TCPC - Earnings call transcript Q3 2019 | BlackRock TCP Capital Corp.

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Operator

Ladies and gentlemen, good afternoon. Welcome everyone to BlackRock TCP Capital Corp's Third Quarter 2019 Earnings Conference Call. Today's conference call is being recorded for replay purposes.

During the presentation, all participants will be in a listen-only mode. A question-and-answer session will follow the Company's formal remarks. these we repeat session. the I'll Instructions] instructions begin before Q&A [Operator

Corp, Team. now, turn of McGlynn, Capital to would the Investor call TCP And like Katie the I please Katie, proceed. over to BlackRock Global Relations Director

Kathleen McGlynn

Thank you, Shannon.

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

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

we morning, issued ended quarter release XX, XXXX. This for the third our earnings September

which presentation our Events on supplemental XX-Q, also to be which was tcpcapital.com. on we today's this the a call, We with conjunction please presentation, SEC These Form Investor Presentations. website reviewed select will to morning. and posted in Relations link with the click refer To earnings should at documents the & slide view filed the Company's

turn the Chairman CEO, our and call to over Levkowitz. now Howard will I

Howard Levkowitz

here performance with CFO, Davis, I'm with before call Paul's After will provide closing overview the we our will start some team. questions. third I TCPC participating our remarks on opening Katie. Thanks, our thank everyone to today. our of results. financial an and will And then quarter for our review Paul your comments, I call

quarter our from highlights third investor few that X summarized a with the begin will presentation. on are I Slide of

consecutive payable dividend. of fourth we our investment XX dividend of December record $X.XX our share, a by as shareholders $X.XX of This out December that per of earning quarter XX. per we net XXth dividend First, $X.XX. our declared net share to And investment our was on income covered today, income earned quarter

delivered of million. another strong deployments, we quarter $XXX totaling Second,

longstanding power identify of and attractive borrowers sources, BlackRock relationships opportunities. leverage We and investment unique our with deal to platform continue to both and the

of resulting million, and portfolio $X and in number our dispositions $XXX A large were share. $X.XX resulting these quarter the quarter, quarter of of net million. for prepayment end income in of average net in the Dispositions the dispositions elevating the per income at investment size occurred

diverse, privileged financing, sources flexible to including maturity debt. have notes secured unsecured Third, and we $XXX senior access attractive point To X.X%. in to with we million five-year low unsecured and cost of rate are a of successfully issued at an of August, that

few discuss typically our investment a the to portfolio I in like of some in the movements We increase during third Edmentum. in valuation would of larger of portfolio a quarter. volatility investments million the gains our the our that value in experienced $X.X more was we Leading of experience.

we been see are and As Company ongoing to working to we the improve of efforts. have improvements have previously pleased Edmentum alongside those to as we operations team our in holdings management discussed, result the meaningful a

We $X million payoff prepayment of loan income recognized SnapLogic on also to the and during our third quarter. in gains the

by down million the an our in in ongoing investment The driven down quarter part was mark shortfall in Company. Fidelis, mark large $X largest the liquidity at a of

management drove that and both the past. and actively under-performance with the potential are with to to the proactively We the engaged deal issues address in shortfall co-investors

we balance provide as expect of toward a sheet to to last plan updates and to we volatile, on discussed be the work investment as call, As appropriate. quarter's the solution value we this strengthen

mark each for company-specific took we downs our AGY, on in of million Additionally, and reasons. of Hylan investments both $X

to be construction a customers and international AGY company record engineering series well for to rhodium, trade as particularly some slowdowns a challenges, as wireless external and whose of certain projects. high faced customers delayed prices experiencing including XG has delays telecom leading due project are materials, commodity markets, including a certain in uncertainty. that fundamentally end company is Hylan good from raw continues

important It's portfolio. small our account investments percentage on a very these that a of basis, for combined to note

on record situations, increase and demonstrated with a we our working and of along realized has maximizing in experience through We our track are the their as the the focused value value by in gains on SnapLogic. rest the challenging long-term and of investment strong Edmentum portfolio team

seniority billion, our Turning which to In of a Slide portfolio, as have in market At was our as debt. we presentation. fair X quarter end, value focused diversification. constructing of secured the portfolio consistently had $X.X of senior on well XX%

