BlackRock TCP Capital Corp (TCPC) 2014 Q4 法說會逐字稿

Welcome, everyone, to the TCP Capital Corp. fourth-quarter 2014 earnings conference call. Today's call is being recorded for replay purposes.

(Operator Instructions)

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

Thank you.

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 click events and presentations. Our earnings release and 10-K are also available on our site.

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

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 fourth quarter and year ended December 31, 2014. We also posted a supplemental earnings presentation to our website, which we will refer to throughout this call.

We will begin our call with an overview of TCPC's performance and investment activities. And then our CFO, Paul Davis, will provide more detail on our financial results. Then, I will provide some additional perspective before we take your questions.

Before discussing fourth-quarter 2014 results, we will review some of our key accomplishments for 2014. First, we paid $1.44 per share in regular dividends, plus $0.10 per share in two special dividends. We delivered a total return to our shareholders of over 9%. We are pleased with this return, given that it was an overall challenging year for BDCs, as can be seen on slide 4.

Second, our stable earnings enabled us to substantially out-earn our regular dividends. As we have done each quarter since inception, our earnings for the year exceeded our regular dividends by $0.10 per share, after taxes.

Third, we completed two follow-on offerings, raising gross proceeds in excess of $208 million. As shown in slide 6, both of these follow-on offerings were accretive to our shareholders in terms of NAV-per-share expansion, and significantly expanded our shareholder base, as with each of our follow-on offerings since our IPO.

Fourth, we substantially increased our leverage capacity, and diversified our funding sources. Specifically, we increased our revolver capacity by $150 million, closed a $108-million private placement of convertible notes, and obtained a $75-million leverage commitment from the SBA. Additionally, just last week, we further increased our TCPC funding credit facility to $300 million, up from $250 million. And fifth, we continued to expand our origination platform by opening a new office in San Francisco.

Now, on to the highlights of our fourth quarter, which are summarized on slide 7 of our presentation. We deployed $183 million in new investments during the quarter, with net deployments of $95 million. We delivered net investment income of $0.40 per share, before excise taxes, almost all of which came from recurring income.

We declared a regular quarterly dividend of $0.36 per share, payable on March 31, 2015, to shareholders of record on March 19. And we closed a follow-on offering of 5.9 million shares at $17.05 per share. In addition, our Board of Directors approved a share repurchase plan to enable our shareholders to benefit from potential periods of volatility in our stock, if it trades at a certain threshold below NAV.

I would like to take a minute to discuss the importance of appropriately marking our portfolio to fair value. We strongly believe that using accurate independent third-party determinations of market value is a critical management tool, and essential to our investment strategy. However, this means our portfolio is subject to some variability, particularly when market movements are significant.

This quarter, like other BDCs, we recognized some unrealized losses as a result of widening market spreads and changes in risk asset pricings during the quarter. Paul will discuss these figures in greater detail, but at a high level, the difference between our fourth-quarter ending net asset value of $15.01, and our third-quarter ending net asset value of $15.43, was largely due to unrealized losses associated with the impact of widening credit spreads and changes in risk asset prices during the quarter, combined with below-forecasted performance in two portfolio companies.

Our overall credit quality continues to remain strong, with no loans on non-accrual as of December 31, 2014. However, we may place a portion of our second-lien term loan to Edmentum on non-accrual. We are working hard to restructure the Company's balance sheet to maximize the return on our investment, which, at fair value of $11.3 million, comprised less than 1% of our total assets at year end.

In the current environment, people have inevitably raised questions about energy exposure. Overall, we are pleased with the performance of our direct energy investments, which comprised only 3.6% of the portfolio at fair value at the beginning of the quarter. One of these investments, our loan to Willbros Group, was repaid in full during the quarter.

Another investment in this sector, MD America, has received a large equity commitment from its owners, and has stated that it will use the proceeds to repay our term loan in full. Jefferson Gulf Coast is primarily a volume- and storage-based business, which is benefiting from the increased storage needs resulting from lower oil prices.

