Hercules' CEO Discusses Q4 2012 Results - Earnings Call Transcript

| About: Hercules Capital, (HTGC)

Hercules Technology Growth Capital, Inc. (NASDAQ:HTGC)

Q4 2012 Results Earnings Call

February 28, 2013 5:00 PM ET


Linda Wells - Market Street Partners, IR

Manuel Henriquez - Co-founder, Chairman and CEO

Jessica Baron - Vice President, Finance and CFO


Greg Mason - KBW

Robert Dodd - Raymond James

Jonathan Bock - Wells Fargo

John Stilmar - JMP Securities

Aaron Deer - Sandler O’Neill

Kyle Joseph - Stephens

Douglas Harter - Credit Suisse


Good day, ladies and gentlemen. And welcome to your Hercules Technology Growth Capital Q4 2012 Earnings Conference Call. At this time, all participants will be in a listen-only mode. Later, we will conduct a question-and-session, and instructions will be given at that time. (Operator Instructions)

And as a reminder, today’s conference is being recorded. And now I would like to introduce your host for today, Linda Wells.

Linda Wells

Thank you, Operator, and good afternoon, everyone. On the call today we have Manuel Henriquez, Hercules Co-founder, Chairman and CEO; and Jessica Baron, Vice President of Finance and Chief Financial Officer.

Hercules fourth quarter and full year 2012 financial results were released just after today’s market close. They can be accessed from the company’s website at www.htgc.com. We’ve arranged a replay of the call at Hercules’ web page or by using the telephone number and pass code provided in today’s earnings release.

I would also like to call your attention to the Safe Harbor disclosure in our earnings release regarding forward-looking information. Actual financial results filed with the Securities and Exchange Commission may differ from those contained herein due to timing delays between the date of this release and in the confirmation and final audit results.

In addition, the statements contained in this release that are not purely historical are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements including, without limitation, the risks and uncertainties, including the uncertainties surrounding the current market turbulence, and other factors we identified from time-to-time in our filings with the Securities and Exchange Commission.

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions can prove to be inaccurate and as a result, the forward-looking statements based on those assumptions also can be incorrect. You should not place undue reliance on these forward-looking statements.

The forward-looking statements contained in this release are made as of the date hereof, and Hercules assumes no obligation to update the forward-looking statements or subsequent events. To obtain copies of related SEC filings, please visit sec.gov or visit the website www.htgc.com.

I would now like to turn the call over to Manuel Henriquez, Hercules Co-founder, Chairman and CEO. Manuel?

Manuel Henriquez

Well, thank you, Linda. Good afternoon. And thank you everyone for joining us on the call today. As usual, I want to do a quick outline for today’s call. I want to review the summary of our very strong operating performance and results for Q4 and full year of 2012.

Discuss the current market conditions including the venture capital activity during the fourth quarter and 2012. Our outlook for Q1 and 2013 with investment activities and pipeline discussions and then of course, turn the call over to our CFO to review in more detail our financial achievements and results for our shareholders.

Overall, 2012 was an exceptional year on many fronts. We are pleased to report very strong December quarterly earnings results capping off a tremendous year for Hercules. During the fourth quarter, we demonstrated our commitment to expand our leverage and continue to access the capital markets, further increasing our financial flexibility and more importantly laddering out our debt maturities. With the earliest debt maturity now being due until April 2016 and this of course excludes our short-term securitization instrumentation which we recently completed and I’ll expand upon.

We’ve continue to pursue our strategy of slow and steady, an investment philosophy that seem to have been adopted by other BDCs, as we were adhering to for last few years. In this process of slow and steady, we continue to methodically deploy our excess liquidity into accretive earnings assets for our shareholders and continue to drive our investment portfolio which topped off over $900 million at the end of the year representing over 40% increase year-over-year, our highest level since our inception.

We entered into 2013 with a significantly higher level of earning assets than a year ago, which we expect to translates into higher earnings, net investment income for our shareholders, which in turn lead to further dividend increases in 2013.

As an example, as we continue to convert our existing cash balances on our balance sheet approximate of $180 million into interest earning assets. This process alone would represent a 20% increase in our current portfolio, investment portfolio, and as those assets become earning assets and assuming for example a 6% net interest margin spread on $180 million, that alone can represent $0.20 in earnings as we convert the cash liquidity into earning assets and driving EPS growth with that simple process.

However, I want to caution, our intent is not to fully deploy all our cash balances. We historically have maintained a $15 million to $25 million cash buffer or cash level for unforeseeable issues that may arise or investment opportunities. We’ve always like to maintain some level of liquidity in the form of cash.

Now, let me turn this call over to discussion of our financial highlights for the year and the fourth quarter. For the fourth quarter, we delivered a record high total investment income of $27.4 million, representing an increase of 29% year-over-year. We also achieved a 21% year-over-year growth in Q4 NII, net investment income of $13.1 million or representing $0.25 a share.

Not to be left behind, our DNOI in Q4 also increased over 20% to 23.5% on year-over-year basis to $14.2 million or $0.27 in EPS earnings. Our dividends for the year represented $0.96 and represent an increase of 5% year-over-year. DNOI on an annual basis also increased approximately 7% to $1.07 per share.

As we continue to deploy our capital, as I said a minute ago, we expect to see increase in dividend as we achieve goal of the year. As we finished the second part of 2012, we also finished with approximately $1.5 million of dividend spillover or taxable earnings spillover, representing approximately $0.03 per share with the share count at year end.

Now, over the course of last few months, I have been meeting with investors. And a couple of questions that surfaced during this period of time as new investors come into the BDC asset class category. And as a reminder, GAAP earnings don’t necessarily translate into taxable earnings, there’s timing differences.

So it’s not unexpected that our GAAP earnings may show a lesser number than the dividends that we’re paying now. This is generally adjusted at the end of the year when we do so-called tax top-off when the audited financials and tax files are completed, at which point we have a very good indication of what that taxable dividend or earnings spillovers were to occur.

The reason why I say this is, that over the course of last few weeks and months, many new investors who have been interested in the BDC space have been asking me this question.

So now let me turn the conversation back to our portfolio growth. New commitments during the first quarter -- the fourth quarter, excuse me, were also very strong at $260 million representing a 15% -- 57% increase year-over-year, bringing our total annual commitments to over $637 million.

Our fundings not left far behind were also very strong. With approximately $200 million of findings during the fourth quarter and for the year over $469 million of funding took place during the year, a very strong showing both for commitments and fundings for fiscal 2012.

