UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-K/A
Amendment No. 1
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2021
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 814-00967
WHITEHORSE FINANCE, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware |
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| 45-4247759 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |||
Incorporation or Organization) | Identification No.) | |||
1450 Brickell Avenue, 31st Floor | ||||
Miami, Florida | 33131 | |||
(Address of Principal Executive Offices) | (Zip Code) |
(305) 381-6999
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on Which | ||||
Title of Each Class |
| Trading Symbol(s) |
| Registered |
Common Stock, par value $0.001 per share | WHF | The Nasdaq Stock Market LLC | ||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☐ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No ☒
The aggregate market value of common stock held by non-affiliates of the registrant on June 30, 2021 based on the closing price on that date of $14.90 on the Nasdaq Global Select Market was approximately $308.8 million. For the purposes of calculating this amount only, all directors and executive officers of the registrant have been treated as affiliates. There were 23,194,735 shares of the registrant’s common stock outstanding as of February 28, 2022.
DOCUMENTS INCORPORATED BY REFERENCE
None.
EXPLANATORY NOTE
WhiteHorse Finance, Inc., a Delaware corporation, and its consolidated subsidiaries (collectively, the “Company”, which may also be referred to as “we”, “us” or “our”) is filing this Amendment No. 1 (the “Amendment”) to our Annual Report on Form 10-K (the “Form 10-K”) for the fiscal year ended December 31, 2021, which was filed with the Securities and Exchange Commission (“SEC”) on March 4, 2022, to include the audited financial statements of WHF STRS Ohio Senior Loan Fund LLC, a joint venture created between us and State Teachers Retirement System of Ohio, or STRS JV, as of and for the year ended December 31, 2021 (as Exhibit 99.2).
We have determined that STRS JV has met the conditions of a significant subsidiary under Rule 1-02(w) of Regulation S-X for which we are required, pursuant to Rule 3-09 of Regulation S-X, to provide separate audited financial statements as exhibits to the Form 10-K. In accordance with Rule 3-09(b)(1), the separate audited financial statements of STRS JV are being filed as an amendment to the Form 10-K, within 90 days after the end of STRS JV’s fiscal year.
This Amendment also includes the filing of new Exhibits 31.1, 31.2, 32.1 and 32.2, certifications of our Chief Executive Officer and Chief Financial Officer, pursuant to Rule 13a-14(a) and (b) of the Securities Exchange Act of 1934, as amended.
Except as described above, no other changes have been made to the Form 10-K. This Amendment does not reflect subsequent events that may have occurred after the original filing date of the Form 10-K or modify or update in any way disclosures made in the Form 10-K, except as required to reflect the revisions discussed above. Among other things, forward-looking statements made in the Form 10-K have not been revised to reflect events that occurred or facts that became known to us after filing of the Form 10-K, and such forward-looking statements should be read in their historical context. Furthermore, this Amendment should be read in conjunction with the Form 10-K and with our subsequent filings with the SEC.
PART IV
Item 15. Exhibits, Financial Statement Schedules
Number |
| ||
3.1* | |||
3.2* | |||
4.1* | |||
4.2* | |||
4.3* | |||
4.4* | Form of 6.50% Notes due 2025 (incorporated herein by reference to Exhibit 4.2) | ||
4.5* | |||
4.6* | |||
4.7* | |||
10.1* | |||
10.2* | |||
10.3* | |||
10.4* | |||
10.5 | |||
10.6* | Form of 6.00% Senior Notes due 2023 (included in Exhibit 10.5) | ||
10.7* | |||
10.8* | |||
10.9* | |||
10.10* | |||
10.11 | |||
10.12* | |||
10.13* | |||
10.14* | |||
10.15* | |||
10.16* | |||
10.17* | |||
14.1* | |||
14.2* | |||
21.1* | |||
23.1* | |||
23.2** | | ||
24 | |||
31.1** | |||
31.2** | |||
32.1** | |||
32.2** | |||
99.1* | |||
99.2** | | ||
| | | |
* | Previously filed with or incorporated by reference in the original filing filed on March 4, 2022. |
** | Filed with this amendment. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
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| WhiteHorse Finance, Inc. |
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Dated: March 31, 2022 | By | /s/ Stuart Aronson |
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| Name: Stuart Aronson |
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| Title: Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Stuart Aronson and Joyson C. Thomas as his true and lawful attorneys-in-fact, each with full power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature |
| Title |
| Date |
/s/ Stuart Aronson | Chief Executive Officer and Director | March 31, 2022 | ||
Stuart Aronson | (Principal Executive Officer) | |||
/s/ Joyson C. Thomas | Chief Financial Officer | March 31, 2022 | ||
Joyson C. Thomas | (Principal Financial and Accounting | |||
/s/ John Bolduc | Chairman of the Board of Directors | March 31, 2022 | ||
John Bolduc | ||||
/s/ Jay Carvell | Director | March 31, 2022 | ||
Jay Carvell | ||||
/s/ Kevin F. Burke | Director | March 31, 2022 | ||
Kevin F. Burke | ||||
/s/ Rick P. Frier | Director | March 31, 2022 | ||
Rick P. Frier | ||||
/s/ Rick D. Puckett | Director | March 31, 2022 | ||
Rick D. Puckett | ||||
/s/ G. Stacy Smith | Director | March 31, 2022 | ||
G. Stacy Smith |
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-231247 on Form N-2 of WhiteHorse Finance, Inc. of our report dated March 31, 2022, with respect to the consolidated statement of assets, liabilities and members’ equity of WHF STRS Ohio Senior Loan Fund LLC, including the consolidated schedule of investments, as of December 31, 2021, the related consolidated statements of operations, changes in members’ equity, and cash flows for the year then ended, and the related notes, which report appears in the Annual Report on Form 10-K/A for the year ended December 31, 2021 of WhiteHorse Finance, Inc. dated March 31, 2022.
/s/Crowe LLP
Crowe LLP
New York, New York
March 31, 2022
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, Stuart Aronson, Chief Executive Officer of WhiteHorse Finance, Inc. and Subsidiaries, certify that:
1. | I have reviewed this Annual Report on Form 10-K/A of WhiteHorse Finance, Inc. and Subsidiaries; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 31, 2022 | | |
| | |
By: | /s/ Stuart Aronson | |
| Stuart Aronson | |
| Chief Executive Officer | |
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302
CHIEF FINANCIAL OFFICER CERTIFICATION
I, Joyson C. Thomas, Chief Financial Officer of WhiteHorse Finance, Inc. and Subsidiaries, certify that:
1. | I have reviewed this Annual Report on Form 10-K/A of WhiteHorse Finance, Inc. and Subsidiaries; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: March 31, 2022 | | |
| | |
By: | /s/ Joyson C. Thomas | |
| Joyson C. Thomas | |
| Chief Financial Officer | |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
In connection with the Annual Report on Form 10-K/A of WhiteHorse Finance, Inc. and Subsidiaries (the “Company”) for the annual period ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stuart Aronson, as Chief Executive Officer of the Company hereby certify, to the best of my knowledge that:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Stuart Aronson | |
Name: Stuart Aronson | |
Title: Chief Executive Officer | |
| |
Date: March 31, 2022 | |
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
In connection with the Annual Report on Form 10-K/A of WhiteHorse Finance, Inc. and Subsidiaries (the “Company”) for the annual period ended December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joyson C. Thomas, as Chief Financial Officer of the Company hereby certify, to the best of my knowledge that:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Joyson C. Thomas | |
Name: Joyson C. Thomas | |
Title: Chief Financial Officer | |
| |
Date: March 31, 2022 | |
WHF STRS OHIO SENIOR LOAN FUND LLC
CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021 and 2020 and for the years ended
December 31, 2021 and December 31, 2020, and for the period July 19, 2019 (commencement of operations) through December 31, 2019
(With Independent Auditor’s Report Thereon)
Members and Board of Managers
WHF STRS Ohio Senior Loan Fund LLC
Opinion
We have audited the consolidated financial statements of WHF STRS Ohio Senior Loan Fund LLC (the “Company”), which comprise the consolidated statement of assets, liabilities and members’ equity, including the consolidated schedule of investments, as of December 31, 2021, and the related consolidated statements of operations, changes in members’ equity, and cash flows for the year then ended, and the related notes to the consolidated financial statements.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations, changes in members’ equity and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Other Matter
The accompanying consolidated statement of assets, liabilities and members’ equity, including the consolidated schedule of investments, as of December 31, 2020, and the related consolidated statements of operations, changes in members’ equity, and cash flows for the year ended December 31, 2020 and for the period July 19, 2019 (commencement of operations) through December 31, 2019 were not audited, reviewed or compiled by us and, accordingly, we do not express an opinion or any other form of assurance on them.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year from the date the consolidated financial statements are available to be issued.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an
1
audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.
In performing an audit in accordance with GAAS, we:
| ● | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| ● | Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. |
| ● | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. |
| ● | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements. |
| ● | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit.
