WhiteHorse Finance Q2 2025 Earnings Call Transcript

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August 7, 2025

Key Takeaways

  • Negative Sentiment: WhiteHorse reported net realized and unrealized losses of $4.3 million in Q2, driving GAAP net investment income down to $6.6 million (vs. $6.8 million in Q1) and a 2.4% decline in NAV per share to $11.82.
  • Positive Sentiment: Nonaccrual investments fell to 4.9% of the debt portfolio from 8.8% last quarter, and Telestream returned to accrual status, reflecting improving credit quality.
  • Positive Sentiment: The company completed a $174 million CLO term securitization at SOFR+170 bps, repaid its revolver, extended maturities, and expects quarterly cost savings of $0.01–$0.15 per share.
  • Positive Sentiment: WhiteHorse declared its third-quarter distribution of $0.0385 per share, marking the 52nd consecutive quarterly dividend and utilizing spillover income to support payout stability.
  • Neutral Sentiment: Less than 10% of the portfolio is heavily or moderately exposed to tariffs, and portfolio companies are mitigating impact through supplier absorption and supply-chain shifts.
AI Generated. May Contain Errors.
Earnings Conference Call
WhiteHorse Finance Q2 2025
00:00 / 00:00

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Operator

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 twenty twenty five Earnings Conference Call. Our hosts for today are Stuart Aronson, Chief Executive Officer and Joyson Thomas, Chief Financial Officer. Today's call is being recorded and will be made available for replay beginning at four p.

Operator

M. Eastern Time today. The replay dial in number is (402) 220-6986. No passcode is required. At this time, all participants have been placed in a listen only mode and the floor will be open for your questions following the presentation.

Operator

It is now my pleasure to turn the floor over to Robert Brinberg of Rose and Company. Please go ahead, sir.

Robert Brinberg
President at Rose & Company

Thank you, Bo, and thank you, everyone, for joining us today to discuss WhiteHorse Finance's second quarter twenty twenty five earnings results. Before we begin, I'd like to remind everyone that certain statements, 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. Before these forward looking I'm sorry, because these forward looking statements involve known and unknown risks and uncertainties, these are important factors that could cause actual results to differ materially from those expressed or implied by these forward looking statements. WhiteHorse Finance assumes no obligation or responsibility to update any forward looking statement. Today's speakers may refer to material from the WhiteHorse Finance second quarter twenty twenty five earnings presentation, which was posted on our website this morning.

Robert Brinberg
President at Rose & Company

With that, allow me to introduce WhiteHorse Finance's CEO, Stuart Aronson. Stuart, you may begin.

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

Thank you, Rob. Good afternoon, everyone. Thank you for joining us today. As you're aware, we issued our earnings this morning before the market opened. I hope you've had a chance to review our results for the period ended 06/30/2025, which can also be found on our website.

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

On today's call, I will begin by addressing our second 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. Our results for the 2025 were disappointing as our investment portfolio declined this quarter due to net realized and unrealized losses, which impacted our financial performance. Q2 GAAP net investment income and core NII was $6,600,000 or $0.02 $82 per share compared with a quarterly distribution of $0.03 $85 per share and was below the Q1 GAAP and core NII of $6,800,000 or $0.02 $94 per share. NAV per share at the end of Q2 was $11.82 representing a 2.4 decrease from the prior quarter.

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

NAV per share was impacted by net realized and unrealized losses in our portfolio that totaled $4,300,000 Turning to our portfolio activity in Q2, we had gross capital deployments of $39,000,000 which was partially offset by total repayments and sales of $36,200,000 resulting in net deployments of $2,800,000 Gross capital deployments consisted of three new originations totaling $33,100,000 and the remaining $5,900,000 was used to fund three add ons to existing investments. In addition, there was $300,000 in net fundings made on revolver commitments. Of our three new originations in Q2, one was non sponsor and two were sponsor deals with an average leverage of approximately 4x EBITDA. All of our Q2 deals were first lien loans at an average spread of five sixty basis points and an average all in rate of 9.9% compared to 9.6% in the 2025. Total repayments and sales were 36,200,000.0 primarily driven by complete realizations in our positions in Clean Choice and Flexitallic.

