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TriplePoint Venture Growth BDC Corp (NYSE:TPVG)
Q3 2019 Earnings Call
Nov 6, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen, and welcome to the TriplePoint Venture Growth's Third Quarter 2019 Earnings Conference Call.

[Operator Instructions]

This conference call is being recorded and a replay of the call will be available as an audio webcast on the TriplePoint Venture Growth website. Company management is pleased to share with you the results of the company for the third quarter 2019. Today, representing the company is Jim Labe, Chief Executive Officer and Chairman of the Board; Sajal Srivastava, President and Chief Investment Officer; and Chris Mathieu, Chief Financial Officer.

Before I turn the call over to Mr. Labe, I would like to direct your attention to the customary safe harbor disclosure in the company's press release regarding forward-looking statements and remind you that during this call, management will make certain statements that relate to future events or the company's future performance or financial condition, which may be considered forward-looking statements under federal securities law. You are asked to refer to the company's most recent filings with the Securities and Exchange Commission for important factors that could cause actual results to differ materially from these statements. The company does not undertake any obligation to update any forward-looking statements or projections unless required by law. Investors are cautioned not to place undue reliance on any forward-looking statements made during the call, which reflect management's opinions only as of today. To obtain copies of our latest SEC filings, please visit the company's website at www.tpvg.com.

Now I will turn the call over to Mr. Labe.

James P. Labe -- Chief Executive Officer and Chairman of the Board Co-Founder

Thanks, operator, and good afternoon, everybody. We had some mixed results this quarter. We experienced only one very small customer prepayment. It was a nominal amount. We also had a reduction in our stock prices in our public stockholdings and saw a decrease in value at some of the portfolio watch list companies. So as a result, we didn't cover the dividend with our NII, and we had a $0.72 reduction in NAV. But we also had many positive events and developments, which benefits us in the continued growth in scaling of TPVG in what is shaping up to be a really strong originations and fundings year. Before I get to those successes, let me address the mixed result. As many of you know, prepayments have been a very important part of the business. In fact, we have experienced at least one every quarter for almost the past three years, but we can't control the size or magnitude of them. We have had one large prepayment already here in the fourth quarter, for example, which, if it did happen in the third quarter, last quarter, it would have led to us achieving NII in excess of the dividend for the quarter. And we are only 40 days into the current quarter right now. We have always said to judge our performance on a full year basis.

So on a year-to-date basis, our dividend is covered. In fact, given the recent fourth quarter prepayment I just mentioned, the dividend should be more than covered as well. But of more importance, I look at the strong growth in our investment portfolio, which is generating more core investment income and approaching the scale where we may not be dependent on any of these prepayments in order to cover our dividend. I'm pleased with that, and I believe we can get there as we continue to lever up. With regard to the volatility of our public stockholdings last quarter, once again, it's not in our control. But I'm very pleased that our venture lending business has what I call the secret sauce. This is the warrant and equity kickers that are part of our debt investments. It allows us to generate even higher total returns. Even after this reduction in the public stock prices we had this past quarter, we are still sitting on more than $16 million of gains at the Q3 closing prices. So we see upside on top of originating these attractive, high-yielding loans. The other benefit of this venture lending secret sauce is that it allows us to offset any bumps in the credit that we may have along the way. So we take comfort that there were absolutely no new names added and the credit issues were isolated to the unique circumstances of these individual underlying companies.

So as I look to NAV, we are basically $0.03 or so below where we started the year, and it appears it may be potentially higher when we factor in the fourth quarter's prepayment that I just mentioned. I believe the continued growth, scale and diversification path we are on will benefit us in the future, and we made great progress on that front this last quarter. We grew the portfolio to a record level, and our outlook for the full year continues, again, to be exceptionally strong. Our fundamental venture growth lending investment strategy, venture capital relationships, reputation, investment discipline and our growing portfolio of companies backed by our select group of leading venture capital investors, continues to be the fuel that's going to drive us to the strong finish for the year and what I think is an accelerated start as we head into 2020. So with that, here's a summary of some of the other highlights from the quarter. Our pipeline continues to grow from the volume of direct leads from these venture capital investors. In fact, it's now more than a record $2 billion in size at the TriplePoint platform. We signed $301 million worth of new term sheets at venture growth stage companies. This was our second highest ever. The investment portfolio grew to its highest level, a record $526 million through funding $83 million in new debt investments during the quarter. During the quarter, we also had another one of our portfolio companies where we hold equity go public.

