Hercules Capital Inc (HTGC) 2008 Q4 法說會逐字稿

Good day and welcome to the Hercules Technology Growth Capital fourth quarter 2008 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Dee Dee Shield. Please go ahead, ma'am.

Thank you, Operator, and good afternoon, everyone. On the call today are Manuel Henriquez, Hercules Co-Founder, Chairman and CEO, and David Lund, CFO.

Our fourth quarter and year end 2008 financial results were released just after today's market close. They can be accessed from the Company's website at HerculesTech.com or HTGC.com. We have arranged for a taped replay of today's call, which will be available through our website or by using the telephone numbers and pass code provided in today's earnings release.

I would like to call your attention to the Safe Harbor disclosure in our earnings release regarding forward-looking information. Today's conference call may include forward-looking statements and projections. We ask that you refer to our most recent filings with the SEC for important risk factors that could cause actual results to differ materially from these projections. We do not take any obligation to update our forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit Sec.gov or visit our website at Herculestech.com.

I would now like to turn the call over to Manuel Henriquez, Hercules Co-Founder, Chairman and CEO. Manuel?

Thank you, Dee Dee, and good afternoon and thank you, everybody, for joining us on the call today. I'm delighted to share with you Hercules Technology's outstanding fourth quarter performance and fiscal year end 2008 performance despite an otherwise horrific and extremely challenging market.

However, before I start the call today, I want to acknowledge this unprecedented economic environment which continues to persist and frankly, has only gotten worse. We remain hopeful and guardedly optimistic that things may improve sometime in the second half of 2009. I believe that the global financial crisis we are currently experiencing will be far more reaching and deeper than anyone might have previously had expected just a short time ago. Many attempts have been made to contain its spread -- have proven, and continue to prove, difficult and ineffective.

The banking crisis continues as access to capital in credit facilities is close to nearly impossible to secure despite efforts by our government and the TARP Program. the banking sector continues to degenerate further, as evidenced by the continuing and troubling earnings announcements that we've seen during the fourth quarter, despite our government's Herculean efforts to stabilize and stimulate our economy.

Liquidity continues to become, or I should say, liquidity is, suddenly the holy grail of the financial services community, followed by a heightened and continued awareness on credit concerns. Despite the government's attempt to unlock the credit and capital markets, we have seen little to no activity in terms of gaining access to the credit facilities. We continue to engage in discussions with various potential lenders in order for Hercules to secure additional lines of capital in the current market, which is a testimony to the continued access, or I should say, lack of access to capital lines to continue to operate our business. Liquidity, ladies and gentlemen, has become a critical factor in operating and running a financial services company in today's market.

Given this lack of the liquidity, given the lack of credit in the market, the competitive landscape, on the other hand, has improved quite dramatically. There is a silver lining to this market and this opportunity. As credit continues to contract, the competitive environment continues to improve quite dramatically, making the investment environment for Hercules a quite attractive environment to pursue which we expect to do later on in the quarter and certainly throughout 2009.

During today's call, we are going to attempt a slightly different format of the call. That format is intended to be shorter in terms of the opening comments by me and discussions of the broader venture capital marketplace and David will be much more focused on providing quick color as to the financial performance of the Company in order to allow our investors a greater time for Q&A, to ask more specific questions regarding the current environment and many of our financial performances and objectives that we're trying to approach and achieve as a Company.

To that end, let me quickly give you a quick overview of the venture capital community. As many of you are aware, Hercules' primary focus is lending activities to venture capital-backed technology and life sciences companies, and most recently, increasing expanding its focus to private equity, lower middle market technology and life sciences companies as well. Hercules has continuously focused on originating this market. However, it has not been without notice on the current shifting of the venture capital marketplace and the capital flows by the venture capital community.

Back in the second quarter of 2008, Hercules made a conscious decision to begin to slow down its originations and in essence, continue to build up its capital reserves and its liquidity reserves for the unforeseen economic downturn that we're currently in and experiencing today. This downturn became materially worse in the mid-to-late October period, where the volatility in the broader market increased quite dramatically at which point we saw a fairly dramatic pullback on the venture capital investment activities in the marketplace.

We took advantage of that market opportunity to also scrub and monitor our portfolio more closely. We have been very diligently managing and working through many credit situations of which we'll report in our financial performance on receiving principal returns through the fourth quarter. I wanted to make sure that I don't imply, nor infer, that the venture capital community is suddenly falling apart or is dead. That is not the case whatsoever. The venture capital community continues to invest capital and is simply going through a metamorphosis or a new paradigm in financing, technology and life sciences companies.

The venture industry in terms of statistics actually invested $5.5 billion in the fourth quarter of 2008, which is down from the prior year for the same period. For an annual basis, the venture capital community in 2008 deployed $29 billion of capital which was at significantly higher levels than Hercules had predicted or anticipated in the second quarter -- in the first quarter of 2008, which we anticipated a 26 -- $28 billion level. This is primarily driven by activities that they realized in the first and third quarter of 2008 activities. This compares to $31 billion in 2007.

Now, as to our forecast or our expectations of the venture capital community for 2009 -- this is Hercules own perspective and certainly not the industry expectations as of today. Hercules expects a significant and continued curtailment of the venture capital activities in 2009, where we are predicting, from a modeling point of view, to see anywhere between 20 to $22 billion of venture capital investment activities. This is down from the 29 billion, as I reported earlier, that they achieved in 2009.

However, as I said a minute ago, there is significant benefits to the contraction in the venture capital community. By having less companies pursuing capital, the venture capital themselves are able to dedicate more time and attention to the more promising companies by not diluting their investment capital and spreading it into broader segments of startup companies in the community.

What this means in turn is that as less competition exists, lower valuations will occur and companies must become more frugal with their capital. As that frugality sets in, access to lower, less dilutive forms of capital increases quite dramatically, meaning the demand for debt becomes an exponential demand by early stage and mid-stage and more mature technology and life sciences companies.

However, because of the contraction taking place in the venture capital marketplace, it is our expectation to see early stage venture capital investing to be on the most dangerous places to deploy capital, and focusing our attention on more mature companies, as we've done for the preceding eight quarters is, we think, a strategy that makes lots of sense in this current environment. I'm happy to report that Hercules early stage technology companies represent less than 3% of our total assets and continue to decline each and every quarter thereafter.

