10-Q 1 tm2014664d1_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

Form 10-Q

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from  ______________ to ______________

 

Commission file number: 814-00967

 

WHITEHORSE FINANCE, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware 45-4247759
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

 

1450 Brickell Avenue, 31st Floor

Miami, Florida

 33131
(Address of Principal Executive Offices) (Zip Code)

 

(305) 381-6999

(Registrant’s Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x   No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ¨    No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer x
       
Non-accelerated filer ¨ Smaller reporting company ¨
       
    Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes ¨    No x

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share WHF

The Nasdaq Stock Market LLC

(Nasdaq Global Select Market) 

6.50% Notes due 2025 WHFBZ

The Nasdaq Stock Market LLC

(Nasdaq Global Select Market) 

 

As of May 7, 2020 the Registrant had 20,546,032 shares of common stock, $0.001 par value, outstanding.

 

 

 

 

 

 

WHITEHORSE FINANCE, INC.

 

TABLE OF CONTENTS

 

      Page
Part I.   Financial Information 3
Item 1.   Financial Statements 3
    Consolidated Statements of Assets and Liabilities as of March 31, 2020 (Unaudited) and December 31, 2019 3
    Consolidated Statements of Operations for the three months ended March 31, 2020 (Unaudited) and 2019 (Unaudited) 4
    Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2020 (Unaudited) and 2019 (Unaudited) 5
    Consolidated Statements of Cash Flows for the three months ended March 31, 2020 (Unaudited) and 2019 (Unaudited) 6
    Consolidated Schedules of Investments as of March 31, 2020 (Unaudited) and December 31, 2019 7
    Notes to the Consolidated Financial Statements (Unaudited) 19
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 45
Item 3.   Quantitative and Qualitative Disclosures about Market Risk 60
Item 4.   Controls and Procedures 60
Part II.   Other Information 61
Item 1.   Legal Proceedings 61
Item 1A.   Risk Factors 61
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds 64
Item 3.   Defaults Upon Senior Securities 64
Item 4.   Mine Safety Disclosures 64
Item 5.   Other Information 64
Item 6.   Exhibits 64

 

2 

 

 

Part I. Financial Information

 

Item 1. Financial Statements

 

WhiteHorse Finance, Inc.

Consolidated Statements of Assets and Liabilities

(in thousands, except share and per share data)

 

   March 31, 2020   December 31, 2019 
    (Unaudited)      
Assets          
Investments, at fair value          
Non-controlled/non-affiliate company investments  $507,384   $546,744 
Non-controlled affiliate company investments   7,650    9,651 
Controlled affiliate company investments   42,081    33,293 
Total investments, at fair value (amortized cost $593,304 and $597,725, respectively)   557,115    589,688 
Cash and cash equivalents   16,452    4,294 
Restricted cash and cash equivalents   11,497    23,252 
Restricted foreign currency (cost of $123)   116    — 
Interest and dividend receivable   6,340    6,010 
Amounts receivable on unsettled investment transactions   74    360 
Prepaid expenses and other receivables   354    7,620 
Total assets  $591,948   $631,224 
           
Liabilities          
Debt  $291,129   $298,924 
Distributions payable   7,294    7,294 
Management and incentive fees payable   6,191    8,290 
Interest payable   1,127    1,674 
Accounts payable and accrued expenses   1,340    1,944 
Amounts payable on unsettled investment transactions   28    — 
Unrealized depreciation on foreign currency forward contracts   1    — 
Advances received from unfunded credit facilities   133    143 
Total liabilities   307,243    318,269 
           
Commitments and contingencies (See Note 8)          
           
Net assets          
Common stock, 20,546,032 and 20,546,032 shares issued and outstanding, par value $0.001 per share, respectively, and 100,000,000 authorized   21    21 
Paid-in capital in excess of par   300,744    300,744 
Accumulated earnings (deficit)   (16,060)   12,190 
Total net assets   284,705    312,955 
Total liabilities and total net assets  $591,948   $631,224 
           
Number of shares outstanding   20,546,032    20,546,032 
Net asset value per share  $13.86   $15.23 

 

See notes to the consolidated financial statements

 

3 

 

 

WhiteHorse Finance, Inc.

Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)

 

   Three months ended March 31, 
   2020   2019 
Investment income          
From non-controlled/non-affiliate company investments          
Interest income  $13,140   $14,492 
Fee income   291    1,157 
Dividend income    49    — 
From non-controlled affiliate company investments          
Dividend income   275    275 
From controlled affiliate company investments          
Interest income   625    — 
Dividend income   153    — 
Total investment income   14,533    15,924 
           
Expenses          
Interest expense   3,668    3,073 
Base management fees   3,092    2,589 
Performance-based incentive fees   441    1,751 
Administrative service fees   171    158 
General and administrative expenses   881    682 
Total expenses, before fees waived   8,253    8,253 
Base management fee waived   —    (177)
Total expenses, net of fees waived   8,253    8,076 
Net investment income before excise tax   6,280    7,848 
  Excise tax   178    237 
Net investment income after excise tax   6,102    7,611 
           
Realized and unrealized gains (losses) on investments and foreign currency transactions          
Net realized gains (losses)          
Non-controlled/non-affiliate company investments   510    (2,018)
Non-controlled affiliate company investments   —    — 
Foreign currency transactions   (3)   — 
Foreign currency forward contracts   6    — 
Net realized gains (losses)   513    (2,018)
Net change in unrealized appreciation (depreciation)          
Non-controlled/non-affiliate company investments   (22,196)   1,988 
Non-controlled affiliate company investments   (2,001)   (576)
Controlled affiliate company investments   (3,953)   — 
Translation of assets and liabilities in foreign currencies   580      
Foreign currency forward contracts   (1)   — 
Net change in unrealized appreciation (depreciation)   (27,571)   1,412 
Net realized and unrealized losses on investments   (27,058)   (606)
Net increase (decrease) in net assets resulting from operations  $(20,956)  $7,005 
           
Per Common Share Data          
Basic and diluted earnings (loss) per common share  $(1.01)  $0.34 
Dividends and distributions declared per common share  $0.36   $0.36 
Basic and diluted weighted average common shares outstanding   20,546,032    20,546,032 

  

See notes to the consolidated financial statements

 

4 

 

 

WhiteHorse Finance, Inc.

Consolidated Statements of Changes in Net Assets (Unaudited)

(in thousands, except share and per share data)

 

   Common Stock  

Paid-in

Capital in

Excess of

  

Accumulated

Undistributed

(Overdistributed)

   Total Net 
   Shares   Par amount   Par   Earnings   Assets 
Balance at December 31, 2018   20,546,032   $21   $301,557   $13,718   $315,296 
Net increase in net assets resulting from operations:                         
Net investment income after excise tax   -    -    -    7,611    7,611 
Net realized gains (losses) on investments   -    -    -    (2,018)   (2,018)
Net change in unrealized appreciation (depreciation) on investments   -    -    -    1,412    1,412 
Distributions declared   -    -    -    (7,294)   (7,294)
Balance at March 31, 2019   20,546,032   $21   $301,557   $13,429   $315,007 
                          
Balance at December 31, 2019   20,546,032   $21   $300,744   $12,190   $312,955 
Net increase in net assets resulting from operations:                         
Net investment income after excise tax   -    -    -    6,102    6,102 
Net realized gains (losses) on investments   -    -    -    513    513 
Net change in unrealized appreciation (depreciation) on investments   -    -    -    (27,571)   (27,571)
Distributions declared   -    -    -    (7,294)   (7,294)
Balance at March 31, 2020   20,546,032    21    300,744    (16,060)   284,705 

 

See notes to the consolidated financial statements

 

5 

 

 

WhiteHorse Finance, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

 

  

