Hercules Capital Earns BBB (High) Investment Grade Upgrade from Morningstar DBRS
Hercules Capital, Inc. (NYSE: HTGC) (“Hercules” or the “Company”), recognized as the largest and leading specialty financing provider to innovative venture, growth, and established stage companies, has recently achieved a significant milestone. The Company announced that Morningstar DBRS (“DBRS”) has upgraded its investment-grade credit and corporate rating to BBB (high) from BBB, with a trend revision from Positive to Stable. This upgrade reflects the Company’s continued success and strong operational performance in the venture capital and private equity financing landscape.
Seth Meyer, the Chief Financial Officer of Hercules, expressed his satisfaction with the upgraded rating, stating, “We are very pleased that DBRS has upgraded our investment grade credit and corporate rating to BBB (high) with a revised outlook to stable. This upgraded rating reflects the long-term strong operating performance of our scaled and well-diversified industry-leading franchise. Our differentiated venture and growth stage lending model and commitment to disciplined underwriting will continue to serve in the best interest of our shareholders.”
Consistent Performance and Strategic Growth
The decision by DBRS to upgrade Hercules’ rating to BBB (high) with a Stable trend is attributed to the Company’s consistent operational excellence and strategic growth. Through 2024, Hercules demonstrated sustained strong operating performance, which played a crucial Hercules Capital role in the rating upgrade. The Company’s assets under management (AUM) grew approximately 14% year-over-year, further strengthening its position as the largest non-bank dedicated lender to the venture capital (VC) ecosystem.
Hercules has built a robust franchise by offering tailored financing solutions to venture-backed companies in sectors such as technology, life sciences, and sustainable energy. This diverse client base enables the Company to maintain a balanced portfolio, mitigating risks associated with any single sector. The impressive growth in AUM highlights the Company’s ability to attract high-quality clients and provide them with reliable financing options.
Diversified Funding Profile
Another critical factor contributing to the credit rating upgrade is Hercules’ diversified funding profile. The Company has established multiple funding sources, including its credit facilities, unsecured debt offerings, and asset-backed securitizations. This diversified funding strategy reduces the Company’s reliance on any single funding source, enhancing financial stability and liquidity.
Hercules’ conservative balance sheet leverage also played a pivotal role in the upgrade. By maintaining prudent leverage ratios, the Company demonstrates Hercules Capital its commitment to financial discipline and risk management. This conservative approach provides a solid foundation for the Company’s continued growth and stability, especially during periods of economic uncertainty.
Credit Performance and Risk Management
Hercules’ asset-level credit performance has consistently been strong, reflecting the effectiveness of its underwriting standards and risk management practices. The Company’s disciplined approach to credit evaluation ensures that it partners with high-quality borrowers who have strong growth potential and sound business models.
The upgraded rating from DBRS recognizes Hercules’ ability to maintain low default rates and high recovery rates across its portfolio. This performance is a testament to the Company’s rigorous due diligence processes and proactive credit monitoring. Additionally, the Company’s longstanding relationships with leading venture capital and private equity firms provide valuable insights into the financial health and prospects of its borrowers.
Franchise Leading Scale and Market Position
Hercules’ leadership position in the specialty financing market is another significant factor behind the credit rating upgrade. The Company’s scale and market presence give it a competitive advantage, enabling it to access a broad range of investment opportunities and negotiate favorable terms with borrowers.
As the largest non-bank dedicated lender to the VC ecosystem, Hercules benefits from its established brand reputation and extensive industry network. The Company’s ability to originate and structure complex financing solutions sets it apart from traditional lenders, making it a preferred partner for venture-backed companies seeking growth capital.
The Stable trend assigned by DBRS indicates that Hercules is well-positioned to maintain its strong operating performance and market leadership despite potential uncertainties in the broader economic environment. The Company’s strategic focus on innovation-driven sectors and disciplined underwriting practices will continue to support its long-term growth and financial stability.
However, DBRS has also acknowledged the potential impact of changing U.S. government policies on the VC market. While these policies may introduce some uncertainty, Hercules’ proven resilience and adaptability position it to navigate any challenges that may arise. The Company’s ongoing investments in technology, life sciences, and other high-growth sectors will likely provide new opportunities for expansion.
Commitment to Shareholders
Hercules remains committed to delivering value to its shareholders through consistent financial performance, disciplined risk management, and strategic growth initiatives. The upgraded credit rating reinforces the Company’s reputation as a reliable and resilient financing partner for innovative companies.
Seth Meyer emphasized the importance of maintaining a long-term perspective, stating, “Our differentiated venture and growth stage lending model and commitment to disciplined underwriting will continue to serve in the best interest of our shareholders.” This dedication to shareholder value, combined with the Company’s robust financial position, will support Hercules’ continued success in the years ahead.
