Q4 2023 BlackRock Capital Investment Corp Earnings Call

Anna: Good morning, my name is Anna, and I will be your conference facilitator today for the BlackRock Capital Investment Corporation fourth quarter and full year 2023 earnings call. Hosting the call will be James Keenan, Chairman and Interior Chief Executive Officer, and Nik Singhal, President.

Good morning, My name is Anna and I will be your conference facilitator today for the Blackrock Capital Investment Corporation fourth quarter and full year 2023 earnings call.

Hosting the call will be James Keenan, Chairman and interim Chief Executive Officer.

Next single President.

Anna: Chip Holladay, Interium Chief Financial Officer and Treasurer, Laurence D. Paredes, Corporate Secretary, Diana Huffman, General Counsel, and Jason Maring, Managing Director and Member of the Company's Investment Committee. Lines have been placed on mute.

Chip holiday interior, I'm, Chief financial Officer and Treasurer.

Laurence D Paredes corporate Secretary.

Diana has been general counsel Jason.

Jason Mehring, managing director and member of the company's investment Committee.

<unk> had been placed on mute.

Laurence D. Paredes: 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 1 on your touchtone telephone. Thank you. Mr. Paredes, you may begin the conference call. Good morning and welcome to the fourth quarter and full year 2023 earnings conference call of BlackRock Capital Investment Corporation, or BCIC. Before we begin our remarks today, I would 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 anticipate, believe, expects, intends, will, should, may, and similar expressions.

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 fourth quarter and full year 2023 earnings conference call of Blackrock Capital investment Corporation or be CIC.

Before we begin our remarks today I would 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 anticipate believe.

<unk> expects intends will should may and similar expressions.

Laurence D. Paredes: We call to your attention the fact that BCIC's actual results may differ from these estimates. As you know, BCIC has filed reports with the SEC that list some of the factors that may cause its results to differ materially from these. DCIC assumes no duty to and does not undertake to update any forward-looking statements.

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 that 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.

Laurence D. Paredes: Additionally, certain information discussed and presented may have been derived from third-party sources and has not been independently verified. Accordingly, BCIT makes no representation or warranty with respect to such information. Please note we've posted on our website an investor presentation that complements this call. In the near future, our management team will highlight some of the information contained in the presentation. The presentation can be accessed by going to our website at www.blackrockbkcc.com and clicking the March 2024 investor presentations link in the presentation section of the investors page. I would now like to turn the call over to Jim. Thank you, Larry.

Additionally, certain information discussed and presented May have been derived from third party sources. It 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 our management team will highlight some of the information contained in the presentation. The presentation can be accessed by go nor website at www Dot Blackrock <unk> dot com and clicking the March 2024 Investor Pres.

Dentation like in the presentations section of the investors page.

I'd now like to turn the call over to Jack Thank.

Thank you Larry Good morning, and thank you for joining our fourth quarter and full year 2023 earnings call.

James Edward Keenan: Good morning, and thank you for joining our fourth quarter and full year 2023 earnings call. We remain very excited about our pending merger with BlackRock TCP Capital Corp., or TCPC, one of our affiliated BDCs. I will speak more about the merger shortly, but first, I'll provide an overview of our performance and highlights for the quarter. Nick will then discuss our portfolio activity, and Chip will address our financial results in more detail. We will then open the call to your questions.

We remain very excited about our pending merger with Blackrock TCP Capital Corp.

For <unk> one of our affiliated Bdcs.

I will speak more about the merger shortly but first I'll provide an overview of our performance and highlights for the quarter.

Nick will then discuss our portfolio activity and chip will address our financial results in more detail.

We will then open the call to your questions.

James Edward Keenan: We finished 2023 on a strong note, posting solid fourth-quarter earnings and covering our $0.10 dividend for our sixth consecutive quarter. We generated year-over-year fourth-quarter net investment income growth of 15% and provided dividend coverage of 128%. Over the past several quarters, we have successfully diversified and strengthened our portfolio as we continue to identify attractive opportunities to prudently grow on behalf of our shareholders. We closed the year with a well-diversified portfolio of 121 companies, more than doubling our portfolio companies over the past three years.

We finished 2023 on a strong note posting solid fourth quarter earnings and covering our tencent dividend for six consecutive quarter.

We generated year over year fourth quarter net investment income growth of 15% and provided dividend coverage of 128%.

Over the past several quarters, we have successfully diversified and strengthened our portfolio as we continue to identify attractive opportunities to prudently grow our behalf of our shareholders.

