WhiteHorse Finance, Inc. (Nasdaq: WHF) today announced its financial results for the quarter ended September 30, 2020. Additionally, the Company announced that its board of directors has declared a distribution of $0.355 per share with respect to the quarter ending December 31, 2020. The distribution will be payable on January 5, 2021 to stockholders of record as of December 21, 2020.
Third Quarter 2020 Summary Highlights
- Net Asset Value of $314.6 million, or $15.31 per share
- Investment portfolio(1) totaling $595.3 million
- STRS JV investment portfolio totaling $162.6 million
- Gross investment additions(2) of $58.5 million, including new positions of $42.6 million and $15.7 million of fundings for add-ons to existing investments
- Net investment income of $5.9 million, or $0.289 per share
- Core net investment income of $7.8 million, or $0.380 per share(3)
- Third quarter distribution of $0.355 per share
| (1) Includes investments in WHF STRS Ohio Senior Loan Fund LLC ("STRS JV"), an unconsolidated joint venture, totaling $50.4 million, at fair value. |
| (2) Excludes investments made in STRS JV. |
| (3) Core net investment income is a non-GAAP financial measure. The Company believes that core net investment income provides useful information to investors and management because it reflects the Company's financial performance excluding (i) the net impact of costs associated with the refinancing of the Company's indebtedness, (ii) the accrual of the capital gains incentive fee attributable to net realized and unrealized gains and losses, and (iii) excise and other income taxes related to such net realized gains and losses (net of incentive fees). The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. Additional information on core net investment income and a reconciliation of core net investment income to its most directly comparable GAAP financial measure, net investment income, are set forth in Schedule 1 hereto. |
Stuart Aronson, WhiteHorse Finance's Chief Executive Officer commented, "As the market continues to recover from the effects of the COVID-19 pandemic, our portfolio showed strength and resilience during the third quarter. Core NII meaningfully exceeded our quarterly dividend and NAV increased materially back to pre-COVID levels. Our portfolio grew to a fair value of $595.3 million after adding three new first lien positions as well as several meaningful add-ons, and our debt portfolio was comprised of 94.2% first lien loans. With a strong pipeline coming up in the fourth quarter, we have successfully added another $40 million unsecured notes at favorable pricing to fully take advantage of the opportunities in the current market. While we are encouraged by our performance in the face of uncertainties in the current macro environment, we will remain prudent and judicious in our execution, maintaining our discipline and rigorous underwriting standards to enhance value for our shareholders."
Portfolio and Investment Activity
As of September 30, 2020, the fair value of WhiteHorse Finance's investment portfolio was $595.3 million, compared with $547.4 million as of June 30, 2020. The portfolio at September 30, 2020 consisted of 73 positions across 54 companies with a weighted average effective yield of 9.9% on income-producing debt investments. The average debt investment size (excluding investments in STRS JV) was $8.8 million with the overall portfolio comprised of approximately 83.1% first lien secured loans, 5.0% second lien secured loans, 0.1% subordinated debt, 3.3% equity and 8.5% in investments in STRS JV. Almost all loans were substantially variable-rate investments (primarily indexed to the London Interbank Offered Rate) with fixed rate securities representing only 0.4% of loans at fair value. Nearly all performing floating rate investments have interest rate floors.
During the three months ended September 30, 2020, WhiteHorse Finance made investments in three new portfolio companies totaling $42.6 million, added a total of $15.7 million to five existing portfolio companies and funded $0.7 million to revolver commitments. Proceeds from sales and repayments totaled approximately $26.5 million for the quarter ended September 30, 2020, driven by full realizations in PMA Holdco, LLC as well as in Rural Media Group, Inc. and payments received from AG Kings Holdings Inc., which reduced the cost basis in the investment by $3.5 million.
In addition to the transactions above, during the three months ended September 30, 2020, WhiteHorse Finance transferred one position totaling $1.3 million to STRS JV in exchange for cash consideration.
WHF STRS Ohio Senior Loan Fund LLC
As of September 30, 2020, STRS JV's portfolio totaled $162.6 million, consisted of 18 portfolio companies and had a weighted average effective yield of 8.1% on its portfolio.
