Runway Growth Finance outlines $1.2B portfolio target through SWK Holdings acquisition while boosting healthcare exposure to 31%

Earnings Call Insights: Runway Growth Finance Corp. (RWAY) Q3 2025

MANAGEMENT VIEW

* CEO David Spreng highlighted the completion of a definitive merger agreement to acquire SWK Holdings, describing it as a strategic move to “immediately scale our portfolio by an estimated $242 million, accelerating growth and diversification, expand our position and investment capabilities in healthcare and life sciences sector and enhance both our earnings power and overall financial profile.”
* The company delivered total investment income of $36.7 million and net investment income of $15.7 million for the quarter, with 11 new and follow-on investments totaling $128.3 million in funded loans across technology, healthcare, and select consumer sectors.
* Spreng noted that integration within the BC Partners Credit ecosystem is driving new origination opportunities and supporting portfolio optimization initiatives, including enhanced risk profile through diversification and smaller position sizes.
* The acquisition of SWK Holdings will increase healthcare and life sciences exposure from 14% to 31% of the portfolio at fair value.
* CFO Thomas Raterman stated, “We generated total investment income of $36.7 million and net investment income of $15.7 million in the third quarter of 2025, an increase compared to $35.1 million and $13.9 million in the second quarter of 2025.”

OUTLOOK

* Management anticipates the SWK transaction to scale the portfolio to $1.2 billion on a September 30 pro forma basis and optimize leverage at approximately 1.1x.
* “We anticipate this transaction will generate mid-single-digit run rate net investment income accretion during the first full quarter following the close and support modest ROE expansion as well as improved dividend coverage,” explained Raterman.
* The company expects the deal to close in early 2026 due to delays in SEC regulatory approval and sees the transaction as “a repeatable yet flexible blueprint that is nondilutive to shareholders.”
* The board declared a regular distribution for the fourth quarter of $0.33 per share.

FINANCIAL RESULTS

* Total investment portfolio at fair value was $946 million, down from $1.02 billion in the previous quarter.
* Weighted average portfolio risk rating increased to 2.42 from 2.33, and the dollar-weighted loan-to-value ratio rose to 31.4% from 29.6% quarter-over-quarter.
* The debt portfolio generated a dollar weighted average annualized yield of 16.8% for Q3 2025, up from 15.4% in Q2 2025.
* Operating expenses were $21 million, slightly down from $21.2 million last quarter.
* Net realized loss on investments was $1.3 million, compared to a loss of $1.5 million in the prior quarter.
* NAV per share was $13.55 at quarter-end, a decrease from $13.66.
* The leverage ratio was 0.92x versus 1.05x in the previous quarter.
* Repurchased 397,983 shares during the quarter.

Q&A

* Melissa Wedel, JPMorgan: Asked about origination and repayment activity in Q4 and integration of SWK’s portfolio. Chief Investment Officer Greg Greifeld replied, “I do think it will be a relatively muted relative to Q3 quarter. We definitely did see an elevated amount, and I would expect some of those -- we had expected some of those repayments in Q4, but it ultimately came in Q3.” Raterman added that the yield profile for SWK’s portfolio is slightly higher than Runway’s.
* Mickey Schleien, Clear Street: Sought details on realized losses, prepayment drivers, and BC Partners’ pipeline contribution. Raterman clarified, “Those losses were mainly in the equity portfolio,” noting they were idiosyncratic events. Greifeld described repayments as driven by active M&A and refinancing but expected prepayments to normalize.
* Casey Alexander, Compass Point: Queried dividend policy in relation to NII. Raterman stated, “We said that we would pay up to 50% of the delta between NII per share and the base dividend… we're looking at covering the dividend, the base dividend with Q4 earnings.”
* Erik Zwick, Lucid Capital Markets: Asked for details on Cadma JV loan and PIK income composition. Greifeld explained loan selection for the JV, while Raterman noted PIK income included both structured and credit-related components.
* Christopher Nolan, Ladenburg Thalmann: Asked about merger accretion and fair value marks. Raterman confirmed, “It should be accretive in the first full quarter after closing,” and addressed NAV-based share issuance and potential OID accretion.

SENTIMENT ANALYSIS

* Analysts expressed interest in the strategic rationale and financial impact of the SWK acquisition, with questions focused on portfolio integration, credit quality, and dividend sustainability. The tone was neutral to slightly positive, with a focus on operational details.
* Management maintained a confident and optimistic tone during prepared remarks, emphasizing the benefits of the SWK acquisition and continued portfolio optimization. In Q&A, responses remained detailed and direct, with Raterman and Greifeld providing specific explanations and reiterating confidence in strategy. The tone remained consistent with the previous quarter, with slightly more emphasis on strategic growth.

QUARTER-OVER-QUARTER COMPARISON

* The current quarter saw a major strategic shift with the announcement of the SWK Holdings acquisition, compared to last quarter’s focus on incremental portfolio optimization.
* Guidance language shifted from cautious optimism about portfolio diversification to a more assertive outlook, projecting immediate scaling and accretion from the acquisition.
* Analysts’ focus moved from product and sector diversification to M&A integration and dividend implications.
* Key metrics such as net investment income, yield, and leverage improved compared to Q2.
* Management’s confidence level increased, supported by the scale and diversification provided by the new transaction.

RISKS AND CONCERNS

* Elevated repayments and portfolio contraction in the current quarter were noted, but management expects prepayments to return to normal levels.
* Only one loan on nonaccrual status, representing 0.2% of the portfolio’s fair value.
* The closing of the SWK deal is pending SEC approval and may be delayed due to the government shutdown.
* Analysts questioned the sustainability of dividend coverage and integration risks from the SWK merger. Management highlighted risk mitigation through portfolio diversification and smaller average loan sizes.

FINAL TAKEAWAY

The third quarter marked a strategic turning point for Runway Growth Finance, highlighted by the definitive agreement to acquire SWK Holdings and a projected increase in portfolio scale and sector diversification. Management reiterated that this transaction is expected to drive immediate financial and strategic benefits, with enhanced yield, improved risk profile, and expanded earnings power, while maintaining confidence in the company’s ability to cover its dividend and execute on further growth opportunities.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/rway/earnings/transcripts]

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