Q2 2024 WhiteHorse Finance Inc Earnings Call

August 8, 2024

[music].

Okay.

Operator: Please stand by; we're about to begin. Good morning.

Operator: Stand by, we're about to begin. Good morning.

Please standby we're about to begin.

Jamie: and I were about to begin. Good morning, my name is Jamie, and I will be your conference operator today. At this time, I would like to welcome everyone to the WhiteHorse Finance second quarter 2024 earnings conference call. Our hosts for today's call are Stuart Aronson, Chief Executive Officer, and Joyson Thomas, Chief Financial Officer. Today's call is being recorded and will be made available for replay beginning at 4 p.m. Eastern Time. The replay dial-in number is... 402, 22-0 (inaudible) 5395. No passcode is required.

Jamie: My name is Jamie, and I will be your conference operator today. At this time, I would like to welcome everyone to the WhiteHorse Finance second quarter 2024 earnings conference call. Our hosts for today's call are Stuart Aronson, Chief Executive Officer, and Joyson Thomas, Chief Financial Officer. Today's call is being recorded and will be made available for replay beginning at 4 p.m. Eastern Time. The replay dial-in number is... 402, 22-0 2-1, No passcode is required.

Jamie: My name is Jamie, and I will be your conference operator today. At this time, I would like to welcome everyone to the WhiteHorse Finance second quarter 2024 earnings conference call. Our hosts for today's call are Stuart Aronson, Chief Executive Officer, and Joyson Thomas, Chief Financial Officer. This call is being recorded and will be made available for replay beginning at 4 p.m. Eastern Time. The replay dial-in number is... 402, 220. No passcode is required.

Jamie: Good morning, My name is Jamie and I will be your conference operator today at this time I would like to welcome everyone to the Whitehorse Finance second quarter 2024 earnings Conference call.

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

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

Jamie: The replay dial in number is four.

Speaker Change: Zero two.

Speaker Change: Q2 zero.

Jamie: 5395, no passcode is required.

Jamie: 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 1 on your telephone keypad. If you wish to remove yourself from the queue, you may press star 2. It is now my pleasure to turn the floor over to Robert Brinberg of Rhodes & Company. Please go ahead.

Speaker Change: 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.

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

Jamie: If you wish to remove yourself from the queue you May press star two.

Jamie: It is now my pleasure to turn the floor over to Robert Berg of Roes and company. Please go ahead.

Robert Brinberg: Thank you, operator. And thank you, everyone, for joining us today to discuss WhiteHorse Finance's second quarter 2024 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. There's like any statements relating to financial guidance may be deemed forward looking guidance statements within the meaning of the private securities litigation reform act of 1995 because these forward looking statements involved known and unknown risks of uncertainties.

Robert Brinberg: Thank you, operator. And thank you, everyone, for joining us today to discuss WhiteHorse Finance's second quarter 2024 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 relating to financial guidance, may be deemed forward-looking guidance 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.

Robert Brinberg: Thank you, operator. And thank you, everyone, for joining us today to discuss WhiteHorse Finance's second quarter 2024 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 relating to financial guidance, may be deemed forward-looking guidance 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.

Robert Brinberg: Thank you operator, and thank you everyone for joining us today to discuss Whitehorse finances second quarter 2024 earnings results.

Robert Brinberg: These are important factors that could cause actual results to differ materially from those expressed or complied by these forward looking statements. WhiteHorse Finance assumes no obligation or responsibility to update any fully looking statements. Today's speakers may refer to material from the WhiteHorse Finance second quarter 2024 earnings presentation, which was posted to our website this morning. With that, allow me to introduce WhiteHorse Finance's CEO, Stuart Aronson. Stuart, you may begin.

Robert Brinberg: Before we begin I would like to remind everyone that certain statements, which are not based on historical facts made during this call.

Robert Brinberg: Statements relating to financial guidance may be deemed forward looking guidance statements within the meaning of the private Securities Litigation Reform Act of 1995.

Robert Brinberg: 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.

Robert Brinberg: WhiteHorse Finance assumes no obligation or responsibility to update any forward-looking statements. Today's speakers may refer to material from the WhiteHorse Finance second quarter 2024 earnings presentation, which was posted to our website this morning. With that, allow me to introduce WhiteHorse Finance's CEO, Stuart Aronson. Stuart, you may begin.

Robert Brinberg: WhiteHorse Finance assumes no obligation or responsibility to update any forward-looking statements. Today's speakers may refer to material from the WhiteHorse Finance 2nd Quarter 2024 Earnings Presentation, which was posted to our website this morning. With that, allow me to introduce WhiteHorse Finance's CEO, Stuart Aronson. Stuart, you may begin.

Robert Brinberg: Whitehorse Finance assumes no obligation or responsibility to update any forward looking statements.

Robert Brinberg: Today's speakers may refer to material from the Whitehorse Finance second quarter 2024 earnings presentation, which is posted to our website. This morning with that allow me to introduce Whitehorse finances, CEO Stuart Aronson.

Speaker Change: Stuart you may begin.

Stuart Aronson: Thank you, Rob, and good morning, everyone. Thank you for joining us today.

Stuart Aronson: Thank you, Rob and good morning, everyone.

Stuart Aronson: Thank you for joining us today.

Stuart Aronson: As you're aware, we issued our earnings this morning prior to the market open, and I hope you've had a chance to review our results for the period ending June 30, 2024, which can also be found on our website. On today's call, I'll begin by addressing our second quarter results and current market conditions. Joyson Thomas, our Chief Financial Officer, will then discuss her performance in greater detail. Afterward, we will open the floor for questions.

Stuart Aronson: As you're aware, we issued our earnings this morning prior to the market open, and I hope you've had a chance to review our results for the period ending June 30th, 2024, which can also be found on our website. On today's call, I'll begin by addressing our second quarter results and current market conditions. Joyson Thomas, our Chief Financial Officer, will then discuss her performance in greater detail. Afterward, we will open the floor for questions.

Speaker Change: As you're aware, we issued our earnings this morning prior to market open and I hope you've had a chance to review our results for the period ending June 32024, which can also be found on our website on.

Stuart Aronson: Our results for the second quarter of 2024 were a bit softer due to elevated repayment activity and some markdowns on our portfolio. Q2 GAAP Net Investment Income and Core NII was $9.3 million, or $0.40 per share, exceeding our quarterly base dividend of $0.385 per share. This represents a decrease from Q1 GAAP and Core NII of $10.8 million and $0.465 per share. NAV per share at the end of Q2 was $13.45, representing a 0.4% decrease from the prior quarter.

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

Stuart Aronson: Our results for the second quarter of 2024 were a bit softer due to elevated repayment activity and some markdowns on our portfolio. Q2 GAAP Net Investment Income and Core NII was $9.3 million or $0.40 per share, exceeding our quarterly base dividend of $0.385 per share. This represents a decrease from Q1 GAAP and Core NII of $10.8 million and $0.465 per share. NAV per share at the end of Q2 was $13.45, representing a 0.4% decrease from prior quarter.

Speaker Change: Our results for the second quarter of 2024 were a bit softer due to elevated prepayment activity and some markdowns in our portfolio.

Stuart Aronson: Q2, GAAP net investment income and core and then I and II was $9 3 million or <unk> 40 per share exceeding our quarterly base dividend of <unk> 38, and a half cents per share <unk>.

Stuart Aronson: This represents a decrease from Q1, GAAP and core NII of $10 8 million and 46 and a half cents per share.

Stuart Aronson: N D per share at the end of Q2 was 13 45, representing a 0.4% decrease from prior quarter and a deeper share was impacted by net markdowns in our portfolio totaling $1 5 million the majority of which related to honor his holdings, which I will discuss shortly.

Stuart Aronson: NAV per share was impacted by net markdowns in our portfolio, totaling $1.5 million, the majority of which related to honors holdings, which I will discuss shortly. Turning to our portfolio activity in Q2, We had gross capital deployments of $55.8 million, which was more than offset by total repayments and sales of $71.7 million, resulting in net repayments of $16.1 million. Gross capital deployments consisted of seven new originations totaling $47.4 million, with the remaining $8.4 million used to fund nine add-ons to existing investments.

Stuart Aronson: Our seven new originations in Q2, three were non-sponsor and four were sponsor deals with an average leverage of approximately 3.8 times that to EBITDA. Some of these new assets were transferred to the JV during the quarter, and for the deals that stayed on the BDC balance sheet, leverage was around 3.6 times. All of our Q2 deals were first lien loans with an average spread of 650 basis points and an average all-in rate of 11.8%. I note that both these statistics are attractive from a historical and current market perspective.

Stuart Aronson: Turning to our portfolio activity in Q2.

Stuart Aronson: We had gross capital deployments of $55 8 million, which was more than offset by total repayments and sales of $71 7 million, resulting in net repayments of $16 1 million.

