Q1 2025 WhiteHorse Finance Inc Earnings Call

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Operator: Good afternoon.

Margo: My name is Margo, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the WhiteHorse Finance First Quarter 2025 Earnings Conference Call. Our hosts for today's conference are Stuart Aronson, Chief Executive Officer, and Joyson Thomas, Chief Financial Officer. Today's call is being recorded and I will be made available for replay beginning at 5 p.m. Eastern time. The replay dial-in number is 402-220-0464. No passcode is required. At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at this time, please press star 1 on your telephone keypad.

Mark: Good afternoon, My name is Mark and I'll be your conference operator today at this time I'd like to welcome everyone to the Whitehorse Finance first quarter 2025 earnings Conference call. Our hosts for today's conference are Stuart Aronson, Chief Executive Officer enjoys some Thomas Chief Financial Officer, today's call is being recorded.

Mark: And I will be made available for replay beginning at five P. M. Eastern time replay dial in number is 402.

Mark: Who choose Euro 0464, no passcode is required.

Mark: 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.

Mark: He would like to ask a question at this time. Please press star one on your telephone keypad, if you wish to remove yourself from the queue press the pound key.

Operator: If you wish to remove yourself from the queue, press the pound key.

Robert Brinberg: It is now my pleasure to turn the floor over to Robert Brinberg of Rose & Company. Please go ahead.

Speaker Change: It's now my pleasure to turn the floor over to Robert Byrne 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 first quarter 2025 earnings results.

Speaker Change: Thank you operator, and thank you everyone for joining us today to discuss Whitehorse finances first quarter 2025 earnings result.

Robert Brinberg: 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 deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Because these forward-looking statements involve known and unknown risks and uncertainties, these are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements.

Speaker Change: 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 deemed forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, because these forward looking statements.

Speaker Change: Bob 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.

Speaker Change: 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 First Quarter 2025 Earnings presentation which was posted to our website yesterday afternoon.

Speaker Change: Today's speakers may refer to material from the Whitehorse Finance first quarter 2025 earnings presentation, which was posted to our website yesterday afternoon with that allow me to introduce Whitehorse finance to see Stuart Stuart.

Stuart Aronson: With that, allow me to introduce WhiteHorse Finance's CEO, Stuart Aronson. Stuart, you may begin. Thank you, Rob. Good afternoon. And thank you, everyone, for joining us today. As you're aware, we issued our earnings yesterday after market close, and I hope you've had a chance to review our results. The period ended March 31st, 2025, which can also be found on our website. On today's call, I will begin by addressing our first quarter results and current market conditions.

Speaker Change: Stuart you may begin.

Speaker Change: Thank you Rob good afternoon, and thank you everyone for joining us today as.

Speaker Change: As you're aware, we issued our earnings yesterday after market close and I hope you've had a chance to review our results for the period ended March 31, 2025, which can also be found on our website.

Speaker Change: On today's call I will begin by addressing our first quarter results and current market conditions persist and Thomas our Chief Financial Officer will then discuss our performance in greater detail after which we will open the floor for questions.

Stuart Aronson: Joyson Thomas, our Chief Financial Officer, will then discuss our performance in greater detail, after which we will open the floor for questions. Our results for the first quarter of 2025 were disappointing as our investment portfolio declined this quarter due to net realized and unrealized losses which impacted our financial performance. Q1 GAAP net investment income and core NII was $6.8 million, or $0.294 per share, compared with a quarterly distribution of $0.385 per share, and was below Q4 GAAP and core NII of $8 million, or $0.343 per share. NAV per share at the end of Q1 was $12.11 representing an approximate 1.6% decrease from the prior quarter.

Thomas: Our results for the first quarter of 2025 were disappointing as our investment portfolio declined this quarter due to net realized and unrealized losses, which impacted our financial performance.

Thomas: Q1, GAAP net investment income and core NII was $6 8 million or $29.04 per share compared with a quarterly distribution of <unk> 38, and a half cents per share.

Thomas: It's below Q4, GAAP and core NII of <unk> 8 million or $34.03 per share.

Thomas: And <unk> per share at the end of Q1 was $12 711, such representing an approximate one 6% decrease from the prior quarter.

Stuart Aronson: NAV per share was impacted by net realized losses and net markdowns in our portfolio totaling $2.6 million. Turning to our portfolio activity in Q1, we had gross capital deployments of $45.5 million, which was partially offset by total repayments and sales of $19.4 million, resulting in net deployments of $26.1 million. Gross capital deployments consisted of seven new originations totaling $40.8 million, with the remaining $4.7 million used to fund six add-ons to existing investment. In addition, there was $600,000 of net fundings made on revolver commitments. Of our seven new originations in Q1, one was non-sponsor and six were sponsor deals with an average leverage of only approximately 4.0 times EBITDA.

Thomas: <unk> per share was impacted by net realized losses, and net markdowns in our portfolio totaling $2 $6 million.

Thomas: Turning to our portfolio activity in Q1, we had gross capital deployments of $45 5 million, which was partially offset by total repayments and sales of $19 4 million.

Thomas: Ultimately net deployments of $26 1 million.

