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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-39958
TRINITY CAPITAL INC.
(Exact name of registrant as specified in its charter)
Maryland
35-2670395
(State or other jurisdiction of incorporation ororganization)
(IRS Employer Identification No.)
1 N. 1st StreetSuite 302Phoenix, Arizona
85004
(Address of principal executive offices)
(Zip Code)
(480) 374‑5350
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per share
TRIN
Nasdaq Global Select Market
7.00% Notes Due 2025
TRINL
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act:
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act). Yes ☐ No ☒
As of August 1, 2023, the registrant had 36,762,578 shares of common stock ($0.001 par value per share) outstanding.
FORM 10‑Q FOR THE QUARTER ENDED JUNE 30, 2023
TABLE OF CONTENTS
PAGE NO.
PART I
FINANCIAL INFORMATION
3
Item 1.
Consolidated Financial Statements
Consolidated Statements of Assets and Liabilities as of June 30, 2023 (unaudited) and December 31, 2022
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited)
4
Consolidated Statements of Changes in Net Assets for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited)
5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022 (unaudited)
7
Consolidated Schedule of Investments as of June 30, 2023 (unaudited)
9
Consolidated Schedule of Investments as of December 31, 2022
32
Notes to Consolidated Financial Statements (unaudited)
56
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
90
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
106
Item 4.
Controls and Procedures
108
PART II
OTHER INFORMATION
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
109
Defaults Upon Senior Securities
Mine Safety Disclosures
110
Item 5.
Other Information
Item 6.
Exhibits
SIGNATURES
111
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Assets and Liabilities
(In thousands, except share and per share data)
June 30,
December 31,
2023
2022
(Unaudited)
ASSETS
Investments at fair value:
Control investments (cost of $44,246 and $43,375, respectively)
$
37,403
37,313
Affiliate investments (cost of $8,690 and $28,580, respectively)
8,767
1,528
Non-Control / Non-Affiliate investments (cost of $1,126,366 and $1,081,629, respectively)
1,101,848
1,055,545
Total investments (cost of $1,179,302 and $1,153,584, respectively)
1,148,018
1,094,386
Cash and cash equivalents
12,268
10,612
Interest receivable
12,117
9,971
Deferred credit facility costs
2,523
2,903
Other assets
14,157
8,567
Total assets
1,189,083
1,126,439
LIABILITIES
KeyBank Credit Facility
232,000
187,500
2025 Notes, net of $2,981 and $3,948, respectively, of unamortized deferred financing costs
179,519
178,552
August 2026 Notes, net of $1,814 and $2,103, respectively, of unamortized deferred financing costs
123,186
122,897
December 2026 Notes, net of $1,288 and $1,474, respectively, of unamortized deferred financing costs
73,712
73,526
Convertible Notes, net of $1,563 and $1,882, respectively, of unamortized deferred financing costs and discount
48,437
48,118
Distribution payable
19,432
21,326
Security deposits
14,986
15,100
Accounts payable, accrued expenses and other liabilities
15,816
19,771
Total liabilities
707,088
666,790
Commitments and contingencies (Note 6)
NET ASSETS
Common stock, $0.001 par value per share (200,000,000 authorized, 36,664,864 and 34,960,672 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively)
37
35
Paid-in capital in excess of par
496,825
480,532
Distributable earnings/(accumulated deficit)
(14,867
)
(20,918
Total net assets
481,995
459,649
Total liabilities and net assets
NET ASSET VALUE PER SHARE
13.15
See accompanying notes to consolidated financial statements.
Consolidated Statements of Operations
Three Months Ended
Six Months Ended
June 30, 2023
June 30, 2022
INVESTMENT INCOME:
Interest income:
Control investments
1,083
1,365
2,199
2,738
Affiliate investments
84
433
118
862
Non-Control / Non-Affiliate investments
43,362
30,713
82,743
57,317
Total interest income
44,529
32,511
85,060
60,917
Fee income:
674
—
1,127
842
947
1,396
4,386
Total fee income
1,516
Total investment income
46,045
33,458
87,583
65,303
EXPENSES:
Interest expense and other debt financing costs
11,985
7,761
23,067
14,559
Compensation and benefits
8,350
6,877
15,967
13,331
Professional fees
1,411
891
2,828
1,723
General and administrative
1,549
1,558
3,044
3,035
Total expenses
23,295
17,087
44,906
32,648
NET INVESTMENT INCOME/(LOSS) BEFORE TAXES
22,750
16,371
42,677
32,655
Excise tax expense
653
657
1,251
1,331
NET INVESTMENT INCOME
22,097
15,714
41,426
31,324
NET REALIZED GAIN/(LOSS) FROM INVESTMENTS:
(228
(26,251
(9,633
(360
244
(725
52,888
Net realized gain/(loss) from investments
(26,611
(9,617
(26,976
43,027
NET CHANGE IN UNREALIZED APPRECIATION/(DEPRECIATION) FROM INVESTMENTS:
(1,188
(804
(780
(5,136
26,152
6,913
27,128
3,650
(568
(19,929
1,568
(89,652
Net change in unrealized appreciation/(depreciation) from investments
24,396
(13,820
27,916
(91,138
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
19,882
(7,723
42,366
(16,787
NET INVESTMENT INCOME PER SHARE - BASIC
0.61
0.51
1.17
1.07
NET INVESTMENT INCOME PER SHARE - DILUTED
0.58
0.48
1.10
1.02
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS PER SHARE - BASIC
0.55
(0.25
1.19
(0.58
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS PER SHARE - DILUTED(1)
0.52
1.13
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC
36,024,566
30,955,022
35,551,947
29,188,790
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED
39,691,361
34,331,597
39,218,742
32,565,365
(1) For the three and six months ended June 30, 2022, the impact of the hypothetical conversion of Convertible Notes was antidilutive (see Note 9).
Consolidated Statements of Changes in Net Assets
Three Months Ended June 30, 2023:
Distributable
Paid In Capital
Earnings /
Common Stock
in Excess of
(Accumulated
Total
Shares
Par Value
Loss)
Net Assets
Balance as of March 31, 2023
35,925,764
36
484,951
(15,317
469,670
Issuance of common stock pursuant to distribution reinvestment plan
43,655
552
Stock-based compensation
2,310
Issuance of restricted stock awards
15,196
Issuance of common stock under ATM program, net of issuance costs
719,329
1
9,539
9,540
Retired and forfeited shares of restricted stock
(39,080
(527
Distributions to stockholders
(19,432
Net increase/(decrease) in net assets resulting from operations
Balance as of June 30, 2023
36,664,864
Three Months Ended June 30, 2022:
Balance as of March 31, 2022
27,982,842
28
370,570
53,443
424,041
30,800
588
1,767
13,540
Issuance of common stock, net of issuance costs
3,344,214
57,911
57,914
(15,564
(372
(17,873
Balance as of June 30, 2022
31,355,832
31
430,464
27,847
458,342
Six Months Ended June 30, 2023:
Balance as of December 31, 2022
34,960,672
97,840
1,215
Stock based compensation
4,075
Issuance of restricted stock
798,296
(1
1,022,309
13,587
13,588
Stock repurchase and cancellation of shares
(91,691
(1,003
(122,562
(1,580
(36,315
Six Months Ended June 30, 2022:
Balance as of December 31, 2021
27,229,541
27
368,609
77,897
446,533
90,334
1,642
2,677
718,263
(26,520
(375
(33,263
6
Consolidated Statements of Cash Flows
(In thousands)
Cash flows provided by/(used in) operating activities:
Adjustments to reconcile net increase/(decrease) in net assets resulting from operation to net cash provided by/(used in) operating activities:
Purchase of investments, net of deferred fees
(223,831
(413,615
Proceeds from sales and paydowns of investments
186,265
203,416
Net change in unrealized appreciation/(depreciation) from investments, net of third party participation
(27,916
91,138
26,976
(43,027
Accretion of original issue discounts and end of term payments on investments
(15,105
(15,516
Amortization of deferred financing costs
2,144
1,653
Change in operating assets and liabilities
(Increase)/Decrease in interest receivable
(2,167
(3,049
(Increase)/Decrease in receivable from sale of investments
(3,086
(Increase)/Decrease in other assets
(4,120
(2,323
Increase/(Decrease) in security deposits
(114
1,675
Increase/(Decrease) in accounts payable, accrued expenses and other liabilities
(3,955
1,130
Net cash provided by/(used in) operating activities
(15,382
(195,714
Cash flows provided by/(used in) investing activities:
Disposal/(Acquisition) of fixed assets
(1,470
24
Net cash provided by/(used in) investing activities
Cash flows provided by/(used in) financing activities
Issuance of common stock net of costs
Stock repurchase and cancellation of shares net of costs
Retirement of employee shares
(23,550
Cash distributions paid
(36,996
(815
Borrowings under Credit Facilities
147,000
184,000
Repayments under Credit Facilities
(102,500
(55,000
Net cash provided by/(used in) financing activities
18,508
162,174
Net increase/(decrease) in cash, cash equivalents
1,656
(33,516
Cash, cash equivalents at beginning of period
46,742
Cash, cash equivalents at end of period
13,226
Supplemental and non-cash investing and financing activities:
Cash paid for interest
20,338
12,279
Non-cash settlement of investments
21
Accrued but unpaid distributions
17,873
Distributions reinvested
Income tax, including excise tax, paid
2,304
310
8
Consolidated Schedule of Investments
Portfolio Company (1)
Type of Investment (2)
Investment Date (3)
Maturity Date
Interest Rate (4)
Principal Amount (5)
Cost
Fair Value (6)
Debt Securities- United States
Automation & Internet of Things
Ambient Photonics, Inc.
Secured Loan⁽¹⁴⁾
July 28, 2022
July 1, 2025
Variable interest rate Prime + 6.0% or Floor rate 9.5%; EOT 4.0% ⁽⁸⁾
3,135
3,209
3,284
November 17, 2022
May 1, 2025
3,631
3,688
3,745
December 20, 2022
June 1, 2025
600
607
617
Total Ambient Photonics, Inc.
7,366
7,504
7,646
Rigetti & Co, Inc.
Secured Loan
March 10, 2021
April 1, 2025
Variable interest rate Prime + 7.5% or Floor rate 11.0%; EOT 2.8% ⁽⁸⁾
9,220
9,404
9,369
May 18, 2021
6,631
6,733
6,703
November 10, 2021
December 1, 2025
7,000
7,034
6,995
January 27, 2022
February 1, 2026
5,000
5,055
5,023
Total Rigetti & Co, Inc.
27,851
28,226
28,090
Stratifyd, Inc.
September 3, 2021
January 1, 2026
Variable interest rate Prime + 7.8% or Floor rate 11.0%; EOT 3.5% ⁽⁸⁾
5,323
5,416
5,397
Sub-total: Automation & Internet of Things (3.5%)*
40,540
41,146
41,133
Connectivity
Vertical Communications, Inc.(20)
August 23, 2021
March 1, 2026
Variable interest rate Prime + 4.0% or Floor rate 11.0%; EOT 23.8% ⁽⁸⁾
13,300
15,764
15,763
viaPhoton, Inc.
March 31, 2022
April 1, 2027
Variable interest rate Prime + 6.6% or Floor rate 9.9%; EOT 5.0%
15,000
15,210
13,938
Sub-total: Connectivity (2.5%)*
28,300
30,974
29,701
Construction Technology
EquipmentShare, Inc.
Equipment Financing
October 2, 2020
November 1, 2023
Fixed interest rate 10.4%; EOT 5.0%
150
151
October 9, 2020
Fixed interest rate 10.5%; EOT 5.0%
342
475
Total EquipmentShare, Inc.
450
625
626
Sub-total: Construction Technology (0.1%)*
Debt Securities- United States, Continued
Consumer Products & Services
Eterneva, Inc.
Equipment Financing⁽¹⁴⁾
November 24, 2021
Fixed interest rate 10.6%; EOT 11.5%
362
401
370
March 16, 2022
April 1, 2026
Fixed interest rate 10.4%; EOT 11.5%
551
595
548
June 17, 2022
July 1, 2026
Fixed interest rate 16.2%; EOT 11.5%
1,520
1,608
Total Eterneva, Inc.
2,433
2,604
2,434
Fernished, Inc.
Equipment Financing(14)(18)
October 29, 2021
November 1, 2024
Fixed interest rate 13.4%; EOT 3.0%
252
261
40
March 21, 2022
Fixed interest rate 13.2%; EOT 3.0%
691
965
149
May 10, 2022
956
695
107
Total Fernished, Inc.
1,899
1,921
296
Happiest Baby, Inc.
September 16, 2020
January 1, 2024
Fixed interest rate 8.4%; EOT 9.5%
230
355
349
January 22, 2021
May 1, 2024
283
372
364
Total Happiest Baby, Inc.
513
727
713
Molekule, Inc.
June 19, 2020
Fixed interest rate 8.8%; EOT 10.0%
468
752
736
September 29, 2020
Fixed interest rate 12.3%; EOT 10.0%
302
376
December 18, 2020
Fixed interest rate 11.9%; EOT 10.0%
516
628
605
August 25, 2021
Fixed interest rate 11.3%; EOT 10.0%
411
480
451
Total Molekule, Inc.
1,697
2,236
2,156
Ogee, Inc.
February 14, 2023
March 1, 2027
Variable interest rate Prime + 5.8% or Floor rate 12.0%; EOT 3.8% ⁽⁸⁾
4,928
5,052
Portofino Labs, Inc.
April 1, 2021
November 1, 2025
Variable interest rate Prime + 8.3% or Floor rate 11.5%; EOT 4.0% ⁽⁸⁾
1,681
1,729
1,713
Quip NYC, Inc.
March 9, 2021
Variable interest rate Prime + 8.0% or Floor rate 11.3%; EOT 3.0% ⁽⁸⁾
16,528
16,720
16,891
February 10, 2022
2,361
2,400
2,430
Total Quip NYC, Inc.
18,889
19,120
19,321
Rinse, Inc.
June 1, 2027
Variable interest rate Prime + 8.0% or Floor rate 11.3%; EOT 3.8% ⁽⁸⁾
4,984
5,073
SI Tickets, Inc.
May 11, 2022
September 1, 2026
Variable interest rate Prime + 8.3% or Floor rate 11.5%; EOT 3.0% ⁽⁸⁾
3,000
2,983
2,944
Super73, Inc.
December 31, 2020
January 1, 2025
Variable interest rate Prime + 7.3% or Floor rate 11.5%; EOT 4.0% ⁽⁸⁾
3,169
3,336
3,342
October 25, 2021
2,592
2,712
2,716
Total Super73, Inc.
5,761
6,048
6,058
UnTuckIt, Inc.
January 16, 2020
Fixed interest rate 12.0%; EOT 3.8%
10,584
11,344
11,014
VitaCup, Inc.
June 23, 2021
Variable interest rate Prime + 7.5% or Floor rate 11.5%; EOT 2.5% ⁽⁸⁾
5,500
5,567
5,608
Whoop, Inc.
May 17, 2023
June 1, 2028
Variable interest rate Prime + 5.3% or Floor rate 13.0%; EOT 2.5% ⁽⁸⁾
35,000
33,943
Sub-total: Consumer Products & Services (8.1%)*
96,957
98,134
96,325
10
Digital Assets Technology and Services
Cleanspark, Inc.
April 22, 2022
Fixed interest rate 10.3%; EOT 5.0%
12,864
13,450
13,062
Core Scientific, Inc.
Equipment Financing(18)
August 31, 2021
October 1, 2024
700
445
November 19, 2021
December 1, 2024
Fixed interest rate 10.7%; EOT 5.0%
10,132
10,437
6,696
December 13, 2021
3,753
3,853
2,480
February 9, 2022
March 1, 2025
8,018
8,179
5,299
Total Core Scientific, Inc.
22,577
23,169
14,920
Sub-total: Digital Assets Technology and Services (2.4%)*
35,441
36,619
27,982
Education Technology
Medical Sales Training Holding Company
March 18, 2021
Variable interest rate Prime + 8.8% or Floor rate 12.0%; EOT 5.0% ⁽⁸⁾
5,834
6,130
5,547
July 21, 2021
August 1, 2025
2,000
2,099
1,902
Total Medical Sales Training Holding Company
7,834
8,229
7,449
Yellowbrick Learning, Inc.
February 1, 2021
Fixed interest rate 2.0%; EOT 5.0%
7,500
7,875
5,069
August 10, 2021
2,500
2,625
1,693
Total Yellowbrick Learning, Inc.
10,000
10,500
6,762
Sub-total: Education Technology (1.2%)*
17,834
18,729
14,211
Finance and Insurance
Bestow, Inc.
April 25, 2022
May 1, 2027
Variable interest rate Prime + 6.5% or Floor rate 10.0%; EOT 1.5% ⁽⁸⁾
25,000
25,048
24,856
May 12, 2022
15,022
15,038
Total Bestow, Inc.
40,000
40,070
39,894
Eqis Capital Management, Inc.
June 15, 2022
Variable interest rate Prime + 7.5% or Floor rate 10.8%; EOT 3.0% ⁽⁸⁾
7,210
7,121
Openly Holdings Corp.
Secured Loan(9)(14)
November 18, 2022
December 1, 2027
Variable interest rate Prime + 6.3% or Floor rate 10.5%; EOT 2.8% ⁽⁸⁾
3,125
3,212
January 31, 2023
6,250
6,236
6,431
June 22, 2023
15,625
15,550
Total Openly Holdings Corp.
24,911
25,193
Petal Card, Inc.
Variable interest rate Prime + 7.5% or Floor rate 11.0%+PIK Interest Rate 1.0%; EOT 11.0% (8)(15)
10,038
8,360
8,794
August 6, 2021
7,027
5,852
6,156
Secured Loan (12)
January 28, 2021
January 11, 2024
Variable interest rate Prime + 9.0% or Floor rate 11.5%; EOT 0.0% ⁽⁸⁾
26,582
26,543
Total Petal Card, Inc.
43,647
40,755
41,532
Slope Tech, Inc.
Secured Loan(12)(14)
October 5, 2022
March 14, 2025
Variable interest rate SOFR 30 Day Forward + 3.0% or Floor rate 11.8%; EOT 0.0% ⁽⁸⁾
3,998
4,078
4,104
ZenDrive, Inc.
July 16, 2021
August 1, 2026
Variable interest rate Prime + 7.0% or Floor rate 10.3%; EOT 3.0% ⁽⁸⁾
15,156
15,158
Sub-total: Finance and Insurance (11.2%)*
134,645
132,180
133,002
11
Food and Agriculture Technologies
Athletic Brewing Company, LLC
December 7, 2021
Fixed interest rate 11.1%; EOT 7.0%
19,900
20,290
20,126
Fixed interest rate 11.2%; EOT 7.0%
4,968
5,043
5,019
Total Athletic Brewing Company, LLC
24,868
25,333
25,145
Bowery Farming, Inc.
September 10, 2021
September 10, 2026
Variable interest rate LIBOR + 11.0% or Floor rate 10.1%(8)(15)
10,282
9,907
9,826
Daring Foods, Inc.
April 8, 2021
Fixed interest rate 9.6%; EOT 7.5%
153
187
185
September 1, 2024
Fixed interest rate 10.0%; EOT 7.5%
257
294
288
November 1, 2021
Fixed interest rate 9.4%; EOT 7.5%
538
596
582
March 8, 2022
Fixed interest rate 9.5%; EOT 7.5%
1,404
1,506
1,461
April 29, 2022
Fixed interest rate 10.2%; EOT 7.5%
644
685
665
July 6, 2022
Fixed interest rate 10.9%; EOT 7.5%
327
344
337
August 25, 2022
September 1, 2025
Fixed interest rate 12.1%; EOT 7.5%
795
829
818
Total Daring Foods, Inc.
4,118
4,441
4,336
DrinkPak, LLC
September 13, 2022
Variable interest rate Prime + 7.3% or Floor rate 12.8%; EOT 4.0% ⁽⁸⁾
6,000
6,107
6,041
Equipment Financing(9)(14)
February 17, 2023
Fixed interest rate 12.9%; EOT 7.0%
14,305
14,430
14,586
Total DrinkPak, LLC
20,305
20,537
20,627
Emergy, Inc.
January 8, 2021
Fixed interest rate 9.1%; EOT 8.5%
165
211
206
December 15, 2021
Fixed interest rate 9.3%; EOT 11.5%
6,749
7,532
7,152
December 13, 2022
Fixed interest rate 12.6%; EOT 11.5%
9,438
9,725
9,635
Total Emergy, Inc.
16,352
17,468
16,993
Miyoko's Kitchen
February 5, 2021
September 1, 2023
Fixed interest rate 8.5%; EOT 9.0%
48
105
June 25, 2021
Fixed interest rate 8.9%; EOT 9.0%
130
181
178
Total Miyoko's Kitchen
Sun Basket, Inc.
June 30, 2024
Variable interest rate Prime + 8.5% or Floor rate 11.8%; EOT 5.8% ⁽⁸⁾
11,111
12,172
11,828
The Fynder Group, Inc.
October 14, 2020
Fixed interest rate 9.1%; EOT 10.0%
238
October 1, 2025
Fixed interest rate 9.3%; EOT 10.0%
2,011
2,132
2,055
Total The Fynder Group, Inc.
2,198
2,376
2,293
Sub-total: Food and Agriculture Technologies (7.7%)*
89,412
92,522
91,331
12
Green Technology
Bolb, Inc.
October 12, 2021
Fixed interest rate 10.3%; EOT 6.0%
823
900
874
Commonwealth Fusion Systems, LLC
Fixed interest rate 9.5%; EOT 8.5%
1,056
1,218
1,189
October 20, 2021
Fixed interest rate 9.7%; EOT 8.5%
325
371
361
June 16, 2023
July 1, 2030
Fixed interest rate 13.0%; EOT 10.0%
8,395
8,320
Total Commonwealth Fusion Systems, LLC
9,776
9,909
9,870
Dandelion Energy, Inc.
March 17, 2020
April 1, 2024
Fixed interest rate 9.0%; EOT 12.5%
183
177
October 27, 2020
Fixed interest rate 9.2%; EOT 12.5%
212
275
263
November 19, 2020
Fixed interest rate 9.1%; EOT 12.5%
272
347
331
December 29, 2020
329
413
394
March 25, 2021
712
860
819
December 1, 2021
Fixed interest rate 8.8%; EOT 12.5%
902
1,006
954
April 8, 2022
May 1, 2026
Fixed interest rate 8.9%; EOT 12.5%
1,664
1,799
1,710
May 27, 2022
June 1, 2026
769
824
789
June 13, 2022
Fixed interest rate 9.5%; EOT 12.5%
1,173
1,250
1,197
August 24, 2022
Fixed interest rate 11.1%; EOT 12.5%
753
792
776
November 10, 2022
December 1, 2026
Fixed interest rate 11.6%; EOT 12.5%
692
718
723
April 12, 2023
Fixed interest rate 12.1%; EOT 12.5%
1,557
1,569
June 29, 2023
July 1, 2027
Fixed interest rate 12.7%; EOT 12.5%
1,296
1,290
Total Dandelion Energy, Inc.
10,449
11,326
10,992
Electric Hydrogen Co.
September 12, 2022
Fixed interest rate 9.0%; EOT 10.0%
1,721
1,700
Hi-Power, LLC
September 30, 2021
Fixed interest rate 12.4%; EOT 1.0%
3,839
3,884
3,846
September 30, 2022
Fixed interest rate 14.7%; EOT 1.0%
3,444
3,430
3,435
Total Hi-Power, LLC
7,283
7,314
7,281
SeaOn Global, LLC
June 16, 2022
Fixed interest rate 9.3%; EOT 11.0%
5,269
5,572
August 17, 2022
2,658
2,780
2,685
Total SeaOn Global, LLC
7,927
8,352
8,008
Edeniq, Inc.(20)
November 30, 2021
Fixed interest rate 18.0%; EOT 5.7%
3,700
2,245
3,755
Footprint International Holding, Inc.
