BlackRock TCP Capital Corp. (TCPC) Q1 2018 Earnings Report, Transcript and Summary

Ladies and gentlemen, good afternoon. Welcome everyone to TCP Capital Corp., First Quarter 2018 Earnings Conference Call. Today's conference call is being recorded for replay purposes. During the presentation, all participants will be in a listen-only mode. A question-and-answer session will follow the Company's formal remarks. [Operator Instructions] And now, I’d like to turn the call over to Katie McGlynn, Vice President of the TCP Corp. Global Investor Relations team. Katie, please proceed.

Thank you, Michelle. 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. This morning, we issued our earnings release for the first quarter ended March 31, 2018. We also posted a supplemental earnings presentation to our website at tcpcapital.com. To view the slide presentation which we will refer to on today's call, please click on the Investor Relations link and select Events & Presentations. I will now turn the call over to our Chairman and CEO, Howard Levkowitz.

Thanks, Katie. I am here with our TCPC team and we thank everyone for participating on our call today. I will begin with highlights from the first quarter followed by a few remarks on the recently announced transaction between BlackRock and our external advisor. Our CFO, Paul Davis, will then review our financial results. After Paul's comments, I will provide some closing remarks before opening the call to your questions. Now let's begin with highlights from the first quarter which was summarized on Slide 4 of our presentation. We delivered another strong quarter of originations in the first quarter, totaling 169 million demonstrating our ability to source unique investment opportunities even in the competitive environment. As shown on Slide 5, we earned net incremental income of $0.37 per share in the first quarter, out earning our dividend despite a relatively lower level of prepayments. And today we declared a second quarter dividend of $0.36 per share payable on June 29th, to holders of record as of June 15. This represents the 24th consecutive quarter in which net incremental income exceeded the dividend. Our net asset value increased in the quarter to $14.90 as shown on Slide 6. Our cumulative dividends plus NAV appreciation have generated a return in excess of 60% since our IPO on April 2012. And as demonstrated on Slide 7, TCPC has outperformed the Wells Fargo BDC index by 42% over the same period. Turning to Slide 8, we continue to hold a diverse portfolio of investments at quarter end, a portfolio which had a fair market value in excess of $1.6 billion, was invested in 97 companies across a wide variety of industries. Our largest position represented only 3% of the portfolio in our five largest positions together represent only 13.1% of the portfolio at quarter end. As you can see in the chart on the left side of Slide 8, our recurring income is distributed across a diverse set of portfolio companies. We are not heavily reliant on income from any individual portfolio company. In fact, over half of our portfolio companies contribute less than 1% to our recurring income. At quarter end, 93% of our assets were senior secured debt instruments. In addition, as shown on Slide 9, 88% of our debt investments were floating rates. We have discussed the potential for rates to rise for several years and positioning our portfolio accordingly, has allowed us to benefit from the recent increases in LIBOR as our floating rate investments reset. This benefit has been enhanced by our predominantly fixed rate liabilities. Turning to Slide 10. Of the $169 million to deployed in the first quarter, 165 million was in senior secured loans and notes. These included investments in six new companies and six existing portfolio companies. Follow-on investments in existing portfolio companies continue to be an important source of investment opportunities and reflect our strong borrow relationships and the value we deliver to them. Our top five investments in the first quarter reinforce our commitment to maintaining a diversified portfolio and lending at the top of the capital structure. They include $38 million asset backed credit linked note, a $21 million senior secured loan to SnapLogic a commercial software company, a $16 million senior secured loan to deal our FX, a customer service management platform, a $15 million senior secured loans to HighTower a wealth management company, and then $11 million follow-on senior secured loan to Autoalert a sale solution provider to the automotive industry. Our other investments in the first quarter were spread across a wide variety of industries including advertising, business services, healthcare and entertainment. In the first quarter, our dispositions of $71 million included a $23 million pay off our loan to Martello and the payoff of a $15 million loan to IO Data Centers. Prepayments in the first quarter were lower than historical levels. We believe this is more likely results of coincidence rather than a trend. New investments in the quarter had a weighted average effective yield of 11% and the investments we exited during the quarter had a weighted average effective yield of 10.8%. The overall effective yield on our debt portfolio at quarter end increased from 11% to 11.3% as we benefited from the increase LIBOR. Given the competitive pricing environment, we’re very pleased to continue to generate consistently strong yields on our investments. Finally, please turn to Slide 11 for an overview of a recently announced transaction between BlackRock and external advisor Tennenbaum Capital Partners. As many of you are aware, last month BlackRock and TCP entered into a definitive agreement pursuant to which TCP will merge with the subsidiary of BlackRock. Upon the completion of the transaction, TCP is expected to become an indirect wholly own subsidiary of BlackRock and subject to shareholder approval remain the investment advisor to TCP Capital. To us, the most important aspect of this transaction is that it provides for full continuity of our team. The same team has been responsible for the investments of TCP Capital, and we’ll continue to focus on exact executing the same proven investments strategies and process, as we have since TCP Capital inception. Over the two decades since we started the firm, the TCP team has generated consistently strong returns through several market cycles. TCP Capitals performance has been a function of our long-term relationships with deal sources, portfolio companies and other constituent. Our deep industry knowledge and our disciplined approach to sourcing, underwriting and managing our portfolio, upon completion of the transaction, we expect TCP will benefit from the scale and the resources to which the advisor will gain assets as part of the BlackRock platform. We also expect TCPC will maintain the same team, the same strategy, the same best in class advisory fees structure, the same efficient cost structure and low cost leverage and our commitments to consistent dividend policy. As summarized on Slide 12, we believe this transaction will enable us to further strengthen our competitive position by; first, providing access to greater scale and resources needed to providing more completion solution or borrowers; second, enhancing our ability to source transaction for across a variety of deal source channels; third, our commitment to reduce the administrative expense ratio, as we continue to grow the business; fourth, leveraging BlackRock’s technology capabilities and innovative investment infrastructure; and finally, continuing to attract highly talented individuals. We’re very excited about the transaction and look forward to the benefits it will bring to our management of TCP Capital. Now, I will turn the call over to Paul who will discuss our first quarter financial results. Paul.

