Ladies and gentlemen, good afternoon. Welcome, everyone, to BlackRock TCP Capital Corp.'s Fourth Quarter 2022 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. Investment [ph] Relations team. Katie, please proceed.

Thank you, Tia. 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. Additionally, certain information discussed and presented may have been derived from third-party sources and has not been independently verified. Accordingly, we make no representation of warranty with respect to such information. Earlier today, we issued our earnings release for the four quarter and full year ended December 31, 2022. We also posted a supplemental earnings presentation to our website at www. 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, Raj Vig.

Thanks, Katie, and thank you all for joining us for TCPC's fourth quarter and year end 2022 earnings call. I will begin today's call with a few comments on the market environment and provide an overview of our fourth quarter and full year results. I will then turn the call over to our President and Chief Operating Officer, Phil Tseng, who will provide an update on our portfolio and investment activity. Our CFO, Erik Cuellar, will review our financial results, as well as our capital and liquidity positioning in greater detail. I will then conclude with a few closing remarks, before we take your questions. 2022 was a year in which the equity and fixed income markets experienced significant volatility, particularly in the latter half of the year. This was driven by a combination of geopolitical uncertainty and the Federal Reserve's ongoing actions to aggressively raise interest rates in order to curb inflation, an effort that appears will continue for the foreseeable future. This volatility persisted in the fourth quarter and adversely impacted spreads across fixed income markets, including middle market loan spreads. No sector or asset class was immune to the market volatility and in the fourth quarter, we experienced a decline in NAV due in part to the market volatility, but mostly due to lower valuations on three specific portfolio companies and company-specific items. I will touch on these in more detail later. Excluding the impact of these three names, our NAV decline would be closer to 3%. In this environment, our team has more than two decades of experience lending through multiple market cycles, and our ability to work with our portfolio companies to manage through challenging operating environments is particularly valuable. We are also reminded of the benefits of direct lending that have historically delivered premium…

Thanks, Raj. The public market volatility and uncertainty in the capital markets generally drove a slowdown in activity in 2022 versus the record levels in 2021. Positively though, we saw a meaningful shift toward a more lender-friendly investment environment marked by wider spreads and less pushback on deal terms. Against this backdrop, we continue to identify and review a significant number of potential investment opportunities as we capitalize on the scale of the broader BlackRock US private capital platform and the breadth of our team's experience. At year-end, our portfolio had a fair market value of approximately $1.6 billion. 88% of our investments were senior secured debt spread across a wide range of industries, providing portfolio diversity, and minimizing concentration risk. We also believe our portfolio is well positioned to perform amidst market uncertainty, given our emphasis on companies with established business models in less cyclical industries. The portfolio at quarter end consisted of investments in 136 companies an all-time high. As the chart on Slide 6 of the presentation illustrates, our recurring income is distributed broadly across our portfolio and is not reliant on income from any one company. In fact, more than 90% of our portfolio companies each contribute less than 2% to our recurring income. 85% of our debt investments are first lien, providing substantial downside protection and 94% of our debt investments are floating rate, proving an important benefit in this rising rate environment. Moving on to our investment activity. We believe our deal source channel-agnostic approach and our industry specialization provides an advantage, particularly at a time that we're seeing a slowdown in traditional sponsor-backed activity. Our industry-focused deal teams continue to identify unique investment opportunities from a wide range of sources, including directly through our industry context and management teams, in addition to our…