This was Medallia and it's currently trading above its IPO price. But our positions in CrowdStrike and Farfetch were impacted by that recent volatility in the public tech stocks resulting in a partial reversal of some of our unrealized gains. We also increased the warehouse facility during the quarter to $300 million and this adds capacity for us to fund additional growth and it's a largest facility in the venture lending industry. Another development during the quarter was receiving an investment grade credit rating from DBRS acknowledging what is now our 15-year plus TriplePoint platform track record in the venture lending industry. And finally we were pleased to welcome Chris Mathieu who started as our new CFO bringing considerable prior BDC and 40s had company experience to the firm. Confirmed by some of my recent rounds in the meetings with some of these select venture capital investors we remain excited about the outlook for increased investment activity in 2020. We see this not only through the growing originations pipeline that I mentioned which is translating off into very strong demand for venture lending but we are being told this by the front lines of our venture investors. Despite the volatility in the public markets as they head into 2020 they are predicting the continuation of this very brisk and unabated pace in venture capital investments particularly in technology in these rapidly growing sectors.

Our select group of leading venture capital investors, in fact, have raised more than $50 billion in the last four years, and are associated with some of the biggest successes in technology over the past several decades. The investors all tell me that they're not driven by a particular public stock or two here or there, or certain headline grabbers or sentiments in the business media, but by the proven fundamentals of successful investing in venture capital. These are investors focused on the long term and building companies from scratch. Given this robust market, we are participating in and the continuing demand for venture lending, we are on track to what we expect will be a strong finish for the year. At the expense of stealing Sajal or Chris' thunder, this is further validated by the high level of new customer fundings we have already experienced in this current quarter alone. Sajal and Chris will get into more details on this development. And again, we are only 40 days into the current quarter. To wrap up, we are excited about the opportunities ahead for our venture growth lending business and are confident, once again, of achieving another year of earnings in excess of our dividend. We plan to capitalize on the record pipeline and build upon some of the records and achievements of 2019, which we believe will translate into continued growth in 2020.

I'll now turn the call over to Sajal.

Sajal K Srivastava -- Chief Investment Officer and President

Thank you, Jim, and good afternoon, everyone. During the third quarter, we signed $301 million of term sheets at TriplePoint Capital and closed $81 million of debt commitments. On a year-to-date basis, we signed $755 million of term sheets and closed $379 million of debt commitments with 21 companies. The first new company commitment closed in the quarter was Moda Operandi, which is an e-commerce platform for fashion discovery that connects consumers directly with established and emerging designers from around the world. Moda has raised more than $290 million of capital from NEA, Apax, LVMH and other investors. The second new company commitment added was Nurix, which is a healthcare services company and telehealth platform covering aspects of adult health. Nurix has raised more than $90 million of capital from Kleiner Perkins, Y Combinator, Union Square Ventures and other investors. As Jim mentioned, we achieved a record level for our investment portfolio this quarter as a result of funding $85 million of debt investments with a 13% weighted average yield on new fundings to nine companies. We also funded $1 million of equity investment in two companies. Year-to-date, we have funded $247 million of debt investments to 20 companies, an increase of 71% as compared to $145 million to 19 companies over the first nine months of 2018. During Q3, we had only $1 million in portfolio company prepayments, which contributed to our 13% overall weighted average quarterly portfolio yield. Without prepayments, our portfolio yield was 12.8%.

