Horizon Technology Finance Corp

Note** 1. Organization

Horizon Technology Finance Corporation (the “Company”) was organized as a Delaware corporation on* March**16,* 2010 and is an externally managed, non-diversified, closed-end investment company. The Company has elected to be regulated as a business development company (“BDC”) under the1940 Act. In addition, for tax purposes, the Company has elected to be treated as a regulated investment company (“RIC”) as defined under Subchapter M of the Internal Revenue Code of1986, as amended (the “Code”). As a RIC, the Company generally isnot subject to corporate-level federal income tax on the portion of its taxable income (including net capital gains) the Company distributes to its stockholders. The Company primarily makes secured debt investments to development-stage companies in the technology, life science, healthcare information and services and sustainability industries. All of the Company’s debt investments consist of loans secured by all of, or a portion of, the applicable debtor company’s tangible and intangible assets.

On* October**28,* 2010, the Company completed an initial public offering (“IPO”) and its common stock trades on the Nasdaq Global Select Market under the symbol “HRZN”.

Horizon Credit II LLC (“Credit II”) was formed as a Delaware limited liability company on* June**28,* 2011, with the Company as its sole equity member. Credit II is a special purpose bankruptcy-remote entity and is a separate legal entity from the Company. Any assets conveyed to Credit II arenot available to creditors of the Company or any other entity other than Credit II’s lenders. Credit II is consolidated in the financial statements of the Company.

The Company formed Horizon Funding2019‑1 LLC (“2019‑1 LLC”) as a Delaware limited liability company on* May2,* 2019 and Horizon Funding Trust2019‑1 as a Delaware statutory trust on* May15,* 2019 (“2019‑1 Trust” and, together with the2019‑1 LLC, the*“2019‑1* Entities”). The2019‑1 Entities are special purpose bankruptcy remote entities and are separate legal entities from the Company. The Company formed the2019‑1 Entities for purposes of securitizing the term debt securitization in connection with which an affiliate of the Company made an offering of $100.0 million in aggregate principal amount of fixed rate asset-backed notes that were issued in conjunction with the $160.0 million securitization of secured loans the Company completed on* August 13, 2019 (the“2019* Asset-Backed Notes”). The2019-1 Entities were dissolved on* February 27,*2024.

Horizon Funding I, LLC (“HFI”) was formed as a Delaware limited liability company on* May 9, 2018,with Horizon Secured Loan Fund I LLC, a Delaware limited liability company (“HSLFI”) as its sole member. HFI is a special purpose bankruptcy-remote entity and is a separate legal entity from HSLFI. Any assets conveyed to HFI arenot* available to creditors of HSLFI or any other entity other than HFI’s lenders. As of* April 21, 2020,*HSLFI and its subsidiary, HFI, are consolidated in the financial statements of the Company.

The Company formed Horizon Funding2022‑1 LLC (“2022‑1 LLC”) as a Delaware limited liability company on* September 30, 2022and Horizon Funding Trust2022‑1* as a Delaware statutory trust on* October 18, 2022 (**“2022‑1* Trust” and, together with the2022‑1 LLC, the*“2022‑1* Entities”). The2022‑1 Entities are special purpose bankruptcy remote entities and are separate legal entities from the Company. The Company formed the2022‑1 Entities for purposes of securitizing the2022 Asset-Backed Notes. The2022-1 Entities are consolidated in the financial statements of the Company.

Horizon Funding II, LLC (“HFII”) was formed as a Delaware limited liability company on* May 13,2024,* with the Company as its sole equity member. HFII is a special purpose bankruptcy-remote entity and is a separate legal entity from the Company. Any assets conveyed to HFII arenot available to creditors of the Company or any other entity other than HFII’s lenders. HFII is consolidated in the financial statements of the Company.

The Company has established wholly owned subsidiaries, which are structured as Delaware limited liability companies, either to hold assets of portfolio companies acquired in connection with a foreclosure or bankruptcy or to hold equity in portfolio companies which the Company* may*control. Such wholly-owned subsidiaries are separate legal entities from the Company and are consolidated in the financial statements of the Company.

The Company, together with its co-lender to IMV, established HIMV LLC, a Delaware limited liability company to purchase and sell the assets of IMV, a past borrower of the Company. The assets of IMV were sold for (i) the right to receive certain payments, if any, in connection with the potential future development and licensing of the assets sold and (ii) equity in the buyer of such assets. HIMV LLC is 70% owned by the Company and 30% owned by athird-party co-lender.

The Company’s investment strategy is to maximize the investment portfolio’s return by generating current income from the debt investments the Company makes and capital appreciation from the warrants the Company receives when making such debt investments. The Company has entered into an investment management agreement with Horizon Technology Finance Management LLC (the “Advisor”) under which the Advisor manages the day-to-day operations of, and provides investment advisory services to, the Company.

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Note 2. Basis of presentation and significant accounting policies

The consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the requirements for reporting on Form10‑Q and Articles6 and10 of Regulation S-X (“Regulation S-X”) under the Securities Act of1933, as amended (the “Securities Act”). In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications, consisting solely of normal recurring accruals, that are necessary for the fair presentation of financial results as of and for the periods presented. All intercompany balances and transactions have been eliminated. The current period’s results of operations arenot necessarily indicative of results that ultimately* maybe achieved for the year. Therefore, the unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended December 31, 2023*.

Principles of consolidation

As required under GAAP and Regulation S-X, the Company will generally consolidate its investment in a company that is an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the results of the Company’s wholly-owned subsidiaries in its consolidated financial statements.

Assets related to transactions that donot meet Accounting Standards Codification (“ASC”) Topic860, Transfers and Servicingrequirements for accounting sale treatment are reflected in the Company’s Consolidated Statements of Assets and Liabilities as investments. Those assets are owned by special purpose entities, including2019‑1 Entities and2022-1 Entities, that are consolidated in the Company’s consolidated financial statements. The creditors of the special purpose entities have received security interests in such assets, and such assets arenot intended to be available to the creditors of the Company (or any affiliate of the Company).

Use of estimates

In preparing the consolidated financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the balance sheet and income and expenses for the period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the valuation of investments.

Fair value

The Company records all of its investments at fair value in accordance with relevant GAAP, which establishes a framework used to measure fair value and requires disclosures for fair value measurements. The Company has categorized its investments carried at fair value, based on the priority of the valuation technique, into athree-level fair value hierarchy as more fully described in Note6. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions arenot readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.

The availability of observable inputs can vary depending on the financial instrument and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new, whether the product is traded on an active exchange or in the secondary market and the current market conditions. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for financial instruments classified as Level3.

See Note6 for additional information regarding fair value.

