BlackRock TCP Capital - Q2 2023

Transcript

Operator (participant)

Ladies and gentlemen, good afternoon. Welcome everyone to BlackRock TCP Capital Corp.'s second quarter 2023 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. To ask a question, please press the star key followed by the digit 1. I will repeat these instructions before we begin the Q&A session. Now, I would like to turn the call over to Katie McGlynn, Director, Investor Relations, BlackRock TCP Capital Corp. Katie, please proceed.

Katie McGlynn (Director of Investor Relations)

Thank you, Bailey. 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, 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 change without 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 second quarter ended June 30, 2023. We also posted a supplemental earnings presentation to our website at www.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 and Presentations. These documents should be reviewed in conjunction with the company's Form 10-Q, which was filed with the SEC earlier today. I will now turn the call over to our Chairman and CEO, Raj Vig.

Raj Vig (Chairman and CEO)

Thanks, Katie, and thank you all for joining us for TCP's second quarter 2023 earnings call. I will begin with an overview of our second quarter results. I will then turn the call over to our President and Chief Operating Officer, Phil Tseng, who will provide an update on our portfolio and investment activity, and our CFO, Eric Cuellar, will then review our financial results as well as our capital and liquidity positioning in greater detail. I will conclude with a few closing remarks before we take your questions. Turning now to the highlights from the quarter. For the second quarter, TCPC delivered net investment income of $0.48 per share, representing a 30% increase year-over-year and an approximate 15% annualized net investment income return on equity.

Given the floating rate nature of our portfolio and a higher proportion of our liabilities at our fixed rate, our net investment income continues to benefit from strong underwriting in an environment of higher base rates as well as marginally wider spreads. Our run rate NII, as of the end of the second quarter, is among the highest in TCP's history as a public company. Our board of directors today reaffirmed a third quarter dividend of $0.34 per share, which is reflective of the $0.02 dividend increase the board has announced since the third quarter of last year. The 2 dividend increases since the board has announced since the third quarter of last year. The third quarter dividend is payable on September 29th to shareholders of record on September 15th.

In addition, and as an acknowledgment of TCP's strong earnings year to date, our board also announced a $0.10 special dividend payable on September 29th to shareholders of record on September 15th. This announcement is consistent with our disciplined approach to the dividend and our emphasis on stability and strong coverage from our recurring net investment income. As a reminder, throughout TCPC's history, we have consistently and comfortably covered our dividends with recurring net investment income. Phil will discuss our second quarter investment activity in more detail. In summary, transaction volumes remain muted in this uncertain environment, increasing the importance of our disciplined approach to deploying new capital. Consistent with our historical activity, we reviewed a substantial number of transactions during the quarter and invested in only a small percentage of those opportunities.

Given the slowdown in private equity deal volumes, we continue to be reminded of the benefits of our channel agnostic approach to deal sourcing. Because of our direct relationships with management teams and other industry participants, as well as our deep, our team's deep experience investing across cycles and our ability to draw upon the power of the BlackRock platform, our pipeline continues to build, and we are encouraged by the compelling opportunities we are identifying. Our underwriting continues to prove very effective, with NAV declining a de minimis 0.5% during the quarter, but the unrealized losses being driven primarily by mark-to-market impact on quoted names.

The credit quality of our portfolio remains solid, with loans to just 2 portfolio companies on nonaccrual as of the end of the second quarter, totaling just 0.3% of total investments at fair value, a level that continues to be among the lowest nonaccrual levels in TCPC's history. Finally, while we do not have an explicit forward view on rates, we do believe we will be in a slower growth and elevated rate environment for the foreseeable future, with a range of macroeconomic uncertainties. It is in complex periods like this that our historical experience and deep industry knowledge are an advantage and have resulted in strong results throughout various market cycles.

Looking back at our historical performance as a public company, since 2012, we have generated a 10.3% annualized return on invested assets and a total annualized cash return of 9.5%, much of which we delivered while base rates, which were much lower than they are today. We believe this performance remains at the high end of our peer group and reflects our ability to consistently identify attractive opportunities at premium yields and deliver exceptional returns for our shareholders across market cycles. I will turn it over to Phil to discuss our investment activity and portfolio positioning. Phil?

