Hercules Capital, Inc.

Previous wording

The matters discussed in this report, as well as in future oral and written statements by management of Hercules Capital, Inc., that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Important assumptions include our ability to originate new investments, achieve certain margins and levels of profitability, the availability of additional capital, and the ability to maintain certain debt to asset ratios. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans or objectives will be achieved. The forward-looking statements contained in this report include statements as to:

Current wording

The matters discussed in this Quarterly Report, as well as in future oral and written statements by management of Hercules Capital, Inc., that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties, including those discussed under “Item 1A. Risk Factors”, which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Important assumptions include our ability to originate new investments, achieve certain margins and levels of profitability, the availability of additional capital, and the ability to maintain certain debt to asset ratios. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans or objectives will be achieved. The forward-looking statements contained in this report include statements as to:

Previous wording

You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this report.

Current wording

You should not place undue reliance on these forward-looking statements. The forward-looking statements made in this Quarterly Report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this Quarterly Report.

Previous wording

Throughout this MD&A, we present our financial condition and results of operations in the way we believe will be most meaningful and representative of our business results. Some of the measurements we use are “Non-GAAP financial measures” under SEC rules and regulations. GAAP is the acronym for “generally accepted accounting principles” in the United States. The Non-GAAP financial measures we present may not be comparable to similarly-named measures reported by other companies.

Current wording

We present our financial condition and results of operations in the way we believe will be most meaningful and representative of our business results. Some of the measurements we use are “Non-GAAP financial measures” under SEC rules and regulations. GAAP is the acronym for “generally accepted accounting principles” in the United States. The Non-GAAP financial measures we present may not be comparable to similarly-named measures reported by other companies.

Previous wording

We are a leading specialty finance company with a focus on providing financing solutions to high-growth and innovative venture capital-backed and institutional-backed companies in a variety of technology and life sciences industries. Our primary business objectives are to increase our net income, net investment income, and net asset value through our investments. We principally invest in debt securities and, to a lesser extent, equity securities, with a particular emphasis on Structured Debt. We use the term “Structured Debt” to refer to a debt investment that is structured with an equity, warrant, option, or other right to purchase or convert into common or preferred stock. We aim to achieve our business objectives by maximizing our portfolio total return through generation of current income from our debt investments and capital appreciation from our warrant and equity investments. We expect that our investments will generally range from $25.0 million to $100.0 million, although we may make investments in amounts above or below this range. Through generation of current income from our debt investments and capital appreciation from our warrant and equity investments, we aim to maximize our portfolio total return.

Current wording

We are a leading specialty finance company with a focus on providing financing solutions to high-growth and innovative venture capital-backed and institutional-backed companies in a variety of technology and life sciences industries. Our primary business objectives are to increase our net income, net investment income, and net asset value through our investments. We principally invest in debt securities and, to a lesser extent, warrant and equity securities, with a particular emphasis on Structured Debt. We aim to achieve our business objectives by maximizing our portfolio total return through generation of current income from our debt investments and capital appreciation from our warrant and equity investments. We expect that our investments will generally range from $25.0 million to $100.0 million, although we may make investments in amounts above or below this range. Through generation of current income from our debt investments and capital appreciation from our warrant and equity investments, we aim to maximize our portfolio total return.

Previous wording

Since inception through September 30, 2024, we have originated more than $21.0 billion in commitments in over 660 companies. We, our subsidiaries or our affiliates, may also agree to manage certain other funds that invest in debt, equity or provide other financing or services to companies in a variety of industries for which we may earn management or other fees for our services. As of September 30, 2024, Hercules and its Adviser Subsidiary actively manage approximately $4.6 billion of assets.

Current wording

Since inception through March 31, 2025, we have originated more than $22.0 billion in commitments in over 680 companies. We, through the Adviser Subsidiary, may also agree to manage certain other funds that invest in debt, equity or provide other financing or services to companies in a variety of industries for which we, through the Adviser Subsidiary may earn management or other fees for our services. As of March 31, 2025, we, including through our Adviser Subsidiary, actively manage approximately $5.0 billion of assets.

