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spk05: Ladies and gentlemen, good afternoon. Welcome everyone to the BlackRock TCP Capital Corp's second quarter 2021 earnings conference call. Today's conference call is being recorded for replay purposes. During the presentation, all participants will be in a listen-only mode. A question and answer session will follow the company's formal remarks. To ask a question, please press the star key followed by the digit 1. I will repeat these instructions before we begin the Q&A session. And now I would like to turn the call over to Katie McGlynn, Director of the BlackRock TCP Capital Corp Global Investor Relations Team. Katie, please proceed.
spk00: Thank you, Matt. Before we begin, I'll note that this conference call may contain forward-looking statements based on the estimates and assumptions of management at the time of such statements and are not guarantees of future performance. Forward-looking statements may involve risks and uncertainties, and actual results could differ materially from those projected. Any forward-looking statements made on this call are made as of today and are subject to change without notice. Earlier today, we issued our earnings release for the second quarter ended June 30, 2021. We also posted a supplemental earnings presentation to our website at tcpcapital.com. To view the slide presentation, which we will refer to on today's call, please click on the Investor Relations link and select Events and Presentations. These documents should be reviewed in conjunction with the company's Form 10-Q, which was filed with the SEC earlier today. I will now turn the call over to our Chairman and CEO, Howard Lefkowitz.
spk03: Thank you, Katie, and thank you all for joining us today. We appreciate your continued interest in TCPC and we hope you are safe and well. There are several members of the TCPC team on the call with us today, including our President and Chief Operating Officer, Raj Vick, and our Chief Financial Officer, Eric Cuellar. I will start with a few highlights from the second quarter. Raj will then provide an update on our portfolio and investment activity. Next, Eric will review our financial results as well as our capital and liquidity positioning. After that, I will provide some closing comments before opening the call to your questions. Beginning with highlights from our second quarter, TCPC delivered another strong quarter of results driven by a meaningful increase in the value of our portfolio investments which drove significant net asset value growth as well as outstanding credit quality and robust deployment in the second quarter our net asset value increased 4.8 percent and year over year net asset value is up 16.4 percent this is our fifth consecutive quarter of net asset value increases and builds on the positive net asset value accretion we had during 2020 a result of which we are extremely proud. As Eric will discuss in more detail, the increase in net asset value in Q2 was primarily driven by a $41 million unrealized gain on our investment in Edmentum, together with more modest increases in value across the portfolio. That investment income in the quarter was $17.8 million, or $0.31 per share, which again exceeded our dividend of $0.30 per share. Our credit quality remains solid, with loans to just two portfolio companies on non-accrual, totaling 30 basis points of the portfolio at fair value and 70 basis points at cost. As Raj will discuss in more detail, we had significant gross deployment activity in the second quarter, and we increased the number of our investments by 10% to 108. While the market environment remains competitive, we continue to benefit from the relationships we've developed over more than two decades of lending to middle market companies, as well as the extensive resources of the BlackRock platform that provide our team with attractive investment opportunities. We also continue to seek ways to enhance our strong balance sheet and liquidity positioning. In June, we amended the SVCP credit facility. As part of the amendment, we extended the maturity two years to May 2026 and lowered the stated rate from LIBOR plus 2% to LIBOR plus 1.75%. Despite the volatility that occurred in 2020, TCPC delivered strong results for shareholders over the past year, as we've done throughout our nearly 10 years as a public company. Throughout this period, we have generated a 10.9% return on invested assets and a total cash return of 9.7%, while also outperforming the Wells Fargo BDC index. Three years into the TCP acquisition by BlackRock, we are fully leveraging the strength and unparalleled scale of the BlackRock platform to build upon TCPC's performance track record. In view of these accomplishments, two months ago, I announced my plans to retire from my position as Chief Executive Officer of TCPC, effective August 5, and as Chairman of TCPC, effective September 30. I will remain at BlackRock through year end. I'm extremely proud of the deep bench of talent that we have developed over two decades at TCPC and now BlackRock, which allows for a smooth transition. Raj Vig will succeed me as CEO and chairman, and Phil Tseng will be appointed president and COO. Raj, Phil, and I have worked together for more than 15 years, and together we built an industry-leading private credit platform. Raj and Phil are also co-heads of the BlackRock U.S. private capital team. They have been instrumental in the integration and growth of our team at BlackRock and are well equipped to continue to build upon TCPC's successful track record. In addition, I would like to congratulate Eric Cuellar on his appointment as CFO, a position for which he is extremely well prepared after serving as TCPC's controller since 2011. Eric has assumed this position seamlessly. Additionally, Kathleen Corbett announced her retirement from the TCPC Board effective today. Kathleen has been an invaluable member of the Board, and we thank her for her tireless service on behalf of TCPC's shareholders. Now, I will turn it over to Raj to discuss our portfolio positioning.
