WhiteHorse Finance, Inc. 7.875% Notes due 2028 Q3 FY2025 earnings call

• The Board reset the quarterly base distribution to $0.25 per share, representing an implied 8.8% annualized yield. The adviser voluntarily reduced the incentive fee on net investment income from 20% to 17.5% for the next 2 fiscal quarters. A share buyback program of up to $15 million was approved. - Portfolio activity: Gross deployments of $19.3 million, net repayments of $31.2 million. New originations included 2 deals with an average leverage of ~3.5x EBITDA. Total repayments and sales were driven by realizations in 5 portfolio positions. The debt portfolio was 99.2% first lien, senior secured, with 65% sponsor and 35% nonsponsor ownership. - Realized and unrealized losses: $1.8 million in net realized losses and ~$4.9 million in net unrealized losses. Mark-to-market losses were driven by write-downs in Alvaria and Camarillo Fitness, partially offset by a markup in Motivational Marketing. - Lending market: M&A activity slow, competitive environment; nonsponsor market less competitive with higher pricing premium; focus on nonsponsor market for better risk returns. Pipeline had 6 new mandates and 3 add-ons.

In the third quarter of 2025, WhiteHorse Finance reported GAAP net investment income and core NII of $6.1 million or $0.263 per share, compared to $6.6 million or $0.282 per share in Q2. NAV per share at the end of Q3 was $11.41, a ~3.6% decrease from the prior quarter. Gross deployments in Q3 were $19.3 million, offset by elevated repayments and sales of $50.5 million, resulting in net repayments of $31.2 million. The weighted average effective yield on income-producing debt investments decreased to 11.6% from 11.9% in Q2. The STRS JV had an aggregate fair value of $341.5 million and an average effective yield of 10.3% compared to 10.6% in Q2. Net investments decreased by $60.9 million to $568.4 million, with net realized and unrealized losses totaling $6.7 million in Q3.

• The Board declared a fourth quarter base distribution of $0.25 per share. - The adviser's incentive fee is reduced to 17.5% for the next 2 fiscal quarters. - A share buyback program up to $15 million is in place. The distribution policy considers supplemental distributions based on earnings excess over base distribution and NAV decline preservation.

• Impact of interest rate cuts and continued spread compression on earnings. - Material markdowns on some credits leading to losses. - Uncertain deal flow affecting deployment and potential returns. - Risk of underperformance impacting ability to maintain distributions.

Q: How is the new $0.25 dividend being approached and is it a long-term base level?

A: The Board set the new base dividend after considering interest rates, market spreads, and earnings power, believing it's a reliable long-term level if market projections hold.

Q: On the fee waiver, why the level and time frame, and any longer-term consideration?

A: The Board and manager agreed to waive 2.5% for 2 quarters, with future consideration based on BDC performance.

Q: On BDC and JV capacity, turnaround prospects for stressed assets?

A: Nonaccrual deals likely remain nonaccrual for 12-24 months; some credits like Playmonster are turning around but take time.

Q: Sponsor vs nonsponsor track record in terms of outcomes?

A: Nonsponsor deals have lower leverage and fewer payment defaults historically; most nonaccrual accounts are sponsored deals.

Q: On incentive fee beyond Q1 2026 and share repurchases with slow deal flow?

A: Board may seek further incentive fee reductions if there's underperformance; share repurchases are aggressive due to significant discount to NAV.