BlackRock TCP Capital (US:TCPC)2023-08-03 11:58Leverage and Financing - The Company has a leverage program consisting of $300 million under a revolving credit facility, $200 million under 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[229]. - Total leverage outstanding as of June 30, 2023, was approximately $1.025 billion, with available capacity of $209.9 million under the combined Leverage Program[281]. - The company has a $50.0 million accordion feature in Funding Facility II, allowing for expansion up to $250.0 million, subject to lender consent[292]. - The company expects to maintain compliance with all financial and operational covenants required by the Leverage Program as of June 30, 2023[290]. - The company anticipates sufficient funds to repay outstanding balances under the Leverage Program from net investment income and portfolio company investments[291]. Investment Strategy and Portfolio - The Company’s investment strategy focuses on achieving high total returns through current income and capital appreciation, primarily by investing in the debt of middle-market companies[227]. - As of June 30, 2023, 83.8% of the Company's total assets were invested in qualifying assets, which include securities and indebtedness of private U.S. companies and public domestic operating companies with a market capitalization of less than $250 million[232]. - As of June 30, 2023, the investment portfolio at fair value was $1,640.6 million, with 88.4% invested in debt investments, primarily in senior secured debt[259]. - During the three months ended June 30, 2023, the company invested approximately $17.1 million, with 93.2% in senior secured loans and 6.8% in equity investments[254]. - The industry composition of the portfolio included 14.8% in Internet Software and Services and 12.1% in Diversified Financial Services as of June 30, 2023[261]. - Debt investments in two portfolio companies were on non-accrual status as of June 30, 2023, representing 0.3% of the portfolio at fair value[262]. - The average portfolio company investment at fair value was approximately $11.5 million as of June 30, 2023[259]. - As of June 30, 2023, 92.6% of investments were categorized as Level 3, indicating reliance on unobservable inputs for valuation[248]. Financial Performance - Investment income for the three months ended June 30, 2023, totaled $54.0 million, an increase from $44.0 million in the same period of 2022, primarily due to higher interest income from rising LIBOR/SOFR rates[263]. - Investment income for the six months ended June 30, 2023, totaled $104.3 million, up from $86.1 million in the same period of 2022, primarily due to increased interest income from debt investments[264]. - Net investment income for the six months ended June 30, 2023, was $53.0 million, an increase from $41.0 million in 2022, reflecting higher total investment income[268]. - Net realized losses for the six months ended June 30, 2023, were $(31.0) million, compared to $(18.4) million in 2022, primarily due to a $30.7 million loss from the reorganization of an investment in Autoalert[270]. - The change in net unrealized appreciation for the six months ended June 30, 2023, was $17.0 million, contrasting with $(10.3) million in 2022, mainly due to a $36.8 million reversal of previously recognized unrealized losses from Autoalert[272]. - Incentive fees for the six months ended June 30, 2023, were $11.2 million, up from $8.7 million in 2022, reflecting performance exceeding cumulative total return thresholds[273]. - The net increase in net assets resulting from operations for the six months ended June 30, 2023, was $39.0 million, compared to $12.3 million in 2022, attributed to higher net investment income and lower net realized and unrealized losses[277]. Operating Expenses and Cash Flow - Total operating expenses for the six months ended June 30, 2023, were $51.3 million, compared to $45.1 million in 2022, driven by higher interest expenses and incentive fee expenses[266]. - Net cash provided by operating activities during the six months ended June 30, 2023 was $5.6 million, primarily from $46.2 million in net investment income, offset by $40.6 million in investment dispositions[287]. - Net cash provided by financing activities was $35.1 million during the same period, mainly from $76.1 million in credit facility draws, net of $41.0 million in dividends paid[288]. - The company had $123.1 million in cash and cash equivalents as of June 30, 2023[289]. Regulatory and Tax Considerations - The Company is regulated as a business development company (BDC) and must invest at least 70% of total assets in qualifying assets[232]. - 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[228]. - The company must distribute at least 90% of its ordinary income and short-term capital gains to maintain its RIC status[292]. - The Company has made and intends to continue making requisite distributions to stockholders to qualify for tax treatment applicable to RICs, relieving it from U.S. federal income taxes[274]. - An excise tax expense of $0.1 million was recorded for the six months ended June 30, 2023, based on the amount of tax-basis ordinary income for the year ended December 31, 2022[275]. Interest Rate Sensitivity - Interest rate sensitivity indicates that changes in interest rates can significantly impact net investment income, which is influenced by the difference between investment and borrowing rates[304]. - As of June 30, 2023, a 300 basis point increase in interest rates would result in a net investment income of $34,064,789, equating to $0.59 per share[305]. - A 200 basis point increase would yield a net investment income of $22,709,859, or $0.39 per share[305]. - A 100 basis point increase would generate a net investment income of $11,354,930, translating to $0.20 per share[305]. - Conversely, a 100 basis point decrease would lead to a net investment loss of $(11,194,370), or $(0.19) per share[305]. - A 200 basis point decrease would result in a net investment loss of $(22,388,740), equating to $(0.39) per share[305]. - A 300 basis point decrease would further increase the net investment loss to $(33,583,110), or $(0.58) per share[305]. - The company periodically assesses portfolio companies' ability to meet interest payment obligations amid rising interest rates[304]. - There are no assurances that portfolio companies will meet contractual obligations with any level of interest rate increases[304]. - The company does not anticipate changes in its investment and borrowing structure when evaluating the impact of interest rate changes[305].