BlackRock TCP Capital Corp.
Q3 2021 Earnings Call Transcript

Published: 3 Nov 2021

[Operator:]

Ladies and gentlemen, good afternoon. Welcome everyone to the BlackRock TCP Capital Corporation's Third Quarter 2021 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. . And now, I would like to turn the call over to Katie McGlynn, Director of the BlackRock TCP Capital Corporation’s Investor Relations team. Katie, please proceed.

[Katie McGlynn:]

Thank you, Jason. Before we begin, I'll note that this conference call may contain forward-looking statements based on the estimates and assumptions of management at the time of such statements and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties and actual results could differ materially from those projected. Any forward-looking statements made on this call are made as of today, and are subject to change without notice. Earlier today, we issued our earnings release for the third quarter ended September 30, 2021. We also posted a supplemental earnings presentation to our website at tcpcapital.com. To view the slide presentation, which we will refer to on today's call, please click on the Investor Relations link and select Events and Presentations. These documents should be reviewed in conjunction with the Company's Form 10-Q which was filed with the SEC earlier today. I will now turn the call over to our Chairman and CEO, Raj Vig.

[Raj Vig:]

Thank you, Katie. And thank you all for joining us today for TCP's third quarter earnings calls. Before we begin, I wanted to take a moment to thank our team for all of their hard work and dedication through this challenging period. As many of you know, I have served as TCPC's President and COO since our IPO almost 10 years ago. And I have been a senior member of the investment team for over 15 years. It has been very rewarding to be a part of a group that has consistently delivered for our investors, and I look forward to serving as TCPC's Chairman and CEO going forward. Also, I'm excited to formally welcome my longtime partner, Phil Tseng as President and COO and reiterate my congratulations to our CFO, Erik Cuellar for his new role. As part of my commentary, I will be continuing our quarterly tradition and begin with a few comments on the market environment, as well as highlights from our third quarter. I will then turn the call over to Phil, who will provide an update on our portfolio and investment activity. Erik will then review our financial results and our capital and liquidity positioning in greater detail. After our prepared remarks, we will all be available to take your questions. Now, turning to the current market environment. Overall activity levels in the middle market remained very robust, direct lending and broader private capital markets have clearly emerged from the global pandemic as a reliable and well-positioned source of financing for a broad spectrum of businesses. As has typically been the case at times, other avenues of financing have been less accessible, but appears now to be an even more systemic shift as a wider array of companies are looking to private credit as a primary source of capital. We continue to work with a broad range of businesses as they seek to finance growth, make acquisitions or simply refinance existing debt. We also believe that our investors benefit from these efforts as our direct lending investments continue to deliver a reliable and resilient source of income. I'd now like to review our third quarter earnings and discuss some highlights from the quarter. In summary, TCPC delivered another solid quarter of results. First, net investment income in the quarter was $18.7 million or $0.32 per share, which again exceeded our dividend of $0.30 per share. Second, portfolio credit quality remained strong, while we added one additional portfolio company to our non-accruals during the quarter, non-accruals remain low at just 1% of the portfolio at fair value. Third, and as Phil will discuss in more detail, investment activity continues to be robust. We deployed more than $150 million in capital during the quarter and continue to identify attractive opportunities across our target sectors. Direct lending remains a relationship business, and we continue to benefit from the more than two decades of developing and cultivating strong relationships. We also continue to benefit from the extensive resources with the broader BlackRock’s platform. In the third quarter, we also experienced an elevated level of refinancing activity with approximately $227 million of repayments, resulting in prepayment and exits that outpaced deployment and slightly reduced our total portfolio size quarter-over-quarter. Fourth, we continue to manage our balance sheet and liability profile. In August we issued $150 million add-on to our existing February 2026 notes at a yield to maturity of 2.475%, bringing the total issuance to $325 million. In conjunction with this financing, we redeemed $175 million of outstanding notes that were due next August which had a much higher coupon of 4.125%. We will continue to seek ways to diversify and enhance our strong balance sheet and liquidity positioning given overall market conditions. And finally, we have maintained NAV stability. Although our NAV declined 80 basis points during the quarter, this is primarily a result of a $6.2 million loss associated with prepayment charges on the early redemption of the August 2022 notes. Excluding the impact of this charge, NAV was essentially flat quarter-over-quarter and year-over-year is i