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Whitehorse Finance (WHF) Initiated At 'Buy' By Deutsche Bank

 January 04, 2013 01:48 PM


(By Balaseshan) Deutsche Bank analyst Stephen Laws initiated coverage of WhiteHorse Finance Inc. (NASDAQ: WHF) with a "Buy" rating and $16.50 price target, expecting new investments to drive sequential net investment income growth in 2013.

Laws expects net investment income (NII) to grow in 2013 as WHF deploys its IPO capital into new debt investments in small cap companies.

The analyst expects WHF to benefit from the upcoming debt maturity wall, which he expects to provide WHF with attractive new investment opportunities, as well as the experience of its Manager, which has access to 78 investment professionals focused on small cap debt investments.

In December, WHF priced an IPO of 6.7 million shares and a concurrent private placement of 0.5 million shares, raising gross proceeds of $100 million. The contributed investment portfolio totaled $198 million, and shares outstanding post-deal is roughly 15.0 million, Laws noted. The new capital will be used to fund new investments, which he expects to drive sequential NII growth in 2013.

Laws said his price target of $16.50 per share is based on shares trading at 110% of net asset value (NAV). His target is based on applying a 10% premium to post-IPO NAV of $15 per share. Historically, BDCs have traded in a range of 30% to over 200%; however, the current range is roughly 70%-120%.

The analyst believes his multiple is appropriate given WHF's origination capabilities, the opportunity in the small cap sector, his return expectations, and management's experience in structuring and originating leveraged debt investments, while acknowledging the risks in deploying the IPO capital.

WHF is trading up 0.34% at $14.95 on Friday.

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