WhiteHorse Finance(US:WHF)2025-08-07 11:32Part I. Financial Information Item 1. Financial Statements This section presents the unaudited consolidated financial statements of WhiteHorse Finance, Inc. for the periods ended June 30, 2025, and December 31, 2024, including statements of assets and liabilities, operations, changes in net assets, cash flows, and schedules of investments Consolidated Statements of Assets and Liabilities As of June 30, 2025, total assets decreased slightly to $670,908 thousand from $676,821 thousand at December 31, 2024, primarily due to a decrease in total investments at fair value | Metric (in thousands) | June 30, 2025 (Unaudited) (in thousands) | December 31, 2024 (in thousands) | | :----------------------------------- | :--------------------------------------- | :------------------------------- | | Total assets | $670,908 | $676,821 | | Total liabilities | $396,158 | $390,687 | | Total net assets | $274,750 | $286,134 | | Net asset value per share | $11.82 | $12.31 | - Total investments at fair value decreased from $642,213 thousand to $629,264 thousand9 - Debt (net of unamortized debt issuance costs) increased from $353,117 thousand to $363,177 thousand9 Consolidated Statements of Operations For the three months ended June 30, 2025, total investment income decreased to $18,838 thousand from $23,482 thousand in 2024, while total expenses decreased to $12,090 thousand from $13,923 thousand | Metric (in thousands) | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total investment income | $18,838 | $23,482 | $37,639 | $48,957 | | Total expenses | $12,090 | $13,923 | $23,943 | $28,291 | | Net investment income after excise tax | $6,562 | $9,292 | $13,405 | $20,107 | | Net realized gains (losses) | $(22,045) | $(93) | $(22,447) | $(5,727) | | Net change in unrealized appreciation (depreciation) | $17,733 | $(1,360) | $15,556 | $(572) | | Net increase (decrease) in net assets from operations | $2,250 | $7,839 | $6,514 | $13,808 | | Basic and diluted EPS | $0.10 | $0.34 | $0.28 | $0.59 | - Net realized losses on controlled affiliate company investments were significant at $(20,980) thousand for the three and six months ended June 30, 202512 - Net change in unrealized appreciation on controlled affiliate company investments was $20,378 thousand for the three months ended June 30, 2025, and $19,563 thousand for the six months ended June 30, 202512 Consolidated Statements of Changes in Net Assets For the six months ended June 30, 2025, total net assets decreased from $286,134 thousand at December 31, 2024, to $274,750 thousand, primarily due to distributions declared and net realized losses on investments | Metric (in thousands) | December 31, 2024 (in thousands) | June 30, 2025 (in thousands) | | :----------------------------------- | :------------------------------- | :--------------------------- | | Balance of Total Net Assets | $286,134 | $274,750 | | Net investment income after excise tax | N/A | $13,405 | | Net realized gains (losses) | N/A | $(22,447) | | Net change in unrealized appreciation (depreciation) | N/A | $15,556 | | Distributions declared | N/A | $(17,898) | - Accumulated earnings (losses) shifted from $(51,094) thousand at December 31, 2024, to $(62,478) thousand at June 30, 202515 Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash provided by operating activities was $14,694 thousand, a significant decrease from $43,115 thousand in 2024, mainly due to lower net increase in net assets from operations | Metric (in thousands) | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by / (used in) operating activities | $14,694 | $43,115 | | Net cash provided by / (used in) financing activities | $(9,283) | $(45,846) | | Net change in cash, cash equivalents and restricted cash | $5,443 | $(2,731) | | Cash, cash equivalents and restricted cash at end of period | $33,279 | $21,756 | - Acquisition of investments decreased from $(116,442) thousand in 2024 to $(90,469) thousand in 202520 - Proceeds from notes issued were $174,000 thousand in 2025, with no equivalent in 202420 Consolidated Schedules of Investments As of June 30, 2025, the total fair value of investments was $629,264 thousand, primarily consisting of debt investments ($577,111 thousand) and equity investments ($52,153 thousand) | Investment Type (in thousands) | Amortized Cost (June 30, 2025) (in thousands) | Fair Value (June 30, 2025) (in thousands) | Amortized Cost (Dec 31, 2024) (in thousands) | Fair Value (Dec 31, 2024) (in