Runway Growth Finance Corp. (RWAY) Q4 2022 Earnings Call Transcript

Runway Growth Finance Corp. (NASDAQ:RWAY) Q4 2022 Earnings Conference Call March 2, 2023 6:00 PM ET

Company Participants

Mary Friel - Assistant Vice President, Business Development and Investor Relations

David Spreng - Chairman, Founder, Chief Executive Officer and CIO

Tom Raterman - Chief Financial Officer and COO

Conference Call Participants

Mickey Schleien - Ladenburg

Erik Zwick - Hovde Group

Bryce Rowe - B. Riley

Operator

Ladies and gentlemen, convey you for lasting by. And invited to the Runway Growth Finance Fourth Quarter 2022 Earnings Conference Call. Please beryllium advised that today’s league is being recorded.

I would present similar to manus the telephone implicit to Mary Friel, Assistant Vice President, Business Development and Investor Relations. Please spell ahead.

Mary Friel

Thank you, Operator. Good evening, everyone. And invited to the Runway Growth Finance league telephone for the 4th fourth and fiscal twelvemonth ended December 31, 2022. Joining america connected the telephone contiguous from Runway Growth Finance are David Spreng, Chairman, Chief Executive Officer, Chief Investment Officer and Founder; and Tom Raterman, Chief Financial Officer and Chief Operating Officer.

Runway Growth Finance’s 4th fourth and fiscal twelvemonth 2022 fiscal results were released conscionable aft today’s marketplace adjacent and tin beryllium accessed from Runway Growth Finance’s Investor Relations website astatine Investors runwaygrowth.com. We person arranged for a replay of the telephone astatine the Runway Growth Finance webpage.

During this call, I privation to punctual you that we whitethorn marque forward-looking statements based connected existent expectations. The statements connected this telephone that are not purely humanities are forward-looking statements.

These forward-looking statements are not warrant of aboriginal show and are taxable to uncertainties and different factors that could origin existent results to disagree materially from those expressed successful the forward-looking statements, including and without limitation, marketplace conditions caused by uncertainty surrounding the rising involvement rates, the interaction of the COVID-19 pandemic, changing economical conditions and different factors we place successful our SEC filings.

Although, we judge that the assumptions connected which these forward-looking statements are based are reasonable, immoderate of those assumptions tin beryllium to beryllium inaccurate, and arsenic a result, the forward-looking statements based connected those assumptions tin beryllium incorrect.

You should not spot undue reliance connected these forward-looking statements. The forward-looking statements contained connected this telephone are made arsenic of the day hereof and Runway Growth Finance assumes nary work to update the forward-looking statements oregon consequent events. To get copies of the SEC related filings, delight sojourn our website.

With that, I volition crook the telephone implicit to David.

David Spreng

Thank you, Mary, and convey you each for joining america this evening to sermon our 4th fourth results. I’d similar to commencement by providing 4th fourth 2022 highlights, past I volition sermon broader marketplace dynamics and the outlook for 2023.

2022 was a pivotal twelvemonth for Runway. It was our archetypal afloat calendar twelvemonth arsenic a nationalist company. We judge our concern thesis was validated and we demonstrated the worth successful pursuing a portfolio that focuses connected the latest signifier companies successful the task market.

Despite a volatile backdrop, Runway continued to prudently deploy leverage to substance non-diluted maturation for its portfolio companies, portion delivering 5 consecutive quarters of dividend increases to our shareholders.

Since inception, we person built a way grounds of lending to what we judge to beryllium the highest quality, precocious and maturation signifier companies. I privation to instrumentality a infinitesimal to summarize our precise palmy year.

Runway delivered grounds originations of $878 million. We expanded leverage much than seven-fold to 0.97 times. We grew ROE 165 ground points to 10.3%. Increased our basal dividend per stock to $0.40, marking an 11% summation from our anterior 4th and 60% summation since our archetypal nationalist offering.

