WHF WhiteHorse Finance Inc

NEW YORK, May 9, 2023 /PRNewswire/ -- WhiteHorse Finance, Inc. ("WhiteHorse Finance" or the "Company") (Nasdaq: WHF) today announced its financial results for the quarter ended March 31, 2023. In addition, the Company's board of directors has declared a distribution of $0.37 per share with respect to the quarter ending March 31, 2023. The distribution will be payable on July 5, 2023 to stockholders of record as of June 21, 2023.  Going forward, in addition to a quarterly base distribution of $0.37 per share, the Company's board of directors expects to also declare, when applicable, a formula-based quarterly variable supplemental dividend in an amount to be determined each quarter.

First Quarter 2023 Summary Highlights

• Net Asset Value of $330.0 million, or $14.20 per share
• Investment portfolio⁽¹⁾ totaling $749.2 million
• STRS JV investment portfolio totaling $308.9 million
• Gross investment deployments⁽²⁾ of $34.1 million for the first quarter, including new originations of $18.8 million and $15.3 million of fundings for add-ons to existing investments
• Net investment income of $10.7 million, or $0.461 per share
• Core net investment income of $10.7 million, or $0.461 per share⁽³⁾
• First quarter distributions of $0.425 per share, including special distribution of $0.07 per share

Stuart Aronson, WhiteHorse Finance's Chief Executive Officer, commented, "I am pleased to report WhiteHorse recorded another strong quarter with core net investment income well above our dividend.  Given the increase in base rates and the corresponding increase in our portfolio's earning power, the Company's board of directors has elected to increase the BDC's regular dividend to $0.37 per share and to also introduce a variable supplemental dividend.  This new dividend policy will allow WhiteHorse Finance to maximize distributions to shareholders while preserving the stability of our Net Asset Value, a factor we believe to be an important driver of shareholder economics over time. Barring circumstances that are currently unforeseen, management is confident in the ability to reliably earn the revised dividend on an annual basis. While some assets were marked down during the quarter, we have always underwritten at very conservative levels and factored in downside scenarios.  As demonstrated by our successful exit from a formerly troubled asset subsequent to the end of the quarter, we are also well-positioned to help troubled credits navigate challenging market environments with the support of our sponsor, H.I.G. Capital, and its restructuring and private equity expertise.  The current market environment continues to offer exceptionally attractive terms, and we are being cautious in the face of a weakening economy and remain focused on credits with compelling risk return characteristics.  WhiteHorse is equipped to take advantage of the current lender friendly market conditions as our pipeline activity remains high, and our three-tier architecture continues to provide the BDC differentiated sourcing capabilities.  The strength of the pipeline enables us to be highly selective, giving us confidence in the BDC's ability to consistently generate sustainable earnings to cover our increased regular dividend and maximize shareholder returns through incremental dividends."

Portfolio and Investment Activity

As of March 31, 2023, the fair value of WhiteHorse Finance's investment portfolio was $749.2 million, compared with $760.2 million as of December 31, 2022. The portfolio as of March 31, 2023 consisted of 116 positions across 70 companies with a weighted average effective yield of 13.2% on income-producing debt investments. The average debt investment size (excluding investments in STRS JV (as defined below)) was $7.2 million with the overall portfolio comprised of approximately 81.2% first lien secured loans, 2.6% second lien secured loans, 2.8% equity and 13.4% in investments in STRS JV. Almost all loans were variable rate investments (primarily indexed to the London Interbank Offered Rate or Secured Overnight Financing Rate) with fixed rate securities representing only 0.4% of loans at fair value. Nearly all performing floating rate investments have interest rate floors.

During the three months ended March 31, 2023, WhiteHorse Finance made investments in three new portfolio companies for a total of $18.8 million, added a total of $15.3 million to existing portfolio companies, and made net fundings of $0.7 million to revolver loans. Proceeds from sales and repayments totaled approximately $19.3 million for the three months ended March 31, 2023, driven by one full realization in True Blue Car Wash, LLC.

In addition to the transactions discussed above, during the three months ended March 31, 2023, WhiteHorse Finance transferred assets comprised of three new portfolio companies and four add-on investments, totaling $25.9 million to STRS JV in exchange for cash proceeds.

WHF STRS Ohio Senior Loan Fund LLC

As of March 31, 2023, STRS JV's portfolio totaled $308.9 million, consisted of 30 portfolio companies and had a weighted average effective yield of 11.8% on its portfolio.

Results of Operations

For the three months ended March 31, 2023, the Company's net investment income was approximately $10.7 million, compared with approximately $8.5 million for the same period in the prior year, representing an increase of approximately 25.9%. The increase in net investment income for the year-over-year period was primarily attributable to higher investment income from interest income and STRS JV due to an increase in base rates. This was partially offset by an increase in interest expense, due to higher base rates, and higher incentive fee due to higher pre-incentive fee net investment income in the current period, slightly offset by a reversal of capital gains incentive fee accrual for the three months ended March 31, 2022. For the three months ended March 31, 2023, the Company's investment in STRS JV generated an annualized, gross investment yield of approximately 16.1%.

For the three months ended March 31, 2023, core net investment income⁽³⁾ was $10.7 million, or $0.461 per share, compared with $7.9 million, or $0.344 per share for the same period in the prior year.

