DBRS Morningstar Assigns Long-Term Ratings of BBB (low) to TriplePoint Private Venture Credit Inc. with a Stable Trend

DBRS, Inc. (DBRS Morningstar) assigned a Long-Term Issuer Rating of BBB (low) and a Long-Term Senior Debt Rating of BBB (low) to TriplePoint Private Venture Credit Inc. (TPVC or the Company). The trend on the ratings is Stable. The Company’s Intrinsic Assessment (IA) is BBB (low), while its Support Assessment is SA3, resulting in the Company’s final rating being equalized with its IA.

KEY RATING CONSIDERATIONS
The ratings and Stable trend are supported by TPVC’s position within TriplePoint Capital LLC’s (TPC) global venture lending platform. TPC has a strong reputation and market presence that has developed over more than a decade in providing financing to venture capital (VC)-backed companies. We view the TPC platform as having the necessary scale to source and underwrite deals through a borrower’s venture capital life cycle. Given TPVC’s short operating history which constrains the rating, we can look to similar investment vehicles within the TPC platform to provide an indication of expected performance. Specifically, the track record and performance of TriplePoint Venture Growth BDC Corp. (TPVG), TPC’s public BDC (DBRS Morningstar Long-Term Issuer Rating of BBB, Stable trend), has been solid with consistent earnings, strong underwriting and conservative leverage.

The ratings also consider TPVC’s exposure to VC-backed companies that introduce elevated credit risk. Unlike middle market BDCs, TPVC focuses on lending to early stage VC-backed companies that are generally not profitable and highly reliant upon the next round of VC funding or a successful exit for loan repayment. Although TPVC’s funding profile is narrow, the Company benefits from TPC’s banking relationships, with a similar core syndicate across the platform. We consider the Company’s leverage target as appropriate and supportive of the ratings. Nevertheless, as a BDC, the Company’s inability to retain its organic capital to support balance sheet growth is also a ratings constraint.

The Stable trend also reflects our view that the U.S. economic recovery will likely continue, supporting continuing investment opportunities in the VC ecosystem. While VC-backed companies face supply chain issues and labor shortages, VC-backed companies have not seen a major reduction in revenues as prices can largely be raised without consequence in the current inflationary environment. Nevertheless, nontraditional investors investing in the VC ecosystem that are usually transient in nature or the uptick in public market volatility that has introduced uncertainty to the public listing market could pose some downside risks for 2022.

RATING DRIVERS
Over the longer-term, TPVC’s ratings would be upgraded by demonstrating strong performance and maintaining conservative balance sheet fundamentals. This includes improving earnings generation as the investment portfolio grows, maintaining consistently low non-accrual loans while utilizing a relatively low level of leverage, and further enhancing its funding profile via well-laddered unsecured debt issuances.

Conversely, a sustained significant increase in non-accrual investments or a sizable loss that materially reduces the Company’s cushion to the regulatory leverage limitation would lead to a ratings downgrade. If equity investments grew to a meaningful portion of the investment portfolio, the ratings would be downgraded.

RATING RATIONALE
TPVC has a strong franchise, underpinned by its position within the larger TPC platform. TPVC’s external advisor is TriplePoint Advisers LLC (the Adviser), a subsidiary of TPC. TPC is a global leading provider of financing solutions for privately-held, VC-backed companies across all stages of development from seed to venture growth stage. Moreover, the Company benefits from TPC’s long-standing relationships with venture capital sponsors to ensure access to high quality VC-backed companies. The continued development and success of TPC’s growing venture lending business support the performance of TPVC as investment committee and risk management processes are consistent across the platform and vehicles.

The Company was formed in October 2019 as a non-listed BDC that commenced investment operations in May 2020. TPVC’s investment portfolio is focused on investments from early to venture growth stage companies. Prior to electing to be regulated as a BDC, TPVC acquired an initial portfolio of 30 secured loans with a principal amount of $91 million and warrants in 23 companies valued at $4 million from TPC. The portfolio transfer was approved by the Board and the investment portfolio’s valuation was performed by independent third-party valuation firms. The portfolio acquisition was a one-time event that ramped up the vehicle and the Company will grow the existing portfolio with origination activity. As of 3Q21, TPVC’s investment portfolio totaled $240 million at fair value (FV) with debt investments across 42 portfolio companies.

All investments are directly originated by the Adviser, which benefits from a long history of successful originations in a niche market that requires specialized underwriting experience. TPVC has co-investment exemptive relief from the SEC so it may invest alongside other TPC vehicles, allowing TPC to syndicate investments across its other managed vehicles. The co-exemptive relief also allows TPC to allocate investments across its varying venture debt vehicles and lower concentrations in the portfolio as investment hold sizes can be better managed through allocation across the larger TPC platform. TPC’s other BDC, TPVG, also benefits from co-investment exemptive relief and has investment overlap with TPVC.

While still early, TPVC has good earnings generation, underpinned by a growing investment portfolio that generates recurring investment income and solid credit performance. Moreover, the Company's earnings benefited from the acquisition of the initial $95 million investment portfolio from TPC. We note that the Company avoided the large unrealized losses on its investment portfolio that many BDCs experienced due to credit spreads widening in March 2020 as TPVC commenced investment operations in May 2020. For 9M21, TPVC reported net assets resulting from operations or net income of $10 million and net investment income of $6 million. Similar to TPVG, the Company generates strong yields from its investment portfolio with a weighted average portfolio yield on debt investments of 15.2% for 9M21.

TPC has demonstrated its disciplined investment strategy and underwriting with a strong track record in the venture lending market supported by solid credit performance. We view credit risk as elevated given the Company is lending to venture backed companies with limited operating history. Moreover, TPVC lends not only to the venture growth stage companies but also to the early and later stage companies in the VC lifecycle that we view as having a higher risk profile than lending to larger or sponsor-backed middle market companies. TPVC balances this risk with smaller investment hold sizes for these earlier stage companies and relationships with VC sponsors. TPC's relationships with sponsors allows for selectivity in originations, given the high level of inbound deal flow. Further, TPVC has an equity and warrants portfolio that can be used to generate significant gains over time to offset losses from other companies in the investment portfolio. Given the relatively new originated loans and initial portfolio of high quality loans that were acquired from TPC, none of TPVC's investments were on non-accrual status as of 3Q21, in line with expectations.

The Company has a narrow funding profile, given the reliance on one secured credit facility for funding. We expect TPVC to issue unsecured debt that would broaden its funding mix and unencumber the balance sheet. Refinancing risk is limited with no meaningful maturities as the Company's only credit facility matures in 2025. Furthermore, liquidity appears appropriately managed with an ability to meet unfunded commitments and originate new loans.

TPVC's capital is solid, with a low debt-to-equity ratio of 0.63x, well below its target of 1.0x and provides a strong cushion of the regulatory limit of 2.0x. As a non-traded BDC, the Company draws on equity commitments to raise equity, and capital is locked-up with limited near-term liquidity for shareholders. Moreover, TPVC has demonstrated good dividend coverage for its base dividend, and flexibility to distribute a supplemental dividend.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Non-Bank Financial Institutions (September 2, 2021): https://www.dbrsmorningstar.com/research/383936/global-methodology-for-rating-non-bank-financial-institutions. Other applicable methodologies include DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021): https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

The primary sources of information used for this rating include Morningstar, Inc. and Company Documents. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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