WhiteHorse Finance Q3 2026 Earnings Call Transcript

WhiteHorse Finance (NASDAQ:WHF) reported third-quarter financial results on Monday. The transcript from the company’s third-quarter earnings call has been provided below.

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Access the full call at https://events.q4inc.com/attendee/853015775

Summary

WhiteHorse Finance reported a Q3 2026 GAAP net investment income of $4.4 million, or 20.7 cents per share, with core net investment income at $4.8 million, or 22.4 cents per share.

Net asset value per share increased to $11.82, driven by investment appreciation in Chase Products and PlayMonster, while non-accruals declined to 2% due to restructuring efforts.

The company is exploring strategic alternatives through a Special Committee, which could include a sale, but no definitive timeline or outcomes have been set.

Gross capital deployments were $21 million with net deployments of $10.9 million, focusing on first-lien loans and new originations like Transervice Logistics and Core Wireless Group.

Management highlighted a constructive credit market in 2026, with attractive opportunities in software due to more conservative deal structures and pricing.

The company declared a special distribution of $0.17 per share, indicating comfort with liquidity despite upcoming debt maturities, which they are actively addressing.

WhiteHorse Finance continues to leverage its STRS JV for portfolio management and believes its equity investment provides attractive returns.

The company is not currently pursuing share repurchases due to ongoing strategic review but remains focused on portfolio growth in a favorable market environment.

Full Transcript

Chloe (Conference Operator)

Good afternoon. My name is Chloe and I will be your conference operator today. At this time I would like to welcome everyone to the WhiteHorse Finance third quarter 2026 earnings conference call. Our hosts 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.

At this time, all participants have been placed in a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star one on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. If you should require operator assistance, please press zero. It is now my pleasure to turn the call over to Rob Munnings of Rose and Company.

Rob Munnings (Investor Relations at Rose and Company)

Thanks, Chloe. And thank you everyone for joining us today to discuss WhiteHorse Finance’s third quarter 2026 earnings results. Before we begin, I would like to remind everyone that certain statements which are not based on historical 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, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements.

WhiteHorse Finance assumes no obligation or responsibility to update any forward-looking statements. Today’s speakers may refer to material from the WhiteHorse Finance third quarter 2026 earnings presentation, which was posted to our website earlier today. With that, allow me to introduce WhiteHorse Finance’s CEO, Stuart Aronson. Stuart, you may begin.

Stuart Aronson (Chief Executive Officer)

Thank you, Rob. Good afternoon, everybody. Thank you for joining us today. As you’re aware, we issued our earnings this morning before market open. I hope you’ve had a chance to review our results for the period ended September 30, 2026, which can also be found on our website. On today’s call, I will begin by addressing our third quarter results, provide a brief update on the actions that both management and our Board have taken to date in creating shareholder value, and finally discuss current market conditions.

Then Joyce and Thomas, our Chief Financial Officer, will discuss our performance in greater detail, after which we will open the floor for questions at a high level. Our third quarter results reflected three main themes. First, net asset value per share increased for the second consecutive quarter, driven primarily by continued unrealized appreciation in our investments in Chase Products and PlayMonster; credit quality improved, with non-accruals declining to 2% of the debt portfolio at fair value following the restructuring of Outward Hound. And third, core net investment income increased modestly quarter over quarter, while GAAP net investment income saw a decrease relative to the prior quarter as a result of certain non-recurring, non-cash expenses and write-offs.

Coming to our financial results, Q3 GAAP net investment income was 4.4 million, or 20.7 cents per share, and core NII was 4.8 million, or 22.4 cents per share. This compares with Q2 GAAP net investment income and core NII of 4.7 million, or 21.7 cents per share. The difference between GAAP NII and core NII this quarter reflects approximately $450,000 of non-recurring expenses, or 1.7 cents per share net of related incentive fee, consisting of the write-off of previously deferred offering costs associated with our shelf registration statement as well as our previously active aftermarket equity offering program.

Touching more specifically on the portfolio marks, net realized and unrealized gains for the quarter were approximately 2.1 million, or 9.6 cents per share. Net markups were again led by our position in Starco, also known as Chase Products and Pressurized Holdings, where the markup on our equity investment contributed approximately 1.3 million, or roughly $0.06 per share. I’ll provide more detail on Chase as well and an update on a number of other investments in our portfolio later in the call.

