Ladies and gentlemen, good afternoon. Welcome, everyone, to BlackRock TCP Capital Corp.'s First Quarter 2024 Earnings Conference Call. Today's conference call is being recorded for replay purposes. [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, Emily. 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 first quarter ended March 31, 2024. 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 for joining us for TCPC's Q1 2024 Earnings Call, which is also officially the first earnings call for TCPC, as a combined entity, post our successful combination with our former affiliate BC, BlackRock Capital Investment Corp, BCIC. Today, I'm joined by our President, Phil Tseng; and our CFO, Erik Cuellar. We are also joined today by Michaela Murray, who will be taking over the Investor Relations role from Katie McGlynn, who is leaving the firm to pursue other opportunities. I'd like to officially welcome Michaela to the show. As a reminder, Katie has been a valued member of the TCPC team and private net platform since 2018, who was instrumental in structuring and closing the recent merger. She's been a great partner and friend and will be sorely missed. We, of course, wish her well in her future endeavours. For today, I will begin with a few comments on the successful completion of our merger with BCIC. I'll then provide an overview of our first quarter results. Phil will follow with an overview of the investment environment and our portfolio and investment activity, and Erik will then review our financial results as well as our capital and liquidity in greater detail. Finally, I will wrap up with a few comments on the opportunities we see ahead before taking your questions. As I mentioned earlier, during the first quarter on March 18, we closed our affiliate merger with BCIC. As a reminder, since BlackRock's acquisition of TCP's platform in 2018, the investment activities of both TCPC and BCIC were managed by one team under the current leadership. The merger simply formalizes the combination of these 2 materially overlapping portfolios and delivers meaningful value for our shareholders through the greater scale and targeted operating efficiencies. This includes…

Thanks, Raj. I'll start with providing an update on our portfolio and highlights from our investment activity during the first quarter and then provide a few comments on the investment environment. In the first quarter of 2024, we invested $20 million, primarily in senior secured loans. Deployments in the quarter included loans to 4 new and 3 existing portfolio companies. Consistent with our strategy, our emphasis remains on companies and established business models and proven core customer bases that make them more resilient across economic cycles. In reviewing the opportunities, we emphasize transactions where we are positioned as a lender influencer, where we have a direct relationship with the borrower and the ability to leverage our more than 2 decades of experience in negotiating deal terms and conditions that we believe provide meaningful downside protection. We believe this has been a key driver of our low realized loss rates over our history. We also see emerging opportunity on the horizon, as pent-up M&A transactions come to market. As the bid-ask spread and valuations for higher-quality assets narrow, we expect market participants who have been sitting on the sidelines to be more active. Actual interest rate cuts should help to catalyze a pickup in M&A, due to the lower debt service costs for prospective borrowers. And based on our conversations with market participants, we're optimistic about activity in the near to medium term. In this environment, our industry specialization continues to be an advantage, as it provides 2 key benefits for us. First, it enhances our ability to assess and effectively mitigate risk in our underwriting, when we negotiate terms and credit documentation. And second, it expands our deal sourcing capabilities with sponsors and nonsponsors, who value our industry experience, which lends itself to more reliable execution for borrowers. Follow-on investments…

Thank you, Phil. As Raj noted, our net investment income in the first quarter benefited from the increase in base rates over the last 21 months and was $0.45 on an adjusted basis for the quarter. As detailed in the earnings press release, adjusted NII excludes amortization of the purchase accounting discount resulting from the merger with BCIC and is calculated in accordance with GAAP. The full reconciliation of adjusted NII to GAAP NII, as well as other non-GAAP financial metrics is included in the earnings press release and 10-Q. Today, we declared a second quarter dividend of $0.34 per share. We remain committed to paying a sustainable dividend that is fully covered by our net investment income regardless of the interest rate environment as we have consistently done over the last 12 years. Investment income for the first quarter was $0.90 per share. This included recurring cash interest of $0.78, nonrecurring interest of $0.02, recurring discount and fee amortization of $0.03 and PIK income of $0.05. PIK income remains in line with the average over our history. Investment income also included $0.02 of dividend income. Operating expenses for the first quarter were $0.35 per share, including $0.21 of interest and other debt expenses. Incentive fees in the quarter totaled $5.8 million or $0.09 per share. Operating expenses for the quarter reflected the impact of the lower management fee rate, since the closing of the transaction on March 18. We expect other synergies and expense savings to materialize over the next few quarters. Net realized losses for the quarter were $168,000 or less than $0.01 per share. Net unrealized losses in this first quarter totaled $23 million or $0.37 per share, primarily reflecting unrealized markdowns on previously discussed investments as Raj described earlier. The net increase in net assets for…

Thanks, Erik. Since we took TCPC public in 2012, we've delivered a 10% annualized return on invested assets and an annualized cash return of 9.7% to our shareholders. We are very proud of these results which include performance during periods when base rates were substantially lower than they are today. We believe this performance remains at the high end of our peer group and speak to our ability to consistently identify attractive middle market investment opportunities at premium yields and to deliver exceptional returns to our shareholders across market and economic cycles. Following our successful merger with BCIC, we look forward to continuing to deliver financing solutions to our borrowers and structure transactions to deliver attractive returns to our shareholders. And with that, operator, please open the call for questions.