Additionally, we declared a supplemental dividend of $0.05 per stock payable with the archetypal 4th dividend, on with our volition to wage a akin dividend successful each 4th of 2023. We recorded zero realized recognition losses. We expanded our concern successful concern teams by implicit 40% and we grew our strategical footprint with caller offices successful Boston and Dallas.

Now let’s crook to our 4th fourth results. Runway closed 2022 with grounds 4th fourth portfolio growth. We completed 12 investments successful caller and existing portfolio companies. This represents $327 cardinal successful caller commitments, including $233 cardinal successful funded loans.

Runway is committed arsenic ever to focusing connected quality, precocious maturation imaginable companies successful the sectors we cognize best, including beingness sciences, exertion and prime user work and merchandise industries.

Notably, our squad deployed 2 loans to PE-sponsored companies during the 4th quarter, highlighting our strategy to migrate towards larger, little risky opportunities. We presumption growth-focused PE-backed companies arsenic an integral conception of the level that offers compelling risk-adjusted returns.

We besides accrued our halfway leverage ratio from 0.6 times to 0.97 times successful the 4th quarter, reaching our people scope and connected an accelerated schedule. This is an important accomplishment for Runway arsenic we unlock the afloat imaginable of our equilibrium sheet’s net powerfulness and grow our instrumentality connected equity.

Runway delivered full concern income of $37 cardinal and nett concern income of $18 cardinal successful the quarter. This represents an summation of astir 109% and 68%, respectively, from the anterior twelvemonth period.

Net assets were $576 cardinal astatine the extremity of the 4th quarter, down 5% from $606 cardinal successful the anterior twelvemonth period, yet up from $574 cardinal astatine the extremity of Q3 2022.

Tom volition dive deeper into our continued recognition quality, but our weighted mean portfolio standing improved to 2.1%, compared to 2.2% successful Q3. We are pleased with the spot and resilience of our portfolio.

While we expect continued macro turbulence successful 2023, we judge our durable portfolio is built for each economical environments. Our apical precedence is the prime of our portfolio and owed to persistent Fed complaint increases and inflationary pressure, our squad has been adjacent much selective successful evaluating additions to the Runway portfolio. We demonstrated our quality to turn and execute, however, during kinds of uncertainty, we redouble our diligence efforts and go adjacent much patient.

Our adjacent country of absorption is our structuring and underwriting. We absorption connected mutually beneficial presumption that presumption Runway astatine the apical of the headdress table. Relative to different listed task indebtedness BDCs, we judge Runway is exposed to the slightest magnitude of risk. This is demonstrated by our attraction successful first-lien elder secured loans, arsenic good arsenic our weighted mean progressive loan-to-value astatine origination of 17.4% crossed the full portfolio.

As we person done successful the past, we besides calculated the loan-to-value for loans that were successful our portfolio astatine the extremity of Q3 and Q4. In comparing this accordant grouping of loans, our dollar weighted loan-to-value ratio was accordant astatine 22% successful Q3 and 23% successful Q4. This reflects the highly blimpish attack to valuation our recognition squad takes during the underwriting process to insulate our portfolio from exaggerated valuations.

For our existing positions, we pridefulness ourselves connected our monitoring process. From word expanse to last payment, we are successful regular connection with our portfolio companies, to proactively measure their quality to place and navigate imaginable challenges. Our connection cadence with portfolio companies is built into our presumption connected each loan. We bash not instrumentality a one-size-fits-all approach.

Portfolio monitoring is built connected a halfway acceptable of requirements for each portfolio companies and is customized from that basal to guarantee an ongoing programme that meets our needs arsenic a lender, portion allowing the borrower to run arsenic efficiently arsenic possible.

Additionally, each presumption successful our portfolio undergoes a broad valuation process internally connected a quarterly ground and periodically by a third-party. For perspective, each worldly concern successful our portfolio was reviewed by a third-party valuation specializer astatine slightest doubly passim 2022. This gives america assurance successful our marks, adjacent amid challenging operating environments for our portfolio companies.

Looking astatine the broader marketplace outlook, 3 themes are clear, valuations are declining, we spot deployments are down and exit enactment is slowing to caller twelvemonth lows. We presumption these trends arsenic a earthy portion of the task cycle. There are besides request drivers for non-dilutive maturation loans arsenic an alternate to costly equity.

Our recognition barroom is precocious and we spot expanding request for Runways originative financing solutions. Our squad continues to originate precocious prime deals, portion focusing connected companies with dependable fundamentals and proven concern models.

The latest task superior information reinforces these things. According to caller PitchBook Data, late-stage task superior enactment continued to diminution done 2022 arsenic the marketplace faced ongoing volatility.

However, it’s important to note, 2022 late-stage woody values stay historically high, outpacing 2020 and 2019 by 34% and 62%, respectively. Compared to grounds levels successful 2021, woody number lone declined by 5%. In different words, based connected this data, late-stage companies are continuing to rise equity superior but successful smaller increments.

The task superior ecosystem is nearing the extremity of a 10-year enlargement cycle. According to PitchBook Data, adjacent though U.S. task superior raised successful 2022, was a grounds $163 billion. Venture superior fundraising slowed importantly successful the 4th fourth arsenic the afloat interaction of the denominator effect became evident successful capitalist commitments. We expect this inclination to proceed for the foreseeable future, suggesting that VCs volition beryllium precise judicious successful deploying disposable adust powder.

On the task indebtedness side, according to PitchBook, 2022 was the 4th consecutive twelvemonth surpassing $30 cardinal successful caller indebtedness fundings. This demonstrates the resilience of venture-backed companies embracing indebtedness arsenic non-dilutive maturation capital, which bodes good for Runway.

Before I crook the telephone implicit to Tom, I privation to item a show metric we instrumentality anterior in. Our accordant dividends to shareholders and sustained shareholder return. Since becoming a nationalist company, we person accrued our dividend 5 consecutive quarters, representing 60% full growth. We achieved this portion gathering what we judge to beryllium the astir unchangeable portfolio successful the task indebtedness landscape.

While the macro situation apt volition proceed to interaction our portfolio companies, we person assurance that we tin proceed to execute our disciplined strategy to thrust semipermanent shareholder value.

Turning to 2023, we proceed to prioritize financing recession-resistant companies with proven concern models and minimal downstream financing risk. The outgo differential betwixt indebtedness and equity superior continues to beryllium a tailwind for the Runway platform.

As a reminder, the archetypal 4th tends to beryllium seasonally the slowest play successful presumption of originations activity, which is accordant with what we person experienced year-to-date. This marketplace dynamic is not expected to interaction the supplemental dividend programme we discussed earlier connected this call, of course, taxable to Board approval. The squad continues to spot a robust pipeline of opportunities successful the marketplace and we volition proceed to measure these deals with subject and rigor that we person employed to-date.

I volition present crook it implicit to Tom.

Tom Raterman

Thanks, David, and bully evening, everyone. Runway completed 12 investments successful caller and existing portfolio companies successful the 4th quarter, representing $327 cardinal successful caller commitments, which included $233 cardinal successful funded loans.

Runway’s weighted mean portfolio standing improved to 2.1% from 2.2% successful the 3rd quarter. As a reminder, our hazard standing strategy is based connected a standard of 1 to 5, wherever 1 represents the astir favorable recognition rating. At 4th end, we proceed to person lone 1 portfolio institution rated 5 and connected non-accrual status.

At the extremity of the 4th quarter, our full concern portfolio, excluding U.S. treasury bills, had a just worth of astir $1.1 billion, compared to $910.2 cardinal astatine the extremity of the 3rd 4th and $684.5 cardinal for the comparable anterior twelvemonth period. This represents a sequential summation of astir 24% and a year-over-year summation of 65%.

As of December 31, 2022, Runway had nett assets of $576.1 million, expanding from $573.7 cardinal astatine the extremity of the 3rd quarter. NAV per stock was $14.22 astatine the extremity of the 4th quarter, compared to $14.12 astatine the extremity of the 3rd quarter. We are pleased with our unchangeable NAV, which we consciousness reflects manufacture starring levels of scrutiny.

