Hercules Capital Q2 2025 Earnings Call Transcript

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Provided by Quartr
July 31, 2025

Key Takeaways

  • Positive Sentiment: Q2 originations topped $1 B for the second straight quarter, driving record net investment income of $88.7 M (or $0.50 per share), up 7.7% year-over-year.
  • Positive Sentiment: Strengthened the balance sheet by issuing $350 M of 6% unsecured notes due 2030 and upsizing the MUFG-led credit facility to $440 M, reducing GAAP leverage to ~90%.
  • Positive Sentiment: Hercules Adviser LLC closed the first closing of its fourth private credit fund, bringing total managed funds to approximately $1.6 B in committed equity and debt capital.
  • Positive Sentiment: Credit quality remains strong with first-lien exposure at ~91%, only one nonaccrual loan (0.2% of portfolio), and improved weighted average internal rating to 2.26.
  • Neutral Sentiment: Looking ahead to Q3, management expects the slowest seasonal quarter with prepayments of $200 M–$250 M and intends to remain selective amid competitive pressures while staying bullish on second-half funding.
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Earnings Conference Call
Hercules Capital Q2 2025
00:00 / 00:00

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Operator

Good afternoon. My name is Jess, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hercules Capital Second Quarter twenty twenty five Financial Results Conference Call. All participant lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Please be advised that today's conference may be recorded. I will now turn the call over to Michael Herra, Managing Director of Investor Relations. Please go ahead, sir.

Michael Hara
Michael Hara
MD, IR & Corporate Communications at Hercules Capital

Thank you, Jess. Good afternoon, everyone, and welcome to Hercules conference call for the second quarter twenty twenty five. With us on the call today from Hercules are Scott Blueskine, CEO and Chief Investment Officer and Seth Meyers, CFO. Hercules financial results released just after today's market close and can be accessed from Hercules Investor Relations section at investor.htgc.com. An archived webcast replay will be available on the Investor Relations webpage following the conference call.

Michael Hara
Michael Hara
MD, IR & Corporate Communications at Hercules Capital

During this call, we may make forward looking statements based on our own assumptions and current expectations. These forward looking statements are not guarantees of future performance and should not be relied upon in making any investment decision. Actual financial results may differ from the forward looking statements made during this call for a number of reasons, including but not limited to the risks identified in our annual report on Form 10 ks and other filings that are publicly available on the SEC's website. Any forward looking statements made during this call are made only as of today's date, and Hercules assumes no obligation to update any such statements in the future. And with that, I'll turn the call over to Scott.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Thank you, Michael, and thank you all for joining the Hercules Capital Q2 twenty twenty five earnings call. Hercules wrapped up the 2025 by delivering another strong quarter of record fundings and record operating performance while maintaining our balance sheet strength and robust liquidity, allowing us to remain focused on high quality originations. After originating over $1,000,000,000 of new commitments in Q1, our momentum continued in Q2 with our second consecutive quarter of originations of over $1,000,000,000 Our record fundings led to $192,100,000 of net debt portfolio growth in Q2 and a new record with over $461,900,000 in the 2025. During the second quarter, we took additional steps to further strengthen our balance sheet and liquidity position with the closing of our institutional investment grade bond offering of $350,000,000 of 6% unsecured notes due 02/1930. We also extended and upsized our credit facility, led by MUFG, to $440,000,000 Our staggered liability maturity stack, low cost of capital relative to our peers and ample liquidity across our platform continues to put us in an advantageous competitive position.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Post Q2, we announced the first close of our adviser subsidiary's fourth private credit fund. Hercules Adviser LLC now manages four funds with approximately $1,600,000,000 in committed equity and debt capital. As a reminder, Hercules Advisor LLC is a wholly owned subsidiary of Hercules Capital, an internally managed BDC. And as a result, 100% of the earnings and value of that business benefit our public shareholders and stakeholders. Our strong Q2 performance was highlighted by several new records, including record total gross fundings of $709,100,000 an increase of 53.7% year over year record total investment income of $137,500,000 an increase of 10% year over year and record net investment income of $88,700,000 or zero five zero dollars per share, an increase of 7.7% year over year.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Our first half performance was highlighted by several new records, including record first half twenty twenty five total investment income of $257,000,000 record first half twenty twenty five net investment income of $166,200,000 record first half twenty twenty five total gross new debt and equity commitments of $2,020,000,000 and record first half twenty twenty five total gross fundings of $1,250,000,000 Our performance results are driven by our leadership position within the growth stage lending market, the longevity, consistency and scale of the Hercules Capital platform and our unwavering commitment to always doing what we believe is in the best interest of our shareholders and stakeholders. In our public comments during the 2025, we noted that we anticipated a more favorable new business landscape broadly and that we were positioning the business to be able to take advantage of that. It has played out largely consistent with our expectations. While the equity and credit markets have remained volatile, we have noted a general improvement in overall market sentiment subsequent to our last earnings call. Management teams appear less hesitant.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Investors are active. And companies seem to be navigating the market choppiness and changing messaging from the current administration more effectively. We believe that certain sectors, geographies and end markets are positioned better right now, and our recent and near term originations will reflect that. Despite strong originations and record fundings, we have maintained a conservative and defensive balance sheet. In Q2, we maintained our high first lien exposure, which remained at approximately 91% and continues to be towards the high end of our BDC peers.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

