BDC’s got crushed in that market panic due to the uncertainty surrounding their underlying holdings. The market had no idea how well those smaller companies would weather the pandemic.
As you may have noticed from our articles on business development companies, they’ve come a long way from the dark days of the COVID Crash in Q1-2 2020.
WhiteHorse Finance (WHF) is one of the smaller BDCs, with a $358M market cap, vs. the BDC industry average of ~$1.44B. WHF is currently selling at a slight -0.19% discount to NAV, vs. the BDC industry average NAV premium of 7%.
Fortunately, most BDC companies have been resilient, resulting in the industry bouncing back from their March-April 2020 lows.
WHF also looks cheaper on a Price/NII basis, with a 9X valuation, vs. the BDC industry average P/NII of 13.39X. Additionally, it sports a 9.2% dividend yield, a bit higher than the 8.4% industry average:
One thing which initially caught our eye is the constancy of WHF’s dividend history. In an industry which is prone to periodic dividend cuts, WHF’s management has kept the quarterly payouts steady, at $.355. since its 2012 IPO.
WHF’s board of directors declared a special distribution of $0.125/share in Q4 ’21, which was paid on Dec. 10, 2020, to stockholders of record as of Oct. 30, 2020. At its 1/6/22 closing price, WHF yielded 9.20%. It should go ex-dividend next on ~3/4/22, with a ~3/25/22 pay date. The 2.44% five-year average dividend growth rate includes some periodic special dividends:
Holdings Management has moved the portfolio more toward 1st Lien loans over the years, going from just 55% 1st Lien in 2014, to 82%, as of Q3 2021.
WHF’s STRS JV with the State Teachers Retirement System of Ohio, which it started in Q1 2019, is a Senior Loan Fund which invests primarily in lower middle market, senior secured debt facilities. This JV has grown to represent 11% of WHF’s portfolio, as of 9/30/21: (WHF site)
Healthcare is WHF’s biggest industry exposure, at ~9%, followed by Internet & Direct Marketing, at ~7%, Building Products, at 5.6%, and Data Processing & Outsourced Services, at 5.3%. ~44% of its holdings are comprised of industries with less than 3% each: (WHF site)
(WHF site) Another plus is that nearly all, 99.6%, of the portfolio is at floating rates, which offers investors some insulation vs. rising interest rates, which appear to be arriving in 2022, with the Fed targeting three rate hikes this year.