BlackRock TCP Capital Corp. (TCPC) Q4 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, good afternoon. Welcome everyone to the TCP Capital Corp. Fourth Quarter 2014 Earnings Conference Call. Today’s 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 the instructions after management completes the prepared remarks. And now, I would like to turn the call over to Jessica Ekeberg, Vice President of TCP Capital Corp Global Investor Relations team. Jessica, please proceed.

Thank you. Before we begin, I would like to 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. During today’s call, we will refer to a slide presentation which you can access by visiting our website, www.tcpcapital.com, click on the Investor Relations link and select Events & Presentations. Our earnings release and 10-K are also available on our site. I will now turn the call over to Mr. Howard Levkowitz, Chairman and CEO of TCP Capital Corp.

Thanks Jessica. We would like to thank everyone for participating in today’s call. I am here with our President and COO, Raj Vig; our Chief Financial Officer, Paul Davis, and other members of the TCPC team. This morning, we issued our earnings release for the fourth quarter and year ended December 31, 2014. We also posted a supplemental earnings presentation to our website which we will refer to throughout this call. We will begin our call with an overview of TCPC’s performance and investment activities, and then, our CFO, Paul Davis will provide more detail on our financial results. Then I will provide some additional perspective before we take your questions. Before discussing fourth quarter 2014 results, we will review some of our key accomplishments for 2014. First, we paid $1.44 per share in regular dividends plus $0.10 per share in two special dividends. We delivered a total return to our shareholders of over 9%. We are pleased with this return given that it was an overall challenging year for BDCs as can be seen on Slide 4. Second, our stable earnings enabled us to substantially out-earn our regular dividends as we have done each quarter since inception. Our earnings for the year exceeded our regular dividends by $0.10 per share after-taxes. Third, we completed two follow-on offerings raising gross proceeds in excess of $208 million. As shown in Slide 6 both of these follow-on offerings were accretive to our shareholders in terms of NAV per share expansion and significantly expanded our shareholder base as with each of our follow-on offering since our IPO. Fourth, we substantially increased our leverage capacity and diversified our funding sources. Specifically, we increased our revolver capacity by $150 million, closed a $108 million private placement of convertible notes, and obtained a $75 million leverage commitment from the SBA. Additionally just last week, we further increased our TCPC funding credit facility to $300 million, up from $250 million. And fifth, we continue to expand our origination platform by opening a new office in San Francisco. Now, on to the highlights of our fourth quarter, which are summarized on Slide 7 of our presentation. We deployed $183 million in new investments during the quarter with net deployments of $95 million. We delivered net investment income of $0.40 per share before excise taxes, almost all of which came from recurring income. We declared a regular quarterly dividend of $0.36 per share payable on March 31, 2015 to shareholders of record on March 19 and we closed a follow-on offering of 5.9 million shares at $17.05 per share. In addition, our Board of Directors approved a share repurchase plan to enable our shareholders to benefit from potential periods of volatility in our stock if it trades at a certain threshold below NAV. I would like to take a minute to discuss the importance of appropriately marking our portfolio to fair value. We strongly believe that using accurate, independent third-party determinations of market value is a critical management tool and essential to our investment strategy. However, this means our portfolio is subject to some variability, particularly when market movements are significant. This quarter, like other BDCs, we recognized some unrealized losses as a result of widening market spreads and changes in risk asset pricings during the quarter. Paul will discuss these figures in greater detail, but at a high level, the difference between our fourth quarter ending net asset value of $15.01 and our third quarter ending net asset value of $15.43 was largely due to unrealized losses associated with the impact of widening credit spreads and changes in risk asset prices during the quarter, combined with below forecasted