BlackRock TCP Capital - Q2 2024

Executive Summary

• Q2 2024 delivered adjusted net investment income (NII) of $0.38 per share and GAAP NII of $0.42 per share, covering the $0.34 dividend; Board declared a Q3 2024 dividend of $0.34 per share. Adjusted annualized NII ROE was ~14% with dividend coverage of 112%.
• NAV per share fell to $10.20 (from $11.14 in Q1), driven by higher non‑accruals and realized/unrealized losses; non‑accruals increased to 4.9% of portfolio at fair value and 10.5% at cost.
• Capital position strengthened: issued $325M of 6.95% 2029 notes and extended the Operating Facility maturity to August 1, 2029; liquidity rose to ~$779.8M.
• Management emphasized proactive credit work on challenged names (SellerX, Pluralsight, McAfee) and maintained confidence in long‑term returns and the pipeline; reiterated disciplined deployment and dividend stability.

What Went Well and What Went Wrong

What Went Well

• Sustained dividend coverage with adjusted NII of $0.38 and 112% coverage; “we generated adjusted net investment income of 38 cents per share… and strong dividend coverage of 112%,” said CEO Raj Vig.
• Capital access and balance sheet flexibility improved: $325M 6.95% 2029 notes and Operating Facility maturity extension; liquidity ~$779.8M.
• Healthy deployment and pipeline: $129.7M invested, all Q2 debt investments first‑lien; examples include AlphaSense and SumUp; new investments yielded ~12.6%.

What Went Wrong

• Non‑accruals spiked: 10 companies on non‑accrual status (4.9% FV; 10.5% cost), including SellerX, Pluralsight, Lithium; contributed to net unrealized losses of $51.6M and net realized losses of $35.5M.
• NAV decline: NAV/share dropped to $10.20 from $11.14; net decrease in net assets from operations was $(51.3)M or $(0.60) per share for Q2.
• Yield compression: portfolio yield moved to 12.4% (from 13.4% in Q1), partly due to exiting higher-yield positions (exited investments ~14.2% yield vs new ~12.6%).

Transcript

Operator (participant)

Ladies and gentlemen, good afternoon. Welcome everyone to BlackRock TCP Capital Corp's second 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. 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. 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 (Head of Investor Relations)

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 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, 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 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, Rajneesh Vig.

Rajneesh Vig (Chairman and CEO)

Thanks, Michaela, and thank you all for joining TCPC's Q2 2024 earnings call. With me today is our President, Phil Tseng, our CFO, Erik Cuellar, as well as Jason Mehring, who was recently appointed as our COO. By way of background, Jason is a key member of our U.S. direct lending investment team with a long tenure at BlackRock and has been a voting investment committee member of TCPC for some time now. Phil and I have worked with Jason for almost six years, and we look forward to continuing to work with him in his expanded role. Today, after I provide an overview of our second 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 will all be available to answer questions, and before opening the call up to your questions, I will wrap up with some closing comments. I'll start now with the key highlights from the second quarter of 2024. We delivered adjusted net investment income of $0.38 per share, and our annualized net investment income return on average equity was approximately 14%, which remains at the high end of our historical ranges. Our board of directors declared a third quarter dividend of $0.34 per share, which implies dividend coverage of 112% based on our second quarter adjusted NII. The third quarter dividend is payable on September 30th to shareholders of record on September 16th. 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, we have consistently covered our dividends with recurring NII and have also paid several recent special dividends. During the second quarter, our NAV declined 8.4%, and we added six portfolio companies to non-accrual status, taking non-accruals from approximately 1.7%-4.9% of fair value. While this increase is clearly notable and disappointing, it's important to point out that for the most part, the change is due to a set of factors at each individual company level that are wholly unrelated, but coincidentally converged this quarter to drive the non-accrual levels. More importantly, these changes do not change our view of the overall strong health of our portfolio.

