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What changed in Trinity Capital Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Trinity Capital Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+290 added−310 removedSource: 10-K (2024-03-06) vs 10-K (2023-03-02)

Top changes in Trinity Capital Inc.'s 2023 10-K

290 paragraphs added · 310 removed · 253 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

37 edited+1 added−2 removed146 unchanged
Biggest changeThe following illustrates our transaction rating methodology for equipment financings. 14 Table of Contents Our initial rating of every opportunity is based on six factors: (1) the portfolio company’s investors, specifically their ability and likelihood to provide ongoing financial support as needed; (2) the experience and strength of the portfolio company’s management team and board of directors; (3) the portfolio company’s products or services and the market needs that they fulfill; (4) the portfolio company’s historical and projected financial performance, including a review of revenue potential, growth, gross margins and other metrics; (5) debt structure and cash life; and (6) other factors such as intellectual property, collateral, corporate governance, or other items that are deemed to be relevant by the due diligence team.
Biggest changeInitial Rating Our initial rating of every opportunity is primarily based on six factors, as well as other items that are deemed to be relevant by the due diligence team: • Investor Syndicate: the portfolio company’s investors, specifically their ability and likelihood to provide ongoing financial support as needed; • Management Team: the experience and strength of the portfolio company’s management team and board of directors; • Product and Industry: the portfolio company’s products or services and the market needs that they fulfill; • Financial Performance: the portfolio company’s historical and projected financial performance, including revenue potential, growth, gross margins and other metrics; • Debt and Debt Structure: capital structure and cash life; and • Collateral and Security: type and value of collateral (e.g., mission-critical assets), liens and other forms of security.
In the case of equipment financings, for instance, the security interest may extend only to the asset(s) financed. In addition, we seek to enter into standard intercreditor agreements with the major technology banks that we anticipate engaging with, making workout situations much easier and less contentious.
In the case of equipment financings, for instance, the security interest may extend only to the asset(s) financed. In addition, we seek to enter into standard intercreditor agreements with the major technology banks that we anticipate engaging with, making workout situations easier and less contentious.
Market Opportunity We believe that an attractive market opportunity exists for providing debt and equipment financings to growth stage companies for the following reasons: • Growth stage companies have generally been underserved by traditional lending sources. • Unfulfilled demand exists for loans and equipment financings to growth stage companies due to the complexity of evaluating risk in these investments. • Debt investments with warrants are less dilutive than traditional equity financing and complement equity financing from venture capital and private equity funds. • Equity funding of growth stage companies, including venture capital backed companies, has increased steadily over the last ten years, resulting in new lending and equipment financing opportunities. • The annual venture debt market in the U.S. surpassed $30 billion for the fourth consecutive year in 2022.
Market Opportunity We believe that an attractive market opportunity exists for providing debt and equipment financings to growth-stage companies for the following reasons: • Growth-stage companies have generally been underserved by traditional lending sources. • Unfulfilled demand exists for loans and equipment financings to growth-stage companies due to the complexity of evaluating risk in these investments. • Debt investments with warrants are less dilutive than traditional equity financing and complement equity financing from venture capital and private equity funds. • Equity funding of growth-stage companies, including venture capital backed companies, has increased steadily over the last ten years, resulting in new lending and equipment financing opportunities. • The annual venture debt market in the U.S. surpassed $30 billion for the fourth consecutive year in 2023.
Although we have not made a determination whether to take advantage of any or all of these exemptions, we expect to remain an emerging growth company for up to five years following the completion of our IPO or until the earliest of: 17 Table of Contents • the last day of the first fiscal year in which our annual gross revenues exceed $1.235 billion; • December 31 of the fiscal year that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of the shares of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter and we have been publicly reporting for at least 12 months; or • the date on which we have issued more than $1.0 billion in non-convertible debt securities during the preceding three-year period.
Although we have not made a determination whether to take advantage of any or all of these exemptions, we expect to remain an emerging growth company for up to five years following the completion of our IPO or until the earliest of: • the last day of the first fiscal year in which our annual gross revenues exceed $1.235 billion; • December 31 of the fiscal year that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of the shares of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter and we have been publicly reporting for at least 12 months; or • the date on which we have issued more than $1.0 billion in non-convertible debt securities during the preceding three-year period.
In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things: • continue to qualify as a BDC under the 1940 Act at all times during each taxable year; • derive in each taxable year at least 90% of gross income from dividends, interest, payments with respect to loans of certain securities, gains from the sale of stock or other securities or foreign currencies, net income from certain “qualified publicly traded partnerships,” or other income derived with respect to the business of investing in such stock or securities (the “90% Income Test”); and • diversify our holdings so that at the end of each quarter of the taxable year: o at least 50% of the value of our assets consists of cash, cash equivalents, U.S.
In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things: • continue to qualify as a BDC under the 1940 Act at all times during each taxable year; • derive in each taxable year at least 90% of gross income from dividends, interest, payments with respect to loans of certain securities, gains from the sale of stock or other securities or foreign currencies, net 20 Table of Contents income from certain “qualified publicly traded partnerships,” or other income derived with respect to the business of investing in such stock or securities (the “90% Income Test”); and • diversify our holdings so that at the end of each quarter of the taxable year: o at least 50% of the value of our assets consists of cash, cash equivalents, U.S.
Risk Factors – Risks Relating to Our Business and Structure – We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses.” Regulation Emerging Growth Company We are an emerging growth company as defined in t he Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and are eligible to take advantage of certain specified reduced disclosure and other requirements that are otherwise generally applicable to public companies that are not “emerging growth companies” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”).
Risk Factors – Risks Relating to Our Business and Structure – We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses.” 16 Table of Contents Regulation Emerging Growth Company We are an emerging growth company as defined in t he Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and are eligible to take advantage of certain specified reduced disclosure and other requirements that are otherwise generally applicable to public companies that are not “emerging growth companies” including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”).
An eligible portfolio company is defined in the 1940 Act as any issuer which: a. is organized under the laws of, and has its principal place of business in, the United States; b. is not an investment company (other than a small business investment company wholly owned by the BDC) or a company that would be an investment company but for certain exclusions under the 1940 Act; and c. satisfies any of the following: i. does not have any class of securities that is traded on a national securities exchange; ii. has a class of securities listed on a national securities exchange, but has an aggregate market value of outstanding voting and non-voting common equity of less than $250 million; iii. is controlled by a BDC or a group of companies including a BDC and the BDC has an affiliated person who is a director of the eligible portfolio company; or iv. is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million; (2) Securities of any eligible portfolio company controlled by us; (3) Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy 18 Table of Contents and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements; (4) Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company; (5) Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities; or (6) Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment.
An eligible portfolio company is defined in the 1940 Act as any issuer which: a. is organized under the laws of, and has its principal place of business in, the United States; b. is not an investment company (other than a small business investment company wholly owned by the BDC) or a company that would be an investment company but for certain exclusions under the 1940 Act; and c. satisfies any of the following: i. does not have any class of securities that is traded on a national securities exchange; ii. has a class of securities listed on a national securities exchange, but has an aggregate market value of outstanding voting and non-voting common equity of less than $250 million; iii. is controlled by a BDC or a group of companies including a BDC and the BDC has an affiliated person who is a director of the eligible portfolio company; or iv. is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million; (2) Securities of any eligible portfolio company controlled by us; (3) Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements; (4) Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company; (5) Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities; or (6) Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment. 18 Table of Contents In addition, a BDC must be operated for the purpose of making investments in the types of securities described in (1), (2) or (3) above.
In 15 Table of Contents the case of an equipment financing, or term loan in which fixed assets make up a significant portion of our collateral, the due diligence team completes an analysis of the equipment or fixed assets being financed, which may include calls to the original manufacturer and/or any dealers, resellers, or refurbishing companies, to evaluate the value of the equipment at inception, as well as the useful life and anticipated value throughout the life of our holding period.
In the case of an equipment financing, or term loan in which fixed assets make up a significant portion of our collateral, the due diligence team completes an analysis of the equipment or fixed assets being financed, which may include calls to the original manufacturer and/or any dealers, resellers, or refurbishing companies, to evaluate the value of the equipment at inception, as well as the useful life and anticipated value throughout the life of our holding period.
We make available, free of charge, on our website our proxy statement, annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or 22 Table of Contents furnish it to, the SEC.
We make available, free of charge, on our website our proxy statement, annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
Our loans and equipment financings generally range from $2 million to $50 million, and we generally limit each loan or equipment financing to approximately five percent or less of our total assets.
Our loans and equipment financings generally range from $5 million to $50 million, and we generally limit each loan or equipment financing to approximately five percent or less of our total assets.
Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.
Furthermore, as a BDC, we are prohibited from protecting any director or 19 Table of Contents officer against any liability to stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.
Following the management call, if the opportunity still appears to be worthy of consideration, an executive summary memorandum is prepared by the due diligence team for consideration and voting by the Investment Committee. The executive summary memorandum is distributed to the Investment Committee, and the deal terms for the investment are defined.
Following the management call, if the opportunity still appears to be worthy of consideration, an executive summary memorandum is prepared by the due diligence team for consideration and voting by the Investment Committee. The executive summary memorandum is distributed to the Investment 14 Table of Contents Committee, and the deal terms for the investment are defined.
If we: • qualify as a RIC; and • satisfy the Annual Distribution Requirement, 20 Table of Contents then we will not be subject to U.S. federal income tax on the portion of income we timely distribute (or are deemed to distribute) to stockholders.
If we qualify as a RIC and satisfy the Annual Distribution Requirement, then we will not be subject to U.S. federal income tax on the portion of income we timely distribute (or are deemed to distribute) to stockholders.
If our expenses in a given year exceed investment company taxable income, we would experience a net operating loss for that year. However, a RIC is not permitted to carry forward net operating losses to subsequent years. In addition, expenses can be used only to offset investment company taxable income, not net capital gain.
If our expenses in a given year exceed investment company taxable income, we would experience a net 21 Table of Contents operating loss for that year. However, a RIC is not permitted to carry forward net operating losses to subsequent years. In addition, expenses can be used only to offset investment company taxable income, not net capital gain.
Risk Factors — Risks Relating to Our Business and Structure — Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital. ” 19 Table of Contents Code of Ethics.
Risk Factors — Risks Relating to Our Business and Structure — Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital. ” Code of Ethics.
A BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described above.
Significant Managerial Assistance. A BDC must have been organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described above.
Additional deal considerations typically have included upfront fees of up to 2% of the invested principal, upfront structuring fees of approximately one-half month of finance payments for equipment financings, an upfront deposit of up to three months for equipment financings, and have final payments on average of 7% of invested principal. • Equity and Equity-Related Securities .
Additional deal considerations typically have included upfront fees of up to 2% of the invested principal, upfront structuring fees of approximately one-half month of finance payments for equipment financings, an upfront deposit of up to three months for equipment financings, and final payments of up to 15% of invested principal. • Equity and Equity-Related Securities .
Human Capital Resources and Management Team We are an internally managed BDC employing 57 dedicated professionals as of December 31, 2022, including 35 investment, origination and portfolio management professionals, all of whom have experience working on investment and financing transactions for growth- and early-stage companies. All of our employees are located in the United States.
Human Capital Resources and Management Team We are an internally managed BDC employing 68 dedicated professionals as of December 31, 2023, including 43 investment, origination and portfolio management professionals, all of whom have experience working on investment and financing transactions for growth- and early-stage companies. All of our employees are located in the United States.
From time to time, we will identify investments that require closer monitoring or become workout assets. We will develop a workout strategy for workout assets and our Investment Committee will monitor the progress against the strategy.
From time to time, we will identify investments that require closer monitoring or become workout assets. We will develop a workout strategy for workout assets and our Investment Committee will monitor the progress against 15 Table of Contents the strategy.
Corporate Information Our principal executive offices are located at 1 N 1st Street, 3rd Floor, Phoenix, AZ 85004. We maintain a website on the Internet at www.trinitycap.com.
Corporate Information Our principal executive offices are located at 1 N 1st Street, Suite 302, Phoenix, AZ 85004. We maintain a website on the Internet at www.trinitycap.com.
Our senior management team, led by Steven L. Brown, comprises the majority of the senior management team that managed the Legacy Funds and sourced the Legacy Portfolio.
Our senior management team, led by Kyle Brown, comprises the majority of the senior management team that managed the Legacy Funds and sourced the Legacy Portfolio.
In addition, we will take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. Regulation as a Business Development Company We have elected to be regulated as a BDC under the 1940 Act.
In addition, we will take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. 17 Table of Contents Regulation as a Business Development Company We have elected to be regulated as a BDC under the 1940 Act.
For our investment risk rating system, we review seven different criteria and, based on our review of such criteria, we assign a risk rating on a scale of 1 to 5, as set forth in the following illustration. 16 Table of Contents As of December 31, 2022, the Company’s debt investment portfolio had a weighted average risk rating score of 2.8.
For our investment risk rating system, we review seven different criteria and, based on our review of such criteria, we assign a risk rating on a scale of 1 to 5, as set forth in the following illustration. As of December 31, 2023, the Company’s debt investment portfolio had a weighted average risk rating score of 2.7.
We have developed proprietary internal systems and technology to give our originations and marketing team real time information about the broader market and our investment pipeline, which we leverage to attempt to become and maintain our relationship as the first call for our referral sources. Initial Rating The following illustrates our transaction rating methodology for term loans.
We have developed proprietary internal systems and technology to give our originations and marketing team real time information about the broader market and our investment pipeline, which we leverage to attempt to become and maintain our relationship as the first call for our referral sources.
Where and when possible, we will execute deposit account control agreements with our portfolio companies giving us ongoing access to their bank accounts for purposes of ensuring access to our collateral in a default.
Where and when possible, we will execute deposit account control agreements with our portfolio companies for purposes of ensuring access to our collateral in a default.
Our management team has prior management experience, including with early-stage tech startups, and employs a highly systematized investment approach. Our senior management team, led by Steven L. Brown, comprises the majority of the senior management team that managed the Legacy Funds and sourced the Legacy Portfolio.
Our management team has prior management experience, including with early-stage tech startups, and employs a highly systematized investment approach. Our senior management team, led by Kyle Brown, comprises the majority of the senior management team that managed the Legacy Funds and sourced the Legacy Portfolio. All investment decisions are made by the Investment Committee, whose members consist of Steven L.
TCF is included as a consolidated subsidiary of the Company in our consolidated financial statements. Overview We are a specialty lending company that provides debt, including loans and equipment financings, to growth stage companies, including venture-backed companies and companies with institutional equity investors.
TCF is included as a consolidated subsidiary of the Company in our consolidated financial statements. Overview We are a specialty lending company that provides debt, including loans and equipment financings, to growth-stage companies, including venture-backed companies and companies with institutional equity investors. Our investment objective is to generate current income and, to a lesser extent, capital appreciation through our investments.
We may also make direct equity and equity-related investments in conjunction with our debt investments. We target growth stage companies that have recently issued equity to raise cash to offset potential cash flow needs related to projected growth, have achieved positive cash flow to cover debt service, or have institutional investors committed to providing additional funding.
We target growth-stage companies that have recently issued equity to raise cash to offset potential cash flow needs related to projected growth, have achieved positive cash flow to cover debt service, or have institutional investors committed to providing additional funding.
The Investment Committee approves proposed investments by majority consent in accordance with investment guidelines and procedures established by the Investment Committee. Our employees drive the success of our business and investment strategy, including achieving our investment objective. We offer competitive compensation, benefits and training programs to develop our employees’ skills and expertise.
Our employees drive the success of our business and investment strategy, including achieving our investment objective. We offer competitive compensation, benefits and training programs to develop our employees’ skills and expertise.
Investment Process 13 Table of Contents Investment Originations; New Deals Referred We have a multi-channel sourcing strategy focused primarily on growth stage venture capital firms, private equity firms, technology banks and, to a lesser extent, brokers who focus on our business.
In all cases, we seek to put in place Uniform Commercial Code filings to perfect our security position, and to update these filings as necessary to reflect changes in our collateral. 13 Table of Contents Investment Process Investment Originations; New Deals Referred We have a multi-channel sourcing strategy focused primarily on growth-stage venture capital firms, private equity firms, technology banks and, to a lesser extent, brokers who focus on our business.
Our loans and equipment financings may have initial interest-only periods of up to 24 months and generally fully amortize over a total term of up to 60 months. These investments are typically secured by a blanket first position lien, a specific asset lien on mission-critical assets and/or a blanket second position lien.
