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Operator: Good afternoon. My name is Margo, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the WhiteHorse Finance First Quarter 2025 Earnings Conference Call. Our hosts for today’s conference are Stuart Aronson, Chief Executive Officer; and Joyson Thomas, Chief Financial Officer. Today’s call is being recorded and I will be made available for replay beginning at 5:00 PM Eastern Time. The replay dial in number is (402) 220-0464. No passcode is required. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions] It is now my pleasure to turn the floor over to Robert Brinberg of Rose & Company. Please go ahead.

Robert Brinberg: Thank you, operator, and thank you, everyone, for joining us today to discuss WhiteHorse Finance’s first quarter 2025 earnings results. Before we begin, I’d like to remind everyone that certain statements, which are not based on historical facts made during this call, including any statements relating to financial guidance may be deemed forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Because these forward-looking statements involve known and unknown risks and uncertainties, these are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. WhiteHorse Finance assumes no obligation or responsibility to update any forward-looking statements.

Today’s speakers may refer to material from the WhiteHorse Finance first quarter 2025 earnings presentation, which was posted to our website yesterday afternoon. With that, allow me to introduce WhiteHorse Finance’s CEO, Stuart Aronson. Stuart, you may begin.

Stuart Aronson : Thank you, Rob. Good afternoon, and thank you, everyone for joining us today. As you’re aware, we issued our earnings yesterday after market close and I hope you’ve had a chance to review our results for the period ended March 31, 2025, which can also be found on our website. On today’s call, I will begin by addressing our first quarter results and current market conditions. Joyson Thomas, our Chief Financial Officer will then discuss our performance in greater detail, after which we will open the floor for questions. Our results for the first quarter of 2025 were disappointing as our investment portfolio declined this quarter due to net realized and unrealized losses, which impacted our financial performance.

Q1 GAAP net investment income and core NII was $6.8 million or $0.294 per share, compared with a quarterly distribution of $0.385 per share and was below Q4 GAAP and core NII of $8 million or $0.343 per share. NAV per share at the end of Q1 was $12.11 representing an approximate 1.6% decrease from the prior quarter. NAV per share was impacted by net realized losses and net markdowns in our portfolio totaling $2.6 million. Turning to our portfolio activity in Q1, we had gross capital deployments of $45.5 million, which was partially offset by total repayments and sales of $19.4 million, resulting in net deployments of $26.1 million. Gross capital deployments consisted of seven new originations totaling $40.8 million with the remaining $4.7 million used to fund six add-ons to existing investments.

In addition, there was $600,000 of net fundings made on revolver commitments. Of our seven new originations in Q1, one was non-sponsor and six were sponsor deals with an average leverage of only approximately 4.0 times EBITDA. All of our Q1 deals were first lien loans with an average spread of 535 basis points and an average all-in rate of 9.7%, compared with 9.8% in the fourth quarter of 2024. Total repayments and sales were $19.4 million, primarily driven by complete realizations in our positions in platform companies and Eversana and a partial sale of our position in Therm-O-Disc. At the end of Q1, 99.3% percent of our debt portfolio was first lien, senior secured and our portfolio mix was approximately two-thirds sponsor and one-third non-sponsor.

During the quarter, the BDC transferred three new deals and one existing investment to the STRS JV. At the end of Q1, the STRS JV portfolio had an aggregate fair value of $310.2 million and an average effective yield on the JV’s portfolio of 10.8%, compared to 11.1% in Q4. Leverage for the JV at the end of Q4 was 0.98 times compared with 0.88 times at the end of the prior quarter. We continue to successfully utilize the STRS JV and believe WhiteHorse equity investment in the JV continues to provide attractive returns for our shareholders. After net deployment, JV transfers and net realized and unrealized losses, total investments increased by $8.8 million from the prior quarter to $651 million. This compares to our portfolio’s fair value of $642.2 million at the end of Q4.