September a held XX, companies variety in investments record we of across a XXX As industries. wide of

largest the five positions largest together, and represented portfolio of of taken represented Our portfolio. XX.X% only only our the position X.X%

Furthermore, X companies. Slide portfolio diverse on income as a of recurring our distributed of chart the illustrates, set the is left across side

reliant not are company. one any on portfolio income We from

fact, In recurring company of individual basis, an less well our our portfolio half each contribute to than companies on over income. X%

quarter floating portfolio XX% were on X. At rate. Our be continues to floating debt demonstrated end, predominantly Slide of rate as our investments

$XXX which at deployed third of loans we quarter, in secured noted, all substantially was senior notes. and in the I million As

Our resulted relationships direct are from have expanded we leveraging part of as as as decades deal over BlackRock two well additional lending, strong access in platform. we the resources origination we to activity the developed flow and

providing more a is of global range the and across to risk platform. sources credit team Our to our able borrowers full and profiles add value deal strategies by

existing to we are source companies quarter seven the and portfolio perspective, These the understand existing these credits were our relationships which originations, know opportunities. be of well. risk investments management to investment of portfolio reflect of a the with opportunities continue strength deliver them. Follow-on and From in an value included in we borrowers. activity three Deployment important borrower

have nearly our existing borrowers. from investments of new come Year-to-date, half

us on the where co-lead We third deal protections. lead new continue to set solid also with co-lead investments seven we creditor or investments terms negotiations, on in quarter. lead focus of which were or to We allows five

early loan generated million loan. We Juul in we the top in aware the funds. investment a a our through secured Juul, the while to are well-covered capital we quarter diversity and and include Our we is our lending August, headlines on this senior relationship a of believe at well-structured investment the top emphasis demonstrate recent and They about had and made five investments this Labs of private structure. $XX from

million came WHP This Anne the $XX management WHP and to extensive A us footwear relationship brand. of apparel, financing our to in opportunity secured Global licensing. and with acquisition accessories a IP Klein, support the through senior loan to have women's a we longstanding team experience

and loan in was to Our paying company online of monthly $XX its over X million second largest the third quarter largest Spark the Networks America communities. subscribers now support of million Spark the dating secured is to in senior investment globally. revolver portfolio expansion a dating has North

$XX our secured a Sandata, was and management the leader provided data in software. quarter also largest Winshuttle, in $XX the the revolver for senior We market application and payroll verification a which of million homecare million secured to investment fifth information senior a to provides loan electronic other

third Our in investments demonstrate consistently an a underwriting can emphasis on of on companies diverse with throughout to that quarter We industries exposure building remain and our cycles. portfolio disciplined economic with variety our emphasis industries. a the perform

million Ventiv million originally Dispositions of in and we the a in to technology, totaled payoff included underwrote the loan loan our XXXX. $XX quarter $XXX

loan CFG, had relationship to million a a included million years, and a loan to six we've obligation for SnapLogic, lending payoffs $XX a Additional $XX $XX million from Adesto.

a XX.X%. weighted we exited a the effective during average had XX.X%. yield weighted Investments average of had yield investments New effective of quarter

and higher positions exited second $XX lien As several junior we million reduced note a yielding and investment.

decline of yield debt primarily the last of effective as at overall to end result quarter, compared quarter on The at a XX.X% XX% in our portfolio was the end LIBOR.

and As shown and respectively, X returned BDC the since in by Fargo our on dividends IPO. have we per Slides index outperformed share X XX% Wells $XX

Now, results. to who Paul, I discuss will over our call turn financial the Paul? will

Paul Davis

early went Over net income by our $X.XX we Starting per on per based XX%. our of at this in the hello period million we or end. basis, total Slide a quarter exceeding on shares since on dividend $X.XX quarter cumulative have share regular extends and dividends our XXXX. Howard, in share, $XX dividend was aggregate outstanding third out-earned of every investment record This an public covering $X.XX XX, Thanks, everyone. our by quarter

interest and of $X.XX, Investment interest income $X.XX quarter the which substantially amortization per income cash third $X.XX This and $X.XX. PIK discount recurring of all was income. of of for recurring fee was share, includes

prepayment $X.XX from generated income, share also OID. prepayment per unamortized and both fees including We

over Our investment the income recognition life of of all economics investment generally the an time follows of rather than recognizing our upfront amortizing conservative the policy at is it made.

