Runway Growth Finance (RWAY) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited financial statements for Runway Growth Credit Fund Inc. as of March 31, 2021, covering key financial statements and accompanying notes Statements of Assets and Liabilities As of March 31, 2021, total assets were $619.7 million, liabilities $146.2 million, and net assets $473.5 million, with net asset value per share at $14.77 Statements of Assets and Liabilities (in thousands) | Metric | March 31, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Total investments at fair value | $615,148 | $621,827 | | Total assets | $619,723 | $639,891 | | Total debt, less unamortized costs | $115,533 | $97,417 | | Total liabilities | $146,246 | $173,648 | | Total net assets | $473,477 | $466,244 | | Net asset value per share | $14.77 | $14.84 | Statements of Operations For Q1 2021, total investment income was $16.4 million, net investment income $11.5 million, and net increase in net assets from operations $9.4 million Statements of Operations (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Total investment income | $16,423 | $14,821 | | Total operating expenses | $4,941 | $5,177 | | Net investment income | $11,482 | $9,644 | | Net realized and unrealized (loss) on investments | ($2,110) | ($7,896) | | Net increase in net assets from operations | $9,371 | $1,747 | | Net investment income per common share | $0.36 | $0.37 | | Net increase in net assets from operations per common share | $0.30 | $0.07 | Statements of Changes in Net Assets Net assets increased by $7.2 million during Q1 2021, reaching $473.5 million, driven by operations and capital share transactions, offset by distributions - Net assets increased from $466.2 million at the beginning of the period to $473.5 million at the end of the period[13] - Key changes included a $9.4 million increase from operations, a $9.5 million increase from capital share transactions (including $9.2 million from the dividend reinvestment plan), and an $11.6 million decrease from dividends paid to stockholders[13] Statements of Cash Flows Net cash provided by operating activities was $15.8 million, while financing activities used $28.9 million, resulting in a $13.1 million net decrease in cash Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $15,807 | $58,509 | | Net cash (used in) financing activities | ($28,913) | ($87,494) | | Net (decrease) in cash | ($13,105) | ($28,985) | | Cash and cash equivalents at end of period | $1,781 | $16,814 | Schedule of Investments Total investments reached $615.1 million, primarily in senior secured term loans (87.7%), with concentrations in Western US and Application Software Portfolio Composition by Investment Type (as of March 31, 2021, in USD) | Investment Type | Fair Value | Percentage of Total Portfolio | | :--- | :--- | :--- | | Senior Secured Term Loans | $539,329,013 | 87.7% | | Warrants | $21,582,839 | 3.5% | | Preferred Stocks | $18,734,776 | 3.0% | | Common Stocks | $10,166,343 | 1.7% | | Corporate Bonds | $334,650 | 0.1% | | Total Portfolio Investments | $590,147,621 | 95.9% | | U.S. Treasury Bill | $24,999,969 | 4.1% | | Total Investments | $615,147,590 | 100.0% | Top 3 Portfolio Industries by Fair Value (as of March 31, 2021, in USD) | Industry | Fair Value | Percentage of Net Assets | | :--- | :--- | :--- | | Application Software | $159,883,829 | 33.77% | | Healthcare Technology | $108,421,355 | 22.90% | | Internet Software & Services | $80,989,076 | 17.11% | - The company holds investments in 33 portfolio companies. One portfolio company, Mojix, Inc., had loans on non-accrual status, representing 2.14% of net assets[198][203] Notes to Financial Statements Notes detail organization, accounting policies, commitments, and debt facilities, highlighting BDC/RIC status and Level 3 investment valuation - The Company is an externally managed, non-diversified, closed-end investment company regulated as a Business Development Company (BDC) and has elected to be treated as a Regulated Investment Company (RIC) for tax purposes[50] - The company's investment objective is to maximize total return through current income from its loan portfolio and capital appreciation from warrants and equity positions[51] - As of March 31, 2021, the company had unfunded loan commitments of $58.1 million to eight portfolio companies[110] - The company has a Credit Agreement providing for borrowings up to $215 million, with an accordion feature to increase it to $300 million; $117 million was outstanding as of March 31, 2021[168][174] - Subsequent to the quarter end, the company funded new investments, received loan prepayments totaling over $50 million, and declared a dividend of $0.37 per share[178][179][180][181][182] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results of operations, comparing Q1 2021 to Q1 2020, highlighting increased net investment income despite falling market interest rates Results of Operations Q1 2021 net investment income rose to $11.5 million from $9.6 million in Q1 2020, with net assets