As the venture capitalists continue this triage process of thinning out their investment portfolios by focusing on the more promising companies and selling off the less promising companies, or shutting down the ones that do not have viable business models, which was more evident today in the Wall Street Journal article, we continue to do the same process in our portfolio of companies which we believe will translate into a much stable and continued historical credit performance which Hercules has continued to deliver upon.

Historically, this methodology of thinning the herd, as we prefer to call it, has proven to be a very time and effective methodology by allowing the more stronger companies to survive which eventually, in this market, will translate into higher eventual returns for those investment activities taking place during a down market such as this.

Further to that evidence is the lack of liquidity that exists in the venture capital marketplace. Clearly, many of us now realize and know that IPOs and M&A activities are all but -- not occurring in the marketplace today. It remains a very challenging environment for venture capital firms to receive or gain access to an exit through an M&A, an ideal activity. We at Hercules do not expect to see many exits from our portfolio in 2009 beyond a certain handful in the coming months of 2009.

However, that said, Hercules continues to -- do realize exits and gains in this extremely challenging environment as evidenced by the recent set of press releases that we've issued to the market, outlining some of our life sciences exits have taken place from M&A activities, or strategic partnerships such as the announcement made today by Portola with its strategic partner in the marketplace today. This continues to be indicative of Hercules' ability and Hercules' investment professionals to select and pick the right companies.

In my 20 years as an investor, I have never seen such a dramatic and quickly deteriorating market as we're currently witnessing today. It is an unprecedented metamorphosis occurring in the financial industry which is currently underway today. Because of this, Hercules has chosen to continue its strategy on a slow and steady investment strategy that we began back in June of 2008.

That strategy was meant to increase our liquidities, focus on credit and mitigate any early indications of trouble in our portfolio. We continue to remain steadfast as a partner to our portfolio companies, working through difficult and challenging times with our venture capital partners and the various portfolio company management teams in order to ensure their survivability and are not able to lose capital -- pardon me on that one.

By doing so, we are continuing to systematically deleverage our portfolio by taking early repayments of capital that we receive from our loans and deleverage our portfolio by satisfying and accelerating the paydown of our Citibank and Deutsche Bank credit facilities, which David will opine upon further in his discussion.

In an effort to bolster our liquidity and to improve our credit situation, we have made a decision to take our fourth quarter earnings and declare a first quarter dividend by choosing to pay out our dividend in the form of stock and cash in the first quarter. This may be something that some investors find is not a prudent move to do.

We, on the other hand, feel very strongly that this decision is a very consciously made decision in order to bolster up our capital position and increase our liquidity positions for the unforeseen turmoil that continues in the capital market. It will also serve as an additional buffer or insurance in order to ensure that we have sufficient amount of capital to absolutely satisfy the Citibank and Deutsche Bank obligation at the end of April.

This was a difficult decision, I can assure you, but one which we, and I personally, believe is the most prudent thing to do, given the unprecedented turmoil in the capital markets and in the credit markets today. It is consistent with our focus in maintaining and enhancing our balance sheet in these very challenging times.

In addition, we have also adopted a policy of changing our dividend policy. We believe that investors deserve and merit a greater transparency on dividend coverage and dividend policies. Hercules has adopted a dividend policy of which we will pay out 95% of our GAAP net II numbers based on (inaudible) financial performance. This is critical because we believe this provides a greater transparency to our investors to see the dividend coverage from our earnings.

Lastly, I'm extremely proud of our team's achievement. Once again, our team has delivered in very challenging times. I'm delighted to report to our shareholders another outstanding quarterly performance on all fronts, including credit performance, growth of revenues, growth of net investment income, and continued solid credit performance in our portfolio. We continue to defend and protect our balance sheet quite tremendously. We have adopted a very cautious approach for the first half of 2009 and we maintain a strong liquidity and credit position in our balance sheet -- in our portfolio.

I will now turn the call over to David Lund, who will discuss our financial results, credit performance and our current liquidity position in more detail. After that, both David and I will be happy to answer any questions you may have. Again, thank you very much. David?

Thank you, Manuel. As Manuel mentioned, given the recent market turbulence, we are very pleased with the results we achieved for the fourth quarter and the full year. During the quarter, we were particularly focused on deleveraging our balance sheet by collecting early loan repayments that allowed us to pay down our credit facilities with Citibank and Deutsche Bank.

We also continued to work diligently to maintain strong credit quality, so that we are well positioned to continue financing companies that we believe will be future leaders in the technology and life science sectors.

With that, I will now provide more details on our summary of the fourth quarter and full year results.

Key portfolio metrics and credit facility update -- total investment income for the fourth quarter, which is comprised of interest and fee income, was $22 million, which was an increase of 39% over the fourth quarter of 2007 investment income of $15.8 million. For the full year of 2008, total investment income was $75.8 million compared to 53.9 million in 2007, an increase of 41%. Increases in interest and fee income are directly attributed to higher yields, additional fees and higher average outstanding loan balances in the respective periods.

The effective yield on our debt investment during the quarter was 14.9%. The increase from the effective yield of 13.1% for the third quarter was due to higher average yield to maturity and higher one-time fees. The weighted average yield of our portfolio at the time of loan origination increased to approximately 12.87% from 12.67% in the previous quarter.

Interest expense and loan fees on borrowings were $5.5 million for the fourth quarter of 2008, as compared to 1.8 million in the fourth quarter of 2007. An increase of approximately $3.7 million was primarily attributed to higher average loan balances outstanding and the higher average interest rate and fees on our borrowings from Citibank and Deutsche Bank.

During the fourth quarter, our average debt balance outstanding was $245 million, as compared to $85 million in the fourth quarter of 2007. The effective cost of debts during the quarter was approximately 9% as compared to 6.3% in the same period last year. As a reminder, our borrowings under the SBA facility are locked in for 10 years at a cost of debt of approximately 6.6%.

Even with this increased cost of borrowing we experienced this quarter, our net interest margin increased to 11.3% as compared to 10.16% in the previous quarter.

Operating expenses for the quarter excluding interest expense and loan fees were $5.4 million as compared to 4.1 million during the same period last year. The increase, as compared to the fourth quarter of 2007, was primarily attributable to higher compensation expense due to higher employee headcount, higher workout related expenses and stock-based compensation expense.

I'm pleased to report that net investment income for the quarter was $11 million or $0.34 per share based on 32.7 basic shares outstanding. This is compared to $10 million or $0.31 per share in the fourth quarter of 2007, based on 32.5 million shares outstanding.

Our net investment income for 2008 was $40 million, an increase of approximately $7.5 million or 23% compared to $32.5 million in 2007.

