Triplepoint Venture Growth BDC Corp
NYSE:TPVG
Earnings Call Analysis
Q4-2023 Analysis
Triplepoint Venture Growth BDC Corp
In a year marked by uncertainty and evolving landscapes, TPVG demonstrated resilience. The venture capital market posed significant trials, primarily due to macroeconomic instability, stiff monetary policies, and valuation concerns. This environment led to TPVG's NAV decline, but the firm strategically maintained its focus, managing its strong liquidity and portfolio with the future in sight.
TPVG generated $17.3 million in net investment income, amounting to $0.47 per share in Q4, outperforming its projected quarterly dividend. Over a decade, the company over-earned its distributions, accumulating substantial spillover income, assuring investors of its ability to generate earnings even in challenging times.
The company leveraged high-interest rates and additional income from loan prepayments to maintain a significant weighted average portfolio yield of 15.6% in the fourth quarter. A strong liquidity position bolsters TPVG's ability to seize new investment prospects as markets recuperate.
2023 saw venture capital hit decade lows across various metrics, profoundly affecting growth-stage companies and investors. Yet TPVG adapted by working closely with portfolio companies, reassessing valuations, and pivoting to burgeoning sectors like AI, cybersecurity, and clean tech, even as it faced valuation pressures and exit hurdles.
Several TPVG portfolio entities like Corelight and Loft Orbital stayed on track, achieving their strategic goals. Highlights included Metropolis announcing a significant acquisition and securing substantial funding, showcasing how portfolio companies could find success despite broader market constraints.
The rebound in the IPO market and M&A activities is expected to benefit TPVG's portfolio companies, which are outperforming the market. This resurgence should attract growth-stage investors and catalyze TPVG's long-term positioning within the venture lending market.
Significant investments were made and TPVG saw an increase in term sheet signings, boding well for continued investment activity. The performance metrics reveal TPVG's commitment to stabilizing returns and prudently managing its balance sheet to cater to market conditions predictably.
Despite considerable realized and unrealized losses, including a stark 11% decline in NAV quarter-over-quarter, results also show the potential for fair value recovery with improving market conditions. Such recovery plans are underscored by strong full-year investment income growth of 15% to a record $137 million.
With a quarterly dividend of $0.40 per share and significant spillover income, TPVG maintains confidence in dividend stability. The firm's operational strategy, which includes managed leverage ratios and substantial liquidity, emphasizes TPVG's judicious financial stewardship in awaiting market rebound.
Continued access to capital markets through programs like the ATM program demonstrates TPVG's strategic efforts to reinforce its investment flexibility and liquidity profile in preparation for market opportunities.
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Good afternoon, ladies and gentlemen. Welcome to the TriplePoint Venture Growth BDC Corp. Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions]. This conference is being recorded and a replay of the call will be available in an audio webcast on the TriplePoint Venture Growth website.
Company management is pleased to share with you the company's results for the fourth quarter and full fiscal year of 2023. Today, representing the company is Jim Labe, Chief Executive Officer and Chairman of the Board. Sajal Srivastava, President and Chief Investment Officer; and Chris Mathieu, Chief Financial Officer.
Before I turn the call over to Mr. Labe, I'd like to direct your attention to the customary safe harbor disclosure in the company's press release regarding forward-looking statements and remind you that during this call, management will make certain statements that relate to future events or the company's future performance or financial condition, which are considered forward-looking statements under federal securities laws. You are asked to refer to the company's most recent filings with the Securities and Exchange Commission for important factors that could cause actual results to differ materially from these statements. The company does not undertake any obligation to update any forward-looking statements or projections unless required by law. Investors are cautioned not to place undue reliance on any forward-looking statements made during the call, which reflect management's opinions only as of today.
To obtain copies of our latest SEC filings, please visit the company's website at www.tpvg.com.
Now I'd like to turn the conference over to Mr. Labe. Please go ahead.
