HRZN 10-K & 10-Q changes, risk factors and insider trading
Horizon Technology Finance Corp (also HTFC) · Nasdaq · CIK 1487428 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Risks Related to the Merger”
New heading “The termination of the Merger Agreement and/or Asset Purchase Agreement could negatively impact us.”
New heading “The Transactions are subject to customary closing conditions, including stockholder approvals. If such conditions are not satisfied or waived, the Transactions will not close, which may result in material adverse consequences to our business, operations and business prospects.”
New heading “The opinions delivered to our Board and the MRCC Board by the respective financial advisors to our Special Committee and the MRCC Special Committee prior to signing the Merger Agreement and the Asset Purchase Agreement do not reflect changes in circumstances after the date of the opinions.”
New heading “If the Transactions do not close, we will not benefit from the expenses incurred in their pursuit.”
New heading “Because the market price of our common stock will fluctuate, our stockholders and the stockholders of MRCC cannot be sure of the market value of the amount of Merger Consideration to be paid to MRCC’s stockholders until the closing of the Merger.”
New heading “Our stockholders will experience a reduction in percentage ownership and voting power in the combined company as a result of the Merger.”
New heading “The Merger and/or Asset Sale may trigger certain “change of control” provisions and other restrictions in contracts of us, MRCC or their affiliates (e.g., under contracts governing indebtedness), and the failure to obtain any required consents or waivers could adversely impact the combined company.”
New heading “If the Transactions close as contemplated, we will receive a substantial amount of cash, as net proceeds, that we must then deploy, and you may not agree with the way we allocate the net proceeds from the Transactions.”
New heading “We could have indemnification obligations to our directors or officers and MRCC’s directors or officers.”
New heading “The Merger Agreement and Asset Purchase Agreement limit our ability to pursue alternatives to the Transactions.”
New heading “We and MRCC are subject to operational uncertainties and contractual restrictions while the Transactions are pending.”
New heading “We, MRCC and MCIP may waive one or more conditions to the Transactions without resoliciting stockholder approval.”
New heading “The market price of our common stock after the Merger will be affected by factors different from those affecting our common stock price prior to our signing the Merger Agreement.”
New heading “We may not replicate our historical performance, or the historical success of MRCC.”
New heading “We are currently in a period of capital markets disruption and economic uncertainty.”
New heading “Technological developments in artificial intelligence could disrupt the markets in which we operate and subject us to increased competition, legal and regulatory risks and compliance costs.”
Removed heading “We are subject to certain risks as a result of our interests in connection with the 2022-1 Securitization and our equity interest in the 2022-1 Trust.”
Removed heading “An event of default in connection with the 2022-1 Securitization could give rise to a cross-default under our other material indebtedness.”
Removed heading “We may not receive cash distributions in respect of our indirect ownership interest in the 2022-1 Trust.”
Removed heading “The interests of the Noteholders may not be aligned with our interests.”
Removed heading “Certain events related to the performance of 2022 Trust Loans could lead to the acceleration of principal payments on the 2022 Asset-Backed Notes.”
Removed heading “We have certain repurchase obligations with respect to the 2022 Trust Loans transferred in connection with the 2022-1 Securitization.”
Removed heading “The capital markets may experience periods of disruption and economic uncertainty. Such market conditions may materially and adversely affect debt and equity capital markets, which may have, a negative impact on our business and operations.”
Largest changes
“If an event of default occurs, the Noteholders will be entitled to determine the remedies to be exercised, subject to the terms of the documents governing the 2022-1 Securitization. For example, upon the occurrence of an event of default with respect to the 2022 Asset-Backed Notes, the Trustee may, and will at the direction of the holders of a supermajority of the 2022 Asset-Backed Notes, declare the principal, together with any accrued interest, of the 2022 Asset-Backed Note to be immediately due and payable. …”see in full comparison
“An event of default in connection with the 2022-1 Securitization could give rise to a cross-default under our other material indebtedness.”see in full comparison
“We and our investment adviser use and plan to expand our use of artificial intelligence tools and technologies in the operation of our business. In addition, certain of our portfolio companies use and may plan to expand their use of artificial intelligence tools and technologies in the operation of their businesses. …”see in full comparison
“Technological developments in artificial intelligence could disrupt the markets in which we operate and subject us to increased competition, legal and regulatory risks and compliance costs.”see in full comparison
“In recent years, U.S. capital markets have experienced volatility and disruptions including as a result of certain regional bank failures, an inflationary economic environment, and tariffs and global trade negotiations. These disruptions in the capital markets have in the past and could in the future increase the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. …”see in full comparison
“In addition, the consummation of the Transactions may violate, conflict with, result in a breach of provisions of, or the loss of any benefit under, constitute a default (or an event that, with or without notice or lapse of time or both, would constitute a default) under, or result in the termination, cancellation, acceleration or other change of any right or obligation (including any payment obligation) under, certain agreements of ours or MRCC. …”see in full comparison
Full comparison: every changed paragraph (75)
Risks Related to the Merger
The termination of the Merger Agreement and/or Asset Purchase Agreement could negatively impact us.
If the Merger Agreement and/or Asset Purchase Agreement are terminated, we may suffer adverse consequences, including:
The Transactions are subject to customary closing conditions, including stockholder approvals. If such conditions are not satisfied or waived, the Transactions will not close, which may result in material adverse consequences to our business, operations and business prospects.
The Transactions are subject to customary closing conditions, including certain approvals of our and MRCC’s respective stockholders. If such conditions are not satisfied, the Transactions will not close. We currently expect that all of our directors and executive officers will vote their shares of our common stock in favor of the proposals to be presented at our special meeting of stockholders. If our stockholders do not approve the Merger, and the Transactions are not completed, the resulting failure of the Transactions could have a material adverse impact on our business, operations and business prospects.
The closing condition that our stockholders approve the issuance of the shares of our common stock pursuant to the Merger Agreement (the “Merger Stock Issuance Proposal”) at our special meeting of stockholders as described in the Merger Agreement may not be waived under applicable law and must be satisfied for the Merger to be completed. If the stockholders of MRCC do not approve the Merger and the Transactions are not completed, the resulting failure of the Transactions could have a material adverse impact on our business, operations and business prospects. In addition to the required approvals of our, MCIP and MRCC’s stockholders, the Transactions are subject to a number of other conditions beyond our control or the control of MCIP and MRCC. These conditions may prevent, delay or otherwise materially adversely affect Transactions from being completed. None of MCIP, MRCC or the Company can predict whether and when these other conditions will be satisfied.
The opinions delivered to our Board and the MRCC Board by the respective financial advisors to our Special Committee and the MRCC Special Committee prior to signing the Merger Agreement and the Asset Purchase Agreement do not reflect changes in circumstances after the date of the opinions.
The opinions of the financial advisors to our Special Committee and the MRCC Special Committee, respectively, were delivered to the parties’ respective boards on, and dated, August 7, 2025. Changes in the operations and prospects of MRCC or us, general market and economic conditions and other factors that may be beyond the control of MRCC or us may significantly alter the value of MRCC or the price of shares of our Common Stock by the time the Merger is completed. The opinions do not speak as of the time the Transactions will be completed or as of any date other than the date of such opinions.
If the Transactions do not close, we will not benefit from the expenses incurred in their pursuit.
The Transactions may not be completed. If the Transactions are not completed, we will have incurred substantial expenses for which no ultimate benefit will be received. We have incurred and will incur substantial out-of-pocket expenses in connection with the Transactions for investment banking, legal and accounting fees, financial printing and other Transaction-related expenses, much of which will be incurred even if the Transactions are not completed.
Because the market price of our common stock will fluctuate, our stockholders and the stockholders of MRCC cannot be sure of the market value of the amount of Merger Consideration to be paid to MRCC’s stockholders until the closing of the Merger.
At the effective time of the Merger, each share of MRCC common stock issued and outstanding immediately prior to such time (other than shares owned by us or any of our consolidated subsidiaries) will be converted into the right to receive a number of shares of our common stock equal to an exchange ratio to be determined not more than 48 hours prior to the effective time, plus cash (without interest) in lieu of fractional shares. For illustrative purposes, based on September 30, 2025 net asset values of MRCC and us, and including Transaction-related costs and other tax-related distributions, we would issue approximately 23.0 million shares of our common stock in the aggregate pursuant to the Merger Agreement and based on the number of shares of MRCC common stock outstanding as of that date, resulting in pro forma ownership of the Company of 65.9% for our current stockholders and 34.1% for MRCC’s current stockholders.
The market value of the shares of our common stock to be received by MRCC’s stockholders (together with cash received by MRCC’s common stockholders in lieu of fractional shares, the “Merger Consideration”) may vary from our common stock’s closing price on the date the Merger was announced, on the date of the filing of this current report, on the date our joint proxy statement/prospectus is mailed to our stockholders, on the date of our special meeting of stockholders or the date of MRCC’s special meeting of stockholders and on the date the Merger is completed and thereafter. Any change in the market price of our common stock prior to completion of the Merger will affect the market value of the Merger Consideration that MRCC’s stockholders will receive upon completion of the Merger.
Accordingly, at the time of our special meeting of stockholders, our stockholders and MRCC’s stockholders will not know or be able to calculate the amount of Merger Consideration they would receive upon completion of the Merger. Under the terms of the Merger Agreement, we and MRCC are not permitted to terminate the Merger Agreement or to resolicit the vote of their respective stockholders solely because of changes in the market price of shares of our common stock after our special meeting of stockholders.
The market price and liquidity of the market for our common stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance.
These factors include:
Our stockholders will experience a reduction in percentage ownership and voting power in the combined company as a result of the Merger.
Our stockholders will experience a substantial reduction in their respective percentage ownership interests and effective voting power in respect of the combined company relative to their respective ownership interests in us prior to the Merger. Consequently, our stockholders should expect to exercise less influence over the management and policies of the combined company following the Merger than they currently exercise over our management and policies.
Prior to completion of the Merger, subject to certain restrictions in the Merger Agreement, we and MRCC could each issue additional shares of common stock, which would further reduce the percentage ownership of the combined company held by current our stockholders or to be held by MRCC stockholders, as applicable. After completion of the Merger, we may issue additional shares of our common stock, including, subject to certain restrictions under the 1940 Act, including a requirement to obtain stockholder approval of such issuance, at prices below our common stock’s then-current net asset value per share. The issuance or sale by us of shares of our common stock at a discount to net asset value poses a risk of dilution to our and former MRCC stockholders.
The Merger and/or Asset Sale may trigger certain “change of control” provisions and other restrictions in contracts of us, MRCC or their affiliates (e.g., under contracts governing indebtedness), and the failure to obtain any required consents or waivers could adversely impact the combined company.
Certain agreements of our and MRCC or their affiliates, which may include agreements governing indebtedness of us or MRCC, will or may require the consent or waiver of one or more counterparties in connection with the Transactions. The failure to obtain any such consent or waiver may permit such counterparties to terminate, or otherwise increase their rights or our or MRCC’s obligations under, any such agreement because the Transactions may violate an anti-assignment, change of control or other similar provision relating to any of such transactions. If this occurs, we may have to seek to replace that agreement with a new agreement or seek an amendment to such agreement. We cannot assure you that we will be able to replace or amend any such agreement on comparable terms or at all. If these types of provisions are triggered in agreements governing indebtedness of us or MRCC, the lender or holder of the debt instrument could accelerate repayment under such indebtedness and negatively affect our business, financial condition, results of operations and cash flows.
If any such agreement is material, the failure to obtain consents, amendments or waivers under, or to replace on similar terms or at all, any of these agreements could adversely affect the financial performance or results of operations of the combined company following the Merger, including preventing us from operating a material part of MRCC’s business.
In addition, the consummation of the Transactions may violate, conflict with, result in a breach of provisions of, or the loss of any benefit under, constitute a default (or an event that, with or without notice or lapse of time or both, would constitute a default) under, or result in the termination, cancellation, acceleration or other change of any right or obligation (including any payment obligation) under, certain agreements of ours or MRCC. Any such violation, conflict, breach, loss, default or other effect could, either individually or in the aggregate, have a material adverse effect on the financial condition, results of operations, assets or business of the combined company following completion of the Merger.
If the Transactions close as contemplated, we will receive a substantial amount of cash, as net proceeds, that we must then deploy, and you may not agree with the way we allocate the net proceeds from the Transactions.
Upon the closing of the Transactions, based upon net asset values of our and MRCC’s shares as of September 30, 2025, we expect to receive approximately $162 million in cash proceeds. To deploy that cash, we must identify and invest in loans and other assets consistent with our investment strategy. Depending on market conditions, it may be difficult to identify a sufficient number of investments compatible with our strategy at pricing that generates attractive returns to the stockholders of the combined company. Our ability to identify suitable investments will depend on conditions in the market for loans immediately after the closing of the Transactions, and any disruption in the lending market at that time could require that we delay our investments or make investments on less favorable terms than we would typically require. We may also invest in companies with which you may not agree. If we are unable to make appropriate, attractive investments, our returns will diminish as we hold cash or cash equivalents that generate returns lower than returns we typically earn on our debt investments until such time as we can invest the net proceeds of the Transactions in debt investments.