Taxable income for the quarter was $8.6 million or $0.27 per share including approximately $2.3 million or $0.07 per share from net realized losses. The realized losses recognized in the fourth quarter were primarily related to the $2.4 million loss on Simpler Networks and other loan and equity write-offs of approximately $950,000, which was offset by realized gains of approximately $1 million primarily attributed to the sale of common stock in (inaudible).

I would like to point out that even with the fourth quarter realized losses for the year, we recognized 2.7 -- $2.6 million in realized gains for 2008.

During the fourth quarter, we recognized $19.4 million of net unrealized depreciation from our loans, warrants and equity investments. This unrealized loss is comprised of a depreciation of approximately 2.4 million in loan values, 7.3 million in warrant values and 9.7 million in equity values, primarily attributed to the valuation accounting required under FAS-157.

We continued our high credit quality and standard -- and discipline of loan monitoring during the quarter. Our diligent monitoring of our portfolio companies, combined with our focus on later stage venture capital and private equity backed companies have helped maintain our high credit quality. We continue to build upon the diversity and strength of our investment portfolio by adhering to our slow and steady approach and maintaining our high investment standards in seeking out leading companies in life sciences and technology.

The weighted average loan rating of our portfolio was 2.39 compared to 2.25 in the prior quarter. As a reminder, most of our portfolio companies are dependent on future events of venture capital investment and we downgrade our portfolio companies as they approach a period in which they will need to close additional rounds of financing.

I would like to also note that the makeup of the companies in the various grading categories will change period to period, based on operating results and funding activities. At the end of 2008, we had four companies on non-accrual, with a combined carrying value of less than $1 million.

Turning to the balance sheet, at December 31, 2008, our investment portfolio balance was $581 million as compared to $530 million at December 31, 2007, representing a 10% growth in our investments year-over-year while maintaining credit quality. We finished the quarter with a backlog of unfunded commitments of $82 million and one non-binding term sheet for $7 million.

We also ended the quarter with approximately $17.2 million in cash, as we continued to manage our liquidity position. During the quarter, we collected $59 million in principal repayment including approximately $41 million in early repayments. From these proceeds, we paid down $38 million under our warehouse credit facility, resulting in the debt balance under the credit facility of $89.6 million at December 31, 2008.

As noted in our earnings release, we significantly reduced credit facility debt by paying down an additional $18.7 million in January, leaving an outstanding balance of $70.9 million at the end of January, 2009.

And turning to our liquidity, our facility with Citibank and Deutsche Bank expired under the normal terms of agreement on October 31, 2008, and will be amortizing until April 30, 2009, at which time any remaining outstanding principal and interest are due. The borrowing rate during the amortization period is LIBOR plus 650 basis points.

The Company had approximately $216 million in debt outstanding as of December 31, 2008, representing a leverage ratio of approximately 57% or 23%, taking into account our exemptive relief for the SBA.

Currently, we have $15 million facility with Wells Fargo of which there are no borrowings outstanding at December 31, 2008. In addition, the Company has $130.6 million available under the SBA Program, of which it has drawn $127.2 million. These two facilities combined allow the Company access to up to an additional $53.4 million in capital subject to certain credit and regulatory limitations. I would like to once again remind our shareholders that borrowings under the SBA Program are available for 10 years.

Finally, our Board of Directors declared a dividend of $0.32 per share in cash and stock, as Manuel discussed earlier. The dividend will be payable on March 30, 2009, to shareholders of record as of February 23, 2009. This is our 14th consecutive quarterly dividend declaration since our initial public offering and will bring the total cumulative dividend declared to $4.07 per share. We are pleased that we are able to pay 100% of our dividend from ordinary income and spillover of prior year earnings, meaning we don't rely on extraordinary gains to pay our dividends.

In addition, the Company expects to distribute approximately $0.18 per share from the spillover of earnings from 2008 to its shareholders in 2009 as additional dividend, adjusted for any realized gains or losses occurred in 2009.

I'd like to reiterate that we're pleased with our financial performance this quarter, and would like to acknowledge the hard work and dedication of our team here at Hercules, as well as the support of our shareholders.

Operator, we're now ready to open the call for questions.

Thank you. (OPERATOR INSTRUCTIONS). We'll go first to John Hecht with JMP Securities.

Good afternoon, gentlemen, and congratulations on a good quarter, particularly considering the tough environment out there.

Thanks, John, I appreciate it.

A couple of questions. One is the compensation. David, you talked about some of the increase in compensation was related to workout fees. It went from 2.5 million to 3.4 million from Q3 to Q4. Is this a good base or is there some additional compensation expenses in that line item that would be more one-time oriented?

Well, I will say that during the fourth quarter, we did increase our bonus accrual because the performance of the team. (Inaudible) third quarter, it was a little bit lower because we were uncertain about what was going to happen in the marketplace in the fourth quarter. As it turned out, it was outstanding, so the accrual there is a little bit higher, so it's running a little bit higher by probably a couple hundred thousand dollars.

And that would be a couple hundred thousand dollars above a normal rate of compensation expense?

That's correct.

That's right. And by the way, in a normalized market, clearly, that number is probably major (inaudible) in calendar '09, but we don't necessarily give guidance, but you can expect that number to probably drift down because of less originations obviously occurring in '09 if the market continues the way it is.

Okay. And Manuel, can you maybe elaborate on the dividend policy. Understand the reason for paying it out in stock, given your goal to maintain liquidity. How should we -- once you pay down the Citicorp facility, would we expect this to go back to cash dividend? And how would the treatment of the spillover be? Is that potential stock and cash as well?

I want to first make sure people understand the conscious decision and the multiple process that we went through to make this decision with our Board and ourselves. The decision to, in essence, withhold cash being deployed, is clearly one of prudence and caution. The decision was one that is made, at least at this point, solely for the purposes of the first quarter, and is not a policy that we are adhering to or necessarily believe will continue throughout 2009.

I have no expectations or belief at this point and juncture that we will continue that policy beyond the first quarter. It is absolutely and certainly being done as a further insurance to ensure that we have unequivocal capital needed to satisfy the remaining balloon payment at the end of April for the Citibank Deutsche facility that's maturing. It is entirely a cautionary move for those purposes. I hope shareholders do not get confused as to the merits of the dividend. Frankly, we're one of the few [BDC]s that truly are paying a dividend and frankly, seeing a very strong $0.32 dividend, I think that's very proud of something that we did. It's a testimony to the achievement on the $0.34 quarterly earnings performance in the fourth quarter.

