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Hercules Capital: What Next ?

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Leading the way in the most recent Hercules Capital (HTGC) IIIQ 2017 earnings Conference Call  was a brief announcement that the BDC – and its CEO – had abandoned its investigation into becoming an “externally managed” BDC. Here’s what was said by CEO Manuel Henriquez:

So let me first address the issue that has been on many of our shareholders’ and bondholders’ top of mind over the past few weeks and months. We have been touring the country visiting with many of you, our shareholders and our bondholders, including industry analysts. I am very grateful for the candid and direct feedback that we received during this process, and I found the process to be a sometimes difficult but a very, very important process of getting to the right answer.

Effective immediately, and after an extensive strategic evaluation process that included countless discussions with various shareholders evaluating multiple different strategic alternatives and options and analysis, working with our outside advisers and independent board of directors, we have concluded that the best course of action for Hercules is to remain an internally managed BDC and, thereby, cease pursuing for the foreseeable future the externalization process.

We derive that conclusion given much of the market changes that we’re seeing in the marketplace today. We think that the externalization process would continue to be a distraction from the core business,


The BDC Reporter devoted much digital ink to the subject, most recently in August. Shareholders in the stock endured a nearly 20% drop in the stock price when the subject was first aggressively mooted on an HTGC Conference Call. Now – like that season of “Dallas”-  it’s back the ways things were and all that has transpired before was like a dream. Bobby shook off that change of plans in the shower, and was back to craftiness as usual. HTGC shareholders, also, have little choice but to Forget and Carry On (the less well known British expression from World War II). Or will they ? Should they ? This is what we wrote to a reader who asked what we thought about the volte face:

[We are] intrigued by the very terseness and lack of information provided. The Board authorized a wild goose chase sort of investigation into the merits of internalization versus externalization. Presumably considerable monies were spent. Or were they ? Either way, the answer would be interesting. You might expect – but you would be wrong – that shareholders have a right to know what the results were of a study that engaged the attentions of the insiders for months; caused a great deal of value destruction price-wise and wasted the BDC Reporter’s time speculating.

Of course, Mr Henriquez may have given up the notion of externalization. That’s the obvious conclusion. Or SOMETHING ELSE could be afoot. We’re not detectives and we don’t have a British spy to help us in these situations, but we wouldn’t say that the ambitions which cause this issue to flare up have gone away. We’ve heard from several individuals that Mr Henrique is boundlessly ambitious. Will he jump ship shortly to another firm that will give him a better deal ? Will he set up a new firm of his own ? Why did CFO Mark Harris very coincidentally resign at this juncture ? Once you’ve opened the box to these conjectures only the passage of several quarters will satisfy us that Mr Henriquez does not have other goals in mind besides the Best Damn CEO Of HTGC he can be.
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