WHF - Earnings call transcript Q3 2017 | WhiteHorse Finance, Inc.

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Operator

Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the WhiteHorse Finance Third Quarter 2017 Earnings Conference Call.

Our host for today's call are Stuart Aronson, Chief Executive Officer; and Ed Giordano, Chief Financial Officer. Today's call is being recorded and will be available for a replay beginning at 2 p.m. Eastern. is the number XXXXXXX. number dial-in replay XXX-XXX-XXXX PIN and is The Instructions] pleasure Silva to my is of turn Partners. [Operator now over to It the floor Prosek Sean

Sean Silva

today thank Earnings XXXX for Stephanie, Third Results. you, you, WhiteHorse Finance's and joining Thank us to discuss Quarter everyone,

these are meaning this guidance, no begin, XXXX. which the call, statements implied the differ or statements to would financial risks that including or be Litigation any of certain update obligation I materially historical are statements deemed could Because uncertainties, Reform factors assumes expressed those within on we by forward-looking responsibility to unknown remind any based to Before that Private Securities these involve known facts, may important forward-looking statements. to everyone from forward-looking of and like forward-looking and statements, not made cause statements. results during actual Finance these Act relating WhiteHorse

for GAAP available During reconciliation on discuss is CEO, allow this www.whitehorsefinance.com. found call, our which you can me we'll financial website, and Stuart, WhiteHorse begin. With may which our release, Stuart Finance's introduce be that, a in press to measures, Aronson. non-GAAP

Stuart Aronson

thank Thank morning, joining Good and for you, today. Sean. us you

website. after performance, to quarter issued financial that, going release third our our our questions. you're Ed had As we to and aware, and our this market morning take then to through operating I chance review I'm we're press also take will our on are results, available prior to open, you a you've hope and review happy results, which

takeaway BDC of determined too investment that terms of credit philosophies. we inconsistent close, not did to that X by In these deals, key are close the results will was our is resulting case Our mandated X were impacted with planned. third us risk to The deploying core not as which it. agree not funds, high the we deals, quarter

the to for from not capital long-term these remained to principles potential prescribed third falling during portfolio. recorded deals $X.XXX. the lower-than-normal the that combined set our with allocated diverge of per share, and dividend We we that detriment during we of have undeployed -- when net of of would've short-term waiver quarter interest we $X.XX under fees a below The will and our gain income received quarter, we amendment

interest outstanding, While trend assets we we quarter to redeployed. also anticipate once fully less-than-targeted fourth we're will impacted net expect be this by reverse income

run both As our basis investors and long are a dividend, on we've aware, of our for quarterly a had year. full covering the

and making, partners and towards our our ability past the that we shareholders. for skew we bias given momentum we've strong across to optimistic to are and still quarters, few results decision continue and credit always Our the delivering will over delivered appropriate forward built platform conservative quarter the move about our our

the rest XX.X%. quarter, Turning at remained quarter results. the XX third pleased for last quarter our share yield that $XX.XX now -- the into our fell solutions environmental to We is target was million $XX This that which the to normal Environmental provider. loan hold Montrose million million. new an had $X.X increased very to up to from I'm during of with origination per $XX.XX, average a range strong share to quarter of X weighted and NAV Group, position $X an up

lien assets. lien and to possible, maximize, first second to assets this second loan, over continue the we extent a our increase term While in diversity was secured lien BDC

during $XX.X million the also better recorded than and We QX. for was recorded $XX.X sales repayments of which the million, total meaningfully quarter

partial $ rental Corp. exited and on was This Car, sector, quarter's full a primarily X.X a A of paydown by Pay-O-Matic activity Fox we the paydown of $X.X million driven Rent the on car as million

to investment our now portfolio. Turning

$XXX.X the portfolio XX, was fair second is the million reported of quarter. XXXX, end September the of value million, the of at As below $XXX.X the which

of As on were million portfolio lower which being $XX investments. senior of million. mid-market our the with had loans The to primarily fair date, value, investment loan borrowers, $XX.X consisted size variable-rate based of secured largest portfolio an that same average investment

held the across positions different Within XX portfolio, we XX companies.

quarter, as we of portfolio During and of $X.X our speaks this Aretec last and also marked a net fair the in up in million tranche This saw of Aretec, led portfolio see million, Grupo gains strengthening performance HIMA. our continue for lien positions position by to quarter. improved, continued in mark-to-market Intersection the $X we of for to markups our we first roughly the value also

of the increased we HIMA, that for needs to For be government on Rico focus view Puerto Grupo credit. a positive

ahead and are already quarter transactions. deals several and mandated diligence QX, the are of better we seeing in for these during on into Looking due documentation active volume

