WHITEHORSE FINANCE : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

The information contained in this section should be read in conjunction with our
Consolidated Financial Statements appearing elsewhere in this quarterly report
on Form 10-Q. In this quarterly report on Form 10-Q, the "Company", "we", "us",
"our" and "WhiteHorse Finance" refer to WhiteHorse Finance, Inc. and its
consolidated subsidiaries.



Forward-Looking Statements



Some of the statements in this quarterly report on Form 10-Q constitute
forward-looking statements, which relate to future events or our future
performance or financial condition. The forward-looking statements contained in
this quarterly report on Form 10-Q involve risks and uncertainties, including
statements as to:

• our future operating results;

• our ability to consummate new investments and the impact of such investments;

• our ability to continue to effectively manage our business due to the

significant disruptions caused by the current pandemic caused by the novel

   coronavirus (commonly known as "COVID-19");

• our business prospects and the prospects of our prospective portfolio

   companies, including as a result of the current COVID-19 pandemic;

• the ability of our portfolio companies to achieve their objectives;

• our contractual arrangements and relationships with third parties;

• changes in political, economic or industry conditions, the interest rate

environment or conditions affecting the financial and capital markets, which

could result in changes to the value of our assets, including changes from the

   impact of the current COVID-19 pandemic;

• the dependence of our future success on the general economy and its impact on

   the industries in which we invest;

• the impact of increased competition;

• the ability of our investment adviser to locate suitable investments for us and

   to monitor our investments;

• our expected financings and investments and the rate at which our investments

   are refunded by portfolio companies;

• our ability to pay dividends or make distributions;

• the adequacy of our cash resources and working capital;

• the timing of cash flows, if any, from the operations of our prospective

   portfolio companies; and

• the impact of future acquisitions and divestitures.

We use words such as "may," "might," "will," "intends," "should," "could,"
"can," "would," "expects," "believes," "estimates," "anticipates," "predicts,"
"potential," "plan" and similar expressions to identify forward-looking
statements. Our actual results could differ materially from those projected in
the forward-looking statements for any reason, including the factors set forth
in "Item 1A-Risk Factors" in our annual report on Form 10-K and elsewhere in
this quarterly report on Form 10-Q.



We have based the forward-looking statements included in this quarterly report
on Form 10-Q on information available to us on the date of this quarterly report
on Form 10-Q, and we assume no obligation to update any such forward-looking
statements. Although we undertake no obligation to revise or update any
forward-looking statements, whether as a result of new information, future
events or otherwise, you are advised to consult any additional disclosures that
we may make directly to you or through reports that we may file with the U.S.
Securities and Exchange Commission, or the SEC, in the future, including annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on

Form
8-K.



You should understand that under Sections 27A(b)(2)(B) and (D) of the Securities
Act of 1933, as amended, or the Securities Act, and Sections 21E(b) (2)(B) and
(D) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, as amended, do not apply to statements made in connection with this
quarterly report on Form 10-Q or any periodic reports we file under the Exchange
Act.



                                       49





Overview



We are an externally managed, non-diversified, closed-end management investment
company that has elected to be treated as a business development company under
the Investment Company Act of 1940, as amended, or the 1940 Act. In addition,
for tax purposes, we elected to be treated as a regulated investment company, or
RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the
Code.

We were formed on December 28, 2011 and commenced operations on January 1, 2012.
We were originally capitalized with approximately $176.3 million of contributed
assets from H.I.G. Bayside Debt & LBO Fund II, L.P. and H.I.G. Bayside Loan
Opportunity Fund II, L.P., each of which is an affiliate of H.I.G. Capital,
L.L.C., or H.I.G. Capital. These assets were contributed as of January 1, 2012
in exchange for 11,752,383 units in WhiteHorse Finance, LLC. On December 4,
2012, we converted from a Delaware limited liability company into a Delaware
corporation and elected to be treated as a business development company under
the 1940 Act.



On December 4, 2012, we priced our initial public offering, or the IPO, selling
6,666,667 shares. Concurrent with the IPO, certain of our directors and
officers, the managers of H.I.G. WhiteHorse Advisers, LLC, or WhiteHorse
Advisers, and their immediate family members or entities owned by, or family
trusts for the benefit of, such persons, purchased an additional 472,673 shares
through a private placement exempt from registration under the Securities Act.
Our shares are listed on the Nasdaq Global Select Market under the symbol "WHF."



We are a direct lender targeting debt investments in privately held, lower
middle market companies located in the United States. We define the lower middle
market as those companies with enterprise values between $50 million and $350
million. Our investment objective is to generate attractive risk-adjusted
returns primarily by originating and investing in senior secured loans,
including first lien and second lien facilities, to performing lower middle
market companies across a broad range of industries. Such loans typically carry
a floating interest rate based on a risk-free index rate such as the London
Interbank Offered Rate, or LIBOR, plus a spread and typically have a term of
three to six years. While we focus principally on originating senior secured
loans to lower middle market companies, we may also opportunistically make
investments at other levels of a company's capital structure, including
mezzanine loans or equity interests, and in companies outside of the lower
middle market, to the extent we believe the investment presents an opportunity
to achieve an attractive risk-adjusted return. We also may receive warrants to
purchase common stock in connection with our debt investments. We expect to
generate current income through the receipt of interest payments, as well as
origination and other fees, capital appreciation and dividends.



Our investment activities are managed by WhiteHorse Advisers and are supervised
by our board of directors, a majority of whom are independent of us, WhiteHorse
Advisers and its affiliates. Under our investment advisory agreement with
WhiteHorse Advisers, or the Investment Advisory Agreement, we have agreed to pay
WhiteHorse Advisers an annual base management fee based on our average
consolidated gross assets as well as an incentive fee based on our investment
performance. We have also entered into an administration agreement, or the
Administration Agreement, with H.I.G. WhiteHorse Administration, LLC, or
WhiteHorse Administration. Under our Administration Agreement, we have agreed to
reimburse WhiteHorse Administration for our allocable portion (subject to the
review and approval of our independent directors) of overhead and other expenses
incurred by WhiteHorse Administration in performing its obligations under the
Administration Agreement.



COVID-19 Developments



The ongoing COVID-19 pandemic and its effects on the U.S. and global economy has
had adverse consequences on the business operations of some of our portfolio
companies and has adversely affected, and may continue to adversely affect, our
operations and the operations of our investment adviser. Our investment adviser
is continuing to monitor the COVID-19 pandemic and its impact on our business
and the business of our portfolio companies and has been focused on proactively
engaging with our portfolio companies in order to collaborate with the
management teams of certain portfolio companies to evaluate their response

to
the impacts of COVID-19.

We cannot predict the full impact of COVID-19, including the length of the
global economic recovery and the uncertainty surrounding the efficiency and
success of the global vaccination efforts and more contagious strains of the
virus that have emerged in the United States and worldwide, including the extent
to which the available vaccines prove to be ineffective against any new COVID-19
variants (particularly the "Delta" variant). In addition, countries around the
world, including the United States, have seen significant increases in rates of
COVID-19 infections, which was a result of, among other things, the rapid spread
of COVID-19 variants (including the Delta variant), more frequent social
gatherings after businesses start to re-open and a reduction in the use of masks
and social distancing. These developments, in conjunction with the potential
adverse reactions to the vaccine, the politicization of the vaccine rollout and
the general public distrust of the safety and efficacy of the vaccine may
adversely affect the success and duration of business re-openings and slow down
the rate of economic recovery, further exacerbating the risk that the pandemic
will continue for an extended period of time. As such, the extent to which
COVID-19 and/or other disease pandemics may continue to negatively affect our
business and our portfolio companies' operating results and financial condition
is uncertain. Due to the ongoing business disruptions caused by COVID-19, some
of our portfolio companies have experienced financial distress and have
defaulted on their financial obligations to us and their other capital
providers. Some of our portfolio companies have curtailed their business
operations, furloughed or laid off employees, terminated relationships with
service providers and deferred capital expenditures and may continue to do so
for the duration of the pandemic. Such developments could permanently impair the
business operations of our portfolio companies and may result in a decrease in
the value of our investment in any such portfolio companies.