We could have indemnification obligations to our directors or officers and MRCC’s directors or officers.
Under the terms of the Merger Agreement, we have agreed to indemnify our directors and officers and MRCC’s directors or officer who may become the subject of claims based on the fact that such person is or was our director or officer or MRCC’s director or officer and pertaining to actions occurring at or prior to the effective time of the Merger. Uncertainty with respect to the outcome of these obligations could have a material adverse impact on us and the surviving company following the consummation of the Transactions.
The Merger Agreement and Asset Purchase Agreement limit our ability to pursue alternatives to the Transactions.
The Merger Agreement and Asset Purchase Agreement contain provisions that limit our ability to discuss, facilitate or commit to alternative third-party proposals to enter into a business combination or other similar control transaction. These provisions, which are customary for transactions of this type and include an aggregate of $10.8 million in termination fees payable by a third-party acquiror under certain circumstances, may discourage an interested party that might have an interest in combining with us from considering or proposing such a transaction even if it were prepared to value such a combination more highly than the amounts agreed in the Merger.
We and MRCC are subject to operational uncertainties and contractual restrictions while the Transactions are pending.
Uncertainties about the impact of the Transactions may have an adverse effect on us and on MRCC and, consequently, on the combined company following completion of the Merger. These uncertainties may cause those that deal with us and MRCC to change their existing business relationships with us and MRCC. In addition, the Merger Agreement contains representations, warranties and covenants, including covenants relating to the operation of each of MRCC’s business and our business during the period prior to the closing of the Merger. These provisions may restrict us and MRCC from taking actions that we might otherwise consider to be in our best interests. Also, these restrictions may prevent us and MRCC from pursuing certain business opportunities that may arise prior to the completion of the Transactions.
We, MRCC and MCIP may waive one or more conditions to the Transactions without resoliciting stockholder approval.
Certain conditions to our, MRCC’s and MCIP’s obligations to complete the Transactions may be waived, in whole or in part, to the extent legally allowed, either unilaterally or by the agreement of us and MRCC or MRCC and MCIP, as applicable. In the event that any such waiver does not require any re-solicitation of stockholders, the parties to the Merger Agreement and Asset Purchase Agreement will have the discretion to complete the Transactions without seeking further stockholder approval. However, the conditions requiring the approval of the Transactions by our stockholders cannot be waived.
The market price of our common stock after the Merger will be affected by factors different from those affecting our common stock price prior to our signing the Merger Agreement.
Our existing business after the Merger closes will be impacted by the increase in cash and outstanding shares of our stock as a result of the Merger. Accordingly, the results of operations of the combined company, and the market price of our common stock after the Merger, may be affected by factors different from those currently affecting our independent operations. Accordingly, the historical trading prices and financial results of MRCC may not be indicative of these matters for the combined company following the Merger.
We may not replicate our historical performance, or the historical success of MRCC.
Following the consummation of the Transactions, we cannot provide any assurance that we will replicate our own historical performance, the historical success of MRCC or the historical performance of other companies advised by HTFM and MC Advisors in the past. Accordingly, our investment returns could be substantially lower than the returns achieved by us in the past, by MRCC, or by such other funds managed by HTFM or MC Advisors.
In addition, if any two of the fourthree of Mr. Pomeroy,Balkin, our Chief Executive Officer, Mr. Michaud, our President, Mr. Devorsetz,Seitz, our Chief Investment Officer or Mr. Trolio, our Chief Financial Officer, ceases to be actively involved with us or our Advisor, and is not replaced by an individual satisfactory to Key within 90 days, Key could, absent a waiver or cure, demand repayment of any outstanding obligations under the Key Facility. If any two of the four of Mr.our Pomeroy,Chief Mr.Executive Michaud,Officer, Mr.Chief TrolioInvestment Officer, Chief Financial Officer or Mr. DevorsetzPresident ceases to be actively involved with us, the NYL Noteholders could, absent a waiver or cure, redeem any outstanding obligations under the NYL Facility. In such an event, if we do not have sufficient cash to repay our outstanding obligations, we may be required to sell investments which, due to their illiquidity, may be difficult to sell on favorable terms or at all. We may also be unable to make new investments, cover our existing obligations to extend credit or meet other obligations as they come due, which could adversely impact our results of operations.
SinceFrom June 30, 2023,2023 through December 17, 2025, we and our Advisor have relied on exemptive relief fromunder the SECOld granted to certain affiliates of Monroe on October 15, 2014, as amended on January 10, 2023.Order. The exemptive relief affordsafforded our Advisor greater flexibility to negotiate the terms of co-investments if our Board determinesdetermined in advance that it would be advantageous for us to co-invest with other accounts sponsored or managed by our Advisor, or Monroe or their affiliates in a manner consistent with our investment objective, positions, policies, strategies and restrictions, as well as regulatory requirements and other relevant factors. On December 17, 2025, the U.S. Securities and Exchange Commission granted our New Order which, among other things, modifies the requirements for co-investments under the Old Order. We are required to comply with all terms and conditions required in the New Order. We cannot assure you, however, that we will develop opportunities that comply with such limitations.terms and conditions.
Regulators are also increasing scrutiny and implementing and considering regulation of the use of artificial intelligence technologies, including with respect to uses of artificial intelligence by investment advisers. While comprehensive U.S. regulation has not been enacted to date, various U.S. governmental agencies and departments, including the SEC and U.S. Department of the Treasury, have recently released reports or otherwise indicated interest in assessing risks relating to uses of artificial intelligence by businesses such as ours. Some specific laws governing artificial intelligence have already been passed in certain U.S. states and in the European Union. We cannot predict what, if any, effects this may have on our business or the nature of future regulations.
Regulators are also increasing scrutiny and considering regulation of the use of artificial intelligence technologies. We cannot predict what, if any, actions may be taken or the impact such actions may have on our business and results of operations.
We may want to obtain additional debt financing, or need to do so upon maturity of the Key Facility, NYL Facility, Nuveen Facility, 2026 Notes, 2027 Notes, 20312028 Notes, 2030 Convertible Notes or the2031 2022 Asset-BackedConvertible Notes, in order to obtain funds which may be made available for investments. We may borrow under the Key Facility until June 20, 2027. After such date, we must repay the outstanding advances under the Key Facility in accordance with its terms and conditions. All outstanding advances under the Key Facility are due and payable on June 20, 2029, unless such date is extended in accordance with the terms of the Key Facility. We may borrow under the NYL Facility until June 5, 2025.2027. After such date, we must repay the outstanding advances under the NYL Facility in accordance with its terms and conditions. All outstanding advances under the NYL Facility are due and payable on June 15, 2030, unless such date is extended in accordance with the terms of the NYL Facility. We may borrow under the Nuveen Facility until June 21, 2027.2028. After such date, we must repay the outstanding advances under the Nuveen Facility in accordance with its terms and conditions. All outstanding advances under the Nuveen Facility are due and payable on June 21,10, 2027,2034, unless such date is extended in accordance with the terms of the Nuveen Facility. All outstanding amounts on our 20262027 Notes are due and payable on MarchJune 30,15, 20262027 unless redeemed prior to that date. All outstanding amounts on our 20272028 Notes are due and payable on JuneDecember 15, 20272028 unless redeemed prior to that date. All outstanding amounts on our 2030 Convertible Notes are due and payable on September 4, 2030 unless redeemed or converted into our common stock prior to that date. All outstanding amounts on our 2031 Convertible Notes are due and payable on October 17, 2031 unless redeemed or converted into our common stock prior to that date. TheOn 2022December Asset-Backed29, 2025, we gave notice of our intent to redeem the outstanding principal balance of the 2026 Notes haveplus aaccrued statedinterest maturityon ofJanuary November28, 15, 2030.2026. If we are unable to increase, renew or replace the Credit Facilities or enter into other new debt financings on commercially reasonable terms, our liquidity may be reduced significantly. In addition, if we are unable to repay amounts outstanding under any such debt financings and are declared in default or are unable to renew or refinance these debt financings, we may not be able to make new investments or operate our business in the normal course. These situations may arise due to circumstances that we may be unable to control, such as lack of access to the credit markets, a severe decline in the value of the U.S. dollar, an economic downturn or an operational problem that affects third parties or us, and could materially damage our business.
We are subject to certain risks as a result of our interests in connection with the 2022-1 Securitization and our equity interest in the 2022-1 Trust.
On November 8, 2022, in connection with the 2022‑1 Securitization and the offering of the 2022 Asset-Backed Notes by the 2022‑1 Trust, we sold and/or contributed to Horizon Funding 2022‑1, LLC or the 2022 Trust Depositor, certain loans, or the 2022 Trust Loans, which the 2022 Trust Depositor in turn sold and/or contributed to the 2022‑1 Trust in exchange for 100% of the equity interest in the 2022‑1 Trust, cash proceeds and other consideration. Following these transfers, the 2022‑1 Trust, and not the 2022 Trust Depositor or us, holds all of the ownership interest in the 2022 Trust Loans.
As a result of the 2022‑1 Securitization, we hold, indirectly through the 2022 Trust Depositor, 100% of the equity interest of the 2022‑1 Trust. As a result, we consolidate the financial statements of the 2022 Trust Depositor and the 2022‑1 Trust, as well as our other subsidiaries, in our consolidated financial statements. Because each of the 2022 Trust Depositor and the 2022‑1 Trust is disregarded as an entity separate from its owner for U.S. federal income tax purposes, the sale or contribution by us to the 2022 Trust Depositor, and by the 2022 Trust Depositor to the 2022‑1 Trust, did not constitute a taxable event for U.S. federal income tax purposes. If the U.S. Internal Revenue Service were to take a contrary position, there could be a material adverse effect on our business, financial condition, results of operations or cash flows. Further, a failure of the 2022‑1 Trust to be treated as a disregarded entity for U.S. federal income tax purposes would constitute an event of default pursuant to the indenture under the 2022‑1 Securitization, upon which the trustee under the 2022‑1 Securitization, or the Trustee, may, and will at the direction of a supermajority of the holders of the 2022 Asset-Backed Notes (collectively, the “Noteholders”), declare the 2022 Asset-Backed Notes to be immediately due and payable and exercise remedies under the indenture, including (i) institute proceedings for the collection of all amounts then payable on the 2022 Asset-Backed Notes or under the indenture, enforce any judgment obtained, and collect from the 2022‑1 Trust and any other obligor upon the 2022 Asset-Backed Notes monies adjudged due; (ii) institute proceedings from time to time for the complete or partial foreclosure of the indenture with respect to the property of the 2022‑1 Trust; (iii) exercise any remedies as a secured party under the relevant provisions of the applicable jurisdiction’s UCC and take other appropriate action under applicable law to protect and enforce the rights and remedies of the Trustee and the Noteholders; or (iv) sell the property of the 2022‑1 Trust or any portion thereof or rights or interest therein at one or more public or private sales called and conducted in any matter permitted by law. Any such exercise of remedies could have a material adverse effect on our business, financial condition, results of operations or cash flows.
An event of default in connection with the 2022-1 Securitization could give rise to a cross-default under our other material indebtedness.
The documents governing our other material indebtedness contain customary cross-default provisions that could be triggered if an event of default occurs in connection with the 2022-1 Securitization. An event of default with respect to our other indebtedness could lead to the acceleration of such indebtedness and the exercise of other remedies as provided in the documents governing such other indebtedness. This could have a material adverse effect on our business, financial condition, results of operations and cash flows and may result in our inability to make distributions sufficient to maintain our status as a RIC.
We may not receive cash distributions in respect of our indirect ownership interest in the 2022-1 Trust.
Apart from fees payable to us in connection with our role as servicer of the 2022 Trust Loans and the reimbursement of related amounts under the 2022-1 Securitization documents, we receive cash in connection with the 2022-1 Securitization only to the extent that the 2022 Trust Depositor receive payments in respect of its equity interest in the 2022-1 Trust. The holders of the equity interest in the 2022-1 Trust, respectively, are the residual claimant on distributions, if any, made by the 2022-1 Trust after the Noteholders and other claimants have been paid in full on each payment date or upon maturity of the 2022 Asset-Backed Notes, subject to the priority of payment provisions under the 2022-1 Securitization documents. To the extent that the value of the 2022-1 Trust's portfolio of 2022 Trust Loans is reduced as a result of conditions in the credit markets (relevant in the event of a liquidation event), other macroeconomic factors, distressed or defaulted 2022 Trust Loans or the failure of individual portfolio companies to otherwise meet their obligations in respect of the 2022 Trust Loans, or for any other reason, the ability of the 2022-1 Trust to make cash distributions in respect of the 2022 Trust Depositor's equity interest would be negatively affected and, consequently, the value of the equity interest in the 2022-1 Trust would also be reduced. In the event that we fail to receive cash indirectly from the 2022-1 Trust, we could be unable to make distributions in amounts sufficient to maintain our status as a RIC or at all.