However, uncertainty successfully to turn I'll now regarding due there will deals outlook. mandated on is closed based always which results. diligence be the macro the

of portion lower We mid-market we focused smaller many to and less-covered actively return. continue remain deals we Conversely, finding the in and sponsors, pursuing where see market. are the on risk sponsor main good firms

market was a because today's In aggressive that from XX market, market we nonsponsored the shopping basis selective year the been points to avoiding are perspective. a investment conditions, large of we've banks, poor XXX opportunities is more being is widely. that by lower increasingly ago. sponsor observation in Our managed processes pricing credit between Generally, are than it

Washington, selectivity, San we've offset in increased and increased in resource to Francisco our Now origination staffing, adding D.C. resources a this X

ago, turn the keep XX% develops. I With across business, in will is given Ed, and go were larger that, call now As origination we a expanded pipeline our informed of the ahead. deal week we'll that a than you how what Ed. over to efforts our any to on XXX% result experiencing year

Edward Giordano

third the quarter from the $X.XXX per results per $X.X for share to Thanks, million was NII or with quarter. compares in Starting our million This share. Stuart. $X.X operations. prior $X.XX quarter or

from for third assets of $X.X continues recurring $X.XX share net interest. income cash million investment primarily approximately increase resulting Our operations consist net quarter. a the or reported in to of We per

net QX. pertains the it value or XX, $XXX.X as to $XXX.X or our unchanged. asset risk share, our was ratings $XX.XX portfolio from $XX.XX as September mostly reported share, -- investment for million And activity, and million per remain up on portfolio XXXX, of As per for

our $X.X of undrawn to XX, We sheet. resources of under approximately our restricted cash as credit capacity million of including had XXXX, cash approximately September million million of balance facility. $XX.X Turning and revolving $XX

well as to closely borrowed the the ratio XXXX. We asset leverage XXXX asset amounts, XXX%. September feel end XXX and of Act, for sorry, quarter, XX, the at statutory requirement the of as company's comfortable defined our continue -- coverage was monitor coverage ratio XXX.X% our with The of above by third

declared distribution, debt adjusting was distribution of cash for highlight after our ended effective stockholders was all ratio of September On December equity of The $X.XXX X, IPO on a to rate X. $X.XXX XXXX. I'd distribution net September the at XXXX, distributions Our distribution of to marks quarter. like to September million since distribution. a This record to per per hand for as X.XXx. we XXXX, XX, quarter our on XX, stockholders $X.X per paid Last, share total October quarterly with a in of company's XXth share for

Operator? the turn your position expect be our questions. I We to regular to a continue operator call the now in distributions. to for

Operator

from Rick question Instructions] Your JPMorgan. Shane first with [Operator comes

Rick Shane

think pricing commentary more seeing impacting for for -- which sort specific you're the are specific from deals on the is about Or and competition of, is it this, broader, passing the additional trafficked of you I in how that that loan specific broker leverage appreciate niche? We competitors new to markets, about that curious, seeking? transaction. pushdown assets your am larger some

Stuart Aronson

I would I what capacity, example. don't If answer volume, on do. the pricing in X but this me, are who was can origination you your get that without banker's we waiving notwithstanding on either X done I banks due processes bankers credit diligence things competitors diligence who our entrants the don't their were violates interested on That the that in, that coming rely please committed question we'd but deal, in will that but the for took by tell credit own any or are resulting perspective Without redirect give commit and you an due deal. seeing I intermediated we have organic to standards that we deal that a fully, interesting banker never won't doing of due imagine There new perspective quarter -- would plan diligence. we directionally and a deal names, we book on ever on our commit, direct would, we having our the how to and own a without to the found told can't us, never doing based deal

finding efforts a from is were our we've a origination who for intermediated that a perspective are are are the the model, because leveraging And situations arising, investment our deals, of these pricing broad we them redoubled showing array are sending out a have That's mechanism of that direct don't any So are on opportunities why our we here things intermediaries where tell mandated improper feed-on-the-street by or doing where, lower in you would there limited I are I perspective. of QX, deals think believe H.I.G players, major bank. improper competition. mid-market, outliers to up from there credit

fully? deals players Does against your loan in moment an finding to auction. not to So XX other time a old-fashioned it we or buy the answer up and great XX a way, are question go XX, in is that

Rick Shane

gives done you. it like mean, you And was untenable of It the was the differentiated was latter. did. you or in look, terms absolutely was was do to, a just that alluded it was that it origination or what H.I.G transaction strategy from about the think H.I.G.-type deal away sounds I part that curious were I related actually to and deal I it a whether not