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Segments

The Company has determined that it has a single reporting segment and operating unit structure. The Company lends to and invests in portfolio companies in various technology, life science, healthcare information and services and sustainability industries. The Company separately evaluates the performance of each of its lending and investment relationships. However, because each of these debt investments and investment relationships has similar business and economic characteristics, they have been aggregated into a single lending and investment segment.

Investments

Investments are recorded at fair value. Pursuant to the amended SEC Rule2a-5 of the1940 Act, on* July 29, 2022,*the Company's board of directors (the “Board”) designated the Advisor as the Company’s “valuation designee.” The valuation designee determines the fair value of the Company’s portfolio investments and the Company's Board oversees the valuation designee. The Company has the intent to hold its debt investments for the foreseeable future or until maturity or payoff.

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 becomes90 days or more past due, or if the Company otherwise doesnot expect to receive interest and principal repayments, the debt investment is placed on non-accrual status and the recognition of interest income* maybe discontinued. Interest payments received on non-accrual debt investments maybe 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. As of June 30, 2024*, there weresix investments on nonaccrual status with a cost of $114.8 million and a fair value of $52.5 million. As of* December 31, 2023*, there werefour investments on non-accrual status with a cost of $72.5 million and a fair value of $27.6 million. For thethree andsix months ended* June 30, 2024* and2023, the Company didnot recognize any interest income from debt investments while on non-accrual status.

The Company has a limited number of debt investments in its portfolio that contain a PIK provision. Contractual PIK interest, which represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term, is generally recorded on an accrual basis to the extent such amounts are expected to be collected. For thethree months ended* June 30, 2024* and2023, 1.4% and 3.4%, respectively, of the Company's total investment income was attributable to non-cash PIK interest. For thesix months ended* June 30, 2024* and2023, 3.3% and 3.8%, respectively, of the Company's total investment income was attributable to non-cash PIK interest. The Company will generally cease accruing PIK interest if management doesnot expect the portfolio company to be able to pay all principal and interest due. For thethree months ended* June 30, 2024,there wereno debt investments which had accrued PIK interest into income placed on nonaccrual status. For thesix* months ended* June 30, 2024*,one debt investment, which had accrued PIK interest into income of $1.0 million during thesix months ended* June 30, 2024* was placed on nonaccrual status. For thethree andsix months ended* June 30, 2023,three debt investments, which had accrued PIK interest into income of $1.0 million and $2.2 million during thethree andsix months ended June 30, 2023,*respectively, were placed on nonaccrual status.

The Company receives a variety of fees from borrowers in the ordinary course of conducting its business, including advisory fees, commitment fees, amendment fees, non-utilization fees, success fees and prepayment fees. In a limited number of cases, the Company* may*also receive a non-refundable deposit earned upon the termination of a transaction. Debt investment origination fees, net of certain direct origination costs, are deferred and, along with unearned income, are amortized as a level-yield adjustment over the respective term of the debt investment. All other income is recognized when earned. Fees for counterparty debt investment commitments with multiple debt investments are allocated to each debt investment based upon each debt investment’s relative fair value. When a debt investment is placed on non-accrual status, the amortization of the related fees and unearned income is discontinued until the debt investment is returned to accrual status.

Certain debt investment agreements also require the borrower to make an ETP, that is accrued into interest receivable and taken into income over the life of the debt investment to the extent such amounts are expected to be collected. The Company will generally cease accruing the income if there is insufficient value to support the accrual or the Company doesnot expect the borrower to be able to pay the ETP when due. The proportion of the Company’s total investment income that resulted from the portion of ETPsnot received in cash for thethree months ended* June 30, 2024and2023* was 6.6% and 3.1%, respectively. The proportion of the Company’s total investment income that resulted from the portion of ETPsnot received in cash for thesix months ended* June 30, 2024and2023* was 6.7% and 4.7%, respectively.

In connection with substantially all lending arrangements, the Company receives warrants to purchase shares of stock from the borrower. The warrants are recorded as assets at estimated fair value on the grant date using the Black-Scholes valuation model. The warrants are considered loan fees and are recorded as unearned income on the grant date. The unearned income is recognized as interest income over the contractual life of the related debt investment in accordance with the Company’s income recognition policy. Subsequent to debt investment origination, the fair value of the warrants is determined using the Black-Scholes valuation model. Any adjustment to fair value is recorded through earnings as net unrealized appreciation or depreciation on investments. Gains and losses from the disposition of the warrants or stock acquired from the exercise of warrants are recognized as realized gains and losses on investments.

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Realized gains or losses on the sale of investments, or upon the determination that an investment balance, or portion thereof, isnot recoverable, are calculated using the specific identification method. The Company measures realized gains or losses by calculating the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment. Net change in unrealized appreciation or depreciation reflects the change in the fair values of the Company’s portfolio investments during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

Debt issuance costs

Debt issuance costs are fees and other direct incremental costs incurred by the Company in obtaining debt financing from its lenders and issuing debt securities. The unamortized balance of debt issuance costs as of* June 30, 2024* and* December 31, 2023* was $8.3 million and $5.8 million, respectively. These amounts are capitalized and amortized and included in interest expense in the consolidated statements of operations over the life of the borrowings. The accumulated amortization balances as of* June 30, 2024* and* December 31, 2023* were $6.0 million and $5.2 million, respectively. The amortization expense for thethree months ended* June 30, 2024and2023* was $0.4 million and $0.5 million, respectively. The amortization expense for thesix months ended* June 30, 2024and2023* was $0.8 million and $0.9 million, respectively.

Income taxes

As a BDC, the Company has elected to be treated as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC and to avoid the imposition of corporate-level income tax on the portion of its taxable income distributed to stockholders, among other things, the Company is required to meet certain source of income and asset diversification requirements and to timely distribute dividends out of assets legally available for distribution to its stockholders of an amount generally at least equal to90% of its investment company taxable income, as defined by the Code and determined without regard to any deduction for dividends paid, for each tax year. The Company, among other things, has made and intends to continue to make the requisite distributions to its stockholders, which generally relieves the Company from corporate-level U.S. federal income taxes. Accordingly,no provision for federal income tax has been recorded in the financial statements. Differences between taxable income and net increase in net assets resulting from operations either can be temporary, meaning they will reverse in the future, or permanent. In accordance with ASC Topic946, Financial Services—Investment Companies, as amended, of the Financial Accounting Standards Board (“FASB”), permanent tax differences, such as non-deductible excise taxes paid, are reclassified from distributions in excess of net investment income and net realized loss on investments to paid-in-capital at the end of each fiscal year. These permanent book-to-tax differences are reclassified on the consolidated statements of changes in net assets to reflect their tax character but haveno impact on total net assets.

