Table of Contents
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, 2022
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
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 3, 2022, the registrant had 31,405,672 shares of common stock ($0.001 par value per share) outstanding.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2022TABLE OF CONTENTS
PAGE NO.
PART I
FINANCIAL INFORMATION
3
Item 1.
Consolidated Financial Statements
Consolidated Statements of Assets and Liabilities as of June 30, 2022 (unaudited) and December 31, 2021
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)
4
Consolidated Statements of Changes in Net Assets for the Three and Six Months Ended June 30, 2022 and 2021 (unaudited)
5
Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (unaudited)
7
Consolidated Schedule of Investments as of June 30, 2022 (unaudited)
9
Consolidated Schedule of Investments as of December 31, 2021
29
Notes to Consolidated Financial Statements (unaudited)
46
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
80
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
97
Item 4.
Controls and Procedures
98
PART II
OTHER INFORMATION
99
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
100
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
101
SIGNATURES
102
2
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,
2022
2021
(Unaudited)
ASSETS
Investments at fair value:
Control investments (cost of $36,704 and $38,994, respectively)
$
24,788
32,214
Affiliate investments (cost of $29,604 and $41,609, respectively)
23,837
32,192
Non-control / Non-affiliate investments (cost of $1,000,290 and $717,253, respectively)
1,002,449
809,064
Total investments (cost of $1,066,598 and $797,856, respectively)
1,051,074
873,470
Cash and cash equivalents
13,226
31,685
Restricted cash
—
15,057
Interest receivable
8,600
5,551
Deferred credit facility costs
2,848
2,308
Other assets
14,432
9,047
Total assets
1,090,180
937,118
LIABILITIES
KeyBank Credit Facility
220,000
81,000
August 2026 Notes, net of $2,391 and $2,679, respectively, of unamortized deferred financing costs
122,609
122,321
2025 Notes, net of $3,021 and $3,616, respectively, of unamortized deferred financing costs
121,979
121,384
December 2026 Notes, net of $1,661 and $1,842, respectively, of unamortized deferred financing costs
73,339
73,158
Convertible Notes, net of $2,201 and $2,515, respectively, of unamortized deferred financing costs and discount
47,799
47,485
Credit Suisse Credit Facility
10,000
Distribution payable
17,873
9,803
Security deposits
12,515
10,840
Accounts payable, accrued expenses and other liabilities
15,724
14,594
Total liabilities
631,838
490,585
Commitments and contingencies (Note 6)
NET ASSETS
Common stock, $0.001 par value per share (200,000,000 authorized, 31,355,832 and 27,229,541 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively)
31
27
Paid-in capital in excess of par
430,464
368,609
Distributable earnings/(accumulated loss)
27,847
77,897
Total net assets
458,342
446,533
Total liabilities and net assets
NET ASSET VALUE PER SHARE
14.62
16.40
See accompanying notes to consolidated financial statements.
Consolidated Statements of Operations
Three Months Ended
Six Months Ended
June 30, 2022
June 30, 2021
INVESTMENT INCOME:
Interest income:
Control investments
1,365
1,266
2,738
2,572
Affiliate investments
433
443
862
882
Non-Control / Non-Affiliate investments
30,713
16,405
57,317
31,004
Total interest income
32,511
18,114
60,917
34,458
Fee income:
947
1,362
4,386
2,337
Total fee income
Total investment income
33,458
19,476
65,303
36,795
EXPENSES:
Interest expense and other debt financing costs
7,761
4,425
14,559
9,041
Compensation and benefits
6,877
3,370
13,331
7,366
Professional fees
891
570
1,723
1,216
General and administrative
1,558
1,031
3,035
1,780
Total expenses
17,087
9,396
32,648
19,403
NET INVESTMENT INCOME (LOSS) BEFORE TAXES
16,371
10,080
32,655
17,392
Excise tax expense
657
1,331
58
NET INVESTMENT INCOME
15,714
31,324
17,334
NET REALIZED GAIN/(LOSS) FROM INVESTMENTS:
(228)
(9,633)
1,491
244
504
52,888
4,590
Net realized gain/(loss) from investments
(9,617)
1,995
43,027
NET CHANGE IN UNREALIZED APPRECIATION/(DEPRECIATION) FROM INVESTMENTS:
(804)
(4,530)
(5,136)
(12,084)
6,913
(1,892)
3,650
(8,204)
(19,929)
19,052
(89,652)
48,394
Net change in unrealized appreciation/(depreciation) from investments
(13,820)
12,630
(91,138)
28,106
NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
(7,723)
24,705
(16,787)
50,030
NET INVESTMENT INCOME PER SHARE - BASIC
0.51
0.38
1.07
0.69
NET INVESTMENT INCOME PER SHARE - DILUTED(1)
0.48
1.02
NET CHANGE IN NET ASSETS RESULTING FROM OPERATIONS PER SHARE - BASIC & DILUTED
(0.25)
0.93
(0.58)
2.00
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC & DILUTED
30,955,022
26,478,747
29,188,790
25,024,925
Consolidated Statements of Changes in Net Assets
Three Months Ended June 30, 2022:
Distributable
Earnings /
Common Stock
Paid In Capital
(Accumulated
Total
Shares
Par Value
in Excess of Par
Loss)
Net Assets
Balance as of March 31, 2022
27,982,842
28
370,570
53,443
424,041
Issuance of common stock pursuant to distribution reinvestment plan
30,800
588
Stock based compensation
1,767
Issuance of restricted stock awards
13,540
Issuance of common stock, net of issuance costs
3,344,214
57,911
57,914
Retired and forfeited shares of restricted stock
(15,564)
(372)
Distributions to stockholders
(17,873)
Net increase/(decrease) in net assets resulting from operations
Balance as of June 30, 2022
31,355,832
Three Months Ended June 30, 2021:
in Excess of
Balance as of March 31, 2021
26,415,275
26
368,245
(6,708)
361,563
75,999
1,134
(7,682)
Balance as of June 30, 2021
26,491,274
369,379
10,315
379,720
Six Months Ended June 30, 2022:
Balance as of December 31, 2021
27,229,541
90,334
1,642
2,677
Issuance of restricted stock
718,263
1
(26,520)
(375)
(33,263)
Six Months Ended June 30, 2021:
Balance as of December 31, 2020
18,321,274
18
263,366
(24,636)
238,748
Impact of adoption of ASU 2020-06
(462)
Issuance of common stock in initial public offering, net of issuance costs
8,006,291
8
104,200
104,208
163,709
2,275
(15,079)
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 operations to net cash provided by/(used in) operating activities:
Purchase of investments, net of deferred fees
(413,615)
(208,232)
Proceeds from sales and paydowns of investments
203,416
146,879
Net change in unrealized appreciation/(depreciation) from investments, net of third party participation
91,138
(27,823)
(43,027)
(4,590)
Accretion of original issue discounts and end of term payments on investments
(15,516)
(10,279)
Amortization of deferred financing costs
1,653
Stock-based compensation
1,837
Change in operating assets and liabilities
(Increase)/Decrease in interest receivable
(3,049)
(597)
(Increase)/Decrease in receivable from sale of investments
(3,086)
(554)
(Increase)/Decrease in other assets
(2,323)
(2,357)
Increase/(Decrease) in security deposits
1,675
938
Increase/(Decrease) in accounts payable, accrued expenses and other liabilities
1,130
(151)
Net cash provided by/(used in) operating activities
(195,714)
(54,899)
Cash flows provided by/(used in) investing activities:
Disposal/(Acquisition) of fixed assets
24
(822)
Net cash provided by/(used in) investing activities
Cash flows provided by/(used in) financing activities
Issuance of common stock
60,417
112,088
Common stock issuance costs
(2,503)
(7,880)
Retirement of employee shares
Cash distributions paid
(23,550)
(10,069)
Debt issuance costs
(815)
(54)
Borrowings under Credit Facilities
184,000
25,000
Repayments under Credit Facilities
(55,000)
(90,000)
Net cash provided by/(used in) financing activities
162,174
29,085
Net increase/(decrease) in cash, cash equivalents and restricted cash
(33,516)
(26,636)
Cash, cash equivalents and restricted cash at beginning of period
46,742
61,101
Cash, cash equivalents and restricted cash at end of period
34,465
Supplemental and non-cash investing and financing activities:
Cash paid for interest
12,279
6,829
Accrued but unpaid distributions
7,682
Distributions reinvested
Income tax, including excise tax, paid
310
79
Change to investments and net assets related to adoption of ASU 2020-06
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the Consolidated Statements of Assets and Liabilities that sum to the total of the same such amounts on the Consolidated Statement of Cash Flows:
19,124
15,341
Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows
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
Accommodation and Food Services (7)
BlueGround US, Inc.
Equipment Financing
June 6, 2022
January 1, 2026
Fixed interest rate 9.6%; EOT 8.0%
3,905
3,915
Sub-total: Accommodation and Food Services (0.4%)*
Administrative and Support and Waste Management and Remediation (7)
Qwick, Inc.
Secured Loan
December 31, 2021
Variable interest rate Prime + 8.0% or Floor rate 11.0%; EOT 5.0% ⁽⁸⁾
5,000
4,966
5,169
RTS Holding, Inc.
January 1, 2027
Fixed interest rate 10.5%; EOT 3.0%
23,000
22,834
22,626
SeaOn Environmental, LLC
Equipment Financing⁽¹⁴⁾
June 16, 2022
June 1, 2026
Fixed interest rate 9.3%; EOT 11.0%
6,750
6,731
Sub-total: Administrative and Support and Waste Management and Remediation (3.2%)*
34,750
34,531
34,526
Agriculture, Forestry, Fishing and Hunting (7)
Bowery Farming, Inc.
Secured Loan⁽¹⁴⁾
September 10, 2021
Variable interest rate LIBOR + 11.0% or Floor rate 10.1% ⁽⁸⁾
9,294
Robotany, Inc.
January 16, 2020
January 1, 2024
Fixed interest rate 7.6%; EOT 17.3%
906
1,289
1,271
Sub-total: Agriculture, Forestry, Fishing and Hunting (1.0%)*
10,906
10,685
10,565
Arts, Entertainment, and Recreation (7)
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
2,924
Sub-total: Arts, Entertainment, and Recreation (0.3%)*
Construction (7)
Dandelion Energy, Inc.
March 17, 2020
April 1, 2024
Fixed interest rate 9.0%; EOT 12.5%
264
312
308
October 27, 2020
November 1, 2024
Fixed interest rate 9.2%; EOT 12.5%
354
400
393
November 19, 2020
December 1, 2024
Fixed interest rate 9.1%; EOT 12.5%
444
498
488
December 29, 2020
January 1, 2025
524
583
572
March 25, 2021
April 1, 2025
1,070
1,166
1,146
December 1, 2021
Fixed interest rate 8.8%; EOT 12.5%
1,211
1,254
1,241
April 8, 2022
May 1, 2026
Fixed interest rate 8.9%; EOT 12.5%
2,159
2,178
May 27, 2022
989
990
June 13, 2022
Fixed interest rate 9.5%; EOT 12.5%
1,500
1,497
Total Dandelion Energy, Inc.
8,515
8,878
8,813
Sub-total: Construction (0.8%)*
Educational Services (7)
Medical Sales Training Holding Company
March 18, 2021
Variable interest rate Prime + 8.8% or Floor rate 12.0%; EOT 5.0% ⁽⁸⁾
6,000
6,039
5,999
July 21, 2021
August 1, 2025
2,000
1,998
1,987
Total Medical Sales Training Holding Company
8,000
8,037
7,986
Yellowbrick Learning, Inc.
February 1, 2021
September 1, 2025
Variable interest rate Prime + 8.3% or Floor rate 11.5%; EOT 5.0% ⁽⁸⁾
7,500
7,640
6,822
August 10, 2021
March 1, 2026
2,500
2,524
2,194
Total Yellowbrick Learning, Inc.
10,164
9,016
Sub-total: Educational Services (1.6%)*
18,000
18,201
17,002
Debt Securities- United States, Continued
Finance and Insurance (7)
BoardRE, Inc.
October 15, 2021
Variable interest rate Prime + 8.3% or Floor rate 11.5%; EOT 4.5% ⁽⁸⁾
5,225
4,945
DailyPay, Inc.
September 30, 2020
Variable interest rate Prime + 7.0% or Floor rate 12.0%; EOT 6.0% ⁽⁸⁾
16,651
17,238
17,210
December 30, 2020
4,408
4,546
4,524
Total DailyPay, Inc.
21,059
21,784
21,734
Petal Card, Inc.