Three months ended

March 31,

 
   2020   2019 
Cash flows from operating activities          
Net increase (decrease) in net assets resulting from operations  $(20,956)  $7,005 
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by operating activities:          
Paid-in-kind income   (308)   (658)
Net realized gains (losses) on investments     (510)   2,018 
Net unrealized (appreciation) depreciation on investments   28,150    (1,412)
Net unrealized appreciation on translation of assets and liabilities in foreign currencies   (580)   - 
Net unrealized depreciation on foreign currency forward contracts   1      
Accretion of discount   (684)   (1,328)
Amortization of deferred financing costs   256    246 
Acquisition of investments   (27,640)   (49,699)
Proceeds from principal payments and sales of portfolio investments   17,847    52,258 
Proceeds for sales of portfolio investments to STRS JV   15,717    - 
Net changes in operating assets and liabilities:          
Interest and dividend receivable   (330)   (1,225)
Prepaid expenses and other receivables   7,266    (8)
Amounts receivable on unsettled investment transactions   286    (4,201)
Amounts payable on unsettled investment transactions   28    4,648 
Management and incentive fees payable   (2,099)   4,163 
Accounts payable and accrued expenses   (417)   (804)
Interest payable   (547)   (579)
Advances received from unfunded credit facilities   (10)   34 
Net cash provided by operating activities   15,470    10,458 
           
Cash flows from financing activities          
Borrowings   44,395    7,300 
Repayments of debt   (52,045)   (7,300)
Deferred financing costs   -    (3)
Distributions paid to common stockholders, net of distributions reinvested   (7,294)   (7,294)
Net cash used in financing activities   (14,944)   (7,297)
Effect of exchange rate changes on cash   (7)    - 
Net change in cash, cash equivalents and restricted cash   519    3,161 
Cash, cash equivalents and restricted cash at beginning of period   27,546    33,732 
Cash, cash equivalents and restricted cash at end of period  $28,065   $36,893 
           
Supplemental disclosure of cash flow information:          
Interest paid  $3,995   $3,405 
Non-cash exchanges of investments   12,741    - 

 

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated statements of assets and liabilities that sum to the total of the same amounts presented in the consolidated statements of cash flows:

 

   March 31, 
   2020   2019 
Cash and cash equivalents  $16,452   $30,707 
Restricted cash and restricted foreign currency   11,613    6,186 
           
Total cash, cash equivalents and restricted cash presented in consolidated statements of cash flows  $28,065   $36,893 

 

See notes to the consolidated financial statements

 

6 

 

 

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited)

March 31, 2020

(in thousands)

 

Investment Type(1)  Spread
Above
Index(2)		  Interest
Rate(3)		 

Acquisition

Date(10)

  Maturity
Date		  Principal/
Share
Amount		   Amortized
Cost		   Fair
Value(11)		   Fair Value
As A
Percentage
of Net
Assets		 
North America                                
Debt Investments                                
Advertising                                
Fluent, LLC                                
First Lien Secured Term Loan  L+ 7.00%  7.99%  03/26/18  03/27/23   8,801   $8,801   $8,713    3.06%
   (0.50% Floor)                             
Agricultural & Farm Machinery                                
Bad Boy Mowers Acquisition, LLC                                
First Lien Secured Term Loan  L+ 5.75%  6.75%  12/19/19  12/06/25   10,359    10,061    9,530    3.35 
   (1.00% Floor)                             
Air Freight & Logistics                                
Access USA Shipping, LLC                                
First Lien Secured Term Loan  L+ 8.00%  9.00%  02/08/19  02/08/24   5,578    5,514    5,467    1.92 
   (1.00% Floor)                             
Application Software                                
Newscycle Solutions, Inc.                                
First Lien Secured Term Loan  L+ 7.00%  8.45%  06/14/19  12/29/22   5,195    5,115    4,832    1.70 
   (1.00% Floor)                             
First Lien Secured Revolving Loan  L+ 7.00%  8.34%  06/14/19  12/29/22   301    298    280    0.10 
   (1.00% Floor)                             
                5,496    5,413    5,112    1.80 
Automotive Retail                                
Team Car Care Holdings, LLC                                
First Lien Secured Term Loan(12)  base rate+ 7.99%  9.88%  02/26/18  02/23/23   16,607    16,390    15,942    5.60 
   (1.00% Floor)                             
BW Gas & Convenience Holdings, LLC                                
First Lien Secured Term Loan  L+ 6.25%  7.18%  11/15/19  11/18/24   8,394    8,079    7,848    2.76 
   (0.00% Floor)                             
                25,001    24,469    23,790    8.36 
Broadcasting                                
Alpha Media, LLC                                
First Lien Secured Term Loan  L+ 6.00%  7.45%  08/14/18  02/25/22   5,330    5,237    5,090    1.79 
   (1.50% Floor)                             
Rural Media Group, Inc.                                
First Lien Secured Term Loan  L+ 7.66%  9.44%  12/29/17  12/29/22   7,133    7,057    6,741    2.37 
   (1.00% Floor)                             
                12,463    12,294    11,831    4.16 

 

See notes to the consolidated financial statements

 

7 

 

 

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited) - (continued)

March 31, 2020

(in thousands)

 

Investment Type(1)  Spread
Above
Index(2)		  Interest
Rate(3)		 

Acquisition

Date(10)

  Maturity
Date		  Principal/
Share
Amount		   Amortized
Cost		   Fair
Value(11)		   Fair Value
As A
Percentage
of Net
Assets		 
Cable & Satellite                                
Bulk Midco, LLC                                
First Lien Secured Term Loan  L+ 7.27%  9.19%  06/08/18  06/08/23   15,000   $14,857   $13,950    4.90 
   (1.00% Floor)                             
Communications Equipment                                
Sorenson Communications, LLC                                
First Lien Secured Term Loan  L+ 6.50%  7.95%  03/15/19  04/29/24   4,744    4,628    4,489    1.58 
   (0.00% Floor)                             
Data Processing & Outsourced Services                                
FPT Operating Company, LLC/                                
TLabs Operating Company, LLC                                
First Lien Secured Term Loan  L+ 8.25%  9.83%  12/23/16  06/07/24   24,751    24,542    23,266    8.17 
   (1.00% Floor)                             
Geo Logic Systems Ltd.(5)                                
First Lien Secured Term Loan(13)  C +6.25%  7.52%  12/19/19  12/19/24   6,838    5,115    4,420    1.55 
   (1.00% Floor)                             
First Lien Secured Revolving Loan(7)(13)  C +6.25%  7.52%  12/19/19  12/19/24   -    -    (17)   (0.01)
   (1.00% Floor)                             
                31,589    29,657    27,669    9.71 
Department Stores                                
Mills Fleet Farm Group, LLC                                
First Lien Secured Term Loan  L+ 6.25%  7.84%  10/24/18  10/24/24   14,874    14,582    13,387    4.70 
   (1.00% Floor)  (0.75% PIK)                          
Distributors                                
Crown Brands, LLC                                
First Lien Secured Term Loan  L+ 8.00%  9.50%  01/28/19  01/25/24   5,727    5,617    5,206    1.83 
   (1.50% Floor)                             
First Lien Secured Delayed Draw Loan(7)  L+ 8.00%  9.50%  01/28/19  01/25/24   -    -    (61)   (0.02)
   (1.50% Floor)                             
                5,727    5,617    5,145    1.81 
Diversified Chemicals                                
Sklar Holdings, Inc.                                
First Lien Secured Term Loan  L+ 7.00%  9.00%  11/13/19  05/13/23   8,903    8,722    8,547    3.00 
   (1.00% Floor)  (1.00% PIK)                          
First Lien Secured Delayed Draw Loan(7)  L+ 7.00%  9.00%  11/13/19  05/13/20   -    -    (61)   (0.02)
   (1.00% Floor)  (1.00% PIK)                          
                8,903    8,722    8,486    2.98 
Diversified Support Services                                
ImageOne Industries, LLC                                
First Lien Secured Term Loan  L+ 10.00%  11.00%  01/11/18  01/11/23   7,239    7,077    6,805    2.39 
   (1.00% Floor)  (4.00% PIK)                          
First Lien Secured Revolving Loan(4)(7)  L+ 10.00%  11.45%  07/22/19  12/12/22   135    135    127    0.04 
   (1.00% Floor)  (4.00% PIK)                          
NNA Services, LLC                                
First Lien Secured Term Loan  L+ 7.00%  8.45%  10/16/18  10/16/23   9,823    9,684    9,626    3.38 
   (1.50% Floor)                             
                17,197    16,896    16,558    5.81 

 

See notes to the consolidated financial statements

 

8 

 

 

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited) - (continued)

March 31, 2020

(in thousands)

 

Investment Type(1)  Spread
Above
Index(2)		  Interest
Rate(3)		 

Acquisition

Date(10)

