TPG BDC boosts income but slows investment pace

TPG’s BDC increased its investment income in the fourth quarter of 2018 by 18.5 percent to $74.7 million, though investment activity is down.

The firm said it was concerned about “irrational behaviour” among some market participants but that it wants to take a more cautious approach.

On a call to investors, Robert Stanley, president at TPG Specialty Lending, said: “Given the supply demand imbalance there have been instances of what we believe to be irrational behaviour or market participants were willing to lend at prices inconsistent with underlying deal dynamics, the need for a liquidly premium compared to the broadly syndicated loan market and associated spreads required for today’s latent cycle environment.”

He added: “we are not motivated by the desire to gather assets or to gain market share, but rather by the desire to generate the best risk-adjusted return for our shareholders.”

The TPG Specialty Lending vehicle declared it would pay a fourth quarter supplemental dividend of $0.12 per share and a first quarter base dividend per share of $0.39 off the back of the results.

Year-on-year investment income increased by 53 percent from $48.8 million while net investment income was up 64 percent from $26.9 million in the final quarter of 2017 to $44.1 million in the most recent quarter.

TPG said the increase in investment income was primarily drive by an increase in the average size of the investment portfolio and increased prepayment fees. However, expenses also increased, up from $87.8 million in full-year 2017 to $114.6 million in 2018 driven by higher interest costs due to greater debt outstanding and an increase in LIBOR.

Total assets in the BDC decreased on a quarterly basis, down from just over $2 billion in Q3 2018 to $1.73 billion in Q4. This was slightly up on the $1.72 billion of assets held at the end of 2017.

Originations were also down from $2.25 billion in full-year 2017 to just under $2.2 billion in the last year. The BDC made new investments worth $816.9 million in 19 new portfolio companies and 14 existing portfolio companies during 2018. This too was down from 2017 when the company invested $989.3 million in 22 new portfolio companies and 12 existing firms.

TPG also declared it has seen its highest level of quarterly repayment since inception with $383 million from eight full realisations, two partial pay-downs and one partial sale-down.