Q3 2021 WhiteHorse Finance Inc Earnings Call

November 9, 2021

Zero.

Yeah.

Good afternoon. My name is Britney and I will be your conference operator today at this time I would like to welcome everyone to the Whitehorse Finance third quarter 2021 earnings conference call.

At this time.

R R.

Our hosts for today's call are Stuart Aronson, Chief Executive Officer enjoys some Thomas Chief Financial Officer, today's call is being recorded and will be available for replay beginning at five P. M. Eastern standard time.

The replay dial in number is four zero to 2209185. Please no no pass code is required.

At this time, all participants have been placed in a listen only mode and the floor will be open for your questions. Following the presentation.

If he would like to ask a question at that time. Please press star one on your telephone keypad.

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It is now my pleasure to turn the floor over to Robert Berg of frozen company.

Yeah.

Thank you operator, and thank you everyone for joining us today to discuss Whitehorse Finance third quarter 2021 earnings 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 the financial guidance may be deemed forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Because these forward looking statements involve known and unknown risks and uncertainties. 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 Whitehorse Finance third quarter 2021 earnings presentation, which was posted on Whitehorse finances website. This morning with that allow me to introduce Whitehorse finances, CEO Stuart Aronson Stuart you may begin.

Thank you Rob and good afternoon.

And thank you all for joining us today.

As you're aware, we issued our press release this morning prior to market open and I Hope you've had a chance to review our results from the period ended September 32021, which can also be found on our website.

On today's call I'll start by addressing our third quarter results and market conditions enjoy St. Thomas Our Chief Financial Officer will then discuss our performance in greater detail after which we'll open the floor for questions.

I am pleased to report a strong third quarter performance in the third quarter core NII was $7 8 million or $37 <unk> per share covering our dividend of <unk> 35, and a half cents and up from Q2 core NII of $7 million or $33 eight per share.

NII was higher than the previous quarter, primarily due to higher fee income and accelerated OID amortization driven by repayment activity.

I note that this is the company's 36th consecutive quarterly distribution paid since our IPO in 2012 with all distributions consistent with the rate of $35.05 per share per quarter.

I think this speaks to both the strength of the platform.

The deal sourcing capabilities as well as our historically conservative approach to deal structure.

As we announced on October 14th the increase in net investment income and realized gains caused us to declare a special distribution of $13.05 per share, which will be payable on December 10th of 2021 to stockholders of record as of October 29 2021.

We achieved modest accretion in the quarter with NAV per share increasing to $15 46 compared to <unk> 42 in Q2, driven by NII in excess of our 35, five cent dividend and markups within our portfolio.

When adjusting for special dividends paid in prior years, our pro forma Q3 earnings per share reached a record level for the second consecutive quarter.

Q3 was another strong period for capital deployments totaling $122 5 million across seven new originations. This investment activity enabled us to grow the portfolio by two 5% from Q2 net of repayments and after the favorable impact of unrealized gains on our investments.

$123 million of gross deployments were partially offset by repayments of 73 million, which included $47 million of refinancings from source code education dynamics in any services.

Dispositions of $2 million and principal repayments of $25 million excluding revolvers.

The result was net deployment value of $49 million.

Of our seven new originations five were sponsor and two were non sponsor.

With an average leverage level of only four two times.

Note that these deals were all first lien and at the end of the third quarter, 95% of our debt portfolio was first lien and 100% of it was senior secured.

Sponsor loans comprised 67% of our portfolio, which was in line with Q2.

We continue to be pleased with our pace of capital deployment. Despite the active M&A market driving elevated repayments.

Our weighted average effective yield on income producing debt investments was nine 3% in Q3 slightly below Q2 levels at 95%.

Now stepping back to bring our entire investment portfolio and to focus our investment portfolio achieved an increase in the fair value, reaching $687 million at the end of Q3 up from $671 million at the end of Q2.

Non accruals represented only one 3% of our debt portfolio compared to one 5% based on fair value. In Q2. This decrease was driven primarily by the increase in fair value of our portfolio.

It's the Grupo Hema investment really remains the only non accrual as of September 30th.

After the quarter closed we received updated information on Grupo Tema based on this information and subject to further performance updates and market conditions, we expect the market position down by another 5% to 15%.

5% to 15 of par.

By the end of Q4.

The investment is expected to be on non accrual until restructuring negotiations with the company conclude many of our portfolio companies have experienced supply chain issues and inflationary pressures, including higher shipping costs thankfully. So far most of these borrowers have been able to paas cost increases to their customers to offset.

These higher costs.

We continue to successfully utilize our JV with Str's, Ohio, which generated investment income to the BDC of approximately $1 8 million in the quarter as compared to $2 1 million in Q2 <unk>.

During the third quarter, we contributed an additional $46 million of investments into the JV portfolio. The fair market value of the Jv's portfolio was 239 million as of September 30th.

The Jv's portfolio had an average unlevered yield of 8% at the end of Q3.

Slight decline compared to its Q2, 'twenty, one average yield of eight 1%.

At a portfolio size of $210 million.

<unk> portfolio is also comprised exclusively of first lien senior secured loans.

We remain pleased with the income contribution from the JV. We believe it supports a higher returns for shareholders and is particularly relevant given the current market backdrop.

Once the existing JV capital commitment of 75 billion for WH. Chuck has deployed <unk> shop is likely to allocate an additional $25 million or more commitments into this program to continue to generate attractive returns for Whitehorse finance and our shareholders.

As a result of repayments and transfer of certain investments into the JV leverage at the end of Q3 was $1 one nine times for WHS approached.

Approaching our target range of one and a quarter times.

During the last quarter, we previewed that our leverage may approach or exceed the top of our targeted range in the near future due to evolving market backdrop in short term expectations around repayments.

We expect to see repayments over the next two quarters due to an uptick in M&A activity and the refinancing of certain existing credits in Q4.

Offsetting the expected increase in repayments, we continue to build a strong pipeline.

The market is quite busy with the mix across sponsor and non sponsor deals and our weekly investment pipeline often includes more than 150 deals with.

The sourcing processes, becoming more competitive, particularly for the on the run sponsor deals where pricing leverage and documentation terms have returned fully to pre COVID-19 levels.

In addition, heavily adjusted EBITDA levels are often being offered by competitors and we are frankly walking away from more deals than we have in the recent past.

While we expect our origination activity levels to remain high we generally have a cautious approach and continue to underwrite to conservative downside scenarios.

Documentation terms in EBITDA adjustments in the off the run sponsor market, which are the smaller sponsors are less aggressive we continue to have a significant off the run sourcing advantage due to our presence in 12 regional markets consistent with prior quarters. There is less competition for non sponsored deals as well.

While we continue to source attractively priced transactions at attractive leverage profiles.

