Q4 2023 BlackRock TCP Capital Corp Earnings Call
Operator: Copyright Australian Broadcasting Corporation Ladies and gentlemen, good afternoon. Welcome everyone to BlackRock TCP Capital Corp's fourth quarter and full year 2023 earnings conference call. Today's conference call is being recorded for replay purposes. During the presentation, all participants will be in a listen-only mode.
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Ladies and gentlemen, good afternoon, welcome everyone to Blackrock TCP Capital Corp, 's fourth quarter and Soviet 2023 earnings Conference call. Today's conference call 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 companys formal remarks.
Operator: A question and answer session will follow the company's formal remarks. To ask a question, please press the star key followed by the digit one. I will repeat these instructions before we begin the Q&A session. Now, I would like to turn the call over to Katie McGlynn, Director of the BlackRock TCP Capital Corp Investor Relations Team. Katie, please proceed.
I'll ask a question. Please press the star key followed by the digit one I will repeat these instructions before we begin the Q&A session.
Now I would like to turn the call over to Katie Mcglynn director of the Blackrock TCP Capital Corp, Investor Relations team Hey T. Please proceed.
Kathleen McGlynn: Thank you, Emily. Before I begin, I'll note that this conference call may contain forward-looking statements based on the estimates and assumptions of management at the time of such statements and are not guaranteed for 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 call are made as of today and are subject to change without notice. Additionally, certain information discussed and presented may have been derived from third-party sources and has not been independently verified.
Thank you Emily before I begin I'll note that this conference call may contain forward looking statements based on the estimates and assumptions of management at the time of such statements and are not guarantees of future performance.
Forward looking statements involve risks and uncertainty and actual results could differ materially from those projected any forward looking statements made on this call are made as of today and are subject to change without notice.
Additionally, certain information discussed and presented May have been derived from third party sources and has not been independently verified.
Kathleen McGlynn: Accordingly, we make no representation or warranty with respect to such information. Earlier today, we issued our earnings release for the fourth quarter and full year ended December 31st, 2023. We also posted a supplemental earnings presentation on our website at www.tccapitals.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 Presentations. These documents should be reviewed in conjunction with the company's Form 10-K, which was filed with the SEC earlier today. I will now turn the call over to our Chairman and CEO, Raj Vig. Thanks, Katie.
Accordingly, we make no representation or warranty with respect to such information.
Earlier today, we issued our earnings release for the fourth quarter and full year ended December 31st 2023.
We also posted a supplemental earnings presentation to our website at www Dot TCP capitals Dot com.
The five presentation, which we will refer to on today's call. Please click on the Investor Relations link and select events and presentations.
These documents should be reviewed in conjunction with the company's Form 10-K, which was filed with the SEC earlier today.
I will now turn the call over to our chairman and CEO Raj Vig.
Thanks Kim.
Rajneesh Vig: And thank you all for joining us for TCPC's fourth quarter and year-end 2023 earnings call. I will begin the call with an overview of our fourth quarter and full year results and then provide an update on our proposed merger with our affiliate BDC, BlackRock Capital Investment Corporation, or BCI. Phil Tseng, our President and Chief Operating Officer, will then review the investment environment and our portfolio activities.
And thank you all for joining us for <unk> fourth quarter and year end 2023 earnings call.
I will begin the call with an overview of our fourth quarter and full year results and then provide an update on our proposed merger with our affiliated BDC Blackrock Capital Investment Corporation.
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Bill <unk>, our President and Chief operating Officer will then review the investment environment and our portfolio activity.
Rajneesh Vig: Erik Cuellar, our Chief Financial Officer, will review our financial results as well as our capital and liquidity and related details. Finally, I will wrap up with a few comments on the outlook and opportunities we see ahead before taking your questions. Let's begin with a review of our fourth quarter and full year results. I am pleased to report that for the full year of 2023, TCPC delivered net investment income of $1.84 per share, an increase of 20% over 2022. Our annualized net investment income return on equity for the year was 14.5%, given our predominately floating rate portfolio and higher proportion of fixed rate liabilities. Our net investment income for the period benefited from strong credit performance, higher base rates, and a marginally wider spread.
Eric <unk>, our Chief Financial Officer will review, our financial results as well as our capital and liquidity in more detail. Finally, I will wrap up with a few comments on the outlook and opportunities. We see ahead before taking your questions.
Let's begin with a review of highlights from our fourth quarter and full year results.
I am pleased to report that for the full year of 2023, Tcp's, we delivered net investment income of $1 84 per share.
Increase of 20% over 2022.
Our annualized net investment income return on equity for the year was 14, 5%.
Given our predominantly floating rate portfolio and higher proportion of fixed rate liabilities.
Net investment income for the period benefited from strong credit performance higher base rates and marginally wider spreads.
Rajneesh Vig: That investment income for the fourth quarter was $0.44 per share, and our run rate NII at the end of the quarter again remained among the highest in TCPC's history as a public company. During the fourth quarter, our NAB declined 6.4%, reflecting in part the special dividend of 25 cents we paid on December 31st, in addition to our regular dividends. Excluding this special dividend, NAV declined 4.5%, primarily due to net unrealized losses on three portfolio companies, Admentum, Thrasio, and Secura.
Net investment income for the fourth quarter was <unk> 44 per share and our run rate NII at the end of the quarter again remained among the highest.
<unk> history as a public company.
During the fourth quarter, our NAV declined six 4%, reflecting in part the special dividend of 25 since we paid on December 31.
In addition to our regular dividend.
Excluding this special dividend NAV declined four 5%, primarily due to net unrealized losses of three portfolio companies and make them <unk> to secure.