GAAP leverage decreased modestly to just over 9097% in Q2, down from 99.9% in Q1. Our Q2 GAAP leverage remained at the low end of our typical historical range of 100% to 115 and below the average of our BDC peers. We ended Q2 of liquidity across our platform and no material near term debt maturities, which we believe continues to position us very well. Let me now recap some of the key highlights of our performance for Q2. In Q2, we originated total gross debt and equity commitments of over $1,000,000,000 and record gross fundings of over $7.00 9,000,000 We generated record total investment income of $137,500,000 and record net investment income of $88,700,000 or $0.50 per share.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

We were able to achieve 125% coverage of our quarterly base distribution of $0.40 per share. We generated a return on equity in Q2 of 17.1%, and our portfolio generated a GAAP effective yield of 13.9% in Q2 and a core yield of 12.5%, which was relatively flat compared to Q1. Our balance sheet with moderate leverage and low cost of leverage remains very well positioned to support our continued growth objectives and provides us with the ability to continue to focus on high quality transactions versus chasing higher yielding assets, which we believe have more risk. The focus of our origination efforts in Q2 was on maintaining a disciplined approach to capital deployment while being selectively aggressive on certain opportunities where we felt that we had a competitive advantage. Our Q2 originations activity were well balanced between life sciences and tech companies.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

In Q2, approximately 53% of our commitments and fundings were to life sciences companies, while approximately 47% of our commitments and fundings were to tech companies. We funded debt capital to 26 different companies in Q2, of which 11 were new borrower relationships. Year to date, through the end of Q2, we have added 20 new borrowers to the Hercules portfolio. We also increased our capital commitments to several portfolio companies during the quarter. Our available unfunded commitments were approximately $471,500,000 up slightly from $455,700,000 in Q1.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Since the close of Q2 and as of 07/28/2025, our deal teams have closed 44,200,000 of new commitments and funded $33,500,000 We have pending commitments of an additional $480,000,000 sheets, dollars and we expect this number to continue to grow as we progress in Q3. Q3 is historically our slowest quarter for new originations, and we expect that to be the case again this year. While that is typical for the venture and growth stage markets generally, we have chosen to be even more selective and patient recently given some of our recent market observations. In certain sectors, we have seen an abundance of liquidity and a desire for asset growth leading to transactions that we do not believe reflect appropriate risk adjusted returns. As we have always done, we intend to remain disciplined and focused on the long term, and we remain bullish on our pipeline and expectations for funding activity over the coming quarters.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

