BlackRock TCP Capital (TCPC) 8 Aug 192019 Q2 Earnings call transcript

Ladies and gentlemen, good afternoon. Welcome everyone to BlackRock TCP Capital Corporation's Second Quarter 2019 Earnings Conference Call. Today's conference call is being recorded for replay purposes.

During the presentation, all participants will be in a listen-only mode. A question-and-answer session will follow the company's formal remarks [Operator Instructions]

like of the Corp. the would Katie over I Director McGlynn, BlackRock now, to call turn to And TCP Capital Investor Relations Global team. proceed. please Katie

Thank Daniel. you,

Before not of management call the time this based note statements the future at we and performance. such forward-looking are on assumptions contain of statements conference and estimates of begin, I'll guarantees may that

today actual statements Forward-looking statements made and Any materially forward-looking made from without this differ subject notice. as involve risks are of results and change to those could uncertainties are on and call projected.

This morning, earnings release second the XX, for June XXXX. we issued our quarter ended

We link also presentation, Form this at which earnings with select These Presentations. and on today's be to slide tcpcapital.com. refer filed the will SEC our click to on Events in company's & posted website the a should conjunction supplemental with we call, XX-Q, documents the Relations To reviewed morning. was Investor view which please presentation the

Executive Chairman turn now the will Chief I Levkowitz. to call our and Officer, over Howard

Thanks, with Davis, Katie. our results. will our quarter Paul with I then we our and review your I our today. call participating remarks team begin everyone questions. and TCPC for opening After closing the overview during thank Paul's before the on of CFO, performance provide second I'm financial comments, will will an our here some call to

record share consecutive September September was our XXth investment of we to $X.XX covered XX. per payable share, per today, a the dividend that investment net of $X.XX. of of XX we quarter income declared the earned This quarter on dividend And shareholders In second out-earning our our $X.XX as dividend. by third income quarter net

quarters was million. among which our The deployments, $XXX for second quarter strongest totaled

were platform $XXX both net We quarter identify and relationships Dispositions to million, of our unique BlackRock the deal resulting sources million. continue in acquisitions borrowers attractive the and of and $XXX opportunities. in the power investment to with leverage long-standing

asset investment of net significantly provider the overall, decline portfolio cyber entirely write-down solutions a our underperformed quarter. This Fidelis, investment almost strong value was expectations. our second during in declined has our a While our remained that security X.X% to due

Our made struggled and alongside private at whose was competitive and well-regarded in we equity loan-to-value increasingly which was to cash our subsequently sales in have implementing growth increased. initial several customers performed in low nearly favorably relatively made an a equity a debt. firm was are times investment plan, three Fidelis reacting initially sector. After Fidelis, but initiatives, investment XXXX

liquidity outpace However, has revenue is costs. to challenging, as yet growth

clear, the its that During notwithstanding add-on position several no the investments quarter, the it became sponsor, support from second company's liquidity valuation. longer

we loss a result, recorded $XX.X loans and on place non-accrual. a million unrealized As the

to is We credit are portfolio seeing the mostly value. continuing widespread are of isolated and of result credit closely to indicative with by the disappointed market, quality this work sponsor The the that Across be idiosyncratic strong. issues. maximize more not are appear and to our of remainder middle management and events we

XX% our of as quarter six have portfolio, was senior constructing our fair on of billion, which had a diversification. value the slide to well Turning market as In At end, focused in $X.X debt. seniority of secured presentation. consistently portfolio we

held of XX, June of investments a XXX a variety we across companies in As record wide industries.

five the the Our our portfolio. only largest positions represented and together of largest position X.X% of only represented taken portfolio XX.X%

income of a our the X slide distributed as companies. portfolio recurring is set diverse illustrates, chart the left side Furthermore, on across of

any We are portfolio one reliant on not company. income from

over our individual basis an recurring company contribute income. portfolio companies, our well on In half than X% fact, less each of to

as demonstrated investments and slide on end, XX% quarter were At debt rate X. of our floating

the $XXX which loans was notes. of in senior deployed we second earlier, noted and quarter, secured all I million As in substantially

over developed second part of quarter the we as resources expanded have direct lending leveraging decades access are two to the activity strong Our platform. additional flow well in we deal from relationships and in BlackRock origination as as resulted the

of able the providing credit value risk are range by to profiles and We add more strategies global to deal platform. and borrowers across full a our sources

the which XX in included value continue new them. and Follow-on of Deployment companies investment activity to an investments, quarter were borrower in existing with the reflect of the source of to deliver strength we be our seven important portfolio existing and relationships borrowers. investments opportunities

