WhiteHorse Finance(US:WHF)2024-05-08 11:35Part I. Financial Information Item 1. Financial Statements This section presents WhiteHorse Finance, Inc.'s unaudited consolidated financial statements for Q1 2024, detailing financial position, operational results, cash flows, and investment portfolio Consolidated Statements of Assets and Liabilities Total assets increased to $735.0 million, while total net assets decreased to $313.8 million, resulting in a NAV per share decline to $13.50 as of March 31, 2024 Consolidated Statements of Assets and Liabilities Highlights (in thousands, except per share data) | Metric | March 31, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total Investments, at fair value | $697,869 | $696,168 | | Total Assets | $735,049 | $730,751 | | Total Liabilities | $421,257 | $413,979 | | Total Net Assets | $313,792 | $316,772 | | Net Asset Value per share | $13.50 | $13.63 | Consolidated Statements of Operations For Q1 2024, total investment income decreased to $25.5 million, while net investment income slightly increased to $10.8 million, but net assets from operations fell to $6.0 million due to higher losses Consolidated Statements of Operations Summary (in thousands, except per share data) | Metric | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Total Investment Income | $25,475 | $26,164 | | Total Expenses | $14,368 | $15,210 | | Net Investment Income after excise tax | $10,815 | $10,704 | | Net Realized and Unrealized Gains (Losses) | $(4,846) | $(3,198) | | Net Increase in Net Assets from Operations | $5,969 | $7,506 | | Basic and Diluted Earnings per Share | $0.26 | $0.32 | | Dividends Declared per Share | $0.39 | $0.43 | Consolidated Statements of Changes in Net Assets Net assets decreased by $3.0 million to $313.8 million for Q1 2024, primarily due to $8.9 million in distributions offsetting the $6.0 million net increase from operations Changes in Net Assets for the Three Months Ended March 31, 2024 (in thousands) | Description | Amount | | :--- | :--- | | Balance as of December 31, 2023 | $316,772 | | Net Increase in Net Assets from Operations | $5,969 | | Distributions Declared | $(8,949) | | Balance as of March 31, 2024 | $313,792 | Consolidated Statements of Cash Flows Net cash provided by operating activities significantly decreased to $1.6 million in Q1 2024, leading to a $3.6 million net decrease in cash, ending the period with $20.9 million Consolidated Cash Flows Summary (in thousands) | Cash Flow Activity | Three months ended March 31, 2024 | Three months ended March 31, 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $1,600 | $21,762 | | Net Cash from Financing Activities | $(5,169) | $(25,766) | | Net Change in Cash | $(3,586) | $(4,016) | | Cash at Beginning of Period | $24,487 | $26,264 | | Cash at End of Period | $20,901 | $22,248 | Consolidated Schedules of Investments The investment portfolio's fair value was $697.9 million as of March 31, 2024, primarily composed of first lien secured loans and diversified across various industries Portfolio Composition by Investment Type (as of March 31, 2024, in thousands) | Investment Type | Amortized Cost | Fair Value | | :--- | :--- | :--- | | First lien secured loans | $584,209 | $562,269 | | Second lien secured loans | $4,946 | $4,948 | | Unsecured loans | $1,238 | $1,239 | | Subordinated Note to STRS JV | $84,416 | $84,416 | | Equity (excluding STRS JV) | $44,981 | $22,389 | | Equity in STRS JV | $21,104 | $22,608 | | Total | $740,894 | $697,869 | Top 5 Industry Concentrations by Fair Value (as of March 31, 2024, in thousands) | Industry | Fair Value | % of Portfolio (ex-STRS JV) | | :--- | :--- | :--- | | Broadline Retail | $36,355 | 6.2% | | Application Software | $33,226 | 5.6% | | Commodity Chemicals | $30,720 | 5.2% | | Air Freight & Logistics | $27,938 | 4.7% | | Home Furnishings | $28,030 | 4.7% | Notes to the Consolidated Financial Statements (Unaudited) This section details the company's accounting policies, fair value measurements, investment portfolio, borrowings, related party transactions, and financial highlights - The company's investment objective is to generate returns by originating and investing in senior secured loans to performing lower middle market companies65 - The company's investment activities are managed by H.I.G. WhiteHorse Advisers, LLC, and it has elected to be treated as a Regulated Investment Company (RIC) for tax purposes6566 - The company co-manages a joint venture, WHF STRS Ohio Senior Loan Fund, LLC ("STRS JV"), with the State Teachers Retirement System of Ohio. As