WhiteHorse Finance, Inc. Announces Third Quarter 2021 Earnings Results and Declares Quarterly Distribution of $0.355 Per Share
NEW YORK, Nov. 9, 2021 /PRNewswire/ — WhiteHorse Finance, Inc. (« WhiteHorse Finance » or the « Company ») (Nasdaq: WHF) today announced its financial results for the quarter ended September 30, 2021. In addition, the Company’s board of directors has declared a distribution of $0.355 per share with respect to the quarter ending December 31, 2021. The distribution will be payable on January 4, 2022 to stockholders of record as of December 20, 2021.
Third Quarter 2021 Summary Highlights
-
Net Asset Value of $323.7 million, or $15.46 per share
-
Investment portfolio(1) totaling $687.1 million
-
STRS JV investment portfolio totaling $239.0 million
-
Gross investment deployments(2) of $122.5 million for the third quarter, including new originations of $47.9 million and $74.6 million of fundings for refinancings and add-ons to existing investments
-
Net investment income of $7.6 million, or $0.366 per share
-
Core net investment income of $7.8 million, or $0.372 per share(3)
-
Third quarter distribution of $0.355 per share
Recent Developments
Subsequent to the end of the quarter, the Company issued 1,900,000 shares of its common stock in a public offering at an offering price of $15.81 per share (the « Offering »). The Offering generated net proceeds of approximately $29.4 million. Under the existing underwriting agreement, the underwriters executed the option to purchase an additional 282,300 shares, generating another $4.3 million of net proceeds. The Company’s aggregate net proceeds of the Offering were approximately $33.7 million, inclusive of underwriting discounts and commissions and before offering expenses.
Stuart Aronson, WhiteHorse Finance’s Chief Executive Officer, commented, « Gross capital deployments remained strong in the third quarter, offset in part by continuing repayments and refinancings within the portfolio, and we maintained a high level of origination activity. In anticipation of continuing rapid capital deployment, we completed a follow-on equity offering earlier this month, netting approximately $34 million in proceeds. Our pipeline remains very healthy, and this new capital should enable us to continue to grow WhiteHorse Finance through disciplined deal sourcing. Although the lending market has become more competitive in some segments, where pricing, leverage and documentation terms have returned to pre-COVID levels, we believe that our relationship with the leading H.I.G. platform and our differentiated three-tier sourcing capabilities will continue to drive growth. Notwithstanding the competitive backdrop, we believe that we can continue to identify and close deals that meet our rigorous underwriting standards and generate strong cash flow to support our dividend and create value for our shareholders. »
Portfolio and Investment Activity
As of September 30, 2021, the fair value of WhiteHorse Finance’s investment portfolio was $687.1 million, compared with $670.5 million as of June 30, 2021. The portfolio as of September 30, 2021 consisted of 99 positions across 65 companies with a weighted average effective yield of 9.3% on income-producing debt investments. The average debt investment size (excluding investments in STRS JV (as defined below)) was $7.3 million with the overall portfolio comprised of approximately 82.3% first lien secured loans, 4.3% second lien secured loans, 2.9% equity and 10.5% in investments in STRS JV. Almost all loans were 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, 2021, WhiteHorse Finance made investments in four new portfolio companies totaling $47.9 million, added a total of $34.8 million to existing portfolio companies, exclusive of refinancing, and made net fundings of $0.9 million to revolver loans. Proceeds from sales and repayments, exclusive of refinancing, totaled approximately $26.1 million for the quarter ended September 30, 2021, driven by two full realizations in LS GFG Holdings Inc. and Connexity, Inc. In addition, the Company refinanced three first lien investments: NNA Services, LLC, EducationDynamics, LLC and Source Code Midco, LLC, resulting in net repayments of approximately $7.3 million. Gross receipts from refinancings were $47.1 million and gross deployments from refinancings were $39.8 million.
In addition to the transactions discussed above, during the three months ended September 30, 2021, WhiteHorse Finance transferred assets comprised of two new portfolio companies, three add-ons and the remaining portions of four previously transferred deals totaling $45.7 million to STRS JV in exchange for a net investment in STRS JV of $9.4 million as well as cash proceeds of $36.3 million.
WHF STRS Ohio Senior Loan Fund LLC
As of September 30, 2021, STRS JV’s portfolio totaled $239.0 million, consisted of 27 portfolio companies and had a weighted average effective yield of 8.0% on its portfolio.
