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WhiteHorse Finance: Issues New Unsecured Debt

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NEWS

On October 20, 2020 WhiteHorse Finance (WHF) announced the issuance of $40mn in unsecured notes.

The new debt has a maturity of October 20, 2025 and yields 5.375%.

If the BDC loses its investment grade rating an additional 1.0% premium will be added to the yield, or 6.375%.

Proceeds will be used to “refinance and/or redeem existing debt and/or for general corporate purposes”.

The press release is attached.


ANALYSIS

Likely Use

We surmise that the proceeds will be used to repay the BDC’s secured Revolver rather than the two unsecured notes already outstanding.

Both unsecured debt loans are not currently redeemable by WHF without unduly high breakage costs.

The Baby Bond with the ticker WHFBZ becomes redeemable by the issuer a year from now (11/30/2021) according to the BDC Fixed Income Table.

Making Room

If applied to the Revolver, the $40mn will reduce the balance outstanding from $192mn to $152mn, using the mid-year closing numbers.

That would create substantial availability under a facility whose limit is $250mn: $98mn.

Higher Cost

However, the secured debt is charged at only LIBOR + 2.50% (roughly 2.7% all-in currently).

As a result, the increase in interest expense on a pro-forma basis would be just over ($1mn) a year, or (0.05) per annum.

That would reduce projected 2021 Net Investment Income Per Share – currently pegged by the analysts at $1.31 per share – by about (4%).

On the other hand, the BDC’s liquidity status – already rated GOOD by the BDC Reporter – would only improve.

Outside of the Revolver, the BDC has no debt repayment scheduled till 2025, when all 3 unsecured notes (including this one) come due.


VIEWS

First Cut

Judging this on the run – just minutes after reading the press release – this seems like a positive step forward for WHF, notwithstanding the likely lower EPS in the short run.

The privately-placed unsecured debt strengthens the balance sheet and boosts liquidity.

Furthermore, the rate being paid on the debt is lower than the other two prior unsecured debt facilities (6.0% and 6.5%).

That suggests the market is not unduly worried about the creditworthiness of the BDC at this stage, even though the BDC does admit in its latest 10-Q that 36% of its portfolio is under-performing.

This is likely a defensive debt raise by WHF at a time when the debt markets are in a generous mood.

By the way, the market seems unfazed by the news.

The stock price- at time of writing – is at $10.84, unchanged from the open.

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