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WhiteHorse Finance, Inc. Announces Fourth Quarter and Full Year 2018 Earnings Results

NEW YORK, March 6, 2019 /PRNewswire/ -- WhiteHorse Finance, Inc. ("WhiteHorse Finance" or the "Company") (WHF) today announced its financial results for the quarter and year ended December 31, 2018.

Fourth Quarter 2018 Summary Highlights

  • Period-Ending Net Asset Value of $315.3 million, or $15.35 per share, compared to $13.98 per share in 2017
  • New investments of $46.1 million for the fourth quarter
  • New investments of $189.8 million and add-on investments of $19.9 million for the year
  • Net investment income of $8.0 million, or $0.391 per share, for the fourth quarter
  • Core net investment income of $8.2 million, or $0.398 per share(1), for the fourth quarter
  • Annual net investment income of $25.0 million, or $1.217 per share
  • Annual core net investment income of $30.7 million, or $1.496 per share(1)
  • Annual distribution of $1.42 per share

(1) Core net investment income is a non-GAAP financial measure. The Company believes that core net investment income provides useful information to investors and management because it reflects the Company's financial performance excluding (i) the net impact of costs associated with the refinancing of the Company's indebtedness, (ii) the accrual of the capital gains incentive fee attributable to net realized and unrealized gains and losses, and (iii) any excise or other income taxes related to such net realized gains and losses (net of incentive fees). The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. Additional information on core net investment income and a reconciliation of core net investment income to its most directly comparable GAAP financial measure, net investment income, are set forth in Schedule 1 hereto.

Stuart Aronson, WhiteHorse Finance's Chief Executive Officer commented, "During the fourth quarter we maintained our focus on strong credit quality as all of our new investments were first-lien loans, which comprise 79% of our credit portfolio. Our strong fourth quarter results were driven by our successful pursuit of high-yielding senior-secured direct originations. This transaction activity validates our rigorous and dynamic approach to sourcing, which facilitates business development in less competitive areas of the lower mid-market at leverage levels comparable to our historical averages. Additionally, with our newly formed joint venture with State Teachers Retirement System of Ohio, we are excited about the additional opportunities for increased diversification into lower-risk assets, all of which advances our ultimate goal of enhancing shareholder value."

Portfolio and Investment Activity

As of December 31, 2018, the fair value of WhiteHorse Finance's investment portfolio was $469.6 million, compared with $440.7 million as of December 31, 2017. The portfolio at December 31, 2018 consisted of 53 positions across 39 companies with an average debt investment size of $10.1 million and a weighted average effective yield of 11.9% on debt investments. The majority of the portfolio was comprised of senior secured loans, and these loans were substantially all variable-rate investments (primarily indexed to LIBOR), which should continue to position the portfolio well for a potential rising interest rate environment.

During the three months ended December 31, 2018, WhiteHorse Finance made investments in five new portfolio companies totaling $46.1 million. Also, the Company added $5.1 million to an existing portfolio company, exclusive of refinancing. Gross proceeds from sales and repayments totaled approximately $96.4 million for the quarter, driven by the sale of the Company's equity investment in Aretec Group, Inc. ("Aretec") for $53.7 million. In addition, WhiteHorse Finance refinanced its $7.1 million second lien loan to Mills Fleet Farm Group, LLC into a new first lien loan, increasing its position by adding a net $7.6 million. The Company remained highly selective in deploying new investments.

For the year ended December 31, 2018, WhiteHorse Finance invested $189.8 million across sixteen new portfolio companies. The Company also invested $19.9 million in existing portfolio companies exclusive of refinancing. Gross proceeds from sales and repayments totaled $210.8 million for the year exclusive of refinancing activities.

