WhiteHorse (WHF) Q3 2026 Earnings Call Transcript

Motley Fool Transcribing, The Motley FoolTue, November 10, 2026 at 1:02 AM UTC

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Mon, Nov. 9, 2026

CALL PARTICIPANTS -

Chief Executive Officer - Stuart Aronson

Chief Financial Officer - Joyson Thomas

TAKEAWAYS -

GAAP Net Investment Income -- $4.4 million or $0.207 per share, representing a decrease from $4.7 million or $0.217 per share in the second quarter due to nonrecurring noncash expenses.

Core Net Investment Income -- $4.8 million or $0.224 per share, representing a modest sequential increase after adjusting for $450,000 in nonrecurring costs.

Net Asset Value per Share -- $11.82, an increase of 0.4% from $11.77 as of June 30 driven by favorable portfolio markups in equitized positions.

Nonaccruals -- 2% of the debt portfolio at fair value, declining from 3.6% in the prior quarter following the restructuring of Outward Hound.

Portfolio Markups -- $2.1 million in net realized and unrealized gains, led by a $1.3 million markup on Chase Products and a $0.7 million markup on Playmonster.

Gross Capital Deployments -- $21 million in the third quarter, consisting of two new originations totaling $14.8 million and $6.2 million in add-on fundings.

Asset Repayments and Sales -- $10 million, primarily driven by the $7.6 million repayment of a term loan to Transervice Logistics.

New Origination Leverage -- 3.6x EBITDA on average for the quarter, reflecting management's conservative approach to credit structure.

First Lien Senior Secured Debt -- 98.8% of the debt portfolio at fair value, maintaining the company's focus on high-priority recovery positions.

Weighted Average Effective Yield -- 11% on income-producing debt investments, rising from 10.8% in the second quarter.

Software Sector Exposure -- 9.3% of the portfolio at fair value, comprised of six companies where management noted an absence of AI-related risk.

STRS JV Performance -- $3.5 million in recognized income for the BDC, supported by a portfolio fair value of $332.6 million across 43 issuers.

Share Repurchase Program -- 1.8 million shares purchased since inception at a weighted average price of $7.36 per share, contributing approximately $0.33 per share to NAV accretion.

Incentive Fee Waiver -- 17.5% for the fourth quarter of 2026, a reduction from the standard 20% rate intended by the adviser to support distributable earnings.

Unsecured Note Maturities -- $85 million due in December 2026, including $10 million in 5.375% notes on Dec. 4 and $75 million in 4% notes on Dec. 15.

Asset Coverage Ratio -- 177.3%, remaining above the regulatory minimum requirement of 150%.

Net Effective Debt-to-Equity Ratio -- 1.20x, a slight increase from 1.19x in the prior quarter reflecting lower cash balances at period end.

Special Distribution -- $0.17 per share, declared for stockholders of record as of Oct. 30, 2026, to address $14.3 million in estimated spillback income.

Post-Quarter Investment Activity -- $65 million new sponsor investment closed by the BDC, indicating active deployment capacity following the reporting period.

Nonsponsor Investment Mix -- 42% of the portfolio at fair value, highlighting the company's balanced strategy between sponsor-led and independent deals.

Total Expenses -- $10.4 million, up from $9.7 million in the previous quarter driven by nonrecurring shelf registration costs and independent director fees.

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RISKS -

Aronson stated, "The pet products market remains challenging, and we are working with management on initiatives to grow revenues and reduce costs," regarding the recently restructured Outward Hound investment.

Aronson noted that a small number of credits are experiencing relative softness, although in most cases the owners are supporting the companies with additional equity injections.

WhiteHorse Finance, Inc. (NASDAQ:WHF) reported the formation of a special committee to explore strategic alternatives, including a potential sale or corporate transaction for the company. Management indicated that current market conditions in the software sector are providing attractive entry points due to lower enterprise valuations and reduced leverage compared to prior years. The company is prioritizing the monetization of equitized assets, specifically citing active sale processes for Chase Products and Playmonster to transition capital into income-producing investments. The board also declared a special distribution to manage undistributed taxable income while maintaining the base quarterly distribution rate.

CEO Aronson stated, "The 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."

Management reported that Chase Products is currently in an active sale process that has generated constructive indications of interest and is expected to conclude within two to four months.

Aronson stated that software sector opportunities are currently offering pricing that is 100 basis points to 150 basis points higher than equivalent deals in other sectors.

The company completed the restructuring of Outward Hound in July, resulting in WhiteHorse holding majority ownership and control of the board.

CFO Thomas indicated that the special distribution was necessary to address undistributed taxable income from the 2025 fiscal year that would have otherwise been taxable.

