WhiteHorse Finance(US:WHF)2023-11-09 12:34Investment Income and Expenses - Total investment income for Q3 2023 was $25.9 million, an increase of $4.3 million (20%) compared to Q3 2022[315]. - Net investment income for Q3 2023 was $10.8 million, up $1.0 million (10.2%) from Q3 2022[316]. - Total expenses for Q3 2023 were $15.1 million, an increase of $3.3 million (27.7%) compared to Q3 2022[315]. - Interest and payment-in-kind income rose by $3.922 million (22.8%) for the three months ended September 30, 2023, totaling $21.138 million, primarily due to increased base rates[317]. - Operating expenses for the three months ended September 30, 2023, were $15.055 million, an increase of $3.265 million (27.7%) from $11.790 million in 2022[320]. - Interest expense increased by $1.927 million (34.2%) for the three months ended September 30, 2023, totaling $7.559 million, primarily due to higher weighted average interest rates[320]. - Performance-based incentive fees increased by $1.676 million (163.2%) for the three months ended September 30, 2023, totaling $2.703 million, driven by higher pre-incentive fee net investment income[323]. Investment Gains and Losses - Net realized gains on investments for Q3 2023 were $211, compared to a loss of $15.9 million in Q3 2022[315]. - The net change in unrealized losses on investments for Q3 2023 was $5.4 million, an improvement from a loss of $6.2 million in Q3 2022[315]. - Total net realized losses on investments for the three months ended September 30, 2023, were $(0.3) million, compared to net realized gains of $0.2 million in 2022[327]. - Gross unrealized depreciation on investments for the three months ended September 30, 2023, was $(10.3) million, compared to $(9.2) million in 2022[330]. Assets and Investments - For the nine months ended September 30, 2023, total investment income was $77.6 million, an increase of $16.0 million (25.9%) from the same period in 2022[315]. - As of September 30, 2023, STRS JV had total assets of $329.7 million, up from $305.3 million as of December 31, 2022[340]. - The total investments in STRS JV increased to $312.95 million as of September 30, 2023, from $284.26 million as of December 31, 2022, reflecting a growth of approximately 10.1%[346]. - The investment portfolio consisted of senior secured loans across 109 positions in 69 companies, with an aggregate fair value of $706.8 million as of September 30, 2023[380]. - The company had a fair value of loans amounting to $564.3 million as of September 30, 2023[369]. - The average investment size in the portfolio was $5.6 million, with investment sizes ranging from zero to $21.8 million[380]. Borrowings and Credit Facilities - The company had approximately $126.4 million undrawn and available to be drawn under the Credit Facility as of September 30, 2023[338]. - The Credit Facility allows for borrowings up to $335.0 million, with an accordion feature permitting expansion up to $375.0 million as of September 30, 2023[362]. - The required minimum outstanding borrowings under the Credit Facility were $234.5 million as of September 30, 2023[362]. - As of September 30, 2023, there were $208.6 million in outstanding borrowings under the Credit Facility, with approximately $126.4 million available to be drawn[369]. Distributions and Shareholder Returns - Total distributions declared for the three months ended September 30, 2023, were $8.6 million ($0.37 per share), compared to $8.3 million ($0.355 per share) in the same period of 2022[391]. - For the nine months ended September 30, 2023, total distributions were $27.1 million ($1.165 per share), up from $24.7 million ($1.065 per share) in 2022[391]. - The company estimates that $27.1 million of the distributions for the nine months ended September 30, 2023, included ordinary income for tax purposes[392]. - The company has adopted a dividend reinvestment plan (DRIP) for common stockholders, allowing cash distributions to be automatically reinvested unless opted out[394]. Valuation and Fair Value - The valuation of investments is primarily based on bid quotations from unaffiliated market makers or independent third-party pricing services[405]. - The fair value of investments is categorized into three levels based on the transparency of inputs used for measurement, with Level 1 being quoted prices in active markets[411][412]. - Fair value for investments is determined using various methodologies, including discounted cash flow analysis and market prices, with significant inputs assessed based on their relevance[415]. - The assessment of fair value inputs requires judgment and considers factors specific to each financial instrument[414]. Market Risks and Interest Rates - The company is subject to financial market risks, particularly from changes in interest rates, which may adversely affect net investment income and stock value[422]. - The company may hedge against interest rate fluctuations using standard hedging instruments, although this may limit benefits from lower interest rates[429]. - As of September 30, 2023, the company reported a potential annualized impact of a 300 basis point increase in interest rates, resulting in a net decrease of $13.562 million in income[425]. - Nearly all performing floating rate investments in the portfolio had interest rate floors, limiting benefits from interest rate increases until they exceed the floor[426]. Other Financial Activities - The company entered into an amended investment advisory agreement effective January 1, 2024, reducing the base management fee from 2.00% to 1.75%[313]. - The company contributed three additional assets of senior secured debt facilities to the STRS JV from October 1, 2023, to November 9, 2023[313]. - The company recorded a realized loss of $9,000 on forward currency contracts for the three months ended September 30, 2023, while unrealized appreciation was $31,000[430]. - Interest income is accrued only if collectability is expected, with loans placed on non-accrual status upon default[418]. - The company may receive origination fees, which are deferred and accreted into income over the loan term[420]. - Interest expense is recorded on an accrual basis, with certain legal and valuation expenses recognized as incurred[419].