/s/ Crowe LLP
Crowe LLP
New York, New York
March 31, 2022
2
WHF STRS Ohio Senior Loan Fund LLC
Consolidated Statements of Assets, Liabilities and Members’ Equity
(in thousands)
| | December 31, 2021 | | December 31, 2020 | ||
| | | | (unaudited) | ||
Assets |
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Investments, at fair value (amortized cost of $260,472 and $176,716, respectively) | | $ | 259,510 | | $ | 174,552 |
Cash and cash equivalents | |
| 3,991 | |
| 653 |
Restricted cash and cash equivalents | | | 9,013 | | | 5,294 |
Interest receivable | | | 735 | | | 603 |
Unrealized appreciation on foreign currency forward contracts | | | 19 | | | — |
Other assets | |
| 255 | |
| 280 |
Total assets | | $ | 273,523 | | $ | 181,382 |
| | | | | | |
Liabilities and Members' Equity | |
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Credit facility (net of unamortized debt issuance costs of $1,779 and $1,427, respectively) | | $ | 145,003 | | $ | 94,260 |
Notes payable to members | |
| 100,000 | |
| 68,456 |
Interest payable on credit facility | |
| 282 | |
| 189 |
Interest payable on notes to members | |
| 1,575 | |
| 1,136 |
Advances received from unfunded credit facilities | | | 310 | | | 144 |
Accounts payable and other liabilities | |
| 341 | |
| 252 |
Total liabilities | |
| 247,511 | |
| 164,437 |
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Commitments and contingencies (See Note 8) | | | | | | |
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Members’ equity | |
| 26,012 | |
| 16,945 |
Total liabilities and members’ equity | | $ | 273,523 | | $ | 181,382 |
See accompanying notes to the consolidated financial statements.
3
WHF STRS Ohio Senior Loan Fund LLC
Consolidated Schedule of Investments
December 31, 2021
(in thousands)
See accompanying notes to the consolidated financial statements.
4
WHF STRS Ohio Senior Loan Fund LLC
Consolidated Schedule of Investments
December 31, 2021
(in thousands)
See accompanying notes to the consolidated financial statements.
5
WHF STRS Ohio Senior Loan Fund LLC
Consolidated Schedule of Investments
December 31, 2021
(in thousands)
Forward Currency Contracts
Counterparty |
| Currency to be sold |
| Currency to be purchased |
| Settlement date |
| Unrealized |
| Unrealized | ||||
Morgan Stanley | | C$ | 856 CAD | | $ | 692 USD | | 1/27/2022 | | $ | 15 | | $ | — |
Morgan Stanley | | £ | 175 GBP | | $ | 241 USD | | 1/27/2022 | | | 4 | | | — |
Total | | | | | | | | | | $ | 19 | | $ | — |
| | | | | | | | | | | | | | |
| (1) | Except as noted, all investments provide collateral for the Company’s Credit Facility. |
| (2) | The investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”), which resets monthly, quarterly or semiannually, the Canadian Dollar Offered Rate (“CDOR” or “C”), or the U.S. Prime Rate (“Prime” or “P”). The one, three and six-month LIBOR were 0.10%, 0.21% and 0.34%, respectively, as of December 31, 2021. The one, three and six-month GBP LIBOR were 0.19%, 0.26% and 0.47%, respectively, as of December 31, 2021. The CDOR and Prime were 0.52% and 3.25%, respectively, as of December 31, 2021. |
| (3) | The interest rate is the “all-in-rate” including the current index and spread, the fixed rate, and the payment-in-kind (“PIK”) interest rate, as the case may be. |
| (4) | Except as otherwise noted, all of the Company’s portfolio company investments, which as of the date of the portfolio represented 998% of the Company’s net assets or 95% of the Company’s total assets, are subject to legal restrictions on sales. |
| (5) | The fair value of each investment was determined using significant unobservable inputs. |
| (6) | The investment or a portion of the investment does not provide collateral for the Company’s Credit Facility. |
| (7) | Principal amount is denominated in Canadian dollars and the issuer is domiciled in Canada. |
| (8) | Principal amount is denominated in British Pounds and the issuer is domiciled in the United Kingdom. |
| (9) | Principal amount is denominated in Euros. |
| (10) | At the option of the issuer, interest can be paid in cash or cash and PIK. The issuer may elect to pay up to 7.00% PIK. |
See accompanying notes to the consolidated financial statements.
6
WHF STRS Ohio Senior Loan Fund LLC
Consolidated Schedule of Investments
December 31, 2020 (unaudited)
(in thousands)
Investment Type(1) |
| Spread Above Index(2) |
| Interest | | Acquisition |
| Maturity Date |
| Principal/Share Amount |
| Amortized Cost |
| Fair Value(5) | | Fair Value As A | | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
North America |
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Debt Investments |
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Advertising |
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SmartSign Holdings LLC |
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First Lien Secured Term Loan |
| L+ 6.00% | | 7.00% | | 10/21/19 |
| 10/11/24 |
| 8,753 | | $ | 8,620 | | $ | 8,710 | | 51.40 | % |
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| (1.00% Floor) | | | | | | | | | | | | | | | | | |
First Lien Secured Revolving Loan |
| L+ 6.00% | | 7.00% | | 10/21/19 |
| 10/11/24 |
| 545 | |
| 537 | |
| 546 | | 3.22 | |
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| (1.00% Floor) | | | | | | |
| 9,298 | |
| 9,157 | |
| 9,256 | | 54.62 | |
Building Products |
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Drew Foam Companies Inc |
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First Lien Secured Term Loan |
| L+ 6.50% | | 7.50% | | 11/09/20 |
| 11/24/25 |
| 10,079 | |
| 9,883 | |
| 9,882 | | 58.32 | |
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| (1.00% Floor) | | | | | | | | | | | | | | | | | |
First Lien Secured Revolving Loan |
| L+ 6.50% | | 7.50% | | 11/09/20 |
| 11/05/25 |
| 332 | |
| 325 | |
| 325 | | 1.92 | |
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LHS Borrower, LLC |
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First Lien Secured Term Loan |
| L+ 6.75% | | 7.75% | | 10/09/20 |
| 09/30/25 |
| 9,689 | |
| 9,478 | |
| 9,543 | | 56.32 | |
|
| (1.00% Floor) | | | | | | | | | | | | | | | | | |
First Lien Secured Revolving Loan |
| L+ 6.75% | | 7.75% | | 10/09/20 |
| 09/30/25 |
| — | |
| — | |
| 4 | | 0.02 | |
|
| (1.00% Floor) | | | | | | |
| 20,100 | |
| 19,686 | |
| 19,754 | | 116.58 | |
Construction & Engineering |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
SFP Holding, Inc. |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
First Lien Secured Term Loan |
| L+ 6.25% | | 7.25% | | 12/13/19 |
| 09/01/22 |
| 6,483 | |
| 6,482 | |
| 6,389 | | 37.70 | |
|
| (1.00% Floor) | | | | | | | | | | | | | | | | | |
First Lien Secured Delayed Draw Loan |
| L+ 6.25% | | 7.25% | | 12/13/19 |
| 09/01/22 |
| 6,713 | |
| 6,711 | |
| 6,610 | | 39.01 | |
|
| (1.00% Floor) | | | | | | | | | | | | | | | | | |
First Lien Secured Revolving Loan |
| L+ 6.25% | | 7.25% | | 12/31/19 |
| 09/01/22 |
| — | |
| — | |
| (13) | | (0.08) | |
|
| (1.00% Floor) | | | | | | | | | | | | | | | | | |
Tensar Corp. |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
First Lien Secured Term Loan |
| L+ 6.75% | | 7.75% | | 11/24/20 |
| 08/20/25 |
| 7,000 | |
| 6,829 | |
| 6,829 | | 40.31 | |
|
| (1.00% Floor) | | | | | | |
| 20,196 | |
| 20,022 | |
| 19,815 | | 116.95 | |
Data Processing & Outsourced Services |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
Geo Logic Systems Ltd. |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
First Lien Secured Term Loan(7) |
| L+ 6.24% | | 7.24% | | 01/22/20 |
| 12/19/24 |
| 14,466 | |
| 10,894 | |
| 11,133 | | 65.70 | |
|
| (1.00% Floor) | | | | | | | | | | | | | | | | | |
First Lien Secured Revolving Loan(7) |
| L+ 6.24% | | 7.24% | | 01/22/20 |
| 12/19/24 |
| — | |
| — | |
| (3) | | (0.02) | |
|
| (1.00% Floor) | | | | | | |
| 14,466 | |
| 10,894 | |
| 11,130 | | 65.68 | |
Diversified Support Services |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
Quest Events, LLC |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
First Lien Secured Term Loan |
| L+ 6.00% | | 7.00% | | 07/19/19 |
| 12/28/24 |
| 11,649 | |
| 11,490 | |
| 9,470 | | 55.88 | |
|
| (1.00% Floor) | | (3.50%PIK) | | | | | | | | | | | | | | | |
First Lien Secured Revolving Loan |
| L+ 6.00% | | 7.00% | | 07/19/19 |
| 12/28/24 |
| 935 | |
| 922 | |
| 760 | | 4.49 | |
|
| (1.00% Floor) | | (3.50%PIK) | | | | |
| 12,584 | |
| 12,412 | |
| 10,230 | | 60.36 | |
See accompanying notes to the consolidated financial statements.