spk04: Thanks, Howard. Let me first take a moment to recognize Howard's significant contributions to our team and to TCPC. Howard has been a well-recognized leader in our industry and a key architect in building what is now the U.S. private capital business at BlackRock. Phil and I greatly appreciate our longstanding partnership with Howard, and we are extremely proud of the team of talented investment professionals we have attracted and developed. Also, I greatly appreciate the board's confidence in appointing me as chairman and CEO. Along with Phil and the rest of TCP's leadership team, I look forward to continuing our track record of success. Now, Turning to our portfolio positioning and investment activity during the second quarter. At quarter end, our portfolio had a fair market value in excess of $1.8 billion and an increase of nearly $100 million from the prior quarter. 88% of our investments are senior secured debt and are spread across a wide range of industries, providing portfolio diversity and minimizing concentration risk. Our portfolio is also weighted towards companies with established business models in less cyclical industries. The portfolio remains diverse at quarter end and was made up of investments in 108 companies. As the chart on the left side of slide six shows of the presentation, our recurring income is spread broadly across our portfolio and is not reliant on income from any one company. In fact, over half of our portfolio companies each contribute less than 1% to our recurring income. 87% of our debt investments are first lien, providing significant downside protection, and 94% of our debt investments are floating rate, positioning us well for when interest rates eventually rise. Moving on to our investment activity. In our view, many of the competitive market dynamics that existed prior to the pandemic have resurfaced. However, an increasing number of middle market companies continue to seek private credit solutions due to their more tailored and flexible financing options leading to investment opportunity. We continue to source a wide range of investment opportunities, leveraging the relationships we've developed over two decades, our deep industry expertise, and the breadth and depth of the resources available to us across BlackRock's global credit platform. While we have been actively deploying capital in this market, we always maintain a disciplined approach to investing, and while we regularly review a substantial number of opportunities, we end up investing in only a small percentage of them. Investment activity in the second quarter was robust. We invested $236 million, primarily in 19 investments, including loans to 16 new portfolio companies and loans to three existing companies. Follow-on investments in existing holdings continue to be an important source of opportunity for us, accounting for more than a third of our total investments over the last 12 months. From a risk management perspective, these are companies we already know and understand well. As we analyze new investment opportunities, we continue to emphasize seniority in the capital structure, portfolio diversity, and transactions where we act as lead or co-lead. Our largest investment during the second quarter was a first lien loan to Pluralsight, an enterprise technology learning platform that designs and provides training software and services for software developers. While our investment was part of a larger total loan than our typical investment, Pluralsight presented a compelling opportunity to invest in a strong and growing business. The company has a solid existing customer base that provides visible recurring revenue and cash flows and strong support from a well-established equity sponsor. Our second largest investment in the quarter, Keep Truckin', leveraged our team's venture lending capabilities and relationships. Founded in 2013, Keep Truckin' provides video safety, compliance, and fleet management solutions for for transportation and logistics companies. Our team worked directly with management to provide the entire first lien financing. New investments in the second quarter were partially offset by dispositions, totaling $185 million. These included the maturity and repayment of our loan to Dodge Data, as well as payoffs to our loans to Aerotech, Greystone, and AutoTrack. The overall effective yield on our debt portfolio was 9.3% as of June 30th, and investments in new portfolio companies during the quarter had a weighted average effective yield of 8.8%, modestly below the 9.2% weighted average effective yield on dispositions during the quarter. Since December 31st, 2018, LIBOR has declined 265 basis points, or by 95%, which has put pressure on our overall portfolio yield. However, 87% of our floating rate loans are currently operating with LIBOR floors, And given that 94% of our loans are floating rate, we are well positioned to benefit when rates eventually rise. We continue to invest selectively, maintaining our discipline and focusing on companies with established business models that are well positioned in the current economic environment. Our activity in the third quarter to date totals approximately $61 million, primarily in five senior secured loans with a combined effective yield of approximately 9.1%. The yield on investments in our pipeline are generally in line with our current portfolio, and to date, we have had limited prepayment income in the third quarter. Before turning the call over to Eric, I would like to congratulate him on his well-deserved promotion to CFO. Eric has been an instrumental part of our finance team, and his promotion is a recognition of his significant contributions as TCPC's controller over the past 10 years. I very much look forward to working with Eric in his new role. Eric?
