BlackRock TCP Capital Corp (TCPC) 2015 Q4 法說會逐字稿

Ladies and gentlemen, good afternoon. Welcome to the TCP Capital Corp. fourth-quarter 2015 earnings conference call. Today's conference call is being recorded for replay purposes. (Operator Instructions)

Now I would like to turn the call over to Jessica Ekeberg, Vice President of TCP Capital Corp. Global Investor Relations Team.

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 select 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, 2015. 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 TCPC's performance and investment activities and then our CFO, Paul Davis, will provide more detail on our financial results.

Next, I will provide some additional perspective on the market before we take your questions. We invite you to turn to slide 4 of our presentation. Before discussing fourth-quarter 2015 results, we will review some of our key accomplishments for 2015.

First, we paid dividends of $1.44 per share. Second, our stable earnings enabled us to substantially out earn our dividends, as we have done each quarter since inception. Our net investment income for the year, after incentive compensation and excise taxes, out-earned our dividends by $0.19 per share.

Third, we extended the maturity date of our SBCP credit facility to July 31, 2018. Fourth, we increased our TCPC funding facility to $350 million, up from $300 million, expanded the accordion feature to $400 million, and extended the maturity date to March 6, 2020. Lastly, we received an investment-grade rating from S&P.

Now, on to the highlights of our fourth quarter. We deployed $78 million in investments during the quarter and maintained almost 80% of our portfolio in floating-rate instruments. We also had $151 million in repayments. We deliberately slowed our rate of deployment despite strong deal flow, as we anticipate increasingly attractive opportunities and think that balance sheet flexibility is important in the current environment.

As noted on slide 5, which details our history since our IPO of consistent dividend coverage, we delivered fourth-quarter net investment income after taxes of $0.43 per share, out-earning our dividend of $0.36 per share. We are also declaring today a first-quarter dividend of $0.36 per share.

Turning to slide 6, our NAV declined during the quarter as yield spreads on most of our investments widened. The impact of increased mark-to-market spreads was partially offset by significant prepayment income and strong positive credit performance in a number of investments. Also on slide 6, you can see that our cumulative dividends plus NAV appreciation since going public less than four years ago have delivered a total gain to our shareholders of almost 40% of our IPO value.

Lastly, we made a number of share repurchases when our shares traded below NAV and again renewed our $50 million share repurchase program at our Board meeting last week.

For those viewing our presentation, please turn to slide 7. At the end of the fourth quarter, our highly-diversified portfolio had a fair value of $1.2 billion invested in 88 companies across numerous industries. Our largest position represents approximately 3.7% of the portfolio.

Slide 8 shows the increase in our portfolio since our IPO and particularly in our floating-rate debt investments. As noted before, we intentionally allowed our balance sheet to shrink at year-end to position ourselves opportunistically.

As you can see on slide 9, at quarter rent, senior secured debt comprised over 95% of the portfolio with floating-rate debt comprising 80% of our debt positions. As shown in the chart at the bottom of the page, with most of our debt portfolio in floating-rate instruments, we are well-positioned if interest rates ever rise materially.

Turning to slide 11, during the fourth quarter we continued to focus on allocating capital primarily to senior secured income-producing securities and deployed approximately $78 million in 11 investments. These included investments in seven new and four existing portfolio companies. Our investments in existing portfolio companies continue to be a strong source of risk-adjusted returns for our shareholders, given our pre-existing relationships with these firms and our knowledge of their business and operating models.

Our five largest investments in Q4 reflect our diversification strategy and focus on the top of the capital structure. These include a $20 million senior secured loan to Broder Bros., a distributor of imprintable apparel and accessories; a $9 million investment in senior secured loans to our partnership with [GA] Partners; a $6 million senior secured loan to iPayment, a provider of credit and debit card credit payment processing and related services; a $6 million senior secured loan to BlueHornet Networks, a turnkey provider of email marketing services; and a $5 million senior secured loan to Simmons Research, a leading consumer research marketing provider.

In the fourth quarter, investment exits totaled $151 million. This is comprised of a $34 million senior secured loan to OneSky, for which we still hold our warrants received from the initial financing and which paid a distribution as part of the refinancing. It also included a $21 million senior secured loan to Great Atlantic & Pacific and a $21 million senior secured loan to Arcadia Biosciences.