thousands) | | :----------------------------------- | :-------------------------------------------- | :---------------------------------------- | :------------------------------------------- | :--------------------------------------- | | Total Debt Investments | $596,356 | $577,111 | $631,941 | $596,626 | | Total Equity Investments | $70,411 | $52,153 | $63,299 | $45,587 | | Total Investments | $666,767 | $629,264 | $695,240 | $642,213 | | Total Money Market Funds | $28,026 | $28,026 | $13,249 | $13,249 | | Industry (Fair Value, June 30, 2025) | Amount (in thousands) | Percentage of Net Assets | | :----------------------------------- | :-------------------- | :----------------------- | | Specialized Finance | $84,416 | 30.7% | | Integrated Telecommunication Services | $27,948 | 10.2% | | Air Freight & Logistics | $29,220 | 10.5% | | Home Furnishings | $25,152 | 9.1% | | Application Software | $25,310 | 9.1% | - As of June 30, 2025, the weighted average remaining term of the Company's debt investments, excluding non-accrual investments, was approximately 2.9 years, down from 3.0 years at December 31, 2024126 - Total cost basis of non-accrual loans decreased from $69,576 thousand at December 31, 2024, to $39,889 thousand at June 30, 2025127 Notes to the Consolidated Financial Statements These notes provide critical context to the financial statements, detailing the company's structure as a Business Development Company (BDC) and Regulated Investment Company (RIC), its investment strategy focused on senior secured loans, and its external management NOTE 1 - ORGANIZATION WhiteHorse Finance, Inc. is an externally managed, non-diversified, closed-end management investment company operating as a Business Development Company (BDC) and a Regulated Investment Company (RIC) - WhiteHorse Finance, Inc. is an externally managed, non-diversified, closed-end management investment company that has elected to be treated as a business development company under the 1940 Act and a regulated investment company (RIC) for tax purposes66 - The company's investment objective is to generate attractive risk-adjusted returns primarily by originating and investing in senior secured loans to performing lower middle market companies, typically with floating interest rates (SOFR plus a spread) and terms of three to six years67 - Investment activities are managed by H.I.G. WhiteHorse Advisers, LLC, and administrative services are provided by H.I.G. WhiteHorse Administration, LLC68 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements are prepared in conformity with GAAP for investment companies, consolidating wholly-owned investment company subsidiaries but not the STRS JV or controlled affiliate investments - Consolidated financial statements include WhiteHorse Finance and its wholly-owned subsidiaries, which meet the definition of an investment company under ASC Topic 94669 - Fair value of financial instruments is determined in accordance with ASC Topic 820, using a three-level hierarchy based on observability of inputs75 - Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis, and PIK interest is accrued at contractual rates and added to loan principal8386 - Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more or when collection is doubtful87 - The company is assessing the impact of ASU 2023-09 (Income Tax Disclosures, effective after Dec 15, 2024) and ASU 2024-03 (Expense Disaggregation Disclosures, effective after Dec 15, 2026) on its consolidated financial statements106107 NOTE 3 - FORWARD CURRENCY CONTRACTS The company uses foreign currency forward contracts to manage foreign exchange rate risk on investments, marking them to market with unrealized gains/losses recognized periodically - The Company enters into foreign currency forward contracts to facilitate settlement of foreign currency-denominated investments and to economically hedge against adverse exchange rate changes108 | Metric (in thousands) | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Realized gain (loss) on forward currency contracts | $0 | $28 | $22 | $0 | | Unrealized appreciation (depreciation) on forward currency contracts | $21 | $(16) | $1 | $36 | | Total net realized and unrealized gains (losses) | $21 | $12 | $23 | $36 | | Counterparty (in thousands) | Currency to be sold (in thousands) | Currency to be purchased (in thousands) | Settlement date (in thousands) | Unrealized appreciation (in thousands) | | :----------------------------------- | :--------------------------------- | :-------------------------------------- | :----------------------------- | :------------------------------------- | | Morgan Stanley | C$ 20,540 CAD | $15,132 USD | 8/6/25 | $21 | NOTE 4 - INVESTMENTS As of June 