Good morning. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the WhiteHorse Finance First Quarter 2024 Earnings Conference Call. Our host for today's call are Stuart Aronson, Chief Executive Officer; and Joyson Thomas, Chief Financial Officer. Today's call is being recorded, and a replay is available through a webcast in the Investor Relations section of our website at whitehorsefinance.com. [Operator Instructions]. If you at any point your question pleasure to turn the call over to Robert Brinberg of Rose & Co. Company.Â

Thank you, Mike, and thank you, everyone, for joining us today to discuss WhiteHorse Finance's first quarter facts made during this call, including any statements relating to financial guidance, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Because these forward-looking statements involve known and unknown risks and uncertainties, these are important factors that could cause actual results to differ materially from those expressed or obligation or responsibility to update any forward-looking statements. Today's speakers may refer to material from the WhiteHorse Finance First Quarter 2024 Earnings Presentation.

Thank you, Rob. Good morning, and thank you for all of you for joining today. As you're aware, we issued our earnings this morning prior to market open, and I hope you've had a chance to review our results for the period ended March 31, 2024, which can also be found on our website. On today's call, I'll begin by addressing our first quarter results and current market conditions. Joyson Thomas, our Chief Financial Officer, will then discuss our performance in greater detail, after which we will open the floor for questions. I'm pleased to report continued strong performance for the first quarter of 2024. Q4 GAAP net investment income and core NII was $10.8 million or $0.465 per share, which more than covered our quarterly base dividend of $0.385 per share. This represents a slight increase from Q4 GAAP and core NII of $10.6 million or $0.45 per share. NAV per share at the end of Q1 was 13.50, representing a 1% decrease from the prior quarter. NAV per share was negatively impacted by net markdowns on our portfolio totaling $5.2 million, the majority of which related to a markdown in equity warrants in Seagate Corporation, which I will discuss shortly. The NAV decrease was partially offset by the excess of core NII over our quarterly dividend. Turning to portfolio activity in Q1. Gross capital employment totaled $55 million with $44.7 million funding 5 new originations and the remaining $10.3 million funding add-ons to existing investments as activity remained reasonably strong. In addition to the add-ons, there were $0.8 million in net fundings made for revolver commitments. Of our 5 new originations in Q1, 2 were sponsored deals and 3 were nonsponsor deals with an average leverage of approximately 3.5x debt to EBITDA. All of these deals were first…

Thanks, Stuart, and thank you, everyone, for joining today's call. During the quarter, we recorded GAAP net investment income and core NII of $10.8 million or $0.465 per share. This compares with Q4 GAAP NII and core NII of $10.6 million or $0.456 per share and our previously declared quarterly distribution of $0.385 per share. Q1 fee income was unchanged quarter-over-quarter at $0.6 million. Q1 amounts were primarily comprised of $0.5 million of amendment fees, the majority of which came from an amendment fee from TELUS moldings. For the quarter, we reported our net increase in net assets resulting from operations of $6 million. Our risk ratings during the quarter showed at 77.6% of our portfolio positions carried either 1 or 2 rating, slightly lower than the 77.7% in the prior quarter. As a reminder, our one rating indicates that the company has seen its risk of loss reduced relative to initial expectations and a rating indicates the company is performing according to such initial expectations. Regarding the JV specifically, we continue to grow our investment. As Stuart mentioned earlier, in the first quarter, we transferred 2 new deals at one existing investment, totaling $8.5 million in exchange for cash proceeds for the same amount. Additionally, during the quarter, 2 existing portfolio company investments fully realized in the portfolio. And as a result, as of March 31, 2024, the JV's portfolio helped positions in 34 portfolio companies with an aggregate fair value of $309.4 million compared to 34 portfolio companies at an aggregate fair value of $312.2 million as of December 31, 2023. Subsequent to the end of the first quarter, the company transferred 3 investments to the JV, including one new portfolio company. The investment in the JV continues to be accretive to the BDC's earnings, generating a mid-teens…

[Operator Instructions]And we do have our first question from Mickey Schleien with Ladenburg.

 Just one quick question for me. With the movements in non-accruals this quarter, was there any impact on interest income in terms of recaptures or reversals of previous interest income?

Joyson I'll leave that for you.

 Mickey, we did not reverse out any income accruals during the period. We just ceased from recognising any additional accruals during Q1.Â

  And we do have our next question from Bryce Rowe with B. Riley.

I wanted to follow up on some of the prepared remarks. You talked about, obviously, spreads and pricing having come in, more aggressive terms and conditions out there in the market. And you did talk about evaluating whether you would follow some credits that we're at least exploring some kind of refinance option. Curious what would kind of keep you in the credit and what kind of pricing deterioration would you see relative to what's on the books right now?

