BKCC - Earnings call transcript Q2 2020 | BlackRock Capital Investment Corp

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Operator

Good day, everyone. My name is Christy, and I will be your conference facilitator today for the BlackRock Capital Investment Corporation's Second Quarter 2020 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 the Investor Relations and Business Strategy. Instructions]. [Operator Mr. begin may conference the you call. Paredes,

Laurence Paredes

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

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

James Keenan

the to providing quarter progress quarter earnings call CFO, before to you closing thank an updates and and and questions. opening Interim financial strategy. in joining to the our call. overview will some of Pungello, morning, turn I our second results provide continued the Good then it Mike our Larry. you, discuss Thank detail the I more will second over remarks of for

play the the investments, majority on the in as focused this economy. resiliency remain through out the our teams needs Our to lien investment of portfolio, newer portfolio companies of A and global first demonstrated impact continues the performance intently the underlying especially environment. of pandemic

challenges pandemic-driven investment the decline contributed Company. Gordon The GBFC's Brothers larger NAV being quarter. this the in these to X portfolio of However, loans. in consist asset-backed mainly underlying names on our Finance of assets

to unsecured to facility. portfolio structure. outstanding During the from stock during sheet, the companies $XX reduce requirement credit invested preferred concessions. GBFC's required led COVID-related quarter, along revolving GBFC's BCIC its which the balance were leverage This some with the quarter, common reduce to similar GBFC's certain GBFC's of in and capital facility. under senior notes its amount cash lenders are the These used of proceeds, GBFC's by additional a credit in million to

investments Sur of investment, the stock impact The fair revolver in AGY, the GBFC a the by its to the bankruptcy of in the prolonged Services in Table nationwide on second added of loan the Consistent fair prior increased noncore which the along store value our As was for is June challenge a which key Sur $XX a on was [indiscernible] equity quarter, this of declined value. common position lien rapid On raw fully preferred price in pandemic Well legacy first in aggregate BCIC's value. noncore an end on positions, La reducing contribution a a due portfolio driven by the with and material. our some decline to million contributor, of rest basis, Table the to increase markets million of $XX the sold the quarter. company's noncore GBFC were on with has in capital returns pandemic. with higher-priced COVID La had fair retail lower-priced to with is positive replaced the cost assets. market our This, input The impact a of borrowings already we on some expected equity. both focus from investment and and U.S. portion junior reduced combined filing, portfolio, capital, of equity closures increases. We exited which

at in market these XX% million noncore to The X.X% reduced value names the the this a of XX. debt in of X% quarter year of X.X% last La during quarter one ago. stock. the first the X% the new We and All nonaccrual XX% reducing Table. combined, to by our have and equities, is Sur [indiscernible] On preferred on AGY driven MBS of the loan in of performing paid July by consisting total, from related Advantage Of $X remain remaining noncore the and placed junior primarily decreased now for to XX% investment also risk than Holdings. on and Red by CB-HDT quarter the exposure, $XX during and stock Stores, and AGY. preferred fair were Apple subsequently and remaining bulk total on X our portfolio has of to investments mark. other focused their first lien exits of consists creating realized in time capital and second debt further was to million investment proceeds Insurance The other in portfolio with book less value, on equities exit quarter, interest lien investments as income-producing The total securities In portfolio. companies prior the fair compared nonaccrual exposures nonaccrual

focused be volatility. limited stable Our deployment strategy with a to stream income on providing of continues

currently; up equity XX debt less portfolio XX% construction include loans, up currently. and companies, from XX% X% first at least currently; lien potential companies. leverage X our of XX capital companies quarter, first remain the added from XX positions, and portfolio additional our which XX% new for given unsecured the second investments. ratio than We sizing portfolio from We targets to cautious down of Specifically, portfolio investments lien were both in needs in new current or

income-producing The the $XX market. deployment dealmaking the and of Credit further create repayments lien economic Quarter and team we in helping investments by investment $X.XX to capital $XX take to And for average earnings primarily in primarily of was weighted up was going value was XX, conditions. which quarter, of nonaccrual. over increase relationships spreads new deep exposure, As AGY fair in securities current the detailed have down income X.X% AGY nonaccrual. X.XXx, these the points embedded million and of investments. share, first we investment the and activity, of to offset by us market X.XXx are of expertize on June quarter, for driven dedicated junior our middle-market expect other as protections was exits. become down are XX industry lending structural sourcing first repayments the remains prior due during exits healthy. to pipeline professionals from reduced The for per and XX attractive yield Despite more position our press end at sizing the lien quarter last and new quarter, since U.S. from direct advantage noncore Net million $X.XX our basis leverage We quarter. the previous deployed for in release. deployments

approved revolving company. shareholders The coverage the credit ratio flexibility May. second our was XXX% significant the also facility amended provided year. This credit the asset our X we to facility now which framework, by and amendment additional quarter, by the incorporates During operating in extended maturity

previously Additionally, as the company also disclosed. of base X, May adviser's started incentive fee reduced as the effective from benefiting management and

