WhiteHorse Finance Inc (WHF) 2014 Q1 法說會逐字稿

Good morning, my name is Angie and I will be your conference facilitator today. At this time I would like to welcome everyone to the WhiteHorse Finance first-quarter 2014 earnings conference call. Our hosts for today's conference are Jay Carvell, Chief Executive Officer; Alastair Merrick, Chief Financial Officer; and Gehard Lombard, Controller.

Today's call is being recorded and will be available for replay beginning at 1:00 PM Eastern time. The replay dial in number is 404-537-3406 and the pin is 27633128.

(Operator Instructions).

It is now my pleasure to turn floor over to Emilie Lehan of Prosek Partners.

Thank you, Angie. And thank you everyone for joining us today to discuss WhiteHorse Finance's first-quarter 2014 earnings results.

Before we begin I would like to remind everyone that certain statements made during this call, which are not based on historical facts, 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.

With that allow me to introduce WhiteHorse Finance's CEO, Jay Carvell. Jay, you may begin.

Good morning, thank you for joining us today. As you know our press release was issued before market opened this morning so hopefully you have had a chance to review. I'm going to take you through some highlights before turning the call over to Alastair to walk you through the financial results.

As I mentioned last quarter, we view two of our priorities as a manager to be deployment and preservation of capital. Looking first at deployment, I will point out that our first-quarter portfolio increased approximately $17 million on a gross basis through originations, market purchases and add-ons to existing positions.

As I noted on prior calls can we expect to experience lumpiness in our investment pace over the shorter timeframe but anticipate it to balance out over the longer term. Looking at 2013, for example, we saw ebbs and flows from quarter to quarter but experienced an overall healthy pace throughout the calendar year.

Our origination investment pipeline has been steady and continues to provide opportunities to add to and diversify our portfolio. And while the broader credit markets are certainly seeing a general tightening of spreads we are finding attractive risk-adjusted opportunities for the WhiteHorse Finance portfolio.

We received no unexpected paydowns during the quarter. This is in-line with the outlook we discussed on last call that given the vintage of the portfolio and embedded call protection we anticipate a lower rate of turnover than we experienced over the last year.

In terms of preservation of capital, our loan portfolio remains 100% invested in senior and secured positions. And we continue to reduce our risk profile through increased diversification of the portfolio.

There were no loans on non-accrual during the quarter. And finally we had no defaults or downward movements in ratings during the quarter.

Alastair will provide more color on the financials. But I want to spend just a few minutes on our investment portfolio as well.

At quarter end fair value of the portfolio was approximately $287 million, an increase of $54 million from the first quarter of 2013 and up $15 million as reported in the fourth quarter of 2013. As I mentioned, we invested $17 million during the quarter including $15 million invested in two new borrowers in the home furnishing retail and healthcare technology sectors. Repayment activity decreased dramatically compared to last quarter's $56 million with only $5 million coming in through scheduled repayments, amortizations and sweeps.

And because I know you're going to ask about it, we completed an amendment with GMT in mid-April. The highlights include a $5 million paydown on the facility, a reduction of the interest rate to a 10% fixed rate and extension of the maturity to June 2017. By the end of the second quarter the GMT principal balance will be below $14 million.

Last, I would like to spend a moment discussing the markets and our positioning. The credit environment remains tough and competitive. Investor demand for products that create income remains high leading to compressed spreads on the borrower side.

However, as we have mentioned before, though this does not significantly affect us in a smaller end of the market it does increase competition within our space. We continue to rely on our H.I.G. Capital affiliation to identify high-quality investment opportunities across a broad range of industries.

Before turning the call over to Alastair, let me conclude my formal remarks by emphasizing a few points. First, though the quarter-to-quarter ebbs and flows of our business can be frustrating from a timing standpoint, we want to remain disciplined in our process of adding investments with attractive risk-return profiles; second, we believe we are well positioned in the credit markets through both our sourcing network and our investment approach; finally, we are pleased to note that our pipeline looks strong going into the second quarter.

Origination and investment activity through April gives us confidence that we will meet our long-term goals in terms of pace of deployment. We are seeing appealing investment opportunities and are confident in our ability to add a number of them to our portfolio.

With that I will now turn the call over to Alastair. Alastair?

Thank you, Jay, and thank you everyone for joining us today. Now that we have a full year of operating history as a BDC, I can provide comparable year-over-year results.

Looking at our results for the quarter ended March 31, 2014, we reported net investment income of $4 million compared with $4 million in the first quarter of 2013. First-quarter 2014 fee income was $400,000.

