Q3 2024 BlackRock TCP Capital Corp Earnings Call
Ladies and gentlemen, good afternoon. Welcome everyone to BlackRock, TCP, capital Corp. 3rd quarter, 234 earnings conference call. Today's conference call is being recorded for replay purposes.
During the presentation, all participants will be in a list and only mode. 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. And now I would like to turn the call over to Michaela Murray, and remember a flat rock TCP capital corp investor relations team. Michaela please proceed.
Michaela Murray: Thank you. Before we begin, I'll note that this conference call may contain forward-looking statements based on the estimates and assumptions of management at the time with such statements and are not guarantees of future performance.
Board looking statements involve risks and uncertainties and actual results can differ materially from those projected. Any forward looking statements made on this call are made as of today and are subject to change about notice.
Additionally, certain information discussed and presented may have been derived from third-party sources and has not been independently verified. Accordingly, we make no representation or warranty with respect to such information.
Earlier today, we issued our earnings release for the third quarter end of September 30, 2024. We also posted a supplemental earnings presentation to website at tcpcapital.com
To review 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 10Q, which was filed with the SEC earlier today. I will now turn the call over to our Chairman and CEO, Rajvig.
Rajvig: and thank you all for joining TCPC's third quarter 2020 Fort earnings call.
Rajvig: I'm here today with our President Phil Seng, our CFO Eric Cuellar as well as Jason Merring our COO.
Today I will provide an overview of our third quarter results, Phil will discuss our portfolio and investment activity and Eric will then review our financial results.
Rajvig: as well as our capital and liquidity position.
Rajvig: will all be available to answer questions and before opening a call up for Q&A, I will wrap up with some closing comments. By now I expect that many of you saw our press release in September announcing leadership changes at TCPC, including my decision to leave BlackRock and the accompanying resignation as CEO and Chairman of TCPC.
Rajvig: It has been an honor to lead BlackRock TCPC Capital Corps and to have played a key role in the development and grow the company for almost two decades since 2006. And I am excited for the next chapter.
Rajvig: Following my departure at Phil Tseng will succeed Mia CEO and Chairman of the Board and having partnered closely with Phil and other members of the Management Team, I believe you are in very good hands and the TCTC as well positioned for long-term success.
Rajvig: Now, turning to the highlights for the third quarter of 2024. We delivered a just-it-net income of 36 cents per share and our annualized net investment income returned on average equity, which approximately 14 percent, which is at the high end of historical levels.
Rajvig: Our border directors declared a fourth quarter dividend of 34 cents per share, which implies dividend coverage of 16% based on our third quarter adjusted NI-I.
Rajvig: In addition for the fourth quarter, our board declared a special dividend of 10 cents per share. The fourth quarter dividend, along with the special dividend, is payable on December 31, 2024. The shareholders record on December 17, 2024.
Rajvig: We continue to take a disciplined approach for our dividend with an emphasis on stability and strong coverage from recurring net investment income.
Rajvig: As a reminder, throughout TCPC's 12-year history as a public company, we have consistently covered our dividends with recurring NII and have also paid several special dividends.
Rajvig: Further, on October 30, our Board of Directors re-approved our authorization to repurchase up to $50 million of our common stock in the aggregate at prices and accordance with certain thresholds below our net asset value per share.
Rajvig: As always, we continue to maintain a thoughtful approach to share repurchases in order to maximize our shareholder value.
Rajvig: Overall, non-approvaled decreased since last quarter. However, one additional non-approval loan and certain markdowns resulted in a slight 0.9% reduction to NAV.
Rajvig: This reflects the removal of one portfolio company plural site from non-cruel status and the addition of razor groups preferred equity to non-cruel status.
Rajvig: and as a result, loans on non-acruised status decline from 4.9%.
Rajvig: 2.3% of portfolio fair value.
Rajvig: While this level of nonacruals may be higher than historical levels, it is clearly moving in the right direction.
Rajvig: Turning to specifics, we've removed Plural Site from Nonaprol status following its restructuring in August.
Rajvig: The lender group and sponsor agree to a consensual change of control, where the lender group took control of the business, followed by an additional investment as part of the recapillization that's strengthening the balance sheet and provided over $200 million of capital.
Rajvig: to accelerate growth initiatives and support long-term strategic goals.
Rajvig: As part of this recap, TCPC now owns a portion of the equity as well as the debt.
Rajvig: We continue to closely monitor fluorocytes performance alongside the remainder of the lender group.
Rajvig: As you may recall, Razer Group, which is an Amazon aggregator industry, chose to address some of their challenges via consolidation and acquired perch in March of this year.