30, 2025, total investments at fair value were $629,264 thousand, primarily in first lien secured loans ($488,079 thousand) and a subordinated note to STRS JV ($84,416 thousand) | Investment Type (in thousands) | Amortized Cost (June 30, 2025) (in thousands) | Fair Value (June 30, 2025) (in thousands) | Amortized Cost (Dec 31, 2024) (in thousands) | Fair Value (Dec 31, 2024) (in thousands) | | :----------------------------------- | :-------------------------------------------- | :---------------------------------------- | :------------------------------------------- | :--------------------------------------- | | First lien secured loans | $507,347 | $488,079 | $538,078 | $502,693 | | Second lien secured loans | $3,384 | $3,384 | $8,295 | $8,342 | | Unsecured loans | $1,209 | $1,230 | $1,152 | $1,175 | | Subordinated Note to STRS JV | $84,416 | $84,416 | $84,416 | $84,416 | | Equity (excluding STRS JV) | $49,307 | $30,458 | $42,195 | $22,846 | | Equity in STRS JV | $21,104 | $21,697 | $21,104 | $22,741 | | Total | $666,767 | $629,264 | $695,240 | $642,213 | | Industry (Fair Value, June 30, 2025) | Amount (in thousands) | Percentage of Total (excluding STRS JV) | | :----------------------------------- | :-------------------- | :-------------------------------------- | | Advertising | $1,583 | 0.3% | | Air Freight & Logistics | $29,220 | 5.6% | | Application Software | $25,310 | 4.8% | | Asset Management & Custody Banks | $7,793 | 1.5% | | Broadcasting | $7,524 | 1.4% | | Broadline Retail | $4,642 | 0.9% | | Building Products | $13,808 | 2.6% | | Construction & Engineering | $12,367 | 2.4% | | Construction Materials | $5,289 | 1.0% | | Data Processing & Outsourced Services | $27,561 | 5.3% | | Distributors | $10,370 | 2.0% | | Diversified Chemicals | $6,137 | 1.2% | | Diversified Support Services | $9,755 | 1.9% | | Education Services | $20,673 | 4.0% | | Environmental & Facilities Services | $2,315 | 0.4% | | Food Distributors | $310 | 0.1% | | Health Care Facilities | $9,165 | 1.8% | | Health Care Services | $19,009 | 3.6% | | Health Care Supplies | $19,429 | 3.7% | | Heavy Electrical Equipment | $9,608 | 1.8% | | Home Furnishings | $25,152 | 4.8% | | Household Appliances | $19,435 | 3.7% | | Household Products | $20,958 | 4.0% | | Human Resource & Employment Services | $2,908 | 0.6% | | Industrial Machinery & Supplies & Components | $13,044 | 2.5% | | Integrated Telecommunication Services | $27,948 | 5.3% | | Interactive Media & Services | $16,015 | 3.1% | | IT Consulting & Other Services | $4,555 | 0.9% | | Leisure Facilities | $18,754 | 3.6% | | Leisure Products | $23,940 | 4.6% | | Packaged Foods & Meats | $4,135 | 0.8% | | Paper Products | $9,236 | 1.8% | | Real Estate Services | $20,451 | 3.9% | | Research & Consulting Services | $5,242 | 1.0% | | Security & Alarm Services | $7,035 | 1.3% | | Specialized Consumer Services | $7,006 | 1.3% | | Systems Software | $26,500 | 5.1% | | Technology Hardware, Storage & Peripherals | $18,889 | 3.6% | | Transaction & Payment Processing Services | $10,080 | 1.8% | | Total | $523,151 | 100.0% | - As of June 30, 2025, the total cost basis of non-accrual loans was $39,889 thousand, and the total fair value was $23,960 thousand, a decrease from December 31, 2024127 STRS JV Selected Balance Sheet Information (in thousands): | Metric (in thousands) | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Investments, at fair value | $330,187 | $294,957 | | Total assets | $350,952 | $309,077 | | Credit facility (net) | $184,423 | $141,057 | | Note payable to members | $128,459 | $128,459 | | Members' equity | $33,017 | $34,607 | STRS JV Selected Statement of Operations Information (in thousands): | Metric (in thousands) | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total investment income | $9,046 | $10,107 | $17,582 | $20,197 | | Total expenses | $7,113 | $7,789 | $13,908 | $15,723 | | Net investment income | $1,933 | $2,318 | $3,674 | $4,474 | | Net increase in members' equity from operations | $822 | $3,213 | $2,254 | $6,444 | NOTE 5 – FAIR VALUE MEASUREMENTS The company categorizes its financial instruments into a three-level fair value hierarchy based on input observability, with most investments classified as Level 3 - Fair value hierarchy categorizes financial instruments into Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs), and Level 3 (significant unobservable inputs)197198 | Investment Type (in thousands) | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Total (in thousands) | | :----------------------------------- | :--------------------- | :--------------------- | :--------------------- | :------------------- | | First