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TPVG Reports Q4/15 - Confession Time + Reader Poll

|Includes: TriplePoint Venture Growth (TPVG)

Confession time - I have been investing in BDCs for close to seven years, and I am still running across data that tells me "I do not know what I am doing". TPVG in their reporting of their Q4-15 data just gave that overly familiar message to me again. Dang! I hate when that happens.

I partially (maybe heavily) assess the risk of a BDC based on 'portfolio weighted average yield'. That is logical. The greater the risk a BDC is taking in their investments - the higher the yield on the portfolio. Eight percent yielding loans should be safer than 10% yielding loans - which are safer than 12% yielding loans - and so on. Senior secured debt is safer (and lower yielding - for companies with similar risk attributes) than second lien debt - which is safer than subordinated debt - which is safer than CLO debt.

But TPVG (which could be the lone BDC doing this) is not providing apples to apples numbers on 'portfolio weighted average yields' - so I have over stated the risk BASED ON THAT METRIC. TPVG includes portfolio churn related income to generate its yield number - and TPVG generates a lot of churn.

(1) The 'cash' yield on the TPVG portfolio is close to 10.5% compared to a reported 'portfolio weighted average yield' with a 17 handle.

(2) The 'cash' yield would understate risk due to a heck of a lot of reported income having non-cash sources. PIK income is a small component in that non-cash -- but for many BDCs, PIK is the main thing when it comes to non-cash income.

(3) The big deal for TPVG is EOT. What the heck is EOT? EOT payments are contractual and fixed interest payments due in cash at the maturity date of the loan (the "End Of Term"), including upon prepayment, and are a fixed percentage of the original principal balance of the loan unless otherwise noted. The EOT payment is amortized and recognized as non-cash income over the loan or lease prior to its payment.

How big is EOT for TPVG? "For the three months ended December 31, 2014, the weighted average portfolio yield on our portfolio of approximately 16.9% was comprised of approximately 11.0% cash interest income, approximately 0.5% of accretion of the net purchase discount, facilities fees and the value of warrants received, approximately 3.0% of accretion of end-of-term payments and approximately 2.4% due to the accelerated receipt of end-of term payments on prepayments." (I wish I could find similar data for more quarters. I did find 'related data' for more quarters. Here is that data:)

  Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14 Q1-14
Cash Wt Av Yield 10.4% 10.7% 10.6% 11.0% 11.1% 10.9% 11.1% 11.2%
Net accretion of discount 5.0% 6.8% 3.7% 3.5% 3.4% 3.6% 3.3% 3.1%
Prepayments 2.5% 0.0% 3.6% 0.0% 2.4% 0.0% 0.0% 0.0%
Reported Wt Av Yield 17.9% 17.5% 17.9% 14.6% 16.9% 14.5% 14.4% 14.3%
Accretion of EOT x% 6.0% 3.1% 2.9% x% 3.2% 3.0%  

TPVG fails to report Q4 data. They report annual data in their Q4s. For my 'adjusted weighted average yield' numbers in the data that follows - I use Cash yield + EOT accruals. I am using annual data - thus all quarter in 2015 have the same number.

Why doesn't EOT accretion equal "net accretion of discount"? I strongly suspect that some of the net accretion is accelerated accretion that is a part of pre-payment transactions.

What other BDCs could be doing the same thing with their 'portfolio weighted average yield' numbers? I will be double checking HTGC and HCAP. Now that I ponder on this, the weighted average yield numbers from FDUS and TCAP look suspiciously high.

Here are the rest of the TPVG numbers:

TriplePoint Venture Growth reported for Q4-15 Total Investment Income (or TII) of $11.427 million ($0.6894/share). Net Investment Income (or NII) was $6.048 million ($0.3649/share). The NII/TII ratio was 52.93%. The Net Increase in Net Assets Resulting from Operations was $0.019 million ($0.0011/share). TPVG's Net Asset Value (or NAV) per share was $14.21 compared to $14.52 at the end of Q3-15. TPVG had its initial public offering on 3-06-14 at $15.00. TPVG has paid $2.66 in dividends since the IPO. TPVG closed on 3-14-16 at $9.98.

  Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14 Q1-14
Realized & Unrealized Gains -6.029 1.044 0.753 -2.206 -1.078 1.151 36 1.374
Realized & Unrealized Gains/share -0.3637 0.0627 0.0454 -0.2145 -0.1089 0.1166 0.0036 0.1396
  Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14 Q1-14
Interest income 11.072 9.184 10.487 9.161 10.170 7.802 5.394 1.308
Other income .355 .061 1.119 .647 .520 .056 .095 0
Total investment income 11.427 9.245 11.606 9.808 10.690 7.858 5.489 1.308
Net investment income 6.048 4.671 6.295 4.945 5.862 3.522 2.854 0.569
Investments @ fair value 0.272 0.262 0.208 0.252 0.258 0.248 0.206 0.143
Wt Av Share Count 16.575 16.648 16.569 10.285 9.895 9.873 9.850 9.845
Debt/NAV 30.61% 27.59% 25.21% 50.45% 81.38% 75.27% 47.90%  
TII/share $0.6894 $0.5553 $0.7005 $0.9536 $1.0803 $0.7959 $0.5572 $0.1328
NII/share $0.3649 $0.2806 $0.3799 $0.4728 $0.5924 $0.3567 $0.2897 $0.06
Core NII/share $0.36 $0.29 $0.38 $0.45 $0.57 $0.38 $0.29 $0.09
Reg + Spec Div/share $0.36 $0.36 $0.36 $0.36 $0.51 $0.32 $0.30 $0.09
NAV/share $14.21 $14.52 $14.54 $14.48 $14.61 $14.64 $14.49 $14.58
Cash Wt Av Yield 10.4% 10.7% 10.6% 11.0% 11.1% 10.9% 11.1% 11.2%
Adjusted Wt Av Yield 14.6% 14.6% 14.6% 14.6% 14.1% 14.1% 14.1%  
NII/TII Ratio 52.93% 50.52% 54.24% 50.42% 54.84% 44.82% 51.99%  

Please do me the favor of participating in the reader poll that follows in the comment section.