WHF - Earnings call transcript Q4 2020 | WhiteHorse Finance, Inc.

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Operator

Good afternoon. My name is Laurie, and I will be your conference operator today. At this time, I'd like to welcome everyone to the WhiteHorse Financial Fourth Quarter 2020 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 5:00 P.M. Time. Standard Eastern number XXXXXXX. dial-in and pin the The is is number replay XXX-XXX-XXXX, At placed questions have mode participants this all time, been floor be presentation. and will in opened the for following the listen-only a Instructions] to Silva over is the Partners. Sean my to of pleasure [Operator turn It floor Prosek now

Sean Silva

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

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

Stuart Aronson

and to safe you us times. I today. be and as these joining families and for you, Sean. Good continue thank afternoon, Thank hope you we your unprecedented healthy navigate

other Financial than review and the which also any website. to fourth morning hope will conditions and more a addressing Joyson had our Afterwards, open and start we I year quarter our for detail. Thomas we aware, you’ve performance stronger results, business I'm prior release ever. issued we the in are to to chance by you're our finished market on year market going resilient our floor questions. open unlike Chief but was this As remained Officer press results will XXXX our our available a discuss and then our

call seeing opportunities. we share I were You me team strongest those on am on in last quarter's history heard pipeline say and converted pleased to that our that our the

the set with $XXX Our gross reach which company gains to was was at our origination updates pleased a a to more financial allowing XXXX, new fee a quarter leverage million share. adjusting the accrual $X.XXX and increased improvement am performance interest net a than QX. us including record deployments million of would BDC. also after volume investment fourth for NAV target in level $X.XX or positive capital compared for $X.X share quarter was core an million to I NAV to $X.XXX income special income dividend, which $X.X incentive GAAP $XX.XX $X.XXX $XX.XX excluding for net XX, December

quarterly record offset totaling gross add-ons included $X.X deals million. million, for $XX.X partially million XX five was repayments Our totaling deployments and by totaling which $XXX

and and reached leverage effective a the average quarter quarter income-producing yield remained we as X.X% weighted one shared, I flat target at Our of our investments during times. just on

Our driven pre-COVID than recovering was from first three this where performance environment levels. benefited factors; leverage pricing higher conservative, quarter by we was but was a average gradually

In third, $XX.X during portfolio level QX, and maintaining value has of certain continue the our QX made earnings. from expand the position JV under four reach while deliver $XX.X assets JVs the credit has of deals in advance totaling rate effort underwriting the BDC continue we to the target times, contributed have physicians the this million. deals historical an price our XX Based to our improve. we fair with Second, deliberate the transferred leverage facility growth and improved of with one diversification add-on At and a QX point, as premium closed into to On of one our to use quarter to continued JV we JV deals been quarter end to our JV JV million. and effectively the held new third aggregate BDC. the standards revolving on to

it's As a the levels ramped the on investment borrowing compares yield result, on average cost over last an in the JV JV. basis favorable in the a annualized LIBOR which favorably declines XX% in the with months fully to BDC's return above XX due the the of underwritten produced QX, and impact on

portfolio until small portfolio quality, are continue improving, is our credit impacted of to affected our will be which resolved. accounts, piece COVID Regarding is generally COVID but our

impacted once However, these for COVID significant assets. the potential is there on conditions positions, normalize on our recovery

This our QX account a fair exit thus improvement strong basis, portfolio. On in of consummated of last last to during EBITDA. our as the if debt was value. at X.X and end cost. driven partially from quarter varies the on QX end end quarter, new the position, BDC leverage prior value to and X.X% will value to now debt for nonaccruals million the X.X% in added Kings and continue $XXX,XXX sale results. to in The X.X% the deployments. X.X% deals Kings million amendment was At Nonaccruals portfolio; income portfolio Kings AG was fourth at our The on term QX $XXX,XXX out AG reflected increased investment the representing in compared average is times our accounted gross our our of reduced $XXX transaction lower for gross debt to of investment million show the of we loan by fourth fee were to of forma X.X% was prepayment discussed fair $XXX the based compares and our the $XXX of income just of the This than pro X.X% of the fair the recorded deployments. of quarter, of at be Turning to nonaccruals QX. QX. for only quarter Repayments Fee not of this billion fees. we record-setting at of offset $XX.X QX portfolio and to slightly quarter calls,

