Greetings, and welcome to the Horizon Technology Finance Corporation Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Megan Bacon, Director, Investor Relations and Marketing for Horizon Technology Finance Corporation. Thank you. You may begin.
Thank you, and welcome to Horizon Technology Finance Corporation's fourth quarter 2021 conference call. Representing the company today are Rob Pomeroy, Chairman and Chief Executive Officer, Gerry Michaud, President, and Dan Trolio, Chief Financial Officer. I would like to point out that the Q4 earnings press release and Form 10-K are available on the company's website at horizontechfinance.com. Before we begin our formal remarks, I need to remind everyone that during this conference call, the company will make certain forward-looking statements, including statements with regard to the future performance of the company. Words such as believe, expect, anticipate, intends, or similar expressions are used to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions.
Certain factors could cause actual results to differ on a material basis from those projected in these forward-looking statements, and some of these factors are detailed in the risk factor discussion in the company's filings with the Securities and Exchange Commission, including the company's Form 10-K for the year ended December 31, 2021. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. At this time, I would like to turn the call over to Rob Pomeroy.
Good morning. Thank you for joining us and for your continued interest in Horizon. Today, I will update you on our performance a nd our current overall operating environment. Gerry will then discuss our business development efforts, our portfolio events, and our markets. Dan will detail our operating performance and financial condition, and then we will take some questions. 2021 was a fantastic year for HRZN and the lending platform of our advisor, Horizon Technology Finance Management. We began the year in a strong position after successfully navigating the most challenging aspects of the pandemic, and going into the year, having significantly grown our portfolio and strengthened our brand and our balance sheet. We are proud of our advisor's deep and professional team, their dedication, and their contributions to our excellent performance in 2021. Our performance validated our predictive pricing strategy and disciplined investment approach.
Like you, we are keeping a close eye on events around the world, including the turmoil unfolding in Eastern Europe and on domestic issues, including inflation and what this may all mean for us and the broader economy in the months ahead. Turning to our accomplishments in 2021. Our portfolio at year-end stood at $458 million, an increase of 30% from the end of 2020. Consider that we achieved 30% growth despite a record year of nearly $175 million in prepayments. Our growth was a testament to both our advisor's ability to source and win larger, high-quality venture debt investments and the increasing power of the Horizon brand in the venture debt community.
To that end, our advisor expanded its platform during 2021 through an agreement with a private investment vehicle to originate and manage a venture debt portfolio to invest alongside Horizon. We are pleased that this relationship has had a positive impact on Horizon's ability to access additional and larger investment opportunities. We finished the year with a committed and approved backlog of $127 million, our largest year-end total, which provides us with a significant base to further expand our portfolio in 2022. We generated net investment income of $1.41 per share, well in excess of our distribution level for the year, thanks in part to the continued success of our predictive pricing strategy.
Based on our outlook and our undistributed spillover income of $0.51 per share as of year-end, we declared monthly distributions of $0.10 per share through June of 2022, which will mark five and a half years of monthly distributions at this level. We achieved a portfolio yield on our debt investments of 16.2% for the second consecutive quarter and a full year portfolio yield of 15.7% at or near the top of the BDC industry. We maintained a stable credit profile with nearly 98% of our portfolio rated three or higher at the end of the year. We are consistently and actively managing our portfolio of investments to maintain its credit quality.
We ended the year with NAV of $11.56 per share, slight reduction from the prior quarter, but up 5% from the end of 2020. Finally, we strengthened our balance sheet in several respects. We raised approximately $30 million of equity in 2021 from our at-the-market program, all at a premium to NAV. We reduced our cost of capital by refinancing our publicly traded 6.25% notes with 4.875% notes. We ended the year with available liquidity and capacity to fund additional growth in our portfolio, as well as move closer to our target leverage of 1.2 to 1. Just this week, we announced an increase in the size of our credit facility with New York Life to $200 million, further increasing our capacity and positioning us for growth.