It closed the year with a well diversified portfolio of 121 companies more than doubling our portfolio of companies over the past three years.

James Edward Keenan: First lien term loans make up 85% of the portfolio, up from 50% at the end of 2020. In that space of time, we methodically transformed BCIC's portfolio, drawing upon the breadth and power of the BlackRock platform. Specifically, we have defensively positioned the portfolio with compelling first-lean low, with a steadfast focus on strict underwriting and reliable, strong credit quality, as well as diversity across multiple sectors. Junior capital investments now make up only 4% of our investment, down from 23% at the close of 2020. During the quarter, we added five new portfolio companies and deployed $25 million on a gross basis, all in first theme mode.

First lien term loans make up 85% of the portfolio up from 50% at the end of 2020.

In that space of time, we methodically transform pci's portfolio, drawing upon the breadth and power of the Blackrock platform.

Specifically, we have defensively positioning the portfolio with compelling first lien loans with a steadfast focus on strict underwriting and reliable strong credit quality as.

And as well as diversity across multiple sectors.

Junior capital investments now make up only 4% of our debt.

Now from 23% at the close of 2020.

During the quarter, we added five new portfolio companies and deployed $25 million on a gross basis.

All in first lien loans.

James Edward Keenan: We also made follow-on investments in four existing portfolio companies. These are companies we know and understand well and, as such, are excellent avenues for continued deployment. In terms of our overall market commentary, we are seeing a level of bifurcation in different segments of direct lending. Bauer-friendly trends, such as tighter credit spreads and covenant-like deal structure, are becoming more prevalent in the upper middle market.

He also made follow on investments in four existing portfolio companies.

The companies, we know and understand well and as such are excellent Avenue for continued deployment.

In terms of our overall market commentary, we are seeing a level of bifurcation in different segments of direct lending.

We're a friendly trends such as tighter credit spreads and covenant light deal structures.

Becoming more prevalent in the upper middle market.

James Edward Keenan: However, the core middle market where we focus has been less impacted by this trend, and we continue to leverage our industry expertise to source and invest in deals that present attractive risk-reward opportunities. We remain disciplined and continue to pass on a substantial number of less attractive opportunities, particularly when we believe that pricing does not appropriately reflect the corresponding risk or terms don't provide adequate lender protection. Our diversified first lien-oriented portfolio is constructed to be resilient in adverse macroeconomic conditions, such as the environment we are in today, characterized by high interest rates, relatively high inflation, and slowing consumer and corporate spending. However, we are not completely immune to these factors.

However, the core middle market, where we focus has been less impacted by this trend and we continue to leverage our industry expertise to source and invest in deals that present attractive risk reward opportunities.

We remain disciplined and continue to pass on a substantial number of less attractive opportunities, particularly when we believe that pricing does not appropriately reflect the corresponding risk or terms don't provide adequate lender protections.

Our diversified first lien oriented portfolio is constructed to be resilient in adverse macroeconomic conditions.

Is the environment, we are in today.

Characterized by high interest rates relatively high inflation and slowing consumer and corporate spending.

However, we are not completely immune to these factors.

James Edward Keenan: We are seeing this impact on a portion of our vote. During the quarter, we placed one additional investment, Strazio, on non-accrual status. Nick will provide additional detail on Frazio as well as other exposures to the Amazon third-party aggregator space. Additionally, we place a portion of our investment in Kellermeyer Bergensen Services on partial non-accrual. Our first-lean position in the capital stack, as well as the structural protections baked into these investments, enable us to drive outcomes during down cycles. Additionally, our experience and resources to proactively engage with management teams in the event of emerging challenges give us tremendous confidence in our ability to identify and address company-specific issues. We believe we are well positioned to withstand the impact of any economic slowdown, and, broadly speaking, our portfolio remains healthy.

We're seeing this impact on a portion of our book.

During the quarter, we placed one additional investment on non accrual status.

Nick will provide additional detail on <unk> as well as other exposures to the Amazon third party aggregator space.

Additionally, we place a portion of our investment in Palomar Bergen and services on partial non accrual.

Our first lien position in the capital stack as well as the structural protections baked into these investments enable us to drive outcomes during down cycles.

Our experience and resources to proactively engage with management teams and the events are emerging challenges gives us tremendous confidence in our ability to identify and address company specific issues.

We believe we are well positioned to withstand the impact of any economic slowdown and broadly speaking our portfolio remains healthy.

