Triangle Capital Corporation (TCAP)

TCAP 
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Triangle Capital Corporation (TCAP)

Q3 2012 Earnings Call

November 8, 2012 9:00 am ET

Executives

Garland Tucker – Chairman, President, Chief Executive Officer

Steven Lilly – Chief Financial Officer

Brent Burgess – Chief Investment Officer

Sheri Colquitt – Vice President, Investor Relations

Analysts

Robert Dodd – Raymond James

John Hecht – Stephens

Greg Mason – Stifel Nicolaus

Mickey Schleien – Ladenburg Thalmann

Presentation

Operator

Good day ladies and gentlemen and thank you for standing by. At this time, I’d like to welcome everyone to Triangle Capital Corporation’s conference call for the quarter ended September 30, 2012. All participants are in a listen-only mode. A question and answer session will follow the company’s formal remarks. If you should require operator assistance during the conference, you may press star then zero on your touchtone telephone. Today’s call is being recorded and a replay will be available approximately two hours after the conclusion of the call on the company’s website at www.tcap.com under the Investor Relations section.

The hosts for today’s call are Triangle Capital Corporation’s President and Chief Executive Officer, Garland Tucker; Chief Financial Officer, Steve Lilly; and Chief Investment Officer, Brent Burgess.

I would now like to turn the call over to Mr. Garland Tucker.

Garland Tucker

Thank you and good morning to everyone. We appreciate your joining us for our third quarter 2012 earnings call. Before we begin, I’d like to ask Sheri Colquitt, our Vice President of Investor Relations to provide the necessary Safe Harbor disclosures.

Sheri Colquitt

Thank you, Garland. Good morning. Triangle Capital Corporation issued a press release yesterday afternoon with details of the company’s quarterly financial and operating results. A copy of the press release is available on our website. Please note that this call contains forward-looking statements that provide other than historical information, including statements regarding our goals, beliefs, strategies, future operating results, and cash flows. Although we believe these statements are reasonable, actual results could differ materially from those projected in forward-looking statements. These statements are based on various underlying assumptions and are subject to numerous uncertainties and risks, including those disclosed under our section titled Risk Factors and Forward-Looking Statements in our annual report on Form 10-K for the fiscal year ended December 31, 2011 and quarterly report on Form 10-Q for the quarter ended September 30, 2012. Each is filed with the Securities and Exchange Commission. TCAP undertakes no obligation to update or revise any forward-looking statements.

And now, I’ll turn it back over to Garland.

Garland Tucker

Okay, thank you Sheri, and again I’d like to welcome everyone to today’s call. At the outset of the call, I’d like to make a few comments about our industry and then I’ll make a few comments about TCAP’s results for the quarter before I turn the call over to Steven and Brent to provide some additional details with regard to our financial results and investment portfolio activity.

First from an industry perspective, we believe the BDC business model is continuing to be understood and appreciated by a growing audience of investors. As some of the best analysts covering this space have recently noted, the BDC industry has an impressive lending and investing track record with non-accrual and loan loss rates generally better than FDIC-insured commercial banks but with much more conservative capital structures and with much more transparent financial reporting. Some BDCs such as Triangle have been able to generate net long-term gains so that from a capital preservation perspective, there have been no historical net loan losses on a cumulative basis.

When Triangle went public almost six years ago, the BDC industry was comprised of 18 companies. Today there are approximately 40 companies with two new IPOs in the last 30 days. The market is continuing to realize that our industry provides investors the ability to realize double-digit annual returns by coupling current dividend income with potential annual share price appreciation. Additionally, bond investors are recognizing the low overall leverage in the BDC operating model and are awarding high-quality BDCs with access to long-term fixed rate debt on attractive terms.

To the extent BDCs can continue to provide shareholders with a low beta dividend income stream, they should be well positioned for growth as a sector in much the same way that REITs and MLPs did over the last two decades. So in conclusion, let me say that we feel very fortunate to be able to operate in this expanding industry.

Now I’d like to move to a few Triangle-specific comments. The third quarter of 2012 was another very active quarter for our company. We were active in terms of new investments, we generated net investment income that was in excess of our dividend, we raised our quarterly dividend from $0.50 to $0.52 per share, we maintained our portfolio credit quality, we generated 1.6 million in realized gains, we expanded our operating team, and we closed on a new significantly larger senior credit facility. So not only were we busy this quarter, we were able to be productive on a number of important fronts.

Our quarterly NII of $0.58 per share comfortably covered our $0.52 per share quarterly dividend. Our efficiency ratio, defined as total G&A expenses divided by total investment income or revenues, was 18.1% during the third quarter, which continues to be one of the lowest efficiency ratios in the BDC industry. Our dividend increase during the quarter represented an 18.2% year-over-year increase and a 4% quarter-over-quarter increase, and while the dollar amount of the dividend alone is attractive, we think it’s equally important that we have continued to earn our dividend on a cumulative basis as our cumulative net investment income has exceeded our dividends paid by $0.35 per share since our IPO almost six years ago. We have said consistently that earning our dividend is a key strategic focus for us, and our continued success in that regard has resulted in a dividend coverage ratio that we believe provides room for future dividend growth.

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