Ladies and gentlemen, good afternoon. Welcome, everyone, to BlackRock TCP Capital Corp.'s Third Quarter 2020 Earnings Conference Call. Today's conference call is being recorded for repeat purposes. [Operator Instruction] 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, Grace. 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. Earlier today, we issued our earnings release for the third quarter ended September 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 and presentations. These documents should be reviewed in conjunction with the company's Form 10-Q, which was filed with the SEC earlier today. I will now turn the call over to our Chairman and CEO, Howard Levkowitz.

Thanks, Katie. And thank you for joining us today. First and foremost, we hope everyone is healthy and safe. There are several members of the TCPC team on the call with us, including our President and COO, Raj Vig; and our CFO, Paul Davis. I will start with an update on our portfolio and key highlights from the third quarter. Paul will then review our financial results as well as our liquidity position. After that, I will provide some closing comments before opening the call to your questions. Starting on Slide 4. Our portfolio continues to perform well despite the significant headwinds caused by the pandemic. Our third quarter results reflect further improvement in credit markets and spreads following the significant dislocation that occurred in the spring. Our net asset value increased 4.1% from the prior quarter reflecting a 1.8% net market value gain on our investments, driven by spread narrowing on middle market private credit transactions as well as improved financial results for several portfolio companies. Importantly, the overall credit quality of our portfolio remains strong. As of September 30, total non-accruals were only 0.6% of the portfolio at fair value, this is a testament to our disciplined approach to underwriting, our more than 20 years of experience lending to middle market companies and the strength and breadth of the BlackRock platform. Also during the quarter, we further strengthened our capital and liquidity position by opportunistically issuing a $50 million add-on offering to our outstanding 3.9% notes due in 2024. This complements the actions we took earlier in the quarter to enhance our credit facilities by replacing our funding facility one with a new facility on more favorable terms as well as adding $150 million in aggregate accordion commitments. We truly value and appreciate the strong long-standing relationships we…

Thanks, Howard, and hello, everyone. During the third quarter, as Howard noted, we continue to enhance our strong capital liquidity position. First, in August, we replaced our funding facility with a new $200 million facility with improved terms. A 2-year maturity extension to 2025 and a $15 million accordion commitment, while again, maintaining our low rate of LIBOR plus 200 basis points. Combined, we now have accordion commitments totaling $150 million. Additionally, in September, we opportunistically raised an additional $50 million of our 3.9% notes due 2024, bringing the total issuance to $250 million. With the new unsecured notes, 82% of our assets were supported by unsecured debt, equity, and our SBA debentures, which are excluded from regulatory leverage calculations. This allows our secured credit facilities to be significantly over-collateralized, which helps ensure that we have ample liquidity in a broad range of market conditions. At September 30, we had available liquidity of $253 million and a regulatory leverage ratio of 1.05x debt-to-equity net of cash of $35 million and pending trades, which was down from 1.10x at times at June 30 and is well within our 2:1 regulatory limit. Our unsecured debt continues to be investment-grade rated by both Fitch and Moody's. Turning to Slide 18. We generated net investment income in the third quarter of $0.35 per share. Which exceeded our third quarter dividend of $0.30 per share paid on September 30. This extends our continuous track record of covering our regular dividend every quarter. Investment income for the third quarter was $0.74 per share, this included recurring cash interest of $0.54, recurring discount and fee amortization of $0.06 and PIK income of $0.06. We had modest prepayments in the quarter that contributed $0.03 per share, including both prepayment fees and unamortized OID. Investment income also included $0.03…

Thanks, Paul. While the economic outlook is uncertain, our team is focused on delivering the results our shareholders have come to expect from TCPC. The overall market environment has continued to improve following the significant dislocation that occurred in March, and middle market companies overall have performed better than market expectations. While deal volumes remain below pre-COVID levels, we are seeing a pickup in activity and the deals in our pipeline are generally on more attractive terms. We remain extremely selective in this environment executing on only a small number of opportunities we review and focusing on companies we believe have minimal COVID exposure or those that are positioned to outperform in this environment. We also remain focused on companies and industries we know well and on transactions where our team leads or co-leads negotiations to ensure deal teams and structures include appropriate creditor protections. Our performance to date and our confidence in our ability to succeed in this environment are driven by our team's 2 decades of experience in both performing and distressed 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 shareholders. And with that, operator, please open the call for questions.

