PR Newswire
NEW YORK, Aug. 8, 2023
NEW YORK, Aug. 8, 2023 /PRNewswire/ -- WhiteHorse Finance, Inc. ("WhiteHorse Finance" or the "Company") (Nasdaq: WHF) today announced its financial results for the quarter ended June 30, 2023. In addition, the Company's board of directors has declared a distribution of $0.37 per share with respect to the quarter ended June 30, 2023. The distribution will be payable on October 3, 2023 to stockholders of record as of September 19, 2023.
Second Quarter 2023 Summary Highlights
- Net Asset Value of $325.3 million, or $14.00 per share
- Investment portfolio(1) totaling $728.4 million
- STRS JV investment portfolio totaling $324.5 million
- Gross investment deployments(2) of $23.8 million for the second quarter, including new originations of $19.3 million and $4.5 million of fundings for add-ons to existing investments
- Net investment income of $10.6 million, or $0.456 per share
- Core net investment income of $10.6 million, or $0.456 per share(3)
- Second quarter distribution of $0.37 per share
Stuart Aronson, WhiteHorse Finance's Chief Executive Officer, commented, "I am pleased to report that WhiteHorse's core net investment income increased by nearly 35% compared with the second quarter of 2022 and was well in excess of our regular dividend. While we marked down some assets during the quarter and placed two portfolio companies on non-accrual, activity was limited to consumer-facing portfolio companies and certain portfolio companies that experienced challenges independent of economic conditions largely due to market pricing. The investments in our existing portfolio were underwritten at modest leverage levels and are generally well positioned to service our debt in a rising interest rate environment. Additionally, our portfolio remains overwhelmingly represented by non-cyclical or light cyclical borrowers. The current market environment offers exceptionally attractive terms as terms and conditions in the lower middle market have returned to more normalized conditions and the quality of deals has improved. Our pipeline has returned to an all-time high, and we continue to derive significant advantages from our three-tier sourcing architecture and our affiliation with H.I.G. Capital, a leader in the low and mid-markets. The strength of the pipeline enables us to be conservative in our deal selection, and we are being cautious in the face of a weakening economy and remain focused on credits with compelling risk return characteristics. The deals that we're continuing to work on are mostly non-cyclical or light cyclicals, and we continue to be highly selective about which credits we underwrite."
Portfolio and Investment Activity
As of June 30, 2023, the fair value of WhiteHorse Finance's investment portfolio was $728.4 million, compared with $749.2 million as of March 31, 2023. The portfolio as of June 30, 2023 consisted of 116 positions across 70 companies with a weighted average effective yield of 13.4% on income-producing debt investments. The average debt investment size (excluding investments in STRS JV (as defined below)) was $7.1 million with the overall portfolio comprised of approximately 81.3% first lien secured loans, 2.4% second lien secured loans, 2.2% equity and 14.1% 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 0.8% of loans at fair value. Nearly all performing floating rate investments have interest rate floors.
During the three months ended June 30, 2023, WhiteHorse Finance made investments in three new portfolio companies for a total of $19.3 million and added a total of $4.5 million to existing portfolio companies. Proceeds from sales and repayments totaled approximately $28.8 million for the three months ended June 30, 2023, driven by three full realizations in Arcole Holding Corporation, Lenny & Larry's, LLC and Avision Holdings, LLC and received net repayments of $1.5 million related to revolver loans.
In addition to the transactions discussed above, during the three months ended June 30, 2023, WhiteHorse Finance transferred assets comprised of two new portfolio companies and one add-on investment, totaling $12.6 million to STRS JV in exchange for cash proceeds of $10.8 and a net investment in the STRS JV of $1.8 million.
WHF STRS Ohio Senior Loan Fund LLC
As of June 30, 2023, STRS JV's portfolio totaled $324.5 million, consisted of 32 portfolio companies and had a weighted average effective yield of 12.2%.
Results of Operations
For the three months ended June 30, 2023, the Company's net investment income was approximately $10.6 million, compared with approximately $7.9 million for the same period in the prior year, representing an increase of approximately 34.2%. 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 June 30, 2022. For the three months ended June 30, 2023, the Company's investment in STRS JV generated an annualized, gross investment yield of approximately 16.2%.
For the three months ended June 30, 2023, core net investment income(3) was $10.6 million, or $0.456 per share, compared with $7.8 million, or $0.334 per share for the same period in the prior year.
For the three months ended June 30, 2023, WhiteHorse Finance reported a net realized and unrealized loss on investments and foreign currency transactions of $6.7 million. This compares with the three months ended June 30, 2022 net realized and unrealized loss on investments and foreign currency transactions of $0.5 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 $3.9 million for the three months ended June 30, 2023, which compares with a net increase of $7.3 million for the three months ended June 30, 2022.
WhiteHorse Finance's net asset value was $325.3 million, or $14.00 per share, as of June 30, 2023, compared with $330.0 million, or $14.20 per share, as of March 31, 2023.
Liquidity and Capital Resources
As of June 30, 2023, WhiteHorse Finance had cash and cash equivalents of $23.1 million, compared with $22.2 million as of March 31, 2023, inclusive of restricted cash. As of June 30, 2023, the Company also had $96.4 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 September 30, 2023. The distributions will be payable on October 3, 2023 to stockholders of record as of September 19, 2023.
On May 9, 2023, the Company declared a distribution of $0.37 per share for the quarter ended June 30, 2023, with distributions declared at or above $0.355 for the forty-third consecutive quarter since the Company's initial public offering. The distribution was paid on July 5, 2023 to stockholders of record as of June 21, 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 second quarter results for the period ended June 30, 2023 at 9:00 a.m. ET on Tuesday, August 8, 2023. To access the teleconference, please dial 800-343-5172 (domestic and international) approximately 10 minutes before the teleconference's scheduled start time and reference ID #WHFQ223. 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 August 15, 2023. The teleconference replay can be accessed by dialing 800-839-3012 (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 $58 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 $102.4 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 June 30, 2023 and June 30, 2022.
