• GAAP Net Investment Income (NII): $9.3 million or $0.40 per share for Q2 2024.
• Core NII: $9.3 million or $0.40 per share, down from $10.8 million or $0.465 per share in Q1 2024.
• Net Asset Value (NAV) per Share: $13.45, a 0.4% decrease from the prior quarter.
• Gross Capital Deployments: $55.8 million in Q2 2024.
• Total Repayments and Sales: $71.7 million, resulting in net repayments of $16.1 million.
• Weighted Average Effective Yield: 13.8% on income-producing debt investments at the end of Q2 2024.
• STRS JV Portfolio Fair Value: $324.8 million at the end of Q2 2024.
• Cash Resources: Approximately $21.8 million at the end of Q2 2024.
• Net Effective Debt-to-Equity Ratio: 1.09 times, down from 1.19 times in the prior quarter.
• Third-Quarter Distribution: $0.385 per share, consistent with the prior quarter.

• Warning! GuruFocus has detected 5 Warning Signs with WHF.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• WhiteHorse Finance Inc (NASDAQ:WHF) reported a GAAP net investment income and core NII of $9.3 million or $0.40 per share, exceeding the quarterly base dividend of $0.385 per share.
• The company maintained a high percentage of first lien, senior secured debt in its portfolio, with 99% of the debt portfolio being first lien.
• The STRS JV continues to be accretive, generating investment income of approximately $3.9 million in Q2, and providing a mid-teens return on equity.
• WhiteHorse Finance Inc (NASDAQ:WHF) has approximately $60 million of capacity for new assets on the BDC balance sheet, with additional capacity in the JV.
• The company has a strong origination pipeline with 23 professionals across 11 regional markets, allowing for conservative deal selection and focus on non-sponsor market opportunities.

Negative Points

• Net Asset Value (NAV) per share decreased by 0.4% from the prior quarter, impacted by net markdowns in the portfolio totaling $1.5 million.
• The portfolio experienced elevated repayment activity, resulting in net repayments of $16.1 million, which contributed to a softer quarter.
• Nonaccrual investments increased to 4.2% of the total debt portfolio at fair value, up from 1.3% in Q1, largely due to issues with Honors Holdings.
• The company is facing a challenging market environment with aggressive lending conditions, particularly in the upper mid-cap and large-cap markets.
• There is a noted slowdown in economic activity, with signs of weakening consumer demand and potential for continued refinancing pressure due to low interest spreads.

Q & A Highlights

Q: Can you discuss the current leverage situation and your comfort level with it? A: Stuart Aronson, CEO: We have about $60 million of availability on the BDC balance sheet, which allows for incremental capacity. While Q3 is relatively slow, we expect Q4 to be stronger. We aim to use the unused capacity in Q4, anticipating robust M&A flow and interest rate cuts.

Q: Are there more portfolio companies in the "leave" category or those you don't want to refinance due to terms? A: Stuart Aronson, CEO: Currently, only one company is in the desired exit category. We had three exits last quarter due to performance issues. We are seeing refinancing pressure, but we will only stick with noncyclical borrowers. We avoid deals where leverage and price make the credit unstable.

Q: What caused the uptick in risk ratings 4 and 5? A: Stuart Aronson, CEO: The increase is primarily due to the new nonaccrual status of Honors Holdings. We are focusing on existing portfolio companies, ensuring they meet their debt obligations, and addressing company-specific issues like those at Honors Holdings.

Q: Can you provide more details on the resolution timelines for Honors Holdings and Arcserve? A: Stuart Aronson, CEO: Honors Holdings is expected to resolve in 12 to 24 months, while Arcserve has a timeline of 18 to 30 months. We are actively working on turnarounds with our restructuring team and private equity expertise.

Q: Was there an interest reversal in the quarter, and what is the UTI balance? A: Joyson Thomas, CFO: We did not recognize $125,000 in interest for Honors Holdings in Q2. The UTI balance is approximately $32 million.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.