James Edward Keenan: Our fourth quarter weighted average portfolio yield was 12.7%, relatively consistent with the prior quarter and supported by higher interest rates. Our net leverage for the fourth quarter was 0.91 times, driven by borrowings to fund new deployments during the quarter. Total available liquidity for deployment, including cash on hand, was $73.4 million at quarter end, giving BCIC ample resources to fund new investments in the current quarter.

Our fourth quarter weighted average portfolio yield was 12, 7%.

Relatively consistent with the prior quarter and supported by higher interest rates.

Our net leverage for the fourth quarter was <unk> 91 times.

Driven by borrowings to fund new deployments during the quarter.

Total available liquidity for deployment, including cash on hand was $73 $4 million.

At quarter end, giving D C I see ample resources to fund new investments in the current quarter.

James Edward Keenan: And, of course, I'd like to conclude by emphasizing the merits of our pending merger and its expected benefits. As we approach our shareholder vote meeting scheduled for March 7, we intend to close the transaction as soon as practicable, following a successful vote from shareholders of each BDC. We remain excited about the potential for the merger, which will bring together two very similar portfolios with substantial overlap, in which we expect to create meaningful value for our shareholders. I'll now turn the call over to Nick to discuss our portfolio activity in more detail. Thanks, Jim.

And of course, I'd like to conclude by emphasizing the merits of our pending merger and its expected benefits.

As we approach our shareholder vote meeting scheduled for March seven we intend to close the transaction as soon as practicable following the successful vote from shareholders each BDC.

We remain excited about the potential for the merger, which will bring together two very similar portfolios with substantial overlap.

And which we expect to create meaningful value for our shareholders.

I'll now turn the call over to Nick to discuss our portfolio activity in more detail.

Thanks, Jim.

Nik Singhal: We continue the strong momentum this quarter, growing our portfolio and generating solid net investment despite a modest decline in NAV per share. As Jim noted, we deployed $25.4 million in five new and four existing portfolio companies. All of our new investments in the quarter were deployed in first name loans.

We've continued the strong momentum this quarter growing our portfolio and generating solid net investment income.

A modest decline in EBIT per ship.

As Jim noted, we deployed $25 $4 million in five new and four existing portfolio companies.

All of our new investments in the quarter.

And first lien loans consistent with our strategy, maintaining a lower risk profile.

Nik Singhal: Consistent with our strategy, maintaining a lower risk profile, especially in this uncertain macroeconomic environment. Total exits and repayments during the quarter were $12.6 million, and we're primarily concentrated in six portfolio companies, including one partial pay down with a total of $0.3 million in fees and other one-time income generated in excess of principal repaid on these transactions. Our three largest new investments in the quarter consisted of $8.9 million so far plus 7% first-link term loan and a $0.5 million unfunded robbery, the Mesquite Victim, casino and hotel operators; a $4.5 million SOFR plus 6% first lien term loan to Bad Boy Mode and Lawn Mower Manufacturing, and a $2.7 million SOFR plus 5.5% personal income loan to Transnetwork. Provider of Payment Processing Services. With respect to our current investment activity, we're still seeing a decent flow of opportunities, across both new and existing names. However, we remain very selective about what we invest in.

Specially in this uncertain macroeconomic environment.

Total exits and repayments during the quarter were $12 $6 million and were primarily concentrated in six portfolio companies.

Including one partial pay down with.

A total of $1 $3 million in fee and other one time income generated in excess of principal repaid on these transactions.

Our three largest new investments in the quarter consisted of.

$8 $9 million, so far 7% first lien term loan and a $5 million unfunded rollover.

Pete.

<unk> and hotel operator.

A $4 5 billion dollar sofa, 6% first lien term loan.

Boy Mowers and lawnmower manufacturer.

And a $2 7 million silver plus five 5% first lien term loan tranche network.

The wider payment processing services.

With respect to our current investment activity, we're still seeing a decent flow of opportunities across both new and existing names. However, we remain very selective about what we.

Investors.

Nik Singhal: Since the end of the fourth quarter, our investment committee has approved transactions of approximately $13 billion that have either closed in this first quarter or are pending close, subject to customary closing conditions. Turning now to the existing portfolio, we have four companies on full non-accrual status at the end of the quarter, which includes the new 12-year non-accrual that Jim mentioned. These non-accruals represent 4.1% of our total portfolio at fair value, as it is publicly known, Trivial Files with Chapter 11 Bankruptcy Protection. That's... Our first main position is at the top of the capital. We believe that a Chapter 11 driven financial restructuring will result in a healthier balance sheet.

Since the end of the fourth quarter.

Committee has approved transactions approximately $13 billion.

Either close in this first quarter or are pending close.

Take the customary closing conditions.