Net portfolio growth for the fourth quarter was equally a strong. We saw $121 million increase in the portfolio year-over-year. Many of you may recall during the third quarter earnings call, we remained a bit guarded, waiting for the election results to take place in order to continue deploy our capital during the fourth quarter.

I’ll now report there are lot of anxiety and uncertainty has been removed with the final election and some debt fueling issues have been resolved, however I want to caution that we still have one more hurdle facing us which is sequestration that we’ll continue to maintain a steady hand on origination activities although you continue to see us -- continue originating and grow the portfolio in Q1, we are holding back a little bit in that origination process until we have greater visibility on the sequestration outcome.

That said, we continue to set a very high mark for ourselves in under our new investor parameters and remain very cautious and selective about our investment and investment portfolio.

We are not interested and so we’ll be growing a portfolio to grow the portfolio. Unlike many other BDCs as internally managed BDC we do not have much of incentive to simply grow assets to collect management fees or incentive fees.

We are very much aligned with our shareholders and we continue to grow our portfolio in a controlled and deliberate fashion to ensure continued earnings and dividends growth for our shareholders.

It appears also that the new norm is an asset will be on boarded late in the quarter. I have spoken about this subject now for many quarters and have come to the final realization that the new norm is everything is going to happen nearly end of the quarters.

What that means is that you will see an earnings lag on quarter-to-quarter as those assets are on boarded, the real economic benefit of those assets being on boarded late in the quarter will be realized in a subsequent quarter to follow.

It is something that we would thought was simply an -- we simply thought it was an anomaly in the marketplace and after now seeing this for six or eight quarters, I’m convinced that that is a new norm. So I just want to share that with you as everybody looks at our financial modeling and as we too give a little bit of guidance on earnings being back-end weighted for your benefit.

As we look to 2013 and we look to continue expand our portfolio as we convert our excess cash liquidity of $100 million. We expect to see new origination on a net basis for Q1 in the neighborhood of $60 million to $70 million.

That number, of course, includes approximately $20 million of early payoffs that we expect to occur some which has not happened yet and so that number maybe impacted up or down if those early payoffs do not occur as expected or scheduled at this point. And again to repeat, we expect to see approximately $20 million of early payoffs in Q1 and it is basically end of February and not a lot of those payoffs have thus far taken place.

We remain very diligent on monitoring our credit portfolio and continuing to monitor very closely the developments in many of our sectors and specifically in Q3, we spoke about our life sciences sector.

I’m very happy to report that our life sciences portfolio had a very strong and very tremendous showing of major achievements during the quarter of many companies that we had on a watch list that had major FDA milestones and major funding milestones that were critical in the fourth quarter that substantially all of those companies significantly achieved or overachieved on those milestones securing FDA approval or additional capital as part of the capitalization of their companies.

As such, you saw a reversal of some of those concerns and impairment from fair value accounting that we had taken in Q3 have now been realized or reversed in Q4, a testimony to a continued strength of our life sciences group in identifying the right company and continuing to build assets for our investors.

Now, moving my overview to yields. In keeping with how other BCD report yields, we decided to first keep in line with how other BCD’s reporting yields. However, we feel very strongly that it’s important for shareholders to look beyond the certain yields that BDC’s report and look at yields when you adjusted for the elimination of one-time events.

With that, yields in the fourth quarter came in very strong again at 14.3% for the yields and Q4 for our assets. However, as I said just a second ago, we believe that it is important for shareholders to see through that aggregate yield and have those yields adjusted for one-time events.

This is something at Hercules we are doing now for over six quarters. In the fourth quarter, that same 14.3% yield, when you take into effect the one-time impacts, that yield actually is monitor -- that yield is actually adjusted to 13.6% on a much more predictable and sustainable level. We think that’s important to highlight that point.

We also continue to do something that other BDCs don’t seem want to do and that is we refuse to give up credit quality and more importantly reached down the capital structure in order to preserve yields.

I have said more than once, Hercules is more than happy to give up 30 to 50 basis points in yields to ensure that they maintained a senior secured first party lien of its assets that is advancing capital too.

We do not believe in trading off yields for going down the capital structure or for credit quality. That said, over 98.4% of our debt investment portfolio is represented by senior secured first lien positions in our companies today.

Moving towards the balance sheet, our focus in 2012 was diversified source of funding of our debt, while continuing to convert our liquidity to earning assets. We executed on that 100% as expected and I would actually say above our expectations.

It was a spectacular year of everyone working diligently in this company to continue to do asset deployment and diversification of our source of funding. A very important part of our continue success story.

As a matter of highlight, in 2012, we completed three unsecured unrated 7% bond offerings or as we call our first baby bond capital raises of approximately $170 million. We executed two equity capital raises, totaling approximately $81 million.

And one of the most important achievements that we have done in 2012 was the completion our first investment grade securitization rated A2 by Moody’s for $231 million with net proceeds, excuse me, of $129 million, at a cost of capital of approximately 3.2%, a very, very important achievements and continuing to lower our overall cost of capital.

Not to be left behind, we continued to diligently execute a strategy of refinancing and retiring old SBA debentures, we did approximately $50 million of SBA debentures, which retired a higher rate that generally provided interest savings of approximately 300 basis points while also extending the maturity on this new debentures for additional 10-year duration, highly accretive to benefit our shareholders.

In addition to that, working with our strong partner, Wells Fargo, we’re also able to lower cost of financing at our capital lines from Wells Fargo by 75 basis points to 4.25% and also adding additional duration on our current credit facilities.

Our philosophy relating to credit facilities in 2013 is that we now view the use of our credit lines, thanks to the securitization market as the back stop for our unfunded commitments and I’ll explain that as I’ll go through this call.

As I said, we ended the quarter with over $288 million of liquidity, $183 million of that in pure cash and approximately $105 million of that in bank lines. Again, an important statement, we expect to now use our bank lines as the back stop for our unfunded commitments as we continue to manage our funded commitments portfolio basically to a level of our bank lines leverage.

This is another topic that’s come up over the last few months in conversations with investors. And it became very obvious to me that many new investors and some of our existing investors have forgotten some of the benefits of the Hercules model and certainly the focus of Hercules in the venture capital industry. Specifically, Hercules has an exemptive order from the SEC which in essence allows us to eliminate for the calculation the SBA debentures for the regulatory SEC leverage test of 1:1.

