Earnings Call Transcript - TRIN Q2 2021

Operator, Operator

Good afternoon, my name is Rylan and I will be your conference operator today. At this time, I would like to welcome everyone to Trinity Capital's Second Quarter 2021 Earnings Conference Call. Our hosts for today's call are Steve Brown, Chairman and Chief Executive Officer; Kyle Brown, President of Chief Investment Officer; David Lund, Chief Financial Officer; and Sarah Stanton, General Counsel; Gerry Harder, Chief Credit Officer; and Michael Testa, Chief Accounting Officer are also present. Today's call is being recorded and will be available for replay beginning at 8 P.M. Eastern Time. The replay dial number is 1-800-839-7410. Note that no call ID is required for access. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. It is now my pleasure to turn the call over to Sarah Stanton. Please go ahead.

Sarah Stanton, General Counsel

Thank you, Rylan, and welcome everyone to Trinity Capital’s earnings conference call for the second quarter of 2021. Trinity's second quarter 2021 financial results were released just after today's market closed and can be accessed from Trinity's Investor Relations website at ir.trincapinvestment.com. A replay of the call is available at Trinity's web page, also using this telephone number provided in today's earnings release. Before we begin, I would like to remind everyone that certain statements that are not based on historical facts made during this call, including any statements relating to financial guidance may be deemed forward-looking statements under Federal Securities Laws. Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. We encourage you to refer to our most recent SEC filings for information on some of these risk factors. Trinity Capital assumes no obligation or responsibility to update any forward-looking statements. Please note that the information reported on this call speaks only as of today, August 5, 2021, and therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading. With that allow me to introduce Trinity Capital's Chairman and CEO Steve Brown.

Steve Brown, Chairman and CEO

Thank you, Sarah. And thank you to all of those who are joining us today. I hope that you're healthy and enjoying the summer months. Q2 was another quarter of momentum and progress at Trinity. We continue to prudently deploy the proceeds from our February 2021 IPO, and we originated total commitments of nearly $127 million, setting a record for the company and expanding our investment portfolio to $598 million at fair value. Further, we generated net investment income that meaningfully covered our second quarter dividend. This performance is a direct result of the strong contributions that we have seen from the investment professionals that joined our origination and credit teams in the past few quarters. Each of these talented individuals brings established high-quality networks among executives and investors in the emerging growth Venture Capital Community. As I mentioned on the last call, investment in technology and innovation remains a top priority for Trinity, and as a result, we are seeing continued expansion in our opportunities, which is the top of our pipeline funnel. As Kyle and David will expand upon later in the call, I would like to review a few key highlights of our second quarter performance. We declared a dividend of $0.29 per share, an increase over the prior quarter and in line with our stated goal of increasing our dividend as we grow our platform. We originated $126.5 million in new commitments and more importantly funded $122.4 million in gross deployments across 17 portfolio companies, a record quarter for Trinity. Q2 net investment income was $10.1 million or $0.38 per share, comfortably covering our dividend of $0.29 on a GAAP basis. This compares favorably to net investment income of $7.3 million or $0.31 per share in Q1 of 2021. Our NAV per share had a nice increase of approximately 5%, finishing the quarter at $14.33 per share compared to $13.69 per share at the end of Q1. Our credit quality in the portfolio remains strong with 99.8% of our net investments performing. Total liquidity including cash, cash equivalents and availability under our credit facility was over $107 million, which will allow us to continue the momentum we've established in our growing pipeline and funding activity. Our debt-to-equity ratio remains very conservative at approximately 0.6521 at the end of the quarter. As we continue to deploy the IPO proceeds and ramp our portfolio of venture loans and equipment financings, we will do so in part with additional leverage on the balance sheet, ultimately targeting our desired ratio of up to 1.2521. Looking forward to the second half of the year, we are very optimistic about the prospects of our unique venture lending and equipment finance platform. As Kyle will explain further, the VC equity market remains quite strong with record levels of liquidity available to companies in this space. Subsequent to the end of Q2, our portfolio experienced two notable spec business combinations, Lucid and Matterport, which we mentioned in our press release, and will highlight later in this call. Our record commitments and fundings in Q2 are a direct result of our robust pipeline activity which continued from the strong activity we saw in Q4 and Q1. We also saw the highest number of opportunities to date in our pipeline in Q2, which is the best indicator for Trinity of continued growth in our commitment and funding activity. We remain well positioned to continue deploying capital and leveraging our balance sheet to build and grow a portfolio of senior secured loans and equipment financings to emerging growth companies. Additionally, the net growth in the portfolio continued despite the $51 million of accelerated pay-offs we experienced in Q2. Those early repayments contributed additional income during the quarter from prepayment fees and accelerated final payments. All of this momentum and growth is in part why we today filed an application with the SEC for an exemptive relief to form a registered investment advisor or RIA. If approved, the RIA will allow Trinity to fund transactions that are very synergistic to and in line with our investment strategy but simply do not fit currently on our balance sheet from a size standpoint. It will also allow us to grow some of our existing clients beyond our present financial capacity, with all of the income generated by the RIA activity coming back to incrementally benefit Trinity Capital shareholders as an internally managed BDC. In addition, we recently filed a $215 million shelf registration statement that once effective will give Trinity full access to a diversified and efficient suite of capital options as we continue to grow our platform. Lastly, I'd like to reiterate how important our people at Trinity are to our overall success. Investing in our people and our team in uncommon ways, building relationships internally. And then taking that same approach as we together establish and build lasting relationships with our customers, investors and stakeholders of Trinity is one of the keys to differentiation in our marketplace and ultimately long-term financial success in our business. With that, I'll now turn the call over to Kyle Brown, our President and Chief Investment Officer for some further thoughts on our progress and more detail on the market.

