BlackRock TCP Capital (US:TCPC)2022-02-25 00:27Financial Data and Key Metrics Changes - The company reported a year-over-year NAV per share increase of 8.5%, with a 1.9% increase in Q4 alone, driven by realized and unrealized gains in portfolio holdings and net investment income exceeding dividends paid [8][12] - The return on equity (ROE) for the full year was 17.5%, the highest since the company went public in 2012, reflecting strong portfolio performance and a lower cost of capital [8][35] - Net investment income for Q4 was $0.31 per share, exceeding the declared dividend of $0.30 per share, and for the full year, net investment income was $1.26 per share, out-earning dividends by $0.06 [25][26] Business Line Data and Key Metrics Changes - Investment activity increased by 65% year-over-year, with Q4 capital deployment exceeding $180 million, resulting in net portfolio growth of $67 million [10][11] - The effective yield on the debt portfolio was 9.2% as of December 31, with new portfolio companies having a similar weighted average effective yield [22] Market Data and Key Metrics Changes - The company noted that private capital markets performed well during the pandemic, with direct lending emerging as a strong source of financing for middle market companies [6][7] - Non-accruals were limited to just 0.9% of the portfolio at fair value, maintaining a strong credit quality throughout the pandemic [9][29] Company Strategy and Development Direction - The company aims to leverage its competitive advantages, including over two decades of experience in lending to middle market companies, to navigate the current investment environment [34][35] - The focus remains on maintaining a disciplined approach to investing, emphasizing seniority in the capital structure and portfolio diversity [16][23] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the investment environment, despite increased volatility in public markets and concerns around inflation and supply chain disruptions [34] - The company is well-positioned for rising interest rates, with 95% of its debt portfolio being floating rate [22][34] Other Important Information - The company has maintained continuous dividend coverage since going public in 2012, with a first quarter 2022 dividend of $0.30 per share declared [12][13] - The total liquidity at the end of the quarter was $352 million, with a diverse and flexible leverage program in place [30][31] Q&A Session Summary Question: Opportunities to lower financing costs - Management indicated they are monitoring the capital markets for opportunities to lower financing costs, particularly with upcoming convertible notes maturing [40][41][43] Question: Prepaid income levels - Management noted that lower prepaid income is not due to structural changes but reflects a longer duration of investments in known companies, which is seen as a positive [49][50][51] Question: Rate increase timing differences - Management confirmed there would be a small timing lag for revenue increases compared to interest expense rises, as most loans reset quarterly or monthly [59][60] Question: Stock price performance - Management acknowledged the stock price lagging despite strong performance and expressed a commitment to maintaining portfolio selection and investment performance [61][63] Question: Inflation concerns - Management indicated that while inflation is a concern, the portfolio is primarily in services and technology sectors, which are less exposed to input cost pressures [67][69]