TriplePoint Venture Growth BDC Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 5, 2025

There are 9 speakers on the call.

Operator

afternoon, ladies and gentlemen. Welcome to the TriplePoint Venture Growth BDC Corp. Fourth Quarter twenty twenty four Earnings Conference Call. At this time, all lines have been placed in a listen only mode. After the speakers' remarks, there will be an opportunity to ask questions and instructions will follow at that time.

Operator

This conference is being recorded and a replay of the call will be available in an audio webcast on the TriplePoint Venture Growth website. Company management is pleased to share with you the company's results for the fourth quarter and full fiscal year of 2024. Today, representing the company is Jim Labe, Chief Executive Officer and Chairman of the Board Sujal Srivastava, President and Chief Investment Officer and Mike Wilhelms, Chief Financial Officer. Before I turn the call over to Mr. Labe, I'd like to direct your attention to the customary safe harbor disclosure in the company's press release regarding forward looking statements and remind you that during this call, management will make certain statements that relate to future events or the company's future performance or financial condition, which are considered forward looking statements under federal securities law.

Operator

You are asked to refer to the company's most recent filings with the Securities and Exchange Commissions for important factors that could cause actual results to differ materially from these statements. The company does not undertake any obligation to update any forward looking statements or projections unless required by law. Investors are cautioned not to place undue reliance on any forward looking statements made during the call, which reflect management's opinions only as of today. To obtain copies of our latest SEC filings, please visit the company's website at www.tpvg.com. Now, I'd like to turn the conference over to Mr.

Operator

LeBay. Please go ahead.

Speaker 1

Thank you, operator. Good afternoon, everyone, and welcome to TPVG's fourth quarter earnings call. Throughout much of 2024, the venture markets for growth stage companies continue to be challenging and we continue to be patient and selective. This was reflected in TPVG's lower investment activity over the first three quarters of the year. Heading into the second half of the year and accelerating in the fourth quarter led by the AI sector, we saw improvement in venture growth stage investment activity.

Speaker 1

Against this backdrop, TPVG's pipeline markedly increased. We're encouraged by these positive signs and also think the outlook on the investment sectors we are investing in. As we position TPVG to capitalize on an improving venture capital market, we also remain focused on proactively managing the portfolio, continuing on the path of portfolio diversification and investment sector rotation and maintaining our strong liquidity. Turning to the quarterly results, we generated net investment income of $12,600,000 or $0.32 per share over earning our regular quarterly dividend. Regarding our strengthening pipeline, signed term sheets with venture growth stage companies that are sponsored, TriplePoint Capital increased 246% to $323,000,000 in the fourth quarter.

Speaker 1

This is the highest level in two point five years. We have also added another $215,000,000 of signed term sheets for venture growth stage companies at TPC in the first quarter year to date. At this rate, we believe signed term sheets in this quarter may exceed last quarter's. All of this bodes very well for TPVG and represents potential future debt investment opportunities. Our new debt commitments to venture growth stage companies in the quarter also reached two year highs to $72,000,000 increasing 75% compared to the prior quarter.

Speaker 1

Since the end of the quarter, we closed an additional $53,000,000 in debt commitments. We also achieved $50,000,000 of fundings in the quarter and since the end of the quarter, we have funded an additional $24,000,000 Moving a bit to the portfolio, we continue to curtail geographic and consumer and e commerce concentrations and significantly increase diversification and investment sector rotation in what we believe are the favorable venture capital industry sectors in 2024. This approach has continued here into 'twenty five. We continue to actively manage the portfolio and are working through existing credit situations which have put pressure on NAV. These are companies on the fourth quarter watch list that have been on the watch list for the last three consecutive quarters and in some cases three of them for the last three years.

Speaker 1

As we look at the fourth quarter, no new companies were added to the watch list and our weighted average credit score remained consistent with the third quarter. Sajal will discuss a little bit more on credit later in the call. Moving to the broader TPVG portfolio, we're encouraged by the capital raises and the performance by a number of our companies. 26 of TPVG's active debt portfolio companies raised $1,800,000,000 last year, an increase of almost 200% over 2023. Following the end of the quarter, Loft Orbital announced their $170,000,000 Series C equity financing raise.