Whitehorse continues to have differentiated sourcing capabilities through our three tier architecture, we continue to derive significant advantages from the shared resources and affiliation with H I G who is a leader in the mid market.

The Whitehorse platform includes 63 deal professionals dedicated to direct lending in HIV gives us a 20 plus person business development team leveraging aig's proprietary prospect database and we also get additional sourcing at the <unk> level from over 400 investment professionals across the firm.

Our sourcing drives a high quality pipeline in markets with less competition for mandates.

Our strategy and competitive advantages continue to result in a momentum in our originations business. Thus far in Q4, we have closed five deals that are working on an additional 14 mandates with targeted closings in Q4 and Q1 of 2022 three.

Three of the five closed deals or sponsor in eight of the mandates the mandated deals or sponsor split between new originations and add ons.

At this stage, we expect the fourth quarter will produce one of the highest origination volume quarters, we've ever generated through our platform, which positions us well to deploy the proceeds from our recent issuance of primary shares.

This exceptional pipeline growth in these mandated deals are enabling the BDC to drive portfolio growth and grow the JV, which will ultimately lead to higher income levels and greater coverage of our dividend.

In closing, we are well positioned to continue executing our three tiered sourcing approach and rigorous underwriting standards through the last quarter of 2021 and into the new year, our portfolio as a whole remains very high quality at healthy.

Together with a strong pipeline of investment opportunities due to expected repayments are fee income could ramp up in the final quarter, allowing for continued dividend coverage by core NII, we remain cautious about cyclical industries and the lingering effects of the pandemic and our underwriting deals with these risks in mind.

Involving credit environment also continues to create uncertainty and could impact both portfolio performance and the rate of new asset origination. Nonetheless, we believe our platform is well positioned to drive portfolio growth and compelling returns to our shareholders.

With that I'll turn the call to join US for additional performance details and a review of our portfolio composition. Jason go ahead.

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

During the quarter, we recorded GAAP net investment income of $7 6 million or $36.06 per share.

This compares to $6 1 million or $29 six per share in the second quarter.

Core NII was <unk> 37, <unk> per share after adjusting for 0.1 million capital gains incentive fee accrual.

Q3 fee income was $1 2 million compared with <unk> 3 million in the prior quarter the.

The increase was largely due to more meaningful prepayment and amendment activities during the current quarter.

We reported an increase in net assets, resulting from operations of $8 3 million.

Our risk ratings during the quarter showed that 89% of our portfolio positions carried either a one or two rating compared to 90% in Q2.

Regarding the JV, specifically, we continue to grow our investment we transferred to new deals three add on transactions and the remaining portions of four previously transfer deals, which aggregated to approximately $45 $7 million in exchange for a net investment in the JV of $9 4 million.

Well as cash proceeds of approximately $36 3 million.

As of December 30, <unk> 2021, the Jv's portfolio held positions in 27 portfolio companies with an aggregate fair value of $239 million compared to 25 portfolio of companies at a fair value of $209 5 million in Q2.

The investment in the JV continues to be accretive to the Bdc's earnings.

We expect the yield on our investment in the JV may fluctuate period over period as a result of the timing of additional capital invested the changes in asset yields in the underlying portfolio as well as the overall performance of the <unk> investment portfolio.

Turning to our balance sheet.

We had cash resources of approximately $16 6 million as of September 32021, including $7 million of restricted cash.

As reported during our last call at the beginning of Q3, we completed an amendment on our existing Jpmorgan revolving credit facility the.

The impact of extended the non call period to November 2022.

Wished out the reinvestment periods in November 2024, and reduced interest margin from 250 to 235 basis points.

We anticipate this to result in annual cost savings of approximately <unk> $4 million, assuming the line continues to be utilized at historical levels.

At quarter end, we had approximately $25 4 million undrawn under our revolving credit facility.

Subsequent to quarter end on October 4th in terms of our credit facility were again amended to among other things allow us to temporarily upsize the credit facility by $50 million.

Mowing, the BDC to borrow up to $335 million for a three month period, beginning October four 2021.

This provides us with significant flexibility to better account for timing differences between anticipated prepayments and originations.

As of December 30, <unk> 2021, the company's asset coverage ratio for BARDA mounts as defined by the 1940 Act was 184, 2%, which is above the minimum asset coverage ratio of 150%.

Q3, net effective debt to equity ratio after adjusting for cash on hand was $1 one four times.

Subsequent to the end of the quarter, we completed a primary follow on offering of approximately $2 2 million shares of our common stock at an offering price of $15 81 per share.

This offering generated net proceeds before offering expenses of approximately $34 million and provides Whitehorse finance further capital to deploy into new investments.

Before I conclude and open up the call to collections I would like to highlight our distributions.

On October.

On August 19, 2021, we declared a distribution for the quarter ended September 32021 of $35.05 per share for a total distribution of $7 4 million to stockholders of record as of September 20th.

EBITDA was paid on October four 2021.

In addition to our quarterly distribution, we elected to declare a special distribution of <unk> <unk> per share to be payable on December 10th to stockholders of record as of October 29 2021 the.

The distribution was related to taxable income that was earned last year, which would have otherwise been taxable.

Finally, this morning, we announced that our board declared a fourth quarter distribution of <unk>.

$5.05 per share can be payable on January four 2020 to the stockholders of record as of December 22021.

This will mark the company's 37th consecutive quarterly distribution paid since our IPO in December 2012, with all distributions consists at a rate of $35.05 per share per quarter include.

Inclusive of this distribution and this year's special distribution total distributions declared in 2021, <unk> to $1 and $55 five per share.

As we said previously we will continue to evaluate our quarterly distribution both in the near and medium term based on the core earnings power of our portfolio. In addition to other relevant factors. They 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 and one on your Touchtone phone you may remove yourself from the queue at any time by question the pound key.

Once again that is star one if you would like to ask that question and we will take our first question from Bryce Rowe with Husky Group. Your line is now open.

And good afternoon I appreciate you taking the questions here.

Sure and maybe even Joyce and as well just wanted to.

Touch on the right side of the balance sheet I appreciate.

<unk> taken advantage of.

Being able to raise equity here.

In October and certainly appreciate the temporary upsizing of the credit facility and I was curious how youre thinking about.

Maybe layering in some more unsecured notes here as we as we get into.

The end of the year and early next year to two.

Hum.

To help lift that level of unsecured within the within the liability mix.

Yes, Bryce we are actively aware of the opportunity to issue unsecured debt.

Our baby bonds are now callable.

And.

We will take under advisement based on market conditions.

The best solution for the capitalization of the BDC, we do generally agree with you that we'd like to have more unsecured debt. So I would say it is likely.

I'm not certain but likely that we will proceed with an unsecured offering.