Previous wording

We are structured as an internally managed, non-diversified, closed-end investment company that has elected to be regulated as a BDC under the 1940 Act. As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” which includes securities of private U.S. companies, cash, cash equivalents, and high-quality debt investments that mature in one year or less. Consistent with requirements under the 1940 Act, we invest primarily in United States based companies and to a lesser extent in foreign companies. We source our investments through our principal office located in San Mateo, CA, as well as through our additional offices in Boston, MA, New York, NY, Bethesda, MD, San Diego, CA, Denver, CO, and London, United Kingdom.

Current wording

We are structured as an internally managed, non-diversified, closed-end investment company that has elected to be regulated as a BDC under the 1940 Act. As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” which includes securities of private U.S. companies, cash, cash equivalents, and high-quality debt investments that mature in one year or less. Consistent with requirements under the 1940 Act, we invest primarily in United States based companies and to a lesser extent in foreign companies. We source our investments through our principal office located in San Mateo, CA, as well as through our additional offices in Boston, MA, New York, NY, San Diego, CA, Denver, CO, and London, United Kingdom.

Previous wording

We have elected to be treated for tax purposes as a RIC under the Code and operate in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC, among other requirements, we must maintain certain income, asset, and distribution requirements. As a RIC, we generally will not be subject to U.S. federal income tax on the income that we distribute (or are deemed to distribute) to our stockholders provided that we maintain our RIC status for a given year.

Current wording

We have elected to be treated for tax purposes as a RIC under the Code and operate in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC, among other requirements, we must maintain certain income, asset, and distribution requirements. As a RIC, we generally will not be subject to U.S. federal income tax on the income that we distribute (or are deemed to distribute) to our stockholders provided that we maintain our RIC status for a given year. See “Certain United States Federal Income Tax Considerations” included in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 13, 2025 for additional information.

Previous wording

Our investments in portfolio companies take a variety of forms, including unfunded contractual commitments and funded investments. Not all debt commitments represent future cash requirements. Unfunded contractual commitments depend upon a portfolio company reaching certain milestones before the debt commitment is available to the portfolio company, which is expected to affect our funding levels. These commitments are subject to the same underwriting and ongoing portfolio maintenance as the on-balance sheet financial instruments that we hold. Debt commitments generally fund over the following year from underwriting. From time to time, unfunded contractual commitments may expire without being drawn and thus do not represent future cash requirements.

Current wording

Our investments in portfolio companies take a variety of forms, including unfunded contractual commitments and funded investments. Not all debt commitments represent future cash requirements. Unfunded contractual commitments depend upon a portfolio company reaching certain milestones before the debt commitment is available to the portfolio company, which is expected to affect our funding levels. These commitments are subject to the same underwriting and ongoing portfolio maintenance as the on-balance sheet financial instruments that we hold. Debt commitments generally fund over the year following the underwriting of such debt commitment. From time to time, unfunded contractual commitments may expire without being drawn and thus do not represent future cash requirements.

Previous wording

Our portfolio activity for the nine months ended September 30, 2024 and September 30, 2023 was comprised of the following:

Current wording

Our portfolio activity for the three months ended March 31, 2025 and 2024 was comprised of the following:

Previous wording

(3)Amount represents unfunded commitments, including undrawn revolving facilities, which are available at the request of the portfolio company. Amount excludes unfunded commitments which are unavailable due to the borrower having not met certain milestones. This excludes $152.2 million and $135.7 million of unfunded commitments as of September 30, 2024, and 2023, respectively, to portfolio companies related to loans assigned to or directly committed by the Adviser Funds.

