Hercules Capital, Inc. (HTGC) Q1 2015 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Hercules Technology Growth Capital Q1 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode, later we will conduct a question-and-answer and instructions will follow at that time. [Operator Instructions] As a reminder today’s conference call is being recorded. I’d now like to the conference over to Mr. Michael Hara, Senior Vice President of Investor Relations and Corporate Communications, please go ahead sir.

Thank you Candice, good afternoon everyone and welcome to Hercules Conference Call for the first quarter 2015. With us on the call today from Hercules are Manuel Henriquez, Hercules Co-Founder, Chairman and CEO; Jessica Baron, VP of Finance and Chief Financial Officer. Hercules first quarter 2015 financial results were released just after today’s market close and can be accessed from the Hercules Investor Relations section at www.htgc.com. We’ve arranged for a replay of the call at Hercules webpage or by using the telephone number and pass code provided in today’s earnings release. During the course of this call, we may make forward-looking statements based on current expectations. 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 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 also can 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 update the forward-looking statements or subsequent events. To obtain copies of related SEC filings, please visit sec.gov or visit our website, www.htgc.com. And with that I’ll turn the call over to Manuel Henriquez, Hercules’ Founder, Chairman and CEO.

Well, good afternoon everyone and thank you Michael, and thank you all for joining us today. We’re off to a very strong start 2015, we continue on our mission to grow our invested portfolio by 30% to 50% in fiscal 2015 for the yearend balance of $950 million of our loan portfolio at the end of the year. Our target is to achieve a $1.3 billion or $1.5 billion investment loan portfolio by fiscal yearend 2015. As our accomplishments now show we’re well on our way to achieve in this goal. With our total investment portfolio growing by a total of $135 million a $133 million of that from our loan portfolio alone representing up 40% quarter-over-quarter on the investment loan portfolio alone. We’re well on our way to our targeted of $1.3 billion to $1.5 billion and this is simply off the first quarter of 2015, so certainly off to a very strong and good start for the year. Our portfolio growth continues to demonstrate our strong leadership position within the venture capital lending marketplace. The strength of the Hercules brand, the strength of Hercules reputation integrity as the largest specialty finance BDC provider capital to the venture capital community and the private equity community, backing high growth, innovative, disruptive technology in life sciences companies. No other focused venture BDC fund has demonstrated these capabilities and many continue to struggle to even show or demonstrate any quarter-over-quarter growth in their invested portfolio as recently proven with many of the other BDCs who have reported the results so far in 2015. 2015 Hercules achieved major milestone to [indiscernible] in 2013. We continue our impressive and effort to build our invested portfolio and we continue to demonstrate our capability to the marketplace. We surpassed over $5.2 billion of new commitments to well over a 320 companies who have chosen Hercules as a financial partner. Our strong reputation as a strong financial partner and our relationship with many of the leading venture capitals and entrepreneurs continue to drive high quality deal flow to Hercules. We’re greatly and deeply appreciative of these entrepreneurs, these venture capitals for recognizing and partnering with us and continuing to provide us a deal flow that they have done over the years and continue to expect in the coming years ahead. 2014 demonstrated Hercules capabilities by originating nearly $1 billion of new commitments in fiscal 2014 which shows our resiliency and ability to nearly absorb a half a billion dollar of early prepayments in fiscal 2014 and yet our utilization, our team, our invested professionals, strongly prove their ability to not only absorb the $0.5 billion of early prepayments but also grow the portfolio above and beyond that in fiscal 2014. This unwavering confidence in our invested professionals team has set forth our ability and confidence in projected our goals for 2015 and as I said earlier those goals are to grow our invested portfolio by 30% to 50%. It is a bold statement I recognize but it also amplifies the confidence and belief in our team, in our organization to achieve this goal of going to portfolio by $1.3 billion to $1.5 billion by fiscal year end 2015. Now as you set that target, excuse me those targets were based on several key assumptions some of which I’ll review here for you now. First, we believe that the level venture capital fund raising and investing activity will remain relatively healthy and continue to create a steady deal flow of new opportunities for Hercules to actually evaluate and potential make investments certainly to the first half of 2015. The venture cap community itself is also a strong start. They raised approximately $8 billion in new venture funds to allocate for future new investments on behalf of the venture capital community. They in-turn have been quite busy investing in new companies. The venture capital community invested an impressive into 800 start ups in fiscal 2015 in the first quarter of which $16 billion was invested according to Dow Jones Venture Source report. This is a very impressive validation and start to 2015. Secondly, [indiscernible] in portfolio growth is our expectations on a very subdued early prepayment activities in the first half of 2015. We are now expecting to realize the return of early repayments that we realized in fiscal 2014 of which represented as I said earlier nearly half of our investor portfolio turnover or $500 million of transactions were paid in fiscal 2014. I am happy to say that we do not expect anywhere near that activity in the first half of 2015. However, as we turn our attention to second half of 2015 we certainly believe and expect to see a modest pick up to an increasing velocity of early prepayments and repayment activity to begin to take place in the later part of the second half of 2015 and then return to a more normalized pace of early payoff activities in fiscal 2016. I will elaborate further on to what those expectations will be for early payoffs in the coming future quarters and in early 2016. This lowering of deposit age of our portfolio by rebuilding the portfolio with brand new loans helps to minimize if not reduce the drag that maybe attributed to early repayments in our invested portfolio. This will allow us to focus on going on invested portfolio to that $1.3 billion, $1.5 billion without facing that headwind or drag or early prepayments. Although a short term adverse impact of not having this early repayments is in fact a lowering our effective yields we actually are fine with that lowering effective yield which now tends to correlate more closely toward our poor yields. However, as I said this is merely a timing issue and we expect as early prepayments begin to take place in the second half of 2015, it certainly backed to a normalized pace of 2016 we expect the effective yields to once again begin to rise and be above that over co-yield by anywhere to 100 to 200 basis points when that begin to take place again in the second half of 2015. Lastly and our third point. On unfunded commitments, we are continuing to prudently build our invested portfolio. We exited 2014 with a healthy unfunded commitment in backlog. Those unfunded commitments typically represents future investor commitments however Hercules has and will continue to work with our companies and establish very significant performance milestones of which those companies must achieve prior to releasing some or significant portion of those unfunded commitments. These unfunded commitments at the end of Q1 represented nearly $400 million of unfunded commitments and much of this is certainly to funding milestones. However, this provides us a good insight and perspective as the future portfolio growth that maybe already embedded in what we have in our unfunded commitments. This is the very important point to look at when you look at our ability to kind of convert those unfunded commitments to new funded assets and grow our portfolio to that achievement of $1.3 billion, $1.5 billion. With that brief backdrop I am pleased to report that our Q1 financial results continues to demonstrate our strong capabilities and efforts to grow our invested portfolio and help to drive future earnings back to our historical levels of $0.28 to $0.31 and net NIII EPS over the next coming three to five quarters subject of course to market conditions remain very favorable. Now for today's agenda I will briefly go over the highlights in order to allow for greater time for Q&A in which many of our investors and analysts have requested that we make more time for. So we are happy to address that and hopefully make this presentation much briefer than normal. I will start with the brief summary of our key operating metrics and Q1 results. I will then turn my attention over to the overview of the current market conditions including venture capital activities, IPL, M&A as well as brief discussion on the competitive landscape as well. Next, I will turn my attention to the outlook for the second quarter of 2015 as well as the second half of 2015 and beyond. Lastly I will turn the call over to Jessica Baron, our CFO who will go into the financial details. However before I turn over the call and go through my commentary, I want to first acknowledge and personally thank Jessica for incredible time and commitment and dedication she has given to the organization of Hercules and specifically helping to me for her 9.5 years commitment to this organization. I am deeply grateful for her commitment and her strong support and her leadership throughout the years. She has been outstanding contributor. She is an exceptionally hard working individual and a true team player. I am personally sad and to see her departure go but after 9.5 years I fully respect and understand her decision to go out and explore new opportunities in her career and her professional development. She will be sadly missed at this organization and I personally want to thank her for her tremendous contributions and for offering and giving me 25 years of living life as part of Hercules and support to this organization. Thank you very much for your continued success and help and I wish you the best of luck, Jessica.

