BlackRock TCP Capital Corp. (TCPC) Q2 2016 Earnings Report, Transcript and Summary

Ladies and gentlemen, good afternoon. Welcome everyone to the TCP Capital Corp Second Quarter 2016 Earnings Conference Call. Today’s conference call is being recorded for replay purposes. [Operator Instructions] And now I would like to turn the call over to Jessica Ekeberg, Vice President of the 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 and Presentations. Our earnings release and 10-Q are also available on our site. I will now turn the call over to Mr. Howard Levkowitz, Chairman and CEO of TCP Capital Corp.

Thank you, Jessica. We’d like to thank everyone for participating in today’s call. I’m 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 second quarter ended June 30, 2016. 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 performance and investment activities, and then our CFO Paul Davis will provide more details on our financial results. Next, I will provide some additional perspective on the market before we take your questions. I will begin with a review of the highlights from our second quarter. We had strong originations totaling $119.1 million during the quarter and maintained 80% of our portfolio in floating rate instruments. We also coincidentally had $119.9 million in dispositions. Today we declared a second quarter dividend of $0.36 per share. Slide 4 details our history of consistent dividend coverage since our IPO. As you can see in the second of 2016, we continue to earn our dividend by delivering net investment income of $0.38 per share Turning to Slide 5, our net asset value increased to $14.74 from $14.66 during the quarter as yield spreads generally tightened on the majority of the portfolio. Also on Slide 5, you can see that our accumulated dividends plus NAV have delivered a total return to our shareholders of approximately 43% since our IPO four years ago. In addition, we fully funded our SBIC equity commitment following quarter end and anticipate obtaining the second $75 million leverage commitment from the SBA in the near future. Finally, we raised a total of $65 million in new equity through two transactions this included $30 million in equity through the issuance and conversion during the quarter of a privately placed convertible note. We also raised an additional $35.3 million after quarter end in early July through a registered direct offering of common stock. TCPC incurred no placement agent or underwriting fees in either transaction. We are especially pleased that we’ve been able to efficiently raise growth capital in a challenging market environment. Our equity has been raised in a disciplined fashion for the benefit of our existing and new investors. The additional liquidity is available for deployment. For those viewing our presentation, please turn to Slide 6. At the end of second quarter, our highly diversified portfolio had a fair value of $1.23 billion invested in 89 companies across numerous industries. Our largest position represented 3.7% of the portfolio. As you can see it on Slide 7, at quarter end, senior secured debt comprised approximately 96% of the portfolio with floating-rate debt comprising approximately 80% of our debt positions. As shown in the chart at the bottom of the page with most of our debt portfolio and floating-rate assets, we are well-positioned if interest rates ever rise materially. Turning to Slide 8, during the second quarter, we deployed $119.1 million primarily in nine investments each of which was senior secured in addition to draws under existing commitments. These included investments in five new companies and four existing portfolio companies. Our investments in existing portfolio companies continue to be a source of strong risk-adjusted returns for our shareholders and reflect the value we deliver to our borrowers. Our five largest investments in the second quarter reflect our commitment to maintain a diversified portfolio and continued focus on the top of the capital structure. They include a $22 million senior secured loan to new cycle an enterprise software company and $11 million senior secured loan to Gander Mountain, retail store network of outdoor recreational products and services. A $10 million draw on our existing senior secured loan to Daymark [ph] a residential real estate company. A $10 million senior secured note to in-flight connectivity company Gogo as our large holding in the term loan was repaid and we participated in the refinancing and a $9.6 million senior secured loan to Gymboree, one of the largest children’s apparel retail chains in North America. In the second quarter investment exits totaled $119.9 million, these include the repayment of an $11 million senior secured loan to Confie Seguros, a $7 million senior secured loans to MD America, we no longer have any direct energy investments. A $4 million senior secured loan to Institutional Shareholder Services and the sale of our MDAD [ph] back to Delta Airlines. New investments in the quarter had a weighted average effective yield of 11.5% and the investments we exited during the quarter had a weighted average effective yield of 11%. Our overall effective portfolio yield at the end of the quarter was 11%. We are pleased with the overall quality of our portfolio and that we had another quarter without any new non-accruals. Now, I will turn the call over to Paul for a report of our second-quarter financial results. After Paul’s comments, I will provide additional perspective on what we’re seeing in the market and then we will take your questions. Paul?

