Earnings Call Transcript - TPVG Q1 2020

Operator, Operator

Good afternoon, ladies and gentlemen, and welcome to the TriplePoint Venture Growth BDC First Quarter 2020 Earnings Conference Call. This conference call is being recorded, and a replay of the call will be available as an audio webcast on the TriplePoint Venture Growth BDC website. Company management is pleased to share with you the company's results for the first quarter 2020. Today, representing the company is Jim Labe, Chief Executive Officer and Chairman of the Board; Sajal Srivastava, President and Chief Investment Officer; and Chris Mathieu, Chief Financial Officer.

Jim Labe, CEO

Thank you, and good afternoon, everyone. On behalf of TPVG, we hope that our shareholders and their families are healthy and continue to stay that way during this pandemic. As I hope to make clear on today's call, our first priority at TPVG is protecting the health of our employees and supporting our portfolio of companies during this global pandemic. As a global firm, we also continue to work closely with our venture capital partners, the entrepreneurs and investors within the venture ecosystem during these challenging times. The resilience of our portfolio companies and the strength of the venture community is never more evident during these times, and we are grateful for all the support and collaboration within the venture community. At TPVG, our greatest strength is the quality and experience of our management team, which is the most experienced team in the venture lending asset category, bar none. We have decades of experience in venture lending and have been through many economic cycles in the venture lending business over the last 30 years. In this environment, we have a playbook and we have been operating and executing on it. And although this is a very difficult period and we are far from out of the woods, our focus on the venture lending segment of the BDC market brings some mitigating factors that mean the current environment could affect us less than some of the broader segments of the BDC sector. And I'll get into those shortly.

Sajal Srivastava, President and Chief Investment Officer

Thank you, Jim. As a result of the COVID pandemic, we are operating in a period of considerable volatility and uncertainty. As we navigate TPVG through these circumstances, we don't know how long these conditions will last. So our thought is to share some short-term guidance on our playbook. And as I review our performance for Q1, I will provide our outlook for the business for the next 1 to 2 quarters based on what we know today and what we can reasonably expect.

Chris Mathieu, Chief Financial Officer

Thank you, Sajal, and hello, everyone. While the first quarter was an interesting period, to say the least, TPVG finished the quarter on a strong note. Let me take you through an update on the results for the first quarter. Total investment and other income was $20.8 million for the first quarter of 2020 as compared to $17.5 million for the first quarter of 2019. The weighted average annualized portfolio yield was 12.7% on total debt investments for the first quarter of 2020. The increase in total investment income was driven by a higher average portfolio balance in the quarter. Total operating expenses were $8.6 million for the first quarter of 2020, as compared to $7.6 million for the first quarter of 2019. The total operating expenses for the first quarter consisted of $4.2 million of interest expense, $2.8 million of base management fees and $1.6 million of G&A. The increase in total operating expenses was primarily related to asset growth, which generated an increase in management fees and higher interest expense from a higher average portfolio balance in the quarter. Net investment income, or NII, for the first quarter of 2020 was $12.2 million or $0.41 per share compared to $9.9 million or $0.40 per share in the first quarter of 2019. Net unrealized losses on investments for the first quarter were $17 million or $0.57 per share, resulting primarily from mark-to-market related changes, as well as credit-related adjustments, as all previously discussed on this call by Sajal. The net decrease in net assets from operations for the quarter was $5.1 million or $0.17 per share. Compared to a net increase in net assets from operations of $11.1 million or $0.45 per share in the first quarter of 2019. At quarter end, total assets were $803 million, including $713 million of investments at fair value and cash on balance sheet of $85.6 million. We ended the quarter with total net asset value, or NAV, of $395 million or $12.85 per share, compared to $332.5 million or $13.34 per share at December 31, 2019. The increase in aggregate NAV is due to the common stock offering that we completed in January, offset by a net decrease in net assets resulting from operations for the 3 months ended March 31. As previously disclosed, the common stock offering was successfully completed as an underwritten offering of 5.75 million shares, which resulted in net proceeds of $78 million. The net proceeds were initially used to pay down our revolving credit facility, and we then began to deploy those proceeds during the quarter. We reported unfunded commitments totaling $209 million, of which $41 million were subject to milestones. Of the $209 million of unfunded commitments, $173 million or 83% will expire during 2020, and $36 million will expire during 2021 if not drawn prior to expiration. In addition, all of our unfunded commitments have a prime rate floor set to 4.25% or higher. As of March 31, the company had total liquidity of $128.6 million, consisting of cash of $85.6 million and available capacity under its revolving credit facility of $43 million, subject to existing advance rates, terms and covenants. In addition, we can expand the current commitments under our revolving credit facility by up to an additional $100 million under the credit facility's existing accordion feature. In addition, as of March 31, the company held $16.5 million in publicly traded stock available for sale. In March, the company completed a private offering of $70 million in aggregate principal amount of notes. These notes are unsecured and bear interest at a fixed rate of 4.5% per year, payable semiannually and mature in March of 2025. The 2025 notes represent the company's first institutional notes offering after receiving its investment-grade credit rating by DBRS in the second half of 2019. Total outstanding borrowings as of the quarter end was $402 million, consisting of $75 million of retail fixed-rate baby bonds listed on NYSE, which mature in 2022; the 2025 notes I just referenced; and also $257 million outstanding under our credit facility. With this level of outstanding borrowings, we reported a leverage ratio of 1.02x leverage or an asset coverage ratio of 198%. Despite having increased our outstanding common stock during the quarter by 23% as a result of our equity raise in January, we were able to generate NII in excess of the declared distribution by $0.05 per share, thanks to a high-yield portfolio and the total return requirement that Sajal already mentioned. Yet another example of the benefit of an externally managed, best-in-class platform. During the first quarter, we distributed $0.36 per share from ordinary income as part of our regular quarterly distribution. I am pleased to announce that for the second quarter of 2020, our Board of Directors has declared a distribution of $0.36 per share payable on June 30 to stockholders of record as of June 16. As we looked at our distribution strategy for 2020, management and the Board evaluated, among other things, the yield profile of our debt investments, our expected fundings and leverage profile and concluded to hold our distribution at $0.36 per share. This marks the 25th consecutive quarter we have increased or maintained our quarterly distribution. We are pleased to note that while we covered our distribution for the quarter with ordinary income, we also continue to have spillover income from 2019 of approximately $7.3 million to support additional distributions in the future. We appreciate that all of you took the time to join us today, and acknowledge the many scheduling hurdles this week that everyone must be dealing with, and appreciate your time on the call. At this time, we would be happy to take your questions. And so operator, can you please open the line at this time?