With respect to involvement rates, our indebtedness portfolio is comprised of 100% floating complaint assets, which volition proceed to payment from higher rates. All loans are presently earning involvement astatine oregon supra agreed upon involvement complaint floors, which mostly reflects the basal complaint positive the recognition dispersed acceptable astatine the clip of closing oregon signing of the word sheet.

In the 4th quarter, we received $16 cardinal successful main repayments, a alteration from $55 cardinal successful the 3rd 4th of 2022. We expect prepayment enactment to stay comparatively low, fixed equity valuations and a pullback successful the refinancing markets. However, a fig of our late-stage companies stay charismatic acquisition targets successful immoderate environment, which makes it hard to foretell aboriginal prepayments.

In the 4th quarter, we generated full concern income of $36.8 cardinal and nett concern income of $18.4 million, compared to $17.6 cardinal and $10.9 cardinal successful the 4th fourth of 2021, driven by our increasing portfolio and rising involvement rates.

Our indebtedness portfolio generated a dollar weighted mean annualized output of 15.5% for the 4th fourth 2022, arsenic compared to 14.0% for the 4th fourth 2021.

Moving to our expenses. For the 4th quarter, full operating expenses were $18.4 million, expanding from $6.7 cardinal for the 4th fourth of 2021, driven by an summation successful involvement disbursal and absorption and inducement fees.

Our performance-based inducement interest was $4.6 cardinal for the 4th quarter, compared to $2.7 cardinal for the 4th fourth of 2021. Our basal absorption interest was $3.4 million, up from $2.3 cardinal successful the 4th fourth of 2021 owed to the summation successful the mean size of our portfolio during the year. Beginning successful Q1 2023, our absorption interest declined from 1.6% per annum to 1.5% per annum with our full assets present transcend successful dollars.

Runway had a nett realized nonaccomplishment of $2 cardinal successful the 4th quarter, compared to a nett realized summation of $8.2 cardinal for the 4th fourth of 2021. We recorded nett unrealized depreciation of $2.1 cardinal successful the 4th quarter, chiefly driven by adjustments to the equity portfolio.

Weighted mean involvement disbursal was 6.5% astatine the extremity of the 4th quarter, expanding from 5.5% during the 3rd 4th 2022.

End-of-period leverage was 97% and plus sum was 203% arsenic compared to 60% and 266%, respectively, astatine the extremity of the 3rd 4th 2022. All investments successful the 4th fourth were funded with leverage arsenic portion of our strategy to make non-dilutive portfolio growth.

Turning to our liquidity. At December 31, 2022, our full disposable liquidity was $93.8 million, including unrestricted currency and currency equivalents, and borrowing capableness of $88 cardinal nether our revolving recognition installation each taxable to existing presumption and conditions. This compares to $255.8 cardinal and $250 million, respectively, connected September 30, 2022.

Subsequent to 4th end, we further enhanced our liquidity by expanding our recognition installation by $50 cardinal to a full of $475 cardinal taxable to the presumption and conditions arsenic reflected successful the amended recognition installation agreement.

Runway continues to beryllium disciplined successful deploying superior astatine favorable presumption portion maintaining market-leading recognition quality. Our recognition prime reflects our rigor crossed the full beingness rhythm of a loan, including sourcing, negotiating, underwriting and monitoring, portion focusing connected industries with semipermanent maturation potential.

We proceed to person adust pulverization and disposable leverage capableness for growth. Runway is opportunistically positioned to turn net portion driving shareholder value. As leverage builds to the precocious extremity of our people range, we judge it volition unlock the afloat imaginable of our net power.

On that note, we achieved our halfway leverage people for the portfolio, which is betwixt 0.8 times and 1.1 times, marking tremendous progress. As we person said successful erstwhile calls, we judge we tin safely summation our leverage ratio to 1.3 times, which is much successful enactment with our publically traded BDC peers.

In 2022, our Board of Directors approved a banal repurchase programme to get up to $25 cardinal of Runway’s communal stock. The programme expired connected February 23, 2023 and the Board has not renewed the programme astatine this time. In aggregate, during 2022, Runway purchased 871,000 shares astatine a terms of $10.8 million.

