Horizon Technology Finance Corp

Previous wording

You should understand that under Sections 27A(b)(2)(B) and (D) of the Securities Act and Sections 21E(b)(2)(B) and (D) of the Exchange Act, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in connection with this annual report on Form 10‑K or any quarterly reports we file under the Exchange Act.

Current wording

You should understand that under Sections 27A(b)(2)(B) and (D) of the Securities Act and Sections 21E(b)(2)(B) and (D) of the Exchange Act, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in connection with any annual report on Form 10‑K or any quarterly reports we file under the Exchange Act.

Previous wording

We are a specialty finance company that lends to and invests in development-stage companies in 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 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 December 31, 2023, 86.3%, or $578.7 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 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 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 December 31, 2024, 86.1%, or $550.0 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

We were formed in March 2010 and completed an initial public offering.

Current wording

We were formed in March 2010 and completed an initial public offering in October 2010.

Previous wording

The largest debt investments in our portfolio may vary from year to year 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 December 31, 2023 and 2022. Our five largest debt investments at fair value represented 22% and 23% of total debt investments outstanding as of December 31, 2023 and 2022, respectively. No single debt investment represented more than 10% of our total debt investments as of December 31, 2023 or 2022.

Current wording

The largest debt investments in our portfolio may vary from year to year as new debt investments are originated and existing debt investments are repaid. Our five largest debt investments at cost represented 22% and 23% of total debt investments outstanding as of December 31, 2024 and 2023, respectively. Our five largest debt investments at fair value represented 23% and 22% of total debt investments outstanding as of December 31, 2024 and 2023, respectively. No single debt investment at cost or fair value represented more than 10% of our total debt investments as of December 31, 2024 or 2023.

Previous wording

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. As of December 31, 2022, there were three debt investments with an internal credit rating of 1, with an aggregate cost of $20.9 million and an aggregate fair value of $8.3 million.

Current wording

As of December 31, 2024, there were four debt investments with an internal credit rating of 1, with an aggregate cost of $44.8 million and an aggregate fair value of $10.5 million and there were seven debt investments with an internal credit rating of 2, with an aggregate cost of $53.3 million and an aggregate fair value of $48.8 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 primarily 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 such portfolio companies.

Previous wording

Total investment income increased by $34.3 million, or 43.3%, to $113.5 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. For the year ended December 31, 2023, total investment income consisted primarily of $110.1 million in interest income from investments, which included $15.9 million in income from the accretion of origination fees and ETPs, $8.4 million in PIK interest and $3.3 million in fee income. Interest income on debt investments increased by $32.8 million, or 42.3%, to $110.1 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. Interest income on investments for the year ended December 31, 2023 as compared to the year ended December 31, 2022 increased primarily due to an increase of $130.5 million, or 23.7%, in the average size of our debt investment portfolio and 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, increased by $1.5 million, or 83.3%, to $3.3 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to higher fee income earned on prepayments for the year ended December 31, 2023.

Current wording

Interest income on debt investments increased by $32.8 million, or 42.3%, to $110.1 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. Interest income on investments for the year ended December 31, 2023 as compared to the year ended December 31, 2022 increased primarily due to an increase of $130.5 million, or 23.7%, in the average size of our debt investment portfolio and an increase in the Prime Rate which is the base rate for most of our variable rate debt investments. The proportion of total investment income that resulted from the portion of ETPs not received in cash for the years ended December 31, 2023 and 2022 was 4.2% and 7.4%, respectively. The decrease in the proportion of total investment income that resulted from the portion of ETPs not received in cash was a result of an increase in earning assets for the year ended December 31, 2023 as compared to the year ended December 31, 2022.

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 17%, 15% and 17% of investment income for the years ended December 31, 2023, 2022 and 2021, respectively. Interest income from the five largest debt investments at fair value in the aggregate accounted for 15%, 15% and 17% of investment income for the years ended December 31, 2023, 2022 and 2021, 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 19%, 17% and 15% of investment income for the years ended December 31, 2024, 2023 and 2022, respectively. Interest income from the five largest debt investments at fair value in the aggregate accounted for 19%, 15% and 15% of investment income for the years ended December 31, 2024, 2023 and 2022, respectively.