Our loans and equipment financings generally have a total term of up to 60 months. These investments are typically secured by a blanket first position lien, a specific asset lien on mission-critical assets and/or a blanket second position lien. We may also make a limited number of direct equity and equity-related investments in conjunction with our debt investments.
Subject to the requirements of the 1940 Act, we are not limited to investing in any particular industry or geographic area and seek to invest in under-financed segments of the private credit markets.
Subject to the requirements of the 1940 Act, we are not limited to investing in any particular industry or geographic area and seek to invest in under-financed segments of the private credit markets. Our loans generally may have initial interest-only periods of up to 24 months, and our equipment financings generally begin amortizing immediately.
In addition, we may be prohibited under the terms of any existing or future credit facilities from making distributions unless certain conditions are satisfied. If we are prohibited from making distributions, we may fail to qualify for tax treatment as a RIC and become subject to U.S. federal income tax at corporate rates.
If we are prohibited from making distributions, we may fail to qualify for tax treatment as a RIC and become subject to U.S. federal income tax at corporate rates.
If we are unable to obtain cash from other sources to satisfy the Annual Distribution Requirement, we may fail to maintain our qualification for tax treatment as a RIC and become subject to U.S. federal income tax at corporate rates. 21 Table of Contents Under the 1940 Act, we are not permitted to make distributions to our stockholders while debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met.
If we are unable to obtain cash from other sources to satisfy the Annual Distribution Requirement, we may fail to maintain our qualification for tax treatment as a RIC and become subject to U.S. federal income tax at corporate rates.
Our equipment financings involve loans for general or specific use, including acquiring equipment, that are secured by the equipment or other assets of the portfolio company. In addition, we may obtain warrants or contingent exit fees at funding from many of our portfolio companies, providing an additional potential source of investment returns.
In addition, we may obtain warrants or contingent exit fees at funding from many of our portfolio companies, providing an additional potential source of investment returns.
All investment decisions are made by the Investment Committee, whose members consist of Steven L. Brown, Gerald Harder, Kyle Brown, Ron Kundich and a vertical market leader (on a rotating basis throughout the year). We consider these individuals to be our portfolio managers.
Brown, Gerald Harder, Kyle Brown, and Ron Kundich and a vertical market leader (on a rotating basis throughout the year). We consider these individuals to be our portfolio managers. The Investment Committee approves proposed investments by majority consent in accordance with investment guidelines and procedures established by the Investment Committee.
Our investment objective is to generate current income and, to a lesser extent, capital appreciation through our investments. We seek to achieve our investment objective by making investments consisting primarily of term loans and equipment financings and, to a lesser extent, working capital loans, equity and equity-related investments.
We seek to achieve our investment objective by making investments consisting primarily of term loans and equipment financings and, to a lesser extent, working capital loans, equity and equity-related investments. Our equipment financings involve loans for general or specific use, including acquiring equipment, that are secured by the equipment or other assets of the portfolio company.
Removed
In all cases, we seek to put in place Uniform Commercial Code filings to perfect our position, and to update these filings frequently to reflect changes in our collateral.
Added
Under the 1940 Act, we are not permitted to make distributions to our stockholders while debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. In addition, we may be prohibited under the terms of any existing or future credit facilities from making distributions unless certain conditions are satisfied.
Removed
In addition, a BDC must be operated for the purpose of making investments in the types of securities described in (1), (2) or (3) above. Significant Managerial Assistance.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

118 edited+19 added−23 removed528 unchanged
Biggest changeWe are subject to risks related to our business and structure, including, but not limited to the following: • We depend upon our senior management team and investment professionals, including the members of our Investment Committee, for our success. • Our business model depends, to a significant extent, upon strong referral relationships with venture capital sponsors, and our inability to develop or maintain these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business. • Global economic, political and market conditions, including uncertainty about the financial stability of the United States, could have a significant adverse effect on our business, financial condition and results of operations. • Regulations governing our operations as a BDC affect our ability to and the way in which we raise additional capital. • Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy. • Provisions in our existing and future credit facilities may limit our operations. • We are exposed to risks associated with changes in interest rates, including the current rising interest rate environment. • Most or a substantial portion of our portfolio investments will be recorded at fair value as determined in good faith by the Board and, as a result, there may be uncertainty as to the value of our portfolio investments. • The Board may change our investment objective, operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse. • Internal and external cybersecurity threats, as well as other disasters, may adversely affect our business or the business of our portfolio companies by impairing our ability to conduct business effectively. 23 Table of Contents We are subject to risks related to our investments, including, but not limited to the following: • Our investments are very risky and highly speculative and a lack of liquidity in our investments may adversely affect us. • Our investment strategy focuses on growth stage companies which are subject to many risks, including dependence on the need to raise additional capital, volatility, intense competition, shortened product life cycles, changes in regulatory and governmental programs, periodic downturns, below investment grade ratings, which could cause you to lose all or part of your investment in us. • The equipment financing industry is highly competitive and competitive forces could adversely affect the financing rates and resale prices that we may realize on our equipment financing investment portfolio and the prices that we have to pay to acquire our investments. • The COVID-19 pandemic has caused severe disruptions in the global economy and has disrupted financial activity in the areas in which we or our portfolio companies operate. • Economic recessions or downturns could impair our portfolio companies and harm our operating results. • Our investments are geographically concentrated, which may result in a single occurrence in a particular geographic area having a disproportionate negative impact on our investment portfolio. • We may be subject to risks associated with our investments in senior loans, junior debt securities and covenant-lite loans. • We are subject to risks associated with investing alongside other third parties.
Biggest changeWe are subject to risks related to our business and structure, including, but not limited to the following: • We depend upon our senior management team and investment professionals, including the members of our Investment Committee, for our success. • Our business model depends, to a significant extent, upon strong referral relationships with venture capital sponsors, and our inability to develop or maintain these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business. • Global economic, political and market conditions, including uncertainty about the financial stability of the United States, could have a significant adverse effect on our business, financial condition and results of operations. • Regulations governing our operations as a BDC affect our ability to and the way in which we raise additional capital. • Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy. • Provisions in our existing and future credit facilities may limit our operations. • We are exposed to risks associated with changes in interest rates, including the current rising interest rate environment. • Most or a substantial portion of our portfolio investments will be recorded at fair value as determined in good faith by the Board and, as a result, there may be uncertainty as to the value of our portfolio investments. • The Board may change our investment objective, operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse. • Internal and external cybersecurity threats, as well as other disasters, may adversely affect our business or the business of our portfolio companies by impairing our ability to conduct business effectively.
In structuring our loans, we may subordinate our security interest in certain assets of a borrower to another lender, usually a bank, such that we hold a second lien secured loan.
Second Lien Secured Loans. In structuring our loans, we may subordinate our security interest in certain assets of a borrower to another lender, usually a bank, such that we hold a second lien secured loan.
Accordingly, financing these types of companies may entail a higher risk of loss than would financing companies that are sponsored by venture capital or private equity firms. We may invest through joint ventures.
Accordingly, financing these types of companies may entail a higher risk of loss than would financing companies that are sponsored by venture capital or private equity firms. We invest through joint ventures.
Under the new rule, a BDC may enter into an unfunded commitment agreement that is not a derivatives transaction, such as an agreement to provide financing to a portfolio company, if the BDC has, among other things, a reasonable belief, at the time it enters into such an agreement, that it will have sufficient cash and cash equivalents to meet its obligations with respect to all of its unfunded commitment agreements, in each case as it becomes due.
Under the rule, a BDC may enter into an unfunded commitment agreement that is not a derivatives transaction, such as an agreement to provide financing to a portfolio company, if the BDC has, among other things, a reasonable belief, at the time it enters into such an agreement, that it will have sufficient cash and cash equivalents to meet its obligations with respect to all of its unfunded commitment agreements, in each case as it becomes due.
These factors include: • changes in the value of our portfolio of investments and derivative instruments as a result of changes in market factors, such as interest rate shifts, and also portfolio specific performance, such as portfolio company defaults, among other reasons; • changes in regulatory policies or tax guidelines, particularly with respect to RICs or BDCs; • loss of RIC or BDC status; • distributions that exceed our net investment income and net income as reported according to GAAP; • changes in earnings or variations in operating results; • changes in accounting guidelines governing valuation of our investments; • any shortfall in revenue or net income or any increase in losses from levels expected by investors; 57 Table of Contents • departure of key personnel; • general economic trends and other external factors; and • loss of a major funding source.
These factors include: • changes in the value of our portfolio of investments and derivative instruments as a result of changes in market factors, such as interest rate shifts, and also portfolio specific performance, such as portfolio company defaults, among other reasons; • changes in regulatory policies or tax guidelines, particularly with respect to RICs or BDCs; • loss of RIC or BDC status; • distributions that exceed our net investment income and net income as reported according to GAAP; • changes in earnings or variations in operating results; • changes in accounting guidelines governing valuation of our investments; • any shortfall in revenue or net income or any increase in losses from levels expected by investors; • departure of key personnel; 50 Table of Contents • general economic trends and other external factors; and • loss of a major funding source.
This failure to meet obligations may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment; • they typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions, market conditions, and general economic downturns; • they are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us; • they generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion, or maintain their competitive position.
This failure to meet obligations may be accompanied by a 35 Table of Contents deterioration in the value of any collateral and a reduction in the likelihood of us realizing any guarantees we may have obtained in connection with our investment; • they typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions, market conditions, and general economic downturns; • they are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us; • they generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion, or maintain their competitive position.
The market value and liquidity, if any, of the market for shares of our common stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance.
The market value of our common stock may fluctuate significantly. The market value and liquidity, if any, of the market for shares of our common stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance.
In particular, the terms of such indentures and the Notes and the Convertible Notes do not place any restrictions on our or our subsidiaries’ ability to: • issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be pari passu, or equal in right of payment, to the Notes or the Convertible Notes , (2) any indebtedness or other obligations that would be secured and therefore 52 Table of Contents rank effectively senior in right of payment to the Notes or the Convertible Notes to the extent of the value of the assets securing such indebtedness, (3) indebtedness or other obligations of ours that are guaranteed by one or more of our subsidiaries and which therefore are structurally senior to the Notes or the Convertible Notes and (4) securities, indebtedness or other obligations incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the Notes or the Convertible Notes with respect to the assets of those subsidiaries, in each case other than an incurrence of indebtedness or other obligations that would cause a violation of Section 18(a)(1)(A) as modified by Section 61(a) of the 1940 Act or any successor provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to us by the SEC.
In particular, the terms of such indentures and the Notes and the Convertible Notes do not place any restrictions on our or our subsidiaries’ ability to: • issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be pari passu, or equal in right of payment, to the Notes or the Convertible Notes , (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the Notes or the Convertible Notes to the extent of the value of the assets securing such indebtedness, (3) indebtedness or other obligations of ours that are guaranteed by one or more of our subsidiaries and which therefore are structurally senior to the Notes or the Convertible Notes and (4) securities, indebtedness or other obligations incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the Notes or the Convertible Notes with respect to the assets of those subsidiaries, in each case other than an incurrence of indebtedness or other obligations that would cause a violation of Section 18(a)(1)(A) as modified by Section 61(a) of the 1940 Act or any successor provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to us by the SEC.
The use of debt could have significant consequences on our future operations, including: • making it more difficult for us to meet our payment and other our current indebtedness and/or any other outstanding indebtedness we may incur in the future; • resulting in an event of default if we fail to comply with the financial and other restrictive covenants contained in our debt agreements, which event of default could result in substantially all of our debt becoming immediately due and payable; • reducing the availability of our cash flow to fund investments, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes; • subjecting us to the risk of increased sensitivity to interest rate increases on our indebtedness with variable interest rates; and • limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in which we operate and the general economy.
The use of debt could have significant consequences on our future operations, including: • making it more difficult for us to meet our payment and other our current indebtedness and/or any other outstanding indebtedness we may incur in the future; • resulting in an event of default if we fail to comply with the financial and other restrictive covenants contained in our debt agreements, which event of default could result in substantially all of our debt becoming immediately due and payable; • reducing the availability of our cash flow to fund investments, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes; 28 Table of Contents • subjecting us to the risk of increased sensitivity to interest rate increases on our indebtedness with variable interest rates; and • limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in which we operate and the general economy.
See “ We may not be able to repurchase either of the August 2026 Notes or the December 2026 Notes upon a Change of Control Repurchase Event ” and “ We may not have, or have the ability to raise, the funds necessary to purchase the Convertible Notes as required upon a fundamental change, and our future debt may contain limitations on our ability to deliver shares of our common stock upon conversion or purchase of the Convertible Notes. ” 53 Table of Contents Furthermore, the Notes and the Convertible Notes and the terms of their respective indentures do not protect holders of such notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity.
See “ We may not be able to repurchase either of the August 2026 Notes or the December 2026 Notes upon a Change of Control Repurchase Event ” and “ We may not have, or have the ability to raise, the funds necessary to purchase the Convertible Notes as required upon a fundamental change, and our future debt may contain limitations on our ability to deliver shares of our common stock upon conversion or purchase of the Convertible Notes. ” Furthermore, the Notes and the Convertible Notes and the terms of their respective indentures do not protect holders of such notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity.
Under a typical intercreditor 39 Table of Contents agreement, at any time that obligations that have the benefit of the first-priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first-priority liens: • the ability to cause the commencement of enforcement proceedings against the collateral; • the ability to control the conduct of such proceedings; • the approval of amendments to collateral documents; • releases of liens on the collateral; and • waivers of past defaults under collateral documents.
Under a typical intercreditor agreement, at any time that obligations that have the benefit of the first-priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first-priority liens: • the ability to cause the commencement of enforcement proceedings against the collateral; • the ability to control the conduct of such proceedings; • the approval of amendments to collateral documents; • releases of liens on the collateral; and 38 Table of Contents • waivers of past defaults under collateral documents.
The proposal approved by our stockholders at our 2022 Annual Meeting of Stockholders did not specify a maximum discount below net asset value at which we are able to issue our common stock, although the number of shares sold in one or more offerings may not exceed 25% of our outstanding common stock as of the date of stockholder approval of this proposal.
The proposal approved by our stockholders at our 2023 Annual Meeting of Stockholders did not specify a maximum discount below net asset value at which we are able to issue our common stock, although the number of shares sold in one or more offerings may not exceed 25% of our outstanding common stock as of the date of stockholder approval of this proposal.
As part of the valuation process, we may take into account the following types of factors, if relevant, in determining the fair value of our investments: • a comparison of the portfolio company’s securities to publicly traded securities; • the enterprise value of a portfolio company; 31 Table of Contents • the nature and realizable value of any collateral; • the portfolio company’s ability to make payments and its earnings and discounted cash flow; • the markets in which the portfolio company does business; and • changes in the interest rate and inflation rate environments and the credit markets generally that may affect the price at which similar investments may be made in the future and other relevant factors.
As part of the valuation process, we may take into account the following types of factors, if relevant, in determining the fair value of our investments: • a comparison of the portfolio company’s securities to publicly traded securities; • the enterprise value of a portfolio company; • the nature and realizable value of any collateral; • the portfolio company’s ability to make payments and its earnings and discounted cash flow; • the markets in which the portfolio company does business; and • changes in the interest rate and inflation rate environments and the credit markets generally that may affect the price at which similar investments may be made in the future and other relevant factors.
The extent of the impact of any public health emergency, including the COVID-19 pandemic, on our and our portfolio companies’ operational and financial performance will depend on many factors, including the duration and scope of such public health emergency, the actions taken by governmental authorities to contain its financial and economic impact, the extent of any related travel advisories and restrictions implemented, the impact of such public health emergency on overall supply and demand, goods and services, investor liquidity, consumer confidence and levels of economic activity and the extent of its disruption to important global, regional and local supply chains and economic markets, all of which are highly uncertain and cannot be predicted.
The extent of the impact of any public health emergency on our and our portfolio companies’ operational and financial performance will depend on many factors, including the duration and scope of such public health emergency, the actions taken by governmental authorities to contain its financial and economic impact, the extent of any related travel advisories and restrictions implemented, the impact of such public health emergency on overall supply and demand, goods and services, investor liquidity, consumer confidence and levels of economic activity and the extent of its disruption to important global, regional and local supply chains and economic markets, all of which are highly uncertain and cannot be predicted.
