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BlackRock TCP Capital Corp. (TCPC)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 delivered net investment income (NII) of $28.3M ($0.46/share), with adjusted NII of $27.7M ($0.45/share), covering the $0.34 dividend and marking the first quarter post-merger with BCIC; total investment income rose to $55.7M, benefiting from higher base rates and wider spreads .
  • GAAP EPS (net increase in net assets per share) was $0.08, down sharply versus $0.39 in Q1 2023, as unrealized losses (notably Edmentum, Razor, Aventiv, Astra, Thrasio, 36th Street Capital) offset $21.3M of unrealized gains from purchase discount accounting under the BCIC merger .
  • NAV per share declined to $11.14 from $11.90 in Q4 2023, reflecting portfolio markdowns and accounting impacts from the merger; non‑accruals increased to five names (1.7% of portfolio FV) .
  • Guidance signal: dividend maintained at $0.34/share for Q2; management fee reduced to 1.25% on assets ≤200% of NAV post-merger; CFO expects further synergy and expense savings over coming quarters, and plans near‑term action on 2024 notes .
  • S&P Global Wall Street consensus estimates were unavailable at time of analysis; we note relative outperformance on NII vs dividend but cannot benchmark EPS/“revenue” vs street due to data access limitations (see Estimates Context).

What Went Well and What Went Wrong

What Went Well

  • Adjusted NII of $0.45/share and GAAP NII of $0.46/share exceeded the regular dividend, supported by higher base rates and wider spreads in a predominantly floating-rate portfolio .
  • Management emphasized portfolio resilience and the strategic value of the BCIC merger (scale, lower fee structure, improved capital access), expecting income accretion and efficiencies: “gaining scale... including income accretion, more efficient access to capital and a lower fee structure” .
  • Liquidity strong at $408.7M (including $286.0M available leverage and $120.6M cash); weighted average borrowing cost remained relatively low at 5.08% despite rate hikes .

What Went Wrong

  • NAV per share fell to $11.14 (from $11.90), driven by unrealized losses on specific positions (e.g., Edmentum −$13.4M, Razor −$13.2M, Aventiv −$6.8M, Astra −$6.4M, Thras.io −$3.3M, 36th Street Capital −$3.1M), partially offset by reversals (e.g., Perch +$6.3M) .
  • Non‑accruals rose to five companies; Aventiv was added in Q1 and Gordon Brothers was acquired as a pre‑existing non‑accrual through the BCIC merger (1.7% FV; 3.6% cost) .
  • Merger-related purchase discount accounting created volatility between GAAP and adjusted metrics, complicating period-over-period comparability; adjusted net decrease in net assets from operations was $(0.27)/share despite positive GAAP EPS of $0.08 .

Financial Results

Core Financials vs Prior Year and Prior Quarter

MetricQ1 2023Q4 2023Q1 2024
Total investment income ($USD Millions)$50.31 $50.80 $55.73
Net investment income ($USD Millions)$25.37 $25.30 $28.26
NII per share ($)$0.44 $0.44 $0.46
GAAP EPS (Net increase in net assets per share) ($)$0.39 $(0.23) $0.08
Adjusted NII per share ($)$0.44 N/A$0.45
Dividend per share ($)$0.34 (declared for Q1) $0.34 (Q4 regular) $0.34 (Q2 declared)
NAV per share ($)N/A$11.90 $11.14
NII margin (%)50.4% (25.37/50.31) 49.8% (25.30/50.80) 50.7% (28.26/55.73)

Notes: NII margin is computed from cited figures above.

Portfolio and Balance Sheet KPIs

KPIQ4 2023Q1 2024
Portfolio FV ($USD Billions)~$1.6 ~$2.1 (post-merger)
Senior secured debt (%)89.3% 91.4%
First-lien share (%)77.6% 80.2%
Floating-rate debt (%)95.6% 97.1%
Weighted avg effective yield (debt) (%)14.1% 14.1%
Non‑accruals (% FV / % cost)2.0% / 3.7% 1.7% / 3.6%
Total assets ($USD Billions)$1.7 $2.28
Net assets ($USD Billions)$0.688 $0.953
Liquidity ($USD Millions)$359.0 $408.7
Weighted avg interest rate on debt (%)4.29% 5.08%

Capital Structure and Debt Outstanding (Q1 2024)

  • Total debt net of issuance costs: $1.303B; facilities include Operating Facility (SOFR+2.00%), Funding Facility II (SOFR+2.05%), Merger Sub Facility (SOFR+2.00%), SBA Debentures (2.52%), 2024 Notes (3.90%), 2025 Notes (fixed 6.85%/SOFR+3.14%), 2026 Notes (2.85%) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Regular dividend per shareQ2 2024$0.34 (Q1 2024 declared) $0.34 (declared May 1, payable Jun 28) Maintained
Base management fee rateOngoing post-merger1.50% on assets ≤200% of NAV 1.25% on assets ≤200% of NAV (1.00% above) Lowered
Fee waiver support floorFirst four fiscal quarters post-mergerN/AAdvisor to waive fees to support adjusted NII ≥$0.32/share if needed; none required in Q1 New framework
DRIP policyEffective for distributions with record date after Mar 18, 2024Prior BCIC DRIP participants reinstated“Opt-in” DRIP for TCPC; former BCIC DRIP holders auto-enrolled unless opt-out Implemented
2024 Notes maturity2024N/ACFO: plan to address near-term; market access favorable Clarified intent

No formal quantitative guidance provided for revenue, margins, OpEx, OI&E, or tax rate.

