Runway Growth Finance Corp.: Form 10-Q for the period ended Mar 31, 2024

Forward-Looking Statements

This quarterly report on Form 10‑Q contains forward-looking statements that involve substantial risks and uncertainties. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current and prospective portfolio investments, our industry, our beliefs and opinions, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” “outlook,” “potential,” “predicts” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:

• changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets;
• an economic downturn or recession could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies;
• such an economic downturn could disproportionately impact the companies that we intend to target for investment, potentially causing us to experience a decrease in investment opportunities and diminished demand for capital from these companies;
• a contraction of available credit and/or an inability to access the equity markets that could impair our lending and investment activities;
• interest rate volatility that could adversely affect our results, particularly to the extent that we use leverage as part of our investment strategy;
• the impact of interest and inflation rates on our business prospects and the prospects of our portfolio companies;
• our business prospects and the prospects of our portfolio companies;
• our contractual arrangements and relationships with third parties;
• the ability of our portfolio companies to achieve their objectives;
• competition with other entities and our affiliates for investment opportunities;
• the speculative and illiquid nature of our investments;
• the use of borrowed money to finance a portion of our investments;
• the adequacy of our financing sources and working capital;
• the loss of key personnel and members of our management team;
• the timing of cash flows, if any, from the operations of our portfolio companies;
• the ability of our external investment adviser, Runway Growth Capital LLC, to locate suitable investments for us and to monitor and administer our investments;
• the ability of Runway Growth Capital LLC to attract and retain highly talented professionals;
• our ability to qualify and maintain our qualification as a RIC under Subchapter M of the Code, and as a BDC;
• the occurrence of a disaster, such as a cyber-attack against us or against a third party that has access to our data or networks, a natural catastrophe, an industrial accident, failure of our disaster-recovery systems, or consequential employee error;
• the effect of legal, tax, and regulatory changes; and
• the other risks, uncertainties and other factors we identify under “Risk Factors” in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (the "SEC") on March 7, 2024 and in this quarterly report on Form 10-Q.

Although we believe the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this quarterly report on Form 10-Q should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in “Risk Factors” in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 7, 2024.

We have based the forward-looking statements included in this Form 10‑Q on information available to us on the date of this Form 10‑Q, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC, including our annual reports on Form 10‑K, quarterly reports on Form 10‑Q and current reports on Form 8‑K.

The following analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto contained elsewhere in this quarterly report on Form 10‑Q.

Overview

Runway Growth Finance Corp. ("we," "us," "our," or the "Company"), a Maryland corporation formed on August 31, 2015, is structured as an externally managed, non-diversified closed-end management investment company. On August 18, 2021, we changed our name to "Runway Growth Finance Corp." from "Runway Growth Credit Fund Inc." We are a specialty finance company focused on providing senior secured loans to high growth-potential companies in technology, life sciences, healthcare information and services, business services, financial services, select consumer services and products and other high-growth industries. Our goal is to create significant value for our stockholders and the entrepreneurs we support by providing high growth-potential companies with hybrid debt and equity financing that is more flexible than traditional credit and less dilutive than equity. Our investment objective is to maximize our total return to our stockholders primarily through current income on our loan portfolio, and secondarily through capital gains on our warrants and other equity positions. Our offices are in Chicago, Illinois; Menlo Park, California; and New York, New York.

We have elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the "1940 Act"). We have also elected to be treated as regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). While we currently qualify and intend to qualify annually to be treated as a RIC, no assurance can be provided that we will be able to maintain our tax treatment as a RIC. If we fail to qualify for tax treatment as a RIC for any taxable year, we will be subject to U.S. federal income tax at corporate rates on any net taxable income for such year. As a BDC and a RIC, we are required to comply with various regulatory requirements, such as the requirement to invest at least 70% of our assets in “qualifying assets,” source-of-income limitations, asset diversification requirements, and the requirement to distribute annually at least 90% of our investment company taxable income and net tax-exempt interest.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). We will remain an emerging growth company until the last day of our fiscal year following the fifth anniversary of our IPO, which closed on October 25, 2021 or until the earliest of (i) the last day of the first fiscal year in which we have total annual gross revenue of $1.235 billion or more, (ii) December 31 of the fiscal year in which we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (together with the rules and regulations promulgated thereunder, the “Exchange Act”), (which would occur if the market value of our common stock held by non-affiliates exceeds $700.0 million, measured as of the last business day of our most recently completed second fiscal quarter, and we have been publicly reporting for at least 12 months), or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period. For so long as we remain an emerging growth company under the JOBS Act, we will be subject to reduced public company reporting requirements.

