What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-10 compared with 2021-11-09 · 213 added, 187 removed, 381 unchanged (51% of the section changed)

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● our contractual arrangements and relationships with third parties;

● changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, which could result in changes to the value of our assets, including changes from the impact of the current COVID-19 pandemic;

● the elevating levels of inflation, and the potential impact of inflation on our portfolio companies and on the industries in which we invest;

● the dependence of our future success on the general economy and its impact on the industries in which we invest;

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We use words such as “may,” “might,” “will,” “intends,” “should,” “could,” “can,” “would,” “expects,” “believes,” “estimates,” “anticipates,” “predicts,” “potential,” “plan” and similar expressions to identify forward-looking statements.

Our actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors set forth in “Item 1A-Risk Factors” in our annual report on Form 10-K and elsewhere in this quarterly report on Form 10-Q.

Our actual results could differ materially from those projected in the forward-looking statements for any reason,

including the factors set forth in “Item 1A-Risk Factors” in our annual report on Form 10-K and elsewhere in this quarterly report on Form 10-Q.

We have based the forward-looking statements included in this quarterly report on Form 10-Q on information available to us on the date of this quarterly report on Form 10-Q, and we assume no obligation to update any such forward-looking statements.

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Our 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.

Such loans typically carry a floating interest rate based on a risk-free index rate such as the London Interbank Offered Rate, or LIBOR, plus a spread and typically have a term of three to six years.

Such loans typically carry a floating interest rate based on a risk-free index rate such as the London Interbank Offered Rate, or LIBOR, or the Secured Overnight Financing Rate, or SOFR, plus a spread and typically have a term of three to six years.

While we focus principally on originating senior secured loans to lower middle market companies, we may also opportunistically make investments at other levels of a company’s capital structure, including mezzanine loans or equity interests, and in companies outside of the lower middle market, to the extent we believe the investment presents an opportunity to achieve an attractive risk-adjusted return.

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Our investment activities are managed by WhiteHorse Advisers and are supervised by our board of directors, a majority of whom are independent of us, WhiteHorse Advisers and its affiliates.

Under our investment advisory agreement with WhiteHorse Advisers, or the Investment Advisory Agreement, we have agreed to pay WhiteHorse Advisers an annual base management fee based on our average consolidated gross assets as well as an incentive fee based on our investment performance.

based on our investment performance.

We have also entered into an administration agreement, or the Administration Agreement, with H.I.G.

WhiteHorse Administration, LLC, or WhiteHorse Administration.

Under our Administration Agreement, we have agreed to reimburse WhiteHorse Administration for our allocable portion (subject to the review and

approval of our independent directors) of overhead and other expenses incurred by WhiteHorse Administration in performing its obligations under the Administration Agreement.

Under our Administration Agreement, we have agreed to reimburse WhiteHorse Administration for our allocable portion (subject to the review and approval of our independent directors) of overhead and other expenses incurred by WhiteHorse Administration in performing its obligations under the Administration Agreement.

COVID-19 Developments

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Our investment adviser is continuing to monitor the COVID-19 pandemic and its impact on our business and the business of our portfolio companies and has been focused on proactively engaging with our portfolio companies in order to collaborate with the management teams of certain portfolio companies to evaluate their response to the impacts of COVID-19.

We cannot predict the full impact of COVID-19 and the uncertainty surrounding the continuing effects of more contagious strains of the virus that have emerged in the United States and worldwide, including the extent to which the available vaccines prove to be ineffective against any new COVID-19 variants (particularly the “Delta” variant).

In addition, countries around the world, including the United States, have seen significant increases in rates of COVID-19 infections, which was a result of, among other things, the rapid spread of COVID-19 variants (including the Delta variant), more frequent social gatherings and a reduction in the use of masks and social distancing.

In addition, countries around the world, including the United States, have seen significant increases in rates of COVID-19 infections, which was a result of, among other things, the rapid spread of COVID-19 variants, more frequent social gatherings and a reduction in the use of masks and social distancing.

These developments, in conjunction with the potential adverse reactions to the vaccine, the politicization of vaccine mandates and the general public distrust of the safety and efficacy of the available vaccines may further increase the likelihood that the pandemic will continue for an extended period of time.

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If we fail to satisfy the covenants of the Credit Facility or are unable to cure any event of default or obtain a waiver from the applicable lender, it could result in foreclosure by the lenders under the Credit Facility, which would accelerate our repayment obligations under the Credit Facility and thereby result in a material adverse effect on our business, liquidity, financial condition, results of operations and ability to pay distributions to our stockholders.

As of September 30, 2021, we were in compliance with all covenants and other requirements of the Credit Facility.

As of March 31, 2022, we were in compliance with all covenants and other requirements of the Credit Facility.

We are also subject to financial risks, including changes in market interest rates.

As of September 30, 2021, nearly all of our debt investments at fair value were at floating rates, which are generally based on a risk-free index rate such as LIBOR, and many of which are subject to certain floors.

In connection with the COVID-19 pandemic, the U.S.

Federal Reserve and other central banks have reduced certain interest rates and LIBOR has decreased.

A prolonged reduction in interest rates will reduce our gross investment income and could result in a decrease in our net investment income if such decreases in LIBOR are not offset by a corresponding increase in the spread over LIBOR that we earn on any portfolio investments, a decrease in our operating expenses or a decrease in the interest rate of our floating interest rate liabilities tied to LIBOR.

As of March 31, 2022, nearly all of our debt investments at fair value were at floating rates, which are generally based on a risk-free index rate such as LIBOR or SOFR, and many of which are subject to certain floors.

Quantitative and Qualitative Disclosures About Market Risk” for an analysis of the impact of hypothetical base rate changes in interest rates.

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Additionally, we have taken a conservative position on the Company’s liquidity, making sure we have a top-tier leverage partner and very significant cushion against default.

We will continue to monitor the ongoing effects of the COVID-19 pandemic, including the spread of the Delta variant, and guidance from U.S.

We will continue to monitor the ongoing effects of the COVID-19 pandemic and guidance from U.S.

and international authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations.

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As such, given the dynamic nature of this situation, we cannot quantify the full effect of COVID-19 on our financial condition, results of operations or cash flows in the future.

Reference Rate Reform

In July 2017, the head of the United Kingdom Financial Conduct Authority, or the FCA, announced that it will phase out the use of LIBOR by 2021.

On November 30, 2020, the ICE Benchmark Administration Limited, or the IBA, the administrator of LIBOR, announced that it will consult in early December 2020 to consider extending the LIBOR transition deadline to the end of June 2023.

On March 2021, the FCA and the IBA announced that (i) 1-week and 2-month U.S.

dollar LIBOR and non-U.S.

LIBOR will cease at the end of 2021 and (ii) the remaining U.S.

dollar LIBOR tenors will cease after June 30, 2023, effectively extending the LIBOR transition period to June 30, 2023.

There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate.

To identify a successor rate for U.S.

dollar LIBOR, the Federal Reserve System, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.

financial institutions, has identified the Secured Overnight Financing Rate, or SOFR, as its preferred alternative rate for LIBOR.

SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S.

Treasury securities, and is based on directly observable U.S.

Treasury-backed repurchase transactions.

As of March 31, 2022, SOFR is utilized as the floating benchmark rate on investments to four of our portfolio companies.

As of March 31, 2022, SOFR is utilized as the floating benchmark rate on the Credit Facility for USD denominated borrowings above $285.0 million.

We expect any new credit facilities that we enter into subsequent to March 31, 2022 will reference a benchmark interest rate other than LIBOR, such as SOFR.

Other jurisdictions have also proposed their own alternative to LIBOR, including the Sterling Overnight Index Average for Sterling markets, the Euro Short Term Rate for Euros and Tokyo Overnight Average Rate for Japanese Yens.

Although SOFR appears to be the preferred replacement rate for U.S.

dollar LIBOR, at this time, it is not possible to predict whether any of these alternative reference rates will attain market traction as a LIBOR replacement tool or the effect of any such changes as the establishment of alternative reference rates or other reforms to LIBOR may be enacted in the United States, United Kingdom or elsewhere.

As such, the potential effect on how markets will respond to the transition to SOFR, or other reference rates, is uncertain.

We generate revenue in the form of interest payable on the debt securities that we hold and capital gains and distributions, if any, on the portfolio company investments that we originate or acquire.

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Recent Developments

On October 4, 2021, the terms of the Credit Facility were amended to, among other things, establish a temporary upsize to the borrowing capacity under the Credit Facility, which allows WhiteHorse Credit to borrow up to $335.0 million for a three-month period beginning on October 4, 2021.

On October 14, 2021, we declared a special distribution of $0.135 per share, which will be payable on December 10, 2021 to stockholders of record as of October 29, 2021.

On October 25, 2021, we completed an offering of 1,900,000 shares of our common stock at a public offering price of $15.81 per share, inclusive of underwriting discounts and commissions.

In connection with the offering, we granted the underwriters an overallotment option to purchase up to an additional 285,000 shares of our common stock.

The issuance of 1,900,000 shares resulted in net proceeds to us of approximately $29.4 milion, inclusive of underwriting discounts and commissions and before offering expenses.

On November 3, 2021, we raised an additional $4.3 million from the issuance of an additional 282,300 shares pursuant to the underwriters’ exercise of the overallotment option to purchase additional shares.

WhiteHorse Advisers agreed to bear a portion of the underwriting discounts and commissions in connection with the offering, such that the issuance of the 2,182,300 shares (which includes the additional shares issued pursuant to the overallotment option) resulted in net proceeds to us of approximately $33.7 million before offering expenses, which was at or above our net asset value per share at the time of the offering and the overallotment option.

For the period October 1, 2021 through November 9, 2021, we contributed one additional asset, which included one existing issuer of senior secured debt facilities to the STRS JV.

Subsequent to the quarter ended September 30, 2021, we received financial information related to our investment in Grupo Hima San Pablo, Inc.

Based on the information currently available, we expect to reduce the fair value mark of the first lien secured term loan investment from 50% to within a range of between approximately 35% and 45% of face value during the fourth quarter, but this conclusion is subject to change based on additional information which may become available.

For the period April 1, 2022 through May 9, 2022, we contributed one additional asset of senior secured debt facilities to the STRS JV.

Consolidated Results of Operations

Comparison of the Three Months Ended March 31, 2022 and March 31, 2021

Set forth below are the consolidated results of operations for the three months ended March 31, 2022 and 2021.

The consolidated results of operations described below may not be indicative of the results we report in future periods.

Net investment income and net increase in net assets can vary substantially from period to period due to various reasons, including the level of new investments and the recognition of realized gains and losses and unrealized appreciation and depreciation.

As a result, quarterly comparisons of net increases in net assets resulting from operations may not be meaningful.

As a result, period to period comparisons of net increases in net assets resulting from operations may not be meaningful.

Consolidated operating results for the three months ended March 31, 2022 and 2021 are as follows:

Three months ended March 31,

($ in thousands, except per share data)

Total investment income

Total expenses

Net investment income

Net realized (losses)/gains on investments and foreign currency transactions

Net change in unrealized gains/(losses) on investments and foreign currency transactions

Net increase in net assets resulting from operations

Net Investment Income

Net investment income for the three months ended March 31, 2022 and 2021 totaled $8.5 million and $7.6 million, respectively.

Net investment income increased by $0.9 million for the three months ended March 31, 2022 from the three months ended March 31, 2021, as described below under “Investment Income” and “Operating Expenses”.

Investment Income

Investment income for the three and nine months ended September 30, 2021 totaled $18.4 million and $53.7 million, respectively, and was primarily attributable to interest, dividends and fees earned from investments in portfolio companies.

Investment income for the three and nine months ended September 30, 2020 totaled $16.5 million and $44.9 million, respectively, and was primarily attributable to interest, dividends and fees earned from investments in portfolio companies.

The increase in net investment income for the year-over-year period was primarily attributable to higher accelerated accretion income recognized due to higher repayment activity and higher investment income generated from STRS JV.

Investment income for the three and nine months ended September 30, 2021 included $1.1 million and $2.0 million of non-recurring fee income, respectively.

Investment income for the three and nine months ended September 30, 2020 included $0.6 million and $1.3 million of non-recurring fee income, respectively.

Investment income increased by $2.1 million for the three months ended March 31, 2022 from the three months ended March 31, 2021 primarily attributable to higher interest income earned from investments in portfolio companies due to a larger investment portfolio.

Investment income generated from our STRS JV subordinated notes and equity investments increased by $0.5 million as a result of a larger investment portfolio.

The increase of investment income was partially offset by lower fee income of $0.3 million as a result of lower non-recurring fees.

We expect to generate some level of non-recurring fee income during most quarters from prepayments, amendments and other sources.

Operating Expenses

Expenses, excluding excise tax, totaled $10.5 million and $31.5 million for the three and nine months ended September 30, 2021, respectively.

This compares to expenses, excluding excise tax, of $10.4 million and $27.1 million for the three and nine months ended September 30, 2020, respectively.

Interest expense totaled $3.8 million and $11.5 million for the three and nine months ended September 30, 2021, respectively.

This compares to interest expense of $2.8 million and $9.7 million for the three and nine months ended September 30, 2020, respectively.

The increase in interest expense for the three and nine months ended September 30, 2021, from the three and nine months ended September 30, 2020, was primarily due to higher borrowing base, partially offset by lower interest rates resulting from a decrease in LIBOR and spread.

Base management fees totaled $3.5 million and $10.2 million for the three and nine months ended September 30, 2021, respectively.

Base management fees totaled $3.1 million and $9.1 million for the three and nine months ended September 30, 2020, respectively.

The increase in management fees for the three and nine months ended September 30, 2021, from the three and nine months ended September 30, 2020, was primarily due to higher gross assets.

Performance-based incentive fees totaled $2.1 million and $6.7 million for the three and nine months ended September 30, 2021, respectively.

Performance-based incentive fees totaled $3.8 million and $5.6 million for the three and nine months ended September 30, 2020, respectively.

