Horizon Technology Finance (HRZN) risk factors, FY2024 10-K

Other

1. 01Political, social and economic uncertainty, including uncertainty related to tariffs, trade disputes, war and inflation, creates and exacerbates risks
2. 02Our operation as a BDC imposes numerous constraints on us and significantly reduces our operating flexibility. In addition, if we fail to maintain our status as a BDC, we might be regulated as a closed-end investment company, which would subject us to additional regulatory restrictions
3. 03Our Board of Directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval
4. 04We are exposed to risks associated with original issue discount and PIK instruments

Risks Related to our Advisor and Affiliates

1. 05We are dependent upon key personnel of our Advisor and our Advisor’s ability to hire and retain qualified personnel
2. 06Our Advisor may change or be restructured
3. 07Our Advisor may, from time to time, possess material non-public information regarding our portfolio companies, limiting our investment discretion
4. 08Our Advisor has significant potential conflicts of interest with us and our stockholders
5. 09Our incentive fee may impact our Advisor’s structuring of our investments, including by causing our Advisor to pursue speculative investments
6. 10Our ability to enter into transactions with our affiliates is restricted, which may limit the scope of investments available to us
7. 11The valuation process for certain of our portfolio holdings creates a conflict of interest
8. 12Our Advisor’s liability is limited, and we have agreed to indemnify our Advisor against certain liabilities, which may lead our Advisor to act in a riskier manner on our behalf than it would when acting for its own account
9. 13We cannot predict how tax reform legislation will affect us, our investments, or our stockholders, and any such legislation could adversely affect our business
10. 14If we are unable to manage our future growth effectively, we may be unable to achieve our investment objective, which could adversely affect our business, results of operations and financial condition and cause the value of your investment in us to decline
11. 15Our business plan and growth strategy depend to a significant extent upon our Advisor’s referral relationships. If our Advisor is unable to develop new or maintain existing relationships, or if these relationships fail to generate investment opportunities, our business could be materially adversely affected
12. 16Our Advisor can resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our business, results of operations or financial condition

Risks Related to Our Investments

1. 17Our stockholders are not able to evaluate our future investments
2. 18We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we generally are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer
3. 19Our portfolio may be focused on a limited number of industries, which will subject us to a risk of significant loss if there is a downturn in a particular industry
4. 20If our investments do not meet our performance expectations, you may not receive distributions
5. 21Most of our portfolio companies will need additional capital, which may not be readily available
6. 22Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio
7. 23preserve or enhance the value of our investment
8. 24Economic recessions or downturns could adversely affect our business and that of our portfolio companies which may have an adverse effect on our business, results of operations and financial condition
9. 25Changes to United States tariff and import/export regulations may have a negative effect on our portfolio companies and, in turn, harm us
10. 26Any unrealized depreciation we experience on our debt investments may be an indication of future realized losses, which could reduce our income available for distribution
11. 27If the assets securing the debt investments we make decrease in value, we may not have sufficient collateral to cover losses and may experience losses upon foreclosure
12. 28We may choose to waive or defer enforcement of covenants in the debt securities held in our portfolio, which may cause us to lose all or part of our investment in these companies
13. 29The lack of liquidity in our investments may adversely affect our business, and if we need to sell any of our investments, we may not be able to do so at a favorable price. As a result, we may suffer losses
14. 30The disposition of our debt investments may result in contingent liabilities
15. 31Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies
16. 32There may be circumstances where our debt investments could be subordinated to claims of other creditors, or we could be subject to lender liability claims
17. 33An investment strategy that primarily includes investments in privately held companies presents certain challenges, including a lack of available information about these companies, a dependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economic downturns
18. 34We may hold the debt securities of leveraged companies that may, due to the significant volatility of such companies, experience bankruptcy or similar financial distress
19. 35Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity
20. 36Our business and growth strategy could be adversely affected if government regulations, priorities and resources impacting the industries in which our portfolio companies operate change
21. 37Our portfolio companies operating in the technology industry are subject to risks particular to that industry
22. 38As part of our investment strategy, we have invested, and plan to invest in the future, in companies in the life science industry
23. 39Our portfolio companies operating in the healthcare information and services industry are subject to extensive government regulation and certain other risks particular to that industry
24. 40Our investments in the sustainability industry are subject to many risks, including volatility, intense competition, unproven technologies, periodic downturns and potential litigation
25. 41If our portfolio companies are unable to commercialize their technologies, products, business concepts or services, the returns on our investments could be adversely affected
26. 42Our portfolio companies may rely upon licenses for all or part of their intellectual property
27. 43If our portfolio companies are unable to protect their intellectual property rights, our business and prospects could be harmed, and if portfolio companies are required to devote significant resources to protecting their intellectual property rights, the value of our investment could be reduced
28. 44We do not expect to control any of our portfolio companies
29. 45We may invest in foreign portfolio companies or secure our investments with the assets of our portfolio companies’ foreign subsidiaries
30. 46We currently invest a portion of our capital in high-quality short-term investments, which generate lower rates of return than those expected from investments made in accordance with our investment objective
31. 47We are subject to risks associated with investments having original issue discount (“OID”) ETPs and/or PIK features
32. 48OID, ETPs, and PIK may create a risk of non-refundable cash payments to the Advisor based on non-cash accruals that may never be realized
33. 49If we are unable to satisfy the requirements under the Code for qualification as a RIC, we will be subject to corporate-level income taxes
34. 50Because we distribute all or substantially all of our investment company taxable income to our stockholders, we will need additional capital to finance our growth. If additional funds are unavailable or not available on favorable terms, our ability to grow will be impaired
35. 51Because we intend to distribute substantially all of our income to our stockholders to maintain our ability to be subject to tax as a RIC, we will need to raise additional capital to finance our growth. If funds are not available to us, we may need to curtail new investments, and our common stock value could decline
36. 52We may have difficulty paying our required distributions if we recognize taxable income before or without receiving cash
37. 53If we make loans to borrowers or acquire loans that contain deferred payment features, such as loans providing for the payment of portions of principal and/or interest at maturity, this could increase the risk of default by our borrowers

