WhiteHorse Finance Q1 2024 Earnings Report

WhiteHorse Finance EPS Results

• Actual EPS: $0.47
• Consensus EPS: $0.46
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: N/A

WhiteHorse Finance Revenue Results

• Actual Revenue: $25.48 million
• Expected Revenue: $24.90 million
• Beat/Miss: Beat by +$580.00 thousand
• YoY Revenue Growth: N/A

WhiteHorse Finance Announcement Details

• Quarter: Q1 2024
• Date: 5/8/2024
• Time: N/A
• Conference Call Date: Wednesday, May 8, 2024
• Conference Call Time: 10:00AM ET

WhiteHorse Finance (NASDAQ:WHF) Corporation (NASDAQ: WHF) is a closed-end management investment company organized as a business development company under the Investment Company Act of 1940. The firm’s primary objective is to generate current income and, to a lesser extent, capital appreciation by making debt and equity investments in privately held middle-market companies. WhiteHorse Finance seeks to partner with established businesses across a range of industries, providing flexible financing solutions designed to support growth initiatives, acquisitions and recapitalizations.

The company’s investment portfolio predominantly comprises senior secured loans, second-lien debt, subordinated debt and select equity interests. WhiteHorse Finance targets U.S. headquartered companies with EBITDA profiles typically exceeding $10 million, though it retains the flexibility to consider larger transactions. While the portfolio spans multiple sectors—such as healthcare, technology, business services and industrials—the firm places particular emphasis on businesses with recurring revenue streams and defensible market positions.

Established in 2016 and commencing operations following its initial public offering in early 2017, WhiteHorse Finance is externally managed by PPMG Private Markets LLC, an affiliate of Ares Management Corporation. The investment team leverages Ares’ underwriting, portfolio monitoring and credit-management capabilities to identify underwriting opportunities and actively manage risk. Headquartered in Los Angeles, with additional support from Ares offices across North America and Europe, WhiteHorse Finance combines middle-market specialization with institutional-grade resources to deliver tailored financing solutions to its portfolio companies.

WhiteHorse Finance Q1 2024 Earnings Call Transcript

Key Takeaways

• Net investment income: Q1 GAAP NII and core NII of $10.8M ($0.465/share) covered the $0.385/share dividend, up from Q4’s $0.456/share.
• NAV per share declined 1% to $13.50 due to $5.2M of portfolio markdowns, primarily from Seagate equity warrants.
• Q1 investments totaled $55M with attractive average all-in yields of 12.6% on first-lien loans; net effective leverage remained low at 1.19x.
• STRS JV contributed $4.8M in Q1 (up from $4.2M), with JV portfolio yielding 12.4% unlevered and delivering mid-teens ROE to the BDC.
• Asset quality improved as non-accruals fell to 1.3% of debt portfolio from 2.5%, with portfolio focused on first-lien, non-cyclical sectors and strong covenant protection.

Presentation

[Operator]

Good morning. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the WhiteHorse Finance first quarter 2024 earnings conference call. Our hosts for today's call are Stuart Aronson, Chief Executive Officer, and Joyson Thomas, Chief Financial Officer. Today's call is being recorded, and 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. If you would like to ask a question at that time, please press star 1 on your touch-tone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. If you should require operator assistance again, you may press star 0.

[Operator]

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

[Robert Brinberg, Managing Director at Rose & Company]

Thank you, Mike, and thank you, everyone, for joining us today to discuss WhiteHorse Finance's first quarter 2024 earnings results. Before we begin, I would like to remind everyone that certain statements which are not based on historical facts made during this call, including any statements relating to financial guidance, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Because these forward-looking statements involve known and unknown risks and uncertainties, these are important factors that can cause actual results to differ materially from those expressed or implied by these forward-looking statements. WhiteHorse Finance assumes no obligation or responsibility to update any forward-looking statements. Today's speakers may refer to material from the WhiteHorse Finance first quarter 2024 earnings presentation, which was posted to our website this morning. With that, allow me to introduce WhiteHorse Finance's CEO, Stuart Aronson. Stuart, you may begin.