7
WHF STRS Ohio Senior Loan Fund LLC
Consolidated Schedule of Investments
December 31, 2020 (unaudited)
(in thousands)
Investment Type(1) |
| Spread Above Index(2) |
| Interest | | Acquisition |
| Maturity Date |
| Principal/Share Amount |
| Amortized Cost |
| Fair Value(5) | | Fair Value As A | | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Environmental & Facilities Services |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
WH Lessor Corp. |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
First Lien Secured Term Loan |
| L+ 6.00% | | 7.00% | | 01/22/20 |
| 11/24/25 |
| 6,259 | | $ | 6,155 | | $ | 6,239 | | 36.82 | % |
|
| (1.00% Floor) | | | | | | | | | | | | | | | | | |
First Lien Secured Revolving Loan |
| L+ 6.00% | | 7.00% | | 01/22/20 |
| 12/26/24 |
| — | |
| — | |
| 9 | | 0.05 | |
|
| (1.00% Floor) | | | | | | |
| 6,259 | |
| 6,155 | |
| 6,248 | | 36.87 | |
Human Resource & Employment Services |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
|
|
Pluto Acquisition Topco, LLC |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
|
|
First Lien Secured Term Loan(8) |
| L+ 6.31% | | 7.81% | | 05/19/20 |
| 01/31/24 |
| 11,549 | | | 11,405 | | | 11,549 | | 68.16 | |
|
| (1.50% Floor) | | | | | | |
| 11,549 | |
| 11,405 | |
| 11,549 | | 68.16 |
|
Industrial Machinery |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
FR Flow Control CB LLC |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
First Lien Secured Term Loan B |
| L+ 6.00% | | 7.00% | | 07/19/19 |
| 06/28/26 |
| 7,269 | | | 7,154 | | | 7,088 | | 41.83 | |
|
| (1.00% Floor) | | | | | | | | | | | | | | | | | |
First Lien Secured Term Loan C |
| L+ 6.00% | | 7.00% | | 07/19/19 |
| 06/28/26 |
| 2,870 | |
| 2,825 | |
| 2,798 | | 16.51 | |
|
| (1.00% Floor) | | | | | | |
| 10,139 | |
| 9,979 | |
| 9,886 | | 58.34 | |
Insurance Brokers |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
SelectQuote, Inc. |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
First Lien Secured Term Loan |
| L+ 6.00% | | 7.00% | | 11/05/19 |
| 11/05/24 |
| 7,838 | |
| 7,718 | |
| 7,838 | | 46.26 | |
|
| (1.00% Floor) | | | | | | |
| 7,838 | |
| 7,718 | |
| 7,838 | | 46.26 | |
Internet & Direct Marketing Retail |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
Marlin DTC-LS Midco 2, LLC |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
First Lien Secured Term Loan |
| L+ 5.50% | | 6.50% | | 07/19/19 |
| 07/01/25 |
| 13,577 | |
| 13,373 | |
| 13,501 | | 79.67 | |
|
| (1.00% Floor) | | | | | | | | | | | | | | | | | |
First Lien Secured Revolving Loan |
| L+ 5.50% | | 6.50% | | 07/19/19 |
| 07/01/25 |
| — | |
| — | |
| 10 | | 0.06 | |
|
| (1.00% Floor) | | | | | | |
| 13,577 | |
| 13,373 | |
| 13,511 | | 79.72 | |
Investment Banking & Brokerage |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
TOUR Intermediate Holdings, LLC |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
First Lien Secured Term Loan |
| L+ 7.00% | | 8.00% | | 05/19/20 |
| 05/15/25 |
| 8,194 | |
| 8,059 | |
| 8,194 | | 48.35 | |
|
| (1.00% Floor) | | | | | | | | | | | | | | | | | |
First Lien Secured Delayed Draw Loan |
| L+ 7.00% | | 8.00% | | 05/19/20 |
| 05/15/25 |
| 2,882 | |
| 2,859 | |
| 2,882 | | 17.01 | |
|
| (1.00% Floor) | | | | | | |
| 11,076 | |
| 10,918 | |
| 11,076 | | 65.35 | |
Packaged Foods & Meats |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
Mikawaya Holdings, LLC |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
First Lien Secured Term Loan |
| L+ 5.75% | | 7.00% | | 02/18/20 |
| 01/29/25 |
| 3,057 | |
| 3,007 | |
| 3,057 | | 18.04 | |
|
| (1.25% Floor) | | | | | | | | | | | | | | | | | |
Poultry Holdings, LLC |
|
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
First Lien Secured Term Loan |
| L+ 5.75% | | 6.75% | | 10/21/19 |
| 06/28/25 |
| 7,728 | |
| 7,606 | |
| 7,265 | | 42.87 | |
|
| (1.00% Floor) | | | | | | |
|
| |
|
| |
|
|
|
| |
Stella & Chewy's | |
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
First Lien Secured Term Loan | | L+ 6.50% | | 7.50% | | 12/29/20 |
| 12/16/25 |
| 5,312 | | | 5,206 | | | 5,206 | | 30.72 | |
| | (1.00% Floor) | | | | | | | | | | | | | | | | | |
First Lien Secured Delayed Draw Loan(6) | | L+ 6.50% | | 7.50% | | 12/29/20 |
| 12/16/25 |
| — | |
| — | |
| — | | — | |
| | (1.00% Floor) | | | | | | | | | | | | | | | | | |
Westrock Coffee Company, LLC | |
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
First Lien Secured Term Loan | | L+ 8.25% | | 9.75% | | 03/20/20 |
| 02/28/25 |
| 9,234 | |
| 9,137 | |
| 9,049 | | 53.41 | |
| | (1.50% Floor) | | (1.00%PIK) | | | | |
| 25,331 | |
| 24,956 | |
| 24,577 | | 145.05 | |
See accompanying notes to the consolidated financial statements.
8
WHF STRS Ohio Senior Loan Fund LLC
Consolidated Schedule of Investments
December 31, 2020 (unaudited)
(in thousands)
Investment Type(1) |
| Spread Above Index(2) |
| Interest | | Acquisition |
| Maturity Date |
| Principal/Share Amount |
| Amortized Cost |
| Fair Value(5) | | Fair Value As A | | ||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Personal Products | |
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
Sunless, Inc. | |
| |
| |
|
|
|
|
| |
|
| |
|
| |
| |
First Lien Secured Term Loan | | L+ 6.50% | | 7.50% | | 10/21/19 |
| 08/13/24 |
| 4,828 | | $ | 4,734 | | $ | 4,345 | | 25.64 | % |
| | (1.00% Floor) | | (0.50%PIK) | | | | | | | | | | | | | | | |
First Lien Secured Revolving Loan | | L+ 6.50% | | 7.50% | | 10/21/19 |
| 08/13/24 |
| — | |
| — | |
| (113) | | (0.67) | |
| | (1.00% Floor) | | | | | | |
| 4,828 | |
| 4,734 | |
| 4,232 | | 24.97 |
|
Systems Software | |
| |
| |
|
|
|
|
| |
|
| |
|
| |
|
|
arcserve (USA) LLC | |
| |
| |
|
|
|
|
| |
|
| |
|
| |
|
|
First Lien Secured Term Loan | | L+ 6.00% | | 7.00% | | 07/19/19 |
| 05/01/24 |
| 8,110 | |
| 8,001 | |
| 8,110 | | 47.86 |
|
| | (1.00% Floor) | | | | | | |
| 8,110 | |
| 8,001 | |
| 8,110 | | 47.86 |
|
Technology Hardware, Storage & Peripherals | |
| |
| |
|
|
|
|
| |
|
| |
|
| |
|
|
PS Lightwave, Inc. | |
| |
| |
|
|
|
|
| |
|
| |
|
| |
|
|
First Lien Secured Term Loan | | L+ 6.75% | | 8.25% | | 05/19/20 |
| 03/10/25 |
| 7,435 | | | 7,306 | | | 7,334 | | 43.28 | |
| | (1.50% Floor) | | | | | | | | | | | | | | | | |
|
First Lien Secured Delayed Draw Loan | | L+ 6.75% | | 8.25% | | 05/19/20 |
| 03/10/25 |
| — | |
| — | |
| 6 | | 0.04 |
|
| | (1.50% Floor) | | | | | | |
| 7,435 | |
| 7,306 | |
| 7,340 | | 43.32 |
|
Total Investments | | | |
| |
|
|
|
| 182,786 | | $ | 176,716 | | $ | 174,552 | | 1,030.10 | % |
| (1) | Except as noted, all investments provide collateral for the STRS JV Credit Facility. |
| (2) | The investments bear interest at a rate that may be determined by reference to LIBOR, which resets monthly, quarterly or semiannually, or CDOR. The one, three and six-month LIBOR were 0.1%, 0.2% and 0.3%, respectively, as of December 31, 2020. The CDOR was 0.5% as of December 31, 2020. |
| (3) | The interest rate is the “all-in-rate” including the current index and spread, the fixed rate, and the PIK interest rate, as the case may be. |
| (4) | Except as otherwise noted, all of the STRS JV’s portfolio company investments, which as of the date of the portfolio represented 1,030% of STRS JV’s net assets or 96% of STRS JV’s total assets, are subject to legal restrictions on sales. |
| (5) | The fair value of each investment was determined using significant unobservable inputs. |
| (6) | The investment or a portion of the investment does not provide collateral for the STRS JV Credit Facility. |
| (7) | Principal is denominated in Canadian dollars and the issuer is domiciled in Canada. |
| (8) | In addition to the interest earned based on the stated interest rate of this security, STRS JV is entitled to receive an additional interest in the amount of 3.00% on its “last out” tranche of the portfolio company’s senior term debt, which was previously syndicated into “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any other amounts due thereunder. |
See accompanying notes to the consolidated financial statements.
