Ladies and gentlemen, good afternoon. Welcome everyone to BlackRock TCP Capital Corp.'s Third Quarter 2023 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 the BlackRock TCP Capital Corp. Investor Relations team. Katie, please proceed.

Thank you, Alex. 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 or warranty with respect to such information. Earlier today, we issued our earnings release for the third quarter ended September 30, 2023. 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 & 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 third quarter 2023 earnings call. I will begin the call with a review and reminder of our post-merger with our affiliate BDC, BlackRock Capital Investment Corporation. That was recently announced in September. I will then cover the overview of our third quarter results before turning 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 then review our financial results as well as our capital and liquidity positioning in greater detail. I will then close out our prepared remarks with a few final comments before we take your questions. On September 6, 2023, we announced a proposed merger of TCPC with BlackRock Capital Investment Corp. or BCIC. As highlighted at the time of the announcement, the proposed transaction is a very logical and natural strategic next step in the growth and evolution of BlackRock's BDC platform and the broader $81 billion global private debt business at BlackRock. What's especially compelling about the merger, it combines two very similar portfolios that we know well as our collective investment team has been managing both portfolios for many years now. We believe the proposed merger position is a combined company for sustained growth and will create meaningful value for TCPC shareholders. As a reminder, the transaction is expected to result in a combined company that benefits from operational cost energies, enhanced scale, and better access to capital on improved terms. We also anticipate that the transaction will be accretive to NII. Importantly, our proven investment strategy and overall approach to investing will not change and the Officers of TCPC will remain Officers of the combined company following the close of the transaction. The transaction…

Thanks, Raj. I'll start with a few comments on the investment environment before providing an update on our portfolio and highlights from our investment activity during the third quarter. As Raj noted, economic uncertainty has driven a slowdown in market transaction volumes this year. However, we saw modest pickup in transaction volumes towards the end of the third quarter as continued into the fourth quarter to-date. We are seeing pockets of activity including in non-sponsor opportunities and refinancing to support the existing portfolio companies. However, we remain disciplined and continue to pass on the substantial number of less attractive opportunities coming to market, particularly when we believe that pricing does not appropriately reflect the current market conditions or in terms of not providing adequate lender protections. In the third quarter, TCPC invested $92 million, but significantly from the $17 million invested in the second quarter. Deployment of the quarter included loans to four new and four existing companies, primarily in senior secured loans. In reviewing new opportunities, we emphasize transactions when we are positioned as a lender of influence, which enables us to leverage our two decades of experience in negotiating field terms and conditions that we believe provide meaningful downside protection. We believe this has been a key factor in the low realized loss rates over our long-term track record. In addition, our industry specialization, which are borrower's value as well, provides two key benefits. First, it bolsters our ability to assess and effectively mitigate in our underwriting, and when we negotiate terms in credit documentation. And second, it expands our deal sourcing capabilities with sponsors and non-sponsors who value our industry experience, which lend itself to more reliable execution. Follow-on investments in existing holdings continue to be an important source of opportunity for us. About half of dollars…

Thank you, Phil. As Raj noted earlier, our net investment income in the third quarter benefited from the increase in base rates over the last 18 months. Net investment income of $0.49 was up 17% versus the third quarter of 2022 and exceeded the third quarter dividend of $0.34 per share. Today, we declared our fourth quarter dividend of $0.34 per share and a supplemental dividend of $0.25 per share. We remain committed to being a sustainable dividend that is fully covered by net investment income regardless of the interest rate environment, as we have done consistently over the last 11.5 years. Investment income for the third quarter was $0.94 per share. This included recurring cash interest of $0.82 per share, recurring discount and fee amortization of $0.30, and fixed income of $0.02. Fixed income remains in line with the average over our history. Investment income also included $0.02 of dividend income. Operating expenses for the third quarter were $0.34 per share and included interest and other debt expenses of $0.21 per share. Incentive fees in the quarter totaled $6.0 million for $0.10 per share. Net realized losses for the quarter were $129,000 for less than a penny per share. Net unrealized losses in the third quarter totaled $15 million or $0.27 per share. Primarily reflecting unrealized mark downs on our investments in in Edmentum, Khoros, McAfee, 36th Street Capital, Highland, and CIBT. As Raj noted earlier, unrealized losses in the quarter were primarily driven by overall market volatility coupled with a few isolated company specific performance challenges. Unrealized losses were partially offset by a 3.2 million of unrealized gains on our investment in Astra acquisition. The net increase in that assets for the quarter was $12.8 million, or $0.22 per share. As a reminder, we have a robust valuation…

Thanks, Erik. Even as market volatility persists, we are confident in our proven strategy and approach to investing. We believe we have demonstrated a consistent ability to execute in both periods of economic growth and contraction, which has enabled us to deliver outstanding long-term returns to our shareholders and also makes us a reliable partner for our borrowers. Furthermore, we are excited about the merger with BCIC and believe the transaction will further amplify our strengths and provide numerous benefits. And with that, operator, please open the call to questions.

