Horizon Technology Finance (HRZN) risk factors, FY2025 10-K

Other

1. 01The termination of the Merger Agreement and/or Asset Purchase Agreement could negatively impact usNew
2. 02The Transactions are subject to customary closing conditions, including stockholder approvals. If such conditions are not satisfied or waived, the Transactions will not close, which may result in material adverse consequences to our business, operations and business prospectsNew
3. 03If the Transactions do not close, we will not benefit from the expenses incurred in their pursuitNew
4. 04The Merger and/or Asset Sale may trigger certain “change of control” provisions and other restrictions in contracts of us, MRCC or their affiliates (e.g., under contracts governing indebtedness), and the failure to obtain any required consents or waivers could adversely impact the combined companyNew
5. 05Our 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
6. 06Our Board of Directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval
7. 07We are exposed to risks associated with original issue discount and PIK instruments

Risks Related to the Merger

1. 08The termination of the Merger Agreement and/or Asset Purchase Agreement could negatively impact usNew
2. 09we may not be able to find another party willing and able to undertake a similar transaction that would provide the same potential advantages to usNew
3. 10The opinions delivered to our Board and the MRCC Board by the respective financial advisors to our Special Committee and the MRCC Special Committee prior to signing the Merger Agreement and the Asset Purchase Agreement do not reflect changes in circumstances after the date of the opinionsNew
4. 11Because the market price of our common stock will fluctuate, our stockholders and the stockholders of MRCC cannot be sure of the market value of the amount of Merger Consideration to be paid to MRCC’s stockholders until the closing of the MergerNew
5. 12The market price and liquidity of the market for our common stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performanceNew
6. 13If the Transactions close as contemplated, we will receive a substantial amount of cash, as net proceeds, that we must then deploy, and you may not agree with the way we allocate the net proceeds from the TransactionsNew
7. 14We could have indemnification obligations to our directors or officers and MRCC’s directors or officersNew
8. 15The Merger Agreement and Asset Purchase Agreement limit our ability to pursue alternatives to the TransactionsNew
9. 16We and MRCC are subject to operational uncertainties and contractual restrictions while the Transactions are pendingNew
10. 17We, MRCC and MCIP may waive one or more conditions to the Transactions without resoliciting stockholder approvalNew
11. 18The market price of our common stock after the Merger will be affected by factors different from those affecting our common stock price prior to our signing the Merger AgreementNew
12. 19We may not replicate our historical performance, or the historical success of MRCCNew

Risks Related to our Advisor and Affiliates

1. 20We are dependent upon key personnel of our Advisor and our Advisor’s ability to hire and retain qualified personnel
2. 21Our Advisor may change or be restructured
3. 22Our Advisor may, from time to time, possess material non-public information regarding our portfolio companies, limiting our investment discretion
4. 23Our Advisor has significant potential conflicts of interest with us and our stockholders
5. 24Our incentive fee may impact our Advisor’s structuring of our investments, including by causing our Advisor to pursue speculative investments
6. 25Our ability to enter into transactions with our affiliates is restricted, which may limit the scope of investments available to us20% rewritten
7. 26The valuation process for certain of our portfolio holdings creates a conflict of interest
8. 27Our 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. 28We cannot predict how tax reform legislation will affect us, our investments, or our stockholders, and any such legislation could adversely affect our business
10. 29If 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. 30Our 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. 31Our 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. 32Our stockholders are not able to evaluate our future investments
2. 33We 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. 34Our 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. 35If our investments do not meet our performance expectations, you may not receive distributions
5. 36Most of our portfolio companies will need additional capital, which may not be readily available
6. 37Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio
7. 38preserve or enhance the value of our investment
8. 39Economic 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. 40Changes to United States tariff and import/export regulations may have a negative effect on our portfolio companies and, in turn, harm us
10. 41Any 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. 42If 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. 43We 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. 44The 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. 45The disposition of our debt investments may result in contingent liabilities
15. 46Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies
16. 47There 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. 48An 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. 49We 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. 50Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity
20. 51Our 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. 52Our portfolio companies operating in the technology industry are subject to risks particular to that industry
22. 53As part of our investment strategy, we have invested, and plan to invest in the future, in companies in the life science industry
23. 54Our 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. 55Our investments in the sustainability industry are subject to many risks, including volatility, intense competition, unproven technologies, periodic downturns and potential litigation
25. 56If our portfolio companies are unable to commercialize their technologies, products, business concepts or services, the returns on our investments could be adversely affected
26. 57Our portfolio companies may rely upon licenses for all or part of their intellectual property
27. 58If 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. 59We do not expect to control any of our portfolio companies
29. 60We may invest in foreign portfolio companies or secure our investments with the assets of our portfolio companies’ foreign subsidiaries
30. 61We 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. 62We are subject to risks associated with investments having original issue discount (“OID”) ETPs and/or PIK features
32. 63OID, 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. 64If 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. 65Because 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. 66Because 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. 67We may have difficulty paying our required distributions if we recognize taxable income before or without receiving cash
37. 68If 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. 69Regulations 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. 70If 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. 71New or modified laws or regulations governing our operations may adversely affect our business35% rewritten
4. 72Our 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
5. 73Our quarterly and annual operating results may fluctuate due to the nature of our business

