Business Context and Reporting Period
Company: BlackRock TCP Capital Corp. (TCPC)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2021
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 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2021 | Dec 31, 2020 (Balance Sheet) |
|---|---|---|---|
| Total Assets | $1,833.5 million | $1,833.5 million | $1,672.0 million |
| Total Investments (Fair Value) | $1,757.4 million | $1,757.4 million | $1,629.6 million |
| Net Assets | $814.2 million | $814.2 million | $765.0 million |
| Net Asset Value (NAV) per Share | $14.09 | $14.09 | $13.24 |
| Net Investment Income | $18.7 million | $54.9 million | N/A |
| Net Realized & Unrealized Gain/Loss | $(1.6) million | $52.5 million | N/A |
| Net Increase in Net Assets from Operations | $10.9 million | $101.2 million | N/A |
| Earnings Per Share (Basic & Diluted) | $0.19 | $1.75 | N/A |
| Total Debt (Net of Issuance Costs) | $977.8 million | $977.8 million | $850.0 million |
| Cash and Cash Equivalents | $36.6 million | $36.6 million | $20.0 million |
Material Changes vs. Prior Comparable Period
- Investment Income: For the nine months ended September 30, 2021, total investment income decreased to $125.5 million from $129.2 million in the prior year period. This decline was primarily due to lower interest income resulting from declining LIBOR rates and reduced other income, partially offset by higher dividend income.
- Operating Expenses: Total operating expenses increased to $70.6 million for the nine months ended September 30, 2021, compared to $66.0 million in the prior year. The increase was driven by higher base management fees and the recognition of deferred incentive fees from the first quarter of 2020.
- Net Investment Income: Decreased to $54.9 million for the nine months ended September 30, 2021, from $63.2 million in the prior year, reflecting lower investment income and higher expenses.
- Realized Gains/Losses: The Company reported a net realized gain of $10.8 million for the nine months ended September 30, 2021, a significant improvement from a net realized loss of $13.5 million in the prior year. Key drivers included an $8.8 million gain on the disposition of the One Sky equity position and a $6.1 million gain on the partial sale of the Edmentum equity investment.
- Unrealized Appreciation: Net change in unrealized appreciation was $41.7 million for the nine months ended September 30, 2021, compared to a depreciation of $24.0 million in the prior year, driven by unrealized gains on Edmentum and spread tightening.
Guidance, Outlook, and Risks
- Debt Extinguishment: On September 17, 2021, the Company redeemed all $175.0 million of its 2022 Notes, recognizing a $6.2 million loss on extinguishment of debt.
- Dividends: The Company declared a quarterly dividend of $0.30 per share for the fourth quarter of 2021, payable on December 31, 2021. Total dividends paid for the nine months ended September 30, 2021, were $52.0 million.
- Stock Repurchase Plan: The Board re-approved the Company Repurchase Plan on October 28, 2021, authorizing up to $50.0 million in repurchases. No shares were repurchased during the nine months ended September 30, 2021.
- Portfolio Composition: As of September 30, 2021, the portfolio consisted of 106 companies. 90.0% was invested in debt (84.2% senior secured loans) and 10.0% in equity. The weighted average effective yield of the debt portfolio was 9.4%.
- Risks:
- Interest Rate Risk: 94.1% of debt investments bear floating interest rates. While 90.3% of these have interest rate floors, significant changes in market rates could impact net investment income.
- Cybersecurity: The filing highlights risks related to cyber-attacks affecting the Advisor, service providers, or portfolio companies, which could disrupt operations and cause financial losses.
- Liquidity: The Company relies on its Leverage Program (Operating Facility, Funding Facility II, SBA Debentures, and unsecured notes) to fund investments. Inability to renew or replace this leverage could adversely impact liquidity.
Important Facts for Investors to Verify
- Debt Structure Changes: Verify the impact of the $175 million redemption of the 2022 Notes and the issuance of $325 million in 2026 Notes on the Company's leverage profile and interest expense.
- Incentive Fee Catch-up: Confirm the calculation and payment schedule of the "Catchup Amount" related to deferred incentive fees from Q1 2020, which impacted current period expenses.
- Portfolio Valuation: Note that 97.3% of investments are Level 3 assets valued using unobservable inputs. Verify the sensitivity of these valuations to changes in discount rates and multiples.
- Asset Coverage Ratio: The Company's asset coverage ratio was 198% as of September 30, 2021, well above the 150% requirement under the 1940 Act, but monitor this ratio given the high leverage levels.
- Non-Accrual Status: Three portfolio companies were on non-accrual status as of September 30, 2021, representing 1.0% of the portfolio at fair value.