The interests of the Noteholders may not be aligned with our interests.
The 2022 Asset-Backed Notes are debt obligations ranking senior in right of payment to the rights of the holder of the equity interest in the 2022-1 Trust (currently the 2022 Trust Depositor, our wholly owned subsidiary), as residual claimant in respect of distributions, if any, made by the 2022-1 Trust. As such, there are circumstances in which the interests of the Noteholders may not be aligned with the interests of the holder of the equity interests in the 2022-1 Trust. For example, under the terms of the documents governing the 2022-1 Securitization, the Noteholders have the right to receive payments of principal and interest prior to the holder of the equity interest in the 2022-1 Trust.
For as long as the 2022 Asset-Backed Notes remain outstanding, the Noteholders have the right to act in certain circumstances with respect to the 2022 Trust Loans in ways that may benefit their interests but not the interests of holder of the equity interest in the 2022-1 Trust, including by exercising remedies under the documents governing the 2022-1 Securitization.
If an event of default occurs, the Noteholders will be entitled to determine the remedies to be exercised, subject to the terms of the documents governing the 2022-1 Securitization. For example, upon the occurrence of an event of default with respect to the 2022 Asset-Backed Notes, the Trustee may, and will at the direction of the holders of a supermajority of the 2022 Asset-Backed Notes, declare the principal, together with any accrued interest, of the 2022 Asset-Backed Note to be immediately due and payable. This would have the effect of accelerating the principal on such 2022 Asset-Backed Notes, triggering a repayment obligation on the part of the 2022-1 Trust. The 2022 Asset-Backed Notes then outstanding will be paid in full before any further payment or distribution is made to the holder of the equity interest in the 2022-1 Trust. There can be no assurance that there will be sufficient funds through collections on the 2022 Trust Loans or through the proceeds of the sale of the 2022 Trust Loans in the event of a bankruptcy or insolvency to repay in full the obligations under the 2022 Asset-Backed Notes, or to make any distribution payment to holder of the equity interest in the 2022-1 Trust.
Remedies pursued by the Noteholders could be adverse to our interests as the indirect holder of the equity interest in the 2022-1 Trust. The Noteholders have no obligation to consider any possible adverse effect on such other interests. Thus, there can be no assurance that any remedies pursued by the Noteholders will be consistent with the best interests of the 2022 Trust Depositor or that we will receive, indirectly through the 2022 Trust Depositor, any payments or distributions upon an acceleration of the 2022 Asset-Backed Notes. Any failure of the 2022-1 Trust to make distributions in respect of the equity interest that we indirectly hold through the 2022 Trust Depositor, whether as a result of an event of default and the acceleration of payments on the 2022 Asset-Backed Notes or otherwise, could have a material adverse effect on our business, financial condition, results of operations and cash flows and may result in our inability to make distributions sufficient to maintain our status as a RIC.
Certain events related to the performance of 2022 Trust Loans could lead to the acceleration of principal payments on the 2022 Asset-Backed Notes.
The following constitute rapid amortization events, or Rapid Amortization Events, under the documents governing the 2022-1 Securitization: (i) the aggregate outstanding principal balance of all delinquent 2022 Trust Loans exceeds twenty percent (20%) of the aggregate outstanding principal balance of the 2022 Trust Loans; (ii) the aggregate outstanding principal balance of defaulted 2022 Trust Loans plus the aggregate outstanding principal balance of all liquidated 2022 Trust Loans exceeds fifteen percent (15%) of the aggregate outstanding principal balance of the 2022 Trust Loans; (iii) the aggregate outstanding principal balance of the 2022 Asset-Backed Notes exceeds the borrowing base (which is a percentage of the outstanding principal balance of the 2022 Trust Loans less delinquent 2022 Trust Loans and 2022 Trust Loans to issuers that exceed given thresholds) for a period of sixty consecutive days; (iv) the 2022‑1 Trust’s pool of 2022 Trust Loans contains 2022 Trust Loans to nine or fewer obligors during the amortization period; or (v) the occurrence of an event of default under the documents governing the 2022‑1 Securitization. After a Rapid Amortization Event has occurred, subject to the priority of payment provisions under the documents governing the 2022‑1 Securitization, principal collections on the 2022 Trust Loans will be used to make accelerated payments of principal on the 2022 Asset-Backed Notes until the payment of principal balance of the 2022 Asset-Backed Notes is reduced to zero. Such an event could delay, reduce or eliminate the ability of the 2022‑1 Trust to make payments or distributions in respect of the equity interest that we indirectly hold, which could have a material adverse effect on our business, financial condition, results of operations and cash flows and may result in our inability to make distributions sufficient to maintain our status as a RIC.
We have certain repurchase obligations with respect to the 2022 Trust Loans transferred in connection with the 2022-1 Securitization.
As part of the 2022‑1 Securitization, we entered into a sale and contribution agreement and a sale and servicing agreement under which we would be required to repurchase any 2022 Trust Loan (or participation interest therein) which was sold to the 2022‑1 Trust in breach of certain customary representations and warranties made by us or by the 2022 Trust Depositor with respect to such 2022 Trust Loan or the legal structure of the 2022‑1 Securitization. To the extent that there is such a breach of such representations and warranties and we fail to satisfy any such repurchase obligation, the Trustee may, on behalf of the 2022‑1 Trust, bring an action against us to enforce these repurchase obligations.
The 2031 Convertible Notes and the Debt Securities present other risks to holders of our common stock, including the possibility that such notes could discourage an acquisition of us by a third party and accounting uncertainty.
Certain provisions of the 2031 Convertible Notes and the Debt Securities could make it more difficult or more expensive for a third party to acquire us. Upon the occurrence of certain transactions constituting a fundamental change, holders of the 2031 Convertible Notes and the Debt Securities will have the right, at their option, to require us to repurchase all of their notes or any portion of the principal amount of such notes in integral multiples of $1,000. We may also be required to increase the conversion rate or provide for conversion into the acquirer’s capital stock in the event of certain fundamental changes with respect to the 2031 Convertible Notes. These provisions could discourage an acquisition of us by a third party.
Management's Discussion & Analysis (MD&A)
Removed heading “2019 Asset-Backed Notes”
Largest changes
“During the year ended December 31, 2025, we realized net losses on investments totaling $55.1 million primarily due to the settlement of four debt investments, three equity investments and two other investments partially offset by the realization of two warrant investments. Such net realized losses were primarily the result of portfolio companies ceasing operations due to their inability to raise additional capital and the sale of their assets for less than the cost of their debt investments. …”see in full comparison
As of December 31, 2025, there were four debt investments with an internal credit rating of 1, with an aggregate cost of $33.8 million and an aggregate fair value of $24.5 million and there were four debt investments with an internal credit rating of 2, with an aggregate cost of $56.8 million and an aggregate fair value of $53.5 million. As of December 31, 2024, there were four debt investments with an internal credit rating of 1, with an aggregate cost of $44.8 million and an aggregate fair value of $10.5 million and there were seven debt investments with an internal credit rating of 2, with an aggregate cost of $53.3 million and an aggregate fair value of $48.8 million.see in full comparisonAs of December 31, 2023, there were four debt investments with an internal credit rating of 1, with an aggregate cost of $72.5 million and an aggregate fair value of $27.6 million and there were two debt investments with an internal credit rating of 2, with an aggregate cost of $43.8 million and an aggregate fair value of $39.3 million.The increase inthe number ofinvestments with internal credit ratings of 1 or 2 was primarily a result of the increase in the risk of loss of principal caused by the portfolio companies low cash positions and the difficult equity fundraising market and/or the underperformance of such portfolio companies.
“On November 9, 2022, the 2022 Asset-Backed Notes were issued by the 2022‑1 Trust pursuant to a note purchase agreement, dated as of November 9, 2022, by and among us and Keybanc Capital Markets Inc. as Initial Purchaser, and are backed by a pool of loans made to certain portfolio companies of ours and secured by certain assets of those portfolio companies and are to be serviced by us. Interest on the 2022 Asset-Backed Notes will be paid, to the extent of funds available, at a fixed rate of 7.56% per annum. …”see in full comparison
“On May 23, 2025, we amended the Nuveen Facility to, among other things, extend the investment period to June 21, 2028 and the maturity date to June 10, 2034, and increase the commitment by $100.0 million which enables our wholly-owned subsidiary to issue up to $200.0 million of secured notes. In addition, the amendment amended the interest rate for advances made after May 23, 2025, fixing the interest rate at the greater of (i) 5.00% and (ii) the Pricing Benchmark plus 2.95%.”see in full comparison
As of December 31,see in full comparison20242025 and2023,2024, we had cash and investments in money market funds of$97.5$140.2 million and$73.1$97.5 million, respectively. Cash and investments in money market funds are available to fund new investments, reduce borrowings, pay expenses, repurchase common stock and pay distributions. In addition, as of December 31,20242025 and2023,2024, we had$3.3$2.5 million and$2.6$3.3 million, respectively, of restricted investments in money market funds. Restricted investments in money market funds may be used to make monthly interest and principal payments on our 2022 Asset-BackedNotes,Notes (as defined below), our NYL Facility or our Nuveen Facility. Our primary sources of capital have been from our public equity offerings, use of our Credit Facilities, and issuance of our public and private debt securities.
Full comparison: every changed paragraph (104)
You should understand that under Sections 27A(b)(2)(B) and (D) of the Securities Act and Sections 21E(b)(2)(B) and (D) of the Exchange Act, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in connection with any annual report on Form 10‑K or any quarterly reports we file under the Exchange Act.
On August 7, 2025, we entered into the Merger Agreement with MRCC, the Merger Sub, Monroe Capital BDC Advisors, LLC, and the Advisor. The Merger Agreement provides that, subject to the conditions set forth in the Merger Agreement, immediately following the Asset Sale and at the Effective Time, Merger Sub will merge with and into MRCC, with MRCC continuing as the surviving company and as a wholly owned subsidiary of us and, immediately thereafter, MRCC will merge with and into us, with us continuing as the surviving company. MRCC also entered into the Asset Purchase Agreement with MCIP, and MC Advisors, pursuant to which, subject to the satisfaction or waiver of the closing conditions set forth in the Asset Purchase Agreement, on the Closing Date, MCIP will acquire all of MRCC’s investment assets and liabilities at fair value, as determined shortly before the Closing Date, for cash. Under the Asset Purchase Agreement, the Asset Sale is contingent upon, and will become effective immediately prior to the effectiveness of, the Merger.
We use an internal credit rating system which rates each debt investment on a scale of 4 to 1, with 4 being the highest credit quality rating and 3 being the rating for a standard level of risk. A rating of 2 represents an increased level of risk and, while no loss is currently anticipated for a 2‑rated debt investment, there is potential for future loss of principal. A rating of 1 represents a deteriorating credit quality and a high degree of risk of loss of principal. Our internal credit rating system is not a national credit rating system. See “Item 1 – Business” for a more detailed description of the internal credit rating system. As of December 31, 20242025 and 2023,2024, our debt investments had a weighted average credit rating of 3.1.2.9 and 3.1, respectively. The following table shows the classification of our debt investment portfolio by credit rating as of December 31, 20242025 and 20232024:
As of December 31, 2025, there were four debt investments with an internal credit rating of 1, with an aggregate cost of $33.8 million and an aggregate fair value of $24.5 million and there were four debt investments with an internal credit rating of 2, with an aggregate cost of $56.8 million and an aggregate fair value of $53.5 million. As of December 31, 2024, there were four debt investments with an internal credit rating of 1, with an aggregate cost of $44.8 million and an aggregate fair value of $10.5 million and there were seven debt investments with an internal credit rating of 2, with an aggregate cost of $53.3 million and an aggregate fair value of $48.8 million. As of December 31, 2023, there were four debt investments with an internal credit rating of 1, with an aggregate cost of $72.5 million and an aggregate fair value of $27.6 million and there were two debt investments with an internal credit rating of 2, with an aggregate cost of $43.8 million and an aggregate fair value of $39.3 million. The increase in the number of investments with internal credit ratings of 1 or 2 was primarily a result of the increase in the risk of loss of principal caused by the portfolio companies low cash positions and the difficult equity fundraising market and/or the underperformance of such portfolio companies.
Net (decrease) increase in net assets resulting from operations can vary substantially from period to period for various reasons, including, without limitation, the recognition of realized gains and losses and unrealized appreciation and depreciation on investments. As a result, annual comparisons of net increase in net assets resulting from operations may not be meaningful.
