WhiteHorse Finance, Inc. Q4 FY2023 earnings call

• Fourth quarter 2023 GAAP net investment income and core net interest income were $10.6 million or $0.456 per share, covering the quarterly base dividend.
• Portfolio activity: Q4 gross capital deployments totaled $56.9 million, with $54.1 million funding new transactions and $2.8 million funding add-ons. Repayments and sales were $34.9 million.
• JV activity: Transferred $27.6 million to the Ohio STRS JV. The JV generated investment income of approximately $4.2 million in Q4, with an average unlevered yield of 12.4%.
• Credit performance: Non-accrual investments totaled 2% of the portfolio at fair value at Q4 end, down from 2.8% in Q3. Specific investments like American Crafts, PlayMonster, etc., had markdowns/markups.
• Market conditions: Increased liquidity led to sponsor deal pricing declines, while non-sponsor deals remained stable. Focus on off-the-run and non-sponsor markets for better terms.
• Origination: 22 origination professionals in 11 regions; pipeline solid with focus on non-sponsor and off-the-run deals.
• Dividend: Board increased quarterly base dividend to $0.385 per share, reduced management fee to 1.75% effective Jan 2024.

In the fourth quarter of 2023, GAAP net investment income and core net interest income was $10.6 million or $0.456 per share. Q4 fee income increased to approximately $0.6 million from $0.4 million in Q3. NAV per share at the end of Q4 was $13.63, a 1.7% decrease from the prior quarter. The portfolio mix was approximately two-thirds sponsor and one-third non-sponsor, with over 97% of the debt portfolio being first lien, senior secured. Net repayments and STRS JV transfers, along with net mark-to-market changes and accretion, affected the fair value of the investment portfolio.

• BDC balance sheet has ~$50 million capacity for new assets at target leverage; JV has ~$40 million capacity.
• Actively working on 12 new mandates and add-on acquisitions, all non-sponsor deals.
• Board declared first quarter 2024 distribution of $0.385 per share, consistent with prior quarter.

• Origination constraints due to slow 2023 M&A environment.
• American Crafts turnaround taking longer than anticipated.
• Uncertainty in economic recovery and rate cuts affecting deal sourcing and portfolio performance.
• Market conditions could lead to lower spreads on replaced deals.

Q: Mickey Schleien asked about BDC's ability to replace repayments.

A: Stuart Aronson responded that repayments will be mitigated by call protection from 2022-2023, pipeline volumes are solid, and non-sponsor sector remains stable.

Q: Bryce Rowe asked about Q1 repayments.

A: Stuart Aronson said some repayments were due to maturity/refinance and M&A activity.

Q: Erik Zwick asked about pipeline mix and investment size.

A: Stuart Aronson responded on non-sponsor focus, conservative leverage, and portfolio diversification.

Q: Melissa Wedel asked about post-quarter end new investments and non-sponsor pipeline.

A: Joyson Thomas said Q1 new deployments approximated $30 million, and non-sponsor deals are harder to source but pipeline is solid.