WhiteHorse Finance 10Q 2021 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission file number: 814-00967

WHITEHORSE FINANCE, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware		45-4247759
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

1450 Brickell Avenue, 31^st Floor
Miami, Florida		33131
(Address of Principal Executive Offices)		(Zip Code)

(305) 381-6999

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share	WHF	The Nasdaq Stock Market LLC
		(Nasdaq Global Select Market)
6.50% Notes due 2025	WHFBZ	The Nasdaq Stock Market LLC
		(Nasdaq Global Select Market)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ◻ No ⌧

As of November 5, 2021 the Registrant had 23,148,594 shares of common stock, $0.001 par value, outstanding.

WHITEHORSE FINANCE, INC.

TABLE OF CONTENTS


		Page
Part I.	Financial Information	3
Item 1.	Financial Statements	3
	Consolidated Statements of Assets and Liabilities as of September 30, 2021 (Unaudited) and December 31, 2020	3
	Consolidated Statements of Operations for the three and nine months ended September 30, 2021 (Unaudited) and 2020 (Unaudited)	4
	Consolidated Statements of Changes in Net Assets for the three and nine months ended Steptember 30, 2021 (Unaudited) and 2020 (Unaudited)	5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 (Unaudited) and 2020 (Unaudited)	7
	Consolidated Schedules of Investments as of September 30, 2021 (Unaudited) and December 31, 2020	9
	Notes to the Consolidated Financial Statements (Unaudited)	23
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	57
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	77
Item 4.	Controls and Procedures	78
Part II.	Other Information	79
Item 1.	Legal Proceedings	79
Item 1A.	Risk Factors	79
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	81
Item 3.	Defaults Upon Senior Securities	81
Item 4.	Mine Safety Disclosures	81
Item 5.	Other Information	81
Item 6.	Exhibits	82

Part I. Financial Information

Item 1. Financial Statements

WhiteHorse Finance, Inc.

Consolidated Statements of Assets and Liabilities

(in thousands, except share and per share data)


		September 30, 2021		December 31, 2020
		(Unaudited)
Assets
Investments, at fair value
Non-controlled/non-affiliate company investments	$	608,213	$	623,777
Non-controlled affiliate company investments		6,800		15,717
Controlled affiliate company investments		72,110		51,241
Total investments, at fair value (amortized cost $695,047 and $695,429, respectively)		687,123		690,735
Cash and cash equivalents		9,579		8,062
Restricted cash and cash equivalents		6,749		7,549
Restricted foreign currency (cost of $241 and $319, respectively)		241		333
Interest and dividend receivable		7,227		6,532
Amounts receivable on unsettled investment transactions		15,489		4,717
Escrow receivable		1,827		—
Prepaid expenses and other receivables		1,162		1,061
Unrealized appreciation on foreign currency forward contracts		186		—
Total assets	$	729,583	$	718,989

Liabilities
Debt	$	379,757	$	384,880
Distributions payable		7,433		7,294
Management fees payable		3,508		3,354
Incentive fees payable		7,404		6,117
Amounts payable on unsettled investment transactions		3,380		497
Interest payable		2,201		1,870
Accounts payable and accrued expenses		1,680		1,708
Advances received from unfunded credit facilities		496		372
Total liabilities		405,859		406,092

Commitments and contingencies (See Note 8)

Net assets
Common stock, 20,936,874 and 20,546,032 shares issued and outstanding, par value $0.001 per share, respectively, and 100,000,000 shares authorized		21		21
Paid-in capital in excess of par		305,972		300,002
Accumulated earnings		17,731		12,874
Total net assets		323,724		312,897
Total liabilities and total net assets	$	729,583	$	718,989
Number of shares outstanding		20,936,874		20,546,032
Net asset value per share	$	15.46	$	15.23

See notes to the consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)


		Three months ended September 30,				Nine months ended September 30,
		2021		2020		2021		2020
Investment income
From non-controlled/non-affiliate company investments
Interest income	$	15,199	$	14,222	$	44,159	$	39,506
Fee income		1,224		741		2,344		1,571
Dividend income		35		21		144		101
From non-controlled affiliate company investments
Dividend income		76		263		1,042		800
From controlled affiliate company investments
Interest income		905		682		2,362		1,913
Dividend income		939		568		3,638		961
Total investment income		18,378		16,497		53,689		44,852
Expenses
Interest expense		3,842		2,770		11,456		9,661
Base management fees		3,508		3,069		10,209		9,110
Performance-based incentive fees		2,069		3,819		6,739		5,571
Administrative service fees		171		171		512		512
General and administrative expenses		896		601		2,592		2,212
Total expenses		10,486		10,430		31,508		27,066
Net investment income before excise tax		7,892		6,067		22,181		17,786
Excise tax		253		137		845		513
Net investment income after excise tax		7,639		5,930		21,336		17,273

Realized and unrealized gains (losses) on investments and foreign currency transactions
Net realized gains (losses)
Non-controlled/non-affiliate company investments		109		635		7,714		1,069
Non-controlled affiliate company investments		—		—		—		—
Foreign currency transactions		(206)		(1)		(209)		66
Foreign currency forward contracts		1		(25)		(3)		(25)
Net realized gains (losses)		(96)		609		7,502		1,110
Net change in unrealized appreciation (depreciation)
Non-controlled/non-affiliate company investments		(1,370)		12,659		(3,937)		6,303
Non-controlled affiliate company investments		792		999		1,112		(131)
Controlled affiliate company investments		860		1,526		591		(1,316)
Translation of assets and liabilities in foreign currencies		263		(92)		161		251
Foreign currency forward contracts		187		3		186		—
Net change in unrealized appreciation (depreciation)		732		15,095		(1,887)		5,107
Net realized and unrealized gains (losses) on investments and foreign currency transactions		636		15,704		5,615		6,217
Net increase in net assets resulting from operations	$	8,275	$	21,634	$	26,951	$	23,490

Per Common Share Data
Basic and diluted earnings per common share	$	0.40	$	1.06	$	1.30	$	1.15
Dividends and distributions declared per common share	$	0.36	$	0.36	$	1.07	$	1.07
Basic and diluted weighted average common shares outstanding		20,851,435		20,546,032		20,677,545		20,546,032

See notes to the consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Statements of Changes in Net Assets (Unaudited)

(in thousands, except share and per share data)


	Common Stock
	Shares		Par amount		Paid-in Capital in Excess of Par		Accumulated Underdistributed/ (Overdistributed) Earnings		Total Net Assets
Balance at December 31, 2020	20,546,032	$	21	$	300,002	$	12,874	$	312,897
Stock issued in connection with at-the-market offering	37,803		—		590		—		590
Net increase in net assets resulting from operations:
Net investment income after excise tax	—		—		—		7,600		7,600
Net realized gains (losses) on investments	—		—		—		8,161		8,161
Net change in unrealized appreciation (depreciation) on investments	—		—		—		(7,592)		(7,592)
Distributions declared	—		—		—		(7,307)		(7,307)
Balance at March 31, 2021	20,583,835	$	21	$	300,592	$	13,736	$	314,349
Stock issued in connection with at-the-market offering	124,252		—		1,894		—		1,894
Stock issued in connection with dividend reinvestment plan	14,509		—		225		—		225
Net increase in net assets resulting from operations:
Net investment income after excise tax	—		—		—		6,100		6,100
Net realized gains (losses) on investments	—		—		—		(563)		(563)
Net change in unrealized appreciation (depreciation) on investments	—		—		—		4,974		4,974
Distributions declared	—		—		—		(7,358)		(7,358)
Balance at June 30, 2021	20,722,596	$	21	$	302,711	$	16,889	$	319,621
Stock issued in connection with at-the-market offering	94,897		—		1,438		—		1,438
Stock issued in connection with dividend reinvestment plan	119,381		—		1,823		—		1,823
Net increase in net assets resulting from operations:
Net investment income after excise tax	—		—		—		7,639		7,639
Net realized gains (losses) on investments	—		—		—		(96)		(96)
Net change in unrealized appreciation (depreciation) on investments	—		—		—		732		732
Distributions declared	—		—		—		(7,433)		(7,433)
Balance at September 30, 2021	20,936,874	$	21	$	305,972	$	17,731	$	323,724

See notes to the consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Statements of Changes in Net Assets (Unaudited)

(in thousands, except share and per share data)



	Common Stock
	Shares		Par amount		Paid-in Capital in Excess of Par		Accumulated Underdistributed/ (Overdistributed) Earnings		Total Net Assets
Balance at December 31, 2019	20,546,032	$	21	$	300,744	$	12,190	$	312,955
Net increase in net assets resulting from operations:
Net investment income after excise tax	—		—		—		6,102		6,102
Net realized gains (losses) on investments	—		—		—		513		513
Net change in unrealized appreciation (depreciation) on investments	—		—		—		(27,571)		(27,571)
Distributions declared	—		—		—		(7,294)		(7,294)
Balance at March 31, 2020	20,546,032	$	21	$	300,744	$	(16,060)	$	284,705
Net increase in net assets resulting from operations:
Net investment income after excise tax	—		—		—		5,240		5,240
Net realized gains (losses) on investments	—		—		—		(13)		(13)
Net change in unrealized appreciation (depreciation) on investments	—		—		—		17,584		17,584
Distributions declared	—		—		—		(7,294)		(7,294)
Balance at June 30, 2020	20,546,032	$	21	$	300,744	$	(543)	$	300,222
Net increase in net assets resulting from operations:
Net investment income after excise tax	—		—		—		5,930		5,930
Net realized gains (losses) on investments	—		—		—		609		609
Net change in unrealized appreciation (depreciation) on investments	—		—		—		15,095		15,095
Distributions declared	—		—		—		(7,293)		(7,293)
Balance at September 30, 2020	20,546,032	$	21	$	300,744	$	13,798	$	314,563

See notes to the consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)


	Nine months ended September 30,
	2021		2020
Cash flows from operating activities
Net increase in net assets resulting from operations	$	26,951	$	23,490
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Paid-in-kind income		(860)		(681)
Net realized gains on investments		(7,714)		(1,069)
Net unrealized depreciation (appreciation) on investments		2,234		(4,856)
Net unrealized (appreciation) depreciation on translation of assets and liabilities in foreign currencies		(161)		(251)
Net unrealized (appreciation) depreciation on foreign currency forward contracts		(186)		—
Accretion of discount		(5,649)		(2,169)
Amortization of deferred financing costs		976		767
Acquisition of investments		(328,735)		(126,255)
Proceeds from principal payments and sales of portfolio investments		257,197		81,438
Proceeds from sales of portfolio investments to STRS JV		86,143		47,985
Net changes in operating assets and liabilities:
Interest and dividend receivable		(695)		(135)
Escrow receivable		(832)		—
Prepaid expenses and other receivables		(101)		6,993
Amounts receivable on unsettled investment transactions		(10,772)		(455)
Amounts payable on unsettled investment transactions		2,883		—
Management fees payable		154		1,808
Incentive fees payable		1,287		(725)
Accounts payable and accrued expenses		(25)		—
Interest payable		331		(821)
Advances received from unfunded credit facilities		124		(104)
Net cash provided by operating activities		22,550		24,960

Cash flows from financing activities
Proceeds from sales of common stock, net of offering costs		3,922		—
Borrowings		160,599		133,695
Repayments of debt		(166,047)		(141,393)
Deferred financing costs		(474)		—
Distributions paid to common stockholders, net of distributions reinvested		(19,911)		(21,882)
Net cash (used in) financing activities		(21,911)		(29,580)
Effect of exchange rate changes on cash		(14)		(2)
Net change in cash, cash equivalents and restricted cash		625		(4,622)
Cash, cash equivalents and restricted cash at beginning of period		15,944		27,546
Cash, cash equivalents and restricted cash at end of period	$	16,569	$	22,924

Supplemental disclosure of cash flow information:
Interest paid	$	10,132	$	9,728
Non-cash exchanges of investments		20,280		18,411

See notes to the consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated statements of assets and liabilities that sum to the total of the same amounts presented in the consolidated statements of cash flows:


	September 30,
	2021		2020
Cash and cash equivalents	$	9,579	$	8,863
Restricted cash and restricted foreign currency		6,990		14,061
Total cash, cash equivalents and restricted cash presented in consolidated statements of cash flows	$	16,569	$	22,924

See notes to the consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited)

September 30, 2021

(in thousands)


Issuer	Investment Type⁽¹⁾	Floor	Spread Above Index⁽²⁾	Interest Rate⁽³⁾	Acquisition Date⁽¹⁰⁾	Maturity Date	Principal/ Share Amount	Amortized Cost		Fair Value⁽¹¹⁾		Fair Value As A Percentage of Net Assets
North America
Debt Investments
Advertising
SmartSign Holdings LLC	First Lien Secured Term Loan	1.00%	L+ 7.50%	8.50%	08/21/20	10/11/24	7,686	$	7,573	$	7,686	2.37	%
							7,686		7,573		7,686	2.37
Air Freight & Logistics
Access USA Shipping, LLC	First Lien Secured Term Loan	1.50%	L+ 8.00%	9.50%	02/08/19	02/08/24	5,010		4,975		5,010	1.55
Motivational Marketing, LLC	First Lien Secured Term Loan	1.00%	L+ 6.25%	7.25%	07/12/21	07/12/26	11,818		11,592		11,590	3.58
Motivational Marketing, LLC^(7)(12)	First Lien Secured Revolving Loan	1.75%	L+ 5.92%	7.67%	07/12/21	07/12/26	906		889		888	0.27
							17,734		17,456		17,488	5.40
Application Software
Atlas Purchaser, Inc (dba Aspect Software)	Second Lien Secured Term Loan	0.75%	L+ 9.00%	9.75%	05/03/21	05/07/29	15,000		14,572		14,700	4.54
Newscycle Solutions, Inc	First Lien Secured Term Loan	1.00%	L+ 7.00%	8.00%	06/14/19	12/29/22	3,221		3,198		3,208	0.99
Newscycle Solutions, Inc⁽⁷⁾	First Lien Secured Revolving Loan	1.00%	L+ 7.00%	8.00%	06/14/19	12/29/22	169		168		168	0.05
TaxSlayer LLC	First Lien Secured Term Loan	1.00%	L+ 6.00%	7.00%	12/31/20	12/31/26	6,762		6,643		6,666	2.06
TaxSlayer LLC⁽⁷⁾	First Lien Secured Revolving Loan	1.00%	L+ 6.00%	7.00%	12/31/20	12/31/26	—		—		3	—
							25,152		24,581		24,745	7.64
Automotive Retail
Team Car Care Holdings, LLC⁽¹²⁾	First Lien Secured Term Loan	1.03%	Base rate+ 7.99%	9.02%	02/16/18	06/28/24	15,516		15,413		15,392	4.75
							15,516		15,413		15,392	4.75
Building Products
Drew Foam Companies Inc	First Lien Secured Term Loan	1.00%	L+ 6.25%	7.25%	11/05/20	11/05/25	7,225		7,104		7,153	2.21
LHS Borrower, LLC	First Lien Secured Term Loan	1.00%	L+ 6.75%	7.75%	09/30/20	09/30/25	9,506		9,336		9,436	2.91
LHS Borrower, LLC⁽⁷⁾	First Lien Secured Revolving Loan	1.00%	L+ 6.75%	7.75%	09/30/20	09/30/25	—		—		6	—
Trimlite Buyer LLC^(5)(13)	First Lien Secured Term Loan	1.00%	C+ 6.50%	7.50%	07/27/21	07/27/26	23,122		18,070		17,900	5.53
Trimlite Buyer LLC^(5)(7)(13)	First Lien Secured Revolving Loan	1.00%	C+ 6.50%	7.50%	07/27/21	07/27/26	—		—		—	—
							39,853		34,510		34,495	10.65
Cable & Satellite
Bulk Midco, LLC⁽¹⁵⁾	First Lien Secured Term Loan	1.00%	L+ 7.34%	8.34%	06/08/18	06/08/23	15,000		14,924		14,419	4.45
							15,000		14,924		14,419	4.45
Construction & Engineering
Tensar Corp	First Lien Secured Term Loan	1.00%	L+ 6.75%	7.75%	11/20/20	08/20/25	6,948		6,805		6,948	2.15
							6,948		6,805		6,948	2.15
Construction Materials
Claridge Products and Equipment, LLC	First Lien Secured Term Loan	1.00%	L+ 6.50%	7.50%	12/30/20	12/29/25	7,659		7,529		7,521	2.32
Claridge Products and Equipment, LLC⁽⁷⁾	First Lien Secured Revolving Loan	1.00%	L+ 6.50%	7.50%	12/30/20	12/29/25	—		—		—	—
							7,659		7,529		7,521	2.32
Commodity Chemicals
Flexitallic Group SAS	First Lien Secured Term Loan	1.00%	L+ 7.50%	8.50% (8.00% Cash + 0.50% PIK)	10/28/19	10/29/26	15,742		15,038		15,191	4.69
							15,742		15,038		15,191	4.69
Consumer Finance
Maxitransfers Blocker Corp	First Lien Secured Term Loan	1.00%	L+ 8.50%	9.50%	10/07/20	10/07/25	8,701		8,535		8,701	2.69
Maxitransfers Blocker Corp⁽⁴⁾⁽⁷⁾	First Lien Secured Revolving Loan	1.00%	L+ 8.50%	9.50%	10/07/20	10/07/25	—		—		20	0.01
							8,701		8,535		8,721	2.70
Data Processing & Outsourced Services
Escalon Services Inc	First Lien Secured Term Loan	1.00%	L+ 13.50%	14.50% (13.00% Cash + 1.50% PIK)	12/04/20	12/04/25	8,035		7,442		7,932	2.45
FPT Operating Company, LLC/ TLabs Operating Company, LLC	First Lien Secured Term Loan	1.00%	L+ 8.25%	9.25%	12/23/16	06/07/24	24,156		23,953		24,028	7.42
							32,191		31,395		31,960	9.87

See notes to the consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited)

September 30, 2021

(in thousands)


Issuer	Investment Type⁽¹⁾	Floor	Spread Above Index⁽²⁾	Interest Rate⁽³⁾	Acquisition Date⁽¹⁰⁾	Maturity Date	Principal/ Share Amount	Amortized Cost		Fair Value⁽¹¹⁾		Fair Value As A Percentage of Net Assets
Department Stores
Mills Fleet Farm Group, LLC	First Lien Secured Term Loan	1.00%	L+ 6.25%	7.25%	10/24/18	10/24/24	13,538	$	13,320	$	13,538	4.18	%
							13,538		13,320		13,538	4.18
Distributors
Crown Brands, LLC⁽¹⁹⁾	Second Lien Secured Term Loan	1.50%	L+ 10.50%	12.00%	12/15/20	01/08/26	4,380		4,293		3,504	1.08
Crown Brands, LLC⁽¹⁹⁾	Second Lien Secured Delayed Draw Loan	1.50%	L+ 10.50%	12.00%	12/15/20	01/08/26	650		650		520	0.16
							5,030		4,943		4,024	1.24
Diversified Chemicals
Sklar Holdings, Inc	First Lien Secured Term Loan	1.00%	L+ 7.75%	8.75%	11/13/19	05/13/23	7,429		7,323		7,429	2.29
							7,429		7,323		7,429	2.29
Diversified Support Services
NNA Services, LLC	First Lien Secured Term Loan	1.00%	L+ 6.75%	7.75%	08/27/21	08/27/26	11,667		11,524		11,522	3.56
							11,667		11,524		11,522	3.56
Education Services
EducationDynamics, LLC	First Lien Secured Term Loan	1.00%	L+ 7.00%	8.00% (7.50% Cash + 0.50% PIK)	09/15/21	09/14/26	13,385		13,119		13,118	4.05
EducationDynamics, LLC⁽⁷⁾	First Lien Secured Delayed Draw Loan	1.00%	L+ 7.00%	8.00% (7.50% Cash + 0.50% PIK)	09/15/21	09/14/26	—		—		—	—
EducationDynamics, LLC⁽⁷⁾	First Lien Secured Revolving Loan	1.00%	L+ 7.00%	8.00% (7.50% Cash + 0.50% PIK)	09/15/21	09/14/26	—		—		—	—
EducationDynamics, LLC⁽⁴⁾	Subordinated Unsecured Term Loan	N/A	4.00%	4.00%	09/15/21	03/15/27	167		167		167	0.05
							13,552		13,286		13,285	4.10
Electronic Equipment & Instruments
LMG Holdings, Inc	First Lien Secured Term Loan	1.00%	L+ 6.50%	7.50%	04/30/21	04/30/26	6,819		6,694		6,704	2.07
LMG Holdings, Inc⁽⁷⁾	First Lien Secured Revolving Loan	1.00%	L+ 6.50%	7.50%	04/30/21	04/30/26	—		—		1	—
							6,819		6,694		6,705	2.07
Health Care Facilities
Epiphany Dermatology	First Lien Secured Term Loan	1.00%	L+ 7.50%	8.50%	12/04/20	06/22/23	3,474		3,415		3,446	1.06
Epiphany Dermatology⁽⁷⁾	First Lien Secured Revolving Loan	1.00%	L+ 7.50%	8.50%	12/04/20	06/22/23	—		—		4	—
Epiphany Dermatology⁽⁷⁾	First Lien Secured Delayed Draw Loan	1.00%	L+ 7.50%	8.50%	12/04/20	06/22/23	1,195		1,175		1,202	0.37
Grupo HIMA San Pablo, Inc⁽⁸⁾	First Lien Secured Term Loan A	N/A	L+ 9.00%	9.13%	05/05/19	04/30/19	3,855		3,855		1,927	0.60
Grupo HIMA San Pablo, Inc⁽⁸⁾	First Lien Secured Term Loan B	1.50%	L+ 9.00%	10.50%	02/01/13	04/30/19	13,511		13,511		6,756	2.09
Grupo HIMA San Pablo, Inc⁽⁸⁾	Second Lien Secured Term Loan	N/A	L+ 15.75%	15.75% (13.75% Cash + 2.00% PIK)	02/01/13	07/31/18	1,028		1,024		—	—
							23,063		22,980		13,335	4.12
Health Care Services
CHS Therapy, LLC	First Lien Secured Term Loan A	1.50%	L+ 9.00%	10.50% (10.00% Cash + 0.50% PIK)	06/14/19	06/14/24	7,281		7,206		7,281	2.25
CHS Therapy, LLC	First Lien Secured Term Loan C	1.50%	L+ 9.00%	10.50% (10.00% Cash + 0.50% PIK)	10/07/20	06/14/24	895		882		895	0.28
DCA Investment Holding, LLC	First Lien Secured Term Loan	0.75%	L+ 6.25%	7.00%	03/12/21	03/12/27	7,042		6,946		6,944	2.15
DCA Investment Holding, LLC⁽⁷⁾	First Lien Secured Delayed Draw Loan	0.75%	L+ 6.25%	7.00%	03/12/21	03/12/27	340		337		337	0.10
IvyRehab Intermediate II, LLC	First Lien Secured Term Loan	1.00%	L+ 6.75%	7.75%	12/04/20	12/04/24	17,410		17,143		17,280	5.34
IvyRehab Intermediate II, LLC⁽⁷⁾	First Lien Secured Delayed Draw Loan	1.00%	L+ 6.75%	7.75%	12/04/20	12/04/24	1,553		1,529		1,553	0.48
IvyRehab Intermediate II, LLC⁽⁷⁾	First Lien Secured Revolving Loan	1.00%	L+ 6.75%	7.75%	12/04/20	12/04/24	—		—		9	—
Lab Logistics, LLC	First Lien Secured Term Loan	1.00%	L+ 7.25%	8.25%	10/16/19	09/25/23	1,158		1,141		1,155	0.36
Lab Logistics, LLC	First Lien Secured Delayed Draw Loan	1.00%	L+ 7.25%	8.25%	10/16/19	09/25/23	5,197		5,177		5,197	1.61
PG Dental New Jersey Parent, LLC	First Lien Secured Term Loan	1.00%	L+ 9.00%	10.00% (8.75% Cash + 1.25% PIK)	11/25/20	11/25/25	15,398		15,110		14,782	4.57
PG Dental New Jersey Parent, LLC⁽⁷⁾	First Lien Secured Revolving Loan	1.00%	L+ 9.00%	10.00% (8.75% Cash + 1.25% PIK)	11/25/20	11/25/25	—		—		(20)	(0.01)
							56,274		55,471		55,413	17.13

See notes to the consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited)

September 30, 2021

(in thousands)


Issuer	Investment Type⁽¹⁾	Floor	Spread Above Index⁽²⁾	Interest Rate⁽³⁾	Acquisition Date⁽¹⁰⁾	Maturity Date	Principal/ Share Amount	Amortized Cost		Fair Value⁽¹¹⁾		Fair Value As A Percentage of Net Assets
Heavy Electrical Equipment
PPS CR Acquisition, Inc (dba Power Plant Services)	First Lien Secured Term Loan	1.00%	L+ 6.25%	7.25%	06/25/21	06/25/26	11,151	$	10,940	$	10,940	3.38	%
PPS CR Acquisition, Inc (dba Power Plant Services)⁽⁷⁾	First Lien Secured Revolving Loan	1.00%	L+ 6.25%	7.25%	06/25/21	06/25/24	104		103		100	0.03
							11,255		11,043		11,040	3.41
Home Furnishings
Sure Fit Home Products, LLC	First Lien Secured Term Loan	1.00%	L+ 9.75%	10.75%	04/12/21	07/13/23	4,947		4,848		4,419	1.37
							4,947		4,848		4,419	1.37
Household Products
The Kyjen Company, LLC (dba Outward Hound)	First Lien Secured Term Loan	1.00%	L+ 6.50%	7.50%	04/05/21	04/05/26	11,432		11,277		11,348	3.51
The Kyjen Company, LLC (dba Outward Hound)⁽⁷⁾	First Lien Secured Revolving Loan	1.00%	L+ 6.50%	7.50%	04/05/21	04/05/26	385		380		385	0.12
							11,817		11,657		11,733	3.63
Interactive Media & Services
What If Media Group, LLC	First Lien Secured Term Loan	1.00%	L+ 6.50%	7.50%	10/02/19	10/02/24	18,972		18,709		18,857	5.83
							18,972		18,709		18,857	5.83
Internet & Direct Marketing Retail
BBQ Buyer, LLC	First Lien Secured Term Loan	1.50%	L+ 8.00%	9.50%	08/28/20	08/28/25	12,634		12,382		12,846	3.97
Luxury Brand Holdings, Inc	First Lien Secured Term Loan	1.00%	L+ 6.50%	7.50%	12/04/20	06/04/26	5,955		5,854		5,955	1.84
Marlin DTC-LS Midco 2, LLC	First Lien Secured Term Loan	1.00%	L+ 6.50%	7.50%	08/06/21	07/01/25	4,277		4,194		4,193	1.30
Potpourri Group, Inc	First Lien Secured Term Loan	1.50%	L+ 8.25%	9.75%	07/03/19	07/03/24	17,263		17,048		17,263	5.33
							40,129		39,478		40,257	12.44
Investment Banking & Brokerage
JVMC Holdings Corp (f/k/a RJO Holdings Corp)	First Lien Secured Term Loan	1.00%	L+ 6.75%	7.75%	02/28/19	02/28/24	12,946		12,884		12,946	4.00
							12,946		12,884		12,946	4.00
IT Consulting & Other Services
AST-Applications Software Technology LLC	First Lien Secured Term Loan	1.00%	L+ 8.00%	9.00% (8.00% Cash + 1.00% PIK)	01/10/17	01/10/23	3,973		3,954		3,973	1.23
Core BTS, Inc	First Lien Secured Term Loan	1.50%	L+ 6.75%	8.25%	02/01/21	08/30/25	3,317		3,260		3,279	1.01
Core BTS, Inc	First Lien Secured Delayed Draw Loan	1.50%	L+ 6.75%	8.25%	02/01/21	08/30/25	1,658		1,627		1,623	0.50
							8,948		8,841		8,875	2.74
Leisure Facilities
Honors Holdings, LLC⁽¹⁶⁾	First Lien Secured Term Loan	1.00%	L+ 7.81%	8.81% (8.31% Cash + 0.50% PIK)	09/06/19	09/06/24	9,440		9,307		9,213	2.85
Honors Holdings, LLC⁽¹⁶⁾	First Lien Secured Delayed Draw Loan	1.00%	L+ 7.60%	8.60% (8.10% Cash + 0.50% PIK)	09/06/19	09/06/24	4,649		4,609		4,537	1.40
Lift Brands, Inc (aka Snap Fitness Holdings, Inc)	First Lien Secured Term Loan A	1.00%	L+ 7.50%	8.50%	06/29/20	06/29/25	5,645		5,579		5,556	1.72
Lift Brands, Inc (aka Snap Fitness Holdings, Inc)	First Lien Secured Term Loan B	N/A	9.50%	9.50% (0.00% Cash + 9.50% PIK)	06/29/20	06/29/25	1,249		1,227		1,227	0.38
Lift Brands, Inc (aka Snap Fitness Holdings, Inc)⁽⁹⁾	First Lien Secured Term Loan C	N/A	9.50%	9.50% (0.00% Cash + 9.50% PIK)	06/29/20	NA	1,268		1,265		1,218	0.38
							22,251		21,987		21,751	6.73
Leisure Products
PlayMonster LLC	First Lien Secured Term Loan	1.00%	L+ 6.00%	7.00%	06/07/21	06/07/26	6,000		5,888		5,580	1.72
PlayMonster LLC⁽⁷⁾	First Lien Secured Delayed Draw Loan	1.00%	L+ 6.00%	7.00%	06/07/21	06/07/26	—		—		(158)	(0.05)
							6,000		5,888		5,422	1.67

See notes to the consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited)

September 30, 2021

(in thousands)


