Runway Growth Finance Corp (RWAY) 2023 Q4 法說會逐字稿

  • 公布時間
    24/03/07
  • 本季實際 EPS
    0.45 美元
  • EPS 比市場預期低
    -8.16 %
  • EPS 年成長
    0 %

完整原文

使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主

  • Operator

  • Ladies and gentlemen, thank you for standing by, and welcome to the Runway Growth Finance fourth quarter and fiscal year ended 2023 earnings conference call.

  • Please be advised that today's conference is being recorded.

  • I would now like to hand the conference over to Quinlan Abel, Assistant Vice President, Investor Relations.

  • Please go ahead.

  • Quinlan Abel - Assistant Vice President, Investor Relations

  • Thank you, operator.

  • Good evening, everyone.

  • And welcome to the Runway Growth Finance conference call for the fourth quarter and fiscal year ended December 31, 2023.

  • Joining us on the call today from Runway Growth Finance are Greg Greifeld, Acting Chief Executive Officer of Runway Growth Finance and Deputy Chief Investment Officer and Head of Credit of Runway Growth Capital; and Tom Raterman, Acting President and Chief Financial Officer and Chief Operating Officer.

  • Runway Growth Finance's fourth quarter and fiscal year ended 2023 financial results were released just after today's market close and can be accessed from Runway Growth Finance's Investor Relations website at investors.runwaygrowth.com. We have arranged for a replay of the call at the Runway Growth Finance webpage.

  • During this call, I want to remind you that we may make forward-looking statements based on current expectations.

  • The statements on this call that are not purely historical are forward-looking statements.

  • These forward-looking statements are not a guarantee of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements, including and without limitation, market conditions caused by uncertainties surrounding rising interest rates, changing economic conditions, and other factors we identified in our filings with the SEC.

  • Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions can prove to be inaccurate.

  • And as a result, the forward-looking statements based on those assumptions can be incorrect.

  • You should not place undue reliance on these forward-looking statements.

  • The forward-looking statements contained on this call are made as of the date hereof, and Runway Growth Finance assumes no obligation to update the forward-looking statements or subsequent events.

  • To obtain copies of SEC-related filings, please visit our website.

  • With that, I will turn the call over to Greg.

  • Gregory Greifeld - Acting Chief Executive Officer

  • Thanks, Quinlan, and thanks everyone for joining us this evening to discuss our fourth-quarter results.

  • Today, I'll touch on 2023 highlights, provide an overview of the operating environment, discuss our key takeaways from the fourth quarter, 2023 as a whole, and share our outlook for the year ahead.

  • In 2023, Runway took a measured approach, which delivered on our strategy and set the stage for us to take advantage of more favorable market conditions in 2024.

  • Throughout 2023, Runway generated strong risk-adjusted returns, preserved leading credit quality, and reduced our leverage to free up dry powder for new deals in a more lender-friendly market in 2024, while also supporting existing portfolio of companies.

  • Since the fourth quarter of 2022, Runway has expanded its return on equity by 33 basis points to 13.1% and annualized dividend yield by 186 basis points to 15.1%.

  • These strong returns are underpinned by what we believe to be the least risky portfolio in the venture debt space with 99% senior secured first-lien loans.

  • Runway remains committed to driving shareholder value, which is enforced by our strong and consistent base dividend and ongoing supplemental distributions.

  • Turning to investment activity, 2023 was a transitional year as companies and sponsors adjusted to the new normal of higher interest rates, tighter covenants, lower valuations, and generally lower amounts of both debt and equity capital.

  • Our actionable pipeline remains strong, but few deals met our underwriting criteria as companies held unrealistic expectations, particularly in the first half of 2023.

  • As a reminder, we aspire to help the best companies access non-dilutive capital to fuel growth.

  • We are not a lender of last resort to help fix a troubled situation or give management teams one last chance to swing for the fences.

  • We believe our operating results speak to our focus on preserving industry-leading credit quality while safeguarding our shareholders.

