Q2 2026 WhiteHorse Finance Inc Earnings Call
Speaker #1: Horse Finance, Q2 2026, earnings conference call. Our host for today's call are Mr. Stuart Aronson, Chief Executive Officer, and Mr. Joyson Thomas, Chief Financial Officer.
Speaker #2: you.
Speaker #1: Today's call is being recorded and a replay is available through a webcast in the Investor Relations section of our website, at whitehorsefinance.com. 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.
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Speaker #1: And lastly, if you should require operator assistance, please press *0. It is now my pleasure to turn the call over to Mr. Robert Brinberg of Rose & Company.
Speaker #1: Please go ahead, sir.
Speaker #2: Thank you, Bill, and thank you, everyone, for joining us today to discuss WhiteHorse Finance's Q2 2026 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 deemed forward-looking statements within the meaning of the private securities litigation reform act of 1995.
Speaker #2: Please stand by. Your meeting is about to begin.
Speaker #2: begin.
Speaker #2: Good afternoon, everyone. My name is Beau, and I
Speaker #2: will be your conference operator
Speaker #2: Today, at this time, I would like to welcome
Speaker #2: 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 #2: everyone to the WhiteHorse Finance
Speaker #2: Q2 2026 earnings
Speaker #2: conference call. Our host for today's call
Speaker #2: are Mr. Stuart Aronson, Chief
Speaker #2: Executive Officer, and Mr. Joyson
Speaker #2: Thomas, Chief Financial Officer.
Speaker #2: Today's call is being recorded, and a replay is
Speaker #2: WhiteHorse Finance assumes no obligation or responsibility to update any forward-looking statements. Today's speakers may refer to material from the WhiteHorse Finance Q2 2026 earnings presentation, which was posted on our website yesterday.
Speaker #2: available through a webcast in the
Speaker #2: Investor Relations section of our
Speaker #2: website, at
Speaker #2: whitehorsefinance.com. At this time, all
Speaker #2: Participants have been placed in a
Speaker #2: listen-only mode, and the floor will be open for your questions.
Speaker #2: questions following the
Speaker #2: presentation. If you would like to ask a question at that
Speaker #2: With that, allow me to introduce WhiteHorse Finance's CEO, Stuart Aronson. Stuart, you may begin.
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Speaker #3: Thank you, Rob. Good afternoon, everyone. And thank you 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 for the period ending June 30, 2026, which can also be found on our website.
Speaker #2: two and, lastly, if you should require
Speaker #3: Please stand by. Your meeting is about to begin. Good afternoon, everyone. My name is Beau, and I will be your conference operator today. At this time, I would like to welcome everyone to the WhiteHorse Finance second quarter 2026 earnings call.
Speaker #2: operator assistance, press star
Speaker #2: Zero. It is now my pleasure to turn the call over.
Speaker #2: to Mr. Robert Brinberg of Rose &
Speaker #2: Company. Please go ahead,
Speaker #2: sir.
Speaker #3: Thank you, Beau. And thank you,
Speaker #3: everyone, for joining us today to
Speaker #3: discuss WhiteHorse Finance's
Speaker #3: conference call. Our host for today's
Speaker #3: Q2 2026 earnings
Speaker #3: On today's call, I'll begin by addressing our Q2 results and current market conditions, then Joyson Thomas, our Chief Financial Officer, will discuss our performance and greater detail.
Speaker #3: results. Before we begin, I'd like to
Speaker #3: On the call are Mr. Stuart Aronson, Chief Executive Officer, and Mr. Joyson Thomas.
Speaker #3: remind everyone that certain
Speaker #3: Thomas, Chief Financial Officer.
Speaker #3: statements will be based on
Speaker #3: Today's call is being recorded, and a replay is
Speaker #3: historical facts made during this
Speaker #3: call, including any statements relating to
Speaker #3: available through a webcast in the
Speaker #3: investor relations section of our
Speaker #3: financial guidance may be
Speaker #3: After which, we will open the floor for questions. At a high level, our Q2 results reflect three main themes. One, net asset value per share increased primarily driven by unrealized gains in one of our existing workout accounts.
Speaker #3: website, at
Speaker #3: deemed forward-looking statements within the
Speaker #3: whitehorsefinance.com. At this time, all
Speaker #3: meaning of the private securities
Speaker #3: Participants have been placed in a
Speaker #3: litigation reform act of
Speaker #3: 1995. Because these
Speaker #3: listen-only mode, and the floor will be open for your questions.
Speaker #3: questions following the
Speaker #3: forward-looking statements involve known and
Speaker #3: presentation. If you would like to ask a question at that
Speaker #3: unknown risks and
Speaker #3: Uncertainties—these are important factors that
Speaker #3: At this time, please press star one on your phone.
Speaker #3: telephone. If at any point your question
Speaker #3: Two, share repurchases during the quarter. Again, provided a meaningful benefit to NAV per share accretion. And three, core earnings moderated relative to the prior quarter, reflecting a portfolio yield that was impacted as a result of a smaller average portfolio size as well as our loan investment in outward hound going on to non-accrual status in the first quarter.
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Speaker #3: two. And lastly, if you should require
Speaker #3: operator assistance, please press star
Speaker #3: Zero. It is now my pleasure to turn the call over.
Speaker #3: to Mr. Robert Brinberg of Rose &
Speaker #3: Company. Please go ahead,
Speaker #3: sir.
Speaker #4: Thank you, Beau, and thank you,
Speaker #4: everyone, for joining us today to
Speaker #4: discuss WhiteHorse Finance's second
Speaker #4: quarter 2026 earnings
Speaker #4: results. Before we begin, I'd like
Speaker #4: to remind everyone that certain
Speaker #3: Touching more specifically on unrealized appreciation in the portfolio, and following the markdowns that weighed on the first quarter's results that we had previously flagged, our portfolio marks turned net positive for this quarter, grossed unrealized depreciation of $7.1 million, was offset by just $1.4 million of gross depreciation, with the substantial majority of the portfolio unchanged quarter over quarter.
Speaker #4: statements which are not based on
Speaker #4: historical facts made during this
Speaker #4: call, including any statements relating to
Speaker #4: financial guidance, may be deemed
Speaker #4: forward-looking statements within the meaning
Speaker #4: of the private securities
Speaker #4: litigation reform act of
Speaker #4: 1995. Because these
Speaker #4: forward-looking statements involve known and
Speaker #4: unknown risks and
Speaker #4: Uncertainties—these are important factors that
Speaker #4: could cause actual results to
Speaker #4: differ materially from those
Speaker #4: expressed or implied by these forward-looking statements.
Speaker #3: That markups were led by our position at Starko, also known as Chase Products or Pressurized Holdings, where the markup on our equity investment contributed approximately $4.8 million, or roughly $22 a share.
Speaker #4: statements.
Speaker #4: WhiteHorse Finance assumes no obligation
Speaker #4: or responsibility to update any
Speaker #4: forward-looking
Speaker #4: statements. Today's speakers may refer to
Speaker #4: material from the WhiteHorse Finance second quarter 2026 earnings presentation, which was posted on our
Speaker #3: I will provide more detail on the markup in Chase as well as provide an update on the number of other investments in our portfolio later in this call.
Speaker #3: Turning to our financial results, Q2 gap net investment income and core NII were each $4.7 million, or $21.7 per share, compared with Q1 gap net investment income and core NII of $5.6 million, or $25.3 per share last quarter.