Results of Operations
For the three months ended September 30, 2020, the Company's net investment income was approximately $5.9 million, compared with approximately $8.7 million for the same period in the prior year, representing a decrease of approximately 32.2%. The decrease in net investment income for the year-over-year period was primarily attributable to higher incentive fees expense and lower non-recurring fee income in the current quarter. The incentive fees increase was due to higher amounts recognized for the capital gains incentive fee component as a result of $15.7 million in net realized and unrealized gains recorded in the current quarter, comparing with a reversal of the capital gains incentive fee accrual due to $1.8 million in net realized and unrealized losses generated in the same period in the prior year. The decrease in fee income during the quarter ended September 30, 2020 as compared with the same period in the prior year was primarily a result of fewer nonrecurring, fee-generating events.
For the three months ended September 30, 2020, core net investment income, a non-GAAP financial measure that excludes capital gains incentive fee accruals, the net effects of excise or other income taxes related to net realized gains and losses, and the associated costs of refinancing the Company's indebtedness, was $7.8 million, compared with $8.3 million for the same period in the prior year, representing a decrease of approximately 6.0%.
For the three months ended September 30, 2020, WhiteHorse Finance reported net realized and unrealized gains on investments and foreign currency transactions of $15.7 million, as compared with net realized and unrealized losses on investments and foreign currency transactions of $1.8 million for the three months ended September 30, 2019. The increase in the year-over-year period was primarily attributable to markups in the portfolio as a result of the market's continuing recovery from the COVID-19 pandemic and markdowns recorded earlier this year.
WhiteHorse Finance reported a net increase in net assets resulting from operations of approximately $21.6 million for the three months ended September 30, 2020, which compares with a net increase of $6.9 million for the three months ended September 30, 2019.
WhiteHorse Finance's net asset value was $314.6 million, or $15.31 per share, as of September 30, 2020, as compared with $300.2 million, or $14.61 per share, as of June 30, 2020.
Liquidity and Capital Resources
As of September 30, 2020, WhiteHorse Finance had cash and cash equivalents of $22.9 million, as compared with $20.9 million as of June 30, 2020, inclusive of restricted cash. As of September 30, 2020, the Company also had $18.9 million of undrawn capacity under its revolving credit facility.
Distributions
The Company's Board of Directors has declared a distribution of $0.355 per share with respect to the quarter ending December 31, 2020. The distribution will be payable on January 5, 2021 to stockholders of record as of December 21, 2020. In addition, previously on October 9, 2020, the Company declared a special distribution of $0.125 per share, which will be payable on December 10, 2020 to stockholders of record as of October 30, 2020.
On August 10, 2020, the Company declared a distribution of $0.355 per share for the quarter ended September 30, 2020, consistent with distributions declared for the thirty-second consecutive quarter since the Company's initial public offering. The distribution was paid on October 2, 2020 to stockholders of record as of September 21, 2020.
Distributions are paid from taxable earnings and may include return of capital and/or capital gains. The specific tax characteristics of the distributions will be reported to stockholders on Form 1099-DIV after the end of the calendar year and in the Company's periodic reports filed with the Securities and Exchange Commission.
Recent Developments
On October 20, 2020, WhiteHorse Finance entered into an agreement governing the issuance of $40 million aggregate principal amount of senior unsecured notes due 2025 (the "2025 Private Notes"), to qualified institutional investors in a private placement offering. The 2025 Private Notes have a fixed interest rate of 5.375% payable semiannually and are due on October 20, 2025, unless redeemed, purchased or prepaid prior to such date by the Company or its affiliates in accordance with the terms of the 2025 Private Notes. WhiteHorse Finance used the net proceeds from this offering to partially repay amounts outstanding under its revolving credit facility.
About WhiteHorse Finance, Inc.
WhiteHorse Finance is a business development company that originates and invests in loans to privately held, lower middle market companies across a broad range of industries. The Company's investment activities are managed by H.I.G. WhiteHorse Advisers, LLC, an affiliate of H.I.G. Capital, LLC, ("H.I.G. Capital"). H.I.G. Capital is a leading global alternative asset manager with $41 billion of capital under management(4) across a number of funds focused on the small and mid-cap markets. For more information about H.I.G. Capital, please visit http://www.higcapital.com. For more information about the Company, please visit http://www.whitehorsefinance.com.
