HTGC - Earnings call transcript Q2 2024

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Operator

Good day, everyone, and thank you for standing by. Welcome to Hercules Capital Second Quarter 2024 Financial Results and Conference Call. [Operator Instructions] And please be advised that today's conference is being recorded. I will hand the call over to the Managing Director of Investor Relations, Michael Hara. Please go ahead.

Michael Hara

Carmen. you, Thank and Second everyone, Hercules Call Conference Good of welcome XXXX. the Quarter for afternoon, to With the Seth CEO market Investor and results us Relations Scott released close Chief are on were investor.htgc.com. accessed Investment call and today section can Officer; from after at and just Meyer, be financial Hercules CFO. Hercules' today's from Hercules Bluestein, the An at least for Relations web archived webcast page replay will days be conference following available on the Investor call. XX

in assumptions statements During and expectations. These made and may of this statements of date, upon during forward-looking identified I'll the available publicly own early including, we investment on such during this call, turn made results our that update not guarantees future. With to Form should performance Actual from any decision. over Scott. call number forward-looking relied made current the statements reasons, report but forward-looking statements assumes on filings other future based this not make any in be are XX-K, in call to that, forward-looking making statements the a today's risks the limited differ are financial our may the and of as not for to, Hercules and no are obligation SEC's call Any website. on only

Scott Bluestein

for Michael, XXXX all you, Thank and Capital thank joining QX Hercules the you Earnings Call.

billion a fundings the first in than we first delivered our gross time which a Following of XX-year in billion is our million, record record fundings $X where This of quarter to have second record with total calendar we in the of fundings for half the history QX more up funding of $XXX.X first led year. activity total followed gross half of XXXX. of XXXX, $X.XX gross

being operate first institutional and and half origination platform continues clear to the asset and benefits the to market in of class. at in venture growth being scale able the lending leader the reflect stage an performance Our funding

XXXX. Hercules' and heading us borrowers sheet our in our that again liquid, of external positions solutions emphasizes second driven be shareholders our oriented to balance is that to the and creative our team-first deliver strong and Our culture our collaboration QX, well results institutional. half continues committed and while sheet into strong for new long-term conservatively, ability employees, a performance balance internal business managing for by and

Capital of QX, As from of the XX.X% an year managing $X.X we a end assets, were of billion now Hercules of approximately is where ago. increase

of the market We continue election given the to environment. changes second macro potential higher-than-normal global and half geopolitical in XXXX expect volatility experience the presidential to and

our new year. half the call, on last first throughout witnessed environment this certainly the of expected discussed we market improve in for XXXX, the we we As originations and to have

for in for our market to take While half sheet continue defensively, year. maintaining QX while continuing maintaining the QX typically lien maintaining the advantage originations, maximum we to activity again which remain slow business exposure, leverage, new our position, This of a is of QX. opportunities. funding underwritings tightening to second up liquidity and our to our in first manage enhance screens our credit over higher-than-normal our XX.X% increased seasonally XX.X%, from about to includes intend new low We and optimistic quarter flexibility balance

performance Let key for of me of the highlights now recap our some QX.

add balance their we of looking and Given valuations, quality new a continue to to capital sheets. later-stage to of companies moderate in volume the strength technology markets the see improvement the steady

and and last over partner equity primary nearly of gross originated the million we million. commitments and $XXX enthusiastic the over total able We record on remains credits. In QX, $XXX our been fundings gross quarters, of the are several with quality have about companies we that QX of focus profile to debt

share. We despite the This conservative over of million, generated providing year-over-year, quarter from very is with year-over-year, achieve our income, up quarterly we distribution fees our share, strong fifth nearly core of excludes of distribution our of first the and ending of $XXX and $X.XX early up able half, fee coverage or coverage base investment which the million leverage net GAAP record base investment of quarter X% to were consecutive for nearly prepayment the $X.XX funding QX, XX.X%. X% per XXX% for of per start $XX.X income Given income total XXX% of benefit accelerations repayments. $XXX or million, of

return of a XX.X%. generated QX also on We in equity

largely first later-stage core transactions Our was higher-yielding assets. core effective a and and of payoffs and of yield in to small in GAAP generated a yield exposure in more heavier from lien XX.X% QX portfolio The decrease attributable QX yield on XX.X%. emphasis legacy