Stuart Aronson: Gross capital deployments consisted of seven new originations totaling $47 4 million with the remaining $8 4 million used to fund nine add ons to existing investments.

Stuart Aronson: Our seven new originations in Q2, three were non sponsor and for response through deals with an average leverage of approximately three eight times debt to EBITDA.

Stuart Aronson: Some of these new assets were transferred to the JV during the quarter and for the deals that stayed on the BDC level on the BDC balance sheet leverage was around $3 six times all of our Q2 deals were first lien loans with an average spread of 650 basis points and an average all in rate of 11, 8%.

Stuart Aronson: I note that both these statistics are attractive from a historical and current market perspective.

Stuart Aronson: During the quarter, the BDC transferred four new deals and four add-ons to the Ohio STRS-JV, totaling $22 million, in exchange for $22 million in cash. At the end of Q2, the STRS-JB's total portfolio comprised 38 issuers with an aggregate fair value of $324.8 million, and leverage as of Q2 was 1.08 times compared with 0.99 times at the end of the prior quarter At the end of Q2, 99% of our debt portfolio was first lien, senior secured, and our portfolio mix was approximately 60% sponsored deals and approximately 40% non-sponsored deals, roughly similar to the prior quarter. In Q2, total repayments and sales were $71.7 million, primarily driven by four complete realizations and one partial realization.

Stuart Aronson: During the quarter, the BDC transferred four new deals and four add-ons to the Ohio STRS-JV totaling $22 million in exchange for $22 million in cash. At the end of Q2, the S-T-R-S-G-V's Total Portfolio comprised 38 issuers with an aggregate fair value of 324.8 million, and leverage as of Q2 was 0.08 times compared with 0.99 times at the end of the At the end of Q2, 99% of our debt portfolio was first lien, senior secured, and our portfolio mix was approximately 60% sponsored deals and approximately 40% non-sponsored deals, roughly similar to the prior quarter. In Q2, total repayments and sales were $71.7 million, primarily driven by four complete realizations and one partial realization.

Stuart Aronson: During the quarter, the BDC transferred four new deals and four add-ons to the Ohio STRS-JV, totaling $22 million, in exchange for $22 million in cash. At the end of Q2, the STRS-GB's total portfolio comprised 38 issuers with an aggregate fair value of $324.8 million, and leverage as of Q2 was 1.08 times compared with 0.99 times at the end of the prior quarter. At the end of Q2, 99% of our debt portfolio was first lien, senior secured, and our portfolio mix was approximately 60% sponsored deals and approximately 40% non-sponsored deals, roughly similar to the prior quarter. In Q2, total repayments and sales were $71.7 million, primarily driven by four complete realizations and one partial realization.

Stuart Aronson: During the quarter, the BDC transferred for new deals and four add ons to the Ohio, Str's JV totaling $22 million.

Stuart Aronson: In exchange for the $22 million in exchange for $22 million in cash.

Stuart Aronson: At the end of Q2 the S. T. R. S. Gv's total portfolio comprised 38 issuers with an aggregate fair value of $324 8 million and leverage as of Q2 was 1.08 times compared with <unk> 99 times at the end of the prior quarter.

Stuart Aronson: At the end of Q2, 99% of our debt portfolio is first lien senior secured and our portfolio mix was approximately 60% sponsor deals and approximately 40% non sponsor deals roughly similar with prior quarter.

Stuart Aronson: Repayments are elevated for two reasons. There are a series of accounts where performance was challenged and we asked the borrowers to refinance us out in this borrower-friendly market, and they've done that. This amounted to roughly 80% of our repayments in Q2. We don't expect to see many more refinancings in this category. There may be a couple of credits that we want to exit, though.

Stuart Aronson: In Q2 total repayments and sales were $71 7 million, primarily driven by our complete rollout by four complete realizations and one partial realization.

Stuart Aronson: Repayments are elevated for two reasons. There are a series of accounts where performance was challenged, and we asked the borrowers to refinance us out in this borrower-friendly market, and they've done that. This amounted to roughly 80% of our repayments in Q2. We don't expect to see many more refinancings in this category. There may be a couple of credits that we want to exit, though.

Stuart Aronson: Repayments are elevated for two reasons.

Stuart Aronson: A series of accounts, where performance was challenged and we asked the borrowers to refinance us out in this borrower friendly market and they've done that this amounted to roughly 80% of our repayments in Q2.

Stuart Aronson: We don't expect to see many more refinancings in this category there may be a couple of credits that we want to exit that.

Stuart Aronson: And then there are some other accounts with a much lower interest rate environment, and the more aggressive credit environment has led borrowers to be able to push up leverage and push down price. On some of those deals, we've just felt the resulting transactions are too aggressive, and we're letting these go. We expect that the borrower-friendly market combined with eventually declining base rates will likely lead to a continued flow of refinancings into the latter part of the year, especially as call protection on the deal steps down or expires. We expect refinancings to remain heavy through the balance of the year.

Stuart Aronson: And then there are some other accounts with a much lower interest rate environment, and the more aggressive credit environment has led borrowers to be able to push up leverage and push down price. On some of those deals, we've just felt the resulting transactions are too aggressive, and we're letting these go. We expect that the borrow from the market combined with eventually declining base rates will likely lead to a continued flow of refinancings into the latter part of the year, especially as call protection on the deal steps down or expires. We expect refinancings to remain heavy through the balance of the year.

Stuart Aronson: And then there were some other accounts with a much lower interest rate environment and the more aggressive credit environment has led borrowers to be able to push up leveraging pushed down price on some of those deals. We just felt the resulting transactions are too aggressive and we're letting these go.

Stuart Aronson: We expect that the borrower friendly market combined with essentially declining base rates will likely lead to a continued flow of refinancings into the latter part of the year, especially as call protection on the deal steps down or expires, we expect refinancings to remain heavy through the balance of the year. Thus far in Q3, there had been.

Stuart Aronson: Thus far in Q3, there have been no full repayments or sales, though. With that in mind, I'll now step back to bring our entire investment portfolio into focus. After the effects of net repayments and the STRS-JB transfers, as well as $1.5 million in net mark-to-market decreases, 0.2 million of realized losses, and 0.8 million of accretion, the fair value of our investment portfolio was 660 million at the end of Q2. This compares to our portfolio's fair value of $697.9 million at the end of the previous quarter.

Stuart Aronson: No full repayments or sales out.

Stuart Aronson: With that in mind, I'll now step back to bring our entire investment portfolio and to focus.

Stuart Aronson: After the effects of net repayments in the <unk> JV transfers as well as $1 5 million in net mark to market decreases.

Stuart Aronson: <unk> 2 million of realized losses, and zero point $8 million of accretion the fair value of our investment portfolio was $660 million at the end of Q2. This.

Stuart Aronson: This compares to our portfolio is fair value of $697 9 million at the end of the previous quarter.

Stuart Aronson: The Weighted Average Effective Yield on our Income-Producing Debt Investments was 13.8% at the end of Q2, a 40 basis point improvement compared to 13.4% in the second quarter of 2023 and up slightly from 13.7% in the first quarter of 2024. We continue to utilize the STRS-JV successfully.

Stuart Aronson: The Weighted Average Effective Yield on Our Income-Producing Debt Investments was 13.8% at the end of Q2, a 40 basis point improvement compared to 13.4% in the second quarter of 2023 and up slightly from 13.7% in the first quarter of 2024. We continue to utilize the STRS-JV successfully.

Speaker Change: Weighted average effective yield on our income.

Stuart Aronson: Producing debt investments was 13, 8% at the end of Q2 of <unk>.

Stuart Aronson: <unk> 40 basis point improvement compared to 13, 4% in the second quarter of 2023.

Stuart Aronson: And up slightly from 13, 7% in the first quarter of 2024.

Stuart Aronson: We continue to utilize the Str's JV successfully the Beijing JV generated investment income to the BDC of approximately $3 9 million in Q2 compared to $4 8 million in Q1.

Stuart Aronson: The JV generated investment income to the BDC of approximately 3.9 million in Q2 compared to 4.8 million in Q1. As of June 30th, the fair value of the JV's portfolio was $324.8 million, and the portfolio had an average unleveraged yield of 12.3% compared to 12.4% in Q1. The JV is currently producing an average annual return on equity in the mid-teens for the BDC. We believe WhiteHorse's equity investment in the JV provides attractive returns for our shareholders.

Stuart Aronson: The JV generated investment income to the BDC of approximately $3.9 million in Q2 compared to $4.8 million in Q1. As of June 30th, the fair value of the JV's portfolio was $324.8 million, and the portfolio had an average unleveraged yield of 12.3% compared to 12.4% in Q1. The JV is currently producing an average annual return on equity in the mid-teens for the BDC. We believe WhiteHorse's equity investment in the JV provides attractive returns for our shareholders.