Issuer	Investment Type⁽¹⁾	Floor	Spread Above Index⁽²⁾	Interest Rate⁽³⁾	Acquisition Date⁽¹⁰⁾	Maturity Date	Principal/ Share Amount	Amortized Cost		Fair Value⁽¹¹⁾		Fair Value As A Percentage of Net Assets
Office Services & Supplies
American Crafts, LC	First Lien Secured Term Loan	1.00%	L+ 8.50%	9.50%	05/28/21	05/28/26	8,392	$	8,280	$	8,278	2.56	%
Empire Office, Inc	First Lien Secured Term Loan	1.50%	L+ 6.75%	8.25%	04/12/19	04/12/24	12,868		12,700		12,786	3.95
Empire Office, Inc⁽⁷⁾	First Lien Secured Delayed Draw Loan	1.50%	L+ 6.75%	8.25%	08/17/21	04/12/24	—		—		(2)	—
							21,260		20,980		21,062	6.51
Packaged Foods & Meats
Lenny & Larry's, LLC⁽¹⁷⁾	First Lien Secured Term Loan	1.00%	L+ 8.40%	9.40% (7.68% Cash + 1.72% PIK)	05/15/18	05/15/23	11,094		11,025		10,814	3.34
							11,094		11,025		10,814	3.34
Personal Products
Inspired Beauty Brands, Inc	First Lien Secured Term Loan	1.00%	L+ 7.00%	8.00%	12/30/20	12/30/25	12,397		12,185		12,397	3.83
Inspired Beauty Brands, Inc⁽⁷⁾	First Lien Secured Revolving Loan	1.00%	L+ 7.00%	8.00%	12/30/20	12/30/25	—		—		9	—
							12,397		12,185		12,406	3.83
Property & Casualty Insurance
Policy Services Company, LLC ⁽⁵⁾	First Lien Secured Term Loan	1.00%	L+ 6.00%	7.00%	03/06/20	05/31/24	6,046		5,854		5,562	1.72
							6,046		5,854		5,562	1.72
Research & Consulting Services
ALM Media, LLC	First Lien Secured Term Loan	1.00%	L+ 6.50%	7.50%	11/25/19	11/25/24	14,372		14,191		14,134	4.37
Nelson Worldwide, LLC	First Lien Secured Term Loan	1.00%	L+ 10.25%	11.25% (10.25% Cash + 1.00% PIK)	01/09/18	01/09/23	10,333		10,268		10,230	3.16
							24,705		24,459		24,364	7.53
Specialized Consumer Services
HC Salon Holdings, Inc	First Lien Secured Term Loan	1.00%	L+ 8.00%	9.00%	09/30/21	09/24/26	11,667		11,433		11,433	3.53
HC Salon Holdings, Inc⁽⁷⁾	First Lien Secured Revolving Loan	1.00%	L+ 8.00%	9.00%	09/30/21	09/24/26	—		—		—	—
True Blue Car Wash, LLC	First Lien Secured Term Loan	1.00%	L+ 6.82%	7.82%	10/17/19	10/17/24	8,256		8,129		8,181	2.53
True Blue Car Wash, LLC⁽⁷⁾	First Lien Secured Delayed Draw Loan	1.00%	L+ 6.82%	7.82%	10/17/19	10/17/24	2,924		2,896		2,922	0.90
							22,847		22,458		22,536	6.96
Specialized Finance
Golden Pear Funding Assetco, LLC⁽⁵⁾	Second Lien Secured Term Loan	1.00%	L+ 10.50%	11.50%	09/20/18	03/20/24	10,938		10,839		10,938	3.38
WHF STRS Ohio Senior Loan Fund LLC^{(4)(5)(7)(9)(14)}	Subordinated Note	N/A	L+ 6.50%	6.58%	07/19/19	N/A	57,297		57,297		57,297	17.70
							68,235		68,136		68,235	21.08
Systems Software
Arcstor Midco, LLC	First Lien Secured Term Loan	1.00%	L+ 7.00%	8.00%	03/16/21	03/16/27	19,403		19,050		19,179	5.92
							19,403		19,050		19,179	5.92
Technology Hardware, Storage & Peripherals
Source Code Midco, LLC	First Lien Secured Term Loan	1.00%	L+ 6.50%	7.50%	07/30/21	07/30/27	7,648		7,500		7,499	2.32
Source Code Midco, LLC⁽⁷⁾	First Lien Secured Delayed Draw Loan	1.00%	L+ 7.00%	8.00%	07/30/21	07/30/27	—		—		—	—
Telestream Holdings Corporation	First Lien Secured Term Loan	1.00%	L+ 8.75%	9.75%	10/15/20	10/15/25	15,117		14,725		14,966	4.62
Telestream Holdings Corporation⁽⁷⁾	First Lien Secured Revolving Loan	1.00%	L+ 8.75%	9.75%	10/15/20	10/15/25	371		361		382	0.12
							23,136		22,586		22,847	7.06

Total Debt Investments							675,942	$	661,368	$	652,122	201.45	%

Equity Investments
Air Freight & Logistics
Motivational CIV, LLC (dba Motivational Marketing, LLC)⁽⁴⁾	Class B Units	N/A	N/A	N/A	07/12/21	N/A	1,250	$	1,250	$	1,250	0.39	%
									1,250		1,250	0.39

See notes to the consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited)

September 30, 2021

(in thousands)


Issuer	Investment Type⁽¹⁾	Floor	Spread Above Index⁽²⁾	Interest Rate⁽³⁾	Acquisition Date⁽¹⁰⁾	Maturity Date	Principal/ Share Amount	Amortized Cost		Fair Value⁽¹¹⁾		Fair Value As A Percentage of Net Assets
Data Processing & Outsourced Services
Escalon Services Inc⁽⁴⁾	Warrants	N/A	N/A	N/A	12/04/20	N/A	709	$	476	$	914	0.28	%
									476		914	0.28
Diversified Support Services
Quest Events, LLC⁽⁴⁾	Preferred Units	N/A	N/A	N/A	12/28/18	12/08/25	317		317		—	—
ImageOne Industries, LLC⁽⁴⁾	Common A Units	N/A	N/A	N/A	09/20/19	N/A	225		—		164	0.05
									317		164	0.05
Education Services
EducationDynamics, LLC⁽⁴⁾	Preferred Units	N/A	N/A	N/A	09/15/21	N/A	167		167		167	0.05
									167		167	0.05
Health Care Services
Lab Logistics^(4)(20)	Preferred Units	N/A	14.00%	14.00% PIK	10/29/19	N/A	2		857		934	0.29
									857		934	0.29
Interactive Media & Services
What If Media Group, LLC⁽⁴⁾	Common Units	N/A	N/A	N/A	07/02/21	N/A	8		850		850	0.26
									850		850	0.26
Internet & Direct Marketing Retail
BBQ Buyer, LLC⁽⁴⁾	Shares	N/A	N/A	N/A	08/28/20	N/A	1,100		1,100		3,311	1.02
Ross-Simons Topco, LP⁽⁴⁾	Preferred Units	N/A	N/A	N/A	12/04/20	N/A	600		600		840	0.26
									1,700		4,151	1.28
Investment Banking & Brokerage
Arcole Holding Corp.^{(4)(5)(6)(18)}	Shares	N/A	N/A	N/A	10/01/20	N/A	—		6,944		6,800	2.10
									6,944		6,800	2.10
IT Consulting & Other Services
CX Holdco LLC⁽⁴⁾	Common Units	N/A	N/A	N/A	05/04/21	N/A	660		660		660	0.20
Keras Holdings, LLC⁽⁴⁾	Shares	N/A	N/A	N/A	12/31/20	N/A	496		496		546	0.17
									1,156		1,206	0.37
Leisure Facilities
Lift Brands, Inc (aka Snap Fitness Holdings, Inc)⁽⁴⁾	Class A Common Stock	N/A	N/A	N/A	06/29/20	N/A	2		1,955		184	0.06
Lift Brands, Inc (aka Snap Fitness Holdings, Inc)⁽⁴⁾	Warrants	N/A	N/A	N/A	06/29/20	06/28/28	1		793		75	0.02
									2,748		259	0.08
Other Diversified Financial Services
SFS Global Holding Company⁽⁴⁾	Warrants	N/A	N/A	N/A	06/28/18	12/28/25	—		—		—	—
Sigue Corporation⁽⁴⁾	Warrants	N/A	N/A	N/A	06/28/18	12/28/25	22		2,890		3,493	1.08
									2,890		3,493	1.08
Specialized Finance
WHF STRS Ohio Senior Loan Fund^{(4)(5)(7)(14)}	LLC Interests	N/A	N/A	N/A	07/19/19	N/A	14,324		14,324		14,813	4.58
									14,324		14,813	4.58

Total Equity Investments								$	33,679	$	35,001	10.81	%

Total Investments								$	695,047	$	687,123	212.26	%

Forward Currency Contracts


Counterparty	Currency to be sold		Currency to be purchased		Settlement date	Unrealized appreciation		Unrealized depreciation
Morgan Stanley	C$	24,385 CAD	$	19,440 USD	10/28/21	$	186	$	—
Total						$	186	$	—

See notes to the consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited)

September 30, 2021

(in thousands)

(1)	Except as otherwise noted, all investments are non-controlled/non-affiliate investments as defined by the Investment Company Act of 1940, as amended (the “1940 Act”), and provide collateral for the Company’s credit facility.

(2)

The investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”), which resets monthly, quarterly or semiannually, the Canadian Dollar Offered Rate (“CDOR” or “C”), or the U.S. Prime Rate as published by the Wall Street Journal (“Prime” or “P”). The one, three and six-month USD LIBOR were 0.08%, 0.13% and 0.16%, respectively, as of September 30, 2021. The CDOR and Prime was 0.45% and 3.25%, respectively, as of September 30, 2021.

(3)	The interest rate is the “all-in-rate” including the current index and spread, the fixed rate, and the payment-in-kind (“PIK”) interest rate, as the case may be.

(4)	The investment or a portion of the investment does not provide collateral for the Company’s credit facility.

(5)

Not a qualifying asset under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of total assets. Qualifying assets represented 84.5% of total assets as of the date of the consolidated schedule of investments.

(6)	Investment is a non-controlled/affiliate investment as defined by the 1940 Act.

(7)	The investment has an unfunded commitment in addition to any amounts presented in the consolidated schedule of investments as of September 30, 2021. See Note 8.

(8)	The investment is on non-accrual status.

(9)	Security is perpetual with no defined maturity date.

(10)	Except as otherwise noted, all of the Company’s portfolio company investments, which as of the date of the consolidated schedule of investments represented 212.3% of the Company’s net assets or 94.2% of the Company’s total assets, are subject to legal restrictions on sales.

(11)	The fair value of each investment was determined using significant unobservable inputs. See Note 5.

(12)	The investment was comprised of two contracts, which were indexed to different base rates, L and P, respectively. The Floor, Spread Above Index and Interest Rate presented represent the weighted average of both contracts.

(13)	Principal amount is non-USD denominated and is based in Canadian dollars.

(14)

Investment is a controlled affiliate investment as defined by the 1940 Act. On January 14, 2019, the Company entered into an agreement (as described in Note 4 hereto) with State Teachers Retirement System of Ohio, a public pension fund established under Ohio law (“STRS Ohio”), to create WHF STRS Ohio Senior Loan Fund, LLC (“STRS JV”), a joint venture, which invests primarily in senior secured first and second lien term loans.

(15)

In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest in the amount of 2.75% on its “last out” tranche of the portfolio company’s senior term debt, which was previously syndicated into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

(16)

In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest in the amount of 3.50% on its “last out” tranche of the portfolio company’s senior term debt, which was previously syndicated into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

(17)

In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest in the amount of 3.00% on its “last out” tranche of the portfolio company’s senior term debt, which was previously syndicated into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

(18)	On October 1, 2020, as part of a restructuring agreement between the Company and Arcole Acquisition Corp, the Company’s investments in first lien secured term loans to Arcole Acquisition Corp were converted into common shares of Arcole Holding Corp.

(19)	At the option of the issuer, interest can be paid in cash or cash and PIK. The issuer may elect to pay up to 2.00% PIK.

(20)	Investment earns 14.00% that converts to PIK on an annual basis and is recorded in interest and dividend receivable in the consolidated statements of assets and liabilities.

See notes to the consolidated financial statements

WHITEHORSE FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2020

(in thousands)


											Fair Value
											As A
	Spread					Principal/					Percentage
	Above	Interest		Acquisition	Maturity	Share	Amortized		Fair		of Net
Investment Type⁽¹⁾	Index⁽²⁾	Rate⁽³⁾		Date(10)	Date	Amount	Cost		Value⁽¹¹⁾		Assets
North America
Debt Investments
Advertising
Fluent, LLC
First Lien Secured Term Loan	L+ 7.00%	7.50	%	03/26/18	03/27/23	7,453	$	7,453	$	7,453	2.38	%
	(0.50% Floor)
SmartSign Holdings LLC
First Lien Secured Term Loan	L+ 7.50%	8.50	%	08/21/20	10/11/24	7,744		7,603		7,706	2.46
	(1.00% Floor)
						15,197		15,056		15,159	4.84
Agricultural & Farm Machinery

Bad Boy Mowers Acquisition, LLC
First Lien Secured Term Loan	L+ 5.75%	6.75	%	12/19/19	12/06/25	9,294		9,062		9,201	2.94
	(1.00% Floor)
Air Freight & Logistics
Access USA Shipping, LLC
First Lien Secured Term Loan	L+ 8.00%	9.50	%	02/08/19	02/08/24	5,359		5,309		5,359	1.71
	(1.50% Floor)
Application Software
Connexity, Inc.
First Lien Secured Term Loan	L+ 8.50%	10.00	%	05/21/20	05/21/25	10,863		10,577		10,863	3.47
	(1.50% Floor)
Newscycle Solutions, Inc.
First Lien Secured Term Loan	L+ 7.00%	8.00	%	06/14/19	12/29/22	3,245		3,209		3,194	1.02
	(1.00% Floor)
First Lien Secured Revolving Loan⁽⁷⁾	L+ 7.00%	8.00	%	06/14/19	12/29/22	181		179		177	0.06
	(1.00% Floor)
TaxSlayer LLC
First Lien Secured Term Loan	L+ 6.50%	7.50	%	12/31/20	12/31/26	14,452		14,163		14,163	4.53
	(1.00% Floor)
First Lien Secured Revolving Loan⁽⁷⁾	L+ 6.50%	7.50	%	12/31/20	12/31/26	—		—		—	—
	(1.00% Floor)
						28,741		28,128		28,397	9.08
Automotive Retail
Team Car Care Holdings, LLC
First Lien Secured Term Loan⁽¹²⁾	Base rate+ 8.00%	9.00	%	02/26/18	02/23/23	16,168		16,011		15,820	5.06
	(1.00% Floor)
BW Gas & Convenience Holdings, LLC
First Lien Secured Term Loan	L+ 6.25%	6.40	%	11/15/19	11/18/24	6,319		6,121		6,319	2.02
	(0.00% Floor)
						22,487		22,132		22,139	7.08
Broadcasting

Alpha Media, LLC
First Lien Secured Term Loan	P+7.50%	10.75	%	08/14/18	02/25/22	5,075		5,022		4,844	1.55
	(2.00% Floor)
Building Products
Drew Foam Companies Inc
First Lien Secured Term Loan	L+ 6.50%	7.50	%	12/15/20	11/24/25	10,078		9,878		9,879	3.16
	(1.00% Floor)
First Lien Secured Revolving Loan⁽⁷⁾	L+ 6.50%	7.50	%	12/15/20	11/05/25	332		325		325	0.10
	(1.00% Floor)
LHS Borrower, LLC
First Lien Secured Term Loan	L+ 6.75%	7.75	%	09/30/20	09/30/25	9,689		9,483		9,543	3.05
	(1.00% Floor)
First Lien Secured Revolving Loan ⁽⁷⁾	L+ 6.75%	7.75	%	09/30/20	09/30/25	—		—		4	—
	(1.00% Floor)
						20,099		19,686		19,751	6.31

See notes to the consolidated financial statements

WHITEHORSE FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2020

(in thousands)


											Fair Value
											As A
	Spread					Principal/					Percentage
	Above	Interest		Acquisition	Maturity	Share	Amortized		Fair		of Net
Investment Type⁽¹⁾	Index⁽²⁾	Rate⁽³⁾		Date(10)	Date	Amount	Cost		Value⁽¹¹⁾		Assets
Cable & Satellite
Bulk Midco, LLC
First Lien Secured Term Loan⁽¹⁵⁾	L+ 7.19%	8.19	%	06/08/18	06/08/23	15,000	$	14,890	$	14,250	4.55	%
	(1.00% Floor)
Communications Equipment
Ribbon Communications Operating
Company, Inc.
First Lien Secured Term Loan⁽⁵⁾	L+ 7.50%	7.65	%	08/14/20	03/03/26	12,438		12,002		12,313	3.94	%
	(0.00% Floor)
Sorenson Communications, LLC
First Lien Secured Term Loan	L+ 6.50%	6.75	%	03/15/19	04/29/24	3,462		3,393		3,457	1.10
	(0.00% Floor)
						15,900		15,395		15,770	5.04
Construction & Engineering
Atlas Intermediate Holdings LLC
First Lien Secured Term Loan	L+ 6.25%	7.25	%	05/26/20	02/13/26	15,073		14,259		14,922	4.77
	(1.00% Floor)
Road Safety Services, Inc.
First Lien Secured Term Loan	L+ 6.00%	7.00	%	12/31/20	09/18/23	4,550		4,459		4,461	1.43
	(1.00% Floor)
First Lien Secured Revolving Loan⁽⁷⁾	L+ 6.00%	7.00	%	12/31/20	09/18/23	—		—		17	0.01
	(1.00% Floor)
Tensar Corp.
First Lien Secured Term Loan	L+ 6.75%	7.75	%	11/20/20	08/20/25	7,000		6,829		6,829	2.18
	(1.00% Floor)
						26,623		25,547		26,229	8.39
Construction Materials

Claridge Products and Equipment, LLC
First Lien Secured Term Loan	L+ 6.50%	7.50	%	12/30/20	12/29/25	8,000		7,840		7,840	2.51
	(1.00% Floor)
First Lien Secured Revolving Loan⁽⁷⁾	L+ 6.50%	7.50	%	12/30/20	12/29/25	—		—		—	—
	(1.00% Floor)
						8,000		7,840		7,840	2.51
Consumer Finance
Maxitransfers Blocker Corp
First Lien Secured Term Loan	L+ 9.00%	10.00	%	10/07/20	10/07/25	8,869		8,668		8,668	2.77
	(1.00% Floor)
First Lien Secured Revolving Loan⁽⁴⁾	L+ 9.00%	10.00	%	10/07/20	10/07/25	1,038		1,014		1,014	0.32
	(1.00% Floor)
						9,907		9,682		9,682	3.09
Data Processing & Outsourced Services
Escalon Services Inc
First Lien Secured Term Loan	P+12.50%	15.75	%	12/04/20	12/04/25	8,000		7,295		7,763	2.48
	(0.75% Floor)	(1.50%PIK)

FPT Operating Company, LLC/
TLabs Operating Company, LLC
First Lien Secured Term Loan	L+ 8.25%	9.25	%	12/23/16	06/07/24	24,467		24,225		23,460	7.50
	(1.00% Floor)	(0.50%PIK)
Geo Logic Systems Ltd.⁽⁵⁾
First Lien Secured Term Loan⁽¹³⁾	C +6.25%	7.25	%	12/19/19	12/19/24	6,709		5,035		5,164	1.65
	(1.00% Floor)
First Lien Secured Revolving Loan^{(7) (13)}	C +6.25%	7.25	%	12/19/19	12/19/24	—		—		(2)	—
	(1.00% Floor)
						39,176		36,555		36,385	11.63

See notes to the consolidated financial statements

WHITEHORSE FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2020

(in thousands)


											Fair Value
											As A
	Spread					Principal/					Percentage
	Above	Interest		Acquisition	Maturity	Share	Amortized		Fair		of Net
Investment Type⁽¹⁾	Index⁽²⁾	Rate⁽³⁾		Date⁽¹⁰⁾	Date	Amount	Cost		Value⁽¹¹⁾		Assets
Department Stores
Mills Fleet Farm Group, LLC
First Lien Secured Term Loan	L+ 6.00%	7.00	%	10/24/18	10/24/24	13,543	$	13,292	$	13,272	4.24	%
	(1.00% Floor)
Distributors
Crown Brands, LLC
Second Lien Secured Term Loan⁽²⁰⁾	L+ 10.50%	12.00	%	12/15/20	01/08/26	4,526		4,420		3,621	1.16
	(1.50% Floor)
Second Lien Secured Delayed Draw Loan⁽²⁰⁾	L+ 10.50%	12.00	%	12/15/20	01/08/26	671		671		537	0.17
	(1.50% Floor)
						5,197		5,091		4,158	1.33
Diversified Chemicals
Sklar Holdings, Inc.
First Lien Secured Term Loan	L+ 6.00%	7.00	%	11/13/19	05/13/23	8,882		8,718		8,834	2.82
	(1.00% Floor)
Diversified Support Services
ImageOne Industries, LLC
First Lien Secured Term Loan	L+ 10.00%	11.00% (4.00%PIK)		01/11/18	01/11/23	6,564		6,422		6,564	2.10
	(1.00% Floor)
First Lien Secured Revolving Loan⁽⁴⁾⁽⁷⁾	L+ 10.00%	11.00% (4.00%PIK)		07/22/19	12/12/22	379		379		379	0.12
	(1.00% Floor)
NNA Services, LLC
First Lien Secured Term Loan	L+ 7.00%	8.50	%	10/16/18	10/16/23	13,353		13,178		13,284	4.25
	(1.50% Floor)
						20,296		19,979		20,227	6.47
Education Services
EducationDynamics, LLC
First Lien Secured Term Loan	L+ 7.75%	8.75	%	11/26/19	11/26/24	13,649		13,428		13,612	4.35
	(1.00% Floor)
Food Retail
AG Kings Holdings, Inc.
First Lien Secured Term Loan⁽⁴⁾⁽⁸⁾	P+ 11.00%	16.25% (2.00%PIK)		8/10/16	08/10/21	21,755		8,612		7,600	2.43
	(0.75% Floor)
Superpriority Secured Debtor-In- Possession Term Loan^(4)(18)	L+ 10.00%	11.00	%	08/26/20	02/08/21	14,222		5,663		14,222	4.55
	(1.00% Floor)
						35,977		14,275		21,822	6.98
Health Care Facilities
Epiphany Dermatology
First Lien Secured Term Loan	L+ 7.50%	8.50	%	12/04/20	12/01/25	3,500		3,414		3,414	1.09
	(1.00% Floor)
First Lien Secured Revolving Loan⁽⁷⁾	L+ 7.50%	8.50	%	12/04/20	12/01/25	—		—		—	—
	(1.00% Floor)
First Lien Secured Delayed Draw Loan⁽⁷⁾	L+ 7.50%	8.50	%	12/04/20	12/01/25	—		—		—	—
	(1.00% Floor)
Grupo HIMA San Pablo, Inc.
First Lien Secured Term Loan A	L+ 9.00%	9.22	%	05/15/19	04/30/19	3,855		3,855		2,613	0.84
First Lien Secured Term Loan B	L+ 9.00%	10.50	%	02/01/13	04/30/19	13,511		13,511		9,161	2.93
	(1.50% Floor)
Second Lien Secured Term Loan⁽⁸⁾	N/A	15.75% (2.00%PIK)		02/01/13	07/31/18	1,028		1,024		—	—
						21,894		21,804		15,188	4.86
Health Care Services
CHS Therapy, LLC
First Lien Secured Term Loan A	L+ 7.75%	9.25	%	06/14/19	06/14/24	7,422		7,325		7,422	2.37
	(1.50% Floor)
First Lien Secured Term Loan C	L+ 7.75%	9.25	%	10/07/20	06/14/24	912		895		895	0.29
	(1.50% Floor)

See notes to the consolidated financial statements

WHITEHORSE FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2020

(in thousands)


											Fair Value
											As A
	Spread					Principal/					Percentage
	Above	Interest		Acquisition	Maturity	Share	Amortized		Fair		of Net
Investment Type⁽¹⁾	Index⁽²⁾	Rate⁽³⁾		Date⁽¹⁰⁾	Date	Amount	Cost		Value⁽¹¹⁾		Assets
Ivy Rehab Holdings LLC
First Lien Secured Term Loan	L+ 6.75%	7.75	%	12/04/20	12/04/24	8,855	$	8,682	$	8,682	2.77	%
	(1.00% Floor)
First Lien Secured Revolving Loan⁽⁷⁾	L+ 6.75%	7.75	%	12/04/20	12/04/25	—		—		—	—
	(1.00% Floor)
First Lien Secured Delayed Draw	L+ 6.75%	7.75	%	12/04/20	12/04/25	—		—		—	—
Loan⁽⁷⁾	(1.00% Floor)
Lab Logistics, LLC
First Lien Secured Term Loan	L+ 7.25%	8.25	%	10/16/19	11/19/25	709		693		694	0.22
	(1.00% Floor)
First Lien Secured Delayed Draw Loan	L+ 7.25%	8.25	%	10/16/19	09/25/23	5,236		5,209		5,236	1.67
	(1.00% Floor)
PG Dental New Jersey Parent, LLC
First Lien Secured Term Loan	L+ 7.75%	8.75	%	11/25/20	11/25/25	16,170		15,813		15,814	5.05
	(1.00% Floor)
First Lien Secured Revolving Loan ⁽⁷⁾	L+ 7.75%	8.75	%	11/25/20	11/25/25	—		—		—	—
	(1.00% Floor)
						39,304		38,617		38,743	12.37
Home Furnishings
Sure Fit Home Products, LLC
First Lien Secured Term Loan⁽⁸⁾	L+ 9.75%	10.75	%	10/26/18	07/13/22	5,229		5,111		4,019	1.28
	(1.00% Floor)
Interactive Media & Services
What If Media Group, LLC
First Lien Secured Term Loan	L+ 6.50%	7.50	%	10/02/19	10/02/24	12,594		12,405		12,594	4.02
	(1.00% Floor)
Internet & Direct Marketing Retail
BBQ Buyer, LLC
First Lien Secured Term Loan	L+ 8.00%	9.50	%	08/28/20	08/28/25	10,669		10,421		10,563	3.38
	(1.50% Floor)

First Lien Secured Revolving Loan⁽⁷⁾	L+ 8.00%	9.50	%	08/28/20	02/28/21	—		—		8	—
	(1.50% Floor)
Luxury Brand Holdings, Inc.
First Lien Secured Term Loan	L+ 7.00%	8.00	%	12/04/20	06/04/26	6,000		5,882		5,882	1.88
	(1.00% Floor)
Potpourri Group, Inc.
First Lien Secured Term Loan	L+ 8.25%	9.75	%	07/03/19	07/03/24	18,390		18,099		18,238	5.83
	(1.50% Floor)
						35,059		34,402		34,691	11.09
Investment Banking & brokerage
JVMC Holdings Corp. (f/k/a RJO Holdings Corp)
First Lien Secured Term Loan	L+ 7.25%	8.25	%	02/28/19	02/28/24	13,598		13,512		13,598	4.35
	(1.00% Floor)
IT Consulting & Other Services
AST-Applications Software Technology LLC
First Lien Secured Term Loan	L+ 8.00%	9.00% (1.00%PIK)		01/10/17	01/10/23	4,019		3,988		4,019	1.28
	(1.00% Floor)
RCKC Acquisitions LLC (dba KSM Consulting LLC)
First Lien Secured Term Loan	L+ 6.25%	7.25	%	12/31/20	12/31/26	11,378		11,150		11,150	3.56
	(1.00% Floor)
First Lien Secured Revolving Loan⁽⁷⁾	L+ 6.25%	7.25	%	12/31/20	12/31/26	—		—		—	—
	(1.00% Floor)
First Lien Secured Delayed Draw Loan⁽⁷⁾	L+ 6.25%	7.25	%	12/31/20	12/31/22	—		—		—	—
	(1.00% Floor)
						15,397		15,138		15,169	4.84

See notes to the consolidated financial statements

WHITEHORSE FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2020

(in thousands)


											Fair Value As A
											As A
	Spread	Principal/									Percentage
	Above	Interest		Acquisition	Maturity	Share	Amortized		Fair		of Net
Investment Type⁽¹⁾	Index⁽²⁾	Rate⁽³⁾		Date⁽¹⁰⁾	Date	Amount	Cost		Value⁽¹¹⁾		Assets
Leisure Facilities
Honors Holdings, LLC
First Lien Secured Term Loan⁽¹⁶⁾	L+ 7.97%	8.97	%	09/06/19	09/06/24	9,427	$	9,278	$	8,296	2.65	%
	(1.00% Floor)	(0.50 %PIK)
First Lien Secured Delayed Draw	L+ 7.61%	8.61	%	09/06/19	09/06/24	4,643		4,597		4,086	1.31
Loan⁽¹⁶⁾	(1.00% Floor)	(0.50 %PIK)
Lift Brands, Inc. (aka Snap Fitness Holdings, Inc)
First Lien Secured Term Loan A	L+ 3.25%	4.25	%	06/29/20	06/29/25	5,659		5,580		5,569	1.78
	(1.00% Floor)

First Lien Secured Term Loan B	N/A	9.50	%	06/29/20	06/29/25	1,164		1,138		1,133	0.36
		(9.50 %PIK)
First Lien Secured Term Loan C⁽⁹⁾	N/A	9.50	%	06/29/20	NA	1,268		1,265		1,265	0.40
		(9.50 %PIK)
						22,161		21,858		20,349	6.50
Office Services & Supplies
Empire Office, Inc.
First Lien Secured Term Loan	L+ 6.75%	8.25	%	04/12/19	04/12/24	10,736		10,595		10,489	3.35
	(1.50% Floor)