We are externally managed by Runway Growth Capital LLC ("RGC"), an investment adviser that has registered with the SEC under the Investment Advisers Act of 1940, as amended. The Administrator, a wholly-owned subsidiary of RGC, provides all the administrative services necessary for us to operate.

On August 10, 2020, we, RGC, and certain other funds and accounts sponsored or managed by RGC and/or its affiliates were granted an order (the “Order”), as amended on August 30, 2022, that permits us greater flexibility than the 1940 Act permits to negotiate the terms of co-investments if our Board of Directors determines that it would be advantageous for us to co-invest with other accounts sponsored or managed by RGC or its affiliates in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. We believe that the ability to co-invest with similar investment structures and accounts sponsored or managed by RGC or its affiliates will provide additional investment opportunities and the ability to achieve greater diversification. Under the terms of the Order, a majority of our independent directors are required to make certain determinations in connection with a co-investment transaction, including that (1) the terms of the proposed transaction are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our and is consistent with our investment strategies and policies.

Portfolio Composition and Investment Activity

Portfolio Composition

At March 31, 2024, we had investments in 53 portfolio companies, representing 23 companies in which we held loan and warrant investments, three companies in which we held loan investments and shares of common stock, preferred stock, or a combination with warrants, four companies in which we held a loan investment only, 16 companies in which we held warrant investments only, and seven companies in which we held shares of common stock, preferred stock, or equity interests only, or a combination with warrants. At December 31, 2023, we had investments in 52 portfolio companies, representing 22 companies in which we held loan and warrant investments, three companies in which we held loan investments and shares of common, preferred stock, or a combination with warrants, four companies in which we held a loan investment only, 16 companies in which we held warrant investments only, and seven companies in which we held shares of common stock, preferred stock, or equity interests only, or a combination with warrants.

The following table shows the fair value of our investments, by asset class, as of March 31, 2024 and December 31, 2023 (in thousands):

For the three months ended March 31, 2024, our debt investment portfolio had a dollar-weighted annualized yield of 17.4%. For the three months ended March 31, 2023, our debt investment portfolio had a dollar-weighted annualized yield of 15.2%. We calculate the yield on dollar-weighted debt investments for any period measured as (1) total related investment income during the period divided by (2) the daily average of the fair value of debt investments outstanding during the period, including any debt investments on non-accrual status. As of March 31, 2024, our debt investments had a dollar-weighted average outstanding term of 59 months at origination and a dollar-weighted average remaining term of 37 months, or approximately 3.1 years. As of March 31, 2024, substantially all of our debt investments had an original committed principal amount of between $6.0 million and $85.0 million and pay cash interest at annual interest rates of between 8.0% and 14.8%.

The following table shows our dollar-weighted annualized yield by investment type for the three months ended March 31, 2024 and 2023:

(1) We calculate the dollar-weighted annualized yield on average investment type for any period as (a) total related investment income during the period divided by (b) the daily average of the fair value of the investment type outstanding during the period, including any investments on non-accrual status. The dollar-weighted annualized yield represents the portfolio yield and will be higher than what investors will realize because it does not reflect our expenses or any sales load paid by investors.

(2) We calculate the dollar-weighted annualized yield on average investment type for any period as (a) total related investment income during the period divided by (b) the daily average of the investment type outstanding during the period, at amortized cost, including any investments on non-accrual status. The dollar-weighted annualized yield represents the portfolio yield and will be higher than what investors will realize because it does not reflect our expenses or any sales load paid by investors.

Investment Activity

The value of our investment portfolio will change over time due to changes in the fair value of our underlying investments, as well as changes in the composition of our portfolio resulting from purchases of new and follow-on investments as well as repayments and sales of existing investments. During the three months ended March 31, 2024, the Company funded $19.7 million in one new portfolio company, and $5.0 million in one existing portfolio company, net of upfront loan origination fees and refinances. The Company also received $34.4 million in loan prepayments from two portfolio companies and $0.4 million in scheduled principal payments from one portfolio company. There were no proceeds from the termination of warrants, sale of preferred stock, or sale of common stock. During the three months ended March 31, 2023, the Company did not fund any new portfolio companies and funded $12.9 million in five existing portfolio companies, net of upfront loan origination fees and refinances. The Company also received $10.2 million in loan repayments from two portfolio companies. There were no proceeds from the termination of warrants, sale of preferred stock, and sale of common stock.