[Stuart Aronson, CEO at WhiteHorse Finance]

Thank you, Rob. Good morning. Thank you for all of you for joining today. As you're aware, we issued our earnings this morning prior to market open, and I hope you've had a chance to review our results for the period ended March 31st, 2024, which can also be found on our website. On today's call, I'll begin by addressing our first quarter results and current market conditions. Joyson Thomas, our Chief Financial Officer, will then discuss our performance in greater detail, after which we will open the floor for questions. I'm pleased to report continued strong performance for the first quarter of 2024. Q4 GAAP net investment income and core NII was $10.8 million or $0.465 per share, which more than covered our quarterly-based dividend of $0.385 per share.

[Stuart Aronson, CEO at WhiteHorse Finance]

This represents a slight increase from Q4 GAAP and core NII of $10.6 million or $0.456 per share. NAV per share at the end of Q1 was $13.50, representing a 1% decrease from the prior quarter. NAV per share was negatively impacted by net markdowns on our portfolio totaling $5.2 million, the majority of which related to a markdown in equity warrants in Seagate Corporation, which I will discuss shortly. The NAV decrease was partially offset by the excess of core NII over our quarterly dividend. Turning to portfolio activity in Q1, gross capital deployments totaled $55 million, with $44.7 million funding five new originations and the remaining $10.3 million funding add-ons to existing investments, as activity remained reasonably strong. In addition to the add-ons, there were $0.8 million in net fundings made for revolver commitments.

[Stuart Aronson, CEO at WhiteHorse Finance]

Of our 5 new originations in Q1, 2 were sponsored deals and 3 were non-sponsored deals, with an average leverage of approximately 3.5x debt to EBITDA. All of these deals were first-lien loans, with an average spread of 730 basis points and an average all-in rate of 12.6%. I note that both of these statistics are attractive from a historical and current market perspective. During the quarter, the BDC transferred 2 of these new deals and 1 existing investment to the Ohio STRS JV, totaling $8.5 million. At the end of Q1, 99% of our debt portfolio was first-lien, senior, secured, and our portfolio mix was approximately two-thirds sponsor and one-third non-sponsor, which is consistent with the prior quarter. In Q1, total repayments and sales were $43.4 million, primarily driven by 5 complete realizations and 1 partial realization.

[Stuart Aronson, CEO at WhiteHorse Finance]

We expect repayment activity to remain relatively high, particularly for credits that are more than two years old where call protection has expired or is more limited. In some cases, deals will be repriced, and we will evaluate risk and return on a case-by-case basis to determine whether we want to follow credits into the current, more aggressive market environment. Thus far, in Q2, we've had $15 million in full repayments and sales. With repayments and JV transfers mostly offsetting our deployment activity, the company's net effective leverage increased slightly to 1.19 times and remains below the lower end of our target leverage range. So long as our portfolio remains heavily concentrated in first-lien loans, which have lower risk than second-lien loans, we expect to continue to run the BDC at up to 1.35 times leverage.

[Stuart Aronson, CEO at WhiteHorse Finance]

With that in mind, I'll now step back to bring our entire investment portfolio into focus. After the effects of net repayments and STRS JV transfers, as well as $0.8 million in net mark-to-market increases and $6.1 million of realized losses, the fair value of our investment portfolio was $697.9 million at the end of Q1. This compares to our portfolio fair value of $696.2 million at the end of the previous quarter. The weighted average effective yield on our income-producing debt investments was 13.7% as of the end of Q1, unchanged from the end of last year. We continue to utilize the STRS JV successfully. The JV generated investment income to the BDC of approximately $4.8 million in Q1, up from $4.2 million in Q4.

