WhiteHorse Finance NASDAQ: WHF reported lower first-quarter earnings and a decline in net asset value as previously identified credit issues weighed on results, while management said share repurchases helped offset some of the impact through NAV accretion.
Chief Executive Officer Stuart Aronson said the quarter reflected three main themes: credit marks tied to previously flagged investments, moderated core earnings due partly to a lower portfolio yield and one additional non-accrual investment, and accretive share repurchases.
“Previously flagged credit marks drove net realized and unrealized losses for the quarter,” Aronson said. He noted that Honors Holdings, Outward Hound and Lumen LATAM accounted for the bulk of the losses, consistent with what management had warned investors about on the prior shareholder call.
Earnings and NAV Decline
WhiteHorse reported GAAP net investment income and core net investment income of $5.6 million, or $0.253 per share, compared with $6.6 million, or $0.287 per share, in the prior quarter. Net asset value per share fell to $11.47 at the end of the first quarter from $11.68 at the end of the fourth quarter, a decrease of about 1.8%.
The change in NAV reflected approximately $0.284 per share in net realized and unrealized losses, partially offset by share repurchases that were accretive to NAV by about $0.08 per share. NAV was also affected by distributions paid during the quarter, including a $0.01 per share supplemental dividend.
During the quarter, WhiteHorse recognized $4.7 million in net realized losses and about $1.6 million in net unrealized losses, for total net realized and unrealized losses of $6.3 million. Aronson said the mark-to-market losses included a $2.8 million unrealized loss in Honors Holdings and a $2.1 million unrealized loss in Outward Hound, partially offset by a $2.6 million gain from the reversal of unrealized losses on investment realizations and about $0.4 million of net markups across the portfolio.
Realized losses were primarily driven by $3 million from the sale of Lumen LATAM, $1.1 million from a foreign exchange loss on repayment of the Trimlite Canadian term loan and $2.2 million from the sale of the Therm-O-Disc asset.
Portfolio Activity and Credit Quality
WhiteHorse had gross capital deployments of $25.4 million during the quarter, more than offset by repayments and sales of $38 million. That resulted in net repayments of about $12.6 million before the effects of transferring assets into the STRS JV.
Gross deployments included three new originations totaling $18.5 million, with the balance funding add-ons to 12 existing investments. The company also had $0.7 million in net fundings on revolver commitments. Aronson said all first-quarter deals were first lien loans, with the new originations carrying average leverage of approximately 5.5 times EBITDA.
Total investments declined to $543 million from $578.6 million at the end of the fourth quarter, reflecting net repayments, transfers to the STRS JV and realized and unrealized losses.
At quarter end, 98.8% of the debt portfolio was first lien senior secured. Non-sponsor investments represented about 38% of the portfolio at fair value. The weighted average effective yield on income-producing debt investments decreased to 10.8% from 11%, while the weighted average effective yield on the overall portfolio declined to 8.7% from about 9.1%.
Outward Hound was placed on non-accrual during the quarter, while Therm-O-Disc was removed from non-accrual after the final sale of WhiteHorse’s residual position. Excluding the STRS JV, non-accrual investments represented 3.6% of the total debt portfolio at fair value, up from 2.4% in the prior quarter. The four issuers on non-accrual at quarter end were Honors Holdings, Newscycle Solutions, Outward Hound and PlayMonster.
Aronson said WhiteHorse continues to actively manage underperforming credits and expects a debt restructuring for Outward Hound is likely in coming months, though he cautioned that timing and outcome are not assured. He also said Honors Holdings “continues to struggle” and that management does not yet know whether there will be a further markdown this quarter. Lumen LATAM has been fully exited.
Share Repurchases and Distribution Policy
Management highlighted share repurchases as a key tool for shareholder value, given that WhiteHorse shares continue to trade at what Aronson described as a meaningful discount to NAV.
Chief Financial Officer Joyson Thomas said the company repurchased approximately 412,000 shares during the first quarter at a weighted average price of about $7.31 per share, adding roughly $0.08 per share to NAV. After quarter end, through the market close before the call, the company repurchased an additional approximately 210,000 shares.
Since the start of the share repurchase program in the fourth quarter of 2025, Thomas said buybacks have contributed an estimated $0.31 per share of NAV accretion.
Aronson said the adviser agreed to extend its temporary voluntary incentive fee waiver for the second quarter of 2026, reducing the applicable fee rate from 20% to 17.5%. He said any decision on future waivers will depend on conditions at the time and consultation with the board.
The board declared a second-quarter base distribution of $0.25 per share, payable July 6, 2026, to stockholders of record as of May 21, 2026. Management said it will continue evaluating quarterly distributions based on the core earnings power of the portfolio and other relevant factors.
STRS JV and Balance Sheet
WhiteHorse transferred two new deals and two existing investments to the STRS JV during the quarter, totaling $18.9 million. The JV’s portfolio had an aggregate fair value of $327.1 million at quarter end, up from $323.6 million at the end of the prior quarter, and held positions in 42 portfolio companies.
Thomas said the JV generated approximately $3.6 million of income for WhiteHorse during the quarter, compared with $3.8 million in the fourth quarter, and continues to generate a low-teens return on equity.
WhiteHorse ended the quarter with cash resources of approximately $49.4 million, including $37.6 million of restricted cash and about $11.8 million at the fund level reserved for the quarterly distribution and share repurchases. The company’s asset coverage ratio was 176.2%, above the 150% minimum. Gross leverage was 1.31 times, while net effective debt-to-equity was 1.12 times after adjusting for cash.
Market Conditions and Outlook
Aronson said market conditions remain competitive, though deal flow has improved in recent weeks after geopolitical events slowed M&A activity for several months. He said the company’s team is currently working on deals at close to full capacity.
According to Aronson, negative press around direct lending and private credit has shifted supply and demand, particularly on larger deals. He said pricing has increased by 25 to 50 basis points on smaller deals and by about 50 to 100 basis points on midsize and larger deals.
WhiteHorse currently has 10 deals mandated, including four non-sponsor and six sponsor transactions. Aronson said the non-sponsor deals are priced at SOFR plus 600 basis points or above and are targeted for the BDC balance sheet, while the sponsored deals are targeted for the STRS JV. He cautioned that there is no assurance any of the deals will close.
In response to an analyst question, Aronson said buybacks remain attractive while WhiteHorse shares trade at roughly a 35% discount to NAV, although management is also evaluating new investments. He said current pricing and deal structures are more conservative than in recent years, and the company remains cautious on software and technology-related investments due to uncertainty around artificial intelligence’s potential impact.
About WhiteHorse Finance NASDAQ: WHF
WhiteHorse Finance 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.
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