Management is targeting new money buyouts in the software sector where leverage levels are significantly lower than previous peaks, citing a recent deal closed at 3.8x EBITDA.

INDUSTRY GLOSSARY -

Asset Coverage Ratio: A financial metric measuring a company's ability to cover its debt obligations with its assets, with a 150% minimum required for BDCs.

BDC: Business Development Company, a type of closed-end investment fund that often invests in small and mid-sized companies.

EBITDA: Earnings before interest, taxes, depreciation, and amortization, used to evaluate a company's operating performance.

First Lien Senior Secured Debt: A loan that has the highest priority of repayment in the event of a borrower's bankruptcy and is backed by collateral.

NAV: Net asset value, representing the total value of an entity's assets minus its liabilities, expressed on a per-share basis.

Nonaccrual: The status of a loan when a borrower is no longer making timely interest payments, typically lead to a halt in income recognition.

SOFR: Secured Overnight Financing Rate, a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities.

Spillback Income: Taxable income earned in one fiscal year but distributed to shareholders in the following year to meet regulatory distribution requirements.

STRS JV: A joint venture between WhiteHorse Finance and the State Teachers Retirement System of Ohio focused on senior secured loans.

Full Conference Call Transcript

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. [Operator Instructions] It is now my pleasure to turn the call over to [ Rob Munnings ] of Rose & Company.

Unknown Executive: 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, these 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: Thank you, Rob. Good afternoon, everybody. Thank you for joining us today. As you're aware, we issued our earnings this morning before market opened, and 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 Joyson 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 3 main themes. First, net asset value per share increased for the second consecutive quarter, driven primarily by continued unrealized appreciation and our investments in Chase Products and Playmonster. Two, credit quality improved with the nonaccruals declining to 2% of the debt portfolio at fair value following the restructuring of Outward Hounds. 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 nonrecurring noncash expenses and write-offs. Turning to our financial results. Q3 GAAP net investment income was $4.4 million or $0.207 per share and core NII was $4.8 million or $0.224 per share.

This compares with Q2 GAAP net investment income and core NII of $4.7 million or $0.217 per share. The difference between GAAP NII and core NII this quarter reflects approximately $450,000 of nonrecurring expenses or $0.017 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 at-the-market equity offering program. Touching more specifically on the portfolio marks. Net realized and unrealized gains for the quarter were approximately $2.1 million or $0.096 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 -- 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 fourth quarter of 2025, we have repurchased approximately 1.8 million shares at a weighted average price of approximately $7.36 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 adviser has agreed to voluntary incentive fee waiver, reducing the applicable rate from 20% to 17.5% Cumulatively, this aggregates to approximately $530,000 or approximately $0.024 per share in the incentive fees waived by the adviser in an effort to support distributable earnings. The adviser has again agreed to extend 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 15, our Board has formed a special committee of independent directors to explore strategic alternatives for the company, which could include a sale or other strategic alternative for the company -- sorry, 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 pursuing 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 2 new originations totaling $14.8 million, with the remaining $6.2 million deployed to fund add-ons to existing portfolio companies. The 2 new originations were Transervice Logistics for $8 million, which refinanced our existing investment in that company and KORE Wireless Group for $6.8 million, which was transferred into the STRS JV during the quarter. Add-on fundings were led by Motiva Group at $2.6 million and Kelso Industries at $1.7 million. Of our 2 new originations in Q3, one was nonsponsor and one was sponsor. New originations in Q3 had an average leverage of only 3.6x 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 PFB for $0.2 million. During the quarter, the BDC transferred 5 deals to the STRS JV totaling $21.4 million. The transfers were headlined by KORE Wireless of $6.8 million intermediate cloud communications of $6.6 million and vibration mountings and controls of $6.3 million. We continue to successfully utilize the STRS JV and believe that WhiteHorse Finance 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 unrecognized previously recognized unrealized depreciation for aggregate net realized and unrealized gains of approximately $2.1 million or approximately $0.096 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 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 2 to 4 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 5-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 [ Arc Share ], the markdown on 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 nonsponsor investments with nonsponsor 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 nonaccrual status, the restructured Outward Hound term loan returned to accrual status during the quarter, and there were no new additions to nonaccrual. Excluding the SGRS JV nonaccrual investments, represented 2% of the total debt portfolio at fair value compared with 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 3 issuers remain on nonaccrual at quarter end, which were Camarillo Fitness, New Cycle Solutions and Playmonster. Turning to Outward Hound. We completed the restructuring of the business in early July. Alongside the other lenders, we were 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 5 people and the broad capabilities of H.I.G. Aside from the credits on nonaccrual 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 6 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 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 overallocated 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 nonsponsor market remains stable, although we are seeing fewer nonsponsored deals at the moment.

