Ladies and gentlemen, good afternoon. Welcome everyone to BlackRock TCP Capital Corp.'s Second Quarter 2020 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 would like to turn the call over to, Katie McGlynn, Director of BlackRock TCP Capital Corp. Global Investor Relations team. Katie, please proceed.

Thank you, Victor. Before we begin, I'll note that this conference call may contain forward-looking statements based on the estimates and assumptions of management at the time of such statements, and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties and actual results could differ materially from those projected. Any forward-looking statements made on this call are made as of today and are subject to change without notice. This morning, we issued our earnings release for the second quarter ended June 30, 2020. 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. These documents should be reviewed in conjunction with the Company's Form 10-Q, which was filed with the SEC this morning. I will now turn the call over to our Chairman and CEO, Howard Levkowitz.

Thanks Katie. First and foremost, we hope everyone is staying healthy and safe. Thank you for joining us today. There are several members of the TCPC team on the call with me including our president and COO Raj Vig, and our CFO Paul Davis. I will start with a few highlights and updates since our last earnings call. I will then provide an update on our portfolio and activity during the quarter. Paul will review our financial results and our capital in liquidity. After Paul's comments I will provide some closing comments before opening the call to your questions. Starting on slide 4, an update on our portfolio performance. Following the dramatic market dislocation and volatility in March the second quarter saw significant recovery across both credit and equity markets. The broadly syndicated loan market which has been more volatile than our portfolio recovered meaningfully and the overall yield spreads in the private markets also tightened. Our portfolio continued to perform well despite the significant headwinds caused by the pandemic and our second quarter results benefited from the broader market recovery. Our net asset value increased 3.8% in the second quarter reflecting a 1.6% net market value gain on our investments. The credit quality of our portfolio overall also remains solid. As of June 30 total non-accruals were just 0.6% of the portfolio at fair value. Next as Paul will discuss in more detail, we further strengthened our capital and liquidity position during the second quarter by extending the maturity and increasing the capacity of one of our credit facilities and subsequent to quarter end we replaced our other credit facility with a new one on more favorable terms and with a longer maturity. Both facilities now also have expansion accordion features totaling $150 million in aggregate and we are…

Thanks Howard and hello everyone. During the second quarter as Howard noted we continue to enhance our strong capital and liquidity position despite the current market disruption. First we extended our SVCP operating facility by another year to May 2024 and increased its capacity by an additional $30 million, while maintaining our low rate of L plus 200 basis points. At June 30 we had available leverage of $328 million and a regulatory leverage ratio of 1.10 times debt to equity, net of cash and pending trades well within our 2:1 regulatory leverage limit. Following the end of the quarter we secured a $100 million accordion feature on the SVCP operating facility to facilitate future expansion. We also replaced our TCPC funding facility with a new $200 million facility with improved terms, a two-year maturity extension to 2025 and a $50 million accordion feature while again maintaining our low rate of L plus 200 basis points. Combined we added accordions totaling $150 million since our last call together these developments further strengthened our diversified and low-cost leverage program. Turning to slide 17, we generated net investment income in the second quarter of $0.36 per share which again fully covered our second quarter dividend of $0.36 per share paid on June 30. This continues our long contiguous history of covering our dividend with net investment income each quarter. Investment income for the second quarter was $0.78 per share substantially all of which was interest income. This includes recurring cash interest of $0.59, recurring discount and fee amortization of $0.04 and pick income of $0.06. We had modest prepayments in the quarter that contributed a penny per share including both prepayment fees and unamortized OID. Investment income also included $0.08 of amendment fees and other income and a penny of dividend income.…

Thanks Paul. There continues to be significant uncertainty about what the remainder of 2020 will look like. However, the pace of new deals entering the market has picked up modestly and the deals in our pipeline are generally on more favorable terms than what we saw leading up to this period. We are cautious in our deployment but in a solid position to opportunistically invest. In addition, we remain focused on the long-term health of our existing portfolio companies with an emphasis on preserving capital for our shareholders. We seek to invest in companies with strong management teams that are relatively well situated to perform throughout economic cycles including periods of dislocation. Our portfolio companies collectively employ thousands of individuals and provide necessary goods and services to their customers. We are committed to helping our portfolio companies successfully navigate this period of dislocation while continuing to deliver attractive returns to our shareholders. Our performance to-date and our confidence and our ability to succeed in this environment are driven by our team's two decades of experience in both performing and distress credit. The strength of our underwriting platform as well as the depth and breadth of the firm-wide resources of BlackRock. In closing while these are challenging times for everyone our entire team is focused on generating strong risk adjusted returns for our shareholders. And with that operator please open the call for questions.

