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WhiteHorse Finance (NASDAQ: WHF) booked $81.6 million in new issues during the third quarter, up from $76.5 million in 2Q19. The BDC reported earnings on the 7th.

While the gross numbers went up, net volume sank to negative territory due to specific events, namely the moving of assets into WhiteHorse’s new JV fund with State Teachers Retirement System of Ohio and a heavy dose of repayments. Planet Fit Indy was among the notables, with a full repayment of $19.8 million, while CHS Therapy repaid $7.4 million; the JV received $56.4 million in assets.

Total investments at fair value ended 3Q19 at $527.5 million, down from $534.8 million in 2Q19. In the year ago period, investments totaled $509.6 million.

WhiteHorse is an affiliate of H.I.G. Capital. The BDC focuses on lower middle market companies that it defines as those with enterprise values of $50 million to $350 million. The firm targets hold levels of $4 million to $20 million.

Deal Sourcing

New relationships drove the majority of 3Q19 volume. Among the largest was an $18.8 million first-lien to Potpourri Group, a direct-to-consumer retail company owned by Northlane Capital. The debt is priced at L+825. The steep spread is more a reflection of the potholes in the sector than the credit itself.

WhiteHorse has gravitated toward a larger mix of first-lien debt over the past year. First-lien investments accounted for 80% of the outstanding portfolio at Sept. 30, compared to 64% a year ago. Second-liens are now just 12% versus 22%.

WhiteHorse is one of few BDCs that target sponsored and non-sponsored companies. The mix has shifted to a nearly even ratio, to 48% sponsored against 52% non-sponsored, compared to 34% and 66%, respectively, a year ago.

Yields

Average yields on new investments are not made available by WhiteHorse, however averages for the entire portfolio are.

First-lien yields averaged 11% in 3Q19, down from 11.3% in 2Q19, and from 11.9% a year ago. The declines match up with current market trends due to competition and federal rate cuts, but also with WhiteHorse’s shift to more first-lien debt and sponsored issuers.

Non-Accruals

The non-accrual rate dropped to 2.6% (cost basis) from 5.4% in 2Q19. The improvement was thanks to an investment in StackPath that enabled the web services company to get current on interest payments. WhiteHorse holds $15.3 million of first-lien debt due 2/2/24. StackPath is backed by ABRY Partners, which invested in June 2016.

No new names were added in 3Q19, however WhiteHorse wrote down further its $1.024 million second-lien in Grupo HIMA San Pablo to zero from 10, and the first-lien position to 85 from 93.5. The company reported poor earnings for the most recent quarter, and WhiteHorse warned it would likely mark down the first-lien in 4Q by another 5 bps, to 80.

A first-lien investment in AG Kings was marked down, again, to 65 from 75.

WhiteHorse places loans on non-accrual when principal or interest payments are past due 30 days, or when there is reasonable doubt it will be collected. —Kelly Thompson

kelly.thompson@dldeals.com

Direct Lending Deals is a new publication that lifts the curtain on private credit by giving investors and originators the latest news and analysis on terms & trends in the direct lending market. DLD focuses on sponsored transactions, the main driver of deal flow. We tap into 20-year relationships to go deeper in market, and cover all segments of direct lending including structures, fundraising, BDCs and people shaping the market. www.dldeals.com

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