Phil Tseng (President and COO)

Thanks, Raj. I'll start with a few comments on the investment environment before providing an update on our portfolio and highlights from our investment activity during the second quarter. As Raj noted, economic uncertainty has driven a slowdown in market transaction volumes. Institutional leveraged loan issuance and US M&A volumes were both down more than 30% year-over-year in the second quarter. Despite the slowdown in market activity, our industry-focused deal teams continue to proactively identify unique investment opportunities from a wide range of sources, including directly through industry contacts and management teams, as well as through our traditional sponsor relationships. However, we're not immune to the year-to-date slowdown in market volumes. We remain disciplined and are passing on more opportunities, particularly when pricing does not appropriately reflect the current market conditions or when terms do not provide adequate lender protections.

In the second quarter, TCPC invested $17 million. Deployment in the quarter included loans to two new and two existing companies, primarily in senior secured loans. In reviewing new opportunities, we emphasize transactions where we are positioned as a lender of influence, which enables us to leverage our two decades of experience in negotiating deal terms and conditions that we believe provide meaningful downside protection. We believe this has been a key factor in our low realized loss rates over our long-term track record. In addition, our industry specialization, which our borrowers value, provides two key benefits. First, it bolsters our ability to assess and effectively mitigate risk in our underwriting and when negotiating terms in credit documentation.

Second, it expands our deal sourcing capabilities and sponsors who value our industry experience, which lends itself to more reliable execution, and also with non-sponsors like corporates and founder-owned businesses who value an informed balance sheet partner. Follow-on investments in existing holdings continue to be important sources of opportunity. 45% of total dollars deployed over the last 12 months were with existing portfolio companies. TCPC's largest new investment during the second quarter was a senior secured first lien term loan to support the acquisition and carve out of Global Payments' Gaming Solutions division, which has since been rebranded as a standalone business called Pavilion Payments. Pavilion is a payment services provider to the gaming sector, providing a full suite of on-premise and online gaming payment solutions.

We view this as an attractive business, given strong positioning in an industry with high barriers to entry because of regulatory oversight and unique industry requirements. BlackRock participated as lead lender among a small group of lenders. New investments in the second quarter were offset by total dispositions of $32 million. We also continue to closely monitor our existing portfolio companies. Our team members are continuously engaged in dialogue with owners and operators to assess both current and projected performance relative to our original underwriting assumptions. Given the rate environment, higher input costs, and the general uncertainty in the economy, a few of our portfolio companies are navigating slower revenue growth and more margin pressure. We're working closely with the management teams and owners of these handful of companies in this position.

However, we recently completed our quarterly review process and are pleased to report that the portfolio generally remains in good shape. Our emphasis is on companies with established business models and proven core customer bases that make them more resilient in times like this. At quarter end, our portfolio had a fair market value of approximately $1.6 billion. 88% of our investments were senior secured debt spread across a wide range of industries, providing portfolio diversity and minimizing concentration risk. We also continue to emphasize companies in less cyclical industries. The portfolio at quarter end consisted of investments in 143 companies, and our average portfolio company investment was $11.5 million. As the chart on slide 6 of the presentation illustrates, our recurring income is distributed broadly across our portfolio and is not reliant on income from any one company.

In fact, more than 90% of our portfolio companies each contribute less than 2% to our recurring income. 86% of our debt investments are first lien, providing substantial downside protection, and 94% of our investments are floating rate, clearly an important benefit in this higher rate environment. The overall effective yield on our portfolio increased to 13.8%, compared with 9.8% one year ago, reflecting the benefit of higher base rates and wider spreads on new investments. Investments in new portfolio companies during the quarter had a weighted average effective yield of 14.1%, exceeding the 12.2% weighted average effective yield on exited positions.

