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    WHF
    Earnings call· Jun 2026(Q2 FY26)

    WhiteHorse Finance Q2 FY26 earnings call WHF

    Aug 11, 2026 Source

    Executive summary

    WhiteHorse Finance Q2 FY26 — NAV Accretion and Strategic Portfolio Repositioning

    WhiteHorse Finance reported a quarter marked by NAV accretion driven by significant unrealized gains and accretive share repurchases, despite a moderation in core net investment income below its distribution rate. The company is actively managing its portfolio, successfully restructuring a key nonaccrual asset and strategically pivoting towards middle and upper-middle market deals with better risk-return profiles amidst evolving market conditions. Management continues to explore options to enhance shareholder value, including a temporary incentive fee waiver and assessing future share repurchases.

    Highlights

    5

    • Net asset value per share increased by 2.6% to $11.77, primarily driven by unrealized gains.

    • Share repurchases were accretive to NAV by more than $0.06 per share in Q2 FY26.

    • Net markups of $5.7 million ($0.265 per share) were recognized, led by a $4.8 million markup on Chase Products.

    • Outward Hound restructuring completed post-quarter, returning the term loan to accrual status for Q3 FY26 NII benefit.

    • Portfolio remains 98.8% first lien senior secured, with improved market conditions leading to better credits, lower leverage, and higher pricing on new deals.

    Concerns

    5

    • Core NII moderated to $0.217 per share in Q2 FY26, down from $0.253 per share in Q1 FY26.

    • Q2 FY26 NII of $0.217 per share was below the quarterly distribution rate of $0.25 per share.

    • STRS JV's remaining capacity has been fully utilized, limiting new deal transfers until repayments occur.

    • Upcoming maturity of $85 million in unsecured notes in December 2026 requires refinancing or repayment.

    • Geopolitical tensions and AI disruption risk in the software sector continue to influence market conditions.

    Guidance & targets

    3
    CategoryTargetConfidence
    Incentive Fee Waiver Rate
    17.5%
    medium materiality
    High
    Liquidity Event for Chase Products
    Cautiously optimistic about a liquidity event
    high materiality
    Low
    Liquidity Event for Play Monster
    Expect any process to follow the finalization of full year 2026 results at the earliest
    medium materiality
    Low

    Operational metrics

    37
    GAAP Net Investment Income (NII)
    $4.7Mdown from $5.6M in Q1 FY26
    Q2 FY26

    Moderated relative to the prior quarter, reflecting a smaller average portfolio size and a loan investment going on nonaccrual status.

    Core Net Investment Income (NII)
    $0.217down from $0.253 per share in Q1 FY26
    Q2 FY26

    Below the quarterly distribution rate of $0.25 per share.

    Net Asset Value (NAV) per share
    $11.77up from $11.47 at Q1 FY26 end
    Q2 FY26 end

    Increased by approximately 2.6% quarter-over-quarter.

    Net Realized and Unrealized Gains
    $5.7M
    Q2 FY26

    Comprised of $0.1 million in net realized losses and $5.8 million of net unrealized gains.

    Gross Unrealized Depreciation
    $7.1M
    Q2 FY26

    Offset by $1.4 million of gross depreciation, resulting in net markups.

    Share Repurchases (Q2 FY26)
    345,000
    Q2 FY26

    Repurchase activity paused in late May, balancing NAV accretion with leverage ratio levels.

    Share Repurchase Authorization Remaining
    $9.5M
    Q2 FY26 end

    Capacity remains available under the program.

    Cumulative Share Repurchases (since Q4 FY25)
    1.8M
    Cumulative

    Demonstrates commitment to creating shareholder value.

    Fee Income
    $0.1Mdown from $0.4M in Q1 FY26
    Q2 FY26

    Primarily driven by amendment fees from Lift Brands and NA services.

    Net Increase in Net Assets from Operations
    $10.4M
    Q2 FY26

    Reported for the quarter.

    Portfolio Risk Rating (1 or 2)
    86.6%slight decrease from 88.3% in Q1 FY26
    Q2 FY26 end

    A 1 rating indicates reduced risk of loss, a 2 rating indicates performing according to initial expectations.

    Income from STRS JV Investment
    $3.2Mdown from $3.6M in Q1 FY26
    Q2 FY26

    Yield may fluctuate due to capital investments, asset yields, and credit performance.

    STRS JV Return on Equity
    low teens
    Q2 FY26

    The investment in the JV continues to be accretive for the BDC's earnings.

    Cash Resources
    $28.1M
    Q2 FY26 end

    Includes restricted cash from securitized leverage facilities and cash reserved for the quarterly dividend.

    Gross Leverage
    1.30xdown from 1.31x in Q1 FY26
    Q2 FY26 end

    Calculated as debt-to-equity.

    Net Effective Debt-to-Equity Ratio
    1.19xup from 1.12x in Q1 FY26
    Q2 FY26 end

    Increased primarily due to lower cash balances as deployments outpaced repayments.

    Gross Capital Deployments
    $25.4M
    Q2 FY26

    Consisted of 3 new originations and add-ons to existing portfolio companies.

