Q4 2020 BlackRock TCP Capital Corp Earnings Call
Yeah.
Ladies and gentlemen, good afternoon welcome.
And welcome everyone to Blackrock TCP Capital Corp, fourth quarter 2020 earnings Conference call.
Today's conference call and 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 flow.
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And I ask a question. Please press Star then one on your Touchtone telephone.
I will repeat these instructions people we begin the Q&A session.
And now and we'd like to turn the call over to Katie Mcglynn director of Blackrock TCP Capital Corp, Global Investor Relations team.
Yeah.
Thank you to Honda.
Before we begin I'll note that this conference call may contain forward looking statements based on the estimates and assumptions advantage and 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.
This call are made as of today and are subject to change without notice.
Earlier today, we issued our earnings release for the fourth quarter and fiscal year ended December 31st 2020, We also posted a supplemental earnings presentation to our website at TCP capital Dot 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 presentation.
Asian and documents should be reviewed in conjunction with the company's form 10-K, which was filed with the SEC earlier today and.
I'll now turn the call over to our chairman and CEO Howard Lefkowitz, Thanks, Katie and thank you for joining US today first and foremost we hope everyone is staying healthy and safe.
There are several members of the TCP team on the call with me, including our President and Chief Operating Officer, Raj Vig, and our Chief Financial Officer, Paul Davis, I will start with a few comments on our port.
Performance in 2020, and then I'll provide an update on our portfolio and key highlights from the fourth quarter next Paul will review, our financial results as well as a robust liquidity position and.
After that I'll provide some closing comments before opening the call to your questions.
And last year's fourth quarter earnings call. We noted several risks to the economic environment, including the Corona virus.
The magnitude of the impact that the pandemic has had on our day to day lives and across the world exceeded almost everyone's expectations, we would like to thank our entire team for their flexibility and hard work together with the management teams and employees at our portfolio companies, which enabled us to deliver strong results for the year.
Our ability to navigate the unique and evolving conditions and 2020 and deliver for our shareholders is a testament to our dedicated and skilled team and the strength of our carefully constructed highly diversified portfolio.
Despite the significant disruption in Q1, our net asset value increased year over year and the credit quality of our portfolio remained strong throughout what proved to be a challenging year.
This strong performance was due in part to our focus on less cyclical industries and middle market businesses that are more likely to withstand the downturn.
In 2020, we meaningfully enhanced our strong capital and liquidity position, we extended our S. V. C. P facility replaced our TCP see funding facility on better terms and we opportunistically added to our existing 2024 notes earlier. This month. We also took advantage of the favorable.
And market environment and issued an additional $175 million of unsecured notes and an attractive rate of 285%.
Record pricing for a sub index eligible BDC bond issuance. Additionally.
Additionally, we opportunistically repurchased 1 million shares of our stock during the first quarter of 2020.
This contributed <unk> <unk> per share of accretion to our NAV.
Finally in August we welcomed andreozzi drove two our board of directors Andrea has nearly 30 years of experience and credit and specialty finance and her addition to the board continues our long term commitment to diversity following andrea's appointment half of our independent directors are women.
Turning to our fourth quarter results, our NAV increased four 2% from the prior quarter, reflecting a one 7% net mark mark and value gain on our investments.
And this was driven by further spread narrowing on middle market private credit transactions as well as significant gains, resulting from improved financial performance at many of our portfolio companies.
Our significant investment gains and the fourth quarter was our investment and Ed Mentum, a leading provider of online educational programs and Mentum received and equity investment from a new majority investor in the quarter and we were able to realize a gain on our position, while retaining and minority owner and ship interest and the company.
This outcome demonstrates our team's ability to leverage its deep special situations expertise to work with the company through a challenging situation and deliver strongly improved financial performance and.
And Mentum is also currently benefiting from the accelerated demand for online learning solutions amid the pandemic given our retained ownership of the company. We believe we will continue to participate in Edmonton and ongoing success.
Turning to our portfolio positioning at year, and our portfolio had a fair market value of approximately $1 6 billion essentially unchanged from the prior quarter.
89% of our investments are and senior secured debt and represent a wide range of industries.
Our diverse portfolio is weighted towards businesses with limited direct exposure to sectors that have been more severely affected by the pandemic.
Further more.
Our loans to companies and more impacted industries, including retail and airlines are generally supported by strong collateral protections and most of our investments in these industries continue to perform well.
As an example, the value of our investment and one sky and the second largest provider of private jet aviation services and the country again appreciated during the quarter. The company is performing well given strong demand for charter flights despite challenges facing most businesses and the travel sector.