Between now and year end.

Great that's helpful.

And and obviously a lot of a lot of moving parts in terms of originations and repayments.

How how do you think we should we should think about.

Net over the next maybe not necessarily the next quarter, but do you expect to see some level of net portfolio growth.

With the heavy level of unexpected repayments.

And it sounds like it sounds like that yes, but I just wanted to be sure that the originations are likely to to outweigh the repayments.

I'll pass that to joy send in a second but I am just going to caution.

We have found that.

During due diligence, especially on non sponsored deals.

Lot of credits don't work out.

And so even though we have 14 mandated deals there can be no certainty as to how many of those mandated deals will close but choice and if you know looking at the mandated deals and looking at the likely repayments in Q4.

Does it project that we would grow the portfolio in Q4 or be stable.

Stuart I think right now it does look like we would have.

Net.

Net increase or net deployments for the quarter I think to that point, though it does depend on whether or not some.

These.

Mandy deals do get pushed out into Q1, and then to the extent that there may be some repayments that we had not forecasted that our accelerated that also is a wildcard to consider but currently right now we are forecasting net deployment.

Great.

That's a that's helpful too and then maybe just one more for me.

It looks like.

You've added a little more equity or some edits in equity positions here in the third quarter.

You typically haven't had as many as some of maybe your your lower middle market peers is that a change in strategy or just oh.

Relative.

Interest in those particular companies from an equity perspective.

Price feedback we've gotten from both analysts and shareholders is that they would like us to create a modest but diversified pool of equity positions in the BDC to help provide gay.

Gains that can offset potential future losses.

Our equity investing history is very strong and with the knowledge and wherewithal of <unk> to make smart equity investments co investments.

We expect that we should be able to.

Continue to invest and hopefully generate a strong track record of performance looking forward.

Youll notice in our marks.

Some of our equity positions that we've already taken have been marked up based on our strong performance, including I believe a nice markup on the escalade equity.

This past quarter.

Great Alright.

Alright, I'll jump back in queue I appreciate you taking the questions.

Thank you have a great day.

Well take our next question from Mickey Schlein with Ladenburg. Your line is now open.

Yes, good morning, or actually good afternoon, Stewart and choice in just a couple of questions from me, perhaps the first one for Stuart.

We look at this year apart from repayments, which is a theme across the sector I'd.

I'd say bdcs have had a lot of positive trends.

<unk>.

Wrong economic growth.

Low default rate environment.

Next year, maybe more challenging store with with the fed potentially tightening and lower economic activity and certainly the election volatility. So I'm curious how you're thinking about these risks in terms of your balance sheet leverage.

And you know the style or what particular originations you're focused on.

Mickey we've seen the market.

Seem to make the assumption.

But the economy is going to be strong for the next two to three years and that would be based on what we're seeing in terms of leverage multiples being put on cyclical companies.

We continue to underwrite with the belief that there is a risk of recession, one year out.

We don't think that's going to happen, but it's always a downside.

And we underwrite every one of our deals with the mine site to a potential repeat of the great recession.

And if a deal would not survive a repeat of the great recession, then we don't do the deal.

So we underwrite to cyclical downside and we also underwrite to a pandemic waves and we're trying to be very careful about what we do.

Focused on non cyclical like cyclicals and to a lesser extent moderate cyclicals as well.

In terms of the balance sheet.

Because we don't know what's going to happen in the future we want to have a constructive mix.

Secured debt and unsecured debt obviously the secured debt is much less expensive. So it does make sense to use that.

But as I mentioned to Bryce, we are actively considering issuing more unsecured debt to make sure that our relative ratio of secured to unsecured is optimized in the.

Potential for market volatility.

I appreciate that Stuart and.

Your.

Target leverage if I'm not mistaken is from one to 1.25 is that still the case or have you adjusted that at all.

No no we would.

I I would say given current market conditions and what we're doing with so much of the portfolio being first lien we would expect to operate the BDC at right around one and a quarter leverage.

Okay and my last question relates to the JV, which.

Size of the JV grew.

And none of its investments were put on nonaccrual I appreciate there's differences between GAAP and cash and tax et cetera, but its dividend to you was reduced could you just comment on that and what is the outlook for the dividend from the JV.

I I ask Joyce and the same question. So I'll pass it back to him to answer for you as well Okay. There you go [laughter], yes.

Yes Mickey.

As I mentioned in my prepared remarks.

Over quarter period over period, the yield on the JD may fluctuate a little bit so.

So the way to think about the JV.

Entity and you kind of alluded to it is that.

From a cash basis and when we record the dividend that is upon the declaration of the jv's dividend upstream to up to its owners.

Underlying portfolio and the earned income made there may be a timing difference.

For a number of reasons and so the way to think about this is.

Q3's income was slightly lower than Q2, we actually expect fee income to be back up in Q4 right to the BDC.

It was largely due to some repayments that happened towards the tail end of Q1 into Q2 at the JV level and really deploying that capital back to work wish again to just kind of on a quarter lag for the dividend to be received back up to the BDC.

You are you've seen kind of like the slight decrease this quarter.

I understand enjoy some historically.

J P is generated.

Blended return on investment for you blended meaning both the interest on the notes and the dividend on the equity of around 12% is that where you.

<unk> to be on over the long term.

Yes, that's correct. So currently right now in terms of the long term forecast kind of where we underwrote it to it's still consistent.

At 12% plus okay. That's it for me actual numbers are higher than 12% arent they join them.

They are right until I can again at any point in time it may be low so if you think of.

In the prior quarters is probably approaching more like 14%.

Why kind of buyback just guided to a more tempered, 12% plus but it is performing above 12% yes.

That's helpful. Thank you choice and in store.

Thanks Mickey.

And we will take our next question from Sarkis <unk> with B Riley Securities. Your line is now open.

Just stepping back I wanted to get a general sense. If you think given the current environment for repayments and if it continues to remain elevated do you think your repayments are going to be relatively elevated even kind of positioning it to into next year.

It's really hard to predict the future. We do know that there are a lot of companies that are in an active sale process. Most of those are intending to complete the sale process in Q4 process in Q4.

But undoubtedly some of those will roll over into Q1.

Generally historically Q1 is.

Is not as busy in M&A quarter as the end of the year, So I would expect refinancings.

<unk> slowed down into the beginning part of next year, but then probably accelerate into the second half again.

Got it and I guess as I look back and think about your dividend level or distribution level relative to kind of cover it just sounds like when you're getting the fee income you are more than covering the distribution, but but assume if you don't get these levels of fee income.

Do you maybe think you have to revisit the distribution level or kind of grow the portfolio more aggressively like what are your thoughts there.

One in a quarter.

Average and a good mix of assets.

