Q3 2021 BlackRock Capital Investment Corp Earnings Call
Please standby were about to begin.
Good morning, My name is Alan I'll be your conference facilitator today for the Blackrock Capital Investment Corporation third quarter 2021 earnings call.
Hosting the call will be James Keenan, Chairman and interim Chief Executive Officer.
Next in golf, President Ivy Miller, Chief Financial Officer, and Treasurer, Laurence D. Paredes General Counsel and corporate Secretary Marshall Merriman, managing director and member of the company's investment Committee and Jason Mehring, Managing director and member of the company's investment Committee.
Lines at this time had been placed on mute.
After the speakers complete their update they will open the line for a question and answer session.
In order to ask a question you can press star one on your Touchtone telephone. Thank you. Mr. Paradis, you may begin the conference call.
Good morning, and welcome to the third quarter 2021 earnings conference call of Blackrock Capital Investment Corporation or <unk>.
Before we begin our remarks today I would like to point out that certain comments made during the 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.
We 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.
Additionally, certain information discussed and presented May have been derived from third party sources and has not been independently verified.
Accordingly, the CIC makes no representation or warranty with respect to such information.
Please note we've posted to our website, an investor presentation that 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 <unk> dot com and clicking the November 2021, Investor presentation link in the presentations section of the investors page I would now like to turn the call over to Jim.
Thank you Larry.
Good morning, and thanks to all of you for joining our third quarter earnings call.
I'll provide an update on our strategic goals and priorities as well as our third quarter performance.
Cingal will then give an update on our portfolio activity and status.
And Abbvie Miller will follow with a discussion of our financial results in more detail.
We will then open the call to questions.
We continue to expand our universe of investment opportunities and diversifying and strengthening our portfolio.
In doing so we bolstered NII increased in the quarter.
Building the portfolio for long term strength and stability.
Importantly, we have substantially completed our strategic rotation out of non core legacy assets. These.
These investments now consists of less than 5% of the total portfolio at fair market value.
The majority of which is performing debt.
This compares with 8% at the end of the second quarter and 16% at the close of 2019.
With the extensive resources and scale of the Blackrock platform as well as our teams deep middle market experience, we are finding compelling opportunities across more sectors.
We're generating solid risk adjusted returns by focusing on income generating senior secured loans.
And primarily first lien positions.
We deployed $63 million of new capital.
In the third quarter grew our investment portfolio by $9 million in.
And increased our adjusted NII by 28%.
The new investment dollars in the quarter. The vast majority were in first lien term loans.
Approximately 68% of the portfolio now consists of first lien investments.
This is double the level at which we started 2020 and represents remarkable progress.
We now have 78 portfolio companies up from 74 at the close of the second quarter and 47 at the end of 2019.
Through the first nine months of this year, we have deployed over $206 million on a gross basis.
Including investments and 35 new portfolio companies.
We anticipate further progress as we selectively deploy capital and continue to build the portfolio in coming quarters.
Recognizing the market remains competitive and inflationary pressures are mounting in the economy.
We're comfortable with our portfolio construction and focus on building a diversified portfolio of senior secured floating rate investments.
Confident with the health and resiliency of the overall portfolio.
Leverage is now relatively stable during the quarter as exits and repayments.
Offset gross deployments.
The repayments this quarter included approximately $20 million of cash received from the sale of SPP equity.
Non core position.
We expect to prudently utilize our leverage runway as we identify appealing investments and expand the portfolio.
Which we expect will be accretive to NII and provide increased dividend coverage for our shareholders.
I'll now turn the call over to mixing gal to discuss our portfolio activity in further detail.
As Jim mentioned, we have substantially completed the derisking of our book.
Focused on building a diversified first lien centric investment portfolio.
During the quarter nearly 90% of new deployments were in first lien investments consistent with our strategy lower overall portfolio risk.
With respect to originations, we had gross deployments of $63 million in the quarter.
Eight new and existing portfolio companies.
Approximately 45% of the investment dollars go into new portfolio companies and the remaining 55% into existing relationships.
The ability to support the growth of our portfolio companies. We have follow on investments continues to be an important source of deployment for us. It gives us the opportunity to invest in businesses that we know and have a proven history with <unk>.