Results of Operations

For the three months and year ended December 31, 2018, net investment income was approximately $8.0 million and $25.0 million, respectively, compared with approximately $6.8 million and $26.2 million for the same periods in the prior year. The decrease in net investment income for the year-over-year period was primarily attributable to an increase in incentive fees and interest expense.  The increase in incentive fees related to capital gains incentive fees accrued as a result of the Company's realized exit in Aretec.  The increase in interest expense compared to the prior year was a result of higher interest rates from a rising LIBOR environment as well as approximately $0.3 million of accelerated amortization of deferred financing costs relating to the Company's refinancing of its 6.5% notes due 2020.  For the three months ended and year ended December 31, 2018, core net investment income, a non-GAAP financial measure that excludes capital gains incentive fee accruals, the net effects of excise or other income taxes related to net realized gains and losses, and the associated costs of refinancing the Company's indebtedness, was $8.2 million and $30.7 million, respectively, compared with $6.8 million and $26.2 million for the same periods in the prior year, representing an increase of approximately 20.6% and 17.2%, respectively.

For the three months and year ended December 31, 2018, WhiteHorse Finance reported a net realized and unrealized loss on investments of $3.1 million and a net realized and unrealized gain on investments of $32.3 million, respectively. This compares with net realized and unrealized gains on investments of $1.7 million and $8.2 million for the three months and year ended December 31, 2017, respectively. The increase in net realized and unrealized gains on investments for the year-over-year period was primarily attributable to realized gains generated by the sale of the Company's equity investment in Aretec.

WhiteHorse Finance reported a net increase in net assets resulting from operations of approximately $4.9 million and $57.3 million for the three months and year ended December 31, 2018, respectively, which compares with a net increase of $8.5 million and $34.4 million for the three months and year ended December 31, 2017, respectively.

WhiteHorse Finance's NAV was $315.3 million, or $15.35 per share, as of December 31, 2018, as compared with $317.7 million, or $15.46 per share, as of September 30, 2018. As of December 31, 2017, WhiteHorse Finance's NAV was $287.0 million, or $13.98 per share.

Liquidity and Capital Resources

As of December 31, 2018, WhiteHorse Finance had cash and cash equivalents of $33.7 million, as compared with $26.6 million as of September 30, 2018, inclusive of restricted cash.  As of December 31, 2018, the Company also had $85.0 million of undrawn capacity under its revolving credit facility.

Distributions

On December 6, 2018, the Company declared a distribution of $0.355 per share for the quarter ended December 31, 2018, consistent for the twenty-fifth consecutive quarter since the Company's IPO. The distribution was paid on January 3, 2019 to shareholders of record as of December 18, 2018.

Distributions are paid from taxable earnings and may include return of capital and/or capital gains.  The specific tax characteristics of the distributions will be reported to stockholders on Form 1099-DIV after the end of the calendar year and in the Company's periodic reports filed with the Securities and Exchange Commission.

Recent Developments

On January 14, 2019, WhiteHorse Finance entered into a limited liability company operating agreement with State Teachers Retirement System of Ohio ("STRS Ohio"), a public pension fund established under Ohio law, to co-manage a newly formed joint venture entity, WHF STRS Ohio Senior Loan Fund LLC (the "Joint Venture"). The Joint Venture will be capitalized with up to $125 million of subordinated notes and equity, with STRS Ohio providing up to $50 million and WhiteHorse Finance providing up to $75 million, respectively. The Joint Venture will invest primarily in lower middle market, senior secured debt facilities.

Conference Call

WhiteHorse Finance will host a conference call to discuss its fourth quarter and fiscal year-end results at 10:00 am ET on Wednesday, March 6, 2019. To access the teleconference, please dial 706-758-9224 (domestic and international) approximately 10 minutes before the teleconference's scheduled start time and reference ID #6175488. Investors may also access the call on the investor relations portion of the Company's website at www.whitehorsefinance.com.

If you are unable to access the live teleconference, a replay will be available beginning approximately two hours after the call's completion through March 13, 2019. The teleconference replay can be accessed by dialing 404-537-3406 (domestic and international) and entering ID # 6175488. A webcast replay will also be available on the investor relations portion of the Company's website at www.whitehorsefinance.com.

About WhiteHorse Finance, Inc.