Risks Related to our Securities

1. 74We borrow money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us
2. 75Assumes $971 million in total assets, $638 million in outstanding debt, $319 million in net assets, and an average cost of borrowed funds of 6.49% at December 31, 202557% rewritten
3. 76If 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. 77If we are unable to obtain additional debt financing, our business could be materially adversely affected33% rewritten
5. 78There 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
6. 79Our common stock price may be volatile and may decrease substantially
7. 80We and our Advisor could be the target of litigation
8. 81Shares 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
9. 82Investing in shares of our common stock may involve an above average degree of risk
10. 83Anti-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
11. 84require stockholders to provide advance notice of new business proposals and director nominations under specific procedures
12. 85The 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
13. 86If 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
14. 87Your 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
15. 88Investors in offerings of our common stock may incur immediate dilution upon the closing of an offering
16. 89If 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
17. 90Stockholders experience dilution in their ownership percentage if they do not participate in our dividend reinvestment plan
18. 91Stockholders may receive shares of our common stock as dividends, which could result in adverse tax consequences to them
19. 92The trading market or market value of our publicly issued Debt Securities that we may issue may fluctuate
20. 93market rate of interest higher or lower than the rate borne by our Debt Securities
21. 94Terms relating to redemption may materially adversely affect your return on the debt securities that we may issue
22. 95Credit ratings provided by third party credit rating agencies may not reflect all risks of an investment in Debt Securities that we may issue
23. 96Sales 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
24. 97Our Debt Securities are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future
25. 98Our Debt Securities are structurally subordinated to the indebtedness and other liabilities of our subsidiaries
26. 99The indenture governing our Debt Securities contains limited protection for holders of our Debt Securities
27. 100In 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
28. 101An 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
29. 102The optional redemption provision may materially adversely affect the return on our Debt Securities
30. 103If we default on our obligations to pay our other indebtedness, we may not be able to make payments on our Debt Securities
31. 104FATCA withholding may apply to payments to certain foreign entities
32. 105General economic conditions could adversely affect the performance of our investments
33. 106We 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
34. 107Price 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
35. 108We are currently in a period of capital markets disruption and economic uncertaintyNew
36. 109Terrorist attacks, acts of war, natural disasters, disease outbreaks or pandemics may impact our portfolio companies and harm our business, operating results and financial condition
37. 110We incur significant costs as a result of being a publicly traded company
38. 111Compliance 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
39. 112We 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
40. 113Any 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
41. 114While interest rates have reached their highest levels in the recent past, it is uncertain when and at what pace interest rates will decline
42. 115Because 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
43. 116We are subject to risks related to corporate social responsibility
44. 117The effect of global climate change may impact the operations of our portfolio companies
45. 118Inflation may adversely affect the business, results of operations and financial condition of our portfolio companies
46. 119Technological developments in artificial intelligence could disrupt the markets in which we operate and subject us to increased competition, legal and regulatory risks and compliance costsNew