The uncertainties, economic continued current operating we this dividend quarter. our Given to will dividend have our a the pay portion portion environment. bolster help in to stock of of in NAV stock elected the

coming dividend Our in goal to is transition to all-cash the quarters.

for and on waived to liquidity the unfunded the million cumulative fees to portfolio. basis. has incentive the relative Inclusive small commitments adviser strong, NAV, of $X.X waiver, are incentive available further million. and permanently its To the waived quarter, fully remain totaled activities a this relative which $XX.X of BlackRock support the total fee Our

senior like the many exiting continues U.S. company out, Before the shutdowns execute Pungello, Mike play businesses redeploying I impact call assets to the strategy remain on you, continues over emphasize of able strategy that a coming to and turn targets. to show continue Over and accomplish portfolio will be to we'll portfolio and of while maintain results upon I'd to noncore the a to We into quarters to the our of investments. income-generating that Mike. diversified that construction optimistic in secured our

Michael Pungello

to or second XXX% Total XX% NII for quarter quarter of Thank $X.X you, million $X.XX or additional X for investment million a Relative GAAP decreased per Jimmy. and per compared $X.X net income NII, information was of I ago. a now the $X.X million financial for XXXX. coverage distributions the XX, XXXX. ended distribution to share, quarter. months year the was investment second few take portfolio income, June or to as our the will minutes $X.XX share review

This Excluding increase during fee investment and increase by income, the the is at impact total compares half second to comparative dividend which stock was of first periods. income respectively, X.X%, investments, of rate debt due investments total decrease and and investment fair nonaccrual At income offset total X.X% period-over-period, fair in environment for X stock of representing at partially portfolio in XX, a other of costs, and quarter X.X% primarily XXXX. XX.X% a income approximately the portfolio the acquisitions the to size The nonaccrual and were lower preferred a due cost in by investments decreased to half X.X% cost, approximately X.X% at preferred average there value primarily amortized and XXXX debt XXXX. December investments respectively. at of end, and and value of and

the X.XX investment base XXXX, prior interest facility offset and as by fees internal the million. to primarily X.X% quarter, XXXX, since Total as X decrease bringing the expenses the XX, partially $X.X million income based or on value fees, from fair an in of comparable increase average fees compared $X.X period to credit XXXX months million, to June XX, ended XXXX, June management increased in waived we due was rating Our in at X.XX for our $XX.X end. of market quarter In March fees. voluntarily the second waived incentive incentive cumulative a at

for there incentive management gains. were no based quarter, the accruals on fees During

and depreciation second in Gordon Holding net investments and During unrealized were to quarter, Brothers the Company. million, $XX.X AGY Finance realized our primarily due in losses

dividend XXXX, $X.XX under stock. $X.XX cash company's shares cash share As we the we approximately of equivalents. XX, a X, in million availability which well common as of of paid and cash consisted or July our in XXXX, approximately $XXX per On million million, as had credit facility June million $X.XX in $X.XX of and of

X, our shares. July a of attributable million to paid As dividend on XXXX, the in approximately result, $X.XX portion NAV increased by the

remained shares XXXX. X,XXX,XXX second for the I the and of turn available During of were XXXX, would June no shares as With Jimmy. XX, back program repurchase the quarter call that, to under repurchase, current to like

James Keenan

In all, take continued closing, their I and team the call and strong for for to while thank quarter. Thank everyone remotely and second Operator, for we'd to the and work uncertain stockholders This you, like during remarks. these prepared moment a of during remains our most recognize questions. like Mike. Most our the working even challenging healthy their of I concludes continued open safe engagement, hope our would support times. hard to

