Good morning. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the WhiteHorse Finance Second Quarter 2023 Earnings Conference Call. Our host 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 made available for replay beginning at 12:00 p.m. Eastern Time. The replay dial-in number is 402-220-7273 and no passcode is required. 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 Jacob Moeller of Rose & Company. Please go ahead, sir.

Thank you, operator, and thank you, everyone, for joining us today to discuss WhiteHorse Finance’s second quarter 2023 earnings results. Before we begin, I would 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 can 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 WhiteHorse Finance’s second quarter 2023 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, Jacob. Good morning, and thank you for joining us today. As you’re aware, we issued our press release this morning, and I hope you’ve had a chance to review our results for the period ending June 30, 2023, which can also be found on our website. On today’s call, I’ll begin by addressing our second quarter results and current market conditions. Joyson Thomas, our Chief Financial Officer, will then discuss our performance in greater detail, after which I’ll open the floor for questions. This morning I’m pleased to report strong performance for the second quarter of 2023, Q2 GAAP net investment income and core NII was $10.6 million, $45.06 per share, which more than covered our quarterly base dividend of $0.37 per share. While our core NII declined by $0.005 per share compared with Q1, Q2 core NII increased by 34.5% increase over – year-over-year. NAV per share at the end of Q2 was $14, representing a 1.4% decrease from the prior quarter. NAV per share was impacted by a $6 million net mark-to-market loss in our portfolio. These markdowns are related to company specific performance and some of our consumer facing portfolio companies as well as some specific challenges certain portfolio companies are experiencing independent of economic conditions. Turning to our portfolio activity. We saw relatively prior quarter with regards to originations and repayments. While transaction activity through the quarter remains slower than recent history, we have seen a pickup relative to Q1 across our markets with market prices trending in the direction conducive for increased deal activity as I’ll discuss shortly. In Q2, gross capital deployments totaled $23.8 million of $19.3 million funding, three new originations and the remaining $4.5 million funding add-ons to existing portfolio investments. For our new originations in Q2, two were sponsored…

Thanks, Stuart, and thank you everyone for joining today’s call. During the quarter, we recorded GAAP net investment income in core NII of $10.6 million or $45.06 per share. This compares with Q1 GAAP NII and core NII of $10.7 million or $46.01 per share and our previously declared quarterly distribution of $0.37 per share. Q2 fee income decreased marginally quarter-over-quarter to $0.9 million in Q2 from $1 million in Q1 with Q2 amounts being highlighted by amendment fees of approximately $0.6 million generated from our investments in Future Payment Technologies, CleanChoice Energy, BBQ Buyer [ph] and Team Car Care Holdings. For the quarter, we reported a net increase in net assets resulting from operations of $3.9 million. Our risk ratings during the quarter showed that 76.3% of our portfolio positions carried either a one or two rating slightly higher than the 73.2% reported in the prior quarter. As a reminder, a one rating indicates that a company has seen its risk of loss reduced relative to initial expectations, and a two rating indicates the company’s performing according to such initial expectations. Regarding the JV specifically, we continue to grow our investment. As Stuart mentioned earlier, we transferred two new deals and one add-on transaction totaling $12.6 million. In exchange for cash proceeds of $10.8 million and a $1.8 million in-kind contribution. As of June 30, 2023, the JV’s portfolio held positions in 32 portfolio companies with an aggregate fair value of $324.5 million, compared to 30 portfolio companies at a fair value of $308.9 million as of March 31, 2023. Subsequent to the end of the second quarter, the company transferred one new portfolio company investment to the JV. The investment in the JV continues to be accretive to the BDC’s earnings generated a mid-teens return. As we have…

Thank you. [Operator Instructions] And our first question comes from Sean-Paul Adams with Raymond James.

Hey guys. Good morning. Can you quantify the exact number of companies in the portfolio with interest coverage below one times? And then just provide some general comment tiering on the rise in amendment activity and the outlook for the rest of 2023?

