Varagon's Net Assets Decline Amidst Investment Losses, Higher Expenses

TL;DR

**Varagon's portfolio is bleeding value, and rising costs are eating into returns – time to be cautious.**

AI Summary

Varagon Capital Corp reported a net decrease in net assets from operations of $8,713 thousand for the nine months ended September 30, 2025, a significant decline from a net increase of $1,386 thousand in the prior year period. Total investment income decreased to $68,540 thousand for the nine months ended September 30, 2025, down from $72,815 thousand in the same period of 2024, primarily due to a reduction in interest income from controlled investments, which fell from $21,451 thousand to $16,226 thousand. Expenses increased to $36,425 thousand for the nine months ended September 30, 2025, up from $35,033 thousand in 2024, driven by higher professional fees of $2,710 thousand and interest expenses of $23,322 thousand. The company experienced a net realized loss on investments of $614 thousand and a net change in unrealized depreciation on investments of $8,082 thousand for the nine months ended September 30, 2025, compared to a net realized gain of $179 thousand and net unrealized appreciation of $539 thousand in the prior year. Net assets per share decreased to $9.26 as of September 30, 2025, from $9.47 as of December 31, 2024. Cash and cash equivalents declined significantly to $31,932 thousand as of September 30, 2025, from $69,606 thousand at December 31, 2024.

Why It Matters

This 10-Q filing reveals a challenging period for Varagon Capital Corp, with declining net assets and investment income, coupled with rising expenses. For investors, the decrease in net assets per share from $9.47 to $9.26 signals potential erosion of shareholder value, while the shift from unrealized appreciation to depreciation on investments suggests a tougher market for their portfolio. Employees might face pressure if these trends continue, impacting future compensation or job security. Customers, particularly those in controlled investments, could see changes in lending terms or investment strategies as Varagon adjusts to market conditions. Competitively, Varagon's performance lags behind peers who might be navigating the current interest rate environment more effectively, potentially impacting its ability to attract new capital or retain existing clients in the private credit market.

Risk Assessment

Risk Level: high — The risk level is high due to a significant net change in unrealized depreciation on investments of $8,082 thousand for the nine months ended September 30, 2025, a stark reversal from $539 thousand in appreciation in the prior year. Additionally, cash and cash equivalents plummeted from $69,606 thousand to $31,932 thousand, indicating reduced liquidity and increased reliance on credit facilities, which saw a decrease from $50,000 thousand to $31,600 thousand, potentially limiting future borrowing capacity.

Analyst Insight

Investors should scrutinize Varagon's investment portfolio for further signs of deterioration and consider the implications of reduced liquidity. Await the next earnings call for management's strategy to address the unrealized depreciation and declining cash position before making any new investment decisions.

Financial Highlights

debt To Equity

1.25

revenue

$68,540K

operating Margin

N/A

total Assets

$864,409K

total Debt

$456,619K

net Income

-$8,713K

eps

$9.26

gross Margin

N/A

cash Position

$31,932K

revenue Growth

-5.87%

Revenue Breakdown

Key Numbers

• $8,713K — Net decrease in net assets from operations (For the nine months ended September 30, 2025, a significant decline from a net increase of $1,386K in the prior year.)
• $68,540K — Total investment income (For the nine months ended September 30, 2025, down from $72,815K in 2024.)
• $16,226K — Interest income from controlled investments (For the nine months ended September 30, 2025, a decrease from $21,451K in 2024.)
• $36,425K — Total expenses (For the nine months ended September 30, 2025, an increase from $35,033K in 2024.)
• $2,710K — Professional fees (For the nine months ended September 30, 2025, an increase from $1,663K in 2024.)
• $23,322K — Interest expenses (For the nine months ended September 30, 2025, an increase from $20,978K in 2024.)
• $614K — Net realized loss on investments (For the nine months ended September 30, 2025, compared to a gain of $179K in 2024.)
• $8,082K — Net change in unrealized depreciation on investments (For the nine months ended September 30, 2025, a significant shift from $539K appreciation in 2024.)
• $9.26 — Net assets per share (As of September 30, 2025, down from $9.47 at December 31, 2024.)
• $31,932K — Cash and cash equivalents (As of September 30, 2025, a decrease from $69,606K at December 31, 2024.)