  • I remain proud of the team's diligence in evaluating influx of deals we've been presented, while remaining selective in the pursuit of only the highest-quality late-stage companies who have demonstrated a clear path to sustainable profitability.

  • To that end, we executed eight investments in new and existing portfolio companies in Q4, three of which were new positions for the BDC.

  • Amid the dynamic market environment, our team remains focused on mitigating risk and supporting our existing portfolio companies.

  • In 2023, our strategy was to allow meaningful repayments to occur to reduce our leverage and increase our access to dry powder.

  • Our low leverage ratio and ample dry powder gives us the ability to focus on opportunities that meet our high credit bar without having to worry about the terms and restrictions from our lenders.

  • To summarize, we maintained highly selective due diligence processes and credit selection criteria in Q4, positioning us to originate attractive investments in the year ahead.

  • We will continue to prioritize credit quality and manage our balance sheet defensively.

  • In addition to investment activity, I'd like to mention two other achievements.

  • First, we increased liquidity for our shareholders through a secondary offering in the fourth quarter, which Tom will provide additional color on in a moment.

  • Second, subsequent to quarter end, we were pleased to announce our joint venture with Cadma Capital Partners, a credit financing platform for the venture ecosystem that was established in 2023 by Apollo.

  • Runway-Cadma I LLC is an equal partnership between Runway and Cadma.

  • With financing capacity of up to $200 million, the joint venture will focus on financing private and sponsor-backed late- and growth-stage companies.

  • We're thrilled to enter this partnership and look forward to updating you as appropriate in future quarters.

  • Turning now to a recap of the 2023 operating environment. 2023 was a dynamic year in which we experienced a US regional banking crisis and the collapse of Silicon Valley Bank, which significantly impacted the venture marketplace.

  • This period of financial stress, coupled with high inflation, led to cautious bank lending standards, prolonged higher for longer rates, fluctuating equity markets, and declining valuations.

  • All of which have contributed to a challenging environment for deal making across all stages.

  • During this time, we took decisive action to protect our high-quality portfolio of first lien loans through constant communication with management teams and the disciplined evaluation of our portfolio throughout the year.

  • Further, as we sought to apply disciplined portfolio management and preserve credit quality, we began to see some green shoots in 2023.

  • According to recent PitchBook data, US late-stage venture equity deal value was approximately $80 billion for fiscal 2023, down from record levels in 2021 and 2022, but still above 2020 and the years preceding.

  • Further, US late-stage venture equity represented 47% of total deal value and 29% of total deal count, marking the strongest annual figures we've seen historically.

  • This is a continuation of the dynamic we've observed in recent quarters, higher volumes of late-stage deals, but at smaller values.

  • With borrowers seeking capital against the backdrop of a challenging fundraising environment, we believe the opportunity for Runway Growth's value proposition is clear.

  • Companies are continuing to seek minimally dilutive capital to extend runway and supplement equity as that market remains challenged.

  • And with this heightened demand, in 2023, we raised the bar on our rigorous and selective investment criteria.

  • We believe our borrowers are among the highest quality in the late-stage venture ecosystem.

  • This is demonstrated by their ability to raise capital.

  • Runway portfolio companies raised approximately $450 million in equity or other junior capital relative to our $1 billion loan portfolio.

  • And we continue to deploy prudent underwriting standards that prioritize quality over quantity.

  • In sum, the market was turbulent in 2023, but our proactive strategy and distinctive portfolio architecture enabled us to deliver value to both our portfolio company management teams and shareholders.

  • Tom will dive deeper into our financial performance.

  • But I want to close with an overview of our outlook for 2024, which is consistent with previous quarters.

  • Companies completed equity funding rounds in 2021 and 2022 at historically high valuations, which provided 24 to 36 months of runway.

  • These companies will soon need to go to market to raise additional capital, and we believe we are well positioned to take advantage of these opportunities.

  • Increasingly, management teams turned to Runway because we are more than just a lender.

  • We offer strategic counsel, financial expertise, and an operational network that we believe drives optimal results for our borrowers and shareholders.