We should be in a position absent other impacts to generally be earning the dividend.

And then when we get a higher than normal repayments.

The C suites and prepayment penalties will cause the income to rise above the dividend level and as you've seen for each of the last three years when we've had supplemental income.

We've distributed that as a incremental dividend.

And I expect that that's what we continue to do into the future I don't see any indication right now of.

Our dividend having to be changed and again, if we continue with historical behavior.

Then capital gains and earnings on the BDC should allow us to.

Not only make the dividend, but potentially do a supplemental dividends in future years, but again, that's all subject to future performance, which is still unknown.

Great. Thank you that's all for me.

Thank you Sarkis.

And so we will take our next question from Melissa We go with Jpmorgan. Your line is now open.

Good afternoon, and I appreciate you taking my question.

Actually most of them have already been asked but I thought it'd be worth.

I think back to one of the charts that you haven't defined that.

It shows just started this a long term shift.

And Torrance and increased allocation towards sponsor deals in our portfolio.

On your comment.

Yeah earlier today about sort of the increased competition are there on sponsor deals and Lee.

How are you thinking about the opportunity set and I think that's why you don't pick up in sort of the non sponsored space.

The.

Countervailing.

Maybe a little bit higher risk and I think that's a bad thing.

Melissa Thank you for the question in our experience.

Including during the Covid period.

We have not seen higher risk in the non sponsor portfolio in fact, the non sponsor portfolio has on average performed better.

I'm going to sponsor portfolio. We believe that is because we are carefully selecting our non sponsor deals.

Non sponsor deals have lower leverage.

Documents tighter covenants.

And all of those things combined to create very strong performance.

Are always looking to optimize our non sponsor originations because we do believe that that is the <unk>.

<unk> attractive sector of the market.

But it's also the sector of the market, where it's hardest to find qualified deals as I mentioned earlier, when we get mandates on deals many of the deals don't make it through due diligence and that's especially true in the non sponsor sector.

Where we do organic due diligence that requires anywhere from three to nine months to complete.

A very significant percent of the non sponsored deals that we get mandated on do.

Do not survive the due diligence process and we do not close on those transactions. So we will continue to try to optimize our mix of sponsor and non sponsor.

And in the sponsor market as I shared in my prepared remarks.

We have found the off the run sponsor market just still be more attractive than the on the run sponsor market. Although there are plenty of good deals and beyond their own sponsor market as well.

But the off the run sponsor market is still commanding.

Higher price at slightly lower leverage levels. So we have very broad origination in the on the run after run and non sponsor we really cover the full spectrum of the lower mid market and mid market and we believe we are one of the only players that.

That do cover that full spectrum of on the run sponsor off the run sponsor and non sponsor, creating a very differentiated portfolio.

That you've seen through the numbers, we've shared has modest leverage multiples and above market pricing.

I appreciate that.

Follow up question for me on your comments about the incremental information.

And we expect this marathon Grupo <unk>.

And <unk> I just wanted to confirm I heard you say that that would be another five to 15.

[laughter] par mark during the fourth quarter did I hear you right yes.

Yes, so so instead of the current Mark of 50, we expect that the mark on that asset will come out somewhere between 35 to 40 cents on the principal dollar.

Understood. Thanks, so much.

And just to clarify the 35 to 45 sorry.

I'm, sorry, if I didn't say that I apologize, 35% to 45 cents yet.

And once again, Mr. Antoine if he would like to ask a question.

Take our next question from Robert Dodd with Raymond James Your line is now open.

Hi, guys.

I'll kind of sort of following on to Melissa, but I'm, a very narrow focus I mean, the leverage multiple of new deals in the quarter.

Four two.

With a lot of those being sponsored and obviously you talked about the upfront.

I mean, you you also mentioned.

I think Louis pumps to Mickey that people are now offering leverage even even on.

Cyclical businesses.

It really does make that four two is probably a point or more below.

Where the broad market seems to.

Right now is there any more you can call out some good color you can give us on I mean, obviously that's off the one but is it is an industry that's doing that as well I mean are they lower multiple industries and it might be for two but its still 50% LTV or any any color you can give us the.

For context, I'll, let fortunately, which books.

It looks quite low.

Robert most of the companies that we're involved with.

Enterprise values of between 9% to 15 times.

So were lending at.

Pretty low ltvs were often below 50% LTV and again, our ability to find these lower leverage deals and lower ltvs is linked to our full spectrum coverage.

There are some low LTV deals that happened in the on the run sponsor market because purchase multiples have risen so significantly but.

But beyond the run sponsor market is typically a market where you see leverage levels between.

$5 five eight times.

Off the run sponsor market is a market where leverage levels are typically more between four to six times, even $4 to five five times.

And that's one of the reasons why we.

Invest the time and resources to cover that off the run sponsor market, even though it's a much less fertile market. It takes a lot more resources and a lot more time to find and underwrite and close in off the runs sponsored deal.

And then it doesn't on their own sponsored deal, but that that is the value add of the <unk> management company.

Where we have a very broad sourcing architecture, and we have <unk>.

Consistently for years now.

Originated loans at less than the market averages in terms of leverage and a premium to market price compared to the the data reported by the rating agencies.

I appreciate that.

Hello.

One more.

A slide in the presentation on slide 12.

Yeah.

The new line of interest to the net investment spread I mean, if we look over the last three years, it's typically been in the in the call. It mid to high Fives I mean, yes, you're pricing has come down as the market has been so so it's yo Yo Yo Yo cost of debt.

Do you think that you know in the last three quarters, it's been.

Thank you <unk>.

At five seven on that.

Metric I mean, do you think that kind of level of net investment spreads suffered some pure pricing.

Is that level sustainable in the competitive market.

That's out there right now.

I would tell you that the performance that we generated.

Last quarter is indicative of what we're doing this quarter.

We are still.

Closing non sponsored deals.

With pricing of $6 50 to 800, LIBOR LIBOR plus 650 to 800.

And we're doing that with companies that are levered between three and four five times.

In the off the run sponsor market.

We're getting pricing that ranges from $5 50 to $6 50.

And in the on the run sponsor market.

We're getting pricing that ranges from LIBOR 550 to LIBOR 600.

But again, what we did last quarter.

Would reflect current market conditions, and I would I would tell you that I think this quarter Q4.

Our our yields.

Depending on what closes our yields will probably be very similar to last quarter.

Got it I appreciate that thank you.

Okay.

We do have a follow up question from Bryce Rowe with Hyundai Group. Your line is now open.

Thanks, guys. Thanks for taking the follow up.

I appreciate you talking about adding adding possibly to the to the JV in terms of our capital commitment and we've seen nice growth in that.

The capital committed to the JV I'm hearing here in 'twenty one already.