Rajneesh Vig: We will discuss each of these companies in more detail, but I would like to emphasize that the write-downs of the fourth quarter were mostly the result of unique circumstances impacting the aforementioned portfolio companies, and in the case of Throbbio, the subsector in which it operates, versus any indication of broader credit or macroeconomic-related challenges in our portfolio. Despite concerns in the market about how higher interest rates and the recession might be pressuring middle market borrowers, we believe that, in general, our portfolio companies are successfully navigating the current environment given the proven resilience of the sectors and companies we focus on. In fact, as of the most recent quarter, the majority of our portfolio companies continue to report revenue and margin growth in their businesses. Now, turning back to the three primary contributors to net unrealized losses in the quarter. I'll begin with Admentum, which has been a long-term beneficiary of the shift to online learning, which accelerated during COVID, but is now experiencing a reversion to a more normalized but still positive demand environment.
We will discuss each of these companies in more detail, but I would like to emphasize that the write downs in the fourth quarter are mostly the result of unique circumstances impacting the aforementioned portfolio companies and in the case of throughout the sub sector in which it operates.
Versus any indication of broader credit for macroeconomic related challenges to our portfolio.
Despite concerns in the market about how higher interest rates and the recession might be pressuring middle market borrowers. We believe that in general our portfolio companies are successfully navigating the current environment given the proven resiliency of the sectors and companies we focus on <unk>.
In fact, the most recent quarter the majority of our portfolio companies continue to report revenue and margin growth in their businesses.
Now turning back to the three primary contributors to net unrealized losses in the quarter.
I'll begin with Atlanta, which has been a long term beneficiary of the shift to online learning.
Which accelerated during COVID-19, but is now experiencing a reversion to a more normalized but still positive demand environment.
Rajneesh Vig: As a reminder, our current investment event is in attendance, and represents a residual equity position after receiving full repayment of our original debt investment, while we remain confident in the prospects for this well-positioned business. Given overall positive secular trends, we reversed a portion of the unrealized gains we had previously recognized on our investment to reflect current demand and performance expectations. Second is Drazia, an Amazon aggregator that, along with much of the sector, had initially been impacted by COVID-related supply chain issues and then by slowing growth in online consumer spending.
As a reminder, our current investment in <unk>.
Mentioned as a residual equity position after receiving full repayment of our original debt investments.
While we remain confident in the prospects for this well positioned business.
Given overall positive secular trends, we've reversed a portion of the unrealized gains we had previously recognized on our investment to reflect current demand and performance expectations.
Second Australia, and Amazon aggregator that along with much of this sector had initially been impacted by Covid related supply chain issues, and then by slowing growth in online consumer spending.
Rajneesh Vig: The combination has generally left industry participants, including Thrasio, with temporary excess inventories and many with overleveraged balance sheets relative to their current operations. While we placed this loan on non-accrual during the beginning of the most recent quarter, we've actually been working closely for some time now with the management team and other lenders to improve liquidity and position the company for long-term success. As of yesterday, this involved the company formally filing for bankruptcy to accelerate the achievement of a number of these objectives, as well as to incorporate a protected lender-led finance system. I'd like to highlight that our team began reviewing and ultimately investing in the aggregator space relatively early, and we believe we have selected the ultimate winners in this growing space. Generally, these will be scaled players that have management teams with the experience, funding, and ability to navigate these temporary industry challenges.
The combination has generally left the industry participants, including <unk> with temporary excess inventories and many with over leveraged balance sheets relative to their current operations.
While we placed this loan on non accrual during the beginning of the most recent quarter, we've actually been working closely for some time now with the management team and other lenders to improve liquidity and positioning the company for long term success.
As of yesterday. This involves the company formally filing for bankruptcy to accelerate achievement of a number of these objectives.
As well as to incorporate a protected lender led financing.
Like to highlight that our team began reviewing and ultimately investing because the aggregator space relatively early and we believe we have selected the ultimate winners in this growing space.
Generally these will be scaled players that have management teams with the experience.
Being an ability to navigate these temporary industry challenges.
Rajneesh Vig: 30 Securus is a traded loan that has faced mark-to-market volatility over the last several quarters, reflecting broad market conditions, as well as some company-specific issues. While 2023 performance has tracked ahead of prior years, The Charest has faced liquidity tightness due to an elevated cost structure and CapEx requirements as part of a large 2020 product, tablet rollout, and upcoming debt maturity. We are in active discussions with key stakeholders regarding next steps and the path forward.
30, secures a traded loan that has faced mark to market volatility over the last several quarters.
Afflicting broad market conditions as well as some company specific issues.
While 2020 and great performance is tracking ahead of prior year's secures has faced liquidity tightness due to an elevated cost structure and capex requirements as part of a large 2022 products tablet rollout.
And upcoming debt maturities.
We are in active discussions with key stakeholders regarding next steps and the path forward.
As a reminder, our team has unique expertise and a proven track record of success working through challenging credits such as these.
We are leveraging this expertise and proactively working with the management teams owners and lenders are these businesses to drive performance improvements at the companies and ultimately a positive outcome for our investments.
Rajneesh Vig: As a reminder, our team has unique expertise and a proven track record of success working through challenging credits such as these. We are leveraging this expertise and proactively working with the management teams, owners, and lenders of these businesses to drive performance improvements at the companies and ultimately a positive outcome for our investors. Importantly, outside of these idiosyncratic situations, the credit quality of our portfolio remains solid. Now, turning to our dividend. Today, our board of directors declared a first quarter dividend of 34 cents per share, consistent with our fourth quarter regular dividends. This first quarter dividend will be payable on March 29th to shareholders of record on March 14th.
Importantly outside of these idiosyncratic situations the credit quality of our portfolio remains solid.
Now turning to our dividend today, our board of directors declared a first quarter dividend of 34 per share, which is consistent with our fourth quarter regular dividend.
This first quarter dividend is payable on March 29 to shareholders of record of March 14th.
<unk> always taken a disciplined approach to the dividend with an emphasis on stability and strong coverage from our recurring net investment income.
Throughout <unk> history, we have consistently covered our dividends with recurring NII and have also paid several special dividends, including in recent quarters.
Before handing it over to Phil I'd also like to give a quick update on the proposed merger of <unk> with <unk>.
As we approach the shareholder vote, we look forward to closing the transaction.
