Q1 2021 BlackRock Capital Investment Corp Earnings Call

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Please standby.

Good morning, My name is Lisa and I will be your conference facilitator today pretty Blackrock capital investment Corp, first quarter 2021 earnings call.

Hosting the call will be James Keenan, Chairman and interim Chief Executive Officer, Nick Cingal President of the company I'd be Miller, Chief Financial Officer, and Treasurer, Laurence D. Paredes General Counsel and corporate Secretary of the company Marshall Merriman head of portfolio management, Jason Mehring, managing director and member of the company's investment.

Committee.

Lines have been placed on mute and after the speakers complete their update they will open the line for a question and answer session and order to ask a question you can press star one on your Touchtone telephone.

Mr. Paradis, you may begin the call.

Good morning, and welcome to the first quarter 2021 earnings conference call of Blackrock Capital Investment Corporation or <unk>.

Before we begin our remarks today and we'd like to point out that certain comments made during this conference call and within corresponding documents contain forward looking statements subject to risks and uncertainties.

Many of these forward looking statements can be identified by the use of words, such as anticipates believes expects intends will should may and similar expressions.

Call to your attention. The fact that <unk> actual results may differ from these statements.

As you know <unk> has filed with the SEC reports, which list some of the factors, which may cause <unk> results to differ materially from these statements.

<unk> assumes no duty to and does not undertake to update any forward looking statements.

Additionally.

Certain information discussed and presented May have been derived from third party sources and has not been independently verified accordingly, the CIC and makes no representation or warranty with respect to such information.

Please note we've posted to our website and investor presentation complements this call shortly Jim will highlight some of the information contained in the presentation.

The presentation can be accessed by going to our website at www Dot Blackrock BK C C dot com and clicking the April 2021, Investor presentation link and the presentations section of the investors page I would now like to turn the call over to Jim.

Thank you Laurie good morning, and thanks to all of you for joining our first quarter earnings call.

I'll begin with an update on significant progress we have made towards our strategic goals as well as a high level view of our first quarter performance and our near term priorities.

Cingal will then give an update on our portfolio activity and status and Abbvie Miller will follow with a discussion of our financial results and more detail before we open the call for questions.

As we have emphasized on prior calls one of our strategic priority has been to rotate out of non core legacy and other junior capital investments.

Through 2020, and the first quarter of 2021, we have made substantial progress on this front.

At quarter end, our non core legacy assets have been reduced to just 8% of our total portfolio compared to 14% a year ago.

With near term visibility into further exits.

Although junior capital exposure, excluding non core assets is now reduced to 13% of the portfolio from 38% a year ago.

With the portfolio cleanup largely behind us our focus has shifted more towards our other strategic priority and producing a steady reliable income with reduce the NAV volatility.

As we redeploy capital we remain committed to building a diversified portfolio of income generating senior secured loans with an emphasis on personally.

At the close the first quarter, our portfolio was composed of 62% first lien loans, 24% second lien and 14% Junior capital.

For comparison at the end of 2019, only 34 per cent of the portfolio was in first lien.

We are achieving greater diversity as well, adding 11, new companies to the portfolio this quarter.

We now have 60 portfolio companies compared to 47 at the end of 2019.

The company has and continues to benefit from Blackrock for robust origination and underwriting platform.

We believe that as we selectively deploy capital we will reach our target of at least 70 portfolio companies and 70% to 75% principally and mix.

The credit quality of our current portfolio is strong as we have and rotating the portfolio out of non core assets and into diversified senior secured loans.

Excluding our remaining investment and Gordon Brothers Finance company or GBS, we have only one investment on non accrual status.

Notably we sold our preferred stock position and advantage insurance, which was previously on non accrual at the prior quarters Mark.

Essentially the five 5% of non accrual at fair value.

<unk> for the first quarter represents our remaining exposure to GBS stake.

Additionally, after reinstating our full cash dividend last quarter, we maintained the dividend at <unk> 10 per share this quarter.

While leverage decreased during the quarter, we are confident our focus on steadily building up the portfolio with senior investments will over time generate stronger NII.

We expect the NII run rate to grow into our dividend over the coming quarters as we redeploy freed up capital.

On our last call. We had stated that our goal of extending our credit facility. We accomplish this goal on April 23rd providing us much greater flexibility into managing our liabilities.

Revolver and non matures on April 2025, and.

Accordingly, the amendment removes the springing maturity ahead of the 2022 convertible note maturity and removes certain restrictions on prepayment or repurchase of the 2022 notes.

Finally, our share repurchase plan kicked in again during the first quarter, we repurchased approximately 256000 shares at an average price of $3 40 per share including brokerage commissions.

I'll now turn the call over to mix and go to discuss on our portfolio activity and further detail.

As Jim mentioned, we made strong progress in de risking our portfolio and exiting non core and other junior investment.

During the first quarter.

Saved $52 $6 million and proceeds from reduction in non core and and junior capital investments.

This brings our total proceeds from these two buckets for approximately $179 million and the last two quarters.

