Good morning. My name is Angela, and I'll be your conference operator today. At this time, I will like to welcome everyone to the WhiteHorse Finance First Quarter 2021 Earnings Conference Call. Our hosts for today's call are Stuart Aronson, Chief Executive Officer; and Joyson Thomas, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 5:00 o’clock P.M. Eastern. The replay dial-in number is 404-537-3406, and the pin number is 4287043. At this time, all participants have been placed in a listen-only mode and the floor will be opened for questions following the presentation. [Operator Instructions] It is now my pleasure to turn the floor over to Sean Silva of Prosek Partners.

Thank you, Angela. And thank you, for everyone for joining us today to discuss WhiteHorse Finance's first quarter 2021 earnings results. Thank you for your patience, as we work through a minor technical issue that caused this brief delay. Before we begin, I'd 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 first quarter 2021 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, Sean. Good afternoon, everyone. And thank you for joining us today. I hope you and your families continue to be safe and healthy as we navigate these unprecedented times. As you're aware, we issued our press release this morning prior to market open and I hope you’ve had a chance to review our results, which are also available on our website. I'm going to start by addressing our first quarter results and market conditions, Joyson Thomas our Chief Financial Officer will then discuss our performance in more detail. Afterwards, we will open the floor to questions. Our first quarter results were defined by an improving economic backdrop, supporting both COVID impacted and non-COVID impacted credits. This delivered some of the recovery in our portfolio, but also led to elevated repayments, both of which we had forecasted on prior calls. As a result, our outlook for 2021 remains unchanged. GAAP net investment income was $7.6 million or $0.37 a share. Core net investment income was $7.7 million, or $0.375 per share, covering our dividend NAV was $15.27 per share compared to $15.23 per share in Q4. Gross deployments of $58 million were offset by repayments of $110 million. Our weighted average effective yield on income producing debt investments modestly decreased to 9.6% compared to 9.9% in Q4. Leverage at the end of Q1 was 1.1 times within our targeted range of one to one in a quarter times. Activity in our JV remain stable. At quarter end the JV held 22 positions at a fair value of $174.6 million in Q4. I'm sorry, at quarter end the JV held 22 positions with an aggregate fair value of $185.7 million compared to 20 positions at a fair value of $174.6 in Q4. The return to our BDC on our investment…

Thanks, Stuart. And thank you all for joining today's call. During the quarter, we recorded GAAP net investment income of $7.6 million or $0.37 per share. This compares to $6.9 million or $0.335 per share in Q4 2020. Core NII was $0.375 cents per share, which covered our quarterly dividend. Our investment in the STRS JV increased by $4.3 million after the effects of transferring four new deals totaling $28.9 million. As of March 31, 2021, we held 22 positions in the JV with an aggregate fair value of $185.7 million. Q1 fee income was approximately $0.8 million, compared with $0.4 million in the prior quarter, largely a result of prepayment fees collected from the elevated repayment levels during the quarter. We reported a net increase in net assets resulting from operations of $8.2 million. Our risk ratings during the quarter showed that 84.3% of our portfolio positions carried either a one or two rating, compared to 83.3% in Q4. Turning to our balance sheet, we had cash resources of approximately $24.5 million as of March 31. 2021, including $16.8 million in restricted cash. As of March 31, we had approximately $70.4 million undrawn under our revolving credit facility. As of March 31, 2021, the company's asset coverage ratio for borrowed amounts as defined by the 1940 Act was 192.6% which exceed a requirement under the statute of 150%. Our Q1 net effective debt-to-equity ratio, after adjusting for cash on hand is just above one times. Next, I'd like to highlight or distributions. On March 2, 2021, we declared distribution for the quarter ended March 31, 2021, $0.355 half cents per share for a total distribution of $7.3 million to stockholder of record as of March 26. The dividend was paid on April 5, 2021. This marks the company's 34th consecutive quarterly distribution paid since our IPO in December 2012, with all distributions at the rate of $0.355 per share per quarter. Finally, this morning, we announced that our Board declared the second quarter distribution $0.355 per share, to be payable on July 2, 2021 to stockholder of record as of June 18. Consistent with what we have said in prior quarters, 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. I'll now turn the call back over to the operator for your questions. Operator?

[Operator Instructions] Your first question comes from the line of Robert Dodd with Raymond James. Please go ahead.

Hi, guys. So some moving parts. So question on Grupo HIMA, for example, that - the 1.4% [ph] impact and about $300,000. Is that correct? That was reversed out of interest income during Q1?

That's correct.

Got it. Just on [indiscernible] Obviously, Puerto Rico suffered another COVID spike earlier, just a couple of months ago. Do you have any expectation or belief that the failure to pay the coupon payment was related to that? Or are other issues that have been ongoing at the business for a while?