Said differently, with the exemptive order from the SEC, Hercules is able to leverage its balance sheet up to the maximum level of 1.44:1 versus traditional BDCs 1:1. I can assure you, our intent is not to go to 1.44:1 but our intent is to manage that leverage up to the 1.2 to 1.25 level.

As such, today, we have additional capacity. When you look at our SBA leverage, excuse me, when you look at our GAAP leverage today, we have a ratio on a GAAP basis of 1.15:1.

However, because of the $180 million cash balance on our balance sheet, we actually look at that net adjusted leverage or what we call net leverage that net leverage is really only 80% when you take into account the cash balances. All of this by the way is explained both in our 10-K and more in our press releases for your benefit as well.

The takeaway from all of that is that we have a capacity to go up to $145 million of borrowing capacity as we go to the optimal level of 1.44, in other words, planning toward to continue to grow our investment assets.

Now turning over to liquidity. 2012 was also very strong year. We achieved 12 liquidity events, five M&A events and seven IPO events. We saw very robust activities on two more portfolio companies completing acquisitions also in the life sciences sector where Pfizer purchase one of our company, NextWave Pharmaceuticals, for transaction value of over $700 million and also deCODE in late December that was been acquired by Amgen for over $415 million. Again, further evidence and testimony of our team continuing to pick the right companies that are either pre-IPO or pre-M&A companies.

We finished the year with two companies IPO registration, which are iWatt and Paratek. Not being left behind, our warrant portfolio which represents continued hidden value for shareholders if and when the monetization of those companies achieve access events.

We finished the year with 116 warrant positions with a GAAP value of approximately $30 million as of the end of December. We always caution everybody, they should always look at our warrant portfolio and we only generally expect to see a 50% monetization in value in that warrant portfolio to be conservative. Historically, the value of those warrant have ranged from 1x return to as high as 10x returns. We don’t think that you should consider 1x or 10x to be the normal.

Now, turning my conversation or overview to the venture capital industry, some of that seems to be very important to investors that we like to share with investors some of the hindsight into the venture capital marketplace.

Yeah, the venture capital industry continues to consolidate and despite what the media would like to see as the sky is falling we actually welcome and see the consolidation of venture industry as the continued important process of freeing the heard and strengthening the venture capital industry.

That said, 2012 represented a very strong year for the venture industry, basically $29.7 billion was invested by the venture capitalist to over 3000 companies. Although, on an aggregate dollar represents a 15% decline in deals, we still think it’s a very healthy environment. Off that, $6.6 billion was invested in the fourth quarter to over 733 companies.

The IT sector or Information Technology continues to be one of the shining areas of investment activities by the venture capitalists. That sector experienced a 15% increase in investment activities and saw 33% of the capital or $9.9 billion of the venture capital dollars invested in that sector with the software industry representing the most strongest representation in the IT category.

Healthcare and Information Technology continued the moderate decline and saw a 90% decline year-over-year in investment activities. Principally to blame for that is the elongated approval cycle from the FDA.

However, we are seeing encouraging signs that that process maybe sign and some improvement is happening in that area. Because of that, I expect to see an increase in investment activities in Q1 and minimally in the first half of 2013 in life sciences categories.

We saw significant traction in the consumer services area and social networking, an area that we’ve basically have shied away from and that experience a 29% decline to $4.4 billion in activities in fiscal 2012.

The most dramatic decline, not that we weren’t expecting it, was in the Energy and Cleantech sector which saw approximately 47% decline year-over-year investment activity to a mere $1.7 billion.

That is because as the whole conversation with government budget cuts and government dependencies, we think that the Cleantech industry until it has a better outlook on becoming a self-sustained industry without government dependencies we’ll continue to see some challenges in economic models.

That said, because we are debt providers, we are able to take advantage of that dislocation in the marketplace and make very selective investment decisions in that area to add to our portfolio but we’re taking a very guarded approach as we expand in that asset class.

2012 IPO activities, very robust, we saw 50 venture capital IPOs complete over $10.6 billion, most people may not realize. That is the most IPO activities we’ve seen since 2000. That is 12 years. And finally, we saw some improvement of 50 companies. I’m happy to say. That compares to 46 completed in 2011.

Although we are far away from the peaks of ‘98 and ‘99, it’s so far a very encouraging sign. We finished the year in the venture industry with 26 companies in IPO registration to date. M&A, although lost 3% to 4% was still very strong at $37 billion of activities that took place in 2012.

Finally, the venture capital ecosystem, an important part to understand the investment activities, the excess realized on the venture capitals but more importantly, the number of venture capital funds raising capital.

In 2012, over $20 billion was raised by the venture industry, basically prior to 2011. That is a good sign and a very healthy sign that gives me very good visibility, and to continue to invest in venture capital activities in 2013 and beyond.

We are not discouraged by the level of venture capital activities. And in fact, we are encouraged by the continued pace of investment by the venture industry, and their selectivity in the venture activity in the physical asset classes that they are investing in and subsectors that they are investing in.

Now, I’m finally turning my call over to our outlook for 2013 as well as Q1. As I said at the earlier part of the conversation, we believe that we will see net investment activities for Q1 of approximately $60 million to $70 million of net portfolio increase. That is after taking into account, approximately $20 million of early payouts that we expect to see in Q1.

Our pipeline is one of the strongest I’ve seen in the last three years. I’m happy to say that we’re looking at and facing a pipeline that represents over $1.4 billion of investment activities and only getting stronger everyday. We are seeing unprecedented demand for capital, and because of that unprecedented demand, we have gotten more guarded and more jaded as we sort through the investment opportunities.

Again, I need to emphasize that we are not interested simply in filling all of the orders that are available out there for demand for capital from the potential companies in the marketplace, but remaining very stuart to our commitments to underlying the right companies, the right yields, and that means missing earnings or taking our time. We will continue to do that and behave in a very disciplined and controlled approach.

So far, for the quarter, as we outlined in our press release, we have net fundings or net portfolio growth of approximately $55 million. Because of the early payoff, that never may go down slightly if the early payoffs realized or not. We are finishing, as of this call we have approximately $126 million of signed term sheets, giving you visibility for the conversion into the remainder of Q1 and certainly into Q2. We’re well-positioned.

In summary, 2012 was tremendous year. I’m very proud of the execution at all levels of our team members at Hercules for the benefit of our shareholders and for the continued growth of our dividends to our shareholders. 2013, we’re well positioned to see continued earnings growth, continued dividend growth, and continue to deploy liquidity in our balance sheet.

I will now turn the call to Jessica, our CFO. After that, Jessica and I will both be happy to answer any questions you may have. Jessica?