    Net Capital Deployments (before JV transfers)
    $23.2M
    Q2 FY26

    Repayments and sales were muted, offsetting gross deployments by $2.2 million.

    Total Investments (Fair Value)
    $569.2Mup from $543M at Q1 FY26 end
    Q2 FY26 end

    Increased by $26.2 million from the prior quarter after net deployments, JV transfers, and realized/unrealized gains.

    Portfolio First Lien Senior Secured
    98.8%
    Q2 FY26 end

    Reflects a continued focus on senior secured debt.

    Portfolio Nonsponsor Investments
    40%
    Q2 FY26 end

    Reflects a balanced mix of sponsor and nonsponsor investments.

    Weighted Average Effective Yield (income-producing debt)
    10.8%consistent with 10.8% at Q1 FY26 end
    Q2 FY26 end

    Yield on income-producing debt investments.

    Weighted Average Effective Yield (overall portfolio)
    8.8%up from 8.7% at Q1 FY26 end
    Q2 FY26 end

    Overall portfolio yield.

    Nonaccrual Investments (Fair Value)
    3.6%consistent with 3.6% at Q1 FY26 end
    Q2 FY26 end

    No additions or removals from nonaccrual during the quarter.

    Nonaccrual Investments (Cost)
    6.9%down from 7.2% at Q1 FY26 end
    Q2 FY26 end

    Represents the percentage of the total debt portfolio at cost that is on nonaccrual.

    Software Exposure (Cost)
    10.5%
    Q2 FY26 end

    Exposure to software companies remains modest.

    Software Exposure (Fair Value)
    9.3%
    Q2 FY26 end

    Exposure to software companies remains modest.

    New Deal Leverage (Sponsor)
    half a turn to a full turn lowervs a year to 1.5 years ago
    Current

    Reflects a more conservative market environment.

    New Deal Pricing (Sponsor)
    25 to 50 basis points highervs a year to 1.5 years ago
    Current

    Reflects a more conservative market environment.

    Current Market Pricing (Sponsor Deals)
    SOFR + $475 to $550Mapproximately 50 basis points higher than a year ago
    Current

    Observed in the current market for sponsor deals.

    Current Market Pricing (Nonsponsor Lower Mid-Market)
    SOFR + 600 and above
    Current

    Generally commands higher pricing.

    Current Market Pricing (Nonsponsor Larger Deals)
    SOFR + 550 to 650
    Current

    Pricing range for larger nonsponsor deals.

    WhiteHorse Direct Lending Platform Volume
    40% to 50% morevs last year
    This year

    Increased volume due to more attractive market conditions.

    STRS JV Total Portfolio Fair Value
    $340.3Mup from $327.1M at Q1 FY26 end
    Q2 FY26 end

    Increased from prior quarter.

    STRS JV Average Effective Yield
    9.8%down from 9.9% at Q1 FY26 end
    Q2 FY26 end

    Yield on the JV's investment portfolio.

    STRS JV Leverage
    1.10xup from 1.08x at Q1 FY26 end
    Q2 FY26 end

    Leverage for the JV.

    BDC Balance Sheet Capacity for Additional Assets
    $10M
    Current

    Additional capacity will be created as repayments are received.

    Industry KPIs

    3
    MetricValueDetails
    Cet1 ratio177%%
    Payout ratio115.2%%
    Net interest income$4.7MUSD

    Deals & partnerships

    2
    STRS JVTransfer of new deals to the joint venture$7.8M

    Two new deals, Industrial Service Solutions ($5.1M) and Trimlite ($2.7M), were transferred to the STRS JV during Q2 FY26. The JV's remaining capacity has been fully utilized pro forma for these transfers and subsequent transfers post-quarter end.

    Outward HoundRestructuring of existing debt investment

    Completed subsequent to quarter end in early July. Involved recapitalizing the company with a new revolver and term loan, converting a substantial portion of outstanding debt into equity, and extending maturity. WhiteHorse is working with management on operating initiatives to drive top-line growth and optimize cost structure.

    Risks & headwinds

    6
    Moderated Core NII and NII ShortfallQ2 FY26

    Q2 GAAP NII and core NII of $0.217 per share, compared with Q1 of $0.253 per share; Q2 NII was below the $0.25 per share distribution rate.

    Mitigation: Management exploring options to support distributable earnings, including a temporary incentive fee waiver and potential monetization of equitized credits (Chase, Naviga) that could add to NII generating capability.

    Geopolitical Tensions Impact on M&A ActivityOngoing

    M&A activity slows when tensions are high and tends to pick up when tensions are lower.

    Mitigation: WhiteHorse direct lending platform is increasing volume by 40-50% this year by pivoting to more attractive market conditions (better credits, lower leverage, better documents) and focusing on middle/upper-middle market deals.

    Capital Outflows from Direct Lending MarketCurrent

    Negative press surrounding the direct lending market has scared retail investors, resulting in capital outflows that reduced appetite of some largest players.

    Mitigation: The resulting supply-demand imbalance has improved market conditions for WhiteHorse, leading to better deal terms (lower leverage, higher pricing, better documents).

