WhiteHorse Finance Inc. Q1 2023 Earnings Call

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Good afternoon, My name is Shelby and I will be your conference operator today.

At this time I would like to welcome everyone to the Whitehorse Finance first quarter 2023 earnings conference call.

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

Today's call is being recorded and will be made available for replay beginning at four o'clock P. M Eastern time.

The replay dial in number is four zero too.

Q2, 01548, no pass code is required.

This time, all participants have been placed in a listen only mode and the floor will be opened 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, if you wish to remove yourself from the queue Press star two.

It's now my pleasure to turn the floor over to Robert Bloomburg of Frozen company. Please go ahead.

Thank you Shelby and thank you everyone for joining us today to discuss Whitehorse finances first quarter 2023 earnings results before we begin I'd like to remind everyone that certain statements, which are not based on historical facts made during this call, including any statements relating to financial guidance.

It'd 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 can cause actual results to differ materially from those expressed or implied by these forward looking statements.

It's finance assumes no obligation or responsibility to update any forward looking statements. Today's speakers may refer to material from Whitehorse finances first quarter.

The earnings presentation, which is posted on our website. This morning with that allow me to introduce Whitehorse finances, CEO Stuart Aronson Stuart you may begin.

Thank you Rob good afternoon, and thank you 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 for the period ended March 31, 2023, which can be also be found on our website.

On today's call I'll begin by addressing our first quarter results and current market conditions.

Jason Thomas our Chief Financial Officer will then discuss our performance in greater detail after which we will open the floor for questions.

I'm pleased to report strong performance for the first quarter of 2023.

In Q1, GAAP net investment income and core NII was $10 7 million or $46, one per share, which more than covered our previously declared dividend of <unk> $35.05 per share.

Regarding dividends and as previous as previewed on our last earnings call the management and the board of the BDC have closely examined whether an upward adjustments should be made to the regular dividend given the improved earnings power of the BDC portfolio, resulting from an increase in spreads in base rates. In this regard we are announcing several changes to our.

Dividend structure to ensure that our shareholders benefit from our earnings momentum I am pleased to announce that our board has elected to increase our regular quarterly dividend of <unk> 37 per share up from 35, and a half cents per share that we have paid consistently since our IPO we.

We believe that this increase in our regular dividend is both appropriate and sustainable given the increased earnings power of our portfolio.

In addition to ensure our shareholders consistently benefit from the earnings generated in excess of this regular dividend we are introducing a new formula based supplemental dividend.

Supplemental dividend will be calculated as 50% of our NII insect in excess of our regular dividend rounded to the nearest cent.

And subject to certain measurement tests.

Jason will discuss the supplemental dividend framework in more detail later in the call and how that framework applies to our Q1 2023 financial results.

N a V per share at the end of Q1 was $14 20.

Representing a 10% decrease from prior quarter inclusive of the seven cents per share special dividend that was declared in Q1 and.

In addition to the impact of the special dividend Mark to market losses on our portfolio contributed to the decline in NAV per share. These mark to market losses, which totaled $3 5 million were driven by company specific performance in some of our consumer facing portfolio companies as well as some specific challenges certain.

Portfolio companies are experiencing independent of economic conditions.

Turning to our portfolio activity for the quarter gross capital deployments in Q1 totaled $34 1 million of this amount $18 8 million was funded into three new originations and the remaining $15 3 million funding.

Funding add ons to existing portfolio investments. In addition to these add ons, we had 0.7 million and net fundings made under our existing revolver commitments.

All three of our new originations in Q1 were sponsor deals and had an average leverage of approximately three six times I know that all of these deals were first lien loans with spreads of 675 or higher and had an average all in rate of 12% at.

At the end of Q1.

96, 8% of our debt portfolio was first lien and 100% with senior secured.

In Q1 total repayments and sales were $19 3 million, primarily driven by one complete realization and two partial paydowns. Additionally, during the quarter. The company transfer the three new deals and four add ons to the S. T. R. S JV totaling $25 9 million.

Although originations continued to outpace repayments. The result of the JV transfer activity led the company's net effective leverage to decrease slightly down to 1.23 times from one six times at the end of Q4 and consistent with management's long term target range.