Current wording

(3)Amount represents unfunded commitments, including undrawn revolving facilities, which are available at the request of the portfolio company. Amount excludes unfunded commitments which are unavailable due to the borrower having not met certain milestones. This excludes $136.0 million and $156.0 million of unfunded commitments as of March 31, 2025 and March 31, 2024, respectively, to portfolio companies related to loans assigned to or directly committed by the Adviser Funds.

Previous wording

We receive principal payments on our debt investment portfolio based on scheduled amortization of the outstanding balances. In addition, we receive principal repayments for some of our loans prior to their scheduled maturity date. The frequency or volume of these early principal repayments may fluctuate significantly from period to period. During the nine months ended September 30, 2024, we received approximately $724.0 million in aggregate principal repayments. Approximately $27.2 million of the aggregate principal repayments related to scheduled principal payments and approximately $696.8 million were early principal repayments related to 43 portfolio companies.

Current wording

We receive principal payments on our debt investment portfolio based on scheduled amortization of the outstanding balances. In addition, we receive principal repayments for some of our loans prior to their scheduled maturity date. The frequency or volume of these early principal repayments may fluctuate significantly from period to period. During the three months ended March 31, 2025, we received approximately $144.5 million in aggregate principal repayments. Approximately $12.7 million of the aggregate principal repayments related to scheduled principal payments and approximately $131.8 million were early principal repayments related to 17 portfolio companies.

Previous wording

Total portfolio investment activity (inclusive of unearned income and excluding activity related to taxes payable and escrow receivables) as of and for the nine months ended September 30, 2024 and September 30, 2023 was as follows:

Current wording

Total portfolio investment activity (inclusive of unearned income and excluding activity related to taxes payable and escrow receivables) as of and for the three months ended March 31, 2025 and 2024 was as follows:

Previous wording

The following table presents certain selected information regarding our debt investment portfolio as of September 30, 2024 and December 31, 2023. This includes information on index rate floors which we have in place on all of our floating rate debt investments:

Current wording

The following table presents certain additional selected information regarding our debt investment portfolio as of March 31, 2025 and March 31, 2024. This includes information on index rate floors which we have in place on all of our floating rate debt investments.

Previous wording

The capital markets are subject to fluctuations caused by various external factors such as changes in the inflationary environment, interest rate movements, concerns over slowing economic growth and possible global recession, uncertainty and disruption caused by geopolitical events, including the conflicts in Ukraine, Russia, and the Middle East, among other factors. These macroeconomic developments are outside our control and could require us to adjust our plan of operations, and impact our financial position, results of operations or cash flows in the future. We monitor macroeconomic market developments and their related impact to our business, including impacts to our portfolio companies, employees, due diligence and underwriting processes, and the broader financial markets.

Current wording

The capital markets are subject to fluctuations caused by various external factors such as changes in the inflationary environment, interest rate movements, concerns over slowing economic growth and possible global recession, changes to U.S. tariff and import/export regulations, uncertainty and disruption caused by geopolitical events, including the conflicts in Ukraine, Russia, and the Middle East, among other factors. These macroeconomic developments are outside our control and could require us to adjust our plan of operations, and impact our financial position, results of operations or cash flows in the future. We monitor macroeconomic market developments and their related impact to our business, including impacts to our portfolio companies, employees, due diligence and underwriting processes, and the broader financial markets.

Previous wording

December 31, 2023, respectively, are subject to interest rate floors. While our portfolio is not immune to the impact of macroeconomic events, we and our portfolio are well positioned to manage the current environment. Given the unpredictability and fluidity of the macroeconomic market, neither our management nor our Board is able to predict the full impact of the macroeconomic events on our business, future results of operations, financial position, or cash flows.

Current wording

Our investment portfolio continues to be focused on industries and sectors that are generally expected to be more resilient to U.S. and global economic cycles. This includes being partially insulated from declining interest rates as all of our floating rate debt investments, which represent 98.0% and 97.4% of our debt portfolio as of March 31, 2025 and December 31, 2024, respectively, are subject to interest rate floors. While our portfolio is not immune to the impact of macroeconomic events, we believe we and our portfolio are well positioned to manage the current environment. Given the unpredictability and fluidity of the macroeconomic market, neither our management nor our Board is able to predict the full impact of the macroeconomic events on our business, future results of operations, financial position, or cash flows. For additional information, see“Part I - Item 1A. Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 13, 2025.

