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Edited Transcript of TCPC earnings conference call or presentation 6-Nov-19 6:00pm GMT

Q3 2019 BlackRock TCP Capital Corp Earnings Call

Santa Monica Nov 22, 2019 (Thomson StreetEvents) -- Edited Transcript of BlackRock TCP Capital Corp earnings conference call or presentation Wednesday, November 6, 2019 at 6:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Howard Marshall Levkowitz

BlackRock TCP Capital Corp. - Chairman & CEO

* Kathleen McGlynn

BlackRock TCP Capital Corp. - VP of IR

* Paul Leslie Davis

BlackRock TCP Capital Corp. - CFO

* Rajneesh Vig

Tennenbaum Capital Partners, LLC - Managing Partner and President

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Conference Call Participants

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* Christoph M. Kotowski

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* Christopher Whitbread Patrick Nolan

Ladenburg Thalmann & Co. Inc., Research Division - EVP of Equity Research

* Finian Patrick O'Shea

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* Robert James Dodd

Raymond James & Associates, Inc., Research Division - Research Analyst

* Ryan Patrick Lynch

Keefe, Bruyette, & Woods, Inc., Research Division - MD

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Presentation

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Operator [1]

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Ladies and gentlemen, good afternoon. Welcome, everyone, to BlackRock TCP Capital Corp.'s Third Quarter 2019 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. Global Investor Relations team. Katie, please proceed.

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Kathleen McGlynn, BlackRock TCP Capital Corp. - VP of IR [2]

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Thank you, Shannon. 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.

This morning, we issued our earnings release for the third quarter ended September 30, 2019. We also posted a supplemental earnings presentation to our website at tcpcapital.com. To view the slide presentation, which we'll 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 this morning.

I will now turn the call over to our Chairman and CEO, Howard Levkowitz.

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Howard Marshall Levkowitz, BlackRock TCP Capital Corp. - Chairman & CEO [3]

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Thanks, Katie. I'm here with our TCPC team. And we thank everyone for participating on our call today. I will start with an overview of our third quarter performance, and then our CFO, Paul Davis, will review our financial results. After Paul's comments, I will provide some closing remarks before opening the call to your questions.

I will begin with a few highlights from the third quarter that are summarized on Slide 4 of our investor presentation. First, we earned net investment income of $0.43 per share, outearning our dividend by $0.07. This was the 30th consecutive quarter that our net investment income covered our dividend. And today, we declared a fourth quarter dividend of $0.36 per share payable on December 31 to shareholders of record as of December 17.

Second, we delivered another strong quarter of deployments totaling $176 million. We continue to leverage both our long-standing relationships with borrowers and deal sources and the power of BlackRock platform to identify unique and attractive investment opportunities.

Dispositions in the quarter were $181 million, resulting in net dispositions of $5 million. A large number of these dispositions occurred at the end of the quarter, elevating our average portfolio size and net investment income for the quarter and resulting in prepayment income of $0.06 per share.

Third, we are privileged to have access to diverse, low-cost and flexible sources of financing, including secured and unsecured debt. To that point, in August, we successfully issued $150 million of senior unsecured notes with a 5-year maturity at an attractive rate of 3.9%.

I would like to discuss some of the larger movements in our portfolio during the third quarter. We experienced more volatility in the valuation of a few of our investments than we typically experience. Leading portfolio gains was a $5.2 million increase in the value of our investment in Edmentum. As we have previously discussed, we have been working alongside the Edmentum management team to improve operations, and we are pleased to see meaningful ongoing improvements to the company and our holdings as a result of those efforts. We also recognized $4 million in gains in prepayment income on the payoff of our loan to SnapLogic during the third quarter.

