WhiteHorse Finance, Inc.

Good morning, my name is Angela, and I will be your conference operator today. At this time, I would like to welcome everyone to the Whitehorse Finance First Quarter 2021 Earnings Conference Call. Our hosts for today's call are Stuart Arson, Chief Executive Officer, and Joyston Thomas, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 5 o'clock p.m. Eastern. The repay dial-in number is 404-537-3406, and the PIN number is 428-7043. 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. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. We ask that you please pick up your headset to allow optimal sound quality. If you should require operator assistance, please press star zero. It is now my pleasure to turn the floor over to Sean Silva of Plastic Partners.

Thank you, Angela, and thank you, everyone, for joining us today to discuss Whitehorse Finance's first quarter 2021 earnings results. Thank you for your patience as we work through a minor technical issue that caused this brief delay. Before we begin, I would 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 2021 earnings presentation, which was posted to our website this morning. With that, allow me to introduce Whitehorse Finance's CEO, Stuart Arrington. Stuart, you may begin.

Thank you, Sean. Good afternoon, everyone, and thank you for joining us today. I hope you and your families continue to be safe and healthy as we navigate these unprecedented times. As you're aware, we issued our press release this morning prior to Market Open, and I hope you've had a chance to review our results, which are also available on our website. I'm going to start by addressing our first quarter results and market conditions. Joyce and Thomas, our Chief Financial Officer, will then discuss our performance in more detail After which we will open the floor to questions. Our first quarter results were defined by an improving economic backdrop, supporting both COVID impacted and non-COVID impacted credits. This delivered some of the recovery in our portfolio, but also led to elevated repayments, both of which we had forecasted on prior calls. As a result, our outlook for 2021 remains unchanged. GAAP net investment income was $7.6 million, or 37 cents a share. Core net investment income was $7.7 million, or 37.5 cents per share. Covering our dividend, NAV was $15.27 per share compared to $15.23 per share in Q4. Gross deployments of $58 million were offset by repayments of $110 million. Our weighted average effective yield on income producing debt investments modestly decreased to 9.6% compared to 9.9% in Q4. Leverage at the end of Q1 was 1.1 times within our targeted range of one to one and a quarter times. Activity in our JV remained stable. At quarter end, the JV held 22 positions at a fair value of 174.6 million in Q4. I'm sorry. At quarter end, the JV held 22 positions with an aggregate fair value of 185.7 million compared to 20 positions at a fair value of 174.6 in Q4. The return to our BDC on our investment in the JV at the end of Q1 was 14.8%. We continue to believe that our JV is accretive to the BDC's earnings. Turning now to our investment portfolio, At the end of the first quarter, the fair value of our investment portfolio decreased to $617 million compared to $691 million at the end of Q4. Gross deployments of $58 million resulted from five new originations and a number of add-ons. Comparatively to first quarters and prior years, this year's Q1 origination level was stronger. Gross deployments were more than offset by $110 million of repayments, which is consistent with the projected outlook we provided during our last call. The timing of some of these transactions resulted in a higher Q1 repayment level than expected, but it does not change our overall projections for the year. Non-accruals represented 2.5% of our debt portfolio compared to 1.8% in Q4. We are disappointed to share that Group Ohima failed to make its interest payment during Q1. This Puerto Rican hospital company, like other hospital companies, is being impacted by COVID. As a result, we wrote off two months of current accrued interest previously recorded in Q4 and placed the first lien loan on non-accrual. This reversal had a negative impact of 1.4 cents to net interest income. We are actively engaged in restructuring negotiations with Group Ohima and will provide updates as they become available. Regarding our other non-accrual, We're pleased to report that subsequent to quarter end, Sure-Fit merged with Hollander Sleep Products. Both Sure-Fit and Hollander are owned by the same sponsor. As a result of this merger, our loan investment in Sure-Fit will be back on accrual in Q2 and all past due interest and fees have been paid. At the end of the first quarter, Sure-Fit had accounted for 0.8% of our non-accruals at fair value. After giving effect for Sure-Fit going back on accrual, On a pro forma basis, our Q1 non-accruals would have been only 1.7% of the debt portfolio at fair value. We are pleased that even with the markdown on HEMA, NAV was still up during Q1 as the rest of our COVID impacted accounts improved. We've seen emerging strength in our fitness concepts investments as the economy begins reopening. Our restaurant exposure, while a small part of our portfolio, has also improved. This account represents 1.8% of our debt portfolio as of March 31st, 2021. At the end of the first quarter, 85% of our debt portfolio is first lien, senior and secured. Sponsor loans comprise 65% of our portfolio compared to 58% in Q4. Also subsequent to quarter end, Honors Holding had a significant equity investment made by a PE firm which will provide additional equity cushion to our loan and will have a materially positive impact on the mark for honors in Q2. Looking ahead, our Q2 pipeline is strong. We already have 11 mandated deals, 10 of which are new originations. Of the 10 new originations in our pipeline, six are sponsor and four are non-sponsor. As always, there can be no assurance that any of these mandated deals will close. Turning to the market outlook, in Q1 we saw a notable increase in supply-demand imbalance in favor of borrowers. This was most true in the on-the-run sponsor market, which is right now comparatively less attractive than the off-the-run sponsor market and the non-sponsor market. Pricing and structures in the on-the-run sponsor market have returned to pre-COVID levels. But in the off-the-run sponsor market, there is still a slight premium on pricing to pre-COVID, and the same is true for the non-sponsor market. In closing, I'm encouraged by the directionally positive trends we're seeing in our business. The improving economic backdrop is benefiting our portfolio, and we have a healthy pipeline going into Q2. Many of our COVID-impacted credits are beginning to deliver the economic upside that we've been projecting on prior calls as the vaccine rollout program improves. This improving momentum brings particular significance to our three-tiered sourcing architecture, which is foundational to our strategy. It includes 24 deal professionals dedicated to origination in 12 locations across North America, a 20-plus person business development team leveraging HIG Capital's proprietary prospect database of over 21,000 names, and sourcing at the HIG level by over 400 investment professionals overall. As a result, we believe we are optimally positioned to capture the economic recovery in a way that benefits our business and our shareholders. With that, I'll turn the call to Joyson, after which we'll take your questions.