Q3 2024 WhiteHorse Finance Inc Earnings Call
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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 third quarter 2024 earnings Conference call.
Speaker Change: Our hosts for today's call are Stuart Aronson, Chief Executive Officer enjoys and Thomas Chief Financial Officer.
Speaker Change: Today's call is being recorded and will be made available for replay beginning at four P. M Eastern time.
The replay dial in number is.
Speaker Change: Four zero too.
Q2 zero.
6085, No pass code is required.
Speaker Change: At this time, all participants have been placed in a listen only mode and the floor will be opened for your questions. Following the presentation.
Speaker Change: 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. Please press star two.
Speaker Change: It is now my pleasure to turn the floor over to Robert bring birds eye Frozen company. Please go ahead.
Speaker Change: Thank you Jamie and thank you everyone for joining us today to discuss Whitehorse Finance third quarter 2024 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 may be.
Speaker Change: These forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Speaker Change: Because these forward looking statements involve known and unknown risks and uncertainties. These are important factors that could cause actual results to differ materially from those expressed or implied by these forward looking statements Whitehorse finance assumes no obligation or responsibility to update any forward looking statements.
Speaker Change: Today's speakers may refer to material from the Whitehorse Finance third quarter 2024 earnings presentation, which is posted on our website. This morning.
Speaker Change: With that allow me to introduce Whitehorse finances, CEO Stuart Aronson Stuart you may begin.
Stuart Aronson: Thank you Rob good morning, everybody and thank you all for joining us today.
Stuart Aronson: 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 September 30th 'twenty 'twenty, four which can also be found on our website.
Stuart Aronson: On today's call I will begin by addressing our third quarter results and current market conditions twice.
Stuart Aronson: Joyce Thomas our Chief Financial Officer will then discuss our performance in greater detail.
Stuart Aronson: Afterwards, we will open the floor for questions.
Stuart Aronson: Our results for the third quarter of 2024 were disappointing as our industrial portfolio declined this quarter due to net realized and unrealized losses, which impacted our financial performance.
Stuart Aronson: Q3, GAAP net investment income and core NII was $9 2 million or 39.4 cents per share, which exceeded our quarterly base dividend to <unk> 38, and a half cents per share.
Stuart Aronson: Slightly below Q2, GAAP and core NII of $9 3 million or 40 cents per share.
Stuart Aronson: And then <unk> per share at the end of Q3 was 12 77, representing a five 1% decrease from the prior quarter.
Stuart Aronson: Per share was impacted by net markdowns in our portfolio totaling $15 9 million.
Stuart Aronson: The majority of which related to markdowns on American Crafts, and honors holdings, which I will discuss shortly.
Stuart Aronson: Turning to our portfolio activity in Q3, we had gross capital deployments of $51 million, which was partially offset by total repayments and sales of $30 2 million, resulting in net deployments of $20 8 million.
Stuart Aronson: Gross capital deployments of 51 million consisted of seven new originations totaling $49 million with the remaining 2 million used to fund for add ons to existing investments.
Stuart Aronson: Of our seven new originations in Q3, three were non sponsor and four were sponsor deals with the average leverage of approximately 4.13 times debt to EBITDA.
Stuart Aronson: All of our Q3 deals were first lien loans with an average spread of 575 basis points and an average all in rate of 10, 8% compared to 11, 8% in the second quarter of 2024.
Stuart Aronson: During the quarter, the BDC transferred three new deals and one add on to the S. T. R. S JV.
Speaker Change: At the end of Q3 the S. T R. S JV total portfolio.
Speaker Change: We had an aggregate fair value of 309.8 million.
Speaker Change: And an average unlevered yield of 11, 7% compared to 12, 3% in Q2.
Speaker Change: Leverage for the JV at the end of Q3 was zero point 97 times compared with 1.08 times at the end of the prior quarter.
Speaker Change: We continue to utilize the S. T R. S JV successfully.
Speaker Change: And believe white horses equity investment in the JV continues to provide attractive returns for our shareholders.
