BlackRock TCP Capital Corp (NASDAQ:TCPC) reported a steady financial performance in its third-quarter earnings call on November 7, 2024. The company announced an adjusted net income of $0.36 per share and an annualized net investment income (NII) return on average equity of about 14%. A regular quarterly dividend of $0.34 per share and a special dividend of $0.10 per share were declared, payable at the end of December.
Additionally, TCPC re-authorized a stock repurchase program worth up to $50 million. The company's investment activity included $73 million across nine portfolio companies, with a focus on first lien loans and maintaining a portfolio fair market value of around $1.9 billion.
Key Takeaways
- Adjusted net income of $0.36 per share with an annualized NII return on average equity of approximately 14%.
- Dividends of $0.34 per share and a special dividend of $0.10 per share were declared, payable to shareholders on December 31, 2024.
- Stock repurchase program re-authorized for up to $50 million.
- Non-accrual loans decreased to 3.8% of portfolio fair value.
- $73 million invested in nine portfolio companies, focusing on first lien loans.
- Portfolio comprised 156 companies with a fair market value of approximately $1.9 billion.
- Weighted average effective yield of the portfolio is 13.4%.
- Phil Tseng appointed as new CEO and Chairman, succeeding Raj Vig.
Company Outlook
- Management remains committed to a disciplined investment approach and enhancing shareholder value.
- The company's strong capital position and robust investment pipeline, with a focus on the middle market and disciplined underwriting standards.
- The global direct lending program is expected to enhance investment processes without significantly altering the portfolio mix.
- The Board will continue to evaluate dividends quarterly, with a history of support from the adviser during lower NII periods.
Bearish Highlights
- Several investments, including Gordon Brothers Finance Company, SellerX, and InMoment, were marked down.
- The cost of debt rose to an annualized 6.8%, influenced by refinancing efforts and increased interest expenses.
Bullish Highlights
- Non-accrual loans decreased, showing improved portfolio health.
- New investments include iLobby and Docupace, with a focus on high-quality, first lien loans.
- Strong liquidity with $582 million available and a weighted average interest rate on debt of 5.4%.
Misses
- The performing debt portfolio's weighted average annual effective yield decreased slightly from 13.7% to 13.4%.
Q&A Highlights
- The company is managing an elevated prepayment activity level, with $0.08 seen this quarter, and anticipates it could continue due to market conditions.
- TCPC retains $10 million under its current SBA (LON:SBA) license and is considering applying for a second license.
- Management is focused on managing non-accruals and restructurings, leveraging their 20-plus year track record to optimize outcomes.
BlackRock (NYSE:BLK) TCP Capital Corp's third-quarter earnings call highlighted the company's steady performance and strategic approach to growth and shareholder value. With an emphasis on disciplined investment and a robust pipeline, the company is navigating a changing market environment with a focus on the middle market and premium yields. Despite challenges, TCPC's management team, led by new CEO and Chairman Phil Tseng, remains committed to maintaining dividends and leveraging their long-standing track record for future success.
InvestingPro Insights
BlackRock TCP Capital Corp's (TCPC) recent financial performance and strategic decisions align with several key insights from InvestingPro. The company's commitment to shareholder value is evident in its dividend policy, which is supported by InvestingPro data showing a remarkable dividend yield of 22.81% as of the latest available information. This aligns with the InvestingPro Tip that TCPC "pays a significant dividend to shareholders" and has "maintained dividend payments for 13 consecutive years."
The company's revenue growth is noteworthy, with InvestingPro data indicating a 21.38% increase in the last twelve months and an even more impressive 30.85% growth in the most recent quarter. This positive trend supports TCPC's ability to continue its dividend payments and invest in new opportunities, as discussed in the earnings call.
However, investors should note that despite the strong revenue growth, TCPC faces profitability challenges. An InvestingPro Tip highlights that the company is "not profitable over the last twelve months," which is reflected in the negative P/E ratio of -16.78. This aligns with the company's reported markdowns on certain investments and the slight decrease in the weighted average annual effective yield of the performing debt portfolio.
The company's focus on maintaining a strong liquidity position is prudent, given that another InvestingPro Tip indicates that "liquid assets exceed short-term obligations." This financial stability is crucial as TCPC navigates market challenges and pursues new investment opportunities in the middle market.
For investors seeking a more comprehensive analysis, InvestingPro offers additional insights, with 5 more tips available for TCPC. These additional tips could provide valuable context for understanding the company's financial health and future prospects in the evolving market environment.
