WHF - Earnings call transcript Q2 2019 | WhiteHorse Finance, Inc.

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Operator

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

Our hosts for today's call are Stuart Aronson, Chief Executive Officer; and Joyson Thomas, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 1 p.m. Time. Standard Eastern number is dial-in XXX-XXXX the and The is number XXXXXXX. PIN replay (XXX) [Operator Instructions]

my turn pleasure to now is It to of Partners. Sean the Prosek Silva over floor

Sean Silva

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

are meaning this guidance, begin, which the call, statements the statements to would financial including be certain I historical deemed within on we to remind any based Before that facts may forward-looking everyone of like statements, not made during Private uncertainties, XXXX. implied involve or materially Securities cause Because these known and differ Reform Act expressed Litigation of important by could forward-looking these unknown these that to those statements risks factors forward-looking results and statements. actual from relating are

obligation Today's responsibility forward-looking this our from no any morning earnings quarter material to to www.whitehorsefinance.com. or speakers refer WhiteHorse which update statements. Finance the second website at presentation, XXXX to WhiteHorse Finance posted may was assumes

allow begin. CEO, With that, WhiteHorse Stuart, you Finance's Aronson. Stuart me to introduce may

Stuart Aronson

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

As performance, of the will questions. then I’ll at more remarks. we issued appointed And review available quarter morning open. our also market provide had which we appointment newly operating going aware, hope the I'm prepared take you results, Officer second release and to our press website. you've end our for to lines chance Joyson on our I Financial before prior Chief a on this our are Thomas, through to our review open financial results, my detail you're Joyson's

$X.XX the strong in asset from increase closed deals. the of impacted, quarter but $X.XX from an was assets. the quarter a QX otherwise up We we prior increase net had mixed. quarter, originations second Our were XXXX/ two quarter Furthermore, was hope $XX.XX, by temporarily of results to and was and value seven markdown It strong

income net share was covering our $X.XXX the net $X.XXX was GAAP $X.XXX or core dividend. investment $X.X share quarter and million investment a income for per

the XX.X% Although the on impact due income-producing quarter, we average they to faced both weighted positions. StackPath dynamics. which on nonaccrual the these of on of end and effective as as detail yield XX.X% during on our second Kings weighted the I’ll effective portfolio of yield to the placed challenging our total AG of provide declined investments quarter now was further average

As the are period previously reversal our hard interest of but the as the dollar. challenges the in secondary announced published as possible. reported our and Kings of AG accrued facing as nonaccrual quickly We, our only this company from working resolve position down the for not $X.XX the position prospectus ahead we this company's and June, affected in on sponsor offering advisers earnings on yield to prior well. the to period placed the marked The impacted

Also our in data on quarter the in saw StackPath QX. $X.XX based down $X.XX on we nonaccrual investment at end, from position we marked placed to and

We to sponsor as debt. work reduce with continue of company closely this action they to the take

debt reduced as to converting which remaining As our of first $X.X of the the at these resulted facility. a quarter at this million lien repaid sponsor mentioned loan being efforts last quarter a result the in par I and a company loan

information we end next we remaining that asset, remains may the to of by of However, this in expect all do it regarding a risk our quarter. more collect of investment resolution not have

which from the investments were other quarter operational two these meaningfully I’ll to thanks we offset in able results While more markdowns, detail. address highlights now impact these partially to our

deals We As in one from on continue new and to the QX. to mentioned, quarter we position able strong sale. proceeds experienced Aretec added investments deal during and the seven high-quality made flow and deploying source

management waive quarter, these proceeds our the agreed while not assets to significant cash shareholders of for our during the are portion of cash to so the Because disadvantage quarter H.I.G. Advisers as fees reinvested. balances on adviser our WhiteHorse

data are Further waivers deal a strong Given at now the future balances the this the joint we have invest at the JV achieving The to goal activity, State five to of we largely to leverage formed our those in yield of a Teachers this assets Ohio having XX% assets more we as us it deployed, XX% previously need beginning third result on do venture of with senior Retirement allow not time. investment. appropriate launch efficiently period quarter. contributed on operations of based System will secured of anticipate of determine the the with our for of

that Finally, secondary an a announced per at conducted the H.I.G. during Capital funds by managed the we offering as offering second $XX shares funds share. of Bayside price known of private quarter, also

a shares this result new diluted Finance of Whitehorse that approximately under nor to sold therefore did from secondary so a and was were our shares funds and we million proceeds ownership As to the It not reduced Bayside were was total receive X.X offering, which offering is no important offering note share to any issued this this XX%. shareholders.