Thanks, Howard, and hello everyone. Starting on Slide 14, net investment income was $0.37 per share exceeding our dividend of $0.36 per share. This continues our sixth year record of covering our dividend every quarter since our IPO. Over this period, we have also out earned our dividends by an aggregate $25.9 million or $0.44 per share based on total shares outstanding at quarter end. Investment income for the quarter was $0.75 per share, of that amount interest income comprise $.0.74 per share, of which recurring cash interest was $0.62, recurring discount and fee amortization was $0.05 and recurring PIK income was $0.045 cents. The remaining $0.03 per share came from prepayment income, including prepayment fees and unamortized OID. We also earned $0.01 per share of other income. Our income recognition follows our conservative policy of generally amortizing upfront economics over the life of an investment rather than recognizing all of it at the time the investment is made. Operating expenses of $0.38 per share included incentive compensation of $0.09 per share, and interest and other debt expenses of $0.16 per share for net investment income of $0.37 per share. Net realized and unrealized gains of $5.6 million or $0.09 per share were comprised primarily of various market gains resulting from generally tighter spreads as well as a $1.9 million increase in the value of our investment in NEG as the company’s performance continues to improves. Net realized losses were $0.6 million in the quarter. Our credit quality remained strong with only one loan on non-accrual at quarter end, which continues to be marked at zero. Turning to Slide 17, we closed the quarter with total liquidity of $254.5 million. This includes available leverage of $242.0 million, and cash and cash equivalents of $13.7 million, less net pending settlements of $1.2 million. As noted on our fourth quarter earnings call, in February, we refinanced the SVCP 2018 facility with a new revolving credit facility with total capacity of $100 million at a rate of LIBOR plus 2.25%. We are pleased to be able to continue raising debt financing on attractive and shareholder-friendly terms. We also increased outstanding draws on our $150 million SBA leverage program to $98 million during the quarter. As of quarter end, outstanding debt included our new SVCP 2022 facility at a rate of LIBOR plus 2.25%, our TCPC funding facility at a rate of LIBOR plus 2.5%, our convertible note issuances at rates of 4.625% and 5.25%, our senior unsecured notes at 4.125%, and our SBA debentures at a blended rate of 2.63%. At the end of the quarter, the combined weighted average interest rate on our outstanding debt was 4.18%. Regulatory leverage at quarter end, which was net of SBIC debt, was 0.77 times common equity on a gross basis and 0.76 times net of cash and outstanding trades. With our stock trading at a slight discounted NAV during the quarter, we made modest share repurchases under our share repurchase program which is based on algorithm. I will now turn the call back over to Howard.