Previous wording

As of September 30, 2024, our debt investments generally have a term of between two and five years and typically bear interest at a rate ranging from approximately 8.0% to approximately 17.7%. In addition to the cash yields received on our debt investments, in some instances, our debt investments may also include any of the following: exit fees, balloon payment fees, commitment fees, success fees, PIK provisions or prepayment fees which may be required to be included in income prior to receipt.

Current wording

As of March 31, 2025, our debt investments generally have a term of between two and five years and typically bear interest at a rate ranging from approximately 7.5% to approximately 14.5%. In addition to the cash yields received on our debt investments, in some instances, our debt investments may also include any of the following: exit fees, balloon payment fees, commitment fees, success fees, PIK provisions or prepayment fees which may be required to be included in income prior to receipt.

Previous wording

Additionally, we have debt investments in our portfolio that earn PIK interest. The PIK interest, computed at the contractual rate specified in each loan agreement, is recorded as interest income and added to the principal balance of the loan on specified capitalization dates. To maintain our status as a RIC, the non-cash PIK income must be distributed to stockholders with other sources of income in the form of dividend distributions even though we have not yet collected any cash from the borrower. Amounts necessary to pay these distributions may come from available cash or the liquidation of certain investments. During the three months ended September 30, 2024 and 2023, we recorded approximately $12.7 million and $6.7 million in PIK income, respectively. During the nine months ended September 30, 2024 and 2023, we recorded approximately $37.9 million and $18.0 million in PIK income, respectively.

Current wording

Additionally, we have debt investments in our portfolio that earn PIK interest. The PIK interest, computed at the contractual rate specified in each loan agreement, is recorded as interest income and added to the principal balance of the loan on specified capitalization dates. To maintain our status as a RIC, the non-cash PIK income must be distributed to stockholders with other sources of income in the form of dividend distributions even though we have not yet collected any cash from the borrower. Amounts necessary to pay these distributions may come from available cash or the liquidation of certain investments. During the three months ended March 31, 2025 and 2024, we recorded approximately $13.5 million and $9.9 million of PIK income, respectively.

Previous wording

(1)Yield calculated using“Total investment income” excluding bank interest, dividend income, and investment income from other assets for the three months ended September 30, 2024.

Current wording

(1)Yield calculated using“Total investment income” excluding bank interest, dividend income, and investment income from other assets for the three months ended March 31, 2025 and 2024.

Previous wording

Another financial measure that we monitor is the total return for our investors, which was approximately 26.8% and 36.1% during the nine months ended September 30, 2024 and 2023, respectively. The total return equals the change in the ending market value over the beginning of the period price per share plus distributions paid per share during the period, divided by the beginning price assuming the distribution is reinvested on the date of the distribution. The total return does not reflect any sales load that may be paid by investors. See “Note 10 – Financial Highlights” included in the notes to our consolidated financial statements appearing elsewhere in this report.

Current wording

Another financial measure that we monitor is the total return for our investors, which was approximately (2.0)% and 13.6% during the three months ended March 31, 2025 and 2024, respectively. The total return equals the change in the ending market value over the beginning of the period price per share plus distributions paid per share during the period, divided by the beginning price assuming the distribution is reinvested on the date of the distribution. The total return does not reflect any sales load that may be paid by investors. See “Note 10 – Financial Highlights” included in the notes to our consolidated financial statements appearing elsewhere in this report.

Previous wording

Our portfolio companies are primarily privately held companies and public companies which are active in sectors characterized by high margins, high growth rates, consolidation and product and market extension opportunities.