Operator, Operator

The first question comes from Finian O'Shea from Wells Fargo.

Finian O'Shea, Analyst

First, I want to ask a question on some of the new commitments to your existing companies. I know this is normal for the nature of your deal flow, but this quarter saw a few that are nearer-term, OneSource, Grove, Roli, I think that one matured before the quarter end. So can you give us some color on the nature of a shorter-term loan you will do and what that means for the liquidity of those issuers?

Sajal Srivastava, President and Chief Investment Officer

Sure, Jim, I'll begin and then you can add your thoughts. Finian, as you're aware, our unfunded commitment involves our customers having a structured debt commitment with us as lines of credit. They usually have a period of 6 to 12 months to utilize these lines. We provide various amortization schedules and maturity dates to align with the intended use of the funds for strategic purposes. This means they're not accessing our capital merely to inflate their balance sheets. In any given quarter, we see fundings from new customers along with the utilization of prior quarters' unfunded commitments. Typically, the choice of options or structures is specific to each company. If the funding relates to marketing expenses, they may opt for shorter-term solutions. For inventory or asset-based funding needs, they may lean towards shorter-term options, while longer-term options are often selected when they require more runway. Jim, do you have anything else to add?

Jim Labe, CEO

Yes, I can't really add much to that other than we strive to provide flexibility to companies to meet their financing needs. Some of these arrangements are shorter-term, while others are longer-term, and we collaborate with the companies to optimize our financing strategies. I cannot disclose specific details about the privately held companies, but some of the short-term financings are very beneficial and are one of the advantages of working with TPVG.

Finian O'Shea, Analyst

Very well. And just a follow-on, I guess, at a higher level or higher-portfolio level. Are milestones or any covenants typically set to revenue or profitability numbers, understanding that a lot of your portfolio companies are probably challenged on the revenue side, but able to cut back and preserve cash? So one metric might lag, but overall, profitability is okay. But does that impact anything with your lending parameters or your liquidity parameters?

Sajal Srivastava, President and Chief Investment Officer

Yes. Jim, if you don't mind, I'll start, and then please jump in. Fin, I think you raised a crucial point that I'd like to break down. The first thing to note is that for all our unfunded commitments, whether based on milestones or not, we have various protections in place. This ensures that companies are generally meeting their performance expectations or that there hasn't been a significant adverse change. This is a high threshold when considering any action. However, unlike traditional bank revolvers, where there are no protections for us, we have performance requirements, and we also maintain strong relationships with these companies, their entrepreneurs, and their VCs. We communicate openly, regardless of what legal documents may state. On the other hand, Jim and I have extensive experience in the start-up world; I have over 20 years, and Jim has over 30. It’s rare for a company to meet its plan. While some do, I acknowledge that, as venture lenders, we generally tolerate more variability in financial performance because many valuations or future rounds are based on anticipated future revenues. Specifically related to your question about companies with milestone-based unfunded commitments, those milestones are usually tied to a future capital raise, revenue performance, or some operational achievement that demonstrates the company’s readiness for additional debt capital. Those factors are typically what we consider as milestones. When underwriting our loans, we also consider the intended use of proceeds and have appropriate legal remedies and protections in place for non-milestone situations. Relationships and reputation are vital, as Jim highlighted, so we approach situations involving underperforming companies seeking to access capital with care.

