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WF

WhiteHorse Finance, Inc. (WHF)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 results missed Wall Street consensus: net investment income per share was $0.263 versus consensus $0.290 and total investment income was $17.7M versus consensus $18.4M; management reset the quarterly distribution to $0.25 and authorized a $15M stock repurchase program (consensus values from S&P Global)*.
  • Management cited rate cuts, spread compression, and portfolio markdowns (Alvaria, Camarillo Fitness) as primary drivers; NAV per share fell 3.5% QoQ to $11.41 and total investments declined to $568.4M .
  • Advisor voluntarily reduced the NII incentive fee to 17.5% for Q4 2025 and Q1 2026 to help support distributions; non‑accruals improved to 2.7% of the debt portfolio at fair value .
  • Tactical catalysts include buybacks at >40% discount to NAV and a formulaic supplemental distribution framework (special $0.035 declared in October), alongside continued STRS JV support (JV FV $341.5M; ~$3.6M income recognized) .

What Went Well and What Went Wrong

What Went Well

  • Non‑accruals improved to 2.7% of the debt portfolio at fair value (from 4.9% prior quarter), with MSI restructured back to accrual; management: “we are continuing to actively work on getting deals off non‑accrual” .
  • STRS JV continues to be accretive: aggregate fair value $341.5M, average effective yield 10.3%, ~$3.6M income recognized in Q3; CFO: “generating a mid‑teens return on equity” .
  • Share repurchase authorization of up to $15M and advisor incentive fee cut to 17.5% provide immediate shareholder support; CEO: buybacks “highly accretive… both in terms of NII and NAV” given ~40% discount to NAV .

What Went Wrong

  • Distribution reset reflects weaker earnings power amid rate cuts and spread compression; Q3 NII/share $0.263 versus Q3 distribution $0.385, prompting reset to $0.25 going forward .
  • Portfolio markdowns totaled $6.7M driven by Alvaria and Camarillo Fitness; total investments fell $60.9M QoQ to $568.4M on net repayments and JV transfers .
  • Fee income was only ~$0.1M due to lower amendment/prepayment activity; weighted average effective yield on income-producing debt decreased to 11.6% (from 11.9% in Q2) .

Financial Results

Q3 2025 Actual vs S&P Global Consensus

MetricActualConsensus*# of Estimates*
EPS (Primary) ($USD)$0.263 $0.2905
Total Investment Income (“Revenue”) ($USD)$17.691M $18.434M5

Values retrieved from S&P Global.*

Quarterly Trends (Q1 → Q2 → Q3 2025)

MetricQ1 2025Q2 2025Q3 2025
Total Investment Income ($USD Thousands)18,801 18,838 17,691
Net Investment Income ($USD Thousands)6,843 6,562 6,101
NII per Share ($USD)0.294 0.282 0.263
NAV per Share ($USD)12.11 11.82 11.41
Weighted Avg Effective Yield (income‑producing debt) (%)12.1% 11.9% 11.6%
Non‑Accruals (% of debt FV)8.8% 4.2% 2.7%
Total Investments, at FV ($USD Thousands)650,999 629,264 568,434
Distribution per Share ($USD)0.385 0.385 0.25

Note: Q3 non‑accruals presented as 2.7% (transcript) vs 2.2% (presentation); management emphasized improvement to 2.7% at fair value .

Portfolio Composition (Instrument Type, % of FV)

Instrument TypeQ1 2025Q2 2025Q3 2025
First Lien Secured Loans79.4% 77.6% 74.7%
Second Lien Secured Loans0.5% 0.5% 0.6%
Unsecured/Subordinated Debt0.2% 0.2% 0.2%
Equity3.5% 4.8% 5.9%
STRS JV16.4% 16.9% 18.6%

Additional KPIs

KPIQ1 2025Q2 2025Q3 2025
STRS JV Total Investments, FV ($USD Thousands)310,160 330,187 341,549
Income Recognized from JV ($USD Millions)3.7 3.4 3.6
Net Leverage (Debt less cash / Net Assets) (x)1.23x 1.22x 1.07x
Asset Coverage Ratio (%)177.2% —180.7%
Weighted Avg Effective Yield (total portfolio) (%)9.6% 9.8% 9.5%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Base Quarterly Distribution per ShareQ3 2025 declared$0.385 $0.25 (payable Jan 5, 2026; record Dec 22, 2025) Lowered
Incentive Fee on NIIQ4 2025 & Q1 202620.0% 17.5% Reduced (temporary)
Share Repurchase AuthorizationAnnounced Nov 10, 2025None disclosedUp to $15.0M open-market/negotiated buybacks under Rule 10b-18 New authorization
Supplemental Distribution FrameworkOngoingLesser of: 50% excess NII above base distribution OR amount limiting NAV decline ≤$0.15 over current+preceding quarter Unchanged methodologyMaintained
Special Distribution per ShareDeclared Oct 15, 2025—$0.035 (pay Dec 10, 2025; record Oct 31, 2025) Announced