Previous wording

Total expenses increased by $8.2 million, or 19.5%, to $50.5 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. Total expenses increased by $10.9 million, or 34.7%, to $42.3 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021. 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 $0.1 million, or 0.2%, to $50.7 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023. Total expenses increased by $8.2 million, or 19.5%, to $50.5 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. 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 $9.8 million, or 50.9%, to $29.0 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. Interest expense, which includes the amortization of debt issuance costs, increased primarily due to an increase in average borrowings of $92.7 million, or 27.4%, for the year ended December 31, 2023 compared to the year ended December 31, 2022 and an increase in our effective cost of debt for the year ended December 31, 2023 compared to the year ended December 31, 2022. Interest expense increased by $7.2 million, or 59.6%, to $19.2 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021. Interest expense, which includes the amortization of debt issuance costs, increased primarily due to an increase in average borrowings of $112.9 million, or 50.0%, for the year ended December 31, 2022 compared to the year ended December 31, 2021 and an increase in our effective cost of debt for the year ended December 31, 2022 compared to the year ended December 31, 2021.

Current wording

Interest expense increased by $3.3 million, or 11.3%, to $32.3 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023. Interest expense, which includes the amortization of debt issuance costs, increased primarily due to an increase in average borrowings of $16.9 million, or 3.9%, for the year ended December 31, 2024 compared to the year ended December 31, 2023 and an increase in our effective cost of debt for the year ended December 31, 2024 compared to the year ended December 31, 2023. Interest expense increased by $9.8 million, or 50.9%, to $29.0 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. Interest expense, which includes the amortization of debt issuance costs, increased primarily due to an increase in average borrowings of $92.7 million, or 27.4%, for the year ended December 31, 2023 compared to the year ended December 31, 2022 and an increase in our effective cost of debt for the year ended December 31, 2023 compared to the year ended December 31, 2022.

Previous wording

Base management fee expense increased by $2.2 million, or 21.1%, to $12.8 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. Base management fee expense increased primarily due to an increase of $139.6 million, or 23.3%, in average gross assets less cash for the year ended December 31, 2023 as compared to the year ended December 31, 2022, partially offset by the lower management fee earned on gross assets less cash in excess of $250 million. Base management fee expense increased by $2.9 million, or 38.7%, to $10.6 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021. Base management fee expense increased primarily due to an increase of $184.3 million, or 44.6%, in average gross assets less cash for the year ended December 31, 2022 as compared to the year ended December 31, 2021, partially offset by the lower management fee earned on gross assets less cash in excess of $250 million.

Current wording

Base management fee expense decreased by $0.5 million, or 4.2%, to $12.3 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023. Base management fee expense decreased primarily due to a decrease of $33.7 million, or 4.6%, in average gross assets less cash for the year ended December 31, 2024 as compared to the year ended December 31, 2023. Base management fee expense increased by $2.2 million, or 21.1%, to $12.8 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. Base management fee expense increased primarily due to an increase of $139.6 million, or 23.3%, in average gross assets less cash for the year ended December 31, 2023 as compared to the year ended December 31, 2022, partially offset by the lower management fee earned on gross assets less cash in excess of $250 million.