Jim Labe, CEO

Yes, I believe Sajal addressed that well. I don't have much more to add, except that companies rarely follow their plans exactly. Many are ahead of their plans, some are behind, and changes are expected. Overall, when we establish these milestones, it reflects the timeline from when the deal originated based on our proposed plan. Sajal also pointed out that we maintain close communication with the teams and investors of these companies, so we are aware of their status compared to their original plans. The milestones we track are not limited to revenue; they include various factors such as equity rounds closed and performance in cash flow. There are numerous metrics involved, making it a more comprehensive view rather than just focusing on one top-line number. It's a dynamic process, and we support these companies as they navigate their situations.

Operator, Operator

Your next question comes from Casey Alexander with Compass Point.

Casey Alexander, Analyst

One question I have is back in 2014, 2015, when your shares were trading at a significant discount, the company had a fairly active share repurchase program. Why is there no share repurchase program now?

Sajal Srivastava, President and Chief Investment Officer

Casey, I'll take this question. And Jim and Chris, please jump in. Listen, I think we're in the middle of the COVID crisis. And I would say right now, liquidity is a position of strength, not for necessarily new investment opportunities, although that's important, but I also think, again, just concern about counterparty risk, lenders and other things. And so we have a pattern of being aligned with our shareholders. And at the appropriate time, I expect to have the conversation with our Board about a buyback program. But we have been a little bit restricted in our ability to communicate given the capital raise is underway and the world knowing about them. And so after we've had the world to season on our results and what we're up to, I think it's the next logical thing to have that conversation.

Casey Alexander, Analyst

I'm surprised to see that you still own the position in CrowdStrike at the end of the quarter. At today's closing price, that represents $20 million in equity and potential liquidity, which could be used for investments or a share repurchase program. With the stock trading at a 58% discount, repurchasing shares could amount to 2.5 million shares. For CrowdStrike to match the equivalent value from this buyback, it would need to reach $142, including dividends. I'm curious about the reasoning behind maintaining the CrowdStrike position during a time when capital is limited and when it's important to provide support to the parent platform.

Sajal Srivastava, President and Chief Investment Officer

Yes. We're planning to liquidate our position in CrowdStrike after our lockup period ends. Therefore, it shouldn't be surprising to see us doing so over the next few quarters. In Q1, the main concern was liquidity, which was crucial for ensuring the viability of our platform, team, and portfolio while navigating the crisis. Consequently, the focus during Q1 wasn't on a buyback but rather on other execution tasks. In Q2 and Q3, our approach will be more logical and thought-out. We anticipate discussing this with our Board, but during the height of COVID in Q1, it wasn't our top priority given the other issues we were handling during the crisis.

Casey Alexander, Analyst

Can you provide some insight into the activity at the end of the quarter compared to the beginning? How much of your origination activity typically occurs at the end of the quarter? When did these deals close? Did they close early in the quarter, and did things slow down towards the end? How has this changed as we entered the second quarter?

Sajal Srivastava, President and Chief Investment Officer

Yes, Jim, I'm glad to start off, and please feel free to jump in. We had our Q4 earnings call during the quarter, and in that release, you could see that we were quite busy in the first two months of Q1.

Casey Alexander, Analyst

You will have to forgive me if when you reported Q4 feels like 1 billion years ago.

Sajal Srivastava, President and Chief Investment Officer

As of the time of the Q1 call on March 4, we had closed $96 million and funded $41 million of investments. There were no surprises, as COVID began impacting us in the U.S., especially in the Bay Area, around the second or third week of March. We started strong in January and February, and were actively raising capital for our institutional debt. However, when the COVID crisis struck, we maintained calm and stability. Before the crisis, we were at $40 million in funding, and during the crisis, we funded less than $40 million in new investments. In the first month of Q2, we managed to secure $16 million in new funding, demonstrating our calmness and stability. This reflects our strong cash liquidity position and the resilience of our portfolio companies, as well as the consistency in our equity investment activities. As Jim mentioned earlier, we have been effectively managing our pipeline, and Jim can elaborate on how we are overseeing the originations process.

Jim Labe, CEO

Yes. So we've been through, I don't know how many rodeos over time here in venture lending. And the demand now, which is no surprise to us, is very, very strong as companies try to think through this period of uncertainty and revise our plans and think about their cash needs. So the pipeline and the demand is strong. But what we've learned is this is a time where we want to be thoughtful. We want to be conservative. We want to understand the cash needs and structure the deals accordingly. So I think somewhere I mentioned, we went through our existing portfolio, our signed term sheets, the deals in due diligence and did a good, hard look understanding the impact of COVID on the revised plans of these companies, but also there is so much equity out there in the venture capital world with these select venture capital investors. And our companies are raising money, $1.5 billion in the last 3, 4 months just among some TPVG portfolio companies that demand is strong, we want to be careful, there are some new investment opportunities, but we are working with these companies and helping with their financing strategy. I don't think there's any particular drawdown schedule out there.