In connection with the adverse effects of the COVID-19 pandemic, we have
restructured and may need to restructure additional investments in some of our
portfolio companies, which has resulted in and could result in additional
diminished interest payments or in permanent impairments on our investments. The
effects of the COVID-19 pandemic discussed above increase the risk that more of
our portfolio investments may be placed on non-accrual status in the future. Any
decreases in our net investment income would increase the portion of our cash
flows dedicated to distribution payments to stockholders and to servicing our
existing debt under our revolving credit facility, or the Credit Facility, with
JPMorgan Chase Bank, National Association, as administrative agent and lender,
or the Lender.



                                       50

WhiteHorse Advisers' credit team continues to be in close contact with the
owners and management teams of each of our portfolio companies. With the rapid
onset of the crisis, these owners and management teams have been actively
assessing the impacts to their businesses and are continuing to coordinate with
us to guide their companies through the recovery. We are operating under a
philosophy that we will work hand in hand with our borrowers to support them,
allowing flexibility in our terms as appropriate, and we expect owners to
support their businesses with additional equity where possible.



As a business development company, we are permitted under the 1940 Act to borrow
amounts such that our asset coverage, as defined in the 1940 Act, equals at
least 150% after such borrowing. We are required to comply with various
covenants pursuant to the Credit Facility. If we fail to satisfy the covenants
of the Credit Facility or are unable to cure any event of default or obtain a
waiver from the applicable lender, it could result in foreclosure by the lenders
under the Credit Facility, which would accelerate our repayment obligations
under the Credit Facility and thereby result in a material adverse effect on our
business, liquidity, financial condition, results of operations and ability to
pay distributions to our stockholders. As of June 30, 2021, we were in
compliance with all covenants and other requirements of the Credit Facility.



We are also subject to financial risks, including changes in market interest
rates. As of June 30, 2021, nearly all of our debt investments at fair value
were at floating rates, which are generally based on a risk-free index rate such
as LIBOR, and many of which are subject to certain floors. In connection with
the COVID-19 pandemic, the U.S. Federal Reserve and other central banks have
reduced certain interest rates and LIBOR has decreased. A prolonged reduction in
interest rates will reduce our gross investment income and could result in a
decrease in our net investment income if such decreases in LIBOR are not offset
by a corresponding increase in the spread over LIBOR that we earn on any
portfolio investments, a decrease in our operating expenses or a decrease in the
interest rate of our floating interest rate liabilities tied to LIBOR. See "Item
3. Quantitative and Qualitative Disclosures About Market Risk" for an analysis
of the impact of hypothetical base rate changes in interest rates.



Our management team has sought strategies that will help us weather periods of
economic decline. We have attempted to avoid deeply cyclical sectors and have
only made loans where we believed a repeat of the Great Recession would allow us
to recover 100% of our loans. Additionally, we have taken a conservative
position on the Company's liquidity, making sure we have a top-tier leverage
partner and very significant cushion against default.



We will continue to monitor the rapidly evolving situation relating to the
COVID-19 pandemic, including the spread of the Delta variant, and guidance from
U.S. and international authorities, including federal, state and local public
health authorities and may take additional actions based on their
recommendations. In these circumstances, there may be developments outside our
control requiring us to adjust our plan of operation. As such, given the dynamic
nature of this situation, we cannot quantify the full effect of COVID-19 on our
financial condition, results of operations or cash flows in the future. However,
we do expect that it will continue to have a negative impact on cash flows
earned by us during the third quarter of 2021, which would result in a material
adverse effect on our future net investment income, the fair value of our
portfolio investments, and the results of operations and financial condition of
our portfolio companies.



Revenues

We generate revenue in the form of interest payable on the debt securities that
we hold and capital gains and distributions, if any, on the portfolio company
investments that we originate or acquire. Our debt investments, whether in the
form of senior secured loans or mezzanine loans, typically have terms of three
to six years and bear interest at a fixed or floating rate based on a spread
over LIBOR or an equivalent risk-free index rate. Interest on debt securities is
generally payable monthly or quarterly, with the amortization of principal
generally being deferred for several years from the date of the initial
investment. In some cases, we may also defer payments of interest for the first
few years after our investment. The principal amount of the debt securities and
any accrued but unpaid interest generally becomes due at the maturity date. In
addition, we generate revenue in the form of commitment, origination,
structuring or diligence fees, fees for providing managerial assistance and
possibly consulting fees. We capitalize loan origination fees, original issue
discount and market discount, and we then amortize such amounts as interest
income. Upon the prepayment of a loan or debt security, we record any
unamortized loan origination fees as interest income. We record prepayment
premiums on loans and debt securities as fee income when earned. Dividend income
is recorded on the record date for private portfolio companies or on the
ex-dividend date for publicly traded portfolio companies.



                                       51





Expenses

Our primary operating expenses include (1) investment advisory fees to WhiteHorse Advisers; (2) the allocable portion of overhead under the Administration Agreement; (3) the interest expense on our outstanding debt; and (4) other operating costs as detailed below. Our investment advisory fees compensate our investment adviser for its work in identifying, evaluating, negotiating, consummating and monitoring our investments.

We bear all other costs and expenses of our operations and transactions, including:

 • our organization;

• calculating our net asset value and net asset value per share (including the

   costs and expenses of independent valuation firms);

• fees and expenses, including travel expenses, incurred by WhiteHorse Advisers

or payable to third parties in performing due diligence on prospective

portfolio companies, monitoring our investments and, if necessary, enforcing

   our rights;

• the costs of all future offerings of common shares and other securities, and

   other incurrences of debt;

• the base management fee and any incentive fee;

• distributions on our shares;

• transfer agent and custody fees and expenses;

• amounts payable to third parties relating to, or associated with, evaluating,

   making and disposing of investments;

• brokerage fees and commissions;

 • registration fees;




 • listing fees;




 • taxes;

• independent directors' fees and expenses;

• costs associated with our reporting and compliance obligations under the 1940

   Act and applicable U.S. federal and state securities laws;

• the costs of any reports, proxy statements or other notices to our

   stockholders, including printing costs;

• costs of holding stockholder meetings;

 • our fidelity bond;

• directors and officers/errors and omissions liability insurance and any other

   insurance premiums;

• litigation, indemnification and other non-recurring or extraordinary expenses;

• direct costs and expenses of administration and operation, including audit and

   legal costs;

• fees and expenses associated with marketing efforts, including deal sourcing

   and marketing to financial sponsors;

• dues, fees and charges of any trade association of which we are a member; and

• all other expenses reasonably incurred by us or WhiteHorse Administration in

connection with administering our business, including rent and our allocable

portion of the costs and expenses of our chief financial officer and chief

   compliance officer along with their respective staffs.

WhiteHorse Advisers or WhiteHorse Administration may pay for certain expenses that we incur, which are subject to reimbursement by us.

                                       52





Recent Developments



On July 15, 2021, the terms of the Credit Facility were amended to, among other
things, allow WhiteHorse Credit to reduce the applicable margins for interest
rates to 2.35%, extend the non-call period from November 22, 2021 to November
22, 2022, extend the end of the reinvestment period from November 22, 2023 to
November 22, 2024 and extend the scheduled termination date from November 22,
2024, to November 22, 2025.



On July 15, 2021, the terms of the STRS JV Credit Facility were amended to,
among other things, allow STRS JV 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.

For the period July 1, 2021 through August 9, 2021, we contributed an additional set of assets, which included two existing issuers of senior secured debt facilities to STRS JV.

Consolidated Results of Operations

The consolidated results of operations described below may not be indicative of
the results we report in future periods. Net investment income and net increase
in net assets can vary substantially from period to period due to various
reasons, including the level of new investments and the recognition of realized
gains and losses and unrealized appreciation and depreciation. As a result,
quarterly comparisons of net increases in net assets resulting from operations
may not be meaningful.