October 1, 2024
Variable interest rate Prime + 7.5% or Floor rate 11.0%; EOT 3.0% ⁽⁸⁾
10,183
10,208
August 6, 2021
Variable interest rate Prime + 4.3% or Floor rate 11.5% ⁽⁸⁾
7,000
6,957
7,020
Secured Loan (12)(14)
January 28, 2021
Variable interest rate Prime + 7.3% or Floor rate 11.5%; EOT 0.0% ⁽⁸⁾
17,748
18,815
18,973
Total Petal Card, Inc.
34,748
35,955
36,201
Stilt, Inc.
February 10, 2022
August 1, 2024
Variable interest rate SOFR 30 Day Forward + 1.0% or Floor rate 11.0% ⁽⁸⁾
3,824
4,022
3,823
Sub-total: Finance and Insurance (6.1%)*
64,631
66,986
66,703
Health Care and Social Assistance (7)
FemTec Health, Inc.
February 1, 2026
Fixed interest rate 11.0%; EOT 7.5%
10,747
9,799
July 23, 2021
September 1, 2022
Fixed interest rate 11.0%
2,151
2,150
2,162
September 29, 2021
April 1, 2026
3,053
2,921
Total FemTec Health, Inc. (20)
15,151
15,950
14,882
Lark Technologies, Inc.
Variable interest rate Prime + 8.3% or Floor rate 11.5%; EOT 4.0% ⁽⁸⁾
4,766
4,772
4,863
4,888
4,992
Total Lark Technologies, Inc.
9,766
9,660
9,855
WorkWell Prevention & Care Inc.
Secured Loan(14)(18)
July 1, 2024
Fixed interest rate 8.0%; EOT 10.0%
3,659
834
Fixed interest rate 8.0%
700
718
173
Total WorkWell Prevention & Care Inc. (20)
4,070
4,377
1,007
Sub-total: Health Care and Social Assistance (2.4%)*
28,987
29,987
25,744
Information (7)
Rigetti & Co, Inc.
March 10, 2021
Variable interest rate Prime + 7.5% or Floor rate 11.0%; EOT 2.8% ⁽⁸⁾
12,000
11,989
12,185
May 18, 2021
June 1, 2025
7,962
8,101
November 10, 2021
December 1, 2025
6,907
7,050
January 27, 2022
4,996
5,106
Total Rigetti & Co, Inc.
32,000
31,854
32,442
Stratifyd, Inc.
September 3, 2021
Variable interest rate Prime + 7.8% or Floor rate 11.0%; EOT 3.5% ⁽⁸⁾
5,994
6,137
Whip Networks, Inc.
June 14, 2021
July 1, 2025
Variable interest rate Prime + 7.5% or Floor rate 11.0%; EOT 3.5% ⁽⁸⁾
5,028
4,971
1,000
1,003
991
February 3, 2022
4,000
3,988
3,939
Total Whip Networks, Inc.
10,019
9,901
Zuum Transportation, Inc.
December 17, 2021
Variable interest rate Prime + 6.0% or Floor rate 10.8%; EOT 2.5% ⁽⁸⁾
4,995
4,959
Sub-total: Information (4.9%)*
53,000
52,862
53,439
10
Information, Continued (7)
Management of Companies and Enterprises (7)
Bestow, Inc.
April 25, 2022
May 1, 2027
Variable interest rate Prime + 6.5% or Floor rate 10.0%; EOT 1.5% ⁽⁸⁾
24,900
May 12, 2022
June 1, 2027
15,000
14,933
Total Bestow, Inc.
40,000
39,833
Exer Holdings, LLC
November 19, 2021
December 1, 2026
Variable interest rate Prime + 7.0% or Floor rate 11.5%; EOT 3.0% ⁽⁸⁾
22,500
22,361
21,859
February 18, 2022
7,436
7,282
Total Exer Holdings, LLC
30,000
29,797
29,141
Sub-total: Management of Companies and Enterprises (6.3%)*
70,000
69,630
68,974
Manufacturing (7)
3DEO, Inc.
February 23, 2022
March 1, 2025
Fixed interest rate 9.6%; EOT 9.0%
3,172
3,208
3,001
April 12, 2022
May 1, 2025
Fixed interest rate 9.4%; EOT 9.0%
1,493
Total 3DEO, Inc.
4,665
4,705
4,498
Athletic Brewing Company, LLC
December 7, 2021
Fixed interest rate 11.0%; EOT 7.0%
19,944
20,111
19,978
March 16, 2022
Fixed interest rate 11.1%; EOT 7.0%
4,976
4,987
4,969
Total Athletic Brewing Company, LLC
24,920
25,098
24,947
Bolb, Inc.
October 12, 2021
Fixed interest rate 10.3%; EOT 6.0%
1,370
1,403
1,401
Cepton Technologies, Inc.
January 4, 2022
Variable interest rate Prime + 7.0% or Floor rate 10.8%; EOT 2.5% ⁽⁸⁾
10,026
Daring Foods, Inc.
April 8, 2021
May 1, 2024
Fixed interest rate 9.6%; EOT 7.5%
322
342
July 7, 2021
Fixed interest rate 9.5%; EOT 7.5%
1,582
1,651
1,641
August 17, 2021
September 1, 2024
Fixed interest rate 9.7%; EOT 7.5%
783
812
811
August 31, 2021
Fixed interest rate 10.0%; EOT 7.5%
455
471
470
November 1, 2021
Fixed interest rate 9.4%; EOT 7.5%
877
896
894
March 8, 2022
2,107
2,111
April 29, 2022
Fixed interest rate 10.2%; EOT 7.5%
948
942
June 1, 2022
Fixed interest rate 10.1%; EOT 7.5%
3,808
3,791
Total Daring Foods, Inc.
10,882
11,016
11,002
Deerfield Imaging Holdings, Inc.
April 14, 2022
Variable interest rate Prime + 6.0% or Floor rate 10.0%; EOT 5.0% ⁽⁸⁾
18,250
18,213
Eterneva, Inc.
November 24, 2021
Fixed interest rate 10.6%; EOT 11.5%
486
502
493
Fixed interest rate 10.4%; EOT 11.5%
715
725
June 17, 2022
July 1, 2026
Fixed interest rate 16.2%; EOT 11.0%
1,898
1,897
Total Eterneva, Inc.
3,099
3,124
3,105
Footprint International Holding, Inc.
March 1, 2027
Variable interest rate Prime + 7.3% or Floor rate 10.5%; EOT 3.0% ⁽⁸⁾
20,000
17,738
18,581
April 20, 2022
17,612
Total Footprint International Holding, Inc.
35,350
36,193
11
Manufacturing, Continued (7)
Hadrian, Inc.
March 2, 2022
October 1, 2025
Fixed interest rate 12.6%; EOT 0.0%
469
472
May 6, 2022
Fixed interest rate 12.9%; EOT 0.0%
4,787
4,763
Total Hadrian, Inc.
5,258
5,232
5,235
Happiest Baby, Inc.
Fixed interest rate 8.4%; EOT 9.5%
259
255
November 1, 2022
Fixed interest rate 8.6%; EOT 9.5%
145
263
261
January 1, 2023
191
295
293
February 7, 2020
June 1, 2023
Fixed interest rate 8.2%; EOT 9.5%
363
466
462
September 16, 2020
663
764
759
January 22, 2021
597
662
Total Happiest Baby, Inc.
2,057
2,709
2,687
Hi-Power, LLC
September 30, 2021
Fixed interest rate 12.4%; EOT 1.0%
5,687
5,700
5,743
Mainspring Energy, Inc.
March 18, 2022
October 1, 2026
Fixed interest rate 11.0%; EOT 3.8%
29,785
29,562
Miyoko's Kitchen
February 19, 2020
Fixed interest rate 8.8%; EOT 9.0%
62
138
136
August 27, 2020
March 1, 2023
Fixed interest rate 8.9%; EOT 9.0%
285
368
365
February 5, 2021
September 1, 2023
Fixed interest rate 8.5%; EOT 9.0%
321
June 25, 2021
372
407
403
Total Miyoko's Kitchen
1,040
1,281
1,269
Molekule, Inc.
June 19, 2020
Fixed interest rate 8.8%; EOT 10.0%
1,346
1,570
1,559
September 29, 2020
Fixed interest rate 12.3%; EOT 15.7%
323
377
386
December 18, 2020
Fixed interest rate 11.9%; EOT 16.3%
550
629
640
August 25, 2021
Fixed interest rate 11.3%; EOT 17.8%
434
481
478
Total Molekule, Inc.
2,653
3,057
3,063
Quip NYC, Inc.
March 9, 2021
Variable interest rate Prime + 8.0% or Floor rate 11.3%; EOT 3.0% ⁽⁸⁾
17,500
17,425
17,879
2,510
2,517
Total Quip NYC, Inc.
19,935
20,396
Space Perspective, Inc.
March 3, 2022
Variable interest rate Prime + 7.8% or Floor rate 11.0%; EOT 5.0% ⁽⁸⁾
4,881
5,057
The Fynder Group, Inc.
October 14, 2020
Fixed interest rate 9.1%; EOT 10.0%
428
March 31, 2022
Fixed interest rate 9.3%; EOT 10.0%
2,594
2,569
2,562
Total The Fynder Group, Inc.
2,987
3,002
2,990
Vertical Communications, Inc.
August 23, 2021
Fixed interest rate 11.0%; EOT 23.8%
13,300
15,268
13,837
viaPhoton, Inc.
April 1, 2027
Variable interest rate Prime + 6.6% or Floor rate 9.9%; EOT 5.0% ⁽⁸⁾
14,941
15,362
VitaCup, Inc.
June 23, 2021
Variable interest rate Prime + 7.5% or Floor rate 11.5%; EOT 2.5% ⁽⁸⁾
5,500
5,563
Sub-total: Manufacturing (20.2%)*
221,668
220,055
220,149
12
Other Services (except Public Administration) (7)
Rinse, Inc.
May 10, 2022
Variable interest rate Prime + 8.0% or Floor rate 11.3%; EOT 3.8% ⁽⁸⁾
4,895
Sub-total: Other Services (except Public Administration)(0.4%)*
Professional, Scientific, and Technical Services (7)
AllSeated, Inc.
February 28, 2022
Variable interest rate Prime + 7.0% or Floor rate 10.8%; EOT 3.5% ⁽⁸⁾
5,983
6,101
BackBlaze, Inc.
Fixed interest rate 7.2%; EOT 11.5%
239
430
425
April 1, 2023
Fixed interest rate 7.4%; EOT 11.5%
41
63
362
516
509
August 1, 2023
Fixed interest rate 7.5%; EOT 11.5%
108
106
Fixed interest rate 7.7%; EOT 11.5%
85
113
112
October 1, 2023
89
116
114
November 1, 2023
394
389
December 1, 2023
422
531
523
378
January 20, 2020
February 1, 2024
396
February 1, 2020
March 1, 2024
353
421
March 26, 2020
109
131
130
April 17, 2020
Fixed interest rate 7.3%; EOT 11.5%
723
857
847
July 27, 2020
820
944
930
September 4, 2020
151
171
169
March 29, 2021
1,990
2,133
Total BackBlaze, Inc.
6,546
7,919
7,810
Cleanspark, Inc.
April 22, 2022
Fixed interest rate 10.3%; EOT 5.0%
18,929
18,960
18,792
Commonwealth Fusion Systems, LLC
Fixed interest rate 9.5%; EOT 8.5%
1,815
1,887
October 20, 2021
Fixed interest rate 9.7%; EOT 8.5%
543
564
561
Total Commonwealth Fusion Systems, LLC
2,358
2,461
2,448
Core Scientific, Inc.
778
801
Fixed interest rate 10.7%; EOT 5.0%
11,555
11,799
11,802
December 13, 2021
Fixed interest rate 10.5%; EOT 5.0%
4,258
4,336
4,338
February 9, 2022
9,012
9,127
9,130
Total Core Scientific, Inc.
25,603
26,063
26,071
Edeniq, Inc.
November 30, 2021
Fixed interest rate 18.0%
5,267
1,707
5,331
Emerald Cloud Lab, Inc.
July 13, 2021
Fixed interest rate 9.7%; EOT 7.0%
7,658
8,046
8,016
Emergy, Inc.
January 8, 2021
Fixed interest rate 9.1%; EOT 8.5%
348
381
December 15, 2021
Fixed interest rate 9.3%; EOT 11.5%
9,684
9,967
9,840
Total Emergy, Inc.
10,032
10,348
10,218
13
Professional, Scientific, and Technical Services, Continued
Eqis Capital Management, Inc.
June 15, 2022
Variable interest rate Prime + 7.5% or Floor rate 10.8%; EOT 3.0% ⁽⁸⁾
6,942
Grabit Interactive Media, Inc.
November 1, 2026
Variable interest rate Prime + 7.5% or Floor rate 10.8%; EOT 2.5% ⁽⁸⁾
4,500
4,450
Greenlight Biosciences Inc.
