Horizon Technology Finance Corp

Previous wording

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 March 31, 2024, 87.0%, or $583.4 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.

Current wording

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 June 30, 2024, 85.0%, or $517.9 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.

Previous wording

The following table shows total portfolio investment activity as of and for the three months ended March 31, 2024 and 2023:

Current wording

The following table shows total portfolio investment activity as of and for the three and six months ended June 30, 2024 and 2023:

Previous wording

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 23% of total debt investments outstanding as of March 31, 2024 and December 31, 2023. Our five largest debt investments at fair value represented 23% and 22% of total debt investments outstanding as of March 31, 2024 and December 31, 2023, respectively. No single debt investment at cost or fair value represented more than 10% of our total debt investments as of March 31, 2024 and December 31, 2023.

Current wording

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 23% of total debt investments outstanding as of June 30, 2024 and December 31, 2023, respectively. Our five largest debt investments at fair value represented 24% and 22% of total debt investments outstanding as of June 30, 2024 and December 31, 2023, respectively. No single debt investment at cost or fair value represented more than 10% of our total debt investments as of June 30, 2024 and December 31, 2023.

Previous wording

As of March 31, 2024, there were four debt investments with an internal credit rating of 1, with an aggregate cost of $96.0 million and an aggregate fair value of $51.0 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.

Current wording

As of June 30, 2024, there were five debt investments with an internal credit rating of 1, with an aggregate cost of $108.4 million and an aggregate fair value of $48.0 million and there were four debt investments with an internal credit rating of 2, with an aggregate cost of $31.1 million and an aggregate fair value of $26.3 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 principally 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 certain portfolio companies.

Previous wording

Net 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, quarterly comparisons of net increase in net assets resulting from operations may not be meaningful.

Current wording

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, quarterly comparisons of net increase in net assets resulting from operations may not be meaningful.

Previous wording

Total investment income decreased by $1.9 million, or 6.8%, to $26.1 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. For the three months ended March 31, 2024, total investment income consisted primarily of $25.9 million in interest income from investments, which included $3.4 million in income from the accretion of origination fees and end of term payments, or ETPs, $1.4 million in PIK interest, and $0.3 million in fee income. Interest income on debt investments decreased by $1.5 million, or 5.6%, to $25.9 million, for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. Interest income on debt investments for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 decreased primarily due to a decrease of $50.6 million, or 7.2%, in the average earning debt investments, offset by an increase in the Prime Rate which is the base rate for most of our variable rate debt investments. Fee income, which includes success fee, other fee and prepayment fee income on debt investments, decreased by $0.4 million, or 58.0%, to $0.3 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to a lower aggregate amount of principal prepayments for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Current wording

Total investment income decreased by $2.4 million, or 8.7%, to $25.7 million for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. For the three months ended June 30, 2024, total investment income consisted primarily of $24.7 million in interest income from investments, which included $4.1 million in income from the accretion of origination fees and end of term payments (“ETPs”) and $1.0 million in fee income. Interest income on debt investments decreased by $2.0 million, or 7.3%, to $24.7 million, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. Interest income on debt investments for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 decreased primarily due to a decrease of $81.6 million, or 11.8%, in the average earning debt investments, offset by an increase in the Prime Rate which is the base rate for most of our variable rate debt investments. Fee income, which includes success fee, other fee and prepayment fee income on debt investments, decreased by $0.5 million, or 32.4%, to $1.0 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 primarily due to lower fee income earned on prepayments for the three months ended June 30, 2024 compared to the three months ended June 30, 2023.

Previous wording

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 16% and 22% of investment income for the three months ended March 31, 2024 and 2023, respectively. Interest income from the five largest debt investments at fair value in the aggregate accounted for 21% and 22% of investment income for the three months ended March 31, 2024 and 2023, respectively.

Current wording

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 20% and 23% of investment income for the three months ended June 30, 2024 and 2023, respectively. Interest income from the five largest debt investments at fair value in the aggregate accounted for 24% and 23% of investment income for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

Total expenses decreased by $1.7 million, or 11.4%, to $13.1 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. Total expenses for each period consisted of interest expense, base management fee, incentive and administrative fees, professional fees and general and administrative expenses.

Current wording

Total expenses increased by $0.5 million, or 4.6%, to $12.4 million for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. Total expenses for each period consisted of interest expense, base management fee, incentive and administrative fees, professional fees and general and administrative expenses.

