HTGC 10-Q Quarter ended March 31, 2016

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Maryland

743113410

(State or Jurisdiction of

Incorporation or Organization)

(IRS Employer

Identification No.)

400 Hamilton Ave., Suite 310

Palo Alto, California

(Address of Principal Executive Offices)

94301

(Zip Code)

Large accelerated filer

x

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

¨

PART I. FINANCIAL INFORMATION

3

Item 1.

Consolidated Financial Statements

3

Consolidated Statement of Assets and Liabilities as of March 31, 2016 and December 31, 2015 (unaudited)

3

Consolidated Statement of Operations for the three months ended March 31, 2016 and 2015 (unaudited)

5

Consolidated Statement of Changes in Net Assets for the three months ended March 31, 2016 and 2015 (unaudited)

6

Consolidated Statement of Cash Flows for the three months ended March 31, 2016 and 2015 (unaudited)

7

Consolidated Schedule of Investments as of March 31, 2016 (unaudited)

8

Consolidated Schedule of Investments as of December 31, 2015 (unaudited)

21

Notes to Consolidated Financial Statements (unaudited)

36

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

69

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

97

Item 4.

Controls and Procedures

98

PART II. OTHER INFORMATION

99

Item 1.

Legal Proceedings

99

Item 1A. Risk Factors

99

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

100

Item 3.

Defaults Upon Senior Securities

100

Item 4.

Mine Safety Disclosures

100

Item 5.

Other Information

100

Item 6.

Exhibits and Financial Statement Schedules

101

SIGNATURES

103

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2016

December 31, 2015

Assets

Investments:

Non-control/Non-affiliate investments:

Debt investments (cost of $1,239,601 and  $1,150,103, respectively)

$

1,204,136

$

1,109,196

Equity investments (cost of $51,208 and $50,305, respectively)

55,837

60,781

Warrant investments (cost of $39,789 and $38,131, respectively)

23,240

22,675

Total Non-control/Non-affiliate investments (cost of $1,330,598 and $1,238,539, respectively)

1,283,213

1,192,652

Affiliate investments:

Debt investments (cost of $2,185 and $2,200, respectively)

1,537

1,013

Equity investments (cost of $8,912 and $8,912, respectively)

6,304

6,661

Warrant investments (cost of $2,630 and $2,630, respectively)

256

312

Total Affiliate investments (cost of $13,727 and $13,742, respectively)

8,097

7,986

Total investments, at value (cost of $1,344,325 and $1,252,281, respectively)

1,291,310

1,200,638

Cash and cash equivalents

13,478

95,196

Restricted cash

3,646

9,191

Interest receivable

10,993

9,239

Other assets

12,388

9,720

Total assets

$

1,331,815

$

1,323,984

Liabilities

Accounts payable and accrued liabilities

$

12,086

$

17,241

Long-Term Liabilities (Convertible Senior Notes), net (principal of $17,604 and $17,604, respectively) ⁽¹⁾

17,572

17,478

Wells Facility

61,003

50,000

2021 Asset-Backed Notes, net (principal of $129,300 and $129,300, respectively) ⁽¹⁾

127,227

126,995

2019 Notes, net (principal of $110,364 and $110,364, respectively) ⁽¹⁾

108,339

108,179

2024 Notes, net (principal of $103,000 and $103,000, respectively) ⁽¹⁾

100,211

100,128

Long-Term SBA Debentures, net (principal of $190,200 and $190,200, respectively) ⁽¹⁾

186,997

186,829

Total liabilities

$

613,435

$

606,850

Net assets consist of:

Common stock, par value

74

73

Capital in excess of par value

761,565

752,244

Unrealized depreciation on investments ⁽²⁾

(54,142

)

(52,808

)

Accumulated realized gains on investments

23,525

27,993

Undistributed net investment income (Distributions in excess of net investment income)

(12,642

)

(10,368

)

Total net assets

$

718,380

$

717,134

Total liabilities and net assets

$

1,331,815

$

1,323,984

Shares of common stock outstanding ($0.001 par value, 200,000,000 and 100,000,000 authorized, respectively)

73,230

72,118

Net asset value per share

$

9.81

$

9.94

(1)

The Company’s SBA Debentures, 2019 Notes, 2024 Notes, 2021 Asset-Backed Notes, and Convertible Senior Notes, as each term is defined herein, are presented net of the associated debt issuance costs for each instrument. See “Note 2 – Summary of Significant Accounting Policies” and “Note 4 – Borrowings”.