from operations increasing to $9.4 million Comparison of Operations (in thousands) | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Total investment income | $16,423 | $14,821 | | Total operating expenses | $4,941 | $5,177 | | Net investment income | $11,482 | $9,644 | | Realized (loss) on investments | ($199) | ($6,717) | | Net change in unrealized (depreciation) | ($1,911) | ($1,179) | | Net increase in net assets from operations | $9,371 | $1,747 | - The increase in investment income was driven by capital deployment and a larger invested balance, partially offset by falling market interest rates[212] - Operating expenses decreased primarily due to lower incentive fees ($1.0 million in Q1'21 vs $2.3 million in Q1'20), partially offset by higher management fees[215][216] Portfolio and Asset Quality The $615.1 million investment portfolio is 87.7% senior secured term loans, with 82.5% of debt rated performing, though Mojix, Inc. loans remain non-accrual - During Q1 2021, the Company funded $34.7 million in two new portfolio companies and $19.3 million in five existing ones, while receiving $16.6 million in loan repayments[200] Debt Investment Rating (as of March 31, 2021, in USD) | Rating | Fair Value | % of Total Portfolio | | :--- | :--- | :--- | | 1 | $0 | 0.0% | | 2 | $414,547,269 | 67.4% | | 3 | $93,099,198 | 15.1% | | 4 | $31,682,546 | 5.2% | | 5 | $0 | 0.0% | | Total | $539,329,013 | 87.7% | - As of March 31, 2021, loans to Mojix, Inc. with a fair value of $10.1 million were on non-accrual status, representing 2.14% of net assets[203] Liquidity and Capital Resources Liquidity is from operations, offerings, and borrowings; cash was $1.8 million, with $117 million outstanding on the credit facility and $58.1 million in unfunded commitments - Primary sources of cash are net proceeds from security offerings and cash flows from operations; primary uses are investments, operating expenses, and distributions[224] - As of March 31, 2021, the company had $117 million outstanding under its credit facility and $58.1 million in unfunded loan commitments[229][235] - During Q1 2021, the company declared dividends of $11.6 million ($0.37 per share), of which $9.2 million was reinvested through the dividend reinvestment plan[239][241] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces significant market risks, primarily valuation risk from Level 3 assets and interest rate risk from floating-rate instruments, with the upcoming LIBOR transition being a key concern - Valuation risk is significant due to the portfolio's concentration in Level 3 assets, whose fair value is determined in good faith by the Board and involves subjective judgment[279] - As of March 31, 2021, 96.9% of the debt portfolio bore interest at variable rates, primarily LIBOR-based with floors; a hypothetical 200 basis point increase could raise annual investment income by up to $4.0 million[281] - The company faces risk from the planned cessation of LIBOR after 2021/2023, requiring renegotiation of credit agreements and potentially impacting net interest income[283][285] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of the period end, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures are effective in timely alerting them to material information required for SEC reporting[289] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[290] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently subject to any material legal proceedings, nor is it aware of any material proceedings being threatened against it - The company is not currently a party to any material legal proceedings[292] Item 1A. Risk Factors No material changes to risk factors, except for an updated discussion on the LIBOR transition, which could impact credit agreements and the company's financial condition and results of operations - The primary updated risk factor relates to the planned cessation of LIBOR after December 31, 2021 for most settings and June 30, 2023 for key USD settings[296][297] - The elimination of LIBOR could require renegotiation of credit agreements with portfolio companies and the company's own financing facilities, potentially resulting in lower interest income or higher borrowing costs[298] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds On March 24, 2021, the company issued 20,461 common shares to an affiliate of its investment adviser for $306,911 in an unregistered transaction - On March 24, 2021, the company sold 20,461 shares of common stock at $15.00 per share to an affiliate of RGC for total proceeds of $306,911 in an unregistered transaction[303] Item 3. Defaults Upon Senior Securities None - None[304] Item 4. Mine Safety Disclosures Not applicable - Not applicable[305] Item 5. Other Information Not applicable - Not applicable[306] Item 6. Exhibits This section lists the exhibits filed with the report, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act of 2002 - Exhibits filed include CEO and CFO certifications under Rule 13a-14 and Section 906 of the Sarbanes-Oxley Act[308]