TCPC to lower fees when it increases leverage

The BDC will lower its incentive fees and hurdle rate next year to stay “fee-friendly”.

BlackRock TCP Capital Corp (TCPC) will lower its incentive fee and hurdle rate next year when it increases leverage, according to the vehicle’s third quarter earnings call last week.  The Santa Monica-based business development company’s board approved an increase of leverage from a 1:1 debt-to-equity ratio to 2:1 starting in November of next year. TCPC also plans to seek shareholder approval for the borrowing capacity increase, and, if the BDC’s stockholders give it approval, TCPC would be able to increase its borrowing capacity before November 2019.

As a result, the vehicle will lower its incentive fee from 20 percent to 17.5 percent and its hurdle rate to 7 percent from 8 percent, said Howard Levkowitz, TCPC’s chairman and chief executive. It will also lower the management fee from 1.5 percent to 1 percent for assets above the 1:1 ratio.

The BDC had 11.7 percent yield on its investment portfolio during the third quarter, as the net asset value per share as of 30 September dropped $0.10 between the second and third quarters from $14.61 to $14.51. The NAV per share at the end of 2017 was $14.80.

The decline in NAV per share was mainly caused by TCPC’s legacy positions in several portfolio companies. Those names were Green Biologics, AGY and Real Mex, which filed for Chapter 11 bankruptcy in August, Levkowitz said on the earnings call. He added that the BDC is working to restructure its investments in those companies.

TCPC deployed $164 million in the third quarter. These investments were made to seven new companies and five existing portfolio companies. All the investments in the third quarter were in senior secured loans. The new debt investments are expected to have a return of 9.8 percent.

Since the start of the fourth quarter, so far, the vehicle has invested $102.7 million across five senior secured loans. The portfolio is now 92 percent senior secured loans and 92 percent floating-rate loans.

TCPC was formed in 2012. The BDC’s external manager, Tennenbaum Capital Partners, was acquired by BlackRock in 2018. TCPC focuses on lending to companies worth $100 million to $1.5 billion and it distributes loans ranging from $10 million to $50 million in size on average. The vehicle’s debt portfolio is worth $1.6 billion.

BlackRock is a New York-based global asset manager. The firm’s credit arm currently has over $90 billion in assets under management, while BlackRock at large oversaw $6.4 trillion at the end of the third quarter.