Thanks, Paul. Our Annual Shareholder Meeting is on June 19th and all of our shareholders are invited to attend. Included in our proxy is a proposal to approve a new investment management agreement, which will go into effect upon completion of the BlackRock, Tennenbaum transaction. The new investment management agreement will be on substantially the same terms as the existing agreement. Consistent with prior years and in line with many of our BDC peers, we have also included in our proxy a proposal for shareholder approval to issue up to 25% of our common shares on any given date over the next 12 months at a price below net asset value. The purpose of the below NAV issuance proposal on our proxy is to provide flexibility. It is basically an insurance policy which our shareholders have approved every year since we went public. To be clear, at this point we do not intend to issue equity below NAV and certainly not unless it is accretive to our shareholders. Additionally, there is a proposal on our proxy to withdraw our operating company SVCPs election to be regulated under the 1940 Act as the BDC. Currently, both TCP Capital as a holding company and SVCP as an operating company are regulated as BDCs. The Board of Directors has determined the continuing SVCP's regulation as a BDC is no longer necessary and removing the selection will provide cost savings. Now I’ll briefly cover what we're seeing in the market. 2017 was a record year for capital raised by direct lending funds and as a result, the middle market lending remains competitive. Against this backdrop we are pleased that we continue to source attractive investment opportunities while remaining highly selective. With over 200,000 active businesses the majority of the U.S. companies are middle market. In the second quarter through May 8, we have invested approximately $57 million primarily in three senior secured loans. The combined effective yield of these investments is approximately 11.5%. At this point in the quarter our pipeline includes many transactions that are well within our historical yield range. Looking ahead, we are well positioned for continued growth for several reasons. First, our nearly two decades of experience investing in middle-market companies across multiple market cycles. Second, our long-term relationships with deal sources and portfolio companies which provides us with the ability to source unique investment opportunities. Third, our focus on credit quality and downside protection. Fourth, our low cost of capital and diverse funding sources which provide access to a variety of attractively priced equity and debt financing alternatives. Fifth, our interests have always been and will remain closely aligned with our shareholders. And finally, our partnership with BlackRock will create a market-leading private credit platform with significant scale resources and geographic reach that will enhance opportunities for our shareholders. Looking to the future, our strategy remains the same. We will continue to focus on effectively deploying capital from our diverse and attractively priced funding sources to optimize our portfolio performance by generating a strong recurring earnings stream our focus on preservation of capital. In closing, we are excited about the future. 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 Chris Kotowski of Oppenheimer & Company. Your line is open.

Howard, I was wondering, first of all if you could talk about your approach to the new leverage limits? Do you have any desire or intent to avail yourself of them or at least have the option to?

Chris thanks for question. Our business model works very well today. We've been able to cover our dividend every quarter and we are looking at the new legislation and with the change that it would enable us to make. We are discussing it with stakeholders including our Board of Directors, shareholders, and leverage providers. We are in no rush to do anything and we’re deliberately considering it, and we’ll keep you apprised if we make any decision to make any changes in the future.

And then I guess I was also wondering, you said in the prepared comments in the press release that there is only one non-accrual, but then I see a footnote C, the non-income producing security footnote appear on Gogo Intermediate Wireless Holdings and also on Kawa, the revolver. I was just wondering, is that just typo or there is story there?

I mean Kawa doesn’t have an interest rate. The interest rate is zero, so there would nothing to be accrued.

Okay. And Gogo, it says 12%, 12.5%?

