WhiteHorse Finance, Inc. 7.875% Notes due 2028 Q2 FY2025 earnings call

• Q2 results were disappointing due to a decline in the investment portfolio from net realized and unrealized losses. NAV per share at the end of Q2 was $11.82, a 2.4% decrease from the prior quarter.
• Portfolio activity in Q2 included gross capital deployments of $39 million, partially offset by total repayments and sales of $36.2 million, resulting in net deployments of $2.8 million. Gross deployments consisted of 3 new originations totaling $33.1 million and 3 add-ons to existing investments.
• The STRS JV transferred 3 new deals and 1 existing investment in Q2, with an aggregate fair value of $330 million at an average effective yield of 10.6%. Leverage for the JV at the end of Q2 was 1.16x.
• The lending market had subdued M&A activity due to tariff uncertainty, leading to reduced new financing deals. Pricing and leverage multiples varied by market segment, with the nonsponsor market being less competitive and offering better risk returns.
• Post-quarter end, the BDC closed 2 new investments of $14.4 million and had 1 full repayment totaling $9.6 million. The BDC balance sheet has little capacity for new assets, but the JV has approximately $20 million of additional capacity.
• The Board declared a third quarter distribution of $0.385 per share, the 52nd consecutive quarterly distribution since IPO, payable on October 3, 2025.

In the second quarter of 2025, WhiteHorse Finance's Q2 GAAP net investment income and core NII was $6.6 million or $0.282 per share, compared to Q1's $6.8 million or $0.294 per share. Fee income was approximately $0.8 million in Q2. The company reported a net increase in net assets resulting from operations of $2.3 million. At the end of Q2, 99.3% of the debt portfolio was first lien senior secured, with the portfolio mix approximately 2/3 sponsor and 1/3 non-sponsor. The weighted average effective yield on income-producing debt investments decreased to 11.9%, while the overall portfolio weighted average effective yield slightly increased to 9.8% at the end of Q2. The company took net write-downs of $3.6 million primarily driven by write-downs in Honors Holdings and Aspect Software. Nonaccrual investments totaled 4.9% of the debt portfolio, an improvement from 8.8% in the prior quarter.

• Expect Telestream to return to accrual status, and a portion of MSI information services likely to go back on accrual subject to successful debt restructuring.
• The BDC balance sheet is expected to be fully deployed this quarter based on current mandates and repayment activity, with the JV having ~$20 million of additional capacity.
• Dividends will continue to be evaluated based on the core earnings power of the portfolio and other relevant factors, including taxable income relative to distributions.

• Tariff uncertainty impacting M&A activity and the supply of new financing deals.
• Volatility in portfolio yields due to timing of capital investments, asset yields, and credit performance of the JV's portfolio.
• Uncertainty in consumer reaction to price increases resulting from tariff impacts on portfolio companies.

Q: On American Crafts, is it correct that it was an exit or was there a restructuring?

A: It was a sale of the remaining piece of the company, and that sale yielded very little in terms of proceeds. So we have resolved that, taken the write-down, and there is no further downside on that account.

Q: What is the term of the CLO for the reinvestment period?

A: Reinvestment period is through May 25, 2029.

Q: I'm wondering if you can expand on the portion of the portfolio where companies are facing tariff pressure and mitigating actions?

A: It varies company by company. In some cases, companies are actively negotiating to have their suppliers absorb a portion of the tariff amount. Some companies are moving their sourcing, like a toy company moving from China to Vietnam. Tariff situations change frequently, so companies need to be nimble.

Q: Given the number of mandates referenced, should we be thinking about elevated repayment activity?

A: We think we're in a good balance between repayment and new mandates. There are companies expected to be sold in Q4, and we'll pursue them with new owners. The BDC balance sheet is expected to be fully deployed this quarter, and the JV has about $20 million of additional capacity.

Q: Any update on thought processes for working down prior year spillover through 2025 and into 2026?

A: The undistributed spillover income related to 2024 remains at $9.7 million. It factors into dividend distribution for the remainder of this year and next. The October distribution will be made, and we'll consider potential special dividends or tax incurrence based on undistributed income.

Q: Are you seeing incremental bottom line flow-through to the net consumer from tariff impacts?

A: Companies are raising prices to pass on tariff impacts not absorbed by suppliers. We won't know consumer reaction until after the holiday season when sales are known.