Speaker Change: At the end of Q3, 99% of our debt portfolio was first lien senior secured and our portfolio of mix was approximately 63% sponsor and 37% non sponsor.
Speaker Change: In Q3 total repayments and sales were $30 2 million, primarily driven by two complete realizations and one partial repayment and one partial sale.
Speaker Change: After the effects of deployments repayments and S. T. R. S JV transfers as well as $15 9 million in net mark to market decreases and the $1 3 million of accretion the total value of our investment portfolio was $654 3 million. This compares to our portfolios fair value of 606.
Speaker Change: $60 million at the end of the previous quarter.
Speaker Change: The weighted average effective yield on our income producing debt investments was 13, 1% at the end of Q3.
Speaker Change: Do approximately 13, 8% in the second quarter of 2024, and 13, 6% in the third quarter of 2023.
Speaker Change: Transitioning to the Bdc's portfolio the challenges in this quarter generally do not relate to the overall economy, but rather are more company specific.
Speaker Change: We are working with experts within H I G to optimize the outcomes of what port workout accounts the balance of the portfolio is generally stable.
Speaker Change: During the quarter, we put it took a $6 $6 million write down on American crafts and are currently seeking to either restructure or sell the company. The company's previously challenged performance was further impacted by the loss of a material customer in the quarter.
Speaker Change: While we continue to execute improvement initiatives. We believe we have the asset mark consistent where it might be sold to a strategic player.
Speaker Change: We also took a $5 million write down on his holdings, reflecting continued challenging industry conditions with a slowdown across many fitness concepts reflected an ongoing weak customer trends. We had previously placed the company on non accrual status in the second quarter.
Speaker Change: We continue to work with the franchise or of the company to restructure the honors holding credit and to try to ultimately improve the company's performance and we as the lender have taken control of this credit.
Speaker Change: At the end of the third quarter. We also placed Telus stream on non accrual status, which resulted in a 0.9 million dollar write down we recognized approximately 557000 of income from the credit in Q3, while reversing or approximately 300000 and accrued interest.
Speaker Change: While the company continues to generate significant EBITDA, we are focused on restructuring tell a stream and our current expectation is that part of the loan will be back on accrual status within two quarters and hopefully even sooner.
Speaker Change: Nonaccrual investments totaled five 6% of the total debt portfolio compared with the prior quarter or three 6% of the total debt portfolio.
Speaker Change: Turning to the lending market in general conditions across all sponsors segments remain very aggressive there continues to be a shortage of new quality deal flow and what is in the market isn't very thin pricing.
Speaker Change: We've seen middle market pricing compressed down to spreads.
Speaker Change: For for 75 to so for 525 at lower mid market spreads moved to approximately sulfur for 75 to so for $5 75.
Speaker Change: From our perspective, we believe there is excessive leverage on a lot of credits that have cyclicality.
Speaker Change: They're not participating in those transactions.
Speaker Change: There's some more attractive backdrop in the non sponsor market, where the market continues to support leverage of only three to four and a half times and pricing tends to be between the sofa 600, or so for 800, we are redoubling our efforts to focus on the non sponsor market, where there is better risk return in many cases and much less competition.
Speaker Change: But then what we are seeing in the on the run sponsor market.
Speaker Change: And the on the run sponsor market, we see generally very aggressive terms and therefore, focusing more on the off the run sponsor market in the non sponsor market.
Speaker Change: Fourth quarter volume is likely to be modest compared to other four cohorts quarters.
Speaker Change: Generally supply demand is out of balance with lenders stretching too far for the better credits for example, what we see on many of the better credits is the Leverages often so high if the cash flows are not greater than a one point <unk> fixed charge coverage level.
Speaker Change: More broadly while we continue to think there'll be some declines in interest rates. We are also concerned that we could have government budgets that could put pressure on inflation based on the current policies of our newly elected president.