industry our us solid creditor to set allowing continue deal also to terms we colead lead negotiations, on protections. focus investments or We expertise where leveraging with and

opportunities who generating addition In borrowers is flow understand deal lenders number that business. our of from model industry-focused their a truly to substantial prefer borrowers, from existing

structure. Our for demonstrate senior quarter Diamondback top provider a million diversity the on of emphasis lending five integrated investments They top secured capital include risk investment TCPC, the Diamondback, $XX second global our tools. to our new of loan firm. is in a long-time is of in relationship management a a at the but

us a contacted owners based our project provider. and solutions Unanet, proven to capabilities. loan The secured senior relationship million management $XX directly execution our on A company's

GlobalTranz, loan investment freight third in senior a $XX was a largest Our management the services. of to provider million quarter secured

secured fund upsize global We Dude in senior made management secured operations the quarter $XX a administrator fifth-largest provider loan Group, our cloud-based our also investment serving was to software. management a a of the market-leading of a investment loan industry. million Apex $XX to Solutions, And million senior existing

other exposure totaling second investments and ArcServe financing. construction quarter Datto. to industries. the on to in $XXX These the aircraft loan $XX to emphasis to in million of our the Combined, million all and $XX a noncyclical a million provide were retail, to of loan and quarter Dispositions included online million. variety payoffs Envigo, payoffs of industries care our loans demonstrate health our second quarter Our equipment $XX investments materials, including

investments XX.X%. average had effective of exited of New investments yield a had a the quarter during weighted we the average yield X.X% effective and weighted

at as were XX% was quarter, overall XX.X% compared a While quarter on portfolio against last our end investments one effective quarter the of investments caution The at this end than trend. any to lower-yielding quarter. average new yield would exited the the we debt our we viewing

share As Wells respectively, and XX%, dividends X $XX.XX outperformed shown Fargo IPO. returned in by and per BDC have our since index on the slides X we

turn will financial will over Paul? to results. I discuss the Paul our Now, call who

went shares at we've quarter Over $XX quarter per covering our our Thanks, income million, net $X.XX quarter basis, This share. hello, our period end. than in on the on everyone. cumulative and total of more share based generated record Howard, per of aggregate we $X.XX dividend $X.XX regular a investment exceeding second XX dividend Starting every we outstanding public. per by out-earned dividends an on or of slide again since this our extends seven-year share

fee Investment $X.XX of of share PIK This cash for was income. the quarter recurring $X.XX. substantially second includes $X.XX recurring income of income all and discount interest and per which of $X.XX amortization interest was

We unamortized $X.XX share prepayment including also generated per OID. prepayment fees from income and both

$X.XX life our policy rather investment share. it and per interest and over included were upfront of Operating amortizing, investment expenses is an time the share net of $X.XX follows conservative $X.XX recognizing $X.XX recognition share expenses share of generally than per all quarter of incentive for made. other economics of income Our investment for at per as the per of the income compensation the debt well as

at strong. on which and other non-accrual February our we June net primarily to at or from Incentive quarter $X.XX investment non-accrual of the loans quality $XX.X flat reduced at Fidelis, most No than were the X. fee on write-down compensation unrealized our rate share gains incentive were $X.XX, the placed attributed the in Realized reduction million portfolio of XX.X% of of X.X% of is to due in Net during realized credit of more per the effect XX% and quarter were that was in portfolio XX. to comprised losses which value by losses our on our quarter. took fair end

capacity $XXX Turning million included earlier $XX an million this $XXX a settlements total total SVCP to beginning Since XX, slide by This of our net which $XX and second $XX week. our pending of end. facility of facility quarter quarter, that liquidity available reduced expanded at had cash million, $XXX of we million. the leverage by we million the of added includes we credit on million incremental have of

which cost maturities SVCP of the extended facilities two to a May issuances, and extended low-cost on capacity points program both quarter to second also our basis XX credit note we of facilities, convertible by reduced the plus maturity SBA and includes increased credit the our The and two note leverage During reduced an facilities issuance XXXX. XXX, facility LIBOR expand our program. unsecured interest diverse rate further straight

of attractive increased regulatory our allowed on as we added $XXX opportunities million SBIC. increased the new draws during ratio the to shareholder million approval program leverage Outstanding take companies of to at us to flexibility advantage following coverage $XXX reduced two XX portfolio June The quarter. our investment SBA

X.XX of cash of gross quarter is outstanding net was at which end basis a leverage times on common net Regulatory debt times and equity X.XX SBIC trades. and