Full transcript - BlackRock TCP Capital Corp (TCPC) Q3 2024:
Operator: Ladies and gentlemen, good afternoon. Welcome everyone to BlackRock TCP Capital Corp Third Quarter 2024 Earnings Conference Call. Today's conference call is being recorded for replay purposes. During the presentation, all participants will be in a listen-only mode. A question-and-answer session will follow the company's formal remarks. [Operator Instructions] I will repeat these instructions before we begin the Q&A session. And now, I would like to turn the call over to Michaela Murray, a member of the BlackRock TCP Capital Corp Investor Relations team. Michaela, please proceed.
Michaela Murray: Thank you. Before we begin, I'll note that this conference call may contain forward-looking statements based on the estimates and assumptions of management at the time of such statements and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties and actual results could differ materially from those projected. Any forward-looking statements made on this call are made as of today and are subject to changes out notice. Additionally, certain information discussed and presented may have been derived from third-party sources and has not been independently verified. Accordingly, we make no representation or warranty with respect to such information. Earlier today, we issued our earnings release for the third quarter ended September 30, 2024. We also posted a supplemental earnings presentation to our website at tcpcapital.com. To view the slide presentation, which we will refer to on today's call, please click on the Investor Relations link and select Events & Presentations. These documents should be reviewed in conjunction with the company's Form 10-Q, which was filed with the SEC earlier today. I’ll now turn the call over to our Chairman and CEO, Raj Vig.
Raj Vig: Thanks, Michaela, and thank you all for joining TCPC's third quarter 2024 earnings call. I'm here today with our President, Phil Tseng; our CFO, Erik Cuellar, as well as Jason Mehring, our COO. Today, I will provide an overview of our third quarter results, Phil will discuss our portfolio and investment activity, and Erik will then review our financial results as well as our capital and liquidity position. We'll all be available to answer questions. And before opening the call up for Q&A, I will wrap up with some closing comments. By now, I expect that many of you saw our press release in September announcing leadership changes at TCPC, including my decision to leave BlackRock and the accompanying resignation as CEO and Chairman of TCPC. It has been an honor to lead BlackRock TCPC Capital Corp. and to have played a key role in the development and growth of the company for almost two decades since 2006, and I am excited for the next chapter. Following my departure, Phil Tseng will succeed me as CEO and Chairman of the Board, and having partnered closely with Phil and other members of the management team, I believe you are in very good hands and the TCPC is well-positioned for long-term success. Now turning to the highlights for the third quarter of 2024. We delivered adjusted net income of $0.36 per share and our annualized net investment income return on average equity was approximately 14%, which is at the high end of historical levels. Our Board of Directors declared a fourth quarter dividend of $0.34 per share, which implies dividend coverage of 106% based on our third quarter adjusted NII. In addition, for the fourth quarter, our Board declared a special dividend of $0.10 per share. The fourth quarter dividend along with a special dividend is payable on December 31, 2024, to shareholders of record on December 17, 2024. We continue to take a disciplined approach to our dividend with an emphasis on stability and strong coverage from recurring net investment income. As a reminder, throughout TCPC's 12-year history as a public company, we have consistently covered our dividends with recurring NII and have also paid several -- several special dividends. Further, on October 30, our Board of Directors re-approved our authorization to repurchase up to $50 million of our common stock in the aggregate at prices in accordance with certain thresholds below our net asset value per share. As always, we continue to maintain a thoughtful approach to share repurchases in order to maximize shareholder value. Overall, non-accrual has decreased since last quarter. However, one additional non-accrual loan and certain markdowns resulted in a slight 0.9% reduction to NAV. This reflects the removal of one portfolio company, Pluralsight (NASDAQ:PS) from non-accrual status and the addition of Razor Group's preferred equity to non-accrual status. As a result, loans on non-accrual status declined from 4.9% to 3.8% of portfolio fair value. While this level of non-accruals may be higher than historical levels, it is clearly moving in the right direction. Turning to specifics. We removed Pluralsight from non-accrual status following its restructuring in August. The lender group and sponsor agreed to a consensual change of control where the lender group took control of the business followed by an additional investment as part of the recapitalization that strengthened the balance sheet and provided over $200 million of capital to accelerate growth initiatives and support long-term strategic goals. As part of this recap, TCPC now owns a portion of the equity as well as the debt. We continue to closely monitor Pluralsight's performance alongside the remainder of the lender group. As you may recall, Razor Group, which is in the Amazon (NASDAQ:AMZN) aggregator industry chose to address some of their challenges via consolidation and acquired Purch in March of this year. We believe this strategic combination will ultimately create a more efficient company. This will take time. We chose to place Razer's preferred equity on non-accrual in the third quarter as the company has not performed in line with our expectations. During the third quarter, we marked down positions in several portfolio companies, the largest of which were Gordon Brothers Finance Company, SellerX and