Horizon Technology Finance(US:HRZN)2020-07-28 20:36Debt Investment Portfolio - As of June 30, 2020, the total fair value of the debt investment portfolio was $342.7 million, representing 96.3% of the total portfolio[189] - New debt investments for the three months ended June 30, 2020, amounted to $54.9 million, compared to $55.1 million in the same period of 2019[190] - The ending portfolio value as of June 30, 2020, was $355.9 million, an increase from $274.8 million as of June 30, 2019[190] - The largest sector in the debt investment portfolio as of June 30, 2020, was Medical Device, valued at $91.7 million, accounting for 26.8% of the total portfolio[191] - The company received principal payments of $4.9 million on investments during the three months ended June 30, 2020[190] - The net unrealized depreciation on investments for the six months ended June 30, 2020, was $6.5 million[190] - The company’s five largest debt investments represented 25% of total debt investments outstanding as of June 30, 2020[192] - The company has a total of 35 debt investments, unchanged from December 31, 2019[189] - As of June 30, 2020, the weighted average credit rating of the company's debt investments was 2.9, down from 3.1 as of December 31, 2019[194] - The debt investment portfolio as of June 30, 2020, included 35 investments with a fair value of $342.7 million, compared to 35 investments with a fair value of $288.4 million as of December 31, 2019[194] - The percentage of debt investments rated 4 decreased from 15.7% in December 2019 to 6.9% in June 2020, while those rated 3 increased from 75.0% to 77.4%[194] Financial Performance - Total investment income for the three months ended June 30, 2020, was $13,524,000, an increase from $10,470,000 in the same period of 2019, representing a growth of approximately 29.5%[209] - Net investment income for the three months ended June 30, 2020, was $6,706,000, compared to $5,012,000 for the same period in 2019, reflecting an increase of about 33.8%[209] - Average debt investments at fair value increased to $328,036,000 for the three months ended June 30, 2020, up from $239,284,000 in 2019, indicating a growth of approximately 37.2%[209] - Total expenses for the three months ended June 30, 2020, were $6,818,000, compared to $6,166,000 in 2019, which is an increase of about 10.6%[209] - Net unrealized appreciation on investments for the three months ended June 30, 2020, was $1,944,000, compared to $4,124,000 in 2019, showing a decrease of approximately 52.8%[209] - Net increase in net assets resulting from operations for the three months ended June 30, 2020, was $7,925,000, compared to $4,538,000 in 2019, indicating an increase of approximately 74.5%[209] - Total investment income increased by $3.1 million, or 29.2%, to $13.5 million for the three months ended June 30, 2020 compared to the same period in 2019[210] - Interest income on debt investments rose by $2.9 million, or 31.0%, to $12.1 million for the three months ended June 30, 2020, driven by a 37.1% increase in the average size of the debt investment portfolio[210] - Fee income increased by $0.9 million, or 116.4%, to $1.7 million for the three months ended June 30, 2020, primarily due to higher prepayment fee rates and increased amendment fee income[212] - Net expenses increased by $1.4 million, or 24.9%, to $6.8 million for the three months ended June 30, 2020 compared to the same period in 2019[214] - Interest expense increased by $0.4 million, or 21.1%, to $2.6 million for the three months ended June 30, 2020, due to a 41.5% increase in average borrowings[215] - Total investment income for the six months ended June 30, 2020 increased by $4.9 million, or 25.9%, to $23.6 million compared to the same period in 2019[227] - Interest income on debt investments for the six months ended June 30, 2020 increased by $4.8 million, or 28.3%, to $21.7 million, attributed to a 35.2% increase in the average size of the debt investment portfolio[227] - Net expenses for the six months ended June 30, 2020 increased by $2.1 million, or 20.1%, to $12.6 million compared to the same period in 2019[232] - Performance-based incentive fee expense increased by $0.7 million, or 33.3%, to $2.7 million for the six months ended June 30, 2020, due to a 33.3% increase in Pre-Incentive Fee Net Investment Income[236] Borrowings and Capital Structure - The outstanding principal balance under the Key Facility was $45.0 million as of June 30, 2020, compared to $17.0 million as of December 31, 2019[252] - As of June 30, 2020, the company had a borrowing capacity of $86.8 million under the NYL Facility[253] - The Asset-Backed Notes had an outstanding principal balance of $100.0 million as of June 30, 2020[265] - The company has segregated approximately $1.2 million as restricted investments in money market funds to pay monthly interest and principal payments on the Asset-Backed Notes[266] - As of June 30, 2020, the company had $195.6 million in total borrowings, with $14.9 million due within one year and $159.3 million due in 1-3 years[270] - The company had unfunded commitments of $75.9 million as of June 30, 2020, which are not reflected on the balance sheet[270] Management and Operations - The company’s investment objective is to maximize total return through current income and capital appreciation from debt investments and warrants[183] - The company is externally managed and operates as a Business Development Company (BDC) under the Investment Company Act of 1940[184] - The Advisor earned $3.3 million and $6.0 million in management fees during the three and six months ended June 30, 2020, respectively[279] - The company expects to raise additional equity and debt capital opportunistically to support future growth, subject to market conditions[256] - The company intends to distribute all or substantially all of its investment company taxable income to remain subject to taxation as a RIC[257] - The company has adopted an "opt out" dividend reinvestment plan (DRIP) for common stockholders[277] - The company must distribute at least 90% of its net ordinary income and net short-term capital gains to qualify as a RIC[275] - The company has made and intends to continue making requisite distributions to stockholders to qualify for tax treatment applicable to RICs, generally at least 90% of investment company taxable income[297] Tax and Regulatory Considerations - The company may incur a 4% excise tax on taxable income in excess of current year distributions, if applicable[298] - The company evaluates tax positions to determine if they are "more-likely-than-not" to be sustained by tax authorities, with no material uncertain tax positions reported as of June 30, 2020[301] Investment Strategy and Risk Management - The company has used hedging instruments in the past to protect against interest rate fluctuations and may continue to do so in the future[305] - The company expects that a 300 basis point increase in interest rates would result in an increase of $2.948 million in net assets from operations[304] - The company recorded warrants as assets at estimated fair value on the grant date, which are recognized as interest income over the contractual life of the related debt investment[294] - Realized gains or losses on investments are calculated using the specific identification method, reflecting the difference between net proceeds and amortized cost basis[296] - The company expects to continue funding investments with borrowings, making net income dependent on the difference between borrowing rates and investment rates[308]