February 18, 2022
Variable interest rate Prime + 7.3% or Floor rate 10.5%; EOT 3.5% ⁽⁸⁾
20,000
18,593
19,985
April 20, 2022
19,895
Total Footprint International Holding, Inc.
37,101
39,880
Mainspring Energy, Inc.
March 18, 2022
October 1, 2026
Fixed interest rate 11.0%; EOT 3.8%
30,000
30,246
29,361
RTS Holding, Inc.
December 31, 2021
January 1, 2027
Variable interest rate Prime + 7.25% or Floor rate 10.5%+PIK Interest Rate 4.25%; EOT 3.0% (15)
13,800
14,297
14,565
October 21, 2022
November 1, 2027
Variable interest rate Prime + 7.25% or Floor rate 13.5%; EOT 3.0% (15)
7,200
7,156
7,024
Total RTS Holding, Inc.
21,000
21,453
21,589
Sub-total: Green Technology (11.2%)*
132,600
130,567
133,310
13
Healthcare
Emerald Cloud Lab, Inc.
July 13, 2021
August 1, 2024
Fixed interest rate 9.7%; EOT 7.0%
4,175
4,821
4,704
Dentologie Enterprises, Inc.
October 14, 2022
Variable interest rate Prime + 6.9% or Floor rate 10.9%; EOT 3.0% ⁽⁸⁾
2,988
2,921
Exer Holdings, LLC
Variable interest rate Prime + 7.0% or Floor rate 11.5%; EOT 3.0% ⁽⁸⁾
22,500
22,637
23,175
7,534
7,725
Total Exer Holdings, LLC
30,171
30,900
Lark Technologies, Inc.
September 30, 2020
Variable interest rate Prime + 8.3% or Floor rate 11.5% or ceiling rate of 13.5%; EOT 4.0%(8)
3,399
3,330
June 30, 2021
4,420
4,448
4,330
Total Lark Technologies, Inc.
7,704
7,847
7,660
WorkWell Prevention & Care Inc.
Secured Loan(14)
December 31, 2022
Variable interest rate Prime + 5.0% or Floor rate 6.0%; EOT 0.0% ⁽⁸⁾
500
Sub-total: Healthcare (3.9%)*
45,379
46,327
46,685
14
Human Resource Technology
Nomad Health, Inc.
March 29, 2022
Variable interest rate Prime + 5.5% or Floor rate 9.3%; EOT 4.0% ⁽⁸⁾
30,270
30,604
Qwick, Inc.
Variable interest rate Prime + 8.0% or Floor rate 11.0%; EOT 5.0% ⁽⁸⁾
5,091
5,250
August 12, 2022
4,998
Total Qwick, Inc.
10,089
Sub-total: Human Resource Technology (3.5%)*
40,359
41,104
Industrials
3DEO, Inc.
February 23, 2022
Fixed interest rate 9.1%; EOT 9.0%
2,327
2,637
2,395
April 12, 2022
Fixed interest rate 9.0%; EOT 9.0%
1,151
1,292
1,166
Total 3DEO, Inc.
3,478
3,929
3,561
Sub-total: Industrials (0.3%)*
Life Sciences
Convergent Dental, Inc.
April 21, 2023
Variable interest rate Prime + 5.8% or Floor rate 13.5%; EOT 4.0% ⁽⁸⁾
12,000
11,552
Delphinus Medical Technologies, Inc.
7,380
Greenlight Biosciences Inc.
March 29, 2021
Fixed interest rate 9.7%; EOT 8.0%
921
1,168
1,150
June 17, 2021
July 1, 2024
Fixed interest rate 9.5%; EOT 8.0%
1,593
1,896
1,862
940
1,085
1,059
545
629
612
Total Greenlight Biosciences Inc.
3,999
4,778
4,683
Pendulum Therapeutics, Inc.
January 17, 2020
August 1, 2023
Fixed interest rate 7.8%; EOT 5.0%
74
210
March 6, 2020
October 1, 2023
Fixed interest rate 7.7%; EOT 5.0%
61
99
July 15, 2020
February 1, 2024
Fixed interest rate 9.8%; EOT 6.0%
190
248
245
Variable interest rate Prime + 6.8% or Floor rate 10.0%; EOT 3.0% ⁽⁸⁾
5,054
5,067
February 28, 2022
5,045
March 30, 2022
5,040
5,047
May 6, 2022
5,028
5,037
5,024
5,032
Total Pendulum Therapeutics, Inc.
25,325
25,749
25,791
Deerfield Imaging Holdings, Inc.
April 14, 2022
Variable interest rate Prime + 6.0% or Floor rate 10.0%; EOT 5.0% ⁽⁸⁾
18,250
18,494
18,597
Revelle Aesthetics, Inc.
May 30, 2023
May 30, 2028
14,775
RXAnte, Inc.
November 21, 2022
Variable interest rate Prime + 4.48% or Floor rate 9.98%+PIK Fixed Interest Rate 1.5%; EOT 3.5% (15)
9,071
9,013
8,999
April 14, 2023
3,007
2,967
Total RXAnte, Inc.
12,078
11,980
11,966
TMRW Life Sciences, Inc.
Variable interest rate Prime + 5.0% or Floor rate 8.8%; EOT 4.0% ⁽⁸⁾
5,036
5,071
March 3, 2023
14,945
Total TMRW Life Sciences, Inc.
19,981
20,016
Sub-total: Life Sciences (9.7%)*
114,152
114,689
114,760
15
Marketing, Media, and Entertainment
Drone Racing League, Inc.
October 17, 2022
May 17, 2027
Variable interest rate Prime + 7.5% or Floor rate 11.0%; EOT 2.5% ⁽⁸⁾
9,827
9,705
Grabit Interactive Media, Inc.
November 1, 2026
Variable interest rate Prime + 7.5% or Floor rate 10.8%; EOT 2.5% ⁽⁸⁾
4,500
4,506
4,463
Incontext Solutions, Inc.
Fixed interest rate 11.8%; EOT 11.4%
3,146
4,295
3,605
PebblePost, Inc.
May 7, 2021
Variable interest rate Prime + 8.8% or Floor rate 11.5%; EOT 3.8% ⁽⁸⁾
11,500
11,730
11,685
Vox Media Holdings, Inc.
October 18, 2022
Variable interest rate Prime + 6.3% or Floor rate 11.8%; EOT 2.5% ⁽⁸⁾
11,929
12,105
December 29, 2022
January 1, 2028
5,949
6,059
Total Vox Media Holdings, Inc.
18,000
17,878
18,164
Sub-total: Marketing, Media, and Entertainment (4.0%)*
47,146
48,236
47,622
Multi-Sector Holdings
Trinity Investor JV I LLC (f.k.a. i40, LLC)(10)(20)
January 30, 2023
December 5, 2028
Fixed interest rate 8.5%; EOT 0.0%
6,083
Sub-total: Multi-Sector Holdings (0.5%)*
Real Estate Technology
BlueGround US, Inc.
June 6, 2022
Fixed interest rate 9.6%; EOT 8.0%
3,319
3,469
3,372
July 26, 2022
Fixed interest rate 11.1%; EOT 8.0%
4,705
4,892
4,797
Fixed interest rate 11.6%; EOT 8.0%
3,735
3,870
3,830
September 26, 2022
Fixed interest rate 11.9%; EOT 8.0%
4,552
4,694
4,692
October 25, 2022
Fixed interest rate 12.6%; EOT 8.0%
3,801
3,904
3,905
November 30, 2022
Fixed interest rate 12.7%; EOT 8.0%
2,507
2,565
2,596
Total BlueGround US, Inc.
22,619
23,394
23,192
BoardRE, Inc.
October 15, 2021
Variable interest rate Prime + 8.3% or Floor rate 11.5%; EOT 4.5% ⁽⁸⁾
5,232
4,755
Knockaway, Inc.
Variable interest rate Prime + 6.3% or Floor rate 11.0%; EOT 3.0% ⁽⁸⁾
14,734
14,889
12,785
2,020
1,735
December 28, 2021
4,275
4,313
3,709
Total Knockaway, Inc.
21,009
21,222
18,229
Maxwell Financial Labs, Inc.
18,384
17,763
Orchard Technologies, Inc.
March 11, 2021
Variable interest rate Prime + 7.5% or Floor rate 11.0%; EOT 4.0% ⁽⁸⁾
4,779
4,899
4,865
July 23, 2021
12,500
12,762
12,682
August 2, 2022
12,593
12,635
Total Orchard Technologies, Inc.
29,779
30,254
30,182
Sub-total: Real Estate Technology (7.9%)*
96,407
98,486
94,121
16
Software as a Service ("SaaS")
All Seated, Inc.
Variable interest rate Prime + 7.0% or Floor rate 10.8%; EOT 3.5% ⁽⁸⁾
5,895
BackBlaze, Inc.
Fixed interest rate 7.5%; EOT 11.5%
Fixed interest rate 7.7%; EOT 11.5%
43
18
Fixed interest rate 7.2%; EOT 11.5%
80
176
174
December 1, 2023
129
253
249
Fixed interest rate 7.4%; EOT 11.5%
131
236
231
January 20, 2020
255
251
February 1, 2020
March 1, 2024
146
234
229
March 26, 2020
49
72
April 17, 2020
Fixed interest rate 7.3%; EOT 11.5%
340
502
489
July 27, 2020
442
581
September 4, 2020
87
113
1,313
1,572
Total BackBlaze, Inc.
2,905
4,143
4,030
The Tomorrow Companies, Inc.
December 14, 2022
Variable interest rate Prime + 7.0% or Floor rate 10.8%; EOT 3.0% ⁽⁸⁾
3,250
3,202
3,231
Sub-total: SaaS (1.1%)*
12,155
13,404
13,156
Space Technology
Astranis Space Technology Corporation
April 13, 2023
Fixed interest rate 12.1%; EOT 5.0%
14,362
14,356
14,359
Axiom Space, Inc.
May 28, 2021
Variable interest rate Prime + 6.0% or Floor rate 9.3%; EOT 2.5% ⁽⁸⁾
30,299
30,417
Hadrian Automation, Inc.
March 2, 2022
Fixed interest rate 12.6%; EOT 0.0%
346
345
341
Fixed interest rate 12.9%; EOT 0.0%
3,596
3,583
July 15, 2022
Fixed interest rate 14.3%; EOT 0.0%
2,568
2,557
2,558
Fixed interest rate 15.2%; EOT 0.0%
4,524
4,511
4,580
December 22, 2022
Fixed interest rate 16.1%; EOT 0.0%
1,093
1,078
Fixed interest rate 16.4%; EOT 0.0%
978
973
1,020
March 29, 2023
3,003
Total Hadrian Automation, Inc.
16,108
16,035
16,175
Hermeus Corporation
August 9, 2022
Fixed interest rate 9.6%; EOT 6.0%
861
887
853
October 11, 2022
Fixed interest rate 11.8%; EOT 6.0%
1,548
1,574
1,541
Fixed interest rate 12.6%; EOT 6.0%
2,064
2,039
Total Hermeus Corporation
4,473
4,433
Space Perspective, Inc.
March 3, 2022
Variable interest rate Prime + 7.8% or Floor rate 11.0%; EOT 5.0% ⁽⁸⁾
5,022
4,869
Sub-total: Space Technology (5.9%)*
69,943
70,212
70,253
17
Transportation Technology
NextCar Holding Company, Inc.
December 14, 2021
September 30, 2023
Variable interest rate Prime + 5.8% or Floor rate 9.0%; EOT 5.3%(8)(15)
5,290
5,553
5,205
2,116
2,221
2,082
2,645
2,776
2,603
3,174
3,331
3,123
April 18, 2022
May 17, 2022
5,552
June 22, 2022
Total NextCar Holding Company, Inc.
26,450
27,761
26,027
Zuum Transportation, Inc.
December 17, 2021
Variable interest rate Prime + 6.0% or Floor rate 10.8%; EOT 2.5% ⁽⁸⁾
5,038
4,777
Sub-total: Transportation Technology (2.6%)*
31,450
32,799
30,804
Total: Debt Securities- United States (87.1%)*
1,042,372
1,056,020
1,035,770
Debt Securities- Canada
Nexii Building Solutions, Inc. (10)
August 27, 2021
August 27, 2025
Variable interest rate Prime + 7.0% or Floor rate 10.3%; EOT 2.5%(8)(15)
10,258
10,508
10,085
June 8, 2022
June 8, 2026
5,129
5,254
4,964
Total Nexii Building Solutions, Inc.
15,387
15,762
15,049
Sub-total: Construction Technology (1.3%)*
Hut 8 Holdings, Inc. (10)
December 30, 2021
Fixed interest rate 9.5%; EOT 3.5%
15,941
16,641
16,391
Sub-total: Digital Assets Technology and Services (1.4%)*
Supply Chain Technology
GoFor Industries, Inc. (10)(20)
Secured Loan(18)
January 21, 2022
Variable interest rate Prime + 8.8% or Floor rate 12.0%; EOT 2.5% ⁽⁸⁾
9,570
9,385
7,322
Sub-total: Supply Chain Technology (0.6%)*
Total: Debt Securities- Canada (3.3%)*
40,898
41,788
38,762
Debt Securities- Europe
Aledia, Inc. (10)
Fixed interest rate 9.0%; EOT 7.0%
11,147
11,936
11,577
814
855
835
August 5, 2022
Fixed interest rate 10.7%; EOT 7.0%
1,139
1,186
1,164
Fixed interest rate 12.0%; EOT 7.0%
1,871
1,933
1,913
Total Aledia, Inc.
14,971
15,910
15,489
Sub-total: Industrials (1.3%)*
All.Space Networks, Limited.(10)
August 22, 2022
September 1, 2027
Variable interest rate Prime + 7.0% or Floor rate 11.5%; EOT 2.5% ⁽⁸⁾
9,961
10,074
Sub-total: Space Technology (0.8%)*
Total: Debt Securities- Europe (2.1%)*
24,971
25,871
25,563
Total: Debt Securities (92.5%)(19)*
1,108,241
1,123,679
1,100,095
19
Expiration Date
Series
Strike Price
Warrant Investments- United States
Warrant⁽¹⁴⁾
July 27, 2022
July 27, 2032
159,760
95
Everalbum, Inc.
July 29, 2026
Preferred Series A⁽¹⁷⁾
851,063
0.10
25
Hologram, Inc.
January 31, 2020
January 27, 2030
193,054
0.26
295
Presto Automation, Inc.
Warrant(7)(14)
April 28, 2027
402,679
0.37
1,638
July 28, 2027
170,997
5.85
156
Total Presto Automation, Inc.
213
1,794
September 3, 2031
Preferred Series B-2⁽¹⁷⁾
106,719
2.53
22
Sub-Total: Automation & Internet of Things (0.2%)*
391
2,207
Tarana Wireless, Inc.
June 30, 2031
5,027,629
0.19
968
1,969
Vertical Communications, Inc. (20)
Warrant⁽¹¹⁾⁽¹⁴⁾
July 11, 2026
828,479
1.00
March 31, 2032
15,839
0.60
2
Sub-Total: Connectivity (0.2%)*
990
1,971
Project Frog, Inc. (20)
July 26, 2026
Preferred Series AA-1⁽¹⁷⁾
211,649
180,340
August 3, 2021
December 31, 2031
Preferred Series CC⁽¹⁷⁾
250,000
0.01
20
Total Project Frog, Inc.
38
29
Sub-total: Construction Technology (0.0%)*
Warrant Investments- United States, Continued
BaubleBar, Inc.
March 29, 2027
Preferred Series C⁽¹⁷⁾
531,806
1.96
638
240
April 20, 2028
60,000
Total BaubleBar, Inc.
710
267
Boosted eCommerce, Inc.
December 14, 2030
Preferred Series A-1⁽¹⁷⁾
759,263
0.84
259
26
May 5, 2021
May 5, 2031
54,427
0.15
39
November 30, 2032
25,547
59
,
May 16, 2029
182,554
0.33
193
70
Madison Reed, Inc.
March 23, 2027
194,553
2.57
486
July 18, 2028
43,158
0.99
71
141
June 30, 2029
36,585
1.23
115
Total Madison Reed, Inc.
312
742
February 14, 2033
Preferred Series A-3⁽¹⁷⁾
259,222
0.68
57
53
December 31, 2030
99,148
1.53
160
79
April 1, 2031
39,912
1.46
Total Portofino Labs, Inc.
March 9, 2031
10,833
48.46
203
42
May 10, 2032
278,761
218
May 11, 2032
53,029
2.52
162
44
177,305
3.16
641
Trendly, Inc.
August 10, 2026
245,506
1.14
222
June 23, 2031
68,996
2.79
May 17, 2033
2,579,723
0.43
765
Sub-Total: Consumer Products & Services (0.3%)*
3,433
2,987
March 18, 2031
28,732
7.74
September 30, 2028
222,222
0.90
120
Sub-Total: Education Technology (0.0%)*
228
DailyPay, Inc.
September 30, 2030
89,264
3.00
Dynamics, Inc.
March 10, 2024
17,000
10.59
86
June 15, 2032
Preferred Class B⁽¹⁷⁾
904,000
November 27, 2029
250,268
1.32
147
January 11, 2021
January 11, 2031
135,835
157
August 6, 2031
111,555
1.60
197
97
June 20, 2023
June 20, 2033
402,434
1,523
2,179
2,006
RealtyMogul, Co.
December 18, 2027
Preferred Series B⁽¹⁷⁾
234,421
3.88
285
September 14, 2022
September 14, 2032
45,485
0.88
217
July 16, 2031
30,466
2.46
Sub-Total: Finance and Insurance (0.2%)*
2,849
2,600
October 28, 2022
October 28, 2032
3,741
140.21
287
219
June 10, 2029
68,863
5.08
410
235
December 22, 2020
December 22, 2030
29,925
6.24
96
September 10, 2028
21,577
93
Total Bowery Farming, Inc.
1,187
424
April 8, 2031
68,100
0.27
Warrant(9)(14)
September 13, 2032
2,387
19.12
February 17, 2033
13,618
18.89
October 5, 2032
40,516
3.96
112
GrubMarket, Inc.
June 15, 2020
June 15, 2030
405,000
2,750
PSB Holdings, Inc.
October 5, 2027
103,636
14.47
December 29, 2032
33,348
3.17
546
Total PSB Holdings, Inc.
October 14, 2030
36,445
0.49
68
78
Zero Acre Farms, Inc.
December 23, 2022
December 23, 2032
20,181
2.13
Sub-Total: Food and Agriculture Technologies (0.3%)*
3,913
October 12, 2031
181,784
0.07
Edeniq, Inc.
Warrant(11)(14)
December 23, 2026
2,685,501
0.22
166
2,184,672
305
June 29, 2027
5,106,972
0.44
58
November 2, 2028
3,850,294
936
Warrant(14)
November 29, 2021
November 29, 2031
Preferred Series D⁽¹⁷⁾
154,906,320
1,759
Total Edeniq, Inc.(20)
3,224
February 14, 2020
February 14, 2030
38,171
0.31
February 18, 2032
77,524
4,246
June 23, 2022
June 23, 2032
14,624
359
4,614
July 9, 2029
140,186
1.15
November 20, 2020
November 20, 2030
81,294
226
March 18, 2032
137,692
1.66
Total Mainspring Energy, Inc.
1,470
December 10, 2021
December 10, 2031
2,314
205.28
75
260
October 10, 2022
October 10, 2032
917
196.50
123
383
Sub-Total: Green Technology (0.4%)*
5,672
5,086
October 14, 2032
51,633
0.76
66
November 19, 2031
281
527.51
Hospitalists Now, Inc.
March 30, 2026
Preferred Series D-2⁽¹⁷⁾
135,807
5.89
589
December 6, 2026
750,000
3,255
Total Hospitalists Now, Inc.
462
3,844
76,231
1.76
77
79,325
258
81
December 22, 2032
97,970
2.49
91
493
Sub-Total: Healthcare (0.4%)*
1,114
4,239
BetterLeap, Inc.
April 20, 2032
88,435
2.26
33,928
284
Sub-Total: Human Resource Technology (0.0%)*
134
299
23
February 23, 2032
37,218
1.81
60
July 31, 2022
July 31, 2032
37,311
1.35
63
94
SBG Labs, Inc.
July 29, 2023
42,857
0.70
September 18, 2024
25,714
33
January 14, 2024
21,492
March 24, 2025
October 10, 2023
11,150
May 6, 2024
11,145
June 9, 2024
7,085
May 20, 2024
342,857
March 26, 2025
200,000
65
Total SBG Labs, Inc.
Sub-total: Industrials (0.1%)*
311
997
April 21, 2033
297,990
1.61
Delphinus, Inc.
June 27, 2023
June 27, 2033
Preferred Series E⁽¹⁷⁾
490,482
0.69
October 9, 2029
55,263
1.90
June 1, 2020
July 15, 2030
36,844
322,251
3.24
198
May 30, 2033
Preferred Series A-2⁽¹⁷⁾
549,058
2.16
November 21, 2032
Preferred A
10.00
114
April 29, 2032
Preferred Class A⁽¹⁷⁾
537,966
2.09
Sub-Total: Life Sciences (0.1%)*
1,027
787
October 17, 2032
253,824
6.76
374
427
Firefly Systems, Inc.
January 29, 2030
133,147
282
202
April 8, 2034
142,828
September 28, 2028
2,219
220.82
34
May 7, 2031
657,343
0.75
314
Sub-Total: Marketing, Media, and Entertainment (0.1%)*
798
Homelight, Inc.
October 1, 2022
October 1, 2032
5,434
18.40
May 24, 2029
Preferred Series X-1⁽¹⁷⁾
8,795
85.27
208
November 10, 2031
163,500
265
473
October 7, 2020
October 7, 2030
106,735
0.29
110,860
September 30, 2031
79,135
1.04
148
Total Maxwell Financial Labs, Inc.
Sub-Total: Real Estate Technology (0.0%)*
677
SaaS
February 28, 2032
5,101
15.72
Crowdtap, Inc.
December 16, 2025
442,233
1.09
December 11, 2027
100,000
Total Crowdtap, Inc.
51
Gtxcel, Inc.
September 24, 2025
1,000,000
0.21
83
Total Gtxcel, Inc.
Lucidworks, Inc.
June 27, 2026
619,435
0.77
806
1,253
Reciprocity, Inc.
September 25, 2020
September 25, 2030
114,678
4.17
April 29, 2021
April 29, 2031
57,195
54
Total Reciprocity, Inc.
Smartly, Inc.
May 16, 2022
May 16, 2034
48,097
Utility Associates, Inc.
June 30, 2025
92,511
4.54
55
May 22, 2027
Total Utility Associates, Inc.
December 31, 2032
26,125
1.70
64
Sub-Total: SaaS (0.1%)*
1,497
April 13, 2033
96,847
7.89
47
May 28, 2031
1,773
169.24
121
882
340.11
Total Axiom Space, Inc.
