NexPoint Capital, Inc. Annual Report: A Performance Summary

I’ve put together this guide to help you understand how NexPoint Capital, Inc. performed this year. My goal is to translate complex financial filings into plain English so you can decide if this company fits your investment goals.

1. What does this company do?

NexPoint Capital is a Business Development Company (BDC). Think of them as a specialized lender for middle-market companies—businesses with annual revenues between $50 million and $2.5 billion.

They focus on healthcare, but also invest in industrial, energy, and real estate sectors. They aim to earn money by lending cash (debt) and occasionally taking an ownership stake (equity) in these businesses. By law, they must pay at least 90% of their taxable income to shareholders as dividends. However, these payments depend entirely on the cash flow from their private investments.

2. Financial Performance & Health

At the end of 2025, NexPoint’s portfolio was worth $37.6 million across 23 investments.

• How they make money: Only 14% of their portfolio is in "first lien" loans—the safest type of debt that gets paid back first if a company goes bankrupt. The remaining 86% is in stocks and other ownership interests. These carry higher risk but offer the potential for growth.
• The "Yield" Reality: Their estimated gross annual return was 2.49% before accounting for the costs of borrowing money. This is quite low for a BDC because the portfolio relies more on equity than on high-interest loans. After paying management fees and expenses, the profit left for shareholders is very thin.
• Valuation Methods: About 93.4% of their assets are "fair valued" using internal models, up from 83.2% in 2024. Because these assets aren't traded on a public exchange, management estimates their value using their own formulas. This creates a risk that the reported value of your shares may not match what a buyer would actually pay in a real-world sale.

3. Major Wins and Challenges

• The "HoldCo" Structure: About 20.7% of their assets are held in three specific subsidiaries: Sapience, US Gaming, and AB Holdco. These act as silos for specific industry bets, which concentrates risk rather than spreading it out.
• Ownership Changes: A single investor, Liberty CLO Holdco Ltd., now owns about 27% of the company. This gives them significant influence over shareholder votes and company decisions.
• Share Price: Since their public offering ended in 2018, there is no active market for these shares, making them very difficult to sell. The company has been issuing new shares at $4.60 each—a 57.2% discount from the original 2018 price of $10.75. This drop reflects the steady decline in the portfolio’s value over the last seven years.

4. Key Risks

• "Junk" Status: Many of the companies NexPoint lends to are considered "junk" status. They carry high debt and are sensitive to interest rate hikes. If these companies fail, NexPoint’s equity investments are usually wiped out first.
• Liquidity: You cannot easily sell your shares if you need cash. The company lacks a strong share buyback program, meaning you are effectively locked in until the company decides to sell its assets or liquidate.
• Valuation Uncertainty: Because 93% of assets are valued using internal estimates, there is a risk that management is being too optimistic. If their models are wrong, your investment could be worth significantly less than the reported value.

Final Thoughts for Your Decision

When considering this investment, ask yourself if you are comfortable with a long-term, illiquid position. Because the shares cannot be easily sold on a public market and the portfolio relies heavily on internal valuations and equity stakes rather than steady interest-bearing loans, this investment carries a different risk profile than a typical stock. Ensure this fits your need for liquidity and your tolerance for the risks associated with private, middle-market debt and equity.