Thank you.

Now turning my attention to key highlights of Hercules' outstanding performance and achievements during the first quarter. Net portfolio growth grew at $133 million on the investment loan portfolio representing up 14% on the aggregate our entire invested portfolio grew $135 billion. I am not aware of many other BDCs have been able to demonstrate this ability to grow the portfolio and certainly not one of them in the BDC focus in the venture capital marketplace. This is a testimony to this team's tremendous capabilities in the outstanding team [indiscernible] that we have working and looking for new transactions for us. Debt and equity commitments were also extremely strong up setting 5% year-over-year representing a $272 million of new commitments in the first quarter of 2015. Total investment assets were also up strong at 14% and the total increase to $1.2 billion quarter-over-quarter or fiscal fourth quarter 2014. Our record unfunded commitments which I alluded to earlier at $377 million or up nearly 99% over the same time in earlier year and this represents $243 million of those unfunded commitment our back staff are represented - excuse me by milestones in order to unleash those unfunded commitments. Distributable net operating income or DNOI was also strong at 15.7 or $0.25 per share. Net investment income or NII was $13 million or $0.20 per share obviously reflecting the loss of early prepayments in the portfolio which we expect to see start returning back in the second half of 2015 and start driving both our effective yields as well as our NII per share as well as we build our invested portfolio. We also work diligently to ensure that we’ve a strong liquidity position with $321 million of available [drypowder] for new investments that are composed of both cash and available dry bank lines of credit we’ve available to ourselves to continue to fund our portfolio growth. Co-yields and effective yields have once again [indiscernible] and basically represent 12.8% and 12.9% respectively. This is a very anticipated phenomena in our side as we’ve little to know early prepayment activity. On that same note I’ll turn my attention then to normal and early unscheduled principle repayments. In aggregate we had $74 million of repayments to take place in the first quarter, $46 million of that were represented early and unanticipated early payoff and the balance of course $30 so million was amortization in the quarter. What is most important by that statement is, the early prepayments are down 68%, this is while as we focus our attention in growing our invested portfolio which we’re actively doing. We also successfully raised at above book value an increase to our shareholders a $100 million equity raised during the first quarter that we saw was important to continue to increase the velocity of our invested portfolio growth and ensure that we’ve abundance of capital that will convert over the next quarter or two into interest earning assets for the benefit of our shareholders as we continually grow portfolio and focus on growing both net asset value and net investment income with the new capital that we just raised. Finally, my commitment to build and prepare Hercules for the next 10 years of growth is well underway. I’m very pleased to welcome two highly accomplished qualified new independent board members to the Hercules Board of Directors and organization. Ms. Susanne Lyons and Mr. Joseph Hoffman are both exemplary examples of the individuals that we’re seeking to help us continuing to build and continuing to grow Hercules over the next 10 years. I’m very happy to have their addition to the board and their guidance and professional experiences to help and work with our fellow board members in building the organization for the future. Now let’s turn our attention to our investment loan portfolio and yields. Let me take a moment to discuss the importance of the key assumptions I’ve discussed at the beginning of this call and how they benchmark against our target to grow our investment loan portfolio. First, our deal pipeline remains healthy and very robust as evidenced in Q1 which we generate over $270 million of new commitments. Unlike some other players these new commitments do convert into funded and closed transaction. We actually funded and closed over $209 million of new debt and equity investments in Q1 alone exemplifying our ability to identify the right companies and with those companies to have outstanding and continue to convert those into new funded loans that we expect to be accretive to the benefit of our shareholders as return retentions are growing and growing our NII. Second, as expected as I explained earlier Q1 had merely $47 million or $46.5 million of early payoff activities down from a $147 million in Q4. The result of this was a net growth in a portfolio of approximately $135 million in aggregate, $133 million of that was related to our specific loan portfolio representing up 14% quarter-over-quarter on the core investment loan portfolio. We ended Q1 with an investment portfolio of approximately $1.17 billion or rounding at $1.2 billion. This is well on our pace to our quarterly achievements on net new growth in the portfolio which I’ll speak to you further in this presentation. Although I’m very pleased with our pipeline and conversion of new investment opportunities, I remain frustrated that we continue to realize fundings closing later and later in the quarter thereby causing little impact of new closed funded loans in the quarter to earnings during that quarter. This translates into earnings being pushed out with new investments being closed during the quarter that will not be accretive until the following quarter because of lateness at which when they’re closing during the quarter is a frustrating and ongoing phenomena we’ve been seeing now consistently for the past eight quarters and at this point are willing to realize that this is may be a trend that’s here to stay. For example, in Q1 alone we closed a $100 million of additional new commitments in the last two weeks of the quarter this after we publicly disclosed are activities for the quarter we’re surprised to see the additional loans closed late in the quarter representing nearly $100 million that is example of which, how loans that are closing late will not benefit us in the quarter in which they’re closed. We continue to remain diligent and enhance our liquidity position as I said we ended up the quarter with $321 million liquidity well positioned to continue to fuel our growth and portfolio and certainly achieve the goal of the $1.3 billion and $1.5 billion and new activities. With this intent to help support our future growth by ensuring our ability to grow investor portfolio along with the funding of healthy backlog and unfunded commitments of $377 billion representing a record level we are well in our way to achieving these goals. It is important to remember these unfunded commitments do not represent commitments to fund the company many of those commitments are in fact tied to funding milestones. So I want to stress the importance that please do not simply calculate the unfunded commitments should translate into immediately funded assets. That is not the case. Now in our Q4 2014 earnings calls we stated that the given the lower effective composite yield of our loan portfolio and given that the portfolio was recently rebuilt with new loans, we continue to expect a very little to no significant activities in early repayments. And in fact, we only expect to see earlier repayments in fiscal Q2 of 2015 or in the neighborhood of between $25 million to $30 million of early payoffs in normal amortization of approximately $35 million. Together you are looking at early repayments in aggregate of approximately $60 million to $65 million in Q2 that may come in the form of early repayments. Because it is subdued activity in early repayments we expect our yield in Q2 to remain within the early tolerance level of 12% to 13% of our core and effective yields being one and the same in Q2 so much of what you saw occur in Q1. Despite increased competition Hercules has chosen not to pursue new investment opportunities that will not yield us strong credit outcomes and strong credit yields in our invested portfolio. We continue to pass on many investments that we feel that are under priced and represent a significant amount of risk we will allow some of our new players in the market who are more eager to build assets at all cost to allow themselves to pursue those investment opportunities. We have chosen to continue to follow the strategy that work well for us and lasted 11 years and that is the slow stage strategy of being very meticulous in identifying the new credit opportunities to invest in. That may entail that we may miss quarterly earnings from time to time but we are devoted and committed to ensuring continued preservation of our capital and slow steady growth of earnings that's more consistent and we continue to adhere that philosophy and policy because of that adherence you will see our earnings continue to grow in the second half of 2015 and start approaching closer to our historical levels of $0.28 to $0.31 this year as we grow invested portfolio to $1.5 billion and greater as we build our invested portfolio. We continue to remain very set as looking at credit profiles of [indiscernible] companies and we continue to hold fairly firm on being the sole lender of the first lean lender provider to many of our companies. We are thus far chosen not to pursue secondly lending deals or senior stretched deals where you have significance senior bank lending ahead of us at this time especially given our concerns with the overall marketplace and credit environment that we feel is flaring up a bit out in the marketplace. So we remain very disciplined in our underwriting and less focus on AUM, assets under management as we are in credit quality earnings in their portfolio. With the taxable earnings fill over from 2014 of $17 million as well