WHF - Earnings call transcript Q1 2018 | WhiteHorse Finance, Inc.

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Operator

Good morning. My name is Darla, and I will be your conference operator today. At this time, I would like to welcome everyone to the WhiteHorse Finance First Quarter 2018 Earnings Conference Call.

Our hosts for today's call are Stuart Aronson, Chief Executive Officer; and Ed Giordano, Interim Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 2:00 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 Darla, First Results. you, you, WhiteHorse Finance's and joining Thank us to discuss Quarter everyone,

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

Stuart Aronson

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

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

surpassing During interest of $X.XXX. our the income meaningfully per dividend $X.XXX quarter, of first share, net we recorded

a the of quarter the $X.XX quarter $X.XX first net asset quarter from of We increase per fourth a value of first also $XX.XX, from share recorded XXXX XXXX. and increase

$X $XX We we to non-sponsor, $XX the leverage were as our was the leverage XX% well with six refinancings to across million target million, totaling range million historical positions effective positions, originated. the six was two weighted Originations transactions our five of senior from originations extensive on and new consistent six between $X of which our low all as the originations to XX.X%, all with yield Further, during XX.X%. through four earning yield typically through consistent loans non-sponsor average yields Additionally, target. transactions quarter and infrastructure. existing multiples were range these source our from directly the first transactions had which lien is only is ability while credits and loans, were these million from -- and increase on all million, X.XXx, of demonstrating secured XX% attractive double-digit still net HIG $XX

million income quarter combined waiver of and amendment Together, total $XX to of sales of of a the primary also Time of This increase fee and for & fee Katun We Group Project $X.X $X.X with fees, Cost quarter million million. million. full $XX fourth recorded paydowns was repayments by $X.X during on total million of Crowne quarter compared of $XX.X the these driven in XXXX. drivers million income during for primarily refinancing Corporation the recorded million, nonrecurring of $X.X the repayments, were

have due earn turn amendment goal I'll progressed the goal. sponsor is lending, fees fee all That to income, for that quarter-to-quarter, In to than prepayment pleased said, our Our in our sometimes one an of against our million. fee vary stronger to given deals. and QX, in annual basis. from we're investment on a can and XXXX protections total now $X.X quarterly QX covenants and dividend fee variability this highlights income With fees to achieves and strong our such to portfolio. fee is prepayment as income tighter in variation non-sponsor our income experience waiver earn normal was our we it penalties

XX, March end the compared of of of the fourth to at portfolio reported quarter. value XXXX, the $XXX.X was $XXX.X the fair million million As

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

than Within XX in held we repaid, we the XX of $XX.X portfolio, At the of million resulting quarter, against deployed the leverage positions end companies. XX%. first was more what

rate deployment elaborate mandated is we could a target in in XX%, range our QX of transactions on I'll QX the of XX% this the to XX% still our finish our that quarter a six on range. fully under to conversion in leveraged moment. While depending XX% pipeline, the with pipeline

reduced the enactment March today from of the Board asset Credit of coverage the of by which Availability Directors in announced leverage, XXX% topic to the approved proposed requirements of our reduces Act Small we On asset Business requirements that coverage XXXX, XXX%.

our We XXXX upcoming in also Meeting. Shareholders the of recommended shareholders the coverage favor Annual at asset reduced requirements vote

the to leverage the would and these an unless our third-party briefly As on in X, place changes accompany for Grupo through cyclical leverage to senior the a on believe outlets that Aretec HIMA. on by the would quarter year secured in for and based Several take positions Aretec increase has expect reported deals bids in XXXX, that a increase asset sale. of is Based increase during for our be in on media our approved mark increased equity. any this result, May earlier downturn. goal discussions, now we with that shareholders. touch potential rest perform The will management we moderate, I'll be on

positive situation, the We position. potential its our are monitoring closely impact given on

XX% can WhiteHorse create that which interest income, we quarter, convert equity earn cash, able to As coverage which shared cash when redeploy dividend. into our helps investments into approximately positions was net for last we share and $X by we yield In income general, every an a for per with million basis. of leverage, cash increase annual invest interest $X.XX in on receive

on and position second placed regarding net lien asset. our nonaccrual Now Grupo we HIMA,