addition to are timing aftermarket to potentially our The of an listed by publicly factors block which shares of as beyond shares trades managing addressing to control. secondary options sales offering the the understanding of by Bayside in many of the enhancing program, public fund any liquidity exploring shares. determined additional We by owned listed an offering goal of our be offerings continue liquidity our intend offering will such that other process in investors our orderly secondary through the advances

was $XXX.X portfolio. investment $XX.X of net mainly deployments by $XXX.X the to The was grew of leverage I'll loans to multiple X.X balances the XX% now turn quarter. million new approximately these times. seven QX attributable weighted We originated new value during to the million, during on made totaling lien increase quarter. the in quarter first average previous compared portfolio million our as our in The fair portfolio to deals

$X.X that XX.X% at first-lien purchase performance whose at Repayments improve. which well our amount million HIMA, as prior on position the the discussed I our our million and quarter on earnings to remaining small on StackPath as which as the Grupo face We on included paydown also $XX.X during quarter made call. one in loan a to paydown principal a ACT add-on was continues earlier, sales secondary totaled of mentioned during

strong from Fee approximately million. $X.X prepayment fees income as by was from $X.X ACT well of million as the quarter of million and very was amendment $X.X totaled driven generated Sigue wavering primarily fees and on

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

up our activity an ratio to on XX% This origin drove from during quarter of our the leverage underwrite last objective always quarter. Elevated leverage our X.XXx. carefully The meet levels assets up X ramping that increase this will at market credit between timing standards. ramp to and our manage of as investments dependent only portfolio advances up and XX% is conditions rigorous on

the our one to an now quarter, which non-sponsor Thus and sponsor far as would deals two are transaction existing closed transactions as additional in QX Turning we've account, well funding. third to mandated that other with additional add-on pipeline. one an eight increase transaction

that I end no that be close, can in always should the of will also deals mandated As have the QX, first-lien our all far that QX, closed assurance mandated is deals QX, transactions these transactions the mention the transactions first-lien our in in XX% other. deals there that any all up and QX so of of and closed as all XX% portfolio to

we between several seeing from equity new the More unchanged deals cushions, we're last broadly, non-sponsor non-sponsor Pricing quarters. with market in Normally is XX% leverage. and for been stable market quarter in market any conditions X at see don't last remain X.X competitors times that the largely to the market. least

market, XX% with run leverage sponsor to find between we off at of to to cushions. assets with X.X the equity least times, continue In X.X normally attractive

sponsor market, been broader deals last However, on loan competitors we the pricing very XX stable on although has typically that to in generally be crowded, over we're sponsor have quarters. those market on more several continues observed or finding transactions the the

infrastructure key of market three by at which our deal direct is the origination differentiator. architecture flow Our competitive sourcing despite HIG, strong view we a this a value backed underscores tiered

this sourcing to throughout customer our binary we're diversifying portfolio prevent outcome approach always, standards, our maintaining our As rigorous risk. underwriting to avoiding credit and to staying disciplined concentrations true by process and

Chief In Interim forward. has closing, pursue other previously for I will his WhiteHorse dedicated now to Finance best is Financial share moving management our Officer, Ed numerous and Giordano, him service. update. thank the We who Ed We wish years left opportunities.

we the contributions mentioned growth. has calls earnings promoted have Financial Joyson in with years, from to Chief to heard elevated in Thomas, look may Controller you who’s forward company for been As previous been Joyson’s this Officer, several