(2)

Amounts include $1.1 million and $1.2 million, respectively, in net unrealized depreciation on other assets and accrued liabilities, including escrow receivables, estimated taxes payable and Citigroup warrant participation agreement liabilities.

(Dollars in thousands)

March 31, 2016

December 31, 2015

Assets

Restricted Cash

$

3,646

$

9,191

Total investments, at value (cost of $265,038 and $258,748, respectively)

264,469

257,657

Total assets

$

268,115

$

266,848

Liabilities

2021 Asset-Backed Notes, net (principal of $129,300 and $129,300, respectively) ⁽¹⁾

$

127,227

$

126,995

Total liabilities

$

127,227

$

126,995

(1)

The Company’s SBA Debentures, 2019 Notes, 2024 Notes, 2021 Asset-Backed Notes, and Convertible Senior Notes, as each term is defined herein, are presented net of the associated debt issuance costs for each instrument. See “Note 2 – Summary of Significant Accounting Policies” and “Note 4 – Borrowings”.

Three Months Ended March 31,

2016

2015

Investment income:

Interest income

Non-control/Non-affiliate investments

$

36,409

$

30,459

Affiliate investments

65

100

Total interest income

36,474

30,559

Fees

Non-control/Non-affiliate investments

2,465

1,934

Affiliate investments

—

1

Total fees

2,465

1,935

Total investment income

38,939

32,494

Operating expenses:

Interest

7,018

7,854

Loan fees

988

1,513

General and administrative

3,580

3,618

Employee compensation:

Compensation and benefits

4,685

3,796

Stock-based compensation

2,571

2,719

Total employee compensation

7,256

6,515

Total operating expenses

18,842

19,500

Loss on debt extinguishment (Long-Term Liabilities - Convertible Senior Notes)

—

(1

)

Net investment income

20,097

12,993

Net realized gain (loss) on investments

Non-control/Non-affiliate investments

(4,468

)

3,312

Total net realized gain (loss) on investments

(4,468

)

3,312

Net change in unrealized appreciation (depreciation) on investments

Non-control/Non-affiliate investments

(1,460

)

3,301

Affiliate investments

126

2,313

Total net unrealized appreciation (depreciation) on investments

(1,334

)

5,614

Total net realized and unrealized gain (loss)

(5,802

)

8,926

Net increase in net assets resulting from operations

$

14,295

$

21,919

Net investment income before investment gains and losses per common share:

Basic

$

0.28

$

0.20

Change in net assets resulting from operations per common share:

Basic

$

0.20

$

0.33

Diluted

$

0.20

$

0.33

Weighted average shares outstanding

Basic

71,172

63,783

Diluted

71,199

64,163

Dividends declared per common share:

Basic

$

0.31

$

0.31

Undistributed

Net Investment

Income/

Provision

Unrealized

Accumulated

(Distributions

for Income

Capital in

Appreciation

Realized

in Excess of

Taxes on

Common Stock

excess

(Depreciation)

Gains (Losses)

Investment

Investment

Net

Shares

Par Value

of par value

on Investments

on Investments

Income)

Gains

Assets

Balance at December 31, 2014

64,715

$

65

$

657,233

$

(17,076

)

$

14,079

$

4,905

$

(342

)

$

658,864

Net increase (decrease) in net assets resulting from operations

—

—

—

5,614

3,312

12,993

—

21,919

Public offering, net of offering expenses

7,591

8

100,084

—

—

—

—

100,092

Issuance of common stock due to stock option exercises

34

—

406

—

—

—

—

406

Retired shares from net issuance

(27

)

—

(401

)

—

—

—

—

(401

)