Current wording

Our portfolio companies are primarily privately held companies which are active in sectors characterized by high margins, high growth rates, consolidation, and product and market extension opportunities and, to a lesser extent, public companies active in those sectors.

Previous wording

(1)See “Note 4 – Investments” for complete list of industry sectors and corresponding amounts of investments at fair value as a percentage of the total portfolio. As of September 30, 2024, the fair value as a percentage of total portfolio does not exceed 5.0% for any individual industry sector other than “Drug Discovery & Development”, “Software”, "Healthcare Services, Other", or “Consumer & Business Services”.

Current wording

(1)See “Note 4 – Investments” for complete list of industry sectors and corresponding amounts of investments at fair value as a percentage of the total portfolio. As of March 31, 2025, the fair value as a percentage of total portfolio does not exceed 5.0% for any individual industry sector other than “Software", “Drug Discovery & Development”, “Healthcare Services, Other”, and “Consumer & Business Services”.

Previous wording

For the nine months ended September 30, 2024 and the year ended December 31, 2023, our ten largest portfolio companies represented approximately 30.6% and 29.7% of the total fair value of our investments in portfolio companies, respectively. As of September 30, 2024 and December 31, 2023, we had five and five investments that represented 5% or more of our net assets, respectively. As of September 30, 2024 and December 31, 2023, the Company had four and five equity investments, respectively, that represented 5% or more of the total fair value of the Company’s equity investments. These equity investments represented approximately 52.9% and 56.5% of the total fair value of the Company’s equity investments as of September 30, 2024 and December 31, 2023, respectively.

Current wording

For the three months ended March 31, 2025 and the year ended December 31, 2024, our ten largest portfolio companies represented approximately 30.4% and 31.6%, respectively, of the total fair value of our investments in portfolio companies, respectively. As of March 31, 2025 and December 31, 2024, we had six and six investments, respectively, that represented 5% or more of our net assets, respectively. As of March 31, 2025 and December 31, 2024, we had four and three equity investments, respectively, that represented 5% or more of the total fair value of our equity investments. These equity investments represented approximately 61.3% and 49.7% of the total fair value of our equity investments as of March 31, 2025 and December 31, 2024, respectively.

Previous wording

As of September 30, 2024 and December 31, 2023, approximately 97.3% and 95.9% of the debt investment portfolio was priced at floating interest rates or floating interest rates with a Prime, SOFR, or BSBY-based interest rate floor, respectively. Changes in interest rates, including Prime, SOFR, or BSBY rates, may affect the interest income and the value of our investment portfolio for portfolio investments with floating rates.

Current wording

As of March 31, 2025 and December 31, 2024, approximately 98.0% and 97.4%, respectively, of the debt investment portfolio was priced at floating interest rates or floating interest rates with a Prime, SOFR, or SONIA-based interest rate floor, respectively. Changes in interest rates, including Prime, SOFR, or SONIA rates, may affect the interest income and the value of our investment portfolio for portfolio investments with floating rates.

Previous wording

Our investments in Structured Debt generally have detachable equity enhancement features in the form of warrants or other equity securities designed to provide us with an opportunity for capital appreciation. These features are treated as OID and are accreted into interest income over the term of the loan as a yield enhancement. Our warrant coverage generally ranges from 3% to 20% of the principal amount invested in a portfolio company, with a strike price generally equal to the most recent equity financing round. As of September 30, 2024, we held warrants in 98 portfolio companies, with a fair value of approximately $30.0 million. The fair value of our warrant portfolio decreased by approximately $3.9 million, as compared to a fair value of $33.9 million as of December 31, 2023, primarily related to the decrease in fair value of the portfolio companies.