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

At the end of Q2, 99.3% of our debt portfolio was first lien, senior secured and our portfolio mix was approximately two thirds sponsor and one third non sponsor. During the quarter, the transferred three new deals and one existing investment to the STRS JV. At the end of Q2, the STRS JV total portfolio had an aggregate fair value of $330,000,000 at an average effective yield on the JV's portfolio of 10.6% compared to 10.8% in Q1. Leverage for the JV at the end of Q2 was 1.16x compared with 0.98x at the end of the first prior quarter. We continue to successfully utilize the JV and believe WhiteHorse's equity investment in the JV continues to provide attractive returns for our shareholders.

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

After net deployment, JV transfers and net realized and unrealized losses, total investments decreased by $21,700,000 from the prior quarter to $629,300,000 This compares to our portfolio's fair value of $651,000,000 at the end of Q1. The weighted average effective yield on our income producing debt investments decreased to 11.9% at the end of Q2 compared to 12.1% in the 2025. The weighted average effective yield on our overall portfolio increased slightly to 9.8% at the end of Q2 compared to approximately 9.6% at the end of Q1, primarily driven by Telestream returning to accrual status and the realization of American Crafts. During the quarter, we took net write downs of $3,600,000 primarily driven by write downs in Honors Holdings and Aspect Software. As I mentioned earlier, American Crafts has now been fully resolved, eliminating any further downside from that investment.

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

No credits were placed on nonaccrual in Q2, and nonaccrual investments totaled 4.9% of the debt portfolio, an improvement compared with 8.8 of the debt portfolio at fair value in the prior quarter. As I mentioned earlier, Telestream returned to accrual status this quarter, which will benefit the BDC's earning capacity going forward. We also expect that a portion of MSI Information Services will likely go back on accrual in the third quarter, subject to a successful restructuring of the debt. Other deals on nonaccrual are likely to remain that way for some period of time. We are continuing to actively work on getting deals off nonaccrual, leveraging the expertise of our five person dedicated restructuring team and the resources of HIG Capital.

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

Aside from credits on nonaccrual, our portfolio is performing well. We have performed subsequent tariff analysis across the portfolio, and we believe that less than 10% of the portfolio is either heavily or moderately exposed to tariffs. Turning to the lending market. M and A activity remains pretty subdued due in part to tariff uncertainty, and this has led to reduced supply of new financing deals in the market. At the same time, there is plenty of capital available from other lenders.

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

This has created unprecedented competition for companies doing financings, particularly for companies that are noncyclical and do not have meaningful international sales exposure. In the upper mid cap and large cap markets, deals are typically pricing at SOFR $4.25 to SOFR 4.75 and in many cases, on highly adjusted EBITDA levels. Leverage multiples in that sector are between six and 8x, and deals are getting structured with partial pick to make the cash flows work on the deals. That is not nearly as true in the middle market, where we focus, where pricing is 50 basis points higher at between SOFR $4.75 to SOFR $5.25 Most of the deals we see are getting done at leverage of between four to 6x, and most deals still have covenant protection. In the lower mid market, pricing is very similar to the mid market, with pricing starting at circa $475 more often being at $500 or $5.25 and extending to as high as $5.75 for more complex or cyclical credits.

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

These prices and structures are for the sponsor market. The non sponsor market remains much less competitive. We continue to focus significant resources on the non sponsor market, where there are better risk returns in many cases and much less competition than what we're seeing in the new on the run sponsor market. We currently have 24 originators covering 13 local regional markets. Given market conditions, these originators are primarily focused on sourcing off the run sponsor deals for smaller private equity firms and non sponsor deals as we look for value in the market where there is limited deal flow and a lot of aggressiveness.

