Wti Fund XI Inc.

03/13/2026 | Press release | Distributed by Public on 03/13/2026 14:54

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in connection with the Fund's Financial Statements and the notes thereto included elsewhere in this Annual Report on Form 10-K.
In addition to the historical information contained herein, the information in this Annual Report on Form 10-K contains certain "forward-looking statements" within the meaning of the securities laws. These forward-looking statements reflect the current view of the Fund with respect to future events and financial performance and are subject to several risks and uncertainties, many of which are beyond the Fund's control. All statements, other than statements of historical facts included in this Annual Report, regarding the strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives of the Fund are forward-looking statements. When used in this report, the words "will," "believe," "anticipate," "intend," "estimate," "expect," "project" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. All forward-looking statements speak only as of the date of this report. The Fund does not undertake any obligation to update or revise publicly any forward-looking statements, whether resulting from new information, future events or otherwise, except as required by law.
The reader of this Annual Report should understand that all such forward-looking statements are subject to various uncertainties and risks that could affect their outcome. The Fund's actual results could differ materially from those suggested by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, variances in the actual versus projected growth in assets, return on assets, loan losses, expenses, rates charged on loans and earned on securities investments, competition and macro-economic changes including inflation, interest rate expectations, among other factors including those set forth in Item 1A - "Risk Factors" in this Annual Report on Form 10-K. This entire Annual Report should be read to put such forward-looking statements in context and to gain a more complete understanding of the uncertainties and risks involved in the Fund's business. The Fund undertakes no obligation to update or revise any forward-looking statements, except as required by law.
Overview
The Fund is 100% owned by the Company. The Fund's shares of common stock, at $0.001 par value, were sold to its sole shareholder, the Company, under a stock purchase agreement. The Fund has issued 100,000 of the Fund's 10,000,000 authorized shares. The Company may make additional capital contributions to the Fund.
The Fund provides financing and advisory services to a variety of carefully selected Venture-Backed Companies primarily throughout the United States, with a focus on growth-oriented companies. The Fund's portfolio consists of companies in the communications, information services, media, technology (including software and technology-enabled business services), biotechnology, and medical devices industry sectors, among others. The Fund's capital is generally used by its portfolio companies to finance acquisitions of fixed assets and working capital. The Fund's Registration Statement on Form 10 became effective on April 1, 2024 and the Fund elected to be treated as a BDC on April 11, 2024. On June 25, 2024, the Company called and received its first capital and made its first capital contribution to the Fund on the following day. The Fund commenced its investment activities on June 26, 2024. While the Fund intends to operate as a non-diversified investment company within the meaning of Section 5(b)(2) of the 1940 Act, from time to time the Fund may act as a diversified investment company within the meaning of Section 5(b)(1) of the 1940 Act.
The Fund expects to be treated as a RIC under the Code for federal income tax purposes. Pursuant to this election, the Fund generally will not have to pay corporate-level taxes if a sufficient amount of income is distributed to its shareholder as dividends, allowing the Company to substantially reduce or eliminate its corporate-level tax liability.
The Fund will seek to meet the ongoing requirements, including the diversification requirements, to qualify as a RIC under the Code. If the Fund fails to meet these requirements, it will be taxed as an ordinary corporation on its taxable income for that year (even if that income is distributed to the members of the Company) and all distributions out of its earnings and profits will be taxable to the members of the Company as taxable income; thus, such income will be subject to a double layer of taxation. There is no assurance that the Fund will meet the ongoing requirements to qualify as a RIC for tax purposes.
The Fund's investment objective is to achieve superior risk-adjusted investment returns and it seeks to achieve that objective by providing debt financing to portfolio companies, most of which are private debt securities. The Fund generally receives warrants to acquire equity securities in connection with its portfolio investments and generally distributes these warrants to its shareholder upon receipt, or soon thereafter. The Fund also has guidelines for the percentages of total assets that are invested in different types of assets.