Gogo, I’m not seeing that exact -- let me look at things and get back to you.

Our next question comes from Leslie Vandegrift of Raymond James. Your line is open.

I have a question on, I know you mentioned different of question about considering the increase leverage but not rush, but not necessarily on your use of that extra leverage, but on the rest of the BDC space. As you hear other peers comment on one in the extra leverage to go into more first lien larger EBITDA companies for investments. Do you believe that changes the competition in that area which you have traditionally focused on?

Yes, Leslie, its Raj here. I’ll take that and I think just to reiterate, what Howard said maybe more. Leslie, we’re in the information gathering mode. There seems to have been in a wide reaction for various reasons to the leverage rules. And I think for us, we’re not looking to rush to a conclusion versus trying to make a very informed one. To your question about increase and where it applies, I think we’ve seen a variety of folks take an off balance sheet increase to SLF JVs. So, they have been addressing that segment sort of indirectly versus on balance sheet. I don’t know that, that changes anything in terms of the companies that apply to the increase leverage perhaps changes where you put it, meaning you can do it on balance sheet versus off balance sheet. For us, at the end of the day when we do underwriting, just to be clear on what we have stated in the past. We don’t ask you to look at underwritings on a levered basis, we’re looking at unlevered return on the asset and then the leverage is really a function of portfolio or fund that mean where we have available and where we think it's appropriate. So, for us I don’t know that is changes very much in terms of how we look at companies and how we underwrite. And again what we do in terms of the leverage accessibility is more of a forward-looking decision than anything we’re doing today.

And then on the BlackRock platform acquisition and the manager, you gave some of the color about the kind of scale that can offer et cetera, but just TCPC's average investment whether it would be by size of the investment or again by the even at the companies that are looking at. What could change there as you get on to the larger platform?

Generally speaking, we don’t expect to have a significant change in the types of companies that we are lending to. Currently, we have the ability to use the exemptive order that we have now since 2006 to investor cross our platform, but there are some transactions where even with that capacity today we need to club up with other institution to bring in other parties to do deals. And one of the advantages we expect to have would have been part of BlackRock is to be able to do those transactions without needing to be in third-parties. But we are targeting the same companies that we’ve invested for many years.

And then just a last modeling question. What was the spillover income amount for your portfolio at the end of the quarter?

This is Paul. At the end of the quarter, we’ve got about $0.44 on a GAAP basis of excess earnings over the dividends.

Our next question comes from Doug Christopher of DA Davidson. Your line is open.

We know that your strong history and the various qualitative strengths that we have at TCPC, Tennenbaum and BlackRock. Just wondering about the spread to the dividend, the income versus the dividend is tight and is getting tighter. It seems the only way to gain more breathing room there is reduced expenses are some change to the fee structure. Is there any thought to changing the 20% profit sharing model maybe as we’ve seen in other spaces like the MLP space, and the incentive distribution rights or/and other hedge fund spaces?

So, we are pleased to have what I think many analysts have considered to be a best-in-class fee structure with a cumulative hurdle rate, and we have been able to outearn our dividend every quarter. And so today, we believe that the structure works the rate well for us.

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

Howard, I want to get a better sense of the investment landscape in two areas, in TCP. How is the ability to underwrite across investments whether it’s distressed situation whether it’s assets backed situation, complexity -- capture the complexity quite well as well as just a standard what we call cash flow based sponsored deal? And in this environment just where we sit with spreads and where we sit with leverage levels and competition, do you find more value in attacking complexity premium? Or are you finding that the sponsor finance landscape given your relationships is giving you comparable, if not better risk adjusted returns? So I understand everything separate and your tendency will be not to want to answer this, but give us a sense of which deals are presenting the better opportunities in today’s environment and why?

