Welcome ladies and gentlemen to the Hercules Technology Growth Capital Third Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. After our prepared remarks, we’ll open up the question-and-answer session, and instructions will follow at that time. (Operator Instructions) And as a reminder, this call is being recorded. I would now like to turn the conference over to Jessica Baron, CFO. Please go ahead.

Thank you, Operator, and good afternoon, everyone. On the call today are Manuel Henriquez, Hercules’s Co-Founder, Chairman and CEO, and myself, Vice President of Finance and Chief Financial Officer. Hercules’ third quarter financial results were released just after today’s market close. They can be accessed from the company’s website at www.htgc.com. We have arranged for a replay of the call at Hercules’ webpage or by using the telephone number and passcode provided in today’s earnings release. I’d also like to call your attention to the Safe Harbor disclosure in our earnings release regarding forward-looking information. Actual financial results filed with the Securities and Exchange Commission may differ from those contained herein due to timing delays between the date of this release and in the confirmation and the final audit results. In addition, the statements contained in this release that are not purely historical are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements, including without limitation the risks and uncertainties, including the uncertainties surrounding the current market turbulence and other factors we identified from time to time in our filings with the Securities and Exchange Commission. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions can prove to be inaccurate and as a result, the forward-looking statements based on those assumptions can also be incorrect. You should not place undue reliance on these forward-looking statements. The forward-looking statements contained in this release are made as of the date hereof, and Hercules assumes no obligation to updated forward-looking statements or subsequent events. To obtain copies of related SEC filings, please visit sec.gov or visit the website www.htgc.com. I’d now like to turn the call over to Manuel Henriquez, Hercules’ Co-Founder, Chairman and CEO. Manuel?

Well, thank you, Jessica, and good afternoon, everyone, and thank you all for joining us today. I am very proud once again to report another very strong and record high quarterly results and achievements by Hercules for the benefit of our shareholders. As usual, I will provide a quick agenda of the call. I’ll start off with a summary of operating performance and the Q3 results, discuss the current market conditions, including venture capital investment activities and of course, the all important exits relating to IPOs and M&A events, which led to a very strong third quarter performance for us all and then, lastly, finish off with an overview of the remaining investment activities for 2013 investment for Hercules. I will then turn the call over for Jessica to go over much more specific details on our financial results and performances. So let me start off with giving you an overview of our summary performance and our achievements for the quarter. Hercules continues to remain focused on selecting and working with some of the best venture capital-backed companies and innovative technology and life sciences companies in the industry. This continued commitment was once again evidenced by our strong quarterly results, outstanding earnings growth and also maintaining a highly liquid balance sheet to continue to make prudent investments for future earnings growth as we identify new and promising opportunities. It was a great quarter all around. We had 16 announced or completed M&A events plus two completed IPOs during the quarter for total of 18 announced or completed liquidity event during the quarter representing another performance record for Hercules since our assumption and the best quarter we ever had in terms of liquidity event and also on track to be the best year for liquidity event in Hercules’s history as well.…

Thanks Manuel and thank you everyone for listening today. I would like to remind everyone that we filed our 10-Q as well as our earnings release after the market closed today. I will briefly discuss our financial result for the quarter ended September 30, 2013. Turning to our operating result, we delivered total investment income or revenues of $41 million, an increase of 72% when compared to the third quarter of 2012. Year-over-year growth was driven by increased interest income from higher average outstanding balances of the portfolio and an increased fee income attributable to the early repayment of debt investment, which what Manuel as well mentioned with a $102 million during the quarter. Note that our period and debt investment balance on a cost basis is $910 million. This is a decline of $57 million during the third quarter of 2013. However, this balance of yielding debt assets reflects the year-over-year increase of close to 28% from $711 million as of September 30 of ‘12. The all in GAAP effective yields on our debt investments during the third quarter was 17.7%, excluding the income acceleration impact from early payout through one-time events. The affected deals for the quarter was 14.3%, as Manuel mentioned by approximately 10 basis points relative to the previous quarter. We expect yields on annualized basis including acceleration of one-time events trend higher much beyond Q3, assuming some of the anticipated early payoffs occur as scheduled. Interest expense and loan fees were approximately $8.7 million during the third quarter of ‘13, as compared to $6.1 million during the third quarter of 2012. The increase is primarily related to interest and fee expenses related to the additional $85.9 million of baby bonds issued in late September of 2012, and the $129.3 million of asset-backed notes issued in…

(Operator Instructions) And our first question in queue is from John Hecht of Stephens. Your line is open.