Speaker 1

For the overall TPVG portfolio, more than 3,000,000,000 was raised by companies during 2024. This includes both active portfolio companies where we have debt outstanding, as well as those companies where we no longer have debt outstanding, but in which TPVG continues to hold its warrant in equity investment positions. Some notable 2024 raises, each of them over $100,000,000 included Flow Health, Cresta, Corelight, Metropolis, Zeps and others. We presently hold warrant positions in 98 companies and equity investments in 47. This portfolio includes some leading companies in their fields which also appear on either PitchBook's notable U.

Speaker 1

S. IPO candidates list or their European exit predictor IPO candidates list and includes company names such as Cohesity, Revolut and ZEV. Cohesen recently raised its Series H investment round and according to Fintech Global, the transformative transaction values the combined company at over $7,000,000,000 Revolut is now reportedly Europe's most valuable private technology company and announced its secondary transaction of shares at a $45,000,000,000 valuation last quarter. Other companies such as Dialpad, Filevine, Monzo among others are often discussed in these same categories. While overall IPO exit activity for venture capital backed companies remained muted last year, We believe that based on the makeup of this warrant in equity portfolio, TPVG stands to benefit when the markets reopen.

Speaker 1

Looking at the venture capital investment market, the improvements that we saw last quarter set to continuing stage for TPVG here on a going forward basis. According to PitchBook NVCA, deal value increased to $2.00 $9,000,000,000 across more than 15,000 deals last quarter. This surpassed pre pandemic and twenty twenty three levels and venture activity continues to show signs of recovery. There is a level of renewed optimism for steady improvement in deal making here in 'twenty five. Given this as a backdrop, the demand for venture lending significantly strengthened in the fourth quarter as a result.

Speaker 1

This is evidenced by our increased investment activity during the quarter and TPC's deal pipeline for venture growth stage companies which reached the highest level since 2021. Going forward, we expect the strengthening demand for venture debt to continue throughout the year, fueling our expectations of renewed portfolio growth in 'twenty five as these capital markets continue to rebound and high growth companies seek strategic financing. Tailwinds in our market are being driven both by entrepreneurs and investors who increasingly recognize venture debt as a strategic tool to extend runway, to accelerate growth, to finance opportunistic acquisitions and minimize equity dilution. A further trend we're experiencing is an upward demand in our pipeline for larger dollar sizes, reflective of some of these larger equity capital raises and increasing investment activity at venture growth stage companies. We will continue on our path of portfolio diversification and industry sector rotation and are actively adding new borrowers in durable, high potential sectors.

Speaker 1

These are ones like verticalized software, aerospace and defense, health tech and AI among others. These sectors offer exciting investment opportunities and are experiencing strong investment momentum. One prime example of an AI enabled software solution is our portfolio company Cresta, which is making significant technological and commercial progress in reinventing the customer contact center. With limited human interaction and with enterprise grade generative AI solutions. Portfolio companies such as Affinity, Players Health, Panorama and FitOn exemplify this trend offering innovative and specialized solutions and verticalized software.

Speaker 1

In addition, portfolio companies such as Perry Labs, Mooon Space, Lost Orbital are well positioned to capitalize as the defense sector is benefiting from government fundings surrounding concerns and the increased investment in next generation defense, cybersecurity and satellite technologies. As we've stated on past calls, our focus in these new sectors continues to remain on companies that have recently raised capital, that have ample cash runways, have backing from our select venture investors, have prudent management teams and whose business models have attractive unit economics and high retention rates. Finally, I'd like to formally welcome our new CFO, Mike Wilhelms, who joined us in January and who you'll be hearing from later on the call. Mike's thirty years of financial leadership and private credit experience further bolsters TriplePoint's leading platform in its growth plans. At our sponsor, we're also continuing to prepare for future growth making key investments now to further expand our investment team and strengthen our operational infrastructure.

Speaker 1

As we continue to move into 2025, TPVG remains committed to identifying and financing high growth companies across dynamic industries, reinforcing our role as a leading provider of venture debt solutions to growth stage companies. While we'll continue to maintain our careful discipline and opt for quality over quantity, given the improving market conditions and the pickup in investment activity by our select venture investors, we see increased deployment of our capital and venture growth stage investments, as well as increasing portfolio developments through the year. All of which we believe will enable us to continue to execute on our plan to increase TPVG scale, durability, portfolio diversification and income generating assets. With that, let me turn the call over to Sajal.