Peter maybe a slower slower pull down.

Going into 'twenty one.

How do you how do you think about the pace of that $25 million is it.

Could it could.

<unk> deployed all in 2022, depending on what marketing market conditions give you.

Just trying to trying to think about kind of the pace of that.

Of that JV deployment.

It would be very possible that we could deploy an additional $25 million beyond the current JV $75 million in 2022, if our volumes hold off again, we are experiencing.

Volumes that are as strong or stronger.

Than we've ever seen.

It's the strength of our three tiered origination that finds us thousands of deals that allows us to be very selective about what we do.

But we are closing a lot of transactions and the fact that we have.

Five transactions already closed in Q4, and 14 more mandates that were working on with potentially more to come it's still not too late to land mandates to close in Q4.

It could be a very strong quarter and.

A good number of the deals that we're originating would be targeted for the JV.

Okay. Thank you.

No problem Brian.

And we have no further questions on the line at this time I will take the program back over to Stuart Aronson for any additional or closing remarks.

That's it for me I appreciate everybody's time, if there are follow up questions were happy to take them and I'll remind both shareholders and analysts anything you want us to address some prepared remarks, each quarter. If you give us a notice of what you'd like to see we do our very best to include that.

In the disclosures that we make to you.

So thank you for your time and have a great day.

This does conclude today's program. Thank you for your participation you may disconnect at anytime and have a wonderful day.

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Good afternoon. My name is Britney and I will be your conference operator today at this time I would like to welcome everyone to the Whitehorse.

Third quarter 2021 earnings conference call.

At this time.

Alright.

Our hosts for today's call are Stuart Aronson, Chief Executive Officer enjoys some Thomas Chief Financial Officer.

This call is being recorded and will be available for replay beginning at five P. M. Eastern standard time.

The replay dial in number is four zero to 2209185. Please note no pass code is required.

At this time, all participants have been placed in a listen only mode and the floor will be open for your questions. Following the presentation.

If you would like to ask a question at that time. Please press star one on your telephone keypad.

And so at any point. Your question has been answered you may remove yourself from the queue by pressing the pound key.

Could you please pickup your handset to allow 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 Robert Greenberg of frozen company.

Yeah.

Thank you operator, and thank you everyone for joining us today to discuss Whitehorse finances third quarter 2021 earnings results.

<unk> finance assumes no obligation or responsibility to update any forward looking statements.

Thank you Rob good afternoon, and thank you all for joining us today.

As you are aware, we issued our press release. This morning prior to market open and I Hope you've had a chance to review our results from the period ended September 32021, which can also be found on our website.

On today's call I'll start by addressing our third quarter results and market conditions, and Joyce and Thomas Our Chief Financial Officer will then discuss our performance in greater detail after which we'll open the floor for questions.

I am pleased to report a strong third quarter performance in the third quarter core NII was $7 8 million or <unk> 37, <unk> per share covering our dividend of <unk> 35, and a half.

And up from Q2 core NII of $7 million or $33 eight per share.

NII was higher than the previous quarter, primarily due to higher fee income and accelerated OID amortization driven by repayment activity.

I note that this is the company's 36th consecutive quarterly distribution paid since our IPO in 2012 with all distributions consistent at the rate of $35.05 per share per quarter.

I think that speaks to both the strength of the platform.

In the deal sourcing capabilities as well as our historically conservative approach to deal structure.

As we announced on October 14th the increase in net investment income and realized gains caused us to declare a special distribution of $13 five per share, which will be payable on December 10th of 2021 to stockholders of record as of October 29 2021.

We achieved modest accretion in the quarter with NAV per share increasing to $15 46, compared to <unk> 42 in Q2, driven by NII in excess of $35.05 dividend and markups within our portfolio.

When adjusting for special dividends paid in prior years, our pro forma Q3 NAV per share reached a record level for the second consecutive quarter.

$123 million of gross deployments were partially offset by repayments of 73 million, which included $47 million of refinancings from source code education dynamics, M&A services dispositions of $2 million and principal repayments of $25 million excluding revolvers.

The result was net deployment value of $49 million.

Of our seven new originations five were sponsor and two were non sponsor with an average leverage level of only four two times.

I note that these deals were all first lien and at the end of the third quarter, 95% of our debt portfolio was first lien and 100% of it was senior secured.

Bonser loans comprised 67% of our portfolio, which was in line with Q2.

We continue to be pleased with our pace of capital deployment. Despite the active M&A market driving elevated repayments.

Our weighted average effective yield on income producing debt investments was nine 3% in Q3 slightly below Q2 levels at 95%.

Non accruals represented only one 3% of our debt portfolio compared to one 5% based on fair value. In Q2. This decrease was driven primarily by the increase in fair value of our portfolio is the Grupo Hema investment really remains the only non accrual as of September 30th.

After the quarter closed we received updated information on Grupo Hema based on this information and subject to further performance updates and market conditions, we expect the market position down by another 5% to 15%.

5% to 15 of par.

By the end of Q4.

The investment is expected to be our non accrual until restructuring negotiations with the company conclude many of our portfolio companies have experienced supply chain issues and inflationary pressures, including higher shipping costs thankfully. So far most of these borrowers have been able to pass cost increases to their customers to offset.

These higher costs.

We continue to successfully utilize our JV with Str's, Ohio, which generated investment income to the BDC of approximately $1 8 million in the quarter as compared to $2 1 million in Q2.

During the third quarter, we contributed an additional $46 million of investments into the JV portfolio. The fair market value of the Jv's portfolio was $239 million as of September 30th.

The Jv's portfolio had an average unlevered yield of 8% at the end of Q3.

Slight decline compared to its Q2, 'twenty, one average yield of eight 1%.

At a portfolio size of $210 million.

The Jv's portfolio is also comprised exclusively of first lien senior secured loans.

We remain pleased with the income contribution from the JV. We believe it supports a higher returns for shareholders and is particularly relevant given the current market backdrop.

Once the existing JV capital commitment of 75 billion for WH up is deployed.

Sharp is likely to allocate an additional $25 million or more of commitments into this program to continue to generate attractive returns for Whitehorse finance and our shareholders.

As a result of repayments and transfer of certain investments into the JV leverage at the end of Q3 was $1 one nine times GWA Jeff.

Approaching our target range of one and a quarter times.

We expect to see repayments over the next two quarters due to an uptick in M&A activity and the refinancing of certain existing credits in Q4.

Offsetting the expected increase in repayments, we continue to build a strong pipeline.

The market is quite busy with the mix across sponsor and non sponsor deals and our weekly investment pipeline often includes more than 150 deals with.

The sourcing processes, becoming more competitive, particularly for the on the run sponsor deals where pricing leverage and documentation terms have returned fully to pre COVID-19 levels.