as potential to harvest unrealized gains from some of the investments in particular that on the investor Box.net we have nearly $20 million of unrealized gains attributed to the Box Holdings alone. Now clearly that number may change up or down as we turned our attention to eventually monetizing that exit and harvesting that gain of our Box investment as I said as of today the unrealized gain in the Box Holdings is about $20 million add that for example to our spillover $17 million that gives us $37 million potentially to continue to cover our dividend as we continue to focus on building our investor portfolio and eventually covering our dividend with our own income from NII from investment portfolio as we build up the portfolio and catch up to that level. We have enough liquidity in our portfolio that we feel at this point that our dividend policy is more than adequate to cover that dividend in Q1 and certainly in Q2 and which point we will revisit our dividend policy each and every quarter in fiscal 2015. We will continue to evaluate the dividend policy at every quarter to ensure that the gain potential for the Box investment will be realized in a prudent manner and allow us to use that gain to further fuel or fund our dividend in fiscal 2015. We will continue to fed our leadership position and we will continue to selectively underwrite credits that may have lower yields spread but represent high quality credits to [coffers] which we feel make sense and are good partners for us in our investor portfolio. We continue to see a very steady deal flow of good opportunities in the portfolio but will remain very much methodical and very purposeful in our underwriting on selecting those investments that we choose to finally make investment decisions forward. As such we have elongated our time to closing from a prospective new investment opportunity to close further causing delays on our on-boarding of new investments. Again, this is something that we’re very comfortable doing and we feel that it’s prudent in order to continue to analyze and continue to complete prudent due diligence to mitigate any future capital losses that may derive upon any changes in the economic outlook of our economy or in changes in venture capital funding in support of these companies. As an ongoing hallmark of Hercules we remain extremely focused in maintaining high credit quality. We’re a credit quality shop and we will always preserve and focus on credit as a critical component of our organization. I’m proud to say that after 11 years since founding Hercules our cumulative net GAAP losses since inception are just under $9 million, this is cumulatively over 11 years of origination representing just under 2 basis points on over $5.2 billion of commitments, it’s an outstanding record and one that is hard to believe that in 11 years ago when I started this company I’d have sat here in this call and said we would add loss rates of only 2 basis points that is a testimony to the integrity and this team and its ability to identify the right investments to make. I’m very grateful for the hard work of our investment professionals and preserving the capital for our shareholders and identifying the right companies to invest in, thank you for that. Now let me turn my attention to venture capital exits and liquidity events both from our portfolio and from the venture capital industry. Our commitment to maintaining a high quality loan portfolio continues to be exemplified by the number of exits in liquidity events of our portfolio during the first quarter. In the first quarter alone we had three portfolio companies complete M&A events and three companies complete IPO events. Box.net, [Salzano] Pharma and [indiscernible] Pharmaceutical are the three recently completed IPOs during the first quarter. Not to be left behind we currently have five portfolio companies that have filed S1 to go public in the quarter and are waiting to complete their IPOs or not so which are mark conditions. In addition to that we currently hold 129 different warrant positions and high growth innovative technology and life sciences companies representing future potential value that we may have locked for our shareholders if and when those companies were to monetize. It’s a 129 positions which we then have 42 different equity positions in our portfolio. These represent significant opportunities for future harvesting of capital gain to build and continue to grow our net asset value as well as help continuing to fuel and grow our dividend in the future as those events eventually will monetize. Now I’ll turn my attention to the venture capital community. As I said at the beginning of my remarks, the venture capital community started off 2015 quite strong. $8 billion invested for new funds, $30.7 billion invested in new technology life sciences companies in the first quarter of 2015. Once again information technology companies represent the largest share capturing nearly 29% of those dollars in the quarter, a significant and continuing pace of activities. The next area was followed by business and financial services representing 28% of the capital and then rounding out the horn in the backend here with healthcare and life sciences representing 22% of those capital flows that were invested. Venture capital activities were strong, we continue to see a very robust liquidity event, 12 companies completed IPOs in Q1 three of which I would like to remind everybody are Hercules Technology companies. Once again a very strong representation on our companies in the IPO activities of the 12 companies going forward in the first quarter. Those 12 companies raised nearly $1 billion not being left behind a 122 companies completed M&A activities during the quarter for a transactions value aggregating to $11 billion in transaction value of M&A. Finally, turning my attention to the outlook for the second quarter of 2015 and a second half of 2015. As I say earlier, having it to rebuild our investment portfolio at the end of 2014 and driving to lower composite year or age of our investment portfolio we do not expect to see significant early repayment activities in the second quarter of 2015. As I said earlier early repayments in the second quarter of 2015 are expected to be between $60 million to $65 million in the portfolio. We also expect to see the invested loan portfolio grow in the second quarter despite the early payoff of $65 million and we expect to see our investment loan portfolio grow between $65 billion and $85 billion in fiscal second quarter of 2015. Again, without the impact of these early payoffs we expect to see our GAAP yields in Q2 normalize to match or be equivalent of that our core yield in a 12% to 30% range. I’ll strongly emphasize that we do expect to begin to see a gradual increase in our effective yields in the second half of 2015 as we begin to see a pickup in early repayment activities in the second half of 2015 that should lead to a slowly but increased level of fee income and once again driving our effective yields to widen over our core yields. We’re still unclear as to what that yield winding maybe but conservatively expecting at 100 to 200 basis points winding of those yields in second half of 2015 may not be an unreasonable assumption but we will give better guidance or perspective on that at the end of Q2 when we have a better indications of what activities we can expect in early payoffs. We are well on our way to achieving our goal of going to portfolios of $1.3 billion $1.5 billion that goal cannot be achieved without the hard work of your investor professionals. They are diligently working on and harvesting our very strong robust pipeline that we have new deals but I will caution everybody that speed is not something that we care about. We care more about making sure we underwrite the right loans. I have already given indications that we expect loan portfolios to grow in Q2 between $65 million and $85 million continued to slow but steady pace of growth to achieve $1.3 billion, $1.5 billion. We will continue to evaluate dividend policy quarter-to-quarter but as we indicated earlier we have sufficient amount of spillover and potential capital gains to continue to maintain a dividend policy consistent to what it has been in the past but we have chosen to continuously evaluate that dividend policy quarter-to-quarter and take any necessary steps to adjust up or down if we see that or realized gains and continue the pace of earnings growth may change so it’s a market conditions of course. With that said I turn my attention to wrapping up this call and we are confident in our ability to execute and derive our continued portfolio growth. I am very proud for achievement in Q1. I continue to look optimistically look to a return to earnings growth as we grow portfolio and I will caution it is a slow and steady strategy that we have deployed in the past and we will execute meticulously on that strategy and continue to drive that growth in our portfolio into that $1.3 billion, $1.5 billion to ensure that we achieve our earnings and NII growth that we expect to be achieved by year end. We also continue to believe optimistically that our investment portfolio in warrants and equity should also continue to generate additional capital gains for us to further supplement our dividend and then assets growth by harvesting those gains throughout the second half of 2015 and early 2016. Q1 was very strong I am very confident in our outlook and I am very optimistic in the marketplace and I certainly welcome the recent consolidation within the banking major industry that is going to be eventually lead to a slower competitive environment which also us to continue to grow investment portfolio while others may not have access to liquidity and the balance sheet such as we do to take advantage of that right market opportunity that we believe will translate into the second half of 2015 further fueling our investor portfolio growth. With that I will turn our call over to our CFO Ms. Jessica Baron.