Previous wording

Performance based incentive fee expense decreased by $4.7 million, or 60.1%, to $3.1 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. This decrease was due to an Incentive Fee Cap calculated based on the Incentive Fee Cap and Deferral Mechanism in our Investment Management Agreement of $9.8 million compared to an Incentive Fee Cap of $1.0 million for the year ended December 31, 2022, offset by an increase of $20.6 million, or 46.9%, in Pre-Incentive Fee Net Investment Income for the year ended December 31, 2023 compared to the year ended December 31, 2022. The Incentive Fee Cap and Deferral Mechanism resulted in $9.8 million of reduced incentive fee expense and increased net investment income for the year ended December 31, 2023. The incentive fee on pre-incentive fee net investment income was subject to the Incentive Fee Cap for the year ended December 31, 2023 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. Performance based incentive fee expense increased by $0.7 million, or 9.8%, to $7.7 million for the year ended December 31, 2022 as compared to the year ended December 31, 2021. This increase was due to an increase of $8.6 million, or 24.5%, in Pre-Incentive Fee Net Investment Income offset by an Incentive Fee Cap calculated based on the Incentive Fee Cap and Deferral Mechanism in our Investment Management Agreement of $1.0 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. The Incentive Fee Cap and Deferral Mechanism resulted in $1.0 million of reduced incentive fee expense and increased net investment income for the year ended December 31, 2022. The incentive fee on pre-incentive fee net investment income was subject to the Incentive Fee Cap for the year ended December 31, 2022 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 year ended December 31, 2024 as compared to the year ended December 31, 2023. This decrease was due to a decrease of $16.5 million, or 25.5%, in Pre-Incentive Fee Net Investment Income for the year ended December 31, 2024 compared to the year ended December 31, 2023 and an Incentive Fee Cap calculated based on the Incentive Fee Cap and Deferral Mechanism in our Investment Management Agreement of $9.3 million for the year ended December 31, 2024 compared to an Incentive Fee Cap of $9.8 million for the year ended December 31, 2023. The Incentive Fee Cap and Deferral Mechanism resulted in $9.3 million of reduced incentive fee expense and increased net investment income for the year ended December 31, 2024. The incentive fee on pre-incentive fee net investment income was subject to the Incentive Fee Cap for the year ended December 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. Performance based incentive fee expense decreased by $4.7 million, or 60.1%, to $3.1 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022. This decrease was due to an Incentive Fee Cap calculated based on the Incentive Fee Cap and Deferral Mechanism in our Investment Management Agreement of $9.8 million year ended December 31, 2023 compared to an Incentive Fee Cap of $1.0 million for the year ended December 31, 2022, offset by an increase of $20.6 million, or 46.9%, in Pre-Incentive Fee Net Investment Income for the year ended December 31, 2023 compared to the year ended December 31, 2022. The Incentive Fee Cap and Deferral Mechanism resulted in $9.8 million of reduced incentive fee expense and increased net investment income for the year ended December 31, 2023. The incentive fee on pre-incentive fee net investment income was subject to the Incentive Fee Cap for the year ended December 31, 2023 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

In 2023 and 2022, we elected to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income. For the years ended December 31, 2023 and 2022, we elected to carry forward taxable income in excess of current year distributions of $38.6 million and $18.8 million, respectively. At December 31, 2023 and 2022, excise tax payable of $1.5 million and $0.7 million, respectively, was recorded.

Current wording

In 2024 and 2023, we elected to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income. For the years ended December 31, 2024 and 2023, we elected to carry forward taxable income in excess of current year distributions of $38.4 million and $38.6 million, respectively. At December 31, 2024 and 2023, excise tax payable of $1.5 million was recorded.

Previous wording

Administrative fee expense, professional fees and general and administrative expenses were $5.7 million, $4.8 million and $4.7 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Current wording

Administrative fee expense, professional fees and general and administrative expenses were $5.8 million, $5.7 million and $4.8 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Previous wording

During the year ended December 31, 2023, we realized net losses on investments totaling $29.7 million primarily due to the settlement of four 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. During the same period, we repaid our 2019 Asset-Backed Notes in full which resulted in a realized loss on debt extinguishment of $0.2 million. During the year ended December 31, 2022, we realized net losses on investments totaling $9.5 million primarily due to the settlement of one of our debt investments and the settlement of one of our other investments.

Current wording

During the year ended December 31, 2024, we realized net losses on investments totaling $34.6 million primarily due to the settlement of two of our debt investments and the realization of one of our warrant 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. During the year ended December 31, 2023, we realized net losses on investments totaling $29.7 million primarily due to the settlement of four 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. During the same period, we repaid our 2019 Asset-Backed Notes in full which resulted in a realized loss on debt extinguishment of $0.2 million.

Previous wording

During the year ended December 31, 2023, we recorded net unrealized depreciation on investments totaling $48.8 million which was primarily due to (1) the unrealized depreciation on three of our debt investments (2) the unrealized depreciation on two of our equity investments and (3) the unrealized depreciation on our warrant investments partially offset by the reversal of previously recorded unrealized depreciation from the settlement of three of our debt investments. During the year ended December 31, 2022, we recorded net unrealized depreciation on investments totaling $5.6 million which was primarily due to the unrealized depreciation on three of our debt investments partially offset by (1) the unrealized appreciation on our warrant investments and (2) the reversal of previously recorded unrealized depreciation from the settlement of one our debt investments and the settlement of one of our other investments.

