NexPoint Capital's Net Assets Plunge 13% Amidst Unrealized Losses

TL;DR

**NexPoint Capital is bleeding value, with massive unrealized losses wiping out net assets – time to re-evaluate your position.**

AI Summary

NexPoint Capital, Inc. reported a significant decrease in net assets and a net loss for the six months ended June 30, 2025. Total net assets declined by 13.2% from $45,276,270 at December 31, 2024, to $39,300,228 at June 30, 2025. The company experienced a net decrease in net assets resulting from operations of $(3,369,091) for the six months ended June 30, 2025, a stark contrast to a net increase of $250,392 for the same period in 2024. This was primarily driven by a substantial net change in unrealized depreciation on investments of $(3,983,417) in 2025, compared to an unrealized appreciation of $189,778 in 2024. Net investment income, however, increased to $509,638 for the six months ended June 30, 2025, up from $34,515 in the prior year, largely due to higher dividend income from affiliated investments, which rose from $177,463 to $569,729. Total investment income increased by 20.3% to $1,198,573. The company's investment portfolio saw a decrease in fair value of unaffiliated investments from $35,244,976 to $31,648,130, and affiliated investments from $9,282,151 to $7,951,050.

Why It Matters

This filing reveals a challenging period for NexPoint Capital, with a substantial decline in net assets and significant unrealized losses on investments. For investors, this indicates potential erosion of capital and a need to scrutinize the valuation methodologies, especially for Level 3 assets which constitute 89.0% of net assets. Employees might face uncertainty if the trend continues, impacting future growth prospects. Customers, particularly those invested in the underlying portfolio companies, could see indirect effects on their valuations. The broader market may view this as a signal of volatility in illiquid alternative investments, potentially impacting investor sentiment towards similar BDCs and private credit funds, especially given the competitive landscape for capital deployment.

Risk Assessment

Risk Level: high — The risk level is high due to the significant net change in unrealized depreciation on investments of $(3,983,417) for the six months ended June 30, 2025, which directly led to a 13.2% decrease in total net assets. Furthermore, 89.0% of net assets, or $34,978,986, are classified as Level 3 fair valued securities, indicating a high reliance on unobservable inputs and subjective valuation, which inherently carries higher risk.

Analyst Insight

Investors should conduct a deep dive into NexPoint Capital's Level 3 asset valuations and the specific drivers of the unrealized depreciation. Consider reducing exposure if the underlying assets' fair value continues to decline or if transparency around valuation inputs remains limited. Monitor future filings for any recovery in investment performance or changes in valuation methodologies.

Financial Highlights

debt To Equity

N/A

revenue

$1,198,573

operating Margin

N/A

total Assets

$40,610,612

total Debt

$1,310,384

net Income

$(3,369,091)

eps

$4.64

gross Margin

N/A

cash Position

$753,742

revenue Growth

+20.3%

Revenue Breakdown

Key Numbers

• $39.3M — Total Net Assets (Decreased by 13.2% from $45.3M at Dec 31, 2024 to $39.3M at June 30, 2025.)
• $(3.37M) — Net Decrease in Net Assets from Operations (For the six months ended June 30, 2025, a significant reversal from a $250K increase in 2024.)
• $(3.98M) — Net Change in Unrealized Depreciation on Investments (Primary driver of the net asset decrease for the six months ended June 30, 2025.)
• $509.6K — Net Investment Income (Increased from $34.5K in 2024 to $509.6K in 2025 for the six-month period.)
• 89.0% — Level 3 Fair Valued Securities (Represents a high proportion of net assets ($34.98M) valued using unobservable inputs, indicating higher risk.)
• $4.64 — Net Asset Value per Share (Decreased from $5.21 at December 31, 2024, to $4.64 at June 30, 2025.)
• $1.20M — Total Investment Income (Increased by 20.3% from $995,930 in 2024 to $1,198,573 in 2025 for the six-month period.)
• $569.7K — Dividend Income from Affiliated Investments (Increased significantly from $177,463 in 2024 for the six-month period, boosting investment income.)