Turning now to the existing portfolio we have.

All companies on full non accrual status at the end of the quarter, which includes the new 12 year non accrual that Jim mentioned.

These non accruals represented four 1% or toward portfolio et cetera.

And it's publicly known <unk> filed for chapter 11 bankruptcy protection last week.

Our first lien position is at the top of the capital structure.

We believe that a chapter 11, driven financial restructuring will result in a healthier balance sheet and enabled the company to execute on its turnaround.

Nik Singhal: Enable the company to execute on its turnaround plan. Our total exposure across all investments to the third-party Amazon aggregator space is 6.5% of the portfolio by fair value at the end of the quarter. For the last several quarters, this sub-sector has come under pressure due to higher interest rates, lower operating margins, and excess inventory levels.

Our total exposure across all investments third party Amazon aggregator space.

Six 5% of the portfolio by fair value at the end of the quarter.

For the last several quarters the sub sector has come under pressure due to higher interest rates lower operating margins in excess inventory levels.

Nik Singhal: We're starting to see our portfolio companies revert to more normalized inventory levels. One of our underwriting principles is that things can go wrong, and we have a long history of managing underperforming situations to successful outcomes. We have been working diligently to create successful outcomes in this space as well.

We're starting to see our portfolio companies' revert to more normalized inventory levels.

One of our underwriting principles is that things can go wrong, and we have a long history of managing underperforming situations to successful outcomes.

We have been working diligently create successful outcomes in this space as well.

Nik Singhal: We believe that consolidation is a logical trend in this space, which will enable companies to achieve scale, operate more efficiently, and be more competitive. In 2023, our portfolio company, Elevate, was acquired by Stellar X, another portfolio company of ours. This past week, Perch, which was a non-accrual investment in our portfolio, was acquired by Razor. Fuller Company of Art.

We believe that consolidation is a logical trend in this space enabled.

Enable companies to achieve scale operating more efficiently.

In 2023, our portfolio company elevate let's take wired by seller.

Another portfolio company of ours this past week.

<unk>, which was a nonaccrual investment and our portfolio was acquired by a razor.

The company of ours.

Nik Singhal: Following this acquisition, our prior investment in Perch has rolled into Razor, in the form of a preferred equity instrument sitting below our existing debt in relation. We remain optimistic about the financial performance of these companies, despite the decline experienced in 2020.

Following this acquisition.

Higher investment and purge as Earl Eagle razor in the form of a preferred equity instrument sitting below our existing debt and ratio.

We remain optimistic about the financial performance of these companies despite the declines experienced.

True.

Nik Singhal: It's important to note these nonaccrual investments represent company-specific issues, and are not indicative of broader trends within our industry. With each of these situations, we're leveraging BlackRock's extensive experience to work towards successful outcomes on behalf of our shareholders. We are in a repurchase for the quarter, down by less than one, do primarily with $3.9 million of net realized and unrealized losses on the portfolio, partially offset by $2 million Despite economic uncertainty driven by the pressures of inflation and interest rates, the NAV demonstrated relative stability in 2020. We believe this is a direct consequence of the successful transition into a primarily first-line-oriented portfolio, as well as a prudent approach to selectively adding new investors. I now turn the call over to Chip to further discuss our financial results for the quarter. Thank you, Nick.

It is important to note. These nonaccrual investments represent the company specific issues.

Not indicative of broader trends within our portfolio.

With each of these situations, we're leveraging blackhawk's extensive experience work towards successful outcomes on behalf of our shareholders.

Our <unk> per share for the quarter.

Down by less than 1%.

Primarily to $3 9 million.

Net realized and unrealized losses on the portfolio, partially offset by $2 million of NII earned in excess of the declared dividend.

Despite economic uncertainty driven by the pressures of inflation and interest rates or any of the demonstrated relative stability. In 2023. We believe this is a direct consequence of the successful transition into a primarily first lien oriented portfolio.

That is a prudent approach and selectively adding new investments.

I'll now turn the call over to chip further discuss our financial results for the quarter.

Thank you Nick I will now take a few minutes to review some additional <unk> financial results for the fourth quarter.

Chip Holladay: I will now take a few minutes to review some additional BCIC financial results for the fourth quarter. Gas investment income remains strong in the fourth quarter at $9.3 million, or $0.13 per share, as compared to $9.5 million earned in the third quarter, and delivered a 15% increase from the fourth quarter of 2022. Our gross investment income was $20.3 million for the quarter, a decrease of 5% from the prior quarter but an increase of 16% in the fourth quarter of 2022. The $1 million quarterly decline was primarily due to the impact of our positions in Perch and Frasio being designated as non-accrual during the third and fourth quarters, and to lower fee and other one-time income earned from the investment exits compared to the third quarter. This decrease in our gross investment income was partially offset by an approximately $800,000 decrease in total expenses during the fourth quarter.

