WHF - Earnings call transcript Q1 2019 | WhiteHorse Finance, Inc.

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Operator

Good morning. My name is Brandy, and I'll be your conference operator today. At this time, I would like to welcome everyone to the WhiteHorse Finance First Quarter 2019 Earnings Conference Call.

Our host for today's call is 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 1 p.m. Time. Standard Eastern number XXXXXXX. dial-in and PIN the The is is number replay XXX-XXX-XXXX [Operator Instructions]. my the to Sean is pleasure It now turn Prosek Silva Partners. floor of to over Please ahead, go sir.

Sean Silva

today thank earnings XXXX for Brandy, first results. you, you, WhiteHorse Finance's and joining Thank us to discuss quarter everyone,

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

Stuart Aronson

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

net results, interest WhiteHorse provide performance Ed press that we the Ed morning was net on a QX solid first net details to review going prior share available was will I'm income reconciliation and the operating our this take prepared I'm more your market between I quarter release $X.XXX than are million interest we which interest financial areas. review for dividend. income $X.XXX to income will to questions. GAAP will through for chance had our net covering pleased to GAAP and share, take $X.X issued our or hope website. share then during core core our our quarter per And income per As you've you're interest his Finance results, in $X.XX was quarter material and all on after aware, our another you also remarks. open. which

the during a we a the quarter. $X.XX of addition, exit first due Health quarter In an decision primarily This small NAV to portfolio. to XXXX, account, from recorded decline of markups decrease was troubled the $XX.XX, in offset small by partially Outcome last

slowest rate very deal system January. showing In in the I disruptions would our April. strong into of that our with a light deal December, terms market March been flow through flow note was core lower entering deal QX to year, due of with growth month quarter flow, and the This pipeline of has historically, November during especially

on those of the approach Our attractive disciplined true H.I.G. we architecture, these I'll performance able value transactions at sourcing market during staying were deals and during is our sponsor elaborate underscore to underwriting. which our sourcing X-tiered to as conditions X provided to while our first-lien close QX yields shortly. still by

more discuss and Our on an by XX.X% detail. was as in slightly investments average the now senior weighted at increase I'll XX.X% investment decreased first-lien of our This driven portfolio prior effective on debt debt to yield quarter. slight the compared end deals decrease LIBOR. to a in

flat our quarter a small to from $X.X end $XXX.X we to during million fair the was were portfolio closed delayed As million, first at deals last aforementioned direct And X which also Aretec quarter, seasonality transaction Despite quarter. million the Total conditions investments Planet compared during XX, remained the sale. our $XXX.X we three XXXX, million originations. value the and totaling to funded relatively ability to deploy Fitness. due of the first-lien proceeds quarter, X from reported fourth those of also the $XX.X add-on March market of the conditions,

we as In our known addition, which to refinanced investment is JVMC Holdings O'Brien. R.J. Corp., also

sales primarily on repayments Caelus the driven quarter the and full from $XX.X $XX.X paydown a million during by totaled Energy million. refinancing, Aside for

With exit has the gas WhiteHorse of to portfolio. no across oil direct the exposure successful par, and Caelus at market entire the Finance

We also Outcome exited Health. our remaining position in

approximately risk company settle that of forward. Our internal life, for return going perception we will a when rate the while which its considering on result of was asset the X% is disappointing, our over of

reported and the subsequent able a its $X.XXX latter of quarter. position also full in share of prepayment a on been were April. meaningful to on of down the in the has partial first ACT full collect penalty We $XXX,XXX ACT, Media remaining paid We paydown paydowns which in or Alpha already to

While StackPath's nonrecurring our generate to that shared equity also had this our StackPath help dollar meaningfully we second to quarter it of quarter, performance. beyond its indicative in on company low-multiple, $X.XX that but Last will results, the fees been non-sponsor included the disclosed is in source rate. to the contractual ability interest on private the investing deals that improve be owner markdown also jump