and efforts cost low on to and balance to well leverage our objectives serves continued a warranted. capital to of with higher-quality diversification. origination This business with the conservative key us differentiator support our and in remains as positioned ability quality on once lower was assets provides QX yield focus when again very our of Our sheet of for closest competition. The our go growth relative

technology and were both activity delivering activity slightly more of of while weighted XX% QX new companies. In our driven the was our Our was approximately record commitments life quarter, funding XX% QX, to business teams, companies. origination approximately although quarter performance sciences our fundings during were technology companies, by during technology towards the to technology

sector, companies quarter to our performance what QX, we were borrower relationships. different funded by debt strength new push XX second companies QX of is market. The team life We or debt reflect the the on companies we Consistent public which numerous X quarter. and of two. have an seeing currently in portfolio in life technology that milestones robust previous to decisions for sciences during in with and with been that our XX the funding quality more caused later-stage Our technology our markets equity to continue optimistic out some in in quarters, view sciences companies, increase transactions which show capital relationship achieved particularly on commitments number saw has new the financings expanded

to deal $XX.X $XX.X closed in commitments $XXX.X as million million $XXX.X XX, approximately million. and of from million new slightly the has Our available decreased and of team funded commitments close QX. Since XXXX, QX, of July unfunded our

$XXX what and in have We we sheets, commitments to to of we progress we to number to and QX continue funding QX. Similar an over additional with asset end premium. be saw in high-risk expect on this originations, a prioritize weighted. signed approach will back is million chasing in as historical disciplined to our yield with activity nonbinding pending will Consistent quality grow that term QX, our transactions will new credit, continue remain slight we we underwriting expectation

bit we portfolio companies a complete QX, two had Our portfolio exit In QX. activity technology acquisitions. moderated in

two that to filed have continue have We an registration IPO. portfolio companies previously statements for

at equity increased we As prepayments were attributable which a the view new to loan $XXX early or repayments overall. of $XXX upper anticipated, we QX range guidance million million, our of events million. Over our to which M&A to was capital $XXX as approximately XX% QX in signal of events, positive

expect in similar For QX in million remain be the of prepayments we and the we $XXX change although again QX levels quarter. XXXX, to as progress range to this million, to could $XXX

quarter. Credit the lower quarter, portfolio the of the payoffs that likely majority anticipate to weighted also a will of of We will debt third which first steady average investment remained quality come in the balance quarter-over-quarter. debt lead half the for

normal at slightly X.XX Our of range. the weighted rating average of remains our end internal QX from and increased lower historical the credit in X.XX rating

X compared decreased in increased and to X Our versus in XX% XX% to slightly QX. Grade credits credits QX X to XX.X% slightly Grade in XX.X% QX.

$XX.X value, a with value or as credits nonaccrual, and Rated of addition and remain a were X company's write-off book at had percentage X.X% loan respect and respectively. With portfolio our the we credits investment broader cost modestly our from credit fair QX and X.X% enhanced. investment Our X.X% X.X%. In nonaccrual the we million, to Rated number level, on the the a and in cost decreased an on on and seeing the of approximately monitoring to X one same X.X% $XX.X of outlook, and with pleased by investments We debt new remains million and generally one. total portfolio of loans what are of respectively, two remain QX,

Our us base focus a and well. is continuing on asset credit diversified underwriting to serve

outperformance activity life same the sciences an to and slower while achievement seeing growth our and throughout things improve broadly thin on continuing continue to and general with rates indications some M&A certain for have with on companies. positions terms beginning throughout momentum longer struggle sponsor-backed book, in are are milestone higher capital of impact to to liquidity are the is respect we positive side to raising, metrics. Companies see ecosystem, beginning the We and rate environment that technology the

our billion companies life in across portfolio was During strong, our heavily approximately weighted portfolio. again towards QX, which raising raising capital, was $X.X new with capital sciences XX very

billion the raised of had first XX the half of portfolio $X.X new we capital. companies For year, over

realized Hercules million, and in During and fluctuations losses gross equity investments, QX had realized debt resulting rates. loss million to warrant investments, and the offset to on gains XXXX, of net on foreign equity investments of comprised $XX.X gain $X.X by $X.X primarily due warrant of the losses from exchange due million,

of ended per value with asset liquidity a $XXX $XX.XX, strong decrease million. of net from QX X.X% Our in QX XXXX. We share QX was