[Operator Instruction]. Our first question comes from the line of Chris Kotowski from Oppenheimer.

Good. First of all, I guess, I was wondering on the kind of the relatively outsized levels of dividends and other income, is there any story there? Or should we just expect that to kind of normalize next quarter?

Yes. Chris, thanks for the question. As I think you and others who have followed us for a long time are aware, our other income is lumpy, it comes from different sources. We do have income in connection with some amendments of relationships with portfolio companies. In this case, it's in -- biggest contributor was from a company that's performing well. In fact, and requested an extension of the credit agreement. We also have dividend income that we get from portfolio companies as well.

Okay. And then I know you've had the slide in there. I just wanted to make sure I'm interpreting it correctly, but Slide 9 on your interest rate sensitivity, where you say that the cumulative decline in LIBOR amounts to $0.09 per share before incentive fees. So I mean, just to kind of get the bottom line NII impact, I would just take that number and multiply by 0.8, right? So it'd be like $0.07?

Yes, that's correct. $0.07, $0.08.

Yes. $0.07, $0.08, something like that. Okay. And then lastly, I guess the one new nonaccrual, CIBT, I don't know what you can say about it, but it had been significantly marked last time, was there an event that -- or what color can you give us on decline there? And then I guess on the flip side, you said you took a preferred holding for AGY does -- that it has upside? Does that have a convertible feature? Or is it just straight preferred?

Sure. In reverse order with respect to AGY, there is upside in our remaining position in AGY. It is a small position, though, for clarity. With respect to CIBT, it's a very good business, but it is dependent on global travel. And in connection with the company's performance, which is significantly dependent on the level of global travel, particularly in and out of Asia and China, more specifically. We reached the conclusion that it was appropriate for it to go on nonaccrual.

Okay. And then just in general, any thoughts on significant deal activity coming back and driving volumes. I mean, kind of we can see geologic numbers for announced M&A. They seem to have picked up in the last couple of weeks or months. Are you seeing that in your market as well?

Chris, it's Raj. I'll take that one. We are seeing a pickup in deal activity. I think we also are -- as a comment over the last call, seeing good competition out there. The private capital asset class. I think generally has navigated this environment well. I think it's a testament to the business model. But we also are not saying -- we're saying no a lot. I think terms are competitive. And for certain companies, people are, whether it's pricing or structures, doing things that we're not ready to sign up for. So while the inbound activity has certainly picked up as well as the deployment, I don't know that they're necessarily one-for-one correlation. And that's not a bad thing. We're just -- we're maintaining discipline. And we're doing what we feel comfortable with. And hopefully, as we make it through the election cycle and to the end of this year, we'll see that continuing. But to answer your question, yes, there has been a pickup in deal activity from our perspective.

And our next question comes from the line of Finian O'Shea from Wells Fargo Securities.

Just a first follow on. For the AGY re-org or restructuring, W.as there any money in or money out there, did that probably receive another investor? Or did you just re-org your debt into equity? Or any color you can provide there?

Sure. AGY is a fundamentally good business, but it has struggled with the cost of one of its major inputs, Rhodium. And we reached the conclusion that it was more appropriate to let a third-party come into the business and pay down our position and sell-down a significant part of our economics. And retain a small preferred upside.

Okay. That's helpful. And then just for Howard or Paul on the unsecured issue, I think, closed first quarter -- any comment on -- obviously, this is sort of an opportunistic availability to you as you may see it. Any comment on how much more unsecured you might do given that given that availability and that being a large portion of your capital structure? Should we expect more to come if the market stays this way?

Yes. Fin, thanks for the question. We have been very careful in how we think about building out the liability side of our balance sheet, as I think you're aware, we added to the note issue you just referenced. We have 2 other unsecured note issues. We have a long-term SBA facility and we have 2 distinct credit facilities, one of which we increased in the spring, the other of which we replaced, they both have accordion features it is by intent that we fund the balance sheet with 6 different sources, no one of them very large in relationship to our asset base. We think it's important to have staggered funding by maturity and sources as a way of managing our balance sheet and positioning us so that we can be opportunistic as we invest in to deploy capital without having to be overly concerned about any given test from particular lenders.