Kyle Brown, President and Chief Investment Officer

Thanks, Steve. Good afternoon, everyone. Our performance in the first half of 2021 is proof that we've been able to scale and scale quickly to the addition of best-in-class talent. We continue the momentum from Q1 into the second quarter. We built a strong infrastructure at Trinity attracting subject matter experts across both venture lending and equipment financing to continue the growth of our investment platform. We're benefiting from strong market tailwinds and have demonstrated that we are building a differentiated team that offers our investors the opportunity to participate in a proven specialty finance asset class and create significant value at current trading levels relative to our peers. Turning now to the investment portfolio, we maintained a highly diverse portfolio across a number of attractive sectors that are backed by brand name Venture Capital sponsors. Manufacturing leads our portfolio composition, making up almost one quarter of our total portfolio, followed by professional scientific and technical services and internet-based retail trade. Our Q2 deployments are consistent across these same industries. In aggregate, these three industries make up about half of our portfolio. Our portfolio will continue to evolve in accordance with Venture Capital funding and we remain optimistic in other innovative subsectors such as ag tech and food tech, frontier tech and artificial intelligence and robotics. Our portfolio remains heavily weighted towards domestic opportunities both in the West and Northeast in tandem with the Venture Capital investment areas. Approximately 77% of our debt portfolio or $398 million is comprised of secured loans and $121 million or 23% is invested in equipment financing. Our equipment finance business will continue to be a focus for us, as we provide an attractive alternative and complement to the tech banks. We believe we are continuing to emerge as the leading equipment financing solution for developing growth stage companies in our key markets. The balance of our portfolio, approximately $79 million, is comprised of equity and equity-related investments, including warrants and 60 portfolio companies. Gross deployments during the quarter were $122 million across 17 portfolio companies. This included $77 million in gross deployments across 7 new portfolio companies and $45 million in gross deployments to 10 existing portfolio companies. Gross deployments were partially offset by $69 million in principal repayments, of which $51 million were from early repayments. We finished the quarter with $117 million in unfunded commitments, of which only $4 million are contractually obligated commitments to 2 portfolio companies. These unfunded commitments provide good visibility and investment opportunities for the next few quarters. Our second quarter performance marks another record quarter for originations; we believe that continuing to build a strong track record of growth starts with our pipeline. We had a strong quarter for opportunities at the top of our funnel. As we've mentioned in the past, opportunities are among our top indicators in reaching our deployment goals for the next two to four quarters. The momentum we established in the first half of 2021 is allowing us to offset the higher than normal pre-payment activity that we're currently experiencing. Our portfolio credit quality remains strong. As we've mentioned on our last call, we recently experienced liquidity opportunities namely to SPAC merger completions. Two of our portfolio companies completed SPAC mergers and commenced trading on the NASDAQ subsequent to quarter-end. On July 22, Trinity Capital's portfolio company Matterport Inc, a spatial data company announced that it completed its business combination. We now hold shares in the surviving public entity Matterport Inc, trading under the symbol MTTR on the NASDAQ. On July 23, stockholders of Churchill Capital Corp IV approved its merger with Lucid Motors, formerly Atieva Inc, a leader in technology that is setting new standards with its advanced luxury EVs. We now hold shares in the surviving public entity Lucid Group Inc, trading under the symbol LCID on the NASDAQ. David will provide more detail on Lucid and Matterport later in this call. In addition to SPAC activity, the market is driving a record year for traditional IPOs, nearly $100 billion in IPO proceeds to date, surpassing 2,000 as the biggest IPO year on record. With multiple efficient paths to the public markets, we anticipate there will be other portfolio companies that will pursue liquidity events. As we look at our portfolio companies that are more mature in their lifecycle, we see an encouraging backdrop for driving returns through capital gains. We mentioned these encouraging trends as we believe our sector focus in the Venture Capital space underpins this growth. The VC space continues to deliver a banner year with firms deploying over $150 billion in capital in the first half of 2021, a number that nearly matches the total investment in 2020 according to Pitchbook. We pay attention to the strong pipeline of companies that are pursuing the public market with a surging investment in the VC space to fill the void of those exited companies; we believe it makes for an attractive environment for our direct lending platform. The first half of 2021 has been truly transformational for Trinity. We've successfully met the demand in the marketplace and scaled an efficient infrastructure that is built for the long term. Our team boasts an industry-leading origination network that will continue to drive this outsized growth, which will in turn fuel our ability to maximize returns for shareholders. Now with that, I'll turn the call over to David Lund to discuss our financial performance in more detail.