This We July. activity our and approximately be pace our July at the several Our and seen license QX, license, up us PitchBook discuss gathered with with Seth which business blended QX, strong of new we provide puts $XX.X benefit maintain strongest that XXXX fourth $XXX is activity activity balance at detail. Venture of overall billion us to have our balance Both able sheet in retired we access and picked moderately investment in we sheet fourth investment with years. capital. more billion levels. $XX.X position XXXX to million data to to activity subsequent which will fundraising capital, approval additional VCA. by fundraising fundraising received to ecosystem in our believe capital cost in a approximately strengthened of unsecured are the a environment Also, and according from to in we and year-to-date help growth SBIC on notes, investment will further

in to levels, the activity more remain investment profile receiving company's these by selectivity funding. expect the We equity of of at terms driven

Given increasing per million, with or in exited ending the outstanding. QX, undistributed our strong operating quarter shares $X.XX spillover we approximately to performance earnings $XXX

our we maintaining Difficulty]. QX, are [Technical For base

Operator

and stand Please by gentlemen. ladies

continue. We have Please, audio some technical Scott, difficulties.

Scott Bluestein

of million benefit quarter the In $XXX fee quarterly repayments. consecutive prepayment over core QX, of Hercules its of excludes which early accelerations income, from fees delivered or fifth

our efforts capabilities and of success day. tremendous that attributable with private the trust employees every our equity is the XXX-plus Our and us to venture place capital and dedication, partners

the the to call many make over companies, thankful Hercules management investors now Seth. teams, partner will their of are and We choice. I that to turn continue to

Seth Meyer

solid gentlemen. good and marked and for quarter and another performance ladies management QX Capital. afternoon, conservative financial Scott, you, sheet Thank record of Hercules balance execution,

scale at our margin balance QX, the material operating we of borrowing benefits net maturities. In million $XXX million, the see and diversity growth low record year-to-date to no thanks near-term of $XXX.X continue total We had and sheet costs. interest portfolio to with our of income investment average of and record

and maintain million of finally, in $XXX million across received leverage to end, and us our and available billion subsidiary, income the institutional unrealized outlook. of all unlocking another million highlights, strong low as notes this end, issued NAV of the SBIC and continue capital. With owned review financial managed maintain our in adviser cost platform, of and liquidity then performance $XXX competitive LLC. Post We of XXXX, July let's we wholly funds repaid our liquidity, approximately for by very quarter than license, to quarter approval statement Hercules the the liquidity maturity help realized more fourth activity, and Advisor, $X.X including mind, at $XXX

XXXX. million. income a performance investment record investment by share the of investment income increase of highlights, quarter-over-quarter growth million, a income total measure, non-GAAP loan income a the recognized prepayments. Net QX, increase total a first benefit growth statement mentioned, million driven the record result of increased and quarter was investment or increased in of income, on income portfolio. record the in of $XXX.X as as the $X.XX half Core to driven the in $XX.X to by On $XXX debt investment first portfolio the in income, excludes I per Core X% a

to core yields XX% second in and decreased prior the XX.X% effective Our compared quarter modestly the and respectively, quarter. XX.X%, to in XX.X% and

$XX.X guidance. $XX.X $XX prior of quarter. decreased Net due of RIA, $XX.X of with to to of the fees the The the first net credit second our facilities compared $XX in utilization million, million. growth recharged a expenses XXXX. SG&A expenses greater to in million to portfolio quarter the million. Interest the half as the of the million costs to quarter were line result expenses $XX.X cost in expense million my expenses were gross operating RIA, prior operating the Net to investment were from SG&A recharge and increased $XX.X million in