Our next question comes from the line of Christopher Nolan from Ladenburg Thalmann.

Kawa Solar Holdings, it matured on 9/30/'20. Were those loans paid off?

Kawa Solar Holdings is part of a larger series of securities, including Conergy. And the answer is nuanced because some of the loans in certain regions were paid off, the commentry loans. Kawa -- the Kawa loans, I believe, were also paid off. And then what's remaining is some of the equity that was converted in the APAC region, which is the outstanding position. So the loans that were paid off are no longer on the balance sheet, and there were a number that were successfully completed. What remains is simply the equity position as part of a conversion in Asia. That's in a runoff mode that we talked about a few times in the past, where the primary asset is also an operating facility that we expect to exit at some point in the near future as we're going through a process there.

And Raj, is that Asian affiliate Conergy Energy, Asia...

Correct.

Last quarter, that particular credit has spread of 10% total coupon of zero. Now the spread is 0, the total coupon is zero, and there's $2 million on a cost basis. But why have a jet with a zero coupon?

Essentially, the collateral of that business is the asset. So the way we think about it is we have a preferred position on the remaining business. We had the sole lender with the asset that's marketed for sale. So I think at some level, it's form over substance in how -- we are the sole capital party there. I think the zero interest really just -- you should look at it as something that's essentially held for sale in that form of the security.

Our next question comes from the line of Ryan Lynch from KBW.

The first one, you said you had 8-new loans this quarter, about half with new borrowers. You mentioned Metricstream, kind of the software provider. When you guys are sourcing deals for new companies in this environment as deal activity starts to pick up, are you focusing more on really like extensively position businesses that are really COVID-resistant or you guys looking to add on additional risk at this point in the cycle, given we're -- it's still very uncertain out there. But there's a little more certainty about how the economy is today?

Yes. I'll take that one, and others may add on to the comment. But so we are generally even pre-COVID, have always viewed our efforts as being focused on companies that are more defensive, less cyclical or acyclical and sometimes, we'll focus on really an asset collateralized business or loan. For instance, in the aircraft financings or some of the asset backlogs have done in the retail area, if there is, in fact, a more cyclical, broader business. That has not changed through COVID. If anything, the approach, as we've taken it historically, I think in many ways, it's validated through COVID. You have seen a very stable portfolio quarter-over-quarter. I think the lens perhaps tightens because of some businesses at the margin are performing better or benefiting from COVID, some are more neutral. But overall, our approach has always been to be focusing on defensive businesses where we have good revenue and earnings visibility. Those happen to be businesses that I would say necessarily benefit, but are more defensive in COVID as well. So that approach and that philosophy will continue. We also agree that things are relatively uncertain in various ways. And we're more inclined to be defensive, both in structure and where we want to be in a capital structure versus venturing out on the risk curve. And I think that is that has done well for us through this point in time, and we're going to continue that approach until such time, we feel that stretching out on the risk curve makes sense, but that given the uncertainty, we're generally the same inset as your comment about the environment.

Okay. I mean, given the level of uncertainty that you guys certainly feel about the economic environment, adding on some more unsecured debt. I would say that's a way to build up the durability and the diversification of your liability structure, which is probably something you can do to -- a little bit more on the defensive side, you guys talked about deal activity picking up as we've heard other BDCs, say, for pent-up demand, potentially some stuff around the election. Is it your anticipation that if you guys do have a robust pipeline of deal flow would you guys want to and intend to grow the portfolio further from here and increase the leverage levels if you guys are seeing the right amount of deals? Or is it the intent, despite what the deal volume showed that you guys are trying to have a more conservative balance sheet and keep leverage here or even push it lower?

Yes. So thank you for the question. The conservatism starts with the assets themselves. And as Raj talked about, although we reserve some room to do some things that may be slightly more impacted. The focus of building the assets in our portfolio loan-by-loan is in durable businesses and structures and we have a liability structure that gives us a lot of flexibility. It gives us the ability to add and reduce leverage. And so the way we think about it is we're doing good loans when they come to us, not trying to hit some artificial target for the amount of leverage we have on the portfolio, but always mindful of maintaining significant cushions. And we've been running -- TCPC has been public for 8.5 years, but we've been running leveraged funds for over 2 decades. And we're very mindful of the benefits of having leverage and respectful of making sure that we use it in a prudent fashion. And so we have the flexibility to put on more assets, and we do, do that from time to time. But the way we think about it is we really look at it on a deal-by-deal basis first.

