Will existing MRCC shareholders receive cash, stock, or a combination, and what are the tax implications?

Share‑holder consideration: The merger is being structured as a stock‑for‑stock transaction. Upon closing, the existing Monroe Capital (MRCC) owners will receive shares of Horizon Technology Finance (HRZN) representing roughly 37 % of the combined company’s outstanding equity. No cash‑distribution is disclosed in the filing, so shareholders should expect a pure share swap rather than a cash payout or a mixed consideration.

Tax treatment: Because the deal is being presented as a tax‑free reorganization under IRC §368(a)(1), the receipt of HRZN stock is generally not a taxable event at the time of the exchange. Shareholders will inherit the original cost basis and holding period of their MRCC shares, and the basis will be allocated among the new HRZN shares they receive. Tax is deferred until the HRZN shares are sold, at which point any gain (or loss) will be treated as a capital gain (short‑ or long‑term depending on the original holding period). If a cash carve‑out were added later, that portion would be taxable immediately as ordinary income or capital gain to the extent it exceeds the shareholder’s basis.

Trading implications: The stock‑only swap means the MRCC price will likely compress toward the announced exchange ratio, creating short‑term volatility as investors adjust positions. Technically, MRCC has been trending lower with the negative sentiment flag, while HRZN shows tighter range‑bound behavior. Traders may consider exiting MRCC ahead of the record date to avoid the exchange‑ratio uncertainty, or rolling the position into HRZN if they view the combined entity’s fundamentals—expanded balance sheet, diversified loan portfolio, and a larger market‑cap—favorably. Keep an eye on any amendments that could introduce a cash element, as that would trigger immediate tax and price impacts.