I call over And now Joyson? the to Joyson. turn will

Joyson Thomas

Stuart. Thanks

in $X.XX million incentive per after $X.X million the of $X.X income translating GAAP in $X.X Core per the to quarter. prior share. reported NII quarter. This million million or compares gains or share accrual $X.XXX net share. $X.XXX $X.X share to $X.X million for This compares quarter $X.XXX We investment for approximately the or was per to per fee adjusting prior

$X.X approximately million, the by aggregating by that aggregating markdowns million. offset second portfolio, $X.X were driven the We considering reported assets net gains quarter. $X.XX per realized in million net partially $X to from approximately our net net we mark-to-market gains in operations portfolio, portfolio or to of in million markups reported the the of for and unrealized in resulting After increase share $X.X

June a better, pertains of one as X in $XX.XX of or share nearly rate expectations asset at has or reduced portfolio risk $XX.XX $XXX asset net carries where share, been XX% per the performing X per plan our two in or to of initial performed especially XX, one million QX.As of value to those reported expectations. rating either risk our XXXX, from $XXX.X As according activity, investment an on was portfolio relative million asset is has our up and it a initial loss scale X rate of to to

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

leverage closely and We with asset monitor XX, ratio comparable our continue June to of XXXX. coverage as feel

coverage for of asset statute above at under XXX%. amounts company’s requirement XXXX as Act the The the of XXX.X% was borrowed by ratio our end quarter, second defined well the

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

for $X.X distribution. XXXX June as quarterly our record highlight XX, million, On for a XX, on ended to XXXX.The July total distribution to like stockholders $X.XXX XXXX. paid distribution per XX, declared share quarter we of the was X, June I’d Next, of stockholders distribution June of

company’s XXth our IPO of rate all since XXXX per the distribution share This $X.XXXper in at marks with the distributions quarter. December

distributions. a to in be to expect We position our continue regular

to the your Operator? operator over the I turn call for questions. will now

Operator

[Operator Hayes of is Tim Riley Instructions] from And your FBR. first question B.

Unidentified Analyst

thank you taking and Tim This for actually for my is Mike on questions.

question first quarter was is what you investing drove last the So today. wondering markdown the private and this looking the that quarter kind and equity of sponsor was reiterated you the in forward? mentioned I with StackPath, here outlook company the what's that just

Stuart Aronson

is the and of has by quarters actively in injected June. with significant in we mind expect was in value of week mark financial we results to The company are the change get information in them and -- debt seeking the the in disappointing, update. financial by got equity end assets very to The time expect have multi-times and next are lowered which reduce -- involved an a our that the and we we of were driven to sponsor we at the the dialogue the update results the

Unidentified Analyst

added quarter had a And on that non-accrual and non-accrual It’s one status non-accruals. quarter we of then another was that AG to like peers noticed Kings placed investment question your earlier. on this

you to change let what quarter wondering guess, So I compared just I decision actually make was now this that earlier?

Stuart Aronson

understanding We performance performance we credit on more that in quarter. of that was that accrual value the the and likelihood on and the information more we led of prior lower did of to information again we the reverse on recovering before interest determined and that credit than the the we of credit took the got the thought

our quarter. in have So and for that that included we results earnings the is corrected

Unidentified Analyst

seeing just guess, overall companies you of would coverage, how that? portfolio, you changes the like EBITDA then a the any given terms interest And of your to are characterize in follow-up material a compared maybe things health year in growth, portfolio I ago,

Stuart Aronson

performing plan. over are on performing companies that underperforming companies have we that that and Well, are are companies,

United portfolio. States. impacting We are the our to economy lower from wins not that lot systemic macro about and change in not performance mid-market the trade our the economic of resulting wars read be a issues, any in seeing do The other seem we

is with that a exception So with issue would of that specific sector, quality I are and issues King is we portfolio a year the which with consistent say dealing ago. StackPath Kings, in

Unidentified Analyst

like yield question quarter-over-quarter, of then so driven much declined me. one much XX just any? was this how was the wondering Looks last LIBOR then and I driven of points for it And by by if basis how all-in was competition decline

Stuart Aronson

have to happen you do breakdown a those Joyson, of numbers?