The portfolio investments of the Fund primarily consist of debt financing to Venture-Backed Companies in the technology sector. The borrower's ability to repay its loans may be adversely impacted by several factors, and as a result, the loan may not be fully repaid. Furthermore, the Fund's security interest in any collateral over the borrower's assets may be insufficient to make up any shortfall in payments. Some of the Fund's portfolio companies may be impacted by rising inflation, which could have a material impact on their results of operations, specifically costs and revenues. As such, rising inflation may have an adverse impact on the portfolio borrowers' ability to maintain their good credit standing, as well as their ability to pay their interest and principal obligations to the Fund. In addition, any projected future decreases in the Fund's portfolio companies' operating results due to inflation could adversely impact the fair value of those investments. Any decreases in the fair value of the Fund's investments could result in future unrealized losses and therefore reduce the Fund's net assets resulting from operations.
The Fund's investment income is also expected to decline following the end of the Fund's commitment period on June 30, 2028. The commitment period may be extended by up to two calendar quarters at the discretion of the Manager. After the commitment period, the Fund may no longer make loan commitments to reinvest the proceeds of matured investments in new loans. Any proceeds will be distributed to the Company.
The Fund operates through a single operating and reportable segment for financial reporting purposes, consistent with how the officers of the Fund (inclusive of the Chief Executive Officer and Chief Financial Officer, among others), who are the Fund's CODM, evaluate financial performance and allocate resources.
The Impact of Macroeconomic Conditions on Results of Operations and Liquidity & Capital Resources
Global and domestic financial markets remain volatile due to persistent inflationary pressures, interest rate fluctuations, and concerns about slowing economic growth. Geopolitical tensions, including the ongoing Ukraine War, war in the Middle East, in particular, involving the United States, Israel, Iran and the Gulf States, and continued instability in global shipping lanes have disrupted trade routes and supply chains. Recent escalations in the South China Sea and renewed cyberattacks targeting critical infrastructure have added to global uncertainty. Additionally, evolving U.S. government policies, global tariff regimes, and extreme weather events, such as the 2025 Southern California wildfires, underscore the continuing risk of natural disasters and climate-related disruptions. These factors have created interruptions in supply chains and economic activity and have had a particularly adverse impact on certain industries. These uncertainties can ultimately impact the overall supply and demand of the market through changing spreads, deal terms and structures. The Fund is unable to predict the full impact of these macroeconomic events on the Fund's financial condition, including its liquidity and capital resources.
The Fund is continuing to maintain close communications with its loan portfolio companies to proactively assess and manage potential risks. In addition, Management is continuing to maintain oversight analysis of credits across the Fund's loan investment portfolio in an attempt to manage the potential credit risk and improve loan performance. Certain loans may have inherent increased credit risk due to the nature of the underlying business and its ability to maintain operations in the current economic environment.
Management is also monitoring the Fund's continued access to capital resources through periodic and timely communication with the bank syndicate and the Company's members. In addition, the Fund will take proactive steps to ensure and maintain an appropriate liquidity position based on its circumstances. The Fund believes its existing cash balance, scheduled monthly payments from borrowers, and access to capital from its debt facility and the Company's members will be sufficient to satisfy its working capital needs, debt repayments, and other liquidity requirements associated with its existing operations.
Critical Accounting Policies, Practices and Estimates
Critical Accounting Policies and Practices are those accounting policies and practices that are both the most important to the portrayal of the Fund's net assets and results of operations and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Critical accounting estimates are accounting estimates where the nature of the estimates is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and the impact of the estimates on net assets or operating performance is material.
In evaluating the most critical accounting policies and estimates, the Manager has identified the estimation of fair value of the Fund's loan investments along with the completeness of loans exhibiting indicators of potential credit deterioration as the most critical of the accounting policies and accounting estimates applied to the Fund's reporting of net assets or operating performance. In accordance with U.S. GAAP, the Fund defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability was exchanged in an orderly transaction; it was not a forced liquidation or distressed sale. There is no readily available market price or secondary market for the loans made by the Fund to borrowers, hence the Manager determines fair value based on a transaction that would occur in the most advantageous market and the estimates are subject to high levels of judgment and uncertainty. The Fund's loan investments are considered Level 3 fair value measurements in the fair value hierarchy due to the lack of observability over many of the important inputs used in determining fair value. In particular, the Manager has identified the fair value of the Fund's loan investments that exhibit indicators of the potential for credit deterioration and the completeness of those loan investments, as a critical accounting matter that may involve significant and material estimates and inputs from the Manager in determining the fair value of those loan investments.
