BKCC - Earnings call transcript Q2 2019 | BlackRock Capital Investment Corp

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Operator

Good morning. My name is Cody, and I'll be your conference facilitator today for the BlackRock Capital Investment Corporation's Second Quarter 2019 Earnings Call. Hosting the call will be Chairman and Interim Chief Executive Officer, James Keenan; Interim Chief Financial Officer and Treasurer, Michael Pungello; General Counsel and Corporate Secretary of the company, Laurence Paredes; Marshall Merriman, Head of Portfolio Management for BlackRock's U.S. Private Capital Group; Jason Mehring, Chairman of the U.S. Private Capital Group's Investment Committee; and Nik Singhal, Head of Investor Relations and Business Strategy.

Instructions]. [Operator you. Thank Mr. now may conference. Paredes, begin you your

Laurence Paredes

morning, Quarter XXXX welcome BlackRock to Second Corporation's Investment Capital Earnings Good and Conference Call.

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

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

Investment not or information. and discussed verified. Accordingly, Additionally, third-party from certain may Capital sources makes derived information have to been such independently with been respect Corporation and no has presented BlackRock warranty representation

note, an page. that Shortly, in can website Investor the call. accessed presentation this some presentation. of to investor will going link website at Investors the the clicking posted our and the we've by July highlight in complements the Jim to of be presentation The www.blackrockbkcc.com Presentation information Please contained our XXXX Presentations section

call the turn Jim. to to like over now would I

James Keenan

earnings second during performance Thank I thank highlights, detail you, opening our activity on CFO, our questions. to results for provide quarter over update performance. investment the quarter the to the financial call turn call. Pungello, Larry. you before Good and business then an up morning, more will the joining discuss second with portfolio it and underlying and in to Interim I will Mike you

was increase the a offset $XX to share. which portfolio $XX income million investment activity. other per For deployed repayments during million quarter, in by net investment totaling million $X.XX We for was the $XXX quarter, and net the second exits due

growth acquisition of Over Tennenbaum with Partners. BlackRock's the Capital last lending course direct year, our transformational of seen the has platform

Our provide our set versatility capabilities to enhanced lender. financing our platform opportunity delivers the as solutions scale a borrowers, to and direct increasing and holistic

in channels platform significantly Taken together and increased investments deal integration have the platform broadened our capabilities. sourcing into flow BlackRock further our and TCP's underwriting

ability our us with has Additionally, portfolio a to increased granular diversity co-invest with issuer and sector and to risk. affiliated idiosyncratic positioned funds more reduced well construct

those press robust added These enhancements XX are new our producing our total detailed in our repayments are earnings We and with a as results deployments quarter. names of by evidenced along portfolio, the this to release.

Some and markets. software million of environmental this Solutions, loan include: as secured health services and safety $XX a to provider quarter also our to investments Diamondback top the known acquisition, of A Spero [ph] senior of

result and with business lending secured funds platform came to been investment for the direct of to lending a the a have has of secured funds is BCIC Although This for our the loan direct funds, majority The private us placement lender new affiliated largest including this BCIC, in affiliated provided invest; BlackRock Development, loan a strong A investment distributor BCIC. transportation multi-year a in tech-enabled pharmaceutical the provider of and to are $XX relationship. million lender business P&L business. an trends, with over-the-counter tranche. an prior senior multi-modal BCIC, the as products $XX a by sponsor the to and the opportunity products. senior a familiarity million services. BlackRock Globaltrans to loan opportunity existing private upsize health manufacturer through care An consumer an

and has pace into pending third completed granularity continued and quarter. deals, on of deployments Based the the

million. the $XXX the during quarter. average a at as activity which net the XX.X% deployment income-producing now of portfolio XX, strong of fair this from is has companies the approximately was June to market XX yield fair as same securities at weighted X.XXx quarter. value the The last market of quarter, X.XXx increased With value Leverage

ample million and have new liquidity to support maturing until no have debt activity, investment of We $XXX XXXX. we

decreased substantial NAV portion company's is to provisions, Well legacy expire value which equity driven or of $X.XX investment asset U.S. net investment $XX these company. traded $XX.X were publicly X.X% losses in $X.XX per realized Net and quarter related unrealized from of as last a subject certain million. June of November Of to share losses, the share X.X% per of XX lock-up to by unrealized Services, million this losses in XXXX. A

we Although prices there closing with of of to no stock. common the shift continue will investment be this line assurances, the USWS quarter-end valuation can anticipate the that in