Our investment-grade reaffirmed in from rating June three by Moody's to and S&P. only continue both be of rating X:X an to one investment-grade with proud flexibility was both BDCs we're and leverage Moody's and

to back now I'll over Howard. turn call the

Thanks, Paul.

investment disappointed our are decline we strong net net the we While by our deployment pleased dividend with income, the NAV. in are quarter, during coverage and

investing However, credit expect coverage, we consistent the not delivering and remain from our to believe including we indicative do TCPC shareholders disciplined issues this of come broader on strong is results focused quality. dividend and

outpacing revenue X.X% with in growth growth the S&P year-over-year healthy quarter, particularly been have for indicators second revenue the Middle-market XXX.

environment strong serve we industry is remain idiosyncratic and the consistent of that on our cautious approach, our and and disciplined importance company performance. we patient investment as However, to underpinning of which reminders shifts and the of observe continue the

pursue our a the have investments dynamics. combined to environment, approximately management these We earned X.X%, company, secured of invested fees investment strategy team of industry In $XXX on August to this four excludes we quarter. X, attractive leverage in through make opportunities. and million, each investment effective continue and platform we primarily decisions this based approximately loans. analysis senior third its In certain comprehensive is yield which quarter-to-date The relevant

to positioned ahead, are generate for Looking continue reasons. and performance believe well several strong consistent we we to

attracting managing key deal cycles and risk. years which well Our XX-plus advantage experience, of borrowers as several sources as is spans market a in

origination opportunities. robust platform gives unique investment the and Our source attractive to us ability

BlackRock disciplined Joining our flow our underwriting. approach has selective deal supporting further and investment our enhanced

and we or monitoring the TCPC terms due As of part make, of structuring, take help as majority the this establishing deal colead borrowers on direct we shareholders. an process its role active form investments. and the in relationships we with The diligence, loans protect lead

investment. distressed source deals performing The that credit. ensure experience finally, BlackRock This deal are both so in an that team that structure over aligned is may structured investments challenges to life of any members the deep downside And structure and manage through and has protected us monitor the team are team TCP TCPC helps BlackRock interests and arise.

generating superior investors while on focused downside with remain capital risk-adjusted returns protection. we for closing, In our preserving

And please for up open call with operator, that, the questions.

first Our Instructions] Kotowski Chris [Operator Oppenheimer. question with comes from

Your now line open. is

when Yeah. prospects do. on I on you just much you inevitable. are of too Good in kinds if losses losses. the comment some fill are you can I for you're just mechanism probably after wonder I recoveries afternoon. bucket think about there obviously I Fidelis, a what please but more can't any if guess lending to assume those some business, generally, up how think NAV But, And

your I like think fairly small of is less know portfolio. than And X%. a It's that I equity part

don't to can when you happen. you take the a gains inevitable lot they And have that of losses so offset

keep about how NAV to and think strategically being try to So able time? up you the fill stable over do bucket

are There question. the ways. for thanks few a Chris,

I said well. think you it

do always few And things. One, order the avoid although can't bolster to there I and effort is We premium. get a which done to as think have certainly equity so. we history. have over-earning have You throughout make prepayment are We every and do maintain warrants in losses, dividend, a percentage a the and do our note. discount fund consistently we do of we our assets small you at equity,

at used various undergone for exited, at a the Envigo, BPA. become of pretty and name lender been which to largest which we example significant It I That's in was debt have aggregate. over to longtime acquired their times we change. lenders discount. that a years That's be good think loan, we've a a where company six

were And to so pick that. off able some up accretion we

there been occasionally a over goal be equity be And of although accretive so our able for we've the having as balance to goal well. to offset. haven't one have is to enough we time offerings doing shareholders while done with them And to

historical our And Chris, our this out-earning is mentioned Howard dividend. Paul. practice of

other income of than quarter this one-time dividend. over prepayments $X.XX only in think income our end was I our power end our prepared as of contribute of the the the quarter less excluding his and compared a -- $X.XX event noted at portfolio net X%. of end $X.XX Howard investment diversified Even the and companies portfolio. the our highlights recurring over at of compared June at handful half remarks, XX, at of prior the with to And income X% to

Okay. as expect this see second we interest for reversals the what follow-up. interest of there of any is should we as the just income were third? the quarter And what a On quarter, Fidelis -- rate kind in run or the

on No. We nonaccrual put Fidelis the during quarter.

But no reversals quarters? there were previous in

reversals in previous quarters correct. No

Okay, it all right. for Thank you. That’s me.

