Note 7.         Borrowings

The following table shows the Company’s borrowings as of December 31, 2025 and 2024:

As of December 31, 2025, with certain limited exceptions, the Company, as a BDC was only allowed to borrow amounts such that the Company’s asset coverage, as defined in the 1940 Act, was at least 150% after such borrowings. As of December 31, 2025, the asset coverage for borrowed amounts was 167%.

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%. Prior to June 20, 2024, the interest rate on the Key Facility was based on Prime plus 0.25%, with a prime rate floor of 4.25%. 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 6.75% and 7.50% on December 31, 2025 and 2024, respectively. The average interest rate for the years ended December 31, 2025 and 2024 was 7.47% and 8.48%, respectively. The Key Facility requires the payment of an unused line fee in an amount up to 0.75% on an annualized basis of any unborrowed amount available under the facility. As of December 31, 2025 and 2024, the Company had borrowing capacity under the Key Facility of $150.0 million. At December 31, 2025 and 2024, $49.6 million and $24.8 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. All advances under the NYL Facility are scheduled to mature in June 2030.

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. 

On April 25, 2025, the Company amended its NYL Facility to, among other things, extend the investment period to June 5, 2027. In addition, the amendment amended the interest rate for advances made after April 25, 2025, fixing the interest rate at the greater of (i) 4.60% and (ii) the Three Year I Curve plus 2.95% 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 December 31, 2025 and 2024. The interest rate as of  December 31, 2025 and 2024 was 6.57% and 6.47%, respectively. As of December 31, 2025 and 2024, the Company had borrowing capacity under the NYL Facility of $69.0 million. At December 31, 2025 and 2024, $1.9 million and $8.4 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 December 31, 2025 and 2024, there were approximately $1.4 million of such 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 bore 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 (the “Pricing Benchmark”) plus 3.15% and (ii) 5.00%. 

On May 23, 2025, the Company amended its Nuveen Facility to, among other things, extend the investment period to June 21, 2028 and the maturity date to June 10, 2034, and increase the commitment by $100.0 million which enables its wholly-owned subsidiary to issue up to $200.0 million of secured notes. In addition, the amendment amended the interest rate for advances made after May 23, 2025, fixing the interest rate at the greater of (i) 5.00% and (ii) the Pricing Benchmark plus 2.95%. 

There were $90.0 million and $75.0 million in advances made by the Nuveen Noteholders as of December 31, 2025 and 2024, respectively. The interest rate as of  December 31, 2025 and 2024 was 7.21% and 7.14%, respectively. As of December 31, 2025 and 2024, the Company had borrowing capacity under the Nuveen Facility of $110.0 million and $25.0 million, respectively. At December 31, 2025 and 2024, $12.1 million and $9.9 million, respectively was available for borrowing, subject to existing terms and advance rates.

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 December 31, 2025 and 2024, there were approximately $1.1 million and $1.0 million, respectively of such restricted investments.

Securitization

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 was no change in the rating since November 9, 2022. The 2022 Asset-Backed Notes were repaid in full on September 11, 2025. 

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 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 2022 Asset-Backed Notes was 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 ended  November 15, 2024 and the maturity date was November 15, 2030.

As of December 31, 2025, the 2022 Asset-Backed Notes were repaid in full. The Company accelerated $0.9 million of unamortized debt issuance costs related to the 2022 Asset-Backed Notes.  As of December 31, 2024, the 2022 Asset-Backed Notes had an outstanding principal balance of $81.1 million.

Under the terms of the 2022 Asset-Backed Notes, the Company was required to maintain a reserve cash balance, funded through proceeds from the sale of the 2022 Asset-Backed Notes, which may have been used to pay monthly interest and principal payments on the 2022 Asset-Backed Notes. The Company had segregated these funds and classified them as restricted investments in money market funds. At December 31, 2024, there were approximately $1.0 million of such 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 had a stated maturity of March 30, 2026 and could have been 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 bore 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 were the Company’s direct unsecured obligations and (i) ranked equally in right of payment with the Company’s current and future unsecured indebtedness; (ii) were senior in right of payment to any of the Company’s future indebtedness that expressly provides it is subordinated to the 2026 Notes; (iii) were 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) were structurally subordinated to all existing and future indebtedness and other obligations of any of the Company’s subsidiaries. As of December 31, 2025, the Company was in material compliance with the terms of the 2026 Notes. The 2026 Notes were listed on the New York Stock Exchange under the symbol “HTFB”. On January 28, 2026, the Company redeemed all of the outstanding principal balance of the 2026 Notes plus accrued interest.

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  December 31, 2025, 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”.

On December 15, 2025, the Company issued and sold an aggregate principal amount of $57.5 million of 7.00% notes due in 2028 (the “2028 Notes”). The 2028 Notes have a stated maturity of December 15, 2028 and may be redeemed in whole or in part at the Company’s option at any time or from time to time on or prior to June 15, 2028, at a redemption price equal to the greater of: (1)(a) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date on a semi-annual basis at the Treasury Rate plus 50 basis points less (b) interest accrued to the date of redemption, and (2) 100% of the principal amount of the 2028 Notes to be redeemed, plus, in either case, accrued and unpaid interest thereon to, but not including, the redemption date. On or after June 15, 2028, the Company  may redeem the 2028 Notes, in whole or in part, at any time and from time to time, at a redemption price equal to 100% of the principal amount of the 2028 Notes being redeemed plus accrued and unpaid interest there onto the date of redemption. The 2028 Notes bear interest at a rate of 7.00% per year, payable semi-annually on June 15 and December 15 of each year, commencing on June 15, 2026. The 2028 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 2028 Notes; (iii) are effectively subordinated to all of the Company’s existing and future secured indebtedness (including indebtedness that is initially unsecured to which we subsequently grant 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 December 31, 2025, the Company was in material compliance with the terms of the 2028 Notes.