The largest drivers this first quarter activity.

For the $39 million full repayment of our investment and first Boston construction holdings.

$6 million and the full.

And the exit of our preferred stock and advantage insurance and.

And a $4 million return on capital from our equity investment and BC IC SLP.

In addition, there were approximately $35 million and repayments from our core holdings.

This was primarily driven by opportunistic sales of certain secondly, and exposures.

And as well as normal course repayments.

With respect to originations, we had gross deployments of $55 million and the quarter, including 11, new and one existing portfolio companies.

Consistent with our strategy, nor overall portfolio risk and increased our percentage of firstly and investment.

86% of our originations were first lien and loans and 14% were second lien loans.

Our pipeline of new opportunities remains solid and we're seeing net repayment activity and the second quarter so far.

And the first four weeks and the second quarter, we added four new portfolio companies all for first lien loans.

And the capital markets remain very robust we remain committed on.

Disciplined approach to investing executing on these smaller percentage of the opportunities we review.

We are primarily co investing with other funds on.

Blackrock private credit platform, which enables us to participate and larger transactions without taking on too much concentration risk.

And we continue to emphasize transactions, where we lead or co lead negotiations on the and firms.

The details of our new investments can be found and the earnings release, but some of our more prominent investment include the following.

Firstly, LIBOR, plus 92, 5% term loans world remit and leading global money transfer platform net.

Facilitate international transfers online.

Blackrock led this investment, which basically IC invested $9 6 million.

At first lien LIBOR, plus eight seven and 5% and term loan and delayed draw term loan for <unk>.

Job and talent USA and digital temporary staffing agency.

Blackrock acted as a sole lender and this investment.

Rich, let me see I say committed and $9 $6 million across the two tranches.

And firstly, LIBOR, plus 6% and term loans and unfunded revolver to 210 Holdco.

Provider of new home and structure warranty.

And I say committed $7 $5 million this investment.

Our core portfolio with an increasing percentage of first lien loans has continued to perform well.

As Jim mentioned, excluding the remaining <unk> exposure there is only one investment on non accrual, which is a non core position with 0.9 million fair market value.

During the first quarter and it increased by $7 $9 million for two 5% from the December quarter.

Driven primarily by a $12 million net realized and unrealized gain on our investment.

This reflected improved financial performance across many of our portfolio companies.

Our NAV per share increased two 8% and $4 23.

$4 and 35 standard.

Our focus for the remainder of 2021 will be to deploy our liquidity and the core investment consistent with our objectives of stable income and low and volatility.

And our portfolio and a disciplined manner.

Enable us to grow our NII as well with the <unk>.

Rental growth of having our core earnings fully cover our dividend, which as Jim noted, we have paid a 10 cents and cash and the second quarter and a row.

I'll now turn the call over on the Miller will further discuss our financial results for the quarter.

Thank you Nick I will take a few minutes to review additional financial results for <unk>.

First quarter of 2021.

GAAP net investment income NII was for $10 million or approximately six cents per share for the quarter growth was consistent with our expectation.

And Ah portfolio reduction, Kevin and by our successful efforts.

And anything exposure and continuing our capital and non core investments and.

And I covered 56% of our seven 4 million and stockholder distributions.

Total investment income was $10 3 million down for $3 million or 29, 7% from the fourth quarter of 2020, primarily driven by a day and investment portfolio size associated with portfolio day basketball.

Total expenses decreased $1 2 million or 16, 7% from the fourth quarter of 2020, primarily driven by lower base management fee.

And.

Interest expense quarter over quarter.

And the first quarter the company did not incur any incentive fees based on income and.

You may recall and the fourth quarter of 2020, we recorded a $1 3 million incentive fee, which was voluntarily waived by the advisor on <unk>.

Cumulative and permanent incentive fees waived since March 2017 totaled $29 7 million.

Additionally, and the first quarter, there was no accrual for incentive fees based on GAAP.

During the first quarter net realized and unrealized gains were $12 million, primarily driven by valuation recovery and SDK singer and.

See I say senior loan partners Saint George as well as continued general market recovery across the broader portfolio.

At quarter, and there were three non accrual and Mcmanus, representing five five percentage of total debt and preferred stock investment at fair value as compared to six 5% at December 31st 2020.

Our weighted average internal investment rating and fair value also improved to one seven and two as compared to 190.

And prior quarter and.

At March 30 for 2021, we had a strong liquidity position and approximately $294 million from availability under our credit facility and cash on hand.

Our net leverage ratio was zero point for me eight times, a quarter and compare it to 0.51 times at December 31st 2020.

We expect to gradually return to normalized leverage levels as we deploy capital and grow our portfolio over time.

Additionally, as Jim mentioned, the amendment of the credit facility provides additional flexibility and for the company and cause further manage its capital structure in 2021.

During the first quarter, we repurchased approximately 256000 of our own shares for zero point $9 million and on average price of $3 four zero dollar per share, including brokerage Commission.

As of March 31, 2021, approximately seven two for millions of shares remained available for repurchase under the current buyback program.