So we've led in two very critical components here. The first one is the dividend policy of having the visibility and dividend coverage. This is why you see a dividend that is, in essence, approximately 95% of the GAAP earnings in the fourth quarter of $0.34 translating into a $0.32 dividend. In terms of the spillover itself, clearly, once again, I'm not aware of many BDCs that also had spillovers, but that spillover is an important part that will help at the end of calendar '09 on supplementing some form of a fifth dividend, or more commonly known in the industry as a special dividend at the end of calendar '09, that will translate into any cumulative remaining spillover, or I should say, earnings, that are required to get distributed under the RIC rules.

And as a reminder, the RIC rules require you to pay out at least 90% of your earnings and then between 90% -- 98% of your earnings, you can opt to pay an excise tax, a gradual excise tax, but most companies choose to distribute between 90 to 98% of their earnings. And you then have the treatment of capital gains or equity derived gains greater than a year. Those are able to be spilled over and paid out in the following calendar year.

So at this point, we have $0.18 that was spilling over from '08 to '09 that, unless we have any unforeseen losses, it should be paid out in a form of a special dividend to shareholders at the end of the 2009 period.

Okay. Great color on that. And final question, is (inaudible) credit quality. It was somewhat consistent that there was a pickup in the grade four class. I'm wondering if you could maybe give us a little bit on color on that? Was that one or two large loans or maybe a more granular set of loans, anything you can disclose on that?

Sure. Look, we, (inaudible) every financial services company in this world, are challenged by the FAS-157. We went through a meticulous -- almost -- an incredible amount of scrubbing because of the volatility and because of the changes in the venture capital landscape. We, in essence, did an extra exercise of really going through line item by line item, company by company, and looking at our portfolio, and really looking at FAS-157 impact and in essence, deprecating the assets we feel merit depreciation with the prevailing changes in the overall marketplace today.

Specifically to your question, the degrade in the grade four, the increase in grade four, is a tribute to really one company, and that one company, without naming it, is a very large pharma company that is in the process of securing -- very similar to that of the announcement made today -- securing a contract in material relationship with a large pharma partner. Because that has not been closed yet and given the size of that exposure, we felt that it was prudent to downgrade that particular company until that particular contract is signed. So it's really skewed by one company in particular.

Okay. So I assume that if that contract is successfully signed, that that would fall to a grade one or two category maybe?

Depending on the magnitude of the contract, it could definitely catapult itself back up to most likely a grade two, and depending on the depth and strategic relationship of the contract is negotiated, could, in fact, rise to a level one grade credit. You have to -- I need to remind everybody, life sciences companies in particular have a fairly binary event.

They either have successful phase two clinical trials or they have successful phase three clinical trials, and even though they may fail a clinical trial, it does not mean that the company necessarily does fail. It means it can go back and resubmit data or go through different toxicology in order to resubmit data to the FDA. Technology companies have a lot more binary outcomes, and this particular company is a life sciences company that's in the negotiations of a large contract.

Great. Thanks very much, gentlemen.

Yep.

We'll go next to Troy Ward with Stifel Nicolaus.

Manuel?

Hi, Troy, how are you?

Fine, thank you. Just real quickly, just back to the balance sheet for a second, the $19 depreciation number obviously was considerably more than your historical experience. Can you comment on whether or not -- you made any changes to your valuation technique, other than, just like you said, a line by line scrubbing?

Look, the change in valuation technique is called volatility in the fourth quarter. You don't go for a volatility index on the VIX, the historical 20% VIX index, to 40% in the second quarter to 91% in the fourth quarter. So when you apply a higher volatility to the Black-Sholes model, that VIX, by itself, will create what I consider to be an artificially high valuation number, or a potential high -- artificially low number.

So because of that heightened concern on looking at the volatility that occurred just by using our standard methodologies, we decided to go through yet one more step in looking at all the credits, as we normally do individually, but also looking at comp group analysis and really looking at the prevailing occurrence in the venture capital marketplace and in essence, impairing some of the valuation even further on specific companies that we have some awareness are either behind plan or encountering some more challenging revenue-generating capabilities.

And those factors certainly play a role in depreciation further of that portfolio. So I guess -- I think we're more conservative in the third quarter than any other time ever in terms of looking at additional factors that I think may have an impact on the portfolio.

Can you help us understand maybe kind of on a percentage basis, what was -- how much of the write-down was due to the volatility in the Black-Sholes versus actually credits that are behind plan?

That's an easier -- Dave, it's an easier question.

The depreciation that was taken, it's less than $4 million that's really related in the kind of deprecation for performance.

On a loan.

Yes. And really, the write-downs are largely attributed to just the volatility that took place in the public market when we have to do enterprise value parallels in terms of trying to determine what the value of the underlying private companies are.

And I'll go one step further. The $4 million of that depreciation that was attributed to a loan is probably directly correlated to two (inaudible) companies, one of which is in a workout mode right now, that we are working with the management teams on selling that asset, as we have historically done at Hercules.

But again, as we have done in the past, we at Hercules will always downgrade a credit as it's approaching a trigger point of either capital raise or material event in its lifecycle as a cautionary move. And we've done that time immemorial since we started Hercules and we'll do that again and continue to do that.

So of the two loans that make up substantially all of that $4 million or so, we were actively involved in the sale of one of the particular companies and working through a capital raise in one -- on the other.

Okay, great. That's great color. And moving over to questions on the credit facility, looking at your subsequent events and such, 71 million as of the beginning of January, early January, and then additional announcements even beyond that, it would seem to us that it's pretty well perceived that you're going to get that down to that $50 million level to allow your Wells facility to fully repay Citi. Is that the idea?

Actually, our confidence level is actually much higher than that. We feel pretty strongly right now especially with the dividend cash -- or I should say, stock payment, the final bolstering of our liquidity. We feel very, very strongly that we'll be able to fully pay off that credit facility with a combination of cash on the balance sheet, certainly drawing portions of that outside of the Wells line. We do not, at this point, anticipate fully needing to draw the whole facility under Wells Fargo, but it's certainly an option that we were looking into and a possibility, as well as using excess capital that we're accumulating inside our SBA entity as well. So we have an abundance of capital that we believe, come April time frame, to pay off this credit facility.

That's exactly how we were perceiving it coming into the quarter. That's why we were a bit surprised -- more than a bit surprised -- that you issued the dividend with stock. Can you explain to us the methodology of the new investments in Q4 versus issuing new equity at these levels?