of March 31, 2024, STRS JV had total assets of $327.9 million138141 - Effective January 1, 2024, the base management fee was reduced from 2.00% to 1.75% on consolidated gross assets, with a lower rate of 1.25% on assets exceeding 200% leverage238239 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, liquidity, capital resources, and portfolio performance for Q1 2024, including critical accounting policies Consolidated Results of Operations Net investment income slightly increased to $10.8 million in Q1 2024 due to lower expenses, despite a decrease in total investment income, while net assets from operations declined to $6.0 million Comparison of Consolidated Results of Operations (in thousands) | | Three months ended March 31, 2024 | Three months ended March 31, 2023 | Variance | | :--- | :--- | :--- | :--- | | Total investment income | $25,475 | $26,164 | $(689) | | Total expenses | $14,660 | $15,460 | $(800) | | Net investment income | $10,815 | $10,704 | $111 | | Net realized/unrealized gains (losses) | $(4,846) | $(3,198) | $(1,648) | | Net increase in net assets | $5,969 | $7,506 | $(1,537) | - Base management fees decreased by $0.6 million YoY due to a reduction in the fee rate from 2.00% to 1.75%, effective January 1, 2024314 Financial Condition, Liquidity and Capital Resources As of March 31, 2024, the company maintained $20.9 million in cash and $135.0 million available under its credit facility, with an asset coverage ratio of 179.5% - As of March 31, 2024, the company had cash and cash equivalents of $20.9 million and $135.0 million available under its Credit Facility331 - The company's asset coverage ratio for borrowed amounts was 179.5% as of March 31, 2024, exceeding the required minimum of 150%213 Total Borrowings Outstanding (as of March 31, 2024, in thousands) | Facility | Principal Amount Outstanding | Amortized Cost | Available | | :--- | :--- | :--- | :--- | | JPM Credit Facility | $199,974 | $198,597 | $135,026 | | 5.375% 2025 Notes | $40,000 | $39,793 | $0 | | 5.375% 2026 Notes | $10,000 | $9,922 | $0 | | 4.000% 2026 Notes | $75,000 | $74,077 | $0 | | 5.625% 2027 Notes | $10,000 | $9,908 | $0 | | 4.250% 2028 Notes | $25,000 | $24,758 | $0 | | 7.875% 2028 Notes | $34,500 | $33,277 | $0 | | Total Debt | $394,474 | $390,332 | $135,026 | Portfolio Investments and Yield The investment portfolio, valued at $697.9 million with a 12.1% weighted average yield, shows 77.6% of investments meeting or exceeding expectations as of March 31, 2024 Investment Performance Rating (as of March 31, 2024, in millions) | Rating | Fair Value | Percentage of Total Portfolio | | :--- | :--- | :--- | | 1 | $99.7 | 14.3% | | 2 | $441.9 | 63.3% | | 3 | $127.9 | 18.3% | | 4 | $19.9 | 2.9% | | 5 | $8.5 | 1.2% | | Total | $697.9 | 100.0% | - The weighted average effective yield on the total portfolio was 12.1% as of March 31, 2024371 Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate exposure, with a 100 basis point rate increase projected to raise annual net assets by $4.5 million, and it manages foreign currency risk with contracts Annualized Impact of Hypothetical Base Rate Changes (in thousands) | Basis Point Change | Increase (Decrease) in Interest Income | Increase (Decrease) in Interest Expense | Net Increase (Decrease) | | :--- | :--- | :--- | :--- | | +300 | $19,453 | $5,999 | $13,454 | | +200 | $12,969 | $3,999 | $8,970 | | +100 | $6,484 | $2,000 | $4,484 | | -100 | $(6,484) | $(2,000) | $(4,484) | | -200 | $(12,969) | $(3,999) | $(8,970) | | -300 | $(19,369) | $(5,999) | $(13,370) | - The company utilizes forward foreign currency exchange contracts to protect against fluctuations in exchange rates422 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2024423 Part II. Other Information Item 1. Legal Proceedings & Other Items This section confirms no material legal proceedings, unregistered equity sales, or defaults on senior securities for the reporting period - The company is not a party to any material legal proceedings424 - There were no unregistered sales of equity securities, defaults upon senior securities, or other material information to report under Item 5426427429 Item 1A. Risk Factors The company refers to previously disclosed risk factors, confirming no material changes or additions during the current reporting period - There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K425 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including the Investment Advisory Agreement and required CEO/CFO certifications - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906432