Thanks Howard. We are pleased to report our 17th consecutive quarter about earning our dividend going back to our IPO in 2012. As shown on Slide 10, net investment income after incentive was $0.38 per share compared to our dividend of $0.36 per share. Net investment income included $0.71 per share of interest income of which $0.60 per share was recurring cash interest, $0.03 was recurring PIK income and $0.04 was recurring discount and fee amortization. The remaining $0.04 per share came from prepayment income including both prepayment fees and unamortized OID. We also earned net lease income of $0.01 per share. Our income recognition follows our conservative policy of generally amortizing upfront economics over the life of the respective investment rather than recognizing the income all the time the investment is made. Expenses of $0.25 per share included interest and other debt expenses of $0.12 per share for net investment income of $0.47 per share before incentive compensation with the difference due to rounding. Incentive compensation which is subject to cumulative 8% total return hurdle was $0.09 per share which is computed by multiplying net investment income by 20%. After paying our second-quarter dividend of $0.36 per share we closed the quarter with tax basis undistributed ordinary income from out earning our dividend of approximately $23.0 million or $0.45 per share which provides us with a significant reserve for the future. Net realized and unrealized gains of $0.05 per share came primarily from the fair value impact of tightening spreads. The largest single contributor to unrealized gains was a $0.03 gain on our loan to MD America which the company repurchased just after quarter end. This gain was generally offset by net valuation adjustments elsewhere unrelated to spread movements. As a reminder, our entire portfolio is mark to market each quarter using independent third-party pricing and valuation services for substantially all the investments. Realized losses for the quarter totaled $0.7 million. We place no new investments on nonaccrual during the quarter. Our nonaccrual debt at quarter end represented 0.4% of the portfolio at fair value. Turning to Slide 13, we close the quarter with significant available liquidity, our total liquidity of $252 million included available leverage of $227 million in cash and cash equivalents of $38.3 million less – pending settlements of $13.3 million. Available leverage includes the remaining $14 million, available on our current $75 million leverage commitment from the SBA but excludes the additional $75 million SBA leverage commitment which we anticipate and for which we have just applied having now fully funded or SBIC equity commitment following quarter end. Total leverage net of cash and SBIC debt at quarter end was approximately 0.58 times common equity. As Howard mentioned, we raised equity of approximately $65.3 million in two transactions since the end of first quarter. The first was from the conversion during the quarter of a $30 million convertible note that we issued in a private placement to CNO Financial Investments Corp. And a CNO note was issued on April 18, 2016 and converted on June 7, 2016 at holder’s option into approximately 2 million shares of common equity at $15.02 per share. The second transaction just after quarter end on July 7 was the placement of a registered direct public offering of approximately 2.3 million shares with total proceeds of approximately $35.3 million at and above NAV price of $15.09 per share. No placement agent or underwriting fees were incurred in connection with either transaction making both significantly more beneficial than a traditional secondary offering. With these issuances, we are at an excellent position to take advantage of our strong pipeline. We also may renew our ATM Program during the third quarter in order to provide an efficient mechanism for other possible equity issuances on an opportunistic basis once we have deployed our new liquidity. If we renew the ATM, we do not currently intend to use it for daily stock sales but for infrequent block issuances of equity as opportunities arise should such issuances be both accretive to our existing shareholders and warranted by a pipeline and projected liquidity needs at the time. Activity in our stock buyback program was very limited during the quarter given the high trading levels of our stock. We repurchased 1300 shares during the quarter and have acquired 278,000 shares since the inception of the program through quarter end. We renew the program this quarter which provides for repurchases of up to $50 million should our stock decline below NAV. At the end of the quarter, the combined weighted average interest rate on our outstanding debt was 3.2%. This reflects our TCPC funding facility at a rate of LIBOR plus 2.5%, our SVCP revolver and term loan at a rate of LIBOR plus 1.75% -- 5.25% and our SBA debentures at a blended rate of 2.81%. I will now turn the call back over to Howard.

