BlackRock TCP Capital (TCPC) - 2023 Q3 - Quarterly Report

Part I Financial Information This section presents BlackRock TCP Capital Corp.'s unaudited consolidated financial statements, including assets, operations, net assets, cash flows, and investment schedule, for the period ended September 30, 2023 Consolidated Statements of Assets and Liabilities As of September 30, 2023, total assets remained stable at $1.72 billion, while net assets slightly decreased to $735 million, leading to a NAV per share of $12.72 Consolidated Balance Sheet Summary | Metric | September 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Total Investments, at fair value | $1,593,320,718 | $1,609,587,641 | | Total Assets | $1,719,164,854 | $1,719,349,849 | | Total Liabilities | $984,167,557 | $972,596,059 | | Net Assets | $734,997,297 | $746,753,790 | | Net Assets Per Share | $12.72 | $12.93 | Consolidated Statements of Operations Q3 2023 saw increased investment income and net investment income, but a net realized and unrealized loss reduced the net increase in net assets to $12.8 million Q3 2023 vs Q3 2022 Performance | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Total Investment Income | $54,210,941 | $48,206,329 | | Total Operating Expenses | $25,877,865 | $23,814,862 | | Net Investment Income | $28,319,912 | $24,391,467 | | Net Realized and Unrealized Gain (Loss) | ($15,496,980) | $1,847,540 | | Net Increase in Net Assets | $12,822,932 | $26,239,007 | | Basic and Diluted EPS | $0.22 | $0.45 | Nine Months 2023 vs 2022 Performance | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Total Investment Income | $158,480,129 | $134,312,623 | | Total Operating Expenses | $77,134,007 | $68,897,018 | | Net Investment Income | $81,297,518 | $65,415,605 | | Net Realized and Unrealized Gain (Loss) | ($29,510,021) | ($26,855,713) | | Net Increase in Net Assets | $51,787,497 | $38,559,892 | | Basic and Diluted EPS | $0.90 | $0.67 | Consolidated Statements of Changes in Net Assets Net assets decreased to $735 million for the nine months ended September 30, 2023, primarily due to $63.5 million in dividends offsetting operational gains Changes in Net Assets (Nine Months Ended Sep 30, 2023) | Item | Amount | | :--- | :--- | | Balance at December 31, 2022 | $746,753,790 | | Net Investment Income | $81,297,518 | | Net Realized and Unrealized Loss | ($29,510,021) | | Dividends Paid to Shareholders | ($63,543,990) | | Balance at September 30, 2023 | $734,997,297 | Consolidated Statements of Cash Flows Net cash from operating activities significantly decreased to $52.1 million for the nine months ended September 30, 2023, with cash and equivalents at $91.7 million Cash Flow Summary (Nine Months Ended) | Activity | September 30, 2023 | September 30, 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $52,124,269 | $168,475,437 | | Net Cash from Financing Activities | ($42,906,434) | ($82,233,181) | | Net Increase in Cash | $9,217,835 | $86,242,256 | | Cash at Beginning of Period | $82,435,171 | $19,552,273 | | Cash at End of Period | $91,653,006 | $105,794,529 | Consolidated Schedule of Investments The $1.59 billion investment portfolio as of September 30, 2023, primarily comprised debt investments across 143 companies, with key concentrations in Internet Software and Services Portfolio Composition as of September 30, 2023 | Investment Type | Fair Value | % of Net Assets | | :--- | :--- | :--- | | Total Debt Investments | $1,413,069,920 | 192.2% | | Total Equity Securities | $180,251,203 | 24.5% | | Total Investments | $1,593,320,718 | 216.7% | - The investment portfolio is diversified across numerous industries, with the largest concentrations in Internet Software and Services (14.7%), Diversified Financial Services (12.0%), and Diversified Consumer Services (12.0%)[288] Notes to Consolidated Financial Statements Notes detail accounting policies, debt structure, commitments, investment valuation, and the proposed merger with BlackRock Capital Investment Corporation (BCIC) - On September 6, 2023, the Company entered into an Agreement and Plan of Merger with BlackRock Capital Investment Corporation (BCIC). The merger is subject to stockholder and regulatory approvals[82][214] Fair Value Hierarchy of Investments (Sep 30, 2023) | Level | Basis for Fair Value | Total Value | % of Total | | :--- | :--- | :--- | :--- | | 1 | Quoted prices in active markets | $533,360 | ~0.0% | | 2 | Observable market inputs | $68,098,115 | 4.3% | | 3 | Significant unobservable