Risks Related to Business Development Companies

1. 54Regulations governing our operation as a BDC affect our ability to, and the way in which, we raise additional capital, which may expose us to additional risks
2. 55If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be precluded from investing according to our current business strategy
3. 56New or modified laws or regulations governing our operations may adversely affect our business
4. 57Regulators are also increasing scrutiny and considering regulation of the use of artificial intelligence technologies. We cannot predict what, if any, actions may be taken or the impact such actions may have on our business and results of operations
5. 58Our Board may change our operating policies and strategies, including our investment objective, without prior notice or stockholder approval, the effects of which may adversely affect our business
6. 59Our quarterly and annual operating results may fluctuate due to the nature of our business

Risks Related to our Securities

1. 60We borrow money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us
2. 61Assumes $1,022 million in total assets, $672 million in outstanding debt, $336 million in net assets, and an average cost of borrowed funds of 7.75% at December 31, 2024
3. 62If we are unable to comply with the covenants or restrictions in our Credit Facilities or make payments when due thereunder, our business could be materially adversely affected
4. 63If we are unable to obtain additional debt financing, our business could be materially adversely affected
5. 64We are subject to certain risks as a result of our interests in connection with the 2022-1 Securitization and our equity interest in the 2022-1 Trust
6. 65An event of default in connection with the 2022-1 Securitization could give rise to a cross-default under our other material indebtedness
7. 66We may not receive cash distributions in respect of our indirect ownership interest in the 2022-1 Trust
8. 67The interests of the Noteholders may not be aligned with our interests
9. 68Certain events related to the performance of 2022 Trust Loans could lead to the acceleration of principal payments on the 2022 Asset-Backed Notes
10. 69We have certain repurchase obligations with respect to the 2022 Trust Loans transferred in connection with the 2022-1 Securitization
11. 70There is a risk that investors in our equity securities may not receive distributions, that our distributions may not grow over time or that a portion of distributions paid to you may be a return of capital
12. 71Our common stock price may be volatile and may decrease substantially
13. 72We and our Advisor could be the target of litigation
14. 73Shares of closed-end investment companies, including BDCs, frequently trade at a discount to their NAV, which is separate and distinct from the risk that our NAV per share may decline
15. 74Investing in shares of our common stock may involve an above average degree of risk
16. 75Anti-takeover provisions in our charter documents and other agreements and certain provisions of the Delaware General Corporation Law, or DGCL, could deter takeover attempts and have an adverse impact on the price of our common stock
17. 76require stockholders to provide advance notice of new business proposals and director nominations under specific procedures
18. 77The 2031 Convertible Notes and the Debt Securities present other risks to holders of our common stock, including the possibility that such notes could discourage an acquisition of us by a third party and accounting uncertainty
19. 78If we elect to issue preferred stock, holders of any such preferred stock will have the right to elect members of our Board and have class voting rights on certain matters
20. 79Your interest in us may be diluted if you do not fully exercise your subscription rights in any rights offering. In addition, if the subscription price is less than our NAV per share, then you will experience an immediate dilution of the aggregate NAV of your shares
21. 80Investors in offerings of our common stock may incur immediate dilution upon the closing of an offering
22. 81If we sell common stock at a discount to our NAV per share, stockholders who do not participate in such sale will experience immediate dilution in an amount that may be material