Current wording

During the year ended December 31, 2024, we recorded net unrealized depreciation on investments totaling $18.8 million which was primarily due to (1) the unrealized depreciation on five of our debt investments, (2) the unrealized depreciation on one of our other investments and (3) the reversal of previously unrealized appreciation from the realization of one of our warrant investments offset by (1) the reversal of previously recorded unrealized depreciation from the settlement of one of our debt investments and (2) the unrealized appreciation on one of our other investments. During the year ended December 31, 2023, we recorded net unrealized depreciation on investments totaling $48.8 million which was primarily due to (1) the unrealized depreciation on three of our debt investments (2) the unrealized depreciation on two of our equity investments and (3) the unrealized depreciation on our warrant investments partially offset by the reversal of previously recorded unrealized depreciation from the settlement of three of our debt investments.

Previous wording

As of December 31, 2023 and 2022, we had cash and investments in money market funds of $73.1 million and $27.7 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 December 31, 2023 and 2022, we had $2.6 million and $2.8 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 Credit Facilities and issuance of our public and private debt offerings.

Current wording

As of December 31, 2024 and 2023, we had cash and investments in money market funds of $97.5 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 December 31, 2024 and 2023, we had $3.3 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 Credit Facilities, and issuance of our public and private debt securities.

Previous wording

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

Current wording

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

Previous wording

On September 22, 2023, we terminated the 2021 Equity Distribution Agreement and entered into a new ATM sales agreement, or the 2023 Equity Distribution Agreement, with the Sales Agents. The remaining shares available under the 2021 Equity Distribution Agreement are no longer available for issuance. The 2023 Equity Distribution Agreement provides that we may offer and sell our shares from time to time through the Sales Agents up to $150.0 million worth of our common stock, in amounts and at times to be determined by us. Sales of our common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “at-the-market,” as defined in Rule 415 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.

Current wording

On September 22, 2023, we terminated the 2021 Equity Distribution Agreement and entered into a new ATM sales agreement, or the 2023 Equity Distribution Agreement, with the Sales Agents. The remaining shares available under the 2021 Equity Distribution Agreement are no longer available for issuance. The 2023 Equity Distribution Agreement provides that we may offer and sell shares of our common stock from time to time through the Sales Agents up to $150.0 million worth of our common stock, in amounts and at times to be determined by us. Sales of our common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “at-the-market,” as defined in Rule 415 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.

Previous wording

During the year ended December 31, 2023, we sold 2,248,830 shares of common stock under the 2023 Equity Distribution Agreement and the 2021 Equity Distribution Agreement. For the same period, we received total accumulated net proceeds of approximately $26.2 million, including $0.7 million of offering expenses, from these sales. During the year ended December 31, 2022, we sold 3,982,684 shares of common stock under the 2021 Equity Distribution Agreement. For the same period, we received total accumulated net proceeds of approximately $50.3 million, including $1.0 million of offering expenses, from these sales.

Current wording

During the year ended December 31, 2024, we sold 6,300,095 shares of common stock under the 2023 Equity Distribution Agreement. For the same period, we received total accumulated net proceeds of approximately $66.4 million, including $1.4 million of offering expenses, from these sales. During the year ended December 31, 2023, we sold 2,248,830 shares of common stock under the 2023 Equity Distribution Agreement and the 2021 Equity Distribution Agreement. For the same period, we received total accumulated net proceeds of approximately $26.2 million, including $0.7 million of offering expenses, from these sales.

Previous wording

At December 31, 2023 and 2022, the outstanding principal balance under the Key Facility was $70.0 million and $5.0 million, respectively. As of December 31, 2023 and 2022, we had borrowing capacity under the Key Facility of $80.0 million and $120.0 million, respectively. At December 31, 2023 and 2022, $25.0 million and $40.2 million, respectively, was available, subject to existing terms and advance rates.

Current wording

At December 31, 2024, there was no outstanding principal balance under the Key Facility. At December 31, 2023, the outstanding principal balance under the Key Facility was $70.0 million. As of December 31, 2024 and 2023, we had borrowing capacity under the Key Facility of $150.0 million and $80.0 million, respectively. At December 31, 2024 and 2023, $24.8 million and $25.0 million, respectively, was available for borrowing under the Key Facility, subject to existing terms and advance rates.