Speaker #3: NAV per share at the end of Q2 was up to $1,177, compared with $1,147 at the end of Q1, an increase of approximately 2.6%.
Speaker #3: The change in NAV reflected net realized and unrealized gains, of approximately $26.5 per share in the aggregate, as well as share repurchases that were accretive to NAV by more than $0.06 per share, partially offset by the approximate $3.3 per share NII shortfall as a result of the distribution paid during the quarter that exceeded the net investment income for the period.
Speaker #3: A detailed bridge of the quarter over quarter change in the NAV per share is provided on slide 15 of our earnings presentation. Even though our NII this quarter was below the quarterly distribution rate as I've shared, in the past we have a number of restructured credits that have been equitized that are not producing NII but are likely to be realized either later this year or in 2027.
That markup was led by our position in Starko, also known as Chase Products or Pressurized Holdings, where the markup on our equity investment contributed approximately $4.8 million, or roughly $0.22 per share.
I will provide more detail on the markup in Chase, as well as provide an update on the number of other investments in our portfolio later in this call.
Speaker #3: Those realizations should add to the BDC's NII generating capability. Turning to shareholder value, our shares have continued to trade at a meaningful discount to NAV, and both management and the board remain focused on actions that we believe can help enhance shareholder value over time.
Turning to our financial results, Q2 gaap, net investment income and core knee, where each 4.7 million or 21.7 cents per share compared with q1 gap. Net investment income and core nii of 5.6 million or 25.3 cents per share last quarter.
NAV per share at the end of Q2.
Speaker #3: So far, that focus has included discipline portfolio repositioning, selective capital deployment, accretive share repurchases, and steps to support distributable earnings. Management and the board continue to explore other options as well.
Speaker #3: We remained active under the board's expanded share repurchase program through the first two months of the Q2, and those repurchases were accretive to NAV, as I mentioned earlier.
Is up to 1177 compared with 1147 at the end of q1. An increase of approximately 2.6%, the change in nav. Reflected net realized and unrealized gains of approximately 26 and a half cents per share in the aggregate. As well as share repurchases that were created to NAB by more than 6 cents per share, partially offset by the approximate 3.3 cents, per share and III shortfall as a result of the distribution paid during the court.
Speaker #3: We paused repurchase activity in late May. That decision reflects the balance we look to strike between buying back shares at a meaningful discount to NAV, which is accretive, and the corresponding reduction in equity, which raises our leverage ratio levels and competes with the capital we can put in to newly originated investments.
Order that exceeded in that investment income for the period.
Speaker #3: Capacity remains available under the repurchase program, and we will continue to assess recommending repurchases as a part of our broader strategy of seeking ways to create shareholder value.
A detailed bridge of the quarter-over-quarter change in the NAV per share is provided on slide 15 of our earnings presentation. Even though our NII this quarter was below the quarterly distribution rate, as I've shared in the past, we have a number of restructured credits that have been equitized that are not producing NII but are likely to be realized either later this year or in 2027.
Those realizations should add to the BDC's NII-generating capability.
Speaker #3: Joyson will provide additional detail on the quarter's repurchase activity. In addition, the advisor has agreed to extend the temporary voluntary incentive fee waiver for the third quarter of 2026, reducing the applicable rate from 20% to 17.5%.
Turning to shareholder value, our shares have continued to trade at a meaningful discount to NAV, and both management and the Board remain focused on actions that we believe can help enhance shareholder value over time.
Speaker #3: We view the fee waiver as a constructive step to support distributable earnings, and shareholder value, as we have said previously, this fee waiver is temporary and any decision regarding future periods will be revisited based on the then-current conditions and in consultation with the board.
So far, that focus is included: discipline, portfolio, repositioning.
Selective capital deployment, creative share repurchases, and steps to support distributable earnings management are discussed in the board. We continue to explore other options as well.
Speaker #3: We have also been encouraged by the alignment shown through continued open market purchases by our offices and directors during the Q2 as disclosed on Form 4 filings.
We remained active under the board's expanded share repurchase program through the first two months of the second quarter, and those repurchases were accretive to NAV, as I mentioned earlier.
Speaker #3: We believe that reflects our confidence in the underlying value of WhiteHorse Finance. Turning to portfolio activity, we had gross capital deployments of $25.4 million in Q2, repayments and sales were muted during the quarter, and offset gross deployments by approximately $2.2 million, resulting in net deployments of approximately $23.2 million before the effects of transferring assets into the STRS-JV.
We paused repurchase activity in late May. That decision reflects the balance we look to strike between buying back shares at a meaningful discount to NAV, which is accretive, and the corresponding reduction in equity, which raises our leverage ratio levels and competes with the capital we can put into newly originated investments.
Capacity remains available under the repurchase program, and we will continue to assess recommending repurchases as part of our broader strategy of seeking ways to create shareholder value.
Speaker #3: Gross capital deployments consisted of three new originations totaling $23.1 million, with the remaining amount deployed to fund add-ons to five existing portfolio companies, the three new originations were headlined by two former WhiteHorse borrowers, Empire Office for $10.1 million, and intermediate cloud communications for $6.6 million, as one as well as one new portfolio company borrower.
In addition, the advisor has agreed to extend the temporary voluntary incentive fee waiver for the third quarter of 2026, reducing the applicable rate from 20% to 17.5%. We view the fee waiver as a constructive step to support distributable earnings and shareholder value. As we have said previously, this fee waiver is temporary, and any decision regarding future periods,
Speaker #3: Vibration mountings and controls, for $6.4 million. Of our three new originations in Q2, one was non-sponsor and two were sponsor. The sponsor deals are targeted to be transferred to the STRS-JV.
Will be revisited based on the then-current conditions and in consultation with the Board.
Speaker #3: Our new originations in Q2 had an average leverage of approximately 4.2 times EBITDA and were all first lien loans. Total repayments and sales of $2.2 million were driven by partial pay downs with no full realizations during the quarter.
We have also been encouraged by the alignment shown through continued open market purchases by our officers and directors during the second quarter, as disclosed on Form 4 filings. We believe that reflects our confidence in the underlying value of WhiteHorse Finance.
Speaker #3: During the quarter, the BDC transferred two new deals to the STRS-JV, totaling $7.8 million. The transfers were headlined by industrial service solutions at $5.1 million and trim light at $2.7 million.
Turning to portfolio activity, we had gross capital deployments of $25.4 million in Q2. Repayments and sales were muted during the quarter and offset gross deployments by approximately $2.2 million, resulting in net deployments of approximately $23.2 million, before the effects of transferring assets into the SDRS JV.
Speaker #3: We continue to successfully utilize the STRS-JV and believe that WhiteHorse Finance's equity investment in the JV continues to provide attractive returns to our shareholders.
Speaker #3: After net deployments and JV transfer activity, as well as net realized and unrealized gains recognized during the quarter, total investments increased from the prior quarter, by $26.2 million, to $569.2 million.
Speaker #3: This compares to our portfolios fair value of $543 million, at the end of Q1. During the quarter, we recognized approximately $0.1 million in net realized losses, and approximately $5.8 million of net unrealized gains, for aggregate net realized and unrealized gains of approximately $5.7 million, or approximately $26.5 cents per share.
