BlackRock TCP Capital Corp (TCPC) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed picture: a decrease in nonaccruals and active share repurchases are positive, but declining NAV, income, and net realized losses are concerning. The Q&A reveals strategic efforts and resource allocation, but management's unclear responses on restructuring may worry investors. The dividend declaration and special dividend provide some support. Overall, the sentiment is neutral, balancing positive shareholder returns and strategic initiatives against financial setbacks and restructuring challenges.
Key Financial Performance
Nonaccruals Reduced to 3.7% of the portfolio's fair market value, down from 4.4% last quarter and 5.6% at the end of 2024. The decline was due to marks on previously restructured portfolio companies rather than new credit issues.
Net Asset Value (NAV) Declined during the quarter, primarily due to marks on previously restructured portfolio companies.
Dividend Declared a second quarter dividend of $0.25 and a special dividend of $0.04 per share, payable on September 30 to shareholders of record on September 16.
Portfolio Fair Market Value Approximately $1.8 billion, invested across 153 companies in more than 20 industry sectors.
Weighted Average Annual Effective Yield 12% in the second quarter compared to 12.2% in the prior quarter. New investments had a weighted average yield of 10.8%, while exited investments carried an average yield of 10.5%.
Adjusted Net Investment Income $0.31 per share in the second quarter, compared to $0.36 per share in the first quarter.
Gross Investment Income $0.61 per share in the second quarter, compared to $0.66 per share in the first quarter.
Operating Expenses $0.28 per share in the second quarter, including $0.20 per share of interest and other debt expenses.
Net Realized Losses Approximately $66 million or $0.78 per share, driven by the restructuring of investments in SellerX, Khoros, InMoment, and Renovo.
Net Unrealized Gains $23 million or $0.27 per share, primarily reflecting the reversal of previously recognized unrealized losses from the restructuring of investments.
Net Decrease in Net Assets $16 million or $0.19 per share for the quarter.
Portfolio Companies on Nonaccrual Status 8 companies, representing 3.7% of the portfolio at fair value and 10.4% at cost, down from 4.4% and 12.6%, respectively, as of March 31.
Total Liquidity $566 million, including $455 million of available leverage and $107 million in cash.
Net Regulatory Leverage 1.28x at quarter end, compared to 1.13x in Q1, slightly above the target range of 0.9x to 1.2x.
Weighted Average Interest Rate on Debt Outstanding 5.2%, unchanged from the prior quarter.
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Operating Highlights
New Investments: Invested $178 million in 13 new and 11 existing portfolio companies since the start of the year. Focused on first lien loans and companies with strong fundamentals.
Highlighted Investments: Invested in The Difference Card ($4.1M), Dragos ($6.9M), and Brown & Settle ($10M), emphasizing sectors like healthcare, cybersecurity, and data center construction.
Market Positioning: BlackRock's acquisition of HPS and creation of the Private Financing Solutions (PFS) platform enhances deal sourcing, investment expertise, and ability to lead large private credit transactions.
Portfolio Performance: Reduced nonaccruals to 3.7% of portfolio fair value, down from 4.4% last quarter. Marked up investments like Domo due to strong performance.
Dividend and Share Repurchase: Declared a $0.25 dividend and a $0.04 special dividend. Repurchased 40,830 shares of TCPC stock.
Strategic Shifts: Integration with HPS under the PFS platform to centralize private investment sourcing and enhance collaboration. Welcomed new senior credit investors to the Investment Committee.
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Risk or Challenges
Nonaccrual Investments: The company has 8 portfolio companies on nonaccrual status, representing 3.7% of the portfolio at fair value. This includes companies like Thrasio, Fishbowl, Brook & Whittle, and 48forty, which face challenges such as uneven performance post-restructuring, constrained liquidity, lower demand, and shifts in consumer purchasing behavior.
Restructured Companies: Restructured companies like Thrasio and Fishbowl are experiencing financial volatility and liquidity constraints, which could impact their long-term recovery and the company's portfolio performance.
Market Conditions: Companies like Brook & Whittle are affected by customers trading down to lower-cost providers, reflecting broader economic pressures and shifts in consumer behavior.
Valuation Adjustments: The company marked down its position in AutoAlert due to declining valuations in the automotive data analytics sector, which could impact portfolio value.
Leverage and Liquidity: Net regulatory leverage increased to 1.28x, slightly above the target range, due to timing of investments and a decline in NAV. This could pose risks if leverage remains elevated.
Economic Uncertainty: Thrasio faces macro uncertainties, including tariff policy changes and potential softening in consumer confidence, which could impact its recovery and performance.
Portfolio Recovery: While progress has been made in reducing nonaccruals, the recovery of restructured and underperforming companies remains dynamic and uncertain, posing ongoing risks to portfolio stability.