Iracore and Boomerang Tube are two industrial businesses that are dependent on demand from the energy industry. Both loans, which, in aggregate, comprise less than 1% of total assets, are performing, but experienced a decrease in earnings tied to end-market activity. Although these loans may be modified in the future, we do not currently anticipate any material impact on our portfolio, nor have we placed them on a non-accrual status.

Our fourth-quarter originations were strong, once again demonstrating the strength of our origination platform. Over the last four quarters, we have invested over $669 million on a gross basis, and over $404 million on a net basis.

In the quarter, we continued to focus on allocating capital, primarily to income-producing securities. Over 98% of our new investments were in senior secured loans, and less than 2% were in equity securities.

For those viewing our presentation, please turn to slide 10. At the end of the fourth quarter, our highly diversified portfolio had a fair value of over $1.1 billion, invested in 84 companies across numerous industries.

In the fourth quarter, we maintained our focus on investing in senior secured and floating rate debt. At quarter end, approximately 97% of the portfolio was in senior secured debt securities, and 78% of these debt positions were in floating rate debt. With most of our debt portfolio in floating rate securities, we are well positioned for any meaningful rise in interest rates.

During the fourth quarter, we benefited from a strong existing pipeline, and the market dislocation in the leverage loan and high-yield markets, investing approximately $183 million in 10 different transactions. These investments included senior secured debt; investments in six new, and four existing, portfolio companies; as well as preferred equity and warrants received in connection with one of the financings.

Our five largest investments in Q4 reflect our diversification strategy and include: a $37-million senior secured loan to Dodge Data & Analytics, a leading provider of data and analytics to the construction industry; a $25-million senior secured loan, which refinanced our existing loan to Lexmark, a leading vendor to the hospitality industry; a $25-million senior secured loan to BioAmber, a low-cost biochemical manufacturer; a $22-million increase in our senior secured debt to BPA Laboratories, a provider of laboratory-based testing services; and a $17-million senior secured loan to [Enterwise], an energy software management company. In the fourth quarter, we exited $88 million of investments, including a $16-million senior secured loan to Hanley-Wood, a $16-million senior secured loan to Lexmark, and the $14-million senior secured loan to Willbros that I mentioned earlier.

New investments in the quarter had a weighted average effective yield of 11.3%. The investments we exited during the quarter had a weighted average effective yield of 10.2%. This represents the seventh quarter in a row we have underwritten at higher levels than our exits. The 110-basis-point increase in the investments we made during the quarter versus those we exited, together with the mark-to-mark adjustment to our portfolio in connection with the increased market spreads at the end of the year, resulted in an overall effective portfolio yield of 10.9%.

Now, I will turn the call over to Paul for a more detailed report of our fourth-quarter financial results. After Paul's comments, I will provide some additional perspective on what we're seeing in the market; then we will take your questions. Paul?

Thanks, Howard. We're pleased to report another strong quarter of continuing income. Fourth-quarter gross investment income increased over the prior quarter to over $0.71 per share, or $32.1 million, which included recurring cash income of $0.61 per share, fee income of $0.03 per share, recurring PIK income of $0.035 per share, and recurring discount amortization of $0.04 per share. As a reminder, it's our general policy to amortize up-front economics over time, rather than recognize the income all at once at the time we make the investment.

Each of these components of income was also an increase over the prior quarter, both in per-share terms and in total dollars, except for PIK income, which was steady in total dollar amount, but a smaller portion of income on a per-share basis. These increases reflect our strong originations into higher-yielding investments, both this quarter and the prior quarter. In both of which, the effective yield on acquisitions exceeded the effective yield of dispositions by 110 basis points.

Earnings for the quarter included pre-payment income of $0.01 per share, and cash income from aircraft leases of $0.03 per share, the latter being offset by depreciation expense of $0.01 per share, which reduced the Company's tax basis incomes.

As shown in slides 11 and 14, net investment income before excise taxes, preferred dividends and incentive compensation, was $22.7 million, or $0.50 per share. Net investment income after preferred dividends and incentive compensation on net investment income was $18 million, or $0.40 per share, before excise taxes, also an increase over the prior quarter in both total-dollar and per-share terms, and out-earning our regular dividend by $0.04.