Facilitating the growth objectives of our portfolio companies also positions us to be a preferred lending partner.
Increased M&A activity in the middle market space.
<unk> somewhat elevated portfolio repayments during the quarter.
Combined with the previously announced $20 million of monetization of our equity position and SVP repayments amounted to $62 million and kept our total portfolio size relatively stable quarter over quarter.
Our pipeline of opportunities remains strong and our.
October our investment activity consisted of one new portfolio company three follow on investments and two existing portfolio companies and one portfolio company exit <unk>.
Italy and October <unk> senior loan partners, our joint venture returned $18 million of equity capital to be CIC. Following the sale and complete exit of Crown paper one of its portfolio companies. After this exit the joint venture only holds two firstly investments.
And has no leverage the details of all of our investments this quarter can be found in the earnings release with some of our more prominent investments include the following.
Firstly, LIBOR plus 625% term loan to Hanna Andersson of direct to consumer children's apparel brand Blackrock.
Blackrock acted as the sole lender on this transaction and <unk> commitment was $7 4 million.
$5 4 million of incremental funding to laser group, a consolidator of small to medium size brands that sell through Amazon's third party platform.
This funding included $3 $8 million of LIBOR, plus 9% first lien term loan and a $1 $6 million first lien convertible term loan at a fixed rate of 7%.
And it firstly and LIBOR plus 625% term loan to open market, Inc. And developer of cloud communications platform designed to deliver mobile interactions between businesses and consumers Blackrock significantly influenced the structure of this deal <unk>.
This loan was $5 million.
We are primarily co investing with other funds and the Blackrock private credit platform, which enables us to participate in larger transactions without taking on too much concentration risk.
And we continue to avail ourselves of transactions, where we lead our co lead negotiations on the deal terms.
Our core deployment folks is consistent with our objectives of stable income and low volatility.
As we do this we expect to gradually increase leverage to more normalized levels over the next several quarters.
We will do so in a disciplined manner as we select from a broad funnel of opportunities that are extensive platform provides.
Growing our portfolio will enable us to grow our NII as well with the goal of eventually having a core earnings fully cover our dividend, which we declared a <unk> 10 per share in cash for the fourth quarter in a row.
I'll now turn the call over to Abby Miller to further discuss our financial results for the quarter.
Thank you Nick I will take a few minutes to review some additional financial results for the third quarter.
GAAP net investment income was $4 9 million or approximately seven cents per share for the quarter up one 4% from the second quarter.
And I covered 66% of the seven 4 million distributions to stockholders and improvement from 65% coverage in the prior quarter and 56% in the first quarter of this year.
Included in these results plus the accrued capital gains incentive fee expense of $1 3 million GAAP requires that the capital gains incentive fee accrual consider the unrealized capital gain as a capital gains incentive fee would be payable.
If such unrealized capital gains were realized on a hypothetical liquidation basis.
However, it should be noted that incentive fees.
Capital gains only become payable to the extent that realized capital gains exceed <unk>.
Unrealized capital losses for the annual measurement period, ending June 30th 2022.
For the quarter ended September 32021 realized capital gains did not exceed realized and unrealized capital losses.
Excluding the accrual of the capital gains incentive fee.
Adjusted net investment income was $6 2 million or <unk> <unk> per share up 28% from the second quarter and would have yielded a dividend coverage of 84%.
Total investment income was $12 5 million up $1 7 million or 15, 3% from the second quarter the quarter over quarter increase was mainly driven by a seven 5% increase in our average investment portfolio at <unk>.
Cost and one time income from prepayments and fees of approximately <unk> <unk> per share during the quarter.
Total net expenses increased by $1 6 million quarter over quarter, excluding the accrual for capital gains incentive fee expenses increased by <unk> 3 million due to higher management fees.
During the quarter the company incurred an incentive fee on income of 79000, which was voluntarily waived by the advisor.
Our cumulative and permanent incentive fees waived since March 2017 totaled $29 8 million.
Net realized and unrealized gains were $6 7 million for the quarter, primarily attributable to appreciation in portfolio valuations.