Current wording

Our investments in Structured Debt generally have detachable equity enhancement features in the form of warrants or other equity securities designed to provide us with an opportunity for capital appreciation. These features are treated as OID and are accreted into interest income over the term of the loan as a yield enhancement. Our warrant coverage generally ranges from 3% to 20% of the principal amount invested in a portfolio company, with a strike price generally equal to the most recent equity financing round. As of March 31, 2025, we held warrants in 98 portfolio companies, with a fair value of approximately $31.5 million. The fair value of our warrant portfolio increased by approximately $1.0 million, as compared to a fair value of $30.5 million as of December 31, 2024, primarily related to the increase in fair value of the portfolio companies.

Previous wording

Our existing warrant holdings would require us to invest approximately $61.4 million to exercise such warrants as of September 30, 2024. Warrants may appreciate or depreciate in value depending largely upon the underlying portfolio company’s performance and overall market conditions. As attractive investment opportunities arise, we may exercise certain of our warrants to purchase stock, and could ultimately monetize our investments. Of the warrants that we have monetized since inception, we have realized multiples in the range of approximately 1.02x to 42.71x based on the historical rate of return on our investments. We may also experience losses from our warrant portfolio in the event that warrants are terminated or expire unexercised.

Current wording

Our existing warrant holdings would require us to invest approximately $59.9 million to exercise such warrants as of March 31, 2025. Warrants may appreciate or depreciate in value depending largely upon the underlying portfolio company’s performance and overall market conditions. As attractive investment opportunities arise, we may exercise certain of our warrants to purchase stock, and could ultimately monetize our investments. Of the warrants that we have monetized since inception, we have realized multiples in the range of approximately 1.02x to 42.71x based on the historical rate of return on our investments. We may also experience losses from our warrant portfolio in the event that warrants are terminated or expire unexercised.

Previous wording

As of September 30, 2024 and December 31, 2023, our debt investments had a weighted average investment grading of 2.24 and 2.24 on a cost basis, respectively. Changes in a portfolio company's investment grading may be a result of changes in portfolio company's performance and/or timing of expected liquidity events. For instance, we may downgrade a portfolio company if it is not meeting our financing criteria or are underperforming relative to their respective business plans. We may also downgrade a portfolio company as it approaches a point in time when it will require additional equity capital to continue operations. Conversely, we may upgrade a portfolio company's investment grading when it is exceeding our financial performance expectations and/or is expected to mature/repay in full due to a liquidity event. The overall downgrade of the portfolio's weighted average investment grading is reflective of the impact of current macroeconomic environment.

Current wording

As of March 31, 2025 and December 31, 2024, our debt investments had a weighted average investment grading of 2.31 and 2.26 on a cost basis, respectively. Changes in a portfolio company's investment grading may be a result of changes in portfolio company's performance and/or timing of expected liquidity events. For instance, we may downgrade a portfolio company if it is not meeting our financing criteria or is underperforming relative to its respective business plan. We may also downgrade a portfolio company as it approaches a point in time when it will require additional equity capital to continue operations. Conversely, we may upgrade a portfolio company's investment grading when it is exceeding our financial performance expectations and/or is expected to mature/repay in full due to a liquidity event. The overall downgrade of the portfolio's weighted average investment grading is reflective of the impact of the current macroeconomic environment.

Previous wording

As macroeconomic events evolve and cause disruption in the capital markets and to businesses, we are continuing to monitor and work with the management teams and stakeholders of our portfolio companies to navigate the significant market, operational, and economic challenges created by these events. This includes remaining proactive in our assessments of credit performance to manage potential risks across our investment portfolio.

Current wording

If macroeconomic events evolve and cause disruption in the capital markets and to businesses, we monitor and work with the management teams and stakeholders of our portfolio companies to navigate any significant market, operational, and economic challenges created by these events. This includes remaining proactive in our assessments of credit performance to manage potential risks across our investment portfolio.

Previous wording

Debt investments are placed on non-accrual status when it is probable that principal, interest, or fees will not be collected according to contractual terms. When a debt investment is placed on non-accrual status, we cease to recognize interest and fee income until the portfolio company has paid all principal and interest due or demonstrated the ability to repay our current and future contractual obligations. We may not apply the non-accrual status to a loan where the investment has sufficient collateral value to collect all of the contractual amount due and is in the process of collection. Interest collected on non-accrual investments are generally applied to principal.