  Maturity
Date		  Principal/
Share
Amount		   Amortized
Cost		   Fair
Value(11)		   Fair Value
As A
Percentage
of Net
Assets		 
Education Services                                
EducationDynamics, LLC                                
First Lien Secured Term Loan  L+ 7.50%  9.15%  11/26/19  11/26/24   11,603   $11,387   $11,487    4.03 
   (1.50% Floor)                             
Food Retail                                
AG Kings Holdings, Inc.                                
First Lien Secured Term Loan(8)  P+ 11.00%  14.25%  08/10/16  08/10/21   13,250    12,837    6,625    2.33 
   (0.75% Floor)  (2.00% PIK)                          
Health Care Facilities                                
Grupo HIMA San Pablo, Inc.                                
First Lien Secured Term Loan A(4)  L+ 9.00%  10.76%  05/15/19  04/30/19   3,855    3,855    2,891    1.02 
                                
First Lien Secured Term Loan B(4)  L+ 9.00%  10.76%  02/01/13  04/30/19   13,511    13,511    10,133    3.56 
   (1.50% Floor)                             
Second Lien Secured Term Loan(4)(8)  N/A  15.75%  02/01/13  07/31/18   1,028    1,024    -    - 
      (2.00% PIK)                          
                18,394    18,390    13,024    4.58 
Health Care Services                                
CHS Therapy, LLC                                
First Lien Secured Term Loan A  L+ 8.50%  10.00%  06/14/19  06/14/24   7,566    7,446    7,302    2.56 
   (1.50% Floor)                             
Lab Logistics, LLC                                
First Lien Secured Term Loan  L+ 6.50%  7.56%  10/16/19  09/25/23   106    106    103    0.04 
   (1.00% Floor)                             
First Lien Secured Delayed Draw Loan(7)  L+ 6.50%  8.44%  10/16/19  09/25/23   5,276    5,241    5,104    1.79 
   (1.00% Floor)                             
PMA Holdco, LLC                                
First Lien Secured Term Loan  L+ 10.00%  11.45%  06/28/18  06/28/23   12,902    12,684    12,708    4.46 
   (1.00% Floor)  (2.00% PIK)                          
                25,850    25,477    25,217    8.85 
Home Furnishings                                
Sure Fit Home Products, LLC                                
First Lien Secured Term Loan  L+ 9.75%  11.21%  10/26/18  07/13/22   5,250    5,185    4,883    1.71 
   (1.00% Floor)                             
Human Resources & Employment Services                                
Pluto Acquisition Topco, LLC                                
First Lien Secured Term Loan  L+ 6.31%  8.08%  01/31/19  01/31/24   12,291    12,102    12,045    4.23 
   (1.50% Floor)                             
Interactive Media & Services                                
What If Media Group, LLC                                
First Lien Secured Term Loan  L+ 6.50%  7.50%  10/02/19  10/02/24   12,838    12,606    12,581    4.42 
   (1.00% Floor)                             
Internet & Direct Marketing Retail                                
Potpourri Group, Inc.                                
First Lien Secured Term Loan  L+ 8.25%  9.77%  07/03/19  07/03/24   18,644    18,289    17,898    6.29 
   (1.50% Floor)                             
Investment Banking & Brokerage                                
Arcole Acquisition Corp(5)                                
First Lien Secured Term Loan A (4)(8)  L+ 10.25%  11.86%  11/29/18  11/30/23   5,231    5,159    3,923    1.38 
   (1.00% Floor)                             
First Lien Secured Term Loan B (4)(8)  L+ 16.50%  18.11%  11/29/18  11/30/23   1,812    1,785    1,538    0.54 
   (1.00% Floor)  (1.50% PIK)                          
JVMC Holdings Corp. (f/k/a RJO Holdings Corp)                                
First Lien Secured Term Loan  L+ 6.50%  7.50%  02/28/19  02/28/24   15,538    15,416    15,227    5.35 
   (1.00% Floor)                             
                22,581    22,360    20,688    7.27 

 

See notes to the consolidated financial statements

 

9 

 

 

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited) - (continued)

March 31, 2020

(in thousands)

 

Investment Type(1)  Spread
Above
Index(2)		  Interest
Rate(3)		 

Acquisition

Date(10)

  Maturity
Date		  Principal/
Share
Amount		   Amortized
Cost		   Fair
Value(11)		   Fair Value
As A
Percentage
of Net
Assets		 
IT Consulting & Other Services                                
AST-Applications Software Technology LLC                                
First Lien Secured Term Loan  L+ 8.00%  9.00%  01/10/17  01/10/23   4,226   $4,181   $4,141    1.45 
   (1.00% Floor)  (1.00% PIK)                          
Leisure Facilities                                
Honors Holdings, LLC                                
First Lien Secured Term Loan  L+ 6.83%  7.83%  09/06/19  09/06/24   9,405    9,272    8,118    2.85 
   (1.00% Floor)                             
First Lien Secured Delayed Draw Loan  L+ 6.50%  8.44%  09/06/19  09/06/24   4,662    4,619    4,023    1.41 
   (1.00% Floor)                             
Lift Brands, Inc.                                
First Lien Secured Term Loan(8)  L+ 8.00%  9.45%  04/16/18  04/16/23   10,552    10,398    8,425    2.96 
   (1.00% Floor)  (1.00% PIK)                          
First Lien Secured Revolving Loan(7)(8)  P+ 6.00%  9.25%  04/16/18  04/16/23   376    371    229    0.08 
   (1.99% Floor)                             
                24,995    24,660    20,795    7.30 
Office Services & Supplies                                
Empire Office, Inc.                                
First Lien Secured Term Loan  L+ 6.75%  8.25%  04/12/19  04/12/24   12,065    11,871    11,703    4.11 
   (1.50% Floor)                             
Other Diversified Financial Services                                
Sigue Corporation                                
Second Lien Secured Term Loan(4)  L+ 10.55%  11.82%  12/27/13  04/30/20   24,793    24,793    24,297    8.53 
   (1.00% Floor)                             
Packaged Foods & Meats                                
Lenny & Larry's, LLC                                
First Lien Secured Term Loan  L+ 7.95%  8.95%  05/15/18  05/15/23   12,282    12,131    11,496    4.04 
   (1.00% Floor)  (1.18% PIK)                          
Property & Casualty Insurance                                
Policy Services Company, LLC(5)                                
First Lien Secured Term Loan  L+ 6.25%  7.32%  03/06/20  05/31/24   6,476    6,155    6,281    2.21 
   (1.00% Floor)                             
Research & Consulting Services                                
Nelson Worldwide, LLC                                
First Lien Secured Term Loan  L+ 9.25%  11.10%  01/09/18  01/09/23   13,381    13,195    13,046    4.58 
   (1.00% Floor)                             
ALM Media, LLC                                
First Lien Secured Term Loan  L+ 6.50%  7.95%  11/25/19  11/25/24   15,553    15,264    14,668    5.15 
   (1.00% Floor)                             
                28,934    28,459    27,714    9.73 
Restaurants                                
LS GFG Holdings Inc.                                
First Lien Secured Term Loan  L+ 6.00%  6.99%  11/30/18  11/19/25   10,211    9,963    8,577    3.01 
   (0.00% Floor)                             
Specialized Consumer Services                                
True Blue Car Wash, LLC                                
First Lien Secured Term Loan  L+ 8.12%  9.12%  10/17/19  10/17/24   4,433    4,353    4,300    1.51 
   (1.00% Floor)                             
First Lien Secured Delayed Draw Loan(7)  L+ 8.12%  9.12%  10/17/19  10/17/24   672    665    623  0.22 
   (1.00% Floor)            5,105    5,018    4,923    1.73 

 

See notes to the consolidated financial statements

 

10 

 

 

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited) - (continued)

March 31, 2020

(in thousands)

 