Depending on the level of taxable income earned in a tax year, the Company* maychoose to carry forward taxable income in excess of current year distributions into the next tax year and incur a 4% U.S. federal excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. For thethree* months ended* June 30, 2024and2023*, $0.4 million and $0.2 million, respectively, was accrued for U.S. federal excise tax. For thesix months ended* June 30, 2024and2023*, $0.7 million and $0.4 million, respectively, was accrued for U.S. federal excise tax.

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The Company evaluates tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority in accordance with ASC Topic740, Income Taxes, as modified by ASC Topic946. Tax benefits of positionsnot deemed to meet the more-likely-than-not threshold, or uncertain tax positions, would be recorded as a tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. The Company hadno material uncertain tax positions at* June 30, 2024* and* December 31, 2023*. The Company’s income tax returns for the 2024, 2023, 2022 and2021 tax years remain subject to examination by U.S. federal and state tax authorities.

Distributions

Distributions to common stockholders are recorded on the declaration date. The amount to be paid out as distributions is determined by the Board. Net realized capital gains, if any,* maybe distributed, although the Company may*decide to retain such net realized gains for investment.

The Company has adopted a dividend reinvestment plan that provides for reinvestment of cash distributions on behalf of its stockholders, unless a stockholder elects to receive cash. As a result, if the Board declares a cash distribution, then stockholders who havenot “opted out” of the dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash distribution. The Company* may*issue new shares or purchase shares in the open market to fulfill its obligations under the plan.

Stockholders’*** Equity***

On* August 2, 2021,the Company entered into an At-The-Market (“ATM”) sales agreement (the“2021* Equity Distribution Agreement”), with Goldman Sachs & Co. LLC and B. Riley FBR, Inc. (each a “Sales Agent” and, collectively, the “Sales Agents”). The2021 Equity Distribution Agreement provided that the Company* may*offer and sell its shares of common stock from time to time through the Sales Agents representing up to $100.0 million worth of its common stock, in amounts and at times to be determined by the Company.

On* September 22, 2023,the Company terminated the2021* Equity Distribution Agreement and entered into a new ATM sales agreement (the*“2023* Equity Distribution Agreement”), with the Sales Agents. The remaining shares available under the2021 Equity Distribution Agreement areno longer available for issuance. The2023 Equity Distribution Agreement provides that the Company* mayoffer and sell its shares of common stock from time to time through the Sales Agents up to $150.0 million worth of its common stock, in amounts and at times to be determined by the Company. Sales of the Company’s common stock, if any, maybe made in negotiated transactions or transactions that are deemed to be “at-the-market,” as defined in Rule415* 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 thethree months ended* June 30, 2024*, the Company sold 1,516,249 shares of common stock under the2023 Equity Distribution Agreement. For the same period, the Company received total accumulated net proceeds of approximately $17.1 million, including $0.4 million of offering expenses, from these sales.

During thethree months ended* June 30, 2023*, the Company sold 448,175 shares of common stock under the2021 Equity Distribution Agreement. For the same period, the Company received total accumulated net proceeds of approximately $5.1 million, including $0.1 million of offering expenses, from these sales.

During thesix months ended* June 30, 2024*, the Company sold 2,570,045 shares of common stock under the2023 Equity Distribution Agreement. For the same period, the Company received total accumulated net proceeds of approximately $29.1 million, including $0.6 million of offering expenses, from these sales.

During thesix months ended* June 30, 2023*, the Company sold 1,054,023 shares of common stock under the2021 Equity Distribution Agreement. For the same period, the Company received total accumulated net proceeds of approximately $12.3 million, including $0.3 million of offering expenses, from these sales.

The Company generally uses net proceeds from these offerings to make investments, to pay down liabilities and for general corporate purposes. As of* June 30, 2024*, shares representing approximately $117.0 million of its common stock remain available for issuance and sale under the2023 Equity Distribution Agreement.

On* June 2, 2023,*the Company 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.

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Stock Repurchase Program

On* April26,* 2024, the Board extended a previously authorized stock repurchase program which allows the Company to repurchase up to $5.0 million of its common stock at prices below the Company’s net asset value per share as reported in its most recent consolidated financial statements. Under the repurchase program, the Company* may,but isnot* obligated to, repurchase shares of its outstanding common stock in the open market or in privately negotiated transactions from time to time. Any repurchases by the Company will comply with the requirements of Rule10b‑18 under the Securities Exchange Act of1934, as amended (the “Exchange Act”), and any applicable requirements of the1940 Act. Unless extended by the Board, the repurchase program will terminate on the earlier of* June30,* 2025 or the repurchase of*$5.0* million of the Company’s common stock. During thethree andsix months ended* June 30, 2024and2023*, the Company didnot make any repurchases of its common stock. From the inception of the stock repurchase program through* June 30, 2024*, the Company repurchased 167,465 shares of its common stock at an average price of $11.22 on the open market at a total cost of $1.9 million.

Transfers of financial assets

Assets related to transactions that donot meet the requirements under ASC Topic860, Transfers and Servicingfor sale treatment under GAAP are reflected in the Company’s consolidated statements of assets and liabilities as investments. Those assets are owned by special purpose entities that are consolidated in the Company’s financial statements. The creditors of the special purpose entities have received security interests in such assets and such assets arenot intended to be available to the creditors of the Company (or any other affiliate of the Company).

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company — put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the transferor doesnot maintain effective control over the transferred assets through either (a) an agreement that both entitles and obligates the transferor to repurchase or redeem the assets before maturity or (b) the ability to unilaterally cause the holder to return specific assets, other than through a cleanup call.

Recently issued accounting pronouncement

In* November 2023,the FASB issued ASU2023*-07, Segment Reporting (Topic280): Improvements to Reportable Segment Disclosures (“ASU2023-07”). ASU2023-07 is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses, allowing financial statement users to better understand the components of a segment's profit or loss and assess potential future cash flows for each reportable segment and the entity as a whole. The amendments expand a public entity's segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker, clarifying when an entity* mayreportone* or more additional measures to assess segment performance, requiring enhanced interim disclosures and providing new disclosure requirements for entities with a single reportable segment, among other new disclosure requirements. The amendments are effective for fiscal years beginning after* December 15, 2023,and interim periods within fiscal years beginning after December 15, 2024,*and early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance with respect to the consolidated financial statements and disclosures.

Recently adopted accounting pronouncement

In* June 2022,the FASB issued Accounting Standards UpdateNo.* 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU2022-03”). ASU2022-03 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 ASU2022-03 were effective for public companies for fiscal years beginning after* December 15, 2023,and interim periods within those fiscal years. The adoption of ASU2022*-03 didnot have a material impact on the Company’s consolidated financial statements.