Guys, congratulations on a great quarter and dividend hike. Just regarding the revenue side of the quarter, of the interest income how much of it was OID and fee-oriented on the interest income side?

That component of our revenue has been really consistent over the past several quarters on a normalized basis. It’s less than 10% of that total line item.

Okay. If repayments stay high like you expect them through Q4, would the fee income line and that type of contribution revenues be consistent, or how should we think about that?

Yeah. It’s typical -- it’s once again a function of where the company is in its life of the loan with respect to Hercules. So, of course if there was a loan originated in 2013, it would have a substantial one-time fee which would hit the -- once again the fee line. It might be a deal that had a very large warrant coverage, or a warrant that had a very high intrinsic value on day one which would result in the high OID component. So I guess…

Yeah.

….the net that I’m trying to tell you is that it’s difficult to predict without knowing more about the portfolio companies which will be paying us off. As Manuel mentioned, looks like you’re saying it wrong. We will be expecting that there will be more repayments from our larger lower margin credit and usually those don’t have high OID components, because when we originated those investments we didn’t go into the position looking for a high warrant returns. So, we don’t have a high warrant coverage necessarily in those investments. So, based on that part you could see that there would be a higher generation of fee revenue relative to interest acceleration as a result of the early pass that will happen in the quarter. And those are more mature credits as well in our portfolio relative to really pay us that it’s happened in previous quarters.

Okay. That’s good color. Thank you. And then, when you were talking about funding versus commitments, the relationship with them kind of normalizing, what do you think is driving this and what is the general time to convert a commitment to funding in this part of the cycle here?

Well, the answer to your question is yeah. I think if you look at our data in this quarter, we had approximately $100 million or so of funding of $69 million -- sorry $100 million or so of commitments and about $69 million of funding. So the ratio is still trending slightly lower than historical levels. Historical levels will benefit industries on this call, has been averaging to 75% to 80% and we’re still seeing, although up from Q2, 65% level we are at 69%. So, I don’t think that’s going to change to quite meaningful and we’re purposely driving that right now by having much more risk than against in our credits by having these milestones involved. And so, what we want to see is a much more high validation of the business models and traction before we commit meaningful more capital to these companies and really align ourselves with their quest and their achievements with our risk litigation strategy. And that’s some of the things that we’re doing here.

Okay. That’s great. And then final question is a little bit related to modeling and there was the -- Jessica, you highlighted the part of the increase to the comp line was related to additional hires. I assume some was also performance related given the strong quarter, can you give us a good normalized number coming out of this quarter, or should we just use that as a going forward number?

No, I think that number this quarter is certainly inflated. I would argue that the number this quarter is probably inflated on a normalized basis by probably about $1.5 million or so. We actually normalize it. Although, we had net 11 new hires over that period of time, those hires are in various levels of the organization. So they have various levels of SG&A contribution or impact I should say. But this quarter, clearly as you rightly pointed out given the elevated liquidity events and strong achievement, incentive compensation was increased in the quarter. And so I would just back-off probably $1.5 million or so, on an unrealized SG&A from this quarter.

All right. Thanks guys.

Yeah.

Thank you. Our next question in queue is from Aaron Deer of Sandler O’Neill & Partners. Your line is open. Aaron Deer - Sandler O’Neill & Partners: Hi, everyone.