Investment Type(1)  Spread
Above
Index(2)		  Interest
Rate(3)		  Acquisition
Date(10)		  Maturity
Date		  Principal/
Share
Amount		   Amortized
Cost		   Fair
Value(11)		   Fair Value
As A
Percentage
of Net
Assets		 
Specialty Chemicals                                
Flexitallic Group SAS                                
First Lien Secured Term Loan  L+ 6.50%  7.57%  10/28/19  10/29/26   11,721   $11,443   $10,549    3.71 
   (1.00% Floor)                             
Specialized Finance                                
Golden Pear Funding Assetco, LLC(5)                                
Second Lien Secured Term Loan  L+ 10.50%  12.08%  09/20/18  03/20/24   17,500   17,247   17,238    6.05 
   (1.00% Floor)                             
Oasis Legal Finance, LLC(5)                                
Second Lien Secured Term Loan  L+ 10.75%  12.33%  09/09/16  03/09/22   12,500   12,412   12,250    4.30 
   (1.00% Floor)                             
WHF STRS Ohio Senior Loan Fund LLC                                
Subordinated Note(4)(5)(7)(9)(14)  L+ 6.50%  7.49%  07/19/19  N/A   36,537   36,537   36,537    12.83 
                                 
                66,537    66,196    66,025    23.18 
Systems Software                                
Vero Parent, Inc.                                
First Lien Secured Term Loan  L+ 6.00%  7.58%  11/06/19  08/16/24   16,510   14,959   14,034    4.93 
   (1.00% Floor)                             
                                 
Technology Hardware, Storage & Peripherals                                
PS Lightwave, Inc.                                
First Lien Secured Term Loan  L+ 6.75%  8.25%  03/09/20  03/10/25   8,005   7,847   7,846    2.76 
   (1.50% Floor)                             
First Lien Secured Delayed Draw Loan(7)  L+ 6.75%  8.25%  03/09/20  03/10/25   -   -   -   - 
   (1.50% Floor)                             
Source Code Midco, LLC                                
First Lien Secured Term Loan  L+ 8.25%  9.69%  05/04/18  05/04/23   23,255    22,841    22,790    8.00 
   (1.00% Floor)                             
               31,260    30,688    30,636   10.76 
Trading Companies & Distributors                                
Vessco Holdings, LLC                                
First Lien Secured Term Loan  L+ 6.50%  8.20%  08/22/19  08/22/24   18,947    18,615    18,568    6.52 
   (1.50% Floor)                             
                                 
Total Debt Investments               580,495    569,276    538,314    189.06 
                                 
Equity Investments                                
Diversified Support Services                                
Quest Events, LLC Preferred Units(4)  N/A  N/A  12/28/18  12/08/25   317   317   171    0.06 
ImageOne Industries, LLC Common A Units(4)  N/A  N/A  09/20/19  N/A   149   -   45    0.02 
                466    317    216    0.08 
Health Care Services                                
Lab Logistics Preferred Units(4)  N/A  N/A  10/29/19  N/A   2   857   834    0.29 
PMA Holdco, LLC Warrants(4)  N/A  N/A  06/28/18  06/28/28   8   -   454    0.16 
                10    857    1,288    0.45 
Other Diversified Financial Services                                
RCS Creditor Trust Class B Units(4)(6)  N/A  N/A  10/01/17  N/A   143   -   -    - 
                                 
SFS Global Holding Company Warrants(4)  N/A  N/A  06/28/18  12/28/25   -   -   -    - 
                                 
Sigue Corporation Warrants(4)  N/A  N/A  06/28/18  12/28/25   22   2,890   3,277    1.15 
                165    2,890    3,277    1.15 
Specialized Finance                                
NMFC Senior Loan Program I LLC Units (4)(5)(6)  N/A  N/A  08/13/14  08/31/21   10,000   10,030   7,650    2.69 
                                 
WHF STRS Ohio Senior Loan Fund LLC(4)(5)(7)(14)  N/A  N/A  07/19/19  N/A  9,134   9,134   5,544   1.95 
                19,134    19,164    13,194    4.64 
Trading Companies & Distributors                                
Vessco Holdings, LLC(4)  N/A  N/A  08/22/19  N/A   489   800   757    0.27 
                                 
Trucking                                
Europcar Mobility Group(4)(5)  N/A  N/A  10/31/19  12/31/22   -   -   69    0.02 
                                 
Total Equity Investments               20,264    24,028    18,801    6.61 
                                 
Total Investments               600,759   $593,304   $557,115    195.67%

 

A summary of outstanding financial instruments at March 31, 2020 is as follows:

 

Forward Currency Contracts

 

                  
Counterparty  Currency to be sold  Currency to be purchased  Settlement date 

Unrealized

appreciation ($)

   Unrealized depreciation ($) 
JP Morgan Chase Bank  C$ 188  CAD  $ 133 USD  06/30/2020  $                -   $                (1)
            $-   $(1)

 

See notes to the consolidated financial statements

 

11 

 

 

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited) - (continued)

March 31, 2020

(in thousands)

 

(1)Except as otherwise noted, all investments are non-controlled/non-affiliate investments as defined by the Investment Company Act of 1940, as amended (the “1940 Act”), and provide collateral for the Company’s credit facility.

 

(2)The investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”), which resets monthly, quarterly or semiannually, the Canadian Dollar Offered Rate (“CDOR” or “C”) or the U.S. Prime Rate as published by the Wall Street Journal (“Prime” or “P”). The one, three and six-month LIBOR were 1.0%, 1.5% and 1.2%, respectively, as of March 31, 2020. The Prime was 3.3% as of March 31, 2020. The CDOR was 1.2% as of March 31, 2020.

 

(3)The interest rate is the “all-in-rate” including the current index and spread, the fixed rate, and the payment-in-kind (“PIK”) interest rate, as the case may be.

 

(4)The investment or a portion of the investment does not provide collateral for the Company’s credit facility.

 

(5)Not a qualifying asset under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of total assets. Qualifying assets represented 84% of total assets as of the date of the consolidated schedule of investments.

 

(6)Investment is a non-controlled/affiliate investment as defined by the 1940 Act.

 

(7)The investment has an unfunded commitment in addition to any amounts presented in the consolidated schedule of investments as of March 31, 2020. See Note 8.

 

(8)The investment is on non-accrual status.

 

(9)Security is perpetual with no defined maturity date.

 

(10)Except as otherwise noted, all of the Company’s portfolio company investments, which as of the date of the consolidated schedule of investments represented 196% of the Company’s net assets or 96% of the Company’s total assets, are subject to legal restrictions on sales.

 

(11)The fair value of each investment was determined using significant unobservable inputs. See Note 5.

 

(12)The investment was comprised of two contracts, which were indexed to different base rates, L and P, respectively. The Spread Above Index and Interest Rate presented represent the weighted average of both contracts.

 

(13)Principal amount is denominated in Canadian dollars.

 

(14)Investment is a controlled affiliate investment as defined by the 1940 Act. On January 14, 2019, the Company entered into an agreement (as described in Note 4 hereto) with State Teachers Retirement System of Ohio, a public pension fund established under Ohio law (“STRS Ohio”), to create WHF STRS Ohio Senior Loan Fund, LLC (“STRS JV”), a joint venture, which invests primarily in senior secured first and second lien term loans.

 

 

See notes to consolidated financial statements

 

12 

 

 

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments

December 31, 2019

(in thousands)

  

Investment Type(1)  Spread
Above
Index(2)		 

Interest
Rate(3)

 

Acquisition
Date(10)

  Maturity
Date		  Principal/
Share
Amount		   Amortized
Cost		   Fair
Value(11)		  

