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]

Company Performance - WhiteHorse Finance (WHF) reported quarterly earnings of $0.34 per share, missing the Zacks Consensus Estimate of $0.39 per share, and down from $0.46 per share a year ago, representing an earnings surprise of -12.82% [1] - The company posted revenues of $21.01 million for the quarter ended December 2024, missing the Zacks Consensus Estimate by 6.51%, and down from $25.63 million year-over-year [2] - Over the last four quarters, WhiteHorse has surpassed consensus EPS estimates just once and has topped consensus revenue estimates only once [2] Market Performance - WhiteHorse shares have increased approximately 8.6% since the beginning of the year, contrasting with the S&P 500's decline of -2.4% [3] - The current consensus EPS estimate for the upcoming quarter is $0.38 on revenues of $22.16 million, and for the current fiscal year, it is $1.45 on revenues of $86.81 million [7] Industry Outlook - The Financial - SBIC & Commercial Industry, to which WhiteHorse belongs, is currently in the top 34% of over 250 Zacks industries, indicating a favorable outlook [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, suggesting that the industry outlook can significantly impact stock performance [5][8]

Incentive Fees - The incentive fee cap for Year 1 is set at $8.0 million, which is 20% of the cumulative pre-incentive fee net return of $120.0 million, less $16.0 million of cumulative incentive fees paid[81]. - In Year 2, the incentive fee accrued is $6.0 million, representing 20% of the cumulative net capital gains of $30.0 million, with a total cumulative pre-incentive fee net return of $150.0 million[81]. - For Year 3, the incentive fee cap remains at $8.0 million, with $7.0 million paid, reflecting 20% of cumulative pre-incentive fee net return of $145.0 million[81]. - In Year 4, the incentive fee accrued is $9.2 million, which is 20% of cumulative pre-incentive fee net return of $151.0 million, with $21.0 million of cumulative incentive fees paid[81]. - The incentive fee structure may create misaligned incentives for the Investment Adviser, potentially leading to riskier investments[221]. - The management fee is based on consolidated gross assets, which may result in lower returns for common stock investors due to debt and leverage[221]. - The Investment Adviser may receive incentive compensation even if the company incurs a net loss, with no recovery of previously paid fees[229]. Investment Advisory and Administration Agreements - The Investment Advisory Agreement was re-approved on October 30, 2024, and remains effective from year to year if approved annually by the board of directors[82]. - The board of directors determined that the investment advisory fee rates were reasonable in relation to the services provided, considering factors such as investment performance and anticipated costs[86]. - The Administration Agreement was renewed on October 30, 2024, allowing WhiteHorse Administration to provide necessary office facilities and administrative services[88]. Compliance and Regulatory Requirements - The company must ensure that qualifying assets represent at least 70% of its total assets to comply with the 1940 Act[98]. - The company is required to distribute at least 90% of its investment company taxable income to qualify as a RIC for U.S. federal income tax purposes[123]. - A 4% nondeductible U.S. federal excise tax applies to undistributed income unless certain distribution requirements are met[125]. - The company intends to make sufficient distributions each taxable year to satisfy the Excise Tax Avoidance Requirement[125]. - The company must derive at least 90% of its gross income from specific sources, including dividends and interest, to qualify as a business development company under the 1940 Act[127]. - At the end of each quarter, at least 50% of the company's assets must consist of cash, U.S. government securities, and other specified securities, while no more than 25% can be invested in securities of a single issuer[127]. - The company must maintain a bond issued by a reputable fidelity insurance company to protect against larceny and embezzlement[116]. - The company has adopted written compliance policies and procedures to prevent violations of federal securities laws[105]. - Changes in laws or regulations may require the company to alter its business strategy, potentially incurring significant compliance costs[246]. Investment Strategy and Risks - The company may invest up to 100% of its assets in privately negotiated transactions, and it does not intend to exceed the limits imposed by the 1940 Act on investments in registered investment companies[95]. - The company primarily invests in below investment grade securities, which may present special tax issues and affect the distribution of sufficient income to avoid U.S. federal income tax liabilities[133]. - Rising interest rates could adversely affect the company's net investment income, as the cost of funds may increase while interest income from investments may not rise correspondingly[207]. - Inflation has negatively impacted the operating results of portfolio companies, increasing costs and potentially affecting their ability to pay interest and principal on loans[212]. - The company engages in hedging transactions to mitigate risks associated with currency and interest rate fluctuations, but such transactions do not eliminate the possibility of losses[213]. - The company has entered into transactions to reduce currency exchange rate and interest rate risks, but unanticipated changes may lead to poorer investment performance[214]. - The company’s portfolio investments are recorded at fair value, with significant uncertainty regarding the valuation of non-publicly traded securities[238]. - All investments, except cash and cash equivalents, are