driven share, for during net Operating per quarter $X.XX the and investment Net expenses year. were Incentive of valuation to XX% incentive effect $X.XX expenses well our and earlier. share. were million third per of per fee the the per took as discussed reflected this income $X.XX $X.X unrealized Howard interest X the as from in other included on portfolio of of incentive by losses company share reduction share primarily for $X.XX compensation XX.X% per or February that of $X.XX rate debt compensation quarter changes share third

XX, representing X.X% the quarter Fidelis its and currently As AGY challenged than placed Avanti, X.X% company, market last at a AGY Avanti we at and of portfolio is less been September whose companies some for We has status, valuation had to Fidelity, and time. on loans non-accrual of on debt. good value three portfolio fundamentally cost. is non-accrual

expanded of $XXX of included we by total facility available $XX and our end. total interest both a to points cash by facility XX, had pending our This liquidity we settlements of of million maturity $XXX extended million XXXX. million. $X Year-to-date, Slide to rate $XXX net of Turning reduced XX the at on of basis SVCP quarter May capacity the leverage credit million, and facilities million,

expansion flexibility maturity to of our quarter notes and our able then the capital. commitment facility $XXX August Our convertible we unsecured were debt subsequent unsecured our of notes, with five-year by plan after million $XX secured of credit end million in to reduce gave issuance we facility the credit for our balance X.X% XXXX and as us

further issuance $XXX on issuances, convertible and straight SBA to our program note our now issuances expanded in increase includes capacity XX. two leverage and facilities, credit increased Outstanding facility our unsecured September low-cost which diverse program, unsecured million program. SBA net million note $XXX note two two an at The credit draws

to February. XX and temporarily While our of regulatory common within cash was from X.XXx June leverage, leverage approval of quarter at at decreased is elevated of cash of flexibility the last back debt trades X.XXx well SBIC end shareholder increased day net leverage quarter, in the X:X quarter-over-quarter a number XX, large limitation our September very following by net equity outstanding which repayments in

I'll now turn Howard. the call back over to

Howard Levkowitz

Thanks, Paul.

coverage are quarter. with pleased disciplined activity and income, dividend origination our net We investment during strong the

TCPC. solutions financing from to tailored look is lenders the shareholders Middle team for know market delivering borrowers businesses. expect from come our results who focused Our have continue to their on

continue to we on However, shifts cautious the we and are observe. the idiosyncratic given company environment, industry

in of we disciplined this, only the a opportunities we investment continue review Given small to be number underwriting, our quarter. executing each

in We and comprehensive team pursue decisions company, management strategy based dynamics. attractive of we platform continue this a on to industry relevant analysis leverage to opportunities. With make mind, our investment investment each its and

million, November $XX.X fourth loans. senior quarter these X, the have yield primarily to is In combined approximately in invested effective of five we investments approximately date through The XX.X%. secured

consistent Looking positioned are reasons. well to believe to several performance for we we ahead, and continue generate strong

experience, Our sources of XX-plus as attracting a in cycles, well which spans is managing borrowers as several deal key market years risk. and advantage

opportunities. us flow, ability platform the and robust unique supporting BlackRock scale to attractive our of platform deal approach. investment the gives Our selective our source investment enhances origination The

an most of terms active structuring, on As investments, investments. our co-lead take role in monitoring a deal establishing due we or and diligence, lead

structure relationships so with structured, is protect form of part investments TCPC process that The over deal its monitor an of this to borrowers investment. the source, ensure TCP and BlackRock help team as we interests shareholders. aligned are The members team direct and life

structure TCP downside and are finally, both that distressed may any arise. protected and experience us This challenges deals And manage helps the has through BlackRock in deep team credit. that performing

generating In closing, with our we investors, focused protection. adjusted for remain risk while superior downside on capital returns preserving

the operator, call please questions. open And with for that,

Operator

question Company. from comes with Kotowski Our Instructions] first & Oppenheimer Chris [Operator

Your line is open.