Hi, Jon. It’s Raj. I will try to start with the answer and ask Howard to jump in, perhaps with where we sit and thank you for that positive marketing preview to how we approach things. I think you’ve captured lot of how we look at risk-based assessments very well across a variety of approaches. And I think to your first point on complexity regardless of the market, I would say we've always looked at complex situations, given how our team is situated with both the background from that special situation side and as it applies to direct lending. And I think the one thing to clarify there is, complexity doesn't necessarily mean more risk, it just means something that has more of a story line to it. And often times between structure or just understanding that storyline, complexity may actually mean less risk or ability to price better because it's not being looked at by 20 30 different people versus a small crowd that can understand the complexity. So certainly and things in certain areas and the asset backgrounds as an example or aircraft financing or other areas that are more specialty areas I would say we certainly look to take of the ability to understand and structure around complexity for better pricing, better risk-adjusted returns. That’s not a current market dynamic that is just a, from inception and approach that we have been able to take advantage of. It's episodic but it's certainly something that over time has been consistent. On the sponsor landscape just turning just as a reminder of -- in the current quarter for instance five out of the six deals are either sole or small club. And so when we think about sponsors, the way we tried to differentiate it is, it is not mainline sponsor financing where there's a lot of volume perhaps you are competing on friendlier structure or lower pricing. It really is more direct discussion that happens to be within institutional party than what a management team. But it's still a discussion that’s bilateral or really fundamentally driven because the discussion is not as it lend itself trough a very widespread, syndicated long process or process where you are getting the most efficient pricing and market-based structure. So, on both areas I would say we found opportunity. Again, there is no way to predict how it rolls through, but in both cases complexity and/or a more being a party that a sponsor can work with in certain situations, has that as I think underwrite some interesting loans with some good pricing even in the current market.

Roger, Howard, let's turn to the SBIC facility for a minute. Clearly, the growth here is flowed a bit and so -- while you are an excellent candidate for additional licensing over time. I'm wondering, is it just the rocks that you are turning over are no longer fitting this? Or perhaps where you're focusing on origination no longer make this appropriate? Or is there any additional barrier that's effectively slowing the growth of the SBIC facility, given how attractive the financing is in a rising rate environment?

Sure, and I actually just to counter your comment for a second, Jon. This last quarter was actually a pretty strong quarter for the SBIC. It's been slow -- we have said in the past, it's been slower out of the box than we would have liked but slower with the right investments is better in my mind and faster with compromised lends. But we have seen some better deployment one new name and add on two names for this quarter, which in a dollar amount is approximately about $30 million. So, that's a nice chunk across those facilities. To answer your question, I don’t think it’s necessarily less applicable, we still find the facility attractive at the margin we are seeing some good opportunities there, but it just not with the same frequency as the rest of the business. We will continue all with that and continue to look for good names versus shine away from it and I agree with your comment that we do think we’re a good candidate to increase it and plan on to install in a prudent manner.

Yes. John, just one addition to that which is our repayment rate in the facility has been higher than it has been across the rest of the portfolio. And we don’t know that it has any particular reason for that our senses that’s probably more coincidental, but we’ve had a lot of recycling of capital. So, it’s actually more active than it might appear from our bond draws.

I appreciate that. And then additionally, if we can perhaps revisit it few two to one a general thinking and the idea here is. If you get a sense of thought process in a no way against the decision, and I appreciate it, Howard, you know the quality of your board and the folks that sit there. Clearly I know understand that it’s going to be deliberated to the fullest extent. Howard, do you find that if you had two to one that there would be an additional opportunity to pursue, what we might call, lower yield but also lower risk transaction that sit in the first in term market that perhaps cannot be made given your current leverage constraint as well as perhaps the feel out with which the charge, require a yield perhaps in access of an L4 and L550?

I think you've summarized it well. This starts with the discussions with our board, our shareholder, our leverage providers and the other important constituents. There is no question that the change in the regulation enables people to do different things including what you’re suggesting, which is all the way from doing the lower rate transactions to doing the same kinds of transactions. Of course, there may be an offsetting cost leveraged depending on how people do that. We are analyzing the whole thing. Our legislative focus has been AFFE which we think is really important to institutions and that’s we’re really focused on. Clearly, the change in regulation creates an opportunity and as we think about if we’re look at it really on sort of on holistic basis and the opportunities, and we have been managing leverage via vehicles since 1999 including some with more and some with less leverage and you can do this with BDC. And so, we have risk analytics and processes in place to do this, but we also recognize that’s a significant change for our constituencies and because our model works today we’re just in no rush.