Thank you.

with our question Raymond Thank next Dodd you. James. from And comes Robert

Your now line open. is

guys. Hi

is question. Following-up at look that versus I mean change quarter we pronounced. Fidelis, on the this last when obviously, pretty

quarter I last mean, you but such So is saw a you to material I on pretty presume to make about And value? the pronounced. this talked adjustment valuation can it's you color it waterfall methodology. fair obviously, then give a us what any

give -- like us on C to sensitivity the to value fair in waterfall? or any waterfall you changes in tranche of can your that of the color the So two inputs

this the of this some cash business It's the this color overcapitalized talk at for was the Howard's is to about time Raj. business I'll sheet. well name to And in prepared been a answer now. transaction outset the equity the XXXX remarks and cash as do mentioned into what and Howard that maybe to we both is questions in valuation. I'll little impact then is a just on to name those as as can balance really reiterate a add But more on try we've

included working the lot leveraging be of of long thereafter, challenges. several to quarters issues And the the revenue to several of some -- sort was such and statement. is you improve close in heritage management. From have company the positive from on this worked honest owners situation our our that impact change we from was it things time improvements what since those over included time see not on and from a bookings companies the transaction That marketplace, happen shortly last want income not management. business. that shortfalls. faced And And self-inflicted all experience really fundings the Partly the impact additional on but we in to seen the a a -- with the that the the

the is And that became pronounced recovery balance to of this and notable shortfall where one the during on the isn't time. hasn't answer challenge changed The really perhaps other. the your was continuing more question and and a valuation sheet challenges impact this that more over quarter evident impacts and

It -- due partly which over coverage more the changed due to where was in down. quarter pronounced mitigation the the in coverage in also junior junior the evident our it's years, time but with valuation multiples you're of declined the you our seeing really the several the have last partly has reduction over of tranche tranche impact And market tranches. equity less the where come and a but just effect of saw performance actually to piece, our has this and -- C disproportionate the and

where straight it's more waterfall So are one where to harder affected a been. what this and eaten the we're point I see the overall seeing because deterioration. time in in valuation a disclosed quarter that the more think over of has notable quarter you your what decrease we But that has valuation of impact in any to equity

deployed to anything average up bit Are you quarter. quarter conscious $XXX do under to going with et not I But the yields was then that million decision into can. end approvals a you always reiterate yield yields. Got trends there that, you The XX.X XX. going read don't Raj. read lower-spread assets? to is XX%. a on lower-risk quarter into tell with maybe new post It obviously or I this leverage On cetera some little if one it. with last color obviously just more us -- appreciate Howard, anything

Yes.

numbers are -- We significant. out good obviously a and it's haven't pretty laid you question the just

that yields the overall half in in at you change just If decreases about look LIBOR. of is

of some a include of the Envigo difference particularly that pronounced like the higher-yielding on things And the rest it of we mentioned exits couple earlier.

we kinds differently respect We're changed assets, fundamentally to same the new underwrite of approach. businesses continuing the anything haven't using business. With the same the in to and

In any not group if our largest given or down In handful quarter we one investments in had record this a of new of that pulled by may case, of get up portfolio. a groups the investments.

number somewhat So, were there it that and those diffused was lower-yielding. a were more of

time it rates said be there's -- the these ultimately a wouldn't moved of numbers market couple into And because And how on dramatic down. it over immune up that. too last been clearly or I in much week in to historically I will that count you read even shift depending months. have want to and the middle not

on focused a the we been with senior at doing do on ability companies. in higher And to no cyclical the lower the loans have shift have our is overall approach there's margin, to We the certainly leverage, but less more yield, market. things

we to So, time happens trying we're do will differently. what not see but over things

you. I that. it. got Okay, Thank appreciate

course. Of for the questions. Thanks

Our question O'Shea Fargo Instructions] Thank from Wells Securities. you. comes with Fin [Operator next

is line now Your open.

afternoon. good guys, Hi

for I filed co-investment First all -- guys an expanded filed you that week. saw this you XX(d) question is order

Hello?

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Fin, are still you there?

Yes. you Can hear me?

on. we still Hello. Are

Can me? you hear

question Nolan comes [Operator Instructions] Christopher with next Ladenburg Thalmann. And from our

is line Your now open.

has that. background down loan before trying a to you this capital Can on been credit value have happened? Were the historically you like at looks by the more little it $X.X up and the Back Fidelis, guys loan? is Hey term put to C. very what quarter on million guys cost And quality writing went excellent zero into appreciate basis strong. guys. that business and as looking give since now you I last fair us I'm

of term into of No. our the of company had and that -- the our C. one PIK accretive loan position a have Well, C; latest interest. the is a a function position is of Part with our us the restructuring increase PIK efforts

So term we did the the business fund some is money that in loan A. additional into but

So C the written That of that question accretion. that not funding. new amount was was to was specifically the your but down, on

to back then, earlier and question. Great an

As EPS Fidelis envelope, this of to or quarterly. roughly the back $X.XX I estimate contributes so

You're correct.

is the or of full quarter only out partial taking quarter earnings, quarterly Is quarter Fidelis out earnings? of taken a second of a

accrual the of stopped We May. end at No.

