WHF - Earnings call transcript Q3 2024 | WhiteHorse Finance, Inc.

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Operator

Good morning. My name is Jamie, and I will be your conference operator today. At this time, I would like to welcome everyone to the WhiteHorse Finance Third Quarter 2024 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 made available for replay beginning at 4:00 p.m. Time. Eastern number dial-in (XXX) is replay XXX-XXXX. The is passcode required. No to [Operator Rose over floor now & pleasure Instructions] It my turn to the is Company. Robert Brinberg of Please ahead. go

Robert Brinberg

Thank Results. joining everyone, WhiteHorse thank Third you, to Finance's Earnings today discuss for XXXX Quarter Jamie, and us you,

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

Stuart Aronson

Thank for everybody, you, Rob. and today. Good all joining us morning, thank you

after in period we you've we on Thomas, our floor then Officer, XX, our September results found by hope will to aware, our for quarter Joyson open a current had to I also for ending which I discuss earnings greater can and issued the and chance market will the you're begin our call, market conditions. website. Financial will As detail, addressing today's our performance questions. On this morning Chief XXXX, third open, prior our be review which results

core investment GAAP GAAP this our for our $X.XXX due unrealized performance. quarterly or base and QX $X.XX decrease portfolio will NAV end the per per majority related million share share exceeded $XX.XX, QX or by QX the representing per $XX.X from was which of results disappointing was at of discuss totaling below shortly. NII on Crafts slightly net impacted $X.X American losses, Honors our X.X% our and XXXX impacted financial the quarter core dividend realized income I to per were on was $X.X was which prior of third net million, NII declined $X.XXX as quarter which the and Our share. Holdings, and a per net share of share, million which NAV to markdowns of investment portfolio and quarter. markdowns

sponsor originations X new approximately capital add-ons portfolio $XX million Of X million, Gross our which to average capital and the QX. of sales million. to debt investments. offset net were of totaling by non-sponsor $XX.X QX, million in were deployments gross repayments EBITDA. in the with our X fund consisted X.XXx of $XX We of $XX.X Turning to new deployments million, originations of X total remaining had and X resulting partially was deals in of used million, $XX activity to leverage $X with existing deployments

first of of XXXX. of and quarter our second XXX all-in basis spread with average the an average in of loans deals lien QX XX.X% rate All compared an were points to XX.X%

the the and During prior XX.X% in X.XXx compared to of for fair add-on million quarter. value QX, X the end with JV the an and JV. the XX.X% unlevered the of portfolio had transferred QX. an the at Leverage STRS compared the was quarter, end at of BDC yield average deals QX X.XXx of of end JV At to the STRS aggregate $XXX.X total X new

This of to the end quarter overall XX.X% XX% XX.X% attractive effective investment our second shareholders. QX was approximately compares returns the equity secured, in We debt X the QX, end value yield complete repayment million $XXX successfully repayments and net to partial effects provide and and X At lien, total in investment challenges portfolio's previous The was not our partial of $X.X and fair mix weighted XXXX. first repayments and and debt XX% STRS end $XXX.X JV was the in economy, our income-producing $XX.X the sponsor non-sponsor. and million well relate the realizations value JV portfolio STRS for generally The average to In the by the XXXX on primarily of $XX.X of portfolio. utilize of at WhiteHorse's to investments are of quarter our transfers driven compared portfolio Transitioning QX, quarter third the believe of was sale. the approximately to senior accretion, specific. After million X BDC's in to were rather the decreases XX% this continues and do our continue and more as XX.X% company at portfolio as of our total but the sales deployments, of mark-to-market the million. of JV in million, quarter.

generally are with within balance stable. the The the We outcomes of working workout portfolio experts of optimize to H.I.G. accounts. is

impacted company's quarter, are on was restructure previously quarter. we a seeking The and write-down the performance the American customer of sell either Crafts the or company. currently the took a in by material further challenged loss During to million $X.X

improvement be asset execute might to marked we where strategic believe consistent we continue player. have it initiatives, to the a sold we While

across customer company the the concepts with second quarter. We also million Honors We slowdown placed trends. nonaccrual on ongoing challenging on a Holdings, conditions weak took had $X fitness write-down in reflected previously reflecting continued status in many industry a