Specifically, we are subject to strict limitations on 47 Table of Contents using such derivatives other than for hedging purposes, whereby the use of derivatives not used solely for hedging purposes is generally limited to situations where (i) the aggregate initial margin and premiums required to establish such positions does not exceed five percent of the liquidation value of our portfolio, after taking into account unrealized profits and unrealized losses on any such contracts we have entered into; or (ii) the aggregate net notional value of such derivatives does not exceed 100% of the liquidation value of our portfolio.
Specifically, we are subject to strict limitations on using such derivatives other than for hedging purposes, whereby the use of derivatives not used solely for hedging purposes is generally limited to situations where (i) the aggregate initial margin and premiums required to establish such positions does not exceed five percent of the liquidation value of our portfolio, after taking into account unrealized profits and unrealized losses on any such contracts we have entered into; or (ii) the aggregate net notional value of such derivatives does not exceed 100% of the liquidation value of our portfolio.
At our option, we may cause the holders to convert all or a portion of the then outstanding principal amount of the Convertible Notes plus accrued but unpaid interest, but excluding the date of such conversion, at any time on or prior to the close of business on the business day immediately preceding the maturity date, if, the closing sale price 56 Table of Contents of our common stock on a national securities exchange for any 30 consecutive trading days exceeds 120% of the conversion price, as may be adjusted.
At our option, we may cause the holders to convert all or a portion of the then outstanding principal amount of the Convertible Notes plus accrued but unpaid interest, but excluding the date of such conversion, at any time on or prior to the close of business on the business day immediately preceding the maturity date, if, the closing sale price of our common stock on a national securities exchange for any 30 consecutive trading days exceeds 120% of the conversion price, as may be adjusted.
These risks include changes in exchange control regulations, political and social instability, 46 Table of Contents expropriation, imposition of foreign taxes (potentially at confiscatory levels), less liquid markets, less available information than is generally the case in the U.S., higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility.
These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign taxes (potentially at confiscatory levels), less liquid markets, less available information than is generally the case in the U.S., higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility.
Under this covenant, we will be permitted to declare a cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) as modified by such provisions of Section 61(a) of the 1940 Act as may be applicable to us from time to time or any successor provisions, but only up to such amount as is necessary for us to maintain our status as a RIC under Subchapter M of the Code.
Under this covenant, we will be permitted to declare a cash 52 Table of Contents dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) as modified by such provisions of Section 61(a) of the 1940 Act as may be applicable to us from time to time or any successor provisions, but only up to such amount as is necessary for us to maintain our status as a RIC under Subchapter M of the Code.
Risks Related to Our Investments Our investment strategy focuses on growth stage companies, which are subject to many risks, including dependence on the need to raise additional capital, volatility, intense competition, shortened product life cycles, 32 Table of Contents changes in regulatory and governmental programs, periodic downturns, below investment grade ratings, which could cause you to lose all or part of your investment in us.
Risks Related to Our Investments Our investment strategy focuses on growth-stage companies, which are subject to many risks, including dependence on the need to raise additional capital, volatility, intense competition, shortened product life cycles, changes in regulatory and governmental programs, periodic downturns, below investment grade ratings, which could cause you to lose all or part of your investment in us.
In addition, we expect that the custodian for our securities serving as collateral for such loan would include in its electronic systems notices indicating the existence of such security interests and, following notice of occurrence of an event of default, if any, and during its 29 Table of Contents continuance, will only accept transfer instructions with respect to any such securities from the lenders or their designee.
In addition, we expect that the custodian for our securities serving as collateral for such loan would include in its electronic systems notices indicating the existence of such security interests and, following notice of occurrence of an event of default, if any, and during its continuance, will only accept transfer instructions with respect to any such securities from the lenders or their designee.
Financial markets have been affected at times by a number of global macroeconomic events, including the following: large sovereign debts and fiscal deficits of several countries in Europe and in emerging markets jurisdictions, levels of non‑performing loans on the balance sheets of European banks, the effect of the United Kingdom (the “U.K.”) leaving the European Union (the “EU”), instability in the Chinese capital markets and the COVID-19 pandemic.
Financial markets have been affected at times by a number of global macroeconomic events, including the following: large sovereign debts and fiscal deficits of several countries in Europe and in emerging markets jurisdictions, levels of non‑performing loans on the balance sheets of European banks, the effect of the United Kingdom (the “U.K.”) leaving the European Union (the “EU”), and instability in the Chinese capital markets.
As such, other creditors may rank senior to us in the event of an insolvency, bankruptcy or liquidation. 36 Table of Contents In addition, investing in small, fast-growing, private companies involves a number of significant risks, including the following: • these companies may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold.
As such, other creditors may rank senior to us in the event of an insolvency, bankruptcy or liquidation. In addition, investing in small, fast-growing, private companies involves a number of significant risks, including the following: • these companies may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold.
If the Convertible Notes are issued with OID and a bankruptcy petition were filed by or against us under the United States Bankruptcy Code after the issuance of the Convertible Notes, the claim by any holder of the Convertible Notes for the principal amount of the Convertible Notes may be limited to an amount equal to the sum 59 Table of Contents of: the original issue price for the Convertible Notes and that portion of any OID that does not constitute “unmatured interest” for purposes of the United States Bankruptcy Code.
If the Convertible Notes are issued with OID and a bankruptcy petition were filed by or against us under the United States Bankruptcy Code after the issuance of the Convertible Notes, the claim by any holder of the Convertible Notes for the principal amount of the Convertible Notes may be limited to an amount equal to the sum of: the original issue price for the Convertible Notes and that portion of any OID that does not constitute “unmatured interest” for purposes of the United States Bankruptcy Code.
We are unable to predict whether any such changes in laws, rules or regulations will occur and, if they do occur, the impact of these changes on our portfolio 40 Table of Contents companies and our investment returns.
We are unable to predict whether any such 39 Table of Contents changes in laws, rules or regulations will occur and, if they do occur, the impact of these changes on our portfolio companies and our investment returns.
The continuance or reappearance of market conditions similar to 26 Table of Contents those experienced during portions of the last three fiscal years for any substantial length of time could make it difficult to extend the maturity of or refinance our existing indebtedness or obtain new indebtedness with similar terms and any failure to do so could have a material adverse effect on our business.
The continuance or reappearance of market conditions similar to those experienced during portions of the last three fiscal years for any substantial length of time could make it difficult to extend the maturity of or refinance our existing indebtedness or obtain new indebtedness with similar terms and any failure to do so could have a material adverse effect on our business.
Subject to certain exceptions, the Convertible Notes Indenture will provide that the Convertible Notes and any shares of common stock issued upon conversion of the Convertible Notes will bear a restricted securities legend until the date that is one year after the later of last date of original issuance of the Convertible Notes or the last day of issuance of any additional Convertible Notes, or such later date, if any, as may be required by applicable law.
Subject to certain exceptions, the Convertible Notes Indenture will provide that the Convertible Notes and any shares of common stock issued upon conversion of the Convertible Notes will bear a restricted securities legend until the date that is one year after the later of last date of original 56 Table of Contents issuance of the Convertible Notes or the last day of issuance of any additional Convertible Notes, or such later date, if any, as may be required by applicable law.
Further, we may elect to amortize market discounts with respect to debt securities acquired in the secondary market and include such amounts in our taxable income in the current year, 61 Table of Contents instead of upon disposition, as an election not to do so would limit our ability to deduct interest expenses for U.S. federal income tax purposes.
Further, we may elect to amortize market discounts with respect to debt securities acquired in the secondary market and include such amounts in our taxable income in the current year, instead of upon disposition, as an election not to do so would limit our ability to deduct interest expenses for U.S. federal income tax purposes.
In addition, persons with whom members of our management team have relationships are not obligated to provide us with investment opportunities and, therefore, there is no assurance that such relationships will lead to the origination of debt or other investments. Our financial condition and results of operations depend on our ability to manage our business effectively.
In addition, persons with whom members of our management team have relationships are not obligated to provide us with investment opportunities and, therefore, there is no assurance that such relationships will lead to the origination of debt or other investments. 24 Table of Contents Our financial condition and results of operations depend on our ability to manage our business effectively.
We may, however, sell our common stock, or warrants, options, or rights to acquire our common stock, at a price below the current net asset value of our common stock if our Board and independent directors determine that such sale is in our best interests and the best interests of our stockholders, and our stockholders, including a majority of those stockholders that are not affiliated with us, approve such sale.
We may, however, sell our common stock, or warrants, options, or rights to acquire our common stock, at a price below the 49 Table of Contents current net asset value of our common stock if our Board and independent directors determine that such sale is in our best interests and the best interests of our stockholders, and our stockholders, including a majority of those stockholders that are not affiliated with us, approve such sale.
In addition, a decreased U.S. government credit rating could create broader financial turmoil and uncertainty, which may weigh heavily on our financial performance and the value of our common stock. Deterioration in the economic conditions in the Eurozone and other regions or countries globally and the resulting instability in global financial markets may pose a risk to our business.
In addition, a decreased U.S. government credit rating could create broader financial turmoil and uncertainty, which may weigh heavily on our financial performance and the value of our common stock. 33 Table of Contents Deterioration in the economic conditions in the Eurozone and other regions or countries globally and the resulting instability in global financial markets may pose a risk to our business.
If we did not have the capital to make a required change, we might be required to sell the affected equipment or to sell other items of its equipment in order to obtain the necessary cash; in 33 Table of Contents either event, we could suffer a loss on our investment and might lose future revenues, and we might also have adverse tax consequences.
If we did not have the capital to make a required change, we might be required to sell the affected equipment or to sell other items of its equipment in order to obtain the necessary cash; in either event, we could suffer a loss on our investment and might lose future revenues, and we might also have adverse tax consequences.
In these situations, all of the risks identified above regarding senior secured loans would be present and additional risks inherent in holding a junior security position would also be present, including that our second lien secured loans generally would be subordinated to senior loans and other creditors may rank senior to us in the event of default, insolvency or liquidation.
In these situations, all of the risks identified above regarding senior secured loans would be present and additional risks inherent in holding a junior security position would also be present, including that our second lien secured loans 36 Table of Contents generally would be subordinated to senior loans and other creditors may rank senior to us in the event of default, insolvency or liquidation.
If any of such notes are traded after their initial issuance, they may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, general economic conditions, our financial condition, 55 Table of Contents performance and prospects and other factors.
If any of such notes are traded after their initial issuance, they may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, general economic conditions, our financial condition, performance and prospects and other factors.
In addition, we may be subject to limitations as to how borrowed funds may be used, which may include restrictions on geographic and industry concentrations, loan size, payment frequency and status, average life, collateral interests and investment ratings, as well as regulatory restrictions on leverage which may affect the amount of funding that may be obtained.
In addition, we may be subject to limitations as to how borrowed funds may be used, which may include restrictions on geographic and industry concentrations, loan size, payment frequency and status, average life, 29 Table of Contents collateral interests and investment ratings, as well as regulatory restrictions on leverage which may affect the amount of funding that may be obtained.
Accordingly, financing these types of companies may entail a higher risk of loss than would financing companies that are able to utilize traditional credit sources. 42 Table of Contents If our portfolio companies are unable to commercialize their technologies, products, business concepts or services, the returns on our investments could be adversely affected.
Accordingly, financing these types of companies may entail a higher risk of loss than would financing companies that are able to utilize traditional credit sources. If our portfolio companies are unable to commercialize their technologies, products, business concepts or services, the returns on our investments could be adversely affected.
We may choose to redeem the Notes at times when prevailing interest rates are lower than the interest rate paid on such notes. In this circumstance, the holders thereof may not be able to 54 Table of Contents reinvest the redemption proceeds in a comparable security at an effective interest rate as high as that of the Notes being redeemed.
We may choose to redeem the Notes at times when prevailing interest rates are lower than the interest rate paid on such notes. In this circumstance, the holders thereof may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as that of the Notes being redeemed.
If the holders of the August 2026 Notes and/or the December 2026 Notes, as applicable, exercise their right to require us to repurchase all of such notes upon a Change of Control Repurchase Event, the financial effect of this repurchase could cause a default under our existing or future debt instruments, even if the Change of Control Repurchase Event itself would not cause a default.
If the holders of the August 2026 Notes and/or the 54 Table of Contents December 2026 Notes, as applicable, exercise their right to require us to repurchase all of such notes upon a Change of Control Repurchase Event, the financial effect of this repurchase could cause a default under our existing or future debt instruments, even if the Change of Control Repurchase Event itself would not cause a default.
Our valuations, and particularly valuations of private investments and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information. As a result, our valuations may not show the completed or continuing impact of the COVID-19 pandemic and the resulting measures taken in response thereto.
Our valuations, and particularly valuations of private investments and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information. As a result, our valuations may not show the completed or continuing impact and the resulting measures taken in response thereto.
This may have a significant impact if the companies are unable to obtain certain federal, state or foreign agency approval for their products or the marketing thereof, of if regulatory review processes extend longer than anticipated, and the companies need continued funding for their operations during these times.
This may 41 Table of Contents have a significant impact if the companies are unable to obtain certain federal, state or foreign agency approval for their products or the marketing thereof, of if regulatory review processes extend longer than anticipated, and the companies need continued funding for their operations during these times.
To the extent we use debt financing, we will be subject to certain asset coverage ratio requirements under the 1940 Act and may be subject to 60 Table of Contents financial covenants under loan and credit agreements, each of which could, under certain circumstances, restrict us from making annual distributions necessary to receive RIC tax treatment.
To the extent we use debt financing, we will be subject to certain asset coverage ratio requirements under the 1940 Act and may be subject to financial covenants under loan and credit agreements, each of which could, under certain circumstances, restrict us from making annual distributions necessary to receive RIC tax treatment.
Consequently, we may realize significantly less than the value at which we carry our investments. An inability to raise capital, and any required sale of our investments for liquidity purposes, could have a material adverse impact on our business, financial condition or results of operations.
Consequently, we may realize significantly less than the value at which we carry our investments. An inability to raise capital, and any 26 Table of Contents required sale of our investments for liquidity purposes, could have a material adverse impact on our business, financial condition or results of operations.
We will also be permitted to borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes, which borrowings would not be considered senior securities. We may borrow money, which may magnify the potential for gain or loss and may increase the risk of investing in us.
We will also be permitted to borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes, which borrowings would not be considered senior securities. 27 Table of Contents We may borrow money, which may magnify the potential for gain or loss and may increase the risk of investing in us.
Such events, including rising trade tensions between the United States and China, other uncertainties regarding actual and potential shifts in U.S. and foreign, trade, economic and other policies with other countries, the war between Russia and Ukraine, and the COVID-19 pandemic, could adversely affect our business, financial condition or results of operations.
Such events, including rising trade tensions between the United States and China, other uncertainties regarding actual and potential shifts in U.S. and foreign, trade, economic and other policies with other countries, and the war between Russia and Ukraine, could adversely affect our business, financial condition or results of operations.
Shares of closed-end investment companies, including BDCs, frequently trade at a discount from their net 49 Table of Contents asset value and our stock may also be discounted in the market. This characteristic of closed-end investment companies is separate and distinct from the risk that our net asset value per share of common stock may decline.
Shares of closed-end investment companies, including BDCs, frequently trade at a discount from their net asset value and our stock may also be discounted in the market. This characteristic of closed-end investment companies is separate and distinct from the risk that our net asset value per share of common stock may decline.
We depend on the investment expertise, skill and network of business 24 Table of Contents contacts of our senior management team and investment professionals, including the members of the Investment Committee, who evaluate, negotiate, structure, execute, monitor and service our investments. Our success depends to a significant extent on the continued service and coordination of these individuals.
We depend on the investment expertise, skill and network of business contacts of our senior management team and investment professionals, including the members of the Investment Committee, who evaluate, negotiate, structure, execute, monitor and service our investments. Our success depends to a significant extent on the continued service and coordination of these individuals.
Conversely, investors selling shares during a period in which the net asset value understates the value of investments will receive a lower price for their shares than the value the investment portfolio might warrant. We will adjust quarterly the valuation of our portfolio to reflect the determination of the Board of the fair value of each investment in our portfolio.
Conversely, investors selling shares during a period in which the net asset value understates the value of investments will receive a lower price for their shares than the value the investment portfolio might warrant. 31 Table of Contents We will adjust quarterly the valuation of our portfolio to reflect the determination of the Board of the fair value of each investment in our portfolio.
In addition, the deferral of PIK interest also increases the loan-to-value (“LTV”) ratio at a compounding rate, thus, increasing the risk that we will absorb a loss in the event of foreclosure. 44 Table of Contents Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.
