Willow Tree Capital's Net Assets Soar on Robust Investment Income

TL;DR

**Willow Tree Capital is on a tear, but watch that leverage – it's a double-edged sword.**

AI Summary

Willow Tree Capital Corporation reported a significant increase in net assets and investment income for the nine months ended September 30, 2025. Total investment income surged to $51.612 million, up from zero in the prior year, primarily from non-controlled, non-affiliated investments. Net investment income reached $19.705 million, a substantial improvement from a net investment loss of $2.490 million in the same period of 2024. The company's total assets grew to $829.407 million as of September 30, 2025, from $507.969 million at December 31, 2024, driven by an increase in investments at fair value to $794.657 million from $490.462 million. Borrowings also increased significantly to $473.150 million from $242.746 million, indicating increased leverage. Net asset value per share rose to $16.50 from $15.76. Key expenses included interest and borrowing expenses of $21.630 million and management fees of $2.581 million for the nine months ended September 30, 2025.

Why It Matters

This strong performance indicates Willow Tree Capital Corporation is effectively deploying capital and generating returns, which is crucial for investors seeking income and growth from a business development company. The significant increase in investment income and net assets per share suggests a healthy portfolio and management's ability to navigate market conditions. However, the substantial rise in borrowings also introduces higher financial risk, which could impact future distributions or asset values if interest rates climb further or portfolio companies underperform. Competitively, this growth positions Willow Tree to attract more capital, potentially intensifying competition for private debt opportunities.

Risk Assessment

Risk Level: medium — The company's borrowings increased significantly to $473.150 million as of September 30, 2025, from $242.746 million at December 31, 2024, representing a 95.7% increase. This substantial use of leverage, while boosting returns, also amplifies interest rate volatility risk and the risk of borrower default, as explicitly mentioned in the cautionary statement.

Analyst Insight

Investors should closely monitor Willow Tree Capital's debt-to-equity ratio and the performance of its underlying private debt investments. While the current growth is impressive, new investors should exercise caution given the increased leverage and potential sensitivity to interest rate fluctuations. Existing investors might consider holding, but with an eye on future interest expense trends.

Financial Highlights

debt To Equity

1.42

revenue

$51.612M

operating Margin

38.18%

total Assets

$829.407M

total Debt

$473.150M

net Income

$19.705M

eps

$1.04

gross Margin

N/A

cash Position

$22.974M

revenue Growth

N/A

Revenue Breakdown

Key Numbers

• $51.612M — Total Investment Income (Increased from $0 for the nine months ended September 30, 2024)
• $19.705M — Net Investment Income (Improved from a loss of $2.490M for the nine months ended September 30, 2024)
• $829.407M — Total Assets (Increased from $507.969M at December 31, 2024)
• $794.657M — Investments at Fair Value (Increased from $490.462M at December 31, 2024)
• $473.150M — Borrowings (Increased from $242.746M at December 31, 2024)
• $16.50 — Net Asset Value Per Share (Increased from $15.76 at December 31, 2024)
• 20,675,244 — Shares Outstanding (Increased from 14,940,044 shares at December 31, 2024)
• $21.630M — Interest and Borrowing Expenses (For the nine months ended September 30, 2025)

Key Players & Entities

• Willow Tree Capital Corporation (company) — registrant
• SEC (regulator) — Securities and Exchange Commission
• Willow Tree Capital Corp Advisors LLC (company) — Adviser
• $51.612 million (dollar_amount) — Total investment income for nine months ended September 30, 2025
• $19.705 million (dollar_amount) — Net investment income for nine months ended September 30, 2025
• $829.407 million (dollar_amount) — Total assets as of September 30, 2025
• $473.150 million (dollar_amount) — Borrowings as of September 30, 2025
• $16.50 (dollar_amount) — Net asset value per share as of September 30, 2025
• $21.630 million (dollar_amount) — Interest and borrowing expenses for nine months ended September 30, 2025

