Hercules Capital (NYSE:HTGC) executives highlighted a year of record operating performance and a strong start to 2026 on the company’s fourth-quarter and full-year 2025 earnings call, pointing to robust origination activity, stable credit trends, and continued shareholder distributions even as interest rates declined.
Record 2025 performance and platform expansion
Chief Executive Officer and Chief Investment Officer Scott Bluestein said 2025 produced “another year of record operating performance,” including new highs for annual commitments, gross fundings, net debt portfolio growth, and both total and net investment income. Bluestein also emphasized that platform expansion continued, with the company now managing more than $5.7 billion of assets, up more than 20% from year-end 2024, driven by growth in both the BDC and the private credit funds business.
- New debt and equity commitments: $3.92 billion (up 45.7% year-over-year)
- Gross fundings: $2.28 billion (up 25.9% year-over-year)
- Total investment income: $532.5 million (up 7.9% year-over-year)
- Net investment income: $341.7 million (up 4.9% year-over-year)
- Net debt portfolio growth: approximately $748.5 million
- RIA dividends and other contributions: $23.4 million in 2025
Chief Financial Officer Seth Meyer added that 2025 was the highest year-end net asset value the company has delivered since 2007, with NAV per share up 4% for the year.
Fourth-quarter results: income, yields, and leverage
For the fourth quarter, Hercules reported total investment income of $137.4 million and net investment income of $87.0 million, or $0.48 per share. Meyer said results were supported by year-to-date debt portfolio growth, though he noted NII was “partially impacted by prepayments being lower than anticipated” during the quarter.
Bluestein said the company generated a fourth-quarter return on equity of 16.4%. The portfolio produced a GAAP effective yield of 12.9% and a core yield of 12.5%, with management attributing the lower effective yield to fewer early payoffs. Meyer said the 12.5% core yield held for the third straight quarter “despite the base rate decreases throughout the latter half of 2025,” and added that about 75% of prime-based loans were at their contractual floors, which the company expects will mute the effect of further rate cuts.
On the balance sheet, the company’s GAAP leverage rose to 104.4% in the quarter from 99.5% in Q3, which Bluestein described as the “very low end” of its typical historical range of 100% to 115%. Meyer reported available liquidity of about $526 million in the BDC at quarter end and more than $1 billion across the broader platform. After quarter end, Hercules issued $300 million of 5.35% unsecured notes due in 2029, which management said further strengthened liquidity.
Distributions and spillover income
Management emphasized continued dividend coverage despite the rate environment. Bluestein said Hercules achieved 120% coverage of its quarterly base distribution of $0.40 per share in the fourth quarter and ended the year with $0.82 per share of spillover income.
The company maintained its quarterly base distribution at $0.40 per share and declared a new supplemental distribution program for 2026 totaling $0.28 per share, to be paid evenly over four quarters at $0.07 per share per quarter. Bluestein said fourth-quarter NII covered the full quarterly distribution (including the $0.07 supplemental) by 102% and described the company as “very comfortable” with its ability to continue supplemental distributions in 2026, noting it was the 22nd consecutive quarter with a supplemental distribution.
Origination momentum into 2026 and portfolio positioning
Bluestein said the company expects elevated macro volatility in 2026 and pointed to a “valuation reset” in parts of the technology ecosystem. He said Hercules intends to remain defensive while keeping flexibility to capitalize on opportunities, citing efforts such as tightening credit screens, maintaining diversification, and keeping first-lien exposure high (about 90% again in Q4).
Fourth-quarter origination activity included record total gross commitments of $1.06 billion and gross fundings of more than $522 million. The mix leaned more toward life sciences, which Bluestein said reflected a “slightly more defensive posture.” In Q4, roughly 69% of commitments and about half of fundings went to life sciences companies, while 31% of new commitments were to technology companies. Hercules funded 33 companies in the quarter, including 12 new borrower relationships, and added 39 new borrowers in 2025.
Management said the strong origination pace accelerated in the first quarter. Bluestein reported that since the close of Q4 through February 9, 2026, the company closed $894.8 million of new commitments and funded $253.9 million, with another $587.5 million in signed, non-binding term sheets pending. He also said the quarter-to-date commitments remained more heavily weighted toward life sciences, and emphasized the company is passing on a high volume of deals that it believes lack prudent structure.
Early repayments in Q4 totaled $149.7 million, coming in at the low end of management’s guidance range of $150 million to $200 million. Bluestein said lower prepayments slightly reduced fourth-quarter NII but supported net debt portfolio growth. For Q1, the company again expects prepayments in the $150 million to $200 million range, though management noted this could change as the quarter progresses.
Executives also discussed exits and corporate activity in the portfolio. Bluestein said there were four new M&A events in Q4 and that, through year-end, the portfolio had 15 M&A events plus one IPO. One additional technology M&A event was announced quarter-to-date in Q1, and management said it expects exit activity to accelerate in 2026.
Credit metrics, PIK income, and views on AI exposure
Management reported improving credit quality. Bluestein said the weighted average internal credit rating improved to 2.20 from 2.27 in Q3, with Grade 1 and 2 credits rising to 66.6%. Rated 4 credits declined to 1.7% from 2.8% in Q3, and the company reported no rated 5 credits for the third consecutive quarter. Non-accruals declined to a single loan, with investment cost of about $10.7 million and fair value of about $6.3 million, representing 0.2% and 0.1% of the portfolio at cost and fair value, respectively. Bluestein also said 100% of debt investments on accrual were current on scheduled principal and interest, and noted weighted average loan-to-value across the debt portfolio was about 14%.
On payment-in-kind income, Bluestein said PIK represented 10.4% of total revenue in Q4, down from Q3 and the first half of 2025. He added that about 86% of PIK income was part of original underwriting rather than resulting from credit-related amendments, and that nearly 91% of PIK income was rated 2 or 3.
Executives also addressed AI-related themes and software exposure. Bluestein said the company believes AI will be a net positive for its business over time, while acknowledging it is disruptive. He said Hercules avoids “pure-play AI or data center GPU financing structures” and focuses on software credits with conservative underwriting, including low loan-to-value targets, lower debt-to-invested-equity ratios, sub-1x average ARR attachment points, and historically shorter loan durations. In response to analyst questions, Bluestein said the company is monitoring potential early warning signs through frequent portfolio company engagement and requirements for monthly financials and compliance reporting.
Looking ahead, Meyer said the company expects first-quarter core yield to be in the middle of its previously disclosed 12% to 12.5% range and expects interest expense to rise with portfolio growth. He guided to SG&A expenses of $26 million to $27 million in Q1 and an RIA expense allocation of about $4.5 million, with an expected RIA dividend of approximately $2 million to $2.5 million per quarter.
About Hercules Capital (NYSE:HTGC)
Hercules Capital, Inc is a specialty finance company organized as a business development company (BDC) that provides tailored debt financing solutions to high‐growth companies. Through its external management structure, Hercules Capital extends senior secured loans, subordinated debt and growth capital designed to support research and development, expansion initiatives and working capital needs. The firm primarily partners with venture capital and private equity sponsors to finance innovative enterprises across various developmental stages.
The company’s investment portfolio is concentrated in technology, life sciences and sustainable and renewable technology sectors, reflecting its focus on industries with strong growth prospects and recurring capital requirements.
