Trinity Capital Inc

The following discussion and analysis of our results of operations encompasses our consolidated results for the three and six months ended June 30, 2024 and 2023.

Investment Income

The following table sets forth the components of investment income (in thousands). The components of investment income have been updated to a preferred presentation and the prior year has been amended to conform with the new preferred presentation.

For the three and six months ended June 30, 2024, total investment income was approximately $54.6 million and $105.1 million, respectively, which represents an approximate effective yield of 16.0% and 15.9%, respectively, on the average investments during the year. For the three and six months ended June 30, 2023, total investment income was approximately $46.0 and $87.6 million, respectively, which represents an approximate effective yield of 16.2% and 15.6%, respectively, on the average investments during the year. The increase in investment income for the three and six months ended June 30, 2024 is due to higher interest income and amortization of OID and EOT based on an increased principal value of income producing debt investments.

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 $27.9 million and $23.9 million for the three months ended June 30, 2024 and 2023, respectively, and $53.2 million and $46.2 million for the six months ended June 30, 2024 and 2023, respectively. The increase in our operating expenses for the three and six months ended June 30, 2024 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 7.00% Notes due 2025 (the “2025 Notes”), the 4.375% Notes due 2026 (the “August 2026 Notes”), the 4.25% Notes due 2026 (the “December 2026 Notes”), the 7.875% Notes due 2029 (the “March 2029

Notes”), and the 6.00% Convertible Notes due 2025 (the “Convertible Notes”). Interest expense and other debt financing costs on our borrowings totaled approximately $13.9 million and $12.0 million for the three months ended June 30, 2024 and 2023, respectively, and $26.0 million and $23.1 million for the six months ended June 30, 2024 and 2023, respectively. Our weighted average effective interest rate, comprised of interest and amortization of fees and discount, was approximately 7.6% and 7.2% for the three months ended June 30, 2024 and 2023, respectively, and 7.5% and 7.1% for the six months ended June 30, 2024 and 2023, respectively. The increase in interest expense for the three and six months ended June 30, 2024 was primarily due to increased borrowings and increased base rate under our credit facility with KeyBank, National Association (the “KeyBank Credit Facility”).

Employee Compensation and Benefits

Employee compensation and benefits totaled approximately $9.9 million and $8.4 million for the three months ended June 30, 2024 and 2023, respectively, and $19.8 million and $16.0 million for the six months ended June 30, 2024 and 2023, respectively. The increase in employee compensation expenses for the three and six months ended June 30, 2024 relates primarily to the increased variable compensation related to a higher headcount and stock-based compensation. As of June 30, 2024 and 2023, the Company had 83 and 61 employees, respectively.

Professional Fees Expenses

Professional fees expenses, consisting of legal fees, accounting fees, third-party valuation fees, and talent acquisition fees, totaled approximately $1.3 million and $1.4 million for the three months ended June 30, 2024 and 2023, respectively, and $2.1 million and $2.8 million for the six months ended June 30, 2024 and 2023, respectively. The decrease in professional fees expenses for the three and six months ended June 30, 2024 resulted primarily from a decrease in legal fees, third-party valuation fees and other consulting fees.

General and Administrative Expenses

General and administrative expenses include insurance premiums, rent, state taxes and various other expenses related to our ongoing operations. Our general and administrative expenses totaled approximately $2.1 million and $1.5 million for the three months ended June 30, 2024 and 2023, respectively, and $4.0 million and $3.0 million for the six months ended June 30, 2024 and 2023, respectively. The increase in general and administrative expenses for the three and six months ended June 30, 2024 was primarily due to additional office rent and related expenses.

Excise Taxes

Our excise taxes totaled approximately $0.6 million and $0.7 million for the three months ended June 30, 2024 and 2023, respectively, and $1.3 million and $1.3 million for the six months ended June 30, 2024 and 2023, respectively.

Net Investment Income

For the three months ended June 30, 2024 and 2023, we recognized approximately $54.6 million and $46.0 million, respectively, in total investment income as compared to approximately $27.9 million and $23.9 million, respectively, in total expenses, including excise tax expense, resulting in net investment income of $26.7 million and $22.1 million, respectively. For the six months ended June 30, 2024 and 2023, we recognized approximately $105.1 million and $87.6 million, respectively, in total investment income as compared to approximately $53.2 million and $46.2 million, respectively, in total expenses including excise tax expense, resulting in net investment income of $51.9 million and $41.4 million, respectively.

