Runway Growth Finance (RWAY) - 2022 Q4 - Annual Report

Investment Portfolio Overview - As of December 31, 2022, the total fair value of the investment portfolio was $1,126.3 million, with senior secured term loans comprising 95.90% of the total portfolio[353]. - The company had investments in 49 portfolio companies as of December 31, 2022, compared to 39 portfolio companies as of December 31, 2021[353]. - The ending investment portfolio as of December 31, 2022, was $1,126,309,000, an increase of 54.4% from $729,516,000 in 2021[357]. - The fair value of debt investments rated 2 increased to $1,006,247,000, comprising 89.34% of the total portfolio as of December 31, 2022, compared to 65.7% in 2021[358]. - The fair value of portfolio investments is determined quarterly by the Board of Directors, involving subjective judgments and estimates[398]. - The company’s total investments at fair value were $1,126.3 million as of December 31, 2022, compared to $729.5 million in 2021[442]. - The company’s total borrowings as of December 31, 2022, amounted to $559.25 million, with no payments due in less than one year[384]. - The company’s critical accounting policies include the valuation of investments and the intent to qualify as a RIC annually[395]. Investment Income and Expenses - Total investment income for the year ended December 31, 2022, was $108,552,000, up 52.1% from $71,358,000 in 2021[361]. - Net investment income for 2022 was $59,796,000, representing a per share increase to $1.46 from $1.30 in 2021[361]. - The company recorded a net change in unrealized depreciation on investments of $(26,485,000) for 2022, compared to $(3,045,000) in 2021[361]. - Management fees increased to $11,882,000 in 2022 from $8,989,000 in 2021, reflecting a rise in operational costs[361]. - Operating expenses for the year ended December 31, 2022, were $48.8 million, an increase from $26.9 million in 2021 and $19.6 million in 2020[367]. - Incentive fees for the year ended December 31, 2022, were $13.2 million, up from $9.2 million in 2021 and $7.3 million in 2020[368]. - The net realized loss on investments for the year ended December 31, 2022, was $1.1 million, primarily due to losses on warrants and preferred stock[370]. Investment Strategy and Focus - The company aims to maximize total return primarily through current income on its loan portfolio and capital appreciation on equity positions[362]. - The company expects to invest in loans ranging from $10 million to $100 million, with potential increases as additional capital is raised[362]. - The company has a diverse investment strategy across various sectors, with significant allocations in Health Care Technology and Application Software[452]. - The company’s investments are primarily loans made to high growth-potential companies in technology, life sciences, and healthcare, classified as Level 3 assets under ASC Topic 820 due to the lack of accessible market quotations[402]. - The company intends to maintain its status as a RIC, which generally avoids U.S. federal income tax on distributed income and gains[415]. Cash Flow and Dividends - The company declared and paid dividends totaling $51.6 million for the year ended December 31, 2022, of which $40.7 million was distributed in cash[391]. - Cash and cash equivalents increased to $5.8 million as of December 31, 2022, from $4.7 million in 2021[376]. - The company reported accrued interest receivable of $6.7 million as of December 31, 2022, up from $2.4 million in 2021[442]. Market and Economic Conditions - The ongoing economic effects of the COVID-19 pandemic have introduced significant volatility in financial markets, impacting market risks[423]. - A hypothetical 200 basis point increase in interest rates could increase investment income by a maximum of $21.9 million, while a decrease could reduce it by a maximum of $20.6 million annually[426]. Valuation and Accounting Policies - The company measures the value of its investments at fair value in accordance with ASC Topic 820, which prioritizes observable and unobservable inputs in the valuation process[518][521]. - The quarterly valuation process includes initial valuations by RGC's investment professionals, followed by reviews from the Audit Committee and the Board of Directors[525]. - The fair value determination process involves subjective judgments and estimates, which may differ materially from values that would be used if an active market existed for the investments[520]. - The fair value of warrants is primarily determined using a Black Scholes option-pricing model, with significant increases or decreases in volatility potentially impacting fair value measurements[531]. Geographic and Sectoral Investment Distribution - The largest geographic region for investments was the Northeastern United States, with a fair value of $351,654,000, accounting for 61.04% of the total investments[476]. - The Health Care Technology sector was the most significant industry, with investments valued at $240,844,000, representing 41.81% of the total portfolio[476]. - Total investments in non-control/non-affiliate companies reached $647.4 million, with a fair value of $655.4 million, representing an increase of 1.1%[490].