Hercules Capital Prices $250.0 Million of Convertible Unsecured Notes

Rhea-AI Summary

Hercules Capital (NYSE: HTGC) has announced the pricing of $250.0 million of 4.75% Convertible Unsecured Notes due 2028, with an additional $37.5 million option for overallotments. The notes, offered exclusively to qualified institutional buyers, will bear a 4.75% annual interest rate paid semiannually.

The notes are convertible at an initial rate of 46.5631 shares per $1,000 principal amount, equivalent to $21.48 per share - a 12.5% premium over the March 5, 2025 closing price of $19.09. Upon conversion, Hercules can choose to settle in cash, common stock, or a combination thereof.

The company plans to use the proceeds to fund investments in debt and equity securities and for working capital purposes. The notes will mature on September 1, 2028, and cannot be redeemed prior to maturity.

Positive

• Raised $250M with potential additional $37.5M in capital
• 12.5% conversion premium over current stock price
• Flexible settlement options in cash or stock upon conversion
• Proceeds to fund new investment opportunities

Negative

• 4.75% interest expense adds to debt servicing costs
• Potential future dilution for shareholders upon conversion
• No early redemption option for the company

Insights

Financial Analyst

Hercules Capital's $250 million convertible note offering represents a strategic capital raise that bolsters the company's investment capacity without immediate dilution to existing shareholders. With an interest rate of 4.75% and conversion price set 12.5% above current trading levels at $21.48, HTGC has secured relatively favorable terms in the current interest rate environment.

This transaction effectively increases Hercules' deployable capital while maintaining a prudent approach to its leverage profile. As a Business Development Company (BDC), access to capital is fundamental to HTGC's ability to fund its portfolio companies and generate returns. The conversion premium provides a buffer against potential dilution, only becoming equity-relevant if shares appreciate substantially from current levels.

The additional overallotment option of $37.5 million could further enhance the company's liquidity position if exercised. For context, this capital raise represents approximately 7.2% of Hercules' current market capitalization, making it a meaningful but not transformative transaction.

Investors should view this primarily as an expansion of Hercules' investment capacity rather than a defensive capital raise, aligning with the company's growth-oriented business model of providing venture debt to innovation-focused companies. The September 2028 maturity provides a reasonable timeframe for capital deployment and return generation.

Fixed Income Specialist

This convertible note offering enhances Hercules Capital's capital structure flexibility while maintaining a reasonable cost of debt. The 4.75% coupon rate is competitive in the current environment for unsecured debt, particularly for a BDC with Hercules' credit profile. The conversion premium of 12.5% effectively prices the embedded equity option while protecting against immediate dilution.

From a balance sheet perspective, this unsecured debt adds diversification to HTGC's liability structure. The unsecured nature of these notes preserves the company's secured debt capacity for potential future needs while extending the company's debt maturity profile to 2028.

The stated use of proceeds - funding investments in debt and equity securities - aligns with Hercules' core business model. For BDCs, efficient leverage management directly impacts the spread between investment yields and borrowing costs. With typical portfolio yields in the double digits for venture lending, this 4.75% debt creates potential for positive spread capture if deployed effectively.

This transaction should be viewed as a standard capital markets operation for a growing BDC rather than indicating any particular shift in strategy. The convertible structure allows Hercules to access capital at a lower initial cost compared to straight debt, while providing equity upside to noteholders as a compensating feature. The timing suggests management perceives adequate investment opportunities in the venture debt market to deploy this additional capital profitably.

Hercules Capital's $250 million convertible notes offering represents a strategic capital raise that enhances the BDC's investment capacity without immediate dilution. The 4.75% interest rate coupled with a conversion price of $21.48 (12.5% above current share price) strikes a reasonable balance between debt cost and potential future equity impact.

For context, this transaction would increase Hercules' investment capacity by approximately 7-8% relative to its current asset base, providing meaningful but not transformative growth potential. The unsecured nature of these notes preserves HTGC's secured borrowing capacity while diversifying its funding sources.

From a balance sheet perspective, investors should monitor how this affects Hercules' regulatory leverage ratio, as BDCs are to 2:1 debt-to-equity. The company appears to have sufficient headroom to absorb this additional leverage while maintaining regulatory compliance.

If fully converted, these notes would represent approximately 6.4% potential dilution (about 11.6 million new shares), though this would only occur if share prices exceed the $21.48 conversion threshold. The conversion feature effectively allows HTGC to secure a lower interest rate compared to straight debt.

For BDCs like Hercules, the spread between portfolio yields (typically 10-14% in venture lending) and borrowing costs directly impacts shareholder returns. The 4.75% coupon should allow for positive spread capture if capital is deployed efficiently in the current venture lending environment.