Portfolio Reconciliation

The following is a reconciliation of our investment portfolio, including U.S. Treasury Bills, for the three months ended March 31, 2024 and 2023 (in thousands):

56

Asset Quality

In addition to various risk management and monitoring tools, RGC uses an investment rating system to characterize and monitor the quality of our debt investment portfolio. Equity securities and Treasury Bills are not graded. This debt investment rating system uses a five-level numeric scale. The following is a description of the conditions associated with each investment rating:

The following table shows the investment ratings of our debt investments at fair value as of March 31, 2024 and December 31, 2023 (dollars in thousands):

Loans and Debt Securities on Non-Accrual Status

Generally, when interest and/or principal payments on a loan become past due, or if we otherwise do not expect the borrower to be able to service its debt and other obligations, we will place the loan on non-accrual status and will cease recognizing interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to a restructuring such that the interest income is deemed to be collectible. As of March 31, 2024 and December 31, 2023, we have not written off any accrued and uncollected PIK interest. As of March 31, 2024, we had two loans on non-accrual status: one loan to Mingle Healthcare Solutions, Inc. with a cost basis of $5.0 million and a fair value of $3.2 million, and Snagajob, Inc, with a cost basis of $42.7 million and a fair value of $35.5 million representing 3.8% of the Company’s total investment portfolio. From being placed on non-accrual status through March 31, 2024, cumulative interest of $0.2 million would be receivable and not recorded in "Interest income from control investments" on the Consolidated Statements of Operations. As of December 31, 2023, we had no loans on non-accrual status.

Results of Operations

An important measure of our financial performance is "Net increase (decrease) in net assets resulting from operations" on the Consolidated Statement of Operations, which includes "Net investment income (loss)", "Net realized gain (loss)" and "Net change in unrealized gain (loss)". "Net investment income (loss)" is the difference between our income from interest, dividends, fees and other investment income and our operating expenses, including interest on borrowed funds. "Net realized gain (loss) on investments" is the difference between the proceeds received from dispositions of portfolio investments, and U.S. Treasury Bills and their amortized cost. "Net change in unrealized gain (loss) on investments" is the net change in the fair value of our investment portfolio.

Comparison of the Three Months Ended March 31, 2024 and 2023

The following table is a comparison of the results of our operations for the three months ended March 31, 2024 and 2023 (dollars in thousands):

(1) The basic per share figures noted above are based on weighted averages of 40,392,255 and 40,509,269 shares outstanding for the three months ended March 31, 2024 and 2023, respectively.

Investment Income

Our investment objective is to maximize total return to our stockholders primarily through current income on our loan portfolio, and secondarily through capital gain on our warrants and other equity positions. We intend to achieve our investment objective by investing in high growth-potential, private companies. We typically invest in senior secured loans that generally fall into two strategies: Sponsored Growth Lending and Non-Sponsored Growth Lending. We generally receive warrants and/or other equity from our investments. We expect our investments in loans will generally range from between $10.0 million to $100.0 million, and the upper end of this range may increase as we raise additional capital.

We generate revenue in the form of interest on the debt securities that we hold and distributions and capital gains on other interests that we acquire in our portfolio companies. We expect that the debt we invest in will generally have stated terms of 36 to 60 months. Interest on debt securities is generally payable monthly, primarily based on a floating rate index, and subject to certain floors determined by market rates at the time the investment is made. In some cases, some of our investments may provide for deferred interest payments or PIK interest. The principal amount of the debt securities and any accrued but unpaid interest will become due at the maturity date. Any original issue discount ("OID") or market discount or premium will be capitalized, and we will accrete or amortize such amounts as interest income. We record prepayment fees on debt investments as fee income. Dividend income, if any, will be recognized on an accrual basis to the extent that we expect to collect such amounts.

