Morningstar DBRS Confirms TriplePoint Private Venture Credit Inc.'s Long-Term Credit Ratings at BBB (low) With a Negative Trend

DBRS, Inc. (Morningstar DBRS) confirmed the Long-Term Issuer Rating and Long-Term Senior Debt rating of TriplePoint Private Venture Credit Inc. (TPVC or the Company) at BBB (low). The trend on all ratings has been maintained at Negative. The Company's Intrinsic Assessment (IA) is BBB (low), while its Support Assessment is SA3, resulting in the Company's final credit rating being equalized with its IA.

KEY CREDIT RATING CONSIDERATIONS
The confirmation of the credit ratings reflects TPVC's franchise strength, which benefits from its relationship with the TriplePoint Capital LLC (TPC) platform, as a global venture lending platform with a long track record and established relationships with key venture capital (VC) firms. Supportive of the credit ratings, the Company's leverage continues to be at low levels, and well below BDC peers in its credit rating category, providing a substantial cushion to the regulatory asset coverage ratio (ACR). Importantly, profitability has improved, but realized and unrealized losses continue to be a headwind to net income growth. The Company's funding profile remains narrow, while it is in process of extending the revolving period of its revolving credit facility which ends in July 2025. Additionally, the Company is in discussions with its Board of Directors on plans for a liquidity event, which is due in December 2025, though the TPVC Board has the right, in its sole discretion, to extend the term of TPVC for up to two consecutive one-year periods.

The continuation of the Negative trend considers the Company's asset-level credit performance which remains weak with non-accruals having reached the highest point since inception largely due to a denominator effect as the size of the investment portfolio declined in 2024. We expect broad volatile macroeconomic conditions to continue, driven by changing U.S. government policies which challenge the venture capital ecosystem, particularly outside of artificial intelligence focused companies. Weakening economic activity outside of our baseline scenario is a downside risk that may pressure operating performance at TPVC's portfolio companies.

CREDIT RATING DRIVERS
Improved profitability and asset-level credit performance, including the reduction of portfolio companies on non-accrual, while maintaining conservative leverage would result in the trend being revised to Stable. Over the long-term, consistent financial operating results combined with enhanced scale of the investment portfolio, improved credit performance and conservative leverage would result in a credit ratings upgrade. Conversely, should operating performance materially worsen, including further notable losses that erode net asset value, or further notable credit deterioration, the credit ratings would be downgraded. While not expected, if the Company's revolving credit facility's reinvestment period is not extended past July 2025, or if the Company decides to fully liquidate as part of its liquidity event, the credit ratings would be downgraded.

CREDIT RATING RATIONALE

Franchise Building Block Assessment: Good / Moderate
TPVC's franchise is supported by TPC's position in the VC ecosystem and an executive management team which has deep relationships across VC firms and a long track record of investments through economic cycles. However, as a stand-alone vehicle, the Company's $359.9 million investment portfolio (as of December 31, 2024) has continued to shrink by approximately 10% year-over-year, which pressures investment portfolio diversity and earnings resiliency. While a merger is one available option for an advanced liquidity event over the medium-term, the current scale of the investment portfolio constrains aspects of the Company's operating performance. TPVC's Board has two consecutive optional one-year extensions from December 2025 to extend the Company's term before undergoing a liquidity event. At Q4 2024, the investment portfolio consists of approximately 80% first lien, 9% second lien, 7% warrants and 4% equity across 75 debt-related portfolio companies and 160 total portfolio companies.

Earnings Building Block Assessment: Moderate
TPVC's earnings remains constrained by a smaller investment portfolio and net realized and unrealized losses, which continue to be a headwind at the net change in net assets from operations (net income) level. Net income was $15.9 million in 2024, up from $2.2 million in 2023, but still constrained by $20.1 million of net realized and unrealized losses. While the Company's weighted average yield on debt investments increased by 130 basis points to a solid 16.7% for 2024, net investment income (NII) was $36.1 million for 2024 down from $46.0 million in 2023, due to the smaller investment portfolio. PIK income increased to 5.5% of total investment income for 2024, up from 1.9% in 2023, but still a relatively limited percentage compared to BDC peers.

Risk Building Block Assessment: Moderate
Asset-level credit performance remains challenged as net realized losses totaled $14.8 million for 2024 due to the write-off of investments but improved from $43.5 million in 2023. We view the credit risk of VC-backed loans as elevated as repayments are typically reliant upon future capital raises and exits to repay obligations instead of internal cash flow deleveraging. While the number of portfolio companies on non-accrual improved slightly from 11 at year-end 2023 to 10 at year-end 2024, non-accruals were 7.6% of the total investment portfolio at cost, the highest percentage since inception. We expect that the percentage of non-accruals to improve as the portfolio returns to growth and as operating performance at the portfolio companies recovers.

Funding and Liquidity Building Block Assessment: Moderate / Weak
TPVC's funding profile remains narrow with reliance on its $250.0 million revolving credit facility to fund operations, whose reinvestment period ends in July 2025 with a scheduled maturity of January 2027. We expect the Company will amend and extend the revolver ahead of the end of the reinvestment period. Additionally, the Company has a $75.0 million unsecured private placement which matures in 2027 and comprises 46% of total funding. At Q4 2024, total liquidity was comprised of unrestricted cash and cash equivalents of $41.2 million and available credit facility capacity of $162.0 million providing sufficient coverage to unfunded commitments of $67.1 million.

Capitalization Building Block Assessment: Moderate
TPVC has maintained its conservative capitalization level at 0.62x regulatory debt-to-equity, which is within its target leverage range of 0.5x to 0.7x, and well below regulatory limits of 2.0x. This leverage level is supportive of the credit ratings. We estimate the cushion to the asset coverage ratio (ACR) cap was approximately $181.0 million, implying that TPVC would need to take a full loss on 50% of its investment portfolio to breach the 2.0x regulatory limit. As the Company pursues liquidity options for its shareholders, it does not have the immediate ability to raise new equity to fund origination growth. Additionally, its NII did not cover distributions in 2024, which further pressures net asset value, which has decreased by 9% year-over-year to $11.11 per share.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS   
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Non-Bank Financial Institutions (November 19, 2024) https://dbrs.morningstar.com/research/443208. In addition Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

The primary sources of information used for this credit rating include Morningstar, Inc. and company documents. Morningstar DBRS considers the information available to it for the purposes of providing these credit ratings was of satisfactory quality.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to our Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of our website.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' trends and credit ratings are under regular surveillance.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com.

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