Speaker 2

Thank you, Jim, and good afternoon. Let me begin by reviewing our performance in Q4 and full year 2024, as well as highlight key expectations for 2025. Regarding investment portfolio activity during Q4, TriplePoint Capital signed three twenty three million dollars of term sheets with venture growth stage companies compared to $93,000,000 of term sheets in Q3, reflecting positive signs for the recovery of the venture lending market and our growing pipeline as we are seeing increased demand for debt financing from well positioned, well capitalized and growing venture growth stage companies in sectors we are targeting. For the full year, TriplePoint Capital signed $736,000,000 term sheets with venture growth stage companies, up almost 60% from $471,000,000 of signed term sheets in fiscal year twenty twenty three. With regards to new investment allocation to TPVG during the fourth quarter, we allocated $72,000,000 in new commitments with four companies to TPVG, up more than 75% from our $41,000,000 of commitments to four companies in Q3.

Speaker 2

'70 '5 percent of the commitments made during the fourth quarter were to new portfolio companies, reflecting our focus on diversification and sector rotation and included AO1 Holding, also known as Players Health, a technology company providing digital risk management services, reporting tools and insurance products to sports organizations Nuance Space, an end to end space systems provider that designs, builds and operates low earth orbit satellite constellations and Perry Labs, a digital systems integrator for modernizing legacy platforms and accelerating new development in the defense industry. During the quarter, we also refinanced an existing portfolio company in conjunction with an upside. For the full year, we closed $175,000,000 debt commitments with 13 companies at TDBG, of which eight were new companies and five were existing portfolio companies, compared to $32,000,000 of debt commitments in 2023 with 10 companies, of which two were new companies and eight were existing portfolio companies. During the fourth quarter, TDBG was at the high end of our guided range for fundings as a result of our emphasis on higher utilization of new commitments at closing. We funded $50,000,000 in debt investments to three portfolio companies, up 50% from $33,000,000 in Q3.

Speaker 2

These funded investments carry a weighted average annualized portfolio yield of 13.5%, up slightly from 13.4% in Q3. For the full year, we funded $135,000,000 to 13 companies with a 14.1% portfolio. During Q4, we had $53,000,000 of loan prepayments, resulting in an overall weighted average portfolio yield of 15.8%, up slightly from 15.7% in Q3. Excluding prepayments, full portfolio yield was 14.2, down from 14.9% in Q3. For the full year, we had $170,000,000 of loan prepayments compared to $105,000,000 of prepayments in 2023, resulting in an overall weighted average portfolio of 15.7%, up slightly from 15.4% in 2023.

Speaker 2

Core portfolio excluding prepayments was 14.5% for the full year, down slightly from 14.7% in 2023 despite the 100 basis point reduction in the prime rate during 2024. As Jim mentioned, six portfolio companies with debt outstanding raised $96,000,000 during the quarter. This was down from Q3, but looking at the full year, a total of 26 companies with debt outstanding raised $1,800,000,000 during 2024 compared to '19 portfolio companies raising $594,000,000 in 2023. This represents a substantial increase in both portfolio company count and size of capital raises and also represents a larger percentage increase than overall VC investment activity over the same period of time. This fundraising activity was primarily spread across our 2021 and 2022 new portfolio company vintages, but also included twenty twenty four portfolio companies.

Speaker 2

We believe this fundraising activity should bode well for the outlook for our avivores, their credit quality, as well as for the value of our warrant and equity investments in these companies. As of year end, our warrant and equity investments had a total fair value of $116,000,000 flat from Q3 and up from $72,000,000 in Q4 twenty twenty three demonstrating the impact from the robust fundraising activity. As Jim mentioned, no new companies were added to our credit watch list during the quarter and the weighted average credit ranking of our portfolio is flat with Q3. The total number of companies in our lowest three ratings has improved each quarter over the past three quarters. The five companies currently in our category four ranking have been in our watch list for more than a year and a half with the majority having been on the list for more than two years.