Thanks. Good afternoon, everyone, and welcome to TPVG's fourth quarter earnings call. As expected, venture capital markets continued to be challenging during the fourth quarter. Consistent to what we have seen and been talking about over the last year, the venture industry continues to be affected by macroeconomic uncertainties, restricted monetary policies, inflationary supply chain issues, public versus private market valuation disconnects, a changing investment landscape, geopolitical and other issues. These market challenges, which are impacting venture growth stage companies, especially hard contributed to our NAV decline. We'll cover the contributing factors, including the effects certain industry sectors have had on a number of our companies, some realized losses and the unrealized quarterly markdowns on the debt portfolio and unrealized markdowns on the warrant and equity portfolios given current market headwinds.
Against this spectrum, we remain focused on our established and in-place priorities, which we believe will enable us to navigate through these current market conditions, including maintaining our earnings power and our strong liquidity and managing the portfolio and positioning TPVG for the future.
Turning to our earnings power. We generated Q4 net investment income of $17.3 million or $0.47 per share. Enabling us once again to overearn our $0.40 per share regular quarterly dividend. Including the first quarter dividend, cumulative dividends to shareholders since going public almost 10 years ago, now totaled $15.05 per share. During this time, we've exceeded our distributions on a cumulative basis and continue to maintain sizable spillover income.
For the fourth quarter, TPVG once again maintained a strong weighted average portfolio yield as we generated a 15.6% weighted average annualized yield that was largely driven by continued favorable interest rate and supplemented by additional income from loan prepayments.
During the quarter, we enhanced our liquidity as we continue to experience repayment activity and modestly utilized our ATM program. Notably, TPVG's liquidity now exceeds our unfunded commitment and provides us with the capacity to capitalize on new investment opportunities, especially when the market begins to recover. While we've been allocating limited capital to TPVG, we expect to increase our allocations in the second half of this year.
Turning to the venture market, 2023 proved to be a very challenging year. Pick up almost any venture industry research publications such as [ CB insets ] or the NVCA's pitchbook, [ Nevin heaters ] covering 2023, such as U.S. venture capital deal volume being at 10 years. Late-stage deal sizes following [ more half ] 2021 and Venture Unicorn investing being at 10-year lows. VC down [ rounds ] last year were at their highest level since 2017.
Total 2023 U.S. deal value was a staggering $175 billion less than 2021. And venture capital-backed company shutdowns and bankruptcies increase. 2023 also had the fewest annual VC-backed IPOs since 2013. A prime vehicle for exits for venture growth stage companies. And last quarter saw a 50% decline in quarterly deal value for VC company acquisitions. To quote the word stated recently by a prominent venture capitalist, it's been a venture winter. We believe the drop in deal and investment activity, in the public private market and valuation disconnect has affected the growth stages and its investors the most. Nontraditional investors and other investors in the growth market have paused or remain on the sidelines. This change has also affected our growth stage companies. Many of which had planned for either an IPO or a potential acquisition in the [ one deal ] time period or so after the last financing round.
Given the market downturn, our priority remains on closely managing our portfolio. Our teams maintained close contact with our companies and their venture investors, while remaining heads down working through credit situations. Given the challenging capital raising environment for venture growth companies, for some companies, we believe we will see continued pressure on valuations and the potential for inside rounds.
Some companies are further reducing burn and executing on a path to profitability. Still others, however, as Sajal will get into more detail or raising outside capital rounds. It's about effectively operating in the new market reality given the compressed multiples and reduced exit opportunities I've been outlining.
Investors continue to migrate to sectors with more favorable multiples and outlooks in the sectors of the past, given these market conditions. Our select venture capital investors continue to shift into and have increasing investment focus in fields such as AI, cybersecurity, climate and digital health. There's increased to renewed interest in vertical software, hardware and robotics, semiconductors, applied tech, clean tech, environmental or sustainability technologies and aerospace as examples. While we continue our efforts to diversify across sectors and limit our geographic exposure, there are a number of our portfolio companies that are already operating in these favorable investment categories with some making considerable progress.
