Good afternoon. My name is Chelsea, and I will be your conference operator today. At this time, I would like to welcome everyone to Trinity Capital's Fourth Quarter and Full-Year 2022 Earnings Conference Call. Our hosts for today's call are Steve Brown, Chairman and Chief Executive Officer, Kyle Brown, President and Chief Investment Officer, David Lund, Chief Financial Officer, Michael Testa, Chief Accounting Officer, and Sarah Stanton, General Counsel. Jerry Harter, Chief Operating Officer, and Ron Kundich, Chief Credit Officer, are also present. Today's call is being recorded and will be made available for replay at 8:00 P.M. Eastern Time. The replay dial number is 1-800-934-3336, and no conference ID is required for access.
At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. We ask that when posing your question, you please pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star zero. It is now my pleasure to turn the call over to Sarah Stanton. Please go ahead.
Thank you, Chelsea, and welcome everyone to Trinity Capital's Earnings Conference Call for the Fourth Quarter and Full-Year 2022. Trinity's fourth quarter and full year 2022 financial results were released just after today's market close and can be accessed from Trinity's investor relations website at ir.trinitycap.com. A replay of the call is available on Trinity's website or by using the telephone number provided in today's earnings release. Before we begin, I would like to remind everyone that certain statements that are not based on historical facts made during this call, including any statements relating to financial guidance, may be deemed forward-looking statements under federal securities laws.
Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. We encourage you to refer to our most recent SEC filings for information on some of these risk factors. Trinity Capital assumes no obligation or responsibility to update any forward-looking statements. Please note that the information reported on this call speaks only as of today, March 2nd, 2023. Therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Please allow me to introduce Trinity Capital's Chairman and CEO, Steve Brown.
Thank you, Sarah. Thank you to everyone joining us today. As you saw in our earnings release this afternoon, we generated strong fourth quarter results to finish an incredible year, exceeding expectations and breaking records on many financial metrics. Our talented team delivered an exceptional performance in 2022 for our shareholders, and I'd like to start by recapping just a few of our many achievements. First, our originations and fundings brought us to $1.1 billion in total assets, growing our total asset position by 20% as compared to the end of 2021. Second, our investment portfolio at cost grew by 45%, which generated a $145.5 million in total investment income.
Third, our net investment income came in at $21.6 million for the fourth quarter and $71.6 million for the year, representing increases of 104% and 83% over the prior year periods. This outstanding performance allowed us to deliver NII of $0.62 and $2.26 per share for the quarter and the year. We just delivered our eighth straight quarter of dividend increases. For 2022, we declared combined regular and supplemental dividends totaling $2.33 per share for our shareholders, an 85% increase over the 2021 dividends. Our NII per share of $0.62 for Q4 represents a $0.06 increase from the prior quarter and 135% coverage on our core dividend. Our return on average equity based on NII increased to 17.9%.
Fourth, in the first quarter, we realized gains from the sale of our investment positions in Lucid and Matterport that contributed to the $33 million or $0.94 per share of realized gains on the ending share basis. Lastly, we ended 2022 with approximately $60 million or $1.73 of undistributed income. As a reminder, the undistributed income from 2021 of approximately $19 million was distributed through the $0.60 supplemental dividends we declared and paid in 2022. Shifting to our capitalization and liquidity, we remained very active during the year despite a challenging market. We raised additional accretive capital, upsized our credit facility, and reopened our 7% notes in order to maintain strong liquidity for our growing investment portfolio.
The successful completion of two publicly underwritten offerings in 2022 and the use of our ATM program supported the continued long-term growth of Trinity. All of these capital-raising activities allowed us to deliver a record year for both commitments and deployments. We originated $976 million in new commitments and funded $631 million across 66 portfolio companies. Throughout the course of 2022, we continued to invest in the company's platform, infrastructure, and people. To that end, we added talent to all levels of our organization and have grown the team by almost 40% this year to 57 employees. We also expanded our platform with the addition of an experienced Life Sciences team, adding originations in this important market vertical.
Our results in Q4 and 2022 demonstrate the strength of our team, our ability to meaningfully grow our portfolio, generate significant yields, manage credits, even in a volatile market. I will now hand it over to Kyle Brown, our President and Chief Investment Officer, to provide updates on our portfolio composition and investment performance. Kyle?