Fixed interest rate 9.7%; EOT 8.0%
2,050
2,203
2,184
June 17, 2021
Fixed interest rate 9.5%; EOT 8.0%
3,042
3,202
3,180
1,665
1,728
1,705
965
1,001
982
Total Greenlight Biosciences Inc.
7,722
8,134
8,051
Incontext Solutions, Inc.
Fixed interest rate 11.8%; EOT 16.4%
6,149
6,958
5,853
Nomad Health, Inc.
March 29, 2022
Variable interest rate Prime + 5.5% or Floor rate 9.3%; EOT 4.0% ⁽⁸⁾
29,812
30,433
PebblePost, Inc.
May 7, 2021
Variable interest rate Prime + 8.3% or Floor rate 11.5%; EOT 3.8% ⁽⁸⁾
12,500
12,558
12,824
Pendulum Therapeutics, Inc.
May 1, 2023
Fixed interest rate 7.7%; EOT 5.0%
152
January 17, 2020
Fixed interest rate 7.8%; EOT 5.0%
925
1,049
1,052
March 6, 2020
296
327
328
July 15, 2020
Fixed interest rate 9.8%; EOT 6.0%
492
536
538
Variable interest rate Prime + 6.8% or Floor rate 10.0%; EOT 3.0% ⁽⁸⁾
4,984
5,132
4,975
5,119
March 30, 2022
4,970
5,096
4,961
4,954
Total Pendulum Therapeutics, Inc.
26,844
26,908
27,332
Reciprocity, Inc.
September 25, 2020
Variable interest rate Prime + 8.0% or Floor rate 11.3%; EOT 2.0% ⁽⁸⁾
9,420
9,466
9,439
April 29, 2021
5,008
Total Reciprocity, Inc.
14,420
14,474
14,393
Smartly, Inc.
May 16, 2022
Variable interest rate Prime + 7.0% or Floor rate 10.5%; EOT 2.5% ⁽⁸⁾
9,854
Sun Basket, Inc.
December 31, 2020
Variable interest rate Prime + 8.5% or Floor rate 11.8%; EOT 5.8% ⁽⁸⁾
16,905
17,961
17,388
TMRW Life Sciences, Inc.
Variable interest rate Prime + 5.0% or Floor rate 8.8%; EOT 4.0% ⁽⁸⁾
4,967
Utility Associates, Inc.
Secured Loan (18)
September 30, 2023
PIK Fixed interest rate 11.0% (15)
750
830
729
ZenDrive, Inc.
July 16, 2021
August 1, 2026
Variable interest rate Prime + 7.0% or Floor rate 10.3%; EOT 3.0% ⁽⁸⁾
14,977
15,395
Sub-total: Professional, Scientific, and Technical Services (22.3%)*
239,183
240,311
243,398
14
Real Estate (7)
Knockaway, Inc.
Variable interest rate Prime + 6.3% or Floor rate 11.0%; EOT 3.0% ⁽⁸⁾
14,734
14,694
14,337
1,993
1,947
December 28, 2021
4,275
4,257
4,152
Total Knockaway, Inc.
21,009
20,944
20,436
Orchard Technologies, Inc.
March 11, 2021
Variable interest rate Prime + 7.5% or Floor rate 11.0%; EOT 4.0% ⁽⁸⁾
5,060
5,140
12,601
12,814
Total Orchard Technologies, Inc.
17,661
17,954
Wanderjaunt, Inc.
Equipment Financing(18)
Fixed interest rate 10.2%; EOT 12.0%
155
201
20
545
699
61
January 7, 2022
Fixed interest rate 10.3%; EOT 11.0%
2,649
2,658
March 4, 2022
Fixed interest rate 10.2%; EOT 11.0%
2,121
88
Total Wanderjaunt, Inc.
5,482
5,679
283
Sub-total: Real Estate (3.5%)*
43,991
44,284
38,673
Rental and Leasing Services(7)
EquipmentShare, Inc.
June 24, 2020
July 1, 2023
Fixed interest rate 11.0%; EOT 5.0%
2,238
2,525
August 7, 2020
Fixed interest rate 10.2%; EOT 5.0%
899
993
October 2, 2020
Fixed interest rate 10.4%; EOT 5.0%
411
446
448
October 9, 2020
1,299
1,408
1,417
Total EquipmentShare, Inc.
4,847
5,353
5,383
Maxwell Financial Labs, Inc.
17,998
18,156
NextCar Holding Company, Inc.
December 14, 2021
Variable interest rate Prime + 5.8% or Floor rate 9.0%; EOT 2.0% ⁽⁸⁾
5,065
5,100
2,028
2,040
2,515
2,577
3,012
3,098
April 18, 2022
2,490
2,550
May 17, 2022
4,965
June 22, 2022
2,470
Total NextCar Holding Company, Inc.
25,035
25,565
Sub-total: Rental and Leasing Services (4.5%)*
47,847
48,386
49,104
15
Retail Trade (7)
Fernished, Inc.
October 29, 2021
Fixed interest rate 13.4%; EOT 3.0%
401
404
March 21, 2022
Fixed interest rate 13.2%; EOT 3.0%
1,387
1,382
1,345
975
969
Total Fernished, Inc.
2,763
2,755
2,721
Gobble, Inc.
Fixed interest rate 11.3%; EOT 6.0%
1,566
1,762
Fixed interest rate 11.5%; EOT 6.0%
788
895
886
Total Gobble Inc.
2,354
2,675
2,648
Portofino Labs, Inc.
April 1, 2021
November 1, 2025
1,904
1,941
Super73, Inc.
Variable interest rate Prime + 7.3% or Floor rate 11.5%; EOT 4.0% ⁽⁸⁾
4,844
4,925
October 25, 2021
3,963
3,982
Total Super73, Inc.
8,807
8,907
8,945
UnTuckIt, Inc.
Fixed interest rate 12.0%; EOT 3.8%
15,778
15,202
Sub-total: Retail Trade (2.9%)*
30,924
32,019
31,457
Space Research and Technology (7)
Axiom Space, Inc.
May 28, 2021
Variable interest rate Prime + 6.0% or Floor rate 9.3%; EOT 2.5% ⁽⁸⁾
29,975
30,755
Sub-total: Space Research and Technology (2.8%)*
Wholesale Trade (7)
BaubleBar, Inc.
Fixed interest rate 11.5%; EOT 7.3%
2,084
3,014
2,904
Grandpad, Inc.
November 16, 2020
Fixed interest rate 10.6%; EOT 5.0%
1,188
1,317
1,312
December 23, 2020
Fixed interest rate 10.8%; EOT 5.0%
1,578
1,730
1,724
Total Grandpad, Inc.
2,766
3,047
3,036
Sub-total: Wholesale Trade (0.5%)*
4,850
6,061
5,940
Total: Debt Securities- United States (84.1%)*
919,157
924,585
916,976
Debt Securities- Canada
Hut 8 Holdings, Inc. (10)
December 30, 2021
Fixed interest rate 9.5%; EOT 3.5%
25,383
25,477
25,320
Sub-total: Information (2.3%)*
16
Debt Securities- Canada, Continued
Nexii Building Solutions, Inc. (10)
August 27, 2021
Variable interest rate Prime + 7.0% or Floor rate 10.3%; EOT 2.5% ⁽⁸⁾
9,698
9,938
June 8, 2022
4,750
Total Nexii Building Solutions, Inc.
14,448
14,688
Sub-total: Manufacturing (1.3%)*
Transportation and Warehousing (7)
GoFor Industries, Inc. (10)
Secured Loan(18)
January 21, 2022
Variable interest rate Prime + 8.8% or Floor rate 12.0%; EOT 2.5% ⁽⁸⁾
9,792
3,838
Sub-total: Transportation and Warehousing (0.4%)*
Utilities (7)
Invenia, Inc.
Fixed interest rate 11.5%; EOT 5.0%
2,451
2,427
1,371
1,572
1,556
1,711
1,835
1,831
2,390
2,565
2,547
June 8, 2020
2,920
October 29, 2020
4,157
4,309
4,301
Total Invenia, Inc. (10)
14,549
15,795
15,725
Sub-total: Utilities (1.4%)*
Total: Debt Securities- Canada (5.5%)*
64,724
65,380
59,571
Debt Securities- Europe
Aledia, Inc. (10)
Fixed interest rate 9.0%; EOT 7.0%
16,774
16,868
16,880
1,174
Total Aledia, Inc.
17,948
18,034
18,046
Sub-total: Manufacturing (1.7%)*
Total: Debt Securities- Europe (1.7%)*
Total: Debt Securities (91.2%)(19)*
1,001,829
1,007,999
994,593
17
Expiration Date
Series
Strike Price
Warrant Investments- United States
Warrant⁽¹⁴⁾
December 31, 2031
16,956
2.79
96
64
BetterLeap, Inc.
April 20, 2032
88,435
2.26
38
December 10, 2021
December 10, 2031
Preferred Series C
3,857
205.28
153
184
Sub-Total: Administrative and Support and Waste Management and Remediation (0.0%)*
287
286
June 10, 2029
68,863
5.08
410
1,372
December 22, 2020
December 22, 2030
29,925
6.24
160
569
September 10, 2028
21,577
0.01
616
518
Total Bowery Farming, Inc.
1,186
2,459
Warrant
July 19, 2029
262,870
0.26
129
37
Sub-Total: Agriculture, Forestry, Fishing and Hunting (0.2%)*
1,315
2,496
May 11, 2032
53,029
2.52
162
199
Sub-total: Arts, Entertainment, and Recreation (0.0%)*
Project Frog, Inc. (20)
July 26, 2026
Preferred Series AA
211,633
0.19
180,356
August 3, 2021
Preferred Series CC
250,000
22
Total Project Frog, Inc.
Sub-Total: Construction (0.0%)*
March 18, 2031
28,732
7.74
September 28, 2028
222,222
0.90
120
Sub-Total: Educational Services (0.0%)*
228
69
September 30, 2030
89,264
3.00
720
November 27, 2029
Preferred Series B
250,268
1.32
147
1,233
January 11, 2021
January 11, 2031
135,835
797
August 6, 2031
111,555
1.60
197
528
656
2,558
RealtyMogul, Co.
December 18, 2027
234,421
3.88
23
February 10, 2032
67,465
117
Sub-Total: Finance and Insurance (0.3%)*
1,198
3,418
76,231
1.76
177
461
June 30, 2031
79,325
258
479
435
940
Sub-Total: Health Care and Social Assistance (0.1%)*
Everalbum, Inc.
July 29, 2026
Preferred Series A
851,063
0.10
25
Figg, Inc.
Warrant⁽¹¹⁾⁽¹⁴⁾
March 31, 2028
935,198
Firefly Systems, Inc.
January 31, 2020
January 29, 2030
133,147
1.14
282
465
Gtxcel, Inc.
September 24, 2025
1,000,000
0.21
83
Preferred Series D
Total Gtxcel, Inc.
166
Lucidworks, Inc.
June 27, 2026
619,435
0.77
806
1,615
RapidMiner, Inc.
March 25, 2029
Preferred Series C-1
11,624
60.22
September 3, 2031
Preferred Series B-2
106,719
2.53
Sub-Total: Information (0.2%)*
1,890
2,124
November 19, 2031
281
479.25
93
59
Sub-Total: Management of Companies and Enterprises (0.0%)*
19
Warrant Investments- United States, Continued
February 23, 2032
37,218
1.81
October 12, 2031
181,784
0.07
36
April 8, 2031
68,100
0.27
666
February 14, 2020
February 14, 2030
38,171
0.31
926
February 18, 2032
77,524
4,246
1,903
June 23, 2022
June 23, 2032
14,624
359
4,614
3,188
May 16, 2029
182,554
0.33
193
262
July 9, 2029
140,186
1.15
November 20, 2020
November 20, 2030
81,294
226
268
March 18, 2032
137,692
1.66
344
Total Mainspring Energy, Inc.
853
1,160
June 19, 2030
3,205
3.12
June 1, 2032
Preferred Series 1
257,135
0.39
Preferred Series 2
100,000
1.00
44
March 9, 2031
Preferred Series A-1
10,833
48.46
203
458
SBG Labs, Inc.
July 29, 2023
42,857
0.70
September 18, 2024
25,714
January 14, 2024
21,492
March 24, 2025
12,155
October 10, 2023
11,150
May 6, 2024
11,145
June 9, 2024
7,085
May 20, 2024
342,857
110
March 26, 2025
200,000
65
Total SBG Labs, Inc.
217
March 3, 2032
221,280
2.75
256
252
Tarana Wireless, Inc.
5,027,629
967
2,058
October 14, 2030
36,445
0.49
68
Vertical Communications, Inc. (20)
July 11, 2026
828,479
March 31, 2032
15,839
0.60
June 23, 2031
68,996
Sub-Total: Manufacturing (0.8%)*
7,675
8,492
May 10, 2032
278,761
1.13
118
Sub-total: Other Services (except Public Administration)(0.0%)*
Pharmaceutical (7)
Zosano Pharma Corporation
Warrant (9)
September 25, 2025
75,000
3.59
Sub-Total: Pharmaceutical (0.0%)*
All Seated, Inc.
