Monroe Capital & Horizon Technology Finance: Sweetening The Pot

Will This Do The Trick?

INTRODUCTION

For months, Monroe Capital LLC, which, through subsidiaries, is the external manager of both Monroe Capital Corporation(MRCC) and Horizon Technology Finance (HRZN), has been arranging a combination of the two public entities, with the latter as the surviving entity. For a full description of the planned merger, click here.

However, last Friday, as we reported in the BDC Common Stocks Market Recap over the weekend, an "activist" shareholder has spoken out against the combination. Here's an extract from the press release issued by Bulldog Investors LLP:

SADDLE BROOK, N.J., March 06, 2026 (GLOBE NEWSWIRE) -- Bulldog Investors, LLP (“Bulldog”), one of the largest shareholders of Monroe Capital Corporation (MRCC), holding 954,816 shares, announced today that it is urging Monroe’s Board of Directors to reconsider the proposed merger of Monroe into Horizon Technology Finance Corporation (HRZN).

When the proposed merger of Monroe into Horizon on a net asset value (“NAV”) for NAV basis was announced seven months ago, shareholders of Monroe were told that they would “realize [an] immediate 33% NAV premium to current trading price,” which was $6.21 at that time and a discount to its NAV of $8.29. At that time, Horizon’s shares were trading at a premium of about 12% above its NAV. An illustration of the merger benefits indicated to shareholders of Monroe that, assuming no significant changes occurred prior to the merger, they would receive shares of Horizon with a market value of about $8.56 per share (which was higher than both the market price of Monroe and its NAV) and that paid a dividend of 11 cents per month, thereby making the proposed transaction quite compelling.

Since then, the value of the merger consideration to Monroe’s shareholders has dramatically declined. The coup de grace was a shocking announcement a few days ago by Horizon that it is slashing its monthly dividend by 45% from 11 cents to 6 cents. Since then, Horizon’s share price has fallen by almost 25% (equivalent to almost two years of its new lower dividend) and Monroe’s shares have fallen in lockstep by a similar percentage to close yesterday at $4.50. Meanwhile, for the past seven months, investors have been kept in the dark about that massive dividend cut that Horizon’s Board should have known about from day one.

Your Turn

Coincidentally, or otherwise, this Monday, March 10, 2026, both MRCC and HRZN have offered shareholders new incentives to agree to the plan.

Monroe Capital Corporation (MRCC) (“MRCC”) today announced its intent to increase the amount of its final special distribution payable to legacy MRCC stockholders of record as of a time prior to the closing of its previously announced merger (the “Merger”) with Horizon Technology Finance Corporation (“HRZN”) by $13.0 million ($0.61 per share), contingent upon MRCC stockholder approval of the Merger and related closing conditions.Press Release

If that wasn't enough, HRZN also proposed new terms in return for a yes vote by both sets of shareholders:

HRZN’s Board of Directors has announced its intent to use HRZN’s current undistributed taxable earnings (i.e., spillover income) of $27.6 million as of December 31, 2025 to supplement HRZN’s regular monthly distributions to the combined company’s stockholders for two quarters following the closing of the Merger (the “HRZN Supplemental Distributions”), subject to the closing of the Merger and the HRZN Board’s declaration of the distributions. HRZN anticipates that the HRZN Supplemental Distributions for the first quarter post-closing will be in the range of at least $0.02 to $0.04 per share per month.Press Release

In toto, if you're an MRCC shareholder, this might result in your receiving up to 0.69 cents per share more than was being offered before. If you're an HRZN shareholder, the maximum benefit would be $0.08 per share, going by the language of the announcement.

However, those extra distributions are subject to various rules that the BDC has to follow, so the eventual payout could be lower:

In its consideration of declaration of any HRZN Supplemental Distributions, the HRZN Board will consider, among other things, (1) HRZN’s ongoing compliance with asset coverage ratio requirements under the Investment Company Act of 1940, (2) HRZN’s compliance with applicable financial and other operating covenants under HRZN’s financing agreements, and (3) HRZN’s general investment performance and available liquidity, as well as general market conditions at the time.Press Release

VIEWS

Dubious

By our reading of the facts, MRCC and HRZN are just offering both sets of shareholders their own capital back.

In the case of the former, the special distribution will result in more cash on the barrel for the MRCC shareholders that can be used for any purpose, and commensurately less capital going into HRZN.

As to the two quarters of supplementary dividends at HRZN, that will have the effect of depleting the BDC's capital and leaving a little less money to spend on new investments.

The supplementary dividend concession will do little to bridge the gap between the $1.32 per share HRZN paid out in 2026 and the current just-announced annual distribution rate of $0.72.

If all $0.08 of the supplementary dividend is received, that's only 16% of the gap, and a one-off.

The external manager, which has a great deal to gain by the merger, has not offered any concession itself.

Our View