New investments in the quarter had a weighted average effective yield of 11.2% and the investments we exited during the quarter had a weighted average effective yield of 11.3%, which was significantly impacted by the repayment of OneSky. Our overall effective portfolio yield at quarter end was 10.95%.

Our direct energy exposure continues to represent only a small portion of our portfolio, comprised of two investments totaling less than 2% of the fair value of the portfolio at the end of the fourth quarter. Overall, we are pleased with to the performance of our few energy investments.

Jefferson issued a municipal bond in Q1 and we anticipate that the proceeds will be used to repay us. MD America paid down 20% of its loan in Q4 and has stated the intent to repay the remainder early as well. We continue to carefully and selectively evaluate opportunities in the sector.

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 are seeing in the market. Then we will take your questions.

Thanks, Howard. We were pleased to report another strong quarter. As shown on slide 13, interest income increased to $39.2 million in the fourth quarter. This equates to $0.81 per share, of which $0.59 per share was recurring cash interest, $0.04 was recurring PIK income, and $0.04 was recurring discount and fee amortization. The remaining $0.13 per share came from prepayment income, including both prepayment fees and unamortized OID.

Our results reflect our general policy of amortizing upfront economics over the life of the investment, rather than recognizing all of the income at the time the investment is made. Earnings for the quarter also included cash income from aircraft leases of $0.02 per share, offset by depreciation expense of $0.01 per share or $0.4 million net.

Turning back to slide 10, net investment income was $0.55 per share before excise taxes and incentive compensation, or $0.43 per share after, which out-earned our dividend by $0.07 and continues our track record of more than covering our dividend each quarter since our IPO. On an annual basis, net investment income after incentive compensation and excise taxes was $1.63 per share, out-earning our dividends by $0.19.

After paying our fourth-quarter dividend of $0.36 per share, we closed the quarter with tax basis undistributed ordinary income from over-earning our dividend of approximately $23.3 million, or $0.48 per share, which provides us with a significant reserve for the future.

Back on slide 13, total operating expenses for the quarter were approximately $12.7 million. The increase in interest and other debt expenses to $5.4 million, primarily reflected our higher average outstanding leverage during the quarter, even as ending leverage was lower than at 9/30 following our significant prepayments.

Incentive compensation from net investment income for the quarter was $5.2 million, or $0.11 per share, which is computed by multiplying after-tax net investment income by 20%. As noted in slide 14, all incentive compensation is subject to the Company meeting a cumulative total return hurdle of 8% annually.

Net realized and unrealized losses of $18.7 million were primarily attributable to fair market valuation -- fair evaluation markdowns across the portfolio as market yield spreads widened, as well as a specific markdown on Securis following an adverse regulatory decision. Despite the markdown, we believe the Company continues to have significant cash flow and will meet all of its obligations.

Credit quality in our portfolio remains strong and our fair value markdowns were mitigated by credit improvements in a number of investments. As a reminder, our entire portfolio is marked-to-market each quarter using independent third-party pricing and valuation sources for substantially the entire portfolio. Realized losses were primarily attributed to the sale of Marsico, an investment that had generated substantial cash interest income as part of our pre-IPO legacy distressed debt strategy and which was sold at approximately our prior quarter end mark.

There were no new investments on nonaccrual. The two investments currently on nonaccrual represent 0.2% of the portfolio at fair value and the impact of the non-accruals on quarterly net investment income was less than $0.01 per share.

We closed the quarter with substantial available liquidity. Our total liquidity of $274.4 million included available leverage of $245.2 million and cash and cash equivalents of $35.6 million, less net pending settlements of $6.4 million. Available leverage includes the remaining $32.2 million available on our $75 million leverage commitment from the small business administration, but excludes an additional $75 million, which we expect will become available once our initial commitment is fully funded.

Combined leverage net of cash and SBIC debt was approximately 0.60 times common equity at quarter end. We have continued to repurchase shares under our 10b5-1 program when our stock is traded below NAV and have acquired over 0.25 million shares from the beginning of the quarter -- beginning of the fourth quarter through Friday.

Turning to slide 15, at the end of the quarter our total weighted average interest rate on amounts outstanding on our leverage program was 3.2%. This reflects our TCPC funding facility at a current rate of LIBOR plus 2.5%. Our SBCP revolver and term loan had a rate of LIBOR plus 1.75%, our convertible notes at 5.25% and our SBA debentures had a blended rate of 2.84%.

