BKCC - Earnings call transcript Q3 2019 | BlackRock Capital Investment Corp

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Operator

Good morning. My name is Anna and I will be your conference facilitator today for the BlackRock Capital Investment Corporation Third 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 Dean 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 Relations and Business Strategy - I'm sorry Investment Committee; and Nik Singhal, Head of Investor Relations and Business Strategy. Instructions] [Operator

Paredes the Mr. call. may you you. conference begin Thank

Laurence Paredes

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

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

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

Additionally investor has not this presented certain information. we've our and Investment verified. to BlackRock Accordingly or with third-parties independently Corporation an complements respect posted may derived Capital from note warranty information website such have no been presentation sources representation been that Please discussed makes call. to and

the and highlight the Jim Shortly www.blackrockbkcc.com to Presentations section will October presentation. be the in website XXXX of the our Presentation in clicking information can link at contained Presentations some Investors of the going accessed page. Investor by

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

James Keenan

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

detail the will turn to opening Mike our the during to investment highlights performance portfolio it over more an financial performance. the call before CFO I business on then will I with underlying provide Interim the third in and quarter of you results questions. activity to discuss Pungello summary and update

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

Over investments and the channel adviser the continued has platform including our make Tennenbaum significant year sourcing company's last to across

Partners BlackRock direct is XX strategy. that and capabilities. adviser to within these professionals approximately our The increased lending benefits has investment via Capital middle-market the of flow seeing by dedicated underwriting The deal other and bolster U.S. investments the integration resources origination. broader adviser company made

company we of Additionally our co-invest ability certain risk. to portfolio a X order total with affiliates to portfolio reduced earnings our which To diversified added names our the a is new to press in quarter quarter repayments under this on with detailed co-investment idiosyncratic the with release. helping construct focus along are this

of lien by market XX; new beginning from to XX%. number deployments Since increased XX% portfolio investments by to value of fair companies; portfolio first of XX% lien million XX increased investments loans including XX%; second value to fair from portfolio XXXX the market or of the highlights increased companies the secured first to $XXX key portfolio from and XX portfolio of gross include;

of this activity the has deployment value across portfolio net million With quarter companies. now fair the market $XXX a XX

Quarter quarter. average down increased weighted XX points to September XX at of as XX% X.XXx fair last of since X.XXx prior The market from value income-producing was yield quarter. basis leverage securities end was

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

traded legacy of million realized investment including investments portfolio U.S. per legacy of were per company. of from value in the $X.XX Net net these related unrealized decreased losses $XX XX to in $XX $X.XX Services and to a quarter Well share losses September asset the driven or $XX publicly XX% million. as by related million to X.X% last share non-core company's

to certain subject A of investment substantial equity which lockup portion expire in XXXX. November provisions is of this

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

Now of of non-core legacy I September which reduced the the of lien is part last first, to as quarter. fair XX% largest Red book the Table fair of the on value is will the from XX progress X stores portfolio with This debt and rotating securities portfolio AGY and about holdings. by market of; out value talk at Apple by comprised XX% income-producing down performing being XX% La first Sur

Second lien preferred value stock fair consisting fair nonaccrual value stock primarily Lighting on and And at AGY U.S. investments nonearning equities X% by preferred X% second second Advanced and approximately including third by at of Well Insurance equity. Advantage lien.

from quarter the third were exited and at quarter the realized Vertellus prior The mark. and than was of million of sale previously Holdings equity largest million non-core positions the in second investments $XX which issuers position. were $X.X related the proceeds aggregate lien entire were lower which in certain During levels

investment first of a of XXX. Additionally $X lien sold Vertellus' was million at price

With on basis. the as first the go-forward these not restructuring current and through portfolio We in creating of a the book. non-core a we view which dedicated income-oriented lien remain $XX.X transactions do of more remains stable million shareholder Vertellus' completing value portfolio to

nonearning portfolio a value; portfolio the are a first broader lien book with of We leverage. assets; mix better through three one stability redeploying greater on non-core and focused to of bring optimizing two prudently mix and increasing a legacy and to to on NII diverse more exiting assets

After enhanced achieving will equity all of the of and the shareholder non-core exiting mix company's the strategic consideration goals on our improved power earnings this in We of company believe of that value. progress and assets with return portfolio the in in line careful bringing result improving the sector drive

XX of will Board stockholder the approved approval or minimum is a XXX% from earlier XXX% to company's reduction obtained. of XXXX asset become coverage October Directors requirement effective on which if

portfolio of added of secure diversified the more that improving income-producing company the to return its investment. creating believe allow while pursue equity will a We on flexibility goal

increase non-core target to a with leverage As will state levels current we leverage progress with further X.XXx. achieve X exits to from prudently of steady endeavor we

approvals XX exceed Additionally fee or earlier to that X.XX% from XXXX the the ratio if an time intend NAV. of becomes for management company be the X.X% X% will to lower on assets effective asset additional obtained that base stockholder October with to at we the coverage XXX% reduction reduced which

Additionally XX% incentive at the capital on same time from to XX.X%. we intend based the income gain fees rates reduce of and to

new March realized which Since our BlackRock with million the approximately IRR in has team of XXXX managing company into has $XXX billion been $X.X a began exited XX.X%. deployed of investments of

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

like XXXX. continued transformation call the the to of lending company's a BlackRock's strength result evidenced Pungello direct I'd to Before as emphasize in Mike over in platform turn deployment by as I expanded

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

Over to Mike. you

Michael Pungello

Thank you, Jimmy.

