WhiteHorse Finance NASDAQ: WHF reported second-quarter core net investment income of $4.7 million, or $0.217 per share, down from $5.6 million, or $0.253 per share, in the first quarter. The company said the decline reflected a smaller average portfolio and the first-quarter move of its Outward Hound loan investment to non-accrual status.
Net asset value per share increased to $11.77 at June 30 from $11.47 at the end of the prior quarter, a gain of approximately 2.6%. Chief Executive Officer Stuart Aronson said the increase was driven by net realized and unrealized gains, as well as accretive share repurchases, partly offset by the quarterly distribution exceeding net investment income.
Portfolio marks turn positive
WhiteHorse reported approximately $5.7 million of aggregate net realized and unrealized gains during the quarter, including about $5.8 million of net unrealized gains and $0.1 million of net realized losses. Aronson said gross unrealized appreciation of $7.1 million more than offset $1.4 million of gross unrealized depreciation.
The principal driver was a $4.8 million markup on Starco, also known as Chase Products or Pressurized Holdings, representing roughly $0.22 per share. The company assumed ownership of the maker of consumer and industrial chemical and aerosol products in March 2023. Aronson said Chase improved from negative EBITDA at the time of the acquisition to a low-double-digit positive EBITDA run rate, aided by customer wins and additional production capacity.
WhiteHorse also recorded a $0.4 million markup on PlayMonster, a toy and game company that owns or licenses brands including Hacky Sack, Spirograph, Taco vs. Burrito and 5 Second Rule. Aronson said the company has returned to positive and growing adjusted EBITDA.
Management said it was cautiously optimistic about a potential liquidity event for Chase over the next six to 12 months. During the question-and-answer session, Aronson said Chase and Naviga were the two most likely potential realizations during the second half, though he emphasized there was no assurance either process would close by year-end. He added that PlayMonster could also become a sale candidate after its full-year 2026 results are finalized.
Aronson said the positions currently produce limited cash income, but realizations would turn their value into cash that could be redeployed into income-producing investments or used for share repurchases.
Deployments, portfolio quality and Outward Hound restructuring
Gross capital deployments totaled $25.4 million in the second quarter, including three new originations totaling $23.1 million and add-on investments in five existing portfolio companies. New investments included $10.1 million in Empire Office, $6.6 million in Intermedia Cloud Communications and $6.4 million in Vibration Mountings & Controls.
All three new originations were first-lien loans and carried average leverage of approximately 4.2 times EBITDA, according to the company. Repayments and sales totaled $2.2 million, consisting of partial paydowns, with no full realizations during the quarter.
After deployments, transfers to the STRS joint venture and valuation gains, total investments rose to $569.2 million from $543 million at the end of the first quarter. The debt portfolio was 98.8% first-lien senior secured at quarter-end, while non-sponsor investments represented approximately 40% of the portfolio at fair value.
The weighted average effective yield on income-producing debt investments remained 10.8%, while the effective yield on the overall portfolio increased to 8.8% from 8.7% in the prior quarter.
There were no additions to or removals from non-accrual status during the quarter. Excluding the STRS joint venture, non-accrual investments represented 3.6% of the debt portfolio at fair value. The four non-accrual issuers were Camarillo Fitness Holdings, New Cycle Solutions, Outward Hound and PlayMonster.
Subsequent to quarter-end, WhiteHorse completed a restructuring of Outward Hound, recapitalizing the pet-products company with a new revolver and term loan while converting a substantial portion of debt into equity. WhiteHorse now holds majority ownership and board control, and the restructured term loan returned to accrual status upon closing, which management said would benefit third-quarter net investment income.
Aronson said category demand for pet products has softened and retailer inventories remain lean, although consumer sell-through has held up better than peers. He said WhiteHorse expects to work with management on growth and cost initiatives, and does not expect an exit before 2028 absent an unsolicited strategic offer.
Share repurchases and balance sheet
WhiteHorse repurchased approximately 345,000 shares during the second quarter at a weighted average price of $7.42 per share, including commissions, for total spending of about $2.6 million. Chief Financial Officer Joyson Thomas said the repurchases added more than $0.06 per share to NAV.
The company paused buybacks in late May, citing the trade-off between buying shares at a discount to NAV and maintaining capital for investments while managing leverage. Approximately $9.5 million remained under the repurchase authorization at quarter-end.
Since the program began in the fourth quarter of 2025, WhiteHorse has repurchased approximately 1.8 million shares at a weighted average price of $7.36 per share. Thomas estimated those repurchases have generated about $0.33 per share of NAV accretion.
At June 30, gross leverage was 1.30 times, compared with 1.31 times in the prior quarter, while net effective debt-to-equity was 1.19 times, up from 1.12 times due primarily to lower cash as deployments exceeded repayments. The company’s asset coverage ratio was 177%, above the 150% regulatory minimum.
WhiteHorse had $85 million of unsecured notes maturing in December, including $10 million of 5.375% notes due Dec. 4 and $75 million of notes due Dec. 15. Thomas said the company was evaluating alternatives for addressing the maturities, potentially including revolving-credit capacity and cash on hand.
Market outlook and distribution
Aronson said direct-lending market conditions have become more favorable as investor outflows and heightened scrutiny of asset marks have moderated competition. He said leverage on sponsored transactions is generally one-half turn to a full turn lower than a year to a year and a half ago, while pricing is 25 to 50 basis points higher.
According to Aronson, sponsored deal pricing was generally in a range of SOFR plus 475 to 550 basis points, approximately 50 basis points higher than a year ago. He said WhiteHorse is increasingly focusing on middle-market and upper-middle-market credits, where it sees a more attractive risk-return profile, and is obtaining covenants on most transactions.
The company transferred two investments totaling $7.8 million to the STRS joint venture during the second quarter. The joint venture had a $340.3 million portfolio across 43 issuers at quarter-end and generated a low-teens return on equity for WhiteHorse’s investment, Thomas said. Following five additional portfolio transfers after quarter-end, Aronson said the JV’s remaining capacity had been fully utilized, while the BDC balance sheet had capacity for approximately $10 million of additional assets.
The board declared a third-quarter base distribution of $0.25 per share, payable Oct. 5 to stockholders of record Sept. 21. The advisers also extended a temporary voluntary incentive-fee waiver for the third quarter, reducing the applicable rate to 17.5% from 20%.
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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