Previous wording

Interest expense increased by $1.0 million, or 14.6%, to $8.2 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. Interest expense, which includes the amortization of debt issuance costs, increased primarily due to an increase in average borrowings of $16.3 million, or 3.7%, for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 and an increase in our effective cost of debt for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

Current wording

Interest expense increased by $0.8 million, or 10.6%, to $7.9 million for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. Interest expense, which includes the amortization of debt issuance costs, increased primarily due to an increase in average borrowings of $7.0 million, or 1.6%, for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 and an increase in our effective cost of debt for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Previous wording

Base management fee expense decreased by $0.04 million, or 1.2%, to $3.2 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. Base management fee decreased primarily due to a decrease of $9.7 million, or 1.3%, in average gross assets less cash for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

Current wording

Base management fee expense decreased by $0.2 million, or 5.6%, to $3.0 million for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023. Base management fee decreased primarily due to a decrease of $44.9 million, or 6.1%, in average gross assets less cash for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Previous wording

Administrative fee expense, professional fees and general and administrative expenses were $1.5 million for the three months ended March 31, 2024 and 2023.

Current wording

Administrative fee expense, professional fees and general and administrative expenses were $1.4 million for the three months ended June 30, 2024 and 2023.

Previous wording

During the three months ended March 31, 2024, we realized net gains on investments totaling $0.01 million. During the three months ended March 31, 2023, we realized net losses on investments totaling $0.2 million primarily due to the write off of warrants in three portfolio companies.

Current wording

During the three months ended June 30, 2024, we realized net gains on investments totaling $2.5 million primarily due to the exercise and conversion to equity of one of our warrant investments. During the three months ended June 30, 2023, we realized net losses on investments totaling $16.5 million primarily due to the settlement of three 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.

Previous wording

During the three months ended March 31, 2024, net unrealized depreciation on investments totaled $4.0 million which was primarily due to the unrealized depreciation on two of our debt investments and one of our equity investments offset by the unrealized appreciation on one of our debt investments. During the three months ended March 31, 2023, net unrealized depreciation on investments totaled $7.5 million which was primarily due to the unrealized depreciation on five of our debt investments and the unrealized depreciation on our warrant investments.

Current wording

During the three months ended June 30, 2024, net unrealized depreciation on investments totaled $24.5 million which was primarily due to (1) the unrealized depreciation on three of our debt investments and one of our equity investments and (2) the reversal of previously recorded unrealized appreciation from the exercise and conversion to equity of one of our warrant investments offset by the unrealized appreciation on two of our debt investments. The difficult equity fundraising market and under performance of certain portfolio companies, among other factors, resulted in us reducing the fair market value of the debt investments in such portfolio companies, thus increasing the unrealized depreciation on such debt investments. During the three months ended June 30, 2023, net unrealized appreciation on investments totaled $0.6 million which was primarily due to the reversal of previously recorded unrealized depreciation from the settlement of two of our debt investments offset by (1) the unrealized depreciation on three of our debt investments and (2) the unrealized depreciation on one of our equity investments.

Previous wording

Performance based incentive fee expense decreased by $2.7 million, or 90.1%, to $0.3 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. This decrease was due to an Incentive Fee Cap and Deferral Mechanism in our Investment Management Agreement of $2.3 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The Incentive Fee Cap and Deferral Mechanism resulted in $2.3 million of reduced incentive fee expense and increased net investment income for the three months ended March 31, 2024. The incentive fee on pre-incentive fee net investment income was subject to the Incentive Fee Cap for the three months ended March 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.

Current wording

Performance based incentive fee expense decreased by $2.8 million, or 90.5%, to $0.3 million for the six months ended June 30, 2024 as compared to the six months ended June 30, 2023. This decrease was due to an Incentive Fee Cap and Deferral Mechanism in our Investment Management Agreement of $4.9 million for the six months ended June 30, 2024 compared to $3.3 million for the six months ended June 30, 2023. The Incentive Fee Cap and Deferral Mechanism resulted in $4.9 million and $3.3 million of reduced incentive fee expense and increased net investment income for the six months ended June 30, 2024 and 2023, 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, 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.