9
WHF STRS Ohio Senior Loan Fund LLC
Consolidated Statements of Operations
(in thousands)
| | | | | | | For the period | ||
| | | | | | July 19, 2019 | |||
| | | | | | (commencement of | |||
| | For the Year Ended | | For the Year Ended | | operations) through | |||
|
| December 31, 2021 |
| December 31, 2020 |
| December 31, 2019 | |||
| | | | | (Unaudited) | | (Unaudited) | ||
Investment income | | | | | | | | | |
Interest income | | $ | 18,172 | | $ | 12,789 | | $ | 2,936 |
Fees and other income | | | 647 | | | 527 | | | — |
Total investment income | | | 18,819 | | | 13,316 | | | 2,936 |
| | | | | | | | | |
Expenses | | | | | | | | | |
Interest expense on credit facility | |
| 4,105 | |
| 3,256 | |
| 1,042 |
Interest expense on notes to members | |
| 5,512 | |
| 4,465 | |
| 1,422 |
Administrative fee | |
| 443 | |
| 308 | |
| 65 |
Professional fees and other expenses | |
| 498 | |
| 317 | |
| 164 |
Total expenses | | | 10,558 | | | 8,346 | | | 2,693 |
Net investment income | |
| 8,261 | |
| 4,970 | |
| 243 |
| | | | | | | | | |
Realized and unrealized gains (losses) on investments and foreign currency transactions | | | | | | | | | |
Net realized gains (losses) on investments | |
| (70) | |
| (9) | |
| 12 |
Net realized gains (losses) on foreign currency transactions | | | 16 | | | (1) | | | — |
Net realized gains (losses) on foreign currency forward contracts | | | (1) | | | — | | | — |
Net change in unrealized appreciation (depreciation) on investments | |
| 1,201 | |
| (2,514) | |
| 350 |
Net change in unrealized appreciation (depreciation) on foreign currency transactions | | | (67) | | | (285) | | | — |
Net change in unrealized appreciation (depreciation) on foreign currency forward contracts | | | 19 | | | — | | | — |
Net realized and unrealized gains (losses) on investments and foreign currency transactions | | | 1,098 | | | (2,809) | | | 362 |
Net increase in members' equity resulting from operations | | $ | 9,359 | | $ | 2,161 | | $ | 605 |
See accompanying notes to the consolidated financial statements.
10
WHF STRS Ohio Senior Loan Fund LLC
Consolidated Statements of Changes in Members’ Equity
(in thousands)
| | | | | | | For the period | ||
| | | | | | July 19, 2019 | |||
| | | | | | (commencement of | |||
| | For the Year Ended | | For the Year Ended | | operations) through | |||
| | December 31, 2021 |
| December 31, 2020 |
| December 31, 2019 | |||
| | | | | (Unaudited) | | (Unaudited) | ||
Members' equity beginning balance | | $ | 16,945 | | $ | 11,581 | | $ | — |
Contributions | |
| 7,886 | | | 6,137 | | | 10,977 |
Distributions | |
| (8,178) | | | (2,934) | | | — |
| |
| 16,653 | | | 14,784 | | | 10,977 |
Net increase in members' equity resulting from operations: | |
|
| | |
| | |
|
Net investment income | |
| 8,261 | | | 4,970 | | | 243 |
Net realized gains (losses) on investments and foreign currency transactions | |
| (55) | | | (10) | | | 12 |
Net change in unrealized appreciation (depreciation) on investments and foreign currency transactions | |
| 1,153 | | | (2,799) | | | 350 |
Net increase in members' equity resulting from operations | |
| 9,359 | | | 2,161 | | | 605 |
Members' equity ending balance | | $ | 26,012 | | $ | 16,945 | | $ | 11,581 |
See accompanying notes to the consolidated financial statements.
11
WHF STRS Ohio Senior Loan Fund LLC
Consolidated Statements of Cash Flows
(in thousands)
| | | | | | | For the period | ||
| | | | | | July 19, 2019 | |||
| | | | | | (commencement of | |||
| | For the Year Ended | | For the Year Ended | | operations) through | |||
|
| December 31, 2021 |
| December 31, 2020 |
| December 31, 2019 | |||
| | | | (Unaudited) | | (Unaudited) | |||
Cash flows from operating activities | | | | | | | | | |
Net increase in members' equity resulting from operations | | $ | 9,359 | | $ | 2,161 | | $ | 605 |
Adjustments to reconcile net increase in members' equity resulting from operations to net cash (used in) operating activities: | |
|
| |
| | |
|
|
Paid-in-kind income | |
| (659) | |
| (1,001) | |
| — |
Net realized (gains) losses on investments | |
| 70 | |
| (9) | |
| (12) |
Net unrealized depreciation (appreciation) on investments | |
| (1,201) | |
| 2,514 | |
| (350) |
Net unrealized (appreciation) depreciation on translation of assets and liabilities in foreign currencies | |
| 67 | |
| 285 | |
| — |
Net unrealized (appreciation) depreciation on foreign currency forward contracts | | | (19) | | | — | | | — |
Accretion of discount | |
| (1,610) | |
| (1,044) | |
| (141) |
Amortization of deferred financing costs | |
| 524 | |
| 404 | |
| 183 |
Acquisition of investments | |
| (154,536) | |
| (110,879) | |
| (98,815) |
Proceeds from principal payments and sales of portfolio investments | |
| 72,978 | |
| 33,127 | |
| 2,058 |
Net changes in operating assets and liabilities: | |
|
| |
| | |
|
|
Interest and dividend receivable | |
| (131) | |
| — | |
| (603) |
Prepaid expenses and other receivables | |
| (88) | |
| (107) | |
| (57) |
Amounts receivable on unsettled investment transactions | |
| 108 | |
| (50) | |
| (66) |
Accounts payable and accrued expenses | |
| 94 | |
| 138 | |
| 115 |
Interest payable | |
| 532 | |
| 297 | |
| 1,029 |
Advances received from unfunded credit facilities | |
| 166 | |
| 12 | |
| 132 |
Net cash used in operating activities | |
| (74,346) | |
| (74,152) | |
| (95,922) |
| | | | | | | | | |
Cash flows from financing activities | |
|
| |
|
| |
|
|
Proceeds from issuance of subordinated notes | |
| 31,544 | |
| 24,549 | |
| 43,907 |
Contributions from members | | | 7,886 | | | 6,137 | | | 10,977 |
Distributions paid to members | |
| (8,178) | |
| (2,934) | |
| — |
Borrowings under credit facility | |
| 100,104 | |
| 56,661 | |
| 44,604 |
Repayments of credit facility | |
| (49,100) | |
| (5,885) | |
| — |
Deferred financing costs | |
| (876) | |
| — | |
| (2,014) |
Net cash provided by financing activities | |
| 81,380 | |
| 78,528 | |
| 97,474 |
Effect of exchange rate changes on cash | |
| 24 | |
| 19 | |
| — |
Net change in cash, cash equivalents and restricted cash | |
| 7,057 | |
| 4,395 | |
| 1,552 |
Cash, cash equivalents and restricted cash at beginning of period | |
| 5,947 | |
| 1,552 | |
| — |
Cash, cash equivalents and restricted cash at end of period | | $ | 13,004 | | $ | 5,947 | | $ | 1,552 |
| | | | | | | | | |
Supplemental disclosure of cash flow information: | |
|
| |
|
| |
|
|
Interest paid | | $ | 8,577 | | $ | 7,008 | | $ | 1,252 |
Taxes paid during the year | |
| 21 | |
| 95 | |
| — |
Supplemental noncash disclosures: | |
|
| |
| | |
|
|
In-kind investment contributions from members | | | 23,658 | |
| 18,411 | |
| 29,840 |
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated statements of assets and liabilities that sum to the total of the same amounts presented in the consolidated statements of cash flows:
See accompanying notes to the consolidated financial statements.
12
WHF STRS Ohio Senior Loan Fund LLC
Notes to Consolidated Financial Statements
(in thousands)
WHF STRS Ohio Senior Loan Fund LLC (and, together with its subsidiary, the “Company”) was organized as a Delaware limited liability company on December 19, 2018. On January 14, 2019, WhiteHorse Finance, Inc. (“WhiteHorse Finance”) and the State Teachers Retirement System of Ohio (“STRS Ohio” and, together with WhiteHorse Finance, the “Members” and, each, a “Member”) entered into a Limited Liability Company Agreement (the “LLCA”) to co-manage the Company as a joint venture.