Given further pullback in commercial banks' ability and willingness to lend in this environment, we're continuing to benefit from a more lender-friendly investment environment, with improvements in both pricing and terms relative to 12 months ago. Post-quarter end, we've seen a modest pickup in activity and have been investing selectively, maintaining our underwriting discipline while being mindful of the inflationary environment. We emphasize companies that have significant pricing power to pass on higher input costs, including increases in their cost of capital. It's also important to note that we do not underwrite to perfection. We seek to build in sufficient buffers to ensure companies can withstand changes in the macro environment, including higher costs, without impairing their ability to service our loan. Pipeline is building, and the yields on investments in our pipeline are generally in line with our current portfolio.

To date, we have had no prepayment income in the third quarter. Let me now turn it over to Eric to walk through our financial results, as well as our capital and liquidity position.

Eric Cuellar (CFO)

Thank you, Phil. As Raj noted, our net investment income in the second quarter benefited from the increase in base rates over the last 15 months. Net investment income of $27.6 million, or $0.48 per share, was up 30% versus the second quarter of 2022 and exceeded the second quarter dividend of $0.34 per share, following the $0.02 per share dividend increase announced last quarter. Today, we declared a third quarter dividend of $0.34 per share and a supplemental dividend of $0.10 per share. We remain committed to paying a sustainable dividend that is fully covered by net investment income, regardless of the base rate environment, as we have done consistently over the last 11-plus years. Investment income for the second quarter was $0.93 per share.

This included cash interest of $0.83, recurring discount and fee amortization of $0.01, and PIK income of $0.07. While we did see an uptick in PIK income in the second quarter, including $0.02 of one-time PIK income, our recurring PIK income remains in line with the average over our history. Investment income also included $0.02 of dividend income. As a reminder, we amortize upfront economics over the life of an investment, rather than recognizing all of it at the time the investment is made. Operating expenses for the second quarter were $0.35 per share and included interest and other debt expenses of $0.21 per share. Incentive fees in the quarter totaled $5.9 million, or $0.10 per share. Net realized losses for the quarter were $395,000, or $0.01 per share.

Net unrealized losses in the second quarter totaled $11 million, or $0.19 per share, primarily reflecting mark-to-market impact on market quoted names. These included unrealized losses of $3.9 million on our investment in Astra acquisition, a $3.4 million unrealized loss on Thrasio, and $2.2 million on our investment in Mackett, as well as a $3.4 million unrealized loss on our investment in Hyland. Unrealized losses were partially offset by a $6.3 million unrealized gain on our investment in Secure. The net increase in net assets for the quarter was $16.3 million, or $0.28 per share. As a reminder, we have a robust valuation process, and substantially all of our investments are valued every quarter using prices provided by independent third-party sources.

These include quotation services and independent valuation services. This process is also subject to rigorous oversight, including back testing of every disposition against our valuations. As Raj noted, the credit quality of our overall portfolio remains strong. Only two portfolio companies were of non-accrual status at the end of the second quarter, representing 0.3% of the portfolio at fair value and 0.5% at cost. Now turning to our liquidity. Our balance sheet positioning remains very strong. We end the quarter with total liquidity of $333 million relative to our total investments of $1.6 billion. This included available leverage of $210 million and cash of $123 million.

Unfunded loan commitments to portfolio companies at quarter end equals 5% of total investments, or approximately $90 million, of which only $35 million were revolver commitments. Our diverse and flexible leverage program includes 2 low-cost credit facilities, 2 unsecured note issuances, and an SBA program. In April, Fitch reaffirmed TCPC's investment-grade rating with a stable outlook, and our unsecured note, unsecured debt continues to be investment-grade rated by both Fitch and Moody's. Given the moderate size of each of our debt issuances, we are not overly reliant on any single source of financing, and our maturities remain well-laddered. Additionally, we are comfortable with our current mix of secure and unsecured financing and do not have any immediate financing needs. Combined, the weighted average interest rate on our outstanding borrowings increased modestly to 4.28%.

This compares with 3.26% at the end of 2021. That is an increase of only 102 basis points over the last 18 months, while base rates increased approximately 504 basis points during that same period. This is the result of having over 70% of our borrowing from fixed-rate sources. Now I'll turn the call back over to Raj.