During the quarter, we also received $41 million of scheduled amortization and repayments on short-term loans and revolving loan commitments, which was higher than normal. Scheduled principal amortization is generally between $6 million and $9 million a quarter. On a year-to-date basis, we have $101 million of portfolio company prepaids. Core portfolio yield without prepayments was impacted slightly by the reduction in the U.S. primary as well as utilization by some of our portfolio companies under short-term maturity options and/or revolving loan commitments during the quarter. As a reminder, since December 2018, the U.S. prime rate has been reduced from 5.5% to 5% and post Q3 is now at 4.75%. As of Q3, 31% of our funded debt investments were fixed rate loans and 69% of our funded debt investments were floating rate loans. Of those floating rate loans, 74% had prime rate floors set to no less than 4.75%. In fact, 57% had prime rate floors in excess of 5%. So we are well positioned in the decreasing rate environment, especially given our warehouse credit facility is variable rate based. As you know, there is a time lag between when we make a commitment and when an obligor draws. So of our $331 million of unfunded commitments, 73% had prime rate floors set to no less than 4.75% and, in fact, 63% had prime rate floors set to 5% or higher. As we originate new loans, we focus on total debt return thresholds, so we adjust our target spreads based on the then current prime rate and set it as a floor, so protected in a decreasing rate environment and increasing when prime goes up. Moving on to credit quality.

The weighted average investment ranking of our debt investment portfolio was 1.97 as compared to 2.05 at the end of the prior quarter. As a reminder, under our rating system, loans are rated from one to five, with one being the strongest credit rating and new loans are initially generally rated two. No new companies were added to our watch list during the quarter. Two portfolio companies were upgraded from White to Clear due to strong performance. MapR Technologies, a portfolio company where we had only equipment financings outstanding, was removed from category Red during the quarter. As reported in the press, MapR sold to HP Enterprises during the quarter, and we were repaid in line with our Q2 mark and incurred a $1.5 million realized loss. We experienced a $3 million reduction value in the fair value of our loans in Roli, a U.K.-based music technology company, which is currently rated Orange due to delays in its fundraising activities as well as general performance below plan. We are actively working with the company and its investors to get the company on a path to profitability. One portfolio company, Cambridge Broadband, a telecommunications company based in the U.K., was downgraded from Orange to Red during Q3 and we took our fair value mark down to 0 for our term loan due to continued delays in the company's M&A process. We are working with the company and its investors on exploring alternatives.

During the quarter, we downgraded our loan to Harvest Power, an organic waste management company from Yellow to Orange and took a reduction in fair value on our loan of approximately $7 million as a result of the company beginning an accelerated process late in the quarter to explore strategic alternatives. We expect this situation to be resolved here in Q4. On a net basis, our unrealized credit marks represented $0.52 on a per share basis or 3.7% of Q2's net asset value. As we look to these credit developments, we would say the only common factor is underperformance by these companies and, as a result, capital raising or strategic processes taking longer than expected or not going as well as expected. And as a result, we have been collaborating with the companies and their investors for soft landings. Cambridge Broadband represents our last telecom investment and Harvest represents our last energy and clean tech-related investment. As mentioned earlier, during the quarter, Medallia had its successful IPO and has traded up since. Our gains in Medallia were offset by volatility with the warrant and equity investments associated with our public portfolio companies, CrowdStrike and Farfetch. As a result, the prior gains in our public equity and warrant portfolio were reduced by $5.2 million or $0.21 on a per share basis, which was 1.5% of Q2's net asset value. Having said that, as a reminder, our cost basis in these investments were low to begin with. And even with the volatility, we have over $16 million of net unrealized gains on the equity and warrants from these three companies. On a year-to-date basis, we have had $14 million of net unrealized gains from our equity and warrant portfolio and $12 million of net unrealized losses.

So the equity kickers have offset any credit-related impacts to NAV and again, demonstrate the uniqueness of our venture growth stage lending model and our ability to preserve NAV even with credit impairments. We continue to see robust fundraising activity in the portfolio with seven portfolio companies raising over $400 million of equity, in total, in private rounds during the quarter. We also have a number of portfolio companies exploring exit options, including IPOs, despite the public markets. As of quarter's end, our top five positions represented 34.6% of the total debt investment portfolio on a fair value basis, down from 37.5% last quarter and 54.1% from Q3 2018. We continue to make progress in diversifying our portfolio, thanks in part to overall portfolio growth and utilization of our co-investment capabilities. Since receiving our exemptive order, TPVG has made 13 co-investments with TPC's proprietary vehicles, and this gives us meaningful financial flexibility as we scale the business. As Jim mentioned, on a year-to-date basis, our NII is in excess of our dividend, and our NAV is only $0.03 less than where we started the year.