WhiteHorse Finance is a business development company that originates and invests in loans to privately held, lower middle market companies across a broad range of industries.  The Company's investment activities are managed by H.I.G. WhiteHorse Advisers, LLC, an affiliate of H.I.G. Capital, LLC, ("H.I.G. Capital"). H.I.G. Capital is a leading global alternative asset manager with $30 billion of capital under management(2) across a number of funds focused on the small and mid-cap markets. For more information about H.I.G. Capital, please visit http://www.higcapital.com.  For more information about the Company, please visit http://www.whitehorsefinance.com.

Forward-Looking Statements

This press release may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical facts included in this press release may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in filings with the Securities and Exchange Commission. The Company undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of the date of this press release.

(2) Based on total capital commitments managed by H.I.G. Capital and affiliates.

SCHEDULE 1

As a supplement to GAAP financial measures, the Company has provided information relating to core net investment income, which is a non-GAAP measure. This measure is provided in addition to, but not as a substitute for, net investment income determined in accordance with GAAP. The Company's non-GAAP measures may differ from similar measures by other companies, even if similar terms are used to identify such measures. Core net investment income represents net investment income adjusted to exclude the net impact of costs associated with the refinancing of the Company's indebtedness, the accrual of the capital gains incentive fee attributable to net realized and unrealized gains and losses, and any excise or other income taxes related to such net realized gains and losses (net of incentive fees). There were no excise or other income taxes related to net realized gains and losses for the quarter and year ended December 31, 2017. Additionally, the Company did not refinance any of its indebtedness nor did the Company recognize any capital gains incentive fees for the quarter and year ended December 31, 2017.

The following table provides a reconciliation of net investment income to core net investment income for the three months ended December 31, 2018 and December 31, 2017 (in thousands, except per share data):



December 31, 2018



December 31, 2017




Amount



 Per Share

Amounts



Amount



 Per Share

Amounts


Net investment income


$

8,040



$

0.391



$

6,804



$

0.331


Net impact of costs associated with refinancing of

indebtedness



-




-




-




-


Accrual for capital gains incentive fee



(621)




(0.030)




-




-


Net impact of excise tax expense related to net realized gains

and losses



754




0.037




-




-


Core net investment income


$

8,173



$

0.398



$

6,804



$

0.331


 

The following table provides a reconciliation of net investment income to core net investment income for the year ended December 31, 2018 and December 31, 2017 (in thousands, except per share data):



December 31, 2018



December 31, 2017




Amount



 Per Share

Amounts



Amount



 Per Share

Amounts


Net investment income


$

25,000



$

1.217



$

26,212



$

1.349


Net impact of costs associated with refinancing of

indebtedness



259




0.013




-




-


Accrual for capital gains incentive fee



4,707




0.229




-




-


Net impact of excise tax expense related to net realized gains

and losses



754




0.037




-




-


Core net investment income


$

30,720



$

1.496



$

26,212



$

1.349


 

 

WhiteHorse Finance, Inc.


Consolidated Statements of Assets and Liabilities

(in thousands, except share and per share data)


















December 31,
2018


December 31,
2017

Assets




Investments, at fair value




Non-controlled/non-affiliate company investments 

$     459,399


$     404,434

Non-controlled affiliate company investments 

10,165


36,246

Total investments, at fair value (amortized cost $477,839 and $448,522,

     respectively) 

469,564


440,680


Cash and cash equivalents

24,148


35,219

Restricted cash and cash equivalents  

9,584


3,717

Interest receivable 

5,608


4,947

Receivables from investments sold

4,616


783

Prepaid expenses and other receivables 

575


185

Total assets 

$     514,095


$     485,531





Liabilities




Debt

$     175,953


$     182,122

Distributions payable  

7,294


7,289

Management fees payable 

11,193


7,848

Payables for investments purchased

445


Interest payable 

1,562


527

Accounts payable and accrued expenses

2,322


701

Advances received from unfunded credit facilities

30


92

Total liabilities  

198,799


198,579





Commitments and contingencies








Net assets




Common stock, 20,546,032 and 20,531,948 shares issued and outstanding,

     par value $0.001 per share, respectively, and 100,000,000 shares

     authorized

21


20

Paid-in capital in excess of par

301,557


302,292

Accumulated undistributed (overdistributed) earnings

13,718


(15,360)

Total net assets  

315,296


286,952

Total liabilities and total net assets 

$     514,095


$     485,531

Number of shares outstanding 

 

20,546,032


 

20,531,948

Net asset value per share  

$          15.35


$          13.98

 

 

                                  

WhiteHorse Finance, Inc.