Subsequent to quarter end there has been one full realization to date, we are pleased to announce that the turnaround process of our formerly troubled asset Arco holding has reached a profitable conclusion, we alongside one other lender took control of the operating company and has successfully manage that company to a sale trends.

Action in April of this year, we exited our investment with an approximate one two times return on the original invested capital this outcome demonstrates whitehorse in AIG capitals.

Ability to leverage our collective resources and expertise to turn around troubled investments with the objective of minimizing losses and capital preservation.

We anticipate repayment activity to remain relatively low through the first half of 2023, given the change in marketplace pricing, which I'll discuss shortly we believe that repayments of historical investments when they occur.

Well likely allow whitehorse to redeploy that capital into higher yielding investments.

As I shared on prior calls so long as our portfolio remains heavily concentrated in first lien loans, which have a lower risk profile than second lien loans, we expect to continue to run the BDC at up to 135 times leverage.

With that in mind.

I'll now step back to bring our entire industrial portfolio and to focus.

After the effects of the S. T. R. S JV asset transfers as well as $3 5 million in net mark to market changes the fair value of our investment portfolio was $749 2 million at the end of Q1. This is down marginally from $760 2 million at the end of Q4.

Weighted average effective yield on our income producing debt investments was 13, 2% as of the end of Q1, an increase from the Q4 level of 12, 6%.

This was primarily driven by an increase in the portfolio's base rate.

Addressing the S. T R S, Ohio, JV, we continue to successfully use the JV.

J V generated investment income to the BDC of approximately $4 2 million in Q1 as compared to $4 million. In Q4. This increase was primarily driven by moderately higher base rates.

As of March 31st the fair value of the Jv's portfolio was $308 9 million and at the end of the Q1, the Jv's portfolio had an average unlevered yield of 11, 8%.

Comparatively the average yield was 11, 3% in Q4 and 786% in Q1 of 2020 to the.

The increase in Unlevered yield is primarily due to the rising base rates.

With the rise in base rates. The JV is currently producing an average annual return on equity in the mid teens to the BDC.

We believe white horses equity investment in the JV provides attractive return for shareholders.

Given the Jv's return on equity, we look forward to utilizing the recent new capital commitment as we seek to increase our exposure to a highly accretive earnings stream.

Transitioning to the Bdc's portfolio more broadly as mentioned earlier there were some markdowns in the portfolio in Q1, I will elaborate on specific market dynamics shortly but wed note that as of the last quarter. We see credit pressure is most acute in consumer facing companies.

Nonetheless, the vast majority of our deals have strong covenant protection and we are finding that private equity owners are behaving very well in supporting their credits with new cash or contingent equity as needed other than the consumer facing borrowers and a couple of other credits the vast majority of our portfolio is performing well.

Notably our investment in American Crafts, and Sklar holdings underwent restructuring during the quarter as both companies have consumer exposure and had been experiencing demand softness.

These deals were non sponsor owned and the owners did not have the liquidity to effectively manage the business through the downturn as such Whitehorse selected to provide both companies with the necessary liquidity and returned for control equity positions in each company.

Alongside restructuring professionals at H, I G capital and other private equity lender partners.

We are working to strengthen the company's and manage through a weaker demand environment in order to position each company for a successful exit in the next two to four years.

Additionally, as I previewed last quarter, our original remaining debt investment in play Monster was moved to non accrual status at the beginning of Q1. This is our only asset on non accrual and the deal represents less than 1% of the bdc's portfolio at fair value.

Whitehorse took control of the company during Q1 of 2022 after financial regulator irregularities were uncovered in response to toy demand being lower than usual this past holiday season, the BDC and the other senior lender have provided additional defensive funding to play monster in order to help the company move past.

The current consumer demand softness and provide a bridge to the holiday season in 2023.

We anticipate the play mounts to turnaround process will take two to four years and there can be no assurances that we will ultimately recover 100% of our invested capital.

Turning to broader lending market as mentioned last quarter. The back half of 2022 saw a material correction in the direct lending markets as the combination of general economic weakness significant inflation of rising interest rates applied credit pressure on borrowers.

Economic conditions in the first quarter of 2023 continue to test that coverage, we remain happy with the performance and the quality of our portfolio companies.

In general we've observed an increase in borrower revenues, which can be attributed to inflation and above.

Half of our portfolio companies have been able to maintain margins by successfully passing through increased costs in.