We are generally pleased with the exit activity that we saw in our portfolio during the second quarter. In Q2, we had three M and A events in our portfolio, which included one life sciences portfolio company and two technology portfolio companies announcing acquisitions. That brings us to six M and A events in our portfolio announcing year to date through the end of Q2. In addition, we had one technology company complete their IPO in the quarter. Based on current market conditions and improving corporate sentiment, we expect exit activity to accelerate towards year end.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Early loan repayments increased as expected in Q2 to approximately $267,000,000 Even with the higher level of early loan repayments, we still achieved strong net debt portfolio growth given the record funding levels in the quarter, which continues to position us well for strong core earnings growth in the second half of twenty twenty five. For Q3 twenty twenty five, we expect prepayments to be similar to Q2 and in the range of $200,000,000 to $250,000,000 although this could change as we progress in the quarter. Credit quality of the debt investment portfolio improved quarter over quarter. Our weighted average internal credit rating of 2.26 decreased slightly from the 2.31 rating in Q1 and remains within our normal historical range. Our Grade one and Grade two credits increased to 62.9% compared to 61.1 in Q1.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Grade three credits increased slightly to 34.7% in Q2 versus 33.9% in Q1. Our rated four credits decreased to 2.4% from 4.1% in Q1, and we did not have any rated five credits as of Q2 quarter end. In Q2, the number of loans and companies on nonaccrual decreased by one. We had one debt investment on nonaccrual with an investment cost and fair value of approximately $9,800,000 and $7,900,000 respectively, or 0.2 as a percentage of our total investment portfolio at cost and value. During the second quarter, we concluded our workout efforts with our three rated five loans from Q1, including KOROS, a legacy loan that had been impaired and on nonaccrual status since 2024.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

The resulting realized loss on those three positions was $6,500,000 less than our previous quarter's impairment, and there was a positive impact to net asset value during Q2 as a result. With respect to our broader credit book and outlook, we generally remain pleased by what we are seeing on a portfolio level, and our portfolio monitoring remains enhanced. Given the ongoing uncertainty of the current tariff and trade related environment, we continue to proactively assess any material impact across our credit portfolio. Based on what we know as of today and continued conversations with our borrowers, we continue to believe that none of our portfolio companies will be negatively impacted by the current tariff situation to a material degree. Our net asset value per share in Q2 was $11.84 an increase of 2.5% from Q1 twenty twenty five.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

We ended Q2 with strong liquidity of $785,600,000 in the BDC and over $1,000,000,000 of liquidity across the Hercules platform. With healthy liquidity, a low cost of debt relative to our peers and four investment grade corporate credit ratings, we remain well positioned to compete aggressively on quality transactions, which we believe is the prudent approach in the current environment. Venture capital investment activity continues to demonstrate a healthy pace with $69,900,000,000 invested in Q2 and $162,800,000,000 invested for the 2025, according to data gathered by PitchBook NBCA. M and A exit activity in Q2 for U. S.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Venture capital backed companies was 32,200,000,000.0 IPO activity improved but remained muted during the second quarter. Consistent with the aggregate data for the ecosystem, during Q2, capital raising across our portfolio remained strong, with 19 companies raising over $1,100,000,000 in new capital during the second quarter. For the 2025, we've had 45 companies raise over $3,800,000,000 in new capital. Given our strong sustained operating performance, we exited Q2 with undistributed earnings spillover of $134,100,000 or $0.74 per ending share outstanding. For Q2, we are maintaining our quarterly base distribution of $0.40 and our supplemental distribution of $07 per share for a total of $0.47 of shareholder distributions.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Our Q2 net investment income covered our base distribution by 125% and our full distribution, including our $07 supplemental distribution, by over 106%. This is our twentieth consecutive quarter of being able to provide our shareholders with a supplemental distribution in addition to our regular quarterly based distribution. In closing, our scale, institutionalized lending platform and our ability to capitalize on a rapidly changing competitive and macro environment continues to drive our business forward and our operating performance to record levels. In Q2, Hercules delivered its ninth consecutive quarter of over $100,000,000 of quarterly core income, which excludes the benefit of prepayment fees or fee accelerations from early repayments. Our success is attributable to the tremendous dedication, efforts and capabilities of our 100 plus employees and the trust that our venture capital and private equity partners place with us every day.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