Thomas: Gross capital deployments consisted of seven new originations totaling 48 million with the remaining $4 seven used to fund six add ons to existing investments. In addition, there was 600000 of net fundings made on revolver commitments.

Thomas: Of our seven new originations in Q1, one was non sponsor and six were sponsor deals with an average leverage of only approximately 4.4 0.0 times EBITDA.

Stuart Aronson: All of our Q1 deals were first lien loans, with an average spread of 535 basis points and an average all-in rate of 9.7% compared with 9.8% in the fourth quarter of 2024. Total repayments and sales were $19.4 million, primarily driven by complete realizations in our positions in platform companies and Eversana and a partial sale of our position in ThermoDisc. At the end of Q1, 99.3% of our debt portfolio was first lien, senior secured, and our portfolio mix was approximately two-thirds sponsor and one-third non-sponsor. During the quarter, the BDC transferred three new deals and one existing investment to the STRS-JV.

Thomas: All of our Q1 deals for first lien loans with an average spread of 535 basis points and an average all in rate from nine 7% compared with nine 8% in the fourth quarter of 2024.

Thomas: Total repayments and sales were $19 4 million, primarily driven by complete realizations on our positions and platform companies and ever sort of parse.

Thomas: Partial sale of our position in some of our guests.

Thomas: At the end of Q1 99, 3% of our debt portfolio was first lien senior secured and our portfolio of mix was up approximately two third sponsor and one third non sponsor.

Thomas: During the quarter, the BGC transferred three new deals and one existing investment.

Thomas: S T R S JV.

Stuart Aronson: At the end of Q1, the STRS-JV portfolio had an aggregate fair value of $310.2 million and an average effective yield on the JV's portfolio of 10.8% compared to 11.1% in Q4. Leverage for the JV at the end of Q4 was 0.98 times compared with 0.88 times at the end of the prior quarter. We continue to successfully utilize the STRS-JV and believe WhiteHorse's equity investment in the JV continues to provide attractive returns for our shareholders. After net deployment, JV transfers, and net realized and unrealized losses, total investments increased by $8.8 million from the prior quarter to $651 million.

Thomas: At the end of Q1 the S. T. R. S. JV portfolio had an aggregate fair value of $310 2 million.

Thomas: On an average effective yield on the Jv's portfolio of 10, 8% compared to 11, 1% in Q4 levers.

Thomas: Leverage for the JV at the end of Q4 was 298 times compared with zero point 88 times at the end of the prior quarter.

Thomas: We continue to successfully utilized the <unk> JV and believe Whitehorse equity investment in the JV continues to provide attractive returns for our shareholders.

Thomas: After net deployment JV transfers and net realized and unrealized losses totaling investments increased by $8 8 million from the prior quarter.

Thomas: $651 million. This compares to our portfolios fair value of $642 2 million at the end of Q4.

Stuart Aronson: This compares to our portfolio's fair value of $642.2 million at the end of Q4. The weighted average effective yield on our income-producing debt investments decreased to 12.1% at the end of Q1, compared to 12.5% in the fourth quarter of 2024. The weighted average effective yield of our overall portfolio also decreased to 9.6% as of the end of Q1, compared to approximately 10.2% at the end of Q4.

The weighted average effective yield on our income producing debt investments decreased to 12, 1% at the end of Q1 compared to 12, 5% in the fourth quarter of 2024.

Thomas: The weighted average effective yield of our overall portfolio also decreased to nine 6%.

Thomas: As of the end of Q1 compared to approximately 10, 2% at the end of Q4.

Stuart Aronson: 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. We are working with experts within HIG to optimize the outcomes on the workout account. In general, in the portfolio, we continue to see relative softness from consumers, but relative stability in our non-consumer facing borrowers. So we are not seeing signs of a recession yet in our portfolio. We did an analysis of our portfolio before Liberation Day to assess the impact of tariffs on imports from Canada, Mexico, and China. That analysis indicated that less than 10% of our portfolio has either high or moderately high tariff risk, which is largely due to the fact that we are focused on the middle market and lower middle market, where companies are more inclined to be operating in the U.S.

Thomas: 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.

Thomas: Our working with experts within HIV to optimize the outcomes on the workout accounts in general of the portfolio, we continue to see relative softness from consumers, but relative stability in our non consumer facing borrowers. So we are not seeing signs of a recession yet in our portfolio.

Thomas: We did an analysis of our portfolio before liberation day to assess the impact of tariffs on imports from Canada, Mexico and China.

Thomas: That analysis indicated that less than 10% of our portfolio is either high or moderately high tariff risk, which is largely due to the fact that we are focused on the middle market and lower middle market, where companies are more inclined to be operating in the U S and have limited international risk. We also focus more on the service companies.

Stuart Aronson: and have limited international risk. We also focus more on service companies that are generally not exposed to tariff risk. After new tariffs were announced, we began to expand our tariff risk analysis for all other countries that might have larger tariffs. But given that many of the tariffs were put on hold for at least 90 days, and various tariff negotiations are currently ongoing, we continue to actively monitor the situation. During the quarter, we took write downs of $1 million, primarily driven by write downs in MSI Information Services, ABV Optical Group, and American Crafts. I'm pleased to say the American Crafts situation has now been fully resolved, eliminating any further downside from that investment.