The weighted average effective yield on our income producing debt investments decreased to 12.1% at the end of Q1, compared to 12.5% in the fourth quarter of 2024. The weighted average effective yield of our overall portfolio also decreased to 9.6% as of the end of Q1, compared to approximately 10.2% at the end of Q4. Transitioning to the BDC’s portfolio, the challenges in this quarter generally do not relate to the overall economy, but rather are more company-specific. We are working with experts within HIG to optimize the outcomes on the workout accounts. In general, in the portfolio, we continue to see relative softness from consumers, but relative stability in our non-consumer facing borrowers, but we are not seeing signs of a recession yet in our portfolio.

We did an analysis of our portfolio before Liberation Day to assess the impact of tariffs on imports from Canada, Mexico and China. That analysis indicated that less than 10% of our portfolio has either high or moderately high tariff risk, which is largely due to the fact that we are focused on the middle market and lower middle market, where companies are more inclined to be operating in the US and have limited international risk. We also focus more on service companies that are generally not exposed to tariff risk. After new tariffs were announced, we began to expand our tariff risk analysis for all other countries that might have larger tariffs. But given that many of the tariffs were put on hold for at least 90 days and various tariff negotiations are currently ongoing, we continue to actively monitor the situation.

During the quarter, we took write downs of $1 million, primarily driven by write downs in MSI Information Services, ABB Optical Group, and American Crafts. I’m pleased to say the American Crafts situation has now been fully resolved eliminating any further downside from that investment. MSI was placed on non-accrual in the quarter. We’re actively working with the owner of that company to see if they will support the company with additional capital. If they do not, we will prepare to either sell or operate the company. Non-accrual investments totaled 8.8% of the debt portfolio, compared with 7.2% of the debt portfolio at fair value in the prior quarter. Due to the non-accrual levels, the earnings power of the BDC is compromised compared to where it was a year ago.

We are actively working on getting deals off the non-accrual list, leveraging the expertise of our first five person dedicated restructuring team. It has taken longer than we anticipated to get Telestream off of non-accrual, but we do hope to get it off nonaccrual this quarter. Our non-accrual investment in Telestream currently represents 3.5% and 3.3% of our portfolio based on the fair value and cost of debt portfolio respectively. Other deals on non-accrual other than MSI are likely to remain that white way for some period of time. Turning to the lending market. Tariffs, along with the risk of recession have impacted conditions. In particular, the M&A market has slowed down dramatically as sellers do not want to sell into a negative sentiment.

The broadly syndicated market has also backed up significantly, but with recent improvements in the tariff situation maybe opening up for some borrowers. As a result of the increased volatility in the markets, there was a 25 to 50 basis point increase in the price in the direct lending market. But over the last few weeks, most or all of that premium has gone away. We’ve seen middle market pricing is currently SOFR $475 to SOFR 525 and lower mid-market spreads are approximately SOFR 500 to SOFR 575. We are also seeing more discipline in credit behavior in the market with lenders being particularly careful about companies with tariff risk and cyclicality. We do continue to focus significant resources on the non-sponsor market, where there are better risk returns in many cases and much less competition than what we’re seeing in the on the run and off the run sponsor markets.

We added a thirteenth coverage region in Q1 with new capabilities in Nashville, Tennessee, which will help with non-sponsor and off the run sponsor origination. Subsequent to quarter end, the BDC has closed one new investment of $15.1 million and has had repayments of approximately $16 million including one full realization. There were two existing investments fully transferred to the JV totaling $11.1 million Following net deployments activity in Q1 and pro forma for several transactions that have closed or that we expect to close in Q2 of 2025, the BDC balance sheet has very little capacity for new assets. That said, the JV has approximately $35 million of capacity, supplementing the BDC’s, existing capacity. Our overall sourcing is at normal levels despite the muted M&A activity as we are seeing a significant amount of deal flow relating to restructuring of deals that were done in 2019, 2020 and 2021, where companies are overlevered and bringing in PIK junior debt or PIK preferred equity to fix the capital structure.

