WhiteHorse Finance(US:WHF)2024-02-29 20:45Financial Data and Key Metrics Changes - Q4 GAAP net investment income and core net interest income was $10.6 million or $0.456 per share, a slight decline from Q3's $10.8 million or $0.465 per share [7][39] - NAV per share at the end of Q4 was $13.63, representing a 1.7% decrease from the prior quarter, impacted by a $6.8 million net mark-to-market in the portfolio [8][15] - The weighted average effective yield on income-producing debt investments increased to 13.7% as of the end of Q4, up from 13.6% at the end of Q3 [16] Business Line Data and Key Metrics Changes - Gross capital deployments in Q4 totaled $56.9 million, with $54.1 million funding eight new transactions, marking the highest level of origination activity in 2023 [9] - Total repayments and sales were $34.9 million, primarily driven by two complete and two partial realizations [12] - The fair value of the investment portfolio was $696.2 million at the end of Q4, down from $706.8 million at the end of the previous quarter [15] Market Data and Key Metrics Changes - The lending market in Q4 was characterized by increased liquidity, with pricing for sponsor deals falling by about 50 basis points on average [25] - Loan-to-value ratios increased, with lower mid-market deals now at 55% and mid-market deals at 60% to 65% [28] - The non-sponsor sector remains stable with pricing at SOFR 650 to 850 and leverage multiples of 3x to 4.5x [28] Company Strategy and Development Direction - The company is focusing on off-the-run and non-sponsor markets where terms remain more attractive, while being cautious in deal sourcing [29][36] - The company aims to maintain a conservative credit outlook, with a focus on non-cyclical or light cyclical borrowers [19][67] - The company has a 3-tier sourcing architecture that provides differentiated capabilities and access to attractive deals [32] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about market conditions, anticipating a pickup in M&A activity driven by aggressive debt markets [36][78] - The company does not foresee a recession but expects slower growth through 2024 and into 2025 due to higher rates [30] - Management remains vigilant in monitoring the portfolio, noting that no new credits were moved to non-accrual during the quarter [20] Other Important Information - The Board approved an increase in the quarterly base dividend to $0.385 per share, representing an 8.5% increase compared to the initial dividend at IPO [37][45] - The company has approximately $50 million of capacity for new assets at the target leverage range, with the JV having about $40 million of capacity [34][58] - The company reported a net increase in net assets resulting from operations of $3.4 million [41] Q&A Session Summary Question: Are you comfortable in the BDC's ability to potentially replace all these repayments with direct origination deal flow? - Management believes that repayments will be mitigated by call protection obtained in previous years, and they expect sufficient volume to replace repaid deals [50][52] Question: What is driving the repayment activity? - Repayment activity is primarily driven by M&A activity and some deals maturing, with management feeling confident about refinancing performing assets [55][56] Question: How is the pipeline developing in terms of new versus add-on opportunities? - The pipeline consists of about five new platforms and seven add-on opportunities, with a focus on non-sponsor deals priced above the current market [64][67] Question: What are you seeing in the non-sponsored space regarding the use of capital? - Non-sponsor deals are primarily growth loans targeted for organic growth or M&A activity, with no dividends involved [80]