Total investment income decreased by $3.9 million, or 3.9%, to $96.0 million for the year ended December 31, 2025 as compared to the year ended December 31, 2024. For the year ended December 31, 2025, total investment income consisted primarily of (1) $90.5 million in interest income from investments, which included $14.2 million in income from the accretion of origination fees and ETPs and $2.3 million in PIK interest income and (2) $5.6 million in fee income.
Interest income on debt investments decreased by $6.5 million, or 6.7%, to $90.5 million for the year ended December 31, 2025 as compared to the year ended December 31, 2024. Interest income on debt investments for the year ended December 31, 2025 as compared to the year ended December 31, 2024 decreased primarily due to a decrease of $21.8 million, or 3.5%, in our average earning debt investments and the decrease in the Prime Rate, which is the base rate for most of our variable rate debt investments. The proportion of total investment income that resulted from the portion of ETPs not received in cash for the years ended December 31, 2025 and 2024 was 3.9% and 5.6%, respectively. The decrease in the proportion of total investment income that resulted from the portion of ETPs not received in cash was a result of an increase in prepayments for the year ended December 31, 2025 as compared to the year ended December 31, 2024.
PIK interest income decreased by $0.9 million, or 28.0%, to $2.3 million for the year ended December 31, 2025 as compared to the year ended December 31, 2024. For the years ended December 31, 2025 and 2024, 2.4% and 3.3%, respectively, of total investment income was attributable to non-cash PIK interest income. The decrease in PIK interest income as a percentage of total investment income was primarily due to a decrease in the average outstanding balance of earning assets that contain a PIK feature for the year ended December 31, 2025 as compared to the year ended December 31, 2024.
Fee income, which includes success fee, other fee and prepayment fee income on debt investments, increased by $2.6 million, or 88.4%, to $5.6 million for the year ended December 31, 2025 compared to the year ended December 31, 2024, primarily due to the higher amount of prepayment fees received a higher aggregate amount of principal prepayments for the year ended December 31, 2025.
Interest income on debt investments decreased by $13.2 million, or 12.0%, to $97.0 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023. Interest income on debt investments for the year ended December 31, 2024 as compared to the year ended December 31, 2023 decreased primarily due to a decrease of $66.2 million, or 9.6%, in theour average earning debt investments. The proportion of total investment income that resulted from the portion of ETPs not received in cash for the years ended December 31, 2024 and 2023 was 5.6% and 4.2%, respectively. The increase in the proportion of total investment income that resulted from the portion of ETPs not received in cash was a result of a decrease in prepayments for the year ended December 31, 2024 as compared to the year ended December 31, 2023.
PIK interest income decreased by $5.2 million, or 61.3%, to $3.3 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023. For the years ended December 31, 2024 and 2023, 3.3% and 7.4%, respectively, of total investment income was attributable to non-cash PIK interest income.interest. The decrease in PIK interest income for the year ended December 31, 2024 as compareda topercentage theof yeartotal endedinvestment December 31, 2023income was primarily due to a decrease in earning assets that contain a PIK feature for the year ended December 31, 2024 as compared to the year ended December 31, 2023.
Total investment income increased by $34.3 million, or 43.3%, to $113.5 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. For the year ended December 31, 2023, total investment income consisted primarily of (1) $110.1 million in interest income from investments, which included $15.9 million in income from the accretion of origination fees and ETPs and $8.4 million in PIK interest income and (2) $3.3 million in fee income.
Interest income on debt investments increased by $32.8 million, or 42.3%, to $110.1 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. Interest income on investments for the year ended December 31, 2023 as compared to the year ended December 31, 2022 increased primarily due to an increase of $130.5 million, or 23.7%, in the average size of our debt investment portfolio and an increase in the Prime Rate which is the base rate for most of our variable rate debt investments. The proportion of total investment income that resulted from the portion of ETPs not received in cash for the years ended December 31, 2023 and 2022 was 4.2% and 7.4%, respectively. The decrease in the proportion of total investment income that resulted from the portion of ETPs not received in cash was a result of an increase in earning assets for the year ended December 31, 2023 as compared to the year ended December 31, 2022.
PIK interest income increased by $8.4 million to $8.4 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. For the year ended December 31, 2023, 7.4% of total investment income was attributable to non-cash PIK interest. There was no PIK interest income for the year ended December 31, 2022. The increase in PIK interest income for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was due to an increase in earning assets that contain a PIK feature for the year ended December 31, 2023 as compared to the year ended December 31, 2022.
Fee income, which includes success fee, other fee and prepayment fee income on debt investments, increased by $1.5 million, or 83.3%, to $3.3 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to higher fee income earned on prepayments for the year ended December 31, 2023.
Total expenses decreased by $0.1 million, or 0.2%, to $50.5 million for the year ended December 31, 2025 as compared to the year ended December 31, 2024. Total expenses increased by $0.1 million, or 0.2%, to $50.7 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023. Total expenses increased by $8.2 million, or 19.5%, to $50.5 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. Total expenses for each period consisted of interest expense, base management fee, incentive and administrative fees, professional fees and general and administrative expenses.
Interest expense increased by $0.5 million, or 1.7%, to $32.8 million for the year ended December 31, 2025 as compared to the year ended December 31, 2024. Interest expense, which includes the amortization of debt issuance costs, increased primarily due to an increase in our effective cost of debt for the year ended December 31, 2025 compared to the year ended December 31, 2024 partially offset by a decrease in average borrowings of $6.8 million, or 1.5%, for the year ended December 31, 2025 compared to the year ended December 31, 2024. Interest expense increased by $3.3 million, or 11.3%, to $32.3 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023. Interest expense, which includes the amortization of debt issuance costs, increased primarily due to an increase in average borrowings of $16.9 million, or 3.9%, for the year ended December 31, 2024 compared to the year ended December 31, 2023 and an increase in our effective cost of debt for the year ended December 31, 2024 compared to the year ended December 31, 2023.
Base management fee expense decreased by $0.5 million, or 4.2%, to $11.7 million for the year ended December 31, 2025 as compared to the year ended December 31, 2024. Base management fee expense decreased primarily due to a decrease of $32.5 million, or 4.6%, in average gross assets less cash for the year ended December 31, 2025 as compared to the year ended December 31, 2024. Base management fee expense decreased by $0.5 million, or 4.2%, to $12.3 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023. Base management fee expense decreased primarily due to a decrease of $33.7 million, or 4.6%, in average gross assets less cash for the year ended December 31, 2024 as compared to the year ended December 31, 2023 There was no performance based incentive fee expense for the year ended December 31, 2025. Performance based incentive fee expense decreased by $0.3 million, or 100.0% for the year ended December 31, 2025 as compared to the year ended December 31, 2024. This decrease was due to a decrease of $3.7 million, or 7.6%, in Pre-Incentive Fee Net Investment Income for the year ended December 31, 2025 as compared to the year ended December 31, 2024 and an Incentive Fee Cap calculated based on the Incentive Fee Cap and Deferral Mechanism in our Investment Management Agreement of $8.9 million for the year ended December 31, 2025 as compared to an Incentive Fee Cap of $9.3 million for the year ended December 31, 2024. The Incentive Fee Cap and Deferral Mechanism resulted in $8.9 million of reduced incentive fee expense and increased net investment income for the year ended December 31, 2025. The incentive fee on pre-incentive fee net investment income was subject to the Incentive Fee Cap for the year ended December 31, 2025 due to the cumulative incentive fees paid exceeding 20% of cumulative pre-incentive fee net return during the applicable quarter and the 11 preceding full calendar quarters. Performance based incentive fee expense decreased by $2.8 million, or 90.5%, to $0.3 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023. This decrease was due to a decrease of $16.5 million, or 25.5%, in Pre-Incentive Fee Net Investment Income for the year ended December 31, 2024 as compared to the year ended December 31, 2023 and an Incentive Fee Cap calculated based on the Incentive Fee Cap and Deferral Mechanism in our Investment Management Agreement of $9.3 million for the year ended December 31, 2024 as compared to an Incentive Fee Cap of $9.8 million for the year ended December 31, 2023. The Incentive Fee Cap and Deferral Mechanism resulted in $9.3 million of reduced incentive fee expense and increased net investment income for the year ended December 31, 2024. The incentive fee on pre-incentive fee net investment income was subject to the Incentive Fee Cap for the year ended December 31, 2024 due to the cumulative incentive fees paid exceeding 20% of cumulative pre-incentive fee net return during the applicable quarter and the 11 preceding full calendar quarters.
Interest expense increased by $3.3 million, or 11.3%, to $32.3 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023. Interest expense, which includes the amortization of debt issuance costs, increased primarily due to an increase in average borrowings of $16.9 million, or 3.9%, for the year ended December 31, 2024 compared to the year ended December 31, 2023 and an increase in our effective cost of debt for the year ended December 31, 2024 compared to the year ended December 31, 2023. Interest expense increased by $9.8 million, or 50.9%, to $29.0 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. Interest expense, which includes the amortization of debt issuance costs, increased primarily due to an increase in average borrowings of $92.7 million, or 27.4%, for the year ended December 31, 2023 compared to the year ended December 31, 2022 and an increase in our effective cost of debt for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Base management fee expense decreased by $0.5 million, or 4.2%, to $12.3 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023. Base management fee expense decreased primarily due to a decrease of $33.7 million, or 4.6%, in average gross assets less cash for the year ended December 31, 2024 as compared to the year ended December 31, 2023. Base management fee expense increased by $2.2 million, or 21.1%, to $12.8 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. Base management fee expense increased primarily due to an increase of $139.6 million, or 23.3%, in average gross assets less cash for the year ended December 31, 2023 as compared to the year ended December 31, 2022, partially offset by the lower management fee earned on gross assets less cash in excess of $250 million.
Performance based incentive fee expense decreased by $2.8 million, or 90.5%, to $0.3 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023. This decrease was due to a decrease of $16.5 million, or 25.5%, in Pre-Incentive Fee Net Investment Income for the year ended December 31, 2024 compared to the year ended December 31, 2023 and an Incentive Fee Cap calculated based on the Incentive Fee Cap and Deferral Mechanism in our Investment Management Agreement of $9.3 million for the year ended December 31, 2024 compared to an Incentive Fee Cap of $9.8 million for the year ended December 31, 2023. The Incentive Fee Cap and Deferral Mechanism resulted in $9.3 million of reduced incentive fee expense and increased net investment income for the year ended December 31, 2024. The incentive fee on pre-incentive fee net investment income was subject to the Incentive Fee Cap for the year ended December 31, 2024 due to the cumulative incentive fees paid exceeding 20% of cumulative pre-incentive fee net return during the applicable quarter and the 11 preceding full calendar quarters. Performance based incentive fee expense decreased by $4.7 million, or 60.1%, to $3.1 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. This decrease was due to an Incentive Fee Cap calculated based on the Incentive Fee Cap and Deferral Mechanism in our Investment Management Agreement of $9.8 million year ended December 31, 2023 compared to an Incentive Fee Cap of $1.0 million for the year ended December 31, 2022, offset by an increase of $20.6 million, or 46.9%, in Pre-Incentive Fee Net Investment Income for the year ended December 31, 2023 compared to the year ended December 31, 2022. The Incentive Fee Cap and Deferral Mechanism resulted in $9.8 million of reduced incentive fee expense and increased net investment income for the year ended December 31, 2023. The incentive fee on pre-incentive fee net investment income was subject to the Incentive Fee Cap for the year ended December 31, 2023 due to the cumulative incentive fees paid exceeding 20% of cumulative pre-incentive fee net return during the applicable quarter and the 11 preceding full calendar quarters.
In 20242025 and 2023,2024, we elected to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income. For the years ended December 31, 20242025 and 2023,2024, we elected to carry forward taxable income in excess of current year distributions of $38.4$27.6 million and $38.6$38.4 million, respectively. At December 31, 20242025 and 2023,2024, excise tax payable of $1.1 million and $1.5 millionmillion, respectively, was recorded.
Realized gains or losses on investments are measured by the difference between the net proceeds from the repayment or sale and the cost basis of our investments without regard to unrealized appreciation or depreciation previously recognized. Realized gains or losses on investments include investments charged off during the period, net of recoveries. The net change in unrealized appreciation or depreciation on investments primarily reflects the change in portfolio investment fair values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.
During the year ended December 31, 2025, we realized net losses on investments totaling $55.1 million primarily due to the settlement of four debt investments, three equity investments and two other investments partially offset by the realization of two warrant investments. Such net realized losses were primarily the result of portfolio companies ceasing operations due to their inability to raise additional capital and the sale of their assets for less than the cost of their debt investments. During the same period, we converted $25.8 million in outstanding principal of the Convertible Notes which resulted in a realized loss on extinguishment of debt of $1.9 million. During the same period, we elected to exercise our option to redeem the outstanding balance of our 2022 Asset-Backed Notes (as defined below) which resulted in a realized loss on debt extinguishment of $0.9 million. During the year ended December 31, 2024, we realized net losses on investments totaling $34.6 million primarily due to the settlement of two of our debt investments and the realization of one of our warrant investments. Such net realized losses were primarily the result of portfolio companies ceasing operations due to their inability to raise additional capital and the sale of their assets for less than the cost of their debt investments.