Rajvig: We believe this strategic combination will ultimately create a more efficient company. This will take time. We chose to place Rajes preferred equity on non-prol in the third quarter as a company has not performed in line with our expectations.
Rajvig: During the third quarter, we marked down positions in several portfolio companies, the large large switch for Gordon Brothers finance company, Seller X and in moment.
Rajvig: Other than seller X, which is an Amazon aggregator, we have discussed in the past, the circumstances at each of these portfolio companies where you need and companies specific.
Rajvig: The first is Gordon Brothers, a commercial finance company that originated, structured and invested in specialized asset based loans to middle market companies.
Rajvig: The company sold substantially all of its loan assets to an unaffiliated third party in November of 2020.
Rajvig: The investment originated at BCIC and transitioned to TCPC as a result of the TCPC BCIC merger.
Rajvig: At the time of the merger, this investment was on non-accrual and it has maintained that's classification since the merger.
Rajvig: The value of our current position in Gordon Brothers is largely related to residual claims associated with the sale of the firm's assets.
Rajvig: During the third quarter, certain developments led our deal team and third party valuation providers to believe there would likely be a decrease in the proceeds, TCPC, ultimately realizes from those claims.
Rajvig: The second is Celerax, which following the combined impact of a stretch balance sheet and a slowdown and online consumer spending, we decided to place on non-acruised status in the second quarter.
Rajvig: As you may have seen in the news we have been actively engaged with the company management, the rest of the lender group and owners to effectuate and agreement to address the company's capital structure and liquidity, and we will provide additional detail when we have.
Rajvig: Regarding the Amazon aggregator space, we believe we are invested in the leaders at this point.
Rajvig: While the sector has evolved over the past three years, we continue to see a path forward for successful investment outcomes, for those aggregators with the appropriate capital structures, liquidity, and strategies to compete in this new environment.
Rajvig: Over the medium to longer term, we believe these businesses will benefit from continued consolidation, improved capital structures, and lower operating costs.
Rajvig: The third is in moment, which provides customer experience management software and analytical solutions.
Rajvig: In moments financial performance has experienced softness, resulting in an unrealized loss to the third quarter. As a result of this underperformance, the management team has taken several steps to improve product and service quality to expand growth.
Rajvig: At the end of the third quarter, debt investments in 10 of our 156 portfolio companies were on non-acruised status representing 9.3% of the portfolio at cost.
Rajvig: and 3.8% at fair value.
Rajvig: Net Realize losses for the quarter with 31.4 million due to the restructuring of our investments in chlorocyte and macophie.
Rajvig: Net unrealized games were 19.2 million.
Rajvig: during primarily by the reversal of previously unrealized losses from the restructuring of plural site and macophie and unrealized gains in securis and domo offset by unrealized losses in Gordon Brothers, Celer X and in moment.
Rajvig: You're actively monitoring our portfolio companies with respect to their businesses and markets, capital structures as the impact of higher rates and inflation on their performance.
Rajvig: As of September 30, 2024, our weighted average internal risk rating was 1.55 compared to 1.5 on June 30, 2024.
Rajvig: are average internal risk rating continues to indicate that our portfolio companies are generally performing in line with or exceeding our base expectations.
Rajvig: Now, let me turn it over to Phil to discuss our investment activity and portfolio.
Speaker Change: Thanks Rajneesh.
Phil: Before I begin, I want to say it's been a privilege to work alongside Raj for many years. And I appreciate the board, the vote of confidence, and the pointy me, Chairman and Chief Executive Officer.
Rajvig: I'm excited to lead TCTC going forward with the support of my long time colleagues, Jason Mary, who is appointed president.
Rajvig: Patrick Wolff, who was appointed CEO and Dan Warell, who was appointed co-CO effected November 7.
Rajvig: We have a tremendous opportunity ahead and look forward to collaborating with our talented team as we continue to leverage the strength of the BlackRock platform to create value for our shareholders and our borrowers.
Rajvig: I want to thank Raj for his partnership over many years and his contributions to TCPC in which in the very best is future endeavors.
Rajvig: Now, I'll begin with a few thoughts on the broader marketing environment and discuss our new investments for the quarter and our portfolio performance.
Rajvig: Starting with the marketing environment.
Rajvig: Potential for Rake has been a topic of speculation for some time now, and with the FED announcement in September, they have finally arrived. Last night, election results may change the course of the FEDs previously message the Combinative Dance.
Rajvig: Although, Rajne still remain high relative to recent history and higher for longer may truly be higher for longer now, if inflation ramps up.
Rajvig: The recent Ray Cut does provide some relief to borrowers who have endured higher floating rate deburden over the past few years.