Speaker Change: So we do not necessarily believe sulfur will come down as far as the yield curve indicates which is probably good news for the BDC, but it means we're being careful on debt service coverages. We have also continued to see some softening in the economy based on interest rates, having been high over the last several years.
Speaker Change: Subsequent to quarter end, the BTC closed one new investment and a few add ons to existing credits totaling approximately $7 $5 million and has had repayments of approximately 21 million, including three full realizations.
Speaker Change: The JV in the third quarter had repayments for three investments for approximately $35 million. Following net repayment activity in Q3 and pro forma for several transactions in early Q4, and the special distribution, we announced in October the BDC balance sheet as approximately $45 million of capacity for new apps.
Speaker Change: The JV has approximately $90 million of capacity supplementing the bdcs existing capacity.
Speaker Change: Given the decline in pricing, we continue to expect repayment activity to remain high for the balance of this year and into 2025.
Speaker Change: Volume is lighter than we'd like it to be in all market segments. Our pipeline is still at about 185 deals quicker.
Speaker Change: We currently have seven new mandates and are working on for add ons to existing deals while there can be no assurance that any of these deals will close all of these credits would fit into the BDC or our JV should we elect to transact with.
Speaker Change: That I will turn the call over to Joyce for additional performance details and a review of our portfolio composition Jason.
Speaker Change: Thanks, Stuart and thank you everyone for joining today's call.
Joyce Thomas: During the quarter, we recorded GAAP net investment income and core NII of $9 2 million or $39.04 per share.
Speaker Change: This compares with Q2, GAAP, NII and core NII $9 $3 million, each or <unk> 45 per share as well as our previously declared a quarterly distribution of $38 <unk> per share.
Speaker Change: Q3 fee income was lower quarter over quarter at approximately zero point $3 million compared with zero point $4 million from prior quarter Q3 amounts are primarily comprised of prepayment and amendment fees.
Speaker Change: For the quarter, we reported a net decrease in net assets, resulting from operations of $6 9 million or risk ratings. During the quarter showed that approximately 75, 1% of our portfolio positions either carried out one or two rate rating.
Speaker Change: Slightly higher than the 74, 4% reported in the prior quarter.
Speaker Change: As a reminder, a one rating indicates that a company has seen its risk of loss reduced relative to initial expectations.
Speaker Change: Two rating indicates the company's performing according to such initial expectations.
Speaker Change: Regarding the JV, specifically, we continue to grow our investment as Stuart had mentioned earlier in the third quarter, we transferred three new deals and one add on to the yes. Your S JV totaling $15 $1 million.
Speaker Change: As of September 30 of 2024, the Jv's portfolio held positions in 38 portfolio companies with an aggregate fair value of approximately $309 8 million compared to 38 portfolio companies as an aggregate fair value of $324 8 million as of June 30 of 2024.
Speaker Change: The investment in the JV continues to be accretive to the Bdc's earnings generating a mid teens return on equity.
Speaker Change: During Q3 total investment income recognized from our investments in the JV aggregating to approximately $4 million during the quarter, which compares with approximately $3 9 million in Q2.
Speaker Change: 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's investment portfolio.
Speaker Change: Turning to our balance sheet now we had cash resources of approximately $20 7 million at the end of Q3 included $9 5 million and restricted cash excuse me $95 million in restricted cash and approximately $173 million of undrawn capacity available under our revolving credit facility.
Speaker Change: At December 32024, the company's asset coverage ratio for borrowed amounts as defined by the 1940 Act was 183, 4%, which was above the minimum asset coverage ratio of 150%.
Speaker Change: Our Q3 net effective debt to equity ratio after adjusting for cash on hand was approximately $1. One three times compared with 1.09 times from the prior quarter.
Speaker Change: Before I conclude and open up the call to questions I'd again like to highlight our distributions.
Speaker Change: This morning, we announced that our board declared fourth quarter distribution of $38 five per share, which is consistent with the prior quarter the.
Speaker Change: The upcoming regular distribution of <unk> 49 consecutive quarterly distribution paid since our IPO in December 2012, with all distributions at or above our rate of $35.05 per share per quarter will be payable on January three 2025 to stockholders record as of December 28, 2024.