Great. Thanks, Steve. We are truly pleased with the performance of our originations and credit teams during 2022. Having originated $976 million in commitments and $631 million in investments. Our portfolio grew to $1.1 billion on a fair value basis, an increase of 25% on a fair value basis. The investment activity led to the addition of 34 new portfolio companies during 2022. During the fourth quarter, we entered into commitments of $239.5 million and funded $121.4 million, including $71 million in deployments to seven new portfolio companies and $50.4 million in gross deployments to nine existing portfolio companies. We finished the quarter with $393 million of unfunded commitments, which provides us with a strong pipeline for continued funding leading into 2023.
As a reminder, our unfunded commitments are subject to ongoing diligence and approval by our investment committee. Our pipeline activity remains solid for Q1 despite narrowing our funnel and tightening our investment criteria. To meet this growing opportunity, we completed two transformative initiatives in 2022 with the close of our joint venture and SEC exemptive relief for our RIA. We are encouraged by the multiple growth levers we have in place, which are differentiating ourselves in the BDC industry. Our JV structure not only allows us to expand the portfolio, but also generate predictable fee income while keeping the balance sheet healthy and nimble.
The RIA structure will allow us to raise funds off the balance sheet, providing outsized returns for investors in a complementary way. We can now raise co-investment type vehicles to grow the platform, with the ability to raise capital from multiple channels, all to the benefit of the BDC, which owns 100% of this RIA. At Trinity, we believe our internal management structure enhances our shareholder alignment and ability to think outside the box. This off-balance sheet growth is one example of that. As we enter 2023, we are proceeding with caution as we review our investment opportunities. The number of growth stage companies looking for structured debt has increased while pressure persists on the revaluation of these companies.
We believe this is a time for opportunity, but it must be navigated with sound debt judgment. Continuous diligent monitoring of our portfolio companies is an essential component to our successful credit management. We maintain a dedicated portfolio management staff whose sole function it is to monitor our credit risk, keep a watchful eye on the market impact, and stay in constant communication with management teams and their equity stakeholders. Our focus is on building a trusted partnership supported by ongoing two-way communication. This combination has proven to be successful, as demonstrated by our solid investment track record and reputation partnering with our portfolio companies.
To that end, during 2022, we added to our credit team to ensure that we remain attentive to the performance of our portfolio companies. The composition of our portfolio remains relatively consistent with prior quarters and represents diversification across 19 industries. This quarter, we revised our industry breakdown to further underscore the granularity and diversification of our portfolio. Our debt investments are primarily split between venture debt and equipment financings. At fair value, 73% of our debt portfolio or $802.9 million is comprised of secured loans, while 23% or $246 million is invested in equipment financings. The remainder of our portfolio, $45.5 million at fair value, is comprised of equity and warrants.
Our credit quality in the portfolio remains stable with 95% of our debt investments at cost performing. I'd like to address one investment in industry in particular that has been an area of concern for our investors, that being digital asset technologies. We continue to reduce our exposure to these investments. These are fully amortizing payments on 36-month schedules, which is resulting in a decrease in balance of 3% per month. Two of our three investments in this space are in the performing category as of year-end. Our investment with Core Scientific remains in default, the loan is collateralized by critical computing equipment with a cost basis of $23 million and a fair value of $8.2 million, which is approximately 36% of cost.
The fair value of the note at year-end was based on the estimated value of terahash pricing for the underlying equipment, which fluctuates with the value of Bitcoin. We believe the recent recovery of Bitcoin prices, up 40% since this mark, should benefit Core's operating performance and liquidity position. We remain in close communication with the company and are exploring all available options to obtain the best possible outcome to the benefit of our shareholders. Subsequent to the end of the fourth quarter, another of our publicly traded digital asset portfolio companies, Hut 8 Mining, announced a merger with US Bitcoin Corp.