Thanks Paul. I will briefly cover what we are currently seeing in the market. As we previously pointed out, post credit crisis regulations have substantially reduced liquidity in the credit markets and this trend has continued in 2016. As a result we are seeing numerous origination opportunities across many sectors. We continue to take a highly disciplined and selective approach to new investments and are passing on many opportunities. In the third quarter through August 5, 2016 we have invested approximately $27 million primarily in five senior secured loans and notes and deployed equity in our lease portfolio. The combined effective yield of these investments is approximately 9.7%. It is still early in the quarter and our pipeline is robust with many deals that are well within our historical yield range. Therefore the level and yield of originations to-date are not indicative of what we would expect for the quarter. Our primary focus remains on deploying new liquidity and optimizing our portfolio by preserving shareholder capital and maintaining a recurring earnings stream through effective deployment of our diversified liquidity sources. TCPC has built a strong market position by leveraging our platform to lend to establish middle-market companies with sustainable competitive advantages that generate significant cash flow and/or have significant asset coverage or enterprise value. Our co-investment exempted relief from the SEC which was granted over 10 years ago enables us to co invest alongside the numerous private institutional funds we manage to provide a comprehensive capital solutions to our borrowers. Looking to the future, we are uniquely qualified for continued success for several reasons; first, our focus remains squarely on managing the portfolio to produce a consistent level of returns which enables us to maintain stability in our dividend. Our disciplined underwriting has helped us maintain strong credit quality and to produce the consistent income and dividends that we know are valued by our shareholders. We are focused on continuing this approach which is to serve our shareholders well. Second, our focus on senior secured loans most of which are floating rate has resulted in a lower overall risk profile and strong portfolio performance. This has enabled us to consistently out earn our dividend and our portfolio is well-positioned for any meaningful increase in interest rates. Third, our low cost of capital and diverse funding sources continue to be key competitive advantages for TCPC. The recently placed $30 million convertible note from CNO and the $35.3 million registered direct public offering are examples of our commitment to accessing new sources of capital in ways that are advantageous to our shareholders. TCPC did not pay any placement fees in connection with those transactions. And our ATM will be positioned to raise equity in accretive manner when needed for deployment if we establish it. TCPC remains well-positioned with attractively priced leverage and financing flexibility which includes our convertible notes, a term loan, revolving credit facilities and long-term SBIC unsecured notes. 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 in the industry. We continue to invest alongside our shareholders and members of the management team and the Board of Directors have continued to purchase shares in the open market including during the most recent quarter. In closing, we are pleased with our performance and achievements in the first half of 2016. We are optimistic about our prospects for delivering continued growth and returns to our shareholders based on the opportunities we see. Taken together, our strong capital position, growing origination platform and the many opportunities we see that meet our rigorous investment process that deliver strong risk-adjusted returns to our shareholders over the long-term. 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.

Thank you. [Operator Instructions] And our first question comes from Chris Kotowski with Oppenheimer. Your line is open.

I was going to ask, couple of quarters ago you were sounding distinctly cautious about the market. And today, you sound reasonably optimistic about being able to deploy the proceeds from the equity raises fairly quickly. And I’am wondering what in your view has changed or where are you seeing the opportunities?

Sure Chris, thanks for the question. When you refer to several quarters ago I suspect you are talking about Q4, Q1 with times when there was a lot of disarray in the capital markets. You know I think the capital markets were probably a lot worse than the underlying fundamentals of most companies certainly those in our portfolio. But there was very little visibility with being able to raise new and expansion capital and so we were cautious in our deployment not because we didn’t have opportunities, we saw plenty of opportunities to put up the money but we were cautious in how we used our money because we wanted to select among the very best opportunities not being certain when we would be able to grow and also wanting to make sure that we had adequate available – capital available for existing portfolio companies. And so hopefully that distinguishes the dynamic you’re talking about. I wouldn’t say that the capital markets today are robust, clearly, equity values are up but you know M&A volumes are down and there isn’t quite as much borrower activity. But notwithstanding that, I think in part because of our diversified and unique sourcing platform, we are seeing a number of attractive opportunities you see in Q2 from our originations really across a wide variety of sectors and opportunities and you know from our pipeline we are seeing more of the same.

Okay and then in terms of the deployment of the funds, the SBA debentures, you know we look at the last couple of quarters, you know, this quarter is like $12 million something like that. Is that what we should expect that one or two deals quarter ago in there or is that ideally your first source of funding for the next year or two or a couple of quarters?