I will 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 our annual proposal for shareholder approval to issue up to 25% of our common shares on any given day 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 that it will be, no action would be taken unless our independent directors determined that it would be in the best interests of our shareholders.

I will briefly cover what we are currently seeing in the market and then open the line for questions. We have previously pointed out that the post credit crisis regulations have substantially reduced liquidity in credit markets, a trend that has continued into 2016. As a result, we are seeing numerous origination opportunities across many sectors.

Our deal flow remains good, but we continued to take a highly disciplined and selective approach to new investments and are passing on many opportunities. Through February 26, 2016, we have invested approximately $51 million, primarily in four senior secured loans and a note, with a combined effect of yield of approximately 11.4%. Our primary focus remains on preservation of shareholder capital and maintaining a recurring earnings stream by effectively putting our diversified liquidity sources to work to optimize our portfolio.

TCPC has built a strong market position by leveraging our platform to lend to established middle-market companies with sustainable, competitive advantages that generate significant cash flow and/or have significant asset coverage or enterprise value. Our co-investment exemptive relief from the SEC, which was granted nine years ago, enables TCPC to partner with the numerous private institutional funds we manage to provide comprehensive capital solutions to borrowers.

Looking to the future, we are uniquely qualified for continued success for several reasons. First, we have scale and depth in our origination and servicing platform and terrific people. We have a highly-experienced team of more than 80 people firmwide with our investment professionals organized into 19 discreet industry groups. We believe this structure and our distinctive investment process provides us with a tremendous competitive advantage in sourcing transactions and gaining the trust of management teams, owners, and their advisors.

Second, our focus on senior secured loans, most of which are floating-rate, has resulted in a lower overall risk profile and strong portfolio performance. This has enabled us to consistently out-earn our dividend and our portfolio is well-positioned, growing meaningful increased interest rates.

Third, our low cost of capital and diverse funding sources continue to be key competitive advantages for TCPC. TCPC remains well-positioned with our attractively priced leverage and financing flexibility, which includes our convertible notes, a term loan, revolving credit facilities, and long-term SBA IC unsecured notes.

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 in the industry. We continue to invest alongside our shareholders and members of the management team and the Board of Directors have continued to purchase shares in the open market, including during both the fourth quarter of 2015 and the first quarter of 2016.

In closing, we are pleased with our many accomplishments in 2015 and our ability to generate high levels of recurring income. We are optimistic about our prospects for delivering continued growth and returns based on our opportunity sets and our growing origination platform. And we remain committed to our rigorous investment process that delivers high risk-adjusted returns while preserving capital over the long term.

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

(Operator Instructions) Leslie Vandegrift, Raymond James.

Good afternoon. I just wanted to ask about -- you talked about mark-to-market spreads widening basically. You had a few investments that were actually marked up, so not really credit issue so much for you guys.

But what were the numbers you saw between first-lien and second-lien investments in the fourth quarter and how have you seen that continue into first quarter 2016?

The vast majority of our Q4 investments have been in first lien. That's been our primary focus. We've made the point I think on several occasions that not all second liens are created equally.

Some of them are really weak instruments and some of them only have a small working capital facility in front of them are in much more stable businesses, so we do continue to invest in those as well. But in this environment we tend to focus more on first liens.

Okay. And so how much -- if you could quantify it, how many basis points do you feel like, on average, the spreads widened for first liens last quarter? And then how much have you seen that continue into the first quarter?

We wouldn't quantify it on an individual basis like that. The portfolio is very distinct. In terms of the marks, that's done off of spreads done by our third-party marking services and they look at each individual credit. They look at the credit quality.

To the extent that there are no markets available, they look at them individually and price them off of a curve and so there's a lot of distinction. Not all first liens are treated equally and not all second liens are treated equally. They look at the credit quality of each.

In general, though, the market has widened a fair amount, particularly at year-end.

All right. Then on a different track, I know you guys are still at the very beginning of your first SBIC license; you're still working through that one. But obviously now the ultimate range of that program has increased to 350. Has there been a change in your long-term plans for utilization of those licenses?

I will take that one. Thanks for the question. Generally, our plans for the licenses is to utilize them. If there's more capacity, that's a positive and we have been utilizing it at a reasonably steady pace. Maybe not as quickly as we would have liked, but there is an importance to being disciplined, particularly for some of these companies that qualify.

