Celladon Corp. (CLDN +0.6%) establishes a credit facility for up to $25M with Hercules Technology Growth Capital (HTGC +0.9%) and its affiliate lenders. Celladon drew $10M at the closing of the agreement. It may draw another $15M prior to May 31, 2015. Proceeds will be used to fund the continued development of Mydicar, an enzyme replacement therapy for advanced heart failure.
uniQure N.V. (QURE +1.5%) closes an additional $10M venture debt loan with Hercules Technology Growth Capital (HTGC +0.4%). This doubles the loan amount to $20M. It borrowed its first $10M in July 2013. The loan will fund the advancement of the firm's pipeline and the access to early-stage third party development programs.
Q2 commitments (as of today) of $198.6M include deals with eleven new and existing portfolio companies. Principal repayments were $68.1M, with about $38.7M of that unscheduled early payments.
As of today, HTGC has warrant and equity positions in five portfolio companies which have filed registrations for possible IPOs.
HTGC was punished earlier this year for taking a conservative stance amid what management thought was a frothy market, but the shares have bounced along with an apparent change of heart from company execs.
Celsion is required to make an upfront payment of $3.4M, and to fund that closes on its 2nd $5M tranche under its $20M Loan and Security Agreement with Hercules Technology Growth Capital (HTGC). Under terms of that Agreement made last November, Celsion obtained consent from Hercules to move forward with the purchase.
The funding is variable-rate, and Hercules also has a warrant (expiring in 2018) to buy nearly 200K shares of Celsion at $3.59 each.
The May 15 deadline for the SEC to change BDC's fee-reporting standards has come and gone with no action, meaning the sector's stocks will be removed from Russell's indices on June 27. A tick higher in the struggling sector since May 15 suggests maybe investors have discounted the news.
Looking for what to buy now, the team at Wells has put together an Adjusted Cash Flow Coverage metric. From Wells: "It is important for investors to discern which BDCs are overly reliant on fee income as a percentage of total revenues, which BDCs are not covering their dividend and which BDCs book meaningful non-cash income such as PIK."
The sector adjusted cash flow coverage average is 81%. Among those coming in above: GLAD, HRZN, TCAP, TCPC, HTGC, GBDC, ARCC. Among those below: TPVG, BKCC, PNNT, MCC, FSC. Struggling the most of late, Prospect Capital is pretty close to the sector average at 79%.
The selloff in BDCs is a buying opportunity, writes BDC reporter, noting the opportunity today to invest in a basket of BDCs (using BDCS as a proxy) at an 11% higher yield than just three months ago. The sector is yielding 43% more than high yield bonds (HYG) and nearly double floating rate loans (BKLN).
The higher yield, of course, reflects market concern distributions are set to fall (and BKCC and MCGC cut in Q1), but for the sector as a whole, distributions have been fairly stable over the last three years. Further, a number of players are under-leveraged or in growth phase, and occasionally have realized gains which are paid out as special distributions.
NII of $18.3M up 22% Y/Y. NII per share of $0.30 up 11.1%. Distributable net operating income per share of $0.33 up 10%. Dividend of $0.31 per share.
Received about $132.6M in principal and paid-in-kind repayments during quarter. Entered commitments to provide debt and equity financings of about $155.7M to new and existing portfolio companies. Net decline in investment portfolio of about $18.6M on a cost basis. This is less than the $50M "lighten down" expected by management two months ago when it reported Q4.
Management was then worried about a frothy market and the stock has been punished for this conservative stance ever since (off about 20%).
Hercules Technology Growth (HTGC +1.5%) is one of the stocks working on a down day after an upgrade to Buy at Sandler O'Neill.
The stock had been punished throughout March after management's sluggish guidance, but last week's update on Q1 activity showed better-than-expected originations - whether that's a good or bad thing amid frothy conditions remains to be seen.
Hercules (HTGC) originated $153.7M of debt and equity commitments to new and existing portfolio companies in Q1. The company received about $131M in principal repayments during the quarter, roughly $87M of which were unscheduled early repayments.
Eight portfolio companies announced or completed liquidity events, such as an IPO or merger/acquisition.
"We do not like some of the underwriting parameters or pricing that we're seeing in our marketplace today," says CEO Manuel Henriquez on the earnings call (transcript), guiding for Q1 results to be down $0.02-$0.04 per share as the company has been slow to put money to work this year (NII was $0.31 in Q4).
Management expects the portfolio to "lighten down" by $50M in Q1. "There are certain industry sectors that we are divesting ourselves from and certain stages of the companies that we're purposely avoiding for the time being."
"We continue to see frothiness in the market. We're seeing banks being overly aggressive on transactions and we're beginning to see some signs of yield compression in the marketplace. We're seeing weaker underwriting standards being applied in the market and with that, we have chosen to wait out this current frothiness and not follow suit and doing marginal quality underwriting transactions."
Hercules Technology Growth Capital Incis a specialty finance company which provides debt & equity growth capital to technology-related companies at all stages, development from seed & emerging growth to expansion & established stages of development.