Good morning. My name is Kimberly, and I will be your conference operator today. At this time I would like to welcome everyone to the WhiteHorse Finance Second Quarter 2016 Earnings Conference Call. Our host for today call are Stuart Aronson, Chief Executive Officer; and Gerhard Lombard, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 1 P.M. Eastern Time. The replay dial-in number is 404-537-3406, and the pin number is 47924688. 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. [Operator Instructions] It is now my pleasure to turn the floor over to Brian Schaffer of Prosek Partners.

Thank you, operator, and thank you, everyone, for joining us today to discuss WhiteHorse Finance's second quarter 2016 earnings results. Before we begin, I'd like to remind everyone that certain statements which are not based on historical facts, may 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. During this call, we will discuss GAAP and non-GAAP financial measures for which a reconciliation can be found in our press release. With that, allow me to introduce WhiteHorse Finance's CEO, Stuart Aronson. Stuart, you may begin.

Thanks, Brian. Good morning, and thank you for joining us today. I have a few items to address before kicking off our call this morning. As you may know, my name is Stuart Aronson. On May 23 I was appointed as the CEO of WhiteHorse Finance. My background includes over 25 years in the middle market and lower middle market leverage loan sectors. Most of this time was spent at GE Capital, where as an officer of the company, I served in a series of capital markets and business leadership roles, serving both the sponsor and non-sponsor markets. In these roles the businesses I lead provided financing solutions with senior secured and structured equity products across a brand broad range of industries. My prior experience as well aligned to the goals of Whitehorse finance which remains focused on providing customized secured financings in the mid and lower mid-markets. I'm excited about the opportunities that lie ahead for this business. In addition to the quarterly earnings process, I expect to be meeting with many of our covering equity analysts and shareholders to highlight the benefits of our direct originations resources and the low leverage and high yielding assets that we've been able to source for WhiteHorse Finance. Finally, one quick word of thanks to my predecessor, Jay Carvell. Jay's leadership and experience to our IPO process and the early growth stage of our business has been a particularly valuable resource. He is returning to his primary focus to HIG Syndicated Loan business but will continue to serve on WhiteHorse Finance's board, as well as being an important part of our investment committee. Now let's turn our attention to the second quarter results. As you are aware, we issued our press release this morning prior to market open, and I hope you've…

Thanks, Stuart. NII was $6.4 million for the quarter, or $0.351 per share, a decrease from $6.8 million for $0.369 per share in the previous quarter, due in part to lower prepayment and amendment fees during the second quarter of 2016. Our investment income continues to consist primarily of recurring cash interest. We reported a net increase in net assets from operations of $8.1 million or $0.44 per share for the second quarter. As of June 30, 2016, net asset value was $244.7 million or $13.37 per share, up from $243.1 million, or $13.28 per share as reported for Q1. Switching over to portfolio and investment activity, as of June 30, the fair value of WhiteHorse Finance's investment portfolio was $400.9 million, down over the prior quarter as a result of the sales in prepayment activity Stuart mentioned a few minutes ago. Our Q2 portfolio was comprised of 36 position across companies and consisted primarily of senior secured debt investments. The risk ratings on our portfolio remained mostly unchanged, we continue to maintain a three rating on our energy holdings to reflect the current macroeconomic market conditions. And as a reminder, we continue to have low exposure to the energy sector overall with approximately 2% of our portfolio representing energy or energy-related investments. We had one credit Fox Rent A Car on non-accrual as of June 30. The investments underlying performance and cash flows are in line with plan and we remain comfortable with our investments from an asset coverage perspective. As discussed on last quarter's call the first lien lender group continues to block interest payments due to a technical covenant violation. We believe this issue will be resolved in a short to medium term and will not result in any loss of principal. Turning to our balance sheet,…

One last item before we open the lines for questions. You're all likely aware that Gerhard will be stepping down at the end of this week. I'd like to take this opportunity to publicly thank Gerhard for his service to our company. He's played a leading role dating back to our IPO. Our Board appointed Ed Giardano as the interim CFO following Gerhard's resignation. Ed is the CFO of HIG Capital's $9 billion credit platform and a seasoned professional with institutional credit funding experience. He's been able to step in and take over leadership of the LIBOR finance accounting and operations team. I will now turn the call over to the operator for your questions. Operator?

The floor is now open for questions. [Operator Instructions] Your first question is coming from the line of Dan Nichols with Behr.

Hi, thanks. Good morning, guys. Just to kind of get maybe color around the -- as you alluded to in your prepared remarks, the ongoing desire to add some the diversity and less concentration risk in the portfolio. Just trying to think about how you're thinking about that, at the same time while trying to preserving yield in the portfolio. If you want to look at some of the more concentrated positions in the portfolio, they've got comfortable double-digit yields versus the yield that you alluded to now in the non-sponsor space of 9% to 11%. So just kind of figuring out how you weigh that desire to have some diversity while also trying to preserve yield. How you are thinking about that now.

Thanks for the question. The strength of our pipeline is what's giving us the flexibility to try to manage to increase diversity in the portfolio. The goal would be to get to that increased diversity without having the average yield on the portfolio deteriorate. We're seeing 9% to 11% yields on senior secured deals that are leveraged two and a half to three and a half times. As you'll note, the assets that often have higher yields than that in our portfolio are second lien financings. To the extent that we look at second lien financings, the yields on those would be even higher than the 9% to 11%. So given the pipeline of what we're working on, we're very focused on the dual effort to earn the dividend on a quarter-by-quarter basis and also preserve NAV. So you know where possible if we can get acceptable risk return in senior secured first lien assets we do that and, where appropriate, where we can get enhanced returns with nominal risk increase, we will then do secondly in assets as well. The focus again to remain well diversified and not have any negative impact on the average yield across the portfolio.

Okay, that's helpful. And then just kind of a follow-up; if you kind of look at the pipeline and more near-term closing, either forward-looking or what you're looking at now. Is it safe to say the non-sponsored space is going to make up a majority of what you're looking at?

In the current pipeline about three quarters of the deals we have are non-sponsor transactions. The reason we are currently focused that way is because of the relative imbalance that I shared earlier in this call in the sponsor market has been well publicized. The flow of transactions in the sponsor mid and lower mid markets has been fairly sparse and there's a lot of demand for those assets, so that we've seen as a result increasing leverage and decreasing return. Again, we have not seen that in the non-sponsor market and so we have a quite robust flow of non-sponsor deals we're working on that are able to achieve the target returns that we have for Whitehorse Finance. We're in final due diligence on two transactions and both of those transactions would be consistent with the philosophies of modest leverage, strong asset coverage and strong double-digit returns.

Okay, that's all helpful. Thank you.

[Operator Instructions] There appears to be no further questions. That does conclude today's conference call. Thank you for your participation. All participants may disconnect at this time.