The largest markdown in the quarter was a $5 million markdown of our investment in Fidelis driven, in large part, by an ongoing liquidity shortfall at the company. We are actively engaged with management and potential co-investors to both address the shortfall and to proactively deal with the issues that drove the underperformance in the past. As discussed on last quarter's call, we expect the value of this investment to be volatile as we work toward a solution to strengthen the balance sheet, and we plan to provide updates as appropriate. Additionally, we took markdowns of $3 million on each of our investments in Hylan and AGY, both for company-specific reasons. Hylan is a leading telecom and wireless engineering and construction company whose customers are experiencing project delays in certain end marks, including from delayed 5G projects. AGY continues to be a fundamentally good company that has faced a series of external challenges, including: record high commodity prices for certain raw materials, particularly rhodium; as well as some customer slowdowns due to international trade uncertainty. It's important to note that on a combined basis, these investments account for a very small percentage of our portfolio. We are focused on maximizing their value along with the rest of the portfolio, and our team has a strong, long-term track record and experience working through challenging situations as demonstrated by the increase in value of our investment in Edmentum and the gains we realized on SnapLogic.

Turning to Slide 6 of the presentation. At quarter end, our portfolio had a fair market value of $1.7 billion, 93% of which was in senior secured debt. In constructing our portfolio, we have consistently focused on seniority as well as diversification. As of September 30, we held investments in a record 105 companies across a wide variety of industries. Our largest position represented only 3.8% of the portfolio, and taken together, our 5 largest positions represented only 15.8% of the portfolio. Furthermore, as the chart on the left side of Slide 6 illustrates, our recurring income is distributed across a diverse set of portfolio of companies. We are not reliant on income from any one portfolio company. In fact, on an individual company basis, well over half of our portfolio companies each contribute less than 1% to our recurring income.

Our portfolio continues to be predominantly floating rate. At quarter end, 92% of our debt investments were floating rate, as demonstrated on Slide 7. As I noted, we deployed $176 million in the third quarter, substantially all of which was in senior secured loans and notes. Our strong origination activity resulted from the relationships we have developed over 2 decades in direct lending as well as the expanded access to deal flow and additional resources we are leveraging as part of the BlackRock platform. Our team is able to add more value to our borrowers and deal sources by providing a full range of strategies and risk profiles across the global credit platform.

The deployment activity in the quarter included 7 originations, 3 of which were with existing borrowers. Follow-on investments in existing portfolio companies continue to be an uncertain -- important source of investment opportunities. From a portfolio risk management perspective, these are credits we know and understand well. These opportunities reflect the strength of our borrower relationships and the value we deliver to them. Year-to-date, nearly half of our new investments have come from existing borrowers. We also continue to focus on investments where we lead or co-lead negotiations, which allows us to set deal terms with solid creditor protections. We were a lead or co-lead on 5 of 7 new investments in the third quarter.

Our top 5 investments in the quarter demonstrate our emphasis on diversity and lending at the top of the capital structure. They include: a $35 million senior secured loan to Juul Labs, an investment generated from a relationship we had through our private funds. We made this investment in early August, and while we are aware of the recent headlines about Juul, we believe this is a well-structured and well-covered loan. A $27 million senior secured loan to WHP Global to support the acquisition of Anne Klein, a women's apparel, footwear and accessories brand. This opportunity came to us through a long-standing relationship we have with the WHP management team and our extensive experience in financing IP licensing.

Our third largest investment in the quarter was a $23 million senior secured revolver loan to Spark Networks, to support the expansion of its portfolio of online dating communities. Spark is now the second largest dating company in North America and has over 1 million monthly paying subscribers globally. We also provided a $20 million senior secured revolver to Sandata, which provides electronic verification of payroll and the other information for the home care market. And our fifth largest investment in the quarter was a $14 million senior secured loan to Winshuttle, a leader in application data management software.

Our third quarter investments demonstrate our emphasis on building a diverse portfolio with exposure to a variety of industries. We remain disciplined in our underwriting with an emphasis on companies and industries that can perform consistently throughout economic cycles.