David Lund, Chief Financial Officer

Thank you, Kyle. And thank you everyone for joining us on today's call. Following our first quarter as a public company, we extended the momentum and delivered strong results across all key financial metrics, delivering record originations and net portfolio growth, as well as maintaining a high-quality credit book with ample liquidity. My remarks today will cover our venture loan and equipment financing, portfolio growth and some drivers of our operating performance. On the latter, I will focus specifically on return performance, credit performance, and liquidity. Beginning with our portfolio growth, we had a record quarter for commitments and funding during Q2; we entered into approximately $127 million of new commitments and deployed $122 million across 17 portfolio companies. This brings our commitments in the first half of 2021 to a record $251 million as we continue to prudently deploy capital and grow a diverse investment portfolio post IPO. We funded $115.4 million in secured loans to 12 portfolio companies, we funded $5.5 million in equipment loans to three companies, and we made $1.5 million of equity investments in two portfolio companies. Gross deployments were partially offset by approximately $69 million in principal repayments, which is consistent with the $67 million in repayments we received in Q1. Of the $69 million in aggregate, $51 million was from early principal repayments and $18 million was from normal amortization. In addition, we received $11 million in proceeds from the sales of our warrant and equity investments. We believe that the elevated level of early repayments reflects the ability of many of our portfolio companies to raise new capital, scale their businesses and return our capital, generating strong returns to Trinity shareholders. As a result of the $42 million of net investment activity, and approximately $5 million of accretion OID and end of term payments and realized gains, our portfolio at cost grew by 9.4% to $575 million compared to $525 million at the end of Q1. On a fair value basis, our portfolio increased from $536 million to $598 million attributed to the net deployments I discussed and $12.6 million of net unrealized appreciation. The increase in net unrealized appreciation was primarily attributed to mark-to-market improvements in our equity and warrant portfolios. The net unrealized appreciation of $7 million in our equity investments was principally driven by mark-to-market gains in Lucid. The net appreciation of $5.3 million in our warrant portfolio was primarily driven by mark-to-market adjustments in two portfolio companies including Matterport. As Kyle mentioned, Atieva completed its business combination with Churchill Capital Corp IV in July, becoming Lucid Group. The fair value of our equity position in Lucid increased by $11.4 million to $39.2 million from Q1 2021. As of August 4, in connection with the merger, we own approximately 1.9 million shares of common stock in Lucid. We’ve recorded an unrealized appreciation of approximately $2.7 million on our warrant position in Matterport. Matterport also completed its back merger in July, and subsequent to quarter-end, we exercised our warrant. As of August 4, we hold approximately 572,000 shares of common stock in Matterport. Approximately 49% of our debt portfolio is in floating rate securities, up from 32% at the end of Q1. As we continue our planned transition to floating rate loans, our move to floating rate loans will reduce our exposure to interest rate fluctuations and net interest margin compression. I will now turn to our operating results. On a GAAP basis, we recorded total investment income of $19.5 million comprised of approximately $18.1 million in interest income and $1.4 million in fee income. This represents a $2.2 million or 12.5% increase over the $17.3 million of total investment income recorded during the first quarter and the year-over-year increase of 41% over the $13.8 million recorded in Q2 2020. Similarly, looking at the year-to-date period, total investment income increased by 41% to $36.8 million from $26.1 million in the first half of 2020. This increase was primarily related to the higher average debt investments outstanding and higher effective portfolio