WHF - Earnings call transcript Q1 2021 | WhiteHorse Finance, Inc.

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Operator

Good morning. My name is Angela, and I'll be your conference operator today. At this time, I will like to welcome everyone to the WhiteHorse Finance First Quarter 2021 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 o’clock P.M. Eastern. is the number XXXXXXX. number dial-in replay XXX-XXX-XXXX, pin and is The questions this been floor and for have all will the in opened At participants mode placed time, a listen-only be following presentation. the to now is to floor Prosek It Instructions] Sean my of [Operator Silva turn pleasure the over Partners.

Sean Silva

that us as minor XXXX Angela. Thank earnings And joining you for this we WhiteHorse a discuss caused for everyone you, you, to issue Finance's patience, work delay. results. technical through Thank for your thank today brief first quarter

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

Stuart Aronson

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

open and questions. in first and detail. going our a our also Afterwards, open you’ve will our press results, available I'm release by quarter Joyson on performance will to As Officer morning we market chance start which Thomas you're to to the more then discuss our had our our conditions, addressing Financial floor this Chief issued results hope aware, market are prior I website. to review we

in improving an on to COVID repayments, were impacted also calls. first delivered and defined non-COVID This Our economic portfolio, forecasted by credits. both we impacted recovery both led backdrop, results had prior quarter our the but supporting which of of elevated some

our $X.XX $X.X of Core was income to result, in share, or NAV share. for $XX.XX $X.XXX unchanged. compared net income or $XXX was million. deployments $XX million of were a outlook covering GAAP repayments XXXX our was share a $X.X investment share offset investment net $XX.XX As million, remains by per QX. Gross per million per dividend

a decreased at X.X% weighted positions remain a in in yield stable. JV times Activity to Our effective average producing one of of X.X% at end end the fair $XXX.X At in XX value our value million of fair XX the in QX times. of quarter compared QX. was BDC targeted investment our Leverage to on I'm at held QX. within one investments our modestly of $XXX.X the end to sorry, to X.X debt QX. compared income range quarter value JV end our the million $XXX.X JV XX.X%. of held with at on QX quarter positions XX positions in a JV fair return aggregate the at The in to was an

JV accretive BDCs to believe is our to continue the We that earnings.

to million to Gross first the was the million of deployments our portfolio in to Gross $XXX investment at add-ons, resulted portfolio. value comparatively $XX this of QX now years, end of new the and of Turning a decreased compared QX. number stronger. than At the million, quarters compared in origination end projected a debt prior five investment of first quarter, year expected, X.X% provided of from our of Non-accruals but the the of portfolio call. transactions $XXX which level consistent originations does repayment fair The for X.X% these by with offset during some projections than year. our million our QX. deployments change timing level represented our repayments, to $XXX overall is were it resulted of in last outlook we higher not more QX to

are during QX. payment company companies [ph] disappointed HIMA make share that hospital failed Grupo its being other to impacted to We is Rico This interest by Puerto COVID. like hospital

result, two of lien This and a As we interest negative impact had income. non months the of in $X.XXX accrual. accrued net current recorded interest placed reversal first on a wrote-off QX previously to loan

and restructuring provide in as HIMA updates We become with negotiations are available. they we'll actively engaged Grupo

other by and to we're SureFit Hollander that pleased same our Sleep are SureFit end, accrual, with Products. non sponsor. Regarding owned the Hollander quarter Both merged report subsequent to

X.X% loan a As interest has QX. back our paid. due been for the of value. on fair X.X% accrual on the And and accounted a first at end our back of have portfolio SureFit all value, giving for fees our after will only be been on debt SureFit QX in in the non-accruals past have forma at result investment effect quarter, going SureFit non-accruals would of this fair At pro basis, of merger, accrual

NAV We improved. during on emerging strength the seen as the impacted fitness was that We've economy HIMA, with QX are our as concepts accounts up even investments, COVID the still begins reopening. markdown pleased rest in of our

cushion provide a also Sponsor At in end, portfolio compared - to equity XX, loan Honors PE additional quarter represents mark XX% unsecured. first end smart as portfolio XX% XXXX. the positive our impact quarter materially subsequent our Our senior account a our had XX% of Also, of first significant investment our on restaurant portfolio equity the will which for a of loans exposure, to is QX. debt This comprise the of part Holdings made X.X% have is lien, by to while Honors improved. small QX. our in of March and of firm a portfolio debt will

for XX our and QX non-sponsor. sponsor new our originations, which originations is XX pipeline, six ahead, the deals, of We pipeline new have strong. Looking our are of already mandated are XX in

will be of that always, there assurance any As can mandated no these deals close.