Well, let's be clear. We don't view this as issuing equity in a direct sense because we're not paying an underwriters' fee of 5 or 7% plus a discount on the fair value of the stock itself. We felt and we strongly think that's not a very viable thing to do, which is -- even though Hercules is one of the few BDCs that has the ability to issue stock below NAV, we find that privilege in high, high regard, that we do not want to abuse that privilege. So we don't have any intention of simply issuing equity below NAV to issue equity below NAV. And we're talking about an impact here of about $9 million or so of this holdback of the cash on our balance sheet, which we think that will be accretive in the long run because we're able to have that extra buffer in case some unforeseen issue occurs, that we have some credit that we anticipated maturing inside the Citibank facility. If it doesn't occur, we have that extra insurance policy, that $9 million, to ensure that we pay that thing off.

And also, I would like to point out, the investments we made in the fourth quarter, there was only really one investment that was a new one. The rest of them were ongoing commitments that we had to existing portfolio companies. So it's not like we were making investments unprudently or imprudently to the risk of the credit facility.

And let me give you a little bit more color. I think this is something that's missing that may actually give you the aha that you're looking for. a lot of the credit or new investments that you perceive that we do often times are potentially re-extending new credit facilities to our existing portfolio companies, or rewriting an existing loan with one of our portfolio companies where we may not have had a fixed interest rate, or below market interest rate, which allows us then to rewrite the credit facility at a significantly higher rate of interest.

And that will translate into either higher effective yields or better yet, a higher net interest margin. So it's a highly accretive event for us to continue to be very active supporters of our portfolio companies and working through our portfolio companies in both good and bad times, as we continue to build the brand of Hercules in the venture community.

But wouldn't you agree that the new shares that are issued, the 9 million, let's call it 1.7, 1.8 million, however many shares that turns into, that's got to have a hurdle rate in excess of 20% to be accretive to existing shareholders. Isn't that correct?

Well, if you measured clearly by today's terminology, of course, because we have a dividend yield today of 22%, so of course, the issues of shares is that, but if I would tell you that our new loan originations are generating current yields in the 15, 16% range, plus you add on the equity components of that, you're quickly [achieving] our cost of capital in terms of new originations. So we think that it's an accretive event and we can actually originate returns in excess of our dividend yield today.

Okay. And then on the (inaudible) net worth covenant, you're clearly closer than we would have thought you were going to be because of the write-downs in the quarter. How are you looking at that covenant going forward?

We're at 382. The minimum is 360. This was largely attributed to the write-down of FAS-157 for the warrant and equity, and we're approaching cost. We really don't feel like we're at significant risk here of tripping that covenant.

And Troy, another insurance, if you will, on that statement that you asked is another factor taken into account -- by holding back $9 million of capital, you, in essence, bolster your net worth and therefore, solidify or give you a better cushion on that net worth test with the Wells Fargo facility. So that was also another factor taken into account on the dividend holdback for that one quarter.

Right, that's what we assumed. What's your appetite for leverage as, let's say, towards the end of this year? Is there any thought of delivering this with that completely potentially?

There's actually a -- we're delivering only in the context of paying back our Citibank and Deutsche Bank credit facility. There's absolute interest enough to continue to originate in a very select basis, as we said at the beginning of the call. And this is why we preserved the Wells Fargo credit facility until we absolutely pay off the Citibank Deutsche Bank line. Once that is paid off, the Wells Fargo facility will be used to start relevering the balance sheet. We believe by that point that other lenders will, in fact, join the syndicate into the Wells Fargo facility and increase the balance sheet leverage further, but I will caution that I need to see some stabilization in the market and improved exits in the market, as we look at reoriginate significant amounts.

Okay. One more and then we'll be done here. The SBIC, can you just give us an update on what you're hearing, whether or not -- we've heard some potentially positive things about that program being expanded. What's the appetite right now for the ability to get some of that done, do you think?

Well, unfortunately, I have more real-time data than you may actually want to know. At the beginning of this morning, we were positively supportive that the legislators had at one point [checked] the $150 million increase in the SBIC Program. As you may or may not recall, the SBIC Program today is about approximately $137 million availability under the SBIC Program. At one point, there were rumors that would increase to 225 or 250 and then it went to 185. And this morning, we had heard that it was stabilized at 150, but at the beginning of this call, we received an email saying that, oops, it got cut at the last minute.

I'm talking in real time here, but they may be brought back in sometime between now and over the weekend, but we will see. So it is -- we are dealing with real time, real situations, further evidence as to why we decided to be very prudent and very cautious because we're dealing with variables that are entirely out of our control and to make sure that we're hedging, we have all kind of options available to us than that single critical path issue.

All right, great. Thanks, guys.

(Inaudible) Jon Arfstrom, RBC Capital Markets.

Good afternoon, guys.

Hey, Jon, how are you?

Good. A couple of questions here. Can you talk a little bit about the Board came up with the $0.32 number. It's down a couple of pennies and I understand that, but is this a level that you're going to evaluate each quarter, or is the level that you think, based on what you said with your business model right now, a sustainable number?

As we've said in the past, we certainly do not give guidance and it's something that we will continue to not do, given the unpredictability of the market. I think that the dividend policy is much more clear than you may realize. And that is that back in December, I believe it was, we had issued -- I think, a change in policy, maybe as one of the few BDCs, I think to really stand up to this issue, and that is that we believe that shareholders are better served by having absolute and greater transparency on the dividend coverage based on net and II, or net investment income. So the $0.32 is an arithmetic derived from the $0.34 of earnings of NII in the fourth quarter and merely multiplying it by 95%.

And so it's our expectations on a go-forward basis to pay anywhere between 90 and 95% of the quarter earnings in the (inaudible) in the form of a dividend and I want to reiterate what I said a minute ago. It's not anticipated that future dividend payments will be paid in stock. It will revert back to the cash payments that we've done historically, but clearly, that will be reviewed every quarter, given market conditions, as they turn more adverse, which I hope that they don't, but I think that we're preparing ourselves for a tough market here.

I understand that, but just the expectation is that everybody listening should expect that the dividend is going to jump around from quarter to quarter.

Well, we certainly don't expect it to jump around materially, as you may believe that it will. I think that we'd pay a dividend (inaudible) 90, 95%, and with the $0.18 spillover that we have, I think that there will be a potential -- it could be a significant and potential fifth dividend or a special dividend at the end of the year that is made up of some portion of the $0.18 spillover and the remaining balance of the quarterly earnings that are not paid out in that particular period.