As an example, portfolio companies such as Corelight, Loft Orbital, HOVER, Arcadia Power, Flash, [ Cadre ], Overtime and others are making notable progress in achieving their plans and they're reflective of these in favor industries. We're also pleased to highlight a few notable portfolio company developments. This includes Metropolis, which announced its acquisition of SP Plus and secured $1.7 billion in equity and debt, which is subject to regulatory approval and expected to close by year's end.
Another company, Cohesity announced its planned acquisition of Veritas' data protection business with a combined value of $7 billion. There's a few other portfolio companies which have received term sheets for very large equity rounds where we expect to see more development in this current quarter.
Another priority to focus on enhancing our long-term positioning in the venture lending market with 2023 behind us. And while we believe the industry slowdown will still continue through much of 2024. We're focusing on what we expect to be a more promising year for TPVG. We will continue to position ourselves to capitalize on new investment opportunities that reflect today's market for venture growth stage companies.
We're encouraged by the more than 70% increase in signed term sheets last quarter versus the previous quarter. Already this quarter to date, we have more than $7 million of additional signed term sheets. We intend to remain on our path of diversifying the portfolio and sector rotation we have been describing on these calls and expect to be less active in e-commerce and making investments outside of the U.S.
We will further focus on investing in companies that have recently raised fresh capital, having ample cash runways, have backing from our select venture investors have prudent management teams and whose business models have attractive unit economics and high retention rates. Really, these companies that have large enterprise customers.
We'll also continue to evaluate hold sizes, debt-to-equity ratios, deal structures and other key metrics in this market. In summary, 2023 was a tough year for the venture capital industry. And while we expect the venture growth stage we'll continue to have challenges in the near term, the path to stabilization for many companies continues in this environment. And we believe it will result in the potential for additional positive developments, recoveries and [ racks ] for our portfolio. We remain active in the market and continue to build a pipeline consisting of venture growth companies positioned for strength under the current conditions, which are all critical elements for long term that we believe position us to build NAV and create sustainable shareholder value.
We believe that once the IPO markets come back and M&A activity picks back up at more average levels. It will be a marked change for venture growth stage companies especially those companies within our portfolio that are outperforming in this market. It will also attract growth-stage investors to come back into the market.
As this year progresses, we will concentrate on delivering strong investment income, over earning our dividend, building our pipeline, managing our portfolio and credit quality and building on our strong liquidity.
With that, I'll turn the call over to Sajal.
Thank you, Jim, and good afternoon. Let me begin by reviewing our performance in Q4 and full year 2023 as well as highlight key expectations for 2024. Regarding investment portfolio activity during Q4, TriplePoint Capital signed $100 million of term sheets with venture [ on-stage ] companies compared to $58 million of term sheets in Q3, reflecting the increase in the strength of our pipeline, which we believe will result in higher investment activity in 2024.
For the full year, TriplePoint Capital signed $471 million of term sheets with venture growth stage companies. With regards to new investment allocation to TPVG during the fourth quarter, given both current market conditions and TPVG's leverage ratio, we allocated a modest $4.2 million in new commitments with 2 companies to TPVG compared to $5.6 million to 3 companies in Q3. The commitments made during the fourth quarter were to existing portfolio companies.
For the full year, we closed $31.5 million of debt commitments with 10 companies at TPVG, of which 2 were new companies and 8 were existing portfolio companies. During the fourth quarter, TPVG funded $24.4 million in debt investments to 6 portfolio companies, up from $12.7 million in Q3. This funding level came in at the lower end of our guided range for the quarter, reflecting a lower utilization of unfunded commitments. These funded investments carried a weighted average annualized portfolio yield of 18.8% at origination, up from 14.2% in Q3.