Thank you. [Operator Instructions]. Our first question for today comes from Robert Dodd of Raymond James. Robert, your line is now open. Please go ahead.

Hi, guys. On the pipeline question, I mean, you talked about a little bit of pickup activity after quarter-end, but that's actual investing. What about the more preliminary stages of the pipeline? Are you seeing that build towards maybe closing in Q4 or are you seeing any evidence of an increase in activity at the moment?

Yes, thanks, Robert. This is Phil. So, I'd say in the earlier stages of the pipeline, we are definitely seeing that more robust than in the prior quarters, whether that means deals will close in Q4 or we're still into the early parts of '24, still TBD. But I think what it does pose is a good solid pipeline for '24. I think that you can assume. And that's something that we've been thinking more about as we see the rate certainty be a little bit more visible given what the Fed just communicated yesterday and has been alluding to in terms of starting to really hitting us at the ceiling. Whether rates come up once or twice more, obviously depends, but I think the certainty over the near-term horizon probably will lead to more transactions happening, whether it's M&A or orders feeling like. Now, maybe good opportunities start investing in growth again, but I think that should be encouraging for our pipeline going to '24.

Got it. Thank you. And then on the credit and maybe sponsored discussions, et cetera, I mean Perch, a new non-accrual this quarter, markdown a bit. You've talked about Highland in the past, but then on the flip side, Astra which was mark up, a decent chunk this quarter. So could you give us any color on where things are struggling and to your point where a handful of companies are seeing slow revenue growth? Are the sponsors responding as normal or is there any change in the dynamics in your discussion with sponsors where they exist for the companies that might be having a little bit more of a difficult time?

Yes, Robert, it's Raj. I'm going to try to take that as one question because there's a lot in there, but we'll try to cover a bunch of those. So big picture, there's no thematic, the names you mentioned are all very individual stories and we can cover them. There's no sort of thematic portfolio-wide issue that is a general theme, even though there are obviously thematic issues in the macro economy. The sponsor question is a good one. And I will tell you that we've mentioned this in the past couple of times and I think we continue to see this. For the most part, the sponsors have been doing a good, there's been a good collective and constructive dialog. And again, I think the steps from everyone really looking at the environment as with some uniform view, which is higher rates and lower growth. And in that environment, it's all about promoting liquidity and longevity, either organically or supplementing it where it's needed. And I think there has been a good general observation of sponsors doing right things by their companies, whether that's cost-cutting more aggressively, certainly reducing discretionary items on the investing side if the ROI and the growth isn't coming from that. And it has met in numerous cases infusions of liquidity. And so I think broadly speaking, we've had a good dialog with the sponsors we work with, but keep in mind we're not a sort of a broad sponsor shop. It's more folks that we've done a lot of deals with over the years. I think for the names you mentioned, and there are very, very, very idiosyncratic things in general. I would say the Perch and the Amazon aggregators is a little bit more of a general industry weakness, kind of in a consumer discretionary realm. It doesn't make us change our view on the long-term prospects and the thesis. It just means that in certain cases these companies that had a certain expectation of growth, where that may not be to their expectations, have to do different things individually or in a collective fashion, and we're sort of going to stay tuned on that. We kind of leave it there, but generally I think they're all looking at trying to mature scale, and cost cut in a way that's expected and proactive. Highland, we've talked about a number of times. Astra, just for your information, is a publicly traded name, so that valuation move is really just a quote. And then other names like Edmentum, 36th Street, and others we can talk about, but I think there's very much a similar story that's company specific, not necessarily portfolio-wide.

Got it, thank you.

Thank you. [Operator Instructions]. Our next question comes from Christopher Nolan of Ladenburg Thalmann. Christopher, your line is now open. Please go ahead.

Hey guys. For the acquisition in the deck, the pro forma net leverage was, following the deals, 0.96. Given the changes in the market, do you expect that to continue? Are you saying by that projection or has market conditions changed that?

Chris, your question on the disclosures on the pro forma numbers, those are being off of 6/30 leverage levels for both TCPC and BCIC. If you notice, TCPC's leverage level came down at 9/30, right about what that pro forma number was. So on a pro forma level, right now it would be a little bit lower, our VO, our leverage or range at which we plan to leverage for the combined company doesn't change. It will fluctuate quarter-over-quarter, but likely to stay within the range that it's been for TCPC over time.

Great. I mean, then I guess a follow-up question. How is solar? That's unusual holding. It's sort of been zero coupon for a long time. And I noticed that it's maturing, and these pieces of it are maturing in the fourth quarter. Is the plan simply to extend that investment? And if so, it's zero coupon. So what's the status there, please?