The decrease in performance-based incentive fees for the three months ended September 30, 2021, from the three months ended September 30, 2020, was mainly attributable to lower capital gains incentive fee accrual of $0.1 million compared with $1.8 million, respectively.

The increase in performance-based incentive fees for the nine months ended September 30, 2021, from the nine months ended September 30, 2020, was mainly attributable to higher pre-incentive fee net investment income of $5.6 million compared with $4.3 million, respectively.

Administrative service fees for both the three and nine months ended September 30, 2021 and 2020 totaled $0.2 million and $0.5 million, respectively.

General and administrative expenses were $0.9 million and $2.6 million for the three and nine months ended September 30, 2021, respectively.

This compares to general and administrative expenses of $0.6 million and $2.2 million for the three and nine months ended September 30, 2020, respectively.

The increase in general and administrative expense for the three and nine months ended September 30, 2021, from the three and nine months ended September 30, 2020, was primarily due to higher professional fees.

The following table summarizes our expenses for the three months ended March 31, 2022 and 2021:

Three months ended March 31,

($ in thousands)

Interest expense

Base management fees

Performance-based incentive fees

Administrative service fees

General and administrative expenses

Total expenses, before excise tax

Total expenses, including excise tax

Interest expense increased $1.0 million for the three months ended March 31, 2022 from the three months ended March 31, 2021, primarily due to a higher borrowing base.

This was partially offset by lower interest rates resulting from a decrease in LIBOR and weighted average spread.

Base management fees increased by $0.6 million for the three months ended March 31, 2022 from the three months ended March 31, 2021, primarily due to higher gross assets.

Performance-based incentive fees decreased by $0.6 million for the three months ended March 31, 2022 from the three months ended March 31, 2021, mainly attributable to a reversal of capital gains incentive fee accrual of $0.6 million.

Excise Tax Expense

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To the extent that we determine that our estimated current year annual taxable income may exceed estimated current year distributions, we accrue excise tax, if any, on estimated excess taxable income as taxable income is earned.

For the three and nine months ended September 30, 2021, we accrued a net federal excise tax expense of $0.3 million and $0.9 million, respectively.

For the three and nine months ended September 30, 2020, we accrued a net federal excise tax expense of $0.1 million and $0.5 million, respectively.

The increase in excise tax for the three and nine months ended

September 30, 2021, from the three and nine months ended September 30, 2020, was primarily as a result of higher net investment income and realized gains.

Excise tax was $0.2 million for both the three months ended March 31, 2022 and the three months ended March 31, 2021.

As of March 31, 2022 and December 31, 2021, we accrued a net federal excise tax expense of $0.2 million and $1.0 million, respectively.

Net Realized and Unrealized Gains (Losses) on Investments

The following shows the breakdown of net realized gains and losses for the three and nine months ended September 30, 2021 and 2020:

The following shows the breakdown of net realized gains and losses on investments for the three months ended March 31, 2022 and 2021:

Three months ended

Nine months ended

($ in millions)

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

AG Kings Holdings Inc.

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Drew Foam Companies Inc.

Geo Logic Systems Ltd.

PMA Holdco, LLC (HDG)

Grupo HIMA San Pablo, Inc.

Manchester Acquisition Sub LLC (d/b/a Draslovka Holding AS)

Vero Parent, Inc.

Vessco Holdings, LLC

Total net realized gains

Total net realized (losses)/gains on investments

(1) Escrow receivable amounts were recognized in connection with realization events.

(2) Includes various investments with aggregate realized gains or losses less than $50,000.

The following shows the breakdown in the changes in unrealized appreciation and depreciation of investments for the three and nine months ended September 30, 2021 and 2020:

The following shows the breakdown in the changes in unrealized appreciation and depreciation of investments for the three months ended March 31, 2022 and 2021:

Three months ended

Nine months ended

($ in millions)

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

March 31, 2022

March 31, 2021

Gross unrealized appreciation on investments (1)

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Total unrealized appreciation (depreciation) on investments

(1) The nine months ended September 2021 includes unrealized appreciation from the AG Kings Holdings Inc.

(1) The three months ended March 31, 2022 includes unrealized appreciation from the AG Kings Holdings Inc.

escrow receivable of $0.8 million.

Financial Condition, Liquidity and Capital Resources

During the three months ended March 31, 2022, the realization from Grupo HIMA San Pablo, Inc.

generated a net realized and unrealized loss of $6.9 million.

Financial Condition, Off-Balance Sheet Arrangements, Liquidity and Capital Resources

This “Liquidity and Capital Resources” section should be read in conjunction with the “COVID-19 Developments” section above.

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Any decision to sell shares below the then-current net asset value per share of our common stock is subject to stockholder approval and a determination by our board of directors that such issuance and sale is in our and our stockholders’ best interests.

sale or other issuance of shares of our common stock at a price below net asset value per share results in immediate dilution to our stockholders’ interests in our common stock and a reduction in our net asset value per share.

If we were to issue additional shares of our common stock during the next 12 months, we do not intend to issue shares below the then-current net asset value per share.

Any sale or other issuance of shares of our common stock at a price below net asset value per share results in immediate dilution to our stockholders’ interests in our common stock and a reduction in our net asset value per share.

If we were to

issue additional shares of our common stock during the next 12 months, we do not intend to issue shares below the then-current net asset value per share.

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.

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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.

Our operating activities provided cash and cash equivalents of $22.6 million during the nine months ended September 30, 2021, primarily from the net proceeds received from realizations and repayments on our investments, partially offset by acquisition of investments and cash used from the net change in working capital.

Our financing activities used cash and cash equivalents of $21.9 million during the nine months ended September 30, 2021, primarily due to repayments on the Credit Facility and the payment of distributions to stockholders, offset by proceeds from sales of common stock.

Our operating activities provided cash and cash equivalents of $25.0 million during the the nine months ended September 30, 2020, primarily from the net proceeds received from realizations and repayments on our investments as well as cash provided from the net change in working capital.

Our financing activities used cash and cash equivalents of $30.0 million during the nine months ended September 30, 2020, primarily due to repayments on the Credit Facility and the payment of distributions to stockholders.

As of September 30, 2021, we had cash and cash equivalent resources of $16.6 million, including $7.0 million of restricted cash.

As of September 30, 2021, we had approximately $25.4 million undrawn and available to be drawn under the Credit Facility based on the collateral and portfolio quality requirements stipulated in the related credit agreement.

We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to meet the financial needs of our portfolio companies.

These instruments may include commitments to extend credit and involve elements of liquidity and credit risk in excess of the amount recognized on the consolidated statements of assets and liabilities.

As of March 31, 2022 and December 31, 2021, we had commitments to fund approximately $43.1 million and $53.1 million, respectively, of revolving lines of credit or delayed draw facilities to our portfolio companies.

We reasonably believe that we have sufficient assets to adequately cover and allow us to satisfy our outstanding unfunded commitments.

Our operating activities provided cash and cash equivalents of $15.1 million during the three months ended March 31, 2022, primarily from the net proceeds received from realizations and repayments on our investments, partially offset by acquisition of investments and cash used from the net change in working capital.

