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Note 7 - Borrowings
 6 Months Ended
Jun. 30, 2024
Notes to Financial Statements  
Debt Disclosure [Text Block]

Note 7. Borrowings

 

The following table shows the Company’s borrowings as of June 30, 2024 and  December 31, 2023:

 

  

June 30, 2024

  

December 31, 2023

 
  

Total

  

Balance

  

Unused

  

Total

  

Balance

  

Unused

 
  

Commitment

  

Outstanding

  

Commitment

  

Commitment

  

Outstanding

  

Commitment

 
  

(In thousands)

 

Key Facility

 $150,000  $—  $150,000  $150,000  $70,000  $80,000 

NYL Facility

  250,000   181,000   69,000   250,000   181,000   69,000 

Nuveen Facility

  100,000   50,000   50,000   —   —   — 

2022 Asset-Backed Notes

  100,000   100,000   —   100,000   100,000   — 

2027 Notes

  57,500   57,500   —   57,500   57,500   — 

2026 Notes

  57,500   57,500   —   57,500   57,500   — 

Total before debt issuance costs

  715,000   446,000   269,000   615,000   466,000   149,000 

Unamortized debt issuance costs attributable to term borrowings

  —   (3,256)  —   —   (3,765)  — 

Total borrowings outstanding, net

 $715,000  $442,744  $269,000  $615,000  $462,235  $149,000 

 

As of June 30, 2024, with certain limited exceptions, the Company, as a BDC, is only allowed to borrow amounts such that the Company’s asset coverage, as defined in the 1940 Act, is at least 150% after such borrowings. As of June 30, 2024, the asset coverage for borrowed amounts was 174%.

 

Credit Facilities

 

Key Facility

 

The Company entered into the Key Facility with Key effective November 4, 2013. On June 20, 2024, the Company amended the Key Facility, among other things, (i) to extend the date on which the Company may request advances under the Key Facility to June 20, 2027 and to extend the maturity date to June 20, 2029 and (ii) to amend the interest rate to be based on the rate of interest published in The Wall Street Journal as the prime rate in the United States plus 0.10%, with a prime rate floor of 4.10%. On June 29, 2023, the Company amended the Key Facility, among other things, to increase the commitment amount to $150 million and to increase the amount of the accordion feature which now allows for the potential increase in the total commitment amount to $300 million. The Key Facility is collateralized by all debt investments and warrants held by Credit II and permits an advance rate of up to 60% of eligible debt investments held by Credit II. The Key Facility contains covenants that, among other things, require the Company to maintain a minimum net worth and to restrict the debt investments securing the Key Facility to certain criteria for qualified debt investments and includes portfolio company concentration limits as defined in the related loan agreement. The prime rate was 8.50% on June 30, 2024 and December 31, 2023. The average interest rate on the Key Facility for the three months ended June 30, 2024 and 2023 was 8.73% and 8.41%, respectively. The average interest rate on the Key Facility for the six months ended June 30, 2024 and 2023 was 8.74% and 8.17%, respectively. The Key Facility requires the payment of an unused line fee in an amount up to 0.50% on an annualized basis of any unborrowed amount available under the facility. As of June 30, 2024 and  December 31, 2023, the Company had borrowing capacity under the Key Facility of $150.0 million and $80.0 million, respectively. At June 30, 2024 and  December 31, 2023, $14.0 million and $25.0 million, respectively, was available for borrowing, subject to existing terms and advance rates.

 

NYL Facility

 

HFI entered into the NYL Facility with the NYL Noteholders for an aggregate purchase price of up to $100.0 million, with an accordion feature of up to $200.0 million at the mutual discretion and agreement of HSLFI and the NYL Noteholders. On June 1, 2018, HSLFI sold or contributed to HFI certain secured loans made to certain portfolio companies pursuant to the Sale and Servicing Agreement. Any notes issued by HFI are collateralized by all investments held by HFI and permit an advance rate of up to 67% of the aggregate principal amount of eligible debt investments. The notes were issued pursuant to the indenture. The interest rate on the notes issued under the NYL Facility was based on the three year USD mid-market swap rate plus a margin of between 3.55% and 5.15% with an interest rate floor, depending on the rating of such notes at the time of issuance.