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Note 3. Related party transactions

Investment Management Agreement

At a meeting of the stockholders convened on* May 25, 2023and reconvened on June 28, 2023,the stockholders approved a new Investment Management Agreement which became effective on June 30, 2023 (the “Investment Management Agreement”) upon the closing of the acquisition of the Advisor by MCH Holdco LLC, an affiliate of Monroe Capital LLC. The new Investment Management Agreement replaced the previously effective Investment Management Agreement dated as of March 7, 2019.*Under the terms of the Investment Management Agreement, the Advisor determines the composition of the Company’s investment portfolio, the nature and timing of the changes to the investment portfolio and the manner of implementing such changes; identifies, evaluates and negotiates the structure of the investments the Company makes (including performing due diligence on the Company’s prospective portfolio companies); and closes, monitors and administers the investments the Company makes, including the exercise of any voting or consent rights.

The Advisor’s services under the Investment Management Agreement arenot exclusive to the Company, and the Advisor is free to furnish similar services to other entities so long as its services to the Company arenot impaired. The Advisor is a registered investment adviser with the SEC. The Advisor receives fees for providing services to the Company under the Investment Management Agreement, consisting oftwo components, a base management fee and an incentive fee.

The base management fee is calculated at an annual rate of 2.00% of the Company’s gross assets (less cash and cash equivalents) including any assets acquired with the proceeds of leverage; provided, that, to the extent the Company’s gross assets (less cash and cash equivalents) exceed*$250* million, the base management fee on the amount of such excess over*$250* million will be calculated at an annual rate of 1.60% of the Company’s gross assets (less cash and cash equivalents) including any assets acquired with the proceeds of leverage. The base management fee is payable monthly in arrears and is prorated for any partial month.

The base management fee payable at* June 30, 2024* and* December 31, 2023* was $1.0 million and $1.1 million, respectively. The base management fee expense was $3.0 million and $3.2 million for thethree months ended* June 30, 2024and2023*, respectively. The base management fee expense was $6.2 and $6.4 million for thesix months ended* June 30, 2024and2023*, respectively.

The incentive fee hastwo parts, as follows:

Thefirst part, which is subject to the Incentive Fee Cap and Deferral Mechanism, as defined below, is calculated and payable quarterly in arrears based on the Company’s Pre-Incentive Fee Net Investment Income for the immediately preceding calendar quarter. For this purpose, “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees received from portfolio companies) accrued during the calendar quarter, minus expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement (as defined below), and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest andzero coupon securities), accrued income the Company hasnot yet received in cash. The incentive fee with respect to the Pre-Incentive Fee Net Investment Income is 20.00% of the amount, if any, by which the Pre-Incentive Fee Net Investment Income for the immediately preceding calendar quarter exceeds a hurdle rate of 1.75% (which is 7.00% annualized) of the Company’s net assets at the end of the immediately preceding calendar quarter, adjusted for any share issuances or repurchases during the relevant quarter, subject to a “catch-up” provision measured as of the end of each calendar quarter. Under this provision, in any calendar quarter, the Advisor receivesno incentive fee until the Pre-Incentive Fee Net Investment Income equals the hurdle rate of1.75%, but then receives, as a “catch-up,”100.00% of the Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.1875% quarterly (which is 8.75% annualized). The effect of this “catch-up” provision is that, if Pre-Incentive Fee Net Investment Income exceeds2.1875% in any calendar quarter, the Advisor will receive20.00% of the Pre-Incentive Fee Net Investment Income as if the hurdle rate didnot apply.

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Pre-Incentive Fee Net Investment Income doesnot include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Because of the structure of the incentive fee, it is possible that the Company* maypay an incentive fee in a quarter in which the Company incurs a loss. For example, if the Company receives Pre-Incentive Fee Net Investment Income in excess of the quarterly minimum hurdle rate, the Company will pay the applicable incentive fee up to the Incentive Fee Cap, defined below, even if the Company has incurred a loss in that quarter due to realized and unrealized capital losses. The Company’s net investment income used to calculate this part of the incentive fee is also included in the amount of the Company’s gross assets used to calculate the2.00%* base management fee. These calculations are appropriately prorated for any period of less thanthree months and adjusted for any share issuances or repurchases during the current quarter.

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 tothree years and is expensed when incurred. For this purpose, the look-back period for the incentive fee based on Pre-Incentive Fee Net Investment Income (the “Incentive Fee Look-back Period”) includes the relevant calendar quarter and the11 preceding full calendar quarters. Each quarterly incentive fee payable on Pre-Incentive Fee Net Investment Income is subject to a cap (the “Incentive Fee Cap”) and a deferral mechanism through which the Advisor* mayrecoup a portion of such deferred incentive fees (collectively, the “Incentive Fee Cap and Deferral Mechanism”). The Incentive Fee Cap is equal to (a)20.00% of Cumulative Pre-Incentive Fee Net Return (as defined below) during the Incentive Fee Look-back Period less (b) cumulative incentive fees of any kind paid to the Advisor during the Incentive Fee Look-back Period. To the extent the Incentive Fee Cap iszero* or a negative value in any calendar quarter, the Company willnot pay an incentive fee on Pre-Incentive Fee Net Investment Income to the 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 tothree years after their date of deferment, subject to certain limitations, which are set forth in the Investment Management Agreement. The Company only pays incentive fees on Pre-Incentive Fee Net Investment Income to the extent allowed by the Incentive Fee Cap and Deferral Mechanism. “Cumulative Pre-Incentive Fee Net Return” during any Incentive Fee Look-back Period means the sum of (a) Pre-Incentive Fee Net Investment Income and the base management fee for each calendar quarter during the Incentive Fee Look-back Period and (b) the sum of cumulative realized capital gains and losses, cumulative unrealized capital appreciation and cumulative unrealized capital depreciation during the applicable Incentive Fee Look-back Period.

Thesecond part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or, upon termination of the Investment Management Agreement, as of the termination date), and equals20.00% of the Company’s realized capital gains, if any, on a cumulative basis from the date of the election to be a BDC through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis through the end of such year, less all previous amounts paid in respect of the capital gain incentive fee. However, in accordance with GAAP, the Company is required to include the aggregate unrealized capital appreciation on investments in the calculation and accrue a capital gain incentive fee on a quarterly basis, as if such unrealized capital appreciation were realized, even though such unrealized capital appreciation isnot permitted to be considered in calculating the fee actually payable under the Investment Management Agreement.

There wasno performance based incentive fee expense for thethree months ended* June 30, 2024*. The performance based incentive fee expense was $0.1 million for thethree months ended* June 30,2023. The performance based incentive fee expense was $0.3 million and $3.1 million for thesix months ended June 30, 2024* and2023, respectively. The incentive fee on Pre-Incentive Fee Net Investment Income was subject to the Incentive Fee Cap and Deferral Mechanism for thethree months ended* June 30, 2024and2023,* which resulted in $2.6 million and $3.1 million, respectively, of reduced expense and additional net investment income. The incentive fee on Pre-Incentive Fee Net Investment Income was subject to the Incentive Fee Cap and Deferral Mechanism for thesix months ended* June 30, 2024and2023,* which resulted in $4.9 million and $3.3 million, respectively, of reduced expense and additional net investment income. This deferral represents a contingent future liability and isnot accrued until the amount can be reasonably estimated and payment is probable. The remaining deferred amount* maybe paid up tothree* years after the date of deferment.

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The following table provides the expiration dates of the Company’s Incentive Fee Cap and Deferral Mechanism contingent future liability as of* June 30, 2024*:

There wasno performance based incentive fee payable as of* June 30, 2024and December 31, 2023*.

Administration Agreement

The Company entered into an administration agreement (the “Administration Agreement”) with the Advisor to provide administrative services to the Company. For providing these services, facilities and personnel, the Company reimburses the Advisor for the Company’s allocable portion of overhead and other expenses incurred by the Advisor in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and the Company’s allocable portion of the costs of compensation and related expenses of the Company’s Chief Financial Officer and Chief Compliance Officer and their respective staffs. The administrative fee expense was $0.4 million for thethree months ended* June 30, 2024and2023*. The administrative fee expense was $0.9 million and $0.8 million for thesix months ended* June 30, 2024and2023*, respectively. The administrative fee payable at* June 30, 2024* and* December 31, 2023* was $0.4 million. The administrative fee payable is included in other accrued liabilities on the Company's Statement of Assets and Liabilities.

Note 4. Investments

The following table shows the Company’s investments as of* June 30, 2024* and* December 31, 2023*:

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The following table shows the Company’s investments by industry sector as of* June 30, 2024* and* December 31, 2023*:

Note 5. Transactions with affiliated companies

A non-controlled affiliated company is generally a portfolio company in which the Company owns5% or more of such portfolio company’s voting securities butnot more than25% of such portfolio company’s voting securities.

Transactions related to investments in non-controlled affiliated companies for thethree months ended* June 30, 2024* were as follows:

Transactions related to investments in non-controlled affiliated companies for thethree months ended* June 30, 2023* were as follows:

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Transactions related to investments in non-controlled affiliated companies for thesix months ended* June 30, 2024* were as follows:

Transactions related to investments in non-controlled affiliated companies for thesix months ended* June 30, 2023* were as follows:

A controlled affiliated company is generally a portfolio company in which the Company owns more than25% of such portfolio company’s voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement).

Transactions related to investments in controlled affiliated companies for thethree months ended* June 30, 2024* were as follows:

Transactions related to investments in controlled affiliated companies for thesix months ended* June 30, 2024* were as follows:

For thethree andsix months ended* June 30, 2023,*there wereno transactions related to investments in controlled affiliated companies.

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Note 6. Fair value

Prior to* July 30, 2022,the Board determined the fair value of the Company’s investments. Pursuant to the amended SEC Rule2a*-5 of the1940 Act, on* July 29, 2022,the Board designated the Advisor as the Company’s “valuation designee.” The Board is responsible for oversight of the valuation designee. The valuation designee has established a Valuation Committee to determine in good faith the fair value of the Company’s investments, based on input from the Advisor’s management and personnel and independent valuation firms which are engaged at the direction of the Valuation Committee to assist in the valuation of certain portfolio investments lacking a readily available market quotation at least once during a trailingtwelve*-month period. The Valuation Committee determines fair values pursuant to a valuation policy approved by the Board and pursuant to a consistently applied valuation process. This valuation process is conducted at the end of each fiscal quarter, with at least 25% (based on fair value) of the Company’s valuation of portfolio companies lacking readily available market quotations subject to review by an independent valuation firm.

The Company uses fair value measurements made by the valuation designee to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in certain instances, there areno quoted market prices for certain assets or liabilities. In cases where quoted market prices arenot available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates* may**not* be realized in an immediate settlement of the asset or liability.

Fair value measurements focus on exit prices in an orderly transaction (that is,not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques* may*be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment.

The Company’s fair value measurements are classified into a fair value hierarchy in accordance with ASC Topic820, Fair Value Measurement, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. Thethree categories within the hierarchy are as follows:

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Due to the inherent uncertainty of determining the fair value of investments that donot have a readily available market value, the fair value of the Company’s investments* mayfluctuate from period to period. Additionally, the fair value of the Company’s investments maydiffer significantly from the values that would have been used had a ready market existed for such investments and maydiffer materially from the values that the Company may*ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded such portfolio investment.

Cash and interest receivable: The carrying amount is a reasonable estimate of fair value. These financial instruments arenot recorded at fair value on a recurring basis and are categorized as Level1 within the fair value hierarchy described above.

Money market funds: The carrying amounts are valued at their net asset value as of the close of business on the day of valuation. These financial instruments are recorded at fair value on a recurring basis and are categorized as Level2 within the fair value hierarchy described above as these funds can be redeemed daily.

Debt investments: The fair value of debt investments is estimated by discounting the expected future cash flows using the period end rates at which similar debt investments would be made to borrowers with similar credit ratings and for the same remaining maturities. Significant increases (decreases) in this unobservable input would result in a significantly lower (higher) fair value measurement. These assets are recorded at fair value on a recurring basis and are categorized as Level3 within the fair value hierarchy described above.

Under certain circumstances, the Company* may*use an alternative technique to value debt investments that better reflects its fair value such as the use of multiple probability weighted cash flow models when the expected future cash flows contain elements of variability.

Warrant investments: The Company values its warrants using the Black-Scholes valuation model incorporating the following material assumptions:

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Under certain circumstances the Company* mayuse an alternative technique to value warrants that better reflects the warrants’ fair value, such as an expected settlement of a warrant in the near term or a model that incorporates a put feature associated with the warrant. The fair value may*be determined based on the expected proceeds to be received from such settlement or based on the net present value of the expected proceeds from the put option.

The fair value of the Company’s warrants held in publicly traded companies is determined based on inputs that are readily available in public markets or can be derived from information available in public markets. Therefore, the Company has categorized these warrants as Level2 within the fair value hierarchy described above. The fair value of the Company’s warrants held in private companies is determined using both observable and unobservable inputs and represents management’s best estimate of what market participants would use in pricing the warrants at the measurement date. Therefore, the Company has categorized these warrants as Level3 within the fair value hierarchy described above. These assets are recorded at fair value on a recurring basis.

