Runway Growth Finance Corp. (RWAY)

Runway Growth Finance Corp. is an externally managed, non-diversified closed-end investment company, formed in Maryland in 2015 and regulated as a business development company under the Investment Company Act of 1940. It also elected to be taxed as a regulated investment company. It is a specialty finance company that provides senior secured loans to high growth-potential companies, offering hybrid debt and equity financing that is more flexible than traditional credit and less dilutive than equity. Its objective is to maximize total return to stockholders, primarily through current income on the loan portfolio and secondarily through capital appreciation on warrants and other equity positions. The company changed its name from Runway Growth Credit Fund Inc. in August 2021 and completed its IPO in October 2021.

The company invests in senior secured term loans and other senior debt, and occasionally second lien loans, usually acquiring warrants or other equity from borrowers. It originates investments through two strategies: Sponsored Growth Lending, which targets late and growth stage companies backed by established venture capital and private equity firms and typically includes warrants or other equity, and Non-Sponsored Growth Lending. It may also opportunistically buy investments in the secondary market. At December 31, 2022, the debt portfolio held 56 investments in 35 portfolio companies with a fair value of $1,094 million, 98.8% of it senior term loans, and the equity portfolio held warrant, preferred and common positions in 42 companies with a fair value of $32.5 million. Substantially all debt investments had original commitments of $6.0 million to $85.0 million, terms of 36 to 62 months, and cash interest rates of 5.69% to 15.79%. The dollar-weighted annualized yield on debt investments was 13.71% in 2022. Net assets were $576.1 million.

Its borrowers are late and growth stage companies in technology, life sciences, healthcare information and services, business services, select consumer services and products, and other high-growth industries. They typically use the proceeds for sales and marketing, expanding capacity or refinancing existing debt. The company is usually the sole lender and does not actively syndicate its loans or join syndications built by other lenders. Since beginning investment operations in December 2016, it has funded 57 portfolio companies and invested $1.6 billion in debt investments. It seeks diversification across sponsored and non-sponsored deals, sponsors, industries, geographies and stages of development.

The company is managed by Runway Growth Capital LLC, a registered investment adviser, under an advisory agreement. It pays a base management fee and an incentive fee. Runway Administrator Services LLC, a wholly-owned subsidiary of the adviser, provides administrative services. An Investment Committee led by Chairman and Chief Investment Officer R. David Spreng approves each investment. Since December 2016 the company has had a strategic relationship with Oaktree Capital Management, whose affiliate OCM Growth Holdings owned 52% of the shares at December 31, 2022, and also holds a minority interest in the adviser. Offices are in Chicago, Woodside, San Diego, Dallas and New York. The company is an emerging growth company under the JOBS Act.