InMoment. Other than SellerX, which is an Amazon aggregator, we've discussed in the past the circumstances of each of these portfolio companies were unique and company specific. The first is Gordon Brothers, a commercial finance company that originated, structured and invested in specialized asset-based loans to middle-market companies. The company sold substantially all of its loan assets to an unaffiliated third-party in November of 2020. The investment originated at BCIC and transition to TCPC as a result of the TCPC BCIC merger. At the time of the merger, this investment was on non-accrual and it has maintained that classification since the merger. The value of our current position in Gordon Brothers is largely related to residual claims associated with the sale of the firm's assets. During the third quarter, certain developments led our deal team and third-party valuation providers to believe there would likely be a decrease in the proceeds TCPC ultimately realizes from those claims. The second is SellerX, which following the combined impact of a stretched balance sheet and a slowdown in online consumer spending, we decided to place on non-accrual status in the second quarter. As you may have seen in the news, we have been actively engaged with the company management the rest of the lender group and owners to effectuate an agreement to address the company's capital structure and liquidity, and we will provide additional details when we can. Regarding the Amazon aggregator space, we believe we are invested in the leaders at this point. While the sector has evolved over the past three years, we continue to see a path forward for successful investment outcomes for those aggregators with the appropriate capital structures, liquidity, and strategies to compete in this new environment. Over the medium to longer term, we believe these businesses will benefit from continued consolidation, improved capital structures, and lower operating costs. The third is InMoment, which provides customer experience management software and analytical solutions. InMoment's financial performance has experienced softness, resulting in an unrealized loss for the third quarter. As a result of this underperformance, the management team has taken several steps to improve product and service quality to expand growth. At the end of the third quarter, debt investments in 10 of our 156 portfolio companies were on non-accrual status, representing 9.3% of the portfolio at cost and 3.8% at fair value. Net realized losses for the quarter were $31.4 million due to the restructuring of our investments in Pluralsight and McAfee. Net unrealized gains were $19.2 million, driven primarily by the reversal of previously unrealized losses from the restructuring of Pluralsight and McAfee and unrealized gains in Seqirus and Domo (NASDAQ:DOMO), offset by unrealized losses in Gordon Brothers, SellerX, and InMoment. We are actively monitoring our portfolio of companies with respect to their businesses, end markets, capital structures as -- and the impact of higher rates and inflation on their performance. As of September 30, 2024, our weighted average internal risk rating was 1.55 compared to 1.5 on June 30th, 2024. Our average internal risk rating continues to indicate that our portfolio companies are generally performing in line with or exceeding our base expectations. Now, let me turn it over to Phil to discuss our investment activity and portfolio.
Phil Tseng: Thanks Raj. Before I begin, I want to say it's been a privilege to work alongside Raj for many years, and I appreciate the Board's vote of confidence and appointing me Chairman and Chief Executive Officer. I'm excited to lead TCPC going forward with the support of my long-time colleagues, Jason Mehring, who is appointed President; Patrick Wolfe, who is appointed COO, and Dan Worrell, who is appointed Co-CIO effective November 7th. We have a tremendous opportunity ahead and look forward to collaborating with our talented team as we continue to leverage the strength of the BlackRock platform to create value for our shareholders and our borrowers. I want to thank Raj for his partnership over many years and his contributions to TCPC and wish him the very best in his future endeavors. Now, I'll begin with a few thoughts on the broader market environment and discuss our new investments for the quarter and our portfolio performance. Starting with the market environment. Potential for rate cut has been a topic of speculation for some time now and with the Fed announcement in September, they have finally arrived. Last night's election results may change the course of the Fed's previously messaged accommodative stance, although rates still remain high relative to recent history and higher for longer, may truly be higher for longer now, if inflation ramps up. The recent rate cut does provide some relief to borrowers who have endured higher floating rate debt burdens over the past few years. If shorter term base rates continue to decline, key indicators of portfolio health, such as interest coverage and debt ratios should improve. We believe the long anticipated rate cutting cycle and uncertainty on the election outcome, will serve as important catalysts for M&A, which has been sluggish for the past year. As we have previously said, we continue to see meaningful pickup in activity across our platform, reflecting the return of M&A and refinancing activity, and we are very excited about what we're seeing in the pipeline. Turning to our investment activity. During the third quarter, we invested $73 million primarily into six new and three existing portfolio companies. All the new debt investments in the third quarter were first lien loans, which continues to be our primary area of focus. Investing in incumbent portfolio companies is an important part of our strategy and a competitive advantage that allows us to invest additional capital in companies and industries we know well. However, we've seen a marked uptick in new platform activity and have continued to identify compelling opportunities to invest in these new companies. Our pipeline of new