In addition, heavily adjusted EBITDA levels are often being offered by competitors and we are frankly walking away from more deals than we have in the recent past.

While we expect our origination activity levels to remain high we generally have a cautious approach and continue to underwrite to conservative downside scenarios.

Documentation terms in EBITDA adjustments in the off the run sponsor market, which are the smaller sponsors are less aggressive we continue to have a significant off the run sourcing advantage due to our presence in <unk> regional markets consistent with prior quarters. There is less competition for non sponsored deals as well.

While we continue to source attractively priced transactions at attractive leverage profiles.

The Whitehorse platform includes 63 deal professionals dedicated to direct lending and <unk> gives us a 20 plus person business development team leveraging aig's proprietary prospect database and we also get additional sourcing at the <unk> level from over 400 investment professionals across the firm.

Our sourcing drives a high quality pipeline in markets with less competition for mandates.

Three of the five closed deals or sponsor in eight of the mandates the mandated deals or sponsor split between new originations and add ons.

Evolving credit environment also continues to create uncertainty and could impact both portfolio performance and the rate of new asset origination. Nonetheless, we believe our platform is well positioned to drive portfolio growth and compelling returns to our shareholders.

That I will turn the call to choices for additional performance details and a review of our portfolio composition. Jason go ahead.

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

During the quarter, we recorded GAAP net investment income of $7 6 million or $36 six per share.

This compares to $6 1 million or $29 six per share in the second quarter.

Core NII was <unk> 37, <unk> per share after adjusting for 0.1 million capital gains incentive fee accrual.

Q3 fee income was $1 2 million compared with <unk> 3 million in the prior quarter the.

The increase was largely due to more meaningful prepayment and amendment activities during the current quarter.

We reported an increase in net assets, resulting from operations of $8 3 million.

Our risk ratings during the quarter showed that 89% of our portfolio positions carried either a one or two rating compared to 90% in Q2.

Well as cash proceeds of approximately $36 3 million.

As of December 30, <unk> 2021, the Jv's portfolio held positions in 27 portfolio companies with an aggregate fair value of $239 million compared to 25 portfolio companies at a fair value of $209 5 million in Q2.

The investment in the JV continues to be accretive to the Bdc's earnings.

Turning to our balance sheet.

We had cash resources of approximately $16 6 million as of September 32021, including $7 million of restricted cash.

As reported during our last call at the beginning of Q3, we completed an amendment on our existing Jpmorgan revolving credit facility the.

The impact of extended the non call period to November 2022.

<unk> out the reinvestment periods in November 2024, and reduced interest margin from 250 to 235 basis points.

We anticipate this to result in annual cost savings of approximately <unk> $4 million, assuming the line continues to be utilized at historical levels.

At quarter end, we had approximately $25 4 million undrawn under our revolving credit facility.

Subsequent to quarter end on October 4th in terms of our credit facility were again amended to among other things allow us to temporarily upsize the credit facility by $50 million.

Mowing, the BDC to borrow up to $335 million for three month period, beginning October four 2021.

This provides us with significant flexibility to better account for timing differences between anticipated prepayments and originations.

As of December 30, <unk> 2021, the company's asset coverage ratio from BARDA mounts as defined by the 1940 Act was 184, 2%, which is above the minimum asset coverage ratio of 150%.

Q3, net effective debt to equity ratio after adjusting for cash on hand was $1 one four times.

It's up until the end of the quarter, we completed a primary follow on offering of approximately $2 2 million shares of our common stock at an offering price of $15 81 per share.

This offering generated net proceeds before offering expenses of approximately $34 million and provides Whitehorse finance further capital to deploy into new investments.

Before I conclude and open up the call to collections I would like to highlight our distributions.

On October.

On August 19, 2021, we declared a distribution for the quarter ended September 32021 of $35.05 per share for a total distribution of $7 4 million to stockholders of record as of September 20th.

EBITDA was paid on October four 2021.

In addition to our quarterly distribution, we elected to declare a special distribution of <unk> <unk> per share to be payable on December 10th to stockholders of record as of October 29 2021.

The distribution was related to taxable income that was earned last year, which would have otherwise been taxable.

Finally, this morning, we announced that our board declared a fourth quarter distribution of <unk>.

$5.05 per share can be payable on January four 2020 to the stockholders of record as of December 22021.

This will mark the company's 37th consecutive quarterly distribution paid since our IPO in December 2012, with all distributions consists at the rate of $35 <unk> per share per quarter.

Inclusive of this distribution and this year's special distribution total distributions declared in 2021, <unk> to $1 and $55.05 per share as.

Thank you at this time, if you would like to ask a question. Please press the star and one on your Touchtone phone you may remove yourself from the queue at any time by pressing the pound key.

Once again that is star one if you would like to ask a question and we'll take our first question from Bryce Rowe with Husky Group. Your line is now open.

Hi, Good afternoon I appreciate you taking the questions here.

Sure.

And maybe even Joyce and as well just wanted to.

Touch on the right side of the balance sheet I appreciate.

Taking advantage of.

Being able to raise equity here in October and certainly appreciate the temporary upsizing of the credit facility now I was curious how youre thinking about.

Maybe layering in some more unsecured notes here as we as we get into the.

The end of the year and early next year.

Help.

To help lift that level of unsecured within the within the liability mix.

Yes, Bryce we are actively aware of the opportunity to issue unsecured debt.

Our baby bonds are now callable.

And.

We will take under advisement based on market conditions.

The best solution for the capitalization of the BDC, we do generally agree with you that wed like to have more unsecured debt. So I would say it is likely.

I'm not certain but likely that we will proceed with an unsecured offering.

Between now and year end.

Great Thats helpful.

And obviously a lot of a lot of moving parts in terms of originations and repayments.

How do you think we should we should think about.

Net over the next maybe not necessarily the next quarter, but do you expect to see some level of net portfolio growth.

With the heavy level of unexpected repayments.

And it sounds like it sounds like that yes, but I just wanted to be sure that the originations are likely to to to outlay that the repayments.

I'll pass that to Joyce in in a second but I am just going to caution.

We have found that.

During due diligence, especially on non sponsor deals a lot of credits don't work out.

Does it project that we would grow the portfolio in Q4 or be stable.

Stuart I think right now it does look like we would have.

Net and net increase or net deployment for the quarter I think to that point, though it does depend on whether or not some of.

These.

<unk> deals do get pushed out into Q1, and then to the extent that there may be some repayments that we had not forecasted that our accelerated that also is a wildcard to consider but.

Currently right now we are forecasting net deployment.

Great.

That's helpful too and then maybe just one more from me.

It looks like.

You've added a little more equity or some.

<unk> added some equity positions here in the third quarter.