  • Our team continues to see a robust pipeline of opportunities.

  • Despite the challenging market and deal activity, our pipeline of qualified actionable deals grew relative to 2022.

  • This demonstrates our increased discipline and tighter credit box.

  • In the first quarter of this year, which tends to be our slowest seasonally, we have issued multiple term sheets with new borrowers. 2024 is already off to a fast start between our newly formed joint venture with Cadma and transaction activity.

  • We look forward to sharing more in May.

  • With that, I'll turn it over to Tom.

  • Tom Raterman - Acting President, Chief Financial Officer, Chief Operating Officer, Treasurer & Secretary

  • Thanks, Greg, and good evening, everyone.

  • Reflecting on 2023, we are proud of Runway's performance amidst a challenging operating environment for our portfolio companies and fundraising environment across the venture landscape.

  • We completed eight investments in the fourth quarter, representing $154.6 million in funded loans.

  • Our weighted average portfolio risk rating increased to 2.39 in the fourth quarter from 2.24 in the third quarter of 2023.

  • Four portfolio companies moved from category 2 to category 3 during the quarter.

  • Our rating system is based on a scale of 1 to 5, where 1 represents the most favorable credit rating.

  • Our portfolio continues to be concentrated in first lien senior secured loans focused on the latest-stage, highest-quality companies in the venture debt market.

  • With 99% of our portfolio with a weighted average risk rating of 3 or better, we're focused on maintaining a high bar for evaluating investments.

  • In line with previous quarters, we calculated the loan to value for loans that were in our portfolio at the end of the third quarter and the current quarter.

  • We found that our dollar-weighted loan-to-value ratio slightly increased from 24.7% in Q3 to 27.8% in Q4.

  • Our total investment portfolio had a fair value of approximately $1.03 billion excluding treasury bills, flat from $1.01 billion in the third quarter of 2023, but a decrease of 9% from $1.13 billion for the comparable prior-year period.

  • As of December 31, 2023, Runway had net assets of $547.1 million, decreasing from $570.5 million at the end of third quarter of 2023.

  • NAV per share was $13.50 at the end of Q4 compared to $14.08 at the end of the third quarter of 2023.

  • Included in our Q4 2023 investor presentation is a detailed NAV bridge.

  • The decline in NAV is primarily a result of an unrealized loss of $7.7 million on our CareCloud preferred stock holdings, which we are electing to hold as we see an opportunity for equity upside in the future, as well as the realized loss of $17 million on our debt investment in Pivot3. $6.4 million of which was reflected as an unrealized loss in our Q3 2023 financial statements.

  • As a reminder, our loan portfolio is comprised of 100% floating rate assets.

  • All loans are currently earning interest at or above agreed upon interest rate floors, which generally reflect the base rate plus the credit spreads set at the time of closing or signing the term sheet.

  • In the fourth quarter, we received $63.4 million in principal repayments, a decrease from $126.8 million in the third quarter of 2023.

  • This is driven primarily by our credit-first approach to investing that prioritizes the highest-quality late-stage companies, which are ideal candidates for refinancing or acquisitions in most market environments.

  • Elevated prepayments for the quarter and year are an indicator of the strength in our approach to underwriting and health of the overall portfolio.

  • We expect additional prepayment activity throughout 2024, with activity building more significantly in the second half of this year.

  • Further, prepayment activity provides Runway with liquidity to deploy in a manner that is fully accretive.

  • We generated total investment income of $39.2 million and net investment income of 18.3 million in the fourth quarter of 2023, compared to $43.8 million and $22 million in the third quarter of 2023.

  • Our debt portfolio generated a dollar-weighted average annualized yield of 16.9% for the fourth quarter of 2023 as compared to 18.3% for the third quarter of 2023 and 15.5% for the comparable period last year.

  • We attribute the spike in the yield in the third quarter of 2023 to an acceleration in prepayments.

  • Moving to our expenses for the fourth quarter, total operating expenses were $20.9 million, down 4% from $20.7 million (sic - see press release, "$21.7 million") for the third quarter of 2023.