opportunities has grown due to an increase in overall M&A activity, as well as continued demand from borrowers for incremental or growth capital, as well as refinancing activity. We continue to source attractive investment opportunities from the direct relationships of our dedicated deal sourcing professionals as well as from the broader BlackRock platform. During the third quarter, these included a first lien investment in a new portfolio company, iLobby, which is an enterprise facility and visitor management software company that serves 1,200 clients across 55 countries, including several in the Fortune 500. iLobby solutions are focused on tracking, monitoring, reporting and providing access control to human and physical assets within a specific work perimeter. iLobby is a leading niche vertical software business, and we were pleased to be the sole lender in this transaction to support the acquisition of a complementary asset. Another new portfolio company we invested in this quarter is Docupace, a provider of cloud-based Software-as-a-Service solutions that streamline back-office administrative and operational tasks for wealth managers. Docupace is a category leader with a strong market reputation and back-office workflow, the non-wire house and RIA channels. We source this opportunity by leveraging our strong relationship with the sponsor, and we believe Docupace represents an attractive investment opportunity as they maintain a stable customer base in an industry that is benefiting from multiple secular growth trends as RIAs and independent broker dealers continue to gain share in the market. We believe our channel agnostic approach to deal sourcing is an advantage that reduces risks associated with single channel sourcing concentration. And when combined with our industry-focused underwriting approach allows us to be selective in choosing the best possible investment from a robust pipeline of opportunities at any point in time. At the end of the third quarter, the weighted average annual effective yield of our performing debt portfolio was 13.4%, compared to 13.7% last quarter. We received $139 million in proceeds from the sale or repayment of investments during the quarter. New investments had a weighted average yield of 11.3%, while investments we exited had a weighted average yield of 13.4%, which explains some of the yield compression we experienced this quarter. In an environment where spreads have tightened, we remain disciplined with regard to our underwriting standards and our focus on structuring deals with lender friendly terms. In several instances, we chose not to refinance or reprice existing loans at lower yields, or weaker structures that simply did not align with our risk/reward analysis. At quarter end, our well-diversified portfolio was comprised of investments in 156 companies, with a total fair market value of approximately $1.9 billion at an average position size of $4.2 million. 91% of our portfolio was invested in senior secured loans and 81% were in first lien loans. 93% of our debt investments were in floating rate loans. Recurring income was distributed broadly across our diverse portfolio, with more than 70% of our portfolio companies each contributing less than 1% to the total. Now I'll turn it over to Erik to discuss our financial results and capital and liquidity position.
Erik Cuellar: Thank you, Phil. As Raj noted, our net investment income for the quarter was $0.36 per share on an adjusted basis. As detailed in our earnings press release, adjusted NII excludes amortization of the purchase accounting discount resulting from the merger with BCIC and is calculated in accordance with GAAP. A full reconciliation of adjusted net investment income to GAAP net investment income as well as other non-GAAP financial metrics is included in our earnings release and 10-Q. Gross investment income for the third quarter was $0.83 per share. This included recurring cash interest of $0.65, non-recurring interest of $0.05, recurring discount and fee amortization of $0.04 and PIK income of $0.05. PIK interest income remains low at about 6% of total investment income. Investment income also included $0.02 of dividend income. Operating expenses for the third quarter were $0.43 per share, including $0.25 of interest and other debt expenses. Incentive fees for the quarter were $6.5 million or $0.08 per share. Net realized losses for the quarter were $31.4 million or $0.37 per share, primarily from the restructurings of our investments in Pluralsight and McAfee, which were already reflected in our prior net asset value. Net unrealized gains totaled $19.2 million or $0.22 per share, primarily reflecting the reversal of previously unrealized losses from the restructuring of Pluralsight and McAfee, which we discussed earlier. The net increase in net assets for the quarter was $21.6 million or $0.25 per share. At the end of the third quarter, our available liquidity was $582 million and included $478 million in available capacity under our leverage program and $104 million of cash and cash equivalents. Unfunded loan commitments to portfolio companies were 5% of total investments for approximately $100 million, of which only $58 million were revolver commitments. Net leverage at the end of the quarter was 1.08 times, which is well within our target range of 0.9 times to 1.2 times. As a reminder, gross leverage, excluding SBIC debt was 1.35 times as of the end of the second quarter. This was higher than past quarters as we increased cash by issuing new debt in May of 2024 and elected not to immediately prepay the prior notes outstanding as we were earning a higher return on the cash held than what we were paying on those notes that were coming due. In August 2024, we repaid the outstanding notes and gross leverage declined to 1.20 times. We continue to have ample financing options with our diverse and flexible program that includes three low-cost credit facilities, three unsecured note issuances and an SBA program. The weighted average interest rate on debt outstanding at the end of the quarter was 5.4%. Now, I'll turn the call back over to Raj.