Investment income for the three months ended March 31, 2024 and 2023 was $40.0 million and $39.3 million, respectively, and includes non-recurring income of $3.7 million and $0.6 million, respectively. Non-recurring income includes, but is not limited to, acceleration of unaccreted OID, prepayment fees and amendment fees. The increase in investment income for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 was primarily due to increased payment-in-kind interest income activity from non-control/non-affiliate investments.

Operating Expenses

Our primary operating expenses include the payment of fees to RGC under the Advisory Agreement, our allocable portion of overhead expenses under the Administration Agreement, professional fees, and other operating costs described below. We bear all other out-of-pocket costs and expenses of our operations and transactions, including those relating to:

• our pro-rata portion of fees and expenses related an initial public offering in connection with a Spin-Off transaction (as defined in "Note 3 – Related Party Agreements and Transactions" to our consolidated financial statements in Part I, Item 1 of this Form 10-Q);
• fees and expenses related to public and private offerings, sales and repurchases of our securities;
• calculating our net asset value (including the cost and expenses of any independent valuation firm);
• fees and expenses payable to third parties, including agents, consultants or other advisers, in connection with monitoring financial and legal affairs for us and in providing administrative services, monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise relating to, or associated with, evaluating and making investments;
• interest payable on debt incurred to finance our investments;
• sales and purchases of our common stock and other securities;
• investment advisory and management fees;
• administration fees payable under the Administration Agreement;
• transfer agent and custodial fees;
• federal and state registration fees;
• all costs of registration and listing our securities on any securities exchange;
• U.S. federal, state and local taxes;
• independent directors’ fees and expenses;
• costs of preparing and filing reports or other documents required by the SEC, the Financial Industry Regulatory Authority or other regulators;
• costs of any reports, proxy statements or other notices to stockholders, including printing costs;
• our allocable portion of any fidelity bond, directors’ and officers’ errors and omissions liability insurance, and any other insurance premiums;
• direct costs and expenses of administration, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors and outside legal costs; and
• all other expenses incurred by us, our Administrator or RGC in connection with administering our business, including payments under the Administration Agreement based on our allocable portion of our Administrator’s overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of the cost of our Chief Compliance Officer and Chief Financial Officer and their respective staffs.

Operating expenses for the three months ended March 31, 2024 and 2023 were $21.3 million and $21.1 million, respectively. Operating expenses increased for the three months ended March 31, 2024 from the three months ended March 31, 2023 primarily due to increased performance-based incentive fees, and credit loss expense associated with the establishment of the CECL reserve. Operating expenses for the three months ended March 31, 2024 and 2023 were $0.53 and $0.52 per share, respectively.

Management fees for the three months ended March 31, 2024 and 2023 were $4.0 million and $4.0 million, respectively. Management fees remained flat for the three months ended March 31, 2024 from the three months ended March 31, 2023 primarily due to consistent gross assets when comparing prior quarters in arrears.

Incentive fees for the three months ended March 31, 2024 and 2023 were $4.7 million and $4.6 million, respectively. Incentive fees increased for the three months ended March 31, 2024 from the three months ended March 31, 2023 primarily due to an increase in net investment income and increased prepayment fee income in the current quarter. For the three months ended March 31, 2024, $3.6 million of the incentive fees were payable in cash, and $1.1 million were deferred and accrued. For the three months ended March 31, 2023, $3.5 million of the incentive fees were payable in cash, and $1.1 million were deferred and accrued. Incentive fees related to PIK or deferred interest are accrued and payment is deferred until such interest is collected in cash. Incentive fees for the three months ended March 31, 2024 and 2023 were $0.12 and $0.11 per share, respectively.

Net Investment Income

Net investment income for the three months ended March 31, 2024 and 2023 was $18.7 million and $18.2 million, respectively. Net investment income increased for the three months ended March 31, 2024 from the three months ended March 31, 2023 was primarily due to growth in payment-in-kind income and fee income partially offset by an increase in performance-based incentive fees. Net investment income for the three months ended March 31, 2024 and 2023 was $0.46 and $0.45 per share, respectively.

Net Realized Gain (Loss) on Investments

There was no net realized gain (loss) on investments for the three months ended March 31, 2024. The net realized loss on investments of $1.2 million for the three months ended March 31, 2023 was due to a loss of our investments in the warrants of CareCloud, Inc. and Gynesonics, Inc.