$X.X of net other additional losses An portfolio. were non-core legacy to in the investments million related

best We interest work these of of positions stockholders. that exits continue company's legacy by sales certain assets the in non-core the we to be a towards creating natural or believe to monetizing in manner

over the weighed proceeds the core has to earnings bolster portfolio will and company. the investment of underperformance we redeploy legacy the occur, in on certain realizations As investments time net The company's reduce income strategy volatility. of

earnings Board a concluded management necessary power team of have As company's is distribution and that better with to in the align our the the the a result, reduction current company.

value current through portfolio. of to completing and the more creating the a stable income-oriented dedicated are shareholder We portfolio restructuring

on: two, the with first portfolio of bring one, and while to non-core greater a reducing and a leverage portfolio downside prudently three, more nonearning into assets focused redeploying We diverse lien assets; legacy book mix are risk. to broader, increasing stability exiting value;

power bring sector improved shareholder returns. line drive with enhanced that return the believe equity, the will in result We and all of company in earnings of the this on

largest AGY, of by June consisting one, preferred with value, down securities of Vertellus stores will primarily as non-core by Insurance income-producing value This XX some stock, quarter. and by portfolio, you was La Well portfolio on of value, Lighting preferred Now nonaccrual and and and last of the second investments Advanced the by comprised fair I walk stock three, XX% Red performing XX% Advantage value, is the U.S. XX% debt Sur from X% which part market holding; four of book including AGY X% Table legacy nonearning equity; Vertellus, of of: lien. details fair being through at equities at fair and fair the Apple two,

During to the been in company BlackRock IRR of began new deployed the $X.X has $XXX of meaningfully have XXXX, risk Sur XX.X%. our the Since investments This quarter, with in and La has a billion million paid investments. loan was $XX position. credit managing million, Table pertaining approximately $XX improved. our reduced to realized in from which team our exited metrics down the our of million into March

XX% constitutes XX, investment As investments over company's by fair of BlackRock. by June the portfolio of market made value

emphasize Before strength Mike derive the that I has our in turn begun I'd to like platform, benefits Pungello, to BlackRock's the to the company XXXX. from expanded deployment direct from call over evident lending

assets, further grow to the of company's advantage and legacy benefits liquidity rotate of continue these leverage we out ample it's in earning As power. and to it the puts conservative position take a

to Mike. you, Over

Michael Pungello

to approximately three was portfolio for XX% I of review quarter a $X.XX months' declared GAAP NII Thank XXXX. Jimmy. $X.XX Relative per per for XX, you, the the share, distribution for income, quarter. and will share investment approximately to net of our take million distributions ended June information or XXXX. $XX.X NII, few coverage additional was second the minutes financial

million quarter the year $X.X X.X% investment income to ago. a or decreased as second Total compared

by fee decreased quarter. average dispositions to income, higher X.X% Excluding a the due the in approximately decrease amortized other of primarily in portfolio by primarily X.X% total The XX, XXXX, the in income to ended income size is dividend size for portfolio and impact year-ago investment the and income half partially decrease attributable since of was quarter offset June investment second XXXX. costs which

investments nonaccrual X.X% This total there of preferred debt total debt cost, three December were XXXX. and preferred investments, quarter investments respectively, cost, and and fair X.X% investments to of and at approximately end, X.X% and compares XX, at value and respectively. at fair representing of stock At stock value X.X% non-accrual

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

$X.X both were decreased fees. management and XX.X% realized portfolio net and Total the quarter, interest million XX, from the in In facility due depreciation or primarily due credit valuation. in XXXX, the primarily $XX.X June for ended base losses unrealized three comparable second to fees period in decrease and expenses million months' XXXX, a to

XXXX, of quarter second shares the were no During repurchased.

of remained XX, X,XXX,XXX June available current As program. shares XXXX, for under the repurchase

the million of quarter with including pipeline our strong We credit under and our in facility availability closed equivalent. position cash of $XXX fund and investment to new robust cash approximately a opportunities, liquidity

the like would I Jimmy. that, With to call back to turn

James Keenan

towards would support team achieving shareholders and take our would Thank In moment prepared for like to continued hard portfolio to their Operator, call you, work their closing, open we a This I for questions. objectives. to Mike. our the remarks. recognize continued concludes to our thank our like

Operator

our Shane we'll Morgan. question And Instructions]. first take Rick [Operator with from JP

Richard Shane

numbers, -- curious, option last understand the economics to But I up potentially versus to and over of $XX X.X back on the the going your we're the waiver. portfolio. million understand sort years. an Look, what's guys And it's I decision Love going looking the as hear why at dividend as consider I the about just that dividend. been realize, thoughts not our you given extending in cutting cut have of fee well?