 

On May 24, 2023, the Company amended its NYL Facility to, among other things, increase the commitment by $50.0 million to enable its wholly-owned subsidiary to issue up to $250.0 million of secured notes. In addition, the amendment amended the interest rate for advances made after May 24, 2023, fixing the interest rate at the greater of (i) 4.60% and (ii) the Three Year I Curve plus 3.50%, with the interest rate to be reset on any advance date. 

 

On May 6, 2024, the Company amended its NYL Facility to, among other things, extend the investment period to June 2025 and the maturity date of all advances to June 2030. In addition, the amendment amended the interest rate for advances made after May 6, 2024, fixing the interest rate at the greater of (i) 4.60% and (ii) the Three Year I Curve plus 3.20%, with the interest rate to be reset on any advance date. 

 

There were $181.0 million in advances made by the NYL Noteholders as of June 30, 2024 and  December 31, 2023. The interest rate was 6.34% and 5.62% as of June 30, 2024 and 2023, respectively. As of June 30, 2024 and  December 31, 2023, the Company had borrowing capacity under the NYL Facility of $69.0 million. At June 30, 2024 and  December 31, 2023, $17.9 million and $17.4 million, respectively, was available for borrowing, subject to existing terms and advance rates.

 

Under the terms of the NYL Facility, the Company is required to maintain a reserve cash balance, which may be used to pay monthly interest and principal payments on the NYL Facility. The Company has segregated these funds and classified them as restricted investments in money market funds. At  June 30, 2024 and December 31, 2023, there were approximately $1.4 million of restricted investments.

 

Nuveen Facility

 

HFII entered into the Nuveen Facility with the Nuveen Noteholders for an aggregate purchase price of up to $100.0 million, with an accordion feature of up to $200.0 million at the mutual discretion and agreement of HFII and the Nuveen Noteholders. On June 21, 2024, the Company sold or contributed to HFII certain secured loans made to certain portfolio companies pursuant to the Sale and Servicing Agreement. Any notes issued by HFII are collateralized by all investments held by HFII and permit an advance rate of up to 67.5% of the aggregate principal amount of eligible debt investments. The notes were issued pursuant to the Indenture. The Nuveen Facility bears interest, payable monthly, determined at a rate per annum equal to the greater of (i) the yield for the United States Treasury constant maturity 3-year and 5-year in the most recent statistical release published by the Board of Governors of the Federal Reserve System designated as “Selected Interest Rates (Daily) – H.15” interpolated to a 4.88-year weighted average life plus 3.15% and (ii) 5.00%. The Company may request advances under the Nuveen Facility through June 21, 2027 and the Nuveen Facility is scheduled to mature on June 10, 2033.

 

There were $50.0 million in advances made by the Nuveen Noteholders as of June 30, 2024. The interest rate as of June 30, 2024 was 7.38%. As of June 30, 2024, the Company had borrowing capacity under the Nuveen Facility of $50.0 million. At June 30, 2024, $14.1 million was available for borrowing, subject to existing terms and advance rates. The Nuveen Facility was not outstanding at December 31, 2023.

 

Under the terms of the Nuveen Facility, the Company is required to maintain a reserve cash balance, which may be used to pay monthly interest and principal payments on the Nuveen Facility. The Company has segregated these funds and classified them as restricted investments in money market funds. At June 30, 2024, there were approximately $0.7 million of restricted investments.

 

Securitizations

 

2019 Asset-Backed Notes

 

On  August 13, 2019, the Company completed a term debt securitization in connection with which an affiliate of the Company made an offering of the 2019 Asset-Backed Notes. The 2019 Asset-Backed Notes were rated A+(sf) by Morningstar Credit Ratings, LLC. There was no change in the rating since  August 13, 2019. The 2019 Asset-Backed Notes were repaid in full on  November 22, 2023. 

 

The 2019 Asset-Backed Notes were issued by the 2019‑1 Trust pursuant to a note purchase agreement, dated as of  August 13, 2019, by and among the Company and Keybanc Capital Markets Inc. as Initial Purchaser, and were backed by a pool of loans made to certain portfolio companies of the Company and secured by certain assets of those portfolio companies and were to be serviced by the Company. Interest on the 2019 Asset-Backed Notes was paid, to the extent of funds available, at a fixed rate of 4.21% per annum. The reinvestment period of the 2019 Asset-Backed Notes ended  July 15, 2021 and the maturity date was  September 15, 2027.

 

As of  December 31, 2023, the 2019 Asset-Backed Notes were repaid in full.