Rajneesh Vig: We have always taken a disciplined approach to the dividend with an emphasis on stability and strong coverage for a more recurring net investment income. Throughout TCPC's history, we have consistently covered our dividends with recurring NII and have also paid several special dividends, including in recent quarters. Before handing it over to Phil, I'd also like to give a quick update on the proposed merger of TCPC with BCIC.
Currently as possible the successful vote of each BDC.
Excited about the potential for the transaction, which will bring together two very similar portfolios that we know well with substantial overlap <unk> Creek, we expect to create meaningful value for all shareholders.
We hope that any of our shareholders, who have not yet voted on the transaction will vote today or in the near future.
Now I will turn it over to Phil to discuss our investment activity and portfolio.
Thanks Roger.
I'll start with a few comments on the investment environment before providing an update on the portfolio and highlights from our investment activity during the fourth quarter.
Philip M. Tseng: As we approach the shareholder vote, we look forward to closing the transaction as promptly as possible after the successful vote of each BBC. We remain excited about the potential for the transaction, which will bring together two very similar portfolios that we know well with substantial overlap and which we expect to create meaningful value for all shareholders. We hope that any of our shareholders who have not yet voted on the transaction will vote today or in the near future. Now I will turn it over to Phil to discuss our mission activity and portfolio. Thanks, Raj.
Starting with the investment environment.
While economic uncertainty resulted in a slowdown in private credit transactions in the first half of 2023, we saw a modest pickup in the fourth quarter.
This was driven by pockets of activity in both sponsor and non sponsor opportunities refinancings and follow on financings to support existing portfolio companies.
Over the past nine months or so we've seen increased bifurcation of the direct lending market.
Many of them observe more borrower friendly trends, such as tightening pricing and covenant light deal structures.
Philip M. Tseng: I'll start with a few comments on the investment environment before providing an update on the portfolio and highlights from our investment activities during the fourth quarter, starting with the impact of the virus. While economic uncertainty resulted in a slowdown in private credit transactions in the first half of 2023, we saw a modest pick-up in the fourth quarter. This was driven by pockets of activity in both sponsor and non-sponsor opportunities, refinancing, and follow-on. http://TheBusinessProfessor.com. Over the past nine months or so, we've seen an increased bifurcation of the direct lending market. Many of them serve more borrower-friendly trends, such as tightening pricing and covenant-like deal structure. These are especially prevalent in the upper middle market given the robust return. However, the core middle market, where we focus..., is less impacted by this trend. We remain disciplined and continue to pass on a substantial number of less attractive opportunities, particularly when we believe that pricing does not correspond to risk, or terms don't provide adequate. In the fourth quarter of 2023, we invested $40 million, primarily in secured money. Deployment of the quarter included loans to five new and one existing portfolio.
These are especially prevalent in the upper middle market, given the robust return of banks.
The core middle market, where we focus has been less impacted by this trend, but we continue to leverage our industry expertise to opportunistically source and in the past.
10%.
Reward opportunities.
We remain disciplined and continue to pass on the substantial number of less attractive opportunities, particularly when we believe that pricing does not appropriately reflect that.
Corresponding risk or terms don't provide adequate lender protections.
In the fourth quarter of 2003, we invested $40 million.
Primarily in senior secured loans.
Deployment of the quarter included loads of five new and one existing portfolio company.
Consistent with our strategy our emphasis remains on companies with established business models and proven core customer basis that make them more resilient.
And reviewing new opportunities, we emphasized transactions, where we are positioned as a vendor invoice that is where we have a direct relationship with the borrower and the ability to leverage our more than two decades of experience in negotiating terms and conditions that we believe provide meaningful downside protection.
We believe this has been a key driver of the low realized loss rates, we've experienced over our history.
Our industry specialization continues to be an advantage as it provides two key benefits for us in this environment.
It enhances our ability to assess the effect will be mitigated risks in our underwriting when we negotiate terms and credit documentation.
Philip M. Tseng: Consistent with our strategy, our emphasis remains on companies with established business models and proven core customer bases that make them competitive. In reviewing the offer today, we emphasize transactions where we are positioned as a lender. That is, where we have a direct relationship with the borrower and the ability to leverage our more than two decades of experience in negotiating.
And two it expands our deal sourcing capabilities with sponsors and non sponsors who valued at industry expertise, which lends itself to more reliable execution in their eyes.
Follow on investments in existing holdings continues to be an important source of opportunity.
About half the dollars will be deployed over the last 12 months with existing portfolio.
Our largest new investments during the fourth quarter was $25 million senior secured first lien term loan.
Philip M. Tseng: We believe this has been a key driver of the low realized loss rates we've experienced over our years. Our industry specialization continues, as it provides two key benefits for us in this environment. First, it enhances our ability to assess and effectively mitigate risk in our underwriting when we negotiate terms and credit, to expand our deal sourcing, with sponsors and non-sponsors, value that industry, which lends itself to more reliable experts in there. Follow-on investments in existing holdings continue to be an important source of our. About half of the dollars we deployed over the last 12 months were with existing corporations. Our largest new investment during the fourth quarter was $25 billion in Senior Secure, First Link Turbo, and Kool-Aid to support the acquisition. He owns and operates two of the three casinos and hotels in New York City, Nevada. The Casablanca Resort and the Virgin River Hotel.
To support the acquisition of Mesquite gaming.
<unk> owns and operates two of the three casinos and hotel in the Mesquite, Nevada market. The Casa Blanca resort in the Virgin River Hotel Casino.
We view this as an attractive investment opportunity as a company stands to benefit from strong ongoing customer demand given it positioned in a growing market as well as favorable competitive dynamics and high barriers to entry.
New investments in the fourth quarter were offset by disposition and pay offs of $42 million.
As part of our ongoing portfolio management, we closely monitor indirectly engage with our existing portfolio companies.
<unk> assertion, both current and projected performance relative to tip to our original underwriting assumptions.
In the limited situations, where performance is below our expectations. We are engaged with the management teams and owners to proactively drive performance improvement and ensure our capital remains well protected.