So to give you 2 examples, Bryce, we were in a company that had industrial cyclicality to it, and they got an offer to do the deal at higher leverage and 100 basis point lower price. -- we may have gotten there on the price, but the higher leverage in a cyclical left us uncomfortable. So we chose to exit that credit. As compared to a company we have in the business services sector, where the prepayment penalties have expired. The company has performed well. It is delevered over a turn since closing. In order to keep that asset, we're going to need to reduce pricing, I believe, from SOFR 625 or 650, down to SOFR 525. But because of the strong performing asset, non-cyclical low CapEx, we are going to follow that asset and accept the lower price. So it will be primarily driven by credit concerns and how aggressive the market is getting. And in general, as I mentioned, the market is now a 500 to 575 market in the part of the market we cover, which is the mid-market, lower mid-market and we will accept those prices because those are the market prices for credits that we think are strong and stable.

Okay. That's fair. And then maybe you could talk a little bit about -- I assume you've got a bit of a watch list within Whitehorse and it's reflected in the internal risk ratings. What are you seeing internally to move credits around within that internal risk rating system? Just trying to kind of understand what the -- kind of what the tail risk is within the portfolio. And if it's growing, if it's growing with this higher for longer environment.

Yes. The average leverage on our deals is and has been modest. So the higher rate environment is not in and of itself causing us much concern. We do, as we've indicated in the ratings on the deals and the marks you see on the deals have a number of credits that are underperforming to the original plan. That results in a mark of 3 or a rating of 3, some where we're a concerned of losing principal amounts. Those are ratings of 4. And as I mentioned in my prepared remarks, there is no broad trend other than consumer-facing companies being weaker. There's no broad trend that we're seeing in terms of reasons why companies are underperforming. In some cases, it's ArcServe had a technology outage and lost customer data a couple of years ago. and that has led to us taking over the company and trying to turn it around other credits that we're dealing with are dealing with the idiosyncratic issues. We are not seeing broad economic weakness at this point. And we would tell you that the revenues for companies across the portfolio on average are up, partially due to inflation, but partially due to reasonably strong demand in the general business market.

Okay. That's helpful. Last one for me. You kind of made some comments around new cycle going through a sale process and maybe seeing a lower valuation than would have been expected. Can you talk about kind of how -- the puts and takes of that in terms of how you deal with that within your portfolio and whether you have to sell or keep it?

Thankfully, it's a very small investment -- and the situation is a sponsor that own the company, put the company up for sale, got an offer that they're trying to transact on. But the offer is for less than the debt value. It's a club deal. We're a very small piece of the club, but it's a club deal, and there is no active market for that paper. So the best thing for us to do is just wait for the sale of the company and collect out what we can collect on that asset. That will be, we think, similar to where the asset is marked.Â

One more thing on -- Bryce, I was going to just say one more thing on news cycle, and this also relates to Mickey's prior question on reversals. We did reverse out a small fee that was due at exit or maturity on new cycle of approximately $98,000 given our prognosis on what we expect to collect.

Okay. But that had already been accrued, Joyson? Or just...

 That's correct. -- previously been accrued based on an amendment in an earlier period and reversed out during [Indiscernible]

And we have our next question from Erik Zwick with Hovde Group.

Just one question for me and maybe kind of a 2-part question. Could you just remind me kind of the characteristics that you consider for transferring investments into the JV and the JV that just over 15% of the total portfolio at fair value today, where is your comfort range with the size of that relative to the total investment portfolio.

Answering the second part of your question first. We think the JV has now reached the size with the committed capital that is appropriate to the BDC. I don't think we'd increase the JV size again. And we -- depending on market conditions, reserve the higher-priced deals to remain on the BDC balance sheet and the lower priced deals go into the JV. At this point in time, as I indicated in the prepared remarks, deals that are priced 600 or higher, which would be considered a premium price in today's market and the price we're getting on nonsponsor deals will typically go on to the BDC balance sheet deals that are priced under 600 will typically head to the JV.

[Operator Instructions] and our next question comes from Sean Paul Adams with Raymond James.

It looks like the average investment size in the portfolio has continued to go down quarter-over-quarter, which is -- it's been following the trend for the last couple of quarters. I think now averaging around $5 million. Earlier in the year, you mentioned that the new average allocation target would probably be closer to $8 million to $10 million. Have you guys lowered that target allocation range going forward? Or are forecasted add-ons impacting that figure?

I think what's really going on is a lot of the non-sponsor deals we do are smaller deals. And so the BDC's allocation into those smaller deals is ultimately a smaller number. That is just a natural result of, again, the average size of the deals that we're closing. So I would say if we see a normal market environment, I would still expect the average size of an asset going into the BDC to be more in the $8 million to $10 million range.

[Operators instructions] And at this time, I'm currently showing no questions in the queue. I'll now turn the call back over to Stuart Aronson for closing remarks.

All right. Well, we continue to work hard to keep the portfolio as healthy as possible and to add good credits that will give the BDC stability going forward regardless of market conditions. I appreciate everybody's time today. And as always, heading into next quarter's call, if anyone has topics they want us to address in the prepared remarks, please communicate with either Joyce and their eye in advance of those calls, and we will do our best to answer questions with complete transparency. Thank you very much, and have a good day.

This does conclude today's program. Thank you for your participation. You may now disconnect.