while of the of to to lender, At to improve have we, company taken write-down. $XXX,XXX and And work as in We a recognized end Honors the reversing million also to the QX, credit. performance. Telestream approximately placed control $X.X which of the franchisor from continue credit the company's approximately with the interest. third income We Holding quarter, status, resulted the $XXX,XXX our restructure nonaccrual this of accrued ultimately we credit in try the on in

restructuring generate X.X% EBITDA, is are within even we of quarter our Telestream of of to loan and on focused expectation the of the with company will X sooner. total the status Nonaccrual investments current accrual total the significant totaled quarters continues prior on the that part portfolio hopefully While back be and debt portfolio. compared debt X.X%

to spreads a to down SOFR general. of tends in is pricing. middle market new very all the market SOFR We've are the lot and to SOFR there XXX approximately and shortage XXX. lending very XXX credits market cyclicality, thin attractive in segments XXX. market is the moved of is sponsor to across leverage and and we Turning X continues where to continues mid-market SOFR quality leverage to of There's excessive spreads XXX a be of at There believe to From participating our deal in between what XXX on seen aggressive. that SOFR non-sponsor to only flow not market remain be more the in lower SOFR support to pricing backdrop to those have perspective, we pricing compress a transactions. Conditions X.Xx

In and generally where very there the many redoubling we what are to than quarters. the the balance our market off-the-run on-the-run for market. in focusing is cases sponsor compared see much and fourth we the is stretching to more non-sponsor sponsor is better less terms therefore, the market, the efforts are return aggressive seeing to risk far and sponsor competition on of likely Fourth We better and lenders supply volume too market be focus market. with on in demand on-the-run non-sponsor modest quarter other Generally, credits. out

we greater we that rates, think to some cash on coverage than current could in what could pressure on interest is level. declines a also will are elected see are have based budgets not put broadly, new we of example, be is inflation the we the leverage better X.X that policies of President. For fixed the so that government often More there flows our while many on high continue the credits charge concerned

curve careful far will probably which the but debt as not the we're coverages. down yield on for do we SOFR news necessarily BDC, So means it is believe being as service indicates, come good

has repayment million for based investments to October, Subsequent approximately The existing closed totaling high The one announced early to third to in over for special capacity softening $XX had existing $XX new years. quarter last economy million BDC forma the few net the capacity has assets. full continued JV new of in approximately BDC's pro $XX and for of realizations. including investment approximately credits transactions approximately in rates end, approximately X also JV has several for supplementing interest quarter QX following having and the million, see in the some been sheet distribution have in add-ons we X several the of the We $X.X capacity. the on a QX and activity and $XX balance repayments million BDC million, had repayments

to XXXX. into activity in the the we decline Given and repayment to of remain year high balance expect this pricing, for continue

are to like our XXX pipeline working have add-ons at is and X existing in segments, volume about X we'd is lighter on mandates than market While be to it still deals. new deals. all currently We

transact. of performance BDC call these While to of assurance With JV the and details should a will or would there for the over composition. can additional turn these I'll be our our fit any of deals Joyson? to into elect that no all portfolio Joyson credits close, that, review we

Joyson Thomas

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

share. the previously with QX investment of was we $X.XXX per or at of quarter. NII compared per quarter, This well primarily approximately $X.X income quarter-over-quarter compares $X.XXX income and declared and as with $X.X distribution comprised QX million per million each GAAP of were NII net million prepayment GAAP NII quarterly or and $X.X our share. the fees. amendment $X.XXX million core from fee of as During share amounts lower prior $X.X recorded core QX

net net from decrease the resulting we assets operations million. quarter, $X.X reported in For of a

X during ratings the our higher portfolio X quarter XX.X% the positions that slightly in approximately risk a carried the reported Our rating, than quarter. or XX.X% showed either prior of

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

we Regarding to continue investment. the our specifically, grow JV

million. in mentioned to earlier, we third JV new transferred totaling STRS had the $XX.X quarter, X deals and add-on X the Stuart As

portfolio companies XXXX, value BDC's to on a XX, value XX fair accretive return the continues mid-teens million XXXX. portfolio at generating be million compared investment in fair an JV held the to as the to XX in an of XX, September approximately positions JV's $XXX.X with of of $XXX.X June companies earnings, equity. As aggregate of aggregate The portfolio

to investment $X.X aggregated the quarter, $X total income with million compares million JV recognized approximately approximately during QX, in QX. During investments the from in our which

yield on JV changes may a portfolio. investment of result the number calls, credit As investments, of of amount yields prior have our in well the factors, investment portfolio we as in a and asset noted including in of additional fluctuate the JV's performance the as the period-over-period underlying the timing the overall in as capital

asset revolving sheet the company's to coverage million $XX.X available We the ratio capacity of approximately which under credit the approximately our above XXX.X%, of defined cash minimum facility. was by as QX, now. in of borrowed end the Act million XXX%. XXXX, for Turning $X.X XXXX had amounts At our XX, cash was December restricted asset ratio undrawn million coverage resources balance and of including $XXX at