For the full year, we funded $125.3 million to 23 companies with a 15.6 weight average portfolio yield at origination. During Q4, we had $33.7 million of loan prepayments, resulting in an overall average portfolio yield of 15.6%, up from 15.1% in Q3.
Excluding prepayments, core portfolio yield was 14.4%, up from 14.1% in Q3. For the full year, we had $104.7 million of loan repayments resulting in an overall weighted average portfolio of 15.4%, up from 14.7% in '22. Core portfolio yield, excluding prepayments, was 14.7% for the full year, up from 13.4% in 2022.
With regards to fundraising activity, five portfolio companies with debt outstanding raised $157 million during the quarter, up materially from $47 million last quarter, bringing our total to 19 companies with outstanding debt raising $594 million during Q3. This data does not include Metropolis announced financing acquisition, which we expect to close in 2024. In 2022, 36 portfolio companies raised over $2.4 billion of capital.
As we look to 2024, we are beginning to see capital raising activity within our portfolio picking up with 2 portfolio companies already having raised over $445 million of capital here in Q1, and a number of portfolio companies are either in active fundraising discussions or expecting to launch a fundraising process shortly. We are seeing round sizes increase and in a few cases, valuations higher than prior routes. This fundraising activity should bode well for the long-term credit quality of our portfolio companies as well as for the potential value of our [ long ] and equity portfolio.
With regards to exit activity, during the quarter, our portfolio company, [ ALEC ], also known as [ Lola ], was acquired by existing portfolio company [ form ] brands and our loan to Lola was assumed by foreign brands in full. Closed M&A events for the full year were flat with 2022 levels and IPOs within our portfolio were down from 2022.
As of December 31, 2023, we held warrants in 97 companies and held equity investments in 46 companies with total cost of $70 million and fair value of $72 million. Our warrant and equity portfolio experienced a 15.5% net unrealized reduction in fair value or $0.43 per share for the quarter and $23.6 million or $0.66 per share for the full year, driven primarily by the disparity between private and public market multiples with fair valuing companies that have not raised new rounds as well as in some cases, the impact of down valuations from new capital raises.
[ $1.6 ] million or roughly 80% of the reduction in fair value during Q4 was attributable to 3 of our financial technology companies, Revolut, WorldRemit and Upgrade given the considerable time that has elapsed since their last private round of financing, which are raised at peak periods for valuation multiples for financial technology companies, compared with the current range of valuation multiples for publicly traded financial technology companies. We now generally utilize current market comparables and multiple to value them based on available actual performance rather than [ pure ] performance as well.
Generally speaking, although our marks this quarter value these fintech companies at significant discounts from their last round valuation, we believe they all have the potential for meaningful upside when they ultimately experience an exit event where they potentially raise future rounds of finance. It should be noted that yesterday's announcement by [ Mongo ], another financial technology portfolio company, of raising $430 million at a $5 billion post-money valuation will be a helpful data point, not only for our fair value for [ Mongo ] here in Q1, but also for supporting the value of our other private financial technology companies.
We continue to have a number of portfolio companies that are growing and executing either according to or, in many cases, ahead of plan, including some that are achieving positive EBITDA. These include companies into software, enterprise, cyber, health and wellness, travel as well as fintech segments, which is why we continue to anticipate the potential for gains from our warrant and equity investments. Cohesity, Metropolis and [ Mando ] were all great examples of [ Event ] are on track to occur in 2024 that could drive value for our portfolio.
Turning to realized losses. All of our realized losses during Q4 were from companies that had been on our watchlist as Q3. Events now have been concluded at these companies with approximately 2/3 of the actual losses realized in the fourth quarter, having already previously been reflected on an unrealized basis in prior quarters, but it unanticipated developments at a few of these companies during the quarter, additional losses were incurred.
