BlackRock TCP Capital (US:TCPC)2023-02-28 20:15Financial Data and Key Metrics Changes - The company reported a net investment income of $0.40 per share for Q4 2022, which is an increase of nearly 30% compared to Q4 2021, and $1.53 for the full year, reflecting a 22% increase over 2021 [7][58]. - The effective yield on the debt portfolio increased from 9.2% at the end of 2021 to 12.7% at the end of 2022, driven by higher base rates and wider spreads [100]. - Net unrealized losses in Q4 totaled $71 million or $1.22 per share, primarily due to three specific portfolio companies [101]. Business Line Data and Key Metrics Changes - The largest investment in Q4 was a senior secured first lien loan to Madison Logic, followed by a loan to Integrity Marketing, indicating a focus on stable and growing sectors [25][26]. - 50% of total investments in Q4 and 44% for the full year were in existing portfolio companies, highlighting the company's strategy of leveraging familiarity with these businesses [11]. Market Data and Key Metrics Changes - The overall credit quality of the portfolio remains strong, with only 2% of the portfolio at fair value on non-accrual status [32]. - The company noted a shift towards a more lender-friendly investment environment with wider spreads and less pushback on deal terms compared to previous periods [9][55]. Company Strategy and Development Direction - The company emphasizes investments in companies with established business models in less cyclical industries, aiming for downside protection through substantial collateral and tailored covenants [23][24]. - The investment strategy includes a focus on direct lending, which has historically provided premium yields and better downside protection during market turbulence [17]. Management's Comments on Operating Environment and Future Outlook - Management acknowledged the significant volatility in equity and fixed income markets in 2022, driven by geopolitical uncertainty and rising interest rates, but expressed cautious optimism for the year ahead [16][64]. - The company remains committed to maintaining a sustainable dividend fully covered by net investment income, reflecting confidence in its financial stability [30][21]. Other Important Information - The company ended the quarter with total liquidity of $367 million, including $286 million in available leverage and $82 million in cash, indicating a strong balance sheet position [61]. - The company has a robust valuation process, with most investments valued quarterly using independent third-party sources [60]. Q&A Session Summary Question: What was the driver of the significant markdown for AutoAlert? - Management indicated that the markdown was due to a compounding effect of ongoing supply chain issues and dealership closures, which have accumulated over time [37][38]. Question: How is the company addressing the situation with AutoAlert? - Management is in deep discussions with the management team and sponsor regarding next steps, with signs of improving performance noted [40][82]. Question: Has there been an increase in amendment requests from borrowers? - Yes, there has been an increase in amendment requests, reflecting the impact of the higher rate environment on the middle market economy [75]. Question: Was the decline in interest income quarter-over-quarter due to AutoAlert going down accrual? - Yes, the decline was primarily due to not recognizing any income from AutoAlert for the quarter, along with lower prepayment income [79]. Question: How much was spillover income in the quarter? - The cumulative spillover income was reported to be about $1.20 per share [84].