yields and amortization of OID. Our effective yield on the portfolio for Q2 was 15.9%, which increased slightly from 15.5% in the prior quarter driven primarily by pre-payment fees and accelerated OID from early repayments. For the six-month period, effective yields were 15.8% as compared to 14.8% in the prior year period. We incurred a total of $4.4 million in total expenses and amortization of deferred financing costs on various debt facilities, relatively steady compared to $4.6 million in Q1. These costs are primarily comprised of interest and fees related to our credit facility, the unsecured 7% notes, and the 6% convertible notes. For Q2, our weighted average cost of debt, including interest and fee amortization, was 7.6%, which was an increase from 7.2% in the previous quarter. The increase was primarily driven by the amortization expense of the credit facility origination costs against a lower average debt balance outstanding under the Credit Suisse facility in Q2. Moving into other operating expenses, Q2 employee compensation expense was $3.4 million, compared to $4 million in Q1 and $4.5 million in Q4 2020. The decrease is attributed to lower variable compensation expenses and is expected to reach a more normalized run rate over this near-term. Q2 professional fees were $570,000 compared to $647,000 during Q1 and $731,000 in Q4 2020. The decrease is primarily attributed to professional and valuation fees offset by higher IT consulting fees. Q2 G&A expense was $1 million compared to $808,000 in Q1 and $486,000 during Q4 2020. The increase in G&A expense continues to be driven primarily by higher D&O insurance expense as a public company and higher rent expense for our new headquarters in downtown Phoenix. As a result of the activity noted previously, net investment income for the second quarter was $10.1 million or $0.38 per share. This compares to $7.3 million or $0.31 per share in the preceding quarter and $5.3 million or $0.29 per share in Q4 2020. During the second quarter, we recognized net realized gains of $2 million, primarily related to our equity investment in Ology Bioservices as well as the conversion of warrants in two portfolio companies. As I noted earlier, we recorded net unrealized appreciation of $12.6 million primarily driven by the mark-to-market changes in the fair value of our equity and warrant portfolio. The unrealized appreciation is net of $3.2 million of unrealized appreciation that flipped to realized gains in Q2. Q2 2021 net assets worth $380 million or NAV of $14.33 per share, which compares favorably to Q1 net assets of approximately $362 million or NAV of $13.69 per share. The quarter-over-quarter increase of $0.64 per share NAV was primarily the result of unrealized appreciation and realized gains recognized during the second quarter and net investment income that exceeded our declared dividend by $0.09 per share. Our credit quality remains strong with over 99% of our portfolio performing. We currently have two portfolio companies on non-accrual with a carrying cost of $1.2 million and a fair value of $0.9 million, representing just 18 basis points on the debt investment portfolio. Our average risk rating for the quarter was 3.1, based on our one to five risk rating scale, with five indicating very strong performance. Turning now to liquidity. Available liquidity as of June 30, 2021, was approximately $107.7 million, including approximately $19.1 million in cash and cash equivalents and a borrowing capacity of $88.6 million under our credit facility subject to existing terms and conditions. End of period leverage was 65% and our asset coverage ratio was 258%. Regarding our dividend, on June 15, 2021, we declared a cash dividend of $0.29 per share for the second quarter of 2021 that was paid on July 15, which generated 131% coverage by our GAAP NII earnings for the quarter. We anticipate declaring a dividend for the third quarter of 2021 during September subject to our Board of Directors approval. Finally, to further enhance our liquidity position on July 9, we filed a shelf registration statement with the SEC, which will provide greater flexibility to raise additional debt or equity capital to support the growth of Trinity's platform. With that, I'll now open the line for questions.

