WhiteHorse Finance, Inc.

Good afternoon. My name is Katie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Whitehorse Finance Second Quarter 2022 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 made available for replay beginning at 4 p.m. Eastern Time. The replay dial-in number is 402- 220-6059. No passcode is required. At this time, all participants have been placed in a listen-only mode, and the floor will be open for 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 Jacob Moeller of Rose and Company. Please go ahead.

Thank you, Operator, and thank you everyone for joining us today to discuss Whitehorse Finances' second 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 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 2022 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 and good afternoon, everyone. Thank you for joining us today. As you're aware, we issued our press release this morning prior to market open. I hope you've had a chance to review our results for the period ending June 30th, 2022, which can also be found on our website. On today's call, I'll begin by addressing our second quarter results and the current market conditions. Then Joyce and Thomas, our Chief Financial Officer, will discuss our performance in greater detail after which we'll open the floor for questions. I am pleased to report solid second quarter performance for 2022. Q2 GAAP net investment income was 7.9 million, or 33.9 cents per share. Core NII was approximately 7.8 million, or 33.4 cents per share, after adjusting for a $100,000 capital gains incentive fee reversal. NAV per share at the end of Q2 was $14.95, representing a decrease of 4 cents from Q1 2022. Importantly, it remains very close to our initial underwriting price of $15 per share. This decrease was a result of some credit deterioration on a few accounts, along with markdowns reflecting higher pricing in the lower mid-market. Turning to our portfolio activity for the quarter, Gross capital deployments in Q2 totaled $48.1 million. Of this amount, $28.9 million was funded into four new originations, and the remaining $19.2 million was funded into add-ons of existing portfolio investments. As we suggested would happen during our last earnings call, delayed repayments have begun to occur. During Q2, total repayments and sales were $66.1 million, primarily driven by five full realizations, With repayments outpacing origination activity and additional transfers of investments into the STRS-JV, net effective leverage decreased to 1.18 times at the end of Q2 as compared to 1.3 times at the end of Q1. At this leverage level, we are below our target of 1.25 to 1.35 times leverage. Regarding the five realizations, we earned $6.7 million, including fees and interest, which generated an aggregate IRR of 11.4% on the 59.7 million of aggregate capital invested into these deals. This attractive return for senior secured loans demonstrates the power of our sourcing model and highlights our ability to negotiate tight covenants and strong call protections. These repayments provide the BDC with nearly 50 million of investment capacity Looking forward, a number of borrowers have alerted us that they plan to make repayments in the third or fourth quarter, which will give us additional investment capacity. Given the change in marketplace pricing, which I will discuss later, we believe that in many cases the repayment on historical investments will allow Whitehorse to redeploy capital into higher yielding investments. Of our four new originations in Q2, Three were sponsored deals and one was a non-sponsored deal with average leverage of 4.7 times. I note that all of these deals were first lien loans and had an expected average all-in rate of 8.1% with an effective yield of 9.7%, which was higher than the portfolio average at Q1. At the end of Q2, 96.5% of our debt portfolio was first lien loans and 100% was senior secured. 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 at up to 135 leverage. In order to help the BDC consistently earn its 35.5 cent quarterly dividend, which we have consistently paid since coming public. With that in mind, I'll step back to bring our entire investment portfolio into focus. After the effects of the STRS-JV asset transfers, as well as 3.5 million in net mark-to-market decreases, 1.9 million in realized gains, and 1.6 million of accretion, the fair value of our investment portfolio was 766.5 million at the end of the second quarter, down from 800 million at the end of Q1. The weighted average effective yield on our income-producing debt investments was 9.9% as of the end of the second quarter, which reflects a 70 basis point increase from Q1 level of 9.2%. This increase resulted primarily from rising LIBOR and SOFR rates. We continue to utilize our joint venture with STRS Ohio successfully. The joint venture generated investment income to the BDC of approximately $3 million in Q2 as compared to only $2.6 million in Q1. The increase in JV income in Q2 was due in part to Whitehorse's increased economic ownership of 66.2% compared with 60% in Q1. During the second quarter, we transferred one new deal and one add-on investment to the STRS-JV, totaling $17.8 million. The fair market value of the JV's portfolio was 318.8 million as of June 30th, and at the end of Q2, the JV's portfolio had an average unlevered yield of 8.7% above Q1's yield of 7.9% and a portfolio size of 312.8 million. The increase in the unlevered yield is primarily due to rising base rates of LIBOR and SOFR. The JV's portfolio is currently comprised solely of