I'd like to take a few minutes now to discuss a number of action items for several of the companies that have actually been in process for some time now and that we believe can drive near-term improvements to the limited number of impacted names in the portfolio. The overwhelming majority, or roughly 70% of the increase in non-accruals, is related to just three companies: SellerX, Pluralsight, and McAfee. Most of which we have discussed in previous quarters. We have been working intensely with each of these companies towards a fulsome balance sheet restructuring that we believe can facilitate a path to recovery. The first is SellerX, which is an Amazon aggregator. Following the combined impact of a stressed balance sheet and a slowdown in online consumer spending, we decided to place SellerX on non-accrual status this quarter.

We've been actively engaged with company management, the rest of the lender group, and SellerX's ownership group to effectuate an agreement to address the company's capital structure and liquidity. You may recall that we briefly placed Thrasio on non-accrual status in Q4, a company that faced a similar set of challenges, and as a result of a successful restructuring, the company quickly returned to accrual status in the following quarter, Q1 of this year. We remain optimistic that over the medium to longer term, the aggregator space remains attractive and that continued consolidation and cost optimization will result in fewer, larger scale, and better-capitalized vendors. The second name is Pluralsight, which is held by a number of public BDCs and which many of you have probably heard about in the media or on other earnings calls already.

As a reminder, Pluralsight is an enterprise learning platform that designs training software, online courses, and video for software developers. The company's premium product offering was negatively impacted by a tougher macroeconomic environment, which led to tighter IT budgets and layoffs in the tech sector, as well as a higher rate environment, which resulted in liquidity pressure for the company. While we are not the lead lender nor agent for Pluralsight, we have been closely engaged and aligned with the rest of the lender group to determine the best path forward, and are hopeful for a near-term resolution of this process. The third notable move is McAfee, a cybersecurity company that is also held by a number of lending groups, that has seen weaker revenue trends and tighter liquidity over the past few quarters, and as a result, has been evaluating a potential balance sheet restructure.

There are a number of public news articles and public disclosures that suggest the company is evaluating a financing alternative that would ease its near-term liquidity challenges. The remaining approximately 1% of change in non-accruals is related to another three companies that we have also discussed before: Lithium, Astra, and Edgio. Each of which, each of which has experienced idiosyncratic circumstances that have led to credit considerations sufficient for us to reflect the non-accrual names this quarter. In summary, at the end of June, debt investments in 10 of our 158 portfolio companies, or approximately 6%, were on non-accrual status, representing 10.5% of the portfolio at cost, and again, 4.9% at fair value. Net realized losses for the quarter were $35 million due to the restructuring of our investments in Thrasio, previously mentioned, and Hylan.

Net unrealized losses were $52 million, driven primarily again by SellerX, Pluralsight, and Lithium. Despite these challenged names, the overall credit quality of our portfolio remains strong, and we are actively monitoring the health of our portfolio companies with respect to their business and markets, capital structure, and the impact of higher rates and inflation on their performance. As of June thirtieth, 2024, our weighted average internal risk rating was 1.5, compared to 1.56 as of March 31st, 2024, underscoring that our portfolio companies are performing generally in line or above our base case expectations, and the majority of our portfolio companies continue to report revenue and market expansion. For reference, the rating categories are defined in the footnotes of our investor presentation. Before turning the call over to Phil, I would like to share a few additional updates.

First, I'd like to congratulate Phil, who was recently appointed to TCP's board of directors, and as you know, Phil has been an invaluable contributor to our company for many years and is both our president and a member of BlackRock's private debt platform. Second, I'm pleased that we were able to capitalize on attractive capital markets conditions to raise $325 million in fixed rate unsecured debt at an attractive rate of 6.95% in May 2024. In addition, on August first, we amended our credit facility, extending the maturity date by 3 years and reducing the SOFR rate adjustment on the facility. When we announced TCPC's merger with BlackRock Capital Investment Corp, we noted that one of the benefits of the merger would be improved access to capital, and we are pleased to see that it is already happening.

We appreciate the support of our bondholders and bankers, and are glad to have the dry powder to capitalize on new investment opportunities. Now, I'll turn it over to Phil to discuss our investment activity and portfolio. Phil?