During the year ended December 31, 2025, net unrealized appreciation on investments totaled $10.9 million which was primarily due to (1) the reversal of previously recorded unrealized depreciation from the settlement of three debt investment, one other investment, one equity investment, (2) the unrealized appreciation on one equity investment, and (3) the unrealized appreciation on the acquisition of debt investments partially offset by (1) the unrealized depreciation of three debt investments, three other investments and two equity investments and (2) the reversal of previously recorded unrealized appreciation from the realization of two warrant investments. During the year ended December 31, 2024, net unrealized depreciation on investments totaled $18.8 million which was primarily due to (1) the unrealized depreciation on five of our debt investments, (2) the unrealized depreciation on one of our other investments and (3) the reversal of previously unrealized appreciation from the realization of one of our warrant investments offset by (1) the reversal of previously recorded unrealized depreciation from the settlement of one of our debt investments and (2) the unrealized appreciation on one of our other investments.
During the year ended December 31, 2024, we realized net losses on investments totaling $34.6 million primarily due to the settlement of two of our debt investments and the realization of one of our warrant investments. Such net realized losses were primarily the result of portfolio companies ceasing operations due to their inability to raise additional capital and the sale of their assets for less than the cost of their debt investments. During the year ended December 31, 2023, we realized net losses on investments totaling $29.7 million primarily due to the settlement of four of our debt investments. Such net realized losses were primarily the result of portfolio companies ceasing operations due to their inability to raise additional capital and the sale of their assets for less than the cost of their debt investments. During the same period, we repaid our 2019 Asset-Backed Notes in full which resulted in a realized loss on debt extinguishment of $0.2 million.
During the year ended December 31, 2024, we recorded net unrealized depreciation on investments totaling $18.8 million which was primarily due to (1) the unrealized depreciation on five of our debt investments, (2) the unrealized depreciation on one of our other investments and (3) the reversal of previously unrealized appreciation from the realization of one of our warrant investments offset by (1) the reversal of previously recorded unrealized depreciation from the settlement of one of our debt investments and (2) the unrealized appreciation on one of our other investments. During the year ended December 31, 2023, we recorded net unrealized depreciation on investments totaling $48.8 million which was primarily due to (1) the unrealized depreciation on three of our debt investments (2) the unrealized depreciation on two of our equity investments and (3) the unrealized depreciation on our warrant investments partially offset by the reversal of previously recorded unrealized depreciation from the settlement of three of our debt investments.
As of December 31, 20242025 and 2023,2024, we had cash and investments in money market funds of $97.5$140.2 million and $73.1$97.5 million, respectively. Cash and investments in money market funds are available to fund new investments, reduce borrowings, pay expenses, repurchase common stock and pay distributions. In addition, as of December 31, 20242025 and 2023,2024, we had $3.3$2.5 million and $2.6$3.3 million, respectively, of restricted investments in money market funds. Restricted investments in money market funds may be used to make monthly interest and principal payments on our 2022 Asset-Backed Notes,Notes (as defined below), our NYL Facility or our Nuveen Facility. Our primary sources of capital have been from our public equity offerings, use of our Credit Facilities, and issuance of our public and private debt securities.
On August 2, 2021, we entered into an At-The-Market, or ATM, sales agreement, or the 2021 Equity Distribution Agreement, with Goldman Sachs & Co. LLC and B. Riley FBR, Inc., each a “Sales Agent” and, collectively, the “Sales Agents”. The 2021 Equity Distribution Agreement provided that we may offer and sell shares of our common stock from time to time through the Sales Agents up to $100.0 million worth of our common stock, in amounts and at times to be determined by us.
On September 22, 2023, we terminated the 2021 Equity Distribution Agreement and entered into aan newAt-The-Market, ATMor ATM, sales agreement, or the 2023 Equity Distribution Agreement, with Goldman Sachs & Co. LLC and B. Riley FBR, Inc., each a Sales Agent and, collectively, the Sales Agents. The remaining shares available under the 2021 Equity Distribution Agreement are no longer available for issuance. The 2023 Equity Distribution Agreement provides that we may offer and sell shares of our common stock from time to time through the Sales Agents up to $150.0 million worth of our common stock, in amounts and at times to be determined by us. Sales of our common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “at-the-market,” as defined in Rule 415 under the Securities Act, including sales made directly on the NASDAQ or similar securities exchange or sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated prices.
During the year ended December 31, 2025, we sold 1,974,553 shares of common stock under the 2023 Equity Distribution Agreement. For the same period, we received total accumulated net proceeds of approximately $14.1 million, including $0.6 million of offering expenses, from these sales. During the year ended December 31, 2024, we sold 6,300,095 shares of common stock under the 2023 Equity Distribution Agreement. For the same period, we received total accumulated net proceeds of approximately $66.4 million, including $1.4 million of offering expenses, from these sales.
During the year ended December 31, 2024, we sold 6,300,095 shares of common stock under the 2023 Equity Distribution Agreement. For the same period, we received total accumulated net proceeds of approximately $66.4 million, including $1.4 million of offering expenses, from these sales. During the year ended December 31, 2023, we sold 2,248,830 shares of common stock under the 2023 Equity Distribution Agreement and the 2021 Equity Distribution Agreement. For the same period, we received total accumulated net proceeds of approximately $26.2 million, including $0.7 million of offering expenses, from these sales.
On March 14, 2022, we completed a follow-on public offering of 2,500,000 shares of our common stock at a public offering price of $14.35 per share, for total net proceeds to us of $34.3 million, after deducting underwriting commission and discounts and other offering expenses.
On June 2, 2023, we completed a follow-on public offering of 3,250,000 shares of our common stock at a public offering price of $12.50 per share, for total net proceeds to us of $38.9 million, after deducting underwriting commission and discounts and other offering expenses.
On April 26,25, 2024,2025, our Board extended a previously authorized stock repurchase program which allows us to repurchase up to $5.0 million of our common stock at prices below our NAV per share as reported in our most recent consolidated financial statements. Under the repurchase program, we may, but are not obligated to, repurchase shares of our outstanding common stock in the open market or in privately negotiated transactions from time to time. Any repurchases by us will comply with the requirements of Rule 10b‑18 under the Exchange Act and any applicable requirements of the 1940 Act. Unless extended by our Board, the repurchase program will terminate on the earlier of June 30, 20252026 or the repurchase of $5.0 million of our common stock. On August 5, 2025, our Board authorized an increase in the maximum amount of shares that can be repurchased on the open market or in privately negotiated purchases pursuant to Rule 10b-18 and other applicable provisions of the Securities Exchange Act of 1934, as amended from up to $5,000,000 of shares to up to $10,000,000 of shares, provided such purchases, in the aggregate, do not exceed two percent (2%) of the shares outstanding at the time of purchase and such shares are purchased only when the such shares are trading below 90% of our most recently disclosed NAV per share. During the years ended December 31, 2024,2025, 20232024 and 2022,2023, we did not make any repurchases of our common stock. From the inception of the stock repurchase program through December 31, 2024,2025, we repurchased 167,465 shares of our common stock at an average price of $11.22 on the open market at a total cost of $1.9 million. From time to time, our Board assesses the size and effectiveness of the stock repurchase program and could elect to increase or decrease the size of the program in the future.
At December 31, 2024, there was no outstanding principal balance under the Key Facility. At December 31, 2023, the outstanding principal balance under the Key Facility was $70.0 million. As of December 31, 2024 and 2023, we had borrowing capacity under the Key Facility of $150.0 million and $80.0 million, respectively. At December 31, 2024 and 2023, $24.8 million and $25.0 million, respectively, was available for borrowing under the Key Facility, subject to existing terms and advance rates.
At December 31, 20242025 and 2023,2024, thethere was no outstanding principal balance under the NYLKey Facility was $181.0 million.Facility. As of December 31, 20242025 and 2023,2024, we had borrowing capacity under the NYLKey Facility of $69.0$150.0 million. At December 31, 20242025 and 2023,2024, $8.4$49.6 million and $17.4$24.8 million, respectively, was available for borrowing under the NYLKey Facility, subject to existing terms and advance rates.
At December 31, 2025 and 2024, the outstanding principal balance under the NuveenNYL Facility was $75.0$181.0 million. As of December 31, 2025 and 2024, we had borrowing capacity under the NuveenNYL Facility of $25.0$69.0 million. At December 31, 2025 and 2024, $9.9$1.9 million and $8.4 million, respectively, was available for borrowing under the NuveenNYL Facility, subject to existing terms and advance rates. The Nuveen Facility was not outstanding at December 31, 2023.
At December 31, 2025 and 2024, the outstanding principal balance under the Nuveen Facility was $90.0 million and $75.0 million, respectively. As of December 31, 2025 and 2024, we had borrowing capacity under the Nuveen Facility of $110.0 million and $25.0 million, respectively. At December 31, 2025 and 2024, $12.1 million and $9.9 million, respectively, was available for borrowing under the Nuveen Facility, subject to existing terms and advance rates.
Our operating activities provided cash of $3.9$56.6 million for the year ended December 31, 2024,2025, and our financing activities providedused cash of $21.2$14.8 million for the same period. Our operating activities provided cash primarily from principal payments received on our debt investments partially offset by purchases of investments in portfolio companies. Our financing activities provided cash primarily from the completion of our 2028 Notes, the completion of our 2030 Convertible Notes, advances on our Credit Facilities,Facilities and the sale of shares through our ATM for net proceeds of $66.4$14.1 million, after deducting underwriting commission and discounts and other offering expenses and the completion of our 2031 Convertible Notes,expenses, partially offset by the use of cash to repay a portion the outstanding principal under our Key Facility, to repay our 20192022 Asset-Backed Notes,Notes and to pay distributions to our stockholders.
Our operating activities provided cash of $3.9 million for the year ended December 31, 2024, and our financing activities provided cash of $21.1 million for the same period. Our operating activities provided cash primarily from principal payments received on our debt investments partially offset by purchases of investments in portfolio companies. Our financing activities provided cash primarily from advances on our Credit Facilities, the sale of shares through our ATM for net proceeds of $66.4 million, after deducting underwriting commission and discounts and other offering expenses and the completion of our 2031 Convertible Notes, partially offset by the use of cash to repay a portion the outstanding principal under our Key Facility, to repay our 2019 Asset-Backed Notes, and to pay distributions to our stockholders.
Our operating activities used cash of $246.3 million for the year ended December 31, 2022, and our financing activities provided cash of $229.5 million for the same period. Our operating activities used cash primarily to purchase investments in portfolio companies partially offset by principal payments received on our debt investments. Our financing activities provided cash primarily from the completion of the 2027 Notes, the completion of our 2022 Asset-Backed Notes, advances on our Credit Facilities, the sale of shares through our ATM for net proceeds of $50.3 million, after deducting underwriting commission and discounts and other offering expenses and the completion of a follow-on public offering of 2.5 million shares of common stock for net proceeds of $34.3 million, after deducting underwriting commission and discounts and other offering expenses, partially offset by the use of cash to repay a portion of the outstanding principal under our Key Facility, to repay our 2019 Asset-Backed Notes, and to pay distributions to our stockholders.
We entered into the Key Facility effective November 4, 2013. On June 20, 2024, we amended the Key Facility, among other things, (i) to extend the date on which we may request advances under the Key Facility to June 20, 2027 and to extend the maturity date to June 20, 2029 and (ii) to amend the interest rate to be based on the rate of interest published in The Wall Street Journal as the prime rate in the United States plus 0.10%, with a prime rate floor of 4.10%. Prior to June 20, 2024, the interest rate on the Key Facility was based on Prime plus 0.25%, with a prime rate floor of 4.25%. The prime rate was 7.50%6.75% and 8.50%7.50% as of December 31, 20242025 and 2023,2024, respectively. The interest rate in effect was 7.60%6.85% and 8.75%7.60% as of December 31, 20242025 and 2023.2024, respectively. The Key Facility requires the payment of an unused line fee in an amount up to 0.75% of any unborrowed amount available under the facility annually.
HFI is a wholly-owned subsidiary of HSLFI. HFI entered into the NYL Facility with the NYL Noteholders for an aggregate purchase price of up to $100.0 million, with an accordion feature of up to $200.0 million at the mutual discretion and agreement of HSLFI and the NYL Noteholders. On June 1, 2018, HSLFI sold or contributed to HFI certain secured loans made to certain portfolio companies pursuant to the Sale and Servicing Agreement. Any notes issued by HFI are collateralized by all investments held by HFI and permit an advance rate of up to 67% of the aggregate principal amount of eligible debt investments. All advances under the NYL Facility are scheduled to mature in June 2030.
