BlackRock TCP Capital (TCPC) 6 Aug 202020 Q2 Earnings call transcript

Ladies and gentlemen, good afternoon. Welcome everyone to BlackRock TCP Capital Corp.'s Second Quarter 2020 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. I McGlynn, to Capital Director now over the Corp. And Katie to, of Instructions] would turn like call [Operator BlackRock TCP Global team. Investor Relations proceed. please Katie,

Thank you, Victor.

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

today actual statements Forward-looking statements made and Any materially forward-looking made from without morning, this differ subject notice. as involve XX, the risks earnings we are of quarter results and change to issued XXXX. those could ended June uncertainties release are on and second call This projected. for our

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

Thanks Katie.

your portfolio I an on will some Starting quarter. our start X, in First There a TCPC Thank results and comments update several us we I capital will joining you then of update and and our with and the financial today. Vig, comments and call slide including on last opening Raj since Paul After and COO Davis. the healthy call closing call. safe. will for few hope Paul everyone earnings is the our with during the an I provide Paul's team foremost, our to president before on liquidity. members and me review are performance. questions. on staying portfolio provide our will updates CFO our highlights activity our

The and overall broadly market more our across credit has the which syndicated quarter second in markets. been dramatic recovered spreads and tightened. also saw loan in volatile markets volatility the dislocation meaningfully both yield the significant recovery equity market Following and private than March the portfolio

significant the to Our and from recovery. well portfolio caused broader benefited our despite by pandemic market quarter second headwinds results continued the perform the

in net value value X.X% gain quarter reflecting credit a overall net solid. The Our the of our investments. asset second our increased market also X.X% on quality remains portfolio

June total XX As were the X.X% value. of fair of portfolio just non-accruals at

of as of the Paul to extending second strengthened Next during other our discuss and one we the our by will liquidity replaced capacity facilities further quarter of credit and we increasing our and maturity more position in end subsequent detail, capital the quarter and with credit appreciative one on a strong a deeply terms favorable aggregate also Both new accordion and lender expansion in both we facility facilities with are features of our totaling maturity. more now million $XXX with longer relationships groups. have the

director years this directors. for a of We issued the addition, board by including a press changes to announced board X. release we announcing his TCPC on our morning thank from retirement funds outstanding service Brian advisor In Wruble TCPC board. August managed the TCPC's Brian years his XX as five effective to of

run to also years and board. extensive many and look for our lending to an background are women. commitment are Fargo welcome a of We report Wells our in long-term now finance has Andrea that continues at years experience the XX Andrea's to to our pleased commercial She directors nearly specialty her from pleased addition half credit independent business board and having we Petro to we're diversity forward in significant finance. of benefiting to

policy. Turning to our dividend

net which based our are dividend reduce decline on in commitment dividend. time in quarters, last the before has quarterly and but as our per decline we in has the believe This the portfolio. step sustainably board earnings incentives represents the board $X.XX to have LIBOR this frequent dialogue covering Consequently, to to approximately the based current power our the last environment the the as made interest recurring on the our significant quarterly the on significant earnings $X.XX. share dividend decision environment over well mentioned rates income our by proactive we regarding we with investment current uncertainty operating is prudent first of that reduced six As surrounding our call, lowered we including

of to The of payable share will on September per record shareholders $X.XX dividend September be third XX on quarter XX.

portfolio from our the have billion investments have loans to and of our continue had Middle companies retail Turning limited role strong on range XX% portfolio. prior our including industries sectors market severely vital a of across spread At supported impacted a economy wide shutdown. more a perform global X the companies investments while of value U.S. to a impacts been quarter secured to industries the that and airlines we in update these well. approximately have debt are direct market and our of senior in and affected third employ quarter. more to in by collateral the Furthermore, protections about industries and and pandemic fair end, as workforce. the most been of by $X.X are our are serve pervasive side an unchanged of substantially global exposure our

with of borrowers working well-being team businesses. with our these Our a on focus diligently long-term is the

current to our them has working For help alongside more challenged team those that to been borrowers the adapt are operating environment. management

positions small to chart a illustrates stabilize the left a our XXX of income XX.X%. start from At environment. largest our the taken end in as largest represented cases position shutdown quarter. slide customers their included reliant current as of are only In businesses borrowers already the the portfolio seeing borrowers is the adapt some XX five one of income our shutdown quarter certain fees the begin complete to recurring from second of of pandemic these not included diverse and the recover during side the $X.XX on helped X.X% the we the resulted any and initial these this portfolio represented number through portfolio Furthermore, the amendment companies; For company. together amendments on making at which and manage of

half our individual income. portfolio contribute fact, In to of over recurring X% than our companies less

