WhiteHorse Finance(WHF) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q3 2024 GAAP net investment income and core NII was $9.2 million or$ 0.394 per share, slightly below Q2's $9.3 million or$ 0.40 per share [8][30] - NAV per share at the end of Q3 was $12.77, a 5.1% decrease from the prior quarter, impacted by net markdowns totaling$ 15.9 million [9] - Total value of the investment portfolio was $654.3 million, down from$ 660 million at the end of the previous quarter [14] Business Line Data and Key Metrics Changes - Gross capital deployments in Q3 were $51 million, with net deployments of$ 20.8 million after repayments and sales of $30.2 million [10] - The weighted average effective yield on income-producing debt investments was 13.1%, down from approximately 13.8% in Q2 2024 [15] - Non-accrual investments totaled 5.6% of the total debt portfolio, up from 3.6% in the prior quarter [20] Market Data and Key Metrics Changes - The lending market remains aggressive, with middle market pricing compressing down to spreads of SOFR 475 to SOFR 525 [21] - The non-sponsor market is viewed as more attractive, supporting leverage of only three to 4.5 times, with pricing between SOFR 600 to SOFR 800 [22][23] Company Strategy and Development Direction - The company is focusing on the non-sponsor market due to better risk-return profiles and less competition compared to the sponsor market [23][67] - There is an expectation that the ratio of non-sponsor deals in the portfolio will rise over the next quarters if current market conditions persist [67] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about the competitive environment, noting that many deals are being structured with excessive leverage [52][56] - There is skepticism regarding the yield curve and future interest rates, with management cautious about the sustainability of current market conditions [53][26] Other Important Information - The company declared a fourth quarter distribution of$ 0.385 per share, consistent with the prior quarter, and a special distribution of $0.245 per share [38][39] - The company has approximately$ 20.7 million in cash resources and $173 million of undrawn capacity under its revolving credit facility [36] Q&A Session Summary Question: Follow-up on the deal environment and portfolio deleveraging - Management indicated that while repayments are expected to be elevated, they do not foresee a decrease in leverage due to existing mandates [42][43] Question: Quality of investment income and PIK income - Management stated that they seek to minimize PIK income in new deals, focusing on cash income, and that most PIK in the portfolio relates to troubled accounts [46][48] Question: Competitive environment and sustainability - Management acknowledged that the current competitive environment is aggressive, with many deals being structured with high leverage, and expressed skepticism about the sustainability of such terms [51][56] Question: Strategy regarding American Crafts - Management confirmed that due to the loss of a major customer, they are exploring a sale of American Crafts rather than pursuing a turnaround, marking a shift from their typical strategy [60][61] Question: Non-sponsor market dynamics - Management highlighted that there is limited competition in the core mid-market and lower mid-market for non-sponsor deals, allowing for more favorable terms [68]