Q2 2021 WhiteHorse Finance Inc Earnings Call
[music].
Again.
Okay.
Good morning, My name is for you and I will be your conference operator today.
At this time I would like to welcome everyone everyone to the Whitehorse Finance second quarter 2021earnings conference call. Our hosts for today's call are Stuart Aronson, Chief Executive Officer, and choice of Thomas Chief Financial Officer, Today's call is being recorded and will be available for replay beginning at 4 P. M. Eastern.
Current standard time.
The replay of Thailand number is for zero to 220 to 330.
No there is no pass code of required.
At this time, all participants have been placed in a listen only mode on the floor will be open for your questions. Following the presentation.
We would like to ask a question at that time. Please press star 1 on the telephone keypad.
So at any point. Your question has been answered you may remove yourself from the queue by pressing the pound key.
We ask you to please pick up your headset to allow for optimal sound quality Lastly, if you should require operator assistance. Please press star zero.
And it's now my pleasure to turn the floor over to Nick Rust of Prosek partners.
Thank you Britney and thank you everyone for joining us today to discuss Whitehorse finances second quarter 2021earnings results before we begin I would like to remind everyone that certain statements, which are not based on historical facts made during this call, including any statements related to financial guidance, maybe deemed forward looking statements within the meaning of the private securities.
Litigation Reform Act of 1995 before these forward looking statements involve <unk>.
Known and unknown risks and uncertainties. The these are important factors that could cause actual results to differ materially from those expressed or implied by these forward looking statements Whitehorse finance assumes no obligation or responsibility to update any forward looking statements. Today's speakers may refer to material from the white house for that second quarter of Q2.
Earnings presentation, which was posted on our website. This morning with that allow me to introduce Whitehorse finance the CEO Stuart Aronson Stuart you may begin.
Thank you Nick good afternoon, and thank you for joining us today.
You are aware of we issued our press release. This morning prior to the market open and I hope you've had a chance to review our results, which are also available on our website.
I'm going to start by addressing our second quarter results and market conditions and the enjoy some Thomas our Chief Financial Officer will discuss our performance in more detail after which we'll open the floor of the questions.
In the second quarter core NII was $7 million or <unk> 38, $33.8 per share slightly below our dividend of 35.5 cents.
GAAP net investment income was $6.1 million or 29.6.6 cents per share.
NII was lower than last quarter as a result of lower fee income and the accelerated interest accretion, which was higher than the prior quarter due to large volume of prepayment activity. We saw on Q1 also as you know our asset balances were lower at the end of Q1 as a result of repayments that we.
<unk> got during that quarter.
We achieved modest NAV accretion in the quarter generating $15.42 of NAV per share combined compared to $15.27 in Q1.
This gain was driven by $4 million in Mark to market gains that we recorded in our portfolio of this quarter.
When adjusting for special dividends paid in prior years, our pro forma Q2 NAV per share is highest since our December 2012 IPO.
Our mark to market gains were highlighted by honors holdings at 0.7 million barbecue buyer at 0.7 million.
The <unk> Holdings, Inc, zero point $6 million.
We also experienced a strong period for capital deployments totaling $104 million, including original originating 8 new transactions. This investment activity enabled us to grow the portfolio by 9% from Q1.
Gross deployments of 104 million were partially offset by repayments of $31 million, we attribute the modest Q2 repayment level. The timing as we are currently aware of a number of portfolio of companies that are for sale.
Before year end this will drive increased level of repayments.
Our new originations of our 8 new originations 7 of our sponsor and 1 was non sponsor and the deals had an average leverage level of 4.05 times. Additionally.
Additionally, 7 of these deals were first lien and 1 was second lien at the end of the second quarter 95 per cent of our debt portfolio was first lien and 100% with senior secured.
Sponsor loans comprised 68 per cent of our portfolio compared to 65% in Q1.
We continue to be pleased with the pace of capital deployment throughout the first half of 2021 as compared to prior years and our weighted average effective yield on income producing debt investments of 9.5% was just slightly below the Q1 level of 9.6%.
Now stepping back to bring our entire investment portfolio and the focus at the end of the second quarter. The fair value of our industrial portfolio increased to $671 million compared to $617 million at the end of Q1.
Non accruals represented only 1.5% of our debt portfolio compared to 2.5% on of fair value basis of the end of Q1.
This decrease was driven by sure of it returning to accrual status in the quarter Grupo Hema remains the only non accrual as of June 30th.
We remain on restructuring negotiations wynkoop, Bohemia and expect that this process will extend for many months.
