DBRS Morningstar Confirms TriplePoint Private Venture Credit Inc.’s Ratings at BBB (low) with a Stable Trend

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

KEY RATING CONSIDERATIONS
The confirmation of the ratings was driven by the franchise strength that TPVC draws from its position within the TriplePoint Capital LLC (TPC) platform which benefits from a management team with long-standing experience investing through economic cycles. TPVC’s investment portfolio has continued its ramp up, benefitting top line revenue as base rates increased, but unrealized and realized losses in 2022 were a constraint on net income. Credit deterioration is evident as non-accruals have increased to normalized levels, and market risk from stress in the venture capital (VC) ecosystem has increased. TPVC’s conservative leverage is supportive of the ratings level, while the funding profile remains narrow and is therefore a rating constraint.

For TPVC, the Stable trend reflects the counterbalanced challenges and opportunities driven by the upheaval in the VC ecosystem from the failure of Silicon Valley Bank (SVB). For the near-term, as the Fed has backstopped uninsured deposits and cash is available for portfolio companies’ ongoing operations including for debt service. As the largest VC lender, SVB provided revolving credit facilities and term loans to VC-backed companies, who likely will seek out alternative financing sources over the medium-term, creating a strong origination tailwind for well-capitalized direct lenders with ample available capacity within leverage targets, including TPVC. While origination opportunities have strengthened, SVB was a key player in the VC and early stage company ecosystem, which will be hard to replace. Moreover, decreased portfolio company valuations from the market dislocation will likely drive mark-to-market losses in the near-term, challenging net asset growth. TPVC has a number of portfolio companies with exposure to SVB through cash management and is in continuous contact with VCs and management teams to navigate the near term disruption. The Company’s investment portfolio has a relatively short duration, given the rapid prepayments seen in venture lending, which gives TPVC flexibility in re-positioning its portfolio as needed to attractive risk-adjusted opportunities. Importantly, given the Company’s undrawn equity commitments and low leverage relative to management's target, it has sufficient capital to compete for new originations from existing SVB borrowers – and isn’t expected to expand its credit box outside of key VC relationships to do so.

RATING DRIVERS
Over the medium-term, TPVC’s ratings would be upgraded by demonstrating strong operating performance while maintaining solid credit fundamentals and a conservative leverage profile. This includes improving earnings generation as the investment portfolio continues to grow and diversification of its funding profile through well-laddered unsecured debt issuances.

Conversely, should operating performance worsen, including meaningful losses that erode net asset value, or significant credit deterioration from expectations, the ratings would be downgraded. An increase in gross leverage substantially above the Company’s target range or a material loss that drastically reduces the Company’s capital buffer to regulatory requirements would also result in a ratings downgrade.

RATING RATIONALE
TPVC has a solid franchise that is underpinned by its relationship with TPC, a global venture lending platform with long-standing relationships with key VC sponsors. TPVC provides financing solutions to VC-backed companies from early to growth stage that are preparing for a liquidity event. The investment portfolio grew by approximately $100 million over the past year to $441.4 million at fair value as of December 31, 2022, consisting of 64% first lien debt, 30% second lien debt, 4% warrant positions and 2% equity investments across 92 debt-related companies, 143 warrant portfolio companies and 42 equity holding companies. TPVC through its portfolio ramp up continues to diversify its investment portfolio with 47 additional portfolio companies compared to year-end 2021, including 35 additional debt-related companies.

Top line interest income has strengthened at TPVC, with net investment income (NII) of $37.9 million in 2022 up from $11.3 million in 2021 benefiting from higher base rates, ramp of the investment portfolio and maturation into leverage targets. However, net realized and unrealized losses of $40.7 million in 2022 constrained overall earnings generation and profitability for the year. Indeed, TPVC had a net change in net assets (net loss) of $2.8 million for 2022 compared to net income of $16.9 million in 2021.

We believe the underlying credit risk of VC-backed loans continues to be elevated as repayments are heavily reliant upon future rounds of fundraising or exits and not internal deleveraging. While a newer entity, TPVC has three investments on non-accrual as of December 31, 2022, representing 4.5% of the portfolio at historical cost. Medly’s approximately $24 million loss constituted 5.4% of the portfolio at cost as of December 31, 2022. TPVC’s investment portfolio is more heavily weighted to floating-rate based loans at 79.3%, so NII should benefit from a rising rate environment more than TriplePoint Venture Growth BDC (TPVG), which has a significant portfolio of investments in fixed-rate debt instruments.

TPVC successfully issued its first $75 million in unsecured notes due 2027 in April 2022, unencumbering the balance sheet and diversifying funding sources for the Company. TPVC funding profile is still narrow, however, with reliance on the secured revolving credit facility to fund operations. The Company’s maturities are well-laddered, with the revolver renewal process expected to close in the immediate-term, ahead of its July 2023 reinvestment period end-date. At the end of 4Q22, TPVC had solid liquidity coverage with $247 million consisting of cash, available undrawn credit facility capacity and undrawn equity capital commitments, compared to $137.1 million of unfunded commitments.

Capitalization remained strong at TPVC, with gross debt-to-equity of just 0.65x at the end of 4Q22, and a lower historical target leverage of 0.5x to 0.7x, well below the regulatory limit of 2.0x. Additionally, as of December 31, 2022, the Company had $74.4 million of undrawn equity commitments from equity investors that it will utilize to grow the investment portfolio while maintaining conservative leverage levels.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/ Social/ Governance factor(s) that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings. (May 17, 2022)

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

The principal methodology is the Global Methodology for Rating Non-Bank Financial Institutions: https://www.dbrsmorningstar.com/research/402314/global-methodology-for-rating-non-bank-financial-institutions. (September 2, 2022). In addition, DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings: https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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 rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the rating process for this rating action.
DBRS Morningstar had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally 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.

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277