OXSQ

Business Context and Reporting Period

This summary covers the Form 10-Q filed by TICC Capital Corp. (referred to as TICC) for the quarterly period ended March 31, 2009. TICC is a closed-end, non-diversified management investment company organized as a Business Development Company (BDC) under the Investment Company Act of 1940. The company's investment objective is to maximize total return, principally by investing in the debt and equity securities of technology-related companies. As of the reporting date, the company was operating without leverage, having terminated its revolving credit facility in December 2008.

Key Financial Metrics

Material Changes vs. Prior Period

• Investment Income Decline: Total investment income decreased by approximately 55% to $5.1 million from $11.5 million in the prior year. This was driven by a reduction in the size of the debt portfolio (principal value decreased from $409.0 million to $275.7 million) and a lower weighted average yield (7.4% vs. 10.5%).
• Expense Reduction: Total operating expenses dropped significantly to $1.6 million from $5.2 million. The primary driver was the elimination of interest expense ($2.3 million in Q1 2008) following the repayment and termination of the revolving credit facility in December 2008. Investment advisory fees also decreased by approximately $1.2 million due to lower gross assets.
• Unrealized Depreciation: Net unrealized depreciation improved significantly to $5.0 million compared to $22.4 million in the prior year. However, specific write-downs occurred in American Integration Technologies ($1.6 million), The CAPS Group ($1.4 million), Questia Media ($0.7 million), and WAICCS Las Vegas ($3.8 million). These were partially offset by write-ups in Segovia, NetQuote, Palm, and Arise Virtual Solutions.
• Liquidity Position: Cash and cash equivalents increased by $3.0 million to $17.1 million, reflecting principal repayments of $3.5 million and net investment income, offset by dividend distributions.

Guidance, Outlook, and Risks

Management Commentary and Outlook: Management notes that the global credit markets remain stressed, illiquid, and volatile. The company has chosen to remain fully unlevered until credit can be obtained at appropriate pricing and terms. Consequently, net investment income is expected to be lower than it would be on a levered portfolio. The company continues to seek investment opportunities in technology-related companies and may expand outside this sector.

Risks and Contingencies:

• Portfolio Deterioration: Several portfolio companies are experiencing financial distress. Questia Media failed to pay principal in January 2009 but continues to pay interest; the company is exercising legal rights under a guarantee. Investments in American Integration Technologies and The CAPS Group were placed on non-accrual status or written down to zero fair value.
• Valuation Uncertainty: All investments are classified as Level 3 under SFAS 157 due to market illiquidity. Fair values are determined in good faith by the Board of Directors using third-party valuations and internal analysis, which involves significant judgment.
• Capital Markets: The company faces challenges in raising additional capital due to the discount at which its stock trades relative to NAV and the general disruption in capital markets.
• Dividend Sustainability: While the company paid a $0.15 per share dividend in Q1 2009, net investment income was only $0.13 per share. Management monitors taxable earnings to determine if future distributions may be characterized as a return of capital.

Key Facts for Investor Verification

• Unlevered Status: Verify the impact of the terminated credit facility on future net investment income and the company's ability to deploy capital efficiently.
• Non-Accrual Assets: Review the status of investments in American Integration Technologies, The CAPS Group, and Questia Media, which represent significant portions of the portfolio's unrealized losses.
• NAV Discount: Note the substantial discount between the market price ($3.51) and NAV ($7.46), which limits the company's ability to raise equity capital without shareholder approval.
• Dividend Coverage: Monitor the ratio of net investment income to distributions to assess the sustainability of the $0.15 quarterly dividend and the potential for return of capital.
• Valuation Methodology: Understand that portfolio values are based on Level 3 inputs (unobservable) due to market illiquidity, introducing estimation risk.