Thomas: That are generally not exposed to tariff risk.

Thomas: After new tariffs were announced we began to expand our tariff risk analysis for all other countries that might have larger tariffs, but given that many of the tariffs were put on hold for at least 90 days in various tariff negotiations are currently ongoing we continue to actively monitor the situation.

Thomas: During the quarter, we took write downs of $1 million, primarily driven by write downs and MSI information services.

Thomas: The optical group in American crash.

Thomas: I am pleased to say the American cross situation has now been fully resolved eliminating any further downside from that investment.

Stuart Aronson: MSI was placed on non-accrual in the quarter. We're actively working with the owner of that company to see if they will support the company with additional capital. If they do not, we will prepare to either sell or operate the company. Non-accrual investments totaled 8.8% of the debt portfolio compared with 7.2% of the debt portfolio at fair value in the prior quarter. Due to the non-accrual levels, the earnings power of the BDC is compromised compared to where it was a year ago. We are actively working on getting deals off the non-accrual list, leveraging the expertise of our first five-person dedicated restructuring.

Thomas: MSI was placed on non accrual in the quarter were actively working with the owner of that company to see if they will support the company with additional capital if they do not we will prepare to either sell or operate the company.

Thomas: Nonaccrual investments totaled eight 8% of the debt portfolio compared with seven 2% of the debt portfolio at fair value in the prior quarter.

Thomas: Due to the non accrual levels the earnings power of the BDC is compromised compare it was too compared to where it was a year ago.

Thomas: We are actively working on getting deals often non accrual list leveraging the expertise of our first five person dedicated restructuring team.

Stuart Aronson: It has taken longer than we anticipated to get Telestream off of non-accrual but we do hope to get it off non-accrual this quarter. Our non-accrual investment in Telestream currently represents 3.5% and 3.3% of our portfolio based on the fair value and cost of debt portfolio respectively. Other deals on non-accrual other than MSI are likely to remain that way for some period of time.

Thomas: It has taken longer than we anticipated to get tell a stream off of non accrual, but we do hope to get them off non accrual this quarter.

Thomas: Non accrual investment Entellus stream currently represents three 5% and three 3% of our portfolio based on fair value and cost of debt portfolio respectively.

Thomas: Other deals on non accrual other than MSI are likely to remain that way for some period of time.

Stuart Aronson: In terms of the lending market, tariffs, along with the risk of recession, have impacted conditions. In particular, the M&A market has slowed down dramatically, as sellers do not want to sell into a negative sentiment. The broadly syndicated market is also backed up significantly, but with recent improvements in the tariff situation, may be opening up for some borrowers. As a result of the increased volatility in the markets, there was a 25 to 50 basis point increase in the price in the direct lending market, but over the last few weeks, most or all of that premium has gone away.

Thomas: Turning to the lending market tariffs along with the risk of recession have impacted conditions in particular, the M&A market has slowed down dramatically as salaries do not want to sell into a negative sentiment.

Thomas: The broadly syndicated market is also backed up significantly but with the recent improvements in the tariff situation may be opening up for some borrowers as a result of the increased volatility in the markets. There was a 25% to 50 basis point increase in the price and the direct lending market, but over the last few weeks, most or all of that.

Thomas: Premium has gone away.

Stuart Aronson: We've seen middle market pricing is currently SOFR 475 to SOFR 525, and lower mid-market spreads are approximately SOFR 500 to SOFR 575. We are also seeing more discipline in credit behavior in the market, with lenders being particularly careful about companies with tariff risk and cyclicality. We do continue to focus significant resources on the non-sponsor market where there are better risk returns in many cases and much less competition than what we're seeing in the on-the-run and off-the-run sponsor markets.

Thomas: Seen middle market pricing is currently still three or $4 75 to <unk> $5 25, and lower mid market spreads are approximately so for 500 or so for $5 75, which are also seeing more discipline on credit behavior in the market with lenders being particularly careful about companies some tariff risk cyclicality.

Thomas: We do continue to focus significant resources on the non sponsor market, where there are better risk returns in many cases and much less competition that what we're seeing in the on the run and off the run sponsor markets.

Stuart Aronson: We added a 13th coverage region in Q1 with new capabilities in Nashville, Tennessee, which will help with non-sponsor and off-the-run sponsor origination.

Thomas: We added the 13th coverage region in Q1 with new capabilities in Nashville, Tennessee, which will help with non sponsor and off the run sponsor origination.

Stuart Aronson: Subsequent to quarter end, the BDC has closed one new investment of $15.1 million and has had repayments of approximately $16 million, including one full realization.

Subsequent to quarter end. The BDC has closed one new investment of $15 1 million and had repayments of approximately $16 million, including one full realization.

Stuart Aronson: There were two existing investments fully transferred to the JV, totaling $11.1 million.

Thomas: There were two existing investments fully transferred to the JV totaling $11 1 million.

Stuart Aronson: Following net deployments activity in Q1, and pro forma for several transactions that have closed or that we expect to close in Q2 of 2025, the BDC balance sheet has very little capacity for new assets. That said, the JV has approximately 35 million of capacity, supplementing the BDC's existing capacity. Our overall sourcing is at normal levels despite the muted M&A activity as we are seeing a significant amount of deal flow relating to restructuring of deals that were done in 2019, 2020, and 2021 where companies are over levered and bringing in pick junior debt or pick preferred equity to fix the capital structure.

