WhiteHorse Finance, Inc. 7.875% Notes due 2028 Q1 FY2025 earnings call

Stuart Aronson stated that Q1 results were disappointing due to investment portfolio declines from net realized and unrealized losses, impacting financial performance. NAV per share at the end of Q1 was $12.11, a 1.6% decrease from the prior quarter. Portfolio activity in Q1 included gross capital deployments of $45.5 million, with total repayments and sales of $19.4 million, resulting in net deployments of $26.1 million. The BDC's portfolio faced challenges with non-accrual investments, where non-accrual investments totaled 8.8% of the debt portfolio. The lending market was impacted by tariffs and the risk of recession, with the M&A market slowing down. The JV transferred three new deals and one existing investment, with an aggregate fair value of $310.2 million. Joyson Thomas mentioned GAAP net investment income and core NII of $6.8 million, fee income of approximately $0.5 million, a net increase in net assets from operations of $4.3 million, and risk ratings where approximately 74.1% of portfolio positions carried a 1 or 2 rating.

In the first quarter of 2025, WhiteHorse Finance reported GAAP net investment income and core NII of $6.8 million or $0.294 per share. This compared to Q4 GAAP NII and core NII of $8 million or $0.343 per share. Gross capital deployments were $45.5 million, partially offset by total repayments and sales of $19.4 million, resulting in net deployments of $26.1 million. Gross capital deployments consisted of seven new originations totaling $40.8 million and $4.7 million for funding add-ons to existing investments. The portfolio mix was approximately two-thirds sponsor deals and one-third non-sponsor deals. The STRS JV had an aggregate fair value of $310.2 million at the end of Q1 with an average effective yield of 10.8% compared to 11.1% in Q4.

Management will evaluate the quarterly distribution based on the core earnings power of the portfolio. There is hope to get Telestream off non-accrual by the end of May. The M&A market is expected to remain muted for the next 60 to 90 days, and there may be changes in Q3. The Board is evaluating the dividend based on various factors including earnings from the JV, potential borrowing cost reduction, and the portfolio's earnings power.

The investment portfolio suffered from net realized and unrealized losses. Non-accrual investments pose a risk to the earnings power. Tariffs and recession risk impacted the lending market. The M&A market experienced a slowdown. Some investments, such as MSI and others on non-accrual, had uncertain outcomes.

Q: Melissa Wedel asked about Telestream returning to accrual status.

A: Stuart Aronson said they had made progress but expected to complete the restructuring of Telestream by the end of May, with a portion of the debt converting to cash paying debt on accrual.

Q: Robert Dodd inquired about dividend spillover and market bid-ask spread.

A: Joyson Thomas discussed spillover income and Stuart Aronson talked about the market for good companies with no significant risk trading at high multiples and the cautious approach for companies with recession or tariff risk.

Q: Melissa Wedel followed up on repayment activity.

A: Stuart Aronson said repayment activity slowed with spread movement but expected refinancing activity in the second half of the year as prepayment penalties on higher rate deals expire