Thank you, Phil. As Raj noted, our net investment income in the fourth quarter benefited from the increases in base rates in 2022. Net investment income of $0.40 was up nearly 30% versus the fourth quarter of 2021, and it exceeded the fourth quarter dividend of $0.32 per share. On an annual basis, net investment income was $1.53, an increase of approximately 22% over 2021. Today, as Raj noted, we declared a first quarter dividend of $0.32 per share. We remain committed to paying a sustainable dividend that is fully covered by net investment income as we have done consistently over the last 10-plus years. Investment income in the fourth quarter was $0.81 per share. This included recurring cash interest of $0.68, recurring discount and fee amortization of $0.02, and fixed income of $0.05. Investment income also included $0.02 of dividend income, $0.01 of other income, and $0.03 from accelerated O&D and exit payment. As a reminder, we amortize upfront economics over the life of an investment rather than recognizing all of it at the time of the investment in May. Operating expenses for the fourth quarter were $0.33 per share and included interest and other debt expenses of $0.18 per share. Incentive fees in the quarter totaled $4.9 million or $0.08 per share. Net unrealized losses in the fourth quarter totaled $71 million or $1.22 per share. As Raj discussed earlier, unrealized losses were primarily driven by three items; a $21.5 million unrealized loss on our loan to -- and unrealized losses in our investments in Edmentum and Razor Crew of $18.6 million and $6.3 million, respectively, as well as unrealized losses across the portfolio from wider market spreads. Net realized losses for the quarter were only $46,000. The net increase in net assets for the quarter was $47.8…

Thanks, Eric. While the economic outlook may be uncertain, our team is focused on delivering the results our shareholders have come to expect from TCPC. We remain highly disciplined in our underwriting. We make investment decisions based on a comprehensive analysis of each company, its management team and strategy and relevant industry dynamics. Our investment committee evaluates each investment and regularly monitors the financial performance of each of our holdings. From our perspective, where we are in the credit cycle, that is less than our ability to selectively capture opportunities throughout the cycle. To that end, we draw upon our team's two decades of experience and BlackRock's extensive resources to prudently identify opportunities that align with our selective investment approach while providing our borrowers with financing solutions to help grow their businesses. We continue to source strong senior secured credit opportunities, which have historically outperformed equities, bonds and other unsecured debt through economic downturns. While underweight highly cyclical industries, we will also continue to maintain a broadly diversified portfolio. In closing, while 2022 presented challenges, we successfully navigated the evolving environment and are cautiously optimistic about the year ahead. We remain focused on generating strong adjusted returns for our shareholders. And with that, operator, please open the call for questions.

We will now begin the Q&A session. [Operator Instructions] The first question comes from the line of Robert Dodd with Raymond James. Please proceed.

Hi guys. Couple of questions about the NAV, on AutoAlert and then the equity pieces in a second. I mean, to your point, it was impacted in the beginning of the pandemic, and then supply chain and getting new vehicles, et cetera. I mean, none of those trends seem to be particularly new yet the markdown this quarter was obviously pretty significant, I mean, $21.5 million. Can you give us any more -- what was the fact that it was originally meant to mature in January? Obviously, it hasn’t, or can you give us what was the driver of that being so large, the markdown being so relatively large when the trends you described don't seem to be particularly new or new in the fourth quarter 2022?

Hey, Robert, it's Raj. Thank you. I'll try to answer that in the way I can, and there's probably some elements that I can't address directly. But I would say that the trends aren't new. I agree with that. The compound effect -- I mean, but the trends are neither a one quarter trend. And you have accumulating and compounding effect of things coming out of the pandemic that are top line oriented, either dealership shutting down. And then as they are opening up, you have an inability to actually get the inventory because the supply chain issues that hinder the value proposition of the business, the applicability of it. So I think you had a series of things that compound that led to finally non-accrual, and I guess, an acquiescence if you will, on -- in terms of where the company is and where they need to go. Ironically, coming out of Q4, couple of other things that actually abated. The supply chain issues are loosening up. We are seeing some early signs of recovery. But I think to answer your question, you're capturing the wood saw effect of things that are creeping through the prior couple of years, accumulating in a way in this quarter on a company basis, and then there are some external data points that we just have to take into account that I think really brought the valuation into something in the range that we're talking about here. And I think there'll be more detail that we can provide in subsequent quarters. But I would try to leave the answer at that, hopefully it addresses your question.

