WhiteHorse Finance, Inc.

Stand by, your program is about to begin. Should you need audio assistance during today's program, please press star zero. 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 Whitehorse Finance third 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 4pm Eastern Time. The replay dial-in number is 402-220-2978. 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, press star 2. It is now my pleasure to turn the call over to Jacob Moeller of Rosen Company. Please go ahead.

Thank you, Operator, and thank you, everyone, for joining us today to discuss Whitehorse Financial's third 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 third 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.

Thank you, Jacob, and good afternoon, everybody. Thank you all for joining us today. As you're aware, we issued our earnings this morning prior to market open. and I hope you've had a chance to review our results for the period ending September 30th, 2023, which can also be found on our website. On today's call, I'll begin by addressing our third quarter results and current market conditions. Joyce and Thomas, our Chief Financial Officer, will then discuss our performance in greater detail, after which we will open the floor for questions. This afternoon, I'm pleased to report strong performance for the third quarter of 2023. Q3 GAAP net investment income and core net income was 10.8 million or 46.5 cents per share, which more than covered our quarterly base dividend of 37 cents per share. This represents an increase from Q2 GAAP and core NII of 10.6 million or 45.6 cents per share and an increase of over 10% year over year. As you may have seen in our press release this morning, The Board of Directors of the BDC approved an increase to our quarterly base dividend from 37 cents per share to 38.5 cents per share, starting in Q4 of this year. The Board of Directors also approved a decrease in the base management fee rate paid to HIG Whitehorse Advisors LLC, the BDC sponsor, from 2% to 1.75%, effective January 1st, 2024. This will have a further positive effect on our financial results and our ability to cover the increase-based dividend on a go-forward basis. NAV per share at the end of Q3 was 1387, representing a 0.9% decrease from the prior quarter. NAV per share was negatively impacted by 5.4 million of net mark-to-market losses in our portfolio. These markdowns are related to company-specific performance and some of our consumer-facing portfolio companies. as well as some specific challenges on certain portfolio companies that are experiencing independent economic conditions. Turning to our portfolio activity, we continue to see steady transaction activity across our markets relative to Q2, with market prices trending slightly down, which we believe is driving increased deal flows across the market. In Q3, gross capital deployments totaled 20.6 million, with 8.4 million funding on two new originations and the remaining 12.2 million funding add-ons to existing portfolio investments. All of our new originations in Q3 were sponsor deals with an average leverage of approximately 4.3 times debt to EBITDA. I note that these deals were all first lien loans with spreads of 650 or higher and an average all-in rate of 11.9%. At the end of Q3, more than 97% of our debt portfolio was first lien and senior and secured. Our portfolio has a sponsor mix composition of approximately two-thirds sponsor and one-third non-sponsor. In Q3, total repayments and sales were $31.7 million, primarily driven by two complete realizations, one partial repayment and one partial sale. In addition, there were $1.7 million in net repayments made on revolver commitments. As discussed in our last earnings call, we expect repayments to pick up towards the end of the year. We have visibility into a number of likely repayments in Q4, and we'll seek to redeploy capital into attractive investments. At current market pricing, we expect new assets to likely be at similar pricing to the assets that are running off. During the quarter, the BDC transferred two new deals and one add-on to the Ohio SDRSJV, totaling $8.8 million. in exchange for cash of $5.1 million and $3.7 million of in-kind contribution to the JV. I'll discuss activity within the JV in more detail shortly. With repayments and sales outpacing originations during the quarter, the company's net effective leverage was reduced to 1.16 times down from 1.25 times at the end of Q2. This is below the lower end of our target leverage range, And so long as our portfolio remains heavily concentrated in first lien loans, which have lower risks than second lien loans, we expect to continue to run the BDC at up to 1.35 times leverage. With that in mind, I'm going to step back to bring our entire investment portfolio into focus. After the effects of net repayments and STRSJV transfers, as well as 5.4 million in net mark-to-market changes, 0.3 million in realized losses and 1.2 million of accretion, the fair value of our investment portfolio was 706.8 million at the end of Q3. This compares to our portfolio fair value of 728.4 million at the end of the previous quarter. The weighted average effective yield on our income-producing debt investments increased to 13.6% as of the end of Q3 from 13.4% at the end of Q2. The variance was primarily driven by an increase in the portfolio's base rate. We continue to utilize the STRS-JV successfully. The JV generated investment income to the BDC of approximately $3.9 million in Q3, up from $3.7 million in Q2. As of September 30th, the fair value of the JV's portfolio was $313 million, and at the end of Q3, the JV's portfolio had an average unleveraged yield of 12.2%. James Heiting. Unchanged from the end of Q2 and up from 8.8% at the end of Q3 of 2022. The year-over-year increase in unlevered yield is primarily due to rising base rates as well. James Heiting. The JV is currently producing an average annual return on equity in the mid teens of the BDC, so we believe that Whitehorse's equity investment in the JV provides very attractive returns for shareholders. Transitioning to the BDC's portfolio more broadly, there were some markdowns in the portfolio in Q3, as I mentioned