The first one, demand, also known as [ Gluco ], which previously raised Category 5. [ Neuro ] announced last year that it was going to be acquired by Admiral Insurance as well as its intent to sell certain business units and assets to other parties through bankruptcy process. Unfortunately, Admiral booked from the acquisition dates prior to closing. The company, however, was able to quickly find another insurance company, [ Alion ] Direct to agree to acquire the company for a lower price. But in a surprise to all of the parties involved, the [ Venture Court ] rejected the agreement and the company was ultimately liquidated.
We realized a loss of $17 million, of which $6 million has been previously recognized on an unrealized basis and an additional [ leg ] was recognized during the quarter given the unanticipated rejection and removed the company from our watchlist. Mystery Tackle Box was previously rated Category 3. In Q4, we realized the loss to include both previously recognized amounts and our remaining $4 million exposure as of Q3, given a failed M&A process, negative developments during the quarter in their subsequent asset sale to a third-party and have removed the loan from our watchlist.
Untitled Labs, which operated under the name Made Renovations was previously rated Category 5. In Q4, we reduced our expectation for recovery to $500,000 and realized a loss equal to our remaining exposure of $2.2 million as amounts previously recognized on an unrealized basis, given negative developments during the quarter and their subsequent asset sale to a third-party and have removed the company from our watch list.
Finally, in the quarter, VanMoof, a Category 5 loan closed its sale in Micro Holdings. Our investment in new company include a combination of debt investments and a convertible loan position. We value these investments consistent with our fair value [ wins ] of Q3 of $5.1 million and realized a loss in Q4 equal to the amount previously recognized on an unrealized basis. The convertible investment has the potential for future upside as the company grows the value over time or in an exit event. M&A Micro Holdings has been added to Category 4 on the watchlist and VanMoof has been removed.
Our final recoveries have been lower than what we've experienced historically. We believe this is due to the conditions that the M&A and venture capital markets will give a combination of fewer active M&A players and the lack of viable alternatives for companies such as raising more equity capital, acquirers have had greater negotiating power and have walked away or are willing to walk away from deals, resulting in lower recoveries, to set the revenue profile, invested capital, customer validation and even intellectual -- portfolio companies.
With regards to credit watch list activity for the rest of the portfolio, during the quarter, we upgraded 1 name from Category 2 to Category 1 as a result of closing equity rounds. Three companies were downgraded from Category 2 to Category 3, primarily due to sector concern or short runway and [ conduction ] with their financing or strategic events although 2 of the 3 have now signed term sheets for those events.
The mature companies in Category 3 comprise e-commerce and consumer portfolio companies, which, as we explained last quarter, are experiencing continued challenges as they manage through ongoing market inspector specific issues as well as difficulty in the fundraising and M&A markets.
Two companies were downgraded to Category 4 during the quarter due to developments in their fundraising and/or strategics. However, both have raised incremental capital and are making progress. The remaining 2 Category 4 companies include Roli, which had a strong 2023, including substantial revenue growth and incremental capital raises and Project 1920, also known as [ width ] which continues to pursue strategic and fundraising efforts.
Underground enterprises, our Category 5 loan continues through liquidation process and we expect to finalize our recovery and remove it from category 5 over the course of this year. With regards to our objectives and goals in 2024, as mentioned earlier, we believe that the venture capital market conditions may improve over the course of the year. In terms of our expectations for portfolio growth, our forecast for growth, quarterly growth investment funding is in the range of $25 million to $50 million for each quarter.
Given our existing significant liquidity position and our expectations for at least 1 prepayment per quarter, we believe that by returning to portfolio growth, by focusing on smaller hold sizes, we have continued along our goal of increased portfolio diversification and industry sector rebalance. As we look to onboard new loans, we intend to maintain our strong yield profile, not only by holding spreads but also by continuing to incorporate fixed rate investments, which along with anticipated portfolio growth, will bode well for our ability to continue to cover our dividend.
Our priority will be to continue to monitor our existing portfolio and manage existing credit situations and the potential for [ moving ] market conditions in the private and public markets should be helpful.