[Stuart Aronson, CEO at WhiteHorse Finance]

As of March 31st, the fair value of the JV's portfolio was $309.4 million, and at the end of Q1, the JV's portfolio had an average unleveraged yield of 12.4%, consistent with Q4. The JV is currently producing an average annual return on equity in the mid-teens to the BDC. We believe WhiteHorse's equity investment in the JV provides attractive returns for our shareholders. Transitioning to the BDC's portfolio more broadly, there were some markdowns in the portfolio during Q1. Most notably, there was a $3.5 million markdown to our equity investment in Sigue Corporation. We exited the Sigue loan several years ago, and due to covenant defaults at the time, we were granted warrants equal to at least 17% of the company. I should note that we had no cash basis in these warrants.

[Stuart Aronson, CEO at WhiteHorse Finance]

In any event, Sigue went out of business in Q1, and we therefore marked the warrants down to zero. There were some other modest markdowns in three other credits, including in New Cycle Solutions, also known as Naviga, which was placed on non-accrual in the quarter. Markdowns were more than offset by reversals of aggregate prior unrealized losses upon the realization in Crown Brands' second-lien investment and the restructuring of Atlas Purchaser, which is also known as Aspect Software. We resolved the Crown Brands' loan in Q1 by selling it back to the sponsor who was running the company. Although the loan was sold at a discount, we were able to sell it at a price that was a premium to where the loan had been valued at the end of Q4.

[Stuart Aronson, CEO at WhiteHorse Finance]

We also participated in a restructuring of our position in Atlas Purchaser, also known as Aspect Software, which resulted in a portion of the investment to incur a realized loss. New Cycle was the only credit moved to non-accrual during the quarter, and at the end of Q1, investments on non-accrual totaled 1.3% of our debt portfolio at fair value, compared with 2.5% at the end of Q4. Naviga is in a sale process, and values for the company have unexpectedly come in at a modest discount to the value of the debt. We have therefore marked the asset to a level that we think is consistent with where the company will be sold. American Crafts and Arcserve remain on non-accrual status.

[Stuart Aronson, CEO at WhiteHorse Finance]

You may recall that we have a control position in American Crafts, and we, along with other lenders, took control of Arcserve earlier in Q1. We are continuing to work with our restructuring resources and our private equity resources to turn those companies around and maximize value. The trends we're seeing in both these accounts are positive relative to where they were one quarter ago. Across the portfolio generally, we see balanced activity in terms of credit performance and remain overall pleased with the health and relative stability of our debt portfolio. The cyclical accounts are continuing to be surprisingly strong, and the accounts that are having trouble are either facing the consumer market or have idiosyncratic problems that we have discussed in the past. As always, we remain vigilant in monitoring our portfolio companies.

[Stuart Aronson, CEO at WhiteHorse Finance]

We have not seen demand weakness in other sectors, including general industrial, B2B, healthcare, TMT, or financial services. Additionally, our portfolio includes mostly non-cyclical or light-cyclical borrowers, and we hold no direct exposure to oil and gas, auto, new home construction, or restaurants. The vast majority of our deals have strong covenant protection, and we are finding that in most cases, the private equity firms we partner with are supporting their credits with new cash or contingent equity as needed. Turning to the broader lending market, lenders have gotten significantly more aggressive in terms of credit, documents, and price, a continuation of the trend that we saw emerging in Q4. As Q1 progressed, we saw a modest increase in M&A activity coming out of the sponsor market and the non-sponsor market.

[Stuart Aronson, CEO at WhiteHorse Finance]

Despite that modest increase, there is still a significant supply-demand imbalance in favor of borrowers since direct lending shops that are coming off of poor volume numbers in 2022 and 2023 are trying to make sure they hit their budgets and, again, are willing to be more aggressive to make that happen. We've definitely seen a shift all the way from broadly syndicated market into upper mid-market and also the mid-market and lower mid-market. The degradation of the market has been most severe in the sponsor market, where leverage is up half a turn to a turn, and loan-to-value is now 55% to 65%. More middle-market deals are being done with no financial covenants, and pricing has come down 100-150 basis points from last quarter. This decline came suddenly, and we have not seen a reversal of that in Q2.