NAV per share at the end of Q3 was $11.82 compared with $11.77 at the end of Q2, an increase of approximately 0.4%. The change in NAV reflected net realized and unrealized gains of approximately $0.09 per share, partially offset by the approximate $0.04 per share NII shortfall as a result of distributions paid during the quarter that exceeded GAAP net investment income for the period. Even though our NII this quarter was below the quarterly distribution rate, as I’ve shared in the past, we have a number of restructured credits that have been equitized and are not producing meaningful NII. I will discuss and provide updates on a few of these shortly, and to the extent we have realizations on these positions, the reinvested capital should add to the BDC’s NII-generating capability thereafter.

Turning to shareholder value, as we have discussed on prior calls, both management and the Board remain focused on actions that we believe can help enhance shareholder value over time. This focus has included disciplined portfolio repositioning, selective capital deployment, accretive share repurchases, and steps to support distributable earnings. Cumulatively, since the inception of our share repurchase program in the first quarter of 2025, we have repurchased approximately 1.8 million shares at a weighted average price of approximately 736 per share, and we estimate that our buybacks have contributed approximately $0.33 per share to NAV accretion.

Additionally, over that same time frame, the BDC’s advisor has agreed to a voluntary incentive fee waiver, reducing the applicable rate from 20% to 17.5%. Cumulatively, this aggregates to approximately 530,000, or approximately 2.4 cents per share in the incentive fees waived by the advisor. In an effort to support distributable earnings, the advisor has again agreed to extend the voluntary incentive fee waiver for the fourth quarter of 2026, reducing the applicable rate from 20% to 17.5%.

Now, as an extension of our commitment to seeking ways to create shareholder value and as previously announced on September 15th, our Board has formed a Special Committee of independent directors to explore strategic alternatives for the company, which could include a sale or other corporate transaction. That review is ongoing. The Special Committee has not set a timetable for the conclusion of its review, and there can be no assurance that the review will result in the company proceeding with or completing any transaction.

Consistent with our prior announcement, we do not intend to comment further on the review unless and until the Special Committee has approved its definitive course of action, or the review is concluded, or it is otherwise determined that further disclosure is appropriate or required by law. Accordingly, we will not be taking questions on the strategic review during today’s call. Turning to our portfolio activity, we had gross capital deployments of 21 million in Q3. Repayments and sales totaled approximately 10 million, resulting in net deployments of approximately 10.9 million before the effects of transferring assets into the STRS JV. Gross capital deployments consisted of two new originations totaling $14.8 million, with the remaining 6.2 million deployed to fund add-ons to existing portfolio companies.

The two new originations were Transervice Logistics for 8 million, which refinanced our existing investment in that company, and Core Wireless Group for 6.8 million, which was transferred into the STRS JV during the quarter. Add-on fundings were led by Nativia Group at 2.6 million and Kelso Industries at 1.7 million. Of our two new originations in Q3, one was non-sponsor and one was sponsor. The new originations in Q3 had an average leverage of only 3.6 times EBITDA and were all first-lien loans.

Total repayments and sales of 10 million were driven primarily by the repayment of our prior Transervice Logistics term loan of 7.6 million, which generated a gross IRR of 14.6%, as well as the realization of our residual equity position in PFD for 0.2 million. During the quarter, the BDC transferred five deals to the STRS JV totaling 21.4 million. The transfers were headlined by Core Wireless at 6.8 million, Intermedia Cloud Communications at 6.6 million, and Vibration Mountings and Controls at 6.3 million. We continue to successfully utilize the STRS JV and believe that WhiteHorse Finance’s equity investment in the JV continues to provide attractive returns to our shareholders. After net deployments and JV transfer activity, as well as net realized and unrealized gains recognized during the quarter, total investments were essentially unchanged at 569.1 million.

