WhiteHorse Finance ((WHF)) has held its Q2 earnings call. Read on for the main highlights of the call.
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The recent earnings call for WhiteHorse Finance painted a picture of a challenging quarter, with the company grappling with declines in net asset value and net investment income. Despite these hurdles, there were some positive developments, including improvements in nonaccrual investments and successful debt optimization efforts. The company managed to maintain a consistent dividend distribution, but faced significant challenges such as tariff impacts and limited capacity for new assets. Overall, the negative aspects slightly outweighed the positives, suggesting a cautious outlook.
High Yield in STRS JV Portfolio
The STRS JV portfolio maintained a strong position with an aggregate fair value of $330 million and an average effective yield of 10.6%, slightly down from 10.8% in the previous quarter. This high yield remains a key strength for WhiteHorse Finance, providing a solid return despite the broader challenges faced by the company.
Improvement in Nonaccrual Investments
A notable positive from the earnings call was the improvement in nonaccrual investments, which now total 4.9% of the debt portfolio, down from 8.8% in the prior quarter. This reduction indicates better management of credit risk and a healthier portfolio.
Successful Debt Optimization
WhiteHorse Finance successfully completed a CLO term debt securitization, which has reduced borrowing costs and extended the debt maturity profile. This strategic move is expected to result in cost savings of $0.01 to $0.015 per share per quarter, providing some financial relief amid other challenges.
Consistent Dividend Distribution
The company announced a third quarter distribution of $0.385 per share, consistent with prior quarters. This marks the 52nd consecutive quarterly distribution, demonstrating WhiteHorse Finance’s commitment to returning value to shareholders despite the financial headwinds.
Decline in Net Asset Value (NAV)
The NAV per share at the end of Q2 was $11.82, representing a 2.4% decrease from the prior quarter. This decline was primarily due to net realized and unrealized losses in the portfolio totaling $4.3 million, reflecting the challenging market conditions.
Decrease in Net Investment Income (NII)
The company’s Q2 GAAP net investment income and core NII was $6.6 million or $0.282 per share, slightly below the Q1 figures of $6.8 million or $0.294 per share. This decrease highlights the financial pressures the company is facing.
Decreased Portfolio Value
Total investments decreased by $21.7 million from the prior quarter to $629.3 million, compared to the portfolio’s fair value of $651 million at the end of Q1. This reduction underscores the challenges in maintaining portfolio value amid market volatility.
Tariff Impact on Portfolio
Less than 10% of the portfolio is either heavily or moderately exposed to tariffs, which has affected the performance of some companies within the portfolio. This exposure remains a concern for WhiteHorse Finance as it navigates the current economic landscape.
Limited Capacity for New Assets
The BDC balance sheet has very little capacity for new assets, with the JV having approximately $20 million of capacity. This limitation could hinder future growth opportunities for the company.
Forward-Looking Guidance
Looking ahead, WhiteHorse Finance provided several key metrics and insights into their financial performance and strategic actions. The company highlighted a decline in the investment portfolio due to net realized and unrealized losses, with a Q2 GAAP net investment income and core NII of $6.6 million or $0.282 per share, below the Q1 figure. The NAV per share at the end of Q2 was $11.82, influenced by $4.3 million in losses. The company reported net deployments of $2.8 million and emphasized a strategic focus on the nonsponsor market, which offers a better risk-return profile. Despite performance challenges, the company maintained a consistent dividend payout.
In summary, the earnings call for WhiteHorse Finance highlighted a quarter of mixed results, with significant challenges in maintaining net asset value and investment income. However, the company showed resilience through improvements in nonaccrual investments and strategic debt optimization. While the negative aspects slightly outweighed the positives, WhiteHorse Finance’s commitment to consistent dividend distribution and strategic focus on the nonsponsor market provide a cautious yet hopeful outlook.