We continued to successfully utilized the JV, which generated income of $2.1 million in the quarter, which was at the same level of Q1.
The Jv's portfolio size was $210 million with an average unlevered yield of 8.1% in Q2, 'twenty, 1 which was slightly above the prior year period.
We remain pleased with the income contribution from the JV and believe it supports higher returns for shareholders.
We use the current full capacity of the JV, we are likely to allocate an additional $25 million of more of the equity into this program to continue to drive higher net interest income for WHI.
As a result of the strong originations momentum leverage at the end of Q2 was $1.1 4 times.
Within our targeted range of 1 to 1 on the quarter times.
Looking ahead, our Q3 pipeline is very strong with 17 mandated deals 8.
Of these deals are sponsor and split between new originations and add ons of the balance 6 deals of non sponsor.
And the non sponsor new deals and 3 of our non sponsor add ons give.
Given these mandates we can confidently say that the third quarter was on pace to produce the highest origination volume we have ever generated through our platform.
This exceptional pipeline growth in these mandated deals are enabling the BDC the drive portfolio of growth and ramp the JV.
Which will ultimately lead to higher income levels and greater coverage of our dividend.
Given that we expect high repayment activity during the balance of the year, we may choose to operate at higher than our targeted 1 on a quarter of times leverage ratio in order to prepare the portfolio for expected repayments.
We have already had 1 repayment and refinancing in Q3, we expect some additional early repayments due to M&A and new financing events for a number of credits during the remainder of the year. This of course is subject to change given current market conditions.
In closing, we're well positioned to continue executing our 3 tiered sourcing approach and rigorous underwriting standards of the second half of the year our portfolio as a whole remains very high quality and healthy together with the strong pipeline of investment opportunities. We expect fee income the pickup in the second half, which should enable us to continue covering the dividend from <unk>.
For net.
Net interest income.
That said, the increasing rates of COVID-19 infections, and hospitalizations creates uncertainty and could impact both portfolio performance on the rate of new asset origination.
<unk> was <unk> $45 billion of capital under management empowers us to continue to benefit from the shared resources of the leader in the mid market. This includes 63 deal professionals professionals dedicated to direct lending of 20, plus person business development team leveraging HRT capital's proprietary prospect database.
And sourcing of the H I G level by over 400 of investment professionals overall on.
The Whitehorse team spends 12 locations across North America and includes non gateway markets that face less deal sourcing competition. The large investment centers like New York and Chicago.
As a result, we believe our combined platform is poised to drive continued portfolio growth and ultimately higher returns to our shareholders across our established direct lending business.
With that I'll turn the call the joycean after which we'll take your questions go ahead Jason.
Thanks, Stuart and thank you all for joining today's call.
During the quarter, we recorded GAAP net investment income of $6.1 million for $29.6 per share.
This compares to $7.6 million for 37 per share in Q1.2021.
Core NII was $33.8 per share after adjusting for zero point of $9 million capital gains incentive fee accrual.
Our investment in the JV continues to ramp up increasing by $6.6 million after the effects of transferring for new deals and 3 add on that totaled $31.8 million in Q2.
As of June 30, we held 25 positions and the JV with an aggregate fair value of $209.5 million compared to 22 positions and of fair value of $185.7 million in Q1.
The investment in the JV continues to be accretive to the Bdc's earnings as our return on investment in the JV at the end of Q2 was approaching 14% Q.
Q2 fee income was approximately <unk> 3 million compared to <unk> 8 million in the prior quarter.
The line was largely due to higher prepayment fees collected during the first quarter.
We reported an increase of net assets, resulting from a net increase in net assets, resulting from operations of $10.5 million.
Our risk range during the quarter showed that 90% of our portfolio positions cared either 1 or 2 rating compared to 84, 3% in Q1.
Turning to our balance sheet, we had cash resources of approximately $17.8 million as of June 30 of 2021, including $7.4 million of restricted cash.
And we had approximately $46.5 million undrawn under our revolving credit facility.
We also have the flexibility to increase the line to $350 million under our existing accordion feature.
As of June 32021, the company's asset coverage ratio for BARDA mounts as defined by the 1940 Act was 187, 9%, which was above the minimum asset coverage ratio of 150 per cent.
Our Q2 net effect of debt to equity ratio after adjusting for cash on hand was 1 <unk> times.
Since the end of the quarter, we have completed an amendment and refinancing on our existing JP Morgan Bank credit facility the.
The impact will extend the non call period to November 22.