performance in two portfolio companies. Our overall credit quality continues to remain strong with no loans on non-accrual as of December 31, 2014. However, we may place a portion of our second lien term loan to Edmentum on non-accrual. We are working hard to restructure the company’s balance sheet to maximize the return on our investment, which had fair value of $11.3 million comprised less than 1% of our total assets at year end. In the current environment, people have inevitably raised questions about energy exposure. Overall, we are pleased with the performance of our direct energy investments, which comprised only 3.6% of the portfolio at fair value at the beginning of the quarter. One of these investments, our loan to Willbros Group was repaid in full during the quarter. Another investment in the sector, MD America has received a large equity commitment from its owners and has stated that it will use the proceeds to repay our term loan in full. Jefferson Gold Coast is primarily a volume and storage based business, which is benefiting from the increased storage needs resulting from lower oil prices. Iracore and Boomerang Tube are two industrial businesses that are dependent on demand from the energy industry. Both loans, which in aggregate comprised less than 1% of total assets are performing, but experienced a decrease in earnings tied to end-market activity. Although these loans may be modified in the future, we do not currently anticipate any material impact on our portfolio nor have we placed them on a non-accrual status. Our fourth quarter originations were strong, once again demonstrating the strength of our origination platform. Over the last four quarters, we have invested over $669 million on a gross basis and over $404 million on a net basis. In the quarter, we continued to focus on allocating capital primarily to income producing securities. Over 98% of our new investments were in senior secured loans and less than 2% were in equity securities. For those viewing our presentation, please turn to Slide 10. At the end of fourth quarter, our highly diversified portfolio had a fair value of over $1.1 billion invested in 84 companies across numerous industries. In the fourth quarter, we maintained our focus on investing in senior secured and floating rate debt. At quarter end, approximately 97% of the portfolio was in senior secured debt securities and 78% of these debt positions were in floating rate debt. With most of our debt portfolio in floating rate securities, we are well-positioned for any meaningful rise in interest rates. During the fourth quarter, we benefited from a strong existing pipeline and the market dislocation in the leverage loan and high yield markets investing approximately $183 million in 10 different transactions. These investments included senior secured debt, investments in six new and four existing portfolio companies as well as preferred equity and warrants received in connection with one of the financings. Our five largest investments in Q4 reflect our diversification strategy and include a $37 million senior secured loan to Dodge Data & Analytics, a leading provider of data and analytics to the construction industry, a $25 million senior secured loan which refinanced our existing loan to Lexmark, a leading vendor to the hospitality industry, a $25 million senior secured loan to BioAmber, a low-cost biochemical manufacturer, a $22 million increase in our senior secured debt to BPA Laboratories, a provider of laboratory-based testing services, and a $17 million senior secured loan to Enerwise, an energy software management company. In the fourth quarter, we exited $88 million of investments, including a $16 million senior secured loan to Hanley Wood, a $16 million senior secured loan to Lexmark, and the $14 million senior secured loan to Willbros that I mentioned earlier. New investments in the quarter had a weighted average effective yield of 11.3%. The investments we exited during the quarter had a weighted average effective yield of 10.2%. This represents the seventh quarter in a row we have underwritten at higher levels than our exits. The 110 basis point increase in the investments we made during the quarter versus those we exited together with the mark-to-mark adjustment to our portfolio in connection with the increased market spreads at the end of the year resulted in an overall effective portfolio yield of 10.9%. Now, I will turn the call over to Paul for a more detailed report of our fourth quarter financial results. After Paul’s comments, I will provide some additional perspective on what we are seeing in the market. Then we will take your questions. Paul?