Thanks Manuel and thanks everyone for listening today. I would like to remind everyone that we filed our 10-Q as well as our earnings press release after the market closed today. I will briefly discuss our financial results for the first quarter 2015. Turning to our operating result, we delivered total investment income or revenues of $32.5 million, a decrease of 9.1% when compared to the first quarter of 2014. This year-over-year decline is primarily due to the decreased deals on the portfolio due to a decrease in early past year-over-year. Our core yield during the first quarter was 12.8% which excludes the effect of [indiscernible] that occur from early path in one-time event. The all in effective yields on our debt portfolio was 12.9% as had been covered down approximately 310 basis points relative to the previous quarter again attributed to the decline in early path and fee acceleration quarter-over-quarter. Interest expense and loan fees were approximately $9.4 million during the first quarter of 2015 as compared to $9.2 million during the first quarter of 2014. Slight increase is attributable to securing additional capital to invest in our portfolio specifically $103 million of ten year bond we issued in July 2014. On the 2014, $129.3 secularization we completed in the last quarter of 2014. The weighted average cost of debt decreased to 6.1% in the first quarter of 2015 versus 6.9% during the first quarter of 2014. This decrease is primarily attributed to the issuance of lower cost depositions in the two periods. Operating expenses for the quarter was $10.1 million as compared to $8.2 million in the first quarter of 2014. The increase is primarily due to an increase in stock base comps and due to an increase in recruiting and legal costs associated with strategic board recruitment and executive higher objective. First quarter net investment income was $13 million compared to $18.3 million in the first quarter of 2014 representing a decrease of approximately 29% net investment income per share was $0.20 for the first quarter of 2015 compared to $0.30 for the same quarter ended 2014. We recorded approximately 5.2 million of net unrealized depreciation on our investment during the quarter of the 5.2 million of appreciation 800,000 of appreciation was primarily attributed to net collateral base impairment on debt equity and warrant investments in portfolio companies 6.7 million of appreciation was due to market or yield adjustments and fair value determination and approximately 2.3 million of depreciation was really due to reversals of prior appreciation due to loan payoff and sales of warrants and equity investments. We recorded 4.3 million of gross realized gain primarily from the sale of warrant and equity investments in portfolio companies and these gains were offset by growth realized losses of approximately $1 million resulting from the liquidation of warrant investment and three portfolio companies. We ended the first quarter 2015 with total investment assets including warrants and equity on the cost basis of approximately $1.17 billion this was net up by $135.5 million from our investment portfolio at end of 2014. The increase is primarily driven by our strong origination funding activities of net investment of new investment totaling approximately $209.4 million in debt, equity and warrant investment also by approximately $74 million of principal repayments and proceeds from the sales investment. The debt portfolio company comp decreased by 3 from 94 to 91 since the end of 2014. This net change is due to addition of debt investment to eight new companies and offset by 11 million pass during the quarter. A reminder that debt investment amortization typically commences 9 to 12 months after the interest only period we have on our term loan and then the amortization of schedule to occur over 36 to 42 months time frame. Apart from earlier repayments we currently have scheduled amortization on our portfolio of $30 million to $40 million on a quarterly basis. This amount will increase throughout 2015 through 2016 as the investments we added throughout 2014 commenced amortization. With respect to credit quality our loan portfolio credit quality remains very solid. The weighted average loan rating on our portfolio was 2.26 as of March 31 reflecting a slight degradation from 2.24 reported at the end of 2014. We have four investment on non-accrual at the end of the quarter with the cost basis of .3.1% of the debt investment portfolio. And 1% at the present at the total investment portfolio share value. Regarding Hercules liquidity, at the end of the first quarter we had approximately $321.8 million in available liquidity which includes $171.8 million in cash and $150 million of credit facility availability. As of March 31, our debt to equity leverage ratio including our SBA debentures was 80.5% lower than the 95.1% as of December 31, 2014. This improvement is primarily due to the $103 million for equity raised we didn't in March of 2015. As a reminder our 190.2 million of SBA debentures are excluded for that regulatory leverage calculation purposes. This exemption effectively allows us to leverage beyond one to one debt equity ratio to 1.25 to 1 which means that at the end first quarter we had additional capacity to add $340 million of leverage to our balance sheet. Our net leverage which is calculated based on total debt minus cash was approximately 58% at the end of March. Our net asset value on March 31 was $763.3 million or $10.47 per share compared to approximately $658.9 million or $10.18 per share as of December 31, 2014. This increase is primarily due to the accretive effect of the public offering of approximately 7.6 million shares in March of 2015. Finally, as previously noted we are distributing a dividend of $0.31 to our shareholders and this payment is scheduled for May 25. In closing as Manuel mentioned we are optimistic given what we are seeing in the venture debt marketplace but we will continue to take a cautious and steady approach to on-boarding and selective investments in 2015. So with that operator we are now ready to open the call for questions.