Yes, that's quite an old one. And it's a residual position on something that we generally exited, but has a longer tail of -- it's kind of a liability participation and it's it just have to run out. So there's no plan to extend it. There's no entity there other than these obligations that are going to run their course In a staggered fashion they run through I want to say 24, but you should see that exposure continue to whittle down to -- it's pretty de minimis now, but continue to whittle down and run off, but there's no plan on re-opening or extending at all.

Great. That's it for me. Thank you very much.

Thank you.

Thank you. At this time currently have no further questions. My apologies we do have a question from Ryan Lynch of KBW. Your line is now open. Please go ahead.

Hey, thanks for taking my questions. First one I just had was, was there any material amendment made in the quarter that were performance related for any. And I just loved it if there were can you just talk about what was the nature of those amendments? Was there any support in conjunction those amendments from the private equity sponsor?

Yes, I'm going to try to answer that in a generalist way, because a lot of these are tend to be confidential items. But keep in mind for us and covenants are really built to be kind of risk mitigate circuit breakers. There it when things are a little weaker and growth is slower whatever the case is. We expect them to be a either get close to our breach That doesn't mean that we at those levels we're viewing the credit as challenged. It's just the structure to be a chance to get back in and discuss and review the situation. So in numerous cases that's happening as it's supposed to. And as I mentioned in the answer earlier, in some cases that has led to not doing very much because it's not an issue, it's just a reset and we're comfortable. In some cases that has led to infusions where we think that's appropriate and discussions with the owner whether it's a sponsor or not. And in some cases we may reset the covenants, take an economic view, as long as the credit is considered not compromised. And so it ranges quite a bit inclusive of cash infusions. But I think that in all steps from the ability to think about structuring these at the front end in a defensive way and then leveraging covenants as one of the tools to allow us to do our job of protecting principal. That's been our main and most important job in this type of business.

Okay, understood. And then your prepared comments. You mentioned about approximately half of the dollars deployed over the last 12 months, which also included in the third quarter were two existing portfolio companies. Could you kind of just give a ballpark of generally what are those proceeds being used for? Are they just refinance existing debt packages you have in these borrowers? Are they for new growth or dividend recaps? Just love to kind of get a good framework of when you're investing in the existing borrow on the last 12 months. What are the use of those proceeds?

Yes, thanks, Ryan. This is Phil. So in every single one of those cases where we do provide additional financing for public companies. There are always healthy situations, obviously, because we're willing to, based on the performance that we've observed over the years that these companies have been our portfolio, we feel very comfortable extending additional credit. And in large part, it's for add-on acquisitions primarily. There are some situations where they're continuing to grow their business, investing organic growth rather than inorganic acquisitions. And then in a very small sense, probably some dividend recap capacity. But again, these are all for performing situations, are very well performing where we feel like they have additional tech capacity. Good example of that is our companies that have de-levered substantially over the time that they've been in our portfolio. And based on our analysis, we view that they have additional tech capacity that we're very willing to participate in and help facilitate.

Okay. My final question I had was sizable special dividend made in the third quarter, a very large spend in the fourth quarter. I would just love to hear dividend covered [indiscernible] its remain really strong over your core dividend next year, as far as estimates and consensus. It's an expectation that you will continue to pay out some level of special dividend on a quarterly basis if earnings stay within this range, and that special dividend will obviously vary from time-to-time, or is this more of a year-end sort of true up you did the last two quarters?

So let me try to take that one. I think the -- certainly we don't want people to take the special as a forecast of a repeating special, because then it's not a special anymore. So I do think we are looking at this as one way to give value back to the shareholders in a more concentrated fashion. Obviously we've -- it's not the only thing we've done. We've also done some dividend raises, which should be seen as recurring. And we are more frequently and periodically and more frequently assessing the dividend and other tools to return value to the shareholders. The merger is actually another form of that as well as we think about benefits that accrue from that. But our Board, we do a review, a thorough review with our Board around the business, where it's going, the current prospects, and maintaining a dividend that is healthy but also very well covered so we don't find ourselves in a position to take it up and then to take down, which I think will be not received well. So it's a long way of saying we're going to continue to assess the conditions are very good. Obviously, you can tell by the NII over the last few quarters. The portfolio looks like it's in good shape and the market is pretty attractive. I think you can just -- and obviously, we have a transaction that we're looking to close and we'll revisit all of it as we do a recorder under the new co-dynamic versus just TCP to the standalone. And as we do that, we will come back and convey our thoughts to the market and where we can give more to the shareholders. We're going to continue to focus on that. I would just encourage you not to take any one-time item as a recurring item. It's the reason we put it as a one-time. In part, there is a year-end dynamic that tied to our over earning the dividend quite a bit through the year that ties into this one as well.

Okay. Understood. I appreciate the time today.

Thanks, Ryan.

Thank you. At this time, we currently have no further questions. So, I'll hand back to Raj Vig for any further 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.

Thank you for joining today's call. You may now disconnect your lines.