August 9, 2032
33,450
March 3, 2032
221,280
2.75
256
357
Sub-Total: Space Technology (0.1%)*
715
December 14, 2026
Preferred Stock(17)
328,369
(13)
1.29
February 23, 2027
25,653
March 16, 2027
30,784
April 18, 2027
282,192
September 29, 2022
September 29, 2027
410,462
170
Sub-Total: Transportation Technology (0.0%)*
Total: Warrant Investments- United States (2.4%)*
22,851
28,301
Warrant Investments- Canada
August 27, 2026
63,175
15.83
June 8, 2027
24,123
20.73
204
614
Sub-Total: Construction Technology (0.0%)*
Total: Warrant Investments- Canada (0.0%)*
Warrant Investments- Europe
Preferred Series D-3⁽¹⁷⁾
11,573
149.01
Sub-Total: Information (0.0%)*
All.Space Networks, Limited. (10)
August 22, 2032
71,203
21.79
Sub-Total: Space Technology (0.0%)*
Total: Warrant Investments- Europe (0.0%)*
243
Total: Warrant Investments- (2.4%)*
23,708
28,691
Shares / Principal
Equity Investments- United States
Equity(7)(14)
February 25, 2022
50,000
757,297
506
890
949
Sub-Total: Automation & Internet of Things (0.1%)*
Equity⁽¹⁴⁾
611,246
Preferred Series 6⁽¹⁷⁾
Vertical Communications, Inc.
Equity⁽¹¹⁾⁽¹⁴⁾
3,892,485
Preferred Series 1⁽¹⁷⁾
Convertible Note⁽¹⁶⁾
3,966
Total Vertical Communications, Inc. (20)
Sub-Total: Connectivity (0.1%)*
4,466
1,778
Project Frog, Inc.
4,383,497
352
3,401,678
Preferred Series BB⁽¹⁷⁾
1,333
6,633,486
1,684
3,129,887
368
Total Project Frog, Inc. (20)
4,622
October 6, 2021
454,905
Preferred Series B-1⁽¹⁷⁾
January 12, 2023
256,291
491
August 17, 2021
3,320
Sub-Total: Consumer Products & Services (0.1%)*
1,507
837
17,726
390
May 9, 2023
44,725
Series D
Preferred ⁽¹⁷⁾
Sub-Total: Finance and Insurance (0.1%)*
1,390
1,000
June 28, 2021
75,958
523
Prüvit Ventures, Inc.
30,357
537
Sub-Total: Food and Agriculture Technologies (0.1%)*
1,037
688
7,807,499
1,121
3,657,487
915
133,766,138
2,934
Total Edeniq, Inc. (20)
4,970
April 6, 2023
87,087
65,614
Preferred Series E-1⁽¹⁷⁾
484
Equity(9)(14)
July 5, 2022
2,035
334
618
February 15, 2023
1,966
Preferred Series D-1⁽¹⁷⁾
405
739
1,225
Sub-Total: Green Technology (0.6%)*
1,739
7,179
Equity Investments- United States, Continued
June 3, 2022
199,537
497
August 19, 2021
32,416
191
7,000,000
3,450
Preferred Series P⁽¹⁷⁾
3,170
3,219
Total WorkWell Prevention & Care Inc. (20)
6,720
Sub-Total: Healthcare (0.1%)*
7,720
37,920
366
Trinity Investor JV I LLC(10)(20)
2,607
2,684
Sub-Total: Multi-Sector Holdings (0.2%)*
304,579
Preferred Series Y⁽¹⁷⁾
74,406
March 16, 2023
522
543
Maxwell Financial Labs, Inc
135,641
145
Sub-Total: Real Estate Technology (0.1%)*
136,388
Sub-total: SaaS (0.0%)*
April 5, 2023
13,685
300
180
August 11, 2021
3,624
521
573
53,154
Preferred A-4⁽¹⁷⁾
518
Sub-total: Space Technology (0.1%)*
1,321
1,271
3Q GoFor Holdings, LP (21)
January 17, 2023
Total 3Q GoFor Holdings, LP (21)
Sub-total: Supply Chain Technology (0.0%)*
Total: Equity Investments- United States (1.6%)*
31,415
19,101
Equity Investments- Canada
24,418
Total: Equity Investments- Canada (0.0%)*
Total: Equity Investments (1.6%)*
31,915
19,232
Total Investment in Securities (96.5%)*
1,179,302
Cash and Cash Equivalents
Goldman Sachs Financial Square Government Institutional Fund
3,779
Other cash accounts
8,489
Cash and Cash Equivalents (1.0%)*
Total Portfolio Investments and Cash and Cash Equivalents (97.6% of total assets)
1,191,570
1,160,286
30
Net change in
Unrealized
Fair Value at
Gross
Realized
(Depreciation)/
Interest
Additions (1)
Reductions (2)
Gain/(Loss)
Appreciation
Income
For the Six Months Ended June 30, 2023
Control Investments
11,879
948
(805
(71
11,951
1,170
3Q GoFor Holdings, LP
7,521
(699
139
363
17,274
227
(373
17,128
WorkWell Prevention and Care Inc.
Total Control Investments
Affiliate Investments
FemTec Health, Inc.
(2,328
27,051
Trinity Investor JV I LLC
8,690
Total Affiliate Investments
Total Control and Affiliate Investments
38,841
10,365
(3,133
26,348
46,170
2,317
Automation & Internet of Things (7)
3,887
3,902
3,937
4,578
4,555
750
744
9,215
9,201
9,236
11,324
11,431
11,524
8,000
8,043
8,115
6,978
7,053
5,030
5,090
31,482
31,782
6,050
5,929
Sub-total: Automation & Internet of Things (4.2%)*
46,539
46,733
46,947
Connectivity (7)
Vertical Communications, Inc.(21)
Fixed interest rate 11.0%; EOT 23.8%
15,536
15,107
14,515
Sub-total: Connectivity (2.7%)*
30,643
30,051
Construction Technology (7)
June 24, 2020
July 1, 2023
Fixed interest rate 11.0%; EOT 5.0%
1,448
1,451
August 7, 2020
Fixed interest rate 10.2%; EOT 5.0%
507
608
264
303
304
833
958
960
2,754
3,317
3,329
Sub-total: Construction Technology (0.3%)*
Consumer Products & Services (7)
426
454
431
635
664
1,755
1,709
2,771
2,873
2,769
326
333
1,171
1,149
831
811
2,330
2,335
2,287
Grandpad, Inc.
November 16, 2020
June 1, 2023
Fixed interest rate 10.6%; EOT 5.0%
554
719
December 23, 2020
Fixed interest rate 10.8%; EOT 5.0%
810
987
1,019
Total Grandpad, Inc.
1,364
1,687
1,738
February 7, 2020
Fixed interest rate 8.2%; EOT 9.5%
168
279
273
567
443
509
1,062
1,369
1,336
1,178
1,147
Fixed interest rate 12.3%; EOT 15.7%
319
Fixed interest rate 11.9%; EOT 16.3%
542
Fixed interest rate 11.3%; EOT 17.8%
428
455
2,206
2,587
1,956
1,991
1,967
17,500
17,591
17,745
2,528
20,119
20,303
4,945
4,952
2,956
2,954
4,024
4,157
4,164
3,293
3,373
3,378
7,317
7,530
7,542
12,858
13,633
13,054
5,539
5,544
Sub-total: Consumer Products & Services (6.0%)*
65,364
67,662
67,033
Information, Continued (7)
Digital Assets Technology and Services (7)
15,974
16,319
15,825
3,712
1,370
2,909
8,240
Sub-total: Digital Assets Technology and Services (2.1%)*
38,551
39,488
24,065
Education Technology (7)
6,134
5,914
2,100
2,014
8,234
7,928
4,774
1,595
6,369
Sub-total: Education Technology (1.3%)*
18,734
Finance and Insurance (7)
24,995
24,654
14,990
14,939
39,985
39,593
6,999
7,023
4,980
Variable interest rate Prime + 7.5% or Floor rate 11.0%; EOT 6.0% ⁽⁸⁾
9,636
9,867
9,954
6,745
6,797
6,757
Variable interest rate Prime + 7.3% or Floor rate 11.5%; EOT 0.0% ⁽⁸⁾
26,473
26,307
42,963
43,137
43,018
1,805
1,747
15,080
15,307
Sub-total: Finance and Insurance (9.9%)*
111,768
111,928
111,668
Food and Agriculture Technologies (7)
19,921
20,091
19,871
4,972
4,987
4,954
24,893
25,078
24,825
Variable interest rate LIBOR + 11.0% or Floor rate 10.1% ⁽⁸⁾
9,510
9,515
239
269
July 7, 2021
1,230
1,340
1,306
Fixed interest rate 9.7%; EOT 7.5%
666
650
358
387
377
711
732
1,764
1,822
1,765
800
820
796
June 1, 2022
Fixed interest rate 10.1%; EOT 7.5%
3,251
3,325
3,239
395
403
396
950
963
10,315
10,748
10,478
10,057
10,068
292
8,250
8,812
8,494
14,943
23,509
24,054
23,729
August 27, 2020
March 1, 2023
73
188
254
515
704
690
RoBotany, Inc.
Fixed interest rate 7.6%; EOT 17.3%
714
1,154
550
April 1, 2023
12,226
13,282
13,407
2,404
2,459
2,696
2,801
2,729
Sub-total: Food and Agriculture Technologies (8.5%)*
94,868
97,388
95,991
Green Technology (7)
1,103
1,163
1,445
1,573
1,535
437
472
460
1,882
2,045
1,995
360
407
429
895
975
1,060
1,136
1,086
1,917
1,999
1,918
881
912
1,338
1,378
1,335
850
865
772
777
8,980
9,607
9,287
1,932
4,792
4,825
3,935
3,903
8,727
8,728
8,608
6,013
6,169
5,951
3,011
3,058
2,989
9,024
9,227
8,940
Edeniq, Inc.(21)
4,505
2,101
4,485
Variable interest rate Prime + 7.3% or Floor rate 10.5%; EOT 3.0% ⁽⁸⁾
18,179
18,073
18,630
36,252
37,359
30,031
29,173
23,000
23,171
23,185
Variable interest rate Prime + 7.25% or Floor rate 13.5%+PIK Interest Rate 1.25%; EOT 3.0% (15)
11,894
35,065
35,079
Sub-total: Green Technology (12.2%)*
141,120
136,151
137,979
Healthcare (7)
5,959
6,500
6,367
4,929
22,520
22,317
7,492
7,429
30,012
29,746
Fixed interest rate 11.0%; EOT 7.5%
10,472
September 1, 2022(20)
Fixed interest rate 11.0%
2,092
2,091
September 29, 2021
2,918
2,971
Total FemTec Health, Inc. (21)
14,735
15,534
4,048
4,116
4,065
4,963
4,888
9,048
9,079
8,953
Sub-total: Healthcare (4.6%)*
65,242
66,554
52,023
Human Resource Technology (7)
30,066
30,378
5,110
4,940
4,978
9,978
10,088
Sub-total: Human Resource Technology (3.6%)*
40,044
40,466
Industrials (7)
2,865
3,176
2,775
1,394
1,536
4,259
4,712
4,110
Sub-total: Industrials (0.4%)*
Life Sciences (7)
1,499
1,676
2,334
2,579
2,524
1,312
1,422
1,382
760
797
5,905
6,534
6,379
May 1, 2023
508
639
215
398
5,015
5,027
5,009
5,020
5,013
4,994
5,008
26,088
26,374
26,428
18,369
18,449
15,025
14,799
5,005
Sub-total: Life Sciences (6.3%)*
70,268
71,081
71,087
Marketing, Media, and Entertainment (7)
April 17, 2027
9,750
4,481
Fixed interest rate 11.8%; EOT 16.4%
3,419
4,569
3,659
11,672
11,575
19,842
9,901
29,743
Sub-total: Marketing, Media, and Entertainment (5.3%)*
59,419
60,215
59,227
Real Estate Technology(7)
3,893
3,978
5,346
5,438
5,372
4,129
4,190
4,185
4,951
3,988
4,017
2,567
2,576
24,822
25,150
24,988
5,238
4,644
14,806
12,166
2,009
1,651
4,289
3,500
21,104
17,317
18,213
18,034
5,095
5,058
12,693
12,601
12,501
12,574
30,289
30,233
Sub-total: Real Estate Technology (8.5%)*
98,831
99,994
95,216
Software as a Service ("SaaS") (7)
6,027
5,936
50
82
196
289
278
397
351
276
375
369
104
101
535
686
668
634
778
757
143
1,658
1,879
1,828
4,615
5,942
5,811
Variable interest rate Prime + 7.0% or Floor rate 10.5%; EOT 2.5% ⁽⁸⁾
9,929
10,009
Secured Loan (14)
PIK Fixed interest rate 11.0% (15)
1,239
918
4,879
Sub-total: SaaS (2.4%)*
26,854
27,695
27,585
Space Technology (7)
30,146
30,314
409
404
4,210
4,195
4,158
2,964
2,952
2,950
8,604
8,583
8,569
Fixed interest rate 15.0%; EOT 0.0%
2,104
2,074
Fixed interest rate 15.5%; EOT 0.0%
1,842
1,833
20,134
20,046
19,988
Fixed interest rate 9.4%; EOT 6.0%
1,670
1,652
1,626
Fixed interest rate 11.6%; EOT 6.0%
2,965
2,914
4,635
4,566
4,540
4,958
4,975
Sub-total: Space Technology (5.3%)*
59,769
59,716
59,817
Transportation Technology (7)
Variable interest rate Prime + 5.8% or Floor rate 9.0%; EOT 4.4% ⁽⁸⁾
5,220
4,990
2,088
1,997
2,610
2,494
3,132
2,993
2,491
2,490
26,100
24,926
5,021
4,948
Sub-total: Transportation Technology (2.7%)*
31,121
29,874
Total: Debt Securities- United States (86.2%)*
1,001,740
1,013,176
970,765
41
Invenia, Inc.
March 31, 2023
Fixed interest rate 11.5%; EOT 5.0%
592
572
556
731
707
783
1,030
996
June 8, 2020
989
1,301
1,258
October 29, 2020
1,434
1,886
1,824
Total Invenia, Inc. (10)
4,599
6,049
5,850
Sub-total: Automation & Internet of Things (0.5%)*
Variable interest rate Prime + 7.0% or Floor rate 10.3%; EOT 2.5% ⁽⁸⁾
9,828
4,813
4,988
14,641
15,270
Sub-total: Construction Technology (1.4%)*
20,773
21,216
20,777
Sub-total: Digital Assets Technology and Services (1.8%)*
Supply Chain Technology (7)
GoFor Industries, Inc. (10)(21)
Sub-total: Supply Chain Technology (0.7%)*
Total: Debt Securities- Canada (4.4%)*
49,942
51,291
49,418
14,024
14,509
14,096
993
1,013
995
1,367
1,385
1,371
2,223
18,607
19,143
18,698
Sub-total: Industrials (1.7%)*
9,906
9,948
Sub-total: Space Technology (0.9%)*
Total: Debt Securities- Europe (2.5%)*
28,607
29,049
28,646
Total: Debt Securities (93.1%)(19)*
1,080,289
1,093,516
1,048,829
Preferred Series A
497,183
0.30
733
104,284
7.49
735
Preferred Series B-2
1,410
Vertical Communications, Inc. (21)
1,386
Project Frog, Inc. (21)
Preferred Series AA-1
Preferred Series CC
Preferred Series C
270
Preferred Series A-1
51,094
144
768
June 19, 2030
3,205
3.12
June 1, 2032
Preferred Series 1
257,135
0.39
June 19, 2022
Preferred Series 2
485
159
Sub-Total: Consumer Products & Services (0.2%)*
2,649
2,024
45
152
434
Preferred Class B
656
1,691
Preferred Series B
1,327
2,463
268
1,146
3,977
45,443
214
2,942
33,351
July 19, 2029
262,870
Preferred
20,183
Sub-Total: Food and Agriculture Technologies (0.5%)*
2,854
5,127
46
277
923
Preferred Series D
1,420
Total Edeniq, Inc.(21)
2,755
1,643
2,753
598
854
3,857
242
117
350
Sub-Total: Green Technology (0.8%)*
5,780
8,454
86,054
Preferred Series D-2
3,270
3,862
504
524
435
1,028
Sub-Total: Healthcare (0.5%)*
1,101
5,130
Sub-total: Industrials (0.0%)*
322,254
30,010
169
Preferred Class A
Zosano Pharma Corporation
Warrant (9)(14)
September 25, 2025
75,000
3.59
69
Sub-Total: Life Sciences (0.0%)*
583
253,831
380
519
1,216
Real Estate Technology (7)
5,452
Preferred Series X-1
209
474
186
SaaS (7)
1,326
Resilinc, Inc.
December 15, 2025
589,275
68,939
40,191
76
Sub-Total: SaaS (0.2%)*
1,607
1,757
43,205
741
705
Preferred Stock
Total: Warrant Investments- United States (2.7%)*
20,425
30,587
63,071
14.73
24,196
19.15
547
Preferred Series D-3
555
Total: Warrant Investments- Europe (0.1%)*
590
Total: Warrant Investments- (2.8%)*
21,282
31,724
Equity(14)
1,737
Total Vertical Communications, Inc. (21)
2,243
Total Project Frog, Inc. (21)
4,621
444
1,500
1,072
Sub-Total: Finance and Insurance (0.0%)*
316
52
1,023
904
Total Edeniq, Inc. (21)
4,639
533
2,544
512
Sub-Total: Green Technology (0.5%)*
5,684
492
FemTec Health, Inc. (21)
July 22, 2021
1,098,093
13,046
453
Total WorkWell Prevention & Care Inc. (21)
20,766
945
446
328
469
1,102
Total: Equity Investments- United States (1.2%)*
38,286
13,509
324
Total: Equity Investments (1.2%)*
38,786
13,833
Total Investment in Securities (97.2%)*
1,153,584
Cash, Cash Equivalents, and Restricted Cash
5,643
4,969
Cash, Cash Equivalents, and Restricted Cash (0.9%)*
Total Portfolio Investments and Cash and Cash Equivalents (98.1% of total assets)
1,164,196
1,104,998
For the Year Ended December 31, 2022
5,522
2,393
(762
4,726
2,949
10,626
(636
(105
(2,364
4,209
(3,878
17,382
520
(628
1,983
(3,877
(1,024
32,214
13,866
(5,276
(4,210
5,418
27,748
(416
(25,832
Store Intelligence, Inc.
4,444
(2,400
(10,241
8,197
32,192
(2,816
(17,635
64,406
13,894
(8,092
(14,451
(16,916
6,280
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Organization and Basis of Presentation
Trinity Capital Inc. (“Trinity Capital” and, together with its subsidiaries, the “Company”) is a specialty lending company focused on providing debt, including loans and equipment financings, to growth-stage companies, including venture-backed companies and companies with institutional equity investors. Trinity Capital was formed on August 12, 2019 as a Maryland corporation and commenced operations on January 16, 2020. Prior to January 16, 2020, Trinity Capital had no operations, except for matters relating to its formation and organization as a business development company (“BDC”).
Trinity Capital is an internally managed, closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the Investment Company Act of 1940, as amended (the “1940 Act”). Trinity Capital has elected to be treated, and intends to continue to qualify annually as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), for U.S. federal income tax purposes.
On September 27, 2019, Trinity Capital was initially capitalized by the issuance of 10 shares of its common stock for $150 to its sole stockholder.
On January 16, 2020, the Company completed a private equity offering (the “Private Common Stock Offering”) of shares of the Company’s common stock, pursuant to which it issued and sold 8,333,333 shares of its common stock for total aggregate gross proceeds of approximately $125.0 million, inclusive of an over-allotment option that was exercised in full on January 29, 2020.
Concurrent with the closing of the Private Common Stock Offering, the Company completed a private debt offering (the “144A Note Offering” and together with the Private Common Stock Offering, the “Private Offerings”) of $125.0 million in aggregate principal amount of its unsecured 7.00% Notes due 2025 (the “2025 Notes”), inclusive of an over-allotment option that was exercised in full on January 29, 2020.
On January 16, 2020, Trinity Capital completed a series of transactions, the Private Offerings, and the acquisition of Trinity Capital Investment, LLC, Trinity Capital Fund II, L.P. (“Fund II”), Trinity Capital Fund III, L.P., Trinity Capital Fund IV, L.P., and Trinity Sidecar Income Fund, L.P. (collectively, the “Legacy Funds”) through mergers of the Legacy Funds with and into Trinity Capital as well as Trinity Capital’s acquisition of Trinity Capital Holdings, LLC (“Trinity Capital Holdings”) (collectively, the “Formation Transactions”).
Trinity Capital’s common stock began trading on the Nasdaq Global Select Market on January 29, 2021, under the symbol “TRIN” in connection with its initial public offering of shares of its common stock (“IPO”).
Basis of Presentation
The Company’s interim consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6, 10 and 12 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, the unaudited financial results included herein contain all adjustments, consisting solely of normal accruals, considered necessary for the fair statement of the results for the interim period included herein. The current period’s consolidated results of operations are not necessarily indicative of results that may be achieved for the year. The interim consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission (“SEC”) on March 2, 2023. As an investment company, the Company follows accounting and reporting guidance determined by the Financial Accounting Standards Board (“FASB”), in Accounting Standards Codification, as amended (“ASC”) 946, Financial Services – Investment Companies (“ASC 946”).
Principles of Consolidation
Under ASC 946, the Company is precluded from consolidating portfolio company investments, including those in which it has a controlling interest, unless the portfolio company is another investment company. An exception to this general principle occurs if the Company holds a controlling interest in an operating company that provides all or substantially all of its services directly to the Company or to its portfolio companies. None of the portfolio investments made by the Company qualify for this exception. Therefore, the Company’s investment portfolio is carried on the Consolidated Statements of Assets and Liabilities at fair value, as discussed further in “Note 3 - Investments,” with any adjustments to fair value recognized as “Net unrealized appreciation/(depreciation) from investments” on the Consolidated Statements of Operations.
The Company’s consolidated operations include the activities of its wholly owned subsidiaries, Trinity Funding 1, LLC (“TF1”), and TrinCap Funding, LLC (“TCF”). TF1 was formed on August 14, 2019, as a Delaware limited liability company with Fund II as its sole equity member. On January 16, 2020, in connection with the Formation Transactions, Trinity Capital acquired TF1 through Fund II and became a party to, and assumed, a $300 million credit agreement with Credit Suisse AG (the “Credit Suisse Credit Facility”) through TF1 which matured on January 8, 2022 in accordance with its terms. TCF was formed on August 5, 2021, as a Delaware limited liability company with Trinity Capital as its sole equity member for purposes of securing lending in conjunction with a $350 million credit agreement, as amended, with KeyBank National Association (“KeyBank”) (such credit facility, the “KeyBank Credit Facility”). TF1 and TCF are special purpose bankruptcy-remote entities and are separate legal entities from Trinity Capital. Any assets conveyed to TF1 or TCF are not available to creditors of the Company or any other entity other than TF1's or TCF’s respective lenders. TF1 and TCF are consolidated for financial reporting purposes and in accordance with GAAP, and the portfolio investments held by these subsidiaries, if any, are included in the Company’s consolidated financial statements and recorded at fair value. All intercompany balances and transactions have been eliminated. As part of the Formation Transactions, Trinity Capital acquired 100% of the equity interests of Trinity Capital Holdings. There has been no activity in Trinity Capital Holdings since acquisition.
In accordance with Rule 10-01(b)(1) of Regulation S-X, as amended, the Company must determine which of its unconsolidated controlled subsidiaries, if any, are considered “significant subsidiaries.” In evaluating these unconsolidated controlled subsidiaries, there are two significance tests utilized per Rule 1-02(w) of Regulation S-X to determine if any of the Company’s investments or unconsolidated controlled subsidiaries are considered significant: the investment test and the income test. As of June 30, 2023 and December 31, 2022, none of the Company’s investments or unconsolidated controlled subsidiaries met either of these two significance tests.