February 28, 2032
5,101
15.72
Crowdtap, Inc.
December 16, 2025
442,233
1.09
42
172
December 11, 2027
39
Total Crowdtap, Inc.
51
211
Dynamics, Inc.
March 10, 2024
17,000
10.59
E La Carte, Inc.
April 28, 2027
497,183
0.30
185
July 28, 2027
104,284
7.49
Preferred Series AA-1
106,841
122
Total E La Carte, Inc.
213
2,540
Warrant(11)(14)
December 23, 2026
2,685,501
0.22
2,184,672
June 29, 2027
5,106,972
0.44
November 2, 2028
3,850,294
Warrant(14)
November 29, 2021
November 29, 2031
154,906,320
Total Edeniq, Inc.(20)
161
June 15, 2032
Preferred Class B
904,000
0.99
April 8, 2034
142,828
Hologram, Inc.
January 27, 2030
193,054
49
658
Hospitalists Now, Inc.
March 30, 2026
Preferred Series D-2
135,807
5.89
71
887
December 6, 2026
750,000
391
4,898
Total Hospitalists Now, Inc.
5,785
2,219
220.82
34
May 7, 2031
657,343
0.75
248
October 9, 2029
55,263
1.90
June 1, 2020
July 15, 2030
36,842
322,251
3.24
198
21
Professional, Scientific, and Technical Services, Continued (7)
September 25, 2030
114,678
4.17
77
April 29, 2031
57,195
54
115
Resilinc, Inc.
December 15, 2025
589,275
40
May 16, 2034
68,939
1.10
84
October 5, 2027
103,636
14.47
111
December 29, 2032
33,348
3.17
546
Total Sun Basket, Inc.
April 29, 2032
Preferred Class A
537,966
2.09
78
June 30, 2025
92,511
4.54
55
60,000
May 22, 2027
Total Utility Associates, Inc.
July 16, 2031
30,466
2.46
Sub-Total: Professional, Scientific, and Technical Services (0.9%)*
2,570
10,207
Egomotion Corporation
December 10, 2028
60,786
June 29, 2028
121,571
219
Total Egomotion Corporation
139
May 24, 2029
87,955
8.53
209
November 10, 2031
148,730
265
474
Sub-Total: Real Estate (0.0%)*
693
143
Rental and Leasing Services (7)
October 7, 2020
October 7, 2030
106,735
0.29
318
110,860
330
September 30, 2031
79,135
1.04
148
210
Total Maxwell Financial Labs, Inc.
202
858
December 14, 2026
169,898
(13)
2.81
35
13,273
March 16, 2032
15,928
April 18, 2032
146,006
52
47
Sub-Total: Rental and Leasing Services (0.1%)*
249
Boosted eCommerce, Inc.
December 14, 2030
759,263
0.84
May 5, 2021
May 5, 2031
54,427
0.15
30
May 9, 2028
74,635
1.20
73
48
December 27, 2029
1.22
617
358
Total Gobble, Inc.
690
406
Madison Reed, Inc.
March 23, 2027
194,553
2.57
300
July 18, 2028
43,158
June 30, 2029
36,585
1.23
56
Total Madison Reed, Inc.
511
December 31, 2030
39,659
1.53
April 1, 2031
39,912
1.46
45
Total Portofino Labs, Inc.
260
154
177,305
3.16
105
Trendly, Inc.
August 10, 2026
245,506
221
Sub-Total: Retail Trade (0.1%)*
1,886
1,353
May 28, 2031
1,773
169.24
121
340.11
Total Axiom Space, Inc.
72
Sub-Total: Space Research and Technology (0.0%)*
March 29, 2027
531,806
1.96
639
483
April 20, 2028
Total BaubleBar, Inc.
711
537
GrubMarket, Inc.
June 15, 2020
June 15, 2030
405,000
703
Sub-Total: Wholesale Trade (0.1%)*
826
1,240
Total: Warrant Investments- United States (3.0%)*
19,892
32,187
Warrant Investments- Canada
August 27, 2026
63,071
15.86
June 8, 2027
24,196
15.96
204
614
590
Sub-Total: Manufacturing (0.1%)*
February 21, 2022
171,954
0.45
Sub-Total: Transportation and Warehousing (0.0%)*
Total: Warrant Investments- Canada (0.1%)*
719
Warrant Investments- Europe
Preferred Series D-3
33,552
148.92
415
Sub-Total: Manufacturing (0.0%)*
Total: Warrant Investments- Europe (0.0%)*
Total: Warrant Investments- (3.0%)(19)*
20,741
33,192
Shares / Principal
Equity Investments- United States
Project Frog, Inc.
Equity⁽¹⁴⁾
4,383,173
Preferred Series AA-1⁽¹⁷⁾
351
3,401,427
Preferred Series BB⁽¹⁷⁾
1,333
6,634,061
1,684
3,129,887
Preferred Series CC⁽¹⁷⁾
Total Project Frog, Inc. (20)
4,622
FemTec, Inc. (20)
July 22, 2021
1,098,093
13,046
8,956
August 19, 2021
32,416
Preferred Series D⁽¹⁷⁾
500
457
7,000,000
3,450
Preferred Series P⁽¹⁷⁾
3,170
Convertible Note⁽¹⁶⁾
3,219
6,720
Sub-Total: Health Care and Social Assistance (0.9%)*
20,266
9,413
Equity(9)(14)
February 25, 2022
50,000
757,297
506
2,670
1,006
2,854
Sub-Total: Information (0.3%)*
53,154
Preferred A-4⁽¹⁷⁾
3,320
Preferred Series B-1⁽¹⁷⁾
445
Store Intelligence, Inc. (20)
May 2, 2020
1,430,000
Preferred Series A⁽¹⁷⁾
608
611,246
Preferred Series 6⁽¹⁷⁾
487
Equity⁽¹¹⁾⁽¹⁴⁾
3,892,485
Preferred Series 1⁽¹⁷⁾
3,966
3,550
Total Vertical Communications, Inc. (20)
Sub-Total: Manufacturing (0.5%)*
6,574
17,726
390
2,527,449
Preferred Series B⁽¹⁷⁾
66
3,657,487
Preferred Series C⁽¹⁷⁾
133,766,138
Total Edeniq, Inc. (20)
June 3, 2022
June 28, 2021
75,958
37,920
Preferred Series D-1⁽¹⁷⁾
Sub-Total: Professional, Scientific, and Technical Services (0.2%)*
2,027
Equity Investments- United States, Continued
74,406
Sub-Total: Real Estate (0.1%)*
781
Maxwell Financial Labs, Inc
135,641
508
Sub-Total: Rental and Leasing Services (0.0%)*
October 6, 2021
454,905
256,291
496
885
August 11, 2021
Total: Equity Investments- United States (2.1%)*
37,358
22,813
Equity Investments- Canada
24,418
476
Total: Equity Investments- Canada (0.0%)*
Total: Equity Investments (2.1%)(19)*
37,858
23,289
Total Investment in Securities (96.4%)*
1,066,598
Cash, Cash Equivalents, and Restricted Cash
Goldman Sachs Financial Square Government Institutional Fund
12,474
Other cash accounts
752
Cash, Cash Equivalents, and Restricted Cash (1.2%)*
Total Portfolio Investments and Cash and Cash Equivalents (97.6% of net assets)
1,079,824
1,064,300
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, 2022
Control Investments
5,522
1,237
(751)
6,008
1,527
4,209
(3,878)
17,382
(247)
17,387
983
WorkWell Prevention and Care Inc.
(4,394)
Total Control Investments
1,816
Affiliate Investments
27,748
(3,939)
Store Intelligence, Inc.
4,444
(2,400)
7,589
Total Affiliate Investments
Total Control and Affiliate Investments
64,406
1,844
(6,278)
(9,861)
(1,486)
48,625
3,600
Debt Securities
Secured Loan⁽¹⁹⁾
Variable interest rate Prime + 8.0% or Floor rate 11.3%; EOT 5.0% ⁽⁸⁾
4,903
22,711
Fixed interest rate 9.0%; EOT 12.0%
1,115
1,490
1,474
Sub-total: Administrative and Support and Waste Management and Remediation (3.1%)*
29,115
29,104
29,088
9,253
9,300
Fixed interest rate 7.6%; EOT 22.0%
1,458
1,492
Sub-total: Agriculture, Forestry, Fishing and Hunting (1.2%)*
11,186
10,711
10,792
332
367
456
453
615
653
1,238
1,300
1,295
1,356
4,486
4,706
4,692
Project Frog, Inc. (22)
April 30, 2020
Fixed interest rate 12.0%
4,128
4,080
3,754
Sub-total: Construction (0.9%)*
8,614
8,786
8,446
5,962
6,052
1,973
2,013
7,935
8,065
7,579
7,630
2,504
10,083
10,155
Sub-total: Educational Services (2.0%)*
18,018
18,220
Debt Securities, Continued
4,973
Variable interest rate Prime + 5.0% or Floor rate 12.0%; EOT 6.0% ⁽⁸⁾
19,536
19,869
20,040
5,076
24,536
24,945
25,141
Variable interest rate Prime + 3.5% or Floor rate 11.0%; EOT 3.0% ⁽⁸⁾
10,140
10,078
14,234
13,986
14,236
6,855
6,908
31,234
30,981
31,222
Sub-total: Finance and Insurance (6.6%)*
60,770
60,899
61,336
10,752
10,168
2,152
2,171
3,019
3,040
Total FemTec Health, Inc. (22)
15,923
15,379
Variable interest rate Prime + 3.3% or Floor rate 11.5%; EOT 4.0% ⁽⁸⁾
4,939
4,986
4,818
9,757
9,833
3,522
676
Total WorkWell Prevention & Care Inc. (22)
4,198
Sub-total: Health Care and Social Assistance (3.1%)*
29,221
30,057
29,410
January 29, 2020
February 1, 2023
Fixed interest rate 9.0%; EOT 10.0%
2,144
2,579
2,549
August 28, 2020
Fixed interest rate 8.9%; EOT 10.0%
2,094
2,356
2,338
September 18, 2020
284
Total Firefly Systems, Inc.
4,494
5,221
5,171
Gobiquity, Inc.
April 1, 2022
Fixed interest rate 7.5%; EOT 20.0%
189
Group Nine Media, Inc.
September 17, 2021
Variable interest rate Prime + 7.3% or Floor rate 10.5%; EOT 3.5% ⁽⁸⁾
19,962
20,108
Equipment Financing⁽¹⁹⁾
29,705
11,891
11,977
7,895
7,954
6,848
27,000
26,634
26,779
Smule, Inc.