spk01: Thank you, Raj. Appreciate that. Turning to our financial results for the second quarter, we generated net investment income of $0.31 per share, which exceeded our dividend of $0.30 per share. We're committed to paying a sustainable dividend that is fully covered by net investment income, as we have done every quarter since our IPO in 2012. Today, we declared a third quarter dividend of $0.30 per share. Investment income for the second quarter was $0.72 per share. This included recurring cash interest of $0.61, recurring discount and fee amortization of $0.03, and PIC income of $0.02. Notably, PIC income is at our lowest level in more than three years. As a reminder, our income recognition follows our conservative policy of generally amortizing upfront economics over the life of an investment. rather than recognizing all of it at the time the investment is made. Investment income also included a penny of other income, $0.03 of dividend income and $0.03 from accelerated OID and exit fees. Dividend income in the second quarter included $1.1 million, or $0.02 per share, of recurring dividend income on our equity investment and admittance. Operating expenses for the second quarter were $0.33 per share and included interest and other debt expenses of $0.19 per share. Incentive fees in the quarter, which included $0.6 million of previously deferred fees, total $4.5 million, or $0.08 per share, for total net investment income of $0.31 per share. As we have previously noted, we voluntarily deferred incentive fees related to our income from 2020 over a period of six quarters, with the final amount to be recognized in the third quarter of this year, subject to our cumulative performance remaining above the hurdle. Our net increase in that assets for the quarter was $55 million, or 95 cents per share, which included net unrealized gains of $37 million, or 65 cents per share, and net realized losses of $0.2 million, or less than a penny per share. Unrealized gains primarily reflected a $40.7 million gain on our investment in Admentum as a result of an additional equity investment committed to the company in the second quarter. Admentum continues to benefit from the dramatic increase in demand for online education. Additional equity investment also resulted in the sale of approximately one-third of our investment in the company post-quarter end. Unrealized gains in the second quarter also reflected overall spread timing and continued market recovery as well as improved investor sentiment following the significant market dislocation in the first half of last year as a result of the pandemic. Unrealized gains were partially offset by the reversal of $7.6 million of unrealized gains on Amtek and $5.3 million in unrealized losses from Fishbowl. Fishbowl provides marketing software and services to restaurants and is our only direct exposure to the restaurant industry. Given Fishbowl's exposure to this industry, the company has been slower to recover. Substantially, all of our investments are valued every quarter using prices provided by independent third-party sources. These include quotation services and independent valuation services, and our process is also subject to rigorous oversight, including backtesting of every disposition against our valuations. Our overall credit quality remains strong, as Howard noted, with non-accrual loans limited to just two portfolio companies that represent just 0.3% of the portfolio fair value and 0.7% at cost at June 30. Turning to our liquidity, we ended the quarter with total liquidity of $373 million. This included available leverage of $389 million, cash of $18 million, and net pending settlements of $34 million. Unfunded loan commitments to portfolio companies at quarter end equaled 5.8 percent of total investments, or approximately $105 million, of which $35 million were revolver commitments. Our diverse and flexible leverage program includes two low-cost credit facilities, a convertible note issuance, three straight unsecured note issuances, and an SBA program. And subsequent to quarter end, we received an additional $10 million in capacity from the SBA. Our unsecured debt continues to be investment grade rated by both Moody's and Fitch. Additionally, given the modest size of each of our debt issuances, we are not overly reliant on any single source of financing. And our maturities are well laddered. Our nearest maturity is March of 2022. And given the success of our latest bond issuance earlier this year, we are very well positioned to redeem or refinance those notes. Combined, the weighted average interest rate on our outstanding liabilities decreased to 3.48% from 3.54% at the beginning of the year. And with that, I'll turn it back over to Howard.
