Runway Growth Finance Corp.

Runway Growth Finance Corp. (RWAY) 10-K Summary

Runway Growth Finance Corp. (RWAY) empowers high-growth, late-stage companies by providing crucial debt financing and strategic equity investments. As a Business Development Company (BDC), RWAY aims to generate shareholder income through interest on loans and capital gains from equity. This summary, based on its recent 10-K filing, offers investors a clear picture of RWAY's operations, financial highlights, strategic initiatives, and risks.

1. Business Overview (What the company does) RWAY primarily offers senior secured term loans and second lien term loans, complemented by equity investments (warrants and stock) in its portfolio companies. The company targets high-growth potential businesses across technology, healthcare, business services, financial services, and select consumer sectors.

RWAY employs two main investment strategies:

• Sponsored Growth Lending: RWAY provides financing to late-stage companies backed by established venture capital and private equity firms. These deals often include warrants, which offer potential gains from equity, and provide higher interest rates and access to top-tier companies.
• Non-Sponsored Growth Lending: RWAY lends to late-stage private companies directly funded by founders or those no longer requiring institutional investment. In these situations, RWAY often acts as the sole senior lender, targeting profitable companies (EBITDA positive) that need capital for growth.

RWAY's investment process uses a dedicated, independent credit team and a proprietary risk analysis model, developed over 20 years, to evaluate over 30 factors across market, technology, management, and financing. This enables selective investment, ensuring loans typically represent less than 25% of a company's total enterprise value at origination.

As of December 31, 2025, RWAY's total investment portfolio was valued at $927.4 million, with $860.3 million in debt and $67.1 million in equity. Senior secured loans make up 99.3% of its debt investments, significantly mitigating risk. Since its late 2016 inception, RWAY has funded 98 transactions, totaling $2.7 billion. Debt investments typically range from $2.0 million to $68.5 million, with annual cash interest rates between 6.3% and 14.3%.

Investment performance metrics show a slight decline in yields:

• Dollar-weighted annualized yield on debt investments: 14.6% in 2025, down from 14.9% in 2024 and 15.8% in 2023.
• Overall investment yield (debt and equity combined): 13.79% in 2025, down from 14.13% in 2024 and 15.20% in 2023.
• Equity investment yield: 1.56% in 2025, compared to 0.61% in 2024 and 2.66% in 2023, reflecting higher volatility. Recent investment activity includes senior secured loans to Kin Insurance, Inc. (Prime Rate + 5.00%) and Swing Education, Inc. (SOFR + 6.65%).

2. Financial Performance (Revenue, profit, year-over-year changes) RWAY's primary income source is interest from its debt investments, often tied to benchmarks like SOFR or the Prime Rate plus a spread, and frequently include interest rate floors to protect earnings. While overall investment yields have seen a slight decrease from 15.20% in 2023 to 13.79% in 2025, this trend suggests a slight decrease in investment income.

As a Regulated Investment Company (RIC), RWAY must distribute at least 90% of its taxable income to shareholders annually, as reflected in consistent cash dividends, including those for Q4 2024 and Q2 2025.

Operating expenses include a base management fee and an incentive fee paid to its external manager, Runway Growth Capital LLC (RGC), along with various administrative, legal, audit, and regulatory compliance costs.

3. Risk Factors (Key risks) Investors should be aware of several key risks:

• Valuation Uncertainty: Valuing investments in private companies involves complex "Level 3" valuations, which rely on significant judgment and assumptions. These valuations may not accurately reflect true market value.
• Interest Rate Sensitivity: While many loans have interest rate floors, RWAY's income is heavily tied to market interest rates (SOFR, Prime Rate), making earnings vulnerable to significant rate drops.
• Credit Risk: Lending to high-growth, often less established companies carries higher default risk. RWAY's debt investments are generally unrated or considered "below investment grade" (often called "junk bonds"), indicating speculative characteristics.
• Covenant-Lite Loans: Potential investment in "covenant-lite" loans, which lack traditional maintenance covenants, reduces RWAY's ability to monitor borrower performance or declare early defaults, thereby increasing risk.
• PFIC Tax Risks: Investments in Passive Foreign Investment Companies (PFICs) can lead to complex tax situations, potentially resulting in additional taxes, interest, or challenges in meeting RIC distribution requirements if the company's taxable income does not align with its available cash.
• Regulatory Compliance: Failure to comply with RIC rules could result in corporate taxation, reducing shareholder returns.
• External Manager/Administrator Reliance: RWAY is externally managed by RGC, and its Administrator is an RGC subsidiary. Both agreements can be terminated with 60 days' notice. This poses operational disruption risks if RWAY cannot promptly find replacements.

4. Management Discussion (MD&A highlights) This section highlights significant events, trends, and uncertainties impacting RWAY's financial condition and results of operations.