inputs | $1,524,689,243 | 95.7% | | Total | | $1,593,320,718 | 100.0% | - The company declared total dividends of $1.10 per share for the nine months ended September 30, 2023, which included a regular dividend of $0.34 and a special dividend of $0.10 for the third quarter[197] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2023 financial performance, portfolio activity, and liquidity, highlighting increased net investment income, rising portfolio yield, and the proposed merger with BCIC Portfolio and Investment Activity Q3 2023 saw $92.4 million in investments and $125.6 million in proceeds, with the $1.59 billion portfolio's weighted average debt yield rising to 14.1% - During Q3 2023, the company invested $92.4 million and received $125.6 million in proceeds from sales or repayments[282] Portfolio Yield and Composition | Metric | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Weighted Avg. Effective Yield (Debt) | 14.1% | 12.7% | | Floating Rate Debt Investments | 94.9% | 93.6% | | Non-Accrual Investments (at fair value) | 1.1% | 2.0% | Results of Operations Q3 2023 investment income increased to $54.2 million due to higher interest rates, but a $15.4 million net unrealized loss reduced the net increase in net assets - The increase in investment income for Q3 2023 was primarily driven by the rise in LIBOR/SOFR rates on the company's floating-rate debt portfolio[290] - The change to net unrealized depreciation of $(15.4) million in Q3 2023 was primarily due to unrealized losses on investments in Edmentum, Khoros, and Magenta Buyer, partially offset by a gain on Astra Acquisition[298] Liquidity and Capital Resources The company maintains strong liquidity with $974.2 million in total debt outstanding, $261.2 million available for borrowing, and an asset coverage ratio of 189% Leverage Program Summary (Sep 30, 2023) | Facility | Carrying Value | Available | Total Capacity | | :--- | :--- | :--- | :--- | | Operating Facility | $148,826,611 | $151,173,389 | $300,000,000 | | Funding Facility II | $100,000,000 | $100,000,000 | $200,000,000 | | SBA Debentures | $150,000,000 | $10,000,000 | $160,000,000 | | 2024 Notes | $249,443,956 | $0 | $249,443,956 | | 2026 Notes | $325,887,724 | $0 | $325,887,724 | | Total Leverage | $974,158,291 | $261,173,389 | $1,235,331,680 | - The company's asset coverage ratio was 189% as of September 30, 2023, compliant with the 150% regulatory minimum[313] Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk, with 94.9% of debt investments being floating rate; a 100 basis point rate increase would boost annual net investment income by $12.3 million Interest Rate Sensitivity Analysis (Annual Impact) | Basis Point Change | Net Investment Income | Net Investment Income Per Share | | :--- | :--- | :--- | | Up 300 basis points | $36,862,357 | $0.64 | | Up 200 basis points | $24,574,905 | $0.43 | | Up 100 basis points | $12,287,452 | $0.21 | | Down 100 basis points | ($12,287,452) | ($0.21) | | Down 200 basis points | ($24,574,905) | ($0.43) | | Down 300 basis points | ($36,862,357) | ($0.64) | Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[334] Part II Legal Proceedings The company is a defendant in a lawsuit seeking $15 million related to a third-party collateralized loan obligation, which it intends to vigorously defend - The company is a defendant in a lawsuit seeking to recover approximately $15 million related to a third-party sponsored collateralized loan obligation. The company plans to file a motion to dismiss and defend against the claims[336] Risk Factors Systemic risk in U.S. and global capital markets, exemplified by recent bank failures, poses a significant threat to the company's business and financial condition - The company identifies systemic risk in the U.S. and global capital markets as a key risk, citing the recent failures of Silicon Valley Bank and Signature Bank as examples that could lead to market-wide liquidity problems and adversely affect the company[338][339] Other Information This section presents quarterly stock price data, including high/low closing prices, premium/discount to NAV, and declared dividends per share for recent fiscal periods 2023 Quarterly Stock Price and Dividend Summary | Fiscal Quarter 2023 | NAV per Share | High Price | Low Price | Declared Distributions | | :--- | :--- | :--- | :--- | :--- | | First Quarter | $13.00 | $13.37 | $9.73 | $0.32 | | Second Quarter | $12.94 | $11.42 | $9.76 | $0.34 | | Third Quarter | $12.72 | $12.89 | $11.00 | $0.44 |