BlackRock TCP Capital Corp.

Hello, everyone. Thank you for joining us and welcome to the BlackRock TCP Capital Corp Q1 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. I will now hand the conference over to Alex Dahl, Executive Director. Alex, please go ahead.

Thank you, Operator. Before we begin, I will note that this conference call may contain forward-looking statements based on management's estimates and assumptions at the time such statements are made, which are not guarantees of future performance. Forward-looking statements involve risks and uncertainties, and actual results could differ materially from those projected. For more information, please refer to the risk factors discussed in our most recently filed report on Form 10-Q and the Form 8-K filed with the SEC today, along with the associated press release. Any forward-looking statements made on this call are 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 will make no representation or warranty with respect to such information. Earlier today, we issued our earnings release for the first quarter ended March 31, 2026 and posted a supplemental earnings presentation on our website at www.tcpcapital.com. To view the slide presentation, which we will refer to on today's call, please click 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. Now, I will turn the call over to our chairman, CEO, and co-CIO, Phil Tsang.

Thank you, Alex, and thank you to our investors and analysts for joining us today. I'll start with an overview of our first quarter 2026 performance. Then Jason Merring, our president, will cover portfolio and investment activity. And Eric Quay, our CFO, will walk through our financial results. And then I'll come back with closing remarks before we open up the call for questions. We're also joined today by Dan Worrell, our co-CIO, who will be available to answer questions. In the first quarter, we executed against our strategic priorities, which are improving credit quality, further repositioning our investment portfolio, and strengthening our balance sheet. We are deploying capital selectively into high-quality opportunities, leveraging the origination power of the PFS platform, while reducing average position sizes, increasing the portion of the portfolio in first lien loans, and reducing leverage. While there is work to do, we are taking steps to drive value for our shareholders. One of the most important metrics for us is non-accruals. And during this quarter, these declined to 2.8% of the portfolio at fair value and 7.6% at cost, down from 4% and 9.7% respectively last quarter. This improvement reflects the completion of the restructurings of Alpine 4840 and Suited Connector and the sale of Fishbowl. Importantly, net leverage declined to 1.29 times at quarter end, down from 1.41 times last quarter, bringing it closer to our target range of 0.9 to 1.2 times. The reduction in leverage was driven primarily by exits, partial pay downs, and proactive balance sheet management. Full exits and partial pay downs during the quarter totaled $135.3 million and included sizable payoffs of our investments in Team Services, James Peirce, CART.com, and Eddie Bauer, with average position size of more than $28 million. Further, Team Services, our largest repayment during the period, was a second lien position. In addition to generating attractive returns, these repayments helped to reduce leverage. enhanced diversification by lowering portfolio concentration, and supported our continued focus on increasing the percentage of the portfolio allocated to senior positions in the capital structure. Since quarter end, we received more than $50 million of additional paydowns, including approximately $13 million from auto alert, which was previously restructured and recently sold to a strategic buyer. While we still have equity in the combined company, we view this repayment as a positive outcome that meaningfully reduces our exposure while preserving potential upside. At the end of the quarter, our portfolio had a fair market value of $1.4 billion, invested across 139 companies in more than 20 industry sectors with an average position size of $10 million. 91.8% of the portfolio was invested in senior secured loans, and 8.2% was in equity investments, and 94.4% of our debt investments were floating rate. Adjusted net investment income for the quarter was 21 cents per share compared to 25 cents last quarter, primarily reflecting a smaller portfolio as paydowns outpaced investments lower investment income, and higher expenses. Annualized net investment income, ROE, was 11.8%. Pick interest income for the quarter was 8.5% of total investment income, down from 10.9% last quarter, and nearly 80% of pick was from positions that contemplated pick when the loans were underwritten. NAV declined 4.9% to $6.72 per share at quarter end from $7.07 last quarter, reflecting $35 million of net portfolio markdowns during the quarter. Job & Talent, a staffing company, was the largest contributor to the markdowns at approximately $11 million, or 32% of the total markdowns during the quarter. Weaker operating performance during the quarter combined with lower industry-wide valuation multiples put pressure on the company's enterprise value. Our current exposure includes both the first lien term loan and preferred equity. The preferred equity drove a meaningful portion of this quarter's mark-to-market movement, given its greater sensitivity to changes in enterprise value. Separately, software-related investments also accounted for approximately $11 million, or 32% of total markdowns in the period. These reductions were driven primarily by valuation multiple compression, revised growth expectations, and AI-related disruption risk in certain subsectors. The balance of the NAV decline was attributable to unrealized losses across the portfolio related to wider market spreads and lower market multiples, in addition to borrower-specific factors. These markdowns were more spread out and hence limited in size per borrower, the largest of which was 2.8 million. Now I want to provide some perspective on our software portfolio. As we mentioned on our last call, we don't view software as monolithic because some segments are fundamentally more resilient than others. We've considered the potential for AI disruption in our underwriting of potential software investments for some time now. And as a result, we have pursued businesses where we believe AI is more likely to enhance a company's offering rather than displace it. As of March 31st, software represented 30.5% of the portfolio at fair value and was spread across 47 companies with 95% in depositions and the remaining 5% in equity. These companies had an LTV of approximately 26% at origination. providing a considerable equity cushion. While public software companies have seen valuations reprice, we have not seen a corresponding decline in the operating performance of our private portfolio companies. That said, we will continue to closely monitor our software investments. Now, I'll turn the call over to Jason to discuss our portfolio as well as our recent investment activity.