lien secured loans | $0 | $0 | $488,079 | $488,079 | | Second lien secured loans | $0 | $0 | $3,384 | $3,384 | | Unsecured loans | $0 | $0 | $1,230 | $1,230 | | Subordinated Note to STRS JV | $0 | $0 | $84,416 | $84,416 | | Equity (excluding STRS JV) | $0 | $0 | $30,458 | $30,458 | | Equity in STRS JV | $0 | $0 | $0 | $21,697 | | Total investments | $0 | $0 | $607,567 | $629,264 | | Investment Type (in thousands) | Valuation Techniques (in thousands) | Unobservable Inputs (in thousands) | Range (Weighted Average) (in thousands) | | :----------------------------------- | :---------------------------------- | :--------------------------------- | :-------------------------------------- | | First lien secured loans | Discounted cash flow | Discount Rate | 8.1% - 33.0% (12.2%) | | First lien secured loans | Enterprise value | EBITDA Multiple | 4.9 - 7.0 (6.5) | | Common equity | Enterprise value | EBITDA multiple | 6.0 - 12.6 (8.8) | | Borrowing Type (in thousands) | Fair Value Level (in thousands) | Principal Amount Outstanding (in thousands) | Fair Value (in thousands) | | :----------------------------------- | :------------------------------ | :------------------------------------------ | :------------------------ | | 2025 CLO Notes | 3 | $174,000 | $174,000 | | JPM Credit Facility | 3 | $0 | $0 | | 5.375% 2025 Notes | 3 | $40,000 | $39,923 | | 5.375% 2026 Notes | 3 | $10,000 | $9,909 | | 4.000% 2026 Notes | 3 | $75,000 | $72,884 | | 5.625% 2027 Notes | 3 | $10,000 | $9,905 | | 4.250% 2028 Notes | 3 | $25,000 | $23,623 | | 7.875% 2028 Notes | 3 | $34,500 | $34,500 | NOTE 6 – BORROWINGS The company's asset coverage for borrowed amounts was 174.6% as of June 30, 2025, meeting the 150% requirement, with total debt outstanding of $368,500 thousand - The Company's asset coverage for borrowed amounts was 174.6% as of June 30, 2025, and 180.4% as of December 31, 2024, both exceeding the 150% requirement220 | Debt Type (in thousands) | Maturity (in thousands) | Rate | Principal Amount Outstanding (in thousands) | Amortized Cost (in thousands) | | :----------------------------------- | :---------------------- | :---------------- | :------------------------------------------ | :---------------------------- | | Credit Facility | 1/17/2030 | S+2.250% | $0 | $(1,508) | | 2025 CLO Notes | 5/25/2037 | S+1.700% | $174,000 | $171,885 | | 5.375% 2025 Notes | 10/20/2025 | 5.375% | $40,000 | $39,958 | | 5.375% 2026 Notes | 12/4/2026 | 5.375% | $10,000 | $9,958 | | 4.000% 2026 Notes | 12/15/2026 | 4.000% | $75,000 | $74,503 | | 5.625% 2027 Notes | 12/4/2027 | 5.625% | $10,000 | $9,939 | | 4.250% 2028 Notes | 12/6/2028 | 4.250% | $25,000 | $24,822 | | 7.875% 2028 Notes | 9/15/2028 | 7.875% | $34,500 | $33,620 | | Total debt | | | $368,500 | $363,177 | - The Credit Facility's availability was reduced to $100,000 thousand from $335,000 thousand on June 27, 2025, and its scheduled termination date was extended to January 17, 2030. As of June 30, 2025, there were no outstanding borrowings228231 - The Company completed a $298,150 thousand 2025 CLO Securitization on June 10, 2025, issuing senior secured floating rate notes and subordinated notes. The Class A Notes ($174,000 thousand) are included as debt, while other tranches are retained and eliminated in consolidation233235 NOTE 7 - RELATED PARTY TRANSACTIONS The company has an Investment Advisory Agreement with WhiteHorse Advisers, amended effective January 1, 2024, reducing the base management fee rate to 1.75% (and 1.25% for assets exceeding 200% asset coverage) - The Investment Advisory Agreement with WhiteHorse Advisers was amended effective January 1, 2024, setting the base management fee at an annual rate of 1.75% of consolidated gross assets, with a reduced rate of 1.25% for assets exceeding 200% asset coverage248 | Metric (in thousands) | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Base management fees | $2,844 | $3,065 | $5,677 | $6,182 | | Performance-based incentive fees | $1,640 | $2,323 | $3,351 | $5,026 | - Performance-based incentive fees consist of an income-based component and a capital gains component, both subject to an Incentive Fee Cap and Deferral Mechanism252254261 - For the six months ended June 30, 2025, the Company sold $39,846 thousand of investments to STRS JV, recognizing $2 thousand in net realized losses270 NOTE 8 - COMMITMENTS AND CONTINGENCIES As of June 30, 2025, the company had total unfunded commitments of $38,222 thousand, including $18,880 thousand in revolving loan commitments and $19,342 thousand in delayed draw loan