Investment Income

Investment income for the three and six months ended June 30, 2021 totaled $17.3
million and $35.3 million, respectively, and was primarily attributable to
interest, dividends and fees earned from investments in portfolio companies.
Investment income for the three and six months ended June 30, 2020 totaled $13.8
million and $28.4 million, respectively. The increase in net investment income
for the year-over-year period was primarily attributable to higher accelerated
accretion income recognized due to higher repayment activity and higher
investment income generated from STRS JV. Investment income for the three and
six months ended June 30, 2021 included $0.2 million and $0.9 million of
non-recurring fee income, respectively. Investment income for the three and six
months ended June 30, 2020 included $0.4 million and $0.7 million of
non-recurring fee income, respectively. We expect to generate some level of
non-recurring fee income during most quarters from prepayments, amendments

and
other sources.



Operating Expenses

Expenses, excluding excise tax, totaled $10.8 million and $21.0 million for the
three and six months ended June 30, 2021, respectively. This compares to
expenses, excluding excise tax, of $8.4 million and $16.6 million for the three
and six months ended June 30, 2020, respectively.



Interest expense totaled $3.8 million and $7.6 million for the three and six
months ended June 30, 2021, respectively. This compares to interest expense of
$3.2 million and $6.9 million for the three and six months ended June 30, 2020,
respectively. The increase in interest expense for the three and six months
ended June 30, 2021, from the three and six months ended June 30, 2020, was
primarily due to higher borrowing base, partially offset by lower interest rates
resulting from a decrease in LIBOR.



Base management fees totaled $3.4 million and $6.7 million for the three and six
months ended June 30, 2021, respectively. Base management fees totaled $3.0
million and $6.0 million for the three and six months ended June 30, 2020,
respectively. The increase management fees for the three and six months ended
June 30, 2021, from the three and six months ended June 30, 2020, was primarily
due to higher gross assets.



Performance-based incentive fees totaled $2.6 million and $4.7 million for the
three and six months ended June 30, 2021, respectively. Performance-based
incentive fees totaled $1.3 million and $1.8 million for the three and six
months ended June 30, 2020, respectively. The increase in performance-based
incentive fees for the three and six months ended June 30, 2021, from the three
and six months ended June 30, 2020, was mainly attributable to an increase in
pre-incentive fee net investment income as well as capital gains incentive fee
accrual of $0.9 million and $1.0 million, respectively, which was driven by
gains recognized in the portfolio in the current period.



Administrative service fees for the three and six months ended June 30, 2021
totaled $0.2 million and $0.3 million, respectively. This compares to
administrative service fees for the three and six months ended June 30, 2020,
which totaled $0.2 million and $0.3 million, respectively.



General and administrative expenses were $0.9 million and $1.7 million for the
three and six months ended June 30, 2021, respectively. This compares to general
and administrative expenses of $0.7 million and $1.6 million for the three and
six months ended June 30, 2020, respectively.



Excise Tax Expense



We have elected to be treated as a RIC under Subchapter M of the Code and
operate in a manner so as to qualify for the tax treatment applicable to RICs.
In order to be subject to tax as a RIC, we are required to meet certain source
of income and asset diversification requirements, as well as timely distribute
to our stockholders dividends for U.S. federal income tax purposes of an amount
generally at least equal to 90% of investment company taxable income, as defined
by the Code, and determined without regard to any deduction for dividends paid
for each tax year. We have made and intend to continue to make the requisite
distributions to our stockholders that will generally relieve us from U.S.

federal income taxes.



                                       53





Depending on the level of taxable income earned in a tax year, we may choose to
retain taxable income in excess of current year distributions into the next tax
year in an amount less than what would trigger payments of U.S. federal income
tax under Subchapter M of the Code. We may then be required to incur a 4% excise
tax on such income. To the extent that we determine that our estimated current
year annual taxable income may exceed estimated current year distributions, we
accrue excise tax, if any, on estimated excess taxable income as taxable income
is earned. For the three and six months ended June 30, 2021, we accrued a net
federal excise tax expense of $0.4 million and $0.6 million, respectively. For
the three and six months ended June 30, 2020, we accrued a net federal excise
tax expense of $0.2 million and $0.4 million, respectively. The increase in
excise tax for the three and six months ended June 30, 2021, from the three and
six months ended June 30, 2020, was primarily as a result of higher net
investment income and realized gains.

Net Realized and Unrealized Gains (Losses) on Investments

The following shows the breakdown of net realized gains and losses for the three and six months ended June 30, 2021 and 2020:

                                                 Three months ended                         Six months ended
($ in millions)                          June 30, 2021         June 30, 2020       June 30, 2021        June 30, 2020
AG Kings Holdings Inc.(1)               $             -       $             -     $           7.5      $             -
BW Gas & Convenience Holdings, LLC                    -                    

-                 0.2                    -
Drew Foam Companies Inc                               -                     -                (0.1 )                  -
Fluent, LLC                                           -                     -                   -                  0.2
Vero Parent, Inc.                                     -                     -                 0.5                  0.3
Vessco Holdings, LLC                               (0.6 )                   -                (0.6 )                  -
Other(2)                                              -                  (0.1 )               0.1                 (0.1 )

Total realized (losses)/gains $ (0.6 ) $ (0.1 ) $

           7.6      $           0.4

(1) Escrow receivable amounts were recognized in connection with realization events.

(2) Includes various investments with aggregate realized gains or losses less than $50,000.

The following shows the breakdown in the changes in unrealized appreciation and
depreciation of investments for the three and six months ended June 30, 2021 and
2020:



                                                 Three Months Ended                          Six Months Ended
($ in millions)                          June 30, 2021         June 30, 2020        June 30, 2021        June 30, 2020
Gross unrealized appreciation on
investments (1)                         $           5.4       $          19.4      $           9.6      $           9.7
Gross unrealized depreciation on
investments                                        (0.7 )                (1.4 )               (3.6 )              (19.5 )
Reversal of prior period net
unrealized (appreciation)
depreciation upon a realization                     0.3                  (0.2 )               (8.5 )               (0.5 )
   Total                                $           5.0       $          17.8      $          (2.5 )    $         (10.3 )

(1) Includes unrealized appreciation from the AG Kings Holdings Inc. escrow receivable of $1.0 million.

Financial Condition, Liquidity and Capital Resources

This "Liquidity and Capital Resources" section should be read in conjunction with the "COVID-19 Developments" section above.

As a business development company, we distribute substantially all of our net
income to our stockholders. We generate cash primarily from offerings of
securities, borrowings under the Credit Facility, and cash flows from
operations, including interest earned from the temporary investment of cash in
U.S. government securities and other high-quality debt investments that mature
in one year or less. We expect to fund a portion of our investments through
future borrowings. In the future, we may obtain borrowings under other credit
facilities and from issuances of senior securities to the extent permitted by
the 1940 Act. We may also borrow funds to the extent we determine that
additional capital would allow us to take advantage of additional investment
opportunities, if the market for debt financing presents attractively priced
debt financing opportunities or if our board of directors determines that
leveraging our portfolio would be in our best interest and the best interests of
our stockholders.



Our board of directors may decide to issue common stock, such as through
at-the-market offerings, direct placements or otherwise, to finance our
operations rather than issuing debt or other senior securities. Any decision to
sell shares below the then-current net asset value per share of our common stock
is subject to stockholder approval and a determination by our board of directors
that such issuance and sale is in our and our stockholders' best interests. Any
sale or other issuance of shares of our common stock at a price below net asset
value per share results in immediate dilution to our stockholders' interests in
our common stock and a reduction in our net asset value per share. If we were to
issue additional shares of our common stock during the next 12 months, we do not
intend to issue shares below the then-current net asset value per share.



Restricted cash and cash equivalents include amounts that are collected and held
by the trustee appointed as custodian of the assets securing the Credit
Facility. 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.