Speaker Change: In addition to our quarterly distribution, we elected to declare a special distribution of $24 five per share for cycles you record at October 31 2024.
Speaker Change: The distribution will be payable on December 10, 2024 pro forma for the special distribution, we estimate our spill back income to be approximately $26 8 million.
Speaker Change: 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.
Speaker Change: Warrant consideration.
Speaker Change: With that I'll now turn the call over to the operator for your questions operator.
Speaker Change: Thank you at this time, if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: You may remove yourself from the queue at any time by pressing star two.
Speaker Change: Once again that is star one to signal for a question and star teacher and leave yourself, we will pause for just a moment to assemble the question queue.
Speaker Change: We'll take our first question from Melissa Wedel with JP Morgan. Please go ahead.
Melissa Wedel: Hi, good morning, Thanks for taking my question.
Speaker Change: I want to follow up Hi wanted to follow up on your comments about the deal environment.
Speaker Change: Pacifically you mentioned that the fourth quarter may not be here for our buses typically soon.
Speaker Change: And that seasonally busy quarter.
Speaker Change: The repayments are expected to be elevated.
Speaker Change: You said in the coming quarters.
Speaker Change: It sounds like we should be thinking about modest delevering portfolio deleveraging over the next few quarters.
Speaker Change: Is that am I hearing you correctly there.
Speaker Change:
Speaker Change: I would tell you that based on the mandates that we have without clarity as to whether they'll all close.
Speaker Change: If most of them do close they should match up in balance with any repayment activity that we currently see so I don't see leverage getting lower.
Speaker Change: That said, we have a lot of unemployed capacity both on the BDC balance sheet, which is targeted for assets priced it so for 600 and greater <unk>.
Speaker Change: On the JV, where there's $90 million of capacity those are for assets that are priced under sofa 600, which would typically be the sponsor deals in today's market.
Speaker Change: And I'm not sure given the relative balance of deal volume that we're going to be able to deploy much of that excess capacity.
Speaker Change: Here in Q4, I don't I don't think based on what we see right now.
Speaker Change: That we would have shrinkage of port until the portfolio size I would personally estimate based on current volume stability.
Speaker Change: I appreciate that and I know, it's difficult to estimate that with any degree of accuracy early.
Speaker Change: Looking ahead I understand there are a lot of moving parts.
Speaker Change: I think one of just second question you know there's been a lot of focus on.
Speaker Change: You know the quality.
Speaker Change: And kind of across the industry and the percentage of Pik income in particular.
Speaker Change: Function of total revenue.
Speaker Change: When you look across the portfolio it seems sort of a gradual increase over time over the last four quarters, maybe in Pik income as a percentage of total revenue and just wanted to understand how you're thinking about that how it informs new deals that you put on the balance sheet and how you manage.
Speaker Change: Any investments that are opting for pik income and what that means for fair value marks or engagement with management. Thank you.
Speaker Change: Yes, as it regards new deals.
Tom: We generally seek either 100% caching, Tom or the vast majority being cash income as an example, the Westinghouse steel that we put in a couple of quarters ago had a little bit of pick but it was so for $5 50, cash plus 100 basis points of Pik.
Speaker Change: Most of the picks that we have in portfolio.
Speaker Change: <unk> relates to troubled accounts that we're looking to turn around and we tried to be very realistic.
Speaker Change: If we are picking interest but of companies moving in the wrong direction and the likelihood of collecting that interested in that we take the asset on non accrual as we did with Telus stream.
Speaker Change: As I highlighted in my prepared remarks tell a stream still has a significant amount of EBITDA.
Speaker Change: But the amount of EBITDA is not supportive of the current debt load.
Speaker Change: The lenders are likely to take over that credit.
Speaker Change: Restructure the debt.
Speaker Change: And.
Speaker Change: Most of that debt or the debt either all or most of the debt that would come back onto the balance sheet would come on as cash.