Investment income remained strong in the fourth quarter at $9 3 million or.

Were <unk> 13 per share.

As compared to $9 $5 million earned in the third quarter.

And delivered a 15% increase from the fourth quarter of 2022.

Our gross investment income was $20 3 million for the quarter.

A decrease of 5% from the prior quarter.

But an increase of 16% in the fourth quarter of 2022.

The $1 million quarterly decline was primarily due to the impact of our positions in perch in Brasil being designated as non accrual during the third and fourth quarters.

And to lower fee and other onetime income earned.

On the investment exits compared to the third quarter.

This decrease in our gross investment income was partially offset by an approximately $800000 decrease in total expenses during the fourth quarter.

Chip Holladay: The decrease in total expenses for the fourth quarter was primarily driven by lower incentive fees resulting from lower pre-incentive fee NII and the reversal of previously accrued incentive fees on capital gains we recorded in the third quarter due to unreliable losses in the portfolio in the fourth quarter. Overall, our aggregate net investment income per share of 50 cents earned in 2023 delivered an increase of approximately 25% from NII per share recorded in 2022. Net unreliable depreciation during the quarter was $4 million, driven primarily by markdowns associated with our non-accrual investments, partially offset by an unrealized gain on our interest rate swap position.

The decrease in total expenses for the fourth quarter was primarily driven by lower incentive fees, resulting from lower pre incentive fee NII.

And to the reversal of previously accrued incentive fees on capital gains.

We recorded in the third quarter due to unrealized losses in the portfolio in the fourth quarter.

Overall, our aggregate net investment income per share of <unk> 50.

Earned in 2023 delivered an increase of approximately 25% from NII per share recorded in 2022.

Net unrealized depreciation during the quarter was $4 million driven primarily by markdowns associated with our non accrual investments par.

Partially offset by an unrealized gain on our interest rate swap position.

Chip Holladay: We also recorded nominal realized gains of $100,000 for the quarter on certain investment activities. Now turning to liquidity, at December 31st, total available liquidity for deployment and general operating use was approximately $73.4 million, including cash on hand, and subject to leverage and barring base restrictions. Our net leverage ratio is 0.91 times, up from 0.84 times at the end of the third quarter, driven by borrowings to fund new deployments during the quarter. As announced yesterday, we declared a quarterly dividend of $0.10 per share payable in cash on March 29, 2024 to all shareholders of record at the close of business on March 15, 2024.

We also reported nominal realized gains of $100000 for the quarter on certain investment exits.

Now turning to liquidity.

At December 31, total available liquidity for deployment and general operating use was approximately $73 4 million, including cash on hand, and subject to leverage and borrowing base restrictions.

Our net leverage ratio was <unk> 91 times up from <unk> 84 times at the end of the third quarter.

Driven by borrowings to fund new deployments during the quarter.

As announced yesterday, we declared a quarterly dividend of <unk> 10 per share payable in cash on March 29, 2024 to all shareholders of record at the close of business on March 15th 2024.

James Edward Keenan: With that, I would like to turn the call back to Jim. Thank you, Chip. In summary, we have successfully repositioned and diversified the portfolio, and believe that we are in a great position to close our transformational merger with TCPC. The combination will create meaningful scale that we believe will enhance the combined company's ability to produce strong returns for our shareholders. With that, we would now like to open the call to your questions. And as a reminder, if you would like to ask a question, please signal by pressing Star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach your equipment.

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

Thank you chip in summary, we have successfully repositioned and diversified the portfolio.

And believe that we are in a great position to close our transformational merger with <unk>.

Combination will create meaningful scale that we believe will enhance the combined company's ability to produce strong returns for our shareholders with that we would now like to open the call for your questions.

And as a reminder, if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

unknown: Again, that is Star 1 if you would like to ask a question. We'll take our first question from Sinian O'Shea with Wells Fargo Security. Hey, everyone. Good morning.

Again that is star one if you would like to ask a question.

We will take our first question from Finian O'shea with Wells Fargo Securities.

Hey, everyone. Good morning.

