Willow Tree Capital Corp: A Plain-English Investor’s Guide

I wrote this guide to help you understand Willow Tree Capital Corp. My goal is to cut through the jargon and give you a clear picture of how they operate so you can decide if it fits your portfolio.

1. What does this company do?

Willow Tree acts as a lender to the middle market. They provide loans to businesses with annual profits between $10 million and $50 million. These companies are too large for local banks but too small for public bond markets.

Willow Tree focuses on "senior secured loans," which make up 88% of their $884 million portfolio. If a borrower fails to pay, Willow Tree has the first claim on the borrower’s assets.

2. How do they pick their investments?

Willow Tree uses their parent company’s network to find deals.

The Conflict Problem: The managers also run three other private funds with similar goals. Because there is no strict rule for sharing deals fairly, the managers may prioritize their other funds for the safest opportunities. This leaves Willow Tree to potentially take on the remaining deals, which may carry higher risk or lower returns.

3. The "Cost" of Doing Business

Here is how the managers get paid:

• Management Fee: 1.25% of the company's assets, paid quarterly.
• Incentive Fee: 20% of profit, as long as they hit a 7% annual return target.

The Catch: This structure is not friendly to investors. The incentive fee is based on "paper profits"—interest they have recorded but not yet collected in cash. If a borrower defaults after the manager takes their bonus, the manager keeps the money, and you absorb the full loss.

4. How did they perform in 2025?

Willow Tree grew quickly in 2025 by buying two smaller portfolios. Their assets rose from $490 million to $884 million. They made 55 new loans, averaging $11.3 million each.

They paid out $1.49 per share to investors, but only earned $1.38 per share in profit. This means they paid out 108% of their earnings. Essentially, they returned some of your own capital to you to maintain the dividend yield.

5. The Risks: What Could Go Wrong?

Willow Tree is a high-risk investment. Here is what you need to know:

• You’re Locked In: There is no public market for these shares. You cannot sell them easily, and the board rarely approves transfers. With only 40 shareholders, there is no way to verify the true market value of your shares.
• The "Capital Call" Obligation: The company can demand more money from you at any time. You must wire funds within 10 business days. If you fail to pay, you could lose your existing investment at a 25% discount.
• Accounting Weaknesses: The company relies on manual spreadsheets rather than automated software for its internal financial controls, which increases the risk of accounting errors.
• No Exit Plan: The company has no plans to go public or sell itself. Your money is effectively trapped until the loans mature, which takes about 4.2 years on average.

6. The Bottom Line

Willow Tree is a complex, high-risk investment. You are locked into a private fund with no clear way to get your money out. The managers face conflicts of interest, and the company is paying out more cash than it earns.

Before you invest, ask yourself:

• Am I comfortable with my capital being locked away for years without an easy way to sell?
• Can I afford to meet a surprise "capital call" on short notice?
• Am I okay with the managers prioritizing other funds for the best deals?

Given the lack of transparency and liquidity, this is a highly speculative choice for most investors.