Rajvig: If shorter term base rates continue to decline, key indicators of portfolio health, such as interest coverage and debt ratios should improve.
Rajvig: We believe the long anticipated rate cutting cycle and certainty on the election outcome will serve as important catalysts for emanate, which has been such a plug-ish for the past year.
Rajvig: As we have previously said, we continue to see meaningful pickup and activity across our platform, reflecting the return of M&A and refinance activity.
Rajvig: and we are very excited about what we're seeing at High Point.
Rajvig: Turning to our best connectivity, during the third quarter, we invested $73 million primarily into six new and three existing portfolio companies.
Rajvig: All the new 10-best minutes in the third quarter were first lean loans, which can seem to be our primary area focus.
Rajvig: Investing in incumbent portfolio companies is an important part of our strategy and a competitive advantage that allows us to invest additional capital in companies and industries we know well.
Rajvig: However, we've seen a marked uptick in new platform activity and have contained so identify can be held in opportunities to invest in these new companies.
Rajvig: Our pipeline of new opportunities has grown due to the increase in overall emancipity, as well as contain the man from borrowers for incremental or growth capital as well as refinance the activity.
Rajvig: We continue to source attractive investment opportunities from the direct relationships of our dedicated deals towards professionals as well as from the broader BlackRock platform.
Rajvig: During the third quarter, these included a first-lane investment in a new portfolio company, ILOBI, which is an enterprise facility and visitor management software company that serves 1200 clients across 55 countries, including several in the Fortune 500.
Rajvig: I love these solutions are focused on tracking, monitoring, reporting, and providing access control to human and physical assets within a specific work perimeter.
Rajvig: Hi lobby is a leading niche vertical software business and we were pleased to be the sole lender in this transaction to support the acquisition of a complimentary asset.
Rajvig: Another new portfolio company we invested in this quarter is DocuPace. A provider of cloud-based software-sacervous solutions that streamline back-office administrative and operational tasks for wealth managers.
Rajvig: DocuPace is a category leader with a strong market reputation. In back office workflow, the Non-Wirehouse and RAA channels.
Rajvig: We source this opportunity by leveraging our strong relationship with the sponsor.
Rajvig: and we believe DocuPace represents an attractive investment opportunity as they maintain a stable customer base and an industry that is benefiting from multiple secular growth trends as RAAs and independent broker dealers continue to gain share in the market.
Rajvig: We believe our Channel Ignostic approach to deal sourcing is an advantage.
Rajvig: that reduces risks associated with single channel sourcing concentration. And when combined with our industry focused underwriting approach, allows us to be selective in choosing the best possible investments from a robust pipeline of opportunities at any point in time.
Rajvig: At the end of the third quarter, the weighted average annual executive field of our performing death portfolio is 13.4% compared with 13.7% last quarter.
Rajvig: We received $139 million in proceeds from the sale or repayment of investments during the quarter. New investments had a weighted average yield of 11.3%.
Rajvig: While investments we acted as a way to never yield a 13.4%
Rajvig: which explains some of the yield compression we experienced this quarter.
Rajvig: In an environment where, spread of Titan, we remain disciplined with regard to our underwriting standards, and our focus on structuring deals with men there friendly terms. In several instances, we chose not to refinance or repriced existing loans at lower yields.
Rajvig: for a weaker structures that simply did not align with our risk, reward analysis.
Rajvig: At Quarter End, our well-diversified portfolio was comprised of 166 companies.
Rajvig: with a total fair market value of approximately $1.9 billion in average position to hide the full point team to learn it.
Rajvig: 1991% of our portfolio was invested in senior secured loans, and 81% were in firstly loans.
Rajvig: 93% of our 10 investments were in floating rate loads.
Rajvig: Recuring income was distributed broadly across our diverse portfolio with more than 70% of our portfolio companies each year.
Rajvig: and Tributing West and what we're saying.
Rajvig: Siddleton.
Speaker Change: Now, I'll turn it over to Erik to discuss our financial results in capital and liquidity position.
Erik: Thank you, Philip
Erik: That's Rajneh noted, our net investment income for the quarter was 36 cents per share on an adjusted basis.
Rajvig: A detailed in our earnings press release, a just said NII excludes amortization of the purchase accounting discount resulting from the merger with BCIC and is calculated in accordance with GAT.
Rajvig: A full reconciliation of adjusted net investment income to cap net investment income, as well as other non-gap financial metrics, is included in an earnings release and 10Q.
Rajvig: Gross Investment Incum for the third quarter was 83 cents per share.
Rajvig: This included recurring cash interest for 65 cents
Rajvig: Non-recurring interest of five cents.
