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Debt
 6 Months Ended
Jun. 30, 2024
Debt Disclosure [Abstract]  
Debt Debt
As of June 30, 2024 and December 31, 2023, the Company had the following available and outstanding debt:
(in thousands)June 30, 2024December 31, 2023
 Total AvailablePrincipal
Carrying Value(1)
Total AvailablePrincipal
Carrying Value(1)
SBA Debentures(2)
$175,000 $175,000 $170,615 $175,000 $175,000 $170,323 
July 2024 Notes105,000 105,000 104,975 105,000 105,000 104,828 
February 2025 Notes50,000 50,000 49,924 50,000 50,000 49,866 
June 2025 Notes70,000 70,000 69,838 70,000 70,000 69,757 
June 2025 3-Year Notes50,000 50,000 49,848 50,000 50,000 49,771 
March 2026 A Notes50,000 50,000 49,842 50,000 50,000 49,795 
March 2026 B Notes50,000 50,000 49,828 50,000 50,000 49,776 
September 2026 Notes325,000 325,000 322,830 325,000 325,000 322,339 
January 2027 Notes350,000 350,000 346,600 350,000 350,000 345,935 
2031 Asset-Backed Notes150,000 150,000 148,838 150,000 150,000 148,544 
2033 Notes40,000 40,000 38,989 40,000 40,000 38,935 
MUFG Bank Facility(2)
400,000 133,000 133,000 400,000 61,000 61,000 
SMBC Facility(2)(3)
400,000 212,000 212,000 400,000 94,000 94,000 
Total$2,215,000 $1,760,000 $1,747,127 $2,215,000 $1,570,000 $1,554,869 
(1)Except for the SMBC Facility and MUFG Bank Facility, all carrying values represent the principal amount outstanding less the remaining unamortized debt issuance costs and unaccreted premium or discount, if any, associated with the debt as of the balance sheet date.
(2)Availability subject to the Company meeting the borrowing base requirements.
(3)“Total Available” includes $175.0 million of available commitment through the letter of credit facility as of June 30, 2024 and December 31, 2023.
Debt issuance costs, net of accumulated amortization, were as follows as of June 30, 2024 and December 31, 2023:
(in thousands)June 30, 2024December 31, 2023
SBA Debentures$4,385 $4,677 
July 2024 Notes25 172 
February 2025 Notes76 134 
June 2025 Notes162 243 
June 2025 3-Year Notes152 229 
March 2026 A Notes158 205 
March 2026 B Notes172 224 
September 2026 Notes2,170 2,661 
January 2027 Notes3,400 4,065 
2031 Asset-Backed Notes1,162 1,456 
2033 Notes1,011 1,065 
MUFG Bank Facility(1)
2,670 3,540 
SMBC Facility(1)
1,415 1,775 
Total$16,958 $20,446 
(1)The MUFG Bank Facility and SMBC Facility, are line-of-credit arrangements, the debt issuance costs associated with these instruments are included within Other assets on the Consolidated Statements of Assets and Liabilities in accordance with ASC Subtopic 835-30.
For the three and six months ended June 30, 2024, the components of interest expense, related fees, and cash paid for interest expense for debt were as follows:
(in thousands)Three Months Ended June 30, 2024Six Months Ended June 30, 2024
Description
Interest expense(1)
Amortization of debt issuance cost (loan fees)Unused facility and other fees (loan fees)Total interest expense and feesCash paid for interest expense
Interest expense(1)
Amortization of debt issuance cost (loan fees)Unused facility and other fees (loan fees)Total interest expense and feesCash paid for interest expense
SBA Debentures$1,138 $146 $— $1,284 $— $2,275 $292 $— $2,567 $2,275 
July 2024 Notes1,252 74 — 1,326 — 2,504 148 — 2,652 2,504 
February 2025 Notes535 28 — 563 — 1,070 57 — 1,127 1,070 
June 2025 Notes754 41 — 795 1,508 1,508 81 — 1,589 1,508 
June 2025 3-Year Notes750 39 — 789 1,500 1,500 78 — 1,578 1,500 
March 2026 A Notes562 23 — 585 — 1,125 47 — 1,172 1,125 
March 2026 B Notes569 26 — 595 — 1,138 52 — 1,190 1,138 
September 2026 Notes2,174 204 — 2,378 — 4,349 408 — 4,757 4,265 
January 2027 Notes3,077 207 — 3,284 — 6,156 413 — 6,569 5,906 
2031 Asset-Backed Notes1,904 100 — 2,004 1,856 3,807 200 — 4,007 3,712 
2033 Notes625 27 — 652 625 1,250 54 — 1,304 1,250 
MUFG Bank Facility2,143 438 634 3,215 2,155 4,076 885 1,243 6,204 3,721 
SMBC Facility3,679 180 179 4,038 3,808 6,028 360 425 6,813 5,562 
Total$19,162 $1,533 $813 $21,508 $11,452 $36,786 $3,075 $1,668 $41,529 $35,536 

(1)Interest expense includes amortization of original issue discounts for the three months ended June 30, 2024 of $41 thousand, $125 thousand, and $47 thousand related to the September 2026 Notes, January 2027 Notes, and 2031 Asset-Backed Notes, respectively. Interest expense includes amortization of original issue discounts for the six months ended June 30, 2024 of $83 thousand, $251 thousand, and $94 thousand, related to the September 2026 Notes, January 2027 Notes, and 2031 Asset-Backed Notes, respectively.