We are thankful to the many companies, management teams and investors that continue to make Hercules their partner of choice. I will now turn the call over to Seth. Thank you, Scott,

Seth Meyer
Seth Meyer
CFO at Hercules Capital

and good afternoon, ladies and gentlemen. The second quarter for Hercules Capital was very busy across our balance sheet. As Scott shared, the business activity during the quarter and year to date has been exceptional and record breaking for our platform. To support the growth investment portfolio, we've added to the more than $325,000,000 of capital raised in the first quarter by raising another $500,000,000 split between $350,000,000 unsecured notes and nearly $150,000,000 of highly accretive capital via our ATM. In addition, we increased our available liquidity by renewing our MUFG led credit facility and upsizing it to $440,000,000 based on strong demand.

Seth Meyer
Seth Meyer
CFO at Hercules Capital

These activities helped us maintain our weighted average cost of debt at approximately 5% and our conservative leverage position remaining below one:one on both GAAP and a regulatory basis, supported by the full deployment of our most recent SBIC license. We continue to maintain strong available liquidity of more than $785,000,000 as of quarter end and more than $1,000,000,000 across the platform, including the advisor funds managed by our wholly owned subsidiary Hercules Capital LLC. Based on the performance of the quarter, Hercules Advisor delivered a second quarter dividend of $2,100,000 which when combined with the expense reimbursement of 3,400,000.0 approximately $5,500,000 in NII contribution to the BDC in Q2. With that in mind, let's review the following areas: the income statement performance and highlights the NAV unrealized and realized activity, leverage and liquidity, and finally, the financial outlook. Turning to the income statement performance and highlights, total investment income in Q2 was a record $137,500,000 a 15% quarter over quarter increase, supported by our debt portfolio that has grown to $4,000,000,000 as of the second quarter.

Seth Meyer
Seth Meyer
CFO at Hercules Capital

Core investment income, and non GAAP measure increased to a record $124,600,000 Core investment income excludes the benefit of income recognized as a result of loan prepayments. Net investment income increased quarter over quarter 14.6% to $88,700,000 or $0.50 per share in Q2. Our effective and core yields were 13.95%, respectively, compared to 1312.6% in the prior quarter. As of quarter end, approximately half of our prime based loans are at the contractual floor and thus the impact of any future rate reductions will be muted. Second quarter gross operating expenses were $52,200,000 compared to $45,300,000 in the prior quarter.

Seth Meyer
Seth Meyer
CFO at Hercules Capital

Net of costs recharged to the RIA, our net operating expenses were $48,700,000 Interest expense and fees increased to 25,700,000 due to the growth of the business and corresponding increase of leverage. SG and A increased to $26,500,000 above my guidance on the growth of the business. Net of costs recharged to the RIA, the SG and A expenses were $23,000,000 Our weighted average cost of debt increased slightly to 5%. Our ROAE or NII over average equity increased to 17.1% for the second quarter and ROAA or NII over average total assets increased to 8.6%. Switching to the NAV and unrealized and realized activity, during the quarter, our NAV per share increased by $0.29 per share to $11.84 per share.

Seth Meyer
Seth Meyer
CFO at Hercules Capital

This represents an NAV per share increase of 2.5% quarter over quarter. The main driver was accretion due to use of the ATM. Our realized loss of $57,600,000 was primarily from the restructure or sale of three previously impaired debt positions, two of which were on nonaccrual as of the first quarter. The realized loss of $54,600,000 from these three positions was lower than the previous quarter impairment of 61,100,000.0 Our $47,800,000 of net unrealized depreciation was primarily attributable to $53,800,000 of reversal of previous quarter depreciation upon mentioned earlier, dollars 7,000,000 of net unrealized depreciation attributable to valuation movements in the privately and publicly held equity warrant and investment funds, including foreign exchange movements. This was partially offset by a $13,000,000 of net unrealized depreciation on debt investments, primarily from collateral based impairments on one position.

