Runway Growth Finance Corp. Q3 FY2025 earnings call

• David discussed third quarter financial highlights, strategy including organic and inorganic growth, and the merger with SWK Holdings.
• Greg expanded on portfolio activity, including 11 investments totaling $128.3 million in the third quarter, and the impact of the SWK acquisition on diversifying the portfolio in healthcare and life sciences.
• Tom shared financial results, including total investment income, net investment income, portfolio risk rating, loan-to-value ratio, fair value of portfolio, net assets, NAV per share, leverage ratio, asset coverage, liquidity, unfunded commitments, and discussed how the SWK acquisition enhances the financial profile with increased scale, improved leverage, attractive yield, and expense efficiency.

In the third quarter of 2025, Runway Growth Finance generated total investment income of $36.7 million and net investment income of $15.7 million, an increase from the second quarter. The weighted average portfolio risk rating increased to 2.42. The dollar-weighted loan-to-value ratio went from 29.6% to 31.4%. The total investment portfolio had a fair value of $946 million, a decrease from $1.02 billion in the second quarter. The loan portfolio is 97% floating rate assets. The proposed acquisition of SWK Holdings is expected to scale the portfolio to $1.2 billion on a pro forma basis, enhance the leverage profile, and provide an attractive yield and expense efficiency. SWK's portfolio is focused on healthcare and life sciences, with companies like SKNV and Journey Medical, contributing to diversification and growth.

• The proposed acquisition of SWK is expected to be accretive to net investment income in the first full quarter following close, supporting ROE expansion and improved dividend coverage.
• The transaction is a NAV for NAV merger structured as a tax-free reorganization with an estimated purchase price of ~$220 million, with consideration including Runway shares and cash. The close is anticipated in early 2026, but delayed by government shutdown impacting SEC regulatory approval.
• Expect muted repayments in Q4 compared to Q3 and ongoing origination activity using the pipeline and BC Partners Credit platform.

• Uncertainties surrounding interest rates, changing economic conditions, and other factors identified in SEC filings that could cause actual results to differ from forward-looking statements.
• Delays in SEC regulatory approval process due to ongoing government shutdown affecting the close of the SWK merger.

Q: Given the expected closing date of the SWK merger in 2026, how should we think about origination and repayment activity in 4Q?

A: Repayments are likely to be muted relative to Q3, and origination is utilizing the pipeline and BC Partners Credit platform with many opportunities.

Q: What's the yield profile between the existing portfolio and the SWK portfolio once combined?

A: The SWK portfolio has a slightly higher yield, and complete pro formas will be in the N14 when filed. The SWK portfolio is dollar-wise smaller but has a higher yield, and there's potential to upsize best loans in the SWK portfolio once integrated.

Q: Which portfolio companies were the main drivers of realized loss and unrealized portfolio depreciation?

A: Those losses were mainly in the equity portfolio, due to expirations of warrants and liquidation of IPO shares at less than carrying cost, mostly idiosyncratic.

Q: What's driving prepayment activity and will it continue next year?

A: Prepayment activity is driven by M&A activity and companies outgrowing the cost of capital and finding refinancing. Normal course of prepayments is expected to continue.

Q: Describe competitive dynamics and pricing pressures in the venture debt space?

A: There's spread compression, but less than in broader markets, and less pressure on spreads as rates drop, expected to continue in the new rate environment.

Q: How will the SWK team be integrated?

A: The SWK team will provide transition services to help move the portfolio onto the BDC's platform, assist with origination during transition, and then see how things proceed.

Q: Are SWK shareholders locked up post-merger?

A: There's no specific lockup, but there's a key shareholder agreement outlined in SEC filings.

Q: Do you expect the deal to be accretive in 2026?

A: It should be accretive in the first full quarter after closing, hoping for early Q1 close despite government shutdown delays.

Q: Did you reevaluate fair value of SWK's investment assets, and possibility of OID accretion?

A: There is the possibility of OID accretion, as fair value will be adopted at closing and compared to look-through price.

Q: How are shares issued in the SWK merger?

A: It's a NAV for NAV merger, issued at current NAV determined 48 hours before closing.

Q: What stage are typical companies that SWK invests in?

A: SWK targets companies generating meaningful revenue, still in growth phase, prep profit, within healthcare, technology, and select consumer sectors, similar to Runway's focus.