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Guidance & Outlook
Dividend Guidance: The Board declared a second quarter dividend of $0.25 and a special dividend of $0.04 per share, payable on September 30 to shareholders of record on September 16.
Leverage Outlook: Net regulatory leverage was 1.28x at quarter end, slightly above the target range of 0.9x to 1.2x. The company expects third quarter leverage to return to approximately the levels reported in Q1.
Capital Structure Management: The company repaid the remaining $92 million outstanding of its 2025 notes and extended the maturity of its $200 million funding credit facility. It is evaluating alternatives to refinance its 2026 notes.
Portfolio Yield and Investment Income: The weighted average annual effective yield of the portfolio was 12% in the second quarter, with new investments yielding 10.8%. The company continues to focus on senior secured loans in resilient sectors.
Private Financing Solutions (PFS) Platform Benefits: The new PFS platform, created after BlackRock's acquisition of HPS, is expected to enhance deal sourcing, investment expertise, and portfolio management capabilities. TCPC will leverage this platform for larger private credit transactions.
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Shareholder Return Plan
Dividend Declaration: The Board declared a second quarter dividend of $0.25 and a special dividend of $0.04 per share, both payable on September 30 to shareholders of record on September 16.
Share Repurchase: Repurchased 40,830 shares of TCPC stock during the second quarter as part of the commitment to support shareholders.
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Key Q&A
Q:How does the addition of new investment committee members and the reorganization within BlackRock's private financing solutions impact the investment process?
A:The changes include centralizing all originations to leverage resources with private equity sponsors, advisers, intermediaries, and banks. This ensures the best middle market deals reach the right homes. The investment process is supplemented by HPS professionals, enhancing capabilities in direct lending, restructuring, and portfolio management. HPS resources bring depth in financial, legal, and operational restructuring, which has already been applied to portfolio companies.
Q:How does BlackRock ensure that TCPC remains a priority during its growth and scaling process?
A:TCPC is a strategic priority for the PFS platform in BlackRock as it is the only publicly traded BDC on the platform. The engagement with new committee members and across investment processes, including origination, underwriting, portfolio management, and restructuring, demonstrates its importance. HPS leadership and BlackRock are committed to ensuring TCPC gets proper access and resources.
Q:What caused the markdown in AutoAlert this quarter?
A:The markdown was driven by market multiples and valuation changes in the automotive data analytics sector, not by performance issues. AutoAlert's performance has improved in terms of revenue and EBITDA since restructuring.
Q:How does TCPC participate in deals as part of the PFS platform?
A:TCPC benefits from being part of a larger platform, receiving allocations in deals led or co-led by PFS. While TCPC itself does not lead transactions, it participates in deals where PFS acts as a lender of influence. In the last two quarters, 90% of TCPC's deals were solo or co-lead.
Q:Why do restructured assets sometimes face additional write-downs or challenges after the initial restructuring?
A:Restructured assets face challenges due to market or macroeconomic conditions, such as high interest rates or inflation impacting demand. Recovery for restructured businesses is not linear, and operational challenges persist. BlackRock works closely with management teams to address these issues and improve performance over time.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing whether restructurings need to be more aggressive, stating that it depends on case-by-case circumstances and macroeconomic conditions. They provided general observations but lacked specific details or a clear stance on the issue.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AutoAlert
Brook Whittle
Brown Settle
CEO Co
Doll
Dragos market
Fishbowl
InMoment
Inc Research
NAV
PIK interest
Renovo
Research Division
TDC
base fee
booking
brand
business sector
category
center
control
detail
emphasis
employer
health care
nonaccrual
nonaccruals
outlook
packaging
protection
provider
restructuring
sheet liquidity
tailwind
transaction BlackRock
turnaround
valuation
TCPC Transcript
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BlackRock TCP Capital Corp (TCPC) Q2 2025 Earnings Call Transcript
Unknown8-7
The earnings call presents a mixed picture: a decrease in nonaccruals and active share repurchases are positive, but declining NAV, income, and net realized losses are concerning. The Q&A reveals strategic efforts and resource allocation, but management's unclear responses on restructuring may worry investors. The dividend declaration and special dividend provide some support. Overall, the sentiment is neutral, balancing positive shareholder returns and strategic initiatives against financial setbacks and restructuring challenges.
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Unknown5-8
The earnings call presents a mixed picture with concerns outweighing positives. Key negatives include tightened access to capital, higher financing costs, and a lack of expected M&A activity. Although the company has reduced nonaccrual investments, the presence of 8 such companies still poses risks. Dividend cuts and net realized losses also weigh negatively. Despite some positive aspects like liquidity and share repurchases, the overall sentiment remains negative due to financial challenges and market uncertainties.
TCPC Slides
TCPC Report
Frequently Asked Questions
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