And our diverse portfolio included 96 companies at year, and our largest position 36th Street represents four 5% of the total portfolio and provides further diversification given its highly diversified underlying portfolio of lease assets.
As the chart on the left side of slide seven of the presentation illustrates our recurring income is not reliant on income from any one portfolio company and in fact over half of our individual portfolio companies contribute less than 1% to our recurring income.
95 per cent of our debt investments are floating rate, 80% of these are subject to interest rate floors, and all of which are now in effect. Additionally, 88% of our debt investments are first lien.
Moving onto our investment activity market origination volumes were robust in the fourth quarter.
We have been active deploying capital we are maintaining our disciplined approach to investing executing only a small percentage of the opportunities we review.
As a result, we invested $183 million during the fourth quarter, including investments in 15, new loans, nearly two thirds of which were with existing borrowers.
Follow on investments and existing portfolio companies continue to be an important source of opportunities from a risk management perspective. These are companies, we know and understand well.
As we analyze new investment opportunities, we continue to emphasize seniority and the capital structure industry diversity and transactions, where we act as a lead or co lead.
Our largest new investment during the fourth quarter was alone to team services.
Leading provider of home care assistance for the elderly and people with disabilities.
Team is benefiting from an acceleration and the shift toward homecare and away from institutional settings as a result of COVID-19.
Given our extensive experience and deep relationships and health care, we were chosen to lead the second lien financing.
The company's niche focus within the health care sector, and our industry expertise provided us the opportunity to invest and a successful but overlook business.
And with a quality management team and strong support from their equity owned <unk>.
Dispositions and the fourth quarter were $213 million and included payoffs of our $28 million loan to Higginbotham and our $25 million loan Dci as well as the payoff of our loans to Edmonton, resulting from the company's acquisition, which I referred to earlier.
Investments in new portfolio companies during the quarter had a weighted average effective yield of nine 6%.
Investments, we exited had a weighted average effective yield of nine 9%.
The overall effective yield on our debt portfolio was nine 6%.
Over the last two years LIBOR has declined 256 basis points or by 91%.
And just put pressure on our portfolio yield over this period. However, our portfolio is largely protected from any further declines in interest rates is nearly 80% of our floating rate loans are currently operating with LIBOR floors.
Our investment activity and the first quarter.
To date continues to be selective and focused on companies that are minimally impacted by the pandemic or are beneficiaries of the COVID-19 impacted operating environment.
Our investment activity to date.
<unk> approximately $107 million, primarily and five senior secured loans with a combined effective yield of approximately 10, 2% the yields on investments and our pipeline are generally in line with our current portfolio yield now I will turn the call over to Paul who will discuss our financial results in more detail Paul.
Thanks, Howard and Hello, everyone.
Net investment income for the fourth quarter of 35 per share again exceeded our dividend of <unk> 30 per share and.
And today, we declared a first quarter dividend of <unk> 30 per share.
We remain committed to paying a sustainable dividend that is fully covered by net investment income as we have done every quarter since our IPO in 2012.
Net investment income for the full year was $1 44 per share.
Investment income from the fourth quarter was <unk> 74 per share. This included recurring cash interest of 60.
Recurring discount and fee amortization of <unk> <unk> and Pik income of <unk>. This was our lowest level of Pik income and three years.
As a reminder, our income recognition follows our conservative policy of generally amortizing upfront economics over the life of an investment rather than recognizing all of it at the time and investment is made.
Investment income also included <unk> <unk> of other income a penny from dividend income and <unk> from prepayment income.
While prepayment income is always lumpy.
It has been historically lower and the first quarter of each year.
And it has been particularly minimal so far in 2021.
Operating expenses for the fourth quarter were <unk> 31 per share and included interest and other net expenses of <unk> 17 per share.
Incentive fees and the fourth quarter, including 0.6 million of previously deferred fees totaled 5.0 million or.
Or <unk> <unk> per share for total net investment income of <unk> 35 per share.
As noted in our second quarter earnings call incentive fees related to our income for the first quarter of 2020 were deferred.
While the full amount was earned in the second quarter when our performance again surpassed our total return hurdle.
We voluntarily further deferred free amount over six quarters subject to our cumulative performance remaining above the hurdle.
We believe this further aligns our interest with those of our shareholders and demonstrates our confidence and the strength of our portfolio and its earnings capacity over time.
Our net increase and net assets for the quarter was $48 million or <unk> 83 per share.
And which included net unrealized gains of $20 million and net realized gains of $7 $9 million.
Unrealized gains reflected both continued spread tightening and credit specific gains at a number of portfolio companies.
The largest gains included $5.0 million are on our investment and securities three.
And $3 9 million from one sky.
$3 $8 million from Amtech.