spk03: Thanks, Eric. I would like to thank our entire team for their hard work and dedication over the years. I'm incredibly proud of the team and the company we built. I would also like to thank our investors for their trust and support over the years. As many of you know, TCPC's predecessor vehicle dates back to 2000, 21 years ago. And I'm grateful and appreciative that a number of those investors are still invested in the fund today. The results we have delivered for our shareholders over the years have truly been a team effort. Raj and Phil have both worked alongside me for more than 15 years, and most of our senior investment professionals have worked with us for well over a decade. I have every confidence in this team going forward and their ability to continue to deliver the results that TCPC shareholders have come to expect. And with that, operator, please open the call for questions.
spk05: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you'd like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question will come from Robert Dodd with Raymond James.
spk07: Please go ahead. Hi, guys. And first, I'd like to say thanks to Howard for probably a decade of help in understanding the space. And good luck with whatever your future endeavors are. So thanks for all the assistance over the years on that from Howard. And then just, you know, on to the question. I mean, Just competitively, obviously, a very, very active second quarter, more active in this second quarter than the fourth quarter last year, which is kind of a theme we're seeing. Is that the result of that activity or there's a consequence of that? Is competition shifting materially? Obviously, spreads have come back to kind of pre-COVID, but anything else on terms or or general dynamics, given we've got an extremely active, both on obviously the origination opportunities, but the amount of capital chasing them? Any color you can give us there?
spk03: Sure. Robert, thank you for your comments. First of all, I've truly enjoyed the relationship as well. Let me say a few brief things, and then I'll turn it over to Raj to respond further. Our origination activity has always been somewhat lumpy. We have a platform that's diverse, that's industry focused, that creates a wide variety of opportunities in all environments, good markets, bad markets. And I think that's one of the things that has distinguished our business. Clearly, we benefit also from being part of the larger origination platform here at BlackRock. But we've been able to generate deal flow in all kinds of environments. Raj, it would be helpful if you add some things specifically about the competitive environment we're seeing today. But I do think it's important to remember that we have this diversity of origination streams that I think are a little bit distinct from many of the others in the business.
spk04: Yeah. And I'd echo, Robert, your thanks to Howard again and appreciate your comments. But let me just touch a little bit more on the competitive environment. I would say the fact that it's competitive is not new. I think that's been the case as people have been attracted to the returns and the opportunity set. I do think, though, that what it takes to compete, particularly at this level, and to be maintaining or improving a position as a fulsome solutions provider that people can go to for their needs, even if you don't end up doing the deal on your own, being positioned to be able to do that and provide a solution is as important as it's ever been, maybe more important. Part of that means you need to have the right capital base. Part of it means you really need to be able to move quickly. The velocity of transactions seems to have picked up, as well as the interest level. And given our approach, we've always taken the approach of coming at it from an industry point of view. Having a broader platform and the ability to provide a fulsome solution isn't necessarily different, but it perhaps may be more important. And there is an ability for... Even though there's more competition, not everyone can do that. And I think that does lead to, you know, an ongoing opportunity set that we're excited about. So hopefully that provides some more color. But this quarter was, I think, good evidence of being able to do that, given where we were a sole lender, you know, or maybe part of a small club. That is the overall characteristic of our investment activity. And I think that does result from being, you know, well-positioned in that context that I just laid out.