Net Change in Unrealized Gain (Loss) on Investments

Net change in unrealized loss on investments of $6.6 million for the three months ended March 31, 2024 was primarily due to a decrease in the fair value of our preferred stock investment in CareCloud, Inc., our senior secured loans to Snagajob.com, Inc., Mingle Healthcare Solutions, Inc., and FiscalNote, Inc., and our common stock investment in Coginiti Corp. The net change in unrealized loss on investments of $5.1 million for the three months ended March 31, 2023 was primarily due to decreases in the fair value of our senior secured loan to Gynesonics, Inc. and preferred stock in Gynesonics, Inc., partially offset by an increase in the fair value of our senior secured loan to Pivot3, Inc.

Net Increase (Decrease) in Net Assets Resulting from Operations

We had a net increase in net assets resulting from operations of $12.0 million for the three months ended March 31, 2024, as compared to a net increase in net assets resulting from operations of $12.0 million for the three months ended March 31, 2023.

Financial Condition, Liquidity, Capital Resources and Obligations

Our liquidity and capital resources are derived from net proceeds from the offering of our securities, debt borrowings and cash flows from operations, including investment sales and repayments, and income earned. We have used, and expect to continue to use, our debt and the proceeds from the turnover of our portfolio and from public and private offerings of securities to finance our investment objectives. We expect that we may also generate cash from any financing arrangements we may enter into in the future and any future offerings of our equity or debt securities. Financing arrangements may come in the form of borrowings from banks or issuances of senior securities, which may be secured or unsecured, through registered offerings or private placements. Our primary use of funds is to make investments in eligible portfolio companies, pay our operating expenses and make distributions to holders of our common stock.

During the three months ended March 31, 2024, we principally funded our operations from (i) cash receipts from interest, dividend, and fee income from our investment portfolio and (ii) cash proceeds from the realization of portfolio investments through the repayments of debt investments and the sale of debt and equity investments.

During the three months ended March 31, 2024, our operating activities provided $68.6 million of cash and cash equivalents, compared to $18.5 million used during the three months ended March 31, 2023, respectively. The $87.1 million increase in cash provided by operating activities was primarily due to a $23.2 million decrease in purchases of investments and U.S. Treasury Bills and a $62.7 million increase in sales and repayments of investments and U.S. Treasury Bills.

During the three months ended March 31, 2024, our financing activities used $64.7 million of cash, compared to $16.0 million provided by financing activities during the three months ended March 31, 2023. The $80.7 million increase in cash flows used in financing activities was primarily due to decreased net borrowing activity of $70.0 million, increased dividend distributions of $0.8 million, and increased share repurchases of $10.6 million.

As of March 31, 2024, our net assets totaled $529.5 million, with a net asset value per share of $13.36. We intend to continue to operate in order to generate cash flows from operations, including income earned from investments in our portfolio companies. Our primary use of funds will be investments in portfolio companies and cash distributions to holders of our common stock.

Available Liquidity and Capital Resources

As of March 31, 2024, we had $319.9 million in available liquidity, including $6.9 million in cash and cash equivalents, and approximately $313.0 million available under our Credit Facility, subject to borrowing base capacity. As of March 31, 2024, we had $237.0 million of secured debt outstanding under our Credit Facility, which are floating interest rate obligations and $247.3 million of unsecured debt outstanding under 2026 and 2027 Notes, which are all fixed interest rate debt obligations. Refer to "Note 7 – Borrowings" to our consolidated financial statements in Part I, Item 1 of this Form 10-Q for additional discussion of our debt obligations.

Pursuant to the 1940 Act, we are permitted to incur borrowings, issue debt securities, or issue preferred stock unless, immediately after the borrowings or issuance, the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock is at least 150% (at least 200% prior to June 17, 2022). As of March 31, 2024 and December 31, 2023, our asset coverage ratio was 209% and 205%, respectively.

As detailed above, our diverse and well-structured balance sheet is designed to provide a long-term focused and sustainable investment platform. Currently, we believe we have sufficient liquidity to support our near-term capital requirements.

Commitments and Obligations

Our significant contractual payment obligations relate to our borrowings and deferred incentive fees. As of March 31, 2024, we had $484.3 million of debt outstanding, none of which was due within the next year, $332.0 million within 1 to 3 years, and $152.3 million beyond 3 years. As of March 31, 2024, we had $10.2 million of deferred incentive fees, $0.5 million of which was due within the next year, $5.9 million within 1 to 3 years, and $3.8 million beyond 3 years.

