Q2 2020 BlackRock Capital Investment Corp Earnings Call

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Good day, everyone. My name is Christy I will be your conference facilitator today, because the Blackrock capital Investment Corporation second quarter 2020 earnings call hosting the call really chairman and interim Chief Executive Officer, James Kim Interim Chief Financial Officer, and Treasurer, Michael Condello General Counsel in corporate set.

Maturity of the company Laurence steep greedy partial Merrill Lynch said as portfolio management for Blackrocks U.S. private capital group, Jason married Chairman of the U.S. private capital groups investment Committee and make single held at the Investor Relations and business strategy lines have been play some years. After the speakers complete their updates they will open the line for question answer session.

But in order to ask a question you could press star one on your Touchtone telephone. Thank you what's to greet you may begin the conference calls.

Good morning, and welcome to Blackrock Capital Investment Corporation second quarter 2020 earnings Conference call.

Before we begin our remarks, Mary I would like to point out the <unk> comments made during this conference call in women corresponding documents contain forward looking statement subject to risks and uncertainties.

Many of these forward looking statements can be identified that they use words such as interesting.

Believes expects intends will show may and similar expressions.

We called your attention the fact that Blackrock capital investment Corporation actual results may differ from these statements.

You know Blackrock capital Investment Corporation has filed with the FCC reports, which lists some of the factors, which may cause black rock capital investment Corporation's results could differ materially from these big its Blackrock capital Investment Corporation assumes no duty to and does not undertake to update any forward looking statements.

Additionally, certain information discussed in presented they've been derived from third party sources and has not been independently verified Accordingly, Blackrock capital investment Corporation makes no representation or warranty with respect to such information.

No we've posted to our website, an investor presentation. It complements its call shortly Jim will highlight some of the information contained in the presentation <unk>.

The presentation can be accessed by going through our website at www dot black rock be KCC Dot Com me quickly to July 2020, investor presentation like.

The presentation section of the investors page.

I'd now like to turn the call over to Jim [noise].

Thank you Larry.

Good morning, and thank you for drilling shipping quarter earnings call I will provide an overview of the second quarter updates and the continued progress of our strategy.

Well then tend to go what you might come to all our interim CFO to discuss the financial results in more detail.

I think some closing remarks and open the call to questions.

Oh investment teams remains a company focused on the need that number one football much of our portfolio companies has an impact will depend then it can be to play out.

Our economy.

A majority of the portfolio, especially the new approached me investments demonstrated resiliency in this environment.

However, pandemic driven challenges on genes in the portfolio contributed to be a navy decline this quarter.

Hi, Bob Jones, these being our investment in Gordon Brothers Finance company.

Do you have seen underlying assets, mainly consist of asset backed loans.

During the quarter some of the GBS, whose portfolio pump, there's quite certain over the latest concessions.

This led to a requirement GBS he or she knew that there's two used to leverage how much revolving credit facility.

Yes, he invested $17 million GBS he unsecured notes during the quarter.

She acute gvhd is preferred and common stock in the capital structure.

Last name N G D F C X.

The four market value in a preferred in common stock investments declined by $23 million in the corner.

A G Y which is a non-core investment or the second contributor with a $16 million decline in chair value.

The impact of the pin demick on some of the companies and markets added tuna already existing challenge from the rapid increase in the price of a key input raw material.

Combined basis.

Rest of the slices portfolio had a positive aggregate aggregate contribution took care of value.

Consistent with our focus on reducing non-core and equity positions before we exited solar tabla personally moan and you as well services equity this quarter.

Both of which was legacy non-core assets.

We solve the chili prabowo position in June prior to its bankruptcy filings, which was driven by prolonged nationwide retail store closures due to depend on it.

These two names combined to realize post teams or $12 million a $4 million less.

Prior Clutterbuck.

The non-core portfolio is now reduced to 11% of the total book fair market value compared to 28% a year ago.