June decline been our As were debt XX, of all investments rate. of of of result these the as in interest floating floors XX% rate now a to XX% subject which of have LIBOR. were triggered

first XX% debt as of lane on demonstrated slide investments of Additionally, exposure X. our consisted

three the with were existing on the million new $XX quarter, in $XXX million for we in net quarter which borrowers. we second continue capital. dispositions prudently investment Moving including of $XX million our were activity quarter. Dispositions deploy to in five In loans second deployed the second to of investments

in and companies As of continue existing we to understand we opportunities. important a management risk companies source past in an investments be well. stated are the know perspective From portfolio follow-on these

were our online to knows given with relationship to given a to has its investment a and quarter for Haan Haan footprint. well mortar new Haan well we history able liquidity company also loan appeal the with broad financed enhance for small provide owners. the time. in last and relatively looked quarter the largest several has a brick Cole over our the investment long a the and very has is large that period company presence a Although and our of during years over our When this Cole Cole TCPC was borrower team liquidity products. a the performed

As emphasize on co-lead our new deal opportunities to and analyze negotiations diversity investment continue where terms. we we transactions industry seniority, we lead

commitments. date has third amount the quarter investment and included in Our activity modest a new on investments draws unfunded select of

new is payoff faced operating of include have for positions or report]. our on that of our focus the This second in minimal COVID loan impacted to the beneficiaries impact from deals COVID companies Our quarter the [discover environment.

the effective opportunistically X.X% since our exposure mitigated yield start also had decreased partially companies had yield of decline year We debt Investments, a the loans. reflecting LIBOR X.X%. yield floors the on to June investment in exited XX%. declined XXX rate overall our new we primarily portfolio weighted on a several in the income of of before weighted Investments recurring put portfolio yield effective XX.X%. during quarter This on XXXX $X.XX our effective reduced or were average in The a amendments significant that portfolio to on degradation Between over per share increase net triggered rates. and as a period. declined this XX, few loans resulted and basis points pressure December LIBOR and incentives XXXX and interest by LIBOR made XX, average quarterly

quarters rates limited as is exposure further three are over loans our slide as LIBOR presentation. declines floors structured However, floating the of X of with demonstrated rate in on any interest to

eight last of had excess per an investors site on X.X% we're return plus NAV current stock returned while dividends of of has an performance price the TCPC As cash in has annualized over that XX, economic of the translating recently to the on annualized return shown impacts X.X%. on BDC to years $XX share and in environment cognizant

to will turn in I call will Now who discuss detail. our financial more Paul the results over

Thanks everyone. hello Howard and

Howard quarter position disruption. the enhance noted capital to continue current we as despite the strong second liquidity During our market and

while within of had million our leverage equity, X.XX by trades our regulatory of First pending additional times regulatory SVCP limit. million, we to debt points. XXX plus maintaining year cash $XX $XXX May our XX ratio rate of XXXX net June and we increased a its and available basis low extended L facility well of At leverage an to X:X capacity operating by leverage and another

$XXX secured future operating the end on quarter we the feature a accordion facilitate facility Following expansion. million of to SVCP the

with a further we while points. totaling of program. to extension last a together maturity low-cost diversified our a our leverage call these We TCPC rate terms, also accordion added $XXX two-year Combined low with million and funding maintaining our basis million XXXX XXX again accordions improved facility million plus our $XXX replaced L developments facility and strengthened since new feature $XX