In addition to our on-balance sheet contractual obligations, in the normal course of business, we have future cash requirements related to our financial instruments with off-balance sheet risk. These consist of unfunded commitments to extend credit, in the form of loans, to our portfolio companies. Unfunded commitments to provide funds to portfolio companies are not reflected on our balance sheet.

Our unfunded commitments may be significant from time to time. As of March 31, 2024, we had a total of $235.8 million in unfunded commitments which was comprised of $200.8 million to provide debt financing to its portfolio companies and $35.0 million in unfunded commitments to provide equity financing to the Runway-Cadma I LLC. Unfunded contractual commitments depend upon a portfolio company reaching certain milestones before the debt commitment is available to the portfolio company, which is expected to affect our funding levels. These commitments are subject to the same underwriting and ongoing portfolio maintenance as the on-balance sheet financial instruments that we hold. From time to time, unfunded contractual commitments may expire without being drawn and thus do not represent future cash requirements. We maintain sufficient liquidity (through cash on hand and available borrowings under the Credit Facility) to fund such unfunded commitments should the need arise. As of March 31, 2024, we had approximately $42.0 million of available unfunded commitments to portfolio companies that are eligible to be drawn based on achieved milestones and $35.0 million in unfunded capital commitments to Runway-Cadma I LLC. Refer to “Note 8 – Commitments and Contingencies” of our consolidated financial statements in Part I, Item 1 of this Form 10-Q for a summary of unfunded commitments by portfolio company as of March 31, 2024.

The fair value of our unfunded commitments is considered to be immaterial as the yield determined at the time of underwriting is expected to be materially consistent with the yield upon funding, given that interest rates are generally pegged to market indices and given the existence of milestones, conditions and/or obligations embedded in the borrowing agreements.

Repurchase Program

On February 24, 2022, our Board of Directors approved a repurchase program (the “ Initial Repurchase Program”) under which we could have repurchased up to $25.0 million of our outstanding common stock, prior to its expiration on February 24, 2023. Under the Initial Repurchase Program, we could have repurchased shares at management’s discretion from time to time in open-market transactions, in accordance with all applicable securities laws and regulations. As of March 31, 2024 and December 31, 2023, we had repurchased 871,345 shares of our common stock under the Initial Repurchase Program for an aggregate purchase price of $10.8 million. The Board of Directors did not renew the Initial Repurchase Program, and it expired on February 24, 2023.

On November 2, 2023, our Board of Directors approved a new share repurchase program (the "Repurchase Program"), under which we may repurchase up to $25.0 million of our outstanding shares of common stock. Under the Repurchase Program, purchases may be made at management’s discretion from time to time in open-market transactions, in accordance with all applicable securities laws and regulations. As of March 31, 2024, we had repurchased 887,096 shares in connection with the Repurchase Program for an aggregate purchase price of $10.6 million. If not renewed, the Repurchase Program will terminate upon the earlier of (i) November 2, 2024 and (ii) the repurchase of $25.0 million of the Company's shares of common stock.

Distributions

To the extent that we have funds available, we intend to make quarterly distributions to our stockholders. Our stockholder distributions, if any, will be determined by our Board of Directors. Any distribution to our stockholders will be declared out of assets legally available for distribution. We anticipate that distributions will be paid from income primarily generated by interest and dividend income earned on investments made by us.

During the three months ended March 31, 2024, we declared and paid dividends in the amount of $19.0 million, of which $18.8 million were distributed in cash and the remainder distributed in shares to stockholders pursuant to our Dividend Reinvestment Plan. For the three months ended March 31, 2023, we declared dividends in the amount of $18.2 million, of which $17.5 million were distributed in cash and the remainder distributed in shares to stockholders pursuant to our Dividend Reinvestment Plan.

The timing and amount of our distributions, if any, will be determined by our Board of Directors and will be declared out of assets legally available for distribution. Refer to "Note 9 – Net Assets" of our consolidated financial statements in Part I, Item 1 of this Form 10-Q for a summary of the distributions declared and paid since inception.

Critical Accounting Estimates

The preparation of the consolidated financial statements and related disclosures in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and revenues and expenses during the period reports. Actual results could materially differ from those estimates. For a description of our critical accounting policies, including those related to the valuation of investments and our election to be treated, and intent to qualify annually, as a RIC refer to “Note 2 – Summary of Significant Accounting Policies” to our consolidated financial statements in Part I, Item 1 of this Form 10-Q. We consider the most significant accounting policies to be those related to our Fair Value Measurements and Income Taxes.