There were no new nonaccrual investments during the third quarter.
At quarter end, there were three nonaccrual investments, representing four 3% of total debt and preferred stock investments at fair value.
Relatively consistent with the June quarter end.
Our weighted average internal portfolio rating at fair value also improved to 133 compared to 137 at prior quarter end, demonstrating the ongoing improvement in portfolio credit quality.
At September 32021, we had a strong liquidity position of approximately $218 million between availability under our credit facility and cash on hand, our.
Our net leverage ratio was 057 times comparable to 0.56 times at June 30th.
As Nick noted, we expect to gradually return to normalized leverage levels as we continue to deploy capital and selectively grow our portfolio over time.
During the third quarter, we repurchased approximately 133000 shares of our stock for $0 5 million at an average price of $4 per share, including brokerage Commission yes.
Year to date, we have purchased approximately 470000 shares at an average price of $3 62 per share.
On November <unk> 2021, the company's board of directors authorized the company to purchase up to a total of 8 million shares effective until the earlier of November 2022, or such time that all of the authorized shares have been repurchased.
Yes.
As announced yesterday, we declared a quarterly distribution of <unk> 10 per share payable on January six 2022 to stockholders of record at the close of business on December 16 2021.
With that I would like to turn the call back to Jay.
In summary, we have built a strong financial foundation.
And we are well positioned to methodically grow and diversify the portfolio.
Generating reliable income and NAV stability.
And with the advantages of the Blackrock platform, we are confident in our abilities to continue driving solid results for our investors.
This concludes our prepared remarks, we would now like to open the call for questions.
Thank you Sir.
If you'd like to ask a question at this time once again, please signal by pressing star one on your telephone keypad. Please make sure that you're.
Phone is not on mute without your signal to reach our equipment, if youre using a speakerphone. Please pick up your handset to allow that signal or original equipment.
Once again that is star one if you'd like to queue up to ask a question at this time and we'll pause for just a moment to allow everybody the opportunity to signal.
Okay, one more opportunity that is star one if you'd like to ask a question, we'll pause for just another moment.
Alright, I'm seeing no questions queued up at this time that will conclude today's conference. We thank everyone for their participation you may now disconnect.
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Good morning, My name is Alex and I'll be your conference facilitator today for the Blackrock Capital Investment Corporation third quarter 2021 earnings call.
Hosting the call will be James Keenan, Chairman and interim Chief Executive Officer Nick.
Next thing Golf, President Ivy Miller, Chief Financial Officer, and Treasurer, Laurence D. Paredes General Counsel and corporate Secretary Marshall Merriman, managing director and member of the company's investment Committee and Jason Mehring, Managing director and member of the company's investment Committee.
The lines at this time had been placed on mute.
After the speakers complete their update they will open the line for a question and answer session.
Order to ask a question you can press star one on your Touchtone telephone. Thank you. Mr. Paradis, you may begin the conference call.
Good morning, and welcome to the third quarter 2021 earnings conference call of Blackrock Capital Investment Corporation or <unk>.
Before we begin our remarks today I would like to point out that certain comments made during the 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.
We call to your attention. The fact that <unk> actual results may differ from these statements.
As you know the CIC as 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.
Additionally, certain information discussed and presented May have been derived from third party sources and has not been independently verified.
Accordingly, the CIC makes no representation or warranty with respect to such information.
Please note we've posted to our website, an investor presentation that 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 VK cc dot com and clicking the November 2021, Investor presentation link in the presentations section of the investors page I would now like to turn the call over to Jim.
Thank you Larry.
Good morning, and thanks to all of you for joining our third quarter earnings call.
I will provide an update on our strategic goals and priorities as well as our third quarter performance.
Cingal will then give an update on our portfolio activity and status.
And Abbvie Miller will follow with a discussion of our financial results in more detail.
We will then open the call to questions.
We continue to expand our universe of investment opportunities and diversifying and strengthening our portfolio.
In doing so we bolstered NII increased in the quarter.
Building the portfolio for long term strength and stability.
Importantly, we have substantially completed our strategic rotation out of non core legacy assets. These.
These investments now consist of less than 5% of the.