Casey Alexander, Analyst

Okay. Lastly, how many company loans are on nonaccrual compared to last quarter?

Sajal Srivastava, President and Chief Investment Officer

Chris, do you want to take that one?

Christopher Mathieu, Chief Financial Officer

Yes. Yes. Casey, it's the same number. As Sajal mentioned, there's no new loans on nonaccrual. So there's four obligors, same as last quarter's, same names.

Operator, Operator

Your next question comes from Chris York from JMP Securities.

Christopher York, Analyst

So I want to talk a little bit about cash at the portfolio company basis. PitchBook supported that the median runway for VC-backed companies is about 10 months. Cash is clearly king today and especially for venture capital investing. So I'm curious if you could provide us any data for your portfolio on the cash runway today.

Jim Labe, CEO

Yes, I can address that. Please feel free to add, Sajal. Chris, with the improved venture capital funds and the portfolio companies they collaborate with, every company has experienced some level of impact from COVID. Honestly, some of them have even seen benefits. They are all carefully managing their cash and revised plans, and we’re working closely with them. There hasn’t been any significant change. To answer your question regarding cash runway, these are aspects we consider. Again, these are private companies, and their situations are constantly evolving as some have recently closed funding rounds. One company completed a round last week, and we previously discussed a $1.5 billion close, with additional cash coming in and more rounds set to close. In summary, over half of the TPVG portfolio companies have more than 12 months of cash. We haven't broken it down specifically because some of the burn rates are changing to significantly lower rates, but we feel quite positive about the portfolio in terms of operating cash runway.

Christopher York, Analyst

Great. Very helpful. Certainly understand that burn rates are changing very quickly, but just the common 50% of your portfolio over 12 months is helpful. And then, Sajal, you appreciate the comments you provided on portfolio companies that have raised capital in the first quarter and then second quarter. I missed that, so can you just repeat that for me? And then secondly, did your LTV in any of those situations actually improve? Or was there an injection below the round of fund raised where you extended that?

Sajal Srivastava, President and Chief Investment Officer

Great question, Chris. To reiterate the statistic from Q1, we had nine portfolio companies raise over $1.3 billion in total capital. Most of these companies had their valuations set before COVID. As you can imagine, their valuations have either increased or remained steady at the worst. Generally, there has been strong performance, and among the companies that announced funding rounds in Q3, all three have reported increased valuations despite the challenges posed by COVID. For example, one of our portfolio companies, Cohesity, announced a $250 million equity round at a $2.5 billion valuation, which is double its previous round valuation, that was led by SoftBank, and this current round exceeds that valuation. We are witnessing strong activity, as Jim mentioned, along with valuation increases. It’s clear that great companies are achieving remarkable things. However, we must remain balanced; it's still early, and we anticipate some effects on valuations, with flat valuations potentially becoming the new normal, while declining valuations might be seen as the new flat.

Christopher York, Analyst

Very helpful, Sajal, to lead up my next question. You talked a little bit about SoftBank. Obviously, thought Cohesity's fundraise, very positive for your portfolio company there. But on the topic of SoftBank, do you anticipate any issues there with their willingness to support any of your portfolio companies?

Sajal Srivastava, President and Chief Investment Officer

Yes. I can comment on isolating one investor. Historically, we have almost a dozen mutual portfolio companies with SoftBank. Currently, TPVG only has one portfolio company with debt that is backed by SoftBank. I can't say whether that's good or bad; it's just a fact. We continue to see them active in the market, supporting portfolio companies. Cohesity is a great example of SoftBank-backed companies successfully raising funds at valuations exceeding those of SoftBank. I believe they have a bad reputation, but they have only been beneficial to us and our portfolio companies, and we have nothing negative to say about them.

Christopher York, Analyst

Very good point. Casey addressed part of my question regarding CrowdStrike, but I still have one more inquiry. Were you subject to a 12-month lockup at IPO?

Sajal Srivastava, President and Chief Investment Officer

No, we were not. No. Standard 6 months.

Christopher York, Analyst

Okay. So your position today could be sold today?

Sajal Srivastava, President and Chief Investment Officer

Correct.

Christopher York, Analyst

Okay. And then for my last question, maybe for Chris, Jim, or Sajal, feel free to jump in. Chris, your comments regarding the maintenance of the dividend suggest that there was some deliberation at the Board level. How confident are you in your portfolio generating earnings at this rate beyond the second quarter?

Christopher Mathieu, Chief Financial Officer

Yes. I think that the Board always has the discussion, and it's a prudent thing to do. So I think that we were just kind of elaborating and sharing those conversations that are natural for each quarter that we're talking about at a distribution level. I think just given the robust discussion that always happens, we thought it would be fair to say that we are comfortable where we are with the portfolio, with the additional leverage that we have and the earnings power of the portfolio. So it was really just sharing a little bit behind the curtain what we talked about, nothing else.