Philip Tseng (President)

Thanks, Raj. In the second quarter, we invested $130 million, $124 million of which was in senior secured loans. We experienced a meaningful pickup in activity across our platform, as deployments increased by approximately 40% versus last year, reflecting the return of M&A and refinancing activity. Deployments in the quarter included loans to 5 new and 5 existing portfolio companies, and all of our debt investments in the second quarter were first-lien loans. Investing in incumbent portfolio companies is an important part of our strategy and a competitive advantage that allows us to invest new capital in great businesses, in industries that we know well.

During the second quarter, we made a follow-on investment in AlphaSense, a growing enterprise SaaS company that provides an artificial intelligence and machine learning search engine to financial service firms, corporations, and global consulting firms that want access to market intelligence on competitors, customers, and markets. TCPC provided AlphaSense with a first-lien term loan in 2022 as a sole lender, and we're thrilled to participate in their recent refinancing to support a business that is now twice the size compared to when we made the initial loan in 2022. This is a great example of how we support our borrowers across their life cycle and how we've earned a strong reputation with management teams for doing so. Another company we invested in during the quarter was SumUp, a leading global payment solutions company focused on empowering small to medium-sized merchants with an affordable, intuitive payment solution.

In 2021, we provided SumUp with a first-lien term loan to support geographic and product offering expansion plans. Since then, SumUp successfully executed strategy. We were pleased to participate in their 2024 refinancing. SumUp was co-sourced by our U.S. direct lending team and BlackRock's capital markets business, which speaks to the benefits we realize from being part of the BlackRock platform. We believe our channel-agnostic approach to deal sourcing allows us to eliminate risks associated with single-source channel concentration, and to remain selective in choosing the best possible investments from as robust a pipeline at any point in time. The weighted average annual effective yield of our portfolio was 12.4%, compared with 13.4% last quarter.

We received $185 million in proceeds from the sale or repayment of investments during the quarter. New investments had a weighted average yield of 12.6%, while investments we exited had a yield of 14.2%, which explains some of the yield compression we experienced this quarter. We remain disciplined with our underwriting standards in an environment where spreads have tightened. In several instances, we chose not to refinance or reprice existing loans at lower yields or without covenants when the perceived risk simply did not match our potential return targets. At quarter end, our portfolio was comprised of investments in 158 companies, with a total fair market value of approximately $2 billion and an average investment size of $12.5 million.

91% of our portfolio was invested in senior secured loans, 81% of which were in first lien loans. 93% of our debt investments were in floating rate loans, and recurring income was distributed broadly across our diverse portfolio, with more than 75% of our portfolio companies each contributing less than 1% of the total. Now, I'll turn it over to Erik to walk through our financial results and our capital and liquidity position.

Erik Cuellar (CFO)

Thank you, Phil. As Raj noted, our net investment income for the quarter was $0.38 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 NII to GAAP NII, as well as other non-GAAP financial metrics, is included in an earnings press release and 10-Q. Gross investment income for the second quarter was $0.84 per share. This included recurring cash interest of $0.67 per share, non-recurring interest of $0.07, recurring discount and fee amortization of $0.04, and PIK income of $0.03. PIK income remains in line with the average over our history. Investment income also included $0.03 of dividend income.

Operating expenses for the second quarter were $0.42 per share, including $0.23 of interest and other debt expenses, reflecting higher interest rates and debt expenses from the merger with BCIC and the issuance of our 2029 notes during the quarter. Incentive fees for the quarter totaled $6.8 million or $0.08 per share. Net realized losses for the quarter were $35.5 million or $0.41 per share. Net unrealized losses totaled $52 million or $0.60 per share, primarily reflecting unrealized markdowns on the investments Raj discussed earlier. The adjusted net decrease in assets for the quarter was $51.3 million or $0.60 per share.

At the end of the second quarter, our available liquidity was $780 million, which includes $585 million in available capacity under our leverage program and $195 million of cash and cash equivalents. Unfunded loan commitments to portfolio companies were only 5% of total investments, or approximately $93 million, of which only $58 million were revolver commitments. Net leverage at the end of the quarter was 1.13x, which is well within our target range of 0.9x- 1.2x. Our diverse and flexible leverage program includes three low-cost credit facilities, four unsecured note issuances, and an SBA program. And the weighted average interest rate on debt outstanding at the end of the quarter was 5.0%. Now, I'll turn the call back over to Raj.

