BlackRock TCP Capital (US:TCPC)2020-05-11 20:04Part I. Financial Information Financial Statements The company's net assets decreased from $776.3 million at the end of 2019 to $679.6 million as of March 31, 2020, primarily due to a significant net unrealized loss of $96.5 million on investments, largely driven by market volatility from COVID-19. Net investment income for Q1 2020 was $22.1 million, a decrease from $23.3 million in Q1 2019. The investment portfolio remains heavily weighted towards senior secured debt Consolidated Statements of Assets and Liabilities Consolidated Assets and Liabilities (in millions) | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Investments, at fair value | $1,625.9 | $1,649.5 | | Total Assets | $1,663.4 | $1,722.1 | | Total Liabilities | $983.8 | $945.8 | | Net Assets | $679.6 | $776.3 | | Net Assets Per Share | $11.76 | $13.21 | - Net assets decreased by $96.7 million, or 12.5%, from December 31, 2019 to March 31, 20208 Consolidated Schedule of Investments - As of March 31, 2020, the total investment portfolio had a fair value of $1,625.9 million across 108 portfolio companies268 Portfolio Composition by Investment Type (as of March 31, 2020) | Investment Type | Percentage of Portfolio | | :--- | :--- | | Senior Secured Loans | 87.8% | | Senior Secured Notes | 4.7% | | Junior Notes | 0.9% | | Senior Unsecured Loans | 0.2% | | Equity Investments | 6.4% | | Total Debt Investments | 93.6% | - The weighted average effective yield of the debt portfolio was 10.3% at March 31, 2020, unchanged from December 31, 2019. 92.3% of debt investments bore floating rates272 Consolidated Statements of Operations Quarterly Operating Results (in millions) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Total Investment Income | $41.3 | $47.5 | | Total Operating Expenses | $19.2 | $24.2 | | Net Investment Income | $22.1 | $23.3 | | Net Realized and Unrealized Gain (Loss) | $(91.5) | $0.8 | | Net Increase (Decrease) in Net Assets | $(69.5) | $24.1 | | Earnings (Loss) Per Share | $(1.18) | $0.41 | - The significant decrease in net assets from operations was driven by a $96.5 million change in net unrealized depreciation, primarily due to market impacts from COVID-1979278 Consolidated Statements of Changes in Net Assets - For the three months ended March 31, 2020, net assets decreased from $776.3 million to $679.6 million. The decrease was primarily driven by a net loss from operations of $69.5 million and dividends paid of $21.2 million, partially offset by the accretive effect of stock repurchases82 Consolidated Statements of Cash Flows Cash Flow Summary for Q1 2020 (in millions) | Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(65.9) | $20.6 | | Net Cash Provided by (Used in) Financing Activities | $29.6 | $(21.8) | | Net Decrease in Cash | $(36.3) | $(1.2) | - Financing activities in Q1 2020 included net borrowings of $56.9 million, which were offset by $21.2 million in dividends and $6.1 million in common stock repurchases85292 Notes to Consolidated Financial Statements - As of March 31, 2020, 97.7% of the company's investments by fair value were classified as Level 3, indicating reliance on significant unobservable inputs for valuation. This includes 97.5% valued by independent third-party sources and 0.2% by the Advisor259 - Total leverage outstanding was $972.7 million as of March 31, 2020, with an additional $258.6 million available. The combined weighted-average interest rate on outstanding leverage was 3.73%150153 - The company had total unfunded commitments of $53.1 million as of March 31, 2020183 - During Q1 2020, the company repurchased 1,000,000 shares of its common stock for a total cost of $6.1 million under its repurchase plan190 - Subsequent to quarter-end, in April 2020, the company extended the maturity of its $270 million SVCP credit facility to May 6, 2024. On May 11, 2020, a Q2 dividend of $0.36 per share was declared196198 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the Q1 2020 net loss of $69.5 million primarily to significant unrealized depreciation ($96.5 million) across the portfolio, driven by market spread widening and volatility related to the COVID-19 pandemic. Net investment income decreased to $22.1 million from $23.3 million year-over-year due to lower interest income from declining LIBOR rates and less non-recurring prepayment income. The company maintained a strong liquidity position with $258.6 million available under its leverage program and an asset coverage ratio of 181%, well above the 150% regulatory requirement Portfolio