As noted on slide 5, on an annual basis, net investment income after preferred dividends, incentive compensation and excise taxes was $1.54 per share, out-earning our regular dividends by $0.10. Total operating expenses for the quarter were approximately $9.5 million, or $0.21 per share, which included interest expense of $0.07 per share. We also accrued dividends on the preferred leverage facility of $0.01 per share, and excise taxes for the year of $0.02 per share. Our annualized operating expense ratio, including interest expense and preferred dividends, was 5.6% of average net assets before incentive compensation and excise taxes.

Incentive compensation from net investment income for the quarter was $4.3 million, or $0.10 per share, which is computed by multiplying net investment income after preferred dividends and excise taxes by 20%. As noted in slide 15, all incentive compensation is subject to the Company meeting a cumulative total return hurdle of 8% annually.

Net realized losses of $16.2 million, or $0.36 per share, were primarily comprised of $5.2 million and $11.5 million on our recapitalization of Real Mex and the disposition of our Doral stock, respectively. Both were distressed investments made by our predecessor vehicle, under a strategy that TCPC no longer employs. And almost all of the loss was previously recognized in unrealized losses.

Net unrealized losses of $8.8 million, or $0.20 per share, were primarily comprised of the markdown on Edmentum of $10.4 million, and a markdown on Iracore, an energy pipeline component manufacturer, of $4.3 million. As well as mark-to-market adjustments of approximately $8 million, given the increase in market spreads, partially offset by a $16.5-million reversal of the previously recognized unrealized losses on Doral and Real Mex. As Howard discussed, our entire portfolio was marked to market each quarter, with substantially the entire portfolio priced using independent, third-party sources, with only a de minimus amount being priced internally. Net unrealized losses during the quarter were also partially offset by the reversal of the reserve for incentive compensation on realized gains of $0.7 million, or $0.02 per share.

As noted, our entire debt portfolio was current and accruing interest at year end. As Howard mentioned, we're actively working on a restructuring of Edmentum's balance sheet to maximize the return on our investment. The company made its last interest payment in full at its most recent payment date on December 31.

However, the company released a revised budget on December 31, and additional information was disclosed in Q1. It's still early in the process, but some portion of this investment may move to non-accrual. In Q4, Edmentum contributed about $0.01 per share to net investment income.

After paying our fourth-quarter regular dividend of $0.36 per share, or $17.5 million, as well as a special dividend of $0.05 per share, or an additional $2.4 million, we closed fourth quarter with tax basis undistributed ordinary income of approximately $23.3 million. Available liquidity at the end of the quarter totaled approximately $254.2 million, which was comprised of total available leverage of $218 million, and cash and cash equivalents of $27.3 million, plus net pending settlements of $8.9 million.

Available leverage includes the remaining $47 million available on our $75-million leverage commitment from the Small Business Administration. Net combined leverage was approximately 0.58 times common equity at quarter end.

Turning to slide 16, at the end of the quarter, our total weighted average interest rate on amounts outstanding on our combined leverage program, including both debt and preferred equity, was 2.9%. This reflects our preferred equity facility at a rate of LIBOR plus 85 basis points, amounts outstanding on our revolving credit facilities at a rate of LIBOR plus 2.5%, our convertible notes at 5.25%, and our SBA debentures at a rate of 3.02% plus fees, with the exception of a small SBA borrowing towards year end with a much lower temporary rate pending the SBA pooling process.

During the quarter, we further increased our liquidity and capital availability through a $50-million expansion of our TCPC funding facility, and a $50-million expansion of the accordion feature, as well as our closing of another overnight equity offering which raised net proceeds of $97.2 million at a significant premium to net asset value, and the launch of an at-the-market, or ATM, equity offering program, which allows us to incrementally offer equity when accretive to existing shareholders, and on an as-needed basis to more efficiently fund acquisitions. We used the ATM program judiciously during the quarter, raising $6.4 million on an accretive basis.

Finally, in February of this year, our Board of Directors approved the repurchase of up to $50 million of our common stock through a share repurchase plan in accordance with rules 10b-18 and 10b5-1 under the Exchange Act. Although our shares have consistently traded above net asset value, given some of the volatility recently in BDC shares as a sector, there may be times of market dislocation when reinvestment in our existing portfolio through repurchases of our own shares may yield greater marginal returns than may be obtained through additional portfolio acquisitions in the prevailing environment.

