Horizon Technology Finance(US:HRZN)2023-05-02 20:32Debt Investment Portfolio - As of March 31, 2023, 86.7% ($593.6 million) of the debt investment portfolio at fair value consisted of Senior Term Loans[208] - The total portfolio value decreased from $720.0 million on December 31, 2022, to $715.3 million on March 31, 2023[213] - New debt investments for the three months ended March 31, 2023, were $47.0 million, compared to $94.5 million for the same period in 2022[213] - The weighted average credit rating of debt investments was 3.0 as of March 31, 2023, down from 3.1 as of December 31, 2022[216] - The largest debt investments represented 23% of total debt investments outstanding as of March 31, 2023[215] - The portfolio included 57 debt investments valued at $684.6 million, with 70.6% rated 3 and 12.7% rated 2[216] - The debt investment in Biotechnology was valued at $183.6 million, representing 26.8% of the total portfolio[215] - As of March 31, 2023, total borrowings outstanding were $577.8 million, a decrease from $582.6 million as of December 31, 2022[244] - The Key Facility has a total commitment of $125 million, with an outstanding balance of $15 million as of March 31, 2023, and an unused commitment of $110 million[244] - The NYL Facility has an outstanding balance of $176.8 million as of March 31, 2023, with a borrowing capacity of $23.2 million remaining[250] - The 2019 Asset-Backed Notes had an outstanding principal balance of $37.8 million as of March 31, 2023, down from $42.6 million as of December 31, 2022[252] - The 2022 Asset-Backed Notes had an outstanding principal balance of $100 million as of both March 31, 2023, and December 31, 2022[255] - The 2026 Notes have a principal amount of $57.5 million and a fixed interest rate of 4.875%[257] - The 2027 Notes have a principal amount of $57.5 million and a fixed interest rate of 6.25%[258] - As of March 31, 2023, 96% of the outstanding principal amount of the company's debt investments bore interest at floating rates, compared to 100% as of December 31, 2022[291] Financial Performance - Total investment income increased by $13.8 million, or 97.4%, to $28.0 million for the three months ended March 31, 2023, compared to the same period in 2022[220] - Net investment income before excise tax rose to $13.2 million, up from $5.8 million, reflecting a significant increase of 126.5%[219] - Average debt investments at fair value increased by $228.2 million, or 49.7%, to $687.6 million for the three months ended March 31, 2023[220] - Total expenses increased by $6.5 million, or 77.2%, to $14.8 million for the three months ended March 31, 2023, compared to the same period in 2022[223] - Interest expense surged by $3.7 million, or 107.9%, to $7.1 million due to a 64.8% increase in average borrowings[224] - The dollar-weighted annualized yield on debt investments increased to 16.3% for the three months ended March 31, 2023, compared to 12.4% in 2022[221] - The company reported a net unrealized depreciation on investments of $7.5 million for the three months ended March 31, 2023[213] - Net unrealized depreciation on investments totaled $7.5 million for the three months ended March 31, 2023, compared to $2.2 million in 2022[230] Cash Flow and Shareholder Activities - Cash and investments in money market funds increased to $43.5 million as of March 31, 2023, up from $27.7 million at the end of 2022[231] - Operating activities provided cash of $12.7 million for the three months ended March 31, 2023, compared to a cash usage of $55.4 million in the same period of 2022[239] - The company sold 605,848 shares of common stock under the 2021 Equity Distribution Agreement, generating net proceeds of approximately $7.2 million[233] - The company sold 272,303 shares of common stock in April 2023, generating approximately $3.1 million in net proceeds, including $0.1 million in offering expenses[287] Economic and Market Conditions - The company anticipates potential impacts from economic factors such as inflation and supply chain disruptions on future performance[204] - Economic activity is accelerating, but inflation is showing signs of acceleration due to global supply chain issues and rising energy prices, which could affect profit margins of portfolio companies[296] - The company expects that a 300 basis point increase in interest rates could result in an increase in income by $19.44 million, while a decrease of 300 basis points could lead to a decrease in income by $18.33 million[292] - The company is currently assessing the impact of the FASB's Accounting Standards Update No. 2022-03 on its consolidated financial statements, effective for fiscal years beginning after December 15, 2023[290] Tax and Regulatory Compliance - To maintain RIC status, the company must distribute at least 90% of its net ordinary income and net short-term capital gains, which could impact the amount available for distribution if not met[265] - The company is required to distribute dividends to avoid corporate-level tax, including 98% of net ordinary income and 98.2% of capital gain net income for the calendar year[265] - The company is subject to a 4% excise tax on taxable income carried forward in excess of current year distributions[285] - The company had no material uncertain tax positions as of March 31, 2023, and December 31, 2022[286] Advisor and Management Fees - The Advisor earned $6.2 million in management fees during Q1 2023, compared to $3.7 million in Q1 2022, reflecting a significant increase of approximately 67.57% year-over-year[268] - The Advisor provides administrative services and office facilities, earning $0.4 million under the Administration Agreement during Q1 2023[271] - The Incentive Fee Cap for the three months ended March 31, 2023, resulted in a deferral of $0.2 million, with a total amount subject to recoupment of $1.3 million as of the same date[263] Valuation and Investment Strategy - The fair value of investments is determined by a Valuation Committee, with at least 25% of valuations subject to review by an independent valuation firm each fiscal quarter[275] - The company’s investments are categorized into a three-level fair value hierarchy, with Level 3 assets requiring significant management judgment for valuation[282] - The company did not recognize any interest income from debt investments on non-accrual status for the three months ended March 31, 2023, and 2022[278] - The company has utilized hedging instruments in the past to protect against interest rate fluctuations and may continue to do so in the future[293] - The company's net income is dependent on the difference between borrowing rates and investment rates, with rising interest rates potentially reducing net investment income[295] - The company intends to continue making requisite distributions to stockholders to qualify for tax treatment as a RIC, generally distributing at least 90% of its investment company taxable income[284] - The company has unfunded commitments of $166.2 million as of March 31, 2023, with no undrawn revolver commitments[261] - The company has restricted investments of approximately $1.3 million and $1.0 million as of March 31, 2023, and December 31, 2022, respectively[249] - The company has entered into a Membership Interest Purchase Agreement to sell its Advisor, with a significant portion of the consideration being earnout payments contingent on performance in 2023, 2024, and 2025[270]