BlackRock TCP Capital (TCPC) 28 Feb 232022 Q4 Earnings call transcript

Ladies and gentlemen, good afternoon. Welcome, everyone, to BlackRock TCP Capital Corp.'s Fourth Quarter 2022 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. instructions] [Operator

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

Tia. you, Thank

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

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

discussed presented representation verified. information Accordingly, certain such warranty been Additionally, independently and no make to and of derived sources from third-party we been with have not has respect may information.

release year and earnings four Earlier XXXX. issued for ended XX, today, full our quarter December the we

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

Chairman I call the now to CEO, over will Vig. Raj our turn and

environment year all and you provide Thanks, quarter Katie, market for call. quarter TCPC's an fourth year fourth joining and thank overview our full end will today's and for comments call the few on us begin and of I earnings XXXX results. with a

President who Chief provide our will portfolio investment will on the I to Officer, Operating an then turn Tseng, Phil over activity. and call update our and

I as closing in our our with review will positioning results, we will capital detail. your remarks, take before then liquidity and few questions. conclude Cuellar, well as a greater Erik CFO, Our financial

combination particularly rates the raise year a appears a to half the foreseeable future. in latter was geopolitical curb volatility, inflation, Federal Reserve's to the in continue markets XXXX that aggressively uncertainty interest an and actions significant ongoing for driven the the year. income by This of effort and in of equity experienced fixed was which order will

experienced quarter across volatility impacted asset quarter, spreads. spreads NAV to due This persisted will in I on immune income market the but three the to due No in including the in in fourth market volatility a items. fourth we markets, market company-specific specific these decline and volatility, loan to sector and or part class middle valuations companies the later. in adversely more lower and was mostly detail portfolio on fixed touch

would of be impact the Excluding these closer names, NAV decline to our X%. three

our through environments through decades more environment, has manage and our experience portfolio with to challenging two team than of cycles, companies lending is particularly our operating this to In multiple ability market work valuable.

the of importantly, liquid to downside of benefits in reminded and also turbulence. periods market premium that protection historically markets of have delivered the yields direct are We lending better

One management aspect low of our protection procedures. has throughout our monitoring portfolio strong strong and strategy history very and loss been investment our led has downside to rates

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relative dialogue both this current company's and underwriting of the performance projected assumptions. most that to review recent part these underwrote owners original As investments engage and the to assess team originated operators our same Deal and process, in financial the members and with performance business

deep the is our this of conducted of industry context All within expertise.

and manage ability stress, each in lens. a We both evaluate historical using borrower's times of to forward-looking

and to with has enabled expertise tailored industry-specific contemplate always in to strong lender specifically us industry Additionally, underwrite form of our company the protections loans covenants both dynamics.

capital. important market to take to us today protections required any these imagine, environment as can are our you actions allow existing more they protect the given As

I'd results, from some to sequential highlights providing provide financial decrease in like full year NAV. more quarter our Before our to fourth the context and

in the valuation to attributable normative across In addition spreads losses to Razor wider AutoAlert. market companies. two-third portfolio due quarter the adjustments Edmentum, and three of the quarter, recorded portfolio the the was in more fourth to total unrealized

write-downs have circumstances by unless volatility. driven and is a exposure of the And to Each It investments, driving of important tend emphasize unique was impacting the these equity company the Edmentum impacts of are the well-performing issues by driven isolated. Razor more to in mark-to-market set that which operate. they to valuation case and/or industry these

quality portfolio credit remains in the shape. of our excellent Importantly,

driven many years, In over led by the and online the Edmentum, as significant on performance the to ongoing in of strong very delivered gains investment. shift which write-ups the aware, significant part case last to our are has realized several company running,

to continues strong, out and of continues. performance coming learning online has demand pace slowed for Edmentum’s growth but While be COVID of the tools

in sector, Given the public was general of the quarter. in and declines, outlook market value normalization more of moderate with down our investment growth the combined fourth a the marked valuation

been our in of has remain positive, overall very performance performance the investment confident we long-term However, of the Edmentum. and

platform. Amazon's the Razor consolidator sell brands to medium-sized Group is of third-party that small through

loan decline our modest we value by facing of our the challenges pressured covered, which as Razor view reduction in the a Amazon the resulted broader our well the value level. on warrants been lien continue to as has a value While to as of ecosystem, of first enterprise the well company's

