BlackRock TCP ( TCPC ) Earnings Call Transcript

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<h2>DATE</h2>
<p>Friday, February 27, 2026 at 12 p.m. ET</p>
<h2>CALL PARTICIPANTS</h2>
<ul>
<li>Chairman, CEO, and Co-Chief Investment Officer — Philip M. Tseng</li>
<li>President — Jason A. Mehring</li>
<li>Chief Financial Officer — Erik L. Cuellar</li>
<li>Co-Chief Investment Officer — Dan Worrell</li>
</ul>
<h2>TAKEAWAYS</h2>
<ul>
<li>Adjusted Net Investment Income (NII) -- $1.22 per share for the year, down from $1.52 in 2024, and $0.25 per share for the quarter, down from $0.30 in the previous quarter.</li>
<li>Net Asset Value (NAV) per Share -- $7.07 as of year-end, representing a 19% sequential decline, primarily due to issuer-specific developments concentrated in six portfolio companies.</li>
<li>Nonaccrual Debt Investments -- 4.0% of portfolio at fair value (down from 5.6%) and 9.7% at cost (down from 14.4%) compared to year-end 2024.</li>
<li>Dividend Declaration -- Board declared a first quarter dividend of $0.17 per share, payable March 31, 2026.</li>
<li>Share Repurchases -- 515,869 shares bought in Q4 at a weighted average of $5.84 per share and 233,541 shares repurchased post-quarter at $5.50 per share.</li>
<li>Portfolio Fair Value -- $1.5 billion across 141 companies, with an average position size of $10.9 million at year-end.</li>
<li>Senior Secured Loan Exposure -- 92.4% of the portfolio allocated to senior secured loans, all floating rate; first lien loans comprised 87.4% versus 83.6% the prior year.</li>
<li>Portfolio Yield -- Weighted average effective yield was 11.1%, down from 11.5% in the previous quarter; new investments carried a 9.7% yield versus 11.1% on exits.</li>
<li>Investment Activity -- $35.0 million deployed in Q4, with largest new investment a $4.5 million first lien term loan to a wealth management platform, and $80.7 million in paydowns during the quarter.</li>
<li>Net Realized and Unrealized Losses -- Net realized losses totaled $73.9 million ($0.87 per share), and net unrealized losses were $66.5 million ($0.78 per share), mainly from six named investments.</li>
<li>Liquidity and Debt -- Year-end liquidity was $570.2 million (including $482.8 million in borrowing capacity and $61.1 million cash); net regulatory leverage rose to 1.41 times, with a total debt-to-equity ratio of 1.74 times.</li>
<li>Post-Year-End Debt Repayment -- Company repaid entire $325.0 million principal of its 2026 unsecured notes after year-end, reducing net regulatory leverage to 1.34 times and current liquidity to $290.8 million.</li>
<li>Expense Waiver -- Adviser voluntarily waived one-third of the base management fee in the quarter, contributing $0.02 per share to NII.</li>
<li>PIK Interest Income -- Made up 10.9% of total investment income, up from 9.5% in the prior quarter, with no new names added.</li>
<li>No Incentive Compensation -- No fourth-quarter incentive compensation was accrued as cumulative total return did not exceed the hurdle.</li>
</ul>
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<h2>RISKS</h2>
<ul>
<li>Net asset value decline was driven by issuer-specific markdowns in six portfolio companies, with management acknowledging, "the write-downs in the fourth quarter were disappointing."</li>
<li>Annualized NII return on equity dropped to 12.3% from 14.5% in 2024, attributed to "portfolio markdowns and nonaccruals, as well as lower base rates and tighter spreads."</li>
<li>Net regulatory leverage increased from 1.20 times to 1.41 times at year-end, a level management signaled intent to reduce, reflecting elevated balance sheet risk.</li>
<li>Six challenged investments, underwritten in or prior to 2021, comprised approximately 67% of the NAV decline and 91% of markdowns, highlighting legacy credit risks.</li>
</ul>
<h2>SUMMARY</h2>
<p>Management confirmed that six specific portfolio investments accounted for the majority of the net asset value decrease, with $1.11 per share attributed to these names through both realized and unrealized portfolio markdowns. Year-end restructuring efforts resulted in the full write-down of the Razer position, the reduction of Adminim and SellerX values, and substantial markdowns to Renovo, Hyland, and InMobi. New capital deployment focused exclusively on senior secured first lien loans, and management emphasized a continued portfolio rotation into lower-risk assets, reflected by an increased allocation to first lien exposure and reduced average investment size. Adviser fee waivers and the post-year-end repayment of outstanding unsecured notes improved liquidity flexibility and reduced leverage. No change was reported to the company's valuation procedures, and management underscored its commitment to methodically repositioning the portfolio while actively managing challenged credits.</p>
<ul>