And each company saw continued improvements and their financial performance. We also realized gains of $9 $3 million on our investment and advent them for an overall net gain this quarter, a $2 $9 million and this investment.
Substantially all of our investments are valued every quarter using price as provided by independent third party sources.
These include quotation services and independent valuation services.
And our process is also subject to rigorous oversight, including back testing of every disposition against our evaluations.
Our overall credit quality remains sound with no new non accruals and the fourth quarter.
Our loans to the three portfolio companies on non accrual last point CIBC and Avanti together represented only 0.5% of the portfolio at fair value and one 2% at cost.
We ended the year with total liquidity of $342 million.
This included available leverage of $355 million and cash of 20 million less net pending settlements of $33 million.
Unfunded loan commitments to portfolio companies at quarter end equaled, 4% of total investments or $69 million of which $23 million or revolver commitments.
During 2020, we further strengthened our diverse and flexible leverage program, which included two low cost credit facilities. Our convertible note issuance two straight unsecured note issuances and an SBA program.
Enhancements included replacing our TCP see funding facility with a new one on improved terms, including a two year maturity extension.
Extending the maturity of our operating facility and adding a $100 million accordion.
And issuing an additional $50 million of our 2020 for unsecured notes. Furthermore earlier. This month, we opportunistically issued an additional $175 million of unsecured notes at a record low coupon of 225%.
Our unsecured debt continues to be investment grade rated by both Moody's and Fitch.
Earlier this month Fitch reaffirmed our investment grade rating with stable outlook, noting among other items, our solid track record and credit and experienced management team and strong funding flexibility and today.
Moody's also reaffirmed their investment grade rating for TCP C with stable outlook.
Given the modest size of each of our debt issuances, we are not overly reliant on any single source of financing and.
And our leveraged programs will ladder. Our nearest maturity is March of 2022 and given the success of our recent bond issuance, we are very well positioned to redeem those notes when due.
Combined the weighted average interest rate on our outstanding liabilities decreased 30 basis points to 354%.
Down from 384% at the end of 2019.
I'll now turn the call back over to Howard Thanks, Paul the past year emphasized the key role of the Bdc's play and providing capital and the middle market businesses that accounts for roughly a third of private sector GDP.
These businesses have again proved to be resilient demonstrating their collective appeal for investment.
Middle market companies for example reported significantly fewer job declines last year, and both larger companies and smaller businesses.
Bdcs like TCP C <unk>.
Help to ensure that these companies have consistent access to financing solutions.
Our team has been lending to middle market companies for more than two decades through multiple cycles, including the dot com bubble global financial crisis. The energy bust of 2015, 16, and now the COVID-19 pandemic, we have drawn upon this experience to inform our investment decisions and performed throughout this most recent market.
Patient.
Since our IPO in 2012, TCP C has returned more than $12 per share and dividends, which translates to an annualized cash return to investors of nine 8% and is reflective of our return on invested assets of 10, 5%.
<unk> has also consistently outperformed the wells Fargo BDC index.
And the overall market environment continues to improve and we're seeing a pickup and activity that said, we remain extremely selective executing on only a small number of opportunities we review and focusing on companies that we believe have minimal COVID-19 exposure or those that are positioned to outperform in this environment.
Overall, as we navigate the persistent uncertainty and the market we are guided by our experience managing through prior downturns and periods of market volatility and we will continue to seek to one maintain a diversified portfolio that underweight and highly cyclical industries too.
<unk> advantage of unique and not widely understood industry dynamics three.
Structurally senior secured positions and the capital stack and four structure transactions to include specific collateral and assets for downside risk mitigation.
Performance to date, and our confidence and our ability to succeed in this environment are driven by our team's two decades of experience and both performing and distressed credit the strength of our underwriting platform as well as the depth and breadth of firm wide resources of Blackrock and closing we would like to thank our entire team for their dedication and focus.
<unk> and generating strong risk adjusted returns for our shareholders. Even in these challenging times and with that operator. Please open the call for questions.
Yes.
Thank you ladies and gentlemen, if you have a question and at this time. Please press the star followed by the number one key on your Touchtone telephone.
If your question has been answered or you wish to remove yourself from the queue. Please press the pound keen and once again to ask a question. Please press star and then one now.
Okay.
Yes.
And our first question will come from Devin Ryan from JMP Securities. Your line is open.
Great Good afternoon, everyone.
Yeah.
Other so high.
Alright.
First question I appreciate all the detail that you guys provided but maybe.
And maybe think about it.
And the potential to expand or grow the portfolio and <unk>.
And in 'twenty, one obviously the portfolio size, it's been fairly steady for the past couple of years and just given the strong capital markets backdrop, and kind of what youre seeing more broadly just expectations of that.