And so it's a combination of the 90% that we pay out, leaving a 10% buffer. That 10% buffer will accumulate at the end of the year and distribute it out to shareholders, along with any special -- any earnings spillover in capital gains that may or may not occur. But, yes, the dividend could move around quarter to quarter.

Okay, good. Just changing gears here, the senior credit officer role that you talked about in your release, can you talk a little bit about what specifically you're using the senior credit officer for? Is it approvals on the front end? Is it monitoring? Is it workout? Can you give us some more detail?

No, Diane Earle, the credit officer you're referring to, is so far an outstanding individual. She has been an incredible contributor to the organization. Most of you know that I've also served as a credit officer of the Company for a quite significant period of time and Diane, coming on board, I feel incredibly honored to have her here. That has allowed to take an inordinate amount of credit off my plate and really hand it off to her, so she is materially responsible for the day to day credit oversight operations of the organization of both the technology and life sciences group, as well as her lower middle market experience.

Just a highly experienced veteran in the credit community. She is a hardened, asset-based lender with a good 15, 20 years of asset-based lending under her belt and she comes to us with a lot of experience from her most recent institution. And so she now has very strong day to day credit oversight of the organization, working in conjunction with two group heads of the technology and life sciences groups.

So it's all the way through the approval, monitoring and the tail end as well?

That's right. Diane is intimately involved on continuing to take over the responsibility that I have held, which is on workouts. I will still be around to assist in all workouts. Not to get cynical, I actually -- I don't mind workouts at all. I think you learn the best in a difficult and tenuous situation. Diane is a very hardened individual. I think that she can more than easily handle -- and she's proven it so far, on workouts so far -- being on Hercules.

And she is working with the deal teams on the front end of deals as well to make sure the structure looks right, given the portfolio company and such, so she's got a kind of beginning as well as end.

Last question -- this may seem like a silly question, but I'll ask it. Do you have any competitors left? Maybe talk to us a bit about the competitive environment.

It's less silly than you think. Look, I don't want to be flippant about it. I think it's horrible, what is going on in the financial community, so I don't want to be flippant or dismissive about it. But the short answer is no, there's really no more competition left. The only competitors that really exist to some extent were venture banks and venture banks really don't do what we do. They're more early stage focused than we are and I think that the early stage venture activity that some of these banks have embarked on, sitting on a couple of billion dollars of early stage venture loans, are going to go through a bit of a world of hurt here, as the venture capital community contracts specifically in its efforts on early stage investing activities.

So we -- this may sound completely crazy. The competitive landscape is almost entirely gone, which is why we continue to preserve our own capital, and we feel that as we satisfy the Citibank Deutsche Bank credit facilities, we will be in a position to look at a beautiful landscape of investment opportunities with little to no competition at extremely attractive yields, which is why we felt very strongly by withholding back $9 million of dividend capital will afford us the opportunity to deploy that capital in the second and third quarter and fourth quarter of '09 at greater than our yield spread or our dividend yield today.

Thank you.

We'll go next to Bob Napoli with Piper Jaffray.

This is Jason [DeLoo] calling in for Bob. Good afternoon, everyone.

Hi, Jason.

I was wondering what amortization and early payoffs in the portfolio are you guys expecting each quarter?

It obviously varies depending upon the activities that are happening. I think it'll -- in terms of early payoffs, where we're seeing fewer IPO or M&A activities in the course of 2009, that that will come down here in the first couple of quarters. Hopefully, we'll see more of that pick up in the third and fourth quarters, but I think we're probably going to be looking probably something more in the neighborhood of maybe $1 million of early fees and things of that nature.

Well, let me be more specific. I certainly believe that the normal amortization of the portfolio will continue at a run rate of probably 30 or $40 million a quarter, amortization -- oh, I'm sorry, I (inaudible) account the delivering. We're probably more in the 25, $35 million of amortization on a quarter run rate basis on normal principal repayments.

I think that Jason was asking about what fees we were going to be collecting. Is that correct, Jason?

I guess both, but I'll take both numbers. I was looking for a number (inaudible) that you guys were expecting each quarter.

Yes, that's what I thought, so yes, on a normalized basis, I think that we'll probably see a portfolio normalizing down to delivering in the 25, $35 million normalized amortization rate. And on a -- we consider [blue birds] for lack of a better word, early payoffs. I think Dave is right. Probably between now and the maturity of the Citibank line, you're probably looking at 1 to $5 million.

Okay. and then with the expectation that VC investments can be down in '09, can you speak to how that's going to -- what you guys are expecting for investment within some of the industries where your portfolio is most heavily weighted? And then how is this reduced -- VC investment, how is that going to impact your outlook for credit in terms of the great threes, coming up with another need for another round of financing?

Well, there's a lot to your question. Let me take the first part of it. As we indicated right now, the venture capital industry did $28.8 billion, basically $29 billion in calendar '08. We're probably being a little more draconian in our assessment of the overall market itself. We're only expecting to see 20 to $22 billion of venture capital activity, but as the previous caller asked, Jon at RBC, given the fact that we have little to no competition now left in the marketplace, that's a pretty big pond to swim in, $22 billion of opportunities that the VCs will still invest.

A better way of looking at that from a quantitative point of view is that if you look at the venture capital dollars being deployed at, say, $20 billion and you assume that 20% of that can be debt capital complementing that, you're looking at a $4 billion market opportunity there on an annual basis. There's no way in the world that we'll ever, ever fulfill the total potential demand for $4 billion. So we continue to have the opportunity to play in a very large pond as one of the bigger fish there and looking at the better opportunities to invest.

And by looking at the better opportunities to invest in, you disproportionately pick the better players who have the stronger survivability, which means you can have low to no credit losses, similar to what we've had since inception of Hercules. And I think that's going to continue to go well for us, so the slow and steady strategy of not over-deploying your capital and maintaining strong liquidity on your balance sheet would bode quite well for us in the second half of '09 as we start taking advantage of that market.

And the VCs are still supporting their better companies which, so far, I think we've proven our ability to select those [assessed] companies because our companies continue to receive additional rounds of equity capital. And that is happening in our portfolio as we speak.

Okay. Thank you very much.

We'll go next to Henry Coffee with Sterne Agee.

Yes, good afternoon, everyone. In just going through the Subsequent Events section, what is the size of the Guava Technologies loan that you expect to get paid off?

It's right around $5 million.