Raj Vig: Thanks, Eric. Before taking your questions, I'd like to wrap-up with some closing comments. Overall, non-accruals decreased since last quarter as we continue to focus our resources and working diligently with our borrowers and their lenders and sponsors to resolve credit issues, with the goal of also achieving the best possible outcome for our investors. Over our history, we have experienced challenges, and the team is taking the same approach we always have reviewing every company in our portfolio with an eye toward identifying potential issues and acting as early as possible. As we head into the final quarter of 2024, we have a strong capital position and a robust pipeline of investment opportunities. We continue to take a highly selective and disciplined approach to deploying capital with a credit-first downside protected mindset. We remain focused on the core middle market where there is less competition, more covenant protection and attractive pricing. We continue to invest in great companies that have the business models and management teams to successfully operate in the current environment and we are passing on transactions that do not meet our underwriting standards and leveraging our experience in special situations lending to structure deals with strong financial covenants and asset-based deal structures. We remain committed to creating value for our shareholders and look forward to keeping you updated on the progress. And with that, operator, please open the call for questions.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Finian O'Shea with Wells Fargo (NYSE:WFC). Finian, your line is now open.
Finian O'Shea: Hey, everyone. Good afternoon. Congrats, Raj, Phil and the rest of the team on the changes. Raj, I wanted to go to one of your opening remarks on the NII return being on the high end and seeing what you could impact for us there. There's, obviously, the SOFR curve that moves around, we can gauge that. But sort of the other inputs that you would anticipate as they relate to spread and leverage on the book return for TCP?
Erik Cuellar: Yes. Hi Fin, it's Erik. As you noted, yes, our NII return has been on the higher end of our historical levels. We certainly have benefited from the higher base rates over the last year and a half. We see that reversing a little bit, and that's in part -- that has led us to maintain the dividend level where it has been, helping out that even with the increased level of nonaccruals over the last couple of quarters, we continue to maintain that level of dividend and a significant higher level of NII return. But we do see that reversing a little bit as expected. And part of the reason why we're maintaining the dividend level where it's at today.
Finian O'Shea: Okay. That's helpful. And then on the management changes. There were -- this also came with some maybe reorganization or just other management changes at BlackRock, the parent with the higher ups in credit or private credit and seeing if there's anything there, maybe resource-wise, style-wise, effort to go upper middle market like everyone wants to do, or anything you would expand on there in that regard would be helpful. And that's all for me. Thank you.
Phil Tseng: Yes. Hey Fin, it's Phil. Thanks for the question. So, I think what you're referring to is here at BlackRock, we've put together our direct lending group in the U.S., Europe, and Asia into a single global direct lending business unit. And I think that is just the natural evolution of our business, having strong franchises in each of those geographies and really trying to drive the right kind of business collaboration and synergies across the entire franchise. As you know, the real tangible benefits that we see from being part of the BlackRock platform and by consolidating the group into a single business unit provides a lot of focus around the strategy and around achieving those benefits. So, we see it as ongoing opportunity for us to keep growing our business continue to optimize our investment process, get the benefits of the platform. It is not an indication of a strategy shift. I think you referenced moving into the upper market. That is not a purpose or goal of ours. We think that the core middle market, which is our focus, as you know, continue to present tremendous amount of opportunity where we can get differentiated origination, differentiated structures, including covenants and certainly premium yields
Finian O'Shea: Thanks so much.