And kind of opportunity to expand the absolute size here.
Sure.
<unk> for the question our primary focus is on generating long term consistent returns for our shareholders. We're very proud of the fact that we have covered the dividend for 35 consecutive quarters.
And we've been able to generate and yes. We noted before 10, 5% gross returns on assets and as we think about that.
<unk> that is our primary focus.
We have grown over time.
Like any business, we like to grow and if we see opportunities that are appropriate that would enable us to do the right thing for shareholders over the long term, we would certainly look at doing that.
But we are not focused on growth for the sake of growth and we're happy to have the portfolio maintain a consistent size or to the extent appropriate share.
<unk>, a little bit if we're not seeing appropriate deal flow.
I appreciate that so I guess the follow up here just in terms of the backdrop, obviously, we've been hearing about.
<unk>.
Strong conditions for borrowers which is.
Great, but obviously.
You can create even more challenges deploying capital. So just love to get some thoughts around kind of where you guys are seeing the most attractive risk rewards and the market and just just.
More broadly how you feel like risk is being <unk>.
And now you'd right now just given that I think we're oriented kind of a what's been a very positive or even some people say frothy market. So just love to kind of get a little bit more granularity on what you guys are seeing there.
Yeah, maybe I'll add on to that and just I think just to highlight.
In addition to Howard's comments, our challenge has not been deployment if you will.
Look at even this last quarter.
Number we deployed is pretty healthy number not a record setting but a good number we just had a lot of repayments and I think there.
And there's a lot of unusual activity in 2020, culminating in a.
And incredibly active fourth quarter to be honest the team was full out we.
And we just had also a lot of opportunistic refinancings, which in some sense a segue to your second question around risk and opportunity.
I think we are really finding opportunity and many of the same area as we have.
And these looked even pre COVID-19 defensive industries well positioned businesses.
Industries that we find a cyclical.
Very predictable top line.
Revenues and earnings and in fact, I think of 2020 is in many ways the validation and given the performance.
Both through the toughest time and also into the early stages of recovery of the business model of finding.
Proprietary and.
Consistent really repeatable sources and the industry and industry approach that lets us diligence with a very very active you have downside protection.
Some of those industries, you are seeing quite a bit of activity and such as healthcare ongoing activity and software and services.
We have seen a pickup and I would say financial services.
Across the portfolio and not financial risk assets, but financial services.
And so those I would say are some of the areas that we.
We've been focusing on the pipeline is strong and you've seen the deployment and Q4 reflect that.
There clearly has been a tightening up since the Covid spike in March on on rates and on pricing.
The.
Approach, we've always taken has been to be very selective to source a lot of opportunities from a lot of different areas.
And to try to pick the best from those and that doesn't change I think we remain defensive in terms of our structure is predominantly secured first lien.
We are very thankful, we have real covenants and the portfolio that has been helpful through the tough sort of some of the more defensive efforts we've had in 2020.
So it's a long winded way of saying, we're going to just keep focusing on the areas. We focused on its worked for us.
The performance I think has been strong and and.
It feels like the pipeline is good but there are a lot of thought of areas where people are asking for things that.
Maybe a bridge too far and that we will we will pass on and Thats. Okay.
Yes, no I really appreciate the color I'll leave it there but.
And congrats on a really nice and of the year and all the progress you guys have made on the liability side as well.
Thank you and thanks for joining us today.
Thank you. Our next question comes from Robert Dodd from Raymond James Your line is open.
Hi, guys congratulations on the performance and.
Catherine.
Very tough yet.
So if I can kind of kind of ties into <unk> question on prepaid more than anything else, obviously, Q4, <unk> and payments prepayment piece, that's pretty normal.
2020, obviously.
Given the environment.
Paul I think said that it's been quite muted.
So far I mean granted it's February this year.
And I realize it's very hard to predict on a I'm not asking about quarter to quarter, but over the course of the year do you expect this to be kind of a normal kind of pre payment activity. Yeah. Obviously in terms of fee income and portfolio rotation or do you think it's going to be and.
Elevated given how.
Appealing to the market as to borrowers right now or muted this year, you've been sending any feel net.
Yes.
Yes, Robert Thanks for the question and good to hear from you.
I think the first word I would you know.
And I don't know how to define what normal is anymore.
We've seen a lot.
So I guess I don't know if that is.
We can define.
In 2020, given some of the activity and.
In different quarters, even before COVID-19.
I do think there is some settling down of the market and the cadence of deals.
Think there has been a.
And maybe more and the liquid markets, but certainly in our markets.
The rush of people taking advantage.
Finance and the context of some rail business model.