Jessica Baron

Thank you, Manuel, and thank you everyone for listening today. Like to remind everyone that we filed our 10-K, as well as our earnings press release after the market close today and I’ll briefly discus our financial results for the quarter ended December 31, 2012.

Turning to our operating results, we delivered $27.4 million in total investment income or revenues, quarterly record, an increase of 29% when compared to the fourth quarter of 2011. This year-over-year growth was driven by higher average outstanding balances of yielding assets during the course of 2012.

As Manuel mentioned, the GAAP effective yields on our debt investments during the fourth quarter was 14.3%, excluding the income acceleration impact from early payouts and one-time events. The effective yields for the quarter was 13.6%, down slightly due to the asset mix and timing of the amortization relative to the previous quarter, down by approximately 30 basis points.

Interest expense and loan fees were approximately $7.5 million during the fourth quarter of ‘12, as compared to $4.6 million during the fourth quarter of 2011. Our weighted average cost of debt comprised of interest and fees was approximately 6.29% in the fourth quarter of 2012 versus 6.23% during the fourth quarter of ‘11. The slight increase was due to the $170.4 million, 7% senior unsecured notes that we issued in 2012, offset by a lower weighted average cost of SBA debentures, new SBA debentures of 4.3% versus 5% in the fourth quarter of ‘11.

Operating expenses for the quarter, totaled $6.9 million as compared to $5.8 million in the fourth quarter of 2011. The increase was primarily due to the increased employee headcount since the end of 2011 and a stock compensation expense.

Q4 ‘12 net investment income was $13.3 million compared to $10.8 million in the fourth quarter of 2011, representing an increase of approximately 21.3%. Net investment income per share was $0.25 for Q4 of ‘12.

Our net unrealized depreciation from our loans, warrants, and equity investments during the fourth quarter was $10.3 million, driven primarily by $9.9 billion of reversals of prior period collateral based impairments in our life science companies.

Our net realized gains for the fourth quarter was approximately $1.1 million. As a reminder, we had two notable liquidity events in this quarter in our life science portfolio. deCODE Genetics was purchased by Amgen in December and we realized a $2.6 million gain on our bond position. And Nestle Pharmaceuticals was purchased by Pfizer, and we recognized approximately $300,000 gain attributed to that transaction.

Our net asset value, as of December 31st was $560 million or $9.75 per share compared to $9.42 per share as of September 30, 2012. We’ve seen significant growth in our portfolio over the last year, as a result of our debt investment origination activities.

We ended 2012 with total investment assets including warrants and equity at fair value of $906.3 million, an increase of $253.4 million or 38.8% from a year ago, reflecting continued growth in net new originations and strengthen in our platform. Our debt portfolios ended the year at $827.5 million at fair value, an increase of 29% year-over-year.

Moving on to credit quality, our loan portfolio of credit quality remains excellent. The weighted average loan rating on our portfolio was 2.06 at December 31st. We had one small debt investment within approximate $350,000 cost basis on non-accrual at the end of the fourth quarter that was our only non-accrual investment.

Now to liquidity, at the end of the year, we had approximately $288 million in available liquidity, including 183 million in cash and $105 million in credit facility availability. Capital raising activities for the quarter included an equity offering of 3.1 million shares, resulting in proceeds of approximately $33.6 million excluding other offering expenses, which closed in October.

In December, we issued our first Moody’s rated A2 securitization for $129 million, asset backed by $231 million of senior secured loans, which we originated. This securitization provides us with additional liquidity at a very attractive interest rate. We ended the quarter with $225 million of SBA debentures outstanding, which is a maximum amount of debentures allowed under the program. A reminder, we have two SBIC licenses.

At December 31st, our debt-to-equity ratio including our last year’s average was 115%, with our target ratio of 120% to 125% as Manuel mentioned. We’d also like to remind investors that our $125 million of SBA debentures are included for regulatory leverage calculation purposes that the exemption effectively allows us to leverage beyond the 1.1 debt-to-equity limit to 1.44 to one, which means that at the end of the year we had capacities to add incremental debt of approximately $145 million if we so choose.

Our net leverage, which is calculated as total debt of $596 million, that’s approximately $180 million in cash divided by total equity of approximately $516 million with 80.1% at the end of December.

Finally, we increased the quarterly dividend by $0.01 and declared a dividend on $0.25 per share for the fourth quarter and then approximately, $0.03 dividend or $1.5 million spillover for the year.

In closing, the fourth quarter was a strong and a great year. We remain focused on diversifying our sources of funding, lowering our overall cost of capital and bolstering our balance sheet to take advantage of investment opportunities to grow our investment portfolio.

Operator, we’re now ready to open the call for questions.

Question-and-Answer Session


(Operator Instructions) And our first question will come from Greg Mason from KBW. Greg, please go ahead.

Greg Mason - KBW

Thank you. Manuel, could you talk about your new securitization and in particular, the flexibility of that for the type of assets that you do? Were you able to put existing down the fairway loans that you do in there, or is that going to have to change a little bit in terms of what you need to do on the lending side to have assets fit in that securitization?

Manuel Henriquez

It’s a great question by the way. To the credit of Moody’s, the process was anything but easy. It was very, very methodical. We basically had to work with the Moody’s team and work with them to understand the asset class, the unique nature of this asset class. So it’s not like, there’s a lot of folks originating in this asset and therefore, there’s a lot of history and experience here. So the Moody’s team was very methodical and very diligent and really gave a lot around this asset class. So to answer your question is to simply, the answer is what we do today, our bread-and-butter, our core asset is what we intend to continue to put in that securitization conduit, if and when, we do another one.

Greg Mason - KBW

Okay. Great. And the VC market tends to -- can be impacted by government funding. Does this sequestration potential impact have any impact on your portfolio or the VC industry overall?

Manuel Henriquez

The only thing that we can see today that may have some form of impact of sequestration could be that -- potentially staffing comes at the FDA, many delays from FDA processes and trials to progress on a sequential basis, because of just lack of budget. But for FDA, to their defense, it’s been understaffed and under-budgeted for quite some time. So hurting them further could be an issue.

IPOs could get delayed with lack of staffing. Yeah, that may happen with some budget cuts that could occur. But there’s nothing systemic that we are aware of as of today that could have any material impairment or impact to the VC industry other than just ongoing government agency delays.

Greg Mason - KBW

Great. And then one last question, I’ll hop back in the queue. A lot of the middle market BDC lenders have talked about spread compression, increased leverage points, just competition flowing in from the liquid markets in this hunt for yield. Are you seeing any of that trickling down into the VC market where you guys lend?