James Edward Keenan: Jim, I guess your closing comments there on the looming merger with TCPC. Can you hit on the more, say, transformational elements as you described that that you see, you know, assuming that the teams have been working together for the most part already? The portfolio is sort of converged. Like, in what ways, say, is BlackRock, the parent or the, you know, BlackRock private credit organization, putting more resources to improve your, you know, your origination, your workout, and so forth? Any things you can call out in that area? Sure. Thanks, Finn.

Jim I guess your closing comments there.

On the <unk>.

Blooming.

Our merger with T CPC.

Can you hit on like.

The more <unk>.

The transformational elements as you described.

That that you see.

Assuming that the teams have been working.

Together for the most part already the portfolio sort of converge like in what ways say as Blackrock.

The parent or the Blackrock private credit organization.

Putting more resources to improve your your origination your workout and so forth any things you can call out in that area.

Sure. Thanks, Ben I appreciate the question.

James Edward Keenan: I appreciate the question. Yeah, as you outlined there, if you think about what we've disclosed over the last couple of years, it's been one integrated lending platform at the advisor that has been working on behalf of both these companies that have jointly transacted. And obviously, over the course of the last several years, the portfolios now have a substantial amount of overlap too, and that benefits from the aggregate origination and underwriting capacity of the overall platform.

Yes, as you outlined there if you think about what we've disclosed over the last couple of years its been one integrated lending platform.

At the advisor that has been working on behalf of all of these companies.

That have jointly transacted and obviously no over the course of the last several years. The portfolio has now have a substantial amount of overlap too and that benefited from the aggregate origination and underwriting capacity at the overall platform. So you've already seen that accrete to the story for <unk>.

James Edward Keenan: So you've already seen that add to the story for BKCC in the sense that we've been able to diversify and really grow the name count in there, transition the overall portfolio in light of that. To the other part of that, to your question about resources, you know, over the course of the last, you know, five years, we've continued to add a significant amount of resources. And even post the transaction that the advisor had with TCP Advisors, we've grown that platform to near 60 people that are focused on origination and underwriting across this. So we've continued to, I would call it, add resources onto the platform that is continuing to provide value across that. And I would say that's across functions. We've added origination, we've added underwriting capacity, as well as, I would call it, legal, and workout capacity on the overall platform. And we will continue to do that.

Casey in the sense that we've been able to diversify and really grow the named counts in their transition the overall portfolio in light of that.

So the other parts of that to your question about resources over the course of the last call. It five years, we've continued to add a significant amount of resources.

And even post the transaction that the advisor had with <unk>.

TCP advisors, we've grown that platform to near 60 people that are focused on origination and underwriting across this.

So we've continued to I would call it add resources onto the platform that.

Continuing to provide value across that and I would say that's an all functions. We've added origination we've added underwriting capacity as well as we've added.

I would call it legal and work out capacity on the overall platform and we continue to do that and you've seen that broadly speaking at the adviser at Blackrock, we are investing more in private markets and continue to.

James Edward Keenan: And you've seen that, broadly speaking, at the advisor at BlackRock, investing more in private markets and continuing to double down on that effort at the premium level. So that has already been, I guess, part of this story about the transition of the portfolio and the value. I think when it comes down to the merger itself, as outlined, these are things that are going to benefit shareholders because of the economies of scale that you'll get. It improves the expense ratio and improves the liquidity and the share count associated with that.

Double down on that effort.

So that is already been I guess part of the story about the transition of the portfolio and the value I think when it comes down to the merger itself has outlined.

These are things that are going to benefit to the shareholder by the economies of scale that you get it improves the expense ratio and improves the liquidity and the share count associated to that it should improve.

James Edward Keenan: It should improve, ultimately, the liability and the ability to manage the liabilities, all of which would accrete to earnings and the NII or the net investment income of the overall portfolio. So that's the next leg of this, which is the benefits of the portfolio. Sure, helpful.

Okay.

Ultimately the liability and the ability to manage to the liabilities all of which would accrete to our earnings in the NII or net investment income.

Overall portfolio. So that's the next leg of this which is the benefits of the merger.

Sure helpful. Thank you and then.

unknown: Thank you. And just to hit on one of the points you made at the end on liabilities, which have become a more relevant topic now as a lot of BDCs are rolling their 25 maturities since I think you have a little bit there, and also you have a lower, lesser amount of unsecured data. I'd have to check as to how that blends with TCPC, but where do you sort of fall given the market cost of debt capital and the desire Yeah, so I think, and Finan, this is Nick, you know, I would say, from an overarching perspective, the combined BDC will have greater access to capital than any of the two standalone BDCs. So, by itself, the scale, we view that as a positive in terms of the perceived great worthiness of the combined BDC.

Just to.

