WHF.NASDAQWhitehorse Finance, INC
10-Q: WhiteHorse Finance Reports Mixed Results in Q3 2024 Amidst Portfolio Adjustments
Sentiment:
Quarterly Report
WhiteHorse Finance's Q3 2024 results show a net decrease in assets due to unrealized losses, despite a decrease in operating expenses.
Worse than expectedThe company's net investment income decreased to $29.3 million for the nine months ended September 30, 2024, from $32.1 million for the same period in 2023.The company experienced net unrealized losses on investments of $16.6 million for the nine months ended September 30, 2024.The company's net asset value per share decreased to $12.77 as of September 30, 2024, from $13.63 as of December 31, 2023.
Summary
- WhiteHorse Finance reported a net decrease in net assets resulting from operations of $6.9 million for the nine months ended September 30, 2024, compared to a net increase of $17.0 million for the same period in 2023.
- The company's net investment income decreased to $29.3 million for the nine months ended September 30, 2024, from $32.1 million for the same period in 2023.
- Total investment income decreased to $71.8 million for the nine months ended September 30, 2024, from $77.6 million for the same period in 2023.
- Total expenses decreased to $42.5 million for the nine months ended September 30, 2024, from $45.5 million for the same period in 2023.
- The company experienced net unrealized losses on investments of $16.6 million for the nine months ended September 30, 2024, compared to net unrealized losses of $15.7 million for the same period in 2023.
- The company's net asset value per share decreased to $12.77 as of September 30, 2024, from $13.63 as of December 31, 2023.
Sentiment
Score: 4
Explanation: The document presents mixed results with a decrease in net investment income and net asset value, offset by a decrease in expenses. The overall sentiment is slightly negative due to the unrealized losses and NAV decline.
Positives
- Total expenses decreased to $42.5 million for the nine months ended September 30, 2024, from $45.5 million for the same period in 2023.
- The company's weighted average yield on income-producing debt investments was 13.1% as of September 30, 2024.
Negatives
- Net investment income decreased to $29.3 million for the nine months ended September 30, 2024, from $32.1 million for the same period in 2023.
- Total investment income decreased to $71.8 million for the nine months ended September 30, 2024, from $77.6 million for the same period in 2023.
- The company experienced net unrealized losses on investments of $16.6 million for the nine months ended September 30, 2024.
- The company's net asset value per share decreased to $12.77 as of September 30, 2024, from $13.63 as of December 31, 2023.
Risks
- The company is subject to financial market risks, including changes in interest rates, which may have a substantial negative impact on our investments, the value of our common stock and our rate of return on invested capital.
- The company's portfolio includes relatively illiquid investments that are privately held, and valuations of these investments are inherently uncertain and may fluctuate over short periods of time.
- The company is subject to credit risk, which is the risk of default on the Companys investments that result from an issuers, borrowers or derivative counterpartys inability or unwillingness to make contractually required payments.
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. The company may also borrow funds to the extent it determines that 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 its board of directors determines that leveraging its portfolio would be in its best interest and the best interests of its stockholders.
Industry Context
The company operates in the business development company sector, which is subject to market risks, including changes in interest rates and credit risk. The company's performance is influenced by the overall economic environment and the performance of its portfolio companies.
Comparison to Industry Standards
- The company's weighted average yield on income-producing debt investments of 13.1% as of September 30, 2024, is within the range of other BDCs focused on direct lending to lower middle market companies.
- The company's net asset value per share decreased to $12.77 as of September 30, 2024, from $13.63 as of December 31, 2023, which is a similar trend to other BDCs that have experienced unrealized losses on their investments due to market conditions.
- The company's total expenses decreased to $42.5 million for the nine months ended September 30, 2024, from $45.5 million for the same period in 2023, which is a positive trend compared to other BDCs that have experienced increased operating expenses due to inflation.
Related Party Transactions
- The company has entered into a number of business relationships with affiliated or related parties, including the Investment Advisory Agreement with WhiteHorse Advisers and the Administration Agreement with WhiteHorse Administration.
- The company has entered into a license agreement with an affiliate of H.I.G. Capital pursuant to which the company has been granted a non-exclusive, royalty-free license to use the WhiteHorse name.
- The company sold $15.1 million and $45.5 million of investments to STRS JV during the three and nine months ended September 30, 2024, respectively.
Stakeholder Impact
- Shareholders may experience a decrease in the value of their investment due to the decline in net asset value per share.
- Shareholders may experience a decrease in distributions due to the decline in net investment income.
- Portfolio companies may be impacted by the company's investment decisions and financial performance.