Secured Loan (15)
July 1, 2020
January 1, 2022
Fixed interest rate 0.0%
5,947
5,993
5,029
995
5,987
6,032
Sub-total: Information (10.6%)*
98,565
98,635
98,963
22,240
Sub-total: Management of Companies and Enterprises (2.4%)*
19,932
1,624
1,625
413
1,917
1,938
1,937
952
548
552
1,034
1,028
4,839
4,872
4,882
544
Fixed interest rate 10.3%; EOT 8.0%
10,611
11,576
12,405
June 22, 2020
Fixed interest rate 12.0%; EOT 9.0%
6,837
7,162
17,448
18,738
19,242
385
527
355
464
375
866
945
745
790
792
3,276
3,851
3,839
Health-Ade, LLC
February 1, 2022
Fixed interest rate 9.4%; EOT 15.0%
709
Fixed interest rate 8.6%; EOT 15.0%
163
454
July 1, 2022
Fixed interest rate 9.1%; EOT 15.0%
682
1,270
Total Health-Ade, LLC
955
2,466
6,529
6,524
6,598
5,660
5,942
5,956
5,436
5,539
11,160
11,378
11,495
242
311
558
556
450
484
505
1,666
1,859
1,854
1,756
1,931
1,918
652
695
688
494
3,293
3,555
3,527
9,575
9,648
17,319
Store Intelligence, Inc. (22)
Fixed interest rate 12.0%; EOT 7.7%
11,641
12,033
Variable interest rate Prime + 8.0% or Floor rate 11.5%; EOT 4.5% ⁽⁸⁾
18,500
17,728
17,551
489
515
15,016
13,656
5,471
5,519
Sub-total: Manufacturing (15.5%)*
148,264
153,004
144,748
32
Fixed interest rate 9.4%; EOT 12.0%
473
1,038
Fixed interest rate 9.7%; EOT 12.0%
525
822
Fixed interest rate 9.9%; EOT 12.0%
844
1,091
1,059
1,042
1,273
1,245
Fixed interest rate 10.5%; EOT 12.0%
973
949
Total Zosano Pharma Corporation
3,695
5,260
5,113
Sub-total: Pharmaceutical (0.5%)*
650
645
67
87
686
140
144
123
146
416
560
651
495
575
512
585
451
156
157
903
1,018
1,014
998
1,100
1,093
181
2,310
2,426
2,421
8,408
9,585
9,535
2,169
2,196
2,207
644
648
2,813
2,844
2,855
928
964
13,596
13,649
19,524
19,595
19,621
5,074
9,278
9,486
9,528
10,419
10,396
10,853
10,852
33
2,575
2,656
2,667
3,716
3,774
2,003
2,008
2,011
1,163
1,157
9,454
9,601
9,643
6,818
5,476
12,450
12,547
206
220
1,326
1,436
1,445
431
633
665
671
4,972
7,572
7,724
7,741
Variable interest rate Prime + 3.3% or Floor rate 11.3%; EOT 2.0% ⁽⁸⁾
9,984
10,200
14,968
15,300
Variable interest rate Prime + 3.3% or Floor rate 11.8%; EOT 5.8% ⁽⁸⁾
16,984
16,882
PIK Fixed interest rate 11.0% (20)
697
14,899
15,006
Sub-total: Professional, Scientific, and Technical Services (15.1%)*
139,473
137,105
140,757
14,608
1,982
4,231
20,821
5,030
5,064
12,520
12,612
17,550
17,676
238
277
271
935
1,030
1,212
1,199
Sub-total: Real Estate (4.3%)*
39,539
39,583
39,696
3,269
3,501
3,532
1,252
1,328
1,335
551
579
1,741
1,829
1,846
6,813
7,237
7,298
17,828
17,949
Variable interest rate Prime + 5.8% or Floor rate 9.0%; EOT 12.0% ⁽⁸⁾
1,986
6,947
Sub-total: Rental and Leasing Services (3.4%)*
31,813
32,012
32,194
2,227
2,414
2,398
1,120
1,214
1,206
3,347
3,628
3,604
2,014
2,023
March 12, 2021
2,918
1,860
1,873
6,778
6,814
Variable interest rate Prime + 4.3% or Floor rate 11.5%; EOT 4.0% ⁽⁸⁾
5,528
5,567
4,456
10,023
15,796
15,200
Sub-total: Retail Trade (3.9%)*
35,819
36,656
36,111
29,819
30,015
Sub-total: Space Research and Technology (3.2%)*
3,611
4,068
4,012
2,060
2,264
2,240
2,190
2,297
3,023
3,183
3,177
3,523
3,638
3,669
4,883
19,290
20,445
Sub-total: Utilities (2.2%)*
3,377
4,285
4,085
1,789
1,893
2,306
2,419
2,425
4,095
4,306
4,318
Sub-total: Wholesale Trade (0.9%)*
7,472
8,591
8,403
Total: Debt Securities (78.8%)* (13)
733,336
740,925
735,968
Warrant Investments
1,419
594
1,187
2,531
127
Sub-Total: Agriculture, Forestry, Fishing and Hunting (0.3%)*
1,314
2,604
485
Sub-Total: Educational Services (0.1%)*
593
October 15, 2031
105,347
1.94
839
1,412
908
605
2,925
Sub-Total: Finance and Insurance (0.4%)*
1,101
3,773
674
701
1,375
Warrant⁽¹¹⁾
477
805
2,302
May 18, 2031
995,099
5,830
Sub-Total: Information (0.6%)*
2,396
8,733
Warrant Investments, Continued
(21)
92
2,137
241
534
510
32,051
641
337
Vertical Communications, Inc. (22)
Sub-Total: Manufacturing (0.6%)*
2,743
5,425
Continuity, Inc.
March 29, 2026
1,588,806
0.25
240
50
294
86
April 27, 2027
861
43
1,060
Total Edeniq, Inc. (22)
53
March 29, 2031
219,839
0.82
914
1,840
333
2,173
379
195
1,172
81
1,253
2,417
8,233
94
141
557
1,015
1,156
273
174
730
167,543
2.62
237
810
754
855
398
634
107
132
222
Sub-Total: Retail Trade (0.2%)*
2,051
183
568
Sub-Total: Wholesale Trade (0.2%)*
Total: Warrant Investments (3.6%)* (13)
14,885
36,770
Equity Investments
Equity
426
Total Project Frog, Inc. (22)
4,621
FemTec, Inc. (22)
12,369
2,870
2,919
6,420
Sub-Total: Health Care and Social Assistance (1.5%)*
19,966
13,733
Lucid Motors, Inc.
Equity (9)
July 26, 2021
1,867,973
8,560
67,620
3,321
Equity⁽¹¹⁾
3,725
Total Vertical Communications, Inc. (22)
Sub-Total: Manufacturing (7.7%)*
13,634
71,838
Matterport, Inc.
571,941
11,324
7,807,499
343
507
Sub-Total: Professional, Scientific, and Technical Services (1.3%)*
1,325
12,227
TRINITY CAPITAL INC.Consolidated Schedule of InvestmentsDecember 31, 2021(In thousands, except share and per share data)
Equity Investments, Continued
499
Total: Equity Investments (10.8%)* (13)
42,046
100,732
Total Investment in Securities (93.2%)*
797,856
43,428
3,314
Cash, Cash Equivalents, and Restricted Cash (4.7%)*
Total Portfolio Investments and Cash and Cash Equivalents (97.8% of net assets)
844,598
920,212
For the Year Ended December 31, 2021
Birchbox, Inc.
19,369
5,569
(23,548)
(2,725)
576
1,507
(2,301)
5,402
4,516
1,318
(20)
(1,605)
549
16,953
1,597
(325)
(843)
2,082
6,385
1,435
(2,719)
360
48,730
(26,194)
5,242
29,499
(531)
(1,220)
Ology Bioservices, Inc.
15,072
(9,972)
(7,259)
12,578
(360)
(7,936)
27,650
29,661
(10,863)
(16,415)
1,607
76,380
40,494
(37,057)
(566)
(14,845)
6,849
TRINITY CAPITAL INC.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 (a “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 with the issuance of 10 shares of its common stock for $150 to its sole stockholder. On January 16, 2020, Trinity Capital completed a series of transactions, including a private equity offering, a private debt offering, 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, 2021, as filed with the Securities and Exchange Commission (“SEC”) on March 3, 2022. 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 $300 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 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 portfolio companies, if any, are considered “significant subsidiaries.” In evaluating these unconsolidated controlled portfolio companies, there are two significance tests utilized per Rule 1-02(w) of Regulation S-X to determine if any of the Company’s Control Investments (as defined in “Note 2 - Summary of Significant Accounting Policies”) are considered significant subsidiaries: the investment test, and the income test. As of June 30, 2022 and December 31, 2021, the Company had no single investment that met either of these two tests.
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 those 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.
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 will identify portfolio investments with respect to which an independent valuation firm will assist 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, 99.7%, 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 indexes 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.
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 analysis 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 as well as 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
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, 2022 and December 31, 2021, cash, cash equivalents and restricted cash consisted of $13.2 million and $46.7 million, respectively, of which $12.5 million and $43.4 million, respectively, is 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, 2022, we did not have any restricted cash. As of December 31, 2021, restricted cash consisted of approximately $15.1 million related to the Credit Suisse Credit Facility covenants (See “Note 5 – Borrowings”). In conjunction with the maturity of the Credit Suisse Credit Facility on January 8, 2022, the restrictions on our cash thereunder expired.
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, 2022 and December 31, 2021, there were no material past due escrow receivables. The escrow receivable balance as of June 30, 2022 and December 31, 2021 was measured at fair value and held in accordance with ASC 820.
Other Assets
Other assets generally consist of fixed assets net of accumulated depreciation, right of use assets, prepaid expenses, escrow receivables, security deposits and other assets.
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”) fee. EOT fees 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, 2022 and December 31, 2021, the EOT payments receivable of approximately $53.2 million and $46.7 million, respectively, 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.
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. No PIK interest income was recorded during the three and six months ended June 30, 2022 and 2021.
Income related to application or origination payments, including facility commitment fees, net of related expenses and generally collected in advance, are amortized 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.
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.
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, 2022, loans to three portfolio companies and an equipment financing to one portfolio company were on non-accrual status with a total cost of approximately $20.5 million, and a total fair value of approximately $5.9 million, or 0.6% of the fair value of the Company’s debt investment portfolio. As of December 31, 2021, loans to two portfolio companies were on non-accrual status with a total cost of approximately $12.9 million, and a total fair value of approximately $5.1 million, or 0.7%, 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 Statement 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 Inc. 2019 Non-Employee Director Restricted Stock Plan. The Company accounts for its share-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 share-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 to 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 90% of the sum 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 its net tax-exempt income (if any). The Company generally will not pay corporate-level income tax on these distributed amounts but will pay corporate-level income tax 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, 2022 and December 31, 2021. 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 gain 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 corporate-level income taxes 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. 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 loans in the investment portfolio generally have fixed interest rates or floating interest rates subject to interest rate floors. Both equipment financings and 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.
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.
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 the 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, 2022 and December 31, 2021 (dollars in thousands):
Fair Value
Industry
Amount
%
Manufacturing
268,030
25.1%
268,338
25.4%
169,381
21.1%
222,011
Professional, Scientific, and Technical Services
244,771
22.9%
255,633
24.3%
140,847
17.6%
161,217
18.5%
Information
81,235
7.6%
83,737
8.0%
101,031
12.7%
107,696
12.3%
Finance and Insurance
68,184
6.4%
70,121
6.7%
62,000
7.8%
65,109
7.5%
Management of Companies and Enterprises
69,723
6.5%
69,033
6.6%
22,333
2.8%
22,332
2.6%
Rental and Leasing Services
49,135
4.6%
50,559
4.8%
32,749
4.1%
33,513
3.8%
Real Estate
45,977
4.3%
39,597
40,776
5.1%
41,351
4.7%
Health Care and Social Assistance
50,688
36,097
3.4%
50,458
6.3%
44,518
Administrative and Support and Waste Management and Remediation Services
34,818
3.3%
34,812
29,353
3.7%
29,337
Retail Trade
34,905
33,695
3.2%
39,542
5.0%
39,162
4.5%
Space Research and Technology
30,635
2.9%
31,327
3.0%
30,479
30,698
3.5%
Educational Services
18,429
1.7%
17,070
1.6%
18,246
2.3%
18,813
2.2%
Utilities
1.5%
Agriculture, Forestry, Fishing and Hunting
1.1%
13,061
1.2%
12,025
13,396
Construction
13,538
1.3%
9,198
0.9%
13,445
8,903
1.0%
Wholesale Trade
6,887
0.6%
7,180
0.7%
9,417
9,848
Other Services (except Public Administration)
5,013
0.5%
5,015
Accommodation and Food Services
0.4%
Transportation and Warehousing
9,765
Arts, Entertainment, and Recreation
3,086
0.3%
3,123
Pharmaceutical
0.0%
5,329
5,130
100.0%
The geographic composition 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, 2022 and December 31, 2021 (dollars in thousands):
Geographic Region
United States:
West
470,496
44.1%
474,055
45.1%
370,791
46.5%
442,659
50.7%
Northeast
233,518
21.9%
232,688
22.1%
210,302
26.4%
213,823
24.5%
South
103,050
9.7%
103,885
9.9%
60,455
61,166
7.0%
Mountain
105,724
102,428
65,223
8.2%
70,886
8.1%
Midwest
62,784
5.9%
52,854
29,825
23,958
2.7%
Southeast
6,262
6,066
1,125
0.1%
768
International:
Canada
66,600
6.2%
60,637
5.8%
60,135
60,210
6.9%
Western Europe
18,164
18,461
1.8%
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, 2022 and December 31, 2021 (dollars in thousands):
Investment
776,524
72.9%
769,659
73.2%
557,627
69.8%
551,894
63.2%
231,475
21.7%
224,934
21.4%
183,298
23.0%
184,074
Warrants
1.9%
4.2%
5.3%
11.5%
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 trading 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 may, at any time, include 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 also 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, and establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. The Company accounts for its investments at fair value in accordance with ASC 820. As of June 30, 2022 and December 31, 2021, 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 required one or more of the following unobservable inputs:
57
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, 2022 were as follows:
Fair Value Measurements at Reporting Date Using
Quoted Prices
Significant
in Active
Other
Markets for
Observable
Unobservable
Identical Assets
Inputs
Assets
(Level 1)
(Level 2)
(Level 3)
Secured Loans
Equipment Financings
20,435
Total Investments at fair value
1,048,220
Escrow Receivable (1)
2,441
Cash, cash equivalents and restricted cash
13,410
1,050,661
1,066,741
The Company’s assets measured at fair value by investment type on a recurring basis as of December 31, 2021 were as follows:
78,944
21,788
36,753
78,961
794,509
798,661
924,364
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 fair value the Level 3 portfolio investments as of June 30, 2022.