And the other half theres been an uptick in leverage which thus far has only had a modest impact on our typical borrower's debt service coverage.

We remain vigilant in monitoring our portfolio of companies, we have not seen the demand weakness in other sectors, including general industrial B to B healthcare TMT and financial services.

Additionally, our portfolio remains mostly represented by non cyclical or light cyclical borrowers as we hold no direct exposure to oil and gas auto or restaurants, and very little exposure to the construction sector.

With the markets remaining disrupted by credit challenges, we've heard that several lenders are beginning to experience troublesome their portfolio driven by highly leveraged loans that were closed in the quarters prior to the rising interest rate environment means.

Meanwhile, Whitehorse has consistently and deliberately chosen to deploy capital into deals with more conservative leverage terms and with premium pricing and as such has built a portfolio that we believe is better equipped to withstand a potential economic downturn with high inflation.

Well there are still a few lenders that appear to be slow at adjusting to the new market realities. The average lender is now pursuing credits with lower leverage profiles and there continues to be less capital available in the marketplace than before the correction.

The banking community that services the syndicated market of loans has thus remained highly conservative and from a lending perspective in our opinion. The overall terms in the private debt market are as good now as they have been since the great recession.

In the mid to lower end of the market, which is our focus loans are now being issued on more conservative credit terms with tighter documentation and covenants and in addition to the increase and in addition to that increased pricing.

However, this pricing change is more pronounced in the mid to upper mid markets than in the lower mid market as we continue to focus on optimizing risk returns and navigate towards the market segments that offer the best rewards for investors during any period of time.

The BDC has begun to devote more resources to the mid and upper mid market deals in order to take advantage of the most attractive risk adjusted returns.

Despite the exceptionally attractive market terms, we are being cautious in the face of a weakening economy.

Even our expectations for a weak economy and the balance of 2023 and 2024, we want to ensure that the companies. We invest in can weather. The storm. We are also increasingly focused on cash flow coverage on the risk that rates may continue to rise. Although the forward curve indicates that writes rates will likely decline.

The investments in our existing portfolio were underwritten at modest leverage levels and generally we are well positioned to withstand even another 100 basis points of rate increases.

White horses equipped to take advantage of these lender friendly market conditions as our pipeline remains a seasonally strong levels. Despite the market disruptions and our three tier sourcing architecture continues to provide the BDC differentiated sourcing capabilities.

The overall pipeline is over 180 deals and we continue to derive significant advantages from the shared resources and affiliation with HIV, who is a leader in the mid market the.

The strength of the pipeline enables us to be conservative in our deal selection and the current primary limiting factor for originations is the bdc's investing capacity.

Our strategy and competitive advantages continue to result in momentum in our originators business and originations business. Thus.

Thus far in the second quarter. The company has closed on two new deals one of which will be transferred to the JV as well as one add on tracks transaction that will also be transferred to the JV.

We currently have visibility for several additional new deals although there can be no assurance that any of these will close nor that the BDC will have capacity for these deals.

We anticipate utilizing the capacity provided by repayments when they occur to continue to rotate into higher yielding assets. Additionally, we expect to see growth of the JV portfolio.

As we draw down on our newly increased commitment to the joint venture both of the aforementioned factors should ultimately lead to higher income and greater coverage for our dividend.

At the conclusion of the first quarter, we remain cautiously optimistic.

Fight expectations of economic softening, we believe white horse is well positioned to continue executing on our three tiered sourcing approach.

Rigorous underwriting standards in the new year and beyond with that I'll turn the call over to Joyce for additional performance details and a review of our portfolio composition <unk> go ahead.

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

During the quarter, we recorded GAAP net investment income and core NII of $10 7 million or $46 one per share.

This compares with Q4 2022, GAAP NII and core NII was $11 1 million or $47 six per share.

As well as our previously declared a quarterly distribution of <unk> 35, and a half cents per share.

Q1 fee income decreased quarter over quarter to $1 million in Q1 from $1 9 million in Q4 with Q1 amount has been highlighted by amendment fees at zero point $6 million generated from investments in Lyft brands, Lenny and Larry's and Brooklyn body.

For the quarter, we reported a net increase in net assets from operations of $7 5 million, which is an $8 $7 million increase from Q4 2022.