In addition, the deferral of PIK interest also increases the loan-to-value (“LTV”) ratio at a compounding rate, thus, increasing the risk that we will absorb a loss in the event of foreclosure. Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.
Our investment strategy does not contemplate a significant number of investments in securities of non-U.S. companies. We expect that these investments would focus on the same investments that we make in U.S. growth stage companies and, accordingly, would be complementary to our overall strategy and enhance the diversity of our holdings.
Our 45 Table of Contents investment strategy does not contemplate a significant number of investments in securities of non-U.S. companies. We expect that these investments would focus on the same investments that we make in U.S. growth-stage companies and, accordingly, would be complementary to our overall strategy and enhance the diversity of our holdings.
Our ability to have declared effective by the SEC a registration statement pertaining to the resale of the Convertible Notes and/or any shares of common stock to be issued upon conversion of the Convertible Notes on a timely basis will depend upon our ability to resolve any issues that may be raised by the SEC.
Our ability to have declared effective by the SEC a registration statement pertaining to the resale of the 57 Table of Contents Convertible Notes and/or any shares of common stock to be issued upon conversion of the Convertible Notes on a timely basis will depend upon our ability to resolve any issues that may be raised by the SEC.
However, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we could violate the 1940 Act provisions applicable to BDCs.
However, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we could violate the 1940 Act 30 Table of Contents provisions applicable to BDCs.
Because of the control we may cede to senior lenders under intercreditor agreements we may enter, we may be unable to realize the proceeds of any collateral securing some of our loans. 38 Table of Contents If the assets securing the loans that we make decrease in value, then we may lack sufficient collateral to cover losses.
Because of the control we may cede to senior lenders under intercreditor agreements we may enter, we may be unable to realize the proceeds of any collateral securing some of our loans. If the assets securing the loans that we make decrease in value, then we may lack sufficient collateral to cover losses.
The Biden Administration has proposed significant changes to the existing U.S. tax rules, and there are a number of proposals in Congress that would similarly modify the existing U.S. tax rules. The likelihood of any such legislation being enacted is uncertain, but new legislation and any U.S.
The Biden Administration has proposed significant changes to the existing U.S. tax rules, and there are a number of proposals in Congress that would similarly modify 60 Table of Contents the existing U.S. tax rules. The likelihood of any such legislation being enacted is uncertain, but new legislation and any U.S.
We are in the process of addressing our internal controls over financial reporting and are establishing formal procedures, policies, processes and practices related to financial reporting and to the identification of key financial reporting risks, assessment of their potential impact and linkage of those risks to specific areas and activities within the Company.
We are in the process of addressing our internal controls over financial 62 Table of Contents reporting and are establishing formal procedures, policies, processes and practices related to financial reporting and to the identification of key financial reporting risks, assessment of their potential impact and linkage of those risks to specific areas and activities within the Company.
We will remain an emerging growth company for up to five years following an IPO or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.235 billion, (ii) December 31 of the fiscal year that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act which would occur if the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter and we have been publicly reporting for at least 12 months or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the preceding three-year period.
We will remain an emerging growth company for up to five years following an IPO or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.235 billion, (ii) December 31 of the fiscal year that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act which would occur if the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter and we have been publicly reporting for at least 12 months or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the preceding three-year period. 63 Table of Contents We may experience fluctuations in our operating results.
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition, Liquidity and Capital Resources” for more information regarding our borrowings. 28 Table of Contents Indebtedness could adversely affect our business, financial condition and results of operations and our ability to meet our payment obligations under outstanding indebtedness.
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition, Liquidity and Capital Resources” for more information regarding our borrowings. Indebtedness could adversely affect our business, financial condition and results of operations and our ability to meet our payment obligations under outstanding indebtedness.
Accordingly, because we invest in and have exposure to covenant-lite loans, we may have fewer rights 45 Table of Contents against a borrower and may have a greater risk of loss on such investments as compared to investments in or exposure to loans with financial maintenance covenants.
Accordingly, because we invest in and have exposure to covenant-lite loans, we may have fewer rights against a borrower and may have a greater risk of loss on such investments as compared to investments in or exposure to loans with financial maintenance covenants.
Pursuant to the approval granted at our 2022 annual meeting of stockholders held on June 8, 2022, we are permitted to sell or otherwise issue shares of our common stock at a price below net asset value, subject to certain limitations and determinations that must be made by our board of directors.
Pursuant to the approval granted at our 2023 annual meeting of stockholders held on June 14, 2023, we are permitted to sell or otherwise issue shares of our common stock at a price below net asset value, subject to certain limitations and determinations that must be made by our board of directors.
At our 2022 Annual Meeting of Stockholders held on June 8, 2022, our stockholders voted to allow us to issue common stock at a price below net asset value per share for the period ending on the earlier of the one-year anniversary of the date of our 2022 Annual Meeting of Stockholders and the date of our 2023 Annual Meeting of Stockholders, which is expected to be held in May or June 2023.
At our 2023 Annual Meeting of Stockholders held on June 14, 2023, our stockholders voted to allow us to issue common stock at a price below net asset value per share for the period ending on the earlier of the one-year anniversary of the date of our 2023 Annual Meeting of Stockholders and the date of our 2024 Annual Meeting of Stockholders, which is expected to be held in May or June 2024.
In the past, instability in the global capital markets resulted in disruptions in liquidity in the debt capital markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of major domestic and international financial institutions.
In the past, instability in the global capital markets resulted in disruptions in liquidity in the debt capital markets, significant write-offs in the financial 34 Table of Contents services sector, the re-pricing of credit risk in the broadly syndicated credit market and the failure of major domestic and international financial institutions.
Such investments may involve risks not present in investments where a third party is not involved, including the possibility that such third party may at any time have economic or business interests or goals which are inconsistent with ours, or may be in a position to take action contrary to our investment objectives.
Such investments may involve risks not present in investments where a third party is not involved, including the possibility that such third party may at any time have economic or business interests or goals which are inconsistent with ours, or may be in a position to take 40 Table of Contents action contrary to our investment objectives.
Adverse incidents with respect to ESG activities could impact the value of our brand, the cost of our operations and relationships with investors, all of which could adversely affect our business and results of operations. 62 Table of Contents Additionally, new regulatory initiatives related to ESG could adversely affect our business.
Adverse incidents with respect to ESG activities could impact the value of our brand, the cost of our operations and relationships with investors, all of which could adversely affect our business and results of operations. Additionally, new regulatory initiatives related to ESG could adversely affect our business.
Secured indebtedness, including the indebtedness under the KeyBank Credit Facility, is effectively senior to the Notes and the Convertible Notes to the extent of the value of the assets securing such indebtedness. The Notes and the Convertible Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.
Secured indebtedness, including the indebtedness under the KeyBank Credit 51 Table of Contents Facility, is effectively senior to the Notes and the Convertible Notes to the extent of the value of the assets securing such indebtedness. The Notes and the Convertible Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.
A "publicly offered RIC" is a RIC whose shares are (i) continuously offered pursuant to a public offering, (ii) regularly traded on an established securities market, or (iii) held by at least 500 persons at all times during the taxable year.
A "publicly offered RIC" is a RIC whose shares are (i) continuously offered pursuant to a public offering, (ii) regularly traded on 61 Table of Contents an established securities market, or (iii) held by at least 500 persons at all times during the taxable year.
These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of 63 Table of Contents operations and cash flows.
These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
In such a scenario, rising interest rates may increase our interest 30 Table of Contents expense, even though our interest income from investments is not increasing in a corresponding manner as a result of such minimum interest rates.
In such a scenario, rising interest rates may increase our interest expense, even though our interest income from investments is not increasing in a corresponding manner as a result of such minimum interest rates.
For example, the third party may 41 Table of Contents decline to approve an investment for the joint venture that we otherwise want the joint venture to make. A joint venture may also use investment leverage which magnifies the potential for gain or loss on amounts invested.
For example, the third party may decline to approve an investment for the joint venture that we otherwise want the joint venture to make. A joint venture may also use investment leverage which magnifies the potential for gain or loss on amounts invested.
For accounting purposes, any cash distributions to stockholders representing OID or market discount income are not treated as coming from paid-in capital, even though the cash to pay them comes from the offering proceeds.
For accounting purposes, any cash distributions to stockholders representing OID or market discount income are not treated as coming from paid-in capital, even though the cash to pay 43 Table of Contents them comes from the offering proceeds.
Since 2020, the U.S. capital markets have experienced extreme volatility and disruption, as evidenced by the volatility in global stock markets as a result of, among other things, uncertainty surrounding the COVID-19 pandemic, supply chain disruptions, interest rate and inflation rate environments, and the fluctuating price of commodities such as oil.
Since 2020, the U.S. capital markets have experienced extreme volatility and disruption, as evidenced by the volatility in global stock markets as a result of, among other things, supply chain disruptions, interest rate and inflation rate environments, and the fluctuating price of commodities such as oil.
Such increase may also be treated as a distribution subject to U.S. federal income tax as a dividend. In addition, if a holder is a non-U.S. holder, such holder may be subject to U.S. federal withholding tax in connection with such a deemed distribution.
Such increase may also be treated as a distribution subject to U.S. federal income tax as a dividend. In addition, if a holder is a non-U.S. holder, such holder may be subject to U.S. federal withholding tax in connection with such a deemed 59 Table of Contents distribution.
The Board has adopted a resolution exempting from the Maryland Business Combination Act any business combination between us and any other person, subject to prior approval of such business combination by the Board, including approval by a majority of our independent directors.
We are subject to the Maryland Business Combination Act, subject to any applicable requirements of the 1940 Act. The Board has adopted a resolution exempting from the Maryland Business Combination Act any business combination between us and any other person, subject to prior approval of such business combination by the Board, including approval by a majority of our independent directors.
Any public health emergency, including the COVID-19 pandemic or any outbreak of other existing or new epidemic diseases, or the threat thereof, and the resulting financial and economic market uncertainty could have a significant adverse impact on us and the fair value of our investments and our portfolio companies. 35 Table of Contents Economic recessions or downturns could impair our portfolio companies and harm our operating results.
Any public health emergency, including outbreak of existing or new epidemic diseases, or the threat thereof, and the resulting financial and economic market uncertainty could have a significant adverse impact on us and the fair value of our investments and our portfolio companies. Economic recessions or downturns could impair our portfolio companies and harm our operating results.
Moreover, the increased use of mobile and cloud technologies due to the proliferation of remote work resulting from the COVID-19 pandemic could heighten these and other operational risks as certain aspects of the security of such technologies may be complex and unpredictable.
Moreover, the increased use of mobile and cloud technologies due to the proliferation of remote work could heighten these and other operational risks as certain aspects of the security of such technologies may be complex and unpredictable.
Further, rising interest rates could also adversely affect our performance if we hold investments with floating interest rates, subject to specified minimum interest rates (such as London Inter-Bank Offered Rate (“LIBOR”) or Secured Overnight Financing Rate (“SOFR”) floor, as applicable), while at the same time engaging in borrowings subject to floating interest rates not subject to such minimums.
Further, rising interest rates could also adversely affect our performance if we hold investments with floating interest rates, subject to specified minimum interest rates (such as Secured Overnight Financing Rate (“SOFR”) floor), while at the same time engaging in borrowings subject to floating interest rates not subject to such minimums.
We plan to hold a portion of our investments through our joint venture, i40, LLC and may, from time to time, hold a portion of our investments through partnerships, joint ventures, securitization vehicles or other entities with third-party investors (collectively, “joint ventures”).
We hold a portion of our investments through our joint venture, Senior Credit Corp 2022 LLC, and may, from time to time, hold a portion of our investments through partnerships, joint ventures, securitization vehicles or other entities with third-party investors (collectively, “joint ventures”).
We have invested in i40, LLC and may in the future invest in additional joint ventures alongside third parties through joint ventures, partnerships or other entities.
We have invested in Senior Credit Corp 2022 LLC and may in the future invest in additional joint ventures alongside third parties through joint ventures, partnerships or other entities.
Such stockholder approval expires on the earlier of June 8, 2023 and the date of our 2023 annual meeting of stockholders.
Such stockholder approval expires on the earlier of June 14, 2024 and the date of our 2024 annual meeting of stockholders.
There is a risk that the collateral securing our secured loans may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise, may be liquidated at a price lower than what we consider to be fair value and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of a borrower to raise additional capital, which could materially and adversely affect our ability to recover our investment.
There is a risk that the collateral securing our secured loans may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise, may be liquidated at a price lower than what we consider to be fair value and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of a borrower to raise additional capital, which could materially and adversely affect our ability to recover our investment. 37 Table of Contents In addition, a substantial portion of the assets securing our investment may be in the form of intellectual property, inventory and equipment and, to a lesser extent, cash and accounts receivable.
Assumed Return on Our Portfolio (Net of Expenses) -10% -5% 0% 5% 10% Corresponding return to common stockholder (1) ( 32.9 )% ( 20.6 )% ( 8.4 )% 3.9 % 16.1 % (1) Assumes (i) $1,126.4 million in total assets, (ii) $620.0 million in outstanding principal indebtedness, (iii) $459.7 million in net assets as of December 31, 2022 and (iv) weighted average interest rate, excluding fees (such as fees on undrawn amounts and amortization of financing costs), of 6.2% as of December 31, 2022.
Assumed Return on Our Portfolio (Net of Expenses) -10% -5% 0% 5% 10% Corresponding return to common stockholder (1) ( 29.1 )% ( 18.4 )% ( 7.6 )% 3.1 % 13.8 % (1) Assumes (i) $1,311.0 million in total assets, (ii) $645.5 million in outstanding principal indebtedness, (iii) $611.2 million in net assets as of December 31, 2023 and (iv) weighted average interest rate, excluding fees (such as fees on undrawn amounts and amortization of financing costs), of 7.2% as of December 31, 2023 .
For example, as of December 31, 2022, our largest industry concentrations of our total investments at fair value were in the green technology industry, which represented approximately 14.0%; and technology-related companies in the finance and insurance industry, which represented approximately 10.4%.
For example, as of December 31, 2023, our largest industry concentrations of our total investments at fair value were in the space technology industry, which represented 14.6%; green technology industry, which represented approximately 11.2%; and technology-related companies in the finance and insurance industry, which represented approximately 10.5%.
Declines in prices and liquidity in the corporate debt markets may result in significant net unrealized depreciation in our portfolio. The effect of all of these factors on our portfolio may reduce our net asset value by increasing net unrealized depreciation in our portfolio.
We record decreases in the market values or fair values of our investments as unrealized depreciation. Declines in prices and liquidity in the corporate debt markets may result in significant net unrealized depreciation in our portfolio. The effect of all of these factors on our portfolio may reduce our net asset value by increasing net unrealized depreciation in our portfolio.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties We do not own any real estate or other physical properties materially important to our operations. Currently, we lease office space in Phoenix, Arizona for our corporate headquarters. We believe that our office facilities are suitable and adequate for our business as it is contemplated to be conducted.
Biggest changeItem 2. Properties We do not own any real estate or other physical properties materially important to our operations. Currently, we lease office space in Phoenix, Arizona for our corporate headquarters. We also lease office space in San Diego, California. We believe that our office facilities are suitable and adequate for our business as it is contemplated to be conducted.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings We are not currently subject to any material legal proceedings, nor, to our knowledge, are any material legal proceedings threatened against us. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies.
Biggest changeFrom time to time, we may be a party to certain legal proceedings in the ordinary 66 Table of Contents course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. Furthermore, third parties may seek to impose liability on us in connection with the activities of our portfolio companies.
While the outcome of any future legal or regulatory proceedings cannot be predicted with certainty, we do not expect that any such future proceedings will have a material effect upon our financial condition or results of operations.
Our business is also subject to extensive regulation, which may result in regulatory proceedings against us. While the outcome of any future legal or regulatory proceedings cannot be predicted with certainty, we do not expect that any such future proceedings will have a material effect upon our financial condition or results of operations.
Removed
Furthermore, third parties may seek to impose liability on us in connection with the activities of our portfolio companies. Our business is also subject to extensive regulation, which may result in regulatory proceedings against us.