Sure. Okay. Fair enough. One last one for me. You gave some good commentary on OneSky, the increased demand for charter flight is making that business a more favorable business to be in. I was wondering if you can just get a quick update on Mesa Air. I believe that's in a different business subset of the airline space. It looks like the valuation held up pretty well this quarter. But just given the backdrop of that industry, any update on that?

Yes. Thanks for the question. We continue to be very comfortable with Mesa. Clearly, the airline industry has been dramatically impacted but the way we underwrote that loan was to focus on what we thought were durable assets and at good attachment points, they have gotten a significant aid from the government. We think they continue to be important to the functioning of the major carrier's hubs they serve. Clearly, the whole industry is under a fair amount of stress as our valuations in the industry but our loan is structured to -- our loans are structured to amortize, and we've been pleased to date with the company's performance in a remarkably soft environment.

Our next question comes from the line of Matt Jaden from Raymond James.

Howard, I appreciate the commentary on deal flow towards the end of the call. Just to clarify, when you say terms are more attractive than kind of pre-COVID levels, is that on all fronts, say, if we look at covenant quality, underlying leverage and spreads. Are all of those improved versus pre-COVID levels? Or is it just kind of one or another?

Yes. Look, there's variability. Generally speaking, we're finding terms more attractive and more ability to drive a stronger documents and better protective packages. With respect to pricing, in general, deals are a bit wider. You can see from our additions versus exits last quarter. There's a bit of a pickup. We always caution don't read too much into 1 quarter or a fairly small number of investments that are coming on or off the balance sheet. At the same time, there are some deals in the market that are remarkably competitive and tight pricing and I think you can see that in both the public markets and our markets, where you've got some tightening on some companies that people are really chasing after. And at the same time, you're starting to see some deals get pulled and lender push back in the public markets. And that same dynamic is going on in the private markets. Where we believe we have the ability to continue to push back on things and drive some overall better terms than we were seeing before going into the crisis.

Great. I guess, second one for me then. So kind of the second quarter that prepayment fees have been lower than that historic $0.04 to $0.05 range. Any visibility you can provide on kind of when we might expect prepayment activity to pick up more in line with that historic range?

We appreciate the desire to project it and model it. It is lumpy. And including, in a way, InMobi, which paid off this past quarter, had -- was supposed to pay off the 2 quarters prior to that. If 3/31 was disruptive, it paid off the first week of July instead of 6/30. I use that as an example, it's a company we knew was refinancing, and it took 3 quarters on a reporting basis to get there. And so we have that across the portfolio, and it's not in the common. We've had years where we've had multiple credits repay on the last business day of year-end, including some, we weren't sure whether they were going to make it into the present year or the next year. It's the nature of the business, at least that's the way -- these are bespoke transactions with individual borrowers, not capital markets transactions. So often when they're refinancing us, there's a counterparty on the other side who may or may not get there with respect to their timing on -- in a given time frame and people aren't trying to manage it to hit the quarter necessarily. So we think if you look back over a long period of time, that it's probably a pretty good indication. But there's a seasonality to some small extent and clearly in a COVID environment. There are other externalities that are impacting people's decision-making as well.

Okay. And then just a quick one, lastly for me. Howard, I know you said last quarter, there was about 11 portfolio companies that took loan amendments over the quarter. Would you be willing to say what it was for 3Q?

Yes. It was remarkably similar this quarter by coincidence.

I'm showing no further questions at this time. I would now like to turn the conference back to Mr. Howard Levkowitz for any closing remarks.

Thank you. I'd like to thank all of our shareholders for your confidence and your continued support. I'd also like to thank our experienced and talented team of professionals at BlackRock TCP Capital Corp. for your continued hard work and dedication in these challenging times. Thanks again for joining us. This concludes today's call.

Thank you, ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may all disconnect.