of slide was both interest which and and prepayment We recurring covering income investment of fully $X.XX quarter $X.XX second XX, second was per our quarter. unamortized amendment to amortization Investment prepayments $X.XX generated June share XX. in net share had $X.XX a of includes continues and quarter penny investment long cash of we for $X.XX. of on again income. penny dividend pick of income per This income discount $X.XX, dividend share a dividend including our OID. income. share and income per modest all of substantially contiguous Turning the fees the This Investment history the included which quarter income in covered paid also with each and income $X.XX fees our per contributed of that second other of interest fee quarter recurring net

second and the amortizing policy investment Our over upfront of than expenses recognizing rather investment our Incentive quarter were interest per of an per it is economics fees recognition of $X.XX net the time second investment conservative $X.XX or income made. for of share total share of Operating quarter $X.XX per life follows $X.XX and share. million for included share. debt the other all the income for generally the at per $X.X expenses totaled

end As the return incentive quarter, you was may fell below quarter cumulative of deferred. annualized on at our the X% first income first because indefinitely total recall fee the

However, the hurdle. recovery our strong back second X% cumulative brought quarter total the during return above the

incurred our attributable and we incentive catch-up second quarter result the a As quarter. first earnings for both to the fees

to incentives quarter full above second such voluntarily catch-up We although of fees. performance of such five, our in share provided quarter. amount aligns interest quarters further hurdle catch the the of advisors’ our first extent catch-up believe our or only our performance of for in with will amount we subsequent up the incentive this catch-up each $X.XX demonstrates confidence quarter cumulative one-sixth advisors the payable are total the those to six our further remains included and Accordingly, earned $XXX,XXX However, only quarter and our that each from our that shareholders. return be advisor amount future the per payable deferring

subject are using quarter provided quarter is $X.XX every and per every services $XX.X valuations. volatility net driven of million oversight related market independent $X.XX quarter our share back earlier third-party second by to disposition recovery in the increase per Substantially, realized of million of the the in the quotation our and year. which process valued including $XX investments gains rigorous services the Our valuation by in primarily against assets all and sources share net following was net for testing prices COVID including or unrealized or included our

stages challenging of one had highly was quarter. market to Our believe portfolio late during Glasspoint the continues this sound. COVID. diversified quality our the credit in the we is well result of obtaining as Glasspoint but been in perform We additional our company solar process placed and investment a equity environment portfolio non-accrual on pulled overall in financing

a the which which including equity three the value X.X% working to non-accrual and may loans is on find in of solution together the business portfolio now X.X% an IP. alternative just of and team include assets fair have owner to We with Our cost. companies Avanti AGY represented monetization portfolio

Turning of cash quarter of liquidity to of of pending net $XX included available $XXX total less slide XX, million we end. settlements had $X at This $XXX million and leverage million. million,

our Additionally, or facilities and less investments. loans portfolio total just unfunded at million quarter credit of investments delayed companies term in totaled draw than end to X% $XX

With new flexible cost the the and SVCP program of even the expansion TCPC our facility and and leverage replacement with diverse the facility extension funding our operating is of stronger. lower facility,

note one note and low-cost credit two unsecured As issuance, SBA an June program. of straight included this issuances XX facilities two program convertible

continues investment by grade debt rated Moody's be Our both unsecured Fitch. to and

our of our of are overly laddered on the is size debt source no program and Given single with maturities. not any issuances of we financing well modest leverage each reliant near-term

Combined Our outstanding nearest to March down of is average end liabilities of from over weighted of had at XXXX June as I'll XXXX. interest XX. less call our turn the X.XX% than X.XX% this now outstanding rate the XX% of Howard. represented and liabilities back of a maturity

uncertainty continues Thanks look be to about significant XXXX the remainder There of like. Paul. what will

this terms deals up our the leading However, more has saw the and pace modestly than entering in are up what to market new period. generally of on we the favorable pipeline deals picked

in deployment cautious our invest. a but in to solid opportunistically position are We

dislocation. companies health In long-term including addition, on our strong management teams emphasis existing perform in of we cycles with our with an capital for are focused on portfolio We shareholders. of the remain to throughout well economic companies that situated preserving periods seek relatively to invest

individuals to provide Our portfolio necessary customers. companies of their services collectively thousands and and employ goods

to our committed continuing to are deliver portfolio We returns to dislocation successfully while navigate this attractive companies helping period of shareholders. our

call and performance experience In our of operator the in while decades depth succeed platform underwriting with our for questions. our these strong the everyone our of two please in open performing and well challenging of to and firm-wide on closing resources both credit. to-date strength our confidence is breadth adjusted team BlackRock. our returns risk generating are by environment driven that ability as distress The Our are entire times focused for And this and of as the for shareholders. team's

you. [Operator Securities. Our come will first line Finian Thank Instructions] question from the of Fargo O'Shea from Wells