spk07: Understood. And kind of if I can follow up to that, I mean, to Howard's point, you've typically had maybe a wider funnel than a lot of others. You do a lot of things beyond, you know, plain vanilla cash flow lending. You've got asset backed, et cetera. Would you expect if the level of competition stays enhanced with all the caveats that you added, Raj. Would you expect to maybe a greater element of your portfolio to come from those differentiated channels rather than just doing, for lack of a better term, a vanilla cash flow lending club deal? Would you expect to utilize more of your differentiated channel or do you expect it to kind of just stay the same?
spk04: I think it's hard to say. I think our focus has always been on, you know, we really are channel agnostic. So if that happens, I believe we're well positioned because we do cover, you know, the industry themselves. We have good coverage of private equity folks that we work with. Not everyone, but the ones we work with, you know, we do a lot of repeat business. And then we find pockets of value when those arrive, like the ARR deals. We were early in that space. You know, the ABL or asset-backed structures, where that's appropriate, you know, we're open to that. So it's hard to predict that becomes the mainstay. I think rather than trying to predict it or being smart enough to predict that, we want to be positioned to take advantage of wherever the deal flow comes from and approaching things with an industry lens and being very cognizant of, you know, what we think, what risk and reward work for us should helpfully let us take advantage of a wider funnel wherever the concentration occurs on a go-forward basis.
spk07: I understand. I appreciate that. Thank you.
spk05: Thank you. Our next question will come from Finian O'Shea with Wells Fargo. Please go ahead.
spk10: Hey, everyone. Good afternoon. I'll first echo Robert's congratulatory and appreciative comments on your leadership, Howard, for the BDC, or I'll add one on there. You were one of the, part of the pioneering group of the credit look back that now your peers begrudgingly must adopt. We very much appreciate that. And I'll move on to a couple of questions. Also sort of in the discussion of growth and origination and so forth. First, I wanted to ask sort of on the fundraising side, a couple of the large alternative managers, I think BlackRock's trying to be a large alternative manager as well, in some sense, are really stepping up the fundraising game into the retail channels, and that's really driving a lot of this competition. Do you believe, or in your opinion, of you should and will BlackRock be entering into that sort of fundraising races we see as really stepping up at this time?
spk03: Ben, thanks for the comments, both personally and I think much more importantly for what we've done institutionally with respect to the look back. For those of you who are newer to joining us, when we took TCPC public, it was a private investment vehicle and we left in place its institutional structure with respect to look back at something we're very proud of and believe in. With respect to competition in the industry, there are constantly new sources of people coming into this business. The public vehicles, private vehicles, registered vehicles, unregistered vehicles, different sources of investors, domestic, foreign, institutional, retail. I think your comments and questions around the push by other people into the retail or high net worth channel are interesting. Obviously, as a global asset manager of BlackRock size, we touch on investors across every different aspect and we're always looking to try and make sure we're doing the right thing for our investors over time with respect to tcpc we think it provides a great opportunity for all investors institutional and individual and those who need daily liquidity as well as those who have been with us for now two decades to get that product. And we'll continue to probably see people offering different things in different channels, but we're really focused on making sure that we can do the right things for our investors in TCPC.
spk10: Okay. Thanks, Michael. And I'll just do a small follow-up. I think Eric gave some color in the post-quarter. Are you able to tell us if your exits related to debt or equity or both?
spk04: Sorry, can you repeat that? You faded a little bit. I think you asked about invention and the exit and what the exit was comprised of.