In closing, we remain focused on all aspects of our business, and we'll continue to follow our long-term goal of generating strong returns for our shareholders growing net asset value and further nurturing strong relationships with our select capital partners in order to build a high-quality and durable portfolio for what we believe could be a developing peak period for venture capital and net lending returns.
With that, I will now turn the call over to Chris.
Thank you, Sajal, and hello, everyone. During the fourth quarter, we continued to generate strong interest income from a diversified loan portfolio. This was driven by increased yields compared to those at origination as a result of multiple increases in the U.S. prime rate since March of '22.
Leverage increased in the quarter as prepayments totaling $4 million were offset by a decline in net asset value. At the same time, we further progress reducing unfunded commitment levels in the fourth quarter. And as a result, TPVG has significant liquidity at the ready to support our existing portfolio companies, satisfy our unfunded commitments and make selective new investments.
For the fourth quarter, total investment income was $33 million with a portfolio yield of 15.6% as compared to $35 million with a portfolio yield of 15.3% for the prior year period. Total investment income for the full year of '23 increased 15% to a record $137 million. This compared to $119 million for the prior year period.
For the fourth quarter, total operating expenses were $15.7 million as compared to $14.5 million for the prior year period. These expenses consisted of [ $8.3 ] million of interest expense, $4.5 million in base management fees, $600,000 of administrative expense and $2.3 million of G&A expense.
Due to the shareholder-friendly total return requirement under the incentive fee structure, there were no incentive fees this quarter. Total operating expenses for the full year of '23 totaled $63.7 million as compared to $55.9 million for the prior year period, a 14% increase. For the fourth quarter, net investment income totaled $17.3 million or $0.47 per share compared to $20.5 million or $0.58 per share for the prior year period. Total investment income, for the full year of 2023, increased 16%, totaling $73.8 million as compared to $63.6 million for the prior year period.
For the fourth quarter, net realized losses on investments totaled $52 million. This was primarily in connection with the write-off of investments of 4 portfolio companies. Of note, $32.5 million or 63% of this amount was previously included in unrealized losses and was reclassified from unrealized to realized. As such, $32.5 million of the net realized losses in Q4 had no impact on net asset value.
For the fourth quarter, net change in unrealized gains on investments was $6 million, consisting of [ $3.1 ] million from the reversal of previously recorded unrealized losses from investments realized during the period, reduced by $12.6 million of net unrealized losses on the existing debt investment portfolio and $15.5 million of net unrealized losses on the existing warrant and equity portfolio. resulting all from fair value adjustments.
As of year-end, net asset value was $346.3 million or $9.21 per share. We declared a regular quarterly dividend of $0.40 per share with a record date of March 14 to be paid on March 29. Based on our success over earning the dividend, we have undistributed spillover income of $41.5 million or $1.10 per share as of year end. Given the ongoing elevated yields and size of the income-producing loan portfolio, dividend coverage remains strong throughout all of 2023.
We believe that given the historically strong level of over-earned dividends, and substantial spillover income, the current level of regular quarterly dividends are expected to be stable.
Now just an update on unfunded investment commitments, the balance sheet leverage and overall liquidity. We ended the year with $118 million of floating rate unfunded investment commitments, of which $29 million was dependent upon the portfolio company reaching certain milestones. This level of commitments represents a 64% decline from a year ago and bodes well for new investment capacity in 2024. As of December 31, 2023, approximately 60% in principal balance of the debt portfolio in our portfolio for interest at floating rates.
As of year-end, an aggregate of $610 million of debt was outstanding, consisting of $395 million of fixed rate investment-grade term notes. And $215 million outstanding on our floating rate revolving credit facility. We ended the year with a 1.76 gross leverage ratio and our net leverage ratio, which is net of cash on hand, was 1.27x. Given the reduced unfunded commitment levels, the near-term prepayments already discussed and selective ongoing use of the ATM program, we expect to delever the balance sheet during the first half of 2024.
