Good morning. My name is Brittney, and I'll be your conference operator today. At this time, I will like to welcome everyone to the WhiteHorse Finance Second 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 4 P.M. Eastern Standard Time. The replay dial-in number is 402-220-2330. Please note, there is no passcode required. 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 Nick Rust of Prosek Partners.

Thank you, Brittney. And thank you, everyone for joining us today to discuss WhiteHorse Finance's second quarter 2021 earnings results. 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 related 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 second quarter 2021 earnings presentation, which was posted on our website this morning. With that, allow me to introduce Whitehorse Finance's CEO, Stuart Aronson. Stuart, you may begin.

Thank you, Nick. Good afternoon and thank you for joining us today. 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 second quarter results and market conditions. And then Joyson Thomas, our Chief Financial Officer will discuss our performance in more detail, after which we'll open the floor to questions. In the second quarter core NII was $7 million or $0.338 per share slightly below our dividend of $0.355. GAAP net investment income was 6.1 million or $0.296 per share. Our NII was lower than last quarter as a result of lower fee income and accelerated interest accretion, which was higher in the prior quarter due to large volume of prepayment activity we saw in Q1. Also, as you know, asset balances were lower at the end of Q1 as a result of repayments that we got during that quarter. We achieved modest NAV accretion in the quarter generating $15.42 of NAV per share, combined -- compared to $15.27 in Q1. This gain was driven by 4 million in mark-to-market gains that we recorded in our portfolio this quarter. When adjusting for special dividends paid in prior years, our pro forma Q2 NAV per share is highest since our December 2012 IPO. Our mark-to-market gains were highlighted by Honors Holdings at 0.7 million, Barbecue Buyer at 0.7 million and LS GFG Holdings at 0.6 million. We also experienced a strong period for capital deployments totaling 104 million, including originating eight new transactions. This investment activity enabled us to grow the portfolio by 9% from Q1. Gross deployments of 104 million were partially offset by repayments of 31 million. We attribute…

Thanks, Stuart. And thank you all for joining today's call. During the quarter we recorded GAAP net investment income of $6.1 million or $0.296 per share. This compares to 7.6 million or $0.37 per share in Q1 2021. Core NII was $0.338 per share after adjusting for $0.9 million capital gains incentive fee accrual. Our investment in the JV continued to ramp up increasing by 6.6 million after the effects of transferring for new deals and three add-ons that total 31.8 million in Q2. As of June 30. We held 25 positions in the JV with an aggregate fair value of $209.5 million compared to 22 positions at a fair value of 185.7 million in Q1. Investment in the JV continues to be accretive to the BDC earnings, as our return on investment in the JV at the end of Q2 was approaching 14%. Q2 fee income was approximately 0.3 million, compared to 0.8 million in the prior quarter. The decline was largely due to higher prepayment fees collected during the first quarter. We reported an increase in net assets resulting from a net increase in net assets resulting from operations of $10.5 million. Our [indiscernible] during the quarter showed that 90% of our portfolio position carried either a one or two rating compared to 84.3% in Q1. Turning to our balance sheet, we had cash resources of approximately $17.8 million as of June 30, 2021, including 7.4 million in restricted cash. Quarter end, we had approximately $46.5 million undrawn under our revolving credit facility. We also have the flexibility to increase the line to 350 million under existing accordion feature. As of June 30, 2021, the company's asset coverage ratio for borrowed amounts as defined by the 1940 Act was 187.9%, which is above the minimum asset coverage ratio…

Thank you. [Operator Instructions] Now we'll take our first question from Bryce Rowe - Hovde Group.

Stuart, you noted that you're expecting possibly the highest ever originations quarter here, here in the third quarter, I guess you could move into the fourth quarter as well. But looking back and looks like $176 million was the best quarter for originations to-date. So if you could kind of help us, help to frame the pipeline relative to that and then from a repayment perspective, I know it's hard to predict but do you expect originations in the back half of this year to outpace repayment activity.

So, our originations activity across our entire WhiteHorse direct lending is higher than it's ever been, which is strange for Q3 because Q3 is normally the second slowest quarter after Q1 and that bodes well for Q4. Absent disruptions in the economy or something else, that we're not projecting. How much of that origination activity ends up in the BDC will come down to suitability for the BDC and allocation percentages. But it should be significant, I would say, based on what we know right now, we will have net significant net additions to the portfolio in Q3. And then we have a number of sale processes on companies. Again, we're not selling them, the owners are selling them, but we have our loans that will get repaid as a part of that, that will probably get in Q4. So Bryce, what we're hoping to do is ramp up originations, potentially get the total leverage above one and a quarter in Q3, preparing for what we expect to be more pay downs in Q4. And we're going to try to manage to about one and a quarter times leverage with assets of around 700 million for year end, if we can get there. There are always repayments that pop up that we don't know about what the thing that's different right now is how many of those repayments are visible? Because we know that the companies that -- those loans are made to are either already in the market or are coming to market in Q4.

That's good detail. Maybe one more for me, then I'll jump back in the queue. But Joyson I noticed the dividend income, not related to the JV was a bit elevated here in the quarter. Can you speak to what drove that and maybe try to get a good understanding for what that what that might be here going forward?