Thank you. [Operate Instructions] And our first question comes from Robert Dodd of Raymond James, your line is now open.

Hi guys. Just on the competitive environment obviously I mean the question with consolidation take back etcetera, are you seeing any of that any material effect on your mark obviously you guys are pretty selective don't go in behind those guys etcetera so does that kind of make the secondly on the pricing your yields being payments but on pricing can you give us any color is there any change right now in structures or pricing like assets you actually are willing to do?

I think that competition has changed at the end of Q1 and we will expect to see a continuation of change leading in second half of 2015 meaning that we expect the competition to not to disappear but we are certainly seeing a retraction or less competitive environment that we saw in third and fourth quarter 2014. It’s not to say that competition doesn't exist, yes it does. But the threat in the [indiscernible] appetite for assets that we saw in Q3 and Q4 it’s certainly not as evident in the end of the Q1 and certainly rolling into Q2. So that's changing quite a bit. So I think you will begin to see probably yield civilization our core interest yields will probably stabilize again we are not like other lenders who claim senior loans but they have the sizable end of term payments which are all non-cash and behind the bank. We think it’s quite dangerous especially the economic downturn would occur. We have chosen not to pursue that avenue at this point. And I think that the better environment is also shifted quite meaningful away from those who have capital and those who do not have capital and that's becoming a differentiator in the game right now that we are well positioned to take advantage of what others are not. But I don't want people to feel that somehow competition has disappeared. I don't think that is the case at all but I think that the competitors that existed in Q3 and Q4 are shifting and are different than what we expect to see in the second half of 2015 and a lot of these venture banks were not direct competitors to us because we are a larger capital provider. I think that those who are smaller providing some $5 million to $7 million loans were probably felt a lot more competition than we did from those players.

Great. Great. Thanks. On just kind of extending that I mean are there particular verticals I mean life science tech or whatever way you are seeing greater or lesser easing of those competitive pressures?

Well, look at it is obviously an easy say to reconcile that technology lending is by far less complex and easier than that of life sciences lending and so the skill sets that a life science team requires are aren’t significantly higher and there are verticals within the technology sector that are quite difficult to underwrite and understand. But as a whole to your comment, I think that technology as represented by the venture capital investing activities dealing 30% of the dollars were earmarked in technology is the fastest largest growing signal in market and probably the easiest one for folks to pursue. So, I think that you will continue to see above normal competitive pressures in the technology lending world in the life science world.

Okay great. Thanks and one more if I can I mean your expectations for Q1 net portfolio that’s 65 to 85 but as you pointed out in - sorry for Q2, for Q1 you had a large set of closings in the last couple of weeks so when we look at kind of indications for Q2 can you give us a ballpark on the confidence interval in terms of - 65 to 85 that's you have got 95% confidence level but that could be plus or minus some two X factors or 50% factor I mean can you give us any ballpark given how choppy those closings can be?

Yes, we are not - we don't tend to exaggerate an enter to lot high probably those other BDCs or managers may do. We are pretty slow and steady and a very practical organization and we tend to guide in more conservative side of the equation. I think that the 65, 85 net up in investment portfolio in Q2 is probably a very solid assumption. This is not going to get overshot by $20 million and so the answer to your question is probably $20 million plus or minus swing on that number but I think the $65 billion, $85 billion is probably the right range in the upper end of the range with what we know today. That may change but as of right now I think there is a high level of confidence that that's a pretty solid good number to go after. It’s not going to be 150 and I don't expect it to be 125 and it could reach 100 but I doubt it. I think 65, 85 its certainly a good number especially when we anticipate $65 million or so early repayments will take place they will absorb that number anyways. Now what that means is that if one of the early repayments doesn't take place yes, then you could have a plus or minus $15 million, $20 million up. Repayments are very difficult for us to forecast because sometimes we are not made aware of the early repayment taking place because a company maybe acquired or pursuing other strategic options.

Got it. Thank you.

You are welcome.

Thank you. And our next question comes from Aaron Deer of Sandler O'Neill & Partners. Your line is now open.

Good afternoon everyone.

Hi Aaron.

Jessica I don't think I can talk Manuel's enthusiastic comments regarding your service there but I certainly echo his enthusiasm for wishing you well in whatever you do next.

Thank you very much.

Manuel, one of the comments that you made in your opening remarks you used the term in reference to the credit environment is flaring up, can you give sort of more color about what you mean by that and on a related note you said that many of your competing BDCs have not been able to show growth while you guys are and that you’re passing up on deals so I am curious on the deals that you are passing up who is that that's booking those credits?

Well we get back to Federal Reserve for that, banks are continued to be having sensational appetite for getting their names, their net interest volumes to grow and convert those deposits ratio. So I think a lot of that fuel or lot of that consumption I should say excuse me, is coming from banks as opposed to both BDCs or other privately especially finance companies. I think banks remained a very aggressive interested borrowers out there. We’re indeed working more with banks then we probably had in the past and we’re solely willing to work with the appropriate banks that do not over lever the companies and we formulate an appropriate strategic partnership with. But banks are by far the largest consumers of credit in this platform.

