• GAAP Net Investment Income (NII): $9.2 million or $0.394 per share.
• Core NII: $9.2 million or $0.394 per share.
• Net Asset Value (NAV) per Share: $12.77, a 5.1% decrease from the prior quarter.
• Net Markdowns on Portfolio: $15.9 million.
• Gross Capital Deployments: $51 million.
• Total Repayments and Sales: $30.2 million.
• Net Deployments: $20.8 million.
• Weighted Average Effective Yield on Debt Investments: 13.1% at the end of Q3.
• Non-Accrual Investments: 5.6% of the total debt portfolio.
• Cash Resources: Approximately $20.7 million at the end of Q3.
• Undrawn Capacity: Approximately $173 million under the revolving credit facility.
• Net Effective Debt-to-Equity Ratio: 1.13x.
• Fourth Quarter Distribution: $0.385 per share.
• Special Distribution: $0.245 per share.

• Warning! GuruFocus has detected 4 Warning Sign with WHF.

Release Date: November 07, 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 $9.2 million or $0.394 per share, exceeding the quarterly base dividend of $0.385 per share.
• The company successfully deployed $51 million in gross capital, with seven new originations and four add-ons to existing investments.
• 99% of the debt portfolio is first lien, senior secured, providing a strong security position.
• The STRS JV continues to provide attractive returns with a total portfolio fair value of $309.8 million and an average unlevered yield of 11.7%.
• WhiteHorse Finance Inc (NASDAQ:WHF) declared a special distribution of $0.245 per share, in addition to the regular quarterly distribution, reflecting strong spillback income.

Negative Points

• The net asset value (NAV) per share decreased by 5.1% from the prior quarter, impacted by net markdowns totaling $15.9 million.
• The company faced significant write-downs on American Crafts and Honors Holdings, with American Crafts losing a major customer and Honors Holdings experiencing industry challenges.
• Non-accrual investments increased to 5.6% of the total debt portfolio, up from 3.6% in the previous quarter.
• The lending market remains highly competitive with aggressive terms, leading to challenges in deal origination and pricing.
• The weighted average effective yield on income-producing debt investments decreased to 13.1% from 13.8% in the previous quarter.

Q & A Highlights

Q: Can you elaborate on the expected deal environment for the fourth quarter and its impact on portfolio leverage? A: Stuart Aronson, CEO: We anticipate that the fourth quarter may not be as robust as usual, but based on current mandates, we expect to balance repayment activity with new deals. Therefore, we don't foresee a decrease in leverage. We have significant undeployed capacity, both on the BDC balance sheet and in the JV, but we may not fully utilize this capacity in Q4.

Q: How are you managing the increase in PIK income as a percentage of total revenue? A: Stuart Aronson, CEO: We prefer cash income for new deals, but some PIK income arises from troubled accounts we're turning around. We are realistic about PIK interest and place assets on non-accrual if necessary, as seen with Telestream. We aim to restructure such debts to return to cash pay status.

Q: Can you confirm the spillover income figure? A: Joyson Thomas, CFO: The pro forma spillover income is $26.8 million, accounting for the special distribution.

Q: How sustainable is the current competitive environment with aggressive deal terms? A: Stuart Aronson, CEO: The market is betting on growth and expecting SOFR to decline, but we are skeptical of the yield curve predictions. We are cautious with leverage levels, especially on cyclical credits, and are focusing more on non-sponsor deals where terms are more favorable.

Q: What led to the decision to explore a sale of American Crafts rather than a turnaround? A: Stuart Aronson, CEO: The loss of a major customer significantly reduced the revenue base, making a standalone recovery unlikely without further capital injection, which we don't see as a viable investment. We are exploring a sale to strategic players instead.

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