The Company is managed by a four-person board of managers (the “Board”), two of whom are selected by WhiteHorse Finance and two of whom are selected by STRS Ohio. All material decisions with respect to the Company, including those involving its investment portfolio, require unanimous approval of a quorum of the Board. Quorum is defined as (i) the presence of two members of the Board; provided that at least one individual is present that was elected, designated or appointed by each member; (ii) the presence of three members of the Board; provided that the individual that was elected, designated or appointed by the member with only one individual present shall be entitled to cast two votes on each matter; or (iii) the presence of four members of the Board; provided that two individuals are present that were elected, designated or appointed by each member.
The Members have committed to provide up to $125,000 of subordinated notes and equity to the Company, with WhiteHorse Finance providing up to $75,000 and STRS Ohio providing up to $50,000, respectively. WhiteHorse Finance’s economic ownership of the Company is 60.0% and STRS Ohio’s economic ownership of the Company is 40.0%.
The Company shall continue without dissolution until all investments are liquidated by the Company, or until the occurrence of an event of dissolution, as set forth in the LLCA.
The Company will invest primarily in lower middle market, senior secured debt facilities, to performing lower middle market companies across a broad range of industries that typically carry a floating interest rate based on a risk-free index rate such as LIBOR and have a term of three to six years.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of WHF STRS Ohio Senior Loan Fund LLC and its wholly owned subsidiary, WHF STRS Credit I, LLC (“STRS Credit”). The Company meets the definition of an investment company under Accounting Standards Codification (“ASC”) Topic 946, Financial Services - Investment Companies, and therefore applies the accounting and reporting guidance discussed therein to its consolidated financial statements. Disclosures and amounts as of and for the year and period ended December 31, 2020 and December 31, 2019 (as the case may be) are not audited.
Principles of Consolidation: Under the investment company rules and regulations pursuant to ASC Topic 946, WHF STRS Ohio Senior Loan Fund LLC is precluded from consolidating any entity other than another investment company. As provided under ASC Topic 946, the Company generally consolidates any investment company when it owns 100% of its partners’ or members’ capital or equity units. All intercompany balances and transactions have been eliminated.
Use of Estimates: The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the financial statements. Actual results could differ from those estimates.
Fair Value of Financial Instruments: The Company determines the fair value of its financial instruments in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. ASC Topic 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC Topic 820, the Company has categorized its financial instruments carried at fair value, based on the priority of
13
WHF STRS Ohio Senior Loan Fund LLC
Notes to Consolidated Financial Statements
(in thousands)
the valuation technique, into a three-level fair value hierarchy. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.
Investments are measured at fair value as determined in good faith by the Board, generally on a quarterly basis, and such valuations are reviewed and approved by the Company’s Board, based on, among other factors, consistently applied valuation procedures on each measurement date. Any changes to the valuation methodology and valuation policy are reviewed by the Company’s Board to confirm that the changes are justified. The Company continues to review and refine its valuation procedures in response to market changes.
The Company engages independent external valuation firms to periodically review its investments. These external reviews are used by the Company’s Board to review the Company’s internal valuation of each investment over the year.
Investment Transactions: The Company records investment transactions on a trade date basis. These transactions may settle subsequent to the trade date depending on the transaction type. Certain expenses related to legal and tax consultation, due diligence, rating fees, valuation expenses and independent collateral appraisals may arise when the Company makes certain investments. These expenses are recognized in the consolidated statements of operations as they are incurred.
Foreign currency translation: The Company’s books and records are maintained in U.S. dollars. Any foreign currency amounts are translated into U.S. dollars on the following basis:
| (1) | cash and cash equivalents, restricted cash and cash equivalents, fair value of investments, interest receivable, and other assets and liabilities — at the spot exchange rate on the last business day of the period; and |
| (2) | purchases and sales of investments, income and expenses — at the exchange rates prevailing on the respective dates of such transactions. |
Although net assets and fair values are presented based on the applicable foreign exchange rates described above, the Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. Fluctuations arising from the translation of assets other than investments and liabilities are included with the net change in unrealized appreciation (depreciation) on foreign currency transactions in the consolidated statements of operations.
14
WHF STRS Ohio Senior Loan Fund LLC
Notes to Consolidated Financial Statements
(in thousands)
Foreign security and currency transactions may involve certain considerations and risks not typically associated with investing in U.S. companies. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices to be more volatile than those of comparable U.S. companies or U.S. government securities.
As of December 31, 2021, restricted cash and cash equivalents included 863 Canadian Dollars (“CAD”) and 21 British Pound Sterling (“GBP”). As of December 31, 2020, restricted cash and cash equivalents included 583 CAD.
Revenue Recognition: The Company’s revenue recognition policies are as follows:
Sales: Realized gains or losses on the sales of investments are calculated by using the specific identification method.
Investment Income: Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. The Company may also receive closing, commitment, prepayment, amendment and other fees from portfolio companies in the ordinary course of business.
Dividend income is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.
Closing fees associated with investments in portfolio companies are deferred and recognized as interest income over the respective terms of the applicable loans. Upon the prepayment of a loan or debt security, any unamortized loan closing fees are recorded as part of interest income. Commitment fees are based upon the undrawn portion committed by the Company and are recorded as interest income on an accrual basis. Prepayment, amendment and other fees are recognized when earned, generally when such fees are receivable, and are included in fee income on the consolidated statements of operations.
The Company may invest in loans that contain a PIK interest rate provision. PIK interest is accrued at the contractual rates and added to loan principal on the reset dates to the extent such amounts are expected to be collected.
Non-accrual loans: Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected. The Company may conclude that non-accrual status is not required if the loan has sufficient collateral value and is in the process of collection. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current.
Cash and Cash Equivalents: Cash and cash equivalents include cash, deposits with financial institutions, and short-term liquid investments in money market funds with original maturities of three months or less.
Restricted Cash and Cash Equivalents: Restricted cash include amounts that are collected and held by the trustee appointed as custodian of the assets securing the Credit Facility (as defined in Note 6). Restricted cash is held by the trustee for the payment of interest expense and principal on the outstanding borrowings or reinvestment into new assets. Restricted cash that represents interest or fee income is transferred to unrestricted cash accounts by the trustee generally once a quarter after the payment of operating expenses and amounts due under the Credit Facility (as defined in Note 6).
Deferred Financing Costs: Deferred financing costs represent fees and other direct incremental costs incurred in connection with the Company’s borrowings. These amounts are amortized and are included in interest expense in the consolidated statements of operations over the estimated life of the borrowings. Deferred financing costs are presented in the consolidated statements of assets and liabilities as a direct reduction from the carrying amount of the related debt liability.
15
WHF STRS Ohio Senior Loan Fund LLC
Notes to Consolidated Financial Statements
(in thousands)
Advances Received from Unfunded Credit Facilities: The Company invests in credit facilities of which a portion of such facilities may be undrawn by the beneficiary borrower at the time of investment. Upon settlement, the Company may receive an advance from the beneficiary borrower at an amount equal to the purchase discount of the entire credit facility applied against any undrawn portion of such facilities. Such advances are initially recorded as liabilities and recognized as income over the respective terms of the applicable credit facility or until the credit facility expires or is sold by the Company.
Amounts due to or from Affiliate: The Company records amounts owed on or due from Affiliates for which the cash settlement has not occurred.
Income Taxes: No provision for federal income taxes has been made in the consolidated financial statements, as each Member is individually responsible for reporting income or loss, to the extent required by federal income tax laws and regulations, based upon its respective share of the Company’s revenues and expenses as reported for income tax purposes. The Company periodically reviews its activities to determine whether taxes are due to various state and other jurisdictions during the normal course of business.
During the years ended December 31, 2021 and 2020, and for the period July 19, 2019 (commencement of operations) through December 31, 2019, the Company recognized $47, $26 and $21, respectively, in income tax expense relating to taxes incurred in various states and other jurisdictions, which is included as a net debit in professional fees and other expenses in the consolidated statements of operations.
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. As of December 31, 2021, no accrual was deemed necessary.
Federal and state tax returns of the Company for the period July 19, 2019 (commencement of operations) through December 31, 2019 and subsequent years can be examined by the relevant tax authorities (U.S. tax returns are generally subject to audit for three years from the date filed). Because many types of transactions are susceptible to varying interpretations under federal and state income tax laws and regulations, the amounts reported in the consolidated financial statements may be subject to change at a later date by the respective tax authorities. Penalties or interest that may be assessed related to any income taxes would be classified as other expenses in the consolidated financial statements. The Company had no unpaid amounts accrued for interest or penalties as of December 31, 2021. The Company does not expect the total amount of unrecognized tax benefits to significantly change in the next twelve months.
