10-K: WhiteHorse Finance 2025 Annual: Portfolio Shifts & Performance

WhiteHorse Finance reports a decrease in net investment income and total portfolio fair value for 2025, alongside strategic debt restructuring and a new stock repurchase program.

Summary

• Net investment income decreased by $11.1 million to $26.1 million in 2025 from $37.2 million in 2024.
• Total investment income decreased by $20.1 million to $72.6 million in 2025 from $92.8 million in 2024, primarily due to lower yields, investments placed on non-accrual status, and a smaller portfolio size.
• Total expenses decreased by $9.0 million to $46.5 million in 2025 from $55.5 million in 2024, mainly due to lower interest expense and performance-based incentive fees.
• Net realized losses on investments and foreign currency transactions increased to $35.5 million in 2025 from $17.9 million in 2024.
• Net change in unrealized gains/losses shifted from a depreciation of $8.4 million in 2024 to an appreciation of $23.7 million in 2025.
• Net increase in net assets resulting from operations was $14.3 million in 2025, up from $10.8 million in 2024.
• The investment portfolio's fair value decreased to $578.6 million in 2025 from $642.2 million in 2024.
• The weighted average effective yield on the debt portfolio (excluding STRS JV) decreased to 9.2% in 2025 from 10.4% in 2024.
• Asset coverage for borrowed amounts was 179.1% in 2025, compared to 180.4% in 2024, remaining above the 150% regulatory requirement.
• The 5.375% 2025 Notes were fully repaid on September 29, 2025.
• A $298.15 million CLO securitization was completed on June 10, 2025, providing long-term balance sheet financing.
• The board of directors authorized a $15.0 million stock repurchase program in November 2025, with $7.4 million repurchased by year-end.
• Subsequent to year-end, the fair value of first lien secured investments in The Kyjen Company, LLC (d/b/a Outward Hound) is expected to be reduced from 85.8% to a range of 55.0%-65.0% of face value.
• Subsequent to year-end, the fair value of first lien secured investments in Camarillo Fitness Holdings, LLC (f/k/a Honors Holdings, LLC) is expected to be reduced from 40.0% to a range of 15.0%-25.0% of face value.
• On February 26, 2026, the board approved a $7.5 million increase to the stock repurchase program, raising the total authorized amount to $22.5 million.
• Crowe LLP was dismissed as the independent registered public accounting firm, and Deloitte & Touche LLP was appointed on February 26, 2026.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this as a challenging period marked by declining core investment income and increasing realized losses, despite an improvement in unrealized gains and a slight increase in net assets from operations. The anticipated future write-downs on specific investments and the decrease in portfolio size and yield suggest underlying pressures, partially offset by strategic financing and share repurchases.

Positives

• Net change in unrealized gains/losses improved significantly, shifting from a depreciation of $8.4 million in 2024 to an appreciation of $23.7 million in 2025.
• Net increase in net assets resulting from operations increased to $14.3 million in 2025 from $10.8 million in 2024.
• Total expenses decreased by $9.0 million in 2025, driven by lower interest expense and performance-based incentive fees.
• Successfully completed a $298.15 million CLO securitization in June 2025, providing a source of long-term balance sheet financing.
• The board authorized a $15.0 million stock repurchase program in November 2025, with $7.4 million already executed, indicating confidence in the company's valuation and a commitment to shareholder value.
• Subsequent to year-end, the stock repurchase program was increased by an additional $7.5 million, bringing the total authorized amount to $22.5 million.
• The asset coverage ratio remains strong at 179.1%, well above the 150% regulatory requirement for business development companies.

Negatives

• Net investment income decreased by $11.1 million (29.8%) to $26.1 million in 2025 from $37.2 million in 2024.
• Total investment income decreased by $20.1 million (21.7%) to $72.6 million in 2025, primarily due to lower yields, investments placed on non-accrual status, and a smaller portfolio size.
• Interest income (excluding PIK) decreased by $12.7 million, and PIK income decreased by $5.1 million in 2025.
• Net realized losses on investments and foreign currency transactions increased to $35.5 million in 2025 from $17.9 million in 2024.
• The investment portfolio's fair value decreased by $63.6 million (9.9%) to $578.6 million in 2025 from $642.2 million in 2024.
• The weighted average effective yield on the debt portfolio (excluding STRS JV) decreased to 9.2% in 2025 from 10.4% in 2024.
• As of December 31, 2025, the company had $19.665 million in non-accrual loans (cost basis) with a fair value of $10.561 million.
• Subsequent to year-end, expected fair value reductions for investments in The Kyjen Company, LLC (d/b/a Outward Hound) (from 85.8% to 55.0%-65.0% of face value) and Camarillo Fitness Holdings, LLC (f/k/a Honors Holdings, LLC) (from 40.0% to 15.0%-25.0% of face value) indicate potential future losses.