Auto company start closed been were car a subsequently auto to have near the was it and is resulted pandemic issues that in Alert supply other that at the provides limited of Alert dealerships. dealerships by impacted marketing new has impacted software inventory. limited severely when chain Auto the -- Finally,

on and management with next steps. working are sponsor the We

We issues recent of reflect improving and are seem the results some fact performance. abating by macro be that to the encouraged

quarter strong the fourth full our net XXXX We full investment per of for year share fourth delivered Now income $X.XX turning year. quarter and highlights. to $X.XX the and in

investments spreads throughout of the nature increase as our new made in our income year. well Given from investment on the rates in net portfolio, as benefited floating rate the base XXXX, wider

paid dividend first primarily the we rates, $X.XX to $X.XX share in that higher month last distribution shareholders base today our our record $X.XX of on on As fourth announced per the a announced XX. power And shareholders was XX, December of for March of of higher by addition per record the to and the driven acknowledgment on dividend December beginning dividend this, XX. a our that increase XX of in announced paid quarter, special an Directors March quarter per December ongoing share portfolio, of share payable earnings in was to Board as dividend with

a dividend history, investment income, recurring coverage recurring dividend to even net us consistently through our reminder, always the our the dividends, have remains we're with investment the of commitment stability that covered As increase. Throughout and TCPC's a net we have recent we emphasized important the income.

quarter also the fourth investment But summary, during small investment We taking and year opportunities. more we Phil of deploy and full of this in environment. will year uncertain activity selectively being advantage a disciplined are environment, in capital detail. a in the capital discuss in more new those while transactions in our percentage reviewed deploying number lender-friendly substantial of

back our identify invested our performance believe ability generated annualized consistently at demonstrating shareholders of market our annualized yields remains premium peer X.X%. we as high return Looking total the have and and opportunities, across a company, on group, add attractive returns to We assets end deliver cycles. our to and since XXXX, exceptional public of cash historical a return a XX.X% performance at our

turn our to and will I activity investment Phil portfolio Now over it to positioning. discuss

though, environment XXXX. The the the Positively XXXX in wider volatility record Raj. spreads meaningful in toward on drove public in terms. versus generally by Thanks, uncertainty marked slowdown levels market investment and and shift a a we pushback deal lender-friendly a markets less capital in more activity saw

potential we of the fair approximately scale risk. US Against senior capitalize our investments range portfolio to private of across billion. of of this concentration backdrop, and the portfolio platform debt At minimizing of review investment as providing $X.X our a opportunities the our identify diversity, secured broader on experience. we were significant capital and had wide XX% number and year-end, continue team's a breadth a value spread industries, of market BlackRock

The well companies high. is market companies established perform of positioned investments emphasis given our all-time to consisted industries. in We amidst models at end our business also cyclical portfolio uncertainty, XXX believe with less an in portfolio on quarter

chart portfolio recurring income not the is of our is Slide one X our any distributed and broadly on across company. presentation from As illustrates, reliant the on income

of portfolio each XX% our than our contribute recurring companies than more to fact, less X% In income.

in lien, investments an XX% our substantial of are downside rate important rate, rising investments environment. proving providing this protection our debt of first benefit are XX% and floating debt

Moving on seeing industry that sponsor-backed our specialization activity. source We a our time an at to believe channel-agnostic deal particularly we're traditional approach our a provides and advantage, in investment slowdown activity.