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

To put the attractiveness of the non sponsor market in context, our non sponsor mandates are still levered only three to 4.5 times, And the highest priced deal we have priced recently is at silver 700 with all the other deals being silver 600 or better. Subsequent to quarter end, the BDC has closed two new investments of $14,400,000 and had one full repayment totaling $9,600,000 There were two existing investments fully transferred to the JV totaling $8,000,000 Following net deployment activity in Q2 and pro form a for several transactions that have closed or that we expect to close in 2025, the BDC balance sheet has very little capacity for new assets. The JV, on the other hand, has approximately $20,000,000 of capacity, supplementing the BDC's existing capacity. Our overall sourcing is being impacted by the muted M and A activity, and our pipeline is lower than normal for this time of year. We currently have six new mandates and are working on two add ons to existing deals.

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

Our six mandates comprise three sponsor deals and three non sponsor deals. While there can be no assurance that any of these deals will close, all of these deals should fit into the BDC or our JV should we elect to transact. With that, I'll turn the call over to Joyson for additional performance details and a review of our portfolio composition. Joyson, go ahead.

Joyson Thomas
Joyson Thomas
CFO at WhiteHorse Finance

Thanks, Stuart, and thanks, everyone, for joining today's call. During the quarter, we recorded GAAP net investment income and core NII of $6,600,000 or $0.02 $82 per share. This compares with Q1 GAAP NII and core NII of $6,800,000 or $0.02 $94 per share, as well as our previously declared quarterly distribution of $0.03 $85 per share. Fee income of approximately $800,000 in Q2 was primarily due to prepayment fees earned on the full repayment in Clean Choice Energy as well as from other amendment fees. For the quarter, we reported a net increase in net assets resulting from operations of 2,300,000.0 Our risk ratings during the quarter showed that approximately 76.8% of our portfolio positions either carried a one or two rating, slightly higher than the 74.1% reported in the prior quarter.

Joyson Thomas
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 the company is performing according to such initial expectations. Regarding the JV specifically, we continue to grow our investment. As Stuart mentioned earlier, in the second quarter, we transferred three new deals and one existing investment to the SRS JV, totaling 22,800,000.0 As of 06/30/2025, the JV's portfolio held positions in 43 portfolio companies with an aggregate fair value of 330,200,000 compared to 41 portfolio companies with an aggregate fair value of $310,200,000 as of 03/31/2025. The investment in the JV continues to be accretive for the BDC's earnings, generating a mid teens return on equity. During Q2, income recognized from our JV investment aggregated to approximately $3,400,000 a slight decline from $3,700,000 in Q1.

Joyson Thomas
Joyson Thomas
CFO at WhiteHorse Finance

As we have noted in prior calls, the yield on our investment in the JV 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 $33,300,000 at the end of Q2, including $22,700,000 in restricted cash and approximately $100,000,000 of undrawn capacity available under our revolving credit facility. During the second quarter, we completed a CLO term debt securitization and issued 174,000,000 in debt, which bears interest at three month term SOFR plus 1.7%. The reinvestment period for this new term debt securitization runs through 05/25/2029, with a term debt having a maturity date of 05/25/2037.

Joyson Thomas
Joyson Thomas
CFO at WhiteHorse Finance

In connection with the CLO financing transaction, all amounts outstanding under our revolving credit facility were repaid, following which we also reduced the maximum size of the revolving credit facility to $100,000,000 This debt optimization reduced our borrowing costs, extended our debt maturity profile and enhanced our ability to access the debt capital markets, complementing the more traditional channels we've accessed and utilized in the past. We expect this optimization to result in cost savings of between $01 to $0.15 per share per quarter. As of 06/30/2025, the company's asset coverage ratio for borrowed amounts as defined by the 1940 Act was 174.6%, which was above the minimum asset coverage ratio of 150%. Our Q2 net effective debt to equity ratio after adjusting for cash on hand was approximately 1.22x compared with 1.23x from the prior quarter. Before I conclude and open up the call to questions, I'd like to again highlight our distributions.