Net Realized Gains and Losses

Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption of an investment or a financial instrument and the cost basis of the investment or financial instrument, without regard to unrealized appreciation or depreciation previously recognized, and includes investments written off during the period.

During the six months ended June 30, 2024, our gross realized gains primarily consisted of the repayment of one equipment financing and the sale of one equity position. Our gross realized losses primarily consisted of the sale of one equity position, the repayment of one debt position and the conversion of debt positions in three portfolio companies. During the six months ended June 30, 2023, our gross realized gains primarily consisted of the repayment of one loan, one equipment financing, and one warrant, and our gross realized losses primarily consisted of the exit of our debt and equity positions in two portfolio companies.

The net realized gains (losses) from the sales, repayments, or exits of investments for the three and six months ended June 30, 2024 and 2023 were comprised of the following (in thousands):

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.

Net unrealized appreciation and depreciation on investments for the three and six months ended June 30, 2024 and 2023 is comprised of the following (in thousands):

During the three months ended June 30, 2024, our net unrealized appreciation totaled approximately $10.6 million, which included net unrealized depreciation of $0.2 million from our warrant investments, net unrealized appreciation of $4.2 million from our equity investments and net unrealized appreciation of $6.6 million from our debt investments.

During the six months ended June 30, 2024, our net unrealized depreciation totaled approximately $1.4 million, which included net unrealized appreciation of $3.6 million from our warrant investments, net unrealized appreciation of $0.8 million from our equity investments and net unrealized depreciation of $5.8 million from our debt investments.

During the three months ended June 30, 2023, our net unrealized appreciation totaled approximately $24.4 million, which included net unrealized appreciation of $11.5 million from our warrant and equity investments and net unrealized appreciation of $12.9 million from our debt investments.

During the six months ended June 30, 2023, our net unrealized appreciation totaled approximately $27.9 million, which included net unrealized appreciation of $6.8 million from our warrant and equity investments and net unrealized appreciation of $21.1 million from our debt investments.

Net Increase (Decrease) in Net Assets Resulting from Operations

Net increase in net assets resulting from operations during the three and six months ended June 30, 2024, totaled approximately $30.8 million and $45.3 million, respectively. Net increase in net assets resulting from operations during the three and six months ended June 30, 2023, totaled approximately $19.9 million and $42.4 million, respectively.

Net Increase (Decrease) in Net Assets Resulting from Operations and Earnings Per Share

For the three months ended June 30, 2024, basic and diluted net increase in net assets per common share were $0.61 and $0.59, respectively. For the six months ended June 30, 2024, basic and diluted net increase in net assets per common share were $0.94 and $0.90, respectively.

For the three months ended June 30, 2023, basic and diluted net decrease in net assets per common share were $0.55 and $0.52, respectively. For the six months ended June 30, 2023, basic and diluted net increase in net assets per common share were $1.19 and $1.13, respectively.

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 “at-the-market” offering, the 2025 Notes offering, the Convertible Notes offering, the August 2026 Notes offering, the December 2026 Notes offering and the March 2029 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. Our primary use of our funds includes investments in portfolio companies, payments of interest on our outstanding debt, and payments of fees and other operating expenses we incur. We also expect to use our funds to pay distributions to our stockholders. We have used, and expect to continue to use, our borrowings, including under the KeyBank Credit Facility or any future credit facility, as well as proceeds from the turnover of our portfolio, to finance our investment objectives and activities.

From time to time, we may enter into additional credit facilities, increase the size of our existing KeyBank Credit Facility, or issue additional securities in private or public offerings. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions, and other factors.

During the six months ended June 30, 2024, we experienced a net increase in cash and cash equivalents in the amount of $41.3 million, which is the net result of $144.8 million of cash provided by financing activities, offset by $103.3 million of cash used in operating activities and $0.2 million of cash used in investing activities. During the six months ended June 30, 2023, we experienced a net increase in cash and cash equivalents in the amount of $1.7 million, which is the net result of $15.4 million of cash used in operating activities and $1.4 million of cash used in investing activities, offset by $18.5 million of cash provided by financing activities.