Results of Operations
For the three months ended September 30, 2021, the Company’s net investment income was approximately $7.6 million, compared with approximately $5.9 million for the same period in the prior year, representing an increase of approximately 28.8%. The increase in net investment income for the year-over-year period was primarily attributable to accelerated accretion and nonrecurring fee income recognized due to higher repayment activities as well as lesser capital gains incentive fee accrued, and partially offset by higher interest expense incurred due to higher leverage balances for the quarter ended September 30, 2021. For the three months ended September 30, 2021, the Company’s investment in STRS JV generated an annualized, gross investment yield of approximately 12.6%.
For the three months ended September 30, 2021, core net investment income(3) was $7.8 million, or $0.372 per share, compared with $7.8 million, or $0.380 per share, for the same period in the prior year.
For the three months ended September 30, 2021, WhiteHorse Finance reported net realized and unrealized gains on investments and foreign currency transactions of $0.6 million. This compares with net realized and unrealized gains on investments and foreign currency transactions of $15.7 million for the three months ended September 30, 2020. The decrease for the year-over-year period was primarily attributable to higher prior-year unrealized gains generated on markups in the portfolio as a result of the market’s continuing recovery from the COVID-19 pandemic.
WhiteHorse Finance reported a net increase in net assets resulting from operations of approximately $8.3 million for the three months ended September 30, 2021, which compares with a net increase of $21.6 million for the three months ended September 30, 2020.
WhiteHorse Finance’s net asset value was $323.7 million, or $15.46 per share, as of September 30, 2021, as compared with $319.6 million, or $15.42 per share, as of June 30, 2021.
Liquidity and Capital Resources
As of September 30, 2021, WhiteHorse Finance had cash and cash equivalents of $16.6 million, as compared with $17.8 million as of June 30, 2021, inclusive of restricted cash. As of September 30, 2021, the Company also had $25.4 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, 2021. The distribution will be payable on January 4, 2022 to stockholders of record as of December 20, 2021. In addition, previously on October 14, 2021, the Company declared a special distribution of $0.135 per share, which will be payable on December 10, 2021 to stockholders of record as of October 29, 2021.
On August 9, 2021, the Company declared a distribution of $0.355 per share for the quarter ended September 30, 2021, consistent with distributions declared for the thirty-sixth consecutive quarter since the Company’s initial public offering. The distribution was paid on October 4, 2021 to stockholders of record as of September 20, 2021.
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.
Conference Call
WhiteHorse Finance will host a conference call to discuss its third quarter results at 2:00 p.m. ET on Tuesday, November 9, 2021. To access the teleconference, please dial 877-876-9177 (domestic and international) approximately 10 minutes before the teleconference’s scheduled start time and reference Conference ID #WHFQ321. Investors may also access the call on the investor relations portion of the Company’s website at www.whitehorsefinance.com.
If you are unable to access the live teleconference, a replay will be available beginning approximately two hours after the call’s completion through November 16, 2021. The teleconference replay can be accessed by dialing 888-566-0150 (domestic and international). A webcast replay will also be available on the investor relations portion of the Company’s website at www.whitehorsefinance.com.
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 over $45 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.
Forward-Looking Statements
This press release may contain « forward-looking statements » within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical facts included in this press release may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in filings with the Securities and Exchange Commission. The Company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of the date of this press release.
(1) Includes investments in WHF STRS Ohio Senior Loan Fund LLC (« STRS JV »), an unconsolidated joint venture, totaling $72.1 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.
(4) Based on total capital commitments managed by H.I.G. Capital and affiliates.
SCHEDULE 1
As a supplement to GAAP financial measures, the Company has provided information relating to core net investment income, which is a non-GAAP measure. This measure is provided in addition to, but not as a substitute for, net investment income determined in accordance with GAAP. The Company’s non-GAAP measures may differ from similar measures by other companies, even if similar terms are used to identify such measures. Core net investment income represents net investment income adjusted to exclude the net impact of costs associated with the refinancing of the Company’s indebtedness, the accrual of the capital gains incentive fee attributable to net realized and unrealized gains and losses, and excise or other income taxes related to such net realized gains and losses (net of incentive fees). There were no excise or other income taxes related to net realized gains and losses nor did the Company incur any costs with refinancing any of its indebtedness for the quarters ended September 30, 2021 and September 30, 2020.