Philip M. Tseng: We view ESG as an attractive investment opportunity. The company stands to benefit from strong, ongoing customers, given its position in the growing market, as well as favorable competitive dynamics and high barriers. New investments in the fourth quarter were offset by dispositions and payoffs of $42 million. As part of our ongoing portfolio management, we closely monitor and directly engage with our existing portfolio, collectively assessing both current and projected performance well for our regional underwriters. In the limited situations where performance is below or, we are engaged with the management teams and owners to proactively drive performance, to make sure our capital remains well-preserved. Managing situations where our capital may be at risk is a priority for us.
Managing situations, where a couple may be at risk is a key priority for us and.
We believe our 20 plus years of experience in managing portfolios through cycles will lead to improved outcomes.
The majority of our portfolio companies are successfully navigated the higher rate environment, the labor inflation and the general uncertainty in this economy.
And continue to deliver revenue growth and margin expansion.
Should flex the durability of companies in the middle market.
Our ability to obtain the REIT industry and the right company.
Now turning to our portfolio.
At quarter end, our portfolio had a fair market value of approximately $1 6 billion.
89% of our investments were senior secured debt.
Philip M. Tseng: And we believe our 20 plus years of experience in managing portfolios through cycles will lead to a pre-doc. The majority of our portfolio companies are successfully navigating the higher rate market, the lingering inflation, and the general uncertainty in this economy and continue to deliver revenue growth and market share. This reflects the durability of companies in the middle market, as well as our ability, and The Wright Industry.
Across a wide range of industries, providing portfolio diversity and minimizing concentration risks.
We also continue to emphasize companies less cyclical industry.
At quarter end the portfolio consisted of investments in 142 companies and our average portfolio company investment was $11 million.
As the chart on slide seven of the presentation illustrates our recurring income is distributed broadly across our portfolio is not reliant income any one company in fact more than 90% of our portfolio companies each contribute less than 2% to our recurring income.
Philip M. Tseng: Now turn to our portfolio. At quarter end, our portfolio had a fair market value of approximately. Eighty-nine percent of our assets, spread across a wide range of industries, for providing portfolio diversity and minimization. We also continue to empathize with companies that are less fit. At quarter end, our portfolio consisted of investments in 142 companies, and our average portfolio company investment was $11 million. As the chart on slide 7 of the presentation illustrates, our recurring income is distributed broadly across our portfolio. Do not rely on it. In fact, more than 90% of our book flew, all across the black, forward.
83% of our debt investments are first lien provide us significant downside protection and 96% of our debt investments are floating rate.
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The overall effective yield on our debt portfolio increased to 14, 1% from 12, 7% at the end of 2022, reflecting the benefit of both.
Higher base rates and wider spreads on new investments.
Investments in new portfolio companies during the quarter at a weighted average effective yield of 13, 4%.
<unk> the 12, 5% the weighted average effective yield on exited positions.
Post quarter end, we've seen a pickup in activity driven by pent up demand as borrowers and private equity sponsors adjust to the current rate environment our pipeline.
Philip M. Tseng: 83% of our debt investments are first lien, providing significant downside protection, and 96% of our debt investments are floating. The overall effective yield on our debt portfolio increased to 14.1% from 12.7%, likely the benefit of a higher base rate and wider spread on the adjustment. Investments in new portfolio companies during the quarter had a weighted average effective yield of 13.4%, exceeding the 12.5% weighted average effective yield line.
And is growing and the projected yields in our pipeline are generally in line with our current portfolio.
To date, we've had no prepayment income in the first quarter.
Yeah.
We continue to invest selectively.
Maintaining our underwriting discipline, while being mindful of the ongoing macroeconomic uncertainty.
We emphasize companies that provided necessary service or product to their customers such that there are more resilient across cycles.
It's important to note that we've not underwrite to perfection.
Ted we seek to build in sufficient buffers to ensure companies can withstand changes in the macro environment without impairing their ability to service our though.
Looking forward, we believe we are well positioned to continue to deliver attractive returns given that our team is one of the longest track records in direct lending any of the publicly traded BDC.
Philip M. Tseng: Post-quarter end, we've seen a pickup in activity driven by pent-up demand as borrowers and private equity sponsors adjust to the current. Our pipeline is growing, and the projected yields in our pipeline are generally in line with our current portfolio. To date, we have had no pre-payment income in the first...
While we do not have an explicit forward view on rates. We do believe we will be at a slower growth and elevated rate environment for the foreseeable future and could see a range of macroeconomic scenarios.
In periods like these.
Erik L. Cuellar: Document.8, We emphasize companies that provide a necessary service or product to their customers such that they are more resilient across the board. It's also important to note that we do not underwrite imperfection. Instead, we seek to build sufficient buffers to ensure companies can withstand changes in the macro environment without impairing their ability to do so. Looking forward, we believe we are well-positioned to continue to deliver attractive returns. And that our team has one of the longest track records in direct lending in any of the publicly-traded... While we do not have an explicit forward view on rates, we do believe we will be in a slower growth and elevated rate environment for the foreseeable future and could see a range of macroeconomic. Our experience, combined with our deep industry knowledge, provides an advantage, and has resulted in strong results. Now, I will turn it over to Erik to walk through our financial results, as well as our capital. Thank you, Phil.
Our experience combined with our deep industry knowledge provide us an advantage.
Has resulted in strong results through various cycles.
Now, let me turn it over to Eric to walk through our financial results as well as our capital and liquidity positioning.
Thank you Phil.
As Ralph noted our net investment income in the fourth quarter benefited from the increase in base rates over the last 18 months.
As well as wider spreads on new investments.
Net investment income of 44 cents.
It's up 10% versus the fourth quarter of 2022.
On an annual basis net investment income was $1 84 per share.
An increase of approximately 20% over 2022.
Today, we declared a first quarter dividend <unk> 34 per share.
We remain committed to paying a sustainable dividend that is fully covered by our net investment income.
Regardless of the interest rate environment as we have done consistently over the last 12 years.