Our financing activities used cash and cash equivalents of $16.6 million during the three months ended March 31, 2022, primarily due to repayments on the Credit Facility and the payment of distributions to stockholders.

Our operating activities provided cash and cash equivalents of $66.0 million during the three months ended March 31, 2021, primarily from the net proceeds received from realizations and repayments on our investments partially offset by acquisition of investments as well and cash used from the net change in working capital.

Our financing activities used cash and cash equivalents of $57.5 million during the three months ended March 31, 2021, primarily due to the payment of distributions to stockholders.

As of March 31, 2022, we had cash and cash equivalent resources of $21.3 million, including $18.8 million of restricted cash.

As of March 31, 2022, we had approximately $51.2 million undrawn and available to be drawn under the Credit Facility based on the collateral and portfolio quality requirements stipulated in the related credit agreement.

As of December 31, 2021, we had cash and cash equivalent resources of $22.5 million, including $10.3 million of restricted cash.

As of December 31, 2020, we had $19.8 million undrawn under the Credit Facility based on the collateral and portfolio quality requirements stipulated in the related credit and security agreement.

As of December 31, 2021, we had approximately $43.4 million undrawn and available to be drawn under the Credit Facility based on the collateral and portfolio quality requirements stipulated in the related credit agreement.

In January 2019, we and STRS Ohio formed a joint venture, STRS JV, that invests primarily 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 the LIBOR or an equivalent risk-free index rate and have a term of three to six years.

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On July 19, 2019 STRS JV formally launched operations.

As of September 30, 2021, STRS JV had total assets of $246.8 million.

As of March 31, 2022, STRS JV had total assets of $332.2 million.

As of December 31, 2021, STRS JV had total assets of $273.5 million.

We provide capital to STRS JV in the form of limited liability company, or LLC equity interests, and subordinated notes.

As of September 30, 2021, we and STRS Ohio owned 60% and 40%, respectively, of the LLC equity interests of STRS JV.

Our investment in STRS JV consisted of equity contributions and subordinated note advances of $14.3 million and $57.3 million as of September 30, 2021, respectively.

As of September 30, 2021, we had commitments to fund equity interests and subordinated notes in STRS JV of $15 million and $60 million, of which $0.7 million and $2.7 million was unfunded, respectively.

In February 2022, we increased our capital commitment to the STRS JV in the amount of an additional $25.0 million, which brings our total capital commitment to the STRS JV to $100.0 million, comprised of $80.0 million of subordinated notes and $20.0 million of LLC equity interests.

As of March 31, 2022, our and STRS Ohio’s economic ownership in STRS JV were approximately 66.67% and 33.33%, respectively.

As of March 31, 2022, our investment in STRS JV consisted of equity contributions and subordinated note advances of $20.0 million and $80.0 million, respectively, both of which were fully funded.

As of December 31, 2021, our and STRS Ohio’s economic ownership in STRS JV were approximately 60% and 40%, respectively.

As of December 31, 2021, we had commitments to fund equity interests and subordinated notes in STRS JV of $15.0 million and $60.0 million, respectively, both of which were fully funded.

STRS JV is managed by a four-person board of managers, two of whom are selected by us and two of whom are selected by STRS Ohio.

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provided that two individuals are present that were elected, designated or appointed by each member.

Below is a summary of STRS JV’s portfolio as of September 30, 2021 and December 31, 2020:

Below is a summary of STRS JV’s portfolio as of March 31, 2022 and December 31, 2021:

($ in thousands)

As of September 30, 2021

As of March 31, 2022

As of December 31, 2021

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Total of five largest portfolio company investments (2)

(1) At fair value.

(1) Weighted average effective yield is computed by dividing (a) annualized interest income (including interest income resulting from the amortization of fees and discounts) by (b) the weighted average cost of investment.

Investments consisted of the following:

As of September 30, 2021

(2) At fair value.

STRS JV’s investments consisted of the following:

As of March 31, 2022

As of December 31, 2021

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Industry ($ in thousands)

As of September 30, 2021

As of March 31, 2022

As of December 31, 2021

Air Freight & Logistics

Application Software

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Environmental & Facilities Services

Human Resource & Employment Services

Industrial Machinery

Insurance Brokers

Internet & Direct Marketing Retail

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IT Consulting & Other Services

Leisure Products

Packaged Foods & Meats

Personal Products

Pharmaceuticals

Real Estate Operating Companies

Real Estate Services

Research & Consulting Services

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Trading Companies & Distributors

See Note 4 to our consolidated financial statements for further discussion on STRS JV’s portfolio and selected balance sheet information as of September 30, 2021 and December 31, 2020 and selected statement of operations information for the three and nine months ended September 30, 2021 and 2020.

See Note 4 to our consolidated financial statements for further discussion on STRS JV’s portfolio and selected balance sheet information as of March 31, 2022 and December 31, 2021 and selected statement of operations information for the three months ended March 31, 2022 and 2021.

Capital Raises

On October 25, 2021, we completed an offering of 1,900,000 shares of our common stock at a public offering price of $15.81 per share, inclusive of underwriting discounts and commissions.

In connection with the offering, we granted the underwriters an overallotment option to purchase up to an additional 285,000 shares of our common stock.

The issuance of 1,900,000 shares resulted in net proceeds to us of $29.4 million, inclusive of underwriting discounts and commissions and before offering expenses.

WhiteHorse Advisers agreed to bear a portion of the underwriting discounts and commissions in connection with the offering, such that the issuance of the 2,182,300 shares (which includes the additional shares issued pursuant to the overallotment option) resulted in net proceeds to us of $33.7 million before offering expenses, which was at or above our net asset value per share at the time of the offering and the overallotment option.

At-the-Market Offering

On March 15, 2021, we entered into an equity distribution agreement, or the Equity Distribution Agreement, with WhiteHorse Advisers, WhiteHorse Administration and Raymond James & Associates, Inc., as the sales agent, or the Sales Agent, in connection with the sale of shares of our common stock, with an aggregate offering price of up to $35.0 million.

The Equity Distribution Agreement provides that we may offer and sell shares of our common stock from time to time through the Sales Agent in amounts and at times to be determined by us (the “ATM Offering”).

Actual sales will depend on a variety of factors to be determined by us from time to time, including market conditions and the trading price of our common stock.

We expect to use all or substantially all of the net proceeds from the ATM Offering to invest in portfolio companies in accordance with our investment objective and strategies and for general corporate purposes.

Since the commencement of the ATM Offering, gross proceeds of $4.4 million have been raised.

Credit Facility

On December 23, 2015, our wholly owned subsidiary WhiteHorse Finance Credit I, LLC, or WhiteHorse Credit, entered into the $200 million Credit Facility with the Lender.

On June 27, 2016, the Credit Facility was amended and restated to clarify certain terms.

On June 29, 2017, the Credit Facility was again amended and restated to, among other things, (i) extend the maturity date to December 29, 2021, (ii) increase the amount contained within the accordion feature which allows for the expansion of the borrowing limit from $220 million to $235 million and (iii) reduce the interest rate spread applicable on outstanding borrowings to 2.75%.

