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WhiteHorse Finance (WHF) 8 Aug 24 2024 Q2 Earnings call transcript

AInvestFriday, Aug 9, 2024 7:02 pm ET
2min read

WhiteHorse Finance, a leading investment firm, released its second-quarter earnings report for the year 2024, providing a comprehensive analysis of the company's financial performance and market outlook. The earnings call, led by CEO Stuart Aronson and CFO Joyson Thomas, offered insights into the company's strategies, investments, and future prospects.

Earnings Overview: A Mixed Bag

The second quarter of 2024 saw WhiteHorse Finance recording a GAAP net investment income and core NII of $9.3 million or $0.40 per share, down from the previous quarter's $10.8 million and $0.465 per share. The decline was attributed to elevated repayment activity and markdowns on the company's portfolio. The net asset value per share at the end of the quarter stood at $13.45, representing a 0.4% decrease from the previous quarter.

Market Conditions: A Cautious Approach

Stuart Aronson highlighted the market conditions, emphasizing the supply-demand imbalance in favor of borrowers, leading to aggressive lending practices across all sponsor segments. Aronson noted that the upper mid-cap and large-cap markets saw leverage of up to 7.5x, with lenders putting PIK leverage on companies for an additional 1 to 2 turns. However, WhiteHorse Finance is maintaining a cautious stance, focusing on transactions with positive free cash flow, limited cyclicality, and strong owners.

Portfolio Activity: Repayments and New Deals

The quarter saw a significant amount of repayments and sales, primarily driven by borrowers refinancing in a borrower-friendly market. The company reported a total of $71.7 million in repayments and sales, with 80% of these being due to refinancings. Meanwhile, WhiteHorse Finance made gross capital deployments of $55.8 million, funding 7 new originations and 9 add-ons to existing investments. The company's strategy is to focus on the nonsponsor market, which remains relatively stable and attractive.

The JV Performance and Future Outlook

The Ohio STRS JV, a significant part of WhiteHorse Finance's investment strategy, has shown promising results. The JV's portfolio comprises 38 issuers with an aggregate fair value of $324.8 million, and it continues to generate investment income for the BDC. The company expects to see refinancing pressure continue due to low interest rates, with a potential increase in volume in the latter part of the year.

Challenges and Opportunities: Navigating a Complex Landscape

The earnings call also addressed the challenges faced by WhiteHorse Finance, including portfolio companies like Honors Holdings, which were placed on nonaccrual status. The company is actively working on remediation strategies for these investments, demonstrating a proactive approach to managing risk. Despite market uncertainties, WhiteHorse Finance remains optimistic about its future prospects, focusing on originating deals in the nonsponsor sector and maintaining a cautious approach to leverage.

Conclusion: A Strategic Outlook

WhiteHorse Finance's second-quarter earnings call underscores the company's strategic approach to navigating market challenges and optimizing investment opportunities. The company's emphasis on risk management, focus on the nonsponsor market, and proactive remediation strategies for underperforming investments position it well for the future. As WhiteHorse Finance looks ahead, it is poised to leverage its strengths and capitalize on market opportunities while managing risks effectively.

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