Stuart Aronson: As of June 30, the fair value of the Jv's portfolio was $324 8 million and the portfolio had an average unlevered yield of 12, 3% compared to 12, 4% in Q1.

Stuart Aronson: The JV is currently producing an average annual return on equity in the mid teens to the BDC.

Stuart Aronson: We believe white horses equity investments in the JV provides attractive returns for our shareholders.

Stuart Aronson: Transitioning to the BDC's portfolio more broadly, there were some markdowns in the portfolio during Q2. Most notably, there was a $2.2 million markdown to our investment in Honors Holdings, which was placed on non-accrual status in the middle of the quarter, resulting in a decrease of approximately $125,000 of interest compared to expectations at the start of the quarter. Honors was a company that was heavily impacted by CO

Speaker Change: Traditionally translate transitioning to the Bdc's portfolio more broadly there was some markdowns in the portfolio during Q2.

Stuart Aronson: Most notably there was a $2 $2 million mark down to our investment in <unk> Holdings, which was placed on non accrual status in the middle of the quarter, resulting in a decrease of approximately 125000 of interest compared to expectations at the start of the quarter.

Stuart Aronson: <unk> was a company that was heavily impacted by Covid.

Stuart Aronson: After that, a private equity firm contributed additional equity to Honors to help it navigate the pandemic and to further execute on its growth strategy in the face of a weak market. However, the company has been experiencing weaker customer trends in recent quarters. Now we're taking action to position the company for remediation, and we're working with both the franchisor of the concept and the current owners of the company. We expect to improve and resolve that investment over the next 12 to 24 months. Honours meaningfully contributed to the increase in non-accrual investments, which totaled 4.2% of the total debt portfolio at fair value compared with 1.3% at Q1, excluding investments in the STRS-JV.

Stuart Aronson: After that, a private equity firm contributed additional equity to Honors to help it navigate the pandemic and to further execute on its growth strategy in the face of a weak market. However, the company has been experiencing weaker customer trends in recent quarters. Now we're taking action to position the company for mediation, and we're working with both the franchisor of the concept and the current owners of the company. We expect to improve and resolve that investment over the next 12 to 24 months. Honours meaningfully contributed to the increase in non-accrual investments, which totaled 4.2% of the total debt portfolio at fair value compared with 1.3% at Q1, excluding investments in the STRS-JV.

Stuart Aronson: After that a private equity firm contributed additional equity owners to help them navigate the pandemic and to further execute on its growth strategy in the face of a weak market.

Stuart Aronson: However, the company has been experiencing weaker customer trends in recent quarters now, we're taking action to position the company for mediation and we're working with both the franchise or any of the concept, who currently and the current owners of the company.

Stuart Aronson: We expect to improve them resolve that investment over the next 2012 to 24 months.

Stuart Aronson: Honors meaningfully contributed to the increase in non accrual investments, which totaled four 2%.

Stuart Aronson: The total debt portfolio at fair value compared with one 3% at Q1, excluding investments in the <unk> JV and.

Stuart Aronson: In regard to American Crafts and ARCSRV, we continue to execute turnaround plans to maximize the value of both of these companies, working alongside our restructuring resources and private equity resources, and we remain optimistic that we will seek exits on both in 18 to 30 months. We otherwise see balanced activity in terms of credit performance across the portfolio generally and remain overall pleased with the health and relative stability of our debt portfolio, with cash flow coverages holding up in a high interest rate environment. Turning to the broader lending market, there continues to be a supply-demand imbalance in favor of borrowers. As a result, market conditions across all of the sponsor segments remain very aggressive.

Stuart Aronson: In regard to American Crafts and ARCSRV, we continue to execute turnaround plans to maximize the value of both of these companies, working alongside our restructuring resources and private equity resources, and we remain optimistic that we would seek exits on those in 18 to 30 months. We otherwise see balanced activity in terms of credit performance across the portfolio generally and remain overall pleased with the health and relative stability of our debt portfolio with cash flow coverages holding up in a high interest rate environment. Turning to the broader lending market, there continues to be a supply-demand imbalance in favor of borrowers. As a result, market conditions across all of the sponsor segments remain very aggressive.

Stuart Aronson: In regard to American crafts and arc serve we continue to execute turnaround plans to maximize the value of both of these companies working alongside our restructuring resources in private equity resources and we remain optimistic that we would seek exits on those in 18 to 30 months.

Stuart Aronson: We otherwise see balanced activity in terms of credit performance across the portfolio generally and remain overall pleased with the healthy relative stability of our debt portfolio with cash flow coverage is holding up in a high interest rate environment.

Stuart Aronson: Turning to the broader lending market there continues to be a supply demand imbalance in favor of borrowers as a result market conditions across all of the sponsors segments remain very aggressive.

Stuart Aronson: In the upper mid-cap and large-cap markets, we're seeing leverage of anywhere between five to seven and a half times. You also see lenders putting PIC leverage on companies for an additional one to two turns beyond that five to seven and a half times. Pick leverage occurs in the market from time to time, but we are generally avoiding it. Pricing in the upper mid cap and large cap markets is SOFR 450 to SOFR 500 with an original issue discounted between $98 and $99.

Stuart Aronson: In the upper mid-cap and large cap markets, we're seeing leverage of anywhere between five to seven and a half times. You also see lenders putting PIC leverage on companies for an additional one to two turns beyond that five to seven and a half times. Pick leverage occurs in the market from time to time, but we are generally avoiding it. Pricing in the upper mid cap and large cap markets is SOFR 450 to SOFR 500 with an original issue discounted between $98 and $99.

Stuart Aronson: In the upper mid cap and large cap markets, we're seeing leverage of anywhere between five to seven five times you also see lenders putting pick leverage on companies.

Stuart Aronson: For an additional one to two turns beyond that five five to seven five times picked.

Stuart Aronson: <unk> leverage occurs in the market from time to time, but we are generally avoiding it.

Speaker Change: Pricing in the upper mid cap and large cap markets, so for $4 $50 or so for 500 with an original issue discount of between 90 899.

Stuart Aronson: We have been avoiding doing any deals in the upper mid-cap and large-cap markets due to the aggressive natures of these deals. The mid-market is one step less aggressive. We are seeing leverage typically between four and a half times and six times. Pricing in the mid market is between 500 and so for 550 for the most part, with OID also between 98 and 99.

Stuart Aronson: We have been avoiding doing any deals in the upper mid cap and large cap markets due to the aggressive nature of these deals.

Stuart Aronson: Yeah.

Stuart Aronson: The mid market is one step less aggressive we're seeing leverage typically between four and five times and six times pricing in the mid market as silver 500 to suffer $5 50 for the most part with OID also between 90% to 99.

Stuart Aronson: The lower mid-cap market is again one step less aggressive, with leverage generally running four to five times, and pricing in the lower mid-cap market ranging from SOFR 500 to SOFR 600 with an OID typically of 98 to 98.5. The non-sponsor market has not moved much at all, with leverage remaining at 2.5 to 4.5 times and prices in the range of 600 to 800 over SOFR with an OID of 98 or lower.

Stuart Aronson: The lower mid cap market is again, one step less aggressive with leverage generally running 4% to five times and pricing in the lower mid cap market ranging from <unk> 500, <unk> for 600 with an OID typically of 98 to 98 and a half that.

Stuart Aronson: Non sponsor market has not moved much at all with leverage remaining at two 5% to four five times and pricing in the range of 600, $800 sofa with an OID of 98 or lower.

Stuart Aronson: Given the relative attractiveness of the non-sponsor market, we are focusing heavily on originating deals in the non-sponsor sector. We are seeing more evidence of competitors accepting heavily adjusted EBITDAs as they are trying to win new volume in a market that is short of assets. We've seen bankers bringing out many refinancings on troubled credits where they're trying to adjust the capital structure, often on highly adjusted EBITDA. Many of those deals that have come in front of us, we think are negative cash flow deals. We don't believe many of the adjustments, and we think the leverage is too heavy, and we're turning down all of those deals.

Stuart Aronson: Given the relative attractiveness of the non sponsored market, we are focusing heavily on originating deals in the non sponsor sector.

Stuart Aronson: Youre seeing more evidence of competitors accepting heavily adjusted Ebitdas is they are trying to win new volume in a market that is short of assets, we've seen bankers, bringing out many refinancings on troubled credits, where theyre trying to adjust the capital structure often on highly adjusted EBITDA. Many of those deals that have come in front of.

Stuart Aronson: We think our negative cash flow deals, we don't believe many of the adjustments and we think the leverage is too heavy and we're turning down all of those deals.