X%. weighted Our cost to slightly of average debt increased

per for and unrealized quarter, Our ROAE and over or over increased quarter, average average equity X.X%. Switching to NII NII increased ROAA NAV our share realized was portfolio X.X% $X.XX NAV assets the driver of total or quarter-over-quarter. NAV activity share This our $XX.XX to to decrease XX.X% share. during depreciation an the investment to of second per share million. decreased $XX.X the net per per The main unrealized represents

and result $X.X depreciation of net net loan private to publicly portfolio. the of million unrealized million of portfolio the million and $XX.X portfolio, of the $XX.X depreciation Our to depreciation held million depreciation equity of unrealized was warrant the warrant and equity $X.X on

prior the appreciation offset $X.X overall appreciation. due million foreign other derivatives. investment-related to to of attributable had we reversal million on portfolio of $X.X appreciation $X.X were These addition, forward depreciation partially the of receivables currency and million on unrealized of In the by

and leverage to Moving liquidity.

GAAP Netting the increased due the GAAP facilities first prior growth. with XX.X% on portfolio on leverage Our net was sheet, quarter ended the leverage out $XXX to quarter and cash XX.X%, million to compared greater available with of of and the regulatory balance the and utilization leverage to nearly XX.X%, leverage respectively, half liquidity. regulatory and respectively. We XX.X% our modestly

liquidity. The $XXX amounts, capital platform liquidity reminder, of by than positions companies available the support our RIA source Hercules a and well managed of Inclusive subsidiary. our us to funds raised wholly-owned strong very As million more new existing portfolio this by opportunities. excludes had these the

in As leverage mid-July, point, of SBIC of final our an adding availability support future a we portfolio. fourth million to secured growth additional license, to the $XXX

Finally, on the outlook points.

quarter, XX.X%, future core For excluding to third yield any between expect XX.X% interest be rate changes. the we benchmark and

equal portfolio floating core a may our have so a more yield. not with Fed reminder, reduction As our of than floor, any an decreases rate is interest XX% in in

prepayment very difficult predict as million expect to communicated in third to $XXX the activity in million Although Scott, by we quarter. $XXX

We the sheet expect growth of our compared quarter. slightly to the increase expense interest to balance the prior quarter third on

the IRA, RIA $XX SG&A of closing, million reported our to quarter, the forward Q&A For have now and to expect range turn the over million, allocation expense $X.XX we're though approximately our previous will expect quarterly third business. tremendous to the to $X.X first half the million the for we our during I Carmen, to are $X.X the of over $XX the XXXX, ways of from remainder find we partners call. begin financial of expenses look very increasing to to you. continue working million to of call with guidance, an we we of to Carmen million. Consistent a with efficient the quarter. In portion year finance and proud start dividend to per together

Operator

Crispin Love the Instructions] of line [Operator it moment Piper our with question, and for from first comes One Sandler.

Crispin Love

picture to on the cuts seem closer rate rate cuts. big a just from to be off, We getting First Fed. question

just impact deal you how think get forward more activity in of you lower can and discuss activity that on to and probably 'XX end likely a you and VC you rates as the So going funding might basis how expect could we XXXX? how impact

Scott Bluestein

Crispin. Thanks,

we up our pick will environment. I a rate in expectation declining is think see demand that activity internally

our from over been current that off that some team things environment. the hearing of holding the one last companies just think they're several the given quarters I has rate late-stage consistently quality

that anything, come amount expect terms second in of think then looking quality the year do of secured And if assumption as for this like will happen to down, companies year, operating throughout and start so of rates we increase the demand debt the half of that which that course the potentially venture I to our is in are solutions.

Crispin Love

quality, Scott, And mentioned quarter. believe one then in on a credit loan the write-off just I you on

pockets And you want going Just provide kind can realized at loss? confident you that first, make color looking are of that that then forward? out? you stress And broadly, Or the that you're just credit of there call is $X any that to just leading other any there? just any indicators million

Scott Bluestein

Sure.

be overall, portfolio. our a we continue that speaking about we on broadly metrics looking certain quarterly basis. when key So credit, to optimistic are evaluate and at There track

average maintains That's X.XX. weighted credit a just slight rating Our X.XX. from at uptick

show that strength stability. to and continues So

that metric Second we portfolio at closely what look is our do X pretty X up. percentage our entire Grade of make Grade credits and

actually of that QX, last portfolio. As down from in portfolio from the of the QX down That approximately X.X% the was of end year. X.X% of of was portfolio QX of the in X.X% and