Maybe the last point is, there are several folks that would choose to pursue the lower risk strategy and so the question is. When you look at incremental math on leverage like on incremental leverage, if you’re deploying into an asset L4, you’re financing cost are going to be L2, let just say. And then you charge another 150 basis points fee on top of that to the asset that is virtually zero incremental spread left investors. So, if you were going to approach leverage and particularly think that is in those trends. Do you believe that dependent on where you invest that some amount of incremental ROE needs to be passed onto your shareholders?

Jon, I will not debate you math. Your math still is very good. I think the fundamental question though is whether we would be making any change here. And if we were to make a change and again, we haven’t made any decision what types assets we would bring in, and clearly we could do something like you’re suggesting which is bring in lower rate assets that has not been our business model to-date in TCPC, we do it in some of our other private vehicles versus continuing to do exactly the same kinds of investments. And so we agree that that is a perfectly sensible thing for some people to consider. But in our case we haven’t made any decision about making any changes in the way we operate.

Our next question comes from Christopher Nolan of Ladenburg Thalmann. Your line is open.

Given where your regulator leverage levels are now, does BlackRock’s ownership for the external manager become changes to how you access the capital, new equity or debt?

Yes, so we’ve been placed to have good access to the capital markets methodically on an accretive basis raising equity overtime. And if you look at the right side of our balance sheet, it’s intentionally structured with two different revolvers, multiple unsecured loans including regular way and converts as well as our SBA facility. So, we believe that we have good and effective access to the capital markets. Clearly, becoming part of BlackRock will open up addition opportunities to us as well. But we are pleased with what we have today.

Do you think BlackRock will invest in next equity offering?

We have no opinion on that.

Another question. For new hires, do you have to go through BlackRock or you’re doing directly?

The goal is to continue to operate the business in substantially the same form. So once we become part of them, obviously we will become part of their organization and there will be a series of things with their involvement in that process. But to be very clear, our entire team is intended to be part of this process which is really a critical part of something we’re very excited about.

And does the inclusion of BlackRock change the incentive compensation for employees there at all?

We expect to retain in place a series of incentive mechanisms across our platforms that are designed to allowing the interest of our people with our investors which has always been our philosophy.

Our next question comes from Christopher Testa with National Securities. Your line is open.

Howard, just wondering if you could quantify a little bit the scale of the BlackRock acquisition will bring TCP just in terms of how much co-invest you think is available under leveraged loans and other similar investments that you guys make at the addition of how many sponsor you think will be available to you guys than previously available? Just any sort of quantitative metrics you could provide would be helpful.

So yes, I think ultimately that’s probably more question for them as an institution, as we think about it, we have the same team we have the same process. It works well and it's going to give us some incremental capacity in the beginning. We don't expect it initially to have a huge impact on the way we are doing business over time that certainly might change. But initially, we don't expect it to have a huge impact.

I understand, I’m just thinking just kind of ballpark overtime, I mean one of the things you had mentioned in your comments was obviously telling that’s strategy for you guys has worked out sure narrowly well but on the large end of deals and you select the club up with some people it's extremely large check to write. So what I’m getting that is that you think let's say a year or two years even three years down the road business like TCP go from riding let's say $100 million check to the $300 million check and $800 million check. I’m just trying to get a sense of what do you guys think this is going to bring to the table in terms of scale?

Good question, fair questions, we are not generally in the business and making forward-looking statements. But the idea of being part of the largest asset manager is that it will enable us over time to be able to compete on a scale that we can't today and it's something we're very excited about and as we are talking to our important institutions they share that enthusiasm.

And will TCP have any affiliation with BKCC BlackRock's current public BDC? And if not, will you guys have to co-invest with some other deals and vice versa?

So, there are no current plans to do anything other than to keep the two BDCs separate. With respect to co-investment, we will have the ability to do that which is part of the answer to your initial question about being able to do more size.

And I’m just wondering you spoke about pipeline. Can you give us a sense for what the composition of [indiscernible] incumbent borrowers in your current quarter pipeline is?