Gross Capital deployment consisted of 3, new originations totaling 23.1 million with the remaining amount deployed to fund add-ons to 5 existing portfolio companies. The 3 new originations were headlined by 2. Former whiteboards borrowers, Empire office for 101 million, and intermediate, Cloud Communications for 6.6 million as 1 is 1, as well as new 1 new portfolio company borrower vibration mountings and controls for 6.4 million.
Over three new originations in Q2, one was non-sponsored and two were sponsored. The sponsor deals are targeted to be transferred to the STRS JV. Our new originations in Q2 had an average leverage of approximately 4.2 times EBITDA and were all first lien loans.
Speaker #3: The net mark-to-market gains were driven primarily by a 4.8 million markup on Chase, a 0.4 million markup on Playmonster, and approximately 0.5 million of other net markups across the portfolio.
Total repayments and sales of $2.2 million were driven by partial paydowns, with no full realizations during the quarter.
Speaker #3: To those unfamiliar, Chase products is a developer and manufacturer of bulk consumer and industrial chemical and aerosol products in the United States. We assumed ownership of the business in March of 2023.
During the quarter, the BDC transferred to New Deals to the STRS JV totaling $7.8 million. The transfers were headlined by Industrial Service Solutions at $5.1 million and TrimLight at $2.7 million. We continue to successfully utilize the STRS JV and believe that WhiteHorse Finance is equity investment in the JV.
Speaker #3: Since then, the company has improved EBITDA from negative levels to a run rate in the low positive double digits, supported by new customer wins and added production capacity, and it continues to track ahead of plan this year.
Continues to provide attractive returns to our shareholders.
Speaker #3: The markup this quarter reflects the improvement in operating performance and the updated valuation inputs that follow from it. We are cautiously optimistic about the prospect of a liquidity event on this asset, over the next 6 to 12 months.
After net deployments and JV transfer activity, as well as net realized and unrealized gains recognized during the quarter, total investments increased from the prior quarter by $26.2 million to $569.2 million. This compares to our portfolio's fair value of $543 million at the end of Q1.
Speaker #3: Playmonster, you may recall, is a toy and game company with owned and licensed brands including Hacky Sack, Spirograph, Taco verse Burrito, and Five Second Rule.
Speaker #3: We assumed ownership alongside a co-lender in January of 2022. The business has returned to positive and growing adjusted EBITDA, with meaningful year-over-year improvement, and continued momentum into 2026.
During the quarter, we recognized approximately $0.1 million in net realized losses and approximately $5.8 million of net unrealized gains, for aggregate net realized and unrealized gains of approximately $5.7 million, or approximately 26 and a half cents per share.
Speaker #3: And the markup reflects that trajectory. Playmonster is an earlier stage than Chase, with respect to any realization, and we would expect any process to follow the finalization of full-year 2026 results at the earliest.
The net mark-to-mark, the gains were driven primarily by a $4.8 million markup on Chase, a $0.4 million markup on PlayMonster, and approximately $0.5 million of other net markups across the portfolio.
Speaker #3: Both positions generate limited cash income today, a realization in either case would convert the full realized value into cash available for future redeployment into income-producing investments, which would positively contribute to help support core NII over time.
For those who aren't familiar, Chase Products is a developer and manufacturer of bulk consumer and industrial chemical and aerosol products in the United States. We assumed ownership of the business in March of 2023.
Since then, the company has improved debit dollars from negative levels to a run rate in the low positive double digits, supported by new customer wins and added production capacity, and it continues to track ahead of plan this year.
Speaker #3: At the end of Q2, 98.8% of our debt portfolio was first lien senior secured, and our portfolio continued to reflect the balance mix of sponsor and non-sponsor investments, with non-sponsor representing approximately 40% of the portfolio at fair value.
The markup this quarter reflects the improvement in operating performance and the updated evaluation inputs that follow from it.
We are cautiously optimistic about the prospect of a liquidity event on this asset over the next six to twelve months.
Speaker #3: The weighted average effective yield on our income-producing debt investments was 10.8% at the end of Q2, consistent with the 10.8% at the end of Q1.
Speaker #3: The weighted average effective yield on our overall portfolio was approximately 8.8% at the end of Q2, compared to approximately 8.7% at the end of Q1.
Alongside a co-leader in January of 2022.
The business has returned to positive and growing adjusted IBA, with meaningful year-over-year improvement and continued momentum into 2026. And the markup reflects that trajectory.
Speaker #3: With respect to non-accrual status, there were no additions to or removals from non-accrual during the quarter. Excluding the STRS-JV, non-accrual investments represented 3.6% of the total debt portfolio at fair value, consistent with the 3.6% at the end of the prior quarter.
Play Monsters is at an earlier stage than Chase with respect to any realization, and we would expect any process to follow the finalization of full-year 2026 results at the earliest.
Speaker #3: And 6.9% at cost, compared with 7.2% at cost at the end of the prior quarter. The four-issuers on non-accrual at quarter end were Camarilla Fitness Holdings, New Cycle Solutions, Outward Hound, and Playmonster.
Both positions generate limited cash income. Today, a realization in either case would convert the full realized value into cash available for future redeployment into income-producing investments, which would positively contribute to help support core NII over time.
Speaker #3: Turning to Outward Hound, we completed a restructuring of the business subsequent to quarter end in early July, working alongside the other lenders in the group, recapitalized the company, with a new revolver in term loan, converted a substantial portion of the outstanding debt into equity, and extended the maturity.
At the end of Q2, 98.8% of our debt portfolio was first lien senior secured, and our portfolio continued to reflect a balanced mix of sponsor and non-sponsored investments, with non-sponsored representing approximately 40% of the portfolio at fair value.
Speaker #3: WhiteHorse now holds the majority ownership and control of the board, and the restructured term loan returned to accrual status upon closing, which will be positive for Q2 NII.
The weighted average effective yield on our income-producing debt investments was 10.8% at the end of Q2, consistent with the 10.8% at the end of Q1.
Speaker #3: Q3 NII. The company continues to operate in a challenging environment for pet products, where category demand has softened and retailers have maintained lean inventory positions.
The weighted average effective yield on our overall portfolio was approximately 8.8% at the end of Q2, compared to approximately 8.8% or 8.7% at the end of Q1.
Speaker #3: Consumer sell-through has held up better than peers, though that is not yet translated into improved orders. With a materially deleveraged capital structure, and control of the board, we are working closely with management on various operating initiatives to drive incremental top-line growth and optimize the company's cost structure.
With respect to non-accrual status, there were no additions to or removals from non-accrual during the quarter, excluding the STS JV. Non-accrual investments represented 3.6% of the total debt portfolio at fair value, consistent with the 3.6% at the end of the prior quarter, and 6.9% at cost compared with 7.2% at cost at the end of the prior quarter.
Speaker #3: We will continue to evaluate both organic and inorganic past to bid build value, in the position, and improve our ultimate recovery over time. Regarding New Cycle, this is a small position for the BDC, representing less than one-half of 1% of the portfolio, at fair value.
The four issuers on non-accrual at quarter end were Kala, Fitness Holdings, NewCycle Solutions, Outward Hound, and PlayMonster.
Turning to our outlook, we completed a restructuring of the business subsequent to quarter end, in early July.
Speaker #3: Management has been focused on stabilizing financial performance and on cost reduction initiatives, and the company is currently preparing for a sale process. We will provide an update as that progresses.
Working alongside the other lenders in the group, we recapitalized the company with a new revolver and term loan, converted a substantial portion of the outstanding debt into equity, and extended the maturity.