Under the plan, our shares will be repurchased following a pre-set algorithm, should our shares trade more than a certain percentage below net asset value, with volumes increasing at lower share prices, and total trading being subject to volume restrictions. We believe this is yet another potential way to add value to the common equity, should circumstances arise.

I'll now turn the call back over to Howard.

Thanks, Paul. In addition to our 10-K, we filed our preliminary proxy this morning. Similar to many of our BDC peers, we included a proposal for shareholder approval to issue up to 25% of our common shares on any given date at a price below NAV over the next 12 months. We included this proposal to provide flexibility for future scenarios.

To be clear, at this time we do not intend to issue equity below NAV, and certainly not unless it is accretive to shareholders. This is basically an insurance policy our shareholders have approved every year since we went public. In addition, if this proposal is approved, and we hope it will be, no action would be taken unless our independent Directors determine that it would be in the best interest of shareholders.

I will briefly cover what we are seeing in the middle-market lending, and then open up the line for questions. The syndicated markets remain choppy, with some deals struggling to get done, and differences in expectations between borrowers and lenders. This is having a positive impact by widening spreads for some private market deals.

However, at the other end of the spectrum, we're seeing a number of transactions being done on an aggressive basis, particularly for sponsors. We are turning down a large number of transactions, and remain highly selective in underwriting portfolio investments.

Through March 6, 2015, we have invested approximately $93 million, primarily in nine investments -- two new senior secured loans and seven follow-on transactions -- with a combined effective yield of approximately 12.2%. 2015 is off to a good start in terms of originations. However, we note that originations can be lumpy, and neither the pace nor the yield should be annualized.

Our primary focus remains on growing our earnings by effectively putting our recently expanded and diversified liquidity sources to work to optimize our portfolio. TCPC has built a strong market position by leveraging our platform to established middle-market companies with sustainable competitive advantages that generate significant cash flow and/or have significant asset coverage or enterprise value.

Looking to the future, we are uniquely qualified for continued success for several reasons. First, we have scale and depth in our origination servicing platform, and a highly experienced team to identify investment opportunities from a broad range of sources, and to play an integral role in structuring and investing in complex opportunities.

Over the past couple of years, we have continued to expand our origination platform to increase the number of potential opportunities we review. This allows us to take a highly selective approach to investments we make. We believe our rigorous investment process and highly diversified portfolio will enable us to continue to achieve high risk-adjusted returns, while over time preserving our investors' capital.

Second, our focus on senior secured loans, the majority of which are floating rate securities, has resulted in a low overall risk profile and strong portfolio performance. This has enabled us to deliver a consistently strong dividend, and to make special distributions 5 out of the 10 last quarters to our shareholders. In addition, our dividend coverage remains strong.

Third, our lower cost of capital and diverse funding sources continue to be key competitive advantages for TCPC. In the fourth quarter, our weighted average cost of capital was well below the average for BDCs. In addition, TCPC remains well positioned with our attractively priced leverage, our convertible notes, and our long-term unsecured notes from the SBIC facility, which adds another source of low-cost funding.

Finally, our interests are closely aligned with our shareholders. Our origination income recognition practices are conservative, and we have one of the most shareholder-friendly fee structures across the industry. We have personally invested more than $10 million alongside of our shareholders. And members of the management team and the Board of Directors have, on a number of occasions, including during the fourth quarter, purchased shares in the open market. In addition, we have implemented a share repurchase plan in the event our shares trade below NAV.

We are pleased with our many accomplishments in 2014, and our ability to continue to generate high levels of recurring income. We remain committed to our rigorous investment process that delivers high risk-adjusted returns while preserving capital. We manage our portfolio with a long-term view, and we are optimistic about our prospects for continued growth and returns.

We would like to thank all of our shareholders for your confidence and your continued support. And with that, operator, please open the call for questions.

(Operator Instructions)

Our first question comes from George Mason with KBW.

Great. This is Greg. First on the Edmentum loan, I know you said part of it may go on non-accrual. New Mountain, who's working through that with you, said they're going to put half of it on non-accrual. Would that be a reasonable assumption, as worth thinking about that for you?