Yes, I’ll take that, I don’t have an exact breakdown, I will. When you were saying incumbent borrowers, you mean companies or do you mean channels or sources because obviously there is a little different…

By company?

Yes, I think we have seen over the course of the last few years, the opportunity to invest in existing portfolio companies. It's been a nice source of opportunity. I don’t have an exact breakdown. It's not a majority of the pipeline, but it is a nice piece of it. So I guess I’ll answer your question quite qualitatively which is that is an opportunity, but let us come back to you on if we can come back with a specific kind of breakdown.

Last one for me just about a housekeeping question. Your other income from non-control non-affiliate investments came in at zero this quarter, and traditionally there was always at least something there. Just wondering, if that’s just kind of a one-off event or something ran-off that won't be coming back on?

That’s just -- that number is historically very lumpy -- just it is a lumpy number, it depends on the quarter what we are transactions having during the quarter.

Our next question comes from Derek Hewett of Bank of America. Your line is open.

Howard, how important is maintaining an investment grade rating to run the franchise in its current form? And then more importantly does the association with BlackRock given change that equation given that the scale of the BlackRock platform?

So, thank you for the question. In reverse order whether if the association with BlackRock makes any difference is something that could probably be better address to the rating agencies than to us although they think generally speaking like large institutions. With respect to the first part of the question, we’re very pleased with our current rating, it’s important to us we did operate and have low cost of capital before we have it. And so that is something we know how to do, we have also diversified our sources of capital, but as we think about the way we operate our business that maintaining an attractive cost of capital is important to us.

And then quickly on the $2 million roughly, $2 million equity gain on core entertainment. What was driving that, was that the revival of American Idol or was there something else going on?

We hope you’re watching the show and the company owns a series of assets, clearly that’s one that is doing better and that’s a combination of things.

Our next question is a follow-up from Leslie Vandegrift of Raymond James. Your line is open.

Just two quick follow-ups. You mentioned earlier in the call, the SVCP, no longer going to be electing to be a BDC and so that will be cost savings. First of that, is it going to be cost savings to the BDC or to the manager? And second one, if it’s on the BDC balance sheet or income payment. How, what’s the magnitude of savings that you expect?

This is Paul. There will be some cost savings mostly around filings and that sort of thing. Not large, but substantial enough to make the switch.

And those would beyond the BDC statements?

Yes, those will be the savings to the BDC.

Okay. And then, Howard, you mentioned a minute ago the AFFE rules and focusing on that as that seems to be something that investors are highly interested in. And then I guess two weeks ago, the half subcommittee on financial corporation met and spoke with the SEC Chairman and suggested that they review those rules. Do you have any color, update or what you’re going to be the likelihood that can move?

It sounds like you’re pretty plugged in legislatively. I wish we had more information after that hearing. We remain hopeful. I think that certainly one of the better indications we’ve seen on this issue historically and there seems to be a little bit more focus on it. We’re cautious on assessing its probability though because obviously it's been on the agenda now for a number of years.

Yes, that is true. To be fair as a leverage rule around the agenda for six years, so helpfully there is no…

Well, let’s hope it’s not that long.

Exactly. Thank you for taking my follow up.

Thank you, Leslie.

Our next question is a follow-up from Chris Kotowski from Oppenheimer & Company. Your line is open.

I was just curious I mean you are beating the base dividend almost every quarter and -- but you haven’t had a special dividend since 2014. Does that reflect a difference in philosophy or is that just -- can you comment on that?

Sure, thanks for asking. As you point out, we used to do special dividends with some frequency. As we talked with shareholders we reached the conclusion although opinions weren’t universal on this that most people didn’t seem to value them that much and we thought that retaining the spill-over income seem to be better received and in fact even when we did have there seem to be some confusion in some quarters and some of the reports around it and dividend coverage. So that’s why we haven’t done it. It is something we do continue to look at as we discuss our dividend policy with the board there. There are no further questions. I’d like to turn the call back over to Howard Levkowitz for any closing remarks.

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

Ladies and gentlemen, this does conclude today’s conference. You may now disconnect. Everyone, have a great day.