Okay.

second this no totally quarter Fidelis. So reflects

stopped We No. May. end the accrual at of

So would I two Fidelis. fees there's incentive it of we But months was excluding, anything the accrued. when note, computed we that

Okay.

So up Fidelis, back we quarter. just need the for to third

the you clarification. for Thank Okay.

Thanks.

Thank next from KBW. And [Operator question you. Lynch comes with Instructions] our Ryan

Your line is now open.

I looks of out portfolio found investments, companies were One guys. It like, Hey million lot seven companies XX venture quarter. this new new into question, $XXX had. and existing, quarter, to this XX so of were about you of a your

their of more borrowers given a competitive familiar given And BDCs other with they're incumbency, this about talked in using borrowers. Further in leaning the the environment, these environment. couple existing power more towards

new your find, just approach in this about you talk borrowers guys Can to challenging environment?

Yeah. can I that. take

sentiment and And relationship, consistency. generate a way I you an some deployment. think, to a have scale, at would a echo with a history I that is can And borrower. that new where certainly you see the certain -- you that, known attractive

in just of members, part places, in teams, -- goes finding it, whether business terms finding side, part a relationships. Board management on many to think historical effort of borrowers, new of different its opportunities our owners, I relationship-based historically that

part opportunities some through a of there's I just been of that, its in good to where incremental given of highlighting also the the platform, benefits large being segue presence market. coming BlackRock, it's a think

not there's new net-net, a think, I approach. So

to counterparty. a of I the being existing able generating think credible same, a portfolio, more provide The solution, of power also leads from is names, it's being the notable.

years, the that. very But of BlackRock much to of benefit over talking with addition relationships, about we've same, been it's as last the the in the couple

strong thing was Raj maybe approach. relationships industry-focused what Yeah. borrowers, very we with just to one to our have add had saying, Ryan, with historically,

an having idea approach. of what who And part there. being the also group large Now of the lender institutional our industry-centered in highly seeing very is of of like having benefits additional borrowers, BlackRock, regarded, we're appreciate a

And net our to so, activities. it's been benefit origination a significant

on, the continuation, this. on, sense. months makes days, there some have obviously, before new And quarters obviously put being before Got pretty then, last has few with you, a or that's put but tariffs this wild been just been tariffs

through And, guys So or an evaluation sectors existing any particularly vulnerable have you been start these guys' portfolio looked in obviously, your -- as and today? that to you there's tariffs ones are there companies portfolio in already new place. on? done Are see come portfolio to

impact doing our been part a we've time on we for review as before most an weeks fact few special when that, have So, surprised, the and focus hearing analysis completed been how with that ago, latest about quarterly just a proposed some that tariffs. in recent was little in item, fact, increases. companies we pleased of from which And and of the we're was

company issue only as fact, their that a for there's was citing being business. In one directly it material

early still round people. it's immediately that, to said having clear and it's not always in this Now next

And be domestic or a pretty far layers our has tariffs. through. respect and take sometimes so it on may with impacts the I us while to to benefited may focus, three with emphasis non-cyclical so think, more a significantly companies But away, filter two

Understood. Okay. Thanks time for the today.

Thank you.

question And next Fargo. our with from Wells O'Shea you. comes Thank Fin

now Your open. line is

guys. Hi,

Welcome Hey. back.

if just to I seeks question expanded terms, ask your order filed wanted on with in you any you to week. funds? grant Okay. this this us to amended layman's on XX(d) the you explain co-investments platform a leeway Can

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questions. Got it. taking for Thanks my

Thank you questions. for your

I'm Thank turn at showing not time. call for you. further the Levkowitz this any questions any closing And I back remarks. would to now like Howard to over

would your for our confidence professionals experienced at I all like your today. Capital Thanks This of team appreciate and dedication. hard BlackRock and thank for dialogue our and of for to us. shareholders We call. concludes and TCP your support talented work today's again your continued continued joining and Corp questions our

wonderful thank day. Ladies you have conference. and and a you may gentlemen, for disconnect. participating This all today's today's in Everyone program concludes