Thanks, Howard. We are pleased to report another strong quarter continuing income. Fourth quarter gross investment income increased over the prior quarter to over $0.71 per share or $32.1 million, which included recurring cash income of $0.61 per share, fee income of $0.03 per share, recurring PIK income of $0.035 per share, and recurring discount amortization of $0.04 per share. As a reminder, it’s our general policy to amortize the upfront economics over time rather than recognize the income all at once the time we make the investment. Each of these components of income was also an increase over the prior quarter both in per share terms and in total dollars, except for PIK income which was steady in total dollar amount, but a smaller portion of income on a per share basis. These increases reflect our strong originations into higher yielding investments both this quarter and the prior quarter. In both of which, the effective yield on acquisitions exceeded the effective yield of dispositions by 110 basis points. Earnings for the quarter included prepayment income of $0.01 per share and cash income from aircraft leases of $0.03 per share, the latter being offset by depreciation expense of $0.01 per share, which reduced the company’s tax basis income. As shown in Slides 11 and 14, net investment income before excise taxes, before dividends and incentive compensation, was $22.7 million or $0.50 per share. Net investment income after preferred dividends and incentive compensation on net investment income was $18 million, or $0.40 per share before excise taxes, also an increase over the prior quarter in both total dollar and per share terms and out-earning our regular dividend by $0.04. As noted on Slide 5 on an annual basis, net investment income after preferred dividends, incentive compensation and excise taxes was $1.54 per share out-earning our regular dividends by $0.10. Total operating expenses for the quarter were approximately $9.5 million or $0.21 per share, which included interest expense of $0.07 per share. We also accrued dividends on the preferred leverage facility of $0.01 per share and excise taxes for the year of $0.02 per share. Our annualized operating expense ratio, including interest expense and preferred dividends, was 5.6% of average net assets before incentive compensation and excise taxes. Incentive compensation from net investment income for the quarter was $4.3 million or $0.10 per share, which is computed by multiplying net investment income after preferred dividends and excise taxes by 20%. As noted in Slide 15, all incentive compensation is subject to the company meeting a cumulative total return hurdle of 8% annually. Net realized losses of $16.2 million or $0.36 per share were primarily comprised of $5.2 million and $11.5 million on our recapitalization of Real Mex and the disposition of our Doral stock respectively, both were distressed investments made by our predecessor vehicle under a strategy that TCPC no longer employs and almost all of the loss was previously recognized in unrealized losses. Net unrealized losses of $8.8 million or $0.20 per share were primarily comprised of the markdown on Edmentum of $10.4 million and a markdown on Iracore, an energy pipeline component manufacturer of $4.3 million as well as mark-to-market adjustments of approximately $8 million given the increase in market spreads partially offset by a $16.5 million reversal of previously recognized unrealized losses on Doral and Real Mex. As Howard discussed, our entire portfolio was mark-to-market each quarter with substantially the entire portfolio priced using independent third-party sources with only a de minimis amount being priced internally. Net unrealized losses during the quarter were also partially offset by the reversal of the reserve for incentive compensation on realized gains of $0.7 million or $0.02 per share. As noted, our entire debt portfolio was current and accruing interest at year end. As Howard mentioned, we are actively working on restructuring of Edmentum’s balance sheet to maximize the return on our investment. The company made its last interest payment in full at its most recent payment date on December 31. However, the company released a revised budget on December 31 and additional information was disclosed in Q1. It’s still early in the process. So, some portion of this investment may move to non-accrual. In Q4, Edmentum contributed about $0.01 per share to net investment income. After paying our fourth quarter regular dividend of $0.36 per share or $17.5 million as well as a special dividend of $0.05 per share or an additional $2.4 million, we closed fourth quarter with tax basis undistributed ordinary income of approximately $23.3 million. Available liquidity at the end of the quarter totaled approximately $254.2 million, which was comprised of total available leverage of $218 million and cash and cash equivalents of $27.3 million plus the net pending settlements of $8.9 million. Available leverage includes the remaining $47 million available on our $75 million leverage commitment to small business administration. Net combined leverage was approximately 0.58 times common equity at quarter end. Turning to Slide 16, at the end of the quarter, our total weighted average interest rate on amounts outstanding on our combined leverage program, including both debt and preferred equity was 2.9%. This reflects our preferred equity facility at a rate of LIBOR plus 85 basis points. Amounts outstanding on our revolving credit facilities at a rate of LIBOR plus 2.5%, our convertible notes at 5.25% and our SBA debentures at a rate of 3.02% plus fees with the exception of a small SBA borrowing towards the year end with a much lower temporary rate pending the SBA pooling process. During the quarter, we further increased our liquidity and capital availability through a $50 million expansion of our TCPC funding facility and a $50 million expansion of the accordion feature as well as our closing of another overnight equity offering, which raised net proceeds of $97.2 million at a significant premium to net asset value and the launch of an aftermarket or ATM equity offering program, which allows us to incrementally offer equity when accretive to existing shareholders and on an as needed basis to more efficiently fund acquisitions. We used the ATM program judiciously the quarter raising $6.4 million on an accretive basis. Finally, in February of this year, our Board of Directors approved the repurchase of up to $50 million of our common stock through a share repurchase plan in accordance with rules 10b-18 and 10b5-1 under the Exchange Act. Although our shares have consistently traded above net asset value, given some of the volatility recently and BDC shares as a sector, there maybe times of market dislocation when reinvestment in our existing portfolio through repurchases of our own shares may yield greater marginal returns than maybe obtained through additional portfolio acquisitions in the prevailing environment. Under the plan, our shares will be repurchased following a preset algorithm should our shares trade more than a certain percentage low net asset value with volumes increasing at lower share prices and total trading being subject to volume restrictions. We believe this is yet another potential way to add value to the common equity should circumstances arise. I will now turn the call back over to Howard.