Fair Value
As A
Percentage
of Net
Assets

 
North America                                
Debt Investments                                
Advertising                                
Fluent, LLC                                
First Lien Secured Term Loan  L+ 7.00%  8.80%  03/26/18  03/26/24   9,337   $9,337   $9,337    2.98%
   (0.50% Floor)                             
Agricultural & Farm Machinery                                
Bad Boy Mowers Acquisition, LLC                                
First Lien Secured Term Loan  L+ 5.75%  7.38%  12/19/19  12/06/25   10,385    10,073    10,073    3.22 
   (1.00% Floor)                             
Air Freight & Logistics                                
Access USA Shipping, LLC                                
First Lien Secured Term Loan  L+ 8.00%  9.80%  02/08/19  02/08/24   5,651    5,581    5,600    1.79 
   (1.00% Floor)                             
Application Software                                
Newscycle Solutions, Inc.                                
First Lien Secured Term Loan  L+ 7.00%  8.80%  06/14/19  12/29/22   5,263    5,174    5,136    1.64 
   (1.00% Floor)                             
First Lien Secured Revolving  L+ 6.50%  9.77%  06/14/19  12/29/22   265    262    259    0.08 
Loan(7)  (1.00% Floor)                             
                5,528    5,436    5,395    1.72 
Automotive Retail                                
Team Car Care Holdings, LLC                                
First Lien Secured Term Loan(12)  base rate+ 7.99%  10.05%  02/26/18  02/26/23   16,722    16,485    16,722    5.34 
   (1.00% Floor)                             
BW Gas & Convenience Holdings, LLC                                
First Lien Secured Term Loan  L+ 6.25%  8.00%  11/15/19  11/18/24   8,500    8,164    8,168    2.61 
   (1.00% Floor)                             
                25,222    24,649    24,890    7.95 
Broadcasting                                
Alpha Media, LLC                                
First Lien Secured Term Loan  L+ 6.00%  7.87%  08/14/18  02/25/22   5,405    5,299    5,405    1.73 
   (1.50% Floor)                             
Rural Media Group, Inc.                                
First Lien Secured Term Loan  L+ 7.71%  9.64%  12/29/17  12/29/22   7,133    7,050    6,991    2.23 
   (1.00% Floor)                             
                12,538    12,349    12,396    3.96 
Cable & Satellite                                
Bulk Midco, LLC                                
First Lien Secured Term Loan  P+ 6.27%  11.02%  06/08/18  06/08/23   15,000    14,845    14,250    4.45 
   (2.25% Floor)                             
Communications Equipment                                
Sorenson Communications, LLC                                
First Lien Secured Term Loan  L+ 6.50%  8.44%  03/15/19  04/29/24   4,875    4,749    4,857    1.55 
   (0.00% Floor)                             
Data Processing & Outsourced Services                                
FPT Operating Company, LLC/ TLabs                                
Operating Company, LLC                                
First Lien Secured Term Loan  L+ 8.25%  9.94%  06/07/19  06/07/24   24,907    24,685    24,284    7.76 
   (1.00% Floor)                             
Geo Logic Systems Ltd.(5)                                
First Lien Secured Term Loan(13)  C+ 6.25%  8.26%  12/19/19  12/19/24   21,718    16,231    16,415    5.25 
   (1.00% Floor)                             
First Lien Secured Revolving  C+ 6.25%                             
Loan(7)(13)  (1.00% Floor)  8.26%  12/19/19  12/19/24   -    -    -    - 
                46,625    40,916    40,699    13.01 

 

See notes to consolidated financial statements

 

13 

 

 

WHITEHORSE FINANCE, INC. 

CONSOLIDATED SCHEDULE OF INVESTMENTS - (Continued)

December 31, 2019

(in thousands)

 

Investment Type(1)  Spread Above Index(2)  Interest Rate(3)  Acquisition Date(10)  Maturity Date 

Principal/

Share Amount

   Amortized Cost  

Fair

Value(11)

   Fair Value As A Percentage of Net Assets 
Department Stores                                
Mills Fleet Farm Group, LLC                                
First Lien Secured Term Loan  L+ 7.00%  9.04%  10/24/18  10/24/24   14,883   $14,591   $13,544    4.33%
   (1.00% Floor)  (0.75% PIK)                          
Distributors                                
Crown Brands, LLC                                
First Lien Secured Term Loan  L+ 8.00%  9.80%  01/28/19  01/25/24   5,727    5,610    5,596    1.79 
   (1.50% Floor)                             
First Lien Secured Delayed Draw  L+ 8.00%  9.80%  01/28/19  01/25/24   —    —    (2)   — 
Loan(7)  (1.50% Floor)                             
                5,727    5,610    5,594    1.79 
Diversified Chemicals                                
Sklar Holdings, Inc.                                
First Lien Secured Term Loan  L+ 6.00%  7.99%  11/13/19  05/13/23   8,902    8,731    8,731    2.79 
   (1.00% Floor)  (1.00% PIK)                          
First Lien Secured Revolving  L+ 6.00%  7.99%  11/13/19  05/13/20   —    —    2    — 
Loan(7)  (1.00% Floor)  (1.00% PIK)                          
                8,902    8,731    8,733    2.79 
Diversified Support Services                                
ImageOne Industries, LLC                                
First Lien Secured Term Loan  L+ 10.00%  11.80%  01/11/18  01/11/23   7,261    7,097    6,898    2.20 
   (1.00% Floor)  (4.00% PIK)                          
First Lien Secured Revolving Loan(4)  L+ 10.00%  11.94%  07/22/19  12/12/22   525    525    525    0.17 
   (1.00% Floor)  (4.00% PIK)                          
NNA Services, LLC                                
First Lien Secured Term Loan  L+ 7.00%  8.84%  10/16/18  10/16/23   9,889    9,739    9,889    3.16 
   (1.50% Floor)                             
                17,675    17,361    17,312    5.53 
Education Services                                
                                 
EducationDynamics, LLC                                
First Lien Secured Term Loan  L+ 7.50%  9.42%  11/26/19  11/26/24   11,750    11,520    11,519    3.68 
   (1.00% Floor)                             
Environmental & Facilities Services                                
WH Lessor Corp.                                
First Lien Secured Term Loan  L+ 6.00%  7.79%  12/26/19  12/26/24   6,458    6,330    6,329    2.02 
   (1.00% Floor)                             
First Lien Secured Revolving  L+ 6.00%  7.79%  12/26/19  12/26/24   —    —    —    — 
Loan(7)  (1.00% Floor)                             
                6,458    6,330    6,329    2.02 
Food Retail                                
AG Kings Holdings, Inc.                                
First Lien Secured Term Loan(8)  P+ 11.00%  15.75%  08/10/16  08/10/21   13,250    12,837    7,668    2.45 
   (2.25% Floor)  (2.00% PIK)                          
Health Care Facilities                                
Grupo HIMA San Pablo, Inc.                                
First Lien Secured Term Loan A  L+ 9.00%  10.94%  05/15/19  04/30/19   3,855    3,855    3,276    1.05 
   (1.50% Floor)                             
First Lien Secured Term Loan B  L+ 9.00%  10.94%  02/01/13  04/30/19   13,511    13,511    11,484    3.67 
   (1.50% Floor)                             
Second Lien Secured Term  N/A  15.75%  02/01/13  07/31/18   1,028    1,024    —    — 
Loan(8)     (2.00% PIK)                          
                18,394    18,390    14,760    4.72 

 

See notes to consolidated financial statements

 

14 

 

 

WHITEHORSE FINANCE, INC. 

CONSOLIDATED SCHEDULE OF INVESTMENTS - (Continued)

December 31, 2019

(in thousands)

 

Investment Type(1)  Spread Above Index(2)  Interest Rate(3)  Acquisition Date(10)  Maturity Date 

Principal/

Share Amount

   Amortized Cost  

Fair

Value(11)