Speaker #3: Finally, regarding Camarilla Fitness, formerly known as Honors Holdings, a mark reflects the expected proceeds from the sale of the underlying locations, that process is actively underway, and as locations are sold and cash is returned, we will redeploy that capital into income-producing investments.
WhiteHorse, WhiteForce now holds the majority ownership and control of the board, and the restructured term loan returned to accrual status. Upon closing, which will be positive for Q2 NII and Q3 NII.
Speaker #3: As always, we continue to actively manage underperforming credits, leveraging our dedicated restructuring resources, and the broader capabilities of HIG. Aside from the credits on non-accrual, our portfolio continues to perform well, consistent with what we shared last quarter, our exposure to software companies remains modest, at approximately 10.5% of the portfolio at cost, and 9.3% at fair value, across six portfolio companies.
The company continues to operate in a challenging environment for pet products, where category demand has softened and retailers have maintained lean inventory positions. Consumer sell-through has held up better than peers, so that has not yet translated into improved orders.
For the materially deleveraging control of the board, we are working closely with management on various operating initiatives to drive incremental topline growth and optimize the company's cost structure.
Speaker #3: Turning to the market conditions, the market conditions are interesting and different from those a quarter ago. The volume of M&A activity is only moderate, similar to last year.
We will continue to evaluate both organic and inorganic paths to build value in the position and improve our ultimate recovery over time.
Speaker #3: However, the supply-demand imbalance we experienced last year is much improved due largely to the negative press surrounding the direct lending market. This negative press has had multiple effects.
Regarding New Cycle, this is a small position for the DDC, representing less than one-half of one percent of the portfolio. At fair value, management has been focused on stabilizing financial performance and on cost reduction initiatives, and the company is currently preparing for a sale process. We will provide an update as that progresses.
Speaker #3: One effect has been to scare retail investors resulting in capital outflows that have reduced the appetite of some of the largest players in the marketplace.
Speaker #3: Another effect is that increasing criticism of the asset-marking policies of direct lenders and BDCs has led to greater scrutiny of both, where assets are marked down and the types of credits in which people are investing.
Speaker #3: In particular, the software sector, which was strongly in favor a year and a half ago, is now strongly out of favor, because the market recognizes that some software and technology companies face significant downside risk from potential AI disruption.
Finally, regarding Camera Fitness, formerly known as Honors Holdings. The mark reflects the expected proceeds from the sale of the underlying locations. That process is actively underway, and as locations are sold and cash is returned, we redeploy that capital into income-producing investments. As always, we continue to actively manage underperforming credits, leveraging our dedicated restructuring resources and the broader capabilities of H.I.G.
Aside from the credits and on approval.
Speaker #3: Those factors have resulted in more conservative market environment, deals are being completed at headline multiples, that are generally more reasonable, that is certainly true in the technology and software sector, but we think we are seeing it more broadly as well.
6. Portfolio companies.
Coming to the market conditions.
Speaker #3: Previously out-of-favor sectors such as industrials have come back into favor because they do not face the same AI risk. Overall, what we're seeing in the market, depending on the sector, is leverage that is a half a turn to a full-turn lower than a year to a year and a half ago, with pricing 25 to 50 basis points higher.
The market conditions are interesting and different from those a quarter ago.
The volume of M&A activity is only moderate, similar to last year. However, the supply-demand imbalance we experienced last year is much improved, due largely to the negative press surrounding the direct lending market.
This negative press has had multiple effects.
Speaker #3: This is particularly true in the sponsor market, as I shared before, the sponsor market cycles up and down, but the non-sponsor market does not cycle very much.
Speaker #3: We are seeing lower leverage multiples and higher pricing on sponsor deals, with most deals below 50% loan-to-value, and some even below 40% loan-to-value. In general, we are also getting better documents, including protection against LMEs, or liability management executions, without LME protection, instead of equity coming into a troubled credit, companies may issue super senior debt, strip existing lenders of collateral, and install the super senior debt at the top of the capital structure, we have been vigilant in avoiding those situations, ever since the aspect software deal that led to a loss of the BDC.
One effect has been to scare retail investors, resulting in capital outflows that have reduced the appetite of some of the largest players in the marketplace. Another effect is the increasing criticism of the asset-marking policies of direct lenders and BDCs, which has led to greater scrutiny of both how assets are marked down and the types of credits in which people are investing.
In particular, the software sector, which was strongly in favor a year and a half ago, is now strongly out of favor because the market recognizes that some software and technology companies face significant downside risks from potential AI disruption.
Speaker #3: In the vast majority of deals we have completed over the past three years, we have limited or we believe eliminated the downside risk from LME.
Those factors have resulted in a more conservative market environment. Deals would be completed at headline multiples that are generally more reasonable. That is certainly true in the technology and software sector, but we think we are seeing it more broadly as well.
Speaker #3: As geopolitical tensions rise and fall, M&A activity slows when tensions are high, and tends to pick up when tensions are lower. Across the WhiteHorse direct lending platform, we are doing about 40 to 50% more volume this year than we did last year, because we find current market conditions more attractive.
Previously out of favor, sectors such as industrials have come back into favor because they do not face the same AI risk.
Speaker #3: We are seeing better credits, lower leverage, and better documents. We are also getting covenants on most of our deals. In fact, the vast majority of our middle market credits have covenant protection.
Speaker #3: Spreads in the middle market and upper middle market are generally as high or higher than spreads in the lower mid-market, again, this fact applies primarily to sponsor deals.
Overall, what we're seeing in the market, depending on the sector is leveraged, that is a half a turn to a full term, lower than a year to a year and a half ago, with pricing 25 to 50 basis points. Higher, this, this is particularly true in the sponsor market, and so shared before the sponsor Market Market Cycles up and down. But the non-sponsored market does not cycle very much. We are seeing lower leverage multiples, and higher pricing on sponsored deals with most deals below, 50% loan to value and some even below 40% loan to value.
Speaker #3: Intuitively, that does not make sense, because on average smaller companies carry greater risk, and historically have commanded a pricing premium. However, third-party data from an investment bank that performs independent valuations for a portfolio validates what we are seeing, pricing for midsize and larger deals is as high or higher than pricing for smaller deals.
In general, we are also getting better documents, including protection against LMS, or liability management, executions without LMD protection. Instead of equity coming into a troubled credit, companies may issue super-senior debt, strip existing lenders of collateral, and install the super-senior debt at the top of the capital structure. We have been vigilant in avoiding those situations ever since the Aspect Software.
That led to a loss for the BDC.
Speaker #3: We are therefore trying to improve the risk-return trade-off, most of the deals we are working on now are middle market or upper middle market credits, but we see a better risk-return dynamic.
And the vast majority of deals we have completed over the past three years, we have limited or, we believe, eliminated the downside risk from LME.
Speaker #3: Current market pricing for sponsor deals is so for plus 475 to 550, approximately 50 basis points higher than a year ago. As I mentioned, we're getting covenants on the vast majority of deals we are doing, we are not sorry, we are doing senior secured debt almost exclusively, the non-sponsor market is relatively stable, non-sponsor middle market, lower middle market deals, generally command pricing of so for plus 600 and above, with two-point upfront fees or higher.
As geopolitical tensions rise and fall, M&A activity slows when tensions are high and tends to pick up when tensions are lower. Across the WhiteHorse direct lending platform, we are doing about 40% to 50% more volume this year than we did last year, because we find current market conditions more attractive.