Raj Vig (Chairman and CEO)

Thanks, Eric. Even as market volatility persists, we are confident in our proven strategy and approach to investing that has delivered strong risk-adjusted returns for our shareholders throughout different economic environments... We believe we have demonstrated a consistent ability to execute in both periods of economic growth and contraction. This also makes us a reliable partner for our borrowers and further helps us to attract appealing investment opportunities. With that, operator, please open the call for questions.

Operator (participant)

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star followed by one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question, and please do ensure that you have unmuted locally. Our first question today comes from the line of Christopher Nolan from Ladenburg Thalmann. Please go ahead, Christopher. Your line is now open.

Christopher Nolan (SVP and Senior Equity Research Analyst)

Hey, guys. Raj, discussing the deals that you guys walk away from, you made a comment that, you know, they're not able to meet their terms and conditions. Has TCPC basically made their T&Cs tougher than before, or is the company's performance just weaker than just making it?

Raj Vig (Chairman and CEO)

Thanks for the question, Chris. I wouldn't say that we've made them tougher. I think categorically we are focused on many of the same things. Unfortunately, that's been a focus coming into this environment. You know, I would highlight those as, you know, real financial covenants, the documentation, particularly, you know, areas of leakage, you know, payments out in front of us and things of that sort, and a lot of very targeted negative consents or, you know, things that, that, you know, we wanna have approval rights on, are all focus items. I would say in some cases, the levels of those items has tightened up.

You know, between loan to value, you know, multiples, percentage or buffer off of our targeted covenants, you know, are certainly things we, we've been tightening up. In some cases, it's just a little more murkiness of the credit, you know, where what we want and are targeting may not match up with what's available. And, and, and all of this is in a context of, as Phil mentioned, just a lower deal environment overall. For us, it's never, never been about, you know, just growing for the sake of growth. You've seen us have lower deployment quarters, even in you know, sort of more active environments, and I think that's just one of the things that is a consequence of how we're approaching the market.

I wouldn't call it tougher or new items. I think it's probably marginally tighter, you know, in an environment of more uncertainty, needing more buffer. I think the results are, you know, good credit performance, holding assets for longer, probably, and, and in some cases, or occasionally, you know, lower deployment, which is, which is fine in the scheme of things.

Christopher Nolan (SVP and Senior Equity Research Analyst)

My follow-up question is on value-

Phil Tseng (President and COO)

Yeah.

Christopher Nolan (SVP and Senior Equity Research Analyst)

Please go ahead.

Phil Tseng (President and COO)

Sure. Sorry, Chris, I'd just add that, you know, our pass rate has always been quite high. You know, we pass on 90% plus of our deals, so we've always been quite selective, and we continue to be in this market environment. I'd also add that, you know, clearly for a lot of companies that are out there seeking financing, a lot of it comes from M&A. If you don't need to be a seller in this environment, and you can wait, and you have the luxury of waiting, then, then, then you should, to get perhaps a higher valuation at some point later on, given the uncertainty in the environment and the impact on the valuation multiples. I think what we're seeing is a lot of the highest quality assets, are still on the sidelines. They haven't transacted.

What we're seeing in the market are, you know, folks that need to refinance or need to raise financing, and sometimes, you know, they might have more, a more complexity to their story. We're just still trying to be selective, but that just gives you a little bit of context for the type of flow we're seeing.

Christopher Nolan (SVP and Senior Equity Research Analyst)

Great. As a follow-up question in terms on valuations, I was surprised to see the number of unrealized appreciation in the quarter, and it raises the question, since most investments in the BDC land tend to be some variation on discounted cash flow, what is the risk-free rate that you, that your valuers use, given that we have an inverted yield curve, where short-term rates are higher than longer-term rates? 'Cause if you're keying off short-term rates, which is what your investments key off of, you know, the valuations for a lot of these things should go down. I'm just trying to get a clarification.