Acceleration and transformations.
Both positive and negative and.
And Theres been three corp, two to three quarters of that into Q1.
So maybe that means that we're back to some sort of business as usual, but I still think there is a question of what business as usual is.
For some time and we're hopeful for that but but.
Do I think it's going to be as crazy as it was in 2020, Q3, and Q4, probably not quick.
There could be a lingering effect that we just have to respond to as best we can.
Robert It's Howard I'll, just add one thing to what Raj said.
As we look back at our prepayment history going back two decades over long periods of time, it's pretty consistent even remarkably over <unk> nine.
If you take a series of quarters.
Borrowers tend to repay at something on an annual rate of 25% to 35%, but theres big differentiation. If you look at this last year, we were Q1 and.
And at about 5% Q2, and about 6% crew, 335% and Q4, 13% Q1 is seasonally light typically but then within that there's also it's not just the magnitude of prepayments at certain instruments have higher prepayment pre.
<unk> may be prepaid earlier in their lifecycle generating more prepayment income and I think Paul's comment was just intended to let you know that to date.
And we hadn't reached received those amounts so just to provide a little bit more information.
I appreciate that thank you for the color.
One kind of flipping to the upside and balance sheet.
Obviously, you don't have a maturity and until.
March of next year.
The other one and.
In August of next year as well.
And it might be call it six months in advance.
Payable I don't know, but.
And.
In this environment.
The bond market opportunity for Bdcs do you and.
Particular, obviously like you said.
Free low cost per tonne.
And would should we expect you to place those maturities with additional unsecured or would you potentially once and love your.
And the revolver a little larger.
Not too much of the policy obviously, but.
And how you're thinking about the balance there.
We're very pleased with the right side of the balance sheet, we have great relationships long term with our revolver lenders and they provided us with more capacity and extensions during the worst period last year during the early spring.
And we're also deeply appreciative of our relationships and the bond market and having been able to issue. What we believe is a record low cost sub index and for those who aren't familiar with that below $300 million is less liquid for bond issues and so it's Kevin I'm going to call you right back.
Alright, I got I got to hop off for one day or it's part of the restaurant.
So.
Well, we're not sure.
Operator, we'd appreciate youre, making sure that all other lines are muted. Please thank you.
So.
Today, we have seven ways of financing our balance sheet and we like the combination of having <unk>.
Revolvers.
And unsecured debt and having the ability to utilize our revolver to pay down any of the bond issues that you mentioned and gives us tremendous flexibility and so we have ample credit capacity today, we're very pleased with the significant liquidity that we have.
Obviously, we can repay bonds at maturity and to the extent there.
And there is an opportunity to perhaps do so and some other way beforehand that something that could be considered as well.
Okay. Thank you I appreciate it.
Thank you. Our next question comes from Finian O'shea from Wells Fargo Securities. Your line is open.
Yes.
Hi, everyone and good afternoon.
First a question on a portfolio company.
<unk>.
Mesa Air It looks like it was.
Grouped together.
And maybe one entity.
Is.
Just a small question. There is is it as simple as that or was there some sort of.
Business change and Mesa free.
We had.
Several exposures to Mesa, one of which was repaid and.
And so that may be what you're referring to it's broken out and do a number of items on the balance sheet because.
And as distinct pools of collateral that are cross collateralized.
We're pleased obviously, it's been a difficult environment for commercial airlines.
And they've continued to have access to liquidity through government programs and their major airline counterparts, and and connection with that they paid down one of our two primary exposures and the other one continues to amortize.
Our regularly and Thats why that balance is being reduced.
Okay. Yeah. Thanks, that's helpful and then.
Howard for the for the loans you.
And we're making today.
How do you structure a document.
The loan to account for the transition away from LIBOR.
Sure.
Yeah. Thanks for the question what we do is provide.
Provisions in there.
And that accounts for.
A successor instrument.
And.
A default to the extent that there isn't and appropriate one and I think this is pretty standard and documents, where they will refer to the reference reference rate or prime rate, if there isn't anything else, but you default to the replacement.
Great.
As a first choice. So we've spent a lot of time analyzing this issue.
Going back several years now.
And believe that we are appropriately positioned to deal with it.
Okay, Great. That's all from me. Thank you.
Thanks for the questions and then.
Thank you our net.
Question comes from David Miyazaki from confluence investment your line is open.
And.
Hi, Thank you for taking my questions and.
I appreciate the way that cheap.
Guys have navigated 2020.
And your shareholders.
Pretty surprising.
And volatile timeframe.
If I could just to kind of.
And a little bit on <unk> question with regard to.
The airline industry.
Howard do you have a long history.
Investing and the credit markets and.