Chris Kotowski

I it wondering, the in balance fairly afternoon, the toward broadening your that the kind side just there case. just was is the a as of new or primarily sheet of was opportunistic the the active morning Good strategy a been And right reduction or it fixed or noticed hand in wondering, I like you've with diversifying there Yes. of notes seems and facility. or is your was more to is always? move of liabilities all rate move just kind is strategy optimistic or programmatic view just on and

Howard Levkowitz

Thanks Chris, it's Howard. the for question.

of management diversify perspective of our management is funding. risk our sources a and Our liability wanting really to function

have our a the we to attractive capacity and earlier two series was of year when so. do in We revolvers SBA revolver facility, expanded and it in note a facilities had convert

able but it the looked at And have we capacity we attractive credit had our we felt became to we the and than notes, X.X% so, when both we summer them. we were just incremental and it then from did of the more facilities good banks, and with to issue from unwind portion so we taken it unwound relationships a needed one on. We had debt of debt taken incremental lenders of on had our that

Chris Kotowski

then, expanding And capacity remind on stand debentures. to you is seem SBA you the running one toward the where Okay. Can area where on us potentially you up be that? of

Howard Levkowitz

expanding that, at but SBIC our so and facility still in [indiscernible] still we as the dropdown, of use capacity well. SBIC process have cash Currently, in looking to are got we available some the

Chris Kotowski

finally of long how – the you cut October. that obviously, kind I guess, of always impact from then, of provide just And your long had, on trying of kind rate I'm Page me, narrow before in rollovers July point next out and feel couple an and quarters, how Okay. one in rate given interest And analyst the X view to that kind who's chart we portfolio? of of model the for we just one sensitivity in curious

Howard Levkowitz

So Chris, again. this is Howard

liabilities. rolling You of on resets. It's floating are all most Most three feeling but our it. as them, assets of are are the Not rate them month through. of

We've time. year-over-year LIBOR combination of compression in you're So points down concurrently, is XX overall they and our but real reason flow through is it the of so about portfolio had may quarter basis yield getting not all this two a things.

down also exited yielding of our have were LIBOR, a where points floors, junior lien rates you're at our discussed, effect of positions LIBOR we flowing which seeing XX.X%, this majority vast higher second on but overall but positions the basis in investments see through. the few XX larger was note, we go. our As do of quarter we'll one We which

Chris Kotowski

it That's me. right. for you. All Okay. Thank

Howard Levkowitz

you. Thank

Operator

Our next with question James. comes Raymond Robert from Dodd

Your open. line is

Robert Dodd

guys. Hi

on give following kind than or bit, really up Just of you're mix evidence little question a than a market effects. the little can mean, yield, kind of bit middle seeing spreads? any on data what some spreads rather us color that on I are you widening indicates now pipeline right for seeing rather because kind spread on of the you – yields? the spreads are in on obviously, like-for-like what's going what some But

Rajneesh Vig

speaking. Raj to try it's Robert, I'll Right. address that.

business reducing. bit seems And look, where provider our been financing for a focused think, our in we're I little think, value-added provider, led even a and spread I historically to stable environment in that's being to it's be episodic to everything more an very a us counterparts. on

a to I it on I a think friendlier episodic side, the pipeline do a the in at as agree certainly environment very wider, basis, sentiment deal-by-deal be that think we're but with the positioned for seems ultimately again, to competitive able opportunities, environment, of even we've other look and on being those opportunities. rates the some to find of those. but continue gone to benefit comes It's win still down side seen the types it, to going I is spread to we look little your there even but still to be take though that stabilization have down, opportunity it's and but a

Robert Dodd

about either any you move indications episodic, with some some in fees. quite is repayments coming second that you've Got lot? repayment right got it. that loans you. high prepayment numbers obviously and And this because now Thank then got large in, a near-term talking the some lien junior, any quarter, around can big Have about very obviously back

Rajneesh Vig

like quarter, think, can quickly, it's but that that some predict it to fair certainly hard it's We be opportunistically, our have on I working eye on predict. every Yes, change things it on wouldn't so we're – to basis. quite really