Okay. And then with respect to your flaring up comment can you tell me a little about what you meant by that?

Yes, I think this is the topic I was generally covering in the opening remarks that does give me a concern and that is this whole premise of companies talking about Unicorns. And for those outside of venture industry Unicorn obsessively is a company that a valuation over billion dollars which approximately almost 40 venture backed companies probably little more than that in Q1, but approximately 40 or so companies that have a billion dollars of valuations and not to be cynical Unicorn during existed life [indiscernible] there is a big when Unicorns love to reconcile sensational appetite to burn capital, they’re growing so rapidly and the day that that capital is no longer available to them, the reconciliation and valuations is going to be a difficult day for many players out there. Now from a lender perspective I think the lenders should generally be fine because these companies have good business while over there, they’re probably well ahead of skies in terms of valuation point of view. And so, the comment on flaring up is that I think there are a lot of unsophisticated, inexperienced venture lenders out there are underwriting assets that frankly should not warrant the valuations let alone the pricing these providers are doing and I think that they’re overextending too much credit to companies that may not be able to service that credit. And I think that you’re billing a potential credit storm that may come too ahead in the second half of 2015 and we certainly expect to see a credit flare up at least the first half of 2016 for sure. This pace is unsustainable.

Okay those are helpful comments. And then, just a quick question on the liquidity levels, I’m curious how often is it that companies fail to hit milestones allowing you to free up some of that funding for other investments?

I don’t have the numbers in front of me purposely but I’ll give you anecdotally. It is probably 50% of the commitments we will reach their milestones. We’re fairly judicious and our credit underwriting with the 30 plus years experience what we’re doing that we’re very meticulous in selecting what we consider to be value and lock the events or collateral enhancing events more capital to these companies. We’re less interested in simply putting assets to work from an AUM point of view and therefore we structure probably one of the more disciplinary industry milestone structures in our deals which will lead credit loss and these are significant. And it gave us a confidence of having a larger than normal unfunded commitment portfolio because those milestones are meaningful to hit.

Okay, great, thanks for taking my questions.

Thank you.

Thank you. And our next question comes from Greg Mason of KBW, your line is now open.

Great, good afternoon. Manuel I know you historically haven’t given NOI guidance but given that we had a $0.20 quarter this quarter some kind of push pulls that I can think about you’ve got a full run-rate of the equity rates next quarter, you’re going to have some acceleration of the debt calls that you did, but you get a full run-rate of all the assets. So, just a lot of moving parts just wondered if you would be willing to give us a little bit of guidance of what you think maybe next quarter could be versus I think everybody is thinking low $0.20 number this quarter?

Yes. Let me look at it, it’s very difficult to forecast DNOI on a tight tolerance level. I think that especially the eve of the 7.2 new million shares that we add to denominator, in fact we will be giving a new denominator on a diluted basis almost 73 million shares that obviously will have an impact on NII and DNOI in Q2. So, I think that I don’t expect to see DNOI and NII really not moving materially until the second half of 2015 when I start converting that liquidity. The way of looking at it, at a high level is we did about $133 million of loan growth in Q1, we’re forecasting $65 million to $85 million of loan growth in Q2. You can probably look at Q3 optimistically today which will give better perspective at the end of Q2, but you get model safely assume and say $100 million to $125 million of net loan growth in Q3 and in Q4 is more difficult quarter forecast from today but certainly if you look at our absorb levels anywhere between $150 million to $200 million of net new loan growth in Q4 and that gives you a pretty good perspective of looking at loan growth in a portfolio net anywhere between conversely $500 million to $550 million for example which will drive you towards that $1.3 billion $1.5 billion. And so we feel with what we know today that that cadence of originating debt at that level on a net basis is within the reasonable framework for us to execute on assuming the market conditions stay strong as they are today. Clearly, we will tap the debt capital market sometime later this year both to lower our interest cost as we retire more portions of our seven year bonds that we are considering although we have not really penciled out a day yet but clearly the ability to swap out 7% bonds for lower cost bond today that we can do that get translate into nearly 250 base points or more in interest rates savings will only further fuel our NII growth. And so one of the things you are looking at is as we meticulously convert that liquidity into that pace of net loan growth that I just described to you we have plenty of capital and additional budgets capital if you are debt offerings to achieve those growth milestones through a combination of our existing liquidity cash and future bond offerings to achieve those milestones and grow NII. So I think NII will begin to move here probably in the second half of 2015 Q2 will be adversely impacted by the 7.2 new billion shares that we just on-boarded.

And then one additional question is subsequent event you say that you have amended the Wells facility and lower the interest rate on that facility. You haven't used that facility in years and so I am just curious on why lowering the rates, why pay the amendment fees and is that a sign that you want to start using your bank facilities?

Absolutely one of the things that we are actively going to do is to change the leverage of balance sheet and drive ROEs wage higher. Today we have effective leverage around 55% leverage on a net basis taking into account our cash balance on a GAAP basis ignore the cash balance. We are at 80. We can go to 1.2 to 1 with genitive order there is absolutely no question that you will see us leverage the balance sheet in fiscal 2015 absolutely tap our Wells line and ROE syndicate lines and begin to use those lines as well as supplement those lines with additional bond offerings to drive greater value for our shareholders in fiscal 2015, there is no question about it. That is what our intent is.

Alright. that’s great and then one last question in the press release you talked about potentially expanding the SBIC program and that the senate has passed the bill. It’s actually the first I heard of it just wondered if you had any additional color beyond what was in the press release?

Well let me be very clear. I truly enjoyed meeting our senators and congressmen but I will never try to handicap what they will do. It was a very encouraging set of means that we had in Washington DC two weeks ago ac consortium of BDC industry executives participated in various senatorial and house representative meetings. I found those meetings to be very encouraging. I feel that the committees, the congressmen were very receptive and very understanding of the economic impact that the BDC is bringing to the lending environment and the benefit that the SBA does. I am very encouraged by the questioning from the congressmen and so I believe maybe optimistically that I believe that June/September timeframe we actually may see a passage of the SBA bill increasing leverages to 350. And I am greatly encouraged by that and that will be hugely economic beneficial to BDC like such as ourselves.

Great. I appreciate it. Thanks Manuel.

Thank you.

Thank you. And our next question comes from Chris Yolk of JMP Securities. Your line is now open.

Good afternoon and thanks for taking my question. Just one clarification forgive me if I miss this in the prepared remarks but help me understand how you guys are thinking about the box positions once it becomes unrestricted would you guys think about immediately selling that my question kind of gets at the fact that clearly boxes come back closer to its IPO price or would you be thinking about holding it a little bit longer and taking more of a position there?