first lien senior secured loans. The JV has produced an average annual return on equity in the low teens to the BDC. We believe Whitehorse's equity investment in the JV provides attractive returns for shareholders and is particularly relevant given the current market backdrop. Given the JV's return on equity, we continue to consider funding additional equity commitments to the JV as we seek to increase our exposure to highly accretive earnings stream. We are pleased to report that we have no investments on non-accrual status, and our investment portfolio remains stable during the broad market volatility in Q2. We did have both markups and markdowns in the portfolio based on improving or decreasing performance, but on average, the portfolio was stable. Our well-diversified portfolio is weathering an economy experiencing several negative factors, including rising interest rates, rising raw material prices, rising labor costs, and rising transportation costs. Fortunately, to date, our portfolio companies have done a very good job of passing along these price increases. A couple of borrowers are having their margins squeezed, and we are certainly seeing a slowdown in consumer retail demand. which has led to modest increases in leverage in several portfolio companies. Additionally, our portfolio is overwhelmingly represented by non-cyclical or light cyclical borrowers, and we hold no direct exposure to oil and gas, auto or restaurants, and very little exposure to the construction sector. Since we generally serve the lower mid-market, we've been able to build a portfolio with average leverage at the portfolio company level of only about four and a half times, By keeping our portfolio company leverage low, our portfolio companies are better able to cover their debt service in this rising interest rate environment. Thus far, rising interest rates have only had a modest impact on the debt service coverage for our portfolio companies. While the portfolio is holding up well, we are keeping a careful eye on demand characteristics, especially in the consumer sector. We have not seen many recessionary signs yet in our portfolio, But I should note that portfolio numbers are delayed by a lag in reporting, typically 45 to 60 days after quarter end. The modest leverage levels to which we underwrite our loan investments from both an EBITDA as well as an operating cash flow perspective is a key differentiator versus lenders with higher levered portfolio companies that may experience greater difficulty servicing debt as interest rates increase. We expect the majority of our portfolio companies to be able to service our debt in this rising interest rate environment. We believe our investment portfolio is well positioned to benefit from such rising interest rates, given that almost 100% of our debt portfolio is comprised of floating rate investments. Given we're three-month LIBOR and SOFR contracts reset to around the end of June, we expect some organic earnings accretion starting in Q3. we'll also see the full impact of our increased ownership in the JV beginning in Q3. The market, and by this I mean the market for stocks, bonds, cryptocurrencies, and most other assets, has corrected sharply with an emerging consensus view that the economy is in recession. Across the mid to lower mid end of the market, in addition to rising prices, loans are being written to more conservative credit terms with tighter documentation and covenants. Total leverage on transactions is a quarter turn to a half a turn lower than it was three to six months ago. That said, we have witnessed that several lenders have not yet adjusted to the new market pricing, which frankly is a bit unexpected. There has also been a correction in the broadly syndicated market, creating opportunities for direct lenders, including BDCs, to acquire syndicated bank debt at lower prices and much higher yields than a few months ago. We believe this environment is very attractive for making investments in larger non-cyclical or marginally cyclical businesses. Our pipeline reached another record level, which enables us to be highly selective about which credits we pursue. While we expect our pipeline activity levels to remain high, we generally have a cautious approach and continue to underwrite to conservative downside scenarios. We have been selectively taking advantage of market conditions, and are positioned to benefit from both rising base rates and rising spreads. Thus far in Q3, the company has closed three add-on acquisitions and currently has visibility for five additional mandated deals and add-on transactions, although there can be no assurance that any of these deals will close. As I mentioned earlier, the timing of repayments has been fortuitous for the BDC as we have capacity to rotate into higher yielding assets that combined with portfolio growth and the increase in our ownership in the JV should ultimately lead to higher income and greater coverage of our dividend. At the conclusion of this quarter, we are cautiously optimistic for the second half of the year. While we remain concerned about cyclical industries and various economic headwinds, we believe we have built a very strong portfolio with a strong team and solid sourcing and a responsible underwriting process. Further, we expect our additional capital capacity and unique three-tiered deal sourcing capability to act as a strong tailwind for our financial performance moving ahead. With that, I'll turn the call over to Joycen for additional performance details and a review of our portfolio composition. Joycen?