TriplePoint Venture: 10% Yield, Double-Digit Growth Through 2022, Vehicle At A Rising Rate (NYSE:TPVG) – Seeking Alpha | Vette Leader

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Ever wish you could invest like the big boys and get a piece of this high-yield venture capital move? Well, it’s not just another Walter Mitty daydream — you can do it by investing in certain Business Development Companies, BDCs.

BDCs offer retail investors high-yield exposure to private companies, and some of them, like TriplePoint Venture Growth (NYSE: TPVG) focus on companies already backed by other venture capital firms. These other companies do not want to lose their investments and will continue to support these companies. This was crucial during the pandemic and post-pandemic era.

TPVG’s specific area of ​​concentration is in venture-growth stage VC-backed companies that have not yet gone public:

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TPVG website

Profile:

TPVG is a internally managed BDC, founded in 2005. It is headquartered on Sand Hill Road in Silicon Valley with regional offices in New York City, San Francisco and Boston. Since its inception, TPVG has committed more than $10 billion to more than 900 companies around the world. It typically completes 3- to 4-year financings with a loan-to-business value of less than 25%. The portfolio companies are usually preparing for an IPO or M&A in the next 1-3 years.

Stocks:

As of 6/30/22, TPVG’s debt portfolio was $768.8 million, consisting of 129 loans to 56 debtors. His warrant portfolio was valued at $52.7 million and consisted of 110 warrants across 95 companies. The stock portfolio was valued at $55.3 million, with 54 investments in 45 companies. The overall portfolio return was 14.5%.

portfolio

TPVG website

58.5% of TPVG’s $769 million debt portfolio is floating rate, 41.4% is fixed rate and is collateralized by either the entire company or certain assets:

portfolio

TPVG website

Beneficiary of the increasing rate:

With ~59% floating rate, management estimates that a 100 basis point rise in interest rates would earn TPVG more NII of $0.11/share, while a 200 point rise would yield $0.23/share, and a An increase of 300 points would yield $0.35 per year.

rising rates

TPVG website

The top 5 industry holdings, accounting for approximately 59% of the portfolio, are e-commerce apparel at 15%, consumer goods and services at 14.4%, and business application software at 11.6%. Financial Institution & Services at 11.6% and Healthcare Tech at 6.2%. Management tends to avoid cyclical industries.

Industry sectors

TPVG website

Portfolio Ratings:

A major concern during the pandemic lockdowns was how well the BDC industry portfolio companies would weather the economic pressures. BDC’s management generally reviews and evaluates their holdings on a quarterly basis. The good news is that most BDC holdings have come through the crisis in pretty good shape.

TPVG uses a 1-5 tier system, with clear or 1 being the highest rating and red or 5 being the lowest.

On 6/30/22, TPVG’s overall company rating improved to 2.06 from 1.87 on 12/31/22. 89.5% of the companies were in the top 1-2 levels, only 1.5% in the bottom 4-5 levels.

Management downgraded one company to Category 5 after its formal M&A process collapsed at the last minute and the company sold its assets in the third quarter. The principal balance was $15 million and the loan was downgraded to $2.25 million.

reviews

TPVG website

Merits:

TPVG signed 22 term sheets in Q2 totaling a record $803.6 million with growth-stage companies and completed a record $259.9 million in new debt commitments. It funded $157.6 million in debt investments for 20 portfolio companies with a weighted average annualized portfolio return at inception of 13.6%.

Total investments and other income were $27.4 million in 2Q22, up 35% from $20.3 million in 2Q21 due to higher interest rates and a larger portfolio . Net investment income was $12.7 million, up 35% from $9.4 million in 2Q21, with NII/share increasing to $0.41 from $0.30 in 2Q21.

In the first 6 months of 2022, total investment and other income increased by ~36% compared to Q1-2 21, while the NII increased by 43% and the NII/share increased by 42%. NAV/share was flat at $13.01, but TPVG also paid $0.72/share in dividends during this period. While realized gains improved by 75%, unrealized gains changed from positive to negative mainly due to fair value adjustments.