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2023, Q4 2023)Current Period (Q1 2024)Trend
Amazon aggregators (Thrasio/Razor/Perch)Sector indigestion; Thras.io placed on non‑accrual; 75% of NAV movement tied to 3 names (Edmentum, Thras.io, Securus) Thrasio Chapter 11 as strategic tool; Razor acquired Perch; marks volatile; focus on realized recoveries; loan quoted through process Ongoing restructuring; consolidation
Rates and NIIStrong NII on floating assets vs largely fixed liabilities; weighted avg borrowing cost 4.29% NII supported by higher base rates; borrowing cost 5.08%; CFO expects synergies/expense savings NII resilient; costs up modestly
Deal environment/M&ABifurcation; core middle market less borrower‑friendly; gradual pipeline pickup Cautiously optimistic; potential rate cuts catalyze M&A; dividend recaps/continuation vehicles; focus on lender‑influence positions Improving pipeline; disciplined underwriting
Non‑accruals/credit quality3 names on non‑accrual (1.1% FV) 5 names (1.7% FV; 3.6% cost); Aventiv added; Gordon Brothers from BCIC Deteriorated modestly
Ratings/financingInvestment-grade affirmed; flexible facilities Address 2024 notes shortly; Moody’s sector outlook change viewed as broader, pricing impact TBD Neutral to modestly constructive
Sector exposures (software/ARR)Emphasis on less cyclical sectors Software/ARR viewed as strong; diversified by end-market exposure Stable/positive

Management Commentary

  • CEO: “We produced solid net investment income during the first quarter, benefiting from higher base rates and wider spreads... Our diversified, first‑lien concentrated portfolio is constructed to be resilient... We closed our merger with BCIC... gaining scale... including income accretion, more efficient access to capital and a lower fee structure” .
  • CFO: “Adjusted NII excludes amortization of the purchase accounting discount... Operating expenses reflected the impact of the lower management fee rate since closing... We expect other synergies and expense savings to materialize over the next few quarters” .
  • President: “We emphasize transactions where we are positioned as a lender influencer... weighted average effective yield on our debt portfolio was 14.1%... new investments 14.7%” .

Q&A Highlights

  • Thrasio valuation and recovery: Management emphasized third‑party valuation processes vs strategic bankruptcy valuations; marks may differ until realization; loan had trading activity guiding mark .
  • Market activity vs rates: Cautious optimism on pipeline despite flatter forward curve; expect more processes/pre-marketing, dividend recaps, and increased LP pressure for distributions .
  • Strategy flexibility: Will pivot to ABL/leasing and asset‑backed opportunities where risk‑adjusted returns are attractive, maintaining “credit‑first downside protection” .
  • Refinancing 2024 notes: Planning near‑term action; comfortable with secured/unsecured mix; market receptive to BDC issuance .
  • Ratings outlook: Moody’s broader sector outlook change seen as not company-specific; pricing impact TBD; long-standing IG profile supportive .
  • Software/ARR exposure: Considered resilient; diversification by end-market rather than monolithic “software” risk .

Estimates Context

  • S&P Global consensus estimates for EPS and “revenue” (total investment income) were unavailable due to data access limitations at the time of request. As a result, we cannot formally benchmark Q1 2024 EPS/NII/total investment income versus Street expectations; investors should note strong dividend coverage and mixed GAAP EPS outcomes driven by merger accounting and portfolio marks .

Key Takeaways for Investors

  • Dividend durability: NII of $0.46/share (adjusted $0.45) comfortably covered the $0.34 dividend; Board declared another $0.34 for Q2, reinforcing the dividend’s sustainability .
  • Merger benefits accruing: Lower base management fee (1.25%) and scale should support NII and expense leverage; CFO anticipates further synergies ahead .
  • Credit watchlist manageable: Non‑accruals ticked up with specific challenged credits; management is proactively restructuring and expects consolidation/recoveries over time (e.g., Thrasio, Razor/Perch) .
  • Yield environment supportive: 97% floating-rate debt with ~14% effective yields sustains income even as borrowing costs normalize; selective deployment at attractive yields (new at 14.7%) .
  • Balance sheet flexibility: ~$409M liquidity and diversified facilities/maturities; near‑term plan to address 2024 notes reduces refinancing risk .
  • NAV sensitivity: Expect continued NAV volatility tied to restructurings and merger accounting adjustments; adjusted views provide cleaner operating picture vs GAAP .
  • Trading implications: Focus on dividend coverage and NII stability; monitor resolution of aggregator exposures and upcoming refinancing as near‑term catalysts .