Our operating activities provided cash and cash equivalents of $40.6 million
during the six months ended June 30, 2021, primarily from the net proceeds
received from realizations and repayments on our investments, partially offset
by acquisition of investments and cash used from the net change in working
capital. Our financing activities used cash and cash equivalents of $38.8
million during the six months ended June 30, 2021, primarily due to repayments
on the Credit Facility and the payment of distributions to stockholders, offset
by proceeds from sales of common stock.



                                       54





Our operating activities provided cash and cash equivalents of $54.5 million
during the six months ended June 30, 2020, primarily from the net proceeds
received from realizations and repayments on our investments as well as cash
provided from the net change in working capital. Our financing activities used
cash and cash equivalents of $61.2 million during the six months ended June 30,
2020, primarily due to repayments on the Credit Facility and the payment of
distributions to stockholders.



As of June 30, 2021, we had cash and cash equivalent resources of $17.8 million,
including $7.4 million of restricted cash. As of June 30, 2021, we had
approximately $46.5 million undrawn and available to be drawn under the Credit
Facility based on the collateral and portfolio quality requirements stipulated
in the related credit agreement.



                                       55

As of December 31, 2020, we had cash and cash equivalent resources of $15.9
million, including $7.9 million of restricted cash. As of December 31, 2020, we
had $19.8 million undrawn under the Credit Facility based on the collateral and
portfolio quality requirements stipulated in the related credit and security
agreement.



STRS JV



In January 2019, we and STRS Ohio, formed a joint venture, STRS JV, that invests
primarily in senior secured loans, including first lien and second lien
facilities, to performing lower middle market companies across a broad range of
industries that typically carry a floating interest rate based on the LIBOR or
an equivalent risk-free index rate and have a term of three to six years. STRS
JV was formed as a Delaware limited liability company and is not consolidated by
either us or STRS Ohio for financial reporting purposes. On July 19, 2019 STRS
JV formally launched operations. As of June 30, 2021, STRS JV had total assets
of $219.2 million. STRS JV's portfolio consisted of debt investments in 25
portfolio companies as of June 30, 2021. As of June 30, 2021, the five largest
investments in portfolio companies in STRS JV's portfolio totaled $65.7 million.
STRS JV invests in portfolio companies in the same industries in which we may
directly invest.

We provide capital to STRS JV in the form of limited liability company, or LLC
equity interests, and subordinated notes. As of June 30, 2021, we and STRS Ohio
owned 60% and 40%, respectively, of the LLC equity interests of STRS JV. Our
investment in STRS JV consisted of equity contributions and subordinated note
advances of $12.5 million and $49.8 million as of June 30, 2021, respectively.
As of June 30, 2021, we had commitments to fund equity interests and
subordinated notes in STRS JV of $15 million and $60 million, of which $2.5
million and $10.2 million was unfunded, respectively. STRS JV is managed by a
four-person board of managers, two of whom are selected by us and two of whom
are selected by STRS Ohio.



All material decisions with respect to STRS JV, including those involving its
investment portfolio, require unanimous approval of a quorum of the board of
managers. Quorum is defined as (i) the presence of two members of the board of
managers; 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 of managers; provided that the individual that was elected, designated
or appointed by the member with only one individual present is entitled to cast
two votes on each matter; or (iii) the presence of four members of the board of
managers; provided that two individuals are present that were elected,
designated or appointed by each member.



Below is a summary of STRS JV's portfolio as of June 30, 2021 and December 31,
2020:



                                                           June 30, 2021       December 31, 2020
Total investments(1)                                      $       209,474     $           174,552

Weighted average effective yield on total portfolio(2)                8.1 %                   7.9 %
Number of portfolio companies in STRS JV                               25                      20
Largest portfolio company investment(1)                            15,505     $            13,511
Total of five largest portfolio company investments (1)            65,744  

  $            60,252




(1) At fair value.

(2) Weighted average effective yield is computed by dividing (a) annualized

interest income (including interest income resulting from the amortization of

    fees and discounts) by (b) the weighted average cost of investment.

Investments consisted of the following:

                                             As of June 30, 2021                  As of December 31, 2020
                                       Amortized Cost       Fair Value       Amortized Cost         Fair Value
First lien secured loans              $        211,012     $    209,474     $        176,716       $    174,552
Total                                 $        211,012     $    209,474     $        176,716       $    174,552




                                       56

The following table shows the portfolio composition by industry grouping at fair value:

Industry ($ in thousands)                 As of June 30, 2021             As of December 31, 2020
Advertising                           $      8,721            4.2 %   $        9,256              5.3 %
Application Software                         6,654            3.2                  -                -
Building Products                           16,621            7.9             19,754             11.3
Construction & Engineering                  28,970           13.8             19,815             11.4
Data Processing & Outsourced
Services                                    11,284            5.4             11,130              6.4
Diversified Support Services                10,491            5.0             10,230              5.9
Electronic Equipment & Instruments           6,703            3.2                  -                -
Environmental & Facilities Services          6,234            3.0          

   6,248              3.6
Human Resource & Employment
Services                                    11,223            5.4             11,549              6.6
Industrial Machinery                         6,815            3.3              9,886              5.7
Insurance Brokers                                -              -              7,838              4.5

Internet & Direct Marketing Retail          15,398            7.4             13,511              7.7
Investment Banking & Brokerage              10,338            4.9             11,076              6.3
IT Consulting & Other Services              23,556           11.2          

       -                -
Packaged Foods & Meats                      26,155           12.5             24,577             14.1
Personal Products                            4,679            2.2              4,232              2.4
Systems Software                             4,223            2.0              8,110              4.6
Technology Hardware, Storage &
Peripherals                                  7,319            3.5              7,340              4.2
Trading Companies & Distributors             4,090            1.9          

       -                -
Total                                 $    209,474          100.0 %   $      174,552            100.0 %

See Note 4 to our consolidated financial statements for further discussion on
STRS JV's portfolio and selected balance sheet information as of June 30, 2021
and December 31, 2020 and selected statement of operations information for the
three and six months ended June 30, 2021 and June 30, 2020.



Credit Facility

On December 23, 2015, our wholly owned subsidiary WhiteHorse Finance Credit I,
LLC, or WhiteHorse Credit, entered into the $200 million Credit Facility with
the Lender. On June 27, 2016, the Credit Facility was amended and restated to
clarify certain terms. On June 29, 2017, the Credit Facility was again amended
and restated to, among other things, (i) extend the maturity date to December
29, 2021, (ii) increase the amount contained within the accordion feature which
allows for the expansion of the borrowing limit from $220 million to $235
million and (iii) reduce the interest rate spread applicable on outstanding
borrowings to 2.75%. On May 15, 2018, the terms of the Credit Facility were
again amended and restated to, among other things, permit the financing of
certain assets to be held by WhiteHorse Finance (CA), LLC, or WhiteHorse
California, a wholly owned subsidiary of WhiteHorse Credit. On November 19,
2018, we entered into an amendment, which, among other things, allows for an
increase in the advance rate and a temporary reduction, through August 19, 2019,
in the required minimum outstanding borrowings under the Credit Facility.



On November 22, 2019, the terms of the Credit Facility were amended to, among
other things, (i) extend the maturity date from December 29, 2021 to November
22, 2024;(ii) increase the size of the facility from $200 million to $250
million with an additional $100 million accordion feature, which allows for the
expansion of the borrowing limit, exercisable in increments of at least $35
million, or the Commitment; (iii) reduce the interest rate spread applicable on
outstanding borrowings from 2.75% to 2.50%; (iv) change the minimum borrowing
amount from 77.5% to 70.0% of the Commitment; (v) increase the advance rate from
57% to 60%; and (vi) extend the non-call period from October 29, 2019 to
November 22, 2021.



On December 21, 2020, the terms of the Credit Facility were amended to, among
other things, (i) increases the minimum funding amount from $175 million to $200
million, (ii) increase the size of the facility from $250 million to $285
million and retains an accordion feature which allows for the expansion of the
borrowing limit up to $350 million and (iii) provide for the implementation of
certain changes relating to the transition away from the LIBOR in the market.