Operator: Thank you. Our next question comes from the line of Robert Dodd with Raymond (NS:RYMD) James. Robert, your line is now open.
Robert Dodd: Hi guys and yes, congrats Raj and good luck in wherever you're heading.
Raj Vig: Thank you.
Robert Dodd: And congrats Phil and the rest of the team for their roles. One -- just a follow-up to Fin's question, I mean given you've now put the things together into global direct lending program, should we expect a greater incidence of maybe international deals making their way into TCPC or any -- is that going to have any impact on portfolio mix, the geographic or asset type or style with the new format of the overall global direct lending?
Phil Tseng: Yes. Robert, it's Phil. Thanks for the question. So it's -- so it's really -- it's not really to change the mix of the portfolio. We don't expect the mix to change much because we are a global platform. I think what we do expect are the benefits, like I was mentioning, around our investment process -- processes, ideas, synergies around all the other areas, both on origination as well as the other platform resources, whether they be around legal transactions, compliance and so on. But one thing that's important to reiterate that we do source deals today for TCPC across the BlackRock platform. So we have been seeing the benefit of having a global sourcing effort. So there are some deals that are in the portfolio absolutely that are coming in through the benefits of having feet on the ground in various markets outside the U.S.
Robert Dodd: Got it. Thank you. On the dividend question, right, I mean, can you give us an update what's the estimated spillover position. And can you give us any thoughts on like why -- I don't think that's particularly high from what I recall, but if you could update us on that. And what was the thought process to the Board, but the $0.10 special, is it kind of an indication that you want to keep spillover very low to minimize excise tax? Or any -- how does all that math into the decision-making on that dividend? Special.
Raj Vig: Yes, Robert, I'll try to kick that off and then, Erik, I think we'll add some more color. I think with the spillover, obviously, it's a function of that we've out-earned. I think we always weigh the -- I mean, I view the excise tax is kind of a low-cost loan. And as we approach the end of the year and we have more visibility, we can weigh that off with opportunities in the pipeline I think we'll start weighing that with share buyback opportunities. So there's just a variety of trying to assess the cost and the opportunity cost and making the best general decision when you have the specials, we are trying to mitigate the excise tax as we get to the end of the year based on having that spillover being a function of good out-earning return to the assets, and then maybe I can add -- turn it over to Erik to add any other color. But it really is a capital allocation decision at its core with the special being a partial decision in the latter part of the year.
Erik Cuellar: Yes. And Rob, I'll just add that it is a balance between the amount that we're required to distribute versus the amount that's required to avoid excise taxes. As Raj noted, we're fine incurring the excise tax as it's a cheap cost of capital. However, we do have minimum distribution requirements and part of that, we need to ensure that we are meeting those requirements?
Robert Dodd: Got it. And then going back to kind of the longer-term question. I mean, this quarter, I mean, you add on $0.37, you had $0.08 of prepaid fees, which is really elevated and prepay everything associated with that, which is pretty elevated by recent quarter standards, I mean, it ramped up last quarter, but $0.08 is pretty high. Is it the expectation that that prepay activity is going to stay elevated, because if not with obviously lower base rates for Q4, maybe it's not $0.08. I mean there's some -- you mentioned you expect the NII return to reverse a little bit with rates coming down, but prepay activity is also a component of that. And looking into next year, yeah, the earnings -- the prepay normalizes the rates come down, that's going to get on price.
Erik Cuellar: Yeah. Let me just add some -- I'll start, and I'm sure if anyone else has any comments they can add to it. I would just say, historically speaking, I'm referring to being here almost two decades. $0.08 is not necessarily out of the range from -- if you go back historically, I think as we went into a higher rate environment, and maybe a less active M&A environment, that naturally cools off a little bit, the duration of the loans got longer. The nice thing was rates were higher, so you're getting higher yields. But if you really go back quarterly over the last, I don't know, 10-plus years, we had many quarters with prepays in that level. I think to echo Phil's comment in his prepared comments, rates are coming down. The election is behind us. There is an anticipation that there'll be more M&A activity. There certainly is a pickup in refinance activity through this year. So without speculating or projecting, it's not illogical to think prepays can be picking back up, but it's always been very hard to predict and very episodic, so we don't forecast it, but the conditions that we're kind of in and moving forward, do feel a lot more like the conditions in some of the prior years where we generated higher prepay. So it's time will tell. The nice thing is the structures we focus on, we always focus on having some prepayment rights. It's very important to us. And then I would also echo that we've had most of our history in a lower yield environment where even if rates come down, they're not low relative to the history of the business. So I think there's good condition on the go forward without being able to answer that question specifically.