Packaged Foods & Meats
Lenny & Larry's, LLC
First Lien Secured Term Loan⁽¹⁷⁾	L+ 7.94%	8.94	%	05/15/18	05/15/23	11,304		11,200		10,811	3.46
	(1.00% Floor)	(1.17 %PIK)
Personal Products
Inspired Beauty Brands, Inc.
First Lien Secured Term Loan	L+ 7.00%	8.00	%	12/30/20	12/31/25	11,500		11,270		11,270	3.60
	(1.00% Floor)
First Lien Secured Revolving	L+ 7.00%
Loan⁽⁷⁾	(1.00% Floor)	8.00	%	12/30/20	12/31/25	—		—		—	—
						11,500		11,270		11,270	3.60
Property & Casualty Insurance
Policy Services Company, LLC
First Lien Secured Term Loan⁽⁵⁾	L+ 6.00%	7.00	%	03/06/20	05/31/24	6,240		5,987		6,115	1.95
	(1.00% Floor)
Research & Consulting Services
Comniscient Technologies LLC
First Lien Secured Term Loan	L+ 7.50%	8.50	%	10/13/20	10/13/25	6,962		6,830		6,830	2.18
	(1.00% Floor)
First Lien Secured Revolving	L+ 7.50%
Loan⁽⁷⁾	(1.00% Floor)	8.50	%	10/13/20	10/13/25	—		—		—	—
Nelson Worldwide, LLC
First Lien Secured Term Loan	L+ 9.25%	10.25	%	01/09/18	01/09/23	11,593		11,477		11,362	3.63
	(1.00% Floor)
ALM Media, LLC
First Lien Secured Term Loan	L+ 6.50%	7.50	%	11/25/19	11/25/24	14,962		14,728		14,439	4.61
	(1.00% Floor)
						33,517		33,035		32,631	10.42
Restaurants
LS GFG Holdings Inc.
First Lien Secured Term Loan	L+ 7.00%	8.00	%	11/30/18	11/19/25	11,240		10,442		9,779	3.13
	(1.00% Floor)	(1.00 %PIK)
Specialized Consumer Services
True Blue Car Wash, LLC
First Lien Secured Term Loan	L+ 7.12%	8.12	%	10/17/19	10/17/24	4,349		4,283		4,349	1.39
	(1.00% Floor)
First Lien Secured Delayed Draw	L+ 7.12%	8.12	%	10/17/19	10/17/24	2,014		1,997		2,014	0.64
Loan	(1.00% Floor)
						6,363		6,280		6,363	2.03

See notes to the consolidated financial statements

WHITEHORSE FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2020

(in thousands)


											Fair Value
											As A
	Spread					Principal/					Percentage
	Above	Interest		Acquisition	Maturity	Share	Amortized		Fair		of Net
Investment Type⁽¹⁾	Index⁽²⁾	Rate⁽³⁾		Date⁽¹⁰⁾	Date	Amount	Cost		Value⁽¹¹⁾		Assets
Specialized Finance
Golden Pear Funding Assetco, LLC₍₅₎
Second Lien Secured Term Loan	L+10.50%	11.50	%	09/20/18	03/20/24	10,938	$	10,810	$	10,938	3.50	%
	(1.00%Floor)
Oasis Legal Finance, LLC⁽⁵⁾
Second Lien Secured Term Loan	L+10.75%	11.75	%	09/09/16	03/09/22	12,500		12,446		12,500	3.99
	(1.00%Floor)
WHF STRS Ohio Senior Loan Fund LLC
Subordinated Note^{(4)(5)(7)(9)(14)}	L+6.50%	6.65	%	07/19/19	N/A	41,073		41,073		41,073	13.13
						64,511		64,329		64,511	20.62
Specialty Chemicals
Flexitallic Group SAS
First Lien Secured Term Loan	L+6.50%	7.50	%	10/28/19	10/29/26	11,632		11,389		10,818	3.46
	(1.00%Floor)
Systems Software
Vero Parent, Inc.
First Lien Secured Term Loan	L+6.00%	7.00	%	11/06/19	08/16/24	7,074		6,613		7,074	2.26
	(1.00%Floor)
Technology Hardware, Storage & Peripherals
Source Code Midco, LLC
First Lien Secured Term Loan	L+8.25%	9.25	%	05/04/18	05/04/23	22,322		22,022		22,322	7.13
	(1.00%Floor)
Telestream Holdings Corporation
First Lien Secured Term Loan	L+8.75%	9.75	%	10/15/20	10/15/25	14,037		13,608		13,769	4.40
	(1.00%Floor)
First Lien Secured Revolving Loan⁽⁷⁾	L+8.75%	9.75	%	10/15/20	10/15/25	—		—		15	—
	(1.00%Floor)
						36,359		35,630		36,106	11.54
Total Debt Investments						694,114		658,704		657,249	210.03
Equity Investments
Data Processing & Outsourced Services
Escalon Services Inc Warrants⁽⁴⁾	N/A	N/A		12/04/20	N/A	709		476		476	0.15
Diversified Support Services
Quest Events, LLC Preferred Units⁽⁴⁾	N/A	N/A		12/28/18	12/08/25	317		317		—	—
ImageOne Industries, LLC Common A Units⁽⁴⁾	N/A	N/A		09/20/19	N/A	225		—		—
						542		317		14	—
Health Care Services
Lab Logistics Preferred Units⁽⁴⁾	N/A	N/A		10/29/19	N/A	2		857		857	0.27

Internet & Direct Marketing Retail
BBQ Buyer, LLC Shares⁽⁴⁾	N/A	N/A		08/28/20	N/A	1,100		1,100		1,265	0.40
Ross-Simons Topco, LP Preferred Units⁽⁴⁾	N/A	N/A		12/04/20	N/A	600		600		600	0.19
						1,700		1,700		1,865	0.59
Investment Banking & Brokerage	N/A	N/A		10/01/20	N/A	—		6,944		6,448	2.06
Arcole Holding Corp. Shares^{(4)(5)(6)(19)}
IT Consulting & Other Services
Keras Holdings, LLC Shares(dba KSM Consulting LLC)⁽⁴⁾	N/A	N/A		12/31/20	N/A	496		496		496	0.16

Leisure Facilities
Lift Brands, Inc. (aka Snap Fitness Holdings, Inc.) Class A Common Stock⁽⁴⁾	N/A	N/A		06/29/20	N/A	2		1,955		282	0.09
Lift Brands, Inc. (aka Snap Fitness Holdings, Inc.) Warrants⁽⁴⁾	N/A	N/A		06/29/20	06/28/28	1		793		114	0.04
						3		2,748		396	0.13

See notes to the consolidated financial statements

WHITEHORSE FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2020

(in thousands)


										Fair Value
										As A
	Spread				Principal/					Percentage
	Above	Interest	Acquisition	Maturity	Share	Amortized		Fair		of Net
Investment Type⁽¹⁾	Index⁽²⁾	Rate⁽³⁾	Date⁽¹⁰⁾	Date	Amount	Cost		Value⁽¹¹⁾		Assets
Other Diversified Financial Services
RCS Creditor Trust Class B Units⁽⁴⁾⁽⁶⁾	N/A	N/A	10/01/17	N/A	143	$	—	$	—	—	%
SFS Global Holding Company Warrants⁽⁴⁾	N/A	N/A	06/28/18	12/28/25	—		—		—	—
Sigue Corporation Warrants⁽⁴⁾	N/A	N/A	06/28/18	12/28/25	22		2,890		3,498	1.12
					165		2,890		3,498	1.12
Specialized Finance
NMFC Senior Loan Program I LLC Units^(4)(5)(6)	N/A	N/A	06/10/14	08/31/22	10,000		10,029		9,269	2.96
WHF STRS Ohio Senior Loan Fund LLC Interests^{(4)(5)(7)(14)}	N/A	N/A	07/19/19	N/A	10,268		10,268		10,167	3.25
					20,268		20,297		19,436	6.21
Total Equity Investments					23,885		36,725		33,486	10.69
Total Investments					717,999	$	695,429	$	690,735	220.72	%

(1)	Except as otherwise noted, all investments are non-controlled/non-affiliate investments as defined by the Investment Company Act of 1940, as amended (the “1940 Act”), and provide collateral for the Company’s credit facility.

(2)

The investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”), which resets monthly, quarterly or semiannually, the Canadian Dollar Offered Rate (“CDOR” or “C”) or the U.S. Prime Rate as published by the Wall Street Journal (“Prime” or “P”). The one, three and six-month LIBOR were 0.1%, 0.2% and 0.3%, respectively, as of December 31, 2020. The Prime was 3.25% as of December 31, 2020. The CDOR was 0.5% as of December 31, 2020.

(3)	The interest rate is the “all-in-rate” including the current index and spread, the fixed rate, and the payment-in-kind (“PIK”) interest rate, as the case may be.

(4)	The investment or a portion of the investment does not provide collateral for the Company’s credit facility.

(5)

Not a qualifying asset under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of total assets. Qualifying assets represented 84% of total assets as of the date of the consolidated schedule of investments.

(6)	Investment is a non-controlled/affiliate investment as defined by the 1940 Act.

(7)	The investment has an unfunded commitment in addition to any amounts presented in the consolidated schedule of investments as of December 31, 2020. See Note 8.

(8)	The investment is on non-accrual status.

(9)	Security is perpetual with no defined maturity date.

(10)	Except as otherwise noted, all of the Company’s portfolio company investments, which as of the date of the consolidated schedule of investments represented 221% of the Company’s net assets or 96% of the Company’s total assets, are subject to legal restrictions on sales.

(11)	The fair value of each investment was determined using significant unobservable inputs. See Note 5.

(12)	The investment was comprised of two contracts, which were indexed to different base rates, L and P, respectively. The Spread Above Index and Interest Rate presented represent the weighted average of both contracts.

(13)	Principal amount is denominated in Canadian dollars.

(14)

(15)

In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 2.75% on its “last out” tranche of the portfolio company’s senior term debt, which was previously syndicated into “first out” and “last out” tranches, whereby the “first out” tranche

See notes to the consolidated financial statements

WHITEHORSE FINANCE, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2020

(in thousands)

will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

(16)

In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.50% on its “last out” tranche of the portfolio company’s senior term debt, which was previously syndicated into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

(17)

In addition to the interest earned based on the stated interest rate of this security, the Company is entitled to receive an additional interest amount of 3.00% on its “last out” tranche of the portfolio company’s senior term debt, which was previously syndicated into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

(18)	In August 2020, in conjunction with the AG Kings Holdings, Inc. bankruptcy, the Company converted approximately $14.2 million of its existing first lien secured term loan into a new superpriority secured debtor-in-possession term loan.

(19)	On October 1, 2020, as part of a restructuring agreement between the Company and Arcole Acquisition Corp, the Company’s investments in first lien secured term loans to Arcole Acquisition Corp were converted into common shares of Arcole Holding Corp.

(20)	At the option of the issuer, interest can be paid in cash or cash and PIK. The issuer may elect to pay up to 2.00% PIK.

See notes to the consolidated financial statements

WhiteHorse Finance, Inc.

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2021

(in thousands, except share and per share data)

NOTE 1 - ORGANIZATION

WhiteHorse Finance, Inc. (“WhiteHorse Finance” and, together with its subsidiaries, the “Company”) is an externally managed, non-diversified, closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes, WhiteHorse Finance elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). WhiteHorse Finance’s common stock trades on the Nasdaq Global Select Market under the symbol “WHF.”

The Company’s investment objective is to generate attractive risk-adjusted returns primarily by originating and investing in senior secured loans, including first lien and second lien facilities, to performing lower middle market companies across a broad range of industries that typically carry a floating interest rate based on a risk-free index rate such as LIBOR and have a term of three to six years. While the Company focuses principally on originating senior secured loans to lower middle market companies, it may also opportunistically make investments at other levels of a company’s capital structure, including mezzanine loans or equity interests and may receive warrants to purchase common stock in connection with its debt investments.

WhiteHorse Finance’s investment activities are managed by H.I.G. WhiteHorse Advisers, LLC (“WhiteHorse Advisers” or the “Investment Adviser”). H.I.G. WhiteHorse Administration, LLC (“WhiteHorse Administration” or the “Administrator”) provides administrative services necessary for the Company to operate.

Engaging in commodity interest transactions such as swap transactions or futures contracts for the Company may cause WhiteHorse Advisers to fall within the definition of “commodity pool operator” under the Commodity Exchange Act (the “CEA”) and related regulations promulgated by the U.S. Commodity Futures Trading Commission (the “CFTC”). On January 23, 2020, WhiteHorse Advisers claimed an exclusion from the definition of the term “commodity pool operator” under the CEA and the CFTC regulations in connection with its management of the Company (the “Exclusion”) and, therefore, WhiteHorse Advisers is not subject to CFTC registration or regulation under the CEA as a commodity pool operator with respect to its management of the Company. WhiteHorse Advisers has affirmed the Exclusion on February 24, 2021 and intends to continue to affirm the Exclusion on an annual basis.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of WhiteHorse Finance and its wholly owned subsidiaries, WhiteHorse Finance Credit I, LLC (“WhiteHorse Credit”), and its subsidiary WhiteHorse Finance (CA), LLC (“WhiteHorse California”), WhiteHorse Finance Warehouse, LLC (“WhiteHorse Warehouse”), WHF PMA Holdco Blocker, LLC, WhiteHorse RCKC Holdings, LLC and WhiteHorse Finance Holdings, LLC. The Company meets the definition of an investment company under Accounting Standards Codification (“ASC”) Topic 946, Financial Services - Investment Companies, and therefore applies the accounting and reporting guidance discussed therein to its consolidated financial statements. All significant intercompany balances and transactions have been eliminated.

Additionally, the accompanying consolidated financial statements and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Articles 6, 10 and 12 of Regulation S-X. Accordingly, certain disclosures accompanying the annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, the unaudited consolidated financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of financial statements for the interim periods included herein. This quarterly report on Form 10-Q should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2020. The current period’s results of

operations will not necessarily be indicative of results that ultimately may be achieved for the year ending December 31, 2021.

Principles of Consolidation: Under the investment company rules and regulations pursuant to ASC Topic 946, WhiteHorse Finance is precluded from consolidating any entity other than another investment company. As provided under ASC Topic 946, WhiteHorse Finance generally consolidates any investment company when it owns 100% of its partners’ or members’ capital or equity units. The Company does not consolidate its investment in STRS JV. See further description in Note 4.

Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the financial statements. Actual results could differ from those estimates.

Fair Value of Financial Instruments: The Company determines the fair value of its financial instruments in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. ASC Topic 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC Topic 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.

Investments are measured at fair value as determined in good faith by the Investment Adviser’s investment committee (the “Investment Committee”), generally on a quarterly basis, and such valuations are reviewed by the audit committee of the Company’s board of directors and ultimately approved by the Company’s board of directors, based on, among other factors, consistently applied valuation procedures on each measurement date. Any changes to the valuation methodology are reviewed by management and the Company’s board of directors to confirm that the changes are justified. The Company continues to review and refine its valuation procedures in response to market changes.

The Company engages independent external valuation firms to periodically review material investments. These external reviews are used by the Company’s board of directors to review the Company’s internal valuation of each investment over the year.

Investment Transactions: The Company records investment transactions on a trade date basis. These transactions may settle subsequent to the trade date depending on the transaction type. Certain expenses related to legal and tax consultation, due diligence, rating fees, valuation expenses and independent collateral appraisals may arise when the Company makes certain investments. These expenses are recognized in the consolidated statements of operations as they are incurred.

Foreign currency translation: The Company’s books and records are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis:

(1)

cash and cash equivalents, restricted cash and cash equivalents, fair value of investments, interest receivable, and other assets and liabilities — at the spot exchange rate on the last business day of the period; and

(2)

purchases and sales of investments, income and expenses — at the exchange rates prevailing on the respective dates of such transactions.

Although net assets and fair values are presented based on the applicable foreign exchange rates described above, the Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Fluctuations arising from the translation of assets other than investments and liabilities are included with the net change in unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies on the consolidated statements of operations.

Foreign security and currency transactions may involve certain considerations and risks not typically associated with investing in U.S. companies. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices to be more volatile than those of comparable U.S. companies or U.S. government securities.

Revenue Recognition: The Company’s revenue recognition policies are as follows:

Sales: Realized gains or losses on the sales of investments are calculated by using the specific identification method.

Investment Income: Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. The Company may also receive closing, commitment, prepayment, amendment and other fees from portfolio companies in the ordinary course of business.

Dividend income is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

Closing fees associated with investments in portfolio companies are deferred and recognized as interest income over the respective terms of the applicable loans. Upon the prepayment of a loan or debt security, any unamortized loan closing fees are recorded as part of interest income. Commitment fees are based upon the undrawn portion committed by the Company and are recorded as interest income on an accrual basis. Prepayment, amendment and other fees are recognized when earned, generally when such fees are receivable, and are included in fee income on the consolidated statements of operations.

The Company may invest in loans that contain a PIK interest rate provision. PIK interest is accrued at the contractual rates and added to loan principal on the reset dates to the extent such amounts are expected to be collected.

Non-accrual loans: Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected. The Company may conclude that non-accrual status is not required if the loan has sufficient collateral value and is in the process of collection. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current.

Cash and Cash Equivalents: Cash and cash equivalents include cash, deposits with financial institutions, and short-term liquid investments in money market funds with original maturities of three months or less.

Restricted Cash and Cash Equivalents: Restricted cash and cash equivalents include amounts that are collected and held by the trustee appointed as custodian of the assets securing the Credit Facility (as defined in Note 6). Restricted cash is held by the trustee for the payment of interest expense and principal on the outstanding borrowings or reinvestment into new assets. Restricted cash that represents interest or fee income is transferred to unrestricted cash accounts by the trustee generally once a quarter after the payment of operating expenses and amounts due under the Credit Facility (as defined in Note 6).

Offering Costs: The Company may incur legal, accounting, regulatory, investment banking and other costs in relation to equity offerings. Offering costs are deferred and charged against paid-in capital in excess of par on completion of the related offering.

Deferred Financing Costs: Deferred financing costs represent fees and other direct incremental costs incurred in connection with the Company’s borrowings. These amounts are amortized and are included in interest expense in the consolidated statements of operations over the estimated life of the borrowings. Deferred financing costs are presented in the consolidated statements of assets and liabilities as a direct reduction from the carrying amount of the related debt liability.

Income Taxes: The Company elected to be treated as a RIC under Subchapter M of the Code. In order to maintain its status as a RIC, among other requirements, the Company is required to distribute dividends for U.S. federal income tax purposes to its stockholders each taxable year generally of an amount at least equal to 90% of the sum of ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In addition, the Company will incur a nondeductible excise tax equal to 4% of the amount by which (1) 98% of ordinary income for the calendar year (taking into account certain deferrals and elections), (2) 98.2% of capital gains in excess of capital losses, adjusted for certain ordinary losses, for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and capital gain income for preceding years that were not distributed during such years and on which the Company incurred no U.S. federal income tax exceed distributions for the year. The Company accrues estimated excise tax on the amount, if any, that estimated taxable income is expected to exceed the level of stockholder distributions described above.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statement is the largest benefit or expense that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. Any tax positions not deemed to satisfy the more likely than not threshold are reversed and recorded as tax benefit or tax expense, as appropriate, in the current year. Management has analyzed the Company’s tax positions, and the Company has concluded that the Company did not have any unrecognized tax benefits or unrecognized tax liabilities related to uncertain tax positions as of September 30, 2021 and December 31, 2020.

Penalties or interest that may be assessed related to any income taxes would be classified as general and administrative expenses on the consolidated statements of operations. The Company had no amounts accrued for interest or penalties as of September 30, 2021 or December 31, 2020. The Company does not expect the total amount of unrecognized tax benefits to significantly change in the next twelve months. The Company’s tax returns are subject to examination by federal, state and local taxing authorities. Because many types of transactions are susceptible to varying interpretations under U.S. federal and state income tax laws and regulations, the amounts reported in the accompanying consolidated financial statements may be subject to change at a later date by the respective taxing authorities. Tax returns for each of the federal tax years since 2018 remain subject to examination by the Internal Revenue Service.

As of September 30, 2021 and December 31, 2020, the cost of investments for federal income tax purposes was $697,591 and $701,493 resulting in net unrealized depreciation of $10,468 and $10,758, respectively. This is comprised of gross unrealized appreciation of $10,965 and $16,954, and gross unrealized depreciation of $21,433 and $27,712, on a tax basis, as of September 30, 2021 and December 31, 2020, respectively.

Dividends and Distributions: Dividends and distributions to common stockholders are recorded on the ex-dividend date. Quarterly distribution payments are determined by the Company’s board of directors and are paid from taxable earnings estimated by management and may include a return of capital and/or capital gains. Net realized capital gains, if any, are distributed at least annually, although the Company may decide to retain such capital gains for investment.

The Company maintains an “opt out” dividend reinvestment plan (“DRIP”) for common stockholders. As a result, if the Company declares a distribution or other dividend, stockholders’ cash distributions will be automatically reinvested in additional shares of common stock, unless they specifically “opt out” of the DRIP so as to receive cash distributions.

Earnings per Share: The Company calculates earnings per share as earnings available to stockholders divided by the weighted average number of shares outstanding during the period.

Risks and Uncertainties: In the normal course of business, the Company encounters primarily two significant types of economic risks: credit and market. Credit risk is the risk of default on the Company’s investments that result from an issuer’s, borrower’s or derivative counterparty’s inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of investments due to changes in interest rates, spreads or other market factors, including the value of the collateral underlying investments held by the Company. Refer to “COVID-19 Developments” section in Note 8. Management believes that the carrying value of the Company’s investments are fairly stated, taking into consideration these risks along with estimated collateral values, payment histories and other market information.

Reclassifications: Certain amounts in the consolidated financial statements have been reclassified. These reclassifications had no material impact on the Company’s consolidated financial position, results of operations or cash flows as previously reported.

Recent Accounting Pronouncements: In March 2020, the Financial Accounting Standards Board issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting if certain criteria are met. The guidance is effective from March 12, 2020 through December 31, 2022. As of September 30, 2021, the guidance did not have a material impact on the Company’s consolidated financial statements.

NOTE 3 - FORWARD CURRENCY CONTRACTS

The Company may enter into foreign currency forward contracts from time to time to facilitate settlement of purchases and sales of investments denominated in foreign currencies and to economically hedge the impact that an adverse change in foreign exchange rates would have on the value of the Company’s investments denominated in foreign currencies. A foreign currency forward contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. These contracts are marked-to-market by recognizing the difference between the contract forward exchange rate and the forward market exchange rate on the last day of the period presented as unrealized appreciation or depreciation. Realized gains or losses are recognized when forward contracts are settled. Risks arise as a result of the potential inability of the counterparties to meet the terms of their contracts. The Company attempts to limit counterparty risk by only dealing with well-known counterparties.

The Company utilizes forward foreign currency exchange contracts to protect itself against fluctuations in exchange rates. The Company may choose to renew contracts quarterly unless otherwise settled by the Company or the counterparty.

The following table provides a breakdown of our forward currency contracts for the three and nine months ended September 30, 2021 and 2020:


	For the three months ended		For the nine months ended
	September 30, 2021		September 30, 2021
Realized gain (loss) on forward currency contracts	$	1	$	(3)
Unrealized appreciation (deprectiation) on forward currency contracts		187		186
Total net realized and unrealized gains (losses) on forward currency contracts	$	188	$	183


	For the three months ended		For the nine months ended
	September 30, 2020		September 30, 2020
Realized (loss) on forward currency contracts	$	(25)	$	(25)
Unrealized appreciation (depreciation) on forward currency contracts		3		—
Total net realized and unrealized gains (losses) on forward currency contracts	$	(22)	$	(25)

The value associated with unrealized loss on open contracts is included in unrealized appreciation/depreciation on forward currency contracts within the statement of assets and liabilities. Open contracts as of September 30, 2021 were as follows:


Counterparty	Currency to be sold		Currency to be purchased		Settlement date	Unrealized appreciation		Unrealized depreciation
Morgan Stanley	C$	24,385 CAD	$	19,440 USD	10/28/21	$	186	$	—
Total						$	186	$	—

The foreign currency forward contracts open at the end of the period are generally indicative of the volume of activity during the period.

Offsetting of Derivative Instruments

The Company has derivative instruments that are subject to master netting agreements. These agreements include provisions to offset positions with the same counterparty in the event of default by one of the parties. The Company’s unrealized appreciation and depreciation on derivative instruments are reported as gross assets and liabilities, respectively, in the consolidated statements of assets and liabilities. The following tables present the Company’s assets and liabilities related to derivatives by counterparty, net of amounts available for offset under a master netting arrangement and net of any collateral received or pledged by the Company for such assets and liabilities as of September 30, 2021.


	As of September 30, 2021
Counterparty ($ in thousands)	Derivative Assets Subject to Master Netting Agreement		Derivative Liabilities Subject to Master Netting Agreement		Derivatives Available for Offset		Non-cash Collateral Received		Non-cash Collateral Pledged⁽¹⁾		Cash Collateral Received⁽¹⁾		Cash Collateral Pledged⁽¹⁾		Net Amount of Derivative Assets⁽²⁾		Net Amount of Derivative Liabilities⁽³⁾
Morgan Stanley	$	186	$	—	$	—	$	—	$	—	$	—	$	—	$	186	$	—
Total	$	186	$	—	$	—	$	—	$	—	$	—	$	—	$	186	$	—

(1)	In some instances, the actual amount of the collateral received and/or pledged may be more than the amount shown due to overcollateralization.

(2)	Net amount of derivative assets represents the net amount due from the counterparty to the Company in the event of default.

(3)	Net amount of derivative liabilities represents the net amount due from the Company to the counterparty in the event of default.

NOTE 4 - INVESTMENTS

Investments consisted of the following:


	As of September 30, 2021				As of December 31, 2020
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
First lien secured loans	$	572,526	$	564,996	$	588,260	$	588,580
Second lien secured loans		31,379		29,662		29,371		27,596
Subordinated unsecured loans		167		167		—		—
Subordinated Note to STRS JV		57,297		57,297		41,073		41,073
Equity (excluding STRS JV)		19,354		20,188		26,457		23,319
Equity in STRS JV		14,324		14,813		10,268		10,167
Total	$	695,047	$	687,123	$	695,429	$	690,735

The following table shows the portfolio composition by industry grouping at fair value:


Industry ($ in thousands)	As of September 30, 2021				As of December 31, 2020
Advertising	$	7,686	1.2	%	$	15,159	2.4	%
Agricultural & Farm Machinery		—	—			9,201	1.4
Air Freight & Logistics		18,738	3.0			5,359	0.8
Application Software		24,745	4.0			28,397	4.4
Automotive Retail		15,392	2.5			22,139	3.5
Broadcasting		—	—			4,844	0.8
Building Products		34,495	5.6			19,751	3.1
Cable & Satellite		14,419	2.3			14,250	2.2
Commodity Chemicals		15,191	2.5			10,818	1.7
Communications Equipment		—	—			15,770	2.5
Construction & Engineering		6,948	1.1			26,229	4.1
Construction Materials		7,521	1.2			7,840	1.2
Consumer Finance		8,721	1.4			9,682	1.5
Data Processing & Outsourced Services		32,874	5.3			36,861	5.8
Department Stores		13,538	2.2			13,272	2.1
Distributors		4,024	0.7			4,158	0.7
Diversified Chemicals		7,429	1.2			8,834	1.4
Diversified Support Services		11,686	1.9			20,241	3.2
Education Services		13,452	2.2			13,612	2.1
Electronic Equipment & Instruments		6,705	1.1			—	—
Food Retail		—	—			21,822	3.4
Health Care Facilities		13,335	2.2			15,188	2.4
Health Care Services		56,347	9.2			39,600	6.2
Heavy Electrical Equipment		11,040	1.8			—	—
Home Furnishings		4,419	0.7			4,019	0.6
Household Products		11,733	1.9			—	—
Interactive Media & Services		19,707	3.2			12,594	2.0
Internet & Direct Marketing Retail		44,408	7.2			36,556	5.7
Investment Banking & Brokerage		19,746	3.2			20,046	3.1
IT Consulting & Other Services		10,081	1.6			15,665	2.5
Leisure Facilities		22,010	3.6			20,745	3.2
Leisure Products		5,422	0.9			—	—
Office Services & Supplies		21,062	3.4			10,489	1.6
Other Diversified Financial Services		3,493	0.6			3,498	0.6
Packaged Foods & Meats		10,814	1.8			10,811	1.7
Personal Products		12,406	2.0			11,270	1.8
Property & Casualty Insurance		5,562	0.9			6,115	1.0
Research & Consulting Services		24,364	4.0			32,631	5.1
Restaurants		—	—			9,779	1.5
Specialized Consumer Services		22,536	3.7			6,363	1.0
Specialized Finance⁽¹⁾		10,938	1.8			32,707	5.1
Systems Software		19,179	3.1			7,074	1.1
Technology Hardware, Storage & Peripherals		22,847	3.7			36,106	5.7
Total⁽¹⁾	$	615,013	100.0	%	$	639,495	100.0	%

(1)	Excludes investments in STRS JV.

As of September 30, 2021, the portfolio companies underlying the investments are all located in the United States and its territories, except for Arcole Acquisition Corp and Trimlite Buyer, LLC, which are domiciled in Canada. As of September 30, 2021 and December 31, 2020, the weighted average remaining term of the Company’s debt investments, excluding non-accrual investments, were approximately 3.7 years and 3.6 years, respectively.

As of September 30, 2021 and December 31, 2020, the total fair value of non-accrual loans were $8,683 and $11,620, respectively.