Hi, Aaron. Aaron Deer - Sandler O’Neill & Partners: Manuel, I just want to kind of follow-up on your comment. You sounded like you’ve taken a fairly cautious approach to your investments and particularly in light of your kind of look for step down here in the fourth quarter. But with the new hires that you’ve been making and it seems like you’ve been very active on that front. I got to think that as they ramp up that that should be able to offset some of this prepayment activity. And so I’m just curious what’s your outlook heading into 2014, can you get back to the kind of strong double-digit growth pace that we saw this year, or is that kind of off the table at this point kind of given your current outlook?

Well, this is one of the funny things of running a public company. I have investors calling me up that I am growing too fast and lot of investors calling I am not growing fast enough. So, I have learned as a public company that I cannot beat everybody and we have to do what’s confident and important for us. So your question is important one. So we don’t expect new hires contributions to not really come on line for six to nine months. And the reason being is that we like to have new hires get emerged in our credit culture and understand the parameters by which we underwrite. And we rather have them take that six to nine months, a specific period of time to really understand what we are doing and understand the credits that we are looking for or say investment opportunities that we are looking for. And so I don’t expect most of the new hires to come on line from a contribution point of view, and to your point on seeing me for portfolio growth are purposeful not until probably the second half of 2014. Aaron Deer - Sandler O’Neill & Partners: Okay. That’s helpful. And then where in terms of -- you mentioned that the number of new hires during the quarter. Where does the actual -- in terms of your front line determine that business, where does that number stand relative to a year ago?

I don’t have it in front of me. But I’m going to go up off of top of my head here. I believe that number should be probably -- well, a year ago we had some lower middle market guys in that team that we since then have materially vacated lower than a market and moved to such situations. So, on a net-net basis, we are probably, relatively even. However, we will see differences that we are been adding purposeful into our technology group. We are positioning ourselves to really look at technology in the second half of 2014. We actually think that this wave of M&A event that is going on right now and we’ll eventually call out to field a bit and then give rise to a new crop of more promising companies and a much more realistic valuations of companies turning into the second half of 2014. So we’re expecting some pretty significant contributions on growth on our book, on the technology side sometime in 2014, the second half of 2014 as we are expected to see some meaningful technology contribution. Aaron Deer - Sandler O’Neill & Partners: Okay. That’s great. And then just one last question for me. The prepaid -- these have been a big contributor of weight and I’m just wondering, given to the extent that there’s been competitive pressures and stuff, has there been any change in how you’ve been with the terms on recent loans with respect to prepayment penalties or recently booked ones are the same kind of prepaid penalties that loans had say booked two years ago?

Yes. Nothing has changed which is why we are maintaining the liquidity that we do. We are not -- we are new entrance into this market. We’ve rather just wait on the sidelines and have them take their fill because the greatest thing about venture debt investing is just because opportunities exists does not mean you should fill the order. And in this business if you don’t know what you’re doing, you can quickly originate $200 million of assets and 12 month later have a $75 million loss in your hands. Aaron Deer - Sandler O’Neill & Partners: All right. Okay. Great. Thanks for taking my questions.

Thank you. Our next question in queue is from Greg Mason of KBW. Your line is open.

Great. Good afternoon and great quarter, guys. Wanted to talk a little bit -- little more color on the prepayment kind of fee income in the quarter. In the press release, you gave good color that 17.7% but excluding that was 14.3%, could you put any kind of dollar basis on that 3.4% yield difference that’s kind of one time this quarter from the accelerations?

I am sure the accelerations were about $4.5 million of revenues driven by the company that paid us off during the quarter and there were some one-time fees also, which made up the balance of about $2 million.

So, Greg, we got to be careful because the problem is on a GAAP accounting. Some of the fees can be reconstructed into interest income, so you don’t have a balance there. So when you look at our fee income of approximately $4.8 million, you have a normalized fee income that is so called one-time fees that’s pretty consistent at a $1.5 million $2 million level that’s pretty consistent. So any delta above that is going to be driven by prepayments fees that are coming in acceleration of certain income fees that are on the balance sheet. They are deferred but the problem with that is some of the deferral acceleration is actually recorded interest income as well.