During the quarter we recognized approximately 3.6 million in net realized losses driven by the restructuring of Outward Hound and approximately 5.7 million of net unrealized gains, which included 4.1 million from Outward Hound driven by the reversal of 3.8 million in previously recognized unrealized depreciation, for aggregate net realized and unrealized gains of approximately 2.1 million, or approximately 9.6 cents per share. The net gains included a 1.3 million markup on Chase, a $0.7 million markup on PlayMonster, and approximately 0.8 million of other net markups across the portfolio, which were partially offset by a $0.7 million markdown on Arcserve.

As a reminder, Chase Products is a developer and manufacturer of bulk consumer and industrial chemical and aerosol products in the United States. The company continues to perform ahead of plan and the markup this quarter reflects the continued improvement. We are now in an active sale process for Chase. To date that process has generated constructive indications of interest from buyers and we currently expect the sale to be completed in the next two to four months.

As always, there can be no assurance as to the timing or outcome of that process. PlayMonster, as you may recall, is a toy and game company with owned and licensed brands including Hacky Sack, Spirograph, Taco vs. Burrito, and Five Second Rule. The business has experienced a material resurgence in demand across multiple products in its portfolio, which is driving strong performance, and the markup this quarter reflects that trajectory. Based on that strong performance, we believe there could be a likelihood that a sale of the company is pursued in the first half of 2027.

Both positions generate limited cash income today. A realization in either case would convert the full realized value into cash available for future redeployment into income-producing investments, which would positively contribute to helping to support core NII over time. Regarding Arcserve, the markdown in our position this quarter reflects several quarters of relative weakness in the business. The company remains cash flow positive, though, and we are working with the management team on initiatives to accelerate growth more broadly. As reflected in our remarks, a small number of credits are experiencing relative softness. In most of those cases, the owners are supporting the companies with additional equity. Across the portfolio, the average credit has been stable to improving.

At the end of Q3, 98.8% of our debt portfolio was first lien and senior secured, and our portfolio continued to reflect a balanced mix of sponsor and non-sponsor investments, with non-sponsor representing approximately 42% of the portfolio at fair value. The weighted average effective yield on the income-producing debt investments was 11% at the end of Q3 compared with 10.8% at the end of Q2. The weighted average effective yield on our overall portfolio was approximately 8.7% at the end of Q3 compared to approximately 8.8% at the end of Q2.

With respect to non-accrual status, the restructured Outward Hound term loan returned to accrual status during the quarter and there were no new additions to non-accrual. Excluding the STRS JV, non-accrual investments represented 2% of the total debt portfolio at fair value compared to 3.6% at the end of the prior quarter, and 4.4% at cost compared with 6.9% of cost at the end of the prior quarter. Investments in three issuers remain on non-accrual at quarter end, which were Camarillo Fitness, NewCycle Solutions, and PlayMonster.

Turning to Outward Hound, we completed the restructuring of the business in early July. Alongside the other lenders, we recapitalized the company and converted a portion of the restructured debt into equity. WhiteHorse now holds majority ownership and control of the Board. The pet products market remains challenging and we are working with management on initiatives to grow revenues and reduce costs. Finally, regarding Camarillo Fitness, formerly known as Honors Holdings, our mark reflects the expected proceeds from the sale of the underlying locations.

That process is actively underway and as locations are sold and cash is returned, we will redeploy that capital into income-producing investments. As always, we continue to actively manage underperforming credits, leveraging our dedicated restructuring resources, which is a team of five people, and the broad capabilities of H.I.G. Aside from the credits on non-accrual and those I have mentioned, our portfolio continues to perform well. Our exposure to software companies remains modest at approximately 10.9% of the portfolio at cost and 9.3% of the portfolio at fair value across six portfolio companies.

Now turning to the market, over the course of 2026, the negative press surrounding the direct lending industry together with outflows of retail capital has contributed to a more rational risk/return environment. In general we are seeing lenders take a more conservative approach to add-backs, synergies, and run-rate adjustments. Deal structures are generally back below 55% loan-to-value and cash flow coverage is solid, and pricing for most of the 2026 vintage has been 50 to 75 basis points higher than in 2025 and 2024.

Because many lenders are over-allocated to software and unable to consider new deals in that sector, the software opportunities we are now seeing are unusually attractive with lower enterprise value, lower loan-to-value, much lower leverage, and pricing that is 100 to 150 basis points higher than for an equivalent deal outside of the software sector. Given our historically low concentration in software, we are considering some of these opportunities.