Issuance of common stock under restricted stock plan

580

—

—

—

—

—

—

—

Retired shares for restricted stock vesting

(42

)

—

(591

)

—

—

—

—

(591

)

Issuance of common stock as stock dividend

40

—

562

—

—

—

—

562

Dividends distributed

—

—

—

—

—

(20,266

)

—

(20,266

)

Stock-based compensation

—

—

2,741

—

—

—

—

2,741

Balance at March 31, 2015

72,891

$

73

$

760,034

$

(11,462

)

$

17,391

$

(2,368

)

$

(342

)

$

763,326

Balance at December 31, 2015

72,118

$

73

$

752,244

$

(52,808

)

$

27,993

$

(10,026

)

$

(342

)

$

717,134

Net increase (decrease) in net assets resulting from operations

—

—

—

(1,334

)

(4,468

)

20,097

—

14,295

Public offering, net of offering expenses

1,109

1

12,403

—

—

—

—

12,404

Acquisition of common stock under repurchase plan

(449

)

—

(4,789

)

—

—

—

—

(4,789

)

Issuance of common stock under restricted stock plan

538

—

—

—

—

—

—

—

Retired shares for restricted stock vesting

(129

)

—

(1,385

)

—

—

—

—

(1,385

)

Issuance of common stock as stock dividend

43

—

496

—

—

—

—

496

Dividends distributed

—

—

—

—

—

(22,371

)

—

(22,371

)

Stock-based compensation

—

—

2,596

—

—

—

—

2,596

Balance at March 31, 2016

73,230

$

74

$

761,565

$

(54,142

)

$

23,525

$

(12,300

)

$

(342

)

$

718,380

For the Three Months Ended March 31,

2016

2015

Cash flows from operating activities:

Net increase in net assets resulting from operations

$

14,295

$

21,919

Adjustments to reconcile net increase in net assets resulting from

operations to net cash provided by (used in) operating activities:

Purchase of investments

(170,921

)

(209,387

)

Principal and fee payments received on investments

77,808

75,368

Proceeds from the sale of investments

4,636

7,001

Net unrealized depreciation (appreciation) on investments

1,334

(5,614

)

Net realized loss (gain) on investments

4,468

(3,312

)

Accretion of paid-in-kind principal

(1,535

)

(665

)

Accretion of loan discounts

(1,863

)

(1,356

)

Accretion of loan discount on Convertible Senior Notes

61

62

Loss on debt extinguishment (Long-Term Liabilities - Convertible Senior Notes)

—

1

Payment of loan discount on Convertible Senior Notes

—

(2

)

Accretion of loan exit fees

(5,231

)

(2,767

)

Change in deferred loan origination revenue

655

1,540

Unearned fees related to unfunded commitments

(87

)

527

Amortization of debt fees and issuance costs

785

1,288

Depreciation

56

58

Stock-based compensation and amortization of restricted stock grants

2,596

2,741

Change in operating assets and liabilities:

Interest and fees receivable

(1,753

)

351

Prepaid expenses and other assets

(2,540

)

2,674

Accounts payable

(88

)

(504

)

Accrued liabilities

(5,029

)

(3,978

)

Net cash used in operating activities

(82,353

)

(114,055

)

Cash flows from investing activities:

Purchases of capital equipment

(127

)

(42

)

Reduction of (investments in) restricted cash

5,545

(9,289

)

Net cash provided by (used in) investing activities

5,418

(9,331

)

Cash flows from financing activities:

Issuance of common stock, net

12,404

100,092

Repurchase of common stock, net

(4,789

)

—

Retirement of employee shares

(1,385

)

(586

)

Dividends paid

(21,875

)

(19,704

)

Repayments of 2017 Asset-Backed Notes

—

(11,846

)

Borrowings of credit facilities

106,666

—

Repayments of credit facilities

(95,663

)

—

Cash paid for redemption of Convertible Senior Notes

—

(30

)

Fees paid for credit facilities and debentures

(141

)

100

Net cash provided by (used in) financing activities

(4,783

)