<li>In response to the question on frequent asset restructurings, management stated, "The road to recovery, as we have discussed on past calls, is not always linear. In fact, it is rarely linear," affirming ongoing engagement to maximize recovery outcomes.</li>
<li>Jason A. Mehring explicitly clarified, "There has not been any sort of change to our valuation policy," addressing concerns of procedural adjustments in response to NAV declines.</li>
<li>Portfolio paydowns in the quarter outpaced new investments by $45.7 million, indicating a net reduction in risk exposure and a tilt toward balance sheet deleveraging.</li>
</ul>
<h2>INDUSTRY GLOSSARY</h2>
<ul>
<li>Nonaccrual: Debt investments no longer generating contractual interest income due to borrower financial distress, typically reflecting heightened credit risk and requiring valuation adjustments.</li>
<li>PIK (Payment-in-Kind) Interest: Interest income accrued in the form of additional debt or equity rather than cash, increasing portfolio exposure to non-cash returns and potential collectability risk.</li>
<li>First Lien Loan: A senior secured loan that holds the highest repayment priority in the event of borrower default, enhancing recovery prospects relative to junior or unsecured debt.</li>
</ul>
<h2>Full Conference Call Transcript</h2>
<p>Earlier today, we issued our earnings release for the fourth quarter and full year ended 12/31/2025 and posted a supplemental earnings presentation on our website at www.tcpcapital.com. To view the slide presentation we will refer to on today's call, please click on the Investor Relations link and select Events and Presentations. These documents should be reviewed in conjunction with the company's Form 10-K which was filed with the SEC earlier today. Now I will turn the call over to our chairman, CEO, and co-CIO, Philip M. Tseng. Thank you, Alex, and thank you to our investors and analysts for joining us today.</p>
<p>Philip M. Tseng: I will begin with an overview of our fourth quarter and full year 2025 performance. Our President, Jason A. Mehring, will then provide details on our portfolio and investment activity, and Erik L. Cuellar, our CFO, will review our financial results. Then I will provide closing comments before we open the call up for your questions. We are also joined today by Dan Worrell, our co-CIO, who will be available to answer questions. Since we preannounced our preliminary fourth quarter results on January 23, I will focus my remarks on providing more detail on the results and the key factors behind our performance. I will begin with an overview of our financial results.</p>
<p>Full year 2025 adjusted NII was $1.22 per share, compared to $1.52 in 2024. Annualized NII ROE for the year was 12.3%, compared to 14.5% in 2024. Adjusted NII was $0.25 per share in the fourth quarter compared to $0.30 per share last quarter and $0.36 per share for 2024. The decline in NII primarily reflects the impact of portfolio markdowns and nonaccruals, as well as lower base rates and tighter spreads year over year. Fourth quarter NII includes the benefit of a voluntary waiver by our adviser of one-third of the base management fee, which added approximately $0.02 per share.</p>
<p>As of 12/31/2025, nonaccrual debt investments represented 4.0% of the portfolio at fair market value and 9.7% at cost, compared to 5.6% at fair market value and 14.4% at cost for 2024. NAV declined 19% to $7.07 per share as of 12/31/2025, from $8.71 as of September 30, in line with the midpoint of the range we previously provided on January 23. The portfolio markdowns for the quarter largely reflect issuer-specific developments during the period. Six portfolio companies contributed approximately 67%, or $1.11 per share, of the NAV decline. Now I will provide details on these six investments.</p>
<p>Our investment in InVentum, an educational technology business, is comprised entirely of preferred and common equity, making it inherently sensitive to changes in enterprise value. Adminim's valuation declined as a result of overall underperformance in the fourth quarter and lower anticipated future growth. This markdown accounted for 23%, or $0.38 per share, of the NAV decline for the quarter. RZR and CELRx are Amazon aggregators that have been restructured previously and continued to underperform during the quarter, resulting in further reduction to their outlooks. Razer contributed $0.24 per share, or 15% of the NAV decline, and we have now fully written our position down to zero. SellerX contributed $0.22 per share, or 13% of the NAV decline.</p>