Speaker 2

So these are not new situations or reflective of recent originations. These are companies that we identified years ago as challenged and we have been working with them and their investors since then. As they continue to operate, they continue to focus on ways to expand their businesses with many targeting profitability or exit events. During the quarter, one portfolio company, a women's fashioning company, commerce company called Naked with a principal balance of $10,000,000 which has been rated category three since Q3 twenty twenty three was downgraded to category four and our loan was placed on non accrual while the company undergoes a court assisted restructuring process in Sweden, which we expect to be completed in the second half of the year. During the quarter, our investment portfolio experienced approximately $20,000,000 of unrealized losses, of which $5,000,000 was related to foreign currency exchange rate changes due to impact of the strengthening U.

Speaker 2

S. Dollar on our euro and pound sterling denominated debt equity and warrant investments and $15,000,000 was related to fair value adjustments on our debt investments. TBVG has not funded any non U. S. Dollar denominated debt investments since Q1 twenty twenty three.

Speaker 2

So far in Q1, the dollar has generally weakened since year end, which will benefit these investments. Of the $15,000,000 due to fair value adjustments on our debt investments, the vast majority was associated with three of our consumer and e commerce portfolio companies already on our watch list, Outfittery rated category three and Rollie and Mime Candy both rated category four. Although these companies continue to focus on growing and expanding their businesses, we adjusted the fair values of these investments due to the additional maturity date extensions of their outstanding debt and or reduced assumptions and multiples for their enterprise values for recovery purposes to reflect the challenges they continue to face as well as any changes to their capital stack. All three companies continue to consider either further capital raises or strategic processes with one company in the later stages of the process. As we take a step back to assess 2024 and our outlook for 2025, our playbook continues to be focused on building a strong foundation for TPVG while market conditions improve.

Speaker 2

Since Q4 twenty twenty three and through most of 2024, our approach was to remain active with our select venture capital funds and in the market, while taking a measured approach to new originations in light of market conditions, our sector rotation plan and our sector preference focus, while staying on top of the portfolio and managing existing credit situations. At the same time, we reduced our net leverage and unfunded commitments in order to have access to substantial liquidity to prepare for improving market conditions and increasing demand for debt capital from companies that meet our underwriting requirements. With this in mind, we believe that by focusing on portfolio growth in 2025, by growing our pipeline, targeting well positioned and well capitalized new customers in attractive sectors, and by increasing the pace of new commitments and new investment fundings, while maintaining our strong yield profile, we will continue along the path of building a strong foundation for TPVG through asset scale, increased portfolio diversification and industry sector rebalancing, enabling us to drive TPVG's earnings power over the course of the year. In terms of portfolio growth, while our forecast for quarterly growth investment fundings is in the range of $25,000,000 to $50,000,000 for the first quarter, we believe that this range may increase over the course of the year as and if market conditions improve.

Speaker 2

So far in Q1, TBC has already signed two $15,000,000 of term sheets and TBVG has closed $53,000,000 of new commitments and funded $24,000,000 of debt investments. We've recognized that portfolio growth as well as prepayment activity over the course of the year will have a material impact on our ability to cover our distribution and we'll continue to be mindful of both over the next few quarters. As market conditions improve over the course of 2025, we expect to see improving fundraising activity for our portfolio companies. And as capital markets improve, we could see a pickup in exit activity as well, both of which should have a positive impact to our warrant and equity portfolio in addition to our credit outlook for our debt investments. We note that some of our portfolio companies continue to explore this secondary market as an alternative to the IPO market with Revolut's successful secondary last year at a $45,000,000,000 valuation.

Speaker 2

And there have been reports of a potential new secondary process at a $60,000,000,000 valuation, as well as reports of Cohesity's secondary process at an $8,000,000,000 valuation, both of which would have positive impact to our investments should they occur. In closing, we remain focused on executing on our plan for positioning TVVG not only for 2025, but for the future as well. With that, I will now turn the call over to Mike and welcome him to his first earnings call with us.

