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Hercules Capital: Interim Portfolio Activity

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Hercules Capital (HTGC) provided its regular quarterly interim portfolio update for the second quarter of 2017. The BDC News Of The Day read the press release; undertook some cursory analysis and suggests that investors have little to learn from this episodic and incomplete data.

DETAILS

The highlight numbers were that HTGC closed $206mn in new commitments in the IIQ of 2017, and $400mn in the first half of the year.

That was higher than the target number of $350mn-$375mn.

Unscheduled principal repayments were $166mn in the IIQ, up from $101mn in the prior quarter.

Here’s an extract from the press release:

“We have had a very busy second quarter and first half of 2017 with exceptionally strong portfolio activity, including both announced and in-process M&A events as highlighted in our recent press release, and higher than anticipated levels of refinancing activities,” stated Manuel A. Henriquez, founder, chairman and chief executive officer of Hercules. “We continue to execute our ‘slow and steady’ growth strategy, maintaining a conservative underwriting posture, and reinvesting unscheduled early repayments in an effort to maintain debt investment portfolio balances.”

No specific companies are named but all the top transactions in the quarter and the dollars involved are called out.

The press release refers readers to HTGC’s earlier highlight reel dated June 29th, and which the BDC News Of The Day discussed at the time.


ANALYSIS

As we’ve shown in the past, these press releases from HTGC typically end up raising more questions than answers and do little to advance investor understanding in advance of the quarterly earnings filings.

Even the numbers that are provided do not tell us much. For example, commitments in leveraged debt lending are not synonymous with new outstandings.

As a result readers cannot begin to work out what has happened to the size of the total HTGC investment portfolio from this data.

Nor is there any information about yields paid off and yields on boarded.

The number of portfolio companies preparing for an IPO (6) tells us nothing about future equity gain prospects, given the uncertanty of completion and the different stakes HTGC might hold – if any – in each.

We are left principally parsing the language.

The press release says “extremely strong portfolio activity” which suggests the lenders were busy with new loans.

Or the other hand “higher than anticipated  levels of refinancing activities” also suggests portfolio run-off might be high, especially as much refinancing has been expected by most market participants.

CEO Henriquez says HTGC is “guardedly optimistic” going into the second half, which we interpret as Just OK.  Uncertainty still prevails about the Trump Administration’s policies which might hurt the technology sector longer term, and then there’s that abundance of liquidity making everything more expensive and narrowing spreads.

No word on many other issues such as credit quality.


OUR VIEW

Frankly, we were interested to see if there was any difference in HTGC’s approach or sub-text after the strange interlude of a few weeks ago when Mr Henriquez sought to gain control of the BDC and become its External Manager.

That subject has gone quiet, but the BDC Reporter believes that there might yet be twists and turns in that narrative.

So far – and it’s very hard to tell – the short lived debate about the future of the BDC does not appear to have impacted investment origination.

Otherwise, this press release and the June 29th press release tell us very little that investors can use.

We’ll file this under News You Can’t Use But You Might As Well Read Anyway.

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