commitments | Commitment Type (in thousands) | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Total unfunded revolving loan commitments | $18,880 | $15,510 | | Total unfunded delayed draw loan commitments | $19,342 | $10,875 | | Total Unfunded Commitments | $38,222 | $26,385 | - The Company had unfunded commitments to STRS JV of $1,896 thousand for equity interests and $7,584 thousand for subordinated notes as of June 30, 2025274 - The Company is not currently a party to any material legal proceeding and expects the risk of future obligations under indemnifications to be remote277 NOTE 9 - STOCKHOLDERS' EQUITY The company has an "at-the-market" (ATM) offering program, launched on March 31, 2023, allowing it to sell up to $35,000 thousand of common stock - The Company launched an "at-the-market" (ATM) offering program on March 31, 2023, to sell up to $35,000 thousand of common stock278 - No shares were issued under the ATM program during the three and six months ended June 30, 2025, and 2024279 NOTE 10 - FINANCIAL HIGHLIGHTS For the six months ended June 30, 2025, net asset value per share decreased to $11.82 from $12.31, with net investment income per share of $0.58 | Metric (in thousands) | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net asset value, beginning of period | $12.31 | $13.63 | | Net investment income per share | $0.58 | $0.86 | | Net realized and unrealized gains (losses) per share | $(0.30) | $(0.27) | | Net increase in net assets from operations per share | $0.28 | $0.59 | | Distributions declared per share | $(0.77) | $(0.77) | | Net asset value, end of period | $11.82 | $13.45 | | Total annualized return based on market value | (20.00)% | (0.49)% | | Total annualized return based on net asset value | 4.62% | 8.72% | | Net assets, end of period (in thousands) | $274,750 | $312,682 | | Per share market value at end of period | $8.72 | $12.27 | | Shares outstanding end of period | 23,243,088 | 23,243,088 | | Ratio | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Ratio of expenses before incentive fees to average net assets | 14.81% | 15.04% | | Ratio of incentive fees to average net assets | 2.38% | 3.17% | | Ratio of total expenses to average net assets | 17.19% | 18.21% | | Ratio of net investment income to average net assets | 9.51% | 12.69% | | Portfolio turnover ratio | 14.23% | 17.01% | NOTE 11 - CHANGE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE For the three months ended June 30, 2025, the net increase in net assets resulting from operations was $2,250 thousand, translating to $0.10 per common share | Metric (in thousands, except per share) | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net increase (decrease) in net assets resulting from operations | $2,250 | $7,839 | $6,514 | $13,808 | | Basic and diluted per share net increase (decrease) in net assets resulting from operations | $0.10 | $0.34 | $0.28 | $0.59 | - Weighted average shares outstanding remained constant at 23,243,088 for all periods presented285 NOTE 12 – SEGMENT REPORTING The company operates as a single reporting segment, focusing on generating current income and capital appreciation through direct origination of senior secured debt and select equity investments - The Company operates through a single reporting segment, with an investment strategy to generate current income and capital appreciation primarily through direct origination of senior secured debt and select equity investments286 - The Chief Operating Decision Makers (CEO and CFO) assess performance and allocate resources on a consolidated basis, primarily using net increase (decrease) in net assets resulting from operations as a key metric286 NOTE 13 - SUBSEQUENT EVENTS Management has evaluated events occurring after the balance sheet date up to the issuance of the consolidated financial statements and determined that no additional subsequent events require adjustment or disclosure - Management has evaluated events that have occurred after the balance sheet date but before the consolidated financial statements are issued and has determined that there were no additional subsequent events requiring adjustment or disclosure287 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a comprehensive discussion of WhiteHorse Finance's financial condition and results of operations, including forward-looking statements, an overview of its business as a direct lender to lower middle market companies, and details on revenue generation and operating expenses Forward-Looking Statements This section contains forward-looking statements regarding future events, performance, and