KBRA Affirms Ratings for Hercules Capital, Inc.

KBRA affirms the issuer and senior unsecured debt ratings of BBB+ for Hercules Capital, Inc. (NYSE: HTGC or "the company"). The rating Outlook is Stable.

Key Credit Considerations

The ratings reflect the company’s diversified $4.2 billion investment portfolio consisting of 123 portfolio companies (debt investments) with a focus on senior secured venture debt investments (93.7% of total investments at fair value) and in the technology and life sciences sectors, solid 20+ year operating history, including during the global financial crisis, and appropriate leverage metrics. The company’s solid credit quality has benefited from its robust risk management and solid investment team with years of experience in the venture capital space. Furthermore, the ratings are supported by HTGC’s proven access to capital markets, diversified funding mix, and high proportion of unsecured debt to total debt outstanding of 86%, allowing for solid protection for noteholders as of June 30, 2025.

As of June 30, 2025, the company’s portfolio included a high percentage of first lien senior secured floating rate debt to mostly venture capital-backed portfolio companies in the expansion and/or established phase concentrated in the sectors of Software (35%), Drug Discovery & Development (25%), and Healthcare Services, Other (18%). The portfolio is characterized by low LTVs and relatively high balance sheet liquidity. The company’s historic credit performance remains solid with an annualized loss rate of only 3.1 bps since inception and a non-accrual rate as a percentage of total investments at both cost and fair value of 0.2% as of June 30, 2025. Furthermore, the company’s asset coverage, excluding SBA, was 222%, well in excess of the regulatory minimum of 150%. HTGC’s leverage was 0.81x, with a target leverage ratio range of 1.0x to 1.25x. The company intends to maintain a cushion comfortably below the upper bound of its target range to absorb asset volatility in weaker market conditions. Funding sources are well diversified, and liquidity is appropriate with $734 million in available bank credit lines and $52 million of unrestricted cash and cash equivalents with ~$775 million of debt maturing within the next two years. The company had $471.5 million of unfunded commitments with the majority not expected to be drawn.

The strengths are counterbalanced by the potential risk related to HTGC’s illiquid investments, the susceptibility to event risk related to industry concentrations in drug discovery and development and technology, and uncertainty around the economic environment and geopolitical risks.

Incorporated as a Maryland Corporation in December 2003, HTGC is a non-diversified publicly traded closed-end internally managed investment management company regulated as a business development company (BDC) under the Investment Company Act of 1940. The company has also elected to be regulated as a regulated investment company for tax purposes. The company is headquartered in San Mateo, CA with offices in Boston, MA, New York, NY, San Diego, CA, Denver, CO, and London.

Rating Sensitivities

Given the Stable Outlook, a rating upgrade is not expected over the medium term. Negative rating pressure could occur if a prolonged downturn in the U.S. economy has material impacts on performance and non-accruals that significantly affect capital, leverage, and liquidity metrics. An increased focus on riskier investments coupled with higher leverage metrics or a meaningful change in the current management structure could also pressure ratings.

To access ratings and relevant documents, click here.

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