Raj Vig (Chairman and CEO)

Yeah. I'll, I'll try to add some color. Ultimately, I think you're highlighting the key point, which is this book is valued, you know, almost just about entirely by third parties, or in the case of market quotes, where the market quotes are available, which was, you know, more the driver of some of the unrealized losses. As far as the valuation providers go, they typically are doing a triangulation of approaches. It's not just a discounted market rate. There will be, you know, precedent transactions, particularly around M&A, and then there will be, you know, some public market comp applicabilities. You know, and obviously, there's never a, you know, a clean fit, but it's really a combination of those two. I think in terms of the market rate they're using, it'll vary.

There will be a reference rate, and then a, and then a, you know, spread adjusted above that. They do try to take a longer-term view on the discounted cash flows, you know, whether they're using three months SOFR or some forward curve adjustment in the, in the, the forecasted rates will vary by provider. I guess from a point of view of the overall book, though, keep in mind, we have taken some, you know, in earlier quarters, where there was more volatility and before a recovery in the equity markets, you know, which has happened through this year, we have taken more of the markdowns.

I would guess a, a part of it in this market is, you know, more of what's happening in the public market, equity that has a knock-on effect to their approach, but it will be valuation provider specific and ultimately done independently.

Christopher Nolan (SVP and Senior Equity Research Analyst)

Okay. Thanks, Raj.

Eric Cuellar (CFO)

Chris, I'll add that as Rush noted, where we are doing fundamental valuations by the valuation providers, they are using market spreads. Whatever spreads they are seeing in the public markets is typically what they will use to discount the cash flows, adjusted as needed on a one-off basis. And those were relatively flattish quarter-over-quarter. The markdowns that you did see were more on the more traded loans that we hold, where you do tend to see a little bit more volatility in markets like this.

Christopher Nolan (SVP and Senior Equity Research Analyst)

Thank you.

Operator (participant)

Thank you. Our next question today comes from the line of Robert Dodd from Raymond James. Please go ahead, Robert. Your line is now open.

Robert Dodd (Director of Specialty Finance)

Hi, guys. A couple questions. First, I got to ask on, on, on the dividend. The, the $0.10, and I, I realize again, it's, it's a board decision, but the $0.10 special. Wouldn't it be reasonable to assume... I mean, if, if we look at the, the forward curve, which is, as it stands today, coming down slowly, or, or projected to come down slowly, your earnings could stay elevated for some time and, and generate earnings, you know, well in excess of, of the base dividend. Should investors ex-ex-expect, or anticipate maybe that $0.10 special this quarter continues in future, so long as earnings exceed the base dividend by a sizable margin? Can you give us any color on how, how that's being thought about?

Raj Vig (Chairman and CEO)

Yeah. Thanks for the question, Robert. I'm glad you're joined by your...

Robert Dodd (Director of Specialty Finance)

Yeah, sorry-

Raj Vig (Chairman and CEO)

Your canine associate in the background. Let me provide a little color. As you know, we are very focused on being prudent and disciplined around the dividend. I wouldn't call us a fast mover in this regard, but very methodical and deliberate, but one where we are very focused on a sustainable dividend. You know, and even as-- and, a-a-and the question is, special or for dividend increase, I would arg... You know, I would sort of highlight that we've done both, and, you know, within the last, give, you know, call it, three or four quarters.

As far as the special goes, it's the way we thought about it was, it is a very effective way in one quarter to give, you know, more cash back than even a, you know, an increase on an annualized basis. It does not, it does not force us to take a forward view, and, and as we've done that, we've taken a more cautious forward view, because, as you point out, a lot of the, you know, historical benefit has been reference rate, which can come down, although it seems like it will stay a little elevated for longer. Then we are layering in our view of, you know, the credit book and the environment. You know, we'll, we'll be methodical but gradual in how we take up the dividend as we have done in the last few quarters.