Consistent with historical practice, we will continue to manage overall sector concentration in a conservative manner. The non-sponsor market remains stable, although we are seeing fewer non-sponsor deals at the moment. Non-sponsor deals continue to be structured at three to four and a half times leverage, with pricing of SOFR plus 600 and above, and covenant protection reflecting the more conservative market. We are also getting covenants on the vast majority of our sponsor deals.

In general, we are finding 2026 to be a constructive credit market. Volumes across WhiteHorse’s platform are up an estimated 50% or more over the 2025 levels, which is making more assets available to the BDC. To the extent there is capacity, subsequent to quarter end, the company closed on one new sponsor investment of approximately 65 million and the STRS JV closed on one new sponsor investment of approximately 4.9 million. We have also received full repayments of our debt investment in Quest Events, and the unrealized equity co-investment is still held at the BDC on its balance sheet. Pro forma for Q4 activity, the STRS JV has capacity of approximately 22 million of additional assets and the BDC balance sheet has capacity for approximately 25 million.

We will continue to create additional capacity as we receive repayments on other deals. With that, I’ll turn the call over to Joyson for additional performance details and a review of our portfolio composition.

Joyson Thomas (Chief Financial Officer)

Thanks, Stuart, and thank you everyone for joining today’s call. During the quarter we recorded GAAP net investment income of $4.4 million, or 20.7 cents per share, and core NII of $4.8 million, or 22.4 cents per share. This compares with Q2 GAAP NII and core NII of $4.7 million, or 21.7 cents per share, as well as our previously declared third quarter base distribution of 25 cents per share. Stuart mentioned our NII excludes approximately $450,000 of non-recurring expenses related to our shelf registration statements and ATM program, or 1.7 cents per share net of the related incentive fee.

Q3 fee income was approximately $0.2 million compared with $0.1 million in the prior quarter, driven primarily by an amendment fee from Future Payment Technologies of approximately $0.1 million. Total expenses for the quarter were $10.4 million compared with $9.7 million in the prior quarter. The increase was driven primarily by the non-recurring expenses I just mentioned, as well as approximately $0.1 million of independent director fees related to the Special Committee.

For the quarter, we reported a net increase in net assets resulting from operations of $6.5 million. Our risk ratings during the quarter showed that approximately 84.8% of our portfolio positions either carried a 1 or 2 rating, slightly lower than the 86.6% reported in the prior quarter. As a reminder, a 1 rating indicates that a company has seen its risk of loss reduced relative to initial expectations, and a 2 rating indicates a company is performing according to such initial expectations.

Regarding the JV specifically, we continue to utilize the platform as a complement to the BDC. As Stuart mentioned earlier, we transferred five deals during the third quarter to the SRS JV totaling $21.4 million in exchange for a net investment in the SRS JV of $7.2 million, as well as cash proceeds of approximately $14.2 million. With that activity, the remaining capital commitments to the JV were fully called during the quarter. During the quarter there were three full realizations in the JV.

At the end of Q3, the SRS JV’s total portfolio had an aggregate fair value of $332.6 million across 43 issuers, of which 14 are common issuers with the company, and an average effective yield of approximately 9.9%. This compares with an aggregate fair value of $340.3 million and an average effective yield of approximately 9.8% across 43 portfolio companies as of June 30. Leverage for the JV at the end of Q3 was approximately 0.93 times compared with approximately 1.10 times at the end of the prior quarter.

The investment in the JV continues to be accretive for the BDC’s earnings, generating a low-teens return on equity during Q3. Income recognized from our JV investment aggregated to approximately $3.5 million compared to approximately $3.2 million reported in Q2. As we have noted in prior calls, the yield on our investment in the JV may fluctuate period over period as a result of a number of factors including the timing and amount of additional capital investments, changes in asset yields in the underlying portfolio, and the overall credit performance of the JV’s investment portfolio.

Turning to our balance sheet, we had cash resources of approximately $23.1 million at the end of Q3, including approximately $16 million restricted cash representing interest and principal proceeds received during the quarter in our securitized leverage facilities, and approximately $7.1 million at the fund level held for expenses and the quarterly dividend paid in early October. As a reminder, we have $85 million of unsecured notes maturing in December of this year, consisting of $10 million of our 5.375% notes due December 4 and $75 million of our 4% notes due December 15.