Critical judgments and inputs in determining the fair value of a loan include the estimated timing and amount of future cash flows and probability of future payments, based on the assessment of payment history, available cash and "burn rate," revenues, net income or loss, operating results, financial strength of borrower, prospects for the borrower's raising future equity rounds, likelihood of sale or acquisition of the borrower, length of expected holding period of the loan, collateral position, the timing and amount of liquidation of collateral for loans that are experiencing significant credit deterioration and, as a result, collection becomes collateral-dependent, as well as an evaluation of the general interest rate environment. Management has evaluated these factors and has concluded that the effect of a deterioration in the quality of the underlying collateral, increase in the size of the loan, increase in the estimated time to recovery, and increase in the effective yield rate would each have the effect of decreasing the fair value of loan investments. The risk profile of a loan changes when events occur that impact the credit analysis of the borrower and the loan. Such changes result in the fair value being adjusted from par value of the individual loan. Where the risk profile is consistent with the original underwriting, the cost basis of substantially all loans approximates fair value.
The actual value of the loans may differ from Management's estimates, which would affect net change in net assets resulting from operations as well as assets.
Results of Operations - For the Years Ended December 31, 2025 and 2024
There is limited analysis on the operational results as the Fund only commenced investment operations in June 2024.
Analysis of Interest Income
Total investment income for the year ended December 31, 2025 and for the period from June 26, 2024, commencement of investment operations, through December 31, 2024 was $10.3 million and $1.6 million, respectively. Investment income primarily consisted of interest on the venture loans outstanding and early payoffs. The remaining income consisted of dividends on the temporary investment of cash and other income from the forfeiture of commitment fees and deferred income from warrants.
Interest is calculated using the effective interest method, and rates earned by the Fund will fluctuate based on many factors including early payoffs, volatility of values ascribed to warrants and new loans funded during the year.
Warrants and equity securities received in connection with loan transactions are considered to be free standing contracts that are both legally detachable and separately exercisable from the related loan transactions and are measured at fair value at the time of acquisition; the non-cash portion of interest income represents the accretion of the discount of these warrants over the life of the loan.
The following table shows the average outstanding balance, interest income, and weighted average interest rate for the cash and non-cash portion of interest income for the period from June 26, 2024, commencement of investment operations, through December 31, 2025.
For the Year Ended December 31, 2025
For the Period Ended December 31, 2024*
Average Outstanding Balance Interest Income Weighted Average Interest Rate - Cash Portion Weighted Average Interest Rate - Non-Cash Portion Average Outstanding Balance Interest Income Weighted Average Interest Rate - Cash Portion Weighted Average Interest Rate - Non-Cash Portion
All Loans $ 39,833,780 $ 9,978,760 16.76% 8.29% $ 13,717,119 $ 1,457,902 14.39% 6.13%
*From June 26, 2024, commencement of investment operations, through December 31, 2024.
Interest income for all loans increased by $8.5 million or 584.5% for the year ended December 31, 2025 compared to the period from June 26, 2024 through December 31, 2024. The increase is primarily due to increase in the loan investment portfolio. The average outstanding balance for all loans increased by $26.1million or 190.4%for the year endedDecember 31, 2025 compared to the period from June 26, 2024 through December 31, 2024. All loans consisted only of performing loans as of December 31, 2025 and 2024.
Analysis of Interest Expense
Interest expense was comprised of amounts related to interest on debt amounts drawn down, unused credit line fees, and amounts
amortized from deferred fees incurred in conjunction with the debt facility.
The following table shows the average balance, interest expense, and weighted average interest expense rate for the year ended December 31, 2025 and the period ended December 31, 2024.
For the Year Ended December 31, 2025
For the Period Ended December 31, 2024*
Average Balance Interest Expense Weighted Average Interest Expense Rate Average Balance Interest Income Weighted Average Interest Expense Rate
Debt Facility $ 27,153,846 $ 3,696,293 13.61% $14,900,000 $1,157,004 7.77%
*From August 1, 2024, establishment of the debt facility, through December 31, 2024.
Interest expense increased by $2.5 million, or 219.5%, for the year ended December 31, 2025 compared to the period from August 1, 2024 through December 31, 2024. The increase in interest expense is primarily driven by the recognition of a full year of unused line fees, amortization of deferred facility and legal costs, and the annual agency fee versus only four months in the previous period, plus an overall increase in the average outstanding balance for borrowings under the facility by $12.3 million, or 82.2%, for the year ended December 31, 2025 compared to the period ended December 31, 2024.
