Whitehorse Finance Downgraded To Neutral At Baird, Cites Higher Balance Sheet Risk

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Baird downgraded WhiteHorse Finance Inc WHF to Neutral from Outperform, as the company's higher risk balance sheet and poor track record of capital preservation leave the analysts seeing minimal room for P/NAV multiple expansion beyond the current level.

The analysts noted several key points behind their view, according to which the higher risk balance sheet could limit further upside.

  • In comparison to some similar sized BDCs that carry the benefit of SBA funding, WhiteHorse is heavily reliant on its $200 million revolving credit facility that comprises nearly 85 percent of its liability structure. During the second quarter, the company used liquidity from the credit facility to repay its $55 million unsecured term loan.
  • The company's debt/equity ratio approximates 80 percent; management indicated a comfort range in the 80-90 percentage range.
  • WhiteHorse faces continued concentration risk within its portfolio; of its 30 portfolio companies, its largest six comprise around 40 percent of the portfolio's fair value and around 70 percent of the company's equity (NAV) base.

The analysts maintained their $12 price target on the company's shares, and reduced their 2016 NII/share estimate to $1.41 from $1.45. The 2017 NII/share estimate was lowered to $1.40 from $1.47.

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Posted In: Analyst ColorDowngradesAnalyst RatingsBaird
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