StackPath our first-lien efforts, result and the a sold remaining the in converted loan of in some in assets effective those the a resulting facility second company the been reduced $X.X to par a on the has loan million sponsors paydown quarter. portion April. As the to of debt of And

now Turning leverage. debt to and

Our below investment companies all fair of our with portfolio of portfolio million. target X million investment had our on upper range or of value size at but debt an of size falling the average based $X.X $XX

at flat relatively Our leverage XX%. ratio quarter remained the over

intend to the mentioned this market in the But we is dependent on Finance leverage As conditions. future. X.XXx WhiteHorse to timing carefully at manage X of and investments ramp up previously,

assets only book our core will We that credit standards. meet

with add-on as quarter, an have far an transactions an Regarding as our thus account, transactions increase pipeline to additional into would the X funding. second mandated which closed well transaction X existing we

considering and will deal much close. this sourcing At X/X on those non-sponsor that X/X leverage which of mandated there model, of is transactions are indicative is in average our average that deals. The deals transactions However, market are multiples higher. the are as could assurance approximately our Xx, always, sponsor be time, no proprietary pipeline

In the of closed QX, us none credit leverage deals have have fact, X.Xx. - Xx. comprised maintained our in portfolio strong years, Within QX and transactions above of multiples And all the between last that Xx closed been as levered of loans at X.X have the the come the in our in and first quarter. first-lien to for that portfolio, XX% investors X.X fact, during we were we've our quality know lien

transaction us indicative of the and market of in is is portfolio maintain underwriting to despite turn true drive volume over our differentiator Ed. selective growth well for while the I'll ability and QX the in manner Our to all in believe that, a size security across our BDC capital capabilities positioning We deploying and strength call a With of now infrastructure market origination disciplined to size, a our low composition culture. conditions.

Edward Giordano

net in $X.X Thanks, $X.X million $X.XXX Stuart. This million $X.XXX We share. the million per or investment GAAP per share compares the or or per to compares quarter share. $X.X the Core or for $X.X income $X.XXX of This NII per to million prior quarter. in was recorded prior $X.XXX quarter. share

accrued our increase of and quarter. compared in account losses a in share. portfolio, assets $X.XX fee realized net total net resulting $X.XX the to XXX,XXX results slightly approximately net losses After management per a million cash As but the in unrealized net yet taking first or of in per of quarter, realized into $XXX,XXX $XXX,XXX per capital included $X.XX QX. gains reversed from fee in the this was reported our portfolio approximately is share, of $X waiver in not the the or for amount which $XXX,XXX a operations unrealized previously of Also result QX's waiver and or payable of share QX we on incentive balances

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

markups experienced As NII unrealized in quarterly by our small we net and this our exit offset $XXX,XXX by NAV $X.XX portfolio. realized the decrease Health, Stuart in in during driven quarter. Outcome first losses mentioned, our drove in approximately the partially Collectively, although dividend, covered

of investment rating. our a risk of X our to As ratings one saw it a portfolio portfolio being or X to pertains and upgraded our positions activity, the

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

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

the of adjusting Our for net hand quarter. on end the was as effective ratio cash of after X.XXx debt-to-equity

share we for to March XXXX, distribution. million of of a Next, On record quarter as the April of distribution to quarterly since $X.XXX $X.X I'd per rate March distribution XXth a IPO like our in highlight XX, per was all marks paid XXXX. distributions to total XXXX. stockholders a XXXX on for of March ended December distribution our XX, declared of distribution X, stockholders share. at The XX, the company's This $X.XXX with

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

Operator

Instructions]. [Operator

Hayes Your of FBR. first Tim B. from question Riley comes

Timothy Hayes

for you remarks? the highlighted total for My can prepared first investments the Stuart, and was commitment size pending? those one, pipeline closed you just in What your