I'll, just 11% exposure, 9% is in performing dead and income producing securities with Red Apple stores, MBS first name and T. B H T T.

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[noise], 2% consists of investments nonaccrual in equities, primarily consistent a N D Y first name an advantage insurance preferred stock.

Mhm main focus on reducing risks by creating further exits, we're getting non-core books and other exposures to equity in junior capital in the patrol.

The one the loan placed on nonaccrual during the quarter was also related to our investment in a G y.

In total nonaccrual investments decreased 227%, a total debt and preferred stock out fair value.

Three 2% last quarter, driven by the exit of our investment in Sherwood problem.

All other portfolio companies have paid the interest on time during the second quarter and subsequently as of July 29th.

I was appointment strategy continues to be focus on providing a stable stream of income with limited volatility.

Specifically prefer construction target include at least 50% first name nodes up from 35% traveling.

65, 75 portfolio companies up from 52 currently.

And last name, 5% of unsecured dead or equity positions downtown 40% currently.

We added two new portfolio companies and the second quarter, both of which were first name investments.

Cautious and sizing our new investments given the current leverage ratio and potential additional capital needs for portfolio companies.

Cause we create further address of non-core and junior capital exposure, we expect to increase physician size and new investments.

Despite to reduce the American and economic activity deployment Python remains healthy.

Credit spreads and structural protections have become more attractive for new investments in the current market.

Deep sauce and relationships and industry I confuse embedded in our team of over 50 investment professionals dedicated to you estimate of market direct lending or help enough to take advantage of these conditions.

Net investment income for the quarter was 13th for sure.

Down from 14 cents for the previous quarter to primarily to the N G Y personally nonaccrual.

<unk> $22 million during the quarter, which was offset by $23 million repayments and other regular.

The deployments any payments are detailed in our earnings press release.

Oh wait it out of a G O as in competition Securities a fair market value was nine 9% as of June 30th.

45 basis points since last quarter, primarily driven by a July 1st name calling nonaccrual.

Quarter and leverage was 0.95 times up from eight five times for the prior quarter.

During the second quarter, we amended are revolving credit facility and also extended immaturity by one year.

Credit facility now incorporates the hundred and 50% password coverage ratio framework.

She was approved by our shareholders in there.

Just a moment of attitude additional operating flexibility to the company.

Additionally, the company also started benefiting from your advisers are these based management and incentives to effective as of May 2nd.

As previously disclosed.

Given up continued economic uncertainties, we have elected to pay a portion of a dividend and stop this quarter.

Let's start portion of the dividend will help to bolster niv in the current operating environment.

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

Could it be named strong an unfunded commitments small relative to the available liquidity.

And relevant to your total Coca Cola.

Because it's important the energy.

I as a fully way, it's incentives for the quarter, which totaled one $6 million.

Pieces of this wherever Blackrock, Unfortunately wave $26.9 million of incentive fees on accumulative basis.

Before I tend to call over to my son, Jello I'd like to emphasize that while the impact of the shutdowns on many years businesses continued can play out.

The company continues to execute upon and strategy of Egland non-core assets and redeploying two at the first word portfolio, a senior security income generating investments.

He remain optimistic that our strategy will continue sure results in a foreign corners.

That would be able to accomplish that maintain petroleum controlscan chocolates.

Would you like.

Thank you Jamie I, probably will not take a few minutes to review additional financial and flick slowly. It went information for the second quarter of 2020.

Get that investment into a man I was 848 billion or 13th cents for sure for the three months ended.

30th 2020.

Relative to distributions of 648, or 10 cents per sure alright, and I distribution coverage with 129% for the quarter.

[noise] total invest for my drink decreased 242 million or 11 per cent.

Compared to the second quarter a year ago.

Floating excluding C income another income total investment income decreased by approximately 923 per cent.

Primarily due to a lower wage environment and a decrease in dividend income period over a period.