Hi, Greg, it's Raj. Let me touch on that.

I think that it will depend. Obviously the discussions are realtime and ongoing. And I wouldn't rule that out, but I think that what goes on accrual and when is a function of the restructuring, the balance sheet restructuring discussions.

For 12-31, just to reiterate, the mark is in accordance with our pricing policies and is based on an independent third-party valuation for us. We believe that it reflects -- it's a fair determination at year end. And it may change, but we're comfortable with it. But I think, to answer your question, it depends. And that's possible, but it's hard to put a percentage on it.

Okay, great.

And then in terms of utilizing the SBIC, I know you mentioned the San Francisco office is now open. If I understand, they do more SBIC-type of investments. How is the deal flow coming from that group, and your overall deal flow fitting into the SBIC right now?

Yes, I can take that one as well, Greg. The San Francisco office, you'll recall that announcement was made earlier in the year. We've been active and open in San Fran for a number of months now, and it was a reiteration for 2014 highlight.

The deal flow is reasonable. We're obviously very judicious with that group, which is focused on the energy tech and some more early-stage companies, but with the appropriate structural protection and concurrent cash equity investments that go along with it.

But aside from that, we are also very active in our ongoing pre-energy tech group, higher business, with Bay Area sponsors and companies on a normative basis. So I would say the deal flow from the region is good. It's also supplemented by the group that we brought on board, so I don't think of that San Francisco office as simply isolated to their efforts versus a broader footprint expansion for the firm.

Overall, the deal pipeline that you're seeing that is SBIC-qualified versus too big for the SBIC program?

Yes, sorry. I think we can give the numbers on the SBIC draw. I'll wait for someone to nod yes or no, but it has been reasonable. Obviously, we have several companies that are already drawn against the SBIC.

In fact, as we had mentioned in past quarters, a pre-approval on the SBIC before the facility was even in place. So I think the deal flow is reasonable there as it is across the board for non-SBIC eligible loans. But yes, the deal flow is reasonable for the SBIC draw-down.

And one last modeling question and I'll hop back in the queue. You said $93 million in new loans so far in the first quarter. How are the repayments looking so far in the First quarter?

Greg, this is Howard. That's not a number we normally disclose. It tends to be lumpy and often, in fact, back-weighted at the end of the quarter. So it's not something we've historically given out.

I would say, though, that generally in this environment, which has had a little bit more disruption, some companies that were intending to refinance have pushed things off as they found the environment to be a little bit more difficult than they thought, and that they're not getting quite the terms that they thought they ought to be able to get. You certainly saw that in Q4. There were some loans we thought were going to get repaid in Q4, some borrowers had indicated that. And they pushed some of those into this year, and whether they happen in Q1 or a little later in the year, still remains to be seen.

Greg, to follow up on the SBIC question, because I know you like specifics, it's a $28 million draw on the facility. So you can see that we've actually been using it at a reasonable pace. It's hard to predict if that's the ongoing pace, but we're happy with that level at this point.

Great, thank you.

Thank you.

Our next question comes from Chris Kotowski with Oppenheimer.

Yes, good afternoon. The first thing I was wondering about, the loans that you said were funded in the first quarter so far, 12.2% average yield. And I was wondering, is that a function of the pullback in the market? Is it a different kind of loan? It's a nice coupon, what accounts for that?

Hi, Chris it's Raj. I'll try to take that. I think it's a number of things, but I wouldn't say it's a different type of loan.

As you can tell over the last couple of years, we've really focused on increasing the seniority, the mix of the secured and senior loans. We've been very judicious, even before the current market volatility situation. But to be honest, the volatility helps, so I would say there is definitely a rationalization of some pricing among the issuers that we certainly feel like we've been able to take advantage of.

But in certain scenarios there has been a lot, as Howard mentioned, a lot of competition and people doing things we just will not participate in. But in our core market, we have the ongoing focus on expanding our origination footprint and working with repeat customers, if you will. I think we've been able to show some sustainability and issuing the types of loans that we're comfortable with at a increasing rate of return.

And that hasn't been a one-quarter phenomenon. It's actually been, I think as Paul mentioned, seven quarters in a row now, where we've underwritten at higher spreads than we've exited. So it's a number of factors, but the volatility is an element of it.

With everything Raj just said, we want to be careful to make sure that people think, though, that we were at 10.7% effective yield on 9-30 and 12.2% on these new originations this quarter. That doesn't mean that the overall market and that what we're doing has widened that much.

These are a series of individual companies, individual loans, each situation is specific. Clearly, the environment is better for what we're doing generally, but at the same time there's some really aggressive stuff being done in parts of the market. So I wouldn't extrapolate the fact that there's a sea change or huge dynamic shift based on these recent transactions.

Okay, and then secondly, it's probably early and I'm not sure if you can go into any specifics. But you obviously have two big credit facilities coming due next summer. I'm wondering if you can discuss, philosophically, credit lines versus bonds versus securitizations? How do you see the cost and risk-reward tradeoff of all of the different kinds of options you have on the right hand side of the balance sheet?

Sure. Thanks for the question. When we went public, we had a single source of leverage, which is what you're describing, which is really a stapled together credit facility and preferreds facility.

Since that time, we extended the credit facility. We qualified for the SBIC, we issued converts, and we've added another facility that we have regularly expanded. We're continuing to look to optimize the right side of the balance sheet with different sources of financing and balancing both flexibility with low cost.

We will not be able to recreate the preferred, which has a cost of LIBOR plus 85 basis points. That's clearly above our market rate and whatever replaces it will be at a higher rate. We're trying to balance taking advantage of that with our overall diversification of sources of funding, and trying to keep the diversified set of funding at the lowest cost practical.

All right, thanks, that's it for me.

Thank you.

Our next question comes from Robert Dodd with Raymond James.

A lot of my questions have been answered, but one housekeeping one first. On the, you mentioned, a penny of obviously total investment income related to prepayment income, $0.04 on OID accretion. Was any of that $0.04 related to accelerated accretion, given the exits and the prepayments?

This is Paul.

We only had one significant prepayment item during the quarter and that was from our loan to Willbros Group, which prepaid during the quarter. The rest of the OID accretion is part of our regular policy to consistently amortize for economics over the life of the loan. We expect that to be a consistent number going forward.

Perfect, thank you. Stepping back to one of the questions. On the 12% not loan structure differences or anything like that, but are you seeing any greater set of opportunities in particular in the industry verticals right now?

Obviously I'd like your opinion on energy, don't have a ton of exposure. You're having a prepayment in Q4, probably another one coming up soon, so that's going down. What do you think about that going forward opportunistically? And is there any area, or any areas, in particular where you are seeing less of that over-enthusiastic pricing and more opportunities?

We are seeing opportunities in a variety of different industries. Setting energy aside, I wouldn't point to any given industry and say that there's suddenly a much better or worse set of opportunities in the industries. I think it's more individual than that.

Some of it has to do with changes in the capital markets. Some of it has to do with individual borrowers. Some of it has to do with certain competitors. And so each one of these situations is a little bit different.

But I think the biggest change versus most of last year, and the dynamic really started to change at the end of Q3, is that parts of the market have more rationality in them than they did before. There's clearly some broader impact from the additional discipline being shown in the bank syndication market that's having some impacts on our market.

But at the same time, there's still some people doing some very aggressive things. So we have a diversified set of investments in Q4 that's carried over into Q1. Our pipeline also shows that it really isn't specific to any one industry.

Okay perfect, thank you.

Thank you.

Our next question comes from Chris York with JMP Securities.

Good morning and thanks for taking my questions.

My first question is twofold. How much undistributed income did you end the year with? And then secondly, could you remind us how the Company and the Board thinks about the dividend policy, given that you have consistently covered the core dividend from net investment income and also have provided some special dividends?

Sure, this is Paul. At year-end we had undistributed tax basis, ordinary income, of $23.3 million. As far as our dividend policy, Howard do you want to take that?

Sure.

Our Board assesses our dividend policy each quarter. When we went public, our dividend was $0.34 a share, we raised it to $0.35 then $0.36. We've also had $0.05 special dividends over the last 10 quarters.