Right.

Okay. Great. I appreciate that color. And then talking about the dividend increase in the press release and you’ve talked about this in the past that you want to have a variable dividend and I’m just curious, is the increase this quarter related more to lot of the prepayment fees and strong earnings and likely the third and fourth quarter? But again with the portfolio kind of reduction that you are seeing from the repayment that may have some pressure when that rules off. How are you thinking about more of the longer run of the $0.31 dividend that you guys announced this quarter?

Well, you are absolutely correct. Our policy has always been since I think 2007 -- the variable dividend policy and our preference is always cover our dividend. There was strong earnings growth in the last two quarters and our spillover that we’ve in 2012 to 2013 I think that we’re accumulating a sufficient number of undistributed earnings that can translate the future dividend as well. And you are right. The one-time fee certainly helps contribute to that, continues increase in dividend. As you witnessed the $0.35 NII earned income or DNOI over that number and only paying $0.31, that we’re accumulating potential dividend spillover to 2014. As to the coverage dividend in 2014, clearly as the portfolio has been harvested, the earning assets are slightly going down. But I feel very strong that our team, as we continue to call through many opportunities that decline in portfolio will probably been up here in the next two to three quarters with our typical origination activities. We’re purposely being choosy, right now. To give you an example, if we so choose to lower our dividend yields -- excuse me -- if we just so choose to lower our origination yield to be very aggressive here for the sack of this discussion, illustrate to say the 10% we could easily go on deploy $200 million of assets relatively quickly. We’re choosing not to chase down our yields and we’re choosing to focus on credit quality and we certainly will not do an abundance of secondary lending, which I frankly don’t understand and eventually lending world. Why would you ever do secondary lending and let your debt? That’s called equity in my book.

Great. I appreciate the color. And one last question. In the subsequent events you’ve said you’ve basically had about $10 million of gains so far in the fourth quarter. How much of that is already baked into the fair values at 930? That’s all my questions.

All of is baked in.

Okay. Great. Thanks Manuel. Appreciate it.

Thank you.

Thank you. Our next question is from Robert Dodd of Raymond James. Your line is open.

Two questions. Going back to that competitive question, we talked before about not doing or having this information to the second lien et cetera. I mean, how much of this discussion you had in terms of sitting on the sidelines, et cetera? Is the new entrance where a fair number of those guys are been selling debentures of second lien size and that’s not something you do? Anyway, versus the more senior bank that you can compete with having that growth targets less input capital at the door. I mean there are anymore differentiation you can give us between who is driving the competitive issues?

We certainly welcome all the new entrants into the asset class because they are helping us get rid of bad credit. So I think it’s great. And as I said in all seriousness, just because the venture debt lending asset class has a 14%, 15%, 16% yield on it, does not mean that you know how to do this business. This is a very, very difficult business to do and requires a high level of expertise on origination team. You have to have virtualization in your origination teams. You can have a generous look at our life science’s deals that turn around the next morning to a technology deal. You could try that but after been doing this long as I have you will probably end up losing money relatively quickly. You have to understand the ebbs and flows of these various industry verticals. You have to have a technology perspective of what’s going on in these sub verticals you are investing in. And frankly I mean this in all sincerity, I do not understand second lien- lending and venture debt. Unless the company is a significant mature company, you are being convinced to do second-lien lending behind the bank that will have extensive period and you’re not getting paid for that risk profile with your desperation for assets to work. You are basically kicking the can of the inevitable which is a principal loss that will probably happen. You need to be very judicious and others want to sit here and do second-lien lending, we will wait on the sidelines, let them take their fill and do all the second-lien lending they want, we will not pursue that strategy and we think that strategy is deadly flawed.

Appreciate that. The third question, on the -- currently you built the fourth quarter down 50 to 70, you said that’s predicated on the assumptions of various M&A activities do happen in the fourth quarter which case you got fee income with a rhythm. Any color you can give us on -- given those are very, very hard to predict, what would you expect the portfolio to be if they don’t have?