On April 28, 2021, the terms of the Credit Facility were amended and restated
to, among other things, enable WhiteHorse Credit to borrow in British Pounds or
Euros.



The Credit Facility provides for borrowings in an aggregate principal amount up
to $285 million with an accordion feature which allows for the expansion of the
borrowing limit up to $350 million, subject to consent from the Lender and other
customary conditions. The required minimum outstanding borrowings under the
Credit Facility are $200 million, unless the accordion feature is exercised, at
which time the required minimum outstanding borrowings will be $245 million.



                                       57





Under the Credit Facility, there are two coverage tests that WhiteHorse Credit
must meet on specified compliance dates in order to permit WhiteHorse Credit to
make new borrowings and to make distributions in the ordinary course - a
borrowing base test and a market value test. The borrowing base test compares,
at any given time, the aggregate outstanding amount of all Lender advances under
the Credit Facility less the amount of principal proceeds in respect of the
collateral on deposit in the accounts to the net asset value of the collateral,
as set forth in the credit agreement and related documentation. To meet the
borrowing base test, this ratio must be less than or equal to 50%, as set forth
in the credit agreement and related documentation. To meet the market value
test, the value of WhiteHorse Credit's portfolio investments must exceed a
minimum of 165% of the aggregate outstanding amount of all Lender advances as
set forth in the credit agreement and related documentation.



Advances under the Credit Facility are based on the three-month LIBOR for USD
denominated borrowings plus an annual spread of 2.50%. The Credit Facility bears
interest at EURIBOR, for EUR denominated borrowings, CDOR for CAD denominated
borrowings, SONIA, for GBP denominated, plus a spread on outstanding borrowings
of 2.50%, 2.55% and 2.55%, respectively. Interest is payable quarterly in
arrears. WhiteHorse Credit is required to pay a non-usage fee which accrues at
0.75% per annum on the average daily unused amount of the financing commitments,
to the extent the aggregate principal amount available under the Credit Facility
has not been borrowed. WhiteHorse Credit paid an upfront fee and incurred
certain other customary costs and expenses in connection with obtaining the
Credit Facility. Any amounts borrowed under the Credit Facility will mature, and
all accrued and unpaid interest thereunder will be due and payable, on November
22, 2024.



The Credit Facility and the related documents require WhiteHorse Finance and
WhiteHorse Credit to, among other things, agree to make certain customary
representations and to comply with customary affirmative and negative covenants.
The Credit Facility also includes customary events of default for credit
facilities of this nature, including breaches of representations, warranties or
covenants by WhiteHorse Finance or WhiteHorse Credit, the occurrence of a change
in control, or failure to maintain certain required ratios.



If we fail to perform our obligations under the credit agreement or the related
agreements, an event of default may occur, which could cause the Lender to
accelerate all of the outstanding debt and other obligations under the Credit
Facility or to exercise other remedies under the credit agreement. Any such
developments could have a material adverse effect on our financial condition and
results of operations.



If any of our contractual obligations discussed above is terminated, our costs
under new agreements that we enter into may increase. In addition, we will
likely incur significant time and expense in locating alternative parties to
provide the services we expect to receive under our Investment Advisory
Agreement and our Administration Agreement. Any new investment management
agreement would also be subject to approval by our stockholders.



As of June 30, 2021, there was $238.5 million in outstanding borrowings under
the Credit Facility and, based on collateral and portfolio requirements
stipulated in the Credit Facility agreement, approximately $46.5 million was
available to be drawn on such date. The Credit Facility is secured by all of the
assets of WhiteHorse Credit, which included loans with a fair value of $592.5
million as of June 30, 2021.



As of December 31, 2020, there was $265.2 million in outstanding borrowings
under the Credit Facility and, based on collateral and portfolio requirements
stipulated in the Credit Facility agreement, approximately $19.8 million was
available to be drawn on such date. The Credit Facility is secured by all of the
assets of WhiteHorse Credit, which included loans with a fair value of $601.1
million as of December 31, 2020.



2023 Private Notes

On July 13, 2018, we entered into the 2023 Note Purchase Agreement, to sell in a
private offering $30 million of aggregate principal amount of unsecured notes to
qualified institutional investors in reliance on Section 4(a)(2) of the
Securities Act. Interest on the 2023 Private Notes is payable semiannually on
February 7 and August 7, at a fixed, annual rate of 6.00%. This interest rate is
subject to increase (up to 6.50%) in the event that, subject to certain
exceptions, the 2023 Private Notes cease to have an investment grade rating. The
2023 Private Notes mature on August 7, 2023, unless redeemed, purchased or
prepaid prior to such date by us or our affiliates in accordance with their
terms. The 2023 Private Notes are general unsecured obligations that rank pari
passu with all outstanding and future unsecured unsubordinated indebtedness that
we may issue. The closing of the transaction occurred on August 7, 2018. We used
the net proceeds from this offering, together with cash on hand, to redeem

existing debt.



2025 Private Notes



On October 20, 2020, we entered into the 2025 Note Purchase Agreement, to sell
in a private offering $40 million of aggregate principal amount of unsecured
notes to qualified institutional investors in reliance on Section 4(a)(2) of the
Securities Act. Interest on the 2025 Private Notes is payable semiannually on
April 20 and October 20, at a fixed, annual rate of 5.375%. This interest rate
is subject to increase (up to 6.375%) in the event that, subject to certain
exceptions, the 2025 Private Notes cease to have an investment grade rating. The
2025 Private Notes mature on October 20, 2025, unless redeemed, purchased or
prepaid prior to such date by us or our affiliates in accordance with their
terms. The 2025 Private Notes are general unsecured obligations that rank pari
passu with all outstanding and future unsecured unsubordinated indebtedness that
we may issue. The closing of the transaction occurred on October 20, 2020. We
used the net proceeds from this offering to redeem existing debt.



2026 Private Notes



On December 4, 2020, we entered into the 2026 Note Purchase Agreement, to sell
in a private offering $10 million of aggregate principal amount of unsecured
notes to qualified institutional investors in reliance on Section 4(a)(2) of the
Securities Act. Interest on the 2026 Private Notes is payable semiannually on
June 4 and December 4, at a fixed, annual rate of 5.375%. This interest rate is
subject to increase (up to 6.375%) in the event that, subject to certain
exceptions, the 2026 Private Notes cease to have an investment grade rating. The
2026 Private Notes mature on December 4, 2026, unless redeemed, purchased or
prepaid prior to such date by us or our affiliates in accordance with their
terms. The 2026 Private Notes are general unsecured obligations that rank pari
passu with all outstanding and future unsecured unsubordinated indebtedness that
we may issue. The closing of the transaction occurred on December 4, 2020. We
used the net proceeds from this offering to redeem existing debt.



2027 Private Notes



On December 4, 2020, we entered into the 2027 Note Purchase Agreement, to sell
in a private offering $10 million of aggregate principal amount of unsecured
notes to qualified institutional investors in reliance on Section 4(a)(2) of the
Securities Act. Interest on the 2027 Private Notes is payable semiannually on
June 4 and December 4, at a fixed, annual rate of 5.625%. This interest rate is
subject to increase (up to 6.625%) in the event that, subject to certain
exceptions, the 2027 Private Notes cease to have an investment grade rating. The
2027 Private Notes mature on December 4, 2027, unless redeemed, purchased or
prepaid prior to such date by us or our affiliates in accordance with their
terms. The 2027 Private Notes are general unsecured obligations that rank pari
passu with all outstanding and future unsecured unsubordinated indebtedness that
we may issue. The closing of the transaction occurred on December 4, 2020. We
used the net proceeds from this offering to redeem existing debt.