As of June 30, 2024 and December 31, 2023, we had cash and cash equivalents of $46.1 million and $4.8 million, respectively, of which $5.8 million and $3.1 million, respectively, was held in the Goldman Sachs Financial Square Government Institutional Fund. Cash held in demand deposit accounts may exceed the Federal Deposit Insurance Corporation (“FDIC”) insured limit and therefore is subject to credit risk. All of the Company’s cash deposits are held at large established high credit quality financial institutions, and management believes that the risk of loss associated with any uninsured balances is remote.

As of June 30, 2024 and December 31, 2023, we had approximately $95.3 million and $137.0 million, respectively, of available borrowings under the KeyBank Credit Facility, subject to its terms and regulatory requirements. Cash and cash equivalents, taken together with available borrowings under the KeyBank Credit Facility, as of June 30, 2024, are expected to be sufficient for our investing activities and to conduct our operations in the near term and long term.

Refer to “Note 5 – Borrowings” and “Note 14 – Subsequent Events” in the notes to our consolidated financial statements included in this Quarterly Report on Form 10-Q and “—Recent Developments” for additional information, including a discussion of our borrowings.

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%. On September 27, 2019, the Board, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) and our initial stockholder approved the application to us of the 150% minimum asset coverage ratio set forth in Section 61(a)(2) of the 1940 Act. As a result, we are permitted to potentially borrow $2 for investment purposes of every $1 of investor equity. As of June 30, 2024, our asset coverage ratio was approximately 188.1% and our asset coverage ratio per unit was approximately $1,881. As of December 31, 2023, our asset coverage ratio was approximately 194.7% and our asset coverage ratio per unit was approximately $1,947.

Commitments and Off-Balance Sheet Arrangements

The Company has entered into a capital commitment with each of the JV and EPT 16 to fund capital contributions through June 2026 in the amount of $21.4 million and $10.0 million, respectively. As of June 30, 2024, unfunded commitments were $5.2 million and $6.0 million for the JV and EPT 16, respectively. As of December 31, 2023, unfunded commitments were $10.4 million for the JV and there were no unfunded commitments for EPT 16. The Company did not have any other off-balance sheet financings or liabilities as of June 30, 2024 or December 31, 2023.

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. A portion of these unfunded contractual commitments as of June 30, 2024 and December 31, 2023 are dependent upon the portfolio company reaching certain milestones before the debt commitment becomes available. Furthermore, the Company’s credit agreements with its portfolio companies generally contain customary lending provisions that allow the Company relief from funding obligations for previously made commitments in instances where the underlying portfolio company experiences materially adverse events that affect the financial condition or business outlook for the company. 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. As of June 30, 2024 and December 31, 2023, the Company did not have any outstanding unfunded commitments. The Company will fund future unfunded commitments from the same sources it uses to fund its investment commitments that are funded at the time they are made (which are typically through existing cash and cash equivalents and borrowings under the KeyBank Credit Facility).

In the normal course of business, the Company enters into contracts that provide a variety of representations and warranties, and general indemnifications. Such contracts include those with certain service providers, brokers and trading counterparties. Any exposure to the Company under these arrangements is unknown as it would involve future claims that may be made against the Company; however, based on the Company’s experience, the risk of loss is remote and no such claims are expected to occur. As such, the Company has not accrued any liability in connection with such indemnifications.

Contractual Obligations

A summary of our contractual payment obligations as of June 30, 2024, is as follows:

We intend to pay quarterly distributions to our stockholders out of assets legally available for distribution. 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.

The following table summarizes distributions declared and/or paid by the Company since inception:

Price Range of Common Stock

Our common stock began trading on the Nasdaq Global Select Market (“Nasdaq”) on January 29, 2021 under the symbol “TRIN” in connection with our IPO, which closed on February 2, 2021. Prior to our IPO, the shares of our common stock were offered and sold in transactions exempt from registration under the Securities Act. As such, there was no public market for shares of our common stock during year ended December 31, 2020. Since our IPO, our common stock has traded at prices both above and below our net asset value per share.

The following table sets forth the net asset value per share of our common stock, the range of high and low closing sales prices of our common stock reported on Nasdaq, the closing sales price as a premium (discount) to net asset value and the dividends declared by us in each fiscal quarter since we began trading on Nasdaq. On August 6, 2024, the last reported closing sales price of our common stock on Nasdaq was $14.08 per share, which represented a premium of approximately 7.3% to our net asset value per share of$13.12 as of June 30, 2024. As of August 6, 2024, we had approximately 55 stockholders of record, which does not include stockholders for whom shares are held in nominee or “street” name.