X.XXx after Our for hand with ratio debt-to-equity adjusting on cash QX for quarter. compared net approximately was the prior effective X.XXx

regular the since up open the with and quarter our to distributions. questions, we our fourth again which to highlight record announced is $X.XXX conclude of payable consecutive or XXXX. IPO XXXX, paid that X, distribution, distribution as consistent December quarterly declared I morning, to $X.XXX XXXX, rate January our quarter. share, a per in per with prior share quarter Board like call distributions a This on will XX, I'd of the XXth of upcoming all Before per The of distribution at December above be stockholders

will distribution $X.XXX December we distribution, record declare of per be estimate October for for payable special XXXX. XX, of our elected approximately addition to a our special In stockholders distribution to this quarterly to of be XX, share forma on XXXX. spillback $XX.X million. Pro income we as The distribution,

portfolio may to our evaluate medium As in With for that, to the earnings addition of now near other the our Operator? core operator based in the over power distribution, that on and your factors consideration. relevant we said to continue both previously, turn call I'll warrant we will term questions. quarterly the

Operator

Instructions] We'll JPMorgan. first take Melissa question Wedel [Operator our from with

Melissa Wedel

in portfolio seen over may up not I it about quarters. quarter. you we in wanted that thinking the I as coming quarters. that am like environment. Though specifically, be that Should your the modest to fourth correctly follow are be quarter robust Is elevated, should on -- you the seasonally this hearing about repayments said typically to as be mentioned And deal comments expected few we sounds I -- you think next there? deleveraging busy

Stuart Aronson

I to whether that in would mandates on close, have them of that they'll if activity most with all match clarity we we repayment any close, up based the you that tell as should without currently they do see. balance

I'm would for see So volume volume that sheet, the getting stability. And JV, be we the to where deploy SOFR we much we able in which based here capacity now, see priced million are I capacity, that personally going assets there's excess not given don't size, assets lot would right at which be portfolio are what we're on I typically I the think, under based BDC have leverage on for today's XXX That don't SOFR market. $XX of deals and shrinkage greater priced that estimate current of sure, sponsor have and lower. relative on of of said, that the undeployed But is QX. XXX, of deal on balance Those to balance a targeted capacity. in both would

Melissa Wedel

know I lot I of difficult of with any estimate accuracy are I parts. really degree ahead. it's looking that. understand moving appreciate that there a to

PIK and and sort deals that in PIK one income as value particular, look I quality gradual revenue. maybe across about question, quarters the percentage engagement percentage thinking PIK revenue. income new you that, of of a a been lot marks or on over put X industry you second the just balance focus investment last total of that of for it just seen a on informs total manage the and how function with income, the as over for of a you the how that what think across income any how -- the sheet we've portfolio, I understand are When you're of increase want in there's of investments management. to opting time means

Stuart Aronson

Yes.

new vast income majority As XXX% the either cash deals, seek we it cash or being generally regards income.

wrong SOFR basis have PIK the the Westinghouse accounts Most looking quarters we but likelihood if turn the cash very did asset XXX bit example, of relates Telestream. it nonaccrual plus that take debt, interest that we try on put we're PIK. of an a around. portfolio to in is As we And be deal of that little to in of company troubled with had a realistic we in and the XXX ago are a couple PIK, points as but we in the of the we interest, to collecting moving direction is picking was that

highlighted amount has debt but I the amount As remarks, of my is not supportive still current the in load. of EBITDA, Telestream of prepared a significant EBITDA

of of credit, restructure debt debt over on take be to likely at the the would debt would the paid it our most the sheet are expectation back or balance that would least two. all that -- or debt or onto come come cash either lenders quarter as or pay the debt a be within So debt would cash that and most

