BlackRock TCP Capital (TCPC) 29 Feb 242023 Q4 Earnings call transcript

Ladies and gentlemen, good afternoon. Welcome, everyone, to BlackRock TCP Capital Corp's Fourth Quarter and Full Year 2023 Earnings Conference Call. Today's conference call is being recorded for replay purposes. [Operator Instructions] And now I would like to turn the call over to Katie McGlynn, Director of the BlackRock TCP Capital Corp. Investor Relations team. proceed. please Katie,

Emily. Thank you,

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

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

sources have Additionally, or not ended and the certain year such December full third-party discussed issued derived information for we warranty representation earnings quarter we our to has may independently no been XX, Accordingly, presented respect verified. information. Earlier XXXX. been today, and fourth release from and make with

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

liquidity will detail. Investment financial our all provide and further an us then an Cuellar, update our on as Capital I then Erik review for Corporation thank Tseng, TCPC's portfolio proposed President fourth will and Officer, our capital as for review affiliate fourth with quarter of Chief our overview results and BlackRock Katie, BDC environment Officer, begin the Thanks, year full BCIC. Phil our Financial year-end and and results you Call. Earnings well our Chief investment with XXXX in joining will call quarter our merger and and our or the Operating activity.

a your wrap outlook will comments with I ahead taking questions. up before and we opportunities on see the few Finally,

share, that results. of to XXXX. I with begin XX% year income XXXX, TCPC fourth full an and per report a for am year Let's our the delivered over investment quarter increase pleased review full $X.XX of net of highlights of

equity XX.X%. Our on return annualized net investment the income year for was

for and credit Given fixed base period strong among the higher our per higher and the marginally rates proportion our quarter as the fourth income net rate spreads. Net benefited the again and floating income share, quarter investment run liabilities, company. was remained a TCPC's performance, our from for investment predominantly rate in portfolio of NII of $X.XX wider highest rate the end at public history

part special fourth we During dividend. the in the declined $X.XX in to dividend addition paid reflecting on of December quarter, X.X%, XX regular our NAV our

Excluding portfolio this declined Securus. on net primarily X special companies: losses Edmentum, X.X%, dividend, unrealized to due Thras.io and NAV

detail, middle-market borrowers, circumstances will fourth in and sectors about and higher pressuring resiliency unique the mostly case in more each of any are of Thras.io, I the of would We aforementioned these companies, quarter discuss but that the emphasize subsector the it versus impacting write-downs operates, indication in in to which of result the believe portfolio like companies the companies in we portfolio the given recession or concerns we challenges credit companies to proven are the focus portfolio. Despite of broader how might the our our interest current successfully in that, on. the general, rates the navigating market environment be macroeconomic-related and

revenue of their and businesses. portfolio margin of our In growth recent in companies to the the fact, continue majority as quarter, most report

normalized learning, shift to environment. losses primary but a Edmentum, demand net COVID online reversion contributors X the the with unrealized a during now long-term I'll positive beneficiary accelerated in of to to but back to a begin the has turning which is been Now which quarter. more still experiencing

current a full debt repayment receiving of our equity investment our Edmentum residual investment. As original after is a reminder, in position

we trends, for performance expectations. this prospects positive and to we secular remain of demand unrealized had current the previously the we confident investment on portion While reflect recognized business, overall our reversed in a well-positioned gains given

an and online has then spending. with COVID-related inventories industry operations. slowing balance with the along and by Thras.io, relative generally by growth aggregator been issues Second combination is consumer much temporary their Amazon that, left The including excess many with of sector, in chain initially the sheets participants, supply Thras.io, had current impacted over-leveraged to

team of nonaccrual during lenders long-term improve and for been to some this now placed closely we the for and working we While recent most loan the have liquidity with position the on the company success. actually beginning management time quarter, other

of ultimately accelerate the with the experience, aggregator funding these we financing. space. be the As in investing and we a ultimate growing of selected I'd these navigate challenges. began as number relatively teams that well believe industry have this of will players in early, winners and to space team ability have yesterday, that the reviewing scaled as Generally, management this involved the temporary a to and filed to highlight to like for objectives achievement bankruptcy incorporate lender-led these company formally our protected

is as some market over as Securus, reflecting company-specific long faced volatility conditions well several broad traded Third issues. that has quarters, last a mark-to-market the

prior rollout While has part maturities. performance elevated a product XXXX requirements due years, upcoming an CapEx XXXX large structure cost has liquidity and of tightness to as tablet tracked Securus faced and ahead of debt

stakeholders path with next forward. in steps key regarding the active are We and discussions

challenging proven expertise As a success has reminder, a these. and working through track team such as of credits record unique our

working a these the We the are performance investments. leveraging management at drive owners this improvements expertise outcome businesses for ultimately and of and to teams, our and companies positive lenders with proactively

solid. outside of credit these quality Importantly, situations, portfolio the idiosyncratic our of remains

March Board a per which fourth quarter with is quarter our consistent our $X.XX on our declared shareholders share, to first regular of XX. to dividend. dividend is XX This of record payable Directors of turning first dividend Now Today, of quarter dividend. March

dividend recurring and we paid quarters. taken have strong and our Throughout investment our an We to from several covered have dividends special with NII in recurring always disciplined including have income. on with TCPC's also recent emphasis a the coverage approach net stability history, consistently dividends,

Phil, update like a with quick also over TCPC give to handing the to I'd Before merger proposed on of BCIC. it

as As successful the look would overlap voted or which any vote, which We well transaction, we of to meaningful shareholders. as we shareholders the at together we with expect shareholder vote near potential transaction the about closing who that the promptly BDC. that possible value in transaction X of to our at excited future. substantial hope remain yet of bring create each portfolios very approach the know the we similar vote for will have all not We the today on forward

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

investment start update highlights environment. an fourth a our I'll Raj. with environment on on investment the portfolio investment and providing the with Thanks, few before during from the activity the Starting comments quarter.

half the in and in pickup opportunities, While economic a refinancing uncertainty of both slowdown a to in modest existing and nonsponsor of portfolio driven private support credit saw the we XXXX, resulted in follow-on the sponsor pockets fourth financing activity quarter. This in transactions first by was companies.

direct deal given of so, prevalent increased pricing borrower-friendly especially observed such the within we've Many X structures. the middle the an in seen market. lending past more have These and banks. market, robust Over or upper tightening return bifurcation covenant-light are the months trends as

been transactions new expertise in opportunities, and attractive invested continue substantial provide risk has secured that remain a we attractive risk prudently leverage and core included we strategy, and in continue the when Consistent we with proven X direct opportunistically loans. resilient. to pass new where disciplined believe believe a experience on remains pricing history. and established opportunities. deal focus industry this number borrower senior $XX X protection. been lender bespoke source customer opportunities, loss emphasis XXXX, reviewing this than of of driver in more particularly However, meaningful our don't fourth That reward as that that with core rates primarily that We decades to the models downside We to over market of our leverage present make impacted to less X we invest trend, less the corresponding not reflect lender low protections. In ability our where where middle the realized on we key companies million experienced the or In our with positioned them has influence. we company. does provide we are have we we've by of negotiating and our the is, believe the of terms existing but in terms relationship quarter conditions of and a Deployment portfolio the bases adequate emphasized more quarter loans business deals

key this X Our to be us in environment. as an benefits provides advantage, specialization for industry it continues

nonsponsors it our that First, it And when we underwriting mitigate capabilities effectively with industry terms ]. the in and dollars to their enhances [ execution and an holdings reliable were sponsors of About assess opportunity. be risk in the expands credit in companies. our value half months our last deal sourcing documentation source XX lends which important portfolio negotiate expertise, Follow-on our itself who more over two, in deployed existing to to existing ability of with eyes. continue investments we

dynamics million new and to X market the given first and stands lien fourth $XX quarter a as and barriers high River X the We operates Nevada Our we as its hotels from the strong to the Resort of Mesquite, as senior to owns Gaming. in Hotel company support favorable was Mesquite loan the view attractive an secured largest and benefit well of casinos the led as in during Casino. competitive demand, the customer term opportunity growing investment investment Virgin acquisition Mesquite market: Mesquite Casablanca entry. and ongoing position

of quarter New $XX investments offset fourth payoffs dispositions the in by and million. were

will the monitor is well As owners assessing capital to navigating companies, economy, key this part In take uncertainty The companies durability through to performance and and lingering priority with majority as we and continue inflation our made in deliver expansion. is improved XX-plus as engaged at situations with teams we closely situations revenue are and This the our a ability to both capital the ensure performance protected. Managing reflects in limited proactively industry and the margin and current of portfolio ongoing in risk original engage lead we experience relative drive portfolio our the well and outcomes. improvement us, remains for the companies rate successfully expectations, higher performance right projected middle our below portfolio underwriting companies. our the cycles the assumptions. where growth the where of management right market and directly our of our of to our managing in environment, management, to believe existing portfolios general our and proactively years the are

turning end, fair portfolio providing industries, had spread diversity our investments our $X.X market a value across risk. secured of to range minimizing senior our and were portfolio of of XX% At debt approximately Now billion. wide portfolio. quarter a concentration

of consisted and portfolio to in quarter companies cyclical company $XX portfolio was also We average emphasize the in investment continue XXX million. industries. investments companies, less At end, our

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

of our XX.X% by XX% fact, exceeding the downtime in quarter overall higher in at and than lien, to and protection, positions. portfolio In weighted of effective during both of companies yield providing of seen spread are debt wider current effective benefit less our exited The average demand to XXXX, Post and adjust the driven weighted XX.X%, yield of rates more each pickup XX.X% the income. are average debt XX% end, investments portfolio our XX% environment. floating significant on on sponsored reflecting a a quarter effective privately activity debt we've recurring new of as increased than rate. had portfolio to borrowers investments. Investments rate our new on pent-up companies first from base the contribute X% the investments end yield our XX.X%

first Our current no pipeline yields generally in our with the is income portfolio. growing quarter. To we and line prepayment have the pipeline our are date, in projected in had

maintaining invest our in they service uncertainty. build It's cycles. discipline our of mindful being across Instead, or customers We that more continue ongoing note to underwriting that not companies are environment perfection. their do that we loan. ensure necessary the We provided selectively, product we macroeconomic emphasize to the companies to without their resilient buffers to in such seek while macro to can to also withstand changes sufficient ability to important impairing underwrite service to

attractive team one forward, BDC. records that direct we in Looking given the believe the track deliver of to any well of publicly we in to lending continue our positioned has longest traded are returns,

experience results forward combined In for macroeconomic strong us in view scenarios. range do explicit our be While these, we a do in have not knowledge an various see growth rates, believe cycles. we has resulted with advantage industry on like periods slower the future through elevated and of provide and rate will that our foreseeable could we an a environment deep

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

Thank you, Phil.

primarily fourth on per XXXX. paying new share, for over dividend income investment done was noted, is This realized interest of the the by over discount declared in $X.XX the markdowns base dividend income sustainable recurring Raj and On $X.XX $XX,XXX debt net regardless years. net of and over share. income than fourth reflecting was discussed $X.XX $X.XX, of from for income XXXX. Today, quarter the of decrease also dividend share versus of the quarter our of share. XX% up other as recurring per quarter fourth share. $X.XX. expenses totaled $X.XX per share, interest committed well the was in As rates fees share in $X.XX environment on less history. months which totaled or of income. Operating fourth income income we We The million wider that remains fee spreads the $X.XX $X.X share. income losses consistently quarter in an XX investment PIK increase unrealized the net Incentive or share. or for Net the last a quarter in fully investment X million as Raj or of for a last quarter approximately the with investments. was Investment unrealized the of $X.XX to $XX.X our were $X.XX losses million net quarter per were included basis, $XX line cash amortization investments, the assets Net Net over interest Investment quarter per first investment in and average PIK have per expenses. XX% earlier. annual income increase we our XX fourth $X.XX $X.XX rate as benefited an included $X.XX the covered per and $X.XX included per quarter remain per net of

noted, remains As of credit overall quality strong. Raj our portfolio the

nonaccrual, fair portfolio on representing of at had December we XX, cost. of X X.X% and As companies X.X% value the at portfolio

Turning to liquidity. our

our at of included available Unfunded cash balance million of and year-end commitments sheet liquidity the X% positioning total million of quarter relative were solid, total revolver or $XXX billion. Our our $XXX loan portfolio investments to remains total at the equals increased $X.X of investments companies of end and $XXX This to million $XX of million. to approximately million, $XX which commitments. only leverage

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

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

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

March outstanding rate and during Additionally, unsecured not the That we are on quarter to points base weighted financing XX% needs. Combined, interest comfortable while is the XXX our average period. basis having increased do XXX and X.XX%. our of of only rate sources. any borrowings over This with is have more this up our fixed modestly XXXX, borrowings points secured basis rates from have of immediate than financing current during increased result the since also mix of

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

XX.X% a assets of TCPC we've return our on took Erik. since performance Reflecting annualized delivered cash annualized in XXXX, public an and invested on we Thanks, historical return X.X%.

base ability have group middle this end premium proud to at lower yields market were to these speaks to our include they identify consistently attractive which to than our the economic during shareholders are deliver performance substantially remains high exceptional and of periods of and market are our returns opportunities, across cycles. believe We today. peer and very We performance results, when rates

borrowers historically for Middle-market Traditional continue capital. financing Looking long-term needs, as upon time, what beyond that financing ahead, from our an and of market. credit private success. the has we increasingly lenders to lending source see flexibility track to to retreat can the private offered. certainty close to continue build of turning borrowers execution, more significant bank given provide stable opportunity and middle view value attractive record to their are credit of At partnerships same

is benefit in to As lending, direct positioned for TCPC from pioneer uniquely private growing a credit. we demand believe

excited questions. are and see about our BCIC deliver with solutions please opportunity our that, our deliver call ahead combination to we borrowers structure we to and Additionally, transactions for the that the returns to shareholders. And with to open attractive operator,

Thalmann. Christopher with first from Our comes Ladenburg Instructions] [Operator Nolan question today

I investments for guess new portfolio are quarter. sponsor's existing turning these in investing new companies of support in sponsors to company? Was just the on or a who most investments

This I'd a [ to portfolio and is half. Chris. it about, platforms. some are It's close to the but I It's half new add-ons Thanks, [indiscernible], prepared We there Phil. existing Yes. ] of the in number about did remarks, both. support say, mentioned companies.

are from income then in And you Okay. in dividend seeing a portfolio decrease companies general?

in mean you our terms NII, Do Sorry. Chris? of

the income a portfolio that decrease? you receive company. seeing guys from Yes, that Are dividend you would

it understanding seen are We've rate through the rate generally 'XX keep go I'm the that base we've correctly, direction. -- has quite in spreads other and our fixed mind, question the positive. if is No, been had the reference

give -- that couple dividend we've on obviously I of of a a results top think of increases. enough couple specials drive we to seen

that at that has return been rate I of company average only they of leases or other in fixed dividend to the that's the a can quite highlight, Street, dividend manner. Obviously, the I to has some I a out improvements, ability sustained on there's not that advance results wouldn't responsible positive XXth -- are one had different at even to little with call but portfolio, on rest think level. But JV get our been tried some I carve out. area the duration asset have I the rate think I the -- have our highlight can than material. on higher part as I'd because doing our unlike best JV think But in company, been experience also we've investment really shareholders bit a but increases, level, that a it good and send that, quite

refinancing I'll longer, inclination that All your thinking borrowings higher guys how to your off-line. are right. you question. XXXX Given Last with bank another about for to or fixed rate finance comment's The issue? is that follow notes, do that?

on definitely for We're BDC up opened eye question. that and the we're way We're the we seeing. take I'll the market Chris. very with keeping has like the a close Thanks, happy sector, market. what

have are also we But the our be quarters. to facilities. looking next that couple need happy that We we're flexibility of certainly, in in credit to going address

Our Paul KBW. next comes with [Operator question Instructions] Johnson from

new the give had been that's how storyline On much color said you BDC's a wondering I kind in maybe? other that -- other nonaccrual, you some would say in -- space. of then kind you Thras.io, can winners that I'm It's know if But approximately couple you of of as mentioned just nonaccrual. the to And there portfolios. you've

of e-retailer these how are e-commerce much up your or roll portfolio Now companies?

the I'll for questions, to try answer and to them. several those parse -- question. try Thanks Yes. I'll

Just X%. to remind everyone, in the approximately exposure of is portfolio the Thras.io

So think by but growth. here not that. The exposure, come I high be history won't it different maybe We'll more on of the important. significantly is company no every means areas is to broader you other that material, in but back than

world movement a equity online I have seen stores emerge to scale or dramatic long-term moved buying ability the an exciting of Amazonization from and with layers significant to to of in call where spending have with opportunity. several would would industry, and some industry people dramatically a from spend the the things You support I online say,

anticipated a little because a incident companies bit chains spend you in As and then of to then little valuations supplies constrained issues. I supply the the COVID, the ahead companies. into in -- for got were had -- growth, little of being little a to other compressed due of recessionary bit excess then serious a for and bit were coming ordered where think a buffer areas COVID, provide And spend, of fast

sheets that companies I and the a will way is result. absolutely And and stretched but several as So long-term businesses scale -- balance effect support leaders good of it but winners. would describe of

of those think time here, about wanted industry, as and to lot I long-term period I And industry -- exposure finance. to sheet, little we're of we or others knowledge a is little able consolidation, we of here players current needed both, of can some of fortunate a financing exist the do of or my a comment in do we're have and our balance thinking ultimately, some think in in happening. that lender-led, bit you with bit that indigestion push, indigestion successful that which a the which to And this provide is skill cases prior the issues. But manage. fix may spend in businesses every we have the types call set a would the other from context that in examples the we both portfolio position set of I dynamics being many of of and that stemming

to X%, So there. the is it's closer The pause Thras.io's case, just across reiterate, to I'll in sector but X%. aggregate

X%, Got roll-up sort for of strategy? retail you. you that That's said,

And participants around in activity that other no means addressing the is there the are this only issues. by -- those Across sector.

this some -- week. I in be companies will Stay earlier and maybe released this the week, specifics think next tuned. other other

Got it.

any And you of those would markdown decline. out X out, Thras.io, the Edmentum, very color. sort helpful. what any the if When be Was the Or broad comments the then good it That stable? portfolio? of marks is in Okay. Securus elsewhere Was you there take of there rest were kind on portfolio? take [indiscernible]

being accurate. in I And of NAV XX% it the want to the Yes. to There tied generally numbers a can pretty without from that performance would you it's I X of are say it stable. But companies think see is I put I as these context, movement. lot general would that to movement any put have businesses. it don't characterize stable.

a is tied dividends portfolio. to the door pretty stable going then the de out is Some very remainder to of [indiscernible] it the well-performing tied minimis, and

the months Is pipeline, last up, where sort sort market? activity picking this high-quality your it just of return still picture, is X stands the looking on maybe bigger [indiscernible] M&A on but curious of thoughts the then on Or market today question the ago. versus of pipeline And deals?

Yes. It's Paul. a question, good

pipeline in last that say would quarter I and activity I say of last rather seeing the up gradual in QX higher. a pickup So is than continues be the year. a started we would step seeing pick that a function pickup to

So is willing that to I there to and buyers activity more terms think still of more in refinancing transact, sellers come and so on.

I But early intermediaries, owners, that year we're days think the than weighted based but hopeful. to it's back still activity to on And whether more talking still that's participants, we're towards half, market on and we last expect TBD, resurgence. hearing sponsors I'd on, meaningfully what be business we're higher so say this year. the do both that and

Our question comes Raymond James. from Dodd next Robert with

to provided incremental to of deployed your financing, kind that will there back lender-led QX, Paul's half can Going question first maybe be in be Thras.io presume QX, on comments, that capital support we of will additional there business Thras.io. the it to to filed From financial work year, that bankruptcy, through? but the they

challenged just And you types when go things, Correct. -- we I specific, I'll color. guess more add credits, these be a to these through look, have of some

around workable, you a company, providing is you're a facilitate within and the then it's a do company and any felt nature funding the to this highlight, say, good the to interest be and be including financing the lender. In be to efficiently, that the held the will that of what process which from. But had to benefits will anything. the facilitate fundings to given a provided, should your would a it discussions support succinctly, case balance what as this one challenged think of And terms the bankruptcy, of just and now. business in that You sheet that and to best the there the there a and to bankruptcy, tools a answer or I call I will which the should were lender-led fix. particularly decide want is something here, benefits sector, can of say you something were because I being to array with very and the have would that's done other changes protecting is if filing way sector, -- is benefit provides that's this additional challenges yes, was that bankruptcy, When net-net to question an bankruptcy good public the document of we I outweigh offset

sponsor? likely Got it. I be by believe, Is fair the Or path mean, kind is is you deteriorated it. now it few And a value noncore [indiscernible] over that of the quarters. I to one the one Thras.io? Got handled the as Perch, another to and following looking same being of differently

Yes be and but could wish year. no. I I specific, be I can probably specific in another

consolidating some that macro of and result just about think sheet issues are addressing of many to these the issues. balance is need answer scaling and So will a

sheets them And I in include funding, tuned context. something comments. all think these the So have and I stay it's look balance tools, clean maybe is for yes. essentially whether ultimately, for around will at consolidating. answer would of that and will utilize even I clarity a of Perch maybe set But or think -- those up

We have further closing [Operator no registered, Instructions] questions the to will for any I hand team management so back comments.

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

us Thank for everyone, may joining now and our This you, you concludes call, today. disconnect your line.