WhiteHorse Finance, Inc.

Good afternoon. My name is Ashley, and I will be your conference operator today. At this time, I would like to welcome everyone to the White Horse Finance fourth quarter and full year 2021 earnings conference call. Our hosts for today's call are Stuart Aronson, Chief Executive Officer, and Joyce and Thomas, Chief Financial Officer. Today's call is being recorded and will be made available for replay beginning at 5 p.m. Eastern Time. The replay dial-in number is 402- 220-4942. 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. 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 handset to allow 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 Robert Brinberg of Rose & Company. Please go ahead.

Thank you, operator, and thank you, everyone, for joining us today to discuss Whitehorse Finance's fourth quarter 2021 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 fourth quarter 2021 earnings presentation, which was posted to our website this morning. With that, allow me to introduce Whitehorse Finance's CEO, Stuart Aronson. Stuart, you may begin.

Thank you, Rob, and good afternoon. Thank you all 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 from the period ended December 31st, 2021, which can also be found on our website. On today's call, I'll begin by addressing our fourth quarter and full year results. and current market conditions as well. Joyce and Thomas, our Chief Financial Officer, will then discuss our performance in greater detail, after which we will open the floor for questions. We are pleased to report strong results for the fourth quarter and the full year. In 2021, Core NII totaled $1.40 and a half per share, which increased by 12.5% from 2020's Core NII of $1.24.9 per share. These financial results reflect the strong quarter and annual originations with $483.2 million in gross deployments for the year and $199 million for the fourth quarter alone. GAAP net investing income in Q4 was $7.5 million, or 33.1 cents per share. Core NII was $7.3 million, or 32.2 cents per share. This compares with Q3 core NII of $7.8 million, or 37.2 cents per share. This is after adjusting for capital gains, incentive fee reversal, and the accelerated amortization of deferred issuance costs from the retirement of our $35 million baby bond issuance. In addition, given strength of originations and outlook for deployments, this past quarter we completed a secondary offering of shares. We issued 2.2 million shares at an average price of 1581, generating approximately 33.7 million in new proceeds. Importantly, we issued these shares at our then NAV per share, taking into account issuance costs that were covered by our management company. Through the fourth quarter and into Q1, we were able to quickly deploy these proceeds, which minimized the drag on earnings per share. To support the offering, Whitehorse Advisors contributed 28 cents per issued share to subsidize underwriting fees for this offering. NAV per share at the end of Q4 was 1510, representing a decrease of 36 cents from Q3. This decline was primarily due to markdowns on our investments in PlayMonster and GroupOHIMA and due to the special dividend payment to shareholders of 13.5 cents. NAV per share was also impacted as a result of the delay in deploying capital from our follow-on offering during Q4. I note this quarter's distribution was the company's 37th consecutive quarterly distribution paid since our IPO in 2012, with all distributions consistent at the rate of 35.5 cents per share per quarter. Furthermore, our NAV per share remains above our IPO price, I think this points to the strength of our platform and deal sourcing capabilities, as well as our historically conservative approach to deal structuring. Q4 was a record-setting period with capital deployments totaling 199.2 million. Of gross capital deployments, 181.3 million went into 18 new originations made during the quarter, and the remaining 17.9 million funded add-ons to existing portfolio investments. Gross deployments were partially offset by repayments of $35 million, primarily driven by four realizations. The result was $164.2 million of net deployments. We financed this $164.2 million of net deployments from new debt issuance and equity issuance of $65 million and $33.2 million, respectively. Our record-setting deployment, however, outpaced our fundraising, and as a result, the company's effective leverage increased to 1.31 times. Some of this increase in leverage was due to several repayments that were delayed. We expect these delayed repayments are likely to occur throughout the duration of fiscal year 2022, which would cause our leverage levels to be reduced. As I mentioned earlier, given the strong net deployments, I'm happy to report that the proceeds of our follow-on share offering were fully deployed between the closing of the offering and the end of the quarter. Needless to say, we continue to be pleased with the pace of capital deployment. Of the 18 new originations, 12 were sponsor and six were non-sponsor with an average leverage level of only four times. I would note that all of these deals except for one were first lien transactions. At the end of Q4, more than 95% of our debt portfolio was first lien and 100% was senior securities. We do continue to look to add second lien loans to balance our portfolio, but we only found one in Q4 that met our conservative risk parameters. Given the shortage of second lien loans that meet our risk standards, our portfolio is now approximately 5% second lien loans, as opposed to our target level of closer to 15%. So long as our portfolio remains overly concentrated in first lien loans, which have lower risk and also lower returns in second lien loans, we will consider operating the BDC at a slightly higher target leverage level of up to 1.35 times in order to help the BDC consistently earn its 35.5-cent dividend on a quarterly basis. Now, stepping back to bring our entire investment portfolio into focus, our investment portfolio achieved an increase in fair value, reaching $819 million at the end of Q4. an increase from $687 million at the end of Q3. The weighted average effective yield on income-producing debt investments was 9.1 percent, slightly below