Thanks, Paul. In addition to our 10-K, we filed our preliminary proxy this morning. Similar to many of our BDC peers, we included our proposal for shareholder approval to issue up to 25% of our common shares on any given date at a price below NAV over the next 12 months. We included this proposal to provide flexibility for future scenarios. To be clear, at this time we do not intend to issue equity below NAV and certainly not unless it is accretive to shareholders. This is basically an insurance policy our shareholders have approved every year since we went public. In addition, if this proposal is approved and we hope it will be, no action will be taken unless our independent directors determine that it would be in the best interest of shareholders. I will briefly cover what we are seeing in the middle market lending and then open up the line for questions. The syndicated markets remain choppy with some deals struggling to get done and differences in expectations between borrowers and lenders. This is having a positive impact by widening spreads for some private market deals. However, at the other end of the spectrum, we are seeing a number of transactions being done on an aggressive basis, particularly for sponsors. We are trimming down a large number of transactions and remain highly selective in underwriting portfolio investments. Through March 6, 2015, we have invested approximately $93 million, primarily in nine investments, two new senior secured loans and seven follow-on transactions with a combined effective yield of approximately 12.2%. 2015 is off to a good start in terms of originations. However, we note that originations can be lumpy and neither the pace nor the yield should be annualized. Our primary focus remains on growing our earnings by effectively putting our recently expanded and diversified liquidity sources to work to optimize our portfolio. TCPC has built a strong market position by leveraging our platform to establish middle-market companies with sustainable competitive advantages that generate significant cash flow and/or have significant asset coverage or enterprise value. Looking to the future, we are uniquely qualified for continued success for several reasons. First, we have scale and depth in our origination and servicing platform and a highly experienced team to identify investment opportunities from a broad range of sources and to play an integral role in structuring and investing in complex opportunities. Over the past couple of years, we have continued to expand our origination platform to increase the number of potential opportunities we review. This allows us to take a highly selective approach to investments we make. We believe our rigorous investment process and highly diversified portfolio will enable us to continue to achieve high risk-adjusted returns, while over time preserving our investors’ capital. Second, our focus on senior secured loans, the majority of which are floating rate securities, has resulted in a low overall risk profile and strong portfolio performance. This has enabled us to deliver a consistently strong dividend and to make special distributions, five out of the 10 last quarters to our shareholders. In addition, our dividend coverage remains strong. Third, our lower cost of capital and diverse funding sources continue to be key competitive advantages for TCPC. In the fourth quarter, our weighted average cost of capital was well below the average for BDCs. In addition, TCPC remains well-positioned with our attractively priced leverage, our convertible notes and our long-term unsecured notes from the SBIC facility, which adds another source of low-cost funding. Finally, our interests are closely aligned with our shareholders. Our origination income recognition practices are conservative and we have one of the most shareholder friendly fee structures across the industry. We have personally invested more than $10 million alongside of our shareholders and members of the management team and the Board of Directors have on a number of occasions, including during the fourth quarter purchased shares in the open market. In addition, we have implemented a share repurchase plan in the event our shares trade below NAV. We are pleased with our many accomplishments in 2014 and our ability to continue to generate high levels of recurring income. We remain committed to our rigorous investment process that delivers high risk-adjusted returns while preserving capital. We manage our portfolio with a long-term view and we are optimistic about our prospects for continued growth in returns. We would like to thank all of our shareholders for your confidence and your continued support. And with that operator, please open the call for questions.