Operator, Operator

Your next question comes from Christopher Nolan from Ladenburg Thalmann.

Christopher Nolan, Analyst

How often are you evaluating the discount rate when you value your debt investments?

Sajal Srivastava, President and Chief Investment Officer

Chris, do you want to take that?

Christopher Mathieu, Chief Financial Officer

Sure. Yes, so it's part of our valuation process for our quarterly close. So we do that at least quarterly in connection with the fair value process.

Christopher Nolan, Analyst

Is that for the entire portfolio or just for a portion of the portfolio?

Christopher Mathieu, Chief Financial Officer

Yes, we assess the discount rate for 100% of the portfolio. If there's an implicit rate in the transaction, we determine if an adjustment is needed, whether it be for credit migration or market rate. We perform this evaluation across the entire portfolio every quarter internally. Additionally, we engage two external valuation firms to support our fair value process, and they also analyze discount rates and the effects of credit migration, as well as market dynamics.

Christopher Nolan, Analyst

Great. That's helpful. And then I guess for Sajal, I noticed that the yields on new investments, weighted average yield is 13.74% versus 13.5% last quarter. Are you guys actually seeing stronger pricing power in this market?

Sajal Srivastava, President and Chief Investment Officer

Chris, that's a great question. Let me start, and then Jim, please feel free to chime in. There are two elements to consider. First, I’ll mention new deals. Jim can elaborate on the new deals and the current rates for them. I want to highlight that we also have unfunded commitments that are locked in. We establish the prime floors at the prime rate in place when we finalize a deal. In any quarter, we have a backlog from previous unfunded commitments, along with the rates and terms set from those earlier deals. This creates a protective insulation. Currently, 97% of our funded variable-rate loans have prime floors at 4.25% or higher, and similarly, a high percentage of our unfunded commitments also have prime floors set at 4.25% and above. This means we benefit from this lock-in and the lag effect of those unfunded commitments from past deals. Jim, would you like to discuss the current market rate dynamics?

Jim Labe, CEO

Yes, I'd like to add that during this period, we are focusing on securing the highest quality of new transactions. There's strong demand, and we are carefully evaluating the options available. In this time of uncertainty, companies are seeking trusted partners for financing and debt. We are being both mindful and opportunistic, taking the chance to strengthen structures and adjust pricing to better align with the risks and uncertainties we face. Many companies are once again looking for reliable partners with established reputations, references, and relationships. So yes, there are opportunities.

Sajal Srivastava, President and Chief Investment Officer

I would just like to add, Chris, that our goal is not to raise rates but to lower risk. As Jim mentioned, we are focusing on higher-quality investments. We could charge more if we went downstream, but that does not align with our underwriting methodology or expertise.

Christopher Nolan, Analyst

Great. And final question, given the liquidity concerns, given that prepayments to date have been $10 million, your fundings have been $16 million. Is it fair to say that you're going to try to keep your prepays and your new fundings relatively in the same general amounts, vicinity or so?

Sajal Srivastava, President and Chief Investment Officer

We can't control prepays. So obviously, prepays are a function of the portfolio companies and their activities, be it equity raising or strategic M&A IPO, whatever that may be. And so I think, from our perspective, we're just focused on really good credits and really good companies. And we want our great companies to use our capital when it's strategically beneficial for them. So I would say we're not intentionally controlling or guiding. We want our companies to use it when it's most strategic, understanding that it's not cheap capital and it's not something that they put on their balance sheets for rainy days. It's something that for the cost associated with it, should have a strategic use.

Operator, Operator

The next question comes from George Bahamondes from Deutsche Bank.

George Bahamondes, Analyst

Just wondering if you can give us a sense of what percentage of the portfolio or borrowers have reached out about loan modifications since the onset of COVID-19?

Sajal Srivastava, President and Chief Investment Officer

Jim, do you want to take that?

Jim Labe, CEO

Yes. So it's been very few. The only reason I'm hesitating is we have a very large portfolio cost at TriplePoint platform. And to my knowledge, it's very few and far between a TPVG portfolio companies. Chris might actually or Sajal know it, but I would say it's not a material or major issue or problem right now of companies raising.

Sajal Srivastava, President and Chief Investment Officer

And I would just add, the only portfolio modifications that happened during the quarter were on credit watch list companies, and so no new modifications happened on non-lower-rated credit watch list. George, you would think that they should, I guess, to a certain extent. But again, I think it goes to the thoughtfulness and strong liquidity positions of our portfolio companies with regards to how they use debt and manage cash.

George Bahamondes, Analyst

Sure. That's helpful. And during your prepared remarks, there was a comment around spillover income. Can you guys just repeat that number? I missed that.