The following table provides a reconciliation of net investment income to core net investment income for the three months ended September 30, 2021 and September 30, 2020 (in thousands, except per share data):
September 30, 2021 |
September 30, 2020 |
|||||||||||||||
Amount |
Per Share |
Amount |
Per Share |
|||||||||||||
Amounts |
Amounts |
|||||||||||||||
Net investment income |
$ |
7,639 |
$ |
0.366 |
$ |
5,930 |
$ |
0.289 |
||||||||
Net impact of costs associated with refinancing of indebtedness |
– |
– |
– |
– |
||||||||||||
Accrual for capital gains incentive fee |
127 |
0.006 |
1,870 |
0.091 |
||||||||||||
Net impact of excise tax expense related to net realized gains and losses |
– |
– |
– |
– |
||||||||||||
Core net investment income |
$ |
7,766 |
$ |
0.372 |
$ |
7,800 |
$ |
0.380 |
WhiteHorse Finance, Inc. Consolidated Statements of Assets and Liabilities (in thousands, except share and per share data) |
|||||||
September 30, 2021 |
December 31, 2020 |
||||||
(Unaudited) |
|||||||
Assets |
|||||||
Investments, at fair value |
|||||||
Non-controlled/non-affiliate company investments |
$ |
608,213 |
$ |
623,777 |
|||
Non-controlled affiliate company investments |
6,800 |
15,717 |
|||||
Controlled affiliate company investments |
72,110 |
51,241 |
|||||
Total investments, at fair value (amortized cost $695,047 and $695,429, respectively) |
687,123 |
690,735 |
|||||
Cash and cash equivalents |
9,579 |
8,062 |
|||||
Restricted cash and cash equivalents |
6,749 |
7,549 |
|||||
Restricted foreign currency (cost of $241 and $319, respectively) |
241 |
333 |
|||||
Interest and dividend receivable |
7,227 |
6,532 |
|||||
Amounts receivable on unsettled investment transactions |
15,489 |
4,717 |
|||||
Escrow receivable |
1,827 |
— |
|||||
Prepaid expenses and other receivables |
1,162 |
1,061 |
|||||
Unrealized appreciation on foreign currency forward contracts |
186 |
— |
|||||
Total assets |
$ |
729,583 |
$ |
718,989 |
|||
Liabilities |
|||||||
Debt |
$ |
379,757 |
$ |
384,880 |
|||
Distributions payable |
7,433 |
7,294 |
|||||
Management fees payable |
3,508 |
3,354 |
|||||
Incentive fees payable |
7,404 |
6,117 |
|||||
Amounts payable on unsettled investment transactions |
3,380 |
497 |
|||||
Interest payable |
2,201 |
1,870 |
|||||
Accounts payable and accrued expenses |
1,680 |
1,708 |
|||||
Advances received from unfunded credit facilities |
496 |
372 |
|||||
Total liabilities |
405,859 |
406,092 |
|||||
Commitments and contingencies |
|||||||
Net assets |
|||||||
Common stock, 20,936,874 and 20,546,032 shares issued and outstanding, par value $0.001 per share, respectively, and 100,000,000 shares authorized |
21 |
21 |
|||||
Paid-in capital in excess of par |
305,972 |
300,002 |
|||||
Accumulated earnings |
17,731 |
12,874 |
|||||
Total net assets |
323,724 |
312,897 |
|||||
Total liabilities and total net assets |
$ |
729,583 |
$ |
718,989 |
|||
Number of shares outstanding |
20,936,874 |
20,546,032 |
|||||
Net asset value per share |
$ |
15.46 |
$ |
15.23 |
|||
WhiteHorse Finance, Inc. Consolidated Statements of Operations (Unaudited) (in thousands, except share and per share data) |
|||||||||||||
Three months ended |
Nine months ended |
||||||||||||
2021 |
2020 |
2021 |
2020 |
||||||||||
Investment income |
|||||||||||||
From non-controlled/non-affiliate company investments |
|||||||||||||
Interest income |
$ |
15,199 |
$ |
14,222 |
$ |
44,159 |
$ |
39,506 |
|||||
Fee income |
1,224 |
741 |
2,344 |
1,571 |
|||||||||
Dividend income |
35 |
21 |
144 |
101 |
|||||||||
From non-controlled affiliate company investments |
|||||||||||||
Dividend income |
76 |
263 |
1,042 |
800 |
|||||||||
From controlled affiliate company investments |
|||||||||||||
Interest income |
905 |
682 |
2,362 |
1,913 |
|||||||||
Dividend income |
939 |
568 |
3,638 |
961 |
|||||||||
Total investment income |
18,378 |
16,497 |
53,689 |
44,852 |
|||||||||
Expenses |
|||||||||||||
Interest expense |
3,842 |
2,770 |
11,456 |
9,661 |
|||||||||
Base management fees |
3,508 |
3,069 |
10,209 |
9,110 |
|||||||||
Performance-based incentive fees |
2,069 |
3,819 |
6,739 |
5,571 |
|||||||||
Administrative service fees |
171 |
171
512
512
General and administrative expenses
896
601
2,592
2,212
Total expenses
10,486
…