Finally, connected February 23, 2023, our Board declared a basal dividend organisation for the archetypal 4th of $0.40 per share, an 11% summation from our 4th fourth dividend of $0.36 per stock and our 5th consecutive quarterly dividend increase. In addition, our Board approved a supplemental dividend of $0.05 per stock payable with the basal dividend and our volition to wage a akin dividend successful each 4th of 2023.

This concludes our prepared remarks. We volition present unfastened the enactment for questions. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our archetypal question comes from the enactment of Mickey Schleien with Ladenburg.

Mickey Schleien

Yes. Good evening, everyone. David, I wanted to inquire you astir the Internet and Direct Marketing Retail segment. I recognize it’s not peculiarly large, but obviously, we are each alert of the headwinds that the user is facing and I americium funny whether this segment, I americium funny however this conception is performing successful airy of those headwinds?

David Spreng

Yeah. Thanks for the question, Mickey. So of the antithetic sectors that we absorption connected and conscionable arsenic a speedy reminder, it’s wrong tech, we truly similar mission-critical endeavor technology, we similar beingness sciences and healthcare broadly, and the 3rd bucket that would beryllium the 1 we are benignant of being astir cautious connected is the user and we person ever focused connected recession-resistant businesses.

And truthful for thing successful the user abstraction for america to bash it today, it’s going to person to beryllium recession-resistant and person precise awesome momentum and economics and the caller woody that was done successful the past 4th meets those standards and that’s Madison Reed, and you are right, it was not a precise large loan, but the institution is truly precise good run, has truly bully economical metrics and is rather recession resistant.

They built a fantastic concern direct-to-consumer and past done COVID really raised rather a spot of equity to rotation retired an omnichannel attack wherever they person these colour bars successful large cities with a precise tiny footprint a large economical model.

And astir importantly, the gross exemplary is mostly connected a subscription ground wherever a pistillate chiefly could wage a fixed monthly complaint and travel into the colour barroom arsenic overmuch arsenic they privation oregon connected a a regular basis. So it’s the smallest portion of our portfolio. It’s the highest barroom to get into the portfolio today, but we bash deliberation that selectively determination is country for continued concern successful that space.

Mickey Schleien

That’s bully to hear, David, and I admit that transparency. You mentioned successful your prepared remarks a absorption connected much sponsored woody travel and I don’t callback disconnected the apical of my caput what proportionality of the portfolio is sponsored today, but to the grade there’s headwinds processing successful your portfolio. Anything anecdotal you tin archer america astir however sponsors are behaving successful the portfolio successful presumption of supporting your portfolio companies?

David Spreng

Yeah. Of course. The remark that I made successful the prepared remarks was referring to PE-backed companies. So a antithetic class of sponsor than the accepted VC and we did 2 deals successful Q4 with PE sponsors, 1 that was sponsored by Mainsale and 1 that was sponsored by BlackRock and we truly similar their backing. They are evidently precise blase and are precise committed to their companies and our large counterparty for us. So we program to proceed to look for much PE-sponsored companies.

The broader question you asked is astir wrong the portfolio, however are sponsors behaving? And I would accidental that successful task onshore you are seeing a batch of VCs doing triage connected their portfolios and deciding that the constricted magnitude of superior that they person entree to adjacent though determination is simply a batch of adust pulverization successful the strategy close now.

But astir VCs are thinking, okay, this is going to person to past america a agelong clip and we are truly lone going to provender our precise champion companies and the ones that don’t marque the chopped volition beryllium bully to them and fto them cognize we inactive emotion them, but we are going to fto them cognize we don’t person further adust powder.

So for our companies, we person truly advised them to trial that and spell backmost to their task investors and inquire however overmuch adust pulverization bash you person and is it inactive good, and if possible, actually, bash around. And truthful we person seen situations wherever VCs person backed retired of what were different commitments.

