Core Viewpoint - Horizon Technology Finance (NASDAQ:HRZN) has underperformed the BDC market by approximately 15% since December last year, primarily due to deteriorating fundamentals and risk exposures [1][2] Financial Performance - In Q1 2024, HRZN generated investment income of 28 million in the prior period, driven by spread compression [3] - Interest expenses increased to 7.1 million in Q1 2023, attributed to higher financing costs rather than increased debt volumes [3] - Net investment income for Q1 2024 was 0.45 per share in Q4 2023 and 9.71 per share in the prior quarter to 37 million in new loan commitments and approvals in Q1 2024, funding 20 million in total prepaid principal from existing loans [3] - The onboarding yield for Q1 investments was 13.4%, significantly lower than the total portfolio debt yield of 15.6% [3] Market Conditions - The current venture capital (VC) transaction environment is challenging, with new loan origination expected to progress slowly [3] - Despite some improvement in M&A and IPO markets, VC deal volumes remain low, potentially leading to negative net investment volumes in upcoming quarters [3] Portfolio Quality - The proportion of "category 1" investments, indicating deteriorating credit quality, increased from 4.1% to 7.6% of total portfolio value [3] - The likelihood of writing off these investments poses a significant risk to HRZN's net investment income generation [3] Investment Outlook - HRZN's current yield of 11.7% is considered insufficient given the associated risks, especially when compared to the sector average BDC yield of 11.6% [4] - The overall assessment indicates that there are better risk-reward opportunities in the BDC sector than investing in Horizon Technology Finance [4]
Horizon Technology: The Risks Have Increased, While Yield Has Remained Unattractive