According to the companies, that transaction is expected to close in the second quarter of 2023. That would trigger a payoff event and further reduce our investment in digital asset technologies. We continue to monitor the progress of the closing and expect to have more to share over the next couple quarters. In Q4, the number of loans on non-accrual remains the same, with four debt investments with a cumulative investment cost and fair value of approximately $49.2 million and $17.8 million respectively, or 4.3% and 1.6% as a percentage of the company's total investment portfolio at cost and value, respectively.
As of December 31st, 2022, NAV per share decreased to $13.15 compared to $13.74. The decrease in NAV per share was primarily the result of net investment income that exceeded the company's declared dividend by $0.01 per share, offset by the unrealized appreciation and realized losses recognized during the fourth quarter. Approximately 75% of the unrealized appreciation was related to two portfolio companies, FemTec Health and Core Scientific, previously identified as troubled credits in prior quarters. I'm gonna pass the call to David to discuss our operating performance in more detail. David?
Thank you, Kyle. As Steve and Kyle mentioned, this was an outstanding quarter and year for Trinity across multiple performance fronts. Turning specifically to our fourth quarter financial performance, our portfolio growth of 45% during 2022 and the increase in benchmark rates contributed to our total investment income of $41.5 million, a 75.8% increase over the same period in 2021, and a 7.3% increase over the third quarter of 2022. Fee income decreased to $909,000, as our early loan repayments totaled only $14.8 million in the quarter. Our effective yield on the portfolio for Q4 was 15.5%, an increase from 15.2% in the third quarter.
Our core yield, which excludes non-recurring fee income, increased to 14.2% from 13.5% in the prior quarter. Both our effective yield and core yield primarily decreased due to the rise in benchmark rates. Year-over-year, total investment income increased by 77% to a record $145.5 million in 2022 from $82.2 million in 2021. Our consistent originations helped drive this increase while we maintained a consistently high effective yield across the portfolio. Our debt portfolio continues to be well-positioned ahead of anticipated future rate hikes with 68% of our debt investments at floating rates, while on the borrowing side, only 30% of our outstanding debt at the end of the fourth quarter was at a variable rate at SOFR.
We incurred a total of $10.3 million in interest expense and amortization and deferred financing costs on various debt facilities as compared to $9.3 million in Q3. The increase in interest expense was primarily due to the full quarter of expense incurred under the $57.5 million of additional 7% notes issued in Q3 and an increase in the interest rate and weighted average borrowings outstanding during the quarter under our KeyBank credit facility. Our other operating expenses were approximately $9.6 million during Q4 as compared to approximately $10.8 million during Q3. The decrease of approximately 11% was primarily driven by a decrease in variable compensation expense and lower excise tax expense.
As a result of this operating activity, net investment income for the fourth quarter was $21.6 million or $0.62 per basic share, an increase of 16% compared to $18.6 million or $0.56 per basic share in Q3. For the full year of 2022, net investment income increased to $71.5 million as compared with $39 million in 2021, an increase of 83% year-over-year. We recorded net unrealized appreciation of $13.6 million during the quarter. We recognized unrealized appreciation of $23.2 million in our debt portfolio and $885,000 in our equity and warrant portfolio, offset by the flip of $10.5 million to realize losses on portfolio investment previously depreciated on an unrealized basis.
Approximately $18.2 million of the unrealized appreciation in the debt portfolio was related to the performance issues with the two portfolio companies that Kyle previously reviewed. The remainder of the unrealized appreciation was primarily attributed to mark-to-market adjustments due to general market volatility and interest rate changes. Our operating activities generated strong returns for our shareholders with our ROAE based on NII over average equity of 17.9% and our ROAA based on NII over average total assets of 7.7%. I will now hand the call over to Mike Testa, our Chief Accounting Officer, who will discuss our credit performance, liquidity, and capital allocation. Mike?
Thanks, David. Starting with credit quality, our portfolio companies continued to perform well in the fourth quarter of 2022, with approximately 95% of our portfolio performing at cost. As Kyle mentioned, at the end of the quarter, we had four investments on non-accrual, representing just 1.7% of the fair value of the investment portfolio. Our average credit rating for the fourth quarter stood at 2.8 based on our 1-to-5 rating system, with 5 indicating very strong performance. This rating is just slightly lower than our average credit rating of 2.9 in Q3. While our overall credit quality has remained solid, we have taken a practical approach to all loans in our portfolio.