[Operator Instructions] Our first question comes from George [Greg] Mason with KBW.

Hey, great guys. This is Greg. First on the Edmentum loan, I know you said part of it may go on non-accrual, New Mountain who is working through that with you said they are going to put half of it on non-accrual, would that be a reasonable assumption as we are thinking about that for you guys?

Hi, Greg, it’s Raj. Let me touch on that. I think that will depend – obviously the discussions are real time and ongoing. And I wouldn’t rule that out, but I think what goes on non-accrual and when is a function of the restructuring – the balance sheet restructuring discussions. For 12/31, it’s just to reiterate the mark is in accordance with our pricing policies and is based on an independent third-party valuation for us. We believe that it reflects it’s a fair determination at year end and it may change, but we are comfortable with it, but I think that to answer your question, it depends and that’s possible, but it’s hard to put a percentage on it.

Okay, great. And then in terms of the utilizing the SBIC, I know you mentioned the San Francisco office is now open, if I understand they kind of do more SBIC type of investments. How is the deal flow coming from that group and just your overall deal flow fitting into the SBIC right now?

Yes, I can take that one as well, Greg. The San Francisco office, you will recall that announcement was made earlier in the year. We have been active and open in San Fran for a number of months now and it was a reiteration for 2014 highlight. The deal flow is reasonable. We are obviously very judicious with that group, which is focused on the energy tech and some more early stage companies, but with the appropriate structural protection and concurrent cash equity investments that go along with it. But aside from that, we are also very active in our ongoing pre-energy tech group higher business with Bay Area sponsors and companies on a normative basis. So, I would say the deal flow from the region is good. It’s also supplemented by the group that we brought on board. So, I don’t think of that San Francisco office as simply isolated to their efforts versus a broader footprint expansion for the firm.

And just overall the deal pipeline that you are saying that is the SBIC qualified versus too big for the SBIC program?

Yes, sorry. So – and I will actually, I think we can give the numbers on the SBIC drop. I will wait for someone to nod yes or no, but it has been reasonable. Obviously, we have several companies that are already drawn against the SBIC. In fact, we had as that we mentioned in past quarters a pre-approval on the SBIC before the facility was even in place. So, I think the deal flow was reasonable there as it is across the Board for non-SBIC eligible loans, but yes, the deal flow is reasonable for the SBIC drawdown.

And one last modeling question, I will hop back in the queue. You said $93 million in new loans so far in the first quarter, how are the repayments looking so far in the first quarter?

Sure. Greg, this is Howard. That’s not a number normally disclosed. It tends to be lumpy and so – and often in fact back weighted at the end of the quarter. So, it’s not something we have historically given out. I would say though that generally in this environment which has had a little bit more disruption, some companies that were intending to refinance have pushed things off as they found the environment to be a little bit more difficult than they thought and that they are not getting quite the terms that they thought they ought to be able to get. And so you certainly saw that in Q4 there were some loans we thought we are going to get repaid in Q4. Some borrowers had indicated that and they pushed some of those into this year and whether they happened in Q1 or a little later than – and the year still remains to be the same.

Yes. And Greg, just to follow-up on the SBIC question, because I know you like specifics, it’s a $28 million draw on the facility. So, you can see that we have actually been using it at a reasonable pace. It’s hard to predict if that’s the ongoing pace, but we are happy with that level at this point.

Great. Thank you, guys.

Thank you.

Our next question comes from Chris Kotowski with Oppenheimer.

Yes, good afternoon. I guess the first thing I was wondering about the loans that you said were funded in the first quarter so far, 12.2% average yield and I was wondering is that a function of the pullback in the market, is it a different kind of loan or it’s a nice coupon what accounts for that?

Hi, Chris, it’s Raj. I will try to take that. I think it’s a number of things, but certainly I wouldn’t say it’s a different type of loan. As you can tell over the last couple of years, we have really focused on increasing the seniority, the mix of the secured and senior loans. We have been very judicious even before the current market volatility situation, but to be honest, the volatility helps. I would say there is definitely a rationalization of some pricing among the issuers that we certainly feel like we have been able to take advantage of. But in certain scenarios, there has been a lot of – as Howard mentioned a lot of competition and people doing things that we just will not participate in, but in our core market with the ongoing focus on expanding our origination footprint and working with repeat customers, if you will, I think we have been able to show some sustainability and issuing the types of loans that we are comfortable with at increasing rate of return and that hasn’t been a one quarter phenomenon, it’s actually been I think seven – as Paul mentioned, seven quarters in a row now where we have underwritten that higher spreads than we have exited. So, it’s a number of factors, but the volatility is an element of it.