A portion of the reinvestment period to November of 'twenty, 'twenty, 4 and reduced the applicable interest spread from 250 to 235 basis points beginning in Q3.2021, we.
We anticipate this from a result in annual cost savings of approximately 0.4 million assuming the line continues to be utilized in our historical levels.
Next I'd like to highlight of distributions on May 10, 2021, we declared distribution for the quarter ended June 30 of 2021 of $35.5 per share for a total distribution of $7.4 million to stockholders of record as of June 18th.
Given the state on July <unk>, 2021, and marks the company's 35th consecutive quarterly distribution paid since our IPO in December 2000, 22012, with all distributions consistent that the rate of $35.05 per share per quarter.
This morning, we announced that the board of directors declared a third quarter of distribution of $35.05 per share to be payable on October 4.2021 to stockholders of record as of September 20th.
As we said previously we will continue to evaluate on a quarterly distribution for the near and medium term based on the core earnings power of our portfolio. In addition to other relevant factors that may warrant consideration with that I'll now turn the call back over to the operator for your questions operator.
Thank you at this time, if he would like to ask the question. Please press the star of Antoine and you touched on phone you may remove yourself from the queue at any time by pressing the pound key once again that of stock and 1 of you would like to ask a question and we will take our first question from price.
Now with Husky.
The <unk> group your line is now open.
Thanks, Good afternoon I appreciate you taking the question.
Hi, Brian.
Hi, Stuart.
You noted that.
You're expecting possibly the the highest ever originations.
The nation quarter here here in the third quarter, I guess, it could move into the into the for fourth quarter as well, but.
Looking at looking back it looks like $176 million was the best quarter for originations.
To date, so if you could kind of help us.
Help frame.
On the the pipeline relative to that and then from a repayment perspective, I know, it's hard to predict but.
The do you expect originations in the back half of this year 2 to outpace prepayment activity.
So.
Our originations activity across our entire.
Whitehorse direct lending is.
Higher than it's ever been which is strange for Q3, because Q3 is normally the second slowest quarter after Q1.
And that bodes well for Q4.
Absent disruptions in the economy or something else that we're not projecting.
How much of that origination activity ends up in the BDC.
We'll come down to suitability for the BDC and allocation percentages.
But it should be significant I would say based on what we know right now.
We will have net significant net additions to the portfolio in Q3.
And then we have a number of sales processes on companies.
Again, we're not selling them the owners of selling them, but we have our loans that'll get repaid as a part of that that will probably get into Q4, so price what we're hoping to do it.
<unk> ramp up originations.
The potentially get the total leverage above 1 on a quarter.
In Q3 preparing for what we expect to be more paydowns in Q4, and we're going to try to manage to about 1 in the quarter times leverage with.
With assets of around $700 million.
For year end, if we can if we can get there.
Okay.
There are always repayments of the pop up that we don't know about the <unk>.
That's different right now is how many of those repayments are visible because we know that the company's debt those loans were made to our either already in the market or are coming to market in Q4.
Okay.
Good good good detail, maybe 1 more for me and then I'll jump back in the queue, but Joyce and I noticed the dividend income not related to the JV was was a bit elevated here in the quarter can you can you speak to what drove that and maybe try to get a good understanding for.
What that what that might be here going forward.
Yeah outside of the Jv's dividend, we did receive some dividend income.
Primarily related to Oracle holdings as you know that is an equity investment.
That investment continues to have some excess cash flows.
Again for from their perspective on the underlying portfolio portfolio of company and need of dividend out to its equity owners. So we did recognize the dividend this quarter related to that.
Okay.
And that's more episodic or as it.
Is it distributed to cover tax tax distributions for tax the tax expense.
Yes, that's a great question the way I would look at it is I think.
There is a little bit of Canadian taxes that play there.
But we do envision.
Future income streams to come from the company prior to 2 of realizations. So what I'd say is that this isn't kind of a 1 off of that.
Okay, great Yeah, just the whole.
Our call is doing well generating cash flow and their dividend net cash flow.
S equity distributions and.
Ultimately, we will continue to operate that company until we deem it appropriate market environment to sell into.
Okay.
Probably be.
Well it'll be in the future of we don't know what what the date with day.
Right. Okay. Thanks, a lot I appreciate you taking the question.
No problem for us.
And we will take our next question from Robert Dodd.
With Raymond James.
Hi, guys on on the portfolio today and kind of the outlook.
For all of the cut off on.
Right now I guess, what sponsor is about 2 thirds now on.
Non sponsor of about a third obviously that has not been the.
Kind of historic mix of.