Operator

Instructions] Dodd hear James. Robert with [Operator Raymond We'll from next

Robert Dodd

might I the is? down have that number. us gave wrote you you wrong repeat Can what number. written the I million, I but $XX think Joyson, spillover down

Joyson Thomas

the Robert, $XX.X million special... pro forma for

Robert Dodd

middle you mean, at coverage aggressive I middle companies how Yes. below market X. done your do at long you How talking origination about of deals long fixed kind can mean, do environment low environment terms -- of mean, that charge Got problematic. is, comments think is I is a ratios I competitive it. that those itself? sustain I Then, Stuart, competitive about underwriting how the [indiscernible] market, for hard being seems the on Or -- growth? mean it somewhat just on question. kind think betting

Stuart Aronson

to in is all right you're will accommodate given are themselves from of the point not cuts to predicting that of more ways that skeptical as skeptical order more to than the on yes, indicating. the same structuring are small would we dig And service as growth, now, load. they'll general, we that say is the SOFR say I X.X that there'll are Melissa's that the deal more that, think the is near low likely coverage where we to highlighted, than the right see or to out mean, of point, which starting be reinflationary. now, indication debt to was pressures years that But of but very yield the of deals XX-year a from curve fact company X to coupon gets say, one term, PIK the of market I ability an SOFR the we are treasuries that the interest year pick people have that be the that can't that be cash hole. of are in is as people expecting what yesterday the That's flows to don't are fixed seeing. in the understand we the in to curve move people about would the I that less Yes. decline. Candidly, the things the Robert, be really some I Fed some yield charge part much are, economy

fixed are credits, The on the catch noncyclical 'XX are levels challenged. we the leverage is So and levels charge our very sticking to stronger knitting. coverage

credit. excess And of moment many are in cyclical on lower, well leverage we putting the Xx X.Xx nervous in than market very that. levels cases, cyclical more the more the is, the but credits, at get On a obviously leverage or

too a we because or deal good don't book from now that's X.X a that in much putting so turn leverage deals away ratio it's sector we the where but efforts hope higher is people lot turned think because based to the deals going and on right much we why anywhere lower, non-sponsor down, to -- walked market just it price the not X.X while is we So price, this of leverage credits. aggressive. fact are away of have And think non-sponsor people some redoubled in turn lost cases, the to, issue from remain much a our markets we've a from walk we're on in

Robert Dodd

But One American stay historic can. trouble try record track the to it helpful. On Crafts, term a recovery. has customer. like American hopefully more, at sooner long I viable they that another out, Very Crafts, work and obviously, been like It you've credit taken your and a be not full material turn around a and it decided sounds exit if might lost get better. that's a and sounds strategy look with it credit and

of loss there with out change a the just in it is it just versus of sale? it maybe of decision-making terms that's Or mean, your quick I something working not is of sticking -- the and customer? mean, I else further material So there the changed

Stuart Aronson

exactly -- Yes. Robert, you're right. that

the of challenges have into facing, American them around. addressing, into because the path real very When company well And loss a that it recovery. taking capital given a the company the see would credits that products to that base and additional take have low entity. we to ran a shot that money liquidity and company revenue point, we to current inject as shipped a it stand-alone don't down the which at and that, major of We be did we company turn to was company take of of customer Crafts recovery problems, think to increase enough be took rates. would the the trade But get injection over were fill our for turning the don't strong would to we to bring it invested. an track this had And a into capital the full and record getting of over around we more

going given exploring are players to ones significantly profitable we who stand-alone don't to be of able logical strategic So sale own be think to company it, the a that to the on the company basis. we is a are

on and history we to characterized So it be including to unfortunately growth done many to those is what we've is on working historically, private sure not those we with have why of get very getting money that cuts equity And that accounts. our the H.I.G. and around And management resources quarter consistent Honors, and work a turnaround other our hard failed Telestream, with of we make execute revenue are very to back, only but on turnarounds. successful as is This disappointing. credits these we control not the gain which turn accounts, NAV are I of. take getting opportunities we do changes, disappointed, for that turnaround, on cost and would a

Operator

turn now B. to Riley. with Bryce Rowe We'll

Bryce Rowe

I about the non-sponsor a the redoubling, wanted exactly ask your talk deal around And mean, bit about over across markets the what flow. the quite resources drive country different to that mean? -- you guys you about you effort. comment within have When on does to on years, redoubling I have talked