Thanks, Phil, and welcome, everyone. I'll begin with some additional details on our portfolio composition. As Phil mentioned, we made continued progress in diversifying our portfolio and reducing the average position size of our investments. At the end of the first quarter, our five largest investments accounted for 24.9% of our portfolio and investment income was broadly distributed with more than 70% of our portfolio companies, each contributing less than 1% of the total. New investments this quarter had an effective yield of approximately 8.3% versus 11.2% on those we exited, reflecting lower base rates and the impact of spread compression relative to when the repaid deals were booked. As a result, our average portfolio yield declined from 11.1% last quarter to 10.9% at March 31st. During the first quarter, we invested approximately $22.5 million across six new and two existing portfolio companies. Each of the new investments leveraged sourcing and underwriting capabilities across the broader BlackRock PFS platform. Originations were intentionally modest this quarter as we prioritized paydowns and exits to strengthen our balance sheet and reduce leverage while being highly selective on new commitments. All new investments were in senior secured loans and reflect our continued focus on building a diverse portfolio that mitigates industry and individual concentration risk, while also being mindful of our goal to reduce leverage. Turning to capital allocation, on May 7th of 2026, our Board of Directors declared a second quarter dividend of 17 cents per share, payable on June 30th to stockholders of record on June 16th. We repurchased 505,433 shares of TCPC stock during the quarter at a weighted average share price of $4.51 and an additional 156,370 shares subsequent to quarter end at a weighted average share price of $3.78. On April 29th of 2026, our board of directors re-approved our stock repurchase plan to acquire up to $50 million in the aggregate of our common stock. Now I'll turn the call over to Eric to discuss our financial results, capital, and liquidity positioning.

Thank you, Jason. I'll begin with our review of our financial results for the first quarter of 2026. 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 an earnings press release and 10-Q. Total investment income for the first quarter was $42.6 million, or 51 cents per share. This included recurring cash interest of 39 cents, non-recurring income of 3 cents, recurring discount and fee amortization of $0.03, PIC income of $0.04, and dividend income of $0.02 per share. Operating expenses for the first quarter were $0.29 per share, including $0.19 per share of interest and other debt expenses. Net investment income was $0.22 per share. and adjusted net investment income was 21 cents per share. As of March 31st, 2026, our cumulative total return did not exceed the total return hurdle, and therefore, no incentive compensation was accrued for the first quarter. Net realized losses for the quarter were $32.7 million, or 39 cents per share, driven primarily by our sale of fishbowl and restructuring of Alpine 4840, which together accounted for approximately $30 million. Net unrealized losses were $2.0 million, or two cents per share. This included 30.1 million in reversals of previously unrealized losses on Fishbowl and Alpine 4840, which moved from unrealized to realized losses. as well as 32.1 million in net unrealized losses during the quarter, primarily due to the markdown on job and talent, along with smaller markdowns on positions in other legacy investments. The net decrease in net assets for the quarter was $16.3 million, or 19 cents per share. Now, I'll discuss our balance sheet and liquidity. which remains solid reflecting our progress in reducing leverage during the quarter. During the first quarter, we repaid all $325 million of our 2026 notes. As a result, we have no material debt maturities due in the near term. Total liquidity at the end of the first quarter was $358.6 million, including 264.1 million in available borrowings under our revolvers and 93.3 million in cash. The combined weighted average interest rate on debt outstanding was 5.77% as of March 31st, 2026. Unfunded loan commitments represented 8.7% of our $1.4 billion investment portfolio or $121 million, including $53.3 million in revolver commitments. Net regulatory leverage was 1.29 times at quarter end, down from 1.41 times in the fourth quarter of 2025, resulting in a total debt to equity leverage ratio of 1.65 times. Subsequent to quarter end, our net regulatory leverage ratio improved to 1.23 times as a result of paydowns. We expect to reduce leverage further over time as we exit additional investments as part of our portfolio repositioning. We are well positioned to fund new investments with a diverse leverage program, which includes three low-cost credit facilities, an unsecured note issuance, and an SBA program. Now, I will turn the call back to Phil for his closing remarks.