Rated optimistic X total portfolio. of trend credits pretty terms Rated a in as a investment shows and percentage of our that So X

I question, a in referenced As investment took Board perspective on QX, company about makes have and the that from of our and that in quarter. remarks, X% loans resulted than culminated value with With do respect action ended a in net was mentioned your which the a just assets one that debt and portfolio. up to the realized in write-off in two nonaccrual. We we fair that loss of less the and then company, small nonaccrual cooperation in spoke was my you loan placed completed that selling small that up on that particular we

to additional So unless that nothing on questions one, you add more on have it.

Operator

line the next Our Compass Casey Research. Point question Alexander of from comes with

Casey Alexander

a at better you let a the right maybe facility But expense hopefully unsecured is comes the Seth, in for and down that come credit reasonably in that interest mentioned be your rate facility can repayment you up that the you now. have because funding you July. you expect in rate? And sit with while market slightly. can rates strategy a debt until at to that you the Are to credit higher refinance than

Seth Meyer

Yes.

pieces, for your in Thanks question. that take me Casey. Let

to the on ample we'll the we well million. the the could facilities get it that did repay those add license, is see opportunity, we of But advantage what rates an moment. in cover for we than to more availability obviously interest market utilize which did take as opportunistic with SBIC the credit We $XXX availability we the to in our base. So liquidity open the at Certainly, in attractive that. direction had move as

at that very neutral the at great and balance have it So credit leverage the is growth. for a looking liquidity was strong we But the -- still and the and facilities, was be moment, Scott because as a used liquidity we market. continuing sheet mentioned, we we will shape takeout opportunistically in

Casey Alexander

company, this Scott, and Okay. your is what portfolio, really that becoming however that percentage Hercules direct many what venture sort you. to I interface direct companies. Kind mean lender? characterize you public are really is but it's you what of of big would like hybrid competency, for maybe not a but strikes loan don't involve call moved capital with more or a would anymore? capital a life up science me company, companies to kind core by of sort or venture of, you've It lending a technology to where lot traditional And it's of market originations it, times of is your a

Scott Bluestein

Yes, Casey, question. and great great observation

years, scale, we traditional of as XX began the still backed institutionally continue as model look focused life to itself we sciences. And on technology and you develop at the to the sort into operating be away the companies course Our started over more transition we growth own cover, as really to venture-backed primarily to history. business business exclusively of then capabilities, our that started that started if in our sort early we from two of years has to companies XX-year venture-backed in, stage. transformed the private Hercules that business verticals was In mature,

of later, no If in XX institutionally firms. But is describe billion longer reality of as traded. by portfolio you in the stage describe many we it now the venture backed capital are these vast look as majority to publicly lending growth The and lending today, later-stage business and be years firm. these sort continue of firm. venture We our venture the a business companies, are companies companies at $XX a

been are publicly investment equity they seen in several certainly risk change not that mean that that a the the capital venture does have we've because traded, but no longer has Just or an at years. these last firms over companies,

business also than look differently look the life sciences technology We the we at business. at

just investments the works, XX% virtue ecosystem a On life traded and are sciences of of the life side, way our the to sciences this XX% about companies. in is publicly

investments our the side held On privately technology business, our companies. of are of about XX% in

So stage early-stage part on it more speaking broad which from institutionally have away we really an venture lender. about. model into XX terms, transitioned of that business years backed the had we're But we that depends in growth ago of

Operator

Christopher Our next line comes from Ladenburg the of question Nolan Thalmann. with

Christopher Nolan

in color is can you such life activity quick specifics? Two comments on the a focus give as area, the for tech excuse questions. the you Scott, particular AI? on made science there me, increase Any that, of -- terms in

Scott Bluestein

closed been no broad-based, subsectors been Pretty from we're quarter that profiles from on. We've from number focused credit or on overall last sector sectors really perspective, specific has there's in. pipeline the and side there's active quality aggressive focused technology a a perspective our different we've underwriting, within Chris. on of technology We're investment a and or over perspective both a that two, team -- very and deal the