    AI Disruption Risk in Software SectorOngoing

    Software sector, previously in favor, is now out of favor as market recognizes downside risk from potential AI disruption.

    Mitigation: WhiteHorse's exposure to software companies remains modest at approximately 10.5% of the portfolio at cost and 9.3% at fair value across 6 portfolio companies. The company is also seeing previously out-of-favor sectors like industrials come back into favor.

    Liability Management Executions (LMEs)Ongoing

    Companies may issue super senior debt, strip existing lenders of collateral, and install super senior debt at the top of the capital structure.

    Mitigation: WhiteHorse has been vigilant in avoiding LME situations and has limited or eliminated downside risk from LMEs in the vast majority of deals completed over the past 3 years by securing better documents and LME protection.

    Unsecured Notes MaturityDecember 2026

    $85 million of unsecured notes maturing in December 2026 ($10M at 5.375% and $75M at 4%).

    Mitigation: Monitoring debt capital markets and evaluating alternatives, including utilizing available capacity under the revolving credit facility and cash on hand.

    What to watch in Q3 FY26

    5

    Core NII vs. Distribution Rate

    next quarter (Q3 FY26)
    Current$0.217 per share NII vs. $0.25 per share distribution
    TargetNII to cover distribution, supported by Outward Hound returning to accrual

    Why it matters

    Sustained NII below distribution impacts shareholder returns and long-term dividend sustainability.

    Q2 GAAP net investment income and core NII were each $4.7 million or $0.217 per share compared with Q1 GAAP net investment income and core NII of $5.6 million or $0.253 per share last quarter.

    Q&A highlights

    5

    Can you provide more color or quantification on the potential realized gains from asset monetizations in the second half of the year?

    Stuart Aronson identified Chase Products (Starco/Pressurized Holdings) and Naviga as the most likely candidates for monetization in H2 FY26. He noted that the current mark on Chase is conservative compared to bankers' valuations, suggesting potential upside. Similarly, Naviga is marked at or below the low end of its valuation range. Play Monster could also be monetized after strong FY26 results. These realizations would generate cash for redeployment into income-producing assets or share repurchases.

    “The most likely realization or 2 realizations in the second half of the year are Chase Starco Pressurized Holdings, which is 3 different names of one account and then also Naviga, Chase Darko is doing very well. It is operating above budgeted levels.”

    asked by Hong Zhang · answered by Stuart Aronson

    2 min read5 chapters

    Detailed Narrative

    01

    Portfolio Performance and Valuation

    The portfolio saw net markups of $5.7 million or $0.265 per share, primarily driven by a $4.8 million markup on Chase Products (Starco/Pressurized Holdings) and a $0.4 million markup on Play Monster. Chase Products, now majority-owned by WhiteHorse, has significantly improved its EBITDA from negative to low positive double digits, exceeding expectations. Play Monster, a toy and game company, has also returned to positive and growing adjusted EBITDA, with strong momentum into 2026. These markups reflect improved operating performance and updated valuation inputs.

    02

    Nonaccrual Management and Restructuring

    Nonaccrual investments remained consistent at 3.6% of the debt portfolio at fair value. Post-quarter end, WhiteHorse successfully restructured Outward Hound, converting a substantial portion of debt to equity and returning the term loan to accrual status. WhiteHorse now holds majority ownership and control of the board, actively working on operational improvements. New Cycle Solutions is preparing for a sale process, and Camarillo Fitness (formerly Honors Holdings) is undergoing a sale of underlying locations, with proceeds being redeployed into income-producing investments.

    03

    Market Conditions and Investment Strategy

    Market conditions have improved with a better supply-demand imbalance compared to the prior year, despite moderate M&A activity. The direct lending market is experiencing increased scrutiny, leading to more conservative deal environments. Deals are being completed at more reasonable headline multiples, particularly in technology and software. WhiteHorse is observing lower leverage multiples (half to a full turn lower) and higher pricing (25-50 basis points higher) on sponsor deals, with improved documentation including LME protection. The company is strategically pivoting to middle and upper-middle market credits for better risk-return dynamics.

    04

    Direct Lending Platform Volume and Pricing

    Across the WhiteHorse direct lending platform, volume is up 40% to 50% year-over-year due to more attractive market conditions, including better credits, lower leverage, and improved documents. Most deals now include covenant protection. Current market pricing for sponsor deals is SOFR plus $475 to $550 million. Nonsponsor deals command SOFR plus 600 and above for lower mid-market, and SOFR plus 550 to 650 for larger deals. Deals above SOFR plus 600 are targeted for the BDC balance sheet, while those below are generally for the JV.

    05

    Capital Structure and Liquidity

    The company ended Q2 with $28.1 million in cash resources. Gross leverage was 1.30x, and the asset coverage ratio was 177%, well above the 150% minimum. Net effective debt-to-equity increased slightly to 1.19x due to deployments outpacing repayments. WhiteHorse has $85 million in unsecured notes maturing in December 2026 and is evaluating alternatives, including utilizing its revolving credit facility and cash on hand, to address these maturities.

    AI-generated summary of the company’s earnings call. Not investment advice.