Added
Item 3. Legal Proceedings We are not currently subject to any material legal proceedings, nor, to our knowledge, are any material legal proceedings threatened against us.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePrice Range Class and Period Net Asset Value (1) High Low High Sales Price Premium (Discount) to Net Asset Value (2) Low Sales Price Premium (Discount) to Net Asset Value (2) Cash Dividend Per Share (3) Year Ending December 31, 2023 First Quarter (through March 1, 2023) * $ 14.10 $ 10.91 * * * Year Ending December 31, 2022 Fourth Quarter $ 13.15 $ 13.82 $ 10.24 5.1 % ( 22.1 ) % $ 0.61 (5) Third Quarter $ 13.74 $ 16.28 $ 12.07 18.5 % ( 12.2 ) % $ 0.60 (5) Second Quarter $ 14.62 $ 19.44 $ 14.27 33.0 % ( 2.4 ) % $ 0.57 (5) First Quarter $ 15.15 $ 20.11 $ 17.00 32.7 % 12.2 % $ 0.55 (5) Year Ending December 31, 2021 Fourth Quarter $ 16.40 $ 17.65 $ 15.79 7.6 % ( 3.7 ) % $ 0.36 Third Quarter $ 14.70 $ 16.73 $ 14.14 13.8 % ( 3.8 ) % $ 0.33 Second Quarter $ 14.33 $ 15.00 $ 14.10 4.7 % ( 1.6 ) % $ 0.29 First Quarter (4) $ 13.69 $ 15.65 $ 13.75 14.3 % 0.4 % $ 0.28 (1) Net asset value per share is determined as of the last day in the relevant quarter and therefore may not reflect the net asset value per share on the date of the high and low closing sales prices.
Biggest changePrice Range Class and Period Net Asset Value (1) High Low High Sales Price Premium (Discount) to Net Asset Value (2) Low Sales Price Premium (Discount) to Net Asset Value (2) Cash Dividend Per Share (3) Year Ending December 31, 2024 First Quarter (through March 5, 2024) * $ 14.99 $ 13.68 * * * Year Ending December 31, 2023 Fourth Quarter $ 13.19 $ 15.40 $ 13.33 16.7 % 1.0 % $ 0.50 Third Quarter $ 13.17 $ 15.29 $ 13.75 16.1 % 4.4 % $ 0.54 (4) Second Quarter $ 13.15 $ 13.91 $ 11.36 5.8 % ( 13.6 ) % $ 0.53 (4) First Quarter $ 13.07 $ 14.26 $ 10.91 9.1 % ( 16.5 ) % $ 0.47 Year Ending December 31, 2022 Fourth Quarter $ 13.15 $ 13.82 $ 10.24 5.1 % ( 22.1 ) % $ 0.61 (4) Third Quarter $ 13.74 $ 16.28 $ 12.07 18.5 % ( 12.2 ) % $ 0.60 (4) Second Quarter $ 14.62 $ 19.44 $ 14.27 33.0 % ( 2.4 ) % $ 0.57 (4) First Quarter $ 15.15 $ 20.11 $ 17.00 32.7 % 12.2 % $ 0.55 (4) (1) Net asset value per share is determined as of the last day in the relevant quarter and therefore may not reflect the net asset value per share on the date of the high and low closing sales prices.
However, as a RIC we will be subject to a 4% non-deductible U.S. federal excise tax on certain undistributed income and gains unless we make distributions treated as dividends for U.S. federal income tax purposes in a timely manner to our stockholders in respect of each calendar year of an amount at least equal to the Excise Tax Avoidance Requirement.
However, as a RIC we will be subject to a 4% non-deductible U.S. federal excise tax on certain undistributed income and gains unless we make distributions treated as dividends for U.S. federal income tax purposes in a timely 69 Table of Contents manner to our stockholders in respect of each calendar year of an amount at least equal to the Excise Tax Avoidance Requirement.
These issuances were not subject to the registration requirements of the Securities Act. Stock Performance Graph The following stock performance graph compares the cumulative stockholder return of an investment in our common stock, the NASDAQ Financial 100 Index, the S&P 500 and the S&P BDC Index.
These issuances were not subject to the registration requirements of the Securities Act. 70 Table of Contents Stock Performance Graph The following stock performance graph compares the cumulative stockholder return of an investment in our common stock, the NASDAQ Financial 100 Index, the S&P 500, the S&P BDC Index and an average of certain of our direct BDC peers.
During 2022, 2021, and 2020, we issued 187,923, 281,149 and 271,414 shares, respectively, of common stock to stockholders in connection with the dividend reinvestment plan. Unregistered Sales of Equity Securities During the year ended December 31, 2022, we issued 187,923 shares of common stock for a total of approximately $3.0 million under the DRIP.
During 2023, 2022, and 2021, we issued 165,962, 187,923 and 281,149 shares, respectively, of common stock to stockholders in connection with the dividend reinvestment plan. Unregistered Sales of Equity Securities During the year ended December 31, 2023, we issued 165,962 shares of common stock for a total of approximately $2.2 million under the DRIP.
On March 1, 2023, the last reported closing sales price of our common stock on Nasdaq was $13.34 per share, which represented a premium of approximately 1.4% to our net asset value per share of $13.15 as of December 31, 2022.
On March 5, 2024, the last reported closing sales price of our common stock on Nasdaq was $ 14.39 per share, which represented a premium of approximately 9.1 % to our net asset value per share of $ 13.19 as of December 31, 2023.
Our DRIP is administered by our transfer agent on behalf of our record holders and participating brokerage firms. Brokerage firms and other financial intermediaries may decide not to participate in our DRIP but may provide 67 Table of Contents a similar distribution reinvestment plan for their clients.
Our DRIP is administered by our transfer agent on behalf of our record holders and participating brokerage firms. Brokerage firms and other financial intermediaries may decide not to participate in our DRIP but may provide a similar distribution reinvestment plan for their clients. Issuances under the plan are not subject to the registration requirements of the Securities Act.
As of March 66 Table of Contents 1, 2023, we had approximately 82 stockholders of record, which does not include stockholders for whom shares are held in nominee or “street” name.
As of March 5, 2024, we had approximately 56 stockholders of record, which does not include stockholders for whom shares are held in nominee or “street” name.
During the year ended December 31, 2021, we issued 281,149 shares of common stock for a total of approximately $4.1 million under the DRIP. On January 13, 2023, we issued 54,185 shares of our common stock pursuant to our distribution reinvestment plan, which related to the dividend declared on December 15, 2022.
During the year ended December 31, 2022, we issued 187,923 shares of common stock for a total of approximately $3.0 million under the DRIP. On January 12, 2024, we issued 23,456 shares of our common stock pursuant to our distribution reinvestment plan, which related to the dividend declared on December 14, 2023.
(4) Shares of our common stock began trading on Nasdaq on January 29, 2021, under the trading symbol “TRIN”. (5) Consists of a quarterly dividend and a supplemental dividend. * Not determined at time of filing. Shares of BDCs may trade at a market price that is less than the value of the net assets attributable to those shares.
(4) Consists of a quarterly dividend and a supplemental dividend. * Not determined at time of filing. 68 Table of Contents Shares of BDCs may trade at a market price that is less than the value of the net assets attributable to those shares.
Business— Regulation.” 68 Table of Contents Our Board maintains a variable distribution policy with the objective of distributing four quarterly distributions in an amount that approximates 90-100% of our taxable quarterly income or potential annual income for a particular taxable year.
Our ability to make distributions will be limited by the asset coverage requirements under the 1940 Act. See “Item 1. Business— Regulation.” Our Board maintains a variable distribution policy with the objective of distributing four quarterly distributions in an amount that approximates 90-100% of our taxable quarterly income or potential annual income for a particular taxable year.
Issuer Purchases of Equity Securities On November 14, 2022, the Board authorized a stock repurchase plan permitting the Company to repurchase up to $25.0 million of common stock until November 11, 2023, or until $25.0 million of the Company's outstanding shares of common stock have been repurchased.
Issuer Purchases of Equity Securities On November 14, 2022, the Board authorized a stock repurchase plan permitting the Company to repurchase up to $25.0 million of common stock (the “Repurchase Program”). Under the Repurchase Program, the Company repurchased $1.0 million and $2.0 million of common stock during the years ended December 31, 2023 and December 31, 2022, respectively.
Information relating to repurchases of our common stock during the fiscal year ended December 31, 2022 is as follows: Total Number of Approximate Dollar Shares Purchased as Value of Shares that Part of Publicly May Yet Be Purchased Average Price Announced Plans or Under the Stock Period Paid per Share Programs Repurchase Program October 1 through October 31, 2022 $ - - $ - November 1 through November 30, 2022 - - 25,000,000 December 1 through December 31, 2022 10.77 185,722 23,000,012 Total $ 10.77 185,722 $ 23,000,012 Distribution Policy In order to be subject to tax as a RIC, we must distribute to our stockholders, in respect of each taxable year, dividends for U.S. federal income tax purposes of an amount generally at least equal to the Annual Distribution Requirement.
Information relating to repurchases of our common stock during the year ended December 31, 2023 and 2022 is as follows: Total Number of Approximate Dollar Shares Purchased as Value of Shares that Part of Publicly May Yet Be Purchased Average Price Announced Plans or Under the Stock Period Paid per Share Programs Repurchase Program October 1 through December 31, 2022 $ 10.77 185,722 $ 23,000,012 January 1 through March 31, 2023 $ 10.91 91,691 $ 22,000,025 April 1 through December 31, 2023 (1) $ — — $ — Total $ 10.81 277,413 $ — (1) The Repurchase Program expired on November 11, 2023.
Removed
Issuances under the plan are not subject to the registration requirements of the Securities Act.
Added
The Repurchase Program was not renewed by the Board of Directors, and expired on November 11, 2023.
Removed
Under the repurchase program, the Company may, but is not obligated to, repurchase up to an additional $23.0 million of the Company's outstanding shares of common stock.
Added
Distribution Policy In order to be subject to tax as a RIC, we must distribute to our stockholders, in respect of each taxable year, dividends for U.S. federal income tax purposes of an amount generally at least equal to the Annual Distribution Requirement.
Removed
Our ability to make distributions will be limited by the asset coverage requirements under the 1940 Act. See “Item 1.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeSet forth below is a table showing the industry composition of our investment portfolio at cost and fair value as a percentage of total investments as of December 31, 2022 and December 31, 2021: December 31, 2022 December 31, 2021 Fair Fair Industry Cost Value Cost Value Green Technology 12.3 % 14.0 % 10.0 % 16.7 % Finance and Insurance 9.9 % 10.4 % 9.1 % 8.6 % Food and Agriculture Technologies 8.8 % 9.3 % 9.4 % 9.0 % Real Estate Technology 8.9 % 8.8 % 8.0 % 7.5 % Space Technology 6.2 % 6.5 % 3.8 % 3.5 % Life Sciences 6.2 % 6.5 % 2.9 % 2.7 % Consumer Products & Services 6.2 % 6.4 % 9.5 % 8.7 % Marketing, Media, and Entertainment 5.3 % 5.5 % 8.0 % 6.3 % Healthcare 7.7 % 5.3 % 10.4 % 9.0 % Automation & Internet of Things 4.7 % 5.0 % 6.8 % 7.0 % Digital Assets Technology and Services 5.3 % 4.1 % 6.2 % 5.6 % Human Resource Technology 3.5 % 3.8 % 0.6 % 0.6 % Connectivity 3.1 % 3.1 % 4.7 % 4.1 % Transportation Technology 2.7 % 2.7 % 1.5 % 1.4 % SaaS 2.5 % 2.7 % 3.5 % 4.6 % Industrials 2.1 % 2.1 % 0.0 % 0.0 % Construction Technology 2.1 % 1.8 % 3.3 % 2.5 % Education Technology 1.6 % 1.3 % 2.3 % 2.2 % Supply Chain Technology 0.9 % 0.7 % 0.0 % 0.0 % Total 100.0 % 100.0 % 100.0 % 100.0 % As of December 31, 2022 and December 31, 2021, the debt, including loans and equipment financings, in our portfolio had a weighted average time to maturity of approximately 3.2 and 3.4 years.
Biggest changeSet forth below is a table showing the industry composition of our investment portfolio at cost and fair value as a percentage of total investments as of December 31, 2023 and December 31, 2022: December 31, 2023 December 31, 2022 Fair Fair Industry Cost Value Cost Value Space Technology 14.1 % 14.6 % 6.2 % 6.5 % Green Technology 10.5 % 11.2 % 12.3 % 14.0 % Finance and Insurance 10.6 % 10.5 % 9.9 % 10.4 % Real Estate Technology 7.2 % 7.2 % 8.9 % 8.8 % Food and Agriculture Technologies 6.9 % 7.0 % 8.8 % 9.3 % Consumer Products & Services 6.5 % 6.6 % 6.2 % 6.4 % Medical Devices 5.2 % 5.5 % 1.6 % 1.7 % Healthcare Technology 4.4 % 4.5 % 1.7 % 1.8 % Biotechnology 4.3 % 4.4 % 2.9 % 3.0 % Marketing, Media, and Entertainment 3.7 % 3.7 % 5.3 % 5.5 % Transportation Technology 3.4 % 3.1 % 2.7 % 2.7 % Digital Assets Technology and Services 2.5 % 2.8 % 5.3 % 4.1 % SaaS 2.6 % 2.7 % 2.5 % 2.7 % Automation & Internet of Things 2.6 % 2.7 % 4.7 % 5.0 % Connectivity 2.7 % 2.7 % 3.1 % 3.1 % Human Resource Technology 2.4 % 2.4 % 3.5 % 3.8 % Healthcare 2.4 % 2.1 % 7.7 % 5.3 % Supply Chain Technology 2.3 % 1.9 % 0.9 % 0.7 % Industrials 1.7 % 1.8 % 2.1 % 2.1 % Education Technology 1.4 % 1.2 % 1.6 % 1.3 % Multi-Sector Holdings (1) 0.8 % 0.9 % — — Construction Technology 1.8 % 0.5 % 2.1 % 1.8 % Total 100.0 % 100.0 % 100.0 % 100.0 % (1) Multi-Sector Holdings consists of the Company's investment in Senior Credit Corp 2022 LLC, a joint venture between the Company and the JV Partner.
We target investments in growth stage companies, which are typically private companies, including venture-backed companies and companies with institutional equity investors. We define “growth stage companies” as companies that have significant ownership and active participation by sponsors, such as institutional investors or private equity firms, and expected annual revenues of up to $100.0 million.
We target investments in growth-stage companies, which are typically private companies, including venture-backed companies and companies with institutional equity investors. We define “growth-stage companies” as companies that have significant ownership and active participation by sponsors, such as institutional investors or private equity firms, and expected annual revenues of up to $100 million.
As adopted, Rule 2a-5 permits boards of directors to designate certain parties to perform fair value determinations, subject to board oversight and certain other conditions. The SEC also adopted new Rule 31a-4 under the 1940 Act (“Rule 31a-4”), which provides the recordkeeping requirements associated with fair value determinations.
As adopted, Rule 2a-5 permits boards of directors to designate certain parties to perform fair value determinations, subject to board oversight and certain other conditions. The SEC also adopted Rule 31a-4 under the 1940 Act (“Rule 31a-4”), which provides the recordkeeping requirements associated with fair value determinations.
Income Recognition Interest Income The Company recognizes interest income on an accrual basis and recognizes it as earned in accordance with the contractual terms of the loan agreement to the extent that such amounts are expected to be collected.
The Company recognizes interest income on an accrual basis and recognizes it as earned in accordance with the contractual terms of the loan agreement to the extent that such amounts are expected to be collected.
On January 16, 2020, through the Formation Transactions, we acquired the Legacy Funds and all of their respective assets, including the Legacy Portfolio, as well as Trinity Capital Holdings, a holding company whose 70 Table of Contents subsidiaries managed and/or had the right to receive fees from certain of the Legacy Funds.
On January 16, 2020, through the Formation Transactions, we acquired the Legacy Funds and all of their respective assets, including the Legacy Portfolio, as well as Trinity Capital Holdings, a holding company whose 72 Table of Contents subsidiaries managed and/or had the right to receive fees from certain of the Legacy Funds.
For the year ended December 31, 2022, we experienced a net decrease in cash and cash equivalents in the amount of $36.1 million, which is the net result of $235.7 million of cash used in operating activities and $0.2 million of cash used in investing activities partially offset by $199.8 million of cash provided by financing activities.
During the year ended December 31, 2022, we experienced a net decrease in cash and cash equivalents in the amount of $36.1 million, which is the net result of $235.7 million of cash used in operating activities and $0.2 million of cash used in investing activities partially offset by $199.8 million of cash provided by financing activities.
