BlackRock TCP Capital (TCPC) - 2019 Q4 - Annual Report

PART I Business BlackRock TCP Capital Corp. (TCPC) is a BDC investing in middle-market debt, with a $1.65 billion portfolio as of December 31, 2019, managed by a BlackRock subsidiary - The company's investment objective is to achieve high total returns through current income and capital appreciation, with an emphasis on principal protection, primarily by investing in the debt of middle-market companies with enterprise values between $100 million and $1.5 billion[10] Portfolio Composition as of December 31, 2019 | Metric | Value (in millions) | | :--- | :--- | | Total Portfolio Value | $1,649.5 | | Number of Portfolio Companies | 105 | | Average Investment Size | $15.7 | | Debt Investments | 93.1% | | - Senior Secured Loans | 86.6% | | - Senior Secured Notes | 5.2% | | - Junior Notes | 1.3% | | Equity Investments | 6.9% | - The company operates as a Business Development Company (BDC) under the 1940 Act and has elected to be taxed as a Regulated Investment Company (RIC), which generally eliminates corporate-level income tax provided it distributes at least 90% of its taxable income to shareholders[12][16][23] - The company's investment activities are managed by Tennenbaum Capital Partners, LLC, an indirect wholly-owned subsidiary of BlackRock, Inc., which had approximately $7.4 trillion of assets under management as of December 31, 2019[17] - Effective February 9, 2019, the company's asset coverage requirement was reduced from 200% to 150%, allowing for increased leverage[43][79] Risk Factors The company faces significant risks from capital market instability, leverage, credit losses, illiquid middle-market debt, and stock price volatility - The company is exposed to market risks from capital market disruptions, which can negatively affect debt and equity markets, reduce capital availability, and make it difficult to refinance existing indebtedness[133][136] - The phase-out of LIBOR by the end of 2021 creates uncertainty, as many of the company's debt investments are based on floating rates[154] - Significant business risks include the use of leverage, which magnifies potential gains and losses, and the need to comply with various covenants under its credit facilities[160][163] - Investment risks are concentrated in middle-market companies, which may have limited financial resources and are vulnerable to economic downturns, with a substantial portion of the portfolio in lower-grade debt carrying a higher risk of default[159][214][216] - As a BDC, the company must invest at least 70% of its assets in "qualifying assets," and failure to meet this or RIC distribution requirements could result in the loss of favorable tax treatment[205][266] - The company's common stock may trade at a discount to its net asset value (NAV), and any issuance of shares below NAV could result in immediate dilution for existing shareholders[281][282] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[294] Properties The company does not own any real estate or other material physical properties, with executive offices provided by the Administrator as part of the Administration Agreement - The company does not own any real estate, and its executive offices are provided by the Administrator[294] Legal Proceedings The company and its Advisor are not currently subject to any material pending or threatened legal proceedings - The company is not currently subject to any material legal proceedings[295] Mine Safety Disclosures This item is not applicable to the company - Not applicable[296] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities TCPC common stock trades on Nasdaq, with 2019 prices fluctuating relative to NAV, and consistent quarterly dividends of $0.36 per share paid 2019 Quarterly Stock Performance and Dividends | Quarter | NAV per Share | High Price | Low Price | High Price to NAV | Low Price to NAV | Dividends per Share | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Q1 | $14.18 | $14.87 | $13.21 | 4.9% | (6.8)% | $0.36 | | Q2 | $13.64 | $14.77 | $14.05 | 8.3% | 3.0% | $0.36 | | Q3 | $13.59 | $14.32 | $13.16 | 5.4% | (3.2)% | $0.36 | | Q4 | $13.21 | $14.48 | $13.15 | 9.6% | (0.5)% | $0.36 | - The company maintains a policy to distribute substantially all of its taxable income to maintain its RIC status, with total dividends declared and paid at $1.44 per share for both 2019 and 2018[305][306] - As of February 25, 2020, there were 58,766,426 shares of common stock outstanding[5][303] Selected Financial Data Selected financial data for 2015-2019 shows total investment income growth, significant increase in total debt, and stable $1.44 distributions per share Selected Financial Data (2015-2019) | Metric (in millions) | 2019 | 2018 | 2017 | 2016 | 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total investment income | $195.2 | $190.5 | $176.0 | $148.2 | $146.9 | | Net investment income | $94.9 | $93.4 | $113.4 | $95.3 | $100.5 | | Net increase in net assets | $30.6 | $45.5 | $67.9 | $76.3 | $59.1 | | Total assets | $1,722.1 | $1,659.5 | $1,629.4 | $1,387.6 | $1,239.1 | | Total debt, net | $907.8 | $805.2 | $725.2 | $571.7 | $498.2 | | Net assets | $776.3 | $830.5 | $870.7 | $790.9 | $722.0 | | Distributions per