You may begin.

question loans afternoon. good there. the Hope on Howard I outlined, Hi first the question. five new you everyone's hanging suppose in two-part

competition recap? these were add-ons or two existing nature the terms at change financial start support loans, level you Thank took second To can sort of the are of in at table? new. describe on to a the capital that question another them acquisitions describe firms began started think the you I and/or underwriting there the that would and with how that after number you this and like loans quarter were you. then looking portfolio the three assuming in you dividend And both COVID existing of new acquisitions on

Fin I'm for With what portfolio, us. your We're a asked to respect here. a into loans well color Sure. for you categories. think I questions to market we of going the the specifically more thanks made that fall Raj some over to and both little doing. environment doing then about joining and bit important turn first it we're questions since our couple address

owners that the to for portfolio about that The equity ones company to the was we in the has looking strength existing and this amount an leverage both was big we loan well, navigating they because interesting another talked new very it the incremental actually to environment Cole low had company online to which we But of the single XX% the period over do debt knew example; provide on in that able certainty enhanced of where and a that advanced it liquidity multiple think been at well put the One it time strategic been business. put of a financing accretive pursuing a sponsors business great traded we incremental were Haan business, debt extended versus traded significant execution. of to because were existing pleased investment. on source We're more spread acquisition and and wanted with that were relatively terms. do of debt company, we and they interesting and existing was that they do a our able business debt that their is of

are doing focused opportunities over things well diligence think more us bit environment. appropriate that to Raj dislocated are environment value-added, been we've it for on little that in a I'll can about we this maybe the that and to So talk we generally. turn

these Hopefully our now Fin. us can we of you all Thanks are Yes. part earnings face hear through call. us a that standard of masks

In of of the post-COVID you into It's through will and March the has spike the activities if clear post been start environment volume QX the in clearly activities, terms QX. lower. our

standard some environment the active it right a we also and you like will at things powder at to time not a active how still neutral a good items participants for far portfolio, the working And tell side there is but nets normally that are cases good lot move their or portfolios, is attractive in think the which based our what as constraints we characterize good but a of those and beneficiaries fewer, in but environment that and sort this are for those names. lender, are the more structure are I for the number structures capital on more lending that of forward competition fewer were part I discussion think people to those will maybe of there's and in are those is being at from participants COVID companies an companies certainly still lot we're margin attractive ability a negotiating for margin borrower I think does and I whether little COVID the seeing environment, think COVID the that even bit that's are there dry for pursue this fewer attractive on and extends, as but think out a but things also there margin through the covenant on on I moment active. if active of people

We are seeing a pipeline rebuild.

focusing We in so than predictable many are much those environment this still lower but still well pre-COVID that that's companies we overall competition cyclical are lower stand on that are a less on cases is but earnings companies focus of pre-COVID sustainable and those at very-very particularly for recovering what the volume there in that and environment.

a helpful. that's Okay you. Thank

said next which were the there discussion Just on seems final a I of question question, on pretty you a per share $X.XX think heavy amendment on basis. fees dollar

heavier think than probably of I your most competitors.

So covenants guide you side? performance proactive tighter Is that you'd How portfolio anything on would of any a more or us there? the function or provide on amendment color being piece? the

It's highlighted this and companies had proportion covenant couple in issues with as a work to and COVID in that as and the your on gives to with do with our their they but when of that teams of recover enhance those also the connection expectations Yes. from our primary which portfolio numbers a based underwriting most and Thanks we March companies the companies. some has see in portfolio with several recovery and draft is to since started the to it's focusing and the think documents management those our also in on it's improvements in portfolio base then of its continued are you we and for question small fortunately adjusted saw overall the some one disruption does I them April In working and companies, a and covenants, there our $X.XX. impacted explanation some It our that. good as goal fortunately sure new path environment. real loans our economics we're result come set particular in actually companies is the was to have loan make ability connection cases us some and by to customer to disruption a businesses but in missed

for Okay thanks that's my and helpful taking question.