We entered 2022 with excellent momentum across the board and believe we remain well-positioned to continue growing our portfolio of investments and producing strong net investment income. Our advisor continues to strengthen the Horizon platform with new hires and by promoting members of our team into key management positions. This will ensure Horizon continues on its path to further growth and continued profitability. Demand for venture debt within our target industries is still burgeoning, and we are winning our share of transactions, including new awards thus far in the first quarter. Our committed backlog and pipeline of investments remains robust. Our advisor's expanded lending platform and the power of the Horizon brand continues to enable us to access a larger number of investment opportunities, and we continue to maintain capacity to execute on our backlog of commitments, as well as our advisor's pipeline of new opportunities.
2021 was a banner year for Horizon, and we believe the best is yet to come. I will now turn the call over to Gerry and Dan to give you more details and color on our performance. Gerald?
Thanks, Rob, and good morning, everyone. We funded a record number of 17 transactions totaling $80 million in the fourth quarter, another quarter of substantial activity. Our onboarding yield of 11.3% during the quarter reflected the power of our advisor's predictive pricing strategy and its continued discipline in pricing transactions that it expects to produce strong NII. We experienced 5 loan prepayments during the quarter, totaling $66 million, with the prepayment fees and accelerated income from such prepayments contributing to a debt portfolio yield of 16.2% for the second consecutive quarter, once again among the top in the BDC industry. In addition, we received proceeds of $400,000 from the sale of warrants and equity, a further testament to our method of structuring investments to generate additional yield from our growing warrant and equity portfolio.
As of December 31, we held warrant and equity positions in 76 portfolio companies with a fair value of $21 million. Since the beginning of 2020, we have received approximately $14 million in proceeds from warrant and equity investments. As we've consistently noted, structuring investments with warrants and equity rights is a key aspect of our venture debt strategy and an additional value generator. In the fourth quarter, we closed $115 million in new loan commitments and approvals and ended the quarter with a committed and approved backlog of $127 million, compared to $101 million at the end of the third quarter. While there is no guarantee we will fund all of the transactions in our committed or awarded backlog, the total supports a positive funding outlook for 2022.
Subsequent to the end of the year, we funded $32 million in new venture debt loans and received $12 million in loan prepayments. Our committed and approved backlog as of today has grown to $179 million, which includes new awards in 2022. In addition, our adviser's pipeline of new opportunities today is approximately $876 million, providing us with a solid base of opportunities to further grow our venture debt portfolio over the coming quarters. Our portfolio's credit quality remains robust as the fair value of nearly 98% of our debt portfolio consisted of 3 and 4 rated loans as of year-end. During the quarter, 1 investment was downgraded to a 1 rating, and at the end of the quarter, we had a total of 2 credits with a 1 or 2 rating.
As always, we are aggressively managing the one and two rated credits in order to achieve the best possible outcome. In Q4, we exited MVI, a one-rated credit in Q3, and fully recovered our principal. Turning now to the venture capital environment. It was a record-shattering year in 2021. According to PitchBook, approximately $330 billion was invested in VC-backed companies in 2021, essentially doubling 2020's prior record of $166 billion. In terms of VC fundraising, $32 billion was raised in the fourth quarter, and for the year, VC fundraising eclipsed the $100 billion mark for the first time ever as $128 billion was raised. Larger VC funds continue to drive the bulk of increased fundraising.
Regarding VC-backed exit activity, the IPO and SPAC window remained open during the quarter, helping to drive a total exit value for the year of nearly $775 billion. However, we have seen recent underperformance by some SPAC transactions and a decline in the public biotech market in the second half of 2021. While it will be challenging for VCs to match 2021's record performance in the venture capital market, particularly with respect to exit value, VC firms will start 2022 with record levels of dry powder that will provide liquidity for new investment opportunities and support for existing portfolio companies.