Previous wording

At December 31, 2023 and 2022, the outstanding principal balance under the NYL Facility was $181.0 million and $176.8 million, respectively. As of December 31, 2023 and 2022, we had borrowing capacity under the NYL Facility of $69.0 million and $23.2 million, respectively. At December 31, 2023 and 2022, $17.4 million and $23.2 million, respectively, was available, subject to existing terms and advance rates.

Current wording

At December 31, 2024 and 2023, the outstanding principal balance under the NYL Facility was $181.0 million. As of December 31, 2024 and 2023, we had borrowing capacity under the NYL Facility of $69.0 million. At December 31, 2024 and 2023, $8.4 million and $17.4 million, respectively, was available for borrowing under the NYL Facility, subject to existing terms and advance rates.

Previous wording

We entered into the Key Facility effective November 4, 2013. Through June 21, 2021, the interest rate on the Key Facility was based upon the one-month LIBOR plus a spread of 3.25%, with a LIBOR floor of 1.00%. From and after June 30, 2021, 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% and 7.50% as of December 31, 2023 and 2022, respectively. The interest rates in effect were 8.75% and 7.75% as of December 31, 2023 and 2022. The Key Facility requires the payment of an unused line fee in an amount equal 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 7.50% and 8.50% as of December 31, 2024 and 2023, respectively. The interest rate in effect was 7.60% and 8.75% as of December 31, 2024 and 2023. The Key Facility requires the payment of an unused line fee in an amount up to 0.75% 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 April 21, 2020, we purchased all of the limited liability company interests in HSLFI. HFI is a wholly-owned subsidiary of HSLFI. 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.

Current wording

HFI is a wholly-owned subsidiary of HSLFI. 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.

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

Under the terms of the NYL Facility, we are required to maintain a reserve cash balance, which may be used to pay monthly interest and principal payments on the NYL Facility. We have segregated these funds and classified them as restricted investments in money market funds. At December 31, 2023 and 2022, there were approximately $1.4 million and $1.0 million, respectively, of restricted investments.

Current wording

Under the terms of the NYL Facility, we are required to maintain a reserve cash balance, which may be used to pay monthly interest and principal payments on the NYL Facility. We have segregated these funds and classified them as restricted investments in money market funds. At December 31, 2024 and 2023, there were approximately $1.4 million of such restricted investments.

Previous wording

There were $181.0 million and $176.8 million in notes issued to the NYL Noteholders as of December 31, 2023 and 2022, respectively, at an interest rate of 5.96% and 5.57%, respectively. As of December 31, 2023 and 2022, we had borrowing capacity under the NYL Facility of $69.0 million and $23.2 million, respectively. At December 31, 2023 and 2022, $17.4 million and $23.2 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 December 31, 2024 and 2023 at an interest rate of 6.47% and 5.96%, respectively. As of December 31, 2024 and 2023, we had borrowing capacity under the NYL Facility of $69.0 million. At December 31, 2024 and 2023, $8.4 million and $17.4 million, respectively, was available for borrowing, subject to existing terms and advance rates.

Previous wording

As of December 31, 2023 and 2022, the 2022 Asset-Backed Notes had an outstanding principal balance of $100.0 million.

Current wording

As of December 31, 2024 and 2023, the 2022 Asset-Backed Notes had an outstanding principal balance of $81.1 million and $100.0 million, respectively.

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 December 31, 2023 and 2022, there were approximately $1.3 million and $1.2 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 December 31, 2024 and 2023, there were approximately $1.0 million and $1.3 million, respectively, of such restricted investments.

Previous wording

On March 30, 2021, we issued and sold an aggregate principal amount of $57.5 million of 4.875% notes due in 2026. The amount of 2026 Notes issued and sold included the full exercise by the underwriters of their option to purchase $7.5 million aggregate principal of additional notes. The 2026 Notes have a stated maturity of March 30, 2026 and may be redeemed in whole or in part at our option at any time or from time to time on or after March 30, 2023 at a redemption price of $25 per security plus accrued and unpaid interest. The 2026 Notes bear interest at a rate of 4.875% per year, payable quarterly on March 30, June 30, September 30 and December 30 of each year. The 2026 Notes are our direct unsecured obligations and (i) rank equally in right of payment with our current and future unsecured indebtedness; (ii) are senior in right of payment to any of our future indebtedness that expressly provides it is subordinated to the 2026 Notes; (iii) are effectively subordinated to all of our existing and future secured indebtedness (including indebtedness that is initially unsecured to which we subsequently grant 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 our subsidiaries. As of December 31, 2023, we were in material compliance with the terms of the 2026 Notes. The 2026 Notes are listed on the New York Stock Exchange under the symbol “HTFB”.