It’s such a great question in terms of the magnitude. They literally -- it can be up to a $50 million swing in the portfolio, in other words, I indicated that $50 million to $70 million, it could be down in the portfolio in the fourth quarter. And two of these M&A that I am aware of as an example do not occur. You can see the portfolio basically flat to slightly down by $10 million or $15 million. This is driven in large part by four particular credits that we are aware of that are actively engaged in M&A transactions. And as we all know M&A deals are closed and so it’s very significant impact because if they don’t close, earnings will also be back to more modest level of historical earning rates. And if they close, they’re probably slightly higher than our normalized earnings rate that they are. And so it has a significant impact. And we do not control the M&A transactions whether diligence or many variables that impact that. So I will say that considerably anywhere between $40 million to $60 million of portfolio performance in the fourth quarter is directly attributed to these three or four companies that may or may not execute a completed M&A on that.

Okay. That’s very helpful. Thank you.

Thank you. Our next question is from Douglas Harter of Credit Suisse. Your line is open.

Sorry about that. You had mentioned something about -- some concerns about increased sort of like standards on the credit quality. Could you just give us a little detail on that Manuel, of what you are seeing in the market?

Yes. I mean one example as we just talked about is the senior second-lien lending, what you especially known as senior stretch. You have interest-only period in some cases basically a bullet. We do a bullet loan in venture lending world, I don’t understand why don’t we just call it equity and realize that you’re getting paid less for that risk profile that you’re doing. So some new entrants into the asset class are obviously eager to put money to work and certainly try to get their hands on these yields. And doing so, they will do so where likely we consider to be a little silly transactions. And you know that’s fine. I mean look at -- I flawed them. I think it’s important that we have new players into the asset class. It helps validate the asset class. I think that these players are also very savvy. And so it’s only a matter of time before they will realize some losses. They’ll recalibrate the origination activities and we now have very good players in the marketplace. So it’s done all that. We’re just choosing not to follow everybody down that rabbit hole.

I guess, following up on one of that, the benefits of having additional players in the space. How do you think that that will ultimately play out in terms of available liquidity or better terms in terms of financing?

I think really what it does is -- I mean, this is why I welcome these other players. I think, it’s important because as other players are out there originating, it’s expanding the awareness of the asset class to rating agencies. It’s expanding the asset class awareness for the Wall Street players out there. So it allows us to kind of expand more of the awareness out there. Now, that said, more does not necessarily make it better. As we’ve seen in history, some times more will start driving margins to lower margins out there. And eventually, there is a point of diminishing return where the venture lending industry, if margins are too sharp and you start experiencing losses. You’re not going to be able to recover your principal. And you’ll have, in essence, what’s called a death spiral and you’ll simply run out of money because you’ll start generating losses much faster than you can generate realized gains. And I’ve seen this cycle play out more than once in my career. And when it gets frothy, as we say, as we’re doing right now, we’ll simply go on the sidelines. We have plenty of earning power. We have plenty of liquidity in our balance sheet. We care about the spreads and we’re going to be judicious. We’re not going to simply go originate to originate. This is not what we do.

And I guess, along that, in your past experience, how long has it sort of taken the frothy markets for other players to recognize some losses and the opportunities to start improving?

Sure. As I said on my remarks, those in ventures need to realize that venture lending is investing in companies that are development stage companies. These companies generally run out of money every nine to 14 months. And their business models are completely predicated upon achieving milestones and securing new rounds of financing. If they don’t achieve new rounds of financings, those companies are either going to be liquidated or sold off in some form of merger or shut down with much relatively recoverable. So anybody can go on originate $100 million to $200 million in assets and have a loan pool of $200 million that’s doesn’t take a lot of efforts. It’s stealing that effort and really understanding the ability to manage a multiple -- a multifaceted portfolio with various level of the maturity in different stages of the company development, which is quite taxing, quite difficult to do. Size matters in this asset class. And it’s an important part of the asset class because if you are small and you take a $5 million or $7 million hit, you start hitting away your net asset value relatively quickly and then you are going to start diluting your shareholder wasting shares below net asset value and we are also limiting your ability to get an additional debt on your balance sheet because you start with credit performance. So discipline is quite important in this asset class.