Yes, outside of the JVs dividend, we did receive some dividend income, primarily related to our core holdings, as you know, that is an equity investment, as that investment continues to have some excess cash flows. Again, from their perspective, the underlying portfolio company and made a dividend out to its equity owners did recognize a dividend this quarter related to that.

Okay. So and that's in that's more episodic, or is it? Is it distributed to cover your tax distribution -- your tax expense?

Yes, that's a great question. The way I would look at is I think, there is a little bit of Canadian taxes at play there. But we do envision your future income streams to come from the company prior to a realization. So what I'd say is that this isn’t kind of a one-off event.

Yes, just to highlight our call is doing well generating cash flow, and they are dividending that cash flow out as equity distributions. And ultimately, we will continue to operate that company until we deem it a appropriate market environment to sell into, which probably be well -- it'll be in the future. We don't know what the date would be.

And we will take our next question from Robert Dodd with Raymond James.

On the portfolio today, and kind of the outlook and thank you for covering. I mean, right now, I guess what sponsor is about two-thirds now and non-sponsor about a third. Obviously, that has not been the kind of historic mix. And you gave some color on what the mandated deals are in Q3. But I mean, would you expect, I guess, that took to come down over time and when obviously non sponsored deals take longer to structure but I mean, any color on you whether is that, of course, a permanent shift in the mix on some non-sponsored or just a timing kind of issue in a really active market.

I would say that broadly. While it'll vary quarter-to-quarter in terms of new originations, our portfolio is likely to stay about two- thirds sponsor and about 1/3 non-sponsor. The sponsor deals are harder to find harder to underwrite. more frequently on the non-sponsor deals, the underwriting doesn't support the credit and even though we get mandates, we don't close on the deals. That happened on a couple of non-sponsored deals last quarter, frankly. But we have a very healthy pipeline of non-sponsor deals in Q3 as I highlighted, I think of our 17 deal opportunities that are mandated, I think nine of them are either new sponsor deals, or sorry, either new non-sponsor deals, or non-sponsor add-ons. So in any given quarter, it could be anywhere from 90:10 to 50:50, where sponsor makes up the larger number typically, but overall would expect the portfolio to remain similar to where it is now.

Got it. Thank you. Just to that point, I mean, that you said I mean, so you've got 17 mandated deals roughly half sponsor, how -- just had a couple of sponsor mandates kind of fell through last quarter. Non-sponsored, yes. How confident are you? I mean just looking at Q2, Q3, obviously, leverage going up and then leverage going back down again. I mean, what would you say your comfort level is on being at that 700 or so one and a quarter turns at year end, given there are a lot of moving parts. If you've got higher confidence in originations, than repayments, which are more difficult to predict, or vice versa.

I have more confidence in Q3, because we're in the middle of it. And we have the mandated deals. And I can look at each of the deal names and sort of handicap the likelihood of them getting done. And I think our asset balances are likely to rise for a total asset portfolio to 700 million or greater in Q3. And then, in Q4, we don't yet have visibility into originations, there's only one deal mandated right now that will be Q4 close. And we know a lot of deals are repaying in Q4. So we're going to need to look the portfolio of pipeline deals develop over the next 16 weeks, that more insight into Q4. But all I can tell you historically, as I mentioned earlier, Q3 is the second slowest quarter, with a Q3 this strong, absent something happening in the marketplace. We'd expect a similarly strong Q4 and that would bode very well for the JV and the core BDC portfolio balances and set us up to hopefully comfortably earn our dividend, unless there are other things that go on that we don't know about yet.

Understood. I appreciate that. Thank you. So one housekeeping quick one if I can. The tax expenses quarter was a little bit elevated. Was that related to the dividend income? You mentioned that some Canadian tax considerations? I mean, and should we expect that excise tax to that tax not just to pop up if there's increased dividend income, or was it unrelated to that?

Robert, the way I think about it is listen, with any year, you look at our taxable income, which takes into account all the bulk tax timing differences. Ultimately, distributions are going to be paid out of taxable earnings. So when you put all that in a blender effectively, we currently estimate the earnings of the BDC to be excess -- in excess of our distributions at a slightly higher run rate than we were earlier in the year, or last year for that matter, based on not only kind of the investment income, but also some of the net gains that we're realizing this year. So as you're aware year-to-date, we have a large-realized gain from [indiscernible]. So that also came into play there.

[Operator Instructions] And we'll take our next question from Sarkis Sherbetchyan with B Riley.

Just a quick question. If you expect second half 21 repayments to remain elevated. How does it impact fee income expectation?

There should be either more prepayment penalties or more fee sweeps associated with faster repayments which all things being equal. We'll be accretive to NII. We saw that last quarter where fee suites and prepayment penalties helped us generate a NII number in excess of the dividend.

And we have no further questions on the line at this time, I will turn the call back over to management for any additional or closing remarks.

I appreciate everyone's time and attention today. As always, if there are questions that people would like to see addressed in future calls, please alert us prior to the call so we can add that into the prepared remarks. And with that, I hope everybody has a good afternoon. Thank you.

This does conclude today's program. Thank you for your participation. You may disconnect at any time.