Seth Meyer
Seth Meyer
CFO at Hercules Capital

The reversal of prior unrealized depreciation resulted in a net realized loss of $57,600,000 primarily due to the losses on debt and warrant investments and losses from foreign exchange movements. On leverage and liquidity, our GAAP and regulatory leverage decreased to 97.481.1% respectively compared to the prior quarter due to the use of the ATM to support the growth in the balance sheet. Netting out leverage with cash on the balance sheet, our net GAAP and regulatory leverage was 95.7%, respectively. We ended the quarter with a little over more than $785,000,000 of available liquidity. As a reminder, this excludes capital raised by the funds managed by our wholly owned RIA subsidiary.

Seth Meyer
Seth Meyer
CFO at Hercules Capital

Inclusive of these amounts, the Hercules platform had more than $1,000,000,000 of available liquidity. The strong liquidity positions us very well to support our existing portfolio, companies and source new opportunities. As mentioned in June, Hercules Capital issued $350,000,000 of institutional percent unsecured notes due in 2030 and renewed and increased our credit facility led by MUFG to $440,000,000 As a final point, we continued to opportunistically access the ATM market during the quarter and raised approximately $149,000,000 in the second quarter, resulting in $0.28 accretion of NAV per share. On the outlook, for the third quarter, we expect our core yield to be at the high end of our guidance range of 12% to 12.5%, excluding any future benchmark interest rate changes. As a reminder, 98% of our debt portfolio is floating with a floor and presently approximately 50% of our prime based portfolio is at its contractual floor.

Seth Meyer
Seth Meyer
CFO at Hercules Capital

Although difficult to predict as communicated by Scott, we expect 200,000,000 to $250,000,000 in prepayment and activity in the third quarter. We expect our third quarter interest interest expense to increase compared to the prior quarter based on the debt portfolio growth during the first half of the year. For the third quarter, we expect SG and A expenses of $24,000,000 to 25,000,000 and an RIA expense allocation of approximately $3,000,000 Finally, we expect a quarterly dividend from the RIA of approximately 1,900,000.0 to $2,100,000 per quarter. In closing, the steps we have taken to strengthen our balance sheet will help us continue scaling our platform and ensure we are well positioned for the remainder of 2025. I will now turn the call over to the operator to begin the Q and A portion of our call. Jess, over to you.

Operator

Thank you. We will take our first question from Crispin Love with Piper Sandler.

Crispin Love
Crispin Love
Director - Equity Research at Piper Sandler Companies

Thank you and good afternoon. Your debt fundings have been extremely strong year to date. On the fundings outlook or commentary, you seemed a little cautious on the immediate near term, but positive on longer term funding. So as you look forward to the fourth quarter and into 2026, do you think funding levels that you put up late last year and the beginning of this year, are those types of levels attainable based on what you're seeing today? Or any reasons why you may pull back for an extended period of

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

time on the funding basis? Thanks for the question, Crispin. No sense that there's going be a pullback. I think what we did in the second half of last year is likely indicative of what we'll do in the second half of this year. Q3 is typically, as we've mentioned several times, several years in a row, our slowest quarter.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

In addition to it just being sort of a seasonally slow Q3, we have pulled back slightly to start the quarter just given some of the observations that we're making in terms of the current market environment. But we are very bullish with respect to our overall funding activity for the second half of this year, and we expect to end 2025 with both record fiscal year commitments and record fiscal year gross fundings.

Crispin Love
Crispin Love
Director - Equity Research at Piper Sandler Companies

Great. I appreciate that, Scott. And then just building on that a little bit, can you discuss the competitive environment you're seeing in venture lending from other non banks as well as the bank space? Have you seen meaningful changes in the landscape? You alluded to, I believe you did a little bit that some lenders might be behaving a little bit irrationally in the third quarter.

Crispin Love
Crispin Love
Director - Equity Research at Piper Sandler Companies

Is that right? And if so, can you just take a little bit deeper into that?