The following table provides a reconciliation of net investment income to core net investment income for the three months ended June 30, 2023 and June 30, 2022 (in thousands, except per share data):
June 30, 2023 | June 30, 2022 | |||||||||||||||
Amount | Per Share | Amount | Per Share | |||||||||||||
Amounts | Amounts | |||||||||||||||
Net investment income | $ | 10,592 | $ | 0.456 | $ | 7,877 | $ | 0.339 | ||||||||
Net impact of costs associated with refinancing of indebtedness | - | - | - | - | ||||||||||||
Accrual for capital gains incentive fee | - | - | (106) | (0.005) | ||||||||||||
Net impact of excise tax expense related to net realized gains and losses | - | - | - | - | ||||||||||||
Core net investment income | $ | 10,592 | $ | 0.456 | $ | 7,771 | $ | 0.334 | ||||||||
WhiteHorse Finance, Inc. | ||||||
Consolidated Statements of Assets and Liabilities | ||||||
(in thousands, except share and per share data) | ||||||
June 30, 2023 | December 31, 2022 | |||||
(Unaudited) | ||||||
Assets | ||||||
Investments, at fair value | ||||||
Non-controlled/non-affiliate company investments | $ | 607,111 | $ | 650,535 | ||
Non-controlled affiliate company investments | 6,262 | 9,533 | ||||
Controlled affiliate company investments | 114,979 | 100,160 | ||||
Total investments, at fair value (amortized cost $760,023 and $782,429, respectively) | 728,352 | 760,228 | ||||
Cash and cash equivalents | 10,412 | 9,508 | ||||
Restricted cash and cash equivalents | 10,624 | 14,683 | ||||
Restricted foreign currency (cost of $2,027 and $2,066, respectively) | 2,049 | 2,073 | ||||
Interest and dividend receivable | 7,220 | 7,814 | ||||
Amounts receivable on unsettled investment transactions | 11,770 | 283 | ||||
Escrow receivable | 711 | 711 | ||||
Prepaid expenses and other receivables | 1,039 | 1,174 | ||||
Total assets | $ | 772,177 | $ | 796,474 | ||
Liabilities | ||||||
Debt (net of unamortized debt issuance costs of $3,938 and $4,718, respectively) | $ | 424,711 | $ | 440,427 | ||
Distributions payable | 8,600 | 8,251 | ||||
Management fees payable | 3,705 | 3,860 | ||||
Incentive fees payable | 5,115 | 5,618 | ||||
Interest payable | 2,750 | 2,774 | ||||
Accounts payable and accrued expenses | 1,467 | 2,329 | ||||
Advances received from unfunded credit facilities | 524 | 825 | ||||
Unrealized depreciation on foreign currency forward contracts | 9 | 3 | ||||
Total liabilities | 446,881 | 464,087 | ||||
Commitments and contingencies | ||||||
Net assets | ||||||
Common stock, 23,243,088 and 23,243,088 shares issued and outstanding, par value | 23 | 23 | ||||
Paid-in capital in excess of par | 339,240 | 339,240 | ||||
Accumulated earnings (losses) | (13,967) | (6,876) | ||||
Total net assets | 325,296 | 332,387 | ||||
Total liabilities and total net assets | $ | 772,177 | $ | 796,474 | ||
Number of shares outstanding | 23,243,088 | 23,243,088 | ||||
Net asset value per share | $ | 14.00 | $ | 14.30 | ||
WhiteHorse Finance, Inc. | ||||||||||||
Consolidated Statements of Operations (Unaudited) | ||||||||||||
(in thousands, except share and per share data) | ||||||||||||
Three months ended | Six months ended | |||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||
Investment income | ||||||||||||
From non-controlled/non-affiliate company investments | ||||||||||||
Interest income | $ | 19,307 | $ | 15,672 | $ | 38,928 | $ | 31,881 | ||||
Payment-in-kind income | 1,073 | 356 | 2,305 | 888 | ||||||||
Fee income | 920 | 679 | 1,953 | 1,141 | ||||||||
Dividend income | 17 | 79 | 32 | 168 | ||||||||
From non-controlled affiliate company investments | ||||||||||||
Interest income | — | 3 | — | 13 | ||||||||
Payment-in-kind income | 115 | 70 | 66 | 120 | ||||||||
Dividend income | — | 109 | 84 | 240 | ||||||||
From controlled affiliate company investments | ||||||||||||
Interest income | 2,328 | 1,459 | 4,538 | 2,586 | ||||||||
Payment-in-kind income | 496 | — | 908 | — | ||||||||
Dividend income | 1,339 | 1,573 | 2,945 | 2,997 | ||||||||
Total investment income | 25,595 | 20,000 | 51,759 | 40,034 | ||||||||
Expenses | ||||||||||||
Interest expense | 7,334 | 4,945 | 14,859 | 9,719 | ||||||||
Base management fees | 3,705 | 3,908 | 7,416 | 7,859 | ||||||||
Performance-based incentive fees | 2,648 | 1,837 | 5,324 | 3,264 | ||||||||
Administrative service fees | 170 | 170 | 341 | 341 | ||||||||
General and administrative expenses | 896 | 1,088 | 2,023 | 2,036 | ||||||||
Total expenses | 14,753 | 11,948 | 29,963 | 23,219 | ||||||||
Net investment income before excise tax | 10,842 | 8,052 | 21,796 | 16,815 | ||||||||
Excise tax | 250 | 175 | 500 | 399 | ||||||||
Net investment income after excise tax | 10,592 | 7,877 | ||||||||||
