BlackRock TCP Capital Corp. (TCPC) Q3 2026 Earnings Report, Transcript and Summary

Hello, everyone. Thank you for joining us, and welcome to the BlackRock TCP Capital Corp. Q3 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Alex Doll of the BlackRock TCP Capital Corp. Investor Relations team. Alex, please go ahead.

Thank you, operator. Before we begin, I will note that this conference call may contain forward-looking statements based on management's estimates and assumptions at the time such statements were made, which are not guarantees of future performance. Forward-looking statements involve risks and uncertainties, and actual results could differ materially from those projected. For more information, please refer to the risk factors discussed in our Form 10-Q and the Form 8-K filed with the SEC today, along with the associated press release. Any forward-looking statements made on this call are 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. Today's discussion includes references to certain non-GAAP financial measures, including adjusted net investment income. As detailed in our earnings press release, adjusted net investment income excludes the amortization of the purchase accounting discount resulting from our merger with BCIC. A full reconciliation of adjusted net investment income to GAAP net investment income as well as other non-GAAP financial measures is included in the earnings press release and 10-Q. Earlier today, we issued our earnings release for the third quarter ended September 30, 2026, and posted a supplemental earnings presentation on our website at www.tcpcapital.com. To view the slide presentation, which we will refer to on today's call, please click 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. Now I will turn the call over to our Chairman and Chief Executive Officer, Jason Mehring.

Thank you, Alex, and thank you to our investors and analysts for joining us today. Today, I'll discuss the highlights of our third quarter 2026 performance. Then Dan Worrell, our President, will cover our portfolio and investment activity; and Erik Cuellar, our CFO, will walk through our financial results, balance sheet and liquidity. With that, let me turn to our third quarter results. As a reminder, during the quarter, we completed the sale of approximately $524 million of investments to a continuation vehicle sponsored by Pantheon. The continuation vehicle also assumed the $405 million of CLO debt that had been issued during the second quarter of 2026. In addition, we announced that our Board had engaged Keefe, Bruyette & Woods to assist with the review of strategic alternatives. While we do not yet have a definitive outcome of the review to share today, we continue to make progress and remain focused on reaching the best possible outcome for our shareholders. We will provide additional information at the appropriate time. Looking at our third quarter performance, in addition to the investments sold as part of the continuation vehicle transaction, we saw repayment and realization activity totaling $224 million. As we noted in our last call, this included the full payoffs of our investments in Motive Technologies and Pico shortly after the end of the second quarter. It also included the full repayment of our investments in ESO Solutions and Domo following its sale. These repayments increased our liquidity, reduced net leverage to 0.16x and contributed to a quarter end cash balance of approximately $253 million. Given the ongoing strategic review, we made a deliberate decision to maximize investment dry powder and liquidity rather than pursue new deployment opportunities. While we do not intend to hold this level of cash over the long term, following discussions with our adviser, we believe this approach best preserves optionality to maximize shareholder value and keeps all alternatives available to the Board as it continues the evaluation process. Moving to the portfolio. NAV declined $0.97 per share from $6.58 to $5.61 per share at September 30. The primary driver was the $0.68 per share impact of the portfolio sale transaction, which we discussed on our last call. The largest component of the remaining reduction was attributable to Job & Talent, which accounted for $0.15 per share of the decline. Job & Talent is currently evaluating strategic alternatives and our quarter end valuation reflects the latest information available from that process. Other markdowns in the portfolio in aggregate reduced NAV by approximately $0.13 per share. Nonaccruals as a percentage of portfolio value increased during the quarter, reflecting both new nonaccruals and significant repayment activity that reduced the size of the portfolio. Dan will provide more details later. Turning to capital allocation. On November 5, 2026, our Board of Directors declared a fourth quarter dividend of $0.17 per share payable on December 31, 2026, to shareholders of record as of December 17, 2026. With a smaller portfolio and elevated cash balances, adjusted net investment income was $0.15 per share for the quarter compared with a $0.17 per share dividend in the third quarter. The Board will continue to evaluate the dividend in the context of the strategic review. With that, I'll turn the call over to our President, Dan Worrell, to discuss the portfolio and investment activity.