Chris, it’s Raj speaking, thanks for the question. I think with the SBIC you know just going back when we first started it, the ramp up was little slower than we expected based on our historical deployments with eligible companies and in many ways over the course of the last six months or so it’s caught up not only in the amount we put in but to be honest in the breadth of the types of companies we’ve been able to invest with meaning in the early stages it was really disproportionately allocated to some of the venture deals and now in the latter stage or the utilization of the position [ph] the equity tranche is a broader set of companies you know that are non-venture backed as well as more traditional private middle-market. Going forward, you know we are hesitant always to lay out a specific timing or amount as you know because everything is quite chunky. It does feel like there will be more of a balanced approach and deployment going forward. We hope that it’s at the pace that we’ve seen in the last quarter or two. I think you know without giving a specific guidance, you know, same one per quarter certainly is something we hope to see maybe even more but I think we are just reluctant to say you know what it will be quarter-by-quarter just given the experience to-date on it. But it does feel like it’s picked up a little bit.

Yes, I understand the limitations, thanks, that’s it for me.

Thanks Chris.

Thank you. [Operator Instructions] And our next question comes from Ryan Lynch with CBW. Your line is open.

Hi, good afternoon, guys. First question was just around your portfolio yield, so I was looking over the past year plus and you guys have been able to maintain a pretty steady portfolio yield of around 11%. So can you maybe just give us some color around how you been able to maintain you know a very healthy 11% portfolio yield in a market were generally speaking yields have been compressing, so how you have been able to maintain that yield without reaching or compromising credit quality of your portfolio?

Sure, it’s Raj again. I will take that. I think, it really has come down to one of the points we try to make repeatedly which is creating a very wide funnel of opportunities and trying to select amongst them not only with the best return but I would emphasize the best risk-adjusted return. You have seen a concerted effort to take the mix up to more first lien structures, certainly this quarter the majority of the structures are on the first lien basis. And I think it really comes down to being a value-added financing party to companies that while healthy and while performing and qualify for the BDC strategy are just not able to find a large diversity of opportunities to finance their business needs and therefore at the margin are willing to sign up for something that may be a little bit pricing wide little bit wider than they would see in a more syndicated or efficient marketplace. So it’s nothing new or nothing different than what we talked about in the past. It’s being selective but also having a wide base to choose from and in that base try to be disciplined and I agree with you, we are not looking to stretch for yield or or return that certainly has been more defensive. But I think we are fortunate to have a platform that that can see those opportunities somewhat consistently.

Okay appreciate the color. You know you guys are one of the few BDC who have been able to access the equity capital markets, raise additional equity capital which gives you guys obviously available capital deployed into the markets. Not realize BDCs are not the only people your competitors with but you guys seen any additional activity from sponsors reaching out to your – any additional deal flow not one of the few BDC with access to additional capital deployed?

Yes, I will continue on that and I think the straight answer is yes. Keep in mind that our BDC capital, I think this is a little bit atypical in the market both for the certainly the public funds but even some of the private closing funds is not our only source of capital to deploy for private lending. So I think firms both intermediaries and sponsors and you just private business owners know us to be a I think reliable source of capital in different market environments. So that has certainly led from our perspective to more opportunities from people who know us and I think more opportunities from people who have come to learn about us either by word-of-mouth or you have some other experience that has I think you know fortunately led to more dialogue and more opportunities with which to choose from. So short answer is yes and little big longer winded detail behind that.

Okay, thanks for the color, that’s all from me.

Thanks Ryan.

Thank you, our next question comes from Robert Dodd with Raymond James. Your line is open.

Hi guys, following up to kind of one of Chris’s question on the SBIC side and the eligibility there. Could you give us a bit more color on what to your point, I mean things have definitely ramped up in this last quarter relatively speaking, how slow that program started off. What’s the driver there? Is this the market factor that just starting to see more activity given not necessarily what we heard from other SBIC focusing some BDCs some choppiness to the first half of the year certainly. Or is it more of a development of your origination professional really targeting that market a little bit more than they had done over say 2015?

Hi Robert, it’s Howard.

Hi.