On May 24, 2023, we amended the NYL Facility to, among other things, increase the commitment by $50.0 million to enable our wholly-owned subsidiary to issue up to $250.0 million of secured notes. On April 25, 2025, we amended the NYL Facility to, among other things, extend the investment period to June 5, 2027. In addition, the amendment amended the interest rate for advances made after MayApril 24,25, 2023,2025, fixing the interest rate at the greater of (i) 4.60% and (ii) the Three Year I-Curve plus 3.50%2.95% with the interest rate to be reset on any advance date.
On May 6, 2024, we amended the NYL Facility to, among other things, extend the investment period to June 2025 and the maturity date of all advances to June 2030. In addition, the amendment amended the interest rate for advances made after May 6, 2024, fixing the interest rate at the greater of (i) 4.60% and (ii) the Three Year I Curve plus 3.20%, with the interest rate to be reset on any advance date.
HFII entered into the Nuveen Facility with the Nuveen Noteholders for an aggregate purchase price of up to $100.0 million, with an accordion feature of up to $200.0 million at the mutual discretion and agreement of us and the Nuveen Noteholders. On June 21, 2024, we sold or contributed to HFII certain secured loans made to certain portfolio companies pursuant to the Sale and Servicing Agreement. Any notes issued by HFII are collateralized by all investments held by HFII and permit an advance rate of up to 67.5% of the aggregate principal amount of eligible debt investments. The Nuveen Facility bearsbore interest, payable monthly, determined at a rate per annum equal to the greater of (i) the yield for the United States Treasury constant maturity 3-year and 5-year in the most recent statistical release published by the Board of Governors of the Federal Reserve System designated as “Selected Interest Rates (Daily) – H.15” interpolated to a 4.88-year weighted average lifelife, or the Pricing Benchmark, plus 3.15% and (ii) 5.00%. We may request advances under the Nuveen Facility through June 21, 2027 and the Nuveen Facility is scheduled to mature on June 10, 2033.
On May 23, 2025, we amended the Nuveen Facility to, among other things, extend the investment period to June 21, 2028 and the maturity date to June 10, 2034, and increase the commitment by $100.0 million which enables our wholly-owned subsidiary to issue up to $200.0 million of secured notes. In addition, the amendment amended the interest rate for advances made after May 23, 2025, fixing the interest rate at the greater of (i) 5.00% and (ii) the Pricing Benchmark plus 2.95%.
Under the terms of the Nuveen Facility, we are required to maintain a reserve cash balance, which may be used to pay monthly interest and principal payments on the Nuveen Facility. We have segregated these funds and classified them as restricted investments in money market funds. At December 31, 2025 and 2024, there were approximately $1.1 million and $1.0 millionmillion, respectively, of such restricted investments.
There were $90.0 million and $75.0 million in notes issued to the Nuveen Noteholders as of December 31, 20242025 and 2024, at an interest rate of 7.14%.7.21% and 7.14%, respectively. As of December 31, 2025 and 2024, we had borrowing capacity under the Nuveen Facility of $110.0 million and $25.0 million.million, respectively. At December 31, 2025 and 2024, $12.1 million and $9.9 million,million was available for borrowing, subject to existing terms and advance rates.rates, The Nuveen Facility was not outstanding at December 31, 2023.respectively.
SecuritizationsSecuritization
2019 Asset-Backed Notes
On AugustNovember 13,9, 2019,2022, $100.00 million in aggregate principal amount of fixed rate asset-backed notes, or the 20192022 Asset-Backed NotesNotes, were issued in conjunction with the $157.8 million securitization of secured loans were issued by theHorizon 2019‑1Funding Trust 2022‑1, a Delaware Trust, pursuant to a note purchase agreement, dated as of August 13, 2019,agreement by and among us and Keybanc Capital Markets Inc. as Initial Purchaser,Purchaser and were backed by a pool of loans made to certain portfolio companies of ours and secured by certain assets of those portfolio companies. The 20192022 Asset-Backed Notes were rated A+(sf) by Morningstar Credit Ratings, LLC on AugustNovember 13,9, 2019.2022. The 20192022 Asset-Backed Notes bore interest at a fixed rate of 4.21%7.56% per annum and had a stated maturity of SeptemberNovember 15, 2027.2030. As of December 31, 2023,2025, the 20192022 Asset-Backed Notes were repaid in full. As of December 31, 2024, the 2022-1 Asset-Backed Notes had an outstanding principal balance of $81.1 million.
On November 9, 2022, the 2022 Asset-Backed Notes were issued by the 2022‑1 Trust pursuant to a note purchase agreement, dated as of November 9, 2022, by and among us and Keybanc Capital Markets Inc. as Initial Purchaser, and are backed by a pool of loans made to certain portfolio companies of ours and secured by certain assets of those portfolio companies and are to be serviced by us. Interest on the 2022 Asset-Backed Notes will be paid, to the extent of funds available, at a fixed rate of 7.56% per annum. The 2022 Asset-Backed Notes have a two-year reinvestment period and a stated maturity of November 15, 2030. The 2022 Asset-Backed Notes were rated A by Morningstar Credit Ratings, LLC on November 9, 2022. There has been no change in the rating since November 9, 2022.
As of December 31, 2024 and 2023, the 2022 Asset-Backed Notes had an outstanding principal balance of $81.1 million and $100.0 million, respectively.
Under the terms of the 2022 Asset-Backed Notes, we are required to maintain a reserve cash balance, funded through proceeds from the sale of the 2022 Asset-Backed Notes, which may be used to pay monthly interest and principal payments on the 2022 Asset-Backed Notes. We have segregated these funds and classified them as restricted investments in money market funds. At December 31, 2024 and 2023, there were approximately $1.0 million and $1.3 million, respectively, of such restricted investments.
On March 30, 2021, we issued and sold an aggregate principal amount of $57.5 million of 4.875% notes due in 2026. The amount of 2026 Notes issued and sold included the full exercise by the underwriters of their option to purchase $7.5 million in aggregate principal of additional notes. The 2026 Notes havehad a stated maturity of March 30, 2026 and maycould behave been redeemed in whole or in part at our option at any time or from time to time on or after March 30, 2023 at a redemption price of $25 per security plus accrued and unpaid interest. The 2026 Notes bearbore interest at a rate of 4.875% per year, payable quarterly on March 30, June 30, September 30 and December 30 of each year. The 2026 Notes arewere our direct unsecured obligations and (i) rankranked equally in right of payment with our current and future unsecured indebtedness; (ii) arewere senior in right of payment to any of our future indebtedness that expressly provides it is subordinated to the 2026 Notes; (iii) arewere effectively subordinated to all of our existing and future secured indebtedness (including indebtedness that is initially unsecured to which we subsequently grant security), to the extent of the value of the assets securing such indebtedness, and (iv) arewere structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries. As of December 31, 2024,2025, we were in material compliance with the terms of the 2026 Notes. The 2026 Notes arewere listed on the New York Stock Exchange under the symbol “HTFB”. On January 28, 2026, we redeemed all of the outstanding principal balance of the 2026 Notes plus accrued interest.
On June 15, 2022, we issued and sold an aggregate principal amount of $50.0 million of 6.25% notes due in 2027 and on July 11, 2022, pursuant to the underwriters’ 30-day option to purchase additional notes, we sold an additional $7.5 million of such notes, or collectively, the 2027 Notes.notes. The 2027 Notes have a stated maturity of June 15, 2027 and may be redeemed in whole or in part at our option at any time or from time to time on or after June 15, 2024 at a redemption price of $25 per security plus accrued and unpaid interest. The 2027 Notes bear interest at a rate of 6.25% per year, payable quarterly on March 30, June 30, September 30 and December 30 of each year, commencing on September 30, 2022. The 2027 Notes are our direct unsecured obligations and (i) rank equally in right of payment with our current and future unsecured indebtedness; (ii) are senior in right of payment to any of our future indebtedness that expressly provides it is subordinated to the 2027 Notes; (iii) are effectively subordinated to all of our existing and future secured indebtedness (including indebtedness that is initially unsecured to which we subsequently grant security), to the extent of the value of the assets securing such indebtedness, and (iv) are structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries. As of December 31, 2024,2025, we were in material compliance with the terms of the 2027 Notes. The 2027 Notes are listed on the New York Stock Exchange under the symbol “HTFC”.
On December 15, 2025, we issued and sold an aggregate principal amount of $57.5 million of 7.00% notes due in 2028. The 2028 Notes have a stated maturity of December 15, 2028 and may be redeemed in whole or in part at any time at our option through June 15, 2028, at a redemption price equal to the greater of: (1)(a) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semi-annual basis at the Treasury Rate plus 50 basis points less (b) interest accrued to the date of redemption, and (2) 100% of the principal amount of the 2028 Notes to be redeemed, plus, in either case, accrued and unpaid interest thereon to, but not including, the redemption date. On or after June 15, 2028, we may redeem the 2028 Notes, in whole or in part, at any time and from time to time, at a redemption price equal to 100% of the principal amount of the 2028 Notes being redeemed plus accrued and unpaid interest there onto the date of redemption. The 2028 Notes bear interest at a rate of 7.00% per year, payable semi-annually on June 15 and December 15 of each year, commencing on June 15, 2026. The 2028 Notes are our direct unsecured obligations and (i) rank equally in right of payment with our current and future unsecured indebtedness; (ii) are senior in right of payment to any of our future indebtedness that expressly provides it is subordinated to the 2028 Notes; (iii) are effectively subordinated to all of our existing and future secured indebtedness (including indebtedness that is initially unsecured to which we subsequently grant security), to the extent of the value of the assets securing such indebtedness, and (iv) are structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries. As of December 31, 2025, we were in material compliance with the terms of the 2028 Notes.
On OctoberSeptember 17,4, 2024,2025, we entered into a note purchase agreement, or the 20312030 Note Purchase Agreement, by and among us,us and each purchaser named therein, in connection with the issuance and sale of $20.0$40.0 million aggregate principal of our 7.125%5.50% convertible2030 notesConvertible due 2031Notes in a transaction exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933.1933, as amended. We received net proceeds (before expenses) from the sale of the 20312030 Convertible Notes of approximately $18.6$36.6 million.
What changed in the latest 10-Q
Risk Factors
In addition to other information set forth in this quarterly report on Form 10-Q, you should carefully consider the factors set forth in “Item 1A Risk Factors” in our annual report on Form 10‑K for the year ended December 31, 2025, which could materially affect our business, financial condition and/or operating results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results. Except as set forth below, there have been no material changes during the six months ended June 30, 2026 to the risk factors set forth in “Item 1A. Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2025.
The conflicts in the Middle East may impact regional and global economic markets.
The ongoing conflicts in the Middle East, including the involvement of the United States and other countries, including Israel and Iran, as well as political and civil unrest related to the foregoing, could have severe adverse effects on regional and global economic markets. It is difficult to predict the conflicts’ impact on global and market conditions and, as a result, there is material uncertainty and risk with respect to us and our portfolio companies, and our ability and the ability of the portfolio companies to achieve their investment objectives.
Full comparison: every changed paragraph (1)
In addition to other information set forth in this quarterly report on Form 10-Q, you should carefully consider the factors set forth in “Item 1A Risk Factors” in our annual report on Form 10‑K for the year ended December 31, 2025, which could materially affect our business, financial condition and/or operating results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results. Except as set forth below, there have been no material changes during the threesix months ended MarchJune 31,30, 2026 to the risk factors set forth in “Item 1A. Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2025.