Yes. With everything Raj just said we want to be careful to make sure that people don’t think so that we were at 10.7% effective yield on 9/30 and 12.2% on these new originations this quarter. That doesn’t mean that the overall market and that what we are doing has widened that much. These are a series of individual companies, individual loans. Each situation is specific and clearly the environment is better for what we are doing generally. But at the same time, there is some really aggressive stuff being done in parts of the market. So, I wouldn’t extrapolate the fact that there is a sea-change or huge dynamic shift based on these recent transactions.

Okay. And then secondly it’s probably early and I am not sure if any – if you can go into any specifics, but you obviously have two big credit facilities coming due next summer. And I am wondering just if you can discuss philosophically credit lines versus bonds versus securitizations, how do you see the cost and risk reward trade-off of all the different kinds of options you have on the right hand side of the balance sheet?

Sure. Thanks for the question. When we went public we had a single source of leverage which is what you are describing, which is really a stapled together credit facility and preferreds facility. Since that time, we extended the credit facility, we qualified for the SBIC, we issued converts and we have added another facility that we have regularly expanded. We are continuing to look to optimize the right side of the balance sheet with different sources of financing and balancing both flexibility with low cost. We will not be able to recreate the preferred, which has a cost of LIBOR plus 85 basis points. That’s clearly above our market rate and whatever replaces it will be at a higher rate. We are trying to balance taking advantage of that with our overall diversification of sources of funding and trying to keep the diversified set of funding at sort of the lowest cost practical.

Okay, alright. Thanks. That’s it for me.

Thank you.

Our next question comes from Robert Dodd with Raymond James.

A lot of my questions have been answered, but yes, one housekeeping one first on the you mentioned $0.01 of obviously in total investment income related to prepayment income, $0.04 on OID accretion, was any of that $0.04 related to accelerated accretion given the exits in the prepayments?

No, we only had – this is Paul, we only had one significant prepayment item during the quarter and that was from our loan to Willbros Group, which we paid during the quarter. The rest of the OID accretion is part of our regular policy to consistently amortize upfront economics over the life of the loan and we expect that to be a consistent number going forward.

Perfect. Thank you. Just kind of stepping back to one of the questions on the 12% not loan structure differences or anything like that, but are you seeing any greater set of opportunities, in particular in this industry verticals right now? Obviously, I mean I’d like your opinion on energy, don’t have a ton of exposure, you have in the prepayment Q4 probably another one coming up soon, so that’s going down. What do you think about that going forward opportunistically? And is there any area or any areas in particular where you are seeing maybe less of that overenthusiastic pricing and more opportunities?

Yes. We are seeing opportunities in a variety of different industries. Setting energy aside, I wouldn’t point to any given industry and say that there is suddenly a much better or worse set of opportunities in the industries. I think it’s more individual than that. Some of it has to do with changes in the capital markets. Some of it has to do with individual borrowers. Some of it has to do with certain competitors. And so each one of these situations is a little bit different, but I think the biggest change versus most of last year and the dynamic really started to change at the end of Q3 is that parts of the market have more rationality than they did before. And there is clearly some broader impact from the additional discipline being shown in the bank syndication market that’s having some impacts on our market, but at the same time, there are still some people doing some very aggressive things. So, we have a diversified set of investments in Q4 that’s carried over into Q1. Our pipeline also shows that that it really isn’t specific to any one industry.

Okay, perfect. Thank you, guys.

Thank you.

Our next question comes from Chris York with JMP Securities.

Good morning and thanks for taking my questions. My first question is twofold. How much undistributed income did you end the year with? And then secondly, could you remind us how the company and the Board thinks about the dividend policy given that you have consistently covered the core dividend from net investment income and also have provided some special dividends?

Sure, this is Paul. At year end, we had undistributed tax basis ordinary income of $23.3 million. As far as our dividend policy, Howard, do you want to take that?

