10-Q: SuRo Capital Corp. Reports First Quarter 2024 Results, Net Asset Value Declines

SuRo Capital Corp. announces its financial results for the first quarter of 2024, showing a decrease in net asset value and a net loss from operations.

Summary

• SuRo Capital Corp. reported a net asset value of $7.17 per share as of March 31, 2024, down from $7.99 at the end of 2023.
• The company experienced a net investment loss of $3.2 million and a net change in unrealized depreciation of investments of $18.4 million for the quarter.
• Total investment income was $1.5 million, while total operating expenses were $4.8 million.
• The company's total investments were valued at $204.6 million, including $29.6 million in U.S. Treasury bills.
• The company repurchased 2,000,000 shares of its common stock at a price of $4.70 per share in a modified Dutch Auction tender offer that expired on April 1, 2024.

Sentiment

Score: 3

Explanation: The document presents a negative outlook due to the decrease in net asset value, net loss from operations, and net change in unrealized depreciation of investments. While there are some positives, the overall tone is concerning from an investment perspective.

Positives

• The company's investment income increased to $1.5 million for the quarter, up from $1.3 million in the same period last year.
• Operating expenses decreased to $4.8 million for the quarter, down from $5.5 million in the same period last year.
• The company has a cash balance of $50.8 million and $29.6 million in U.S. Treasury bills, providing liquidity.

Negatives

• The company experienced a net investment loss of $3.2 million for the quarter.
• The company reported a net change in unrealized depreciation of investments of $18.4 million for the quarter.
• The company's net asset value per share decreased from $7.99 to $7.17 during the quarter.

Risks

• The company's investments are primarily in growth companies that are generally illiquid and subject to valuation risk.
• The company's investments are subject to market risk, including fluctuations in the capital markets.
• The company's investments are subject to interest rate risk, particularly if the company utilizes leverage with variable rate structures.
• The company's investments are subject to the risk that portfolio companies may fail to achieve their objectives.

Future Outlook

The company intends to continue to operate so as to qualify to be subject to tax treatment as a RIC under Subchapter M of the Code and, as such, will not be subject to U.S. federal income tax on the portion of taxable income (including gains) distributed as dividends for U.S. federal income tax purposes to stockholders. The company intends to timely distribute to its stockholders substantially all of its annual taxable income for each year, except that it may retain certain net capital gains for reinvestment and, depending upon the level of taxable income earned in a year, may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax.

Management Comments

• The company's investment objective is to maximize its portfolios total return, principally by seeking capital gains on its equity and equity-related investments, and to a lesser extent, income from debt investments.
• The company invests principally in the equity securities of what it believes to be rapidly growing venture capital-backed emerging companies.

Industry Context

The company operates in the business development company (BDC) sector, which is subject to specific regulations and market conditions. The company's focus on venture capital-backed emerging companies exposes it to the risks and opportunities associated with the technology and growth sectors. The company's performance is influenced by the overall health of the economy and the capital markets.

Comparison to Industry Standards

• The company's net asset value decline is a concern, as it indicates a decrease in the value of its investments. This is a key metric for BDCs and is often compared to industry benchmarks.
• The company's operating expenses as a percentage of average net assets was 9.44%, which is a key metric for BDCs and should be compared to industry averages.
• The company's net investment loss as a percentage of average net assets was -6.40%, which is a key metric for BDCs and should be compared to industry averages.
• The company's portfolio turnover ratio was 0.18%, which is a key metric for BDCs and should be compared to industry averages.
• The company's investment in U.S. Treasury bills is a common practice for BDCs to manage liquidity, but the amount held should be compared to industry averages.
• The company's use of leverage through the 6.00% Notes due 2026 is a common practice for BDCs, but the level of leverage should be compared to industry averages.

Related Party Transactions

• The company's investment in Churchill Sponsor VII LLC, the sponsor of Churchill Capital Corp. VII, a SPAC, constituted a remote-affiliate transaction.
• The company's investment in Skillsoft Corp. constituted a remote-affiliate transaction.
• The company's initial investment in Shogun Enterprises, Inc. (d/b/a Hearth) on February 26, 2021 constituted a remote-affiliate transaction.
• The company's investment in Architect Capital PayJoy SPV, LLC also constituted a remote-affiliate transaction.
• The company's investment in AltC Sponsor LLC, the sponsor of AltC Acquisition Corp, a SPAC, constituted a remote-affiliate transaction.

Stakeholder Impact

• Shareholders will experience a decrease in net asset value per share.
• Shareholders may be concerned about the net loss from operations and the net change in unrealized depreciation of investments.
• Employees may be affected by any changes in the company's financial performance.
• Portfolio companies may be affected by any changes in the company's investment strategy.

Next Steps

• The company will continue to evaluate its overall liquidity position and take proactive steps to maintain the appropriate liquidity position based upon the current circumstances.
• The company intends to timely distribute to its stockholders substantially all of its annual taxable income for each year, except that it may retain certain net capital gains for reinvestment and, depending upon the level of taxable income earned in a year, may choose to carry forward taxable income for distribution in the following year and pay any applicable U.S. federal excise tax.

Key Dates

Keywords

Business Development Company, BDC, Venture Capital, Private Equity, Investments, Net Asset Value, Financial Results, Portfolio Companies, Capital Gains, Debt Investments