We are on track for an especially strong Q4 to close out the year. In particular, just over one month into Q4, we have signed $43 million of new term sheets, closed $61 million of debt commitments and funded $94 million of debt investments. On top of that, we have had $26 million in prepays, which has generated significant additional interest income here in Q4, which, as Jim mentioned, would have enabled us to more than cover the dividend if it occurred in Q3, but clearly puts us in a strong position for Q4. We have put all the excess cash on hand as of the end of Q3 and the prepays received here in Q4 back to work. So barring any more prepays, we expect our leverage ratio to increase as we approach quarter end. As a reminder, our portfolio covers the dividend without prepayments at the higher end of our target leverage ratio. So as a result, we are heads down focused on growing the portfolio and a strong finish for 20 and a strong start to 2020.

I'll now turn the call over to Chris to highlight some of the key financial metrics achieved during the quarter.

Christopher M. Mathieu -- Chief Financial Officer

Great. Thank you, Sajal. Let me take a few minutes to provide some financial highlights for the quarter. Total investment income was $15.7 million for the third quarter of 2019, a decrease of 11% or $2 million compared to Q3 of 2018. The decrease in investment income was primarily due to lower prepayment income, partially offset by an increase in interest income resulting from a larger average debt investment portfolio. During Q3 2019, we recorded loan prepayments of just $1 million, generating fee income of $209,000 compared to Q3 of last year when we recorded loan prepayments of $96 million and generating fee income of $4.5 million. Total operating expenses during the quarter were $8.6 million, consisting of interest expense-based management fee, income incentive fee and administrative and general expenses. Total operating expenses increased approximately 12% or $900,000 over the third quarter of 2018 when the total was $7.7 million. The increase in operating expenses was primarily related to asset growth, which generated an increase in management fees and higher interest expense from a larger average debt balance. Net investment income or NII for the third quarter was $7.1 million or $0.29 per share compared to $10 million or $0.46 per share in the third quarter of 2018. The change in NII was primarily due to lower prepayment income recorded in the third quarter as compared to 2018. We recorded net realized losses of $1.8 million in the third quarter, primarily from the disposition of one portfolio company.

We recorded net unrealized depreciation during the quarter of $14.1 million, including mark-to-market adjustments on our warrant and equity portfolio of $4.8 million and mark-to-market adjustments on debt portfolio totaling $8.4 million. We ended the quarter with total investments of $526 million at fair value, up 49% from the prior year and up 21% from year-end 2018. At September 30, we held 159 investments in 65 portfolio companies with a cost basis and fair value of $526 million. This total breaks down to $478 million in our debt portfolio and $48 million in our warrant and equity portfolio. We ended the quarter with a strong liquidity position. Total liquidity of $190 million consisted of cash and cash restricted of $61 million and $129 million of undrawn availability under our revolving credit facility, subject to customary borrowing base and other restrictions. During the quarter, we took advantage of the accordion feature of our revolving credit facility by increasing its size from $265 million to $300 million by adding two new lenders, Hitachi Capital and NBH Bank. As mentioned earlier, we are pleased to use this variable rate facility to fund our portfolio growth and take advantage of movements by the Fed.

As we look to utilization of leverage in 2020, our game plan is to take advantage of our recent investment-grade rating from DBRS to explore lower cost options on the private and public side as well as potential securitizations in order to maintain the higher end of our target leverage ratio and bring our cost of debt down. Total outstanding debt as of the end of the quarter was approximately $245 million, consisting of $74.8 million of long-term fixed rate baby bonds maturing in 2022 and $170 million drawn under our revolving credit facility. This results in a leverage ratio of 0.73x, which is within our target range. We ended the quarter with net assets of $335 million or $13.47 per share. After giving effect to NII and the net realized loss and net unrealized depreciation, we recorded a net decline in NAV from operations of $17.2 million or $0.72 per share. This is down $0.03 per share compared to NAV as of December 31, 2018. During the third quarter, we distributed $0.36 per share, consisting of our regular quarterly dividend. Our Board of Directors declared a distribution of $0.36 per share for the third quarter payable on December 16 to stockholders of record as of November 29. This declaration marks the 23rd consecutive quarter we have increased or maintained our quarterly distribution. After giving effect of these declared distributions, we continue to estimate spillover income consistent with our spillover at year-end 2018, which totaled approximately $4.6 million or $0.185 per share.