68,026

Net decrease in cash and cash equivalents

(81,718

)

(55,360

)

Cash and cash equivalents at beginning of period

95,196

227,116

Cash and cash equivalents at end of period

$

13,478

$

171,756

Supplemental non-cash investing and financing activities:

Dividends Reinvested

$

496

$

562

Portfolio Company

Sub-Industry

Type of Investment ⁽¹⁾

Maturity Date

Interest Rate and Floor

Principal Amount

Cost ⁽²⁾

Value ⁽³⁾

Debt Investments

Biotechnology Tools

1-5 Years Maturity

Exicure, Inc. ^(11)(13)

Biotechnology Tools

Senior Secured

September 2019

Interest rate PRIME + 6.45%

or Floor rate of 9.95%

$

6,000

$

5,862

$

5,862

Subtotal: 1-5 Years Maturity

5,862

5,862

Subtotal: Biotechnology Tools (0.82%)*

5,862

5,862

Communications & Networking

1-5 Years Maturity

Avanti Communications Group ⁽⁴⁾⁽⁹⁾

Communications & Networking

Senior Secured

October 2019

Interest rate FIXED 10.00%

$

7,500

6,693

5,475

OpenPeak, Inc. ⁽⁷⁾

Communications & Networking

Senior Secured

April 2017

Interest rate PRIME + 8.75%

or Floor rate of 12.00%

$

12,370

9,134

4,379

SkyCross, Inc. ^{(7)(12)(13)(14)}

Communications & Networking

Senior Secured

January 2018

Interest rate PRIME + 7.70%

or Floor rate of 10.95%,

PIK Interest 5.00%

$

19,674

20,529

7,050

Spring Mobile Solutions, Inc. ⁽¹³⁾

Communications & Networking

Senior Secured

January 2019

Interest rate PRIME + 6.70%

or Floor rate of 9.95%

$

3,000

2,959

2,959

Subtotal: 1-5 Years Maturity

39,315

19,863

Subtotal: Communications & Networking (2.76%)*

39,315

19,863

Consumer & Business Products

Under 1 Year Maturity

Antenna79 (p.k.a. Pong Research Corporation) ⁽¹⁴⁾

Consumer & Business Products

Senior Secured

June 2016

Interest rate PRIME + 8.75%

or Floor rate of 12.00%

$

158

158

158

Miles, Inc. (p.k.a. Fluc, Inc.) ⁽⁸⁾

Consumer & Business Products

Convertible Debt

March 2017

Interest rate FIXED 4.00%

$

100

100

—

Subtotal: Under 1 Year Maturity

258

158

1-5 Years Maturity

Antenna79 (p.k.a. Pong Research Corporation) ^(12)(13)(14)

Consumer & Business Products

Senior Secured

December 2017

Interest rate PRIME + 6.75%

or Floor rate of 10.00%,

PIK Interest 2.50%

$

4,433

4,359

4,359

Nasty Gal ^(13)(14)

Consumer & Business Products

Senior Secured

May 2019

Interest rate PRIME + 5.45%

or Floor rate of 8.95%

$

15,000

14,996

14,723

Second Time Around (Simplify Holdings, LLC) ^(13)(14)

Consumer & Business Products

Senior Secured

February 2019

Interest rate PRIME + 7.25%

or Floor rate of 10.75%

$

2,500

2,477

2,477

Subtotal: 1-5 Years Maturity

21,832

21,559

Subtotal: Consumer & Business Products (3.02%)*

22,090

21,717

Portfolio Company

Sub-Industry

Type of Investment ⁽¹⁾

Maturity Date

Interest Rate and Floor

Principal Amount

Cost ⁽²⁾

Value ⁽³⁾

Drug Delivery

1-5 Years Maturity

AcelRx Pharmaceuticals, Inc. ^{(9)(10)(13)(14)}

Drug Delivery

Senior Secured

October 2017

Interest rate PRIME + 3.85%

or Floor rate of 9.10%

$

20,466

$

20,914

$

20,892

Agile Therapeutics, Inc. ^(10)(13)

