BlackRock TCP Capital Corp

Current report

Debt investments are generally placed on non-accrual status when it is probable that principal or interest will not be collected according to the contractual terms. When a debt investment is placed on non-accrual status, accrued and unpaid interest (including any accrued PIK interest) is generally reversed, and discount accretion or premium amortization is discontinued. The Company does not reverse previously capitalized PIK income. Payments received on non-accrual investments may either be recognized as income or applied to principal depending upon the Company’s judgment regarding collectability of the outstanding principal and interest. Non-accrual investments are restored to accrual status if past due principal and interest are paid or, in the Company’s judgment, the repayment of the remaining contractual principal and interest is expected. The Company may opt not to place a distressed debt investment on non-accrual status if principal and interest are secured through sufficient collateral value and are in the process of collection through legal actions or other efforts that are expected to result in repayment of principal and interest.

Current report

During the three months ended June 30, 2024, we invested approximately $129.7 million, comprised of new investments in 5 new and 5 existing portfolio companies, as well as draws made on existing commitments and PIK received on prior investments. Of these investments, $123.5 million, or 95.3% of total acquisitions, were in senior secured loans. The remaining $6.2 million, or 4.7% of total acquisitions, was comprised of equity investments. Additionally, we received approximately $185.0 million in proceeds from sales or repayments of investments during the three months ended June 30, 2024.

Current report

During the three months ended June 30, 2023, we invested approximately $17.1 million, comprised of new investments in 2 new and 2 existing portfolio companies, as well as draws made on existing commitments and PIK received on prior investments. Of these investments, $15.9 million, or 93.2% of total acquisitions, were in senior secured loans. The remaining $1.2 million (6.8% of total acquisitions) was comprised of equity investments. Additionally, we received approximately $31.6 million in proceeds from sales or repayments of investments during the three months ended June 30, 2023.

Current report

During the six months ended June 30, 2023, we invested approximately $93.1 million, comprised of new investments in 10 new and 4 existing portfolio companies, as well as draws made on existing commitments and PIK received on prior investments. Of these investments, $91.0 million, or 97.8% of total acquisitions, were in senior secured loans. The remaining $2.1 million (2.2% of total acquisitions) was comprised of equity investments. Additionally, we received approximately $50.9 million in proceeds from sales or repayments of investments during the six months ended June 30, 2023.

Previous report

During the three months ended March 31, 2023, we invested approximately $76.0 million, comprised of new investments in 8 new and 2 existing portfolio companies, as well as draws made on existing commitments and PIK received on prior investments. Of these investments, $75.1 million, or 98.8% of total acquisitions, were in senior secured loans. The remaining $0.9 million (1.2% of total acquisitions) was comprised of equity investments. Additionally, we received approximately $19.3 million in proceeds from sales or repayments of investments during the three months ended March 31, 2023.

Previous report

Results of operations

Previous report

Investment income

Previous report

Investment income totaled $55.7 million and $50.3 million, respectively, for the three months ended March 31, 2024 and 2023, of which $54.7 million and $49.0 million were attributable to interest and fees on our debt investments, $1.0 million and $0.9 million to dividend income and $0.0 million and $0.4 million to other income, respectively. Included in interest and fees on our debt investments were $0.4 million and $0.2 million of non-recurring income related to prepayments and $0.1 million and $0.1 million in amendment fees for the three months ended March 31, 2024 and 2023, respectively. The increase in investment income for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily reflects an increase in interest income due to higher SOFR rates during the three months ended March 31, 2024 and to additional investment income earned on investments acquired as a result of the Merger, partially offset by the lower other income earned during the three months ended March 31, 2024.

Previous report

Expenses

Previous report

Total operating expenses for the three months ended March 31, 2024 and 2023 were $27.5 million and $24.9 million, respectively, comprised of $13.2 million and $11.5 million in interest expense and related fees, $5.9 million and $5.4 million in incentive fee expense, $5.8 million and $5.9 million in base management fees, $0.9 million and $0.5 million in professional fees, $0.6 million and $0.4 million in administrative expenses and $1.0 million and $1.2 million in other expenses, respectively. The increase in operating expenses for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 reflects an increase in interest expense due to higher SOFR rates during the three months ended March 31, 2024 and as a result of the higher debt outstanding assumed as a result of the Merger, in addition to an increase in incentive fee expense from higher pre-incentive net investment income earned during the three months ended March 31, 2024.