We are actively working to address these maturities and are in discussions regarding a financing solution. Based on the progress to date, we feel good about our ability to address these maturities when due, but are not in a position to provide further details at this time. As of September 30, 2026, the company’s asset coverage ratio for borrowed amounts as defined by the 1940 Act was 177.3%, which is above the minimum asset coverage ratio of 150%. At quarter-end, gross leverage was 1.29 times compared with 1.30 times in the prior quarter, while our net effective debt-to-equity ratio after adjusting for cash on hand was 1.20 times compared with 1.19 times in the prior quarter. The modest increase in net effective leverage primarily reflected lower cash balances at quarter-end.

As Stuart mentioned earlier, the advisor has agreed to extend the temporary voluntary incentive fee waiver for the fourth quarter of 2026, reducing the applicable rate from 20% to 17.5%. We view the fee waiver as a constructive step to support distributable earnings and shareholder value. As we have said previously, this irrevocable fee waiver is temporary and any decision regarding future periods will be revisited based on the then-current conditions and in consultation with our board.

Before I conclude and open up the call to questions, I’d like to discuss our recent distributions and corresponding distribution policy. This morning we announced that our board declared a fourth quarter base distribution of $0.25 per share. The distribution will be payable on January 6, 2027 to stockholders of record as of December 21, 2026. In addition to our quarterly distribution, we elected to declare a special distribution of $0.17 per share for stockholders of record as of October 30, 2026.

The distribution will be payable on December 10, 2026. The distribution was related to undistributed taxable income that was earned last year, which would have otherwise been taxable. Pro forma for distributions paid this year and including the special distribution, we estimate our current spillback income to be approximately $14.3 million. As we said previously, we will continue to evaluate our quarterly distribution both in the near and medium term based on the core earnings power of our portfolio, in addition to other relevant factors that may warrant consideration.

With that, I’ll now turn the call back over to the operator for your questions.

Chloe (Conference Operator)

Thank you. If you’d like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star one to ask a question. We’ll take our first question from Rick Shane with J.P. Morgan. Your line is open.

Rick Shane (Analyst at J.P. Morgan)

Hey guys, thanks for taking my question. I’m not sure honestly how much you’re going to be willing to answer on this, but I promise I won’t talk about strategic initiatives. I’m mostly curious about the pending maturities and what types of options you guys would explore there. I’m also curious, just obviously paying the special dividend in the fourth quarter I think is a signal of your comfort in terms of liquidity, but I want to make sure I would have thought you would have had to distribute that by September 27th.

So please help me understand sort of the timing of distributing it in 4Q26 given the spillover.

Joyson Thomas (Chief Financial Officer)

No, no problem, Rick. Thank you for your questions. In regards to the special distribution, that relates to our 2025 taxable income, so that needed to be paid by the end of this year and declared before October 15th. It’s consistent with how we’ve done our special distributions in the past relating to spillover income, so it would need to have been paid by the end of this year. In regards to your question on liquidity as well as the maturities, you’re absolutely right that we would not necessarily have declared the special distribution if we thought we would need that liquidity for purposes of the maturities coming due in December. As we’ve mentioned in our prior earnings call, we do have capacity under our existing JPM credit facility, as well as some additional cash on hand. And we’ve been actively monitoring both the public and private debt markets and have been speaking actively with a number of lenders on a financing solution.

As you just mentioned, as we said before, we feel very optimistic and very comfortable with where we are right now relative to the maturities next month.

Rick Shane (Analyst at J.P. Morgan)

Got it. And then just as we think about this, and again, look, I realize there is nuance to being able to answer this, but if you can give us sort of a generic sense of how much you think the market has, you guys last approached market, that would be helpful, at least for me.

Joyson Thomas (Chief Financial Officer)

At least for me, Rick, you flipped out during the question, so give at least a sense of something.

Rick Shane (Analyst at J.P. Morgan)

Oh, sorry. And then you, and then you dipped out. When you were asking me to repeat my question, I was asking sort of how much. You know, obviously that’s very low-cost funding. It’s very attractive. It’s rolling off. And that’s the nature of the business. Sometimes you have expensive debt roll off, sometimes you have cheap debt fall off. I’m just curious, sort of ballpark how much you think broadly the market has changed since that financing, realizing you can’t be too specific.