Management's Discussion & Analysis (MD&A)
New heading “Update to internal credit rating methodology”
New heading “Rating upon adoption”
New heading “RoHo Capital Opportunity LLC”
New heading “Comparison of the six months ended June 30, 2026 and 2025”
New heading “Investment income”
New heading “Net realized gains and losses and net unrealized appreciation and depreciation”
Largest changes
“The ratings under our updated internal credit rating system are defined as follows:”see in full comparison
“Net realized gains and losses and net unrealized appreciation and depreciation”see in full comparison
“Effective June 30, 2026, we changed our internal credit rating scale to adopt the scale used by our affiliate Monroe Capital LLC, and its affiliates. We made this change in order to improve consistency and efficiency in portfolio risk assessment by the affiliated entities, with whom we have made, and we anticipate we will continue to make, co-investments. Accordingly, our internal credit rating methodology was changed from a 4-to-1 scale (on which a 4 represented the highest credit quality) to a 1-to-5 scale (on which a 1 represents the highest credit quality). …”see in full comparison
“On April 14, 2026, the Company completed its previously announced merger with Monroe Capital Corporation (“MRCC”), HMMS, Inc. (“Merger Sub”), Monroe Capital BDC Advisors, LLC, and the Advisor, pursuant to the Agreement and Plan of Merger, dated as of August 7, 2025 (the “Merger Agreement”). …”see in full comparison
Full comparison: every changed paragraph (121)
We are a specialty finance company that lends to and invests in development-stage companies in the technology, life science, healthcare information and services and sustainability industries, which we refer to as our “Target Industries.” Our investment objective is to maximize our investment portfolio’s total return by generating current income from the debt investments we make and capital appreciation from the warrants we receive when making such debt investments. We are focused on making secured debt investments, which we refer to collectively as “Venture Loans,” to venture capital and private equity backed companies and publicly traded companies in our Target Industries, which we refer to as “Venture Lending.” Our debt investments are typically secured by first liens or first liens behind a secured revolving line of credit, or collectively “Senior Term Loans.” Some of our debt investments may also be subordinated to term debt provided by third parties. As of MarchJune 31,30, 2026, 97.5%,97.7%, or $629.3$633.3 million, of our debt investment portfolio at fair value consisted of Senior Term Loans. Venture Lending is typically characterized by (1) the making of a secured debt investment after a venture capital or equity investment in the portfolio company has been made, which investment provides a source of cash to fund the portfolio company’s debt service obligations under the Venture Loan, (2) the senior priority of the Venture Loan which requires repayment of the Venture Loan prior to the equity investors realizing a return on their capital, (3) the amortization of the Venture Loan and (4) the lender’s receipt of warrants or other success fees with the making of the Venture Loan.
We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the Investment Company Act of 1940, as amended, or the 1940 Act. In addition, for U.S. federal income tax purposes, we have elected to be treated as a RIC under Subchapter M of the Code. As a BDC, we are required to comply with regulatory requirements, including limitations on our use of debt. We are permitted to, and expect to, finance our investments through borrowings subject to a 150% asset coverage test. In accordance with GAAP, any borrowings of the RoHo Joint Venture are not included in the asset coverage test. As defined in the 1940 Act, asset coverage of 150% means that for every $100 of net assets a BDC holds, it may raise up to $200 from borrowing and issuing senior securities. The amount of leverage that we may employ will depend on our assessment of market conditions and other factors at the time of any proposed borrowing. As a RIC, we generally are not subject to corporate-level income taxes on our investment company taxable income, determined without regard to any deductions for dividends paid, and our net capital gain that we distribute as dividends for U.S. federal income tax purposes to our stockholders as long as we meet certain source-of-income, distribution, asset diversification and other requirements.
On April 14, 2026, the Company completed its previously announced merger with Monroe Capital Corporation (“MRCC”), HMMS, Inc. (“Merger Sub”), Monroe Capital BDC Advisors, LLC, and the Advisor, pursuant to the Agreement and Plan of Merger, dated as of August 7, 2025 (the “Merger Agreement”) (the “Merger”). Former MRCC stockholders and legacy stockholders own 29.86% and 70.14% of the combined company, respectively, immediately following the closing of the Merger.
On April 14, 2026, the Company completed its previously announced merger with Monroe Capital Corporation (“MRCC”), HMMS, Inc. (“Merger Sub”), Monroe Capital BDC Advisors, LLC, and the Advisor, pursuant to the Agreement and Plan of Merger, dated as of August 7, 2025 (the “Merger Agreement”). Pursuant to the Merger Agreement, immediately following the Asset Sale (as defined below) and at the effective time of the Merger (the “Effective Time”), Merger Sub merged with and into MRCC, with MRCC continuing as the surviving company and as a wholly owned subsidiary of the Company, and, immediately thereafter, MRCC merged into the Company, with the Company continuing as the surviving company (collectively, the “Mergers”). MRCC also entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Monroe Capital Income Plus Corporation (“MCIP”), and MC Advisors, pursuant to which, MCIP acquired all of MRCC’s investment assets and liabilities at fair value, for cash (the “Asset Sale” and together with the Merger, the “Transactions”).
The following table shows our portfolio by type of investment as of MarchJune 31,30, 2026 and December 31, 2025:
The following table shows total portfolio investment activity as of and for the three and six months ended MarchJune 31,30, 2026 and 2025:
The following table shows our debt investments by industry sector as of MarchJune 31,30, 2026 and December 31, 2025:
The largest debt investments in our portfolio may vary from period to period as new debt investments are originated and existing debt investments are repaid. Our five largest debt investments at cost represented 24% and 26% of total debt investments outstanding as of MarchJune 31,30, 2026 and December 31, 2025, respectively. Our five largest debt investments at fair value represented 24%25% and 26% of total debt investments outstanding as of MarchJune 31,30, 2026 and December 31, 2025, respectively. No single debt investment at cost or fair value represented more than 10% of our total debt investments as of MarchJune 31,30, 2026 and December 31, 2025.
We use an internal credit rating system to assess the credit risk of each debt investment in our portfolio. Our internal credit rating system is not a national credit rating system and is not intended to be comparable to ratings issued by any nationally recognized statistical rating organization. See “Item 1 — Business” in our Annual Report on Form 10-K for the year ended December 31, 2025, as updated below under “Update to Internal Credit Rating Methodology,” for a more detailed description of the internal credit rating system.
Effective June 30, 2026, we changed our internal credit rating scale to adopt the scale used by our affiliate Monroe Capital LLC, and its affiliates. We made this change in order to improve consistency and efficiency in portfolio risk assessment by the affiliated entities, with whom we have made, and we anticipate we will continue to make, co-investments. Accordingly, our internal credit rating methodology was changed from a 4-to-1 scale (on which a 4 represented the highest credit quality) to a 1-to-5 scale (on which a 1 represents the highest credit quality). For comparability, credit rating disclosures for prior periods presented herein have been recast to conform to the updated 1-to-5 scale. The recast was performed by our investment adviser by applying the revised rating definitions and criteria to the facts and circumstances of each portfolio company as they existed at each prior reporting date, using information available to the adviser at that time. The recast is a reclassification for presentation and comparability purposes only. It does not reflect any change in the underlying credit quality, fair value, cost basis, non-accrual status, income recognition, or financial condition of any portfolio company as of any prior reporting date, and it did not affect our previously reported net assets, net increase (decrease) in net assets resulting from operations, or fair value measurements.
Credit rating information for periods prior to June 30, 2026, as originally reported on the prior 4-to-1 scale can be found in our Annual Report on Form 10-K for the year ended December 31, 2025 and in our Quarterly Reports on Form 10-Q for periods ending prior to June 30, 2026.
Update to internal credit rating methodology
The updated methodology is administered by our investment adviser using the same portfolio management and reporting process described in "Item 1 — Business — Portfolio Management and Reporting" of our Annual Report on Form 10-K for the year ended December 31, 2025. That process is substantively unchanged, including without limitation; (i) at least quarterly, our Advisor contacts each portfolio company, no less than once a quarter, for operational and financial updates and performs reviews with portfolio companies that we deem to have greater credit risk on a monthly or more frequent basis; and (ii) our Advisor requires all private portfolio companies to provide financial statements, typically monthly, and relies on publicly reported quarterly financials for public portfolio companies.
Under the updated credit scale system, each debt investment is rated on a 1 through 5 scale, with 2 representing the rating for an acceptable level of risk. A rating of 1 represents a portfolio company that is exhibiting the lowest level of risk and is exceeding expectations. Newly funded investments are typically assigned a rating of 2. A rating of 3 represents investments performing below expectations and indicates that the risk has increased somewhat since origination. A rating of 4 or 5 represents a deteriorating credit quality and an increased risk of loss of principal. Investment ratings are generated internally by our Advisor, and we cannot guarantee that others would assign the same ratings to our portfolio investments or similar portfolio investments. Our Advisor closely monitors portfolio companies rated a 4 or 5 for adverse developments. In addition, our Advisor maintains regular contact with the management, board of directors and major equity holders of these portfolio companies in order to discuss strategic initiatives to correct the deterioration of the portfolio company.
The ratings under our updated internal credit rating system are defined as follows:
Rating upon adoption
In the second quarter of 2026, in connection with the adoption of the new 1-5 credit rating scale, our Advisor (i) rated all debt investments as of June 30, 2026 under the new 1-to-5 scale and (ii) recast the credit ratings of the debt investments for all of the prior periods presented in this Quarterly Report to the new 1-to-5 scale. The ratings and recast ratings in this Quarterly Report are made based on the same proprietary credit assessment process our Advisor regularly utilizes on a quarterly basis, as applied to the facts and circumstances existing at the applicable reporting date.
Under the updated 1-to-5 scale, our debt investments had a weighted average credit rating of 2.3 as of June 30, 2026. On a recast basis, our debt investments had a weighted average credit rating of 2.4 as of December 31, 2025. Weighted average credit ratings previously reported on the 4-to-1 scale (2.9 as of December 31, 2025) are not directly comparable to ratings under the updated scale due to the change in credit rating methodology.
The following table shows the classification of our debt investment portfolio by internal credit rating, in each case presented under the updated 1-to-5 scale, as of June 30, 2026 and December 31, 2025 (recast):
We use an internal credit rating system which rates each debt investment on a scale of 4 to 1, with 4 being the highest credit quality rating and 3 being the rating for a standard level of risk. A rating of 2 represents an increased level of risk and, while no loss is currently anticipated for a 2‑rated debt investment, there is potential for future loss of principal. A rating of 1 represents a deteriorating credit quality and a high degree of risk of loss of principal. Our internal credit rating system is not a national credit rating system. As of March 31, 2026 and December 31, 2025, our debt investments had a weighted average credit rating of 3.0 and 2.9, respectively. The following table shows the classification of our debt investment portfolio by credit rating as of March 31, 2026 and December 31, 2025:
As of MarchJune 31,30, 2026, there were fourfive debt investments with an internal credit rating of 1,5, with an aggregate cost of $33.1$58.0 million and an aggregate fair value of $24.3$31.3 million and there were four debt investments with an internal credit rating of 2,4, with an aggregate cost of $56.9$57.1 million and an aggregate fair value of $50.2$48.0 million. AsOn a recast basis as of December 31, 2025, there were four debt investments with an internal credit rating of 1,5 (previously reported as rating 1 on the prior 4-to-1 scale), with an aggregate cost of $33.8 million and an aggregate fair value of $24.5 million and there were four debt investments with an internal credit rating of 2,4 (previously reported as rating 2 on the prior 4-to-1 scale), with an aggregate cost of $56.8 million and an aggregate fair value of $53.5 million. The period-over-period change in investments with internal credit ratings of 4 or 5 was primarily a result of the increase in the risk of loss of principal caused by certain portfolio companies' low cash positions, the difficult equity fundraising market, and/or the underperformance of such portfolio companies. This period-over-period change reflects underlying credit developments and is not attributable to the methodology change described above.
RoHo Capital Opportunity LLC
On March 18, 2026, we and CRFH entered into an LLC Agreement to form the RoHo Joint Venture. The RoHo Joint Venture is intended to enhance our investment strategy by providing growth capital financing solutions to small and micro-cap public companies.
We have committed to invest up to $87.5 million in the RoHo Joint Venture and CRFH has committed to invest up to $12.5 million in the RoHo Joint Venture. Investments by each of us and CRFH in the RoHo Joint Venture will be made in the form of membership interests. All investments by the RoHo Joint Venture must be approved by the unanimous vote of the RoHo Joint Venture’s investment committee, which is comprised of an equal number of representatives designated by each of us and CRFH. Further, all other decisions regarding the management of the RoHo Joint Venture require the approval of the majority of the RoHo Joint Venture’s board of directors, which is comprised of an equal number of representatives from each us and CRFH.
As of June 30, 2026, no investments were made by the RoHo Joint Venture. The following tables show certain summarized financial information for the RoHo Joint Venture as of June 30, 2026 and for the three months ended June 30, 2026 and for the period March 18, 2026 through June 30, 2026:
Comparison of the three months ended MarchJune 31,30, 2026 and 2025
The following table shows consolidated results of operations for the three months ended MarchJune 31,30, 2026 and 2025:
Net increase (decrease) in net assets resulting from operations can vary substantially from period to period for various reasons, including, without limitation, the recognition of realized gains and losses and unrealized appreciation and depreciation on investments. As a result, quarterly comparisons of net increasedecrease in net assets resulting from operations may not be meaningful.
Total investment income decreasedincreased by $0.4$0.5 million, or 1.8%,2.1%, to $24.1$25.0 million for the three months ended MarchJune 31,30, 2026 as compared to the three months ended MarchJune 31,30, 2025. For the three months ended MarchJune 31,30, 2026, total investment income consisted primarily of (1) $23.1$23.9 million in interest income from investments, which included $5.0$5.5 million in income from the accretion of origination fees and end of term payments and $1.3$1.6 million in PIK interest income and (2) $1.0$1.1 million in fee income.