Previous report

Net investment income

Previous report

Net investment income was $28.3 million and $25.4 million, respectively, for the three months ended March 31, 2024 and 2023. The increase in net investment income for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily reflects the increase in total investment income, partially offset by the increase in expenses during the three months ended March 31, 2024.

Previous report

Net realized and unrealized gain or loss

Previous report

Net realized gain (loss) for the three months ended March 31, 2024 and 2023 was $(0.2) million and $(30.6) million, respectively. Net realized losses for the three months ended March 31, 2023 was comprised primarily of a $30.7 million loss from the reorganization of our investment in Autoalert.

Previous report

For the three months ended March 31, 2024 and 2023, the change in net unrealized appreciation (depreciation) was $(23.0) million and $28.0 million, respectively. The change in unrealized depreciation of $(23.0) million is net of $21.3 million in unrealized appreciation resulting from a reduction of the cost basis of investments acquired as a result of the Merger from allocation of the purchase discount paid by the Company. The change in net unrealized depreciation for the three months ended March 31, 2024 primarily reflects a $13.4 million unrealized loss on our investment in Edmentum, a $13.2 million unrealized loss on our investment in Razor, a $6.8 million unrealized loss on our investment in Aventiv, a $6.4 million unrealized loss on our investment in Astra, a $3.3 million unrealized loss on our investment in Thras.io and a $3.1 million unrealized loss on our investment in 36th Street Capital, partially offset by a $6.3 million reversal of previous unrealized loss upon the restructure of our investment in Perch. The change in net unrealized appreciation (depreciation) for the three months ended March 31, 2023 primarily reflects a $36.2 million reversal of previously recognized unrealized losses from the reorganization of our investment in Autoalert, partially offset by a $3.2 million unrealized loss on our investment in Astra Acquisition and a $2.9 million unrealized loss in Aventiv.

Previous report

Incentive compensation

Previous report

Incentive fees, included in operating expenses for the three months ended March 31, 2024 and 2023 were $5.9 million and $5.4 million, and were payable due to our performance exceeding the cumulative total return threshold. The increase in incentive fee expense for the three months ended March 31, 2024 compared to the three months ended March 31, 2023, was the result of higher pre-incentive fee net investment income earned during the three months ended March 31, 2024 which was driven by higher SOFR rates and additional investment income earned on investments acquired as a result of the Merger.

Previous report

Income tax expense, including excise tax

Previous report

The Company has elected to be treated as a RIC under Subchapter M of the Internal Revenue Code (the "Code”) and operates in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, the Company must, among other things, timely distribute to its shareholders generally at least 90% of its investment company taxable income, as defined by the Code, for each year. The Company has made and intends to continue to make the requisite distributions to its shareholders which will generally relieve the Company from U.S. federal income taxes.

Previous report

Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year dividend distributions from such current year taxable income into the next tax year and pay a 4% excise tax on such income. Any excise tax expense is recorded at year end as such amounts are known. No excise tax was incurred for the three months ended March 31, 2024.

Previous report

Net increase (decrease) in net assets resulting from operations

Previous report

The net increase (decrease) in net assets applicable to common shareholders resulting from operations was $5.1 million and $22.7 million for the three months ended March 31, 2024 and 2023, respectively. The lower net increase in net assets resulting from operations during the three months ended March 31, 2024 was primarily due to higher net realized and unrealized losses, partially offset by higher net investment income compared to the three months ended March 31, 2023.

Previous report

Net investment income, net realized and unrealized gain (loss) and net increase (decrease) in net assets resulting from operations can vary from period to period as a result of various factors, including acquisitions, the level of new investment commitments, the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio.

