WhiteHorse Finance(WHF) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2024, GAAP net investment income and core NII were $8 million or$ 0.34 per share, down from $9.2 million or$ 0.394 per share in Q3 2024 [7][26] - NAV per share at the end of Q4 was $12.31, a decrease of approximately 3.6% from the prior quarter, with net realized losses and markdowns totaling$ 4.9 million [8][12] - The weighted average effective yield on income-producing debt investments decreased to 12.5% as of the end of Q4, compared to 13.1% in Q3 2024 [13] Business Line Data and Key Metrics Changes - Gross capital deployments in Q4 were $35.4 million, offset by total repayments and sales of$ 46.2 million, resulting in net repayments of $10.8 million [8][10] - The effective yield on the JV's portfolio decreased to 11.1% compared to 11.7% in Q3 2024 [10][11] - Nonaccrual investments increased to 7.2% of the debt portfolio, up from 6.5% in the previous quarter [15] Market Data and Key Metrics Changes - The lending market remains aggressive, with lenders relaxing underwriting standards and compressing spreads [17][18] - The non-sponsor market is viewed as more attractive, with leverage supporting 3 to 4.5 times and pricing between SOFR 575 to SOFR 800 [19] Company Strategy and Development Direction - The company is focusing on non-sponsor lending, which has shown better risk returns and less competition [19][20] - The strategy includes avoiding excessive leverage and ensuring debt service coverages are reasonable on new deals [49][50] Management's Comments on Operating Environment and Future Outlook - The management believes the economy is generally healthy, but there is uncertainty regarding tariffs and inflationary policies [21][22] - The company expects high repayment activity in 2025 due to declining market pricing [24] Other Important Information - The company declared a first-quarter distribution of$ 0.385 per share, consistent with the prior quarter [33][35] - The company has approximately $40 million of capacity for new assets on the balance sheet and another$ 40 million in the JV [23][31] Q&A Session Summary Question: Scope for spreads to widen due to market uncertainties - Management confirmed that spreads were stable in Q4 and early 2025, with no upward pressure observed despite market uncertainties [39][40] Question: Strategy for mitigating nonaccruals and credit quality pressures - Management is focusing on careful analysis of portfolio risks, particularly regarding tariff impacts, and ensuring debt service coverages are reasonable [46][49] Question: Impact of base rates on NII and future expectations - Management indicated that the decline in NII was largely due to lower base rates, with a majority of the portfolio resetting on a quarterly basis [56][76] Question: Outlook on deleveraging in 2025 - Management does not expect deleveraging unless there is a significant supply-demand imbalance affecting new originations [66] Question: Dividend sustainability given spillover income - Management is actively evaluating the earning power of the BDC and will update the market on any decisions regarding the dividend [72]