Consolidated Statements of Operations

(in thousands, except share and per share data)


























Years ended December 31,


2018


2017


2016

Investment income







From non-controlled/non-affiliate company investments







     Interest income

$       56,208


$        49,233


$        48,649

     Fee income

4,906


2,858


2,290

From non-controlled affiliate company investments







Dividend income 

2,132


2,713


2,910

Total investment income 

63,246


54,804


53,849








Expenses







Interest expense  

11,599


9,811


8,188

Base management fees

10,511


9,508


8,990

Performance-based incentive fees 

12,134


6,553


6,755

Administrative service fees

684


696


684

General and administrative expenses  

2,646


2,024


2,221

Total expenses, before fees waived 

37,574


28,592


26,838

Base management fees waived 

(270)



Total expenses, net of fees waived

37,304


28,592


26,838

Net investment income before excise tax 

25,942


26,212


27,011

Excise tax 

942



Net investment income after excise tax 

25,000


26,212


27,011







Realized and unrealized gains (losses) on investments






Net realized gains (losses)






     Non-controlled/non-affiliate company investments

(247)


108


(478)

     Non-controlled affiliate company investments

32,981



          Net realized gains (losses) 

32,734


108


(478)

Net change in unrealized appreciation (depreciation)






Non-controlled/non-affiliate company investments

(5,136)


(1,620)


5,767

Non-controlled affiliate company investments

4,703


9,748


(971)

          Net change in unrealized appreciation (depreciation) 

(433)


8,128


4,796

Net realized and unrealized gains (losses) on investments  

32,301


8,236


4,318

Net increase (decrease) in net assets resulting from 

     operations

$       57,301


$        34,448


$       31,329







Per Common Share Data






Basic and diluted earnings (loss) per common share

$             2.79


$            1.77


$            1.72

Dividends and distributions declared per common share

$             1.42


$            1.42


$            1.42

Basic and diluted weighted average common shares outstanding

20,538,971


19,433,003


18,303,890

 

 

WhiteHorse Finance, Inc.


Consolidated Schedule of Investments (Unaudited)

December 31, 2018

 (in thousands)






















  Investment Type(1)


Spread
Above
Index(2)


Interest
Rate(3)


Acquisition
Date(10)


Maturity
Date



Principal/
Share
Amount



Amortized
Cost



Fair
Value(11)


Fair Value
As A
Percentage
of Net
Assets


North America





















Debt Investments





















Advertising





















Fluent, LLC





















     First Lien Secured Term Loan


L+ 7.00%


9.52%


03/26/18


03/27/23



10,771


$

10,771


$

10,771


3.42

%



(0.50% Floor)



















Outcome Health





















     First Lien Secured Term Loan


L+ 9.50%


12.31%


12/22/16


12/22/21



7,943



7,581



6,408


2.03




(1.00% Floor)


(3.00% PIK)




























18,714



18,352



17,179


5.45


Automotive Retail





















Team Car Care Holdings, LLC





















First Lien Secured Term 
     Loan(12)


base rate+ 7.99%


10.54%


02/26/18


02/23/23



17,183



16,862



16,840


5.34




(1.00% Floor)



















Broadcasting





















Alpha Media, LLC





















     First Lien Secured Term Loan


L+ 6.50%


9.00%


08/14/18


02/25/22



10,877



10,546



10,493


3.33




(1.00% Floor)



















Multicultural Radio Broadcasting, 
     Inc.





















    First Lien Secured Term Loan


L+ 8.00%


10.52%


12/28/17


12/28/22



17,882



17,597



17,739


5.63




(1.00% Floor)



















Rural Media Group, Inc.





