architecture, team we've we non-sponsor level improving in our the projecting QX a strategy, have deal a on in outlook, The right saw at - our This economic person imbalance in than significance market comparatively sponsor a true increase most names our proprietary in borrowers. we a notable in beginning tiered over going our run healthy by benefiting returned to on H.I.G. credits brings trends and is Many the increase the leveraging portfolio, on across rollout prospect of includes on run which QX sponsor we're been professionals XXX foundational North dedicated less to sourcing database the are the in professionals, market saw market. seeing the run improves. business to now favor But into in the America, calls, was and is particularly origination as to notable sponsor premium backdrop our we upside market the off for is and sourcing overall. market, which pipeline the the attractive supply is demand And This that investment pre-COVID program in the H.I.G. non-sponsor and to three of In sponsor Turning XX,XXX XX-plus true market. the is momentum Capital's encouraged business. QX. there development have Pricing XX XX closing, pre-COVID. run directionally locations by of market, prior over the vaccine levels. to a same the structures impacted the economic slight I'm improving in deliver pricing positive the that COVID to off still

Joyson, benefits the that recovery our business As we shareholders. to in which a after our your a positioned way call I'll take capture result, to optimally questions. economic believe With we'll that, we the are and turn

Joyson Thomas

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

GAAP per $X.XXX This XXXX. to per investment quarterly of Core share in million was cents our or share, income $X.X During million which the quarter, or we dividend. recorded $X.XX NII $X.XXX compares net covered per share. $X.X QX

of increased JV deals by four in new investment Our million. transferring effects the million the after $XX.X totaling $X.X STRS

operations of collected in XX, elevated $X.X from levels with million, the result $XXX.X the prior a during fair we of repayment in As largely from the fee prepayment net in quarter, million an JV We income with quarter. XX resulting value QX of a of $X.X reported XXXX, assets increase net million. approximately fees held was compared million. aggregate $X.X March positions the

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

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

March XX, we credit approximately As our of million facility. under undrawn revolving had $XX.X

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

effective cash is QX after just Our one times. above debt-to-equity hand net for adjusting on ratio,

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

other earnings XXXX your near be we Finally, on in on announced X, operator second with our and evaluate to power quarters, we XX. June to questions. the said I'll July core based in prior portfolio, quarter the for stockholder both may to record to turn the in distribution this will per share, $X.XXX relevant over we Consistent factors a of morning, of back our call that quarterly the as distribution, medium what continue payable consideration. to that warrant now Board Operator? term have declared addition of the

Operator

[Operator Raymond the Instructions] from go James. Your of ahead. first Dodd Please question Robert comes with line

Robert Dodd

Hi, guys.

So some moving parts.

correct? Grupo out $XXX,XXX. - income That during reversed [ph] HIMA, for that Is that X.X% impact QX? and question on the about interest was example, of So

Joyson Thomas

correct. That's

Robert Dodd

Got it.

the for the you expectation belief [indiscernible] payment related earlier, are to another Or on Rico COVID to any that? other a Obviously, couple suffered spike ago. while? have the failure Do at just was have that Just of Puerto issues been that coupon business pay months ongoing a or

Stuart Aronson

period. that bring normal heavily this including been Grupo from liquidity, impacted hospitals that the through government hit. go activity since the been majority to And We're terms world company's led the true by was support to company COVID the of vast And the in on. has enough across HIMA would that of the understand not in for have COVID country very

timing on unless in for negotiations active data until with properly. we that would it'll suggest that And potential the its there be moment, did with company service the the to able and the it get levels we're about its support, the interest great company be felt of from around loan questions questions and what's COVID, put that prudent the recovery the was pay also given we So not company the government debt non-accrual. to stay the of going And would to at restructuring. around

Robert Dodd

I Got one then it. another appreciate the color. SureFit. on just that And

You be said or accrual get and to like going QX of will or of that interest, in return that? like treatment, kind recognized anything back as it some capital on special other income paid is past or due is interest

Stuart Aronson

Robert, that's correct.

received we're was So, interest with added back current now QX would all in in that be to the period. - that interest QX, income those