We are seeing better credits, lower leverage, and better documents. We are also getting covenants on most of our deals. In fact, the vast majority of our middle market credits have covenant protection.
Speaker #3: Larger non-sponsor deals are priced more in the range of 550 to 650. If we believe those are good credits, we will participate in them as well.
Spreads in the Middle Market and the Upper Middle Market are generally as high or higher than spreads in the Lower Mid-Market. Again, this fact applies primarily to sponsored deals.
Speaker #3: Deals priced at 600 and above are still targeted for the BDC balance sheet, deals below 600 are generally targeted for the JV. With that said, in subsequent to our quarter end, we closed on one new deal in the BDC, we also transferred positions in five portfolio companies, to the STRS JV, pro forma for those transfers, the STRS JV's remaining capacity, has been fully utilized.
Intuitively, that does not make sense because, on average, smaller companies carry greater risk and historically have commanded a pricing premium. However, the third-party data from an investment bank that performs independent valuations for our portfolio validates what we are seeing. Pricing for midsize and larger deals is as high or higher than pricing for smaller deals. We are therefore trying to improve the risk-return tradeoff. Most of the deals we are working on now are middle.
Speaker #3: So no deals so new deals will generally be added to the JV only as repayments occur on existing JV investments. The BDC balance sheet currently has capacity for approximately 10 million of additional assets, and similarly we will create additional capacity there as we receive repayments.
Market or upper middle market credits, but we see a better risk-return dynamic. Current market pricing for sponsor deals is SOFR plus 475 to 550, approximately 50 basis points higher than a year ago.
Speaker #3: With that, I'll turn the call over to Joyson. For additional performance details, and review of our portfolio composition. Joyson?
As I mentioned, we're getting covenants on the vast majority of deals we are doing. We are doing senior secured debt almost exclusively.
Speaker #1: Thanks, Stuart. And thanks, everyone, for joining today's call. During the quarter, we recorded gap net investment income, and core NII of 4.7 million dollars, or 21.7 cents per share.
Speaker #1: This compares with Q1 gap NII and core NII of 5.6 million, or 25.3 cents per share. As well as our previously declared second quarter base distribution of 25 cents per share.
50 to 650.
If we believe those are good credits, we will participate in them as well.
Speaker #1: Q2 fee income was approximately 0.1 million, compared with 0.4 million in the prior quarter. Driven primarily by amendment fees from Lift Brands, also known as That Fitness, and NA services.
Deal prices of $600 and above are still targeted for the BDC balance sheet. Deals below $600 are generally targeted for the JV.
Speaker #1: For the quarter, we reported a net increase in net assets resulting from operations of 10.4 million. Our risk ratings during the quarter showed that approximately 86.6% of our portfolio positions either carried a one or two rating, a slight decrease from the 88.3% reported in the prior quarter.
Speaker #1: As a reminder, a one rating indicates that a company has seen its risk of loss reduced relative to initial expectations, and a one and a two rating indicates a company is performing according to such initial expectations.
With that said, in subsequent to our quarter end, we closed on 1, New Deal in the BDC. We also transferred positions in 5 portfolios to the strs JV performer for those transfers. The strs JVS remaining capacity has been fully utilized, so no deals. So, New Deals will generally be added to the JV only as repayments occur on existing JV Investments.
Speaker #1: Regarding the JV specifically, we continue to utilize the platform as a complement to the BDC. As Stuart mentioned earlier, we transferred two new deals during the second quarter to the SRS JV, totaling 7.8 million dollars, in exchange for a net investment in the SRS JV of 2.3 million, as well as cash proceeds of 5.5 million.
The BDC balance sheet currently has capacity for approximately $10 million of additional assets. Similarly, we will create additional capacity there as we receive the payments.
With that, I'll turn the call over to Joyce for additional performance details, and to Jason for a review of our portfolio composition.
Thanks, Stuart, and thanks, everyone, for joining today's call.
Speaker #1: During the quarter, there were no full realizations in the JV. At the end of Q2, the SRS JV's total portfolio had an aggregate fair value of 340.3 million, across 43 issuers, of which 14 are common issuers with the company.
During the quarter, we recorded GAAP net investment income and core NII of $4.7 million, or $0.217 per share.
This compares with Q1 GAAP NII and core NII of $5.6 million, or $0.253 per share, as well as our previously declared second-quarter base distribution of $0.25 per share.
Speaker #1: And an average effective yield of 9.8%. This compares with an aggregate fair value of 327.1 million, and an average effective yield of approximately 9.9%, across 41 portfolio companies, as of March 31, 2026.
Q2 fee income was approximately $0.1 million compared with $0.4 million in the prior quarter.
Driven primarily by amendment fees from LIFT brands, also known as that fitness and NA services.
Speaker #1: Leverage for the JV at the end of Q2 was approximately 1.10 times, compared with approximately 1.08 times at the end of the prior quarter.
For the quarter, we reported a net increase in net assets resulting from operations of $10.4 million.
Speaker #1: The investment in the JV continues to be accretive for the BDC's earnings. Generating a low teens return on equity. During Q2, income recognized from our JV investment, aggregated to approximately 3.2 million, compared to approximately 3.6 million reported in Q1.
Our risk ratings during the quarter showed that approximately 86.6% of our portfolio positions either carried a 1 or 2 rating, a slight decrease from the 88.3% reported in the prior quarter.
Speaker #1: 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 amount of additional capital investments, changes in asset yields in the underlying portfolio, and the overall credit performance of the JV's investment portfolio.
As a reminder, a 1 rating indicates that a company has seen its risk of loss reduced relative to initial expectations, and a 2 rating indicates the company is performing according to such initial expectations.
Regarding the JV specifically, we continue to utilize the platform as a complement to the BDC.
Speaker #1: Turning to our balance sheet, we had cash resources of approximately 28.1 million dollars at the end of Q2. Including approximately 19.6 million in restricted cash, primarily representing interest and principal proceeds received at quarter end in our securitized leverage facilities, and approximately 8.5 million at the fund level reserved for the quarterly dividend paid in early July.
As Stuart mentioned earlier, we transferred two new deals during the second quarter to the SRS JV, totaling $7.8 million, in exchange for a net investment in the SRS JV of $2.3 million, as well as cash proceeds of $5.5 million.
During the quarter, there were no full realizations in the JV.
Speaker #1: We have 85 million dollars of unsecured notes maturing in December of this year, consisting of 10 million or 5.375% notes due December 4th, and 75 million or 4% notes due December 15th.
At the end of Q2, the SRS JV's total portfolio had an aggregate fair value of $340.3 million across 43 issuers, of which 14 are common issuers with the company, and an average effective yield of 9.8%.
Speaker #1: We continue to monitor the debt capital markets and recent offerings in both the retail and institutional space, and we will remain opportunistic in evaluating our alternatives as we approach year end in addressing these maturities.
This compares with an aggregate fair value of $327.1 million, and an average effective yield of approximately 9.9% across 41 portfolio companies, as of March 31, 2026.
Leverage for the JV at the end of Q2 was approximately 1.10 times, compared with approximately 1.08 times at the end of the prior quarter.
Speaker #1: Which may also include a combination of available capacity under a revolving credit facility, as well as cash on hand. As of June 30, 2026, the company's asset coverage ratio for borrowed amounts as defined by the 1940 Act was 177%, which is above the minimum asset coverage ratio of 150%.