And you gave some color on on.
What the the the mandated deals all of it in Q3, but I mean would you expect I guess that to come.
Down over time, and when obviously non sponsored deals take longer the structure, but I mean any color on where the.
Is that.
Of course, I permanent shift in the mix sponsored non sponsored or just.
The timing kind of.
Issue in the in a very active market.
I would say that broadly while it'll vary quarter to quarter in terms of new originations our portfolio is likely to stay about 2 thirds of sponsor and about 1 third non sponsor the sponsor deals are harder to find harder to underwrite.
The more frequently on the non sponsored deals the underwriting does not support the credit and even though we get mandates we don't close on the deals.
That happened on a couple of non sponsor deals last quarter frankly.
But we are of very healthy pipeline of non sponsor deals in Q3 as I highlighted.
Of our 17 deal opportunities that are mandated I think 9 of them are either new sponsored deals.
Sorry of either new non sponsored deals.
For non sponsor add ons, so in any given quarter it could be anywhere from 90.10 to 50.50.
Where a sponsor makes up the larger number typically but overall, we'd expect the portfolio to remain.
Similar to where it is now.
Got it got it thank you on <unk>.
Just just to that point I mean, you said I mean, the C 17 mandated deals well roughly half of sponsor how and you just had a couple of couple of sponsor mandates kind of felt sell through last quarter.
The non sponsored non sponsored non sponsored.
Yeah.
How confident are you on.
Just looking at Q2, Q3, obviously leverage going up and the leverage going back down again, I mean, what would you say your your comfort level is on being at that 700 or so.
1 of the quota turns.
And given that all of a lot of moving parts.
Have you got higher confidence in originations, the repayments, which are difficult to predict or vice versa.
I have more confidence in Q3, because we're in the middle of it and we have the mandate of deals.
And I can look at each of the deal names and sort of handicap, the likelihood of them getting done.
And I think of our asset balances.
Are likely to rise or of total asset portfolio, the $700 million or greater.
In Q3.
And then in Q4.
We don't yet have visibility.
The into originations Theres only 1 view of mandated right now that would be a Q for clothes and we know a lot of deals of repaying in Q4, So we're going to need to let the portfolio of pipeline deals.
Develop over the next 6 to 8 weeks the Morris insight into Q4.
But all I can tell you historically as I mentioned earlier Q3 is the second slowest quarter.
With the cute with the Q3 of the strong absent something happening in the marketplace.
We would expect a similarly strong Q4 ex.
And.
That would bode very well for.
For the JV and the core BDC portfolio.
Balances and set us up to 2.
Hopefully comfortably earn our dividend unless there are other things that go on that we don't know about debt.
Understood I appreciate that thank you. So 1 housekeeping quick 1 if I can.
The tax expense this quarter was a little bit elevated was that related to the the dividend income.
Mentioned, the some Canadian tax considerations.
And should we expect that excise tax to.
That tax don't just ex us to pop up if if there's increased dividend income of was it unrelated to that.
Robert I think the way the way to think about it is listen with any year you look at our taxable income which takes into account all of the book tax timing differences.
Ultimately distributions are going to be paid out of taxable earnings. So when you put all of that in a blender effectively the current at currently estimate the earnings of the BDC to be excess.
And in excess of our distributions at a slightly higher run rate than we were earlier in the year for last year for that matter based on not only kind of the investment income, but also some of the net of gains that were realized from this year. So as you're aware year to date, we have on large realized gain from the range each realization so that also.
Came into play there.
Got it thank you.
Yeah.
And once again that of start Antoine if you would like to ask the question.
And we'll pause for just a moment to 1 of the out any further questions to queue.
And we'll take our next question from from.
<unk> kind of Kiss Shepherd Chen with B Riley.
Oh, sorry.
Just a quick question. If you expect second half 'twenty 1 of the payments to remain elevated how does the impact of fee income expectation.
There should be either more prepayment penalties or more fee sweeps associated with faster repayments.
All things being equal will be accretive to NII.
We saw that last quarter, where fees suites, some prepayment penalties helped us generate a NII number of excess of the dividend.
Yeah.
Okay, great. Thank you.
And we have no. Further question comes on line at this time I will turn the call back over to management for any additional or closing remarks.
I appreciate everyone's time and attention today.
As always if there are questions that people would like to see addressed in future calls.
Please alert us prior to the call. So we can add that into the prepared remarks.
And.
With that I hope everybody has a good afternoon. Thank you.
This does conclude today's program. Thank you for your participation you may disconnect at any time.