Christopher Mathieu, Chief Financial Officer

Yes, the spillover's $7.3 million.

George Bahamondes, Analyst

$7.3 million?

Christopher Mathieu, Chief Financial Officer

Correct. That's right. Yes. That was spillover from 2019. And since we covered the distribution for Q1, there's a little bit added, but we make statements as to the balance on an annual basis.

Operator, Operator

The next question is from Matthew Howlett from Nomura.

Matthew Howlett, Analyst

First, excellent job on the capital management front with the cap ratio in 1Q before this all started. I guess the question is on the cash balance, you're running at a little over $80 million. The leverage is a little over 1x, at the high end of what you always wanted. What can you tell me in terms of the cadence on putting the cash, maybe drawing down that unsecured line you just got? What can you tell me in terms of what to expect in terms of leverage and net cash?

Sajal Srivastava, President and Chief Investment Officer

Yes, I'll begin, and then Chris can chime in. The last two weeks of March were particularly chaotic for us, and we thought it was important to keep a reasonable amount of liquidity, which we viewed as a strength. By the end of the quarter, funding was solid, and there was often spillover into the first week. We aimed to maintain a strong liquidity position considering the various factors in the market. As you noted, our gross leverage ratio stood at 1x, while our net leverage ratio is lower. With the market stabilizing, we anticipate that our net leverage and excess cash position will decrease as we maintain less cash on hand, pay down our credit facilities, and utilize our cash to support new debt and investments. Our pre-COVID goal was to operate at a higher leverage level to reduce variability. We achieved our target leverage ratio in Q4 and followed it up with an equity raise, allowing us to benefit from operating at a higher leverage and smoother the fluctuations between our capital raises. Chris, do you want to add anything?

Christopher Mathieu, Chief Financial Officer

Yes, I would just add that on a kind of direct response to your question on leverage, on a net basis, if we took that cash and applied it to our debt, we'd be at more like 0.8x lever. So more at kind of the low end of the range that we spoke about, but for the focus on liquidity as we went into quarter end.

Matthew Howlett, Analyst

Right. Can you remind me if there's a minimum rate for the bank credit facility in terms of LIBOR?

Christopher Mathieu, Chief Financial Officer

No. There's none.

Matthew Howlett, Analyst

So we can assume that's how it will turn out?

Christopher Mathieu, Chief Financial Officer

That's right. That makes sense, yes. It will bounce around a little bit, but generally down with the market.

Matthew Howlett, Analyst

Got it. Okay. And then just remind me again, you guys have been through the cycles, like you said. Remind me again about the '08, '09 recession and how well many venture growth defaults performed compared to the broader middle market space. Could you remind me if you think that might happen again in a recessionary environment? Also, could I ask a bit more about the playbook? What are you seeing in the second half of the year that excites you? Is it deals, pent-up demand, opportunities in new social distancing companies, or better terms? I would like to know more about that.

Sajal Srivastava, President and Chief Investment Officer

Yes, I can start, and then Jim can add in. It's difficult to compare our current situation or the current market conditions. Interestingly, during '08 and '09, the financial crisis did not have as much of an impact on the venture capital ecosystem. Our start-up companies were mostly insulated from the crisis in terms of liquidity, revenue, and their ability to operate and sell products. The COVID pandemic, however, is unique as it has affected all areas of our lives, our economy, and the world. During the financial crisis, we were able to structure some of our best-performing transactions by concentrating on our strongest sponsors and utilizing our balance sheet to strengthen our relationships with our VC partners, which improved credit performance. Having multiple relationships with a VC fund makes us a reliable partner. Credit performed well in '08 and '09, and returns on our equity kickers were strong. However, we are now in an unprecedented COVID environment that is impacting everything, so it’s too early to draw conclusions. The first quarter only experienced two weeks of substantial COVID effects, and we should remain cautious. As lenders, we must always be vigilant. We’re not yet in the clear, and we are actively monitoring our portfolio. That said, we are seeing some pent-up demand and areas of enthusiasm. Jim, if you want to discuss our outlook for opportunities and excitement in the coming quarters.

Jim Labe, CEO

There is definitely an adjustment happening. We are seeing a significant influx of new venture capital with our selected venture funds. Historically, some of the best opportunities have emerged from challenging times, especially after 2008 and 2009. Some of the highest returns and successful companies in the venture capital space have been developed during these tough periods. These situations have presented numerous opportunities, and we can reflect on past successes, like investments in Facebook and others, which followed the 2008 financial crisis. Currently, there are emerging opportunities within the venture capital landscape, and we are already witnessing these developments. There are many exciting sectors to explore, particularly in creating the office and work environment of the future, as well as advancements in technology for the post-COVID era. The demand remains strong.

Operator, Operator

Your next question comes from Ryan Lynch from KBW.