And.
And it's been my observation that Youre pretty shrewd and your exposure to airlines going back 20 years, and really making some pretty.
Notable loans back when the industry is disrupted.
Round.
The 911 timeframe and then also kind of noteworthy and avoiding aircraft's leasing at the wrong time and.
More recent years so.
Can you kind of provide a little bit of insight as to how you look at that industry and.
Other industries that have experienced kind of a sea change with regard to depend Dominic.
Sure.
Thank you for the question, it's an interesting one and I think the way we've looked at the airline industry is probably.
Emblematic of the way, we look at the whole portfolio, which is we have deep expertise there and we've been financing companies as you pointed out since 911, but were very opportunistic and so.
And then other people arent financing it or we see good risk adjusted rewards we have great relationships. We've done financings from most of the major U S carriers as well as some smaller ones.
We haven't added any exposure recently, because we haven't seen what we deemed to be good risk rewards and we've seen lots of deals.
But one of the advantages of our structure, which is focused on industries and we've got 19 industry teams as we can go where the best deals are and Raj was talking about earlier some of the things we're focusing on theirs.
Theres a lot of robust activity.
And a lot of less cyclical areas and.
Yes.
We're still doing things and cyclical industries.
But the bar is high and in the case of.
Air aircraft financing, which is really the way we look at it is we're financing metal and a hard collateral.
And we haven't seen pricing come to where we think it needs to be and that's why we haven't put out new money I'm frankly surprised if you would've asked us and the spring are you likely to do some things and this sector. We would have said probably.
But having the discipline to avoid going into something just because youre seeing deals and it.
I think is really an important part of managing this business and so we're going to where we see good risk adjusted rewards and we've got a broad enough pipeline, but that gives us the ability to choose.
But we're continuing to look at things across a broad variety of sectors and the suspect youll see that evolution and the portfolio going through the rest of the year.
Yes.
Honestly I'm.
Sort of surprised that you guys didn't come across some opportunities because the industry has been.
Really as or perhaps even more disrupted and this particular cycle than it has been in the past so it's rather interest and be here that the pricing never really responded.
So if I could shift gears and you instead of going back that far and your history, but more to kind of your modern or recent.
Yes.
Situation is that with.
And now being part of the broader Blackrock platform or are there any generalities or specific resources that have become available to you as a part of Blackrock that were helpful. During the day.
<unk> and.
A particular interest and I don't know if it's manifested.
I'd be interested to know if blackrock has been able to provide any insight or resources with regard to.
Regulation, and how or even legislation with regard to the BDC industry.
Hi, David It's Raj I'll take I'll take the first part of that.
In terms of the platform the broader platform and.
Benefits through this time and.
Even before Covid, but just on a certainly a accelerated basis and COVID-19.
I would highlight three areas that we really ramped up.
That helped US I think navigate 2020, as you said and a positive way and I. Appreciate that comment one is keep in mind Blackrock has a pretty notable presence and virtually all of the capital markets and all sectors and illiquid private.
Infrastructure real estate and a lot of industry insight that that's available and the platform and I think harnessed quite well to take advantage of.
And we were literally having calls daily.
And on cross asset pricing on trends tied to the.
The virus and also implications to industries with a lot of internal industry.
And health care and just.
Authorities authoritative perspective that let us I think really put our own private.
Capital portfolio and context, where we wanted to spend time, where we really needed to focus defensively, where there might be opportunities. So I think that cross asset perspective.
And it was very helpful and understanding risk and pricing price and a way that we couldnt have on our own.
Blackrock also at its core is.
Built on our risk management approach.
And if we talked about this before COVID-19 and part of our integration we have a dedicated.
Risk manage risk and quantitative analysis team that has I think put a lot of good rigor into how we look at our portfolio. In addition to the underwriting.
And that's just been on an ongoing basis.
And as managers of the portfolio and we appreciate and finally, even on the liability side and you've seen some of that.
The movement and the changes and the terming out of the right side of the balance sheet and you can.
Blackrock presence with intermediaries.
Both for sourcing but also for.
Issuing issuing some of the liability and the debt.
So I think hopefully that's not just a COVID-19 related activity, but an ongoing one but.
And the latter part of 'twenty and 'twenty, we were able to take advantage of those relationships.
To a successful completion of issuance.
And I don't know, what Howard and any comments on the regulatory side of it but.
Maybe if he does and can turn over to him.
And it's something that we obviously continue to monitor and be advocates of.
Yes.
And that.
<unk> continued to be.
Penalized and effect by having a more limited group of investors as a result of the FSC.
Restrictions or rules and something that.
Everybody I think who's involved and the sectors cognizant hub.