Key Players & Entities

• Varagon Capital Corp (company) — Registrant in the 10-Q filing
• SEC (regulator) — Securities and Exchange Commission
• $8,713 thousand (dollar_amount) — Net decrease in net assets from operations for nine months ended September 30, 2025
• $1,386 thousand (dollar_amount) — Net increase in net assets from operations for nine months ended September 30, 2024
• $68,540 thousand (dollar_amount) — Total investment income for nine months ended September 30, 2025
• $72,815 thousand (dollar_amount) — Total investment income for nine months ended September 30, 2024
• $36,425 thousand (dollar_amount) — Total expenses for nine months ended September 30, 2025
• $35,033 thousand (dollar_amount) — Total expenses for nine months ended September 30, 2024
• $8,082 thousand (dollar_amount) — Net change in unrealized depreciation on investments for nine months ended September 30, 2025
• $31,932 thousand (dollar_amount) — Cash and cash equivalents as of September 30, 2025

FAQ

Risk Factors

• Investment Performance Decline [high — financial]: The company experienced a net decrease in net assets from operations of $8,713 thousand for the nine months ended September 30, 2025, a significant decline from a net increase of $1,386 thousand in the prior year. This was driven by a decrease in total investment income to $68,540 thousand from $72,815 thousand, and a substantial shift from net unrealized appreciation of $539 thousand to a net unrealized depreciation of $8,082 thousand.
• Increased Operating Expenses [medium — financial]: Total expenses rose to $36,425 thousand from $35,033 thousand for the nine months ended September 30, 2025. This increase was primarily due to higher professional fees, which grew from $1,663 thousand to $2,710 thousand, and increased interest expenses from $20,978 thousand to $23,322 thousand.
• Reduced Interest Income from Controlled Investments [medium — financial]: Interest income from controlled investments decreased significantly to $16,226 thousand for the nine months ended September 30, 2025, down from $21,451 thousand in the prior year. This reduction directly impacted overall investment income.
• Deterioration in Investment Valuation [high — financial]: The company reported a net realized loss on investments of $614 thousand and a net change in unrealized depreciation on investments of $8,082 thousand for the nine months ended September 30, 2025. This is a stark contrast to the prior year's net realized gain of $179 thousand and net unrealized appreciation of $539 thousand.
• Decreased Cash Position [high — financial]: Cash and cash equivalents saw a substantial decline, falling to $31,932 thousand as of September 30, 2025, from $69,606 thousand at December 31, 2024. This reduction in liquidity could impact operational flexibility.
• Erosion of Net Asset Value Per Share [medium — financial]: Net assets per share decreased to $9.26 as of September 30, 2025, from $9.47 as of December 31, 2024. This indicates a decline in the value attributable to each share outstanding.
• Increased Leverage Utilization [medium — financial]: While total liabilities decreased from $494,464 thousand to $479,832 thousand, the notes payable remained high at $425,019 thousand. The revolving credit facility payable decreased from $50,000 thousand to $31,600 thousand.
• Rising Interest Expenses [medium — financial]: Interest expenses increased to $23,322 thousand for the nine months ended September 30, 2025, from $20,978 thousand in the prior year. This rise contributes to the overall increase in expenses.

Industry Context

Varagon Capital Corp operates in the credit and investment management sector, likely focusing on direct lending and private credit strategies. The industry is characterized by increasing competition, evolving regulatory landscapes, and sensitivity to interest rate movements. Investors are increasingly seeking yield in a low-rate environment, but this also brings risks associated with credit quality and market volatility.

Regulatory Implications

As a financial services firm, Varagon Capital Corp is subject to various regulations concerning investment management, capital adequacy, and investor protection. Changes in accounting standards or regulatory requirements could impact reporting and operational costs. Compliance with these regulations is crucial to maintain investor trust and operational continuity.

What Investors Should Do

1. Monitor expense management closely.
2. Analyze the drivers of unrealized depreciation.
3. Assess the impact of reduced cash reserves.
4. Evaluate the sustainability of the current dividend/distribution policy.

Key Dates

• 2025-09-30: Nine months ended September 30, 2025 — Period marked by a net decrease in net assets from operations, declining investment income, and increased expenses.
• 2025-09-30: Net assets per share as of September 30, 2025 — Decreased to $9.26 from $9.47 at the end of the previous fiscal year.
• 2025-09-30: Cash and cash equivalents as of September 30, 2025 — Significantly reduced to $31,932 thousand from $69,606 thousand at December 31, 2024.
• 2024-12-31: Fiscal year ended December 31, 2024 — Prior period reference point for year-over-year comparisons.

Glossary

Net assets

The total value of a company's assets minus its liabilities. For investment companies, it represents the value available to shareholders. (The net decrease in net assets from operations is a key indicator of the company's performance.)

Investment income

Revenue generated from a company's investments, typically including interest, dividends, and fees. (A primary driver of profitability; a decrease here negatively impacts overall financial results.)

Controlled investments

Investments where the company has a significant ownership stake or influence, allowing for consolidation or equity method accounting. (A significant source of income, and a decline in its performance directly affects the company's results.)

Net realized loss/gain on investments

The profit or loss incurred when an investment is sold for more or less than its cost basis. (Reflects actual losses or gains from selling assets, impacting the company's bottom line.)

Net change in unrealized depreciation/appreciation on investments

The change in the market value of investments that are still held by the company, reflecting paper gains or losses. (Indicates the impact of market fluctuations on the value of the company's portfolio.)

Cash and cash equivalents

Highly liquid short-term investments that can be readily converted into cash. (Represents the company's immediate liquidity and ability to meet short-term obligations.)

