BlackRock TCP Capital Corp.

Ladies and gentlemen, good afternoon. Welcome, everyone, to BlackRock PCP Capital Corp's second quarter 2022 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 BlackRock PCP Capital Corp Investor Relations Team. Katie, please proceed.

Thank you, Bethany. 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 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. Additionally, certain information discussed and presented may have been derived from third-party sources and has not been independently verified. Accordingly, we make no representation or warranty with respect to such information. Earlier today, we issued our earnings release for the second quarter ended June 30, 2022. We also posted a supplemental earnings presentation to our website at tcpcapitals.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 viewed in conjunction with the company's form 10Q, which was filed with the SEC earlier today. I will now turn the call over to our Chairman and CEO, Raj Veg.

Thanks, Katie. And thank you all for joining us today for TCPC's second quarter 2022 earnings call. As usual, I will begin today's call with a few comments on the market environment, as well as highlights from our second quarter results. I will then turn the call over to our President and Chief Operating Officer, Phil Tseng, who will provide an update on our portfolio and investment activity. Our CFO, Eric Cuellar, will then review our financial results as well as our capital and liquidity positioning in greater detail. I will then conclude with a few closing remarks before we take your questions. As many of you are aware, the current economic environment is characterized by negative GDP growth, the highest inflation rate in a generation, and aggressive Fed tightening. Within this environment, direct lending continues to be a reliable source of financing for a wide spectrum of middle market companies and a reliable source of returns for investors. We have often noted that direct lending has outperformed other segments of the market during periods of instability, and we believe that remains the case in the current environment. As a reminder, the assets we invest in are typically senior in the capital structure and underwritten with meaningful lender protections. These often include significant collateral packages and contain real covenants specifically tailored to each borrower's business and industry. Our strategy has always focused on core middle market businesses in diverse, resilient, and less cyclical industries. These companies have historically outperformed their larger corporate counterparts during economic downturns. For example, during 2007 to 2009, the middle market added 2.2 million jobs, while larger businesses actually shed 3.7 million jobs. It seems like we have been living in quote-unquote unprecedented times for some time now. Prior to 2020, none of us had considered a global pandemic and an economic shutdown in our base case underwriting. Since the initial COVID shock, pandemic and supply chain pressures have contributed to an inflationary environment that many haven't experienced in quite some time or ever for that matter. However, our team's proven ability to identify and invest in businesses that successfully managed periods of economic stress gives us confidence in the resiliency of our approach to direct lending. Regardless of the market environment, we have always been disciplined on our underwriting standards and evaluated a borrower's ability to manage in times of duress through both a forward-looking view and historical lens of performance through prior periods of stress. We remain confident in the strength of our diverse portfolio to continue to withstand periods of economic volatility. So what does this all mean for the existing portfolio? I'm very glad to report that the portfolio remains in excellent shape. Clearly, in many sectors, growth is slowing, inflationary pressures, especially for wages, has resulted in a degree of margin erosion, and where applicable, supply chain issues have further pressured earnings. However, we have been pleased with our borrowers' proactive actions to these pressures, including curbing spending and their ability to find cost savings in other parts of their organizations. We have also been able to further validate relatively inelastic demand for their products or services, and have observed an ability to pass along cost increases to their end customers. Furthermore, given the floating rate nature of our strategy, interest rate increases are actually a benefit to our portfolio. And of course, we continue to closely monitor our borrowers' ability to service debt in a rising rate environment. Let's now turn to our second quarter performance and a few highlights from the quarter. First, we delivered solid net investment income of 37 cents per share which exceeded our second quarter dividend of 30 cents per share. This extends our record of continuous dividend coverage throughout our more than 10 years as a public company. And today, our board of directors declared a third quarter 2022 dividend of 30 cents per share, payable on September 30th to shareholders of record on September 16th. Second, our portfolio credit quality remained strong. As of June 30th, non-accruals were just 0.3% of the portfolio at fair value. Our excellent asset quality is a function of our disciplined and consistent underwriting practices. And third, as Phil will discuss in more detail, the strength of our underwriting platform continue to drive solid investment opportunities that result in a total of $103 million deployed, a total of nine investments during the second quarter. This is a testament to the strength of the relationships we've developed with a variety of deal sources over our more than two decades in direct lending. as well as the extensive resources and relationships of the broader BlackRock platform. Sales and repayments during the second quarter totaled $82 million, resulting in net acquisitions of $21 million. During the quarter, we continued to exceed our cumulative total return hurdle. As a reminder, TCPC maintains a 7% hurdle rate based on total returns, including realized and unrealized gains and losses, and with a cumulative look-back. Since 2012, when we took TCPC public, we have generated a 10.7% annualized return on invested assets and a total annualized cash return of 9.4%. We believe that this is at the high end of our peer group, demonstrating our ability to consistently identify attractive opportunities at premium yields and deliver exceptional returns to our shareholders. NAV did decline 2.1% during the second quarter, primarily as a result of widening market credit spreads, which resulted in net unrealized losses on our existing portfolio. These unrealized losses were partially offset by net investment income in excess of the dividend. Now I'll turn it over to Phil to discuss our investment activity and portfolio positioning. Phil?