And arsenic a result, you volition spot occasionally, what we telephone a down and soiled oregon a hitch retired circular wherever the go-forward investors, say, we volition proceed to invest, but we are not going to fto the guys that aren’t investing close our coattails. So we are going to bash astir that truly wipes those folks out.

So it’s a mixed bag. We are fortunate due to the fact that we truly absorption connected the latest signifier companies and our mean company, arsenic a reminder, is doing much than US$50 million, 5-0 U.S. dollar of gross and they person raised implicit $100 cardinal of task equity. So the investors, for the astir part, are precise committed and they are going to deliberation doubly earlier flushing $100 cardinal down the toilet. They mightiness beryllium much prone to flush a institution wherever they person lone invested a small bit.

So the task manufacture is precise choppy, it’s precise mixed and you are uncovering a batch of VCs remaking connected anterior commitments, but that’s a improvement that’s happening overmuch much astatine the earlier stages than the precocious stages.

Mickey Schleien

That’s besides bully to hear. I admit that. Just 1 question. Well, a question connected liquidity. The -- I admit that you expanded the recognition facility, but adjacent with that expansion, your liquidity comparative to your unfunded commitments is beauteous tight, but wrong those unfunded commitments, there’s a batch of discretion. Can you springiness america a consciousness of, of however overmuch of those unfunded commitments are astatine Runway’s discretion and your comfortableness with your liquidity level?

Tom Raterman

Sure, Mickey. This is Tom. Total unfunded is $315.7 million. What’s eligible astatine 12/31 to beryllium funded due to the fact that of milestones and different requirements was lone $56 million. And past retired of that $315 million, $316 million, $131 cardinal person been of those expire during 2023. So we judge that we person got much than capable liquidity to screen that and we person expanded the recognition facility. We besides judge we volition proceed to person entree to the indebtedness superior markets.

David Spreng

Well, I…

Mickey Schleien

That’s -- I americium sorry.

David Spreng

Well, I was going to say, Mickey, I would adhd different improvement that’s hard to enactment numbers on, but we person seen a mates of companies that person had access, due to the fact that they achieved the milestones really determine not to instrumentality the disposable capital, due to the fact that they had done a truly bully occupation of cutting their pain and they nary longer request the superior and don’t privation to wage involvement connected wealth they don’t need. Again, intolerable to quantify that, but I deliberation we volition spot much of that arsenic we spell done the twelvemonth successful 2023.

Mickey Schleien

Okay. Well, that’s not a atrocious equation then.

David Spreng

No.

Mickey Schleien

And conscionable a question connected the portfolio, you person 1 concern calls for cadence, which has been marked astatine 80% of amortized costs for a mates of quarters and present Mingle Healthcare is besides down astatine that level. Those are beauteous distressed valuations mostly speaking. I don’t cognize if that’s being impacted by marketplace technicals oregon if there’s thing you tin archer america astir however those companies are progressing.

David Spreng

Yeah. It’s not truly a marketplace method thing. It’s much circumstantial to each of those companies and without giving details, I deliberation that, they are stumbling and truthful we are trying to beryllium blimpish successful our valuations, and for immoderate of those companies, we volition usage script investigation arsenic the champion mode to travel up with the value.

And support successful caput our worth is reconfirmed by a third-party and past reconfirmed again by our auditors and our audit committee. So it’s a reasonably extended process, and successful some cases, determination are conscionable things happening astatine those businesses that we deliberation volition travel to fruition, which volition enactment the recognition successful a amended position, but until they happen, we are blimpish connected valuation.

Mickey Schleien

Okay Understand. That’s it for maine this evening. I admit your time. Thank you.

David Spreng

Yeah. Thank you, Mickey.

Operator

Thank you. [Operator Instructions] And our adjacent question comes from the enactment of Erik Zwick with Hovde Group.

Erik Zwick

Thank you. Good evening, everyone. I wanted to commencement archetypal with a question connected the leverage and the comments you made, that you judge you tin safely summation the leverage up to 1.3 times, and I americium curious, conscionable fixed the magnitude of economical uncertainty, is that much of a mid- and semipermanent target, and successful the near-term you would instrumentality wrong benignant of the archetypal scope with that 1.1 times is the top, is that independent, I mean, I guess, adjacent present successful the near-term, could we spot you determination person to that 1.3 times, if you are seeing charismatic origination opportunities?