Fair Value as of
Valuation Techniques/
Weighted
Investment Type
(in thousands)
Methodologies
Inputs (1)
Range
Average (2)
Debt investments
814,887
Discounted Cash Flows
Hypothetical Market Yield
11.4% - 32.3%
15.0
154,689
Originated within the past three months
Origination Market Yield
11.0% - 21.3%
13.5
19,890
Transactions Precedent(6)
Transaction Price
n/a
5,127
Liquidation Scenario
Probability Weighting of Alternative Outcomes
10.0% - 80.0%
Equity investments
17,435
Market Approach
Revenue Multiple Only (3)
0.8
x
Revenue Multiple (3)
0.9x - 2.3x
1.8
Volatility (5)
45.1% - 76.7%
61.3
Risk-Free Interest Rate
2.9% - 3.0%
3.0
Estimated Time to Exit (in years)
2.3 - 4.5
Discount for Lack of Marketability (8)
26.1% - 27.6%
4.6
26,786
0.2x - 11.9x
1.2
Company Specific Adjustment (4)
6.1% - 34.4%
15.1
23.7% - 107.6%
51.7
1.2% - 3.2%
2.8
0.1 - 4.5
2.0
679
Black Scholes Option Pricing Model
42.6% - 65.4%
62.4
Discount for Lack of Marketability
19.6% - 27.2%
26.2
1.8% - 3.4%
3.1
4.2 - 9.8
4.9
5,727
Other⁽⁷⁾
10.0% - 90.0%
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, 2021.
508,756
10.8% - 33.2%
14.6
188,226
11.3% - 16.2%
13.0
34,542
20.0% - 80.0%
20,788
0.8x - 2.3x
1.9
0.2x - 6.8x
3.5
47.0% - 85.0%
65.1
0.1% - 1.1%
0.9
0.2 - 3.8
2.9
9.0% - 32.3%
24.5
23,573
0.2x - 30.0x
1.5
7.9% - 34.5%
9.9
35.1% - 111.3%
63.7
0.1% - 1.3%
0.2 - 5.0
2.3
2,312
42.1% - 83.5%
56.8
27.2% - 30.3%
27.7
0.4% - 1.3%
0.7
1.0 - 5.0
984
9,884
60
The following table provides a summary of changes in the debt, including loans and equipment financings (collectively “Debt”), equity, and warrants fair value of the Company’s Level 3 portfolio investments for the six months ended June 30, 2022 (in thousands):
Debt
Escrow Receivable
Fair Value as of December 31, 2021
Purchases, net of deferred fees
401,886
3,800
6,929
412,615
Transfers out of Level 3 (1)
(6,687)
Proceeds from sales and paydowns
(140,898)
(664)
(731)
(1,711)
(144,004)
Accretion of OID and EOT payments
15,516
Net realized gain/(loss)
(9,429)
(68)
303
(9,194)
Change in unrealized appreciation/(depreciation)
(8,450)
(4,421)
(3,375)
(16,246)
Fair Value as of June 30, 2022
Net change in unrealized appreciation/depreciation on Level 3 investments still held as of June 30, 2022
(16,005)
(5,152)
(3,380)
(24,537)
The following table provides a summary of changes in the debt, including loans and equipment financings (collectively “Debt”), equity, and warrants fair value of the Company’s Level 3 portfolio investments for the year ended December 31, 2021 (in thousands):
Type of Investment
Fair Value as of December 31, 2020
443,219
32,654
17,778
493,651
Purchases, net of deferred fees (1)
533,146
12,153
5,573
555,024
Non-cash conversion (2)
916
Transfers out of Level 3 (3)
(2,611)
(264,386)
(14,098)
(9,100)
(287,584)
21,238
2,501
2,038
10,600
Third party participation (4)
(283)
(666)
(10,676)
7,710
Net change in unrealized appreciation/depreciation on Level 3 investments still held as of December 31, 2021
(1,473)
(4,641)
19,458
13,344
Fair Value of Financial Instruments Carried at Cost
As of June 30, 2022 and December 31, 2021, the carrying value of the KeyBank Credit Facility was approximately $220.0 million and $81.0 million. The carrying value of the KeyBank Credit Facility as of June 30, 2022 and December 31, 2021 approximates the fair value, which was estimated using a market yield approach with Level 3 inputs.
As of June 30, 2022 and December 31, 2021, the carrying value of the 7.00% Notes due 2025 (the “2025 Notes”) was approximately $122.0 million and $121.4 million, respectively, net of unamortized deferred financing costs of $3.0 million and $3.6 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, 2022 and December 31, 2021 was approximately $130.6 million and $139.0 million, respectively, which was estimated using a relative market yield approach with Level 3 inputs.
As of June 30, 2022 and December 31, 2021, the carrying value of the Convertible Notes was approximately $47.8 million and $47.5 million, respectively, net of unamortized deferred financing costs and discount of $2.2 million and $2.5 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, 2022 and December 31, 2021 was approximately $49.2 million and $55.8 million, respectively, which was estimated using a relative market yield approach with Level 3 inputs.
As of June 30, 2022 and December 31, 2021, the carrying value of the Company’s 4.375% Notes due 2026 (the “August 2026 Notes”) was approximately $122.6 million and $122.3 million, respectively, net of unamortized deferred financing costs and discount of $2.4 million and $2.7 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, 2022 and
December 31, 2021, was approximately $110.7 million and $138.4 million, respectively, which was estimated using a relative market yield approach with Level 3 inputs.
As of June 30, 2022, and December 31, 2021, the carrying value of the Company’s 4.25% Notes due 2026 (the “December 2026 Notes”) was approximately $73.3 million, and $73.2 million, respectively, net of unamortized deferred financing fees of $1.7 million and $1.8 million, respectively. The fair value of the Company’s December 2026 Notes as of June 30, 2022 was approximately $65.8 million, which was estimated using a relative market yield approach with Level 3 inputs. The fair value of the Company’s December 2026 Notes as of December 31, 2021 was approximately $73.2 million, which was based on the recent funding.
Note 5. Borrowings
On January 9, 2020, TF1 and its affiliates borrowed $190.0 million under the Credit Suisse Credit Facility. On January 16, 2020, in connection with the Formation Transactions, through its wholly owned subsidiary, TF1, the Company became a party to, and assumed, the credit facility with Credit Suisse.
Borrowings under the Credit Suisse Credit Facility bore interest at a rate of the three-month London Interbank Offered Rate (“LIBOR”) plus 3.25%. The Credit Suisse Credit Facility was collateralized by all investments held by TF1 and permitted an advance rate of up to 65% of eligible investments. The Company had the ability to borrow up to an aggregate of $300.0 million, and the Credit Suisse Credit Facility borrowing base contained certain criteria for eligible investments and includes concentration limits as defined in the Credit Suisse Credit Facility.
On January 8, 2022, the Credit Suisse Credit Facility matured in accordance with its terms, and all outstanding indebtedness thereunder was repaid. Additionally, in conjunction with the maturity of the Credit Suisse Credit Facility on January 8, 2022, the restrictions on our cash thereunder expired.
The summary information regarding the Credit Suisse Credit Facility is as follows (dollars in thousands):
Stated interest expense
482
1,159
1,054
Total interest and amortization of deferred financing costs
1,009
2,213
Weighted average effective interest rate
7.2
3.9
6.6
Weighted average outstanding balance
55,769
442
66,823
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 $300.0 million from KeyBank and other banks and allows the Company, through TCF, to borrow up to $400 million. Borrowings under the KeyBank Credit Agreement bear interest at a rate equal to Adjusted Term Secured Overnight Financing Rate (“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 defaults (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, 2022, the Company borrowed $116.0 million and made repayments of $30.0 million under the KeyBank Credit Facility. During the six months ended June 30, 2022, the Company borrowed $184 million and made repayments of $45 million under the KeyBank Credit Facility. The Company incurred approximately $3.2 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, 2022, and December 31, 2021, unamortized deferred financing costs related to the KeyBank Credit Facility were $2.8 million and $2.3 million, respectively. As of June 30, 2022 and December 31, 2021, the Company had a borrowing availability of approximately $80.0 million and $38.1 million. See “Note 14 – Subsequent Events.”
The summary information regarding the KeyBank Credit Facility is as follows (dollars in thousands):
1,791
2,643
331
1,964
2,974
4.4
4.5
180,271
131,357
2025 Notes
Concurrent with the completion of a private common stock offering (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 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.
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.
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.
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.
Aggregate offering costs in connection with the 2025 Notes issuance, including the underwriter’s discount and commissions, were approximately $5.9 million, which were capitalized and deferred. As of June 30, 2022 and December 31, 2021, unamortized deferred financing costs related to the 2025 Notes were $3.0 million and $3.6 million, respectively.
The components of interest expense and related fees for the 2025 Notes are as follows (in thousands):
2,188
4,375
298
292
595
2,486
2,480
4,958
8.0
7.9
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, 2022 and December 31, 2021, unamortized deferred financing costs related to the August 2026 Notes were $2.4 million and $2.7 million, respectively.
The components of interest expense and related fees for the 2026 Notes are as follows (in thousands):
1,367
2,719
288
1,511
3,007
4.8
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, 2022 and December 31, 2021, unamortized deferred financing costs related to the December 2026 Notes were $1.7 million and $1.8 million, respectively.
The components of interest expense and related fees for the December 2026 Notes are as follows (in thousands):
1,594
186
890
4.7
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, 2022. 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, 2022, the conversion rate changed to 68.7855 shares of the Company’s common stock, per $1,000 principal amount of the Convertible Notes (equivalent to a conversion price of approximately $14.54 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 Accounting Standard Update (“ASU”) No. 2020-06, Debt – Debt with Conversion and Other Options (“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
(1,297)
(1,480)
Original issue discount, net of accretion
(904)
(1,035)
Carrying value of Convertible Notes
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
319
Total interest and amortization of deferred financing costs and original issue discount
910
905
1,819
1,803
7.3
As of June 30, 2022 and December 31, 2021, the Company was in compliance with the terms of the KeyBank Credit Facility, 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, 2022 and December 31, 2021 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 for the Company. Since a portion of these commitments may expire without being withdrawn, unfunded contractual commitments do not necessarily represent future cash requirements. As such, the Company’s disclosure of unfunded contractual commitments as of June 30, 2022 and December 31, 2021 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, 2022 and December 31, 2021 the Company had no outstanding unfunded commitments. 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 credit facilities) 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
FASB ASU 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 financing leases. The Company identified two significant operating leases for its office space in Chandler, AZ and its headquarters in Phoenix, AZ. The lease for the Chandler office commenced February 21, 2017, and expires July 31, 2022. The Chandler lease contains a five-year extension option for a final expiration date of July 31, 2027, which the company will not exercise. The Company has also entered into a lease for office space in downtown Phoenix, Arizona (“PHX”), which commenced on July 10, 2021, and expires on December 31, 2028. The PHX lease contains two five-year extension options for a final expiration date of December 31, 2038.
The total lease expense incurred for the three months ended June 30, 2022 and 2021 was approximately $0.1 million for each period. The total lease expense incurred for the six months ended June 30, 2022 and 2021 was approximately $0.2 million and $30,000, respectively. As of June 30, 2022 and December 31, 2021, the right of use asset related to the office operating leases was $2.3 million and $2.5 million, respectively, and the lease liability was $2.5 million and $2.7 million, respectively. As of June 30, 2022, the remaining lease term for the Chandler office was 0.1 years. As of June 30, 2022, the remaining lease term for the Phoenix office was 6.5 years. The discount rate is determined at the commencement of the lease, and is 3.25% for the Chandler lease and is 3.75% for the Phoenix lease.
The following table shows future minimum payments under the Company’s operating leases as of June 30, 2022 (in thousands):
For the Years Ended December 31,
208
2023
383
2024
382
2025
2026
Thereafter
821
2,576
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, 2022, there are no material legal matters or material litigation pending of which the Company is aware.
Note 7. Stockholder’s 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 with the issuance of 10 shares of its common stock for an aggregate purchase price of $150 to its sole shareholder.
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 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 Common Stock Offering and the Private Convertible Note Offering (together, 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
70
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 our existing indebtedness outstanding under the Credit Suisse Credit Facility.
ATM Program
On November 9, 2021, the Company entered into an open market sale agreement (the “2021 Sales 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 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”). During the six months ended June 30, 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. During the year ended December 31, 2021, the Company issued and sold 35,714 shares of its common stock at a weighted-average price of $16.55 per share and raised $0.6 million of net proceeds after deducting commissions to the sales agent on shares sold under the ATM Program. The Company did not have the ATM Program prior to November 9, 2021. 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.