You typically haven't had as many as some of maybe your your lower middle market peers is that a change in strategy or just.

Yes.

Relative.

Interest in those particular companies from an equity perspective.

Feedback we've gotten from both analysts and shareholders is that they would like us to create a modest but diversified pool of equity positions in the BDC to help provide.

<unk> that can offset potential future losses.

Our equity investing history is very strong and with the knowledge and wherewithal to make smart equity investments co investments.

We expect that we should be able to.

Continue to invest and hopefully generate a strong track record of performance looking forward.

As youll notice in our marks.

Some of our equity positions that we've already taken have been marked up based on our strong performance, including I believe a nice markup on the escalade equity.

This past quarter.

Great Alright.

Alright, I'll jump back in queue I appreciate you taking the questions.

Thank you have a great day.

Well take our next question from Mickey <unk> with Ladenburg. Your line is now open.

Yes, good morning, or actually good afternoon, Stewart and choice in just a couple of questions for me, perhaps first one for Stuart.

We look at this year apart from repayments, which is a theme across the sector I'd.

I'd say bdcs have had a lot of positive trends in <unk>.

<unk>.

Wrong economic growth.

Low default rate environment.

And the style or what particular originations you're focused on.

Mickey we've seen the market.

Seem to make the assumption that.

But the economy is going to be strong for the next two to three years and that would be based on what we're seeing in terms of leverage multiples being put on cyclical companies.

We continue to underwrite with the belief that there is a risk of recession, one year out.

We don't think thats going to happen, but it's always a downside.

And we underwrite every one of our deals with the mine site to a potential repeat of the great recession.

And if a deal would not survive a repeat of the great recession, then we don't do the deal.

So we underwrite to cyclical downside and we also underwrite to pin.

Endemic waves and we're trying to be very careful about what we do.

<unk> focused on non cyclicals light cyclicals and to a lesser extent moderate cyclicals as well.

In terms of the balance sheet.

Just because we don't know what's going to happen in the future we want to have a constructive mix.

Secured debt and unsecured debt obviously the secured debt is much less expensive. So it does make sense to use that.

As I mentioned to Bryce.

We are actively considering issuing more unsecured debt to make sure that our relative ratio of secured to unsecured is optimized in the.

The potential for market volatility.

I appreciate that Stuart and your.

Target leverage if I'm not mistaken is from one to 1.25 is that still the case or have you adjusted that at all.

No no we would.

I would say given current market conditions and what we're doing with so much of the portfolio being first lien we would expect to operate the BDC at right around one and a quarter leverage.

And my last question relates to the JV, which you know the size of the JV grew.

And none of its investments were put on nonaccrual I appreciate there's differences between GAAP and cash tax et cetera, but its dividend to you was reduced could you just comment on that and what is the outlook for the dividend from the JV.

I I ask choices the same questions. So ill pass it back to him to answer for you as well Okay. There you go [laughter].

Yes Mickey.

As I mentioned in my prepared remarks.

After over quarter period over period, the yield on the JD may fluctuate a little bit.

So the way to think about the JV.

Entity and you kind of alluded to it is that from a cash basis and when we record the dividend upon the declaration of the Jv's dividend upstream to up to its owners.

Underlying portfolio in the earned income made there may be a timing difference.

For a number of reasons and so the way to think about this is.

<unk> Q3 income was slightly lower than Q2, we actually expect fee income to be back up in Q4 right in the BDC.

It was largely due to some repayments that happened towards the tail end of Q1 into Q2 at the JV level and really deploying that capital back to work again since it's kind of on a quarter lag for the dividend to be received back up to the BDC, that's kind of why you're you've seen kind of like the slight decrease this quarter.

I understand Joyce historically.

J P is generated.

Glenn did return on investment for you blended meaning both the interest on the notes and the dividend on the equity of around 12% is that where you expect it to be on over the long term yes.

Yes, that's correct. So currently right now in terms of the long term forecast kind of where we underwrote it to it's still consistent.

At 12% plus okay. That's it for me actual numbers are higher than 12% arent they join them.

They are right until I can again at any point in time it may be low. So if you think of the <unk>.

Prior quarters, it was probably approaching more like 14% and Thats why I kind of iPad, just guided to a more tempered 12% plus but it is performing above 12%, yes. Okay. That's helpful. Thank you choice and in store.

Thanks Mickey.

And we will take our next question from Sarkis <unk> with B Riley Securities. Your line is now open.

Hey, good afternoon, and thank you for taking my question here I just wanted to touch on the fee income it sounded like you mentioned it could a ramp up here in the final quarter because of repayments I guess, just stepping back I wanted to get a general sense of do you think given the current environment for repayments and if it continues to remain elevated.

Do you think your repayments are going to be relatively elevated even kind of positioning it to into next year.

It's really hard to predict the future. We do know that there are a lot of companies that are in an active sale process. Most of those are intending to complete the sale process in Q process in Q4.

But undoubtedly some of those will rollover into Q1.

Generally historically Q1.

Is not as busy in M&A quarter.

The end of the year.

So I would expect refinancings to slow down into the beginning part of next year, but then probably accelerate into the second half again.

But again, that's just a guess.

Got it and I guess as I look back and think about your dividend level or distribution level relative to kind of coverage. It sounds like when you're getting the fee income you are more than covering the distribution, but but assume if you don't get it.

These levels of fee income.

Do you, maybe think you'd have to revisit the distribution level or kind of grow the portfolio more aggressively like what are your thoughts there.

One in a quarter.

Leverage and a good mix of assets.

We should be in a position absent other impacts to generally be earning the dividend.

And then when we get a higher than normal repayments.

The C suites and prepayment penalties will cause the income to rise above the dividend level and as you've seen for each of the last three years when we've had supplemental income.

We've distributed that as a incremental dividend.

And I expect that that's what we continue to do into the future I don't see any indication right now of.

Our dividend having to be changed and again, if we continue with historical behavior.

Then capital gains and earnings on the BDC should allow us to.

Not only make the dividend, but potentially do supplemental dividends in future years, but again thats all subject to future performance, which is still unknown.

Great. Thank you that's all for me.

Thank you Sarkis.

We will take our next question from Melissa We go with Jpmorgan. Your line is now open.

Good afternoon, and I appreciate you taking my question.

Actually most of them have already been asked but I thought it'd be worth.

Circling back to one of the charts that you have in the slide deck and it shows just started this long term shift.

Fourth an increased allocation towards sponsor deals in our portfolio.

Given your comments.

Yes earlier today about sort of the increased competition.

On the Orion sponsor deals and Lee.

How are you thinking about the opportunity set in the past.

Pick up in sort of the non sponsored space.

The.

Countervailing.

Maybe a little bit higher risk associated with.

