WhiteHorse Finance, Inc.

Good afternoon. My name is Brittany and I will be your conference operator today. At this time, I would like to welcome everyone to the White Horse Finance First Quarter 2022 Earnings Conference Call. Our hosts for today's call are Stuart Aronson, Chief Executive Officer, and Joyce 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 dialing number is 402-220- 1-1-2-2. 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 you wish to remove yourself from the queue, please press the pound key. It is now my pleasure to turn the floor over to Robert Brimberg of Rose & Co. & Company. Please go ahead.

Thank you, operator, and thank you, everyone, for joining us today to discuss Whitehorse Finance's first quarter 2022 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 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 can 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 2022 earnings presentation, which was posted on our website this morning. With that, allow me to introduce Whitehorse Finance's CEO, Stuart Aronson. Stuart, you may begin.

Thank you, Rob. Good afternoon, everyone, and 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 March 31st, 2022, 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. And then Joyce and Thomas, our chief financial officer, will discuss our performance in greater detail, after which we will open the floor for questions. I'm pleased to report a strong first quarter performance for 2022. Q1 gap net investment income was $8.5 million, or $0.368 per share. Core NII after adjusting for a $0.6 million capital gains incentive fee reversal was approximately 7.9 million or 34.4 cents per share. NAV per share at the end of Q1 was $14.99, representing a decrease of 11 cents from Q4 2021. This decline was primarily due to realized losses associated with the sale of our investment in Group OHIMA which we noted earlier in our portfolio update press release on May 3rd, 2022, partially offset by mark adjustments from the restructuring of PlayMonster and net mark-to-market gains across the portfolio. Turning to our portfolio activity for the quarter, gross capital deployments in Q1 totaled $83.6 million, which eclipsed our previous record for the highest level of gross deployments in any first quarter in our history. Of this amount, 69.5 million was funded into six new originations, and the remaining 14.1 million was funded into add-ons of existing portfolio investments. Gross deployments were partially offset by repayments and sales of $45.1 million, primarily driven by five full realizations and partial sales and several credits as we look to create capacity and optimize the BDC's portfolio for higher yielding credits we're seeing in our pipeline. This all resulted in net deployments of $38.5 million. As a result of these deployments and repayments, along with other factors, at the end of Q1, the company's net effective leverage was 1.30 times compared to 1.31 times in Q4 of 2021. At this leverage level, we are modestly under our 1.35 times limit and well within our target range. As anticipated and discussed in our last earning call, many of the Q4 21 delayed repayments have begun to come through and in addition to the payoffs and sales that occurred in Q1, the company has already received an additional three full repayments totaling 45 million subsequent to quarter end. Of our six new originations in Q1, four were sponsor and two were non-sponsor. with an average leverage level of 4.7 times, which is relatively modest when compared to other middle market lenders. I note that all of these deals were first lien, and at the end of Q1, more than 96% of our debt portfolio was first lien and 100% was senior secured. We continue to look to add second lien loans to balance our portfolio, but have found few that are within our conservative risk return parameters. Given the shortage of second lien loans that meet our risk return standards, our portfolio is now approximately 3.5% second lien loans compared to our target level of up to 15%. As I shared on the last call, so long as our portfolio remains heavily concentrated in first lien loans, which have lower risk profiles but also lower returns than second lien loans, we expect to continue to run the BDC up to 1.35 times leverage in order to help the BDC consistently earn its 35 and a half cent quarterly dividend. With that in mind, I'll now step back to bring our entire investment portfolio into focus. Although we had strong net originations during the quarter, was 800 million at the end of the first quarter, a decrease from 819 million at the end of Q4 2021. The decrease was a result of asset transfers to the STRS-JV, partially offset by net mark-to-market increases in our portfolio. The weighted average effective yield on income-producing investments was 9.2% at the end of the first quarter, slightly above the Q4 level of 9.1%. We are pleased to report that as of the end of Q1, we had no debt investments on non-accrual status. This was a direct result of our decision to exit our distressed investment in Group OHIMA, as well as our restructuring efforts in PlayMonster that occurred during the quarter. As we disclosed on May 3rd, 2022, we exited our position at Group OHIMA via sale, which resulted in net realized and unrealized losses of $6.9 million in Q1. On a life-to-date basis, after accounting for both principal and interest payments over time, we recovered approximately 75% of the capital invested in Group OHIMA, resulting in a rare credit loss in our BDC's history. Although we are disappointed with the final outcome of HEMA, we concluded the best option was to exit the deal amidst a complicated situation with a number of contingent liabilities and instead focus our resources in managing our directly originated assets that make up the majority of our portfolio as well as sourcing future originations. Regarding