Stuart Aronson: In the current market environment, we are taking a cautious stance and focused on transactions that have positive free cash flow, limited cyclicality, and strong owners behind them. The on-the-run sponsor market is clearly more aggressive than the off-the-run sponsor market and also more aggressive than the non-sponsor market. As a result, we are spending most of our time focused on the off-the-run sponsor market and the non-sponsor market. With respect to the broader economy, we are seeing signs of weakening that are showing up in lower consumer demand and, in some sectors, lower demand in the business-to-business segment. Given the gradual slowdown in the economy, we do believe that the Fed will begin to reduce interest rates in the fourth quarter of 2024.

Stuart Aronson: In the current market environment, we are taking a cautious stance and focused on transactions that have positive free cash flow, limited cyclicality, and strong owners behind them. The on-the-run sponsor market is clearly more aggressive than the off-the-run sponsor market and also more aggressive than the non-sponsor market. As a result, we are spending most of our time focused on the off-the-run sponsor market and the non-sponsor market. With respect to the broader economy, we are seeing signs of weakening that is showing up in lower consumer demand and in some sectors, lower demand in the business-to-business segment. Given the gradual slowdown in the economy, we do believe that the Fed will begin to reduce interest rates in the fourth quarter of 2024.

Stuart Aronson: And the current market environment, we were taking a cautious stance and focused on transactions did have positive free cash flow limited cyclicality and strong owners behind them.

Stuart Aronson: And the run sponsor market is clearly more aggressive than the off the run sponsor market.

Stuart Aronson: And also more aggressive in the non sponsor market as a result, we are spending most of our time focused on the off the run sponsor market and the non sponsor market.

Stuart Aronson: With respect to the broader economy, we are seeing signs of weakening that is showing up in lower consumer demand and in some sectors lower demand in the business to business segment.

Stuart Aronson: Given the gradual slowdown in the economy, we do believe that the fed will begin to reduce interest rates in the fourth quarter of 2024.

Stuart Aronson: Following net repayment activity in Q2, the BDC balance sheet has approximately $60 million of capacity for new assets. The JV has approximately $30 million of capacity, supplementing the BDC's existing capacity. Deals that are priced at SOFR plus 600 and above will generally go on the BDC's balance sheet, and deals priced below this level will generally go into the STRS joint venture. While volume is lighter than we'd expect it to be in all market segments, we're actively working on six new mandated deals split evenly between sponsor and non-sponsor.

Speaker Change: Following net repayment activity in Q2, the BDC balance sheet is approximately $60 million of capacity for new assets. The JV has approximately $30 million of capacity supplementing the bdc's existing capacity.

Stuart Aronson: Deals that are priced to chauffeur, plus 600 and above will generally put on the bdc's balance sheet and deals priced below this level, we will generally go into the Trs joint venture.

Stuart Aronson: While volume is lighter than we'd expect it to be in all market segments. We're actively working on six new mandated deals split evenly between sponsor and non sponsor while there can be no assurance that any of these deals will close all of these mandates would fit into the BDC or our JV should we elect to transact.

Stuart Aronson: While there can be no assurance that any of these deals will close, all of these mandates would fit into the BDC, or our JV should be elected to transact. Subsequent to quarter end, we have closed three new originations totaling approximately $18 million, with several more pending. Of the new originations, two are expected to be transferred to the JV during the third quarter. However, so far, there have been no asset transfers to the JV during the third quarter.

Stuart Aronson: While there can be no assurance that any of these deals will close, all of these mandates would fit into the BDC, or our JV should be elected to transact. Subsequent to quarter end, we have closed three new originations, totaling approximately $18 million, with several more pending. Of the new originations, two are expected to be transferred to the JV during the third quarter. However, so far, there have been no asset transfers to the JV during the third quarter.

Stuart Aronson: Subsequent to quarter end, we have closed three new originations totaling approximately $18 million with several more pending.

Stuart Aronson: Of the new originations two were expected to be transferred to the JV during the third quarter. So far there have been no asset transfers to the JV in the third quarter.

Stuart Aronson: Our pipeline is still running about 180 deals, but the portion of the pipeline that we'd call active pipeline is lower than it would normally be this time of year. In addition, our three-tier sourcing architecture continues to provide the BDC with differentiated capabilities. Deriving significant advantages from the shared resources and affiliation with HIG, who is a leader in the mid-market, lower mid-market, WhiteHorse has approximately 23 origination professionals located in 11 regional markets across North America.

Stuart Aronson: Our pipeline is still running about 180 deals that's a portion of the pipeline that we would call active pipeline is lower than it would normally be this time of year. In addition, our three tier sourcing architecture continues to provide the BDC with differentiated capabilities, we derive significant advantages from the shared resources and.

Stuart Aronson: Patients with HIV, who is a leader in the mid market lower mid market.

Stuart Aronson: Whitehorse has approximately 23 origination professionals located in 11 regional markets across North America. The strength of this originations pipeline enables us to be conservative in our deal selection.

Stuart Aronson: The strength of this originations pipeline enables us to be conservative in our deal selection. Based on current market terms and conditions, we are taking a very cautious stance and focused on doing deals that have positive free cash flow, limited cyclicality, and strong owners. Despite continued concerns regarding economic softening, we believe we are well-positioned to continue to source attractive opportunities and navigate economic challenges with our strong originations capabilities and rigorous underwriting standards. With that, I'll turn the call over to Joyson for additional details and a review of our portfolio composition. Joyson?

Stuart Aronson: The strength of this originations pipeline enables us to be conservative in our deal selection. Based on current market terms and conditions, we are taking a very cautious stance and focused on doing deals that have positive free cash flow, limited cyclicality, and strong owners. Despite continued concerns regarding economic softening, we believe we are well-positioned to continue to source attractive opportunities and navigate economic challenges to our strong origination capabilities and rigorous underwriting standards. With that, I'll turn the call over to Joyson for additional details and a review of our portfolio composition. Joyson?

Stuart Aronson: The strength of this originations pipeline enables us to be conservative in our deal selection. Based on current market terms and conditions, we are taking a very cautious stance and focused on doing deals that have positive free cash flow, limited cyclicality, and strong owners. Despite continued concerns regarding economic softening, we believe we are well-positioned to continue to source attractive opportunities and navigate economic challenges through our strong origination capabilities and rigorous underwriting standards. With that, I'll turn the call over to Joyson for additional details and a review of our portfolio composition. Joyson?

Stuart Aronson: Based on current market terms and conditions, we are taking a very cautious stance and focused on doing deals that have positive free cash flow limited cyclicality and strong owners.

Joyson: Continued concerns regarding economic softening, we believe we are well positioned to continue to source attractive opportunities and navigate economic challenges to our strong origination capabilities and rigorous underwriting standards.

Stuart Aronson: With that I'll turn the call over to Joyce for additional details and a review of our portfolio composition Jason.

Joyson Thomas: Thanks, Stuart, and thanks, everyone, for joining today's call. During the quarter, we recorded GAAP net investment income and core NII of $9.3 million, or $0.40 per share. This compares with Q1 GAAP NII and core NII of $10.8 million, or $0.465 per share, and our previously declared quarterly distribution of $0.385 per share. Q2 fee income was lower quarter over quarter at $0.4 million compared with $0.6 million from the prior quarter.

Joyson: Thanks, Stuart and thanks, everyone for joining today's call.

Joyson Thomas: During the quarter, we recorded GAAP net investment income and core NII of $9 3 million or <unk> 40 per share. This compares with Q1, GAAP NII and core NII of $10 8 million or $46 five per share and our previously declared a quarterly distribution of $38.05 per share.

Joyson Thomas: Q2 fee income was lower quarter over quarter at zero point $4 million compared with <unk> 6 million from the prior quarter.

Joyson Thomas: Q2 amounts were primarily comprised of approximately $0.3 million of amendments. For the quarter, we reported a net increase in net assets resulting from operations of $7.8 million. Our risk ratings during the quarter show that 74.4% of our portfolio positions carried either a 1 or 2 rating, slightly lower than the 76.6% reported in the prior quarter. As a reminder, a 1 rating indicates that a company has seen its risk of loss reduced relative to such initial expectations, and a 2 rating indicates that a company is performing according to such initial expectations.

Joyson Thomas: Q2 amounts were primarily comprised of approximately $0.3 million of amendments. For the quarter, we reported a net increase in net assets resulting from operations of $7.8 million. Our risk ratings during the quarter showed that 74.4% of our portfolio positions carried either a 1 or 2 rating, slightly lower than the 76.6% reported in the previous quarter. As a reminder, a one rating indicates that a company has seen its risk of loss reduced relative to such initial expectations, and a two rating indicates that a company is performing according to such initial expectations.

Joyson Thomas: Q2 amounts were primarily comprised of approximately zero point $3 million of amendment fees.