Key Players & Entities

• NexPoint Capital, Inc. (company) — registrant
• $45,276,270 (dollar_amount) — total net assets at December 31, 2024
• $39,300,228 (dollar_amount) — total net assets at June 30, 2025
• $(3,369,091) (dollar_amount) — net decrease in net assets from operations for six months ended June 30, 2025
• $250,392 (dollar_amount) — net increase in net assets from operations for six months ended June 30, 2024
• $(3,983,417) (dollar_amount) — net change in unrealized depreciation on investments for six months ended June 30, 2025
• $509,638 (dollar_amount) — net investment income for six months ended June 30, 2025
• $1,198,573 (dollar_amount) — total investment income for six months ended June 30, 2025
• $34,978,986 (dollar_amount) — fair value of Level 3 securities at June 30, 2025
• 89.0% (dollar_amount) — percentage of net assets fair valued as Level 3 at June 30, 2025

FAQ

Risk Factors

• Unrealized Depreciation on Investments [high — financial]: The company experienced a net change in unrealized depreciation of $(3,983,417) for the six months ended June 30, 2025. This is a significant reversal from an unrealized appreciation of $189,778 in the prior year and is the primary driver of the net decrease in net assets.
• Decline in Net Assets [high — financial]: Total net assets decreased by 13.2% from $45,276,270 at December 31, 2024, to $39,300,228 at June 30, 2025. This decline is largely attributable to the net decrease in net assets resulting from operations.
• Valuation of Level 3 Securities [high — financial]: A substantial portion of the company's net assets, approximately 89.0% ($34.98M out of $39.3M), is valued using Level 3 inputs, which are unobservable. This indicates a higher degree of estimation and potential volatility in valuations.
• Decrease in Investment Portfolio Value [medium — financial]: The fair value of unaffiliated investments decreased from $35,244,976 to $31,648,130, and affiliated investments decreased from $9,282,151 to $7,951,050 during the period. This reduction in asset values contributes to the overall decline in net assets.
• Net Investment Loss from Operations [high — financial]: The company reported a net decrease in net assets from operations of $(3,369,091) for the six months ended June 30, 2025, a significant negative swing from a net increase of $250,392 in the same period of 2024.
• Related Party Transactions [medium — operational]: The company engages in transactions with its Adviser, including advisory fees and receivables/payables. While disclosed, the nature and terms of these related party transactions warrant ongoing scrutiny for potential conflicts of interest or unfavorable terms.

Industry Context

NexPoint Capital operates within the alternative investment management sector, focusing on credit and real estate strategies. The industry is characterized by increasing competition, evolving regulatory landscapes, and a demand for specialized investment expertise. Performance is heavily influenced by macroeconomic factors such as interest rates, credit spreads, and real estate market conditions.

Regulatory Implications

As a publicly traded entity, NexPoint Capital is subject to SEC regulations and reporting requirements. Changes in accounting standards or tax laws could impact financial reporting and net asset values. The valuation of Level 3 assets also brings regulatory scrutiny regarding the appropriateness of valuation methodologies.

What Investors Should Do

1. Monitor Unrealized Depreciation
2. Analyze Level 3 Asset Valuation
3. Assess Dividend Income Sustainability
4. Evaluate Expense Management

Key Dates

• 2025-06-30: End of Six-Month Period — Reporting period for the consolidated statements of operations and assets and liabilities, showing a significant decline in net assets and a net loss.
• 2024-12-31: End of Prior Fiscal Year — Benchmark date for total net assets ($45,276,270) and net asset value per share ($5.21) before the reported decline.
• 2024-06-30: End of Six-Month Period (Prior Year) — Comparative period showing a net increase in net assets from operations ($250,392) and lower investment income, highlighting the operational reversal in 2025.

Glossary

Net assets

The total value of a company's assets minus its liabilities. For an investment company, this represents the value available to shareholders. (A key indicator of the company's overall financial health and value. The significant decrease in net assets is a primary concern.)

Net investment income

The income generated from a company's investments (like interest and dividends) minus its operating expenses. (Shows the profitability of the company's core investment activities before considering changes in the market value of its investments.)

