Horizon Technology Finance Provides Fourth Quarter 2023 Portfolio Update

Rhea-AI Summary

Horizon Technology Finance Corporation (NASDAQ: HRZN) originated $63.4 million of new loans in Q4, ending 2023 with a committed backlog of $218 million. The portfolio update for the fourth quarter ended December 31, 2023, includes significant originations, liquidity events, partial paydowns, principal payments received, commitments, pipeline and term sheets, and details about the warrant and equity portfolio.

Insights

Financial Analyst

The recent portfolio update from Horizon Technology Finance Corporation (HRZN) highlights a series of strategic moves that are likely to influence the company's financial performance and investor sentiment. The origination of $63.4 million in new loans during Q4 is a robust indicator of HRZN's active lending in the venture debt market. The diversification of their investments across various industries, such as technology and healthcare, mitigates sector-specific risks and capitalizes on growth opportunities within these verticals.

Furthermore, the committed backlog of $218 million sets a positive tone for HRZN's future revenue potential, as these commitments could convert into interest income once drawn upon by portfolio companies. However, investors should be mindful of the conditional nature of these commitments and the possibility that not all will materialize into funded loans. The increase in loan payoffs and partial paydowns to $48 million from the previous quarter's $37.9 million suggests a healthy liquidity position for HRZN, enabling reinvestment opportunities or returns to shareholders.

HRZN's co-investment with Monroe Capital is particularly noteworthy as it signifies strategic partnerships that can enhance deal flow and provide access to larger transactions. The impact of such co-investments on HRZN's earnings and risk profile warrants close monitoring. Lastly, the holding of warrants in portfolio companies presents an avenue for additional gains, although the realization of these gains is contingent on the future success of these companies.

Market Research Analyst

The venture debt industry, where HRZN operates, is characterized by its support to high-growth potential companies in exchange for debt with warrants, which can lead to substantial returns if the underlying companies succeed. HRZN's diverse portfolio across sectors like technology, life sciences and sustainability indicates a strategic approach to tap into emerging trends and innovations. The first co-investment with Monroe Capital may signal HRZN's intent to leverage synergies and expand its reach within the venture capital ecosystem.

The increase in HRZN's committed backlog suggests a growing demand for venture debt, which could be driven by a robust entrepreneurial environment or potentially higher reticence from traditional lenders. This backlog is a double-edged sword; while it represents potential future income, it also implies that HRZN must maintain a strong due diligence process to mitigate the risk of default.

HRZN's focus on companies like VERO Biotech, which is involved in critical healthcare technology and green construction technology company Nexii Building Solutions, reflects a strategic alignment with sectors that are expected to experience significant growth and societal impact. The performance of HRZN's investments in these sectors could serve as a barometer for investor sentiment towards innovation-driven markets.

Economist

The financial activities of HRZN offer insights into broader economic trends, particularly in the realm of venture capital and innovation financing. The venture debt market serves as a complement to equity financing and is a critical component of the funding ecosystem for start-ups and growth companies. HRZN's performance, including its ability to originate new loans and manage a substantial backlog, reflects an environment where alternative financing solutions are in demand.

The loan payoffs and partial paydowns exceeding the previous quarter's figures indicate a potentially improving economic condition for HRZN's portfolio companies, which may have broader implications for economic growth and innovation. Companies that successfully pay down debt are likely to contribute positively to economic activity through expansion and job creation.

However, economic fluctuations, shifts in monetary policy and changes in investor risk appetite can significantly impact the venture debt market. HRZN's ability to navigate these factors while maintaining a healthy loan portfolio and capitalizing on its warrant and equity positions will be critical in sustaining its performance and delivering shareholder value in the long term.

- HRZN Originates $63.4 Million of New Loans in Q4 -
- HRZN Ends 2023 with Committed Backlog of $218 Million -   

FARMINGTON, Conn., Jan. 10, 2024 /PRNewswire/ -- Horizon Technology Finance Corporation (NASDAQ: HRZN) ("Horizon"), an affiliate of Monroe Capital, and a leading specialty finance company that provides capital in the form of secured loans to venture capital-backed companies in the technology, life science, healthcare information and services, and sustainability industries, today provided its portfolio update for the fourth quarter ended December 31, 2023 and an update on the lending platform ("Horizon Platform") of Horizon Technology Finance Management LLC ("HTFM"), its investment adviser.

"We closed out the year with another solid quarter of quality originations at the Horizon Platform, including $63 million of loans funded by HRZN," said Gerald A. Michaud, President of HRZN and HTFM. "We are pleased to announce that, during the quarter, HRZN completed its first co-investment with funds managed by Monroe Capital, a direct benefit to Horizon from HTFM's access to Monroe's substantial investment platform. In addition to the new originations in the quarter, HRZN's committed backlog of debt investments increased to $218 million. HRZN also received $48 million in loan payoffs and partial paydowns during the quarter, generating additional accelerated income and further validating our predictive pricing strategy. Entering 2024, we remain well positioned to further grow HRZN's venture debt portfolio and deliver additional value to HRZN's shareholders."