Convertible Notes

On October 17, 2024, the Company entered into a note purchase agreement (the “2031 Note Purchase Agreement”, by and among the Company, and each purchaser named therein, in connection with the issuance and sale of $20.0 million aggregate principal of the Company’s 7.125% convertible notes due 2031 (the “2031 Convertible Notes” and collectively with the 2030 Convertible Notes, the “Convertible Notes”), in a transaction exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. The Company received net proceeds (before expenses) from the sale of the 2031 Convertible Notes of approximately $18.6 million.

The 2031 Convertible Notes mature on October 17, 2031, unless earlier converted or repurchased in accordance with their terms. The 2031 Convertible Notes bear interest at a rate of 7.125% per year, subject to additional interest or repurchase obligation upon certain events, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, beginning on December 31, 2024. If an investment grade rating is not maintained with respect to the 2031 Convertible Notes, additional interest of 1.00% per annum will accrue on the 2031 Convertible Notes until such time as the 2031 Convertible Notes have received an investment grade rating of “BBB-” (or its equivalent) or better. The Company will also be required to pay additional interest of 2.00% per annum (x) on any overdue payment of interest and (y) during the continuance of an Event of Default (as defined in the 2031 Note Purchase Agreement). In addition, on the occurrence of a Change in Control Repurchase Event (as defined in the 2031 Note Purchase Agreement) or Delisting Event (as defined in the 2031 Note Purchase Agreement), the Company will generally be required to make an offer to purchase the outstanding 2031 Convertible Notes at a price equal to 100% of the principal amount of such 2031 Convertible Notes plus accrued and unpaid interest to the repurchase date.

The 2031 Convertible Notes are direct unsecured obligations of the Company and rank (i) equal in right of payment to the Company’s existing and future unsecured indebtedness that is not subordinated in right of payment to the 2031 Convertible Notes; (ii) senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the 2031 Convertible Notes; (iii) effectively junior in right of payment to the Company’s existing and future secured indebtedness (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness; and (iv) structurally junior to all existing and future indebtedness and other obligations of any of the Company’s subsidiaries. No sinking fund is provided for the 2031 Convertible Notes.

At any time on or after April 17, 2025, at the Company’s sole option, the Company may redeem, from time to time, the 2031 Convertible Notes in whole or in part, out of funds legally available for such redemption, at 100% of the principal amount prepaid plus accrued but unpaid interest to but excluding the date of prepayment.

Each holder of a 2031 Convertible Note has the right, at such holder’s option, to convert any such 2031 Convertible Note, at any time on or after April 17, 2025 and prior to the close of business on the business day immediately preceding the maturity date, into such number of shares of common stock of the Company equal to the principal balance of the 2031 Convertible Note being converted on the conversion date plus the accrued but unpaid interest on the 2031 Convertible Note as of the conversion date, divided by the greater of (i) volume-weighted average closing sale price for the five trading days immediately prior to the relevant conversion date, or (ii) the Company’s most recently reported NAV per Share immediately prior to the date of exercise. If the 2031 Convertible Notes were converted as of December 31, 2025, 386,236 shares would have been issued based on the Company’s most recently reported NAV per share immediately prior to December 31, 2025 of $7.12. The last reported price for the Company’s common stock on December 31, 2025 was $6.45 per share.

No holder of 2031 Convertible Notes may exercise its conversion right if upon conversion the holder would receive shares that would cause funds and accounts managed by the investment adviser to such funds and accounts and any person controlled by the parent company of such investment adviser to beneficially own in the aggregate more than 4.99% of the shares outstanding at such time.

The 2031 Convertible Notes are not listed on any exchange and may not be transferred without the consent of the Company.

The 2031 Convertible Notes are recorded at their contractual amounts. At issuance, the Company determined that the embedded conversion option in the 2031 Convertible Notes is not required to be separately accounted for as a derivative under ASC 815, Derivatives and Hedging.

During the year ended December 31, 2025, the holders of a portion of the 2031 Convertible Notes converted $17.3 million in outstanding principal of the 2031 Convertible Notes plus accrued but unpaid interest on such outstanding principal as of the conversion date into 2,264,546 shares of common stock at a weighted average conversion price of $7.69 together with cash in lieu of fractional shares, in accordance with noteholder conversion notice. The Company accelerated $1.2 million of unamortized debt issuance costs related to the 2031 Convertible Notes. During the year ended December 31, 2024, the holders of the 2031 Convertible Notes did not convert any of the 2031 Convertible Notes.

As of December 31, 2025 and 2024, the aggregate outstanding principal balance of the 2031 Convertible Notes was $2.8 million and $20.0 million, respectively.  

The following table shows information about our senior securities as of December 31, 2025, 2024, 2023, 2022, 2021, 2020, 2019, 2018, 2017 and 2016: