BlackRock TCP Capital (TCPC)2021-05-05 11:45Financial Structure and Leverage - The Company has a leverage program comprising $300 million in a revolving credit facility, $200 million in a senior secured revolving credit facility, and $140 million in convertible senior unsecured notes maturing in 2022[195]. - Total leverage outstanding as of March 31, 2021 was $990.6 million, with $395.9 million available under the combined Leverage Program[236]. - The Company's asset coverage ratio was 193% as of March 31, 2021, following the approval of reduced asset coverage requirements[240]. Investment Strategy and Portfolio - The Company focuses on investments in the debt of middle-market companies, including senior secured loans and mezzanine debt[192]. - The investment portfolio at fair value was $1,735.4 million as of March 31, 2021, with 89.6% invested in debt investments, primarily in senior secured debt[221]. - During the three months ended March 31, 2021, the company invested approximately $182.6 million, with 95.1% in senior secured loans[219]. - The industry composition of the investment portfolio included 14.6% in Diversified Financial Services and 12.2% in Internet Software and Services as of March 31, 2021[224]. - The company invested approximately $100.6 million primarily in 7 senior secured loans with a combined effective yield of approximately 8.9% from April 1, 2021, through May 4, 2021[256]. Revenue and Income - The Company generates revenue primarily from interest on debt investments, with expected maturities generally between three to five years[199]. - Investment income totaled $41.2 million for the three months ended March 31, 2021, compared to $41.3 million for the same period in 2020, with a decrease primarily due to lower interest income from declining LIBOR rates[225][226]. - Net investment income decreased to $18.4 million for the three months ended March 31, 2021, down from $22.1 million in 2020, reflecting lower expenses in the prior year due to incentive fee deferral[228]. - Net realized gain for Q1 2021 was $3.1 million, down from $5.0 million in Q1 2020, primarily due to an $8.8 million gain from One Sky, offset by a $7.1 million loss from GlassPoint[229]. Expenses and Financial Performance - Total operating expenses increased to $22.7 million for the three months ended March 31, 2021, from $19.2 million in the same period of 2020, largely due to the deferral of incentive fees[227]. - Incentive fees for Q1 2021 were $4.7 million, compared to $0.0 million in Q1 2020, reflecting performance exceeding cumulative total return thresholds[230]. - The net increase in net assets applicable to common shareholders was $35.5 million for Q1 2021, compared to a loss of $69.5 million in Q1 2020, driven by net realized and unrealized gains[233]. Cash Flow and Financing Activities - Net cash used in operating activities during Q1 2021 was $120.4 million, primarily due to $85.5 million in investment acquisitions[242]. - Net cash provided by financing activities was $114.7 million in Q1 2021, mainly from $174.3 million in net proceeds from unsecured debt issuance[243]. - At March 31, 2021, the Company had $14.3 million in cash and cash equivalents[244]. Tax Status and Compliance - The Company has elected to be treated as a regulated investment company (RIC) for U.S. federal income tax purposes, allowing it to avoid corporate level taxes on distributed income[194]. - No excise tax was incurred in Q1 2021 or Q1 2020, as the Company qualifies for tax treatment applicable to RICs[232]. - The company must distribute at least 90% of its ordinary income and realized net short-term capital gains to maintain its RIC status, which could impact future distributions[250]. - The company may face adverse tax consequences if it does not distribute a certain percentage of its income annually, potentially losing favorable RIC tax treatment[251]. Management and Advisory - The Company is externally managed and operates as a business development company (BDC) under the Investment Company Act of 1940[192]. - The advisor manages day-to-day operations and investment advisory services, with payments based on a percentage of total assets and incentive compensation[248]. - The incentive compensation for the Advisor is 17.5% of ordinary income and net realized capital gains, subject to a cumulative total return threshold of 7%[203]. - The company has entered into various contracts with related parties, which may lead to conflicts regarding investment opportunities[255]. Market Risks and Sensitivity - The financial condition of portfolio companies and the liquidity of credit markets are significant factors influencing the Company's operations and investment strategy[191]. - The company is subject to financial market risks, including changes in interest rates, which could materially affect net investment income[260]. - Interest rate sensitivity analysis indicates that a 300 basis point increase in interest rates could result in a net investment income of approximately $28.4 million[262].