Thomas: Following net deployment activity in Q1 and pro forma for several transactions that have closed or that we expect to close in Q2 of 2025. The BDC balance sheet is very little capacity for new assets that said the JV has approximately $35 million of capacity.

Supplementing the bdcs existing capacity.

Thomas: Our overall sourcing is at normal levels. Despite muted M&A activity as we are seeing a significant amount of deal flow relating to restructuring and deals that were done in 2019 2020 in 2021, where companies are over levered and bringing in Pik junior debt for Pik preferred equity.

Thomas: Fixed a capital structure that said as you can imagine the quality of what we're seeing is lower than it was a year ago. So we do think fewer deals are going to convert to closure.

Stuart Aronson: That said, as you can imagine, the quality of what we're seeing is than it was a year ago. So we do think fewer deals are going to convert to closure.

Stuart Aronson: However, in some cases, we are finding interesting opportunities. Our pipeline is about 175 deals, which is slightly below the typical range for this time of year. We currently have five new mandates and are working on three add-ons to existing deals. Our five mandates are three sponsored deals and two non-sponsored deals.

Thomas: However in some cases, we are finding interesting opportunities. Our pipeline is about 175 deals which is slightly below the typical range for this time of year. We currently have five new mandates and are working on three add ons to existing deals or five mandates are three sponsored deals and two non sponsored deals while there can be no.

Stuart Aronson: While there can be no assurance that any of these deals will close, all of those credits would fit into the BDC, if it has room, or our JV, should we elect to transact.

Thomas: Should any of these deals will close all of those credits would fit into the BDC. If it has room or our JV should we elect to transact.

Joyson Thomas: With that, I'll turn the call over to Joyson for additional performance details and a review of our portfolio composition. Thanks, Stuart, and thank you, everyone, for joining today's call. During the quarter, we recorded GAAP Net Investment Income and Core NI of $6.8 billion, or $0.294 per share. This compares with Q4 GAAP NI and Core NI of $8 billion, or $0.343 per share, as well as our previously declared quarterly distribution of $0.385 per share. The fee income of approximately $0.5 million in Q1 was primarily due to a prepayment fee earned upon the full repayment in platform companies.

With that I'll turn the call over to Joyce and 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.

During the quarter, we recorded GAAP net investment income and core NII of $6 $8 million or $29 four per share. This.

Speaker Change: This compares with Q4, GAAP NII and core NII of <unk> 8 million or $34 <unk> per share as well as our previously declared quarterly distribution of $38.05 per share.

Speaker Change: Fee income of approximately zero point $5 million in Q1 was primarily due to a prepayment fee earned upon the full repayment and platform companies.

Joyson Thomas: For the quarter, we reported a net increase in net assets resulting from operations of $4.3 million. Our risk ratings during the quarter showed that approximately 74.1% of our portfolio positions either carried a 1 or 2 rating, slightly higher than the 72.5% reported in the prior quarter. As a reminder, a one rating indicates that a company has seen its risk of loss reduced relative to initial expectations, and a two rating indicates a company is performing according to such initial expectations. Quarter over quarter, we downgraded our investments in MSI from a three to a four rating. Additionally, our five rated positions slightly decreased from 1.3% to 1.2%.

Speaker Change: For the quarter, we reported a net increase in net assets, resulting from operations of $4 $3 million a.

Our risk ratings during the quarter showed that approximately 74, 1% of our portfolio positions either carried a one or two rating slightly higher than the 72, 5% reported in the prior quarter.

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

Speaker Change: <unk> over quarter, we downgraded our investments in MSI from a three to a 480 <unk>. Additionally, our five rated position slightly decrease from one 3% to one 2%.

Joyson Thomas: As Stuart mentioned earlier, American Crafts, a five rated position, which was written down to zero and part of our non-accruals as of the end of the first quarter, has now been resolved. We expect these positions to be removed from our non-accruals and portfolio listing in the second quarter, although not with the outcome we had expected. Regarding the JVs specifically, we continue to grow our investment. As Stuart mentioned earlier, in the first quarter, we transferred three new deals and one existing investment to the STRS-JV, totaling $17 million. As of March 31, 2025, the JVs portfolio held positions in 41 portfolio companies with an aggregate fair value of $310.2 million, compared with 38 portfolio companies at an aggregate fair value of $295 million as of December 31, 2024.

Speaker Change: As Stuart mentioned earlier American Crafts are five rated position, which was written down to zero and part of our non accruals at the end of the first quarter has now been resolved. We expect these positions to be removed from our non accruals and portfolio listing in the second quarter, although not with the outcome we had expected.

Speaker Change: Regarding the JV, specifically, we continue to grow our investment as Stuart mentioned earlier in the first quarter, we transferred three new deals and one existing big investments to Str's JV totaling $17 million.

Speaker Change: As of March 31, 2025, the Jv's portfolio held positions in 41 portfolio companies with an aggregate fair value of $310 2 million compared with 38 portfolio companies at an aggregate fair value of $295 million as of December 31, 2024.