Stuart Aronson

the credit neither. unacceptable have actually in but situation accepted gotten deem There and away. price, to and even that due was deal of a answer. deemed risk, the more -- right risk we We closed that the to it the be was shift resulted an return we walked the on risk It the and didn't be diligence we and a we did could

Rick Shane

this discipline is the and and then everybody always have Look, knowingly Understood. one on that's regrettable you an terms break when a of investor, is mistake. things

And one the causes you things from guys it this. discipline, everybody sounds and like of themselves way that to the where try it's breaking so to approached prevent

Stuart Aronson

that you X approves is the myself we unanimously don't the money committee deals, lending It will that tell speaking agree, on adage these to money. and speaking is. that on if committee have in have And you, lose for the make the individuals philosophically, I old only investment for investment both focus and you

we deals, the cases will get we And that back And away all those of we repeat do typically to walk if to that Great subject The our determine a repeat all are of that, that a then transactions Recession. are so of severe can't from. we downside we money

Operator

next Your Instructions] Rowe from [Operator Bryce Baird. with question is

Bryce Rowe

some Stuart, conversations And that redoubling ask we've certainly, the about on and effort little this I and I your on I based to origination and commentary that find wanted calls, bit had a deal. appreciate a on and pipeline longer of "nonsponsored efforts, understand bit the of there. takes little the comments to it more past --

if goals handicap So you spoke you the And conditions for might what have to. again, just -- next deployment can of just us, market type you to against for the try curious, handicap for that current few maybe, try quarters. that --

Stuart Aronson

complicated question. a it's Bryce,

mandates just diligence can. me that X it's deals, because answer mandates. nice share and that the possible we especially in as close. I have directly a as mandate, But as mandate I'll a it Let mean those at doesn't have group to doesn't deal pleased we that the always will we of also try you caution do when that moment, mean in we to nonsponsor if hope -- the than again you'll on, allow had those a of you that is world, many mandated a as that I'm to that we the to working have want to us I leverage, can, quarter QX. more deploy, and even have deploy, majority And close, rest a before significantly million of were we $XX get capital I going more to if that XX% to QX in close. the will we target in then of it of we're any now, in majority deployment of Right that QX. if

million could is, other I it. ahead our on X.X% I'd guess, return historical net I'll deployed which to that leverage you cost, given thing, $X.XX after $X.XX would worth reasonable, closed, to we of, very team get $XX but is per a that the of per our did. of share we've question The share quarter, deals, math follow-up X.X% a If ask, at sort be based

dividend imply our And able as earn not an your on we did should quarterly possible. available Bryce? this dividend we quarter, hopefully, earn to annual that to while the Does once that that would So a levers our be have we basis much us, cash deployed, on and question, answer as basis.

Bryce Rowe

down get And quarter some about or and in at on -- this of the the of appreciate over being preservation about the also quarter. share wanted abnormally forward? focus above me expect I certainly terms would you -- abnormal fees wrong, this level appreciate per waiver and don't recognition, capital of there Was that dividend going amendment amendment I'd NAV in point. I fee the to or this coverage waiver preservation, fees, something ask

Stuart Aronson

and prepayments. waiver fees a and have an typically amendment by violations both accompanied which we catch-XX, a covenant are So bit is of

where performs things come in and really we have lower. portfolio, that's the And pay fees so don't good when off, portfolio the amendment quarter and for well waiver when a

it's the nonsponsor in bad be drives where are the nonsponsor what, news business quarter. with the in business a quite of majority business covenant continues covenants. news Normally, to tight I set covenants there is And earnings. are violations the our good guess, So -- the on tightly,

fees. will in more violations covenant So violations, generate covenant those and be quarter, normal more there will a

And prepayments, The other we is prepayment that thing with and out to X stretch X nonsponsor even we prepayment get, there in that generally especially years. fees our on more and have quarter, come us normal a business, are that. penalties

violations a few fees strong prepayment the don't in normally portfolio, at hard repayments say, for all to few fees to very quarter. project, QX because and a the that waiver were was quarters, it if and It's So amendment other than or preceding low. you such was look quarter the so have we so

So the on quarters. generally that to reasonable based future just history, but based normal be better that's it will just those in can't on numbers situation. promise that, history, expect - more I it's

Edward Giordano

of than And Bryce, average this that fees. I'd add lower that, is significantly quarterly tale historical to the our

Operator

Thank does today's you. call. conference conclude That

You may now disconnect.

WhiteHorse Finance (WHF) 12 Nov 172017 Q3 Earnings call transcript