Manuel Henriquez

Not to that extreme. The only thing we left off is dividend recast and cut that light in higher leverage and lower spreads. Yeah, I mean the lowing August is an area that, as we have said historically, we find difficult to really get excited about, because of the things that you just described.

The debenture industry on the other hand, what we do, is such a specialty practice that, yeah, credit knowledge is key and fundamental. But also technology understanding is by all means one of the most significant parts. So not everybody can do what we do. And so people may want to try to come in the venture industry to change yields. But it will be very quickly when they start realizing capital losses, because -- just because you’re getting high yields doesn’t mean you’re getting high-quality assets.

And you have to make sure you underwrite to that, understand that discipline, which we’re obviously one of the better guys doing that. So we’re not seeing a disproportionate increase in competition. In fact, we’re seeing the other way around. We’re seeing a declining competition, which is continuing to allow us to, in essence, identify the right companies that meet our screens.

And as I said, we have a very, very strong pipeline right now of over $1.4 billion. But that does not mean all those companies will meet our credit criteria and underwriting criteria. So we’re able to continue to harvest what the best of the best in that pool.

Greg Mason - KBW

Great. Thanks, Manuel.


Okay. Thank you. And we’ll take our next question from John Stilmar from JMP Securities. Please go ahead, Sir.

Manuel Henriquez



John, your line is open if you would check your mute button.

Manuel Henriquez

Okay. Why don’t we move on and operate the next call and he will come back on


Okay. We will try our next question from Robert Dodd from Raymond James. Please go ahead sir.

Robert Dodd - Raymond James

Hopefully you can hear me. So a question on kind of following on that competitive issue. I mean, you said you’re willing to take a little bit of yield compression obviously to maintain credit quality there has been a theme that you have been on for a better part of the year.

It’s one thing to be willing to do it, do you actually expect that compression to continue this year given the comments that you just made about reduction in some of the competitors out there in the space and kind of tied in with that, are you seeing changes in other types of structure like I mean I’m talking about upfront fees, obviously if they were couple like that. But any more color you give us on that?

Manuel Henriquez

Sure. As we indicated in 2012 at the beginning of the year, then that we start off the year indicating that we expected to see 170, 200 basis points compression in yield at the beginning of the year. I can tell you as of right now, from what I’m seeing, what we have in the marketplace today, I’m not seeing that level of spread compression at all. I will tell you that on a quarter-by-quarter basis, having a swing of 30 basis points, up or down, is not necessarily unreasonable or unexpected to do that.

But I’m not at this point expecting to see a dramatic 100 and 200 basis points, compression in yields. And one of the things, I will say is we are not interested in chasing those yields if that’s even happening. We have a very strong portfolio today. We continue to be very selective in what we’re doing. There is no question we’re seeing some banks being a bit more aggressive out there.

And frankly, we are fine with that. Doing $600 billion plus of the new origination activity tells you that we are facing a very strong market and we will continue to do what we do well. And there’s plenty of transaction and deals that we have out there. So chasing yields is not something we’re interested in doing.

Robert Dodd - Raymond James

Okay. Got it. I appreciate that. Thanks.


Okay. Thank you. And we’ll take our next question from Jonathan Bock from Wells Fargo. Please go ahead.

Jonathan Bock - Wells Fargo

Yeah. Thank you taking my questions. Manuel, you did mentioned and always have your focus on credit quality. You also pointed out in earlier calls that sometimes you would be more willing to give up on warrant coverage in an effort to either supplement interest income or vice versa depending on where warrants stand in the relative valuation scheme. hat are you seeing today regarding warrants, and where does that fit in terms of placing down the bets that will pay off three years from now in terms of equity upside?

Manuel Henriquez

I appreciate the vernaculars, u use the word vest. But I’m working with shareholder’s money, so I would prefer not to use the word vest.

Jonathan Bock - Wells Fargo

Investments, excuse me.

Manuel Henriquez

It’s okay. So it’s a very good question because you will see that appreciation in one area and my concern on another area of that comment. So for example, our legacy warrant portfolio in the technology sector has experienced a pretty handsome increase in valuation in 2012. Which means that -- I think that some of the technology opportunities are quite we’ll valued, which means that when I look at new technology opportunities in these companies that are so well valued, I’m more than willing to give up warrants because I have a lack of belief that the warrants will monetize in significant value.

So we are being very controlled in our investment activities in technology companies, which is why you’ll see the technology portion of our portfolio slightly to be under represented in the first half of 2013. As I think that the valuations in the private sector either adjust or catch up to some of the public side.

That said, the life sciences side of the equation has experienced some pretty dramatic valuation adjustment. And we think that there are some pretty good opportunities in the life sciences area to make investments and see some good cap appreciation in that area.

But you’re absolutely right. The equation on overall yield is a function of what we believe the expectations on the exit -- on some of these warrant instruments that we underwrite to and we think that those warrants are well valued or overvalued. We will forgo warrants in lieu of or a term for fees or just little higher interest income.

So we continue to do that -- that mindset, which is why you’ll see a change in yield quarter-to-quarter 20 to 30 basis points, simply attributed to the OID factor on taking more or less warrants.

Jonathan Bock - Wells Fargo

Okay. Great. Thank you. That’s gray color. And then a question early versus late stage investments of course, where do you see additional dollars flowing in I mean, that competitive dynamic that you referred to? And to the extent that we’re approaching another M&A cycle although from the middle market standpoint with credit spreads where they are and perhaps private equity firms itching to deploy little bit of capital, as they are evidenced by some place some big deals. Only recently, where would you see some opportunity and late stage deals that might be approaching liquidity events?

Manuel Henriquez

We have change to be a tricky part because of the valuation issues. So, obviously being a credit shop that we are, we first look to enterprise value and loan to value analysis more than economic returns on equity instrument itself. Because if I can’t get your capital back, who cares about the return of the warrant.

So we continue to remain very steadfast and look at the fundamentals of credits and not get hung up on some of these banks that we’re seeing in the market place. We’re more focused on market share and talk about the prowess. We still run an investment shops. So, I don’t understand what market share means when you’re doing a credit underwriting. So we remain very disciplined in that area.

That said, there is an interest growing market and the public orphan and public fallen NGO companies that we have historically have not weighed in quite heavily though. We are seeing a disproportionate amount of unlocking of value in some of those public orphan companies that’s free out there. We’re not very keen and very excited about looking at early stage companies.