Key strategic initiatives and developments in the past year include:

• Share Repurchase Programs: RWAY has engaged in share repurchase programs (e.g., "First" and "Fourth" Repurchase Programs), signaling management's confidence and potentially enhancing shareholder value.
• Portfolio Growth: RWAY grew its total investment portfolio to $927.4 million by year-end 2025, demonstrating continued expansion and successful capital deployment.
• Runway-Cadma I LLC Joint Venture (JV): Established March 6, 2024, with Cadma Capital Partners LLC, this JV co-manages and invests in RWAY-originated secured loans. Both parties committed $35.0 million in equity capital, totaling $70.0 million for the JV. This expands investment opportunities and shares risk/reward.
• Co-Investment Exemptive Orders: RWAY operates under an SEC exemptive order (granted August 2020, updated August 2022) allowing co-investments with other RGC-managed funds, which enhances flexibility and diversification. A new application filed September 12, 2025, seeks even broader co-investment capabilities.
• RGC Acquisition by BC Partners: In January 2025, RWAY's external manager, RGC, was acquired by affiliates of BC Partners Advisors L.P., a major investment firm. This acquisition is expected to provide RWAY's management with additional resources and expertise, potentially enhancing deal flow and operational efficiencies.

A notable challenge is the slight, yet consistent, decrease in overall investment yield over the past two years. This trend warrants monitoring as it could impact future investment income. Management continuously evaluates market conditions and portfolio performance to mitigate these trends.

5. Financial Health (Debt, cash, liquidity) RWAY funds its lending activities through a combination of equity and debt. It has various "Notes" outstanding, maturing between April 2026 and December 2027, and uses a Credit Facility established in 2019. The company also committed $35.0 million in equity to the Runway-Cadma I LLC Joint Venture.

As of December 31, 2025, RWAY's Net Asset Value (NAV) stood at $485.0 million. A key strength is that all its debt investments are secured by the borrowing companies' assets, providing a layer of protection. Deloitte & Touche LLP audits its financial reports.

RWAY's capital structure combines long-term debt and equity. Accessing additional capital through its credit facility or future debt issuances is crucial for funding new investments and managing liquidity. The secured nature of its debt investments provides a strong asset base.

6. Future Outlook (Guidance, strategy) RWAY's investment horizon is long-term, with loan and warrant maturities extending to 2034 and a dollar-weighted average remaining term of debt investments at approximately 2.6 years.

RWAY anticipates a favorable market environment for its strategy, especially among late-stage, high-growth companies in technology, healthcare, business services, financial services, and select consumer sectors, driven by innovation and technology adoption. RWAY believes its Sponsored Growth Lending strategy offers attractive, less dilutive financing that complements equity funding, helps companies manage cash flow, and extends their operational "runway" before needing further equity or an exit.

RWAY currently holds "emerging growth company" status under the JOBS Act, which provides reduced public reporting requirements until at least December 31, 2026, or until it meets certain revenue thresholds. This status provides operational flexibility in its early growth phase as a public company.

7. Competitive Position RWAY operates in a highly competitive market, facing public and private funds, other BDCs, commercial and investment banks, venture banks, commercial financing companies, and private equity/hedge funds. Many competitors have significantly greater financial, technical, and marketing resources, potentially offering broader funding sources or a willingness to take on higher risks. Unlike many competitors, RWAY faces strict regulatory restrictions under the 1940 Act and RIC distribution requirements, which can limit its operational flexibility. RWAY differentiates itself through its specialized focus on late-stage growth companies, proprietary credit analysis, and the expertise its external manager, now under BC Partners, brings.

8. Management & Governance RWAY is externally managed by Runway Growth Capital LLC (RGC), an investment adviser that manages day-to-day operations and investment decisions, overseen by RWAY's Board of Directors. RWAY has no direct employees; its leadership (e.g., R. David Spreng, CEO; Thomas B. Raterman, CFO/COO) also holds similar roles at RGC.

A significant governance change occurred in January 2025 with the acquisition of RGC by affiliates of BC Partners Advisors L.P. This integration places RGC under BC Partners Credit, potentially leveraging broader resources and expertise. The Investment Committee, which approves all investments, includes RWAY/RGC leaders and Patrick Schafer, a Partner at BC Partners. This indicates direct involvement from the new parent.

The Advisory Agreement with RGC, approved by the Board in October 2024 and shareholders in January 2025, initially lasts two years and renews annually based on Board and shareholder approval. Either party can terminate it with 60 days' notice. The Board rigorously evaluated the agreement, considering service quality, performance, fee comparability, and team experience.

Oaktree Capital Management, L.P. (via OCM Growth Holdings) maintains a long-term, significant relationship with RWAY, owning approximately 19.5% (7,029,668 shares) of its common stock as of December 31, 2025. This ownership entitles OCM Growth to nominate a Board member (currently Catherine Frey) as long as their stake remains above a specified threshold.