It does answer that part of the question. I mean, obviously, the maturity on the loan was February 15th, which has already passed. I think if they did repay since quarter end, you would have probably said so. So I'm going to presume that it hasn't. Was all of that taken into account whatever the situation actually is today at the time the fair value was determined at 12/31 or we got -- is Q1 going to be another evaluation given it probably, I'm guessing, I missed the maturity there?

Yeah, Robert, this is Phil. Thanks for that follow-up. So you're right, the maturity is imminent, and that has precipitated deeper discussions with the management team and the private sponsor on next steps. We can't provide too many details at this point, but we're eager to perhaps next quarter. But I think it's important to note that what Raj had mentioned, which is the signs of improving performance on the business. And perhaps it's worthwhile giving a quick reminder. AutoAlert, a software and data analytics business used by auto dealerships to drive sales growth, but in the past several years, with inventory levels being so low due to supply chain, as we've discussed, and consumer demand being so robust kind of post pandemic, the dealerships just couldn't keep cars on the lots, so the need for sales optimization software with less of a parity. Obviously, we're seeing a reversal of those dynamics higher rates are clearly impacting demand for cars, which requires a need for more sales and analytics tools and inventory on the dealers' lots are returning to more normalized levels. So keep in mind, the mark is a reflection of financial performance through 2022. It does not reflect what we've been witnessing in the last months or year-to-date. So do I think next quarter is going to be the same in terms of a decline, we're not seeing size of that.

Yeah. And Robin, just to wrap it up on your question about if the maturity is taking into account and anything regarding the contractual elements that are known at the time of the valuation is certainly taken into account by the valuation providers. So that would include maturity, performance through that period and so forth. So it would have been taken into account. I think there's a host of more things that are going to come to play here. As Phil mentioned, we hope to talk about that in the future quarters. The good news is in a sense that we're in ironically a better environment for this business, even though it's an ongoing challenging economic environment.

Got it. Got it. I appreciate all that color. If I can, on the other two, Edmentum and Razor. Successful equity investments. So it's not a -- I assume completely different angle from AutoAlert, Edmentum is kind of three quarters of the combined for that, which has been a successful asset for you, can you give us on the markdown, I mean you talked about Edmentum the outlook to the market et cetera maybe could you segment how much of the markdown was market comps or volatility inputs for volume value in warrants or anything like that versus actual outlook adjustment?

I don't know if I can give a quantitative breakdown, I would say, both applied. Certainly, if you think about both Edmentum and Razor, if you have to categorize these businesses, they'd be considered growth equity or growth or equity, higher multiple businesses that are still high multiple. It just happens to be a reset in the public markets. In the case of Edmentum, -- and both aside from the market multiples, there is just a tempered growth in the case of Edmentum, there's a bit of digestion, if you will, from the massive spend coming out of – coming through COVID on the online school, and I think it's just more of a – it's still a growing outlook. It's probably a more inflection of a bump and then a continued long-term secular positive that that has an impact today. I think that will – I don't think that's going to continue necessarily, because the outlook is still positive and where the markets go – the public markets go, anyone knows, but I don't want to quantify, because I don't think – I have that breakdown, but both are applicable. In the case of Razor, just the broader Amazon ecosystem, as we mentioned, has – dealing with supply chain issues. Those similar to the auto alert situation are abating. There's – people have a lot of money to spend on things, and a lot of the products, these resellers sell are things that are essential and people are continuing to buy, so long as they can get a hold of them to ship out. So I would like to give you a better breakout on company versus market multiples. It's a little blended. But just to reiterate, both apply here -- but in each case, we're pretty positive on the positioning and the outlook for the two businesses, it just happens to be a reset of valuations that we're not immune to.

Got it. Thank you. And thank you for the additional color on all of those items. That's it for me. Thanks a lot.

Thanks, Robert.