Thank you. [Operator Instructions] Our first question will come from the line of Finian O'Shea from Wells Fargo Securities. You may begin.

Hi good afternoon. Hope everyone's hanging in there. Howard first question on the five new loans you outlined, I suppose the two-part question. I think there were three existing and two new. To start with the existing loans, can you describe the nature were these portfolio add-ons acquisitions to support acquisitions and/or another sort like a dividend recap? And then second question on the new loans that you took on this quarter assuming that you began looking at them or underwriting after COVID started how would you describe the change in the level of competition in terms of both financial capital and number of firms that are at the table? Thank you.

Sure. Fin thanks for joining us. We're doing well here. I'm going to address your questions first specifically and then turn it over to Raj for a little bit more market color since I think you asked some important questions about both the environment and what we're doing. With respect to our portfolio, the loans that we made fall into a couple of categories. One of the more interesting ones was an existing portfolio company that had been for a extended period of time been pursuing a strategic acquisition that was accretive to the business. The sponsors and owners of the business put in a significant multiple in equity versus the amount of incremental debt that we advanced and we were very pleased because we think it enhanced both the business and the strength of our existing debt investment. We're able to do it on new terms. But we talked about the loan to Cole Haan which was another interesting example; great company, big online business, navigating this environment well, relatively low leverage and that company actually has traded debt that they were looking to put on incremental liquidity and do it with a single source that they do knew well and we were able to provide that financing at 50% spread over where their existing traded debt is because they wanted certainty of execution. So we've been focused on doing things that we think are value-added, that we can diligence well and that are appropriate opportunities for us in this dislocated environment. I'll turn it over to Raj to maybe talk about the environment a little bit more generally.

Yes. Thanks Fin. Hopefully you can hear us all of us through these face masks that we are now a standard part of our earnings call. In terms of the post-COVID environment activities, clearly post the start of the spike in March if you will the volume has been lower. It's clear through our Q2 activities and into Q3. I think also there are a fewer, maybe not a lot fewer but certainly fewer active participants on the lending side based on people working on their portfolios, capital constraints if you will and at the margin but there's also still good dry powder from a number of active participants and I think at the margin what we're seeing is for those companies that are attractive in this environment, those that are neutral to COVID or even in some cases beneficiaries which does characterize a lot of our portfolio, there is active ability for people to pursue those names. And I think on the margin things like covenant structures and things that normally were more discussion and negotiating items are a little bit more standard as part of the structure but there is still competition for those companies that are attractive in this environment and I think it sort of nets out being an attractive environment but I think time will tell as we move forward through COVID and how far COVID extends, whether that's a good for the lender, good for the borrower but right at the moment we are active. We are seeing a pipeline rebuild. We are focusing on companies that in many cases are so much of what we focus on pre-COVID those that are less cyclical and very-very sustainable and predictable earnings but there is still competition particularly for those companies that stand well in this environment at a lower volume overall that's recovering but still lower than the pre-COVID environment.

Okay that's a helpful. Thank you. Just next question, final question on the amendment discussion I think you said there were $0.08 of fees which seems pretty heavy on a per share on a dollar basis. I think heavier than probably most of your competitors. So any color you'd provide there? Is that a function of tighter covenants or being more proactive or anything on the portfolio performance side? How would you guide us on the amendment piece?

Yes. Thanks for focusing on that. It's actually $0.07. It does come from several portfolio companies and I think you highlighted in your question the explanation which is when we do our underwriting and draft our loans and set our covenants, it's based on expectations and as a result of the COVID disruption some companies, fortunately a small proportion of our overall portfolio but some companies missed their numbers and had covenant issues and in connection with those our goal is to work with the management teams and portfolio companies to make sure that they have a good path to recover but also gives us the ability to enhance our economics as we're working with those companies. In some cases there are also improvements to the loan documents in connection with them and in particular in March we saw some real disruption in a couple of businesses and fortunately the one that was most impacted by this started to see recovery in April and it's continued since then as its primary customer base has adjusted to the new environment.