   Fair Value As A Percentage of Net Assets 
Health Care Services                                
CHS Therapy, LLC                                
First Lien Secured Term Loan A  L+ 8.50%  10.44%  06/14/19  06/14/24   7,615   $7,486   $7,615    2.43%
   (1.50% Floor)                             
Lab Logistics, LLC                                
First Lien Secured Term Loan  L+ 6.50%  8.56%  10/16/19  09/25/23   107    106    106    0.03 
   (1.00% Floor)                             
First Lien Secured Delayed Draw  L+ 6.50%                             
Loan(7)  (1.00% Floor)  8.44%  10/16/19  09/25/23   5,289    5,251    5,251    1.68 
PMA Holdco, LLC                                
First Lien Secured Term Loan  L+ 7.75%  9.69%  06/28/18  06/28/23   12,784    12,595    12,720    4.06 
   (1.00% Floor)  (2.00% PIK)                          
                25,795    25,438    25,692    8.20 
Home Furnishings                                
Sure Fit Home Products, LLC                                
First Lien Secured Term Loan  L+ 9.75%  11.70%  10/26/18  07/13/22   5,250    5,178    5,040    1.61 
   (1.00% Floor)                             
Human Resources & Employment Services                                
Pluto Acquisition Topco, LLC                                
First Lien Secured Term Loan  L+ 6.31%  8.23%  01/31/19  01/31/24   12,354    12,152    12,354    3.95 
   (1.50% Floor)                             
Interactive Media & Services                                
What If Media Group, LLC                                
First Lien Secured Term Loan  L+ 7.00%  8.80%  10/02/19  10/02/24   12,919    12,673    12,673    4.05 
   (1.00% Floor)                             
Internet & Direct Marketing Retail                                
Potpourri Group, Inc.                                
First Lien Secured Term Loan  L+ 8.25%  9.94%  07/03/19  07/03/24   18,763    18,385    18,424    5.89 
   (1.50% Floor)                             
Investment Banking & Brokerage                                
Arcole Acquisition Corp(5)                                
First Lien Secured Term Loan A  L+ 8.25%  10.16%  11/29/18  11/30/23   5,231    5,156    4,968    1.59 
   (1.00% Floor)                             
First Lien Secured Term Loan B  L+ 14.50%  16.41%  11/29/18  11/30/23   1,805    1,779    1,777    0.57 
   (1.00% Floor)  (1.50% PIK)                          
JVMC Holdings Corp.                                
(f/k/a RJO Holdings Corp)                                
First Lien Secured Term Loan  L+ 6.50%  8.30%  02/28/19  02/28/24   16,190    16,055    16,190    5.17 
   (1.00% Floor)                             
                23,226    22,990    22,935    7.33 
IT Consulting & Other Services                                
AST-Applications Software Technology                                
LLC                                
First Lien Secured Term Loan  L+ 8.00%  9.80%  01/10/17  01/10/23   4,236    4,187    4,236    1.35 
   (1.00% Floor)  (1.00% PIK)                          
Leisure Facilities                                
Honors Holdings, LLC                                
First Lien Secured Term Loan  L+ 6.86%  8.74%  09/06/19  09/06/24   9,405    9,264    9,305    2.97 
   (1.00% Floor)                             
First Lien Secured Delayed Draw  L+ 6.00%  7.90%  09/06/19  09/06/24   4,662    4,616    4,612    1.47 
Loan  (1.00% Floor)                             
Lift Brands, Inc.                                
First Lien Secured Term Loan  L+ 7.50%  9.44%  04/16/18  04/16/23   10,532    10,387    10,038    3.21 
   (1.00% Floor)  (0.50% PIK)                          
First Lien Secured Revolving  P+ 6.00%  10.75%  04/16/18  04/16/23   158    156    131    0.04 
Loan(7)  (2.76% Floor)                             
               24,757   24,423   24,086   7.69 

 

See notes to consolidated financial statements

 

15 

 

 

WHITEHORSE FINANCE, INC.

 CONSOLIDATED SCHEDULE OF INVESTMENTS - (Continued)

December 31, 2019

(in thousands)

 

Investment Type(1)  Spread Above Index(2)  Interest Rate(3)  Acquisition Date(10)  Maturity Date 

Principal/

Share Amount

   Amortized Cost  

Fair

Value(11)

   Fair Value As A Percentage of Net Assets 
Office Services & Supplies                                
Empire Office, Inc.                                
First Lien Secured Term Loan  L+ 6.75%  8.55%  04/12/19  04/12/24   12,224   $12,015   $12,029    3.84%
   (1.50% Floor)                             
Other Diversified Financial Services                                
Sigue Corporation(4)                                
Second Lien Secured Term  L+ 12.00%  13.94%  12/27/13  05/01/20   24,904    24,905    24,655    7.88 
Loan(4)  (1.00% Floor)                             
Packaged Foods & Meats                                
Lenny & Larry’s, LLC                                
First Lien Secured Term Loan  L+ 7.97%  9.71%  05/15/18  05/15/23   12,293    12,128    11,924    3.81 
   (1.00% Floor)  (1.18% PIK)                          
Research & Consulting Services                                
Nelson Worldwide, LLC                                
First Lien Secured Term Loan  L+ 9.25%  11.23%  01/09/18  01/09/23   13,603    13,397    13,263    4.24 
   (1.00% Floor)                             
ALM Media, LLC                                
First Lien Secured Term Loan  L+ 6.50%  8.44%  11/25/19  11/25/24   15,750    15,441    15,441    4.93 
   (1.00% Floor)                             
                29,353    28,838    28,704    9.17 
Restaurants                                
LS GFG Holdings Inc.                                
First Lien Secured Term Loan  L+ 6.00%  7.80%  11/30/18  11/19/25   10,237    9,977    9,717    3.10 
   (0.00% Floor)                             
Specialized Consumer Services                                
True Blue Car Wash, LLC                                
First Lien Secured Term Loan  L+ 8.12%  9.91%  10/17/19  10/17/24   4,461    4,375    4,375    1.40 
   (1.00% Floor)                             
First Lien Secured Revolving  L+ 8.12%                             
Loan(7)  (1.00% Floor)  9.91%  10/17/19  10/17/24   -    -    (20)   (0.01)
                4,461    4,375    4,355    1.39 
Specialty Chemicals                                
Flexitallic Group SAS                                
First Lien Secured Term Loan  L+ 6.50%  8.44%  10/28/19  10/29/26   11,750    11,461    11,463    3.66 
   (1.00% Floor)                             
Specialized Finance                                
Golden Pear Funding Assetco, LLC(5)                                
Second Lien Secured Term Loan  L+ 10.50%  12.19%  09/20/18  03/20/24   17,500    17,232    17,500    5.59 
   (1.00% Floor)                             
Oasis Legal Finance, LLC(5)                                
Second Lien Secured Term Loan  L+ 10.75%  12.44%  09/09/16  03/09/22   20,000    19,841    20,000    6.39 
   (1.00% Floor)                             
WHF STRS Ohio Senior Loan Fund LLC                                
Subordinated Note(4)(5)(7)(14)(15)  L+ 6.50%  8.16%  07/19/19  NA   26,344    26,344    26,344    8.42 
                63,844    63,417    63,844    20.40 
Systems Software                                
Vero Parent, Inc.                                
First Lien Secured Term Loan  L+ 6.00%  7.91%  11/06/19  08/16/24   20,000    18,014    19,025    6.08 
   (1.00% Floor)                             
Trading Companies & Distributors                                
Vessco Holdings, LLC                                
First Lien Secured Term Loan  L+ 6.50%  8.41%  08/22/19  08/22/24   19,067    18,713    18,696    5.97 
   (1.50% Floor)                             

  

See notes to consolidated financial statements

  

16 

 

 

WHITEHORSE FINANCE, INC. 

CONSOLIDATED SCHEDULE OF INVESTMENTS - (Continued)

December 31, 2019

(in thousands)

 

Investment Type(1)  Spread Above Index(2)  Interest Rate(3)  Acquisition Date(10)  Maturity Date 

Principal/

Share Amount

   Amortized Cost  

Fair

Value(11)

   Fair Value As A Percentage of Net Assets 
Technology Hardware, Storage & Peripherals                                
Source Code Midco, LLC                                
First Lien Secured Term Loan  L+ 8.25%  10.18%  05/04/18  05/04/23   23,566   $23,112   $23,566    7.53%
   (1.00% Floor)                             
Total Debt Investments               591,199    575,686    566,374    180.94 
Equity Investments                                
Advertising                                
Fluent, Inc. (f/k/a Cogint, Inc.)(4)(9)  N/A  N/A  11/28/17  N/A   187    560    467    0.15 
Diversified Support Services                                
Quest Events, LLC Preferred Units(4)  N/A  N/A  12/28/18  12/08/25   317    317    276    0.09 
ImageOne Industries, LLC Common A Units(4)  N/A  N/A  09/20/19  N/A   149    -    48    0.02 
Health Care Services                                
Lab Logistics Preferred Units  N/A  N/A  10/29/19  N/A   2    857    857    0.27 
PMA Holdco, LLC Warrants(4)  N/A  N/A  06/28/18  06/28/28   8    -    461    0.15 
                10    857    1,318    0.42 
Other Diversified Financial Services                                
RCS Creditor Trust Class B Units(4)(6)  N/A  N/A  10/01/17  N/A   143    -    -    - 
SFS Global Holding Company Warrants(4)  N/A  N/A  06/28/18  12/28/25   -    -    -    - 
Sigue Corporation Warrants(4)  N/A  N/A  06/28/18  12/28/25   22    2,890    3,721    1.19 
                165    2,890    3,721    1.19 
Specialized Finance                                
NMFC Senior Loan Program I LLC Units(4)(5)(6)  N/A  N/A  08/13/14  08/31/22   10,000    10,029    9,651    3.08 
WHF STRS Ohio Senior Loan Fund LLC(4)(5)(7)(14)  N/A  N/A  07/19/19  N/A   6,586    6,586    6,949    2.22 
Trading Companies & Distributors                                
Vessco Holdings, LLC(4)  N/A  N/A  08/22/19  N/A   489    800    800    0.26 
Trucking                                
Europcar Mobility Group(5)  N/A  N/A  10/31/19  12/31/22  -   -   84   0.03 
Total Equity Investments                                
                17,903    22,039    23,314    7.46 
Total Investments               609,102   $597,725   $589,688    188.40%

 

17 

 

 

WHITEHORSE FINANCE, INC. 

