Sign in

You're signed outSign in or to get full access.

WF

WhiteHorse Finance, Inc. (WHF)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 NII per share was $0.282 and total investment income was $18.84M; results reflected portfolio-specific losses (notably American Crafts write-off) and modestly lower yields versus Q1 .
  • Miss vs S&P Global consensus: EPS (NII/share) $0.286 actual vs $0.309 estimate; revenue $18.84M actual vs $19.33M estimate; Q1 also missed EPS and revenue, reinforcing estimate cuts risk for the near term (values marked with asterisks) *.
  • NAV/share fell to $11.82 (−2.4% q/q) as net realized losses of $(22.0)M were partially offset by $17.73M of unrealized gains; non-accruals improved sharply to 4.2% of debt at fair value as Telestream returned to accrual .
  • Balance sheet optimization: $298.15M CLO term securitization (with $174.0M notes issued) reduced revolver borrowings; management expects $0.01–$0.015 per share per quarter in interest cost savings, a potential support for dividend coverage in coming quarters .
  • Dividend maintained at $0.385/share (payable Oct 3); management highlighted remaining 2024 spillover of ~$9.7M after the July distribution—an ongoing lever for payout stability .

What Went Well and What Went Wrong

What Went Well

  • Non-accruals improved: fair value on non-accrual dropped to $24.0M (4.2% of debt FV) from $45.9M (7.6%) in Q1, with Telestream back on accrual, boosting earning capacity .
  • JV scale and returns: STRS JV assets rose to ~$351M; WHF’s ROE on JV was ~14.0% in Q2, continuing to provide accretive income to the BDC .
  • Balance sheet optimization: “We completed a CLO term debt securitization… which bears interest at three-month term SOFR + 1.7%. We expect this optimization to result in cost savings of between $0.01 to $0.015 per share per quarter.” — CFO Joyson Thomas .

What Went Wrong

  • Core earnings softness: NII/core NII fell to $6.56M ($0.282/share) from $6.84M ($0.294/share) in Q1, reflecting lower effective yields and portfolio losses .
  • Large realized loss: “Net realized losses included a write-off [of] American Crafts, LC for $21.0 million” — a key drag on results and NAV .
  • Competitive market/muted pipeline: Management cited subdued M&A and intense sponsor market competition; focus shifted further to non-sponsor mandates amid limited BDC capacity and lower deal closure visibility .

Financial Results

MetricQ2 2024Q1 2025Q2 2025
Total Investment Income ($USD Millions)$23.5 $18.80 $18.84
Net Investment Income ($USD Millions)$9.30 $6.84 $6.56
NII per Share ($USD)$0.400 $0.294 $0.282
NII Margin (%)39.6% (9.3/23.5) 36.4% (6.843/18.801) 34.8% (6.562/18.838)
Actual vs ConsensusQ1 2025Q2 2025
EPS (NII/share) Actual ($)$0.294 $0.282
EPS Consensus ($)$0.33046*$0.30865*
Delta ($)−$0.036*−$0.0227*
Revenue Actual ($USD Millions)$18.80 $18.84
Revenue Consensus ($USD Millions)$19.97*$19.33*
Delta ($USD Millions)−$1.17*−$0.49*

Values marked with asterisks retrieved from S&P Global (Capital IQ).

Segment breakdown (portfolio composition is presented due to WHF being a BDC without operating segments):

Portfolio Composition (Fair Value)Q4 2024Q1 2025Q2 2025
First Lien Secured Loans78.2% 79.4% 77.6%
Second Lien Secured Loans1.3% 0.5% 0.5%
STRS JV16.7% 16.4% 16.9%
Equity3.6% 3.5% 4.8%
Subordinated Debt0.2% 0.2% 0.2%

KPIs:

KPIQ4 2024Q1 2025Q2 2025
Weighted Avg Effective Yield (Income-Producing Debt)12.5% 12.1% 11.9%
Non-Accruals (% of Debt FV)6.2% 7.6% 4.2%
NAV per Share ($)$12.31 $12.11 $11.82
Gross Leverage (Debt/Equity)1.24x 1.30x 1.34x
Net Leverage1.15x 1.23x 1.22x
STRS JV Total Assets ($USD Millions)~$309 ~$323.5 ~$351
WHF ROE on STRS JV~15.2% ~14.3% ~14.0%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per ShareQ3 2025$0.385 (Q1) $0.385 (payable Oct 3, record Sept 19) Maintained
Interest Cost Savings (per share)Forward (quarterly)N/A$0.01–$0.015 expected quarterly savings from CLO financing New (cost reduction)
Leverage Target (Gross)Ongoing1.00x–1.35x 1.00x–1.35x (operated at 1.34x in Q2) Maintained
Telestream StatusNear-term opsAnticipated return to accrual (Q1 commentary) Returned to accrual in Q2 Achieved (positive)