Rajvig: Recuring discount and fee amortization of 4 cents.
Rajvig: and Pickingcome of 5 cents.
Rajvig: The interest income remains low at about 6% of total investment income.
Rajvig: Investments in income also included two cents of dividend income.
Rajvig: Operating expenses for the third quarter were 43 cents per share.
Rajvig: including 25 cents of interest and other debt expenses.
Rajvig: and Senate fees for the quarter were $6.5 million or $8 per share.
Rajvig: And that realized losses for the quarter were $31.4 million or $37 per share.
Rajvig: Primarily, from the restructuring of our investments in plural sight and mackephi.
Rajvig: which were already reflected in our prior net-outs of value.
Rajvig: Net unreliable against total $19.2 million or $22 per share.
Rajvig: are merely reflecting the reversal of previously unrealized losses from the restructuring of plural sight and mackephi, which we discussed earlier.
Rajvig: The meeting creasing that access for the quarter was $21.6 million for 25 cents per share.
Rajvig: At the end of the third quarter, our available liquidity was $582 million and included $478 million in available capacity under a leverage program.
Rajvig: and 104 million of cash in cash equivalent.
Rajvig: On funded loan commitments to portfolio companies were 5% of total investment.
Rajvig: for approximately $100 million.
Rajvig: of which only 58 million were Revolver commitments.
Rajvig: Net leverage at the end of the quarter was 1.08 times, which is well within our target range of 0.9 times to 1.2 times.
Rajvig: As a reminder, gross leverage excluding SBIC debt was 1.35 times as of the end of the second quarter.
Rajvig: This was higher than past quarters as we increased cash by issuing new debt in May of 2024 and elected not to immediately prepay the prior notes outstanding as we were earning a higher return on the cash held than what we were paying on those notes that were coming due.
Rajvig: In August 2024, we repaid the outstanding notes and gross leverage declined to 1.20 times.
Rajvig: Thank you for watching!
Rajvig: We continue to have ample financing options with our diverse and flexible program that includes three low-cost credit facilities.
Rajvig: three unsecured note issuances, and an SBA program.
Rajvig: The weighted average interest rate on debt outstanding at the end of the quarter was 5.4%.
Raj: Now, I'll turn the call back over to Raj.
Raj: Thanks Erik. Before taking your questions, I'd like to wrap up with some closing comments.
Raj: Overall, non-accruals decreased since last quarter as we continue to focus our resources on working diligently with our borrowers, their lenders, and sponsors to resolve credit issues with the goal of also achieving the best possible outcome for our investors.
Raj: Over our history, we have experienced challenges, and the team is taking the same approach we always have, reviewing every company in our portfolio with an eye toward identifying potential issues and acting as early as possible.
Speaker Change: Go to Beadaholique.com for all of your beading supply needs!
Speaker Change: As we head into the final quarter of 2024, we have a strong capital position and a robust pipeline of investment opportunities.
Speaker Change: We continue to take a highly selective and disciplined approach to deploying capital with a credit-first, downside-protected mindset.
Raj: We remain focused on the core middle market, where there is less competition, more covenant protection.
Raj: and Attractive Pricing.
Raj: We continue to invest in great companies that have the business models and management teams to successfully operate in the current environment.
Raj: And we are passing on transactions that do not meet our underwriting standards.
Raj: and leveraging our experience in special situations lending to structure deals with strong financial covenants and asset-based deal structures.
Raj: We remain committed to creating value for our shareholders and look forward to keeping you updated on the progress. And with that, Operator, please open the call for questions.
Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If your question has been answered or you wish to remove your question, please press star followed by two.
Speaker Change: Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please pick up your handset before asking your question. We will pause here briefly as questions are registered.
Speaker Change: Please see the complete disclaimer at https://sites.google.com
Raj: Our first question comes from the line of Simeon O'Shea with Wells Fargo. Simeon, your line is now open.
Simeon O'Shea: Thank you.
Simeon O'Shea: Thank you very much.
Speaker Change: Hey everyone, good afternoon. Congrats, Raj, Phil, and the rest of the team on the changes. Raj, I wanted to go to one of your opening remarks on
Speaker Change: the NII return.
Simeon O'Shea: being on the high end and seeing what you could unpack for us there.
Simeon O'Shea: There's obviously the SOFR curve that moves around, we can gauge that, but sort of the other inputs that you would anticipate as they relate to
Raj: spread and leverage on the book return for TCP.
Simeon O'Shea: Yeah. Hi, Finn. It's Erik. As you noted, yeah, our NII return has been on the higher end of our historical levels.
Simeon O'Shea: We certainly have benefited from the higher base rates over the last year and a half.