Numerous other options remain for venture-backed companies to generate additional liquidity, including venture debt, which has become an important tool for growth stage companies to finance their development plans. To that end, we expect 2022 to provide opportunity as well as competition for technology, life science, sustainability, and healthcare technology investments. With our advisor's strong and active lending platform, we believe we are well-positioned to compete and win in the current environment. Turning now to our lending markets. They continue to offer many quality investment opportunities to further fill and enhance our committed backlog and our advisor's pipeline. During the quarter, we made $46 million in debt investments to 7 new portfolio companies, consisting of 2 new life science investments and 5 new technology investments, providing further diversification to our portfolio. We also funded $34 million to 10 of our existing portfolio companies.
We continue to keep a close eye on the macro environment and are underwriting new investments with those concerns in mind. We also continue to have active and regular dialogue with all of our portfolio companies in order to maintain the credit quality of our portfolio. As we progress in 2022, venture debt opportunities remain attractive in the technology and sustainability markets. The life science public equity markets have significantly tightened, which is impacting valuations and access to capital for some biotechs. However, life science venture capital firms have plenty of dry powder and find lower valuations to be an opportunity to selectively invest in both private and public biotech companies with strong clinical pipelines. Historically, when the public markets for biotech companies tighten, the market looks for alternative funding sources such as big pharma collaborations and M&A, as well as venture debt.
We are seeing opportunities come to the venture debt market that fit that description. Our advisor will remain disciplined in its marketing and underwriting and continue to seek quality investments that will rationally grow our portfolio. We believe we remain well-positioned to continue to deliver additional long-term shareholder value in 2022 and beyond. With that, I will now turn the call over to Dan.
Thanks, Jerry, and good morning, everyone. As Rob and Jerry mentioned, the fourth quarter capped off an excellent year for Horizon as we significantly grew our portfolio and generated strong NII that more than covered our distributions while maintaining a strong overall balance sheet and stable credit quality. We believe we entered 2022 positioned to expand our portfolio and generate additional long-term value for our shareholders. To recap 2021, we grew our portfolio by 30% to $458 million. Our advisor expanded its platform to originating and managing a venture debt portfolio for a private investment vehicle, which expands our ability to win transactions and grow our portfolio in 2022. We reduced our cost of capital during the year by redeeming our 6.25% notes, replacing them with 4.875% notes.
Through our ATM program, we successfully and creatively sold 1.9 million shares and raised $30 million in 2021, which included receiving net proceeds of approximately $13 million from the program in the fourth quarter, demonstrating our ability to opportunistically access the equity markets. 2021 was a landmark year for Horizon, and we believe it puts us firmly on the path for additional growth and shareholder value creation in 2022. As of December 31, we had $71 million in available liquidity, consisting of $46 million in cash and $25 million in funds available to be drawn under our existing credit facilities. As of December 31, there was $54 million outstanding under our KeyBank credit facility and $79 million outstanding on our New York Life credit facility.
Our debt-to-equity ratio stood at 1.1 to 1 as of December 31, which was lower than our target leverage of 1.2-1. Based on our cash position and our borrowing capacity and our credit facilities, our potential new investment capacity at December 31 was $139 million. With our increased capacity on our New York Life facility, today, we have $239 million in new investment capacity. As we grow towards our target leverage, we would expect that our NII will also increase. For the fourth quarter, the company earned total investment income of $16.9 million, an increase of 68% compared to the prior period. Interest income on investments increased primarily as a result of a higher average earning debt investment portfolio for the quarter and higher fee income due to a larger amount of prepayments.
Our debt investment portfolio on a net cost basis stood at $442 million as of December 31, 2021, a 3% increase from September 30, 2021. For the fourth quarter of 2021, we achieved onboarding yields of 11.3% compared to 11.5% achieved in the third quarter. Our loan portfolio yield was 16.2% for the fourth quarter, up 320 basis points from 13% for last year's fourth quarter. Turning to our expenses. For the fourth quarter, total expenses were $8.7 million, compared to $5.9 million in the fourth quarter of 2020. Our performance-based incentive fee was $2 million, an increase of $1 million from last year's fourth quarter, based on higher NII generated in the fourth quarter of 2021.