Yeah.
[music].
Okay.
[music].
[music].
Good morning, My name is for he and I will be your conference operator today.
At this time I would like to welcome everyone everyone to the Whitehorse Finance second quarter 2021earnings conference call. Our hosts for today's call are Stuart Aronson, Chief Executive Officer of intuition, Thomas Chief Financial Officer.
Today's call is being recorded and will be available for replay beginning at 4 P. M. Eastern standard time.
The replay dial in number is for zero to 220 to 330 P.
Please note there is no pass code required.
At this time, all participants have been placed in a listen only mode on the floor will be open for your questions. Following the presentation.
He would like to ask the question at that time. Please press star 1 on the telephone keypad.
If at any point. Your question has been answered you may remove yourself from the queue by pressing the pound key.
We are asked to please pick up your headset to allow for optimal sound quality Lastly, if you should require operator assistance. Please press star zero.
It is now my pleasure to turn the floor over to Nick Rust of Prosek partners.
Thank you Britney and thank you everyone for joining us today to discuss Whitehorse finances second quarter 2021earnings results before we begin I would like to remind everyone that certain statements, which are not based on historical facts made during this call, including any statements related to financial guidance, maybe deemed forward looking statements within the meaning of the private securities.
The litigation Reform Act of 1995 before these forward looking statements involve.
Known and unknown risks on the 30 days. The these are important factors that could cause actual results to differ materially from those expressed or implied by these forward looking statements Whitehorse finance assumes no obligation or responsibility to update any forward looking statements. Today's speakers may refer to material from the white house for that second quarter of Q2.
Earnings presentation, which was posted on our website. This morning with that allow me to introduce Whitehorse finance the CEO Stuart Aronson Stuart you may begin.
Yeah.
Thank you Nick good afternoon, and thank you for joining us today.
As you're aware of we issued our press release. This morning prior to the market open and I hope you've had a chance to review our results, which are also available on our website.
I'm going to start by addressing our second quarter results and market conditions and the enjoy some Thomas our Chief Financial Officer will discuss our performance in more detail after which we'll open the floor for questions.
In the second quarter core NII was $7 million or <unk> 38, $33.8 per share slightly below our dividend of <unk> 35, and a half since.
GAAP net investment income was $6.1 million or 29.6.6 cents per share.
NII was lower than last quarter as a result of lower fee income and the accelerated interest accretion, which was higher than the prior quarter due to large volume of prepayment activity. We saw in Q1 also as you know our asset balances were lower at the end of Q1 as a result of repayments that we.
Got during that quarter.
We achieved modest accretion in the quarter generating $15.42 of NAV per share combined compared to $15.27 in Q1 the.
This gain was driven by $4 million in Mark to market gains that we recorded in our portfolio of this quarter.
When adjusting for special dividends paid in prior years, our pro forma Q2 of NAV per share is highest since our December 2012 IPO.
Our mark to market gains were highlighted by honors holdings at 0.7 million barbecue buyer at zero point $7 million.
The <unk> holdings of zero point $6 million.
We also experienced the strong period for capital deployments totaling $104 million, including the original originating 8 new transactions. This investment activity enabled us to grow the portfolio.
By 9% from Q1.
Gross deployments of 104 million were partially offset by repayments of $31 million, we attribute the modest Q2 repayment level. The timing as we're currently aware of a number of portfolio of companies that are for sale. If they close before year end. This will drive increased level of repayments.
Our 8 new originations of our 8 new origination 7 of our sponsor and 1 was non sponsor and the deals had an average leverage level of 4.05 times.
Additionally, several of these deals were first lien and 1 with second lien at the end of the second quarter 95 per cent of our debt portfolio was first lien and 100% was senior secured.
<unk> loans comprised 68 per cent of our portfolio compared to 65% in Q1.
We continue to be pleased with the pace of capital deployment throughout the first half of 2021 as compared to prior years and our weighted average effective yield on income producing debt investments of 9.5% was just slightly below the Q1 level of 9.6%.
Now stepping back to bring our entire investment portfolio and focus.
At the end of the second quarter, the fair value of our industrial portfolio increased to $671 million compared to $617 million at the end of Q1.
Non accruals represented only 1.5% of our debt portfolio compared to 2.5% on of fair value basis of the end of Q1. This.
This decrease was driven by sure of it returning to accrual status in the quarter Grupo Hemo remains the only non accrual as of June 30th.
We remain on restructuring negotiations went through the Bohemia and expect that this process will extend for many months.
We continued to successfully utilized the JV, which generated income of $2.1 million in the quarter.