spk10: Yeah, did you get out of debt or equity for your book?
spk01: Yeah, it was all equity. We only are invested in the equity at this point since the beginning of last quarter.
spk04: Yeah, just to be clear, when we did the original transaction, we had, you know, when the sponsor came in, we post that time, we've only been in equity. The balance sheet was refinanced. And to Eric's point, that sell down was of that equity position.
spk05: Okay, that's all for me. Thanks so much. Our next question will come from Ryan Lynch with KBW. Please go ahead.
spk09: Good morning there, and I just want to congratulate or give Howard you best wishes. I really enjoyed working with you over the years, and congratulations to you, Raj, on the promotion. Following up on Finn's question regarding Edmentum, can you repeat your comment here? I believe you said you had a $1.2 million of recurring income in the second quarter recorded from that investment. Can you talk about, you know, was that a non-recurring item? Should we expect future income from Inventum? And then how does that look regarding, you know, post-sale proportion of your position, as well as on top of that, you know, when you sold down a third of your position, how did that amount come about why why was it not you know full exit or or why did you guys not just choose to hold all the why why did you guys just kind of right size it uh down to just selling off a third sure i'll address this this is eric i'll address the uh the dividend question first it is um recurring dividend income
spk01: We actually were invested both in the preferred equity tranche and in the common equity as well. And as you recall, last quarter we had a somewhat elevated level of dividend income, but this was more normalized recurring. But as you mentioned, we did sell down a portion of that equity position.
spk04: Yeah, and let me pick up on that. So as Eric mentioned, you know, the nice thing is we, you know, this comes as a result of a nice run-up in the valuation and also a realized exit in part at those elevated valuations. The benefit here is we can take those proceeds and obviously redeploy it into our more normative investment profile for interest income. We do believe, obviously, as part of a sell-down, that it was important to manage the position size. Being an equity owner of a business is not the normative strategy. Doing so as a way to really fully realize the work effort and the benefits of that work and the position was part of the sell-down philosophy, but at the same time, we are still excited about the business. It's well positioned. There's been a lot of work to get it to where it is today. I do think there is ongoing positive winds and the sale, so to speak, for the business. You have new institutional investors who have come in as well as part of this transaction. So we want to be a part of that success on an ongoing basis, but we want to balance it with what the core part of the strategy is, as well as managing a diverse and well-diversified book with the growth in that position. And that is sort of the combination of things that led us to partially exit, take some chips off the table, but also be a part of the future success of the business.
spk09: Okay, understood. And then I believe you mentioned that out of your new originations this quarter, 16 came from new portfolio companies and three came from existing. If that is correct, You know, it feels like a lot of direct lenders over the past year have been leaning more into existing portfolio companies as they fund, you know, additional capital deployments. You all, and again, I don't want to, you know, draw too many conclusions out of one single quarter because I know things can fluctuate, but you kind of flipped that trend this quarter, really focusing a lot on new portfolio companies for deployments. I'd love to share any commentary on why there was kind of such a large number of new portfolio companies this quarter versus existing.
spk03: Ryan, thanks for the follow-up, and also thanks for your initial comments. Truly have enjoyed working with you as well. I'm going to let Raj give you a little bit more granularity, but would like to emphasize your statement, which is don't pay too much attention to a single quarter. For a number of years now, we've talked about the fact that we have the benefit of doing a significant part of our business with existing borrower relationships, and that has been running well over half. So the fact that for a particular quarter there's a slightly different relationship is, in our view, not indicative of a new trend. It's simply a small set of data sets this quarter. We continue to benefit from having these long-term robust relationships with lots of existing companies across a lot of industries, and it's a very important part of our deal flow.