XX% of our Lastly was compared were as of loans loans our lien first senior secured to sponsor in and XX% and XX% comprised QX in portfolio respectively. of portfolio QX, XX% debt

carried pipeline, currently QX our over QX the are are into same robust ahead, and pipeline, momentum is one are two and time add-ons, the three in eight deals add-ons. new sponsor is eight Within our XX are non-sponsor. and our eight originations three two was sponsor new Looking six our the has which into Of at in originations or We non-sponsor. are mandated it pipeline than last which year. of stronger have

always, average. is of likelihood our deals be A that strong any potential we repayment. will As repayment offset of next origination have activity no these there the that over loans, can four the historical higher identified we have in a original that assurance of quarters, number level portfolio's We're may these of a to mandated increased monitoring experience close. which

would higher earnings on so that However, we inflow that invest at X.XX is will maintain long-term interest does we at our not that good our the prepayment BDC. and net expect leverage operating have prudently a higher capital power that will increased and the news repayments boost if pipeline purely the knowing potential and more fees This of repayment temporary strong target. a anticipatory than potentially Further is leverage we income materialize, basis, fee times seek leverage change higher activity level is income. can coming, we does to

back now syndicated right market and unattractive and and look the The that is pre-COVID incredibly to us. terms to deploy leverage aggressive is run in attractive. broadly we almost As of loan is capital, moderately on levels the I'll market note to pricing sponsor

the our businesses, to lower we remain On XX to above a pre-COVID on with statistics. other by pricing turn and between focus the basis a run the levels and half hand, non-sponsor turn XX higher as QX points evidenced quarter which leverage sponsor off

QX Before transfer of December reducing IV, largest their agreed with Since have turning HIG funds Fund call of outstanding affiliated funds Capital, Opportunity Finance's First shareholder Joyson, their because public the HIG of HIG Finance executed reported, managed HIG the the sell Whitehorse and the LP affiliated publicly position markets, the terms. share was Whitehorse holdings Capital. Capital in collective affiliated Loan ownership updates., reaching half to Bayside with over company end This I'll their legacy shares the as are provide sold a another Bayside of XXXX, few December of in as by to to in in their XX.XX% XX.XX% funds XX, interest with Finance was Whitehorse to XXXX.

at least not to remaining as is does from transfer to the Whitehorse markets life. years no so five share in of preclude into pressure public the fund Finance shares this new has additional selling do fund the there future, the timing of three While

achieving commentary basis. clear and We're investors was for milestone our flourished. target cover that seeking to is illustrate ongoing critical my reaching is goal. loud dividend commitment sourcing analysts our and encouraged market our cyclicality three-tiered believe record-setting our our our in Second, that downturns finish has one year I we heard important We've that as this by at infrastructure coverage our times and and an hope and results to built an dividend the a leverage and on quarter to

of originations almost at on are you. ever. quality, entering strong questions. to to quarterly providing still not our with portfolios and will after special adjusted our best as for declared the and QX and income leverage, is our sponsor shaping amidst dividend Despite of commitment yield We this to flow was the record Joyson We're balanced. to nonaccruals We've earn to a is dividend dividend cannot as and the up warranted. and assets guarantee speaks we XXXX the on NII our which while and increased. this to dividend and new We've be We're of call dialogue types the our non-sponsor and XXXX NAV a turn asset quarter showed momentum. continuing both increased strong these of for earnings ours. for continue look sacrificed reasonable shareholders. continuing we challenges, activity, unprecedented quarter for of to any QX record-breaking pipeline results I'll for your down to as and and have special board mix deal rare the entire be far the our forward is Robust XXXX another high whether which the first our now target the the up will cycle with BDC questions. take deployment we've activity, us which so navigating perform strong credit to delivered the updates special will a pleased needs leverage to these end lien, pricing dividends we to answer basis. Additionally, help BDCs level fee XXXX, year is end at above dividend was

Joyson Thomas

for Thanks Stuart call. thank today's you and joining all

During $X.X The incentive quarter. after fee of $X.XXX capital gains share. the per QX. $X.XXX per quarter, compares in fee or of was the or Core for share. $X.XXX gains income $X.X accrued per was as we million net recorded net gains GAAP This NII share million a to portfolio during the the accrual investment incentive adjusting capital result during

the in million investment $XX.X the $XX.X million. one after add-on and JV deals of Our four effects to transferring STRS totaling new increased

net quarter. million. JV As of resulting $X.X of compared We was million income $XXX.X prior December in the $X.X with of a we the in the fee in held positioned million operations value QX fair from reported with an XXXX, net $X.X assets aggregate approximately million. increase XX, XX

ratings in risk XX.X% to showed portfolio of that or QX. a carried XX.X% during rating positions two quarter Our one our compared the either

loss company a of has to expectations. a seen As and that its rating one is risk performing to company initial a our reduced that reminder, the two according expectations rating indicates indicates initial relative

approximately December our $XX.X in cash XX, XXXX million $X.X of to balance sheet, including Turning of resources restricted as cash. we million