FAQ

Risk Factors

• Increased Leverage [high — financial]: Borrowings increased significantly to $473.150 million as of September 30, 2025, from $242.746 million at December 31, 2024. This substantial increase in debt amplifies financial risk, particularly concerning interest and borrowing expenses which amounted to $21.630 million for the nine months ended September 30, 2025.
• Investment Value Volatility [medium — market]: The company's investments are held at fair value, with non-controlled, non-affiliated investments totaling $794.657 million as of September 30, 2025. Fluctuations in market conditions can lead to significant unrealized gains or losses, as evidenced by the $5.479 million net change in unrealized appreciation for the nine months ended September 30, 2025.
• Dependence on Investment Performance [medium — operational]: The company's financial performance is heavily reliant on the income generated from its investments. The surge in total investment income to $51.612 million for the nine months ended September 30, 2025, highlights this dependence. Any downturn in investment performance could materially impact net investment income.
• Compliance with Investment Regulations [low — regulatory]: As a capital corporation, Willow Tree is subject to various regulatory requirements governing investment activities, reporting, and capital adequacy. Non-compliance could lead to penalties and reputational damage.

Industry Context

Willow Tree Capital operates in the investment management sector, which is characterized by intense competition and a strong reliance on market performance. The industry is sensitive to interest rate changes, economic cycles, and regulatory shifts. Companies in this space often employ leverage to enhance returns, but this also increases risk.

Regulatory Implications

As a financial entity, Willow Tree Capital is subject to oversight from regulatory bodies. Changes in financial regulations, particularly those related to capital requirements, leverage, and investment disclosures, could impact its operations and profitability. Compliance with these regulations is paramount.

What Investors Should Do

1. Monitor leverage levels
2. Analyze investment income drivers
3. Evaluate expense management
4. Track Net Asset Value (NAV) per share growth

Key Dates

• 2025-09-30: Nine months ended September 30, 2025 — Reported significant growth in investment income ($51.612M) and net investment income ($19.705M), alongside a substantial increase in total assets ($829.407M) and borrowings ($473.150M).
• 2024-12-31: As of December 31, 2024 — Company had total assets of $507.969M and borrowings of $242.746M, with minimal investment income reported for the comparable prior period.
• 2024-09-30: Nine months ended September 30, 2024 — Reported zero total investment income and a net investment loss of $2.490M, indicating a substantial turnaround in performance in the current period.

Glossary

PIK interest income

Payment-in-kind interest income, where interest is paid in the form of additional debt or equity rather than cash. (Contributed $2.681 million to the total investment income for the nine months ended September 30, 2025, indicating a non-cash component of earnings.)

Net assets

The total assets of the company minus its total liabilities. It represents the equity value of the company. (Increased to $341.052 million as of September 30, 2025, from $235.490 million at December 31, 2024, reflecting overall growth in the company's value.)

Net asset value per share

The value of a company's net assets divided by the number of outstanding shares. (Rose to $16.50 as of September 30, 2025, from $15.76 at December 31, 2024, indicating an increase in shareholder value on a per-share basis.)

Non-controlled, non-affiliated investments

Investments in companies where Willow Tree Capital does not have control or significant influence, and is not affiliated. (This category represents the primary source of the company's investment income, totaling $794.657 million at fair value as of September 30, 2025.)

Distributable earnings (loss)

The cumulative earnings of the company that are available for distribution to shareholders. (Increased from a loss of $1.196 million at December 31, 2024, to earnings of $13.655 million at September 30, 2025, showing improved profitability available for distribution.)

Year-Over-Year Comparison

Willow Tree Capital Corporation has demonstrated a dramatic improvement in financial performance compared to the prior year. Total investment income has surged from $0 to $51.612 million for the nine months ended September 30, 2025, transforming a net investment loss of $2.490 million into a net investment income of $19.705 million. This growth is accompanied by a significant expansion in total assets, from $507.969 million to $829.407 million, driven by increased investments. However, this expansion has been financed by a substantial rise in borrowings, from $242.746 million to $473.150 million, indicating a higher leverage profile and increased financial risk.

Key Financial Figures

• $0.01 — had 20,675,244 shares of common stock, $0.01 par value per share, outstanding. Tab

Filing Documents

• wt-20250930.htm (10-Q) — 2698KB
• exhibit311ceocertificate-q.htm (EX-31.1) — 29KB
• exhibit312cfocertificate-q.htm (EX-31.2) — 29KB
• exhibit321-ceocertificatio.htm (EX-32.1) — 18KB
• exhibit322cfocertification.htm (EX-32.2) — 18KB
• 0001944831-25-000040.txt ( ) — 11352KB
• wt-20250930.xsd (EX-101.SCH) — 46KB
• wt-20250930_cal.xml (EX-101.CAL) — 53KB
• wt-20250930_def.xml (EX-101.DEF) — 202KB
• wt-20250930_lab.xml (EX-101.LAB) — 535KB
• wt-20250930_pre.xml (EX-101.PRE) — 389KB
• wt-20250930_htm.xml (XML) — 2950KB

