Runway Growth Finance Corp. Q4 FY2023 earnings call

• 2023 was a transitional year with companies adjusting to higher interest rates, tighter covenants, etc. Runway generated strong risk-adjusted returns, preserved credit quality, reduced leverage. • In Q4, 8 investments were executed, 3 new positions for the BDC. • Maintained selective due diligence, focused on high-quality late-stage companies. • Increased liquidity via secondary offering in Nov 2023. • Announced joint venture with Cadma Capital Partners, a $200 million credit financing platform for late and growth-stage companies. • Portfolio is 99% senior secured first lien loans, considered least risky in venture debt space.

In the fourth quarter, Runway Growth Finance completed 8 investments in new and existing portfolio companies, with $154.6 million in funded loans. The weighted average portfolio risk rating increased to 2.39 from 2.24 in the third quarter. The loan-to-value ratio slightly increased from 24.7% in Q3 to 27.8% in Q4. The total investment portfolio had a fair value of approximately $1.03 billion, flat from the third quarter but down 9% from the prior year. Net assets decreased to $547.1 million, with NAV per share at $13.50. Principal repayments in Q4 were $63.4 million, down from $126.8 million in Q3. Investment income was $39.2 million, net investment income $18.3 million. Leverage ratio was 0.95 and asset coverage 2.05 times in Q4, compared to 0.79 and 2.27 times in Q3. Liquidity at year-end was $281 million with borrowing capacity $278 million.

• 2024 outlook: Well positioned to take advantage of more favorable market conditions. Pipeline of qualified deals grew relative to 2022. First quarter had multiple term sheets with new borrowers. • Joint venture with Cadma expected to add new earnings stream and diversify portfolio. • Aim to stick to credit standards, keep portfolio flat or slightly up, and manage leverage without compromising credit quality.

• Market conditions impacted by rising interest rates, changing economic conditions. • Unrealized losses on investments, including $7.7 million on CareCloud preferred stock and $17 million on Pivot3 debt. • One name, Mingle Health, placed on nonaccrual status, with operational issues and regulatory headwinds.

Q: Question on investments and nonaccruals, specifically Mingle Health.

A: Greg Greifeld said Mingle Health is a smaller portfolio company with regulatory and operational issues, but believes there's material value and working to maximize it.

Q: Question on high level backdrop of challenging venture.

A: Greg Greifeld said there are headwinds due to less VC fundraising dry powder, leading to companies adjusting cost structures.

Q: Question on Pivot3 and nonaccrual.

A: Greg Greifeld said exploring IP monetization strategy but less confidence in near-term capital raising.

Q: Question on JV debt-to-equity target and return.

A: Tom Raterman said initial equity $70 million ( $35M each), target up to $200M, returns similar to core portfolio.

Q: Question on JV deal flow allocation.

A: Tom Raterman said JV picks up deals that drop out of BDC's borrowing base to maximize leverage.

Q: Question on share repurchase authorization.

A: Tom Raterman said depends on stock trading, will use if stock trades closer to NAV.

Q: Question on JV sourcing funnel.

A: Tom Raterman said partnership with Cadma and Apollo broadens sourcing beyond capital.

Q: Question on pipeline mix and industries.

A: Greg Greifeld said pipeline weighted to new investments, active across tech, life sciences, consumer.

Q: Question on share repurchase after Oaktree offering.

A: Tom Raterman said reserved dry powder for when there's greater need as stock moved to trading range.