Great. Thank you for your insight, Manuel Henriquez.

Thank you. Our next question in queue is from J.T. Rogers of Janney Capital. Your line is open.

Good afternoon, Manuel. First question I don’t know if I miss this in your early discussion number. What is the aggregate warrant exercise price of the 116 companies?

$35 million. Sorry the -- the overall face value of that, the nominal value of the whole pool.

Yes.

Just probably $70 million or so.

Great.

$73.2 million.

Especially number is $73.2 million.

Okay. Great. And then switching gears a little bit, looking at credit let’s say there are six new non-accruals during the quarter. Want to know what’s driving that. It seems like their focus in the internet consumer and the communication and networking industry is in and a lot of those investments are 2012 investments. I was wondering if there is anything -- if there is any sort of theme or those are at all connected.

No, they are very connected and it’s a very important question you just asked which is the other thing that’s missing from your question was the size, the average of those deals and they are all generally in the sub $1 million, $2 million range i.e. early stage. This is why our own portfolio is the leading indicator of what we are seeing in the market place and this is why we purposely are shying away from early stage technology today. There is an interesting evolution going on in the venture industry right now and the chasm of death is a series B, series C, round of financing right now. And that is an area that is currently lacking a venture capital funding which is why we are waiting out the cycle right now. That’s exactly -- those three categories that you mentioned are the areas that we are purposefully avoiding and state is purposely avoiding.

Okay. And then just so and one of the I guess one of the larger ones was PointOne, it looks like that’s something that you guys have invested in, in the past and then was actually I must say was something different earlier in the year was new this quarter. Wondering if you have any detail there?

PointOne is an old legacy investment. In fact we talked about PointOne at (inaudible) on Q2. To get refresh everybody’s memory, PointOne was a company that was a merger between two portfolio companies. It’s in a Telco space and actually went through a bankruptcy filing in order to climb themselves from certain liabilities and certain regulatory issues and has reemerged and the buyer now is building that company backup again. We had had a pretty meaningful recovery on that write-down that investor from Q2 to Q3, so it’s actually recovery. That said, we probably have and I don’t have the exact numbers in front me, probably net loss of that position, somewhere about $2 million in or about, but we could say that data point after the call, if you like, but yeah, that’s sort of investment and old investments that’s been in our books for quite sometime and we will be fully out of that credit at the end of Q4.

Okay, great. Well, thanks for taking my questions.

Thank you. Our next question in queue is from Jon Bock of Wells Fargo. Your line is open

Excellent quarter guys, congratulations. One quick question as it relates to warrant valuation and then well in the past, you talked about there were times where you would de-emphasize the value of the warrant in order to increase the cash coupon one would receive and that was effectively lower the all-in OID, and then the subsequent amortization to that OID, if that -- if an M&A if that occurred. Where do you stand on the valuation of the warrant today? Is it frothy in your opinion or is it something that is now carrying some additional value based on economic improvement?

So here is an opportunity where I can one of my favorite words, its both, and here is why. My legacy or our legacy warrant portfolio is clearly benefiting from the frothiness in the market place as translated into an increasing net asset value driven by warrant appreciation unrealized values. So we’re getting the benefit of the legacy warrant portfolio, experiencing a lift and that frothiness. However on new assets, we don’t like the frothiness because the propensity to see upside on those warrants is becoming much more jaded or much more opaque. And so we will actually shift away from increasing warrant coverages to other economic incentives on underwriting that help ameliorate the concern of a more volatile OID. So yes, you were seeing a declining OID on U.S., it’s originations that we’re doing purposely in that model.