CONSOLIDATED SCHEDULE OF INVESTMENTS - (Continued)

December 31, 2019

(in thousands)

 

(1)Except as otherwise noted, all investments are non-controlled/non-affiliate investments as defined by the Investment Company Act of 1940, as amended (the “1940 Act”), and provide collateral for the Company’s credit facility.
  
(2)The investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”), which resets monthly, quarterly or semiannually, the Canadian Dollar Offered Rate (“CDOR” or “C”) or the U.S. Prime Rate as published by the Wall Street Journal (“Prime” or “P”). The one, three and six-month LIBOR were 1.8%, 1.9% and 1.9%, respectively, as of December 31, 2019. The Prime was 4.75% as of December 31, 2019. The CDOR was 2.1% as of December 31, 2019.
  
(3)The interest rate is the “all-in-rate” including the current index and spread, the fixed rate, and the payment-in-kind (“PIK”) interest rate, as the case maybe.
  
(4)The investment or a portion of the investment does not provide collateral for the Company’s credit facility.
  
(5)Not a qualifying asset under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of total assets. Qualifying assets represented 84%, of total assets as of the date of the consolidated schedule of investments.
  
(6)Investment is a non-controlled/affiliate investment as defined by the 1940 Act.
  
(7)The investment has an unfunded commitment in addition to any amounts presented in the consolidated schedule of investments as of December 31, 2019. See Note 8.
  
(8)The investment is on non-accrual status.
  
(9)The fair value of the investment was determined using observable inputs. See Note 5. There are no legal restrictions on sales of the investment.
  
(10)Except as otherwise noted, all of the Company’s portfolio company investments, which as of the date of the consolidated schedule of investments represented 188% of the Company’s net assets or 93% of the Company’s total assets, are subject to legal restrictions on sales.
  
(11)Except as otherwise noted, the fair value of each investment was determined using significant unobservable inputs. See Note 5.
  
(12)The investment was comprised of two contracts, which were indexed to different base rates, L and P, respectively. The Spread Above Index and Interest Rate presented represent the weighted average of both contracts.
  
(13)Principal amount is denominated in Canadian dollars.
  
(14)Investment is a controlled affiliate investment as defined by the 1940 Act. On January 14, 2019, the Company entered into an agreement (as described in Note 4 hereto) with State Teachers Retirement System of Ohio, a public pension fund established under Ohio law (“STRS Ohio”), to create WHF STRS Ohio Senior Loan Fund, LLC (“STRS JV’’), a joint venture, which invests primarily in senior secured first and second lien term loans.
  
(15)Security is perpetual with no defined maturity date.

 

See notes to consolidated financial statements

 

18 

 

 

WhiteHorse Finance, Inc.

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2020

(in thousands, except share and per share data)

 

NOTE 1 - ORGANIZATION

 

WhiteHorse Finance, Inc. (“WhiteHorse Finance” and, together with its subsidiaries, the “Company”) is an externally managed, non-diversified, closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes, WhiteHorse Finance elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). WhiteHorse Finance’s common stock trades on the Nasdaq Global Select Market under the symbol “WHF.”

 

The Company’s investment objective is to generate attractive risk-adjusted returns primarily by originating and investing in senior secured loans, including first lien and second lien facilities, to performing lower middle market companies across a broad range of industries that typically carry a floating interest rate based on a risk-free index rate such as the London Interbank Offered Rate (“LIBOR”) and have a term of three to six years. While the Company focuses principally on originating senior secured loans to lower middle market companies, it may also opportunistically make investments at other levels of a company’s capital structure, including mezzanine loans or equity interests and may receive warrants to purchase common stock in connection with its debt investments.

 

WhiteHorse Finance’s investment activities are managed by H.I.G. WhiteHorse Advisers, LLC (“WhiteHorse Advisers”). H.I.G. WhiteHorse Administration, LLC (“WhiteHorse Administration”) provides administrative services necessary for the Company to operate.

 

Engaging in commodity interest transactions such as swap transactions or futures contracts for the Company may cause the WhiteHorse Advisers to fall within the definition of  “commodity pool operator” under the Commodity Exchange Act (“CEA”), and related regulations promulgated by the U.S. Commodity Futures Trading Commission (the CFTC”). On January 23, 2020, WhiteHorse Advisers claimed an exclusion from the definition of the term “commodity pool operator” under the CEA and the CFTC regulations in connection with its management of the Company and, therefore, is not subject to CFTC registration or regulation under the CEA as a commodity pool operator with respect to its management of the Company.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation: The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of WhiteHorse Finance and its wholly owned subsidiaries, WhiteHorse Finance Credit I, LLC (“WhiteHorse Credit”), and its subsidiary WhiteHorse Finance (CA), LLC (“WhiteHorse California”), and WhiteHorse Finance Warehouse, LLC (“WhiteHorse Warehouse”). The Company meets the definition of an investment company under Accounting Standards Codification (“ASC”) Topic 946, Financial Services - Investment Companies , and therefore applies the accounting and reporting guidance discussed therein to its consolidated financial statements. All significant intercompany balances and transactions have been eliminated.

 

Additionally, the accompanying consolidated financial statements and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Articles 6, 10 and 12 of Regulation S-X. Accordingly, certain disclosures accompanying the annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, the unaudited consolidated financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of financial statements for the interim periods included herein. This quarterly report on Form 10-Q should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2019. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the year ending December 31, 2020.

 

Principles of Consolidation: Under the investment company rules and regulations pursuant to ASC Topic 946, WhiteHorse Finance is precluded from consolidating any entity other than another investment company. As provided under ASC Topic 946, WhiteHorse Finance generally consolidates any investment company when it owns 100% of its partners’ or members’ capital or equity units. The Company does not consolidate its investment in STRS JV. See further description in Note 4.

 

Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the financial statements. Actual results could differ from those estimates.

 

Fair Value of Financial Instruments: The Company determines the fair value of its financial instruments in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. ASC Topic 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC Topic 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.

 

19 

 

 

Investments are measured at fair value as determined in good faith by the Company’s investment committee, generally on a quarterly basis, and such valuations are reviewed by the audit committee of the board of directors and ultimately approved by the board of directors, based on, among other factors, consistently applied valuation procedures on each measurement date. Any changes to the valuation methodology are reviewed by management and the Company’s board of directors to confirm that the changes are justified. The Company continues to review and refine its valuation procedures in response to market changes.

 

The Company engages independent external valuation firms to periodically review material investments. These external reviews are used by the board of directors to review the Company’s internal valuation of each investment over the year.

 

Investment Transactions: The Company records investment transactions on a trade date basis. These transactions may settle subsequent to the trade date depending on the transaction type. Certain expenses related to legal and tax consultation, due diligence, rating fees, valuation expenses and independent collateral appraisals may arise when the Company makes certain investments. These expenses are recognized in the consolidated statements of operations as they are incurred.

 

Foreign currency translation: The Company’s books and records are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis:

 

(1)cash and cash equivalents, restricted cash and cash equivalents, fair value of investments, interest receivable, and other assets and liabilities — at the spot exchange rate on the last business day of the period; and

 

(2)purchases and sales of investments, income and expenses — at the exchange rates prevailing on the respective dates of such transactions.

 

Although net assets and fair values are presented based on the applicable foreign exchange rates described above, the Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Fluctuations arising from the translation of assets other than investments and liabilities are included with the net change in unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies on the Consolidated Statements of Operations.

 

Foreign security and currency transactions may involve certain considerations and risks not typically associated with investing in U.S. companies. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices more volatile than those of comparable U.S. companies or U.S. government securities.

 

Revenue Recognition: The Company’s revenue recognition policies are as follows:

 

Sales: Realized gains or losses on the sales of investments are calculated by using the specific identification method.