Simeon O'Shea: I'll point out that even with the increased level of non-accruals over the last couple of quarters.
Simeon O'Shea: We continue to maintain that level of dividend and a significant higher level of NII return. But we do see that reversing a little bit, as expected, and part of the reason why we're maintaining the dividend level where it's at today.
Speaker Change: Thank you for watching!
Speaker Change: Okay, that's helpful. And then on the...
Speaker Change: management changes, there were, you know, this also came with
Simeon O'Shea: some maybe reorganization or just other management changes at BlackRock to parent with the higher-ups and credit or private credit and seeing if there's anything
Simeon O'Shea: anything there maybe resource-wise, style-wise, a effort to go upper-middle market like everyone wants to do or anything you would
Simeon O'Shea: you know, expand on there, and that would be helpful. And that's all for me, thank you.
Simeon O'Shea: Hey Finn, it's Phil. Thanks for the question. So I think what you're referring to is here at BlackRock, we've put together our direct lending group.
Simeon O'Shea: Single Global Direct Lending.
Simeon O'Shea: business unit. And I think that is just the natural evolution of our business, having strong franchises in each of those geographies, and really trying to drive the right kind of business collaboration and synergies across the entire franchise.
Simeon O'Shea: As you know, there are real tangible benefits that we see from being part of the BlackRock platform and by consolidating the groups into a single business unit provides a lot of focus.
Simeon O'Shea: around the strategy and around achieving those benefits. So we see it as an ongoing opportunity for us to keep growing our business, continue to optimize our investment process, get the benefits of the platform.
Simeon O'Shea: It is not an indication of...
Speaker Change: I think you referenced moving into the upper market.
Speaker Change: The purpose or goal of ours, we think that the core middle market, which is our focus, as you know, continues to present a tremendous amount of opportunity where we can get differentiated origination, differentiated structures, including covenants, and certainly premium yields.
Speaker Change: Thanks so much.
Speaker Change: Thank you for watching!
Simeon O'Shea: Thank you.
Speaker Change: Our next question comes from the line of Robert Dodd with Raymond James.
Simeon O'Shea: Robert, your line is now open.
Robert Dodd: Hi guys, and yeah, congrats, Rajneesh, and good luck in wherever you're heading. And congrats, Phil, and the rest of the team for the new role. One of the things, just as a follow-up to Finn's question, I mean, given you've now put the thing together into a global direct lending,
Robert Dodd: Should we expect a greater incidence of maybe international deals making their way into PCPC?
Simeon O'Shea: Any, is that going to have any?
Simeon O'Shea: impact on portfolio mix, both geographic or asset type of styles, with the new format of the overall global direct vending.
Speaker Change: Thank you.
Speaker Change: Hey Robert, it's Phil. Thanks for the question.
Simeon O'Shea: So it's really it's not really to change the mix of the portfolio We don't expect the mix to change much because we are a global platform I think what we do expect it are the benefits like I was mentioning around, you know, our best of process processes ideas
Simeon O'Shea: Synergies around all the other areas, both on origination as well as the other platform resources, whether they be around legal, transactions, compliance, and so on.
Speaker Change: Thank you.
Speaker Change: But, you know, one thing that's important to reiterate is that we do source deals today for TCPC across the BlackRock platform. So we have been seeing the benefit of having a global sourcing effort. So there are some deals that are in the portfolio, absolutely, that are coming in through the benefits of having feet on the ground, you know, in various markets outside the U.S.
Speaker Change: Thank you for watching!
Speaker Change: Thank you. Thank you. Thank you.
Speaker Change: Got it. Thank you. On the dividend question, right, I mean, can you give us...
Speaker Change: What's the estimated spillover position, and can you give us any thoughts on that too? I don't think that's particularly high from what I recall, but if you could update us on that. And what was the thought process of the Tencent Special?
Speaker Change: Is it kind of an indication that you want to keep spillover very low to, you know, minimize excise tax or any kind of all that?
Speaker Change: mesh into the decision-making on that given.
Speaker Change: Robert, I'll try to kick that off and then Erik I think we'll have some more color. I think with the spillover, obviously it's a function of, you know, that we've out-earned. I think we always weigh
Simeon O'Shea: I mean, I view the excise tax as kind of a low-cost loan, and as we approach the end of the year and we have more visibility...
Simeon O'Shea: When you have the, you know, the specials, we are trying to mitigate the excise tax as we get to the end of the year based on, you know, having that spillover being a function of good out-earning, you know, return on the assets.
Simeon O'Shea: and then maybe I can turn it over to Erik to add any other color but it really is a capital allocation decision at its core with the special being a partial decision in the latter part of the year.