Current wording

Debt investments are placed on non-accrual status when it is probable that principal, interest, or fees will not be collected according to contractual terms. When a debt investment is placed on non-accrual status, we cease to recognize interest and fee income until the portfolio company has paid all principal and interest due or demonstrated the ability to repay our current and future contractual obligations. We may choose not to apply the non-accrual status to a loan where the investment has sufficient collateral value to collect all of the contractual amount due and is in the process of collection. Interest collected on non-accrual investments are generally applied to principal.

Previous wording

Our condensed consolidated operating results for the three and nine months ended September 30, 2024 and 2023, were as follows:

Current wording

Our condensed consolidated operating results for the three months ended March 31, 2025 and 2024, were as follows:

Previous wording

Total investment income for the three and nine months ended September 30, 2024 was approximately $125.2 million and $371.8 million, respectively as compared to approximately $116.7 million and $338.1 million, respectively for the three and nine months ended September 30, 2023. Investment income is primarily composed of interest income earned on our debt investments, fee income from commitments, facilities, and other loan related fees and dividend income distributions.

Current wording

Total investment income for the three months ended March 31, 2025 was approximately $119.5 million as compared to approximately $121.6 million for the three months ended March 31, 2024. Investment income is primarily composed of interest income earned on our debt investments, fee income from commitments, facilities, and other loan related fees and dividend income.

Previous wording

The following table summarizes the components of interest and dividend income for the three and nine months ended September 30, 2024 and 2023:

Current wording

The following table summarizes the components of interest and dividend income for the three months ended March 31, 2025 and 2024:

Previous wording

Interest and dividend income for the three and nine months ended September 30, 2024 totaled approximately $119.0 million and $352.4 million as compared to approximately $110.3 million and $319.2 million for the three and nine months ended September 30, 2023. The increase in interest and dividend income for the three and nine months ended September 30, 2024 as compared to the period ended September 30, 2023 is primarily attributable to an increase in the weighted average principal, dividend income distributions, and partially offset by lower core yield.

Current wording

Interest and dividend income for the three months ended March 31, 2025 totaled approximately $115.6 million as compared to approximately $115.8 million for the three months ended March 31, 2024. The decrease in interest and dividend income for the three months ended March 31, 2025 as compared to the period ended March 31, 2024 is primarily attributable to a decrease in Core Yield due to declining benchmark rates in 2024. This was partially offset by an increase in the weighted average principal outstanding and dividend income distributions primarily from the Adviser Subsidiary.

Previous wording

The following table summarizes recurring and non-recurring interest income for the three and nine months ended September 30, 2024 and 2023:

Current wording

The following table summarizes recurring and non-recurring interest income and dividend income for the three months ended March 31, 2025 and 2024:

Previous wording

A portion of interest income is earned in the form of PIK interest. The following table shows the PIK-related activity for the nine months ended September 30, 2024 and 2023, at cost:

Current wording

A portion of interest income is earned in the form of PIK interest. The following table shows the PIK-related activity for the three months ended March 31, 2025 and 2024, at cost:

Previous wording

The increase in PIK interest income during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 is due to an increase in the weighted average principal outstanding for debt investments which earn PIK interest. Payments on PIK loans are normally received only in the event of payoffs. The PIK receivable for September 30, 2024 and September 30, 2023 was approximately 2% and 1% of total debt investments, respectively.

Current wording

The increase in PIK interest income during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 is due to an increase in the weighted average principal outstanding for debt investments which earn PIK interest. Payments on PIK loans are normally received only in the event of payoffs. The PIK receivable for March 31, 2025 and March 31, 2024 was approximately 2% and 1% of total debt investments, respectively.