So to answer your question, we are appreciative of the regulatory change. We anticipate it to be an additional positive on top of when we can utilize the SBIC and we don't change our view that we would like to utilize it where appropriate and when appropriate. Again, not compromising our investment process or our general view of being disciplined for underwriting.

Okay. All right, well, that does it for me. Thank you.

Chris Kotowski, Oppenheimer.

First of all, I'm just curious why such a heavy dose of prepays in what one would generally consider to be a tight market for refinancing opportunities for most borrowers.

Sure. We are very pleased with it. Ultimately, as a lender, your goal is to be repaid. We don't like to lose good credits, but in the environment you just impliedly described, having those loans repay, getting the extra interest income, the addition to NAV, and being able to redeploy in new investments is attractive.

We will miss some of these loans, particularly some of the higher-yielding ones. On the other hand, I think it's simply an indication of the quality of our credit underwriting and some of it is simply coincidental.

We have always said we are in a lumpy business. The relationship between these individual loans is limited. Each one repaid for distinct reasons and Ray will probably comment a little bit more on what we are seeing.

I think, just to echo Howard's comment, he said it -- pretty much what I was going to say. This is not -- our portfolio tends not to be an index to the overall market. Directionally if credit is improving and companies graduate to the next type of capital, we will see more repayments on that basis, refinancing, but there's always going to be an underlying element of improving credit or a company, for very specific reasons, exiting. Maybe they are acquired or something along those lines.

I think, generally speaking, as you look at our portfolio historically, few things go to maturity. That's not necessarily a surprise, even though in any one quarter it may be lumpier.

Okay. Then, secondly, I guess, Howard, you are still sounding very guarded about the environment even though obviously spreads have opened up a lot and seem to be reflecting. Just should we expect to see further shrinkage in your balance sheet in the next quarter or two?

Let's parse the questions, Chris. First of all, we always tend to be guarded here. We're lenders, so I think we are naturally cautious. It's clear from what's going on in the capital markets and some of the macro headlines also that it's generally an environment in which additional caution is warranted. Certainly rather be in our position as a senior secured lender, though, than in most other businesses at the moment.

And so we feel good about what we are doing. We feel good about the portfolio. We like the opportunities and it would have been very easy to have had more assets on the balance sheet, but fortunately, we have earnings power at the current level that covers the dividend.

And so we are being opportunistic and not just doing deals because they are out there, but doing what we think are the best deals and what works best with diversifying the portfolio on a risk-adjusted basis, taking advantage of that and also leaving some dry powder available for our share repurchase program, which we have established. So we like having a little bit more balance sheet flexibility in this environment. It enables us to do all of those things.

Then last question for me is your stock has held up very well by comparison to the rest of the industry and a good portion of the industry now is trading at deep discounts to NAV. Just given that, does it make sense to consider acquisitions or are you just in the mode that you would much rather eat your own cooking than deal with somebody else's?

We like our own cooking. We are also open to food prepared elsewhere, but our job, first and foremost, is making sure that we are maximizing shareholder value. If we see an opportunity that we think would be accretive to our shareholders over the long run, to engage in a transaction or a portfolio purchase, that's certainly something we would welcome. And we certainly are looking at various things from time to time.

But at the same time, just because other things are trading at a discount doesn't mean we're going to rush out and try and do something. It has got to make sense for the business and for our existing shareholder base.

Okay, so it's not off the table, but -- okay. All right, that's it for me. Thank you.

Christopher Testa, National Securities Corporation.

Good afternoon. Thank you for taking my questions. Just a housekeeping item with the prepayment fees you cited, with other income down and you had the interest income up significantly. Was most of that prepayment-accelerated OID?

A good chunk of it was accelerated OID. I would say probably of the 13 -- actually, I would say about half and half. A little more of it was accelerated OID, the rest was prepayment fees.

Okay, great. Just given that you guys have consistently out-earned the dividend, the earnings power on an NII basis has been pretty significantly above the regular distribution. You didn't pay the special this year.

What are your thoughts on a potential dividend increase, even if a slight one, going forward into 2016?

We continue to review the dividend policy with our Board every quarter. It's something that we are actively involved in talking about. We believe that our shareholders take a lot of comfort from knowing that it's well-covered. That's something that we believe is very important.