Previous report

Supplemental Non-GAAP information

Previous report

On March 18, 2024, the Company completed its previously announced Merger with BCIC. The Merger has been accounted for as an asset acquisition of BCIC by the Company in accordance with the asset acquisition method of accounting as detailed in ASC 805-50 ("ASC 805"), Business Combinations-Related Issues. The Company determined the fair value of the shares of the Company's common stock that were issued to former BCIC shareholders pursuant to the Merger Agreement plus transaction costs to be the consideration paid in connection with the Merger under ASC 805. The consideration paid to BCIC shareholders was less than the aggregate fair values of the BCIC assets acquired and liabilities assumed, which resulted in a purchase discount (the “purchase discount”). The consideration paid was allocated to the individual BCIC assets acquired and liabilities assumed based on the relative fair values of net identifiable assets acquired other than “non-qualifying” assets and liabilities (for example, cash) and did not give rise to goodwill. As a result, the purchase discount was allocated to the cost basis of the BCIC investments acquired by the Company on a pro-rata basis based on their relative fair values as of the effective time of the Merger. Immediately following the Merger, the investments were marked to their respective fair values in accordance with ASC 820 which resulted in immediate recognition of net unrealized appreciation in the Consolidated Statement of Operations as a result of the Merger. The purchase discount allocated to the BCIC debt investments acquired will amortize over the remaining life of each respective debt investment through interest income, with a corresponding adjustment recorded to unrealized appreciation or depreciation on such investment acquired through its ultimate disposition. The purchase discount allocated to BCIC equity investments acquired will not amortize over the life of such investments through interest income and, assuming no subsequent change to the fair value of the equity investments acquired and disposition of such equity investments at fair value, the Company may recognize a realized gain with a corresponding reversal of the unrealized appreciation on disposition of such equity investments acquired.

Previous report

As a supplement to the Company’s reported GAAP financial measures, we have provided the following non-GAAP financial measures that we believe are useful:

Previous report

“Adjusted net investment income” – excludes the amortization of purchase accounting discount from net investment income calculated in accordance with GAAP;

Previous report

“Adjusted net realized and unrealized gain (loss)” – excludes the unrealized appreciation resulting from the purchase discount and the corresponding reversal of the unrealized appreciation from the amortization of the purchase discount from the determination of net realized and unrealized gain (loss) determined in accordance with GAAP; and

Previous report

“Adjusted net increase (decrease) in net assets resulting from operations” – calculates net increase (decrease) in net assets resulting from operations based on Adjusted net investment income and Adjusted net realized and unrealized gain (loss).

Previous report

We believe that the adjustment to exclude the full effect of purchase discount accounting under ASC 805 from these financial measures is meaningful because of the potential impact on the comparability of these financial measures that we and investors use to assess our financial condition and results of operations period over period. Although these non-GAAP financial measures are intended to enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. The aforementioned non-GAAP financial measures may not be comparable to similar non-GAAP financial measures used by other companies.

Previous report

Liquidity and capital resources

Previous report

Since our inception, our liquidity and capital resources have been generated primarily through the initial private placement of common shares of Special Value Continuation Fund, LLC (the predecessor entity) which were subsequently converted to common stock of the Company, the net proceeds from the initial and secondary public offerings of our common stock, amounts outstanding under our Leverage Program, and cash flows from operations, including investments sales and repayments and income earned from investments and cash equivalents. The primary uses of cash have been investments in portfolio companies, cash distributions to our equity holders, payments to service our Leverage Program and other general corporate purposes.

Previous report

On February 27, 2024, the Board of Directors approved a new dividend reinvestment plan (the “DRIP”) for the Company. The DRIP was effective as of, and will apply to the reinvestment of cash distributions with a record date after March 18, 2024. Under the DRIP, shareholders will automatically receive cash dividends and distributions unless they “opt in” to the DRIP and elect to have their dividends and distributions reinvested in additional shares of the Company’s common stock. Notwithstanding the foregoing, the former shareholders of BCIC that participated in the BCIC dividend reinvestment plan at the time of the Merger have been automatically enrolled in the Company’s DRIP and will have their shares reinvested in additional shares of the Company’s common stock on future distributions, unless they “opt out” of the DRIP.

Previous report

On February 24, 2015, the Company’s Board of Directors approved a stock repurchase plan (the “Company Repurchase Plan”) to acquire up to $50.0 million in the aggregate of the Company’s common stock at prices at certain thresholds below the Company’s net asset value per share, in accordance with the guidelines specified in Rule 10b-18 and Rule 10b5-1 of the 1934 Act. The Company Repurchase Plan is designed to allow the Company to repurchase its common stock at times when it otherwise might be prevented from doing so under insider trading laws. The Company Repurchase Plan requires an agent selected by the Company to repurchase shares of common stock on the Company’s behalf if and when the market price per share is at certain thresholds below the most recently reported net asset value per share. Under the plan, the agent will increase the volume of purchases made if the price of the Company’s common stock declines, subject to volume restrictions. The timing and amount of any stock repurchased depends on the terms and conditions of the Company Repurchase Plan, the market price of the common stock and trading volumes, and no assurance can be given that any particular amount of common stock will be repurchased. The Company Repurchase Plan was re-approved on February 27, 2024, to be in effect through the earlier of two trading days after our first quarter 2024 earnings release, unless further extended or terminated by our Board of Directors, or such time as the approved $50.0 million repurchase amount has been fully utilized, subject to certain conditions. No shares were repurchased by the Company under the Company Repurchase plan for the three months ended March 31, 2024 and 2023.