Robert Dodd

Thank little you. can, bit. it. more then monopolize I And Got just one if

very your to repayments. terms mandates In pretty the level QX. may you a looked for already have at also it Obviously, continuing of you expect lot were QX, be strong in if know, of of obviously, book, your looks - you like I a repayments, high Stuart,

expectation for expectations you relatively you of quarter-to-quarter, us the it's be be, really of the hard reiterate So, the you your size at the on maybe Or to us let in for aren't terms above the by color is, any at end to some year ‘XX? you you the can of way that do color? of book to expect year, you the say, not end but get said, predict, to But ‘XX that expect changed. exactly what give know, end could the

Stuart Aronson

either be in there that are in a currently or market Robert, QX. sale, will coming QX or the portfolio believe Yeah, number of for in our companies to good we are market

some repay, the have BDC. visibility accounts can't of how and from we're and quarters prepayment accretive what to to have predict are we have in What current a we yet. our win close, significant So which will is given those those we be and that new QX, penalties especially many have pipeline, will of we that that deals is will how beyond number new into we likely mandates don't distinct deals for QX many

the we'll the know one to we strong where possible leverage it's be a is end operating and fact a pipeline. million of So Other that to moment about quarter with times the goal at at the of be year. at assets. $XXX just about the And not than very have

XXX deals typically in were As XXX morning, was prior-COVID, the norm there this to pipeline. Whereas of XXX deals.

share above we at. we which we've So total the operate transactions, our to position picture the that what pre-COVID win was. of that in if And fair we're can done, of our us leverage asset want pipeline should historically to be and direction

Robert Dodd

it. I appreciate Got color. you. Thank really that

Operator

go Your next Sherbetchyan question Sarkis Please one Riley Securities. ahead. from the is with of B.

Sarkis Sherbetchyan

Hey, taking question good my here. morning, and thank for you

Stuart Aronson

morning. Good

Sarkis Sherbetchyan

that particular that [ph] prepayment one should we that mentioned large the sale yet You deal a occur first may call to Or penalty. in had come? Did expect quarter?

Stuart Aronson

currently prepayment discussed occur that is it close may a there But to penalties has that had prepayment QX. that you deals expected correctly a in June. had as transaction in penalty call is We -

occur. will can again, Although that assurance there be no

penalty we acquisition the quarter. the transaction the possibility there is on prepayment the so of And of that consummated company significant will by get the a if end is that

Sarkis Sherbetchyan

that. for run the the leverage up in last know, term potentially X.Xx. in know, to call, to of And, BDC mentioned, you Thanks you you at expecting

You the know, are expectations given levels, there the repays it and elevated sounds continuing. - like repayment the

So And as it? in, about then should X.XX that still target your go that leverage to about differently? you'll or back to of right come of repays kind times think think we is way the those

Stuart Aronson

repayments were leverage. in last QX about on we call, and more which the resulted in have there lower So knew assets lower than

- visibility companies and intended have of sold. be to that QX We are QX into QX, QX,

take up originate likelihood the X.X and above said, in of above near And a our getting given times, downs so future anticipation one of would enough if to the up quarter one is we to to QX, that leverage these of quarter that we a pay the repayments above in do deals. business, could and That the expectations were low. in the

Sarkis Sherbetchyan

for me, queue. One hop for that. in more back the Thanks I’ll

XX the of first You for here, you and pricing portfolio between second, objectives? to XX, know, any seeing of and lien changes updates dominate term in think liens finding mix prior those you're more kind longer on an mix of the value you any XX, where targeting know, the calls, first I more were or or comments there kind

Stuart Aronson

market. the especially are markets the upper large in Sure, and aggressive, cap cap mid

And transactions, low. a fact looked have is of second the loans, we've a of willing XX of them We been number lien so one only found have mandated that but at do one far. lien in to second

As you over loan than second lower number several is has lien that shrink portfolio years loans we know, continued secondary level. actually And to it's our in now. our the lower the amount targeted have of

deals, lien the intend So for That loan second priced And million. in there's working those our second accretive that second more we do and mentioned XXX to on. plus $XX should bring LIBOR do XXX, at so is pipeline in a loan, portfolio. I of be that we to XXX we're three lien lien some still loan are

fully answer lend. pipeline vast Did that our your lien is the question. majority first Although of

Sarkis Sherbetchyan

very Yeah, back hop queue. into that's very I'll much. helpful. Thank you

Stuart Aronson

No problem.

Operator

with Melissa Please line go Your question of is from JPMorgan. Liddell next the ahead.