Since a portion of these commitments may expire without being withdrawn, unfunded contractual commitments do not necessarily represent future cash requirements. As such, the Company’s disclosure of unfunded contractual commitments includes only those which are available at the request of the portfolio company and unencumbered by milestones.
Since a portion of these commitments may expire without being drawn, unfunded contractual commitments do not necessarily represent future cash requirements. As such, the Company’s disclosure of unfunded contractual commitments includes only those which are available at the request of the portfolio company and unencumbered by milestones.
Portfolio Composition and Investment Activity Portfolio Composition As of December 31, 2022, our investment portfolio had an aggregate fair value of approximately $1,094.4 million and was comprised of approximately $802.9 million in secured loans, $246.0 million in equipment financings, and $45.5 million in equity and warrants, across 116 portfolio companies.
As of December 31, 2022, our investment portfolio had an aggregate fair value of approximately $1,094.4 million and was comprised of approximately $802.9 million in secured loans, $246.0 million in equipment financings, and $45.5 million in equity and warrants, across 116 portfolio companies.
Item 6. [ Reserved] 69 Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Except where the context suggests otherwise, the terms “we,” “us,” “our,” and “the Company” refer to Trinity Capital Inc. and its consolidated subsidiaries.
Item 6. [ Reserved] 71 Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Except where the context suggests otherwise, the terms “we,” “us,” “our,” and “the Company” refer to Trinity Capital Inc. and its consolidated subsidiaries.
Cash and cash equivalents, taken together with available borrowings under the KeyBank Credit Facility, as of December 31, 2022, are expected to be sufficient for our investing activities and to conduct our operations in the near term and long term.
Cash and cash equivalents, taken together with available borrowings under the KeyBank Credit Facility, as of December 31, 2023, are expected to be sufficient for our investing activities and to conduct our operations in the near term and long term.
A portion of these unfunded contractual commitments as of December 31, 2022 and December 31, 2021 are dependent upon the portfolio company reaching certain milestones before the debt commitment becomes available.
A portion of these unfunded contractual commitments as of December 31, 2023 and December 31, 2022 are dependent upon the portfolio company reaching certain milestones before the debt commitment becomes available.
Interest income from PIK represents contractually deferred interest added to the loan balance recorded on an accrual basis to the extent such amounts are expected to be collected. In addition, the Company may also be entitled to an end-of-term (“EOT”) fee.
Interest income from payment-in-kind ("PIK") represents contractually deferred interest added to the loan balance recorded on an accrual basis to the extent such amounts are expected to be collected. In addition, the Company may also be entitled to an end-of-term (“EOT”) payment.
These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. The carrying amounts of the Company’s financial instruments, consisting of cash, investments, receivables, payables and other liabilities approximate the fair values of such items due to the short-term nature of these instruments.
These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. The carrying amounts of the Company’s financial instruments, consisting of cash, investments, receivables, payables and other liabilities approximate the fair values of such items due to the short-term nature of these instruments. Income Recognition Interest and Dividend Income.
Fiscal Year Ended December 31, 2020 A discussion of our portfolio composition and investment activity for the fiscal year ended December 31, 2020 is available in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 3, 2022 and is available on the SEC’s EDGAR database.
Fiscal Year Ended December 31, 2021 A discussion of our portfolio composition and investment activity for the fiscal year ended December 31, 2021 is available in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 2, 2023 and is available on the SEC’s EDGAR database.
Results of Operations The following discussion and analysis of our results of operations encompasses our consolidated results for the years ended December 31, 2022 and 2021.
Results of Operations The following discussion and analysis of our results of operations encompasses our consolidated results for the years ended December 31, 2023 and 2022.
The Company values its investments at fair value as determined in good faith by the Company’s Board in accordance with the provisions of ASC 820 and the 1940 Act. 71 Table of Contents The SEC recently adopted new Rule 2a-5 under the 1940 Act ("Rule 2a-5"), which establishes a framework for determining fair value in good faith for purposes of the 1940 Act.
The Company values its investments at fair value as determined in good faith by the Company’s Board in accordance with the provisions of ASC 820 and the 1940 Act. The SEC adopted Rule 2a-5 under the 1940 Act ("Rule 2a-5"), which establishes a framework for determining fair value in good faith for purposes of the 1940 Act.
As of December 31, 2022 and December 31, 2021, the Company did not have any outstanding unfunded commitments.
As of December 31, 2023 and December 31, 2022, the Company did not have any outstanding unfunded commitments.
Net Increase (Decrease) in Net Assets Resulting from Operations Net decrease in net assets resulting from operations during the year ended December 31, 2022, totaled approximately $30.4 million.
Net Increase (Decrease) in Net Assets Resulting from Operations Net increase in net assets resulting from operations during the year ended December 31, 2023, totaled approximately $76.9 million. Net decrease in net assets resulting from operations during the year ended December 31, 2022, totaled approximately $30.4 million.
The net unrealized depreciation from our equity investments for the year ended December 31, 2022 stemmed primarily from the reclassification of our gross unrealized appreciation related to proceeds of approximately $69.9 million from the sale of two equity investments. During the year ended December 31, 2021, our net unrealized appreciation totaled approximately $80.6 million.
The net unrealized depreciation from our equity investments for the year ended December 31, 2022 stemmed primarily from the reclassification of our gross unrealized appreciation related to proceeds of approximately $69.9 million from the sale of two equity investments.
OID initially includes the estimated fair value of detachable warrants obtained in conjunction with the origination of debt securities, and is accreted into interest income over the term of the loan as a yield enhancement based on the 72 Table of Contents effective yield method.
Original issue discount ("OID") initially includes the estimated fair value of detachable warrants obtained in conjunction with the origination of debt securities, and is accreted into interest income over the term of the loan as a yield enhancement based on the effective yield method.
Specifically, on a quarterly basis, the Company identifies portfolio investments with respect to which an independent valuation firm assists in valuing certain investments.
Specifically, on a quarterly basis, the Company identifies portfolio investments with respect to which an 73 Table of Contents independent valuation firm assists in valuing certain investments.
Excise Taxes Our excise taxes totaled approximately $2.4 million and $0.3 million for the years ended December 31, 2022 and 2021, respectively. The increase in excise tax was primarily due to an increase in estimated undistributed taxable income in 2022.
Excise Taxes Our excise taxes totaled approximately $2.6 million and $2.4 million for the years ended December 31, 2023 and 2022, respectively. The increase in excise taxes was primarily due to an increase in estimated undistributed taxable income in 2023.
Subsequent to the year ended December 31, 2022 and through the date of filing of this Annual Report on Form 10-K, no material events or developments occurred that require reporting.
Recent Developments Subsequent to the year ended December 31, 2023 and through the date of filing of this Annual Report on Form 10-K, no material events or developments occurred that require reporting. 84 Table of Contents
A summary of the composition of our investment portfolio at cost and fair value as a percentage of total investments are shown in the following table as of December 31, 2022 and December 31, 2021: December 31, 2022 December 31, 2021 Fair Fair Type Cost Value Cost Value Secured Loans 71.7 % 73.3 % 69.8 % 63.2 % Equipment Financings 23.1 % 22.5 % 23.0 % 21.1 % Equity 3.4 % 1.3 % 5.3 % 11.5 % Warrants 1.8 % 2.9 % 1.9 % 4.2 % Total 100.0 % 100.0 % 100.0 % 100.0 % 73 Table of Contents The following table shows the composition of our investment portfolio by geographic region at cost and fair value as a percentage of total investments as of December 31, 2022 and December 31, 2021.
A summary of the composition of our investment portfolio at cost and fair value as a percentage of total investments are shown in the following table as of December 31, 2023 and December 31, 2022: December 31, 2023 December 31, 2022 Fair Fair Type Cost Value Cost Value Secured Loans 69.7 % 69.5 % 71.7 % 73.3 % Equipment Financing 25.5 % 26.4 % 23.1 % 22.5 % Warrants 2.3 % 2.6 % 1.8 % 2.9 % Equity 2.5 % 1.5 % 3.4 % 1.3 % Total 100.0 % 100.0 % 100.0 % 100.0 % The following table shows the composition of our investment portfolio by geographic region at cost and fair value as a percentage of total investments as of December 31, 2023 and December 31, 2022.
Operating Expenses and Excise Taxes Our operating expenses are comprised of interest and fees on our borrowings, employee compensation, excise tax, professional fees and general and administrative expenses. Our operating expenses totaled approximately $73.9 million and $43.2 million for the years ended December 31, 2022 and 2021, respectively.
Operating Expenses and Excise Taxes Our operating expenses are comprised of interest and fees on our borrowings, employee compensation, professional fees, general and administrative expenses and excise taxes. Our operating expenses totaled approximately $92.0 million and $73.9 million for the years ended December 31, 2023 and 2022, respectively.
As of December 31, 2022 and December 31, 2021, we had approximately $162.5 million and $38.1 million, respectively, of available borrowings under the KeyBank Credit Facility, subject to its terms and regulatory requirements.
As of December 31, 2023 and December 31, 2022, we had approximately $137.0 million and $162.5 million, respectively, of available borrowings under the KeyBank Credit Facility, subject to its terms and regulatory requirements.
We did not have any off-balance sheet financings or liabilities as of December 31, 2021. The Company’s commitments and contingencies consist primarily of unfunded commitments to extend credit in the form of loans to the Company’s portfolio companies.
The Company did not have any other off-balance sheet financings or liabilities as of December 31, 2023 and December 31, 2022, respectively. The Company’s commitments and contingencies consist primarily of unfunded commitments to extend credit in the form of loans to the Company’s portfolio companies.
As a result, we are permitted to potentially borrow $2 for investment purposes of every $1 of investor equity. As of December 31, 2022, our asset coverage ratio was approximately 174.1% and our asset coverage ratio per unit was approximately $1,741.
As a result, we are permitted to potentially borrow $2 for investment purposes of every $1 of investor equity. As of December 31, 2023, our asset coverage ratio was approximately 194.7% and our asset coverage ratio per unit was approximately $1,947.
During the year ended December 31, 2021, our gross realized gains primarily consisted of the sale of our debt positions in two portfolio companies, and our gross realized losses primarily consisted of the sale of our equity positions in three portfolio companies. 79 Table of Contents The net realized gains (losses) from the sales, repayments, or exits of investments for the years ended December 31, 2022 and 2021 were comprised of the following (in thousands): Year Ended Year Ended December 31, 2022 December 31, 2021 Net realized gain/(loss) on investments: Gross realized gains $ 54,117 $ 16,514 Gross realized losses (21,264 ) (3,806 ) Total net realized gains/(losses) on investments $ 32,853 $ 12,708 Net Change in Unrealized Appreciation / (Depreciation) from Investments Net change in unrealized appreciation/(depreciation) from investments primarily reflects the net change in the fair value of the investment portfolio and financial instruments and the reclassification of any prior period unrealized appreciation or depreciation on exited investments and financial instruments to realized gains or losses.
During the year ended December 31, 2022, our gross realized gains primarily consisted of the sale of our equity positions in two portfolio companies, and our gross realized losses primarily consisted of the sale of our debt positions in three portfolio companies. 80 Table of Contents The net realized gains (losses) from the sales, repayments, or exits of investments for the years ended December 31, 2023 and 2022 were comprised of the following (in thousands): Year Ended Year Ended December 31, 2023 December 31, 2022 Net realized gain/(loss) on investments: Gross realized gains $ 4,977 $ 54,117 Gross realized losses (33,048 ) (21,264 ) Total net realized gains/(losses) on investments $ (28,071 ) $ 32,853 Net Change in Unrealized Appreciation / (Depreciation) from Investments Net change in unrealized appreciation/(depreciation) from investments primarily reflects the net change in the fair value of the investment portfolio and financial instruments and the reclassification of any prior period unrealized appreciation or depreciation on exited investments and financial instruments to realized gains or losses.
As of December 31, 2022 and December 31, 2021, the Company had an EOT payments receivable of approximately $59.9 million and $46.7 million, respectively, which is included as a component of the cost basis of the Company’s current debt securities.
As of December 31, 2023 and December 31, 2022, the Company had EOT payments receivable of approximately $62.2 million and $59.9 million, respectively, which is included as a component of the cost basis of the Company’s current debt securities.
Industry and sector concentrations will vary from period to period based on portfolio activity. As of December 31, 2022 and December 31, 2021, the Company’s ten largest portfolio companies represented approximately 31.7% and 36.1%, respectively, of the total fair value of the Company’s investments in portfolio companies.
Industry and sector concentrations will vary from period to period based on portfolio activity. 76 Table of Contents As of December 31, 2023 and December 31, 2022, the Company’s ten largest portfolio companies represented approximately 31.6% and 31.7%, respectively, of the total fair value of the Company’s investments in portfolio companies.
Interest expense and other debt financing costs on our borrowings totaled approximately $34.1 million and $20.4 million for the years ended December 31, 2022 and 2021, respectively. Our weighted average effective interest rate, comprised of interest and amortization of fees and discount, was approximately 6.2% and 7.1% for years ended December 31, 2022 and 2021.
Interest expense and other debt financing costs on our borrowings totaled approximately $44.3 million and $34.1 million for the years ended December 31, 2023 and 2022, respectively. Our weighted average effective interest rate, comprised of interest and amortization of fees and discount, was approximately 7.2% 79 Table of Contents and 6.2% for years ended December 31, 2023 and 2022.
During the year ended December 31, 2022, our gross realized gains primarily consisted of the sale of our equity positions in two portfolio companies, and our gross realized losses primarily consisted of the sale of our debt positions in three portfolio companies.
During the year ended December 31, 2023, our gross realized gains primarily consisted of the sale of our debt or warrant positions in five portfolio companies, and our gross realized losses primarily consisted of the sale of our debt or equity positions in three portfolio companies.
However, we may make exceptions to this policy if the investment has sufficient collateral value and is in the process of collection. 76 Table of Contents As of December 31, 2022, loans to two portfolio companies and equipment financings to two portfolio companies were on non-accrual status with a total cost of approximately $49.2 million, and a total fair value of approximately $17.8 million, or 1.7%, of the fair value of the Company’s debt investment portfolio.
However, we may make exceptions to this policy if the investment has sufficient collateral value and is in the process of collection. 78 Table of Contents As of December 31, 2023, loans to three portfolio companies and equipment financings to two portfolio companies were on non-accrual status with a total cost of approximately $60.8 million, and a total fair value of approximately $43.2 million, or 3.5%, of the fair value of the Company’s debt investment portfolio.
EOT fees related to debt investments to be paid at the termination of the financing arrangements are accreted into interest income over the contractual life of the debt based on the effective yield method.
EOT payments to be paid at the termination of the debt agreements are accreted into interest income over the contractual life of the debt based on the effective yield method.
As of December 31, 2022 and December 31, 2021, we had cash, cash equivalents and restricted cash of $10.6 million and $46.7 million, respectively, of which $5.6 million and $43.4 million, respectively, was held in the Goldman Sachs Financial Square Government Institutional Fund.
As of December 31, 2023 and December 31, 2022, we had cash and cash equivalents of $4.8 million and $10.6 million, respectively, of which $3.1 million and $5.6 million, respectively, was held in the Goldman Sachs Financial Square Government Institutional Fund.
For the year ended December 31, 2021, total investment income was approximately $82.2 million, which represents an approximate effective yield of 15.4% on the average investments during the year.
For the year ended December 31, 2022, total investment income was approximately $145.5 million, which represents an approximate effective yield of 15.1% on the average investments during the year.
The increase in net investment income for the year ended December 31, 2022 resulted from an increase in total investment income as compared to total expenses, including excise tax expense. For the year ended December 31, 2022, we recognized approximately $145.5 million in total investment income as compared to approximately $73.9 million in total expenses including excise tax expense.
For the year ended December 31, 2023, we recognized approximately $181.9 million in total investment income as compared to approximately $92.0 million in total expenses including excise tax expense. For the year ended December 31, 2022 we recognized approximately $145.5 million in total investment income as compared to approximately $73.9 million in total expenses including excise tax expense.
For additional information, please refer to “Note 2 - Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included with this Annual Report on Form 10-K.
Risk Factors.” Please refer to “Note 2 - Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included with this Annual Report on Form 10-K for a discussion of our significant accounting policies.
During the year ended December 31, 2021, we experienced a net decrease in cash and cash equivalents in the amount of $14.4 million, which is the net result of $241.7 million of cash used in operating activities and $1.2 million of cash used in investing activities partially offset by $228.5 million of cash provided by financing activities.