Rajneesh Vig (Chairman and CEO)

Thanks, Eric. Before taking your questions, I will wrap up with some closing comments. Although the private credit market and our business are showing many healthy signs, we did experience higher non-accruals this quarter. Over our 20+ year history, we've been through some challenging times, and we are taking the same approach we have always, as it has proven effective. That approach is to maintain a deep understanding of the business and its long-term prospects, and to work collaboratively with our borrowers, other lenders, if applicable, and business owners to constructively resolve business and credit issues. Resolving issues quickly is a priority, but we are also equally focused on achieving the best possible outcome for our investors. As we head into the second half of 2024, we have a strong capital position and a robust pipeline of opportunities.

We are taking 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 operate successfully in the current environment. We continue to pass on transactions that do not meet our underwriting standards, leveraging our experience in special situations, lending to structured deals with strong financial covenants and lender-friendly deal structures. As Phil mentioned, we are also supporting many existing portfolio companies with follow-on financing.

We remain committed to maintaining our well-covered dividend and to delivering attractive returns to our shareholders, and look forward to keeping you updated on our progress. With that, operator, please open the call for questions.

Operator (participant)

Thank you. We will now begin the question and answer session. 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, press star one, and as a reminder, if you are using a speakerphone, please remember to pick up your handset before asking a question, and we will pause here briefly as questions are registered. The first question is from the line of Christopher Nolan with Ladenburg Thalmann. You may proceed.

Christopher Nolan (Analyst)

Hey, guys. Okay, I got a number of questions here. How much did the increase in non-accruals affect EPS in the quarter?

Erik Cuellar (CFO)

Yeah, good question, Chris. It was roughly $0.08 per share. That's the increase in the quarter. And I'll just note, we did take all of them on accrual as of the beginning of the quarter, so that was the full quarter impact.

Christopher Nolan (Analyst)

Okay, and I guess, that should be sort of a runway assuming that these take a few quarters to resolve. Is that a fair assumption?

Erik Cuellar (CFO)

Yes, it's still ongoing currently, but it wouldn't be incremental to what we reported in the quarter. The quarter already reflected no income on these things.

Christopher Nolan (Analyst)

Okay. And then this—I know that BCIC and TCPC had overlapping investments, but were these... Given that you just exited or just completed a merger, how much of these were legacy TCPC and how much were from the merger?

Rajneesh Vig (Chairman and CEO)

Well, keep in mind, at the time of the merger, the portfolios were pretty much overlapping except for a few legacy BCIC positions. You know, for the most part, related to the Gordon Brothers entity. So I wouldn't necessarily call them legacy TCPC or legacy BCIC. Both portfolios were active, and, you know, converged over time since TCPC's acquisition over six years ago. It's not really a distinction, you know, given that we invest across the variety of funds we manage.

Christopher Nolan (Analyst)

Okay. Leverage. Leverage is now an issue for you guys. Your debt-to-equity ratio quarter, my estimate is 1.34. What sort of range are you targeting? What's the upper limit?

Erik Cuellar (CFO)

Yeah, and I'm assuming that 1.34 that you mentioned is or is not net of cash? We were holding on-Just regulatory.

Yeah. So our regulatory-

Christopher Nolan (Analyst)

Just regulatory

Erik Cuellar (CFO)

Net leverage is 1.13x. That is net of cash. We actually were holding on to about $194 million of cash at the end of the quarter, which will be primarily used to repay our 2024 notes, which are due in about a week from now. So we purposely have not prepaid them as we're actually earning more in cash than the rate on those notes are coming due next week.

Rajneesh Vig (Chairman and CEO)

Yeah. I guess I would, I would push back on that, Chris. I, I don't think leverage is an issue. I think it's, there's a couple of moving items that may, you know, you look at it all in net, net, it's, it's actually pretty much in the range what we've been doing historically, maybe even a little lower.