Okay that's helpful and thanks for taking my question.

Thank you for your questions.

Thank you. Our next question will come the line of Chris Kotowski from Oppenheimer. You may begin.

Yes. Good afternoon. Just following up on Fin's question, I mean is that amendment activity continuing into the third quarter and is that something we should expect for the next couple of quarters given the stressed environment or do you see the second quarter has just really an exceptional, -- that we are through most of that for now.

So let me take that Chris. I think and I guess what I would just want to do is reiterate point Howard made is just operationally when we set our loans up at the front end we are believers that having covenants and having real covenants is a good thing and sometimes if the covenant is tripped or even in advance of it being tripped you'll have the discussion, it really is the protection almost a circuit breaker to allow you to get back to the table and do a whole host of things. It may be tightening up the docs as Howard said. It may be enhancing economics. It may be in advance of a real problem having the owner of the business or the sponsor address the problem in advance whether it's through capital or other actions. So I don't think we take the view that covenants or covenant based discussions is necessarily a bad thing. It's actually meant to prevent bad things in the portfolio. So to your question, however, the activity has certainly abated I think in Q2 the broader reset around COVID was more extensive for every company even those that are still growing and then as we come into Q3, I wouldn't say it's zero activity. There are some additional dialogues. Again we're going to use those discussions to make sure we are well protected and in certain cases enhance our economics which is the case with one of our portfolio companies that's ongoing today, a public company but it certainly has come off a little bit. How it proceeds through the rest of the year is I think a question of how COVID extends which we really can't answer but we do feel good about the state of the portfolio. We do feel good about having real protections across most of the – the majority of the portfolio with covenants and real loan docs and when we need to use those as we did in Q2 to our protection, our advantage we will continue to do so.

Okay and then I guess just you delevered slightly this quarter. I mean it was obviously you had the appreciation in NAV and investments came down slightly. Should we expect the overall portfolio to remain roughly flattish assuming that we're sort of in this half open half closed kind of limbo for another quarter or two at least?

Chris you've been following us since we went public and I think as you know and as many of our other long-time shareholders know we don't set firm targets for leverage. We're very cognizant about the way we approach risk. We've got a balance sheet that's well diversified with a half dozen sources of financing. We're very pleased with the new facility we just brought on together with $150 million of incremental aggregate accordion capacity from our two facilities but we don't like to set sort of artificial targets because as we saw in Q1 you can get movements in NAV, although that was certainly an outlier in an exception. And you can also be in a position particularly in this more disruptive environment where you think you're going to close things that don't close or things that are supposed to get paid off get pushed in fact that happened to us both at the beginning of the year and in Q2 where things were supposed to close a slip. And so we don't target a hard level. We're very comfortable with our current leverage. We did think it was important coming out of Q1 particularly with the disruption to take it down some and so that's why we controlled both our new investments and we also did some selective sales to position the portfolio. We think in a good place where it is today where we have significant liquidity. We're comfortable with our leverage and we're in a position to do good deals as they come in but don't have any artificial pressure to do things.

Okay and then the one thing, I was wondering about is on the, can you remind us where you stand on the SBA? I noticed that like the facility you haven't drawn on it since I think the middle of last year sometime and can you just remind us where you are? I think you had applied for an additional license and gotten a green light letter or?

Yes. Right now we've got $138 million drawn on the SBA debenture out of 150 and currently recycling we had one investment come off in the quarter one come back on as we still have a little bit of room, we invest as we see opportunities that are appropriate for the portfolio not necessarily -- keeping not necessarily to put into the SVCP but specifically but as that fills up, yes we will examine an additional certificate.

Yes and Chris the SBA isn't large enough to have a statistically meaningful portfolio but what we have found and this may be more coincident just because of the size is that the investments we've had in there tend to repay more quickly probably than on average. So there's a lot of recycling activity. When you look at the aggregate the draw you're not seeing necessarily what's going on in the underlying portfolio which is a lot of paybacks and payoffs along with replacement assets.