Speaker 3

Thank you, Sadra, and hello, everyone. I'm excited to be part of the TriplePoint platform and I look forward to working alongside our talented team to position the company for the future. For the fourth quarter, total investment income was $26,000,000 with a portfolio yield of 15.8% as compared to $33,000,000 and a portfolio yield of 15.6% for the prior year period. The decrease in total investment income was primarily due to a lower weighted average principal amount outstanding on our income bearing debt investment portfolio, partially offset by the higher portfolio yield. Total investment income for the full year of 2024 totaled $109,000,000 with a portfolio yield of 15.7%.

Speaker 3

This compared to $137,000,000 for the prior year period with a portfolio yield of 15.4%. For the fourth quarter, total operating expenses were $13,100,000 lower when compared to the $15,700,000 for the prior year period. These expenses consisted of $7,600,000 of interest expense, $3,400,000 of base management fees, dollars 500,000 of administrative expenses and $1,600,000 of G and A expenses. Due to the shareholder friendly total return requirement under the incentive fee structure, there was no incentive fee this quarter. Total operating expenses for the full year of 2024 totaled $54,100,000 as compared to $63,700,000 for the prior year period, a 15% decrease.

Speaker 3

For the fourth quarter, net investment income totaled $12,600,000 or $0.32 per share compared to $17,300,000 or $0.47 per share for the prior year period. For the full year of 2024, net investment income totaled $54,500,000 or $1.4 per share as compared to $73,800,000 or $2.07 per share for the prior year period. Now turning to realized and unrealized gains and losses. For the fourth quarter, net realized losses on investments totaled $300,000 as compared to $52,000,000 for the prior year period. For the full year of 2024, net realized losses on investments totaled $33,000,000 as compared to $75,800,000 for the prior year period.

Speaker 3

For the fourth quarter, net change and unrealized losses on investments totaled $19,500,000 consisting of $15,300,000 of net unrealized losses on the existing debt investment portfolio and $5,100,000 of net unrealized losses from foreign currency adjustments, offset by $900,000 of net unrealized gains on the existing warrant and equity portfolio resulting from fair value adjustments and from the reversal of previously recorded unrealized losses from investments realized during the period. For the full year of 2024, net change in unrealized gains on investments totaled $10,500,000 consisting of $26,500,000 of net unrealized gains on the existing warrant and equity portfolio resulting from fair value adjustments and $14,700,000 from the reversal of previously recorded unrealized losses from investments realized during the period, offset by $30,700,000 of net unrealized losses on the existing debt investment portfolio. Combining realized and unrealized gains and losses, the net realized and unrealized losses for the full year of 2024 totaled $22,500,000 improving by 80% compared to the prior year period of $113,600,000 As of year end, net asset value was $345,700,000 or $8.61 per share. We declared a regular quarterly dividend of $0.3 per share with a record date of March 17 to be paid on March 31.

Speaker 3

We have undistributed spillover income of $43,400,000 or $1.08 per share as of year end. In 2024, we covered the dividend with net investment income per share of $1.4 equaling total distributions per share. Finally, an update on unfunded investment commitments, balance sheet leverage and overall liquidity. We ended the year with $105,000,000 of floating rate unfunded investment commitments, of which $9,000,000 was dependent upon the portfolio company reaching certain milestones. This level of commitments represents an 11% decline from a year ago and bodes well for new investment capacity in 2025.

Speaker 3

Of the debt investments in our portfolio as of 12/31/2024, approximately 63% in principal balance for interest at floating rates. Tppg had a total of $400,000,000 of debt outstanding, consisting of $395,000,000 of fixed rate investment grade term notes and $5,000,000 outstanding on our floating rate revolving credit facility. We improved leverage levels throughout 2024 and ended the year with a leverage ratio of 1.16x compared to 1.76x at the end of twenty twenty three. As of year end, the company had liquidity of $374,000,000 consisting of $79,000,000 in cash and restricted cash and $295,000,000 available under the revolving credit facility. Given the reduced unfunded commitment levels, low balance sheet leverage and current liquidity of $374,000,000 TPVG is in a position to grow its investment portfolio in 2025.

Speaker 3

We were pleased to announce earlier in the year that TPVG raised $50,000,000 in aggregate principal amount from the private issuance of senior unsecured investment grade notes due February 2028. The notes were delivered and paid for on 02/12/2025, and the net proceeds along with cash on hand will be used to repay the $70,000,000 of notes maturing this month. We elected to raise less than the maturing $70,000,000 to both improve and provide greater flexibility with our balance sheet leverage. This completes our prepared remarks today. Operator, could you please open the line for questions at this time?