[Stuart Aronson, CEO at WhiteHorse Finance]

The upper mid-market has seen prices decline to where deals are now priced at SOFR 450 to SOFR 525. The mid-market and lower mid-market are pricing deals more in the range of SOFR 500 to SOFR 575. The shift in the non-sponsor market has thankfully been less dramatic. Credits are still at 3 to 4.5 times leverage, and pricing has come down by only about 50 basis points. What we have seen over time is that the non-sponsor market is less volatile than the sponsor market because there's less competition, and it's harder for lenders to access the non-sponsor market.

[Stuart Aronson, CEO at WhiteHorse Finance]

As I alluded to earlier, the deals that we did in 2022 and 2023, for the most part, still have call protection, and we're doing a good job of holding on to prices we captured in those years when the markets were much more favorable to lenders, with pricing typically at 650-750 on both sponsor and non-sponsor deals. In the current market environment, we are being very cautious in our deal sourcing with on-the-run sponsors, and our focus remains on the off-the-run sponsor market and non-sponsor business, where market terms remain comparatively more attractive. Because of our ability to access the off-the-run sponsor market and non-sponsor market, we are still commanding higher prices than what you see in the upper mid-market or mid-market in general. With respect to the broader economy, recent data indicates that inflation will continue at a higher level than what the Fed is targeting.

[Stuart Aronson, CEO at WhiteHorse Finance]

We agree with the current thinking that there'll be somewhere between 0-2 rate cuts in the balance of the year, probably happening later in the year. As a result, we expect slower economic growth through 2024 and into 2025. The year started out slowly in terms of pipeline, which is normal for the beginning of the year, but we did enter the year with a decent backlog of deals, most of which were non-sponsor. Our pipeline has grown as we move through the first half of the year, due in part to our sourcing model, which allows us to source deals in corners of the market where there's less competition, including the off-the-run sponsor market and the non-sponsor market.

[Stuart Aronson, CEO at WhiteHorse Finance]

Our three-tier sourcing architecture continues to provide the BDC with differentiated capabilities, and we continue to derive significant advantages from the shared resources and affiliation with HIG, who is a leader in mid-market and lower mid-market. WhiteHorse has approximately 22 origination professionals located in 11 regional markets across North America. The strength of the origination pipeline enables us to be conservative in our deal selection. Following repayment activity in Q1, the BDC balance sheet has approximately $40 million of capacity for new assets at our target leverage range. The JV has approximately $50 million of capacity, supplementing the BDC's existing capacity. With the move in the markets, deals that are priced below SOFR 600 are targeted for the JV. Those priced at 600 or above are largely targeted for the BDC balance sheet. We're actively working on 11 new mandates and add-on acquisitions.

[Stuart Aronson, CEO at WhiteHorse Finance]

Of the new platform mandates, the majority are non-sponsor deals. While there can be no assurance that any of these deals will close, all of these mandates could fit within the BDC or our JV should we elect to transact. Subsequent to quarter end, we have closed 2 new originations and 3 add-ons to existing portfolio companies, with several more pending. Of the new originations, 1 investment was transferred to the JV during the second quarter. We also transferred 2 add-on investments to the JV in the second quarter. In short, activity continues to pick up, and we remain cautiously optimistic that the market will remain conducive to WhiteHorse. Despite sustained concerns of economic softening, we believe we are well positioned to continue to source attractive opportunities, navigate economic challenges due to our rigorous underwriting standards, and continue delivering to our shareholders.

[Stuart Aronson, CEO at WhiteHorse Finance]

With that, I'll turn the call over to Joyson for additional performance details and a review of our portfolio composition. Joyson?