Joyson Thomas: The investments in the JV continues to be accretive to the BDC's earnings, generating a mid-teens return on equity. During Q1, income recognized from a JV investment aggregated to $3.7 million, a slight decline from $4 million in Q4. 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, 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 $19.6 million at the end of Q1, including $8.2 million in restricted cash and approximately $165 million of undrawn capacity available under a revolving credit facility.

Speaker Change: The investments in the JV continues to be accretive in the Bdc's earnings excuse me to the Bdc's earnings generating a mid teens return on equity.

Speaker Change: <unk> Q1 income recognized from a JV investment aggregating to $3 $7 million.

A slight decline from $4 million in Q4 as.

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 the changes in asset yields in the underlying portfolio as well as the overall credit performance at the JV investment portfolio.

Speaker Change: Turning to our balance sheet, we had cash resources of approximately $19 6 million at the end of Q1, including $8 2 million in restricted cash and approximately $165 million of undrawn capacity available under our revolving credit facility.

Joyson Thomas: As of March 31st, 2025, the company's asset coverage ratio for borrowed amounts, as defined by the 1940 Act, was 177.2%, which was above the minimum asset coverage ratio of 150%. Our Q1 net effective debt-to-equity ratio, after adjusting for cash on hand, was approximately 1.23 times, compared with 1.15 times from the prior quarter. We continue to monitor the debt capital markets and recent offerings in both the retail and institutional space, as well as recent securitization transactions, and we may explore opportunities to either optimize or refinance your capital structure as and when they present themselves and depending on market conditions.

Speaker Change: As of March 31, 2025, the company's asset coverage ratio for BARDA mounts as defined by the 1940 Act was 177, 2%, which was above the minimum asset coverage ratio of 150%.

Speaker Change: Our Q1 net effective debt to equity ratio after adjusting for cash on hand was approximately $1 two three times compared with $1 one five times from the prior quarter.

Speaker Change: We continue to monitor the debt capital markets and recent offerings in both the retail and institutional space as well as recent securitization transactions and we may explore opportunities to either optimize or refinance our capital structure as and when they present themselves and depending on market conditions.

Joyson Thomas: Before I conclude and open up the call to questions, I'd again like to highlight our distributions. Yesterday after market close, we announced that our board declared a first quarter distribution of 38.5 cents per share, which is consistent with the prior quarter. The upcoming regular distribution, the 51st 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 July 3rd, 2025 to stockholders of record as of June 19th, 2025. As we've said previously, we will continue to evaluate our quarterly distribution, both in the near and medium term, based on the core earnings power of our portfolio, in addition to other relevant factors that may warrant consideration.

Before I conclude and open up the call to questions I'd again like to highlight our distributions yesterday after market closed we announced that our board declared a first quarter distribution of $38.05 per share, which is consistent with the prior quarter.

Speaker Change: The upcoming regular distribution the 50 <unk> consecutive quarterly distribution paid since our IPO in December 2012, with all distributions at or above the rate of $35.05 per share per quarter will be payable on July three 2025 to stockholders of record as of June 19th 2025.

Speaker Change: As we've said previously we will continue to evaluate our quarterly distribution both in the near and medium term based on the core earnings power of our portfolio. In addition to other factors that may warrant consideration and with that I'll now turn the call back over to the operator for your questions operator.

Operator: And with that, I'll now turn the call back over to the operator for your questions. Operator? Thank you. At this time, if you'd like to ask a question, please press the star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 for a question.

Speaker Change: Thank you at this time, if you'd like to ask a question. Please press star one on your telephone keypad, you may remove yourself from the queue at any time by pressing star to once again that is star one for a question.

Melissa Wedel: While that queue builds, we'll take our first question from Melissa Wedel with J.P. Morgan. Please go ahead. Good afternoon. Thanks for taking my questions today.

Speaker Change: Well that SKU builds we will take our first question from Melissa Wedel with JP Morgan. Please go ahead.

Melissa Wedel: Good afternoon, Thanks for taking my questions today.

Melissa Wedel: I wanted to start and make sure I'm understanding what you laid out for us in terms of Telestream and returning that back to accrual status. That sounded like potentially a near term. effect or a near-term development? Is that fair to say? Yes, we've made progress. We thought we would have a restructuring completed on Telestream last quarter, but the situation did stretch out. We now hope to get the restructuring done by the end of May, which gives us a month of cushion vis-à-vis another month before the end of the quarter. And we would plan to convert a large portion of the existing debt back into cash paying debt that would go on accrual, and any amount that was not cash paid debt would be converted to equity where we'd have long-term upside in our ownership of the company.

Speaker Change: Yes, Sir.

Speaker Change: And make sure I'm understanding.

Speaker Change: What you laid out for us in terms of Telus Dream, and returning that back to accrual status.

Speaker Change: It sounded like potentially in near term.

Speaker Change: The fact is that our near term development is that fair to say.

Speaker Change: Yes, we've made progress we thought we would have a restructuring completed at <unk> stream last quarter.

Speaker Change: But the situation does stretch out.

Speaker Change: We now hope to get the restructuring done by the end of May which gives us a month of cushion visa.

Speaker Change: Another month before the end of the quarter.

Speaker Change: And we would plan to convert.

