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Hercules Capital(HTGC) - 2020 Q1 - Quarterly Report

Investment Portfolio Valuation - The total fair value of the investment portfolio was approximately $2.3 billion as of March 31, 2020, unchanged from December 31, 2019[306]. - The fair value of the debt investment portfolio increased to approximately $2.2 billion at March 31, 2020, compared to approximately $2.1 billion at December 31, 2019[306]. - The fair value of the equity portfolio decreased to approximately $94.5 million at March 31, 2020, down from approximately $145.0 million at December 31, 2019[306]. - The ending portfolio value as of March 31, 2020, was $2,302.5 million, a decrease from $2,314.5 million at December 31, 2019[312]. - Approximately 8.1% of the company's total assets, or $193.3 million, were held in tangible assets through its wholly owned SBIC as of March 31, 2020[301]. - The portfolio companies are primarily in high-margin, high-growth sectors, with 88.9% of the fair value composed of investments in five industries, including 30.1% in "Drug Discovery & Development" and 28.0% in "Software"[321]. - As of March 31, 2020, approximately 96.1% of total assets were invested in portfolio companies with fair values determined in good faith by the board[413]. Investment Income and Returns - Total investment income for the three months ended March 31, 2020 was approximately $73.6 million, compared to approximately $58.8 million for the same period in 2019, representing a year-over-year increase of 25.0%[329]. - Interest income for the three months ended March 31, 2020 totaled approximately $66.2 million, an increase from approximately $55.5 million in the same period of 2019, primarily due to an increase in the weighted average principal outstanding of loans[330]. - Fee income from commitment, facility, and loan-related fees for the three months ended March 31, 2020 was approximately $7.4 million, up from approximately $3.3 million in the same period of 2019, reflecting a 124.2% increase[334]. - The total return for investors was approximately (44.5%) for the three months ended March 31, 2020, compared to 17.2% for the same period in 2019[320]. Debt and Financing - The company aims to maximize total return by generating current income from debt investments and capital appreciation from warrant and equity-related investments[300]. - The company is focused on providing senior secured loans to high-growth, innovative venture capital-backed companies in technology-related industries[297]. - The weighted average cost of debt decreased to approximately 5.2% for the three months ended March 31, 2020, down from 5.8% in the same period in 2019, primarily due to a reduction in higher yielding debt instruments[339]. - The company had approximately $134.7 million of unfunded commitments available at the request of portfolio companies as of March 31, 2020[392]. - The company had $1.3 billion in total contractual obligations as of March 31, 2020[395]. Operational Performance - The company received approximately $167.5 million in aggregate principal repayments during the three months ended March 31, 2020, with approximately $150.5 million being early principal repayments[311]. - New fundings and restructures amounted to $233.6 million for the three months ended March 31, 2020, compared to $1,025.7 million for the year ended December 31, 2019[312]. - The company recorded $76.3 million of net unrealized depreciation on investments for the three months ended March 31, 2020, compared to a net unrealized appreciation of $28.0 million in 2019[347]. - The net change in net assets resulting from operations was a decrease of approximately $28.7 million for the three months ended March 31, 2020, compared to an increase of $61.6 million in 2019[353]. - Both basic and fully diluted net change in net assets per common share were $(0.27) for the three months ended March 31, 2020, compared to $0.64 per share in 2019[354]. Expenses and Costs - General and administrative expenses increased to $6.1 million for the three months ended March 31, 2020, up from $4.2 million in 2019, mainly due to higher income taxes, rent, and legal expenses[340]. - Employee compensation and benefits rose to $8.2 million for the three months ended March 31, 2020, compared to $6.6 million in 2019, driven by increased variable compensation[341]. - Interest and fees on borrowings totaled approximately $16.3 million for the three months ended March 31, 2020, compared to $15.6 million for the same period in 2019, reflecting an increase due to new note issuances[338]. Capital Management - The company may seek to raise additional equity or debt capital through various means, including registered offerings and securitization of investments[357]. - The company has authorized a stock repurchase plan permitting up to $25.0 million of common stock repurchases, although no repurchases occurred during 2019[367]. - The company closed the June 2019 Equity Offering, generating net proceeds of $70.5 million before expenses[372]. - As of March 31, 2020, the company had $438.2 million in available liquidity, including $34.3 million in cash and cash equivalents[379]. - The company issued $105.0 million in July 2024 Notes, generating net proceeds of approximately $103.5 million[374]. - The company issued $50.0 million in February 2025 Notes, generating net proceeds of approximately $49.4 million[375]. Distribution Policy - The company intends to maintain a variable distribution policy, distributing approximately 90% - 100% of taxable quarterly income[401]. - The company plans to distribute taxable income to avoid corporate-level federal income tax while maintaining its qualification as a RIC[406]. - It is expected that a cash distribution of $0.32 per share will be paid to shareholders on May 21, 2020[419]. - The distributions announced in 2019 were 100% from current and accumulated earnings and profits[402]. Risk Management - The company did not engage in any hedging activities during the first quarter of 2020 but may use standard hedging instruments in the future to mitigate interest rate fluctuations[425]. - The company has not conducted interest rate or foreign currency hedging activities[425]. - Based on hypothetical changes in benchmark interest rates, the impact of changes in interest income and expenses under different basis point changes indicates that a 200 basis point change could result in a net income change of approximately $15.2 million[424]. - The weighted average investment grading of debt investments was 2.34 as of March 31, 2020, compared to 2.15 at December 31, 2019, indicating a slight increase in perceived risk[327].