  • Runway recorded a net unrealized loss on investments of $5.9 million in the fourth quarter compared to a net unrealized loss of $7.2 million in the third quarter of 2023.

  • We also had a net realized loss of $17.2 million compared to no realized loss in the prior quarter.

  • The fourth-quarter unrealized loss on investments was predominantly due to the loss of $7.7 million resulting from decreases in the fair value of our preferred equity position in CareCloud.

  • We remain confident that our highly selective investment process and diligent monitoring of portfolio companies support our track record of maintaining low levels of non-accruals, coupled with generally healthy credit performance.

  • As of December 31, 2023, we had no loans on non-accrual status.

  • Subsequent to quarter end, we placed our loan to Mingle Healthcare on non-accrual status, representing an outstanding principal balance of $4.3 million at a fair market value of $3.8 million.

  • The loan comprised 0.37% of the total fair value of the investment portfolio, excluding treasury bills as of December 31, 2023.

  • In the fourth quarter of 2023, our leverage ratio and asset coverage were 0.95 and 2.05 times, respectively, compared to 0.79 and 2.27 times at the end of third quarter of 2023.

  • All investments in the fourth quarter were funded with leverage as part of our strategy to generate non-dilutive portfolio.

  • Turning to our liquidity, at December 31, 2023, our total available liquidity was $281 million, including unrestricted cash and cash equivalents.

  • And we had borrowing capacity of $278 million as compared to $312 million and $297 million, respectively, on September 30, 2023.

  • We were pleased with the completion of a secondary offering of approximately 3.7 million shares of common stock owned by Oaktree in November 2023.

  • It's important to note that Oaktree has been a great partner to Runway since 2016 and this is just part of the natural investment life cycle.

  • Ultimately, we view this as a positive for the liquidity of our stock, and over the long term, we expect a larger public float to attract high-quality investors that understand the Runway value proposition.

  • At quarter end, we had unfunded loan commitments to portfolio companies of $201.5 million.

  • The majority of which were subject to specific performance milestones. $42 million of these commitments are currently eligible to be funded.

  • During the quarter, we experienced two prepayments totaling $63.4 million and scheduled amortization of $0.3 million.

  • The prepayments included a full principal repayment of our senior secured term loan to VERO Biotech for $40 million and a partial principal repayment of our senior secured term loan to Brivo for $23.4 million.

  • As mentioned on our third-quarter earnings call, our Board of Directors approved a stock repurchase program, giving us the ability to acquire up to $25 million of Runway's common stock.

  • To date, the company has not repurchased any shares under the stock repurchase program, which expires on November 1, 2024.

  • Separately, during Q4, through its long-term incentive plan, management of the external adviser purchased 39,473 shares of the company.

  • Finally, on February 1, 2024, our Board declared a regular distribution for the first quarter of $0.40 per share, as well as a supplemental dividend of $0.07 per share payable with a regular dividend.

  • Looking ahead, we expect the venture market to remain challenged as ongoing uncertainty surrounding fiscal policy weighs on the US economic trajectory.

  • While the macroenvironment will continue to impact our portfolio companies, we remain focused on delivering superior credit performance and preserving capital to maximize risk-adjusted returns for our shareholders.

  • With that, operator, please open the line for questions.

  • Operator

  • (Operator Instructions) Finian O'Shea, Wells Fargo.

  • Finian O'Shea - Analyst

  • Hello.

  • Hey, everyone, good afternoon.

  • Just a question, sort of higher level on the investment style and non-accruals.

  • So you've always described the strategy as growth that where you're lending to more so profitable companies that are transitioning or pivoting into something, which makes them unprofitable.

  • But that there's a core business with franchise value that mostly covers you.

  • So in the sort of cases that are going wrong, can you touch on is it more related to the new venture or the core business that falls off from your underwriting?

  • Thank you.

  • Gregory Greifeld - Acting Chief Executive Officer

  • Yeah.

  • Hey, this is Greg.

  • Thanks for the question.