Speaker Change: Cash paid that would be our expectation.
Speaker Change: Or at least it would be cash pay debt within a quarter or two.
Speaker Change: Thank you.
Speaker Change: Once again, ladies and gentlemen that is star one if you would like a signal for a question. We will hear next from Robert Dodd with Raymond James.
Robert Dodd: Hi, guys.
Robert Dodd: I guess you gave us the spillover number right down 26, but I think I might've done the wrong number can you can you repeat that.
Speaker Change: It is.
Robert Dodd: Robert $26 8 million pro forma for that especially.
Speaker Change: Got it got it. Thank you then then Ami.
Robert Dodd: Yeah.
Speaker Change: It's about how how aggressive the market is.
Speaker Change: I mean, you're talking about.
Speaker Change: It's being done Adam originations.
Speaker Change: Middle market loan that more companies are fixed charge coverage ratio was below one.
Speaker Change: Yes.
Speaker Change: How long do you think that competitive environment.
Speaker Change: Howard question I agree.
Speaker Change: That kind of competitive environment.
Speaker Change: Sustain itself I mean is it the is it.
Speaker Change: The guys who've done this just betting on growth.
Speaker Change: Oh.
Speaker Change: Underwriting on those comments im seeing some.
Speaker Change: Somewhat problematic.
Speaker Change: Yeah I mean.
Speaker Change: Melissa point about pick interest in general.
Speaker Change: Really get to that point Robert.
Speaker Change: Where people are structuring deals that have the ability to pick a part or all of the coupon of the deal.
Speaker Change: In order to accommodate the fact that as the cash flows of the company.
Speaker Change: Can't service the debt load.
Speaker Change: I would say, yes, you're right the people are predicting growth.
Speaker Change: Which is one of the ways that they'll dig themselves out of the less than 1% fixed charge coverage whole, but more than that people are very much expecting a sofa to decline.
Speaker Change: Candidly, we are as I highlighted more skeptical of the yield curve right now.
Speaker Change: Given what we understand to be pressures.
Speaker Change: That are likely to be on the economy that will be re inflationary.
Speaker Change: That's not to say, we don't think there'll be.
Speaker Change: Some more small cuts from the fed.
Speaker Change: In the near term.
Speaker Change: But we are skeptical that a year to two years from now.
Speaker Change: So for.
Speaker Change: It was as low as the yield curve is indicating and I would say that the move in the 10 year treasuries yesterday.
Speaker Change: It was an indication that the market is starting to see some of the same things that we are seeing.
Speaker Change: So we are sticking to our knitting.
Speaker Change: The catch 22 is on the strong rebound in cyclical credits the leverage levels and fix charge coverage levels are very challenged on.
Speaker Change: On the more cyclical credits are the leverage levels are obviously lower.
Speaker Change: But we get very nervous putting more than <unk>.
Speaker Change: Three and a half a four times leverage on a cyclical credit.
Speaker Change: And the market at the moment is in many cases well in excess of that so we have turned down and walked away from or lost.
Speaker Change: A lot of deals in the market right now.
Speaker Change: Because we just think people it's not so much a price issue because we don't think we are.
Speaker Change: We're going to.
Speaker Change: Walk away from a good deal based on price.
Speaker Change: But it is the fact that people are putting anywhere from a half a turn to in some cases, a turn and a half too much leverage on credits and that's why we've redoubled our efforts in the non sponsor sector.
Speaker Change: Our leverage is much lower and we hope to book a higher ratio of non sponsor deals while the markets remain this aggressive.
Speaker Change: Thank you. Thank you for that color one one.
Speaker Change: Very helpful. One more if I can automat congrats.
Speaker Change: Yes historic track record has been to try and.
Speaker Change: Stay with a troubled credit long term work it out tenant demand and hopefully get a get a full recovery.
Speaker Change: It sounds like American crafts, obviously the laughter.
Speaker Change: Material customer, but it sounds like you've taken another look at that credit.