We continue to diligently monitor our portfolio company's performance, being mindful of the macro environments that could impact our operations. Moving to liquidity, as of December 31st, 2022, we had total liquidity of approximately $173 million. Comprised of approximately $162 million of undrawn capacity under our credit facility, and $11 million in unrestricted cash and cash equivalent. Our net leverage ratio, which represents debt outstanding less cash on hand, increased to 1.33x this quarter as a result of our borrowings on our credit facility, which contributed to our portfolio growth.
As of December 31st, total debt principal outstanding was $620 million and had a weighted average cost of debt of 6.8%, up from 6.3% at September 30th, due to the higher base rates under our credit facility. Unsecured debt represented 70% of the total debt at quarter end, down slightly from the prior quarter as we borrowed under our credit facility. With the majority of our investment portfolio and floating rate investments compared to the majority of our outstanding borrowings at fixed rates, we expect that further increases in the base rates in 2023 would positively impact our net interest margin and NII margin.
Our leverage position, liquidity strength, and access to the capital continue to be at the forefront of our strategy. We continue to explore all capital options that will be accretive to our shareholders. This includes funding investments under our recent announced JV and the RIA that we are looking to launch in 2023, which will allow for complementary off-balance-sheet growth and additional fee income to Trinity. In Q4, we announced our stock repurchase program that will allow us to repurchase up to $25 million of our common stock. We believe that stock buybacks are an accretive use of shareholder capital when the stock is trading at a meaningful discount to NAV.
To that end, we repurchased approximately 186,000 shares at an average price of $10.77 per share for an aggregate repurchase price of $2 million. The program demonstrates our commitment to creating value for our shareholders as the repurchase had accretive impact of $0.02 per share on NAV. In conclusion, on December 15th, 2022, our board declared a cash dividend of $0.46 per share for the fourth quarter of 2022, representing a 2% increase from Q3 2022. This is the eighth quarter in a row that we have increased our core dividend. Our GAAP NII generated coverage of approximately 135% of our regular dividend for the quarter.
Additionally, the board approved a $0.15 per share supplemental dividend. Both dividends were paid on January 13th, 2023. Our Board of Directors generally makes a determination of our dividend distributions on a quarterly basis, and we anticipate making an announcement of our Q1 2023 dividend in the second half of March. With that, I'll now open the line up for questions. Operator?
Thank you, sir. At this time, if you would like to ask a question, please press star one on your touch-tone phone. You may remove yourself from the queue at any time by pressing star two. Once again, that is star one to ask a question. Our first question will come from Finian O'Shea with Wells Fargo. Your line is open.
Hi, everyone. Thanks. Good afternoon. Our first question, are you able to provide us any color on the portfolio company level liquidity, cash runway, and so forth, and maybe a higher level fundraising backdrop?
Yeah, this is Ron. In terms of portfolio cash runway, we're obviously actively, you know, monitoring our portfolio on a monthly, if not more often basis. You know, we track those numbers on a company-by-company basis. We do not have an aggregate. We don't keep track of the aggregate, but we take each of those into account as we grade and value the portfolio regularly.
For all new investments, Finn, we do track. You know, I'd say the one maybe adjustment to underwriting that we're considering is we really wanna see 18–24 months or more of runway for any new investment coming to portfolio. It's something that we continue to focus on.
Okay. That's helpful. Thank you. Then just a follow-up on the RIA. If any sort of type of vehicle in mind, and is this something that you would potentially or likely commit Trinity Capital equity to get vehicles started?
That's a good question. You know, I think part of the purpose of the RIA is to manage other people's money. You know, the goal will be to generate new fee income and carried interest in a fund structure, utilizing someone else's capital primarily. You know, we are in process currently. We have begun those discussions with investors and potential investors. We believe that, you know, funds managed by the RIA have the potential to generate a significant amount of income to the BDC in the future.
Co-invest.