                                       58





2025 Public Notes



On November 13, 2018, we completed a public offering of $35 million of aggregate
principal amount of unsecured notes, the net proceeds of which were used to fund
investments in debt and equity securities and repay outstanding indebtedness
under our revolving credit facility. Interest on the 2025 Public Notes is paid
quarterly on February 28, May 31, August 31 and November 30 each year, at a
fixed, annual rate of 6.50%. The 2025 Public Notes will mature on November 30,
2025 and may be redeemed in whole or in part at any time, or from time to time,
at our option on or after November 30, 2021. The 2025 Public Notes will rank
equally in right of payment with our other outstanding and future unsecured,
unsubordinated indebtedness, including the 2023 Private Notes, the 2025 Private
Notes, the 2026 Private Notes and the 2027 Private Notes. The 2025 Public Notes
will effectively rank behind all of our existing and future secured indebtedness
(including indebtedness that is initially unsecured in respect of which we
subsequently grant security) in right of payment, to the extent of the value of
the assets securing such indebtedness, including our Credit Facility. The 2025
Public Notes are listed on the Nasdaq Global Select Market under the trading
symbol "WHFBZ."



At-the-Market Offering

On March 15, 2021, we entered into an equity distribution agreement, or the
Equity Distribution Agreement, with WhiteHorse Advisers, WhiteHorse
Administration and Raymond James & Associates, Inc., as the sales agent, or the
Sales Agent, in connection with the sale of shares of our common stock, par
value $0.001 per share, with an aggregate offering price of up to $35 million.
The Equity Distribution Agreement provides that we may offer and sell shares of
our common stock from time to time through the Sales Agent in amounts and at
times to be determined by us, or the ATM Offering. Actual sales will depend on a
variety of factors to be determined by us from time to time, including market
conditions and the trading price of our common stock. We expect to use all or
substantially all of the net proceeds from the ATM Offering to invest in
portfolio companies in accordance with our investment objective and strategies
and for general corporate purposes.

Portfolio Investments and Yield

As of June 30, 2021, our investment portfolio consisted primarily of senior
secured loans across 97 positions in 67 companies with an aggregate fair value
of $670.5 million. As of June 30, 2021, the majority of our portfolio was
comprised of senior secured loans to lower middle market borrowers and nearly
all of those loans were variable-rate investments (primarily indexed to LIBOR)
with two fixed-rate loan investments representing 0.4% based on fair value. As
of June 30, 2021, our portfolio had an average investment size of $6.4 million
based on fair value (average debt investment size of $7.1 million), with
investment sizes ranging from zero to $24.2 million and a weighted average
effective yield of 9.7% (and a weighted average effective yield on
income-producing debt investments of 9.5%).



As of December 31, 2020, our investment portfolio consisted primarily of senior
secured loans across 98 positions in 67 companies with an aggregate fair value
of $690.7 million. As of that date, the majority of our portfolio was comprised
of senior secured loans to lower middle market borrowers and nearly all of those
loans were variable-rate investments (primarily indexed to LIBOR) with two
fixed-rate loan investments representing 0.2% based on fair value. As of
December 31, 2020, our portfolio had an average investment size of $6.6 million
(average debt investment size of $7.3 million), with investment sizes ranging
from zero to $23.5 million and a weighted average effective yield of 9.4% (and a
weighted average effective yield on income-producing debt investments of 9.9%).



For the six months ended June 30, 2021, we invested $190.8 million in new and
existing portfolio companies, offset by repayments and sales of $219.3 million.
Proceeds from sales totaled $87.8 million while repayments included $6.0 million
of scheduled repayments and $125.5 million of unscheduled repayments.



For the six months ended June 30, 2020, we invested $66.9 million in new and
existing portfolio companies, offset by repayments and sales of $101.3 million.
Proceeds from sales totaled $51.9 million while repayments included $6.5 million
of scheduled repayments and $42.9 million of unscheduled repayments.



We actively monitor and manage our portfolio with regard to individual company
performance as well as general market conditions. Investment decisions on new
originations generally include an analysis of the impact of the new loan on our
broader portfolio, including a "top-down" assessment of portfolio
diversification and risk exposure. This assessment includes a review of
portfolio concentration by issuer, industry, geography and type of credit as
well as an evaluation of our portfolio's exposure to macroeconomic factors

and
cyclical trends.



We believe that consistent, active monitoring of individual companies and the
broader market is integral to portfolio management and a critical component of
our investment process. Our investment adviser uses several methods to evaluate
and monitor the performance and fair value of our investments, which may include
the following:

• frequent discussions with management and sponsors, including board observation

   rights where possible;

• comparing/analyzing financial performance to the portfolio company's business

   plan, as well as our internal projections developed at underwriting;

• tracking portfolio company compliance with covenants as well as other metrics

identified at initial investment stage, such as acquisitions, divestitures,

   product development and specified management hires; and

• periodic review by the investment committee of each asset in the portfolio and

   more rigorous monitoring of "watch list" positions.




As part of the monitoring process, our investment adviser regularly assesses the
risk profile of each of our investments and, on a quarterly basis, grades each
investment on a risk scale of 1 to 5. This risk rating system is intended to
identify and assess risks relative to when we initially made the investment and
could be impacted by such factors as company-specific performance, changes in
collateral, changes in potential exit opportunities or macroeconomic conditions.



All investments are initially assigned a rating of 2, as this grade represents a
company that is meeting initial expectations with regard to performance and
outlook. A rating may be improved to a 1 if, in the opinion of our investment
adviser, a portfolio company's risk of loss has been reduced relative to initial
expectations. An investment will be assigned a rating of 3 if the risk of loss
has increased relative to initial expectations and will be assigned a rating of
4 if our investment principal is at a material risk of not being fully repaid. A
rating of 5 indicates an investment is in payment default and has significant
risk of not receiving full repayment.



                                       59

The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value:

                                                  As of June 30, 2021                        As of December 31, 2020
Investment Performance Rating ($ in      Investments at          Percentage of        Investments at          Percentage of
millions)                                  Fair Value           Total Portfolio         Fair Value           Total Portfolio
1                                       $          152.0                    22.7 %   $          153.3                    22.2 %
2                                                  451.3                    67.3                422.1                    61.1
3                                                   57.5                     8.6                103.7                    15.0
4                                                    9.7                     1.4                  4.0                     0.6
5                                                      -                       -                  7.6                     1.1
Total Portfolio                         $          670.5                   100.0 %   $          690.7                   100.0 %




Inflation

Inflation has not had a significant effect on our results of operations in any
of the reporting periods presented in our consolidated financial statements.
However, from time to time, inflation may impact the operating results of our
portfolio companies.

Off-Balance Sheet Arrangements

We may become a party to financial instruments with off-balance sheet risk in
the normal course of our business to meet the financial needs of our portfolio
companies. These instruments may include commitments to extend credit and
involve elements of liquidity and credit risk in excess of the amount recognized
on the consolidated statements of assets and liabilities. As of June 30, 2021
and December 31, 2020, we had commitments to fund approximately $23.8 million
and $19.6 million, respectively, of revolving lines of credit or delayed draw
facilities to our portfolio companies. We reasonably believe that we have
sufficient assets to adequately cover and allow us to satisfy our outstanding
unfunded commitments.



Distributions



In order to maintain our status as a RIC and to avoid the imposition of
corporate-level tax on income, we must distribute dividends to our stockholders
each taxable year of an amount generally at least equal to the sum of 90% of our
ordinary income and realized net short-term capital gains in excess of realized
net long-term capital losses out of the assets legally available for
distribution. In order to avoid the imposition of certain excise taxes imposed
on RICs, we must distribute dividends in respect of each calendar year of an
amount at least equal to the sum of (1) 98% of our ordinary income (taking into
account certain deferrals and elections) for the calendar year, (2) 98.2% of our
capital gains in excess of capital losses, or capital gain net income, adjusted
for certain ordinary losses, for the one-year period ending on October 31 of the
calendar year and (3) any ordinary income and capital gain net income for
preceding years that were not distributed during such years on which we incurred
no U.S. federal income tax.



During the three and six months ended June 30, 2021 we declared to stockholders
distributions of $0.355 and $0.71 per share, respectively for total
distributions of $7.4 million and $14.7 million, respectively. During the three
and six months ended June 30, 2020 we declared to stockholders distributions of
$0.355 and $0.71 per share, respectively for total distributions of $7.3 million
and $14.6 million, respectively.