James Keenan

power the are BDC, to a waived go-forward power it that is. with also them and two the $XX mentioned, we we where earnings basis, decided to continue appropriate you with level But as the appropriate Board to the of sustainable regards with legacy out with more Yes, on as the Board dividend work continue million the cut based the years, to of our think was earnings Rick. of Thanks, we on last to the And of off structure. the fee over ultimately the appropriate move BDC dividend work date. current book we the to

Richard Shane

Got it. to capture where new for that, in terms cycle your given of floors what and ability, on do at like look investments? implication of things we sort And is in example, your the you are rate the outlook ROE when

James Keenan

-- Yes, growth think our movements how risk and in. play to also the individual has rate move asset two sensitivity a think Fed LIBOR slowdown? are you've how one weakened about about that yesterday, we obviously, in where investment, think and any And we how individual ways. seen One, potential a cycle, coming we up we the in about in are then an in portfolio we but into the that the growth in bit structuring underlying is the as aggregate participating on underwriting

into I the been move of a out more move of the assets trying standpoint them as know, to first strategy. think, overall non-core lien and equity-sensitive out book, of is is are move you kind that as do the to into oriented for diversified, more From of we the what book ROE we've and legacy them deploy more

net overall Our and LIBOR around to $XXX exposure the portfolio now million. is right

Operator

We'll O'Shea take next Fargo our Wells question Finian with from Securities.

Finian O'Shea

wasn't there on fee for of of dividend term and thought earnings the to coverage since of dividend? Rick's a or moment. else? business the how losses to of the a are dividends. for first follow thought Just of Recalling something think there sort on power then power in experienced shoring And question waiver by longer up driven sustainable that if perhaps the kind we some understanding so, should back, nearer-term understandably considerations Just the change related was earnings of

James Keenan

is we, was waiving deemed trying volatility more you as book doing of four team those risk Board And If been restructure the book relative I sensitive the assets. That fee prior been remember, what by exit seen been over would to that, has underlying years either we've the structure the management the have the or of years non-core the has been portfolio. to legacy the we as ago. also from advisor, last we've where the and the what the part to fee or set say, two the drawdowns

prior equated and have So or what restructure that transition And reduce the legacy we've team performance to last we tried tried from of two million any as waive out book sell to that. $XX the management is fees. do and to years that over

making on So with and the reduction the we with of of implementation the both ultimately the with book. the appropriate structure fee management to that is the the tie and and are regards where and we our legacy go-forward as with Board we've now. And aggregate, rate are been the that the quarter. the happy performance fee, right a basis, we of sustainable structure on run progress to fee Hence, worked happy on into power that trying earnings BDC that overall dividend this cut fee the being

say would into will lien-oriented in legacy to of to book, diversified the on ramp dividend more that the and sell we more a I But continue several in again, also but that we're believe On and fluctuations as of a with you the happy go-forward still we of. line are as move power progress basis, a first out that earning we continue fully regards to there the book reduce to that. we know, get positions And need with that. the out we

Finian O'Shea

appreciate again, to I legacy the then was sorry, Could as hear and color. And I is about on Sure. know the this me? that. investments speaker? -- you I

James Keenan

Yes, we can. Thanks.

Finian O'Shea

on out but very been U.S. this Well have investments before, consistent touched legacy we've even something stripping a the is driver, steady, quarter. This loss

steadily down. usual continuing to they go Your KG, Lighting, Apple, Red are Advanced

truly underlying versus equity and so terms companies So company Is can in of provide weathering marks? profitability just this performance? the Or forth? of this valuation of an these update you sort in are of sort on terms

James Keenan

I underlying have that portfolio them are one them own book, two would each from through underlying them, also both their power, earnings gone associated many -- in of restructuring. things. have of idiosyncratic the their names issues to there but I One, think say legacy the own

the the and to drawdown are that positions have the most volatility the sensitive been equity-oriented. I think part

equity. to tried legacy we've is more is income-oriented of which outline think book I which describe more out and and the now,