Robert Dodd

that give the housekeeping, reached the is a lending I is wasn't where Got received huge, but quarter I on $X income with up comes now it what and it. us dividend kind obviously running then that understand? JV, of of mean, you conventional final in the any any highest Can one from associated million. was while. And and almost from color which in

Rajneesh Vig

There payments activity take Street some I been one. nice the Yes. had that for. flowed JV. that good has which XX can some account would on We through,

I think season think is that vehicle, a would I pleased one. but chunk progress, made now, but we've I with – we conventional seasoned more of income. be annualize that the in dividend not the would lending that, not which that are

Robert Dodd

I appreciate Got you. it. it. Thank

Operator

Thank you.

with comes question Lynch Ryan KBW. next Our from

open. is line Your

Ryan Lynch

questions. Hey, guys. for taking my Thanks

to has throughout financial just an largest one services do concentration with, your your standpoint substantially, diversified at from grown is look today, industry That's First I portfolio if today. XXXX.

you there can area significant area that growth So has and why that in been you in? attractive feel why about just maybe guys talk be an to

Paul Davis

Paul. is I'll out this by that. Ryan, there start noting

switched system industry it the categorizations where financial current quarter to that reporting that end industry have a changed closely This but market view exposures classification aligns way view in from based clear investors we an used to the – our we our are. business, we be government with manage the to with system, perspective, more including use. a We U.S. of on used system classification the our switched so that

the is And so, system. currently S&P that system

disclosure this So, changes the oranges, and but forward. gives necessarily better apples aren't we and transparency going feel

Ryan Lynch

more making focused that's a I into classification was it's actually Is fair? of area? versus change efforts So that reporting

Paul Davis

Yes, said. Thank you. Correct. well

Rajneesh Vig

keep Raj. which mind in just that category. JVs, into would as Street XX would add I And well, the to particular, It's Ryan. have in grown that, that That fall

Ryan Lynch

talk just controversy some that a and you obviously then Labs? maybe in deal maybe was bit Juul little Juul, but company has specifically your you to That investment broader, it. to with can also And Okay. how source then about

do return, making So get how guys you investment, risk-adjusted view guys reputation some there? risk an but attractive potentially obviously you would comfortable have could as

Howard Levkowitz

question. for Sure, Thanks Howard. this the is

As we this about had capacity. been our an that It we within is that half investment that wasn't private involved mentioned company was from funds, BDC longer one the in sources, and investments involved existing with our no of one come those. in of a

had we pre-existing relationship. a so, And

to difficult early always But we hypotheticals. it's Juul invested think August. I in a in answer

cigarettes, that premise company to consumption. developed the an alternative combustible dramatically On reduce could the cigarette has that

underwriting, excess which on locations. successful loan-to-value, repayment, and continue well And in very said sound and circumstances surrounding very our debt of to our of monitor. the fundamentally in business of sources operations headlines investment was includes the multiple including cash low we're based that, and Having a we company multiple the conscious

Ryan Lynch

my I time Those all appreciate questions. Okay. are today. the

Howard Levkowitz

you. Thank

Operator

Thank you.

Our with Thalmann. from comes question next Ladenburg Christopher Nolan

Your line is open.

Christopher Nolan

Can you any Fidelis? on update provide guys

Rajneesh Vig

I'll is This take Raj. Yes. that.

dealing I think some very isolated This and that is is the with a we're update quarter. I the to but of would the commentary last similar company. very say obviously here important, position

We back benefit changes. work as the continue both in switching to some over a management for see the going topline business as well making year-ago we've based over and outlook some terms done – and out the of on

his comments, it resolve that the But include there working mentioned or a be as may actively prepared might it is Howard that financing we hopefully in the and over need address an partner business us ongoing alternative. taking with and are to ultimately liquidity and

that last liquidity the the But an to you and outlook the I ongoing the try business continue we to quarter, very looked will again we just where I update Company on. parsed outlook with is at think how activity all update from consistent it's

Christopher Nolan

Robert sort question follow-up from guess, the Dodd. I a And on spread Great. of

adjustable you are subordinated rate at point go incrementally lien structure, first the search for capital lien of start a looking loans most basis? so are and getting your to unattractive, first what and rates Given of down fixed, on lot selective does a loans