Thank you, Jason. As we review the quarter's results, it is important to consider the impact of the portfolio sale as well as the significant repayment activity we experienced during the quarter. Together, these resulted in a smaller and more concentrated investment portfolio. I'll begin with an overview of the portfolio composition and then discuss investment activity and credit performance. Before doing so, I'd like to note that the portfolio statistics we reference on a percentage basis have been calculated excluding excess portfolio cash. At quarter end, the portfolio had a fair market value of $544 million invested across 126 portfolio companies in 35 industry sectors with an average position size of $4.3 million. 79.6% of the portfolio was invested in first lien senior secured loans, 88% of which were floating rate with the balance of the portfolio in equity investments. Our largest investment based on fair value is our ownership stake in 36th Street Capital, which represented 19.3% of the portfolio. 36th Street Capital is itself a broadly diversified equipment leasing business. Our 5 largest investments accounted for 38.5% of the portfolio. At September 30, software represented 25.7% of the portfolio at fair value and was spread across 40 portfolio companies with approximately 95% in debt positions and the remaining 5% in equity. At the end of the third quarter, the weighted average effective yield on our total portfolio based on fair value was 9.4%. Investments we exited during the quarter had a weighted average yield of 10.9%. Moving on to investment activity. Net repayments totaled approximately $224 million, including the full realization of several larger positions, Domo, Motive Technologies, Pico and ESO Solutions. New investment activity totaled $6.2 million and was limited primarily to follow-on investments in existing portfolio companies. This reflects our decision to maintain liquidity and flexibility while the strategic review remains underway. Turning to credit performance. Job & Talent remains on accrual but was the largest contributor to unrealized losses during the quarter. In dollar terms, nonaccrual investments at fair value declined slightly during the quarter to $18.5 million at September 30 compared with $20.6 million at June 30. The number of portfolio companies on nonaccrual also declined to 12 at September 30 compared with 13 at June 30. [Cellares] and Terraboost were added to nonaccrual during the quarter, while KBS, Paramount and Zilliant were removed. Nonaccruals as a percentage of portfolio value increased during the quarter to 14.2% of the portfolio at cost and 3.4% at fair value, compared with 7.4% and 1.6%, respectively, at June 30. The increase primarily reflects the reduction in portfolio size resulting from the portfolio sale transaction and significant repayments of predominantly performing loans during the quarter. Now I'll turn the call over to our CFO, Erik Cuellar, to walk through our financial results, balance sheet and liquidity.