spk04: Yeah. I mean, I think, you know, just to reiterate Howard's usual commentary about, you know, no single quarter is indicative of a trend. we're going to keep that phraseology even after he departs. But it's true. I mean, there is no single quarter or quarter date period I think typifies a trend. I would highlight or reiterate that over the past year or so, about a third of our investment activity has come from the existing portfolio. And I think that is really the message that at a level where you have a mature portfolio and business model, there is a benefit from the existing relationships and the existing portfolio itself to self-generate leads. And we have seen that with more consistency versus the data point of this quarter. And I expect that, you know, we've continued just given how we do the pipeline, you know, performance over the last year and just the general level of, you know, maturity in our business.
spk01: And, Ryan, I'll just add a little bit of color on the –
spk09: activity post quarter end we mentioned we've done five deals in excess of 60 million dollars and three of those five were to existing portfolio companies okay understood yep and and i totally understand that the um you know one quarter doesn't make a trend but it was just a little bit unusual uh but it sounds like things were probably revert back back to normal going forward so uh those are all my questions i appreciate that the time today thank you
spk05: Our next question will come from Devin Ryan with JMP Securities.
spk07: Please go ahead.
spk05: Devin has dropped off. Our next question will come from Christopher Nolan with Lattenberg Thalmann. Please go ahead.
spk06: Howard, I want to congratulate you on your move and you are definitely a class act in the BDC world and you will be missed. And I want to say to Raj, Eric, and Phil, congratulations on your new promotions. Raj, is there going to be any sort of strategy in terms of shifting to other types of industry groups than what we've seen before?
spk04: I would say at a high level, no, not really. I think what we like about the business and The experience we've had to date is that I believe what we do and where we focus works. You know, certainly 2020 was a great, very good validating timeframe, you know, to be defensive. Occasionally we see opportunity in businesses that perhaps are a little more cyclical than what we typically invest in. But there oftentimes we are focusing more on asset, you know, base for collateral, you know, mitigating that business dynamic. But to answer your question sort of in a more succinct way, I don't see it. We would not anticipate a big change in the strategy, although we're always very open to being open to good opportunities where they come from.
spk06: And I guess as a follow-up, I mean, given that your cost of capital is going down, especially with that latest bond raise, Are you finding that you're able to compete more attractively on price but make it up on better terms and conditions?
spk04: You know, I think that's a good outcome of a lower cost of capital on the financing side. But to be honest, when we look at our investing activity or make our underwriting decisions, we are bifurcating that from the financing decisions. So we really want the investment to work on an unlevered basis for the perceived level of risk. And then the financing is more portfolio management versus, you know, creating an investment capacity where it may or may not work otherwise. So, I think it's something we will be opportunistic about, but I would keep that viewpoint that it's separate from the investment decision.
spk06: Male Speaker 1 Right. Thank you, and congratulations to all you guys.
spk03: Male Speaker 2 Chris, thank you, and really appreciate your comments.
spk05: Our next question will come from Derek Hewitt with Bank of America.
spk09: Please go ahead. Good morning, everyone. I also want to congratulate Howard on your pending retirement and also Raj, Phil, and Eric on your new roles. So it's been about three years now. on the BlackRock platform. So what percentage of the current portfolio are co-investment opportunities with BKCC at this point? And maybe could we kind of compare it to maybe one year ago?
spk04: I would say, so keep in mind, BKCC is under our co-investment order. By definition, from the day we started to today, it will be a higher percentage. We don't disclose the percentage of the overlap, but just logically, that activity has obviously been a function of the requirements of that order. I'm sorry, the second part of your question was?
spk09: Well, just comparing it like from one year ago, but I think you already answered that.
spk04: Yeah, so I would say going back to the beginning of our transaction, clearly higher. Going back a year ago, again, being constrained by disclosures, I wouldn't want to make that comment.
spk03: Derek, let me just maybe add one thing onto what Raj is saying, which is we have had exemptive relief for over 15 years. So long before we became part of BlackRock and clearly being part of BlackRock, there are a lot more opportunities and entities. But we have for a very long time and certainly long since before TCPC was public, functioned in a way that we were investing across our various vehicles and had the benefit of being able to do that. So this is nothing new. It's expanded, but not new or different.