Speaker Change: Decided that that's not a viable strategy and that sooner or exit might be might be better. So I mean is it isn't just the changes.
Speaker Change: Just got a.
Speaker Change: Most of the material customer or is there something else that's changed there in terms of yet your decision, making or if maybe not sticking with it.
Speaker Change: And working it out.
Speaker Change: Thus it is a quick sale.
Robert Dodd: Yeah, Robert that you're exactly right, we have a very strong track record.
Speaker Change: Taking over credits and turning them around and getting to full recovery.
Speaker Change: We had to take over American crafts, because it ran into liquidity problems. We did inject additional capital into the company to bring the trade current and to get products shipped to do do increase our fill rates.
Speaker Change: But given the challenges the company was facing which we were addressing.
Speaker Change: The loss of the major customer took the revenue base of the company down low enough that we don't see a path for a real recovery of that company as a standalone entity and it would take an injection of more capital into the company to have a shot to turn it.
Speaker Change: [noise] around and at this point, we don't think that that would be money that will be well invested so we are exploring.
Speaker Change: Exploring a sale of the company.
Speaker Change: Strategic players, who are the logical ones to own it given that we don't think the company is.
Speaker Change: Is gonna be able to be significantly profitable on a standalone basis. So it is not consistent with our history of successful turnarounds are this.
Speaker Change: This would be unfortunately, a failed turnaround.
Speaker Change: And that is why I characterized the NAV for the quarter as a disappointing and we are very disappointed.
Speaker Change: And we are on other accounts, including.
Speaker Change: Telus stream honors.
Speaker Change: Working very hard to turn those around and get to what we've done historically, which is not only getting our money back but getting a gain on.
Speaker Change: Many of these credits that we have to take control of this and we do work with <unk> private equity resources to make sure that we execute on management changes cost cuts and revenue growth opportunities on those turnaround accounts.
Speaker Change: Got it thank you.
Speaker Change: We will turn now to Bryce Rowe with B Riley. Please go ahead.
Bryce Rowe: Good morning, Brian So high there.
Stuart Aronson: Thanks Stuart.
Speaker Change: Well.
Speaker Change: Good.
Speaker Change: I wanted to ask about your your comment around re doubling on the non sponsor effort.
Speaker Change: Yes.
Speaker Change: And you guys have.
Speaker Change: <unk> talked.
Speaker Change: <unk> talked quite a bit about over the years.
Speaker Change: The resources you have.
Speaker Change: Across the country on on within different markets to drive deal flow.
Speaker Change: When you talk about redoubling I mean, what is what exactly does that mean.
Speaker Change: It means that we have regular dialogue with our originators in our 12 regional locations, indicating to them that chasing on the run sponsor deals in today's market is likely to be low productivity.
Speaker Change: And asking them to work on developing more of the non sponsor opportunities.
Speaker Change: That involves talking to.
Speaker Change: CEO CFO steel brokers lawyers accountants wealth managers.
Speaker Change: In fact.
Speaker Change: In support of that non sponsor marketing activity I find myself in Denver. This morning.
Speaker Change: Where I joined our new Denver originator last night.
Speaker Change: For our non sponsor origination effort.
Speaker Change: That was targeted at about 35 or 40, a deal professionals in this Denver market and so things like that but I did last night, along with a number of efforts being taken by other members of the team.
Speaker Change: Have resulted in us doing a higher percentage of non sponsor deals than we did in 2022 or 2023, so in a normal market environment, we see somewhere between 20% to 30% of our deals being non sponsor.
Speaker Change: But in this market environment.
Speaker Change: Any given quarter, 30% to 50% of our deals are non sponsor.
Speaker Change: Okay.
Speaker Change: And.
Speaker Change: If you look across at least in the deck that you have here.
Speaker Change: Pretty consistent too.
Speaker Change: Two thirds one third.
Speaker Change: Sponsor versus non sponsor.
Speaker Change: Wherever overtime kind of assuming some of these competitive dynamics don't really shift and certainly they likely will but.
