Horizon Technology Finance Corp Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Announced a strategic merger between Monroe Capital Corporation and Horizon Technology Finance Corporation. The Monroe BDC platform includes MRCC, Horizon, and MCIP.
• MRCC will sell substantially all assets to MCIP, with MRCC then merging with Horizon via a NAV-for-NAV share exchange. The merger is expected to provide Horizon with an estimated $165 million incremental equity capital.
• HTFM will waive up to $4 million in advisory fees over the first 4 full fiscal quarters post-closing. Horizon's existing stock repurchase program remains available under specific conditions.
• Strengthened leadership team with Paul Seitz as Chief Investment Officer. Plan to efficiently deploy merger proceeds into venture and public small-cap growth company loans, leveraging the Monroe platform.
• Anticipate eliminating ~$2.5 million of G&A expenses, representing a 30% immediate reduction compared to standalone entities' aggregate G&A levels.

Guidance

• Transactions expected to close in December 2025, subject to regulatory approvals and shareholder votes.
• HTFM to waive advisory fees up to $4 million over the first 4 quarters post-closing. Horizon's stock repurchase program is available for shares trading below 90% of NAV per share.
• Expect to be neutral to EPS in the first year post-merger, with potential for enhanced performance as capital is deployed.

Risks

• Forward-looking statements are subject to risks, and actual results may differ materially from those projected. Transactions are subject to regulatory approvals and shareholder votes. Uncertainties exist in completing the proposed transactions as outlined in forward-looking statements.

Q: About the two steps of the transaction, is the MRCC portfolio sold to Monroe's nontraded BDC close to marks, debt paid down, and cash proceeds sold to Horizon?

A: Yes.

Q: Regarding yield and net investment income targets, do you have hard targets?

A: No, we usually don't put in hard targets; we focus on efficiently operating the high-yield venture debt portfolio.

Q: What is the timing for deploying the capital from the merger?

A: We expect to deploy the capital fairly rapidly, with discussions already ongoing for deals.

Q: Will this allow Horizon to do larger deals?

A: Yes, the larger capital base allows us the opportunity to do larger deals, and we're already seeing this in practice with term sheets out on some deals.

Q: Is there a lockup for Monroe shareholders after receiving Horizon shares?

A: No, there's no contemplated lockup in the transaction.

Q: What are the trailing combined 4-quarter or trailing year G&A expenses between the two BDCs prior to synergies?

A: Information can be found on Slide 9 in the presentation.

Q: Does the merger affect the total return hurdle calculation look-back?

A: No, it will still be calculated as normal with the look-back and same features.