BlackRock TCP Capital Corp. Common Stock 2026 Q2 Earnings Call

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 are 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. Certain information discussed and presented may have been derived from third-party sources and has not been independently verified. We make no representation or warranty with respect to such information.

Before we begin, I would also like to note that today's discussion includes references to certain non-GAAP financial measures, including adjusted net investment income. Detailed in our earnings press release, adjusted net investment income excludes the amortization of the purchase accounting discount resulting from our merger with BCIC, and is calculated in accordance with GAAP. A full reconciliation of adjusted net investment income to GAAP net investment income, as well as other non-GAAP financial metrics, is included in the earnings press release and 10-Q. Today, we issued a press release announcing our results for the second quarter ended June 30th, 2026, as well as the portfolio sale transaction we just completed. We posted a supplemental presentation with information on both to 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. I will turn the call over to our Chairman, CEO, and Co-CIO, Phil Tseng.

Thank you, Alex, and thank you to our investors and analysts for joining us. Today, I'll start with an overview of the portfolio sale transaction we announced this morning, followed by the highlights of our second quarter 2026 performance. Jason Mehring, our President, will cover portfolio and investment activity, and Eric Cuellar, our CFO, will walk through our financial results and our balance sheet. I'll provide closing remarks before we open the call for questions. We're also joined by Dan Worrell, our Co-CIO, who will be available for questions. Let me begin with the transaction. This is a milestone for TCPC that meaningfully accelerates the work already underway to strengthen our financial position and reshape our investment portfolio. This transaction materially lowers leverage, reduces investment position sizes, and significantly enhances our investment capacity while realizing a substantial premium to the value implied by TCPC's current share price.

Looking forward, it provides substantially greater financial, investment, and operational flexibility, creating a stronger foundation for delivering long-term shareholder value. We will step through the transaction at a high level. Additional detail can be found in the subsequent events disclosure section of the Form 10-Q. TCPC transferred approximately $523 million of investments across 78 portfolio companies into a continuation vehicle sponsored by Pantheon. The assets sold comprise approximately 48% of the fair market value of our pre-transaction debt portfolio and have broadly similar sector, lien, and credit characteristics. The assets include all collateral underlying the recently issued BlackRock DLF 2026-C CLO LLC, plus additional contributed investments. TCPC retained a direct interest in substantially all of the portfolio companies, transferring, on average, approximately two-thirds of each investment position to the vehicle.

In addition, the company retained a 5% equity interest in the continuation vehicle, and TCPC's investment advisor will also act as the investment advisor for the vehicle without compensation. The continuation vehicle assumed all of the CLO liabilities. The transaction was priced at 95% of the December 31st, 2025, gross fair market value of the assets sold, subject to customary adjustments, including unfunded commitments, portfolio repayments, and investment income generated prior to closing, and other items as more fully outlined in Appendix A of the Form 8-K we filed this morning. The transaction is expected to result in a NAV decline of approximately 10.4% or $0.68 per share based on June 30 NAV. Our board of directors obtained a third-party fairness opinion from Lincoln International in connection with the transaction. The strategic impact of the transaction is substantial.

The approximately $152 million of proceeds were used primarily to reduce debt, and together with deconsolidation of the CLO and post-quarter end repayments, TCPC has reduced net leverage to approximately 0.4 times on a pro forma basis, and unfunded commitments to below $40 million, significantly improving TCPC's financial flexibility and creating substantial new investment capacity. To help evaluate the best way to use that flexibility to create further long-term shareholder value, the board has engaged Keefe, Bruyette & Woods to assist with a strategic review. This review will consider a range of options, including but not limited to, reinvesting the portfolio, returning capital to shareholders, pursuing strategic combinations or other corporate transactions, or some combination of these options. I want to thank everyone involved in the transaction. It was a complex process, and the hard work required reflects the firm's commitment to TCPC and its shareholders.