On May 15, 2018, the terms of the Credit Facility were again amended and restated to, among other things, permit the financing of certain assets to be held by WhiteHorse Finance (CA), LLC, or WhiteHorse California, a wholly owned subsidiary of WhiteHorse Credit.

On November 19, 2018, we entered into an amendment, which, among other things, allows for an increase in the advance rate and a temporary reduction, through August 19, 2019, in the required minimum outstanding borrowings under the Credit Facility.

On November 22, 2019, the terms of the Credit Facility were amended to, among other things, (i) extend the maturity date from December 29, 2021 to November 22, 2024;(ii) increase the size of the facility from $200 million to $250 million with an additional $100 million accordion feature, which allows for the expansion of the borrowing limit, exercisable in increments of at least $35 million, or the Commitment;

(iii) reduce the interest rate spread applicable on outstanding borrowings from 2.75% to 2.50%;

(iv) change the minimum borrowing amount from 77.5% to 70.0% of the Commitment;

(v) increase the advance rate from 57% to 60%;

and (vi) extend the non-call period from October 29, 2019 to November 22, 2021.

On December 21, 2020, the terms of the Credit Facility were amended to, among other things, (i) increases the minimum funding amount from $175 million to $200 million, (ii) increase the size of the facility from $250 million to $285 million and retains an accordion feature which allows for the expansion of the borrowing limit up to $350 million and (iii) provide for the implementation of certain changes relating to the transition away from the LIBOR in the market.

On December 23, 2015, our wholly owned subsidiary WhiteHorse Credit I, LLC, or WhiteHorse Credit, entered into a revolving credit and security agreement with JPMorgan Chase Bank, National Association (“JPMorgan”), as administrative agent and lender (the “Credit Facility”).

On December 21, 2020, the terms of the Credit Facility were amended to, among other things, (i) increase the minimum funding amount from $175.0 million to $200.0 million, (ii) increase the size of the facility from $250.0 million to $285.0 million, (iii) retain an accordion feature which allows for the expansion of the borrowing limit up to $350.0 million and (iv) provide for the implementation of certain changes relating to the transition away from LIBOR in the market.

On April 28, 2021, the terms of the Credit Facility were amended and restated to, among other things, enable WhiteHorse Credit to borrow in British Pounds or Euros.

On July 15, 2021, the terms of the Credit Facility were amended to, among other things, allow WhiteHorse Credit to reduce the applicable margins for interest rates to 2.35%, extend the non-call period from November 22, 2021 to November 22, 2022, extend the end of the reinvestment period from November 22, 2023 to November 22, 2024 and extend the scheduled termination date from November 22, 2024, to November 22, 2025.

The Credit Facility provides for borrowings in an aggregate principal amount up to $285 million with an accordion feature which allows for the expansion of the borrowing limit up to $350 million, subject to consent from the Lender and other customary conditions.

The required minimum outstanding borrowings under the Credit Facility are $200 million, unless the accordion feature is exercised, at which time the required minimum outstanding borrowings will be $245 million.

Under the Credit Facility, there are two coverage tests that WhiteHorse Credit must meet on specified compliance dates in order to permit WhiteHorse Credit to make new borrowings and to make distributions in the ordinary course - a borrowing base test and a market value test.

The borrowing base test compares, at any given time, the aggregate outstanding amount of all Lender advances under the Credit Facility less the amount of principal proceeds in respect of the collateral on deposit in the accounts to the net asset value of the collateral, as set forth in the credit agreement and related documentation.

To meet the borrowing base test, this ratio must be less than or equal to 50%, as set forth in the credit agreement and related documentation.

To meet the market value test, the value of WhiteHorse Credit’s portfolio investments must exceed a minimum of 165% of the aggregate outstanding amount of all Lender advances as set forth in the credit agreement and related documentation.

Advances under the Credit Facility are based on the three-month LIBOR for USD denominated borrowings plus an annual spread of 2.35%.

The Credit Facility bears interest at EURIBOR, for EUR denominated borrowings, CDOR for CAD denominated borrowings, Sterling Overnight Index Average, for GBP denominated, plus a spread of 2.35% on

outstanding borrowings.

On October 4, 2021, the terms of the Credit Facility were amended to, among other things, establish a temporary upsize to the borrowing capacity under the Credit Facility, which allowed WhiteHorse Credit to borrow up to $335.0 million for a three-month period beginning on October 4, 2021.

On January 4, 2022, the terms of the Credit Facility were amended to, among other things, continue to establish a temporary upsize to the borrowing capacity under the Credit Facility, which allowed WhiteHorse Credit to borrow up to $335.0 million for a four-month period that originally began on October 4, 2021.

On February 4, 2022, the terms of the Credit Facility were further amended to, among other things (i) permanently increase WhiteHorse Credit’s availability under the Credit Facility from $285.0 million to $310.0 million (the “$25 Million Increase”), (ii) increase the minimum funding amount from $200.0 million to $217.0 million, (iii) extend an additional temporary increase of $25.0 million in availability under the Credit Facility, allowing WhiteHorse Credit to borrow up to $335.0 million through April 4, 2022 (the “$25 Million Temporary Increase”), and (iv) apply an annual interest rate equal to applicable SOFR plus 2.50% to any borrowings under the $25 Million Increase in the Credit Facility and the $25 Million Temporary Increase in availability under the Credit Facility.

On March 30, 2022, the terms of the Credit Facility were further amended to, among other things:

(i) increase WhiteHorse Credit’s availability under the Credit Facility from $310.0 million to $335.0 million;

(ii) retain an accordion feature which allows for the expansion of the borrowing limit up to $375.0 million;

and (iii) increase the minimum funding amount from $217.0 million to $234.5 million.

As of March 31, 2022, the Credit Facility provided for borrowings in an aggregate principal amount up to $335.0 million with an accordion feature which allows for the expansion of the borrowing limit up to $375.0 million, subject to consent from the Lender and other customary conditions.

As of March 31, 2022, the required minimum outstanding borrowings under the Credit Facility were $234.5 million.

(i) a borrowing base test and (ii) a market value test.

To meet the borrowing base test, this ratio must be less than or equal to 50%, as set forth in the Amended Loan Agreement and related documentation.

Advances under the Credit Facility are based on the three-month LIBOR for USD denominated borrowings plus an annual spread of 2.35% on outstanding USD denominated borrowings up to $285.0 million and SOFR plus 2.50% on USD denominated borrowings above $285.0 million.

The Credit Facility bears interest at EURIBOR, for EUR denominated borrowings, CDOR for CAD denominated borrowings, Sterling Overnight Index Average, for GBP denominated, plus a spread of 2.35% on outstanding borrowings.

Interest is payable quarterly in arrears.

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The Credit Facility also includes customary events of default for credit facilities of this nature, including breaches of representations, warranties or covenants by WhiteHorse Finance or WhiteHorse Credit, the occurrence of a change in control, or failure to maintain certain required ratios.

If we fail to perform our obligations under the credit agreement or the related agreements, an event of default may occur, which could cause the Lender to accelerate all of the outstanding debt and other obligations under the Credit Facility or to exercise other remedies under the credit agreement.