Operator, Operator

And we will take our first question from Ryan Lynch at KBW. Please go ahead. Your line is open.

Ryan Lynch, Analyst

Good afternoon, and thank you for answering my questions. First off, it was a really strong quarter. My first question concerns the RIA. Did you receive any guidance on this? I'm unsure if there's any precedent like when a previous company received exemptive relief; I was wondering how long the SEC usually takes to review those applications. Additionally, have you begun discussions with any potential Limited Partners who might be interested in a fund like this? Lastly, regarding the RIA, is the strategy planned to remain consistent with the current strategy for assets on your balance sheet, essentially acting as a way to diversify and accommodate larger holdings? Or are you considering pursuing different strategies within the RIA that might not align with Trinity's balance sheet?

Steve Brown, Chairman and CEO

Thanks for the question, Ryan. So let me just take them in order. Relative to timing, we expect this to be a 9 to 12 month process as sort of the feedback we're getting. So it's going to be a while, but we're excited to get it on file and start the process. Relative to investors, we've certainly had some preliminary discussions and we'll continue to have ongoing discussions around the right partners to have relative to that. And as I mentioned in my comments relative to strategy, at this time, this is really sort of a perfect opportunity for us to be able to do some things that are larger than we can do on the balance sheet. And of course, as you know, some of our larger customers, some of our stronger customers and we'd like to keep those as long as we can. So the first priority here is to be able just to expand the platform may continue to offer more of what we offer; we see a lot of deals that are larger than we can handle with our same system and process and what we do and how we do it. So that's really the main thing. Will there be some other strategies? The answer is likely over time there'll be synergistic strategies; things that complement and are similar to what we do. But it's too early to talk about sort of what those might be.

Ryan Lynch, Analyst

That's very helpful, thank you. We're still in the early stages of this process, but I appreciate the overall insights. Regarding your earnings this quarter, they were exceptionally strong, and it seems that some accelerated fees may have contributed to that. The earnings significantly exceeded the dividend this quarter, and I understand you have been gradually increasing it. Looking ahead, it appears that future earnings will also be above the dividend, suggesting that dividend increases are likely to continue. I'm curious if you think the increases might align more closely with earnings power, or if you anticipate a more gradual approach to raising the dividend rate.