If everything is as is today, and we have this run rate, you know, which is, which has really benefited from underwriting and not, you know, impacted by a lot of credit issues, I think we will continue to assess and, and look to reward our shareholders for that work, and then determine the best way to do it. You have a couple of options, whether it's a, you know, more immediate and one time or more on a run rate basis. So I think rather than forecasting one or the other, I would tell you that if we have this elevated return and, and things are, you know, on the credit side, staying intact, then our board will continue to look at this and what's most favorable for shareholders, and it will choose amongst those tools.

It could be one, it could be both. I think at the end of the day, it will be in the context of what's most sustainable and not compromising our ability to pay the dividend from comfortably from a current run rate. That's a, that's a constant and, you know, quarterly assessment, resulting, fortunately, in a fair bit of return back to the shareholders, both through the increase in dividend and in this quarter, you know, a pretty sizable... I think our most sizable, historically, one-time special dividend.

Robert Dodd (Director of Specialty Finance)

I, I appreciate that, Calvin. Very helpful. Thank you. Secondly, on, you mentioned, I mean, a couple of, couple of portfolio companies experiencing some slower growth, that, that one of your, your traded names did, did get called out by, by S&P, as, as having some deterioration and may not have a sustainable capital structure without additional equity from sponsors. In general, across that, I mean, what, what are the, at the margin, and there are not a lot of names in that situation, but at the margin, how are the conversations with sponsors going on and, and without, you know, being specific? You know, are, are they willing to step up and put the equity in, to tide these businesses over, or, or how's the negotiation on that front going?

Phil Tseng (President and COO)

Yeah, Robert, thanks for the question. This is Phil. That's a great question because clearly, it, it speaks to a number of, a number of things. One is-

... one is the nature of where private equity sponsors are today with, you know, with their portfolio and their willingness to protect their positions. I think the other aspect of it is what protections do we have to bring these conversations to the table? We're seeing with our amendment activity, a pickup, largely because of the covenants that we have in place. That really speaks to, I think, the benefit of, of how we've negotiated and structured our deals with these terms. Because without these covenants, naturally, the only moment that you have to bring the sponsors to the table, perhaps a payment default.

We think, by virtue of these covenants, we're having these conversations, and what's important when we structure these covenants is structure them at a level that implies there, there continues to be meaningful amount of equity value remaining. Long as there continues to be a, a, a good equity option there based on valuation and based on the prospects of the business, then, then we feel that the sponsor, or whoever it is in the equity, whatever stakeholders there are, because it could be a family-owned business or, or so on, that they're actively engaged and willing to put more equity. Every one of these amendment-type negotiations are opportunities for us to de-risk our loan. You know, restructurings, as you know, Robert, don't, don't happen in a vacuum.

They happen over a series of events, and because we have these amendments and discussions, those are opportunities and events where we can try and de-risk our loan.

Robert Dodd (Director of Specialty Finance)

I appreciate that. Thank you.

Operator (participant)

Thank you. As a reminder, if you would like to ask a question, please press star followed by 1 on your telephone keypad. Our next question today comes from the line of Ryan Lynch from KBW. Please go ahead, Ryan, your line is now open.

Ryan Lynch (Managing Director of Equity Research)

Hey, good morning. First question I had is, in, in your commentary, you talked about conducting a, a thorough review of your entire portfolio every quarter to, to kind of stay ahead of, of any potential issues. I would just love to get some more details on what, what that portfolio review sort of en- entails from your end.

Phil Tseng (President and COO)

Yeah, thanks for the question. First of all, we, our investment teams, as you know, are organized along industry, number of industries that they specialize in. We view our monitoring as, as not quarterly, necessarily. Quarterly is just a formal, you know, review process, but our monitoring is, is ongoing, continuous, and continued vigilance over events that are going on in industries that our borrowers are in, the borrowers themselves, competitors, and so on. That's one of the real benefits of having that approach. We're always monitoring our, our portfolios closely.

The quarterly portfolio review, that includes discussions with management teams, discussions with stakeholders, including the equity or for other lenders as well, really assessing the financial performance of the business, using their financial reporting materials, and also assessing what's going on in the broader industry context and putting that together in a formal memorandum for our investment committee to review. We do that across our entire portfolio. You know, one of the benefits it gives us is it gives us a lot of synthetic views, and it allows us to put certain deals or borrowers into the broader industry context. We also are able to leverage the benefit of the broader BlackRock platform in terms of information.