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Sure. I would not characterize what we're seeing necessarily as anything specific to banks or nonbanks. We continue to see certain banks that we compete with from time to time. We also, as I think you know, Crispin, we continue to partner with certain commercial banks for certain profile of transaction. On the nonbank side, we've seen a handful of lenders recently, particularly in certain sectors, be very aggressive with respect to a lack of structure and a willingness to go well below our threshold from a yield perspective.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

And so that's what has caused us to be a little bit more patient to start Q3. We don't think that's a permanent shift. We think that's largely a result of just an abundance of liquidity in the system and some managers desperate for asset growth. We've always taken a long term approach to the space. That's what we're going to continue to do.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

We're still finding pockets. We expect Q3 to be strong but seasonally slow, and we expect the second half of the year to be strong from my earlier comments.

Crispin Love
Crispin Love
Director - Equity Research at Piper Sandler Companies

Great. Thanks, Scott. Appreciate the color and taking my question.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Thanks, Kristen.

Operator

We will go next to Brian McKenna with Citizens.

Brian Mckenna
Director - Equity Research at Citizens JMP

Great. Thanks. And first off, just congrats on another impressive quarter here. The business is clearly inflected in terms of size and scale. And I think results last couple of quarters also highlight the meaningful share you've taken within the industry.

Brian Mckenna
Director - Equity Research at Citizens JMP

But I'm curious, as you reach these new levels of scale and as the business continues to perform incredibly well, I mean, what does all of this attracting and retaining top talent? I'm assuming it's been a very positive dynamic and you'll continue to hire at a strong clip, but any thoughts here would be great.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Sure. Thanks for the comment and the compliment, Brian. Certainly appreciate it. Our culture continues to be of utmost importance to us. I think if you look at this business, particularly over the last five plus years, we've done a tremendous job in terms of not only attracting talent to the platform but retaining the strong talent that we have.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

And that will continue to be a focus for us. We have a really high bar with respect to new hires, particularly at the senior level. We're not afraid to make new hires, but we are very selective when we do so. If you think about sort of the environment, particularly over the last two to three years in the immediate aftermath of the SVB situation, We hired a handful of individuals who have been very accretive to the platform over the last year or so. We've added some significant senior talent to the originations team in certain markets.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

And then we just recently, year to date, have continued to do so selectively. So continuing to focus on finding the right talent to add to the platform, focused on particular sectors, focused on particular geographies but maintaining a corporate culture where our employees want to be here, want to stay with the platform and want to continue to help us drive the company forward is of the utmost importance to us.

Brian Mckenna
Director - Equity Research at Citizens JMP

Okay. That's really helpful. Appreciate it, Scott. And then just on the RIA, it's great to see the first close for Fund IV. Just a few related questions to that, if you have detail here.

Brian Mckenna
Director - Equity Research at Citizens JMP

How much equity capital did you raise in the first close? And then what's the hard cap or target for that fund? Of the $1,600,000,000 AUM RIA is now managing, how much of that is equity capital versus debt? And then just a little bit bigger picture, looking at the platform today, the existing infrastructure and the team in place, I mean, much more AUM can you manage longer term?

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Sure. So a couple of questions there, Brian. Consistent with our approach to Funds one, two and three, given that it is a wholly owned subsidiary underneath the BDC, we do not disclose individual equity commitments or debt commitments per fund. What we do disclose is the aggregate number when we have certain meaningful events. So as of the most recent data that we've publicly disclosed, between the four funds, we have approximately $1,600,000,000 of committed equity and debt capital.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

I think we've been pretty clear that the leverage in our private fund business is generally consistent with the leverage in our public BDC business. So if you assume roughly one to one leverage, you can sort of back into what the equity commitments are versus what the debt commitments are. We continue to think that the private fund platform and vehicle is a tremendous growth opportunity for us. It is flexible capital. We are raising money from strong, long term institutional investors.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

We continue to see opportunities to raise capital, and we will continue to do so as long as we think we can prudently put it to work. Given that the BDC is internally managed, this has never been and will never be a growth at all cost mentality. But if we see pockets, if we see opportunities to deliver strong risk adjusted returns for our investors, we'll take advantage of that.

Operator

We'll go next to Corey Johnson with UBS.

