WhiteHorse Finance, Inc.

Stand by. Your program is about to begin. Good morning. My name is Brittany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Whitehorse Finance Second Quarter 2021 Earnings Conference Call. Our hosts for today's call are Stuart Aronson, Chief Executive Officer, and Joycen Thomas, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 4 p.m. Eastern Standard Time. The replay dial-in number is 402-220-2330. Please note, there is no passcode 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. If you would like to ask a question at that time, please press star one 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 for optimal sound quality. Lastly, if you should require operator assistance, please press star zero. It is now my pleasure to turn the floor over to Nick Russ of ProceqPartners.

Thank you, Brittany, and thank you, everyone, for joining us today to discuss Whitehorse Finance's second quarter 2021 earnings results. 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 related to financial guidance, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Before these forward-looking statements involve Known and unknown risks, 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 second quarter Q2 earnings presentation, which was posted on our website this morning. With that, allow me to introduce Whitehorse Finance's CEO, Stuart Erickson. Stuart, you may begin.

Thank you, Nick. Good afternoon, and thank you for joining us today. 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 second quarter results and market conditions, and then Joyce and Thomas, our Chief Financial Officer, will discuss our performance in more detail, after which we'll open the floor to questions. In the second quarter, core NII was $7 million, or 33.8 cents per share, slightly below our dividend of 35.5 cents. GAAP net investment income was 6.1 million, or 29.6 cents per share. NII was lower than last quarter as a result of lower fee income and accelerated interest depreciation which was higher in the prior quarter due to large volume of prepayment activity we saw in Q1. Also, as you know, asset balances were lower at the end of Q1 as a result of repayments that we got during that quarter. We achieved modest NAV accretion in the quarter, generating $15.42 of NAV per share, compared to $15.27 in Q1, This gain was driven by 4 million in mark-to-market gains that we recorded in our portfolio this quarter. When adjusting for special dividends paid in prior years, our pro forma Q2 NAV per share is highest since our December 2012 IPO. Our mark-to-market gains were highlighted by Honors Holdings at 0.7 million, Barbecue Buyer at 0.7 million, and LSGFG Holdings at 0.6 million. We also experienced a strong period for capital deployments, totaling 104 million, including originating eight new transactions. This investment activity enabled us to grow the portfolio by 9% from Q1. Gross deployments of 104 million were partially offset by repayments of 31 million. We attribute the modest Q2 repayment level to timing, as we're currently aware of a number of portfolio companies that are for sale And if they close before year-end, this will drive increased level of repayments. Of our eight new originations, seven were sponsor and one was non-sponsor, and the deals had an average leverage level of 4.05 times. Additionally, seven of these deals were first lien and one was second lien. At the end of the second quarter, 95% of our debt portfolio was first lien and 100% was senior securities. Sponsor loans comprise 68% of our portfolio compared to 65% in Q1. We continue to be pleased with the pace of capital deployment throughout the first half of 2021 as compared to prior years. And our weighted average effective yield on income producing debt investments of 9.5% was just slightly below the Q1 level of 9.6%. Now stepping back to bring our entire investment portfolio into focus, At the end of the second quarter, the fair value of our investment portfolio increased to $671 million compared to $617 million at the end of Q1. Non-accruals represented only 1.5% of our debt portfolio compared to 2.5% on a fair value basis at the end of Q1. This decrease was driven by Sure-Fit returning to accrual status in the quarter. Group OHEMA remains the only non-accrual as of June 30th We remain in restructuring negotiations with Group Bohemia and expect that this process will extend for many months. We continued to successfully utilize the JV, which generated income of $2.1 million in the quarter, which was at the same level as Q1. The JV's portfolio size was $210 million, with an average unlevered yield of 8.1% in Q21, which was slightly above the prior year period. we remain pleased with the income contributions from the JV and believe it supports higher returns for shareholders. If we use the current full capacity of the JV, we are likely to allocate an additional $25 million or more of equity into this program to continue to drive higher net interest income for WHF. As a result of the strong originations momentum, leverage at the end of Q2 was 1.14 times, within our targeted range of one to one and a quarter times. Looking ahead, our Q3 pipeline is very strong with 17 mandated deals. Eight of these deals are sponsor and split between new originations and add-ons. Of the balance, six deals are non-sponsor and they're non-sponsor new deals and three are non-sponsor add-ons. Given these mandates, We can confidently say the third quarter is on pace to produce the highest origination volume we have ever generated through our platform. This exceptional pipeline growth and these mandated deals are enabling the BDC to drive portfolio growth and ramp the JV, which will ultimately lead to higher income levels and greater coverage of our dividend. Given that we expect high repayment activity during the balance of the year, we may choose to operate at higher than our targeted one and a quarter times leverage ratio in order to prepare the portfolio for expected repayments. We have already had one repayment and refinancing in Q3. We expect some additional early repayments due to M&A and new financing events for a number of credits during the remainder of the year. This, of course, is subject to change given current market conditions. In closing, we're well positioned to continue executing our three-tiered sourcing approach and rigorous underwriting standards in the second half of the year. Our portfolio as a whole remains very high quality and healthy. Together with a strong pipeline of investment opportunities, we expect fee income to pick up in the second half, which should enable us to continue covering the dividend from core net interest income. That said, the increasing rates of COVID-19 infections and hospitalizations creates uncertainty and could impact both portfolio performance and the rate of new asset origination. HIG, with $45 billion of capital under management, empowers us to continue to benefit from the shared resources of a leader in the mid-market. This includes 63 deal professionals dedicated to direct lending, a 20-plus person business development team leveraging HIG Capital's proprietary prospect database, and sourcing at the HIG level by over 400 investment professionals overall. Our Whitehorse team spans 12 locations across North America, and includes non-gateway markets that face less deal sourcing competition than large investment centers like New York and Chicago. As a result, we believe our combined platform is poised to drive continued portfolio growth and ultimately higher returns to our shareholders across our established direct lending business. With that, I'll turn the call to Joyson, after which we'll take your questions. Go ahead, Joyson.