the Q3 level of 9.3 percent. Non-accruals represented 1.3 percent of our debt portfolio unchanged from Q3. Group OHIMA remains on non-accrual status, and PlayMonster was placed on non-accrual status in Q4. Non-accruals as a percentage of our debt portfolio at fair value were stable due to the growth in our overall portfolio size. As we indicated during our prior earnings call, we marked down the value of Group Ohima to 42% of par in Q4. As with previous quarter, we expect this investment to be on non-accrual until restructuring negotiations with the company conclude. And based on new data since year end, we expect the Group Ohima asset to be marked down again in Q1. We marked PlayMonster down to 65% of par, and in the first quarter, lenders took control of that company. As it regards supply chain disruptions and rising labor costs thus far, the vast majority of our portfolio companies have mitigated the impact of these issues and have generally been able to pass cost increases through to their customers, keeping revenues high and keeping EBITDA stable to increasing. Our portfolios are all well insulated from rising interest rate environment with reasonable debt levels and reasonable leverage levels. Holistically, our portfolio would benefit from a rising environment, rising rate environment, as 99.6% of our portfolio is comprised of floating rate debt investments. We continue to successfully utilize our joint venture, which generated investment income to the BDC of approximately $2.2 million during the quarter, as compared with $1.8 million in Q3. During the fourth quarter, we transferred $35.1 million investments to the STRS-JB, including three new deals, one add-on, and the remaining portion of another deal, in exchange for cash of $31.7 million, as well as $3.4 million in-kind contribution to the JV. The fair market value of the JV's portfolio was $259.5 million as of December 31st. The JV's portfolio had an average unleveraged yield of 7.9% at the end of Q4 compared to its Q3 21 average yield of 8% at a portfolio size of $239 million. The JV's portfolio is currently comprised solely of first lien senior secured loans. We remain pleased with the income contribution from the JV. The JV has produced an average annual return on equity in the low teens. We believe the JV supports higher returns for shareholders and is particularly relevant given the current market backdrop. We closed an incremental $25 million commitment to the JV in Q1, which translates into approximately $62.5 million of additional investment capacity for the JV. As a result, our economic interest in the JV increased to 66.7% from 60%. This additional capacity should allow for greater scale and diversification of the JV's portfolio and increases our exposure to a highly accretive earning stream. In the meantime, the market remains quite busy, and our pipeline for future deal flow is at an all-time high. The sourcing process is still competitive, particularly for on-the-run sponsor deals where pricing, leverage, and documentation terms have returned to pre-COVID levels. While we expect our origination activity levels to remain high, we generally have a cautious approach and continue to underwrite to conservative downside scenarios. Documentation terms and EBITDA adjustments in the off-the-run sponsor market, which are private equity firms with sizes under a billion dollars, are less aggressive than they are in the on-the-run sponsor market. We continue to have significant off-the-run sourcing advantages due to our physical presence in 12 regional markets. Consistent with prior quarters, there is less competition for non-sponsor deals and where we continue to source attractively priced transactions at attractive leverage profiles. Whitehorse has differentiated sourcing capabilities through our three-tier architecture. We continue to derive significant advantages from the shared resources and affiliation with HIG, which is a leader in mid-market investing. The Whitehorse platform now includes 64 deal professionals dedicated to direct lending, and HIG gives us access to a 20-plus person business development team leveraging HIG's proprietary prospect database, which includes over 20,000 names of CEOs, CFOs, deal brokers, attorneys, accountants, and wealth managers. We obtained additional sourcing at the HIG level from our relationship with more than 400 investment professionals at HIG, and our sourcing drives a high-quality pipeline in markets with less competition for mandates. Thus far in Q1, we have closed eight deals and are working on seven new mandates, including add-ons with targeted closings in Q1 and Q2. Five of the eight closed deals are sponsor deals, and five of the mandates are sponsor split between new originations and add-ons. At this stage, it is likely that we will complete a record number of transactions in Q1. This exceptional pipeline growth and these mandated deals are enabling the BDC to drive portfolio growth and grow the JV, which will ultimately lead to higher income and greater coverage for our dividend. I know, however, that some of these deals that are in pipeline may not make it into our portfolio in the BDC, as we continue to manage our leverage level to the new target of 1.35 times or below, again, assuming that second lien loans remain at a very low concentration in the portfolio. In closing, we are well positioned to continue to execute our three-tier sourcing strategy, and rigorous underwriting standards are maintained in the new year and beyond. Our portfolio as a whole remains very high quality and healthy. We are very optimistic about 2022. And while we remain cautious about cyclical industries, the lingering effects of the pandemic, and the war in Europe, as well as the competitive state of the credit market, we believe we have built a very strong team and a solid sourcing and underwriting process. Further, the additional capital we raised late last year, the incremental contribution to the JV, and the full effective earnings from the deployments in Q4 provide a strong tailwind for our financial performance in Q1 of 2022 and the balance of 2022. With that, I'll turn the call to Joycen for additional performance details and a review of our portfolio composition.