It hit on one of the points you made at the end on liabilities.

Which have become a <unk>.

More relevant topic now is a lot of.

Bdcs are rolling there.

25 maturities since I think you have a little bit there.

And also you have a lower lesser amount of unsecured debt I'd have to check as to how that blends.

With TCP C, but.

Where do you sort of fall given the.

Market cost of debt capital.

And the desire to have more unsecured do you see yourselves as more of a.

30% unsecured or 50% unsecured type the BDC.

Given the two the two of you were pretty different on on that that department.

Yes, so I think.

This is Nick no I would say.

From an overarching perspective.

The combined DC.

We will have greater access to capital than any of the two standalone bdcs.

That breaks out the scale you view that as a positive in terms of the perceived worthiness.

The combined BDC.

Nik Singhal: You know, I think just because TCAPC has been the larger BDC in the past, it has had a greater arsenal of the different kinds of, you know, tools on the liability side of the balance sheet. We expect that approach to continue. And partly, the percentage of secured versus unsecured is also driven by rating agency considerations, and we obviously keep all of those in mind.

I think just.

T J P C. As the larger it is in the past it has had a greater arsenal.

The different kinds of.

But the tools and the liability side of the balance sheet, we expect that approach to continue.

And partly the percentage of secured.

Unsecured is also driven by rating agency considerations, obviously keep all of those in mind.

Nik Singhal: We do see unsecured debt being a core component of our liability structure going forward. And Fin, this is Jim. Just to head back on to that, I mean, we're always looking into the market to see what the optimal capital structure would be at any point in time. I think specific to BKTC, you know, over the last several years, part of our financing strategy has really been tied to the transition of assets, right? So if you recall, some of that legacy book was more junior, had more volatility associated with it, all the things which were hard to kind of, or expensive to kind of price on an unsecured basis.

Didn't see unsecured debt.

A core component of their floor.

We restructured.

Yes fin.

This is Jim I would just add back onto that I mean, we're always looking into the market to see what the optimal.

Capital structure would be at any point in time, I think specific to the ACC.

Over the last several years part of our financing strategy.

<unk> really been tied towards the transition of assets right.

Recall some of that legacy book was more junior add.

<unk> had more volatility associated to that all of the things, which were hard competitive or expenses.

So on an unsecured basis, and so we kind of manage the liability as part of that transition and I think now that were predominantly first lien more diversified.

James Edward Keenan: And so we've kind of managed the liability as part of that transition. And I think now that we're predominantly first lien, more diversified, I think you'll be. Our liability and our cap stack will evolve between the kind of first and first lane and unsecured mix, as well as floating and churned out facilities. I think that's all for me. Thanks so much.

I think the.

Our liability and our cap stack will evolve between the end of the first in first lien and unsecured mix.

As well as floating.

So I'll check out facilities.

I think that's all for me thanks, so much.

unknown: Thanks. We'll now take our next question from Melissa Wedel with J.P. Morgan. Good morning, thanks for taking my questions.

Thanks, Ed.

I will now take our next question from Melissa Wedel with JP Morgan.

Good morning, Thanks for taking my question and.

unknown: My first one is, I wanted to start with a clarifying question really around some of the investment activity levels in the portfolio. I'm curious if the pending merger decision and shareholder vote have impacted any sort of capital deployment activity in BKC. Hi Melissa, this is Nik.

My first one I wanted to start with a clarifying question really around some of the investment activity levels in our portfolio.

I'm curious is the pending merger decision and shareholder.

It has impacted any sort of capital deployment activity in DTC.

Nik Singhal: So the short answer is no. From a deployment perspective, it's been business as usual, and the pending vote has had no impact. Okay. Okay, appreciate that. And then in terms of just sort of the outlook going forward, it's interesting to hear your points about not seeing the core middle market as impacted by spread compression and maybe slight loosening of terms that have happened in the upper middle market.

Hi, Melissa this is Nick so the short answer is no.

And then from a deployment perspective, it's been business as usual in the pending vote handset.

Pat.

Okay.

Okay I appreciate that.

Then in terms of just sort of the outlook going forward.

Interesting to hear your points about not seeing the core middle market as impacted by spread compression.

The slight loosening of terms that it happened at the upper mid market.

Sure.

And.

Nik Singhal: Do you expect to see more M&A activity this year? And if so, how does that impact the portfolio potentially? Is that sort of a, does that put leveraging pressure on the portfolio throughout the year as perhaps core middle market companies are acquired? Yeah, and thanks for the question.