The investment in the JV continues to be accretive for the BDC, generating a low-teens return on equity.
During Q2, income recognized from our JV investment aggregated to approximately $3.2 million, compared to approximately $3.6 million reported in Q1.
Speaker #1: At quarter end, gross leverage was 1.30 times, compared with 1.31 times in the prior quarter. While net effective debt to equity ratio, after adjusting for cash on hand, was 1.19 times, compared with 1.12 times in the prior quarter.
As we have noted in prior calls, the yield on our investment in the JV may fluctuate over periods, as a result of a number of factors, including the timing and amount of additional capital investments, changes in asset yields in the underlying portfolio, and the overall credit performance of the JV's investment portfolio.
Speaker #1: The increase in net effective leverage, primarily reflected lower cash balance at quarter end, as deployments outpaced repayments during the quarter. In regards to our share repurchase program, the company repurchased approximately 345,000 shares during the second quarter at a weighted average price of approximately $7.42 per share, inclusive of commissions.
Turning to our balance sheet, we had cash resources of approximately $28.1 million at the end of Q2, including approximately $19.6 million in restricted cash, primarily representing interest and principal proceeds received at quarter end in our securitized leverage facilities, and approximately $8.5 million at the fund level reserved for the quarterly dividend paid in early July.
Speaker #1: For a total cost of approximately $2.6 million. Those repurchases were accretive to NAV by more than 6 cents per share. We have not repurchased any shares since late May, and approximately 9.5 million dollars remains available under the current authorization.
We have $85 million of unsecured notes maturing in December of this year, consisting of $10 million of 5.375% notes due December 4th.
And $75 million over 4% notes, to December 15th.
Speaker #1: Humility since the inception of our share repurchase program in the fourth quarter of 2025, we have repurchased approximately 1.8 million shares, at a weighted average price of approximately $7.36 per share.
Speaker #1: And we estimate that our buybacks have contributed approximately 33 cents per share of NAV accretion, demonstrating our commitment to creating shareholder value. Before I conclude and open the call to questions, I'd like to discuss our recent distributions and corresponding distribution policy.
We continue to monitor the debt capital markets and recent offerings in both the retail and institutional space, and we will remain opportunistic in evaluating our alternatives as we approach year-end in addressing these maturities, which may also include a combination of available capacity under a revolving credit facility as well as cash on hand.
77%, which is above the minimum asset coverage ratio of 150%.
Speaker #1: Yesterday, we announced that our board declared a third quarter base distribution of 25 cents per share. The distribution will be payable on October 5th, 2026, to stockholders of record as of September 21st, 2026.
Speaker #1: As we said previously, we will continue to evaluate our quarterly distribution both in the near and medium term, based on the core earnings power of our portfolio, in addition to other relevant factors that may warrant consideration.
At quarter end, gross leverage was 1.30 times compared with 1.31 times in the prior quarter, driven by the net effect of debt recovery ratio. After adjusting for cash on hand, it was 1.19 times compared with 1.12 times in the prior quarter.
The increase in net effective leverage primarily reflected a lower cash balance at quarter-end, as deployments outpaced repayments during the quarter.
Speaker #1: With that, I'll now turn the call back over to the operator for your questions. Operator?
Speaker #2: Thank you very much. Ladies and gentlemen at this time, if you do have any questions or comments, please press star one. Additionally, if your question has been addressed, you may remove yourself from the queue by pressing star two.
In regards to our share repurchase program, the company repurchased approximately 345,000 shares during the second quarter at a weighted average price of approximately $7.42 per share, inclusive of commissions, for total costs of approximately $2.6 million.
Speaker #2: We'll go first today to Hong Zhang, with JP Morgan.
Those repurchases increased NAV by more than $0.06 per share.
Speaker #3: Yeah, hey. This is Hong on for Rick. I guess on the call you talked about potentially realizing some gains in the second half of the year.
We have not repurchased any shares since late May, and approximately $9.5 million remains available under the current authorization.
Speaker #3: I was wondering if you could share some color as to the quantity or the timing.
Speaker #4: I'm sorry. I couldn't hear you well. Something about the second half of the year?
Speaker #3: Yeah, you talked about potentially monetizing some realized gains in the second half of the year. Is there I was wondering if you could attach some numbers or just timing color to it.
Cumulatively, since the inception of our share repurchase program in the fourth quarter of 2025, we have repurchased approximately 1.8 million shares at a weighted average price of approximately $7.36 per share. We estimate that our buybacks have contributed approximately $0.33 per share of NAV accretion, demonstrating our commitment to creating shareholder value.
Speaker #4: The most likely realization or two realizations in the second half of the year are Chase, SARCO, pressurized holdings, which is three different names of one account, and then also Naviga.
Before I conclude and open to questions, I'd like to discuss a recent distribution and the corresponding distribution policy.
Yesterday, we announced that our board declared a third quarter-based distribution of $0.25 per share.
The distribution will be payable on October 5, 2026. The stockholders of record as of September 21, 2026,
Speaker #4: Chase, SARCO is doing very well. It is operating above budgeted levels. As I reported, the company has won new customers and actually built new production lines to accommodate those new customers.
As we said previously, we will continue to evaluate our quarterly distribution both in the near and medium term, based on the core earnings power report portfolio, in addition to other relevant factors that may warrant consideration.
With that, I'll now turn the call back over to the operator for your questions. Operator.
Speaker #4: Such that the run rate EBITDA that was negative when we took over the company is now in the low positive double digits. The mark that we've taken on that asset while it is positive is frankly lower than the valuations that the investment banks have told us to expect in a sale process.
Thank you very much, ladies and gentlemen. At this time, if you do have any questions or comments, please press star 1. Additionally, if your question has been addressed, you may remove yourself from the queue by pressing star 2.
We'll go first today to Hong Zhang with JP Morgan.
Yeah. Hey, uh, this is calling out for Rick, I guess. Off the call, you talked about potentially realizing your experience in the second half of the year. I was wondering if you could share some color as to if that was a quantity or was a part of—.
Speaker #4: We have no idea what will come out, but they're there's always upside and downside, but if the investment banks are accurate, there could be upside to that valuation.
I'm sorry, I couldn't hear you. Was it something about the second half of the year?
Um, yeah, you talked about potentially modifying some realized gains in the second half of the year as well. I was wondering if you guys had some numbers, or just typing color to it.
Speaker #4: Naviga, similarly, the bankers have indicated a valuation range. And on that deal, we believe we are marked at or below the low end of that valuation range.
um,
The most likely realization, or two realizations, in the second half of the year.
Speaker #4: So that's another monetization that could occur. Where, again, there can be upside or downside, but if you believe the bankers' valuations there could be upside.
are, uh, Chase Sarco Pressurized Holdings, which is three different names for one account, and then also, um,
Uh, Nava.
Speaker #4: If those occur, they will generate cash. That cash can be redeployed into earning assets. And/or into shareholder repurchases. And while there's no assurance that will occur by year end, as Lord knows, there's plenty of geopolitical volatility out there, as we sit here today, both of those processes are moving forward.
Uh, Chase Starco is doing, uh, very well. Uh, it is operating above budgeted levels.
Uh, as I reported, the company has won new customers and actually built new production lines to accommodate those new customers, such that the run rate even—but, uh,
That was negative when we took over the company and is now in the low positive double digits.