At this point, we would be happy to take your questions. Operator, can you please open the line for the participants?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Casey Alexander with Compass Point. Please go ahead.

Casey Alexander -- Compass Point -- Analyst

Hi good afternoon. I have a question, and this is it might sound like a loaded question, but this was sort of a pass-through from that we got from investors. You have an investment in Knotel, with its debt and equity. And on the equity side of the investment, Knotel received a large investment from Wafra during the quarter. Then, the next week, the largest comparable in the business, WeWork, had about an 80% fair value adjustment downward. So I'm curious how do you contour the mark that was received on the investment that Knotel received in light of the change in the largest comparable in the group, which was an order of magnitude change? How do you contour that?

James P. Labe -- Chief Executive Officer and Chairman of the Board Co-Founder

Yes. So Casey, I'll take a first stab at that. But I suppose from the outside, that's how it sounds or reads. But these are completely different companies and businesses. And I think Knotel will take quite an exception to anyone drawing a different conclusion. On one hand, what's crossed my mind is we got an overblown valuation, 20x, 25x revenue kind of a company with all kinds of antics and excesses, a failed IPO and here's Knotel, a completely different business model, recently raising a good amount of financing, huge amounts of money across multiple investors just for beginners, but then really, the business model completely different. So Knotel is far more into working with large customers, Fortune 500, long-term multiyear contracts. They're not in that month-to-month rental. They're into these long-term contracts. They're not into co-working. They're not into freelancers or start-ups. It's a completely different model.

Sajal K Srivastava -- Chief Investment Officer and President

Yes. And I think more specifically, Casey, the valuation multiples that investors used for the round of financing for Knotel were nowhere near the multiples associated with that from WeWork. And then also to point out that obviously, the WeWork registration statement was out in the public domain, so the world did know about where their financial profile was and where they were versus the valuation out there, and we can confirm that Knotel had a much more disciplined valuation compared to WeWork.

Casey Alexander -- Compass Point -- Analyst

All right, great. I appreciate your answering that question because I know that was kind of a difficult one. My next question is just in the broader market. We had a real sort of reset in what I call the technology unicorn space. How do you think that I mean, I know it doesn't impact you per se because you're the debt investor, but you do have the equity components. How do you, in your conversations with the VCs, think that, that may have changed the exit outlook for some of the companies that you guys have led to and also have equity co-invest with?

Sajal K Srivastava -- Chief Investment Officer and President

Yes. I mean, I would say that I think the perception has always been that the bar for being a publicly traded company has historically always been very high. And so it's a small percentage of companies that, we would argue, meet that, the requirements now or that are even considering it. And so I would say there's it hasn't been a major surprise in terms of how some of the public companies have traded with regards to the IPO outlook, or it isn't making the IPO less attractive or more attractive as many companies know that the bar has been pretty high. And I think what we have seen is it's created further volatility in terms of timing of when exit events may happen. And so we have seen companies that were maybe planning for those exit events, be it M&A or IPO, to happen earlier, or planning for them to take longer to occur, which candidly creates more demand for debt, which and potentially equity capital. So it helps the overall market opportunity for us. But I would also say our VC investors, they're focusing on the longer ball, so to speak. And so they're not necessarily investing today based on how the NASDAQ or New York Stock Exchange is trading. I do think it does impact existing companies as they look to their timing and exit timing, but less on the new investments and new lending opportunities.

Casey Alexander -- Compass Point -- Analyst

Okay. That's helpful. And this is just last, just to make sure, did you say that you had funded already $94 million of debt investments in Q4?

Christopher M. Mathieu -- Chief Financial Officer

Correct.

Casey Alexander -- Compass Point -- Analyst

Okay great. I'll get out of the way now. Let some other folks ask some questions.

James P. Labe -- Chief Executive Officer and Chairman of the Board Co-Founder

Thank you Casey.

Operator

Our next question comes from Fin O'Shea with Wells Fargo. Please go ahead.

Fin O'Shea -- Wells Fargo -- Analyst

Hi everyone. Good afternoon and thanks for having me on and welcome aboard mr. Mathieu.

Christopher M. Mathieu -- Chief Financial Officer

Thank you.