This transaction represents routine capital management for a growing BDC rather than signaling any particular shift in strategy or financial condition. The 2028 maturity provides sufficient runway for capital deployment and value creation.

SAN MATEO, Calif.--(BUSINESS WIRE)-- Hercules Capital, Inc. (NYSE: HTGC) (“Hercules” or the “Company”), today announced that it has agreed to sell to the initial purchasers in a private offering, $250.0 million aggregate principal amount of its 4.75% Convertible Unsecured Notes due 2028 (the “Convertible Notes”). The Company also has granted the initial purchasers an option to purchase up to an additional $37.5 million principal amount of the Convertible Notes to cover overallotments, if any. The Convertible Notes will be offered only to qualified institutional buyers (as defined in the Securities Act of 1933, as amended (the “Securities Act”)) pursuant to Rule 144A under the Securities Act. The closing of the transaction is subject to customary closing conditions and the Convertible Notes are expected to be delivered and paid for on March 10, 2025.

The Convertible Notes are unsecured and bear interest at a rate of 4.75% per year, payable semiannually. Upon conversion, the Company will pay or deliver, at the Company’s election, cash, shares of the Company’s common stock or a combination of cash and shares of common stock, subject to an irrevocable settlement method election that may be made by the Company. The Convertible Notes will be convertible at an initial conversion rate of 46.5631 shares of common stock per $1,000 principal amount of Convertible Notes which is equivalent to an initial conversion price of approximately $21.48 per share of the Company’s common stock, subject to customary anti-dilution adjustments. The conversion price is approximately 12.5% above the $19.09 per share closing price of the Company’s common stock on March 5, 2025. The Company will not have the right to redeem the Convertible Notes prior to maturity. The Convertible Notes will mature on September 1, 2028, unless repurchased or converted in accordance with their terms prior to such date.

The Company intends to use the net proceeds from this offering (i) to fund investments in debt and equity securities in accordance with its investment objective and (ii) for working capital and other general corporate purposes.

Neither the Convertible Notes nor the common stock that may be issued upon conversion thereof will be registered under the Securities Act. Neither the Convertible Notes nor the common stock that may be issued upon conversion thereof may be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act.

This press release does not constitute an offer to sell any securities of Hercules Capital, Inc. and is not soliciting an offer to buy such securities in any state where such offer and sale is not permitted.

About Hercules Capital, Inc.

Hercules Capital, Inc. (NYSE: HTGC) is the leading and largest 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 and life sciences industries. Since inception (December 2003), Hercules has committed more than $21 billion to over 670 companies and is the lender of choice for entrepreneurs and venture capital firms seeking growth capital financing. Companies interested in learning more about financing opportunities should contact info@htgc.com or call 650.289.3060.

Hercules, through its wholly owned subsidiary business, Hercules Adviser LLC (the “Adviser Subsidiary”), also maintains an asset management business through which it manages investments for external parties (“Adviser Funds”). The Adviser Subsidiary is registered as an investment adviser under the Investment Advisers Act of 1940.

Hercules’ common stock trades on the New York Stock Exchange (NYSE) under the ticker symbol “HTGC.” In addition, Hercules has one retail bond issuance of 6.25% Notes due 2033 (NYSE: HCXY).

Forward-Looking Statements

This press release may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We may use words such as “anticipates,” “believes,” “expects,” “intends,” “will,” “should,” “may” and similar expressions to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and should not be relied upon in making any investment decision. Such statements are based on currently available operating, financial and competitive information and are subject to various risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations. While we cannot identify all such risks and uncertainties, we urge you to read the risks discussed in our Annual Report on Form 10-K and other materials that we publicly file with the Securities and Exchange Commission. Any forward-looking statements made in this press release are made only as of the date hereof. Hercules assumes no obligation to update any such statements in the future.

View source version on businesswire.com: https://www.businesswire.com/news/home/20250305254417/en/

Michael Hara

Investor Relations and Corporate Communications

Hercules Capital, Inc.

(650) 433-5578

mhara@htgc.com

Source: Hercules Capital, Inc.

FAQ

What is the interest rate and maturity date for HTGC's new convertible notes?

The notes bear a 4.75% annual interest rate, paid semiannually, and will mature on September 1, 2028.

What is the conversion price for HTGC's 2028 convertible notes?

The initial conversion price is $21.48 per share, representing a 12.5% premium over the March 5, 2025 closing price of $19.09.

How much capital is HTGC raising through the convertible notes offering?

HTGC is raising $250.0 million, with an additional $37.5 million option for overallotments.

How will Hercules Capital use the proceeds from the convertible notes?

The proceeds will fund investments in debt and equity securities and provide working capital for general corporate purposes.

What are the settlement options for HTGC's convertible notes upon conversion?

Upon conversion, HTGC can settle in cash, common stock shares, or a combination of both.