Interest income on debt investments decreasedincreased by $0.4$1.3 million, or 1.6%,5.7%, to $23.1$23.9 million, for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. Interest income on debt investments for the three months ended MarchJune 31,30, 2026 as compared to the three months ended MarchJune 31,30, 2025 decreasedincreased primarily due to aan decrease in the Prime Rate which is the base rate for mostincrease of our variable rate debt investments and a decrease of $19.5$41.2 million, or 3.0%,6.7%, in our average earning debt investments partially offset by an increase in accelerated income from prepayments.investments. The proportion of total investment income that resulted from the portion of ETPs not received in cash for the three months ended MarchJune 31,30, 2026 and 2025 was 6.0%4.4% and 4.6%,2.8%, respectively. The increase in the proportion of total investment income that resulted from the portion of ETPs not received in cash was a result of an increase in accretion of final payments for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025.
PIK interest income increased by $1.0$1.3 million, or 348.4%,544.4%, to $1.3$1.6 million for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025. For the three months ended MarchJune 31,30, 2026 and 2025, 5.3%6.3% and 1.2%,1.0%, respectively, of total investment income was attributable to non-cash PIK interest income. The increase in PIK interest income as a percentage of total investment income was primarily due to an increase in earning assets that contain a PIK feature for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025.
Fee income, which includes success fee, other fee and prepayment fee income on debt investments, decreased by $0.1$0.8 million, or 6.1%,40.3%, to $1.0$1.1 million for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025 primarily due to a lower successaggregate feeamount andof otherprincipal fee incomeprepayments for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025.
The following table shows our dollar-weighted annualized yield for the three months ended MarchJune 31,30, 2026 and 2025:
Investment income, consisting of interest income and fees on debt investments, can fluctuate significantly upon repayment of large debt investments. Interest income from the five largest debt investments at cost in the aggregate accounted for 23% and 24%18% of investment income for the three months ended MarchJune 31,30, 2026 and 2025, respectively. Interest income from the five largest debt investments at fair value in the aggregate accounted for 23% and 24%22% of investment income for the three months ended MarchJune 31,30, 2026 and 2025, respectively.
Total expenses increased by $1.4$4.7 million, or 10.6%,36.9%, to $14.8$17.4 million for the three months ended MarchJune 31,30, 2026 as compared to the three months ended MarchJune 31,30, 2025. Total expenses for each period consisted of interest expense, base management fee, incentive and administrative fees, professional fees and general and administrative expenses. For the three months ended June 30, 2026, transaction costs directly attributable to the Merger were included in total expenses.
Interest expense decreased by $0.5$0.4 million, or 5.8%,4.9%, to $8.2$7.8 million for the three months ended MarchJune 31,30, 2026 as compared to the three months ended MarchJune 31,30, 2025. Interest expense, which includes the amortization of debt issuance costs, decreased primarily due to a decrease in average borrowings for the three months ended MarchJune 31,30, 2026 of $25.3$26.5 million, or 5.4%,6.0%, as compared to the three months ended MarchJune 31, 2025 and a decrease in our effective cost of debt for the three months ended March 31, 2026 as compared to the three months ended March 31,30, 2025.
Base management fee expense decreasedincreased by $0.1$0.2 million, or 1.9%,6.4%, to $3.1 million for the three months ended MarchJune 31,30, 2026 as compared to the three months ended MarchJune 31,30, 2025. Base management fee decreasedincreased primarily due to aan decreaseincrease of $15.0$47.0 million, or 2.1%,6.9%, in average gross assets less cash for the three months ended MarchJune 31,30, 2026 as compared to the three months ended MarchJune 31,30, 2025.
Performance based incentive fee expense increased by $1.8 million to $1.8 million for the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. There was no performance based incentive fee expense for three months ended MarchJune 31,30, 2026 and 2025. ThisThe increaseincentive fee on pre-incentive fee net investment income was duesubject to an Incentive Fee Cap calculated based on the Incentive Fee Cap and Deferral Mechanism in our Investment Management Agreement of $0.4 million for the three months ended MarchJune 31,30, 2026 compared to an Incentive Fee Cap of $2.1$2.3 million for the three months ended MarchJune 31,30, 2025. The Incentive Fee Cap and Deferral Mechanism resulted in $0.4 million and $2.1$2.3 million of reduced incentive fee expense and increased net investment income for the three months ended MarchJune 31,30, 2026 and 2025, respectively. The incentive fee on pre-incentive fee net investment income was subject to the Incentive Fee Cap for the three months ended MarchJune 31,30, 2026 due to the cumulative incentive fees paid exceeding 20% of cumulative pre-incentive fee net return during the applicable quarter and the 11 preceding full calendar quarters.
Expenses related to the Merger were $4.4 million for the three months ended June 30, 2026.
Administrative fee expense, professional fees and general and administrative expenses were $1.8$2.0 million and $1.6$1.5 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively.
During the three months ended March 31, 2026 and March 31, 2025, we realized net losses on investments totaling $0.2 million and $0.001 million, respectively. During the three months ended March 31, 2026, we converted $15.1 million in outstanding principal of the 2030 Convertible Notes (as defined below) which resulted in a realized loss on extinguishment of debt of $1.3 million. During the same period, we redeemed all of the outstanding principal balance of the 2026 Notes (as defined below) which resulted in a realized loss on extinguishment of debt of $0.1 million.
During the three months ended MarchJune 31,30, 2026, we realized net unrealized depreciationlosses on investments totaledtotaling $4.6$6.1 million which was primarily due to the unrealized depreciation on twosettlement of our debt investments and one of our equity investments and the unrealized depreciation on our warrantother investments. During the three months ended MarchJune 31,30, 2025, we realized net unrealized depreciationlosses on investments totaledtotaling $32.2$9.3 million which was primarily due to the unrealizedsettlement depreciationof on threetwo of our debt investmentsinvestments. andDuring twothe same period, we converted $12.5 million in outstanding principal of ourthe equity2031 investments.Convertible TheNotes difficult equity fundraising market and under performance of certain portfolio companies, among other factors,which resulted in oura reductionrealized loss on extinguishment of the fair market valuedebt of the$0.8 debt investments in such portfolio companies, thus increasing the unrealized depreciation on such debt investments.million.
During the three months ended June 30, 2026, net unrealized depreciation on investments totaled $38.5 million which was primarily due to the unrealized depreciation on one of our equity investments and two of our debt investments partially offset by the reversal of previously recorded unrealized depreciation from the settlement of one of our other investments. During the three months ended June 30, 2025, net unrealized depreciation on investments totaled $22.2 million which was primarily due to (1) the unrealized depreciation on seven of our debt investments and (2) the unrealized depreciation on two of our other investments partially offset by (1) the reversal of previously recorded unrealized depreciation from the settlement of two of our debt investments and (2) the unrealized appreciation of two of our warrant investments.
Comparison of the six months ended June 30, 2026 and 2025
The following table shows consolidated results of operations for the six months ended June 30, 2026 and 2025:
Net decrease in net assets resulting from operations can vary substantially from period to period for various reasons, including, without limitation, the recognition of realized gains and losses and unrealized appreciation and depreciation on investments. As a result, quarterly comparisons of net decrease in net assets resulting from operations may not be meaningful.
Investment income
Total investment income increased by $0.1 million, or 0.2%, to $49.1 million for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025. For the six months ended June 30, 2026, total investment income consisted primarily of (1) $47.0 million in interest income from investments, which included $10.5 million in income from the accretion of origination fees and end of term payments and $2.8 million in PIK interest income and (2) $2.1 million in fee income.
Interest income on debt investments increased by $0.9 million, or 2.0%, to $47.0 million, for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. Interest income on debt investments for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025 increased primarily due to an increase of $11.8 million, or 1.9%, in our average earning debt investments. The proportion of total investment income that resulted from the portion of ETPs not received in cash for the six months ended June 30, 2026 and 2025 was 5.2% and 3.7%, respectively. The increase in the proportion of total investment income that resulted from the portion of ETPs not received in cash was a result of an increase in accretion of final payments for the six months ended June 30, 2026 compared to the six months ended June 30, 2025.
PIK interest income increased by $2.3 million, or 439.7%, to $2.8 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. For the six months ended June 30, 2026 and 2025, 5.8% and 1.1%, respectively, of total investment income was attributable to non-cash PIK interest income. The increase in PIK interest income as a percentage of total investment income was primarily due to an increase in earning assets that contain a PIK feature for the six months ended June 30, 2026 compared to the six months ended June 30, 2025.
Fee income, which includes success fee, other fee and prepayment fee income on debt investments, decreased by $0.8 million, or 28.1%, to $2.1 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 primarily due to a lower aggregate amount of principal prepayments for the six months ended June 30, 2026 compared to the six months ended June 30, 2025.
The following table shows our dollar-weighted annualized yield for the six months ended June 30, 2026 and 2025:
Investment income, consisting of interest income and fees on debt investments, can fluctuate significantly upon repayment of large debt investments. Interest income from the five largest debt investments at cost in the aggregate accounted for 22% and 17% of investment income for the six months ended June 30, 2026 and 2025, respectively. Interest income from the five largest debt investments at fair value in the aggregate accounted for 22% and 20% of investment income for the six months ended June 30, 2026 and 2025, respectively.
Expenses
Total expenses increased by $6.1 million, or 23.4%, to $32.2 million for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025. Total expenses for each period consisted of interest expense, base management fee, incentive and administrative fees, professional fees and general and administrative expenses. For the six months ended June 30, 2026, transaction costs directly attributable to the Merger were included in total expenses.
Interest expense decreased by $0.9 million, or 5.4%, to $16.0 million for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025. Interest expense, which includes the amortization of debt issuance costs, decreased primarily due to a decrease in average borrowings for the six months ended June 30, 2026 of $25.9 million, or 5.7%, as compared to the six months ended June 30, 2025.
Base management fee expense increased by $0.1 million, or 2.1%, to $6.3 million for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025. Base management fee increased primarily due to an increase of $16.0 million, or 2.3%, in average gross assets less cash for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025.
Performance based incentive fee expense increased by $1.8 million to $1.8 million for the six months ended June 30, 2026 as compared to the six months ended June 30, 2025. There was no performance based incentive fee expense for six months ended June 30, 2025. This increase was due to an Incentive Fee Cap calculated based on the Incentive Fee Cap and Deferral Mechanism in our Investment Management Agreement of $0.8 million for the six months ended June 30, 2026 compared to an Incentive Fee Cap of $4.4 million for the six months ended June 30, 2025. The Incentive Fee Cap and Deferral Mechanism resulted in $0.8 million and $4.4 million of reduced incentive fee expense and increased net investment income for the six months ended June 30, 2026 and 2025, respectively. The incentive fee on pre-incentive fee net investment income was subject to the Incentive Fee Cap for the six months ended June 30, 2026 due to the cumulative incentive fees paid exceeding 20% of cumulative pre-incentive fee net return during the applicable quarter and the 11 preceding full calendar quarters.
Expenses related to the Merger were $4.4 million for the six months ended June 30, 2026.
Administrative fee expense, professional fees and general and administrative expenses were $3.8 million and $3.1 million for the six months ended June 30, 2026 and 2025, respectively.
HRZN insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 7 Form 4 filings (6 insiders, 2 trade dates, 150,977 shares, about $655.8K) and open-market sales in 0 filings. Net open-market shares: 150,977 (purchases minus sales); net value about $655.8K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-06-10 | Trolio Daniel R. |
Open-market purchase | 11,500 | $4.34 | $49.9K |
| 2026-06-09 | Allison Thomas J. |
Open-market purchase | 6,000 | $4.36 | $26.2K |
| 2026-06-09 | O'connor Kimberley Ann |
Open-market purchase | 10,000 | $4.37 | $43.7K |
| 2026-06-09 | Goodman Jonathan Joseph |
Open-market purchase | 6,000 | $4.33 | $26.0K |
| 2026-06-09 | Seitz Paul G |
Open-market purchase | 11,477 | $4.35 | $49.9K |
| 2026-06-09 | Allison Thomas J. |
Open-market purchase | 6,000 | $4.36 | $26.2K |
| 2026-06-09 | Balkin Michael |
Open-market purchase | 100,000 | $4.34 | $434.0K |
| 2026-04-14 | Balkin Michael |
Grant/award | 93,527 | — | — |
| 2026-04-14 | Allison Thomas J. |
Grant/award | 49,926 | — | — |
| 2026-04-14 | Seitz Paul G |
Grant/award | 142 | — | — |
| 2026-04-14 | Balkin Michael |
Grant/award | 93,527 | — | — |
Well-known investors holding HRZN (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| AQR Capital Management (Cliff Asness) | 2026-06-30 | 91,368 | $432.2K | 0.0% | Added 177% |
| Two Sigma Investments | 2026-06-30 | 67,489 | $319.2K | 0.0% | Reduced 55% |
| Millennium Management (Israel Englander) | 2026-06-30 | 60,674 | $287.0K | 0.0% | Reduced 20% |