Robert Dodd: Got it. I appreciate that. And then one last one, if I can. Just on the -- I mean, you gave us an update where the write downs are, et cetera, and obviously, pull off this restructure, et cetera. I mean, has there been -- I mean, I think last quarter at large, I mean we talk a multiyear cycle on resolving these issues, resolving those particular restructured companies, right? Any change on that? Is it still that kind of the expectation that it's going to take a while? Or is there anything on -- if the M&A activity market picks up, is there a potential that you could resolve those things faster in terms of recycling capital, if not having the businesses recover if you understand one?
Raj Vig: Yeah, I think you're asking, Robert, is does the pickup in M&A activity allow us to exit some of these restructuring situations earlier than we would otherwise, if that M&A market didn't pick up. And I think the answer is that it depends on the situation. We feel quite confident that we are undertaking the appropriate steps and processes to optimize the outcome for these borrowers undergoing restructurings. They are multiyear processes, but they can be multiyear processes, as you mentioned. And sometimes getting the best outcome for shareholders does require time and patience. If there are scenarios, where the market or an interested bidder comes in but we feel like the market is right for our borrower to get the best value then we would undertake an M&A process and evaluate those situations. I will say that, that does come up and it has come up in some of our restructuring situations or where we have restructured and we only control the company post-reorg. So we're very much open-minded. Whether that really accelerates some of these exits, I think that's still PBD broadly speaking.
Robert Dodd: Got it. Thank you.
Operator: Thank you. Our next question comes from the line of Paul Johnson with KBW. Paul, your line is now open.
Paul Johnson: Yes. Thanks for taking my questions. On the Amazon aggregators, just with the change in Razor for part of the investment going on non-accrual. Can you just tell us kind of how much at this point in the portfolio is kind of less in these Amazon, various Amazon aggregator names. And I'd also be just curious to get your thoughts on the industry [indiscernible] taken some challenges even under validation, you're saying it's probably going to take time to realize some of these efficiencies. So I guess what kind of gives you that optimism that you'll eventually, these companies will perform and able to capture these efficiency competition.
Phil Tseng: Hey. Thanks, Paul. It's Phil. So the loans to the aggregator is currently comprised of about 5.9% of the fair market value of the portfolio. That's Parazio [ph], Razor and SellerX. With regards to the aggregator space, we believe we're invested in the leaders at this point. The sector has obviously evolved quite a bit over the past three years, as you've noticed, and I think we believe there's still a path to successful investment outcomes for these aggregators with the appropriate capital structures and of course, the liquidity and their evolving strategies to compete in this new environment. Over the medium to longer-term, these benefits -- these businesses will benefit from ongoing consolidation. As you know, we've been a key player in affecting those that consolidation and as well as improving the capital structures and really trying to drive lower operating costs to drive cash flow for these businesses. So we're working hard at it – at them – at the 5.9% of our portfolio. We still think that there's tremendous value that remains in these names, and that can certainly increase over time as they focus on their key products, their best sellers and reduce cost and consolidate to drive further cost reduction.
Paul Johnson: Appreciate that Phil. And then I guess moving on to the cost of your debt this quarter, it was a little bit higher, I think, than we were kind of estimating in all in the annualized cost that was around 6.8%. But I'm looking at your presentation, there's some weighted average interest rate of about 5.4% for your liability structure. So was there anything that was going through the cost of debt this quarter in your liabilities, which is growing a little higher?
Phil Tseng: Yes, a couple of things. One is we did refi our 2024 notes, which had a coupon of 3.9% versus our current incremental borrowing costs, which are quite a bit higher. So there was a step-up there. Then the second factor is that interest expense was higher than what you would normally expect as a run rate simply because we were carrying additional cash versus the debt outstanding, as we mentioned, we were earning higher interest on the cash versus the notes that were coming due with a coupon of 3.9%. So there's higher interest expense, but even higher incremental interest income on the other side. But you -- I guess, you should see that normalize in Q4.
Paul Johnson: Got it. And then do you have any remaining capacity under the current SBA license? Is there any kind of plans, I guess, in the work to potentially apply for any more?
Phil Tseng: Yes, both. We do currently have $10 million remaining that we can draw down under our current license. In addition to that, we also are -- within that subsidiary, we have had some repayments, so we have capital to redeploy there and continue to in essence, use the notes that we've already drawn from that -- from the SBIC. And as we see more deals coming through that pipeline, we do have the ability to get a second license from the SBA.