JPMorgan we of exercised under the revolving QX facility. accordion During $XX million credit our available first our

credit our As million remaining which of excludes December XX, $XX the revolving the undrawn revolver. under under accordion million approximately facility, $XX we had

by exceed for under ratio borrowed which a XX, XXX.X% the of as company's XXX%. was requirement defined statute XXXX December amounts of the coverage XXXX As the Act asset

QX after ratio Our adjusting hand was net debt-to-equity cash for on X.X effective times.

million issued of which totaling in XXXX. private debt at was This aggregate During support QX, our an offering, a notes notes million as for through amount subsequently growing notes closed discussed the towards call our private October offering done offering the $XX on XX a follow-on a through on quarter. pipeline. last offering, December as raised additional end notes. unsecured original maturing to $XX or In principal well as we with in of X.XXX% we this unsecured principal offering rates attractive connection follow-on was That unsecured XX, successfully in aggregate amount

consisted comprised of or credit from portfolio of The repay quarter. million XXXX, first issuances as the million our in to X.XXX% in while the maturing maturing the help notes or revolving The X.XXX% set proceeds in was were $XX facility used that during XXXX. $XX on well outstanding growth as these facilitate second our notes balances notes

composition of after these facility. of up offerings, revolving the capital unsecured option now accordion unexercised debt XX% at Looking our resources debt our approximately our debt credit total excluding under makes

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

December we XXXX, on distribution Additionally, paid $X.XXX October XX, of per record of to as share XXXX. of XX, stockholders special a

our a leverage now deployment call but Operator? will coverage to we've warrant over XX, may and our addition on has back March the that to of to April quarter to will evaluate the quarterly with Stuart's the record core declared volume. $X.XXX XXXX to first dividend continue stockholders momentum payable believe board distribution to not levels, said as we our higher factors Finally, for per BDC's earlier, of better only questions. done, it remarks we based ongoing announced always on earnings morning power turn relevant distribution of us positions Consistent target share portfolio we allowed by this a also of as operator in With other us the XXXX. reach our consideration. for XX, that robust I be that

Operator

in Ladenburg. comes question first line of of Our Mickey Schleien instructions] [Operator

Mickey Schleien

Stuart, now you curious how would numbers pandemics in out the more that segments that invest the nice am are to I exposed a like and vaccines at pace to understand COVID? are coming down, are obviously characterize rolling to opportunity

Stuart Aronson

Mickey, taking very a stance that. conservative we on are

the COVID in medical primarily April, part most the that back March, seen even We we've investments and have for done companies some in performing by those May, sector spring was impacted strong but are company as any I the COVID period well taking did not risk during any they interested pre-COVID, significant were of this COVID other but or variant in say as exposure would risk. that has type

believe now So really that exposure. underwriting is light businesses either what non-cyclical we we're businesses no doing right or COVID and

Mickey Schleien

Okay, increases? wholesale I and is see price your noncyclical, must most understand to meaningful we're think cyclical those price that borrowers to have I of curious inflation some and I'm are portfolio of ability do that you understand wholesale their speaking to inflation. noncyclical, starting exposed how versus about on pass you but

Stuart Aronson

accounts like majority performance or At either to are general is COVID heavily we're fitness the to upward. a our of COVID heavily continue restaurants small frankly power be is the moment, areas strong very having Mickey, people the the and or pricing companies serving of There grouping exposed seeing reasonably of but impacted that in strongly. accounts performing are outside economy that affected of stable

Mickey Schleien

the and of average what sense can either EBITDA borrower's what and you would And some is you’ve of of trends in average trends, portfolio? revenue that EBITDA give revenue terms Stuart, seen and in what us the

Stuart Aronson

I it don't together try can have those get numbers handy, I the to you with and future in but Mickey. back share

Operator

Raymond of next James. Robert the Dodd line question Your from of comes

Robert Dodd

on the Congratulations quarter.

target kind confident given you pipeline are run prepayments some of happen, can high if leverage say will of that time. go payments repayments target you're right to above for you be and the come appear like how elevated tied limited above your period don’t leverage indefinite one first now, the to The you'll relatively comments, may the then leverage sitting

confidence feel long how is confidence can long repayments any -- for So be high but and will about obviously and how repayment us you mean happen you about the eventually give for need how fun how to leverage elevated about could how color that? that I the the you'll