Key Dates
| Date | Description |
|---|---|
| 2011-12-28 | WhiteHorse Finance, Inc. was formed. |
| 2012-01-01 | WhiteHorse Finance, Inc. commenced operations. |
| 2012-12-04 | WhiteHorse Finance, Inc. converted from a Delaware LLC into a Delaware corporation and elected to be treated as a business development company. |
| 2015-12-23 | WhiteHorse Credit entered into a revolving credit and security agreement with JPMorgan. |
| 2018-07-13 | The Company entered into an agreement to sell in a private offering $30 million aggregate principal amount of senior unsecured notes. |
| 2018-08-01 | The Companys stockholders approved the reduced asset coverage ratio from 200% to 150%. |
| 2019-01-14 | The Company entered into an agreement with State Teachers Retirement System of Ohio to create WHF STRS Ohio Senior Loan Fund, LLC. |
| 2019-07-19 | WHF STRS Ohio Senior Loan Fund, LLC formally launched operations. |
| 2020-10-20 | The Company entered into a Note Purchase Agreement governing the issuance of $40 million in aggregate principal amount of unsecured notes. |
| 2020-12-04 | The Company entered into a Note Purchase Agreement governing the issuance of $10 million in aggregate principal amount of unsecured notes. |
| 2021-07-15 | The terms of the STRS JV Credit Facility were amended to allow STRS JV to reduce the applicable margins for interest rates to 2.35%, extend the non-call period from January 19, 2022 to January 19, 2023, extend the end of the reinvestment period from July 19, 2022 to July 19, 2023 and extend the scheduled termination date from July 19, 2024 to July 19, 2025. |
| 2021-11-24 | The Company completed a public offering of $75 million of aggregate principal amount of unsecured notes. |
| 2021-12-06 | The Company entered into a Note Purchase Agreement governing the issuance of $25 million in aggregate principal amount of unsecured notes. |
| 2022-02-04 | The terms of the Credit Facility were further amended to apply an annual interest rate equal to applicable SOFR plus 2.50% to any borrowings under the Credit Facility. |
| 2022-03-11 | The terms of the STRS JV Credit Facility were further amended to (i) permanently increase STRS Credits availability under the STRS JV Credit Facility from $175 million to $225 million, (ii) increase the minimum funding amount from $131.3 million to $168.8 million, and (iii) apply an annual interest rate equal to the applicable SOFR plus 2.50% to borrowings greater than $175 million in the STRS JV Credit Facility. |
| 2022-03-30 | The terms of the Credit Facility were further amended to (i) increase WhiteHorse Credits availability under the Credit Facility from $310 million to $335 million; (ii) retain an accordion feature which allows for the expansion of the borrowing limit up to $375 million; and (iii) increase the minimum funding amount from $217 million to $234.5 million. |
| 2022-09-08 | The board of directors designated the Investment Adviser as the Companys valuation designee. |
| 2023-01-13 | The terms of the STRS JV Credit Facility were further amended to (i) permanently increase STRS Credits availability under the STRS JV Credit Facility from $225 million to $262.5 million and (ii) apply an annual interest rate equal to applicable SOFR, plus 3.00% to any borrowings under the $37.5 Million Increase in the STRS JV Credit Facility. |
| 2023-03-31 | The Company launched an at-the-market offering. |
| 2023-05-18 | The terms of the STRS JV Credit Facility were further amended to (i) effective June 6, 2023 apply an annual interest rate equal to applicable SOFR plus 2.72% to any USD borrowings (ii) extend the scheduled termination date from July 19, 2025 to July 19, 2026 (iii) extend the non-call period from January 19, 2023 to January 19, 2024 and (iv) extend the end of the reinvestment period from July 19, 2023 to July 19, 2024. |
| 2023-08-24 | The Company completed a public offering of 7.875% 2028 Notes in aggregate principal amount of $30 million. |
| 2023-08-31 | The underwriters fully exercised their option to purchase an additional $4.5 million, bringing the aggregate principal amount of the 7.875% 2028 Notes to $34.5 million. |
| 2024-01-01 | The base management fee is calculated at an annual rate equal to 1.75% based on the Companys consolidated gross assets. |
| 2024-02-22 | The Company executed a second amended and restated investment advisory agreement. |
| 2024-05-08 | The terms of the STRS JV Credit Facility were further amended to (i) effective May 8, 2024 apply an annual interest rate equal to applicable base rate plus 2.50% to any EUR, GBP and USD denominated borrowings and 2.82% to any CAD denominated borrowings (ii) extend the scheduled termination date from July 19, 2026 to January 19, 2028 (iii) extend the non-call period from January 19, 2024 to May 8, 2025 and (iv) extend the end of the reinvestment period from July 19, 2024 to January 19, 2026. |
| 2024-09-30 | End of the reporting period. |
Keywords
Business Development Company, Senior Secured Loans, Private Debt, Lower Middle Market, Investment Income, Net Asset Value, Credit Risk, Interest Rates, Unrealized Losses, Financial Results
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