(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. The net asset values shown are based on outstanding shares at the end of the relevant quarter.

(2)

Calculated as the respective high or low closing sales price less net asset value, divided by net asset value (in each case, as of the applicable quarter).

(3)

Represents the dividend or distribution declared in the relevant quarter.

(4)

Consists of a quarterly dividend and a supplemental dividend.

Shares of BDCs may trade at a market price that is less than the value of the net assets attributable to those shares. At times, our shares of common stock have traded at prices both above and below our net asset value per share. The possibility that our shares of common stock will trade at a discount from net asset value per share or at premiums that are unsustainable over the long term are separate and distinct from the risk that our net asset value per share will decrease. It is not possible to predict whether our common stock will trade at, above, or below net asset value per share.

Related Party Transactions

Certain members of management as well as employees of the Company hold shares of the Company’s stock.

We have entered into indemnification agreements with our directors and executive officers. The indemnification agreements are intended to provide our directors and executive officers with the maximum indemnification permitted under Maryland law and the 1940 Act. Each indemnification agreement provides that we shall indemnify the director or executive officer who is a party to the agreement, or an “Indemnitee,” including the advancement of legal expenses, if, by reason of his or her corporate status, the Indemnitee is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed proceeding, to the maximum extent permitted by Maryland law and the 1940 Act.

Refer to “Note 12 – Related Party Transactions” included in the notes to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information.

Recent Developments

For the period from July 1, 2024 to August 6, 2024, the Company issued and sold 1,497,621 shares of its common stock at a weighted-average price of $14.07 per share and raised $20.8 million of net proceeds after deducting commissions to the sales agents on shares sold under the ATM Program.

September 2029 Notes

On July 19, 2024, the Company issued and sold $100.0 million in aggregate principal amount of its unsecured 7.875% Notes due 2029 (the “September 2029 Notes”) under its shelf Registration Statement on Form N-2. On August 1, 2024, the Company issued and sold an additional $15.0 million in aggregate principal amount of the September 2029 Notes pursuant to the exercise in full of the underwriters’ option to purchase additional September 2029 Notes from the Company to cover overallotments.

The September 2029 Notes were issued pursuant to the Base Indenture and a Sixth Supplemental Indenture, dated as of July 19, 2024, between the Company and the Trustee. The September 2029 Notes mature on September 30, 2029, unless repurchased or redeemed in accordance with their terms prior to such date. The September 2029 Notes are redeemable, in whole or in part, at any time, or from time to time, at the Company's option on or after September 30, 2026 upon not less than 30 days’ nor more than 60 days’ written notice prior to the date fixed for redemption thereof, at a redemption price equal to 100% of the outstanding principal amount of the September 2029 Notes, plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to, but excluding, the date fixed for redemption.

The September 2029 Notes bear interest at a fixed rate of 7.875% per year payable quarterly on March 30, June 30, September 30 and December 30, commencing on September 30, 2024. The September 2029 Notes are direct, general unsecured obligations of the Company and rank pari passu, or equal in right of payment, with all of the Company’s existing and future unsecured indebtedness or other obligations that are not so subordinated. The September 2029 Notes began trading on the Nasdaq Global Select Market under the symbol “TRINI” on July 22, 2024.

On August 2, 2024, TrinCap Funding, LLC (“TCF”), a wholly owned special purpose subsidiary of the Company, as borrower, and the Company, as servicer, entered into an amendment (the “Sixth Amendment”) to the Credit Agreement, dated as of October 27, 2021 (as amended, the “KeyBank Credit Agreement”), related to the KeyBank Credit Facility. Among other changes, the Sixth Amendment (i) increased the commitment amount available for borrowing under the KeyBank Credit Facility from $350 million to $440 million and permits the Company to request an increased amount of commitments from a total of up to $400 million to a total of up to $690 million in maximum capacity, subject to certain provisions, (ii) extended the maturity date from October 27, 2026 to July 27, 2029, and (iii) replaced the variable advance rate of up to 60% on eligible term loans and up to 64% on eligible equipment finance loans with a variable advance rate of up to 62% on eligible first lien loans and up to 47% on eligible second lien loans.