Previous wording

As of March 31, 2024 and December 31, 2023, we had cash and investments in money market funds of $68.8 million and $73.1 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 March 31, 2024 and December 31, 2023, we had $2.5 million and $2.6 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 or our NYL Facility. Our primary sources of capital have been from our public equity offerings, use of our revolving credit facility (the “Key Facility”) with KeyBank National Association (“Key”) and the Note Funding Agreement (the “NYL Facility”, together with the Key Facility, the “Credit Facilities”) with several entities owned or affiliated with New York Life Insurance Company, and issuance of our public and private debt securities.

Current wording

As of June 30, 2024 and December 31, 2023, we had cash and investments in money market funds of $113.7 million and $73.1 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 June 30, 2024 and December 31, 2023, we had $3.2 million and $2.6 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, our NYL Facility or our Nuveen Facility. Our primary sources of capital have been from our public equity offerings, use of our revolving credit facility (the “Key Facility”) with KeyBank National Association (“Key”), the Note Funding Agreement (the “NYL Facility”), with several entities owned or affiliated with New York Life Insurance Company and the Nuveen Note Funding Agreement (the “Nuveen Facility”, together with the Key Facility and the NYL Facility, the “Credit Facilities”) with several entities owned or affiliated with Nuveen Alternative Advisors LLC, and issuance of our public and private debt securities.

Previous wording

In April 2024, we sold 526,581 shares of common stock under the 2023 Equity Distribution Agreement. For the same period, we received total accumulated net proceeds of approximately $5.8 million, including $0.1 million of offering expenses, from these sales.

Current wording

During the three months ended June 30, 2023, we sold 448,175 shares of common stock under the 2021 Equity Distribution Agreement. For the same period, we received total accumulated net proceeds of approximately $5.1 million, including $0.1 million of offering expenses, from these sales.

Previous wording

During the three months ended March 31, 2024, we sold 1,053,796 shares of common stock under the 2023 Equity Distribution Agreement. For the same period, we received total accumulated net proceeds of approximately $12.0 million, including $0.3 million of offering expenses, from these sales.

Current wording

During the six months ended June 30, 2023, we sold 1,054,023 shares of common stock under the 2021 Equity Distribution Agreement. For the same period, we received total accumulated net proceeds of approximately $12.3 million, including $0.3 million of offering expenses, from these sales.

Previous wording

On April 26, 2024, 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 net asset value (“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, 2025 or the repurchase of $5.0 million of our common stock. During the three months ended March 31, 2024 and 2023, we did not make any repurchases of our common stock. From the inception of the stock repurchase program through March 31, 2024, 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.

Current wording

On April 26, 2024, 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 net asset value (“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, 2025 or the repurchase of $5.0 million of our common stock. During the three and six months ended June 30, 2024 and 2023, we did not make any repurchases of our common stock. From the inception of the stock repurchase program through June 30, 2024, 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.

Previous wording

At March 31, 2024 and December 31, 2023, the outstanding principal balance under our Key Facility was $60.0 million and $70.0 million, respectively. As of March 31, 2024 and December 31, 2023, we had borrowing capacity under the Key Facility of $90.0 million and $80.0 million, respectively. At March 31, 2024 and December 31, 2023, $20.3 million and $25.0 million, respectively, was available, subject to existing terms and advance rates.

Current wording

At June 30, 2024 there was no outstanding principal balance under our Key Facility. At December 31, 2023, the outstanding principal balance under our Key Facility was $70.0 million. As of June 30, 2024 and December 31, 2023, we had borrowing capacity under the Key Facility of $150.0 million and $80.0 million, respectively. At June 30, 2024 and December 31, 2023, $14.0 million and $25.0 million, respectively, was available for borrowing under the Key Facility, subject to existing terms and advance rates.

Previous wording

At March 31, 2024 and December 31, 2023, the outstanding principal balance under the NYL Facility was $181.0 million. As of March 31, 2024 and December 31, 2023, we had borrowing capacity under the NYL Facility of $69.0 million. At March 31, 2024 and December 31, 2023, $0.9 million and $17.4 million, respectively, was available, subject to existing terms and advance rates.

Current wording

At June 30, 2024 and December 31, 2023, the outstanding principal balance under the NYL Facility was $181.0 million. As of June 30, 2024 and December 31, 2023, we had borrowing capacity under the NYL Facility of $69.0 million. At June 30, 2024 and December 31, 2023, $17.9 million and $17.4 million, respectively, was available for borrowing under the NYL Facility, subject to existing terms and advance rates.