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2025)Previous Mentions (Q2 2025)Current Period (Q3 2025)Trend
Tariffs/MacroPortfolio tariff risk analysis; <10% exposure; muted M&A; lender discipline M&A pipeline cautious; CLO issuance; yields easing Rate cuts and spread compression impacting earnings; competitive sponsor market Macro headwinds intensified
Lending SpreadsSOFR+475–575 lower mid‑market; mid‑market 450–500 Weighted yield 11.9% on debt; investor selectivity Sponsor 450–500; non‑sponsor ≥600; OID 1–2 pts Spreads compressed in sponsor; non‑sponsor premium persists
Non‑Sponsor StrategyExpanded to 13 regions; focus non‑sponsor for better risk/return Mix ~34% non‑sponsor 35% non‑sponsor; 22 originators across 13 markets Continued emphasis
Portfolio Restructuring/WorkoutMSI and Telestream restructurings targeted; American Crafts resolved Telestream reorganized to accrual MSI back to accrual; write‑downs in Alvaria/Camarillo; PlayMonster turnaround underway Progress mixed: some recovery, new markdowns
Distribution Policy$0.385 declared; evaluating future level $0.385 declared Reset to $0.25; supplemental formula reaffirmed Lower base; framework intact
Capital Actions—CLO securitization; net leverage 1.34x gross $15M buyback; repaid $40M 2025 notes; net leverage 1.07x Deleveraging; shareholder returns

Management Commentary

  • “Our results for third quarter of 2025 were disappointing and reflect the onset of interest rate cuts, continued pressure on market spreads, as well as the impact of material markdowns on some credits…” .
  • “Our Board… has taken the prudent measure to reset our quarterly‑based distribution to $0.25 per share… [and] the advisor has voluntarily agreed to reduce the incentive fee… to 17.5% for the next two fiscal quarters…” .
  • “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.” .
  • “Non‑accrual investments now represent 2.7% of the debt portfolio at fair value, an improvement compared with 4.9%… in the prior quarter.” .

Q&A Highlights

  • Dividend reset rationale: Base set at a level “we believe we can earn… reliably, even if interest rates… decline,” signaling intent for stability rather than quarter‑to‑quarter variability outside supplemental component .
  • Incentive fee reduction scope: Two quarters committed with potential extension subject to board/manager discussions and BDC performance .
  • Recoveries outlook: Most non‑accruals expected to take 12–24 months; examples of progress (PlayMonster EBITDA turned positive) but broader turnaround is multi‑year .
  • Buyback stance: Management intends to repurchase shares when materially beneficial given deep discount to NAV; $15M allocation sized to constraints yet impactful .

Estimates Context

  • Q3 2025 EPS/Primary: Actual $0.263 vs S&P Global consensus $0.290 (5 estimates); Total Investment Income: Actual $17.691M vs consensus $18.434M (5 estimates). Company missed both EPS and revenue consensus, consistent with management’s commentary on rate/spread pressure and markdowns (consensus values from S&P Global)*.

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Dividend reset to $0.25 aims to align payouts with sustainable earnings amid lower rates and compressed spreads; supplemental distributions remain possible under a strict framework .
  • Near‑term NII support from the advisor’s temporary fee reduction (17.5% vs 20%) and buybacks at >40% discount to NAV should be accretive to NII and NAV .
  • Portfolio risk improved (non‑accruals down), but markdowns in Alvaria and Camarillo indicate residual credit headwinds; turnaround/recovery timelines are multi‑quarter .
  • STRS JV remains a meaningful earnings lever (~$3.6M quarterly income; 10.3% effective yield) and capital channel as balance‑sheet capacity moderates .
  • Rate/spread dynamics favor non‑sponsor origination (SOFR+600 and above) vs competitive sponsor markets (SOFR+450–500); watch deployment pace and mix .
  • De‑leveraging (net leverage 1.07x; repayment of $40M 2025 notes) provides balance‑sheet resilience; asset coverage ratio at 180.7% .
  • Watch for potential estimate cuts near‑term given misses and lower asset yields; upside drivers include recoveries, improved deployment, and buyback execution .