An affiliated company is generally a portfolio company in which the Company owns 5% or more of its voting securities. A controlled affiliated company is generally a portfolio company in which the Company owns more than 25% of its voting securities or has the power to exercise control over its management or policies (including through a management agreement). The following table presents the schedule of investments in and advances to affiliated and controlled persons (as defined by the 1940 Act) as of and for the nine months ended September 30, 2021:


		Amount of
		dividends and		Beginning								Net Change in		Ending Fair
		interest		Fair Value at						Net		Unrealized		Value at
	Type of	included in		December 31,						Realized		Appreciation		September 30,
Affiliated Person⁽¹⁾	Asset	income		2020		Purchases		Sales		Gain (Loss)		(Depreciation)		2021
Non-controlled affiliates
Arcole Holding Corp Shares	Equity	$	749	$	6,448	$	—	$	—	$	—	$	352	$	6,800
NMFC Senior Loan Program I LLC Units	Equity		293		9,269		—		(10,000)		—		731		—
Total Non-controlled affiliates		$	1,042	$	15,717	$	—	$	(10,000)	$	—	$	1,083	$	6,800


		Amount of
		dividends and		Beginning								Net Change in		Ending Fair
		interest		Fair Value at						Net		Unrealized		Value at
	Type of	included in		December 31,						Realized		Appreciation		September 30,
Affiliated Person⁽¹⁾	Asset	income		2020		Purchases		Sales		Gain (Loss)		(Depreciation)		2021
Controlled affiliates
WHF STRS Ohio Senior Loan Fund LLC*	Subordinated Note	$	2,362	$	41,073	$	16,224	$	—	$	—	$	—	$	57,297
WHF STRS Ohio Senior Loan Fund LLC*	Equity		3,638		10,167		4,056		—		—		590		14,813
Total Controlled affiliates		$	6,000	$	51,240	$	20,280	$	—	$	—	$	590	$	72,110

The following table presents the schedule of investments in and advances to affiliated and controlled affiliated persons (as defined by the 1940 Act) as of and for the year ended December 31, 2020:


		Amount of
		dividends and		Beginning Fair								Net Change in		Ending Fair
		interest		Value at						Net		Unrealized		Value at
	Type of	included in		December 31,						Realized		Appreciation		December 31,
Affiliated Person⁽¹⁾	Asset	income		2019		Purchases		Sales		Gain (Loss)		(Depreciation)		2020
Non-controlled affiliates
Arcole Holding Corp Shares	Equity	$	114	$	—	$	6,944	$	—	$	—	$	(496)	$	6,448
NMFC Senior Loan Program I LLC Units	Equity		1,069		9,651		—		—		—		(382)		9,269
Total Non-controlled affiliates		$	1,183	$	9,651	$	6,944	$	—	$	—	$	(878)	$	15,717


		Amount of
		dividends and		Beginning								Net Change in		Ending Fair
		interest		Fair Value at						Net		Unrealized		Value at
	Type of	included in		December 31,						Realized		Appreciation		December 31,
Affiliated Person⁽¹⁾	Asset	income		2019		Purchases		Sales		Gain (Loss)		(Depreciation)		2020
Controlled affiliates
WHF STRS Ohio Senior Loan Fund LLC*	Subordinated Note	$	2,595	$	26,344	$	14,729	$	—	$	—	$	—	$	41,073
WHF STRS Ohio Senior Loan Fund LLC*	Equity		1,761		6,949		3,682		—		—		(464)		10,167
Total Controlled affiliates		$	4,356	$	33,293	$	18,411	$	—	$	—	$	(464)	$	51,240

The Company and STRS Ohio are the members of STRS JV, a joint venture formed as a Delaware limited liability company that is not consolidated by either member for financial reporting purposes. The members make investments in STRS JV in the form of limited liability company (“LLC”) equity interests and interest-bearing subordinated notes as STRS JV makes investments, and all portfolio and other material decisions regarding STRS JV must be submitted to STRS JV’s board of managers which is comprised of an equal number of members appointed by each of the Company and STRS Ohio. Because management of STRS JV is shared equally between the Company and STRS Ohio, the Company does not believe it controls STRS JV for purposes of the 1940 Act or otherwise.

(1)	Refer to the consolidated schedule of investments for the principal amount, industry classification and other security detail of each portfolio company.WHF STRS Ohio Senior Loan Fund LLC

On January 14, 2019, the Company entered into a limited liability company operating agreement with STRS Ohio to co-manage a newly formed joint venture investment company, STRS JV, a Delaware limited liability company. STRS Ohio and the Company have committed to provide up to $125,000 of subordinated notes and equity to STRS JV, with STRS Ohio providing up to $50,000 and the Company providing up to $75,000, respectively. STRS JV will invest primarily in lower middle market, senior secured debt facilities, to performing lower middle market companies across a broad range of industries that typically carry a floating interest rate based on a risk-free index rate such as LIBOR and have a term of three to six years.

In July 2019, STRS JV formally launched operations. As of September 30, 2021 and December 31, 2020, STRS JV had total assets of $246,765 and $181,382, respectively. STRS JV’s portfolio consisted of debt investments in 27 and 20 portfolio companies as of September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021 and December 31, 2020, the largest investment by aggregate principal amount (including any unfunded commitments) in a single portfolio company in STRS JV’s portfolio was $19,003 and $14,593, respectively. The five largest investments in portfolio companies by fair value in STRS JV totaled $72,488 and $60,252 as of September 30, 2021 and December 31, 2020, respectively. STRS JV invests in portfolio companies in the same industries in which the Company may directly invest.

The Company provides capital to STRS JV in the form of LLC equity interests and through interest-bearing subordinated notes. As of September 30, 2021 and December 31, 2020, the Company and STRS Ohio owned 60% and 40%, respectively, of the LLC equity interests of STRS JV. The Company’s investment in STRS JV consisted of equity contributions of $14,324 and $10,268 and advances of the subordinated notes of $57,297 and $41,073 as of September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021, the Company had commitments to fund equity interests and subordinated notes in STRS JV of $15,000 and $60,000, of which $676 and $2,703 were unfunded, respectively. As of December 31, 2020, the Company had commitments to fund equity interests and subordinated notes in STRS JV of $15,000 and $60,000, of which $4,732 and $18,927 were unfunded, respectively.

The Company and STRS Ohio each appoint two members to STRS JV’s four-person board of managers. All material decisions with respect to STRS JV, including those involving its investment portfolio, require unanimous approval of a quorum of the board of managers. Quorum is defined as (i) the presence of two members of the board of managers; provided that at least one individual is present that was elected, designated or appointed by each member; (ii) the presence of three members of the board of managers; provided that the individual that was elected, designated or appointed by the member with only one individual present shall be entitled to cast two votes on each matter; or (iii) the presence of four members of the board of managers; provided that two individuals are present that were elected, designated or appointed by each member.

On July 19, 2019, STRS JV entered into a $125,000 credit and security agreement (the “STRS JV Credit Facility”) with JPMorgan Chase Bank, National Association (“JPMorgan”). On January 27, 2021, the terms of the STRS JV Credit Facility were amended to, among other things, increase the size of the STRS JV Credit Facility from $125,000 to $175,000. On April 28, 2021, the terms of the STRS JV Credit Facility were amended and restated to, among other things, enable borrowings in British Pounds or Euros. On July 15, 2021, the terms of the STRS JV Credit Facility were amended to, among other things, allow STRS JV to reduce the applicable margins for interest rates to 2.35%, extend the non-call period from January 19, 2022 to January 19, 2023, extend the end of the reinvestment period from July 19, 2022 to July 19, 2023 and extend the scheduled termination date from July 19, 2024, to July 19, 2025.

As of September 30, 2021, the STRS JV Credit Facility had $175,000 of commitments subject to leverage and borrowing base restrictions with an interest rate based on a risk-free index rate such as LIBOR, Sterling Overnight Index Average (“SONIA”) or CDOR plus 2.35%. The final maturity date of the STRS JV Credit Facility is July 19, 2025. As of September 30, 2021, STRS JV had $126,189 of outstanding borrowings and an effective interest rate of 2.51% per annum under the STRS JV Credit Facility.

Below is a listing of STRS JV’s individual investments as of September 30, 2021:


Issuer	Investment Type⁽¹⁾	Floor	Spread Above Index⁽²⁾	Interest Rate⁽³⁾	Acquisition Date⁽⁴⁾	Maturity Date	Principal/ Share Amount	Amortized Cost		Fair Value⁽⁵⁾
North America
Debt Investments
Advertising
SmartSign Holdings LLC	First Lien Secured Term Loan	1.00%	L+ 6.00%	7.00%	10/21/19	10/11/24	8,686	$	8,581	$	8,686
SmartSign Holdings LLC	First Lien Secured Revolving Loan	1.00%	L+ 6.00%	7.00%	10/21/19	10/11/24	—		—		11
							8,686		8,581		8,697
Application Software
TaxSlayer, LLC	First Lien Secured Term Loan	1.00%	L+ 6.00%	7.00%	01/21/21	12/31/26	6,762		6,642		6,666
TaxSlayer, LLC	First Lien Secured Revolving Loan	1.00%	L+ 6.00%	7.00%	01/21/21	12/31/26	—		—		3
							6,762		6,642		6,669
Building Products
Drew Foam Companies Inc	First Lien Secured Term Loan	1.00%	L+ 6.25%	7.25%	11/09/20	11/05/25	7,225		7,106		7,153
LHS Borrower, LLC	First Lien Secured Term Loan	1.00%	L+ 6.75%	7.75%	10/09/20	09/30/25	9,506		9,334		9,436
LHS Borrower, LLC	First Lien Secured Revolving Loan	1.00%	L+ 6.75%	7.75%	10/09/20	09/30/25	—		—		6
							16,731		16,440		16,595
Construction & Engineering
Road Safety Services, Inc	First Lien Secured Term Loan	1.00%	L+ 6.00%	7.00%	12/31/19	09/18/23	6,443		6,344		6,421
Road Safety Services, Inc	First Lien Secured Revolving Loan	3.25%	P+ 5.00%	8.25%	12/31/19	09/18/23	432		425		438
Tensar Corp	First Lien Secured Term Loan	1.00%	L+ 6.75%	7.75%	11/24/20	08/20/25	6,948		6,805		6,948
							13,823		13,574		13,807
Data Processing & Outsourced Services
Geo Logic Systems Ltd⁽⁷⁾	First Lien Secured Term Loan	1.00%	C+ 6.50%	7.50%	01/22/20	12/19/24	20,768		15,850		16,232
Geo Logic Systems Ltd⁽⁷⁾	First Lien Secured Revolving Loan	1.00%	C+ 6.50%	7.50%	01/22/20	12/19/24	—		—		5
							20,768		15,850		16,237
Diversified Support Services
Quest Events, LLC⁽⁹⁾	First Lien Secured Term Loan	1.00%	L+ 6.00%	7.00% (5.46% Cash + 1.54% PIK)	07/19/19	12/28/24	11,994		11,866		9,751
Quest Events, LLC⁽⁹⁾	First Lien Secured Revolving Loan	1.00%	L+ 6.00%	7.00%	07/19/19	12/28/24	935		924		760
							12,929		12,790		10,511
Electronic Equipment & Instruments
LMG Holdings, Inc	First Lien Secured Term Loan	1.00%	L+ 6.50%	7.50%	06/28/21	04/30/26	6,819		6,690		6,704
LMG Holdings, Inc	First Lien Secured Revolving Loan	1.00%	L+ 6.50%	7.50%	06/28/21	04/30/26	—		—		1
							6,819		6,690		6,705
Environmental & Facilities Services
WH Lessor Corp	First Lien Secured Term Loan	1.00%	L+ 6.00%	7.00%	01/22/20	12/26/24	6,888		6,790		6,874
WH Lessor Corp	First Lien Secured Revolving Loan	1.00%	L+ 6.00%	7.00%	01/22/20	12/26/24	—		—		7
							6,888		6,790		6,881
Human Resource & Employment Services
Pluto Acquisition Topco, LLC⁽⁸⁾	First Lien Secured Term Loan	1.50%	L+ 6.31%	7.81%	05/19/20	01/31/24	11,115		11,010		11,115
							11,115		11,010		11,115
Industrial Machinery
FR Flow Control CB LLC	First Lien Secured Term Loan B	1.00%	L+ 5.50%	6.50%	07/19/19	06/28/26	6,815		6,722		6,815
							6,815		6,722		6,815
Internet & Direct Marketing Retail
Marlin DTC-LS Midco 2, LLC	First Lien Secured Term Loan	1.00%	L+ 6.50%	7.50%	07/19/19	07/01/25	15,381		15,178		15,381
Marlin DTC-LS Midco 2, LLC	First Lien Secured Revolving Loan	1.00%	L+ 6.50%	7.50%	07/19/19	07/01/25	—		—		12
							15,381		15,178		15,393
Investment Banking & Brokerage
TOUR Intermediate Holdings, LLC	First Lien Secured Term Loan	1.00%	L+ 6.50%	7.50%	05/19/20	05/15/25	7,543		7,440		7,543
TOUR Intermediate Holdings, LLC	First Lien Secured Delayed Draw Loan	1.00%	L+ 6.50%	7.50%	05/19/20	05/15/25	2,653		2,636		2,653
							10,196		10,076		10,196


Issuer	Investment Type⁽¹⁾	Floor	Spread Above Index⁽²⁾	Interest Rate⁽³⁾	Acquisition Date⁽⁴⁾	Maturity Date	Principal/ Share Amount	Amortized Cost		Fair Value⁽⁵⁾
IT Consulting & Other Services
Cennox, Inc	First Lien Secured Term Loan	1.00%	L+ 6.00%	7.00%	06/28/21	05/04/26	4,035	$	3,959	$	3,995
Cennox, Inc	First Lien Secured Delayed Draw Loan	1.00%	L+ 6.00%	7.00%	06/28/21	05/04/26	8,649		8,487		8,564
Cennox, Inc	First Lien Secured Revolving Loan	1.00%	L+ 6.00%	7.00%	06/28/21	05/04/26	125		122		131
Cennox Holdings Limited⁽⁷⁾	First lien Secured Term Loan	1.00%	L+ 6.00%	7.00%	07/16/21	05/04/26	2,873		3,894		3,833
Cennox Holdings Limited⁽⁷⁾	First lien Secured Revolving Loan	1.00%	L+ 6.00%	7.00%	07/16/21	05/04/26	749		1,016		1,000
KSM Consulting LLC	First Lien Secured Term Loan	1.00%	L+ 6.00%	7.00%	01/27/21	12/31/26	11,292		11,092		11,293
KSM Consulting LLC⁽⁶⁾	First Lien Secured Delayed Draw Loan	1.00%	L+ 6.00%	7.00%	01/27/21	12/31/26	—		—		28
KSM Consulting LLC⁽⁶⁾	First Lien Secured Revolving Loan	1.00%	L+ 6.00%	7.00%	01/27/21	12/31/26	889		873		898
Turnberry Solutions, Inc	First Lien Secured Term Loan	1.00%	L+ 6.00%	7.00%	08/10/21	09/02/26	5,806		5,694		5,693
Turnberry Solutions, Inc	First Lien Secured Revolving Loan	3.25%	P+ 5.00%	8.25%	08/10/21	09/02/26	86		84		84
							34,504		35,221		35,519
Packaged Foods & Meats
Mikawaya Holdings, LLC	First Lien Secured Term Loan	1.25%	L+ 5.50%	6.75%	02/18/20	01/29/25	3,034		2,993		3,034
Poultry Holdings, LLC	First Lien Secured Term Loan	1.00%	L+ 7.25%	8.25% (6.75% Cash + 1.50% PIK)	10/21/19	06/28/25	7,789		7,688		7,010
Stella & Chewy's	First Lien Secured Term Loan	1.00%	L+ 6.50%	7.50%	12/29/20	12/16/25	5,313		5,222		5,100
Stella & Chewy's⁽⁶⁾	First Lien Secured Delayed Draw Loan	1.00%	L+ 6.50%	7.50%	12/29/20	12/16/25	1,898		1,881		1,782
Westrock Coffee Company, LLC	First Lien Secured Term Loan	1.50%	L+ 9.00%	10.50% (9.75% Cash + 0.75% PIK)	03/20/20	02/28/25	9,151		9,073		8,968
							27,185		26,857		25,894
Personal Products
Sunless, Inc	First Lien Secured Term Loan	1.00%	L+ 6.00%	7.00%	10/21/19	08/13/24	4,271		4,193		4,229
Sunless, Inc⁽⁶⁾	First Lien Secured Revolving Loan	1.00%	L+ 6.00%	7.00%	10/21/19	08/13/24	—		—		2
							4,271		4,193		4,231
Research & Consulting Services
E-Phoenix Acquisition Co. Inc (dba Integreon)	First Lien Secured Term Loan	1.00%	L+ 5.75%	6.75%	07/15/21	06/23/27	8,977		8,869		8,869
							8,977		8,869		8,869
Systems Software
IDIG Parent LLC	First Lien Secured Term Loan	1.00%	L+ 6.00%	7.00%	06/25/21	12/15/26	8,504		8,421		8,504
IDIG Parent LLC	First Lien Secured Delayed Draw Loan	1.00%	L+ 6.00%	7.00%	09/21/21	12/15/26	1,411		1,397		1,411
IDIG Parent LLC	First Lien Secured Revolving Loan	1.00%	L+ 6.00%	7.00%	06/25/21	12/15/26	—		—		5
							9,915		9,818		9,920
Technology Hardware, Storage & Peripherals
PS Lightwave, Inc	First Lien Secured Term Loan	1.50%	L+ 6.75%	8.25%	05/19/20	03/10/25	7,365		7,259		7,292
PS Lightwave, Inc⁽⁶⁾	First Lien Secured Delayed Draw Loan	1.50%	L+ 6.75%	8.25%	05/19/20	03/10/25	—		—		6
Source Code Midco, LLC	First Lien Secured Term Loan	1.00%	L+ 6.50%	7.50%	08/10/21	07/30/27	7,648		7,499		7,499
Source Code Midco, LLC⁽⁶⁾	First Lien Secured Delayed Draw Loan	1.00%	L+ 6.50%	7.50%	08/10/21	07/30/27	—		—		—
							15,013		14,758		14,797
Trading Companies & Distributors
LINC Systems, LLC	First Lien Secured Term Loan	1.00%	L+ 6.25%	7.25%	06/22/21	02/24/26	10,158		9,966		10,123
LINC Systems, LLC	First Lien Secured Revolving Loan	1.00%	L+ 6.25%	7.25%	06/22/21	02/24/26	—		—		13
							10,158		9,966		10,136

Total Investments							246,936	$	240,025	$	238,987

(1)	Except as noted, all investments provide collateral for the STRS JV Credit Facility.

(2)

The investments bear interest at a rate that may be determined by reference to LIBOR, which resets monthly, quarterly or semiannually, CDOR or Prime. The one, three and six-month LIBOR were 0.08%, 0.13% and 0.16%, respectively, as of September 30, 2021. The one, three and six-month GBP LIBOR were 0.05%, 0.08% and 0.17%, respectively, as of September 30, 2021. The CDOR and Prime were 0.45% and 3.25%, respectively, as of September 30, 2021.

(3)	The interest rate is the “all-in-rate” including the current index and spread, the fixed rate, and the PIK interest rate, as the case may be.

(4)	Except as otherwise noted, all of the STRS JV’s portfolio company investments, which as of the date of the portfolio represented 968% of STRS JV’s net assets or 97% of STRS JV’s total assets, are subject to legal restrictions on sales.

(5)	The fair value of each investment was determined using significant unobservable inputs.

(6)	The investment or a portion of the investment does not provide collateral for the STRS JV Credit Facility.

(7)	Principal amount is non-USD denominated and is based in Canadian dollars or British Pounds.

(8)

In addition to the interest earned based on the stated interest rate of this security, STRS JV is entitled to receive an additional interest in the amount of 3.00% on its “last out” tranche of the portfolio company’s senior term debt, which was previously syndicated into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder.

(9)	At the option of the issuer, interest can be paid in cash or cash and PIK. The issuer may elect to pay up to 7.00% PIK.

Below is a listing of STRS JV’s individual investments as of December 31, 2020:


	Spread				Principal/
	Above	Interest	Acquisition	Maturity	Share	Amortized		Fair
Investment Type⁽¹⁾	Index⁽²⁾	Rate⁽³⁾	Date⁽⁴⁾	Date	Amount	Cost		Value⁽⁵⁾
North America
Debt Investments
Advertising
SmartSign Holdings LLC
First Lien Secured Term Loan	L+ 6.00%	7.00%	10/21/19	10/11/24	8,753	$	8,620	$	8,710
	(1.00% Floor)
First Lien Secured Revolving Loan	L+ 6.00%	7.00%	10/21/19	10/11/24	545		537		546
	(1.00% Floor)				9,298		9,157		9,256
Building Products
Drew Foam Companies Inc
First Lien Secured Term Loan	L+ 6.50%	7.50%	11/09/20	11/24/25	10,079		9,883		9,882
	(1.00% Floor)
First Lien Secured Revolving Loan	L+ 6.50%	7.50%	11/09/20	11/05/25	332		325		325
	(1.00% Floor)
LHS Borrower, LLC
First Lien Secured Term Loan	L+ 6.75%	7.75%	10/09/20	09/30/25	9,689		9,478		9,543
	(1.00% Floor)
First Lien Secured Revolving Loan	L+ 6.75%	7.75%	10/09/20	09/30/25	—		—		4
	(1.00% Floor)				20,100		19,686		19,754
Construction & Engineering
SFP Holding, Inc.
First Lien Secured Term Loan	L+ 6.25%	7.25%	12/13/19	09/01/22	6,483		6,482		6,389
	(1.00% Floor)
First Lien Secured Delayed Draw Loan	L+ 6.25%	7.25%	12/13/19	09/01/22	6,713		6,711		6,610
	(1.00% Floor)
First Lien Secured Revolving Loan	L+ 6.25%	7.25%	12/31/19	09/01/22	—		—		(13)
	(1.00% Floor)
Tensar Corp.
First Lien Secured Term Loan	L+ 6.75%	7.75%	11/24/20	08/20/25	7,000		6,829		6,829
	(1.00% Floor)				20,196		20,022		19,815
Data Processing & Outsourced Services
Geo Logic Systems Ltd.
First Lien Secured Term Loan⁽⁷⁾	L+ 6.24%	7.24%	01/22/20	12/19/24	14,466		10,894		11,133
	(1.00% Floor)
First Lien Secured Revolving Loan⁽⁷⁾	L+ 6.24%	7.24%	01/22/20	12/19/24	—		—		(3)
	(1.00% Floor)				14,466		10,894		11,130
Diversified Support Services
Quest Events, LLC
First Lien Secured Term Loan	L+ 6.00%	7.00%	07/19/19	12/28/24	11,649		11,490		9,470
	(1.00% Floor)	(3.50%PIK)
First Lien Secured Revolving Loan	L+ 6.00%	7.00%	07/19/19	12/28/24	935		922		760
	(1.00% Floor)	(3.50%PIK)			12,584		12,412		10,230
Environmental & Facilities Services
WH Lessor Corp.
First Lien Secured Term Loan	L+ 6.00%	7.00%	01/22/20	11/24/25	6,259		6,155		6,239
	(1.00% Floor)
First Lien Secured Revolving Loan	L+ 6.00%	7.00%	01/22/20	12/26/24	—		—		9
	(1.00% Floor)				6,259		6,155		6,248
Human Resource & Employment Services
Pluto Acquisition Topco, LLC
First Lien Secured Term Loan⁽⁸⁾	L+ 6.31%	7.81%	05/19/20	01/31/24	11,549		11,405		11,549
	(1.50% Floor)				11,549		11,405		11,549

	Spread				Principal/
	Above	Interest	Acquisition	Maturity	Share	Amortized		Fair
Investment Type⁽¹⁾	Index⁽²⁾	Rate⁽³⁾	Date⁽⁴⁾	Date	Amount	Cost		Value⁽⁵⁾
Industrial Machinery
FR Flow Control CB LLC
First Lien Secured Term Loan B	L+ 6.00%	7.00%	07/19/19	06/28/26	7,269	$	7,154	$	7,088
	(1.00% Floor)
First Lien Secured Term Loan C	L+ 6.00%	7.00%	07/19/19	06/28/26	2,870		2,825		2,798
	(1.00% Floor)				10,139		9,979		9,886
Insurance Brokers
SelectQuote, Inc.
First Lien Secured Term Loan	L+ 6.00%	7.00%	11/05/19	11/05/24	7,838		7,718		7,838
	(1.00% Floor)				7,838		7,718		7,838
Internet & Direct Marketing Retail
Marlin DTC-LS Midco 2, LLC
First Lien Secured Term Loan	L+ 5.50%	6.50%	07/19/19	07/01/25	13,577		13,373		13,501
	(1.00% Floor)
First Lien Secured Revolving Loan	L+ 5.50%	6.50%	07/19/19	07/01/25	—		—		10
	(1.00% Floor)				13,577		13,373		13,511
Investment Banking & Brokerage
TOUR Intermediate Holdings, LLC
First Lien Secured Term Loan	L+ 7.00%	8.00%	05/19/20	05/15/25	8,194		8,059		8,194
	(1.00% Floor)
First Lien Secured Delayed Draw Loan	L+ 7.00%	8.00%	05/19/20	05/15/25	2,882		2,859		2,882
	(1.00% Floor)				11,076		10,918		11,076
Packaged Foods & Meats
Mikawaya Holdings, LLC
First Lien Secured Term Loan	L+ 5.75%	7.00%	02/18/20	01/29/25	3,057		3,007		3,057
	(1.25% Floor)
Poultry Holdings, LLC
First Lien Secured Term Loan	L+ 5.75%	6.75%	10/21/19	06/28/25	7,728		7,606		7,265
	(1.00% Floor)
Stella & Chewy's
First Lien Secured Term Loan	L+ 6.50%	7.50%	12/29/20	12/16/25	5,312		5,206		5,206
	(1.00% Floor)
First Lien Secured Delayed Draw Loan⁽⁶⁾	L+ 6.50%	7.50%	12/29/20	12/16/25	—		—		—
	(1.00% Floor)
Westrock Coffee Company, LLC
First Lien Secured Term Loan	L+ 8.25%	9.75%	03/20/20	02/28/25	9,234		9,137		9,049
	(1.50% Floor)	(1.00%PIK)			25,331		24,956		24,577
Personal Products
Sunless, Inc.
First Lien Secured Term Loan	L+ 6.50%	7.50%	10/21/19	08/13/24	4,828		4,734		4,345
	(1.00% Floor)	(0.50%PIK)
First Lien Secured Revolving Loan	L+ 6.50%	7.50%	10/21/19	08/13/24	—		—		(113)
	(1.00% Floor)				4,828		4,734		4,232
Systems Software
arcserve (USA) LLC
First Lien Secured Term Loan	L+ 6.00%	7.00%	07/19/19	05/01/24	8,110		8,001		8,110
	(1.00% Floor)				8,110		8,001		8,110
Technology Hardware, Storage & Peripherals
PS Lightwave, Inc.
First Lien Secured Term Loan	L+ 6.75%	8.25%	05/19/20	03/10/25	7,435		7,306		7,334
	(1.50% Floor)
First Lien Secured Delayed Draw Loan	L+ 6.75%	8.25%	05/19/20	03/10/25	—		—		6
	(1.50% Floor)				7,435		7,306		7,340
Total Investments					182,786	$	176,716	$	174,552

(1)	Except as noted, all investments provide collateral for the STRS JV Credit Facility.

(2)	The investments bear interest at a rate that may be determined by reference to LIBOR, which resets monthly, quarterly or semiannually, or CDOR. The one, three and six-month LIBOR were 0.1%, 0.2% and 0.3%, respectively, as of December 31, 2020. The CDOR was 0.5% as of December 31, 2020.

(3)	The interest rate is the “all-in-rate” including the current index and spread, the fixed rate, and the PIK interest rate, as the case may be.

(4)	Except as otherwise noted, all of the STRS JV’s portfolio company investments, which as of the date of the portfolio represented 1,030% of STRS JV’s net assets or 96% of STRS JV’s total assets, are subject to legal restrictions on sales.

(5)	The fair value of each investment was determined using significant unobservable inputs.

(6)	The investment or a portion of the investment does not provide collateral for the STRS JV Credit Facility.

(7)	Principal is denominated in Canadian dollars.

(8)

As of September 30, 2021, the portfolio companies underlying the STRS JV investments are all located in the United States and its territories except for Geo Logic Systems Ltd., which is domiciled in Canada, and Cennox Holdings Limited, which is domiciled in the United Kingdom. As of September 30, 2021 and December 31, 2020, STRS JV had no investments on non-accrual status. STRS JV had outstanding commitments to fund investments totaling $18,740, and $12,192 under delayed draw term loan commitments and undrawn revolvers as of September 30, 2021 and December 31, 2020, respectively.

Below is certain summarized financial information for STRS JV as of September 30, 2021 and December 31, 2020 and for the three and nine months ended September 30, 2021 and 2020 (dollars in thousands):


Selected Balance Sheet Information	September 30, 2021		December 31, 2020
Assets:
Investments, at fair value (amortized cost of $240,025 and $176,716, respectively)	$	238,987	$	174,552
Cash and cash equivalents		6,566		5,947
Other assets		1,212		883
Total assets	$	246,765	$	181,382
Liabilities:
Credit facility	$	124,299	$	94,260
Note payable to members		95,496		68,456
Interest payable on credit facility		236		189
Interest payable on notes to members		1,511		1,136
Other liabilities		536		396
Total liabilities		222,078		164,437
Members’ equity		24,687		16,945
Total liabilities and members’ equity	$	246,765	$	181,382


	Three Months Ended				Nine Months Ended
Selected Statement of Operations Information	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Interest income	$	4,972	$	3,402	$	13,554	$	8,948
Total investment income	$	4,972	$	3,402	$	13,554	$	8,948
Interest expense on credit facility		1,079		806		3,037		2,407
Interest expense on notes to members		1,511		1,140		3,937		3,328
Administrative fee		117		84		312		219
Other expenses		150		40		379		314
Total expenses	$	2,857	$	2,070	$	7,665	$	6,268
Net investment income		2,115		1,332		5,889		2,680
Net realized gains (losses) on investments		8		(2)		(51)		(17)
Net change in unrealized appreciation (depreciation) on investments		874		2,158		1,209		(3,254)
Net increase (decrease) in net assets resulting from operations	$	2,997	$	3,488	$	7,047	$	(591)

NOTE 5 – FAIR VALUE MEASUREMENTS

Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active public markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about what market participants would use in pricing an asset or liability.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the financial instrument.