Stuart Aronson

Robert, a they've that tell Yes the information get we repay are been repriced to I either of going we number performing the that our In marketplace. down. companies not to you in in portfolio have already pricing to so strongly repriced some that that chase and from flows lend will they're we're because can the going loans marketplace cases, those

the indicated they've that owners had companies every have selling them in of of for number a the sold have and that of COVID where might performers in they hadn’t intention to those if also We strong companies XXXX it us company been XXXX. are

companies For part one events, there's those X are sales that given pretty they or companies to sale will the QX to that on of those X.X repayments will relying to two XX and any for be at are to potentially up happen, sale, of are happen. QX, or the will expected sure the if that we not but given interim, In targeted transact of instead the some leverage companies about performance those times. most BDC those QX of we're we're for number the but run probably

those an trying a times. high basis intention down to too us we're edgy on nothing compromised. back will will the times target reliable pay manage find leverage earn ourselves from to and to So If to ability our that X.XX X.X repayments, don't downs will we take below then the ahead get too of our we that or with be dividend

income the be the we additional deliver dividend incremental and an and with at at in accretion of payoffs be special no those and much the the on the remarks, of potentially as also excess penalties, any generate BDC to waiver able while what of we positioned out, or the excess speak X.XX prepared a can $X.XXX at to better XXXX if shared be early year have to considering quarter prepayment I fees amendments my assurances are in income about we will what fees, least there leverage, generating and of board these earnings. we will dividend it the So year in be earnings will both what end again, we've incremental dividend we've run earnings shares to in math where

Robert Dodd

more term obviously near got utilize those in Would the expect the be leverage Obviously investments again The without you're that towards you’ve revolver looking to are accordion. we that unsecured pretty have an BDC there's schedule to near-term strategy and fund on says XX% get the leverage? if congratulations million it running public of unsecured incremental those you follow-on do you to if were be but fund or to debt revolver is available obviously obviously the higher on markets what's you were debt well. to the as going $XX should the XXX that attractive, more, to up the

Stuart Aronson

the being to a we from up we do made the what and as take the go do a for moment senior have we openly would numbers is view been at reporting our unsecured more community need needed, sound us at debt incremental we attractive very but to communicated they but We debt, and banking unsecured and exercise to as could have by that line the attractive would not to and on but that explored secured debt accordion we XX%, incremental whether number had market yet or our secured, XXX as attractive. unsecured decision LIBOR we not as very this is market unsecured explore very attractive, if if

Robert Dodd

answer. good and I a very appreciate Thank on XXXX. Got you it, the congratulations

Operator

of comes line the B [indiscernible] Securities. Your next Riley question from of

Unidentified Analyst

this on appreciate in environment. higher comments Certainly activity repayment the

fiscal maybe do deployments us through be you grow cadence can of 'XX, the you repayments? the through If or with of think 'XX you'll book inclusive able to help repayments the

Stuart Aronson

book Well X.XX grow times we leveraged. really don't the We're want to anymore.

is assets million in it take the we deployment $XX of right the but number, So million again asset to may coming $XXX the around total million out or $XX by face of repayments.

have and is a a we occurring sale repayments already of on and QX, depending for income QX, we're pattern again of pipeline companies of those good of At into that fee in for Some the very QX. in of moment, visibility QX, the which some payments sign in a the to. strong we have leading are QX timing QX

other had just was mandated As but not pipeline it's is our now and as forward deals, pipeline, COVID. QX before as we've I strong it mentioned any stronger than the forward right to our prior

do high. the QX. we believe and careful we going X.XX pace we the expect leverage to not be that very we to Again see stagger repayment in rest So we'll of we're to the about of with take getting and a will up repayments as keep it into schedule, too QX be that able to times maximum

Unidentified Analyst

Certainly key and just if income for touch pretty seeing? income. fee given million there repayment income expect pipeline I activity XXXX, fee I if if and add healthy guess fee at that helpful to I expect about land this XXXX level kind $X you're look year, you income of in where the the on do you of I would

Stuart Aronson

It's too to early tell.

the got sold it deals a the one in remain price may delayed deal case prepayment that it penalty lower. six of company getting a much I on in make what be. sold they of months but that prepayment at get prepayment terms happens, to our would has depends the be then be penalty nameless and in, excellent get sale are that large of our would very at company very penalty that could quarter the will moment, Some if which sold, have prepayment penalty be that and and soon that or whole

for that there's things the in acceleration will exactly positive accretion come be other than that and those penalties fee of other many way really will So of all prepayments the prepayment involve cases fact cases knowing no involve getting and what we're will will out of NII. the

numbers but early indicator, So what positive the rotation will those too a tell of the it's exactly like. earnings is look to accounts