On December 5, 2022, the Company entered into a joint venture agreement with certain funds and accounts managed by a specialty credit manager (collectively, the “JV Partner”) to co-manage Trinity Investor JV I LLC (“Trinity Investor JV I LLC” or the “JV”). The JV may invest in secured loans and equipment financings to growth-stage companies that have been originated by the Company. The Company and the JV Partner’s initial capital commitments were $21.4 million and $150.0 million, respectively, in the form of 8.5% notes and preferred equity to the JV. The JV is capitalized as investment transactions are completed and all portfolio decisions and generally all other actions in respect of the JV must be approved by a board of managers of the JV consisting of an equal number of representatives of the Company and the JV Partner. Capital contributions are called from each JV member on a pro-rata basis based on their total capital commitments, with 70% of each such capital contribution invested in the JV’s 8.5% notes and the remaining 30% invested in the JV's preferred equity. As of June 30, 2023, the Company's and the JV Partner's ownership of the JV was 12.5% and 87.5%, respectively.
The Company has agreed to offer the JV the opportunity to purchase up to 40% in dollar amount, but not less than 25% in dollar amount, of the entire amount of each secured loan and equipment financing advance originated by the Company during the period commencing on September 1, 2022 and ending on June 5, 2026. The JV is required to pay the Company a fee equal to 100 basis points of the total principal amount of each loan or equipment financing advance acquired by the JV from the Company, with 50% of the fee for each such particular loan or advance payable by the JV to the Company within two business days of the date of such acquisition or advance and the remaining 50% payable in equal monthly installments over 24 months following the date of such acquisition or
advance. In addition, the JV shall pay the Company an administrative agent fee equal to 75 basis points of the daily average aggregate value of the JV's outstanding loans and equipment financings.
As permitted under Regulation S-X and consistent with the guidance in ASC 946-810-45-3, the Company will generally not consolidate its investment in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to us. As the Company’s representatives do not comprise the majority of the board of managers of the JV and the Company does not hold a majority of the economic interests in the JV, the Company does not consolidate the JV in its financial statements.
During the three and six months ended June 30, 2023, the Company has contributed $3.5 million and $8.7 million of capital to the JV, respectively. As of June 30, 2023, the Company's investment in the JV consisted of a debt investment of $6.1 million and an equity investment of $2.6 million. The Company did not fund an investment in the JV as of December 31, 2022. As of June 30, 2023 and December 31, 2022, the Company's unfunded commitment was $12.7 million and $21.4 million, respectively.
As of June 30, 2023, the JV's total investment portfolio on a fair value basis was $99.7 million. During the three and six months ended June 30, 2023, the Company received $54.8 million and $90.7 million in net proceeds from the sale of investments to the JV, respectively. During the three and six months ended June 30, 2023, the Company earned approximately $0.7 million and $1.1 million for originations and administrative agent fees which are recognized as fee income on the Consolidated Statements of Operations, respectively. As of June 30, 2023, the Company had approximately $0.7 million in unsettled receivables due from the JV that were included in other assets in the accompanying Consolidated Statements of Assets and Liabilities. There were no outstanding receivables from the JV as of December 31, 2022.
Note 2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ materially from these estimates.
Investment Transactions
Loan originations are recorded on the date of the legally binding commitment. Realized gains or losses are recorded using the specific identification method as the difference between the net proceeds received, excluding prepayment fees, if any, and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized, and include investments written off during the period, net of recoveries. The net change in unrealized gains or losses primarily reflects the change in investment fair values as of the last business day of the reporting period and also includes the reversal of previously recorded unrealized gains or losses with respect to investments realized during the period.
Valuation of Investments
The most significant estimate inherent in the preparation of the Company’s consolidated financial statements is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded.
The Company’s investments are carried at fair value in accordance with the 1940 Act and ASC 946 and measured in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the observability of inputs used to measure fair value, and provides disclosure requirements for fair value measurements. ASC 820 requires the Company to assume that each of the portfolio investments is sold in a
hypothetical transaction in the principal or, as applicable, most advantageous market using market participant assumptions as of the measurement date. Market participants are defined as buyers and sellers in the principal market that are independent, knowledgeable and willing and able to transact. The Company values its investments at fair value as determined in good faith pursuant to a consistent valuation policy by the Company’s Board of Directors (the “Board”) in accordance with the provisions of ASC 820 and the 1940 Act.
The SEC recently adopted Rule 2a-5 under the 1940 Act (“Rule 2a-5”), which establishes a framework for determining fair value in good faith for purposes of the 1940 Act. As adopted, Rule 2a-5 permits boards of directors to designate certain parties to perform fair value determinations, subject to board oversight and certain other conditions. The SEC also adopted Rule 31a-4 under the 1940 Act (“Rule 31a-4”), which provides the recordkeeping requirements associated with fair value determinations. While the Company's Board has not elected to designate a valuation designee, the Company has adopted certain revisions to its valuation policies and procedures to comply with the applicable requirements of Rule 2a-5 and Rule 31a-4.
While the Board is ultimately and solely responsible for determining the fair value of the Company’s investments, the Company has engaged independent valuation firms to provide the Company with valuation assistance with respect to its investments on a discretionary basis. Specifically, on a quarterly basis, the Company identifies portfolio investments with respect to which an independent valuation firm assists in valuing such investments. The Company selects these portfolio investments based on a number of factors, including, but not limited to, the potential for material fluctuations in valuation results, size, credit quality and the time lapse since the last valuation of the portfolio investment by an independent valuation firm.
Investments recorded on the Company’s Consolidated Statements of Assets and Liabilities are categorized based on the inputs to the valuation techniques as follows:
Level 1 — Investments whose values are based on unadjusted quoted prices for identical assets in an active market that the Company has the ability to access (examples include investments in active exchange-traded equity securities and investments in most U.S. government and agency securities).
Level 2 — Investments whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the investment.
Level 3 — Investments whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement (for example, investments in illiquid securities issued by privately held companies). These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the investment.
Given the nature of lending to venture capital-backed growth-stage companies, 99.5%, based on fair value, of the Company’s investments in these portfolio companies are considered Level 3 assets under ASC 820 because there is no known or accessible market or market index for these investment securities to be traded or exchanged. Transfers between levels, if any, are recognized at the beginning of the period in which the transfers occur. The Company uses an internally developed portfolio investment rating system in connection with its investment oversight, portfolio management and analysis, and investment valuation procedures. This system takes into account both quantitative and qualitative factors of the portfolio companies. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been reported had a ready market for the investments existed, and it is reasonably possible that the difference could be material.
Debt Securities
The debt securities identified on the Consolidated Schedule of Investments are secured loans and equipment financings made to growth-stage companies. For portfolio investments in debt securities for which the Company has determined that third-party quotes or other independent pricing are not available, the Company generally estimates
the fair value based on the assumptions that hypothetical market participants would use to value the investment in a current hypothetical sale using an income approach.
In its application of the income approach to determine the fair value of debt securities, the Company bases its assessment of fair value on projections of the discounted future free cash flows that the security will likely generate, including analyzing the discounted cash flows of interest and principal amounts for the security, as set forth in the associated loan and equipment financing agreements, as well as market yields and the financial position and credit risk of the portfolio company (the “Hypothetical Market Yield Method”). The discount rate applied to the future cash flows of the security is based on the calibrated yield implied by the terms of the Company’s investment adjusted for changes in market yields and performance of the subject company. The Company’s estimate of the expected repayment date of its loans and equipment financings securities is either the maturity date of the instrument or the anticipated pre-payment date, depending on the facts and circumstances. The Hypothetical Market Yield Method also considers changes in leverage levels, credit quality, portfolio company performance, market yield movements, and other factors. If there is deterioration in credit quality or if a security is in workout status, the Company may consider other factors in determining the fair value of the security, including, but not limited to, the value attributable to the security from the enterprise value of the portfolio company or the proceeds that would most likely be received in a liquidation analysis.
Equity Securities and Warrants
Often the Company is issued warrants by issuers as yield enhancements. These warrants are recorded as assets at estimated fair value on the grant date. The Company determines the cost basis of the warrants or other equity securities received based upon their respective fair values on the date of receipt in proportion to the total fair value of the debt and warrants or other equity securities received. Depending on the facts and circumstances, the Company generally utilizes a combination of one or several forms of the market approach and contingent claim analyses (a form of option analysis) to estimate the fair value of the securities as of the measurement date and determines the cost basis using a relative fair value methodology. As part of its application of the market approach, the Company estimates the enterprise value of a portfolio company utilizing customary pricing multiples, based on the development stage of the underlying issuers, or other appropriate valuation methods, such as considering recent transactions in the equity securities of the portfolio company or third-party valuations that are assessed to be indicative of fair value of the respective portfolio company. If appropriate, based on the facts and circumstances, the Company performs an allocation of the enterprise value to the equity securities utilizing a contingent claim analysis and/or other waterfall calculation by which it allocates the enterprise value across the portfolio company’s securities in order of their preference relative to one another.
Fair value estimates are made at discrete points in time based on relevant information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. The carrying amounts of the Company’s financial instruments, consisting of cash, investments, receivables, payables, and other liabilities, approximate the fair values of such items due to the short-term nature of these instruments. Refer to “Note 4 – Fair Value of Financial Instruments” for further discussion.
Cash, cash equivalents and restricted cash consist of funds deposited with financial institutions and short-term (original maturity of three months or less) liquid investments in money market deposit accounts. Cash equivalents are classified as Level 1 assets and are valued using the net asset value (“NAV”) per share of the money market fund. As of June 30, 2023 and December 31, 2022, cash and cash equivalents consisted of $12.3 million and $10.6 million, respectively, of which $3.8 million and $5.6 million, respectively, was held in the Goldman Sachs Financial Square Government Institutional Fund. Cash held in demand deposit accounts may exceed the Federal Deposit Insurance Corporation (“FDIC”) insured limit and therefore is subject to credit risk. All of the Company’s cash deposits are held at large, established, high credit quality financial institutions, and management believes that the risk of loss associated with any uninsured balances is remote. As of June 30, 2023 and December 31, 2022, the Company did not have any restricted cash.
Other Assets
Other assets generally consist of fixed assets net of accumulated depreciation, leasehold improvements net of accumulated depreciation, right of use assets, prepaid expenses, escrow receivables and security deposits.
Escrow Receivables
Escrow receivables are collected in accordance with the terms and conditions of the escrow agreement. Escrow balances are typically distributed over a period of one year and may accrue interest during the escrow period. Escrow balances are measured for collectability on at least a quarterly basis and fair value is determined based on the amount of the estimated recoverable balances and the contractual maturity date. As of June 30, 2023, and December 31, 2022, there were no material past due escrow receivables. The escrow receivable balance as of June 30, 2023, and December 31, 2022 totaled $2.4 million and $2.4 million, respectively, and was measured at fair value and held in accordance with ASC 820.
Equity Offering Costs
Equity offering costs consist of fees and costs incurred in connection with the sale of the Company’s common stock, including legal, accounting and printing fees. These costs are deferred at the time of incurrence and are subsequently charged as a reduction to capital when the offering takes place or as shares are issued. Equity offering costs are periodically reviewed and expensed if the related registration is no longer active.
Security Deposits
Security deposits are collected upon funding equipment financings and are applied in lieu of regular payments at the end of the term.
Debt Financing Costs
The Company records costs related to the issuance of debt obligations as deferred debt financing costs. These costs are deferred and amortized using the straight-line method over the stated maturity life of the obligations. Debt financing costs related to secured or unsecured notes are netted with the outstanding principal balance on the Company’s Consolidated Statements of Assets and Liabilities. Debt financing costs related to the KeyBank Credit Facility are recorded as a separate asset on the Company’s Consolidated Statements of Assets and Liabilities.
Income Recognition
Interest Income
The Company recognizes interest income on an accrual basis and recognizes it as earned in accordance with the contractual terms of the loan agreement to the extent that such amounts are expected to be collected. Original issue discount (“OID”) initially includes the estimated fair value of detachable warrants obtained in conjunction with the origination of debt securities and is accreted into interest income over the term of the loan as a yield enhancement based on the effective yield method. In addition, the Company may also be entitled to an end-of-term (“EOT”) payment. EOT payments to be paid at the termination of the debt agreements are accreted into interest income over the contractual life of the debt based on the effective yield method. As of June 30, 2023, and December 31, 2022, the EOT payments receivable of approximately $60.7 million and $59.9 million, respectively, was included as a component of the cost basis of the Company’s current debt securities. When a portfolio company pre-pays their indebtedness prior to the scheduled maturity date, the acceleration of the unaccreted OID and EOT payment is recognized as interest income.
The Company has a limited number of debt investments in its portfolio that contain a payment-in-kind (“PIK”) provision. Contractual PIK interest, which represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term, is generally recorded on an accrual basis to the extent such amounts are expected to be collected. The Company will generally cease accruing PIK interest if there is insufficient value to support the accrual or management does not expect the portfolio company to be able to pay all principal and
interest due. The Company recorded $2.2 million and $3.3 million in PIK interest income during the three and six months ended June 30, 2023, respectively, and no PIK interest income was recorded during the three and six months ended June 30, 2022.
Income related to application or origination payments, including facility commitment fees, net of related expenses and generally collected in advance, is amortized into interest income over the contractual life of the loan. The Company recognizes nonrecurring fees and additional OID and EOT payment received in consideration for contract modifications commencing in the quarter relating to the specific modification.
Fee Income
The Company recognizes one-time fee income, including, but not limited to, structuring fees, prepayment penalties, and exit fees related to a change in ownership of the portfolio company, as other income when earned. These fees are generally earned when the portfolio company enters into an equipment financing arrangement or pays off their outstanding indebtedness prior to the scheduled maturity. In addition, fee income may include fees for originations and administrative agent services rendered by the Company to the JV. Such fees are earned in the period that the services are rendered.
Non-Accrual Policy
When a debt security becomes 90 days or more past due, or if management otherwise does not expect that principal, interest, and other obligations due will be collected in full, the Company will generally place the debt security on non-accrual status and cease recognizing interest income on that debt security until all principal and interest due has been paid or the Company believes the borrower has demonstrated the ability to repay its current and future contractual obligations. Any uncollected interest is reversed from income in the period that collection of the interest receivable is determined to be doubtful. However, the Company may make exceptions to this policy if the investment has sufficient collateral value and is in the process of collection.
As of June 30, 2023, a loan to one portfolio company and equipment financings to two portfolio companies were on non-accrual status, with a total cost of approximately $34.5 million, and a total fair value of approximately $22.5 million, or 2.0% of the fair value of the Company’s debt investment portfolio. As of December 31, 2022, loans to two portfolio companies and equipment financings to two portfolio companies were on non-accrual status, with a total cost of approximately $49.2 million, and a total fair value of approximately $17.8 million, or 1.7% of the fair value of the Company’s debt investment portfolio.
Net Realized Gains / (Losses)
Realized gains / (losses) are measured by the difference between the net proceeds from the sale or redemption of an investment or a financial instrument and the cost basis of the investment or financial instrument, without regard to unrealized appreciation or depreciation previously recognized, and includes investments written off during the period net of recoveries and realized gains or losses from in-kind redemptions. Net proceeds exclude any prepayment penalties, exit fees, and OID and EOT acceleration. Prepayment penalties and exit fees received at the time of sale or redemption are included in fee income on the Consolidated Statements of Operations. OID and EOT acceleration is included in interest income on the Consolidated Statements of Operations.
Net Unrealized Appreciation / (Depreciation)
Net change in unrealized appreciation / (depreciation) reflects the net change in the fair value of the investment portfolio and financial instruments and the reclassification of any prior period unrealized appreciation or depreciation on exited investments and financial instruments to realized gains or losses.
Stock-Based Compensation
The Company has issued and may, from time to time, issue restricted stock to its officers and employees under the 2019 Trinity Capital Inc. Long Term Incentive Plan and to its non-employee directors under the Trinity Capital
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Inc. 2019 Non-Employee Director Restricted Stock Plan. The Company accounts for its stock-based compensation plans using the fair value method, as prescribed by ASC 718, Compensation – Stock Compensation. Accordingly, for restricted stock awards, the Company measures the grant date fair value based upon the market price of its common stock on the date of the grant and amortizes the fair value of the awards as stock-based compensation expense over the requisite service period, which is generally the vesting term.
The Company has also adopted Accounting Standards Update (“ASU”) 2016-09, Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which requires that all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) be recognized as income tax expense or benefit in the income statement and not delay recognition of a tax benefit until the tax benefit is realized through a reduction to taxes payable. Accordingly, the tax effects of exercised or vested awards are treated as discrete items in the reporting period in which they occur. Additionally, the Company has elected to account for forfeitures as they occur.
Earnings Per Share
The Company's earnings per share (“EPS”) amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period. Basic earnings per share is computed by dividing net increase (decrease) in net assets resulting from operations by the weighted-average number of common shares outstanding for the period. In accordance with ASC 260, Earnings Per Share, the unvested shares of restricted stock awarded pursuant to Trinity Capital’s equity compensation plans are participating securities and, therefore, are included in the basic earnings per share calculation. Diluted EPS is computed by dividing net increase (decrease) in net assets resulting from operations by the weighted average number of shares of common stock assuming all potential shares had been issued and the additional shares of common stock were dilutive. Diluted EPS, if any, reflects the potential dilution from the assumed conversion of the Company’s 6.00% Convertible Notes due 2025 (the “Convertible Notes”).
Income Taxes
The Company has elected to be treated, and intends to continue to qualify annually as a RIC under Subchapter M of the Code for U.S. federal tax purposes. In order to maintain its treatment as a RIC, the Company is generally required to distribute at least annually to its stockholders at least the sum of 90% of its investment company taxable income (which generally includes its net ordinary taxable income and realized net short-term capital gains in excess of realized net long-term capital losses) and 90% of its net tax-exempt income (if any). The Company generally will not be subject to U.S. federal income tax on these distributed amounts but will pay U.S. federal income tax at corporate rates on any retained amounts.
The Company evaluates tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority in accordance with ASC 740, Income Taxes (“ASC 740”), as modified by ASC 946. Tax benefits of positions not deemed to meet the more-likely-than-not threshold, or uncertain tax positions, would be recorded as tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. The Company has no material uncertain tax positions as of June 30, 2023 and December 31, 2022. All the Company’s tax returns remain subject to examination by U.S. federal and state tax authorities.
Based on federal excise distribution requirements applicable to RICs, the Company will be subject to a 4% nondeductible federal excise tax on undistributed taxable income and gains unless the Company distributes in a timely manner an amount at least equal to the sum of (1) 98% of its ordinary income for each calendar year, (2) 98.2% of capital gain net income (both long-term and short-term) for the one-year period ending October 31 in that calendar year and (3) any income or gain realized, but not distributed, in the preceding years. For this purpose, however, any ordinary income or capital gain net income retained by the Company and on which the Company paid corporate income tax is considered to have been distributed. The Company, at its discretion, may determine to carry forward taxable income or gain and pay a 4% excise tax on the amount by which it falls short of this calendar-year distribution requirement. If the Company chooses to do so, this generally will increase expenses and reduce the amount available to be distributed to stockholders. The Company will accrue excise tax on estimated undistributed taxable income and capital gains as required on an annual basis.
Distributions
Distributions to common stockholders are recorded on the record date. The amount of taxable income to be paid out as a distribution is determined by the Board each quarter and is generally based upon the earnings estimated by management. Capital gains, if any, are distributed at least annually, although the Company may decide to retain all or some of those capital gains for investment and pay U.S. federal income tax at corporate rates on those retained amounts. If the Company chooses to do so, this generally will increase expenses and reduce the amount available to be distributed to stockholders.
Note 3. Investments
The Company provides debt, including loans and equipment financings, to growth-stage companies, including venture capital-backed companies and companies with institutional equity investors, primarily in the United States. The Company’s investment strategy includes making investments consisting primarily of term loans and equipment financings, and, to a lesser extent, working capital loans, equity, and equity-related investments. In addition, the Company may obtain warrants or contingent exit fees at funding from many of its portfolio companies.
The Company’s debt securities primarily consist of direct investments in interest-bearing secured loans and equipment financings to privately held companies based in the United States (collectively “Debt”). Secured loans are generally secured by a blanket first lien or a blanket second lien on the assets of the portfolio company. Equipment financings typically include a specific asset lien on mission-critical assets as well as a second lien on the assets of the portfolio company. These debt securities typically have a term of between three and five years from the original investment date. Certain of the debt securities are “covenant-lite” loans, which generally are loans that do not have a complete set of financial maintenance covenants and have covenants that are incurrence-based, meaning they are only tested and can only be breached following an affirmative action of the borrower rather than by a deterioration in the borrower’s financial condition. The equipment financings in the investment portfolio generally have fixed interest rates. The secured loans in the investment portfolio generally have floating interest rates subject to interest rate floors. Both equipment financings and secured loans generally include an EOT payment.
The specific terms of each debt security vary depending on the creditworthiness of the portfolio company and the projected value of the financed assets. Companies with stronger creditworthiness may receive an initial period of lower financing factor, which is analogous to an interest-only period on a traditional term loan. Equipment financings may include upfront interim payments and security deposits. Equipment financing arrangements have various structural protections, including customary default penalties, information and reporting rights, material adverse change or investor abandonment provisions, consent rights for any additions or changes to senior debt, and, as needed, intercreditor agreements with cross-default provisions to protect the Company’s second lien positions.
Warrant Investments
In connection with the Company’s debt investments, the Company may receive warrants in the portfolio company. Warrants received in connection with a debt investment typically include a potentially discounted contract price to exercise, and thus, as a portfolio company appreciates in value, the Company may achieve additional investment return from this equity interest. The warrants typically contain provisions that protect the Company as a minority-interest holder, as well as secured or unsecured put rights, or rights to sell such securities back to the portfolio company, upon the occurrence of specified events. In certain cases, the Company may also obtain follow-up rights in connection with these equity interests, which allow the Company to participate in future financing rounds.
Equity Investments
In specific circumstances, the Company may seek to make direct equity investments in situations where it is appropriate to align the interests of the Company with key management and stockholders of the portfolio company, and to allow for participation in the appreciation in the equity values of the portfolio company. These equity investments are generally made in connection with debt investments. The Company seeks to maintain fully diluted equity positions in its portfolio companies of 5% to 50% and may have controlling equity interests in some instances.
Portfolio Composition
The Company’s portfolio investments are in companies conducting business in a variety of industries. The following table summarizes the composition of the Company’s portfolio investments by industry at cost and fair value and as a percentage of the total portfolio as of June 30, 2023 and December 31, 2022 (dollars in thousands):
Fair Value
Industry
Amount
%
137,978
11.6
145,575
12.6
142,931
12.3
152,117
14.0
136,419
136,602
11.9
113,645
9.9
114,131
10.4
115,716
9.8
115,547
10.1
71,664
6.2
71,457
6.5
103,074
8.7
100,149
71,811
70,129
6.4
96,275
8.2
95,932
8.4
101,279
8.8
101,947
9.3
101,163
8.6
94,830
8.3
102,171
8.9
95,871
82,322
7.0
82,242
7.2
71,476
71,607
55,161
4.7
51,612
4.5
88,421
7.7
58,098
5.3
49,034
4.2
48,642
61,013
60,443
5.5
53,260
44,373
3.9
60,704
44,842
4.1
42,543
3.6
44,289
54,178
54,795
5.0
40,993
3.5
41,769
40,678
41,226
3.8
36,430
3.1
2.9
36,099
33,680
33,016
2.8
2.7
31,338
20,280
1.7
20,430
1.8
24,296
2.1
23,363
22,161
1.9
16,315
1.4
23,731
19,609
15,445
1.3
15,153
29,302
2.5
29,342
18,957
1.6
14,215
1.2
18,962
14,334
Multi-Sector Holdings(1)
0.7
0.8
10,385
0.9
0.6
9,885
100.0
The geographic composition of the Company's investment portfolio is determined by the location of the corporate headquarters of the portfolio company. The following table summarizes the composition of the Company’s portfolio investments by geographic region of the United States and other countries at cost and fair value and as a percentage of the total portfolio as of June 30, 2023 and December 31, 2022 (dollars in thousands):
Geographic Region
United States:
West
450,737
38.2
445,436
38.7
454,226
39.3
441,602
40.3
Northeast
381,944
32.4
371,329
32.3
321,980
27.9
310,322
28.4
Mountain
125,090
10.6
120,039
10.5
122,862
10.7
122,139
11.2
South
74,653
6.3
77,373
6.7
103,244
79,018
Midwest
58,875
50,348
4.4
58,284
5.1
50,636
4.6
Southeast
10,297
9,878
11,290
1.0
11,144
Trinity Investor JV I LLC (1)
0.0
International:
Canada
42,902
38,901
3.4
52,406
50,289
Western Europe
26,114
2.3
25,947
29,292
2.6
29,236
The following table summarizes the composition of the Company’s portfolio investments by investment type at cost and fair value and as a percentage of the total portfolio as of June 30, 2023 and December 31, 2022 (dollars in thousands):
Investment
Secured Loans
866,021
73.5
855,957
74.5
827,377
71.7
802,851
73.3
257,658
21.8
244,138
21.3
266,139
23.1
245,978
22.5
Warrants
2.0
Equity
Certain Risk Factors
In the ordinary course of business, the Company manages a variety of risks, including market risk, credit risk and liquidity risk. The Company identifies, measures and monitors risk through various control mechanisms, including investment limits and diversifying exposures and activities across a variety of instruments, markets and counterparties.