Current wording

On March 30, 2021, we issued and sold an aggregate principal amount of $57.5 million of 4.875% notes due in 2026. The amount of 2026 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. The 2026 Notes have a stated maturity of March 30, 2026 and may be redeemed in whole or in part at our option at any time or from time to time on or after March 30, 2023 at a redemption price of $25 per security plus accrued and unpaid interest. The 2026 Notes bear interest at a rate of 4.875% per year, payable quarterly on March 30, June 30, September 30 and December 30 of each year. The 2026 Notes are our direct unsecured obligations and (i) rank equally in right of payment with our current and future unsecured indebtedness; (ii) are senior in right of payment to any of our future indebtedness that expressly provides it is subordinated to the 2026 Notes; (iii) are effectively subordinated to all of our existing and future secured indebtedness (including indebtedness that is initially unsecured to which we subsequently grant 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 our subsidiaries. As of December 31, 2024, we were in material compliance with the terms of the 2026 Notes. The 2026 Notes are listed on the New York Stock Exchange under the symbol “HTFB”.

Previous wording

As of December 31, 2023 and 2022, other assets were $3.6 million and $2.8 million, respectively, which was primarily comprised of debt issuance costs and prepaid expenses.

Current wording

As of December 31, 2024 and 2023, other assets were $6.5 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 December 31, 2023, we had unfunded commitments of $180.5 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 December 31, 2023, 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 December 31, 2024, we had unfunded commitments of $181.0 million. This includes $20.0 million of 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 December 31, 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 year ended December 31, 2023, the Incentive Fee Cap and Deferral Mechanism resulted in deferral of $9.8 million of incentive fee which may become subject to payment up to three years after the date of deferment. As of December 31, 2023, the total amount subject to recoupment was $10.8 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 year ended December 31, 2024 and 2023, the Incentive Fee Cap and Deferral Mechanism resulted in deferral of $9.3 million and $9.8 million, respectively, of incentive fee which may become subject to payment up to three years after the date of deferment. As of December 31, 2024 and 2023, the total amount subject to recoupment was $20.2 million and $10.8 million, respectively.

Previous wording

We have adopted an “opt out” DRIP for our common stockholders. As a result, if we declare a distribution, then stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock unless a stockholder specifically “opts out” of our DRIP. If a stockholder opts out, that stockholder will receive cash distributions. Although distributions paid in the form of additional shares of our common stock will generally be subject to U.S. federal, state and local taxes, stockholders participating in our DRIP will not receive any corresponding cash distributions with which to pay any such applicable taxes. If our common stock is trading above NAV, a stockholder receiving distributions in the form of additional shares of our common stock will be treated as receiving a distribution of an amount equal to the fair market value of such shares of our common stock. We may use newly issued shares to implement the DRIP, or we may purchase shares in the open market in connection with our obligations under the DRIP.

Current wording

We have adopted an “opt out” DRIP for our common stockholders. As a result, if we declare a distribution, then stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock, net of applicable withholding taxes, unless a stockholder specifically “opts out” of our DRIP. If a stockholder opts out, that stockholder will receive cash distributions. Although distributions paid in the form of additional shares of our common stock will generally be subject to U.S. federal, state and local taxes, stockholders participating in our DRIP will not receive any corresponding cash distributions with which to pay any such applicable taxes. If our common stock is trading above NAV, a stockholder receiving distributions in the form of additional shares of our common stock will be treated as receiving a distribution of an amount equal to the fair market value of such shares of our common stock. We may use newly issued shares to implement the DRIP, or we may purchase shares in the open market in connection with our obligations under the DRIP.