Previous wording

Fee income is comprised of recurring fee income from commitment, facility, and loan related fees, fee income due to expired commitments, and acceleration of fee income due to early loan repayments during the period. The following table summarizes the components of fee income for the three and nine months ended September 30, 2024 and 2023:

Current wording

Fee income is comprised of recurring fee income from commitment, facility, and loan related fees, fee income due to expired commitments, and acceleration of fee income due to early loan repayments during the period. The following table summarizes the components of fee income for the three months ended March 31, 2025 and 2024:

Previous wording

Our operating expenses are comprised of interest and fees on our debt borrowings, general and administrative expenses, taxes, and employee compensation and benefits. During the three and nine months ended September 30, 2024 and 2023, our net operating expenses totaled approximately $42.1 million and $40.0 million, respectively for the three-month periods, and approximately $127.1 million and $120.1 million, respectively for the nine-month periods.

Current wording

Our operating expenses are comprised of interest and fees on our debt borrowings, general and administrative expenses, taxes, and employee compensation and benefits. During the three months ended March 31, 2025 and 2024, our net operating expenses totaled approximately $42.1 million and $42.4 million, respectively.

Previous wording

Our weighted average cost of debt was approximately 5.1% and 4.8% for the three months ended September 30, 2024 and 2023, respectively and 5.0% and 4.8%, for the nine months ended September 30, 2024 and 2023, respectively. The weighted average cost of debt includes interest and fees on our debt but excludes the impact of fee accelerations due to the extinguishment of debt, as applicable. The increase in the weighted average cost of debt during 2024 as compared to 2023, was attributable to increased usage of our Credit Facilities which are floating rate instruments and have a higher borrowing rate.

Current wording

Our weighted average cost of debt was approximately 4.9% and 4.9% for the three months ended March 31, 2025 and 2024, respectively. The weighted average cost of debt includes interest and fees on our debt, but excludes the impact of fee accelerations due to the extinguishment of debt, as applicable.

Previous wording

General and administrative expenses include legal fees, consulting fees, accounting fees, printer fees, insurance premiums, rent, expenses associated with the workout of underperforming investments, and various other expenses. Our general and administrative expenses stayed flat at $4.6 million for the three months ended September 30, 2024 and 2023, respectively and increased to $14.1 million from $13.9 million for the nine months ended September 30, 2024 and 2023, respectively. The increase in general and administrative expenses for the nine months ended September 30, 2024 is primarily attributable to an increase in costs of office and technology expenses, and certain professional fees. Tax expenses were $2.0 million and $1.9 million during the three months ended September 30, 2024 and 2023, respectively and $4.5 million and $5.2 million for the nine months ended September 30, 2024 and 2023, respectively. Our tax expenses primarily relate to excise tax accruals.

Current wording

General and administrative expenses include legal fees, consulting fees, accounting fees, printer fees, insurance premiums, rent, expenses associated with the workout of underperforming investments, and various other expenses. Our general and administrative expenses decreased to $4.8 million from $5.1 million for the three months ended March 31, 2025 and 2024, respectively. The decrease in general and administrative expenses for the three months ended March 31, 2025 is primarily attributable to a decrease in costs of office and professional fees and expenses. Tax expenses were $0.9 million and $0.7 million during the three months ended March 31, 2025 and 2024, respectively. Our tax expenses primarily relate to excise tax accruals.

Previous wording

Employee compensation and benefits totaled approximately $12.1 million and $42.9 million, for the three and nine months ended September 30, 2024 as compared to approximately $13.6 million and $41.1 million respectively, for the three and nine months ended September 30, 2023. The movement between the three and nine months ended September 30, 2024 and 2023 wasprimarily due to fluctuations in variable compensation.

Current wording

Employee compensation and benefits totaled approximately $13.9 million and $16.3 million, for the three months ended March 31, 2025 and 2024, respectively. The movement between the three months ended March 31, 2025 and 2024 wasprimarily due to fluctuations in variable compensation.