directly through in our industry relationships. to from management continue Our a range opportunities and wide of sponsor including unique identify addition industry-focused investment sources, teams teams, context to traditional deal our

influence, we reviewing us enables transactions deal of downside believe particularly opportunities, periods act important where in volatility which to substantial emphasize we meaningful of packages we include in are collateral conditions negotiate protection. these and provide terms that In we These covenant tailored that and are the as lender today. economic like

risk existing specialization, our underwriting loans we which $XXX our effectively activity Despite documentation. and invested deployment in to portfolio The $XX quarter. addition, included in in million, In million ability the quarter negotiate TCPC in fourth borrowers new when industry and our the slowdown terms the our credit companies. in value, including the six in XXXX, assess and fourth to mitigate seven bolsters

source us. investments Following to be in an opportunity holdings for of existing continue important

advantage, in XX% We investments and full important XX% with them well, their companies. In existing have who XXXX dollars terms seen of investment management healthy invested, understand of of and this on team. incumbency given dialogue fourth a year in already existing and quarter companies thesis total is where the an were these portfolio know in we believe the investments the we've execute source are

We leader and from an investment content to a fourth secured in a to services opportunity marketers. largest of that senior benefiting sector. an marketing as lien is first the Logic, in tailwinds provider to was account-based Madison quarter view TCPC's this industry account-based invest BXB a during loan marketing

return. marketing ROI understand attractive marketing in other of versus believe that periods and expertise real risk-adjusted experience of more the also the a an high We account-based in structure and obtain the merits stress. us sector, prior deal be the economic account-based allowed resilient will credit conservative to marketing services at BlackRock's complex on

first insurance investment Marketing, largest in US. was products quarter distributor of Integrity loan life a and the in the leading secured senior independent term second lien Our to the health

business quarter, our insurance with the market. to growth. support the fourth we loan It and sponsor, term M&A. the Integrity organic incremental a led the and the relationship strong to lien During of growing first has industry given company and record track in demonstrated stable our ongoing familiarity model, operates of the an segment with a inorganic

dispositions total base weighted increased end by $XX offset were new the of effective million. XXXX, from quarter exited at on rates, as the overall the fourth X.X% higher of the as average XX.X% companies in our positions. at yield during benefit on yield well to average the XXXX reflecting portfolio The debt portfolio investments a New effective end yield the Investments spreads. weighted in quarter higher exceeding XX.X%, had of effective of X.X% of

with As a are pricing seeing a earlier, shift even relative both improvements in terms noted and we I ago. environment XX and six months toward more to lender-friendly

of increases in discipline the Year-to-date, have power and in on that mindful environment. to inflationary investing seen pass cost of higher pickup companies modest our including pricing selectively, activity we have emphasize underwriting their been and maintaining We significant input a have capital. costs, being

loans. also in in important ability sufficient without higher do did impairing but buffers can their that to underwrite we It's not withstand market ensure perfection, build costs changes companies to the environment our note to to service and we

the To-date, in to line on our and quarter. Our remain current first yields we investments pipeline have limited generally our the prepayment pipeline continues portfolio. are had healthy in in with income

walk it results to turn our as through liquidity financial over me well and as now our Let to capital positioning. Erik

Thank you, Phil.

in exceeded On Net annual As quarter of up net share. Raj investment income an income XXXX. rates dividend XXXX, the XXXX. from an was fourth basis, of was it the XX% $X.XX, the net our of $X.XX over $X.XX per base increase fourth quarter versus income benefited of quarter investment in noted, the fourth nearly investment in and approximately increases XX%

we fully have we by that sustainable noted, a quarter $X.XX as of per income is last a share. investment dividend remain over committed the Raj XX-plus consistently paying as Today, first to years. covered done dividend declared net We

from per accelerated income of $X.XX income, discount cash share. in income $X.XX of $X.XX and quarter and recurring was Investment the amortization dividend recurring fourth interest O&D $X.XX, payment. other income, income included of $X.XX, Investment also fee of and This and $X.XX. $X.XX included of fixed exit

at upfront of recognizing a May. we of $X.XX interest $X.XX investment fees $X.XX and and all per in the or it per over than included quarter expenses fourth Operating the Incentive life were quarter share. rather the million As investment of time per expenses economics debt for of reminder, share totaled amortize the the in an $X.X share. other

quarter Net fourth per unrealized losses $X.XX totaled the share. or $XX in million