Erik L. Cuellar: As Raj noted, our net investment income in the fourth quarter benefited from the increase in base rates over the last 18 months, as well as wider spreads on new investments. Land investment income of 44 cents was up 10% versus the fourth quarter of 2022. On an annual basis, net investment income was $1.84 per share, an increase of approximately 20% over 2022. Today, we declared a first quarter dividend of 34 cents per share. We remain committed to paying a sustainable dividend that is fully covered by our net investment income, regardless of the interest rate environment, as we have done consistently over the last 12 years. Investment income for the fourth quarter was $0.88 per share. This included recurring cash interest of $0.76, recurring discount and fee amortization of $0.03, and Tech Income of Sixth Sense. Pick income remains in line with the average over our history.
Investment income for the fourth quarter with 88 per share.
This included recurring cash interest of 76.
Recurring discount and fee amortization of <unk>.
And Pik income of <unk>.
Pik income remains in line with the average over our history.
Investment income also included <unk> <unk> per share of dividend income.
Operating expenses for the fourth quarter were <unk> 35 per share and.
And included <unk> <unk> of interest and other debt expenses.
Incentive fees in the quarter totaled $5 $3 million or <unk> <unk> per share.
Net realized losses for the quarter were $16000 or less than a penny per share.
Net unrealized losses in the fourth quarter totaled $38 million or <unk> 66 per share.
Primarily reflecting unrealized markdowns on three investments, which Raj discussed earlier.
The net decrease in net assets for the quarter was $13 $3 million or 23 per share.
Erik L. Cuellar: Investment income also included $0.02 per share of dividend income. Operating expenses for the fourth quarter were $0.35 per share and included $0.20 of interest and other debt expenses. Incentive fees in the quarter totaled $5.3 million, or $0.09 per share. Net real life losses for the quarter were $16,000, or less than a penny per share. Net unrealized losses in the fourth quarter totaled $38 million, or $0.66 per share, primarily reflecting unrealized markdowns on three investments, which Rajneesh discussed earlier. The net decrease in net assets for the quarter was $13.3 million, or $0.23 per share.
Thanks Raj noted the credit quality of our overall portfolio remains strong.
As of December 31, we.
We have four portfolio companies on nonaccrual.
Representing 2.0% of the portfolio at fair value and three 7% at cost.
Turning to our liquidity.
Our balance sheet positioning remains solid.
And our total liquidity increased to $349 million at the end of the quarter realm.
Relative to our total investments of $1 6 billion.
This included available leverage of $247 million and cash of $112 million.
Unfunded loan commitments to portfolio companies year end equals 4% of total investments were approximately $55 million.
Erik L. Cuellar: As Rajneesh noted, the credit quality of our overall portfolio remains strong. As of December 31st, we have four portfolio companies on non-accrual, representing 2.0% of the portfolio at fair value and 3.7% at cost. Turning to our liquidity, our balance sheet positioning remains solid, and our total liquidity increased to $349 million at the end of the quarter, relative to our total investments of $1.6 billion. This included available leverage of $247 million and cash of $112 million. Unfunded loan commitments to portfolio companies at year end equal 4% of total investments or approximately $55 million, of which only 35 million were revolver commitments.
Of which only $35 million revolver commitments.
Our diverse and flexible leverage program includes two low cost credit facilities.
Two unsecured note issuances and an SBA program.
Our unsecured debt continues to be investment grade rated by both Fitch and leaks.
Given the modest size of each of our debt issuances, we are not overly reliant on any single source of financing.
And our debt maturities remain well at it.
Additionally, we are comfortable with our current mix of <unk>.
Secured and unsecured financing and do not have any immediate financing needs.
Combined the weighted average interest rate on our outstanding borrowings modestly increased during the quarter to $4 two 9%.
It's also up only 138 basis points since March of 2022.
Erik L. Cuellar: Our diverse and flexible leverage program includes two low-cost credit facilities, two unsecured no-issuances, and an SBA program. Our unsecured debt continues to be investment-grade rated by both Fitch and Lee. Given the modest size of each of our debt issuances, we are not overly reliant on any single source of finance, and our debt maturities remain well within sight. Additionally, we are comfortable with our current mix of secured and unsecured financing and do not have any immediate financing needs. Combined, the weighted average interest rate on our outstanding borrowings modestly increased during the quarter to 4.29%, but it's also up only 138 basis points since March of 2022, while base rates have increased more than 500 basis points during this period. This is the result of having over 73% of our borrowings from fixed-rate sources.
Base rates have increased more than 500 basis points during this period.
This is the result of having over 73% of our borrowings from fixed rate sources.
Now I'll turn the call back over to Raj.
Thanks, Eric.
So I think on our historical performance since we took <unk> public in 2012, we've delivered a 10, 1% annualized return on invested assets.
On an annualized cash return of nine 7%.
We are very proud of these results which include performance during periods when base rates were substantially lower than they are today.
This performance remains at the high end of our peer group.
And speaks to our ability to consistently identify attractive middle market opportunities at premium yields and to deliver exceptional returns to our shareholders.
<unk> market and economic cycles.
Looking ahead, we see significant opportunity to.
To continue to build upon our track record of success.
Traditional lenders continue to retreat from lending to the middle market.
Same time more borrowers be private credit as an attractive and stable source of long term capital.
Rajneesh Vig: Now, I'll turn the call back over to Raj. Thanks Erik. Reflecting on our historical performance since we took TCPC public in 2012, we've delivered a 10.1% annualized return on invested assets and an annualized cash return of 9.7%. We are very proud of these results, which include performance during periods when base rates were substantially lower than they are today. We believe this performance remains at the high end of our peer group and speaks to our ability to consistently identify attractive middle market opportunities, have premium yields, and deliver exceptional returns to our shareholders across market and economic cycles. Looking ahead, we see significant opportunity to continue to build upon our track record of success. Traditional lenders continue to retreat from lending to the middle market.
Middle market borrowers are increasingly turning to private credit for their financing needs.
And to your execution flexibility at close partnerships that can provide value beyond with bank financing historically offered.
As a pioneer in direct lending, we believe <unk> is uniquely positioned to benefit from growing demand for private credit. Additionally.
Additionally, we are excited about our combination with <unk>.
