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Hercules readies $250M securitization of loans to VC-backed firms

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Hercules Capital is readying another $250 million securitization of loans to venture capital-backed companies, according to Kroll Bond Rating Agency.

The deal, dubbed Hercules Capital Funding Trust 2019-1, comes just two months after the business development company completed a $200 million transaction. Before that Hercules had not bundled loans into collateral for bonds, at least in a deal rated by Kroll since 2014.

The differences between the structure of the deal and the collateral are minimal, according to Kroll. However the deal is an indicator of the pace of originations.

All of the loans for the latest deal were originated or acquired by Hercules Capital, which was founded in 2002 and specializes in providing senior secured loans to high-growth, venture capital-backed companies in technology, life sciences and sustainable and renewable technology industries at all stages of development.

Hercules will also act as servicer for the transaction.

The pool of collateral consists of 41 loans to 34 obligors with an aggregate outstanding balance of approximately $357.2 million, approximately 60% life sciences and 40% technology. That’s little changed from the 62.9%/37.1% split for the November deal.

Like the previous deal, the maximum advance rate for the notes is 70%, but this will adjust downward if the number of obligors decreases. The transaction features a two-year reinvestment period during which time principal collections may be reinvested in additional loans that meet certain eligibility requirements.

The weighted average loan-to-value ratio of the loans is 15%, which is up from 9% for the prior deal. The weighted average seasoning fell to 10 months from 13 months.

There are four loans in the initial pool, representing approximately 13.2%, are second lien loans and are subordinate to a senior loan held by a third party.

A single tranche of notes provisionally rated A by Kroll will be issued in the transaction.

Guggenheim Securities is the sole structuring advisor and sole bookrunning manager.

Since inception, Hercules has over $8.3 billion in total debt commitments, with $6.3 billion funded to more than 435 companies.

As of Sept. 30, Hercules had approximately $1.8 billion of investments with approximately 52% in technology companies, 41% in life sciences companies, and the remaining amounts in either sustainable and renewable technology companies or special situations.

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