Analysis of Operating Expenses
The following table shows the components of operating expenses for the years ended December 31, 2025 and 2024.
For the Years Ended December 31,
Operating Expenses
2025 2024 Change ($)
Management Fees $ 6,254,649 $ 3,121,214 $ 3,133,435
Banking and professional fees 332,680 327,063 5,617
Directors' fees 136,000 135,000 1,000
Organizational costs - 247,275 (247,275)
Other operating expenses 83,803 100,871 (17,068)
Total Operating Expenses $ 6,807,132 $ 3,931,423 $ 2,875,709
For the period from January 1, 2025 through June 30, 2025, Management Fees were calculated at 1.575% of the Company's committed capital and for the period from July 1, 2025 through December 31, 2025, Management Fees were calculated at 1.600%. For the period from June 25, 2024 (initial capital call due date) through December 31, 2024, Management Fees were calculated at 1.575% of the Company's committed capital.
Banking and professional fees did not materially decrease for the year ended December 31, 2025 compared to the same period in 2024. Banking and professional fees include legal fees related to client acquisition, audit and tax fees and consulting fees.
Organizational costs decreased by $0.2 million or 100% for the year ended December 31, 2025 compared to the same period in 2024. The decrease is due to the Fund commencing its investment operations in June 2024. Organizational costs included legal, accounting, and other corporate services fees incurred for the formation of the Fund.
Director fees and other operating expenses did not materially decrease during the year ended December 31, 2025 compared to the same periods in 2024. Other expenses included custody fees, tax fees and other expenses related to the operations of the Fund.
Non-recurring fees
The Fund may receive non-recurring fees in connection with the origination and servicing of portfolio loans. Transactions in this category may include forfeited commitment fees and deferred income from warrants received that become recognized as other income after the loan commitment period expires. Other non-recurring fees include pre-payment fees which are recognized as other income in the period received. Legal fee reimbursements for deal due diligence and drafting of documents are recognized as offsets against legal expenses. Non-recurring fees for the year ended December 31, 2025 and 2024 were $0.3 million and $0.2 million, respectively.
Net Investment Loss
Net investment loss for the year ended December 31, 2025and 2024 was $0.2 millionand $3.5 million, respectively.
Liquidity and Capital Resources - December 31, 2025 and 2024
The Fund is owned entirely by the Company. The Company is expected, but not required, to make further contributions to the capital of the Fund to the extent of the Company's members' capital commitment to the Company and excess cash balances of the Company. Total capital contributed to the Fund as of December 31, 2025 and 2024 was $40.8 million and $22.3 million, respectively. As of December 31, 2025 and 2024, the Company had subscriptions for capital in the amount of $389.4 million and $380.7 million, respectively, of which $52.3 million and $30.5 million, respectively, had been called and received. As of December 31, 2025, $337.1 million of capital remains uncalled and the uncalled capital expires on the Fund's fifth anniversary of its first investment unless extended. Management is permitted to extend the Fund's investment period by up to two (2) additional calendar quarters in its sole and absolute discretion.
The changes in cash for the years ended December 31, 2025 and 2024 were as follows:
For the Year Ended December 31, 2025
For the Year Ended December 31, 2024
Net cash used in operating activities $ (29,430,783) $ (31,790,696)
Net cash provided by financing activities 25,980,955 41,301,425
Net increase (decrease) in cash and cash equivalents
$ (3,449,828) $ 9,510,729
As of December 31, 2025 and 2024, 23.1% and 75.2%, respectively, of the Fund's net assets consisted of cash and cash equivalents.
On August 1, 2024, the Fund entered into a loan and security agreement with MUFG Bank Ltd. as the administrative agent and with lenders named therein that established a secured revolving credit facility in an initial amount of up to $250.0 million with the option to request that borrowing availability be increased up to $500.0 million, subject to further negotiation and credit approval.
