10-K: PhenixFIN Reports FY25 Results: Portfolio Growth, Increased Leverage

PhenixFIN Corporation reported a significant increase in its investment portfolio to $302.3 million for fiscal year 2025, driven by new investments and unrealized appreciation, alongside increased leverage and special dividends.

Summary

• PhenixFIN Corporation is an internally-managed non-diversified closed-end management investment company regulated as a Business Development Company (BDC) and has elected to be treated as a Regulated Investment Company (RIC) for U.S. federal income tax purposes.
• The company's investment objective is to generate current income and capital appreciation primarily through loans and private equity investments in privately-held companies, and also operates an asset-based lending business (FlexFIN) and an insurance business (NSG).
• The fair value of the investment portfolio increased to $302.3 million as of September 30, 2025, from $227.9 million as of September 30, 2024.
• During the fiscal year ended September 30, 2025, the company invested $173.9 million and received proceeds of $100.3 million from sales and settlements of investments.
• Net realized losses on investments totaled $11.9 million for FY25, primarily due to a $10.3 million loss on Black Angus Steakhouses, LLC, compared to net realized gains of $7.3 million in FY24.
• Net change in unrealized gains on investments was $10.7 million for FY25, up from $5.7 million in FY24.
• Total investment income increased to $25.3 million in FY25 from $22.2 million in FY24, while total operating expenses rose to $20.1 million from $17.4 million.
• Net investment income for FY25 was $5.1 million, a slight increase from $4.7 million in FY24.
• Net increase in net assets resulting from operations significantly decreased to $4.2 million in FY25 from $18.6 million in FY24.
• Weighted average basic and diluted earnings per common share decreased to $2.06 in FY25 from $9.13 in FY24.
• The company's asset coverage ratio was 207.8% as of September 30, 2025, exceeding the 200% minimum BDC requirement.
• The Credit Facility was increased by $12.5 million to $100.0 million (with potential access to an additional $50.0 million) and its term was extended to April 17, 2030; outstanding borrowings under the facility were $90.0 million as of September 30, 2025.
• Special dividends of $2.89 million ($1.43 per share) were declared in February 2025 and $2.65 million ($1.31 per share) in May 2024; no regular distribution payments were declared in FY23, FY24, or FY25.
• The company repurchased 16,009 shares of common stock for $0.8 million in FY25, with approximately $6.1 million remaining authorized under the share repurchase program.
• The company identified that it did not distribute at least 90% of its investment company taxable income for the tax year ended September 30, 2023, and notified the IRS by filing Form 8927 on December 16, 2024.

Sentiment

Score: 4

Explanation: While the investment portfolio grew and total investment income increased, the significant decline in net assets from operations and earnings per share, coupled with substantial net realized losses and a large decrease in cash, indicates a challenging year. The failure to meet RIC distribution requirements for FY23 is also a concern. The expanded credit facility and special dividends are positive, but the overall financial performance metrics show a downturn, leading to a slightly negative sentiment.

Positives

• The fair value of the investment portfolio increased to $302.3 million as of September 30, 2025, from $227.9 million as of September 30, 2024, indicating growth in assets.
• Total investment income increased to $25.3 million in FY25 from $22.2 million in FY24.
• Net investment income increased to $5.1 million in FY25 from $4.7 million in FY24.
• Net change in unrealized gains on investments increased to $10.7 million in FY25 from $5.7 million in FY24.
• The weighted average yield on the income-bearing investment portfolio increased to 12.8% in FY25 from 12.3% in FY24.
• The Credit Facility was increased by $12.5 million to $100.0 million, with potential access to an additional $50.0 million, and its term was extended to April 17, 2030, enhancing liquidity and financing flexibility.
• The asset coverage ratio of 207.8% as of September 30, 2025, remains above the 200% minimum BDC requirement, indicating sound leverage management.
• Special dividends of $2.89 million ($1.43 per share) were declared in February 2025 and $2.65 million ($1.31 per share) in May 2024, returning capital to shareholders.
• The company's cybersecurity program is designed to identify, assess, and manage material risks, with board oversight and engagement of external experts.