Operator

And your first question today will come from Crispin Love with Piper Sandler. Please go ahead.

Speaker 4

Thank you. Good afternoon, everyone. First, can you discuss your views on credit into 2025? It seems that you haven't experienced any new credit issues as of late with the recent unrealized losses being driven by prior watch list loans rather than any new ones. So just curious on the forward outlook there and confidence on credit into 2025.

Speaker 2

Yes. Hi, this is Saajal. I'll take it. I'd say, yes, we're pleased that the number and the names on our watch list has been improving for the past three quarters. And I think it's a function of, again, execution on those companies, robust fundraising and equity activity as well.

Speaker 2

And so, I'd say our perspective is that as long as the market and performance continue of our portfolio companies continue to be stable, that credit outlook should be stable or improving over the course of 'twenty five. But obviously, if market conditions don't improve or portfolio companies don't perform, that could change.

Speaker 4

Okay, great. That's helpful. And then just on prepays, they were pretty elevated in the quarter. Can you discuss some of the key drivers there? Are there some one offs?

Speaker 4

And then just early thoughts on 2025 for prepays?

Speaker 2

Yes, I'll take this one. So I would say our prepay activity, a part of it is associated with our intentional goal of rotating out of certain sectors, in particular consumers. So, we've seen in 2024, about 60% of our prepays were from e commerce and consumer related companies. So, you know, kind of along our goals of the portfolio rebalancing. And as we look to 2025, we continue to expect the pace of one prepaid per quarter.

Speaker 2

But I think as we look at just practically, these prepays will come from some of our older vintages. So these will be more seasoned assets and so should have less of a volatile impact on NII, so to speak, for the quarters in which they occur.

Speaker 4

Great. Thank you, Sajal. Appreciate you taking my questions.

Operator

Your next question today will come from Brian McKenna with Citizens. Please go ahead.

Speaker 5

Thanks. Good evening, everyone. So you reported $0.32 per share of NII in the quarter. Some of the impacts of lower base rates into year end still have to flow through the P and L and you still have to change on the watch list. So are you still comfortable with the $0.33 quarterly dividend?

Speaker 5

And then is there a way to think through where and when dividend coverage ultimately troughs?

Speaker 2

Yes. So I would say our perspective and as mentioned in our prepared remarks, I think historically we've focused on covering our dividend from NII on a full year basis and we've been pretty consistent about it, although we've had quarter or two where we've under earned and then made it up on a full year basis. Heading into 2025, I think we're realistic when it comes to the dividend and mindful that it's the levers of portfolio growth and prepays that have the impact on it. We do expect fundings to be higher in 'twenty four and prepayments to be lower, but I think the reality is we're going to be pragmatic. And if portfolio growth doesn't materialize, we'll have to take that into account and be realistic about it.

Speaker 5

Okay. That's helpful. Thanks. And then just looking at Neovah new fundings in the quarter, they totaled 13.5%. That's 200 plus basis points below the average yield of the portfolio at year end.

Speaker 5

So how should we think about the overall yield of the portfolio as assets continue to turn over throughout 2025 assuming no change in base rates from here?

Speaker 2

Yes. I mean, I think we continue to believe that our we'll hold our yield profile of the portfolio. I think, obviously, with the base rates going down 100 basis points over the last twelve months, it takes a little bit of time for that to flow through and then stabilize. But keep in mind, we do put set prime rate floors for our new investments and our old investments. So even though two thirds, as Mike said, the portfolio is floating rate, we do have the benefit of prime rate floors.

Speaker 2

But again, I think as we look to venture lending in general, there is a target return we all expect to make as lenders that's relatively high. And so that's why we're not anticipating more spread compression. And then I think from our perspective, we'll continue to see the benefit of prepaid, which will then help to boost the overall portfolio yield on a total basis as well.

Speaker 5

Okay, great. I'll leave it there. Thank you.

Operator

And your next question today will come from Casey Alexander with Compass Point. Please go ahead.

