On its first quarter earnings call last Tuesday (10 May), Tennenbaum Capital Partners Capital Corp (TCPC) reported net investment income of $18.3 million, or $0.38 per share, and declared a dividend of $0.36 for both the first and second quarters of 2016.
The firm also saw a decline in net asset value (NAV) from $14.78 per share at the end of 2015 to $14.66 at the end of March. The drop was attributed to widening spreads and not the underlying quality of credits in the company’s portfolio. TCPC is one of few BDCs that has been trading at or close to its NAV with the latest figure clocking in at about 1.02x price to book.
“Post-crisis credit regulations have substantially reduced liquidity in the credit market,” said chairman and chief executive Howard Levkowitz (pictured). “This trend has continued into 2016. As a result, we are seeing numerous origination opportunities across many sectors. Our deal flow remains good, but we continue to take a highly disciplined approach to new investments and are passing on many opportunities,” he said.
During the first quarter, TCPC invested $114.1 million in new commitments, an increase over the $77.5 committed in the fourth quarter of 2015. The new commitments were spread across four new companies and two already in its portfolio.
TCPC reported $1.2 billion of total investments across 90 companies in many sectors, a slight increase from the $1.1 billion reported at the end of 2015. Software publishing takes up the biggest portion of the TCPC portfolio at 16.8 percent, with about 5 percent devoted to non-depository credit intermediation, computer systems design and related services and air transportation, with smaller commitments distributed elsewhere.
Three investments totaling 0.4 percent of TCPC’s portfolio were on non-accrual status as of the end of the quarter, with one new non-accrual added, Boomerang Tube, a manufacturer of pipes and tubing for oil and natural gas companies that is undergoing a restructuring. The position was the reason for TCPC’s $2.6 million in realised losses during the first quarter.
In addition, TCPC’s first and second lien loans to Core Entertainment are on non-accrual as that company also undergoes a restructuring. Core is the owner and producer of the American Idol, which was recently cancelled by Fox, and the addition of its first lien loan to TCPC’s non-accruals during the first quarter was attributed to a revaluing of the company’s assets.
“Although it has gone under restructuring and had been paying up until this quarter, it wasn’t a big surprise to people in the change of value of the assets themselves, notwithstanding the fact that it went on non-accrual,” Levkowitz said.
TCPC also said it is in dialogue with the Small Business Administration about receiving a small business investment company (SBIC) license, and expects the license to be approved within weeks.
Levkowitz also discussed the five year $30 million convertible bond to the BDC that came as part of a recent $250 million agreement between CNO Financial Group and TCPC’s parent company, Tennenbaum Capital Partners. He said that it demonstrated TCPC’s commitment to tapping new sources of capital and provided an excellent institutional partner for the company.
At the end of the first quarter, TCPC had $221.4 million in liquidity available, with $204 million coming from its leverage program and $22.7 million in cash and cash equivalents and $5.3 million in outstanding settlements. Leverage for the first quarter was 0.66x, up from the 0.60x reported at the end of the fourth quarter.