Our risk ratings during the quarter showed that 73, 2% of our portfolio positions carried either a one or two rating slightly lower than the 74, 8% reported in the prior quarter.

As a reminder, one reading indicates that the company has seen its risk of loss reduced relative to initial expectations and a two rating, indicating the company's performing according to initial expectations.

Regarding the JV, specifically, we continue to grow our investment as Stuart mentioned earlier, we transferred three new deals and four add on transactions totaling $25 $9 million in exchange for cash proceeds of $25 9 million.

As of March 31, 2023, JV portfolio held positions in 30 portfolio companies with an aggregate fair value of $308 9 million compared to 28 portfolio companies and a fair value of $284 3 million as of December 31, 2022.

Subsequent to the end of the first quarter the company transferred to investments to the JV, one new portfolio company.

The investment in the JV continues to be accretive to the Bdcs earnings generating a mid teens return on equity.

As we have noted in prior calls.

Yield on our investment in the JV may fluctuate period over period as a result of a number of factors, including the timing and amount of additional capital investments and changes in asset yields in the underlying portfolio as well as the overall credit performance of the <unk> investment portfolio.

Turning to our balance sheet, we had cash resources of approximately $22 $2 million at the end of Q1, including $10 5 million of restricted cash and approximately $97 million of undrawn capacity available under our revolving credit facility.

We continue to monitor the ongoing situation impacting certain regional banks and do not expect any of our portfolio companies business operations to be significantly impacted as result of these events that said, we maintain a vigilant posture and are prepared to support that Whitehorse finance has sufficient liquidity to meet the unfunded and needs of our portfolio companies and broad resources to ensure continuous support.

Current portfolio companies against the highly volatile market backdrop.

As of March 31, 2023, the company's asset coverage ratio for BARDA mounts as defined by the 1940 Act was 177, 1%, which is above the minimum asset coverage ratio of 150%.

Our Q1 net effective debt to equity ratio after adjusting for cash on hand was 123 times as compared to 1.26 times in the prior quarter.

Before I conclude and open up the call to questions I'd like to again highlight that our distributions.

Our March 2nd 2023, we declared a distribution for the quarter ended March 31st 2023, 35, and a half cents per share to stockholders of record as of March 24th.

And it was paid on April four 2023, marking the companys 42nd consecutive quarterly distribution. This speaks to both the consistent strength of the platform as well as a resilient deal sourcing capabilities and be able to create a well balanced portfolio generating consistent current income.

In addition to his quarterly distribution, we declared a special distribution of seven cents per share for stockholders of record as of March 24, 2023. The distribution was also paid on April 4th and inclusive of the special distribution total distributions paid thus far in 2023 amount to 42 and a half cents per share.

Finally, this morning, we announced that our board declared an increase in our regular distribution specifically, our second quarter distribution will be 37 cents per share to be payable on July 15th to stockholders of record as of July excuse me.

The cycling of record as of June 21, 2023.

This will mark the company's 40 <unk> consecutive quarterly distribution paid since our IPO in December 2012, with all distributions at or above 35, and a half cents per share per quarter.

Additionally, as Stuart mentioned before each quarter, the board will utilize a framework and determine if a supplemental distribution should be made.

These formulaic quarterly supplemental distribution if declared will be in addition to the regular quarterly distributions that we've just raised to 37 cents per share.

The framework the board will use to determine the supplemental distributions if any will be calculated as lesser of 150% of the quarter's earnings is in excess of the quarterly base distribution and to an amount that results in no more than 15 cents per share decline in NAV.

Over the current quarter and preceding quarter.

Earnings for the purpose of measuring the excess over the corners based distribution is that investment income the.

The NAV decline measurement is inclusive of the supplemental distribution calculated and to be clear as measured over the two most recently completed quarters.

Accordingly for Q1 2023, we have generated $46 one per share of NII, which was in excess of our previously declared first quarter in our regular distribution 35, and a half cents per share.

The framework with <unk> have us take 50% of this access or $5 <unk> per share and rounded to the nearest cent, which would equate to a proposed five cents per share supplemental distributions.

However, given our negative <unk> <unk> per share movements. During Q4 2022 in Q1 2023 as a result of unrealized mark to market declines in the portfolio. The 15 cents per share and a decline limitation was a factor for the quarter calculation as such aboard not declare a supplemental distribution for this quarter.