Speaker 6

Yes, good afternoon. Welcome, Mike, to the team. I have I'm wondering and I think you can only answer this as of twelvethirty one. To what extent has the whole portfolio reset now based upon the 100 basis point decrease in base rates? Or is there still some more portfolio positions that have to reset in 2025, in the first quarter of twenty twenty five?

Speaker 6

And if so, like how far along the process are we?

Speaker 2

Yes. Katy, I'll take it. So I would say when base rates change, they generally are effective immediately or within the next month for our portfolio company. So, you'll see that with the funded assets relatively quickly flow through. Obviously, with our unfunded commitments, there is a combination of floaters and fixed rates with or floaters with primary floors.

Speaker 2

And so, it's a function of also just new asset fundings and when those were originated and that could impact portfolio. But I would say generally to answer your question, it should all have been really flushed through already, so to speak.

Speaker 6

Okay, great. Thanks. That's helpful. Secondly, you borrowed less than what you're refinancing. I assume that the difference is headed for the credit facility for the time being in the hopes that you can capture it in some other unsecured financing in the future that rounds up at a lower cost than the one that you did just now?

Speaker 6

Is that the right way to think about it?

Speaker 3

Yes. We are Can

Speaker 4

I ask your question, please?

Speaker 3

Yes. I was going to say, I mean, Casey, we are looking to optimize in our balance sheet leverage and also looking to rebalance because as of right now, and I mentioned in my prepared remarks, of the $400,000,000 outstanding, dollars $395,000,000 of that is term debt. And so we had the option to refinance this $70,000,000 maturing with the full $70,000,000 but we opted to raise less in that effort to rebalance and try to push more of our debt to our revolving facilities.

Speaker 6

Is that balancing act does that help you maintain an investment grade rating with the rating agencies by not having too much unsecured as a portion of your liability stack?

Speaker 3

Yes. In part, yes. That went into the our overall decision.

Speaker 6

Okay. All right. Thanks for taking my questions. I appreciate it.

Speaker 3

Thank you.

Operator

And your next question today will come from Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Speaker 7

Hey, guys. Following up on Casey's question, does should we expect higher leverage through 2025?

Speaker 3

Yes, I mean, I think we've talked a lot of yes, I was just going to say, we've talked a lot about portfolio growth. That's what we're expecting here in 2025. And so we're also expecting with that growth that our leverage would climb back up.

Speaker 7

Okay. And that's not assuming that any ATM because your share prices train below book, right?

Speaker 3

Correct. Yes, we don't currently have any assumption for any further raises under the ATM. Okay.

Speaker 7

And then I guess more of a strategic question for Jim. Jim, I was fascinated by your comments on AI and how you guys are making investments in that. Any possibility of AI sort of cutting down the expense ratios for BDCs or improving returns?

Speaker 1

Well, AI is going to continue to be universal, prevalent and helping across the board, not just probably BDCs, but just in general you name the sector law, finance, software, communications, education. But speaking of AI, yes, it's prevalent. It's probably one out of every three investments we're seeing these days, but one definitely needs to be careful of any hype. There's a lot of inflationary valuations which are going on out there. But at least regarding our AI portfolio and growth stage.

Speaker 1

There's some very exciting niches we're in, durable ones with proprietary datasets and so forth. We're not in that bigger universe of these wide open models. How it would apply specifically, we're actually employing some within our due diligence and a couple other things. So I'm not exactly sure yet how it's going to apply to the BDC business. We've got to avoid that buzzword.

Speaker 1

There's not a conference I don't go to whether it's venture conference technology whatever where AI doesn't come up. So I'm glad we got an AI question here.

Speaker 7

And then actually here's a second follow-up AI question. One of the features of a large language model AI as I understand it, I'm no expert, is the ability to read into contracts. And then together with things like blockchain which basically enables to automate execution of contracts, are you seeing more of an adoption of those technologies, which you as a lender would get a much more real time view into a customer's contracts?

Speaker 1

Well, we have to be a little bit careful because all companies, we have AI policies and things and there are some shortcomings of AI even as it continues to evolve, especially given hallucinations and other things like that. But where we're more involved is in these investments where it is in these companies and machine learning and the large language models and data analytics and automation solutions aimed in more unique use cases and applications. I'm stopping short of saying this is something that we actively deploy or can deploy right now, if I'm answering your question.