<p>On Renovo, as discussed on our last earnings call, we moved forward with writing down our investment in the fourth quarter. This negatively impacted NAV by $0.15 per share, in line with the expectations we communicated previously. Next is Hyland, a provider of telecom, wireless engineering, and construction services, which was also previously restructured. Due to ongoing underperformance in this quarter, as well as liquidity concerns, we marked down this position. It includes both debt and equity. This resulted in a $0.06 per share impact to NAV. And last, we marked down our position in InMobi, a digital advertising company. Our remaining exposure consisted solely of warrants for equity that we retained after the company fully repaid its term loan.</p>
<p>Based on InMobi's underperformance in the fourth quarter and an associated impact on the company's outlook, we reduced the valuation of this position, resulting in a $0.06 per share impact to NAV. Looking at the reduction in NAV for the quarter more broadly, approximately 91% was from investments that we underwrote in 2021 or earlier. Certain of the companies, including Amazon aggregators and e-learning platforms, benefited from high levels of pandemic-era demand but have since seen results soften. All of these positions were underwritten in a significantly lower base rate environment and have faced challenges adjusting to sustained higher interest rates.</p>
<p>Regarding our challenged investments, we continue to work diligently with our borrowers, their sponsors, and creditors to optimize recovery values, including pursuing restructurings and other transaction-driven outcomes when appropriate. Now I will share an update on capital allocation. Starting with our dividend, our Board declared a first quarter dividend of $0.17 per share, payable on 03/31/2026 to shareholders of record on 03/17/2026. As we have said before, our goal is to maintain a dividend that is both sustainable and covered by NII. As part of our commitment to supporting our shareholders, we repurchased 515,869 shares of BlackRock TCP Capital Corp. stock during the fourth quarter at a weighted average price of $5.84 per share.</p>
<p>We also purchased an additional 233,541 shares after quarter-end at a weighted average share price of $5.50 per share. Now I will turn the call over to Jason to discuss our portfolio as well as our recent investment activity. Thanks, Phil, and welcome, everyone. I will begin with an overview of our portfolio composition.</p>
<p>Jason A. Mehring: At year-end, our portfolio had a fair market value of $1.5 billion, invested across 141 companies in more than 20 industry sectors, with an average position size of $10.9 million. 92.4% of our portfolio was invested in senior secured loans, all of which were floating rate. 7.5% was in equity investments. Our largest investment based on fair value represented 7.2% of our portfolio, and our five largest investments accounted for 23.1%. Investment income was distributed broadly across our diverse portfolio, with more than 75% of our portfolio companies each contributing less than 1%.</p>
<p>During 2025, the average size of our investments in new portfolio companies was $5.8 million, compared to an $11.7 million average position size at the end of last year, demonstrating our ongoing effort to reduce concentration risk. All new portfolio company investments during 2025 were in first lien loans, bringing total portfolio exposure to first lien loans to 87.4% on a fair value basis, up from 83.6% last year. At the end of the fourth quarter, the weighted average effective yield of our portfolio was 11.1%, compared to 11.5% last quarter. Investments during the quarter had a weighted average yield of 9.7%, while those we exited had a weighted average yield of 11.1%.</p>
<p>Current yields reflect lower base rates and spread compression during the period. In the fourth quarter, in line with our strategy, we deployed $35.0 million into senior secured loans across five new and existing portfolio companies. Our largest new investment was a $4.5 million first lien term loan to a highly scaled wealth management platform with a focus on high-net-worth individuals. This financing was made in connection with the recapitalization; BlackRock Private Financing Solutions, or PFS, was the second-largest lender in a $2.0 billion credit facility.</p>
<p>The PFS platform has been a lender to this business since early 2024, and the opportunity was a natural fit for BlackRock TCP Capital Corp. given our past success investing in the wealth management sector. In addition to attractive industry fundamentals, we were drawn to the company's high client retention rate, strong management team, and brand recognition. Our second-largest investment was a $4.0 million first lien loan to CoalFire, a leading cybersecurity services and solutions provider. This investment was part of a $375.0 million first lien financing, which BlackRock PFS provided approximately 30% of the facility. We believe CoalFire is well positioned to benefit from increasing cybersecurity regulation and complexity.</p>
<p>Given our focus on direct origination and borrower relationships, incumbency continues to be an important