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This 2Q22 NAV bridge breaks the inputs for the 2Q22 NAV/share decline to $13.01 versus $13.84 in 1Q22. Excluding the regular dividend of $0.36 the main NAV discount to -$0.88/share was due to realized and unrealized gains.

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TPVG website

TPVG received $50.2 million in principal prepayments, $4.8 million in early repayments and $10.3 million in scheduled principal amortization in Q2 22 . As you can see from this chart, prepayments can get pretty lumpy from quarter to quarter, which can impact NII. For example, there was a record amount of prepayments, ~$116M in Q1 22, but it declined to $55M in Q2 22:

prepayments

TPVG website

Compared to $41.1 million in NII in 2021, it looks like TPVG is poised to earn a much higher NII in 2022, potentially over $50 million, representing ~22% growth correspond to.

NII

TPVG website

Dividends:

At its 8/11/22 close of $13.69, TPVG yields 10.52%. It next goes ex-dividend on 9/14/22 with a 9/30/22 pay date. Management has maintained quarterly payouts at $0.36 since Q4 ’14, with occasional special payouts of $0.10 in Q4 ’18 and Q4 ’20.

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Dividend coverage has been very strong so far in 2022, with the NII/share covering the $0.72 in dividends by 1.17x, much higher than in 2021 and 2020. Trailing NII/dividend coverage is 1, 10 times.

In addition to NII, TPVG also has a solid $0.40/share cushion in UNII, undistributed NII, giving it a massive 1.81X coverage factor:

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Profitability & Leverage:

ROA declined slightly while ROE increased, both staying above the BDC industry average. The EBIT margin was stable and roughly in line with the industry average. Management has increased leverage over the past four quarters to increase earnings.

As we noted earlier, higher leverage is not uncommon at BDC-Land, as BDCs are required to pay out 90% of their profits to shareholders. The trick is finding BDCs with a management team that knows how to manage debt and doesn’t get into too much debt.

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Like many other BDCs, TPVG’s management reduced leverage during the pandemic, taking it to a low of 0.63X. They raised it back to 1X-plus by the end of Q4’21, and it ended Q2’22 at ~1.24X:

leverage

TPVG website

The Interest Coverage Ratio improved slightly in Q1-2 ’22, while the Asset/Debt Ratio slightly decreased compared to the year ended 12/31/21:

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Debt & Liquidity:

TPVG had total liquidity of $288.1 million as of 6/30/22 consisting of cash and cash equivalents of $43.1 million and available capacity under its revolving credit facility of $245 million.

The earliest maturity is May 31, 2024 when the $350-$400 million credit facility matures:

debt

TPVG website

TPVG’s debt is rated BBB by DBRS.

Reviews:

At its 8/11/22 close of $13.69, TPVG is trading at a 5.23% premium to NAV/share, which is a much lower premium than in early 2022 and in 2021 when we were trading at a premium of over 30 % quoted offer.

However, since NAV is affected by distributions, it often makes more sense to focus on a BDC’s earnings valuation, Price/NII. TPVG’s P/NII per share of 8.66X is cheap — 38% below the BDC industry average.

P/Sales and EV/EBIT are also lower than the industry average while the dividend yield is higher:

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Perfomance:

Mr Market has given TPVG the cold shoulder, most likely due to recession fears affecting his portfolio companies. However, he should keep in mind that these companies are being backed by VC firms with much larger stakes that can help them cushion them during tough times, as they have during lockdown.

PERFOMANCE

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parting thoughts:

We rate TPVG as a BUY due to its very well-covered dividend, well below average price/NII and strong history of creating shareholder value.

If you are interested in other high-yield vehicles, we put them in for you every Friday and Sunday our articles. All tables are provided by Hidden Dividend Stocks Plus unless otherwise noted.

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