Steve Brown, Chairman and CEO

That's a great question. And it'll be an interesting and fun discussion with our Board this next quarter based on how we perform. We've made it clear all along that we want to walk the dividend up as we grow the platform and we grow earnings. That's what we're doing; we certainly exceeded a little bit and had some nice cushion. Having some spillover is not a bad thing in this business. So we'll consider that. But I think we will look at both of those situations and determine how quickly we walk this up. But we have said, we're going to grow this platform; we've said we want to increase our dividends. We're doing that, and we'll continue to do that.

Ryan Lynch, Analyst

Okay. Just one last question from my side. You had impressive growth this quarter, and it seems your pipeline remains strong. However, in the current Venture Capital environment, some BDCs have mentioned the difficulties in maintaining their financial metrics, which is positive since they can access opportunities for gains. While recovering investments as a lender is important, expanding your portfolio is challenging in this climate. Given your current pipeline and prepayment outlook, do you anticipate achieving meaningful portfolio growth in the second half of the year, similar to the net growth observed in Q2?

Steve Brown, Chairman and CEO

I think we're going to continue to see net portfolio growth. That's the short answer. How we get there? We remain to be seen based on the pre-payments versus sort of the origination pace. When you look at our pre-payments, and Kyle mentioned, it's a little larger than it's been in the past. But that's from a real dollar perspective. If you actually look at sort of as a ratio, compared to the size of our balance sheet, it hasn't changed a lot over the last few quarters. So that's encouraging to us. And we have said this before; our opportunities continue to grow because of the team we're building and the platform we're building. And that is the best indicator for continued growth in originations and ultimately the portfolio you have to deal with pay-offs. I've heard different responses on different calls about what's going to happen in the future, and I don't know at the end of this exactly. But I do believe based on where we're at, our platform, our pipeline, and how we're managing this business that we will continue to see growth sort of in line with what we projected in the first place. And then there's a lot of fees and income that we weren't counting on, which is accretive and great. So time will tell Ryan, but I feel good about our ability to grow our portfolio.

Ryan Lynch, Analyst

Okay, that's good to hear. Really nice quarter guys, then, and also happy to hear the announcement about the RIA and how that can be. I appreciate the time this afternoon.

Operator, Operator

And our next question will come from Christopher Nolan from Ladenburg Thalmann. Please go ahead. Your line is open.

Christopher Nolan, Analyst

Hey, Steve. Last quarter, you set a gross origination target of $280 million for 2021. You've made significant progress towards that goal; is there any update on that growth target?

Steve Brown, Chairman and CEO

I wouldn't give an exact number on where we're at. I would say that we have certainly adjusted upwards where we think we're going to be. Obviously, with what's happened year-to-date, over $200 million and a pipeline that we see, that is certainly a good, achievable number. But I think certainly internally exactly where that number is going to end up, Chris, I'm not sure. And we want to report on that right now. But I do think we're going to see some increase. Yes.

Christopher Nolan, Analyst

Great. Regarding FTF media, which was on non-accrual last quarter, I didn't see it on the investment schedule; can you provide any updates on the exit from that period?

Steve Brown, Chairman and CEO

Kyle, do you want to touch on that one?

Kyle Brown, President and Chief Investment Officer

Sure. Thanks for the question. So we did consider that financing realized; there was a small IP sale that we recognized within Q2. I think there’s a small possibility of some additional IP sales down the road, but I think it's very remote. So we considered that financing realized in Q2, and that the settlement exceeded where we are carrying that investment at fair value at the end of Q1.

Christopher Nolan, Analyst

That’s it for me. Thank you.

Steve Brown, Chairman and CEO

Thanks, Chris.

Operator, Operator

And we will take our next question from Casey Alexander at Compass Point. Please go ahead. Your line is open.