We're led to understand that the vast majority of hospitals across the country in the world have been very heavily impacted by COVID in terms of normal activity that would go on. And that has been true for Grupo HIMA since COVID hit. And the company's liquidity, including support from the government was not enough to bring the company through this period. So with great questions about what's going to be the timing of the recovery from COVID, and also questions around the levels of government support, we felt it was prudent given that the company did not pay its interest to put the loan on non-accrual. And it'll stay there until and unless we get data that would suggest that the company would be able to service its debt properly. And at the moment, we're in active negotiations with the company around the potential for restructuring.

Got it. I appreciate that color. And then just another one on the SureFit. You said back on accrual and is paid or past due interest, will that be recognized as interest income in Q2 or is it going to get some other kind of special treatment, like return of capital or anything like that?

Robert, that's correct. So, now that we're current in Q2, all added back to interest that was received would be - with those interest income in the Q2 period.

Got it. Thank you. And then just one more if I can, monopolize little bit. In terms of your - obviously, the repayments, Stuart, were very strong in Q1, if I looked at your book, you know, it looks like you may be continuing to expect a pretty high level of repayments. Obviously, you also have a lot of mandates already for Q2. So, you know, you said, your expectations for the year aren't really changed. But could you reiterate for us exactly what that expectation is, in terms of do you expect the book let say, at the end of ‘21 to be above the size at the end of ‘20? Or can you give us any color on the way you expect that relatively to be, not quarter-to-quarter, it's hard to predict, but maybe by the end of the year, to get some color?

Yeah, Robert, there are a good number of companies in our portfolio that are either currently in the market for sale, or we believe will be coming to market in Q3 or Q4. So we have visibility into a number of accounts that are likely to repay, some of which have significant prepayment penalties that will be accretive to the BDC. What we can't predict is beyond what we have is our current pipeline, how many new deals we will win and how many new deals we will close, especially in Q3 and Q4, given that we're distinct from those and don't have mandates for those quarters yet. So the goal is to be operating at about one and a quarter times leverage with about $700 million of assets. And it's just not possible at the moment to know where we'll be at the end of the year. Other than the fact that we have a very strong pipeline. As of this morning, there were 133 deals in pipeline. Whereas prior-COVID, the norm was typically 100 to 120 deals. So we're above what our pre-COVID pipeline was. And if we can win our fair share of transactions, which we've historically done, that should position us to operate in the direction of the total leverage and asset picture that we want to be at.

Got it. I really appreciate that color. Thank you.

Your next question is from the one of Sarkis Sherbetchyan with B. Riley Securities. Please go ahead.

Hey, good morning, and thank you for taking my question here.

Good morning.

You mentioned one particular deal that had a large may call [ph] prepayment penalty. Did that sale occur in the first quarter? Or should we expect that yet to come?

We had deals that had prepayment penalties occur in Q1. But there is a transaction that has - as you correctly discussed it a may call prepayment penalty that is currently expected to close in June. Although again, there can be no assurance that will occur. And so there is the possibility that we will get a significant prepayment penalty on that transaction if the acquisition of the company is consummated by the end of the quarter.

Thanks for that. And, you know, in the last call, you mentioned, you know, potentially expecting the BDC to run at in term leverage of up to 1.5x. You know, given the elevated repayment levels, and it sounds like the repays - the expectations there are continuing. So is that still the right way to think about it? And then as those repays come in, you'll kind of go back to your target leverage of 1.25 times or should we think about that differently?

So there were more repayments in Q1 than we knew about on the last call, which have resulted in lower assets and lower leverage. We have visibility into Q3 - Q2, Q3, and Q4 of companies that are intended to be sold. And so if we could originate enough business, to take the leverage up above one and a quarter to up to 1.5 times, we would do that in anticipation of the pay downs of these deals. That said, given the repayments that were above our expectations in Q1, the likelihood of getting above one and a quarter in the near future is low.

Thanks for that. One more for me, I’ll hop back in the queue. You know, seeing the first liens kind of dominate the mix here, I think in prior calls, you were targeting more of an 85, 85, 15 mix there between first lien and second, any comments or updates on kind of pricing and where you're finding more value for the portfolio or you know, any changes to those longer term objectives?

Sure, the markets are aggressive, especially in the large cap and upper mid cap market. We have looked at a number of second lien loans, but have only found one that we've been willing to do so far. And of the 11 mandated transactions, one of them is in fact a second lien low. As you know, our second lien loan portfolio has continued to shrink over several years now. And it's actually lower the number in the amount of secondary loans that we have is lower than our targeted level. So we do intend to bring in a second lien loan for $15 million. That loan is priced at LIBOR plus 900, and should be accretive to the portfolio. And we do in our pipeline that I mentioned 133 deals, three of those 133 are second lien loan, so there's still some more second lien that we're working on. Although the vast majority of our pipeline is first lien lend. Did that fully answer your question.