Ryan Lynch, Analyst

I wanted to touch back on some of the discussion regarding liquidity and unfunded commitments. So if I look at your unfunded commitments that are nonmilestone-related, that's about $168 million, when you compare that to your current liquidity as of March 31 of $130 million, I wanted to get your guys' thoughts on if in the near term, if you had all of your unfunded commitments from your borrowers that are not milestone related, if they came to you and wanted to all borrow that capital in the next month or so, how would you fund that?

Sajal Srivastava, President and Chief Investment Officer

Great question, Ryan. That's a good lead-in to our backstop facility. Our strategy involves cash on hand, the warehouse facility, the accordion, contributions from CrowdStrike, and support from our adviser, which is the reasoning behind establishing the facility. We don't anticipate all $160 million or $170 million being requested at once. The rationale for the backstop facility is that it positions us well to manage such requests if they arise. Additionally, we recently received a $10 million prepayment, along with April and May collections, adding another $20 million to $30 million. So we're already in a solid position even without the backstop, which simply offers us extra security. Representing the strength of our portfolio, nine portfolio companies secured $1.3 billion in Q1, while ten companies raised about $1.1 billion in Q4. For instance, Cohesity raised $250 million about three weeks ago, and we have a $30 million unfunded commitment to them that we'd like them to utilize. Numerous lenders do not have the chance to lend $30 million at high interest rates to companies with substantial cash reserves. Capsule is another example of a company that has accessed significant funding that includes an unfunded commitment from us. The balance of our unfunded commitments reflects a mix of companies with strong liquidity, which contributes to our confidence in not facing liquidity challenges. Our proactive approach and strong cash flows position us effectively, supplemented by prepayments, the accordion, and backstop support from our adviser.

Jim Labe, CEO

Okay. I believe you mentioned in the prepared remarks, Sajal, that the $108 million in cash flows for the remainder of the year pertains to a total of two months. However, it's important to clarify that $108 million is the total amount for the rest of the year.

Sajal Srivastava, President and Chief Investment Officer

Yes. No, I'm just saying as of where we are today, we've already received $10 million from the prepay and then two months' worth of cash collections against that $100 million.

Operator, Operator

The next question comes from George Bahamondes from Deutsche Bank.

George Bahamondes, Analyst

Just wondering if you can give us a sense of what percentage of the portfolio or borrowers have reached out about loan modifications since the onset of COVID-19?

Sajal Srivastava, President and Chief Investment Officer

Jim, do you want to take that?

Jim Labe, CEO

Yes. So it's been very few. The only reason I'm hesitating is we have a very large portfolio cost at TriplePoint platform. And to my knowledge, it's very few and far between a TPVG portfolio companies. Chris might actually or Sajal know it, but I would say it's not a material or major issue or problem right now of companies raising.

Sajal Srivastava, President and Chief Investment Officer

And I would just add, the only portfolio modifications that happened during the quarter were on credit watch list companies, and so no new modifications happened on non-lower-rated credit watch list. George, you would think that they should, I guess, to a certain extent. But again, I think it goes to the thoughtfulness and strong liquidity positions of our portfolio companies with regards to how they use debt and manage cash.

George Bahamondes, Analyst

Sure. That's helpful. And during your prepared remarks, there was a comment around spillover income. Can you guys just repeat that number? I missed that.

Christopher Mathieu, Chief Financial Officer

Yes, the spillover's $7.3 million.

George Bahamondes, Analyst

$7.3 million?

Christopher Mathieu, Chief Financial Officer

Correct. That's right. Yes. That was spillover from 2019. And since we covered the distribution for Q1, there's a little bit added, but we make statements as to the balance on an annual basis.

Operator, Operator

The next question is from Matthew Howlett from Nomura.

Matthew Howlett, Analyst

First, excellent job on the capital management front with the cap ratio in 1Q before this all started. I guess the question is on the cash balance, you're running at a little over $80 million. The leverage is a little over 1x, at the high end of what you always wanted. What can you tell me in terms of the cadence on putting the cash, maybe drawing down that unsecured line you just got? What can you tell me in terms of what to expect in terms of leverage and net cash?

Sajal Srivastava, President and Chief Investment Officer

Sure, I’ll begin, Matt, and then Chris can chime in. The last two weeks of March were quite hectic for us. We believed it was crucial to maintain reasonable liquidity as a strategic advantage. As we concluded the quarter, fundings typically surge, particularly at the end, and often there’s some carryover into the first week. So, we aimed to be in a solid liquidity position considering the various market factors. As you pointed out, our gross leverage ratio was 1x, while our net leverage ratio is lower. We anticipate that as the market stabilizes, our net leverage or excess cash position will decrease as we hold less cash and pay down our credit facilities, utilizing the cash to support new debt and investments. One of our pre-COVID objectives was to stabilize our operations at a higher leverage level to reduce volatility. We achieved our target leverage ratio in Q4 without market fluctuations affecting it, followed by an equity raise. Our goal was to benefit from running at a higher leverage and portfolio rate to smooth out the unevenness during our equity capital raises. Chris, would you like to add anything?