Risks

• The constraints imposed as a business development company (BDC) and regulated investment company (RIC) may hinder the achievement of investment objectives and affect capital raising.
• High dependence on the Investment Adviser, H.I.G. Capital, and their key personnel, proprietary deal-flow network, and expertise.
• Significant potential conflicts of interest could affect investment returns, particularly those of the Investment Adviser and its affiliates.
• Exposure to risks associated with changes in interest rates, including increasing difficulty for portfolio companies to pay loans.
• Economic recessions or downturns could impair portfolio companies and harm operating results.
• Inflation has adversely affected and may continue to adversely affect the business, results of operations, and financial condition of portfolio companies.
• Investment opportunities may be limited by the highly competitive market in which the company operates.
• Returns will be reduced by any corporate income tax that subsidiaries pay.
• Financing investments with borrowed money increases the potential for gain or loss and may increase the risk of investing, especially with additional leverage permitted by the Small Business Credit Availability Act (SBCAA).
• Business and the businesses of portfolio companies are dependent on bank relationships, and recent concerns associated with the banking system may adversely impact the company.
• Exposure to risks with respect to investments that include original issue discount (OID) or contractual payment-in-kind (PIK) interest.
• Risks from engaging in hedging transactions, including counterparty default and imperfect correlation.
• Uncertainty about presidential administration initiatives could negatively impact business, financial condition, and results of operations.
• Changes in laws or regulations governing operations may adversely affect business or cause alteration of business strategy.
• Ability to enter into transactions with affiliates is restricted, which may limit the scope of investments available.
• A significant portion of portfolio securities do not have a readily available market price, leading to uncertainties and subjective determinations in valuations.
• The board of directors may change investment objective, operating policies, and strategies without prior notice or stockholder approval.
• Provisions of the Delaware General Corporation Law (DGCL), certificate of incorporation, bylaws, and debt instruments could deter takeover attempts and adversely affect common stock price and rights.
• The Investment Adviser and Administrator can resign on 60 days' notice, potentially disrupting operations and adversely affecting financial condition.
• Efforts to comply with Section 404 of the Sarbanes-Oxley Act involve significant expenditures, and non-compliance may adversely affect the company and common stock market price.
• Investments in portfolio companies may be risky, and the company could lose all or parts of its investments, especially in lower middle-market companies which may have limited financial resources, less predictable operating results, and greater exposure to economic downturns.
• Investments through joint ventures, partnerships, or other special purpose vehicles may entail greater risks, including those specific to third-party management.
• Subject to risks related to indebtedness, including under the Credit Facility and public and private notes, which may have a material adverse effect.
• The trading market or market value of publicly issued debt and equity securities may fluctuate.
• Credit ratings may not reflect all risks of an investment in debt securities.
• If stockholder approval is received, the company may issue common stock at a price below the then-current net asset value (NAV) per share, which could materially dilute interest and reduce NAV per share.
• Investing in equity securities may involve an above-average degree of risk, including shares trading at a discount to NAV, not receiving distributions, dilution if not participating in the distribution reinvestment plan, and receiving shares as dividends.
• The stock repurchase program could affect the price of common stock and increase volatility; such program could be suspended or terminated at any time.
• As a holding company, dependence on payments from subsidiaries to make payments on debt securities and dividends on common stock, with debt securities being structurally subordinated to subsidiary obligations.
• Global economic, political, and market conditions, including those caused by the ongoing war between Russia and Ukraine, conflicts in the Middle East, Iran and the Gulf States, U.S. military action in Venezuela, as well as global pandemics, may adversely affect business.
• Cybersecurity risks and cyber incidents may adversely affect business or those of portfolio companies by causing disruption, compromise of confidential information, or damage to business relationships.
• The company and its Investment Adviser could be the target of litigation.
• Reductions, waivers, or absorption of fees and costs paid to the Investment Adviser can temporarily result in higher returns to investors than they would otherwise receive if full fees and costs were charged, but there is no guarantee this will continue.
• Subject to ongoing risks related to corporate social responsibility.
• Subject to risks associated with artificial intelligence and machine learning technology.
• Historically had weaknesses in disclosure controls and procedures with respect to filing status determination, and may identify additional weaknesses in the future or otherwise fail to maintain effective internal disclosure controls or procedures.