[Joyson Thomas, CFO at WhiteHorse Finance]

Thanks, Stuart. Thank you, everyone, for joining today's call. During the quarter, we recorded GAAP net investment income in core NII of $10.8 million or $0.465 per share. This compares with Q4 GAAP NII in core NII of $10.6 million or $0.456 per share, and our previously declared quarterly distribution of $0.385 per share. Q1 fee income was unchanged quarter-over-quarter at $0.6 million. Q1 amounts were primarily comprised of $0.5 million of amendment fees, the majority of which came from an amendment fee from Telestream Holdings. For the quarter, we reported a net increase in net assets resulting from operations of $6 million. Our risk ratings during the quarter showed that 77.6% of our portfolio positions carried either a 1 or 2 rating, slightly lower than the 77.7% in the prior quarter.

[Joyson Thomas, CFO at WhiteHorse Finance]

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. Regarding the JV specifically, we continue to grow our investment. As Stuart mentioned earlier, in the first quarter, we transferred two new deals at one existing investment totaling $8.5 million in exchange for cash proceeds of the same amount. Additionally, during the quarter, two existing portfolio company investments fully realized in the portfolio, and as a result, as of March 31st, 2024, the JV's portfolio held positions in 34 portfolio companies with an aggregate fair value of $309.4 million compared to 34 portfolio companies at an aggregate fair value of $312.2 million as of December 31st, 2023.

[Joyson Thomas, CFO at WhiteHorse Finance]

Subsequent to the end of the first quarter, the company transferred three investments to the JV, including one new portfolio company. The investment in the JV continues to be accretive to the BDC's earnings, generating a mid-teens return on equity. During Q1, we did see an elevated amount of income recognized from our JV investment, which aggregated to $4.8 million during the quarter as compared with approximately $4.3 million in Q4 of last year. The approximate $0.5 million increase, or $0.024 per share, is largely attributable to non-recurring events that occurred in the JV's portfolio.

[Joyson Thomas, CFO at WhiteHorse Finance]

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 $20.9 million at the end of Q1, including $10.2 million in restricted cash and approximately $135 million of undrawn capacity available under our revolving credit facility. As of March 31st, 2024, the company's asset coverage ratio for borrowed amounts, as defined by the 1940 Act, was 179.5%, 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 1.19 times compared with 1.16 times from the prior quarter.

[Joyson Thomas, CFO at WhiteHorse Finance]

Before I conclude and open up the call to questions, I'd again like to highlight our distributions. This morning, we announced that our board declared a second quarter distribution of $0.385 per share, which is consistent with the prior quarter. The upcoming distribution, the 47th consecutive quarterly distribution paid since our IPO in December 2012, with all distributions at or above a rate of $0.355 per share per quarter, will be payable on July 2nd, 2024, to stockholders of record as of June 18th, 2024. 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. With that, I'll now turn the call over to the operator for your questions. Operator?

[Operator]

Thank you. At this time, if you would like to ask a question, please press the star and one on your telephone keypad now. You may remove yourself from the queue at any time by pressing star two. And once again, that is star and one if you'd like to ask a question. We'll pause for just a moment to allow questions to queue. We do have our first question from Mickey Schleien with Ladenburg Thalmann.

[Mickey Schleien, Managing Director in Equity Research at Ladenburg Thalmann]

Yes. Good morning, everyone. Just one quick question for me. With the movements in non-accruals this quarter, was there any impact on interest income in terms of recaptures or reversals of previous interest income?

[Stuart Aronson, CEO at WhiteHorse Finance]

Joyson, I'll leave that for you.

[Joyson Thomas, CFO at WhiteHorse Finance]

Mickey, we did not reverse out any income accruals during the period. We just ceased from recognizing any additional accruals during Q1.

[Mickey Schleien, Managing Director in Equity Research at Ladenburg Thalmann]

Okay. Thank you, Joyson. That's it for me this morning.

[Robert Brinberg, Managing Director at Rose & Company]

Thank you, Mickey.

[Operator]

We do have our next question from Bryce Rowe with B. Riley.

[Bryce Rowe, Equity Research Analyst at B. Riley Securities]

Thanks. Good morning.

[Stuart Aronson, CEO at WhiteHorse Finance]

Morning, Bryce.

