Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Runway Growth Finance Corp (RWAY, Financial) completed two new investments totaling $75.5 million in funded loans, showcasing their ability to capitalize on attractive opportunities.
- The company delivered a total investment income of $34.2 million and net investment income of $14.6 million in the second quarter, indicating strong financial performance.
- RWAY's loan portfolio is comprised almost exclusively of first lien senior secured loans, which enhances the security and stability of their investments.
- The company has a robust pipeline of high-quality opportunities, supported by deep sector relationships and targeted outreach efforts.
- RWAY's focus on originating investments at the top of the capital stack reduces the risk of volatility, providing a margin of safety in a challenging market environment.
Negative Points
- The average portfolio risk rating increased slightly from 2.44 to 2.47, indicating a marginal increase in perceived risk within the portfolio.
- RWAY experienced a decline in net investment income from $18.7 million in the first quarter to $14.6 million in the second quarter, primarily due to a decrease in prepayment-related income.
- The company recorded a net unrealized loss on investments of $6.3 million, largely due to a markdown on their loan to Snagajob.
- RWAY's net assets decreased from $529.5 million at the end of the first quarter to $506.4 million at the end of the second quarter, reflecting a decline in NAV per share.
- The company has two loans on non-accrual status, representing 3.1% of the total investment portfolio at fair value, which could impact future income.
Q & A Highlights
Q: Can you provide more detail behind the drop in yield on the portfolio this quarter?
A: The drop in yield is primarily due to a decrease in prepayment-related income. Spreads remained steady, and the accounting yield was stable. The decline is largely attributed to the absence of one-time income. - Thomas Raterman, Acting President, CFO, COO, Treasurer, Secretary
Q: How should we think about prepayments and portfolio yield going forward?
A: For the second half of 2024, we expect $200 million to $300 million in prepayments, which could represent about $0.20 per share in income related to prepayment fees and acceleration of accretion. This is temporary, and it will take several quarters to rebuild. We expect an elevated level of prepayment-related income for the next couple of quarters. - Thomas Raterman, Acting President, CFO, COO, Treasurer, Secretary
Q: Can you provide insights into the origination environment in the third quarter?
A: Borrowers are more realistic about valuations and terms, and there's a strong demand for the capital we provide. Base rates are likely to decline, and spreads may expand. Companies are borrowing less and seeking lenders that can grow with them. We remain cautious and selective in our underwriting. - David Spreng, Chairman, CEO, Founder, CIO
Q: How has the effort to broaden the funnel impacted the pipeline?
A: We are achieving our origination goals with a more conservative lens and challenging backdrop. Our average commitment is around $40 million, which helps in adding diversification to the portfolio. We are busier and spending more time filtering, but our analysis remains thorough. - David Spreng, Chairman, CEO, Founder, CIO
Q: What is the strategy regarding the new $15 million share repurchase program?
A: The Board approved a $15 million share repurchase program. We believe in investing in ourselves and have the capacity to use the program. Our bias is to return capital to investors through dividends and building a portfolio with significant core earnings power. We will be opportunistic in implementing the program. - Gregory Greifeld, Managing Director, Deputy CIO, Head of Credit
Q: How will prepayment income affect future dividends and supplementals?
A: Our preference is to maintain the base dividend. We have a good amount of spillover today, and prepayment income should generate more. The pace of originations will determine the continuation of supplementals, but we are in a good position for a healthy dividend. - Gregory Greifeld, Managing Director, Deputy CIO, Head of Credit
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