Borrowings by the Fund are collateralized by (i) all portfolio investments and substantially all other assets held by the Fund and its subsidiaries, (ii) all equity interests of the Company in the Fund and all direct or indirect subsidiaries of the Fund, and (iii) the pledge of the uncalled capital commitments of all investors in the Company. The Fund pays interest on its borrowings and a fee on the unused portion of the facility. Borrowings under the facility, at the Fund's discretion, will bear interest at an annual rate of either a (i) Reference Rate, plus an Applicable Reference Rate Margin (such loan, a "Reference Rate Loan"), (ii) Term SOFR plus the Applicable SOFR Margin (such loan, a "Term SOFR Loan") or (iii) Daily Compounded SOFR plus the Applicable SOFR Margin (such loan, a "Daily Compounded SOFR Loan"). The interest period for each Term SOFR Loan shall at the option of the Fund be fixed at one, three or six months. Applicable SOFR Margin is the sum of (a) the product of (i) the Subscription Percentage calculated for such period and (ii) 2.50% and (b) the product of (i) the Portfolio Leverage Percentage for such period and (ii) 3.00%. When the Fund is using 50% or more of the maximum amount available under the loan agreement, the applicable commitment fee is 0.25% of the unused portion of the loan facility; otherwise, the applicable commitment fee is 0.50% of the unused portion. The Fund pays the unused credit line fee quarterly. The facility terminates on August 1, 2027, but can be accelerated in the event of default, such as the failure by the Fund to make timely interest or principal payments. As of December 31, 2025, $28.5 million was outstanding under the facility.
Amounts disbursed under the Fund's loan commitments were $30.1 million for the year ended December 31, 2025. Net loan amounts outstanding after amortization increased by $24.9 million for the same period. Unexpired unfunded commitments totaled $17.5 million as of December 31, 2025.
As of Cumulative Amount Disbursed Principal Reductions and Fair Market Adjustments Balance Outstanding - Fair Value Unexpired Unfunded Commitments
December 31, 2025 $59.8 million $11.0 million $48.8 million $17.5 million
December 31, 2024
$29.7 million $5.7 million $24.0 million $17.1 million
The unexpired unfunded commitments by portfolio company as of December 31, 2025 and December 31, 2024 are detailed in Note 9 to the financial statements included in this filing.
Because venture loans are privately negotiated transactions, investments in these assets are relatively illiquid. It is Management's experience that not all unexpired unfunded commitments will be used by borrowers. Many credit agreements contain provisions that are milestone dependent and not all borrowers will achieve these milestones. Additionally, the Fund's credit agreements contain provisions that give relief from funding obligations in the event the borrower has a materially adverse change in its financial condition. Therefore, the unexpired unfunded commitments do not necessarily reflect future cash requirements or future investments for the Fund.
The Fund will seek to maintain the requirements to qualify for the special pass-through status available to RICs under the Code, and thus to be relieved of federal income tax on that part of its net investment income and realized capital gains that it distributes to its shareholder. To qualify as a RIC, the Fund must distribute to its shareholder for each taxable year at least 90% of its investment company taxable income (consisting generally of net investment income and net short-term capital gain) (the "Distribution Requirement"). To the extent that the terms of the Fund's venture loans provide for the receipt by the Fund of additional interest at the end of the loan term or provide for the receipt by the Fund of a purchase price for the asset at the end of the loan term ("residual income"), the Fund would be required to accrue such residual income over the life of the loan, and to include such accrued undistributed income in its gross income for each taxable year even if it receives no portion of such residual income in that year. Thus, in order to meet the Distribution Requirement and avoid payment of income taxes or an excise tax on undistributed income, the Fund may be required in a particular year to distribute as a dividend an amount in excess of the total amount of income it actually receives. Those distributions will be made from the Fund's cash assets, from amounts received through amortization of loans or from borrowed funds.
As of December 31, 2025, the Fund had a cash balance of $6.1 million and $27.1 million in scheduled loan receivable payments over the next twelve months. Additionally, the Fund has access to uncalled capital of $337.1 million as a liquidity source and a borrowing base that grows as it funds additional commitments. These amounts are sufficient to meet the current commitment backlog and operational expenses of the Fund over the next year. The Fund regularly evaluates potential future liquidity resources and demands before making additional future commitments.
On September 28, 2023, the Fund's sole shareholder, the Company, approved a reduced asset coverage ratio of 150% for the Fund as permitted in Section 61(a)(2) of the 1940 Act. Accordingly, the Fund is permitted to borrow in any amount so long as its asset coverage ratio, as defined in the 1940 Act, is at least 150% after giving effect to such borrowings. As of December 31, 2025, the Fund's asset coverage ratio was 192%.
Wti Fund XI Inc. published this content on March 13, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on March 13, 2026 at 20:54 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]