Hi, there really isn’t a difference in how we are managing the business. We continue to source, originate and process loans really in the way that we have going back to 1999 in this business, long before TCPC was public using the same process. And the fact that they fit or don’t fit into SBIC on a very lumpy basis tends to be coincidental. You know very often a deal will come in and people you know who aren’t as focused on it will says oh this looks like it meets the criteria and then you go through and there’s a particular nuance associated with it because there are bunch of rules about whether it qualifies and you might you know at first glance think it does and then it doesn’t. We don’t suddenly say we are not going to deal, if it’s a good deal, we are going to keep doing it. And we are not running around looking to do things that we otherwise wouldn’t do because we have the SBIC. So for us, it is a great incremental financing tool to be able to provide more capital to our borrowers but we’re not running our business differently because we have it and I think one of the other things that you don’t see is we’ve had a bunch of early repayments you know so typically our loans are out for you know 2 to 3 years and more coincidently than anything else because the SBIC facility is fairly young. We’ve had several of them come back and so when that happens, we then redeployed that liquidity. So you don’t see any additional draws and looking at the reporting statistics it doesn’t look like we’ve had more volume but we actually do. It’s just getting recycled.

Okay, perfect. That’s great color. Thank you. Secondly, just kind of you know, obviously you are equity rich right now relatively little bit under 11 and then we look at the net deployment so obviously this quarter basically level high repayments good deployments but high repayments, repayments as we know very hard to predict right but with your position, what’s your comfort level that you are going to be able to deploy that capital, because implicitly it seems to presume that the net, the repayments and originations aren’t going to offset and very difficult to predict but what’s your comfort level that you are going to be a net positive portfolio growth given the difficulty there and the choppiness of the refinancing market?

Well as you pointed out, we don’t often know when things are going to refinance. Sometimes borrowers tell you they’re going to when they pull a deal and sometimes they just come up and surprise you when you weren’t expecting it. Our repayments were much higher than they normally are, if you look back four quarters, this was far in a way the biggest repayment quarter. Now Q2 tends to be seasonally higher, so that may be a little bit more than coincidental but normally we don’t run at this rate repayment risk? And so, I wouldn’t assume that going forward we are going to have this level of repayments, could be higher or lower but this was on average high. As we look at the deals in our pipeline, we feel good about them. You know the position we were in for a number of quarters was that we had a lot of deals that we were either not doing or TCPC was taking a relatively smaller position versus the rest of our platform because we didn’t perceive ourselves as having enough liquidity to take bigger positions. And so having the additional equity is very helpful and we timed it in a way that we think matches our growth really just-in-time raises. So some of it was raised, you know during Q2 and the other part right at Q3. But as we look at our pipeline, it’s our expectation to be able to deploy that pretty effectively.

Okay, great thank you. This is all I had the question. Thanks.

Thanks for the question Robert.

Thank you. And our next question comes from Jonathan Bock with Wells Fargo Securities. Your line is open.

Good afternoon and thank you for taking my questions. Howard, you know let’s talk a little bit about the types of investments that you are making only because oftentimes when we understand the names or the companies, or the sizes of what they do, it brings to question the proprietariness, my apologies for the word of the given transaction, so for looking at a Gymboree, which is a huge company or Gander Mountain et cetera. Walk us through the uniqueness of the investment thesis for a few of what we would consider larger, larger names that may have been done by a club may not but give us the sense that you are actually directly originating these credits as you’ve always done before so trying to understand the credit thesis there and how your platform played specifically into it on a few of the select names out there, I outlined two retailers that would be very very helpful?

Sure, happy to do that. The two retailers you outlined in both cases we were a part of small clubs that are doing asset-backed financings. And so I know you’re familiar with those transactions and I think people have become increasingly more familiar with them. These are transactions we here have been doing since 1999, and we’ve done them episodically what we basically do is partner with other lenders sometimes we do them on a sole basis that usually we partner with people who focus on the retail sector together with liquidators analyzing the collateral of the company and providing them with incremental borrowing capacity beyond what they would be able to have from a traditional asset-backed facility but with a lien on all of their collateral. And so that if something happens to them in the event of liquidation, we are covered simply by selling off the assets regardless of the performance of the retailer. That said, it’s not our hope that any of these liquidate, we are providing them incremental capital because we believe in and support the businesses. We’re interested in helping them you know continuing to either grow or operate and execute their business plans which is why we do these things. But they are uniquely structured and so yes, Gymboree has a large capital structure but our particular tranche is just a couple of us in a very small part of the credit facility. The – some of the other transactions that we did this quarter News Cycles [ph] the deal we just did solely in-house. Raj, you want to give little color on that one.