As announced yesterday and consistent with prior quarter levels.

Quarterly distribution of 10 cents per share was declared.

On July 7th 2021 to stockholders of record.

At the close of business on June 16, 2021.

With that I would like to turn the call back to Jim.

Thank you Abby.

In closing we are pleased with our first quarter performance, which was driven by the ongoing hard work of our entire team.

And we are excited about the year ahead.

And good financial shape and are well positioned to continue to pursue our goal of growing our portfolio towards steady reliable income and lower NAV volatility.

I also want to thank our stockholders for their ongoing patience and support through this portfolio repositioning process.

This concludes our prepared remarks.

Operator, we'd like to open the call for questions.

Thank you if you would like to ask a question on the phone lines. Today, you can press star one on your telephone keypad. If you are on a speaker phone. Please make sure you're on mute option is turned off to allow your signal to reach our equipment once again Thats star one.

We'll take our first question from Finian O'shea with Wells Fargo Securities. Please go ahead.

Hi, everyone and good morning.

Joe for Quest.

And on the dividend.

That you expect to make and Oh.

Or again.

And the coming quarters.

I assume that that.

That would until continuing.

The incentive fee waiver.

So would you remind us on the policy or approach you have to that and then.

Do you do you see Blackrock and a position I think the dividend is.

About 95 per cent of book, obviously today.

Becoming more competitive and and so forth.

Do you think the BDC can earn the dividend.

If and when you.

Achieve the remaining.

Portfolio optimization.

That would.

That would maximize your earnings potential.

Thanks, Dan and thanks for the questions.

Obviously, there's a lot of different variables that come into.

And the.

On the deployments and the earnings.

And I think for Q1 was a good example, with 11 new deals that are.

And we were able to deploy into and consistent with the strategy of diversifying into more first lien.

Obviously spreads LIBOR all on things that are going to impact the overall.

Level of earnings that come into that when we model it out and ultimately.

Communicated out to the market, we expect over the next couple of quarters to continue on that kind of pace from a deployment standpoint, and then ultimately.

Build towards those leverage ratios around that 1151, and a quarter type range.

And we believe that's consistent with regards to the overall strategy from our standpoint.

Does the dividend.

We are modeling out and continue to work with our board.

As we continue to deploy that and as we think we have the earnings beat the advisor has been obviously waiving all of the incentive fees.

To date, and we will continue to work with the board is as we completely and fully reposition our retransmission.

The portfolio is when to start to put that back into play when there's a hole.

And for repositioning of the overall portfolio and as of right now and we're pretty comfortable with regards to where we are deploying the types of spreads what we're able to earn.

And just the volume and pace of activity that we see on the market today.

But obviously those will be decisions that the board will make as we move into.

The quarters being co investment.

Okay. That's that's helpful. That's all for me. Thank you.

And our last question comes from Melissa Wedel with JP Morgan.

Good morning, everyone and thanks for taking my questions today.

And Nick you referenced some deal activity that's occurred so far and people I think you you referenced for new companies and.

And that you've deployed capital to I was wondering if you might be willing to put some.

Size around that for us and give us a sense of how you expect the origination to play out versus your exits and repayments should we expect that to.

Be pretty balanced or beef continues to be skewed more towards the exit since he said also talk about having visibility into further.

Rotation out of some legacy investment.

Thanks.

Yes.

Thank you Melissa and value.

And I live and question. Indeed, so if we look at Q1, where we deployed $56 million across 11, new portfolio companies and before that Q4, where we actually reported $62 million that pace of gross deployment is is very very consistent with our desired pace.

And we believe again, we're going to continue.

Create gross deployments at that pace and.

In Q2, so far and it's only 30 days.

And we mentioned before new companies, which are all first liens and it caused us and deployed $23 million right. So.

And I wouldn't necessarily.

Extrapolate it linearly but.

And it's pretty much ahead of the pace that we had and the prior two quarters.

And that puts a sustainable the last two quarters, obviously, the gross deployments were more than offset by the repayment activity much of this repayment activity was exits we've been trying to create so these are large.

Junior capital positions for Boston sooner.

And partners <unk> and and many of the noncore.

<unk> advantage insurance and others and one thing we mentioned on our calls and is.

Is that and non core book is down to 8%.

And with near term visibility and to further reductions and incidentally and we were speaking on the call on.

Our investment and Red Apple and non core investment paid off.

Recovery there are at our Mark.

And there is potential for additional recoveries down the line, which could push recoveries above our mark So really great news.

And we'll take our non core bucket down two 5%.

So really most of their desirable exits and all behind us and Additionally, just a market driven refill.

Refinancing activity, we were seeing a lot of it and Q4 and most.

And in Q1 is not really starting to slow down so you know what day.

Great Red Apple news that we just received.

Saying that our gross deployments would actually start turning into net deployment and.

And which will be accretive to our leverage ratio as well on the NII.

Pricing is.

Okay.

Yeah.

Alright, and that does conclude today's.

Presentation. Thank you for your book.

And you may now disconnect.

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