And we continue to do our part to be advocates to do what we think is in the interest of everybody in the sector and shareholders more broadly which is to expand the sector on a more institutional basis so that.
And it's easier for mutual funds other 40 act vehicles and hopefully once again index funds.
More broadly on the sector without having the penalty associated with the <unk>.
The rules are applied.
And we remain hopeful.
And we'll see what happens.
Okay, great well.
Appreciate it.
Good quarter and a good year and I. Thank you for your comments thank.
Thank you and thanks for joining us.
Thank you. Our next question comes from Ryan Lynch from <unk>. Your line is open.
Hey, good morning, Thanks for taking my questions.
Congrats first off on a good quarter and and maybe more importantly, a good year and.
And that's where I really wanted to start and my first question.
2020, you guys were able to actually grow your net asset value throughout the year end and mix of a downturn.
Yeah, and generate very strong results in fact, the results and 2020 generated were stronger than the results that you've generated and the last couple of years.
Despite 2020.
Having a pandemic and a significant downturn. So can you can you reconcile why your results for.
So strong and in 2020, and what does that say about about your.
Business and and how did it outperform previous years.
Sure.
Sure.
Look I think we are.
Sure.
Yeah.
Wired.
To analyze difficult situations. If you think about the heritage of our business. It really comes out of special situations investing and understanding difficult times and.
And I think and tougher times, we tend we tend to shine.
And ultimately the performance of TCP see during 2020.
Was a function of first and foremost a robust portfolio.
And not having.
Significant losses in fact, taking down our non accruals. It was also effective deployment of capital on an incremental basis, although there wasn't a huge amount of assets, which we did was effective.
And it was also balance sheet management, we went into it well prepared we.
Had a small proportion of our assets and delayed draws and revolvers.
We had ample liquidity, we had good financing partners, who gave us more flexibility and more room and.
And that also put us and position when the industry sold off to buying and stock, which we thought was and appropriate use of capital at the time.
And so I think it's really a combination of factors and 2019, we did take a hit on one particular position, which we've talked about which we thought was an anomalous results there's a larger position.
We've dealt with the fidelity, but I think if you look at the over two decade track record that we have.
And even the nine year track record as a public company, where our return on assets has been about 10 five per cent.
2020 as I.
And I think more emblematic of our history and the way we've been able to perform over a long period of time.
Okay.
That's helpful color on that.
One of the things that we've heard from several bdcs over the last prior to 2020 was late cycle and vacuum based back when vacuum leak back and went back to wherever that means that that particular name.
And now that we actually went through a downturn and were actually and now a recovery case as opposed to hearing a downturn, which is what people were gearing back in 2017 2018 2019.
Do you intend to shift your investment philosophy at all I know, it's not going to be any sort of wholesale changes to how you guys and look it at credit and underwriting, but do you see any modest shifts and whether it's a particular industry or industries, you choose to focus on where your positioning and the capital structure coming.
Out of a major downturn.
Yeah, maybe I'll take that one and I think I think the short answer is well two things one I think the short answer is no.
Because.
What we have been doing it feels like it's been working for us.
And if anything.
I view 2020 as.
And I don't know if a downcycle as I mean this is the cause of this.
Period is relatively unusual but the performance and all the things that Howard mentioned is to the prior question as to what I think drives it.
It's working and I think it is further validated by some of the activity in 2020.
For me.
Focusing on defensive sectors areas that we know, whether it's an asset and industry and structures that give us both downside protection and.
And importantly ability to step in and protect our capital or even improve our position, which did happen through 2020 is is a good way to approach a credit business.
Versus growing risk on and trying to be more proactive and and maybe chasing returns or yields without the ability to protect and protect those when you need it so.
I think that there may be some.
Evolution or nuanced differences at the margin certainly we are constantly reevaluating our industry groups, and where we want to focus and where we what we want to avoid but I think I put that in the context of staying consistent with what we've done and very disciplined.
And I think hopefully good things come from that.
Okay understood and maybe just kind of take it to the opposite end of that.
Versus you know more of risk.
Which was kind of my previous question in the portfolio being able to issue sub 3% unsecured debt on the right side of your balance sheet does that change your guys' investment approach and the types of deals did you guys would be now willing to put on the west side of your balance sheet and in your portfolio.
And given that that low cost of unsecured debt.
Yes.
Yeah.
It really doesn't Ryan obviously, having a lower cost of funding is helpful.
But we've been doing this a long time, we don't.
Move around our investment philosophy our assets.
Based on small.
<unk> and our cost of financing.
Or on.
Short term changes and the capital markets or the economy ultimately, what we try and do is build a robust portfolio that we think can.
Withstand.
