BlackRock TCP Capital (TCPC) - 2023 Q1 - Quarterly Report

Financial Leverage and Capital Structure - The Company has a leverage program consisting of $300 million in a revolving credit facility, $200 million in a senior secured revolving credit facility, $250 million in senior unsecured notes maturing in 2024, $325 million in senior unsecured notes maturing in 2026, and $160 million in committed leverage from the SBA[224]. - As of March 31, 2023, total leverage outstanding was approximately $1.03 billion, with available capacity of $207.97 million under the combined Leverage Program[266]. - The company's asset coverage ratio as of March 31, 2023, was 185%, reflecting compliance with the modified asset coverage requirements[270]. Investment Strategy and Portfolio Composition - The Company’s investment strategy includes primarily debt investments in middle-market companies, with a focus on principal protection[222]. - As of March 31, 2023, 83.8% of the Company's total assets were invested in qualifying assets, which include securities and indebtedness of private U.S. companies[227]. - The investment portfolio at fair value was $1,665.7 million as of March 31, 2023, with 88.3% invested in debt investments, primarily in senior secured debt[250]. - The industry composition of the portfolio included 15.7% in Internet Software and Services and 11.9% in both Diversified Financial Services and Diversified Consumer Services as of March 31, 2023[252]. - Debt investments in two portfolio companies were on non-accrual status as of March 31, 2023, representing 0.3% of the portfolio at fair value[252]. Revenue and Income Generation - The Company generates revenues primarily from interest on debt investments, with expected maturities generally between three to five years[228]. - Investment income totaled $50.3 million for the three months ended March 31, 2023, compared to $42.2 million for the same period in 2022, reflecting an increase primarily due to rising LIBOR/SOFR rates[253]. - Net investment income rose to $25.4 million for the three months ended March 31, 2023, compared to $19.8 million for the same period in 2022, primarily due to increased investment income[255]. Operating Expenses and Management Fees - The Company’s operating expenses include management fees, incentive compensation, and various administrative costs, which are borne by common stockholders[229]. - The base management fee is calculated at an annual rate of 1.5% of total assets, reduced to 1.0% for assets exceeding 200% of the net asset value[231]. - Total operating expenses increased to $24.9 million for the three months ended March 31, 2023, from $22.4 million in the same period of 2022, driven by higher interest expenses[254]. Tax and Regulatory Considerations - 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[223]. - The company intends to continue making requisite distributions to stockholders to qualify for tax treatment as a RIC, distributing at least 90% of its investment company taxable income[259]. - The company must distribute at least 90% of its ordinary income to maintain favorable RIC tax treatment, which may limit its ability to increase dividends[281]. Performance Metrics and Financial Results - For the three months ended March 31, 2023, the net increase in net assets applicable to common shareholders was $22.7 million, compared to $12.4 million for the same period in 2022, reflecting higher net investment income and lower net realized and unrealized losses[262]. - The company recorded a net unrealized appreciation of $28.0 million for the three months ended March 31, 2023, compared to a depreciation of $(7.2) million in the same period of 2022, primarily due to a $36.2 million reversal of previously recognized unrealized losses[257]. - Net realized losses for the three months ended March 31, 2023, were $(30.6) million, primarily due to a $30.7 million loss from the reorganization of an investment[256]. Cash Flow and Financing Activities - Net cash used in operating activities during the three months ended March 31, 2023, was $40.4 million, primarily due to the settlement of acquisitions of investments totaling $57.1 million[272]. - Net cash provided by financing activities was $56.8 million during the three months ended March 31, 2023, mainly from $78.2 million in credit facility draws[273]. - The company had $98.8 million in cash and cash equivalents as of March 31, 2023[274]. Interest Rate and Market Risks - A significant change in market interest rates could materially affect the company's net investment income, as it funds a portion of its investments with borrowings[292]. - The annual impact on net investment income per share for a 300 basis point increase in interest rates is projected to be $0.59[293]. - The company is subject to financial market risks, including changes in interest rates, which could affect the ability of portfolio companies to meet their contractual obligations[292]. Dividends and Shareholder Returns - The company declared a second quarter dividend of $0.34 per share, payable on June 30, 2023, to stockholders of record as of June 16, 2023[289]. - The company has the ability to declare a large portion of a dividend in shares of common stock instead of cash to satisfy annual distribution requirements[285]. Conflicts of Interest and Governance - The company may face conflicts of interest in allocating investment opportunities among affiliated funds and accounts[286]. - The company must distribute certain undistributed amounts from previous years to avoid adverse tax consequences[282].