DEF 14A: Runway Growth Finance Corp. Seeks Stockholder Approval for New Investment Management Agreement Amidst Adviser Acquisition

Runway Growth Finance Corp. is holding a special meeting to seek stockholder approval for a new investment management agreement following the acquisition of its investment adviser by a new entity.

Summary

• Runway Growth Finance Corp. is holding a special meeting on January 23, 2025, to vote on a new investment management agreement.
• This action is prompted by the acquisition of Runway Growth Capital LLC, the company's investment adviser, by RGC Group Acquisition, LLC, owned by BCP Special Opportunities Fund III Originations LP.
• The acquisition will result in the termination of the existing investment management agreement, requiring a new agreement to be approved by stockholders.
• The terms of the new agreement are identical to the existing one, with no changes to fees or services.
• Stockholders are also being asked to elect Catherine Frey as a director to fill a vacancy.
• The board unanimously recommends voting for the new agreement and the director nominee.
• The acquisition is expected to close in the first fiscal quarter of 2025.
• The company's investment strategy and management team are expected to remain unchanged after the acquisition.

Sentiment

Score: 7

Explanation: The document is generally positive, highlighting the benefits of the acquisition and the continuity of management. However, there are some risks associated with the change in control, which temper the overall sentiment.

Positives

• The new advisory agreement maintains the same terms as the existing one, ensuring continuity.
• The company expects enhanced access to capital through the BCPA platform.
• The company anticipates offering a wider range of capital solutions through co-investment opportunities.
• The company expects to expand its origination channels and access a broader range of investment opportunities.
• The current management team will remain in place, ensuring consistency in leadership.
• The company may potentially reduce expenses through economies of scale with the larger BCPA platform.

Negatives

• The existing advisory agreement will be terminated due to the change in control of the adviser.
• If the new advisory agreement is not approved, the company may need to consider alternatives, including liquidation.

Risks

• If the new advisory agreement is not approved, the company may need to find a new investment adviser or liquidate.
• There is a risk that the expected benefits of the acquisition, such as increased investment opportunities and reduced expenses, may not materialize.
• The company is reliant on the adviser for investment management, and any disruption could impact operations.
• The company is subject to the risk that the new owner may not be able to provide the same level of service as the current adviser.

Future Outlook

The company expects to continue to be managed by the current officers and anticipates no changes to its investment strategy. The company also expects to benefit from the resources of BCPA, potentially leading to increased investment opportunities and reduced expenses.

Management Comments

• The Board believes that the Company and its stockholders will benefit because it will allow the Adviser to continue to provide investment advisory services to the Company and allow the Adviser to combine its existing platform with BCPAs larger platform to increase investment opportunities for the Company, improve the execution of the Companys investment strategy and potentially reduce expenses through economies of scale.
• The Board and the Companys management further believe that the features below are key elements of the Adviser Change in Control that will be beneficial to the Companys stockholders: Consistency in leadership, Augmented access to capital, Enhanced product solutions, Expanded origination channels.

Industry Context

This announcement reflects a trend of consolidation and strategic partnerships within the business development company (BDC) sector, where firms seek to leverage larger platforms for enhanced access to capital and investment opportunities. The acquisition of Runway Growth Capital by a BC Partners affiliate is similar to other recent transactions where private equity firms are acquiring or partnering with BDCs to expand their credit platforms.

Comparison to Industry Standards

• The proposed management fee structure is within the typical range for externally managed BDCs, with a base management fee between 1.50% and 1.75% depending on asset size, and an incentive fee structure that includes both income and capital gains components.
• The hurdle rate of 8% annualized for the incentive fee is a common benchmark in the BDC industry, designed to align the interests of the adviser with those of the shareholders.
• Comparable BDCs such as Portman Ridge Finance Corporation and Logan Ridge Finance Corporation, which are also managed by affiliates of the New Owner, provide a benchmark for the potential operational and strategic changes that Runway Growth Finance Corp. may experience.
• The focus on expanding origination channels and accessing larger transactions is consistent with the strategies of other BDCs seeking to grow their portfolios and enhance shareholder value.

Management Changes

Related Party Transactions

• The company has an existing investment advisory agreement with Runway Growth Capital LLC, where key personnel of the company also have ownership interests.
• The company has an administration agreement with Runway Administrator Services LLC, a wholly-owned subsidiary of the adviser.
• The company has a trademark license agreement with the adviser.
• The company may co-invest with other funds managed by the adviser, subject to certain conditions and approvals.

Stakeholder Impact

• Shareholders are being asked to vote on the new advisory agreement, which will impact the management of the company.
• Employees of the adviser will continue to manage the company, ensuring continuity.
• Customers (portfolio companies) may benefit from the company's enhanced access to capital and broader range of capital solutions.
• Suppliers and creditors are not expected to be significantly impacted by the change in control.

Next Steps

• Stockholders will vote on the new advisory agreement and the election of a director at the special meeting on January 23, 2025.
• The acquisition of the investment adviser is expected to close in the first fiscal quarter of 2025.
• The company will continue to operate under the Runway name and with the same management team.

Key Dates

Keywords

investment management agreement, adviser acquisition, BC Partners, Runway Growth Capital, special meeting, director election, business development company, BDC, investment advisory, capital solutions, origination channels