Thank you, Dan. I'll begin with a review of our financial results for the third quarter of 2026. Total investment income was $28.5 million or $0.34 per share. This included recurring cash interest income of $0.20 per share, nonrecurring income of $0.08 per share, recurring discount and fee amortization of $0.02 per share, PIK income of $0.03 per share and dividend income of $0.01 per share. PIK income represented 8.8% of total investment income, up from 7.6% in the second quarter. Operating expenses for the quarter were $15.1 million or $0.18 per share, including $9.4 million or $0.11 per share of interest and other debt expenses. Net investment income was $13.4 million or $0.16 per share and adjusted net investment income was $12.5 million or $0.15 per share. As of September 30, 2026, the cumulative total return did not exceed the total return hurdle, and therefore, no incentive compensation was accrued for the quarter. Net realized losses for the quarter were $75.8 million or $0.91 per share, inclusive of $56.7 million or $0.68 per share that we previously shared related to the portfolio sale transaction. Net unrealized losses for the quarter of $4.3 million or $0.05 per share were primarily attributable to an $11.5 million markdown in Job & Talent, which was partially offset by the reversal of previous unrealized losses related to the portfolio sale transaction. Quarterly distributions to shareholders totaled $0.17 per share during the period. After net investment income, realized and unrealized gains and losses and distributions, NAV declined by $0.97 per share to $5.61 per share at September 30. As Jason discussed, approximately $0.68 per share of that amount reflects the portfolio sale transaction. The total decrease in net assets for the quarter was $81.0 million. Now I'll discuss our balance sheet and liquidity, which benefited from the portfolio sale transaction and repayment activity during the quarter. Total liquidity at the end of the third quarter was $511 million, including $258 million in available borrowing capacity under our revolver and $253 million in cash. As Jason mentioned, we do not intend to hold this level of cash over the long term. But following discussions with our adviser, we believe it is appropriate to preserve liquidity and flexibility while the strategic review remains ongoing. Total debt was $330 million compared with $917 million at June 30. All of our outstanding debt is composed of unsecured bonds that are not currently callable. The combined weighted average interest rate on debt outstanding was 6.9% as of September 30, 2026. Net regulatory leverage was 0.16x at quarter end. For reference, following the continuation vehicle transaction, we estimated pro forma net regulatory leverage was approximately 0.4x. Subsequent repayment activity further reduced leverage to current levels. Total debt to equity was 0.7x compared with 1.66x at June 30. Unfunded loan commitments represented 6.0% of our $544 million investment portfolio or $33 million, including $18 million in revolver commitments as of September 30, 2026. Now I'll turn the call back over to Jason.

Thank you, Dan and Erik, for your comments. Operator, please open the call up to questions.

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

I appreciate that you can't -- there's no conclusion yet for the strategic review, and that's up to the Board anyway. But can you give us any idea on -- I presume there's contingency planning in the sense, as you said, you don't expect to hold this level of cash, for example. If the Board decides that, that cash gets used in stock buybacks and then the business continues or starts back up and originating, I mean, that's one scenario. Obviously, one scenario might be that the Board decides the business should be sold, in which case, that's a whole different story. But from an operational perspective, if -- it's big if, it's decided the business goes forward as an independent entity, what would the plans be for how the portfolio would be structured? I mean, looking at 36th Street, I mean, it's a very big piece of the portfolio. And so what plans would you have to kind of deal with that kind of concentration if go forward as is, is the conclusion of the review, which obviously is speculative.

Yes. Thanks for the question, Robert. It's Jason. Obviously, I appreciate where you're coming from. I think it's -- again, it's difficult to speculate on the direction and certainly, wouldn't want to speculate specifically on any certain asset, even 36th Street, knowing that it's a very large piece of the portfolio. What I would guess is that to the extent we were to resume any sort of investing activity, it probably would be consistent with what we were doing most recently, which is driving a much more granular portfolio focused on the top of the capital stack. But that, too, would be subject to ultimate determination at the end of the process with the Board once we weigh all of the options that are available, again, as we're trying to maximize value to shareholders. So again, I think a lot of it is really TBD, and I'd stop short of speculating just yet.

Okay. Fair enough. Then the follow-on question, obviously, is when won't it be TBD anymore? What's the -- do you have an estimate of the time frame that this will be -- and obviously, it's the Board decision, not yours, but a rough estimate by the time frame when you or investors may know a conclusion from the Board. I mean, is that likely to happen this year? There's not that much more of the year left? Or is this a first half of next year kind of conclusion? I mean any color there would be helpful.

Yes. Again, certainly understand the reason for the question. We don't have a definitive time line or guidance on the outcome just yet. I mean we continue to make progress and are obviously focused on getting the best outcome for shareholders. I would say, we're working to be both efficient and thorough and where those things intersect is TBD. But again, we'll be back to people with additional information at the appropriate time.

[Operator Instructions] We have reached the end of our Q&A session. I will now pass the call back to Jason for closing remarks.

Thank you, operator, and thank you to everyone that joined our call today. I'd also like to thank our team for their continued hard work and dedication to TCPC. As always, please reach out with any questions. Thank you.

This concludes today's call. Thank you for joining. You may now disconnect.