Christopher Nolan (Analyst)

Yeah. Net, yeah, net of cash, that's a fair point. Last point is, you guys seem to accelerate, you know, investments in the quarter, and you just completed a merger and the non-accruals increase. It seemed like you had a lot of stuff going on in the quarter, and why was it this quarter that you suddenly decide to, you know, step on the gas for more investments?

Rajneesh Vig (Chairman and CEO)

Yeah. Maybe I'll ask Phil to cover the investment side. I mean, look, the one outlier in the quarter is absolutely the non-accruals. I think, you know, time will tell, maybe even in the very near term, whether that really is a spike or is, you know, convergence of events, you know, that kind of come in and come out. But I guess I'd turn over to Phil on the investment side. I wouldn't characterize it as accelerating. It's a pretty normal deployment.

Philip Tseng (President)

Yeah. Yeah, Chris, hi, it's Phil. Yeah, we don't really view it as, as having accelerated our deployment. I think maybe what you're seeing is a number of companies that, were in our portfolio, have grown and actually refinanced the existing loans. I mentioned some up in AlphaSense, in the, in the, in the script earlier, largely because those are ones that we actually upsized our investments in as they grew in size. So, you know, if our existing portfolio companies are looking for expanded financing opportunities to support their growth, and they've shown great evidence of execution and, and, and supportive, you know, equity value there underneath the debt, then we're very happy to continue investing new dollars, to support their growth. I think that's what we saw last quarter.

Christopher Nolan (Analyst)

Great. Thank you.

Rajneesh Vig (Chairman and CEO)

Thank you, Chris.

Operator (participant)

The next question is from the line of Robert Dodd with Raymond James. You may proceed.

Robert Dodd (Analyst)

Hi, guys. On a question about, like, overall portfolio construction, right? I mean, it looks like over the last little while, there's been more concentration by industry than by portfolio name, right? I mean, the Amazon aggregator space, it's a niche. You have 150+ different companies, but four of them were in the same niche, and three of those four ended up with either major restructuring or on non-accrual. Are there other pockets within the portfolio where you might have multiple portfolio names, but they're operating in the same niche? So is there more industry concentration than it looks like there is when we look at name concentration? Because that was certainly the case in the Amazon aggregator space, and that hasn't worked out really well.

Rajneesh Vig (Chairman and CEO)

Yeah, it's a great question, and I think, let me kind of address it in a couple of ways. The aggregator space absolutely is correlated, and I think for several quarters now, maybe more, we've been talking about it. It's just a matter of time between, you know, the ones that have pulled the trigger, so to speak, on a restructuring, in many cases, which we are pushing. And, you know, last quarter, Q4, Q1, you saw Thrasio come in and out. This quarter, you, you saw SellerX. Ultimately, they are, I think, going to continue some view around consolidation, the scale benefits, etc. Again, we've been talking about those themes, kind of as a one-off in, in the space for some time now.

Beyond that, we do not see any correlation along the lines that you're talking about. We have had a weighting to industries that we like, and, you know, I think that generally has worked out very well for us, you know, in very defensive names. And keep in mind that some of these industries, like software or, you know, or healthcare or professional or financial services, there are many, many subcategories that really don't correlate, even though they may be under one, you know, kind of holding industry grouping. So we do not see that. You know, the only other thing I would say, and again, we've talked about in the past, is there's some risk in healthcare around regulatory reimbursement, but for the most part, we've navigated that, I think, well.

But the aggregator space in and of itself is unique, so, thus far, you know, we don't see, you know, a trend line like in the portfolio.

Robert Dodd (Analyst)

I appreciate that. I mean, and that, that's I guess the question. I mean, is it- is there anything that's been done in how deals are evaluated, how they're onboarded in future to avoid any risk of these kind of correlated industry, but not same name concentrations? I mean, has anything changed in procedures to avoid this kind of situation?

Rajneesh Vig (Chairman and CEO)

I think so. Look, I think it's a double-edged sword. In many ways, the ability to invest within an industry and the knowledge that comes from that approach has actually net-net been a very big positive. You know, being able to assess competitors, being able to talk to industry executives and really do a deep dive has allowed us, I think, to invest well by industry. I think the case of the aggregators, it might have been. It wasn't necessarily a risk approach. In fact, we've avoided a lot of, you know, worse outcomes, you know, in the aggregator space.