  • And specifically, this quarter, we now have the one name on non-accrual, Mingle Health, as Tom spoke about on the call.

  • That is a position that has been in our portfolio for quite some time.

  • It is a smaller portfolio to a smaller company, which was in line with our strategy as we were originally building the book.

  • This one has had some bumps along the road, as you can imagine, not only in terms of regulatory headwinds dealing with COVID, but also some just operational issues.

  • We do believe that there is material value here in excess of what we are owed.

  • The situation is very fluid right now, but we are working with them to make sure that we get the right security on this company for them to maximize the value.

  • Finian O'Shea - Analyst

  • Okay, thank you.

  • Very helpful.

  • And then also, we're seeing a lot of broadly challenging ventures.

  • Can you talk about the high-level backdrop?

  • Is there a headwind on VC fundraising that's finally working its way through and impacting companies that way, or just more of what we're seeing here is more run of the mill or idiosyncratic?

  • Gregory Greifeld - Acting Chief Executive Officer

  • Yeah, I think there definitely are overall segment headwinds in terms of funds having less dry powder than they might have anticipated, having to take longer to raise that next fund than they may have anticipated.

  • And as we said in our prepared remarks, 2023 really was a transitional year as the funds and the companies realize that new normal have less plentiful and smaller dollar amounts available for them, which has led to a lot of internal work, making sure that cost structures have been changed to meet the new normal in terms of actual available to liquidity, as well as making sure that they're engaging in R&D and other look-forward projects that they actually will have the ability to fund through to fruition.

  • So in long and short, there definitely are some market headwinds in terms of capital having been less available.

  • However, on the whole, we think that that leads companies to be stronger having to face this and ramp down their burn.

  • Finian O'Shea - Analyst

  • Awesome.

  • All for me.

  • Thank you so much.

  • Operator

  • Melissa Wedel, JPMorgan.

  • Melissa Wedel - Analyst

  • Thanks for taking my questions today.

  • Wanted to start with Pivot3 in particular.

  • I know this one has been on non-accrual for a while, or had been on non-accrual for a while.

  • But even as of a quarter ago, I think you guys had that marked at like 65% about of cost.

  • Trying to understand how that so quickly unraveled to a full write down in the fourth quarter?

  • Gregory Greifeld - Acting Chief Executive Officer

  • Yeah.

  • So speaking specifically about that name, as we had mentioned, we are exploring an IP monetization strategy with them, which we believe still has viability, and we believe still has the chance for success.

  • However, just looking at the timeframe and potential additional capital required, we realized that we have less confidence in that capital being raised in the near term.

  • We've been clear from the beginning that we're not in the business of funding risk capital for IP litigation.

  • We're in the business of recovering capital.

  • So just feedback around the timeframe, not the viability of that, has led us to revisit the mark as we have transitioned through a credit bid away from the loan.

  • Melissa Wedel - Analyst

  • Okay.

  • I also wanted to try to reconcile some of the comments that you're making about expecting elevated prepayment activity, particularly in the back half of '24, but also noting that there were a lot of investments that weren't sort of meeting your threshold to make it into the portfolio.

  • Should we be thinking about 2024 as a flat to maybe deleveraging year for the portfolio?

  • Tom Raterman - Acting President, Chief Financial Officer, Chief Operating Officer, Treasurer & Secretary

  • Sure, so I think -- thanks for the question, Melissa.

  • Nice to hear from you.

  • As we think about the pattern and we look forward -- the pattern of prepayments and we look forward, we have a sense as to what will come.

  • The theme for this year really for us is sticking to our knitting, not changing the standards, focusing on the portfolio that we have in place.

  • There's obviously a significant number of deals in the pipeline that we could do.

  • We always ask, should we do them?

  • So I think in terms of the portfolio, we'd like it to be flat, at least flat, if not slightly up.

  • We'd like to see our leverage slightly over 1 by the end of the year, but we're not going to compromise our credit standards in this environment to get there.

  • Gregory Greifeld - Acting Chief Executive Officer

  • Yeah, and the only thing I would add to that, completely agree to add another idiom of beyond sticking to our knitting.