Equity investments: The fair value of an equity investment in a privately held company is initially the face value of the amount invested. The Company adjusts the fair value of equity investments in private companies upon the completion of a newthird-party round of equity financing. The Company* maymake adjustments to fair value, absent a new equity financing event, based upon positive or negative changes in a portfolio company’s financial or operational performance. Significant increases (decreases) in this unobservable input would result in a significantly higher (lower) fair value measurement. The Company has categorized these equity investments as Level3* within the fair value hierarchy described above. The fair value of an equity investment in a publicly traded company is based upon the closing public share price on the date of measurement. Therefore, the Company has categorized these equity investments as Level1 within the fair value hierarchy described above. These assets are recorded at fair value on a recurring basis.

Other investments:Other investments are valued based on the facts and circumstances of the underlying contractual agreement. The Company currently values these contractual agreements using a multiple probability weighted cash flow model as the contractual future cash flows contain elements of variability. Significant changes in the estimated cash flows and probability weightings would result in a significantly higher or lower fair value measurement. The Company has categorized these other investments as Level3 within the fair value hierarchy described above. These other investments are recorded at fair value on a recurring basis.

The following tables detail the assets that are carried at fair value and measured at fair value on a recurring basis as of* June 30, 2024* and* December 31, 2023* and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:

The following tables provide a summary of quantitative information about the Company’s Level3 fair value measurements of the Company’s investments as of* June 30, 2024* and* December 31, 2023*. In addition to the techniques and inputs noted in the table below, according to the Company’s valuation policy, the Company* may*also use other valuation techniques and methodologies when determining its fair value measurements.

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The following table isnot intended to be all-inclusive, but rather provides information on the significant Level3 inputs as they relate to the Company’s fair value measurements as of* June 30, 2024*:

The following table isnot intended to be all-inclusive, but rather provides information on the significant Level3 inputs as they relate to the Company’s fair value measurements as of* December 31, 2023*:

Borrowings: The Credit Facilities approximate fair value due to the variable interest rate of the facilities and are categorized as Level2 within the fair value hierarchy described above. Additionally, the Company considers its creditworthiness in determining the fair value of such borrowings. The fair value of the fixed-rate2026 Notes (as defined in Note7) is based on the closing public share price on the date of measurement. On* June 30, 2024*, the closing price of the2026 Notes on the New York Stock Exchange was $23.88 per note and had an aggregate fair value of $54.9 million. Therefore, the Company has categorized this borrowing as Level1 within the fair value hierarchy described above. The fair value of the fixed-rate2027 Notes (as defined in Note7) is based on the closing public share price on the date of measurement. On* June 30, 2024*, the closing price of the2027 Notes on the New York Stock Exchange was $23.72 per note and had an aggregate fair value of $54.6 million. Therefore, the Company has categorized this borrowing as Level1 within the fair value hierarchy described above. Based on market quotations on* June 30, 2024*, the2022 Asset-Backed Notes were trading at par value, or $100.0 million, and are categorized as Level3 within the fair value hierarchy described above. These borrowings arenot recorded at fair value on a recurring basis.

Off-balance-sheet instruments: Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standings. Therefore, the Company has categorized these instruments as Level3 within the fair value hierarchy described above.

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The following table shows a reconciliation of the beginning and ending balances for Level3 assets measured at fair value on a recurring basis for thethree months ended* June 30, 2024*:

During thethree months ended* June 30, 2024,there wereno transfers in or out of Level3.*

The following table shows a reconciliation of the beginning and ending balances for Level3 assets measured at fair value on a recurring basis for thethree months ended* June 30, 2023*:

During thethree months ended* June 30, 2023*, there wasone transfer out of Level3. Theone transfer out of Level3 related to equity held inone portfolio company with an aggregate fair value of $0.1 million that was transferred to Level1 upon the portfolio company becoming a public company. During thethree months ended* June 30, 2023,there wereno transfers into Level3.*

The following table shows a reconciliation of the beginning and ending balances for Level3 assets measured at fair value on a recurring basis for thesix months ended* June 30, 2024*:

During thesix months ended* June 30, 2024*, there wereno transfers in or out of Level3.

The change in unrealized depreciation included in the consolidated statement of operations attributable to Level3 investments still held at* June 30, 2024* includes $19.7 million in unrealized depreciation on debt and other investments, $4.4 million in unrealized depreciation on equity investments and $2.0 million in unrealized depreciation on warrant investments.

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The following table shows a reconciliation of the beginning and ending balances for Level3 assets measured at fair value on a recurring basis for thesix months ended* June 30, 2023*:

During thesix months ended* June 30, 2023*, there wasone transfer out of Level3. Theone transfer out of Level3 related to equity held inone portfolio company with an aggregate fair value of $0.1 million that was transferred to Level1 upon the portfolio company becoming a public company. During thesix months ended* June 30, 2023,there wereno transfers into Level3.*

The change in unrealized depreciation included in the consolidated statement of operations attributable to Level3 investments still held at* June 30, 2023*includes $13.1 million in unrealized depreciation on debt investments, $1.9 million in unrealized depreciation on warrant investments and $1.3 million in unrealized depreciation on equity investments.

The Company discloses fair value information about financial instruments, whether ornot recognized in the consolidated statement of assets and liabilities, for which it is practicable to estimate that value. Certain financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented donot represent the underlying value of the Company.

The fair value amounts have been measured as of the reporting date and havenot been reevaluated or updated for purposes of these financial statements subsequent to that date. As such, the fair values of these financial instruments subsequent to the reporting date* may*be different than amounts reported.

As of* June 30, 2024* and* December 31, 2023*, all of the balances of all the Company’s financial instruments were recorded at fair value, except for the Company’s borrowings, as previously described.

Market risk

The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments* maychange when interest rate levels change, and that change may*be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new debt investments and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

Note 7. Borrowings

The following table shows the Company’s borrowings as of* June 30, 2024* and* December 31, 2023*:

As of* June 30, 2024*, with certain limited exceptions, the Company, as a BDC, is only allowed to borrow amounts such that the Company’s asset coverage, as defined in the1940 Act, is at least 150% after such borrowings. As of* June 30, 2024*, the asset coverage for borrowed amounts was 174%.