Thank you. The next question comes from the line of Kevin Fultz with JMP Securities. Please proceed.

Hi. Good morning. Thank you for taking my questions. Looking at trends within the portfolio, can you provide an update on where weighted average EBITDA portfolio company leverage and interest coverage stand at quarter end and how they have trended over the past few quarters?

Yeah, Kevin, thanks for the question. We haven't seen a noticeable change or a trend per se. Certainly, we realize that there's a little bit of a lag in some of that reporting, and that might change over time. But we'll say, we haven't seen really a meaningful change over the last couple of quarters.

Yeah. And let me add to that, Kevin. I would say, keep in mind, our portfolio is not sort of an index approach to the economy. We're very deliberate about where we're focusing by industry and by company. A fair bit of our portfolio is growing. So – if I had to guess, I don't have the exact data in front of me, I wouldn't expect there to be a significant change in average EBITDA LTVs or leverage. And I would say that, the majority of the -- just to be clear, the majority of our portfolio, given we're an industry's software, services, health care, financial services that are growing. The majority of our portfolio is growing on a revenue, as well as an EBITDA basis. So I think trend wise, you should consider it a healthy portfolio, one that we've been very deliberate about where we are positioning it based on secular views at an industry level, those industries are healthy and growing, and we're tending to work with well-positioned companies within those industries. So in turn, the average levels of EBITDA and attachment points on the leverage. I would think are stable, if not improving, but I don't want to make that comment with update in front of me.

Okay. That's good to hear. I appreciate your comments on specific investments that were written down during the quarter. I guess on the amendment side, have you seen any increase in amendment requests from borrowers? And can you discuss your expectations for that to potentially pick up over the next few quarters?

Yes. Thanks for that question. So amendment requests have increased. And I think that's a clear reflection of the impact that the higher rate environment is having on not just the middle market economy, but broadly as well as we've seen even within the large cap space. So we think we are seeing amendment activity pick up. We attribute that to both our ability when we do negotiate these deals upfront, putting in tight covenants and most of the times multiple covenants that really gives us see the table early on when there is either slower growth or maybe there's not as much liquidity as we're baking in upfront. And in most of those cases, I think what's really important are the decisions that we make around the table and investment committee on how we want to derisk those positions to ensure full recoveries on those loans. In fact, a number of our refinancings in recent quarters have been driven by amendment or near amendment cases where the companies are breaching covenants or they perhaps need more liquidity. And our type structures have put to the table requiring them to refinance this out if we're not comfortable in the position we're in.

Okay. I appreciate the comments, Phil, and I'll leave it there.

Thanks.

Thank you. The next question comes from the line of Christopher Nolan with Ladenburg Thalmann. You may proceed

Hey, Erik, was the decline in interest income quarter-over-quarter due to AutoAlert going down accrual?

It was primarily, yes, we didn't recognize any income AutoAlert for the quarter.

Okay. And then…

And lower prepayment income as well.

Yes. Okay. And then for AutoAlert, is there a bank facility ahead of your position?

No, there's not. We are first position on that mode.

All right. And then is there any discussions regarding a restructuring or bankruptcy related to AutoAlert?

We're not at a point where we can discuss the details, although, I do appreciate the question, but we are in deep discussions with both the management team and the sponsor on go-forward plans that we hope to have more to report in subsequent quarters.

Okay. Follow-up question, how much was spillover income in the quarter?

For the quarter itself or sort of cumulative?

Cumulative, please.

Yes. Cumulative is about $1.20 per share.

Great. Thank you.

Thank you.

Thank you. [Operator Instructions] There are no additional questions at this time. I will hand it back to the management team, for closing remarks.

We appreciate your participation on today's call. I would like to thank our team for all of the continued hard work and dedication. I would also like to thank our shareholders and capital partners for your confidence and your continued support. Thanks for joining us. This concludes today's call.

That concludes today's conference call. Thank you. You may now …