WhiteHorse Finance, Inc. Q4 FY2025 earnings call

• Fourth quarter results showed improved earnings and NAV performance. Q4 gap net investment income and core NII increased. NAV per share increased due to share repurchases, net realized and unrealized gains, and distributions. - The company will continue its distribution policy framework with a quarterly base distribution of 25 cents and potential supplemental distributions. For Q1 2026, a one cent per share supplemental distribution was declared. - Completed a term debt securitization through the CLO vehicle to improve stability and cost profile of secured leverage. Advisor voluntarily reduced incentive fee on net investment income, providing support for distributable earnings. - Repurchased approximately 1 million shares for an aggregate cost of approximately 7.4 million, accretive to NAV. Board approved an incremental authorization to the share repurchase program. - Portfolio activity: gross capital deployments of 77.1 million in Q4, partially offset by repayments and sales, resulting in net deployments of 27.5 million before STRS-JV asset transfer. New originations included a mix of sponsor and non-sponsor deals. - Recognized net realized and unrealized gains of $1.9 million or 7.7 cents per share in Q4, driven by various unrealized and realized gains and losses in the portfolio. - Actively manage underperforming credits, with subsequent credit-specific updates including negative developments at Honors Holdings and Outward Hound, and positive developments at Telestream, Starco, and PlayMonster. - Focus on non-sponsor market with better risk returns and less competition. Current originators covering 12 regional markets, sourcing off-the-run sponsor deals and non-sponsor deals. - Subsequent to quarter end, closed on two new deals and seven add-on investments totaling $20 million and had one sale on ThermoDisc totaling $1.1 million.

For the fourth quarter of 2025, Q4 gap net investment income and core NII was 6.6 million or 28.7 cents per share compared with Q3 gap and core NII of 6.1 million or 26.3 cents per share. NAV per share at the end of Q4 was 1168 compared to 1141 at the end of Q3, an increase of approximately 2.4%. The increase in NAV resulted from share repurchases creating an add of approximately 18.4 cents per share, as well as net realized and unrealized gains of approximately 7.7 cents per share while also reflecting distributions paid during the quarter. For the first quarter of 2026, the company declared a one cent per share supplemental distribution in addition to the base 25 cent dividend. The weighted average effective yield on the income producing debt investments decreased to 11% at the end of Q4 compared to 11.6% at the end of Q3. The weighted average effective yield on the overall portfolio also decreased to 9.1% at the end of Q4 compared to approximately 9.5% at the end of Q3. Excluding the STRS-JV, non-accrual investments represented 2.4% of the total debt portfolio at fair value.

• For the first quarter of 2026, declared a one cent per share supplemental distribution in addition to the base 25 cent dividend. - Expectations of better deal volume than last year, with sentiment for increase in M&A volumes in 2026 supported by lower interest rates, abundant capital, and increased pressure on sponsors from LPs to drive realizations, but noting possibility of volatility from political and geopolitical developments. - Estimate that approximately 30% of the portfolio could repay over the course of 2026, consistent with typical loan average life, but actual repayment timing driven by M&A, refinancing activity, and company-specific outcomes. - Pipeline remains lower than normal for this time of year, with five new mandates (all sponsor deals) and one add-on to existing deal. - Board will continue to evaluate and pursue potential avenues to enhance shareholder value, including share repurchases while considering balance between new deployment and stock attractiveness.

• Non-accrual and other trouble situations in the portfolio could impact recoveries. - Political and geopolitical developments could disrupt M&A activity. - Liability management execution risk, where borrowers could move assets away from existing lenders and pledge them to new lenders, subordinating original senior debt. - Credit-specific risks such as negative developments at Honors Holdings, Outward Hound, and Lumen Latam, which could lead to markdowns or losses. - Market conditions and volatility could affect deal volume and pricing.

Q: Hey, guys. Solid quarter stock is still trading 40 plus percent discount to NAV. You have announced an increase to the repurchase. I am curious, and this is not going to be a shock given all the questions I've asked over and over again on earnings calls. How are you balancing the opportunity in terms of what's out there for new deployment versus the attractiveness of your stock? And also, as we think about that, can you just give us a sense of how you're going to be managing leverage as well?

A: Thanks for the questions, Rick. And the simple answer is at the current trading levels or really anything close to the current trading levels. We think our stock represents a very attractive purchase, which is why the board originally authorized the $15 million buyback and why insiders, including myself, have been buying shares at or near current levels. Given how far the shares had traded down and given the success of the buyback in the last quarter, The board authorized an increased amount for buybacks. We have very limited availability of capital for new on-balance sheet transactions. The JV generates a higher return, and so we are still doing some JV transactions. But as long as the shares are continuing to trade at this type of discount, one of the best things we can do with our capital is to buy the shares. And then also that it wasn't in your question, but I'll highlight, we in the board are viscerally aware of the significance of the discount and are looking at options that we can try to avail ourselves of to improve the earnings of the BDC and or improve value to shareholders.

Q: Following up on the previous question, what measure does the board use to compare the performance of Whitehorse BDC to its peers?

A: We look at a whole series of metrics. George Leal, Joyce and I may pass it to you to highlight what those metrics are. George Leal, But we look at. George Leal, return on the share price. George Leal, We look at costs that the bgc incurs versus others and we look at our trading level vis a vis the discount to nav compared to other bgc. Justin Capposian- choice and did I miss any there that are important. Justin Capposian- No, I think I would just add also adjusted dividend yield relative to nav obviously based on our own analyses on what the core earnings power of the portfolio is.

Q: Do you guys feel that your your exposure to the jv senior loan funds. effectively takes a first lien investment on the. schedules investments, puts it into the JV, and suddenly you are in a subordinated position because you're holding equity in the JV. Is that correct?

A: We put leverage on the JV and we are subordinated to that leverage. That is correct.

Q: Okay. So you're in a subordinated position, you're getting a mid-teens return. Do you think in the current environment, which is sensitive to the asset quality of private credit, that part of the discount in your share price could be the fact that the market's looking at these SLF positions and saying they're second lean and they're given the appropriate haircut.

A: We haven't heard that from any of our covering analysts, nor have we heard that directly from any shareholders. The JV portfolio is remarkably clean in terms of performance. And while we do have leverage on the JV and leverage on the BDC, that leverage is against a pool of first lien assets and modest leverage against first lien assets is frankly a very common thing in the direct lending market and the BDC market. And if we heard from shareholders or covering analysts that the STRSJV was a reason or a key reason for the share discount, we would certainly take that information in, communicate it to the board, and make decisions based on that. But again, so far, I've gotten no feedback that would indicate that that would account for the discount to NAV of the trading level.

Q: Good afternoon. Thanks for the question. You mentioned an active M&A market, but also a lower-than-normal pipeline currently. Any further insight into what we should expect in terms of timing or pacing of both repayments and originations for the year? Are there any catalysts down the line that might drive more activity?

A: Yes. Just to be clear, we have had noticeably better activity and volume in Q1 of this year so far than we had in Q1 of last year. But as we sit here now in early March, the pipeline that we have looking forward March into April is not as strong as it was at this time last year. Now, you'll also remember or I'll remind folks that at this time last year, there was a fair amount of optimism in terms of M&A activity coming back. And then the tariff issues arose, which threw a real monkey wrench into a lot of people's plans on the M&A side. There is, once again, optimism from the bankers we are speaking to and from the private equity shops we're speaking to regarding likely activity, M&A activity in 2026 for the reasons that I highlighted in my call. including lower interest rates and abundant capital with pricing on that capital being at or near all-time lows. But as we've seen just in the past couple of days, things can certainly happen on the geopolitical side that were not forecast and can have an impact on M&A activity. So we currently are projecting based on what we see improved M&A activity for the year. We think that that could lead to slightly better pricing in the marketplace, but that slightly better pricing is likely to be offset by rate cuts, whether it's one or two, which I think is the current conventional wisdom, or whether it's three or four driven by leadership of the Fed likely changing in May.

Q: In that pipeline, is there any sort of shift in the kinds of deals that you're seeing, maybe in terms of sponsor, non-sponsor, incumbent versus new borrowers or LTVs, anything along those lines?

A: We're seeing fewer deals that are straight repricings because the lower pricing has now been in the marketplace for about a year and a half to two years. So we are seeing more new M&A deals. In terms of sponsor, non-sponsor, we finished the year with a couple of non-sponsor deals in Q4. But the non-sponsor pipeline has been lighter than normal here in the first quarter of 2026. We do think that the non-sponsor market in general is more appealing than the sponsor market right now, largely because in the sponsor market, there are over 200 active direct lenders. But in the non-sponsor market, at least in the mid-market and lower mid-market, we see fewer than 10 shops who actively originate non-sponsor mid-market and lower mid-market deals. So it's a much less competitive market. And as evidenced by the non-sponsored deals that we did in Q4, we are getting still pricing of 600, 650, or even 700 on non-sponsored deals at modest leverage and modest loan-to-value.