If we fail to perform our obligations under the Amended Loan Agreement or the related agreements, an event of default may occur, which could cause the Lender to accelerate all of the outstanding debt and other obligations under the Credit Facility or to exercise other remedies under the Amended Loan Agreement.

Any such developments could have a material adverse effect on our financial condition and results of operations.

If any of our contractual obligations discussed above is terminated, our costs under new agreements that we enter into may increase.

In addition, we will likely incur significant time and expense in locating alternative parties to provide the services we expect to receive under our Investment Advisory Agreement and our Administration Agreement.

In addition, we will likely incur significant time and expense in locating alternative parties to provide

the services we expect to receive under our Investment Advisory Agreement and our Administration Agreement.

Any new investment management agreement would also be subject to approval by our stockholders.

As of September 30, 2021, there was $259.6 million in outstanding borrowings under the Credit Facility and, based on collateral and portfolio requirements stipulated in the Credit Facility agreement, approximately $25.4 million was available to be drawn on such date.

The Credit Facility is secured by all of the assets of WhiteHorse Credit, which included loans with a fair value of $594.6 million as of September 30, 2021.

As of March 31, 2022, there was $283.8 million in outstanding borrowings under the Credit Facility and, based on collateral and portfolio requirements stipulated in the Credit Facility agreement, approximately $51.2 million was available to be drawn on such date.

The Credit Facility is secured by all of the assets of WhiteHorse Credit, which included loans with a fair value of $662.5 million as of March 31, 2022.

As of December 31, 2021, there was $291.6 million in outstanding borrowings under the Credit Facility and, based on collateral and portfolio requirements stipulated in the Credit Facility agreement, approximately $43.4 million was available to be drawn on such date.

The Credit Facility is secured by all of the assets of WhiteHorse Credit, which included loans with a fair value of $719.5 million as of December 31, 2021.

2023 Private Notes

6.000% 2023 Notes

On July 13, 2018, we entered into the 2023 Note Purchase Agreement to sell in a private offering $30 million of aggregate principal amount of unsecured notes to qualified institutional investors in reliance on Section 4(a)(2) of the Securities Act.

Interest on the 2023 Private Notes is payable semiannually on February 7 and August 7, at a fixed, annual rate of 6.00%.

This interest rate is subject to increase (up to 6.50%) in the event that, subject to certain exceptions, the 2023 Private Notes cease to have an investment grade rating.

The 2023 Private Notes mature on August 7, 2023, unless redeemed, purchased or prepaid prior to such date by us or our affiliates in accordance with their terms.

The 2023 Private Notes are general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness that we may issue.

Interest on the 6.000% 2023 Notes is payable semiannually on February 7 and August 7, at a fixed, annual rate of 6.00%.

This interest rate is subject to increase (up to 6.50%) in the event that, subject to certain exceptions, the 6.000% 2023 Notes cease to have an investment grade rating.

The 6.000% 2023 Notes mature on August 7, 2023, unless redeemed, purchased or prepaid prior to such date by us or our affiliates in accordance with their terms.

The 6.000% 2023 Notes are general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness that we may issue.

The closing of the transaction occurred on August 7, 2018.

We used the net proceeds from this offering, together with cash on hand, to redeem existing debt.

2025 Private Notes

5.375% 2025 Notes

On October 20, 2020, we entered into the 2025 Note Purchase Agreement to sell in a private offering $40 million of aggregate principal amount of unsecured notes to qualified institutional investors in reliance on Section 4(a)(2) of the Securities Act.

Interest on the 2025 Private Notes is payable semiannually on April 20 and October 20, at a fixed, annual rate of 5.375%.

This interest rate is subject to increase (up to 6.375%) in the event that, subject to certain exceptions, the 2025 Private Notes cease to have an investment grade rating.

The 2025 Private Notes mature on October 20, 2025, unless redeemed, purchased or prepaid prior to such date by us or our affiliates in accordance with their terms.

The 2025 Private Notes are general unsecured obligations that rank pari passu with all outstanding and future unsecured

unsubordinated indebtedness that we may issue.

Interest on the 5.375% 2025 Notes is payable semiannually on April 20 and October 20, at a fixed, annual rate of 5.375%.

This interest rate is subject to increase (up to 6.375%) in the event that, subject to certain exceptions, the 5.375% 2025 Notes cease to have an investment grade rating.

The 5.375% 2025 Notes mature on October 20, 2025, unless redeemed, purchased or prepaid prior to such date by us or our affiliates in accordance with their terms.

The 5.375% 2025 Notes are general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness that we may issue.

The closing of the transaction occurred on October 20, 2020.

We used the net proceeds from this offering to redeem existing debt.

2026 Private Notes

5.375% 2026 Notes

On December 4, 2020, we entered into the 2026 Note Purchase Agreement to sell in a private offering $10 million of aggregate principal amount of unsecured notes to qualified institutional investors in reliance on Section 4(a)(2) of the Securities Act.

Interest on the 2026 Private Notes is payable semiannually on June 4 and December 4, at a fixed, annual rate of 5.375%.

This interest rate is subject to increase (up to 6.375%) in the event that, subject to certain exceptions, the 2026 Private Notes cease to have an investment grade rating.

The 2026 Private Notes mature on December 4, 2026, unless redeemed, purchased or prepaid prior to such date by us or our affiliates in accordance with their terms.

The 2026 Private Notes are general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness that we may issue.

Interest on the 5.375% 2026 Notes is payable semiannually on June 4 and December 4, at a fixed, annual rate of 5.375%.

This interest rate is subject to increase (up to 6.375%) in the event that, subject to certain exceptions, the 5.375% 2026 Notes cease to have an investment grade rating.

The 5.375% 2026 Notes mature on December 4, 2026, unless redeemed, purchased or prepaid prior to such date by us or our affiliates in accordance with their terms.

The 5.375% 2026 Notes are general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness that we may issue.

The closing of the transaction occurred on December 4, 2020.

We used the net proceeds from this offering to redeem existing debt.

2027 Private Notes

5.625% 2027 Notes

On December 4, 2020, we entered into the 2027 Note Purchase Agreement to sell in a private offering $10 million of aggregate principal amount of unsecured notes to qualified institutional investors in reliance on Section 4(a)(2) of the Securities Act.

Interest on the 2027 Private Notes is payable semiannually on June 4 and December 4, at a fixed, annual rate of 5.625%.

This interest rate is subject to increase (up to 6.625%) in the event that, subject to certain exceptions, the 2027 Private Notes cease to have an investment grade rating.

The 2027 Private Notes mature on December 4, 2027, unless redeemed, purchased or prepaid prior to such date by us or our affiliates in accordance with their terms.

The 2027 Private Notes are general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness that we may issue.

Interest on the 5.625% 2027 Notes is payable semiannually on June 4 and December 4, at a fixed, annual

rate of 5.625%.

This interest rate is subject to increase (up to 6.625%) in the event that, subject to certain exceptions, the 5.625% 2027 Notes cease to have an investment grade rating.

The 5.625% 2027 Notes mature on December 4, 2027, unless redeemed, purchased or prepaid prior to such date by us or our affiliates in accordance with their terms.