Future Outlook

The company expects to fund a portion of its investments through future borrowings and may obtain borrowings under other credit facilities and from issuances of senior securities to the extent permitted by the 1940 Act. It may also borrow funds if additional capital would allow it to take advantage of additional investment opportunities, if the market for debt financing presents attractively priced debt financing opportunities, or if the board determines that leveraging the portfolio would be in the best interest of the company and its stockholders. The Investment Adviser has no obligation to maintain the incentive fee waiver after March 31, 2026.

Management Comments

• Our investment objective is to generate attractive risk-adjusted returns primarily by originating and investing in senior secured loans, including first lien and second lien facilities, to performing lower middle market companies across a broad range of industries.
• We expect to generate current income through the receipt of interest payments, as well as origination and other fees, capital appreciation and dividends.
• Management believes that the carrying value of the Company’s investments are fairly stated, taking into consideration these risks along with estimated collateral values, payment histories and other market information.
• Management has not identified any change in our internal control over financial reporting that occurred during the fourth fiscal quarter of 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Industry Context

StockSavvy.ai notes that WhiteHorse Finance operates in a highly competitive lower middle market direct lending environment, facing competition from various public and private funds, banks, and specialty finance companies. The decrease in portfolio yield and overall investment income reflects broader market pressures and potentially increased competition for attractive lending opportunities, while the strategic CLO securitization is a common industry practice to optimize long-term financing.

Management Changes

Corporate Governance

Related Party Transactions

• WhiteHorse Advisers manages day-to-day operations and provides investment management services, receiving a base management fee and an incentive fee.
• WhiteHorse Administration provides office facilities and administrative services, reimbursed for allocable overhead expenses.
• The company has a non-exclusive, royalty-free license to use the WhiteHorse name from an H.I.G. Capital affiliate.
• WhiteHorse Advisers and its affiliates may have other clients with similar or competing investment objectives, leading to potential conflicts in investment allocation.
• The company sold $83.259 million of investments to STRS JV in 2025, recognizing a net realized loss of $4 thousand.
• Certain funds affiliated with WhiteHorse Advisers and its related entities maintained co-investments of $7,220,543 thousand in 2025.

Stakeholder Impact

• Shareholders: Potential dilution if not participating in the Distribution Reinvestment Plan (DRIP), potential for increased value through stock repurchases, impact from decreased distributions per share, and risks from declining NAV and market price volatility.
• Investment Adviser: Base management fees are tied to gross assets, and incentive fees are tied to investment income and capital gains, creating potential conflicts of interest. A fee waiver for Q4 2025 and Q1 2026 temporarily reduces their income.
• Portfolio Companies: Subject to financial distress, inability to repay or refinance loans, and impact from economic downturns and rising interest rates.
• Creditors: Holders of senior securities have superior claims on assets; unsecured notes are effectively subordinated to secured debt.

Next Steps

• The Investment Adviser has no obligation to maintain the incentive fee waiver after March 31, 2026.
• The company expects to reduce the fair value mark of its first lien secured investments in The Kyjen Company, LLC (d/b/a Outward Hound) to a range of 55.0%-65.0% of face value during the first quarter of 2026.
• The company expects to reduce the fair value mark of its first lien secured investments in Camarillo Fitness Holdings, LLC (f/k/a Honors Holdings, LLC) to a range of 15.0%-25.0% of face value during the first quarter of 2026.
• The board of directors approved a $7.5 million increase in the authorized amount for repurchases under the Repurchase Program, bringing the total to $22.5 million.
• Deloitte & Touche LLP was appointed as the new independent registered public accounting firm.
• The company intends to continue to qualify annually as a RIC.
• The Investment Adviser intends to affirm the Commodity Pool Operator Exclusion on an annual basis.

Key Dates

Recommendation

The company faces headwinds with declining investment income and portfolio value, coupled with increased realized losses and anticipated future write-downs on specific investments. While the strategic CLO securitization and expanded share repurchase program are positive steps to manage capital and potentially enhance shareholder value, the overall financial performance indicates a challenging operating environment. The change in auditors also adds a layer of scrutiny. Given the mixed signals and ongoing uncertainties, a 'hold' recommendation is appropriate, suggesting investors monitor the effectiveness of the capital management strategies and the performance of the underlying portfolio companies.

Keywords

Business Development Company, BDC, Direct Lending, Senior Secured Loans, Lower Middle Market, Private Equity, Credit Facility, CLO, SEC Filing, Investment Management, Financial Reporting, Risk Management, Corporate Governance, Asset Management, Debt Investments, Equity Investments, SOFR, Unsecured Notes, Stock Repurchase