BlackRock TCP Capital Corp.

Ladies and gentlemen, good afternoon and welcome to BlackRock TCP Capital Corp's third quarter earnings 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 once again before the Q&A session. Now I would like to turn the call over to Alex Dole, a member of the BlackRock TCP Capital Corp Investor Relations team. Alex, please proceed.

Thank you, operator. Before we begin, I'll note that this conference call may contain forward-looking statements based on the estimates and assumptions of management at this 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 third quarter ended September 30, 2025, and posted a supplemental earnings presentation to our website at www.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 Invents and Presentations. These documents should be reviewed in conjunction with the company's Form 10Q which was filed with the SEC earlier today. Now, I will turn the call over to our Chairman, CEO, and Co-CIO, Phil Tseng.

Phil Tseng, CEO, Co-CIO, Thank you, Alex, and thanks to all of our investors and analysts for joining us today. I'll begin with an overview of our third quarter performance. Our President, Jason Mehring, will then provide details on our portfolio and investment activity, and Eric Cuellar, our CFO, will review our financial results. I'll then share commentary on the current market environment before we open the call for your questions. We are also joined today by Dan Worrell, our co-CIO, who will be available to answer your questions. I'll begin with our results for the quarter. We made continued progress in executing on the strategic priorities we outlined at the start of the year. Resolving challenged credits, improving the quality of our investment portfolio, and positioning TCPC to return to historical performance levels. Third quarter NAV was unchanged from the previous quarter at $8.71. Importantly, non-accruals improved to 3.5% of the portfolio at fair market value compared to 5.6% at the end of 2024. During the third quarter, we sold one non-accrual investment above our valuation estimate and placed two smaller, previously restructured investments back on non-accrual. I'd also like to share an update on our investment in Renovo, which, as you may recall, is a direct-to-consumer home remodeling business. Renovo was previously removed from non-accrual status following a comprehensive recapitalization in the second quarter. However, early in the fourth quarter, company-specific performance and liquidity issues led the Renovo board to determine that the best available path forward was a liquidation process, which started on November 3rd of 2025. The position in Renovo represented approximately 0.7% of our total investments at fair value as of September 30th. We do not expect to recover value on our investment in Renovo, and we expect to fully write down this position in the fourth quarter of 2025. We expect this to impact fourth quarter NAV by approximately 15 cents per share on a pro forma basis. We view this outcome as the result of issues specific to the issuer rather than a reflection of broader sector weakness. We also realized portfolio gains this quarter, the largest of which was NEP Group, a global leader in broadcast and live production services for sports entertainment. In September, NEP announced a recapitalization that closed in October, strengthening its balance sheet while adding new junior capital below our position. As a result, our investment was upgraded from a second lien to a first lien term loan, improving our recovery prospects and demonstrating our team's success in executing a complex restructuring. Now I'll share an update on capital allocation, starting with our dividend. Our board declared a third quarter dividend of 25 cents per share, payable on December 31st to shareholders of record on December 17th. This is consistent with the base dividend level we have paid since the first quarter of the year and reflects recent Fed cut rates and spreads we are seeing in the market. As part of our commitment to supporting our shareholders, we also repurchased more than 25,000 shares of TZPC stock during the third quarter and an additional 170,000 shares after quarter end. Now, I'll turn the call over to Jason to discuss our portfolio in more detail, as well as our recent investment activity.