We call your attention to the chart in the presentation that shows our historical dividend coverage; it's on page 5. We will continue to look at that. Given the current yield on the stock, also given that the alternatives available to people, we think that this yield is very attractive.

And so we are focused on making sure that people continue to have absolute comfort with our dividend coverage, but we will continue to have that discussion as we go forward.

Okay. And you've cited the originations thus far in the quarter as of February 26. What have been the prepayments so far this quarter? Have you had some regular -- some somewhat outsized prepayments as the last caller cited or has this backed up more with the credit spread environment?

Sure. We normally don't give that number because it may not be representative. We would note that the prepayments we had in Q4, as was alluded to with one of the prior questions, was significant and unusual. And we wouldn't necessarily expect to have them at that size or that rate on a regular basis.

Okay. I know you had mentioned spreads widening and you've earned much higher effective yields in the quarter thus far with the capital you've deployed, but what else are you seeing in terms of the structures of these loans in terms of covenants, cash flow sweeps? Have you been able to implement tighter covenants, get more cash flow sweeps, or is this generally in line with what you've seen historically?

I will take that one. I think generally it is a -- feels like a more lender-friendly environment overall. In terms of comparative structural protections -- cash flow sweeps, covenants, and, importantly, documentation specifics -- we have really been --.

I know the last quarter and the quarter before that you've seen a lot of first lien, but really if you go back for a longer period than that we have been focused on having those right protections and covenants for a while now and it's just been part of the DNA of our business. So from a relative change point of view, while the market may be catching up a little bit, in terms of what we underwrite to, I would say we are still maintaining a pretty good discipline. Where we can improve it we will, but we are not starting from a lower base as compared to the more broadly syndicated loan markets, if you will.

Okay. And given the stock at a relatively small discount to NAV, if you were to get above NAV by a significant amount, say 5% to 8% or so, would you characterize your pipeline as strong enough where you would issue accretively above NAV this year?

I won't comment on issuance. That would be not a wise thing, but I will say that the pipeline is good. It's a function of our direct efforts on sourcing. We don't have a concentrated channel; it's very diverse and the environment is helpful in that sense as well.

We are seeing a lot of good things. We are saying no to a lot for different reasons, but I would characterize the pipeline as good.

Okay. And last one for me, are you going to continue to include the commitment fees and amortization of debt issuance within the interest expense and financing costs going forward? Or will those be separate line items like it was the previous quarters?

You notice we did combine those this quarter. That was primarily just to be consistent with most of the rest of the market, but it also combines them. So this quarter, instead of last, we did combine the interest expense, deferred debt costs, and commitment fees into the interest expense line to be consistent with others. And we will be doing that going forward.

Okay, great. Thanks for taking my questions.

Jonathan Bock, Wells Fargo Securities.

Good afternoon and thank you for taking my questions. Howard, maybe start on some of the newer verticals that you built out. It was clear in the earlier part of last year that venture lending was an area of relative opportunity for the TCPC platform, and I think you made an investment in that area. And in particular, investment in both human capital as well as with your actual capital in the form of InMobi.

Curious your view on that technology-lending vertical in light of the technology tumult that has occurred amongst the venture community as valuations have become compressed.

John, thanks for the question. Venture lending and technology lending is, as you know, something we've expanded into. It's also something that we've been doing here for many years, financing earlier stage companies. And there's no question that there's a lot of capital that poured into technology investments at very high valuations -- you can pick up the paper any day or whatever your newsfeed service is and see it -- and a lot of that has pulled back.

Those are not the kinds of companies that we've been focused on. We have been focusing on companies that we think have a unique product, some unique technology, some unique assets, and funding at a very low attachment point to their value with senior secured instrument and, in lieu of the next round of equity funding, less dilutive to existing investors but at a point that is clearly well within the range of values for those companies.

So we won't say that a pullback in valuations or funding doesn't impact us. Obviously everything is interrelated. On the other hand, with respect to our portfolio and things we are focusing on, we have not to date seen any impact from that pullback in funding. In fact, across the portfolio we are seeing continued support and success.

John, I would just add that the dynamic that is existing in what you point out now is not something that we just talk about now that it's happening. We talk about this in the more fruitful times as a potential when we look at these companies. And to Howard's point, the attachment point of our paper, even with a big compression in valuations, is good and covered as we see it.