Previous wording

Our operating activities provided cash of $4.0 million for the three months ended March 31, 2024, and our financing activities used cash of $8.4 million for the same period. Our operating activities provided cash from principal payments received on our debt investments partially offset by cash used to purchase investments in portfolio companies. Our financing activities used cash primarily to repay our Key Facility and to pay distributions to our stockholders, partially offset from the sale of shares through our ATM for net proceeds of $12.0 million.

Current wording

Our operating activities provided cash of $58.3 million for the six months ended June 30, 2024, and our financing activities used cash of $17.2 million for the same period. Our operating activities provided cash from principal payments received on our debt investments partially offset by cash used to purchase investments in portfolio companies. Our financing activities used cash primarily to repay our Key Facility and to pay distributions to our stockholders, partially offset from an advance on our Nuveen Facility and the sale of shares through our ATM for net proceeds of $29.1 million.

Previous wording

Our operating activities provided cash of $12.7 million for the three months ended March 31, 2023, and our financing activities provided cash of $3.3 million for the same period. Our operating activities provided cash from principal payments received on our debt investments partially offset by cash used to purchase investments in portfolio companies. Our financing activities provided cash primarily from advances on our Credit Facilities and the sale of shares through our ATM for net proceeds of $7.2 million, partially offset by cash used to repay our 2019 Asset-Backed Notes and to pay distributions to our stockholders.

Current wording

Our operating activities provided cash of $7.2 million for the six months ended June 30, 2023, and our financing activities provided cash of $15.5 million for the same period. Our operating activities provided cash from principal payments received on our debt investments partially offset by cash used to purchase investments in portfolio companies. Our financing activities provided cash primarily from the completion of a follow-on public offering of 3.25 million shares of common stock for net proceeds of $38.9 million, after deducting underwriting commission and discounts and other offering expenses and the sale of shares through our ATM for net proceeds of $12.3 million, partially offset by cash used to repay our 2019 Asset-Backed Notes, to repay the outstanding principal balance under our Key Facility and to pay distributions to our stockholders.

Previous wording

We entered into the Key Facility effective November 4, 2013. The interest rate on the Key Facility is based on the rate of interest published in The Wall Street Journal as the prime rate in the United States plus 0.25%, with a prime rate floor of 4.25%. The prime rate was 8.50% as of March 31, 2024 and December 31, 2023. The interest rate in effect was 8.75% as of March 31, 2024 and December 31, 2023. The Key Facility requires the payment of an unused line fee in an amount up to 0.50% of any unborrowed amount available under the facility annually.

Current wording

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 8.50% as of June 30, 2024 and December 31, 2023. The interest rate in effect was 8.60% and 8.75% as of June 30, 2024 and December 31, 2023, respectively. The Key Facility requires the payment of an unused line fee in an amount up to 0.50% of any unborrowed amount available under the facility annually.

Previous wording

On June 29, 2023, we amended the Key Facility to, among other things, increase the commitment amount to $150 million and to increase the amount of the accordion feature which now allows the potential increase in the total commitment amount to $300 million. The Key Facility is collateralized by debt investments held by Credit II and permits an advance rate of up to sixty percent (60%) of eligible debt investments held by Credit II. The Key Facility contains covenants that, among other things, require us to maintain a minimum net worth, to restrict the debt investments securing the Key Facility to certain criteria for qualified debt investments and to comply with portfolio company concentration limits as defined in the related loan agreement. After the period during which we may request advances under the Key Facility (or the “Revolving Period”), we may not request new advances, and we must repay the outstanding advances under the Key Facility as of such date, at such times and in such amounts as are necessary to maintain compliance with the terms and conditions of the Key Facility, particularly the condition that the principal balance of the Key Facility not exceed sixty percent (60%) of the aggregate principal balance of our eligible debt investments to our portfolio companies. The Revolving Period ends on June 22, 2024 and the maturity date of the Key Facility, the date on which all outstanding advances under the Key Facility are due and payable, is June 22, 2026.