Speaker 7

Yes, you are. Okay, great. Thank you. And Mike, welcome, Doctor. Leer.

Speaker 3

Thank you.

Operator

And your next question today will come from Paul Johnson with KBW. Please go ahead.

Speaker 8

Yes. Good evening. Thanks for taking my questions. So I just want to make sure I'm kind of hearing you clear on it. You made it pretty loud and clear about growing the portfolio and probably using leverage to do that.

Speaker 8

But I'm just curious because over the last year, two years, a little over a year, the most of the discussions on the calls were about kind of reducing leverage back down into the target range and less attractive potential markets to deploy into. So I'm sensing obviously a shift here to where you're going to be more comfortable with taking leverage back up again now that you've kind of reduced it to a more comfortable level. So just want to make sure that's what you guys are messaging and what I mean is it based on credit issues that you believe are more under control or a lower level of unfunded commitments that are out there or is it just simply just the vintage that you're seeing here in 2025?

Speaker 2

Yes. Well, good question. Let me start. So I'd say that what's fundamentally driving the kind of the outlook for portfolio growth is, as we said in our prepared remarks, is improving market conditions in the venture capital markets and then improving demand from high quality companies that meet our credit underwriting criteria. So, I would say those are kind of the primary basis as we look to what's driving our commentary about portfolio growth.

Speaker 2

It's just it's market recovery and it's the quality that we're seeing, which we did not see over the last seven quarters. So I think absolutely a change from our perspective based on kind of again the market conditions improving. As it comes to leverage, let me just be clear. We our leverage right now is artificially high as Mike said because of the magnitude of term debt that we have outstanding. So inherent with our liquidity and cash position right now, we can fund a fair amount of portfolio growth with just the cash we have on hand with no material change to our leverage ratio.

Speaker 2

And then as the portfolio grows and again we obviously have to factor in prepayment activities and things like that, then we would see our leverage ratio increase as portfolio growth was in excess of again the cash that we have right now. I think to Mike's other comment, one of the challenges of venture lending is the prepayment activity as we said one prepayment a quarter. If you look at where we are right now, given our continued prepayment activity of outlook for one a quarter, we don't have the revolver to pay down. And so, we need to have a better balance between long term debt and revolving debt. So, when we have those periods of prepayments, we're able to benefit from reduced interest expense, pay it down the revolver and then wait till the portfolio fundings come, redeploy, then when we get to higher overall utilization of our warehouse facilities, then we look to either going to the term markets or to the equity markets if the stock is cooperating to replenish and balance it out.

Speaker 2

So I think it's going back to that playbook. We're not there yet. We've got a fair amount of liquidity to deploy before we even talk about increasing our leverage. But again, if our assumptions of portfolio growth and muted prepayment activity come to fruition, then we'll see that slightly higher leverage tick up over the course of the year.

Speaker 8

I appreciate all the clarification on that. Very helpful. And then just one last question for me. I mean in terms of your fintech investments, particularly the more successful ones like Prodigy, just curious kind of in your mind how many of those companies are dependent on bank partnerships?

Speaker 2

Yes. You know, it's fintechs in general. So I would say it depends on the type of fintechs. So to the extent that we have lending fintechs, then they have warehouse providers. And I'd say the vast majority of our lending related fintechs have multi syndicate or multiple credit facilities with syndicates of lenders.

Speaker 2

Progyny, for example, has actually tapped the securitization markets before. So those are we're well positioned from that perspective. As we look to our payments and other related fintechs, absolutely that is something at time of underwriting we're very cognizant of. I think the good news is because we focus on venture growth stage companies, these are more proven out, more robust, older companies, they've had the benefit of track record to have multiple counterparties on the banking side across geo. So, well protected.

Speaker 2

If these were earlier stage companies, that would be more of a concern. But again, given the venture growth stage focus, less of a risk for our fintech portfolio companies.

Speaker 4

Thank you very much.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Mr. Jim Labe for any closing remarks. Please go ahead.

Speaker 1

Thanks, operator. As always, we'd like to thank everyone for listening and participating in today's call. We look forward to updating and talking with you all again next quarter. Thanks once again. Have a nice day.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
TriplePoint Venture Growth BDC Q4 2024
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