WhiteHorse Finance (NASDAQ:WHF) reported a second consecutive quarterly increase in net asset value and improved credit quality for the third quarter of 2026, but its investment income remained below its quarterly distribution.
The business development company also said it has paused share repurchases while an independent board committee reviews strategic alternatives, and is working on a financing solution for $85 million of unsecured notes maturing in December.
Net asset value rose to $11.82 per share at September 30 from $11.77 at the end of June. Chief Executive Officer Stuart Aronson attributed the increase primarily to unrealized appreciation in investments in Chase Products and PlayMonster.
Investment income and distributions
Third-quarter GAAP net investment income was $4.4 million, or $0.207 per share, down from $4.7 million, or $0.217 per share, in the second quarter. Core net investment income rose to $4.8 million, or $0.224 per share, from $0.217 per share.
The difference between the third quarter’s GAAP and core figures reflected approximately $450,000 in nonrecurring expenses, including the write-off of deferred offering costs associated with the company’s shelf registration statement and its previously active at-the-market equity offering program. The expenses amounted to $0.017 per share after the related incentive fee, management said.
Both measures fell short of the company’s third-quarter base distribution of $0.25 per share. The board declared a fourth-quarter base distribution at the same rate, payable January 6, 2027, to shareholders of record on December 21, 2026.
WhiteHorse also declared a $0.17-per-share special distribution, payable December 10 to shareholders of record on October 30. Chief Financial Officer Joyson Thomas said the payment related to undistributed 2025 taxable income and needed to be paid by the end of 2026. Including the special distribution, the company estimated current spillover income at approximately $14.3 million.
Thomas said the company will continue to evaluate its quarterly distribution based on the portfolio’s core earnings power and other relevant factors. The company’s adviser extended a voluntary incentive fee waiver through the fourth quarter, reducing the applicable rate to 17.5% from 20%.
Portfolio marks and potential sales
WhiteHorse recorded approximately $2.1 million in net realized and unrealized gains during the third quarter. Those included a $1.3 million markup on Chase Products and a $0.7 million markup on PlayMonster, partially offset by a $0.7 million markdown on Arcserve.
Aronson said Chase, a manufacturer of consumer and industrial chemical and aerosol products, was performing ahead of plan. An active sale process has generated constructive indications of interest, he said, and the company currently expects a sale to be completed in the next two to four months, although he cautioned that neither the timing nor outcome is assured.
PlayMonster, a toy and game company, has seen a resurgence in demand across multiple products, Aronson said. He said a sale could be pursued in the first half of 2027. Both Chase and PlayMonster currently generate limited cash income; proceeds from a sale could be reinvested in income-producing assets, he said.
Excluding the STRS joint venture, non-accrual investments fell to 2% of the debt portfolio at fair value from 3.6% in the prior quarter. The improvement followed the restructuring of pet products company Outward Hound, whose term loan returned to accrual status. WhiteHorse now holds majority ownership and controls the board. Camarillo Fitness, Newscycle Solutions and PlayMonster remained on non-accrual at quarter-end.
Total investments were essentially unchanged at $569.1 million. WhiteHorse made $21 million in gross capital deployments during the quarter and transferred five deals totaling $21.4 million to the STRS joint venture.
Strategic review and debt maturities
Aronson said WhiteHorse is not currently repurchasing shares while it works with the special committee on strategic options. The company could reconsider buybacks if those options do not result in a transaction, he said.
Since the repurchase program began in the fourth quarter of 2025, WhiteHorse has bought back approximately 1.8 million shares at an average price of $7.36, which management estimates added approximately $0.33 per share to net asset value. The company said the strategic review has no timetable and may not lead to a transaction.
Thomas said WhiteHorse is discussing financing options for the December note maturities and has capacity under its existing JPM credit facility, as well as cash on hand. He said management was comfortable with its position but could not provide further details on a financing solution.
Thomas cautioned that replacing the maturing notes’ rates would be difficult. Fixed-rate borrowing costs for comparably sized BDCs were generally between 7% and 8%, he said, versus the 4% and 5.375% rates on WhiteHorse’s maturing notes.
Selective deployment
Aronson said the company will continue to reinvest selectively during the strategic review. He described the 2026 lending market as more favorable, with pricing on most deals 50 to 75 basis points higher than in 2024 and 2025.
WhiteHorse is considering software investments where it sees limited or no artificial intelligence risk and fresh equity supporting new buyouts, Aronson said. After quarter-end, the company closed a new sponsored investment of approximately $65 million, while the STRS joint venture closed one of approximately $4.9 million. Pro forma for fourth-quarter activity, management estimated capacity for approximately $25 million of additional assets on the BDC’s balance sheet and $22 million in the joint venture.
About WhiteHorse Finance (NASDAQ:WHF)
WhiteHorse Finance, Inc is a business development company that provides financing to privately owned, middle-market businesses in the United States. The company primarily invests in senior secured loans, including first-lien and unitranche loans, and may also provide second-lien and subordinated debt financing.
In addition to debt investments, WhiteHorse Finance may make equity investments and co-investments alongside its lending activities. Its portfolio generally supports acquisitions, recapitalizations, refinancings, growth initiatives and other corporate purposes for middle-market companies across a range of industries.
WhiteHorse Finance was formed in 2012 and operates as a regulated business development company under the Investment Company Act of 1940.