Casey Alexander, Analyst

Yes. Hi, good afternoon. I noticed that the $45 million of investments in 10 existing portfolio companies. And I would have thought that that would have been more weighted towards equipment finance, but the balance of equipment finance loans actually declined, both in real terms and as a percentage of the total portfolio. So I was just wondering if you had any color on what was happening on that side of the portfolio?

Steve Brown, Chairman and CEO

Yes, it's a good question, Casey. And I think the answer is that business is a little bit cyclical. We did have less originations on that part of the portfolio from an equipment perspective. But our commitments are up and in line with where we think they're going to be the balance of this year, sort of relative to what we're doing on the loan side. I think some of our equipment companies had large capitalization events where they raised capital and sort of maybe put off taking down some equipment, but we think that's going to happen. It's just been pushed back. So we don't think we're going to lose that; we just think it's been pushed back. But when we look at, in talking with Kyle and the team and sort of where we’re at in that business, we feel like we're going to maintain a similar ratio, net 65, 35, 70, 30, over time relative to the portfolio. So it'll be cyclical and it happens. This particular quarter was weighted towards loans, but I'd also give kudos to our loan origination team; they had a great quarter and performed meaningfully.

Casey Alexander, Analyst

Yes, I would agree. Would equipment share be one of those that had a financing that maybe put off some of their new activity?

Steve Brown, Chairman and CEO

That's a good question. I don't think that happened relative to equipment share, and we were sort of fully invested with equipment share. So I don't think they necessarily...

Unidentified Speaker, Unknown

No, we didn't have an investment in potential this quarter.

Steve Brown, Chairman and CEO

Okay, good.

Casey Alexander, Analyst

Okay. And then, in relation to the mark on Lucid and Matterport, is it safe to say that those were because of the lockup provisions that still exist on those; that the $39 million and the markup on Matterport are still at some discount to the fair value of the shares?

David Lund, Chief Financial Officer

Hey Casey, it's correct. This is Dave. We did take a look; just kind of I would say it probably not the appropriate term. But to the full markup, that would be because we have a six-month lock-up on both those positions.

Casey Alexander, Analyst

Do you know approximately what percentage that discount is?

David Lund, Chief Financial Officer

Between 21% and 27%, on either one of those particular positions.

Casey Alexander, Analyst

Alright. Great. Thank you. That's very helpful. All right. Thanks very much.

Steve Brown, Chairman and CEO

Thanks, Casey.

Operator, Operator

And we will take our next question from Sarkis Sherbetchyan from B. Riley Securities. Please go ahead. Your line is open.

Sarkis Sherbetchyan, Analyst

Hey, this is Sarkis Sherbetchyan. Thanks for taking my question here. Just wanted to see if you can speak to the current pricing environment as you're underwriting and originating, any color on whether the band in your origination yields are changing?

Steve Brown, Chairman and CEO

Kyle do you want to touch on that?

Kyle Brown, President and Chief Investment Officer

Yes, this is Kyle. We have seen the market be competitive. We have also seen an influx of deals. Overall, we've not had to forfeit pricing, and we do not see any material change in our overall yield or pricing right now.

Sarkis Sherbetchyan, Analyst

Great, that's super helpful. And as far as kind of the pipeline is concerned? I think you mentioned the pipeline is still strong; you're kind of into the second half of the year any quantitative metrics you can provide, whether it's up sequentially, and to what degree?

Steve Brown, Chairman and CEO

I don't have specific figures to report on that. However, I can say that we remain significantly above the target we set for the year in terms of top funnel metrics. The funding levels reflect that as well. Overall, we are performing well above our annual plan regarding top-line results and expect that if our closing rate continues at its current pace, we should maintain this funding rate.

Sarkis Sherbetchyan, Analyst

Got it. I just wanted to also kind of understand if you're seeing a similar level of accelerated repayment activity here in Q3, and just kind of any incremental color you can give on as the capital comes back, if you're able to kind of smartly deploy it back into the business?