Operator

[Operator from Rick Instructions]. to We'll first JPMorgan. go Shane

Richard Shane

you gone over it's a am the plus situation has But really guys to [indiscernible] reinvigorate and situation trading, a regain traction isn't this about into of there. year. select Stock interest I strategically, acknowledge in your asset the improving environment out NAV. shareholder plan? consistently how several portfolio, rotate very think in being franchise. down years, to the situation market the this What's been last let's this highly terms NAV way or the competitive challenging able you really you and a where -- of Look, curious,

James Keenan

two Thanks that. thoughts with continue really our to for optimize the value. the Obviously, shareholder we with question. to regards I try work to Board to have

one are losses [indiscernible] declines positions. assets, first is accounted about been have which the of mean, took which private -- kind an all this with the of legacy when and into associated have almost equity to reduce adviser, distressed -- the and focus as where talk on we over The of level And or you minority, trying as NAV we for. we've continue I equity noncore to that divide -- smaller, can to continued two books. almost them, is many there's

first period lien-oriented years, assets good has That book have hold And been the that that mentioned, has portfolio, stability, regard the And noncore of of taken that continued and well experiences Certainly, with I obviously, So that. this -- has bad a some book, to income-bearing obviously into more that, book, [indiscernible] continue with the the the rotate [indiscernible] call the of time. continued we rebalanced throughout of second portfolio. last would time assets [indiscernible] to more it, portfolio. several to regards up to level legacy say. you where deployed as taken with has

[indiscernible] that has we that has say, work held out. is our clean and just to our assets. new But produce the that book. value. XX% book, will lien. go continue shareholder of the I to extent not on would potential capital on see think think sure is income the of as first and have and into first fully final think, junior that, the with I continue That, remaining that and a of continue ultimately move to part to That continue assets into reduce continued alternatives strategy to we and strategy, of to reposition to stages the with -- will the well stable and I the have we continue continue that, that book first to all that lien that as making But we options going potential portfolio we noncore to strategically, we well, where -- play in stream. into that part new drive the first remaining and to exit -- volatility Board restructure equity portfolio. is that the I and from capture really book And of we the With whole to

Richard Shane

vehicle everybody's made think at faced a that improve the headwinds, going. have money But if shrinks, portfolio different But look vehicle think appreciate the this to diminishes. as take reputationally lot incentive capital I or the permanent look, And results. fund when macro this challenge. this the versus a perspective, the this compare I the headwinds a And I hard you capital you from that's you continuing Great. money, you as work to you obviously, harder. permanent the guys to how outcomes. were a year as and I And down a guys And economic where could assume, investors it's, to think withdraw important get I financial incentive reach that that

James Keenan

portfolio many BlackRock ago, as positions the and would of took obviously, this is difficult say, minority, and this obviously, significant know, adviser we to I an Thanks, Rick. all control incredible legacy or a exits. book focus, years been of have you over those those exit. as it's cases, the several In distressed been, as positions

been the you that's portfolio the BDC, credit lending part of to with said, from and strategy. standpoint, a direct being that complex. one know overall our is regard But -- as So probably it

time, obviously broader it us kind expand we have, to more still the repositioning adviser We continue has or have to any diversified concentrated, see And had figures been allow of And to with be joint right? is any more that have one one the an remaining look, been, able of obviously, shift to I the and for the here, took continue it, obviously, and idiosyncratic and focused that potential investments. as BDC, the So allowed we very and size call portfolio, continue over and reduce we've of a portfolio to origination. that, more taking benefits continues a to would risk, exposed but outcome distressed important and is now risk sourcing delivering shareholders on for to an a book continued of more transactions, first part grow we to us book lien legacy and this good position, XX%. And name. in scale, increased and the much some with --

a more to recognized income how over converting certainly regards stable, to taking clients our and that there. And complexity dividend diversified well will more our and stages stream. that And trades and book, so think leads stock final in consistency, this it the of be is we of time we're with the and the into hopefully, although time to on the path legacy

Operator

Instructions]. [Operator

we'll Wells Next, O'Shea Fargo. Finian from to go

Finian O'Shea

on Brothers. question Gordon First

COVID of You part mentioned was the related. that markdown that

the was pretty Any That in to of loss be color usually light give this seems financials, us level valuation at loss $X a Can any on stable vehicle Looking the there million. provision the expanded any was loan stable color risk? provision? based a of you Or reserves. what sort of on there reduction impairment? broad

