TCPC out-earns dividend, highlights equity raise

Tennenbaum’s BDC reported earnings from a strong second quarter that saw $18.5m in net investment income for the Los Angeles-based firm.  

Touting its ability to raise equity as many of its BDC peers struggle under challenging market conditions, TCP Capital Corp (TCPC) highlighted the benefits of the $65 million the firm raised in recent months on its second quarter earnings call.

Speaking Tuesday (9 August) on the call, chairman and chief executive Howard Levkowitz (pictured) detailed the impact of the $30 million privately placed convertible note from CNO in April and a $35.3 million direct offering of common stock to an unnamed asset manager that came in July.

“We are especially pleased that we have been able to efficiently raise growth capital in a challenging market environment. Our equity has been raised in a disciplined fashion for the benefit of our existing and new investors. The additional liquidity is available for deployment,” he said.

TCPC reported net investment income (NII) of $0.38 per share ($18.5 million) during the second quarter, remaining stable from the first quarter. The firm announced a third quarter dividend of $0.36 per share, maintaining the regular dividend it has returned to its investors since the second quarter of 2013.

Net asset value for the BDC improved from the $14.66 per share reported last quarter to $14.74 per share for the three months ending 30 June. Levkowitz attributed the rise to narrower market yield spreads and NII in excess of paid dividends.

Asked by Ryan Lynch of KBW to explain TCPC’s ability to return a “very healthy” portfolio yield of 11 percent, president and chief operating officer Raj Vig responded by detailing the impact of current market conditions on borrowers.

“It really comes down to being a value-add financing party to companies that, while healthy and while performing and quality for the BDC strategy, are just not able to find a large diversity of opportunities to finance their business needs and therefore are willing to sign up for something that may be pricing a little bit wider than they would see in a more syndicated or efficient marketplace,” he explained.

During the second quarter, TCPC made $119.1 million in new commitments, which was offset by $119.9 in exits, including repayments, according to materials released in conjunction with the call.

The value of the firm’s overall portfolio remained steady at $1.2 billion, spread across 89 companies in numerous industries including software publishing, credit intermediation and business support services, among others. Its portfolio is made up of 96 percent senior secured debt, 80 percent of which is floating rate.

The addition of new equity helped lower TCPC’s leverage from the 0.66x figure reported for the first quarter to 0.58x for the period ending 30 June.

Levkowitz said that bank regulation continues to be a key macro driver of TCPC’s business.

“We are now eight years, maybe nine, past the onset of the [last financial] crisis and the regulators just keep tightening, making it more costly and difficult for banks to do business specifically in the area of leveraged lending,” Levkowitz said.