WhiteHorse Finance, Inc.

In Q2, total repayments and sales were 71.7 million, primarily driven by four complete realizations and one partial realization. Repayments are elevated for two reasons. There are a series of counts where performance was challenged, and we asked the borrowers to refinance us out in this borrower-friendly market, and they've done that. This amounted to roughly 80% of our repayments in Q2. We don't expect to see many more refinancings in this category. There may be a couple of credits that we want to exit though. And then there are some other accounts with a much lower interest rate environment and the more aggressive credit environment has led borrowers to be able to push up leverage and push down price. On some of those deals, we've just felt the resulting transactions are too aggressive and we're letting these go. We expect that the borrower-friendly market combined with eventually declining base rates will likely lead to a continued flow of refinancings into the latter part of the year. especially as call protection on the deal steps down or expires. We expect refinancings to remain heavy through the balance of the year. Thus far in Q3, there have been no full repayments or sales though. With that in mind, I'll now step back to bring our entire investment portfolio into focus. After the effects of net repayments and the STRS-JV transfers, as well as 1.5 million in net mark-to-market decreases, 0.2 million of realized losses, and 0.8 million of accretion. The fair value of our investment portfolio was $660 million at the end of Q2. This compares to our portfolio's fair value of $697.9 million at the end of the previous quarter. The weighted average effective yield on our income-producing debt investments was 13.8% at the end of Q2, a 40 basis point improvement compared to 13.4% in the second quarter of 2023 and up slightly from 13.7% in the first quarter of 2024. We continue to utilize the STRS-JV successfully. The JV generated investment income to the BDC of approximately $3.9 million in Q2 compared to $4.8 million in Q1. As of June 30th, the fair value of the JV's portfolio was $324.8 million and the portfolio had an average unlevered yield of 12.3% compared to 12.4% in Q1. The JV is currently producing an average annual return on equity in the mid-teens to the BDC. We believe Whitehorse's equity investment in the JV provides attractive returns for our shareholders. Traditionally, transitioning to the BDC's portfolio more broadly, there were some markdowns in the portfolio during Q2. Most notably, there was a $2.2 million markdown to our investment in Honors Holdings, which was placed on non-accrual status in the middle of the quarter, resulting in a decrease of approximately 125,000 of interest compared to expectations at the start of the quarter. Honors was a company that was heavily impacted by COVID. After that, a private equity firm contributed additional equity to Honors to help it navigate the pandemic and to further execute on its growth strategy in the face of a weak market. However, the company has been experiencing weaker customer trends in recent quarters. Now we're taking action to position the company for remediation, and we're working with both the franchisor of the concept and the current owners of the company. We expect to improve and resolve that investment over the next 12 to 24 months. Honors meaningfully contributed to the increase in non-accrual investments which totaled 4.2% of the total debt portfolio at fair value compared with 1.3% at Q1, excluding investments in the STRS-JV. In regard to American Crafts and ArcServe, we continue to execute turnaround plans to maximize the value of both of these companies, working alongside our restructuring resources and private equity resources. We remain optimistic that we would seek exits on those in 18 to 30 months. We otherwise see balanced activity in terms of credit performance across the portfolio generally and remain overall pleased with the health and relative stability of our debt portfolio with cash flow coverages holding up in a high interest rate environment. Turning to the broader lending market, there continues to be a supply demand imbalance in favor of borrowers. As a result, market conditions across all of the sponsor segments remain very aggressive. In the upper mid cap and large cap markets, we're seeing leverage of anywhere between five to seven and a half times. We also see lenders putting pick leverage on companies for an additional one to two turns beyond that five to seven and a half times. Pick leverage occurs in the market from time to time, but we are generally avoiding it. Pricing in the upper mid cap and large cap markets is so for 450 to so for 500 with an original issue discounted between 98 and 99. We have been avoiding doing any deals in the upper mid cap and large cap markets due to the aggressive natures of these deals. The mid market is one step less aggressive. We are seeing leverage typically between four and a half times and six times. Pricing in the mid market is so for 500 to so for 550 for the most part with OID also between 98 to 99. The lower mid cap market is again one step less aggressive. with leverage generally running four to five times and pricing in the lower mid cap market ranging from SOFR 500 to SOFR 600 with an OID typically of 98 to 98 and a half. The non-sponsor market has not moved much at all with leverage remaining at two and a half to four and a half times and pricing in the range of 600 to 800 over SOFR with an OID of 98 or lower. Given the relative attractiveness of the non-sponsor market, we are focusing heavily on originating deals in the non-sponsor sector. We are seeing more evidence of competitors accepting heavily adjusted EBITDAs as they are trying to win new volume in a market that is short of assets. We've seen bankers bringing out many refinancings on troubled credits where they're trying to adjust the capital structure, often on highly adjusted EBITDA. Many of those deals that have come in front of us we think are negative cash flow deals. We don't believe many of the adjustments, and we think the leverage is too heavy, and we're turning down all of those deals. In the current market environment, we're taking a cautious stance and focused on transactions that have positive free cash flow, limited cyclicality, and strong owners behind them. The on-the-run sponsor market is clearly more aggressive than the off-the-run sponsor market, and also more aggressive than the non-sponsor market. As a result, we are spending most of our time focused on the off-the-run sponsor market and the non-sponsor market. With respect to the broader economy, we are seeing signs of weakening that is showing up in lower consumer demand and in some sectors lower demand in the business-to-business segment. Given the gradual slowdown in the economy, we do believe that the Fed will begin to reduce interest rates in the fourth quarter of 2024. Following net repayment activity in Q2, The BDC balance sheet has approximately 60 million of capacity for new assets. The JV has approximately 30 million of capacity, supplementing the BDC's existing capacity. Deals that are priced at SOFR plus 600 and above will generally put on the BDC's balance sheet, and deals priced below this level will generally go into the STRS joint venture. While volume is lighter than we'd expect it to be in all market segments, We're actively working on six new mandated deals split evenly between sponsor and non-sponsor. While there can be no assurance that any of these deals will close, all of these mandates would fit into the BDC or our JV should we elect to transact. Subsequent to quarter end, we have closed three new originations, totaling approximately 18 million, with several more pending. Of the new originations, two are expected to be transferred to the JV during the third quarter, So far, there have been no asset transfers to the JV in the third quarter. Our pipeline is still running about 180 deals, but the portion of the pipeline that we call active pipeline is lower than it would normally be this time of year. In addition, our three-tier sourcing architecture continues to provide the BDC with differentiated capabilities. We derive significant advantages from the shared resources and affiliation with HIG, who is a leader in the mid-market and lower mid-markets. Whitehorse has approximately 23 origination professionals located in 11 regional markets across North America. The strength of this originations pipeline enables us to be conservative in our deal selection. Based on current market terms and conditions, we are taking a very cautious stance and focused on doing deals that have positive free cash flow, limited cyclicality, and strong owners. Despite continued concerns regarding economic softening, we believe we are well positioned to continue to source attractive opportunities, and navigate economic challenges to our strong originations capabilities and rigorous underwriting standards. With that, I'll turn the call over to Joycen for additional details and a review of our portfolio composition. Joycen?