Yes, this is, we have a lot of focus on enterprise software businesses. This is one of those types of transactions, high visibility in the revenues, high renewals you know very strong margins and you know excellent, absolute and relative EBITDA to cash flow conversion, all things we like in that sector. This was done on a proprietary basis with a sponsor. The end customer here really is despite the fundamentals to that – of the business model is in an area that not everyone can get comfortable with which is series of print media sort of daily and weekly newspaper and circulation manufacturers. And so you know the ability to folk structure something that was quite protective and also take the time to do the work and in end market that is an intuitively one that everyone will sign up for you know lead you to structure something that has both good side protection and an effective yield of little under 15%. But I think John to your point is very much in line with how we—in the proprietary private deals but just to echo some of the comments Howard’s making, everything we do will be based on leveraging our team’s industry knowledge. So whether it’s a small club or you have a you know relatively unique asset lending structure or something of a cash flow loan in a software so we have good and how to diligence the metrics and validate the business model strength. We will be coming at it from a deal team basis of the deal teams being able to do that work on a domain or industry basis, which is the consistency across the platform regardless of whether it’s a private or biosyndicated deal.

Thank you for that, Raj. And Howard only so because so Gymboree make complete sense, very strong return on the first terms you know on an ABL effectively. I just noticed that Gander is a second lien, so is that kind of a special second lien in between an ABL and term loan or that kind of straight up can flow second lien to a good company?

Gander is a secured loan, it’s got security interest in the company’s collateral.

Okay, okay, okay so both totally understanding, and look as we look forward.

Sometimes these things are done as first lien second out, sometimes these liens are done – second lief for technical structuring reason.

That’s also how are you counting, so anytime you have a second out rental, what you call a last out first, you will describe that in your financials as second lien?

No, if it’s a second lien, it’s described as a second lien and if it’s a last out, it’s described as a last out.

Okay, okay great. And then moving on to the equity capital markets it’s always a pleasure to come after Mr. Lynch when he ask an equity question, and clearly there has been a resurgence in terms of the interest and more importantly, we are excited to see the way, kind of capital spend rates to highlights institutional credibility, credit tier franchise et cetera. You know the one thing that is, you mentioned the just-in-time kind of focus to equity which is beneficial but it’s also tied to the market, right. And not that we ever want to relive February again but you know February like this past year do happen. So help us balance you know what you are thinking right, you’ve raised some equity, we’ve got a little bit of additional dry powder. But Howard, as we go through the balance of 2016, 2017 and the market gets longer in the tooth, does it not make sense to keep a little bit of reserve capacity you know that might be a bit higher than most in order to prevent or more importantly were to enable you to take advantage of what the downturn might bring in the event of another dislocation?

John, thank you for the question that is exactly the way we view the world. I think coming out of Q4 we got some questions about our lower leverage on the call and privately on Q1 and our view is generally speaking although at the moment the equity markets are settled, they were very disrupted in Q4 and particularly in February and this call may not last and you know it may spread to the credit markets as well. Right now, there is a very strong bid for credit instruments generally but that could change too. And so we tend to run with more cushion perhaps than some others under the view that we do not know that when we will be able to effectively and creatively raise equity and you also don’t know when you’ll have some deals you really want to do or some that you expected to get repaid stay on your books and so we met max out our leverage, we tend to run with more cushion I think than some other people. Unfortunately, our construct is such that we’ve been able to cover our dividend quarter-after-quarter every quarter and with our earnings despite being less leveraged.

Great, thank you for taking my questions.

Thanks for the questions.

Thank you, our next question comes from Christopher Testa with National Securities Company, your line is open.

Hi, Howard, hi Raj, thanks for taking my question today. Just with the prepayments, we are obviously very elevated during the quarter, can you just remind me how much was OID acceleration and for a second part of the question, just wanted to know given the prepayments why fee income seem to be down quarter-over-quarter?

Sure, this is Paul. We had $0.04 prepayment income, $0.03 of that was prepayment fees mostly from Gogo. We had $0.01 of acceleration of OID. The other income is simply some miscellaneous amendment income that sort of thing not a lot of that this quarter but the prepayment income is included in interest income in the income statement.

Okay, got it, that clarifies it, thank you. And you know with the growth potential through the remainder of the year given the dry powder that you have with the additional equity raises and the SBIC granting you more debentures, would you characterize the growth potential through the remainder of the year coming more from robust originations or step downs in prepayments?

I think generally, I mean we like when we get the – this is Raj speaking. We like when we get the repayment or the prepayment, it’s always nice to get money back, that’s episodic. I think growth of the platform just in terms of dollars should be coming from origination and new deals.