     First Lien Secured Term Loan


L+ 7.86%


10.38%


12/29/17


12/29/22



7,000



6,888



6,860


2.18




(1.00% Floor)






























35,759



35,031



35,092


11.14


Cable & Satellite





















Bulk Midco, LLC





















   First Lien Secured Term Loan


L+ 7.33%


10.10%


06/08/18


06/08/23



15,000



14,801



14,700


4.66




(1.00% Floor)








































Data Processing & Outsourced 
     Services





















FPT Operating Company, 
     LLC/





















TLabs Operating 
     Company, LLC





















     First Lien Secured Term Loan


L+ 8.25%


10.60%


12/23/16


12/23/21



25,394



25,096



24,707


7.84




(1.00% Floor)



















Department Stores





















Mills Fleet Farm Group, LLC





















First Lien Secured Term 
     Loan


L+ 6.25%


8.77%


10/24/18


10/24/24



15,000



14,708



14,707


4.66




(1.00% Floor)



















Diversified Support Services





















Account Control Technology 
     Holdings, Inc.





















     First Lien Secured Term Loan


L+ 8.75%


11.28%


04/28/17


04/28/22



3,933



3,857



3,920


1.24




(1.00% Floor)



















ImageOne Industries, LLC





















     First Lien Secured Term Loan


L+ 10.00%


12.52%


01/11/18


01/11/23



7,264



7,082



6,683


2.12




(1.00% Floor)


(2.00%PIK)

















NNA Services, LLC





















First Lien Secured Term Loan


 

L+ 7.00%


9.80%


 

10/16/18


 

10/16/23



 

10,434



10,234



 

10,202


 

3.24























 

 

null

WhiteHorse Finance, Inc.


Consolidated Schedule of Investments (Unaudited) - (continued)

December 31, 2018

(in thousands)


Investment Type(1)


Spread
Above
Index(2)


Interest
Rate(3)


Acquisition
Date(10)


Maturity
Date



Principal/
Share
Amount



Amortized
Cost



Fair
Value(11)


Fair Value
As A
Percentage
of Net
Assets



Quest Events, LLC






















First Lien Secured Term Loan


L+ 6.00%  


8.81%


12/28/18


12/28/24



10,942


$

10,724


$

10,724


3.40

%


First Lien Secured Revolving


L+ 0.00%


0.00%


12/28/18


12/28/24










     Loan(7)

































32,573



31,897



31,529


10.00

























Food Retail






















AG Kings Holdings, Inc.






















     First Lien Secured Term Loan


L+ 9.95%


12.75%


08/10/16


08/10/21



13,031



12,737



11,076


3.51





(1.00% Floor)




















Crews of California, Inc.






















     First Lien Secured Term Loan


L+ 11.00%


13.44%


11/20/14


11/20/19



10,354



10,320



10,251


3.25





(1.00% Floor)


(1.00% PIK)


















     First Lien Secured Revolving Loan


L+ 11.00%


13.44%


06/05/15


11/20/19



5,171



5,148



5,120


1.62





(1.00% Floor)


(1.00% PIK)


















     First Lien Secured Delayed Draw 
          Loan


L+ 11.00%


13.44%


03/27/15


11/20/19



2,974



2,961



2,944


0.93





(1.00% Floor)


(1.00% PIK)





























31,530



31,166



29,391


9.31



Health Care Facilities






















Grupo HIMA San Pablo, Inc.






















     First Lien Secured Term Loan


L+ 9.00%


11.52%


04/01/18


05/31/19



14,065



14,065



11,955


3.79





(1.50% Floor)




















     Second Lien Secured Term 
          Loan(8)


N/A


15.75%


02/01/13


07/31/18



1,028



1,024



103


0.03







(2.00% PIK)





























15,093



15,089



12,058


3.82



Health Care Services






















PMA Holdco, LLC






















     First Lien Secured Term Loan


L+ 7.50%


10.30%


06/28/18


06/28/23



14,875



14,591



14,577


4.62





(1.00% Floor)




















Home Furnishings






















Sure Fit Home Products, LLC






















     First Lien Secured Term Loan


L+ 9.50%


12.31%


10/26/18


07/13/22



5,530



5,424



5,392


1.71





(1.00% Floor)