% of total distributions paid, respectively. As ofJune 30, 2020 , we had estimated Spillover Income of$8.9 million , or$0.29 per share. Recent Accounting Pronouncements InAugust 2018 , the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to Disclosure Requirements for Fair Value Measurement", which is intended to improve the effectiveness of fair value measurement disclosures. The amendment, among other things, affects certain disclosure requirements related to transfers between Level 1 and Level 2 of the fair value hierarchy, and Level 3 fair value measurements as they relate to valuation process, unrealized gains and losses, measurement uncertainty, and significant unobservable inputs. The new guidance is effective for interim and annual periods beginning afterDecember 15, 2019 . Early adoption is permitted for any interim or annual period. The adoption of these rules did not have a material impact on the consolidated financial statements and disclosures. InAugust 2018 , theSEC adopted rules (the "SEC Release") amending certain disclosure requirements intended to eliminate redundant, duplicative, overlapping, outdated or superseded, in light of otherSEC disclosure requirements,U.S. GAAP requirements or changes in the information environment. In part, the SEC Release requires an investment company to present distributable earnings in total on the consolidated balance sheet and consolidated statement of changes in net assets, rather than showing the three components of distributable earnings as previously shown. We adopted this part of theSEC Release during the year endedDecember 31, 2018 . The impact of the adoption of these rules on our consolidated financial statements was not material. Additionally, the SEC Release requires disclosure of changes in net assets within a registrant's 56 -------------------------------------------------------------------------------- Form 10-Q filing on a quarter-to-date and year-to-date basis for both the current year and prior year comparative periods. We adopted the new requirement to present changes in net assets in interim financial statements within Form 10-Q filings effectiveJanuary 1, 2019 . The adoption of these rules did not have a material impact on the consolidated financial statements. Recent Developments Dividends OnJuly 30, 2020 , the Board declared a$0.36 per share regular quarterly distribution, payable onSeptember 15, 2020 to stockholders of record onAugust 31, 2020 . Recent Portfolio Activity FromJuly 1, 2020 throughAugust 4, 2020 , we closed$22.0 million of additional debt commitments and funded$3.9 million in new investments. TPC's direct originations platform entered into$43.2 million of additional non-binding signed term sheets with venture growth stage companies, subject to due diligence, definitive documentation and investment committee approval, as well as compliance with TPC's allocation policy. FromJuly 1, 2020 throughAugust 4, 2020 , we received$29.1 million of principal prepayments generating approximately$1.0 million of prepayment fees and interest income. Item 3. Quantitative and Qualitative Disclosures about Market Risk We are subject to financial market risks, including changes in interest rates. We are also subject to risks relating to the capital markets; conditions affecting the general economy; legislative reform; and local, regional, national or global political, social or economic instability.U.S. and global capital markets and credit markets have experienced a higher level of stress due to the global COVID-19 pandemic, which has resulted in an increase in the level of volatility across such markets and in values of publicly-traded securities. Any continuation of the stresses on capital markets and credit markets, or a further increase in volatility could result in a contraction of available credit for us and/or an inability by us to access the equity or debt capital markets or could otherwise cause an inability or unwillingness of our lenders to fund their commitments to us, any of which may have a material adverse effect on our results of operations and financial condition. Interest Rate Risk Interest rate sensitivity refers to the change in our earnings and in the relative values of our portfolio that may result from changes in the level of interest rates. Because we fund a portion of our investments with borrowings, our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a change in market interest rates will not have a material adverse effect on our net investment income. Changes in interest rates may affect both our cost of funding and our interest income from portfolio investments. Our risk management systems and procedures are designed to identify and analyze our risk, to set appropriate policies and limits and to continually monitor these risks. Our investment income will be affected by changes in various interest rates, including LIBOR and Prime Rates, to the extent that any debt investments include floating interest rates. Debt investments are made with either floating rates that are subject to contractual minimum interest rates for the term of the investment or fixed interest rates. In connection with the COVID-19 pandemic, theU.S. Federal Reserve and other central banks have reduced certain interest rates and LIBOR has decreased. A prolonged reduction in interest rates could reduce our gross