And that legacy think, now value has reduced so book. X% of equity of that to been I about, the the

been of write-down. to associated So that the biggest the overall has risk that part and the biggest

with to the where to I is that reduce would been drawdown legacy seen, volatility that focus those well our with right regards are the completely conservative we've sell happy we're along at assets. you've of us progress and being aggregate And the to key as able core of we now. say them, the obviously, of the the exit drawdown as about of risk off to I uncertainty volatility. our as And think based risk pretty leverage sensitivity

been margin, positions. would in remaining we've comfortable, more more increasing the to the expect got leverage to able on be we're the once we've As that and we line exit

Finian O'Shea

more, if one may. And I

course, the be the advisor But update the Capital integrated dedicated On and the you management up side, an and the service is this the BDC, there here. what think investments. Loan the Partners, side, TCP on of the know distinct provide can kind BlackRock, we legacy on a kind same investments advisors Senior are to What to BlackRock rolled There's portfolio resources, -- lot side? to of it of of I management origination that dedicated entity. are whether

James Keenan

anniversary regards XXX% And with year we the of -- just very transaction. teams Yes, and to say Thanks. are The the approaching process about integrated. -- this. would are TCP one are investment is excited I the today we

last the I XX So pick around across the aggregate team seen on over of people focused is And this. investment specifically investing think you've joint professionals transactions of the quarters. up couple

this numbers And beyond out seen increased. would you expansion the with I say of the seen new benefits platform just effort, kind but couple quarters issues the pay we the think that really the start out over really our deployment quarter, that not pointed of in to XX overall we've as we volumes play level the origination, with that of the see platform, now. the overall to the last of with start you've I outlined, that, breadth of really as origination have team,

we converting platform of see, more is and to still flow X% seeing we're but So deals. the just closing aggregate X% deal on that the

that we excited quarters, to benefits the and starting couple are very over So is about I think pay that. last really of

from resources that. enormous BlackRock resources amount of with management manager associated large know, a to standpoint, overall the is From an you as asset

the to with has of origination, that beyond the of investment amount brought them amount to the and underwriting enormous a scale an there's BDC operations, dedicated and resources public well. with finance, as the regards the underneath overall So of significant professionals management

amount the So there. on resiliency a fair of platform

Finian O'Shea

the specifically, On sorry? more investment side, professional

James Keenan

is are invest the dedicated continued acquisition of up, the There XX since side, are there professional platform the -- which we have and investment in on TCP. to

add we platform is efforts. as and expand combined continue the So our that resources we'll to into

is sources is of underlying is for resources But XX teams. the but in market, as to origination dedicated added that, BlackRock a further team. to the is Beyond dedicated effort that capital we've part not increase that which a BlackRock

Finian O'Shea

for -- a that syndication group syndication in for Is that lending? is direct

James Keenan

has capital corporates. other is as There our brought -- originating in brand tailored source combined. when this the direct is obviously to is sourcing has and it is down in advisors, specific is which there origination something team a XX, that into And direct The BlackRock markets sponsors broader down the team. broader are U.S. of that underlying and resources the dedicated is sponsors and lending, with team, that part then to reach sourcing banks,

Finian O'Shea

And one on may. lending direct final, if BDCs? of you the update provide assets or color raised outside any an I Can

James Keenan

Yes.

the lead has assets to the being BDC. outside BlackRock benefits the BDC. But see think that to mainly expand the and continued resources on specific to So able the I'd to on, I U.S. you say, that focused direct specific regards is lending. to with raise

able able a mentioned, a deals. what to able we source and do to assets hold the is to weren't originate with we really clients the to greater As provider of to greater size, to to in past do be us we our be allows have solutions which that now with are flexibility and able be types

participate joint inside we've and And of million deals that increase we've been or the the range. $XX transactions to seen, of added between you've However, and BKCC as million diversification to the BDC regard BDC. with still $X in able the the deals done

of portion overall size origination is hold but has allowing again that those larger although that's power. that, which much broader our of So are small increased diversification, our a

Operator

would Mr. to session. over turn remarks. or now does the to back conclude additional our call Keenan closing you. Thank today's like That for any I question-and-answer

James Keenan

forward overall happy you, you. and to our Thank everybody. look the to and we're continuing Great. our appreciate I And book, forward questions the with and all efforts to look next restructure Thank call. the on progress

Operator

Thank you. all conclude does your conference. for today's you Thank participation. That

You may disconnect. now

BlackRock Capital Investment (BKCC) 2 Aug 192019 Q2 Earnings call transcript