A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur. During the nine months ended September 30, 2021 and year ended December 31, 2020, there were no changes in the observability of valuation inputs that would have resulted in a reclassification of assets between any levels.

Fair value for each investment is derived using a combination of valuation methodologies that, in the judgment of the Investment Committee are most relevant to such investment, including, without limitation, being based on one or more of the following: (i) market prices obtained from market makers for which the Investment Committee has deemed there to be enough breadth (number of quotes) and depth (firm bids) to be indicative of fair value, (ii) the price paid or realized in a completed transaction or binding offer received in an arm’s-length transaction, (iii) a discounted cash flow analysis, (iv) the guideline public company method, (v) the similar transaction method or (vi) the option pricing method.

The following table presents investments (as shown on the consolidated schedule of investments) that were measured at fair value as of September 30, 2021:


	Level 1		Level 2		Level 3		Total
First lien secured loans	$	—	$	—	$	564,996	$	564,996
Second lien secured loans		—		—		29,662		29,662
Subordinated unsecured loans		—		—		167		167
Subordinated Note to STRS JV		—		—		57,297		57,297
Equity (excluding STRS JV)		—		—		20,188		20,188
Equity in STRS JV⁽¹⁾		—		—		—		14,813
Total investments	$	—	$	—	$	672,310	$	687,123

(1)

The Company’s equity investment in STRS JV is measured using the net asset value per share as a practical expedient for fair value, and thus has not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated statements of assets and liabilities.

The Company’s investments in forward currency contracts, which were valued at $186 as of September 30, 2021, are characterized in Level 2 of the hierarchy.

The following table presents investments (as shown on the consolidated schedule of investments) that were measured at fair value as of December 31, 2020:


	Level 1		Level 2		Level 3		Total
First lien secured loans	$	—	$	—	$	589,717	$	589,717
Second lien secured loans		—		—		27,059		27,059
Subordinated Note to STRS JV		—		—		41,073		41,073
Equity (excluding STRS JV)		—		—		22,719		22,719
Equity in STRS JV⁽¹⁾		—		—		—		10,167
Total investments	$	—	$	—	$	680,568	$	690,735

(1)

The following table presents the changes in investments measured at fair value using Level 3 inputs for the three months ended September 30, 2021:


	First Lien		Second Lien				Subordinated
	Secured		Secured		Subordinated		Notes to STRS				Total
	Loans		Loans		Notes		JV		Equity		Investments
Fair value, beginning of period	$	562,837	$	29,714	$	—	$	49,809	$	16,033	$	658,393
Funding of investments		135,497		—		167		7,488		2,278		145,430
Non-cash interest income		173		1		—		—		—		174
Accretion of discount		2,115		29		—		—		—		2,144
Proceeds from paydowns and sales		(133,361)		—		—		—		—		(133,361)
Realized gains (losses)		120		—		—		—		(11)		109
Net unrealized (depreciation) appreciation		(2,385)		(82)		—		—		1,888		(579)
Fair value, end of period	$	564,996	$	29,662	$	167	$	57,297	$	20,188	$	672,310
Change in unrealized appreciation (depreciation) on investments still held as of September 30, 2021	$	216	$	112	$	—	$	—	$	2,931	$	3,259

The following table presents the changes in investments measured at fair value using Level 3 inputs for the nine months ended September 30, 2021:


	First Lien		Second Lien				Subordinated
	Secured		Secured		Subordinated		Notes to STRS				Total
	Loans		Loans		Notes		JV		Equity		Investments
Fair value, beginning of period	$	588,580	$	27,596	$	—	$	41,073	$	23,319	$	680,568
Funding of investments		310,749		14,550		498		16,224		2,938		344,959
Non-cash interest income		857		3		—		—		—		860
Accretion of discount (premium)		5,549		125		—		—		(25)		5,649
Proceeds from paydowns and sales		(341,177)		(12,670)		(331)		—		(9,442)		(363,620)
Realized gains (losses)		8,288		—		—		—		(574)		7,714
Net unrealized (depreciation) appreciation		(7,850)		58		—		—		3,972		(3,820)
Fair value, end of period	$	564,996	$	29,662	$	167	$	57,297	$	20,188	$	672,310
Change in unrealized appreciation (depreciation) on investments still held as of September 30, 2021	$	1,516	$	113	$	—	$	—	$	3,211	$	4,840

The following table presents the changes in investments measured at fair value using Level 3 inputs for the the three months ended September 30, 2020:


	First Lien		Second Lien				Subordinated
	Secured		Secured		Subordinated		Notes to STRS				Total
	Loans		Loans		Notes		JV		Equity		Investments
Fair value, beginning of period	$	453,721	$	29,968	$	—	$	41,073	$	14,846	$	539,608
Funding of investments		57,920		—		291		—		1,100		59,311
Non-cash interest income		198		—		—		—		—		198
Accretion of discount		680		28		—		—		—		708
Proceeds from paydowns and sales		(27,507)		—		—		—		(632)		(28,139)
Realized gains		4		—		—		—		632		636
Net unrealized (depreciation) appreciation		9,850		4		—		—		3,804		13,658
Fair value, end of period	$	494,866	$	30,000	$	291	$	41,073	$	19,750	$	585,980
Change in unrealized appreciation (depreciation) on investments still held as of September 30, 2020	$	9,980	$	4	$	—	$	—	$	3,804	$	13,788

The following table presents the changes in investments measured at fair value using Level 3 inputs for the the nine months ended September 30, 2020:


	First Lien		Second Lien				Subordinated
	Secured		Secured		Subordinated		Notes to STRS					Total
	Loans		Loans		Notes		JV		Equity			Investments
Fair value, beginning of period	$	477,875	$	62,155	$	—	$	26,344	$	15,898	$	582,272
Funding of investments		122,057		—		291		14,729		3,908		140,985
Non-cash interest income		681		—		—		—		—		681
Accretion of discount		2,009		142		—		—		18		2,169
Proceeds from paydowns and sales		(114,065)		(32,404)		—		—		(650)		(147,119)
Realized gains		281		—		—		—		632		913
Net unrealized (depreciation) appreciation		6,028		107		—		—		(56)		6,079
Fair value, end of period	$	494,866	$	30,000	$	291	$	41,073	$	19,750	$	585,980
Change in unrealized appreciation (depreciation) on investments still held as of September 30, 2020	$	6,090	$	109	$	—	$	—	$	(56)	$	6,143

The significant unobservable inputs used in the fair value measurement of the Company’s investments are the discount rate, market quotes and exit multiples. An increase or decrease in the discount rate in isolation would result in significantly lower or higher fair value measurement, respectively. An increase or decrease in the market quote for an investment would in isolation result in significantly higher or lower fair value measurement, respectively. An increase or decrease in the exit multiple would in isolation result in significantly higher or lower fair value measurement, respectively. As the fair value of a debt investment diverges from par, which would generally be the case for non-accrual loans, the fair value measurement of that investment is more susceptible to volatility from changes in exit multiples as a significant unobservable input.

Quantitative information about Level 3 fair value measurements is as follows:


	Fair Value as of		Valuation	Unobservable	Range
Investment Type	September 30, 2021		Techniques	Inputs	(Weighted Average)
First lien secured loans	$	317,512	Discounted cash flows	Discount rate	4.4% – 19.2% (9.5%)
				Exit EBITDA multiple	5.1x – 15.0x (8.2x)
		120,535	Recent transaction	Transaction price	98.0 – 99.3 (98.2)
		126,949	Discounted cash flows, Recent transaction, Guideline public companies and Consensus market pricing	Discount rate	5.5% – 10.5% (8.2%)
				Market pricing	100.8
				Transaction price	97.4 – 99.2 (98.3)
				Exit EBITDA multiple	6.6x – 11.0x (9.4x)
	$	564,996

Second lien secured loans	$	14,962	Discounted cash flows	Discount rate	10.7% – 22.0% (14.3%)
				Exit EBITDA multiple	6.5x
		14,700	Discounted cash flows and Recent transaction	Discount rate	11.0%
				Exit EBITDA multiple	8.5x
				Transaction price	97.1
	$	29,662

Subordinated Notes	$	57,297	Enterprise value	–	–
		167	Recent transaction	Transaction price	100.0
	$	57,464

Preferred Equity	$	934	Similar transactions	LTM EBITDA multiple	8.0x
		840	Discounted cash flows and Guideline public companies	Discount Rate	18.0%
				Exit EBITDA Multiple	8.3x
				LTM EBITDA Multiple	8.9x
				NFY EBITDA Multiple	8.2x
				Discount for lack of marketability	12.5%
		167	Recent transaction	Transaction price	$1.00 per share
	$	1,941

Common Equity	$	184	Discounted cash flows	Discount rate	20.8%
				Exit EBITDA Multiple	8.6x
				Discount for lack of marketability	15.0%
		10,111	Discounted cash flows, Guideline public companies and Expected repayment	Discount rate	14.4% – 19.4% (17.7%)
				Exit EBITDA Multiple	8.2x – 11.0x (10.1x)
				NFY EBITDA Multiple	8.6x
				Discount for lack of marketability	10.0%
		710	Similar transactions	LTM EBITDA Multiple	6.0x – 13.3x (11.6x)
		2,760	Recent transaction	Transaction price	$1.00 – $104.05 ($32.74) per share
	$	13,765

Warrant		4,482	Discounted cash flows, Recent transaction and Option-pricing method	Discount rate	20.8% – 28.7% (28.3%)
				Exit EBITDA multiple	5.5x – 8.6x (5.9x)
				Volatility	3.4% – 8.4% (3.5%)
				Discount for lack of marketability	10.0% – 15.0% (11.1%)
	$	4,482

Total Level 3 Investments	$	672,310


	Fair Value as of		Valuation	Unobservable	Range
Investment Type	December 31, 2020		Techniques	Inputs	(Weighted Average)
First lien secured loans	$	391,704	Discounted cash flows	Discount rate	7.2% – 16.6% (9.7)%
				Exit EBITDA multiple	3.0x – 15.0x (7.5x)
		11,774	Guideline public companies	LTM EBITDA multiple	6.3 x
		142,031	Recent transaction	Transaction price	97.0 – 99.0 (97.9)
		20,870	Discounted cash flows, recent transaction, guideline public companies and consensus market pricing	Discount rate	7.1% – 16.5% (9.6)%
				Market pricing	100.2 – 100.6 (100.4)
				Transaction price	100.0
				Exit EBITDA multiple	7.0x – 12.0x (9.3x)
		22,201	Other (asset coverage and expected repayment)	—	—
	$	588,580

Second lien secured loans	$	15,096	Discounted cash flows	Discount rate	12.1% – 20.9% (14.9)%
				Exit EBITDA multiple	6.5 x
		12,500	Other (expected repayment)	—	—
	$	27,596

Subordinated Note to STRS JV	$	41,073	Enterprise value	—	—

	$	41,073

Preferred Equity	$	857	Similar transactions	LTM EBITDA multiple	8.0 x
		600	Recent transaction	Transaction price	$1.0 /s
	$	1,457

Common Equity	$	10,816	Discounted cash flows	Discount rate	12.5% – 19.8% (13.5)%
				Exit EBITDA Multiple	6.7x – 8.6x (7.1x)
				Discount for lack of marketability	2.0% – 15.0% (3.8)%
		6,448	Discounted cash flows and Guideline public companies	Discount rate	15.5%
				Exit EBITDA Multiple	8.0 x
				Discount for lack of marketability	10.0%
		14	Similar transactions	Exit EBITDA Multiple	6.0 x
				Discount for lack of marketability	15.0%
		496	Recent transaction	Transaction price	$1.0 /s
	$	17,774

Warrant	$	3,612	Discounted cash flows and	Discount rate	19.1% – 24.7% (24.5)%
			Option-pricing method	Exit EBITDA multiple	5.5x – 8.6x (5.6x)
				Volatility	3.0% – 7.8% (3.2)%
				Discount for lack of marketability	10.0% – 15.0% (10.2)%
		476	Recent transaction	Transaction price	$1.0 /s
	$	4,088
Total Level 3 Investments	$	680,568

Valuation of investments may be determined by weighting various valuation techniques. Significant judgment is required in selecting the assumptions used to determine the fair values of these investments. The valuation methods selected for a particular investment are based on the circumstances and on the sufficiency of data available to measure fair value. If more than one valuation method is used to measure fair value, the results are evaluated and weighted, as appropriate, considering the reasonableness of the range indicated by those results. A fair value measurement is the point within that range that is most representative of fair value in the circumstances.

The availability of observable inputs can vary depending on the financial instrument and is affected by a wide variety of factors, including, for example, the nature of the instrument, whether the instrument is traded on an active exchange or in the secondary market and the current market conditions. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires a greater degree of judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for financial instruments classified as Level 3.

The determination of fair value using the selected methodologies takes into consideration a range of factors including the price at which the investment was acquired, the nature of the investment, local market conditions, trading

values on public and private exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment, compliance with agreed upon terms and covenants, and assessment of credit ratings of an underlying borrower. These valuation methodologies involve a significant degree of judgment to be exercised.

As it relates to investments which do not have an active public market, there is no single standard for determining the estimated fair value. Valuations of privately held investments are inherently uncertain, and they may fluctuate over short periods of time and may be based on estimates. The determination of fair value may differ materially from the values that would have been used if a ready market for these investments existed.

In some cases, fair value for such investments is best expressed as a range of values derived utilizing different methodologies from which a single estimate may then be determined. Consequently, fair value for each investment may be derived using a combination of valuation methodologies that, in the judgment of the investment professionals, are most relevant to such investment. The selected valuation methodologies for a particular investment are consistently applied on each measurement date. However, a change in a valuation methodology or its application from one measurement date to another is possible if the change results in a measurement that is equally or more representative of fair value in the circumstances.

The following table presents the par and fair value of the Company’s borrowings as of September 30, 2021 and December 31, 2020. The fair value of the Credit Facility (as defined in Note 6) was estimated by discounting remaining payments using applicable market rates or market quotes for similar instruments at the measurement date, if available. The fair value of the Company’s 6.0% private notes due 2023 (the “2023 Private Notes”), the 5.375% private notes due 2025 (the “2025 Private Notes”), the 5.375% private notes due 2026 (the “2026 Private Notes”) and the 5.625% private notes due 2027 (the “2027 Private Notes”) were estimated using discounted future cash flows to the valuation date. The fair value of the 6.5% notes due 2025, (the “2025 Public Notes”) was estimated using the trailing 10-day volume weighted average quoted price as of the valuation date.


		As of September 30, 2021				As of December 31, 2020
	Fair
	Value Level	Par		Fair Value		Par		Fair Value
JPM Credit Facility	3	$	259,620	$	269,431	$	265,246	$	272,570
2023 Private Notes	3		30,000		31,642		30,000		32,389
2025 Private Notes	3		40,000		41,662		40,000		41,110
2026 Private Notes	3		10,000		10,363		10,000		10,260
2027 Private Notes	3		10,000		10,397		10,000		10,324
2025 Public Notes	2		35,000		35,449		35,000		36,000
		$	384,620	$	398,944	$	390,246	$	402,653

NOTE 6 – BORROWINGS

Historically, the 1940 Act has permitted the Company to issue “senior securities,” including borrowing money from banks or other financial institutions, only in amounts such that its asset coverage, as defined in the 1940 Act, equals at least 200% after such incurrence or issuance. In March 2018, the Small Business Credit Availability Act (the “SBCAA”) was enacted into law. The SBCAA, among other things, amended the 1940 Act to reduce the asset coverage requirements applicable to business development companies from 200% to 150% so long as the business development company meets certain disclosure requirements and obtains certain approvals. At the Company’s annual meeting of stockholders held on August 1, 2018, the Company’s stockholders approved the reduced asset coverage ratio from 200% to 150%, such that the Company’s maximum debt-to-equity ratio increased from a prior maximum of 1.0x (equivalent of $1 of debt outstanding for each $1 of equity) to a maximum of 2.0x (equivalent to $2 of debt outstanding for each $1 of equity). As a result, the Company’s asset coverage requirements applicable to senior securities decreased from 200% to 150%, effective August 2, 2018. As of September 30, 2021 and December 31, 2020, the Company’s asset coverage for borrowed amounts was 184.2% and 180.2%, respectively.

Total borrowings outstanding and available as of September 30, 2021, were as follows:


	Maturity	Rate		Face Amount		Available
JPM Credit Facility	2025	L+2.35	%	$	259,620	$	25,380
2023 Private Notes	2023	6.00	%		30,000		—
2025 Private Notes	2025	5.375	%		40,000		—
2026 Private Notes	2026	5.375	%		10,000		—
2027 Private Notes	2027	5.625	%		10,000		—
2025 Public Notes	2025	6.50	%		35,000		—
Total debt					384,620	$	25,380
Debt issuance cost					(4,863)
Total debt net issuance cost				$	379,757

Total borrowings outstanding and available as of December 31, 2020, were as follows:


	Maturity	Rate		Face Amount		Available
JPM Credit Facility	2024	L+2.50	%	$	265,246	$	19,754
2023 Private Notes	2023	6.00	%		30,000		—
2025 Private Notes	2025	5.375	%		40,000		—
2026 Private Notes	2026	5.375	%		10,000		—
2027 Private Notes	2027	5.625	%		10,000		—
2025 Public Notes	2025	6.50	%		35,000		—
Total debt					390,246	$	19,754
Debt issuance cost					(5,366)
Total debt net issuance cost				$	384,880

Credit Facility: On December 23, 2015, WhiteHorse Credit entered into a $200,000 revolving credit and security agreement with JPMorgan Chase Bank, National Association (“JPMorgan”), as administrative agent and lender (the “Credit Facility”). On June 27, 2016, the Credit Facility was amended and restated to clarify certain terms. On June 29, 2017, WhiteHorse Credit and JPMorgan again amended and restated the terms of the Credit Facility to, among other things, (i) extend the maturity date to December 29, 2021, (ii) increase the amount contained within the accordion feature which allows for the expansion of the borrowing limit from $220,000 to $235,000 and (iii) reduce the interest rate spread applicable on outstanding borrowings to 2.75%. On May 15, 2018, the terms of the Credit Facility were again amended and restated to, among other things, permit the financing of certain assets to be held by WhiteHorse California, a wholly owned subsidiary of WhiteHorse Credit. In November 2018, the Company entered into an amendment to the Credit Facility, which, among other things, allows for a temporary reduction in the required minimum outstanding borrowings. On November 22, 2019, the terms of the Credit Facility were again amended and restated to, among other things, (i) extend the maturity date from December 29, 2021 to November 22, 2024; (ii) increase the size of the facility from $200,000 to $250,000 with an additional $100,000 accordion feature, which allows for the expansion of the borrowing limit, exercisable in increments of at least $35,000 (the “Commitment”); (iii) reduce the interest rate spread applicable on outstanding borrowings from 2.75% to 2.50%; (iv) change the minimum borrowing amount from 77.5% to 70.0% of the Commitment; (v) increase the advance rate from 57% to 60%; and (vi) extend the non-call period from October 29, 2019 to November 22, 2021.

On December 21, 2020, the terms of the Credit Facility were amended to, among other things, (i) increase the minimum funding amount from $175,000 to $200,000, (ii) increase the size of the facility from $250,000 to $285,000 and retain an accordion feature which allows for the expansion of the borrowing limit up to $350,000 and (iii) provide for the implementation of certain changes relating to the transition away from LIBOR in the market.

On April 28, 2021, the terms of the Credit Facility were amended and restated to, among other things, enable WhiteHorse Credit to borrow in British Pounds or Euros.

November 22, 2022, extend the end of the reinvestment period from November 22, 2023 to November 22, 2024 and extend the scheduled termination date from November 22, 2024, to November 22, 2025.

The Credit Facility bears interest at LIBOR plus 2.35% on outstanding USD denominated borrowings. The Credit Facility bears interest at EURIBOR, for EUR denominated borrowings, CDOR for CAD denominated borrowings, SONIA, for GBP denominated, plus a spread of 2.35% on outstanding borrowings. The Company is required to pay a non-usage fee which accrues at 0.75% per annum on the average daily unused amount of the financing commitments to the extent the aggregate principal amount available under the Credit Facility has not been borrowed. The minimum borrowing requirement is $200,000. In connection with the Credit Facility, WhiteHorse Credit pledged securities with a fair value of approximately $594,638 as of September 30, 2021 as collateral. The Credit Facility has a maturity date of November 22, 2025.

Under the Credit Facility, the Company has made certain customary representations and warranties and is required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. As of September 30, 2021, the Company had $259,620 in outstanding borrowings and $25,380 undrawn under the Credit Facility. Weighted average outstanding borrowings were $256,274 and $236,396 at a weighted average interest rate of 2.50% and 2.63%, respectively, for the three and nine months ended September 30, 2021. As of September 30, 2021, the interest rate in effect on outstanding borrowings was 2.47%. The Company’s ability to draw down undrawn funds under the Credit Facility is determined by collateral and portfolio quality requirements stipulated in the credit and security agreement. As of September 30, 2021, $25,380 was available to be drawn by the Company based on these requirements.

2023 Private Notes: On July 13, 2018, the Company entered into an agreement (the “2023 Note Purchase Agreement”) to sell in a private offering $30,000 aggregate principal amount of senior unsecured notes to qualified institutional investors in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended. Interest on the 2023 Private Notes is payable semiannually on February 7 and August 7, at a fixed, annual rate of 6.00%. This interest rate is subject to increase (up to 6.50%) in the event that, subject to certain exceptions, the 2023 Private Notes cease to have an investment grade rating. The 2023 Private Notes mature on August 7, 2023, unless redeemed, purchased or prepaid prior to such date by the Company or its affiliates in accordance with their terms. The 2023 Private Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company. The closing of the transaction occurred on August 7, 2018. The Company used the net proceeds from this offering, together with cash on hand, to redeem existing debt.

2025 Private Notes: On October 20, 2020, the Company entered into a Note Purchase Agreement (the “2025 Note Purchase Agreement”) governing the issuance of $40,000 in aggregate principal amount of unsecured notes (the “2025 Private Notes”) to qualified institutional investors in a private placement. The 2025 Private Notes have a fixed interest rate of 5.375% and are due on October 20, 2025, unless redeemed, purchased or prepaid prior to such date by the Company or its affiliates in accordance with their terms. Interest on the 2025 Private Notes is due semiannually. This interest rate is subject to increase (up to 6.375%) in the event that, subject to certain exceptions, the 2025 Private Notes cease to have an investment grade rating. In addition, the Company is obligated to offer to repay the 2025 Private Notes at par if certain change in control events occur. The 2025 Private Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company. The Company used the net proceeds from this offering to redeem existing debt.

2026 Private Notes: On December 4, 2020, the Company entered into a Note Purchase Agreement (the “2026 Note Purchase Agreement”) governing the issuance of $10,000 in aggregate principal amount of unsecured notes (the “2026 Private Notes”) to qualified institutional investors in a private placement. The 2026 Private Notes have a fixed interest rate of 5.375% and are due on December 4, 2026, unless redeemed, purchased or prepaid prior to such date by the Company or its affiliates in accordance with their terms. Interest on the 2026 Private Notes is due semiannually. This interest rate is subject to increase (up to 6.375%) in the event that, subject to certain exceptions, the 2026 Private Notes cease to have an investment grade rating. In addition, the Company is obligated to offer to repay the 2026 Private Notes at par if certain change in control events occur. The 2026 Private Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company. The Company used the net proceeds from this offering to redeem existing debt.

2027 Private Notes: On December 4, 2020, the Company entered into a Note Purchase Agreement (the “2027 Note Purchase Agreement”) governing the issuance of $10,000 in aggregate principal amount of unsecured notes (the “2027 Private Notes”) to qualified institutional investors in a private placement. The 2027 Private Notes have a fixed interest rate of 5.625% and are due on December 4, 2027, unless redeemed, purchased or prepaid prior to such date by the Company or its affiliates in accordance with their terms. Interest on the 2027 Private Notes is due semiannually. This interest rate is subject to increase (up to 6.625%) in the event that, subject to certain exceptions, the 2027 Private Notes cease to have an investment grade rating. In addition, the Company is obligated to offer to repay the 2027 Private Notes at par if certain change in control events occur. The 2027 Private Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company. The Company used the net proceeds from this offering to redeem existing debt.

2025 Public Notes: On November 13, 2018, the Company completed a public offering of $35,000 of aggregate principal amount of 2025 Public Notes, the net proceeds of which were used to fund investments in debt and equity securities and repay outstanding indebtedness under its revolving credit facility. Interest on the 2025 Public Notes is paid quarterly on February 28, May 31, August 31 and November 30 each year, at an annual rate of 6.50%. The 2025 Public Notes will mature on November 30, 2025 and may be redeemed in whole or in part at any time, or from time to time, at the Company’s option on or after November 30, 2021. The 2025 Public Notes are direct unsecured obligations and are structurally subordinate to borrowings under the Credit Facility and will rank equally in right of payment with the Company’s other outstanding and future unsecured, unsubordinated indebtedness, including the 2023, 2025, 2026 and 2027 Private Notes. The 2025 Public Notes are listed on the Nasdaq Global Select Market under the trading symbol “WHFBZ.”

NOTE 7 - RELATED PARTY TRANSACTIONS

Investment Advisory Agreement: WhiteHorse Advisers serves as the Company’s investment adviser in accordance with the terms of an investment advisory agreement. On November 1, 2018, at an in-person meeting, the Company’s board of directors approved an amended and restated investment advisory agreement (the “Investment Advisory Agreement”). The Company’s board of directors most recently re-approved the Investment Advisory Agreement on August 4, 2021. Subject to the overall supervision of the Company’s board of directors, WhiteHorse Advisers manages the day-to-day operations of, and provides investment management services to, the Company. Under the terms of the Investment Advisory Agreement, WhiteHorse Advisers:

●

determines the composition of the investment portfolio, the nature and timing of the changes to the portfolio and the manner of implementing such changes;

●

identifies, evaluates and negotiates the structure of the investments the Company makes (including performing due diligence on the Company’s prospective portfolio companies); and

●

closes, monitors and administers the investments the Company makes, including the exercise of any voting or consent rights.

In addition, WhiteHorse Advisers provides the Company with access to personnel and an Investment Committee. Under the Investment Advisory Agreement, the Company pays WhiteHorse Advisers a fee for investment management services consisting of a base management fee and an incentive fee. The Investment Advisory Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party.

Base Management Fee

The base management fee is calculated at an annual rate equal to 2.0% based on the Company’s consolidated gross assets (including cash and cash equivalents and assets purchased with borrowed funds); provided, however, the base management fee will be calculated at an annual rate equal to 1.25% of the Company’s consolidated gross assets (including cash and cash equivalents and assets purchased with borrowed funds), that exceed the product of (i) 200% and (ii) the value of the Company’s total net assets, at the end of the two most recently completed calendar quarters. Base management fees are payable quarterly in arrears and are appropriately pro-rated for any partial month or quarter.

During the three and nine months ended September 30, 2021, the Company incurred base management fees of $3,508 and $10,209, respectively. During the three and nine months ended September 30, 2020, the Company incurred base management fees of $3,069 and $9,110, respectively.

Performance-based Incentive Fee

The performance-based incentive fee consists of two components that are independent of each other, except as provided by the Incentive Fee Cap and Deferral Mechanism discussed below.

The calculations of these two components have been structured to include a fee limitation such that no incentive fee will be paid to the investment adviser for any quarter if, after such payment, the cumulative incentive fees paid to the investment adviser for the period that includes the current fiscal quarter and the 11 full preceding fiscal quarters, referred to as the “Incentive Fee Look-back Period,” would exceed 20.0% of the Cumulative Pre-Incentive Fee Net Return (as defined below) during the Incentive Fee Look-back Period.

Each quarterly incentive fee is subject to the Incentive Fee Cap (as defined below) and a deferral mechanism through which the investment adviser may recap a portion of such deferred incentive fees, which is referred to together as the “Incentive Fee Cap and Deferral Mechanism.”

This limitation is accomplished by subjecting each incentive fee payable to a cap, which is referred to as the “Incentive Fee Cap.” The Incentive Fee Cap in any quarter is equal to (a) 20.0% of Cumulative Pre-Incentive Fee Net Return during the Incentive Fee Look-back Period less (b) cumulative incentive fees of any kind paid to the investment adviser during the Incentive Fee Look-back Period. To the extent the Incentive Fee Cap is zero or a negative value in any quarter, the Company will pay no incentive fee to its investment adviser in that quarter. The Company will only pay incentive fees to the extent allowed by the Incentive Fee Cap and Deferral Mechanism. To the extent that the payment of incentive fees is limited by the Incentive Fee Cap and Deferral Mechanism, the payment of such fees may be deferred and paid in subsequent quarters up to three years after their date of deferment, subject to applicable limitations included in the Investment Advisory Agreement. The deferral component of the Incentive Fee Cap and Deferral Mechanism may cause incentive fees that accrued during one fiscal quarter to be paid to the investment adviser at any time during the 11 full fiscal quarters following such initial full fiscal quarter.

The “Cumulative Pre-Incentive Fee Net Return” refers to the sum of (a) Pre-Incentive Fee Net Investment Income (as defined below) for each period during the Incentive Fee Look-back Period and (b) the sum of cumulative realized capital gains, cumulative realized capital losses, cumulative unrealized capital depreciation and cumulative unrealized capital appreciation during the applicable Incentive Fee Look-back Period.