Joyson Thomas: For the quarter, we reported a net increase in net assets, resulting from operations of $7 $8 million or risk ratings. During the quarter showed that 74, 4% of our portfolio positions carried either a one or two rating slightly lower than the 76, 6% reported in the prior quarter.

Joyson Thomas: As a reminder.

Joyson Thomas: A one rating indicates that the company has seen its risk of loss reduced relative to essentially.

Joyson Thomas: Actual expectations and a two rating indicates the company's performing according such initial expectations.

Joyson Thomas: Regarding the JV specifically, we continue to grow our investment. As Stuart mentioned earlier, in the second quarter, we transferred four new deals and four add-ons to the SRS-JB, totaling $22 million, in exchange for cash proceeds of the same amount. As of June 30, 2024, the JVs portfolio held positions in 38 portfolio companies with an aggregate fair value of $324.8 million compared to 34 portfolio companies at a fair value of $309.4 million as of March 31, 2024.

Joyson Thomas: Regarding the JV specifically, we continue to grow our investment. As Stuart mentioned earlier, in the second quarter, we transferred four new deals and four add-ons to the SRS-JB, totaling $22 million, in exchange for cash proceeds of the same amount. As of June 30, 2024, the JV's portfolio held positions in 38 portfolio companies with an aggregate fair value of $324.8 million compared to 34 portfolio companies at a fair value of $309.4 million as of March 31, 2024.

Speaker Change: Regarding the JV, specifically, we continue to grow our investment at <unk>.

Speaker Change: <unk> mentioned earlier in the second quarter, we transferred four new deals and four add ons yesterday asked Jamie totaling $22 million.

Joyson Thomas: Change for cash proceeds of the same amount.

Joyson Thomas: As of June 32024, and Jamie's portfolio held positions in 38 portfolio companies with an aggregate fair value of $324 8 million compared to 34 portfolio companies at a fair value of $309 4 million as of March 31 2024.

Joyson Thomas: The investment in the JV continues to be accreted to the BDC's earnings, generating a mid-teens return on equity. During Q2, income recognized for our JV investment aggregated to $3.9 million during the quarter as compared with approximately $4.8 million in Q1. As a reminder, as reported in the prior call, in Q1, there was an elevated amount of income recognized from a JV investment, largely attributable to non-occurring events that occurred in the JV's portfolio during Q1.

Joyson Thomas: The investment in the JV continues to be accretive to the Bdc's earnings generating a mid teens return on equity.

Joyson Thomas: During Q2 income recognized from our JV investment aggregating to $3 9 million during the quarter as compared with approximately $4 8 million in Q1.

Joyson Thomas: As a reminder.

Joyson Thomas: As reported in the prior call and Q1, there was an elevated amount of income recognized from a JV investment largely attributable to nonrecurring events that occurred in the JV portfolio during Q1.

Joyson Thomas: As we have noted in previous calls, the 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, the changes in asset yields in the underlying portfolio, as well as the overall credit performance of the JV's investment portfolio. Turning to our balance sheet, we had cash resources of approximately $21.8 million at the end of Q2, including $8.9 million in restricted cash and approximately $167 million of undrawn capacity available under a revolving credit facility.

Joyson Thomas: As we have noted in the prior calls, the 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, the changes in asset yields in the underlying portfolio, as well as the overall credit performance of the JV's investment portfolio. Turning to our balance sheet, we had cash resources of approximately $21.8 million at the end of Q2, including $8.9 million in restricted cash and approximately $167 million of undrawn capacity available under a revolving credit facility.

Joyson Thomas: As we have noted in prior calls the 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 JV and investment portfolio.

Joyson Thomas: Turning to our balance sheet, we had cash resources of approximately $21 8 million at the end of Q2.

Joyson Thomas: $8 9 million restricted cash and approximately $167 million of undrawn capacity available under our revolving credit facility.

Joyson Thomas: As of June 30, 2024, the company's asset coverage ratio for borrowed amounts, as defined by the 1940 Act, was 186.2%, which was above the minimum asset coverage ratio of 150%. Our Q2 net effective debt-to-equity ratio, after adjusting for cash on hand, was 1.09 times, compared with 1.19 times from the prior quarter.

Joyson Thomas: As of June 32024, the company's asset coverage ratio for borrowed amounts as defined by the 1940 Act was 186, 2%, which was above the minimum asset coverage ratio of 150%.

Joyson Thomas: Our Q2 net effective debt to equity ratio. After again after adjusting for cash on hand was one nine times compared with $1 109 times from the prior quarter.

Joyson Thomas: Before I conclude and open up the call to questions, I'd again like to highlight the distributions. This morning, we announced that our board declared a third quarter distribution of 38.5 cents per share, which is consistent with the prior quarter. The upcoming distribution, the 48th consecutive quarterly distribution paid since our IPO in December 2012, with all distributions at or above a rate of 35.5 cents per share per quarter, will be payable on October 2, 2024, to stockholders on record as of September 18, 2024.

Joyson Thomas: Before I conclude and open up the call to questions, I'd again like to highlight our distributions. This morning, we announced that our board declared a third quarter distribution of 38.5 cents per share, which is consistent with the prior quarter. The upcoming distribution, the 48th consecutive quarterly distribution paid since our IPO in December 2012, with all distributions at or above a rate of 35.5 cents per share per quarter, will be payable on October 2nd, 2024 to stockholders on record as of September 18th, 2024.

Speaker Change: Before I conclude and open up the call to questions I'd again like to highlight a distributions and this morning, we announced that our board declared a third quarter distribution of $38.05 per share, which is consistent with the prior quarter.

Joyson Thomas: The upcoming distribution of <unk> 48 consecutive quarterly distribution paid since our IPO in December 2012, with all distributions at or above the rate of $35 five per share per quarter will be payable on October <unk> 2024 to stockholders of record as of September 18, 2024.

Joyson Thomas: As we said previously, we will continue to evaluate a quarterly distribution, both in the near and medium term, based on the core earnings power of our portfolio, in addition to other relevant factors that may warrant consideration.

Joyson Thomas: As we said previously, we will continue to evaluate a quarterly distribution, both for the near end and for the medium term, based on the core earnings power of a portfolio, in addition to other relevant factors that may warrant consideration.

Joyson Thomas: As we said previously we will continue to evaluate accordingly distribution both in the near and medium term based on the core earnings power of our portfolio. In addition to other relevant factors that may warrant consideration with that I'll now turn the call over to the operator operator.

Operator: With that, I'll now turn the call over to the operator. Operator? Thank you. At this time...

Operator: Thank you. At this time, if you would like to ask a question, please press Star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, if you would like to signal for a question, it is star 1, and to remove yourself, it is star 2. We will pause for just a moment to assemble the question queue, and we'll go first with Bryce Rowe from B. Reilly. Please go ahead.

Jamie: Thank you. At this time, if you would like to ask a question, please press Star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, if you would like to signal for a question, it is star 1, and to remove yourself, it is star 2. We will pause for just a moment to assemble the question queue, and we'll go first with Bryce Rowe from B Riley. Please go ahead.

Speaker Change: Thank you at this time, if you would like to ask a question. Please press star one on your telephone keypad.

Operator: You may remove yourself from the queue at any time by pressing star tail.

Operator: Once again, if you would like to signal for a question that is star one and to remove yourself for this start to we will pause for just a moment to assemble the question queue.

Operator: We will go first with Bryce Rowe from B Riley. Please go ahead.

Bryce Rowe: Thanks a bunch. Good morning. Good morning, Bryce.

Bryce Rowe: Thanks, Bob Good morning.

Speaker Change: Good morning Bryce.

Stuart Aronson: Hey Stuart, I really appreciate some of the market commentary and your cautious approach. I think it's probably one of the more cautious messages that I've heard throughout the earnings season. One wanted to ask kind of about the flows in flows in and out of the BDC from an investment perspective, you know, leverage is coming down, and it sounds like that cautious approach could lead to a more kind of muted, muted activity.

Stuart Aronson: Hey Stuart, I really appreciate some of the market commentary and your cautious approach. I think it's probably one of the more cautious messages that I've heard throughout the earnings season. One wanted to ask kind of about the flows in flows in and out of the BDC from an investment perspective. Leverage is coming down, and it sounds like, you know, that cautious approach could lead to a more kind of muted, muted activity.

Bryce Rowe: Hey, Stuart really appreciate some of the market commentary.

Stuart Aronson: And your cautious cautious approach I think it's probably the more one of the more cautious kind of messages.

Speaker Change: I have heard.

Stuart Aronson: Throughout throughout the earnings season.

Stuart Aronson: One I wanted to ask kind of about.

Speaker Change: The flows in flows in and out of the BDC from the from an investment perspective.

Stuart Aronson: Leverage is coming down it sounds like that cautious approach could lead to.