Joyson Thomas
Joyson Thomas
CFO at WhiteHorse Finance

This morning, we announced that our Board declared a third quarter distribution of $0.03 $85 per share, which is consistent with the prior quarter. The upcoming regular distribution, the fifty second consecutive quarterly distribution paid since our IPO in December 2012, with all distributions at or above a rate of $0.03 $55 per share per quarter will be payable on 10/03/2025 to stockholders of record as of 09/19/2025. 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. In assessing distributions, we also consider our taxable income relative to amounts that we have distributed during the year when setting our overall dividend. After accounting for and including the distribution of approximately $8,900,000 paid on 07/03/2025, Our remaining amount of undistributed taxable income related to the 2024 annual period, sometimes referred to as our prior year spillover, is approximately $9,700,000 With that, I'll now turn the call back over to the operator for your questions. Operator?

Operator

Thank you, Mr. Thomas. We'll go first this afternoon to Christopher Nolan of Ladenburg Thalmann. Please go ahead.

Christopher Nolan
SVP - Equity Research at Ladenburg Thalmann & Co. Inc

Hi. Thank you for taking my questions. I guess, on American Crafts, is it correct that that was an exit or was it a restructuring?

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

It was a sale of the remaining piece of the company, and that sale yielded very little in terms of proceeds. So we have resolved that, taken the write down, and there is no further downside on that account.

Christopher Nolan
SVP - Equity Research at Ladenburg Thalmann & Co. Inc

Gotcha. And on the CLO, Joyceann was going through some of the details helpful, but what is the term of it before the, for the reinvestment period?

Joyson Thomas
Joyson Thomas
CFO at WhiteHorse Finance

Reinvestment period is through 05/25/2029.

Christopher Nolan
SVP - Equity Research at Ladenburg Thalmann & Co. Inc

Great. That's it for me. Thank you.

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

Thank you, Chris.

Operator

Thank you. We'll go next now to Melissa Wedel of JPMorgan.

Melissa Wedel
Melissa Wedel
VP - U.S. Equities Research at JP Morgan

Good afternoon. Thanks for taking my questions. Appreciate the reminder on the portion of the portfolio where companies are facing tariff pressure. I'm wondering if you can expand on that a little bit. I'm curious if there are the extent to which any mitigating actions can be taken or have been taken.

Melissa Wedel
Melissa Wedel
VP - U.S. Equities Research at JP Morgan

Can you elaborate on I assume some of it's supply chain pressure. If not, could you explain a bit more on that? Thanks.

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

Yeah. I mean, it varies company by company. In some cases, the companies are actively negotiating to have their suppliers absorb a portion of the tariff amount. We're seeing in a decent number of cases, about half the tariff amount is being absorbed. In some of the cases, the tariff amounts are still not clear based on ongoing negotiations and changes week to week.

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

And then in some other cases, particularly where we've had companies that source out of China, they have been moving their sourcing. One of our companies is in the toy business, and they've moved a lot of their sourcing from China to Vietnam. So people are taking the information that exists in the market, trying to optimize based on whatever is going on. But as we all recognize, the tariff situation changes every week and, in some cases, every day. So people are having to be nimble to, keep up with what's going on, Melissa.

Melissa Wedel
Melissa Wedel
VP - U.S. Equities Research at JP Morgan

That certainly makes sense. I I also appreciated the update on, sort of post quarter end activity, and I guess, a couple of things jumped out there. First of all, it seemed like the mandate I'm not sure if you sized it in terms of dollars, but the number of mandates, that you referenced seems to be certainly higher than last quarter, though that might not be too surprising given the volatility last quarter. But given the higher number of mandates, should we be thinking about that as you also having line of sight to some elevated repayment activity given the constraints on leverage within the general portfolio?

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

We think that we're right now in a pretty good balance between repayment and new mandates. There are companies that are either in the midst of being sold or expected to be sold in Q4. In the cases where we like those companies, we will attempt to pursue them with the new owners. But I would say, in general, Melissa, the message is that the BDC balance sheet is expected to be fully deployed this quarter based on the mandates that we have now and based on what we're seeing in terms of repayment activity. And then as I mentioned earlier, the JV has about $20,000,000 of additional capacity, which would be on the average deal allocation about three deals that we could add to the JV, which would create more income.