And then there's -- the final item is Portola Pharmaceuticals. Would that create a cash distribution your way if they're successful?

Well, first of all, I think the announcement that Portola did today is absolutely a fantastic announcement.

Right, $75 million, how much of that gets into your pocket, so to speak?

I think the company is going to retain all of that capital at this point and continue their very successful clinical trial process going on right now, so we were not expecting a payoff from that loan. We think that's a fantastic company and doing phenomenally very, very well and you're seeing a lot of our life sciences portfolio, as you've seen in Subsequent Events, continue to make very strong disclosures and positive development. So we're not expecting Portola though to pay us off.

I guess -- and then the cash on the balance sheet, that's real cash that's accessible to you. That's not restricted or committed in any fashion, right?

You mean at the Portola or our level?

Your level, the $17.2 million of cash that you ended the period with.

Right. We do have a requirement while the Citibank Deutsche Bank line is out to maintain $10 million of cash on our balance sheet. When that obviously is paid off, that requirement goes away.

But I mean, 17 of that could -- that could all go to them, as well.

That's correct. That is our cash to use as we see fit.

And Henry, as David pointed out earlier, to kind of give you a little peek on the progress, the Citibank line balances down to --

About $71 million.

70.9 million, yes.

Right, so we continue to accelerate and continue to pay that off and there's an interesting benefit. As we pay that credit facility off even faster, you're getting a higher net interest margin being generated in the portfolio.

Right. That's probably why I'm, as well as everyone else on the phone, sort of shocked at the fact that you're not paying a cash dividend in the March quarter.

Again, let me --

I understand the logic behind it. It's just when you look at the amount of cash resources that you have here, I don't think anybody would have predicted the dividend that we've been handed.

Hold on. I'm going to take issue with that. I think that people need to understand -- and I apologize if I did not articulate this appropriately, the right way. Although we have absolutely sufficient cash to satisfy the Citibank Deutsche Bank line, we live in a world where unforeseen issues surface that we're not aware of, and what I'm saying to you very directly is that had we not done this particular prudent, cautious thing, holding back $9 million of cash, had we missed that payment on Citibank Deutsche Bank line, you would have put ourselves in a higher (inaudible) because you could (inaudible) potentially cause default with the Wells Fargo facility if we didn't satisfy the Citibank Deutsche Bank line.

So that extra $9 million is incredibly valuable to us as an insurance to ensure absolutely and unequivocally that we can now satisfy our obligation without risk. And if investors do not like that, I'm sorry for that, but I think strongly, this is a very prudent thing to do for one quarter only while we're still paying that $0.32 dividend, while other BDCs are not even paying dividends.

All right. Thank you.

We'll go next to Sean Jackson with Avondale Partners.

Most of my questions have been answered, but can you talk about the Wells line, $15 million. I see you've been working on getting it to 300. Is progress there just dead or is there any progress to talk about at all?

It's obviously very slow. You can look around at all the national banks and regional banks and everybody and they're all sitting on their hands at the moment. They're trying to figure out what's going on with the TARP Program, they're trying to figure out where to invest. So conversations are continuing, but the commitment at this point does not come across the threshold.

Is there any catalyst event you think that will loosen that up a little bit and talks will resume?

I was hoping that when the Treasury Secretary spoke, that would have done it.

All right. And lastly, the investments that you're looking at, you said you intend to start again, second, third and fourth quarters. Is there one sector or something that's standing out, whether it be life sciences or I think you mentioned software in previous calls, it was looking a little better. Can you just comment on that?

I think that we'd rather answer the questions that we're focusing more on stage of company than particular -- specific verticals or niches within the technology and life sciences areas. I think that we're seeing an ordinary amount of incredible opportunities, looking at lower middle market credits or investment opportunities that a year ago, were looking at 5 times all in leverage, 5.5 times all in leverage. And today, your gaining those companies at barely all in 3X leverage on EBITDA at extremely attractive rates and now including even [warrant] coverage that are more mature companies.

So we think that it's prudent to look at the more mature companies as opposed to early stage venture-backed companies that may require five or seven years to achieve an exit, while lower middle market credits will achieve an exit or a liquidity event in two to three years. So we're more mature stage focused than necessarily sector driven.

Okay. All right. Thanks, that was helpful.

We'll go next to Arthur Winston with Pilot Advisors.

I realize that you and your directors are brilliant, but how do you figure this is a $0.32 dividend? You keep saying $0.32 when the stock is going to go down $0.32 when you pay it out. Could you just explain that?

Well, I can't explain that. I can't foresee what the stock will or will not do. I do --

But all you're doing is taking the -- and taking more shares and therefore, everybody's worth is less.

Arthur, I don't think that's correct because all shareholders are ratably receiving the same treatment, so no one is, in essence, being diluted whatsoever, and as I indicated earlier, we feel that that $9 million can easily be deployed at higher cost of capital than our yields --

All right. But don't kid yourself; you're not paying any $0.32 dividend. But could you now explain under what circumstances the dividend changes in the second quarter or doesn't change in the second quarter very slowly?

Well, as I said earlier, we don't provide guidance on earnings whatsoever; we never have. And I think that the policy that we've adopted is one that I think is very important and that is create a greater transparency on dividend coverage. As I'm sure you're fully aware of, many, many BDCs and other financial institutions --

(Inaudible) where are the BDCs?

-- over-extend themselves on their dividend payments to their earning coverages. By adopting a policy of 90 to 95% of paying out the NII earnings, you, as a shareholder, have a greater transparency of that number and you will receive that benefit at the end of the year on any remaining distribution under the RIC requirements that will be paid out as a special dividend at the end of the year, making up the 90 to 98% required distribution under the RIC Program.

But just could you explain why you had suggested or perhaps stated that this is -- the dividend is a one-time situation for the first quarter?

Sure. As is no secret, as we're talking about on this call, the dividend decision on paying the 90% in stock, 10% in cash, was really driven as a further insurance to ensure that we absolutely can unequivocally meet the requirement of the Citibank Deutsche Bank payoff at the end of April. We have an event that may occur that if we find ourselves more than $3 million short, I think that shareholder value would be a lot more distressed by suddenly having to default on the Citibank Deutsche Bank line, as opposed to having one quarter only where we withhold our cash in order to ensure the satisfying of that obligation at the end of April.