Right now, we think that those companies, more than any other sectors are overvalued and economics are not as attractive as we’d like them to be. And so we’re more than happy to see banks continue to fill that void and continue to go after the early stage companies. It’s an area that we’re not allocating a lot of resources to right now at all.

Jonathan Bock - Wells Fargo

Okay. Great. Thank you. And we would agree that slow and steady is the proven investment strategy. You demonstrated this past year and we look forward to 2013.

Manuel Henriquez

Thank you very much for acknowledgment.


Okay. Our next question is coming from John Stilmar from JMP Securities.

Manuel Henriquez

Not again, John?

John Stilmar - JMP Securities

Really quickly, as we start thinking about your business and the ultimate kind of ROEs or targeted ROEs for you and you’ve obviously not been a company or designed to company that’s been driven by ROEs. But I can help but think you guys delivered on a great securitization.

Theoretically, this is the first of several that are probably to come over the next several years. Your internally manage company can drive operating leverage. And absent sort of changing your perspective of risk, shouldn’t we start seeing some moderate ROE expansion over the next two years?

Manuel Henriquez

The answer is unequivocally, yeah. And to be very clear, I think we saw ROE expansion just in the third quarter to fourth quarter. And I think you’ll see additional ROE expansion as we deploy the additional liquidity that we have on our balance sheet of $180 million joining assets.

I think that you will see an exponential kick to the ROE as that capital is deployed for basically negative spread cash to accretive earnings to our shareholders that that net margin I spoke about earlier in the call will drop straight down the bottom line and driving the E in the ROE.

John Stilmar - JMP Securities

Perfect. And just another kind of just point of orientation for me. The venture finance business seems to be a relatively underserved segment and it’s sufficiently small given the overall scope of venture finance. So in terms of the macro trends that you are so good about laying out for us, how did those actually kind of feedback into the venture finance base in and of itself?

Is venture finance as a whole gaining market share, or given some of these changes, or is it more of the fact that there are these sort of changes out there and each company needs to position themselves appropriately as seemingly you are engineering Hercules. I was wondering if you can put both those comments in context for us.

Manuel Henriquez

I can help but to strongly emphasize this issue. What makes Hercules successful is the high caliber of individuals that we have. Those individuals, rightfully so, are highly compensate individuals because they bring a combination of both commercial banking background, venture capital background and technology underwriting and life science underwriting knowledge and experience.

In as much as the underwriting credit as your underwriting technology trends and risks, our team has to be intimately familiar with the changes in the technology and life sciences spectrum in world of what’s going on out there. In other words, what we call the disruptive technologies.

What we do is that we invest in tomorrow’s companies today. When we look at investment, we have no idea whether or not these companies are going to be ultimately successful in their endeavors or not. These companies typically acquire subsequent round of equity capital investments that typically are done every nine to 14 month intervals.

If you tend to underwrite this asset class, purely from a yield point of view in a naïve point of view, you will lose hundreds of millions of dollars. And I have seen it happen throughout my entire lifecycle in this asset class. The asset class is quite large and getting larger, it’s expanding.

As the venture capital contracts a bit and IPOs get more elongated from the liquidity timeframe point of view or time horizon point of view, those later stage companies were waiting to get acquired or waiting to go public are less reluctant to do equity capital raises and experienced evaluation dilution or evaluation decline in value and are much more reticent and more willing to take on venture debt to continue to sustain their operations and continue to preserve value for their shareholders and specialty early stage for each shareholder that exist.

Third and fourth, not knowing what is going on, on the broader spectrum from competitor point of view, in other words if you simply have business development officers who don’t have a knowledge of the various sectors that they are involved with, which is why we’re purposely divided in four segregated, dispersed operating units or I should say segments of reporting, Cleantech, Technology, Life Science and sequestration.

Those four groups fundamentally operate autonomous from each other. They have four unique different underwriting characteristics and are staffed by individuals who have expertise in those particular verticals. That is a very, very difficult thing to replicate and many people could try to venture into the asset class. However, as you see over the years, we’ve grown in size because of expertise and our disciplined approach. And I don’t see any real new threats coming into the asset class. And if anything, I’m seeing our franchise and our brand only getting stronger and expanding further.

John Stilmar - JMP Securities

Got it. Thank you for that time. And I really appreciate you letting me ask my questions.

Manuel Henriquez

Thank you.


Thank you. And we will take our next question from Aaron Deer from Sandler O’Neill. Please go ahead.

Aaron Deer - Sandler O’Neill

Manuel, you were just talking about the importance of your lending things. Can you -- on that subject, how many staff do you have that are front-line business development officers today versus say a year ago?

Manuel Henriquez

This is all obviously at zero. We have origination teams that are either credit or technologist and they are focused .We have a total headcount in the company last checked at 53 or 56 people. Of which, I think 27 are forward or outward facing origination team whether it’s associate analyst, manager, director, or principal, they are all focused on credit and credit monitoring or credit underwriting or new law originations, if you will. So it’s a pretty -- it’s almost 50% weighted of the company in that outward facing origination activities.

Aaron Deer - Sandler O’Neill

And how does that compare to where you were a year ago?

Manuel Henriquez

One of the issues to your questions, we got to be careful in trying to imply a straight analysis. We have different people in different levels of maturation as investing professionals or loan officers, if you will. And so our more seasoned individuals have a higher expectation on both credit monitoring, portfolio performance and new asset origination than similar to newer folks.

It simply takes six to nine months minimum for somebody to get conditioned to the Hercules underwriting methodologies and to identify investment opportunities and credits that meet our criteria. So we invest quite a bit of time in our people and that six to nine month period of time before that we become or we consider to be productive and accretive on the bottom line.

And so on that level, we have probably seven to nine, if I sell in -- yeah, seven to nine is probably the right number of senior people who have the capability of being highly accretive investment officers identifying new investment opportunities.

Aaron Deer - Sandler O’Neill

Okay. And then going back to the discussion on the securitization, I’m curious. How do you view your willingness and ability to do more of those? And obviously, it’s a great source of low-cost funding but I guess it seems a little bit of odds with some of your recent efforts to extend into longer-term funding sources. So just kind of curious to get your thoughts on how you view doing more of that type of funding.

Manuel Henriquez

I’ll be very blunt. If I can originate cost of capital at 3.2% and I can create a logbook at 13.3, I might be charging at a thousand base point net spread. So yeah, it’s -- the important part of the securitization is that it matches the short-term and short-term financing.

