Trinity Capital Inc. Announces Adjustment to Conversion Rate of its 6.00% Convertible Notes due 2025

Rhea-AI Summary

Trinity Capital Inc. (Nasdaq: TRIN) announced an adjustment to the conversion rate of its 6.00% Convertible Notes due 2025 as a result of the Company's cash dividend of $0.50 per share. The conversion rate will be adjusted to 76.9453 shares of the Company's common stock per $1,000 principal amount of Convertible Notes, with a conversion price of $13.00 per share of common stock.

Insights

Financial Analyst

The adjustment in the conversion rate of Trinity Capital Inc.'s Convertible Notes is a strategic financial decision that directly impacts the valuation of these instruments. By increasing the number of shares obtainable per $1,000 of principal, the company is potentially diluting the stock value but also making the Convertible Notes more attractive to current and prospective investors. This change reflects a proactive approach to managing investor expectations following the issuance of a higher-than-anticipated dividend.

The immediate effect can be a perceived increase in the attractiveness of these Convertible Notes due to the lower effective conversion price, which might lead to a positive reaction in the market. However, existing shareholders might be concerned about dilution of their holdings. The long-term implications could involve a shift in the company's capital structure, as more Convertible Notes may be converted into common stock, thus increasing the common stock's liquidity.

Investors should monitor the company's taxable earnings closely, as the distributions are tied to these figures. A distribution strategy that aims to pay out 90% to 100% of taxable income can be beneficial for tax purposes, but it also means less retained earnings for reinvestment into the company's growth initiatives.

Tax Advisor

Trinity Capital Inc.'s distribution policy to qualify as a regulated investment company (RIC) under the Internal Revenue Code has significant tax implications. By distributing 90% to 100% of its taxable income, the company avoids corporate-level taxes, passing the tax obligation directly to shareholders. This structure is advantageous for investors seeking regular income and could enhance the after-tax return on investment.

The company's ability to spill over excess taxable income into the next year provides flexibility in managing distributions. This could be a strategy to stabilize the flow of distributions, which may appeal to income-focused investors. However, shareholders should be aware of the tax characteristics of these distributions, as they may include a return of capital that could reduce the cost basis of their investment, leading to higher capital gains taxes when shares are sold.

Market Research Analyst

Trinity Capital Inc.'s actions resonate within the broader market context of how growth stage companies manage their financial instruments. Adjusting the conversion rate of Convertible Notes in response to dividend payouts is a common practice, but it can signal to the market how the company balances shareholder returns with financial flexibility. The adjustment indicates that Trinity is responsive to market conditions and shareholder value, which could be perceived positively by the market.

However, such adjustments can also trigger a reassessment of the company's risk profile. Investors and analysts will likely scrutinize the company's future earnings potential and cash flow projections to ensure that the increased potential for dilution does not outweigh the benefits of holding the Convertible Notes. Additionally, the company's commitment to distributing a substantial portion of its taxable income could be a double-edged sword, potentially limiting the company's ability to reinvest in its operations for future growth.

PHOENIX, Dec. 29, 2023 /PRNewswire/ -- Trinity Capital Inc. (Nasdaq: TRIN) ("Trinity" or the "Company"), a leading provider of diversified financial solutions to growth stage companies, today announced an adjustment to the conversion rate of its 6.00% Convertible Notes due 2025 (the "Convertible Notes") as a result of the Company's cash dividend of $0.50 per share, payable on January 12, 2024 to stockholders of record as of December 29, 2023. The ex-dividend date for such dividend was December 28, 2023.

Effective immediately after the close of business on December 29, 2023, the conversion rate of the Convertible Notes will be adjusted to 76.9453 shares of the Company's common stock per $1,000 principal amount of Convertible Notes from the prior conversion rate of 75.9145 shares of the Company's common stock per $1,000 principal amount of Convertible Notes, which had been in effect since October 1, 2023. As a result, effective as of such time, the conversion price applicable to the Convertible Notes will be adjusted to $13.00 per share of common stock from $13.17 per share of common stock.

The adjustment to the conversion rate of the Convertible Notes is being made pursuant to the second supplemental indenture, dated as of December 11, 2020, governing the Convertible Notes as a result of the Company's regular quarterly cash dividend discussed above exceeding the initial dividend threshold of $0.30 per share of common stock set forth in the second supplemental indenture and the Company paying a supplemental cash dividend.

Notice of the conversion rate adjustment will be delivered to the holders of the Convertible Notes and U.S. Bank National Association, as trustee, in accordance with the terms of the second supplemental indenture governing the Convertible Notes.

Certain Information Regarding Distributions

The Company's objective is to distribute four quarterly distributions in an amount that approximates 90% to 100% of its taxable quarterly income or potential annual income for a particular year in order to qualify for tax treatment as a regulated investment company under the Internal Revenue Code of 1986. In addition, during any particular year, the Company may pay additional supplemental distributions, so that the Company distributes approximately all its annual taxable income in the year it was earned, or it may spill over the excess taxable income into the coming year for future distribution payments.

Distributions are paid from taxable earnings and may include a return of capital and/or capital gains. The specific tax characteristics of the distributions will be reported to stockholders on Form 1099-DIV after the end of the calendar year and in the Company's periodic reports filed with the Securities and Exchange Commission.

Forward-Looking Statements

This press release may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical facts included in this press release may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties, including the impact of the COVID-19 pandemic on the economy, financial markets, our business, our portfolio companies and our industry. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in filings with the Securities and Exchange Commission. Trinity undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of the date of this press release.

About Trinity Capital Inc.

Trinity (Nasdaq: TRIN), an internally managed business development company, is a leading provider of diversified financial solutions to growth stage companies with institutional equity investors. Trinity's investment objective is to generate current income and, to a lesser extent, capital appreciation through investments, including term loans, equipment financings and equity-related investments. Trinity believes it is one of only a select group of specialty lenders that has the depth of knowledge, experience, and track record in lending to growth stage companies. For more information, please visit the Company's website at www.trinitycap.com.

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SOURCE Trinity Capital Inc.

FAQ

What is the company name and ticker symbol of the leading provider of diversified financial solutions to growth stage companies that announced an adjustment to the conversion rate of its 6.00% Convertible Notes due 2025?

Trinity Capital Inc. (Nasdaq: TRIN) is the company that made the announcement.

What was the reason behind the adjustment to the conversion rate of the Convertible Notes?

The adjustment was made as a result of the Company's cash dividend of $0.50 per share.

What is the new conversion rate of the Convertible Notes?

The new conversion rate is 76.9453 shares of the Company's common stock per $1,000 principal amount of Convertible Notes.

What is the new conversion price applicable to the Convertible Notes?

The new conversion price is $13.00 per share of common stock.

What is the objective of the Company's distributions?

The objective is to distribute four quarterly distributions in an amount that approximates 90% to 100% of its taxable quarterly income or potential annual income for a particular year.