Risks and Uncertainties: In the normal course of business, the Company encounters primarily two significant types of economic risks: credit and market. Credit risk is the risk of default on the Company’s investments that result from an issuer’s, borrower’s or derivative counterparty’s inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of investments due to changes in interest rates, spreads or other market factors, including the value of the collateral underlying investments held by the Company. Management believes that the carrying value of the Company’s investments are fairly stated, taking into consideration these risks along with estimated collateral values, payment histories and other market information.
The U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR and other interbank offered rates (“IBORs”), has announced that it will not compel the use of the majority of USD LIBOR tenors as a benchmark interest rate after June 2023. The Company has exposure to USD LIBOR, including in financial instruments and other contracts that mature after June 2023. Upon the cessation of these IBORs, the Company may need to renegotiate the credit agreements extending beyond 2023 with any portfolio companies that utilize such IBORs as a factor in determining the interest rate to replace LIBOR with the new standard that is established.
16
WHF STRS Ohio Senior Loan Fund LLC
Notes to Consolidated Financial Statements
(in thousands)
The ongoing novel strain of coronavirus (“COVID-19”), which was declared as a pandemic by the World Health Organization on March 11, 2020, has caused a disruption in the domestic and global economies. The continued developments related to this pandemic and uncertainty regarding potential economic recovery precludes any prediction as to the ultimate adverse impact of COVID-19 on the domestic and global financial markets and economic conditions. As a result, the Company’s financial condition may be negatively impacted by COVID-19. Given the uncertainty over the ultimate impact of COVID-19, estimates and assumptions as of December 31, 2021 are inherently less certain than they would be absent the current and potential future impacts of this pandemic.
Recent Accounting Pronouncements: In March 2020, the Financial Accounting Standards Board issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting if certain criteria are met. The guidance is effective from March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of the adoption of ASU 2020-04 on its consolidated financial statements.
NOTE 3 - FORWARD CURRENCY CONTRACTS
The Company may enter into foreign currency forward contracts from time to time to facilitate settlement of purchases and sales of investments denominated in foreign currencies and to economically hedge the impact that an adverse change in foreign exchange rates would have on the value of the Company’s investments denominated in foreign currencies. A foreign currency forward contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. These contracts are marked-to-market by recognizing the difference between the contract forward exchange rate and the forward market exchange rate on the last day of the period presented as unrealized appreciation or depreciation. Realized gains or losses are recognized when forward contracts are settled. Risks arise as a result of the potential inability of the counterparties to meet the terms of their contracts. The Company attempts to limit counterparty risk by only dealing with well-known counterparties.
The Company utilizes forward foreign currency exchange contracts to protect itself against fluctuations in exchange rates. The Company may choose to renew contracts quarterly unless otherwise settled by the Company or the counterparty.
The following table provides a breakdown of our forward currency contracts:
The value associated with unrealized gains or losses on open contracts is included in unrealized appreciation on foreign currency forward contracts within the statement of assets and liabilities. Open contracts as of December 31, 2021 were as follows. There were no open contracts as of December 31, 2020.
17
WHF STRS Ohio Senior Loan Fund LLC
Notes to Consolidated Financial Statements
(in thousands)
During the year ended December 31, 2021 the Company’s average USD notional exposure to foreign currency forward contracts was $186. The foreign currency forward contracts open at the end of the period are generally indicative of the volume of activity during the period.
For the year ended December 31, 2020 and for the period July 19, 2019 (commencement of operations) through December 31, 2019, the Company did not have any activities relating to derivative instruments.
Offsetting of Derivative Instruments
The Company has derivative instruments that are subject to master netting agreements. These agreements include provisions to offset positions with the same counterparty in the event of default by one of the parties. The Company’s unrealized appreciation and depreciation on derivative instruments are reported as gross assets and liabilities, respectively, in the consolidated statements of assets and liabilities. The following tables present the Company’s assets and liabilities related to derivatives by counterparty, net of amounts available for offset under a master netting arrangement and net of any collateral received or pledged by the Company for such assets and liabilities as of December 31, 2021.
(1) In some instances, the actual amount of the collateral received and/or pledged may be more than the amount shown due to overcollateralization.
(2) Net amount of derivative assets represents the net amount due from the counterparty to the Company in the event of default.
(3) Net amount of derivative liabilities represents the net amount due from the Company to the counterparty in the event of default.
NOTE 4 – FAIR VALUE MEASUREMENTS
Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active public markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about what market participants would use in pricing an asset or liability.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input
18
WHF STRS Ohio Senior Loan Fund LLC
Notes to Consolidated Financial Statements
(in thousands)
that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the financial instrument.
Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur. During the year ended December 31, 2021 and year ended December 31, 2020, there were no changes in the observability of valuation inputs that would have resulted in a reclassification of assets between any levels.
Fair value for each investment is derived using a combination of valuation methodologies that, in the judgment of the Board are most relevant to such investment, including, without limitation, being based on one or more of the following: (i) market prices obtained from market makers for which the Board has deemed there to be enough breadth (number of quotes) and depth (firm bids) to be indicative of fair value, (ii) the price paid or realized in a completed transaction or binding offer received in an arm’s-length transaction or (iii) a discounted cash flow analysis.
The following table presents investments (as shown in the consolidated schedule of investments) that were measured at fair value as of December 31, 2021:
The following table presents investments (as shown in the consolidated schedule of investments) that were measured at fair value as of December 31, 2020:
19
WHF STRS Ohio Senior Loan Fund LLC
Notes to Consolidated Financial Statements
(in thousands)
The following table presents the changes in investments measured at fair value using Level 3 inputs for the year ended December 31, 2021 and December 31, 2020:
| For the Year Ended December 31, 2021 | | For the Year Ended December 31, 2020 | ||
Fair value, beginning of period | $ | 174,552 | | $ | 97,260 |
Acquisition of investments | | 154,536 | | | 110,879 |
Paid-in-kind income | | 659 | | | 1,001 |
Accretion of discount | | 1,610 | | | 1,044 |
Proceeds from principal payments and sales of portfolio investments | | (72,978) | | | (33,127) |
Net realized gains/(losses) | | (70) | | | 9 |
Net unrealized appreciation (depreciation) | | 1,201 | | | (2,514) |
Fair value, end of period | $ | 259,510 | | $ | 174,552 |
The significant unobservable inputs used in the fair value measurement of the Company’s investments are the discount rate, recent transaction and EBITDA multiples. An increase or decrease in the discount rate in isolation would result in significantly lower or higher fair value measurement, respectively. An increase or decrease in the recent transaction for an investment would in isolation result in significantly higher or lower fair value measurement, respectively. An increase or decrease in the EBITDA multiple in isolation may result in significantly higher or lower fair value measurement, respectively. As the fair value of a debt investment diverges from par, which would generally be the case for non-accrual loans, the fair value measurement of that investment is more susceptible to volatility from changes in EBITDA multiples as a significant unobservable input.
Quantitative information about Level 3 fair value measurements is as follows:
| | Fair Value as of | | Valuation | | Unobservable | | Range | |
Investment Type | | December 31, 2020 | | Techniques | | Inputs | | (Weighted Average) | |
First lien secured loans | | $ | 156,508 | | Discounted cash flows | | Discount rate | | 5.5%-14.1% (8.6%) |
| | | | | | | Exit EBITDA multiple | | 4.5x-11.0x (7.9x) |
| | | 18,044 | | Recent transaction | | Transaction price | | 97.6-98.1 (97.9) |
Total Level 3 Investments | | $ | 174,552 | | | | | | |
20
WHF STRS Ohio Senior Loan Fund LLC
Notes to Consolidated Financial Statements
(in thousands)
Valuation of investments may be determined by weighting various valuation techniques. Significant judgment is required in selecting the assumptions used to determine the fair values of these investments. The valuation methods selected for a particular investment are based on the circumstances and on the sufficiency of data available to measure fair value. If more than one valuation method is used to measure fair value, the results are evaluated and weighted, as appropriate, considering the reasonableness of the range indicated by those results. A fair value measurement is the point within that range that is most representative of fair value in the circumstances.
The availability of observable inputs can vary depending on the financial instrument and is affected by a wide variety of factors, including, for example, the nature of the instrument, whether the instrument is traded on an active exchange or in the secondary market and the current market conditions. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires a greater degree of judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for financial instruments classified as Level 3.
The determination of fair value using the selected methodologies takes into consideration a range of factors including the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public and private exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment, compliance with agreed upon terms and covenants, and assessment of credit ratings of an underlying borrower. These valuation methodologies involve a significant degree of judgment to be exercised.
As it relates to investments which do not have an active public market, there is no single standard for determining the estimated fair value. Valuations of privately held investments are inherently uncertain, and they may fluctuate over short periods of time and may be based on estimates. The determination of fair value may differ materially from the values that would have been used if a ready market for these investments existed.
In some cases, fair value for such investments is best expressed as a range of values derived utilizing different methodologies from which a single estimate may then be determined. Consequently, fair value for each investment may be derived using a combination of valuation methodologies that, in the judgment of the investment professionals, are most relevant to such investment. The selected valuation methodologies for a particular investment are consistently applied on each measurement date. However, a change in a valuation methodology or its application from one measurement date to another is possible if the change results in a measurement that is equally or more representative of fair value in the circumstances.