$XX part only leverage a that said, that will debt the However, million it on we With a first lien portfolio. the Grupo size of transaction, at of a of on flows full cash position and $X have the our HIMA are small multiple recovery. based is million, in optimistic the

our originated quarter are transactions: closed to have Turning both one first both two and and directly during we non-sponsor on deal, sponsor one already are pipeline; the second loans. deal senior lien secured,

broadly, have many additional these transactions, been. and how not it's We on actually to also pipeline our than do subject mandates close. are ever originations four as due and is know transactions more we diligence, robust will More always,

deals turning and risk. are flow high We currently over pursue with more down than before, which speaks limited cyclicality, cash We evaluating and but no we're companies our binary also diligence conversion free ever deals, discipline. XXX to outcome

a our loan We ample be transactions boutique through which offices. three-tiered We is our The direct sourcing model in differentiator, network to conservative sponsors lower source for less our if where bankers, and validated opportunities. assessment believe by accountants, results can H.I.G. but off-the-run enables subject our we also managers, the uncover companies this where off-the-run our our recovered so ability we quarter. family we all our be to meaningful architecture, mid-market, lawyers, recession credit and effectively power believe wealth of can sourcing only factors in XXX% that prudent to to in a Further, be make canvassing these speaks of of us analysis, from the in money there's local where down our a to cycle. a competition

to Turning briefly market aggressive. general remain macro now our where conditions very outlook,

undertaking believe companies accounted much in been pricing too have higher as outcome credits many are that complicated leverage regulatory for that premiums cash have that too by weren't instead of focusing binary that risk, We We of deserved the very shown flow on by such to being we've number risk much all companies so concentrations EBITDA significant a syndicated declined of cyclical participants and lending we by customer opportunities. on market thought or these net risk. placing market,

large to also to a avoid WhiteHorse WhiteHorse continue the This these at allowing on I.G. virtually access relying and of process. I that, intermediaries. insights XXX-plus from turn that are call across direct from on investment we origination we evaluate. now underwriting risks come all in transactions the We With see deals cross-H. credit We reinforces will architecture of H.I.G., over three to to H.I.G., in available Finance without transactions benefits assist importance of that range who Tier the broad underwrite. the the knowledge this credit knowledge the types professionals the Ed.

Edward Giordano

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

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

was value as or asset share, $XX.XX share, from for reported million $XXX March As per the net of XXXX, or million $XX.X QX. $XXX.X per up

our ratings unchanged. portfolio pertains to it As on portfolio risk and remains activity, our mostly investment the

Turning we million approximately to of March and capacity on undrawn our million including had restricted balance cash resources revolving $XX $X.X our facility. sheet; as of approximately $XX.X million XXXX, XX, of cash credit of

by asset ratio borrowed coverage above the as feel XXXX. of as existing first ratio the asset The XXX%. well and our our XXX.X% We continue statute for company's coverage under defined to closely requirements at Act, end monitor with leverage of amounts, of the the our XX, comfortable XXXX was quarter, March

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

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

Operator

Schleien Your Instructions] from [Operator Ladenburg. Mickey question first with is

Mickey Schleien

deals Perhaps returns. you And I'd attracted also risk. remind sponsored find your terms origination team protecting interested in have underwriting understanding differs your can between unsponsored of your deals to us opportunity these that how you provides the downside and in be risk-adjusted how

Stuart Aronson

professionals born these investment a they non-sponsored typically are with are To These across went and communities, means business to out are years we have communities, grew tapped are into across in in people cities, investment they up benefit three located origination cities robust these in starts tiered communities in school generally very these XX are spread to architecture. these U.S. these the who active We local extent which transactions, from the sourcing communities, professionals the were of in socially mechanism. experience. XX fact have the XX who It physically XX XX that

entrepreneurs U.S. who rely non-sponsor We for those have exist big bankers and these investment not wealth found the the that that advice, deals occur best and but on accountants, sourced communities the -- people managers, in shingle from the from instead are local that are single banks people lawyers across the the

So sort the are seek that those source of from. network to we

across smaller that sponsors We typically are with the in also funds. that source or, have fund $XXX cases, less these off-the-run non-dedicated exist the than from are million U.S. These in some of working local sponsors communities sizes