Stuart Aronson: A more kind of muted muted activity.

Stuart Aronson: As we think about the second half of this year and into next, can you talk about where you're comfortable with leverage in terms of how low leverage could go on the balance sheet? Do you think you can maintain it here or have a good chance that it continues to move lower?

Speaker Change: As we as we think about the second half of this year and into next.

Stuart Aronson: Can you talk about kind of where you're comfortable with with leverage in terms of how low leverage could go on the balance sheet. Do you think you can maintain here or good chance that it continues to move lower.

Stuart Aronson: As we think about the second half of this year and into next, can you talk about kind of where you're comfortable with leverage in terms of how low leverage could go on the balance sheet? Do you think you can maintain it here, or is there a good chance that it continues to move lower?

Stuart Aronson: Bryce, we're lucky to have a HIG supplement origination capability so that when the on the run markets get really aggressive like they are right now, we can squirrel down into the off the run markets and non-sponsor markets and find deals that we feel are a better risk return. When the markets were very favorable, we completely filled up the BDC. And for a period of time, the BDC had no capacity, and we were doing deals that couldn't go into the BDC.

Stuart Aronson: Bryce, we're lucky to have a HIG supplement origination capability, that when the on the run markets get really aggressive like they are right now, we can squirrel down into the off the run markets and non sponsor markets and find deals that we feel are a better risk return. When the markets were very favorable, we completely filled up the BDC. And for a period of time, the BDC had no capacity and we were doing deals that couldn't go into the BDC.

Stuart Aronson: Bryce, we're lucky to have a HIG supplement origination capability so that when the on the run markets get really aggressive like they are right now, we can squirrel down into the off the run markets and non-sponsored markets and find deals that we feel are a better risk return. When the markets were very favorable, we completely filled up the BDC, and for a period of time, the BDC had no capacity, and we were doing deals that couldn't go into the BDC.

Stuart Aronson: Price, where we're <unk>.

Stuart Aronson: <unk> to have a <unk> supplement that origination capability.

Stuart Aronson: When the on the run markets get really aggressive like they are right now we can squirrel down into the off the run markets and non sponsor markets and find deals that we feel are a better risk return.

Stuart Aronson: When the markets were.

Stuart Aronson: Very favorable.

Stuart Aronson: We completely filled up the BTC and for a period of time, the BDC had no capacity and we were doing deals that couldn't go into the BDC.

Stuart Aronson: As I highlighted, we now have about $60 million of availability on the BDC balance sheet, which given the average allocation would be about six deals of incremental capacity, plus an incremental two to three deals in the JV. Q3 has been a decent but relatively slow quarter so far, but in general, we tend to see Q4 as a stronger quarter, and even in a very slow M&A year like 2023, Q4 had volume that was about double what Q3 was.

Stuart Aronson: As I highlighted, we now have about $60 million of availability on the BDC balance sheet, which given the average allocation, would be about six deals of incremental capacity plus an incremental two to three deals in the JV. Q3 has been a decent but relatively slow quarter so far, but in general, we tend to see Q4 as a stronger quarter, and even in a very slow M&A year like 2023, Q4 had volume that was about double what Q3 was.

Stuart Aronson: As I highlighted we now have about $60 million of availability on the BDC balance sheet, which given the average allocation would be about six deals of incremental capacity plus an incremental two to three deals in the JV.

Stuart Aronson: Q3 is a.

Stuart Aronson: Decent, but relatively slow quarter self park, but in general we tend to see Q4 is a stronger quarter and even in a very slow M&A year like 2023.

Stuart Aronson: Q4 had volume that was about double of what Q3 was.

Stuart Aronson: So I don't expect that we're going to use up the unused capacity in Q3, but we are hopeful that we will put most of the unused capacity to work in Q4 if we see a normal upswing in economic activity with the expectation of interest rate cuts in Q4 and many private equity firms being pressured by LPs to have realizations, and bankers telling us that their pipelines are reasonably robust, we're hoping that after the August slowdown, in September, October, we'll see robust M&A flow and be able to use up some of that capacity.

Stuart Aronson: So I don't expect that we're going to use up the unused capacity in Q3, but we are hopeful that we will put most of the unused capacity to work in Q4 if we see a normal upswing in economic activity. With the expectation of interest rate cuts in Q4 and many private equity firms being pressured by LPs to have realizations, and bankers telling us that their pipelines are reasonably robust. We're hoping that after the August slowdown in September-October, we'll see robust M&A flow and be able to use up some of that capacity.

Stuart Aronson: So I don't expect that we're going to use up all the unused capacity in Q3, but we are hopeful that we will put most of the unused capacity to work in Q4 if we see a normal upswing in economic activity. With the expectation of interest rate cuts in Q4 and many private equity firms being pressured by LPs to have realizations, and bankers telling us that their pipelines are reasonably robust, we're hoping that after the August slowdown, in September and October, we'll see robust M&A flow and be able to use up some of that capacity.

Stuart Aronson: I don't expect that we're going to use up the unused capacity in Q3.

Stuart Aronson: But we are hopeful that we will put most of the unused capacity to work in.

Stuart Aronson: In Q4, if we see a normal upswing.

Stuart Aronson: In economic activity.

Stuart Aronson: The expectation of interest rate cuts in Q4.

Stuart Aronson: And many private equity firms being pressured by Lps to have realizations.

Stuart Aronson: And bankers, telling us that their pipelines are reasonably robust, we're hoping that after the August.

Stuart Aronson: Slowdown.

Stuart Aronson: In September October, we will see robust M&A flow.

Stuart Aronson: And be able to use up some of that capacity.

Stuart Aronson: Okay.

Stuart Aronson: That's helpful. And then in terms of the kind of repayments, I appreciate the commentary around repayment activity in the quarter. Can you help us kind of handicap if there are more portfolio companies in that quote-unquote leave category or ask to leave category? And then, maybe on the flip side, help us understand or maybe handicap that other category you mentioned of companies coming to refinance, and you all don't want to participate because the terms are not up to your standards?

Stuart Aronson: That's helpful. And then in terms of the kind of repayments, I appreciate the commentary around repayment activity in the quarter. Can you help us kind of handicap if there are more portfolio companies in that quote-unquote leave category or asked to leave category? And then, maybe on the flip side, help us understand or maybe handicap that other category you mentioned of companies coming to refinance, and you all don't want to participate because the terms are not up to your standards?

Speaker Change: That's helpful and then in terms of kind of repayments I appreciate the commentary around it.

Speaker Change: Prepayment activity in the quarter can you help us kind of handicap. If there are more more portfolio companies and that quote unquote leave category are asked to leave category and then.

Stuart Aronson: Maybe on the flip side help us help us understand maybe handicap.

Speaker Change: That other category, you mentioned of companies coming to refinance and you all don't want to participate because the.

Speaker Change: The terms are are not up to your standards.

Stuart Aronson: Yeah, in general, at the moment, there's only one company I can think of that I would put in the desired exit category, and so that category is going to slow down, because I think we had three of them in the last quarter where we had the opportunity to stay with the credits, but we wanted to exit because of performance issues that our credit teams felt warranted a termination of the relationship. As regards the refinancings in 2022 and 2023, we were adamant about getting strong, strong call protection, and we got call protection on our deals that were generally two years on the sponsored deals and three to four years on the non-sponsored deals.

Speaker Change: Yes in.

Stuart Aronson: In general at the moment there is only one company I can think of that I would put in the.

Stuart Aronson: Desire to exit a category.

Stuart Aronson: And so that category is going to slow down because I think we have three of them in the last quarter, where we had the opportunity to stay with the credits, but we wanted to exit.

Stuart Aronson: Because of performance issues that our credit teams felt warranted a.

Stuart Aronson: Termination of the relationship.

Stuart Aronson: As it regards the refinancings in.

Stuart Aronson: In 2022, and 2023, we were adamant about getting strong strong call protection.

Stuart Aronson: Call protection on our deals that was generally.

Stuart Aronson: Two years on the sponsored deals and three to four years on the non sponsored deals.

Stuart Aronson: To the extent that that call protection is starting to roll off, especially on the 2022 deals, we are seeing people come back and look to do refinancings. In many cases, based on the strength of the market, those refinancings include dividends as well.

Stuart Aronson: To the extent that that call protection.

Stuart Aronson: Is starting to roll off, especially on the 2022 deals.

Stuart Aronson: We are seeing people come back and look to do refinancings in many cases based on the strength of the strength of the market. Those refinancings include dividends as well and so where borrowers are taking up leverage taking down equity in the company and taking down.