Fundamentally, the thing that's most important to us is being able to cover the dividend and cover it well. We continue to look at it each quarter to see what's most sensible. We'll continue to do that in the future, but we're really focused on having ample coverage for our regular dividend, and then making a series of distinct decisions with respect to other situations.

That's great. And a follow-up. So you've covered the dividend, the core dividend, of $0.36 for seven consecutive quarters and highlighted some positive activity going forward. So what would you need to see for the Board to potentially increase the dividend in 2015 or 2016?

That's not something that we publicly disclosed. I think we continue to look at it, analyze it, see what we think is the most sensible. But we are really focused on making sure that there's adequate coverage for the existing dividend.

We know that there's been heightened concern in the sector over that issue, so we're very pleased with our excess coverage and want to make sure that we continue to be in that position. We've really been focused on stability, so any changes aren't something that we're looking to quantify at this point.

Got it, I understand. Last question here is, you commented in your prepared remarks a little bit about ATM program. I believe you sold maybe 400,000 shares in Q4. How do you plan on using that instrument as opposed to doing overnight offerings going forward?

Sure. We used it on an opportunistic basis to do just-in-time share issuances. When we've done overnight offerings, we've done them in the past only when we needed capital, and we've been able to time those well.

The ATM program is a helpful tool. It's obviously not a substitute, given the small size of the amount we raised, which is a fraction of a single investment, given our average size.

Having said that, it does provide a potential useful tool in the future to raise incremental capital on a just-in-time basis, but it's something that we use judiciously. Our focus on any share issuance is doing it on a basis that is accretive. Historically, we've always done those above NAV, and our plan is to continue doing that in the future, as well.

Great, that's it for me. Thanks for your thoughts, Howard.

Thank you.

(Operator Instructions)

The next question comes from Christopher Nolan with MLV & Company.

Hi, thanks for taking my questions. The perspective on the share repurchase, is this more of a defensive measure? Is there any expectations that you could see the market softening in coming quarters or so? Give a little perspective in terms of what brought you to this announcement.

Sure, thanks for asking.

We don't make predictions on what the stock market is going to do. But it's clear that at the year-end last year, there was a lot of general stock market volatility, and specifically in the BDC sector, there is quite a bit of volatility, as well.

Our view is that we're taking a long-term approach in trying to maximize value for our shareholders. We thought it made sense to put in place this algorithm, which will go into effect just below NAV. We want to emphasize the context in which we did it, which is we've only issued shares when they're accretive to NAV and earnings.

Our incentive fees are subject to a cumulative 8% return on realized and unrealized gain. And the share repurchase plan is part of our approach to create long-term shareholder value. In the event that our stock does trade below NAV, it's our hope that it doesn't, but to the extent that it does, we would like to be in a position to capture that excess value on an accretive basis for shareholders.

Long term, we're looking to maximize value to shareholders and hopefully to continue to judiciously continue to expand our platform, but we're really focused on creating value for the shareholders. And so to the extent that there are opportunities created by market volatility, we'd like to be in a position to realize those values.

Great.

And on the pipeline, Raj's comments, on a subjective basis, indicated that the pipeline remains decent, but not quite as robust as might have been the case about two quarters ago. Is there a proper read into it or am I reading too much?

No, if that's what was taken away from my comments, I'd like to address that. The pipeline is strong.

We're seeing good opportunity from existing relationships, and again, these are a lot of folks who have done repeat deals with us. They see the value and the value is not based on lowest price necessarily, in working with us.

But to be honest, between the expansions of our -- there's a reason we've been expanding in the various cities, New York and now San Francisco, as well as new hires on the origination side. The platform and the footprint has grown, and that growth has led to a lot of new relationships and channels, aside from the bigger picture challenges from the banks that create added opportunity.

So my comments -- I think the take-away should be that the opportunity set remains robust. We remain very cautious and judicious in what we are doing, both structurally and with various counter-parties. Hopefully that leads to ongoing good progress and underwritings at, hopefully, higher spreads.

Great, and final question. Howard, your earlier comments indicated that you're seeing a bifurcation in the market in terms of pricing, with sponsored deals being much more aggressive than non-sponsored deals. If that's correct, what's your read into that? What's driving that and how do you see that developing?