$XX.X well As primarily loan earlier, were market as on million Raj from our a three portfolio Edmentum in loss items; million and and -- discussed the our unrealized to losses across million, $X.X driven losses unrealized unrealized of by Razor spreads. Crew and respectively, as $XX.X unrealized investments in losses wider

for were quarter only for per was the losses the The realized quarter net Net million in or $X.XX $XX,XXX. assets share. $XX.X increase net

every using all and process include And our services quotation this provided against valuation of subjected and prices We to independent These our quarter process also sources. oversight, testing third-party have investments rigorous including are valuation of back valued valuation. robust is disposition services. every a independent by substantially

quality remains only credit of cost. portfolio now The representing the our companies non-accrual, at loans of fourth at and of X.X% placed on our portfolio non-accrual to the total fair value are during overall A three strong. quarter. We AutoAlert on X.X% portfolio

Turning now to our liquidity.

to leverage Our total with and of and position of included million. $X.X remains liquidity quarter investment ended available $XXX million, we our of balance cash relative $XXX sheet the total $XX billion. of strong, million This

$XX million, revolver total Unfunded million commitment. which equaled portfolio of $XXX loan approximately commitments were quarter-end or only companies of to at X% investments

and flexible and low credit issuances leverage unsecured two includes diverse facilities, an note SBA cost program. Our program two

investment Fitch. Notably, to be continues our Moody’s unsecured both by debt grade rated and

not we on source modest any Given reliant the financing and added. our issuances, are debt remain single of size of well each our maturities overly of

unsecured not we our of and needs. any secured comfortable immediate current have are and with do mix Additionally, financing financing,

is the the result rate only rate fixed increased of currently points of average while our our from weighted XX sources. increased basis to XXXX. over X.XX%. borrowings outstanding an from at is the end XX% approximately interest on That X.X% borrowings, Combined, This modestly X.XX% rates base of of increase having

Now, to I'll call the Raj. over turn back

Thanks, Eric.

analysis team and focused its have relevant based our our investment is each on company, remain the shareholders on be a economic may outlook TCPC. the uncertain, expect dynamics. to disciplined While underwriting. in We highly team decisions delivering come results industry from make our and comprehensive of We management strategy

in regularly Our than throughout the less cycle. monitors performance our is evaluates credit financial investment our each cycle, perspective, committee to investment of and our From of each opportunities selectively holdings. the where we ability capture that are the

solutions To extensive to our experience team's identify investment decades grow opportunities align our two and with their selective providing approach that with while of end, draw resources we upon borrowers help prudently BlackRock's financing to that our businesses.

source to debt have other equities, continue credit secured which unsecured We strong and bonds opportunities, through senior downturns. historically economic outperformed

broadly to portfolio. diversified While will continue a underweight also highly industries, we cyclical maintain

are generating navigated successfully adjusted we on challenges, presented strong year the the focused shareholders. XXXX for cautiously while ahead. about We our evolving closing, remain optimistic In returns environment and

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

comes the Please of now will Instructions] begin Robert Q&A session. We The question the with proceed. [Operator James. from Raymond line Dodd first

to meant you was us was give Can new you hasn’t, supply mean, you guys. chain about so in that large what second. the new driver on any in pandemic, and quarter the in I none what point, large, of the cetera. impacted those the mean, the be described Hi markdown pretty originally the Obviously, and this new particularly fourth being fact mean, so the equity and vehicles, the in significant, obviously that questions of can it more seem mature new trends the was Couple trends AutoAlert yet seem then being or to markdown was of us to et quarter it NAV, then I or beginning was pieces your the January? particularly it to give $XX.X getting million. XXXX? I -- when relatively be a don't of

effect elements try Hey, that probably agree Robert, I new. I directly. in I trends to way would are aren't you. it's But I can, that accumulating can't and top the there's you compounding some Thank have mean, Raj. -- pandemic I trend. a the dealership with I'll trends things the the of are And one but The that neither and of say compound coming either quarter that line oriented, effect down. that. shutting answer address out

inability the it. of applicability to get up, And you the the that opening the proposition the chain value because an then of have as business, supply are issues actually hinder inventory they

that a in compound acquiescence you and guess, is had finally of you will, go. led to and company non-accrual, series if think the that terms I -- things where an I on where need So to they of

QX, other The coming of that actually couple issues of up. Ironically, chain supply abated. things out loosening are

we're would that, in hopefully take your We are think in valuation prior have seeing And subsequent think I just can that years, I then your I company way really try some provide of account we and it the some saw the effect to through accumulating are there the capturing there'll that recovery. this detail are be range to think you're question. external But couple into about in quarters. of a the early creeping things to signs that into more points answer something talking the leave addresses But on data here. of I wood answer that question, in basis, we that brought at quarter a

the the part question. has passed. mean, obviously, maturity already I on was loan It which February XXth, the does answer that of

probably have said quarter I repay think end, if so. would did you they since

value or -- hasn't. at taken there? the today account evaluation was I'm fair Was XX/XX I'm determined actually missed into of I we got time at the is whatever another it situation that is that So maturity going it be to going QX all the guessing, given the probably, presume to

Thanks that follow-up. is Yeah, for Robert, this Phil.

is we've the this business with used and eager as low Raj performance note the on that the drive we're several point, quick but with supply what analytics the discussed, so management steps. and the of post but provide perhaps quarter. levels being right, But software of inventory and it's a reminder. at pandemic, AutoAlert, couldn't to on parity. and is that being kind to think demand the team years, details too giving deeper can't We due keep signs to maturity And you're perhaps cars imminent, consumer sponsor next discussions dealerships which to lots, private so dealerships I So on had need robust improving has a software mentioned, precipitated next a it's worthwhile by less auto sales with so past in important many the for sales data growth, the just the chain, of optimization business.

seeing and the those a a rates requires for are we're reversal for more which demand higher Obviously, clearly returning analytics normalized of dealers' lots to cars, and dynamics tools levels. inventory on need more are impacting sales

keep of reflection a year-to-date. financial does It performance not in months we've or the is XXXX. through So been mark last mind, in the witnessing what reflect

not I going So be of that. next terms a decline, we're same think in to seeing do the of quarter size is

valuation about are time is certainly providers. just known your elements that up into the by taking Robin, taken account wrap and maturity of is question at anything the And the into the if contractual Yeah. account valuation regarding the to on it

maturity, include through that so performance period that forth. and So would

So into it account. taken would been have

more here. a I things to come to think host are that going play of there's

in though in news future sense we're challenging environment better environment. for As a talk we an it's is business, Phil the to this that ongoing even quarters. ironically that about good economic a The in hope mentioned,

two, it. and can, all other investments. If Razor. it. I Edmentum Got color. that on Got I Successful equity appreciate the

from or So can et is a volatility actual the the talked was which on it's angle value market segment for you, not give maybe of assume -- you of comps like market been outlook outlook for successful markdown, you I that combined AutoAlert, the has a three volume adjustment? us kind of different or inputs completely markdown to mean I anything Edmentum about asset quarters you for much the versus how the Edmentum cetera warrants in could that,

reset Edmentum a have higher be to if or know I to if would are give equity public you I growth in It considered both just about equity, I markets. both can quantitative categorize breakdown, Certainly, don't you businesses still growth Razor, they'd happens multiple and think or applied. these the if a that high say, multiple. businesses, be

-- think – there's a today. through multiples, It's it's a of more COVID the a case Edmentum, case coming the bit from in still spend the that probably coming and the just growth long-term continued from if market online Edmentum, both of a a of growing you out tempered then digestion, an more school, the I there on positive aside bump In it's is secular outlook. and of of inflection and that will, impact just has a – a of massive

are has auto out. that have essential – as to lot a abating. is get things, I necessarily, the situation the markets the still In so we broader things markets have of to the where – they go don't to think dealing just with going the lot are alert mentioned, are to outlook quantify, products, of the ecosystem, – that think and applicable. the as to but want but I anyone Razor, because them Those buy, these go, knows, can both – spend I that ship I supply are of case public that's to and don't resellers There's are I will Amazon because similar money a continuing breakdown, positive a people sell – and think issues. on of don't people hold chain continue long

to positioning each businesses, would give for little happens multiples. to. -- It's we're blended. not on better a immune be market in and breakout you two we're to a apply of a valuations like both just reiterate, the But to I that it but on versus the positive reset the So company just here outlook case, pretty

color Got thank for for additional on those you lot. all a you. it. Thank me. the items. Thanks That's And it of