Christopher Nolan

to on higher earlier The Great. that a be comments? release $X.XX. Seth. for your XX likely bp NII And then press Would investment rate interest the shows volumes follow-up cut impacts pursuant by by a sensitivity just offset

Seth Meyer

a Yes, that's question. good

that floor NII So absolutely not an it's big basis. annual basis, We on and is a with $X.XX look a it's because the really difference, at a XX% hit, But you're XXX-basis-point I quarterly there's when the it could grow our interesting structure shows think what's you correct. away that difference. movement, floating

the would or But that without so today other growth as we're by over And time. that change, growth additional covered could standing the any be be impact.

Operator

of Douglas from And Harter line with our question next comes the UBS.

Douglas Harter

the that thinking growth capital sheet? in the coming third-party about on might how Just thought. and be growth mix How sticking the quarters, balance outlook and are between for you with

Scott Bluestein

half like don't of gross a In the and second optimistic $XXX about the just the unpredictability early on terms we're what prepayments. repayments. Doug, guidance QX, we commitments going year of given had is the associated growth million to basis in new give of quarterly look fundings. with We

Our $XXX again. to million guidance for million have $XXX is QX that expect to we

terms healthy fundings. With expectations. So of balance do and at of business row the in much business, terms new the And terms on in to going are prepayments. level continues be of basis. a private our deliver by is commitments of above in cautious the business largely new quarters growth expected prepayments. allocations a that's two there release how We're sheet the respect will BDC disclose press the fund not to all to our ultimate driven private operate in fund of quarterly our We the ability initial that to in

$XXX funds. In If terms QX, XXXX, just out funded out the about look funded just we private of $XXX the that of we and In $XXX funds. in another then about we you out in funded the at private million. $XXX funds, million aggregate XXXX, example, QX, million we of of in about private numbers, million for funded about

of robust. fairly private continues business fund So to out our of the be pace funding

Operator

question with comes Finian Fargo line of Wells the next Securities. Our from O'Shea

Finian O'Shea

to, the higher that A that. I What input on the discussion. led was on go-forward think quick gave guidance follow-up fund Seth there private

were economics least while. place a at -- in impression think was was I that for our quarter the last it

is forward? could likely and happen If like touch how that going you to that on

Seth Meyer

top we quarters. We've question. the a Fin, past the little was of two for guidance been of So for the my range. did What narrow of over end each at bit kind or guidance thanks, the the

to little over just it the up bit. million, $X.X at as And $X.X so the narrowed than did to $X.XX shortened it Rather was end last to I for million we been quarters. X top because $X we've all just million, said, or million a I

Finian O'Shea

what are been Scott. are and comeback Bank, what front? bit or reported that Valley Okay. guess least your views Helpful. about your at community seeing I one of a There's in financial observations the for on Silicon the

Scott Bluestein

Fin. Thanks,

think respect quarters with respect several to very They we've row. with first active. citizens to continue now I be our to said would a observations in what SVB be consistent

the they them market. extent X.X same year, the to continue to X did X continue we don't see in that years We ago, We them but years, see be active. to

continued partner them with a to select transactions. on have of We number

so in the viable time partner I just with of said. characterize to to Nothing what as competitor to of them with we market compete from add both from time would I And that sort outside a and time time. else

Operator

Our Paul the next question comes line of Johnson with KBW. from

Paul Johnson

Most But we just been seems are quarters, last if the over I of quarters? I been driving asked, is, that interest was have that's to been but what's within Or structure? want that? driving borrowers have that of ask did PIK these getting has few one, been been that anything few of option over mine up more seeing wondering just their wondering specific of the it last increasing. as you as that income move market income there a and percent was some

Scott Bluestein

things. Paul. I'd Thanks, of Sure. say a couple

a couple PIK income the a basis, after little environment really why over continues competitive larger, from we're look overall there's foremost, small things for it last to be bit the companies. of that three that. #X, PIK The been Hercules or respect more of quality stage when again, Capital. centric. contributing deals quarters, those be later-stage, income on really more tends focus to income, you entire going our and to at has line First With a increasing part slightly to top on relative