We commenced investment activities in portfolio securities during the quarter ended June 30, 2017 and commenced investment activities in U.S. Treasury Bills during the quarter ended December 31, 2016.

We are subject to financial market risk, including changes in the valuations of our investment portfolio. Market risk includes risks that arise from changes in interest rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. The prices of securities held by us may decline in response to certain events, including those directly involving the companies we invest in; conditions affecting the general economy; overall market changes; legislative reform; local, regional, national or global political, social or economic instability; and interest rate fluctuations. Uncertainty with respect to the economic efforts of rising interest rates and inflation has introduced significant volatility in the financial markets, and the effects of this volatility could materially impact our market risks.

Valuation Risk

Our investments may not have a readily available market price, and we value these investments at fair value as determined in good faith by our Board of Directors in accordance with our valuation policy. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and it is possible that the difference could be material.

Interest Rate Risk

We are subject to financial market risks, including changes in interest rates. Interest rate risk is defined as the sensitivity of our current and future earnings to interest rate volatility, variability of spread relationships, the difference in re-pricing intervals between our assets and liabilities and the effect that interest rates may have on our cash flows. Changes in interest rates may affect both our cost of funding and our interest income from portfolio investments, and cash and cash equivalents. Changes in interest rates can also affect our ability to acquire and originate loans and securities and the value of our investment portfolio. Our net investment income is affected by fluctuations in various interest rates, including SOFR and Prime rates. Increasing interest rates could have the effect of increasing our total investment income once interest rates increase above contractual interest rates floors to which our portfolio companies are subject. Conversely, we would expect the cost of our floating rate Credit Facility and unsecured notes to increase as well, offsetting the positive effect on our net interest income.

As of March 31, 2024, 100.0% of our performing debt portfolio investments bore interest at variable rates, consisting of approximately 66.0% based on SOFR and 34.0% based on Prime. As a policy, any interest above the cash cap, if applicable, as determined on an individual loan basis will accrue to principal and be treated as PIK interest. A hypothetical 200 basis point increase or decrease in the interest rates on our variable-rate debt investments could increase our investment income by a maximum of $18.3 million and decrease our investment income by a maximum of $15.9 million, due to certain floors, on an annual basis.

Our debt borrowings under the Credit Facility bear interest at a floating rate, all other outstanding debt borrowings bear interest at a fixed rate. Borrowings under the Credit Facility bear interest on a per annum basis equal to the SOFR plus an applicable margin rate that ranges from 2.95% to 3.35% per annum depending on the Company's leverage ratio and number of eligible loans in the collateral pool. For additional information regarding the interest rate associated with each of our debt borrowings, refer to "Note 7 – Borrowings" to our consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Because we currently borrow, and plan to borrow in the future, to originate loans and securities, our net investment income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds would increase, which could reduce our net investment income if there is not a corresponding increase in interest income generated by our investment portfolio.

We regularly measure exposure to interest rate risk. We assess interest rate risk and manage interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. We may hedge against interest rate and currency exchange rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates.

In addition, any investments we make that are denominated in a foreign currency will be subject to risks associated with changes in currency exchange rates. These risks include the possibility of significant fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity in the secondary market. These risks will vary depending upon the currency or currencies involved, and may be exacerbated current economic conditions and any associated impact on foreign financial markets.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a‑15 under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be disclosed by us in the reports we file or submit under the Exchange Act.

There have been no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

You should carefully consider the risks described below and all other information contained in this quarterly report on Form 10-Q, including our interim consolidated financial statements and the related notes thereto, before making a decision to purchase our securities. The risks and uncertainties described below are not the only ones we may face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. If that happens, you may lose all or part of your investment. There have been no material changes known to us during the period ended March 31, 2024 to the risk factors discussed in “Risk Factors” in Part I, Item 1A of our annual report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 7, 2024.

The risks and uncertainties described in our annual report on Form 10-K are not the only ones we may face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. If any of the risks listed in our annual report on Form 10-K actually occur, our business, financial condition or results of operations could be materially adversely affected. If that happens, you may lose all or part of your investment.