Speaker Change: A large portion of the existing debt back into cash paying debt that would go on accrual and any amount that was not cash pay debt would be.

Speaker Change: Converted to equity, where we'd have long term upside in our ownership of the company.

Stuart Aronson: Okay, I appreciate the context on that one. Given the way the investments listed on the statement of investments as of March 31st, and based on the rate listed there as well, it looks like in a full pay quarter at the current fair value, that could mean a couple cents per share in terms of incremental NII just by returning to accrual status. Are we thinking about that the right way? Again, part of the debt would return to accrual status. We're still working on how much of it would return. And the rate on the debt would be set, given that we'd be reducing the amount of debt on the company, the rate on the debt would be set at a more market rate to today's market.

Speaker Change: Okay I appreciate the context on that one given the way the investments listed on the statement of investments as of March 31, and based on the rate.

Speaker Change: Listed there as well it looks like.

Speaker Change: And a full quarter at the current fair value that could mean, a couple of cents per share in terms of incremental NII just by returning to accrual status or are we thinking about that the right way.

Speaker Change: Again part of the debt would return to accrual status, we're still working out how much of it would return and the rate on the debt would be set given that would be reducing the amount of debt on the company the rate on the debt would be set at a more market rate to today's market.

Stuart Aronson: Again, that number has not been confirmed yet. So it certainly will be accretive, but it will not be accretive as it would have been had the rate stayed, I think, at SOFR 975. Right. Okay.

Speaker Change: Again that number has not been confirmed yet so got it.

Speaker Change: Certainly will be accretive, but it will not be accretive as it would have been had the rates stayed I think it so for 975.

Operator: Thank you so much for the contact. No problem. Thank you. And as a reminder, ladies and gentlemen, that is star one for a question. We'll pause for a moment.

Speaker Change: Great. Okay. Thank you so much for the context.

Speaker Change: No problem.

Speaker Change: Thank you and as a reminder, ladies and gentlemen that is star one for a question, we'll pause for a moment.

Robert Dodd: We'll take our next question from Robert Dodd with Raymond James, please go ahead. Hi guys, I apologize for the background noise. On the dividend, can you give us an update on spillover? If I recall correctly, basically doesn't that spillover effectively mandate near maintenance of the current base? So when you talk about reviewing the dividend in the near term, can you give us any color? I mean, obviously you could lower that, then distribute spillover some other way. What's the thought process on where that might shake out for 2025, obviously? Robert, so as of the end of last year, and as we had mentioned in last quarter's earnings call, the spillover income was approximately $28.4 million, and I think the way to think about it is currently right now, with a 38.5 cent per share dividend run rate, that equates to approximately $8.95 million of distributions being currently distributed.

Robert Dodd: We'll take our next question from Robert Dodd with Raymond James. Please go ahead.

Robert Dodd: Hi, guys.

Speaker Change: Just as background noise.

Speaker Change: David can you give us update spill over.

Speaker Change: The call correctly.

Speaker Change: Spillover.

Speaker Change: Effectively.

Speaker Change: <unk>.

Speaker Change: Maintenance.

Speaker Change: So would you say about the viewing the dividend.

Speaker Change: Can you give us any color.

Speaker Change: Good luck with that and then just stop.

Speaker Change: So by the way.

Speaker Change: The process is one where that might shake out.

Speaker Change: So much volume obviously.

Speaker Change: There's spillover gets dealt with this year that 2026.

Robert Dodd: Robert I'll, just start with the spillover.

Speaker Change: Yes, absolutely Robert so as of the end of last year and as we had mentioned in last quarter's earnings call. The spillover income was approximately $28 4 million.

Robert Dodd: And I think the way to think about it is currently right now.

Robert Dodd: With the $38.05 per <unk> per share dividend run rate that equates to approximately $8 $95 million of distributions being currently distributed.

Robert Dodd: I would also just highlight maybe the dividend shortfall for Q1, meaning the 29.4 cents per share NII versus the 38.5 cent per share current dividend, which equates to about a $2.1 million shortfall.

Robert Dodd: I would also just highlight maybe the dividend shortfall for Q1, meaning the $29 four per share NII versus the $38.05 per share.

Robert Dodd: Current dividend, which equates to about a $2 $1 million shortfall. So hopefully that helps in maybe framing the discussion in the store I don't know if you wanted to touch on maybe just thoughts with the board in our discussions around the dividend.

Stuart Aronson: So hopefully that helps in maybe framing the discussion, and Stuart, I don't know if you want to touch on maybe just thoughts with the board and our discussions around the dividend. Yes. We have some upside in our earnings from the continued deployment of balance sheet assets, which are planned with the mandated deals, but not certain because we're not sure those deals will close. We also pick up some income from the JV. We see an opportunity that we may take to lower our borrowing cost, which would also be accretive to the dividend. As we discussed, there's the likelihood that Telestream comes partially back onto accrual, and MSI, fingers crossed, will potentially come back on accrual, which would all help the earning stream of the BDC.

Yes.

Robert Dodd: We have some upside in our earnings from <unk>.

Robert Dodd: The continued deployment of balance sheet assets, which.

Robert Dodd: Our planned with the mandated deals, but not certain because we're not sure those deals will close we also pick up some income.

Robert Dodd: The JV.