Dispositions in the quarter totaled $181 million and included the payoff of our $36 million loan to Ventiv Technology, a lone we originally underwrote in 2014. Additional payoffs included a $32 million loan to SnapLogic; a $28 million obligation from CFG, a lending relationship we've had for 6 years; and a $17 million loan to Adesto.

New investments during the quarter had a weighted average effective yield of 10.8%. Investments we exited had a weighted average effective yield of 11.6%, as we exited and reduced several higher-yielding second lien positions and a $28 million junior note investment. The overall effective yield on our debt portfolio at quarter end was 10.6% compared to 11% at the end of last quarter, primarily as a result of the decline in LIBOR.

As shown on Slides 8 and 9, respectively, we have returned $11 per share in dividends and outperformed the Wells Fargo BDC Index by 24% since our IPO.

Now I will turn the call over to Paul who will discuss our financial results. Paul?

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Paul Leslie Davis, BlackRock TCP Capital Corp. - CFO [4]

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Thanks, Howard, and hello, everyone. Starting on Slide 16. Net investment income in the third quarter was $0.43 per share, exceeding our dividend of $0.36 by 19%. This extends our record of covering our regular dividend every quarter since we went public in early 2012. Over this period, on a cumulative basis, we've outearned our dividends by an aggregate $43 million or $0.73 per share based on total shares outstanding at quarter end. Investment income for the third quarter was $0.88 per share, substantially all of which was interest income. This includes recurring cash interest of $0.69, recurring discount and fee amortization of $0.04 and PIK income of $0.06. We also generated $0.06 per share from prepayment income, including both prepayment fees and unamortized OID. Our income recognition follows our conservative policy of generally amortizing upfront economics over the life of an investment rather than recognizing all of it at the time the investment is made.

Operating expenses for the third quarter were $0.45 per share and included incentive compensation of $0.09 per share as well as interest and other debt expenses of $0.21 per share for a net investment income of $0.43 per share.

Incentive compensation during the third quarter reflected the reduction in our incentive fee rate from 20% to 17.5% that took effect on February 9 of this year.

Net unrealized losses of $6.7 million or $0.11 per share were primarily driven by the portfolio company valuation changes Howard discussed earlier.

As of September 30, we had loans to 3 portfolio companies on nonaccrual status: Fidelity, AGY and Avanti, representing 1.4% of the portfolio at market value and 3.8% at cost. We placed Fidelis on nonaccrual last quarter, and Avanti has been challenged for some time. AGY is a fundamentally good company whose valuation is currently less than its debt.

Turning to Slide 15. We had total liquidity of $432 million at quarter end. This included available leverage of $346 million, cash of $80 million and net pending settlements of $6 million. Year-to-date, we expanded our credit facility capacity by a total of $150 million, reduced the interest rate on our SVCP facility by 25 basis points, and extended the maturity of both facilities to May 2023.

Our credit facility expansion gave us flexibility as we plan for the maturity of our 2019 convertible notes. And with the subsequent issuance of -- in August of our $150 million of 3.9% unsecured 5-year notes, we were able to then reduce our credit facility commitment by $50 million after quarter end to balance our secured and unsecured debt capital.

The unsecured note issuance and net increase in our credit facility capacity further expanded our diverse leverage program, which now includes 2 low-cost credit facilities, 2 convertible note issuances, 2 straight unsecured note issuances and an SBA program. Outstanding draws on our $150 million SBA program increased to $138 million at September 30. While quarter end cash was temporarily elevated by a number of very large repayments in the last day of the quarter, net regulatory leverage, which is net of SBIC debt, cash and outstanding trades decreased quarter-over-quarter from 0.98x at -- 0.98x common equity at June 30 to 0.96x at September 30, well within our 2:1 leverage limitation following shareholder approval of our increased leverage flexibility back in February.

I'll now turn the call back over to Howard.

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Howard Marshall Levkowitz, BlackRock TCP Capital Corp. - Chairman & CEO [5]

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Thanks, Paul. We are pleased with our strong net investment income, dividend coverage and disciplined origination activity during the quarter. Our team is focused on delivering the results our shareholders have come to expect from TCPC.