I think what we had was a whipsaw effect, you know, coming out of COVID with the balance sheet and inventory over, over, purchasing and then consumer spending decline, that just hit those companies, and it was a little bit of a, you know, a bad forecasting on, on trends that actually long term will be positive. So net-net, the industry approach has, has been a great way for us to, to invest knowledgeably and choose the best companies. I think in this one case, thus far, it has been a detriment, but, you know, the show isn't over, and I would say, like all restructurings, until the money's back and the, and the, you know, the cash is in, you don't know what it looks like.

But our history of getting very strong recovery on names that have volatility until, you know, on an unrealized basis, you know, I, I would, I would highlight that record as being very positive and effective. And, you know, time will tell here. The story isn't over.

Robert Dodd (Analyst)

I agree. Right, you do have a good track record on that front, so that's the follow-up next question. Of the non-accruals or distressed assets you have right now, how many or what percentage are you in the driver's seat of the restructuring? Obviously, that's not the case with Pluralsight, for example, and probably not McAfee, right?

Rajneesh Vig (Chairman and CEO)

Right.

Robert Dodd (Analyst)

So on that, that front, I mean, how many are you driving the car, so to speak, to get that restructuring outcome?

Rajneesh Vig (Chairman and CEO)

I would say in most of them, you know, we are pretty meaningfully involved, and I would include that, you know, obviously, in Pluralsight, there's a longer list of folks, you know, very well-qualified folks that we are working with. But if you take the argument that in every quarter, which we talk about, most of our deals are either sole, lead, or small club, then by proxy, you know, the negotiations and the process, for a portfolio that's built that way will have us being the sole or, you know, in very influential voice on the, on the restructuring, and that's by design, that's not a coincidence.

You know, we wanna be involved and meaningfully involved because I think we have a, you know, a DNA which, you know, more often than not, results in a better than average outcome.

Robert Dodd (Analyst)

Yeah. Got it. Understood. Then just more broadly, if I can, on. I hear about liquidity in the portfolio, not the stress names. Are you seeing any changes in sponsor willingness to support? Obviously, it's sort of parallel to Pluralsight, where the sponsor stopped supporting, but are you seeing any, you know, incremental changes in how sponsors are willing to discuss success or what they're asking for, or whether they're continuing where necessary; it's not always necessary to put capital in. Is anything changing on that front?

Philip Tseng (President)

Yeah. Hey, Robert, it's Phil. I would say we're not really seeing a real change in sponsors' interest in supporting or not supporting their companies. I think it's very much a case-by-case basis, as you can imagine. You know, they're making rational decisions around the valuation of the businesses where, you know, they're putting up new money, whether it's equity or some kind of subordinated piece of paper, and also the return on that new money.

So I think it's very much a case-by-case basis, depending on how the company is performing, how levered the business is, and how long it'll take to turn it around, given the accretion and, you know, if the company's going through a tough amendment, maybe it's, you know, there's a lot of PIK, which keeps accreting, and pushing down the value of the equity and so on. So I think it's very much a case-by-case basis. We are still seeing a number of sponsors putting in more money either to defend their ownership or to go on offense, to support their companies, to make an acquisition, or to keep growing the business. And that's across various industries.

So I would say, generally speaking, I can't put a broad theme on sponsor behavior, but they're very much rational actors, as are we.

Robert Dodd (Analyst)

Got it. Thank you.

Philip Tseng (President)

Thank you.

Operator (participant)

The next question is from the line of Paul Johnson with KBW. You may proceed.

Paul Johnson (Analyst)

Yeah, good afternoon. Thanks for taking my questions. Just a few following up on Robert's question. First on leverage. It would seem that the, you know, gross kind of 1.5x debt to equity, you know, 1.3x, sort of, net leverage does seem a little high, possibly not outside of your target range, but it does seem like it might be, at least on the margin, you know, a limiter of potential growth going forward. So, just kind of want to get your thoughts on how you're managing, you know, around that, as well as keeping in mind, you know, the investment grade rating. I'm sure there's some kind of leverage you would like to maintain, and I understand Fitch recently upgraded the rating outlook there as well, so that's positive.