financial condition, including operating results, investment consummation, portfolio company objectives, contractual arrangements, interest rates, economic conditions, inflation, supply chain impacts, competition, investment adviser's ability, BDC/RIC qualification, financings, dividends, cash resources, and acquisitions/divestitures - Forward-looking statements relate to future events or the company's future performance or financial condition, including operating results, new investments, portfolio company objectives, and economic conditions290291 - These statements involve risks and uncertainties, and actual results could differ materially due to factors identified in 'Item 1A. Risk Factors' in the Annual Report on Form 10-K291292 - The 'safe harbor' provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in this quarterly report294 Overview WhiteHorse Finance is an externally managed BDC and RIC, formed in 2011 and publicly listed on Nasdaq, operating as a direct lender primarily targeting senior secured loans to lower middle market companies - WhiteHorse Finance is an externally managed, non-diversified, closed-end management investment company, elected as a BDC and RIC, listed on the Nasdaq Global Select Market (WHF)295297 - The company is a direct lender targeting debt investments, primarily senior secured loans (first and second lien facilities), to privately held, performing lower middle market companies in the U.S. (enterprise values $50 million-$350 million)298 - Investment activities are managed by WhiteHorse Advisers, with an objective to generate attractive risk-adjusted returns through interest payments, origination/other fees, capital appreciation, and dividends298299 Revenues The company generates revenue primarily from interest on debt securities, including senior secured and mezzanine loans, which typically have floating rates and three-to-six-year terms - Revenue is generated from interest on debt securities (senior secured and mezzanine loans), capital gains, and distributions from portfolio company investments301 - Debt investments typically have three-to-six-year terms and bear interest at fixed or floating rates based on a spread over SOFR or an equivalent index301 - Additional revenue sources include commitment, origination, structuring, diligence, and managerial assistance fees. Loan origination fees and discounts are amortized as interest income, while prepayment premiums are recognized as fee income301 Expenses Primary operating expenses include investment advisory fees to WhiteHorse Advisers (base management and incentive fees), allocable overhead under the Administration Agreement, interest expense on outstanding debt, and other operating costs - Primary operating expenses include investment advisory fees (base management and incentive fees), allocable overhead under the Administration Agreement, interest expense on outstanding debt, and other operating costs302 - The company bears all other costs and expenses of its operations and transactions, including calculating NAV, due diligence, offering costs, distributions, transfer agent fees, brokerage fees, registration/listing fees, taxes, independent directors' fees, reporting/compliance costs, marketing, and general administrative expenses303304306 - WhiteHorse Advisers or WhiteHorse Administration may pay for certain expenses incurred by the company, which are subject to reimbursement305 Recent Developments From July 1, 2025, through August 7, 2025, WhiteHorse Finance contributed two additional senior secured debt facilities to the STRS JV - From July 1, 2025, through August 7, 2025, the Company contributed two additional senior secured debt facilities to the STRS JV307 Consolidated Results of Operations For the three months ended June 30, 2025, net investment income decreased by $2.7 million to $6.6 million, and net assets from operations decreased by $5.6 million to $2.3 million, primarily due to significant net realized losses on investments | Metric (in thousands) | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total investment income | $18,838 | $23,482 | $37,639 | $48,957 | | Total expenses | $12,276 | $14,190 | $24,234 | $28,850 | | Net investment income | $6,562 | $9,292 | $13,405 | $20,107 | | Net realized gains/(losses) on investments and foreign currency transactions | $(22,045) | $(93) | $(22,447) | $(5,727) | | Net change in unrealized gains/(losses) on investments and foreign currency transactions | $17,733 | $(1,360) | $15,556 | $(572) | | Net increase (decrease) in net assets resulting from operations | $2,250 | $7,839 | $6,514 | $13,808 | Net Investment Income Net investment income for the three months ended June 30, 2025, was $6.6 million, a decrease of $2.7 million from $9.3 million in the prior year | Metric (in thousands) | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net investment income | $6,562 | $9,292 | $13,405 | $20,107 | - Net investment income decreased by $2.7 million for the three months and $6.7 million for the six months ended June 30, 2025, compared to the same periods in 2024309 Investment Income Total investment income decreased by $4.6 million to $18.8 million for the three months ended June 30, 2025, and by $11.3 million to $37.6 million for the six months, compared to 2024 | Metric (in thousands) | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Interest income (excluding PIK) | $13,986 | $17,274 | $27,934 | $35,259 | | PIK income | $653 | $1,834 | $1,344 | $3,866 | | Fee and dividend income | $772 | $462 | $1,268 | $1,128 | | Investment income of STRS JV | $3,427 | $3,912 | $7,093 | $8,704 | | Total investment income | $18,838 | $23,482 | $37,639 | $48,957 | - Interest income (excluding PIK) decreased by $3.3 million for the three months and $7.3 million for the six months ended June 30, 2025, primarily due to lower yields, non-accrual investments, and smaller portfolio size311 - PIK income decreased by $1.2 million for the three months and $2.5 million for the six months ended June 30, 2025, compared to 2024312 - Interest and dividend income from STRS JV decreased by $0.5 million for the three months and $1.6 million for the six months ended June 30, 2025, due to lower base rates and portfolio yields315 Operating Expenses Total expenses, including excise tax, decreased by $1.9 million to $12.3 million for the three months ended June 30, 2025, and by $4.6 million to $24.2 million for the six months, compared to 2024 | Metric (in thousands) | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Interest expense | $6,141 | $7,144 | $12,326 | $14,474 | | Base management fees | $2,844 | $3,065 | $5,677 | $6,182 | | Performance-based incentive fees | $1,640 | $2,323 | $3,351 | $5,026 | | Administrative service fees | $170 | $170 | $341 | $341 | | General and administrative expenses | $1,295 | $1,221 | $2,248 | $2,268 | | Excise tax | $186 | $267 | $291 | $559 | | Total expenses, including excise tax | $12,276 | $14,190 | $24,234 | $28,850 | - Interest expense decreased by $1.0 million for the three months and $2.1 million for the six months ended June 30, 2025, due to lower weighted average borrowing base and interest rates317 - Performance-based incentive fees decreased by $0.7 million for the three months and $1.7 million for the six months ended June 30, 2025, due to lower pre-incentive fee net investment income319 Excise Tax Expense The company accrues excise tax on estimated excess taxable income to maintain its RIC status and avoid corporate-level tax, with excise tax at $0.2 million for the three months ended June 30, 2025 - The Company accrues excise tax on estimated excess taxable income to maintain its RIC status and avoid corporate-level tax320321 | Metric (in thousands) | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :----------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Excise tax | $186 | $267 | $291 | $559 | - As of June 30, 2025, the Company accrued a net federal excise tax expense of $0.4 million, compared to $1.1 million as of December 31, 2024322 Net Realized and Unrealized Gains (Losses) on Investments For the three months ended June 30, 2025, net realized losses on investments totaled $(21.3) million, primarily due to $(21.0) million from American Crafts, LC, contrasting with $(0.1) million in losses for the same period in 2024 | Investment (in millions) | Three months ended June 30, 2025 (in millions) | Three months ended June 30, 2024 (in millions) | Six months ended June 30, 2025 (in millions) | Six months ended June 30, 2024 (in millions) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | American Crafts, LC | $(21.0) | $0 | $(21.0) | $0 | | Token Buyer, Inc. | $(0.3) | $0 | $(0.7) | $0 | | Total net realized gains/(losses) on investments | $(21.3) | $(0.1) | $(21.7) | $(5.7) | | Metric (in millions) | Three months ended June 30, 2025 (in millions) | Three months ended June 30, 2024 (in millions) | Six months ended June 30, 2025 (in millions) | Six months ended June 30, 2024 (in millions) | | :----------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Gross unrealized appreciation on investments | $3.9 | $3.9 | $4.9 | $6.8 | | Gross unrealized depreciation on investments | $(6.7) | $(5.4) | $(9.5) | $(11.0) | | Reversal