We source offices. family also from

supplemented cases, the again, smaller database And exist shingle access single So then is presence. XX in group. business offices, a That of XX H.I.G., history. mostly group serves investment is of potential quite is bankers, professionals telephonic that physical business the of proprietary XX-year a communities That debt development force H.I.G. names else we where who based in has bankers H.I.G. talking to team U.S. has side And in us a database sources accountants, network development XX no database that with that that that give people the that sales those of XX,XXX into family in H.I.G. lawyers, is over a cities we created. the Miami, all created originating. directly wealth believe, It's many deal is across the doing into its to. in telephonic in is have a don't managers, unique of, one sales by mid-market boutique over lower

so passed ready the run that companies has are transaction fact not their cash acquisitions, entrepreneurs Tier them by of originations third or professionals our opportunities. focused shareholders or The but need are make those professionals over capital organic XXX to debt regularly investment from to originations source private capital over to private and professionals who equity that's of many minority private professionals to H.I.G.'s -- for out growth transactions to on equity who and are comes looking third our they deal X., equity. tier situations, across -- sell tier the investment H.I.G. Those professionals,

transaction we the we mid-market a is, on what believe, the the our capability lower we H.I.G. in the other lower on largest credit in in recover Great transactions we forensic time management, XX in bring on read compared knowledge direct in unparalleled we what supplier with with and And that underwriting. lending getting that these the lending. due have we, market. have transactions like on do of the our WhiteHorse dedicated believe, massive tap in financials the we that that wisdom case that Great We turning on, reflects customer origination we very organic the down have getting the looked we in So that are underwriting a would lot processes. the on That company professionals if we of downside only to of second the of, down. from a addition And competitors part Recession the shops fact If how transactions. that into. forensic rigorous deals so did, of work checks, the else market meeting significant that we gives not based spending closing, could we risk not intention these To the the we all BDC, like, investment do our a case we a case insight every majority understanding background believe of are and turning don't the professionals that those that, to architecture business downside We credit player anyone credit again, mid-market that marketplace of into be process. doing are contracts, we looked business the are doing. looks involves just direct your risk but of Recession. do believe We deals downside what typically is do question we we are that the But bear see subject company, the fact This money to direct company investment like all are and work to there that do. vast contracts, the to most done differentiated XX It lot their not a think they in in the the exercising work are diligence starts done. and do

the on extends on investment beyond enormous we companies transaction thousands mentioned that into into virtually in tap bid over and people. on that knowledge There we that I over system owned XX XXX knowledge of have actively thing an other worked have underwrite. tap on H.I.G. of companies. amount The professionals our and are we resident call, the XXX in H.I.G. who There's every the

an that's credits speak Finance the to and committee with has XX-person private for professionals So professionals, the that of committee credit it, a includes to insight. is Sami They I'll And and credit H.I.G. lot history we Toni investment I've do we credit those the lot, XX-year the a it or to with bring over sectors XXX committee, years of a debt a that thing our but experience, the the awful spoken in we to and WhiteHorse the does decisions. cause risk bear XX knowledge consent of unanimous understand founders of speak the H.I.G., people transactions, to on entire of That share investment of lot deal. decline the Tamer. require then, Mnaymneh committee equity distressed That us associated gives the you and final companies. but us to with of credit is

X XX X X or the the but are BDC. X of in out results do conservative or X if not XX want to in process, deal, done out people unanimous transaction does So a applied consent our to philosophy a credit that is or transactions don't, very get It of which people consummated. that

Mickey Schleien

do How transaction? follow-up more one just add I if define And a mandated question. you

Stuart Aronson

low moment so doing do deposit A non-sponsor also made, which been intent and and that the do a covenants, non-sponsor reflected has we in quarter mandated and a waiver would letter expenses as leverage the gets a transaction. has non-sponsor are off-the-run majority our sponsor. transaction lot the XX% of up strong a being others, multiples-type like a world our to work ask of by on in directly, come is paid our didn't the mandated non-sponsored BDC, diligence very our mention, fees are with experienced. we about a then with In that some we about due and transaction that the transactions you the for at types customer we to also transactions, the sponsor; non-sponsor things a transactions. us, of but it us executed typically sponsor is the amendment on I'll involve cash means of give where talk in which we BDC both both customer XX% ratio leads quarter transactions the But that just documents, has

Operator

is question Co. next Oppenheimer Kotowski, Your & from Chris

Chris Kotowski

it's a realized six about -- in doing non-sponsor thinking to close XX% the said stay your longer would that other guideline, to kind near and XX% your that traded I lower transactions be? higher-leverage you're available are the what market, sponsor of the But I credit? Or of kinds industry the days plan the to last five, you run, with liquid been investments, box in the opening years? are you middle to to do more now. to knitting target that with know but was staying still range. term, I you early just approach wondering, very limits in And you've