Then there's a lot of structural nuances that we focus on, including heavy amortization, including a fairly good, if not positive, net cash position when you take into account the debt position. We think about that not only to rely on a market dynamic, which is helpful. We've seen some exits in that context that have been good upside, but there really is a focus on the downside even before that environment is characterized as a little tougher as it is today.

I appreciate that, guys. Now a smaller, I'd say, investment, but if you look at core entertainment, which I believe is a name that perhaps would experience some stress, I'm just curious if you believe that right now in terms of operating cash flow, etc., ability to service debt that you are not looking at an impairment. But perhaps just a discussion on CORE, if you have a moment.

Sure. We're a little bit more limited on what we can say on this one due to the sensitive nature of the discussions with the company. Clearly, the company has struggled. We are continuing to work actively with the lender group and -- of which we are one of the larger participants, and with the company to maximize our value on this one.

Okay. And then I guess the last question, and it's more of an overarching one because you guys are considered good allocators of capital, conservative; the market has appreciated that and, as a result, has awarded a premium valuation. Overall valuations ebb and flow, but generally, relative to your peers, I think it was mentioned that the premium valuation is there.

Question relates to the [tennis] channel prepaid, congratulations. I'm also sad that I don't get to follow that investment anymore; it was quite interesting. But you're receiving this initial amount of capital, so that was just $32 million in that loan; forget the others. And so now you have an opportunity.

I see that you have repurchased 250,000 shares quarter to date. I understand that's subject to 10b5-1. Great. The question that I believe your investors would ask, Howard, in an environment where you eat your own cooking and have the ability to also fund across other parts of your platform, why would you not want to take the lion's share portion of that and reinvest back in your business or your portfolio at a deeper discount to NAV?

Sure, thanks for the question. Couple of answers. The first one is on a very current and mechanical basis, we set up the 10b5-1 program and it is set up to purchase at whatever rate it's set up to purchase. So we cannot go in on a daily basis and alter that simply because we got some more liquidity or because we have less liquidity.

The function of those programs is the Board makes an estimate of what we think we can get done during the quarter. You're looking at your cash projections. We're looking at where trading is and we put the program in place.

We've tweaked it several times since we put it in. When we initially put it in it never kicked in because we were trading, for most of our history, above NAV. Then it kicked in during the selloff in the fall of last year and we've revised it a couple of times; you can't always predict trading patterns in the stock.

But we we're trying to balance that with also having the ability to take advantage of the opportunities we're seeing in the market, a number of which are either at higher spreads or better risk-adjusted rewards than we've seen over the last few years. And so we are taking a long-term view. I think you can see our conviction, not only with having this program in place that has been operating on very regular basis, also personally with our own purchases of shares really across the management team and a number of members of our Board of Directors. So we've got it in place and there will be a balance.

We think the position we're in today with a somewhat more liquid balance sheet than we had going into the beginning of Q4 is attractive. It's one that we've done intentionally, but this is a permanent capital business. It's not just there for a single trade and so continuing to think about how to best optimize the return to our shareholders over the long term with the platform we have in place.

We like the ability to buy in stock and capture that discount, but we are also taking advantages of other uses of that liquidity as well.

Again, not to take away the fact that -- I mean, Howard, everyone does appreciate the way you have allocated capital thus far. They appreciate the buyback. They always just continue to ask questions in order to further solidify their beliefs, but to date everyone is very pleased so congratulations. And those are my questions, thank you.

David Chiaverini, Cantor Fitzgerald.

Thanks, a couple questions for you. First on your net leverage, I know that your target is 0.5 to 0.7 to 1 debt to equity. Given your guarded stance, where on the spectrum or in that range do you prefer to be in this environment?

We have never given a hard target for our leverage. I'm not sure what the source of those numbers are. We've historically operated in a reasonably tight range, other than right after equity offerings, when that has reduced our leverage, but we don't have any hard-and-fast target. And we do that intentionally.

We like to take advantage of our leverage, but we also don't want to artificially target some number. Ultimately, we are in the lending business. We do good loans when we see them and we don't want to feel like we should put on something to hit some target or exit something to hit some target. So we just tend to operate in a range and think at the moment we are in a very appropriate position.

Okay. So even though you are guarded, we shouldn't necessarily think that you should be at the -- closer to 0.5 than up to 0.7? Granted, it's not an official range, but for the most recent quarter I'm calculating you guys were at 0.64. So one way to think of it.