Yeah, that's very helpful. Thank you very much. I'll hop back into queue.

No problem.

Your next question is from the line of Melissa Liddell with JPMorgan. Please go ahead.

Good morning, guys. Thanks for taking my questions. I think first question for you would be about sort of expected portfolio yield trends did come down a bit quarter-over-quarter. And I'm wondering if that's related to - you talked about the sponsor or certainly on loans [ph] sponsor deals that pricing pretty competitively. I've also noticed that the - I think in your slide deck, you had the share of sponsor deals increasing sort of over time. And I'm wondering if that's related, should we expect that to continue?

Non-sponsor deals price higher than sponsor deals. Despite the fact that the non-sponsor deals generally have lower leverage. As I've shared with the market before and will reiterate, sourcing of non-sponsor deals is much tougher than sourcing of sponsor deals, there's much less competition. But it's hard to find those deals, there's no centralized point you can go to, to directly originate non-sponsor transactions. Our non-sponsor deals are typically leveraged only 2.5 to 4.5 times with an average its more in the low to mid threes. And most of our non-sponsor deals are priced at LIBOR 700 and above, sometimes priced as high as is 800, 900 or 1000 over. A number of the repayments we took in Q1 were in fact, non-sponsor repayments. And that's one of the reasons that you see the ratio of sponsored and non-sponsor deal shifting, and the average yield shifting a bit as well. We work very, very hard to optimize and maximize our sourcing in the non-sponsor market. And as I mentioned, of the 10 new platforms that we have mandates for in the quarter, four of them are non-sponsor deals. So we continue to have a good participation from that piece of the market. But it would be directionally true that the more non-sponsor deals that we source that will generate in a normal scenario, a higher average return on the assets. And then the other thing, of course, that will help the average or help the average return on assets, is if we successfully get our second lien concentration back in the range to 10% to 15% of the overall portfolio, which will be very modest and is much, much less than we were a couple years ago. You've seen our second lien concentration decreased markedly over time.

Okay, thanks for that. Second question is around the JV, how are you guys thinking about the sort of level and trajectory of dividend income from that vehicle? Thank you.

Our goal is to successfully deploy all the capital we have in the JV, which would be $75 million of Junjia [ph] Capital from the BDC. The 14.8% is actually I think, either at the high end of the range or above the high end of the range of what we're projected for the JV IRR, as evidenced by strong originations of well priced deals, if we deploy the 75 million into the JV, we would actively consider based on what we're seeing in the market, increasing the allocation to the JV by another $25 million, because we do believe that return anywhere from 13% to 15% is very accretive to the BDC shareholders.

Okay, thanks so much.

Have a good day, Melissa.

[Operator Instructions] Your next question comes from the line of Chris Kotowski with Oppenheimer. Please go ahead.

Yeah. Good afternoon. Thank you. Most of my items been asked, but it's kind of an interesting case study. I'm looking at the $8.16 million of net realized gains and you know, $7.6 million unrealized depreciation. And I'm wondering if that is related, mainly to AG Kings. And if it is, it just seems to me, I've lost track of it a little bit. But then the cost and the power have moved around over the last two years since it's been on monocle. But it seems to me like that, it kind of implies that you've got a more or less full recovery on that loan after having marked it. Is that the right way to read that?

I’ll hand it - go ahead, Joyson.

Yeah, no worries. So Chris, you're absolutely right. That's the way to think about it. As you know, we last year had done a secondary trade to buy a portion of the debt at a deep discounted price. And as a result of that, the cost basis was lower than essentially what we had marked it at. And essentially the realization that we - that occurred in the quarter was at that marked value. So the $7.5 million of unrealized losses really is from just the reversal of those unrealized gains that now are transferred over into realized gains. And then the additional amounts mainly relate to sales that we had in Vero Parent, also known as Syncsort during the quarter.

Okay. And it does pretty much imply a pretty complete recovery of your original loan, right?

Yeah.

We recovered more than our original principal amount. Yes.

Correct.

Okay. All right. That's it for me. Thank you.

No problem.

And I'm showing no further questions. At this time, I would like to turn the call back to management for closing remarks.

I am pleased that things continue to go well to BDC. We will continue to seek to give transparency to our investors. And I encourage investors or analysts who cover us to let us know prior to these calls, any questions that you'd like to see addressed. And I hope everybody has a good day and a good week.

And this concludes today's conference call. Thank you for your participation and have a wonderful day. You may all disconnect your line.