Thank your you for questions.

Thank you.

of come from will Our the next Chris Kotowski question Oppenheimer. line

may begin. You

afternoon. Yes. Good

up is stressed next the into on I continuing mean really through amendment an that of or Just that just question, that following given the and second for do are quarters quarter -- the is activity should the we now. most we see exceptional, third that you has something of for environment Fin's quarter expect couple

take me let that So Chris.

or reiterate loans what when that a made the the be economics. we having think capital problem to really in of almost having thing or you'll It set up sponsor a I it's believers want do I sometimes point is and at It is real I through guess owner back things. may covenant the up the operationally address if having is would whether to covenants as a a to enhancing problem be of the or tripped of allow good said. breaker the are advance advance real of and advance just whole actions. business Howard is discussion, Howard front our It covenants the may and in to in get end just even tripped protection the tightening we docs have other and the is do may be it circuit it the being host table you

think don't It's that based covenants bad meant covenant actually in prevent discussions things bad necessarily to the I So a view portfolio. is the thing. we or take

real are proceeds off QX the of bit. can't even come in company we're a really with the companies certainly ongoing and for COVID through but portfolio reset still economics the good public it's portfolio. has more rest the activity. to wouldn't do feel sure good do well docs I those advantage additional company There protections answer about COVID certainly – So broader we QX, today, of QX one question, going a then are question think cases extends the about of it those every as into real need use of which make across case your most Again I our protection, our in that we certain but we I dialogues. having that's majority those the we to a our it was year has covenants abated protected is some How feel and we the the we are the of We say however, with of do we extensive state use how our loan activity so. around come and enhance to think as in did to zero when and growing portfolio which is the to will continue little to discussions

of the roughly delevered Okay overall obviously and to we slightly NAV came slightly. portfolio we're half expect limbo assuming it least? and quarter of this open down quarter. or Should this remain just then kind I the investments closed I another you appreciation guess sort at flattish was for mean two in you had half in that

we accordion risk. just following shareholders know facilities from the public on close get also think be saw half with we our exception. approach QX two an can $XXX We've can we you close brought that's financing. going disruptive set in facility a this or incremental of leverage. off got know together in supposed of were been you about an a things in diversified of to year both us certainly other balance you've We're aggregate cognizant where as at we of where but that that new our although get things in sheet and very in of QX fact don't slip. Chris firm artificial million more the was us went like dozen I you and way targets with to in for pleased beginning we many and that don't We're don't as supposed long-time get are sources capacity with you we well you're targets to sort that the because set a pushed happened very NAV, the to things in as particularly close a movements think And position environment to outlier paid since

comfortable it why target And disruption it down We're a our hard investments think position portfolio. in and current some also controlled selective significant we're We place and and we pressure deals so both take good out with with sales the come we to our is any We're to new QX with think do that's was important position very as level. particularly did our did to it a so don't of to we coming leverage. do but a have where where in liquidity. things. artificial good the have we leverage today comfortable We they in don't some

year where light gotten applied think think or? middle for the I and the the, an on SBA? you haven't last can of Okay just it green and the one and remind where like that letter I facility drawn us then stand on you on noticed had you remind you is are? us you the thing, I sometime I about license since can was wondering you additional a

we've we the recycling had drawn for certificate. necessarily examine into specifically that up, additional put are as bit will we $XXX XXX investment not now see Right appropriate as but one debenture fills portfolio in have on to of SVCP but -- SBA not the yes Yes. got and million room, that a an still come we the out the currently invest as come of back opportunities necessarily keeping we quarter on off little one we

size just a tend but what than we've average. meaningful coincident we Yes be more have statistically enough because to the there portfolio investments isn't this had and large in repay to found the more that may probably quickly Chris is have SBA of and on the

not look the When is you're replacement assets. along draw So there's the paybacks in you seeing portfolio with of aggregate of underlying what's and necessarily a payoffs going on activity. recycling at lot the which a lot

for Okay. That's it me. you. Interesting. Thank

you. Thank

James. come line Our Thank next question you. will [Operator of from Raymond the from Instructions] [indiscernible]

begin. may You

everyone. Hi

off to the follow start number Would that the amendment took any of up willing quarter? companies questions. to to you commentary on portfolio Just give on amendments be over the