Christopher Mathieu, Chief Financial Officer

Yes, I would just add that on a kind of direct response to your question on leverage, on a net basis, if we took that cash and applied it to our debt, we'd be at more like 0.8x lever. So more at kind of the low end of the range that we spoke about, but for the focus on liquidity as we went into quarter end.

Matthew Howlett, Analyst

Right. Can you remind me if there's a floor on the bank credit facility regarding LIBOR?

Christopher Mathieu, Chief Financial Officer

No. There's none.

Matthew Howlett, Analyst

So that's something we can assume?

Christopher Mathieu, Chief Financial Officer

That's right. That makes sense, yes. It will bounce around a little bit, but generally down with the market.

Matthew Howlett, Analyst

Got it. Okay. And then, can you remind me about the experience you’ve had during the '08, '09 recession and how venture growth defaults performed compared to the wider middle market? Do you think a similar pattern might emerge if we face a recession now? Also, could you share what you’re feeling optimistic about in the latter half of the year? Are you seeing potential in deals, pent-up demand, new opportunities in companies focusing on social distancing, or better terms? I'd like to explore that more.

Sajal Srivastava, President and Chief Investment Officer

Sure, I can start and then Jim can add his thoughts. It's challenging to compare our current situation or market conditions to the past. Interestingly, during the financial crisis in 2008 and 2009, the venture capital ecosystem wasn’t as negatively affected. Our start-up companies were largely sheltered from the financial crisis in terms of liquidity and revenue, allowing them to continue working and selling products with less disruption. The COVID pandemic, however, is unique in its pervasive impact on all areas of life, the economy, and the world overall. During the financial crisis, we managed to execute some of our best transactions by concentrating on our top sponsors and relationships, which strengthened our partnerships with VC funds, enhancing our credit performance. Having established connections with multiple portfolio companies within a VC fund made us a trusted partner. Consequently, our credit performed well during that time, and our equity kickers yielded solid returns. Currently, we are navigating an unprecedented COVID environment, and its overall effect is still uncertain. The first quarter only saw two weeks of significant COVID impact, and we aim to remain cautious. As lenders, a certain level of vigilance is essential, and we acknowledge that we are still not out of the woods yet. However, there are signs of pent-up demand and some areas of enthusiasm. Jim, if you would like to discuss our prospects for opportunities and excitement in the upcoming quarters, please go ahead.

Jim Labe, CEO

There is clearly an adjustment happening, and we are seeing a significant amount of new venture capital among some of our selected funds. Historically, some of the best opportunities have arisen during challenging times, such as after 2008 and 2009, with many high-performing companies emerging from those periods. These challenging times present opportunities, and if we look back at our experience, we can see that we made considerable investments in companies like Facebook after 2008. Currently, there are opportunities emerging that we are beginning to identify. We could spend a lot of time discussing various sectors and industries, but there are many exciting advancements in the new work environment and technologies that are shaping investments for the post-COVID era. There is strong demand in these areas.

Operator, Operator

Your next question comes from Ryan Lynch from KBW.

Ryan Lynch, Analyst

I wanted to touch back on some of the discussion regarding liquidity and unfunded commitments. So if I look at your unfunded commitments that are nonmilestone-related, that's about $168 million, when you compare that to your current liquidity as of March 31 of $130 million, I wanted to get your guys' thoughts on if in the near term, if you had all of your unfunded commitments from your borrowers that are not milestone related, if they came to you and wanted to all borrow that capital in the next month or so, how would you fund that?

Sajal Srivastava, President and Chief Investment Officer

Great question, Ryan, and that's a good transition to our backstop facility. The approach includes cash on hand, the warehouse facility, the accordion, support from CrowdStrike, and the backstop from the adviser. This is why we established the facility. We don't anticipate a scenario where we would need to utilize all of the $160 million or $170 million for funding requests, and I'll explain why we believe that. The thought process behind the backstop facility is that it positions us strongly to manage that situation. I also want to mention the portfolio amortization; we recently received a $10 million prepayment at the beginning of the month, and we have upcoming collections in April and May, which should bring in another $20 million to $30 million. So, I would say we are well positioned even without the backstop, although the backstop provides us with additional security. A key point is the statistic I mentioned earlier: nine portfolio companies raised $1.3 billion in Q1, and ten companies raised $1.1 billion in Q4. For instance, Cohesity recently announced a $250 million equity raise, and we have a $30 million unfunded commitment to them, which we would love for them to utilize. Very few lenders are in a position to lend $30 million at double-digit interest rates to companies that have $250 million in cash. Capsule is another company that has received a significant equity round this year and has an unfunded commitment from us. As we evaluate the unfunded commitments, it is important to note the balance between companies with significant liquidity, which is why we do not foresee any issues. Our proactive approach and best-in-class status, along with our cash flows, prepays, accordion, and advisor backstop, support our position.