 

Investment Income: Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. The Company may also receive closing, commitment, prepayment, amendment and other fees from portfolio companies in the ordinary course of business.

 

Dividend income is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

 

Closing fees associated with investments in portfolio companies are deferred and recognized as interest income over the respective terms of the applicable loans. Upon the prepayment of a loan or debt security, any unamortized loan closing fees are recorded as part of interest income. Commitment fees are based upon the undrawn portion committed by the Company and are recorded as interest income on an accrual basis. Prepayment, amendment and other fees are recognized when earned, generally when such fees are receivable, and are included in fee income on the consolidated statements of operations.

 

The Company may invest in loans that contain a payment-in-kind (“PIK”) interest rate provision. PIK interest is accrued at the contractual rates and added to loan principal on the reset dates to the extent such amounts are expected to be collected.

 

Non-accrual loans: Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected. The Company may conclude that non-accrual status is not required if the loan has sufficient collateral value and is in the process of collection. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current.

 

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Cash and Cash Equivalents: Cash and cash equivalents include cash, deposits with financial institutions, and short-term liquid investments in money market funds with original maturities of three months or less.

 

Restricted Cash and Cash Equivalents: Restricted cash and cash equivalents include amounts that are collected and held by the trustee appointed as custodian of the assets securing the Credit Facility (as defined in Note 6). Restricted cash is held by the trustee for the payment of interest expense and principal on the outstanding borrowings or reinvestment into new assets. Restricted cash that represents interest or fee income is transferred to unrestricted cash accounts by the trustee generally once a quarter after the payment of operating expenses and amounts due under the Credit Facility (as defined in Note 6).

 

Offering Costs: The Company may incur legal, accounting, regulatory, investment banking and other costs in relation to equity offerings. Offering costs are deferred and charged against paid-in capital in excess of par on completion of the related offering.

 

Deferred Financing Costs: Deferred financing costs represent fees and other direct incremental costs incurred in connection with the Company’s borrowings. These amounts are amortized and are included in interest expense in the consolidated statements of operations over the estimated life of the borrowings. Deferred financing costs are presented in the consolidated statements of assets and liabilities as a direct reduction from the carrying amount of the related debt liability.

 

Income Taxes: The Company elected to be treated as a RIC under Subchapter M of the Code. In order to maintain its status as a RIC, among other requirements, the Company is required to distribute dividends for U.S. federal income tax purposes to its stockholders each taxable year generally of an amount at least equal to 90% of the sum of ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In addition, the Company will incur a nondeductible excise tax equal to 4% of the amount by which (1) 98% of ordinary income for the calendar year (taking into account certain deferrals and elections), (2) 98.2% of capital gains in excess of capital losses, adjusted for certain ordinary losses, for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and capital gain income for preceding years that were not distributed during such years and on which the Company incurred no U.S. federal income tax exceed distributions for the year. The Company accrues estimated excise tax on the amount, if any, that estimated taxable income is expected to exceed the level of stockholder distributions described above.

 

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statement is the largest benefit or expense that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. Any tax positions not deemed to satisfy the more likely than not threshold are reversed and recorded as tax benefit or tax expense, as appropriate, in the current year. Management has analyzed the Company’s tax positions, and the Company has concluded that the Company did not have any unrecognized tax benefits or unrecognized tax liabilities related to uncertain tax positions as of March 31, 2020 and December 31, 2019.

 

Penalties or interest that may be assessed related to any income taxes would be classified as general and administrative expenses on the consolidated statements of operations. The Company had no amounts accrued for interest or penalties as of March 31, 2020 or December 31, 2019. The Company does not expect the total amount of unrecognized tax benefits to significantly change in the next twelve months. The Company’s tax returns are subject to examination by federal, state and local taxing authorities. Because many types of transactions are susceptible to varying interpretations under U.S. federal and state income tax laws and regulations, the amounts reported in the accompanying consolidated financial statements may be subject to change at a later date by the respective taxing authorities. Tax returns for each of the federal tax years since 2016 remain subject to examination by the Internal Revenue Service.

 

As of March 31, 2020 and December 31, 2019, the cost of investments for federal income tax purposes was $597,378 and $601,862 resulting in net unrealized depreciation of $40,263 and $12,174, respectively. This is comprised of gross unrealized appreciation of $1,215 and $5,223, and gross unrealized depreciation of $41,478 and $17,397, on a tax basis, as of March 31, 2020 and December 31, 2019, respectively.

 

Dividends and Distributions: Dividends and distributions to common stockholders are recorded on the ex-dividend date. Quarterly distribution payments are determined by the board of directors and are paid from taxable earnings estimated by management and may include a return of capital and/or capital gains. Net realized capital gains, if any, are distributed at least annually, although the Company may decide to retain such capital gains for investment.

 

The Company maintains an “opt out” distribution reinvestment plan for common stockholders. As a result, if the Company declares a distribution or other dividend, stockholders’ cash distributions will be automatically reinvested in additional shares of common stock, unless they specifically “opt out” of the distribution reinvestment plan so as to receive cash distributions.

 

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Earnings per Share: The Company calculates earnings per share as earnings available to stockholders divided by the weighted average number of shares outstanding during the period.

 

Risks and Uncertainties: In the normal course of business, the Company encounters primarily two significant types of economic risks: credit and market. Credit risk is the risk of default on the Company’s investments that result from an issuer’s, borrower’s or derivative counterparty’s inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of investments due to changes in interest rates, spreads or other market factors, including the value of the collateral underlying investments held by the Company. Refer to “COVID-19 Developments” section in Note 8. Management believes that the carrying value of the Company’s investments are fairly stated, taking into consideration these risks along with estimated collateral values, payment histories and other market information.

 

NOTE 3 — FORWARD CURRENCY CONTRACTS

 

The Company may enter into foreign currency forward contracts from time to time to facilitate settlement of purchases and sales of investments denominated in foreign currencies and to economically hedge the impact that an adverse change in foreign exchange rates would have on the value of the Company’s investments denominated in foreign currencies. A foreign currency forward contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. These contracts are marked-to-market by recognizing the difference between the contract forward exchange rate and the forward market exchange rate on the last day of the period presented as unrealized appreciation or depreciation. Realized gains or losses are recognized when forward contracts are settled. Risks arise as a result of the potential inability of the counterparties to meet the terms of their contracts. The Company attempts to limit counterparty risk by only dealing with well-known counterparties.

 

The Company utilizes forward foreign currency exchange contracts to protect itself against fluctuations in exchange rates. During the three months ended March 31, 2020, the Company recognized a realized gain of $6 and an unrealized loss of $1 in the statement of operations relating to forward currency exchange contracts held during the year. The Company may choose to renew contracts quarterly unless otherwise settled by the Company or the counterparty.

  

The value associated with unrealized loss on open contracts is included in unrealized appreciation/depreciation on forward currency contracts within the statement of assets and liabilities. Open contracts at March 31, 2020 are as follows:

 

                  
Counterparty  Currency to be sold  Currency to be purchased  Settlement date 

Unrealized

appreciation ($)

   Unrealized depreciation ($) 
JP Morgan Chase Bank  C$ 188  CAD  $ 133 USD  06/30/2020  $                -   $                (1)
            $-   $(1)

  

Realized gain (loss) on forward currency contracts recognized in income

 

Risk exposure category   For the three months ended March 31, 2020 
Foreign exchange  $6 

 

Change in unrealized appreciation (depreciation) on forward currency contracts recognized in income

 

Risk exposure category   For the three months ended March 31, 2020 
Foreign exchange  $(1)

 

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The foreign currency forward contracts open at the end of the period are generally indicative of the volume of activity during the period.

 

Offsetting of Derivative Instruments

 

The Company has derivative instruments that are subject to master netting agreements. These agreements include provisions to offset positions with the same counterparty in the event of default by one of the parties. The Company’s unrealized appreciation and depreciation on derivative instruments are reported as gross assets and liabilities, respectively, in the consolidated statements of assets and liabilities. The following tables present the Company’s assets and liabilities related to derivatives by counterparty, net of amounts available for offset under a master netting arrangement and net of any collateral received or pledged by the Company for such assets and liabilities as of March 31, 2020:

 

   As of March 31, 2020 
Counterparty   Derivative
Assets Subject
to Master
Netting
Agreement