Sure. Our Board assesses our dividend policy each quarter. When we went public, our dividend was $0.34 a share. We raised it to $0.35, then $0.36. We have also had $0.05 special dividends over the last 10 quarters. Fundamentally, the thing that’s most important to us is being able to cover the dividend and cover it well. We continue to look at it each quarter to see what’s most sensible and we will continue to do that in the future, but we are really focused on having ample coverage for our regular dividend and then making a series of distinct decisions with respect to other situations.

That’s great. And then kind of a follow-up, so you have covered the dividend, the core dividend of $0.36 for seven consecutive quarters, excuse me – and highlighted some positive activity going forward, so what would you need to see for the Board to potentially increase the dividend in ‘15 or ‘16?

That’s not something that we have publicly disclosed. I think we continue to look at it, analyze it, see what we think is the most sensible, but we are really focused on making sure that there is adequate coverage. For the existing dividend, we know that there has been heightened concern in the sector over that issue. So, we are very pleased with our excess coverage and want to make sure that we continue to be in that position, where we have really been focused on stability. So, any changes aren’t something that we are looking to quantify at this point.

Got it. I understand. Last question here is you commented in your prepared remarks a little bit about the ATM program and I believe you guys sold maybe 400,000 shares in Q4, how do you plan on using that instrument as opposed to doing overnight offerings going forward?

Sure. Yes, we used it on an opportunistic basis to do just-in-time share issuances. When we have done overnight offerings, we have done them in the past only when we needed capital and we have been able to time those well. The ATM program is a helpful tool. It’s obviously not a substitute given the small size of the amount we raised, which is a sort of a fraction of a single investment given our average size. Having said that, it does provide a potential useful tool in the future to raise incremental capital on a just-in-time basis, but it’s something that we will use judiciously. Our focus on any share issuance is doing it on a basis that is accretive. And historically, we have always done those above NAV and our plan is to continue doing that in the future as well.

Great, that’s it for me. Thanks for your thoughts, Howard.

Thank you.

[Operator Instructions] Our next question comes from Christopher Nolan from MLV & Company.

Hi, thanks for taking my questions. The perspective on the share repurchase, is this more of a defensive measure, is there any expectations that you could see the market softening in coming quarters or so, give a little perspective in terms of what brought you to this announcement?

Sure. Thanks for asking. We don’t make predictions on what the stock market is going to do, but it’s clear that at the year end last year, there was a lot of general stock market volatility and specifically in the BDC sector, there is quite a bit of volatility as well. And our view is that we are taking a long-term approach in trying to maximize value for our shareholders. We thought it made sense to put in place this algorithm, which will go into effect just below NAV. And we want to emphasize the context in which we did it, which is we have only issued shares when they are accretive to NAV and earnings. Our incentive fees are subject to a cumulative 8% return on realized and unrealized gain and the share repurchase plan is part of our approach to create long-term shareholder value. In the event that our stock does trade below NAV, it’s our hope that it doesn’t, but to the extent that it does, we would like to be in a position to capture that excess value on an accretive basis for shareholders. Long-term, we are looking to maximize value to shareholders and hopefully to continue to judiciously continue to expand our platform, but we are really focused on creating value for the shareholders. And so to the extent that there are opportunities created by market volatility, we would like to be in a position to realize those values.

Great. And on the pipeline, Raj’s comments sort of – on a subjective basis sort of indicated that the pipeline remains decent, but not quite as robust as might have been the case about two quarters ago, is there a proper read into it or am I reading too much?

No, that’s my – what was taken away from my comments. I would like to address that the pipeline is strong. We are seeing good opportunity from existing relationships. Again, these are a lot of folks who have done repeat deals with us. They see the value and the value is not based on lowest price necessarily in working with us, but to be honest between the expansions of our – there is a reason we have been expanding in the various cities, New York and now San Francisco as well as new hires on the origination side. The platform and the footprint has grown and that growth has led to a lot of new relationships and channels. Aside from the sort of bigger picture challenges from the banks that create added opportunity. So my comments, I think the takeaway should be that the opportunity set remains robust. We remain very cautious and judicious in what we are doing both structurally and with various counterparties and hopefully that leads to ongoing good progress in underwritings at hopefully higher spreads.