Speaker Change: Is there is there may be a renewed effort to to.
Speaker Change: Permanently take that non sponsored level higher within the portfolio, especially thinking about.
Speaker Change: Yes.
Speaker Change: Better pricing and better terms that you get with it.
Speaker Change: Yes, I would say that is likely at the moment virtually all sponsored deals are priced below sulfur 600. So the sponsor deals that we're doing will almost all not necessarily 100%, but almost all be targeted for the JV and it will be primarily non sponsored deal. So it will be going on to the.
Speaker Change: The BDC balance sheet.
Speaker Change: So if market conditions persist and their current manner I would expect to see the ratio of non sponsor deals on our portfolio rise over the next quarter to five quarters.
Speaker Change: Okay.
Speaker Change: And one more for me in terms of that non sponsor market.
Speaker Change: Who are you.
Speaker Change: The competitive dynamic like there or are you running into other public bdcs or different.
Speaker Change: Different.
Speaker Change: Different capital providers.
Speaker Change: If you get into the.
Speaker Change: Upper mid market and large cap market on non sponsored deals.
Speaker Change: You see a number of sponsor historically sponsor oriented players.
Speaker Change: Seeking volume because of how the markets are.
Speaker Change: And in some cases under pricing those deals, but in the core mid market and lower mid market, where sourcing non sponsored deals is a very organic and labor intensive effort because the big banks don't intermediate those deals.
Speaker Change: We see very limited competition are there are other players who participate in the sponsor mid market lower mid market.
Speaker Change: They include names like Comcast <unk>.
Speaker Change: G G and Goldman to name three.
Speaker Change: But there is no one competitor that we see consistently in that market and a lot of the mid market and lower midmarket non sponsored deals that we work on a we are working on a negotiated basis without any direct competition on the transactions that's not to say, there's not a recognition of those.
Speaker Change: As to what.
Speaker Change: Market pricing is but.
Speaker Change: But there is again very limited competition in the non sponsored space for organic origination as compared to the sponsor space. In fact, I would tell you. There are 20 times more players in the sponsor space than there are in the non sponsored space.
Speaker Change: Okay.
Speaker Change: Last one for me when we're looking at the.
Speaker Change: The yield compression for the quarter. It looks like 70 basis 0.70 basis points any any sense for how to think about that spread compression versus interest rate or lower base rates, what the impact is.
Speaker Change: Lower base rates and enjoy some you can confirm it I think they were about 50 basis points of the 70 compression, but we are seeing a combination of lower base rates and lower spreads.
Speaker Change: We on both our sponsor and non sponsor deals.
Speaker Change: During favorable market environments always seek to maximize our call protection and so we typically get.
Speaker Change: At least two years of call protection on sponsor deals and three to four years of call protection on non sponsor deals and that has been protecting some of our higher spread deals in portfolio, but as time passes you know you've got an entire year now where market pricing has been lower and so as those call protections either role.
Speaker Change: <unk> or step down we are going to see increased pressure to reprice deals to the current market level.
Speaker Change: And that market level.
Speaker Change: Is down 100 to 150 basis points from where it was in mid 2022 in mid 2023.
Speaker Change: Okay. That's that's not just for US I believe that is true.
Speaker Change: Cross the market, both sponsor and non sponsor where pricing has fallen.
Speaker Change: More in the sponsor market than it has in the non sponsor market and I believe that all of our competitors are dealing with a similar dynamic.
Speaker Change: Okay.
Speaker Change: I appreciate all the commentary.
Speaker Change: Thank you.
Speaker Change: Once again, ladies and gentlemen, another star one on your telephone keypad, if you'd like a signal for a question and we will pause for just a moment.
Speaker Change: As there are no further questions at this time, ladies and gentlemen that will conclude our question and answer session and the Whitehorse Finance third quarter 2024 earnings call.
Speaker Change: Thank you for your participation you may disconnect. Your line at this time and have a wonderful rest of your day.
Speaker Change: Thank you.
Speaker Change: Okay.
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