The opportunity, we see a hedged deliver solutions to our borrowers and to structure transactions to do.
Very attractive returns to our shareholders.
And with that operator, please open the call for questions.
Okay.
Yeah.
Yes.
Yeah.
Okay.
We will now begin the question answer session.
If you would like to ask a question you may do so now by pressing star followed by the number one on your telephone keypad.
Operator: At the same time, more borrowers view private credit as an attractive and stable source of long-term capital. Middle market borrowers are increasingly turning to private credit for their financing needs, given certainty of execution, flexibility, and close partnerships that can provide value beyond what bank financing has historically offered. As a pioneer in direct lending, we believe TCPC is uniquely positioned to benefit from growing demand for private credit. Additionally, we are excited about our combination with BCIS and the opportunity we see ahead to deliver solutions to our borrowers and to structure transactions for delivering track-to-returns to our shareholders. And with that, Operator, please open the phone for questions. www.thevenusproject.com We will now begin the question and answer session. If you would like to ask a question, you may do so now by pressing start, followed by the number 1 on your telephone keypad.
Our first question today comes from Christopher Nolan with Ladenburg Thalmann.
Please go ahead.
Hey, guys.
Correct, yes.
Turning on to new investments in the quarter.
Most of these investments for spar.
Sponsors who are investing in new companies, which is support.
<unk> existing portfolio company.
Yes, Chris this is Phil.
It's both it's about I'd say close to about half and half.
Support for new platforms.
In the prepared remarks with a game that is.
But there are a number of.
Of add.
Add ons to existing portfolio company.
Okay.
And then are you seeing a decrease in dividend income from portfolio companies in general.
Sorry, do you mean in terms of our NII and Chris.
Yes, the dividend income that you guys would receive from a portfolio of companies are you seeing that decrease.
Christopher Whitbread Patrick Nolan: Our first question today comes from Christopher Nolan with Leydenburg-Salmon. Please go ahead. Hey guys, I guess turning on to new investments in the quarter, were most of these investments for sponsors who are investing in new companies or just supporting a sponsor's existing portfolio? Yeah, thanks Chris and Phil. It's both.
No we've seen it go the other direction I mean, we had.
If I may.
I'm, saying the question correctly.
Keep in mind, our our spreads are fixed.
And the base rate.
The reference rate.
Generally through 'twenty three is has been quite positive.
I think.
Philip M. Tseng: It's about, I'd say, close to about half-and-half. We need support from these platforms, of which there are a number. Bye, add-on to the existing portfolio. And then, are you seeing a decrease in dividend income from portfolio companies in general? Sorry, do you mean in terms of RNII, Chris? Yeah, the dividend income that you guys would receive from a portfolio company. Are you seeing that? No, we've seen it go in the other direction, where we've had...
And we've seen obviously enough to give results that drive a couple of specials on top of.
A couple of kids that increases.
I think that only come back in 90 company, but.
Investment I can highlight that a little bit of a different experience has been our JV at 36th Street.
In part because unlike the rest of our portfolio. They are doing fixed rate leases with some duration that debt.
Philip M. Tseng: I'm not sure if I'm understanding the question correctly. Keep in mind that our, you know, our spreads are fixed. And the base rate is the reference rate that, you know, generally through 23 has been quite positive. I think we've, you know, and we've seen obviously enough to give results that drive a couple of specials on top of a couple of goods that increase. I think the only company I can think of, or not even a company, but... You can also find us on Facebook at www.facebook.com, Twitter at www.twitter.com, and Instagram. Website, dividend, sustained dividend improvements, increases, and I think we've really tried our best to send that out to shareholders in a responsible manner. For more information, visit www.casagrandeaz.gov. Last question, the 20 Giving your comments higher for longer, is your inclination to finance that with bank borrowings or to do another? Thanks, Chris.
I think a bit higher on average on a return on asset.
Level, but also have the ability to get some quite good advance rate.
At the JV level, but I wouldn't call it material obviously.
The one area I would carve out but other than that.
As a results highlight there has been quite positive.
Dividend.
Staying dividend improvements increases and I think we've really tried our best to.
Send that out to shareholders in a responsible manner.
Ralph I'll go offline last question through 2024 notes how are you guys thinking about refinancing that giving your comments higher for longer is your inclination to finance that with.
Okay.
Thanks borrowings or to do another fixed rate issue.
Yes.
Thanks, Chris I'll take that question.
Yes.
Definitely keeping a close eye on the market, we're very happy with the way the.
The market has opened up for the BDC sector.
Like what we're seeing.
We also are happy that we have flexibility.
And our credit facilities.
Erik L. Cuellar: I'll take that question. We're definitely keeping a close eye on the market. We're very happy with the way the market has opened up for the BDC sector, and we like what we're seeing. We are also happy that we have flexibility and our credit facilities, but certainly, we're going to be looking to address that need in the next couple of quarters. Okay, next question. Thank you. As a reminder, if you would like to ask a question today, please do so now by pressing start followed by the number 1 on your telephone keypad. Our next question comes from Paul Johnson with KBW. Please go ahead, Paul. Good morning or afternoon, everyone.
But certainly we're going to be.
Looking to address that need.
In the next couple of quarters.
Okay. Thanks, guys.
Thank you.
As a reminder, if you'd like to ask a question today. Please do so now by pressing star followed by the number one on your telephone keypad.
Our next question comes from Paul Johnson with <unk>. Please go ahead Paul.
Good morning or afternoon, everyone.
Thanks for taking my question.
On the new non accrual there.
Ross CEO.
I know thats, a non accrual it's been a couple of other bdcs portfolios.
But I'm just wondering if you can kind of give some color as to.
Paul Johnson: Thank you. On the new Nanacool Gratio, I know that's a brand that's been on other BDC portfolios, but I'm just wondering if you can kind of give some color as to, kind of, you know, the storyline there maybe. And then, you know, how much approximately would you say, you said, you mentioned that you've had other winners in that space, but how much of your portfolio is?