With that, let me turn to our second quarter results. Apart from the transaction, we continued to make progress against our strategic priorities during the second quarter, including reducing non-accruals, strengthening the balance sheet, and advancing our portfolio repositioning efforts. While quarterly NAV performance reflected issuer-specific developments at a small number of portfolio companies, broader portfolio performance was generally in line with our expectations, and we experienced strong repayment volumes. NAV in the quarter declined approximately 2.1% to $6.58 per share, primarily reflecting developments at Pluralsight, PVHC, and Zilliant, as well as realized losses on our exits of AutoAlert and Become. Non-accruals declined to 1.6% of the portfolio at fair value and 7.4% at cost from 2.8% and 7.6%, respectively, at the end of the first quarter. The improvement was driven in large part by positive developments at Thrasio, which repaid $22 million.

We removed our remaining $3.7 million position at Thrasio from non-accrual status, as we expect this position will be paid down in full given the current health of the business. As you may recall, we restructured our investment in Thrasio in early 2024, and we are pleased with this outcome, which we believe reflects the benefits of active portfolio management and patience. Repayment activity was strong in the second quarter, totaling $111.6 million in payoffs and paydowns, and resulting in net repayments of $86.6 million, which advanced our portfolio repositioning efforts. In addition to Thrasio, we received repayments of $14.9 million from StarRez, $13.1 million from AutoAlert, and an additional $48.7 million across five other companies. This repayment activity also strengthened the balance sheet, with net leverage declining to 1.38 times at quarter end from 1.48 times at the end of the first quarter.

Following the portfolio sale transaction and post-quarter end repayments completed to date, net leverage is expected to decline to approximately 0.4 times on a pro forma basis and to less than 0.3 times after additional portfolio company paydowns from transactions that have been announced. Turning to capital allocation, on July 30, 2026, our board declared a third quarter dividend of $0.17 per share, payable on September 30th to shareholders of record as of September 16th. We also repurchased 156,370 shares of TCPC stock during the second quarter at a weighted average price of $3.78 per share. I'll turn the call over to Jason to discuss the portfolio and investment activity in more detail.

Thanks, Phil, welcome everyone. With the portfolio sale transaction now complete, I'll review our second quarter portfolio metrics and then highlight how the transaction and post-quarter end repayments have positioned the portfolio going forward. At quarter end, the portfolio had fair market value of $1.29 billion, invested across 134 portfolio companies in 35 industry sectors with an average position size of $9.6 million. 91.5% of the portfolio was invested in senior secured loans, all of which were floating rate, with the balance of the portfolio in equity. Substantially all new investments during the quarter were in first-lien loans, bringing total first-lien exposure to 89.8% on a fair value basis. Our largest investment, based on fair value, represented 8.9% of the portfolio, and the five largest investments accounted for 27.6%.

As of June 30th, software represented 29.7% of the portfolio at fair value across 45 portfolio companies, with approximately 97% invested in debt and 3% in equity. This software exposure decreased modestly from 30.5% across 47 companies in Q1, primarily reflecting the successful exits of Prasado and StarRez during the period. The current software portfolio was originated at a loan-to-value of approximately 26%, providing a considerable equity cushion. As we've discussed previously, we do not view software and potential AI risk as monolithic because certain segments are fundamentally more resilient than others. For some time, our underwriting has focused on systems of record with proprietary data assets and solutions that are deeply embedded in customer workflows or serve regulated end markets, which we believe are generally more insulated from AI-related disruption.

In line with our focus on enhancing portfolio quality, disciplined deployment, and strengthening our balance sheet, we intentionally kept investment activity limited and highly selective in the second quarter. The majority of the $25 million of capital deployed during the quarter was directed towards previously committed investments, and we added one new borrower. Capitalizing on incumbency remains a priority for us, and we continue to find compelling investment opportunities among our existing portfolio companies where we have longstanding relationships and industry experience. As Phil mentioned, we saw meaningful payoffs and pay downs this quarter, totaling $111.6 million and resulting in net repayments of $86.6 million. Subsequent to quarter end, we also received $97.4 million in additional repayments, including $55.2 million from Motive Technologies, formerly known as KeepTruckin, and $39 million from Pico Quantitative Trading.