earlier. As we've shared before, we are seeing some pressure on our portfolio and the general economy as well, primarily in the consumer segment. We remain vigilant in monitoring our portfolio companies, and 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, and 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, and we are finding that in most cases, private equity firms we partnered with are supporting their credits with new cash or contingent equity as needed. The BDC's Q3 mark-to-market declines were driven by our investments in ArcStore Midco, American Crafts, Motivational Marketing, and PlayMonster. These declines were partially offset by net mark-to-market increases in various other portfolio investments. As mentioned on our last call, our investment in Crown Brands, a second lean loan, was moved to non-accrual in Q2. Although Crown Brands continues to make interest payments we expect that the investment will remain on non-accrual until the company achieves its projected performance levels. American Craft's first lien delay draw term loans were placed on non-accrual status in July, resulting in an impact of approximately 1.3 cents per share of net NII for the quarter. Our investments in PlayMonster and ArcServe remain on non-accrual as well, and we are in the midst of an active restructuring to try and resolve ArcServe. We do remain optimistic in our ability to effectively navigate and turn around trouble investments. Whitehorse and HIG Capital have a proven ability to leverage our collective resources and expertise to turn around investments with the objective of minimizing losses and preserving capital. We're actively working with our portfolio companies to improve their performance. As an example, the performance of Starco Holdings, which began to improve during the third quarter as a result as a result of HIG's efforts in operating the company. Similarly, last quarter, I mentioned our successful exit from our previously troubled investment in ARCOL, which produced approximately a one in a quarter times return on the original invested capital. At the end of the third quarter, investments on non-accrual totaled 2.8% of our total portfolio at fair value. Across the portfolio generally, we see balanced activity in terms of credit performance. Roughly 50% of our portfolio companies have been performing better than they were at closing. Approximately 35% are performing below where they were at closing, and the balance is performing more or less in line with closing levels. Turning to the broader lending market, we saw the direct lending markets begin to shift back in the direction of normal market activity during Q2, and this trend continued through Q3 with the markets continuing to treat lower mid-market companies more conservatively than mid-market companies. In the lower mid-market, we're seeing deals being levered at 3.5 to 5 times, with loan-to-value running up to 50%. We are seeing leverage in mid-market deals of 4 to 5.5 times, a little bit higher, with loan-to-value a little bit higher as well, typically up to 55%, although many of the deals are at 50% and below LTV. For sponsor deals pricing on lower mid-market deals, is typically within a range of SOFR 600 to SOFR 650. And in the middle market, SOFR 575 to 625. The non-sponsor market hasn't moved much. It is still typically two and a half to four times on leverage and under 50% loan to value. Non-sponsor pricing still tends to be SOFR 650 and above pretty consistently. We think the Fed is succeeding in slowing the economy, and we expect a mild to moderate recession in 2024. We remain conservative in our expectations and factor in a downturn equivalent to 2008 and 2009 in all of our investment decisions. Whitehorse has consistently and deliberately chosen to deploy capital into deals with more conservative terms, and as such, has built a portfolio that we believe is well equipped to withstand a potential economic downturn. For this reason, the deals that we're working on are mostly noncyclical or light cyclicals, and we continue to be highly selective about which credits we will enter at the BDC. For deals that have even moderate leverage, sorry, for deals that have even a moderate degree of cyclicality, we are trying to keep leverage at under four times. In general, we're seeing a continuing rebound in terms of both deal volume and quality, and our pipeline activity levels remain high. Our three-tier sourcing architecture continues to provide the BDC with differentiated capabilities. 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. Whitehorse has nearly 70 investment professionals located in 11 regional markets across North America. The strength of the origination pipeline enables us to be very conservative in our deal selection. Following repayment activity in Q3, the BDC balance sheet has approximately 15 million of capacity for new assets at our target leverage level range. The JV has approximately 30 million of capacity, supplementing the BDC's existing capacity. With the move in markets, deals that are priced below SOFR 650 are targeted for the JV. Those priced at 650 and above are largely targeted for the BDC balance sheet. We're actively working on 10 new mandates and conducting due diligence on them. In addition, we have mandates for five add-ons to existing credits. While there can be no assurance that any of these deals will close, a number of these mandates would fit within the BDC or our JV should we elect to transact. Subsequent to quarter end, we have closed three new originations and one add-on to an existing portfolio company with several more pending. and three of these investments being transferred to the JV during the fourth quarter. We remain cautiously optimistic for the final quarter of 2023 and into the new year. Despite sustained concerns of economic softening, we believe continued execution of our three-tiered sourcing approach and rigorous underwriting standards leaves Whitehorse well positioned to navigate any future potential economic challenges, and we hope to continue delivering for our shareholders. With that, I'll turn the call over to Joycen for additional performance details and a review of our portfolio composition. Joycen?