Total portfolio at fair market value.
The majority of which is performing debt.
This compares with 8% at the end of the second quarter and 16% at the close of 2019.
With the extensive resources and scale of the Blackrock platform as well as our teams deep middle market experience.
We are finding compelling opportunities across more sectors.
Generating solid risk adjusted returns by focusing on income generating senior secured loans and primarily first lien positions.
We deployed $63 million of new capital.
In the third quarter grew our investment portfolio by $9 million.
And increased our adjusted NII by 28%.
The new investment dollars in the quarter. The vast majority were in first lien term loans.
Approximately 68% of the portfolio now consists of first lien investments.
This is double the level at which we started 2020 and represents remarkable progress.
We now have 78 portfolio companies up from 74 at the close of the second quarter and 47 at the end of 2019.
Through the first nine months of this year, we have deployed over $206 million on a gross basis.
Including investments and 35 new portfolio companies.
We anticipate further progress as we selectively deploy capital and continue to build the portfolio in coming quarters.
Recognizing the market remains competitive and inflationary pressures are mounting in the economy, we are comfortable with our portfolio construction and focused on building a diversified portfolio of senior secured floating rate investments.
Confident with the health and resiliency of the overall portfolio.
Leverage is now relatively stable during the quarter as exits and repayments.
Offset gross deployments.
The repayments this quarter included approximately $20 million of cash received from the sale of SPP equity.
Non core position.
We expect to prudently utilize our leverage runway as we identify appealing investments and expand the portfolio.
Which we expect will be accretive to NII and provide increased dividend coverage for our shareholders.
I'll now turn the call over to mixing gal to discuss our portfolio activity in further detail.
As Jim mentioned, we have substantially completed the derisking of our book.
Focused on building a diversified first lien centric investment portfolio.
During the quarter nearly 90% of new deployments were in first lien investments consistent with our strategy lower overall portfolio risk.
With respect to originations, we had gross deployments of $63 million in the quarter.
Eight new and 13 existing portfolio companies.
Approximately 45% of the investment dollars go into new portfolio companies and the remaining 55% into existing relationships.
The ability to support the growth of our portfolio companies. We have follow on investments continues to be an important source of deployment for us. It gives us the opportunity to invest in businesses that we know and have a proven history with <unk>.
Facilitating the growth objectives of our portfolio companies also positions us to be a preferred lending partner.
Increased M&A activity in the middle market space.
Weighted somewhat elevated portfolio repayments during the quarter.
Combined with our previously announced $20 million of monetization of our equity position and SVP repayments amounted to $62 million and kept our total portfolio size relatively stable quarter over quarter.
Our pipeline of opportunities remains strong.
October our investment activity consisted of one new portfolio company three follow on investments in two existing portfolio companies and one portfolio company exit.
Additionally, in October <unk> senior loan partners, our joint venture returned $18 million of equity capital to be CIC. Following the sale and complete exit of Crown paper one of its portfolio companies. After this exit that joint venture only holds two first lien investments and as <unk>.
No leverage the details of all of our investments this quarter can be found in the earnings release, but some of our more prominent investments include the following.
Firstly, LIBOR plus 625% term loan to Hanna Andersson of direct to consumer children's apparel brand.
Blackrock acted as the sole lender on this transaction and <unk> commitment was $7 4 million.
$5 4 million of incremental funding to laser group, a consolidator of small to medium size brands that sell through Amazon's third party platform.
This funding included $3 $8 million of LIBOR, plus 9% first lien term loan and a $1 $6 million first lien convertible term loan at a fixed rate of 7%.
And a first lien LIBOR plus 625% term loan to open market Inc.
And developer of cloud communications platform designed to deliver mobile interactions between businesses and consumers Blackrock significantly influenced the structure of this deal <unk> share of this loan was $5 million.
We are primarily co investing with other funds and the Blackrock private credit platform, which enables us to participate in larger transactions without taking on too much concentration risk.
And we continue to avail ourselves of transactions, where we lead our co lead negotiations on the near terms.
Our core deployment folks is consistent with our objectives of stable income and low volatility.
As we do this we expect to gradually increase.