Kind of the storyline, there may be and then how much approximately I would you say you know you said you mentioned that you've had other winners in that space and how much of your portfolio are these.
E retailer e-commerce rollout.
Yeah.
Yeah. Thanks for the question I'll try to.
Several questions I'll try to.
Partially an answer that just to remind.
Rajneesh Vig: Yeah, thanks for the question. I'll try to, or several questions, I'll try to... Just to remind everyone, the exposure of Razio in the portfolio is approximately 1%. So by no means material, but every company is important. We'll come back to you on the broader exposure, but it won't be significantly more than that. The history here is, you know, I think maybe not that different in other areas of high growth. You have seen a industry, or a sub-industry I would say, emerge from a dramatic movement to online spending and I would call it the Amazonization of the world where people have moved from buying things in stores to online with significant spend and the ability to support, several winners of scale with a dramatically Transcribed by https://otter.ai, As in other areas of fast growth, the companies, I think the valuations got a little bit ahead of the companies, and then you had a series of incidents coming to COVID, where supply chains and supplies were a little constrained, due to COVID, then ordered in a little bit of excess to provide the buffer, for anticipated spend, and then spend being a little bit compressed because of recessionary, So the way I would describe it is good businesses, but stretched balance sheets as a result.
Everyone the exposure at <unk> and the portfolio is approximately 1%.
So by no means material.
The company is important.
I'll come back to you on the broader exposure, but it won't be significantly more than that.
History here is.
I think maybe not that different than other areas of high growth.
<unk> seen.
Industry.
Or sub industry, I would say emerge from a dramatic.
Movement to online spending.
I'd call it the amortization Amazon Asia is Asia.
The world, where people have moved from buying things in stores to online.
With significant spend and the ability to support.
Several layers of scale.
And dramatically.
Exciting long term equity opportunity.
As in other areas of fast growth.
Companies I think the valuations that are little bit ahead of the companies and then you had a serious thanks, James Cummings Colgate where.
Supply chain or.
And supplies were a little constrained.
Due to Covid, then ordered in a little bit of access to provide a buffer.
For anticipated spend and then spend being a little bit compressed because of recessionary issues.
So as we describe it as good businesses, but stretched balance sheets as a result.
Rajneesh Vig: But a sector that will absolutely support several companies and leaders of scale and long-term winners. I think my comment about our exposure here as You know, as we do in every other industry, we spend a lot of time... both are joining us from indigestion in the context of a long-term set of successful businesses that can exist here that may have needed a little bit of a push, you know, in some cases, lender-led, to fix the balance sheet, provide some financing or consolidation, or both, which is happening, and I think you know we're fortunate we're in And there are other, by no means is this the only activity around addressing those issues. I think some other...
But a sector that will absolutely support several companies and leaders.
Our scale and long term winners I.
I think my comment.
Our exposure here as I think.
Every other industry set a lot of time.
Thinking about the industry dynamics and ultimately the types of players you've wanted to finance.
And I would call the current period, a little bit of indigestion setting.
Having from those issues.
But indigestion in the context of the long term.
Set of successful businesses that can exist here that may have needed a little bit of a push.
In some cases lender led to fix the balance sheet provide some financing or consolidation, which is or both which is happening.
And I think we're fortunate we're in a position of being able to do that with both knowledge and skill set.
We have many prior examples up in this portfolio and others that we manage.
Sure.
Pause there in the aggregate.
Across the sector is closer to 7%.
But it's a process case, just reiterated six 1%.
Yeah.
Gotcha.
7%, you said for sort of that retail rollout strategy.
Yeah.
Across the participants in that sector.
And there are other.
By no means is this.
All the activity.
Around addressing those issues I think some other.
Rajneesh Vig: The specifics will be released in other companies in the next, maybe this week, early this week. Okay, that is a very good call. Thanks for that. And then, you know, if you kind of take those three out, what were the marks on the rest? Was it stable, was there any sort of broad lockdown elsewhere in the portfolio? and many more.
Specifics will be.
And other companies in the next and maybe this weakness earlier this week.
Same to you.
Got it.
Okay.
Okay. That's very good color thanks for that and then.
If you take out.
T O.
But curious or some serious.
There's no sort of.
Decline when you take those three out.
What were the marks on the rest of the portfolio was stable was it was there any sort of broad.
Elsewhere in the portfolio.
Rajneesh Vig: Yeah, I would say I would characterize it as generally stable. You know, there are a lot of companies that have, I don't want to put any numbers down without being accurate, but I think you can see from the general performance that it's pretty stable. To put the NAV movement in context, 75% of it is tied to these three businesses, some of it is tied to the dividends going out the door, and then the remainder, I would say, is pretty de minimis, tied to a very stable, low-performing portfolio for that.
Indeed.
Okay.
Yes, I would say I would characterize it as generally stable.
There arent a lot of companies that have.
Movement I don't know I don't want to put any numbers not being accurate.
I think you can see from the <unk>.
General performance there.
It's pretty stable.
Put the NAV movement in context, 75% of it is tied to these three businesses.
Some of those type of the <unk>.
Dividends going out the door and then the remainder I would say, it's pretty de Minimis tied to a very stable.
<unk> portfolio.
Great Thanks for that.
Rajneesh Vig: And then last question... uh... on the pipeline, uh... bigger picture... Thank you for tuning in. If you thought, you know, where the pipeline was six months ago and, you know, high quality deals or is the market still sort of working on this return of? Yeah, that's a good question, Paul. So, I would say that the pipeline is going to pick up, and we start seeing activity pick up in the last quarter of last year. I would say that the pick-up can seem to be gradual rather than, you know, a step function, hiring. So I think that there's still more to come in terms of buyers and sellers willing to transact, more recently, and so on. I think we're still in the early days on that research. But I'd say, based on what we're hearing and talking to market participants, both business owners, sponsors, and so on. What did you expect?
And then last question in.
Just on the pipeline bigger picture.
Okay.
Picking up.
But just curious.
You know where the pipeline stands today.
<unk> versus <unk>.
Maybe six months ago and.
High quality deals or is the market these markets still.