Douglas Harter
Douglas Harter
Equity Research Analyst at UBS Group

Hey, this is actually Doug Harter from UBS. Given your comments about the strong pipeline for funding in the second half, Can you talk about kind of how you think about funding that, whether that be through increasing leverage from current levels or using the ATM or both?

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Sure. So I think we're in really good position, Doug, with respect to liquidity. If you look at just the BDC, ended Q2 with $785,000,000 of available liquidity. If you look at it across the platform, inclusive of the private fund business, a little bit over $1,000,000,000 of liquidity. We ended the quarter sub-one 100% from a GAAP leverage perspective.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

We ended the quarter sub-eighty 2% from a regulatory leverage perspective. So no imminent plans to raise additional capital. We think the business is very well capitalized, strong balance sheet, very conservative balance sheet. And that should put us into position to, again, gradually take leverage up. And if we see pockets of opportunity to deploy more capital than our current pipeline shows, obviously, we have the ATM.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

But we are very sensitive to using the ATM despite where the stock trades. We use the ATM on an as needed basis to maintain our leverage ratios. Right now, we're a little bit underlevered relative to where we would like to be. So we would anticipate taking that leverage ratio up back to that 100%, 105% range before using the ATM again.

Douglas Harter
Douglas Harter
Equity Research Analyst at UBS Group

Just to clarify that last comment, that 100%, 105, is that on a GAAP basis or a regulatory basis?

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

That's a GAAP basis.

Operator

We'll go next to Casey Alexander with Compass Point.

Casey Alexander
Senior Vice President & Research Analyst at Compass Point Research & Trading LLC

That was my question. My question was just asked and answered. Thank you.

Operator

Thank you, sir. We'll go next to Finian O'Shea with Wells Fargo.

Finian O'shea
Finian O'shea
Director, WFS Research at Wells Fargo Securities

Hey, everyone. Good afternoon. Just hitting on a couple smaller items in details. In recent periods, looks like there's a lot less equity co investment and also less principal repayment. So seeing the trends there, you're, to a lesser extent, investing in or lending to amortizing structures, as is the case historically, and whether or not you find the equity co invest attractive? Sure.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Thanks, Fin. So with respect to amortization and principal, I would make sort of two comments. Number one, over the last two to three years, initial interest only periods have extended slightly relative to where they once were. So that's certainly a component. The other component is in the majority of transactions that we do, we allow our portfolio companies to earn interest only extensions based on specific preset performance milestones.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Thankfully, many of our companies continue to achieve those preset milestones. As those companies achieve those milestones, they're able to earn into additional interest only extensions. So we look at that as an indicator of strong performance across the portfolio. And then with respect to the second point, we have been a little bit more judicious with respect to equity investments, with respect to RTIs, with respect to co investments. And that's just largely been a function of valuation relative to our assessment.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

We think the market has become relatively frothy from an equity perspective. Where we see pockets of opportunity in the portfolio, we are continuing to make equity investment decisions, but we're just being a little bit more judicious in terms of equity investments in the current environment.

Finian O'shea
Finian O'shea
Director, WFS Research at Wells Fargo Securities

Okay. That's helpful. And just sort of tying in there, like if there's a frame of time where you don't do equity co invest, is there is the ATM in part a tool to shore up NAV as it has been to some extent in the last few years?

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

We don't think about it that way. We think of the ATM as something that we can use sporadically to help us maintain a strong, conservative, defensive balance sheet. Don't utilize we don't use the ATM to drive net asset value.

Finian O'shea
Finian O'shea
Director, WFS Research at Wells Fargo Securities

We

Operator

will go next to Christopher Nolan with Ladenburg Thalmann.

Christopher Nolan
SVP - Equity Research at Ladenburg Thalmann & Co. Inc

Hi, Scott. Thank you for taking my questions. And apologies if I missed it, but given all the changing currents with all the tariffs and these tariff deals announced, how does Hercules stand to benefit given many of these countries are going to be supposedly making large dollar investments into The United States?