The structure of it would also be, you know, I think primarily, at least initially, a co-investment vehicle, which would be complementary and help us continue to make new investments, generate new income, and give us the, again, just like the JV, the ability to be nimble at the BDC level, maximize our capital there. Then for investments that don't fit the BDC, whether it's bad income or, you know, there's a variety of reasons we could come up with. We have a significant portfolio and pipeline of opportunities. Not everything fits inside of a BDC. We want our shareholders to be able to capitalize on those investments as well. We see a future where we have funds that can take advantage of those opportunities as well.
Great. Thanks so much.
Thank you. As a reminder, that is star one to get into the questioning queue. Our next question will come from Christopher Nolan with Ladenburg Thalmann. Your line is open.
Hey, guys. Steve, what is the leverage level that you guys are looking for at the range?
The range is, sort of the 1.15x-1.35x range. We're at the upper end of that right now. We do plan to keep it within the upper end of that range going forward. That's been our policy for some time and still is.
Okay. you know, your stock is just slightly above, you know, book value, but it's, I mean, if it get any thoughts of de-risking the portfolio at all, I mean, I know any thoughts of equity raises given that your stock is slightly above book?
I think we're gonna look at equity raises cautiously. you know, we have proven the ability with our existing portfolio as it sits today to generate meaningful numbers relative to income, net investment income and distributions. We can certainly continue, we believe, to perform like that if we don't grow the portfolio, which means if we don't raise money. obviously, if our stock price reacts positively and we have the ability to raise some capital and do it judiciously, we'll certainly do that.
As Kyle mentioned, with the off-balance sheet activity now, you know, we can raise capital there, and we can continue to be active in the marketplace on a co-investment basis. That gives us effectively liquidity as a platform to go do what we do in the marketplace with the benefit all coming back to the BDC shareholders.
On the dividend, did you guys indicate that there'll be a supplemental dividend in the first quarter, or did I miss something?
We have not determined that. We're gonna be visiting with the board here later this month, I think, as Mike said in his prepared remarks. We do have spillover income. As you know, we've continued to grow our core dividend, and for the eighth trade quarter, we increased it. We'll sit down with the board and look at all of those factors and make a decision later this month.
Okay. That's it for me. Thank you.
You bet.
Thanks, Chris.
Thank you. As a reminder, that is star one to ask a question. Our next question comes from Ryan Lynch with KBW. Your line is open.
Hey, good afternoon. First question I have, following up on the question regarding the RIA. I'm just curious. I know there's a lot of variables and a lot of uncertainty in all the timing of things. As we sit here today, do you guys have any sort of expectation of when you would hope to get the first fund up and running, and some capital deployed and when potentially that could actually get to the size where it could start contributing the income to the BDC?
Timing's not 100% certain. You know, I think you can expect sometime in the next six months that we'll have that ramped up, and we'll be deploying capital out of it. You know, we mentioned the JV. We've begun deploying out of that. Steve didn't mention this before, but that also provides us with some liquidity at the BDC level because we're doing a look back, and we're able to provide advance against fundings we've already done. You know, that income, that off-balance sheet income, it's already begun. It will continue, and our intention is for that to grow.
Okay. My other question was, I would love to just hear your guys' perspective on what is the pulse of venture capital investors in this environment to their willingness and ability to support portfolio companies that aren't cratering, but maybe performing slightly below expectations in this environment. At one point, there was kind of free money, and it felt like everybody was getting capital. Certainly, the strong companies who are outperforming expectations, I think, would still be able to get capital. The ones who are severely underperforming probably aren't. I'm curious about those companies that are maybe just slightly underperforming expectations and venture capital participants' willingness and ability to continue to help support those companies.
Ryan, this is Kyle. A couple things. You know, one, I don't think that venture capital, private equity generally are supporting companies that are cratering anyway in good markets or bad markets. We believe the way we've underwritten that our companies have a real true moat around the technology. They're growing in the face of headwinds. We've seen this over and over again with the investments we've made over the last couple of years. When they need more capital, they get it. You know, I would say what companies are having to come to grips with is that that money is not free, like you said. It's not cheap, maybe, like it was in 2021, 2022.
They're in our own portfolio and the new investments we make, founders and CEOs are having to come to grips with the fact that that company is just not worth the multiple that existed for them a year or two ago. What we continue to see are our companies get funded. We see it quite regularly in our own portfolio, and they're getting the capital they need to get a couple of years down the road and continue to grow in the face of headwinds. The valuation is decreasing. As a secured lender, you know, I'll be cautious how I say this.