Thanks, Phil, and welcome, everyone. During the third quarter, we selectively deployed capital into opportunities that are directly aligned with our investment strategy, investing primarily in core middle market companies, maintaining a well-diversified portfolio, prioritizing first lien loans, and leveraging extensive resources of BlackRock. As we mentioned last quarter, BlackRock and HPS created a new platform called Private Financing Solutions, or PFS. PFS combines the firm's private credit, GPLP solutions, liquid and private credit CLOs, and leveraged finance businesses into a single integrated platform. The integration of the BlackRock and HPS businesses has already been an important catalyst for expanding TCPC's access to deal flow. In the third quarter, we saw a 20% increase in the number of deals we reviewed relative to last quarter and a 40% increase in the number of deals we advanced to the screening stage. In today's market environment, a larger deal funnel is an advantage in identifying high-quality opportunities. Now I'll highlight two of our third quarter investments, beginning with KBRA, where we invested $2.4 million as part of a new $1.1 billion first lean term loan financing for the company. KBRA is a major U.S. credit rating agency that provides independent ratings and research across corporate, financial, and public markets, and it has been a portfolio company of ours for three and a half years. The business is owned by a sector-focused sponsor that we have partnered with on multiple deals, and the BlackRock PFS platform led this transaction, which refinanced KBRA's existing debt, funded a shareholder dividend, and provided growth capital for M&A. Our investment in KBRA aligns closely with our strategy of investing in companies with substantial barriers to entry that generate recurring revenue, healthy margins, and strong free cash flow. We believe these characteristics support our ability to deliver risk-adjusted returns that are attractive to our shareholders. We also made a $5.2 million follow-on investment in Syndigo, a software company that helps brands and retailers manage and share product information across online and in-store channels. This transaction was part of a $930 million first name turn loan led by PFS that facilitated Syndigo's recent acquisition of One World Sync, a content management company. This business combination advances Syndigo's goal of using AI to help companies deliver accurate and consistent product content across the entire customer experience. BlackRock has long been a lender to Syndigo, and this transaction demonstrates our continued commitment to the company's growth and success. We view it as an attractive opportunity to support a scaled market leader with resilient recurring revenue and strong free cash flow. Since the start of the year, we've invested $241 million in 18 new and 13 existing portfolio companies with a granular average position size of $7.8 million. This is a significant decrease from an $11.7 million average position size across our portfolio at the end of 2024, and reflects progress in creating a more diversified, lower-risk portfolio. All of our investments in the third quarter were in first lean term loans to companies with strong fundamentals that are positioned for long-term growth. Incumbency has remained an important competitive advantage for TCPC, and repeat borrowers represented 51 percent of our year-to-date originations. At the end of the quarter, our portfolio had a fair market value of $1.7 billion, invested across 149 companies, in more than 20 industry sectors. Eighty-nine percent of the portfolio was invested in senior secured debt, all of which is in floating rate instruments. Investment income was broadly distributed across our diverse portfolio, with 78 percent of portfolio companies each contributing less than 1 percent of total income. The weighted average annual effective yield of our portfolio was 11.5 percent in the third quarter compared to 12 percent in the prior quarter. New investments had a weighted average yield of 10.1%, while those we exited carried an average of 11.7%. Paydowns this quarter were $140 million compared to $48 million in the prior quarter. This higher level of paydowns was mainly due to timing, as several repayments we expected to close in the second quarter closed in the third quarter instead. Now, I'll turn the call over to Eric, who will walk through our financial results and capital and liquidity positions.