[Operator Instructions] Our first question today comes from the line of Robert Dodd with Raymond James.

On Thrasio, et cetera, the aggregator space. I mean on Thrasio particularly, I mean, the bankruptcy got resolved, I think, after quarter end. And I just want to clarify, I think in the docs in the discussion was in 5 recovery below the mark that you currently have, it carry that. Is that factored in or because you disagree about the valuation of the business long-term potentially? Or is it because it happened after the quarter end, that was not fully known at the time you were evaluating some of these positions?

Robert, I think I got most of that question, but I think the question was, is the bankruptcy after quarter end. Is that correct?

It was resolved at the quarter end, right? I mean it was finalized. And what I read was implied value to senior lenders 20%, which obviously is lower than the current market that you have to carry that. So is that a disagreement with the valuation, which is fine? Or is it that it wasn't factored in yet because it hasn't been resolved yet?

Yes. So let me -- I think I get the question. So [indiscernible] valuation procedures are done through third-party [indiscernible] and they'll take into account all the circumstances at the time of the valuation. The bankruptcy process is kind of a different process where the valuations that are being put forth may be more strategic depending on where you are in the capital structure. So will there be differences potentially? Yes. Are they -- are folks looking at it for the same purpose? Not necessarily. And I guess what I would say is we have maintained a valuation process and policies, we think are appropriate for portfolio marketing, the value -- the bankruptcy itself was really a collective decision of something that was a more strategic tool to do some additional financing, clean up the capital structure and other liabilities. But I will say for any company, not just Thrasio but in general, where there is a restructuring, either [indiscernible] you're just going to see, as you know, Robert, more volatility and maybe a variance in marks, until the ultimate realization. That probably happens here. That probably happens with the other aggregators and it has happened with Edmentum, where, ultimately, we're doing right by the process, giving all the information that's available, including the filing. But ultimately, the realization is cash based. And I think in the case of Edmentum at least even though the equity is volatile, we've taken all our cash and the original debt off at par plus. And here in the effort is going to be maintaining the rigor on the valuation, but really focusing on the recovery on a realized basis, which will probably be a couple of years of work and the restructuring. But yes, the valuations may differ. Our folks will take operating results in hand I don't think they're going to necessarily take the bankruptcy valuation at face value versus the information we give them around forecast, projections and things of that sort. Hopefully, that answers your question.

Absolutely.

And Robert, as it relates to the 3/31 mark, this loan actually has had some trading activity even through the bankruptcy process. So it's quoted, and that's what drove the mark at 3/31.

Got it. I understand there's a lot of moving parts in there. Then next question, I think you, Phil, said you expect activity in the market for pickup and as rates decline. So is there -- looking at the curve today and it moves around a lot, rates aren't really projected to decline materially at all this year based on the curve today, and I will change that. So can you give us any more color. I mean, are you expecting the activity level to remain very moderate so long as rates stay here? Or are there other factors that [indiscernible].

Yes, that's a good point. You're right. The forward yield curve is dramatically different than it was, let's say, a few quarters ago, I think a few quarters ago, folks were expecting rates to kind of stabilize down in the mid to high 3s in about 18 months. But I think we're now looking at probably closer to mid-4s. So you're right, rates are not expected to come down as dramatically. So we are moderating our expectations because real rate touch will drive more higher equity valuations and more processes will probably get done. But I think the fact that rates have normalized here, I'm not sure folks are really expecting rate to increase, given what's been talked about in the market in the last few weeks. But we are continuing to hear from market participants, whether they're investment bankers or private sponsors that there are a lot of processes underway. There are a lot of nonprocessed processes meaning there are a lot of premarketing of deals, trying to do some price discovery on assets. And so that tells us that there is some momentum underway. The second is we're continuing to hear from clients out there, institutional investors that they are continuing to demand distributions coming back from their GPs. So they're putting more and more pressure in order to give more money for future vintages to get money back. And so what you're seeing our GPs trying to really test the market. But two, if they're not selling businesses outright, then they are looking at other ways of distributing capital back to their clients like dividend recap, maybe some continuation type vehicles. Dividend recaps are areas that we've -- sorry, deal profiles that we funded over the course of the past several quarters for great assets, where that delevered over time, we're happy to continue to put good money on the situation. So I think we're cautiously optimistic, Robert, but I agree, the yield curve not showing a more dramatic reduction is -- is something that we should be watching closely.

