Horizon Technology Finance: IIIQ 2021 Underperformers

Horizon Technology Finance (HRZN) has reported its IIIQ 2021 results. Total portfolio assets amount to $452.3mn (including $21mn in equity and warrants) spread over 74 companies.

According to HRZN’s own investment rating system – see below – there are only 3 underperforming investments, including 1 in its lowest rating. The total fair market value of these investments is $13.941mn, or 3.2% of the BDC’s total debt investments. That’s down from 4 investments and $14.612mn at December 31, 2021, or 4.4% of total debt.

 September 30, 2021   December 31, 2020   
  Debt Percentage  Debt Percentage 
 Number of Investments at of Debt Number of Investments at of Debt 
 Investments Fair Value Investments Investments Fair Value Investments 
 (Dollars in thousands)      
Credit Rating      
 4 5 $                       56,337 13.1% 6 $                       77,950 23.4%
 3 35 359,658 83.7 24 240,933 72.2
 2 2 11,141 2.6 3 12,875 3.9
 1 1 2,800 0.6 1 1,737 0.5
Total 43 $                    429,936 100.0% 34 $                    333,495 100.0%
HRZN: Investment Rating Table -IIIQ 2021

The three investments/companies – the BDC Credit Reporter believes – are MacuLogix, Inc. – a medical device manufacturer; Betrabrand Corporation, a technology driven women’s clothing company and MVI (ABDC) LLC, aka Stereo Vision, Inc – a software company.

We rate the first two companies CCR 3 in the BDC Credit Reporter’s system, where the likelihood of full recovery is greater than of loss. However, Stereo Vision – which went on non accrual in the IIIQ 2021 – is rated CCR 5.

MacuLogix is an investment that dates back to 2018 from HRZN. As of September 2021, HRZN has advanced $7.2mn at cost, mostly in the form of first lien term debt due in 2023. The preferred is discounted (59%) and the first lien debt (4%), from par in the prior quarter. The company was added to the underperformers list from the IIIQ 2021.

The company develops equipment for the treatment of macular degeneration. We have no idea – from the public record what might be going on at the company. We calculate that investment income potentially at risk is $1.25mn annually.

Betraband Corporationdesigns amazingly comfortable clothing for women who like to stay active all day long“. HRZN has invested $7.9mn in the business, dating back to IQ 2019. The name was added to the underperformers list from the IVQ 2020 but has been improving in valuation of late. The first lien debt is being discounted only (1%) and the preferred has been written to zero. On paper, $0.8mn of investment income annually is at risk, but this name might be returned to performing status shortly.

The only seriously troubled underperformer is Stereo Vision, which manufactures facial recognition technology for the army. However, HRZN’s exposure is modest: $3.8mn, of which $3.0mn is in debt. The BDC is foregoing (0.240mn) of investment income as a result of being on non accrual. The debt has been discounted between (7%) and (11%). The company was added to the underperformers in the IIQ 2021 and became non performing in the IIIQ 2021. We have no information as to why the investment has been written down.

We’ll be tracking all 3 companies in our daily searches of the public record, but only Stereo Vision – currently – in seriously enough impacted to warrant full length updates.