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Why Shares of Horizon Technology Finance Corp Are Falling

What happened

Shares of the specialty financing company Horizon Technology Finance Corp (NASDAQ: HRZN) traded nearly 11% lower as of 1:28 p.m. ET after the company announced the pricing of a public offering of common stock.

So what

Horizon Technology plans to issue 2.5 million shares of common stock at $14.35 per share, raising gross proceeds of nearly $35.9 million. Underwriters will also have the option to purchase an additional 375,000 shares of common stock over the next 30 days when the offering closes on March 14.

Horizon plans to use proceeds from the offering to repay outstanding debt under its revolving credit facility. Then Horizon will reborrow funds from that facility to use for general corporate purposes and pay for operating expenses and other cash obligations.

Image source: Getty Images.

Now what

It's not surprising to see Horizon taking a hit today because issuing more shares of common stock dilutes shareholders, which essentially means they own a smaller share of the overall pie and therefore will receive a smaller piece of earnings.

That said, the current offering of $14.35 is now decently over First Horizon's current stock price of $13.25.

Also, Horizon is largely in the business of making secured loans to venture-backed start-ups. While higher interest rates will make the cost of doing business for earlier-stage companies more expensive and possibly bring down valuations, VCs just raised a record amount of dry powder in 2021.

Investors in 2021 raised a staggering $128.3 billion in new capital, surpassing the $100 billion threshold for the first time ever. While the public tech markets have been a mess in recent months, I still think investors will want to deploy all of that capital, creating a potentially good opportunity for Horizon. The company also pays an extremely attractive 9% dividend yield at current levels.

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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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