For the year ended December 31, 2023, we experienced a net decrease in cash and cash equivalents in the amount of $5.9 million, which is the net result of $96.3 million of cash used in operating activities and $2.7 million of cash used in investing activities partially offset by $93.1 million of cash provided by financing activities.
Contractual Obligations A summary of our contractual payment obligations as of December 31, 2022, is as follows: Payments Due by Period Less than 1 year 1 - 3 years 4 - 5 years After 5 years Total KeyBank Credit Facility $ — $ — $ 187,500 $ — $ 187,500 2025 Notes — — 182,500 — 182,500 Convertible Notes — — 50,000 — 50,000 August 2026 Notes — — 125,000 — 125,000 December 2026 Notes — — 75,000 — 75,000 Operating Leases — 1,151 801 415 2,367 Total Contractual Obligations $ — $ 1,151 $ 620,801 $ 415 $ 622,367 82 Table of Contents Distributions We intend to pay quarterly distributions to our stockholders out of assets legally available for distribution.
Contractual Obligations A summary of our contractual payment obligations as of December 31, 2023, is as follows: Payments Due by Period Less than 1 year 1 - 3 years 4 - 5 years After 5 years Total KeyBank Credit Facility $ — $ 213,000 $ — $ — $ 213,000 2025 Notes — 182,500 — — 182,500 Convertible Notes — 50,000 — — 50,000 August 2026 Notes — 125,000 — — 125,000 December 2026 Notes — 75,000 — — 75,000 Operating Leases — 2,929 1,924 2,421 7,274 Total Contractual Obligations $ — $ 648,429 $ 1,924 $ 2,421 $ 652,774 Distributions We intend to pay quarterly distributions to our stockholders out of assets legally available for distribution.
As of December 31, 2021, loans to two portfolio companies were on non-accrual status with a total cost of approximately $12.9 million, and a total fair value of approximately $5.1 million, or 0.7%, of the fair value of the Company’s debt investment portfolio.
As of December 31, 2022, loans to two portfolio companies and equipment financings to two portfolio companies were on non-accrual status with a total cost of approximately $49.2 million, and a total fair value of approximately $17.8 million, or 1.7%, of the fair value of the Company’s debt investment portfolio.
The Company’s investments are carried at fair value in accordance with the 1940 Act and ASC 946 and measured in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”).
The Company’s investments are carried at fair value in accordance with the 1940 Act and Accounting Standards Codification (“ASC”) 946, Financial Services — Investment Companies (“ASC 946”) and measured in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”).
The following table summarizes distributions declared and/or paid by the Company since inception: Declaration Date Type Record Date Payment Date Per Share Amount May 7, 2020 Quarterly May 29, 2020 June 5, 2020 $ 0.22 August 10, 2020 Quarterly August 21, 2020 September 4, 2020 0.27 November 9, 2020 Quarterly November 20, 2020 December 4, 2020 0.27 December 22, 2020 Quarterly December 30, 2020 January 15, 2021 0.27 March 23, 2021 Quarterly March 31, 2021 April 16, 2021 0.28 June 15, 2021 Quarterly June 30, 2021 July 15, 2021 0.29 September 13, 2021 Quarterly September 30, 2021 October 15, 2021 0.33 December 16, 2021 Quarterly December 31, 2021 January 14, 2022 0.36 March 15, 2022 Quarterly March 31, 2022 April 15, 2022 0.40 March 15, 2022 Supplemental March 31, 2022 April 15, 2022 0.15 June 15, 2022 Quarterly June 30, 2022 July 15, 2022 0.42 June 15, 2022 Supplemental June 30, 2022 July 15, 2022 0.15 September 15, 2022 Quarterly September 30, 2022 October 14, 2022 0.45 September 15, 2022 Supplemental September 30, 2022 October 14, 2022 0.15 December 15, 2022 Quarterly December 30, 2022 January 13, 2023 0.46 December 15, 2022 Supplemental December 30, 2022 January 13, 2023 0.15 Total $ 4.62 Fiscal Year Ended December 31, 2020 A discussion of our financial condition, liquidity and capital resource for the fiscal year ended December 31, 2020 is available in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 3, 2022 and is available on the SEC’s EDGAR database.
All distributions will be paid at the discretion of the Board and will depend on our earnings, financial condition, maintenance of our tax treatment as a RIC, compliance with applicable BDC regulations and such other factors as the Board may deem relevant from time to time. 83 Table of Contents The following table summarizes distributions declared and/or paid by the Company since inception: Declaration Date Type Record Date Payment Date Per Share Amount May 7, 2020 Quarterly May 29, 2020 June 5, 2020 $ 0.22 August 10, 2020 Quarterly August 21, 2020 September 4, 2020 0.27 November 9, 2020 Quarterly November 20, 2020 December 4, 2020 0.27 December 22, 2020 Quarterly December 30, 2020 January 15, 2021 0.27 March 23, 2021 Quarterly March 31, 2021 April 16, 2021 0.28 June 15, 2021 Quarterly June 30, 2021 July 15, 2021 0.29 September 13, 2021 Quarterly September 30, 2021 October 15, 2021 0.33 December 16, 2021 Quarterly December 31, 2021 January 14, 2022 0.36 March 15, 2022 Quarterly March 31, 2022 April 15, 2022 0.40 March 15, 2022 Supplemental March 31, 2022 April 15, 2022 0.15 June 15, 2022 Quarterly June 30, 2022 July 15, 2022 0.42 June 15, 2022 Supplemental June 30, 2022 July 15, 2022 0.15 September 15, 2022 Quarterly September 30, 2022 October 14, 2022 0.45 September 15, 2022 Supplemental September 30, 2022 October 14, 2022 0.15 December 15, 2022 Quarterly December 30, 2022 January 13, 2023 0.46 December 15, 2022 Supplemental December 30, 2022 January 13, 2023 0.15 March 14, 2023 Quarterly March 31, 2023 April 14, 2023 0.47 June 14, 2023 Quarterly June 30, 2023 July 14, 2023 0.48 June 14, 2023 Supplemental June 30, 2023 July 14, 2023 0.05 September 13, 2023 Quarterly September 30, 2023 October 13, 2023 0.49 September 13, 2023 Supplemental September 30, 2023 October 13, 2023 0.05 December 14, 2023 Quarterly December 29, 2023 January 12, 2024 0.50 Total $ 6.66 Fiscal Year Ended December 31, 2021 A discussion of our financial condition, liquidity and capital resource for the fiscal year ended December 31, 2021 is available in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 2, 2023 and is available on the SEC’s EDGAR database.
The increase in investment income for the year ended December 31, 2022 is due to higher stated interest income and amortization of OID and EOT based on an increased principal value of income producing debt investments and increased one-time non-recurring fee income, which fluctuates based on investment activity and early repayment activity.
The increase in investment income for the year ended December 31, 2023 is due to higher interest income and amortization of OID and EOT based on an increased principal value of income producing debt investments and higher stated interest rates.
We may also make a limited number of direct equity and equity-related investments in conjunction with our debt investments. We target growth stage companies that have recently issued equity to raise cash to offset potential cash flow needs related to projected growth, have achieved positive cash flow to cover debt service, or have institutional investors committed to providing additional funding.
We target growth-stage companies that have recently issued equity to raise cash to offset potential cash flow needs related to projected growth, have achieved positive cash flow to cover debt service, or have institutional investors committed to providing additional funding.
Professional Fees Expenses Professional fees expenses, consisting of legal fees, accounting fees, third-party valuation fees, and talent acquisition fees totaled approximately $4.1 million and $2.7 million for the years ended December 31, 2022 and 2021, respectively. The increase in professional fees expenses for the year ended December 31, 2022, resulted primarily from consulting expenses.
Professional Fees Expenses Professional fees expenses, consisting of legal fees, accounting fees, third-party valuation fees, and talent acquisition fees totaled approximately $5.4 million and $4.1 million for the years ended December 31, 2023 and 2022, respectively.
The Company recognizes nonrecurring fees and additional OID and EOT received in consideration for contract modifications commencing in the quarter relating to the specific modification. Fee Income The Company recognizes one-time fee income, including, but not limited to, structuring fees, prepayment penalties, and exit fees related to a change in ownership of the portfolio company, as other income when earned.
Fee and Other Income. The Company recognizes one-time fee income, including, but not limited to, structuring fees, prepayment penalties, and exit fees related to a change in ownership of the portfolio company, as other income when earned.
During the year ended December 31, 2021, we received an aggregate of approximately $290.2 million in proceeds from repayments of our debt investments, including proceeds of approximately $190.1 million from early repayments on our debt investments.
During the year ended December 31, 2023, we received an aggregate of $471.9 million in proceeds from repayments and sales of our investments, including proceeds of approximately $326.6 million from early repayments on our debt investments and sales of debt investments.
Refer to “Note 5 – Borrowings” in the notes to our consolidated financial statements included in this Annual Report on Form 10-K for a discussion of our borrowings. 81 Table of Contents Asset Coverage Requirements In accordance with the 1940 Act, with certain limited exceptions, we are only allowed to incur borrowings, issue debt securities or issue preferred stock, if immediately after the borrowing or issuance, the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock, is at least 150%.
Asset Coverage Requirements In accordance with the 1940 Act, with certain limited exceptions, we are only allowed to incur borrowings, issue debt securities or issue preferred stock, if immediately after the borrowing or issuance, the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock, is at least 150%.
As a result of the Formation Transactions, Trinity Capital Holdings became a wholly owned subsidiary of the Company. On February 2, 2021, we completed our initial public offering of 8,006,291 shares of our common stock at a price of $14.00 per share, inclusive of the underwriters’ option to purchase additional shares, which was exercised in full.
In order to complete these transactions, we used a portion of the proceeds from the Private Offerings. On February 2, 2021, we completed our initial public offering of 8,006,291 shares of our common stock at a price of $14.00 per share, inclusive of the underwriters’ option to purchase additional shares, which was exercised in full.
Our common stock began trading on the Nasdaq Global Select Market on January 29, 2021 under the symbol “TRIN.” Proceeds from this offering were primarily used to pay down a portion of our existing indebtedness outstanding. Critical Accounting Policies The Company’s financial statements are prepared in accordance with GAAP and pursuant to Regulation S-X under the Securities Act.
Our common stock began trading on the Nasdaq Global Select Market on January 29, 2021 under the symbol “TRIN.” Proceeds from this offering were primarily used to pay down a portion of our existing indebtedness outstanding.
For our investment risk rating system, we review seven different criteria and, based on our review of such criteria, we assign a risk rating on a scale of 1 to 5, as set forth in the following illustration.
Our investment committee reviews the recommendations and/or changes to the investment risk ratings, which are submitted on a quarterly basis to the Board and its audit committee. 77 Table of Contents For our investment risk rating system, we review seven different criteria and, based on our review of such criteria, we assign a risk rating on a scale of 1 to 5, as set forth in the following illustration.
Our loans and equipment financings may have initial interest-only periods of up to 24 months and generally fully amortize over a total term of up to 60 months. These investments are typically secured by a blanket first position lien, a specific asset lien on mission-critical assets and/or a blanket second position lien.
Our loans and equipment financings generally have a total term of up to 60 months. These investments are typically secured by a blanket first position lien, a specific asset lien on mission-critical assets and/or a blanket second position lien. We may also make a limited number of direct equity and equity-related investments in conjunction with our debt investments.
Investment Income The following table sets forth the components of investment income (in thousands): Year Ended Year Ended December 31, 2022 December 31, 2021 Stated interest income $ 105,367 $ 54,492 Amortization of original issue discount 23,766 15,514 Acceleration of amortization of original issue discount 9,703 6,621 Prepayment penalty and related fees 3,864 2,564 Other fee income 2,800 3,001 Total investment income $ 145,500 $ 82,192 For the year ended December 31, 2022, total investment income was approximately $145.5 million, which represents an approximate effective yield of 15.1% on the average investments during the year.
Investment Income The following table sets forth the components of investment income (in thousands): Year Ended Year Ended December 31, 2023 December 31, 2022 Stated interest income $ 141,850 $ 105,367 Amortization of OID and EOT 16,665 23,766 Acceleration of OID and EOT 7,725 9,703 PIK interest income 7,998 — Prepayment penalty and related fees 2,118 3,864 Dividend income 602 — Other fee income 4,897 2,800 Total investment income $ 181,855 $ 145,500 For the year ended December 31, 2023, total investment income was approximately $181.9 million, which represents an approximate effective yield of 16.1% on the average investments during the year.
Subject to the requirements of the 1940 Act, we are not limited to investing in any particular industry or geographic area and seek to invest in under-financed segments of the private credit markets.
Subject to the requirements of the 1940 Act, we are not limited to investing in any particular industry or geographic area and seek to invest in under-financed segments of the private credit markets. Our loans generally may have initial interest-only periods of up to 24 months, and our equipment financings generally begin amortizing immediately.
The increase in general and administrative expenses for the year ended December 31, 2022 was primarily due to marketing and travel related expenses. Net Investment Income Net investment income totaled approximately $71.6 million and $39.0 million for the years ended December 31, 2022 and 2021, respectively.
Our general and administrative expenses totaled approximately $6.6 million and $6.1 million for the years ended December 31, 2023 and 2022, respectively. The increase in general and administrative expenses for the year ended December 31, 2023 was primarily due to additional office rent and related expenses.
Net increase in net assets resulting from operations during the year ended December 31, 2021, totaled approximately $132.3 million. 80 Table of Contents Net Increase (Decrease) in Net Assets Resulting from Operations and Earnings Per Share For the year ended December 31, 2022, basic and diluted net decrease in net assets per common share was $0.96.
Net Increase (Decrease) in Net Assets Resulting from Operations and Earnings Per Share For the year ended December 31, 2023, basic and diluted net increase in net assets per common share was $1.98 and $1.89, respectively. For the year ended December 31, 2022, basic and diluted net decrease in net assets per common share was $0.96.
The following table shows the distribution of our loan and equipment financing investments on the 1 to 5 investment risk rating scale range at fair value as of December 31, 2022 and December 31, 2021 (dollars in thousands): December 31, 2022 December 31, 2021 Investment Risk Rating Investments at Percentage of Investments at Percentage of Scale Range Designation Fair Value Total Portfolio Fair Value Total Portfolio 4.0 - 5.0 Very Strong Performance $ 2,729 0.3 % $ 84,785 11.5 % 3.0 - 3.9 Strong Performance 239,872 22.9 % 236,466 32.1 % 2.0 - 2.9 Performing 756,596 72.1 % 396,846 53.9 % 1.6 - 1.9 Watch 39,315 3.7 % 13,427 1.9 % 1.0 - 1.5 Default/Workout 10,317 1.0 % 4,444 0.6 % Total $ 1,048,829 100.0 % $ 735,968 100.0 % At December 31, 2022 and December 31, 2021, our debt investments had a weighted average risk rating score of 2.8 and 3.0, respectively.
The following table shows the distribution of our secured loan and equipment financing investments on the 1 to 5 investment risk rating scale range at fair value as of December 31, 2023 and December 31, 2022 (dollars in thousands): December 31, 2023 December 31, 2022 Investment Risk Rating Investments at Percentage of Investments at Percentage of Scale Range Designation Fair Value Total Portfolio Fair Value Total Portfolio 4.0 - 5.0 Very Strong Performance $ 40,584 3.3 % $ 2,729 0.3 % 3.0 - 3.9 Strong Performance 277,867 22.9 % 239,872 22.9 % 2.0 - 2.9 Performing 805,730 65.9 % 756,596 72.1 % 1.6 - 1.9 Watch 56,740 4.6 % 39,315 3.7 % 1.0 - 1.5 Default/Workout 33,452 2.7 % 10,317 1.0 % Total Debt Investments excluding Senior Credit Corp 2022 LLC 1,214,373 99.4 % 1,048,829 100.0 % .
During the year ended December 31, 2021, we invested approximately $395.3 million in 33 new portfolio companies and approximately $163.0 million in 24 existing portfolio companies, excluding deferred fees.
During the year ended December 31, 2022, we invested approximately $381.1 million in 34 new portfolio companies and approximately $250.1 million in 32 existing portfolio companies, excluding deferred fees.
As of December 31, 2021, our investment portfolio had an aggregate fair value of approximately $873.5 million and was comprised of approximately $551.9 million in secured loans, $184.1 million in equipment financings, and $137.5 million in equity and warrants, across 94 portfolio companies.