Current wording

On June 29, 2023, we amended the Key Facility to, among other things, increase the commitment amount to $150 million and to increase the amount of the accordion feature which now allows the potential increase in the total commitment amount to $300 million. The Key Facility is collateralized by debt investments held by Credit II and permits an advance rate of up to sixty percent (60%) of eligible debt investments held by Credit II. The Key Facility contains covenants that, among other things, require us to maintain a minimum net worth, to restrict the debt investments securing the Key Facility to certain criteria for qualified debt investments and to comply with portfolio company concentration limits as defined in the related loan agreement. After the period during which we may request advances under the Key Facility (or the “Revolving Period”), we may not request new advances, and we must repay the outstanding advances under the Key Facility as of such date, at such times and in such amounts as are necessary to maintain compliance with the terms and conditions of the Key Facility, particularly the condition that the principal balance of the Key Facility not exceed sixty percent (60%) of the aggregate principal balance of our eligible debt investments to our portfolio companies.

Previous wording

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. The amendment to the NYL Facility extends the investment period to June 2024 and the maturity date of all advances to June 2029. In addition, the amendment amended the interest rate for advances made after May 24, 2023, fixing the interest rate at the greater of (i) 4.60% and (ii) the Three Year I-Curve plus 3.50% with the interest rate to be reset on any advance date.

Current wording

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. In addition, the amendment amended the interest rate for advances made after May 24, 2023, fixing the interest rate at the greater of (i) 4.60% and (ii) the Three Year I-Curve plus 3.50% with the interest rate to be reset on any advance date.

Previous wording

There were $181.0 million in notes issued to the NYL Noteholders as of March 31, 2024 and December 31, 2023 at an interest rate of 6.18% and 5.96%, respectively. As of March 31, 2024 and December 31, 2023, we had borrowing capacity under the NYL Facility of $69.0 million. At March 31, 2024 and December 31, 2023, $0.9 million and $17.4 million, respectively, was available for borrowing, subject to existing terms and advance rates.

Current wording

There were $181.0 million in notes issued to the NYL Noteholders as of June 30, 2024 and December 31, 2023 at an interest rate of 6.34% and 5.96%, respectively. As of June 30, 2024 and December 31, 2023, we had borrowing capacity under the NYL Facility of $69.0 million. At June 30, 2024 and December 31, 2023, $17.9 million and $17.4 million, respectively, was available for borrowing, subject to existing terms and advance rates.

Previous wording

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 March 31, 2024, and December 31, 2023, there were approximately $1.2 million and $1.3 million, respectively, of restricted investments.

Current wording

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 June 30, 2024, and December 31, 2023, there were approximately $1.1 million and $1.3 million, respectively, of restricted investments.

Previous wording

As of March 31, 2024 and December 31, 2023, other assets were $3.3 million and $3.6 million, respectively, which was primarily comprised of debt issuance costs and prepaid expenses.

Current wording

As of June 30, 2024 and December 31, 2023, other assets were $6.9 million and $3.6 million, respectively, which was primarily comprised of debt issuance costs and prepaid expenses.

Previous wording

In the normal course of business, we are party to financial instruments with off-balance sheet risk. These consist primarily of unfunded commitments to extend credit, in the form of loans, to our portfolio companies. Unfunded commitments to provide funds to portfolio companies are not reflected on our balance sheet. Our unfunded commitments may be significant from time to time. As of March 31, 2024, we had unfunded commitments of $168.2 million. This includes no undrawn revolver commitments. These commitments are subject to the same underwriting and ongoing portfolio maintenance requirements as are the financial instruments that we hold on our balance sheet. In addition, these commitments are often subject to financial or non-financial milestones and other conditions to borrowing that must be achieved before the commitment can be drawn. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We regularly monitor our unfunded commitments and anticipated refinancings, maturities and capital raising, to ensure that we have sufficient liquidity to fund unfunded commitments. As of March 31, 2024, we reasonably believed that our assets would provide adequate financial resources to satisfy all of our unfunded commitments.

Current wording

In the normal course of business, we are party to financial instruments with off-balance sheet risk. These consist primarily of unfunded commitments to extend credit, in the form of loans, to our portfolio companies. Unfunded commitments to provide funds to portfolio companies are not reflected on our balance sheet. Our unfunded commitments may be significant from time to time. As of June 30, 2024, we had unfunded commitments of $137.5 million. This includes no undrawn revolver commitments. These commitments are subject to the same underwriting and ongoing portfolio maintenance requirements as are the financial instruments that we hold on our balance sheet. In addition, these commitments are often subject to financial or non-financial milestones and other conditions to borrowing that must be achieved before the commitment can be drawn. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We regularly monitor our unfunded commitments and anticipated refinancings, maturities and capital raising, to ensure that we have sufficient liquidity to fund unfunded commitments. As of June 30, 2024, we reasonably believed that our assets would provide adequate financial resources to satisfy all of our unfunded commitments.