Stuart Aronson: And so where borrowers are taking up leverage..., taking down equity in the company, and taking down prices, we're only sticking with the stronger non-cyclical borrowers, and there are several transactions that have gone on where we just felt that the underlying leverage and price made it imprudent to stick with the borrowers. There's no way to know how much of that we will see in the balance of Q3 and Q4. But there's no doubt in my mind, with interest rates or interest spreads as low as they are right now, that there will be continued refinancing pressure.

Stuart Aronson: And so where borrowers are taking up leverage.., taking down equity in the company and taking down price. We're only sticking with the stronger non-cyclical borrowers, and there are several transactions that have gone on where we just felt that the underlying leverage and price made it imprudent to stick with the borrowers. There's no way to know how much of that we will see in the balance of Q3 and Q4. But there's no doubt in my mind, with interest rates or interest spreads as low as they are right now, that there will be continued refinancing pressure. If the credits are okay, we will adjust the pricing on those deals to the current market, which in many cases will take pricing from 600 to 650, down to pricing of 500 to 550.

Stuart Aronson: And so where borrowers are taking up leverage, taking down equity in the company, and taking down prices, we're only sticking with the stronger non-cyclical borrowers, and there are several transactions that have gone on where we just felt that the underlying leverage and price made it imprudent to stick with the borrowers. There's no way to know how much of that we will see in the balance of Q3 and Q4. But there's no doubt in my mind, with interest rates or interest spreads as low as they are right now, that there will be continued refinancing pressure.

Stuart Aronson: Rice.

Stuart Aronson: Or on the sticking with the stronger non cyclical borrowers and there are several transactions that have gone on well, we just felt that the underlying leverage in price made it imprudent to stick with the borrowers.

Stuart Aronson: No way to know.

Stuart Aronson: How much of that we will see in the balance of Q3 and Q4.

Stuart Aronson: <unk>.

Stuart Aronson: But.

Stuart Aronson: There's no doubt in my mind with interest rate or interest spreads.

Stuart Aronson: As low as they are right now.

Stuart Aronson: If the credits are okay, we will adjust the pricing on those deals to the current market, which in many cases will take prices from 600 to 650 down to 500 to 550. But the thing that will make us exit is if the performance of the borrower combined with the leverage that they're trying to put on the borrower leaves us questioning the stability of that credit in the ongoing period, especially because we have a view that the economy really is softening. We're not necessarily predicting a recession, but we are predicting, into 2025, a weaker economy. And we think it's imprudent to overly leverage companies into a weaker economy. And we're making our decisions on that basis.

Stuart Aronson: That there will be continued refinancing pressure.

Speaker Change: The credits are okay, we will adjust the pricing on those deals to the current market.

Stuart Aronson: Which in many cases, we'll take pricing from 600 to 650 down to pricing of $500 to $5 50.

Stuart Aronson: If the credits are okay, we will adjust the pricing on those deals to the current market, which in many cases will take prices from $600 to $650 down to $500 to $550. But the thing that will make us exit is if the performance of the borrower, combined with the leverage that they're trying to put on the borrower, leaves us questioning the stability of that credit in the ongoing period, especially because we have a view that the economy really is softening. We're not necessarily predicting a recession, but we are predicting into 2025 a weaker economy, and we think it's imprudent to overly leverage companies into a weaker economy, and we're making our decisions on that basis.

Stuart Aronson: But the thing that will make us exit is if the performance of the borrower combined with the leverage that they are trying to put on the borrower leaves us questioning the stability.

Stuart Aronson: But the thing that will make us exit is if the performance of the borrower, combined with the leverage that they're trying to put on the borrower, leaves us questioning the stability of that credit in the ongoing period, especially because we have a view that the economy really is softening. We're not necessarily predicting a recession, but we are predicting, into 2025, a weaker economy. And we think it's imprudent to overly leverage companies into a weaker economy, and we're making our decisions on that basis.

Stuart Aronson: Of that credit.

Stuart Aronson: In the ongoing period, especially because we have a view that the economy really is softening.

Stuart Aronson: Not necessarily predicting a recession.

Stuart Aronson: We are predicting into 2025, a weaker economy, and we think it's imprudent to.

Stuart Aronson: Overly leveraged companies into a weaker economy, and we're making our decisions on that basis.

Joyson Thomas: Good, good stuff. Two quick ones for you, Joyson. Do you have an estimated UTI balance as of the end of June? And then did I hear that there was an interest reversal in the quarter?

Bryce Rowe: Good, good stuff. Two quick ones for you, Joyson. Do you have an estimated UTI balance as of the end of June? And then did I hear that there was an interest reversal in the quarter?

Speaker Change: Good stuff.

Joyson Thomas: Two quick ones for you Joyce.

Joyson Thomas: Do you have an estimated UTI balance as of the end of June and then did I hear that there was an interest reversal.

Joyson Thomas: In the quarter.

Joyson Thomas: In relation to your second question, Bryce, the $125,000 was not recognized in Q2. It wasn't necessarily a reversal of an accrual from the prior quarter, but when we put the honors holding position on non-accrual in Q2, essentially, we didn't recognize an additional $125,000 that we would have as compared to Q1.

Joyson Thomas: In relation to your second question, Bryce, the $125,000 was not recognized in Q2. It wasn't necessarily a reversal of an accrual from the prior quarter, but when we put the honors holding position on non-accrual in Q2, essentially, we just didn't recognize an additional $125,000 that we would have as compared to Q1.

Joyson Thomas: In relation to your second question Bryce the $125000 wise.

Joyson Thomas: Not recognized in Q2, it wasn't necessarily a reversal.

Joyson Thomas: Accrual from the prior quarter, but when we put the honors holding position on non accrual in Q2.

Joyson Thomas: Essentially we did recognize an additional 125000 that we would have as compared to Q1 okay.

Joyson Thomas: Okay.

Joyson Thomas: And then, do you have a UTI balance or estimate for us?

Bryce Rowe: And then, do you have a UTI balance or estimate for us?

Joyson Thomas: And then, do you have a UTI balance or estimate for us?

Bryce Rowe: And then do you have a UTI balance our estimate for us.

Joyson Thomas: I don't have the UTI balance handy for me right now. Let me see if I can just pull that up. I think it's about $32 million. Program, $32 million. Okay, awesome.

Joyson Thomas: I don't have the UTI balance handy for me right now. Let me see if I can just pull that up. I think it's about $32 million. Pull back. $32 million.

Speaker Change: I don't have the.

Speaker Change: The UTI balanced pan.

Joyson Thomas: For me right now let me see if I can just pull that up I think it's about 32 million.

Joyson Thomas: Actually I just pulled up.

Joyson Thomas: $32 million.

Bryce Rowe: Okay, awesome. Thank you, guys.

Joyson Thomas: Okay, awesome. Thank you, guys.

Bryce Rowe: Okay, awesome. Thank you, guys.

Speaker Change: Awesome. Thank you guys.

Operator: As a reminder, ladies and gentlemen, it is Star One. If you would like to signal for a question, again, it is Star One. We'll go next to Sean Paul Adams with Raymond James. Please go ahead.

Jamie: As a reminder, ladies and gentlemen, it is Star One. If you would like to signal for a question, again, it is Star One. We'll go next to Sean Paul Adams with Raymond James. Please go ahead.

Speaker Change: As a reminder, ladies and gentlemen.

Operator: One if you would like to signal for a question again star one.

Operator: We'll go next to Sean Paul Adams with Raymond James. Please go ahead.

Operator: Yeah.

Sean Paul Adams: Hey guys, good morning. On the portfolio risk ratings, it seems like the uptick in risk ratings four and five was likely due to the new non-accrual.

Sean Paul Adams: Hey guys, good morning. On the portfolio risk ratings, it seems like the uptick in risk ratings 4 and 5 was likely due to the new non-accrual.

Speaker Change: Hey, guys good morning.

Speaker Change: Good morning portfolio of risks.

Speaker Change: Good morning on the portfolio risk ratings, it seems like the uptick and risk ratings four and five was likely due to the new non accrual.

Speaker Change: Am I correct in that.

Stuart Aronson: Yes, I believe that is the case.

Stuart Aronson: Yes, I believe that is the case. Okay.

Speaker Change: Yes, I believe that is the case.

Sean Paul Adams: Okay. So, but in aggregate over the last six months, there has been a somewhat large shift in ratings just downward within the portfolio. You know, at the beginning of January, you know, risk ratings, one were somewhere around 18%. Now they're sitting around 12.8. So, it just seems like there's a somewhat large waterfall effect going downward within the portfolio, and it looks like you guys are really paying large attention to the new deals on the market and really focusing on credit quality and leverage. What kind of aspects are you guys thinking about in regards to your existing portfolio companies? And is there any isolated sectors that are really experiencing the largest material weakness?

Speaker Change: Okay, so but in aggregate over the last six months there has been a somewhat large shift and ratings just downward within the portfolio.

Sean Paul Adams: At the beginning of <unk>.