Paul Johnson: Thanks for that. That's all for me.
Phil Tseng: Thank you, Paul.
Operator: Thank you. [Operator Instructions] Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Chris, your line is now open.
Christopher Nolan: Thanks. Phil, congrats and Raj, good working with you and wish you will going forward. Phil, given that you're now in the Chair, could you articulate what you see as the major challenges facing TCPC and what you would like to change?
Phil Tseng: Thanks, Chris. That's a great question. Obviously, myself as well as Jason, our new President, Patrick Wolfe, our COO; and Dan Worrell, our co-CIO, we are laser focused on the portfolio and ensuring that we manage the non-accruals and the restructurings in a way that optimizes the outcome. We are deploying a tremendous amount of resources and attention on those names. As you know, historically, we have had very positive outcomes in coming out of these cycles. And when our portfolio does hit these speedbumps, and we expect that to occur again. At least our processes are certainly focused on that. Our investment committees are very robust in their discussions, and every single action are highly evaluated and debated. So, we expect our 20-plus year track record in managing these situations to manifest in the same way, and we're optimistic. But we do ask for patience because as previously, the prior comments, they do take time. So, I think that's where I'm absolutely focused on.
Christopher Nolan: Thank you. And just looking at the stock price and the stock price is now mining new lows. And 2024 has not been kind to the company. You did the acquisition or the merger, I should say, in the first quarter and the second quarter, the asset quality really fell off. And this third quarter results actually were reasonably okay. I mean trying to write the ship, but then you have a change in senior management. A lot of stuff is just happening. And it does not feel like a very stable platform, whatever. What would you say to people, I mean anyone looking at what's going on in the company year-to-date, give pause and why would I not have pause.
Phil Tseng: Yes, I think that's a fair comment, and we've observed the same on the stock price. I think a couple of things. First of all, I have been here, along with Jason, Dan and Patrick for some time now, this being in many of our cases, 15 to 20 years as a team together. So there is tremendous amount of stability in the team. Obviously, we will miss Roger's partnership, but we believe that we have a deep bench. And again, everyone mentioned our voting members of the IC and have been with us for quite some time. And I'll also point to the consistency on our dividend. You'll see that this is the 50th time that we've consistently met or exceeded the dividend and it continues to be an important part of our capital allocation strategy and the total shareholder returns that we that we provide to our shareholders. So, we have a long track record there about earning our dividend and paying specials like we've announced. So, we're very much intently focused on that as well.
Christopher Nolan: Great. And I appreciate the patient explanation, that’s so nicely done. Final question on the dividend. I couldn't help but notice that the new investments have a much lower coupon rate than their general portfolio. And to what extent would management support the dividend? I mean, would you start doing waivers -- management fee waivers and things like that. Just trying to get an idea in terms of how manages viewing supporting the dividend beyond from normal EPS?
Phil Tseng: Yes. So, our Board make decisions about our dividend each quarter. The dividend is clearly like I said just previously, it's an important part of our total shareholder returns, and we have a long track record of out-earning that. And we don't expect that to change. As part of the merger with BCIC, Chris, you probably recall that our adviser has agreed to waive all or a portion of its advisory fees, if NII per share fell below $0.32 a share. So there's a history of BlackRock being supportive. But the dividend is not something that we'll discuss in this call, except that we continue to expect to meet or exceed that.
Christopher Nolan: Great. That's it for me. Thank you.
Erik Cuellar: Yes, I also mentioned that the yield on our -- even though some of the added deals, the yields were somewhat less than our exited deal. That's natural in a declining rate environment, where a lot of those deals were -- that we got -- we were exiting came on a couple of years ago in a higher rate environment. But if you look at our overall yields, they're still quite high, I think, at 13.4%.
Raj Vig: Okay. And I would also note that the current dividend, excluding the supplement is yielding roughly the same on the current book value. So just getting up there.
Christopher Nolan: Okay. Thank you very much for taking the time to answer.
Raj Vig: Thank you, Chris.
Operator: That will conclude the question-and-answer session. I would now like to pass the call back over to the management team for any closing remarks.
Raj Vig: Thank you all for your participation on today's call. I would like to thank our shareholders and capital partners for your continued support and our team for all their hard work and dedication. This concludes today's call. Thank you.
Operator: That concludes today's call. Thank you for your participation. You may now disconnect your lines.
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