TPVG - TriplePoint Venture Growth: Even After The Correction The Attractiveness Is Low
2024-05-03 11:42:44 ET
Summary
- TriplePoint Venture Growth has experienced a declining asset base and heavy headwinds on the net funding front, making it difficult for the BDC to generate solid NII.
- TPVG has one of the highest leverage ratios in the BDC sector, even after the massive improvement during Q1 2024.
- On top of this, there is a clear problem with the portfolio quality as the non-accruals remain elevated.
- Given these dynamics and the momentum in growing non-accruals and shrinking debt portfolio, having only $0.01 per share left of NII after accounting for distributions makes a dividend cut likely.
- In this article, I elaborate on Q1 2024 results and explain why investors, in my opinion, should avoid this BDC.
In mid-February this year, I issued a bearish piece on TriplePoint Venture Growth ( TPVG ) stating that given the financial characteristics of this BDC it is just not worth chasing extra basis points in yield here. The logic behind staying away from TPVG was simple and could be captured by the following three aspects:
- Heavy headwinds on the net funding front due to a general slowdown in the VC M&A and capital markets space. TPVG has experienced several quarters in a row of declining asset base, which imposes a significant drag on the NII generation. The outlook for improved VC transaction activities remains weak.
- As of the date when my article was issued, TPVG had one of the highest leverage ratios in the BDC sector, ending the quarter at 1.62x of gross leverage ratio.
- On top of the declining asset base and huge leverage, TPVG carried a notable chunk of its portfolio in non-accruals that, looking at the past couple of quarters, exhibited an unfavorable momentum.