Would you say that you're content at 0.64 or that that could -- if you see the right opportunities you could take that up and vice versa, if you happen to get heavy prepayments, then it could be lower and you would kind of just take it quarter to quarter?

I think that last comment that you just made is probably the most appropriate. It's hard to look at it on a static -- where you end up at the end of the quarter is a function of so many things; some you can control, some you can't. If you see a good opportunity and you move quickly, you'll look to close that out. If you get a repayment all a sudden of a reasonable size or a few of them, like you did this quarter, you will see it move.

So I think the overall comment is we're comfortable where we are. The numbers you cited are kind of the historical range, but by no means do you manage it only to that range or that metric versus managing it to the right type of opportunities. And how those come in and go out is just a function of things you really can't control other than good underwriting, and sort of the output is any reported number that's -- at the end of any quarter.

Thanks for that. Then shifting to your two oil and gas investments, you mentioned that both Jefferson and MD America you expect potentially to get early repayments. Are you able to comment on the timing of when those expected repayments could possibly occur?

We can't give you any specificity. In the case of Jefferson, it's public that the entity has issued a municipal bond and it's our expectation that the proceeds will be used for repayment.

In the case of MD America, they have publicly said that the equity that they are raising, which is subject to regulatory approval will be used to pay down the loan. They did that with 20% of it in Q4. We anticipate that happening with the remainder, although with any regulatory process it's never entirely predictable and obviously it's not repaid till the proceeds come in.

Then lastly --.

I will say on that, though, that we've been very cautious with the energy portfolio. And we have said all along that we thought that these names were distinct, and to date, we have been pleased with their performance.

Yes, I think it's great that you could get paid back early on those. Then lastly, Securis Technology, can you provide some comments on the outlook for that investment?

Sure. There's been a fair amount of press on it. They have a business that was subject to an adverse regulatory determination. They and the rest of the industry are challenging that. We will see how the challenge comes out.

In addition to that there's another part of the business that provides a substantial contribution to earnings, which is unimpacted. Management has been very clear that they believe that the credit will continue to perform. And based on our understanding of it and what we know today, we believe what they are saying and upon our independent verification.

So notwithstanding the fact that we've got a mark-to-market hit and a mark down on it, we believe that the company is in a position to continue meeting its obligations.

Thanks very much.

Ryan Lynch, KBW.

Good afternoon and just thank you for taking my questions. I only have one this afternoon.

Just in today's environment, there's been definitely heightened interest around fair value marks and valuation in the BDCs' portfolios. This is not TCPC-specific, but just generally there's been heightened consideration in the market.

So can you just walk through --? I think it would be helpful to walk through the typical valuation process TCPC goes through on a quarterly basis to value its portfolio of companies?

Sure. Paul, you want to take that one?

Sure, happy to. We get started early. We have -- get input from our deal teams. We consult with our third-party valuation services and consolidate information from the companies themselves and from the markets to the extent market information is available.

Our valuation committee generally meets twice before quarter end to assess the information. We go through, compile all this; have a healthy discussion to make sure that we are getting valuations that are fair value. The Board of Directors is actively involved and has specific questions, and we have a robust discussion with the Board of Directors as well.

So at the end of the day substantially all of the portfolio is marked using external third-party sources, whether from broker bids or aggregated by pricing services or from valuation service providers, respected names you would know.

Also, I'd add on top of that, our auditors have been extremely thorough. We have robust discussions with their valuation teams around these marks and have never had an adjustment proposed past or otherwise to our valuation marks. So we are very, very confident in our ability to mark our investments to fair value.

I'd just like to emphasize something Paul just said. This is Howard. The third parties determine the valuations; we did not. We approve them, but they are ultimately -- we get the valuations from the third parties, which I think is a distinction with some other folks.

One other thing that I think is really worth emphasizing is, because we have been running leveraged credit funds that employed these requirements, we've been using this kind of a process since 1999 across our business. So it has evolved over the years, but we have been basically using the same third-party mark-to-market pricing going back a very long time. We had it through the financial crisis. We had a through the downturn of 2000, 2001 and it's a system that is really part of the fabric of what we do here.

I think that's good color, and I think investors appreciate hearing all the details that you guys put in on a quarterly basis to determine these fair value marks. So that's all for me.

Christopher Nolan, FBR & Company.