The timing and amount of our quarterly distributions, if any, are determined by
our board of directors. While we intend to make distributions on a quarterly
basis to our stockholders out of assets legally available for distribution, we
may not be able to achieve operating results that will allow us to make
distributions at a specific level or to increase the amount of our distributions
from time to time. In addition, we may be limited in our ability to make
distributions due to the asset coverage requirements applicable to us as a
business development company under the 1940 Act. If we do not distribute a
certain percentage of our income annually, we will suffer adverse tax
consequences, including the possible loss of our ability to be subject to tax as
a RIC. We cannot assure stockholders that they will receive any distributions.



To the extent our taxable earnings fall below the total amount of our
distributions paid for that fiscal year, a portion of those distributions may be
deemed a return of capital to our stockholders for U.S. federal income tax
purposes. Thus, the source of a distribution to our stockholders may be the
original capital invested by the stockholder rather than our income or gains.
During the six months ended June 30, 2021, we estimate that distributions to
stockholders included $14.7 million of ordinary income, for tax purposes, based
on earnings for the fiscal year ended December 31, 2020 and current earnings for
the six months ended June 30, 2021. The specific tax characteristics of the
distribution will be reported to stockholders on or after the end of the
calendar year 2021 and in our periodic reports with the SEC. Stockholders should
read any written disclosure accompanying a distribution payment carefully and
should not assume that the source of any distribution is only ordinary income or
gains.



In addition, in order to satisfy the annual distribution requirement applicable
to RICs, we may declare a significant portion of our dividends in shares of our
common stock instead of in cash. As long as a portion of such dividend is paid
in cash (which portion may be as low as 20% of such dividend under published
guidance from the Internal Revenue Service) and certain requirements are met,
the entire distribution will be treated as a dividend for U.S. federal income
tax purposes. As a result, a stockholder generally would be subject to tax on
100% of the fair market value of the dividend on the date the dividend is
received by the stockholder in the same manner as a cash dividend, even though
most of the dividend was paid in shares of our common stock.



                                       60





We have adopted an "opt out" dividend reinvestment plan, or the DRIP, for our
common stockholders. As a result, if we declare a distribution, then
stockholders' cash distributions will be automatically reinvested in additional
shares of our common stock unless a stockholder specifically "opts out" of our
DRIP. If a stockholder opts out, that stockholder receives cash distributions.
Although distributions paid in the form of additional shares of our common stock
will generally be subject to U.S. federal, state and local taxes in the same
manner as cash distributions, stockholders participating in our DRIP will not
receive any corresponding cash distributions with which to pay any such
applicable taxes.



Contractual Obligations



A summary of our significant contractual payment obligations as of June 30, 2021
is as follows:



                                                      Payments Due by Period
                                          Less Than                                             More Than

($ in millions)           Total            1 Year           1 - 3 Years       3 - 5 Years        5 Years
Credit Facility        $     238.5     $             -     $           -     $       238.5     $          -
2023 Private Notes            30.0                   -              30.0                 -                -
2025 Private Notes            40.0                   -                 -              40.0                -
2026 Private Notes            10.0                   -                 -                 -             10.0
2027 Private Notes            10.0                   -                 -                 -             10.0
2025 Public Notes             35.0                   -                 -              35.0                -
Total contractual
obligations            $     363.5     $             -     $        30.0     $       313.5     $       20.0

As of June 30, 2021, we had $46.5 million of unused borrowing capacity under the Credit Facility.

We entered into the Investment Advisory Agreement with WhiteHorse Advisers in
accordance with the 1940 Act on December 4, 2012, which was most recently
amended on November 1, 2018. Under the Investment Advisory Agreement, WhiteHorse
Advisers manages our day-to-day investment operations and provides us with
access to personnel and an investment committee and certain other resources so
that we may fulfill our obligation to act as a portfolio manager of WhiteHorse
Credit under the Credit Facility. Payments under the Investment Advisory
Agreement in future periods will be equal to (1) a management fee equal to 2.0%
of the value of our consolidated gross assets; provided, however, that the
management fee on consolidated gross assets financed using leverage over 200%
asset coverage (in other words, over 1.0x debt to equity) will be equal to 1.25%
and (2) an incentive fee based on our performance. See "Investment Advisory
Agreement" in Note 7 to the consolidated financial statements.



We also entered into the Administration Agreement with WhiteHorse Administration
on December 4, 2012. Pursuant to the Administration Agreement, WhiteHorse
Administration furnishes us with office facilities and administrative services
necessary to conduct our day-to-day operations. WhiteHorse Administration also
furnishes us with resources necessary for us to act as portfolio manager to
WhiteHorse Credit under the Credit Facility. If requested to provide managerial
assistance to our portfolio companies, WhiteHorse Administration will be paid an
additional amount based on the services provided, which amount will not, in any
case, exceed the amount we receive from the portfolio companies for such
services. Payments under the Administration Agreement will be based upon our
allocable portion of WhiteHorse Administration's overhead expenses in performing
its obligations under the Administration Agreement, including rent and our
allocable portion of the costs of our chief financial officer and chief
compliance officer along with their respective staffs.



Related Party Transactions

We have entered into a number of business relationships with affiliated or related parties, including the following:

• WhiteHorse Advisers manages our day-to-day operations and provides investment

   management services to us pursuant to the Investment Advisory Agreement.

• WhiteHorse Administration and certain of its affiliates provide us with the

office facilities and administrative services, including access to the

resources necessary for us to perform our obligations towards certain portfolio

   companies, pursuant to the Administration Agreement.

• We have entered into a license agreement with an affiliate of H.I.G. Capital

   pursuant to which we have been granted a non-exclusive, royalty-free license to
   use the "WhiteHorse" name.




                                       61





WhiteHorse Advisers, WhiteHorse Administration or their respective affiliates
may have other clients with similar, different or competing investment
objectives. In serving in these multiple capacities, WhiteHorse Advisers,
WhiteHorse Administration or their respective affiliates may have obligations to
other clients or investors in those entities, the fulfillment of which may not
be in the best interests of us or our stockholders. Such persons may face
conflicts in the allocation of investment opportunities among us and other
investment funds or accounts advised by or affiliated with WhiteHorse Advisers
or WhiteHorse Administration. WhiteHorse Advisers or its affiliates will seek to
allocate investment opportunities among eligible accounts in a manner that is
fair and equitable over time and consistent with its allocation policy. However,
we can offer no assurance that such opportunities will be allocated to us fairly
or equitably in the short-term or over time.



We depend on the communications and information systems and policies of
WhiteHorse Advisers and its affiliates as well as certain third-party service
providers to monitor and prevent cybersecurity incidents. Our board of directors
and management periodically review and assess the effectiveness of such
communications and information systems and policies.



Critical Accounting Policies



The preparation of our financial statements in accordance with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Changes in the economic environment,
financial markets and any other parameters used in determining such estimates
could cause actual results to differ. We have identified the following as
critical accounting policies.

Principles of Consolidation

Under the investment company financial accounting guidance, as formally codified
in Accounting Standards Codification, or ASC, Topic 946, Financial Services -
Investment Companies, we are precluded from consolidating any entity other than
another investment company. As provided under ASC Topic 946, we generally
consolidate any investment company when we own 100% of its partners' or members'
capital or equity units. We own a 100% equity interest in each of WhiteHorse
Credit and WhiteHorse Finance Warehouse, LLC, WhiteHorse Warehouse, WHF PMA
Holdco Blocker, LLC, WhiteHorse RCKC Holdings, LLC and WhiteHorse Finance
Holdings, LLC, which are investment companies for accounting purposes. As such,
we have consolidated the accounts of WhiteHorse Credit, WhiteHorse Warehouse,
WHF PMA Holdco Blocker, LLC, WhiteHorse RCKC Holdings LLC and WhiteHorse Finance
Holdings, LLC into our financial statements. As a result of this consolidation,
the amount outstanding under the Credit Facility is treated as our indebtedness.