This return of M&A.
The M&A market.
Yeah. It's a good question Paul So so I would say that the pipeline is seeing a pick up and we start seeing.
A pickup in activity.
Last quarter in Q4 of last year I would say.
Pick up it seems to be gradual rather than a step function higher.
So I think that there is still more to come in terms of.
Buyers and sellers willing to transact.
More refinance activity and so on I think I think we're still early days on that resurgence.
But I'd say.
Based on what we're hearing and talking to market participants.
Both.
Intermediaries business owners sponsors and so on and so we do expect.
Paul Johnson: That activity. And whether that's more weighted towards the back half, it's still, you know, TBD, but we're hoping. Okay, thanks, that's all for me. Thanks, Paul. Our next question comes from Robert Dodd with Raymond James. Robert, please go ahead. Hi guys, going back to Paul's question with Thaddeus, from your comments... file bankruptcy, lender-led financing.
That activity to be meaningfully higher this year than last year.
And whether that's more weighted towards the back half, it's still TBD, but we're hopeful.
Okay. Thanks, that's all for me.
Thanks, Paul.
Our next question comes from Robert Dodd with Raymond James.
Please go ahead.
Hi, guys.
Consequentially cracks from your comments.
Robert James Dodd: Can we presume that there will be incremental capital deployed to Thrasio, maybe Q1, Q2, but in kind of the first half of the year, that there will be, this is the end of this video. I hope you enjoyed this one. Until next time, I'm Tom Donner.
File bankruptcy lender led financing can we presume that there will be incremental capital deployed.
Maybe Q1 Q2.
It will be.
Operator: If you have questions about this video, please let me know. And please leave a comment below. Thank the financial support provided to that business to work it through. Correct And just to be specific, when we go through these things, which means these types of... challenge credits, you know, you have a, I guess I'll add some more color. You have an array of tools to facilitate, uh, when it's a good business, the challenge balance, a good sector, you know, I would say that's something that's workable. And then you just decide what is the best way within which to facilitate the changes or the funding that, you know, you're providing as a lender. In the case of a bankruptcy, a lender-led bankruptcy, I should say, that provides benefits that you want to offset against what is due to the company.
Additional.
Financial support provided to that business.
To work with.
Correct.
Specific.
When we go through these things, which means these types of.
Challenged credits you have a I guess I'll add some more color you'd have an array of.
Tools to facilitate that when it's a good business.
<unk> balance sheet.
A good sector I would say that's something that's workable.
And then you decide what is the best way that within which to facilitate.
The changes or the funding stack.
Providing as a lender.
Case of a bankruptcy.
<unk> led bankruptcy I should say.
That is a provides benefits that.
But you were offset to what does it do to the company.
Rajneesh Vig: If anything, and here are the benefits of this process, were felt to outweigh any challenges of the bankruptcy, you know, and I would call it a... One that can be done very efficiently, including protecting the nature and the terms of any financing provided, particularly because there were other discussions being had around this and, you know, given the interest in the company and the sector, and this was felt to be something that, you know, I think we will net that benefit from But to answer your question succinctly, yes, there will be additional funding support, as the bankruptcy filing will highlight, and others. I got it. I got it. Thank you. And I mean, Perch, I believe, is another one of those. It's not a call now. Fair value deteriorated over a few quarters.
And here the benefits of this process.
We will start to outweigh any challenges of a bankruptcy.
I would call it.
One that can be done very efficiently.
Including protecting the nature of the terms.
Financing provided particularly because there were other discussions being had.
Around this and that.
Interest in the company in the sector.
And this was felt to be something that.
Yes, I think we can grow net net benefit from but to answer your question.
Just safely yes, there will be additional funding support as the bankruptcy filing will highlight.
Oh document now.
Got it got it thank you.
I believe there is another one.
I don't want to Miss non accrual now.
A few quarters.
Robert James Dodd: Is it looking likely to be following the same kind of path to Thrasio, or is that one being handled differently by you? Uh, yeah, yes and no, and I wish I could be specific, but I can probably be specific in another day or so. The answer is that many of these will need to just think about, you know, scaling and consolidating and addressing, that are the big issues of user resources.
Is it looking likely to be following the same coin.
Yes.
Yes.
Was that one being being handled differently by you in that.
One of them.
Yes, yes, I know I wish I could give you specifics, but I can probably be sitting in another day or so.
The answer in many of these will need suggest.
Think about it.
Scaling and consolidating and addressing balance sheet issues at a result of some macro issues. So I think ultimately all of them will have well look at it may be utilized.
Rajneesh Vig: Thank you very much for cleaning up balance sheets and maybe even consolidating, I would include Perch in that context. And I think you should stay tuned for more clarity around those comments. But the answer is essentially yes.
Set of these tools, whether it's funding.
Cleaning up balance sheets, and maybe even consolidating I wouldnt include perch.
Robert James Dodd: Okay, got it. Thank you. As a final reminder, if you would like to ask a question today, please do so now by pressing start followed by the number one on your telephone keypad. We have no further questions registered, so I will hand it back to the management team for any closing comments. Thank you. We appreciate your participation on today's call. I would like to thank our team for all their hard work and dedication, and our shareholders and capital partners for their confidence and continued support. Thanks for joining us. This concludes today's call. Thank you everyone for joining us today. This concludes our call, and you may now disconnect your line. Kaleikausa Using Crimes Against Humanity, AutistHz rs, NUS breath torture, Liceo? Do you see this girl? A bug
And that is that.
Context, and I think stay tuned for some you know for clarity around those comments, but the answer is.
Essentially yes.
Okay got it thank you.
Okay.
As a final reminder, if you'd like to ask a question today. Please do so now by pressing star followed by the number one on your telephone keypad.
Yeah.
Yeah.
Oh.
We have no further questions registered so I'll hand back to the management team for any closing comments.
Yeah.
Thank you we appreciate your participation on today's call I.
I would like to thank our team for all their hard work and dedication and our shareholders and capital partners for their confidence.
And continued support thanks for joining us this concludes today's call.
Yeah.
Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.
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