Our interest expense increased to $3.3 million from $2.3 million in last year's fourth quarter due to an increase in average borrowings. Our base management fee was $2 million, up from $1.6 million in last year's fourth quarter, due to an increase in the average size of our portfolio. Net investment income for the fourth quarter was $0.39 per share, compared to $0.40 per share in the third quarter of 2021, and $0.21 per share for the fourth quarter of 2020. For the full year 2021, we generated NII of $1.41 per share, more than covering our total distributions during 2021 of $1.25 per share. The company's undistributed spillover income as of December 31 was $0.51 per share.
As a reminder, the first quarter is typically the lightest in terms of prepayment activity, and we expect the first quarter of 2022 to be in line with that historical norm. However, our significantly larger portfolio, along with our predictive pricing strategy, should enable us, over time, to generate solid NII that covers our distribution. To summarize our portfolio activities for the fourth quarter, new originations totaled $80 million, which were partially offset by $2 million in scheduled principal payments and $66 million in principal prepayments. We ended 2021 with a total investment portfolio of $458 million. The portfolio consisted of debt investments in 45 companies with an aggregate fair value of $437 million, and a portfolio of warrant, equity, and other investments in 78 companies with an aggregate fair value of $21 million.
Based upon our outlook for 2022, our board declared monthly distributions of $0.10 per share for April, May, and June 2022. We have now declared monthly distributions of $0.10 per share for 5.5 years. We remain committed to providing our shareholders with distributions that are covered by our net investment income over time. Our NAV as of December 31 was $11.56 per share, compared to $11.63 as of September 30, 2021, and $11.02 as of December 31, 2020. The 7-cent reduction in NAV on a quarterly basis was primarily due to paid distributions, including the $0.05 special distribution and unrealized and realized losses offsetting strong net investment income and accretion from the sale of our shares through our ATM program.
As we've consistently noted, 100% of the outstanding principal amount of our debt investments bear interest at floating rates with coupons that are structured to increase as interest rates rise with interest rate floors. As of December 31, 80% of our portfolio was at the prime rate floor and thus would benefit from an increase in the prime rate. In fact, the prime rate would have to increase 75 basis points before our cost of debt begins to rise, potentially providing us with a positive spread for at least a couple of quarters should the prime rate rise. This concludes our opening remarks. We'll be happy to take questions you may have at this time.
Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Sarkis Sherbetchian with B. Riley Securities. Please proceed with your question.
Hi, good morning, and thank you for taking my question here. You guys talked about the environment here and also how some of the lower valuations are providing an opportunity to selectively invest in some of the stronger companies. Are you seeing VC debt, you know, becoming more relevant in the conversations today as opposed to perhaps, you know, the equity stack? Then, you know, in light of that, as well, you talked about kind of the $239 million in new capacity. Maybe if you can talk about how you anticipate deploying that capital for growth.
Yeah. Hi, this is Gerry. Yes, I'm specifically talking about the life science market. It's not an unusual phenomenon when that market tightens, which can be uncorrelated to the global markets, based on things that are happening in the biotech market. Oftentimes, when that does happen, biotech companies will try to extend their cash runway, using other sources of capital, non-dilutive capital, like doing a deal with Big Pharma or doing a venture debt transaction. Just as an example, we recently had a public biotech company come to us and ask us for some financing that would extend their runway about two quarters. It's two quarters out in 2024, the last quarter of 2024 and the first quarter of 2025.
You know, they're looking forward. They know the public markets have tightened. This company had an ATM in place. Most biotech, public biotechs do. They didn't wanna draw on that right now because their price was obviously being impacted by a tightened market. We do expect to see opportunity in that marketplace relative to a tightening equity market.