Robert Dodd: We see an opportunity that we may take advantage of to lower our borrowing cost, which would also be accretive to the dividend.

Robert Dodd: And.

As we discussed there is the likelihood that <unk> comes partially back onto accrual and MSI fingers crossed we'll.

Robert Dodd: Actually come back on accrual, which would all help the earnings stream at the BDC that said as I said in my prepared remarks.

Stuart Aronson: That said, as I said in my prepared remarks, there are a number of accounts that will not be coming back on accrual in the near term. The board is evaluating all of these things I just mentioned vis-a-vis what the distribution rate is to come up with a view on what the proper dividend is, whether it's the current $0.385 or some different level. We are waiting for more of this information to play out to have a clearer picture of the core earning stream of the BDC before making any decisions on the dividend, but we've had active conversation with our board.

Robert Dodd: There are a number of accounts that will not be coming back on accrual in the near term and so the board is evaluating all of these things I just mentioned.

Robert Dodd: Vis vis what the distribution rate has to come up with a view on what the proper dividend is whether it's the current 38 asset or some different levels and we are waiting for more of this information to play out to have a clearer picture picture of the core earnings stream at the BDC.

Robert Dodd: Before making any decisions on the dividend, but we've had active conversation with our shareholders sorry with our board.

Robert Dodd: Got it.

Robert Dodd: Thank you.

Speaker Change: Got it. Thank you and then just one more if I can what do you see.

Robert Dodd: And then just one more, if I can. I mean, what are you seeing, and again, I apologize for the background noise, in kind of the market in terms of bid-ask spread between, you know, buyers and sellers? I mean, in a period of, it looked early in the year that we might see more activity, and I'm talking about generally market, I just told you guys at this point. But then, you know, additional volatility, sometimes, you know, it pulls back the bid, but the ask doesn't necessarily move as quickly. I mean, what are your thoughts on how that might play out in terms of volatility between what buyers, I mean, what buyers are willing to pay, but maybe the sellers are more sticky on their asking questions?

Robert Dodd: Again I apologize.

And kind of the market in terms of.

Speaker Change: Spread between buyers and sellers.

Robert Dodd: It.

Robert Dodd: Early in the year that we might see more activity.

Speaker Change: And I'm talking about generally Mark just you guys, but.

Speaker Change: Did you still volatility sometimes it flows back to bid.

Speaker Change: So it doesn't necessarily move as quickly.

Speaker Change: Have your thoughts on how that might play out.

Speaker Change: Utility between.

Amit: Hi, Amit.

Bill: Hey, Bill.

Speaker Change: The sellers are more sticky.

Asking prices.

Stuart Aronson: Robert, what we're seeing right now is for companies that are in the market that are good companies that don't have significant tariff risk or recession risk, those companies are trading at very high multiples. There's a lot of unused capital sitting in the private equity community, and there is a strong motivation for private equity firms to get that capital deployed. So, if you have a good company to sell, we are seeing good prices on those, and buyers and sellers are meeting in the middle. That said, there are a lot of companies that have recession risk involved in their operations and or tariff risk, and we're finding buyers are being very careful and conservative.

Speaker Change: Robert what we're seeing right now is for companies that are in the market.

Speaker Change: That are good companies that don't have.

Speaker Change: Significant tariff risks or recession risk.

Speaker Change: Those companies are trading at very high multiples.

Speaker Change: There's a lot of capital unused capital.

Speaker Change: Sitting in the private equity community and there is a store.

Speaker Change: Strong motivation for private equity firms to get that capital deployed.

Speaker Change: So if you have a good company to sell.

Speaker Change: We are seeing good prices on those buyers and sellers are meeting in the middle that said there are a lot of companies.

Speaker Change: That have recession risk involved in their operations and or tariff risk and we're fine binder, finding buyers are being very careful and conservative.

Stuart Aronson: And so in those cases, buyers and sellers are not necessarily reaching agreement.

Speaker Change: And so in those cases.

Speaker Change: Buyers and sellers are not necessarily reaching agreement.

Stuart Aronson: And then ever since the announcement on Liberation Day, the M&A market has backed up a lot. We are led to understand from the bankers that we talked to that there was a pretty solid pipeline of M&A activity that was scheduled for the balance of the year. Many of those deals have been put on the shelf for the clarity in the market to come out based on the tariff negotiations and the announcements of underlying economic activity in the economy. Based on that, we largely expect that M&A activity is going to remain muted for the next 60 to 90 days.

Speaker Change: And then ever since.

Speaker Change: The announcements of Liberation day.

Speaker Change: The M&A market has backed up a lot.

Speaker Change: We are led to understand from the bankers that we talk to.

Speaker Change: If there was a pretty solid pipeline of M&A activity that was scheduled for the balance of the year.

Speaker Change: Many of those deals have been put on the shelf for the moment.

Speaker Change: Waiting for more clarity in the market.

Speaker Change: Two.

Speaker Change: To come out based on the tariff negotiations and the announcements of underlying economic activity.

Speaker Change: In the economy.

Speaker Change: Based on that.

Speaker Change: We largely expect that M&A activity is going to remain muted.

Speaker Change: For the next 60 to 90 days.