  • We really view the portfolio as a marathon, not a sprint.

  • Our view is to -- and goal is to have liquidity and access to capital to make loans -- the best loans to the best companies as the market has the availability for it.

  • Melissa Wedel - Analyst

  • Thank you.

  • Operator

  • Bryce Rowe, B. Riley.

  • Bryce Rowe - Analyst

  • Thanks so much.

  • Good afternoon.

  • I wanted to maybe start around the unrealized depreciation in the quarter beyond what you saw from CareCloud.

  • I think, Greg, mentioned -- or maybe it was Tom, you mentioned four companies that went from an internal rating of 2 to 3 and assume that there might have been some fair value mark associated with that.

  • Can you maybe talk about some of that fair value mark process in the quarter again away from CareCloud, and I guess the reversal of the unrealized depreciation that you already had on Pivot3?

  • Tom Raterman - Acting President, Chief Financial Officer, Chief Operating Officer, Treasurer & Secretary

  • Sure.

  • Thanks, Bryce.

  • Well, by far, the two largest components were CareCloud and Pivot3.

  • There was also a mark change in the equity portfolio.

  • That was roughly $1 million on our warrant position in Aria.

  • And the rest we're really nothing significant, frankly, even in the names that went from 2 to 3.

  • I would say, as a whole, we probably adjusted our discount rates up just a bit, which had that impact.

  • But there was nothing that was really monumental or alarming.

  • It was just kind of natural drift outside those three that we talked about, like adding the equity piece in Aria.

  • Bryce Rowe - Analyst

  • Okay.

  • That's helpful, Tom.

  • And maybe just a question or two around the joint venture.

  • Can you talk about maybe the type of investment that will go into the joint venture?

  • Is it similar to what you would put in your own portfolio?

  • And then what type of equity that do you expect to, I guess, as a capital structure for that joint venture?

  • Tom Raterman - Acting President, Chief Financial Officer, Chief Operating Officer, Treasurer & Secretary

  • Sure.

  • Well, first of all, I just want to say we are delighted to have this joint venture with Cadma.

  • Cadma is run by some Silicon Valley veterans who really know the ecosystem and the venture lending market very well.

  • And then of course being part of Apollo, one of the world's largest investment managers, that's quite significant.

  • In terms of the amount that we're putting in, initially, we're each putting in $35 million in equity, and then we've arranged financing to take it up potentially to $200 million or even more.

  • So that's the initial cap structure that we're thinking about.

  • And in terms of the focus, it's really largely what we're doing.

  • We view this as an opportunity, particularly in a situation where we can't -- won't go to the equity markets.

  • It's an opportunity to continue for us to stay in the market with those late-stage companies where the deals tend to be larger, diversify the portfolio through that JV, through our interest in the JV, and add a new earning stream.

  • Gregory Greifeld - Acting Chief Executive Officer

  • Great.

  • And Tom, in terms of helping us think about how that could ramp, I mean, like you said, you all will typically underwrite maybe larger deals, dollar-volume deals.

  • And so theoretically, it wouldn't take but a few to really ramp that thing up.

  • Am I thinking about that the right way?

  • Tom Raterman - Acting President, Chief Financial Officer, Chief Operating Officer, Treasurer & Secretary

  • To some extent, I think our view is also to build diversification, and Cadma's view too is to build diversification within the JV.

  • So I think you should think of it as an equity ramp through the balance of this year.

  • We don't intend to sell any loans from our book into that joint venture at this point.

  • And again, I don't think that's going to change.

  • So I would view it as a steady ramp through the year, but keeping diversification in that JV relative to the size as it grows.

  • Bryce Rowe - Analyst

  • Okay.

  • All right.

  • That's great.

  • Appreciate the answers.

  • Tom Raterman - Acting President, Chief Financial Officer, Chief Operating Officer, Treasurer & Secretary

  • Sure thing.

  • Operator

  • (Operator Instructions) Erik Zwick, Hovde Group.