Market risk is the risk of potential adverse changes to the value of financial instruments because of changes in market conditions, including as a result of changes in the credit quality of a particular issuer, credit spreads, interest rates, and other movements and volatility in security prices or commodities. In particular, the Company may invest in issuers that are experiencing or have experienced financial or business difficulties (including difficulties resulting from the initiation or prospect of significant litigation or bankruptcy proceedings), which involves significant risks. The Company manages its exposure to market risk through the use of risk management strategies and various analytical monitoring techniques.
The Company’s investments are generally comprised of securities and other financial instruments or obligations that are illiquid or thinly traded, making purchase or sale of such securities and financial instruments at desired prices or in desired quantities difficult. Furthermore, the sale of any such investments may be possible only at substantial discounts, and it may be extremely difficult to value any such investments accurately.
The Company’s investments consist of growth-stage companies, many of which have relatively limited operating histories and may experience variation in operating results. Many of these companies conduct business in regulated industries and could be affected by changes in government regulations. Most of the Company’s borrowers will need additional capital to satisfy their continuing working capital needs and other requirements, and in many instances, to service the interest and principal payments on the debt.
Note 4. Fair Value of Financial Instruments
ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the observability of inputs used to measure fair value, and provides disclosure requirements for fair value measurements. The Company accounts for its investments at fair value in accordance with ASC 820. As of June 30, 2023 and December 31, 2022, the Company’s portfolio investments consisted primarily of investments in secured loans and equipment financings. The fair value amounts have been measured as of the reporting date and have not been reevaluated or updated for purposes of these financial statements subsequent to that date. As such, the fair values of these financial instruments subsequent to the reporting date may be different than amounts reported.
In accordance with ASC 820, the Company has categorized its investments based on the priority of the inputs to the valuation technique into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical investments (Level 1) and the lowest priority to unobservable inputs (Level 3). See “Note 2 - Summary of Significant Accounting Policies.”
As required by ASC 820, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, unrealized appreciation and depreciation related to such investments categorized within the Level 3 tables below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).
The fair value determination of each portfolio investment categorized as Level 3 requires one or more of the following unobservable inputs:
67
The use of significant unobservable inputs creates uncertainty in the measurement of fair value as of the reporting date. The significant unobservable inputs used in the fair value measurement of the Company’s investments, are (i) earnings before interest, tax, depreciation, and amortization (“EBITDA”) and revenue multiples (both projected and historic), and (ii) volatility assumptions. Significant increases (decreases) in EBITDA and revenue multiple inputs in isolation would result in a significantly higher (lower) fair value measurement. Similarly, significant increases (decreases) in volatility inputs in isolation would result in a significantly higher (lower) fair value assessment. Conversely, significant increases (decreases) in weighted average cost of capital inputs in isolation would result in a significantly lower (higher) fair value measurement. However, due to the nature of certain investments, fair value measurements may be based on other criteria, such as third-party appraisals of collateral and fair values as determined by independent third parties, which are not presented in the tables below.
The Company’s assets measured at fair value by investment type on a recurring basis as of June 30, 2023 were as follows (in thousands):
Fair Value Measurements at Reporting Date Using
Quoted Prices
Significant
in Active
Other
Markets for
Observable
Unobservable
Identical Assets
Inputs
Measured at
Assets
(Level 1)
(Level 2)
(Level 3)
Net Asset Value(1)
Equipment Financings
26,897
955
15,593
Total Investments at fair value
1,142,585
Escrow Receivable (2)
2,441
13,223
1,145,026
1,162,727
The Company’s assets measured at fair value by investment type on a recurring basis as of December 31, 2022 were as follows (in thousands):
30,989
13,245
1,093,063
Escrow Receivable (1)
11,200
1,095,504
1,107,439
The methodology for determining the fair value of the Company’s investments is discussed in “Note 2 – Summary of Significant Accounting Policies”. The significant unobservable input used in the fair value measurement of the Company’s escrow receivables is the amount recoverable at the contractual maturity date of the escrow receivable. The following table provides a summary of the significant unobservable inputs used to measure the fair value of the Level 3 portfolio investments as of June 30, 2023.
Fair Value as of
Valuation Techniques/
Weighted
Investment Type
(in thousands)
Methodologies
Inputs (1)
Range
Average (2)
Debt investments
803,849
Discounted Cash Flows
Hypothetical Market Yield
13.1% - 27.0%
17.4
147,938
Originated within the past three months
Origination Market Yield
8.5% - 15.7%
13.2
142,225
Scenario Analysis
Probability Weighting of Alternative Outcomes
5.0% - 75.0%
n/a
Debt investment in the JV
Enterprise Value
Equity investments
Market Approach
Revenue Multiple (3)
0.4x - 5.2x
x
Volatility (5)
33.3% - 86.4%
55.9
Risk-Free Interest Rate
2.9% - 4.7%
Estimated Time to Exit (in years)
1.9 - 4.0
2.4
24,140
0.3x - 9.0x
Company Specific Adjustment (4)
29.3%
33.3% - 108.3%
69.6
0.5% - 4.8%
3.2
0.1 - 5.2
2,757
Black-Scholes Option Pricing Model
33.7%- 65.4%
33.8
Discount for Lack of Marketability (6)
4.5%- 4.9%
4.9
1.3- 2.0
Total Level 3 Investments
The following table provides a summary of the significant unobservable inputs used to fair value the Level 3 portfolio investments as of December 31, 2022.
872,022
11.7% - 28.5%
156,281
9.0% - 15.5%
2,688
Transactions Precedent(6)
Transaction Price
17,838
5.0% - 80.0%
12,651
Revenue Multiple Only(3)
0.9x - 8.0x
Revenue Multiple(3)
0.4x - 5.9x
Volatility(5)
45.1% - 102.2%
66.8
2.9% - 4.2%
1.9 - 4.8
3.0
594
Other⁽⁷⁾
20.0% - 80.0%
30,442
0.4x - 3.2x
2.2
0.2x - 8.5x
Company Specific Adjustment(4)
18.7% - 30.0%
28.3
33.3% - 98.0%
51.8
0.5% - 4.5%
0.1 - 5.0
65.4
Discount for Lack of Marketability(8)
24.6
3.7
The following table provides a summary of changes in the fair value of the Company’s Level 3 debt, including loans and equipment financings (collectively “Debt”), equity, warrant and escrow receivable portfolio investments for the six months ended June 30, 2023 (in thousands):
Debt
Escrow Receivable
Fair Value as of December 31, 2022
Purchases, net of deferred fees
214,359
3,349
221,208
Non-cash conversion (1)
(500
Transfers into/(out of) Level 3 (2)
Proceeds from sales and paydowns
(184,259
(461
(1,545
(186,265
Accretion of OID, EOT, and PIK payments
15,105
Net realized gain/(loss)
(14,543
(13,046
651
(26,938
Change in unrealized appreciation/(depreciation)
11,834
(6,547
26,391
Fair Value as of June 30, 2023
Net change in unrealized appreciation/depreciation on Level 3 investments still held as of June 30, 2023
6,319
(1,211
(6,786
(1,678
The following table provides a summary of changes in the fair value of the Company’s Level 3 debt, including loans and equipment financings (collectively “Debt”), equity, and warrant portfolio investments for the year ended December 31, 2022 (in thousands):
Type of Investment
Fair Value as of December 31, 2021
735,968
21,788
36,753
4,152
798,661
612,294
4,800
9,117
626,211
(7,225
(6,688
Transfers into/(out of) of Level 3 (2)
(1,061
(273,787
(663
(981
(1,711
(277,142
Accretion of OID and EOT payments
32,220
(18,135
(676
(557
(19,368
(39,731
(12,541
(5,057
(57,329
Net change in unrealized appreciation/depreciation on Level 3 investments still held as of December 31, 2022
(47,150
(13,879
(5,649
(66,678
Fair Value of Financial Instruments Carried at Cost
As of June 30, 2023 and December 31, 2022, the carrying value of the KeyBank Credit Facility was approximately $232.0 million and $187.5 million, respectively. The carrying value of the KeyBank Credit Facility as of June 30, 2023 and December 31, 2022 approximates the fair value, which was estimated using a market yield approach with Level 3 inputs.
As of June 30, 2023 and December 31, 2022, the carrying value of the 7.00% Notes due 2025 (the “2025 Notes”) was approximately $179.5 million and $178.6 million, respectively, net of unamortized deferred financing costs of $3.0 million and $3.9 million, respectively. The 2025 Notes have a fixed interest rate as discussed in “Note 5 – Borrowings.” The fair value of the 2025 Notes as of June 30, 2023 and December 31, 2022 was approximately $182.4 million and $183.2 million, respectively, based on the market closing price of these notes, which trade on the Nasdaq Global Select Market under the symbol “TRINL”.
As of June 30, 2023 and December 31, 2022, the carrying value of the Convertible Notes was approximately $48.4 million and $48.1 million, respectively, net of unamortized deferred financing costs and discount of $1.6 million and $1.9 million, respectively. The Convertible Notes have a fixed interest rate as discussed in “Note 5 – Borrowings.” The fair value of the Company’s Convertible Notes as of June 30, 2023 and December 31, 2022 was approximately $48.3 million and $40.7 million, respectively, which was estimated using a relative market yield approach with Level 3 inputs.
As of June 30, 2023 and December 31, 2022, the carrying value of the Company’s 4.375% Notes due 2026 (the “August 2026 Notes”) was approximately $123.2 million and $122.9 million, respectively, net of unamortized deferred financing costs and discount of $1.8 million and $2.1 million, respectively. The August 2026 Notes have a fixed interest rate as discussed in “Note 5 – Borrowings.” The fair value of the Company’s August 2026 Notes as of June 30, 2023, and December 31, 2022, was approximately $108.3 million and $99.2 million, respectively, which was estimated using a relative market yield approach with Level 3 inputs.
As of June 30, 2023, and December 31, 2022, the carrying value of the Company’s 4.25% Notes due 2026 (the “December 2026 Notes”) was approximately $73.7 million, and $73.5 million, respectively, net of unamortized
deferred financing fees of $1.3 million and $1.5 million, respectively. The December 2026 Notes have a fixed interest rate as discussed in “Note 5 – Borrowings.” The fair value of the Company’s December 2026 Notes as of June 30, 2023 and December 31, 2022 was approximately was approximately $65.3 million and $59.6 million, respectively, which was estimated using a relative market yield approach with Level 3 inputs.
Note 5. Borrowings
On October 27, 2021, TCF, a wholly owned subsidiary of the Company, as borrower, and the Company, as servicer, entered into a credit agreement (as amended, the “KeyBank Credit Agreement”) with the lenders from time-to-time party thereto, KeyBank, as administrative agent and syndication agent, and Wells Fargo, National Association, as collateral custodian and paying agent.
The KeyBank Credit Facility includes a commitment of $350.0 million from KeyBank and other banks and allows the Company, through TCF, to borrow up to $400.0 million. Borrowings under the KeyBank Credit Agreement bear interest at a rate equal to the Adjusted Term SOFR plus 2.85%, subject to the number of eligible loans in the collateral pool. The KeyBank Credit Facility provides for a variable advance rate of up to 60% on eligible term loans and up to 64% on eligible equipment finance loans.
The KeyBank Credit Facility includes a three-year revolving period and a two-year amortization period and matures on October 27, 2026, unless extended. Such credit facility is collateralized by all investment assets held by TCF. The KeyBank Credit Agreement contains representations and warranties and affirmative and negative covenants customary for secured financings of this type, including certain financial covenants such as a consolidated tangible net worth requirement and a required asset coverage ratio.
The KeyBank Credit Agreement also contains customary events of default (subject to certain grace periods, as applicable), including but not limited to the nonpayment of principal, interest or fees; breach of covenants; inaccuracy of representations or warranties in any material respect; voluntary or involuntary bankruptcy proceedings; and change of control of the borrower without the prior written consent of KeyBank.
During the three months ended June 30, 2023, the Company borrowed $93.0 million and made repayments of $44.5 million under the KeyBank Credit Facility. During the six months ended June 30, 2023, the Company borrowed $147.0 million and made repayments of $102.5 million under the KeyBank Credit Facility. The Company incurred approximately $3.6 million of financing costs in connection with the KeyBank Credit Facility that were capitalized and deferred using the straight-line method over the life of the facility. As of June 30, 2023, and December 31, 2022, unamortized deferred financing costs related to the KeyBank Credit Facility were $2.5 million and $2.9 million, respectively. As of June 30, 2023 and December 31, 2022, the Company had a borrowing availability of approximately$118.0 million and $162.5 million, respectively.
The summary information regarding the KeyBank Credit Facility is as follows (dollars in thousands):
Stated interest expense
4,783
1,791
8,651
2,643
173
Total interest and amortization of deferred financing costs
1,964
9,060
2,974
Weighted average effective interest rate
Weighted average outstanding balance
232,143
180,271
214,724
131,357
2025 Notes
Concurrent with the completion of the Private Common Stock Offering, on January 16, 2020, the Company completed its offering of $105.0 million in aggregate principal amount of the unsecured 2025 Notes in reliance upon the available exemptions from the registration requirements of the Securities Act, the “144A Note Offering”. Keefe, Bruyette & Woods, Inc. (“KBW”), as the initial purchaser, exercised in full its option to purchase or place additional 2025 Notes and, on January 29, 2020, the Company issued and sold an additional $20.0 million in aggregate principal amount of the 2025 Notes. As a result, the Company issued and sold a total of $125.0 million in aggregate principal amount of the 2025 Notes pursuant to the 144A Note Offering.
Concurrent with the closing of the 144A Note Offering, on January 16, 2020, the Company entered into a registration rights agreement for the benefit of the purchasers of the 2025 Notes in the 144A Note Offering. Pursuant to the terms of this registration rights agreement, the Company filed with the SEC a registration statement, which was initially declared effective on October 20, 2020, registering the public resale of the 2025 Notes by the holders thereof that elected to include their 2025 Notes in such registration statement.
The 2025 Notes were issued pursuant to an Indenture dated as of January 16, 2020 (the “Base Indenture”), between the Company and U.S. Bank National Association, as trustee (together with its successor in interest, U.S. Bank Trust Company, National Association, the “Trustee”), and a First Supplemental Indenture, dated as of January 16, 2020 (the “First Supplemental Indenture” and together with the Base Indenture, the “2025 Notes Indenture”), between the Company and the Trustee. The 2025 Notes mature on January 16, 2025 (the “Maturity Date”), unless repurchased or redeemed in accordance with their terms prior to such date. The 2025 Notes are redeemable, in whole or in part, at any time, or from time to time, at the Company’s option, on or after January 16, 2023 at a redemption price equal to 100% of the outstanding principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of redemption. The holders of the 2025 Notes do not have the option to have the notes repaid or repurchased by the Company prior to the Maturity Date.
On July 22, 2022, the Company issued $50.0 million in aggregate principal amount of the 2025 Notes in an additional issuance of such 2025 Notes. On July 27, 2022, the underwriters exercised, in full, their option to purchase from the Company an additional $7.5 million in aggregate principal amount of the 2025 Notes solely to cover over-allotments in accordance with the Underwriting Agreement. The 2025 Notes issued pursuant to this offering are treated as a single series with the existing 2025 Notes under the 2025 Notes Indenture (the “Existing 2025 Notes”) and have the same terms as the Existing 2025 Notes (other than issue date and issue price). The 2025 Notes have the same CUSIP number and are fungible and rank equally. Following this additional issuance of the 2025 Notes, the outstanding aggregate principal amount of the 2025 Notes is $182.5 million.
In connection with the additional issuance of the 2025 Notes, the 2025 Notes began trading on the Nasdaq Global Select Market under the symbol “TRINL” on July 29, 2022.
The 2025 Notes bear interest at a fixed rate of 7.00% per year payable quarterly on March 15, June 15, September 15, and December 15 of each year, commencing on March 15, 2020. The 2025 Notes are direct, general unsecured obligations of the Company and rank pari passu, or equal in right of payment, with all of the Company’s existing and future unsecured indebtedness or other obligations that are not so subordinated.
Aggregate offering costs in connection with the 2025 Notes issuance, including the underwriters' discount and commissions, were approximately $7.8 million, which were capitalized and deferred. As of June 30, 2023 and December 31, 2022, unamortized deferred financing costs related to the 2025 Notes were $3.0 million and $3.9 million, respectively.
The components of interest expense and related fees for the 2025 Notes are as follows (in thousands):
3,194
2,188
6,388
4,375
298
3,687
2,486
7,385
8.1
8.0
182,500
125,000
August 2026 Notes
On August 24, 2021, the Company issued and sold $125.0 million in aggregate principal amount of its unsecured August 2026 Notes under its shelf Registration Statement on Form N-2. The August 2026 Notes were issued pursuant to the Base Indenture and a Third Supplemental Indenture, dated as of August 24, 2021 (together with the Base Indenture, the “August 2026 Notes Indenture”), between the Company and the Trustee. The August 2026 Notes mature on August 24, 2026, unless repurchased or redeemed in accordance with their terms prior to such date. The August 2026 Notes are redeemable, in whole or in part, at any time, or from time to time, at the Company’s option, at a redemption price equal to the greater of (1) 100% of the principal amount of the August 2026 Notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest (exclusive of accrued and unpaid interest to the date of redemption) on the August 2026 Notes to be redeemed, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) using the applicable treasury rate plus 50 basis points, plus, in each case, accrued and unpaid interest to the redemption date; provided, however, that if the Company redeems any August 2026 Notes on or after July 24, 2026, the redemption price for the August 2026 Notes will be equal to 100% of the principal amount of the August 2026 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. In addition, if a change of control repurchase event (as defined in the August 2026 Notes Indenture) occurs prior to the maturity date of the August 2026 Notes or the Company’s redemption of all outstanding August 2026 Notes, the Company will be required, subject to certain conditions, to make an offer to the holders thereof to repurchase for cash some or all of the August 2026 Notes at a repurchase price equal to 100% of the principal amount of the August 2026 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.
The August 2026 Notes bear interest at a fixed rate of 4.375% per year payable semiannually on February 15 and August 15 of each year, commencing on February 15, 2022. The August 2026 Notes are direct, general unsecured obligations of the Company and rank pari passu, or equal in right of payment, with all of the Company’s existing and future unsecured indebtedness or other obligations that are not so subordinated.
Aggregate offering costs in connection with the August 2026 Notes issuance, including the underwriter’s discount and commissions, were approximately $2.9 million, which were capitalized and deferred. As of
June 30, 2023 and December 31, 2022, unamortized deferred financing costs related to the August 2026 Notes were $1.8 million and $2.1 million, respectively.
The weighted average outstanding balance and the weighted average effective interest rate for the three and six months ended June 30, 2023 and 2022 was $125.0 million and 4.8%, respectively. The components of interest expense and related fees for the 2026 Notes are as follows (in thousands):
2,735
2,719
1,511
3,023
December 2026 Notes
On December 15, 2021, the Company issued and sold $75.0 million in aggregate principal amount of its unsecured December 2026 Notes under its shelf Registration Statement on Form N-2. The December 2026 Notes were issued pursuant to the Base Indenture and a Fourth Supplemental Indenture, dated as of December 15, 2021 (together with the Base Indenture, the “December 2026 Notes Indenture”), between the Company and the Trustee. The December 2026 Notes mature on December 15, 2026, unless repurchased or redeemed in accordance with their terms prior to such date. The December 2026 Notes are redeemable, in whole or in part, at any time, or from time to time, at the Company’s option, at a redemption price equal to the greater of (1) 100% of the principal amount of the December 2026 Notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest (exclusive of accrued and unpaid interest to the date of redemption) on the December 2026 Notes to be redeemed, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) using the applicable treasury rate plus 50 basis points, plus, in each case, accrued and unpaid interest to the redemption date; provided, however, that if the Company redeems any December 2026 Notes on or after November 15, 2026, the redemption price for the December 2026 Notes will be equal to 100% of the principal amount of the December 2026 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption. In addition, if a change of control repurchase event (as defined in the December 2026 Notes Indenture) occurs prior to the maturity date of the December 2026 Notes or the Company’s redemption of all outstanding December 2026 Notes, the Company will be required, subject to certain conditions, to make an offer to the holders thereof to repurchase for cash some or all of the December 2026 Notes at a repurchase price equal to 100% of the principal amount of the December 2026 Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.
The December 2026 Notes bear interest at a fixed rate of 4.25% per year payable semiannually on June 15 and December 15 of each year, commencing on June 15, 2022. The December 2026 Notes are direct, general unsecured obligations of the Company and rank pari passu, or equal in right of payment, with all of the Company’s existing and future unsecured indebtedness or other obligations that are not so subordinated.
Aggregate offering costs in connection with the December 2026 Notes issuance, including the underwriter’s discount and commissions, were approximately $1.9 million, which were capitalized and deferred. As of June 30, 2023 and December 31, 2022, unamortized deferred financing costs related to the December 2026 Notes were $1.3 million and $1.5 million, respectively.
The weighted average outstanding balance and the weighted average effective interest rate for the three and six months ended June 30, 2023 and 2022 was $75.0 million and 4.7%, respectively. The components of interest expense and related fees for the December 2026 Notes are as follows (in thousands):
1,594
1,780
6.00% Convertible Notes due 2025
On December 11, 2020, the Company completed a private offering (the “Private Convertible Note Offering”) of $50.0 million in aggregate principal amount of its unsecured Convertible Notes in reliance upon the available exemptions from the registration requirements of the Securities Act. KBW acted as the initial purchaser and placement agent in connection with the Private Convertible Note Offering pursuant to a purchase/placement agreement dated December 4, 2020, by and between the Company and KBW.
The Convertible Notes were issued pursuant to the Base Indenture and a Second Supplemental Indenture, dated as of December 11, 2020 (the “Second Supplemental Indenture” and together with the Base Indenture, the “Convertible Notes Indenture”), between the Company and the Trustee. Concurrent with the closing of the Convertible Note Offering, on December 11, 2020, the Company entered into a registration rights agreement for the benefit of the holders of the Convertible Notes and the shares of common stock issuable upon conversion thereof. Aggregate offering costs in connection with the Convertible Note Offering, including the initial purchaser and placement agent discount and commissions, were approximately $1.9 million, which were capitalized and deferred.