For the three months ended March 31, 2023, WhiteHorse Finance reported a net realized and unrealized loss on investments and foreign currency transactions of $3.2 million. This compares with the three months ended March 31, 2021 net realized and unrealized loss on investments and foreign currency transactions of $2.8 million. The decrease for the year-over-year period was primarily attributable to markdowns on the portfolio in the current quarter.

WhiteHorse Finance reported a net increase in net assets resulting from operations of approximately $7.5 million for the three months ended March 31, 2023, which compares with a net increase of $5.7 million for the three months ended March 31, 2022.

WhiteHorse Finance's net asset value was $330.0 million, or $14.20 per share, as of March 31, 2023, compared with $332.4 million, or $14.30 per share, as of December 31, 2022.

Liquidity and Capital Resources

As of March 31, 2023, WhiteHorse Finance had cash and cash equivalents of $22.2 million, compared with $26.3 million as of December 31, 2022, inclusive of restricted cash. As of March 31, 2023, the Company also had $97.0 million of undrawn capacity under its revolving credit facility. 

Distributions

The Company's board of directors has declared a distribution of $0.37 per share with respect to the quarter ending March 31, 2023. The distributions will be payable on July 5, 2023 to stockholders of record as of June 21, 2023.  Going forward, in addition to a quarterly base distribution of $0.37 per share, the Company's board of directors expects to also declare, when applicable, a formula-based quarterly variable supplemental dividend in an amount to be determined each quarter.

On March 2, 2023, the Company declared a distribution of $0.355 per share for the quarter ended March 31, 2023, consistent with distributions declared for the forty-second consecutive quarter since the Company's initial public offering. Additionally, on March 2, 2023, a special distribution of $0.07 per share was declared for the quarter ended March 31, 2023. These distributions were paid on March 24, 2023 to stockholders of record as of April 4, 2023.

Distributions are paid from taxable earnings and may include return of capital and/or capital gains. The specific tax characteristics of the distributions will be reported to stockholders on Form 1099-DIV after the end of the calendar year and in the Company's periodic reports filed with the Securities and Exchange Commission.

Conference Call

WhiteHorse Finance will host a conference call to discuss its first quarter results for the period ended March 31, 2023 at 1:00 p.m. ET on Tuesday, March 9, 2023. To access the teleconference, please dial 800-274-8461 (domestic and international) approximately 10 minutes before the teleconference's scheduled start time and reference ID #WHFQ123. Investors may also access the call on the investor relations portion of the Company's website www.whitehorsefinance.com.

If you are unable to access the live teleconference, a replay will be available beginning approximately two hours after the call's completion through March 16, 2023. The teleconference replay can be accessed by dialing 800-938-1602 (domestic and international). A webcast replay will also be available on the investor relations portion of the Company's website at www.whitehorsefinance.com.

About WhiteHorse Finance, Inc.

WhiteHorse Finance is a business development company that originates and invests in loans to privately held, lower middle market companies across a broad range of industries. The Company's investment activities are managed by H.I.G. WhiteHorse Advisers, LLC, an affiliate of H.I.G. Capital, LLC, ("H.I.G. Capital"). H.I.G. Capital is a leading global alternative asset manager with $55 billion of capital under management⁽⁴⁾ across a number of funds focused on the small and mid-cap markets. For more information about H.I.G. Capital, please visit http://www.higcapital.com. For more information about the Company, please visit http://www.whitehorsefinance.com.

Forward-Looking Statements

This press release may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical facts included in this press release may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in filings with the Securities and Exchange Commission. The Company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of the date of this press release.

(1) Includes investments in WHF STRS Ohio Senior Loan Fund LLC ("STRS JV"), an unconsolidated joint venture, totaling $100.3 million, at fair value.
(2) Excludes investments made in STRS JV.
(3) "Core net investment income" is a non-GAAP financial measure. The Company believes that core net investment income provides useful information to investors and management because it reflects the Company's financial performance excluding (i) the net impact of costs associated with the refinancing of the Company's indebtedness, (ii) the accrual of the capital gains incentive fee attributable to net realized and unrealized gains and losses, and (iii) excise and other income taxes related to such net realized gains and losses (net of incentive fees). The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. Additional information on core net investment income and a reconciliation of core net investment income to its most directly comparable GAAP financial measure, net investment income, are set forth in Schedule 1 hereto.
(4) Based on total capital commitments managed by H.I.G. Capital and affiliates.

SCHEDULE 1

As a supplement to GAAP financial measures, the Company has provided information relating to core net investment income, which is a non-GAAP measure. This measure is provided in addition to, but not as a substitute for, net investment income determined in accordance with GAAP. The Company's non-GAAP measures may differ from similar measures by other companies, even if similar terms are used to identify such measures. Core net investment income represents net investment income adjusted to exclude the net impact of costs associated with the refinancing of the Company's indebtedness, the accrual of the capital gains incentive fee attributable to net realized and unrealized gains and losses, and excise or other income taxes related to such net realized gains and losses (net of incentive fees). There were no excise or other income taxes related to net realized gains and losses for the quarters ended March 31, 2023 and March 31, 2022.

The following table provides a reconciliation of net investment income to core net investment income for the three months ended March 31, 2023 and March 31, 2022 (in thousands, except per share data):