Got it. And I appreciate that answer. And then I wonder if I can take it in a slightly different direction as well. I mean you mentioned as well that it's harder to find favorable deals, and I'd certainly investigate in like LBO financing and things like that. Over the last decade, I mean you have to call it that -- you guys have shown a lot more flexibility than some [indiscernible] in terms of willingness to do other kind of deals, ABL financing for retail, leasing, other areas of the market that you look at. Is that something we should expect to see increasingly over the next couple of years, if the market for LBOs maybe stays a little bit more moderate. Should we see more of these other verticals for you guys? Or how are you thinking about operating in an environment hypothetically where LBO activity remains modular for prolonged periods?

Yes. Great question, Robert. I think that also -- you have an insight that perhaps goes beyond the public vehicle is the platform itself, which has existed well before the BDC was public. And I think as you highlight, we've always been able to pivot to things that are low maybe I won't say opportunistic in risk, but areas that are maybe a little less picked over like leasing. And I think even aviation or things of that sort. I think one of the benefits of the merger that we don't speak about is as much as the greater scale also allows us to think through some of those things and perhaps you're taking advantage of that. I will say just as an additional element, even if new LBO activity is abated, keep in mind that the existing portfolio even through the last couple of years, and I expect going forward will always be a good source of deals, add-on investments because as the portfolio remains healthy, those companies are good about taking advantage of less help elsewhere, whether it's through M&A or other types of consolidation. But to answer your question, as we see things that are interesting areas where we can do the credit work and we feel comfortable with the industry or the asset, I would say, we will take advantage of that. And I think the leasing is a good example. We've also done more ABL structures, where there's less of a desire to be exposed to the entity but more desire to be covered by the discrete asset. And I think as the environment gives rise to those opportunities, our team is very well positioned to take advantage of that. But it's always going to be a credit-first downside protection type of approach.

Our next question comes from Christopher Nolan with Ladenburg Thalmann.

Katie, congratulations. Michaela, welcome. On the maturing debt that you guys referred to earlier, what's the thought in terms of where you're going to refinance that? Is it going to be bond issuance because you -- and for that, are you able to leverage your investment-grade rating, do you think? Or you're going to turn to bank financing?

Yes, Chris, good question. We're certainly looking to address those maturities in the near future. We're very happy with what we've seen in the capital markets within our sector. So definitely, that will be a factor. We also like our current mix of secured versus unsecured. So all of that will come into play. We -- really, the only reason we hadn't addressed it to this point was the pending transaction, and we just wanted to wait till that was done to be able to address the maturity. But we plan to do so in the near term.

All right. And then I read an article, where Moody's is taking a dimmer view on private credit in general. Does this -- does your funding cost really turn on just having an investment-grade rating?

I mean I think any credit issuance is correlated to a rating, ours is no different. I would just clarify that the article, 2 things was more broader based than honing in on our issues specifically. And it wasn't a downgrade. It was an outlook change, which we have seen them do before in the past in the sector. So whether that actually really impacts the pricing, I think, is TBD as we're exploring that. I also think the net movement in pricing has been favorable over the last 12 to 18 months. And you can see that in issuance -- issues and issuances that have hit the market with some very directly, I think, comparable deals. So stay tuned. I think we're going to do the responsible thing and sort of exploring the options. Obviously, the write-up is not irrelevant, but how relevant it is, is sort of TBD. And I think the -- fortunately, we've had a very long well-established investment-grade rating in the market. So I think, hopefully, our bond investors and others, looking at it, we'll keep that in line.

The next question comes from Paul Johnson with KBW.

I'm just curious, what was the driver of the higher other income this quarter. Was there anything in particular driving that amendments or dividends or anything like that?

Yes, we did have $0.02 of nonrecurring income, just amendments in general and a couple of prepayments that we received any time that we have any prepayments that tends to accelerate any -- an advertised discount or exit fee that might be linked to that investment.

And then just kind of higher level with the portfolio. There's a decent amount of software businesses in the portfolio. I know it's not something you've disclosed historically. But I'm just curious, I mean, are any of those ARR loans? And are you able to give any kind of sense of kind of what percent of the portfolio is ARR?

Yes. Thanks, Paul. So we have disclosed the percentage of software for ARR deals. But when we look at our portfolio in a more detailed way, our software and ARR portfolio -- so ARR is a subset of our software exposure. But generally speaking, it's been one of the sectors for us that held up the strongest. And the way we think about software actually is not as a broad brush kind of industry exposure. We actually look at it as more horizontal across a number of end market exposures. So the way we think about it, for example, is a risk management software provider or insurance company or insurance company that is [indiscernible] insurance in the services market. And then alternatively, a software provider that helps facilitate e-commerce transactions for retailers that perhaps is in the retail consumer market -- end market. So we actually view software exposure broadly as less correlated as a group, but much more susceptible to risks on the end markets. And when we look at it in that fashion, it's actually quite diversified.

We do not have any further questions. So I'll turn the call back to the management team.

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

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.