The impact of which was partially you're upset sorry, 623% increase in the average investment portfolio to advertise cause for the comparative periods.

[noise], increasing portfolio sides of primarily due to acquisitions during the second half of 2019 and the first 420 20.

A quote or anything do with five nonaccrual investments representing 2.7 per cent at 10 47 per cent of total debt preferred stock of investments.

Valuing cost respectively.

Compared to nonaccrual investments of approximately 2.447, 629% of total get.

And preferred soccer investments at fair value in cross respectively December 31st 2019.

Hello average internal investment.

Value of June 30th 2020, with 14893 is compared to 186.

Quarter and.

Total expenses increased point 3 million, 370%. So the three months or did your 33020 from the comparable theory as in 2019.

Merrily due to an increase in interest in credit facility for Ya.

Sure sure where are you upset by a decrease in days manage with cheese.

And the second quarter, we voluntarily waive being set up for you based on it so.

146 million, we're getting a cumulative incentive seagraves March 2017 to 20 649 those.

During the quarter, if they would know accruals.

Oh for incentives C management right spelling games.

During the second quarter net realize it unrealized losses with 36 42 million, primarily due to depreciate sugar no investments in a G Y clothing, and Gordon brothers Finance countries.

As of June 30th 2020.

We had approximately 124 million of availability of zero credit facility as well as in cash in cash equivalents.

On July 7th.

I'm 20 <unk>.

We pay the dividend 10 cents for sure or $681 million, which consisted of approximately $136 million in cash and 544 $5 million of chairs of the company's calm and stuff.

As a result.

Kris Boyd approximately 524 5 million on July 7th 2020 attributable to the portion of the dividend paid and chairs.

During the second quarter, 20th 20th no sure we'll refer chips.

4 million 13446 years remained available for research it sounds like a parent programs.

As of June 30th 2020.

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

Thank you Mike in closing I'd like to take a moment you think I understand <unk>, yeah continued to pull up and recognize on team cause he continued hard work and strung engagements.

Even though I was hoping remotely during the most of the second corner.

Most of all I hope everyone remains need some help he can be challenging and uncertain towns.

Oh don't prepared remarks populated we're going to open the coffee <unk>.

Oh clear if you'd like to ask a question. Please crestar followed by the number one on your telephone keypad, if you're calling from our speaker phone cause I'm not sure anything like functional as often figure something out for my chocolate milk.

Okay. So I wanted to ask a question will go first to <unk> from J P. Morgan.

Hey, guys. Thanks for taking my questions. This morning and look.

$8 has been a very challenging environment this year, but.

I am curious strategically.

How do you guys.

Oh down.

Improve in this situation out there.

Stock trading in the future Sir.

Energy has gone down.

System can go over the last three years cloth.

The Tuesday, a situation where.

Rotate the portfolio access to match your way in a highly competitive market.

Her out of out of the situation and we do infraction in terms of shareholder interesting and being able to reinvigorate this franchise, what's what's the plan.

Thank you thank trip to answer the question no kidding, two called with you guys obviously.

Well, we can continue to work with a bowling to try to optimize the shareholder.

Value the first one as long as soon as you can always provide you some for two bucks.

To talk about.

I think over the a is an advisor there's the one week because legacy non-core after torches, we're almost all of them <unk> <unk>.

Declined.

Lots of associated to that I'll have that has hunting accounted for and we've continued to focus on trying to do so many of which are have been small minority distress kind of private equity what we want a equity.

Positions, so that has been taken.

A good period of time, if it goes to the controller and obviously some experiences familiar he's also subdued throughout the last several years continuing to rotate that called them all bound poor bad book of assets.

I mean, two more the personally the oriented the income Bang after two to fall off of stability I would say.

Second Blockquote, we have deployed rebalancing portfolio has contributed to hold up.

Wow.

I can go onto the portfolio separately. This was taken time, what kind of just mentioned with the girls because the legacy doctors completely wiped off associated to that.