Stuart Aronson

$XX the X pull I be in are I'm share without I'm intend perhaps are fact-based, afterward. of for to the are the that million can [ph] them closed, allocations Ed higher of terms can size we're numbers, to The to of so I front numbers them don't exact not together the on don't and pipeline speaking. or going level. deal. those investments me I'd transactions have million that all allocate the share we in the the we target is while the far between would that me. on that and they're than in have see call we since There front if able of transaction having mandated $X that working Joyson in And this we pull no numbers closed. per again,

Edward Giordano

Tim, of is Yes. $XX.X QX commitments. far closings so million so the

Timothy Hayes

$XX.X million. Got it.

you further invested? Okay, But it proceeds Aretec for pipeline, you've and do what far, closed And appreciate be your take believe up you that, will fully I just and how looking lumpy. know, just be prepayments to so given pending what's comments. long all deploy more can those then than Stuart,

Stuart Aronson

future. a than dynamics. the I is That and into pipeline market greater QX say competitive can't of pipeline QX. materially the function is was in predict All I is can conditions the that

are rates. I conversion can't over our of sponsor, have predict X/X in non-sponsor. mentioned earlier, X/X, pipeline, deal XXX We which But I deals

as soon speed the which as predict and subject leverage up we we constraints X the do there. hurdles, get try deploy can't it, and can credit yield X.XXx. I get to minimum money we So with to will Aretec to to But

Timothy Hayes

Understood. far on just you wondering at kind and deals. pipeline portfolio has I'm little on some is new being And box of multiples function landscape just been kind commitments Xx, where or largely towards dynamic win sponsor the a feeling reflective if you of quarter, the said sticking the senior, the shifting running mentioned, to more on above I to this portfolio in expand comfortable the then believe was credits slightly a but and is bit of with mix the needing the it's of that kind you competitive which pending leverage of your so if just competitive average.

Stuart Aronson

number deals is total the average pipeline. Xx deal the leverage So our XXX the over in across

the that in closed, is believe multiple we our we was most sponsor for X.Xx XXXX, is leverage the normal part, X.Xx, XXXX. on on the and transactions the terms leverage a between marketplace XXXX, In in very going which of deals

We not the have have And those Xx, up. not Xx. any engaged transactions done been many We've at over seen Xx of chasing in marketplace getting transactions. and multiples even over in we

And we That support company at do deals, have as Xx they deals Our of are average. the non-sponsor through you and shared, owners but underperform. non-sponsor have the value, seen deals, of lower equity number significantly X.Xx covenants. deals when management inject when tighter support only leverage lower the the to on non-sponsor X.Xx non-sponsor typically deals, firm leverage - are non-sponsor in not They companies to giving and that's to X.X consistently also strength the I those transaction we previously loan don't owners. non-sponsor equity into X.Xx should the is And And of look have deals, leverage on normal flow. you on leverage professional X a that and the to cycle. our But our note a have lower the do we private said, ability deals on sponsor leverage have they between leverage. because

Timothy Hayes

more around get it. industry? if attractive an industries new then so, us and And play. have any get most if which or kind credit Got further find just in relative a right defensive, And on give the we to Appreciate can you if it's just now been maybe concentrated particular comments. those an of effort update as value you originations and cycle that's if least

Stuart Aronson

We moderate are working that be some to cyclicality, the that owner we're secured generally avoiding playing industries, is avoiding with partner, And that from or a deeply shareholders. retail. have brick-and-mortar down-cycle. a we prudent We most construction, through our company auto, cyclical who position to to wealthy can companies at Tier a even X sure and in no avoiding we do believe will sponsor place senior a anywhere in a cyclicality all a have for cyclicality deals either will support make we try that think when avoiding

being up-cycle the Our down-cycle. keep and goal repeat to because we every today's which is and we to at down-cycle those year And think company regardless continue us a do XXXX a deals all we presumes if down, of cyclicals market are an we're economy benign those our analysis economic and repeat or And the couldn't then that X through turn in any in deal perform why do we our that paying that assets you cyclicals and of on is deep estimation find high. a levering interest of uncomfortably XXXX. performing market are not is projection, of levels our whether of in years run able to