We believe this formulaic supplemental distribution framework allows us to maximize distributions to our shareholders, while preserving the stability around EV a factor that we do we believe to be an important driver of shareholder economics over time.

With that I'll now turn the call back over to the operator for your questions operator.

Thank you at this time, if you'd 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 star to you. Once again that is star one to ask a question, we will pause for a moment to allow questions to queue.

And we will take our first question from Mickey Schlein with Ladenburg.

Yes, good afternoon, Hello, Ah Stewart and choice and can you hear me yes.

Yes, Mickey good afternoon.

Hi, Stuart I, just wanted to follow up on your comments about the level of competition to make sure I understand what you were saying because we are hearing that larger commercial banks are constraining their lending and there are obviously challenges for some lenders taxes.

The syndicated loan market.

So how do those trends play into your strategy of going up market within the BDC and also the opportunity in the senior loan fund.

Yes.

Exactly as you said because the syndicated markets are still in disarray for all but the strongest of borrowers.

Theres more opportunity in the markets served by direct lenders in Bdcs.

And those deals are increasingly attractive as you get to companies with EBITDA that is in the mid market range of 30 to 100 million. So.

Whereas we've seen.

On average lower spreads on smaller deals, which is the opposite of a normal market environment Mickey in a normal market or lower mid market off the run sponsor deals have spreads that are typically 50% to 75 basis points higher than mid market and upper mid market deals and at the moment the spreads are either a lie.

And are the lower mid market deals are 25 basis points lower so from a risk return perspective, we believe that the mid market and upper mid market at this moment.

Is generally not on every deal, but generally more attractive and we've been booking deals that are generally a larger EBITDA companies with $30 million of EBITDA or more.

Okay.

Stewart, if I can follow up I mean, youre, absolutely right I mean I can't recall.

Situation, where spreads and upper middle market or middle market are better than lower middle market is that being caused by.

Some players that are acting irrationally or new entrants or you know is it is it some specific deals that are getting.

Getting done that that numbers that aren't attractive to you, but that's a really unusual situation is there anything you can tell us about what precipitated that.

There are a couple of lenders in the marketplace that continue in the lower mid market marketplace.

We continue to underprice deals versus the mid market.

When we see that happened, we just let those deals go and we reallocate our resources into the more attractive risk return transactions.

There was more of that going on in 2022, there were more lenders who had not adjusted to the market price.

<unk>.

But.

We're not concerned by it we just think.

The market dynamics are abnormal right now and we do expect over time.

The lower mid market deals will once again command a premium to the mid market deals. It's just with the shortage of liquidity in the mid market.

Those mid market deals are being priced up to find adequate liquidity.

I understand that that's interesting and also very helpful. Those are all my questions. This afternoon. Thanks. Thanks for your time.

Thanks Mickey.

And we will take our next question from Robert Dodd with Raymond James.

Hi, guys congratulations on the quarter.

Variable.

Supplemental.

Formulaic dividend Mark that's like that's.

Essentially following up to make it all on this map.

How do you see.

Let's see.

Also you did in the quarter wall sponsored transactions.

Typically as we move further up market I think that's less and less non sponsored so is this going to result in.

And a mix shift away from.

Clearly the mix shift away from non sponsored transactions in the portfolio and is that a is that part of the deliberate calculus or is that just a side effect of <unk>.

Wed seen in.

In this quarter.

Okay.

Robert I should have been clear and I wasn't clear I apologize for that the dislocation in the lower mid market is almost entirely on sponsor deals. So we see that lower price on lower mid market sponsor deals.

We have a deal mandated right now that we hope to close in mid June .

That is a non sponsored transaction.

With pricing of 750 over.

Leverage of under three times EBITDA.

So the non sponsor market continues to be <unk>.

Robust well priced conservative leverage conservative terms.

And we're working on a number of non sponsor transactions. So I would not expect.

In general a change for the balance of the year between sponsor and non sponsor.

It was just.

The luck of the draw that in this past quarter. All three deals that we closed were sponsor deals.

Got it got it. Thank you said, we would see a little bit of a bifurcation like the.

Most continued sponsor deals, but those probably in the lower market and then.

The sponsor deals are in the upper end of the mall is that without that.

I think I think what Youll see is the non sponsor deals will be both lower mid market and mid market.