Drug Delivery

Senior Secured

December 2018

Interest rate PRIME + 4.75%

or Floor rate of 9.00%

$

16,500

16,347

16,304

BIND Therapeutics, Inc. ^(13)(14)

Drug Delivery

Senior Secured

July 2018

Interest rate PRIME + 5.10%

or Floor rate of 8.35%

$

13,691

13,919

13,754

BioQ Pharma Incorporated ^(10)(13)

Drug Delivery

Senior Secured

May 2018

Interest rate PRIME + 8.00%

or Floor rate of 11.25%

$

10,000

10,237

10,174

Drug Delivery

Senior Secured

May 2018

Interest rate PRIME + 7.00%

or Floor rate of 10.50%

$

3,000

2,983

2,983

Total BioQ Pharma Incorporated

$

13,000

13,220

13,157

Celator Pharmaceuticals, Inc. ^(10)(13)

Drug Delivery

Senior Secured

June 2018

Interest rate PRIME + 6.50%

or Floor rate of 9.75%

$

13,276

13,349

13,510

Celsion Corporation ^(10)(13)

Drug Delivery

Senior Secured

June 2017

Interest rate PRIME + 8.00%

or Floor rate of 11.25%

$

5,364

5,575

5,603

Dance Biopharm, Inc. ^(13)(14)

Drug Delivery

Senior Secured

November 2017

Interest rate PRIME + 7.40%

or Floor rate of 10.65%

$

2,384

2,475

1,380

Edge Therapeutics, Inc. ^(10)(13)

Drug Delivery

Senior Secured

March 2018

Interest rate PRIME + 5.45%

or Floor rate of 9.95%

$

4,919

4,915

4,942

Egalet Corporation ^(11)(13)

Drug Delivery

Senior Secured

July 2018

Interest rate PRIME + 6.15%

or Floor rate of 9.40%

$

15,000

15,059

15,170

Neos Therapeutics, Inc. ^(10)(13)(14)

Drug Delivery

Senior Secured

October 2017

Interest rate FIXED 9.00%

$

10,000

10,000

10,063

Drug Delivery

Senior Secured

October 2017

Interest rate FIXED 10.50%

$

10,000

10,109

10,123

Drug Delivery

Senior Secured

October 2017

Interest rate FIXED 9.00%

$

5,000

5,017

5,027

Total Neos Therapeutics, Inc.

$

25,000

25,126

25,213

Pulmatrix Inc. ^(8)(10)(13)

Drug Delivery

Senior Secured

July 2018

Interest rate PRIME + 6.25%

or Floor rate of 9.50%

$

7,000

6,924

6,935

ZP Opco, Inc (p.k.a. Zosano Pharma) ^(10)(13)

Drug Delivery

Senior Secured

December 2018

Interest rate PRIME + 2.70%

or Floor rate of 7.95%

$

15,000

14,996

14,936

Subtotal: 1-5 Years Maturity

152,819

151,796

Subtotal: Drug Delivery (21.13%)*

152,819

151,796

Portfolio Company

Sub-Industry

Type of Investment ⁽¹⁾

Maturity Date

Interest Rate and Floor

Principal Amount

Cost ⁽²⁾

Value ⁽³⁾

Drug Discovery & Development

1-5 Years Maturity

Aveo Pharmaceuticals, Inc. ^(9)(13)

Drug Discovery & Development

Senior Secured

January 2018

Interest rate PRIME + 6.65%

or Floor rate of 11.90%

$

10,000

$

10,149

$

10,067

Bellicum Pharmaceuticals, Inc. ^(13)(14)

Drug Discovery & Development

Senior Secured

March 2020

Interest rate PRIME + 5.85%

or Floor rate of 9.35%

$

15,000

14,893

14,893

Brickell Biotech, Inc. ^(11)(13)

Drug Discovery & Development

Senior Secured

September 2019

Interest rate PRIME + 5.70%

or Floor rate of 9.20%

$

7,500

7,321

7,321

Cerecor, Inc. ^(11)(13)

Drug Discovery & Development

Senior Secured