And I guess with the increasing velocity, I mean it would appear that the OID was a major benefiter -- that acceleration of the OID was a major benefit to earnings but if we believe that the new assets that are being put on the books generally larger, generally not carrying those substantive warrant valuations. You know how should we think about the true contribution of the not so steady amortization of OID in the future could that perhaps buy us earnings a bit lower?

Well, not necessarily because if anything OID actually clouds earnings a little bit. So new assets are going to be originated or actually have the lower OID or going to have a clean and crisper yield if you will. So actually being a cash yield components, we have lower warrant coverages as you’re going to actually translate into cleaner OID -- I’m sorry -- a cleaner effective yield which has a lower OID component to it.

Got it. So maybe what will be the difference then will be between one with the less of a warrant coverage versus more -- I mean obviously it differs amongst the industry but what can that be worked on a true basis point basis for your -- for new investments in general?

Well, you know, I will happy to answer that question but I won’t because that’s competitive advantage on how we structure price deals that others are not necessarily pursue in the marketplace. And so we are able to kind of use those benefits of our experience and history to kind of oscillate to be contribution of yield components in different stages of market evolution. And right now, what I will say is that we are looking for a less OID contribution on effective yields that we historically would look to.

Okay, okay, fair enough. And then, just because of the substance in liquidity justify if I read correctly with $50 million of net portfolio decline as a result of payoff which do bring earnings upside et cetera, flush with liquidity could you walk through the reasoning and perhaps the use of the ATM over the next let’s say three to nine months?

Look if I can progress -- if I can forecast nine months out, I’ll be a genius. So we have let’s not forget we have a lovely Congressman still have to draw a debate, the debt ceiling and everything else here in early January or mid-January to February. So we are excited, it happened first time around. So this is one of the reasons why I am keeping a high level of liquidity. They did a good job the first time and I am not necessarily betting I can do a job the second time. So I’m maintaining a high level of liquidity for that reason. However, that said, our reason on maintaining high level of liquidity is that, we think that the market is a little bit frothy. We want to see a little shakeout going out in the marketplace. We are still going to be originating but I want to make sure that people heard what I said in the previous question. Although we are giving indication of $50 million or $70 million down in the fourth quarter that is contingent upon these effective M&A events that just concluded or not. If they don’t get concluded, you’ll see obviously lighter fee income being realized and you’ll see the portfolio balances being maintained at a higher level. So there will be a positive or negative impact attributed to those M&A events taking place. I also want to call your attention to that we have to be mindful of $170 million of unfunded commitments that we have. A substantial part of that unfunded commitment could be triggering in Q1 and Q2 of next year that could immediately become funded assets and also now recouped relatively quickly all the lagging down of portfolio that happened in last two quarters. So we’re not blind to that backlog of unfunded commitments that we have and relatively quickly translates your earnings assets and we were right back where we were, if not higher than what we were because of those assets -- those unfunded commitments being the only assets.

Okay, great. Thank you very much. Wonderful quarter, testament to your platform and franchise.

Thank you for that.

Thank you. Our next question is from Andrew Kerai of National Securities. Your line is open.

Congrats again on a great quarters, echo it again. Certainly impressive and thank you for taking my questions. One question I have for you guys. Last quarter you had kind of talked about the yield benefit from encouraging kind of assuming your older, lower margin, later stage investments. And you said that it was supposed to kind of commence in Q3, if you could just try to give us an update on that and if that hasn’t been kind of played out, kind of within the third quarter?

Yes. I think if you look at our schedule investment in our 10-Q in Q2 and schedule investment in Q3 and obviously you’ll see that further evidenced in Q4 of schedule investment when we filed that later on -- early on in 2014. You will see us continue to sit purposeful be purging out some of those later stage credits because there is such a hunger for assets out there that we rather see some of the lower margin -- lower yielding credits go away which are much more prone to cyclical changes in economy, because they have a much more lower nature -- so they have much more lower middle market tendencies that they were experiencing higher cyclicality on changes in the broader economy. So with that said, there is an eagerness out there to kind of observe those assets. And we’re more than eager to have those assets to part our balance sheet as we look to deploy in other venture lending platforms or other venture lending deals that are out there. So typically the longer market credits for us are usually anywhere between 200 to 400 basis points lower. It’s fairly typical. And as we give rid of those you’ll see our attractive yields just kind of bounce up a little bit. And that process should be relatively completed probably by the end of Q4 if the M&A events happen, if they slide still by the end of Q1 that should probably be reaching at Apex.