The deal that I was making reference to that's mandated that should close in June actually has more than $30 million of EBITDA. So it's a mid market sized deal.

So our non sponsor pipeline is.

Reasonably strong right now with both lower mid market and mid market opportunities.

And all of those opportunities are.

Either priced very attractively or we have one deal where the leverage is extremely low like one times leverage.

And the pricing.

Would be about 625, so and that would go into the JV.

Got it got it I appreciate that and then last one I forgot I mean, obviously your portfolio leverage.

To your point that you can handle.

Hi, given given the relatively lower portfolio average and your spreads.

Oh hi.

The attractive Super high tension, probably pretty decent interest coverage.

Yes.

At what point would you actually be worried about the lack of embedded chip I mean, how high and again the forward curve is indicating down.

Why would.

That has to go.

Thank you to feel concerned.

From the perspective of coverage and you may be needing to provide more support for sponsors to provide meaningful support.

Just from a from a kind of an interest coverage from a base perspective.

Hey, Robert our interest coverage ratio on average across the portfolio is greater than two times.

Individual credits very much more significantly.

We ran an analysis in the face of a yield curve that is predicting lower rates and we ran the assumption that rates went up by 100 basis points and there was no material additional stress in the portfolio.

Even if rates went up another 100 basis points.

So that that's.

That's the best sensitivity I can give you right now again, we expect interest rates to be peaking out but if they went up.

100 basis points more.

Not on most accounts.

<unk> and interest coverage problem or a debt service problem.

Got it thank you.

No problem.

And we will take our next question from Erik Zwick with Hovde group.

Thank you good afternoon I wanted to start just on the.

M S Trs joint venture and.

I know you referenced.

<unk> made a greater commitment to it.

<unk> to grow in that you added to new investments here in the first quarter and it sounds like a couple more slated.

For <unk>, so just curious.

Longer term, how you think about it.

It's.

Concentration in your total portfolio and if you have a target range or potentially even a cap on how large it could become.

Well I wouldn't say, it's capped but I would tell you that the size that we have it at currently with the recent increase.

At the moment is probably as large as we plan to go we don't want to get too heavy into.

The 30% bucket of concentration.

Concentration and.

We've grown the JV nicely, it's generating very positive returns for our investors.

And with the deployment of the remaining $25 15 from us and turn from our Ohio Str's partner.

The JV.

It should be at its.

Target levels.

That's helpful. Thanks.

And then just looking at slide 12.

The improvement in the net investment spread certainly took a.

A nice leg up in the middle to the second part of 'twenty, two and seem to have flattened out here a little bit in Q1, if the fed transitioned from its hiking cycle two are kind of holding at higher for longer strategy, which.

I guess as you referenced or maybe that Robert referenced before the <unk>.

<unk> curve is actually pointing towards down.

If the fed were to hold higher for longer and just what are your expectations, where your ability to hold or potentially even improve.

Investment spread at this point.

If rates stay where they are as.

As we rotate into new deals that have higher spreads from deals that were sourced in 2019 or 2021 that had lower spreads.

We will get a gentle upward movement in our earnings capability.

But again I think.

Everyone knows a lot of the increase in the income is coming from the higher base rates as I shared in the prepared remarks, and our expectation is that most of that benefit is showing up in the numbers that you saw this quarter.

It might get a little bit better just because people choose so for periods that that often run three months, so we convert quarter to quarter.

Into new sofa periods.

So there should be some offered some upward momentum next quarter.

But I think you've seen most of it already roll into the numbers.

Joyce said, if you disagree with that please share your thinking.

No I think that that's exactly what we're seeing.

That makes sense.

And last one for me I think you have some.

Our 2023 notes are coming due and just curious about your thoughts on that the source of funds to redeem those and potentially.

Replace that capital or if you would just use the revolver.

Curious any thoughts there.

We've spoken to firms in the marketplace.

Treasury rates themselves are not that unattractive right now at least in our opinion.

As.

As you go out the curve, but spreads are very high right now and frankly, we can do a lot better by drawing down on our Jpmorgan facility. Then we can by issuing unsecured so we will keep a eye on the unsecured market.

And as that market moderates back to more normalized spreads.

We will consider issuing a new round of unsecured but at the moment given.

Given market conditions were more inclined to fund that $30 million under our J P. Morgan line.