Joyson Thomas (Chief Financial Officer)

You know, what I would tell you is if you look at the vintages of those debt issuances, they were 2021 or before, right? And so with respect to that, including that $75 million 4% issuance, we’re not necessarily going to see those types of rates. If you look at kind of the current retail environment for BDCs of comparable size, they’ve been obviously over 7% on a fixed-rate basis, probably seven and a half to somewhere between 7% to 8%. I would say, as I mentioned before and as you alluded to before as well, the ABL facility does provide some attractive cost to us and we have a bit of capacity to draw on those amounts.

It wouldn’t necessarily completely be able to address the debt issuances, but it would help if we so chose.

Rick Shane (Analyst at J.P. Morgan)

Got it. I appreciate you guys taking the questions and the thoughtful answers. Thank you.

Chloe (Conference Operator)

And once more for your questions, that is star one on your keypad. We’ll move next to Robert Dodd with Raymond James. Your line is open.

Robert Dodd (Analyst at Raymond James)

Hi guys, and thank you for all the detail you gave on the call. Some questions, I mean when I look at it, the activity was relatively low in the quarter. You do have significant available capital, as you outlined, in the JV. And on balance, I mean was the low activity, was it just a function of the market? I’m not directly asking about the strategic review, but has that had any impact on your decision-making about capital allocation to new deals?

Because the activity was quite soft relative to available capital.

Stuart Aronson (Chief Executive Officer)

Robert, we had a couple of deals that were below the threshold pricing that the BDC will put on balance sheet, and the SRS JV did not want to do the assets, so those assets did not come in. Overall volume in the platform is pretty strong, and I think, although Joyson—and you can confirm—some of that availability actually was created during the quarter. So I don’t think we turned anything down due to capacity constraints. I just think it was a limit to how many deals the SRS JV was willing to approve.

Joyson, do I have that accurate from your perspective?

Joyson Thomas (Chief Financial Officer)

Stuart, I think that’s right. I mean, there’s obviously the point of timing, and so as we announced in your prepared remarks, the BDC did close on one deal post Q3. And then, as we also mentioned, we did have realizations both in the JV and the BDC in Q4 as well, which created some of that additional capacity that Stuart alluded to.

Robert Dodd (Analyst at Raymond James)

Got it, got it. Thank you. A couple of other questions if we can. One of your comments, I think, was there are some credits that are seeing a little softness but in most cases—I underlined that in my notes—the owners are supporting the credits. I mean, is there any theme for the ones where the owners aren’t supporting them? Is it like a one-off or a two-off, or, you know, kind of any themes about, in the portfolio or more broadly, where sponsors or owners—right, because it might be a non-sponsored deal—are still willing to support a deal versus less willing to support a deal?

Stuart Aronson (Chief Executive Officer)

Robert, the deals that have had covenant defaults have, I believe, all been sponsored deals, and the sponsor or other parties in the deal, in all of the situations I can think of, have agreed to support the credit with equity injections. That is the beauty of the middle market we serve, where sponsors still inject equity into companies, as opposed to the broadly syndicated market where sponsors generally do LME transactions and jam down their lenders into a more subordinated position.

So we are seeing support from owners, and we hope that support, with money going in underneath our senior debt, is an indication that they have confidence that the situations those companies are facing are temporary and/or fixable. But overall, as I mentioned in the remarks, the general portfolio is stable to improving, with only a couple of credits that have had covenant defaults and the need for equity to be injected.

Robert Dodd (Analyst at Raymond James)

Yeah, got it, got it. Thank you. One last word for that. You could have, to your point in your remarks, there could be potentially quite a relatively large, compared to the size of the portfolio, amount of equity kind of harvesting over the next, call it, six months. I mean, not everything is going to happen immediately but, you know, over between now and, say, the middle of next year, what would— And you also mentioned that, you know, that software deals are starting to look a lot more attractive and a fair number of the ones out there, certainly the bigger ones, right, have maturities next year.

