Entering text into the input field will update the search result below

Hercules Capital: This 5.25% Baby Bond Has Begun Trading On The NYSE

May 03, 2018 11:47 AM ETHercules Capital, Inc. (HTGC)6 Comments


  • Overview of Hercules Capital's new baby bond, HCXZ.
  • Quick review of the company's outstanding issues.
  • Comparison with the sector.
  • Comparison with all other baby bonds that pay a fixed rate and have less than 10 years to maturity.
  • Comparison with the other securities issued by BDCs.


In this article, we want to present a new baby bond issued by Hercules Capital (NYSE:HTGC). Our goal is purely to inform you about the product while refraining from an investment recommendation ourselves. Even though the product might not be of interest to us and our financial objectives, it's definitely worth taking a look at.

The New Issue

Before we get into our brief analysis, here is a link to the company's 497 filing.

For a total of 3M notes issued, the total gross proceeds to the company are $75M. You can find some relevant information about the new baby bond in the table below:

Source: Author's spreadsheet

Hercules Capital 5.25% notes due 2025 (NYSE: HCXZ) pay a fixed interest at a rate of 5.25%. The new issue has no Standard & Poor's rating, is callable as of April 30, 2021, and is maturing on April 30, 2025. HCXZ is currently trading at a price of $24.40 and has a 6.22% yield-to-call and 5.72% yield-to-maturity. The interest paid by this baby bond is not eligible for the preferential 15% to 20% tax rate. This results in the "qualified equivalent" YTC and YTM are around 5.19% and 4.77%, respectively.

Here is the product's yield-to-call curve:

Source: Author's spreadsheet

The Company

As per the company profile:

Hercules Capital, Inc., incorporated on Dec. 18, 2003, is a specialty finance company. The Company is an internally managed, non-diversified, closed-end investment company. The Company focuses on providing senior secured venture growth loans to venture capital-backed companies in a range of technology, life sciences, and sustainable and renewable technology industries. The Company's investment objective is to maximize its portfolio total return by generating current income from its debt investments and capital appreciation from its warrant and equity-related investments. Its primary business objectives are to increase its net income, net operating income and net asset value by investing in structured

Trade With Beta

Coverage of Initial Public Offerings is only one segment of our marketplace. For early access to such research and other more in-depth investment ideas, I invite you to join us at Trade With Beta.

This article was written by

Arbitrage Trader profile picture
Leader of Trade With Beta
Income arbitrage ideas along with managed portfolios and pair trades

Day trader whose strategy is based on arbitrages in preferred stocks and closed-end funds. I have been trading the markets since I started my education in Finance. My professional trading career started right before the big financial crisis of 2008-2009 and I clearly understand what are the risks the average investor faces. Being a very competitive trader I have always worked hard on improving my research and knowledge. All my bets are heavily leveraged(up to 25 times) so there is very little room for mistakes. Through the years my approach has been constantly changing. I started as a pure day trader. Later I added pair trades. At the moment most of my profits come from leveraging my fixed income picks. I find myself somewhere in between a trader and an investor. I am always invested in the markets but constantly replace my normally valued constituents with undervalued ones. This approach is similar to rebalancing your portfolio and I just do this any time there is some better value in the markets. I separate my trading results from my trading/investment results. I target 40% ROE on my investment account and since inception in 2015, I am very close to this target.

My main activity is running a group of traders. Currently, I have around 40 traders on my team. We share our research and make sure not to miss anything. If there is something going on in the markets it is impossible not to participate somehow. Some of my traders are involved in writing the articles in SA. As such Ilia Iliev is writing all fixed-income IPO articles. This is part of their development as successful traders.

My thoughts about the market in general:

*If it is on the exchange it is overvalued and our job is to find the least overvalued.

*Never trust gurus - they are clueless.

*Work hard - this is the only way to convince yourself you deserve success.

*If you take the risk it is you who has to do the research.

*High yield is always too expensive.

We are running a service here on SA. It is a great community with very knowledgable people inside. Even though we are not in the spotlight as often as we would like to our articles' results are among the strongest on SA. You can always contact me to share some of our articles and best picks so far.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.