Great. Thanks for taking my questions today.

No problem. Thank you Eric.

We'll take our next question from Bryce Rowe with B Riley.

Thanks, Good afternoon.

Stuart I wanted to ask about the kind of the internal performance ratings.

Too terribly surprised to see some some shift.

With with some of the dynamic you discussed in your prepared remarks, but just just wanted to get a sense from you know, what's what's driving some of the movement into the into the three rated credits.

And then you also sell some.

Some movement into the into the one rating, there, which may or may not be surprising given the macro backdrop.

Yeah, we have.

A number of credits where the ability to increase price has not kept up with rising raw material and labor prices.

And those companies are working with lower margins. So as a result of that the companies are in.

In most cases slightly underperforming.

So our original budgets, which is why you've seen a move.

Down a little bit in our average rating.

But three is not particularly concerning it just means it's underperforming where it was originally and as I think I shared.

About half of our portfolio.

Is seeing increased EBITDA and lower leverage and the other half the portfolio is seeing decreases in EBITDA and higher leverage.

So thats balancing out to on average slack.

Slightly higher like one or two turns higher leverage across the portfolio.

Okay. Okay.

Maybe a couple more for me the article.

Transaction.

That you noted in the prepared remarks, assuming.

You monetize that or exited that around the fair value that we saw as of March 31.

I believe we did joycean.

Price, yes, we.

We did exited that the price that was market $3 31, and as Stuart had mentioned in prepared remarks.

Overall like to date that equated to about a one two times on our invested capital.

Okay. Okay.

Last one around rates at a lot of discussion around higher rates or lower rates.

I would assume that there was quite a bit of consternation.

And taking the the regular dividend.

Jeff.

And with the prospects of maybe seeing lower rates at some point in the future. So if you could just talk about sensitivity to lower rates how comfortably you are.

That 37.

Even in a lower rate environment.

So we assume that the yield curve is correct, we assume that.

<unk> will come back down under 3% and a couple of years.

We ran our sensitivities based on that.

And based on the advice of our shareholders and analysts we only raised our regular dividend by an amount that we felt was sustainable.

And so if the yield curve is correct.

The dividend should be sustainable.

Absent unforeseen circumstances after 37 level and Thats why we took everything above 37.

And link that to the variable mechanism.

That choice and described in depth.

Got it.

That's good color I appreciate it it's Stuart.

No problem. Thank.

Thank you Bryce.

And once again, if you'd like to ask a question. Please press star and one on your Touchtone phone.

We will take our next question from Melissa Wedel with JP Morgan.

Good afternoon, Thanks for taking my questions today.

I'm, sorry to drill in on the dividend and the supplemental but I want to make sure that we are thinking about that and.

Tony for that properly in our model.

If I heard you articulate on the call today.

If I'm understanding you correctly there.

There is a threshold at which it would be.

Lowered by 15 cents a share vitriol.

Both net income and the supplemental dividend there would be no supplemental dividend at all.

Yes, that's about right.

Thats right to think about this is that inclusive of the supplemental David and the decrease in NAV over the current and the preceding quarter would be limited to 15 cents per share.

So we would factor in not only the supplemental dividend, but then to the extent that we do have maybe unrealized mark to market declines in any b that would also limited.

And any particular quarter.

Okay, and just to make the distinction we're talking about there would be either that 50% of excess earnings is declared.

Or if it would trigger a trip that 15 decline threshold there would be none at all it wouldn't be just reduced the limit it would be reduced.

It would be reducing like as an example.

Inclusive of the.

Those five cents per share supplemental dividend that would have caused a NAV decline of <unk> 17 per share than that proposed <unk> supplemental dividend would have been reduced by two cents such that the supplemental dividend would have been <unk> <unk> per share.

Okay got it Barry that's I think for illustration purposes only yes.

Understood. Thank you.

And it appears that we have no further questions. At this time I will now turn the program back over to our presenters for any additional or closing remarks.

I appreciate everybody, taking the time to join US this afternoon.

We continue to work hard to generate sustained predictable results and to give transparency and as I always invite our analysts to shareholders. If there are things you would like us to share on upcoming calls.

Please let us know before those calls so we can try to make sure. We give you all the information you want to have about Whitehorse. Thank you very much.

That concludes today's teleconference. Thank you for your participation you may now disconnect.

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