The Convertible Notes bear interest at a fixed rate of 6.00% per year, subject to additional interest upon certain events, payable semiannually in arrears on May 1 and November 1 of each year, beginning on May 1, 2021. If an investment grade rating is not maintained with respect to the Convertible Notes, additional interest of 0.75% per annum will accrue on the Convertible Notes until such time as the Convertible Notes have received an investment grade rating of “BBB-” (or its equivalent) or better. The rating remained at investment grade as of June 30, 2023. The Convertible Notes mature on December 11, 2025 (the “Convertible Notes Maturity Date”), unless earlier converted or repurchased in accordance with their terms.
Holders may convert their Convertible Notes, at their option, at any time on or prior to the close of business on the business day immediately preceding the Convertible Notes Maturity Date. The conversion rate was initially 66.6667 shares of the Company’s common stock, per $1,000 principal amount of the Convertible Notes (equivalent to an initial conversion price of approximately $15.00 per share of common stock). Effective immediately after the close of business on June 30, 2023, the conversion rate changed to 74.6205 shares of the Company’s common stock, per $1,000 principal amount of the Convertible Notes (equivalent to a conversion price of approximately $13.40 per share of common stock) as a result of a certain cash dividend of the Company. The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events, further described in the Convertible Note Indenture, that occur prior to the Convertible Notes Maturity Date, the Company will increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such a corporate event in certain circumstances. Upon conversion of the Convertible Notes, the Company will pay or deliver, as the case may be, cash, shares of common stock, or a combination of cash and shares of common stock, at the Company’s election, per $1,000 principal amount of the Convertible Notes, equal to the then existing conversion rate.
At the Company’s option, it may cause holders to convert all or a portion of the then outstanding principal amount of the Convertible Notes plus accrued but unpaid interest, at any time on or prior to the close of business on the business day immediately preceding the Convertible Notes Maturity Date, if the closing sale price of the Company’s common stock for any 30 consecutive trading days exceeds 120% of the conversion price, as may be
adjusted. Upon such conversion, the Company will pay or deliver, as the case may be, cash, shares of common stock, or a combination of cash and shares of common stock, at the Company’s election, per $1,000 principal amount of the Convertible Notes, equal to the then existing conversion rate, and a forced conversion make-whole payment (as defined in the Second Supplemental Indenture), if any, in cash.
The Company may not redeem the Convertible Notes at its option prior to maturity. In addition, if the Company undergoes a fundamental change (as defined in the Second Supplemental Indenture), holders may require the Company to repurchase for cash all or part of such holders’ Convertible Notes at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The Convertible Notes are direct unsecured obligations of the Company and rank pari passu, or equal in right of payment, with all of the Company’s existing and future unsecured indebtedness or other obligations that are not so subordinated, including, without limitation, the 2025 Notes, and senior in right of payment to all of the Company’s future indebtedness or other obligations that are expressly subordinated, or junior, in right of payment to the Convertible Notes.
The Convertible Notes are accounted for in accordance with ASC 470-20, Debt Instruments with Conversion and Other Options. In accounting for the Convertible Notes, the Company estimated at the time of issuance that the values of the debt and the embedded conversion feature of the Convertible Notes were approximately 99.1% and 0.9%, respectively. The original issue discount of 0.9%, or approximately $0.5 million, attributable to the conversion feature of the Convertible Notes was recorded in “capital in excess of par value” in the Consolidated Statements of Assets and Liabilities as of December 31, 2020.
In January 2021, the Company early adopted ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) (“ASU 2020-06”), under which the accounting for convertible instruments was simplified by removing the separate accounting for embedded conversion features. As such, approximately $0.5 million was reversed out of net assets and reduced the original issue discount for the Convertible Notes.
The components of the carrying value of the Convertible Notes were as follows (in thousands):
Principal amount of debt
Unamortized debt financing cost
(921
(1,109
Original issue discount, net of accretion
(642
(773
Carrying value of Convertible Notes
The weighted average outstanding balance and the weighted average effective interest rate for the three and six months ended June 30, 2023 and 2022 was $50.0 million and 7.3%, respectively. The components of interest expense and related fees for the Convertible Notes were as follows (in thousands):
Amortization of deferred financing costs and original issue discount
Total interest and amortization of deferred financing costs and original issue discount
910
1,819
As of June 30, 2023 and December 31, 2022, the Company was in compliance with the terms of the KeyBank Credit Agreement, the 2025 Notes Indenture, the August 2026 Notes Indenture, the December 2026 Notes Indenture and the Convertible Notes Indenture.
Note 6. Commitments and Contingencies
Unfunded Commitments
The Company’s commitments and contingencies consist primarily of unused commitments to extend credit in the form of loans or equipment financings to the Company’s portfolio companies. A portion of these unfunded contractual commitments as of June 30, 2023 and December 31, 2022 are generally dependent upon the portfolio company reaching certain milestones before the debt commitment becomes available. Furthermore, the Company’s credit agreements contain customary lending provisions that allow the Company relief from funding obligations for previously made commitments in instances where the underlying portfolio company experiences materially adverse events that affect the financial condition or business outlook of the Company. Since a portion of these commitments may expire without being drawn, unfunded contractual commitments do not necessarily represent future cash requirements. As such, the Company’s disclosure of unfunded contractual commitments as of June 30, 2023 and December 31, 2022 includes only those commitments that are available at the request of the portfolio company and are unencumbered by milestones or additional lending provisions. As of June 30, 2023 and December 31, 2022, the Company only had unfunded commitments of $12.7 million and $21.4 million, respectively, which represented the Company's uncalled capital to the JV.
The Company did not have any other off-balance sheet financings or liabilities as of June 30, 2023 or December 31, 2022. The Company will fund its unfunded commitments, if any, from the same sources it uses to fund its investment commitments that are funded at the time they are made (which are typically through existing cash and cash equivalents and borrowings under its KeyBank Credit Facility) and maintains adequate liquidity to fund its unfunded commitments through these sources.
In the normal course of business, the Company enters into contracts that provide a variety of representations and warranties, and general indemnifications. Such contracts include those with certain service providers, brokers and trading counterparties. Any exposure to the Company under these arrangements is unknown as it would involve future claims that may be made against the Company; however, based on the Company’s experience, the risk of loss is remote and no such claims are expected to occur. As such, the Company has not accrued any liability in connection with such indemnifications.
Leases
ASU No. 2016‑02, Leases (Topic 842) (“ASU 2016‑02”) requires that a lessee evaluate its leases to determine whether they should be classified as operating or finance leases. The Company identified two significant operating leases for its headquarters in Phoenix, AZ and office space in San, Diego, CA. The lease for the Company's Phoenix, AZ (“PHX”) headquarters commenced on July 10, 2021, and expires on December 31, 2028. The PHX lease contains two five-year extension options which, if exercised, would result in a final expiration date of December 31, 2038. As of June 30, 2023, the remaining lease term for the PHX office was 5.5 years. The lease for the San Diego office commenced March 10, 2023, and expires on January 1, 2026. As of June 30, 2023, the remaining lease term for the San Diego office was 2.6 years.
The total lease expense incurred for the three months ended June 30, 2023 and 2022 was approximately $0.2 million and $0.1 million, respectively, and for the six months ended June 30, 2023 and 2022 was approximately $0.3 million and $0.2 million, respectively. As of June 30, 2023 and December 31, 2022, the right of use assets related to the office operating leases were $2.4 million and $2.1 million, respectively, and the lease liabilities were $2.6 million and $2.3 million, respectively. The discount rates determined at the commencement of the PHX and San Diego leases were 3.75% and 7.64%, respectively.
The following table shows future minimum payments under the Company’s operating leases as of June 30, 2023 (in thousands):
For the Years Ended December 31,
2024
575
2025
585
2026
412
2027
Thereafter
415
2,680
The Company may, from time to time, be involved in litigation arising out of its operations in the normal course of business or otherwise. Furthermore, third parties may try to seek to impose liability on the Company in connection with the activities of its portfolio companies. As of June 30, 2023, there are no material legal matters or material litigation pending of which the Company is aware.
Note 7. Stockholders' Equity
The Company authorized 200,000,000 shares of its common stock with a par value of $0.001 per share. On September 27, 2019, the Company was initially capitalized by the issuance of 10 shares of its common stock for an aggregate purchase price of $150 to its sole stockholder.
Private Common Stock Offerings
On January 16, 2020, the Company completed the Private Common Stock Offering in reliance upon the available exemptions from the registration requirements of the Securities Act. As a result, the Company issued and sold a total of 7,000,000 shares of its common stock for aggregate net proceeds of approximately $105.0 million. The related overallotment option was exercised in full on January 29, 2020, pursuant to which the Company issued and sold an additional 1,333,333 shares of its common stock for gross proceeds of approximately $20.0 million. As a result, the Company issued and sold a total of 8,333,333 shares of its common stock pursuant to the Private Common Stock Offering for aggregate net proceeds of approximately $114.4 million, net of offering costs of approximately $10.6 million.
Concurrent with the closing of the Private Common Stock Offering, on January 16, 2020, the Company entered into a registration rights agreement for the benefit of the purchasers of shares of its common stock in such offering and the certain of the investors in the Legacy Funds (the “Legacy Investors”) that received shares of its common stock in connection with the Formation Transactions that were not the Company’s directors, officers and affiliates. Pursuant to the terms of this registration rights agreement, the Company no longer has any registration obligations with respect to such shares because (i) such shares may be sold by any such stockholder in a single transaction without registration pursuant to Rule 144 under the Securities Act, (ii) the Company has been subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, for a period of at least 90 days and is current in the filing of all such required reports and (iii) such shares have been listed for trading on the Nasdaq Global Select Market.
Formation Transactions
On January 16, 2020, immediately following the initial closings of the Private Offerings, the Company used the proceeds from the Private Offerings to complete the Formation Transactions, pursuant to which the Company acquired the Legacy Funds and Trinity Capital Holdings. In consideration for the Legacy Funds, the Company issued 9,183,185 shares of common stock at $15.00 per share for a total value of approximately $137.7 million and paid approximately $108.7 million in cash to certain of the Legacy Investors. As consideration for all of the equity
interests in Trinity Capital Holdings, the Company issued 533,332 shares of its common stock at $15.00 per share for a total value of approximately $8.0 million and paid approximately $2.0 million in cash.
Initial Public Offering
On February 2, 2021, the Company completed its initial public offering of 8,006,291 shares of common stock at a price of $14.00 per share, inclusive of the underwriters’ option to purchase additional shares, which was exercised in full. The Company’s common stock began trading on the Nasdaq Global Select Market on January 29, 2021, under the symbol “TRIN.” Proceeds from this offering were primarily used to pay down a portion of the Company's existing indebtedness outstanding under the Credit Suisse Credit Facility.
ATM Program
On November 9, 2021, the Company entered into an open market sale agreement with Jefferies LLC, as sales agent and/or principal thereunder, pursuant to which the Company can issue and sell, from time to time, up to $50.0 million in aggregate offering price of shares of its common stock by any method permitted by law and deemed to be part of an “at-the-market” offering (as defined in Rule 415 under the Securities Act) (the “ATM Program”). The Company generally uses net proceeds from the ATM Program to make investments in accordance with its investment objective and investment strategy and for general corporate purposes.
During the three months ended June 30, 2023, the Company issued and sold 719,329 shares of its common stock at a weighted-average price of $13.61 per share and raised $9.6 million of net proceeds after deducting commissions to the sales agent on shares sold under the ATM Program. During the six months ended June 30, 2023, the Company issued and sold 1,022,309 shares of its common stock at a weighted-average price of $13.64 per share and raised $13.7 million of net proceeds after deducting commissions to the sales agent on shares sold under the ATM Program.
During the year ended December 31, 2022, the Company issued and sold 176,148 shares of its common stock at a weighted-average price of $16.56 per share and raised $2.9 million of net proceeds after deducting commissions to the sales agent on shares sold under the ATM Program.
Stock Repurchase Program
On November 14, 2022, the Company's Board authorized a program for the purpose of repurchasing up to $25.0 million worth of the Company's common stock (the “Repurchase Program”). Under the Repurchase Program, the Company may, but is not obligated to, repurchase its outstanding common stock in the open market from time to time, provided that the Company complies with the prohibitions under its Rule 38a-1 Compliance Manual and Rule 17j-1 Code of Ethics and the guidelines specified in Rule 10b-18 of the Securities Exchange Act of 1934, as amended, including certain price, market, volume, and timing constraints. In addition, any repurchases will be conducted in accordance with the 1940 Act, as amended. Unless amended or extended by the Company's Board, the Company expects the Repurchase Program to be in place until the earlier of November 11, 2023, or until $25.0 million of the Company's outstanding shares of common stock have been repurchased.
During the six months ended June 30, 2023, the Company repurchased 91,691 shares of its outstanding common stock at a weighted average price of $10.91. During the three months ended June 30, 2023, the Company did not repurchase outstanding common stock.
During the year ended December 31, 2022, the Company repurchased 185,722 shares of its outstanding common stock at a weighted average price of $10.77. All repurchased shares were immediately canceled and thus Trinity Capital holds no treasury stock. Under the Repurchase Program, as of June 30, 2023, the Company may, but is not obligated to, repurchase up to an additional $22.0 million of the Company's outstanding shares of common stock.
Equity Offerings
On April 7, 2022, the Company issued 2,754,840 shares of the Company’s common stock, par value $0.001 per share, at a public offering price of $18.15 per share, resulting in net proceeds to the Company of approximately $47.9 million, after deducting discounts and commissions and offering expenses. In addition, the underwriters exercised their option to purchase an additional 413,226 shares of common stock, resulting in additional net proceeds to the Company of $7.2 million, after deducting discounts, commissions and offering expenses.
On August 18, 2022, the Company issued 3,587,736 shares of the Company’s common stock, par value $0.001 per share, at a public offering price of $15.33 per share, resulting in net proceeds to the Company of approximately $53.3 million, after deducting discounts and commissions and offering expenses. In addition, the underwriters exercised their option in part to purchase an additional 132,168 shares of common stock, resulting in additional net proceeds to the Company of $2.0 million, after deducting discounts, commissions and offering expenses.
Distribution Reinvestment Plan
The Company’s amended and restated distribution reinvestment plan (“DRIP”) provides for the reinvestment of distributions in the form of common stock on behalf of its stockholders, unless a stockholder has elected to receive distributions in cash. As a result, if the Company declares a cash distribution, its stockholders who have not “opted out” of the DRIP by the opt out date will have their cash distribution automatically reinvested into additional shares of the Company’s common stock. The share requirements of the DRIP may be satisfied through the issuance of common shares or through open market purchases of common shares by the DRIP plan administrator. Newly issued shares will be valued based upon the final closing price of the Company’s common stock on the valuation date determined for each distribution by the Board.
The Company’s DRIP is administered by its transfer agent on behalf of the Company’s record holders and participating brokerage firms. Brokerage firms and other financial intermediaries may decide not to participate in the Company’s DRIP but may provide a similar distribution reinvestment plan for their clients. During the three months ended June 30, 2023, the Company issued 43,655 shares of common stock for a total of approximately $0.6 million under the DRIP. During the six months ended June 30, 2023, the Company issued 97,840 shares of common stock for a total of approximately $1.2 million under the DRIP.
During the year ended December 31, 2022, the Company issued 187,923 shares of common stock for a total of approximately $3.0 million under the DRIP.
The following table summarizes distributions declared and/or paid by the Company since inception:
DeclarationDate
Type
RecordDate
PaymentDate
Per ShareAmount
May 7, 2020
Quarterly
May 29, 2020
June 5, 2020
August 10, 2020
August 21, 2020
November 9, 2020
December 4, 2020
December 30, 2020
January 15, 2021
March 23, 2021
March 31, 2021
April 16, 2021
0.28
June 15, 2021
July 15, 2021
September 13, 2021
December 16, 2021
January 14, 2022
0.36
March 15, 2022
April 15, 2022
0.40
Supplemental
0.42
September 15, 2022
0.45
December 15, 2022
December 30, 2022
January 13, 2023
0.46
March 14, 2023
0.47
June 14, 2023
July 14, 2023
0.05
5.62
Note 8. Equity Incentive Plans
2019 Long Term Incentive Plan
The Company’s Board adopted and approved the 2019 Trinity Capital Inc. Long Term Incentive Plan (the “2019 Long Term Incentive Plan”) on October 17, 2019 and the Company’s stockholders approved the 2019 Long Term Incentive Plan on June 17, 2021 at the Company’s 2021 Annual Meeting of Stockholders, with the 2019 Long Term Incentive Plan becoming effective on June 17, 2021. Under the 2019 Long Term Incentive Plan, awards of restricted stock, incentive stock options and non-statutory stock options (together with incentive stock options, “Options”) may be granted to certain of the Company’s executive officers, employee directors and other employees (collectively, the “Employee Participants”) in accordance with the SEC exemptive order the Company received on May 27, 2021 (the “SEC Exemptive Order”). While the 2019 Long Term Incentive Plan contemplates grants of restricted stock, restricted stock units, Options, dividend equivalent rights, performance awards and other stock-based awards to the Employee Participants, the Company only sought and received exemptive relief from the SEC pursuant to the SEC Exemptive Order to grant awards of restricted stock and Options. As a result, the Company will only grant awards of such securities under the 2019 Long Term Incentive Plan. The Employee Participants will have the right to receive dividends on such awarded restricted stock, unless and until the restricted stock is forfeited.
Subject to certain adjustments under the 2019 Long Term Incentive Plan, the maximum aggregate number of shares of the Company’s common stock authorized for issuance under the 2019 Long Term Incentive Plan is 3,600,000 shares. The 2019 Long Term Incentive Plan is to be administered by the Compensation Committee of the Board (the “Compensation Committee”) in accordance with the terms of the 2019 Long Term Incentive Plan. The 2019 Long Term Incentive Plan will terminate on the day prior to the tenth anniversary of the date it was initially adopted by the Board, unless terminated sooner by action of the Board or the Compensation Committee, as applicable.
For additional information regarding the 2019 Long Term Incentive Plan, please refer to the Company’s Current Report on Form 8-K filed with the SEC on June 23, 2021, and the Company’s definitive proxy statement filed with the SEC on April 27, 2023. The following table summarizes issuances, vesting, and retirement of shares
under the plan as well as the fair value of granted stock for the six months ended June 30, 2023 and 2022 (dollars in thousands).
Weighted Average
Grant Date Fair Value
Unvested as of Beginning of Period
1,041,721
16.98
536,552
16.48
Shares Granted
783,100
12.85
698,943
17.30
Shares Vested and Forfeited
(319,342
16.96
(99,945
16.55
Unvested as of Ending of Period
1,505,479
14.84
1,135,550
Fair Value of Granted Stock
10,063
12,092
Compensation cost recognized
3,970
2,464
As of June 30, 2023, there was approximately $21.3 million of total unrecognized compensation costs related to the non-vested restricted stock awards. These costs are expected to be recognized over a weighted average period of 2.8 years. As of December 31, 2022, there was approximately $15.3 million of total unrecognized compensation costs related to non-vested restricted stock awards. These costs were expected to be recognized over a weighted average period of 2.7 years.
2019 Restricted Stock Plan
The Company’s Board adopted and approved the Trinity Capital Inc. 2019 Non-Employee Director Restricted Stock Plan (the “2019 Restricted Stock Plan”) on October 17, 2019 and the Company’s stockholders approved the 2019 Restricted Stock Plan on June 17, 2021 at the Company’s 2021 Annual Meeting of Stockholders. The 2019 Restricted Stock Plan became effective on June 17, 2021 and provides for grants of restricted stock awards (“Non-Employee Director Awards”) to the Company’s non-employee directors (the “Non-Employee Director Participants”), which are directors who are not “interested persons” of the Company (as such term is defined in Section 2(a)(19) of the 1940 Act) in accordance with the SEC Exemptive Order. The Non-Employee Director Participants will have the right to receive dividends on such awarded restricted stock, unless and until the restricted stock is forfeited.
Subject to certain adjustments under the 2019 Restricted Stock Plan, the total number of shares of the Company’s common stock that may be subject to Non-Employee Director Awards is 60,000 shares. The 2019 Restricted Stock Plan is to be administered by the Compensation Committee, subject to the discretion of the Board. The 2019 Restricted Stock Plan will terminate on the day prior to the tenth anniversary of the date it was approved by the Company’s stockholders, unless terminated sooner by action of the Board.
For additional information regarding the 2019 Restricted Stock Plan, please refer to the Company’s Current Report on Form 8-K, filed with the SEC on June 23, 2021, and the Company’s definitive proxy statement filed with the SEC on April 27, 2023. The following table summarizes issuances, vesting, and retirement of shares under the plan as well as the fair value of granted stock for the six months ended June 30, 2023 and 2022 (dollars in thousands).
Unvested as of Beginning of Period,
14.77
6,066
13.16
19,320
15.53
(13,540
(11,846
16.88
Unvested as of Ending of Period,
200
100
As of June 30, 2023, there was approximately $0.2 million of total unrecognized compensation costs related to non-vested restricted stock awards. These costs are expected to be recognized over a one-year period. As of December 31, 2022, there was approximately $0.1 million of total unrecognized compensation costs related to non-vested restricted stock awards. These costs are expected to be recognized over a six-month period.
Note 9. Earnings Per Share
The following table sets forth the computation of the basic and diluted earnings per common share for the three and six months ended June 30, 2023 and 2022 (in thousands except shares and per share information):
Earnings per common share - basic
Numerator for basic earnings per share
Denominator for basic weighted average shares
Earnings/(Loss) per common share - basic
Earnings per common share - diluted
Numerator for increase in net assets per share
Adjustment for interest expense and deferred financing costs on Convertible Notes(1)
Numerator for diluted earnings per share
20,792
44,185
Adjustment for dilutive effect of Convertible Notes(1)
3,666,795
Denominator for diluted weighted average shares
Earnings/(Loss) per common share - diluted
In certain circumstances at the Company's election, the Convertible Notes will be convertible into cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, which can be dilutive to common stockholders. Diluted earnings (loss) available to each share of common stock outstanding during the reporting period included any additional shares of common stock that would be issued if all potentially dilutive securities were exercised. In accordance with ASU 2020-06, the Company is required to disclose diluted EPS using the if-converted method that assumes conversion of convertible securities at the beginning of the reporting period and is intended to show the maximum dilution effect to common stockholders regardless of how the conversion can occur.
Note 10. Income Taxes
The Company has elected to be treated, and intends to continue to qualify annually, as a RIC under Subchapter M of the Code for U.S. federal tax purposes. In order to maintain its treatment as a RIC, the Company is generally required to distribute at least annually to its stockholders at least the sum of 90% of its investment company taxable income (which generally includes its net ordinary taxable income and realized net short-term capital gains in excess of realized net long-term capital losses) and 90% of its net tax-exempt income (if any). The Company generally will not be subject to U.S. federal income tax on these distributed amounts, but will pay U.S. federal income tax at corporate rates on any retained amounts.
The amount of taxable income to be paid out as a distribution is determined by the Board each quarter and is generally based upon the annual earnings estimated by management of the Company. Net capital gains, if any, are
85
distributed at least annually, although the Company may decide to retain all or some of those capital gains for investment and pay U.S. federal income tax at corporate rates on those retained amounts. If the Company chooses to do so, this generally will increase expenses and reduce the amount available to be distributed to stockholders. In the event the Company’s taxable income (including any net capital gains) for a fiscal year falls below the amount of distributions declared and paid with respect to that year, however, a portion of the total amount of those distributions may be deemed a return of capital for tax purposes to the Company’s stockholders.
Because federal income tax regulations differ from GAAP, distributions in accordance with tax regulations may differ from net investment income and realized gains recognized for financial reporting purposes. Differences may be permanent or temporary in nature. Permanent differences are reclassified among capital accounts in the financial statements to reflect their appropriate tax character. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future.