A lot of different scenarios and.
You just just just pointed out we just went through another downturn at very different kinds of them last last downturn.
And during the great financial crisis. So we've got yet another set of criteria to use and our stress cases, which is great.
But if something doesn't work and the portfolio, we don't just put it and because we can borrow against it a little bit more cheaply.
Okay and that makes sense.
Appreciate the time today.
And my questions.
Thanks, and thanks for joining us.
Thank you. Our next question comes from Christopher Nolan from Ladenburg Thalmann. Your line is open.
Howard I'm following up on Ryan's question.
Given that the stock price still trades below NAV and given that your debt cost.
It looks to be unbelievably attractive there.
What's the capital strategy in terms of another 2022 notes you mentioned earlier you might wait till theyre mature, but you can also.
Redeem them at any time with a make whole premium.
And so given that as a $4, 125% coupon and.
Any thoughts of redeeming that in 'twenty and 'twenty one.
Yeah.
We will we will see what happens.
Ultimately one of the nice things about having the flexibility that we do and our capital structure significant undrawn capacity under both of our revolvers.
And significant headroom and regulatory capital it means that we have a lot of flexibility there and.
And so.
Obviously, the interest rate environment has changed.
Fairly significantly in the last couple of weeks that may affect People's.
Views of.
At what price they want a whole bonds and so we will look at what makes most sense.
We get further and of the year.
Great and I guess, a follow up question given that revolving facilities have a lot of non direct costs legal and so forth associated with them do you consider this new unsecured debt you guys just issue to be your cheapest form of capital.
Well, yes.
No.
You can look at the math on that and it's.
It's a good question and ultimately the all in costs of the revolvers. If you really want to look at it analytically, you probably need to wait till the end.
To see what happens with them how they are extended how much gets gets utilized the bonds are easier to analyze and we'd also like to call your attention and I think youre aware of this to our <unk>.
<unk> financing, our spic's facilities, which also have very attractive long term financing cost and yes. There is some additional cost, but the overall coupon rate on those.
Long term its really quite quite cost effective bolsa.
Got it okay, good quarter, good year, and if I could.
Thank you.
Thank you. Our next question comes from Chris Kotowski from Oppenheimer and company. Your line is open.
Good afternoon, and thank you.
And knowing that that.
Folks never like to do anything and that hurt too jerky way and and having just trimmed your dividends from 36% to 30 last year.
For reasons that are understandable and the middle of the Lockdowns.
But.
Guess, what you've been kind of earning the old dividend and.
And there's been no.
No NAV Dominion Ocean or your NAV is back to the pre COVID-19 levels. So theoretically there shouldnt be any kind of underlying earning dominion.
And your earnings capability.
And so I'm just kind of wondering.
And again not for them.
Next quarter or two or three but just philosophically.
What would you be looking forward to is.
Is it a goal to get back to the prior distribution and what would you be looking for it to get there.
Yes.
Thanks, and just want to.
Remind you of something that we had said earlier about the decrease in LIBOR.
And which basically cost nine cents a share. So yes, we did this during the lockdown.
But we were also reacting to the very significant change and LIBOR and the math has set out you could.
And our K and our Q and you can pretty easily do it and your head as well.
And so when we made that decision.
It was really primarily looking at LIBOR as opposed to events and the portfolio.
Proud of having earned our dividend every quarter, we think investors.
Take comfort from dividends stability, knowing that it's well earned and appropriately covered and.
And.
That's really been our focus.
I think the other thing is as you look at our our earnings we benefited from prepayment fees.
And as.
As we discussed earlier on the call those are lumpy.
We've had significant prepayment fees last couple of quarters. We don't always we didn't Q1 of last year and in fact, we had very few then and Q1 tends to be a seasonally slower quarter. Paul pointed out we haven't received any and a material way yet this quarter and.
And so.
Not everything is always like Clockwork, we take great pride and comfort from knowing that we've got good dividend coverage.
But we also know that there's a certain lumpiness to the to the extra earnings from additional fees and dividends from prepayments and other.
More unusual items.
Okay. Okay. That's it from me thank you.
Sure.
Thank you and thanks for hanging in there with the question Okay.
Thank you and that does conclude our question and answer session for todays conference and I'd like to turn the conference back over to Howard Lefkowitz for any closing remarks.
Thank you we appreciate your questions and our dialogue today I would like to thank all of our shareholders for your confidence and you are.
Our continued support and also like to again, thank our experienced and talented team of professionals at Blackrock TCP Capital Corp. For your continued hard work and dedication and these challenging times. Thanks for joining US. This concludes today's call.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect everyone have a wonderful day.
Yes.
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Okay.
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And.
And then.
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