Operator

next Ladenburg. Schleien Mickey Your question comes of from

Mickey Schleien

us data in those Could sponsor sense providing the to business. two of on you buckets a the borrowers compare? of non-sponsor I follow the give up you wanted the average were EBITDA how versus also the

Stuart Aronson

the similar, million of between are sponsor arena that Very deals Mickey. say the both we the I with majority non-sponsor EBITDA. million of consider in vast would $XX and $XX and

companies on under EBITDA consider million bit also something of will million. rarely We so. $XX little $XX say, do pursue well we to, non-sponsor will million up but the side, $XX a above to And $XX I'd million

companies is even But our flow to And EBITDA would with some of above number $XX these flow XX% million. of our estimate EBITDA for non-sponsor companies XX% that are larger than of million of I with maybe to more transactions or $XX $XX million.

Mickey Schleien

in you And get covenants able that compare Stuart, how the sponsor would you were and market between this deals? non-sponsor to

Stuart Aronson

between that The and them. of in sponsor discount covenants to turns company. sponsor deals usually the to have are is generally inside we set at projections. of XX% a several Those where XX% set do XX% equity And deals value sponsors' equity usually those XX% the are the

a sponsor our in Mickey, intention covenant-loose, still covenants that have you that while there has called left the company. it of There but or dynamic in lot market, transactions will kick our set sponsor where of that XXx. that the is value XX or defaults at a in those fact who is the about covenant on people So we or are are heard X have are talking getting they're covenant-wide may covenants, equity

more are on and our We X.X covenant-wide have levered or deals that X.Xx. our covenant-loose normally covenants are done to X between transactions X.Xx, any not at

which covenants non-sponsor but what upper that million much deals, the transactions, CFOs lower not than you we're behavior the are management in and the projections. at are are we non-sponsor mid-market consistent very to whereas sponsor on are and to gone comfortable in generally XX% all projections lower doing XX% covenant-wide, covenants think discount set see know of case in On levels because are management to deals. a the has the covenants we're set at the generally are with. our always CEOs $XXX And deals our normal, disappeared our upward-sloping. the case covenants covenants have market Those our mid-market, So almost is with you which optimistic, $XX traditional, EBITDA, most sponsor the million in tight as

Mickey Schleien

Just more a questions. couple

obviously So back tightened and of and updates fourth actually impacting credit quarter the loan progressing. that's give us launch then curious fund the dramatically the that's how spreads you on can in widened how any I'm they've senior up.

Stuart Aronson

in Yes. what And on to to price on in transactions push and transactions single in going What occurred away saw did those other We based large-cap mid-cap where case the we tried the the attempt that, and at we couple market a impact in of large-cap go no all on do saw virtually December upper to mid-market. we on QX mid-market had lower up every lenders. in market. core

squeeze never did impact any So markets. markets in our large-cap as That see those not we have our markets. core as aggressive said, gotten or liquidity core

And you surges, then with detractions. the swing liquidity the so liquidity it don't makes if you sense that back don't swing with

markets our QX, consistent. no QX. trends between even QX in we particular pricing were really So or seen change have And very into

will in open to leave do number do implement the and regards we intend yet until As right JV have assets the of that we intend to the But JV JV, have JV. with we have that to not assets of are move to desired, the structure. into continuing been we And to the it. than would we move JV number to assets after not position we proper investment to into slower into are the would right the and efficiently ready a assets because BDC things go source assets have those

Mickey Schleien

JV secured capital? debt its the Has

Stuart Aronson

a the leverage has have debt provider who the We for JV. approved

moment don't those with to on closing both burden fees on, until Because we and would it we're ready fees. And the BDC ready unused we that until the toggling want we're paying capital toggle go. to we not We are be go. to

Mickey Schleien

And terms you still ready could this do happen of year? to in that go, think

Stuart Aronson

It certainly could.