Stuart Aronson: And then if M&A does start to pick up in Q3, there's typically a 4 to 12-week delay between the time the M&A activity picks up and any financing activity gets going. So even though our pipeline, on the strength of our 25 originators and 13 local markets, is reasonably strong. We have 175 deals in pipeline, which is more or less normal for this time of year. The quality of the deals is not as high as we've seen in the past. And we think of new M&A transactions with new money equity coming in as being, you know, typically the highest quality of deals.

Speaker Change: And then if M&A does start to pick up in Q3.

Speaker Change: There is typically a four to 12 week delay between the time, the M&A activity picks up and any financing activity gets going.

So even though our pipeline on the strength of our 25 originators 13 local markets is reasonably strong we have 175 deals in pipeline.

Which is more or less normal for this time of year.

The quality of the deals is not as high as we've seen in the past and we think of new M&A transactions with new money equity coming in as being.

Speaker Change: Typically the highest quality of deals.

Stuart Aronson: And so we think closure rates are going to be slower.

Speaker Change: And so we think closure rates are going to be slower and therefore.

Robert Dodd: And therefore, when you look from Q2 into Q3, we expect a relative Q2 so far is shaping up to be a solid quarter with the one deal closed and five deals mandated and three more add-ons, but we are cautious as to the environment for deals to close in Q3. Thank you for that, Kala. Thanks so much. No problem, Robert. Thank you. As a reminder, that is Star 1 for a question.

Speaker Change: When you look from Q2 into Q3.

Speaker Change: We expect a relative.

Speaker Change: Quiet period in terms of new deal closure.

Speaker Change: Q2.

Speaker Change: So far is shaping up to be a solid quarter with one deal closed five deals mandated and three more add ons.

Speaker Change: But we are cautious.

Speaker Change: The environment for deals to close in Q3.

Speaker Change: Thank you for that color. Thanks, a lot.

Robert Dodd: No problem Robert Thank you.

Speaker Change: A reminder, that is star one for a question. We will go next again to Melissa Wedel with JP Morgan.

Melissa Wedel: We'll go next again to Melissa Wedel with J.P. Morse. Hi, thanks. One quick follow-up. I know that last quarter you talked about anticipating some elevated repayment activity this year, wondering how you're thinking about that now and whether those expectations have moderated. Thanks. Melissa, when the markets got unsettled about a month ago and spreads moved up, we saw repayment activity, forward repayment activity, slow down. The markets, as I indicated in the prepared remarks, have largely recovered and spreads are back to where they were a couple months ago. So we do think that there will be a decent amount of refinancing activity in the second half of the year as prepayment penalties on higher rate deals expire.

Melissa Wedel: Hi, Thanks, one quick follow up I know that last quarter, you talked about anticipating some elevated repayment activity this year.

Speaker Change: Wondering how youre thinking about that now and whether those expectations have moderated.

Robert Dodd: Melissa when the markets got unsettled about a month ago.

Speaker Change: And spreads moved up.

Speaker Change: We saw repayment activity.

Speaker Change: Forward repayment activity slowdown.

Speaker Change: So as I indicated in the prepared remarks have largely recovered.

Speaker Change: And spreads are back to where they were a couple of months ago.

Speaker Change: So we do think that there will be a decent amount of refinancing activity in the second half of the year.

Speaker Change: As prepayment penalties on higher rate deals.

Speaker Change: Spire.

Stuart Aronson: In the case of credits that we like, we will try to keep those credits at the current market pricing and in the case of credits that we think do not deserve the lower pricing, we will let those credits go. But it's too early to indicate now what will happen over the course of the balance of the second quarter into Q3 and Q4. I will tell you that right now, the visible repayment pipeline that we have is pretty light. So I can think of a couple companies that are potentially coming out for sale over either now or over the next couple of months.

Speaker Change: In the case of credits that we like.

Speaker Change: We will try to keep those credits.

Speaker Change: At the current market pricing.

Speaker Change: And in the case of credits that we think.

Speaker Change: Do not deserve the lower pricing.

Speaker Change: We will let those credits go but it's too early to indicate now.

Speaker Change: What will happen over the course of the balance of the second quarter into Q3, and Q4 I will tell you that right now.

Speaker Change: Visible repayment pipeline that we have is pretty wide.

So.

Speaker Change: I can think of a couple of companies that are potentially coming out for sale.

Speaker Change: Over either now or over the next couple of months.

Stuart Aronson: And if those sales transact, they will result in repayment activity. But that's only two or three of the companies in portfolio. So we're not seeing really heightened repayment activity at the moment.

Speaker Change: And if those sales transact. They will result in a repayment activity, but thats only two or three of the company's <unk> portfolio.

Speaker Change: So we're not we're not seeing really heightened retained catastrophe at the moment.

Melissa Wedel: Thank you.

Speaker Change: Thank you.

Operator: As there are no further questions at this time, that will conclude our question and answer session and the WhiteHorse Finance first quarter 2025 earnings call. You may now disconnect. Thank you.

Speaker Change: As there are no further questions at this time that will conclude our question and answer session and the Whitehorse Finance first quarter 2025 earnings call you may now disconnect.

Speaker Change: Thank you.

Operator: and The Daily Show. All right. See you next time, everyone. Thank you.

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