I mean, is that something you could look to exploit, the potential equity realizations, in an attractive segment of the software market next year? Maybe. And is that the kind of redeployment pattern that’s realistic? Obviously if it’s lower leverage, lower LTV, and higher spreads versus no spread on some of the equity, that could be quite attractive.

Stuart Aronson (Chief Executive Officer)

Yeah, the technology or software deals that we’ve seen really fit into two categories. Category one is people trying to fix broken capital structures. And a lot of those deals have companies that have some level of AI risk in general. So far, we have not been willing to entertain those deals. So broken capital structures and AI risk we are trying to avoid pretty much entirely so far. And the deals that we’ve seen in the other category are new-money buyouts. And the new-money buyouts are happening at enterprise values that are well below where they would have been a year, year and a half ago, but also leverage levels that are much lower. On a deal that closed here in Q4 that we did, that was a software deal, the leverage on the WhiteHorse Finance EBITDA was 3.8 times, which compares to 6, 7, 8, 9 times in terms of what you were seeing a year and a half ago in the market.

And the price on that deal was 625 over. So these new-money buyouts with fresh equity coming in, where we’re able to assess that there is either limited or no AI risk, are the types of software situations we’re looking for. And really, for the most part, those are the only types of deals that can get done in today’s market because so many of the big players bought a lot of software at the peak of the market—a lot of software loans—and don’t have room to do any more. So it’s an interesting moment in time. You know, we always talk about wanting to not buy high and buy low. That’s exactly what we’re doing in software, where we largely avoided the sector during the peak period and now have an opportunity to selectively add a few credits that have strong underlying credit profile, covenants, and low leverage and high spread.

Robert Dodd (Analyst at Raymond James)

Got it. I appreciate it. Thank you.

Stuart Aronson (Chief Executive Officer)

Thank you, Robert.

Chloe (Conference Operator)

We’ll take our next question from Christopher Nolan with Ladenburg Thalmann. Your line is open.

Christopher Nolan (Analyst at Ladenburg Thalmann)

Hi, Stuart. What are your thoughts on share repurchases given the stock price has appreciated a bit since September?

Stuart Aronson (Chief Executive Officer)

Chris, we’re not buying back shares right now. We’re working with the special committee to focus on the strategic options that we have indicated are potentially underway. And if those strategic options don’t pan out, then we could go back to reconsidering strategic share repurchases. But again, we as an organization and the board are more focused on the strategic opportunities that we see in front of us.

Christopher Nolan (Analyst at Ladenburg Thalmann)

Okay, and then should I read into that also that you’re going to be less focused on growing the investment portfolio while this process is in—process?

Stuart Aronson (Chief Executive Officer)

No, not at all. We don’t know if the strategic options will result in a successful transaction. And not knowing that, we continue to reinvest the portfolio carefully and selectively in a market environment that is really the best market environment here in 2026 that we’ve seen in about three or four years—three years probably. And we’re seeing solid credits, good capital structures, good documents with covenant protection, and pricing that on average is 50 to 75 basis points better than it was last year.

So, you know, the main issue in the market, even though our volumes will be up year over year at WhiteHorse Finance, is that M&A activity is not that strong. And Q3, I think, was flat to down from last year in the market. And I expect when the Q4 numbers come out, they’ll also show a decrease in M&A activity. That said, we have about 20 originators in 11 physical locations across North America, and that helps us gin up deals outside of the normal sponsor M&A flow.

And we hope to get some interesting deals done, hopefully in Q4 and/or early in Q1.

Teresa

I was just going to add to that, when we paused this year’s buyback in Q2, I think it reflects Stuart’s comments just now where, again, as we do buybacks, that reduces our equity. And so we need to balance that with putting capital back to work and deploying that into newly originated investments. So, you know, it’s obviously a fine balance.

Stuart Aronson (Chief Executive Officer)

Thanks, Teresa.

Chloe (Conference Operator)

And once more for your questions, that is star one. We’ll pause for just a moment. Thank you. It does appear that there are no further questions at this time. This brings us to the end of today’s meeting. We appreciate your time and participation. You may now disconnect.

Stuart Aronson (Chief Executive Officer)

Thank you, Chloe.

Chloe (Conference Operator)

Certainly.

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