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Yes. I think it's a great question, and it's something we've spent a lot of time thinking about as an organization. I think our current assessment, and this can change daily just based on the changing messaging, but our current assessment is that the biggest driver of positivity for our portfolio companies will be increased interest and investment in The United States. In a lot of these tariff deals or trade deals or just deals in general, you're seeing things announced where these countries are committing to certain investments in U. S.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Infrastructure, U. S. Technology, etcetera. And so we think just from a portfolio perspective, the increased investment into The U. S.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Markets will be a net positive for technology oriented growth stage businesses broadly.

Christopher Nolan
SVP - Equity Research at Ladenburg Thalmann & Co. Inc

Okay. And then for my follow-up for Seth. Congratulations on the low coupon for the $350,000,000 raise. Given the new credit facility, has there been any sort of changes on the advance rates?

Seth Meyer
Seth Meyer
CFO at Hercules Capital

Yes. Thanks a lot, Chris. So it isn't a new, it's an extension of an existing. We just upsized it as well. MEFG and the other lenders have worked with us to actually improve the conditions each and every time we renew the facility and improve the availability for us.

Seth Meyer
Seth Meyer
CFO at Hercules Capital

So there's no change in the advance rates, although there are categories associated with it where they give us a better opportunity to increase the overall average advance rate.

Christopher Nolan
SVP - Equity Research at Ladenburg Thalmann & Co. Inc

All right. Okay. Thank you, guys. Thanks, Chris.

Operator

We'll go next to Paul Johnson with KBW.

Paul Johnson
Vice President at Keefe, Bruyette & Woods (KBW)

Yes. Thanks for taking my question. Most of it have been asked, I just asked with the recent IPO activity, understanding that the total issuance is still at a pretty low level, but it's still recovering. But performance, now that we've seen core we circle today, Figma, do you think that that's changed sort of VC's mindset in terms of kind of the exit pathway and potentially looking closer at the IPO route versus just the buyout, even if it needs potentially like a lower multiple than kind of where the peak valuation was?

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Yes, it's a great question. I think our assessment is that it's still too early to make that assessment. We did see some improvement in terms of the IPO market in the second quarter. You mentioned a couple of the names, including the one from today. But that's really early just in terms of sort of that projecting out to be an indicator of what's to come and what's going to change potentially with respect to VC sentiment.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Our perspective is the bar right now continues to be really high for successful IPOs for growth stage companies. And so when you look at the sort of the types of companies that are going public, it's really the top of the top in terms of quality. So when we think about sort of the broader markets, I think we continue to view the M and A market as likely the largest driver going forward of ex connectivity. But we do think that the backdrop in Q2 with respect to IPOs is helpful as long as it's sustained through the second half of the year.

Paul Johnson
Vice President at Keefe, Bruyette & Woods (KBW)

I appreciate it. That's all for me. Congrats on a great quarter.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Thanks, Paul.

Operator

Thank you. I'm showing no further questions. I would now like to turn the call back over to Scott Blunstein for any closing remarks.

Scott Bluestein
Scott Bluestein
CEO, CIO, President & Director at Hercules Capital

Thank you, Jess, and thanks to everyone for joining our call today. We look forward to reporting our progress on our Q3 twenty twenty five earnings call.

Operator

This does conclude today's Hercules Capital second quarter twenty twenty five financial results conference call. You may now disconnect your line and have a wonderful day.

Executives
    • Michael Hara
      Michael Hara
      MD, IR & Corporate Communications
    • Scott Bluestein
      Scott Bluestein
      CEO, CIO, President & Director
    • Seth Meyer
      Seth Meyer
      CFO
Analysts
    • Crispin Love
      Director - Equity Research at Piper Sandler Companies
    • Brian Mckenna
      Director - Equity Research at Citizens JMP
    • Douglas Harter
      Equity Research Analyst at UBS Group
    • Casey Alexander
      Senior Vice President & Research Analyst at Compass Point Research & Trading LLC
    • Finian O'shea
      Director, WFS Research at Wells Fargo Securities
    • Christopher Nolan
      SVP - Equity Research at Ladenburg Thalmann & Co. Inc
    • Paul Johnson
      Vice President at Keefe, Bruyette & Woods (KBW)
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