Equity Offering
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 deduction discounts and 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, 2022, the Company issued 30,800 shares of common stock for a total of approximately $0.6 million under the DRIP. During the six months ended June 30, 2022, the Company issued 90,334 shares of common stock for a total of approximately $1.6 million under the DRIP. During the year ended December 31, 2021, the Company issued 281,149 shares of common stock for a total of approximately $4.1 million under the DRIP.
The following table summarizes distributions declared and/or paid by the Company since inception:
Declaration Date
Type
Record Date
Payment Date
Per Share Amount
May 7, 2020
Quarterly
May 29, 2020
June 5, 2020
August 10, 2020
August 21, 2020
November 9, 2020
December 4, 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
July 15, 2022
0.42
3.41
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, 2022. The following table summarizes issuances, vesting, and retirement of shares under the plan as well as the fair value of granted stock for the three and six months ended June 30, 2022 and 2021 and the twelve months ended December 31, 2021 (dollars in thousands).
Weighted Average
Grant Date Fair Value
Unvested as of December 31, 2021
536,552
16.48
-
Shares Granted
698,943
17.30
Shares Vested
(96,727)
16.54
Shares Forfeited
(3,218)
16.85
Unvested as of June 30, 2022
1,135,550
16.98
Fair Value of Granted Stock
12,092
Compensation cost recognized
2,464
As of June 30, 2022, there was approximately $18.2 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 3.8 years. As of June 30, 2021, there was no stock based compensation costs or unrecognized compensation costs as no restricted stock has been issued under the plan. As of December 31, 2021, there was approximately $8.7 million of total unrecognized compensation costs related to non-vested restricted stock awards. These costs are expected to be recognized over a weighted average period of 2.8 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, 2022. The following table summarizes issuances, vesting, and retirement of shares under the plan as well as the fair value of granted stock for the three and six months ended June 30, 2022 and 2021 and the twelve months ended December 31, 2021 (dollars in thousands).
19,320
15.53
(11,846)
16.88
14.77
As of June 30, 2022, 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 twelve-month period. As of June 30, 2021, there were no unrecognized compensation costs as no restricted stock had been issued under the plan. As of December 31, 2021, 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, 2022 and 2021 (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
Adjustment for dilutive effect of Convertible Notes(1)
Denominator for diluted weighted average shares
Earnings/(Loss) per common share - diluted
In certain circumstances, 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, at the Company’s election 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 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
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distributed at least annually, although the Company may decide to retain all or some of those capital gains for investment and pay corporate-level income taxes 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 fall 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 accounting principles generally accepted in the United States, 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, 2022, $0.7 million and $1.3 million, respectively, was recorded for U.S. federal excise tax. There was no U.S. federal excise tax recorded for the three months ended June 30, 2021, and there was $0.1 million recorded for U.S. federal excise tax in the six months ended June 30, 2021.
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 and for the six months ended June 30, 2022 and December 31, 2021 (in thousands):
Tax Cost of Investments (1)
1,083,460
849,402
Unrealized appreciation
29,775
97,569
Unrealized depreciation
(48,935)
(26,759)
Net unrealized appreciation/(depreciation) from investments
(19,160)
70,810
75
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
13.03
Net investment income
Net realized and unrealized gains/(losses) on investments (2)
(1.65)
1.31
Offering costs
(0.08)
(0.30)
Effect of shares issued (3)
Equity component of convertible notes
(0.02)
Distributions (4)
(1.12)
(0.57)
Total increase/(decrease) in net assets
(1.78)
1.30
Net asset value, end of period
14.33
Shares outstanding, end of period
Weighted average shares outstanding
Total return based on net asset value (5)(6)
(4.0)
14.4
(9)
Total return based on market value (7)(6)
(13.6)
7.5
Ratio/Supplemental Data:
Per share market value at end of period
14.48
Net assets, end of period
458,343
Ratio of total expenses to average net assets(8)
15.6
11.7
Ratio of net investment income to average net assets(8)
10.4
Ratio of interest and credit facility expenses to average net assets(8)
6.7
5.4
Portfolio turnover rate(6)(9)
21.7
27.9
Asset coverage ratio (10)
177.0
255.0
76
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, 2022, December 31, 2021, 2020, and 2019. No senior securities were outstanding as of December 31, 2019.
Class and Period
Total Amount Outstanding Exclusive of Treasury Securities (1)
Asset Coverage per Unit (2)
Involuntary Liquidating Preference per Unit (3)
Average Market Value per Unit (4)
June 30, 2022(5)
1,958
135,000
1,770
December 31, 2019
125,000
Convertible Notes
595,000
466,000
310,000
Note 12. Related Party Transactions
During the three and six months ended June 30, 2022 and the year ended December 31, 2021, 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, 2022 and the year ended December 31, 2021, 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 share-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.
Note 13. Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” and in January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848).” The amendments in these updates provide optional expedients and exceptions for applying U.S. GAAP to certain contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform and became effective upon issuance for all entities. ASU 2020-04 and ASU 2021-01 are elective and are effective on March 12, 2020 through December 31, 2022. The Company does not intend to adopt this guidance, as it expects such adoption would not have a material impact on its consolidated financial statements.
In June 2022, the FASB issued Accounting Standards Update (ASU) No. 2022-03 “Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” 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. Early adoption is permitted. The adoption of ASU 2022-03 is not expected to have a material impact on the Company’s future financial statements.
Rule 2a-5 under the 1940 Act was recently adopted by the SEC and establishes a framework for determining fair value in good faith for purposes of the 1940 Act. The Company is evaluating the impact of Rule 2a-5 and intends to comply with the new rule’s requirements on or before the compliance date in September 2022.
Note 14. Subsequent Events
The Company’s management evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. Except as noted below, there have been no subsequent events that occurred during such period that would require recognition or disclosure.
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.
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 SEC on March 3, 2022, including the following factors, among others:
Additionally, there may be other risks that are otherwise described from time to time in the reports that we file with the Securities and Exchange Commission. 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-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 BDC under the 1940 Act. We have elected to be treated, and intend to continue 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 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 under the Credit Suisse Credit Facility.
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 of Directors (the “Board”) in accordance with the provisions of ASC 820 and the 1940 Act.
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 will identify portfolio investments with respect to which an independent valuation firm will assist 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. In addition, the Company may also be entitled to an end-of-term (“EOT”) fee. EOT fees 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, 2022 and December 31, 2021, the Company had an EOT payments receivable of approximately $53.2 million and $37.9 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, then the acceleration of the unaccreted OID and EOT is recognized as interest income.
Portfolio Composition and Investment Activity
As of June 30, 2022, our investment portfolio had an aggregate fair value of approximately $1,051.1 million and was comprised of approximately $769.7 million in secured loans, $224.9 million in equipment financings, and $56.5 million in equity and warrants, across 108 portfolio companies. As of December 31, 2021, our investment portfolio had an aggregate fair value of approximately $873.5 million and was comprised of approximately $551.9 million in secured loans, $184.1 million in equipment financings, and $137.5 million in equity and warrants, across 94 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 following table as of June 30, 2022 and December 31, 2021:
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, 2022 and December 31, 2021. The geographic composition is determined by the location of the corporate headquarters of the portfolio company.
United States
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, 2022 and December 31, 2021:
As of June 30, 2022 and December 31, 2021, the debt, including loans and equipment financings, in our portfolio had a weighted average time to maturity of approximately 3.4 years. Additional information regarding our portfolio is set forth in the 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, 2022 and December 31, 2021, the Company’s ten largest portfolio companies represented approximately 31.3% and 36.1%, respectively, of the total fair value of the Company’s investments in portfolio companies. As of June 30, 2022 and December 31, 2021, the Company had 14 and nine portfolio companies that represented 5% or more of the Company’s net assets, respectively.
Investment Activity
During the six months ended June 30, 2022, we made an aggregate of approximately $229.6 million of investments in 21 new portfolio companies and approximately $186.7 million of investments in 26 existing portfolio companies, excluding fees. During the six months ended June 30, 2022, we received an aggregate of $203.4 million in proceeds from repayments and sales of our investments, including proceeds of approximately $86.5 million from early repayments on our debt investments.
During the year ended December 31, 2021, we invested approximately $395.3 million in 33 new portfolio companies and approximately $163.0 million in 24 existing portfolio companies, excluding deferred fees. During the
year ended December 31, 2021, we received an aggregate of approximately $290.2 million in proceeds from repayments of our debt investments, including proceeds of approximately $190.1 million from early debt repayments.
The following table provides a summary of the changes in the investment portfolio for the six months ended June 30, 2022 and the year ended December 31, 2021 (in thousands):
Year Ended
Beginning Portfolio, at fair value
413,615
554,832
Non-cash conversion
Principal payments received on investments
(54,364)
(74,278)
Proceeds from early debt repayments
(86,534)
(190,107)
Sale of investments
(62,518)
(25,787)
12,708
Third party participation (1)
80,580
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, 2022 and December 31, 2021 (dollars in thousands):
Investment Risk Rating
Investments at
Percentage of
Scale Range
Designation
Total Portfolio
4.0 - 5.0
Very Strong Performance
62,719
84,785
3.0 - 3.9
Strong Performance
382,593
38.5%
236,466
32.1%
2.0 - 2.9
Performing
529,285
53.2%
396,846
53.9%
1.6 - 1.9
Watch
18,706
13,427
1.0 - 1.5
Default/Workout
1,290
At June 30, 2022 and December 31, 2021, our debt investments had a weighted average risk rating score of 3.0 for each period.
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, 2022, loans to three portfolio companies and an equipment financing to one portfolio company were on non-accrual status with a total cost of approximately $20.5 million, and a total fair value of approximately $5.9 million, or 0.6%, of the fair value of the Company’s debt investment portfolio. As of December 30, 2021, loans to two portfolio companies were on non-accrual status with a total cost of approximately $12.9 million, and a total fair value of approximately $5.1 million, or 0.7%, of the total 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, 2022 and 2021.
Investment Income
The following table sets forth the components of investment income (in thousands):
Stated interest income
25,097
12,429
45,355
24,179
Amortization of original issue discount
5,998
3,709
10,987
7,156
Acceleration of amortization of original issue discount
1,416
1,976
4,575
Prepayment penalty and related fees
125
1,239
2,680
1,946
Other fee income
1,706
We generate revenues primarily in the form of investment income from the investments we hold, generally in the form of interest income from our debt securities. Investment income represents interest income recognized as earned in accordance with the contractual terms of the loan agreement. Interest income from original issue discount (“OID”) represents the estimated fair value of detachable warrants obtained in conjunction with the origination of debt securities, including loans and equipment financings and is accreted into interest income over the term of the loan as a yield enhancement. 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.
Loan and commitment fees in excess of related expenses are amortized into interest income over the contractual life of the loan. The Company also recognizes certain fees as one-time fee income, including, but not limited to, prepayment penalties, fees related to select covenant default, late-payment fees, structuring fees and exit fees related to a change in ownership of the portfolio company.
For the three months ended June 30, 2022, total investment income was approximately $33.5 million, which represents an approximate effective yield of 13.8% on the average investments during such period. For the three months ended June 30, 2021, total investment income was approximately $19.5 million, which represents an approximate effective yield of 15.9% on the investments during the period. The increase in investment income for the three months ended June 30, 2022 is due to higher stated interest income and amortization of OID and EOT based on an increased principal value of income producing debt investments and increased non-recurring fee income, which fluctuates based on investment activity and early repayment activity.
For the six months ended June 30, 2022, total investment income was approximately $65.3 million, which represents an approximate effective yield of 14.9% on the average investments during such period. For the six months ended June 30, 2021, total investment income was approximately $36.8 million, which represents an approximate effective yield of 15.8% on the investments during the period. The increase in investment income for the six months ended June 30, 2022 is due to higher stated interest income and amortization of OID and EOT based on an increased principal value of income producing debt investments and increased non-recurring fee income, which fluctuates based on investment activity and early repayment activity.
Operating Expenses and Excise Taxes
Our operating expenses are comprised of interest and fees on our borrowings, employee compensation, professional fees and general and administrative expenses. Our operating expenses totaled approximately $17.1 million and $9.4 million for the three months ended June 30, 2022 and 2021, respectively, and $32.6 million and $19.4 million for the six months then ended June 30, 2022 and 2021. For the three months ended June 30, 2022 and 2021, we expensed excise
taxes of $0.7 million and did not expense any excise tax for the three months ended June 30, 2021. For the six months ended June 30, 2022 and 2021, we expensed excise taxes of $1.3 million and $0.1 million, respectively. The increase in excise tax was primarily due to increase in estimated undistributed taxable income in 2022.