 

2022 Asset-Backed Notes

 

On November 9, 2022, the Company completed a term debt securitization in connection with which an affiliate of the Company made an offering of the 2022 Asset-Backed Notes. The 2022 Asset-Backed Notes were rated A by DBRS, Inc. There has been no change in the rating since November 9, 2022.

 

The 2022 Asset-Backed Notes were issued by the 2022‑1 Trust pursuant to a note purchase agreement, dated as of November 9, 2022, by and among the Company and Keybanc Capital Markets Inc. as Initial Purchaser, and are backed by a pool of loans made to certain portfolio companies of the Company and secured by certain assets of those portfolio companies and are to be serviced by the Company. Interest on the 2022 Asset-Backed Notes will be paid, to the extent of funds available, at a fixed rate of 7.56% per annum. The reinvestment period of the 2022 Asset-Backed Notes ends November 15, 2024 and the maturity date is November 15, 2030.

 

As of  June 30, 2024 and  December 31, 2023, the 2022 Asset-Backed Notes had an outstanding principal balance of $100.0 million.

 

Under the terms of the 2022 Asset-Backed Notes, the Company is required to maintain a reserve cash balance, funded through proceeds from the sale of the 2022 Asset-Backed Notes, which may be used to pay monthly interest and principal payments on the 2022 Asset-Backed Notes. The Company has segregated these funds and classified them as restricted investments in money market funds. At  June 30, 2024 and  December 31, 2023, there were approximately $1.1 million and $1.3 million, respectively, of restricted investments.

 

Unsecured Notes

 

2026 Notes

 

On March 30, 2021, the Company issued and sold an aggregate principal amount of $57.5 million of 4.875% notes due in 2026 (the “2026 Notes”). The amount of 2026 Notes issued and sold included the full exercise by the underwriters of their option to purchase $7.5 million in aggregate principal of additional notes. The 2026 Notes have a stated maturity of March 30, 2026 and may be redeemed in whole or in part at the Company’s option at any time or from time to time on or after March 30, 2023 at a redemption price of $25 per security plus accrued and unpaid interest. The 2026 Notes bear interest at a rate of 4.875% per year, payable quarterly on March 30, June 30, September 30 and December 30 of each year. The 2026 Notes are the Company’s direct unsecured obligations and (i) rank equally in right of payment with the Company’s current and future unsecured indebtedness; (ii) are senior in right of payment to any of the Company’s future indebtedness that expressly provides it is subordinated to the 2026 Notes; (iii) are effectively subordinated to all of the Company’s existing and future secured indebtedness (including indebtedness that is initially unsecured to which the Company subsequently grants security), to the extent of the value of the assets securing such indebtedness, and (iv) are structurally subordinated to all existing and future indebtedness and other obligations of any of the Company’s subsidiaries. As of June 30, 2024, the Company was in material compliance with the terms of the 2026 Notes. The 2026 Notes are listed on the New York Stock Exchange under the symbol “HTFB”.

 

2027 Notes

 

On June 15, 2022, the Company issued and sold an aggregate principal amount of $50.0 million of 6.25% notes due in 2027 and on July 11, 2022, pursuant to the underwriters’ 30 day option to purchase additional notes, the Company sold an additional $7.5 million of such notes (collectively, the “2027 Notes”). The 2027 Notes have a stated maturity of June 15, 2027 and may be redeemed in whole or in part at the Company’s option at any time or from time to time on or after June 15, 2024 at a redemption price of $25 per security plus accrued and unpaid interest. The 2027 Notes bear interest at a rate of 6.25% per year, payable quarterly on March 30, June 30, September 30 and December 30 of each year, commencing on September 30, 2022. The 2027 Notes are the Company’s direct unsecured obligations and (i) rank equally in right of payment with the Company’s current and future unsecured indebtedness; (ii) are senior in right of payment to any of the Company’s future indebtedness that expressly provides it is subordinated to the 2027 Notes; (iii) are effectively subordinated to all of the Company’s existing and future secured indebtedness (including indebtedness that is initially unsecured to which the Company subsequently grants security), to the extent of the value of the assets securing such indebtedness, and (iv) are structurally subordinated to all existing and future indebtedness and other obligations of any of the Company’s subsidiaries. As of June 30, 2024, the Company was in material compliance with the terms of the 2027 Notes. The 2027 Notes are listed on the New York Stock Exchange under the symbol “HTFC”.