Mickey Schleien

of Do in issues accommodate covenants Okay. do they notes outstanding, And just then notes your housekeeping sort of that you X:X? outstanding existing the of last above the credit both question, have question. leverage a and both facility

Stuart Aronson

Yes.

Operator

comes from the line Kotowski question next Oppenheimer Chris Your of of Co. &

Christoph Kotowski

it that And a dividend. one assets." kind the let's spectrum? philosophically higher One if And I ways and fully I'm employing net go, same is XX% do you it's theoretically the doing of how of assets income, that on there highly be levels, a just run think philosophically And good than keep try power return, mean, been higher do would X should more you but think doing are with lower you've higher guess how at levered the risk the earnings support about of to core when right? you the say, should rate just company is I investment possible hand, that stand same about the wondering to could the kind of on kind so it other pretty leverage. we "Hey, darn levered? of where that you're

Stuart Aronson

already loans of second-lien Chris, were lower leverage used market have a with BDC. levels. about the being XX% implemented to be syndicated the conversion that we credits BDC the So we things that The risk number of did at

expect our at XX% the that we first proprietary directly now at expect first right XX% typically credit more higher levels. we bringing will almost it now, purely model, to do very strict standards. leverage lien. lien. to We run - that are deal But And we run like originated in meets a flow And we're

what that every the going on X.XXx BDC pricing of can what the based current earning when leverage marketplace, get quarter, a dividend no for rise. then the there the let's of it is true, I've in and determination to core earn at the And much sure dependent be there we of at JV X.XXx waiver going booking running assets the quarter as and if possible prepayment the as as said focus to we yields implementation that on like and we make the spreads is of earn in will the And annual models earnings on the the basis, one earning of got prior does prepayment we be what on But fees the are penalties, at BDC portfolio. that you we advisable market our You is whether the upon power changing more this increase depending we ratio although X power ACT still question to on ability calls I've prudent shared for is what forward, yields XX% the I penalties core before and book and make try it's dividend would X as forward. as leverage, to fees, the to amendment moment, amendment the reality dividend. what fees, with we about see But have waiver run the quarter. actually will at fees, on an first-lien a will we core overall the amount approximately asset dividend to the been earn assume every talked that and

Operator

next Rick comes Your JPMorgan. Shane question of from

Richard Shane

trend we your Is bit was there bit at origination discount lower a this look little little of quarter just spreads, sequentially. activity function less driving of repayment and that When a accretion? compression a on

Stuart Aronson

My spreads small LIBOR partially little it decrease the my are in the deals. the driven doing anything lower for the comment then then the Ed has come bit down deals partially fact understanding further. we I'll second-lien to say that driven the increasing that than by that and yield first-lien of deals. fact have is amounts is make a leave by average And and first-lien

anything else So changed that compression the resulting the that BDC. it add? want fact modest yield from you the to is putting the directly of we've a risk we're in profile Ed, assets of

Edward Giordano

agree with comments. I those No,

Richard Shane

Great. Okay.

of level to gives the at the and portfolio, in a in shift spread, that dividend? the modest good you ability portfolio, when at the run rate is shift, so look the given this in sustain you shift the the the pretty And confidence be the to sort probably looking

Stuart Aronson

earning projected earn on BDC. the that feel we leverage, going actually out, we to or able right as now basis. at the the will an should whether on And right to is again, power plays and like and on that moved. dividend our book we assets everything discuss historically, annual we that increase the of how dividend more level is are is be on increase Based And based Yes.

Operator

questions Thank further you this no joining at Quarter time. WhiteHorse are for the Conference XXXX First There Earnings Finance Call.

You disconnect. may now

Stuart Aronson

Thank Great. you.

WhiteHorse Finance (WHF) 8 May 192019 Q1 Earnings call transcript