[Bryce Rowe, Equity Research Analyst at B. Riley Securities]

Hey, Stuart. Wanted to follow up on some of the prepared remarks. You talked about, obviously, spreads and pricing having come in, more aggressive terms and conditions out there in the market. You did talk about evaluating whether you would follow some credits that were at least exploring some kind of refinance option. Curious, what would kind of keep you in the credit, and what kind of pricing deterioration would you see relative to what's on the books right now?

[Stuart Aronson, CEO at WhiteHorse Finance]

So to give you two examples, Bryce, we were in a company that had industrial cyclicality to it, and they got an offer to do the deal at higher leverage and 100 basis point lower price. We may have gotten there on the price, but the higher leverage in a cyclical left us uncomfortable, so we chose to exit that credit. As compared to a company we have in the business services sector where the prepayment penalties have expired, the company has performed well. It has delevered over return since closing. In order to keep that asset, we're going to need to reduce pricing, I believe, from so far 625 or 650 down to so far 525. But because it's a strong performing asset, non-cyclical, low CapEx, we are going to follow that asset and accept the lower price.

[Stuart Aronson, CEO at WhiteHorse Finance]

It'll be primarily driven by credit concerns and how aggressive the market is getting. In general, as I mentioned, the market is now a 500-575 market in the part of the market we cover, which is the mid-market and lower mid-market. We will accept those prices because those are the market prices for credits that we think are strong and stable.

[Bryce Rowe, Equity Research Analyst at B. Riley Securities]

Okay. That's fair. And then maybe you could talk a little bit about I assume you've got a bit of a watchlist within WhiteHorse, and it's reflected in the internal risk ratings. What are you seeing internally to move credits around within that internal risk rating system, just trying to kind of understand kind of what the tail risk is within the portfolio and if it's growing with this higher-for-longer environment?

[Stuart Aronson, CEO at WhiteHorse Finance]

Yeah. The average leverage on our deals is and has been modest. So the higher rate environment is not in and of itself causing us much concern. We do, as we've indicated in the ratings on the deals and the marks you see on the deals, have a number of credits that are underperforming to the original plan. That results in a mark of 3 or a rating of 3. Some, where we're at concern of losing principal amounts, those are ratings of 4. And as I mentioned in my prepared remarks, there is no broad trend other than consumer-facing companies being weaker. There's no broad trend that we're seeing in terms of reasons why companies are underperforming.

[Stuart Aronson, CEO at WhiteHorse Finance]

In some cases, Arcserve had a technology outage and lost customer data a couple of years ago, and that has led to us taking over the company and trying to turn it around. Other credits that we're dealing with are dealing with idiosyncratic issues. We are not seeing broad economic weakness at this point. We would tell you that the revenues for companies across the portfolio, on average, are up partially due to inflation but partially due to reasonably strong demand in the general business market.

[Bryce Rowe, Equity Research Analyst at B. Riley Securities]

Okay. That's helpful. Last one for me. You kind of made some comments around New Cycle, going through a sale process, and maybe seeing a lower valuation than would have been expected. Can you talk about kind of the puts and takes of that in terms of how you deal with that within your portfolio and whether you opt to sell or keep it?

[Stuart Aronson, CEO at WhiteHorse Finance]

Thankfully, it's a very small investment. The situation is the sponsor that owned the company put the company up for sale, got an offer that they're trying to transact on, but the offer is for less than the debt value. It's a club deal. We're a very small piece of the club, but it's a club deal, and there is no active market for that paper. So the best thing for us to do is just wait for the sale of the company and collect out what we can collect on that asset. That'll be, we think, similar to where the asset is marked.

[Bryce Rowe, Equity Research Analyst at B. Riley Securities]

Okay. That's it for me. Appreciate your time.

[Joyson Thomas, CFO at WhiteHorse Finance]

Bryce, one more thing on Bryce, I was going to just say one more thing on New Cycle, and this also relates to Mickey's prior question on reversals. We did reverse out a small fee that was due at exit or maturity on New Cycle for approximately $98,000 given our prognosis on what we expect to collect.