Fourth Quarter 2023 Portfolio Update

Originations 

During the fourth quarter of 2023, HRZN funded a total of $63.4 million of loans, as follows:

• $32.5 million to a new portfolio company, VERO Biotech, Inc., a developer of innovative nitric oxide delivery technology for the acute care setting. The loan is HRZN's first co-investment with Monroe Capital. This funding will support the continued commercial expansion of the GENOSYL® Delivery System (GENOSYL® DS), as well as other R&D initiatives.
• $10.0 million to a new portfolio company, Parse Biosciences, Inc., a provider of accessible and scalable single cell sequencing solutions.
• $7.5 million to a new portfolio company, MicroTransponder, Inc., the developer of the Vivistim Paired VNS System, the only FDA-approved neurostimulation device designed to improve stroke recovery by restoring 2-3 times more motor function in a stroke survivor's hand and arm compared to traditional rehabilitation therapy.
• $6.5 million to an existing portfolio company, TemperPack Technologies, Inc., a manufacturer of sustainable insulated packaging for perishable last mile deliveries.
• $5.0 million to an existing portfolio company, a developer of innovative medical devices and therapies to address the evolving needs of interventional specialists.
• $1.9 million to an existing portfolio company, Nexii Building Solutions Inc., a green construction technology company focused on creating environmentally-friendly, durable, cost-efficient and disaster-resilient buildings.

Liquidity Events and Partial Paydowns

HRZN experienced liquidity events from four portfolio companies in the fourth quarter of 2023, including principal prepayments and partial paydowns of $48.3 million, compared to $37.9 million of principal prepayments and partial paydowns during the third quarter of 2023: 

• In October, HRZN received a principal paydown of $11.0 million on its venture loans to Evelo Biosciences, Inc.
• In December, Primary Kids, Inc. ("Primary Kids") paid its outstanding principal balance of $5.1 million on its venture loan, plus interest, end-of-term payment and prepayment fee. HRZN continues to hold warrants in Primary Kids.
• In December, Infobionic, Inc. ("Infobionic") paid its outstanding principal balance of $2.2 million on its venture loan, plus interest, end-of-term payment and prepayment fee. HRZN continues to hold warrants in Infobionic.
• In December, Magnolia Medical Technologies, Inc. ("Magnolia") paid its outstanding principal balance of $30.0 million on its venture loan, plus interest, end-of-term payment and prepayment fee. HRZN continues to hold warrants in Magnolia.

Principal Payments Received 

During the fourth quarter of 2023, HRZN received regularly scheduled principal payments on investments totaling $11.8 million, compared to regularly scheduled principal payments totaling $9.1 million during the third quarter of 2023.

Commitments

During the quarter ended December 31, 2023, HRZN closed new loan commitments totaling $89.4 million to four companies, compared to new loan commitments of $157.7 million to seven companies in the third quarter of 2023.

Pipeline and Term Sheets 

As of December 31, 2023, HRZN's unfunded loan approvals and commitments ("Committed Backlog") were $218.3 million to 15 companies. This compares to a Committed Backlog of $201.8 million to 19 companies at HRZN as of September 30, 2023. HRZN's portfolio companies have discretion whether to draw down such commitments and the right of a portfolio company to draw down its commitment is often subject to achievement of specific milestones and other conditions to borrowing.  Accordingly, there is no assurance that any or all of these transactions will be funded by HRZN. Across the Horizon Platform, the quarter ended with an additional $10.5 million of unfunded loan approvals and commitments.

During the quarter, HTFM received signed a term sheet that is in the approval process, which may result in the Horizon Platform providing up to an aggregate of $20.0 million of new debt investments. These opportunities are subject to underwriting conditions including, but not limited to, the completion of due diligence, negotiation of definitive documentation and investment committee approval, as well as compliance with HTFM's allocation policy. Accordingly, there is no assurance that any or all of these transactions will be completed or funded by HRZN.

Warrant and Equity Portfolio

As of December 31, 2023, HRZN held a portfolio of warrant and equity positions in 103 portfolio companies, including 89 private companies, which provides the potential for future additional returns to HRZN's shareholders.

About Horizon Technology Finance 

Horizon Technology Finance Corporation (NASDAQ: HRZN), externally managed by Horizon Technology Finance Management LLC, an affiliate of Monroe Capital, is a leading specialty finance company that provides capital in the form of secured loans to venture capital backed companies in the technology, life science, healthcare information and services, and sustainability industries. The investment objective of Horizon is to maximize its investment portfolio's return by generating current income from the debt investments it makes and capital appreciation from the warrants it receives when making such debt investments. Horizon is headquartered in Farmington, Connecticut, with a regional office in Pleasanton, California, and investment professionals located throughout the U.S. Monroe Capital is a $17 billion asset management firm specializing in private credit markets across various strategies, including direct lending, technology finance, venture debt, opportunistic, structured credit, real estate and equity. To learn more, please visit horizontechfinance.com. 

Forward-Looking Statements

Statements included herein may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical facts included in this press release may constitute forward-looking statements and are not guarantees of future performance, condition or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in the Company's filings with the Securities and Exchange Commission. Horizon undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of the date of this press release.

Contacts:

Investor Relations:
ICR
Garrett Edson
ir@horizontechfinance.com
(860) 284-6450

Media Relations:
ICR
Chris Gillick
HorizonPR@icrinc.com  
(646) 677-1819

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SOURCE Horizon Technology Finance Corporation

FAQ

What is the ticker symbol for Horizon Technology Finance Corporation?

The ticker symbol for Horizon Technology Finance Corporation is HRZN.

What is the committed backlog of Horizon Technology Finance Corporation as of December 31, 2023?

As of December 31, 2023, the committed backlog of Horizon Technology Finance Corporation was $218 million.

How much new loans did Horizon Technology Finance Corporation originate in Q4?

Horizon Technology Finance Corporation originated $63.4 million of new loans in Q4.

What types of companies does Horizon Technology Finance Corporation provide capital to?

Horizon Technology Finance Corporation provides capital in the form of secured loans to venture capital-backed companies in the technology, life science, healthcare information and services, and sustainability industries.

How many portfolio companies does Horizon Technology Finance Corporation hold warrant and equity positions in?

As of December 31, 2023, Horizon Technology Finance Corporation held a portfolio of warrant and equity positions in 103 portfolio companies.