Middle-market borrowers continue to look for tailored financing solutions from lenders who know their businesses. However, we are cautious on the environment given the idiosyncratic company and industry shifts we continue to observe. Given this, we continue to be disciplined in our underwriting, executing only a small number of the investment opportunities we review each quarter. We make investment decisions based on a comprehensive analysis of each company, its management team and strategy and relevant industry dynamics.

With this in mind, we continue to leverage our platform to pursue attractive investment opportunities. In the fourth quarter to date through November 5, we have invested approximately $69.2 million primarily in 5 senior secured loans. The combined effective yield of these investments is approximately 10.1%. Looking ahead, we believe we are well positioned to continue to generate strong and consistent performance for several reasons. Our 20-plus years of experience, which spans several market cycles, is a key advantage in attracting borrowers and deal sources as well as managing risk. Our robust origination platform gives us the ability to source unique and attractive investment opportunities. The scale of the BlackRock platform enhances our deal flow, supporting our selective investment approach. As a lead or co-lead on most of our investments, we take an active role in due diligence, deal structuring, establishing terms and monitoring investments. The direct relationships we formed with borrowers as part of this process helped protect TCPC and its shareholders. The BlackRock TCP team is structured so that deal team members source, structure and monitor investments to ensure interests are aligned over the life of an investment. And finally, the BlackRock TCP team has deep experience in both performing a distressed credit. This helps us structure deals that are downside protected and managed through any challenges that may arise.

In closing, we remain focused on generating superior risk-adjusted returns for our investors while preserving capital with downside protection.

And with that operator, please open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Chris Kotowski with Oppenheimer & Company.

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Christoph M. Kotowski, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [2]

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I was just wondering, it seems like you've been fairly active on the right-hand side of the balance sheet with the new notes. And I just noticed the reduction of the facility. And I was wondering, was that all just kind of opportunistic? Or is there kind of a programmatic move in your view to move towards more fixed rate liabilities? Or is there a strategy? Or was it primarily optimistic or -- and -- or is the strategy just broadening and diversifying as always?

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Howard Marshall Levkowitz, BlackRock TCP Capital Corp. - Chairman & CEO [3]

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Chris, it's Howard. Thanks for the question. Our liability management is really a function of our risk management perspective. And wanting to diversify our sources of funding, we have 2 revolvers in SBA facility, a series of note facilities and a convert. And we had expanded our revolver capacity earlier in the year when it was attractive to do so. And when it became attractive to issue the 3.9% notes this summer, we did so. But then we looked at it and felt we had more credit capacity than we needed. And we have good relationships with our banks so we were able to unwind a portion of the incremental facilities debt that we had taken on. We take it on incremental debt from both of our lenders and just unwound it from one of them.

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Christoph M. Kotowski, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [4]

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Okay. And then the one area where you seem to be running up towards capacity is on the SBA debentures. So can you remind us of where you stand on potentially expanding that?

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Paul Leslie Davis, BlackRock TCP Capital Corp. - CFO [5]

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Okay. Well, currently, we still got some cash available in the SBIC drop-down, so we can -- we still have the capacity to use that, but are in process of looking at expanding our SBIC facility as well.

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Christoph M. Kotowski, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [6]

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Okay. And then finally for me, you always provide that interest rate sensitivity chart on Page 7. And obviously, we had, I guess, one rate cut in July and one in October, and I'm just kind of curious how long -- just from the narrow point of view of an analyst who's trying to model out the next couple of quarters, how long before we kind of feel that impact, given kind of the rollovers in your portfolio?