investment income and could result in a decrease in our net investment income if such decreases in interest rates are not offset by a corresponding increase in the spread over Prime that we earn on any portfolio investments, a decrease in our operating expenses or a decrease in the interest rate of our floating interest rate liabilities tied to LIBOR. For example, the weighted-average annualized portfolio yield on our total debt investments decreased for the three- and six-month periods endedJune 30, 2020 as compared to the comparable 2019 periods in part due to a decrease in the Prime Rate between periods. As ofJune 30, 2020 , a majority of the debt investments (approximately 69.7% or$469.6 million in principal balance) in our portfolio bore interest at floating rates, which generally are Prime-based, all of which have interest rate floors and some of which have interest rate caps for a limited period. Substantially all of our unfunded commitments float with changes in the Prime Rate from the date we enter into the commitment to the date of the actual draw. In addition, our interest expense will be affected by changes in the published LIBOR rate in connection with our Credit Facility; however, our 2022 Notes bear interest at a fixed rate. In addition, our 2025 Notes bear interest at a fixed rate (subject to a 1.00% increase in the fixed rate in the event that a Below Investment Grade Event (as defined in the Note Purchase Agreement) occurs). As ofJune 30, 2020 , our floating rate borrowings totaled$158.0 million , which comprised of 52.2% of our outstanding debt. Due to the fact that the majority of our floating rate debt investment portfolio is subject to interest-rate floors above the current Prime Rate, small interest rate increases would generally decrease our net investment income because our interest expense would increase without a corresponding increase the spread over LIBOR or the Prime Rate that we earn on any portfolio investments; however, a decrease in interest rates would generally increase our net investment income because our interest expense attributable to borrowings under the Credit Facility would decrease. This is illustrated in the following table which shows the annual impact on net investment income of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure from theJune 30, 2020 consolidated statement of assets and liabilities: 57 -------------------------------------------------------------------------------- Change in Interest Rates Increase (decrease) (Increase) decrease in Net increase (decrease) (in thousands) in interest income interest expense in net investment income Up 300 basis points $ 5,565 $ (4,740 ) $ 825 Up 200 basis points $ 1,196 $ (3,160 ) $ (1,964 ) Up 100 basis points $ 76 $ (1,580 ) $ (1,504 ) Up 50 basis points $ 19 $ (790 ) $ (771 ) Down 50 basis points $ - $ 292 $ 292 Down 100 basis points $ - $ 292 $ 292 Down 200 basis points $ - $ 292 $ 292 Down 300 basis points $ - $ 292 $ 292 This analysis is indicative of the potential impact on our investment income as ofJune 30, 2020 , assuming an immediate and sustained change in interest rates as noted. It should be noted that we anticipate growth in our portfolio funded in part with additional borrowings and such additional borrowings, all else being equal, will increase our investment income sensitivity to interest rates, and such changes could be material. In addition, this analysis does not adjust for potential changes in our portfolio or our borrowing facilities nor does it take into account any changes in the credit performance of our loans that might occur should interest rates change. Because it is our intention to hold loans to maturity, the fluctuating relative value of these loans that may occur due to changes in interest rate may have an impact on unrealized gains and losses during quarterly reporting periods. Based on our assessment of the interest rate risk, as ofJune 30, 2020 , we had no hedging transactions in place as we deemed the risk acceptable, and we did not believe it was necessary to mitigate this risk at that time. While hedging activities may mitigate our exposure to adverse fluctuations in interest rates, certain hedging transactions that we may enter into in the future, such as interest rate swap agreements, may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio investments. In addition, there can be no assurance that we will be able to effectively hedge our interest rate risk. Substantially all of our assets and liabilities are financial in nature. As a result, changes in interest rates and other factors drive our performance more directly than does inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Item 4. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures As ofJune 30, 2020 (the end of the period covered by this report), we, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodicSEC filings is recorded, processed, summarized and reported within the time periods specified in theSEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures. (a) Changes in Internal Controls Over Financial Reporting Management has not identified any change in the Company's internal control over financial reporting that occurred during the quarter endedJune 30, 2020 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 58
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