Operator

line the Liddell comes question of next JPMorgan. Melissa from of Your

Melissa Liddell

robust benefit the For context in of really cadence am to did put around payments it? give originations about you of in whether from there? or any the earnings? not complicated, activity the impacts the I both but specifically XQ that's differently, timing full of portfolio a were quarter consider XQ, example, us there the wondering I some did expect at and -- the can Looking

Stuart Aronson

a not earnings did the in of the close close from so quarter number and half the benefit transactions quarter second as week is a fourth of we Yeah, the in often the of case the last Most in the quarter. deals of QX. some of or two

ourselves So only portion have in solid modest of we've positioned the and with QX volume but the forward, a in very earnings to QX going got that QX. we of benefit

Melissa Liddell

quarter was And that repayment the distributed in direction or queued or other? was on then the throughout one fairly evenly the similarly that activity,

Stuart Aronson

to during on remember the I Joyson, quarter let lean when me need to know. the I occurred. payoffs don't you

Joyson Thomas

sales Yeah spread full part Melissa payments early was quarter. exit which and says in the it throughout shortly The the what Invesco QX. out after so happened remaining that QX,

Melissa Liddell

Okay.

terms forward, So we what the going was certainly Is of sort flat new you're that, rolling notice that consistent deals portfolio in as on? seeing with think that be and what could yield of about sequentially.

Stuart Aronson

So portfolio continue as but as pricing, it our regards we that pricing has the in of in contract. concentration to deals second QX had our strong know first lien deals on you'll very lien

overall our second of by assets lien pricing we're is on reduction the So the has stable. getting assets, higher is been why pricing the offset lien which first

be in able second first assets calls, XX% haven't BDC about lien. would As like that lien second we and lien the to XX% shared credit really been balanced We find prior to standards. are I've just

what even LIBOR way, anywhere the were and an stable largely got is in in from little or what close portfolio deals overconcentration LIBOR XXX sorry we've deals mandated run but to is lean assets to BDC and Pricing pricing on said non-sponsor is so that QX is the trying XX to QX. an more now the basis we're points, seeing XX run in. all be anything and sponsor But QX, safer sponsor right the a off we're far are XXXX. our first was equivalent So more bit on the of we that another in priced than in overall down or QX, down and a between that's expected

in hoping QX is stable. pricing in will holding across portfolio the that and performance general up pricing and continue our I'm will to So keep be

Operator

of Your line next from instructions] question Chris Oppenheimer. [Operator comes Kotowski the of

Chris Kotowski

the most happened? but that or -- mine should that I or expect relatively is noticed then a of thing unusual was were and continue joint income just dividend ramping just to is of high, is we just A asked, up it because the that one-off that venture

Stuart Aronson

the It's contribution correct. related that's early Chris, to the from JV.

Chris Kotowski

Okay.

So we as shouldn't this an view necessarily as extraordinary level.

Stuart Aronson

right That's better JV XX%. correct. be the the is functioning well very that little think XX% now than I operating and projected is even at a expected JV indicated is returns frankly and doing where than the we The better on JV would XX% to

up move quarter we forward to a basis to dividend JV that, that once the some still with reliable a and to try to incremental to have and grow again positive have room upside. fill earn we continue on on effect as to able earnings quarter to us be the So should set

Chris Kotowski

its is JV it all able the to or out on any a is And quarterly certain of earnings retain paying basis? it

Stuart Aronson

all I believe it is pays it quarterly, the out right Joyson?

Joyson Thomas

correctly. it The basis. is on a That's quarterly currently intent to distribute

Operator

additional questions. to any there time, this closing management are I'll for comments. call At now return the or no further

Stuart Aronson

America. XX we in want you, North We locations now Thank organization. have operator. XX that credit across continue I highlight be to focused to originators highly a just

to dividend the are assets optimize dividend in in reliable, spoke future. very the resources originating dividends of for to earnings across work the will and be the to HIG to quarterly board offer us and We'll supplemental basis excess hopefully, the the on earn the grouping We of have a origination discretion we BDC are will that position at able directly of underwriting. utilizing hard and optimize

appreciate next time everybody's forward with quarter. you and So to speaking I look

Operator

Thank you WhiteHorse call. Finance for conference XXXX participating earnings in the fourth quarter

You your lines wonderful day. a and have disconnect may now

WhiteHorse Finance (WHF) 3 Mar 212020 Q4 Earnings call transcript