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Howard Marshall Levkowitz, BlackRock TCP Capital Corp. - Chairman & CEO [7]

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So Chris, this is Howard again. You are feeling it. It's rolling through. Most of our assets are on 3-month resets. Not all of them, but most of them as are the floating rate liabilities. So they may not all flow through concurrently, but you're getting it real time. We've had compression year-over-year in LIBOR of about 66 basis points. And so the reason our overall portfolio yield is down this quarter is a combination of 2 things. As we discussed, we exited a few of our second lien positions in our 1 larger junior note, which were higher-yielding positions at an overall 11.6%. But you're also seeing the effect of LIBOR, which was down 25 basis points this quarter flowing through. We do have, on the vast majority of our investments, LIBOR floors, but we'll see where rates go.

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Operator [8]

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Our next question comes from Robert Dodd with Raymond James.

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Robert James Dodd, Raymond James & Associates, Inc., Research Division - Research Analyst [9]

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Just following up on that question a little bit. Rather than yields, can you give us any color on what you're seeing on spreads, right? I mean some evidence or some data indicates middle-market spreads are widening a little bit right now on -- what are you seeing in kind of the pipeline for like-for-like kind of spreads? Because obviously, mix affects it. But what's -- yes, what's really going on the spread front rather than the yield front?

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Rajneesh Vig, Tennenbaum Capital Partners, LLC - Managing Partner and President [10]

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Right, Robert. It's Raj speaking. I'll try to address that. I think -- look, everything in our business seems to be a little bit episodic. And we're very focused on being a value-added provider -- financing provider to our counterparts. And I think historically, that's led to a more stable spread for us even in an environment where it's been reducing. I do agree with your sentiment that there seems to be certainly, a stabilization. And as we look at the pipeline, even an opportunity to take that wider. But again, it's very episodic and a deal-by-deal basis. But I think the environment is a little friendlier on the spread side. But it still ultimately comes down to being able to find the opportunities, be positioned to win those. It's still a competitive environment, but I think we've seen some benefit on the other side of it, even though rates have gone down, and we're going to continue to look for those types of opportunities.

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Robert James Dodd, Raymond James & Associates, Inc., Research Division - Research Analyst [11]

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Got it. And then talking about our episodic, repayments obviously very high this quarter, some junior, some second lien and some big loans that you've got back with prepayment fees. Any -- have you got any indications right now about any large repayments coming in either -- in the near term? Because that can obviously move numbers around quite a lot.

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Rajneesh Vig, Tennenbaum Capital Partners, LLC - Managing Partner and President [12]

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Yes. I think, like every quarter, it's hard to predict. We certainly had our eye on some things that we're working on opportunistically, but it's really -- it can change quite quickly, so it wouldn't be fair to predict on that basis.

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Robert James Dodd, Raymond James & Associates, Inc., Research Division - Research Analyst [13]

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Got it, got it. And then one final kind of housekeeping. Dividend income in the quarter was the highest we've seen in a while. I mean, not huge, but almost reach a million. Can you give us any color on where that comes from? And is any of that associated with the conventional lending JV, which is now, obviously, up and running from what I understand?

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Rajneesh Vig, Tennenbaum Capital Partners, LLC - Managing Partner and President [14]

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Yes, I can take that one. There has been some good activity on the 36th Street JV. We had some nice payments that flow through, which would account for, I think, a chunk of that dividend income. I would not annualize that, but we are pleased with the progress we've made in that vehicle, which is seasoned -- I think, more seasoned now, but that would not be the conventional only one.

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Operator [15]

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Our next question comes from Ryan Lynch with KBW.

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Ryan Patrick Lynch, Keefe, Bruyette, & Woods, Inc., Research Division - MD [16]

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First one has to do with -- if I look at your portfolio today, diversified financial services from an industry standpoint is your largest concentration today. That's grown substantially just throughout 2019. So can you maybe just talk about why there's been significant growth in that area? And why you guys feel that's an attractive area to be in?