Sure.

Your question is absolutely directionally accurate. I don't know if they're much more aggressive, but in a number of cases they are more aggressive.

I think that's a function of perhaps more people trying to work on financing those deals. In some cases it's a function of sponsor approach to the market. And in some cases, I think it's more coincidental than that.

The thing about the middle market is it's broad, it's differentiated, the data sets don't necessarily pick up all of the information. When you're looking at information from S&P or somebody, they're not picking up everything out there.

Many of the loans we have are bilateral loans, just us and a borrower, and that's not coming into any data set. The factors driving a particular borrower to want an individual lender and the flexibility that provides, may be different than somebody who is looking for a low-cost syndicated facility.

Great, thank you very much for taking my questions.

Thank you.

Our next question comes from Jonathan Bock with Wells Fargo Securities.

Good afternoon and thank you for taking my questions. An offer of congratulations on the stock buyback, which is a very shareholder-friendly announcement.

One question, getting into a little bit of detail. Acronis International: as we look at it, and please correct me if I'm wrong, but we saw the interest rate increase a bit and the loan take a small mark. Would you be able to walk us through that situation? Normally we see shifts there or moves up in interest rates as a potential warning sign, and any additional color you could provide would be helpful.

Sure, I can touch on that, Jonathan. Thanks for the question.

On that name in particular and again, a lot of these are, to Howard's point, bilateral loans and discussions and structures. We always focus on, not just the enterprise value and the business logic, but the structural protections that let us come back to the table to have discussions when it's appropriate.

And that is the characterization of Acronis, where we have a reasonably tight covenant structure. And in fact, it had step-downs to it, or step-ups depending on which covenant you're referring to, that let us maintain the right economic return, as well as the right discourse with the company and the owners.

In certain cases we feel like we should get a little more compensation for some transitional efforts. In this case there's a product launch that the company is going through that is actually going well, but had a little slower start than I think the folks anticipated. But keep in mind, this Company is also not a single-product Company. There is a very large incumbent base of downside protection, as we saw it, in the middle market for its legacy product.

So that step up really is a function of some of that transition taking a little longer than we and the owners, the management, would have liked. That transitional rate is something that can be addressed by them through performance. And in fact, on a current basis, they are addressing it and performing, if not outperforming on the transition.

But I think it's a hallmark of the type of investing we do, where we have the downside protection. But in terms of economic reward, it is commensurate with the risk, either at the time of underwriting or perhaps along the way, if that risk changes a little bit. I think that's how you should view Acronis, as something that lets us come back and take a second or third bite at the apple if we need to, both for protection or for return.

That answers that, thank you.

And then Howard, Raj, if we look at some of the sales or recaps, and we think about names that might have experienced some amount of stress prior, think of Doral or Real Mex, et cetera.

Can you talk about the reasoning, or more importantly, the timing of that shift of restructuring? Why see some of those losses effectively realized today? Anything special about this quarter, as opposed to the ones that you've had? Because these are investments that have experienced stress for a little while.

These were both investments made previous to TCPC going public. They were made when TCPC's private predecessor was pursuing a wider strategy, including some distressed investing. And in the case of Doral, this was a 2007 bank rescue financing joined by many of the largest financial institutions in the country.

But unfortunately, it was a cheap buy-in, but a bank in Puerto Rico, and the Island's problems I think, have been well noted. It's still in a deep recession. And ultimately we just thought it made sense to exit at year-end and take the realized loss, which ultimately can be used to offset capital gains in the future.

In the case of Real Mex it was simply a recapitalization done at about the same time we were bringing in a new CEO, which by the way, we're pleased with the progress he's been making in the business so far. It's in a tough sector, but we like the changes he's been making. That also happened to coincide with year end.

Those are all my questions. Again, congratulations. Take care.

Thank you.

I'm not showing any further questions at this time. I'd like to turn the conference back over to our host.

We appreciate your questions and our dialogue today. I'd like to thank our experienced, dedicated and talented team of professionals at TCP Capital. Thank you again for joining us, this concludes today's call.

Ladies and Gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.