Speaker #4: PLAYMONSTER, as I shared in the call, is having a tremendous year. HACISAC is very on trend and is providing a boost, even above what we thought the company would be able to do three months ago.
Uh, the mark that we've taken on that asset, while it is positive.
Speaker #4: And if the results of the end of the year are strong, we and the other lender may choose to sell the company. Again, we don't know how that process will go.
Uh, it's frankly lower, uh, than the valuations that the investment banks have told us to expect in a sale process. Um, we have no idea where it will come out, uh, but there's, you know, there's always upside and downside. But if the investment banks are accurate, uh, there could be upside to that valuation.
Uh, Nava.
Speaker #4: It's too far away. But that could also generate cash revenues or cash receipts that could be reinvested in earning assets.
Speaker #3: Got it. And then I guess as it relates to the buyback, I understand it's always a moving target, but is there a, I guess, a discount to NAV threshold that you have in mind that would make buybacks appear more attractive in the near term?
Speaker #4: Obviously, when the share price is lower, it makes the buybacks more attractive. We've completed enough buybacks that even with limited new investment activity, our leverage is at target levels.
Speaker #4: And so whether there will be more share buybacks this quarter is still a question mark.
Similarly, uh, the bankers have indicated evaluation range. Uh, and on that deal, we believe we are marked, uh, at or below the low end of that valuation range. Uh, so that's another monetization that could occur where again, there can be upside or downside. But if you believe the Banker's valuations, uh, there could be upside, uh, if those occur, they will generate cash that cash can be redeployed into earning assets, uh, and or into shareholder repurchases. Uh, and, uh, while there's no assurance that will occur by year end because Lord knows there's plenty of geopolitical volatility out there. Um, you know, as we sit here today, uh, both of those processes are moving forward.
Speaker #3: Thanks. And have a great week.
Uh, as I've shared on the call.
Speaker #4: Thank you.
Speaker #2: Thank you. We'll go next now to Robert Dodd of Raymond James.
Speaker #5: Hi guys. And you answered that question partly. Let's do it with the rest of this more potential upside. On NAV, from these excerpts, moving on to Outward Hound, right?
Speaker #5: When we look at Chase and PLAYMONSTER, it's a process on doing these restructurings. It takes a while. It's a lot of work involved. Outward Hound, the restructuring is just occurred.
Speaker #5: So on that, I mean, is that more likely to be a late 2027 or even a 2028 kind of realization as you put some time into maybe hoping the customer volume flows through and things like that?
And if the results of the end of the year are strong, uh, we in the other lender. Uh, may choose to sell the company again. We don't know um, how that process will go, it's too far away. Uh but that could also generate uh cash revenues or cash receipts, that could be reinvested in earning assets.
Speaker #5: Or are you looking to monetize some of these things sooner rather than later? Some of them are just working out. Obviously, Chase maybe. In the second half.
Got it. And then I guess that's a really good job on buybacks. I understand it's always a moving target. But is there, I guess, a discount to any of the thresholds that you have in mind that would make buybacks, if there are, more attractive in the near term?
Speaker #5: Is that like, are you putting your foot on the gas a little bit, or is that just how it's working out and what are your thoughts on Outward Hound?
Speaker #4: Robert, there's always the chance that a strategic buyer comes in and offers us a price that we think makes sense in terms of a quicker redeployment of capital.
Speaker #4: But if we manage the turnaround process for Outward Hound the same way we've been managing a successful turnaround process for Chase and PLAYMONSTER, that is a two or three-year process.
Um, obviously when the share price is lower, it makes the BuyBacks more attractive. Uh, we've completed enough BuyBacks that even with limited new investment activity. Our Leverage is at Target levels. Uh, and so uh, whether there will be more share BuyBacks, this quarter is still a question mark.
Thanks, and have a great week.
Thank you.
Thank you. We’ll go next to Robert Dodd of Raymond James.
Speaker #4: So certainly, the balance of 2026 and 2027 would be years where we'd be implementing in conjunction with management both potentially organic and inorganic growth initiatives and also we're already working with management to optimize on cost, keeping a long-term perspective on value.
Uh, hi guys and and you answered that question, partly. Let's do it with the presence. That's more potential upside, uh, on on nav from from these exes, on moving on to outward Hound, right? Um, when when we look at Chase and play monster, I mean it's a process on doing these restrictions takes a while um, sort of work involved, outward Hound, the restructuring is just occurred. So on that, I mean, is that more likely to be a
Speaker #4: But I would not expect an exit absent a strategic approaching us anywhere before 2028 on that deal.
late 27, or even a 2028 kind of realization as you put some time into uh maybe hoping that the the the customer volume flows through and and and things like that or or you're looking to
Speaker #5: Got it. Got it. Thank you. Moving on to a different topic. To your point, I mean, spreads on new deals in the low and middle market, smaller companies, yeah, I mean, go back.
Monetize some of these things, um, sooner rather than later. Some of them are just working out obviously, Chase maybe, um, in the second half um, is, is that like, are you putting your foot on the gas a little bit? Or is that just how it's working out and and what are your thoughts on that? Would have
Speaker #4: Yes. Right.
Speaker #5: You used to get a real premium. And that's a largely evaporated. I mean, that's hearing that across the market. What do you think changes that?
Speaker #5: To your point, in the supply-demand dynamics changed a little bit more up market. And spreads are widening there. But I mean, is there anything that you think can materially change where that premium at the lower end versus the $100 million EBITDA deals can return to the a noticeable premium for the incremental risk that you're taking?
Robert here. There's always the chance that a strategic buyer comes in and offers a surprise that we think makes sense, in terms of a quicker redeployment of capital. Uh, but if we manage the turnaround process,
For outward Hound. The same way, we've been managing, uh, a successful turnaround process for Chase and play Monster uh, that is a 2 or 3 year process. Uh, so certainly the balance of 26 and 27 would be years where we'd be implementing, uh, in conjunction with management. Uh,
Speaker #4: Robert, I'll sharply answer your question with the fact that if the lower mid-market is underpricing risk, we have the ability as a fairly large player of pivoting and that's the sponsor market in the lower mid-market where risk is arguably being underpriced.
Speaker #4: We have the ability to pivot to the non-sponsor market, the middle market, the upper middle market. And if we wanted to, even the large-cap market, although there are things about the large-cap market that we don't like very much, including the LME risk that I talked about on the call.
Both potentially organic and inorganic, uh, growth initiatives. Uh, and also we we're already working with management, uh, to, uh, optimize on cost. Uh, keeping the long-term perspective on value, uh, but I would not, uh, I would not expect an exit absent, a strategic approaching us uh, anywhere before 2028 on that deal.
Got it, got it. Thank you.
Middle market, smaller companies? Yeah, I mean, go back.
Speaker #4: So we don't need the lower mid-market to come back to premium pricing. For the BDC to do well because we have strong tentacles into other market sectors and we always pivot to where we see the risk return being the best.
Speaker #4: I would tell you that the things that I think would shift the dynamic in the lower mid-market would be number one, fewer new entrants into that market.
Yes, right? You used to get a real premium and that's a lawsuit evaporated. I mean, that's, that's having that across the market. What do you think changes that to your point in in, you know, the the supply demand Dynamics changed a little bit a little bit more up Market um and spread so widening there. But I mean, is there anything that you think can can really change where that premium
Speaker #4: What you see I've spoken to bankers who've told me that they'll run a process where they'll go out to 30 lower mid-market players to get pricing on a deal.
at the lower end versus the, the hundred million dollar deals can can return to, you know, the, the, you know, a noticeable premium for for the incremental risk that you're taking
Robert, I'll start by answering your question with the fact that
Speaker #4: And 28 or 29 of those players will come back with pricing and a structure that reflects the fact that the company is so small.