Net realized and unrealized gains on investments was $2.4 million compared with unrealized losses of $500,000 in the first quarter of 2013. The first-quarter 2014 unrealized gains were primarily attributable to an increase in the fair values of our investments in future payment technologies and Sigue Corporation.

For the first quarter of 2014 there was an increase in net assets from operations of $6.4 million, or $0.43 per share compared with $3.5 million, or $0.23 per share in the first quarter of 2013. Expenses for the quarter totaled $4.3 million primarily consisting of interest expense on our credit facilities of $1.4 million and base management fees and performance-based incentive fees of approximately $1.6 million. This compares with $4.4 million in expenses for the three months ended March 31, 2013.

Net asset value was $228.1 million as of March 31, 2014, resulting in NAV per share of $15.23 compared with $227 million and NAV per share of $15.16 as of December 31, 2013. Switching over to portfolio and investment activity, as of March 31 the fair value of WhiteHorse Finance's investment portfolio was $286.9 million principally invested in 23 positions across 21 portfolio companies and is almost exclusively comprised of senior secured debt investments.

As of March 31 the weighted average current cash yield on the portfolio was 10.8% essentially unchanged from the 10.9% at the end of the year. The only change in our investment ratings as of March 31 was an upgrade of Renaissance Learning from a 2 to a 1. And they were no nonaccrual loans at March 31, 2014.

Turning to our balance sheet, as of March 31, 2014, we had cash resources inclusive of restricted cash of approximately $40.2 million compared with $96 million as reported in the previous quarter. At March 31, 2014, the Company had two credit facilities and a senior note that on a combined basis were drawn by approximately $85 million.

The Company's asset coverage ratio for borrowed amounts as defined by the 1940 Act, was 368% at March 31, well above the statute's requirement of 200%. We remain confident that our credit lines and current cash position are sufficient to meet our origination goals.

Let me touch briefly on our distributions. On March 10, we declared the distribution for the quarter ended March 31 of $0.355 per share for a total distribution of $5.3 million. The distribution was paid to stockholders on April 3, 2014.

This marks the Company's sixth distribution since our IPO in December 2012, with all distributions at the rate of $0.355 per share per quarter. With our current cash position and our historic performance of our portfolio, we would expect to be in a position to continue our regular distributions.

This concludes my formal remarks. I will now turn the call back to the operator for your questions. Operator?

(Operator Instructions). Ryan Lynch, KBW.

Good morning. It looks like you guys had a pretty sizable increase in your G&A expenses in Q1. Were there any one-time items in that G&A expense, or is that just going to be kind of a higher trend going forward?

Ryan, thanks for being on the call. That's mostly one-time. It's related to some capital market activity, a transaction we were pursuing.

And so we expect that to be one-time. The overall run rate is probably closer to what you have seen over the last 12 months.

Okay. Also, I know you guys said you guys are well positioned to meet your origination goals in 2014. What would you guys expect to hopefully originate into 2014?

We're looking at a similar pace to what we have done over the last 12 to 15 months in that our goal has not changed too much from the days of the IPO in terms of what we are looking at quarter to quarter. As we said, you're going to have some lumpiness. There's going to be down quarters and up quarters but over the longer haul it probably looks like something you've seen the last 12 months.

Okay. Obviously capital deployment is a big focus. Have you guys thought about maybe shifting your focus to deploy capital into some lower yielding, more liquid, I would say maybe placeholder investments in the near term.

And so you guys are able to find more proprietary originated deals to kind of just grow NII in line with earnings a little bit faster? Have you guys thought about that strategy at all?

I think we've done a little bit of that depending on how you would define it. But in general we are going to first look to originate deals in the sectors that we -- in the part of the market that we know best.

If there is a deal where we can participate alongside someone else where we think we have some information that gives us an edge, or something that gives us a little bit of an advantage, you will see us in those deals as well. And you can look in the portfolio and probably see a couple of examples of that.

We don't want to stretch too far both from a yield or a quality standpoint. So we are trying to remain disciplined on that front and remain true to our strategy. Your point is taken that we are trying to put cash to work in all the places we can.

Okay, that's all for me, guys. Thanks.

(Operator Instructions). There are no questions at this time. I will now turn the floor to Jay Carvell for any closing remarks.

Okay, thanks for joining us today, everybody. We look forward to speaking to you next quarter. Operator, back to you.

Thank you for participating in today's conference call. You may now disconnect your lines at this time.