Interest Expense and Other Debt Financing Costs
Interest expense and other debt financing costs on our borrowings totaled approximately $7.8 million and $4.4 million for the three months ended June 30, 2022 and 2021, respectively, and totaled approximately $14.6 million and $9.0 million for the six months ended June 30, 2022 and 2021, respectively. These costs are primarily comprised of interest and fees related to the credit facilities, the 2025 Notes, the August 2026 Notes, the December 2026 Notes and the Convertible Notes. Our weighted average effective interest rate, comprised of interest and amortization of fees and discount was approximately 5.6% and 7.6% for the three months ended June 30, 2022 and 2021, respectively, and 5.8% and 7.4% for the six months then ended. The increase in interest expense for both the three and six months ended June 30, 2022 was primarily due to increased borrowings under our KeyBank Credit Facility.
Employee Compensation and Benefits
Employee compensation and benefits totaled approximately $6.9 million and $3.4 million for the three months ended June 30, 2022 and 2021, respectively, and approximately $13.3 million and $7.4 million for the six months then ended. The increase in employee compensation related expenses relates primarily to the accrual of bonuses expected to be paid at the discretion of management or upon approval of the Board, as applicable, as well as an increased headcount. As of June 30, 2022 and 2021, the Company had 52 and 39 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. During the six months ended June 30, 2022, the Company granted 598,988 shares of restricted stock, net of 96,727 vested shares and 3,218 forfeited shares under the plan of the 3.6 million authorized under the 2019 Long Term Incentive Plan. During the six months ended June 30, 2022, the Company granted 19,320 shares of restricted stock of the 60,000 authorized under the 2019 Restricted Stock Plan. See “Note 8 – Equity Incentive Plans” in the Notes to Consolidated Financial Statements. During the three and six months ended June 30, 2021, no shares were granted under either plan.
Professional Fees Expenses
Professional fees expenses, consisting of legal fees, accounting fees, third-party valuation fees, and talent acquisition fees were approximately $0.9 million and $0.6 million for the three months ended June 30, 2022 and 2021, respectively. Professional fees expenses were approximately $1.7 million and $1.2 million for the six months ended June 30, 2022 and 2021, respectively. The increase in professional fees expenses for the three and six months ended June 30, 2022, resulted primarily from outside consulting expenses.
General and Administrative Expenses
General and administrative expenses include insurance premiums, rent, taxes and various other expenses related to our ongoing operations. Our general and administrative expenses totaled approximately $1.6 million and $1.0 million for the three months ended June 30, 2022 and 2021, respectively. General and administrative expenses totaled approximately $3.0 million and $1.8 million for the six months ended June 30, 2022 and 2021, respectively. The increase in general and administrative expenses for the three and six months ended June 30, 2022 is primarily due to increases in directors and officers liability insurance.
Net Investment Income
As a result of approximately $33.5 million in total investment income as compared to approximately $17.8 million in total expenses including excise tax expense, net investment income for the three months ended June 30, 2022 was approximately $15.7 million. As a result of approximately $19.5 million in total investment income as compared to
90
approximately $9.4 million in total expenses including excise tax expense, net investment income for the three months ended June 30, 2021 was approximately $10.1 million.
As a result of approximately $65.3 million in total investment income as compared to approximately $34.0 million in total expenses including excise tax expense, net investment income for the six months ended June 30, 2022 was approximately $31.3 million. As a result of approximately $36.8 million in total investment income as compared to approximately $19.5 million in total expenses including excise tax expense, net investment income for the six months ended June 30, 2021 was approximately $17.3 million.
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, 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 were comprised of the following (in thousands):
Net realized gain (loss) on investments:
Gross realized gains
2,502
53,807
5,469
Gross realized losses
(10,128)
(507)
(10,780)
(879)
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.
91
Net unrealized appreciation and depreciation on investments for the three and six months ended June 30, 2022 and 2021 is comprised of the following (in thousands):
Gross unrealized appreciation
9,945
28,342
17,826
57,110
Gross unrealized depreciation
(33,636)
(12,543)
(45,856)
(21,969)
Net unrealized appreciation/depreciation reclassified related to net realized gains or losses
9,871
(3,169)
(63,108)
(7,318)
Total net unrealized gains (losses) on 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 $6.1 million from our warrant investments, $5.3 million from our equity investments and $2.4 million from our debt investments. During the six months ended June 30, 2022, we recorded net unrealized depreciation $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.
During the three and six months ended June 30, 2021, we recorded net unrealized appreciation of $12.6 million and $28.1 million, respectively, which was primarily from net unrealized appreciation of approximately $8.2 million and $20.2 million, respectively, from our equity investments and $6.3 million and $10.5 million, respectively, from our warrant investments, offset by the reversal of unrealized appreciation upon pay-off of our portfolio companies during the period.
Net Increase (Decrease) in Net Assets Resulting from Operations
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 three months ended June 30, 2021, was approximately $24.7 million. Net decrease in net assets resulting from operations during the six months ended June 30, 2022, was approximately $16.8 million. Net increase in net assets resulting from operations during the six months ended June 30, 2021, was approximately $50.0 million.
Net Increase (Decrease) in Net Assets Resulting from Operations and Earnings Per Share
For the three months ended June 30, 2022 basic and diluted net decrease in net assets per common share were $0.25. For the three months ended June 30, 2021, basic net increase in net assets per common share was $0.93. The decrease in 2022 is result of gross unrealized depreciation reclassified related to net realized gains. For the six months ended June 30, 2022, basic and fully diluted net decrease in net assets per common share were $0.58. For the six months ended June 30, 2021, basic and diluted net decrease in net assets per common share were $2.00.
Financial Condition, Liquidity and Capital Resources
Our liquidity and capital resources are generated primarily from the net proceeds of offerings of our securities, including our initial public offering, the Private Offerings, 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, and proceeds from the turnover of our portfolio to finance our investment objectives and activities.
We may, from time to time, enter into additional credit facilities, increase the size of our existing 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, 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 a $0.02 million of cash provided by investing activities and $162.2 million of cash provided by financing activities. During the six months ended June 30, 2021, we experienced a net decrease in cash and cash equivalents in the amount of $26.6 million, which is the net result of $54.9 million of cash used in operating activities and $0.8 million of cash used in investing activities partially offset by $29.1 million of cash provided by financing activities.
As of June 30, 2022 and December 31, 2021, we had cash, cash equivalents and restricted cash of $13.2 million and $46.7 million, respectively, of which $12.5 and $43.4 million, respectively, is 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, 2022, we did not have any restricted cash. As of December 31, 2021, restricted cash consisted of approximately $15.1 million related to the Credit Suisse Credit Facility covenants. In conjunction with the maturity of the Credit Suisse Credit Facility on January 8, 2022, the restrictions on our cash thereunder expired.
As of June 30, 2022 and December 31, 2021, we had approximately $80.0 million and $38.1 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, 2022, are expected to be sufficient for our investing activities and to conduct our operations in the near term.
Refer to “Item 1. Consolidated Financial Statements – Note 5 – Borrowings” included in the notes to our consolidated financial statements appearing elsewhere in this report for a discussion of our borrowings.
Reduced 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, 2022, our asset coverage ratio was approximately 177.1% and our asset coverage ratio per unit was approximately $1,770. As of December 31, 2021, our asset coverage ratio was approximately 195.8% and our asset coverage ratio per unit was approximately $1,958.
Commitments and Off-Balance Sheet Arrangements
Other than contractual commitments with respect to our portfolio companies and other legal contingencies incurred in the normal course of our business, we do not have any off-balance sheet financings or liabilities as of June 30, 2022 or December 31, 2021.
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, 2022 and December 31, 2021 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 withdrawn, 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, 2022 and December 31, 2021, 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).
Contractual Obligations
A summary of our contractual payment obligations as of June 30, 2022, is as follows:
Payments Due by Period
Less than 1
year
1 - 3 years
4 - 5 years
After 5 years
Operating Leases (1)
765
782
Total Contractual Obligations
595,782
597,576
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, which closed on February 2, 2021 (“IPO”). 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 our fiscal quarters and years preceding December 31, 2020. Since our IPO, our common stock has traded at prices both above and below our net asset value per share. It is not possible to predict whether our common stock will trade at a price per share at, above or below 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 3, 2022, the last reported closing sales price of our common stock on Nasdaq was $14.94 per share, which represented a premium of approximately 2.2% to our net asset value per share of $14.62 as of June 30, 2022. As of August 3, 2022, we had approximately 90 stockholders of record, which does not include stockholders for whom shares are held in nominee or “street” name.
Price Range
Net Asset Value(1)
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, 2022
Third Quarter (through August 3, 2022)
*
15.02
14.01
Second Quarter
19.44
14.27
33.0
(2.4)
0.57
(5)
First Quarter
15.15
20.11
17.00
32.7
12.2
0.55
Year Ending December 31, 2021
Fourth Quarter
17.65
15.79
7.6
(3.7)
Third Quarter
14.70
16.73
14.14
13.8
(3.8)
15.00
14.10
(1.6)
First Quarter(4)
13.69
15.65
13.75
14.3
0.4
95
* Not determined at time of filing.
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 “Item 1. Consolidated Financial Statements – Note 12 – Related Party Transactions” included in the notes to our consolidated financial statements appearing elsewhere in this report for additional information.
Recent Developments
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 their option, in full, 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.
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 COVID-19 pandemic 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 a readily available market price, and we value these investments at fair value as determined in good faith by the 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, including as a result of the impact of the COVID-19 pandemic on the economy and financial and capital markets. 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.
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.
As of June 30, 2022, approximately 64.4% of our debt investments based on outstanding principal balance represented floating-rate investments based on Prime or LIBOR, and approximately 35.6% 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 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, 2022, 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
18,990
6,600
12,390
Up 200 basis points
12,643
4,400
8,243
Up 100 basis points
6,295
2,200
Down 100 basis points
(523)
(1,100)
577
Down 200 basis points
(7,260)
(6,160)
Down 300 basis points
Currency Risk
In addition, 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, 2022, we had five foreign domiciled portfolio companies. Our exposure to currency risk related to the debt investments is minimal as payments from such portfolio companies are received in U.S. dollars. No other investments at June 30, 2022 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 Securities Exchange Act of 1934, as amended (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, 2022, 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 3, 2022, 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 six months ended June 30, 2022, there have been no material changes to the risk factors discussed in our SEC filings referenced above.
Existing stockholders may incur dilution if, in the future, we sell shares of our common stock in one or more offerings at prices below the then current net asset value per share of our common stock.
The 1940 Act prohibits us from selling shares of our common stock at a price below the current net asset value per share of such stock, with certain exceptions. One such exception is prior stockholder approval of issuances below net asset value provided that our Board of Directors makes certain determinations. At our 2022 Annual Meeting of Stockholders held on June 8, 2022, our stockholders voted to allow us to issue common stock at a price below net asset value per share for the period ending on the earlier of the one-year anniversary of the date of our 2022 Annual Meeting of Stockholders and the date of our 2023 Annual Meeting of Stockholders, which is expected to be held in May or June 2023. The proposal approved by our stockholders at our 2022 Annual Meeting of Stockholders did not specify a maximum discount below net asset value at which we are able to issue our common stock, although the number of shares sold in one or more offerings may not exceed 25% of our outstanding common stock as of the date of stockholder approval of this proposal.
If we were to issue or sell shares of our common stock at a price below our net asset value per share, such sales would result in an immediate dilution to our net asset value per share and pose a risk of dilution to our stockholders. In particular, stockholders who do not purchase additional shares at or below such discounted price in proportion to their current ownership will experience an immediate decrease in net asset value per share (as well as in the aggregate net asset value of their shares if they do not participate at all). These stockholders will also experience a disproportionately greater decrease in their participation in our earnings and assets and their voting power than the increase we experience in our assets, potential earning power and voting interests from such issuance or sale. In addition, such issuances or sales may adversely affect the price at which our common stock trades.
Because the number of shares of common stock that could be so issued and the timing of any issuance is not currently known, the actual dilutive effect cannot be predicted.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On July 15, 2022, pursuant to its amended and restated distribution reinvestment plan, the Company issued 49,840 shares of its common stock, at a price of $14.28 per share, to stockholders of record as of June 30, 2022 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.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
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 Registration Statement on Form 10 filed on January 16, 2020).
3.2
Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 10 filed on January 16, 2020).
10.1
Underwriting Agreement, dated April 5, 2022, by among Trinity Capital Inc., on the one hand, and Keefe, Bruyette & Woods, Inc., Wells Fargo Securities, LLC and UBS Investment Bank, on the other hand, as representatives of the several underwriters named on Schedule A thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 7, 2022).
10.2
Second Amendment to Credit Agreement, dated as of April 13, 2022, relating to the KeyBank Credit Facility, by and among Trinity Capital Inc., as servicer, TrinCap Funding, LLC, as borrower, KeyBank National Association, as administrative agent and syndication agent, Wells Fargo, National Association, as collateral custodian and paying agent, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 19, 2022).
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.
* 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 4, 2022
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)