Look we are big big, believers in box. We are hugest supporters of what the organization has done and what they have accomplished. We have no interest in simply dumping the stock if you will and we are as we do in many of our holdings we are much more focused on controlled disbursement or controlled liquidation of the acquisition. So, no we are not interested in simply turning around and just selling it right when lock up expires it’s very typical there were lock up expires to stocks get a little bit depressed and we are not interested and so we feeling that down draft. So we will take our time and work diligently not to adversely impact the stock in its trading activity. So we have plenty of time to realize those gains and as I said it might one or two quarter or may be longer but we are not in just dumping the position.

Great. I guess one additional question here as I think about the business and the liability side of your capital structure, so you got investment credit rating with [CROW] have you had any other additional conversations with other rating agencies in regards to potentially getting investment credit rating with them?

Yes, as I’m sure you would realize I think it was in Q4 I mean the half year, in Q4 we had an investment grade rating at the corporate indicative level from S&P, so virtually we minus investment grade rating from S&P.

Okay, got it, missed that. Okay, thank you very much.

All right.

Thank you. And our next question comes from Jonathan Bock of Wells Fargo Securities. Your line is now open.

Hi, good evening and thank you for taking my questions. May I know one item that we are, we try to understand is the, the security position in VC backed loans and you have got a very high percentage of senior secured loans some with and some without AR revolvers in front, could you give us a sense of the percentage of your portfolio that does have perhaps we’ll say venture receivable loans or venture bank loans ahead and how you think about risk in the senior secured kind of term the first lane, the senior secured term loan behind the venture bank with a small receivable loan and then a peer second lean loan I’m trying to understand relative risk reward in this environment?

Sure, despite some of the misinformation that some market peddlers may say we actually have very little to none, our loans have the senior lender ahead of us. And in fact as many you may recall back in April 2014 we indicate that we are effectively our sales commence doing senior loans in our portfolio which has helped bring down our core yields as we done those senior loans I don’t know the number exactly in front of me. But I believe there our - of our billion dollar or so loan pool, I won’t say that 125 million of that or plus or minus 25 maybe ABL revolver provided by us to our companies. It is not to say that we may not consider but we are very careful with the bank partner that we may choose to work with and we only work with a very select group of banks in that area but we tend to not want to forego with collateral agency and control the credit. And having a bank cap control that and so because we are much more a credit shop, we have a lot of concerns that in the event the economic downturn will happen you as a venture lender may not have full control of our collateral for you at risk of the handling of that work out or say differently the standstill period will kick again and you may not be able to take action as a venture lender until such time was firstly in senior secured lender as chosen to take whatever action they choose to do. And that puts you at a highly precarious and risky position of being and this is why we are not a fan of that lending activity also we are not a fan of a large growing end of term payment as some of those are doing out there which is noncash. Our earnings stream that we have seen in that that party hardly as you saw the end of 2008, 2009 when many other lenders were having a large component of vender term payments are pick that then cause dividends to collapse. So I have been around a long time and I’m more focused on credit than I am of going to portfolio at the cost of credit quality.

I appreciate that and then a question just as it relate to the prepayments you experienced a bit obviously and may be even going a quarter back trying to understand the nature of the prepays themselves as there is a lot of buoyancy in the tech market. How would you kind of define the prepayments in terms of folks that are growing and having raises at higher valuation rounds to take you out versus perhaps another lender or you bringing in the loan yourself if you could maybe give us some insight as to how these prepayments work and the relative percentages are, where we’re today?

That’s a fairly meaty question. Let me just spell something that I think it vests and analyst may not fully grasp. Our biggest competition today is now what we think it is, it’s actually equity. Is equity coming from non-traditional players such as mutual funds and hedge funds that are reaching down and trying to buy IPOs before they become effectively IPO and secure larger positions. There is nothing wrong with that and obviously it’s a good thing to happen. But there is a risk that when these private companies remain private for extended period of time because of running $100 million, $200 million in some cases even $300 million of cash a year and that growth is unsustainable and also the growth begins to taper off and are faced with trying to access the public markets and the public markets will not reward them for growth of 50% or so they may have an event where the IPO may actually end up being a down run. There is a great degree of risk currently in the market as the so called unicorns continue to see an increase of the velocity of evaluations and continued cash burns that the day the music stops those unicorns may in fact may end up being where they are non existence, fairy tales, fancies. And there is a huge degree of risks in that right now in the marketplace. There are evaluations in private companies, there are questionably unsustainable that the public peer groups are not representative of could those evaluations can be sustained in the public market. It doesn't mean that these companies are bad business models, they are not they have to be - very good business models a lot of them but the sustainability of the cash burns and the desire to continue to fuel that cash burns is continuing driving them to higher to higher evaluations that I just feel are not so sustainable. And so the issue on prepayments to be specific is that prepayments in my book I believe will come down as more and more companies will prefer to keep get on their books to actually repay that debt off with an equity raise as a insurance policy to supplement and maintain enough working capital in the event of the music stops that they are not then faced with a lack of debt capital or not enough capital to fund their business growth. So we are in fact seeing a greater demand in debt for larger and larger transactions whereby our size makes the big difference in the marketplace where many other small BDCs cannot afford to play in that marketplace or they must clough back up to play. So now we are historically we would have seen deal typically done $10 million or $15 million ranges we are now seeing transactions being completed in this $30 million to $50 million range and not many BDCs who have their where at all or the capabilities such as we do to be able to fund that growth and that demand for large size credits that way.

Got it. I appreciate that and also as we think about the increase expenses that it relates to compensation and also just the general attractiveness of originators particularly originators with strong VC backgrounds given that you are the largest in the space just curious on how you have talked about the competitive environment for your people right because we have seen several BDCs all look to start different venture platforms and sometimes the best place to go is to go to someone who has a demonstrated track record. So can you give us a sense of how you think of retaining and growing the executive and the origination that Hercules going forward as the attractiveness of your asset class continues to get more and more interesting?

Well Jonathan thanks for asking me more on SG&A you are absolutely right. Just like our portfolio it’s the best place you go get good quality assets is in one of the better providers of the asset class, one of the best place look for challenge is in the best provider in the asset class. So we fully recognize that but I think our investor professionals are smart enough to realize that money in itself is not everything when you go to a new provider, if that new provider has no real foundation or basis to underwrite his asset class or understand his asset class. So, the intangibles are equally as valuable as tangible from the composition point of view. However, as you rightly recognized we have continuously and will continue to support and work diligently to retain our most talented origination team but a lot of those individuals I fully recognize that they have their own ambitions in life as well and so I am not necessarily willing to say that we do not expect to see normalized turnover. I think just its natural for the business. But I will say unequivocally that we have implemented an extremely attractive new composition program in fiscal 2015 that rewards our origination team quite handsomely and aligns them their competition with that of our shareholder value both on yield and credit quality of those new loans that are on-board and those individuals who are quite good at what they do will receive very generous compensation payments for loans that they originate. So we feel that we have a very good and very strong new composition program and I can tell you that because as we have been talking to recruiters on growing organization most of you realize that we are growing organization we are actively looking to grow the organization by 8 to 12 addition new originators to help us complete the pace of the market and we are actively looking at that and I can assure you that when we speak to our executive crews out there they find our programs to be quite generous and quite good.