It's not that we don't care, we do care, but the majority of our returns are fee income, rate and fee income, current income. The valuation, whether it's high with the free money or it's low with more prudent capital, that doesn't affect our returns. It doesn't inhibit our ability to collect from our borrowers. It doesn't necessarily hurt our position. We monitor it, we track it, you know, we wanna see our company continues to receive capital, and they are getting it. Most of those companies are getting it at a revaluation, a lower amount.
Yeah. Probably the only thing I'd add to that, Ryan, is, you know, the expectation on the founders is no longer unfettered growth, but pivoting to profitability, right? Let's make this capital last, let's make the cash life last. You know, that's why the cash life question is difficult one, right? Because, you know, you get a much different answer on a trailing 12-month basis than you do on a forward 12 basis across virtually any company within the portfolio, right? Because they're all tightening their belts, pivoting to profitability. There's real enterprise value in the companies we underwrite, so they're getting the equity. It just may not be the valuations that the founders would love.
Okay. Understood. Appreciate the time this afternoon.
Thanks, Ryan.
Thanks, Ryan.
Thank you. As a reminder, that is star one to ask a question. Our next question comes from Bryce Rowe with B. Riley. Your line is open.
Thanks a bunch. Good afternoon. Let's see. Wanted to maybe start with the comp line and thoughts about operating expenses. Obviously, you've grown the headcount quite a bit to ramp up. You noted you're 57 employees now. How should we think about, you know, the growth of the employee base, you know, as we look out over the next couple years?
Yeah, I can tell you know, Bryce, in our annual plan for this year, there's very modest headcount growth. You know, some of it is within, you know, the finance and operations team as we do add the off-balance sheet entities, right? There's, you know, a bit of complexity in Mike's team on the back end. You know, we're growing judiciously. You know, we mentioned in our prepared remarks, we've added a Life Sciences practice in 2022. We will be expanding that per our plans. The headcount growth is gonna be very moderated in 2023 compared to last year.
Okay, that's helpful. Maybe shifting gears here, just thinking about the comment you made around Core Scientific and where it's marked as of December 31 and relative to, you know, maybe the performance of Bitcoin here in 2023. How? You know, when was that mark kind of determined? And was there any ability to kinda go back and reflect, you know, what the mark might look like today with some of the better information you have to work with?
Yeah, Bryce, you're gonna see us be real consistent with our marks and our valuations. On 12/31, that was the value of that equipment, and we have to look at it that way. The way we look at it is what could we sell this for right now, right, you know, today. Listen, we could argue about it all day long about what it's worth today. It doesn't matter. As of 12/31, that's what it was worth. Is Bitcoin up 40% since then? Yes. You know, we are working with the company. We're gonna do our best to collect every dollar of that, and, you know, we'll see what happens here. As of 12/31, that was the valuation. That's what we're reporting, and you're gonna see us be real consistent on the valuations.
Excellent. Okay, that's helpful. And then maybe last one for me. You've got a chart in the K and in the presentation about kind of internal risk ratings. Can you walk through some of the migration we saw quarter-over-quarter? Is it, you know, kind of more a reflection of the, I guess, the environment than anything else?
Yeah, I mean, happy to. You know, where we saw migration within the portfolio was, you know, as you know, we have five bins, you know, three of which are different levels of performance.
Yeah
And so, you know, we saw more companies in that, you know, center performance bin versus one of the higher. These are still performing loans. You know, that doesn't indicate distress. When you look at our risk rating, performance to plan is a very big aspect to that, right? You know, our portfolio companies faced quite an inflection within 2022, where, you know, we just spoke about it earlier, the growth plans that they might have laid in early in the year, you know, needed to be tempered quite a bit, right?
You know, but the portfolio is robust on the lower two categories. You know, we've been stable. You know, we've got two credits that we've talked about in the past. You know, we don't see great danger there in that migration, but it reflects the reality as of year-end.
Got it. That's helpful. Appreciate you guys answering the questions. Have a good one.
Thanks, Bryce.
Thank you.