Thanks, Eric. Over the past year, and again in the first quarter, we continue to reposition our portfolio by reducing non-accruals and deploying capital into new investments that align with our investment strategy. This repositioning is driving greater diversification, with an emphasis on senior secured personal loans, with more granular position sizes and reduced concentration across individual credits and sectors. We have also strengthened our balance sheet and reduced leverage, which improves our flexibility as we look ahead. While we have made meaningful progress, we recognize there is more work to do, and we remain focused on disciplined execution. As part of BlackRock's PFS platform, TCPC benefits from expanded sourcing and origination, broader investment expertise and resources, and the ability to participate in larger transactions that many others don't see or don't have the capabilities to pursue. We believe this positions TCPC for long-term success as the credit market continues to evolve. We appreciate your continued support, and now I'll turn the call back to the operator for questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Robert Dodd from Raymond James. Your line is now open.

Hi, guys. Look, without going through line by line of various portfolio companies, I just want to ask you a more general conceptual question on one of my questions. The pace at which Restructuring is occurring, you know, the work is going through on dealing with troubled assets, et cetera. How would you, obviously you're doing it as fast as you can, but how would you rank that in terms of how quick or hard or easier you thought it was going to be, say, six months ago in terms of dealing with these assets?

Hey, Robert, thank you for the question. Um, I would say that we always expect restructuring and workouts to not take a linear pattern here. Um, as you know, restructuring workouts, um, each deal has its own idiosyncratic issues, whether that's, you know, company product, competitive landscape, liquidity management, and so on. Sometimes they're great businesses with. weaker balance sheets that restructurings really benefit the company with. So I'd say that we didn't really go in with any specific expectation. However, we are doing everything we can to actively manage through these restructurings and monetizations and pay downs. And as you saw in the results, we've made meaningful progress in the quarter, having exited out of 4840 and Suited Connector with respect to restructuring processes, and then also exiting out of fishbowl and auto alert in terms of sales of those assets. Not exiting out of the entire position, but because we did roll some of the equity. But we're doing what we can in terms of managing those processes.

Fair enough. Appreciate that. Another one, and it is a question about specific assets. I mean, job and talent, which I was locked down this quarter, I mean, it was vow numbers, a third of the total markdowns. That's kind of not actually my question. That business's position is kind of an AI-enabled job and talent search business. So, you know, maybe AI enabling isn't the fix-all in one context. But on the other hand, it's like, what? what were the drivers, if you can give any information on, you know, you said there was some softness in kind of the business and obviously pressure on enterprise values, but, you know, it is an AI-enabled business. So, I mean, any context you can give is the kind of the interaction between how that business is valued while being AI-enabled versus, you know, how AI is or is not helping or impacting that business. I mean, it's just trying to get a feel, right? Because you do have a lot of other software businesses where the fear is AI, but then you've got a business that sort of is AI and it didn't seem to help.

Hey, Robert, it's Jason. What I would say is, First and foremost, job and talent, it's a staffing and a recruitment business. And I think those businesses typically have a tech-enabled element to them and have an ability to leverage AI and other emerging technologies and approaches to sort of benefit their business. So I think that In this quarter, you know, the cause of drop in enterprise value is really more due to market valuation multiples as opposed to something tied specific to the business being challenged because of AI or otherwise. I'd say the relative performance of the business was more of a modest contributor as opposed to broader tech multiples, if you will.

Got it. Got it. Thank you. And then on just One last one. On software, you said you had a 26% LTV at origination in your software book. I mean, maybe you don't want to put an exact number on there, but I presume that 26 has moved fairly significantly if we put in valuations today. So can you use any relative scale? Is that 26 doubled or just kind of ballpark? How much have have values moved on the assets that you have in the book?

Yeah, so the purpose of including that metric was to indicate how much cushion we underwrote to in those deals, given that being cognizant of software and AI as a risk. You're right, market multiples have come down meaningfully out there, and so the cushion has come down as well. We don't have a number to disclose in terms of exactly how much, and it depends on the credit itself and what end market and what software functionality that they're offering in the market. I would say that the cushion certainly hasn't fit, but we feel like, you know, at 26% LTV, we're still in reasonably good shape.

Got it. Got it. Thank you.

Thank you for your questions. There are no further questions at this time. I will now turn the call back to Phil Tseng, Chairman, CEO, and Co-CIO for closing remarks.

Thank you, operator, and thank you all for joining our call today. I'd also like to thank our team for their continued hard work and dedication to TCPC. As always, please reach out with any questions. Thank you all.

This concludes today's call. Thank you for attending. You may now disconnect.