WhiteHorse Finance, Inc. Q2 FY2024 earnings call

• Q2 results were softer due to elevated repayment activity and portfolio markdowns. GAAP net investment income and core NII was $9.3 million, $0.40 per share.
• Portfolio activity: gross capital deployments $55.8 million, offset by repayments/sales of $71.7 million, net repayments $16.1 million. Seven new originations and nine add-ons in Q2.
• JV activity: transferred $22 million of deals to STRS JV, JV portfolio had 38 issuers with $324.8 million fair value, 1.08x leverage.
• Markdowns: $1.5 million net markdowns in portfolio, notably $2.2 million markdown to Honors Holdings placed on non-accrual. Non-accrual investments totaled 4.2% of debt portfolio.
• Turnaround plans: working on American Crafts and Arcserve to maximize value, optimistic for exits in 18-30 months.
• Market conditions: supply-demand imbalance favors borrowers, sponsor segments aggressive, focusing on non-sponsor and off-the-run sponsor markets.

In the second quarter of 2024, WhiteHorse Finance's GAAP net investment income and core NII was $9.3 million, or $0.40 per share, which exceeded the quarterly base dividend of $0.385 per share but decreased from Q1's $10.8 million and $0.465 per share. NAV per share at the end of Q2 was $13.45, a 0.4% decrease from the prior quarter. Gross capital deployments in Q2 were $55.8 million, offset by total repayments and sales of $71.7 million, resulting in net repayments of $16.1 million. The JV generated investment income to the BDC of approximately $3.9 million in Q2, compared to $4.8 million in Q1. The JV's portfolio had an aggregate fair value of $324.8 million at the end of Q2 with an average unlevered yield of 12.3%.

• Expect continued refinancings as call protection on deals steps down, especially with Fed expected to reduce rates in Q4 2024.
• BDC balance sheet has ~$60 million capacity for new assets, JV has ~$30 million capacity.
• Actively working on six new mandated deals, three closed post-quarter end with two expected to go to JV.

• Aggressive market conditions leading to over-leveraged deals in sponsor segments, avoiding picked leverage.
• Economic softening leading to lower consumer and B2B demand.
• Markdowns on portfolio, including $2.2 million markdown to Honors Holdings, non-accrual investments at 4.2% of debt portfolio.

Q: Bryce Rowe asked about leverage and activity in the BDC, asking about comfortable leverage levels and if it could continue to move lower.

A: Stuart Aronson mentioned HIG's origination capability allows focusing on off-the-run and non-sponsor markets, BDC has ~$60 million availability, Q4 expected to be stronger with potential to use up capacity if economy improves and rates cut.

Q: Sean-Paul Adams asked about portfolio risk ratings, if uptick in risk ratings four and five was due to new non-accrual, and aspects of existing portfolio companies.

A: Joyson Thomas confirmed uptick was due to new non-accrual, Stuart Aronson discussed focus on existing portfolio, restructuring team working on turnarounds for Honors Holdings, American Crafts, and Arcserve, and attention to credit quality and leverage in new deals