Uh, if the lower mid-market is underpricing risk, we have the ability, as a fairly large player, to pivot.
Speaker #4: But one or two players will come back and undercut the market. And in those smaller deals, you typically only need one or maybe two players to get the deal done.
Speaker #4: So those players who are, in my opinion, largely new entrants who are not strong on the origination side, and desperately need to deploy capital, are the reason you're seeing that dynamic.
We don't need.
Speaker #4: And if they either successfully deploy the capital they need to, or fail to raise new capital, then I think you will see a balancing out of the price premium that we historically have seen in the lower mid-market.
The lower mid-market needs to come back to premium pricing for the BDC to do well, because we have strong tentacles into other market sectors. And we always pivot to where we see the risk-return being the best. Um,
I would tell you that the things that I think would, uh,
Shift the dynamic in the lower mid-market.
Speaker #4: But even looking at deals that I was talking to my team about earlier today, that dynamic has certainly not changed as of right now.
Speaker #4: And as we sit here in August, the lower mid-market deals are pricing at the same price or in some cases, even lower prices than the equivalent mid-market or upper mid-market deals.
Would be number 1 uh fewer new entrance into that market. Um you know what what you see, I've I've spoken to Bankers who've told me that they'll want to process. Well they'll go out to 30 lower mid-market players to get pricing on a deal.
uh, and
uh,
Speaker #5: Got it. Thank you. That's it for me. And congrats on the turnaround success.
Twenty-eight or twenty-nine of those players will come back with pricing and a structure that reflects the fact that the company is so small.
Speaker #4: Thank you.
But one or two players will come back and undercut the market.
Speaker #1: Thank you. And just a quick reminder, ladies and gentlemen, Start One, Please , for further questions . Today . We'll go next . Now to Christopher Nolan with Ladenburg
Speaker #2: Yeah . I want to echo Robert's on the congrats on the turnarounds . Talking about Chase products . That's an affiliated company . What's your equity ownership there ?
Uh, and in those smaller deals, you typically only need one or maybe two players to get the deal done. So those players who are, in my opinion,
Speaker #2: Please We we own other than the amount we've given to management , we own all the equity in the company So if that company has a successful sale process as Indicated by the bankers , all that upside will flow to Whitehorse as the owner and the BDC will get its pro rata share of that benefit .
Speaker #2: So it's effectively a controlled company Yeah it is , it is it is . We we have selected the management team and worked with the management team in terms of strategy growth and cost containment .
Speaker #2: And again , it has been very successful . If you look from when we took over the company with negative EBITDA , we took it from negative EBITDA to positive EBITDA in one year .
Largely new entrance, who are not strong on the origination side, uh, and desperately need to deploy Capital. Uh, are the reason you're seeing that Dynamic and if they either successfully deploy, uh, the capital, they need to or fail to raise New Capital, uh, then I think you will see, uh, about balancing out of the, uh, price premium that we historically have seen in a lower mid-market. But, um, you know, even looking at deals that I was talking to my team about earlier today. Uh, that Dynamic is certainly not changed as of right now. And uh, as we sit here in August, um, the lower mid-market deals are pricing at the same price, or in some cases, even lower prices than the equivalent mid-market, or upper mid-market deal.
Got it. Thank you. That's it for me, and congrats on the turnaround success.
Thank you.
Speaker #2: We approximately doubled the EBITDA in the next year , and we are on track to have about giving exact numbers very strong growth this year .
Thank you. And just a quick reminder, ladies and gentlemen: star 1, please, for further questions. Today we will next move to Christopher Nolan with Latin.
Speaker #2: And then because we landed new customers that started shipping this year . If you just annualize those new customers , the EBITDA run rate is even higher .
Yeah, I want Echo Roberts. Sent him in, on the, congrats on the turnarounds. I'm talking about Chase products. Um, that's an Affiliated company, uh, what's your Equity ownership there, please.
We own, other than...
Speaker #2: So the story there has been remarkably positive . And again , even though we took a markup , I want to assure you that based on the data we have from bankers , the value that that asset is marked at should be conservative .
The amount we've given to management, we own all the equity in the company. So if that company has a successful sale process,
As.
Uh, indicated by the bankers, all that upside will flow to WhiteHorse.
Speaker #2: Again , I can't control markets Anything could change . But based on the data we have today , we did not take an aggressive mark .
As the owner, and the BTC will get its pro rata share of that benefit.
So, it's effectively a controlled company.
Speaker #3: Well congratulations on that turnaround in progress . That's a that's a sweet , sweet victory for your company . If you are able to pull off realization
Speaker #2: Yeah .
Speaker #4: And Chris , I just want to provide one point of clarification to Stewart's point . We do control Starco and across the broader Whitehorse direct lending platform effectively own 100% outside of management tips and whatnot , with that being said , for purposes of the BDC itself , it is not considered or qualifies as a controlled portfolio company .
Yeah, it is, it is, it is a... We have selected the management team and worked with the management team, uh, in terms of, uh...
Strategy growth and cost containment. And again, it has been very successful if you look—
Speaker #4: As that definition is noted in the 40 act . Just wanted to provide that small clarification .
Speaker #3: Okay , thanks . Okay , thanks , guys
Speaker #1: Thank you . And ladies and gentlemen , just a final reminder . Star one , please , for any further questions today . And we will pause for just one moment And gentlemen , it appears we have no further questions today .
From when we took over the company with negative, evida uh, we took it from negative, Eva to positive Eva Don 1 year. We approximately doubled the Eva in the next year and uh, we are on track to have without giving exact numbers. Uh, very strong growth this year and then because we landed new customers that started shipping this year, if you just
Annualize those new customers, the IBA run rate is even higher. So the story there has been, uh, remarkably positive.
Speaker #1: So , ladies and gentlemen , that will bring us to the conclusion of the WhiteHorse Finance second quarter 2020 earnings conference call . We'd like to thank you all so much for joining us today , and wish you all a great afternoon .
Uh, and again, even though we took a markup, uh, I want to assure you that, based on the data we have from bankers, the value that that asset is marked at should be conservative.
Speaker #1: Goodbye
Speaker #2: Thank you . Bye .
Again, I can't control markets—anything could change—but based on the data we have today, we did not take an aggressive mark.
Well, congratulations on that turnaround in progress. That's a sweet, sweet victory for your company if you were able to pull off realization.
Starko and, uh, across the broader WhiteHorse direct, Landing platform, effectively owned 100% outside of management, uh, LTIPs and whatnot. Uh, with that being said, for purposes of the BDC itself, uh, it is not considered or qualified as a controlled portfolio company, um, as that definition is noted in the '40 Act. Just wanted to provide that small clarification. Okay, thanks, Joan. Okay, thanks, guys.
Thank you. And ladies and gentlemen, just a final reminder—star 1, please, for any further questions today. And we will pause for just one moment.
And, gentlemen, it appears we have no further questions today. So, ladies and gentlemen, that will bring us to the conclusion of the WhiteHorse Finance second quarter 2026 earnings conference call. We'd like to thank you all so much for joining us today, and wish you all a great afternoon. Goodbye.
Thank you. Bye bye.