of prior period net unrealized (appreciation) depreciation upon a realization | $20.5 | $0 | $20.1 | $3.1 | | Total unrealized appreciation (depreciation) on investments | $17.7 | $(1.5) | $15.5 | $(1.1) | Financial Condition, Off-Balance Sheet Arrangements, Liquidity and Capital Resources WhiteHorse Finance's liquidity is primarily driven by securities offerings, borrowings, and operational cash flows, with operating activities providing $14.7 million in cash for the six months ended June 30, 2025 - The Company generates cash primarily from offerings of securities, borrowings under the Credit Facility and WHF CLO, and cash flows from operations326 - Operating activities provided $14.7 million in cash during the six months ended June 30, 2025, while financing activities used $9.3 million331 - As of June 30, 2025, the Company had $33.3 million in cash and cash equivalents (including $22.7 million restricted cash) and $100.0 million undrawn and available under the Credit Facility333 - As of June 30, 2025, the investment portfolio consisted of 132 positions in 71 companies with an aggregate fair value of $629.3 million, primarily senior secured loans (variable-rate)373 - The portfolio had a weighted average effective yield of 9.8% (11.9% on income-producing debt investments) as of June 30, 2025373 STRS JV The STRS JV, a joint venture with STRS Ohio, invests primarily in senior secured loans to lower middle market companies, with total assets of $351.0 million as of June 30, 2025 - STRS JV is a joint venture with STRS Ohio, investing primarily in senior secured loans to lower middle market companies335 - As of June 30, 2025, STRS JV had total assets of $351.0 million, and the Company owned approximately 65.71% of its LLC equity interests335337 - The Company's total capital commitment to STRS JV is $115.0 million, comprising $92.0 million in subordinated notes and $23.0 million in LLC equity interests, with $1.9 million and $7.6 million unfunded, respectively, as of June 30, 2025336338 | Metric (in thousands) | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------------- | :----------------------------- | :------------------------------- | | Total investments (at fair value) | $330,187 | $294,957 | | Weighted average effective yield on total portfolio | 10.6% | 11.1% | | Number of portfolio companies | 43 | 38 | | Largest portfolio company investment (at fair value) | $17,937 | $17,949 | | Total of five largest portfolio company investments (at fair value) | $79,846 | $79,058 | At-the-Market Offering The company has an "at-the-market" (ATM) offering program, established on March 31, 2023, to sell up to $35.0 million of common stock, with net proceeds intended for portfolio investments and general corporate purposes - The Company has an "at-the-market" (ATM) offering program, established on March 31, 2023, to sell up to $35.0 million of common stock343 - Net proceeds from the ATM Offering are expected to be used for investments in portfolio companies and general corporate purposes343 - No shares were issued pursuant to the ATM program during the three and six months ended June 30, 2025 and 2024279 Credit Facility The Credit Facility was amended on January 17, 2025, reducing interest margins to 2.25% over SOFR and extending maturity to January 17, 2030, with availability reduced to $100.0 million - The Credit Facility was amended on January 17, 2025, reducing applicable interest rate margins to 2.25% and extending the scheduled termination date to January 17, 2030349 - On June 27, 2025, the availability under the Credit Facility was reduced to $100.0 million from $335.0 million349 - As of June 30, 2025, there were no outstanding borrowings under the Credit Facility, and $100.0 million was available to be drawn358 - The Credit Facility is secured by all assets of WhiteHorse Credit, which included loans with a fair value of $186.8 million as of June 30, 2025358 2025 CLO Securitization On June 10, 2025, the company completed a $298.15 million term debt securitization (2025 CLO Securitization) through its wholly-owned subsidiary, WHF CLO, issuing senior secured floating rate notes and subordinated notes - On June 10, 2025, the Company completed a $298.15 million term debt securitization (2025 CLO Securitization) through its wholly-owned subsidiary, WHF CLO360 - The 2025 CLO Securitization issued $174.0 million of AAA-rated Class A Notes (included as company debt) and retained $30.0 million of Class B Notes, $24.0 million of Class C Notes, and $70.15 million of 2025 Subordinated CLO Notes (eliminated in consolidation)361 -