• Adjusted Net Income: $0.36 per share.
• Annualized Net Investment Income Return on Average Equity: Approximately 14%.
• Fourth Quarter Dividend: $0.34 per share, with a special dividend of $0.10 per share.
• Non-Accrual Loans: Decreased from 4.9% to 3.8% of portfolio fair value.
• Net Realized Losses: $31.4 million.
• Net Unrealized Gains: $19.2 million.
• Weighted Average Annual Effective Yield of Performing Debt Portfolio: 13.4%.
• Gross Investment Income: $0.83 per share.
• Operating Expenses: $0.43 per share.
• Incentive Fees: $6.5 million or $0.08 per share.
• Available Liquidity: $582 million.
• Net Leverage: 1.08 times.
• Weighted Average Interest Rate on Debt: 5.4%.

• Warning! GuruFocus has detected 3 Warning Signs with TCPC.
• High Yield Dividend Stocks in Gurus' Portfolio
• This Powerful Chart Made Peter Lynch 29% A Year For 13 Years
• How to calculate the intrinsic value of a stock?

Release Date: November 06, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• BlackRock TCP Capital Corp (NASDAQ:TCPC) reported an adjusted net income of $0.36 per share, with an annualized net investment income return on average equity of approximately 14%, which is at the high end of historical levels.
• The Board of Directors declared a fourth quarter dividend of $0.34 per share, with a special dividend of $0.10 per share, indicating strong dividend coverage and commitment to shareholder returns.
• Non-accrual loans decreased from 4.9% to 3.8% of portfolio fair value, showing improvement in portfolio quality.
• The company has a robust pipeline of investment opportunities and continues to focus on the core middle market, which offers less competition and attractive pricing.
• BlackRock TCP Capital Corp (NASDAQ:TCPC) maintains a strong capital position with $582 million in available liquidity, providing flexibility for future investments and operations.

Negative Points

• Leadership changes were announced, with Rajneesh Vig stepping down as CEO and Chairman, which may cause uncertainty regarding future strategic direction.
• The company experienced a net realized loss of $31.4 million due to the restructuring of investments in Pluralsight and McAfee.
• Certain portfolio companies, such as Razor Group and SellerX, were placed on non-accrual status due to underperformance, impacting overall portfolio health.
• The weighted average annual effective yield of the performing debt portfolio decreased slightly from 13.7% to 13.4%, indicating some yield compression.
• The cost of debt increased due to refinancing activities, which may impact future net investment income if not managed effectively.

Q & A Highlights

Q: Can you elaborate on the factors contributing to the high net investment income (NII) return and any expectations for changes? A: Erik Cuellar, CFO, explained that the high NII return is partly due to higher base rates over the past year and a half. Although non-accruals have increased, the company has maintained its dividend level. However, they anticipate a slight reversal in NII return as base rates decrease, which is why the dividend level remains unchanged.

Q: With the management changes at BlackRock, is there a shift in strategy or focus towards the upper middle market? A: Philip Tseng, President, clarified that the consolidation of the direct lending group into a global unit is not a strategy shift towards the upper middle market. The focus remains on the core middle market, which offers differentiated origination, structures, and premium yields.

Q: Will the global direct lending program lead to more international deals in TCPC's portfolio? A: Philip Tseng stated that while the mix of the portfolio is not expected to change significantly, the global platform allows for sourcing deals internationally. The benefits include improved investment processes and synergies across origination and platform resources.

Q: What is the rationale behind the special dividend, and how does it relate to the company's spillover position? A: Rajneesh Vig, CEO, explained that the special dividend is part of a capital allocation decision to mitigate excise tax and manage spillover, which results from out-earning returns. Erik Cuellar added that it's a balance between required distributions and avoiding excise taxes.

Q: What are the expectations for prepayment activity and its impact on earnings? A: Erik Cuellar noted that while prepayment activity is episodic and hard to predict, conditions such as declining rates and increased M&A activity could lead to higher prepayments. Historically, prepayment levels have varied, but the company focuses on maintaining prepayment rights in its structures.

Q: How is TCPC managing the challenges in the Amazon aggregator space, and what is the outlook for these investments? A: Philip Tseng mentioned that loans to Amazon aggregators make up 5.9% of the portfolio. The company believes in the potential of these aggregators, focusing on capital structure improvements, liquidity, and strategic consolidation to drive value over the medium to long term.

Q: What are the current challenges facing TCPC, and what changes might be implemented under the new leadership? A: Philip Tseng emphasized the focus on managing non-accruals and restructurings to optimize outcomes. The team is deploying significant resources to address these issues, leveraging their long track record of successful portfolio management.

Q: How does TCPC plan to support its dividend given the lower yields on new investments compared to the existing portfolio? A: Philip Tseng stated that the board evaluates the dividend each quarter, and the company has a history of out-earning its dividend. Erik Cuellar added that while new investments have lower yields due to the declining rate environment, the overall portfolio yield remains high.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.