For the three and six months ended June 30, 2023, the components of interest expense, related fees, and cash paid for interest expense for debt were as follows:
(in thousands)Three Months Ended June 30, 2023Six Months Ended June 30, 2023
Description
Interest expense(1)
Amortization of debt issuance cost (loan fees)Unused facility and other fees (loan fees)Total interest expense and feesCash paid for interest expense
Interest expense(1)
Amortization of debt issuance cost (loan fees)Unused facility and other fees (loan fees)Total interest expense and feesCash paid for interest expense
SBA Debentures$1,137 $146 $— $1,283 $— $2,262 $290 $— $2,552 $2,262 
July 2024 Notes1,252 74 — 1,326 — 2,504 148 — 2,652 2,504 
February 2025 Notes535 28 — 563 — 1,070 57 — 1,127 1,070 
June 2025 Notes755 41 — 796 1,509 1,509 81 — 1,590 1,509 
June 2025 3-Year Notes750 39 — 789 1,500 1,500 78 — 1,578 1,500 
March 2026 A Notes562 23 — 585 — 1,125 47 — 1,172 1,125 
March 2026 B Notes568 26 — 594 — 1,137 52 — 1,189 1,138 
September 2026 Notes2,175 204 — 2,379 — 4,349 408 — 4,757 4,266 
January 2027 Notes3,078 207 — 3,285 — 6,157 414 — 6,571 5,906 
2031 Asset-Backed Notes1,904 100 — 2,004 1,857 3,807 200 — 4,007 3,713 
2033 Notes625 27 — 652 625 1,250 54 — 1,304 1,250 
MUFG Bank Facility1,363 442 691 2,496 1,595 3,076 884 1,308 5,268 3,433 
SMBC Facility2,480 180 236 2,896 2,738 4,063 333 439 4,835 3,988 
Total$17,184 $1,537 $927 $19,648 $9,824 $33,809 $3,046 $1,747 $38,602 $33,664 

(1)Interest expense includes amortization of original issue discounts for the three months ended June 30, 2023 of $42 thousand, $126 thousand, and $47 thousand related to the September 2026 Notes, January 2027 Notes, and 2031 Asset-Backed Notes, respectively. Interest expense includes amortization of original issue discounts for the six months ended June 30, 2023, of $83 thousand, $251 thousand, and $94 thousand, related to the September 2026 Notes, January 2027 Notes, and 2031 Asset-Backed Notes, respectively.
As of June 30, 2024 and December 31, 2023, the Company was in compliance with the terms of all borrowing arrangements. There are no sinking fund requirements for any of the Company’s debt.