Unrealized depreciation

A decrease in the fair value of an investment that has not yet been sold. It represents a paper loss. (A major contributor to the company's net loss and decline in net assets for the period, indicating market value declines in its portfolio.)

Level 3 Fair Valued Securities

Investments whose fair value is determined using pricing models or valuation techniques that rely on unobservable inputs. These are the most subjective and potentially volatile valuations. (A high proportion of these securities indicates significant valuation risk and potential for future adjustments.)

Affiliated investments

Investments in companies or entities that are related to NexPoint Capital, Inc. through common ownership or control. (Changes in the value and income from these investments have a direct impact on the company's financial performance.)

Interest paid-in-kind (PIK)

Interest that is not paid in cash but is instead added to the principal amount of a loan, increasing the amount owed. (Represents a form of accrued interest that increases the investment's value but does not provide immediate cash flow.)

Year-Over-Year Comparison

Compared to the six months ended June 30, 2024, NexPoint Capital has seen a significant deterioration in its financial performance. Total net assets have fallen by 13.2% to $39.3M, driven by a substantial net loss from operations of $(3.37M), a stark reversal from a net gain of $250K in the prior year. This downturn is primarily attributed to a large $(3.98M) in unrealized depreciation on investments, contrasting with prior year's appreciation. While total investment income grew by 20.3% to $1.2M, largely due to a surge in dividend income from affiliated investments, this was insufficient to offset the investment value declines and operational costs.

Key Financial Figures

• $0.001 — g) of the Act: Common Stock, par value $0.001 per share Indicate by check mark whet

Filing Documents

• d432973d10q.htm (10-Q) — 2601KB
• d432973dex311.htm (EX-31.1) — 7KB
• d432973dex312.htm (EX-31.2) — 7KB
• d432973dex321.htm (EX-32.1) — 4KB
• 0001193125-25-180608.txt ( ) — 11338KB
• cik0001588272-20250630.xsd (EX-101.SCH) — 1324KB
• d432973d10q_htm.xml (XML) — 2803KB

– Financial Information

Part I – Financial Information Item1.

Financial Statements

Financial Statements NexPoint Capital, Inc. Consolidated Statements of Assets and Liabilities June 30, 2025 (Unaudited) December 31, 2024 Assets Unaffiliated investments, at fair value (cost of $ 27,728,252 and $ 28,672,769 , respectively) $ 31,648,130 $ 35,244,976 Affiliated investments, at fair value (cost of $ 10,555,979 and $ 10,555,992 , respectively) (1) 7,951,050 9,282,151 Cash and cash equivalents 753,742 1,671,503 Dividends and interest receivable 44,926 171,456 Receivable from Adviser (2) 146,838 149,659 Prepaid expenses 7,512 537 Deferred tax asset (3) 58,414 33,582 Other receivables — 22,137 Total assets 40,610,612 46,576,001 Liabilities Payable for fund shares repurchased 922 922 Payable to Adviser (2) 236,559 312,204 Accrued expenses and other liabilities 241,711 135,720 Distributions payable 762,915 782,608 Deferred tax liability (3) 68,277 68,277 Total liabilities 1,310,384 1,299,731 Commitments and contingencies (4) Net assets Preferred stock, $ 0.001 par value ( 25,000,000 shares authorized, 0 shares issued and outstanding) — — Common stock, $ 0.001 par value ( 200,000,000 shares authorized, 8,476,838 and 8,695,640 shares issued and outstanding, respectively) 8,477 8,696 Paid-in capital in excess of par 76,113,258 77,183,987 Distributable earnings (accumulated loss) ( 36,821,507 ) ( 31,916,413 ) Total net assets $ 39,300,228 $ 45,276,270 Net asset value per share of common stock $ 4.64 $ 5.21 (1) See Note 9 for a discussion of affiliated investments. (2) See Note 4 for a discussion of related party transactions and arrangements. (3) See Note 5 for a discussion of the deferred tax asset/liability. (4) See Note 4 and Note 7 for a discussion of the commitments and contingencies of the Company (as defined in Note 1). See Notes to Consolidated Financial Statements. 1 Table of Contents NexPoint Capital, Inc.

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View this 10-Q filing on SEC EDGAR