Net assets per share

The net asset value of a company divided by the number of outstanding shares, representing the value per share. (A key metric for investors to assess the per-share value and performance of their investment.)

Amortized cost

The initial cost of a financial asset, adjusted over time for any premium or discount and for principal repayments and amortization of fees or costs. (Provides context for the fair value of investments, showing the historical cost basis.)

Year-Over-Year Comparison

Compared to the prior year period, Varagon Capital Corp has experienced a significant downturn. Total investment income decreased by $4,275 thousand, primarily due to a $5,225 thousand drop in interest income from controlled investments. While total expenses saw a modest increase of $1,392 thousand, the most concerning change is the shift from net unrealized appreciation of $539 thousand to a net unrealized depreciation of $8,082 thousand, contributing to an overall net decrease in net assets from operations of $8,713 thousand, a stark contrast to the prior year's net increase of $1,386 thousand. The company's cash position has also been more than halved, and net assets per share have declined.

Key Financial Figures

• $1234 — 10-Q 00000000$1234ROC UNITED STATES SECURITIES AND EXC
• $0.01 — had 41,535,938 shares of common stock, $0.01 par value per share, outstanding. TAB

Filing Documents

• ck0001784700-20250930.htm (10-Q) — 19150KB
• ck0001784700-ex31_1.htm (EX-31.1) — 17KB
• ck0001784700-ex31_2.htm (EX-31.2) — 17KB
• ck0001784700-ex32_1.htm (EX-32.1) — 10KB
• ck0001784700-ex32_2.htm (EX-32.2) — 10KB
• 0001193125-25-272093.txt ( ) — 60089KB
• ck0001784700-20250930.xsd (EX-101.SCH) — 2435KB
• ck0001784700-20250930_htm.xml (XML) — 17494KB

Financial Statements (unaudited)

Financial Statements (unaudited) Consolidated Statements of Assets and Liabilities as of September 30, 2025 (unaudited) and December 31, 2024 2 Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2025 and September 30, 2024 (unaudited) 3 Consolidated Statements of Changes in Net Assets for the Three and Nine Months Ended September 30, 2025 and September 30, 2024 (unaudited) 5 Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2025 and September 30, 2024 (unaudited) 7 Consolidated Schedules of Investments as of September 30, 2025 (unaudited) and December 31, 2024 8

Notes to Consolidated Financial Statements (unaudited)

Notes to Consolidated Financial Statements (unaudited) 41 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 81 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 110 Item 4.

Controls and Procedures

Controls and Procedures 112 PART II. OTHER INFORMATION Item1.

Legal Proceedings

Legal Proceedings 113 Item 1A.

Risk Factors

Risk Factors 114 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 115 Item 3. Defaults Upon Senior Securities 116 Item 4. Mine Safety Disclosures 117 Item 5. Other Information 118 Item 6. Exhibits 119

Signatures

Signatures 120 1 TABLE OF CONTENTS

-FINANCIAL INFORMATION

PART I-FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements. Varagon Capital Corporation CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (dollar amounts in thousands, except share and per share data) As of September 30, 2025 As of ASSETS (unaudited) December 31, 2024 Investments, at fair value Non-controlled/non-affiliated, at fair value (amortized cost of $ 677,429 and $ 639,235 , respectively) $ 662,865 $ 631,963 Controlled investments, at fair value (amortized cost of $ 169,550 and $ 183,982 , respectively) 156,931 172,152 Total investments, at fair value (amortized cost of $ 846,979 and $ 823,217 , respectively) 819,796 804,115 Cash and cash equivalents 31,932 69,606 Interest receivable 10,601 11,530 Deferred financing costs 1,356 1,619 Prepaid expenses 420 884 Other assets 304 — Total assets $ 864,409 $ 887,754 LIABILITIES Revolving credit facility payable (Note 6) $ 31,600 $ 50,000 Notes payable (net of debt issuance costs of $ 2,633 , and $ 2,870 , respectively) (Note 6) 425,019 424,009 Shareholder distributions payable 10,736 12,736 Interest and credit facility fees payable 6,242 2,794 Base management fees payable (Note 7) 1,594 1,513 Income incentive fees payable (Note 7) 1,966 206 Administrator expenses payable 510 553 Directors' fees and expenses payable (Note 9) 79 81 Due to affiliates 818 741 Accounts payable and accrued expenses 1,268 1,099 Other liabilities — 732 Total liabilities 479,832 494,464 Commitments and contingencies (Note 8) NET ASSETS Common stock, $ 0.01 par value; 500,000,000 shares authorized; 41,533,090 shares issued and outstanding at September 30, 2025, and 500,000,000 shares authorized; 41,524,826 shares issued and outstanding at December 31, 2024 415 415 Paid-in capital in excess of par value 415,253 415,176 Total accumulated earnings (loss) ( 31,091 ) ( 22,301 ) Total net ass

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View this 10-Q filing on SEC EDGAR