Fin O'Shea -- Wells Fargo -- Analyst

I want to touch on the sort of problem names this quarter, understanding that everything is private and confidential, but just sort of how the progression of the marks got to where we were. So the one that stands out to me most is Harvest Power because that's been in your portfolio for quite a long time and didn't stand out on a valuation perspective, it was at 97 last quarter. So when I heard the word turbocharged M&A, does that mean it was something really idiosyncratic? Or is this just I mean, I guess, that would basically be the question because I don't know how else it would decline so quickly on a performance or a milestone perspective.

Sajal K Srivastava -- Chief Investment Officer and President

Yes, Fin, I'd say exactly idiosyncratic. And as you may recall, Harvest, I believe our original loan balance was $20 million. It's amortized down to $13 million. So it's been a current payer and so exactly, idiosyncratic development and causing this accelerated strategic exploration is resulting in our mark.

Fin O'Shea -- Wells Fargo -- Analyst

And did this did that start just recently? Because it looks like last quarter, you got a change in the interest rate. I guess, maybe I don't know if it's like the cash interest rate went up to 13%. So did it kind of did it maybe hit some covenant and you got some amendments earlier in the year?

Sajal K Srivastava -- Chief Investment Officer and President

Yes. I mean, there have been some modifications during the year, which, again, were all kind of generally in part of the company servicing its debt and good developments at the company or developments of the company. The strategic stuff all happened relatively late in the quarter and here in Q4.

Fin O'Shea -- Wells Fargo -- Analyst

Okay. And then just the other two, I could kind of lump together. It sounds pretty similar theme where the exit story or next rounding story fell through at the end. I guess, focus on Roli because Cambridge was already marked at a pretty distressed level, so maybe that one won't surprise us. But both of these were non-accrual as well. How do you if we look at, again, I guess, stick to Roli, part of it's non-accrual, so we assume there's a waterfall assessment going on and meaning this next round in big part is paying you back with something going behind plan. So I guess, really the question is, it sounds like was it sounding like your view on the valuation, having to really thread the needle there. Did something, again, fall apart very last minute here?

Sajal K Srivastava -- Chief Investment Officer and President

Yes. No, again, so I'd say usually, with venture-backed companies, when things developments occur, they happen relatively quickly. And so with all these companies, generally, when there's been a meaningful reduction in value, it's been because of a development that happens fairly quickly. And part of our process as the manager is when we see delays or we see data points from strategic processes or capital raisings, either data points or delays or public comp multiples, we take all those into effect when we value the loan. And even though we are the most senior and we think there's enterprise value, you've got to apply discount rates, you've got to apply probability of various outcomes. And so you can think you're going to get all your money back, but you also have to take in time value, and you have to take in fair value. And so I would say, generally speaking, even a company that you expect to get all your bait back, you may show a lower than fair value because of those discounts that you have to take into account for fair value purposes.

Fin O'Shea -- Wells Fargo -- Analyst

Sure. And then just one more. Does the generally, I guess, I'll ask on high level on all three. Is there some form of bank line revolver in front of you? And if so, was that structure at origination or did further debt come on in front of you, down the line as you worked on these companies, saw amendments and so forth?

Sajal K Srivastava -- Chief Investment Officer and President

Yes. I would say, generally speaking, one of the companies does not have any other debt, and then two of the companies have ABL-type financing.

Fin O'Shea -- Wells Fargo -- Analyst

Okay. That's all for me. Thanks for taking my question.

Operator

The next question comes from Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Christopher Nolan -- Ladenburg Thalmann -- Analyst

Hey guys. Given lower interest rates, given that the IPO market has really slowed down, this is an interesting opportunity for TriplePoint to scale up. Is that how you're looking at it? And if so, what does that mean for capital and expenses going forward?

James P. Labe -- Chief Executive Officer and Chairman of the Board Co-Founder

I'll let Chris answer about the interest rate impacts, but in terms of the current environment, I think, Sajal, you alluded to this, but absolutely is an opportunity. And IPOs getting stretched out, things like that are great from an investment perspective, from an originations perspective, has to be done intelligently, but it's also ideal as an additional supplemental financing to their IPO strategies?