You know, it's helpful for us not just to monitor in a vacuum our portfolio companies and maybe the middle market, private debt universe, but also the traded markets, and the equity markets, and be pull on resources from across the BlackRock platform to really make sure we're informed across the entire industry where our borrowers operate in.

Ryan Lynch (Managing Director of Equity Research)

Okay. That's helpful and good color on that. Following up on one of Robert's questions regarding the dividend, I understand that's a Board decision, but Raj, you're the Chairman of the Board. I'd love to hear what is either your opinion or the Board's, if you can speak for the Board's opinion on what is the hesitancy for increasing the dividend closer to what kind of the core earnings power of TCPC's business is today, given where current base rates are?

Then if base rates end up changing and going down, which, you know, they will obviously at some point, reducing the dividend to match the current environment of base rates, what's the hesitancy to kind of not pay out the, you know, near close to the earnings power of the business and then adjust it depending on what the base rates do over, you know, long periods of time?

Raj Vig (Chairman and CEO)

That's a good question, and maybe, maybe that is the penultimate question. I guess what I would say is, it is I wouldn't call it a hesitancy. Our, our, our intent and our desire is to, you know, reward shareholders as much as possible in, you know, a efficient and, but also a manner that maintains, you know, their confidence in us. Part of that is the answer to your question, which is, you know, keep in mind that, you know, these earnings have moved positively, and in some cases very quickly, and we're talking about a 30% year-over-year increase in our, in our NII.

That will, that pace is certainly ahead of our deliberate, you know, approach to, you know, we wouldn't just match it at that pace, you know, and then if at, at, at an elevated risk of taking it down, because I do believe the volatility in doing that, even though, you know, logically, it sounds like, like, you know, easy just match the run rate or the earnings power. I think the frequency of change in that, and I may be wrong on this, but I would say I think the frequency of change in that can undermine that confidence. Whether that means you are now operating at a higher, you know, required cost of capital, or you're not getting the reward for the dividend stability, it, you know, is obviously debatable.

It feels to us like our shareholders, and we hear this from, you know, many of them, like the confidence in our dividend being covered. We've done it every quarter since we've been public. I'm not sure everyone can say that. What we try to do is we try to not be overly cumbersome and slow, but very deliberate and moving back up to those levels. We've seen, you know, more dividend increases in the last year than we've had, you know, in over a you know, maybe a decade. I think that trend, you know, as we have the ability to, to really be predictive on the business, you know, those discussions will obviously continue.

To answer your question in a long-winded way is, we don't want to invite unnecessary or undue volatility in the perception of our dividend versus reinforcing the quality of that dividend and the value of it with, with, you know, less volatility, which means we'd rather just take it up and keep it up versus taking it up and down, you know, to towards something that approaches a little more of a, of a whimsical approach. That's just our philosophy. You know, I, I don't want to... Or my philosophy, and I don't want to speak for anyone, individual on the board. These discussions happen actively, but hopefully, that gives you a little more color on how we think about it.

We, and we do have these discussions very, you know, very actively in this environment, because if the, the performance is notable, as, as you highlight.

Ryan Lynch (Managing Director of Equity Research)

Mm-hmm. Yep. No, that, that's all I understand the, the reasoning behind it. That's all for me. I appreciate the time today.

Phil Tseng (President and COO)

Thank you.

Raj Vig (Chairman and CEO)

Thank you.

Eric Cuellar (CFO)

Thank you.

Operator (participant)

There are currently no additional questions waiting, so I'd like to pass the call back over to Raj Vig for any closing remarks.

Raj Vig (Chairman and CEO)

Thank you. We appreciate your participation on today's call. I would like to thank our team for all of the continued hard work and dedication. I would also like to thank our shareholders and our capital partners for your confidence and your continued support. Thanks for joining us. This concludes today's call.