WhiteHorse Finance, Inc.

Please stand by. Your scheduled programming is about to begin. If you need assistance during today's call, you may press star zero. Good morning. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Whitehorse Finance Second Quarter 2023 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 12 p.m. Eastern time. The replay dial-in number is 402-220-7273, and 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, you may press star 2. It is now my pleasure to turn the floor over to Jacob Muller of Rose & Company. Please go ahead, sir.

Thank you, Operator, and thank you, everyone, for joining us today to discuss Whitehorse Finances' second quarter 2023 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 2023 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.

Stuart Aronson Thank you, Jacob. Good morning, and thank you for joining us today. As you're aware, we issued our press release this morning, and I hope you've had a chance to review our results for the period ending June 30th, 2023. It can also be found on our website. On today's call, I'll begin by addressing our second quarter results and current market conditions. Chris and Thomas, our Chief Financial Officer, will then discuss our performance in greater detail. After which, I will open the floor for questions. This morning, I'm pleased to report strong performance for the second quarter of 2023. Q2 GAAP net investment income in core NII was $10.6 million, 45.6 cents per share, which more than covered our quarterly base dividend of 37 cents per share. Although core NII declined by half a cent per share compared with Q1, Q2 core NII increased by 34.5% increase over year-over-year. NAV per share at the end of Q2 was $14, representing a 1.4% decrease from the prior quarter. NAV per share was impacted by a $6 million net mark-to-market loss in our portfolio. These markdowns are related to company-specific performance in some of our consumer-facing portfolio companies, as well as some specific challenges certain portfolio companies are experiencing independent of economic conditions. Turning to our portfolio activity, we saw a relatively quiet quarter with regards to originations and repayments. All transaction activity for the quarter remained slower than recent history. We have seen a pickup relative to Q1 across our markets. with market prices trending in a direction conducive for increased deal activity, as I will discuss shortly. In Q2, gross capital deployments totaled $23.8 million, $19.3 million funding three new originations, and the remaining $4.5 million funding add-ons to existing portfolio investments. For our new originations in Q2, two were sponsor deals and one was non-sponsor. with an average leverage of approximately 3.7 times that to EBITDA. I note that these deals were all first lien loans with spreads of 675 basis points or higher, resulting in an average all-in annualized interest rate of 12.6% across the three originations. At the end of Q2, 97.2% of our debt portfolio was first lien and 100% was senior secured. In Q2, total repayments and sales were $28.8 million, primarily driven by three complete realizations. There was also $1.5 million in net repayments from revolver commitments. As previously discussed on our last earnings call, one of the four realizations was a successful sale of our formerly troubled asset, ARCO Holding. In April of this year, we exited our investment in ARCO with approximately a 1.25 times return on the original invested capital. This outcome demonstrates Whitehorse and HIG's capital's ability to leverage our collective resources and expertise to turn around troubled investments with the objective of minimizing losses and capital preservation. Looking forward, we have seen some increased M&A activity relative to earlier in the year, and as a result, anticipate repayment activity pick up in the back half of the year. We believe that investment repayments, when they occur, likely allow Whitehorse to redeploy that capital into assets with the same or higher yield. During the quarter, the BDC transferred two new deals and one add-on to the Ohio STRS-JV, totaling $12.6 million in exchange for cash of $10.8 million and $1.8 million in kind contribution to the STRS-JV. I will discuss activity within the JV shortly. Although repayments and sales outpaced originations, at the end of Q2, the company's net effective leverage was 1.25 times, up slightly from 1.23 times at the end of Q1. As I shared on prior calls, so long as our portfolio remains heavily concentrated in first lien loans, which have lower risk than second lien loans, we expect to continue to run the BDC at up to 1.35 times leverage. With that in mind, I'll now step back to bring our entire investment portfolio into focus. After the effects of the STRS-JV transfers, as well as $6 million in net mark-to-market changes, $0.3 million in realized losses, and $1 million of accretion, the fair value of our investment portfolio was $728.4 million at the end of Q2. This compares to our portfolio fair value of $749.2 million at the end of the previous quarter. The weighted average effective yield on our income-producing debt investments increased to 13.4% as of the end of Q2 and 13.2% at the end of Q1. The variance was primarily driven by an increase in the portfolio's base rate. We continue to utilize the STRS-Ohio joint venture successfully. JV generated investment income to the BDC of approximately $3.7 million in Q2, relatively unchanged from the $3.8 million in Q1. As of June 30th, the fair value of the JV's portfolio was $324.5 million, and at the end of Q2, the JV's portfolio had an average unleveraged yield of 12.2%. Comparatively, the average yield was 11.8% in Q1 and 8.7% in Q2 of 2022. The increase in unleveraged yield is primarily due to rising base rates. With the rise in base rates, the JV currently producing an average annual return on equity in the mid-teens of the BDC. I believe Whitehorse's equity investment in the JV provides attractive return to shareholders. The JV has approximately $35 million in capacity, which supplements the BDC's existing capacity. Transitioning to the BDC's portfolio more broadly, there are some markdowns in the portfolio in Q2, as I mentioned earlier. I will elaborate on specific market dynamics shortly, but note that we continue to see credit pressure as most acute in consumer-facing names. BDC's Q2 mark-to-market declines were primarily driven by our investments in Crown Brands, ArcServe, StorageCraft, Sklar Holdings, and American Crafts, which were partially offset by mark-to-market activity increases across the portfolio. As I mentioned on our last call, our investments in American Crafts and Sklar Holdings underwent restructurings during Q1 as both companies