TCPC

Business Context and Reporting Period

BlackRock TCP Capital Corp. (TCPC) is a closed-end, non-diversified management investment company regulated as a Business Development Company (BDC). The filing covers the quarterly period ended June 30, 2024. A material event during this period was the completion of the merger with BlackRock Capital Investment Corporation (BCIC) on March 18, 2024. The merger was accounted for as an asset acquisition, resulting in a purchase discount that was allocated to the cost basis of acquired investments.

Key Financial Metrics

Material Changes vs. Prior Period

• Portfolio Growth: Total investments increased by approximately $426 million, driven primarily by the acquisition of $587 million in investments from the BCIC merger.
• Operating Results: Net investment income increased by $11.1 million year-over-year, attributed to higher SOFR rates and income from newly acquired assets. However, this was offset by a significant increase in net realized and unrealized losses.
• Realized Losses: Net realized losses for the six months ended June 30, 2024, were $35.7 million, primarily due to restructuring losses of $22.8 million in Thras.io and $12.8 million in Hylan. In contrast, the prior year period saw a $31.0 million realized loss primarily from the AutoAlert reorganization.
• Unrealized Depreciation: Net unrealized depreciation was $74.6 million, compared to appreciation of $17.0 million in the prior year. Significant unrealized losses were recorded in SellerX ($31.5 million), Pluralsight ($23.0 million), and Edmentum ($17.3 million). These figures are net of a $21.3 million unrealized appreciation resulting from the purchase discount allocation in the merger.
• Debt Levels: Total debt increased by approximately $340 million due to the assumption of BCIC debt and the issuance of $325 million in 2029 Notes.

Guidance, Outlook, and Risks

• Merger Integration: The company is integrating BCIC assets. The purchase discount from the merger will amortize into interest income over the life of the debt investments, while equity investments will not amortize.
• Dividends: The Board declared a regular quarterly dividend of $0.34 per share for the second quarter of 2024. A new Dividend Reinvestment Plan (DRIP) was approved in February 2024.
• Legal Proceedings: The company is a defendant in a lawsuit filed in September 2023 in the U.S. Bankruptcy Court for the Southern District of New York regarding a third-party sponsored collateralized loan obligation. The suit seeks approximately $15 million plus interest. The company intends to vigorously defend against the claims.
• Liquidity and Leverage: The company maintains a leverage program with $585 million in available capacity. As of June 30, 2024, the asset coverage ratio was 173.8%, exceeding the 150% requirement under the 1940 Act.
• Interest Rate Risk: 93.4% of the debt portfolio bears floating interest rates. The company utilizes an interest rate swap to hedge a portion of its fixed-rate debt exposure.

Investor Verification Checklist

• Verify the impact of the $21.3 million purchase discount allocation on future interest income and unrealized gains/losses.
• Monitor the status of the $15 million lawsuit regarding the collateralized loan obligation.
• Review the performance and valuation of specific portfolio companies with significant unrealized losses (SellerX, Pluralsight, Edmentum, Razor, Lithium).
• Assess the company's ability to maintain the 150% asset coverage ratio given the increased debt load and potential market volatility.
• Confirm the amortization schedule of the purchase discount and its effect on reported Net Investment Income in future periods.