Which was at the same level of Q1.
The Jv's portfolio size was $210 million with an average unlevered yield of 8.1% in Q2, 'twenty, 1 which was slightly above the prior year period.
We remain pleased with the income contributions from the JV and believe it supports higher returns for shareholders if.
If we use the current full capacity of the JV, we are likely to allocate an additional $25 million of more of equity into this program to continue to drive higher net interest income for the WHI.
As a result of the strong originations momentum leverage at the end of Q2 was 114 times within our targeted range of 1 to 1 on the quarter times.
Looking ahead, our Q3 pipeline is very strong.
The 17 mandated deals.
8 of these deals are sponsor and split between new originations and add ons of the balance 6 deals are non sponsor.
And the non sponsor new deals and 3 of our non sponsor add ons given.
Given these mandates we can confidently say that the third quarter was on pace to produce the highest origination volume we have ever generated through our platform the.
This exceptional pipeline growth in these mandated deals are enabling the BDC the drive portfolio of growth and ramp the JV.
Which will ultimately lead to higher income levels and greater coverage of our dividend.
Given that we expect high repayment activity during the balance of the year, we may choose to operate at higher than our targeted 1 on a quarter times leverage ratio in order to prepare the portfolio for expected repayments.
We have already had 1 repayment and refinancing in Q3, we expect some additional early repayments due to M&A and new financing events for a number of credits during the remainder of the year.
Of course is subject to change given current market conditions.
In closing, we are well positioned to continue executing our 3 tiered sourcing approach and rigorous underwriting standards of the second half of the year our portfolio as a whole remains very high quality and healthy together with the strong pipeline of investment opportunities. We expect fee income to pick up in the second half, which should enable us to continue covering the dividend from <unk>.
For net net.
Net interest income.
That said, the increasing rates of COVID-19 infections, and hospitalizations creates uncertainty and could impact both portfolio of performance on the rate of new asset origination.
<unk> was <unk> $45 billion of capital under management empowers us to continue to benefit from the shared resources of the leader in the mid market. This includes 63 deal professionals professionals dedicated to direct lending of 20, plus person business development team leveraging H I G capital's proprietary prospect database.
And sourcing at the H I G level by over 400 investment professionals overall.
The Whitehorse team spans 12 locations across North America and includes non gateway markets that face less deal sourcing competition. The large investment centers like New York and Chicago.
As a result, we believe our combined platform is poised to drive continued portfolio growth and ultimately higher returns to our shareholders across our established direct lending business.
With that I'll turn the call of the Joycean after which we'll take your questions go ahead of Joy something.
Thanks, Stuart and thank you all for joining today's call.
During the quarter, we recorded GAAP net investment income of $6.1 million for $29.6 per share.
This compares to $7.6 million for 37 cents per share in Q1.2021.
Core NII was $33.80 per share after adjusting for zero point of $9 million capital gains incentive fee accrual.
Our investment in the JV continues to ramp up increasing by $6.6 million. After the effects of the transferring for new deals and 3 add ons that totaled $31.8 million in Q2.
As of June 30, we held 25 positions and the JV with an aggregate fair value of $209.5 million compared to 22 positions at a fair value of $185.7 million in Q1.
The investment in the JV continues to be accretive to the Bdc's earnings as our return on investment in the JV at the end of Q2 was approaching 14% Q.
Q2 fee income was approximately zero point of 3 million compared to <unk> 8 million in the prior quarter.
Your line was largely due to higher prepayment fees collected during the first quarter.
We reported an increase in net assets, resulting from a net increase in net assets, resulting from operations of $10.5 million.
Our risk range during the quarter showed that 90% of our portfolio positions cared either a 1 or 2 ready compared to 84, 3% in Q1.
Turning to our balance sheet, we had cash resources of approximately $17.8 million as of June 30 of the 2021, including $7.4 million of restricted cash.
And we had approximately $46.5 million undrawn under our revolving credit facility.
We also have the flexibility to increase the line to $350 million under our existing accordion feature.
As of June 32021, the company's asset coverage ratio for BARDA mounts as defined by the 1940 Act was 187, 9%, which is above the minimum asset coverage ratio of 150 per cent.
Our Q2 net effect of debt to equity ratio after adjusting for cash on hand was 1 point OA times.
Since the end of the quarter, we have completed an amendment and refinancing on our existing JP Morgan Bank credit facility the.
The impact will extend the non call period to November 22.
Of course shots of reinvestment periods of November 2024, and reduced the applicable interest spread from 250 to 235 basis points beginning in Q3.2021, we.