Stuart Aronson

means asking on is That have CEOs, developing them opportunities. them brokers, today's regular to with in low our in accountants, that more wealth to managers. be of It XX we to sponsor involves locations, productivity deal and work to likely our lawyers, indicating CFOs, talking deals on-the-run regional non-sponsor market originators the chasing dialogue that

I in effort in joined targeted at support non-sponsor for originator our fact, Denver of about find non-sponsor night origination marketing that market. in that new XX In XX professionals where this this last activity, Denver morning, myself or Denver deal I a was

members the have other XXXX. than did a with or deals of And in so being percentage doing taken higher night, of team did like of in non-sponsor us number things resulted XXXX that that, I last efforts along a we by

given being are environment, XX% XX% So our our in between quarter, market of XX% of to in But somewhere environment, see XX% any non-sponsor. deals deals normal market we a to non-sponsor. this

Bryce Rowe

least consistent likely that at may there of here, get you the that you certainly, some sponsored kind especially Over it? non-sponsor. of across, have assuming And is X/X don't level within you with and the about versus But better look non-sponsored better these portfolio, in that renewed will. to dynamics X/X, permanently thinking effort shift they pretty pricing time, take be the really terms competitive higher I mean, a and if deck

Stuart Aronson

would Yes, that the likely. all below deals I is say sponsored At virtually XXX. SOFR priced moment, are

deals So that doing almost XXX%, on not but the will all be all, deals it for BDC be sponsor the will and primarily we're non-sponsor necessarily JV, going to sheet. targeted almost the that balance will be

So current persist see to conditions non-sponsor in if ratio on their over manner, I of next expect portfolio X to deals the market the our rise quarters. would quarter

Bryce Rowe

one more And for Okay. me.

are of BDCs public terms non-sponsor guess, market, other dynamic I Are like competitive or the -- you capital different different, who running In that there? you providers? what's into

Stuart Aronson

consistently a work banks for But see and a Comvest, compared to we how in the in pricing If a non-sponsor the as transactions. lower lower and there the in deals, those are cap those because that and lower you non-sponsor upper sponsor any without intermediate name on, mid-market we mid-market, markets big of core the other the There is, and on is mid-market. those we and cases, see because competition that are seeking sponsor-oriented sponsor no the competition. like basis effort to negotiated deals where include lot Goldman recognition as players direct competitor They not a in the mid-market and space number to limited market. the into very there is, say volume deals the And and but X. deals, historically again, on that limited get MGG non-sponsored of names who organic mid-market market are there's participate very players what mid-market very But of -- mid-market working clients a some That's we deals. origination market labor-intensive competition not don't is sourcing large on sponsor in non-sponsor organic space. you see of one to underpricing

in than I'd fact, there the In XXx there space you more the players space. tell are are in non-sponsor sponsor

Bryce Rowe

compression points, interest it or Last spread at is? impact compression basis lower XX for basis the rates, Okay. me. Any we're looking rate one points. for to that think like the base quarter, When how sense XX versus for yield what about the looks

Stuart Aronson

base you I it. mean, rates, Lower Joyson, confirm can

were we are compression, and on they both favorable call about points and the think to lower but seeing base seek maximize combination lower of our of during market rates spreads. always deals XX basis a I environments, our XX protection. We, non-sponsor have sponsor

so call on to X And pricing our protecting sponsor at on entire an higher got of X year lower. time deals portfolio. years and years passes, But typically we least as deals. spread call X some protection deals of of you've protection get that now non-sponsor And has been in where market has been

to level. has us. deals And than going call current non-sponsor fallen pressure that true or was the for down, market sponsor are more reprice to it see all sponsor our market non-sponsor it and similar But basis I points increased market dealing the across is in market. pricing I level just step not down off that that's the where and of protections in market, dynamic. And both mid-XXXX that competitors XXX in to are we those believe has with to believe either so where as from roll And XXX the mid-XXXX. is a

Operator

for participation. As that WhiteHorse Call. question-and-answer you gentlemen, this there ladies are Quarter our conclude time, Earnings Thank XXXX no your session Finance further will Third and the questions and at

have of at time, your You wonderful and line your may rest disconnect day. this a

Stuart Aronson

you. Thank

WhiteHorse Finance (WHF) 7 Nov 242024 Q3 Earnings call transcript