Previous wording

The incentive fee on Pre-Incentive Fee Net Investment Income is subject to a fee cap and deferral mechanism which is determined based upon a look-back period of up to three years and is expensed when incurred. For this purpose, the Incentive Fee Look-back Period includes the relevant calendar quarter and the 11 preceding full calendar quarters. Each quarterly incentive fee payable on Pre-Incentive Fee Net Investment Income is subject to the Incentive Fee Cap and Deferral Mechanism. The Incentive Fee Cap is equal to (a) 20.00% of Cumulative Pre-Incentive Fee Net Return during the Incentive Fee Look-back Period less (b) cumulative incentive fees of any kind paid to our Advisor during the Incentive Fee Look-back Period. To the extent the Incentive Fee Cap is zero or a negative value in any calendar quarter, we will not pay an incentive fee on Pre-Incentive Fee Net Investment Income to our Advisor in that quarter. To the extent that the payment of incentive fees on Pre-Incentive Fee Net Investment Income is limited by the Incentive Fee Cap, the payment of such fees will be deferred and paid in subsequent calendar quarters up to three years after their date of deferment, subject to certain limitations, which are set forth in the Investment Management Agreement. During the three months ended March 31, 2024, the Incentive Fee Cap and Deferral Mechanism resulted in deferral of $2.3 million of incentive fee which may become subject to payment up to three years after the date of deferment. As of March 31, 2024, the total amount subject to recoupment was $13.1 million.

Current wording

The incentive fee on Pre-Incentive Fee Net Investment Income is subject to a fee cap and deferral mechanism which is determined based upon a look-back period of up to three years and is expensed when incurred. For this purpose, the Incentive Fee Look-back Period includes the relevant calendar quarter and the 11 preceding full calendar quarters. Each quarterly incentive fee payable on Pre-Incentive Fee Net Investment Income is subject to the Incentive Fee Cap and Deferral Mechanism. The Incentive Fee Cap is equal to (a) 20.00% of Cumulative Pre-Incentive Fee Net Return during the Incentive Fee Look-back Period less (b) cumulative incentive fees of any kind paid to our Advisor during the Incentive Fee Look-back Period. To the extent the Incentive Fee Cap is zero or a negative value in any calendar quarter, we will not pay an incentive fee on Pre-Incentive Fee Net Investment Income to our Advisor in that quarter. To the extent that the payment of incentive fees on Pre-Incentive Fee Net Investment Income is limited by the Incentive Fee Cap, the payment of such fees will be deferred and paid in subsequent calendar quarters up to three years after their date of deferment, subject to certain limitations, which are set forth in the Investment Management Agreement. During the three months ended June 30, 2024 and 2023, the Incentive Fee Cap and Deferral Mechanism resulted in deferral of $2.6 million and $3.1 million, respectively, of incentive fee which may become subject to payment up to three years after the date of deferment. During the six months ended June 30, 2024 and 2023, the Incentive Fee Cap and Deferral Mechanism resulted in deferral of $4.9 million and $3.3 million, respectively, of incentive fee which may become subject to payment up to three years after the date of deferment. As of June 30, 2024 and December 31, 2023, the total amount subject to recoupment was $15.7 million and $10.8 million, respectively.

Previous wording

We have entered into the Investment Management Agreement with our Advisor. Our Advisor is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. Our investment activities are managed by our Advisor and supervised by our Board, the majority of whom are independent directors. Under the Investment Management Agreement, we have agreed to pay our Advisor a base management fee as well as an incentive fee. During the three months ended March 31, 2024 and 2023, our Advisor earned $3.5 million and $6.2 million, respectively, pursuant to the Investment Management Agreement.

Current wording

We have entered into the Investment Management Agreement with our Advisor. Our Advisor is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. Our investment activities are managed by our Advisor and supervised by our Board, the majority of whom are independent directors. Under the Investment Management Agreement, we have agreed to pay our Advisor a base management fee as well as an incentive fee. During the three months ended June 30, 2024 and 2023, our Advisor earned $3.0 million and $3.3 million, respectively, pursuant to the Investment Management Agreement. During the six months ended June 30, 2024 and 2023, our Advisor earned $6.5 million and $9.5 million, respectively, pursuant to the Investment Management Agreement.