We anticipate this from a result in annual cost savings of approximately zero point for million assuming the line continues to be utilized in our historical levels.
Next I'd like to highlight of distributions on May 10, 2021, we declared distribution for the quarter ended June 30 of 2021, 35, and a half cents per share for a total of distribution of $7.4 million to stockholders of record as of June 18th.
EBITDA was paid on July <unk>, 2021, and marks the company's 35th consecutive quarterly distribution paid since our IPO in December 2000.22012.
All distributions consistent that the rate of 35, and a half cents per share per quarter.
This morning, we announced that the board of directors declared a third quarter distribution of 35, and a half cents per share to be payable on October for 2021 to stockholders of record as of September 20th.
As we said previously we will continue to evaluate on a quarterly distribution for the near and medium term based on the core earnings power of our portfolio. In addition to other relevant factors that may warrant consideration with that I'll now turn the call back over to the operator for your questions operator.
Thank you at this time, if he would like to ask a question. Please press the star of Ant 1 on your Touchtone phone you may remove yourself from the queue at any time by pressing the pound key once again that the stock and 1 of you would like to ask a question and we will take our first question from price.
<unk> with <unk>.
The group your line is now open.
Thanks, Good afternoon I appreciate you taking the question.
Hi, Brian.
Hi, Stuart.
So you noted that.
You're expecting possibly the the highest ever originations.
The nation quarter here here in the third quarter, I guess, you could move into the into the for fourth quarter as well, but.
I look at looking back it looks like $176 million was the best quarter for originations.
To date, so if you could kind of help us.
Help help frame.
On the the pipeline relative to that and then from a repayment perspective, I know, it's hard to predict but the.
Do you expect originations in the back half of this year to outpace the repayment activity.
So.
Our originations activity across our entire Whitehorse.
Whitehorse direct lending.
Is.
Higher than it's ever been which is strange for Q3, because Q3 is normally the second slowest quarter after Q1.
And that that bodes well for Q4.
Absent disruptions in the economy or something else that we're not projecting.
How much of that origination activity ends up in the BDC.
<unk> will come down to suitability for the BDC and allocation percentages.
But it should be significant I would say based on what we know right now.
We will have net significant net additions to the portfolio in Q3.
And then we have a number of sales processes on companies.
Again, we're not selling them the owners of selling them, but we have our loans it'll get repaid as a part of that that will probably get in queue for some price what we're hoping to do is.
The ramp up of originations.
Potentially get the total leverage above 1 on a quarter.
In Q3 preparing for what we expect to be more paydowns in Q4, and we're going to try to manage to about 1 on a quarter times leverage.
With assets of around 700 million.
For year end, if we can if we can get there.
Okay.
There are always repayments of the pop ups that we don't know about but the thing thats different right. Now is how many of those repayments are visible because we know that the company's debt those loans were made to our either already in the market.
Or are coming to market in Q4.
Okay.
That's good detail, maybe 1 more for me and then I'll jump back in the queue, but Joyce and I noticed the dividend income not related to the JV was was a bit elevated here in the quarter can you can you speak to what drove that and maybe.
Try to get a good understanding for what that what that might be here going forward.
Yeah outside of the Jv's dividend, we did receive some dividend income.
Related to Oracle Holdings as you know that is an equity investment.
As that investment continues to have some extra cash flows.
Again for from their perspective on the underlying portfolio portfolio of company and made the dividend out to its equity owners. So we did recognize the dividend this quarter related to that.
Okay.
And that's more episodic or is it.
Is it distributed to cover tax tax distributions for tax tax expense.
Yeah. That's a great question the way I would look at it is I think.
There is a little bit of Canadian taxes that play there.
But we do envision.
The future income streams to come from the company prior to 2 of realizations. So what I'd say is that this isn't kind of a 1 off of that.
Okay, great Yeah, just the whole.
All of our coal is doing well generating cash flow and their dividend thing that cash flow.
S equity distributions and.
Ultimately, we will continue to operate that company until we deem it a appropriate market environment to sell into.
Okay.
Probably the.
Well it'll be in the future of we don't know what what the date with day.
Right. Okay. Thanks, a lot appreciate you taking the question.
No problem for us.
And we will take our next question from Robert Dodd.
With Raymond James.
Hi, guys on all of the portfolio of today and kind of the outlook.
For the color on I mean, right now I guess, what sponsor is about 2 thirds now on.
Non sponsor of about a third obviously that has not been the.
On the historic mix.
