Business Context and Reporting Period
Company: BlackRock TCP Capital Corp. (TCPC)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three and six months ended June 30, 2022
Business Overview: TCPC is an externally managed, closed-end, non-diversified management investment company regulated as a Business Development Company (BDC). Its objective is to achieve high total returns through current income and capital appreciation, primarily by investing in the debt of middle-market companies and small businesses.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 |
|---|---|---|
| Total Investment Income | $86.1 million | $82.8 million |
| Net Investment Income | $41.0 million | $36.2 million |
| Net Realized and Unrealized Gain (Loss) | $(28.7) million | $54.1 million |
| Net Increase in Net Assets from Operations | $12.3 million | $90.3 million |
| Earnings Per Share (Basic & Diluted) | $0.21 | $1.56 |
| Net Assets | $807.0 million | $820.6 million (End of Period 2021) |
| Net Asset Value (NAV) Per Share | $13.97 | $14.21 (End of Period 2021) |
| Total Debt Outstanding (Carrying Value) | $1,047.8 million | $1,019.3 million (End of Period 2021) |
| Cash and Cash Equivalents | $49.4 million | $19.6 million (End of Period 2021) |
| Weighted-Average Debt Outstanding | $1,051.9 million | $970.5 million |
| Weighted-Average Interest Rate on Debt | 3.2% | 3.8% |
Material Changes vs. Prior Period
- Investment Income: Increased by $3.3 million (4.0%) for the six months ended June 30, 2022, compared to the prior year period. This was primarily driven by higher interest income due to increases in LIBOR/SOFR rates, partially offset by lower dividend and other income.
- Operating Expenses: Decreased by $1.5 million (3.2%) to $45.1 million. The reduction was mainly due to lower interest expense following the maturity of the $140 million 2022 Convertible Notes in March 2022 and lower incentive fees, partially offset by higher base management fees.
- Net Realized and Unrealized Gains/Losses: Shifted from a net gain of $54.1 million in the prior year to a net loss of $28.7 million.
- Realized Losses: Driven by a $13.8 million loss from the restructuring of the Fishbowl investment and a $13.3 million loss from the restructuring of the Avanti investment. These were partially offset by an $11.0 million gain from the exit of the CORE Entertainment debt investment.
- Unrealized Depreciation: Primarily due to mark-to-market adjustments from widening market spreads and reversals of previously recognized gains/losses on dispositions and restructurings.
- Portfolio Composition: The portfolio consists of 122 portfolio companies. Debt investments represent 88.6% of the portfolio, with 85.2% in senior secured loans. The weighted average effective yield of the debt portfolio increased to 9.8% from 9.2% at year-end 2021.
Guidance, Outlook, Risks, and Unusual Items
- Dividends: The Company declared a quarterly dividend of $0.30 per share for the first and second quarters of 2022. On August 3, 2022, the Board declared a third-quarter dividend of $0.30 per share.
- Stock Repurchase Plan: The Company has a $50.0 million repurchase plan. No shares were repurchased during the six months ended June 30, 2022. The plan was re-approved on July 28, 2022.
- Accounting Changes: The Company adopted ASU 2020-06 on January 1, 2022, regarding the accounting for convertible instruments. This resulted in a cumulative effect adjustment to opening net assets but did not have a material impact on financial position or results of operations.
- Risks and Market Conditions:
- Interest Rate Risk: 95.0% of debt investments bear floating interest rates. Rising rates increase investment income but also increase borrowing costs and may impact portfolio company ability to service debt.
- Geopolitical Risks: The conflict between Russia and Ukraine, inflation, and supply chain disruptions pose risks to portfolio companies and market liquidity.
- Liquidity: The Company relies on its Leverage Program (Operating Facility, Funding Facility II, SBA Debentures, and Unsecured Notes) to fund investments. Unfavorable economic conditions could impact the ability to renew or replace this leverage.
- Unusual Items: Significant realized losses were recognized due to the restructuring of investments in Fishbowl and Avanti, which were marked as non-accrual or distressed prior to restructuring.
Key Facts for Investor Verification
- NAV Decline: Verify the reasons for the decline in NAV per share from $14.36 (Dec 31, 2021) to $13.97 (June 30, 2022), specifically the impact of realized losses on Fishbowl and Avanti.
- Debt Maturities: Review the maturity schedule of the Leverage Program, particularly the 2024 Notes ($250 million) and the Operating Facility/Funding Facility II maturities in 2025/2026.
- Asset Coverage Ratio: Confirm the asset coverage ratio remains above the 150% regulatory requirement (reported as 189% as of June 30, 2022).
- Non-Accrual Status: Monitor the status of the two portfolio companies on non-accrual status (0.3% of portfolio at fair value) and potential future credit losses.
- Dividend Sustainability: Assess whether the $0.30 quarterly dividend is fully covered by net investment income, given the recent realized losses impacting total net assets.