Sarkis, this is Dan Trolio on your second part of the question related to the capacity. You know, we'll continue to look at deploying our debt to grow into our target leverage of 1.2x, and do that in the combination of the cash on the balance sheet, the capacity and availability we have on our facilities, and, you know, continually opportunistically raising equity through the quarter.
Right. That makes sense. Also a follow-up, if I may. You know, looking at kind of the onboarding yields, fairly consistent quarter-over-quarter. Then when we factor in, you know, some of the incremental yield on the prepays or the fees or the accelerated income, I think you guys are topping out at 16%. Is that the correct level to expect, you know, into fiscal 2022, you know, considering kind of the interest rate backdrop and talks of obviously rates increasing, et cetera?
Well, I think if you look historically at prepayments for Horizon, generally speaking, they've always been lower in the first quarter, and then they grow over time, and especially in the fourth quarter, and we had a lot of prepayments in the fourth quarter this year too. I really think you have to kind of, at least we do, pay attention to, you know, that kind of activity. As we've always said, it's a little bit more difficult to predict prepayments. If you look historically at how that has worked for us, the first quarter has generally been at a relatively, comparatively lower, prepayment activity in the first quarter.
As you know, companies are still figuring out their financing plans, still, you know, getting board approval on getting financings done or M&A transactions closed or IPOs or whatever. It's generally speaking not an even thing, but over the course of the year, yeah, you know, we will expect our portfolio to yield between somewhere between 14% and 16%. I think that's been a pretty. Again, if you go back and historically look at the portfolio, especially if you do it on a quarter-to-quarter basis instead of just an annual basis, you'll see that we've been pretty consistent in that regard.
That has to do with how we price transactions not just on the onboarding yield, but our expectation of exits, based on the specific footings of a company that we're financing and we have a lot of data on that. So that allows us to try to maximize the pricing when we can anticipate there'll be an exit from a transaction.
Thank you. That's very helpful. I'm gonna hop back in the queue.
Thank you. Ladies and gentlemen, as a reminder, if you'd like to join the question queue, please press star one on your telephone keypad. Our next question comes from the line of Ryan Lynch with KBW. Please proceed with your question.
Hey, good morning. Thanks for taking my question. I kind of wanted to follow up on the discussion regarding just the pullback in valuations and kind of, you know, the high growth areas of the market, which is where you guys participate in. You know, it sounds like given the pullback, maybe there are some new opportunities that you guys are seeing as venture debt becomes, you know, maybe a more attractive source or more available source of capital for some of these businesses. I'm just wondering on balance, that sounds like that's maybe a positive aspect of it. I was wondering, you know, on balance that you have the other side of it, of these companies, you know, needing to raise additional capital that you guys currently have in your portfolio.
Is it making it more difficult for them to go out and fundraise at appropriate valuations as well as you guys also have an equity and warrant book, you know, pressure on valuations probably doesn't bode well for that. Just I'd love to hear kind of your, the kind of full circle discussion on, you know, how you guys are viewing kind of the pullback in valuations, you know, impacting your business both on the pros and the con side.
Well, Ryan, this is Gerry. I think you got it right. Your comment on balance is probably correct. It definitely creates more opportunity as companies look for other ways to provide liquidity for their growth outside of raising equity. That is something that is a very positive, you know, aspect of our business. However, we can't ignore the fact that, you know, one of the reasons they're coming to us is they don't want to or can't, more importantly in some instances, raise equity. You do have to balance, you know, how you're looking, how we are looking at the market going forward relative to equity.
I think one of the positive things coming into 2022, valuations are down. There's no question about it, but VC funds are actually up. The amount of liquidity that VC funds have to support their existing portfolio companies and invest in new opportunities is higher than it has historically ever been. So there is liquidity available to these companies. They are gonna have to be realistic about valuation. It is gonna create, you know, some opportunity for us. What inevitably happens is valuations tighten, especially when markets tighten, public markets tighten. You know, VC firms start looking at their portfolio companies and kind of start ranking them. It's inevitable. It's just kind of a human thing that they do.