SBA Debentures
The Company held the following SBA debentures outstanding principal balances as of June 30, 2024 and December 31, 2023:
(in thousands)
Issuance/Pooling Date		Maturity Date
Interest Rate(1)
June 30, 2024December 31, 2023
March 26, 2021September 1, 20311.58%$37,500 $37,500 
June 25, 2021September 1, 20311.58%16,200 16,200 
July 28, 2021September 1, 20311.58%5,400 5,400 
August 20, 2021September 1, 20311.58%5,400 5,400 
October 21, 2021March 1, 20323.21%14,000 14,000 
November 1, 2021March 1, 20323.21%21,000 21,000 
November 15, 2021March 1, 20323.21%5,200 5,200 
November 30, 2021March 1, 20323.21%20,800 20,800 
December 20, 2021March 1, 20323.21%10,000 10,000 
December 23, 2021March 1, 20323.21%10,000 10,000 
December 28, 2021March 1, 20323.21%5,000 5,000 
January 14, 2022March 1, 20323.21%4,500 4,500 
January 21, 2022March 1, 20323.21%20,000 20,000 
Total SBA Debentures  $175,000 $175,000 
(1)Interest rates are determined initially at issuance and reset to a fixed rate at the debentures pooling date. The rates are inclusive of annual SBA charges.
SBICs are subject to a variety of regulations and oversight by the SBA concerning the size and nature of the companies in which they may invest as well as the structures of those investments. The SBA as part of its oversight periodically examines and audits to determine SBICs compliance with SBA regulations. Our SBIC was in compliance with all SBIC terms, including those pertaining to the SBA Debentures as of June 30, 2024 and December 31, 2023.
HC IV received its license to operate as an SBIC on October 27, 2020. The license has a 10-year term. Through the license, HC IV has access to $175.0 million of capital through the SBA debenture program, in addition to the Company’s
regulatory capital commitment of $87.5 million to HC IV. As of June 30, 2024 and December 31, 2023, HC IV has issued a total of $175.0 million in SBA guaranteed debentures.
As of June 30, 2024, the Company held 30 investments through HC IV, with a fair value of approximately $359.6 million, accounting for approximately 10.1% of the Company’s total investment portfolio. Further, HC IV held approximately $363.6 million in tangible assets which accounted for approximately 9.9% of the Company’s total assets as of June 30, 2024.
As of December 31, 2023, the Company held 25 investments through HC IV, with a fair value of approximately $331.5 million, accounting for approximately 10.2% of the Company’s total investment portfolio. Further, HC IV held approximately $341.8 million in tangible assets which accounted for approximately 10.0% of the Company’s total assets as of December 31, 2023.
On July 9, 2024, SBIC V received its license to operate as an SBIC. This is Hercules' fourth SBIC license, through which the Company has access to $175.0 million of SBA debentures, subject to meeting certain conditions. The license has a 10-year term and SBA debentures bear fixed interest based on the treasury rate plus a spread applicable for the period the debentures are drawn. As of the latest debenture pooling date in March 2024, SBA debentures were issued with an interest rate of approximately 5.164%. The actual rates may vary depending on the timing of drawdown and pooling period.
July 2024 Notes
On July 16, 2019, the Company issued $105.0 million in aggregate principal amount of 4.77% interest-bearing unsecured notes due on July 16, 2024 (the “July 2024 Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement notes offering. Interest on the July 2024 Notes is due semiannually. The July 2024 Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company. On July 16, 2024, the Company fully repaid the aggregate outstanding $105.0 million principal and $2.5 million of accrued interest pursuant to the terms of the July 2024 Notes.
February 2025 Notes
On February 5, 2020, the Company issued $50.0 million in aggregate principal amount of 4.28% interest-bearing unsecured notes due February 5, 2025 (the “February 2025 Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement notes offering. Interest on the February 2025 Notes is due semiannually. The February 2025 Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.
June 2025 Notes
On June 3, 2020, the Company issued $70.0 million in aggregate principal amount of 4.31% interest-bearing unsecured notes due June 3, 2025 (the “June 2025 Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement notes offering. Interest on the June 2025 Notes is due semiannually. The June 2025 Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.
June 2025 3-Year Notes
On June 23, 2022, the Company issued $50.0 million in aggregate principal amount of 6.00% interest-bearing unsecured notes due June 23, 2025 (the “June 2025 3-Year Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement notes offering. Interest on the June 2025 3-Year Notes is due semiannually. The June 2025 3-Year Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.
March 2026 A Notes
On November 4, 2020, the Company issued $50.0 million in aggregate principal amount of 4.50% interest-bearing unsecured notes due March 4, 2026 (the “March 2026 A Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement notes offering. Interest on the March 2026 A Notes is due semiannually. The March 2026 A Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.
March 2026 B Notes
On March 4, 2021, the Company issued $50.0 million in aggregate principal amount of 4.55% interest-bearing unsecured notes due March 4, 2026 (the “March 2026 B Notes”), unless repurchased in accordance with their terms, to qualified institutional investors in a private placement pursuant note offering. Interest on the March 2026 B Notes is due
semiannually. The March 2026 B Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.
September 2026 Notes
On September 16, 2021, the Company issued $325.0 million in aggregate principal amount of 2.625% interest-bearing unsecured notes due September 16, 2026 (the “September 2026 Notes”), unless repurchased in accordance with the terms of the Seventh Supplemental Indenture, dated September 16, 2021. Interest on the September 2026 Notes is payable semi-annually in arrears on March 16 and September 16 of each year. The September 2026 Notes are general unsecured obligations and rank pari passu, or equally in right of payment, with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.
January 2027 Notes
On January 20, 2022, the Company issued $350.0 million in aggregate principal amount of 3.375% interest-bearing unsecured notes due January 20, 2027 (the “January 2027 Notes”), unless repurchased in accordance with the terms of the Eight Supplemental Indenture, dated January 20, 2022. Interest on the January 2027 Notes is payable semi-annually in arrears on January 20 and July 20 of each year. The January 2027 Notes are general unsecured obligations and rank pari passu, or equally in right of payment, with all outstanding and future unsecured unsubordinated indebtedness issued by the Company. The Company may redeem some or all of the January 2027 Notes at any time, or from time to time, at the redemption price set forth under the terms of the January 2027 Notes Indenture.
2031 Asset-Backed Notes
On June 22, 2022, the Company completed a term debt securitization in connection with which an affiliate of the Company issued $150.0 million in aggregate principal amount of 4.95% interest-bearing asset-backed notes due on July 20, 2031 (the “2031 Asset-Backed Notes”). The 2031 Asset-Backed Notes were issued by Hercules Capital Funding Trust 2022-1 LLC (the “2022 Securitization Issuer”) pursuant to a note purchase agreement, dated as of June 22, 2022, by and among the Company, Hercules Capital Funding 2022-1 LLC, as trust depositor, the 2022 Securitization Issuer, and U.S. Bank Trust Company, N. A., as trustee, and are backed by a pool of senior loans made to certain portfolio companies of the Company and secured by certain assets of those portfolio companies and are to be serviced by the Company. Interest on the 2031 Asset-Backed Notes will be paid, to the extent of funds available.
Under the terms of the 2031 Asset-Backed Notes, the Company is required to maintain a reserve cash balance, funded through proceeds from the sale of the 2031 Asset-Backed Notes and through interest and principal collections from the underlying securitized debt portfolio, which may be used to pay monthly interest and principal payments on the 2031 Asset-Backed Notes. The Company has segregated these funds and classified them as restricted cash. As of June 30, 2024 and December 31, 2023, there was approximately $11.2 million and $17.1 million, respectively, of funds segregated as restricted cash related to the 2031 Asset-Backed Notes.
2033 Notes
On September 24, 2018, the Company issued $40.0 million in aggregate principal amount of 6.25% interest-bearing unsecured notes due October 30, 2033 (the “2033 Notes”), unless repurchased in accordance with the terms of the Sixth Supplemental Indenture to the Base Indenture, dated September 24, 2018. Interest on the 2033 Notes is payable quarterly in arrears on January 30, April 30, July 30, and October 30 of each year. The 2033 Notes trade on the NYSE under the symbol “HCXY.” The 2033 Notes are general unsecured obligations and rank pari passu, or equally in right of payment, with all outstanding and future unsecured unsubordinated indebtedness issued by the Company. The Company may redeem some or all of the 2033 Notes at any time, or from time to time, at the redemption price set forth under the terms of the 2033 Notes indenture after October 30, 2023.
Credit Facilities
As of June 30, 2024 and December 31, 2023, the Company has two available credit facilities, the MUFG Bank Facility and the SMBC Facility (together, the “Credit Facilities”). For the six months ended June 30, 2024 and year ended December 31, 2023, the weighted average interest rate was 7.74% and 7.41%, respectively, and the average debt outstanding under the Credit Facilities was $261.0 million and $192.3 million, respectively.
MUFG Bank Facility
On January 13, 2023, the Company entered into a third amended credit facility agreement, which amends the agreement dated as of June 10, 2022. The Company, through a special purpose wholly owned subsidiary, Hercules Funding IV LLC (“Hercules Funding IV”), as borrower, entered into the credit facility (the “MUFG Bank Facility”) with MUFG Bank Ltd. as the arranger and administrative agent, and the lenders party to the MUFG Bank Facility from time to time.
Under the MUFG Bank Facility, the lenders have made commitments of $400.0 million, which may be further increased via an accordion feature up to an aggregate $600.0 million, funded by existing or additional lenders and with the agreement of MUFG Bank and subject to other customary conditions. There can be no assurances that additional lenders will join the MUFG Bank Facility to increase available borrowings. Debt under the MUFG Bank Facility generally bears interest at a rate per annum equal to SOFR plus 2.75% for SOFR loans. The MUFG Bank Facility matures on January 13, 2026, plus a twelve-month amortization period, unless sooner terminated in accordance with its terms. The MUFG Bank Facility is secured by all of the assets of Hercules Funding IV. The MUFG Bank Facility requires payment of a non-use fee during the revolving credit availability period.
The MUFG Bank Facility also includes financial and other covenants applicable to the Company and the Company’s subsidiaries, in addition to those applicable to Hercules Funding IV, including covenants relating to certain changes of control of Hercules Funding IV. Among other things, these covenants require the Company to maintain certain financial ratios, including a minimum interest coverage ratio and a minimum tangible net worth with respect to Hercules Funding IV. The MUFG Bank Facility provides for customary events of default, including with respect to payment defaults, breach of representations and covenants, servicer defaults, certain key person provisions, cross default provisions to certain other debt, lien and judgment limitations, and bankruptcy.
SMBC Facility
On June 14, 2022, the Company entered into a second amendment to a revolving credit agreement, which amends the revolving credit agreement, dated as of November 9, 2021, with Sumitomo Mitsui Banking Corporation (the “SMBC Facility”), as administrative agent, and the lenders and issuing banks to the SMBC Facility. As of June 30, 2024, the SMBC Facility provides for borrowings in U.S. dollars and certain agreed upon foreign currencies of up to $225.0 million, from which the Company may access subject to certain conditions. The SMBC Facility contains an accordion feature, in which the Company can increase the credit line up to an aggregate of $500.0 million, funded by existing or additional lenders and with the agreement of SMBC Bank and subject to other customary conditions. Availability under the SMBC Facility will terminate on November 7, 2025, and the outstanding loans under the SMBC Facility will mature on November 9, 2026. Borrowings under the SMBC Facility are subject to compliance with a borrowing base and an aggregate portfolio balance. The Company’s obligations under the SMBC Facility may in the future be guaranteed by certain of the Company’s subsidiaries and primarily secured by a first priority security interest (subject to certain exceptions) in only certain specified property and assets of the Company and the subsidiary guarantors thereunder.
Additionally in January 2023, the Company entered into a Letter of Credit Facility Agreement (the “SMBC LC Facility”) with Sumitomo Mitsui Banking Corporation that provides for a letter of credit facility with a final maturity date ending on January 13, 2026 and a commitment amount of $175.0 million as amended. Further, the SMBC LC Facility includes an accordion provision to increase the commitment up to $400.0 million, subject to certain conditions. The Company’s obligations under the SMBC LC Facility may in the future be guaranteed by certain of the Company’s subsidiaries and is primarily secured by a first priority security interest (subject to certain exceptions) in only certain specified property and assets of the Company and any subsidiary guarantors thereunder.
Interest under the SMBC Facility is determined by the nature and denomination of the borrowing. Interest rates are determined by the appropriate benchmark rate (SOFR, EURIBOR, Prime, CORRA, or TIBOR) as applicable for the type of borrowing plus an applicable margin adjustment which can range from 0.875% to 2.0% per annum subject to certain conditions. In addition to interest, the SMBC Facility is subject to a non-usage fee of 0.375% per annum (based on the immediately preceding period’s average usage) on the unused portion of the commitment under the SMBC Facility during the revolving period. The Company is required to pay letter of credit participation fees and a fronting fee on the average daily amount of any lender’s exposure with respect to any letters of credit issued under the SMBC Facility.
The SMBC Facility contains customary events of default with customary cure and notice provisions, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenant, cross-default and cross-acceleration to other indebtedness and bankruptcy. The SMBC Facility also includes financial and other covenants applicable to the Company and the Company’s subsidiaries, including covenants relating to minimum stockholders' equity, asset coverage ratios, and our status as a RIC.