WhiteHorse Finance, Inc. Q1 FY2024 earnings call

• Q1 GAAP net investment income and core NII covered the quarterly dividend.
• Portfolio activity: $55 million gross capital employment, including 5 new originations (2 sponsor, 3 nonsponsor) with an average leverage of ~3.5x debt to EBITDA and average spread of 730 basis points.
• NAV was negatively impacted by $5.2 million markdowns, mostly related to equity warrants in Seagate Corporation.
• JV details: Generated $4.8 million in Q1, fair value of $309.4 million, and continues to grow.
• Markdowns in Seagate, New Cycle Solutions, offset by reversals from Crown Brands and Atlas Purchaser.
• Market conditions: Lenders more aggressive, spreads and pricing down, focus on off-the-run sponsors and nonsponsor business.
• Pipeline: $40 million capacity for new assets at BDC, $50 million capacity at JV, actively working on 11 new mandates.

During the first quarter, WhiteHorse Finance recorded GAAP net investment income and core NII of $10.8 million or $0.465 per share, compared to $10.6 million or $0.45 per share in Q4. Q1 fee income was $0.6 million, unchanged from the prior quarter. NAV per share at the end of Q1 was 13.50, a 1% decrease from the prior quarter due to net markdowns of $5.2 million on the portfolio. Gross capital employment totaled $55 million, with $44.7 million funding 5 new originations and $10.3 million funding add-ons to existing investments. Total repayments and sales were $43.4 million in Q1. The JV generated approximately $4.8 million in investment income in Q1, with a fair value of $309.4 million as of March 31, 2024.

• Expect repayment activity to remain high, especially for credits over 2 years old.
• Portfolio net effective leverage at 1.19x, below target range.
• BDC has $40 million capacity for new assets, JV has $50 million capacity.
• Actively working on 11 new mandates, mostly non-sponsored deals, with some closed or pending.

• Market degradation leading to lower pricing and higher leverage in the sponsor market.
• Economic softening and potential credit losses in consumer-facing companies.
• Limited market for certain investments like New Cycle Solutions, with no active market for the paper.

Q: Impact of non-accruals on interest income?

A: Joyson Thomas stated they did not reverse out any income accruals during the period, just ceased recognizing additional accruals during Q1.

Q: What keeps you in a credit?

A: Stuart Aronson mentioned it depends on credit concerns and market aggression; examples include exiting a cyclical company due to higher leverage and staying with a performing business services company despite pricing reduction.

Q: New Cycle sale process?

A: Stuart Aronson said it's a small investment, sponsor is selling the company, offer is less than debt value, and they'll wait for sale to collect on the asset. Joyson Thomas added they reversed a small accrued fee related to New Cycle.

Q: JV transfer characteristics and comfort range?

A: Stuart Aronson said higher-priced deals remain on BDC balance sheet, lower-priced go to JV, and JV size is appropriate to the BDC.

Q: Average investment size trend?

A: Stuart Aronson noted non-sponsor deals are smaller, but in normal market, expect average asset size in $8-10 million range.