Yes great. Thank you for taking my question.

Thank you.

Thank you. [Operator Instructions] And our next question comes from Christopher Nolan with MLV & Company. Your line is now open.

Hi Manuel, are you guys still targeting raising operating expenses by $1 million per quarter through 2015?

The answer to that is yes. I think its slower than what I would like it to be but the answer is yes it’s not going to happen in Q2 and I expect it to see that I am probably running one or two quarters behind to be perfectly honest with you. So the answer is yes but it’s probably delayed by two quarters.

Right. Thanks for taking my question.

Thank you and our next question comes from [indiscernible] Macquarie, your line is now open.

Hi, given a slot to think about here just couple of quick ones given the environment that you guys have been talking about with industry credit potentially on pace to see some challenges in late 2015 and 2016 can you just talk about why not be a little bit more selective now with credit extension and kind of holdback I mean I realize the rational for trying to sustain the dividend but as we think about that how does that play into your mind about credit extension now and the opportunities for stronger yields possibly 6 to 12 months from now?

I can assure you that we are holding back an ordinary amount right now. I think we probably rejected more transactions over the last couple of weeks that we’ve had in a long time. There is fairly robust demand for capital out there and to be very blunt if we decide to loosen our strengths we can probably achieve $1.5 billion loan book out lot sooner. That's not what we want to do. I think I gave pretty specific cadence of what that new origination activity is going to be in fiscal 2015 with $65 million, $85 million in Q2 $100 million to $125 million in Q3 and $150 million , $200 million of activity net up in Q4. I think that gives you pretty consistent cadence of doing basically $100 million or so quarter on average leading up to a fourth quarter which is the strong quarter. So I can assure you we are not growing out of control or doing every deal we see. Despite my [indiscernible] probably wanting more of that we are - we remain fairly judicious and selective in what we do.

Okay. Its good color there and the other question I had was as we think about the potential for impact on competition in your ability to grow if we do have a change in kind of leverage from the BDC space is it safe to kind of assume that you guys are likely to be impacted less than many other BDCs just given the competitive landscape and kind of the focus nature of your business that in other spaces maybe allows for other firms to be more aggressive from BDCs but then you guys it’s probably a net positive for you given the fact that a lot of your competitions is outside the space?

This is absolutely no question about it that the two bills circulating within the house of congress. The SPA bill to 350 and the leverage BC leverage going to 221 will be highly accreted to us and something that we strongly would welcome. Those initiatives would be very impactful for BDC such as ourselves especially in investment grade rating like we do to access the debt and equity capital markets would be highly accretive to our shareholders. So as an industry the larger venture lenders were certainly seeing a great impact and benefit because of their access to it wider and deeper portfolio. So yes it’s going to be quite beneficial for us as I alluded to you in our release. We are certainly optimistic and anxiously awaiting a favorable vote from the SPA bill and we welcome working with the staff at the SPA which we think they are quite diligent and frankly very, very great partners to have so we certainly intend to move fairly judiciously and quickly on maximizing our SPA access to capital at 350 and I don't believe that the 221 leverage bill will get voted on till probably September maybe early 2016.

Okay. Thank you very much.

Thank you and our next question comes from Vernon Plack of BB&T Capital Markets, your line is now open.

Thanks very much and I didn't see in the queue - can you have an estimate of spillover in kind of 331?

No, we don't provide an estimate of the spillover income as of today but what we do stick with is disclosures regarding the spillover from 2014 to 2015 of $17 million.

Okay and may well, the portfolio performance has been great over the life of the life of Hercules as a public company and I am just taking, have you put much thoughts lately into as you look back and as you look at the current market what you can and cannot do, has there been the thoughts perhaps maybe try to push a little bit more in terms of the amount of warrants you get versus the coupon that you charge. There could be a trade off there and perhaps maybe it’s a way to even optimize that further?

Well there is absolutely no question there, those are two toddles are critical to our business. The toddle of interest, the coupon, and the toddle of that of the warrant coverage. However, given the environment that we are in and the Unicornish environment that we find ourselves in I am - I should say are a bit more sanguine in our views on taking on well valued private equity or warrants in private company at the cost of foregoing current interest income. We are not an equity shop, we never be an equity shop per say so we much care about cash yields, and strong credit and lesser on the warrant coverage and warrant returns because they are as evidence they are portfolio of 129 different warrant positions way in the harvest - and we know that probably 50% of that will never monetize. So to forego attractive current economics for additional warrant outside on private owners few BDC in a venture space will tell you that initiative environment that's probably a silly trade.

So you feel in terms of your mix of and again how much flexibility that you have over there I know there are some constraints but you feel right now if you look at your warrant, the warrants that you give versus the coupon, you think that makes this probably optimized?

I think that the venture lending market is currently highly efficient right now and both venture capitalist, entrepreneurs and competitors are all quite sharp pointed pricing right now and I think that the pricing guide a little silly and Q3 and Q4 specifically with the desire of many of the recently being acquired venture banks aggressively underwriting loans for simply asset growth. There are other private venture lenders which are currently being sold or attempting to be sold who also aggressively built their loan books with the desire to try and look bigger than actually are who onboard loans at pricing and structures that probably warrant as prudent as they should have been and so we think that the second half of 2015 is still I believe begin to stabilize pricing and warrants. We believe that we should see better economics in the second half of 2015 that we’ve seen in the early part of 2015.

Okay. Thank you.

You are welcome.

Thank you. And I’m showing no further questions at this time I would like to turn the conference back over to Mr. Manuel Henriquez for any closing remarks.

Thank you Candice, thank you operator and thank you everybody for joining us for the today. We will be participating on a non-deal road show here over the next couple of weeks if investors would like to request time with the Hercules, we encourage you please contact our Investor Relations department Michael Hara to coordinate the potential for a meeting in the respective cities that we are touring, we will be doing non-deal road shows over the coming months of May, June and July and we look forward to schedule the time with those interested parties who want to get to know Hercules better and ask more probing questions. And with that, thank you very much and have a good day.