I the XXXX. Total for ago. coverage to million will share minutes GAAP X% XXX% $X.X Relative million investment our distributions NII was XXXX. to financial XX year per a additional compared information net $X.XX income or third or review portfolio investment was few decreased approximately to third quarter. as three income and declared $X.XX $X.X quarter take a NII share the per a of months quarter ended September the for the for

from for to total and cost partially portfolio X.X% in at investment primarily increase XX amortized XXXX at cost of income and XXXX X.X% an increase total portfolio of XX approximately income decreased the other and income investment September by average nonaccrual an in amortized fee attributable period. September X.X% to Excluding offset X% comparative by

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

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

expenses Total in due interest fee. from facility to in fees increase three or for the comparable professional XX income fees period credit based XXXX the and million the incentive ended net $X.X primarily months XXXX and increased September on XX.X%

we fees XX of $X.X on resulting Including waived period. million waiver of this voluntarily the on in management partial been basis. September million voluntary a had have $X.X ended cumulative fees fees incentive incentive net quarter the million $X.X incurred $XX.X of our For adviser for fees million and incentive XXXX waived of which of income management based partially incentive

to During depreciation during unrealized no and In realized the due was valuations gains. based $XX.X accrual quarter there for management on incentive portfolio net the quarter primarily million were quarter. the losses fees third and

During no XXXX the shares quarter third were of repurchased.

million XXXXXXX X through repurchase XXXX, for XX remains program The of shares September Board current shares has to expired. of XXXX. which and the strong November facility new liquidity X under a opportunities pipeline repurchase with our million availability of available has investment our a authorized credit under cash approximately since equivalents. We including up As to closed quarter cash in robust the $XXX.X position of fund and

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

James Keenan

Mike. you, Thank

closing would company's team portfolio hard progress the as our for restructuring book achieving continued we support toward make the work In continued take objectives. recognize their like thank our moment I our a to to for of shareholders on and their

we Operator prepared call This like for open questions. our would concludes now to remarks. the

Operator

O'Shea Securities. And a Fin we'll take Fargo now Instructions] Wells from [Operator question with

Fin O'Shea

structure It it's Congratulations a legacy I quarter. that fees book on fee this the your fee this moves seems have to market you're point. at waiver. the modernizing in like on some question appreciating also

is every First just but say the why book leverage X BDCs pursuing fee? chase market one? after forth that you those you're dividend how to a things of year management you market a camp And you the quarter Because XX like structure for you shore moving tied management and begrudgingly then else optically sort show big to seemingly is so the in out picture actions right guys of want XX.X. everyone the of question goes that the and all legacy view the higher do up your

to in along. getting you that camp large finally that follows And benefit. a tied it's You're

what fee why side? on just So of you're touch the you doing those on doing can points kind you're

James Keenan

of say the Thanks I It's Jim things Keenan. Ben. appreciate a I there. question. would couple

on very before highlighted fees the I Board on our mentioned with fee as closely with back appropriate setting the work vehicle. And of of $XX optimizing you we've shareholder dollars' a benefit now Directors basis the before our and the base. plus think you structure waived we cumulative regards million to - of worth As for

So a that has a positions far we've in long liquidity the variety more liquidate capital. along off the restructure of strategic a and company based ultimately assets these of stressed these pool of that the some portfolio and deploy position to of had in into a of time place process assets the and initiative of diversified taken that minority

of liquidity time. obviously has nature taken So the that

of combination We fee appropriate fee were management a time fees the And worked with performance with as was our Board that that throughout waived. that as well structure. basically the

I to conviction are think of on the for a have quarter. progress go-forward you we with are the Vertellus that I where some think the regards highlighted exits on basis we happy more with and

But couple on for moving the come we're years over Board we're it with we're which assets this book. progress done our into peers more that into. we appropriate work view to that vehicle last as from towards has equity-oriented some ultimately ratio new stressed the led us of off deploying that I our the and based that of assets have of may the legacy did course not would when happy optimizing that on the the of the leverage that with seeing rest X:X say

of in sales. talked books that realizations either So why of or when our because we've we've gotten leverage reason conviction increased is more has further gotten leverage I on and past look we our think those up exits ratio have of the that come deployed the some the legacy at of we've you some