We want to make sure that all of our portfolio companies, that the investors are still strongly supportive of those companies. Obviously, every time we're looking at a new transaction in this kind of market, we, you know, do a pretty deep dive, not that we don't otherwise, but do a much deeper dive on who the investors are, how much capital they have.
how much they have reserved for the transaction that we're looking at. It's on balance, a positive thing. It will create certainly more opportunity for us. You know, our experience tells us that there has to be a level of caution in moving forward as well.
Okay. That's helpful. Kind of pull some discussion on that. You know, one more quick question also I had was you can talk about Q1 being, you know, kind of a seasonally slow quarter for prepayments. Is that gonna even be kind of magnified just given the discussion that we just had with some companies, you know, as valuations are pulled back, you know, probably looking to hold on to, you know, capital for longer, until, you know, maybe hopefully those valuations recover. So just, you know, even though there's seasonal slowness in the Q1 prepayments, do you expect that even to be magnified even more just given the market dynamics or not?
Yeah, Ryan, it's always hard to project prepayments. But what we do, we feel, currently today is that, you know, prepayments will probably come back to our historical norm. You know, 2020 and 2021 were high level prepayments in comparison to the balance sheet. And as Gerry mentioned, you know, the first quarter, we have $12 million today. And if you go back and look at, you know, specifically 2020 and also 2019 and 2018, where we had very similar prepayments in the first quarter, what NII was produced during those periods. But overall, throughout the year, were very positive NII income producing years. As we say, you know, venture debt portfolio prepayment is always part of the picture. It's just the timing of it is hard to predict.
Ryan, this is Rob. I'd add that as it relates to magnifying the normal seasonality that Dan and Gerry just spoke to, that when you have volatile markets like we have right now, M&A and other methods that produce the exits and prepays are tempered until the markets stabilize. That's our outlook for Q1. We remain, you know, the underlying fundamental predictive pricing strategy should produce results over time, just not on a quarter-by-quarter basis.
Yep. Understood. I appreciate the time today.
Thank you.
Thank you.
Thanks, Ryan.
Thank you. Ladies and gentlemen, our next question is a follow-up from the line of Sarkis Sherbetchian with B. Riley Securities. Please proceed with your question.
Hi. Thank you for taking the follow-up here. Just two more for me. If you can please provide us an update or some sort of a refreshed outlook for credit quality and loan to value ratios here in fiscal 2022. I have one more as a follow-up.
The fundamental underwriting strategy continues, Sarkis. This is Rob. You know, we continue to underwrite to low loan to values going in, and we try to make sure that we are managing our portfolio companies to maintain that. What was the second part of your question, please? No, no fundamental difference in the way we look at these. Although, as Gerry and Dan have noted, we are being cautious about the macro environment, the impact of inflation, the impact of supply chain, all of those things on the capacity of our companies to service the debt.
Yeah. Gotcha. I guess what I was trying to also tease out was, you know, if there were any things that Horizon is especially mindful of in underwriting credit in today's environment, you know, versus kind of your historical norm. That's what I was trying to tease out. Thank you.
Okay. Yeah. Those are the things we're looking at, the impact on supply chain inflation, global. We do not have any direct exposure to, you know, Eastern Europe kind of investments or anything that would be directly impacting our portfolio.
Great. Thank you. That's all for me.
Thank you. Ladies and gentlemen, this concludes our question and answer session. I'll turn the floor back to Mr. Pomeroy for any final comments.
We wanna thank you all for joining us this morning. We appreciate your continued interest and support in Horizon. We hope you and your families continue to remain safe and healthy, and we look forward to speaking with you again soon. This concludes our call.
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.