Sure. us. and joining quarter. out companies Happy had of XX to thanks during had that quarter, amendments the do so portfolio the We for at XXX the end of

So that more quarter. than had the into we few going a

So and being XX%. as between you it can think XX% of

Okay of holding the any collateral and given loans the give can book the airline up guess then pressure I update on are kind some against you especially in industry? values secondly how

do Sure. that. Happy to

with financing United loans primary are was in actually We're that two have United have we've been time planes those lease off. since to that long pleased We paid all something That's XX. repaid full.

We the and Mesa amortization American of loans they're on money In feeding to obviously been case loans their United and dramatically. have the Mesa, continue They The to jet have regional to gotten Act. under operator. CARES impacted connect hubs. service They OneSky. perform interest. into federal a They've to and fully

course in and our is the highly that some all focusing planes we their equipment and plane engines disruption business which has since up in by since somewhat think started approach proved sector backed all are typically to has we Of assets these know do been respect there. has the older But impacted. effective We the underwriting With of this second business XXXX. parts largest picked operator of private to aviation financing OneSky considerably. clearly country, on there's

the private that's beginning coming out increase can the see quarter. at you is in there look that last you data flight a particularly data of of significant If aviation publicly available,

being kind activity Okay to correct guess no Then board a for last first and for the I kind end fees. level, then question From that's midterm? our prepayment prepayment second seems the to is near amendment at of elected to expectations it set if end that's dividend little the to earnable with helpful. think our or the one me. are question fair what the of in about the and from that amendment just

sustainable would we what thought obviously future. which board dividend recognize investors taken data Yes QX the our been setting project There have expected happen We we slower been heavily to gave that very from activity over has for some there. based it's us We our some and comfort had period that as in don't Sure. earned be believed important to $X.XX dividend and our fees that them the in happen quarter level always try at on eight extended to a environment. QX. didn't probably significant an seasonality unusual. there's the of fact years we we've it in this and to get repayments that the of historically we and and would historic quarter to since quite are public a information our prepayment repaid activity was is to it low tends $X.XX It variance operating impacted set and lumpy know quarter plus things and but give the it on record I averaged current level. generally The note particular investors clearly all a they've time. be but about that we wanted to we've was

down script, quite $X.XX LIBOR your would also that six I the has Matt, run rate in over run come rate. last noted the it's on the and the impact in quarters bit our a had incentives before add an about to we as just

important think factor to to that's resetting the keep the in was mind I and So that then dividend. consider in primary

the for help. Great. I me. it appreciate That's

our will of And next Deutsche George you. Thank from come Bank. the Bahamondes lion from question

may You begin.

have for sold missed of pricing and are good more if you. Hi, answered XQ been for in two disclose I relative sorry I'm afternoon. to here this able to Most par asked my you but the questions loan value just

prices but with were provide we disclosure those That's the that we loans. on not pleased achieved a we

Paul. Yes. is This

for You some, realized mix but a losses. roughly up we of of some will was There probably noticed, $XXX,XXX quarter It were down. – $XXX,XXX flat. second had the we kind had

kind And for floors. my in on you but the deck you disclose to you do other ones that. Do floors the Thank weighted here LIBOR the your the if of kind a provide weighted LIBOR portfolio. wondering of you disclose Great. average range across average?

This Yes. Paul. is

is average weighted Our X.X%

That's Great. you those. taking Okay. today. it from appreciate me

Thanks.

you Thank questions. your for

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

your continued of thank our Thanks TPCC times. corp like your BlackRock again your hard and experienced these questions our concludes in team today. and for capital challenging today's and confidence I'd appreciate professionals your to of continued support dialogue call. shareholders at joining talented for This We work our and and dedication all for us.

Thank concludes conference call. today's gentlemen and this you participating. for Ladies

may You now disconnect.