Previous report

Total leverage outstanding and available under the combined Leverage Program at March 31, 2024 were as follows:

Previous report

As of March 31, 2024, $160.0 million of the outstanding amount was subject to a SOFR credit adjustment of 0.11%. $8.0 million of the outstanding amount bore interest at a rate of EURIBOR + 2.00%.

Previous report

Debt assumed by the Company as a result of the Merger with BCIC.

Previous report

The applicable margin for SOFR-based borrowings could be either 1.75% or 2.00% depending on a ratio of the borrowing base to certain committed indebtedness, and is also subject to a credit spread adjustment of 0.10%. If Merger Sub elects to borrow based on the alternate base rate, the applicable margin could be either 0.75% or 1.00% depending on a ratio of the borrowing base to certain committed indebtedness.

Previous report

Merger Sub Facility includes a $60.0 million accordion which allows for expansion of the facility to up to $325.0 million subject to consent from the lender and other customary conditions.

Previous report

The 2025 Notes consist of two tranches: $35.0 million aggregate principal amount with a fixed interest rate of 6.85% and $57.0 million aggregate principal amount bearing interest at a rate equal to SOFR plus 3.14%.

Previous report

Under Section 61(a) of the 1940 Act, prior to March 23, 2018, a BDC was generally not permitted to issue senior securities unless after giving effect thereto the BDC met a coverage ratio of total assets, less liabilities and indebtedness not represented by senior securities, to total senior securities, which includes all borrowings of the BDC, of at least 200%. On March 23, 2018, the Small Business Credit Availability Act (“SBCAA”) was signed into law, which among other things, amended Section 61(a) of the 1940 Act to add a new Section 61(a)(2) that reduces the asset coverage requirement applicable to BDCs from 200% to 150% so long as the BDC meets certain disclosure requirements and obtains certain approvals. The reduced asset coverage requirement would permit a BDC to have a ratio of total outstanding indebtedness to common equity of 2:1 as compared to a maximum of 1:1 under the 200% asset coverage requirement.

Previous report

Effective November 7, 2018, the Company’s Board of Directors, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) of our Board of Directors, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the SBCAA (the “Asset Coverage Ratio Election”), which would have resulted (had the Company not received earlier shareholder approval) in our asset coverage requirement applicable to senior securities being reduced from 200% to 150%, effective on November 7, 2019. On February 8, 2019, the shareholders of the Company approved the Asset Coverage Ratio Election, and, as a result, effective on February 9, 2019, our asset coverage requirement applicable to senior securities was reduced from 200% to 150%. As of March 31, 2024, the Company’s asset coverage ratio was 182%.

Previous report

On July 13, 2015, we obtained exemptive relief from the SEC to permit us to exclude debt outstanding under the SBA Debentures from our asset coverage test under the 1940 Act. The exemptive relief provides us with increased flexibility under the 150% asset coverage test by permitting the SBIC to borrow up to $160.0 million more than it would otherwise be able to absent the receipt of this exemptive relief.

Previous report

Net cash provided by operating activities during the three months ended March 31, 2024 was $33.4 million, consisting primarily of $27.4 million in net investment income (net of non-cash income and expenses) and the settlement of dispositions of investments (net of acquisitions) of $6.0 million.

Previous report — wording carried elsewhere

The weighted average effective yield of our debt portfolio was 14.1% at March 31, 2024 and 14.1% at December 31, 2023. The weighted average effective yield of our total portfolio was 13.4% at March 31, 2024 and 13.3% at December 31, 2023. At March 31, 2024, 97.1% of debt investments in our portfolio bore interest based on floating rates, such as SOFR, EURIBOR, the Federal Funds

Previous report — wording carried elsewhere

On March 18, 2024, the Company completed its previously announced Merger with BCIC. Pursuant to the Merger Agreement, BCIC was merged with and into Merger Sub, with Merger Sub continuing as the surviving company and as a subsidiary of SVCP. The Merger was considered a tax-free reorganization and the Company has elected to carry forward the historical cost basis of the acquired BCIC investments for tax purposes. As a result of the Merger, BCIC’s separate existence ceased.