Okay got it and on the origination side, especially in terms of the sponsor originations, just curious what you’re seeing in terms of leverage, structures and pricing from the sponsor community and you know whether this kind of is reflective of the reality in the market where M&A has been very low or whether they are still trying to push you know really you know high leverage on the companies and things of that nature?

I think, it’s Raj again. I think the comment I tend to make it’s not quarterly based, it’s really the nature of issuers relative to lenders. Sponsors will, they’re very sophisticated audience, they will look to always push things in their favor whether it’s pricing structure, you know covenant levels or lack of covenant etcetera. I don’t know that I would characterize the environment any different in that vein, people are looking to get more for less and the balance is providing a value-added financing and getting the right protections that you need as a lender or in many cases maybe increasingly just not participating or walking away. So I think the environment is still based on that. There certainly has been a little bit of more volatility among the participants that we’ve seen more active in the past that sort of abated a little bit, I think it’s a function of the capital markets or portfolio management. So that’s help at the margin but I wouldn’t call it a dramatic change and how sponsors look to interact with the lenders.

Okay, great. And aside from the tightening spreads leading to the unrealized appreciation, can you remind me which portfolio companies contributed to be positive fair value marks as well?

The biggest one was MD America which was repurchased by the company.

Okay great and that was your only energy investment?

The only direct remaining…

Got it, okay that’s all from me. Thank you for taking my questions.

Thanks for the questions.

Thank you, and our next question comes from Chris York with JMP Securities, your line is open.

Good afternoon guys and thanks for taking my questions. So given your recent equity raises, could you provide us with your estimated all in leverage yield on investments on a consolidated basis that is necessary to cover the new dividend? And then secondly, your desire for new equity capital in the near term given the demand for capital that you have spoken about in the call?

With respect to the first question, we don’t think there’s really been a hugely dramatic change if you – you know one of the other questions was about our asset yields. Our cost of leverage hasn’t gone up and yes, we’ve added some incremental equity but if you put that all together, the equation really hasn’t changed significantly in our view. And so, we continue to be looking to opportunistically grow when we think wish it can do so in a way that’s beneficial to our existing shareholders accretively and to new investors but we are not on some program, it had been quite some time in fact the fall of 2014 since we done a capital raise before this and these cases we were approached by entities that were looking to invest in us and couldn’t get that kind of sheer volume easily in the open market and so we look to take advantage of that.

That’s great. And kind of following up on it so maybe taking a step back Howard, considering the balance sheet is growing again, can we get an update on the BDC’s strategy long-term and then maybe more specifically now we are at assets of $1.3 billion, so how could or how big could this BDC be and then maybe giving some consideration to provoke the managers platform and the co-investment exemption that you spoke of?

Sure, we are pleased to have TCPC at its current size being part of our overall platform which is a little north of $6 billion in assets. So this enables us to do co-investments. You know we are able to provide a lot of solutions to borrowers but it’s also clear that there’s some things we can’t do. And so being bigger is something that we can certainly do and we think continue to execute on the same types of loans and investments that we’ve been making. There’s probably some natural limitation to that but it’s nowhere near our current size at the moment.

Okay and then lastly from me, were there any lockup periods associated with either the conversion or the equity placement that you made and then forgive me if I missed this, there is a bunch of call this morning, did you disclose the investor in that equity private placement?

We have not disclosed the investors, they may as a function of their filing requirements wind up disclosing who they are you know when they file their documents. You know CNO is, we’ve been very overt about the second investor we have not and with respect to any additional restrictions you know we haven’t put anything else out there but I think it’s safe to assume that these people anticipated it being long term holders, so they went to have done what they did.

Make sense, that’s it for me, thanks Howard.

Thank you.

Thank you, our next question comes from Stephen Laws with Deutsche Bank. Your line is open.

Hi Howard, a lot of my questions on capital deployment, yields on investment center have been covered. Maybe just one question, the follow-up on the previous caller, as you get bigger, can you talk about at the manager headcount, the number of origination personnel you have, any turnover that’s happened or that’s happened or that’s expected or whether or not you need to add to your team just as you have the new capital deployed, as you have the prepays come in, I need to recycle that capital?