Stuart Aronson

directly we BDC. a in to traded originated the we an At And not offer are originating market to syndicated originated a that moment, my a seen always transactions that are the yields. bringing low-leverage value transactions the There as is transaction good directly risk lot less have that return risk opinion result, ability out than the originate. double-digit have liquid Chris, competition current of market. you when we is return less environment, situations and the the that have get

Now of course, could it a moment there time, time, move any market. a good possible shareholders where market. short-term in it be syndicated be us in situations or retrenchment take And have in that advantage the that of in would opportunities at arise in to that either will point our for is, medium-term

and it at we're that So do are the but the closed, vast not would All transactions directly credits. transactions all originated the moment. have and that, of are doing we broad the majority transactions pipeline in our we could mandated that

leverage some market your quarter that positive very demonstrated hopefully, is at rumored, the with outcome point, hopefully as earn be At that be dividend price what question, BDC. consistent will to this we've is a that's it will or indicating, in cash regard As in the sold more. can comfortably just we our a will result Aretec, for sold and

we an the dividend increased We flexibility annual protect can the earn and as of earn will the that if enjoy grow we ongoing both and that on goal being that would more with leverage, if could lien changing assets second will the will for and leverage very lien basis. arise, lien, want lien we shared secured be appropriate, stated coming booking higher BDC, BDC And can towards would the do NAV. off of and be to the we that, first of a in I increase the to basis at cash senior first as to good more be a manner, really that the opportunities safe and any provide comments, to year, we use expect take But to of -- a ability dividend comfortable for invest even on support that then our in all for have additional it's our that the balance those first ratio leverage, more modest. in of the some to outcome we least by leverage. And

Chris Kotowski

wondering, there on what limited coverage Grupo confidence loan. the if based can But the loan in things. terms HIMA that you I on based you senior there full recovery on, you share -- like, say? such say senior can is you a of, anything And know can you're what's in on Or then I'm is that in And through confidence those values? or EBITDA asset indicated

Stuart Aronson

even specific a Rico. inside senior that Puerto in tell for you belief consistently share mark-to-market a through part a value the hospital in of good though has we we can't a the ultimately that, is believe confidentiality. our is apply in values recovery. mission-critical marked leverage conservatism, believe, of down recovery. the I do system to can that numbers likelihood we do well of of notwithstanding will our multiple operation, business we it have That conservative opinion, and of said, reasons that of And try being be debt, the I franchise part which that,

loan, in real Puerto marked full have the obviously that the it an also Given of has a marked upside that at lien situation Rico, occur does down noise think around lien loan a will first we risk has the time. recovery, have second the if we impairment. that And very significantly which, down we've

Operator

Bank. is Instructions] Deutsche next Your with [ph] [Operator from George question

Unidentified Analyst

those you In transactions? the transactions closed had the have of XX. subsequent Can remarks, March prepared size mentioned that disclose to two you

Stuart Aronson

that handy in don't if doing him. for numbers the don't of Ed I has those have to that. see mind numbers front I'm I going me. are

Edward Giordano

million the one million on $XX.X second. the and $XX.X on first

Unidentified Analyst

subsequent And X/XX? sense this, do for activity have repayment you disclose not to a you any -- may any

Stuart Aronson

we are the repaid quarter? Ed, share already to of anything that the has end Again, able since

Edward Giordano

so and We far far. sorry, Legal. had Pre-Paid one Pay-O-Matic -- I'm -- are we've two They so had

Stuart Aronson

the have amounts on Do those? you dollar

Edward Giordano

$XX.X million $XX of and million [ph]. phase

Unidentified Analyst

at year-to-date it is was looking Or the review do the line with year? continue at the broadly, may that to credit-related like of in just what it? it largely any you issues you in And beginning to regard portfolio, be with

Stuart Aronson

risk wherever in And stress we view reflect on on well. you the reviewing HIMA, our million therefore, is are always again, other type you see say, that And $X HIMA, assets credit are ratings the to portfolio in on is and And conservative But well. would the We and to very as overall, take portfolio. we the then way, assets. accrual. loan realistic everything of our performing any as credits I see that our marked that try have marks Grupo a than

Operator

there And time. questions are this at no further

Stuart Aronson

very to we appreciate you next will attention, Thank everybody's I talk you and much. Great. quarter.

Operator

concludes First XXXX the This WhiteHorse Finance Quarter Call. Earnings Conference

may now You disconnect.

WhiteHorse Finance (WHF) 12 May 182018 Q1 Earnings call transcript