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Credit Facilities

Key Facility

The Company entered into the Key Facility with Key effective* November**4,* 2013. On* June 20, 2024,the Company amended the Key Facility, among other things, (i) to extend the date on which the Company mayrequest advances under the Key Facility to June 20, 2027and to extend the maturity date to June 20, 2029and (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%. On June 29, 2023,the Company amended the Key Facility, among other things, to increase the commitment amount to $150 million and to increase the amount of the accordion feature which now allows for the potential increase in the total commitment amount to $300 million. The Key Facility is collateralized by all debt investments and warrants held by Credit II and permits an advance rate of up to 60% of eligible debt investments held by Credit II. The Key Facility contains covenants that, among other things, require the Company to maintain a minimum net worth and to restrict the debt investments securing the Key Facility to certain criteria for qualified debt investments and includes portfolio company concentration limits as defined in the related loan agreement. The prime rate was 8.50% on June 30, 2024* and* December 31, 2023.The average interest rate on the Key Facility for thethree* months ended* June 30, 2024and2023* was 8.73% and 8.41%, respectively. The average interest rate on the Key Facility for thesix months ended* June 30, 2024and2023* was 8.74% and 8.17%, respectively. The Key Facility requires the payment of an unused line fee in an amount up to 0.50% on an annualized basis of any unborrowed amount available under the facility. As of* June 30, 2024* and* December 31, 2023*, the Company 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, subject to existing terms and advance rates.

NYL Facility

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. The notes were issued pursuant to the indenture. The interest rate on the notes issued under the NYL Facility was based on thethree* year USD mid-market swap rate plus a margin of between 3.55% and 5.15% with an interest rate floor, depending on the rating of such notes at the time of issuance.

On* May 24, 2023,the Company amended its NYL Facility to, among other things, increase the commitment by $50.0 million to enable its 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.

On* May 6, 2024,the Company amended its NYL Facility to, among other things, extend the investment period to June 2025and 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.

There were $181.0 million in advances made by the NYL Noteholders as of* June 30, 2024* and* December 31, 2023*. The interest rate was 6.34% and 5.62% as of* June 30, 2024* and2023, respectively. As of* June 30, 2024* and* December 31, 2023*, the Company 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.

Under the terms of the NYL Facility, the Company is required to maintain a reserve cash balance, which* maybe used to pay monthly interest and principal payments on the NYL Facility. The Company has segregated these funds and classified them as restricted investments in money market funds. At June 30, 2024* and* December 31, 2023*, there were approximately $1.4 million of restricted investments.

Nuveen Facility

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 HFII and the Nuveen Noteholders. On* June 21, 2024,the Company 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 notes were issued pursuant to the Indenture. The Nuveen Facility bears 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 life plus 3.15% and (ii)5.00%. The Company mayrequest advances under the Nuveen Facility through June 21, 2027and the Nuveen Facility is scheduled to mature on June 10, 2033.*

There were $50.0 million in advances made by the Nuveen Noteholders as of* June 30, 2024.The interest rate as of June 30, 2024was 7.38%. As of June 30, 2024,the Company had borrowing capacity under the Nuveen Facility of $50.0 million. At June 30, 2024,$14.1 million was available for borrowing, subject to existing terms and advance rates. The Nuveen Facility wasnot outstanding at December 31, 2023.*

Under the terms of the Nuveen Facility, the Company is required to maintain a reserve cash balance, which* maybe used to pay monthly interest and principal payments on the Nuveen Facility. The Company has segregated these funds and classified them as restricted investments in money market funds. At June 30, 2024,*there were approximately $0.7 million of restricted investments.

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Securitizations

2019 Asset-Backed Notes

On* August**13,* 2019, the Company completed a term debt securitization in connection with which an affiliate of the Company made an offering of the2019 Asset-Backed Notes. The2019 Asset-Backed Notes were rated A+(sf) by Morningstar Credit Ratings, LLC. There wasno change in the rating since* August 13, 2019.The2019* Asset-Backed Notes were repaid in full on* November 22, 2023.*

The2019 Asset-Backed Notes were issued by the2019‑1 Trust pursuant to a note purchase agreement, dated as of* August13,* 2019, by and among the Company and Keybanc Capital Markets Inc. as Initial Purchaser, and were backed by a pool of loans made to certain portfolio companies of the Company and secured by certain assets of those portfolio companies and were to be serviced by the Company. Interest on the2019 Asset-Backed Notes was paid, to the extent of funds available, at a fixed rate of 4.21% per annum. The reinvestment period of the2019 Asset-Backed Notes ended* July 15, 2021and the maturity date was September15,* 2027.

As of* December 31, 2023,the2019* Asset-Backed Notes were repaid in full.

2022 Asset-Backed Notes

On* November 9, 2022,the Company completed a term debt securitization in connection with which an affiliate of the Company made an offering of the2022* Asset-Backed Notes. The2022 Asset-Backed Notes were rated A by DBRS, Inc. There has beenno change in the rating since* November 9, 2022.*

The2022 Asset-Backed Notes were issued by the2022‑1 Trust pursuant to a note purchase agreement, dated as of* November 9, 2022,by and among the Company and Keybanc Capital Markets Inc. as Initial Purchaser, and are backed by a pool of loans made to certain portfolio companies of the Company and secured by certain assets of those portfolio companies and are to be serviced by the Company. Interest on the2022* Asset-Backed Notes will be paid, to the extent of funds available, at a fixed rate of 7.56% per annum. The reinvestment period of the2022 Asset-Backed Notes ends* November 15, 2024and the maturity date is November**15,* 2030.

As of* June 30, 2024* and* December 31, 2023*, the2022 Asset-Backed Notes had an outstanding principal balance of $100.0 million.

Under the terms of the2022 Asset-Backed Notes, the Company is required to maintain a reserve cash balance, funded through proceeds from the sale of the2022 Asset-Backed Notes, which* maybe used to pay monthly interest and principal payments on the2022* Asset-Backed Notes. The Company has 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.

Unsecured Notes

2026 Notes

On* March 30, 2021,the Company issued and sold an aggregate principal amount of $57.5 million of 4.875% notes due in2026* (the*“2026* Notes”). The amount of2026 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. The2026 Notes have a stated maturity of* March 30, 2026and maybe redeemed in whole or in part at the Company’s option at any time or from time to time on or after March 30, 2023at a redemption price of $25 per security plus accrued and unpaid interest. The2026* Notes bear interest at a rate of4.875% per year, payable quarterly on* March 30,** June 30,** September 30and December 30of each year. The2026* Notes are the Company’s direct unsecured obligations and (i) rank equally in right of payment with the Company’s current and future unsecured indebtedness; (ii) are senior in right of payment to any of the Company’s future indebtedness that expressly provides it is subordinated to the2026 Notes; (iii) are effectively subordinated to all of the Company’s existing and future secured indebtedness (including indebtedness that is initially unsecured to which the Company subsequently grants 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 the Company’s subsidiaries. As of* June 30, 2024*, the Company was in material compliance with the terms of the2026 Notes. The2026 Notes are listed on the New York Stock Exchange under the symbol “HTFB”.