Great. And final question, Howard, your earlier comments indicated that you have seen a bifurcation in the market in terms of pricing with the sponsored deals being much more aggressive than I guess non-sponsored deals, if that’s correct what’s your read into that, I mean what’s driving, how do you see that developing?

Sure. Your question is absolutely directionally accurate. I don’t know if they are much more aggressive, but in a number of cases they are more aggressive. And I think that’s a function of perhaps more people trying to work on financing those deals. In some cases, it’s a function of sponsor approach to the market. And in some cases, I think it’s more coincidental than that. The thing about the middle-market is it’s broad, it’s differentiated. The datasets don’t necessarily pick up all of the information when you are looking at information from S&P or somebody. They are not picking up everything out there. Many of the loans we have are bilateral loans just us and a borrower and that’s not coming into any dataset and the factors driving a particular borrower to want an individual lender and the flexibility that provides maybe different than somebody who is looking for a low-cost syndicated facility.

Great. Thank you very much for taking my questions.

Thank you.

Our next question comes from Jonathan Bock with Wells Fargo Securities.

Good afternoon and thank you for taking my questions and just an offer of congratulations on the stock buyback, which has a very shareholder friendly announcement. One question getting into a little bit of detail, Kronos International as we look at it and please correct me if I am wrong, but we saw the interest rate increase a bit and the loan take a small mark, but would you be able to walk us through that situation, not only we see shifts or moves up in interest rates as a potential warning sign and any additional color you could provide would be helpful?

Sure. I can touch on that, Jonathan. Thank you for the question. On that name in particular and again a lot of these are to Howard’s point bilateral loans and discussions and structures and when we – we always focus on not just the enterprise value and the business logic, but the structural protections that let us come back to the table to have discussions when it’s appropriate and that is the characterization of Kronos, where we have a reasonably tight covenant structure and in fact it had step-downs to it or step-ups depending on which covenant you are referring to, that led us maintain the right economic return as well as the right discourse with the company and the owners. And in certain cases, we feel like we should get a little more compensation for some transitional efforts. In this case, there is a product launch that the company is going through that is actually going well, but had a little slower start than I think the folks anticipated, but keep in mind, this company is also not a single product company, there is a very large incumbent base of our downside protection as we saw it in the middle-market for its legacy product. So, that step up really is a function of some of that transition taking a little longer than we and the owners – the management would have liked. That transitional rate is something that can be addressed by them through performance. And in fact on a current basis, they are addressing it and performing, but not outperforming on their transition. But I think it’s a hallmark of the type of investing we do where we have the downside protection, but in terms of economic reward, it is commensurate with the risk either at the time of underwriting or perhaps along the way if that risk changes a little bit, then I think that’s how you should view of Kronos as something that lets us come back and take a second or third bite at the apple if we need to both for protection or for return.

That answers that. Thank you. And then Howard or Raj, if we look at some of the sales or recaps and we think about names that might have experienced some amount of stress prior think of Doral or Real Mex etcetera. Can you maybe talk about the reasoning or more importantly the timing of that shift of restructuring? Why see some of those losses effectively realized today, anything special about this quarter as opposed to the ones that you have had because these are investments that have experienced stress for a little while?

These were both investments made previous to TCPC going public. They were made when TCPC’s private predecessor was pursuing a wider strategy, including some distressed investing. And in the case of Doral, this was a 2007 bank rescue financing joined by many of the largest financial institutions in the country, but unfortunately, it was a cheap buy in, but a bank in Puerto Rico and the islands of problems I think have been well noted. It’s still in a big recession. And ultimately, we just thought it made sense to exit at year end and take the realized loss, which ultimately can be used to offset capital gains in the future. In the case of Real Mex, it was simply a recapitalization done at about the same time we were bringing in a new CEO at which by the way we are pleased with the progress he has been making in the business so far. It’s in a tough sector, but we like the changes he has been making and it would – that also happened to just coincide with year end.

Those are all my questions. Again, congrats. Take care.

Thank you.

And I am not showing any further questions at this time. I would like to turn the conference back over to our host.

We appreciate your questions and our dialogue today. I would like to thank our experienced, dedicated and talented team of professionals at TCP Capital. Thank you again for joining us. This concludes today’s call.

Well, ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.