PIK these a amount That's utilizing of the some are later-stage we of So small transactions. in first thing.

degree. PIK give deals, some down and we to of do our Second thing, to in between toggle straight cash an a the companies of lot fairway our a option small

that's And And we've a some by a a to are choosing But utilizing we bit been intend the companies rates certain and example, X% of the is for so above profile limits, longer, speak just PIK. is third have X.X% we to X.X% And little for to then go don't from I or do selectively to of transactions, want transitioning that perspective. have to of just really pay, for driver. as PIK small piece that second stayed on competitive cash higher utilizing aggressively, have transaction. a we not more what really of but PIK number been it.

Seth Meyer

I less would perspective, our balance on than sheet balance X% just a thing. one add From sheet. it's

So profile far of as the it's balance as insignificant sheet. the completely

Paul Johnson

Got the driven the you've the moving just core just first about then in X the be kind higher overall this last to remarks, investors the you your compression more. coupon And market, it. things up Or kind about overall more by rate again, portfolio, one we're think to as That's same talking quarters these just to or up compression just where structure, here on expecting But but of on spreads, the lean. But I on core and very you continue on expect I the been moving given trend the this tighter just of lower that's do yields yield would should helpful. over X assume so? continue that to so? cap portfolio the talked

Scott Bluestein

Paul. Thanks, Yes.

of yield. things with So a to respect couple

actually First, But some of in biggest of those have the question the the things prepayments each mentioned driver certainly that. is just that and mix fundings. between you to contributed

activity now the prepayment older tend putting last yield the is new XX% be on the tends fundings at four where to XX% core. right assets look that be deals on in largely to books XX% quarters, around three to to had centered the we're core of the over range mix XX%. The that you those to If we've legacy the

thing ultimate effective yield can we're core And XX.X%, assets just you of if look in mix really solving in of core yield off in in of so delivered the yield that some shift deliver. the today it the for example, GAAP that effective is that degradation are at at that XX% higher-yielding yield. The being terms identical, in terms the we we QX XX.X% is that new to in by the replaced And XXXX. of portfolio by managing that to just XX% slight to paying way deals causing of

do. that's we so been yield we've that the sure us are appropriate delivering acceptable to is an make for spreads. to And goal with able what above-market And

updated Fed. that core don't terms barring continue any changes yield, we Seth's activity certainly in per but or from yield, expect is small incremental core any decrease expectation, the see in of to material obviously, degradation guidance, we will Our some

Operator

And Point we line follow-up from Compass a have Alexander from the Research. Casey of

Casey Alexander

Yes.

missed I technical it discuss was that but what quarter? this was and is us of on company an give surrounding maybe this the maybe put you and idea ], Sorry, the Chorus in situation can nonaccrual [ or blackout, the

Scott Bluestein

Sure.

that we situation. So a participated provide of with other confidentiality firms. is because large impair that We Can't made loan. company, several in active investment and is an certain a is ton and BDCs to have have color that decision we That provisions. this a loan private ongoing it quarter the

basis So And and $XX impaired we expectation that observation, our coupon down in $XX did PIK. quarter. that impairment, know of make significant that based have is collateral-based ] is on to which million, the what based on the cost component largely recovery has principal. And full not we your factors. today then roughly per million. a a [ that did we nonaccrual also transitioned #X, now cash this that we've transaction has Chorus that decision put about it to will a to on that That's means loan second believe two the warranted on we

paying into is which, so turns a And in cash model, loan. nonaccrual that that investment income, no longer our

Operator

remarks. further see Scott no in will queue, I the questions to the I back turn Bluestein for call And closing

Scott Bluestein

for Thank today. thanks to you, our Carmen, and joining call everyone

Conference KBW in be the X As participating in a October final note, York. we on New will BDC

KBW you're of day. progress meeting to on in with and everybody, rest the or have our us reporting directly event, If contact a XXXX great Thanks, our forward QX look this earnings Michael call. Hara. We please interested at

Operator

for And in participating today's thank you conference. all

disconnect. may You now

Hercules Capital (HTGC) 1 Aug 242024 Q2 Earnings call transcript