Erik: And Rob, I'll just add that it is a balance between...
Erik: The amount that we're required to distribute versus the amount that's required to avoid excise taxes, as Raj noted.
Simeon O'Shea: We're fine incurring the excise tax as it's a cheap cost of capital. However, we do have minimum distribution requirements and part of that we need to ensure that we are meeting those requirements.
Simeon O'Shea: Thank you for watching!
Speaker Change: Got it, got it. And then going back to kind of the longer-term question, I mean, this quarter, I mean, you're at 37, you had 8 cents of prepaid fees, which is pretty elevated prepay and everything associated with that.
Simeon O'Shea: which is pretty elevated by.
Simeon O'Shea: by recent quarter standards. I mean, it's ramped up last quarter, but $0.08 is pretty high. Is it the expectation that that prepay activity is going to stay elevated? Because if not, with, you know, obviously lower base rates for Q4,
Simeon O'Shea: Maybe it's not 8 cents. I mean, there's some, you mentioned you expect the NII return to reverse a little bit with rates coming down, but pre-pay activity is also a component of that. And looking into next year,
Speaker Change: Yeah, the earnings, the prepay normalizes, rates come down, you know, it's going to get a long fight.
Simeon O'Shea: [inaudible]
Speaker Change: Yeah, let me just add some, I'll start and I'm sure if anyone else has any comments they can add to it. I would just say historically speaking, you know, I'm referring to being...
Simeon O'Shea: here, almost two decades. $0.08 is not necessarily out of the range from, if you go back historically, I think as we went into a higher rate environment.
Simeon O'Shea: you know the and maybe a less active M&A environment
Simeon O'Shea: You know, that naturally cooled off a little bit. People, the duration of the loans got longer.
Simeon O'Shea: The nice thing was rates were higher so you were getting higher yield.
Simeon O'Shea: But if you really go back quarterly over the last, I don't know.
Simeon O'Shea: 10 plus years, we had many quarters with prepays in that level. I think to echo Phil's comment and his prepared comments,
Simeon O'Shea: Rates are coming down, the election is behind us, there is an anticipation that there will be more M&A activity, there certainly is a pickup in refinance activity through this year.
Simeon O'Shea: So, without speculating or projecting, it's not illogical to think prepays can be picking back up.
Simeon O'Shea: that we're kind of in and moving forward in.
Simeon O'Shea: do feel a lot more like the conditions in.
Simeon O'Shea: in some of the prior years.
Simeon O'Shea: where we generated higher prepay. So it's time will tell.
Simeon O'Shea: The nice thing is, the structures that we focus on, we always focus on having some prepayment rights.
Simeon O'Shea: It's very important to us. And then I would also echo that we've had most of our history in a lower yield environment where even if rates come down, they're not low relative to the history of the business. So I think there's good conditions on the go forward without being able to answer that question specifically.
Speaker Change: Thank you for watching!
Speaker Change: Thank you. Thank you.
Speaker Change: a lot more detail.
Speaker Change: I mean, we're talking a multi-year cycle on resolving these issues, resolving those particular restructured companies, right? Any change on that? Is it still that kind of the expectation that...
Simeon O'Shea: It's going to take a while, or if there's anything on...
Speaker Change: Go to Beadaholique.com for all of your beading supplies needs!
Speaker Change: You know, if the DNA activity market kicks up, is there potential that you could resolve...
Speaker Change: Those things faster
Speaker Change: in terms of recycling capital, if not having the businesses recover, if you understand what I'm saying.
Speaker Change: Thank you.
Speaker Change: Yeah, I think you're asking, I think you're asking, Robert, is, you know, does the pickup in M&A activity allow us to exit some of these restructuring situations, you know, earlier than we would otherwise if that M&A market didn't pick up? And I think the answer is that
Speaker Change: It depends on the situation We we feel quite confident that You know, we're undertaking the appropriate steps and processes to optimize the outcomes for these
Speaker Change: Thank you for watching!
Speaker Change: borrowers undergoing restructurings. You know, they are multi-year processes, but they can be multi-year processes, as you mentioned. And sometimes, you know, getting the best outcome for shareholders does require time and patience.
Speaker Change: If there are scenarios where the market or an interested bidder comes in or we feel like the market is ripe for our borrower to get the best value,
Speaker Change: then we would undertake an M&A process and evaluate those situations.
Speaker Change: I will say that that that does come up and it has come up in some of our instruction situations.
Speaker Change: or where we have restructured and we own the, you know, control the company post-reorg. So we're very much open-minded. Whether that really accelerates some of these exits, I think that's still TBD, broadly speaking.