I think the first strategy that we have is ultimately to continue choice I did and reduce all of our for Daddy downpour as I put the equity.

And she's a cat for what we do that volatility in that loss essential.

And continue to move that in for that person that I would say.

Oh, that'd be cool to funnel spaces with 11% of the book, but the remaining and the new broke is really holds in a row and it's.

A stable income stream.

And what not really screen losses.

That extent off on my part of the control.

That will that Brooklyn, I think I'll continue to play out with that as we continue to.

Z position and restructure the ultra follow them cause I mean strategy.

We continue to work with a board.

Central options and alternatives to continue forgot.

Shareholder value, but I think strategically that for the first part is just making sure that we get to a clean book personally and ask.

Great. Thank you and and look I I appreciate everybody's continuing to work hard.

And part of the results and obviously the headwinds.

<unk>.

This year make that a lot harder but.

You know when when you look at this as a permanent capital vehicle when you compare the.

Perfect permanent capital vehicle versus how it fits for.

Farmed where investors could withdraw money you know take that money.

I think you reach different outcomes.

Hi, assume alright, occasionally important to you guys.

To get this going but I think that from a financial perspective as the portfolio shrink the economic incentive submit issue and that's I think that's the challenge.

Sounds like I, I would say I'm citizens.

Credit report it stolen.

Black coffee.

That'd be advisor or.

Seven years ago.

Significant okay. So I'm, assuming the legacy duck and those minority distress position that then.

He didn't really difficult to to exit in many cases.

Control of those conditions are accurate. So that's been complex forgot inside for my portfolio standpoint.

An order a D.

BDC. It is one part of our overall, probably credit until like learning strategies sort of BBC opposite isn't it before part of that and.

Continue to very much focus on delivering N as in repositioning in a good outcome for shareholders here.

But that is spelled taking time, probably obviously took over a distressed book and what kind of figure skate with that's the name of 11%.

Do either of the.

Advisor continues to have you know more scale and.

[noise] continued to see the benefits with increased sourcing origination and now that we've been able to now.

<unk> some of this foreclosure, there's another legacy Barkau Bam cause more concentrated more exposed to potential worse video some protocols for any one thing.

N as we can continue to grow.

Turns out so there's a lot of obstacles to reduce the size of anyone physician have them with the first of all portfolio.

You need to expand and got a first thing in Boston.

Until although this is certainly taking time in the complexity up to like pick up we think or well on a path Mcdonald's pages are converting it into more stable cause I spelled screaming, so hopefully that leads to it more consistency.

Come in dividend for our clients and all that.

[noise] palace over time put the dog to harvest pop trades relative.

To work I I appreciate you taking out a fraction. Thank you guys. So much.

Thank you.

Oh, Okay, I'm actually everquest, Jonathan Crestar, followed by the number one on your telephone keypad and extra ketchup.

Hey from last part of your line with <unk>.

I heard you morning, that's where I only on.

First person on Gordon brothers.

You mentioned that part of the Mark down there was supposedly really dead.

I'm looking at for a financial if there was a pretty stable.

Lost provision a screen William that seems to be usually what vehicle reserves can you give us any expanded color.

And you know any loan double an experiment or was this sort of a abroad.

You know valuation reduction based on risk.

Any color there in light of the stable Los provision.

Sure trim. This is Jason I can take that and others can never C. Chairman as a secret, but I would say that overall you know the company's certainly soccer amount of amendment request Sturm within your portfolio over the period, which are things probably pretty similar to other credit portfolios I think as it relates to the underlying management team.

And their longterm view.

Collateral backing the physicians and ultimate Collectability I don't think that there was there was not meaningful or systematic change you do recovery.

Which is why again I'm in Los provisions themselves.

Not really ramp up meaningfully in the quarter, rather you know the difference in valuation crosses really a prior to the fact that because there was some to leveraging required and the impact that has cost a capital.