Mainly just kind of the management around current leverage levels would be helpful.

Rajneesh Vig (Chairman and CEO)

Yeah, good, good question, Paul. And, the one point one, the one point three leverage that you mentioned, it's very much temporary and very short term. We view it as net of cash because, next week when we use that cash to pay down debt, you will see our debt, our leverage go down over about 25 points. So we view it as 1.13x at quarter end on a net basis. And it is within our range between 0.9x-1.2x. But certainly leverage is something that we watch on a daily basis, but we're comfortable with where it's at.

Paul Johnson (Analyst)

Got it. You know, in terms of new investments, I mean, I think you talked about this a little bit in Dodd's questions, but I mean, has there been, you know, a shift to potentially smaller investment sizes, just kind of given the leverage constraint and, you know, continued focus on just diversification or, you know, how should we think about that?

Rajneesh Vig (Chairman and CEO)

Yeah. I think you should think about it as being pretty consistent. You know, we've always taken an approach of keeping a very diversified portfolio. We, you know, call it a 1%, maybe 1.5%, you know, give or take, position size. So we will continue that approach. I think that given the size of the assets, you know, growing post-merger, the dollar amount may pick up, but you're not going to see the concentration pick up. The other thing is, we absolutely will stay focused on being within the range of the guidance of the rating agencies. But there's a lot of room, you know, in my opinion, between the 1.13x and where that is, at historical, you know, levels.

The other thing I would highlight is with a pickup in the market, both the BSL market and some of the activity in our market, we have seen a little bit of pickup in refinancings. And keep in mind, those refinancings, you know, bring cash in, you know, oftentimes with a bit of a prepayment and the unamortized OID being picked up. And that's obviously a good source of capital without growing the leverage to redeploy and to put back in the market. Some of that you already saw this quarter, based on the earlier question that Phil answered about the deployment side. We're just getting money back, and when we do that, that allows for us to meet the demand of our borrowers within the fund, the public fund.

Paul Johnson (Analyst)

Got it. Thanks for that. And then, last question for me was just on the advisor support for the dividend. Can you remind me, how long does the advisor commit their support for the dividend? And I was also curious, I believe it's a $0.32 level that the advisor has agreed to waive fees if earnings fall below that level. What, why, what's the reason for $0.32 versus just the $0.34, you know, current dividend? What's the difference there?

Erik Cuellar (CFO)

Sure. Yeah. Thanks for the question, Paul. Yes, the investment manager support is for four quarters after the date of the close of the merger. So there's still two more quarters left in that support. And it covers anything below $0.32 of NII. The $0.32 was the dividend rate that TCP was paying at the time that the merger was agreed to. And since then, we took up the dividend from that point, but that's how the $0.32 was derived.

Rajneesh Vig (Chairman and CEO)

Yeah. Keep in mind, this last quarter, the coverage was, you know, 112%, so it's kind of a moot point. It was really done as a shareholder protection, but we don't anticipate, certainly with the coverage levels we have, even post the non-accruals, you know, being at that threshold.

Paul Johnson (Analyst)

Got it. That, that's helpful. And then just to be clear, it's two more quarters, so the dividend support will run through the end of this year?

Rajneesh Vig (Chairman and CEO)

Correct.

Erik Cuellar (CFO)

That's correct. Yeah.

Paul Johnson (Analyst)

Okay. Thank you. That's all for me.

Rajneesh Vig (Chairman and CEO)

Thank you.

Operator (participant)

There are currently no questions registered, so as a reminder, it is star one to ask a question. There are no additional questions waiting at this time. I would like to pass the conference over to the management team for any closing remarks.

Rajneesh Vig (Chairman and CEO)

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

Operator (participant)

That concludes the BlackRock TCP Capital Corp. second quarter 2024 earnings call. Thank you for your participation, and enjoy the rest of your day.