share | $1.44 | $1.44 | $1.44 | $1.44 | $1.44 | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2019, total investment income increased to $195.2 million, offset by $64.3 million in net realized and unrealized losses, while the portfolio grew to $1.65 billion Results of Operations Comparison (Years Ended Dec 31) | Metric (in millions) | 2019 | 2018 | | :--- | :--- | | Total Investment Income | $195.2 | $190.5 | | Total Operating Expenses | $100.3 | $97.0 | | Net Investment Income | $94.9 | $93.4 | | Net Realized & Unrealized Loss | $(64.3) | $(47.9) | | Net Increase in Net Assets | $30.6 | $45.5 | - During 2019, the company invested approximately $700.0 million in 25 new and 20 existing portfolio companies and received approximately $596.4 million in proceeds from sales or repayments[353] - The weighted average effective yield of the debt portfolio decreased to 10.3% at year-end 2019 from 11.4% at year-end 2018, with 92.1% of the debt portfolio consisting of floating-rate investments[360] Leverage Program as of December 31, 2019 | Facility | Total Capacity | Outstanding | Available | | :--- | :--- | :--- | :--- | | SVCP Facility | $270.0M | $108.5M | $161.5M | | TCPC Funding Facility | $300.0M | $158.0M | $142.0M | | SBA Debentures | $150.0M | $138.0M | $12.0M | | Notes (Convertible & Unsecured) | $513.2M | $511.0M | $0.0M | | Total | $1,233.2M | $915.5M | $315.5M | - The company's asset coverage ratio was 199% as of December 31, 2019, well above the regulatory requirement of 150%[380] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate sensitivity, with 92.1% of its debt portfolio in floating-rate investments, impacting net investment income - As of December 31, 2019, 92.1% of the company's debt investments bore interest at floating rates, making its net investment income sensitive to changes in market interest rates[405] Interest Rate Sensitivity Analysis (Annual Impact on Net Investment Income) | Basis Point Change | Impact (in millions) | | :--- | :--- | | +300 bps | $37.3 | | +200 bps | $24.9 | | +100 bps | $12.4 | | -100 bps | $(10.0) | | -200 bps | $(13.0) | Financial Statements and Supplementary Data Audited 2019 financial statements show total investments at $1.65 billion and net assets of $776.3 million, with Level 3 investment valuation identified as a critical audit matter - The independent registered public accounting firm, Deloitte & Touche LLP, issued an unqualified opinion on the Company's financial statements and its internal control over financial reporting as of December 31, 2019[411][422] - The auditor identified the valuation of Level 3 investments as a critical audit matter due to the significant judgments and unobservable inputs required to estimate their fair value, with Level 3 investments representing $1.51 billion of the portfolio as of December 31, 2019[417][418] Consolidated Statement of Assets and Liabilities (as of Dec 31, 2019) | Account | Value (in millions) | | :--- | :--- | | Total Investments (at fair value) | $1,649.5 | | Total Assets | $1,722.1 | | Total Liabilities | $945.8 | | Net Assets | $776.3 | | Net Assets Per Share | $13.21 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[656] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2019, with no material changes - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2019[656] - Management's assessment concluded that the company's internal control over financial reporting was effective as of December 31, 2019, based on the COSO framework[657] Other Information On February 25, 2020, the company entered a license agreement with BlackRock, Inc. for the use of the "BlackRock" name - The company entered into a license agreement with BlackRock, Inc. on February 25, 2020, for the use of the "BlackRock" name[661] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2020 Proxy Statement - This section incorporates information by reference from the Registrant's 2020 Proxy Statement[663] Executive Compensation Information on executive compensation is incorporated by reference from the 2020 Proxy Statement - This section incorporates information by reference from the Registrant's 2020 Proxy Statement[664] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership is incorporated by reference from the 2020 Proxy Statement - This section incorporates information by reference from the Registrant's 2020 Proxy Statement[665] Certain Relationships and Related Transactions, and Director Independence Information on related transactions and director independence is incorporated by reference from the 2020 Proxy Statement - This section incorporates information by reference from the Registrant's 2020 Proxy Statement[666] Principal Accountant Fees and Services Information on principal accountant fees and services is incorporated by reference from the 2020 Proxy Statement - This section incorporates information by reference from the Registrant's 2020 Proxy Statement[667] PART IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Annual Report on Form 10-K, including key governance and debt agreements - This section provides a list of all financial statements, schedules, and exhibits filed with the report, including governance documents, debt agreements, and management agreements[668][669]