As you may or may not remember although we underwrite for 36-month duration on our credits, the average term or the average outstanding is about 22 to 24 months. So the matching of short-term to short-term liabilities to asset side is quite good.

Our strong preference still remains to focus on laddering out the maturities. So we are not going to be only a short-term dependent securitization shop. I don’t think that’s prudent. Unlike the long-term capital planning that the baby bonds offer.

So it’s really going to be a complementary strategy, not all strategy at the cost of giving up baby bonds or other form of debt financings. Another final point to remember is that a BDC, it inherently has a limitation to debt equity leverages.

So even as today, once we fully convert our $180 million of liquidity, we only have optimal available if we go to 144% leverage, only $145 million. However, our preferences, as I have said more than once on these calls, our preference on a GAAP basis is to take leverage up to like 120 to 125 on a GAAP basis, which I talked about that’s confusing in this call, I talked about the net leverage rate, 80 basis points today, sorry, 80% today.

So I had basically another 40% of leverage to go after before I start running into that self-imposed glass ceiling of 1.2 to 1.25. So we’re managing our liabilities and our source of fundings quite closely.

Aaron Deer - Sandler O’Neill

That’s helpful. And then, lastly, on the credit. Obviously, you had some good credit trends again this quarter, that three collateral based impairment reversals. I’m sorry, I think there was three of those as well. But there were three small impairments, I’m just wondering, are those due to upcoming funding around that approaching for those powers or is there something else that might have driven that?

Manuel Henriquez

No. When we have, I think our active borrowers today are, I will say, 85 or 87 companies. We deal with risks all day along. What we do is probably nail-biting for the loan market or asset class. Our expertise is understanding the technology trends and the ebbs and flows that happen there.

As I said and to reinforce again, it is not untypical for 90% of our portfolio companies to be cycling through our next equity round of financing and find themselves near a zero cash balance on the balance sheet and need to raise another equity round of financing.

There is a normal course of business of what we do. As that happens, we will automatically downgrade the credit from a two to a three and if it warrants it down to level four, if we don’t see much more casual evidence of a term sheet or an equity round or an actual event happening to ensure the mitigation of our downside principal risk that we have.

So to answer to your specific question, there is not one of those companies at this point that represents a significant issue other than one larger credit that we may have that is something that we’re monitoring closely but the company is actively engaged with a transaction that just like we saw on the third quarter with some of our life sciences companies. And in the next 60 days or so, it’s probably some day maybe fully mitigated.

So at this point, we’re more aware of those small market adjustments or collateral impairments that we’re thinking, are not issues that I’m ultimately concerned about. And I think they will normally cycle through, just like we saw in Q3 to Q4 of these life sciences companies. These two technology companies in particular, I think that we’ll start seeing rays of sunshine at 60 to 90 days.

Aaron Deer - Sandler O’Neill

Okay. That’s great. Thanks for taking my questions.


Thank you. And we’ll take our next question from Kyle Joseph from Stephens. Kyle, please go ahead.

Kyle Joseph - Stephens

Good afternoon, guys. Thanks for taking my questions and congrats on great quarter. Manuel, can you talk a little bit about what drove the accelerated dealer activity in the accelerated credit demand that you guys saw in 4Q ‘12. I don’t imagine you guys had as much of that driven by potential tax changes. Can you -- was there something else driving it or is it just the general recovery of VC markets or can you break that down for me?

Manuel Henriquez

No. I actually -- I literally think that a lot of it was a sigh of relief that we got this horrific election behind us. And whether you support the President or you don’t support the President, at least you have some level of confidence that it is the higher taxes or a lack of government or what have you.

So I think that there was a bit of relief that we had this issue behind us and capital was able to continue to be deployed and invested. Sequestration still is a bit of an overhang. It is hard to say how that’s going to play out, which is why again as we did in the third quarter going into fourth quarter a little bit, we’re holding back some of that liquidity and not going out and fulfilling all of the opportunities that we see before us. Because we want to preserve some direct account going into sequestration black hole.

But I think that they eventually seek a little more confidence when the election issue was resolved whether they support Obama or not and it doesn’t do with that but at least some level of uncertainty was now resolved. And I think more than anything, it’s kind of what led that.

Kyle Joseph - Stephens

Got you. Thank you there. And then can you give us a little idea of your average investment side and how that has changed as your portfolio has grown so much?

Manuel Henriquez

I still think that the average portfolio deal remains pretty static at the $8 million to $10 million level. So I don’t think I’ve seen change in that average number now for probably eight quarters may be longer. We have some outliers but I think that the granularity still remains in a portfolio.

Kyle Joseph - Stephens

All right. And then I think this one is for Jessica. Could you break down the fee income in the quarter a little bit between origination versus repayment fees?

Jessica Baron

Well I think you can back into that when you take a look at the effective yield with and without early payoffs or one-time events. But I don’t have the dollar total that I can get to it, but pretty much…

Kyle Joseph - Stephens

No. I can back into that.

Jessica Baron


Manuel Henriquez

We can certainly follow up for you on that.

Kyle Joseph - Stephens

Okay. And then can you -- I haven’t had time to spend through the K yet. Did anything change with non-accruals in the quarter?

Jessica Baron

No. We still have that one small investment on non-accrual.

Kyle Joseph - Stephens

So, it’s beyond and significant.

Jessica Baron

Right. It’s $350,000 cost basis.

Manuel Henriquez


Kyle Joseph - Stephens

And then for the $0.03 spillover, do you guys envision doing something of a special dividend or just contributing that to quarterly dividend this year?

Manuel Henriquez

We remain pretty steadfast in our historical response there. We think it’s better to pepper that additional earnings -- in subsequent quarterly earnings and distributing it out at one quarter as a special dividend. So, our philosophy or say the board’s philosophy still remains that we rather simply created over the economic life in 2013.

Kyle Joseph - Stephens

I guess, that makes sense. And then what was the new coupons on the refinance SBA that you guys have done recently?

Jessica Baron

Yeah. I think the base interest rate was 2.8% and when you add in the fees costs, it’s around 3.2%.

Kyle Joseph - Stephens

That’s all I got. Thanks for answering my questions, guys.

Manuel Henriquez

You’re welcome.


Thank you. And we’ll take our next question from Douglas Harter from Credit Suisse. Douglas, please go ahead.

Douglas Harter - Credit Suisse

Talk about the benefits that you might get from continuing to grow the size of the portfolio and sort of balance it off with the fact that the SBA -- attractive SBA debt check grow anymore and kind of how you think about the pros and cons of those two things?