The 5.625% 2027 Notes are general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness that we may issue.

The closing of the transaction occurred on December 4, 2020.

We used the net proceeds from this offering to redeem existing debt.

4.000% 2026 Notes

On November 24, 2021, we completed a public offering of $75 million of aggregate principal amount of unsecured notes, the net proceeds of which were used to fund investments in debt and equity securities and repay outstanding indebtedness under the Credit Facility.

Interest on the 4.000% 2026 Notes is paid semiannually on June 15, and December 15 each year, at a fixed, annual rate of 4.00%.

The 4.000% 2026 Notes will mature on December 15, 2026 and may be redeemed in whole or in part at any time prior to September 15, 2026, at par plus a “make-whole” premium, and thereafter at par.

The 4.000% 2026 Notes will rank equally in right of payment with our other outstanding and future unsecured, unsubordinated indebtedness, including the 6.000% 2023 Notes, the 5.375% 2025 Notes, the 5.375% 2026 Notes, the 5.625% 2027 Notes and the 4.250% 2028 Notes.

The 4.000% 2026 Notes will effectively rank behind all of our existing and future secured indebtedness (including indebtedness that is initially unsecured in respect of which we subsequently grant security) in right of payment, to the extent of the value of the assets securing such indebtedness, including our Credit Facility.

4.250% 2028 Notes

On December 6, 2021, we entered into the 2028 Note Purchase Agreement to sell in a private offering $25 million of aggregate principal amount of unsecured notes to qualified institutional investors in reliance on Section 4(a)(2) of the Securities Act.

Interest on the 4.250% 2028 Notes is payable semiannually on June 6 and December 6, at a fixed, annual rate of 4.25%.

This interest rate is subject to increase (up to 5.25%) in the event that, subject to certain exceptions, the 4.250% 2028 Notes cease to have an investment grade rating.

The 4.250% 2028 Notes mature on December 6, 2028, unless redeemed, purchased or prepaid prior to such date by us or our affiliates in accordance with their terms.

The 4.250% 2028 Notes are general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness that we may issue.

The closing of the transaction occurred on December 6, 2021.

We used the net proceeds from this offering to redeem existing debt.

2025 Public Notes

On November 13, 2018, we completed a public offering of $35 million of aggregate principal amount of unsecured notes, the net proceeds of which were used to fund investments in debt and equity securities and repay outstanding indebtedness under our revolving credit facility.

Interest on the 2025 Public Notes is paid quarterly on February 28, May 31, August 31 and November 30 each year, at a fixed, annual rate of 6.50%.

The 2025 Public Notes will mature on November 30, 2025 and may be redeemed in whole or in part at any time, or from time to time, at our option on or after November 30, 2021.

The 2025 Public Notes will rank equally in right of payment with our other outstanding and future unsecured, unsubordinated indebtedness, including the 2023 Private Notes, the 2025 Private Notes, the 2026 Private Notes and the 2027 Private Notes.

The 2025 Public Notes will effectively rank behind all of our existing and future secured indebtedness (including indebtedness that is initially unsecured in respect of which we subsequently grant security) in right of payment, to the extent of the value of the assets securing such indebtedness, including our Credit Facility.

The 2025 Public Notes are listed on the Nasdaq Global Select Market under the trading symbol “WHFBZ.”

At-the-Market Offering

On March 15, 2021, we entered into an equity distribution agreement, or the Equity Distribution Agreement, with WhiteHorse Advisers, WhiteHorse Administration and Raymond James & Associates, Inc., as the sales agent, or the Sales Agent, in connection with the sale of shares of our common stock, par value $0.001 per share, with an aggregate offering price of up to $35.0 million.

Actual sales will depend on a variety of factors to be determined by us from time to time, including market conditions and the trading price of our common stock.

As of September 30, 2021, gross proceeds of $4.1 million have been raised from the ATM Offering.

Interest on the 2025 Public Notes was paid quarterly on February 28, May 31, August 31 and November 30 each year, at a fixed, annual rate of 6.50%.

The 2025 Public Notes had a maturity date of November 30, 2025 and were redeemable in whole or in part at any time, or from time to time, at our option on or after November 30, 2021.

The 2025 Public Notes were redeemed on December 17, 2021 and were de-listed from the Nasdaq Global Select Market where they were trading under the symbol “WHFBZ.”

Portfolio Investments and Yield

As of September 30, 2021, our investment portfolio consisted primarily of senior secured loans across 99 positions in 65 companies with an aggregate fair value of $687.1 million.

As of September 30, 2021, the majority of our portfolio was comprised of senior secured loans to lower middle market borrowers and nearly all of those loans were variable-rate investments (primarily indexed to LIBOR) with three fixed-rate loan investments representing 0.4% based on fair value.

As of September 30, 2021, our portfolio had an average investment size of $6.3 million based on fair value (average debt investment size of $7.3 million), with investment sizes ranging from zero to $24.0 million and a weighted average effective yield of 9.1% (and a weighted average effective yield on income-producing debt investments of 9.3%).

As of March 31, 2022, our investment portfolio consisted primarily of senior secured loans across 111positions in 68 companies with an aggregate fair value of $800.4 million.

As of March 31, 2022, the majority of our portfolio was comprised of senior secured loans to lower middle market borrowers and nearly all of those loans were variable-rate investments (primarily indexed to LIBOR) with three fixed-rate loan investments representing 0.4% based on fair value.

As of March 31, 2022, our portfolio had an average investment size of $6.4 million based on fair value and average debt investment size of $7.7 million, with investment sizes ranging from zero to $23.8 million and a weighted average effective yield of 9.2% (and a weighted average effective yield on income-producing debt investments of 9.3%).

As of December 31, 2021, our investment portfolio consisted primarily of senior secured loans across 127 positions in 76 companies with an aggregate fair value of $819.2 million.

As of that date, the majority of our portfolio was comprised of senior secured loans to lower middle market borrowers and nearly all of those loans were variable-rate investments (primarily indexed to LIBOR) with two fixed-rate loan investments representing 0.2% based on fair value.

As of December 31, 2020, our portfolio had an average investment size of $6.6 million (average debt investment size of $7.3 million), with investment sizes ranging from zero to $23.5 million and a weighted average effective yield of 9.4% (and a weighted average effective yield on income-producing debt investments of 9.9%).

For the nine months ended September 30, 2021, we invested $328.7 million in new and existing portfolio companies, offset by repayments and sales of $343.3 million.

As of December 31, 2021, the majority of our portfolio was comprised of senior secured loans to lower middle market borrowers and nearly all of those loans were variable-rate investments, primarily indexed to LIBOR, with four fixed-rate loan investments representing 0.4% based on fair value.

As of December 31, 2021, our portfolio had an average investment size of $5.9 million based on fair value and average debt investment size of $6.8 million, with investment sizes ranging from zero to $24.0 million and a weighted average effective yield of 9.0% (and a weighted average effective yield on income-producing debt investments of 9.1%).

For the three months ended March 31, 2022, we invested $103.6 million in new and existing portfolio companies, offset by repayments and sales of $121.0 million.