Negatives

• Net increase in net assets resulting from operations significantly decreased to $4.2 million in FY25 from $18.6 million in FY24.
• Weighted average basic and diluted earnings per common share significantly decreased to $2.06 in FY25 from $9.13 in FY24.
• Net realized losses on investments of $11.9 million were recorded in FY25, primarily due to a $10.3 million loss on Black Angus Steakhouses, LLC, contrasting with net realized gains of $7.3 million in FY24.
• Interest and financing expenses increased by $3.7 million, or 55.5%, to $10.3 million in FY25, primarily due to increased borrowings.
• Cash and cash equivalents decreased significantly to $7.3 million in FY25 from $67.6 million in FY24.
• The company identified that it did not distribute at least 90% of its investment company taxable income for the tax year ended September 30, 2023, and notified the IRS.
• Common stock has not traded at or above Net Asset Value (NAV) since the first quarter of 2015, and traded at a significant discount (approximately 51.72% of NAV) as of December 10, 2025.
• No regular distribution payments were declared during the years ended September 30, 2025, 2024, and 2023.

Risks

• Operating in a period of capital markets disruptions and economic uncertainty may adversely affect investment yields, increase risks, and make equity capital raising difficult.
• Events outside of control, such as terrorist attacks, acts of war, natural disasters, significant tariffs, or public health crises, could negatively affect portfolio companies and their valuation, increase funding costs, or limit access to capital.
• Rising interest rates may increase borrowing costs, reduce the net return on debt investments, and increase the risk of default on portfolio company loans.
• Exposure to risks associated with changes in interest rates on credit facility loans and portfolio company loans, which bear interest based on SOFR, may negatively impact net interest margin.
• The internalized operating structure may incur significant costs and risks, and the company's success is dependent on its ability to hire and retain qualified management and investment professionals.
• Using borrowed funds (leverage) exposes the company to increased risk of loss, magnifying the negative impact of investment value decreases on common stock.
• Lack of liquidity in investments, particularly in private companies, may make it difficult to sell such investments quickly or at desired values.
• A substantial portion of portfolio investments are recorded at fair value determined by management's valuation designee, leading to inherent uncertainty regarding their true value.
• As a non-diversified investment company, there are no limitations on the proportion of assets that may be invested in securities of a single issuer, increasing NAV fluctuation risk.
• Investments may not be managed effectively, or the investment objective and strategies may change without stockholder approval (except for BDC status).
• Difficulty paying required distributions if income is recognized before or without receiving cash (e.g., original issue discount, PIK interest).
• The highly competitive market may limit investment opportunities or force the company to accept less attractive terms.
• The need for additional capital to finance growth may not be available on favorable terms or at all, especially given BDC leverage limitations.
• Dependence on information systems; systems failures or cybersecurity incidents could significantly disrupt business operations.
• Technological innovations and industry disruptions, including those related to artificial intelligence and machine learning, may negatively impact the company or its portfolio companies.
• Equity investments may not appreciate in value and could decline significantly, leading to unrealized losses.
• Investments in private portfolio companies are inherently risky due to limited public information, financial resources, and dependence on key personnel.
• Subordination to other debt in secured loans and limitations imposed by intercreditor agreements may restrict the company's rights in the event of default.
• Portfolio companies may prepay loans, which could reduce stated yields if capital cannot be reinvested in transactions with equal or greater expected yields.
• Failure to make follow-on investments in portfolio companies could impair the value of the existing portfolio.
• Significant exposure to NSG (insurance business, 15.3% of total assets) and FlexFIN (asset-based lending business, 11.7% of total assets) subjects the company to specific industry risks.
• FlexFIN's asset-based lending business is influenced by volatility in gemstone and jewelry prices and is subject to the risk of fraud and counterfeiting.
• Investments in unitranche and covenant-lite debt instruments carry higher yields but entail greater risk.
• Ability to invest in public companies and foreign companies is limited by the 1940 Act, potentially restricting attractive opportunities.
• Investments in foreign securities involve additional risks such as exchange control regulations, political instability, foreign taxes, and less liquid markets.
• Hedging transactions may expose the company to additional risks or may not be effective in mitigating currency or interest rate fluctuations.
• Disposition of investments may result in contingent liabilities, such as indemnification obligations.
• Investments in the securities and obligations of distressed and bankrupt issuers might not receive interest or other payments.
• Concentration of investments in one or more economic sectors and/or industries, such as business services and insurance, makes the company vulnerable to unfavorable developments in those sectors.
• Changes in laws or regulations governing BDCs, RICs, or non-depository commercial lenders, or changes in interpretations thereof, could adversely affect business operations and costs.
• Restrictions on compensation structures for internally managed BDCs may limit the ability to attract and retain talented investment management professionals.
• Uncertainty regarding how future tax reform legislation will affect the company, its investments, or its stockholders.
• Legislation allowing the company to incur additional leverage (SBCA) could increase the risk of investing in the company.
• Failure to invest a sufficient portion of assets in qualifying assets could lead to a loss of BDC status, reducing operating flexibility.
• Failure to maintain qualification as a RIC or satisfy RIC distribution requirements would result in corporate-level U.S. federal income tax.
• The market price of common stock fluctuates and has traded at a discount to NAV since the first quarter of 2015.
• Certain provisions of Delaware law and the company's charter documents could deter takeover attempts.
• NAV per share may be diluted if shares or convertible securities are sold below the then-current NAV per share.
• The terms of the Credit Facility place restrictions on the company's and/or its subsidiaries' activities.
• Issuance of preferred stock could increase the volatility of common stock NAV and market value, and preferred stockholders may have disproportionate influence.
• The business and operations could be negatively affected by securities class actions and derivative lawsuits.
• NSG's life insurance business faces risks from actual claims and benefits payments differing from actuarial assumptions, incorrect policyholder behavior assumptions, insufficient morbidity and mortality data, public health crises, and liquidity issues from withdrawals/surrenders.
• NSG's property and casualty insurance business faces risks from inaccurate underwriting risk assessment, uncertainty in models used to evaluate risk, inadequate loss and loss expense reserves, unexpected changes in policy interpretation, failure to accurately and timely pay claims, and the cyclical nature of the industry.
• The insurance business generally faces intense competition, reliance on retail agents and brokers, extensive regulation, inability to purchase reinsurance on acceptable terms, potential reinsurer default, and the impact of climate change on claims and assumptions.