And you gave some color on the phone.
The the the mandated deals all of it in Q3, but I mean would you expect I guess that to come.
Down over time, and when obviously non sponsor deals take longer the structure, but I mean any color on what the weather.
Is that.
Of course, I permanent shift in the mix sponsored non sponsored or just a.
The timing kind of.
Issue in the in a very active market.
I would say that broadly while it'll vary quarter to quarter in terms of new originations our portfolio is likely to stay about 2 thirds of sponsor and about 1 third non sponsor the sponsor deals are harder to find harder to underwrite.
The more frequently on the non sponsored deals the underwriting does not support the credit and even though we get mandates we don't close on the deals that.
That happened on a couple of non sponsor deals last quarter frankly.
But we are of very healthy pipeline of non sponsor deals in Q3 as I highlighted I think of our 17 deal opportunities that are mandated I think 9 of them are either new sponsored deals or force.
Sorry of either new non sponsored deals or non sponsor add ons. So in any given quarter. It can be anywhere from 90.10 to 50.50.
Were sponsor makes up the larger number typically but the overall, we'd expect the portfolio to remain.
Similar to where it is now.
Got it got it. Thank you on that just just to that point I mean that the you said I mean, let's say 17 Monday the deals about roughly half of sponsor how and he just had a couple of couple of sponsor mandates kind of helps sell through last quarter.
The non sponsored non sponsored mutual funds.
Yeah.
How confident are you on media.
Just looking at Q2, Q3, obviously leverage going up and the leverage going back down again, I mean, what would you say your your comfort level is on being at that 700 or so.
1 of the quarter turns out.
And given the amount of a lot of moving parts.
Have you got higher confidence in originations and repayments, which are difficult to predict or vice versa.
I have more confidence in Q3, because we're in the middle of it and we have the mandate of deals.
And I can look at each of the deal names and sort of handicap, the likelihood of getting done.
And I think of our asset balances.
<unk> are likely to rise or of total asset portfolio for $700 million or greater.
In Q3.
And then in Q4.
We don't yet have visibility.
Into originations, there's only 1 view of mandated right now that would be a Q for clothes and we know a lot of deals of repaying in Q4, So we're going to need to let the portfolio of pipeline deals.
Develop over the next 6 to 8 weeks to have more insight into Q4.
But all I can tell you historically as I mentioned earlier Q3 is the second slowest quarter ahead of what.
With the cute with the Q3 of the strong absent something happening in the marketplace.
We'd expect a similarly strong Q4.
And that would bode very well for.
For the JV and the core BDC portfolio.
Balances and set us up to 2.
Hopefully comfortably earn our dividend unless there are other things that go on that we don't know about yet.
Understood I appreciate that thank you said 1 housekeeping quick 1 if I can the tax expense. This quarter was a little bit elevated was that related to the the dividend income you mentioned the.
Some Canadian tax considerations I mean was it was.
And should we expect that excise tax to for that.
Of that tax don't just ex us to pop up.
If there's increased dividend income of was it unrelated to that.
Robert I think the way the way to think about it is listen with any year you look at our taxable income which takes into account all the bulk of the tax timing differences.
Ultimately distributions are going to be paid out of taxable earnings. So when you put all of that in a blender effectively the current.
At currently estimate the earnings of the BDC to be excess.
And in excess of our distributions at a slightly higher run rate than where we were earlier in the year for last year for that matter based on not only kind of the investment income, but also some of the net of gains that were realized from this year. So as you are aware year to date, we have on large realized gain from the realization so that also.
Came into play there.
Got it thank you.
Okay.
And once again that the start Antoine if you would like to ask the question and we'll pause for just a moment of without any further questions to queue.
And we'll take our next question from.
From Sarkis Shepherd Chen with B Riley.
Thank you.
Just a quick question. If you expect second half 'twenty 1 of the payments to remain elevated how does this impact the fee income expectation.
There there should be either more prepayment penalties.
For more fee sweeps associated with faster repayments, which all things being equal will be accretive to NII.
We saw that last quarter, where the suites from prepayment penalties helped us generate a NII number of in excess of the dividend.
Yeah.
Okay, great. Thank you.
And we have no further questions on the line at this time I will turn the call back over to management for any additional or closing remarks.
I appreciate everyone's time and attention today.
As always if there are questions that people would like to see addressed in future calls.
The alert us prior to the call. So we can add that into the prepared remarks.
And with.
With that I hope everybody has a good afternoon. Thank you.
This does conclude today's program. Thank you for your participation you may disconnect at any time.