Jason Mehring

overall, chime that this Fin, Jason. within the saw fit. amount would similar others from company see the amendment credit portfolio Sure, But portfolios. which as pretty of certainly obviously think is they take and period, say requests other to a the can probably I fair that, I is over can I in

of to equity it is relates ultimate the their a there up a think fact and to or valuation meaningfully collectability, the was there reduce the really is I a a underlying for significant in not value provisions it portion long-term impair not say portfolio. because returns has as or why, required that there of us view in again, the more backing, and the some need view has think of management potential systematic the not impact cost of be investment. the underlying in to I really the But capital, the team and that collateral degradation did deleveraging is product change loss quarter, that that of would loan the the longer-term, which ramp on of our the in meaningful was recovery, difference I rather, don't themselves positions

Finian O'Shea

are they maturities, it more modification? did modifications, is deferring interest weigh loan The there. you follow-up material modifications? a extending toward -- just Or And and Okay. covenant

Jason Mehring

basically, more covenants deals probably the deals have and lending GBSC Yes. or your The than structured, nature the triggers their are direct of they transactions. embedded within the way book more garden-variety

of borrowers in reduction company's were back from which the rates advance still gave much scale. smaller the to in So were provider. But some for a rise debt variety the of company situations to those senior for potential reasons, nonetheless,

were certainly say the had that, relief. nature. of had. modifying again, were a the those course schedules handful ahead payment the they of of minority would whom I violations that more of of with a So were they covenants portfolio There about companies in ordinary lot discussions covenant discussions businesses or part activity that amendment But as were

Finian O'Shea

there mixed marked on -- Okay. the movements. SLP, there's That's pretty helpful. looks And

think SLP were is -- of expecting if -- the these are the overall, to is We is these level mostly -- a it I'm But little the wrong. a I safe on think base? performance I SLP drivers of is down marks down bit. correct down kind me read underneath, are along idiosyncratic X say

Nik Singhal

is this Fin, Yes. Nik.

-- ABC which quarter. markdown idiosyncratic $X approximately prominently by the movement That's on the for in in the aftermarket. last one So bankruptcy million was SLP loan a driven company filed

Finian O'Shea

One on liability helpful. That's more Okay. side. the

think credit of those, obviously, very now the -- borrowing amendments, I we've mature facility talked Appreciating BDC, that this about are notes we've eventually base. helpful and unsecured which inside the your this burden talked be a to intra-quarter. your on to will

of you Or So this composition? tight more projects in terms of sitting your is the are one urgent for liability now?

Nik Singhal

Yes.

continued the that looks given will depend the uncertainty I our range think operate in target again, of market well that in we've as on stated is so, steady point state And as at is any market construction X.XX like. Where when condition, past we leverage this time X.XXx. portfolio what to what our in

revolver and up our of we to. under facility We So at quarter. point have amended last wanted ramp leverage in we time, our if plenty extended revolver this to capacity

XXXX, some look flexibility focus like, the And I it's as from under now or will over think pretty our would operating we maybe approximately have start But efforts convertible whether to for get other we the $XXX comfortable sort we say of iteration of early we next sort right the million of our unsecured, What maturities rolling have note. closer, it's liquidity. form. on we the about credit facilities. feel of convertible

Finian O'Shea

of question, to that me this this. do of small Okay. you forgive one And outlined XX% quarterly time? going length if stock, dividend you composition last are is decision? some for just Or The a

Nik Singhal

Yes.

to dividend is a So decision. our it in goal quarterly all-cash transition Again, the to an coming quarters. is

basis. overall will pay is impact portfolio, how would an that it And on to is not of a not add decision the this we the dependent again, asset of really extent, values goal our will obviously just It Some on XX% cash the driven next all few by and large be just liquidity. pandemic stock [indiscernible] quarters. it's to -- to quarter-by-quarter, our to remains over think. linked meant is It's the to I to bolster net a be transition But that. it help aggregate

Operator

turn James remarks. at it time, like for to I'd this Keenan And back to closing

James Keenan

your and all. continued you, Thank support. thank you appreciate I

And realize we time that As and BlackRock to book fully look look everyone's do believe stay and into and continued legacy adviser, as the the are healthy stages portfolio transition this the Please the full recognize, we managed exit, environment. assets in we have final as restructuring we you. until this has appreciate losses we there. of been support. to forward we Thank in deployed to book and the

Operator

that And Thank our you your participation. for conclude today. for call does

now You may disconnect.

BlackRock Capital Investment (BKCC) 30 Jul 202020 Q2 Earnings call transcript