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Paul Leslie Davis, BlackRock TCP Capital Corp. - CFO [17]

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Ryan, this is Paul. I'll start out there by noting that this quarter, we switched the industry classification system we use. We used to be using categorizations based on the U.S. government classic -- industry classification system, but switched to -- changed that to the current system, with a view that it more closely aligns our financial reporting with the way we manage our business, including from an end market perspective so that investors have a clear view of where our exposures are. And so currently, that system is the S&P system. So the changes aren't necessarily apples and oranges, but we feel this gives better transparency and disclosure going forward.

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Ryan Patrick Lynch, Keefe, Bruyette, & Woods, Inc., Research Division - MD [18]

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So it's more of a classification change in reporting versus actually making focused efforts into that area? Is that fair?

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Paul Leslie Davis, BlackRock TCP Capital Corp. - CFO [19]

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Correct. Correct. Yes. Well said. Thank you.

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Rajneesh Vig, Tennenbaum Capital Partners, LLC - Managing Partner and President [20]

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I would just add to that -- Ryan, it's Raj. That -- keep in mind that the JVs, which have grown as well, 36th Street in particular, would fall into that category.

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Ryan Patrick Lynch, Keefe, Bruyette, & Woods, Inc., Research Division - MD [21]

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Okay. And then can you maybe talk a little bit about how your investment in Juul Labs, that deal was sourced to you? And then maybe specifically with Juul, but also just broader, that, obviously, company has some controversy to it. So how do you guys get comfortable making an investment, which you guys obviously view as an attractive risk-adjusted return, but potentially could have some reputation risk there?

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Howard Marshall Levkowitz, BlackRock TCP Capital Corp. - Chairman & CEO [22]

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Sure. This is Howard. Thanks for the question. As we mentioned, about half our investments come from existing sources. And this is one of those. It wasn't an investment in the BDC, but was a company that we had been involved with in one of our private funds no longer involved within that capacity. And so we had a preexisting relationship. It's always difficult to answer hypotheticals, but we invested in Juul in early August on the premise that the company has developed an alternative to combustible cigarettes that could dramatically reduce cigarette consumption. And our investment was based on fundamentally sound underwriting, which includes multiple sources of repayment, including a very low loan-to-value, cash well in excess of our debt and successful business operations in multiple locations. Having said that, we're very conscious of the headlines and the circumstances surrounding the company, and we continue to monitor.

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Operator [23]

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Our next question comes from Christopher Nolan with Ladenburg Thalmann.

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - EVP of Equity Research [24]

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Can you guys provide any update on Fidelis?

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Rajneesh Vig, Tennenbaum Capital Partners, LLC - Managing Partner and President [25]

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Yes. This is Raj. I'll take that. I think the update here is very similar to some of the commentary last quarter. This is obviously a very important, but I would say, isolated position in what we're dealing with the company. We continue to see some benefit, both top line and as well as the outlook for the business, based on the work we've done over -- going back over a year ago in terms of switching out management and making some changes. But as Howard mentioned in his prepared comments, there is an ongoing liquidity need, and we are actively working to address that and hopefully, resolve it. And that may ultimately include us, with a financing partner, taking over the business or it may be an alternative. But I think the update, again, is very consistent with how we looked at the company last quarter, where I'd parse the business outlook from the liquidity outlook. And it's an ongoing activity that we will just continue to try to update you all on.

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - EVP of Equity Research [26]

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Great. And I guess sort of a follow-up on the spread question from Robert Dodd. Given most of your first lien loans are adjustable rate, and a lot of subordinated loans are fixed, at what point does rates for first lien search getting so unattractive, you start looking to go down the capital structure incrementally and on a selected basis?

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Rajneesh Vig, Tennenbaum Capital Partners, LLC - Managing Partner and President [27]

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Sure. I'll take that. Again, it's Raj. And I guess what I would do is, first, clarify. I don't know that all the junior paper or, in our case, some second lien debt is fixed. In fact, a lot of that will be floating as well. So we always look at both the relative risk/reward and it was the absolute return. Occasionally and episodically, we will look to go to a junior position, and that tends to be in situations where we're very comfortable, obviously, with the structural subordinate -- subordination. Oftentimes, it's a smaller first lien and one that's placed with banks. But I think that assessment is ongoing and is real-time which -- where we will look at that, but it really is situation-specific. The portfolio, as you know, is really heavily weighted towards, I think, well-covered and strong risk/reward first liens, but the opportunities do exist and occasionally emerge to go junior.