Joyson Thomas

is base break let’s down rate. related XX another spread the XX the roughly Yes, and bps bps on call it to about

Operator

Your Schleien Ladenburg. of next question is Mickey from

Mickey Schleien

your follow on like last at major when spread pretty capital up that XX Actually on question yield been look impact has market, portfolio that's page clear we come as of the to compression trend. looking at into the that seems a

I how think loans, what the to and the fed rate, about in economy slow developing environment potential sort into are the portfolio the see down well in about behave you do which account think your this think will current continue looking you LIBOR do for below competitors taking When with you -- to and settling? loosen assume yield to you how of the floors

Stuart Aronson

Let second me lien just continue loans. highlight and be to that booking not first-lien we loans

booked first are QX lien. far in and QX everything in So plan for QX so

transactions continue before JV. BDC to we sponsor that are that modestly have that would not we lower Secondly, the the in for levered booked are assets targeted book returning

on LIBOR did the So XXX we with returns to we JV from not compare with take taking on that not periods look JV. it of at that before average assets time when before. Because knowingly we’re had you price apples-to-apples the the to LIBOR XXX is

the when to contributed showed XX% the structure returns assets the an and JV. through generate to aggregate JV leverage XX% of Those

composition you would in that having indicate in of several terms change spread pricing in them I the not secured based taking seeing first yield we're the senior over the So we’re assets we but experiencing in not the we are assets. last on a compression, market a being quarters, change of both are lien

what low be secured the putting would doing so we’re originations the have that one we the believe been do leverage have the assets fact are that them low the that not strong. on we yields the And that and LTV in of senior lofty BDC That's BDC. reasons historically

but environment market react markets right that a for will we will a just sticking be market gauge we In future the have the terms BDC. credit to, standards of that that how would insight rate do behavior the with prediction and to I things declining interest don't the of can any our do

The North originators of have continues to our beauty model we be, America. XX in XX across cities

are sales We those competing banks who not off banks. the of deals are toe-to-toe regional all of desks people with major buying and

We do, one that transactions the are holding clubbing together asset or organization just as where in those with of are deals the majority other general that we some in of an scope we or players. deals two doing cases all

Mickey Schleien

JV yet. will to is that I this the in I understand loans we contributed just the Q yielding warehouse quarter some lower Stuart that correct? sure to make seen guess given be haven't that effectively current

Stuart Aronson

priced the were that LIBOR and third the XXX in XXX have of putting we transferred books JV. the quarter on Yes, assets at five third – are those assets to assets into early quarter those in the been

Mickey Schleien

they So was that – transfer? what’s the sale for were or the accounting accounted for transferred that

Stuart Aronson

question. Joyson I’ll answer that give you to

Joyson Thomas

STRS's with Yes, that JV was portion as of contribution the obviously count our a portion. along into the JV that would sale to a

Mickey Schleien

any understand Rico Okay unrest in does HIMA the I does to said credit? just a Puerto – can, specific risk your Grupo oppose recent couple you the improving more that government in the the questions recent if remarks in but I prepared

Stuart Aronson

the Rico their Rico of on of has our to in But to knowledge. X and in the situation any the impact need company improved sheet Puerto the is performance seem at We not material it X hospital be HIMA having the the reported to be as of have the over financial seems seen best situation residents does managing Puerto for past news months. care. Grupo better And to balance generally itself improving

Mickey Schleien

want interest the accrued the said AG that on confirm just previous to correct? you I reversed quarter you And entire Kings was from

Stuart Aronson

been $X.XX a would higher that I earnings that had to an take reversal. have of so share not we needed impact Yes had believe $X.XX

Mickey Schleien

And was reversal StackPath? for any there

Stuart Aronson

May Joyson. on right For at nonaccrual that of went is StackPath the end

Joyson Thomas

That’s correct.