Okay. Thank you. That’s helpful color. So I mean so some of the investments that are moving out of the portfolio are actually sort of your intentional approaching is that a liquidity events that you’re realizing as well?

No. its actually -- as I said in my remarks, they are rebalancing. We are purposely rebalancing and those people may mainly knew the story. We have the ability to toggle within industry sectors and we will shift within the industry sectors when we see certain economic variables are moving in one direction and other. We also will ship within stage of developments. So if you think we’re going to a very robust economy, we’ll go earlier stage and we’ll go higher technology. If you think we’re going to a cyclical economy, we’ll have a questionable growth outlooks in other concerns and economy. We’ll ship more life sciences in later stage in nature and we will literally toggle the portfolio. And within the 15, 18 month period of time, we can kind of reshape the portfolio to really risk mitigate in that environment because of the amortization.

Okay. Thank you. That’s certainly helpful. And then just one question about -- you guys certainly documented your feelings about sort of -- the early stage private -- sort of private tech marketplace and some of the frothiness in that market. So you had a competitor of yours who kind of came out and said, basically, that they were seeing little bit of over heating in the later stage life sciences market. Just wondering your thoughts on that and if you’re kind of -- if you are seeing maybe some overheating from some additional capital being deployed in later stage life sciences companies as well?

You know, look -- I know who made that comment. They are good guys. It’s an issue of size of your fund. I mean, clearly you can’t chase $20 million deal when you have a fund size of XYZ.

Sure.

So, size matters. They are good guys. They are good operators. Its an issue of -- they have to club off to get deals done versus we can do a $1 million to $40 million transaction on our own balance sheet holds and that makes a significant difference. So the statement was actually -- not factually incorrect. I do agree with your comment on the later stage deals with larger credit, the 50 -- $40 to $50 million credits. We are definitely seeing the royalty finance guys coming down and doing deals. Royalty finance is not a new phenomenon that’s been there forever. Our team is well versed and navigating those waters and our team is quite good at what they do. And when it gets frothy, you know we are not embarrassed to say we’re going to sidelines. We looked at the set of ways to goes by early.

Thank you. No, that’s certainly helpful. I mean, I appreciate the commentary around that as well. And then my last question just to know how should investors kind of think about the potential for special dividend here over the near term, just kind of given in Europe, you know the math distribute sort of excess spillover income here over the next several quarters?

The dividend question is really not upon the buyer. It’s really a Board of Directors question. Our Board of Directors is clearly focusing on that issue. We are running various models to look at. What is the best solution as to whether or not we just spill over, we do special. We distribute it. There is a lot of variables in that equation. We have not made any decision on that. You will see from our history that we have had spill over dividends, I think twice in our history. So we have a tendency to guide more towards the dividend spill over and sprinkle that dividend commensurately over the remaining -- the next fiscal year but we have not made any decision on that front. Our Board of Directors is clearly well attuned to that and certainly studying that many as options we have.

Great. Thank you for taking my questions and congrats again on a great quarter.

Thank you so much.

Thank you. And with that, I am showing no further questions in queue. I would like to turn it back to Manuel Henriquez, CEO for final comments.

Well, thank you everybody. We appreciate you joining us on the call today. As usual, we will be doing non-deal roadshows here in the future. If you would like to have us participate and attend a non-deal roadshow, New York, Boston, or any part of the countries let us know. We are very grateful for your continued contribution and support to Hercules and thank you for your attention today. Thank you, Operator.

Thank you. And once again, thank you ladies and gentlemen for joining today’s conference. You may now disconnect. Have a great day.