WhiteHorse Finance's Q4 2024: Navigating Contradictions in Portfolio Strategy and Investor Confidence

These are the key contradictions discussed in WhiteHorse Finance's latest 2024Q4 earnings call, specifically including: Portfolio Leverage and Investor Returns, PIK Income and Debt Service Coverage Standards, Portfolio Spreads and Credit Quality Strategy, and Dividend Sustainability:



Portfolio Performance and Market Conditions:
- WhiteHorse Finance reported a decline in its investment portfolio in Q4 2024, with a NAV per share decrease of 3.6% from the prior quarter, attributed to $4.9 million in net realized and unrealized losses and markdowns.
- The challenges were company-specific and not related to the overall economy, with notable issues affecting American Crafts and Aspect Software.
- The lending environment remains aggressive, with relaxed underwriting standards and compressed pricing in the sponsor market, while the nonsponsor market offers better risk-return dynamics and less competition.

Capital Deployments and Repayments:
- WhiteHorse Finance had gross capital deployments of $35.4 million in Q4, offset by $46.2 million in total repayments, resulting in net repayments of $10.8 million.
- The company had six new originations and various add-ons, with an average leverage of approximately 4.4x EBITDA, and all deals were first lien loans with an average spread of 540 basis points.
- Repayments were primarily driven by full repayments in Hair Cuttery, Industrial Specialty Services, and ATSG, with sales of positions in Draslovka and Hollander.

Dividend and Financial Resilience:
- The company declared a first quarter distribution of $0.385 per share, consistent with the prior quarter, despite a decline in fourth-quarter NII.
- The dividend remained unchanged due to a healthy level of spillover income, and the company maintains an asset coverage ratio for borrowed amounts above the minimum requirement.
- The decision to maintain the dividend reflects a cautious approach amid economic uncertainties and a focus on capital management and balance sheet stability.