Stuart Aronson

on appropriately any XX have data believe StackPath based that haven't to without And the we accruals. we we marked at having reverse at

Mickey Schleien

StackPath the months two accrued So for in quarter? current

Stuart Aronson

In the quarter, yes.

Operator

[Operator question JPMorgan. Instructions] next of And your is Rick from Shane

Melissa Wedel

I is of your prepayments income? income I'm some [indiscernible] nonrecurring you prepayment touch in This this into today. you on half quarter. fee actually income that certain our and and fee guys of the the about Melissa as received Rick for of 'XX outlook wondering back to sort the I wanted identified is on think headed that on onetime

Stuart Aronson

waivers won we those result piece our non-sponsor life is very BDC so regular can’t which Melissa or defaults the smaller amendment that a amendments of companies project book covenants natural prepayments income. and waivers XX% or is of in a fees, over companies the over entire and but that have on

in high reported low. be and been some some quarters, is in from it’s is normal non-sponsor last and flow. quarter-to-quarter. it quarters varies transaction But it our prior primarily a part has of In I quarters As will income In always stream the quarter. like

highlight, to both coming and we fees We ACT don't the those deals because generally amendment see their who have a contributors covenants covenants transaction. the deals, as than sponsors some non-sponsor the the and less on do in non-sponsor both fees and get violate Sigue sponsors quarter frequently from are many are deals. sponsor fees lose The so sponsor labor the key generally

Melissa Wedel

well lower non-recurring what $X.XX that income per bringing described amendments strategy for I'm that -- other the nonrecurring the into look where the put how I as the perhaps investments and dividend other and with you've share non-regularly nonrecurring and I coverage? income non-accruals, think When items? talked combined release on you or of look out think do looking with impact we that guys yields onto classified a at balance bodes really in at look press -- joint guys that yield of investment sheet about you when -- prepayments and additional non lower Okay. But terms they're lower you you from fee you XX, if and at transferred also June venture. and on before recurring some that

Stuart Aronson

Kings into fees we fees can't levels. and drag or get continue what non-accruals projecting come and pressure of be until it’s on generate to amendment waiver deployment fees, net get. all and waver But on have will the the will results. put to penalties, ability StackPath never we a expect Again will those prepayment and forward resolve earnings, they fees in and we but interest predict our to amendment of income a function our current issues we resolution it

Operator

from Next Dodd question Raymond Robert is James. of

Robert Dodd

that spread shift obviously we that off things the all given are live you balance us back assets expect equal sheet? being quarter, you’ve other due them, lot the transferred quarter LIBOR in two at call On you’ve of some quarters assets issue on beginning spread about but of it should XX board know, the obviously over color call going that to to the a the them expect on to talked XX obviously much how lower being last of this the come so spread those the quarter which that JV third excluding it down when third points, given went so -- you in basis before

Stuart Aronson

to I would have that generate? a is or yet Joyson number great It mean question, calculated is need something you we that Robert,

Joyson Thomas

get to need Robert. back you that on We’ll to

Robert Dodd

I appreciate that.

mean, income in obviously that fairly Sigue, debt great the needed to its with implies to of asset. the fees made some but on that be material structure adjustments one waiver Second I me amendment

we the there a in an that mean, anything that cost of of obviously know and of be in asset elevated terms value and am raises lot but I is implies I should the eyebrow. concerned work the fair So about that scale mark stress that

it? color If you give us can on any more

Stuart Aronson

year. last and waiver and fees company very have relate the the do assets the the it generating other than is it default company of not issues Sigue to on leverage core time same prior the The is in financial but is year at solid better in the we was that performance. on amendment been performance that the in is modest fact has in the and underlying

there, would again company We is and anticipate solid. already those performance marks, otherwise have we do not changes any more the taken

So a concern it credit at time. is not is of this it business the

Operator

We Thank today’s thank conference no further joining you. WhiteHorse you earnings second call. Finance There are questions this time. for XXXX quarter at

You time may disconnect day. wonderful lines and this a have at your

Stuart Aronson

Thank you.

WhiteHorse Finance (WHF) 7 Aug 192019 Q2 Earnings call transcript