Okay. Interesting. Thank you. That's it for me.

Thank you.

Thank you. [Operator Instructions] Our next question will come from the line of [indiscernible] from Raymond James. You may begin.

Hi everyone. Just to start off to follow up on the amendment questions. Would you be willing to give any commentary on the number of portfolio companies that took amendments over the quarter?

Sure. Happy to do so and thanks for joining us. We had 11 portfolio companies that had amendments during the quarter, out of 101 at the end of the quarter. So we had a few more than that going into the quarter. So you can think of it as being between 10% and 11%.

Okay and then I guess secondly any update you can give on the airline book especially kind of how collateral values against the loans are holding up given some pressure in the industry?

Sure. Happy to do that. We have two primary loans are long time lease with United was repaid in full. That's something that we've actually been financing United planes since 09. We're pleased to have that those all paid off. We have loans to Mesa and to OneSky. In the case of Mesa, they're a regional operator. They connect jet service to American and United feeding into their hubs. They've obviously been impacted dramatically. They have gotten federal money under the CARES Act. The loans continue to perform fully on amortization and interest. Of course we all know that the sector has been impacted. We do think our approach to underwriting focusing typically on somewhat older equipment these are all backed by assets and engines has proved highly effective since we started in this business of financing planes and plane parts since 2003. But clearly there's some disruption there. With respect to OneSky which is the second largest operator of private aviation in the country, their business has picked up considerably. If you look at data that's publicly available, flight data you can see that there is a significant increase in private aviation particularly coming out of the beginning of the last quarter.

Okay that's helpful. Then just the last one for me. From our end it kind of seems the board elected to set the dividend at a level, earnable with little to no prepayment or amendment fees. I guess first question is that fair to kind of think about from our end and then the second question being if that's correct what are the expectations for prepayment and amendment activity in the near to midterm?

Sure. Yes our prepayment activity has averaged $0.04 to $0.05 a quarter over quite an extended period of time. There is clearly variance there. We had record low activity in Q1 which was unusual. I would note that there's probably some historic seasonality to Q1. It tends to be a slower quarter for us generally and this particular quarter it was obviously heavily impacted as some things that we expected to happen and get repaid it didn't happen but repayments and fees are lumpy and we give data on what they've been historically but don't try and project them in the future. The board gave significant thought to setting the dividend level. We recognize it's very important to all of our investors and we know that investors have taken comfort from the fact that in the eight plus years since we've been public we've always earned our dividend and we wanted to set it at a level that we believed would be sustainable based on our information about the current operating environment.

Matt, I would also add to that just as we noted in the in the script, your LIBOR has come down quite a bit over the last six quarters and our run rate it's had an impact about $0.09 before incentives on the run rate. So I think that's important to keep in mind and then that was the primary factor to consider in resetting the dividend.

Great. That's it for me. I appreciate the help.

Thank you. And our next question will come from the lion of George Bahamondes from Deutsche Bank. You may begin.

Hi, good afternoon. Most of my questions have been asked and answered just two more here for you. I'm sorry if I missed this but are you able to disclose pricing for the loan sold in 2Q relative to par value

That's not a disclosure we provide but we were pleased with the prices that we achieved on those loans.

Yes. This is Paul. You will probably noticed, we had for the second quarter we had $415,000 – $416,000 of realized losses. There were some, up some down. It was kind of a mix but roughly flat.

Great. Thank you for that. And my other ones on the LIBOR floors. Do you to disclose your kind of weighted average LIBOR floors across the portfolio. you provide a range here in the deck but wondering if you do disclose the kind of weighted average?

Yes. This is Paul. Our weighted average is 1.1%

Okay. Great. That's it from me today. appreciate you taking those.

Thanks.

Thank you for your questions.

Thank you. And I'm not showing any further questions at this time. I would like to turn the call back over to Howard Levkowitz for any closing remarks.

We appreciate your questions and our dialogue today. I'd like to thank all of our shareholders for your confidence and your continued support and our experienced and talented team of professionals at BlackRock TPCC capital corp for your continued hard work and dedication in these challenging times. Thanks again for joining us. This concludes today's call.

Ladies and gentlemen this concludes today's conference call. Thank you for participating. You may now disconnect.