Future Outlook

The company anticipates its businesses would be materially and adversely affected by a prolonged recession in the United States and other major markets. Additional interest rate increases may occur, potentially impacting borrowing costs and net investment income. The company expects its long-term fixed-rate investments to be financed primarily with equity and long-term debt securities and may use interest rate risk management techniques. It intends to continue to qualify annually as a RIC and distribute substantially all taxable income, with the option to spill over excess undistributed taxable income. The company expects to renew its line of credit under similar terms.

Management Comments

• The management team seeks to achieve its investment objective primarily through making loans and private equity investments in privately-held companies.
• We believe there are attractive opportunities in the private debt market for non-bank investors like the Company.
• We lend directly to many companies that are underserved by the traditional banking system and generally seek to avoid broadly marketed investment opportunities.
• We also believe there are attractive private equity investment opportunities.
• We expect that the members of our management team and our investment professionals will maintain key informal relationships, which we will use to help identify and gain access to investment opportunities.
• Our management, including our Chief Executive Officer and Chief Compliance Officer, is responsible for assessing and managing material risks from cybersecurity threats.
• During the reporting period, we have not identified any risks from cybersecurity threats, including as a result of previous cybersecurity incidents, that we believe have materially affected, or are reasonably likely to materially affect, us, including our business strategy, operational results, and financial condition.

Industry Context

PhenixFIN operates as a Business Development Company (BDC) in a highly competitive market, providing financing to private companies often underserved by traditional banking. It competes with a diverse range of entities including other BDCs, investment funds, commercial banks, and private equity firms, some of which have greater resources or different risk tolerances. The company acknowledges the impact of broader economic conditions, such as potential recessions and rising interest rates (influenced by Federal Reserve actions), on its funding costs, investment returns, and portfolio company performance. The transition from LIBOR to SOFR for floating rate loans is noted as potentially impacting net interest margins. The company's significant investments in the insurance and asset-based lending sectors expose it to specific industry dynamics, including the cyclical nature of property and casualty insurance and volatility in gemstone/jewelry prices.

Comparison to Industry Standards

• SOFR is considered a risk-free rate, while USD LIBOR was a risk-weighted rate. The shift to SOFR, being a lower rate, may negatively impact the company's net interest margin compared to historical LIBOR-based margins.
• The property and casualty insurance business, in which the company has a significant investment through NSG, is historically cyclical in nature, a characteristic common across the industry.

Corporate Governance

Legal Proceedings

• The company is not currently party to any material legal proceedings.

Related Party Transactions

• The company recognized $0.7 million of income in FY25 from contracts with affiliated portfolio companies, The National Security Group (NSG) and ECC Capital Corporation, for providing certain services, including managing investment assets.
• In FY24, the company entered into a related party transaction with NVTN LLC, transferring $11.9 million of equity of Maritime Wireless Holdings LLC to NVTN LLC.
• Due from affiliates totaled $0.57 million as of September 30, 2025, and $0.09 million as of September 30, 2024, consisting of legal and general and administrative expenses paid by the company on behalf of certain affiliates.
• Due to affiliates totaled $0.13 million as of September 30, 2025, and $0.09 million as of September 30, 2024, consisting of expenses payable by the company to certain affiliates.
• FlexFIN, LLC, an unconsolidated significant subsidiary, paid $515,529 in origination and servicing fees and $64,846 for insurance to Kwiat Enterprises, LLC in FY25, an entity with common ownership with a FlexFIN member.

Stakeholder Impact

• **Shareholders**: Experienced a significant decrease in earnings per share and net assets from operations, but received special dividends and benefited from a share repurchase program. The stock continues to trade at a substantial discount to NAV, and there is a risk of dilution if shares are issued below NAV.
• **Employees/Management**: Compensation includes base salaries and performance-based cash awards under the Long-Term Cash Incentive Plan. The company's success is dependent on its ability to attract and retain highly skilled professionals.
• **Portfolio Companies**: Benefit from the company's investments and managerial assistance, but face risks related to economic downturns, rising interest rates, and potential defaults on loans.
• **Creditors**: The expanded Credit Facility and adherence to asset coverage ratios provide some security, but increased leverage and potential for non-performing assets introduce risk. The Pledge and Security Agreement grants lenders superior claims to assets.
• **Regulatory Authorities**: The company is subject to extensive regulation as a BDC and RIC, and has reported a failure to meet RIC distribution requirements for FY23, which may lead to scrutiny.

Next Steps

• Continue to qualify annually as a Regulated Investment Company (RIC) for U.S. federal income tax purposes.
• Monitor transactions and make tax elections to mitigate the effect of complex tax rules and prevent disqualification as a RIC.
• Distribute any carryover Investment Company Taxable Income (ICTI) before the end of the next tax year to avoid excise tax.
• The Board of Directors will continue to determine future distributions to stockholders.
• May seek stockholder approval in the future to sell shares of common stock at a price below the then-current Net Asset Value (NAV) per share.
• Expects to be periodically examined by the SEC for compliance with the 1940 Act.
• Will review written policies and procedures annually for their adequacy and the effectiveness of their implementation.
• The 2028 Promissory Note was redeemed on December 8, 2025, as a subsequent event.

Key Dates

Recommendation

While PhenixFIN demonstrated growth in its investment portfolio and an increased weighted average yield, the significant decline in net assets from operations and earnings per share, coupled with substantial net realized losses and a large decrease in cash, raises concerns about profitability and liquidity. The ongoing discount to NAV and the failure to meet RIC distribution requirements for FY23 are also notable. The expanded credit facility and special dividends offer some positive aspects, but the overall financial performance indicates a challenging period. A 'Hold' recommendation is appropriate given the mixed signals, suggesting investors monitor future performance closely for signs of sustained improvement or further deterioration.

Keywords

Business Development Company, BDC, Regulated Investment Company, RIC, Private Debt, Private Equity, Asset-Based Lending, Insurance, SEC Filing, 10-K, Financial Performance, Investment Portfolio, Leverage, Credit Facility, Special Dividend, Share Repurchase, Risk Management, SOFR, Valuation, Corporate Governance, Internalized Management, Financial Services