Manuel Henriquez

Sure. As we all know and we’re cynical about this comment, there are two critical bills in front of the Congress. One is to increase the BBC leverage from 101 to 201. That if pass will be highly accretive. And then the second bill, which is more impactful to your question is raising the SBA debt limit from 225 to 350.

That actually passed the house, so passed the Republican House. And I find incredibly ironic it’s delayed in the Senate by Democrats. This is baffling to me because it doesn’t add to the debt and actually helps the economy. So the SBA debt ceiling of 225 going to 350, a lot of people still believe that it actually will happen.

That said, the issue on spreads, we think are quite attractive when you are borrowing long on SBA at 3.5% to 4% on a weighted basis and lending long at 13, 13.5. And I apologize what was the first part of your question?

Douglas Harter - Credit Suisse

I was recognizing that attractiveness of that financing and how you balance that with growth growing the total portfolios absent Congress actually doing something.

Manuel Henriquez

Sure. The other part of your question is important to note is that not necessarily all of our assets are well suited or fit the SBA underwriting criteria. So one of the things that we are constantly cognizant of is making sure that we are not overly liquid on the SBA -- SPV, Special Purpose Vehicle that hold the SBA assets.

And so today for example, we have a little bit more waiting in cash within the SBA bucket, which means that we need to make sure and we need to optimize which is why the $180 million I talked about earlier may not fully be deployable. Some of that $180 million is actually resident inside the SBA, which means that that capital can’t be used for general corporate purposes but must be used for assets that qualify under the SBA program.

And so there could be a timing delay on optimizing the balance sheet to fully deploy the excess cash, some of which may be located in SBA causing a little lag effect. But overall, we see a very robust opportunity to deploy the excess liquidity of the $180 million of cash certainly by the end of first half of 2013 into earning assets, which would equate to about 20% growth in the loan book and could equate to about $0.20 at earnings on an annual basis.

Douglas Harter - Credit Suisse

Great. And I appreciate that color, Manuel.

Manuel Henriquez

Thank you.


Thank you. And our next question is from Greg Mason from KBW.

Greg Mason - KBW

Great. Thanks. Manuel, I want to talk a little bit about the securitization. Again you said you had to work a lot with Moody’s to educate them. In this first silo, there’s no reinvestment period.

I think you said weighted average life a little over one year. So two years from today, that will be gone. I assume you want to do this securitization again, do you think as Moody’s gets more comfortable with this there can be any potential changes for securitization number two or number three with regards to reinvest periods and length of the securitization debt?

Manuel Henriquez

So most of you know me, I’m going to answer everything as much as I can. On day one but to Moody’s credit, they said unequivocably no to me on various occasions on some of these requests. That said, to Moody’s defense, they’re kind of was, let’s crawl before we run. And there’s no question that our intent, working with Moody’s, is to continue to work with them and developing their models and their better understanding as asset class to in fact, ask for reinvestment period in a longer duration of the next securitization.

Whether that’s securitization is number two or number three, I don’t know. That’s really subject to Moody’s and Moody’s solely. But there is no question that we are going to ask again and try to seek that out in some of the subsequent securitizations that we do. It is a pivotal part of the equation, just like you recognize it to be.

Greg Mason - KBW

Okay. Thanks, Manuel. Good quarter.

Manuel Henriquez

Thank you very much.


Thank you. And our final question comes from Jonathan Bock from Wells Fargo. Bock?

Jonathan Bock - Wells Fargo

Jonathan Bock. Thank you. Just one quick follow-up…

Manuel Henriquez

In French.

Jonathan Bock - Wells Fargo

Yeah. We as you probably can say.

Jessica Baron


Jonathan Bock - Wells Fargo

So we could talk really briefly, you said the use of cash by 2013 but then well you’ve also been very opportunistic in terms of equity capital. And that can accrue to the benefit of the investors because you chose to protect the balance sheet and we do understand that.

In light of valuation, can you maybe talk about where you sit on that front? Only because while portfolio growth would occur, also the underlying share-based and then splitting that benefits of additional leverage with new shareholders does dilute earnings. So maybe just a few comments on what you see on the equity capital front in light of the high cash balance?

Manuel Henriquez

Sure. My first comment is that, I think there is a timing on equity earnings dilution as you have the equity capital raise. And then equity capital raise is deployed into earning assets. If you look at our discipline, the last seven plus years of our history, a little longer than that, I remain very steadfast whether this philosophy is embraced by others or not.

And that is that I believe that you raise capital, whether its debt or equity. When the market affords you that opportunity, however, only if and when you can deploy that capital in the proceeding one to two quarters out. One of the things that makes the internal managed BDC very important is that it has no economic incentives to raise capital -- just to raise capital.

And since we are incentivized and aligned with our stakeholders -- our shareholders, we’re highly cognizant of having a significant drag on earnings unnecessarily simply for capital raise. That said, that when you look at our balance sheet today, it’s not a secret that sometime in the next duration of time -- I don’t know what that is, it all depends on when we do end up deploying our cash investments.

Because we’re approaching the magical ceiling of 1.2 to 1 debt-to-equity ratio, that if we so choose to continue to grow, because there’s attractive opportunities in market place, then a small equity capital raise maybe imminent. But that’s all entirely judged upon sequestration, the pipeline, where are we on our capital deployment and a lot of different characteristics.

But the fact of the matter is that we are approaching that GAAP mythical cap of 1.2 that we place on ourselves that may indicate a propensity to look at doing a small equity raise. In fact, if that’s something we believe we could redeploy in a very short order.

Jonathan Bock - Wells Fargo

Great. Thank you.


Thank you. That does conclude our Q&A portion for today. I’d like to turn the conference back to Manuel for any concluding remarks.

Manuel Henriquez

Thank you, Operator. And thank you everyone for continuing your interest and support in Hercules Technology Growth Capital. I’m very, very happy to report a very, very strong quarter for our shareholders and more importantly, also an increase in dividends to our shareholders as we promised that we will be doing. And I expect to continue to do throughout 2013, certainly through the March, not falling out or some unforeseen events.

As always, I want to make sure that our shareholders are aware that we’re more than happy to entertain discussions with you and anybody who would like to engage in additional conversation with us. You’re welcome to contact our Investor Relations department or contact Hercules directly to schedule a follow-up conversation or a meeting with. Thank you much for your time and thank you for being one of the Hercules shareholders. Operator?


Ladies and gentlemen, this does conclude your conference. You may now disconnect. And have a great day.

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