23. 82Stockholders experience dilution in their ownership percentage if they do not participate in our dividend reinvestment plan
24. 83Stockholders may receive shares of our common stock as dividends, which could result in adverse tax consequences to them
25. 84The trading market or market value of our publicly issued Debt Securities that we may issue may fluctuate
26. 85market rate of interest higher or lower than the rate borne by our Debt Securities
27. 86Terms relating to redemption may materially adversely affect your return on the debt securities that we may issue
28. 87Credit ratings provided by third party credit rating agencies may not reflect all risks of an investment in Debt Securities that we may issue
29. 88Sales in the public market of substantial amounts of our common stock may have an adverse effect on the market price of our common stock, and the registration of a substantial amount of insider shares, whether or not actually sold, may have a negative impact on the market price of our common stock
30. 89Our Debt Securities are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future
31. 90Our Debt Securities are structurally subordinated to the indebtedness and other liabilities of our subsidiaries
32. 91The indenture governing our Debt Securities contains limited protection for holders of our Debt Securities
33. 92In addition, the indenture does not require us to offer to purchase our Debt Securities in connection with a change of control or any other event
34. 93An active trading market for our Debt Securities may not exist, which could limit holders’ ability to sell our Debt Securities or affect the market price of our Debt Securities
35. 94The optional redemption provision may materially adversely affect the return on our Debt Securities
36. 95If we default on our obligations to pay our other indebtedness, we may not be able to make payments on our Debt Securities
37. 96FATCA withholding may apply to payments to certain foreign entities
38. 97General economic conditions could adversely affect the performance of our investments
39. 98We operate in a highly competitive market for investment opportunities, and if we are not able to compete effectively, our business, results of operations and financial condition may be adversely affected and the value of your investment in us could decline
40. 99Price declines in the U.S. corporate debt market may adversely affect the fair value of our portfolio, reducing our NAV through increased net unrealized depreciation
41. 100The capital markets may experience periods of disruption and economic uncertainty. Such market conditions may materially and adversely affect debt and equity capital markets, which may have, a negative impact on our business and operations
42. 101Terrorist attacks, acts of war, natural disasters, disease outbreaks or pandemics may impact our portfolio companies and harm our business, operating results and financial condition
43. 102We incur significant costs as a result of being a publicly traded company
44. 103Compliance with Section 404 of the Sarbanes-Oxley Act involves significant expenditures, and non-compliance with Section 404 of the Sarbanes-Oxley Act would adversely affect us and the market price of our common stock
45. 104We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay distributions
46. 105Any of these events, could have a material adverse effect on our operating results and negatively affect the market price of our common stock and our ability to pay distributions to our stockholders
47. 106While interest rates have reached their highest levels in the recent past, it is uncertain when and at what pace interest rates will decline
48. 107Because many of our investments are not and typically will not be in publicly traded securities, the value of our investments may not be readily determinable, which could adversely affect the determination of our NAV
49. 108We are subject to risks related to corporate social responsibility
50. 109The effect of global climate change may impact the operations of our portfolio companies
51. 110Inflation may adversely affect the business, results of operations and financial condition of our portfolio companies