Sajal K Srivastava -- Chief Investment Officer and President

Yes. I think more specifically, Chris, we are seeing increased demand across both our private capital and our public entities across all stages of development. But I wouldn't say it's necessarily related to the public markets. I think it's as Jim said earlier, it's a function of VC fundraising and VC investment activity; that's what's causing strong demand for our debt. The fact that the time to exit is a longer journey and a capital-intensive journey further creates the demand for debt. So yes, across the board, we are seeing it. Obviously, TPVG is externally managed. So as we look to impact of growth for TPVG, it's more fixed and so we will see the benefits of growth and scale, but fundamentally, we are absolutely seeing demand across all our strategies and look to take advantage of it.

Christopher Nolan -- Ladenburg Thalmann -- Analyst

But does that mean that we should be seeing operating expenses start to increase relative to revenues? What does that mean for capital ratios, given your leverage ratio has gone up this quarter?

Christopher M. Mathieu -- Chief Financial Officer

G&A area. Management fees are based on gross assets. So that kind of moves with the growth of the company. I think, as Sajal mentioned, we have the investment-grade rating with DBRS, so I think we can drive down our interest expense over time. So as we scale and get to a higher leverage level, that will be with what we hope will be less expensive debt. So I think that will be the real contributor to ROE over time.

Christopher Nolan -- Ladenburg Thalmann -- Analyst

Great, OK. Thanks for taking my questions.

Operator

The next question comes from Ryan Lynch with KBW. Please go ahead.

Ryan Lynch -- KBW -- Analyst

Hey good afternoon. First question, you mentioned a strong or a large prepayment fee coming in, in the fourth quarter. You said if that fee would have come in, in the third quarter, it would have been large enough debt to cover the dividend. I believe then that that's implying at least a $0.07 per share prepayment fee coming in the fourth quarter. Is that correct? And would you like to quantify the amount?

Christopher M. Mathieu -- Chief Financial Officer

Yes, I think broadly speaking, you're in the right ballpark. I think we are not talking about the exact dollar amounts and letting those be in the...

James P. Labe -- Chief Executive Officer and Chairman of the Board Co-Founder

I think we said it was over $2 million, actually, we said was the gain.

Christopher M. Mathieu -- Chief Financial Officer

Yes. So ballpark over $2 million, but kind of not $0.01 count at this point, but north of $2 million. And yes, it would have fully covered the $0.07 shortfall in Q3.

Ryan Lynch -- KBW -- Analyst

Okay. And then when I look at your slide, which shows the core yields, you guys' yields decreased about 12.8% from 13.7%. Obviously, prime was down about 50 basis points in the quarter. Can you just speak to what were the other puts and takes of why core yields came down pretty meaningfully in the quarter?

Sajal K Srivastava -- Chief Investment Officer and President

Yes and a very good question, Ryan. So less as I mentioned in my prepared remarks, less from prime because 1/3 of our loans are fixed rate, and then 2/3 are floaters. And of the floaters, we have a high percentage that are at 4.75% or higher, actually, north of 5%. So what impacted us the most this quarter is we actually had a number with the $40 million plus of repayments that happened, we had some of our obligors choose some of their either short-term loans or revolving loan structures. And so given the lower risk profile associated with those companies, lower yielding and so we saw them draw and pay off during the quarter. And so that's it. So lower risk transactions, lower yield associated with them and so that's why the core yield came down during the quarter. But the new assets funded 13% and the new loans funded here in Q4 of that $100 million, have an even higher yield profile than what we funded in Q3.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Jim Labe for any closing remarks.

James P. Labe -- Chief Executive Officer and Chairman of the Board Co-Founder

Thank you. We would like to thank everyone for participating in our quarterly call today and for your continuing support. We look forward to talking with you or seeing you soon.

Operator

[Operator Closing Remarks].

Duration: 43 minutes

Call participants:

James P. Labe -- Chief Executive Officer and Chairman of the Board Co-Founder

Sajal K Srivastava -- Chief Investment Officer and President

Christopher M. Mathieu -- Chief Financial Officer

Casey Alexander -- Compass Point -- Analyst

Fin O'Shea -- Wells Fargo -- Analyst

Christopher Nolan -- Ladenburg Thalmann -- Analyst

Ryan Lynch -- KBW -- Analyst

More TPVG analysis

All earnings call transcripts

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