Thanks, Stuart, and thanks, everyone, for joining today's call. During the quarter, we recorded gap net investment income and core NII of $9.3 million, or 40 cents per share. This compares with Q1 GAAP-NI and Core-NI of $10.8 million, or $0.465 per share, and our previously declared quarterly distribution of $0.385 per share. Q2 fee income was lower quarter over quarter at $0.4 million, compared with $0.6 million from the prior quarter. Q2 amounts were primarily comprised of approximately $0.3 million of amendment fees. For the quarter, we reported a net increase in net assets resulting from operations of $7.8 million. Our risk ratings during the quarter showed that 74.4% of our portfolio positions carried either a 1 or 2 rating, slightly lower than the 76.6% reported in the prior quarter. As a reminder, a 1 rating indicates that a company has seen its risk of loss reduced relative to such initial expectations, and a 2 rating indicates a company is performing according to such initial expectations. Regarding the JV specifically, we continue to grow our investment. As Stuart mentioned earlier, in the second quarter, we transferred four new deals and four add-ons to the SRS JV, totaling $22 million in exchange for cash proceeds of the same amount. As of June 30th, 2024, the JV's portfolio held positions in 38 portfolio companies with an aggregate fair value of $324.8 million compared to 34 portfolio companies at a fair value of $309.4 million as of March 31st, 2024. The investment in the JV continues to be accreted to the BDC's earnings, generating a mid-teens return on equity. During Q2, income recognized for our JV Investment aggregated to 3.9Million during the quarter as compared with approximately 4.8Million in Q1. As a reminder, as it is reported in the prior call in Q1, there was an elevated amount of income recognized from a JV investment, largely attributable to non-occurring events that occurred in the JV's portfolio during Q1. As we have noted in the prior calls, the yield on our investment in the JV may fluctuate period over period as a result of a number of factors, including the timing and amount of additional capital investments, the changes in asset yields in the underlying portfolio, as well as the overall credit performance of the JV's investment portfolio. Turning to our balance sheet, we had cash resources of approximately $21.8 million at the end of Q2, including $8.9 million in restricted cash and approximately $167 million of undrawn capacity available under a revolving credit facility. As of June 30, 2024, the company's asset coverage ratio for borrowed amounts, as defined by the 1940 Act, was 186.2%, which was above the minimum asset coverage ratio of 150%. Our Q2 net effective debt to equity ratio after adjusting for cash on hand was 1.09 times compared with 1.19 times from the prior quarter. Before I conclude and open up the call to questions, I'd again like to highlight distributions. This morning, we announced that our board declared a third quarter distribution of 38.5 cents per share, which is consistent with the prior quarter. The upcoming distribution, The 48th consecutive quarterly distribution paid since our IPO in December 2012, with all distributions at or above a rate of 35.5 cents per share per quarter, will be payable on October 2nd, 2024, to stockholders of record as of September 18th, 2024. As we said previously, we will continue to evaluate a quarterly distribution, both in the near and medium term, based on the core earnings power of our portfolio, in addition to other relevant factors that may warrant consideration. With that, I'll now turn the call over to the operator. Operator?

Thank you. At this time, if you would like to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, if you would like to signal for a question, it is star 1, and to remove yourself, it is star 2. We will pause for just a moment to assemble the question queue. We'll go first with Bryce Rowe from B. Reilly. Please go ahead. Thanks a bunch. Good morning.