The first component, which is income-based (the “Income Incentive Fee”), is calculated and payable quarterly in arrears and is determined based on Pre-Incentive Fee Net Investment Income for the immediately preceding calendar quarter, subject to the Incentive Fee Cap and Deferral Mechanism. For this purpose, “Pre-Incentive Fee Net Investment Income” means, in each case on a consolidated basis, interest income, distribution income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees received from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the base management fee, expenses payable under the administration agreement (the “Administration Agreement”), any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

The operation of the first component of the incentive fee for each quarter is as follows:

●

no incentive fee is payable to the Company’s investment adviser in any calendar quarter in which Pre-Incentive Fee Net Investment Income does not exceed the “Hurdle Rate” of 1.75% (7.00% annualized);

●

100% of Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the Hurdle Rate but is less than 2.1875% in any calendar quarter

(8.75% annualized) is payable to the Company’s investment adviser. This portion of the Company’s Pre-Incentive Fee Net Investment Income (which exceeds the Hurdle Rate but is less than 2.1875%) is referred to as the “catch-up.” The effect of the catch-up is that, if such Pre-Incentive Fee Net Investment Income exceeds 2.1875% in any calendar quarter, the investment adviser will receive 20% of such Pre-Incentive Fee Net Investment Income as if the Hurdle Rate did not apply; and

●

20% of the amount of such Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized) is payable to the Company’s investment adviser (once the Hurdle Rate is reached and the catch-up is achieved, 20% of all Pre-Incentive Fee Net Investment Income).

The portion of such incentive fee that is attributable to deferred interest (such as PIK interest or original issue discount) will be paid to the investment adviser, together with interest from the date of deferral to the date of payment, only if and to the extent that the Company actually receives such interest in cash, and any accrual will be reversed if and to the extent such interest is reversed in connection with any write-off or similar treatment of the investment giving rise to any deferred interest accrual. Any reversal of such amounts would reduce net income for the quarter by the net amount of the reversal (after taking into account the reversal of incentive fees payable) and would result in a reduction and possibly elimination of the incentive fees for such quarter.

There is no accumulation of amounts on the Hurdle Rate from quarter to quarter and, accordingly, there is no clawback of amounts previously paid if subsequent quarters are below the quarterly Hurdle Rate and there is no delay of payment if prior quarters are below the quarterly Hurdle Rate. Since the Hurdle Rate is fixed, as interest rates rise, it will be easier for the investment adviser to surpass the Hurdle Rate and receive an incentive fee based on Pre-Incentive Fee Net Investment Income.

Net investment income used to calculate this component of the incentive fee is also included in the amount of consolidated gross assets used to calculate the base management fee. These calculations will be appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.

The second component, the capital gains component of the incentive fee (the “Capital Gains Incentive Fee”), which is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), commenced on January 1, 2013, and equals 20% of cumulative aggregate realized capital gains from January 1 through the end of each calendar year, computed net of aggregate cumulative realized capital losses and aggregate cumulative unrealized capital depreciation through the end of each year (the “Capital Gains Incentive Fee Base”), less the aggregate amount of any previously paid capital gains incentive fees and subject to the Incentive Fee Cap and Deferral Mechanism. If such amount is negative, then no capital gains incentive fee will be payable for the year. Additionally, if the Investment Advisory Agreement is terminated as of a date that is not a calendar year end, the termination date will be treated as though it were a calendar year end for purposes of calculating and paying the capital gains incentive fee. The capital gains component of the incentive fee is not subject to any minimum return to stockholders.

In accordance with GAAP, the Company is also required to include the aggregate unrealized capital appreciation on investments in the calculation and accrue a capital gains incentive fee on a quarterly basis if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Investment Advisory Agreement. If the Capital Gains Incentive Fee Base, adjusted as required by GAAP to include unrealized capital appreciation, is positive at the end of a reporting period, then GAAP requires the Company to accrue a Capital Gains Incentive Fee equal to 20% of such amount, less the aggregate amount of any Capital Gains Incentive Fees previously paid and Capital Gains Incentive Fees accrued under GAAP in all prior periods. If such amount is negative, then there is no accrual for such period. The resulting accrual under GAAP in a given period may result in either additional expense (if such cumulative amount is greater than in the prior period) or a reversal of previously recorded expense (if such cumulative amount is less than in the prior period). There can be no assurance that such unrealized capital appreciation will be realized in the future. For the three and nine months ended September 30, 2021, the Company accrued Capital Gains Incentive Fees of $127 and $1,123, respectively. For the three and nine months ended September 30, 2020, the Company reversed previously accrued Capital Gains Incentive Fees of $1,870 and $1,243, respectively. As of September 30, 2021 and December 31, 2020, incentive fees payable on the

consolidated statements of assets and liabilities were $3,255 and $2,132, respectively, for cumulative accruals of Capital Gains Incentive Fees under GAAP, including any amounts payable pursuant to the Investment Advisory Agreement as described above.

Because of the structure of the incentive fee, it is possible that the Company may pay an incentive fee in a quarter where it incurs a loss subject to the Incentive Fee Cap and Deferral Mechanism. For example, if the Company receives Pre-Incentive Fee Net Investment Income in excess of the Hurdle Rate, it will pay the applicable Income Incentive Fee even after incurring a loss in that quarter due to realized and unrealized capital losses.

During the three and nine months ended September 30, 2021, the Company incurred total performance-based incentive fees of $2,069 and $6,739, respectively. During the three and nine months ended September 30, 2020, the Company incurred total performance-based incentive fees of $3,819 and $5,571, respectively. As of September 30, 2021 and December 31, 2020, incentive fees payable on the consolidated statements of assets and liabilities were $7,404 and $6,117, respectively.

Administration Agreement: Pursuant to the Administration Agreement, WhiteHorse Administration furnishes the Company with office facilities, equipment and clerical, bookkeeping and record keeping services to enable the Company to operate. Under the Administration Agreement, WhiteHorse Administration performs, or oversees the performance of, the Company’s required administrative services, which include being responsible for the financial records which the Company is required to maintain and preparing reports to its stockholders and reports filed with the U.S. Securities and Exchange Commission. In addition, WhiteHorse Administration assists the Company in determining and publishing its net asset value, oversees the preparation and filing of its tax returns and the printing and dissemination of reports to its stockholders and generally oversees the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others. Payments under the Administration Agreement equal an amount based upon the Company’s allocable portion of WhiteHorse Administration’s overhead in performing its obligations under the Administration Agreement, including rent and the Company’s allocable portion of the cost of its chief financial officer and chief compliance officer along with their respective staffs. Under the Administration Agreement, WhiteHorse Administration also provides on the Company’s behalf managerial assistance to those portfolio companies to which the Company is required to provide such assistance. The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party. To the extent that WhiteHorse Administration outsources any of its functions, the Company will pay the fees associated with such functions on a direct basis without any profit to WhiteHorse Administration.

Substantially all the Company’s payments of operating expenses to third parties were made by a related party, for which such third party received reimbursement from the Company.

During both the three and nine months ended September 30, 2021 and 2020, the Company incurred allocated administrative service fees of $171 and $512, respectively.

Co-investments with Related Parties: As of September 30, 2021 and December 31, 2020, no officers or employees affiliated with or employed by WhiteHorse Advisers and its related entities maintained any co-investments in the Company’s investments.

As of September 30, 2021 and December 31, 2020, certain funds affiliated with WhiteHorse Advisers and its related entities maintained co-investments in the Company’s investments of $3,667,522 and $3,191,269, respectively.

STRS JV: For the three and nine months ended September 30, 2021, the Company sold $45,729 and $106,423 of investments to STRS JV at fair value. For the three and nine months ended September 30, 2021, the Company recognized net realized gains of $120 and $277, respectively. For the three and nine months ended September 30, 2020, the Company sold $1,335 and $66,397 of investments to STRS JV at fair value and recognized net realized losses of $0 and $3, respectively.

NOTE 8 - COMMITMENTS AND CONTINGENCIES

Commitments: In the normal course of business, the Company is party to financial instruments with off-balance-sheet risk to meet the financing needs of its borrowers. These financial instruments include commitments to extend credit and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated statement of assets and liabilities. The Company attempts to limit its credit risk by conducting extensive due diligence and obtaining collateral where appropriate.

The balance of unfunded commitments to extend credit was $33,123 and $19,554 as of September 30, 2021 and December 31, 2020, respectively. Commitments to extend credit consist principally of the unused portions of commitments that obligate the Company to extend credit, such as revolving credit arrangements or similar transactions. These commitments are often subject to financial or non-financial milestones and other conditions to borrow that must be achieved before the commitment can be drawn. In addition, the commitments generally have fixed expiration dates or other termination clauses. Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The following table summarizes the Company’s unfunded commitments as of September 30, 2021 and December 31, 2020:


Unfunded Commitment ($ in thousands)	As of September 30, 2021		As of December 31, 2020
Revolving Loan Commitments:
BBQ Buyer, LLC	$	—	$	823
Claridge Products and Equipment, LLC		702		702
Comniscient Technologies LLC		—		341
Drew Foam Companies Inc		—		534
EducationDynamics, LLC		1,199		—
Epiphany Dermatology		438		438
Geo Logic Systems Ltd.		—		321
ImageOne Industries, LLC		—		408
HC Salon Holdings, Inc.		700		—
Inspired Beauty Brands, Inc.		531		531
Ivy Rehab Holdings LLC		545		545
LHS Borrower, LLC		560		560
LMG Holdings, Inc.		414		—
Maxitransfers Blocker Corp		1,038		—
Motivational Marketing, LLC		276		—
Newscycle Solutions, Inc.		132		120
The Kyjen Company, LLC (dba Outward Hound)		554		—
PG Dental New Jersey Parent, LLC		933		1,166
Power Plant Services		3,030		—
RCKC Acquisitions LLC (dba KSM Consulting)		—		1,422
Road Safety Services, Inc.		—		875
TaxSlayer LLC		774		1,548
Telestream Holdings Corporation		954		1,324
Trimlite Buyer LLC		1,636		—
Total unfunded revolving loan commitments		14,416		11,658

Delayed Draw Loan Commitments:
DCA Investment Holding,LLC		1,400		—
EducationDynamics, LLC		1,709		—
Empire Office, Inc.		4,926		—
Epiphany Dermatology		1,864		3,063
Ivy Rehab Holdings LLC		2,189		1,633
PlayMonster LLC		3,091		—
RCKC Acquisitions LLC (dba KSM Consulting)		—		3,200
Source Code Holdings, LLC		2,185		—
True Blue Car Wash, LLC		1,343		—
Total unfunded delayed draw loan commitments		18,707		7,896
Total	$	33,123	$	19,554

As of September 30, 2021, the Company had commitments to fund equity interests and subordinated notes in STRS JV of $15,000 and $60,000, of which $676 and $2,703 was unfunded, respectively. As of December 31, 2020, the Company had commitments to fund equity interests and subordinated notes in STRS JV of $15,000 and $60,000, of which $4,732 and $18,927 was unfunded, respectively. The capital commitments cannot be drawn without an affirmative vote by both the Company’s and STRS Ohio’s representatives on STRS JV’s board of managers.

Indemnification: In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties that provide general indemnifications. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not occurred. The Company expects the risk of any future obligation under these indemnifications to be remote.

Legal Proceedings: In the normal course of business, the Company, the investment adviser and the administrator may be subject to legal and regulatory proceedings that are generally incidental to its ongoing operations. While there can be no assurance of the ultimate disposition of any such proceedings, the Company does not believe any such disposition will have a material adverse effect on the Company’s consolidated financial statements.

COVID-19 Developments: In addition, during the three and nine months ended September 30, 2021 and subsequent to September 30, 2021, the current pandemic caused by the novel coronavirus (commonly known as “COVID-19”) has had a significant impact on the U.S. economy. Certain of the Company’s portfolio companies were and may continue to be adversely impacted by the effects of the COVID-19 pandemic, which had an adverse impact on the Company’s results of operations and may continue to have an adverse impact on the Company’s future net investment income, the fair value of its portfolio investments, its financial condition and the results of operations and financial condition of the Company’s portfolio companies.

NOTE 9 - STOCKHOLDERS’ EQUITY

On March 15, 2021, the Company launched an "at-the-market" offering (the "ATM Program") by entering into an Equity Distribution Agreement with Raymond James & Associates, Inc. pursuant to which the Company may offer and sell, from time to time, through Raymond James & Associates, Inc., as the sales agent, shares of its common stock having an aggregate offering amount of up to $35,000.

During the three months ended September 30, 2021, the Company sold 94,897 shares of its common stock under the ATM Program at a weighted-average price of $15.78 per share, which amounts to $1,497 in gross proceeds. The Company received net proceeds of $1,467 after deducting commissions to the sales agent. During the nine months ended September 30, 2021, the Company sold 256,952 shares of its common stock under the ATM Program at a weighted-average price of $15.82 per share, which amounts to $4,064 in gross proceeds. The Company received net proceeds of $3,983 million after deducting commissions to the sales agent.

To date, the Company has sold 256,952 shares of its common stock under the ATM Program at a weighted-average price of $15.82, which amounts to $4,064 gross proceeds and received net proceeds of $3,983 after deducting commissions to the sales agent. As of September 30, 2021, the Company had $30,936 available under the ATM Program.

The following table summarizes the total shares issued and proceeds received, net of offering costs, relating to the issuance of shares of the Company’s common stock from the DRIP and pursuant to the ATM Program for the nine months ended September 30, 2021 and September 30, 2020.


	Nine months ended September 30,
($ in thousands except share and per share amounts)	2021		2020
Shares Issued from ATM Program		256,952		—
Shares Issued from DRIP		133,890		—
Net Proceeds	$	5,970	$	—
Average Price Per Share	$	15.27	$	—

NOTE 10 - FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights:


	Nine months ended September 30,
	2021			2020
Per share data:⁽¹⁾
Net asset value, beginning of period	$	15.23		$	15.23
Investment operations:
Net investment income		1.03			0.84
Net realized and unrealized gains(losses) on investments		0.27			0.31
Net increase in net assets resulting from operations		1.30			1.15
Issuance of common stock⁽⁵⁾		—			—
Distributions declared from net investment income		(1.07)			(1.07)
Net asset value, end of period	$	15.46		$	15.31
Total annualized return based on market value⁽²⁾		15.82	%		(38.12)	%
Total annualized return based on net asset value		11.26	%		10.37	%
Net assets, end of period	$	323,724		$	314,563
Per share market value at end of period	$	15.22		$	9.79
Shares outstanding end of period		20,936,874			20,546,032
Ratios/Supplemental Data:⁽³⁾
Ratio of expenses before incentive fees to average net assets⁽⁴⁾		10.70	%		9.72	%
Ratio of incentive fees to average net assets		2.81	%		2.46	%
Ratio of total expenses to average net assets⁽⁴⁾		13.51	%		12.18	%
Ratio of net investment income to average net assets⁽⁴⁾		8.91	%		7.63	%
Portfolio turnover ratio		49.34	%		22.06	%

(1)	Calculated using the average shares outstanding method.

(2)	Total return is based on the change in market price per share during the period and takes into account distributions, if any, reinvested in accordance with the DRIP.

(3)	With the exception of the portfolio turnover rate, ratios are reported on an annualized basis.

(4)	Calculated using total expenses, including income tax provision.

(5)

The issuance of common stock on a per share basis reflects the incremental net asset value changes as a result of the issuance of shares of common stock pursuant to the ATM Program and DRIP. The issuance of common stock at a price, net of commissions, that is greater than the net asset value per share results in an increase in net asset value per share. The impact of the Company’s issuance of common stock on net asset value was less than $0.01 per share during the the nine months ended September 30, 2021.

Financial highlights are calculated for each securities class taken as a whole. An individual stockholder’s return and ratios may vary based on the timing of capital transactions.

NOTE 11 - CHANGE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE

The following information sets forth the computation of the basic and diluted per share net increase in net assets resulting from operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
($ in thousands except share and per share amounts)	2021		2020		2021		2020
Net increase in net assets resulting from operations	$	8,275	$	21,634	$	26,951	$	23,490
Weighted average shares outstanding		20,851,435		20,546,032		20,677,545		20,546,032
Basic and diluted per share net increase in net assets resulting from operations	$	0.40	$	1.06	$	1.30	$	1.15

NOTE 12 - SUBSEQUENT EVENTS

Management has evaluated events that have occurred after the balance sheet date but before the consolidated financial statements are issued and other than the items discussed below, the Company has determined that there were no additional subsequent events requiring adjustment or disclosure in the consolidated financial statements.

On October 4, 2021, the terms of the Credit Facility were amended to, among other things, establish a temporary upsize to the borrowing capacity under the Credit Facility, which allows WhiteHorse Credit to borrow up to $335,000 for a three-month period beginning on October 4, 2021.

On October 14, 2021, the Company declared a special distribution of $0.135 per share, which will be payable on December 10, 2021 to stockholders of record as of October 29, 2021.

On October 25, 2021, the Company completed an offering of 1,900,000 shares of our common stock at a public offering price of $15.81 per share, inclusive of underwriting discounts and commissions. In connection with the offering, the Company granted the underwriters an overallotment option to purchase up to an additional 285,000 shares of the Company’s common stock. The issuance of 1,900,000 shares resulted in net proceeds to the Company of approximately $29,374, inclusive of underwriting discounts and commissions and before offering expenses. On November 3, 2021, the Company raised an additional $4,326 from the issuance of an additional 282,300 shares pursuant to the underwriters’ exercise of the overallotment option to purchase additional shares. WhiteHorse Advisers agreed to bear a portion of the underwriting discounts and commissions in connection with the offering, such that the issuance of the 2,182,300 shares (which includes the additional shares issued pursuant to the overallotment option) resulted in net proceeds to the Company of approximately $33,700 before offering expenses, which was at or above the Company’s net asset value per share at the time of the offering and the overallotment option.

Subsequent to the quarter ended September 30, 2021, the Company received financial information related to its investment in Grupo Hima San Pablo, Inc. Based on the information currently available, the Company expects to reduce the fair value mark of its first lien secured term loan investment from 50% to within a range of between approximately 35% and 45% of face value during the fourth quarter, but this conclusion is subject to change based on additional information which may become available.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information contained in this section should be read in conjunction with our Consolidated Financial Statements appearing elsewhere in this quarterly report on Form 10-Q. In this quarterly report on Form 10-Q, the “Company”, “we”, “us”, “our” and “WhiteHorse Finance” refer to WhiteHorse Finance, Inc. and its consolidated subsidiaries.

Forward-Looking Statements

Some of the statements in this quarterly report on Form 10-Q constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including statements as to:

●

our future operating results;

●

our ability to consummate new investments and the impact of such investments;

●

our ability to continue to effectively manage our business due to the significant disruptions caused by the current pandemic caused by the novel coronavirus (commonly known as “COVID-19”);

●

our business prospects and the prospects of our prospective portfolio companies, including as a result of the current COVID-19 pandemic;

●

the ability of our portfolio companies to achieve their objectives;

●

our contractual arrangements and relationships with third parties;

●

changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, which could result in changes to the value of our assets, including changes from the impact of the current COVID-19 pandemic;

●

the dependence of our future success on the general economy and its impact on the industries in which we invest;

●

the impact of increased competition;

●

the ability of our investment adviser to locate suitable investments for us and to monitor our investments;

●

our expected financings and investments and the rate at which our investments are refunded by portfolio companies;

●

our ability to pay dividends or make distributions;

●

the adequacy of our cash resources and working capital;

●

the timing of cash flows, if any, from the operations of our prospective portfolio companies; and

●

the impact of future acquisitions and divestitures.

We use words such as “may,” “might,” “will,” “intends,” “should,” “could,” “can,” “would,” “expects,” “believes,” “estimates,” “anticipates,” “predicts,” “potential,” “plan” and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors set forth in “Item 1A-Risk Factors” in our annual report on Form 10-K and elsewhere in this quarterly report on Form 10-Q.

We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we may file with the U.S. Securities and Exchange Commission, or the SEC, in the future, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

You should understand that under Sections 27A(b)(2)(B) and (D) of the Securities Act of 1933, as amended, or the Securities Act, and Sections 21E(b) (2)(B) and (D) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, as amended, do not apply to statements made in connection with this quarterly report on Form 10-Q or any periodic reports we file under the Exchange Act.

Overview

We are an externally managed, non-diversified, closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended, or the 1940 Act. In addition, for tax purposes, we elected to be treated as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code.

We were formed on December 28, 2011 and commenced operations on January 1, 2012. We were originally capitalized with approximately $176.3 million of contributed assets from H.I.G. Bayside Debt & LBO Fund II, L.P. and H.I.G. Bayside Loan Opportunity Fund II, L.P., each of which is an affiliate of H.I.G. Capital, L.L.C., or H.I.G. Capital. These assets were contributed as of January 1, 2012 in exchange for 11,752,383 units in WhiteHorse Finance, LLC. On December 4, 2012, we converted from a Delaware limited liability company into a Delaware corporation and elected to be treated as a business development company under the 1940 Act.

On December 4, 2012, we priced our initial public offering, or the IPO, selling 6,666,667 shares. Concurrent with the IPO, certain of our directors and officers, the managers of H.I.G. WhiteHorse Advisers, LLC, or WhiteHorse Advisers, and their immediate family members or entities owned by, or family trusts for the benefit of, such persons, purchased an additional 472,673 shares through a private placement exempt from registration under the Securities Act. Our shares are listed on the Nasdaq Global Select Market under the symbol “WHF.”

We are a direct lender targeting debt investments in privately held, lower middle market companies located in the United States. We define the lower middle market as those companies with enterprise values between $50 million and $350 million. Our investment objective is to generate attractive risk-adjusted returns primarily by originating and investing in senior secured loans, including first lien and second lien facilities, to performing lower middle market companies across a broad range of industries. Such loans typically carry a floating interest rate based on a risk-free index rate such as the London Interbank Offered Rate, or LIBOR, plus a spread and typically have a term of three to six years. While we focus principally on originating senior secured loans to lower middle market companies, we may also opportunistically make investments at other levels of a company’s capital structure, including mezzanine loans or equity interests, and in companies outside of the lower middle market, to the extent we believe the investment presents an opportunity to achieve an attractive risk-adjusted return. We also may receive warrants to purchase common stock in connection with our debt investments. We expect to generate current income through the receipt of interest payments, as well as origination and other fees, capital appreciation and dividends.

Our investment activities are managed by WhiteHorse Advisers and are supervised by our board of directors, a majority of whom are independent of us, WhiteHorse Advisers and its affiliates. Under our investment advisory agreement with WhiteHorse Advisers, or the Investment Advisory Agreement, we have agreed to pay WhiteHorse Advisers an annual base management fee based on our average consolidated gross assets as well as an incentive fee based on our investment performance. We have also entered into an administration agreement, or the Administration Agreement, with H.I.G. WhiteHorse Administration, LLC, or WhiteHorse Administration. Under our Administration Agreement, we have agreed to reimburse WhiteHorse Administration for our allocable portion (subject to the review and

approval of our independent directors) of overhead and other expenses incurred by WhiteHorse Administration in performing its obligations under the Administration Agreement.

COVID-19 Developments

The ongoing COVID-19 pandemic and its effects on the U.S. and global economy had adverse consequences on the business operations of some of our portfolio companies and adversely affected, and may continue to adversely affect, our operations and the operations of our investment adviser. Our investment adviser is continuing to monitor the COVID-19 pandemic and its impact on our business and the business of our portfolio companies and has been focused on proactively engaging with our portfolio companies in order to collaborate with the management teams of certain portfolio companies to evaluate their response to the impacts of COVID-19.

We cannot predict the full impact of COVID-19 and the uncertainty surrounding the continuing effects of more contagious strains of the virus that have emerged in the United States and worldwide, including the extent to which the available vaccines prove to be ineffective against any new COVID-19 variants (particularly the “Delta” variant). In addition, countries around the world, including the United States, have seen significant increases in rates of COVID-19 infections, which was a result of, among other things, the rapid spread of COVID-19 variants (including the Delta variant), more frequent social gatherings and a reduction in the use of masks and social distancing. These developments, in conjunction with the potential adverse reactions to the vaccine, the politicization of vaccine mandates and the general public distrust of the safety and efficacy of the available vaccines may further increase the likelihood that the pandemic will continue for an extended period of time. As such, the extent to which COVID-19 and/or other disease pandemics may continue to negatively affect our business and our portfolio companies’ operating results and financial condition is uncertain. Due to the ongoing business disruptions caused by COVID-19, some of our portfolio companies have experienced financial distress and have defaulted on their financial obligations to us and their other capital providers. Such developments could impair the business operations of our portfolio companies and may result in a decrease in the value of our investment in any such portfolio companies.

In connection with the adverse effects of the COVID-19 pandemic, we have restructured and may need to restructure additional investments in some of our portfolio companies, which has resulted in and could result in additional diminished interest payments or in permanent impairments on our investments. The effects of the COVID-19 pandemic discussed above may increase the risk that more of our portfolio investments may be placed on non-accrual status in the future. Any decreases in our net investment income would increase the portion of our cash flows dedicated to distribution payments to stockholders and to servicing our existing debt under our revolving credit facility, or the Credit Facility, with JPMorgan Chase Bank, National Association, as administrative agent and lender, or the Lender.

WhiteHorse Advisers’ credit team continues to be in close contact with the owners and management teams of each of our portfolio companies. Since the onset of the crisis, some of these owners and management teams have assessed the impacts to their businesses and are continuing to coordinate with us to guide their companies through the recovery. We are operating under a philosophy that we will work hand in hand with our borrowers to support them, allowing flexibility in our terms as appropriate, and we expect owners to support their businesses with additional equity where possible.

As a business development company, we are permitted under the 1940 Act to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least 150% after such borrowing. We are required to comply with various covenants pursuant to the Credit Facility. If we fail to satisfy the covenants of the Credit Facility or are unable to cure any event of default or obtain a waiver from the applicable lender, it could result in foreclosure by the lenders under the Credit Facility, which would accelerate our repayment obligations under the Credit Facility and thereby result in a material adverse effect on our business, liquidity, financial condition, results of operations and ability to pay distributions to our stockholders. As of September 30, 2021, we were in compliance with all covenants and other requirements of the Credit Facility.

We are also subject to financial risks, including changes in market interest rates. As of September 30, 2021, nearly all of our debt investments at fair value were at floating rates, which are generally based on a risk-free index rate such as LIBOR, and many of which are subject to certain floors. In connection with the COVID-19 pandemic, the U.S. Federal Reserve and other central banks have reduced certain interest rates and LIBOR has decreased. A prolonged reduction in interest rates will reduce our gross investment income and could result in a decrease in our net investment income if such decreases in LIBOR are not offset by a corresponding increase in the spread over LIBOR that we earn on any portfolio investments, a decrease in our operating expenses or a decrease in the interest rate of our floating interest rate liabilities tied to LIBOR. See “Item 3. Quantitative and Qualitative Disclosures About Market Risk” for an analysis of the impact of hypothetical base rate changes in interest rates.

Our management team has sought strategies that will help us weather periods of economic decline. We have attempted to avoid deeply cyclical sectors and have only made loans where we believed a repeat of the Great Recession would allow us to recover 100% of our loans. Additionally, we have taken a conservative position on the Company’s liquidity, making sure we have a top-tier leverage partner and very significant cushion against default.

We will continue to monitor the ongoing effects of the COVID-19 pandemic, including the spread of the Delta variant, and guidance from U.S. and international authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our plan of operation. As such, given the dynamic nature of this situation, we cannot quantify the full effect of COVID-19 on our financial condition, results of operations or cash flows in the future.

Revenues

We generate revenue in the form of interest payable on the debt securities that we hold and capital gains and distributions, if any, on the portfolio company investments that we originate or acquire. Our debt investments, whether in the form of senior secured loans or mezzanine loans, typically have terms of three to six years and bear interest at a fixed or floating rate based on a spread over LIBOR or an equivalent risk-free index rate. Interest on debt securities is generally payable monthly or quarterly, with the amortization of principal generally being deferred for several years from the date of the initial investment. In some cases, we may also defer payments of interest for the first few years after our investment. The principal amount of the debt securities and any accrued but unpaid interest generally becomes due at the maturity date. In addition, we generate revenue in the form of commitment, origination, structuring or diligence fees, fees for providing managerial assistance and possibly consulting fees. We capitalize loan origination fees, original issue discount and market discount, and we then amortize such amounts as interest income. Upon the prepayment of a loan or debt security, we record any unamortized loan origination fees as interest income. We record prepayment premiums on loans and debt securities as fee income when earned. Dividend income is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

Expenses

Our primary operating expenses include (1) investment advisory fees to WhiteHorse Advisers; (2) the allocable portion of overhead under the Administration Agreement; (3) the interest expense on our outstanding debt; and (4) other operating costs as detailed below. Our investment advisory fees compensate our investment adviser for its work in identifying, evaluating, negotiating, consummating and monitoring our investments.

We bear all other costs and expenses of our operations and transactions, including:

●

our organization;

●

calculating our net asset value and net asset value per share (including the costs and expenses of independent valuation firms);

●

fees and expenses, including travel expenses, incurred by WhiteHorse Advisers or payable to third parties in performing due diligence on prospective portfolio companies, monitoring our investments and, if necessary, enforcing our rights;

●

the costs of all future offerings of common shares and other securities, and other incurrences of debt;

●

the base management fee and any incentive fee;

●

distributions on our shares;

●

transfer agent and custody fees and expenses;

●

amounts payable to third parties relating to, or associated with, evaluating, making and disposing of investments;

●

brokerage fees and commissions;

●

registration fees;

●

listing fees;

●

taxes;

●

independent directors’ fees and expenses;

●

costs associated with our reporting and compliance obligations under the 1940 Act and applicable U.S. federal and state securities laws;

●

the costs of any reports, proxy statements or other notices to our stockholders, including printing costs;

●

costs of holding stockholder meetings;

●

our fidelity bond;

●

directors and officers/errors and omissions liability insurance and any other insurance premiums;

●

litigation, indemnification and other non-recurring or extraordinary expenses;

●

direct costs and expenses of administration and operation, including audit and legal costs;

●

fees and expenses associated with marketing efforts, including deal sourcing and marketing to financial sponsors;

●

dues, fees and charges of any trade association of which we are a member; and

●

all other expenses reasonably incurred by us or WhiteHorse Administration in connection with administering our business, including rent and our allocable portion of the costs and expenses of our chief financial officer and chief compliance officer along with their respective staffs.

WhiteHorse Advisers or WhiteHorse Administration may pay for certain expenses that we incur, which are subject to reimbursement by us.