Proceeds from sales totaled $69.3 million while repayments included $2.6 million of scheduled repayments and $49.1 million of unscheduled repayments.

For the nine months ended September 30, 2020, we invested $126.3 million in new and existing portfolio companies, offset by repayments and sales of $129.4 million.

For the three months ended March 31, 2021, we invested $72.4 million in new and existing portfolio companies, offset by repayments and sales of $149.6 million.

Proceeds from sales totaled $56.2 million while repayments included $3.1 million of scheduled repayments and $90.5 million of unscheduled repayments.

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The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value:

As of September 30, 2021

As of March 31, 2022

As of December 31, 2021

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Total Portfolio

Inflation has not had a significant effect on our results of operations in any of the reporting periods presented in our consolidated financial statements.

However, from time to time, inflation may impact the operating results of our portfolio companies.

Off-Balance Sheet Arrangements

We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to meet the financial needs of our portfolio companies.

As of September 30, 2021 and December 31, 2020, we had commitments to fund approximately $33.1 million and $19.6 million, respectively, of revolving lines of credit or delayed draw facilities to our portfolio companies.

We reasonably believe that we have sufficient assets to adequately cover and allow us to satisfy our outstanding unfunded commitments.

Distributions

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federal income tax.

During the three and nine months ended September 30, 2021 we declared to stockholders distributions of $0.355 and $1.065 per share, respectively for total distributions of $7.4 million and $22.1 million, respectively.

During the three and nine months ended September 30, 2020 we declared to stockholders distributions of $0.355 and $1.065 per share, respectively for total distributions of $7.3 million and $21.9 million, respectively.

During the three months ended March 31, 2022, we declared to stockholders distributions of $0.355 for total distributions of $8.2 million.

During the three months ended March 31, 2021, we declared to stockholders distributions of $0.355 per share, for total distributions of $7.3 million.

The timing and amount of our quarterly distributions, if any, are determined by our board of directors.

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Thus, the source of a distribution to our stockholders may be the original capital invested by the stockholder rather than our income or gains.

During the nine months ended September 30, 2021, we estimate that distributions to stockholders included $21.6 million of ordinary income and $0.5 million of long term capital gains, for tax purposes, based on earnings for the fiscal year ended December 31, 2020 and current earnings for the the nine months ended September 30, 2021.

During the three months ended March 31, 2022, we estimate that distributions to stockholders included $8.2 million of ordinary income, for tax purposes, based on earnings for the fiscal year ended December 31, 2021 and current earnings for the three months ended March 31, 2022.

The specific tax characteristics of the distribution will be reported to stockholders on or after the end of the calendar year 2022 and in our periodic reports with the SEC.

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federal, state and local taxes in the same manner as cash distributions, stockholders participating in our DRIP will not receive any corresponding cash distributions with which to pay any such applicable taxes.

Contractual Obligations

A summary of our significant contractual payment obligations as of September 30, 2021 is as follows:

Payments Due by Period

($ in millions)

Credit Facility

2023 Private Notes

2025 Private Notes

2026 Private Notes

2027 Private Notes

2025 Public Notes

Total contractual obligations

As of September 30, 2021, we had $25.4 million of unused borrowing capacity under the Credit Facility.

Related Party Transactions

We have entered into a number of business relationships with affiliated or related parties, including the following:

● WhiteHorse Advisers manages our day-to-day operations and provides investment management services to us pursuant to the Investment Advisory Agreement.

● WhiteHorse Administration and certain of its affiliates provide us with the office facilities and administrative services, including access to the resources necessary for us to perform our obligations towards certain portfolio companies, pursuant to the Administration Agreement.

● We have entered into a license agreement with an affiliate of H.I.G.

Capital pursuant to which we have been granted a non-exclusive, royalty-free license to use the “WhiteHorse” name.

We entered into the Investment Advisory Agreement with WhiteHorse Advisers in accordance with the 1940 Act on December 4, 2012, which was most recently amended on November 1, 2018.

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Payments under the Administration Agreement will be based upon our allocable portion of WhiteHorse Administration’s overhead expenses in performing its obligations under the Administration Agreement, including rent and our allocable portion of the costs of our chief financial officer and chief compliance officer along with their respective staffs.

Related Party Transactions

We have entered into a number of business relationships with affiliated or related parties, including the following:

● WhiteHorse Advisers manages our day-to-day operations and provides investment management services to us pursuant to the Investment Advisory Agreement.

● We have entered into a license agreement with an affiliate of H.I.G.

Capital pursuant to which we have been granted a non-exclusive, royalty-free license to use the “WhiteHorse” name.

WhiteHorse Advisers, WhiteHorse Administration or their respective affiliates may have other clients with similar, different or competing investment objectives.

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Our board of directors and management periodically review and assess the effectiveness of such communications and information systems and policies.

Critical Accounting Policies

Critical Accounting Estimates

The preparation of our financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.

Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ.

We have identified the following as critical accounting policies.

We have identified the following as critical accounting estimates.

Principles of Consolidation

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As provided under ASC Topic 946, we generally consolidate any investment company when we own 100% of its partners’ or members’ capital or equity units.

We own a 100% equity interest in each of WhiteHorse Credit and WhiteHorse Finance Warehouse, LLC, WhiteHorse Warehouse, WHF PMA Holdco Blocker, LLC, WhiteHorse RCKC Holdings, LLC and WhiteHorse Finance Holdings, LLC, which are investment companies for accounting purposes.

As such, we have consolidated the accounts of WhiteHorse Credit, WhiteHorse Warehouse, WHF PMA Holdco Blocker, LLC, WhiteHorse RCKC Holdings LLC and WhiteHorse Finance Holdings, LLC into our financial statements.

We own a 100% equity interest in each of WhiteHorse Credit, WHF PMA Holdco Blocker, LLC, WhiteHorse RCKC Holdings, LLC and WhiteHorse Finance Holdings, LLC, which are investment companies for accounting purposes.

As such, we have consolidated the accounts of WhiteHorse Credit, WHF PMA Holdco Blocker, LLC, WhiteHorse RCKC Holdings LLC and WhiteHorse Finance Holdings, LLC into our financial statements.

As a result of this consolidation, the amount outstanding under the Credit Facility is treated as our indebtedness.

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(i) market prices obtained from market makers for which the investment committee has deemed there to be enough breadth (number of quotes) and depth (firm bids) to be indicative of fair value, (ii) the price paid or realized in a completed transaction or binding offer received in an arm’s-length transaction, (iii) a discounted cash flow analysis, (iv) the guideline public company method, (v) the similar transaction method or (vi) the option pricing method.

In addition, on December 3, 2020, the SEC announced that it adopted Rule 2a-5 under the 1940 Act, which establishes an updated regulatory framework for determining fair value in good faith for purposes of the 1940 Act.

new rule clarifies how fund boards can satisfy their valuation obligations in light of recent market developments.

The rule will permit boards, subject to board oversight and certain other conditions, to designate certain parties to perform the fair value determinations.

We will continue to review the new rule and its impact on our valuation policies.

Investment Transactions and Related Investment Income and Expense

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis