BKCC - Earnings call transcript Q3 2017 | BlackRock Capital Investment Corp

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Operator

Good morning. My name is Sara, and I will be your conference facilitator today for the BlackRock Capital Investment Corporation Third Quarter 2017 Earnings Call. Hosting the call will be Chief Executive Officer, Michael J. Zugay; Interim Chief Financial Officer and Treasurer, Mr. Michael Pungello; General Counsel and Corporate Secretary of the Company, Laurence Paredes; and Nik Singhal, Investor Relations and Business Strategy. on placed been have mute. Lines complete After the they open update, for the question-and-answer speakers line session. will their [Operator Instructions] Thank you. Mr. Paredes, you may begin.

Laurence Paredes

Good call. BlackRock XXXX morning Capital Investment Corporation’s to and third earnings conference welcome quarter

would will, Capital statements as be Before our Many may risks certain identified made contain and attention the we use during the expressions. believes, and forward-looking call and differ of should, call can actual intends, point of We of conference corresponding remarks I words uncertainties. similar comments this begin may anticipates, course within out like today, statements that forward-looking the to expects, these document such these fact Investment by to results to statements. from your that Corporation’s BlackRock subject

Corporation BlackRock to no Capital these Corporation’s materially update any know, with some statements. Investment forward-looking Capital filed statements. BlackRock list which differ assumes not you the Investment cause the duty reports BlackRock factors may Capital and to from of does Investment has undertake results to which SEC As Corporation

information. will going overview at like Thank call The business to third page. an warranty have discussed that respect section in certain of an complements Corporation and been turn website sources Mike third-party would the Presentations highlight makes be information link from the by Shortly, Capital Zugay, to been will I may quarter Mike representation now Presentation our Accordingly, has Investor the presented some posted of the not the presentation. no to or Additionally, our derived and you. independently such Presentation Investment November we the have who over to verified. the in and provide Please presentation Investor accessed information can note, of and clicking BlackRock highlights. www.blackrockbkcc.com with to website this call. contained XXXX Investors

Michael Zugay

call. Thank and our third you, earnings joining thank morning for quarter Larry. Good you

Interim our Mike would to I Before we CFO. like introduce Pungello begin,

As Directors Interim October advisor XX, the on of as we the have CFO. Board the with Mike consultation previously announced pointed

will permanent CFO. of begin potential Soon candidates the identifying we process for a

to spending addition Global is background years. In and Alternatives accounting over operations Interim his duties of has Co-Head XX BlackRock's a in Operations Mike deep group CFO

team later Mike the the call. be hearing from have We and welcome you'll to on him

Now I'd an like and update the the current then giving environment to financial to business highlights on start our the and during by investment move quarter's quarter. activity market third and

underlying detail. discuss results portfolio over Lastly, turning performance to financial Mike I to our the more bit a will discuss it before in

was coverage on Directors, third net approximately quarter. share $X.XX income Based was XX% For our per per this the by the share. investment of quarter, $X.XX declared distribution distribution there Board

quarter-over-quarter quarter per was last September Additionally, part legacy which The X.X% from overview I positions net will as to decreased due asset share decrease. to or $X.XX value large a in share in $X.XX portfolio per the section. of XX, more underperforming detail in decline the share per two cover of

activity. leverage have $XXX by to support X.XX liquidity ample profile relative industry at investment remains of standards over we new times Our million low and

ratio are a has because seen on primarily trend highly quarters, several over we leverage opportunities. Our investment declining last new selective the

of We quality, pricing have have credit or all many to such potential of the and due passed structure, reduced on which attractiveness opportunities opportunities.

spread led be been other or middle generally for several available junior borrower had competitive friendly. with coupled leverage has abundance second lien of for in as market last especially market As supply to case conditions highly loans. the capital current tighter the words being quarters compression the The categorized can loans

market end greater loans and million of in middle We the are especially seeing more levels the of light higher total structures $XX weaker than upper EBITDA. leverage covenant

toward focused we Given first with bias credit underlying loans. a with strong are profiles secured borrowers on backdrop, lien this senior

strategies. deployment BCIC to Brothers for Loan portfolio opportunities, Finance channels investment high our core yielding we investments. returns that and both X, profile Company March position Partners, our entities new two the of first for in attractive our end the in patiently on underlying these investment loans the venture. than investments We greater deploy activities our favorable $XXX lien Our of managing Gordon deployed company junior million XXXX the Senior Senior pools From have each primarily be us in XX% portfolio approximately investments three responsibility Company, capital quality believe adjusted investment a and company capital team investments risk Loan Gordon diversified quarter, lien of as Company, has joint of entities. Finance puts continue equity With first these BCIC Partners assumed Brothers that in when into third in our and into regards BlackRock core generate to our

liabilities we via fair XX% of unsecured XX, represented As turning the investment XXXX is September value market XX% tender our approximately due our of of In quarter, portfolio Company. Quickly $XX offer. redeemed million the X.X% deployed of notes or our by the to the by new advisor. investments convertible approximately by

the a liquidity X.X% above repay NAV. par, revolving impact tender the on which million at credit one-time of proceeds approximately of in facility incurred negative shows ample notes partial balance to the to as maturity have sheet of the February $X.XX XXXX. $X.X up from We and the these related balance expenses We notes to

experienced would end, investment interest notes the of through convertible were up If approximately share all approximately beginning set having we higher impact outstanding. being unsecured off picked with Additionally, income two paid the expense the per drag entirely NNI the $X.XX else of associated we have XXXX equal. quarter notes negative quarter due one net from to of on

of offset investment other approximately during due or quarter, to the our our million which investment decrease more in investments and $XX $XX $XX we portfolio Turning new made activity totaling exits to a repayments than net activity. million million was by

company company Administrative Water by $XX.X incremental second our equity call in second L+X.XX to Company. $XX.X term incremental the million $X.X represented $X.X A to our debt Physician with Nearly three the at and repaid million in portfolio Our second the premium par and our all contractual Books a of Loan term $XX was due first lien Partners Pik, lien million loan portfolio repayment to million represented of Finance primarily Senior three to of million lien gross repayment protection. repayment Recorded of term Midwest by deployments million loans second the lien A being totaling lien activity exits. of par Gordon par new loan, SOURCEHOV, term to a loan unsecured and across second quarter repayment Brothers $X.X a quarter were L+XX.XX investments. Services,

investment share Loan made equity the Senior our Senior funded million new into investments commitment. four Partners $X.X companies. Our into portfolio of Partners Loan

committed amounts and respectively of September XX, $XXX in $XXX borrowers. million of Partners and Senior million As as XX funded Loan

the We Given returns. intend Senior lien into risk capital first nature continue adjusted the to Loan deploy of investments, the to underlying strong Partners.

quarter, time, XX. mainly quarter, progress. we fair repayment going regard strive XX September in of Worldwide income our continue at to market yield equity XX.X% rotation from this non-accrual due of development in SVP activity companies At value to with status. on have of fair the portfolio, last to as The is With debt updates any we $XXX portfolio weighted-average in make investment but at was this activity restructuring value measurable major the now do in This not a million. in have down XX.X% our producing market securities we to

better plan. order working involved to to Company the been provide the have to size on Worldwide in and right SVP with We balance liquidity to business Company its execute the position year stakeholders in investment sheet three of the

initial the working not investment Lighting quickly our restructuring as in of so placed Lighting first lighting restructured the equity via consummated negative no also Final in provided at for There in MBS and with status quarter greater We as efficiently last recapitalized. million restructured due sponsor was the change accounted This constructively Group mezzanine Reinvestment, possible. $XX.X majority of initiatives. certain at and to quarter. a vast was this technologies can fair to lien the stage decreases debt exchange and non-accrual are it and Those the is end, BCIC of the help versus legacy Company In fund quarter be with the decline lower case to including Advanced due to holders, may SVP equity diligence other sale quarter you after the quarter the of of In was members Worldwide, volatility time. of valuations the investments, run electively end. in process, debt tranche all certainty substantially in outcome hire debt drove market for situation growth the our value the investment a overall equity additional bank value a which We had summary portfolio. the this of certain resolving acquired point the market this holders, as Group that and quarter, primarily valuations in Advanced goal of this in capital Holdings, Holdings X% fair process. after advance MBS or indications. which was

path We are MBS. threatening evaluating to forward make and decision on for a we’re final the bid proposals

U.S. partially of hold negative majority quarter in Services, TELUS, Well of the EBITDA. increases Apple. the impact The AGY Lighting, with Red by finalization the valuations change decline original Advanced terms by the the offset was this For of restructuring investment the valuation in on were and the and LTM driven movements

higher. Given And to call degrees our the like the improvement Mike valuations all investments, equity results. equity, details movement highly some that, that over financial saw in the sensitive to light these EBITDA. regarding of EBITDA these businesses of for I additional they're varying drove turn would nature With

Michael Pungello

$X.X the on ended NII was Mike. additional the portfolio I distribution quarter. million $X.XX XX, the during declared or income preceding distributions investment for XXXX. $X.X share per income compared to financial was you, $XX.X XX% million September per earned minutes earned XXXX. share, few of as during year third coverage Relative prior for the and prepayment, totaled current the of review three will NII to quarter our a information quarter quarter. and take months $X.XX the net to GAAP commitments quarter for administration during earned $X.X million, and Fee Thank

amount decreased compared approximately in to convertible disclose previously $XX prior income unsecured quarter $XXX legal September Excluding million quarter XX% as quarter X.X% reimbursement the XXXX a the $X.X related one-year under the borrowings plus Credit to purchased, to a and principal Pursuant tender purchase ago. longer approximately convertible prior cash amount of no $X,XXX and compared The are On in to total million interest, settlement, All Convertible accrued Facility XX, purchased offer million. XXXX, insurance price per on using X% unpaid were equal decreased of Company due Notes notes senior the principal in notes of at price approximately $X,XXX approximately fee Convertible the retired the to and income investment purchase and aggregate and and under notes. this million, its purchased the Notes the was offer outstanding indenture. hand. tender cancelled, $XX.X cash aggregate

XXXX, of of X.X% investments quarter. amounting cost, status, at at two and zero debt total with As market were September in X.X% last value, non-accrual XX, amortized investments fair compared our

investment X.XX internal X.XX was XXXX market at XXXX. average rating Our fair value June to as XX, September as XX, of compared at

$XX.X As by the our XXX weighted management to related the rates primarily million period XXXX $XX.X current debt average activities, debt to driven including total quarter facility period. XXXX early was items average cost during XXXX, X.XX%. a our percentage liability points Term The one-time of our credit balances weighted as million of basis compared balances notes (X) average, nine-month our X.X% XXXX to repayment and the higher comparable of on of Notes for (X) our (X) lower average and revolving and on convertible Loan Libor the of higher increased second

the Excluding investments million. weighted current during $XX.X was unrealized unrealized bringing nine-month before before of on items the depreciation the to depreciation investments cost of XXXX the tax average increased X.XX%. total on tax Net quarter, for aforementioned debt million one-time $XX.X sheet period balance

for gross unrealized During appreciation on the offset to $XX.X on was investments, million by a depreciation portfolio $XX.X of depreciation due unrealized net of of $XX.X million quarter, investments million valuations. gross

XX, disclosed, XXXX. previously As waiver announced management income of based from fees March on we X, to December the incentive XXXX

announcement. fees For management million. cumulative to waived XX, September $X.X the incentive of such were XXXX this incentive of months fees March based X, is since income XXXX, million three on pursuant waived ended The $X.X amount management

credit for facility. million million, and XXXX, incentive $XXX cash on accrual our XX, During under the we quarter, was there no cash total fees gains. based management availability of had consisting $X of liquidity equivalents, million approximately September of in At and $XXX

However, XXX% for that, company the turn Mike. coverage to requirement. in availability to the I would back call our to order portfolio comply asset investments $XXX approximately like With million to limited is with

Michael Zugay

Thank our participation your you, With questions. call concludes to the Mike. remarks. that, for we to This We prepared thank would today's in you open like call. Operator,

Operator

Thank go first Jonathan Securities. you. of [Operator Instructions] We to Fargo will Bock Wells

Joseph Mazzoli

for filling Good in Mazzoli Jonathan Bock. morning. Joe

So is to was one-time tax first give a that led some what that the not settlement. question you million legal that what $X.X will surprises was of charge investors then year $XX of the also to ago was think an charge. in future, the investment And to related I can these question kind there confidence occur it a right? related about million

you for provide essentially So be investors is so some if this could around out that that of color helpful. NAV, paid

Michael Zugay

one, regard for Thank here. BlackRock co-investments for Corp in the Zugay your that all to Hey we of use questions. with any securities we They're an so Joe. On have. part question our LLC. of number Mike equity equity It’s liability, tax you

liability So the Well and investment the on accounting down for was depending marked this tax for calculations. the U.S. up created and tax fluctuate That could quarter, number up liability. that

was to in of answer U.S. liability. and increase will directly led to that if quarter particular you this culprit that question creation tax the So the your deferred the Well

Michael Pungello

just is way. in – Mike being that, and terms it on point Joe of Pungello this the by other one

of In it on a just terms took it’s a gain actually investment. of we being surprise, reduction the the

the the for positive at to net-net U.S. a So Well quarter that's contributor NAV.

Joseph Mazzoli

Okay. very is helpful. That

was the on gain. just offset an there paid it wasn’t of course and So

Michael Zugay

to be booked, cash because not just clear. gain, paid not just a but it's transaction. it's it's not Joe, It's a realized

tax NAV rough numbers Mike and by implication tax million is what So million this a was was marked positively Wall quarter referring impacted quarter-over-quarter was so in to $XX $X U.S. about it increase the up, liability. that

cash not So to a is positive NAV was net-net transaction. contributor a it and it

Joseph Mazzoli

one Okay. helpful. That's just And for clarification. point more

Well So if that they transaction BDCs have deferred sold, investment cash course structure that but equity, I be this way U.S. in understand of also then cash deals a transaction, can a tax other And believe. just on avoid will the having these LLC it where liability? I they don't in for

Michael Zugay

you terms the up potential existed used increase that what in is Correct. – offset. have those BlackRock the but that to investment. this the dollar, Mike Usually the the In NOLs increase attritional for simple offset liabilities. used value up case in accounting here, just that That Corp used use NOLs

Joseph Mazzoli

Thank you for the question, Okay. as returns. very the How quarters these of attractive are And clearly you opportunity large of clarification. strategies us portfolio? delivering then fund, and that senior Brothers much the coming the within next the could grow kind of can percentage in also loan Gordon a remind these set

Michael Zugay

Joe, Yes. good question.

commitment $XX majority the the $XX commitment. million. one to using the it XX% It's are our XX% ones, Loan $XX Senior it’s that rough we’re use So – of of million bucket. only few currently Partner's, but That equity of other about that our numbers our funded I on is there vehicle bucket. believe million

can over Loan [indiscernible] Senior Partners. increase we time to So our

it regard probably Partners. of So right another we’ve bad can If of senior of expand and on another bucket million – the remaining We $XX that chose it Loan described just Partners million to have the call Gordon And JV to With we all the $XX can now $XX got ultimately I that JV. commitment is asset can for current too, use current additional commitments. the capacity XX% the the on room room Senior to helpful? asset for additional but we've We got big factor call be. how bad in Loan bucket million will limiting be another JV.

Joseph Mazzoli

helpful. very Yes, that’s

Michael Zugay

With is got top They're Gordon our it’s good commitment flows that Brothers, to of class regards would of quality Gene separate predict – very business. in. the to our in that originators company, performers team expands. of they to We asset CEO and great great Martin doing portfolio the asset-based of loans. kind as invest ebbs portfolio the a They've Gordon a They're Brothers hard team, there.

our with Our as far mode. company. get notes we as goes, growth a But can they’re a on expand business that repaid in sub contract commitment as

stay as the of So they in that would means the big expand of growth. see, portfolio middle support can deals for right look of the fairway to their What our as kind we that set the at. of from us is, that opportunity types like to they perspective that

between business and months now. another for and million We the – million plan are $XX anywhere next $XX support enthusiastically their And us, of investments that call able incremental XX growth. from to over could

see. the out of how deals they actually function Now that that a plays as

Gordon we the initiatives, and the investing of are just support in are more they're class record growth We given track that to their their asset their in than team. happy Brothers and sophistication

Joseph Mazzoli

available clarification, as thank final and investments. a is off Capital the question, you great doubt no of a very date? a and NBA clearly is legacy in attractive kind date quick specific two then what has a investment just for Is Investment? that there cut That's portfolio those returns that And legacy also what BlackRock really is one or

Michael Zugay

Okay, so cut the in I’ll legacy off, words. this answer

March is of the the together. off put team BlackRock’s legacy investments investment were that So legacy its that made what investment. any a disk to cut made investments that, prior which we're were is ownership XXXX. made as is to of X, advisor, defining management after Any that the is Any prior portfolio

XXXX was clearly – be investment and believe believe So in a honest to XXXX, it I with legacy line that MBS you prior and the BlackRock with the I so initial that restructured a the to was sand. ownership. investment,

to in company. to evaluate continue for basis with what a do So definitely go forward investment portfolio we a we're and that legacy MBS going

Joseph Mazzoli

thank That's for you you. me questions. my thank it for Okay, taking

Michael Zugay

it. Appreciate Joe. Thanks,

Operator

Paul next go question We’ll Johnson KBW. Instructions] of to [Operator

Paul Johnson

pretty questions. at optimal to pretty guys just roughly benefit taking leverage rate centered sort rate and as next your wondering currently? around the rest the you of Thanks run my growth look above dividend to able of run waiving that your for outlook confident earnings, I of rate yields morning with ROE shareholders, on first X% to Good stay question if earnings, your – My fees kind everyone. are clearly for is healthy incentive to of running But year. at a be just big sustain

Michael Zugay

few thanks don't I for tell But earnings. We Hey, Zugay Paul. as here. question. run forward for we is outlook can and rate the guidance the Mike or for as the This calling dividend a Thanks you on level a set give to to into high the we calculus in give us that degree to from $X.XX of the $X.XX $X.XX quarters a lot of confidence in ago, number number. factored dividend to things get

risk relatively you this low level we moves standards very to are Partners We or good cash attractive returns industry Gordon have Loan right very contributors good and that get generate at two know with ROE. and very adjusted XX%-ish now point X-ish, Senior to and NII generate Brothers do by into

look to diversified have company forward quality to position a investments fortunate the in are that to we're portfolio So pools have very loans. ability as expand high relatively first we lien primarily

So in sustainability marketplace confidence dividend degree in are our a the of profile or the very the provide the attractive in give and investments quality us in us to used level. that diversification return high

Paul Johnson

but back if get level, to leverage the investment can to a I That's earnings above mean your just And are I optimal prefer really a capital of we understand sense mean We for dividend. is up my that definitely of on the approach on willingness Thanks with an we is up to clearly investments patient outlook new of good that. selective wondering I for your question what sort deployment. getting then am key a can kind outlook just answer. next be just

give catalyst that if you So sort level? I'm propel help any that of on optimal other that maybe identify to up and wondering that commentary could any leverage

Michael Zugay

marketplace. competitive prepared the relatively the what of in Yes, give and you you second loans stuff we're and a straight some of remarks the in there example environment away in look I'll seeing for for quick it my lien one press just heard as is out release investments

into - second and the was or additional was the a of L+X.XX% what's with kind stock tightening was lien $XXX now. to middle that's area of acquisition first it L+X.XX% right sense L+ID. that that seeing in are of loan both the market million the we effectively rather of One mean at not it interested in We're compression second the that kind looking secondly that that price same gives that an you're EBITDA I business loan get companies market to market we where spread and issue a million lien of lien around to large were $XX made of lien level L+X.XX% you market. no seeing to a in going really on

what have and we over Partner. investments not for Senior but Loan had outlook our we over what control is So a influence senior

So find and the other find that we to really additional to risk lien would there, hustling to and that we need. the in also to bring are anything they supportive and Gordon invest capital market. first good of in table fully continue return opportunities adjusted they Brothers is

for just would structure where is deploy. outlook very we're being careful with credits. The situations and on second into ourselves our performing patience very say are pricing want poor I outlook we find don't and then run lien or very we So on to loans, We stretching what positive. two those for terms

our with are second it’s for into sleep focusing with only absolute we very credit low a value best at that it’s this profile on page lien loan you So investment credit mean LX, that very That great to behind opportunities. quarter with deal. we solid, but night saw the sponsorship a see very as may good

lien market second yields increase selective. So in dramatically we're to just being there. something changes very That the the

to that two patience on aggressively other be the continue front just pursue and going to We’re options.

Paul Johnson

my are Thanks. questions. all Those

Michael Zugay

Paul. Thanks

Operator

from will Shane. JPMorgan, Rick we go [Operator Instructions] to Our next

Melissa Wedel

on then Apple make could Well Shane. It’s also elaborate Melissa outperformance drove some of update Red the you hoping I that that Rick an for Wedel guys higher for Stores? on And the at Services. was the provide performance Hi. U.S. fundamental

Michael Zugay

call. area This for the the the Utica time. in as Zugay for is the That this is thanks Well, performance activity drilling point with Mike activity speaking in very Look regions. here. goes at U.S. experiencing fundamental company has Melissa, – drilling Yes. robust and Marcellus

is are of those utilized and increasing – performance the So company the that in regions all performing period. two well our the and very we're is that dramatically is fleets business prior other year’s company versus

So is at and to be that With to specific, company generate EBITDA that company regard Red figure business to more the team working very we've driving with to management position out Apple, ways evaluation. the growth been to better flow a put increase in EBITDA. cash

the initiatives relatively one incurring. had out it So expenses marketing the of ways some near-term we've to a of in is company, of that is figuring the reduce

some made so we've there campaign the driving EBITDA growth once and increasing evaluation, its the company to direct fundamental, EBITDA, driving marketing which the valuation. is again at So tweaks EBITDA

Melissa Wedel

Okay, I’m got QX? into insights wondering you. any Thank follow-up, repayments And it. as anticipated if have a in any you

Michael Zugay

marketplace, Vision, of one syndicated acquisition – the some that do into quadruple is from EBITDA loan the in the are the going books large Wink. on Superior in relatively and as it's area the and making getting They done basically a rather we ability happens which quickly, deal have That market. about broadly from our

component $XX.X visibility that's in Gordon new other Senior So but be quarter offsetting well, at other that with Partners, into about activity new for we and the hopefully there and big we're it's or have a losing Brothers reset million this always It's what Capital point, and Loan we'll that investment. be that whether Junior portfolio as Investments. of runs couple our company investments, a there's

Melissa Wedel

Okay, great. End you. Thank Q&A of

Operator

any like it there closing this our back to turn conference And remarks. for additional further appears over time. at would are or I the questions no speakers to

Michael Zugay

much again. your give to in and any with very time, a participation speaking call there's you forward look us We for the please thanks questions you Thank call. guys

Operator

And We for conference. conclude you all thank joining that does again today's us.

BlackRock Capital Investment (BKCC) 9 Nov 172017 Q3 Earnings call transcript