Speaker Change: Thank you for watching!
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: . . . . .
Speaker Change: Thank you. Our next question comes from the line of Paul Johnson with KVW. Paul, your line is now open.
Speaker Change: Thank you for watching!
Paul Johnson: Yeah, thanks for taking my question. On the Amazon aggregators, just with the.
Speaker Change: and Razor for part of the investment going on non-accrual. Can you just tell us kind of how much at this point, you know, in the portfolios?
Speaker Change: kind of left in these Amazon, various Amazon aggregator names. And I'd also be just curious to get your thoughts on
Speaker Change: You know that the industry
Speaker Change: [inaudible]
Speaker Change: challenges, even under consolidation, you're saying, you know, it's probably going to take time to realize some of these inefficiencies. So, I guess, what kind of gives you that optimism, you know, that you'll eventually, these companies will perform and be able to capture inefficiencies?
Speaker Change: Thank you for your patience.
Speaker Change: and Daw Kaysi.
Speaker Change: Thank you for watching!
Speaker Change: Hey, thanks, Paul. It's Phil. So the loans to the aggregators currently comprise about 5.9% of the fair market value of the portfolio. That's Thrasio, Razor, and SellerX.
Speaker Change: With regards to the aggregator space, we believe we're invested in the leaders at this point. The sector has obviously evolved quite a bit over the past three years, as you've noticed.
Speaker Change: I think, you know, we believe there's still a path to successful investment outcomes for these aggregators.
Speaker Change: with the appropriate capital structures.
Speaker Change: and, of course, the liquidity and their evolving strategies to compete in this newer environment.
Speaker Change: Over the medium to longer term, you know, these businesses will benefit from ongoing consolidation. As you know, we've been a key player in effecting that consolidation and as well as, you know, improving the capital structures.
Speaker Change: and really trying to drive lower operating costs to drive cash flow for these businesses. So we're working hard at it, at them, you know, at the 5.9% of our portfolio.
Speaker Change: You know, we still think that there's tremendous value that remains in these names and and that can certainly increase over time as they focus on their key products, their best sellers, and reduce costs and consolidate to drive further cost reduction.
Speaker Change: Thank you for watching!
Speaker Change: Thanks. Appreciate that, Phil. And then...
Speaker Change: I'm looking at your presentation. There's a weighted average interest rate of about 5.4% for your liability structure. So was there anything that was going through the cost of debt disorder in your liabilities that just rose that a little higher?
Speaker Change: Thank you. Bye.
Speaker Change: Yes, a couple of things. One is we did refi our 2024 notes.
Speaker Change: which had a coupon of $3.9 versus our current incremental borrowing costs, which are quite a bit higher. So there was a step up there.
Speaker Change: Then the second factor is that interest expense was higher than what you would normally expect as a run rate, simply because we were carrying additional cash versus the debt outstanding as we mentioned.
Speaker Change: We were earning higher interest on the cash versus the notes that were coming due with a coupon out 3.9. So
Speaker Change: There's higher interest expense, but even higher incremental interest income on the other side.
Speaker Change: But but you I guess you should see that normalized in Q4
Speaker Change: And then, do you have any remaining capacity under the current SBA license, and is there any kind of plans, I guess, in the work to potentially apply for any more?
Speaker Change: Thank you very much.
Speaker Change: Thank you for watching!
Speaker Change: Yes, both. We do currently have $10 million remaining that we can draw down under our current license.
Speaker Change: In addition to that, we also are, within that subsidiary, we have had some repayments, so we have capital to redeploy there and continue to...
Speaker Change: In essence, use the notes that we've already drawn from the SBIC, and as we see more deals coming through that pipeline, we do have the ability to get a second license from the SBA.
Speaker Change: Thank you for watching!
Speaker Change: Thanks for that. That's all for me.
Speaker Change: Thank you, Paul.
Speaker Change: Thank you. Before our next question, reminder, if you would like to ask a question, press star one on your telephone keypad.
Speaker Change: Our next question comes from the line of Christopher Nolan with Sladenburg-Solomon. Chris, your line is now open.
Christopher Nolan: Thanks. Phil, congrats, and Raj, good working with you, and I wish you well going forward.
Christopher Nolan: Phil, given that you're now in the chair...
Speaker Change: Could you articulate what you see as the major challenges facing TCPC and what you would like to change?
Phil: Thank you.
Speaker Change: Thanks Chris. That's a great question. You know, obviously...
Phil: myself, as well as
Phil: Jason, our new president, Patrick Wolfe, our COO, and Daniel Rowell, our co-CIO. We are laser-focused on the portfolio and ensuring that we manage the non-accruals and the restructurings in a way that optimizes the outcome.
