WhiteHorse Finance outlines $0.25 base dividend and $15M share buyback amid spread compression and portfolio markdowns

Earnings Call Insights: WhiteHorse Finance (WHF) Q3 2025

MANAGEMENT VIEW

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CEO Stuart Aronson reported disappointing third quarter results, attributing them to "the onset of interest rate cuts, continued pressure on market spreads as well as the impact of material markdowns on some credits that we have previously discussed." He announced three key measures: the Board reset the quarterly base distribution to $0.25 per share, with Aronson stating, "this adjusted distribution rate represents an implied 8.8% annualized yield based on the company's ending NAV per share as of the end of the third quarter." This move aims to align distributions with "expected earnings power of the BDC, future base rate movements as well as current market conditions."

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Aronson also revealed a temporary reduction in the incentive fee on net investment income from 20% to 17.5% for the next two fiscal quarters, with the possibility of extension. He emphasized, "this temporary 2.5 point reduction... will provide additional financial support for our quarterly distributions to shareholders."

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The Board approved a $15 million share buyback program, with Aronson stating, "the company's current share price level implies a discount to its current book value of more than 40%, which we believe will result in very accretive share repurchases."

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CFO Joyson Thomas reported, "During the quarter, we recorded GAAP net investment income and core NII of $6.1 million or $0.263 per share. This compares with Q2 GAAP NII and core NII of $6.6 million or $0.282 per share as well as our previously declared third quarter base distribution of $0.385 per share."

OUTLOOK

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Management reset the quarterly base distribution to $0.25 per share, with potential supplemental or special distributions if recoveries or improved market conditions add earnings. Aronson indicated, "we set that at a level that we believe we can earn on a quarterly basis reliably even if interest rates do continue to decline in alignment with the current yield curve."

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CFO Thomas clarified the supplemental distribution framework: the lesser of 50% of the quarter’s earnings in excess of the base distribution or an amount resulting in no more than a $0.15 per share NAV decline over two quarters.

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The incentive fee reduction to 17.5% is confirmed for two quarters and "the adviser may extend this voluntary reduction," though future reductions will depend on ongoing Board discussions.

FINANCIAL RESULTS

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Q3 GAAP net investment income and core NII was $6.1 million or $0.263 per share. Net realized and unrealized losses in the portfolio totaled $6.7 million, with a $0.29 per share impact on NAV. NAV per share fell to $11.41, a 3.6% decrease from the prior quarter.

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Gross capital deployments were $19.3 million in Q3, offset by repayments and sales of $50.5 million, resulting in net repayments of $31.2 million. Total investments decreased by $60.9 million to $568.4 million.

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The weighted average effective yield on income-producing debt investments dropped to 11.6% from 11.9% in Q2. The effective yield on the overall portfolio was 9.5%, slightly lower than 9.8% in Q2.

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STRS JV portfolio had an aggregate fair value of $341.5 million, with an average effective yield of 10.3% compared to 10.6% in Q2.

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Nonaccrual investments improved to 2.7% of the debt portfolio at fair value, compared with 4.9% in Q2.

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Cash resources at quarter-end were $45.9 million, including $36.4 million restricted, and $100 million undrawn on the revolving credit facility. The company’s asset coverage ratio was 180.7%. Q3 net effective debt-to-equity ratio was 1.07x, down from 1.22x.

Q&A

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Melissa Wedel, JPMorgan: Asked if the $0.25 dividend is a new base level. Aronson explained that the new base is "set at a level that we believe we can earn on a quarterly basis reliably even if interest rates do continue to decline."

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Wedel, JPMorgan: Inquired about the incentive fee waiver. Aronson responded, "the Board and the manager will discuss whether additional forgiveness is warranted and appropriate" after the initial two quarters.

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Robert Dodd, Raymond James: Sought expectations for recovery from troubled assets. Aronson noted, "the deals that are on nonaccrual right now... are likely to remain on nonaccrual for at least the next 12 to 24 months."

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Dodd, Raymond James: Asked about sponsor vs. nonsponsor track record. Aronson stated, "we see fewer defaults, sorry, fewer payment defaults on the nonsponsor deals... all of the nonaccrual accounts at this point are actually deals that were sponsored deals."

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Christopher Nolan, Ladenburg Thalmann: Asked about the future of the incentive fee reduction. Aronson indicated, "if there is underperformance in terms of core dividend earnings, I would expect that the Board would seek additional forgiveness."

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Nolan, Ladenburg Thalmann: Questioned share buyback aggressiveness. Aronson said, "buying back shares at levels anywhere around today's price is highly accretive for shareholders."

SENTIMENT ANALYSIS

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Analysts’ tone was probing, focusing on sustainability of the new dividend, duration of fee waivers, and recovery timelines for troubled assets.

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Management’s tone in prepared remarks was direct and acknowledged challenges, while Q&A responses remained factual and cautious, with phrases such as "we believe," "we are hoping," and "are likely to remain on nonaccrual." Confidence was most evident in the company’s willingness to act on share buybacks and dividend policy.

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Compared to the previous quarter, both management and analysts’ tone shifted more defensively, with increased focus on risk management and capital allocation.

QUARTER-OVER-QUARTER COMPARISON

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The quarterly base distribution was cut from $0.385 to $0.25 per share. NAV per share declined further, and net investment income decreased from $6.6 million ($0.282 per share) in Q2 to $6.1 million ($0.263 per share) in Q3.

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The incentive fee reduction was newly introduced as a temporary relief for two quarters. A $15 million share buyback program was announced, which was not present last quarter.

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Portfolio markdowns and net realized/unrealized losses increased, with nonaccruals improving as a percentage of the portfolio.

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Analysts’ focus shifted from tariff and capacity concerns to capital return policies, fee reductions, and portfolio recovery timelines. Management’s confidence in core portfolio performance was more tempered, emphasizing caution and prudence.

RISKS AND CONCERNS

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Management cited "interest rate cuts, continued pressure on market spreads as well as the impact of material markdowns on some credits" as key challenges.

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Portfolio companies Alvaria and Camarillo Fitness were highlighted for underperformance and significant markdowns. Management is "making every effort to optimize Camarillo" and is leveraging a dedicated restructuring team to address troubled assets.

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The lending environment remains highly competitive, with aggressive pricing pressures especially in sponsor markets. Sourcing new deals is challenging due to limited deal flow and market competition.

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The future of the incentive fee reduction and the pace of NAV recovery are uncertain, and management expects some assets to remain on nonaccrual for at least "12 to 24 months."

FINAL TAKEAWAY

Management emphasized that the reset of the quarterly base distribution to $0.25 per share, the temporary incentive fee reduction, and the $15 million share repurchase authorization are prudent measures reflecting current earnings power and market conditions. While portfolio markdowns and spread compression weighed on results, the company maintains a disciplined approach to distributions and capital allocation, with ongoing efforts to resolve nonaccrual investments and optimize shareholder value amid a challenging lending environment.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/whf/earnings/transcripts]

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