classified as Level 3 under FASB ASC Topic 820, indicating reliance on unobservable inputs for valuation[238]. - The company adjusts the valuation of its portfolio quarterly, with changes recorded as net change in unrealized appreciation or depreciation in consolidated statements[240]. - The lack of liquidity in investments may adversely affect the company’s ability to sell investments quickly, potentially realizing significantly less than previously recorded values[241]. - Price declines and illiquidity in corporate debt markets may lead to increased net unrealized depreciation, adversely impacting the company’s NAV[243]. - The company may experience fluctuations in quarterly results due to various factors, including interest rates, default rates, and general economic conditions[245]. - The company may face operational disruptions if the Investment Adviser resigns, potentially affecting financial condition and market price of shares[258]. Conflicts of Interest - The valuation process for non-publicly traded securities may create conflicts of interest, as the Investment Adviser determines fair value[226]. - The company is restricted from entering certain transactions with affiliates without prior approval, limiting investment scope[233]. - The allocation policy for investment opportunities may not guarantee fair or equitable access for the company compared to other accounts managed by the Investment Adviser[234]. - The company may face conflicts of interest due to arrangements with H.I.G. Capital and the Investment Committee, affecting investment returns[217]. - The Investment Adviser controls the timing of capital gains recognition, which may impact the company's financial performance[222]. - The Investment Adviser’s liability is limited under the Investment Advisory Agreement, which may lead to riskier behavior on behalf of the company[263]. Portfolio Company Risks - Portfolio companies may experience financial distress, leading to uncertainty regarding the satisfaction of distressed debt, which may not yield anticipated returns[280]. - Rising interest rates could hinder portfolio companies' ability to make periodic loan payments, increasing the risk of defaults[281]. - Economic downturns may lead to increased non-performing assets and decreased portfolio value, adversely affecting revenues and net income[282]. - Defaults by portfolio companies could trigger cross-defaults and jeopardize the ability to meet obligations under debt securities held[293]. - The company may not have controlling equity interests in portfolio companies, limiting its ability to influence management decisions that could affect investment value[292]. - Portfolio companies may incur debt that ranks equally with or senior to the company's investments, potentially impacting recovery in insolvency situations[294]. - The value of collateral in liquidation scenarios is subject to market conditions, which may not be sufficient to satisfy loan obligations secured by second-priority liens[297]. - The company may face risks associated with syndicated loans, where it may lack sufficient influence to direct actions taken by the loan agent[285]. - The company may not realize gains from equity investments, as the value of such interests may decline instead of appreciating[289]. - Failure to make follow-on investments could impair the value of the portfolio and jeopardize the viability of portfolio companies[291]. - The ability to prepay loans may reduce yields if capital returned cannot be reinvested in transactions with equal or greater expected yields[300]. Debt and Financing Risks - WhiteHorse Credit's equity interests are subordinated in priority of payment to its obligations to debt holders and service providers[307]. - A payment default on a loan to a portfolio company could lead to a defaulted obligation under the Credit Facility, adversely affecting distributions to stockholders[308]. - WhiteHorse Credit must meet two coverage tests under the Credit Facility: a borrowing base test (≤ 60%) and a market value test (≥ 167.5%) to make new borrowings and distributions[310]. - The Private Notes and Public Notes are unsecured and effectively subordinated to any secured indebtedness incurred by the company or its subsidiaries[315]. - An event of default under the Credit Facility could prevent distributions to stockholders and may lead to liquidation of WhiteHorse Credit's assets[312]. - Investments in foreign companies may involve significant risks, including political instability and less liquid markets[303]. - The company may co-invest through joint ventures, which could involve risks specific to third-party management and inconsistent objectives[305]. - The indenture for the 4.000% 2026 Notes offers limited protection to holders, allowing the company to incur additional debt without restrictions[321]. - The indenture does not require the company to adhere to any financial tests or ratios, which could negatively impact the holders of the 4.000% 2026 Notes in case of adverse financial changes[323]. - The indenture for the 7.875% 2028 Notes similarly provides limited protections, allowing the company to issue additional debt and engage in various corporate transactions[326]. - Holders of the Private Notes may require the company to prepay upon a change in control, which could adversely affect its financial condition[333]. - The company may choose to prepay the Private Notes and redeem Public Notes when prevailing interest rates are lower, impacting holders' ability to reinvest at comparable rates[340]. - If the company defaults on its obligations, it may be unable to make payments on the Private Notes and Public Notes, potentially leading to bankruptcy or liquidation[341]. - Payments under the Private Notes and Public Notes to foreign entities may be subject to a 30% U.S. withholding tax under FATCA provisions[343].