I’ll give Joyson a moment to see if he can come up with that. Number of companies that have a fixed charge below 1.0 [ph]. But it is a small minority of the overall portfolio. If we can’t provide that to you today, we’ll get that to you after the call. In terms of amendment activity it is, I’d say at a normal pace. We have real covenants on the vast majority of our deals and as there’s volatility in the economy. We do see some number of companies that are violating those covenants. As I mentioned in the prepared remarks where we do have covenant problems we have found the owners of company, both sponsors and non-sponsors, have been generally willing to provide equity support if they had the capacity to do so where Sklar Holdings and American Crafts are examples where the owners did not have that ability. Our general posture on covenant waivers is we look to get equity support from the owners if the leverage on the company is significantly higher than it was at close. And then we also seek to get a pricing adjustment on the loans to reflect any heightened risk return that we have. Joyson, just curious, were you able to come up with the number for the number of deals that are at less than one or fixed charge, or do we need to come back on that question?

We’ll need to come back on quantifying the specifics that are under 1 times. Generally speaking as a portfolio as a whole though obviously the average is much greater than 1 times. So as to what you said before, Stuart, it speaks to the overall general coverage of the portfolio as a whole.

Okay. Thank you. And as a follow-up, can you just comment on the – I believe you guys said you predicted a rise in prepayment income for the – over the next two quarters. Can you provide some commentary on that along with just the general margin compression experience within your portfolio?

Not necessarily an increase in prepayment income, but an increase in prepayments of companies. The income will only go up if those companies are still within a period of time where a prepayment penalty will be due. The improved general market conditions mean that we’ve gotten notice that more of the companies in our portfolio are targeted for sale in Q3 or Q4 and so we do expect to see increased prepayment activity compared to what we saw in Q1 and Q2 when the markets were very slow on M&A. There are also a couple of credits we have where the owners of the company have asked for additional capital, which given our concerns about the economy slowing down in 2024, we are not willing to accommodate. And it is possible that those companies will choose to get financing from another source and repay us because we’re not willing to increase the leverage on those credits.

Okay. Perfect. Thank you so much for your commentary. Thank you.

You’re welcome.

[Operator Instructions] And our next question comes from Mitchel Penn with Oppenheimer.

Hey guys. Hey, can you provide some detail on the number or percentage of companies with a loan to value greater than 50% in the portfolio?

Again, we don’t necessarily track portfolio according to LTV, so that is a question that I’m almost sure we’re going to need to come back to you on to try to provide an answer. We do have the ability to get that data out of our automated systems. I will tell you that as it regards companies that we financed over the past two years either zero or close to zero of those loans have been done at greater than 50% loan to value. And to the extent that we’re at more than 50% loan to value most of the credits would be in that position due to a shift either in the EV of the company or in the earnings of the company over the past couple of years. But we’ll work with our Chief Credit Officer to get that data and get it to you.

Okay, thanks. That's all for me.

And our next question comes from Ernest Watts [ph] with Watts Associates.

Thank you. Good morning. I do appreciate you going over the weak spots. Use a better feel for how the company is doing. I do think there should be more progress. We believe that the EVA would be -- the EVA people would be more enthused, but a company if it reached $40 million in earnings. And since it's well below that, we live in ROI at the $7 million in bonuses and urge that independent directors be required to have at least one year's take and vested in shares of the company with their own money. It would suggest that they might be more vigorous in finding spots for progress. Thank you.

Thank you for your commentary and we will definitely take it under consideration.

Thank you.

And our next question comes from Erik Zwick with Hovde Group.

Good morning. Just kind of thinking about some of your commentary with regard to the current market environment offering acceptively attractive terms and the pipeline being at an all time high. But just kind of given when your leverage is today, you've mentioned that your ability to kind of make new investments is somewhat dependent on kind of some of the current portfolio companies prepaying and exiting the portfolio. So just curious from that perspective with an attractive investing opportunity. What are your thoughts today on potentially raising new capital? And if you tested that at all, what the market receptivity is like from that perspective as well.

In general, the market is not receptive at the moment to new raises from BDCs, but we do acknowledge that the market opportunity and new investments is attractive. And again, that's one of the things that the board has taken under consideration and discussed. But at this moment, there are no plans to be raising new capital.

I appreciate the commentary there. That's all I had today. Thank you.

Thank you.

And at this time, I'm currently showing no questions in the queue. I'll turn the call back over to today's hosts.

All right. Appreciate everybody's time and we will continue to work hard to deliver value for all of our shareholders and appreciate everybody's time and questions. And as always, if there are more things that people would like to see us share on future calls, please let us know in advance of the next call and we'll do our very best to provide transparency into the operations and performance of the company. Thank you much. Have a good day.

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