Thanks, Bryce.
Thank you. As a reminder, that is star one to ask a question. At this time, we have no further questions in the queue. We do have one last question from Vilas Abraham with UBS. Your line is open.
Hi, everyone. Thanks for taking the last second question. Just on loan spreads, what are you guys seeing there now? Are you trying to push those at all with, new borrowers, new investments?
This is Kyle. We do continue to push on pricing. We continue to push on warrants and we have seen that trend up. You know, we will continue to be aggressive on transactions that make it to the finish line from a pricing perspective. On a percentage basis, it's not a significant increase, but it is an increase nonetheless.
At this stage, we keep a relatively constant spread over prime, so you'll see it anywhere from 6.5%- 7.5% over prime on most of our underwriting. It's gonna move more with the prime than necessarily we're moving the spread.
Got it. That makes sense. Just maybe a broader question on, you know, on M&A. When do you think that picks up again, particularly since it seems like the sentiment is that valuations are pretty reasonable or close to the bottom here? What are your just general thoughts around there? I guess how that plays into, you know, new investments and the conversations around how it just could look like at some point. Thanks. Bye.
Yeah, we can ping-pong this, guys, a little bit here. I'll start. This is Kyle. I think we have seen a lot of PE interest. I think that will continue to be in M&A. We'll see M&A increase in that category. You know, I think the IPO and kind of traditional exit market, public markets are probably less interesting for the time being. I think private equity is absolutely sniffing around, and you might see more of that here, you know, throughout 2023.
Yeah. If you look at our Q4, right, the early repayments was, you know, pretty much a low, low water mark, I think sat at $14 million, Dave?
$14.8 million.
$14.8 million. You know, which makes the $0.62 even more impressive, right? 'Cause it wasn't built on, you know, early repayment fees. We don't see that materially picking up in Q1, but maybe second half of the year, I think, we'll see a little bit more activity. That's what the crystal ball says, but we don't really know.
Okay. That's it for me. Thank you.
Thanks, Vilas.
Thank you. Our next question will come from Casey Alexander with Compass Point. Your line is open.
Hi. Good afternoon. I am, one is a technical question, and then one is more of a broader picture question. Firstly, the technical question. In relation to Hut 8, normally, if an equipment finance loan prepays, my understanding is that they have to prepay the principal and all contractual interest payments that would have been due to the end of the loan. In the case of a merger where you're calling for a payoff, Hello? Is it the same or do they just have to pay off the principal?
Hey, Casey. It's Kyle. We can force a payoff, and they are on the hook for all future payments.
Okay. That's great. Thank you. Secondly, from a bigger picture, it's obviously a volatile time in venture capital and venture debt. I mean, we're seeing that with most of the earnings reports, and we've seen that with yours also. I mean, do you— from a strategic sort of sense— do you think it's the right time to be intentionally running at the top end of the leverage range? Do you think by doing so, is it your opinion that credit's going to improve over the next two or three quarters?
Couple things. You know, I think, A, the JV provides us with liquidity, right? We believe we're also gonna be able to recycle capital in the BDC. You know, the portfolio as it is right now, even with these non-accruals, is generating a significant amount of income, and we believe that will continue. The additional off-balance sheet activity that we are in the process of raising right now is really gonna fill a nice void or just help to continue to help us provide incremental deployment. You know, that leverage ratio is gonna swing between the ranges Steve gave you utilizing that capital.
Also we're gonna start seeing some of the loans come off of interest only, and so we're gonna be able to recycle some of that capital back into the marketplace to support our companies and continue investing. It's, it's a time for good opportunity, Casey.
Right. Great. Thanks for taking my questions.
Thanks, Casey.
Thanks, Casey.
Thank you. At this time, there are no further questions in the queue. I would like to turn the call back over to Steve Brown, Chairman and CEO, for closing remarks.
Thank you. Again, thanks to everybody that dialed in today. We appreciate your support, and we're excited about the results for 2022 in the fourth quarter, and we look forward to getting back with you at the end of Q1 to talk about how we've done. Thanks, guys.
Thank you, ladies and gentlemen. This does conclude today's teleconference, and we appreciate your participation. You may disconnect at any time.