Investment Income - For the fourth quarter ended December 31, 2024, total investment income was $21.0 million, a decrease of 8.1% from $22.9 million in the previous quarter[3]. - Net investment income for the fourth quarter was $8.0 million, down 12.9% from $9.2 million in the prior quarter, resulting in a net investment income per share of $0.343[3]. Investment Portfolio - The fair value of the investment portfolio decreased to $642.2 million as of December 31, 2024, down 1.9% from $654.3 million at the end of the previous quarter[4]. - The weighted average effective yield on income-producing debt investments in the portfolio was 12.5%[4]. - The portfolio consisted of 127 positions across 71 companies, with approximately 78.2% in first lien secured loans[4]. Company Investments - During the fourth quarter, WhiteHorse Finance made investments totaling $27.4 million in six new portfolio companies and added $8.0 million to existing companies[5]. - WhiteHorse Finance transferred assets totaling $13.7 million to STRS JV during the fourth quarter[6]. Distributions and Net Asset Value - The company declared a distribution of $0.385 per share for the fourth quarter, consistent with the previous quarter's distribution[7]. - The net asset value per share decreased to $12.31, down 3.6% from $12.77 in the prior quarter[3]. Realized and Unrealized Gains - Net realized losses for the fourth quarter were $12.3 million, while net unrealized appreciation was $8.2 million, reflecting a significant change from the previous quarter[3].

Core Viewpoint - WhiteHorse Finance, Inc. reported its financial results for Q4 and the year ended December 31, 2024, highlighting a distribution of $0.385 per share, despite facing challenges in its investment portfolio [1][2]. Financial Performance - Total investment income for Q4 2024 was $21.009 million, down from $22.851 million in Q3 2024, representing an 8.1% decrease [3]. - Total expenses, including excise tax, decreased by 4.9% to $13.032 million from $13.697 million [3]. - Net investment income for Q4 was $7.977 million, a decline of 12.9% from $9.154 million in Q3 [3]. - The net investment income per share decreased to $0.343 from $0.394, also a 12.9% drop [3]. - The company declared a special distribution of $0.245 per share during the same period [3][7]. Portfolio and Investment Activity - As of December 31, 2024, the fair value of the investment portfolio was $642.2 million, down from $654.3 million as of September 30, 2024, a decrease of 1.9% [4]. - The portfolio consisted of 127 positions across 71 companies, with a weighted average effective yield of 12.5% on income-producing debt investments [4]. - The average debt investment size was $5.5 million, with 78.2% in first lien secured loans [4]. - During Q4, the company invested $27.4 million in six new portfolio companies and added $8.0 million to existing companies [5]. - Proceeds from sales and repayments totaled approximately $32.5 million, driven by full repayments from several companies [5]. Distributions - The board declared a distribution of $0.385 per share for Q4 2024, payable on April 4, 2025, to stockholders of record as of March 21, 2025 [1][7]. - This distribution marks the forty-ninth consecutive quarter with distributions at or above $0.355 since the company's IPO [8].

