Core net investment income of $2.9M or $0.30 per share after excluding the impact of the $1.9M fee for termination of the company's loan facility. Dividend of $0.345. After paying Q2 distribution of $0.345 and earning $0.19, undistributed spillover income stands at $0.42 per share.
Net unrealized appreciation on investments of $1.2M or $0.13 per share vs. $2.4M and $0.25 one year ago.
Net asset value of $14.23 per share vs. $14.32 at end of Q1 ad $14.89 one year ago. Today's closing price is $12.90.
Seeking to cut future interest expense and "better align" borrowing commitments with its equity base, Horizon Technology Finance (HRZN) decides on early repayment and closing of its term credit facility with Fortress Credit. Horizon still maintains a $50M line with Key Equipment Finance.
The move will cut the interest rate on Horizon's borrowings to 6.2% in H2 from 6.9% in H1. Horizon will record a charge of $1.9M in Q2, with $1.1M of that a non-cash expense from the acceleration of unamortized debt issuance cost, and the rest a prepayment penalty. This charge will be cut by about $700K as the company won't need to pay to an advisor a fee due had the facility not been terminated.
Starting in Q3, Horizon expects to reduce its quarterly interest expense by about $300K, or $0.03 per share.
The May 15 deadline for the SEC to change BDC's fee-reporting standards has come and gone with no action, meaning the sector's stocks will be removed from Russell's indices on June 27. A tick higher in the struggling sector since May 15 suggests maybe investors have discounted the news.
Looking for what to buy now, the team at Wells has put together an Adjusted Cash Flow Coverage metric. From Wells: "It is important for investors to discern which BDCs are overly reliant on fee income as a percentage of total revenues, which BDCs are not covering their dividend and which BDCs book meaningful non-cash income such as PIK."
The sector adjusted cash flow coverage average is 81%. Among those coming in above: GLAD, HRZN, TCAP, TCPC, HTGC, GBDC, ARCC. Among those below: TPVG, BKCC, PNNT, MCC, FSC. Struggling the most of late, Prospect Capital is pretty close to the sector average at 79%.
WIth business development companies getting the boot from S&P indices, will the Russell follow suit? It's a significant issue as investors are far more heavily invested in BDCs though the Russell indices than through S&P, writes Brendan Conway. He notes ownership of BDCs by Russell-tracking index funds are as high as 38 days worth of trading volume, and Wells Fargo estimates there are 24 BDCs where 10 or more days of average volume would be required to unload them.
Wells, however, does not see Russell following S&P's lead, with item #1 being Russell's desire to "represent small cap reality." "Russell Indices receive acclaim because they are willing to provide investors access to the true investable small cap universe. To the extent BDCs are excluded, this would deprive investors the opportunity to invest in what has become a very large/growing industry."
The following list is those BDCs with 10 or more days of average volume in index funds tracking Russell indices.
Horizon Technology Finance Corp is a specialty finance company that lends to and invests in development-stage companies in the technology, life science, healthcare information and services and cleantech industries, referred to as Target Industries.