Do you expect to see more M&A activity this year and if so how does that impact the portfolio potentially is that sort of a D does that put deleveraging pressure on our portfolio throughout the areas, perhaps core middle market companies are required.

Yeah and.

Nik Singhal: So one, you know, I would just, you know, make one slight clarification, not saying that the core middle market is not impacted by spreads at all, just that the level of compression we're seeing is less relative to the upper middle market. You know, we're seeing M&A activity starting to pick up. And I really think that that's, to a large extent, a function of the belief that interest rates have stabilized. And while there is a range of opinions about how fast or how much they will go down, we firmly believe that as there is more and more conviction, more LBO, and more M&A activity will take place because, frankly, having confidence beyond the cost of capital is a prerequisite to buyers being able to put a multiple on So, you know, we do expect, certainly, the remainder of 2024 for activity to happen. But again, could that lead to an increased level of prepayments? It is quite likely.

Thanks for the question so one.

<unk>.

Like obligation.

Not saying that the core middle market is not impacted by spreads and I'll just add the level of compression. We are seeing is that right.

To the to the upper.

Middle market.

We're seeing M&A activity starting to pick up.

And I really think that Thats the largest center function that we believe that interest rates have stabilized and while there is a range of opinions about.

How fast or how much they will go down.

We believe that as there's more and more conviction.

More LBO more M&A activity will take place with us.

Confident beyond the cost of capital is a prerequisite to buyers being able to put in multiple.

On deals.

No.

We do expect certainly remainder of 2020 for activity to happen.

And again that lead to an increased level of repayments.

Is quite lately.

Nik Singhal: Again, we operate in a competitive market. We always have, historically, prepayment levels go up and go down. Our goal would be for companies that we like, for good businesses, to try and find a way to stay in those businesses when refinancing occurs. And, you know, it may even lead to opportunities where companies would rather take their money back and go home. Would actually increase the probability that some of those events happen? Yes, and this is Adam.

Again.

We operate in a competitive market, we always have.

Historically prepayment levels go up and go down.

The companies that rely for good businesses to try and find a way to stay in those businesses with refinances occur and if.

It may even lead to opportunities there.

<unk> is where we'd rather get take their money back and go home is.

It actually increases the probability that some of those events.

Yes.

unknown: Sorry, I have one more thing. So whether it's going to be a deleveraging event or not, it's hard to say. I mean, quarter to quarter can be bumpy.

And one more thing so whether it's going to be a deleveraging event, it's hard to say I mean quarter to quarter. It can be lumpy, but we have we have a very diversified origination pipeline.

unknown: But we have, we have a very diversified origination pipeline, you know, a very long track record of industry relationships. And we're confident that we will be able to find development opportunities but will continue to be, Yeah, Melissa, this is Jim. One other thing I would add, I'd be interested in, just from the portfolio, the market trends that you see based on the increasing cost of capital. Now, this event has an impact on some of the deals that exist today when it comes to their interest coverage ratios. On new deals, from new sponsor activity and new M&A, because of the increased cost of capital, we are seeing lower leverage levels being put on those companies relative to two, three years ago. So inherently, there's lower leverage in today's deployment than there was in the legacy or things that were deployed two or three years ago.

<unk> long.

Track record of industry relationships, and we are confident that we will be able to find that opportunity, but we will continue to be disciplined.

This is Jim one other thing I would add I'd be interested just from the portfolio and the market trends that you see based off of the increasing cost of capital.

And obviously that has an impact on some of the deals that.

Exist today when it comes to the interest coverage ratios on new deals.

From new sponsor activity in new M&A because of the increased cost of capital we are seeing lower leverage levels being put on those companies relative to two or three years ago.

So inherently there is a lower leverage than today.

Deployment than there was in the legacy or things that were deployed in two or three years.

unknown: Thank you. And that concludes today's question and answer session. I'd like to turn the conference back to our presenters for any additional or closing comments. Just want to say thank you again and appreciate the support throughout this and just thank you to our shareholders and our team to ultimately the work done over the course of the last year to get here. Thank you. And once again that does conclude today's conference. We thank you all for your participation. You may now disconnect. ?? www.blackrockcapital.com, ? ? ? ? ? ? ? ?

Got it thank you.

And that concludes today's question and answer session I would like to turn the conference back to our presenters for any additional or closing comments.

Just wanted to say, thank you again and I appreciate the support throughout this and just thank you Stuart.

Our shareholders and our team to ultimately.

The work done over the course of the last year to get here. Thank you.

Yeah.

And once again that does conclude today's conference. We thank you all for your participation you may now disconnect.

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