That said, as you can imagine, the quality of what we’re seeing is lower than it was a year ago. So we do think fewer deals are going to convert to closure. However, in some cases, we are finding interesting opportunities. Our pipeline is about a 175 deals, which is slightly below the typical range for this time of year. We currently have five new mandates and are working on three add-ons to existing deals. Our five mandates are three sponsor deals and two non-sponsor deals. While there can be no assurance that any of these deals will close, all of those credits would fit into the BDC if it has room or our JV should be elected to transact. With that, I’ll turn the call over to Joyson for additional performance details and a review of our portfolio composition.

Joyson?

Joyson Thomas : Thanks, Stuart, and thank you, everyone, for joining today’s call. During the quarter, we recorded GAAP net investment income and core NII of $6.8 billion or $0.294 per share. This compares with Q4 GAAP NII and core NII of $8 billion or $0.343 per share, as well as our previously declared quarterly distribution of $0.385 per share. Fee income of approximately $0.5 million in Q1 was primarily due to a prepayment fee earned upon the full repayment in platform companies. For the quarter, we reported a net increase in net assets resulting from operations of $4.3 million. Our risk ratings during the quarter showed that approximately 74.1% of our portfolio positions either carried a 1 or 2 rating, slightly higher than the 72.5% reported in the prior quarter.

As a reminder, a 1 rating indicates that a company has seen its risk of loss reduced relative to initial expectations and a 2 rating indicates a company is performing according to such initial expectations. Quarter-over-quarter, we downgraded our investments in MSI from a 3 to a 4 rating. Additionally, our 5 rated position slightly decreased from 1.3% to 1.2%. As Stuart mentioned earlier, American Crafts, a 5 rated position, which was written down to zero and part of our non-accruals as of the end of the first quarter has now been resolved. We expect these positions to be removed from our non-accruals and portfolio listing in the second quarter, although not with the outcome we had expected. Regarding the JV specifically, we continue to grow our investment.

As Stuart mentioned earlier, in the first quarter, we transferred three new deals and one existing investment to the STR’s JV totaling $17 million. As of March 31, 2025, the JV’s portfolio held positions in 41 portfolio companies with an aggregate fair value of $310.2 million, compared with 38 portfolio companies at an aggregate fair value of $295 million as of December 31, 2024. The investments in the JV continues to be accretive in the BDC’s earnings – excuse me, to the BDC’s earnings, generating a mid-teens return on equity. During Q1, income recognized from a JV investment aggregated to $3.7 million, a slight decline from $4 million in Q4. As we have noted in prior calls, the yield on our investment in the JV may fluctuate period-over-period as a result of a number of factors, including the timing and amount of additional capital investments, the changes in asset yields in the underlying portfolio, as well as the overall credit performance of the JV’s investment portfolio.

Turning to our balance sheet. We had cash resources of approximately $19.6 million at the end of Q1, including $8.2 million in restricted cash and approximately $165 million of undrawn capacity available under our revolving credit facility. As of March 31, 2025, the company’s asset coverage ratio for borrowed amounts as defined by the 1940 Act was 177.2%, which was above the minimum asset coverage ratio of 150%. Our Q1 net effective debt-to-equity ratio after adjusting for cash on hand was approximately 1.23 times compared with 1.15 times from the prior quarter. We continue to monitor the debt capital markets and recent offerings in both the retail and institutional space, as well as recent securitization transactions and we may explore opportunities to either optimize or refinance our capital structure as and when they present themselves and depending on market conditions.

Before I conclude and open up the call to questions, I’d again like to highlight our distributions. Yesterday after market close, we announced that our Board declared a first quarter distribution of $0.385 per share, which is consistent with the prior quarter. The upcoming regular distribution, the 51st consecutive quarterly distribution paid since our IPO in December 2012 with all distributions at or above a rate of $0.355 per share per quarter will be payable on July 3rd 2025 to stockholders of record as of June 19, 2025. As we’ve said previously, we will continue to evaluate our quarterly distribution both in the near and medium term based on the core earnings power of our portfolio in addition to other relevant factors that may warrant consideration.