Melissa Wedel
Melissa Wedel
VP - U.S. Equities Research at JP Morgan

Well and I guess I'll sneak in one more follow-up on that in particular given the I'd characterize as fairly limited extra capacity in the JV. Do you have any plans on either upsizing these existing JV or perhaps pursuing additional joint ventures with other partners? Thank you.

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

No. There there are no plans to increase the JV at this time. If we decide that makes sense, we'll we'll certainly let you know. But we think the JV is sized appropriately, And we're doing our best to keep it as close to full as we can.

Melissa Wedel
Melissa Wedel
VP - U.S. Equities Research at JP Morgan

Got it. Thank you.

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

Thank you, Melissa.

Operator

Thank you. We'll go next now to Helly Scheth of Raymond James.

Heli Sheth
Heli Sheth
Equity Research Associate at Raymond James

Afternoon. Thanks for the question. In regards to the dividend, I know you mentioned prior year spillover of $9,700,000 Any update on or any idea on thought processes for working down spillover through 2025 and into 2026?

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

Joyson, can you take that?

Joyson Thomas
Joyson Thomas
CFO at WhiteHorse Finance

Sure. Certainly. Yes, as we mentioned before, the undistributed spillover income related to 2024 that still remains is $9,700,000 And so as we've discussed in prior calls, that factors into the dividend distribution for the remainder of this year into next. So I think the way to think about it is thinking about the October distribution that will be paid of approximately $8,900,000 there's still a small amount less than $1,000,000 that would be undistributed. And so factors to consider there would be a potential special dividend.

Joyson Thomas
Joyson Thomas
CFO at WhiteHorse Finance

Otherwise, that would go undistributed for the year and, roll into tax incurrence for the year. So I think from that standpoint, we're looking at that undistributed taxable income in combination with other factors related to just the shortfall of the earnings in the current year when we think about the dividend for 2026.

Heli Sheth
Heli Sheth
Equity Research Associate at Raymond James

Got it. Thanks for the color. Appreciate it.

Operator

Thank you. We go next now to Sean Paul Adams of B. Riley Securities.

Sean-Paul Adams
Equity Research Analyst - BDCs & Specialty Finance at B. Riley Securities

Hey, guys. Good afternoon. On the portfolio companies that you mentioned were you know, suffering tariff impacts, are you seeing any, you know, incremental bottom line flow through, to just the net consumer? Historically, you know, during the COVID period, it was passed through to the end user, with with with little to no issue after the six to twelve six to twelve month volatility period.

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

Good afternoon. And the answer is yes. To the extent that tariffs are not being fully absorbed by the suppliers, our companies are raising prices and they are seeing competing companies raise prices as well. So far, what we don't know is how the consumer will react to those higher prices. And a good example of that is the toy and game company that we're lending to.

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

We won't know the consumer reaction to higher prices until we get through the holiday season and see what the sales look like. But in general, anything not being absorbed by the suppliers is being attempted to be passed through to the final users or consumers.

Sean-Paul Adams
Equity Research Analyst - BDCs & Specialty Finance at B. Riley Securities

Got it. Thank you.

Operator

Thank you. And gentlemen, I have no further questions coming in today. So that will bring us to the conclusion of today's conference call. We would like to thank everyone for joining today's WhiteHorse Finance Second Quarter twenty twenty five Earnings Call. Again, thanks so much for joining us, everyone, and we wish you all a great afternoon. Goodbye.

Stuart Aronson
Stuart Aronson
CEO & Director at WhiteHorse Finance

Bye bye.

Executives
    • Stuart Aronson
      Stuart Aronson
      CEO & Director
    • Joyson Thomas
      Joyson Thomas
      CFO
Analysts
    • Robert Brinberg
      President at Rose & Company
    • Christopher Nolan
      SVP - Equity Research at Ladenburg Thalmann & Co. Inc
    • Melissa Wedel
      VP - U.S. Equities Research at JP Morgan
    • Heli Sheth
      Equity Research Associate at Raymond James
    • Sean-Paul Adams
      Equity Research Analyst - BDCs & Specialty Finance at B. Riley Securities
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