and Investment Activity - In Q1 2020, the company invested approximately $143.0 million, with 93.8% ($134.2 million) in senior secured loans. It received $76.9 million in proceeds from sales and repayments265 - The portfolio's fair value was $1,625.9 million as of March 31, 2020, down from $1,649.5 million at year-end 2019. The portfolio consisted of 108 companies with an average investment size of $15.1 million268269 Top 5 Industry Concentrations (as of March 31, 2020) | Industry | Percent of Total Investments | | :--- | :--- | | Internet Software and Services | 12.0% | | Diversified Financial Services | 11.1% | | Software | 6.4% | | Textiles, Apparel and Luxury Goods | 6.2% | | Professional Services | 5.7% | Results of Operations - Investment income decreased to $41.3 million in Q1 2020 from $47.5 million in Q1 2019, primarily due to a decline in LIBOR rates and lower non-recurring prepayment income ($0.6 million vs. $2.6 million)273274 - Operating expenses fell to $19.2 million in Q1 2020 from $24.2 million in Q1 2019, mainly because no incentive fees were accrued in Q1 2020 ($0 vs. $5.4 million) as the total return hurdle was not met275279 - Net realized gain was $5.0 million in Q1 2020, primarily from the disposition of the investment in STG-Fairway (First Advantage)277 - The change in net unrealized appreciation/depreciation was a loss of $96.5 million in Q1 2020, compared to a gain of $1.1 million in Q1 2019, driven by market impact of COVID-19278 Liquidity and Capital Resources - As of March 31, 2020, the company had $8.6 million in cash and cash equivalents and $258.6 million available for borrowing under its leverage facilities286293 - The company's asset coverage ratio was 181% as of March 31, 2020, compliant with the 150% minimum requirement effective since February 9, 2019288 - In Q1 2020, the company repurchased 1,000,000 shares for $6.1 million. The repurchase plan was re-approved on April 30, 2020285286 Quantitative and Qualitative Disclosures About Market Risk The company is subject to interest rate risk, as 92.3% of its debt investments at March 31, 2020, were floating-rate. A sensitivity analysis shows that a 100 basis point increase in rates would increase annual net investment income by approximately $9.9 million, while a 100 basis point decrease would reduce it by approximately $2.2 million, considering interest rate floors on 65.7% of the floating-rate portfolio - As of March 31, 2020, 92.3% of the company's debt portfolio consisted of floating-rate investments, and 65.7% of these had interest rate floors313 Interest Rate Sensitivity Analysis (Annual Impact on Net Investment Income) | Basis Point Change | Change in Net Investment Income | | :--- | :--- | | +300 bps | $34,228,024 | | +200 bps | $21,923,726 | | +100 bps | $9,903,173 | | -100 bps | $(2,187,381) | | -200 bps | $(2,267,268) | Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of the end of the period and concluded that they were effective. No material changes to internal controls over financial reporting occurred during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the quarter316 - There were no changes in internal controls over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls316 Part II. Other Information Legal Proceedings As of March 31, 2020, the company is not a party to any pending material legal proceedings - The company is not currently a party to any pending material legal proceedings317 Risk Factors The company highlights that there have been no material changes to its risk factors, except for the significant risks posed by the COVID-19 pandemic. These risks include severe market disruptions, potential declines in the value of investments and the company's net asset value, increased default risk of portfolio companies, and potential inability to comply with financial covenants or maintain its RIC status - A new material risk factor has been added concerning the negative impact of public health crises, specifically the COVID-19 pandemic318319 - Potential consequences of COVID-19 include severe declines in security prices and NAV, inability to accurately value the portfolio, increased default risk of portfolio companies, and potential breaches of financial covenants320323 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None322 Defaults upon Senior Securities The company reported no defaults upon its senior securities - None322 Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - Exhibits filed include CEO and CFO certifications pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act322