TCP Capital Corp. (TCPC)

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TCP Capital (TCPC)

Q2 2013 Earnings Call

August 08, 2013 01:00 PM ET

Executives

Jessica Ekeberg - IR

Howard Levkowitz - Chairman and CEO

Raj Vig - President and COO

Paul Davis - CFO

Analysts

Chris Kotowski - Oppenheimer

Greg Mason - KBW

Robert Dodd - Raymond James

Boris Pialloux - National Securities

Presentation

Operator

Ladies and gentlemen, good afternoon. Welcome everyone, to the TCP Capital Corp Second Quarter 2013 Earnings Conference Call. Today’s conference call is being recorded for replay purposes. During the presentation, all participants will be in a listen-only mode. A question-and-answer session will follow the company’s formal remarks. (Operator Instructions).

And now I’d like to turn the call over to Jessica Ekeberg, Vice President of the TCP Capital Corp Global Investor Relations team. Jessica, please proceed.

Jessica Ekeberg

Before we begin, I would like to note that this conference call may contain forward-looking statements based on the estimates and assumptions of management at the time of such statements and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties, and actual results could differ materially from those projected. Any forward-looking statements made on this call are made as of today and are subject to change without notice.

During today’s call, we will refer to a slide presentation which you can access by visiting our website, www.tcpcapital.com. Click on the Investor Relations link and select Events and Presentations. Our earnings release and 10-Q are also available on our site.

I will now turn the call over to Mr. Howard Levkowitz, Chairman and CEO of TCP Capital Corp.

Howard Levkowitz

Thanks, Jessica. We would like to thank everyone for participating in today’s call. I am here with our President and COO Raj Vig; our Chief Financial Officer Paul Davis; and other members of the TCPC team.

This morning, we issued our earnings release for the second quarter ended June 30, 2013 and posted a supplemental earnings presentation is posted to our website. We will refer to this presentation throughout our call. We will lead off with an overview of TCPC’s investment activities and performance. And then, Paul will provide more details on our financial results. I will then be back with some further prospective before we take your questions.

First, key highlights from the second quarter. We are pleased with our second quarter results and to report that our portfolio generated net investment income of $0.38 per share. Second, we declared a quarterly dividend of $0.36 per share, that is payable on September 30, 2013 to shareholders of record on September 9, 2013. Third, our earnings per share was $0.40 and our net asset value increased from $14.91 to $14.94 per share. Fourth, we deployed a $131 million in new investments during the quarter with net deployments of $61 million. In addition, we had a very successful quarter in increasing our sources of capital and financing flexibility. We closed a follow on offering of 5.175 million shares at $15.63 for net proceeds to the company of $78.2 million. We also closed a new $50 million credit facility which has an accordion feature that allows our expansion of the facility up to a $100 million. Finally, we received a green light on our application for an SPIC license which I will address in more detail later.

Now moving on to a summary of the market environment in the second quarter, we saw an increased level of activity during the quarter. Over the last four quarters we invested over $360 million on a gross basis and over a $117 million on a net basis. About one third of the deployment was completed this quarter. As we deployed the proceeds from our follow on offering, we continued to focus on allocating our capital to income producing securities.

Spreads and covenant packages in the middle market continue to be more attractive than those in the large leverage loan market. However, the tighter spreads in the broadly syndicated market have influenced terms in our market. Against this backdrop, we are highly selective in choosing investments and we’ll continue to carefully analyze each investment opportunity through our intensive and proven due diligence process.

Turning now to TCP Capital’s second quarter performance, TCP Capital generated $0.38 per share in net investment income on a diluted basis, after preferred dividends and incentive compensation, excluding incentive compensation on realized gains. And we will pay a quarterly dividend of $0.36 per share at the end of September. Substantially all of our income was generated from recurring income.

Our recurring income is growing but we would like to remind people that our originations and repayments are lumpy. Since our IPO in April of last year we have distributed $1.85 per share, an increased NAV by $0.19 per share.

In addition, our second quarter net increase in net assets from operations was $0.40 per share. Paul will cover this in more detail. For those viewing our presentation, please turn to slide 9. Our highly diversified portfolio was in good shape at the end of the second quarter with a fair value of $571.8 million invested in 57 companies.

On slide 10, you can see the continued transformation of our portfolio since the beginning of 2012. During the second quarter we maintained our high percentage of debt investments as well as the percentage invested in senior secured debt and floating rate investments. At quarter end, approximately 93% of the portfolio was invested in debt securities, 97% of which were senior secured debt. 74% of the debt positions were in floating rate debt, 93% of which had interest rate floors.

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