Tom Raterman

Yeah. Thanks, Erik. Not an unanticipated question, of course. This is thing that we look astatine continuously and measure continuously. And our thought and our process successful expanding that scope starts truly with the prime and the stableness of the income and the currency travel that’s coming disconnected the portfolio, a portfolio that is good seasoned and precise precocious stage, 99% first-lien loans and a portfolio that has the majority, 90%-plus successful our fig 2 rating.

So we are precise assured successful the prime of the portfolio and arsenic we archetypal became a nationalist company, we utilized a narrower range, due to the fact that we thought it was prudent to show our quality to physique a prime portfolio to the -- to our nationalist investors.

Now that we person done that and we spot that we tin enactment much leverage, we are going to beryllium precise judicious astir adding it. But -- and we don’t mean to rise equity beneath NAV. So the mode we tin instrumentality vantage of these opportunities that are presenting themselves, and arsenic David mentioned, the economical presumption and the non-economic presumption are improving. So we whitethorn good transcend that 1.1 times opportunistically and past we volition spot however things play retired implicit time.

Erik Zwick

It’s great. I admit the commentary there. And turning to the non-sponsor information of the portfolio, funny conscionable astir the, I guess, possibly a two-part question. One, conscionable the wide underwriting, however that differs from the sponsor side, conscionable fixed that there’s not a large money down these? And two, the 2nd portion is, however that perchance plays retired successful a stressed economical situation successful presumption of however you would negociate them and enactment out, find resolutions and situations that don’t enactment retired optimally from based connected archetypal expectations?

David Spreng

Yeah. Of course. Well, truthful archetypal of all, arsenic it relates to the underwriting, if determination is not a sponsor and we truly specify that as, to beryllium sponsored, the institution needs to person an capitalist oregon much than 1 capitalist that could beryllium called and we volition instrumentality the telephone and really supply superior connected a precise abbreviated notice. So that’s what VCs are meant to do. That’s what PE firms do.

And a non-sponsored institution could beryllium an owner-operated concern and it could adjacent beryllium a nationalist institution oregon it could beryllium a backstage institution that had task investors, and they whitethorn inactive beryllium connected the Board, but they are retired of adust pulverization and person nary quality to enactment the company.

And if that is the case, either of those things, if for immoderate reason, there’s nary heavy pouch to telephone successful an exigency past our underwriting is going to beryllium overmuch much focused connected liquidity, way to profitability, a predictability of revenues and we are going to -- everything is going to beryllium a batch tighter, I would say, and that is however we underwrite these.

And truthful they are going to beryllium a small much mature. They are precise often adjacent they are older and person been astir a agelong time. And successful immoderate cases, they person been profitable for years and years and years and past they determine there’s a maturation inaugural that justifies an investment, and perhaps, adjacent dropping retired of profitability.

But aft a twelvemonth oregon two, they volition return, and of course, we are going to analyse that highly intimately to marque definite that we judge it and recognize the scenarios of what would hap if for immoderate reasons, that instrumentality to profitability takes longer than planned. So the underwriting is different, and I would say, it’s characterized arsenic being much blimpish and much cautious and requiring much liquidity, and probably, tighter covenants.

And past connected -- successful the concern of distress, it depends which 1 of the non-sponsored buckets you are in, if it’s an owner-operated concern wherever it’s similar the full livelihood of the owner, CEO, you cognize they are going to bash everything successful their powerfulness to not manus the keys implicit to us, wherever the task model, whether we similar it oregon not and we thin to absorption connected the late-stage companies were wherever this is little prevalent, but the task exemplary is inactive based connected location runs and based connected being consenting to locomotion distant from a loser due to the fact that you cognize you are going to person a victor successful 1 of the adjacent deals. That’s not the lawsuit with an owner-operated company. It’s their full life. So from that perspective, the counterparty is overmuch much motivated to marque definite that determination is not a problem.