21
WHF STRS Ohio Senior Loan Fund LLC
Notes to Consolidated Financial Statements
(in thousands)
NOTE 5 - INVESTMENTS
Investments consisted of the following:
| | | | | | | | | | | | |
| | As of December 31, 2021 | | As of December 31, 2020 | ||||||||
| | | | (unaudited) | ||||||||
($ in thousands) |
| Amortized Cost |
| Fair Value |
| Amortized Cost |
| Fair Value | ||||
First lien secured loans | | $ | 260,472 | | $ | 259,510 | | $ | 176,716 | | $ | 174,552 |
Total | | $ | 260,472 | | $ | 259,510 | | $ | 176,716 | | $ | 174,552 |
The following table shows the portfolio composition by industry grouping at fair value:
As of December 31, 2021, the portfolio companies underlying the Company’s investments are all located in the United States and its territories except for Geo Logic Systems Ltd., which is domiciled in Canada, and Cennox Holdings Limited, which is domiciled in the United Kingdom. As of December 31, 2020, the portfolio companies underlying the Company’s investments are all located in the United States and its territories except for Geo Logic Systems Ltd., which is domiciled in Canada.
As of December 31, 2021 and December 31, 2020, the Company had no investments on non-accrual status.
22
WHF STRS Ohio Senior Loan Fund LLC
Notes to Consolidated Financial Statements
(in thousands)
NOTE 6 – DEBT
Total borrowings outstanding and available as of December 31, 2021, were as follows:
|
| Maturity |
| Rate |
| Face Amount |
| Available | ||
JPM Credit Facility |
| 2025 |
| L+2.35 | % | $ | 146,782 | | $ | 28,218 |
Notes payable to members |
| N/A |
| L+6.50 | % |
| 100,000 | |
| — |
Total debt |
| | | | | $ | 246,782 | | $ | 28,218 |
Debt issuance cost |
| | | | | | (1,779) | |
|
|
Total debt net issuance cost | | | | | | $ | 245,003 | |
|
|
| | | | | | | | | | |
Total borrowings outstanding and available as of December 31, 2020 (unaudited), were as follows:
Credit Facility: On July 19, 2019, the Company entered into a $125,000 credit and security agreement (the “Credit Facility”) with JPMorgan Chase Bank, National Association (“JPMorgan”). On January 27, 2021, the terms of the Credit Facility were amended to, among other things, increase the size of the Credit Facility from $125,000 to $175,000. On April 28, 2021, the terms of the Credit Facility were amended and restated to, among other things, enable borrowings in British Pounds or Euros. On July 15, 2021, the terms of the Credit Facility were amended to, among other things, allow the Company to reduce the applicable margins for interest rates to 2.35%, extend the non-call period from January 19, 2022 to January 19, 2023, extend the end of the reinvestment period from July 19, 2022 to July 19, 2023 and extend the scheduled termination date from July 19, 2024, to July 19, 2025.
As of December 31, 2021, the Company’s Credit Facility had $175,000 of commitments subject to leverage and borrowing base restrictions with an interest rate based on a risk-free index rate such as LIBOR, Sterling Overnight Index Average (“SONIA”) or CDOR plus 2.35%. The final maturity date of the Credit Facility is July 19, 2025. The Company pays an unused fee of 0.75% per annum on the unused commitments under the Credit Facility. The Credit Facility is secured by a first lien on the assets of the Company. The Credit Facility contains certain covenants, including but not limited to maintenance of a borrowing base. As of December 31, 2021, the Company was in compliance with all covenants and other requirements of the Credit Facility.
As of December 31, 2021, the Company had $146,782 of outstanding borrowings, and an effective interest rate of 2.5% per annum. As of December 31, 2020, the Company had $95,687 of outstanding borrowings and an effective interest rate of 2.8% per annum. For the years ended December 31, 2021 and December 31, 2020, the Company recognized interest expense related to the Credit Facility, including amortization of deferred financing costs and unused commitment fees of $4,105 and $3,256, respectively. For the years ended December 31, 2021 and December 31, 2020, the weighted average interest rate on the Credit Facility was 2.7% and 3.4%, respectively. Average borrowings for the years ended December 31, 2021 and December 31, 2020 were $115,756 and $75,835, respectively.
For the period July 19, 2019 (commencement of operations) through December 31, 2019, the Company recognized interest expense related to the Credit Facility, including amortization of deferred financing costs and unused commitment fees of $1,042 and had a weighted average interest rate and average borrowings on the credit facility of 4.7% and $29,230, respectively.
23
WHF STRS Ohio Senior Loan Fund LLC
Notes to Consolidated Financial Statements
(in thousands)
Notes Payable to Members: The Company issues interest-bearing subordinated notes to the Members, with WhiteHorse Finance and STRS Ohio committing up to $60,000 and $40,000, respectively. The subordinated notes have a stated rate of interest of LIBOR plus 6.50%. The subordinated notes are perpetual with no defined maturity date. Voluntary prepayments of any outstanding subordinated notes are without premium or penalty and are at the discretion of the Company.
As of December 31, 2021, the Company’s subordinated note borrowings were $100,000 and had an effective interest rate of 6.6%. As of December 31, 2020, the Company’s subordinated note borrowings were $68,456 and had an effective interest rate of 6.6%. For the years ended December 31, 2021 and December 31, 2020, the Company recognized interest expense related to the subordinated notes of $5,512 and $4,465, respectively. For the years ended December 31, 2021 and December 31, 2020, the weighted average interest rate on the subordinated notes were 6.6% and 7.0%, respectively. Average borrowings on the subordinated notes for the years ended December 31, 2021 and December 31, 2020 were $83,650 and $63,522, respectively.
For the period July 19, 2019 (commencement of operations) through December 31, 2019, the Company recognized interest expense related to the subordinated notes of $1,422 and had a weighted average interest rate and average borrowings on the subordinated notes of 8.5% and $37,184, respectively.
NOTE 7 - MEMBERS’ EQUITY
Capital Commitments: Under the terms of the LLCA, the Company admitted the Members to provide an aggregate $25,000 of capital commitments. WhiteHorse Finance and STRS Ohio have a 60% and 40% economic ownership of the Company, respectively, and have commitments to fund, from time to time, aggregate capital contributions in the form of LLC equity interests of $15,000 and $10,000, respectively. Capital Contributions shall be made by all Members pro rata based on their respective Capital Commitments.
For the years ended December 31, 2021 and December 31, 2020, and for the period July 19, 2019 (commencement of operations) through December 31, 2019, the Members made capital contributions in the form of LLC equity interests in the aggregate amount of $7,886, $6,137 and $10,977, respectively. As of December 31, 2021, the Members commitments to fund equity interests to the Company of $25,000 were fully funded. As of December 31, 2020, WhiteHorse Finance had commitments to fund equity interests to the Company of $15,000, of which $4,732 was unfunded. As of December 31, 2020, STRS Ohio had commitments to fund equity interests to the Company of $10,000, of which $3,154 was unfunded.
A Member may (i) in its discretion and upon prior notice to the other Member, (A) if the Company does not have sufficient liquidity to pay its obligations as they come due, make loans to temporarily fund the Company until Capital Contributions are made by the Members or (B) make loans to temporarily fund the Company in order to make investments until Capital Contributions are made by the Members or (ii) with Board approval, contribute property with a fair market value in excess of such Member’s required Capital Contribution on such date (such loan or the amount of such excess, a “Temporary Advance”). Any Temporary Advance shall be repaid on the later of 30 days after the Temporary Advance was made or 10 business days after a capital call is made with respect to any Temporary Advance. There were no Temporary Advances during the years ended December 31, 2021 and December 31, 2020, and for the period July 19, 2019 (commencement of operations) through December 31, 2019.
Allocation of Profits and Losses: Profit or loss shall be allocated among the Members in accordance with their Capital Accounts. A Capital Account is maintained on the books of the Company for each Member. The balance in each Member’s Capital Account is adjusted by the Member’s allocable share of net profit or loss, capital contributions, and the amount of cash or the value of securities distributed to such Member, as set forth in the LLCA. In addition, the Company is required to make allocations of net profits and losses in accordance with the LLCA.
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WHF STRS Ohio Senior Loan Fund LLC
Notes to Consolidated Financial Statements
(in thousands)
Distributions: To the extent of available cash and cash equivalents after the payment of expenses, the Company may make quarterly distributions in such amounts as determined by the Board, shared among the Members as follows:
| (i) | First, to pay any Temporary Advances that have been outstanding for a period of 30 days or more and any interest accrued thereon; and |
| (ii) | Second, to the extent of any remaining available cash or cash equivalents after distributions pursuant to item (i) above, to the Members in accordance with their respective proportionate economic ownership. |
For the years ended December 31, 2021 and December 31, 2020, and for the period July 19, 2019 (commencement of operations) through December 31, 2019, the Company paid aggregate distributions of $8,178, $2,934 and $0, respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Commitments: In the normal course of business, the Company is party to financial instruments with off-balance-sheet risk to meet the financing needs of its borrowers. These financial instruments include commitments to extend credit and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated statement of assets and liabilities. The Company attempts to limit its credit risk by conducting extensive due diligence and obtaining collateral where appropriate.