Thank you, Jason. I will begin with a review of our financial results for the third quarter. As detailed in our earnings press release, adjusted net investment income excludes the amortization of the purchase accounting discount resulting from our merger with BCIC and is calculated in accordance with GAAP. A full reconciliation of adjusted net investment income to GAAP net investment income as well as other non-GAAP financial metrics is included in our earnings press release and 10Q. Third quarter adjusted net investment income was 30 cents per share and gross investment income was 59 cents per share in the third quarter. This compares to 31 cents and 61 cents per share respectively in the second quarter. This quarter's gross investment income included recurring cash interest of $0.46 per share, nonrecurring income of $0.03, recurring discount and fee amortization of $0.02, PIC income of $0.06, and dividend income of $0.02 per share. PIC interest income represented 9.5% of total investment income, down from 11.4% last quarter. Operating expenses for the third quarter were 27 cents per share, including 20 cents per share of interest and other debt expenses. As of September 30, 2025, our cumulative total return did not exceed the total return hurdle. And therefore, no incentive compensation was accrued for the third quarter. As you will recall, our market leading fee structure is particularly shareholder friendly. which aligns interests between investors and management. Additionally, we waived a portion of our base management fee again this quarter in line with our advisor's decision to waive one-third of our base management fee for the first three quarters of 2025. Net realized losses for the quarter were approximately $97.0 million, or $1.14 per share. $72.6 million of this amount was due to the restructuring of our investment in Razor, and the remaining amount was related to our dispositions of Conergy, Irocor, and INH Buyer, which resulted in losses of $13.2 million, $4.1 million, and $3.9 million, respectively. Importantly, These impacts were already substantially reflected in our net asset value as of June 30, 2025. Net unrealized gains were $94.1 million, or $1.11 per share, primarily reflecting the markup of NEP that Phil mentioned earlier, along with the reversal of previously recognized unrealized losses from the restructuring and disposition of the investments I mentioned. the net increase in that assets for the quarter was $24.4 million or 29 cents per share. As of September 30, nine portfolio companies were on non-accrual status representing 3.5% of the portfolio fair value and 7.0% at cost. This is down from 3.7% and 10.4% respectively as of June 30. and 5.6% and 14.4% respectively at December 31, 2024. As Phil noted, we continue to work closely with our borrowers, their sponsors, and creditors to optimize our recovery value. Now, I'll discuss our balance sheet and liquidity positioning. Our balance sheet remains strong. Total liquidity at quarter end was approximately $528 million, including $466.1 million of available leverage and $61 million in cash. Unfunded loan commitments represented 9.0 percent of our $1.7 billion investment portfolio, or approximately $154 million, including $48.3 million in revolver commitments. Net regulatory leverage was 1.2 times at quarter end compared to 1.28 times at the end of the second quarter and in line with our target range of 0.9 to 1.2 times. The decrease was primarily due to repayments during the quarter. Our diverse leverage program includes three low-cost credit facilities, three unsecured note issuances, and an SBA program. The weighted average interest rate on our debt outstanding at quarter end was 5.0%. Looking ahead, we are taking proactive steps to manage our capital structure, including evaluating the best alternatives to refinance our 2026 notes. Given our credit debt ratings, We plan to address the notes through a combination of our credit facilities and a potential private placement. While spreads have widened over the past few weeks, we continue to monitor market conditions closely to determine the most cost-effective path forward. Now I'll turn the call back to Phil for his closing remarks.

Thank you, Eric. Now I will provide some market commentary. As we mentioned, we have seen an increase in deal flow and our pipeline is growing. While M&A activity has begun to show some signs of life, most borrowers are currently focused on refinancing existing debt at lower rates or extending maturities to execute on continued growth plans. At the same time, the volume of high-quality investment opportunities remains limited. Against this backdrop, we are pleased to see and review more opportunities as part of the PFS platform, and we are intently focused on deploying capital into high-quality deals. In closing, we are encouraged by the progress we've made this year in improving the credit quality and the diversity of our portfolio. Looking to the final quarter of the year, we are focused on continuing to resolve challenged positions in our portfolio and positioning TCPC to deliver strong, sustainable returns to our investors. Thank you for your continued support and interest in TCPC. And now I'll turn the call to the operator to open the call for questions.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad now. If you would like to withdraw your question, please press star 2. Our first question is from Robert Dodd at Raymond James. Please go ahead.

Hi, guys. Discuss the the I think from the beginning, so there were two previous restructuring that will return to another call and then obviously renova was restructured and and this now. I've got to be written off. Can you give me any themes here? That's three restructurings in relatively short order that sort of didn't stick, right? So is there any commonality or between what occurred there or any changes that you can make? Obviously, you might not have been in control of all of the restructuring steps there, but any changes you can make to the restructuring process to kind of, I mean, maybe the restructuring needs to be more aggressive the first time, or just any thoughts there? I mean, three in short order is not great.