Company Overview - WhiteHorse Finance, Inc. is a business development company that focuses on originating and investing in loans to privately held, lower middle market companies across various industries [4] - The investment activities of the company are managed by H.I.G. WhiteHorse Advisers, LLC, which is an affiliate of H.I.G. Capital, a global alternative asset manager with $67 billion of capital under management [4] Financial Results Announcement - WhiteHorse Finance will release its fourth quarter and full year financial results for the year ended December 31, 2024, on March 7, 2025 [1] - A conference call to discuss the financial results will take place on the same day at 2:00 p.m. ET [1] Teleconference Access - Investors can access the teleconference by dialing 800-267-6316 (domestic) or +1 203-518-9783 (international) approximately 10 minutes before the scheduled start time, referencing ID WHFQ424 [2] - A replay of the teleconference will be available starting two hours after the call's completion through March 14, 2025 [3]

Core Viewpoint - The article emphasizes the importance of value investing and highlights WhiteHorse Finance (WHF) as a strong candidate for value investors due to its favorable financial metrics and Zacks Rank [1][2][7]. Company Analysis - WhiteHorse Finance (WHF) currently holds a Zacks Rank of 2 (Buy) and an A grade for Value, indicating strong potential for value investors [4]. - WHF has a P/E ratio of 6.91, significantly lower than the industry average P/E of 9.70, suggesting it may be undervalued [4]. - The Forward P/E for WHF has fluctuated between 5.83 and 8.03 over the past year, with a median of 7.15 [4]. - The company has a P/B ratio of 0.79, compared to the industry average of 1.03, further indicating its undervaluation [5]. - WHF's P/B ratio has ranged from 0.75 to 0.98 in the past year, with a median of 0.91 [5]. - The P/S ratio for WHF stands at 2.42, which is lower than the industry average P/S of 3.75, reinforcing the notion of undervaluation [6]. Investment Outlook - The combination of WHF's strong earnings outlook and favorable valuation metrics positions it as an attractive value stock at the moment [7].

Core Viewpoint - The focus is on identifying undervalued stocks through fundamental analysis and valuation metrics, with WhiteHorse Finance (WHF) highlighted as a strong value stock opportunity [2][4][7] Group 1: Company Overview - WhiteHorse Finance (WHF) currently holds a Zacks Rank of 2 (Buy) and an A for Value, indicating strong potential for investors [4] - The stock has a Forward P/E ratio of 6.74, significantly lower than the industry average of 9.32, suggesting it may be undervalued [4] - Over the past year, WHF's Forward P/E has fluctuated between 5.83 and 8.03, with a median of 7.15, indicating relative stability [4] Group 2: Valuation Metrics - WHF's P/B ratio stands at 0.77, compared to the industry's average P/B of 0.99, further supporting the notion of undervaluation [5] - The stock's P/B has ranged from 0.75 to 0.98 over the past year, with a median of 0.91, reflecting its attractive valuation [5] - WHF has a P/S ratio of 2.36, which is lower than the industry's average P/S of 3.62, reinforcing its value proposition [6] Group 3: Investment Outlook - The combination of WHF's strong valuation metrics and positive earnings outlook positions it as an impressive value stock at the moment [7]

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]

| --- | --- | |----------------------------------------------------------------------------------|-------| | | | | | | | | | | | | | WhiteHorse Finance, Inc. Earnings Presentation Quarter Ended September 30, 2024 | | | | | NASDAQ: WHF (Common Stock) NASDAQ: WHFCL (7.875% Notes due 2028) Important Information and Forward Looking Statements 1 References in this presentation to "WHF", "WhiteHorse Finance", "we", "us", "our" and "the Company" refer to WhiteHorse Finance, Inc. This presentation and the informati ...