WhiteHorse Finance (WHF) 7 Nov 24 2024 Q3 Earnings call transcript

WhiteHorse Finance, a leading business development company (BDC), recently held its third-quarter earnings call for 2024, providing investors and analysts with an in-depth look at the company's performance and strategic direction. The call, led by CEO Stuart Aronson and CFO Joyson Thomas, was marked by candid discussions about market conditions, portfolio management, and future growth prospects. Here are some key takeaways from the call.

Disappointing Results and Market Challenges

WhiteHorse Finance reported a decline in net investment income and net asset value in the third quarter, driven by net realized and unrealized losses. The portfolio was impacted by write-downs on investments in American Crafts and Honors Holdings, reflecting the challenges faced by these companies in their respective industries. The company also noted a shortage of quality deal flow and aggressive pricing in the market, particularly in the sponsor segment, which has led to a strategic shift towards non-sponsor deals.

Strategic Shifts and Portfolio Management

The call highlighted WhiteHorse Finance's focus on portfolio optimization and risk management. The company is working to improve the performance of underperforming assets, including American Crafts and Honors Holdings, and is exploring strategic sales to maximize value. The company also discussed its successful partnership with the STRS Joint Venture (JV), which has provided attractive returns for shareholders. WhiteHorse Finance's asset mix remains balanced, with 99% of its debt portfolio consisting of first lien, senior secured loans, and 63% of it being sponsor-backed.

Navigating the Competitive Landscape

The earnings call provided insights into the competitive dynamics of the lending market. WhiteHorse Finance is seeing aggressive competition in the sponsor market, with deals being priced below SOFR 600, leading to a strategic shift towards non-sponsor deals. The company is focusing on organic origination efforts in the lower mid-market and non-sponsor deals, where competition is limited. This strategic move is expected to increase the ratio of non-sponsor deals in the portfolio.

Future Outlook and Investor Relations

Looking ahead, WhiteHorse Finance is focusing on managing its portfolio, optimizing its deal flow, and maintaining a disciplined approach to risk management. The company remains committed to delivering consistent distributions to its shareholders, with a declared quarterly distribution of $0.385 per share and a special distribution of $0.245 per share for stockholders of record as of October 31, 2024.

In conclusion, WhiteHorse Finance's third-quarter earnings call provided a comprehensive overview of the company's performance and strategic direction in the face of market challenges. The company's focus on portfolio optimization, strategic shifts towards non-sponsor deals, and commitment to investor relations underscore its resilience and adaptability in the ever-evolving lending landscape. As WhiteHorse Finance continues to navigate market conditions and execute its growth strategy, investors and analysts will be closely watching its progress.