WhiteHorse Finance Inc (WHF) Q4 2024 Earnings Call Highlights: Navigating Challenges with ...

GuruFocus.com
08 Mar
  • GAAP Net Investment Income (NII): $8 million or $0.34 per share.
  • Quarterly Distribution: $0.385 per share.
  • NAV per Share: $12.31, a 3.6% decrease from the prior quarter.
  • Net Realized and Unrealized Losses: $4.9 million.
  • Gross Capital Deployments: $35.4 million.
  • Total Repayments and Sales: $46.2 million.
  • Weighted Average Effective Yield on Debt Investments: 12.5% at the end of Q4.
  • Cash Resources: $27.8 million, including $15.4 million in restricted cash.
  • Undrawn Capacity: Approximately $173 million available under the revolving credit facility.
  • Asset Coverage Ratio: 180.4% as of December 31, 2024.
  • Non-Accrual Investments: 7.2% of the debt portfolio.
  • Fee Income: $0.9 million in Q4.
  • STRS JV Portfolio Fair Value: $295 million.
  • Spill Over Income: Approximately $28.4 million at the end of Q4 2024.
  • Warning! GuruFocus has detected 3 Warning Signs with WHF.

Release Date: March 07, 2025

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

Positive Points

  • WhiteHorse Finance Inc (NASDAQ:WHF) maintained a high percentage of first lien, senior, and secured debt in its portfolio, accounting for 98.4% of the debt portfolio.
  • The company successfully utilized the STRS JV, which continues to provide attractive returns for shareholders.
  • WhiteHorse Finance Inc (NASDAQ:WHF) declared a first-quarter distribution of $0.385 per share, marking the 50th consecutive quarterly distribution since its IPO.
  • The company has a solid pipeline of about 170 deals, with seven new mandates and three add-ons to existing deals.
  • WhiteHorse Finance Inc (NASDAQ:WHF) has approximately $40 million of capacity for new assets on its balance sheet and an additional $40 million in the JV.

Negative Points

  • The fourth quarter results were disappointing, with a decline in the investment portfolio due to net realized and unrealized losses.
  • Net Asset Value (NAV) per share decreased by approximately 3.6% from the prior quarter.
  • The company experienced net realized losses and markdowns totaling $4.9 million, impacting financial performance.
  • Non-accrual investments increased to 7.2% of the debt portfolio, up from 6.5% in the previous quarter.
  • The weighted average effective yield on income-producing debt investments decreased to 12.5% from 13.1% in the third quarter.

Q & A Highlights

Q: Stuart, do you think there's scope for spreads to widen given the current market uncertainties? A: (Stuart Aronson, CEO) Spreads were stable in Q4 and remain so at the start of 2025. Despite market uncertainties, we haven't seen upward pressure on spreads. A larger economic disruption or a resumption of M&A flow could change this, but currently, the supply-demand balance doesn't support increased pricing.

Q: With the uptick in non-accruals, what's the strategy for mitigating credit quality pressure? A: (Stuart Aronson, CEO) We're focusing on first lien investments to mitigate non-accrual pressures. We're working to resolve issues with specific investments like Telestream. We're also cautious about tariff risks and ensuring debt service coverages are reasonable, avoiding cyclicals and overly leveraged deals.

Q: How much of the quarter-over-quarter decline in NII was due to base rates versus credit issues? A: (Joyson Thomas, CFO) The decline in effective yield from 13.1% to 12.5% was largely due to lower base rates, with a slight decrease in spreads. Most of the portfolio resets quarterly, so the impact of base rate changes will continue into Q1.

Q: Could 2025 be a year of deleveraging similar to 2024 given the current market conditions? A: (Stuart Aronson, CEO) Our goal is to maintain target leverage levels. We're focusing on non-sponsor markets to offset repayments and keep the BDC fully invested. Deleveraging would only occur if we can't originate enough to offset repayments, but current Q1 performance is promising.

Q: With significant spillover income, are you reluctant to adjust the dividend in the current spread environment? A: (Stuart Aronson, CEO) We're evaluating the BDC's earning power and the impact of non-accruals on dividend sustainability. The board is actively reviewing payout levels, but as of now, the dividend remains at $0.385 per share.

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

This article first appeared on GuruFocus.

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