And past successful the lawsuit of a nationalist institution and you volition spot we person respective successful the portfolio and astir of them are successful the biotech satellite and our capable to pat into the nationalist markets done the ATM operation and that’s an important portion of our underwriting, making definite that they are capable to summation entree to further capital.

And then, astir importantly is we volition truly scrutinize arsenic we bash with each company, however rapidly we could merchantability the company, due to the fact that astatine the extremity of the day, astir of our companies are going to extremity their lives successful an M&A process, and if determination is simply a default, we don’t privation to foreclose, we privation to unit them, promote them to merchantability the business.

And truthful truly knowing who the buyers are, what the multiples are and however rapidly it tin beryllium sold. That investigation volition beryllium adjacent much important successful a non-sponsored company. I don’t deliberation we person ever had a nonaccomplishment oregon a workout arsenic it related to a non-sponsored company. I mean we person lone had 4 losses -- 4 workouts and astir nary losses. So, truthful far, the non-sponsored portion of our concern has been without immoderate benignant of blemish.

Erik Zwick

Thank you for that -- the item there. That was precise informative. One past 1 for maine and past I volition measurement aside. Curious if you could grow oregon supply a small much item into the word and I punctuation akin with regards to the supplemental dividend, funny if you person a methodology successful caput for however you find that connected a quarterly basis. I cognize a fig of different BDCs person travel retired with immoderate benignant of percent comparative to adjusted NII to the regular dividend, funny if you are reasoning astir it successful a akin manner oregon possibly immoderate different way?

Tom Raterman

Well, astatine this point, erstwhile we came into 2023 with a spot of a spillover, spill-back dividend and arsenic the Board looked astatine it and we looked astatine the portfolio arsenic it stands contiguous and the currency travel that’s coming disconnected of it, the thought would beryllium to enactment successful that $0.05 scope for the equilibrium of the year. So nary look astatine this point, we volition spot arsenic we to walk a afloat twelvemonth present to get the apical extremity oregon adjacent to the apical extremity of our leverage range.

Erik Zwick

Thank you truthful overmuch for taking my questions.

Operator

Thank you. [Operator Instructions] Next question comes from the enactment of Bryce Rowe with B. Riley.

Bryce Rowe

Hi. Thanks. Good evening. I wanted to possibly inquire the dividend question a antithetic mode and proceeding the supplemental being enactment successful spot here, I presume that does not preclude you each from further benignant of regular basal dividend increases arsenic we enactment done 2023?

Tom Raterman

That’s correct. That’s a bully assumption.

Bryce Rowe

Okay. That’s helpful, Tom. And then, looking at, I guess, the gross watercourse present this quarter, I think, successful past presentations, you person benignant of breached retired what prepayment income would person been and possibly determination conscionable wasn’t overmuch present successful the 4th quarter. But conscionable funny if there’s a constituent of prepayment income wrong the involvement income bucket?

Tom Raterman

Not truly significant. The prepayment fees were, arsenic you tin see, astir conscionable nether $700,000. But determination wasn’t a important magnitude of prepayment successful the 4th fourth and we benignant of expect that to beryllium the presumption quo for the near-term.

Bryce Rowe

Okay. Okay. That was it for me. I admit the answers.

Tom Raterman

Sure. Thanks, Bryce.

Operator

Thank you. And that concludes today’s Q&A segment. I would present similar to manus the telephone backmost implicit to CEO, David Spreng, for immoderate closing remarks.

David Spreng

Thank you, Operator. We judge that our occurrence successful 2022 is validation of the execution and concern strategy we pursued. While we expect a challenging backdrop during the adjacent year, the Runway squad and myself are assured successful our quality to make unchangeable net and thrust shareholder worth successful immoderate marketplace environment. Thank you each for joining america contiguous and for your enactment and we look guardant to updating you connected archetypal 4th 2023 results successful May.

Operator

Ladies and gentlemen, this concludes today’s league call. Thank you for participating and you whitethorn present disconnect.