2027 Notes

On* June 15, 2022,the Company issued and sold an aggregate principal amount of $50.0 million of 6.25% notes due in2027* and on* July 11, 2022,pursuant to the underwriters’30 day option to purchase additional notes, the Company sold an additional $7.5 million of such notes (collectively, the“2027* Notes”). The2027 Notes have a stated maturity of* June 15, 2027and maybe redeemed in whole or in part at the Company’s option at any time or from time to time on or after June 15, 2024at a redemption price of $25 per security plus accrued and unpaid interest. The2027* Notes bear interest at a rate of6.25% per year, payable quarterly on* March 30,** June 30,** September 30and December 30of each year, commencing on September 30, 2022.The2027* Notes are the Company’s direct unsecured obligations and (i) rank equally in right of payment with the Company’s current and future unsecured indebtedness; (ii) are senior in right of payment to any of the Company’s future indebtedness that expressly provides it is subordinated to the2027 Notes; (iii) are effectively subordinated to all of the Company’s existing and future secured indebtedness (including indebtedness that is initially unsecured to which the Company subsequently grants 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 the Company’s subsidiaries. As of* June 30, 2024*, the Company was in material compliance with the terms of the2027 Notes. The2027 Notes are listed on the New York Stock Exchange under the symbol “HTFC”.

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Note 8. Financial instruments with off-balance-sheet risk

In the normal course of business, the Company is party to financial instruments with off-balance-sheet risk to meet the financing needs of its borrowers. These financial instruments include commitments to extend credit and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated statement of assets and liabilities. The Company attempts to limit its credit risk by conducting extensive due diligence and obtaining collateral where appropriate.

The balance of unfunded commitments to extend credit was $137.5 million and $180.5 million as of* June 30, 2024* and* December 31, 2023*, respectively. Commitments to extend credit consist principally of the unused portions of commitments that obligate the Company to extend credit, often subject to financial or non-financial milestones and other conditions to borrow that must be achieved before the commitment can be drawn. In addition, the commitments generally have fixed expiration dates or other termination clauses. Since commitments* mayexpire without being drawn upon, the total commitment amounts donot* necessarily represent future cash requirements.

The following table provides the Company’s unfunded commitments by portfolio company as of* June 30, 2024* and* December 31, 2023*:

The table above also provides the fair value of the Company’s unfunded commitment liability as of* June 30, 2024* and* December 31, 2023,*which totaled $1.5 million and $2.0 million, respectively. The fair value at inception of the delay draw credit agreements is equal to the fees and/or warrants received to enter into these agreements, taking into account the remaining terms of the agreements and the counterparties’ credit profile. The unfunded commitment liability reflects the fair value of these future funding commitments and is included in the Company’s consolidated statement of assets and liabilities.

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Note 9. Concentrations of credit risk

The Company’s debt investments consist primarily of loans to development-stage companies at various stages of development in the technology, life science, healthcare information and services and sustainability industries. Many of these companies* mayhave relatively limited operating histories and also may*experience variation in operating results. Many of these companies conduct business in regulated industries and could be affected by changes in government regulations. Most of the Company’s borrowers will need additional capital to satisfy their continuing working capital needs and other requirements, and in many instances, to service the interest and principal payments on the loans.

The Company’s largest debt investments* mayvary from period to period as new debt investments are recorded and existing debt investments are repaid. The Company’sfive* largest debt investments at cost represented 24% and 23% of total debt investments outstanding as of* June 30, 2024* and* December 31, 2023*, respectively. The Company’sfive 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 represented more than10% of the total debt investments at cost or fair value as of* June 30, 2024* and* December 31, 2023*. Investment income, consisting of interest and fees, can fluctuate significantly upon repayment of large debt investments. Interest income from thefive largest debt investments at cost accounted for 20% and 23% of total interest and fee income on investments for thethree months ended* June 30, 2024and2023*, respectively. Interest income from thefive largest debt investments at fair value accounted for 24% and 23% of total interest and fee income on investments for thethree months ended* June 30, 2024and2023*, respectively. Interest income from thefive largest debt investments at cost accounted for 18% and 23% of total interest and fee income on investments for thesix months ended* June 30, 2024and2023*, respectively. Interest income from thefive largest debt investments at fair value accounted for 22% and 23% of total interest and fee income on investments for thesix months ended* June 30, 2024and2023*, respectively.

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Note 10. Distributions

The Company’s distributions are recorded on the declaration date. The following table summarizes the Company’s distribution activity for thesix months ended* June 30, 2024* and for the year ended* December 31, 2023*:

On* July**26,* 2024, the Board declared monthly distributions per share, payable as set forth in the following table:

Monthly distributions

After paying distributions of $0.38 per share and earning net investment income of $0.36 per share for the quarter, the Company’s undistributed spillover income as of* June 30, 2024* was $1.28 per share. Spillover income includes any ordinary income and net capital gains from the preceding tax years that werenot distributed during such tax years.

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Note 11. Financial highlights

The following table shows financial highlights for the Company:

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Note 12. Subsequent Events

On* July 10, 2024,*MyForest Foods Co. prepaid its outstanding principal balance of $3.8 million on its venture loan, plus interest, end-of-term payment and prepayment fee. The Company continues to hold warrants in MyForest Foods Co.

On* July 11, 2024,*Lemongrass Holdings, Inc. prepaid its outstanding principal balance of $6.3 million on its venture loan, plus interest, end-of-term payment and prepayment fee. The Company continues to hold warrants in Lemongrass Holdings, Inc.

On* July 12, 2024,*Slingshot Aerospace, Inc. prepaid its outstanding principal balance of $20.0 million on its venture loan, plus interest, end-of-term payment and prepayment fee. The Company continues to hold warrants in Slingshot Aerospace, Inc.

On* July 24, 2024,Nexiican Holdings Inc. and its affiliates (“Nexiican”) and Nexii Building Solutions Inc., and its affiliates (“Nexii”) closed an Asset Purchase Agreement dated as of June 21, 2024and approved by the Supreme Court of British Columbia in Vancouver on June 28, 2024pursuant to which Nexiican purchased substantially all of the assets of Nexii, in consideration for, among other things, Nexicaan’s assumption of a portion of Nexii’s obligations to the Company and its affiliate’s issuance of equity to the Company, which information the Company used to fair value its assets as of June 30, 2024*at $10.9 million.

On* July 30, 2024,*the Company funded a $25.0 million debt investment to a new portfolio company, Hometeam Technologies, Inc.

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