As of year-end, the company had liquidity of $307 million, consisting of $172 million in cash and $135 million available on the revolving credit facility. Similar to prior quarters, near quarter end, we drew down on our credit facility to enhance our investment flexibility, [ to run ] to the certain 1940 Act requirements. Right after the end of the quarter, we paid down the credit facility decreased leverage and increased availability under the credit facility for future draws as appropriate.
We continue to access capital markets by using our ATM program. And during the quarter, we raised $15.2 million and for the full year, raised $21.4 million under the ATM program. At this point, this completes our prepared remarks. And operator, could you please open the line for questions at this time.
We will now begin the question-and-answer session. [Operator Instructions]. And our first question comes from Brian McKenna of Citizens JMP.
Okay. Great. So you had well over $1 per share of net realized and unrealized losses in the quarter. And that drove an 11% decline in NAV, bringing a year-over-year decline of 23%. So I guess, is there a way to think about future losses across the portfolio moving forward? Are we getting near the end of these write-downs and losses? And I'm just trying to think through the trajectory of NAV from here and ultimately when you think it will start to inflect higher.
Yes. Brian [indiscernible]. So I mean, I'd say, again, the reduction in NAV, if you look through it, there's also $0.66 of that is related to fair value marks on our, more in an equity position. So as you look right again, the cost basis and the fair value of our warrant equity, investment portfolio are basically equal. And if you look over the years, historically, that's fair value has traded significantly higher. So we believe there is room for that to come back and for us to have gains in excess on an unrealized basis and realized basis on a fair value basis as market conditions improve.
With regards to credit, again, I think our credit scores reflect our current view on our existing [ obligors ] based on current market conditions. And so again, we're seeing some good data points with the increase in equity raising activity of our existing portfolio companies. We discussed some of the specifics for some of the companies in each of the credit ratings, signed term sheets and positive developments. And so again, the market is challenging. We continue to remain proactive and diligent and manage this environment. But again, as conditions improve, we expect both credit profile and fair values to improve as well.
Okay. Good. And then just on leverage, I appreciate some of the color there and some of the dynamics kind of post year-end here, but kind of just looking at leverage, it remains pretty elevated here. So you're still working through some of these write-downs and losses, which obviously isn't helping leverage. But I mean, I know you have the [ 10 ], but would you look to raise some equity capital here or use some of the cash on hand maybe to pay down some of the upcoming maturities? I mean I'm just trying to think through how it ultimately starts to work lower.
Yes. So I think as we mentioned in some of our prepared remarks, we do have some near-term expectations on prepayments given some of the broader market updates that we gave. We also are selectively using the ATM program, but we're not currently expecting in the overall cost to do an overnight or something in that vein. That's not something we're looking at right now. Again, remember, net leverage is 1.2%. I think that's pretty close to the range where most firms is what are targeting, where our target is 1.25% on a net basis. So I think we're on track, but there's still more work to do as we head to the first -- kind of finish up the first half of 2024.
The next question comes from Casey Alexander of Compass Point.
Yes. I just have 1 question. How can it be appropriate to sell 1.5 million shares into the market through the ATM program with the knowledge, the significant material losses are on the way significantly lower NAV is going to be presented to shareholders when you report this quarter.
Yes, Casey, it's Sajal. I'll take this. So again, the ATM is a program that acts on its own. So it's set and operates on our [indiscernible].
You have the ability to shut it down.
Yes. And then as we said, as developments are learned, are known, then we adjust and act accordingly.
The next question comes from Christopher Nolan of Ladenburg Thalmann.
I guess, I missed it, what were the unfunded commitments to date, have they changed at all [indiscernible].
We didn't -- at [ 1230 ], there were $118 million of unfunded and we didn't report on kind of where they are since then as far as new fundings and, yes, let me actually -- so we had new fundings of $12.4 million since the end of the year, and that would go against the $118 million. And then we had new commitments of [ $1 million ] a decline of [ 2.5 ].