have consumer exposure and have been experiencing demand softness. Whitehorse elected to invest liquidity in both companies in return for control equity positions in each company. Alongside restructuring professionals at HIG, we are working to strengthen the companies and manage through a weaker demand environment in order to position each company for a successful exit in the next two to four years. As of the end of Q2, our investments in ArcServe term loan and Crown Brand second lien were placed on non-accrual. Claymonster's first lien term loan also remains on non-accrual. ArcServe was moved to non-accrual in May, resulting in an impact of approximately two cents per share of net I.I. for the quarter. We, along with other lenders, are actively working to restructure the company with an aim to return a portion of the debt accrual status in q3 or q4 crown brands a second lien loan was moved to non-accrual on june 30th and therefore did not contribute to q2 results expect the crown brands will remain on non-accrual until the company achieves its projected performance levels i would note that the company's sponsor has been supportive of the company providing equity injections over the past 12 months at this time crown brands continues to make interest payments investments on non-accrual totaled 2.7% of our total debt portfolio at fair value at the end of the quarter. As we shared before, we are seeing some pressure on our portfolio in the general economy, primarily in the consumer segment. We remain vigilant in monitoring our portfolio companies as we have not seen demand weakness in other sectors, including general industrial, B2B, healthcare, TMT, or financial services. Additionally, our portfolio includes mostly non-cyclical, or light cyclical borrowers. We hold no direct exposure to oil and gas, auto or restaurants, and very little exposure in the construction sector. The vast majority of our deals have strong covenant protection. We are finding that private equity firms we partner with are generally supporting their credits with new cash or contingent equity as needed. Generally, we observed an increase in borrower revenues, which can be attributed to inflation. About half our portfolio companies have been able to maintain margins by successfully passing through increased costs through higher prices. In the other half of the portfolio, we've seen an uptick in leverage, which thus far has only had a modest impact on our typical borrower's debt service coverage. Turning to the broader lending market, the back half of 2022 saw material correction in direct lending markets as the combination of general economic weakness, significant inflation, and rising interest rates applied credit pressure on borrowers. While these conditions persisted through Q1 of this year, we saw Q2 begin to shift back in the direction of normal market activity. Late in Q1 and early Q2, the quality of deals we were seeing was generally lower than those we had been seeing in late 2022, with many borrowers experiencing material credit issues. As we moved through Q2, there was an increase in activity from the banking community, More competition came back into the markets as conditions moved towards normalization in terms of pricing and covenants. The quality of deals we looked at also improved in late Q2. As of the end of Q2, the markets have once again started treating lower mid-market companies more conservatively than mid-market companies, with lower mid-market deals being priced 25 to 50 basis points higher than comparable mid-market deals. This is a reversal from the abnormal lending conditions we saw in 2022. This represents a return to a more normal market condition where lower mid-market companies get less leverage and more price than mid-market borrowers. It's been over a year now where the market has been inverted and lower mid-market companies are getting equal or better pricing than mid-market due to capital limitations in the market. In the mid-lower end of the mid-market, which is our focus, Leverage is generally up a quarter to a half turn compared to 2022. Lower mid-market deals are being levered four to five times. Pricing, which was 625 to 700, is moderated to 600 to 675. Also, loan-to-value is running between 40% to 50% on sponsor deals and 30% to 50% on non-sponsor deals. As an example, non-sponsor origination in Q2 was done at a loan-to-value of 45% with pricing of 750 for what we believe is a light cyclical company. The non-sponsor market continues to hold steady compared to the sponsor market, and we have seen a number of attractive non-sponsor deals which are being developed across our pipeline. The deals that we're continuing to work on are mostly non-cyclical or light cyclicals, and given the BDC's limited capacity, we continue to be highly selective about which credits will enter the BDC. Whitehorse has consistently and deliberately chosen to deploy capital into deals with more conservative terms with premium pricing, and as such has built a portfolio we believe is well equipped to withstand a potential economic downturn. Our recessionary indicators have still been minor. We maintain expectations for a weaker economy in 2024 and work to ensure that the companies we invest in can weather that storm. We are also increasingly focused on cash flow coverage and the risk that rates will continue to rise, although the forward curve indicates rates will decline. With that said, our pipeline returned to an all-time high. Our three-tier sourcing architecture continues to provide the BDC with differentiated capabilities, and we continue to derive significant advantages from the shared resources and affiliation with HIG, who is a leader in the mid-market and lower mid-market. The strength of the pipeline enables us to be conservative in our deal selection, And the current primary limiting factor for origination is the BDC's investing capacity. Currently, the BDC has very limited balance sheet capacity, but we anticipate that capacity to grow over the next two quarters given expected repayments. We anticipate utilizing that capacity provided by repayments when they occur, continue to rotate into strong high yielding assets leading to strong income and ongoing coverage of our dividend. With the conclusion of the quarter, we remained cautiously optimistic for the second half of the year. Despite sustained concerns of economic softening, I believe continued execution on our three-tiered sourcing approach and rigorous underwriting standards leaves Whitehorse well-positioned to navigate any potential future economic challenges and continue delivering for our shareholders. With that, I'll turn the call over to Joycen for additional performance details and review of our portfolio composition. Joycen?