BlackRock TCP Capital Corp.

Ladies and gentlemen, good afternoon. Welcome, everyone, to BlackRock TCT Capital Corp's second quarter 2024 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 Michaela Murray, a member of the BlackRock TCP Capital Corp Investor Relations Team. Michaela, please proceed.

Thank you. 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, 2024. 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 10Q, which was filed with the SEC earlier today. I will now turn the call over to our chairman and CEO, Raj Vig.

Thanks, Michaela, and thank you all for joining TCPC's Q2 2024 earnings call. With me today is our president, Bill Tseng, our CFO, Eric Cuellar, as well as Jason Merring, who was recently appointed as our COO. By way of background, Jason is a key member of our U.S. Direct Lending Investment Team with a long tenure at BlackRock and has been a voting investment committee member of TCPC for some time now. Phil and I have worked with Jason for almost six years, and we look forward to continuing to work with him in his expanded role. Today, after I provide an overview of our second quarter results, Phil will discuss our portfolio and investment activities. and Eric will then review our financial results as well as our capital and liquidity position. We will all be available to answer questions, and before opening the call to your questions, I will wrap up with some closing comments. I'll start now with the key highlights from the second quarter of 2024. We delivered adjusted net investment income of $0.38 per share, and our annualized net investment income return on average equity was approximately 14%. which remains at the high end of our historical ranges. Our board of directors declared a third quarter dividend of 34 cents per share, which implies dividend coverage of 112% based on our second quarter adjusted NII. The third quarter dividend is payable on September 30th to shareholders of record on September 16th. We continue to take a disciplined approach to our dividend with an emphasis on stability and strong coverage from recurring net investment income. As a reminder, Throughout TCPC's 12-year history, we have consistently covered our dividends with recurring NII and have also paid several recent special dividends. During the second quarter, our NAD declined 8.4%, and we added six portfolio companies to non-approval status, taking non-approvals from approximately 1.7% to 4.9% of fair value. While this increase is clearly notable and disappointing, it's important to point out for the most part the change is due to a set of factors at each individual company level that are wholly unrelated but coincidentally converge this quarter to drive the non-accrual levels more importantly these changes do not change our view of the overall strong health of our portfolio i'd like to take a few minutes now to discuss a number of action items for several of the companies that have actually been in process for some time now and that we believe can drive near-term improvements to the limited number of impacted names in the portfolio. The overwhelming majority, or roughly 70%, of the increase in non-accruals is related to just three companies, Celerex, Pluralsight, and McAfee, most of which we have discussed in previous quarters. We have been working intensely with each of these companies towards a fulsome balance sheet restructuring that we believe can facilitate a path to recovery. The first is Celerex, which is an Amazon aggregator. Following the combined impact of a stressed balance sheet and a slowdown in online consumer spending, we decided to place Celerex on non-accrual status this quarter. We've been actively engaged with company management, the rest of the lender group, and Celerex's ownership group to effectuate an agreement to address the company's capital structure and liquidity. You may recall that we briefly placed Thrasio on non-accrual status in Q4, a company that faced a similar set of challenges. as a result of a successful restructuring the company quickly returned to approval status in the following quarter q1 of this year we remain optimistic that over the medium to longer term the aggregator space remains attractive and that continued consolidation and cost optimization will result in fewer larger scale and better capitalized vendors the second name is plural site which is held by a number of public bdc's and which many of you have probably heard about in the media or on other earnings calls already. As a reminder, Pluralsight is an enterprise learning platform that designs training software, online courses, and video for software developers. The company's premium product offering was negatively impacted by a tougher macroeconomic environment, which led to tighter IT budgets and layoffs in the tech sector, as well as a higher rate environment, which resulted in liquidity pressure for the company. While we are not the lead lender nor agent for Pluralsight, we have been closely engaged and aligned with the rest of the lender group to determine the best path forward and are hopeful for a near-term resolution of this process. The third notable move is McAfee, a cybersecurity company that's also held by a number of lending groups that has seen weaker revenue trends and tighter liquidity over the past few quarters. And as a result, has been evaluating a potential balance sheet restructure. There are a number of public news articles and public disclosures that suggest the company is evaluating a financing alternative that would ease its near-term liquidity challenges. The remaining approximately 1% of change in non-recruits is related to another three companies that we have also discussed before, Lithium, Astra, and INH Buyer, each of which has experienced idiosyncratic circumstances that have led to credit considerations sufficient for us to reflect the non-accrual names this quarter. In summary, at the end of June, debt investments in 10 of our 158 portfolio companies, or approximately 6%, were on non-accrual status, representing 10.5% of the portfolio at cost, and again, 4.9% at fair value. Net realized losses for the quarter were $35 million due to the restructuring of our investments in Drazio, previously mentioned, and Highland. Net unrealized losses were $52 million driven primarily again by Celerex, Pluralsight, and Lithia. Despite these challenged names, the overall credit quality of our portfolio remains strong, and we are actively monitoring the health of our portfolio companies with respect to their business and markets, capital structure, and the impact of higher rates and inflation on their performance. As of June 30th, 2024, our weighted average internal risk rating was 1.5 compared to 1.56 as of March 31st, 2024, underscoring that our portfolio companies are performing generally in line or above our base pace expectations, and the majority of our portfolio companies continue to report revenue and margin expansion. For reference, the rating categories are defined in the footnotes of our investor presentation. Before turning the call over to Phil, I would like to share a few additional updates. First, I'd like to congratulate Phil, who was recently appointed to TCP's Board of Directors. And as you know, Phil has been an invaluable contributor to our company for many years and is both our president and a member of BlackRock's private debt platform. Second, I'm pleased that we were able to capitalize on attractive capital market conditions to raise $325 million in fixed rate unsecured debt at an attractive rate of 6.95% in May 2024. In addition, on August 1st, we amended our credit facility, extending the maturity date by three years and reducing the SOFR rate adjustment on the facility. When we announced TCTC's merger with BlackRock Investment Capital Corp., we noted that one of the benefits of the merger would be improved access to capital, and we are pleased to see that it is already happening. We appreciate the support of our bondholders and bankers and are glad to have the dry powder to capitalize on new investment opportunities. Now I'll turn it over to Phil to discuss our investment activity and portfolio.