On your comments of deleveraging, is that going to be basically running -- basically living investments portfolio runoff or to use some of the elevated cash liquidity to pay down borrowings.
So actually both. So we've already done the paydown of a substantial amount of the cash that was on balance sheet as of the end of the year to a much, much lower single-digit million carrying cash balance. And then -- so that's part that's temporary. And then we are just letting the portfolio amortize and prepay naturally. And as Sajal mentioned during his prepared remarks, we've had kind of the low end of the funding range, and that's intentional as we look to delever below the net 1.27x or 1.27x leverage.
The next question comes from Paul Johnson of KW.
I realize you've already provided some good commentary on the watchlist movements. But if I kind of look at it quarter-over-quarter, investments rated below or below last quarter, 13.7% this quarter, it was 21.7% of the total portfolio. So a big jump there. It's obviously on fair value is accounting for the write-downs as well. I guess given that change and the stuff that you've mentioned, I mean, how can you get comfortable and get the market confident that you, guys, have stabilized the situations you've identified as troubled and yet there's a plan forward here from there.
Yes. The way I think we look at it is it's multifactor, right? So the first element is, as Jim described in detail the market conditions. So we are in the winter of all things venture capital. So I think a critical element is, in particular, the technology subsector of venture capital and the venture growth stage in particular of these companies that raise large rounds at high valuations during peak periods. So we're seeing these companies are getting more impacted than companies at other stages of venture capital life span. So I'd say a significant amount is related to the venture capital equity investment activity.
And so as we see data points of promising activity of capital raises and increasing, capital raises that gives us confidence in terms of the overall outlook for the industry, the sector and the portfolio.
I think the second element of what we've talked about is, one of the reasons why we've seen a fair amount of challenge too has been this -- the weak IPO and M&A markets, in particular, the M&A markets and we described a number of scenarios of transactions essentially collapsing because of the dynamics of these acquisitions where it in more robust times, these transactions would have closed or would have closed at higher values.
I think the last piece is we look at the watchlist itself, we work -- we look at it on a specific name basis and facts and circumstances from our perspective. So very much, it's hard to generalize for a [ tabulary ] to say if it's in a certain category, it naturally implies where directionally it's going to end up. I would say very much we look at for each of our rigs, oranges and yellows is each specific name what the outlook is for the company's market appropriately from a credit rating and from a fair value perspective and then make sure our teams are as proactive as they can be to manage those situations.
I think as I described during the call, I think the good news or some positive outlook is that some positive events are happening within those companies in those ratings, term sheets and events happening. But until they happen and close, given this environment, we need to remain cautious and optimistic proactive. And then when those events close, then move them up and upgrade them.
Got it. And then last question for me on dividends. At this point, this quarter is now, it's about a 17% yield on NAV where the current dividend rate is at. You talked about you're probably going to be deleveraging at least in the first half of this year. I guess what can you say kind of thoughts around that level and your confidence to generate that level of rigs?
Yes. So I'd say 2 things. One is when you think about the elevation of the yields in 60% of our portfolio is floating rate, 40% is fixed. There's also a substantial portion of our leverage that is fixed rate. So the net interest margin is pretty well protected for at least some period, I mean in a declining rate environment. So we're pretty comfortable with that.
Also with the declining leverage, there is some room. So one of the things to think about is when in '22 and '23 when yields were going up, the dividend was increased, but it was not excessively increased during those areas. And as a result, you've seen the spillover income continue for almost 2 years to increase. So I think there's substantial ordinary income that's stored to maintain a stable dividend. But the ordinary income or NII is expected to be pretty stable as well, given the strength of the income-producing portfolio.
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Jim Labe for any closing remarks.
Thank you, operator. As always, I would like to thank everyone for listening and participating in today's call. We look forward to talking with you all again next quarter. Thanks again, and have a nice day.
The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.