Previous wording

We have also entered into the Administration Agreement with our Advisor. Under the Administration Agreement, we have agreed to reimburse our Advisor for our allocable portion of overhead and other expenses incurred by our Advisor in performing its obligations under the Administration Agreement, including rent and our allocable portion of the costs of compensation and related expenses of our Chief Financial Officer and Chief Compliance Officer and their respective staffs. In addition, pursuant to the terms of the Administration Agreement our Advisor provides us with the office facilities and administrative services necessary to conduct our day-to-day operations. During the three months ended March 31, 2024 and 2023, our Advisor earned $0.4 million pursuant to the Administration Agreement.

Current wording

We have also entered into the Administration Agreement with our Advisor. Under the Administration Agreement, we have agreed to reimburse our Advisor for our allocable portion of overhead and other expenses incurred by our Advisor in performing its obligations under the Administration Agreement, including rent and our allocable portion of the costs of compensation and related expenses of our Chief Financial Officer and Chief Compliance Officer and their respective staffs. In addition, pursuant to the terms of the Administration Agreement our Advisor provides us with the office facilities and administrative services necessary to conduct our day-to-day operations. During the three months ended June 30, 2024 and 2023, our Advisor earned $0.4 million pursuant to the Administration Agreement. During the six months ended June 30, 2024 and 2023, our Advisor earned $0.9 million and $0.8 million, respectively, pursuant to the Administration Agreement.

Previous wording

Interest on debt investments is accrued and included in income based on contractual rates applied to principal amounts outstanding. Interest income is determined using a method that results in a level rate of return on principal amounts outstanding. Generally, when a debt investment becomes 90 days or more past due, or if we otherwise do not expect to receive interest and principal repayments, the debt investment is placed on non-accrual status and the recognition of interest income may be discontinued. Interest payments received on non-accrual debt investments may be recognized as income, on a cash basis, or applied to principal depending upon management’s judgment at the time the debt investment is placed on non-accrual status. For the three months ended March 31, 2024 and 2023, we did not recognize any interest income from debt investments on non-accrual status.

Current wording

Interest on debt investments is accrued and included in income based on contractual rates applied to principal amounts outstanding. Interest income is determined using a method that results in a level rate of return on principal amounts outstanding. Generally, when a debt investment becomes 90 days or more past due, or if we otherwise do not expect to receive interest and principal repayments, the debt investment is placed on non-accrual status and the recognition of interest income may be discontinued. Interest payments received on non-accrual debt investments may be recognized as income, on a cash basis, or applied to principal depending upon management’s judgment at the time the debt investment is placed on non-accrual status. For the three and six months ended June 30, 2024 and 2023, we did not recognize any interest income from debt investments while on non-accrual status.

Previous wording

Certain debt investment agreements also require the borrower to make an ETP that is accrued into income over the life of the debt investment to the extent such amounts are expected to be collected. We will generally cease accruing the income if there is insufficient value to support the accrual or if we do not expect the borrower to be able to pay all principal and interest due.

Current wording

Certain debt investment agreements also require the borrower to make an ETP that is accrued into income over the life of the debt investment to the extent such amounts are expected to be collected. We will generally cease accruing the income if there is insufficient value to support the accrual or if we do not expect the borrower to be able to pay the ETP when due. The proportion of total investment income that resulted from the portion of ETPs not received in cash for the three months ended June 30, 2024 and 2023 was 6.6% and 3.1%, 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 earning assets for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The proportion of total investment income that resulted from the portion of ETPs not received in cash for the six months ended June 30, 2024 and 2023 was 6.7% and 4.7%, 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 a decrease in earning assets for the six months ended June 30, 2024 compared to the six months ended June 30, 2023.

Previous wording

In June 2022, the FASB issued Accounting Standards Update No. 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, or ASU 2022-03. ASU 2022-03 clarifies the guidance when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of the security. The amendments in ASU 2022-03 were effective for public companies for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The adoption of ASU 2022-03 did not have a material impact on our consolidated financial statements.

Current wording

In June 2022, the FASB issued Accounting Standards Update No. 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). ASU 2022-03 clarifies the guidance when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of the security. The amendments in ASU 2022-03 were effective for public companies for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The adoption of ASU 2022-03 did not have a material impact on our consolidated financial statements.