  • Erik Zwick - Analyst

  • Good afternoon.

  • Maybe just start with a follow-up on Bryce's question on JV.

  • Just curious if the partnership with Cadma, and you mentioned the relationship with Apollo as well, does that broaden the sourcing funnel at all?

  • Are there any benefits from that partnership as well?

  • Tom Raterman - Acting President, Chief Financial Officer, Chief Operating Officer, Treasurer & Secretary

  • Yeah, it's certainly a strategic partnership for us, and we expect to see many benefits beyond just one of expanding sources of capital.

  • Erik Zwick - Analyst

  • Thanks.

  • And then just with regard to the current pipeline, can you provide any color in terms of the mix as it pertains to new investments versus add-ons?

  • Are there any particular industries that you're seeing are more active today in the pipeline?

  • Gregory Greifeld - Acting Chief Executive Officer

  • Yeah.

  • I'd say the pipeline is definitely weighted more towards new investments.

  • We always are mining the portfolio to see opportunities to give more money to the best companies outside of our already scheduled delayed draws.

  • In terms of sector, I think we're seeing a lot of opportunity across the gamut of the three legs of our investing universe, technology, life sciences, as well as consumer, and expect the split to remain consistent throughout this year.

  • Erik Zwick - Analyst

  • Thanks, Greg.

  • And last one for me, just curious about your appetite to use the repurchase authorization in '24 at all.

  • Tom Raterman - Acting President, Chief Financial Officer, Chief Operating Officer, Treasurer & Secretary

  • I think that's really a function of where the stock trades.

  • There are two ways to return capital to shareholders.

  • One is to build the book and continue to grow the dividend.

  • And the other is to repurchase shares.

  • Ultimately, we'd like to get to the point where we can raise equity.

  • So if we get trading closer to NAV, or at some point, hopefully above NAV here, I would expect to see usage under that program to be less significant.

  • Erik Zwick - Analyst

  • Appreciate the thought.

  • Thanks for taking my questions today.

  • Tom Raterman - Acting President, Chief Financial Officer, Chief Operating Officer, Treasurer & Secretary

  • Sure thing, Erik.

  • Operator

  • Mickey Schleien, Ladenburg.

  • Mickey Schleien - Analyst

  • Yes, good afternoon, everyone.

  • Not to beat a dead horse, but I have a few more questions on the JV.

  • First, Tom, could you repeat what you said was the debt-to-equity target for the JV?

  • Tom Raterman - Acting President, Chief Financial Officer, Chief Operating Officer, Treasurer & Secretary

  • Sure.

  • So -- and Mickey, thanks for joining today.

  • Initially, it's going to be $70 million in equity, which will comprised of 50%.

  • So $35 million from each of us.

  • And then we'll grow to, at least with that equity base, up to $200 million.

  • So another $130 million in debt.

  • Mickey Schleien - Analyst

  • I understand.

  • And Tom, what is your target return on invested capital on the JV?

  • Tom Raterman - Acting President, Chief Financial Officer, Chief Operating Officer, Treasurer & Secretary

  • And so, the asset-level returns are really going to be the same as what we're looking at in the core portfolio.

  • They shouldn't vary significantly.

  • So you just apply the leverage and we would think that we get very similar return on equity, if not a little greater on that because it's more leverage.

  • Mickey Schleien - Analyst

  • I understand. leverage.

  • And just want to confirm, Cadma is 100% owned by Apollo, is that right?

  • Tom Raterman - Acting President, Chief Financial Officer, Chief Operating Officer, Treasurer & Secretary

  • That's a question for Apollo really.

  • So -- but Cadma is definitely part of Apollo.

  • Mickey Schleien - Analyst

  • And how does Oaktree feel about Runway working with Apollo, given Oaktree and Apollo obviously are competitors?

  • Tom Raterman - Acting President, Chief Financial Officer, Chief Operating Officer, Treasurer & Secretary

  • Oaktree continues to be a very supportive partner, and they understand that we're going do things to expand our footprint, our access to capital, and they embrace it.

