WTI Fund X Inc.
03/13/2026 | Press release | Distributed by Public on 03/13/2026 14:52
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. On October 1, 2021, the Company completed its first closing of capital contributions. On the same day, the Fund made its first investment and became a non-diversified, closed-end investment company that elected to be treated as a BDC under the 1940 Act. 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 instead act as a diversified investment company within the meaning of Section 5(b)(1) of the 1940 Act.
The Fund elected 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 which has been extended by two calendar quarters through June 30, 2026. 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
Analysis of Interest Income
Total investment income for the years ended December 31, 2025 and 2024 was $76.9 million and $81.7 million, respectively, which primarily consisted of interest on the venture loans outstanding and early payoffs. The remaining income consisted of interest and dividends on the temporary investment of cash and other income from commitment fees and 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 years ended December 31, 2025 and 2024:
| For the Year Ended December 31, 2025 |
For the Year 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 | |||||||||||||||||||
| Performing Loans | $368,350,560 | $74,914,187 | 15.27% | 5.07% | $393,562,154 | $80,036,177 | 15.70% | 4.64% | ||||||||||||||||||
| All Loans | $426,947,267 | $75,118,051 | 13.22% | 4.37% | $410,610,066 | $80,293,421 | 15.11% | 4.45% | ||||||||||||||||||
Interest income for both performing loans and all loans decreased by $5.1 million and $5.2 million, respectively, or 6.4% for the year ended December 31, 2025 compared to the same period in 2024. The decrease in interest income is attributable to the decrease in average outstanding performing loans during the year. The average outstanding balance for performing loans and all loans decreased by $25.2 million and increased by $16.3 million, or (6.4)% and 4.0%, respectively, for the year ended December 31, 2025 compared to the same period in 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 rate for the years ended December 31, 2025 and 2024.
| For the Year Ended December 31, 2025 | For the Year Ended December 31, 2024 | |||||||||||||||||||
| Average Balance | Interest Expense | Weighted Average Interest Expense Rate | Average Balance | Interest Expense | Weighted Average Interest Expense Rate | |||||||||||||||
| Bank Facility | $ | 223,653,846 | $ | 15,446,593 | 6.91% | $ | 178,615,385 | $ | 13,853,927 | 7.76% | ||||||||||
Interest expense increased by $1.6 million, or 11.5%, for the year ended December 31, 2025 compared to the same period in 2024. Interest expense increased primarily due to higher average debt outstanding which was partially offset by a lower weighted average interest rate. The average outstanding balance for borrowings under the facility increased by $45.0 million, or 25.2%, for the year ended December 31, 2025 compared to the same period in 2024.
The Fund also uses derivative instruments to manage its exposure to interest rates on its borrowings under the debt facility. See the discussion herein under the caption "Quantitative and Qualitative Disclosures About Market Risk" for the approximate annualized effect of hypothetical interest rate changes in components of net assets resulting from operations.
Analysis of Operating Expenses
The following table shows the components of operating expenses for the years ended December 31, 2025 and 2024:
| For the Year Ended | For the Year Ended | Change ($) | |||||||||
| December 31, 2025 | December 31, 2024 | ||||||||||
| Management fees | $ | 7,187,500 | $ | 7,781,250 | $ | (593,750) | |||||
| Banking and professional fees | 868,362 | 698,129 | 170,233 | ||||||||
| Other operating expenses | 287,504 | 385,888 | (98,384) | ||||||||
| Total Operating Expenses | $ | 8,343,366 | $ | 8,865,267 | $ | (521,901) | |||||
For the periods from January 1, 2025 through September 30, 2025 and from October 1, 2025 through December 31, 2025, Management Fees were calculated at 1.500% and 1.250% of the Company's committed capital, respectively. For the periods from January 1, 2024 through September 30, 2024 and October 1, 2024 through December 31, 2024, Management Fees were calculated at 1.575% and 1.500% of the Company's committed capital, respectively.
Banking and professional fees increased by $0.2 million for the year ended December 31, 2025 compared to the same period in 2024. These expenses included legal fees, tax preparation fees and other consulting and professional service fees.
Other operating expenses decreased by less than $0.1 million for the year ended December 31, 2025 compared to the same period in 2024. Other operating expenses included director fees, custody fees, taxes, insurance 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, 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 years ended December 31, 2025 and 2024 totaled $2.0 million and $1.1 million, respectively.
Net Investment Income
Net investment income for the years ended December 31, 2025 and 2024 was $53.1 million and $58.9 million, respectively.
Realized and Change in Unrealized Gains (Losses)
Net realized loss from loans was $5.6 million and $15.1 million for the years ended December 31, 2025 and 2024, respectively. Realized losses consisted of loans that were written off.
There was no realized gain (loss) from derivative instruments for the year ended December 31, 2025. Net realized gain from derivative instruments for the year ended December 31, 2024, was less than $0.1 million. Realized gains were the result of interest being received by the Fund on the derivative instruments when the cap rates of the interest rate collars were lower than the floating rate.
Net change in unrealized loss from loans for the years ended December 31, 2025 and 2024 was $6.1 million and $12.3 million, respectively. The net change in unrealized loss from loans consisted of fair value adjustments to the loans resulting from the improvement or deterioration in certain portfolio companies' performance.
Net change in unrealized gain (loss) from derivative instruments was less than $(0.1) million and less than $0.1 million for the years ended December 31, 2025 and 2024, respectively. The net change in unrealized gain (loss) from derivative instruments consisted of fair market value adjustments to the derivative instruments and is a reflection of the market's outlook on the economy and the future of interest rate changes.
Net increase in net assets resulting from operations for the years ended December 31, 2025 and 2024 was $41.4 million and $31.5 million, respectively. On a per share basis, the net increase in net assets resulting from operations for the years ended December 31, 2025 and 2024 was $413.91 and $315.13, 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 was $358.0 million and $336.0 million as of December 31, 2025 and 2024, respectively. As of both December 31, 2025 and 2024, the Company had subscriptions for capital in the amount of $500.0 million, of which $400.0 million and $375.0 million had been called and received, respectively. The Manager exercised, and the Board of Directors ratified, its discretion to extend the Fund's investment period for two additional quarters after December 31, 2025, thereby allowing the Fund to make new commitments through June 30, 2026 and to fund commitments through June 30, 2027, the end of the Fund's investment period. As of December 31, 2025, $100.0 million of capital remains uncalled, originally set to expire on the fifth anniversary of the Fund's first investment and has since been extended by two additional quarters. The Company has made $133.4 million in recallable distributions to its investors, as permitted under its operating agreement between the Company's managing member and members of the Company.
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 provided by (used in) operating activities | $ | 64,175,254 | $ | (39,365,204) | |||||||
| Net cash provided by (used in) financing activities | (65,200,000) | 47,380,596 | |||||||||
| Net increase (decrease) in cash and cash equivalents | $ | (1,024,746) | $ | 8,015,392 | |||||||
As of December 31, 2025 and 2024, 12.55% and 10.96%, respectively, of the Fund's net assets consisted of cash and cash equivalents.
The Fund is a party to a loan and security agreement (as amended and restated from time to time) with ING Capital LLC acting as the administrative agent and other lenders named therein, that established a secured revolving credit facility with a commitment size of $250.0 million. An additional $125.0 million is potentially available to the Fund, subject to further negotiation and credit approval, through an accordion provision.
Borrowings by the Fund are collateralized by (i) the personal property and other assets of the Fund ("Portfolio Secured Borrowings") and (ii) up to the sum of the unfunded capital commitments of the Company's investors, the rights of the Manager to such capital commitments ("Subscription Secured Borrowings"). In the event of default, the Manager's right to receive management fees from the Fund is subordinate to the liens of the lenders. Loans under the facility may be, at the option of the Fund, a Reference Rate Loan, an Adjusted Term SOFR Loan or a Daily Compounded SOFR Loan (each as defined below). The facility terminates on October 18, 2026, but can be accelerated in the event of default, such as the failure by the Fund to make timely interest or principal payments. 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) Adjusted Term SOFR plus the Applicable SOFR Margin (such loan, an "Adjusted Term SOFR Loan") or (iii) Daily Compounded SOFR plus the Applicable SOFR Margin (such loan, a "Daily Compounded SOFR Loan"). As of December 31, 2025, the Fund's outstanding borrowings were entirely 1-month Adjusted Term SOFR Loans. The interest period for each Adjusted Term SOFR Loan shall at the option of the Fund be fixed at one, three or six months. Adjusted Term SOFR is a rate per annum equal to Term SOFR for the elected interest period plus a fixed SOFR Adjustment of 0.11448%, 0.26161% or 0.42826% for interest periods of one, three or six months, respectively. Applicable SOFR Margin is the sum of (a) the product of (i) the Subscription Secured Borrowings percentage calculated for such period and (ii) 1.75% and (b) the product of (i) the Portfolio Secured Borrowings percentage for such period and (ii) 2.50%. When the Fund is using 50.00% or more of the maximum amount available under the Loan Agreement, the applicable unused line fee is 0.25% of the unused portion of the loan facility; otherwise, the applicable unused line fee is 0.50% of the unused portion. The Fund pays the unused credit line fee quarterly. As of December 31, 2025, $232.5 million was outstanding under the facility.
For the year ended December 31, 2025 and since the start of its investment operations in October 2021, the Fund invested its assets in venture loans. Amounts disbursed under the Fund's loan commitments were $95.8 million and $228.7 million for the years ended December 31, 2025 and 2024. Net loan amounts outstanding after amortization and valuation adjustments decreased by $42.0 million for the year ended December 31, 2025 compared to the same period in 2024. Unexpired unfunded commitments totaled $82.5 million and $101.4 million as of December 31, 2025 and 2024.
| As of | Cumulative Amount Disbursed | Principal Reductions and Fair Market Adjustments | Balance Outstanding - Fair Value | Unexpired Unfunded Commitments | ||||||||||
| December 31, 2025 | $876.8 million | $478.7 million | $398.1 million | $82.5 million | ||||||||||
| December 31, 2024 | $781.0 million | $340.9 million | $440.1 million | $101.4 million | ||||||||||
The unexpired unfunded commitments by portfolio company as of December 31, 2025 and 2024 are detailed in Note 10 to the financial statements included in this filing.
Because venture loans are privately negotiated transactions, investments in these assets are relatively illiquid. It is the Fund'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 seeks 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 $24.2 million and $197.7 million in scheduled loan receivable payments over the next twelve months. Additionally, the Fund has access to uncalled capital of $100.0 million and recallable capital of $133.4 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 April 30, 2021, 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 183%.
WTI Fund X 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 20:52 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]