So I think that's a very prudent thing to do. I'm sorry that you find it not as prudent, but I think that is a greater preservation of shareholder value by doing that, as opposed to placing ourselves on undue risk, that we're not able to satisfy the Deutsche Bank Citibank facility at the end of April, and thereby triggering the possibility of a cross-default into our Wells Fargo line and lose the $50 million credit facility in the process.

So what you are suggesting is the cash flow comes in the way it has and the way you're hoping or thinking it might --

I think they will return back to --

Well, can you let me ask a question? If the cash flow flows in the way it has been on more or less the same trajectory, taking into account what's going on in the world, you will be able to meet the payments on the Citicorp situation sometime in April or May, and therefore, thereafter there is some probability that it's possible that the dividend could be paid in the future in cash? Is that about right?

Oh, absolutely. I'm sorry if I -- that's a confusing message I'm delivering. I don't mean to do that. In my -- I don't see, or at least foresee, future dividends paying in stock. I really do not see that. If I let that impression, that is not the intent at all.

Now clearly, things could deteriorate further and that would be revisited, but at this juncture, and from what I know and what I'm seeing from our cash flow, I do not anticipate that dividend in the future be paid out of stock, no. this is a one-time event, in my opinion, in my view.

It is there and done solely for the purpose of an insurance and a protection to our shareholders to ensure that we absolutely can pay the Citibank line. And that, to me, is an extremely valuable step to take, and a very prudent step to take, for one quarter and one quarter only. And then we return back to a cash dividend as we have historically have done. This is --

What's the date of the Citicorp (inaudible)?

April 30, 2009. It's not --

Thank you very much.

We'll go next to Art Spinner with Spinner Global Technologies.

Yes, hi, we're new shareholders and I'm still a bit confused about something. Wouldn't it be simpler just to use the Wells Fargo line to prepay the Citibank line and then you'd eliminate any possibility of cross-default through that means and reduce your cost of capital simultaneously?

Well, the problem with that, and we spoke about this in the third quarter. If that were an absolutely viable option, we clearly would have taken it. The problem is, we have to be cognizant of the remaining unfunded commitments that we have on our balance sheet, so we have outstanding obligations. And those outstanding obligations, as we indicated earlier, represent about $82 million of outstanding obligations.

However, a significant portion of those unfunded commitments are specifically tied to milestones that the Company must achieve. So we expect that $82 million to translate into fundings over the next two to three quarters, it's probably in the neighborhood of around $40 million, which is why we keep the Wells Fargo facility untapped in case we need to fulfill those obligations.

Do you really -- that's designed to match, to be an offset to those obligations.

Absolutely. You're absolutely correct. Clearly, we would have taken the opportunity to take the Wells Fargo facility and satisfy the Citibank facility, but that, I think, would have been a greater risk because what that would have done is, it would have potentially forced us to use a capital rate below NAV, which I frankly do not want to do, and use our 20% below NAV, unless it's an absolute must to do. So I think strongly, as the CEO, that this was the most prudent thing to do and the most cautious thing to do in order to ensure long-term value preservation for our shareholders.

And other than the covenant the gentleman was referring to earlier, are there any other covenants in Wells Fargo that you're bumping up against?

No, that's the only one that's -- I would say not even of a concern, but that's the only one that really is out there.

And what recourse do your clients have if they can ask you for a draw down and you don't have the funds to meet it?

Well, I don't think we'll find ourselves in that situation. We have -- we look and track and monitor the unfunded commitment number quite extensively. That number has gone down from, if I remember, in Q3, it was maybe 127, $110 million. I don't remember exactly. I don't have that number in front of me. And we managed that exposure quite diligently, but I need to remind everybody, a lot of that is time delineated, meaning that the passage of time has to occur, as well as the very positive and very significant milestones need to occur. So we don't think that liability is of any significant size in the short term.

And I'm sorry if I missed it, but have you made new commitments in the fourth quarter and recently, and were they bid situations where you were -- there were other providers of capital that you prevailed against?

We've only made one new commitment in the fourth quarter.

It's an existing portfolio company that we've very, very happy with the performance on.

And you may have heard, or not, earlier, we take advantage that we have a maturing credit or an investment in one of our companies and they're performing quite well. You have an opportunity, a rare one, at that, in the market, where you can re-originate an investment to an existing company at a significantly higher yield than you had (inaudible) historically underwritten it because the prevailing interest rates in the marketplace are as such.

So today, we're looking at new investment transactions on a current cash basis generating 14 and 16%. You add it on to the certain fees to it and then you factor into the equity derivatives in the form of the warrants, and you're far, far, exceeding the 22% or 24% dividend yield that our cash -- which translates to a cost of capital equation.

Thank you.

We'll take a follow-up question from John Hecht with JMP Securities.

Thanks for taking my follow-up question. In terms of your yield during the quarter, can you maybe break out from the yield what might have been OID or loan origination or prepayment, the (inaudible) components of it?

Yes, let me grab that here. Bear with me.

On a yield basis or on a dollar basis?

On a yield basis and then the follow-up to that's going to be what are you writing new loans -- I know you're very prudent about writing new loans, but where are you writing them now, just to give me a sense of where yield is going?

Yield has gone up exponentially. You're looking at current yields today, 14, 16% are pretty much atypical -- or normal, I should say. On a current cash basis, you add on that, depending on the stage of the company, one to two points in fees. Then you tack on potential (inaudible) derivatives and you're looking at returns north of 25, 30% in some deals.

Right.

And we didn't -- we have not tracked each one of the individual components to tell you what the yield was in OID or something of that nature.

But John, we can give you the OID number and do that, but we don't calculate the impact of percent. We can definitely derive that for you. It's not difficult, but --

No, if you have the OID number, I think I could derive it myself.

For instance, the OID number was about $2.9 million for the fourth quarter.

Okay.

And we had about 300,000 of what we call PICK income.

Okay, great. And then the prepayment, would that be in the (inaudible)?

Yes.

Okay. All right. Thanks very much.

(Inaudible) that concludes the question-and-answer session today. At this time, I'd like to turn the call back over to Mr. Manuel Henriquez for any position or closing remarks.

Thank you, Operator, and thank you, everyone for your continued interest and support of Hercules Technology Growth Capital. As we've always done, we will be planning a trip to go meet with investors over the course of the next two to three weeks. And if you have an interest in doing that and scheduling a face-to-face or one-one-one with management, feel free to contact either David Lund or myself at 650-289-3060. And again, thank you very much for being our shareholders and for being part of the Hercules Technology story. Thank you.

This concludes today's conference. We thank you for your participation. You may now disconnect. Have a wonderful day.