  • Obviously, Oaktree's on our Board and they were fully supportive of the program, and it's something that we've talked about and has had a fairly meaningful gestation period.

  • Mickey Schleien - Analyst

  • I understand.

  • And the JV is not going to be competing with any other part of Apollo.

  • Is that correct?

  • Tom Raterman - Acting President, Chief Financial Officer, Chief Operating Officer, Treasurer & Secretary

  • That's our objective, yes.

  • Mickey Schleien - Analyst

  • Okay.

  • And how will you allocate deal flow between the BDC and the JV?

  • Tom Raterman - Acting President, Chief Financial Officer, Chief Operating Officer, Treasurer & Secretary

  • So our goal in the BDC is really to increase our diversification in the portfolio.

  • There are certain limitations under our lending agreements where it drops out.

  • So there's a series of limitations deals over a certain dollar amount.

  • We lose in our borrowing base for the KeyBank revolver to the extent we hit concentrations in various industries or maturities, things like that.

  • But the JV will pick those up first and allow us to maximize the availability under our revolver and effectively utilize our leverage there.

  • So that's really the focus on the allocation, is making sure that we're using our leverage effectively and using the assets effectively to gain leverage.

  • Mickey Schleien - Analyst

  • I understand.

  • And just lastly, last quarter, you gave us a little bit of an update on David's -- expectation for David Spreng to return to day-to-day involvement with the company.

  • Anything you can say on that at this time?

  • Tom Raterman - Acting President, Chief Financial Officer, Chief Operating Officer, Treasurer & Secretary

  • Yeah, really no change.

  • We expect David to be back later this year.

  • I know he certainly appreciates all the well wishes he's received.

  • And Greg and I speak with David quite frequently.

  • Mickey Schleien - Analyst

  • Okay.

  • Thanks for that.

  • Those are all my questions.

  • Appreciate it.

  • Operator

  • (Operator Instructions) Casey Alexander, Compass.

  • Casey Alexander - Analyst

  • Yeah, sorry.

  • I missed quite a bit of this call because I had another conference call that started at 4:45.

  • So I apologize for that.

  • I do want to confirm that if I read the release correctly, in the fourth quarter, you did not repurchase any shares.

  • Tom Raterman - Acting President, Chief Financial Officer, Chief Operating Officer, Treasurer & Secretary

  • That's correct.

  • Casey Alexander - Analyst

  • I'm curious why after the Oaktree offering in November when the stock was quite weak, how come you chose not to repurchase some shares in that window?

  • Tom Raterman - Acting President, Chief Financial Officer, Chief Operating Officer, Treasurer & Secretary

  • Well, Casey, we looked at how the stock traded.

  • We looked at the opportunities for us to deploy capital.

  • And the stock really moved back, in our opinion, into a trading range where we felt it could stand on its own and decided to reserve that dry powder that either in the program itself or the dry powder on our balance sheet for a period where there was a greater need.

  • Casey Alexander - Analyst

  • Okay.

  • All right.

  • Well, I'll get the rest of this from the transcript.

  • I'm sorry, I got here late, and I don't want to ask you to repeat anything that you've already said.

  • Tom Raterman - Acting President, Chief Financial Officer, Chief Operating Officer, Treasurer & Secretary

  • Casey, we're glad to have you.

  • Gregory Greifeld - Acting Chief Executive Officer

  • Glad to have you, Casey.

  • Operator

  • Thank you.

  • And at this time, there are no more questions in the queue.

  • And now I would like to turn the call back over to Greg Greifeld for closing remarks.

  • Please go ahead, sir.

  • Gregory Greifeld - Acting Chief Executive Officer

  • Thank you, operator.

  • We see immense opportunity for growth in the year ahead and believe we are well positioned to provide essential support for high-quality, late-stage companies that are faced with a variety of nuanced funding challenges.

  • Thank you all for joining us today.

  • We look forward to updating you on our first-quarter 2024 financial results in May.

  • Operator

  • This concludes today's conference call.

  • Thank you for participating.

  • You may all disconnect.