Recent Developments

On October 4, 2021, the terms of the Credit Facility were amended to, among other things, establish a temporary upsize to the borrowing capacity under the Credit Facility, which allows WhiteHorse Credit to borrow up to $335.0 million for a three-month period beginning on October 4, 2021.

On October 14, 2021, we declared a special distribution of $0.135 per share, which will be payable on December 10, 2021 to stockholders of record as of October 29, 2021.

On October 25, 2021, we completed an offering of 1,900,000 shares of our common stock at a public offering price of $15.81 per share, inclusive of underwriting discounts and commissions. In connection with the offering, we granted the underwriters an overallotment option to purchase up to an additional 285,000 shares of our common stock. The issuance of 1,900,000 shares resulted in net proceeds to us of approximately $29.4 milion, inclusive of underwriting discounts and commissions and before offering expenses. On November 3, 2021, we raised an additional $4.3 million from the issuance of an additional 282,300 shares pursuant to the underwriters’ exercise of the overallotment option to purchase additional shares. WhiteHorse Advisers agreed to bear a portion of the underwriting discounts and commissions in connection with the offering, such that the issuance of the 2,182,300 shares (which includes the additional shares issued pursuant to the overallotment option) resulted in net proceeds to us of approximately $33.7 million before offering expenses, which was at or above our net asset value per share at the time of the offering and the overallotment option.

For the period October 1, 2021 through November 9, 2021, we contributed one additional asset, which included one existing issuer of senior secured debt facilities to the STRS JV.

Subsequent to the quarter ended September 30, 2021, we received financial information related to our investment in Grupo Hima San Pablo, Inc. Based on the information currently available, we expect to reduce the fair value mark of the first lien secured term loan investment from 50% to within a range of between approximately 35% and 45% of face value during the fourth quarter, but this conclusion is subject to change based on additional information which may become available.

Consolidated Results of Operations

The consolidated results of operations described below may not be indicative of the results we report in future periods. Net investment income and net increase in net assets can vary substantially from period to period due to various reasons, including the level of new investments and the recognition of realized gains and losses and unrealized appreciation and depreciation. As a result, quarterly comparisons of net increases in net assets resulting from operations may not be meaningful.

Investment Income

Investment income for the three and nine months ended September 30, 2021 totaled $18.4 million and $53.7 million, respectively, and was primarily attributable to interest, dividends and fees earned from investments in portfolio companies. Investment income for the three and nine months ended September 30, 2020 totaled $16.5 million and $44.9 million, respectively, and was primarily attributable to interest, dividends and fees earned from investments in portfolio companies. The increase in net investment income for the year-over-year period was primarily attributable to higher accelerated accretion income recognized due to higher repayment activity and higher investment income generated from STRS JV. Investment income for the three and nine months ended September 30, 2021 included $1.1 million and $2.0 million of non-recurring fee income, respectively. Investment income for the three and nine months ended September 30, 2020 included $0.6 million and $1.3 million of non-recurring fee income, respectively. We expect to generate some level of non-recurring fee income during most quarters from prepayments, amendments and other sources.

Operating Expenses

Expenses, excluding excise tax, totaled $10.5 million and $31.5 million for the three and nine months ended September 30, 2021, respectively. This compares to expenses, excluding excise tax, of $10.4 million and $27.1 million for the three and nine months ended September 30, 2020, respectively.

Interest expense totaled $3.8 million and $11.5 million for the three and nine months ended September 30, 2021, respectively. This compares to interest expense of $2.8 million and $9.7 million for the three and nine months ended September 30, 2020, respectively. The increase in interest expense for the three and nine months ended September 30, 2021, from the three and nine months ended September 30, 2020, was primarily due to higher borrowing base, partially offset by lower interest rates resulting from a decrease in LIBOR and spread.

Base management fees totaled $3.5 million and $10.2 million for the three and nine months ended September 30, 2021, respectively. Base management fees totaled $3.1 million and $9.1 million for the three and nine months ended September 30, 2020, respectively. The increase in management fees for the three and nine months ended September 30, 2021, from the three and nine months ended September 30, 2020, was primarily due to higher gross assets.

Performance-based incentive fees totaled $2.1 million and $6.7 million for the three and nine months ended September 30, 2021, respectively. Performance-based incentive fees totaled $3.8 million and $5.6 million for the three and nine months ended September 30, 2020, respectively. The decrease in performance-based incentive fees for the three months ended September 30, 2021, from the three months ended September 30, 2020, was mainly attributable to lower capital gains incentive fee accrual of $0.1 million compared with $1.8 million, respectively. The increase in performance-based incentive fees for the nine months ended September 30, 2021, from the nine months ended September 30, 2020, was mainly attributable to higher pre-incentive fee net investment income of $5.6 million compared with $4.3 million, respectively.

Administrative service fees for both the three and nine months ended September 30, 2021 and 2020 totaled $0.2 million and $0.5 million, respectively.

General and administrative expenses were $0.9 million and $2.6 million for the three and nine months ended September 30, 2021, respectively. This compares to general and administrative expenses of $0.6 million and $2.2 million for the three and nine months ended September 30, 2020, respectively. The increase in general and administrative expense for the three and nine months ended September 30, 2021, from the three and nine months ended September 30, 2020, was primarily due to higher professional fees.

Excise Tax Expense

We have elected to be treated as a RIC under Subchapter M of the Code and operate in a manner so as to qualify for the tax treatment applicable to RICs. In order to be subject to tax as a RIC, we are required to meet certain source of income and asset diversification requirements, as well as timely distribute to our stockholders dividends for U.S. federal income tax purposes of an amount generally at least equal to 90% of investment company taxable income, as defined by the Code, and determined without regard to any deduction for dividends paid for each tax year. We have made and intend to continue to make the requisite distributions to our stockholders that will generally relieve us from U.S. federal income taxes.

Depending on the level of taxable income earned in a tax year, we may choose to retain taxable income in excess of current year distributions into the next tax year in an amount less than what would trigger payments of U.S. federal income tax under Subchapter M of the Code. We may then be required to incur a 4% excise tax on such income. To the extent that we determine that our estimated current year annual taxable income may exceed estimated current year distributions, we accrue excise tax, if any, on estimated excess taxable income as taxable income is earned. For the three and nine months ended September 30, 2021, we accrued a net federal excise tax expense of $0.3 million and $0.9 million, respectively. For the three and nine months ended September 30, 2020, we accrued a net federal excise tax expense of $0.1 million and $0.5 million, respectively. The increase in excise tax for the three and nine months ended

September 30, 2021, from the three and nine months ended September 30, 2020, was primarily as a result of higher net investment income and realized gains.

Net Realized and Unrealized Gains (Losses) on Investments

The following shows the breakdown of net realized gains and losses for the three and nine months ended September 30, 2021 and 2020:


	Three months ended				Nine months ended
($in millions)	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
AG Kings Holdings Inc.⁽¹⁾	$	—	$	—	$	7.5	$	—
BW Gas & Convenience Holdings, LLC		—		—		0.2		—
Drew Foam Companies Inc		—		—		(0.1)		—
Fluent, LLC		—		—		—		0.2
Geo Logic Systems Ltd.		0.2		—		0.2		—
PMA Holdco, LLC (HDG)		—		0.6		—		0.6
Vero Parent, Inc.		—		—		0.5		0.3
Vessco Holdings, LLC		—		—		(0.6)		—
Other⁽²⁾		(0.1)		—		—		—
Total net realized gains	$	0.1	$	0.6	$	7.7	$	1.1

(1)	Escrow receivable amounts were recognized in connection with realization events.

(2)	Includes various investments with aggregate realized gains or losses less than $50,000.

The following shows the breakdown in the changes in unrealized appreciation and depreciation of investments for the three and nine months ended September 30, 2021 and 2020:


	Three months ended				Nine months ended
($in millions)	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
Gross unrealized appreciation on investments ⁽¹⁾	$	5.0	$	18.1	$	11.5	$	21.0
Gross unrealized depreciation on investments		(3.6)		(2.3)		(5.5)		(15.1)
Reversal of prior period net unrealized (appreciation) depreciation upon a realization		(1.1)		(0.6)		(8.2)		(1.0)
Total unrealized appreciation (depreciation) on investments	$	0.3	$	15.2	$	(2.2)	$	4.9

(1)	The nine months ended September 2021 includes unrealized appreciation from the AG Kings Holdings Inc. escrow receivable of $1.0 million.

Financial Condition, Liquidity and Capital Resources

This “Liquidity and Capital Resources” section should be read in conjunction with the “COVID-19 Developments” section above.

As a business development company, we distribute substantially all of our net income to our stockholders. We generate cash primarily from offerings of securities, borrowings under the Credit Facility, and cash flows from operations, including interest earned from the temporary investment of cash in U.S. government securities and other high-quality debt investments that mature in one year or less. We expect to fund a portion of our investments through future borrowings. In the future, we may obtain borrowings under other credit facilities and from issuances of senior securities to the extent permitted by the 1940 Act. We may also borrow funds to the extent we determine that additional capital would allow us to take advantage of additional investment opportunities, if the market for debt financing presents attractively priced debt financing opportunities or if our board of directors determines that leveraging our portfolio would be in our best interest and the best interests of our stockholders.

Our board of directors may decide to issue common stock, such as through at-the-market offerings, direct placements or otherwise, to finance our operations rather than issuing debt or other senior securities. Any decision to sell shares below the then-current net asset value per share of our common stock is subject to stockholder approval and a determination by our board of directors that such issuance and sale is in our and our stockholders’ best interests. Any

sale or other issuance of shares of our common stock at a price below net asset value per share results in immediate dilution to our stockholders’ interests in our common stock and a reduction in our net asset value per share. If we were to issue additional shares of our common stock during the next 12 months, we do not intend to issue shares below the then-current net asset value per share.

Restricted cash and cash equivalents include amounts that are collected and held by the trustee appointed as custodian of the assets securing the Credit Facility. Restricted cash is held by the trustee for the payment of interest expense and principal on the outstanding borrowings or reinvestment into new assets. Restricted cash that represents interest or fee income is transferred to unrestricted cash accounts by the trustee generally once a quarter after the payment of operating expenses and amounts due under the Credit Facility.

Our operating activities provided cash and cash equivalents of $22.6 million during the nine months ended September 30, 2021, primarily from the net proceeds received from realizations and repayments on our investments, partially offset by acquisition of investments and cash used from the net change in working capital. Our financing activities used cash and cash equivalents of $21.9 million during the nine months ended September 30, 2021, primarily due to repayments on the Credit Facility and the payment of distributions to stockholders, offset by proceeds from sales of common stock.

Our operating activities provided cash and cash equivalents of $25.0 million during the the nine months ended September 30, 2020, primarily from the net proceeds received from realizations and repayments on our investments as well as cash provided from the net change in working capital. Our financing activities used cash and cash equivalents of $30.0 million during the nine months ended September 30, 2020, primarily due to repayments on the Credit Facility and the payment of distributions to stockholders.

As of September 30, 2021, we had cash and cash equivalent resources of $16.6 million, including $7.0 million of restricted cash. As of September 30, 2021, we had approximately $25.4 million undrawn and available to be drawn under the Credit Facility based on the collateral and portfolio quality requirements stipulated in the related credit agreement.

As of December 31, 2020, we had cash and cash equivalent resources of $15.9 million, including $7.9 million of restricted cash. As of December 31, 2020, we had $19.8 million undrawn under the Credit Facility based on the collateral and portfolio quality requirements stipulated in the related credit and security agreement.

STRS JV

In January 2019, we and STRS Ohio, formed a joint venture, STRS JV, that invests primarily in senior secured loans, including first lien and second lien facilities, to performing lower middle market companies across a broad range of industries that typically carry a floating interest rate based on the LIBOR or an equivalent risk-free index rate and have a term of three to six years. STRS JV invests in portfolio companies in the same industries in which we may directly invest. STRS JV was formed as a Delaware limited liability company and is not consolidated by either us or STRS Ohio for financial reporting purposes. On July 19, 2019 STRS JV formally launched operations. As of September 30, 2021, STRS JV had total assets of $246.8 million. As of December 31, 2021, STRS JV had total assets of $181.4 million.

We provide capital to STRS JV in the form of limited liability company, or LLC equity interests, and subordinated notes. As of September 30, 2021, we and STRS Ohio owned 60% and 40%, respectively, of the LLC equity interests of STRS JV. Our investment in STRS JV consisted of equity contributions and subordinated note advances of $14.3 million and $57.3 million as of September 30, 2021, respectively. As of September 30, 2021, we had commitments to fund equity interests and subordinated notes in STRS JV of $15 million and $60 million, of which $0.7 million and $2.7 million was unfunded, respectively. STRS JV is managed by a four-person board of managers, two of whom are selected by us and two of whom are selected by STRS Ohio.

All material decisions with respect to STRS JV, including those involving its investment portfolio, require unanimous approval of a quorum of the board of managers. Quorum is defined as (i) the presence of two members of the board of managers; provided that at least one individual is present that was elected, designated or appointed by each member; (ii) the presence of three members of the board of managers; provided that the individual that was elected, designated or appointed by the member with only one individual present is entitled to cast two votes on each matter; or (iii) the presence of four members of the board of managers; provided that two individuals are present that were elected, designated or appointed by each member.

Below is a summary of STRS JV’s portfolio as of September 30, 2021 and December 31, 2020:


($ in thousands)	As of September 30, 2021			As of December 31, 2020
Total investments⁽¹⁾	$	238,987		$	174,552
Weighted average effective yield on total portfolio⁽²⁾		8.0	%		7.9	%
Number of portfolio companies in STRS JV		27			20
Largest portfolio company investment⁽¹⁾		17,523			13,511
Total of five largest portfolio company investments⁽¹⁾		72,488			60,252

(1)	At fair value.

(2)	Weighted average effective yield is computed by dividing (a) annualized interest income (including interest income resulting from the amortization of fees and discounts) by (b) the weighted average cost of investment.

 Investments consisted of the following:


	As of September 30, 2021				As of December 31, 2020
($ in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
First lien secured loans	$	240,025	$	238,987	$	176,716	$	174,552
Total	$	240,025	$	238,987	$	176,716	$	174,552

The following table shows the portfolio composition by industry grouping at fair value:


Industry ($ in thousands)	As of September 30, 2021				As of December 31, 2020
Advertising	$	8,697	3.6	%	$	9,256	5.3	%
Application Software		6,669	2.8			—	—
Building Products		16,595	6.9			19,754	11.3
Construction & Engineering		13,807	5.8			19,815	11.4
Data Processing & Outsourced Services		16,237	6.8			11,130	6.4
Diversified Support Services		10,511	4.4			10,230	5.9
Electronic Equipment & Instruments		6,705	2.8			—	—
Environmental & Facilities Services		6,881	2.9			6,248	3.6
Human Resource & Employment Services		11,115	4.7			11,549	6.6
Industrial Machinery		6,815	2.9			9,886	5.7
Insurance Brokers		—	—			7,838	4.5
Internet & Direct Marketing Retail		15,393	6.4			13,511	7.7
Investment Banking & Brokerage		10,196	4.3			11,076	6.3
IT Consulting & Other Services		35,519	14.9			—	—
Packaged Foods & Meats		25,894	10.8			24,577	14.1
Personal Products		4,231	1.7			4,232	2.4
Research & Consulting Services		8,869	3.7			—	—
Systems Software		9,920	4.2			8,110	4.6
Technology Hardware, Storage & Peripherals		14,797	6.2			7,340	4.2
Trading Companies & Distributors		10,136	4.2			—	—
Total	$	238,987	100.0	%	$	174,552	100.0	%

See Note 4 to our consolidated financial statements for further discussion on STRS JV’s portfolio and selected balance sheet information as of September 30, 2021 and December 31, 2020 and selected statement of operations information for the three and nine months ended September 30, 2021 and 2020.

Credit Facility

On December 23, 2015, our wholly owned subsidiary WhiteHorse Finance Credit I, LLC, or WhiteHorse Credit, entered into the $200 million Credit Facility with the Lender. On June 27, 2016, the Credit Facility was amended and restated to clarify certain terms. On June 29, 2017, the Credit Facility was again amended and restated to, among other things, (i) extend the maturity date to December 29, 2021, (ii) increase the amount contained within the accordion feature which allows for the expansion of the borrowing limit from $220 million to $235 million and (iii) reduce the interest rate spread applicable on outstanding borrowings to 2.75%. On May 15, 2018, the terms of the Credit Facility were again amended and restated to, among other things, permit the financing of certain assets to be held by WhiteHorse Finance (CA), LLC, or WhiteHorse California, a wholly owned subsidiary of WhiteHorse Credit. On November 19, 2018, we entered into an amendment, which, among other things, allows for an increase in the advance rate and a temporary reduction, through August 19, 2019, in the required minimum outstanding borrowings under the Credit Facility.

On November 22, 2019, the terms of the Credit Facility were amended to, among other things, (i) extend the maturity date from December 29, 2021 to November 22, 2024;(ii) increase the size of the facility from $200 million to $250 million with an additional $100 million accordion feature, which allows for the expansion of the borrowing limit, exercisable in increments of at least $35 million, or the Commitment; (iii) reduce the interest rate spread applicable on outstanding borrowings from 2.75% to 2.50%; (iv) change the minimum borrowing amount from 77.5% to 70.0% of the Commitment; (v) increase the advance rate from 57% to 60%; and (vi) extend the non-call period from October 29, 2019 to November 22, 2021.

On December 21, 2020, the terms of the Credit Facility were amended to, among other things, (i) increases the minimum funding amount from $175 million to $200 million, (ii) increase the size of the facility from $250 million to $285 million and retains an accordion feature which allows for the expansion of the borrowing limit up to $350 million and (iii) provide for the implementation of certain changes relating to the transition away from the LIBOR in the market.

On April 28, 2021, the terms of the Credit Facility were amended and restated to, among other things, enable WhiteHorse Credit to borrow in British Pounds or Euros.

On July 15, 2021, the terms of the Credit Facility were amended to, among other things, allow WhiteHorse Credit to reduce the applicable margins for interest rates to 2.35%, extend the non-call period from November 22, 2021 to November 22, 2022, extend the end of the reinvestment period from November 22, 2023 to November 22, 2024 and extend the scheduled termination date from November 22, 2024, to November 22, 2025.

The Credit Facility provides for borrowings in an aggregate principal amount up to $285 million with an accordion feature which allows for the expansion of the borrowing limit up to $350 million, subject to consent from the Lender and other customary conditions. The required minimum outstanding borrowings under the Credit Facility are $200 million, unless the accordion feature is exercised, at which time the required minimum outstanding borrowings will be $245 million.

Under the Credit Facility, there are two coverage tests that WhiteHorse Credit must meet on specified compliance dates in order to permit WhiteHorse Credit to make new borrowings and to make distributions in the ordinary course - a borrowing base test and a market value test. The borrowing base test compares, at any given time, the aggregate outstanding amount of all Lender advances under the Credit Facility less the amount of principal proceeds in respect of the collateral on deposit in the accounts to the net asset value of the collateral, as set forth in the credit agreement and related documentation. To meet the borrowing base test, this ratio must be less than or equal to 50%, as set forth in the credit agreement and related documentation. To meet the market value test, the value of WhiteHorse Credit’s portfolio investments must exceed a minimum of 165% of the aggregate outstanding amount of all Lender advances as set forth in the credit agreement and related documentation.

Advances under the Credit Facility are based on the three-month LIBOR for USD denominated borrowings plus an annual spread of 2.35%. The Credit Facility bears interest at EURIBOR, for EUR denominated borrowings, CDOR for CAD denominated borrowings, Sterling Overnight Index Average, for GBP denominated, plus a spread of 2.35% on

outstanding borrowings. Interest is payable quarterly in arrears. WhiteHorse Credit is required to pay a non-usage fee which accrues at 0.75% per annum on the average daily unused amount of the financing commitments, to the extent the aggregate principal amount available under the Credit Facility has not been borrowed. WhiteHorse Credit paid an upfront fee and incurred certain other customary costs and expenses in connection with obtaining the Credit Facility. Any amounts borrowed under the Credit Facility will mature, and all accrued and unpaid interest thereunder will be due and payable, on November 22, 2025.

The Credit Facility and the related documents require WhiteHorse Finance and WhiteHorse Credit to, among other things, agree to make certain customary representations and to comply with customary affirmative and negative covenants. The Credit Facility also includes customary events of default for credit facilities of this nature, including breaches of representations, warranties or covenants by WhiteHorse Finance or WhiteHorse Credit, the occurrence of a change in control, or failure to maintain certain required ratios.

If we fail to perform our obligations under the credit agreement or the related agreements, an event of default may occur, which could cause the Lender to accelerate all of the outstanding debt and other obligations under the Credit Facility or to exercise other remedies under the credit agreement. Any such developments could have a material adverse effect on our financial condition and results of operations.

If any of our contractual obligations discussed above is terminated, our costs under new agreements that we enter into may increase. In addition, we will likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under our Investment Advisory Agreement and our Administration Agreement. Any new investment management agreement would also be subject to approval by our stockholders.

As of September 30, 2021, there was $259.6 million in outstanding borrowings under the Credit Facility and, based on collateral and portfolio requirements stipulated in the Credit Facility agreement, approximately $25.4 million was available to be drawn on such date. The Credit Facility is secured by all of the assets of WhiteHorse Credit, which included loans with a fair value of $594.6 million as of September 30, 2021.

As of December 31, 2020, there was $265.2 million in outstanding borrowings under the Credit Facility and, based on collateral and portfolio requirements stipulated in the Credit Facility agreement, approximately $19.8 million was available to be drawn on such date. The Credit Facility is secured by all of the assets of WhiteHorse Credit, which included loans with a fair value of $601.1 million as of December 31, 2020.

2023 Private Notes

On July 13, 2018, we entered into the 2023 Note Purchase Agreement, to sell in a private offering $30 million of aggregate principal amount of unsecured notes to qualified institutional investors in reliance on Section 4(a)(2) of the Securities Act. Interest on the 2023 Private Notes is payable semiannually on February 7 and August 7, at a fixed, annual rate of 6.00%. This interest rate is subject to increase (up to 6.50%) in the event that, subject to certain exceptions, the 2023 Private Notes cease to have an investment grade rating. The 2023 Private Notes mature on August 7, 2023, unless redeemed, purchased or prepaid prior to such date by us or our affiliates in accordance with their terms. The 2023 Private Notes are general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness that we may issue. The closing of the transaction occurred on August 7, 2018. We used the net proceeds from this offering, together with cash on hand, to redeem existing debt.

2025 Private Notes

On October 20, 2020, we entered into the 2025 Note Purchase Agreement, to sell in a private offering $40 million of aggregate principal amount of unsecured notes to qualified institutional investors in reliance on Section 4(a)(2) of the Securities Act. Interest on the 2025 Private Notes is payable semiannually on April 20 and October 20, at a fixed, annual rate of 5.375%. This interest rate is subject to increase (up to 6.375%) in the event that, subject to certain exceptions, the 2025 Private Notes cease to have an investment grade rating. The 2025 Private Notes mature on October 20, 2025, unless redeemed, purchased or prepaid prior to such date by us or our affiliates in accordance with their terms. The 2025 Private Notes are general unsecured obligations that rank pari passu with all outstanding and future unsecured

unsubordinated indebtedness that we may issue. The closing of the transaction occurred on October 20, 2020. We used the net proceeds from this offering to redeem existing debt.

2026 Private Notes

On December 4, 2020, we entered into the 2026 Note Purchase Agreement, to sell in a private offering $10 million of aggregate principal amount of unsecured notes to qualified institutional investors in reliance on Section 4(a)(2) of the Securities Act. Interest on the 2026 Private Notes is payable semiannually on June 4 and December 4, at a fixed, annual rate of 5.375%. This interest rate is subject to increase (up to 6.375%) in the event that, subject to certain exceptions, the 2026 Private Notes cease to have an investment grade rating. The 2026 Private Notes mature on December 4, 2026, unless redeemed, purchased or prepaid prior to such date by us or our affiliates in accordance with their terms. The 2026 Private Notes are general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness that we may issue. The closing of the transaction occurred on December 4, 2020. We used the net proceeds from this offering to redeem existing debt.

2027 Private Notes

On December 4, 2020, we entered into the 2027 Note Purchase Agreement, to sell in a private offering $10 million of aggregate principal amount of unsecured notes to qualified institutional investors in reliance on Section 4(a)(2) of the Securities Act. Interest on the 2027 Private Notes is payable semiannually on June 4 and December 4, at a fixed, annual rate of 5.625%. This interest rate is subject to increase (up to 6.625%) in the event that, subject to certain exceptions, the 2027 Private Notes cease to have an investment grade rating. The 2027 Private Notes mature on December 4, 2027, unless redeemed, purchased or prepaid prior to such date by us or our affiliates in accordance with their terms. The 2027 Private Notes are general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness that we may issue. The closing of the transaction occurred on December 4, 2020. We used the net proceeds from this offering to redeem existing debt.

2025 Public Notes

On November 13, 2018, we completed a public offering of $35 million of aggregate principal amount of unsecured notes, the net proceeds of which were used to fund investments in debt and equity securities and repay outstanding indebtedness under our revolving credit facility. Interest on the 2025 Public Notes is paid quarterly on February 28, May 31, August 31 and November 30 each year, at a fixed, annual rate of 6.50%. The 2025 Public Notes will mature on November 30, 2025 and may be redeemed in whole or in part at any time, or from time to time, at our option on or after November 30, 2021. The 2025 Public Notes will rank equally in right of payment with our other outstanding and future unsecured, unsubordinated indebtedness, including the 2023 Private Notes, the 2025 Private Notes, the 2026 Private Notes and the 2027 Private Notes. The 2025 Public Notes will effectively rank behind all of our existing and future secured indebtedness (including indebtedness that is initially unsecured in respect of which we subsequently grant security) in right of payment, to the extent of the value of the assets securing such indebtedness, including our Credit Facility. The 2025 Public Notes are listed on the Nasdaq Global Select Market under the trading symbol “WHFBZ.”

At-the-Market Offering

On March 15, 2021, we entered into an equity distribution agreement, or the Equity Distribution Agreement, with WhiteHorse Advisers, WhiteHorse Administration and Raymond James & Associates, Inc., as the sales agent, or the Sales Agent, in connection with the sale of shares of our common stock, par value $0.001 per share, with an aggregate offering price of up to $35.0 million. The Equity Distribution Agreement provides that we may offer and sell shares of our common stock from time to time through the Sales Agent in amounts and at times to be determined by us, or the ATM Offering. Actual sales will depend on a variety of factors to be determined by us from time to time, including market conditions and the trading price of our common stock. We expect to use all or substantially all of the net proceeds from the ATM Offering to invest in portfolio companies in accordance with our investment objective and strategies and for general corporate purposes. As of September 30, 2021, gross proceeds of $4.1 million have been raised from the ATM Offering.

Portfolio Investments and Yield

As of September 30, 2021, our investment portfolio consisted primarily of senior secured loans across 99 positions in 65 companies with an aggregate fair value of $687.1 million. As of September 30, 2021, the majority of our portfolio was comprised of senior secured loans to lower middle market borrowers and nearly all of those loans were variable-rate investments (primarily indexed to LIBOR) with three fixed-rate loan investments representing 0.4% based on fair value. As of September 30, 2021, our portfolio had an average investment size of $6.3 million based on fair value (average debt investment size of $7.3 million), with investment sizes ranging from zero to $24.0 million and a weighted average effective yield of 9.1% (and a weighted average effective yield on income-producing debt investments of 9.3%).

As of December 31, 2020, our investment portfolio consisted primarily of senior secured loans across 98 positions in 67 companies with an aggregate fair value of $690.7 million. As of that date, the majority of our portfolio was comprised of senior secured loans to lower middle market borrowers and nearly all of those loans were variable-rate investments (primarily indexed to LIBOR) with two fixed-rate loan investments representing 0.2% based on fair value. As of December 31, 2020, our portfolio had an average investment size of $6.6 million (average debt investment size of $7.3 million), with investment sizes ranging from zero to $23.5 million and a weighted average effective yield of 9.4% (and a weighted average effective yield on income-producing debt investments of 9.9%).

For the nine months ended September 30, 2021, we invested $328.7 million in new and existing portfolio companies, offset by repayments and sales of $343.3 million. Proceeds from sales totaled $125.7 million while repayments included $8.3 million of scheduled repayments and $209.3 million of unscheduled repayments.

For the nine months ended September 30, 2020, we invested $126.3 million in new and existing portfolio companies, offset by repayments and sales of $129.4 million. Proceeds from sales totaled $54.2 million while repayments included $9.8 million of scheduled repayments and $65.4 million of unscheduled repayments.

We actively monitor and manage our portfolio with regard to individual company performance as well as general market conditions. Investment decisions on new originations generally include an analysis of the impact of the new loan on our broader portfolio, including a “top-down” assessment of portfolio diversification and risk exposure. This assessment includes a review of portfolio concentration by issuer, industry, geography and type of credit as well as an evaluation of our portfolio’s exposure to macroeconomic factors and cyclical trends.

We believe that consistent, active monitoring of individual companies and the broader market is integral to portfolio management and a critical component of our investment process. Our investment adviser uses several methods to evaluate and monitor the performance and fair value of our investments, which may include the following:

●

frequent discussions with management and sponsors, including board observation rights where possible;

●

comparing/analyzing financial performance to the portfolio company’s business plan, as well as our internal projections developed at underwriting;

●

tracking portfolio company compliance with covenants as well as other metrics identified at initial investment stage, such as acquisitions, divestitures, product development and specified management hires; and

●

periodic review by the investment committee of each asset in the portfolio and more rigorous monitoring of “watch list” positions.

As part of the monitoring process, our investment adviser regularly assesses the risk profile of each of our investments and, on a quarterly basis, grades each investment on a risk scale of 1 to 5. This risk rating system is intended to identify and assess risks relative to when we initially made the investment and could be impacted by such factors as company-specific performance, changes in collateral, changes in potential exit opportunities or macroeconomic conditions.