And with that, I’ll now turn the call back over to the operator for your questions. Operator?

Operator: [Operator Instructions] While that queue builds, we’ll take our first question from Melissa Wedel with JPMorgan. Please go ahead.

Melissa Wedel : Good afternoon. Thanks for taking my questions today. Wanted to start –Aron and make sure I’m understanding what you laid out for us in terms of Telestream and returning that back to accrual status. That sounded like potentially a near-term effect. Is that or a near-term development. Is that fair to say?

Stuart Aronson: Yes. We’ve made progress. We thought we would have a restructuring completed on Telestream last quarter. But the situation did stretch out. We now hope to get the restructuring done by the end of May, which gives us a month of cushion vis-à-vis another month before the end of the quarter. And we would plan to convert a large portion of the existing debt back into cash paying debt that would go on accrual, and any amount that was not cash paid debt would be converted to equity where we have long-term upside in our ownership of the company.

Melissa Wedel: Okay. I appreciate the context on that one. Given the way the investments listed on the statement of investments as of March 31st and based on the rate listed there, as well, it looks like in a full pay quarter at the current fair value, that could mean a couple cents per share in terms of incremental NII just by returning to accrual status. Are we thinking about that the right way?

Stuart Aronson: Again, part of the debt would return to accrual status. We’re still working on how much of it would return and the rate on the debt would be set given that we’d be reducing the amount of debt on the company, the rate on the debt would be set at a more market rate to today’s market. Again, that number has not been confirmed yet. So…

Melissa Wedel: Got it.

Stuart Aronson: It certainly will be accretive, but it will not be accretive as it would have been had the rate stayed. I think it’s SOFR 975.

Melissa Wedel: Right. Okay. Thank you so much for the context.

Stuart Aronson: No problem.

Operator: Thank you. [Operator Instructions] We’ll take our next question from Robert Dodd with Raymond James. Please go ahead.

Robert Dodd : Hi, guys. I apologize for the background noise. On the dividend, could you give us an update on spillover, and if I recall correctly, I mean, basically, that spillover effectively mandate near maintenance of the covered base. So when you talk about reviewing the dividend in in the near term, can you give us any color? I mean, obviously, you could lower that then distribute spillover some other way or what’s the thought process on where that might shake out for 2025? Obviously, if the spillover gets dealt with this year then 2026 is different.

Stuart Aronson: Robert, can you start with the spillover? Yeah.

Joyson Thomas : Yeah. Absolutely, Robert. So, as of the end of last year and as we had mentioned in last quarter’s earnings call, the spillover income was approximately $28.4 million and I think the way to think about it is currently right now with $0.385 per share dividend run rate that equates to approximately $8.95 million of distributions being currently distributed. I would also just highlight maybe the dividend shortfall for Q1 meaning the $0.294 per share NII versus the $0.385 per share current dividend, which equates to about a $2.1 million shortfall. So hopefully that helps in maybe framing the discussion. And, Stuart, I don’t know if you want to touch on maybe just thoughts with the Board and our discussions around the dividend.

Stuart Aronson: Yes. We have some upside in our earnings from the continued deployment of balance sheet assets, which, are planned with the mandated deals, but not certain because we’re not sure those deals will close. We also pick up some income from the JV. We see an opportunity that we may take advantage of to lower our borrowing cost, which would also be accretive to the dividend. And as we discussed, there is the likelihood that Telestream comes partially back onto accrual and MSI fingers crossed, will potentially come back on accrual, which would all help the earnings stream of the BDC. That said, as I said in my prepared remarks, there are a number of accounts that will not be coming back on accrual in the near term.

And so the Board is evaluating all of these things I just mentioned vis-à-vis what the distribution rate is to come up with a view on what the proper dividend is, whether it’s the current $0.385 or some different level. And we are waiting for more of this information to play out to have a clearer picture of the core earnings stream of the BDC before making any decisions on the dividend. But we’ve had active conversation with our shareholders, sorry, with our board.