It has really potential to impair or reduce the returns on equity portion of our investment, but there I would not say that there is needed to be a longer term more significance degradation invalid it'd be undermined portfolio.

Okay.

Follow there was the <unk>.

Modifications today.

[noise] toward.

Covenants modifications or are you.

Is it you know differ I'm interested in extending the true no more material one modification.

And the nature of the G. P. S. C broke in the way there deals are structured basically they have probably more triggers or more covenants embedded within their deals there in your garden variety direct lending transaction, so borrowers Rebecca to the company for a variety of reasons, some of which were much smaller and scale, but nonetheless.

Those situations still gave rise to the potential for production in advance rates from the company's senior dot provider. So I would say that again a lot of the a lot of the covenants violations or discussions ever had a portfolio companies were more ordinary course in nature, certainly where a handful of businesses with cream they had.

Discussions about modifying payment schedules as part of the Covenant relief, but those were the minority of the amendment activity that bad.

Mhm.

Okay, that's helpful and on the.

S O P.

They're looks.

There is pretty mix.

Mark movement, So I think overall their soapies down a little bits.

We were kind of expecting a read down the wrong I think I think these are mostly level two marks underneath correct me if I'm wrong.

What is our argues sofa say is D. S. L. P down on an idiosyncratic drivers performance. Please.

Yeah, a hyphen because neck so they they.

The approximate any cream or and all of them all down on the.

Parents name driven by.

Panic movement, and one loan and if they see off the market.

What's the company, which fired for for bankruptcy mask water.

Okay. Thank you that's helpful.

One more on the liability Friday, I think we talking to talk about this into a quarter.

You know appreciated the credit facility amendments, which are very helpful.

The BBC.

Obviously your own secure notes down the shore inside of those and that will eventually be a burden on your borrowing.

So are you.

Are you sitting tight for now or is this one of your.

No more urgent projects.

In terms of the liability competition.

Yeah, and so then and I think we're headed in the past that our never target.

He theater upon 95 to 1.25 times.

Where we operate in that range at any given kind of time when would depend on one just market conditions can can you you know uncertainty in the market as well as our portfolio.

[noise], Oh Tonight or an eye at this point in time, we have you know plenty of capacity under Oliver lower to ramp up whatever.

If we wanted to you know, we we amended an extended hours or longer facility last order, we have a documentary $124 million of equality and.

And let me get clothes or you know maybe a side of 2021.

You know, we will focus our efforts on rolling over the maturity or the convertible now you know what the next iteration looked like me to say.

Unsecured convertible or some other form but you know we feel pretty comfortable that'd be operating flexibility, we have right now I'm gonna I'm gonna credit facilities.

Okay and just.

One last small question forgive me if you got one this.

The dividend composition of 80 per cent stock R U.

Going to do that for someone with time or.

Quarterly decision.

Yeah. So it is it is eight quarterly decision again, our goal is to transition to an olive cash they were in the coming quarters, you know I'm off a little I'll just need the dependent on the overall.

Alright, and pack of a pandemic on the portfolio you know, how our mark blue aggregate data.

Again, we were just add this is not a decision to pay 80% dog is not driven by liquidity, it's really mental health, most or and then after values or prolonged extended listening to that but I will go remains.

Listen to all cash.

Over the next few callers.

It is it will it be a quarterback ordered.

Okay. That's that's all for me thanks, so much.

Thank you for them.

Oh, not a problem I'd like to turn it back to talk to them for clothing I like.

Thank you and thank you I'll. Appreciate you continued support as we recognize the maybe people can continue to.

Realized Lawson as long as we looked and yet cause you believe you on the phone those pages, there and until we can pull it totally transition the portfolio to attach it that has been deployed and managed on the phone call I'll be adviser, we look forward to move instructor has a smoking appreciate everyone's my appointment.

It.

[noise] keeps me healthy and that's a diamond thank you.

Okay, a coffee. Thank you for your particular person anymore.

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