Hercules Capital inks letter-of-credit facility for initial $100 million

By Mary-Katherine Stinson

Lexington, Ky., Jan. 17 – Hercules Capital, Inc. closed on a letter-of-credit facility on Jan. 13 with initial commitments of $100 million via Sumitomo Mitsui Banking Corp. as the issuing bank subject to a borrowing base, leverage and other restrictions, according to an 8-K filing with the Securities and Exchange Commission.

The facility has a final maturity date of Jan. 13, 2026.

Extensions of credit under the SMBC facility are subject to compliance with a borrowing base and a total portfolio balance.

Letters of credit will bear interest at a margin over the appropriate benchmark, based on the currency of borrowings, with the margin based on the borrowing base. The margin will be one-month SOFR plus 135 basis points or 147.5 bps, subject to a 0% floor.

There are letter-of-credit commitment fees of 35 bps annually on the average daily unused amount of the then-current commitment of SMBC as the issuing bank and letter of credit fees annually of 110 bps if the borrowing base is greater than or equal to the product of 1.6 and the letter of credit exposure, or 122.5 bps if the borrowing base is less than the product of 1.6 and the letter of credit exposure on the average daily amount of exposure.

Each letter of credit issued by SMBC under the facility will expire at or prior to the earlier to occur of the 12 months after the date of each issuance and the final maturity date, provided that the company may elect to renew a letter of credit with a one-year term for additional one-year periods subject to the terms and conditions.

The facility is primarily secured by a first priority security interest in only certain specified property and company assets and any subsidiary guarantors subject to certain exceptions.

In connection with the facility, the company must comply with certain affirmative and negative covenants, including maintaining minimum shareholders’ equity measured as of each fiscal quarter end, maintaining a minimum asset coverage ratio of 1.5x and maintaining the company’s status as a regulated investment company and as a business development company.

The company can select an independent third-party valuation firm to determine valuations of certain portfolio investments for purposes of the borrowing base.

Proceeds may be used for funding amounts due under the unfunded portion of committed portfolio investments subject to certain restrictions.

The company also entered into new collateral documents on Jan. 13 including a first omnibus amendment to its revolving credit agreement and guarantee and security agreement permitting up to $400 million in debt arising from letters of credit facilities and permitting liens on assets to secure the facilities.

Hercules Funding

Finally, on Jan. 13, Hercules Funding IV LLC, a special purpose wholly-owned subsidiary of the company, entered into the third amendment to its loan and security agreement with MUFG Bank, Ltd., as agent, joint lead arranger, swingline lender and sole bookrunner.

The amended agreement reduced the maximum revolver amount to $400 million from $545 million which may be increased to $600 million due to an uncommitted accordion feature, modified the borrowing spread to a margin to SOFR plus 275 bps, modified the non-use fee during the revolving credit availability period to a range of 37.5 bps to 75 bps and extended the maturity of the revolving credit facility under the MUFG agreement to Jan. 13, 2026, plus a 12-month amortization period.

Hercules Funding also modified the cash management provisions and adjusted the minimum tangible net worth covenant to an amount that is more than $869 million.

In addition, Hercules Funding entered into the first amendment to its sale and servicing agreement to replace MUFG Union Bank, NA as agent with MUFG Bank, Ltd. as agent and amendments to account for the MUFG third amendment.

Hercules Capital is a Palo Alto, Calif.-based specialty finance company focused on providing senior secured venture growth loans to high-growth, innovative venture capital-backed companies in a broad variety of technology, life sciences and sustainable and renewable technology industries.

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