40-17G: Hercules Capital Secures Fidelity Bond Coverage for 2024-2025

Hercules Capital has obtained a fidelity bond from Chubb Group, ensuring coverage against potential losses from employee dishonesty and other risks for the period of December 15, 2024, to December 15, 2025.

Summary

• Hercules Capital, Inc. has secured a fidelity bond with Chubb Group to protect against losses from employee dishonesty, forgery, and other risks.
• The bond provides coverage of $2,500,000 for various risks, including employee larceny or embezzlement, on-premises losses, in-transit losses, forgery, and computer system fraud.
• The bond is effective from December 15, 2024, to December 15, 2025, with premiums paid for this period.
• The Board of Directors, including a majority of non-interested members, approved the bond's amount, type, form, and coverage on December 5, 2024.
• The bond includes several endorsements, such as compliance with trade sanctions, premium details, revised liability limits, and joint loss payee provisions.

Sentiment

Score: 7

Explanation: The document is a routine compliance filing, indicating a stable and well-managed company. The bond provides necessary protection, which is a positive sign, but it's not a major event that would significantly impact sentiment.

Positives

• The fidelity bond provides comprehensive coverage against various risks, including employee dishonesty and fraud.
• The bond ensures compliance with the Investment Company Act of 1940.
• The bond has been approved by the Board of Directors, including a majority of non-interested members.
• The bond includes a joint loss payee endorsement, providing additional protection for Hercules Technology Growth Capital, Inc.
• The bond includes coverage for fraudulent transfer instructions.

Negatives

• The bond does not cover losses resulting from threats to a person, uncollectible items of deposit, or audit expenses.
• There are deductibles for certain types of losses, such as $50,000 for on-premises, in-transit, forgery, and computer system losses.
• The bond has specific exclusions, such as losses due to riots, civil commotion outside the US and Canada, and nuclear events.
• The bond does not cover losses resulting from dishonest acts by non-employee members of the Board of Directors or Board of Trustees.
• The bond does not cover losses resulting from the failure of a financial institution to pay or deliver funds.

Risks

• There is a risk of losses not covered by the bond, such as those resulting from threats to a person or uncollectible items of deposit.
• The deductibles for certain types of losses could result in the company bearing a portion of the financial burden.
• The bond has specific exclusions that could leave the company vulnerable to certain types of losses.
• There is a risk of loss due to dishonest acts by non-employee members of the Board of Directors or Board of Trustees, which is not covered by the bond.
• The bond does not cover losses resulting from the failure of a financial institution to pay or deliver funds, which could pose a risk to the company.

Future Outlook

The document does not contain any specific forward-looking statements or guidance beyond the coverage period of the bond.

Management Comments

• The Board of Directors has approved the fidelity bond, ensuring the company is protected against potential losses.
• The Secretary of the Company is designated to file the bond and related documents with the SEC.

Industry Context

Fidelity bonds are a standard requirement for business development companies (BDCs) under the Investment Company Act of 1940, ensuring protection against employee dishonesty and other risks. This filing is a routine compliance measure for Hercules Capital.

Comparison to Industry Standards

• The $2,500,000 coverage limit is typical for a BDC of Hercules Capital's size and asset base.
• The types of coverage included in the bond, such as employee dishonesty, forgery, and computer system fraud, are standard for fidelity bonds in the financial industry.
• The deductibles of $50,000 for certain types of losses are also within the typical range for such policies.
• Other BDCs such as Ares Capital Corporation and Main Street Capital Corporation also maintain similar fidelity bonds to comply with regulatory requirements.
• The use of Chubb Group as the insurer is common among financial institutions due to their reputation and expertise in this area.

Stakeholder Impact

• Shareholders are protected by the fidelity bond, which mitigates the risk of losses due to employee dishonesty and other risks.
• Employees are covered by the bond, which provides a level of protection against potential claims.
• Customers are indirectly protected by the bond, as it helps ensure the financial stability of the company.
• Creditors are also indirectly protected by the bond, as it reduces the risk of financial losses for the company.

Next Steps

• The company will maintain the fidelity bond coverage for the period of December 15, 2024, to December 15, 2025.
• The Secretary of the Company will file the bond and related documents with the SEC.
• The company will adhere to the terms and conditions of the bond, including reporting any losses within the specified timeframes.

Key Dates

Keywords

fidelity bond, insurance, Chubb Group, Hercules Capital, Investment Company Act, employee dishonesty, fraud, larceny, embezzlement, financial risk