Nonsponsor deals continue to be structured at 3 to 4.5x 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 platform are up in its 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?

Joyson Thomas: 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 $0.207 per share and core NII of $4.8 million or $0.224 per share. This compares with Q2 GAAP NII and core NII of $4.7 million or $0.217 per share, as well as our previously declared third quarter base distribution of $0.25 per share. Stuart mentioned, core NII excludes approximately $450,000 of nonrecurring expenses related to our shelf registration statements and ATM program or $0.017 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 nonrecurring 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 the 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 5 deals during the third quarter to the STRS JV totaling $21.4 million in exchange for a net investment in the STRS 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 3 full realizations in the JV.

At the end of Q3, the STRS 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 0.93x compared with approximately 1.10x at the end of the prior quarter. The investment in the JV continues to be accretive to 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 in 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 in 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 1.29x compared with 1.30x in the prior quarter, while our net effective debt-to-equity ratio after adjusting for cash on hand was 1.20x compared with 1.19x in the prior quarter. The modest increase in net effective leverage primarily reflected lower cash balances at quarter end.

As Stuart mentioned earlier, the adviser 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've 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. Operator?

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Operator: [Operator Instructions] We'll take our first question from Rick Shane with JPMorgan.

Richard Shane: I'm not sure, honestly, how much you're going to be willing to answer on this, but I promise I don't want to 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 to distribute that by September 27. So please help me understand sort of the timing of distributing it in the fourth quarter of '26 given the spillover.

Joyson Thomas: 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 15. Consistent with how we've done our special distributions in the past relating to spillover income. So we actually would have been paid or would need to have been paid by the end of this year. In regards to your question on liquidity as well as the maturities, so you're absolutely right that we would not necessarily have declared the special distribution that 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 I just mentioned. As I said before, we feel very optimistic and very comfortable with where we are right now relative to the maturities next month.

Richard Shane: 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 is -- last approach, that would be helpful.

Stuart Aronson: At least for me, Rob, you looked out during the question. So give at least a sense of something.

Richard Shane: Sorry. And then you dipped out like you were asking me to repeat my question. I was asking sort of how much -- 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 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: 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 and 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 7.5% to somewhere between 7% to 8%, I would say. As I mentioned before and as you alluded to 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.

Operator: [Operator Instructions] We'll move next to Robert Dodd with Raymond James.

Robert Dodd: 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 or 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: Robert, we had a couple of deals that were below the threshold pricing that the BDC will put on balance sheet and the STRS 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, 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 STRS JV was willing to approve. Joyson, do you have that accurate from your perspective?

Joyson Thomas: Sure. I think that's right. I mean there's obviously the point of timing. And so as we announced in our prepared remarks, the BDC did close on one deal post Q3. And then as we also mentioned, we did have Quest Events as a realization both in the JV and the BDC in Q4 as well, which created some of that additional capacity that Stuart alluded to.

Robert Dodd: Got it. Got it. One -- a couple of other questions. On one of your comments, I think, was there are some credits that are seeing a little softness. But in most cases, I underline 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 2-off -- or kind of any themes about in the portfolio or more broadly where sponsors or owners, right, because it might be a nonsponsor deal are still willing to support a deal versus less willing to support a deal?

Stuart Aronson: Robert, the deals that have had covenant defaults have, I believe, all been sponsor 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: Yes. Got it. Got it. One last one, if I can. On -- you could have -- to your point in your remarks, there could be potentially quite relatively large compared to the size of the portfolio amount of equity kind of harvesting over the next, call it, 6 months, right? I mean not everything is going to happen immediately, but over between now and, say, the middle of next year. What would -- and you also mentioned the 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 and 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: Yes. The technology or software deals that we've seen really fit into 2 categories. Category 1 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 1 year, 1.5 years 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 EBITDA was 3.8x, which compares to 6, 7, 8, 9x in terms of what you were seeing 1.5 years 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. 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.

Operator: We'll take our next question from Christopher Nolan with Ladenburg Thalmann.

Christopher Nolan: Stuart, what are the thoughts on share repurchases given the stock price has appreciated a bit since September?

Stuart Aronson: 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 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: 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: 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 3 or 4 years, 3 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 the main issue in the market, even though our volumes will be up year-over-year at WhiteHorse 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.

Joyson Thomas: Chris, I was just going to add to that. When we paused the share 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 it's obviously a fine balance.

Operator: [Operator Instructions] 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: Thank you, Chloe.

Operator: Certainly.

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