All investments are initially assigned a rating of 2, as this grade represents a company that is meeting initial expectations with regard to performance and outlook. A rating may be improved to a 1 if, in the opinion of our investment adviser, a portfolio company’s risk of loss has been reduced relative to initial expectations. An investment will be assigned a rating of 3 if the risk of loss has increased relative to initial expectations and will be assigned a rating of 4 if our investment principal is at a material risk of not being fully repaid. A rating of 5 indicates an investment is in payment default and has significant risk of not receiving full repayment.

The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value:


	As of September 30, 2021				As of December 31, 2020
Investment Performance Rating ($ in millions)	Investments at Fair Value		Percentage of Total Portfolio		Investments at Fair Value		Percentage of Total Portfolio
1	$	148.4	21.6	%	$	153.3	22.2	%
2		462.6	67.3			422.1	61.1
3		67.4	9.8			103.7	15.0
4		8.7	1.3			4.0	0.6
5		—	—			7.6	1.1
Total Portfolio	$	687.1	100.0	%	$	690.7	100.0	%

Inflation

Inflation has not had a significant effect on our results of operations in any of the reporting periods presented in our consolidated financial statements. However, from time to time, inflation may impact the operating results of our portfolio companies.

Off-Balance Sheet Arrangements

We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve elements of liquidity and credit risk in excess of the amount recognized on the consolidated statements of assets and liabilities. As of September 30, 2021 and December 31, 2020, we had commitments to fund approximately $33.1 million and $19.6 million, respectively, of revolving lines of credit or delayed draw facilities to our portfolio companies. We reasonably believe that we have sufficient assets to adequately cover and allow us to satisfy our outstanding unfunded commitments.

Distributions

In order to maintain our status as a RIC and to avoid the imposition of corporate-level tax on income, we must distribute dividends to our stockholders each taxable year of an amount generally at least equal to the sum of 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses out of the assets legally available for distribution. In order to avoid the imposition of certain excise taxes imposed on RICs, we must distribute dividends in respect of each calendar year of an amount at least equal to the sum of (1) 98% of our ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gains in excess of capital losses, or capital gain net income, adjusted for certain ordinary losses, for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and capital gain net income for preceding years that were not distributed during such years on which we incurred no U.S. federal income tax.

During the three and nine months ended September 30, 2021 we declared to stockholders distributions of $0.355 and $1.065 per share, respectively for total distributions of $7.4 million and $22.1 million, respectively. During the three and nine months ended September 30, 2020 we declared to stockholders distributions of $0.355 and $1.065 per share, respectively for total distributions of $7.3 million and $21.9 million, respectively.

The timing and amount of our quarterly distributions, if any, are determined by our board of directors. While we intend to make distributions on a quarterly basis to our stockholders out of assets legally available for distribution, we may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of our distributions from time to time. In addition, we may be limited in our ability to make distributions due to the asset coverage requirements applicable to us as a business development company under the 1940 Act. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including the possible loss of our ability to be subject to tax as a RIC. We cannot assure stockholders that they will receive any distributions.

To the extent our taxable earnings fall below the total amount of our distributions paid for that fiscal year, a portion of those distributions may be deemed a return of capital to our stockholders for U.S. federal income tax purposes. Thus, the source of a distribution to our stockholders may be the original capital invested by the stockholder rather than our income or gains. During the nine months ended September 30, 2021, we estimate that distributions to stockholders included $21.6 million of ordinary income and $0.5 million of long term capital gains, for tax purposes, based on earnings for the fiscal year ended December 31, 2020 and current earnings for the the nine months ended September 30, 2021. The specific tax characteristics of the distribution will be reported to stockholders on or after the end of the calendar year 2021 and in our periodic reports with the SEC. Stockholders should read any written disclosure accompanying a distribution payment carefully and should not assume that the source of any distribution is only ordinary income or gains.

In addition, in order to satisfy the annual distribution requirement applicable to RICs, we may declare a significant portion of our dividends in shares of our common stock instead of in cash. As long as a portion of such dividend is paid in cash (which portion may be as low as 20% of such dividend under published guidance from the Internal Revenue Service) and certain requirements are met, the entire distribution will be treated as a dividend for U.S. federal income tax purposes. As a result, a stockholder generally would be subject to tax on 100% of the fair market value of the dividend on the date the dividend is received by the stockholder in the same manner as a cash dividend, even though most of the dividend was paid in shares of our common stock.

We have adopted an “opt out” dividend reinvestment plan, or the DRIP, for our common stockholders. As a result, if we declare a distribution, then stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock unless a stockholder specifically “opts out” of our DRIP. If a stockholder opts out, that stockholder receives cash distributions. Although distributions paid in the form of additional shares of our common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, stockholders participating in our DRIP will not receive any corresponding cash distributions with which to pay any such applicable taxes.

Contractual Obligations

A summary of our significant contractual payment obligations as of September 30, 2021 is as follows:


	Payments Due by Period
			Less Than						More Than
($ in millions)	Total		1 Year		1 – 3 Years		3 – 5 Years		5 Years
Credit Facility	$	259.6	$	—	$	—	$	259.6	$	—
2023 Private Notes		30.0		—		30.0		—		—
2025 Private Notes		40.0		—		—		40.0		—
2026 Private Notes		10.0		—		—		—		10.0
2027 Private Notes		10.0		—		—		—		10.0
2025 Public Notes		35.0		—		—		35.0		—
Total contractual obligations	$	384.6	$	—	$	30.0	$	334.6	$	20.0

As of September 30, 2021, we had $25.4 million of unused borrowing capacity under the Credit Facility.

We entered into the Investment Advisory Agreement with WhiteHorse Advisers in accordance with the 1940 Act on December 4, 2012, which was most recently amended on November 1, 2018. Under the Investment Advisory Agreement, WhiteHorse Advisers manages our day-to-day investment operations and provides us with access to personnel and an investment committee and certain other resources so that we may fulfill our obligation to act as a portfolio manager of WhiteHorse Credit under the Credit Facility. Payments under the Investment Advisory Agreement in future periods will be equal to (1) a management fee equal to 2.0% of the value of our consolidated gross assets; provided, however, that the management fee on consolidated gross assets financed using leverage over 200% asset coverage (in other words, over 1.0x debt to equity) will be equal to 1.25% and (2) an incentive fee based on our performance. See “Investment Advisory Agreement” in Note 7 to the consolidated financial statements.

We also entered into the Administration Agreement with WhiteHorse Administration on December 4, 2012. Pursuant to the Administration Agreement, WhiteHorse Administration furnishes us with office facilities and administrative services necessary to conduct our day-to-day operations. WhiteHorse Administration also furnishes us with resources necessary for us to act as portfolio manager to WhiteHorse Credit under the Credit Facility. If requested to provide managerial assistance to our portfolio companies, WhiteHorse Administration will be paid an additional amount based on the services provided, which amount will not, in any case, exceed the amount we receive from the portfolio companies for such services. Payments under the Administration Agreement will be based upon our allocable portion of WhiteHorse Administration’s overhead expenses in performing its obligations under the Administration Agreement, including rent and our allocable portion of the costs of our chief financial officer and chief compliance officer along with their respective staffs.

Related Party Transactions

We have entered into a number of business relationships with affiliated or related parties, including the following:

●

WhiteHorse Advisers manages our day-to-day operations and provides investment management services to us pursuant to the Investment Advisory Agreement.

●

WhiteHorse Administration and certain of its affiliates provide us with the office facilities and administrative services, including access to the resources necessary for us to perform our obligations towards certain portfolio companies, pursuant to the Administration Agreement.

●

We have entered into a license agreement with an affiliate of H.I.G. Capital pursuant to which we have been granted a non-exclusive, royalty-free license to use the “WhiteHorse” name.

WhiteHorse Advisers, WhiteHorse Administration or their respective affiliates may have other clients with similar, different or competing investment objectives. In serving in these multiple capacities, WhiteHorse Advisers, WhiteHorse Administration or their respective affiliates may have obligations to other clients or investors in those entities, the fulfillment of which may not be in the best interests of us or our stockholders. Such persons may face conflicts in the allocation of investment opportunities among us and other investment funds or accounts advised by or affiliated with WhiteHorse Advisers or WhiteHorse Administration. WhiteHorse Advisers or its affiliates will seek to allocate investment opportunities among eligible accounts in a manner that is fair and equitable over time and consistent with its allocation policy. However, we can offer no assurance that such opportunities will be allocated to us fairly or equitably in the short-term or over time.

We depend on the communications and information systems and policies of WhiteHorse Advisers and its affiliates as well as certain third-party service providers to monitor and prevent cybersecurity incidents. Our board of directors and management periodically review and assess the effectiveness of such communications and information systems and policies.

Critical Accounting Policies

The preparation of our financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. We have identified the following as critical accounting policies.

Principles of Consolidation

Under the investment company financial accounting guidance, as formally codified in Accounting Standards Codification, or ASC, Topic 946, Financial Services - Investment Companies, we are precluded from consolidating any entity other than another investment company. As provided under ASC Topic 946, we generally consolidate any investment company when we own 100% of its partners’ or members’ capital or equity units. We own a 100% equity interest in each of WhiteHorse Credit and WhiteHorse Finance Warehouse, LLC, WhiteHorse Warehouse, WHF PMA Holdco Blocker, LLC, WhiteHorse RCKC Holdings, LLC and WhiteHorse Finance Holdings, LLC, which are investment companies for accounting purposes. As such, we have consolidated the accounts of WhiteHorse Credit, WhiteHorse Warehouse, WHF PMA Holdco Blocker, LLC, WhiteHorse RCKC Holdings LLC and WhiteHorse Finance Holdings, LLC into our financial statements. As a result of this consolidation, the amount outstanding under the Credit Facility is treated as our indebtedness.

Valuation of Portfolio Investments

We value our investments in accordance with ASC Topic 820 - Fair Value Measurements and Disclosures. ASC Topic 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about assets and liabilities measured at fair value. ASC Topic 820’s definition of fair value focuses on exit price in the principal, or most advantageous, market and prioritizes the use of market-based inputs over entity-specific inputs within a measurement of fair value.

Our portfolio consists primarily of debt investments. These investments are valued at their bid quotations obtained from unaffiliated market makers or other financial institutions that trade in similar investments or based on prices provided by independent third party pricing services. For investments where there are no available bid quotations, fair value is derived using proprietary models that consider the analyses of independent valuation agents as well as credit risk, liquidity, market credit spreads and other applicable factors for similar transactions.

Due to the nature of our strategy, our portfolio includes relatively illiquid investments that are privately held. Valuations of privately held investments are inherently uncertain, may fluctuate over short periods of time and may be based on estimates. The determination of fair value may differ materially from the values that would have been used if a ready market for these investments existed. Our net asset value could be materially affected if the determinations regarding the fair value of our investments were materially higher or lower than the values that we ultimately realize upon the disposal of such investments.

Our board of directors is ultimately responsible for determining the fair value of the portfolio investments that are not publicly traded, whose market prices are not readily available on a quarterly basis in good faith or any other situation where portfolio investments require a fair value determination. Our board of directors has retained one or more independent valuation firms to review the valuation of each portfolio investment that does not have a readily available market quotation at least once during each 12-month period. Independent valuation firms retained by our board of directors provide a valuation review on approximately 25% of our investments for which market quotations are not readily available each quarter to ensure that the fair value of each investment for which a market quote is not readily available is reviewed by an independent valuation firm at least once during each 12-month period. However, our board of directors does not intend to have de minimis investments of less than 1.5% of our total assets (up to an aggregate of 10% of our total assets) independently reviewed.

The valuation process is conducted at the end of each fiscal quarter, with a portion of our valuations of portfolio companies without market quotations subject to review by one or more independent valuation firms each quarter. When an external event occurs with respect to one of our portfolio companies, such as when a purchase transaction, public offering or subsequent equity sale occurs, we expect to use the pricing indicated by such external event to corroborate our valuation.

With respect to investments for which market quotations are not readily available, our board of directors undertakes a multi-step valuation process each quarter, as described below:

●

Our quarterly valuation process begins with each portfolio company or investment being initially valued by investment professionals of our investment adviser responsible for credit monitoring in accordance with our valuation procedures.

●

Preliminary valuation conclusions are then documented and discussed with our investment committee and our investment adviser.

●

The audit committee of our board of directors reviews these preliminary valuations, and on a quarterly basis, reviews the bases of the valuations by our investment adviser and the independent valuation firms.

●

At least once annually, the valuation for each portfolio investment is reviewed by an independent valuation firm.

●

Our board of directors discusses valuations and determines the fair value of each investment in our portfolio in good faith.

Fair value of publicly traded instruments is generally based on quoted market prices. Fair value of non-publicly traded instruments, and of publicly traded instruments for which quoted market prices are not readily available, may be determined based on other relevant factors, including without limitation, quotations from unaffiliated market makers or independent third party pricing services, the price activity of equivalent instruments and valuation pricing models. For those investments valued using quotations, the bid price is generally used unless we determine that it is not representative of an exit price.

Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. Our fair value analysis includes an analysis of the value of any unfunded loan commitments. Financial investments recorded at fair value in the consolidated financial statements are categorized for disclosure purposes based upon the level of judgment associated with the inputs used to measure their value. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the investment as of the measurement date. The three levels are defined as follows:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active public markets that the entity has the ability to access as of the measurement date.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about what market participants would use in pricing an asset or liability.

Investments for which fair value is determined using inputs defined above as Level 3 are fair valued using the income and market approaches, which may include the discounted cash flow method, reference to performance statistics of industry comparables, relative comparable yield analysis and, in certain cases, third party valuations performed by independent valuation firms. The valuation methods can reference various factors and use various inputs such as assumed growth rates, capitalization rates and discount rates, loan-to-value ratios, liquidation value, relative capital structure priority, market comparables, compliance with applicable loan, covenant and interest coverage performance, book value, market derived multiples, reserve valuation, assessment of credit ratings of an underlying borrower, review of ongoing performance, review of financial projections as compared to actual performance, review of interest rate and yield risk. Such factors may be given different weighting depending on our assessment of the underlying investment, and we may analyze apparently comparable investments in different ways.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the financial instrument.

Fair value for each investment is derived using a combination of valuation methodologies that, in the judgment of the investment committee of the investment adviser are most relevant to such investment, including being based on one or more of the following: (i) market prices obtained from market makers for which the investment committee has deemed there to be enough breadth (number of quotes) and depth (firm bids) to be indicative of fair value, (ii) the price paid or realized in a completed transaction or binding offer received in an arm’s-length transaction, (iii) a discounted cash flow analysis, (iv) the guideline public company method, (v) the similar transaction method or (vi) the option pricing method.

Investment Transactions and Related Investment Income and Expense

We record our investment transactions on a trade date basis, which is the date when we have determined that all material terms have been defined for the transactions. These transactions could possibly settle on a subsequent date depending on the transaction type. All related revenue and expenses attributable to these transactions are reflected on our consolidated statements of operations commencing on the trade date unless otherwise specified by the transaction documents. Realized gains and losses on investment transactions are recorded on the specific identification method.

We accrue interest income if we expect that ultimately we will be able to collect it. Generally, when an interest payment default occurs on a loan in our portfolio, or if our management otherwise believes that the issuer of the loan will not be able to service the loan and other obligations, we place the loan on non-accrual status and will cease recognizing interest income on that loan until all principal and interest is current through payment or until a restructuring occurs, such that the interest income is deemed to be collectible. However, we remain contractually entitled to this interest. We may make exceptions to this policy if the loan has sufficient collateral value and is in the process of collection. Accrued interest is written off when it becomes probable that such interest will not be collected and the amount of uncollectible interest can be reasonably estimated. Any original issue discount, as well as any other market purchase discount or premium on debt investments, are accreted or amortized to interest income or expense, respectively, over the maturity periods of the investments. Dividend income is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

Interest expense is recorded on an accrual basis. Certain expenses related to legal and tax consultation, due diligence, rating fees, valuation expenses and independent collateral appraisals may arise when we make certain investments. These expenses are recognized in the consolidated statements of operations as they are incurred.

Loan Origination, Facility, Commitment and Amendment Fees

We may receive fees in addition to interest income from the loans during the life of the investment. We may receive origination fees upon the origination of an investment. We defer these origination fees and deduct them from the cost basis of the investment and subsequently accrete them into income over the term of the loan. We may receive facility, commitment and amendment fees, which are paid to us on an ongoing basis. We accrue facility fees, sometimes referred to as asset management fees, as a percentage periodic fee on the base amount (either the funded facility amount or the committed principal amount). Commitment fees are based upon the undrawn portion committed by us and we record them on an accrual basis. Amendment fees are paid in connection with loan amendments and waivers and we account for them upon completion of the amendments or waivers, generally when such fees are receivable. We include any such fees in fee income on the consolidated statements of operations.

Recent Accounting Pronouncements

See Note 2 to our consolidated financial statements, which discusses recent accounting pronouncements applicable to us, if any.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks, including changes in interest rates. During the period covered by our financial statements, many of the loans in our portfolio had floating interest rates, and we expect that many of our loans to portfolio companies in the future will also have floating interest rates. These loans are usually based on a floating rate based on LIBOR that resets quarterly to the applicable LIBOR. Interest rate fluctuations may have a substantial negative impact on our investments, the value of our common stock and our rate of return on invested capital. Since we plan to use debt to finance investments, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. In addition, U.S. and global capital markets have experienced a higher level of stress due to the global COVID-19 pandemic which has resulted in an increase in the level of volatility across such markets and a general decline in value of securities held by us. As a result, we can offer no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.

Assuming that the consolidated statement of assets and liabilities as of September 30, 2021 was to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates (dollars in thousands).


	Increase (Decrease)		Increase (Decrease)		Net Increase
Basis Point Increase (Decrease)	in Interest Income		in Interest Expense		(Decrease)
(100)	$	(537)	$	(338)	$	(199)
100		1,536		2,596		(1,060)
200		7,792		5,192		2,600
300		14,292		7,789		6,503
400		20,792		10,385		10,407
500		27,292		12,981		14,311

As of September 30, 2021, nearly all of the performing floating rate investments in our portfolio had interest rate floors. Variable-rate investments subject to a floor generally reset periodically to the applicable floor and, in the case of investments in our portfolio, quarterly to a floor based on LIBOR, only if the floor exceeds the index. Under these loans, we do not benefit from increases in interest rates until such rates exceed the floor and thereafter benefit from market rates above any such floor.

For a discussion of the risks associated with the discontinuation of LIBOR, see “Item 1A. Risk Factors — Risks Relating to Our Business and Structure — Since we are using debt to finance our investments, and we may use additional debt or preferred stock financing going forward, changes in interest rates may affect our cost of capital, net investment income, value of our common stock and our rate of return on invested capital” in our annual report on Form 10-K for the year ended December 31, 2020.

Although management believes that this analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit markets, the size, credit quality or composition of the assets in our portfolio and other business developments, including borrowing, that could affect net increase in net assets resulting from operations or net income. It also does not adjust for the effect of the time-lag between a change in the relevant interest rate index and the rate adjustment under the applicable loan. Accordingly, we can offer no assurances that actual results would not differ materially from the statement above.

We may in the future hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts to the extent permitted under the 1940 Act and applicable commodities laws. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates.

We may enter into foreign currency forward contracts from time to time to facilitate settlement of purchases and sales of investments denominated in foreign currencies and to hedge economically the impact that an adverse change in foreign exchange rates would have on the value of our investments denominated in foreign currencies. We currently utilize forward foreign currency exchange contracts to protect ourselves against fluctuations in exchange rates. During the three and nine months ended September 30, 2021, we recognized a realized gain of $1,000 and realized loss of $3,000, respectively and during the three and nine months ended September 30, 2021, we recognized an unrealized gain of $187,000 and $186,000, respectively , in the statement of operations relating to forward currency exchange contracts held during the year. During the three and nine months ended September 30, 2020, we recognized a realized loss of $25,000 and during the three months ended September 30, 2020, we recognized an unrealized gain of 3,000, respectively, in the statement of operations relating to forward currency exchange contracts held during the year. See Note 3 to our Notes to consolidated financial statements.

In addition, the COVID-19 pandemic has resulted in a decrease in LIBOR and a general reduction of certain interest rates by the U.S. Federal Reserve and other central banks. A continued decline in interest rates, including LIBOR has resulted in, and could continue to result in a reduction of our gross investment income. In addition, our net investment income could also decline if such decreases in LIBOR are not offset by, among other things, a corresponding increase in the spread over LIBOR in our portfolio investments, a decrease in our operating expenses or a decrease in the interest rates of our liabilities that are tied to LIBOR. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—COVID-19 Developments.”

Item 4. Controls and Procedures

As of the period covered by this report, we, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on our evaluation, our management, including the chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective in timely alerting management, including the chief executive officer and chief financial officer, of material information about us required to be included in our periodic SEC filings. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, are based upon certain assumptions about the likelihood of future events and can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. There has not been any change in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

Although we may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise, each of WhiteHorse Finance, WhiteHorse Advisers and WhiteHorse Administration is currently not a party to any material legal proceeding.

Item 1A. Risk Factors

In addition to the below risk factor and other information set forth in this report, you should carefully consider the “Risk Factors” discussed in our annual report on Form 10-K for the year ended December 31, 2020, which could materially affect our business, financial condition and/or operating results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.

We intend to continue to finance our investments with borrowed money, which will magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us.

The use of leverage, including through the issuance of senior securities, magnifies the potential for gain or loss on amounts invested. We have incurred leverage in the past and currently incur leverage through credit facilities and issuance of public and private notes. From time to time, we intend to incur additional leverage to the extent permitted under the 1940 Act. The use of leverage is generally considered a speculative investment technique and increases the risks associated with investing in our securities. In the future, we may borrow from, and issue senior securities, to banks, insurance companies and other lenders. Holders of these senior securities will have fixed dollar claims on our assets that are superior to the claims of our common stockholders, and we would expect such holders to seek recovery against our assets in the event of a default.

WhiteHorse Credit has pledged, and expects to continue to pledge, all or substantially all of its assets. WhiteHorse Credit has granted, and may in the future grant, a security interest in all or a portion of its assets under the Credit Facility. In addition, under the terms of the Credit Facility, we must use the net proceeds of any investments that we sell to repay amounts then due with respect to our debt and certain other amounts owing under the Credit Facility before applying such net proceeds to other uses, such as distributing them to our stockholders.

We may pledge up to 100% of our assets and may grant a security interest in all of our assets under the terms of any debt instruments into which we may enter. In addition, under the terms of any credit facility or other debt instrument we enter into, we are likely to be required by its terms to use the net proceeds of any investments that we sell to repay a portion of the amount borrowed under such facility or instrument before applying such net proceeds to any other uses.

If the value of our assets decreases, leverage would cause our net asset value to decline more sharply than it otherwise would have had we not leveraged, thereby magnifying losses or eliminating our equity stake in a leveraged investment. Similarly, any decrease in our revenue or income will cause our net income to decline more sharply than it would have had we not borrowed. Such a decline would also negatively affect our ability to make distributions on our common stock or preferred stock. Our ability to service our debt will depend largely on our financial performance and will be subject to prevailing economic conditions and competitive pressures. In addition, our common stockholders will bear the burden of any increase in our expenses as a result of our use of leverage, including interest expenses and any increase in the management fee payable to WhiteHorse Advisers.

As a business development company, we generally are required to meet a coverage ratio of total assets to total borrowings and other senior securities, which include all of our borrowings and any preferred stock that we may issue in the future, of at least 150%, subject to certain disclosure requirements, as is specified in the 1940 Act. If this ratio declines below 150%, we cannot incur additional debt and could be required to sell a portion of our investments to repay some debt when it is disadvantageous to do so. This could have a material adverse effect on our operations, and we may not be able to make distributions to our stockholders. As of September 30, 2021, our total outstanding indebtedness was $384.6 million and our asset coverage was 184.2%.

The amount of leverage that we employ will depend on WhiteHorse Advisers’ and our board of directors’ assessment of market and other factors at the time of any proposed borrowing. We cannot assure you that we will be able to maintain our borrowings under our existing indebtedness or to obtain other credit at all or on terms acceptable to us. For information regarding a reduction in the asset coverage ratio applicable to us, see Item 1A. Risk Factors -- “The SBCAA allows us to incur additional leverage, which may increase the risk of investing with us” in our most recent Annual Report on Form 10-K.

In addition, the terms governing our existing indebtedness and any indebtedness that we incur in the future could impose financial and operating covenants that restrict our business activities, including limitations that may hinder our ability to finance additional loans and investments or make the distributions required to maintain our ability to be subject to tax as a RIC.

The instruments governing our existing indebtedness contain terms and conditions for senior unsecured notes issued in a private placement, including minimum stockholders’ equity, minimum asset coverage ratio, maximum debt to equity ratio and prohibitions on certain fundamental changes of the Company or any subsidiary guarantor. These instruments also contain customary events of default with customary cure and notice periods, including, without limitation, nonpayment, incorrect representation in any material respect, breach of covenant, cross-default under other indebtedness of the Company or certain significant subsidiaries, certain judgements and orders, and certain events of bankruptcy.

The breach of any of the covenants or restrictions, unless cured within the applicable grace period, would result in a default under the applicable indebtedness arrangement that would permit the lenders thereunder to declare all amounts outstanding to be due and payable. In such an event, we may not have sufficient assets to repay such indebtedness. As a result, any default could have serious consequences to our financial condition. An event of default or an acceleration under these arrangements could also cause a cross-default or cross-acceleration of another debt instrument or contractual obligation, which would adversely impact our liquidity. We may not be granted waivers or amendments to these arrangements if for any reason we are unable to comply with them, and we may not be able to refinance such arrangements on terms acceptable to us, or at all.

The reduction of our asset coverage requirement from 200% to 150% increases the amount of debt that we are permitted to incur, such that the Company’s maximum debt to equity ratio increased from a prior maximum of 1.0x (equivalent of $1 of debt outstanding for each $1 equity) to a maximum of 2.0x (equivalent to $2 of debt outstanding for each $1 of equity). Increased leverage could amplify the risks associated with investing in the Company. For example, if the value of the Company’s assets decreases, although the asset base and expected revenues would be larger because increased leverage would permit the Company to acquire additional assets, leverage will cause the Company’s net asset value to decline more sharply than it otherwise would have without leverage or with lower leverage. Any decrease in the Company’s revenue would cause its net income to decline more sharply, on a relative basis, than it would have if the Company had not borrowed or had borrowed less.

The following table illustrates the effect of leverage on returns from an investment in our common stock as of September 30, 2021, assuming that we employ leverage such that our asset coverage equals (1) our actual asset coverage as of September 30, 2021 and (2) 150%, each at various annual returns, net of expenses and as of September 30, 2021. The purpose of this table is to assist investors in understanding the effects of leverage. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing in the table below.


	Assumed Return on Our Portfolio (Net of Expenses)
	-10%		-5%		0%		5%		10%
Corresponding return to common stockholder assuming actual asset coverage⁽¹⁾	(25.5)	%	(14.9)	%	(4.3)	%	6.3	%	16.9	%
Corresponding return to common stockholder assuming 150% asset coverage⁽²⁾	(35.6)	%	(20.9)	%	(6.2)	%	8.4	%	23.1	%

(1)	Assumes $729.6 million in total assets, $384.6 million in debt outstanding and $323.7 million in net assets as of September 30, 2021, and an average cost of funds of 3.6%, which is our weighted average borrowing cost as of September 30, 2021.

(2)	Assumes $992.4 million in total assets, $647.4 million in debt outstanding and $323.7 million in net assets as of September 30, 2021, and an average cost of funds of 3.1%, which would be our weighted average borrowing cost assuming 150% asset coverage as of September 30, 2021.

Based on our outstanding indebtedness of $384.6 million as of September 30, 2021 and an average cost of funds of 2.47%, 6.00%, 6.50%, 5.375%, 5.375% and 5.625%, which were the effective annualized interest rates of the Credit Facility, 2023 Private Notes, 2025 Public Notes, 2025 Private Notes, 2026 Private Notes and 2027 Private Notes, respectively, as of that date, our investment portfolio must experience an annual return of at least 2.0% to cover annual interest payments on our outstanding indebtedness.

Based on our outstanding indebtedness of $647.4 million on an assumed 150% asset coverage ratio and an average cost of funds of 2.47%, 6.00%, 6.50%, 5.375%, 5.375% and 5.625%, which were the effective annualized interest rates of the Credit Facility, 2023 Private Notes, 2025 Public Notes, 2025 Private Notes, 2026 Private Notes and 2027 Private Notes, respectively, as of that date, our investment portfolio must experience an annual return of at least 2.1% to cover annual interest payments on our outstanding indebtedness.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

EXHIBIT INDEX


Number		Description
10.1		First Amendment to Fifth Amended and Restated Loan Agreement, dated July 15, 2021, by and among WHF Finance Credit I, LLC, as borrower, JPMorgan Chase Bank, National Association, as lender and administrative agent, Citibank, N.A., as collateral agent and securities intermediary, WhiteHorse Finance, Inc., as portfolio manager, and Virtus Group LP, as collateral administrator (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 814-00967), filed on July 21, 2021).
10.2		Second Amendment to Fifth Amended and Restated Loan Agreement, dated October 4, 2021, by and among WHF Finance Credit I, LLC, as borrower, JPMorgan Chase Bank, National Association, as lender and administrative agent, Citibank, N.A., as collateral agent and securities intermediary, WhiteHorse Finance, Inc., as portfolio manager, and Virtus Group LP, as collateral administrator (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 814-00967), filed on October 8, 2021).
31.1*		Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2*		Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1*		Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2*		Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

*	Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		WhiteHorse Finance, Inc.

Dated: November 9, 2021	By	/s/ Stuart Aronson
		Stuart Aronson
		Chief Executive Officer
		(Principal Executive Officer)

Dated: November 9, 2021	By	/s/ Joyson C. Thomas
		Joyson C. Thomas
		Chief Financial Officer
		(Principal Accounting and Financial Officer)

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. junior Avg

WhiteHorse Finance (WHF) 10-Q2021 Q3 Quarterly report

Content analysis