So see started we increase this exit kind quarter willing leverage. Vertellus to that of as we to were

increase the as to start portion. we getting from think that equity next leverage be Board that that leverage and portfolio we're standpoint more what think discipline we increase willing progress conviction is the seeing into I that we worked when I with we're forward our year a exit to we'd you to that highlighted we're look - so

set exit the we about X.X portfolio think be I fee before tied to move the you leverage to that Board it's why ratio level appropriate at when over believe and willingness a the with to to X X.X combination of that increase So the a our to above would to say it's ultimately structure is the progress been time portion to we of X.XX talked book. because we'll about that remaining able start our

we're when and we we to fee relative economy is should benefits the of shareholders. the market we starting that for And as to scale leverage when think that do to the lever others portfolio about I of increase see start that in think and

balance assets assets on able that associated lower be that a return NII able to And be may should on still other leverage find have sheet that potentially and accretive. to ROA be we to or

those risk fee so was why Board to And legacy book. of But versus a would all - on of a volatility combination ultimately and how regards our construct got we comfortable factors I with year the say legacy that set off the the of we now it's wanted ago and the to and drawdown basis. go-forward really the of based a

Fin O'Shea

much perspective nonaccrual at How still that that your terms And of a can this that was you AGY. position expect you an in on Anything It can outcome talk that's this quarter new juncture. we does nonaccrual? looks back about like focus of moving set position? that now probably legacy on

Marshall Merriman

Fin Merriman. better at base there the your question. capital the this this Thanks business to at at leave is AGY that business various for it investor time. initiatives Marsh the nonaccrual The in reflects to is concluding fund

it to are other that exit. legacy think value. I we one at the the positions operational those is are business it generally that of that portfolio in any does of do. or wanted on we as appropriate and AGY impact reflect don't has the so at like to timing time all things way And in an exiting the appropriate going sort one of interested other things

Fin O'Shea

more I I that didn't breach some was perfectly. you over that covenant just of sort is asking What word gives of - the sort control me situation? that Forgive

Marshall Merriman

is the not are is Fin. in we debt That It a where situation the both and equity.

to across absence do covenant structure have in we capital the things a breach. flexibility the So of

Operator

We'll Wedel from now question with take our JPMorgan. Melissa next

Melissa Wedel

of between tradeoff think How off about on guys how you lockup wanting traded but comments Rick your weighing U.S. tradeoff? also prepared on quarter. guys on what's strategy about last I tremendously are a has the Services. better to from to the around that your follow you that today. rotating expiration I'd to now in love the understanding up Well Melissa that stabilize for wanted commentary do the understand And

Marshall Merriman

the the that lockup existence a during is of lockup meant of existence extremely is the The of you period this opportunity the lockup which company. the shares Well the majority the - referenced existence shareholders exit again. of we that had that vast of lockup limited to Marsh the a to extends

predict The be play large no expires and and but we'll have monitor fast point. exit monitoring of course happens. or a couple continue here lockup of trade. at are for timing in weeks that of difficult out to this parameters we free a number that price will of the to to and situation will when It's hard how We holders

James Keenan

important the balance say just of maximizing it's within I rotating And of these I'll all but an Jim Keenan NAV. level add a the that individual why think very of U.S. taking would with question. area - Well complexity Melissa to again for the have - because reasons book high and one a level also this of its is say each some it's to on us thanks back associated own from the at take time period it. of I legacy I'd the is recovery long the book assets

of or lockup in it's variety nature a restructuring whether our can to from debts. the illiquidity different of minority constituents those that a for of agreement the other relative the And positions some shares come ways was whether it

order And that get effort the because in balance this the is recover over of to of best into I been to challenged long this very to we've a book lot of deployments really non-core new And work itself taken in has think that time. I to trying of assets. why legacy that there's think a very recovery a book stated was rotate stressed it time

certainly of has you but of that one to that And think those specific asset operational of we've on for write-downs Well been But on assets off have some I lot losses that so based we've that to sell. a - nature able come. to of have but seen thank U.S. been is write-offs we trying question each protect that the each and been

Melissa Wedel

And this and I'm ratio if - I coverage asset for I follow-up effective the guys change. earlier. single a wondering Are think to my missed going I'm if on you question sorry you approval shareholder pursue date?

James Keenan

of us two with Yes - as I exit movement would to coinciding. we a plan those would consistent to continue portfolio - our degree probably to see be you then And willingness things leverage manage see approval. with higher shareholder to the expect again of we to pursue

Operator

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

James Keenan

we would on to progress in Thank support goals. the thank of a with you. deployments movement regards with basis. We're I on and for the their like on very to some continue And noncore quarter. strategic we as Great. continued seeing happy the everybody make the of the again to assets that very happy pace we're some I'm saw of legacy forward scale that our

the the and to the So goals for Thank portfolio. all of again continue thanks you. progress support on we'll strategic

Operator

that your for thank participation. you conference. And all conclude today’s once again We does

You may disconnect. now

BlackRock Capital Investment (BKCC) 31 Oct 192019 Q3 Earnings call transcript