Speaker Change: We are deploying a tremendous amount of resources and attention on those names. As you know,
Speaker Change: historically we have had very positive outcomes and coming out of these cycles and and you know when our portfolio does hit these
Speaker Change: And we expect that to occur again, at least our processes.
Speaker Change: are certainly focused on that.
Speaker Change: Our investment committees are very robust in their discussions.
Speaker Change: and every single action are highly evaluated and debated, so we expect, you know, our 20-plus year track record in managing these situations to manifest in the same way, and we're optimistic, but, you know, we do ask for patience.
Speaker Change: because as previously you know the prior comments they do take time.
Speaker Change: So I think that's where I'm actually focused on.
Speaker Change: Thank you for watching!
Speaker Change: Great. Thank you. And just looking at the stock price, the stock price is now mining new lows.
Speaker Change: and, you know, 2024 has not been kind to the company who did the acquisition, or the merger, I should say.
Speaker Change: And in the first quarter and the second quarter, the asset quality really fell off.
Speaker Change: And this third quarter results actually were reasonably okay. I mean, trying to right the ship, but then you have a change in senior management and a lot of stuff is just happening.
Speaker Change: and it does not feel like a very stable platform, whatever. What would you say to people? I mean, anyone looking at, you know, what's going on in the company here to date.
Speaker Change: You know, I give pause, and why would I not have pause?
Speaker Change: Yeah, well, I think...
Speaker Change: I think that's a fair comment, and we've observed
Speaker Change: First of all, you know, I have been here along with Jason.
Speaker Change: Dan and Patrick for some time now, this being, in many of our cases, 15 to 20 years as a team together. So there is tremendous amount of stability in the team.
Speaker Change: Obviously, we will miss Raj's partnership, but we believe that we have a deep bench and, again, everyone mentioned our voting members of the IC and have been with us for quite some time.
Speaker Change: I'll also point to, you know, the consistency on our dividend. You'll see that, you know, this is the 50th.
Speaker Change: time that we've consistently met or exceeded the dividend and you know it continues to be an important part of our
Speaker Change: capital allocation strategy and there's total shareholder returns that we provide to our shareholders. So we have a long track record there of earning our dividend and paying specials like we've announced. So
Speaker Change: we're very much intently focused on that as well.
Speaker Change: Great. And I appreciate the patient explanation.
Speaker Change: Nicely done. Final question on the dividend.
Speaker Change: I couldn't help but notice that the new investments have a much lower coupon, if I'm reading it right, than the...
Speaker Change: you know, their general portfolio.
Speaker Change: To what extent would management support the dividend? I mean, would you start doing waivers, management fee waivers, and things like that? Just try to get an idea in terms of how management's viewing supporting the dividend beyond...
Speaker Change: you know, from normal GPS.
Speaker Change: Yeah, so our, you know, our board makes decisions about our dividend each quarter.
Speaker Change: you know.
Speaker Change: The dividend is clearly, like I said, you know, previously, it's an important part of our total shareholder returns, and we have a long track record of our out-earning that, and we don't expect that to change.
Speaker Change: Thank you.
Speaker Change: As part of the merger with BCIC, Chris, you probably recall that our advisor has agreed to waive all or a portion of its advisory fees if NII per share fell below $0.32 a share. So there's a history of BlackRock being supportive.
Speaker Change: The dividend is not something that we'll discuss in this call, except that we continue to expect to meet or exceed that.
Speaker Change: Thank you for watching!
Speaker Change: Great. That's it for me. Thank you. I'll also, yeah, I'll also mention that, you know, that the yield on R, even though some of the...
Speaker Change: added deal the yields were you know somewhat less than our exited deals you know that's that's natural in a declining rate environment where a lot of those deals were you know that we got we're exiting came on a couple years ago in a higher rate environment but if you look at our overall yields are still they're still quite high
Speaker Change: I think at 13.4%.
Speaker Change: Thank you for watching!
Speaker Change: Okay and I would also note that the current dividend excluding the supplement is yielding roughly the same.
Speaker Change: on NAV, on the current book value, so it's...
Speaker Change: Okay, thank you very much for taking the time to answer.
Speaker Change: Thank you for watching!
Speaker Change: Thank you, Chris. Thank you.
Speaker Change: That will conclude the question and answer session. I would now like to pass the call back over to the management team for any closing remarks.
Speaker Change: Thank you. Thank you.
Speaker Change: Thank you all for your participation on today's call. I would like to thank our shareholders and capital partners for your continued support and our team for all their hard work and dedication.
Speaker Change: This concludes today's call. Thank you.
Speaker Change: Thank you.