Portfolio Composition and Investment Activity Portfolio Composition As of December 31, 2023, our investment portfolio had an aggregate fair value of approximately $1,275.2 million and was comprised of approximately $885.3 million in secured loans, $336.8 million in equipment financings, and $53.1 million in equity and warrants, across 120 portfolio companies.
These fees are generally earned when the portfolio company enters into an equipment financing arrangement or pays off their outstanding indebtedness prior to the scheduled maturity.
These fees are generally earned when the portfolio company enters into an equipment financing arrangement or pays off their outstanding indebtedness prior to the scheduled maturity. In addition, fee income may include fees for originations and administrative agent services rendered by the Company to the JV. Such fees are earned in the period that the services are rendered.
Financial Condition, Liquidity and Capital Resources Our liquidity and capital resources are generated primarily from the net proceeds of offerings of our securities, including our IPO, the Private Offerings, the 2025 Notes offering, the Convertible Notes offering, the August 2026 Notes offering and the December 2026 Notes offering, borrowings under the KeyBank Credit Facility, and cash flows from our operations, including investment sales and repayments, as well as income earned on investments and cash equivalents.
Fiscal Year Ended December 31, 2021 A discussion of our results of operations for the fiscal year ended December 31, 2021 is available in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 2, 2023 and is available on the SEC’s EDGAR database. 81 Table of Contents Financial Condition, Liquidity and Capital Resources Our liquidity and capital resources are generated primarily from the net proceeds of offerings of our securities, including the 2025 Notes offering, the Convertible Notes offering, the August 2026 Notes offering and the December 2026 Notes offering, borrowings under the KeyBank Credit Facility, and cash flows from our operations, including investment sales and repayments, as well as income earned on investments and cash equivalents.
The increase in our operating expenses for the year ended December 31, 2022 is discussed with respect to each component of such expenses below. Interest Expense and Other Debt Financing Costs Our interest expense and other debt financing costs are primarily comprised of interest and fees related to our secured borrowings, the Notes and the Convertible Notes.
The increase in our operating expenses for the year ended December 31, 2023 is discussed with respect to each component of such expenses below.
As of December 31, 2021, our asset coverage ratio was approximately 195.8% and our asset coverage ratio per unit was approximately $1,958. Commitments and Off-Balance Sheet Arrangements The Company has entered into a capital commitment to i40,LLC in the amount of $21.4 million, as of December 31, 2022, and is obligated to fund Capital Contributions through June 2024 .
Commitments and Off-Balance Sheet Arrangements The Company has entered into a capital commitment with the JV to fund capital contributions through June 2026 in the amount of $21.4 million, of which $10.4 million and $21.4 was unfunded as of December 31, 2023 and 82 Table of Contents December 31, 2022, respectively.
Refer to “Note 12 – Related Party Transactions” included in the notes to our consolidated financial statements appearing elsewhere in this report for additional information. 83 Table of Contents Recent Developments During January 2023, the Company repurchased 91,691 of its outstanding common stock at a weighted average price of $10.91.
Refer to “Note 12 – Related Party Transactions” included in the notes to our consolidated financial statements appearing elsewhere in this report for additional information.
For the year ended December 31, 2021 we recognized approximately $82.2 million in total investment income as compared to approximately $43.2 million in total expenses including excise tax expense.
Net Investment Income Net investment income totaled approximately $89.9 million and $71.6 million for the years ended December 31, 2023 and 2022, respectively. The increase in net investment income for the year ended December 31, 2023 resulted from an increase in total investment income as compared to total expenses, including excise tax expense.
December 31, 2022 December 31, 2021 Fair Fair Geographic Region Cost Value Cost Value United States West 39.3 % 40.3 % 46.5 % 50.7 % Northeast 27.9 % 28.4 % 26.4 % 24.5 % Mountain 10.7 % 11.2 % 8.2 % 8.1 % South 8.9 % 7.2 % 7.6 % 7.0 % Midwest 5.1 % 4.6 % 3.7 % 2.7 % Southeast 1.0 % 1.0 % 0.1 % 0.1 % International: Canada 4.5 % 4.6 % 7.5 % 6.9 % Western Europe 2.6 % 2.7 % 0.0 % 0.0 % Total 100.0 % 100.0 % 100.0 % 100.0 % Industry classifications have been updated to a preferred presentation.
December 31, 2023 December 31, 2022 Fair Fair Geographic Region Cost Value Cost Value United States West (2) 35.5 % 36.5 % 37.1 % 38.0 % Northeast (2) 29.8 % 29.9 % 28.2 % 29.1 % South 12.8 % 13.5 % 8.9 % 7.2 % Mountain 9.0 % 8.7 % 10.7 % 11.2 % Midwest 4.9 % 4.5 % 5.1 % 4.6 % Southeast (2) 3.3 % 3.3 % 2.9 % 2.6 % Senior Credit Corp 2022 LLC (1) 0.8 % 0.9 % — — International: Western Europe 1.7 % 1.8 % 2.6 % 2.7 % Canada 2.2 % 0.9 % 4.5 % 4.6 % Total 100.0 % 100.0 % 100.0 % 100.0 % 75 Table of Contents (1) Senior Credit Corp 2022 LLC is a joint venture between the Company and the JV Partner.
As of December 31, 2022 and December 31, 2021, the Company had 16 and nine portfolio companies, respectively, that represented 5% or more of the Company’s net assets. Investment Activity During the year ended December 31, 2022, we invested approximately $381.1 million in 34 new portfolio companies and approximately $250.1 million in 32 existing portfolio companies, excluding deferred fees.
As of December 31, 2023 and December 31, 2022, the Company had four and 16 portfolio companies, respectively, that represented 5% or more of the Company’s net assets.
Net unrealized appreciation and depreciation on investments for the years ended December 31, 2022 and 2021 is comprised of the following (in thousands): Year Ended Year Ended December 31, 2022 December 31, 2021 Gross unrealized appreciation $ 21,498 $ 105,576 Gross unrealized depreciation (94,262 ) (22,783 ) Third party participation (1) — 283 Net unrealized appreciation/depreciation reclassified related to net realized gains or losses (62,050 ) (2,496 ) Total net unrealized gains/ (losses) on investments $ (134,814 ) $ 80,580 (1) Certain third parties had rights to 17,485 shares of Ology Bioservices common stock at a fair value of approximately $0.6 million as of December 31, 2020.
Net unrealized appreciation and depreciation on investments for the years ended December 31, 2023 and 2022 is comprised of the following (in thousands): Year Ended Year Ended December 31, 2023 December 31, 2022 Gross unrealized appreciation $ 39,347 $ 21,498 Gross unrealized depreciation (57,390 ) (94,262 ) Net unrealized appreciation/(depreciation) reclassified related to net realized gains or losses 33,106 (62,050 ) Total net unrealized gains/(losses) on investments $ 15,063 $ (134,814 ) During the year ended December 31, 2023, our net unrealized appreciation totaled approximately $15.1 million, which included net unrealized depreciation of $7.2 million from our warrant investments, net unrealized appreciation of $11.2 million from our equity investments and net unrealized appreciation of $11.0 million from our debt investments.
Employee Compensation and Benefits Employee compensation and benefits totaled approximately $27.2 million and $15.5 million for the years ended December 31, 2022 and 2021, respectively. The increase in employee compensation expenses for the year ended December 31, 2022 relates primarily to the increased variable and share-based compensation from higher head count.
The increase in employee compensation expenses for the year ended December 31, 2023 relates primarily to the increased variable compensation related to higher headcount and stock-based compensation. As of December 31, 2023 and 2022, the Company had 68 and 57 employees, respectively.
The following table provides a summary of the changes in the investment portfolio for the years ended December 31, 2022 and 2021 (in thousands): Year Ended Year Ended December 31, 2022 December 31, 2021 Beginning Portfolio, at fair value $ 873,470 $ 493,651 Purchases, net of deferred fees 627,211 554,832 Non-cash conversion — 916 Principal payments received on investments (124,018 ) (74,278 ) Proceeds from early debt repayments (149,769 ) (190,107 ) Sale of investments (62,767 ) (25,787 ) Accretion of OID, EOT, and PIK payments 32,220 21,238 Net realized gain/(loss) 32,853 12,708 Third party participation (1) — (283 ) Change in unrealized appreciation/(depreciation) (134,814 ) 80,580 Ending Portfolio, at fair value $ 1,094,386 $ 873,470 (1) Certain third parties had rights to 17,485 shares of Ology Bioservices common stock at a fair value of approximately $0.6 million as of December 31, 2020.
The following table provides a summary of the changes in the investment portfolio for the years ended December 31, 2023 and 2022 (in thousands): Year Ended Year Ended December 31, 2023 December 31, 2022 Beginning Portfolio, at fair value $ 1,094,386 $ 873,470 Purchases, net of deferred fees 632,754 627,211 Non-cash conversion 21 — Principal payments received on investments (142,113 ) (124,018 ) Proceeds from early debt repayments (169,745 ) (149,769 ) Sales of investments (160,068 ) (62,767 ) Accretion of OID, EOT, and PIK payments 32,953 32,220 Net realized gain/(loss) (28,071 ) 32,853 Change in unrealized appreciation/(depreciation) 15,063 (134,814 ) Ending Portfolio, at fair value $ 1,275,180 $ 1,094,386 The level of our investment activity can vary substantially from period to period depending on many factors, including the amount of debt, including loans and equipment financings, and equity capital required by growth-stage companies, the general economic environment and market conditions and the competitive environment for the types of investments we make.
Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially. Valuation of investments, income recognition, realized / unrealized gains or losses and U.S. federal income taxes are considered to be our critical accounting policies and estimates.
Critical Accounting Estimates and Policies The preparation of our financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ materially.
General and Administrative Expenses General and administrative expenses include insurance premiums, rent, taxes and various other expenses related to our ongoing operations. Our general and administrative expenses totaled approximately $6.1 million and $4.3 million for the years ended December 31, 2022 and 2021, respectively.
The increase in professional fees expenses for the year ended December 31, 2023, resulted primarily from increased legal fees, third-party valuation fees, and other consulting fees. General and Administrative Expenses General and administrative expenses include insurance premiums, rent, taxes and various other expenses related to our ongoing operations.
Additional information regarding our portfolio is set forth in the consolidated schedule of investments and the related notes thereto included with this Annual Report on Form 10-K. 74 Table of Contents Concentrations of Credit Risk Credit risk is the risk of default or non-performance by portfolio companies, equivalent to the investment’s carrying amount.
As of both December 31, 2023 and December 31, 2022, the debt, including loans and equipment financings, in our portfolio had a weighted average time to maturity of approximately 3.2 years. Additional information regarding our portfolio is set forth in the Consolidated Schedule of Investments and the related notes thereto included with this Annual Report on Form 10-K.
The increase in interest 77 Table of Contents expense for the year ended December 31, 2022 was primarily due to increases in borrowings under the KeyBank Credit Facility, as well as the additional issuance of our 2025 Notes.
The increase in interest expense for the year ended December 31, 2023 was primarily due to increased borrowings and increased interest rate under our credit facility with KeyBank, National Association (the “KeyBank Credit Facility”). Employee Compensation and Benefits Employee compensation and benefits totaled approximately $33.1 million and $27.2 million for the years ended December 31, 2023 and 2022, respectively.
Our portfolio management team monitors and, when appropriate, recommends changes to the investment risk ratings. Our Investment Committee reviews the recommendations and/or changes to the investment risk ratings, which are submitted on a quarterly basis to the Board and its Audit Committee.
Portfolio Asset Quality Our portfolio management team uses an ongoing investment risk rating system to characterize and monitor our outstanding loans and equipment financings. Our portfolio management team monitors and, when appropriate, recommends changes to the investment risk ratings.
Removed
In order to complete these transactions, we used a portion of the proceeds from the Private Offerings.
Added
On December 5, 2022, the Company entered into a joint venture agreement with certain funds and accounts managed by a specialty credit manager (collectively, the “JV Partner”) to co-manage Senior Credit Corp 2022 LLC (the “JV”). The JV invests in secured loans and equipment financings to growth-stage companies that have been originated by the Company.
Removed
The Legacy Funds were merged with and into the Company, and we issued 9,183,185 shares of our common stock for an aggregate amount of approximately $137.7 million and paid approximately $108.7 million in cash to the Legacy Investors, which included the general partners, managers or managing members of the Legacy Funds, to acquire the Legacy Funds and all of their respective assets, including the Legacy Portfolio.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeBased on our Consolidated Statements of Operations as of December 31, 2022, the following table shows the annualized impact on net income of hypothetical base rate changes in the Prime rate on our debt investments (considering interest rate floors for floating-rate instruments) and the hypothetical base rate changes in the SOFR on 84 Table of Contents our KeyBank Credit Facility, assuming that there are no changes in our investment and borrowing structure (in thousands): Interest Interest Net Income Expense Income/(Loss) Up 300 basis points $ 21,165 $ 5,625 $ 15,540 Up 200 basis points $ 14,110 $ 3,750 $ 10,360 Up 100 basis points $ 7,059 $ 1,875 $ 5,184 Down 100 basis points $ (7,015 ) $ (1,875 ) $ (5,140 ) Down 200 basis points $ (14,052 ) $ (3,750 ) $ (10,302 ) Down 300 basis points $ (20,654 ) $ (5,625 ) $ (15,029 ) Currency Risk Any investments we make that are denominated in a foreign currency will be subject to risks associated with changes in currency exchange rates.
Biggest changeBased on our Consolidated Statements of Operations as of December 31, 2023, the following table shows the annualized impact on net income of hypothetical base rate changes in the Prime rate on our debt investments (considering interest rate floors for floating-rate instruments) and the hypothetical base rate changes in the SOFR on our KeyBank Credit Facility, assuming that there are no changes in our investment and borrowing structure (in thousands): Interest Interest Net Income Expense Income/(Loss) Up 300 basis points $ 25,469 $ 6,390 $ 19,079 Up 200 basis points $ 17,259 $ 4,260 $ 12,999 Up 100 basis points $ 9,188 $ 2,130 $ 7,058 Down 100 basis points $ (6,898 ) $ (2,130 ) $ (4,768 ) Down 200 basis points $ (12,700 ) $ (4,260 ) $ (8,440 ) Down 300 basis points $ (18,274 ) $ (6,390 ) $ (11,884 ) 85 Table of Contents Currency Risk Any investments we make that are denominated in a foreign currency will be subject to risks associated with changes in currency exchange rates.
While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. We may also borrow funds in local currency as a way to hedge our non-U.S. denominated investments. 85 Table of Contents
While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates. We may also borrow funds in local currency as a way to hedge our non-U.S. denominated investments. 86 Table of Contents
Our exposure to currency risk related to these debt investments is minimal as payments from such portfolio companies are received in U.S. dollars. No other investments as of December 31, 2022 were subject to currency risk. Hedging We do not currently engage in any hedging activities.
Our exposure to currency risk related to these debt investments is minimal as payments from such portfolio companies are received in U.S. dollars. No other investments as of December 31, 2023 were subject to currency risk. Hedging We do not currently engage in any hedging activities.
These risks include the possibility of significant fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity in the secondary market. These risks will vary depending upon the currency or currencies involved. As of December 31, 2022, we had six foreign domiciled portfolio companies.
These risks include the possibility of significant fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity in the secondary market. These risks will vary depending upon the currency or currencies involved. As of December 31, 2023, we had four foreign domiciled portfolio companies.
In addition, borrowings under the KeyBank Credit Facility are subject to floating interest rates based on SOFR, generally bearing interest at a rate of the Adjusted Term SOFR Reference Rate plus 2.85%, subject to the number of eligible debt investments in the collateral pool.
In addition, borrowings under the KeyBank Credit Facility are subject to floating interest rates based on SOFR, generally bearing interest at a rate of the Adjusted Term SOFR Reference Rate plus 3.25%, subject to the number of eligible debt investments in the collateral pool.
As of December 31, 2022, approximately 67.5% of our debt investments based on outstanding principal balance represented floating-rate investments based on Prime or LIBOR, and approximately 32.5% of our debt investments based on outstanding principal balance represented fixed rate investments.
As of December 31, 2023, approximately 69.0% of our debt investments based on outstanding principal balance represented floating-rate investments based on Prime or SOFR, and approximately 31.0% of our debt investments based on outstanding principal balance represented fixed rate investments.

Other TRINZ 10-K year-over-year comparisons