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 years ended December 31, 2023, 2022 and 2021, our Advisor earned $15.9 million, $18.3 million and $14.7 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 Advisers Act. 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 years ended December 31, 2024, 2023 and 2022, our Advisor earned $12.6 million, $15.9 million and $18.3 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 years ended December 31, 2023, 2022 and 2021, our Advisor earned $1.7 million, $1.7 million and $1.3 million, respectively, 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 years ended December 31, 2024, 2023 and 2022, our Advisor earned $1.7 million pursuant to the Administration Agreement.

Previous wording

We believe that we derive substantial benefits from our relationship with our Advisor. Our Advisor may manage other investment vehicles, or Advisor Funds, with the same investment strategy as us, which now may include investment vehicles managed by affiliates of Monroe Capital. Our Advisor may provide us an opportunity to co-invest with the Advisor Funds. Under the 1940 Act, absent receipt of exemptive relief from the SEC, we and our affiliates are precluded from co-investing in negotiated investments. Monroe Capital's exemptive relief to permit joint transactions granted by the SEC on October 15, 2014, as amended, permits us to co-invest with the Advisor Funds, subject to certain conditions.

Current wording

We believe that we derive substantial benefits from our relationship with our Advisor. Our Advisor and its affiliates may manage other investment vehicles with similar or overlapping investment strategies as us. Our Advisor may provide us with an opportunity to co-invest with other investment vehicles managed by our Advisor, Monroe and/or their affiliates. Under the 1940 Act, absent receipt of exemptive relief from the SEC, we and our affiliates are precluded from co-investing in negotiated investments with other funds and accounts sponsored or managed by our Advisor, Monroe and their affiliates. Since June 30, 2023, we and our Advisor have relied on exemptive relief from the SEC granted to certain affiliates of Monroe on October 15, 2014, as amended on January 10, 2023. The exemptive relief affords our Advisor greater flexibility to negotiate the terms of co-investments if our Board determines that it would be advantageous for us to co-invest with other accounts sponsored or managed by our Advisor, Monroe or their affiliates in a manner consistent with our investment objectives, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors.

Previous wording

Investments are recorded at fair value. Prior to July 30, 2022, our Board determined the fair value of our investments. Pursuant to the amended SEC Rule 2a-5 of the 1940 Act, on July 29, 2022, our Board designated the Advisor as our “valuation designee.” Our 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 our investments, based on input of our 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 trailing twelve-month period. The Valuation Committee determines fair values pursuant to a valuation policy approved by our 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 our valuation of portfolio companies lacking readily available market quotations subject to review by an independent valuation firm. We apply fair value to substantially all of our investments in accordance with Topic 820,Fair Value Measurement, of the Financial Accounting Standards Board’s, or FASB’s, Accounting Standards Codification as amended, or ASC, which establishes a framework used to measure fair value and requires disclosures for fair value measurements. We have categorized our investments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy. 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 are not readily available, our own assumptions are set to reflect those that we believe market participants would use in pricing the financial instrument at the measurement date.

Current wording

Investments are recorded at fair value. Prior to July 30, 2022, our Board determined the fair value of our investments. Pursuant to the amended SEC Rule 2a-5 of the 1940 Act, on July 29, 2022, our Board designated our Advisor as the “valuation designee.” Our 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 our investments, based on input of our 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 trailing twelve-month period. The Valuation Committee determines fair values pursuant to a valuation policy approved by our 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 our valuation of portfolio companies lacking readily available market quotations subject to review by an independent valuation firm. We apply fair value to substantially all of our investments in accordance with Topic 820,Fair Value Measurement, of the Financial Accounting Standards Board’s, or FASB’s, Accounting Standards Codification as amended, or ASC, which establishes a framework used to measure fair value and requires disclosures for fair value measurements. We have categorized our investments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy. 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 are not readily available, our own assumptions are set to reflect those that we believe market participants would use in pricing the financial instrument at the measurement date.

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 years ended December 31, 2023 and 2022, we did not recognize any interest income from debt investments on non-accrual status. For the year ended December 31, 2021, we recognized as interest income interest payments of $1.3 million received from two portfolio companies whose debt investments were 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 year ended December 31, 2024, we recognized in interest income $0.2 million from debt investments while on non-accrual status. For the years ended December 31, 2023 and 2022, we did not recognize any interest income from debt investments 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 due.