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Triple Point Venture Growth: To Repay Baby Bond With New Offering

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On July 11, 2017 tech-oriented Triple Point Venture Growth Growth BDC (TPVG) announced its intention to issue a new Baby Bond issue, due in 2022. The press release indicated that the BDC will use the proceeds from the offering to repay its existing Baby Bonds, and any surplus will pay down its credit facilities. Here are the early details; our analysis of the impact on both the BDC’s common stock owners and Baby Bond holders and the BDC Reporter’s view of redemption risk more generally amongst the 3 dozen BDC Note issuances still out there.

DETAILS

TPVG’s new Baby Bond offering has not yet been launched and neither the amount to be raised, nor the pricing or the key terms are yet known. What is known is that the current issue with the ticker TPVZ and which has a face value of $55mn will be repaid from the ultimate proceeds.

TPVZ has a final maturity of 2020 and yields 6.75%, with interest payable quarterly. See the Quantum Online profile and the CEF Advisors version.

Existing holders of TPVZ’s Notes can expect to eke out another 30 days of interest before repayment.


ANALYSIS

The news was not a great surprise to most Note Holders as TPVZ closed yesterday at $25.30, but still moved down to $25.09 as investors pull out their calculators to determine the total proceeds to be received of principal and accrued interest.

For the BDC’s shareholders, the upcoming refinancing will result in higher costs in the short run from the arranging of the new Baby Bond (typically hundreds of thousands of dollars for an underwritten offering).

Moreover, IIIQ 2017 TPVG results will likely be impacted from a GAAP point of view by acceleration of TPVZ’s arrangement costs, which are amortized over its now shortened life.

In The Long Run…

However, from a longer term perspective, if TPVG is able to save 1% on the rate (admittedly an aggressive assumption) the interest expense savings will be ($550,000) a year for at least 3 years, or ($1.65mn).

Based on the BDC’s latest Net Investment Income that’s a 1.7% improvement on a pro-forma basis.


OUR VIEW

For TPVG, this is as expected, but is a positive from an earnings standpoint. The market was not much surprised and the stock is slightly down on the news after opening at $13.47 a share.

Baby Bond Investors

For TPVZ Note holders, the most disheartened will be any buyers in 2017, when the Baby Bonds have traded between $25.40 and occasional peaks as high as $25.94.

Even banking the $0.422 quarterly distributions (the latest just a few days ago) will not be full consolation for some buyers.

This underscores the most common and irritating short term risk for BDC Baby Bond holders when investing at the current time: playing the game of “Will They ? Won’t They?”

In this case TPVG redeemed TPVZ at its first opportunity.

More Redemptions Possible

Not all other BDC Baby Bonds that have gone by their No Redemption date.

In our non-comprehensive list (we’re still inputting the data) the BDC Reporter notes 8 different issues that could be called in at any time, or a quarter of the Baby Bond universe.

Then there are several more passing the Non Redemption period in the remainder of 2017.

Guessing Game

In our weekly BDC Market Recap we’ve been speculating for some time that there could be a slew of Baby Bonds retired.

Some will get replaced, and some not.

However, despite watching these issues daily, the BDC Reporter’s track record of guessing who will go and who will stay is uneven, and we imagine other Note Holders are having similar difficulties.

The Above Notwithstanding

We will try and come up with our projection for who will not be refinancing its Baby Bonds prematurely in an upcoming article, but with the caveat that a great deal of guesswork will be involved.


FULL DISCLOSURE

We are Long TPVZ. We made a conscious decision to hold onto the Notes just in case when the latest quarterly dividend was coming due.

Thankfully, we acquired the Baby Bonds at a modest premium to par and will record only a small loss on a Total Return if we hold till the repayment date (about $0.15 per share).

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