- Financial Information

Part I - Financial Information 3 Item 1. Consolidated Statements of Assets and Liabilities as of September 30, 2025 (unaudited) and December 31, 2024 3 Consolidated Statements of Operations for the three and nine months ended September 30, 2025 (unaudited) and September 30, 2024 (unaudited) 4 Consolidated Statements of Changes in Net Assets for the three and nine months ended September 30, 2025 (unaudited) and September 30, 2024 (unaudited) 5 Consolidated Statement of Cash Flows for the nine months ended September 30, 2025 (unaudited) and September 30, 2024 (unaudited) 6 Consolidated Schedule 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) 19 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 38 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 54 Item 4.

Controls and Procedures

Controls and Procedures 55

- Other Information

Part II - Other Information 56 Item 1.

Legal Proceedings

Legal Proceedings 56 Item 1A.

Risk Factors

Risk Factors 56 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 56 Item 3. Defaults Upon Senior Securities 56 Item 4. Mine Safety Disclosures 56 Item 5. Other Information 56 Item 6. Exhibits 57

Signatures

Signatures 58 i Table of Contents CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements regarding the plans and objectives of management for future operations. Any such forward-looking statements may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "intend," "target," "goals," "plan," "forecast," "project," other variations on these words or comparable terminology, or the negative of these words. These forward-looking statements are based on assumptions that may be incorrect, and we cannot assure you that the projections included in these forward-looking statements will come to pass. Our actual results could differ materially from those expressed or implied by the forward-looking statements as a result of various factors, including the factors discussed in Item 1A entitled "Risk Factors" in Part I in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, Item 1A entitled "Risk Factors" in Part II of this Quarterly Report on Form 10-Q and elsewhere in this Quarterly Report on Form 10-Q. The following factors are among those that may cause actual results to differ materially from our forward-looking statements: Our future operating results; Our business prospects and prospects of our portfolio companies; The ability of our portfolio companies to achieve their objectives; Changes in political, economic, or industry conditions, the interest rate environment, the imposition of tariffs, a prolonged shutdown of government service

Financial Information

Part I. Financial Information

Financial Statements

Item 1. Financial Statements WILLOW TREE CAPITAL CORPORATION Consolidated Statement of Assets and Liabilities (in thousands, except share and per share amounts) Assets As of September 30, 2025 As of December 31, 2024 (unaudited) Investments, at fair value: Non-controlled, non-affiliated investments (cost of $ 787,228 and $ 488,544 at September 30, 2025 and December 31, 2024, respectively) $ 794,657 $ 490,462 Cash 22,974 8,107 Deferred financing costs 6,055 5,274 Dividends and interest receivable 5,459 3,052 Receivable for investments sold 219 224 Receivable from Adviser — 460 Prepaid expenses 43 390 Total assets $ 829,407 $ 507,969 Liabilities Borrowings $ 473,150 $ 242,746 Interest payable 6,863 2,850 Payable for investments purchased 3,100 13,657 Investment income incentive fees payable 1,365 — Management fees payable 1,033 435 Accrued capital gains incentive fees 928 — Loans sold under agreement to repurchase — 11,641 Accrued expenses and other liabilities 1,916 1,150 Total liabilities $ 488,355 $ 272,479 Commitments and contingencies (see Note 7) Net assets Common stock, $ 0.01 par value, 200,000,000 shares authorized, 20,675,244 and 14,940,044 shares issued and outstanding as of September 30, 2025 and December 31, 2024, respectively $ 207 $ 149 Additional Paid in Capital 327,190 234,145 Distributable earnings (loss) 13,655 1,196 Total net assets $ 341,052 $ 235,490 Total liabilities and net assets $ 829,407 $ 507,969 Net asset value per share $ 16.50 $ 15.76 The accompanying notes are an integral part of these unaudited financial statements. 3 Table of Contents WILLOW TREE CAPITAL CORPORATION Consolidated Statement of Operations (Unaudited) (in thousands, except share and per share amounts) For the three months ended September 30, For the nine months ended September 30, 2025 2024 2025 2024 Investment income: From non-controlled, non-affiliated investments: Interest income $ 18,407 $ — $ 48,497 $ — PIK

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