[Bryce Rowe, Equity Research Analyst at B. Riley Securities]

Okay. But that had already been accrued, Joyson, or it's just not accrued?

[Joyson Thomas, CFO at WhiteHorse Finance]

That's correct. It had previously been accrued based on an amendment in an earlier period and reversed out during Q1.

[Bryce Rowe, Equity Research Analyst at B. Riley Securities]

Okay. Got it. Thanks.

[Operator]

And we have our next question from Erik Zwick with Hovde Group.

[Erik Zwick, Director of Equity Research at Hovde Group]

Good morning. Just one question for me and maybe kind of a two-part question. Could you just remind me kind of the characteristics that you consider for transferring investments into the JV and the JV is at just over 15% of the total fair value today. Where's your comfort range with the size of that relative to the total investment portfolio?

[Stuart Aronson, CEO at WhiteHorse Finance]

Answering the second part of your question first, we think the JV has now reached a size with the committed capital that is appropriate to the BDC. I don't think we'd increase the JV size again. We, depending on market conditions, reserve the higher-priced deals to remain on the BDC balance sheet, and the lower-priced deals go into the JV. At this point in time, as I indicated in the prepared remarks, deals that are priced 600 or higher, which would be considered a premium price in today's market, and the price we're getting on non-sponsored deals will typically go onto the BDC balance sheet. Deals that are priced under 600 will typically head to the JV.

[Erik Zwick, Director of Equity Research at Hovde Group]

Got it. Thank you. That's all for me today. I appreciate it.

[Stuart Aronson, CEO at WhiteHorse Finance]

Have a good day. Thank you.

[Operator]

Just a reminder, if you'd like to ask a question, that was star and one on your telephone keypad. Our next question comes from Sean-Paul Adams with Raymond James.

[Sean-Paul Adams, Senior Research Associate at Raymond James]

Hi, guys. Good morning.

[Stuart Aronson, CEO at WhiteHorse Finance]

Good morning.

[Sean-Paul Adams, Senior Research Associate at Raymond James]

It looks like the average investment size in the portfolio has continued to go down quarter-over-quarter, which is it's been following the trend for the last couple of quarters, I think now averaging around $5 million. Earlier in the year, you mentioned that the new average allocation target would probably be closer to $8 million to $10 million. Have you guys lowered that target allocation range going forward, or are forecasted add-ons impacting that figure?

[Stuart Aronson, CEO at WhiteHorse Finance]

I think what's really going on is a lot of the non-sponsored deals we do are smaller deals, and so the BDC's allocation into those smaller deals is ultimately a smaller number. That is just a natural result of, again, the average size of the deals that we're closing. So I would say if we see a normal market environment, I would still expect the average size of an asset going into the BDC to be more in the $8 million to $10 million range.

[Sean-Paul Adams, Senior Research Associate at Raymond James]

Got it. Thank you.

[Operator]

And once more, that was star and one for any questions and/or comments now. And again, that's star. We'd like to ask a question. And at this time, I'm currently showing no questions in the queue. I'll now turn the call back over to Stuart Aronson for closing remarks.

[Stuart Aronson, CEO at WhiteHorse Finance]

All right. Well, we continue to work hard to keep the portfolio as healthy as possible and to add good credits that will give the BDC stability going forward regardless of market conditions. I Appreciate everybody's time today. As always, heading into next quarter's call, if anyone has topics they want us to address in the prepared remarks, please communicate with either Joyson or I in advance of those calls, and we will do our best to answer questions with complete transparency. Thank you very much, and have a good day.

Participants

Executives

• Joyson Thomas, CFO
• Stuart Aronson, CEO

Analysts

• Bryce Rowe, Equity Research Analyst at B. Riley Securities
• Erik Zwick, Director of Equity Research at Hovde Group
• Mickey Schleien, Managing Director in Equity Research at Ladenburg Thalmann
• Robert Brinberg, Managing Director at Rose & Company
• Sean-Paul Adams, Senior Research Associate at Raymond James