Sean Paul Adams: January risk ratings, one were somewhere around 18% now theyre sitting around 12 eight.

Sean Paul Adams: So, it just seems like there's a somewhat large waterfall effect going downward within the portfolio. And it looks like you guys are really.. paying large attention to the new deals on the market and really focusing on credit quality and leverage. What kind of aspects are you guys thinking about in regards to your existing portfolio companies? And are there any isolated sectors that are really experiencing the largest material weakness?

Sean Paul Adams: So, it just seems like there's a somewhat large waterfall effect going downward within the portfolio. And it looks like you guys are really... Paying a lot of attention to the new deals on the market and really focusing on credit quality and leverage. What kind of aspects are you guys thinking about in regards to your existing portfolio companies? And are there any isolated sectors that are really experiencing the largest material weakness?

Speaker Change: So it just seems like there's somewhat large waterfall effect going downward within the portfolio and it looks like you guys are really paying.

Speaker Change: Paying large attention too.

Sean Paul Adams: The new deals on the market and really focusing on credit quality and leverage what kind of aspects are you guys thinking about in regards to your existing portfolio companies and is there any.

Speaker Change: Isolated sectors that are really experiencing the largest material weaknesses.

Stuart Aronson: Yes, John Paul, in regard to those, what generally happens with credits that are overperforming is the companies get sold or the companies get refinanced. So there's a natural effect that those tend to go away. And that happens in all markets, but especially true in a strong market environment. That said, as I indicated in my prepared statement.

Speaker Change: Yes jump all in regard to the ones what generally happens with credits that are over performing.

Stuart Aronson: As the companies get sold or the companies get refinanced so.

Stuart Aronson: There is a natural effect that that ones tend to go away.

Stuart Aronson: That happens in all market, but especially true in a.

Stuart Aronson: Strong market environment.

Stuart Aronson: That said as I indicated in my prepared statements.

Stuart Aronson: We are seeing a slowdown in the economy, as recently has been indicated by data that's been released into the marketplace and has led to some equity gyrations recently. We are spending a significant amount of time focused on existing portfolio, most of our existing portfolio accounts, are comfortably paying their interest burden and their debt burden. But we do have a number of situations that are not related to the general economy, like Honors Holdings, where it is a company-specific issue that has led to the weakness in the performance. And actually, it's a fairly recent issue as well.

Stuart Aronson: We are seeing a slowdown in the economy, as recently indicated by data that's been released into the marketplace and has led to some equity gyrations recently. We are spending a significant amount of time focused on existing portfolios; most of our existing portfolio accounts are comfortably paying their interest burden and their debt burden. But we do have a number of situations that are not related to the general economy, like Honors Holdings, where it is a company-specific issue that has led to the weakness in performance. And actually, it's a fairly recent issue as well.

Stuart Aronson: We are seeing a slowdown in the economy, as recently indicated by data that's been released into the marketplace and has led to some equity gyrations recently. We are spending a significant amount of time focused on existing portfolios; most of our existing portfolio accounts are comfortably paying their interest burden and their debt burden, but we do have a number of situations that are not related to the general economy, like Honors Holdings, where it is a company-specific issue that has led to the weakness in performance, and actually, it's a fairly recent issue as well.

Stuart Aronson: We are seeing a slowdown in the economy.

Stuart Aronson: As recently as been indicated by data that's been released into the marketplace and.

Stuart Aronson: This led to some equity gyrations recently.

Stuart Aronson: We are spending significant amount of time focused on.

Stuart Aronson: Existing portfolio.

Stuart Aronson: Most of our existing portfolio accounts.

Stuart Aronson: We are comfortably.

Stuart Aronson: Paying their interest burden in their debt burden.

Stuart Aronson: But we do have a number of situations that are not related to the general economy like honors holdings.

Stuart Aronson: Where it is a company specific issue that has led to the weakness in the performance and actually it's a fairly recent issue as well.

Stuart Aronson: The company was only levered about three and a half times a year ago, and the company has experienced weakness over the past 12 months. We have a five-person restructuring team that gets involved in all the deals that need covenant waivers, and that restructuring team includes private equity professionals who, on owned accounts, help us put the right management teams in place, helps us come up with growth strategies for the company, and helps us cut costs.

Stuart Aronson: The company was only levered about three and a half times a year ago, and the company has experienced weakness over the past 12 months. We have a five-person restructuring team that gets involved in all the deals that need covenant waivers, and that restructuring team includes private equity professionals who on owned accounts help us put the right management teams in place, helps us come up with growth strategies for the company, and helps us cut costs.

Speaker Change: The company was only Levered about three five times about a year about a year ago.

Stuart Aronson: And the company has experienced weakness over the past 12 months.

Stuart Aronson: We have a five person restructuring team that gets involved in all the deals that need covenant.

Stuart Aronson: Waivers.

Stuart Aronson: And that restructuring team includes private equity professional.

Stuart Aronson: Who on owned accounts helps us put the right management teams in place helps us come up with growth strategies for the company and helps us cut costs and on arc served and American crafts in particular, which are both owned assets.

Stuart Aronson: And on ArcServe and American Crafts, in particular, which are both owned assets, we are working with that restructuring team and with our private equity expertise to execute turnarounds that we hope will take hold and allow us to get strong exits in 18 to 30 months. So there is a lot of attention being paid to the portfolio, and in today's market, where we think competitors are being overly aggressive, we are committed to trying to not add any marginal credits to our portfolio.

Stuart Aronson: And on ArcServe and American Crafts, in particular, which are both owned assets, we are working with that restructuring team and with our private equity expertise to execute turnarounds that we hope will take hold and allow us to get strong exits in 18 to 30 months. So, there is a lot of attention being paid to our portfolio, and in today's market, where we think competitors are being overly aggressive, we are committed to trying to not add any marginal credits to our portfolio.

Stuart Aronson: We are working with that restructuring team and with our private equity expertise to execute turnarounds.

Stuart Aronson: That we hope will take hold and allow us to get strong exits in 18 to 30 months.

Stuart Aronson: So there is a lot of attention being paid to portfolio.

Stuart Aronson: And in today's market, where we think competitors are being overly aggressive.

Stuart Aronson: We are committed to trying to not add any marginal credits to our portfolio.

Sean Paul Adams: Okay, thank you so much. And I believe you remarked earlier in the call that Honors Holdings probably had a timeline of 12 to 24 months for the resolution process, and I believe you also mentioned Artserv would probably be around an 18 to 30 month timeline as well.

Speaker Change: Okay. Thank you so much and I believe you remarked earlier in the call that honors holdings, probably had a timeline is.

Sean Paul Adams: 12 to 24 months of a resolution process.

Sean Paul Adams: <unk>.

Sean Paul Adams: Honors.

Sean Paul Adams: Believe you also mentioned art surf would probably be around an 18 to 30 months timeline.

Speaker Change: Well, yes.

Stuart Aronson: Yes. Okay, okay, that's perfect. I just needed to clarify that. Thank you so much for the call. No problem, thank you.

Stuart Aronson: Yeah. Okay, okay, that's perfect. I just needed to clarify that. Thank you so much for the color.

Stuart Aronson: Yeah. Okay, okay, that's perfect. I just needed to clarify that. Thank you so much for the color. No problem, thank you.

Speaker Change: Okay. Okay. That's perfect I just wanted to clarify that thank you so much for the color.

Stuart Aronson: No problem. Thank you.

Operator: And, ladies and gentlemen, as there are no further questions in queue at this time, that will conclude our question and answer session and the WhiteHorse Finance second quarter 2024 earnings call. Thank you for your participation. You may disconnect your line at this time and have a wonderful day. Thank you. Bye-bye.

Operator: And ladies and gentlemen, as there are no further questions in queue at this time, that will conclude our question and answer session and the WhiteHorse Finance second quarter 2024 earnings call. Thank you for your participation. You may disconnect your line at this time and have a wonderful day. Thank you. Bye-bye. In the next video, we'll see you in the next video.

Jamie: And ladies and gentlemen, as there are no further questions in queue at this time, that will conclude our questioning.

Speaker Change: And ladies and gentlemen, as there are no further questions in queue. At this time that will conclude our question and answer session and the Whitehorse Finance second quarter 2024 earnings call. Thank you for your participation you may disconnect. Your line at this time and have a wonderful day.

Operator: Thank you bye bye.

Operator: Okay.

Operator: [music]

Operator: [music].

Operator: Hum.

Operator: Oh.

Operator: [music].

Operator: Okay.

Operator: [music].

Speaker Change: Got it.

Operator: [music].

Operator: Sure.

Operator: Okay.

Operator: [music].

Jamie: With that, I'll now turn the call over to the operator. Operator. Thank you. At this time...

Q2 2024 WhiteHorse Finance Inc Earnings Call

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