For the three and six months ended June 30, 2023, $0.7 million and $1.3 million, respectively, was recorded for U.S. federal excise tax. For the three and six months ended June 30, 2022, $0.7 million and $1.3 million, respectively, was recorded for U.S. federal excise tax.
The following table sets forth the tax cost basis and the estimated aggregate gross unrealized appreciation and depreciation from investments for federal income tax purposes as of June 30, 2023 and December 31, 2022 (in thousands):
Tax Cost of Investments (1)
1,193,222
1,166,744
Unrealized appreciation
29,946
27,223
Unrealized depreciation
(62,882
(88,970
Net unrealized appreciation/(depreciation) from investments
(32,936
(61,747
Note 11. Financial Highlights
The following presents financial highlights (in thousands except share and per share information):
Per Share Data: (1)
Net asset value, beginning of period
16.40
Net investment income
Net realized and unrealized gains/(losses) on investments (2)
0.02
(1.65
Offering costs
(0.01
(0.08
Effect of shares issued and repurchased (3)
(0.18
Distributions (4)
(1.00
(1.12
Total increase/(decrease) in net assets
(1.78
Net asset value, end of period
14.62
Shares outstanding, end of period
Weighted average shares outstanding
Total return based on net asset value (5)(9)
7.6
(4.0
Total return based on market value (6)(9)
32.1
(13.6
Ratio/Supplemental Data:
Per share market value at end of period
13.26
Net assets, end of period
Ratio of total expenses to average net assets(10)
19.8
15.6
Ratio of net investment income to average net assets(10)
17.8
14.4
Ratio of interest and credit facility expenses to average net assets(10)
Portfolio turnover rate(7)(9)
16.7
21.7
Asset coverage ratio (8)
172.5
177.0
Senior Securities
Information about the Company’s senior securities (including debt securities and other indebtedness) is shown in the following table as of June 30, 2023, and December 2022, 2021 and 2020. No senior securities were outstanding as of December 31, 2019.
Class and Period
Total Amount Outstanding Exclusive of TreasurySecurities (1) (in thousands)
Asset Coverage per Unit (2)
Involuntary Liquidating Preference per Unit (3)
Average Market Value per Unit (4)
Credit Suisse Credit Facility
June 30, 2023(5)
December 31, 2022(5)
1,958
135,000
1,770
1,725
1,741
81,000
1,005.81
1,005.96
Convertible Notes
664,500
620,000
466,000
310,000
88
Note 12. Related Party Transactions
During the three and six months ended June 30, 2023 and the year ended December 31, 2022, certain related parties received distributions from the Company relating to their shares held. Refer to “Note 7 – Stockholder’s Equity” for further details on the Company’s DRIP and the distributions declared. Additionally, in connection with the Company’s IPO, certain related parties purchased additional shares of the Company’s common stock. These acquisitions were made at the IPO price of $14.00 per share. During the three and six months ended June 30, 2023 and the year ended December 31, 2022, the Company’s directors and executive officers and certain employees received restricted stock awards under the 2019 Long Term Incentive Plan and the 2019 Restricted Stock Plan. Refer to “Note 8 – Equity Incentive Plans” for further details on the Company’s stock-based compensation plans.
The Company has entered into indemnification agreements with its directors and executive officers. The indemnification agreements are intended to provide the Company’s directors and executive officers the maximum indemnification permitted under Maryland law and the 1940 Act. Each indemnification agreement provides that the Company shall indemnify the director or executive officer who is a party to the agreement, or an “Indemnitee,” including the advancement of legal expenses, if, by reason of his or her corporate status, the Indemnitee is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed proceeding, to the maximum extent permitted by Maryland law and the 1940 Act.
The Company and its executives and directors are covered by directors and officers insurance. In addition, each of our directors and officers have entered into an indemnification agreement with us pursuant to which our directors and officers are indemnified by us to the maximum extent permitted by Maryland law subject to the restrictions of the 1940 Act.
On December 5, 2022, the Company and the JV Partner formed an unconsolidated joint venture to co-invest with the Company. Refer to “Note 1 – Organization and Basis of Presentation” for further details on the Company’s investment in the JV.
Note 13. Recent Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848) to defer the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The ASU 2020-04 provides optional exceptions for applying GAAP to contract modifications, hedging relationships and other transactions affected reference rate reform if certain criteria are met. The Company adopted the guidance during the quarter and its adoption had no material impact on the Company's consolidated financial statements.
In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurements (Topic 820) - Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). This change prohibits entities from taking into account contractual restrictions on the sale of equity securities when estimating fair value and introduces required disclosures for such transactions. The standard is effective for annual periods beginning after December 15, 2023, and should be applied prospectively. The early adoption of ASU 2022-03 did not have a material impact on the Company’s financial statements.
Note 14. Subsequent Events
The Company’s management evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require recognition or disclosure.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Except where the context suggests otherwise, the terms “we,” “us,” “our,” and “the Company” refer to Trinity Capital Inc. and its consolidated subsidiaries. The information contained in this section should be read in conjunction with our consolidated financial statements and related notes thereto appearing elsewhere in this Quarterly Report on Form 10‑Q.
Forward-Looking Statements
This quarterly report contains forward-looking statements that involve substantial risks and uncertainties. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. Accordingly, these statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of several factors discussed under Item 1A. “Risk Factors” of Part II of this quarterly report and Item 1A. “Risk Factors” of Part I of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 2, 2023, including but not limited to the following:
Additionally, there may be other risks that are otherwise described from time to time in the reports that we file with the SEC. Any forward-looking statements in this report should be considered in light of various important factors, including the risks and uncertainties listed above, as well as others. All forward-looking statements are necessarily only estimates of future results, and there can be no assurance that actual results will not differ materially from expectations, and, therefore, you are cautioned not to place undue reliance on such statements. Any forward-looking statements are qualified in their entirety by reference to the risk factors discussed throughout this quarterly report. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. Because we are an investment company, the forward-looking statements and projections contained in this quarterly report are excluded from the safe harbor protections provided by Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995).
Overview
We are a specialty lending company providing debt, including loans and equipment financings, to growth-stage companies, including venture capital-backed companies and companies with institutional equity investors. We are an internally managed, closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the 1940 Act. We have elected to be treated, and intend to qualify annually, as a RIC under Subchapter M of the Code for U.S. federal income tax purposes. As a BDC and a RIC, we are required to comply with certain regulatory requirements.
Our investment objective is to generate current income and, to a lesser extent, capital appreciation through our investments. We seek to achieve our investment objective by making investments consisting primarily of term loans and equipment financings and, to a lesser extent, working capital loans, equity and equity-related investments. In addition, we may obtain warrants or contingent exit fees at funding from many of our portfolio companies, providing an additional potential source of investment returns. We generally are required to invest at least 70% of our total assets in qualifying assets in accordance with the 1940 Act but may invest up to 30% of our total assets in non-qualifying assets, as permitted by the 1940 Act.
We target investments in growth-stage companies, which are typically private companies, including venture-backed companies and companies with institutional equity investors. We define “growth-stage companies” as companies that have significant ownership and active participation by sponsors, such as institutional investors or private equity firms, and expected annual revenues of up to $100.0 million. Subject to the requirements of the 1940 Act, we are not limited to investing in any particular industry or geographic area and seek to invest in under-financed segments of the private credit markets.
Our loans and equipment financings may have initial interest-only periods of up to 24 months and generally fully amortize over a total term of up to 60 months. These investments are typically secured by a blanket first position lien, a specific asset lien on mission-critical assets and/or a blanket second position lien. We may also make a limited number of direct equity and equity-related investments in conjunction with our debt investments. We target growth-stage companies that have recently issued equity to raise cash to offset potential cash flow needs related to projected growth, have achieved positive cash flow to cover debt service, or have institutional investors committed to providing additional funding. A loan or equipment financing may be structured to tie the amortization of the loan or equipment financing to the portfolio company’s projected cash balances while cash is still available for operations. As such, the loan or equipment financing may have a reduced risk of default. We believe that the amortizing nature of our investments will mitigate risk and significantly reduce the risk of our investments over a relatively short period. We focus on protecting and recovering principal in each investment and structure our investments to provide downside protection.
Our History
Trinity Capital Inc. was incorporated under the general corporation laws of the State of Maryland on August 12, 2019 and commenced operations on January 16, 2020. Prior to January 16, 2020, we had no operations, except for matters relating to our formation and organization as a BDC.
On January 16, 2020, through a series of transactions (the “Formation Transactions”), we acquired Trinity Capital Investment, LLC, Trinity Capital Fund II, L.P. (“Fund II”), Trinity Capital Fund III, L.P., Trinity Capital Fund IV, L.P. and Trinity Sidecar Income Fund, L.P. (collectively, the “Legacy Funds”) and all of their respective assets (the “Legacy Assets”), including their respective investment portfolios (the “Legacy Portfolio”), as well as Trinity Capital Holdings, LLC (“Trinity Capital Holdings”), a holding company whose subsidiaries managed and/or had the right to receive fees from certain of the Legacy Funds. In order to complete these transactions, we used a portion of the proceeds from our private equity offering and private debt offering that occurred on January 16, 2020 (the “Private Offerings”).
The Legacy Funds were merged with and into the Company, and we issued 9,183,185 shares of our common stock for an aggregate amount of approximately $137.7 million and paid approximately $108.7 million in cash to the Legacy Funds' investors, which included the general partners, managers or managing members of the Legacy Funds (the “Legacy Investors”), to acquire the Legacy Funds and all of their respective assets, including the Legacy Portfolio. Our senior management team, led by Steven L. Brown, comprises the majority of the senior management team that managed the Legacy Funds and sourced the Legacy Portfolio.
As part of the Formation Transactions, we also acquired 100% of the equity interests of Trinity Capital Holdings for an aggregate purchase price of $10.0 million, which was comprised of 533,332 shares of our common stock, totaling approximately $8.0 million, and approximately $2.0 million in cash. In connection with the acquisition of such equity interests, the Company also assumed a $3.5 million severance related liability with respect to a former member of certain general partners of certain Legacy Funds. In connection with the acquisition of Trinity Capital Holdings, approximately $13.5 million (consisting of the aggregate purchase price and severance related liability assumed) was expensed to Costs related to the acquisition of Trinity Capital Holdings and Legacy Funds in the Consolidated Statements of Operations. As a result of the Formation Transactions, Trinity Capital Holdings became a wholly owned subsidiary of the Company.
On February 2, 2021, we completed our initial public offering of 8,006,291 shares of our common stock at a price of $14.00 per share, inclusive of the underwriters’ option to purchase additional shares, which was exercised in full. Our common stock began trading on the Nasdaq Global Select Market on January 29, 2021 under the symbol “TRIN.” Proceeds from this offering were primarily used to pay down a portion of our existing indebtedness outstanding.
On December 5, 2022, the Company entered into a joint venture agreement with certain funds and accounts managed by a specialty credit manager (collectively, the “JV Partner”) to co-manage Trinity Investor JV I LLC (f.k.a. i40, LLC) (“Trinity Investor JV I LLC” or the “JV”). The JV invests in secured loans and equipment financings to growth-stage companies that have been originated by the Company. To achieve these goals, the Company has agreed to offer the JV the opportunity to purchase up to 40% in dollar amount, but not less than 25% in dollar amount, of the entire amount of each secured loan and equipment financing advance originated by the Company during the period commencing on September 1, 2022 and ending on June 5, 2026.
Critical Accounting Policies
The Company’s financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and pursuant to Regulation S-X under the Securities Act of 1933, as amended (the “Securities Act”). The Company follows accounting and reporting guidance as determined by the Financial Accounting Standards Board (“FASB”), in FASB Accounting Standards Codification (“ASC”) 946, Financial Services — Investment Companies.
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The preparation of our financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially. Valuation of investments, income recognition, realized / unrealized gains or losses and U.S. federal income taxes are considered to be our critical accounting policies and estimates. For additional information, please refer to “Note 2 - Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included with this Quarterly Report on Form 10-Q.
The most significant estimate inherent in the preparation of the Company’s consolidated financial statements is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded. The Company’s investments are carried at fair value in accordance with the 1940 Act and ASC 946 and measured in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the observability of inputs used to measure fair value, and provides disclosure requirements for fair value measurements. ASC 820 requires the Company to assume that each of the portfolio investments is sold in a hypothetical transaction in the principal or, as applicable, most advantageous market using market participant assumptions as of the measurement date. Market participants are defined as buyers and sellers in the principal market that are independent, knowledgeable and willing and able to transact. The Company values its investments at fair value as determined in good faith by the Company’s Board in accordance with the provisions of ASC 820 and the 1940 Act.
The SEC recently adopted new Rule 2a-5 under the 1940 Act (“Rule 2a-5”), which establishes a framework for determining fair value in good faith for purposes of the 1940 Act. As adopted, Rule 2a-5 permits boards of directors to designate certain parties to perform fair value determinations, subject to board oversight and certain other conditions. The SEC also adopted new Rule 31a-4 under the 1940 Act (“Rule 31a-4”), which provides the recordkeeping requirements associated with fair value determinations. While the Company's Board has not elected to designate a valuation designee, the Company has adopted certain revisions to its valuation policies and procedures to comply with the applicable requirements of Rule 2a-5 and Rule 31a-4.
While the Board is ultimately and solely responsible for determining the fair value of the Company’s investments, the Company has engaged independent valuation firms to provide the Company with valuation assistance with respect to its investments. The Company engages independent valuation firms on a discretionary basis. Specifically, on a quarterly basis, the Company identifies portfolio investments with respect to which an independent valuation firm assists in valuing certain investments. The Company selects these portfolio investments based on a number of factors, including, but not limited to, the potential for material fluctuations in valuation results, size, credit quality and the time lapse since the last valuation of the portfolio investment by an independent valuation firm.
Investments recorded on our Consolidated Statements of Assets and Liabilities are categorized based on the inputs to the valuation techniques as follows:
Given the nature of lending to venture capital-backed growth-stage companies, substantially all of the Company’s investments in these portfolio companies are considered Level 3 assets under ASC 820 because there is no known or accessible market or market indexes for these investment securities to be traded or exchanged. The Company uses an internally developed portfolio investment rating system in connection with its investment oversight, portfolio management and analysis and investment valuation procedures. This system takes into account both quantitative and qualitative factors of the portfolio companies. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been reported had a ready market for the investments existed, and it is reasonably possible that the difference could be material.
Fair value estimates are made at discrete points in time based on relevant information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. The carrying amounts of the Company’s financial instruments, consisting of cash, investments, receivables, payables and other liabilities approximate the fair values of such items due to the short-term nature of these instruments.
The Company recognizes interest income on an accrual basis and recognizes it as earned in accordance with the contractual terms of the loan agreement to the extent that such amounts are expected to be collected. Original issue discount (“OID”) initially includes the estimated fair value of detachable warrants obtained in conjunction with the origination of debt securities, and is accreted into interest income over the term of the loan as a yield enhancement based on the effective yield method. Interest income from payment-in-kind (“PIK”) represents contractually deferred interest added to the loan balance recorded on an accrual basis to the extent such amounts are expected to be collected.
In addition, the Company may also be entitled to an end-of-term (“EOT”) fee. EOT payments related to debt investments to be paid at the termination of the financing arrangements are accreted into interest income over the contractual life of the debt based on the effective yield method. As of June 30, 2023 and December 31, 2022, the Company had EOT payments receivable of approximately $60.7 million and $59.9 million, respectively, which is included as a component of the cost basis of the Company’s current debt securities. When a portfolio company pre-pays their indebtedness prior to the scheduled maturity date, the acceleration of the unaccreted OID and EOT is recognized as interest income.
Income related to application or origination payments, including facility commitment fees, net of related expenses and generally collected in advance, are accreted into interest income over the contractual life of the loan. The Company recognizes nonrecurring fees and additional OID and EOT received in consideration for contract modifications commencing in the quarter relating to the specific modification.
Portfolio Composition and Investment Activity
As of June 30, 2023, our investment portfolio had an aggregate fair value of approximately $1,148.0 million and was comprised of approximately $856.0 million in secured loans, $244.1 million in equipment financings, and $47.9 million in equity and warrants, across 117 portfolio companies. As of December 31, 2022, our investment portfolio had an aggregate fair value of approximately $1,094.4 million and was comprised of approximately $802.9 million in secured loans, $246.0 million in equipment financings, and $45.5 million in equity and warrants, across 116 portfolio companies.
A summary of the composition of our investment portfolio at cost and fair value as a percentage of total investments are shown in the following table as of June 30, 2023 and December 31, 2022:
Fair
Value
The following table shows the composition of our investment portfolio by geographic region at cost and fair value as a percentage of total investments as of June 30, 2023 and December 31, 2022. The geographic composition is determined by the location of the corporate headquarters of the portfolio company.
United States
Trinity Investor JV I LLC(1)
Set forth below is a table showing the industry composition of our investment portfolio at cost and fair value as a percentage of total investments as of June 30, 2023 and December 31, 2022:
As of June 30, 2023 and December 31, 2022, the debt, including loans and equipment financings, in our portfolio had a weighted average time to maturity of approximately 3.0 and 3.2 years, respectively. Additional information regarding our portfolio is set forth in the Consolidated Schedule of Investments and the related notes thereto included with this Quarterly Report on Form 10-Q.
Concentrations of Credit Risk
Credit risk is the risk of default or non-performance by portfolio companies, equivalent to the investment’s carrying amount. Industry and sector concentrations will vary from period to period based on portfolio activity.
As of June 30, 2023 and December 31, 2022, the Company’s ten largest portfolio companies represented approximately 29.8% and 31.7%, respectively, of the total fair value of the Company’s investments in portfolio companies. As of June 30, 2023 and December 31, 2022, the Company had 14 and 16 portfolio companies, respectively, that represented 5% or more of the Company’s net assets.
Investment Activity
During the six months ended June 30, 2023, we invested approximately $116.8 million in seven new portfolio companies, and approximately $110.1 million in 17 existing portfolio companies, excluding deferred fees. During the six months ended June 30, 2023, we received an aggregate of $186.3 million in proceeds from repayments and
sales of our investments, including proceeds of approximately $125.7 million from early repayments on our debt investments and sales of debt investments.
During the year ended December 31, 2022, we invested approximately $381.1 million in 34 new portfolio companies and approximately $250.1 million in 32 existing portfolio companies, excluding deferred fees. During the year ended December 31, 2022, we received an aggregate of approximately $336.6 million in proceeds from repayments of our debt investments, including proceeds of approximately $149.8 million from early repayments on our debt investments.
The following table provides a summary of the changes in the investment portfolio for the six months ended June 30, 2023 and the year ended December 31, 2022 (in thousands):
Year Ended
Beginning Portfolio, at fair value
873,470
223,831
627,211
Non-cash conversion
Principal payments received on investments
(58,569
(124,018
Proceeds from early debt repayments
(26,864
(149,769
Sales of investments
(100,832
(62,767
32,853
(134,814
Ending Portfolio, at fair value
The level of our investment activity can vary substantially from period to period depending on many factors, including the amount of debt, including loans and equipment financings, and equity capital required by growth-stage companies, the general economic environment and market conditions and the competitive environment for the types of investments we make.
Portfolio Asset Quality
Our portfolio management team uses an ongoing investment risk rating system to characterize and monitor our outstanding loans and equipment financings. Our portfolio management team monitors and, when appropriate, recommends changes to the investment risk ratings. Our investment committee reviews the recommendations and/or changes to the investment risk ratings, which are submitted on a quarterly basis to the Board and its audit committee.
For our investment risk rating system, we review seven different criteria and, based on our review of such criteria, we assign a risk rating on a scale of 1 to 5, as set forth in the following illustration.
The following table shows the distribution of our loan and equipment financing investments on the 1 to 5 investment risk rating scale range at fair value as of June 30, 2023 and December 31, 2022 (dollars in thousands):
Investment Risk Rating
Investments at
Percentage of
Scale Range
Designation
Total Portfolio
4.0 - 5.0
Very Strong Performance
8,758
0.3
3.0 - 3.9
Strong Performance
272,933
24.8
239,872
22.9
2.0 - 2.9
Performing
762,695
69.3
756,596
72.1
1.6 - 1.9
Watch
34,410
39,315
1.0 - 1.5
Default/Workout
15,216
10,317
Total Debt Investments excluding Trinity Investor JV I LLC
1,094,012
99.4
.
Total Debt Investments
As of June 30, 2023 and December 31, 2022, our debt investments had a weighted average risk rating score of 2.8 and 2.8, respectively.
Debt Investments on Non-Accrual Status
When a debt security becomes 90 days or more past due, or if our management otherwise does not expect that principal, interest, and other obligations due will be collected in full, we will generally place the debt security on non-accrual status and cease recognizing interest income on that debt security until all principal and interest due has been paid or we believe the borrower has demonstrated the ability to repay its current and future contractual obligations. Any uncollected interest is reversed from income in the period that collection of the interest receivable is determined to be doubtful. However, we may make exceptions to this policy if the investment has sufficient collateral value and is in the process of collection.
As of June 30, 2023, loans to one portfolio company and equipment financings to two portfolio companies were on non-accrual status with a total cost of approximately $34.5 million, and a total fair value of approximately
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$22.5 million, or 2.0%, of the fair value of the Company’s debt investment portfolio. As of December 31, 2022, loans to two portfolio companies and equipment financings to two portfolio companies were on non-accrual status with a total cost of approximately $49.2 million, and a total fair value of approximately $17.8 million, or 1.7%, of the fair value of the Company’s debt investment portfolio.
Results of Operations
The following discussion and analysis of our results of operations encompasses our consolidated results for the three and six months ended June 30, 2023 and 2022.
Investment Income
The following table sets forth the components of investment income (in thousands):
Stated interest income
35,949
25,097
69,754
45,355
Amortization of OID and EOT
5,825
5,998
11,220
10,987
Acceleration of OID and EOT
1,416
4,086
4,575
Prepayment penalty and related fees
125
Other fee income
822
1,706
For the three and six months ended June 30, 2023, total investment income was approximately $46.0 million and $87.6 million, respectively, which represents an approximate effective yield of 16.2% and 15.6%, respectively, on the average investments during the periods. For the three and six months ended June 30, 2022, total investment income was approximately $33.5 million and $65.3 million, respectively, which represents an approximate effective yield of 13.8% and 14.9%, respectively, on the average investments during the periods. The increase in investment income for the three and six months ended June 30, 2023 is due to higher interest income and amortization of OID and EOT based on an increased principal value of income producing debt investments and higher stated interest rates.
Operating Expenses and Excise Taxes
Our operating expenses are comprised of interest and fees on our borrowings, employee compensation, excise taxes, professional fees and general and administrative expenses. Our operating expenses totaled approximately $23.9 million and $17.8 million for the three months ended June 30, 2023 and 2022, respectively, and $46.2 million and $34.0 million for the six months ended June 30, 2023 and 2022, respectively. The increase in our operating expenses for the three and six months ended June 30, 2023 is discussed with respect to each component of such expenses below.
Interest Expense and Other Debt Financing Costs
Our interest expense and other debt financing costs are primarily comprised of interest and fees related to our secured borrowings, the 7.00% Notes due 2025 (the “2025 Notes”), the 4.375% Notes due 2026 (the “August 2026 Notes”), the 4.25% Notes due 2026 (the “December 2026 Notes”), and the 6.00% Convertible Notes due 2025 (the “Convertible Notes”). Interest expense and other debt financing costs on our borrowings totaled approximately $12.0 million and $7.8 million for the three months ended June 30, 2023 and 2022, respectively, $23.1 million and $14.6 million for the six months ended June 30, 2023 and 2022, respectively. Our weighted average effective interest rate, comprised of interest and amortization of fees and discount, was approximately 7.2% and 5.6% for the three months ended June 30, 2023 and 2022, respectively, and 7.1% and 5.8% for the six months ended June 30, 2023 and 2022, respectively. The increase in interest expense for the three and six months ended June 30, 2023 was primarily due to increased borrowings and increased base rate under our credit facility with KeyBank, National Association (the “KeyBank Credit Facility”).