PlayMonster, as shared during last quarter's call, Whitehorse and one other lender took control of the company. The PlayMonster deal was restructured in Q1 with our prior loan replaced by a new interest-bearing term loan in addition to preferred and common equity. We expect the process of turning around the company and exiting to take several years, and we remain optimistic of our ability to generate a strong recovery over time. As a result of the HIG capital family, we have access to HIG private equity professionals to help us manage this investment. At the end of Q1-22, we have seen some improvements which led us to mark up the investment value to the equivalent of 75% of our cost basis from 65% at the end of Q1-21. The vast majority of our portfolio companies have navigated supply chain and labor disruptions well and have generally been able to pass cost increases through to their customers. Given the modest leverage levels that we underwrite our loans to, both from an EBITDA as well as an operating cash flow perspective, we expect the majority of our portfolio companies to be able to service our debt in this rising interest rate environment as reference rates rise 200 basis points or even more. Holistically, our own investment portfolio is well positioned to benefit from such rising interest rates, given that approximately 99.6% of our debt portfolio is comprised of floating rate debt investments. We believe the conservative nature of our underwriting process, including the modest leverage levels to which we underwrite our loan investments, is a key differentiator versus lenders with higher levered portfolio companies that may experience greater difficulty servicing debts as interest rates increase. Additionally, we continue to successfully utilize our joint venture with STRS Ohio, which generated investment income to the BDC of approximately 2.6 million in Q1, as compared with 2.2 million in Q4 of 2021. During the first quarter, we transferred 82.7 million investments to the STRS JV including six new deals, five add-ons, and the remaining portion of three deals previously transferred in exchange for cash at $57.7 million, as well as $25 million in-kind investments into the JV. The fair market value of the JV's portfolio was $312.8 million as of March 31st. The JV's portfolio had an average unlevered yield of 7.9%, compared to the end of Q1, sorry, it was 7.9% at the end of Q1, consistent with the Q4 21 average yield of 7.9% as well, with a portfolio size at that time of 259.5 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. As discussed in our last call, we closed an incremental $25 million commitment to the JV in the beginning of Q1, which translated into approximately $62.5 million in additional investment capacity for the JV. I do note, however, that as we stated in our prior earnings call, Nearly all this additional capacity has already been put to work, demonstrating the continued strength of our origination activity. Given the JV's return on equity, we continue to consider further funding commitments to the JV as we seek to increase our exposure to this highly accretive earning stream. In the meantime, the market remains quite busy, and our pipeline for future deal flow remains strong. 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 despite the macro pressures such as inflation and international conflict. Documentation terms and EBITDA adjustments in the off-the-run sponsor market or the smaller sponsors are less aggressive than the on-the-run sponsor market. We continue to have significant off-the-run sourcing advantages in the marketplace due to our presence in 12 regional markets. Consistent with prior quarters, there is also less competition for non-sponsored deals where we continue to source attractively priced transactions at modest leverage levels. While we expect our pipeline activity levels to remain high, we generally have a cautious approach and continue to underwrite to conservative downside scenarios including a potential recession in the next 12 months. Thus far into Q2, the company has closed two transactions and currently has visibility for over eight additional mandated new deals and add-on transactions, although there can be no assurance that any of these will close. This exceptional pipeline growth and these mandated deals are enabling the BDC to drive portfolio growth and expand our investment in the JV, which will ultimately lead to higher income and greater coverage of our dividend. I know, however, that the platform has more origination activity than the BDC can accommodate, and given our goal to source higher yielding loans, some of these deals in pipeline may not make it into the BDC's portfolio as we continue to manage our leverage level at a targeted max of 1.35 times or below. To that end, the BDC has turned down four origination opportunities during the first quarter due to capacity constraints. In closing, we are well positioned to continue executing our three-tiered sourcing approach and rigorous underwriting standards for the remainder of this year and beyond, and we're highly focused on sourcing higher-yielding opportunities to generate additional investment income to further support our dividend. Our portfolio as a whole remains very high quality and healthy. At the conclusion of the first quarter, we are very optimistic looking forward. While we do remain cautious about cyclical industries, the lingering effects of the pandemic, the war in the Ukraine, as well as the competitive state of the credit markets, 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 and the incremental contribution to the JV and the full effective earnings from the deployments in Q1 provide a strong tailwind for our financial performance moving forward. With that, I'll turn the call over to Joycen for additional performance details and a review of our portfolio composition. Joycen?