Earnings Call Themes & Trends

TopicQ4 2024 (Prior-2)Q1 2025 (Prior-1)Q2 2025 (Current)Trend
Tariffs/MacroUncertainty; underwriting caution; non-sponsor focus <10% portfolio exposed; monitoring tariff developments Tariff exposure <10%; pass-through to consumers; supplier sharing Persistent risk; mitigation actions ongoing
Market Supply/Demand & PricingSpreads stable; aggressive sponsor terms; non-sponsor more attractive Middle market SOFR+4.75–5.25; lower mid SOFR+5.00–5.75 Aggressive upper markets; WHF focusing non-sponsor; muted M&A Competition intense; volume subdued
Non-Accrual ManagementElevated non-accruals; Telestream expected back on accrual MSI to non-accrual; Telestream expected to return Telestream back; non-accruals improved to 4.2% Improving
Balance Sheet OptimizationRevolver amendment; lower spread to 225 bps Considering optimization/refinancing CLO term securitization; expected cost savings Executed; tailwind
Dividend/SpilloverSpillover ~$28.4M supports base dividend Q1 shortfall noted; active Board review Q3 dividend maintained; remaining 2024 spillover ~$9.7M post-July payout Base maintained; watch coverage

Management Commentary

  • “Our second-quarter results continued to reflect portfolio-specific challenges, though we remain confident in the underlying stability of the broader portfolio.” — CEO Stuart Aronson (press release) .
  • “We completed a CLO term debt securitization… We expect this optimization to result in cost savings of between $0.01 to $0.015 per share per quarter.” — CFO Joyson Thomas .
  • “American Crafts has now been fully resolved, eliminating any further downside from that investment.” — CEO Stuart Aronson .
  • “No credits were placed on nonaccrual in Q2, and nonaccrual investments totaled 4.9% of the debt portfolio, an improvement… Telestream returned to accrual status.” — CEO Stuart Aronson .
  • “We remain focused on credits with strong fundamentals and believe our diversified sourcing capabilities and disciplined underwriting approach position us well to navigate the current environment.” — CEO Stuart Aronson (press release) .

Q&A Highlights

  • American Crafts resolution: Management confirmed the remaining piece was sold with minimal proceeds; no further downside expected .
  • CLO details: Reinvestment period through 05/25/2029; extended maturity to 2037; supports lower borrowing cost and payout stability .
  • Tariff mitigation: Suppliers absorbing portions, sourcing shifts (e.g., China to Vietnam), and pricing pass-through to consumers; outcome contingent on holiday-season demand .
  • Dividend/spillover: Remaining 2024 spillover ~ $9.7M after July payout; potential consideration of special distributions depending on year-end tax dynamics .
  • Capacity and pipeline: BDC nearly fully deployed; JV has ~ $20M capacity; mandates balanced with expected repayments; no plans to upsize JV currently .

Estimates Context

  • Q2 2025 EPS (NII/share) missed S&P Global consensus by ~$0.023; revenue missed by ~$$0.49M, following Q1 misses on both EPS and revenue, which may prompt near-term downward estimate revisions (values marked with asterisks) *.
  • Target price consensus stood at ~$7.67 (unchanged across periods), while management actions (CLO savings, non-accrual resolutions) may support medium-term coverage improvements if deployment and JV income hold (target price consensus marked with asterisks)*.

Values marked with asterisks retrieved from S&P Global (Capital IQ).

Key Takeaways for Investors

  • Core earnings pressure persists: NII/share fell q/q and missed consensus; improving non-accruals and CLO savings are critical to stabilizing dividend coverage *.
  • Portfolio clean-up advancing: Telestream back on accrual; American Crafts fully resolved; non-accruals reduced to 4.2% of debt FV—positive for earning power .
  • Yield headwind: Weighted average effective yield declined to 11.9% as base rates eased and competition intensified; selectivity over volume remains prudent .
  • Balance sheet optimization is a tangible tailwind: CLO financing expected to lower interest costs by $0.01–$0.015/share/quarter, enhancing NII trajectory if deployment remains steady .
  • Dividend maintained; spillover remains a lever: $0.385/share declared; remaining 2024 spillover ~$9.7M post-July payout supports near-term payout stability, though estimate misses argue for caution *.
  • Strategy pivot sustained: Increased focus on non-sponsor and off-the-run sponsor deals amid muted M&A and aggressive sponsor market terms; expect lumpy deployment .
  • Near-term trading: Watch for additional accrual restorations (MSI potential), JV capacity utilization, and fee income cadence; continued misses vs consensus could weigh until operational improvements flow through *.