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TriplePoint Venture Growth: Portfolio Investment Write-Down

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As we’ve reported on our Twitter News Feed, TriplePoint Venture Growth (TPVG) has been busy issuing 5mn new shares. As part of the process, the BDC is required to make some high level disclosures to prospective investors. These include an estimate of IVQ 2019 results some time ahead of the final results being published. TPVG indicates Net Investment Income Per Share (NIIPS) will be somewhere between $0.36-$0.40 in the period. Last quarter, NIIPS were $0.29. The 6 firm analyst consensus for the IVQ 2019 is $0.41, suggesting recurring earnings are both better than before and slightly less than hoped for. 

TPVG also “realized a gain of $1.4 million on the sale of its equity investment in Farfetch UK Limited during the three months ended December 31, 2019″. As of September 30, 2019 – according to Advantage Data records– the FMV of the investment was $1.286mn and the original cost just $0.170mn, implying a $1.1mm potential gain. Apparently, the BDC has done a little better than expected in this instance. 

However, TPVG also disclosed some expected unrealized losses for the IVQ 2019 would be impacting book value:

The Company expects to report an unrealized loss of $1.5 million attributable to market-price-related changes to its publicly traded common stock positions held as of December 31, 2019. As of January 7, 2020, the Company estimated that the unrealized loss attributable to market-price-related changes to its publicly traded common stock positions would be approximately $125,000.

The most important item in dollar terms was an update on the status of Harvest Power, a TPVG debt investment that suddenly joined the ranks of the BDC Under Performers in the IIIQ 2019 and which was discussed for the first time in its 5 year history on the BDC’s books on the last Conference Call held in November. 

The BDC Credit Reporter has written a post about TPVG and the likely resolution of the Harvest Power investment based on this latest disclosure and other materials. Given that TPVG will be booking a further write-down in the value of the investment; a significant Realized Loss, and will be permanently losing investment income, this story seemed material enough to re-publish for the BDC Reporter’s readers and anyone with an interest in the high flying technology-focused BDC.

According to the BDC on its Conference Call on November 11, 2019 , Harvest was exploring “strategic alternatives” – typical code language for being in deep trouble. TPVG expected the subject to be resolved in the IVQ 2019. Based on the most recent TPVG disclosure that turns out to have been correct. The BDC has now written down the value of its investment in Harvest to $4.2mn. Moreover, $2.4mn of that value has actually been collected. (No word on when the rest might be forthcoming or how). Searching in the public record, we’re assuming the fast resolution is related to the sale of two Harvest Power facilities to USA Waste of California, but we could be wrong.

For TPVG that’s a fast but unsatisfactory end to a lending relationship that began in IQ 2014 – according to Advantage Data‘s historic records – and has involved different facilities at different price points. The latest 2021 Term Loan was priced at 12.00%, which suggests a good deal of risk was anticipated when added to the books. Prior loans were priced as low as 7.0%. Now TPVG will end up booking ($10.6mn) in Realized Losses, including a further decrease of ($3.3mn) in value over the FMV at IIIQ 2019 in the year-end portfolio value. Investment income lost from the debt will be $1.8mn, but only $1.6mn once the $4.2mn in proceeds are re-deployed at a similar rate.

We hope to learn a little more – both from the public record and TPVG – when the transaction is fully removed from the books, which will allow us to undertake a credit post-mortem. Mostly, we’d like to understand why Harvest Power went so quickly from hero to zero.

BDC Investment Advisors, LLC 2016 – 2019
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