BlackRock TCP Capital (US:TCPC)2022-11-03 20:07Financial Data and Key Metrics Changes - The company reported a net investment income of $0.42 per share, which is up 14% from the second quarter and more than 30% year-over-year [45] - The net asset value (NAV) increased by 1.1% during the quarter, driven by net unrealized gains and net investment income exceeding dividends [18] - The effective yield on the debt portfolio rose from 9.8% as of June 30 to 11.3% [38] Business Line Data and Key Metrics Changes - The company made 17 new investments totaling $48 million during the third quarter, with 60% of total investments coming from existing portfolio companies [34] - The portfolio's fair market value was approximately $1.7 billion, with 87% of investments in senior secured debt [27] - Non-accrual loans were limited to 0.3% of the portfolio at fair value, indicating strong credit quality [19] Market Data and Key Metrics Changes - The company noted significant volatility in public markets due to geopolitical uncertainty and rising interest rates, impacting both equity and bond markets [8][9] - The company observed a general ability among portfolio companies to pass along cost increases to end customers, reflecting elastic demand for their products and services [13] Company Strategy and Development Direction - The company focuses on direct lending to middle-market businesses in diverse and resilient industries, emphasizing strong credit quality and principal protection [11] - The strategy includes maintaining disciplined underwriting standards and proactively engaging with borrowers to manage challenges [10][14] - The company aims to leverage its relationships and the broader BlackRock platform to identify attractive investment opportunities [26] Management's Comments on Operating Environment and Future Outlook - Management expressed caution in the current market environment but remains confident in the portfolio's structural seniority and credit quality [10][14] - The company anticipates continued strong performance and is prepared to selectively deploy capital in favorable terms [59] - Management highlighted the importance of maintaining a stable and well-covered dividend amid market uncertainties [80][82] Other Important Information - The Board of Directors declared a fourth-quarter dividend of $0.32 per share, an increase of $0.02 [16] - The company welcomed a new board member, Karen Leets, enhancing governance experience [22] Q&A Session Summary Question: Historical average deal flow activity rate and trends - The selectivity rate generally ranges from 4% to 6%, with the company evaluating 1,000 to 1,200 deals annually [64][65] Question: Thoughts on leverage in the current environment - The company is comfortable with lower leverage levels, providing flexibility to deploy capital when attractive opportunities arise [68][69] Question: Unrealized gain on 36 Street Capital - The increase in valuation was driven by strong performance and pending strategic initiatives at the company level [74][75] Question: Current weighted average interest coverage on the portfolio - The cash flow coverage is approximately 2.5 times and has trended upward [76] Question: Dividend increase rationale and coverage - The company aims to maintain a stable and well-covered dividend, considering market conditions and investment returns [80][84] Question: Spillover income - The cumulative spillover income is about $1.17 per share on a book basis [101] Question: Update on supply chain constraints - Supply chain issues are less relevant for the portfolio, which focuses on asset-light, high-margin businesses [104]