As of December 31, 2021 and December 31, 2020, the balance of unfunded commitments to extend credit was $22,883 and $10,862, respectively. Commitments to extend credit consist principally of the unused portions of commitments that obligate the Company to extend credit, such as revolving credit arrangements or similar transactions. These commitments are often subject to financial or non-financial milestones and other conditions to borrow that must be achieved before the commitment can be drawn. In addition, the commitments generally have fixed expiration dates or other termination clauses. Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
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WHF STRS Ohio Senior Loan Fund LLC
Notes to Consolidated Financial Statements
(in thousands)
The following table summarizes the Company’s unfunded commitments as of December 31, 2021 and December 31, 2020:
| | As of December 31, 2021 | | As of December 31, 2020 | ||
Unfunded Commitment ($ in thousands)(1) | | | | (unaudited) | ||
Revolving Loan Commitments: | | | | | | |
Cennox, Inc. (d/b/a Cennox) | | $ | 436 | | $ | — |
Drew Foam Companies Inc. | | | — | | | 534 |
Geo Logic Systems Ltd. | | | 1,019 | | | 673 |
IDIG Parent, LLC (d/b/a IDIQ) | | | 543 | | | — |
LHS Borrower, LLC (d/b/a Leaf Home, LLC) | | | 560 | | | 560 |
LINC Systems, LLC | | | 672 | | | — |
LMG Holdings, Inc. | | | 414 | | | — |
Marlin DTC-LS Midco 2, LLC (d/b/a Clarus Commerce, LLC) | | | 981 | | | 1,016 |
MEP-TS Midco, LLC (d/b/a Tax Slayer) | | | 1,548 | | | — |
Meta Buyer LLC (d/b/a Metagenics, Inc.) | | | 1,318 | | | — |
RCKC Acquisitions LLC (d/b/a KSM Consulting, LLC) | | | 604 | | | — |
Road Safety Services, Inc. | | | 379 | | | — |
SFP Holding, Inc. (Summit) | | | — | | | 1,137 |
SmartSign Holdings LLC | | | — | | | 364 |
Sunless, Inc. | | | 1,330 | | | 1,330 |
Turnberry Solutions, Inc. | | | 559 | | | — |
Unleashed Brands, LLC (d/b/a Unleashed Brands Group) | | | 733 | | | — |
WH Lessor Corp. (d/b/a Waste Harmonics, LLC) | | | 528 | | | 528 |
Total unfunded revolving loan commitments | | | 11,624 | | | 6,142 |
| | | | | | |
Delayed Draw Loan Commitments: | | | | | | |
Meta Buyer LLC (d/b/a Metagenics, Inc.) | | | 897 | | | — |
PS Lightwave, Inc. | | | 1,495 | | | 1,495 |
RCKC Acquisitions LLC (d/b/a KSM Consulting, LLC) | | | 3,200 | | | — |
SFP Holding, Inc. (Summit) | | | — | | | 37 |
Stella & Chewy's LLC | | | 1,282 | | | 3,188 |
Source Code Holdings, LLC (d/b/a Source Code Corporation) | | | 2,185 | | | — |
Unleashed Brands, LLC (d/b/a Unleashed Brands Group) | | | 2,200 | | | — |
Total unfunded delayed draw loan commitments | | | 11,259 | | | 4,720 |
Total Unfunded Commitments | | $ | 22,883 | | $ | 10,862 |
| (1) | Unfunded commitments denominated in non-USD currencies have been converted to USD using the exchange rate as of the applicable reporting date. |
Indemnification: In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties that provide general indemnifications. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not occurred. The Company expects the risk of any future obligation under these indemnifications to be remote.
Legal Proceedings: In the normal course of business, the Company may be subject to legal and regulatory proceedings that are generally incidental to its ongoing operations. While there can be no assurance of the ultimate disposition of any such proceedings, the Company does not believe any such disposition will have a material adverse effect in the Company’s consolidated financial statements.
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WHF STRS Ohio Senior Loan Fund LLC
Notes to Consolidated Financial Statements
(in thousands)
NOTE 9 – RELATED PARTY TRANSACTIONS
Administrative Agreement: The Company has entered into an Administration Agreement (the Administration Agreement”) with H.I.G. WhiteHorse Administration, LLC (the “Administrator”) where the Administrator shall perform, oversee, or arrange for, the performance of administrative services necessary for the operations of the Company. The administrative fee is calculated based on the Company’s average quarterly equity and indebtedness balances and is paid quarterly. For the years ended December 31, 2021 and December 31, 2020 and for the period July 19, 2019 (commencement of operations) through December 31, 2019, the Company had incurred $443, $308 and $65 in administrative fees, respectively. As of December 31, 2021 and December 31, 2020, administrative fees payable were $130 and $89, respectively, and were recorded in accounts payable and other liabilities in the consolidated statements of assets and liabilities.
Due to Affiliates: From time to time in the normal course of business, H.I.G. Capital Management, Inc. (the “Affiliate”) incur out-of-pocket expenses and other expenditures on behalf of the Company. Such amounts are reimbursed by the Company at actual cost. During the years ended December 31, 2021 and December 31, 2020, and for the period July 19, 2019 (commencement of operations) through December 31, 2019, the Company collectively reimbursed the Affiliate a total of $357, $305 and $67, respectively, relating to such amounts. As of December 31, 2021 and December 31, 2020, the Company did not have any accrued expenses payable or reimbursable to the Affiliate.
Transactions with WhiteHorse Finance: During the years ended December 31, 2021 and December 31, 2020, and for the period July 19, 2019 (commencement of operations) through December 31, 2019, the Company purchased investments from WhiteHorse Finance in the amounts of $140,904, $98,781 and $87,408, respectively.
Other: There are no management or incentive fees incurred by the Company.
NOTE 10 - FINANCIAL HIGHLIGHTS
The following is a schedule of financial highlights:
| | | | | | For the period |
| | | | | | July 19, 2019 |
| | | | | | (commencement of |
| | For the Year Ended | | For the Year Ended | | operations) through |
| | December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
| | | | (Unaudited) | | (Unaudited)(1) |
Net investment income ratio to average members' capital(2) | | 39.0% | | 37.5% | | 7.3% |
| | | | | | |
Interest expense ratio to average members' capital(2) | | 45.4% | | 58.2% | | 74.7% |
Other expenses ratio to average members' capital(2) | | 4.4% | | 4.7% | | 7.0% |
Total expense ratio to average members' capital(2) | | 49.8% | | 63.0% | | 81.7% |
| | | | | | |
Internal rate of return since inception, end of period(3)(4) | | 29.7% | | 14.0% | | NM |
| (1) | Net investment income, interest expense and other expenses were annualized in calculating the ratio to average members’ capital. |
| (2) | Ratios are calculated by the average members’ equity measured as of the end of each quarter during the period. |
| (3) | The internal rate of return since inception (“IRR”) is computed based on the actual dates of cash inflows, outflows and ending members’ equity for the years ended December 31, 2021 and December 31, 2020. Pursuant to the LLCA, there are no management or incentive fees incurred by the Company. |
| (4) | The term “NM” or “Not Meaningful” is used to refer to IRR calculations that return a result that is unreliable or non-representative due to factors such as a short time frame. |
Financial highlights are calculated for the member’s equity taken as a whole. An individual Member’s returns and ratios may vary.
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WHF STRS Ohio Senior Loan Fund LLC
Notes to Consolidated Financial Statements
(in thousands)
NOTE 11 - SUBSEQUENT EVENTS
Management has evaluated events that have occurred after the balance sheet date through March 31, 2022 and other than the items discussed below, the Company has determined that there were no additional subsequent events requiring adjustment or disclosure in the consolidated financial statements.
In February 2022, WhiteHorse Finance increased its capital commitment to the Company in the amount of an additional $25,000, which brings WhiteHorse Finance’s total capital commitment to the Company to $100,000, comprised of $80,000 of subordinated notes and $20,000 of LLC equity interests. In connection with this capital commitment increase, WhiteHorse Finance’s and STRS Ohio’s amended economic ownership in the Company is approximately 66.67% and 33.33%, respectively.
On March 11, 2022, the terms of the Credit Facility were further amended to, among other things, (i) permanently increase STRS Credit’s availability under the Credit Facility from $175,000 to $225,000 (the “$50 Million Increase”), (ii) increase the minimum funding amount from $131,250 to $168,750, and (iii) apply an annual interest rate equal to applicable Secured Overnight Financing Rate, or SOFR, plus 2.50% to any borrowings under the $50 Million Increase in the Credit Facility.
In light of the conflict between Russia and Ukraine and the resulting geopolitical crisis that emerged in February 2022, there may be broader market implications, effect on additional regions and sectors, and a material impact to the Company’s portfolio. While the Company has very limited, if any, direct exposure to Russia or Ukraine, this is an uncertain and evolving situation, and its potential impact is unknown at this time.
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