Robert. Thanks,

Securities. Thank comes Fultz of Please question next JMP Kevin proceed. The you. with from line the

Good you my for Hi. morning. Thank taking questions.

trends stand at quarters? leverage trended have EBITDA at end portfolio company where interest can provide quarter on the portfolio, over the you and and few Looking they past within update weighted an average coverage how

Yeah, question. Kevin, for the thanks

We haven't se. a we of of noticeable haven't over there's trend we seen that a quarters. some over reporting, we'll change that change But or Certainly, the bit lag and meaningful a say, little a change couple per might time. of in that realize seen really a last

Yeah. about to say, me growing. Kevin. approach is industry I by in very company. our sort our where keep economy. deliberate add and portfolio we're is And We're of the A bit fair focusing an let portfolio not mind, that, by of would to index

guess, software, of had health -- just exact me, don't I say I would of to be EBITDA leverage. clear, if I growing. financial change or in of portfolio, given the there to LTVs front an services, average – the majority be the wouldn't industry's I have our the So are expect to care, majority significant we're data that, a in And that services

is The well an majority EBITDA a revenue, of portfolio on basis. as as our growing

well-positioned an a secular based those about companies industries. trend growing, where and industries should you deliberate work within consider wise, on with level, are one healthy positioning at views portfolio, are been we've those it and that healthy we're tending think I it very So to industry we

the to attachment think in if the that on I turn, improving, EBITDA of I of make are stable, update not comment with don't points average me. front would in So leverage. levels want but and

increase down amendment borrowers? I have the you I hear. comments on to expectations your can And next amendment over specific quarter. your quarters? that pick the appreciate from up for requests good investments That's few were potentially Okay. side, during on the any guess seen discuss written to that you in

for that Yes. question. Thanks

as have within think as the broadly but reflection I just on economy, higher even amendment a environment the market seen clear well that's the impact of increased. large rate So not cap that requests And is middle we've having space. the

not of we our really we activity up. to really So there us in early in seeing on liquidity attribute make and that there's committee ability to is most as We baking we either upfront. derisk do growth those are maybe and to these important slower investment putting most much think both the of those multiple want we table I on times that table on upfront, amendment covenants covenants what's are recoveries when how around that the we're cases, gives the as or those ensure loans. see when in deals we negotiate tight And positions think pick decisions the full

the recent out we're perhaps position not more our refinancings breaching been fact, are In requiring a amendment companies number this we're of amendment have structures in type if quarters cases our have comfortable liquidity. in in. covenants driven put they refinance by to the where near or And or need table the to them

comments, appreciate I the and it leave Phil, Okay. I'll there.

Thanks.

comes of question Ladenburg line next The with Christopher you. the Nolan Thank from Thalmann.

You may proceed

was Hey, the down accrual? AutoAlert income quarter-over-quarter decline interest going due in Erik, to

the didn't yes, recognize primarily, we was for It quarter. AutoAlert any income

Okay. And then…

And well. lower prepayment as income

Yes.

a then AutoAlert, And your bank of is position? ahead Okay. facility for there

not. there's No,

mode. that on position first are We

All AutoAlert? And or restructuring any there discussions regarding bankruptcy is right. related to a then

have I We're although, quarters. team the on point in are in management plans discuss at a to not that but do more and the the hope can appreciate with where we report details, deep we sponsor to both we go-forward question, discussions the subsequent

was Okay. how income the in Follow-up spillover quarter? much question,

itself cumulative? For sort of the quarter or

Cumulative, please.

about share. is $X.XX Cumulative per Yes.

Thank Great. you.

you. Thank

hand additional remarks. team, to back I no There will management time. Thank questions at the are this Instructions] you. for closing it [Operator

shareholders the your for call. work continued and joining thank to support. and We your Thanks would This today's continued all us. on and dedication. concludes I confidence call. our today's appreciate our I your for participation would like hard to team also like capital of partners for thank

Thank today's That concludes conference you. call.

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