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Operator [28]

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(Operator Instructions) Our next question comes from Fin O'Shea with Wells Fargo Securities.

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Finian Patrick O'Shea, Wells Fargo Securities, LLC, Research Division - Associate Analyst [29]

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One follow on the markdowns this quarter. Can you expand on AGY? Touch that name, looked to previously beyond PIK? And just -- can you help us understand the context of putting a PIK name on nonaccrual? Assuming that the cash isn't really short up to pay a cash dividend anyway, what really happens in terms of the company's profitability for you to go from the PIK to nonaccrual PIK?

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Howard Marshall Levkowitz, BlackRock TCP Capital Corp. - Chairman & CEO [30]

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Sure. It's Howard. AGY, I'll comment first on the business. And then on the accounting, and Paul may have something to add on the accounting. AGY is a fundamentally good business. We've had a couple of markdowns in it. We've been disappointed. It has -- it's a maker of high-end resins that go into a series of sophisticated end-use products. The markets for most of these is strong. This quarter, we saw some weakness on the international front due to what we think is trade uncertainty. And the company was significantly impacted as some of its raw materials, particularly rhodium, has soared and is at record price levels. As a result of this, our valuation providers decreased the value of the company to a level lower than where the instrument was valued. And we thought that it called into question the collectibility of the PIK to a sufficient point that it belonged on nonaccrual.

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Finian Patrick O'Shea, Wells Fargo Securities, LLC, Research Division - Associate Analyst [31]

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So just the follow-up there, is rhodium, the input and the company can't pass on the costs sustainably? Is that sort of the basic backdrop there?

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Howard Marshall Levkowitz, BlackRock TCP Capital Corp. - Chairman & CEO [32]

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Well, this is a fairly recent record increase. We'll see what the company can and can't do. But in terms of its impact on the business, and these valuations are done with the benefit of the information in front of people at the time that they have, that it was marked down based on that. We think fundamentally, it remains a good business with a unique product and unique positioning, but it is going through some lower earnings at this point.

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Finian Patrick O'Shea, Wells Fargo Securities, LLC, Research Division - Associate Analyst [33]

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Okay. I very much appreciate the color on that. And can you provide -- just a follow-up, if I may, update on the BlackRock private credit platform, private credit or direct lending assets as you see them that co-invest with the TCP BDC?

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Howard Marshall Levkowitz, BlackRock TCP Capital Corp. - Chairman & CEO [34]

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Sure. We have, as I think people are well aware, at BlackRock, BlackRock manages another BDC, BKCC, which co-invests. In addition to that, we have a series of private funds. And that is -- we handle those in a consistent manner to the way that TCP handled them before we were acquired with BlackRock, which is quite simply under our allocation policy as approved by our independent Board members and consistent with applicable policies across the firm. If something works in multiple vehicles, they take it pro rata to the extent that they have grown. It's that simple. And so we have been investing that way in 40 Act vehicles going back now since we got our original exemptive order in '06. And it really hasn't changed today, albeit we've got some older vehicles that are running off and that no longer have investment capacity. And so we're bringing on new vehicles.

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Operator [35]

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And I'm currently showing no further questions at this time. I'd like to turn the call back over to Howard Levkowitz for closing remarks.

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Howard Marshall Levkowitz, BlackRock TCP Capital Corp. - Chairman & CEO [36]

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We appreciate your questions and our dialogue today. I would like to thank all of our shareholders for your confidence and your continued support, and our experienced and talented team of professionals at BlackRock TCP Capital Corp. for your continued hard work and dedication. Thanks again for joining us. This concludes today's call.

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Operator [37]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.