Rajneesh Vig

Sure. what is I Again, some clarify. it's our debt Raj do the that I'll don't lien and take in know I guess second all paper I fixed. would or that. first is junior case,

that will floating as be In fact, a well. of lot

look always risk relative So return. both the the at it was reward absolute we and

a comfortable, go specific. which assessment to with in subordination. tends that's placed will real obviously look but that the we at first will lien to structural we're time, very ongoing and it one junior look smaller to where we banks, is episodically, is situation a really and and with situations and position I Occasionally but it's that, Oftentimes that think be is

risk exist as know I portfolio toward The junior. occasionally you opportunities liens, weighted heavily think emerge do first but reward to really, covered is, well the and strong go and

Christopher Nolan

Thanks, Raj. Great.

Operator

Thank [Operator comes Our you. Fargo Instructions] from Fin with O'Shea Wells next question Securities.

Your line is open.

Finian O'Shea

and and follow-on shot morning you understand PIK PIK can PIK, question. anyway. my of expand Hi, the for for a previously you this you that the up cash isn't NIM on putting markdowns touch NIM good us in the Good can AGY looked help go afternoon. pay a profitability PIK? cash quarter, that really to beyond taking dividend to really morning. assuming terms Thanks context to non-accrual, of happens non-accrual the on What Company's from One

Howard Levkowitz

Sure. then on Fin, It's on yours. accounting and add good to morning business on our accounting. Howard. end and Paul the first comment may something afternoon have I'll and the on AGY, on the

fundamentally business. series high-end been end-use products. we've in had strong. these is disappointed. maker into of markdowns resins go a that a of for have been AGY couple most The It's a a We've good markets sophisticated of that, of

particularly to we has the levels. uncertainty and of what weakness as some the soared materials, is is front, price impacted due saw some its international Company trade at we raw think on quarter record and This significantly rhodium was

than As into instrument the collectability of valuation it thought valued to a belonged providers the lower this, we called level question on that result Company PIK the a point where it our and value a the of non-accrual. to was sufficient decreased that the

Finian O'Shea

costs Is sort the the the the So there? can't of basic pass is sustainably? that just backdrop – and follow-up there the is, rhodium Company input on

Howard Levkowitz

the positioning, of terms the fairly its are record what Company increase. But with business think and people based on at unique of a it remains impact with these can in a earnings lower a is that that on We'll in fundamentally and do. time front the can't information that. is the see it We done but good through recent This and of at unique benefit this valuations some was the product it have, point. marked going business down they

Finian O'Shea

Appreciate color much. see the BDC? platform, may, very the and BlackRock that a if them with follow-up update on TCP direct lending you credit the provide, a you or you Thank that assets private co-invest can just credit Okay. I as on private

Howard Levkowitz

Sure.

have, I well think We BDC, BlackRock, manages as people BlackRock are at co-invests. which BKCC, aware other and

to addition approved a that quite of TCP we across In firm. were that, that to our simply with a and under have and way policy – this those we BlackRock, independent series as funds applicable the in manner acquired is private consistent Board handle is allocation handled by them before consistent we policies our which with members

in rata it something If that have grown. It's extent works take they vehicles, that they the simple. multiple to pro

are we that going got we've so and that since that running no in older longer today, in on XXXX we XXXX our way and back capacity we're Act been exemptive And vehicles have off albeit, original some and vehicles. vehicles investing really bringing have order got hasn't so now investment it changed new

Finian O'Shea

the Okay. for and appreciate I taking thanks question. my context

Howard Levkowitz

Fin, thanks your questions. for

Operator

showing Thank closing the this like to at remarks. Howard back I'd I'm time. no questions further you. Levkowitz for currently to call over turn And

Howard Levkowitz

and dedication. Thanks and dialogue and today's call. joining continued your shareholders professionals for questions all thank This would again support our hard for work concludes at team Corp to your continued and experienced our I Capital TCP confidence appreciate us. today. of your BlackRock our We of and like talented for your

Operator

for call. participating. you this today's conference and concludes Ladies Thank gentlemen,

now disconnect. may You

BlackRock TCP Capital (TCPC) 6 Nov 192019 Q3 Earnings call transcript