Steve Brown, Chairman and CEO

I mentioned that when looking back historically, we're seeing larger amounts of money involved because our portfolio has grown and we have larger deals. However, when comparing like for like, there hasn't been any significant change, and I don't anticipate any changes this quarter. We acknowledge that we can't predict the future, but we're seeing a consistent ratio of our total portfolio in pay-offs. We're committed to building our platform and expanding our team, which we've been doing. This will help us increase the portfolio when we receive those pay-offs. We believe we're positioned to achieve this, and I am confident we will. Additionally, around 30% of our loan portfolio is made up of equipment financing. When we receive an equipment payoff, which happens occasionally, we benefit from all payments and profits throughout the entire timeline. This is advantageous because we collect every dollar owed, and we have a good amount of time to redeploy that capital to return to our desired yield. With the loan portfolio, we receive prepayments and fees, giving us time to reinvest. Overall, I feel positive about our team, the state of our platform, and our ability to maintain growth in the portfolio regardless of the prepayment pace.

Sarkis Sherbetchyan, Analyst

Fantastic. That's all for me. Thank you.

Steve Brown, Chairman and CEO

Thanks, Sarkis.

Operator, Operator

And we will take our next question from Brock Vandervliet from UBS. Please go ahead. Your line is open.

Brock Vandervliet, Analyst

Hey, everybody. Good afternoon. I heard you flagged the shelf registration. How do you kind of think about the leverage ratio and the goal of lifting it to 1.25 versus that shelf? At least in our model, we've got a very gentle rise in leverage over a pretty long period of time. I'm just kind of wondering what your latest thoughts are on capital and leverage?

Steve Brown, Chairman and CEO

Yes, Brock thanks for that. We finished the quarter at 0.6521. And I mentioned in my remarks, we want to get it to over time, 1.25. The debt markets are sort of ripe right now for lower-cost financing. So we're certainly considering all options, layering on some additional debt as we grow the portfolio and then maybe looking to add some equity is a thought, but we're going to consider all the options we have. But we're excited to get that shelf on file because it really does provide sort of the full range of options. David, do you want to add to that or comment on that?

David Lund, Chief Financial Officer

Yes, I would agree.

Steve Brown, Chairman and CEO

It gives us options to access equity markets and implement an ATM program. More importantly, I believe we can leverage our position to achieve better returns for our investors. We will continue to pursue this direction and work towards reaching 1.25 eventually.

Brock Vandervliet, Analyst

Got it. I'm curious about the shift from fixed to floating rates. Is it that our clients are indifferent to this change because they have other priorities, or are we having to actively encourage them to consider the floating option?

Steve Brown, Chairman and CEO

No, it’s not really accepted in the marketplace to shift to a floating rate with a floor that is not significantly different from our initial position. Over time, our peers have established that, and it's worth noting that when we set up the BDC, most of our portfolio consisted of fixed-rate SBIC SBA debt. We had leases and structured a loan from a fixed-rate perspective, understanding that we would quickly switch to floating rates for all new loans, and this transition has worked smoothly as intended. The idea is that payments will play out as fixed, and it has been functioning as we expected, with the market being quite accepting of this approach.

David Lund, Chief Financial Officer

Yes, clearly, we've been able to grow that portfolio. So there hasn't been a lot of pushback on that. I'd say we were more of an outlier with fixed-rate loans than we were moving to the floating rate.

Brock Vandervliet, Analyst

Got it. Okay. Thanks for taking my questions.

Operator, Operator

And I will go ahead and turn the call back over to Steve Brown, Chief Executive Officer for any additional closing remarks.

Steve Brown, Chairman and CEO

Thanks, Ryan. Just want to thank everybody for participating in the call today. And as always, we appreciate your investment and your support with Trinity. We're excited about the progress. We plan to continue that and work hard on your behalf this quarter and looking forward to reporting on that at the end of Q3. Thanks again.

Operator, Operator

This concludes today's program. Thank you for your participation. And you may disconnect at any time.