Yes, Stephen, thanks for the question. We feel very good about our organization today. You know we have expanded from what was solely one office here in Santa Monica to having offices in San Francisco and New York, each of those works together with our primary office on deals you know and we are comfortable with our current staffing levels. We think that the – there are lot of opportunities to execute on things in – and the way the business is staffed today. Having said that we are always looking for reasonable additions to the business and we certainly could be adding people in the future. We continue to talk to people all the time and so with we find people that are necessary and appropriate you know you could expect us that and to the company.

Great, well I appreciate all the color you guys have provided on these other topics, with other questions, my other questions have been covered, thanks Howard.

Great. Thank you.

Thank you, our next question comes from Christopher Nolan with FBR and Company, your line is open.

Hi guys, Howard, did you mentioned earlier the new investments to-date in the third quarter and if so can you provide that?

We did announce those. Let me just give them one second and we’ll give those goals back to you. It was $27 million and five senior secured loans with an effective yield of 9.7% and then we gave the caveat that it’s in the quarter and we don’t think about you know annualizing that or thinking about that is a run rate for the quarter. As with every quarter our investments span a range of yields. This is a little bit smaller level of investments than we would normally have five weeks into the quarter but based on our pipeline, we think that’s coincidence rather than a trend and these yields are primarily weighted down by one – the largest of those investments being just somewhat lower yielding than the others which I think speaks to our strategy which is you know do deals that make sense, they are varying yields, we are not trying to hit some magic number when we do these things but don’t put too much granularity into extrapolating from this very small sample size after five weeks.

Okay and then I noticed legal cost were up in the quarter that’s simply just because of all the capital raising?

Yes, it’s, that’s a big part of it.

Okay final question is Paul [ph] deliver income, did you guys disclose that, I know that you made a passing reference to that new comments.

Yes we did. The end of the quarter we had $23.0 million in undistributed ordinary income at the end of the quarter.

Great, okay thanks for taking my questions guys.

Thank you Chris.

Thank you, our next question comes from Doug Christopher with DA Davidson. Your line is open.

Thanks for taking my questions. I have one macro question and one TCPC specific question. First is one of the key macro drivers was of the industry was banks P&D [ph] risk opening the opportunities for the BDC’s, is that still a key macro factor, is there another macro factor or factors that you can add to there?

Yes Doug, thanks for the question. The answer quite simply is, yes. Normally after a financial crisis, you go through a period of regulatory tightening and then regulatory loosening as the banks get more aggressive. And this isn’t normal. We are now eight years past depending on how you measure it you know maybe nine certainly the onset of the crisis, and the regulators just keep tightening and not only are they tightening generally and making it you know more costly and difficult for banks to do business in a lot of way specifically in the area of leverage lending, they have made it more difficult. And then if you look at some of the conventional channels for syndication there is CLOs which have a bunch of rules or ETFs which are kind of a funny purchaser of loans since they are not REIT covenants or think about what’s in them. But with respect to really holding things on their balance sheet, the banks just aren’t doing a lot of that, they’ve cut staffing, they have regulatory charges, they really not set up to do it and they’ve got a lot of regulatory pressures not to do it. And at the same time you’ve got a expanding economy albeit slowly with lots of middle-market companies that need financing, some need it for growth, some need it for refinancing some needs it for capital equipment, some need it for other things. But there is a lot of growth and change going on in many industries and that tends to cause businesses to need capital to finance their operations and so we built this business around preserving people in a more unique way and doing things that didn’t easily fit on bank balance sheets. Today, there are more things that don’t easily fit on balance sheets and probably any time in our history.

Thank you, thanks for the color there. And then the second is TCP specific and that is your confidence to sustain the – what I call the core $0.36 dividend now versus a year ago?

We continue to be focused on dividend coverage. We certainly think it’s very important and we have a chart in our presentation that shows the amount by which we overearned the dividend every quarter, you can find that on Page 4, we are very proud of it. Not every quarter is the same but we continue to think that that’s one of our primary goals particularly in a world in which you know it’s very hard to find yield of any kind certainly with credit instruments and also with stocks, we think being able to have this kind of yield with dividend stability is very important to our investors and so certainly we are very focused on.

Thank you.

Thank you.

Thank you and I am showing no further questions at this time. I would now like to turn the call back to Howard for any closing remarks.

Thank you. I’d like to thank our experienced, dedicated and talented team of professionals and TCP Capital Corp. We appreciate your questions and dialogue today. Thank you for joining us.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program, you may all disconnect. Everyone have a great day.