Robert Dodd : Got it. Thank you. And then just one more, if I can. I mean, what are you seeing and again, I apologize for the back numbers, in kind of the market in terms of bid ask spread between buyers and sellers? I mean, in a period of it looked early in the year that we might see more activity. I’m not talking about generally market, but just don’t use you guys at this point. But then, additional volatility sometimes, it pulls back the bid, but the ask doesn’t necessarily move as quickly. I mean, what are your thoughts on how that might play out in terms of volatility between what I mean, buyers are willing to pay, but maybe the sellers are more sticky on their asking prices?

Stuart Aronson: Robert, what we’re seeing right now is for companies that are in the market that are good companies that don’t have significant tariff risk or recession risk. Those companies are trading at very high multiples. There’s a lot of capital – unused capital sitting in the private equity community. And there is a strong motivation for private equity firms to get that capital deployed. So, if you have a good company to sell, we are seeing good prices on those and buyers and sellers are meeting in the middle. That said, there are a lot of companies that have recession risk involved in their operations and/or tariff risk and we’re finding buyers are being very careful and conservative. And so, in those cases, buyers and sellers are not necessarily reaching agreement.

And then ever since the announcements on Liberation Day, the M&A market has backed up a lot. We are led to understand from the bankers that we talked to that there was a pretty solid pipeline of M&A activity that was scheduled for the balance of the year. Many of those deals have been put on the shelf for the moment, waiting for more clarity in the market to come out based on the tariff negotiations and the announcements of underlying economic activity in the economy. Based on that, we largely expect that M&A activity is going to remain muted for the next 60 to 90 days. And then if M&A does start to pick up in Q3, there is typically a four to twelve week delay between the time the M&A activity picks up and any financing activity gets going.

So, even though our pipeline on the strength of our 25 originators and 13 local markets is reasonably strong. We have a 175 deals in pipeline, which is more or less normal for this time a year. The quality of the deals is not as high as we’ve seen in the past and we think of new m and a transactions with new money equity coming in as being typically the highest quality of deals. And so, we think closure rates are going to be slower. And, therefore, when you look from Q2 into Q3, we expect a relative quiet period in terms of new deal closure. Q2 so far is shaping up to be a solid quarter with the one deal closed and five deals mandated and three more add-ons, but we are cautious as to the environment for deals to close in Q3.

Robert Dodd : Thank you for that color. Thanks a lot.

Stuart Aronson: No problem, Robert. Thank you.

Operator: [Operator Instructions] We’ll go next again to Melissa Wedel with JPMorgan.

Melissa Wedel : Hi, thanks. One quick follow-up. I know that last quarter you talked about anticipating some elevated repayment activity this year. Wondering how you’re thinking about that now and whether those expectations have moderated. Thanks.

Stuart Aronson: Melissa, when the markets got unsettled about a month ago and spreads moved up, we saw repayment activity – forward repayment activity slow down. The marks, as I indicated in the prepared remarks have largely recovered and spreads are back to where they were a couple months ago. So we do think that there will be a decent amount of refinancing activity in the second half of the year, as prepayment penalties on higher rate deals expire. On – in the case of credits that we like, we will try to keep those credits at the current market pricing. And in the case of credits that we think do not deserve the lower pricing, we will let those credits go. But it’s too early to indicate now what will happen over the course of the balance of the second quarter into Q3 and Q4.

I will tell you that right now, the visible repayment pipeline that we have is pretty light. So, I can think of a couple companies that are potentially coming out for sale over – either now or over the next couple of months. And if those sales transact, they will result in repayment activity. But that’s only two or three of the companies in portfolio. So we’re not we’re not seeing really heightened repayment activity at the moment.

Melissa Wedel : Thank you.

Operator: As there are no further questions at this time, that will conclude our question-and-answer session and the WhiteHorse Finance first quarter 2025 earnings call. You may now disconnect.