At that time.

Melissa Thank you for the question in our experience.

Including during the Covid period.

We have not seen higher risk in the non sponsor portfolio in fact, the non sponsor portfolio has on average performed better.

The sponsor portfolio. We believe that is because we are carefully selecting our non sponsor deals the non sponsor deals have lower leverage.

Tighter documents tighter covenants.

And all of those things combined to create very strong performance.

We are always looking to optimize our non sponsor originations because we do believe that that is.

The most attractive sector of the market, but it's also the sector of the market, where it's hardest to find qualified deals as I mentioned earlier, when we get mandates on deals.

Of the deals don't make it through due diligence and thats, especially true in the non sponsor sector where.

Where we do organic due diligence that requires anywhere from three to nine months to complete.

A very significant percent of the non sponsored deals that we get mandated on do.

Do not survive the due diligence process and we do not close on those transactions. So we will continue to try to optimize our mix of sponsor and non sponsor.

And in the sponsor market as I shared in my prepared remarks.

We have found the off the run sponsor market just still be more attractive than the on the run sponsor market. Although there are plenty of good deals and beyond the non sponsor market as well.

But the off the run sponsor market is still commanding.

Higher price at slightly lower leverage levels. So we have very broad origination in the on the run off the run and non sponsor we really cover the whole spectrum of the lower mid market and mid market and we believe we are one of the only players that.

That do cover that full spectrum of on the run sponsor off the run sponsor and non sponsor, creating a very differentiated portfolio.

That you've seen through the numbers, we've shared has modest leverage multiples and above market pricing.

I appreciate that.

Follow up question for me on your comments about the incremental information.

And we expect this mark on <unk> and <unk> I just wanted to confirm I heard you say that that could be another 5% to 15.

Mark during the fourth quarter did I hear you right.

Yes, so so instead of the current market 50, we expect that the mark on that asset will come out somewhere between 35 to 40 on the principal dollar.

Understood. Thanks, so much.

And just to clarify the 35 to 45 sorry.

I'm, sorry, if I didn't say that I apologize, 35% to 45 cents yet.

And once again that is star one if you would like to ask a question.

We will take our next question from Robert Dodd with Raymond James Your line is now open.

Hi, guys.

I'll kind of sort of following on to Melissa, but that's been a very narrow focus I mean, the leverage multiple of new deals in the quarter. So.

Four two.

With a lot of those being sponsored and obviously you talked about the offering and I'll move on.

You also mentioned.

Thanks, Louis pumps to Mickey.

People are now offering leverage even even on.

Cyclical businesses.

Really does make that 42 is probably a point or more below.

Where the broad market seems to be right. Now is there any more you can color color you can give us.

That's off the one but is it is an industry that's doing that as well I mean are they lower multiple industries and it might be for two but its still 50% LTV or any any color you can give us.

For context, I'll, let fortunately, which books.

It looks quite low.

Robert most of the companies that we're involved with.

<unk> enterprise values of between 9% to 15 times.

So we're.

We're lending at.

Pretty low ltvs were often below 50% LTV and again, our ability to find these lower leverage deals and lower ltvs is linked to our full spectrum coverage.

<unk>.

There are some low LTV deals that happened in the on the run sponsor market because <unk>.

Multiples have risen so significantly.

But beyond the run sponsor market is typically a market where you see leverage levels between.

$5 five eight times.

After run sponsor market is a market where leverage levels are typically more between four to six times, even four years to five five times.

And that's one of the reasons why we.

And then it doesn't on the rock sponsored deal, but that that is the value add of the <unk> management company.

Where we have a very broad sourcing architecture, and we have <unk>.

Consistently for years now.

Originated loans at less than the market averages in terms of leverage and a premium to market price compared to the the data reported by the rating agencies.

I appreciate that extra color.

Hello.

One more.

A slide in the presentation on slide 12.

Yes.

The lowering of interest.

Investment spread right I mean, if we look over the last three years, it's typically been in.

In the call it mid to high Fives, I mean, yes, yes pricing has come down as the market has been so says Yo Yo Yo Yo cost of debt.

Do you think that you know in the last three quarters, it's been.

Essentially flat at $5 seven on that.

Metric I mean, do you think that kind of level of net investment spreads separate.

Pure pricing.

Is that level sustainable in the competitive market.

That's out there right now.

I would tell you that the performance that we generated.

Last quarter is indicative of what we're doing this quarter.

We are still <unk>.

Hosing non sponsored deals with pricing of $6 50 to 800, LIBOR LIBOR plus 650 to 800.

And we're doing that with companies that are levered between three and four five times.

In the off the run sponsor market.

We're getting pricing that ranges from $5 50 to $6 50.

And in the on the run sponsor market.

We're getting pricing that ranges from LIBOR 550 to LIBOR 600.

But again, what we did last quarter.

Would reflect current market conditions, and I would I would tell you that I think this quarter Q4.

Our our yields.

Depending on what closes our yields will probably be very similar to last quarter.

Got it I appreciate that thank you.

We do have a follow up question from Bryce Rowe with Hyundai Group. Your line is now open.

Thanks, guys. Thanks for taking the follow up.

I appreciate you talking about adding adding possibly to the to the JV in terms of our capital commitment and we've seen nice growth in that.

The capital committed to the JV here and here in 'twenty one already.

<unk>, maybe a slower slower pull down.

<unk> into 'twenty one.

How do you how do you think about the pace of that $25 million is it.

Could it could.

<unk> deployed all in 2022, depending on what marketing market conditions give you.

Just trying to trying to think about kind of the pace of that of that JV deployment.

It would be very possible that we could deploy an additional $25 million beyond the current JV $75 million in 2022, if our volumes hold off again, we are experiencing.

Volumes that are as strong or stronger.

Than we've ever seen.

It's the strength of our three tiered origination that finds us thousands of deals that allows us to be very selective about what we do.

But we are closing a lot of transactions and the fact that we have five transactions already closed in Q4 and 14 more mandates that were working on with potentially more to come.

Still not too late to land mandates to close in Q4.

It could be a very strong quarter and.

A good number of the deals that we're originating would be targeted for the JV.

Great. Thank you.

No problem Brian.

And we have no further questions on the line at this time I will tell you that.

Great back over to Stuart Aronson for any additional or closing remarks.

That's it for me I appreciate everybody's time, if there are follow up questions were happy to take them and I'll remind both shareholders and analysts.

Anything you want us to address some prepared remarks, each quarter, if you'd give us notice of what you'd like to see we do our very best to include that in the disclosures that we make to you.

So thank you for your time and have a great day.

This does conclude today's program. Thank you for your participation you may disconnect at anytime and have a wonderful day.

Q3 2021 WhiteHorse Finance Inc Earnings Call

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