Valuation of Portfolio Investments

We value our investments in accordance with ASC Topic 820 - Fair Value
Measurements and Disclosures. ASC Topic 820 defines fair value, establishes a
framework for measuring fair value and expands disclosures about assets and
liabilities measured at fair value. ASC Topic 820's definition of fair value
focuses on exit price in the principal, or most advantageous, market and
prioritizes the use of market-based inputs over entity-specific inputs within a
measurement of fair value.

Our portfolio consists primarily of debt investments. These investments are
valued at their bid quotations obtained from unaffiliated market makers or other
financial institutions that trade in similar investments or based on prices
provided by independent third party pricing services. For investments where
there are no available bid quotations, fair value is derived using proprietary
models that consider the analyses of independent valuation agents as well as
credit risk, liquidity, market credit spreads and other applicable factors

for
similar transactions.



Due to the nature of our strategy, our portfolio includes relatively illiquid
investments that are privately held. Valuations of privately held investments
are inherently uncertain, 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. Our net asset value could be materially affected if the determinations
regarding the fair value of our investments were materially higher or lower than
the values that we ultimately realize upon the disposal of such investments.



Our board of directors is ultimately responsible for determining the fair value
of the portfolio investments that are not publicly traded, whose market prices
are not readily available on a quarterly basis in good faith or any other
situation where portfolio investments require a fair value determination. Our
board of directors has retained one or more independent valuation firms to
review the valuation of each portfolio investment that does not have a readily
available market quotation at least once during each 12-month period.
Independent valuation firms retained by our board of directors provide a
valuation review on approximately 25% of our investments for which market
quotations are not readily available each quarter to ensure that the fair value
of each investment for which a market quote is not readily available is reviewed
by an independent valuation firm at least once during each 12-month period.
However, our board of directors does not intend to have de minimis investments
of less than 1.5% of our total assets (up to an aggregate of 10% of our total
assets) independently reviewed.



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The valuation process is conducted at the end of each fiscal quarter, with a
portion of our valuations of portfolio companies without market quotations
subject to review by one or more independent valuation firms each quarter. When
an external event occurs with respect to one of our portfolio companies, such as
when a purchase transaction, public offering or subsequent equity sale occurs,
we expect to use the pricing indicated by such external event to corroborate our
valuation.

With respect to investments for which market quotations are not readily available, our board of directors undertakes a multi-step valuation process each quarter, as described below:

• Our quarterly valuation process begins with each portfolio company or

investment being initially valued by investment professionals of our investment

adviser responsible for credit monitoring in accordance with our valuation

   procedures.

• Preliminary valuation conclusions are then documented and discussed with our

   investment committee and our investment adviser.

• The audit committee of our board of directors reviews these preliminary

valuations, and on a quarterly basis, reviews the bases of the valuations by

   our investment adviser and the independent valuation firms.

• At least once annually, the valuation for each portfolio investment is reviewed

   by an independent valuation firm.

• Our board of directors discusses valuations and determines the fair value of

   each investment in our portfolio in good faith.




Fair value of publicly traded instruments is generally based on quoted market
prices. Fair value of non-publicly traded instruments, and of publicly traded
instruments for which quoted market prices are not readily available, may be
determined based on other relevant factors, including without limitation,
quotations from unaffiliated market makers or independent third party pricing
services, the price activity of equivalent instruments and valuation pricing
models. For those investments valued using quotations, the bid price is
generally used unless we determine that it is not representative of an exit
price.



Fair value is the price that would be received in the sale of an asset or paid
to transfer a liability in an orderly transaction between market participants at
the measurement date. Where available, fair value is based on observable market
prices or parameters, or derived from such prices or parameters. Where
observable prices or inputs are not available, valuation models are applied.
These valuation models involve some level of management estimation and judgment,
the degree of which is dependent on the price transparency for the instruments
or market and the instruments' complexity. Our fair value analysis includes an
analysis of the value of any unfunded loan commitments. Financial investments
recorded at fair value in the consolidated financial statements are categorized
for disclosure purposes based upon the level of judgment associated with the
inputs used to measure their value. The valuation hierarchical levels are based
upon the transparency of the inputs to the valuation of the investment as of the
measurement date. The three levels are defined as follows:

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.

Investments for which fair value is determined using inputs defined above as
Level 3 are fair valued using the income and market approaches, which may
include the discounted cash flow method, reference to performance statistics of
industry comparables, relative comparable yield analysis and, in certain cases,
third party valuations performed by independent valuation firms. The valuation
methods can reference various factors and use various inputs such as assumed
growth rates, capitalization rates and discount rates, loan-to-value ratios,
liquidation value, relative capital structure priority, market comparables,
compliance with applicable loan, covenant and interest coverage performance,
book value, market derived multiples, reserve valuation, assessment of credit
ratings of an underlying borrower, review of ongoing performance, review of
financial projections as compared to actual performance, review of interest rate
and yield risk. Such factors may be given different weighting depending on our
assessment of the underlying investment, and we may analyze apparently
comparable investments in different ways.



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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 that is significant to the fair value measurement. Our 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.



Fair value for each investment is derived using a combination of valuation
methodologies that, in the judgment of the investment committee of the
investment adviser are most relevant to such investment, including being based
on one or more of the following: (i) market prices obtained from market makers
for which the investment committee 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, (iii) a discounted cash flow analysis, (iv) the
guideline public company method, (v) the similar transaction method or (vi)

the
option pricing method.

Investment Transactions and Related Investment Income and Expense

We record our investment transactions on a trade date basis, which is the date
when we have determined that all material terms have been defined for the
transactions. These transactions could possibly settle on a subsequent date
depending on the transaction type. All related revenue and expenses attributable
to these transactions are reflected on our consolidated statements of operations
commencing on the trade date unless otherwise specified by the transaction
documents. Realized gains and losses on investment transactions are recorded on
the specific identification method.



We accrue interest income if we expect that ultimately we will be able to
collect it. Generally, when an interest payment default occurs on a loan in our
portfolio, or if our management otherwise believes that the issuer of the loan
will not be able to service the loan and other obligations, we place the loan on
non-accrual status and will cease recognizing interest income on that loan until
all principal and interest is current through payment or until a restructuring
occurs, such that the interest income is deemed to be collectible. However, we
remain contractually entitled to this interest. We may make exceptions to this
policy if the loan has sufficient collateral value and is in the process of
collection. Accrued interest is written off when it becomes probable that such
interest will not be collected and the amount of uncollectible interest can be
reasonably estimated. Any original issue discount, as well as any other market
purchase discount or premium on debt investments, are accreted or amortized to
interest income or expense, respectively, over the maturity periods of the
investments. Dividend income is recorded on the record date for private
portfolio companies or on the ex-dividend date for publicly traded portfolio
companies.

Interest expense is recorded on an accrual basis. Certain expenses related to
legal and tax consultation, due diligence, rating fees, valuation expenses and
independent collateral appraisals may arise when we make certain investments.
These expenses are recognized in the consolidated statements of operations

as
they are incurred.

Loan Origination, Facility, Commitment and Amendment Fees

We may receive fees in addition to interest income from the loans during the
life of the investment. We may receive origination fees upon the origination of
an investment. We defer these origination fees and deduct them from the cost
basis of the investment and subsequently accrete them into income over the term
of the loan. We may receive facility, commitment and amendment fees, which are
paid to us on an ongoing basis. We accrue facility fees, sometimes referred to
as asset management fees, as a percentage periodic fee on the base amount
(either the funded facility amount or the committed principal amount).
Commitment fees are based upon the undrawn portion committed by us and we record
them on an accrual basis. Amendment fees are paid in connection with loan
amendments and waivers and we account for them upon completion of the amendments
or waivers, generally when such fees are receivable. We include any such fees in
fee income on the consolidated statements of operations.

Recent Accounting Pronouncements

See Note 2 to our consolidated financial statements, which discusses recent accounting pronouncements applicable to us, if any.

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