Melissa Liddell

Thanks for taking guys. my morning, Good questions.

wondering sponsor of I over you deck, And sort sponsor of that think a slide we that's bit pricing question expect the down for talked the I'm - [ph] if - And to related had to deals or about if first you yield noticed expected on that's time. the pretty should would deals portfolio also trends I've in did I competitively. you of wondering sort be share about come sponsor that think your certainly loans quarter-over-quarter. continue? that related, increasing I'm

Stuart Aronson

have deals the lower Non-sponsor the Despite leverage. than that fact higher deals price generally sponsor non-sponsor deals.

deals those it's with there's directly competition. tougher of there's go is sourcing the you much can market point centralized reiterate, sourcing less find I've much and to transactions. to will of deals, But than hard sponsor As non-sponsor originate non-sponsor before shared no to, deals,

of see threes. non-sponsor in and and our X.X And non-sponsor as times We XXXX the Our as took in in repayments sourcing mid bit the high an A average X.X the leveraged work one you are over. were we of that's typically and number of non-sponsor our new sometimes of the the maximize most low for are of shifting, And in non-sponsor deals. as XX at repayments. XXX the deals the more hard them very four to as well. yield that that above, quarter, to only reasons priced a fact, of the and have deal sponsored shifting And XXX XXX, to deals mandates QX or LIBOR priced are ratio non-sponsor non-sponsor market. in very, mentioned, I optimize is its with we platforms average

So we will help help in But assets. and the piece the years a ago. portfolio, be in the higher that concentration of successfully be XX% a would have back second get the the couple participation will or lien from scenario, average average to normal generate that we deals a range that other XX% non-sponsor very more return much, return that the that we the will is good assets, our source were it true if is on to which average to then modest the less much of overall we a than thing, continue market. directionally course, on And of

second lien over You've time. concentration seen our markedly decreased

Melissa Liddell

thanks Okay, for that.

how JV, you. are Thank Second question vehicle? trajectory the of dividend thinking is that from you and of around sort guys about the income level

Stuart Aronson

the JV, projected IRR, $XX The either JV Capital into based the Our actually deploy million, JV, range to of of originations end high of in to have anywhere return would accretive actively if in goal deals, range XX% because to consider of another think, we the do what the very we're $XX capital we're BDC. deploy as is believe [ph] from market, be of which the on from the priced I XX% allocation evidenced the JV the XX well or to for would the increasing the million the high by we XX.X% at seeing we successfully is Junjia BDC the all the by end shareholders. strong what million that above the we is

Melissa Liddell

Okay, so much. thanks

Stuart Aronson

good a day, Have Melissa.

Operator

with next go the comes ahead. from Your Oppenheimer. Kotowski of line Instructions] Chris [Operator question Please

Chris Kotowski

right gains $X.X but my that million it Yeah. AG interesting track Good and study. to you. a asked, since And bit. seems lost of it years to less And kind I'm I'm around you But it. of after if seems kind little read the to the Thank But got the know, you've is mainly related, net an case wondering been $X.XX at it a cost that then marked implies looking depreciation. moved it's items monocle. of more or recovery realized just Kings. on that afternoon. Most it's power full million is, me, like over I've unrealized the of the and of been if that, way that? on that two it to last have Is having it me loan

Stuart Aronson

go it Joyson. - hand I’ll ahead,

Joyson Thomas

Yeah, no worries.

right. So way about absolutely think Chris, it. the you're That's to

marked secondary at last the basis a we as to marked result had debt buy that know, discounted lower the what that you year that had cost trade a As value. at of a the done was - price. that, essentially essentially a than And And in quarter we at. portion was realization we occurred of it the deep

now is transferred of are amounts reversal into million Syncsort during So relate And in we unrealized the quarter. then just known over to Vero as from the gains. unrealized that also had realized the gains really additional the $X.X those losses mainly Parent, sales that of

Chris Kotowski

a right? recovery pretty Okay. loan, original much pretty your does And complete it imply of

Joyson Thomas

Yeah.

Stuart Aronson

We more original than amount. principal our recovered Yes.

Joyson Thomas

Correct.

Chris Kotowski

it That's Thank for me. Okay. All you. right.

Stuart Aronson

No problem.

Operator

the time, back no this closing to I further turn And would remarks. I'm questions. to At for management showing call like

Stuart Aronson

am pleased to things to well go I BDC. that continue

a questions give to addressed. has us know will to us And these continue week. And a see you'd investors our hope encourage everybody I good I We transparency calls, to let analysts that seek like who prior cover good day investors. any to to and or to

Operator

have wonderful And for you your call. a this and day. concludes today's participation conference Thank

You may line. disconnect your all

WhiteHorse Finance (WHF) 10 May 212021 Q1 Earnings call transcript