Employee Compensation and Benefits
Employee compensation and benefits totaled approximately $8.4 million and $6.9 million for the three months ended June 30, 2023 and 2022, respectively, and $16.0 million and $13.3 million for the six months ended June 30, 2023 and 2022, respectively. The increase in employee compensation expenses for the three and six months ended June 30, 2023 relates primarily to the increased variable compensation related to a higher headcount and stock-based compensation. As of June 30, 2023 and 2022, the Company had 61 and 52 employees, respectively.
The Board and the Company’s stockholders have adopted and approved the (i) 2019 Trinity Capital Inc., Long-Term Incentive Plan (the “2019 Long Term Incentive Plan”); and (ii) Trinity Capital Inc. 2019 Non-Employee Director Restricted Stock Plan (the “2019 Restricted Stock Plan”), with each plan becoming effective on June 17, 2021 The following table summarizes issuances, vesting, and retirement of shares under the plan as well as the fair value of granted stock for the six months ended June 30, 2023 and 2022 (dollars in thousands).
Excise Taxes
We accrue excise tax on estimated undistributed taxable income and gain as required on an annual basis. Our excise taxes totaled approximately $0.7 million and $0.7 million for the three months ended June 30, 2023 and 2022, respectively, and $1.3 million and $1.3 million for the six months ended June 30, 2023 and 2022, respectively.
Professional Fees Expenses
Professional fees expenses, consisting of legal fees, accounting fees, third-party valuation fees, talent acquisition fees and other consulting fees, totaled approximately $1.4 million and $0.9 million for the three months ended June 30, 2023 and 2022, respectively, and $2.8 million and $1.7 million for the six months ended June 30, 2023 and 2022, respectively. The increase in professional fees expenses for the three and six months ended June 30, 2023 resulted primarily from increased legal fees, third-party valuation fees, and other consulting fees.
General and Administrative Expenses
General and administrative expenses include insurance premiums, rent, and various other expenses related to our ongoing operations. Our general and administrative expenses totaled approximately $1.5 million and $1.6 million for the three months ended June 30, 2023 and 2022, respectively, and $3.0 million and $3.0 million for the six months ended June 30, 2023 and 2022, respectively.
Net Investment Income
For the three months ended June 30, 2023 and 2022, we recognized approximately $46.0 million and $33.5 million in total investment income as compared to approximately $23.9 million and $17.8 million in total expenses, including excise tax expense, resulting in net investment income of $22.1 million and $15.7 million, respectively.
For the six months ended June 30, 2023 and 2022, we recognized approximately $87.6 million and $65.3 million in total investment income as compared to approximately $46.2 million and $34.0 million in total expenses including excise tax expense, resulting in net investment income of $41.4 million and $31.3 million, respectively.
Net Realized Gains and Losses
Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption of an investment or a financial instrument and the cost basis of the investment or financial instrument, without regard to unrealized appreciation or depreciation previously recognized, and includes investments written off during the period.
During the six months ended June 30, 2023, our gross realized gains primarily consisted of the repayment of one loan, one equipment financing, and one warrant, and our gross realized losses primarily consisted of the exit of our debt and equity positions in two portfolio companies. During the six months ended June 30, 2022, our gross realized gains primarily consisted of the sale of our equity positions in two portfolio companies, and our gross realized losses primarily consisted of the sale of our debt positions in two portfolio companies.
The net realized gains (losses) from the sales, repayments, or exits of investments for the three and six months ended June 30, 2023 and 2022 were comprised of the following (in thousands):
Net realized gain/(loss) on investments:
Gross realized gains
3,262
511
3,800
53,807
Gross realized losses
(29,873
(10,128
(30,776
(10,780
Total net realized gains/(losses) on investments
Net Change in Unrealized Appreciation / (Depreciation) from Investments
Net change in unrealized appreciation/(depreciation) from investments primarily reflects the net change in the fair value of the investment portfolio and financial instruments and the reclassification of any prior period unrealized appreciation or depreciation on exited investments and financial instruments to realized gains or losses.
Net unrealized appreciation and depreciation on investments for the three and six months ended June 30, 2023 and 2022 is comprised of the following (in thousands):
Gross unrealized appreciation
11,321
9,945
21,638
17,826
Gross unrealized depreciation
(13,613
(33,636
(21,819
(45,856
Third party participation
Net unrealized appreciation/(depreciation) reclassified related to net realized gains or losses
26,688
9,871
28,097
(63,108
Total net unrealized gains/(losses) on investments
During the three months ended June 30, 2023, our net unrealized appreciation totaled approximately $24.4 million, which included net unrealized appreciation of $11.5 million from our warrant and equity investments and net unrealized appreciation of $12.9 million from our debt investments.
During the six months ended June 30, 2023, our net unrealized appreciation totaled approximately $27.9 million, which included net unrealized appreciation of $6.8 million from our warrant and equity investments and net unrealized appreciation of $21.1 million from our debt investments.
During the three months ended June 30, 2022, we recorded net unrealized depreciation of $13.8 million, which was from net unrealized depreciation of $11.4 million from our warrant and equity investments, and $2.4 million from our debt investments. During the six months ended June 30, 2022, we recorded net unrealized depreciation of $91.1 million, which was primarily from gross unrealized depreciation reclassified related to net realized gains of approximately $70.5 million related to the sale of two equity investments.
Net Increase (Decrease) in Net Assets Resulting from Operations
Net increase in net assets resulting from operations during the three months ended June 30, 2023, totaled approximately $19.9 million. Net decrease in net assets resulting from operations during the three months ended June 30, 2022, was approximately $7.7 million. Net increase in net assets resulting from operations during the six months ended June 30, 2023, totaled approximately $42.4 million. Net decrease in net assets resulting from operations during the six months ended June 30, 2022, was approximately $16.8 million.
Net Increase (Decrease) in Net Assets Resulting from Operations and Earnings Per Share
For the three months ended June 30, 2023, basic net increase in net assets per common share was $0.55 and diluted net increase in net assets per common share was $0.52. For the six months ended June 30, 2023, basic net increase in net assets per common share was $1.19 and diluted net increase in net assets per common share was $1.13.
For the three months ended June 30, 2022 basic and diluted net decrease in net assets per common share were $0.25. For the six months ended June 30, 2022, basic and fully diluted net decrease in net assets per common share were $0.58.
Financial Condition, Liquidity and Capital Resources
Our liquidity and capital resources are generated primarily from the net proceeds of offerings of our securities, including the 2025 Notes offering, the Convertible Notes offering, the August 2026 Notes offering and the December 2026 Notes offering, borrowings under the KeyBank Credit Facility, and cash flows from our operations, including investment sales and repayments, as well as income earned on investments and cash equivalents. Our primary use of our funds includes investments in portfolio companies, payments of interest on our outstanding debt, and payments of fees and other operating expenses we incur. We also expect to use our funds to pay distributions to our stockholders. We have used, and expect to continue to use, our borrowings, including under the KeyBank Credit Facility or any future credit facility, as well as proceeds from the turnover of our portfolio, to finance our investment objectives and activities.
From time to time, we may enter into additional credit facilities, increase the size of our existing KeyBank Credit Facility, or issue additional securities in private or public offerings. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions, and other factors.
For the six months ended June 30, 2023, we experienced a net increase in cash and cash equivalents in the amount of $1.7 million, which is the net result of $15.4 million of cash used in operating activities, $1.4 million of cash used in investing activities, offset by $18.5 million of cash provided by financing activities. During the six months ended June 30, 2022, we experienced a net decrease in cash and cash equivalents in the amount of $33.5 million, which is the net result of $195.7 million of cash used in operating activities partially offset by $0.02 million of cash provided by investing activities and $162.2 million of cash provided by financing activities.
As of June 30, 2023 and December 31, 2022, we had cash and cash equivalents of $12.3 million and $10.6 million, respectively, of which $3.8 million and $5.6 million, respectively, was held in the Goldman Sachs Financial Square Government Institutional Fund. Cash held in demand deposit accounts may exceed the Federal Deposit Insurance Corporation (“FDIC”) insured limit and therefore is subject to credit risk. All of the Company’s cash deposits are held at large established high credit quality financial institutions, and management believes that the risk of loss associated with any uninsured balances is remote. As of June 30, 2023, and December 31, 2022, we did not have any restricted cash.
102
As of June 30, 2023 and December 31, 2022, we had approximately $118.0 million and $162.5 million, respectively, of available borrowings under the KeyBank Credit Facility, subject to its terms and regulatory requirements. Cash and cash equivalents, taken together with available borrowings under the KeyBank Credit Facility, as of June 30, 2023, are expected to be sufficient for our investing activities and to conduct our operations in the near term and long term.
Refer to “Note 5 – Borrowings” in the notes to our consolidated financial statements included in this Quarterly Report on Form 10-Q for a discussion of our borrowings.
Asset Coverage Requirements
In accordance with the 1940 Act, with certain limited exceptions, we are only allowed to incur borrowings, issue debt securities or issue preferred stock, if immediately after the borrowing or issuance, the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock, is at least 150%. On September 27, 2019, the Board, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) and our initial stockholder approved the application to us of the 150% minimum asset coverage ratio set forth in Section 61(a)(2) of the 1940 Act. As a result, we are permitted to potentially borrow $2 for investment purposes of every $1 of investor equity. As of June 30, 2023, our asset coverage ratio was approximately 172.5% and our asset coverage ratio per unit was approximately $1,725. As of December 31, 2022, our asset coverage ratio was approximately 174.1% and our asset coverage ratio per unit was approximately $1,741.
Commitments and Off-Balance Sheet Arrangements
The Company has entered into a capital commitment with the JV to fund capital contributions through June 2026 in the amount of $21.4 million, of which $12.7 million and $21.4 million was unfunded as of June 30, 2023 and December 31, 2022, respectively. The Company did not have any other off-balance sheet financings or liabilities as of June 30, 2023 or December 31, 2022.
The Company’s commitments and contingencies consist primarily of unfunded commitments to extend credit in the form of loans to the Company’s portfolio companies. A portion of these unfunded contractual commitments as of June 30, 2023 and December 31, 2022 are dependent upon the portfolio company reaching certain milestones before the debt commitment becomes available. Furthermore, the Company’s credit agreements with its portfolio companies generally contain customary lending provisions that allow the Company relief from funding obligations for previously made commitments in instances where the underlying portfolio company experiences materially adverse events that affect the financial condition or business outlook for the company. Since a portion of these commitments may expire without being drawn, unfunded contractual commitments do not necessarily represent future cash requirements. As such, the Company’s disclosure of unfunded contractual commitments includes only those which are available at the request of the portfolio company and unencumbered by milestones. As of June 30, 2023 and December 31, 2022, the Company did not have any outstanding unfunded commitments. The Company will fund future unfunded commitments from the same sources it uses to fund its investment commitments that are funded at the time they are made (which are typically through existing cash and cash equivalents and borrowings under the KeyBank Credit Facility).
103
Contractual Obligations
A summary of our contractual payment obligations as of June 30, 2023, is as follows:
Payments Due by Period
Less than 1
year
1 - 3 years
4 - 5 years
After 5 years
Operating Leases
Total Contractual Obligations
666,072
667,180
We intend to pay quarterly distributions to our stockholders out of assets legally available for distribution. All distributions will be paid at the discretion of the Board and will depend on our earnings, financial condition, maintenance of our tax treatment as a RIC, compliance with applicable BDC regulations and such other factors as the Board may deem relevant from time to time.
Price Range of Common Stock
Our common stock began trading on the Nasdaq Global Select Market (“Nasdaq”) on January 29, 2021 under the symbol “TRIN” in connection with our initial public offering (“IPO”), which closed on February 2, 2021. Prior to our IPO, the shares of our common stock were offered and sold in transactions exempt from registration under the Securities Act. As such, there was no public market for shares of our common stock during year ended December 31, 2020. Since our IPO, our common stock has traded at prices both above and below our net asset value per share.
The following table sets forth the net asset value per share of our common stock, the range of high and low closing sales prices of our common stock reported on Nasdaq, the closing sales price as a premium (discount) to net asset value and the dividends declared by us in each fiscal quarter since we began trading on Nasdaq. On August 1, 2023, the last reported closing sales price of our common stock on Nasdaq was $14.58 per share, which represented a premium of approximately 10.9% to our net asset value per share of $13.15 as of June 30, 2023. As of August 1, 2023, we had approximately 72 stockholders of record, which does not include stockholders for whom shares are held in nominee or “street” name.
Price Range
High
Low
High Sales Price Premium (Discount) to Net Asset Value(2)
Low Sales Price Premium (Discount) to Net Asset Value(2)
Cash Dividend Per Share(3)
Year Ending December 31, 2023
Third Quarter (through August 1, 2023)
*
14.99
13.75
Second Quarter
13.91
11.36
5.8
0.53
(5)
First Quarter
13.07
14.26
10.91
9.1
(16.5
Year Ending December 31, 2022
Fourth Quarter
13.82
10.24
(22.1
Third Quarter
13.74
16.28
12.07
18.5
(12.2
19.44
14.27
33.0
(2.4
0.57
15.15
20.11
17.00
32.7
12.2
Year Ending December 31, 2021
17.65
15.79
(3.7
14.70
16.73
14.14
13.8
(3.8
14.33
15.00
14.10
(1.6
First Quarter(4)
13.69
15.65
14.3
0.4
Not determined at time of filing.
Shares of BDCs may trade at a market price that is less than the value of the net assets attributable to those shares. At times, our shares of common stock have traded at prices both above and below our net asset value per share. The possibility that our shares of common stock will trade at a discount from net asset value per share or at premiums that are unsustainable over the long term are separate and distinct from the risk that our net asset value per share will decrease. It is not possible to predict whether our common stock will trade at, above, or below net asset value per share.
Related Party Transactions
Certain members of management as well as employees of the Company hold shares of the Company’s stock.
We have entered into indemnification agreements with our directors and executive officers. The indemnification agreements are intended to provide our directors and executive officers with the maximum indemnification permitted under Maryland law and the 1940 Act. Each indemnification agreement provides that we shall indemnify the director or executive officer who is a party to the agreement, or an “Indemnitee,” including the advancement of legal expenses, if, by reason of his or her corporate status, the Indemnitee is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed proceeding, to the maximum extent permitted by Maryland law and the 1940 Act.
Refer to “Note 12 – Related Party Transactions” included in the notes to our consolidated financial statements appearing elsewhere in this report for additional information.
Recent Developments
Subsequent to the quarter ended June 30, 2023 and through the date of filing of this Quarterly Report on Form 10-Q, no material events or developments occurred that require reporting.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to financial market risks, including valuation risk and interest rate risk. Uncertainty with respect to the economic effects of the overall market conditions has introduced significant volatility in the financial markets, and the effect of the volatility could materially impact our market risks, including those listed below.
Valuation Risk
Our investments may not have readily available market quotations (as such term is defined in Rule 2a-5), and those investments which do not have readily available market quotations are valued at fair value as determined in good faith by our Board of Directors in accordance with our valuation policy. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and it is possible that the difference could be material.
In accordance with Rule 2a-5, our Board periodically assesses and manages material risks associated with the determination of the fair value of our investments.
Interest Rate Risk
Interest rate sensitivity and risk refer to the change in earnings that may result from changes in the level of interest rates. To the extent that we borrow money to make investments, including under the KeyBank Credit Facility or any future financing arrangement, our net investment income will be affected by the difference between the rate at which we borrow funds and the rate at which we invest these funds. In periods of rising interest rates, our cost of borrowing funds would increase, which may reduce our net investment income. As a result, there can be no assurance that a significant change in market interest rates, including as a result of inflation, will not have a material adverse effect on our net investment income. Inflation is likely to continue in the near to medium-term, particularly in the United States and Europe, with the possibility that monetary policy may tighten in response. Persistent inflationary pressures could affect our portfolio companies’ profit margins.
As of June 30, 2023, approximately 72.1% of our debt investments based on outstanding principal balance represented floating-rate investments based on Prime or LIBOR, and approximately 27.9% of our debt investments based on outstanding principal balance represented fixed rate investments. In addition, borrowings under the KeyBank Credit Facility are subject to floating interest rates based on SOFR, generally bearing interest at a rate of
the Adjusted Term SOFR Reference Rate plus 2.85%, subject to the number of eligible debt investments in the collateral pool.
Based on our Consolidated Statements of Operations as of June 30, 2023, the following table shows the annualized impact on net income of hypothetical base rate changes in the Prime rate on our debt investments (considering interest rate floors for floating-rate instruments) and the hypothetical base rate changes in the SOFR on our KeyBank Credit Facility, assuming that there are no changes in our investment and borrowing structure (in thousands):
Net
Expense
Income/(Loss)
Up 300 basis points
23,289
6,960
16,329
Up 200 basis points
15,526
4,640
10,886
Up 100 basis points
7,763
2,320
5,443
Down 100 basis points
(7,584
(2,320
(5,264
Down 200 basis points
(14,739
(4,640
(10,099
Down 300 basis points
(21,721
(6,960
(14,761
Currency Risk
Any investments we make that are denominated in a foreign currency will be subject to risks associated with changes in currency exchange rates. These risks include the possibility of significant fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity in the secondary market. These risks will vary depending upon the currency or currencies involved. As of June 30, 2023, we had five foreign domiciled portfolio companies. Our exposure to currency risk related to these debt investments is minimal as payments from such portfolio companies are received in U.S. dollars. No other investments as of June 30, 2023 were subject to currency risk.
Hedging
We do not currently engage in any hedging activities. However, we may, in the future, hedge against interest rate and currency exchange rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. We may also borrow funds in local currency as a way to hedge our non-U.S. denominated investments.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
In accordance with Rules 13a-15(b) and 15d-15(b) under the Exchange Act, we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q and determined that our disclosure controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently subject to any material legal proceedings, nor, to our knowledge, are any material legal proceedings threatened against us. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. Furthermore, third parties may seek to impose liability on us in connection with the activities of our portfolio companies. Our business is also subject to extensive regulation, which may result in regulatory proceedings against us. While the outcome of these legal or regulatory proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.
Item 1A. Risk Factors
Investing in our securities involves a number of significant risks. In addition to the other information set forth in this Quarterly Report on Form 10-Q, including the risk factors set forth below, you should carefully consider the risk factors discussed in “Item 1A. Risk Factors” of Annual Report on Form 10-K filed with the SEC on March 2, 2023, all of which could materially affect our business, financial condition and/or results of operations. Although the risks described below and in our other SEC filings referenced above represent the principal risks associated with an investment in us, they are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, might materially and adversely affect our business, financial condition and/or results of operations.
Other than as described below, during the three months ended June 30, 2023, there have been no material changes to the risk factors discussed in our SEC filings referenced above.
We may be subject to risks related to bank impairments or failures either directly or through our portfolio companies, which, in turn, could indirectly impact our performance and results of operations.
In March 2023, the U.S. Federal Deposit Insurance Corporation (“FDIC”) took control of Silicon Valley Bank and Signature Bank, and in May 2023, the FDIC took control of First Republic Bank due to liquidity concerns. The impairment or failure of one or more banks with whom any of our portfolio companies transact may inhibit the ability of our portfolio companies to access depository accounts, investment accounts or credit facilities at such banks, which, in turn, may cause them to default on their debt obligations to us, resulting in impacts to our performance. In the event of such a failure of a banking institution where one or more of our portfolio companies holds depository accounts, access to such accounts could be restricted and FDIC protection may not be available for balances in excess of amounts insured by the FDIC. In such instances, our affected portfolio companies may not be
able to recover such excess, uninsured amounts, and they may not be able to cure any defaults. Additionally, unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could prevent us from increasing our investments and harm business, financial condition, operating results and prospects. We closely monitor activity in the banking sector as it relates to any of our borrowers and continually assess any potential indirect impact to us as a result of the same.
We may be subject to risk associated with our investments in the life sciences industry.
Our investments in portfolio companies that operate in the life sciences industry represent 10.1% of our total portfolio as of June 30, 2023. Any of our portfolio companies operating in the life sciences industry may be subject to extensive government regulation and certain other risks particular to that industry. As part of our investment strategy, we plan to invest in companies in the life science industries. Such portfolio companies may provide technology to companies that are subject to extensive regulation, including Medicare and Medicaid payment rules and regulation, the False Claims Act and federal and state laws regarding the collection, use and disclosure of patient health information and the storage handling and administration of pharmaceuticals. If any of our portfolio companies or the companies to which they provide such technology fail to comply with applicable regulations, they could be subject to significant penalties and claims that could materially and adversely affect their operations. Portfolio companies in the life sciences industry are also subject to the risk that changes in applicable regulations will render their technology obsolete or less desirable in the marketplace.
Portfolio companies in the life sciences industry may also have a limited number of suppliers of necessary components or a limited number of manufacturers for their products, and therefore may face a risk of disruption to their manufacturing process if they are unable to find alternative suppliers when needed. Any of these factors could materially and adversely affect the operations of a portfolio company in this industry and, in turn, impair our ability to timely collect principal and interest payments owed to us.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
Dividend Reinvestment Plan
On July 14, 2023, pursuant to its amended and restated distribution reinvestment plan, the Company issued 38,887 shares of its common stock, at a price of $14.72 per share, to stockholders of record as of June 30, 2023 that did not opt out of the Company’s amended and restated distribution reinvestment plan in order to satisfy the reinvestment portion of the Company’s distribution. This issuance was not subject to the registration requirements of the Securities Act. See “Item 1. Consolidated Financial Statements – Note 7. Stockholder’s Equity – Distribution Reinvestment Plan” for more information.
On November 14, 2022, the Company's Board authorized a program for the purpose of repurchasing up to $25.0 million worth of the Company's common stock (the "Repurchase Program"). Under the Repurchase Program, the Company may, but is not obligated to, repurchase its outstanding common stock in the open market from time to time, provided that the Company complies with the prohibitions under its Rule 38a-1 Compliance Manual and Rule 17j-1 Code of Ethics and the guidelines specified in Rule 10b-18 of the Securities Exchange Act of 1934, as amended, including certain price, market, volume, and timing constraints. In addition, any repurchases will be conducted in accordance with the 1940 Act, as amended. Unless amended or extended by the Company's Board, the Company expects the Repurchase Program to be in place until the earlier of November 11, 2023, or until $25.0 million of the Company's outstanding shares of common stock have been repurchased. During the quarter ended June 30, 2023, there were no repurchases of our common stock under the Repurchase Program. As of June 30, 2023, the approximate dollar value of shares that may yet be purchased under the program was $22.0 million.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the fiscal quarter ended June 30, 2023, none of the Company's directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”
Item 6. Exhibits
The following exhibits are filed as part of this Quarterly Report on Form 10‑Q or hereby incorporated by reference to exhibits previously filed with the SEC:
ExhibitNumber
Description of Exhibits
Articles of Amendment and Restatement (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed June 30, 2023).
Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 10 filed on January 16, 2020).
31.1*
Certification of Principal Executive Officer Pursuant to Rules 13a 14(a) and 15d 14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of Principal Financial Officer Pursuant to Rules 13a 14(a) and 15d 14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*
Inline XBRL Instance Document.
101.SCH*
Inline XBRL Taxonomy Extension Schema Document.
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Filed herewith
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 2, 2023
By:
/s/ Steven L. Brown
Steven L. Brown
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ David Lund
David Lund
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)