spk09: Okay, great. Thank you.
spk03: Thank you, and thank you for your comments at the beginning as well.
spk05: Again, if you have a question, please press star then 1. Our next question will come from Devin Ryan with JMP Securities. Please go ahead.
spk08: Okay, great. Good afternoon, everyone, and Howard, yeah, again, best wishes on future endeavors. And Raj, congratulations. Great to see the continuity of the strategy. So looking forward to working more with you. In terms of the first question and a little bit of a follow-up just on the competitive dynamics that you guys are seeing, clearly the pendulum swung out during the pandemic with the dislocation in the markets and created maybe some outsized opportunities at the moment. But as the pendulum has been coming back to the middle, as macro stresses ease, does it feel like we're hitting kind of that point of equilibrium, just given the capital and competition you're seeing in the market? Or do you think that we could actually see more compression, just given that kind of elevated level of capital and different providers stepping into the market?
spk04: Yeah, I mean, I'll try to take that and ask Howard to add any comments there. I don't know if the phrase equilibrium, you know, whether it's since 2020 or since I joined, you know, over a decade and a half ago, it feels like there's a very consistent level of activity. It's just a question of what that activity looks like. I also want to be careful and avoid making any broader market comments because, you know, where we position, where we look for deals, we tend not to be just searching the broader market. And so our dynamic is really defined by our pipeline and where we're sourcing our deals from, which may not be as reflective. But I think in terms of our deals and just the activity level, it clearly feels like things are recovered in activity. As you mentioned in the earnings script, terms and what people are looking for has retraced their their character to pre-pandemic levels and asks, if you will. But at the same time, we're also saying no to lots of deals and focusing on the ones that work for our portfolio and our business. So whether it's an equilibrium in the market or it's something that's going to have additional compression, what we will do is really what we feel works for us, where we can get the right terms and pricing where we can stay disciplined and do the right work. And that may or may not coincide with the broader market, but I do think we've seen a good stabilization in our portfolio. But LIBOR has been, you know, a very different dynamic that we've had to sort of account for. And that may mean more deal activity, it may mean less, but we're just going to focus on our pipeline and the things that, you know, we can control.
spk08: Okay, terrific. Great color. Thank you. And then a follow-up, just looking at the overall asset mix of the portfolio, you clearly benefited from strong performance on the equity side. And I believe equities are now 11% of assets after the momentum sale. So it'd be great to just get a little color around how you're thinking about the asset mix moving forward. Do you think that we should expect to see more monetization of the equities positions? Maybe that mix moves back to where it was pre-2020, which I believe was a mid-single-digit level of the overall portfolio.
spk04: Yeah, look, we are a credit business. We are focused on credit instruments. It is the primary strategy. Where we have equity, it's a function of, you know, either some ability to have warrants, you know, or things that convert into that, or it's a function of something like Inventum, where the path to defending our capital is is defined by, you know, converting to a different instrument, which is really the exception, not the rule. You know, fortunately, those, you know, a number of those have worked out, you know, in some cases very well. But I would say in terms of normal course activity, you should expect this to be a debt, you know, primarily a senior secure debt portfolio. Occasionally, as things, you know, need a little bit of different type of work or activity, that may work. result in equity, but that is really not the primary focus. That is a function of protecting the portfolio versus deploying it in an original investment.
spk08: Okay. Terrific. I'll leave it there. Thanks so much.
spk03: Thank you. And thanks for joining us today.
spk05: This concludes our question and answer session. I would like to turn the conference back over to Howard Levkowitz for any closing remarks.
spk03: We appreciate your questions and our dialogue today. I'd like to once again thank all of our shareholders for your confidence and your support. I would also like to again thank our experienced and talented team of professionals at BlackRock TCP Capital Corp for your continued hard work and dedication. Thanks for joining us today. This concludes our call.
spk05: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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