Yeah. Yeah, thanks, Robert. We share your sentiments. We're obviously disappointed that deals that have been restructured do come back on. So as you know, these are restructuring that get completed with respect to their capital structure. And then it takes time for the business itself to kind of go through its operational restructuring plan and execution. So I think that's what we're seeing here. Credit issues or operational issues don't resolve themselves quickly, and it does take time, and it's not linear. With these specifically, there's no commonality amongst these. I mean, there are others, by the way, that have gone through restructurings and have come out continuing to perform and on a positive path. So we have a number of those cases that we can talk about as well. But I would say there's no common theme amongst these three that went back on.

Got it. Got it. Thank you. Then just on the market environment and obviously the expanded view, I mean, granularity down, right? I think you said the new investment is like 7.8 million positions. So that's good, right? You know, more diversification in the portfolio. I mean, the comments that like your most borrowers are still focused on lowering costs I mean, I've heard elsewhere that the M&A cycle is starting to pick up. So I mean, are you still mainly experiencing refinancing activity rather than new borrower activity? I mean, how do you expect that to evolve over the next, you know, I would say 12 months, but that's a long time to project anything.

Yeah. It is. So I think your comments about seeing a lot of refinancing, that is certainly how I characterize deployment in the past several quarters, largely in the market as well. I think the thoughts around M&A activity picking up, we are seeing that. And we are seeing new platforms, sponsors coming in and and bidding on assets and a lot of deals in the pipeline really picking up. So I'd say that's probably a leading indicator of hopefully, you know, higher volumes in the next several quarters. But in terms of actual deployments, you know, we're seeing refinancing, incremental add-ons, you know, on our existing portfolio as being kind of the predominant source of deployment, you know, probably closer to 50% at this point. or last quarter, rather. And then your point of portfolio diversification is a good one. Since this management team really came in at the end of last year, we've really been focused on that portfolio diversification point so that this portfolio doesn't fall victim to a lot of the concentration issues that it had previously. So we've had 31 new investments. this year at an average position size of 7 to 8 million. And that's a stark contrast to how this portfolio was managed previously.

Got it. Got it. Thank you. And then last one, I mean, are you seeing any, and maybe not just in the portfolio, but more broadly, even in deals that get reviewed, are you seeing any incremental indicators of stress? I mean, obviously, there's been some headlines. You don't have exposure to that in general. But are you seeing any areas of concern in either in the portfolio, obviously, but also in like deals that are coming over the desk is there an increasing number of, like, any commonality between why they're being rejected by you or anything like that?

Yeah, we're certainly, you know, always focused on credit risks in the portfolio and in new deals that we evaluate, you know, every week. You know, some of the common themes are, of course, always focusing around, you know, you know, more cyclical names, you know, really trying to understand the vulnerabilities to a, to a softer cycle or softer macro environment. And then, you know, with respect to software, you know, a lot of folks have been talking about AI and that's, and that's real, um, you know, really trying to understand, and by the way, not just software for any other kind of business process, really trying to understand the risks around AI in terms of displacing or if that borrower, um, has a strong competitive solution there on the AI solution itself. So those are some of the things that we're commonly talking about. But with respect to other specific industry sectors, nothing right now that are atypical risk factors that we wouldn't otherwise be discussing. Sure, we're talking about tariffs still. We're talking about geopolitical risks in those areas too.

Got it. Thank you. That's it for me.

Thank you, Robert.

So for any further questions, please press star 1 on your telephone keypad. At this time, we have no further questions on the call, so I will hand back to management for closing comments.

Thank you everyone for dialing in and streaming on the webcast. And I'd like to thank our team for their continued efforts and hard work around the portfolio. Please contact us with any questions and have a great day.

Thank you. This concludes today's conference call and you may now disconnect.