Howard, given your background in distressed finance, looking ahead like six months, how do you see the market shaking out on that front? Are you -- can you give some historical perspective in terms of where you think things are going?

Appreciate the question; we try not to be market prognosticators here. I think if you look across the group of economists and market strategists over the last couple of years, most of them have been far off in their predictions. There are just a lot of exogenous things going on, and so what we try and focus on is the companies from a bottoms-up basis.

That's not to say that we don't focus on the markets. We obviously look at them a lot and we think about them. In the near term, we think there's risks for continued volatility, both because of the interest rate environment and macro, as well as the political noise we've got going on and things abroad.

But we sort of cut through all of that and say people still need to put money to work. They still need to get high current yield and investing in senior secured floating-rate loans is the best place to do it. And so when we look at investments, we ask ourselves the questions: what could go wrong with the Company; what could go wrong with the markets? But, ultimately, look for things that we think will be able to sustain themselves through that.

Great. Also, Paul, spillover income per share, I think it was $0.48 a share last quarter. Do you have an update on that?

Absolutely. At the end of December we had spillover income of $23.3 million, once again $0.48 per share.

Great. Final question, is it correct that the lower -- the unrealized losses, the depreciation charges is due to market spreads widening and not lower EBITDA at your companies in general?

We are actually very pleased with the credit migration trends in our portfolio. The markdowns this quarter were primarily due to spreading yields -- to yield spreads widening. We actually saw credit improvements in a number of our investments.

Great. Oh, and the equity investments have risen over the year. Is that a function of the venture debt lending or is that just basically you're able to get some warrants from better credit terms and conditions?

For this quarter we did make an investment in a partnership that invested in loans and so the underlying investment there is lending. It does show up as equity, though.

Great, thank you for taking my questions.

Jim Young, West Family.

I just want to follow-up, Howard, with respect to the comment you made about the conservative accounting practices you had on your origination policies. My question is can you be a little bit more specific about the nature of these accounting practices? And if you were more aggressive, could you give us a sense as to what would be the impact on net II per share on a quarterly basis?

Just trying to get a feel for how conservative it is and how much of a flexibility there is in GAAP. And, again, we do appreciate your conservative approach to capital allocation and the way you run your business. Thank you.

Jim, thanks. This is Paul. I appreciate the question. In practice -- there is a variety of practices in the industry, but we do tend to be conservative.

Upfront economics are fairly common. We have taken the view that those should be amortized over the life of the instrument and in almost all cases we do that unless there's a very specific reason to recognize the fee up front. But yes, there is diversity of practice.

Nonetheless, we are confident in our treatment pursuant to GAAP. We have obviously talked about it with our auditors and feel that we are also consistent with a lot of others, probably a majority of others out there. Although a lot of people do tend to recognize things up front and I suppose there is some flexibility in GAAP in that sense, some might say, but we tend to be conservative in our interpretation.

Just to add onto that as far as impact, it's hard to define any impact, but if you go back to Paul's earlier comments in this quarter of the games, about half, a little over half I think was a comment more related to those -- to catching up on the unamortized discount. So in any given quarter, to the extent you are underwriting, the greater the underwriting the greater that upfront capture is. So it's hard to predict what a static number is, but it is certainly more conservative to spread it as we do.

Jim, and maybe just add one other comment on that, this obviously makes our earnings less lumpy. When you're going into an investment you have the flexibility sometimes of deciding how much you want in rate, how much you want in OID, and our view is we try and maximize the economics. This way it's spread out over the life of the investment and makes our P&L a lot less lumpy than it otherwise would be.

Okay, thank you. Are there other accounting metrics with respect to either other revenue recognition or expense recognition policies that you could demonstrate that you and the firm are more conservative than the overall industry or other companies in the industry?

I think we are fairly consistent with the industry. I think the biggest one is the upfront revenues. Where some people recognize it upfront, we tend to recognize it over time.

Other than that can't really think of anything where there's that much variety in the industry at the time. Although I might also emphasize valuation; that is probably the biggest thing out there. We tend to be very conservative, make sure we are marking to market. We are very careful to make sure our investments are fair valued.

And I know there's been some press on different folks with different valuation practices, but I think we have demonstrated that we are very conservative and very careful to make sure we are marking to market.

Great, thank you.

Derek Hewett, Bank of America Merrill Lynch.

Thank you for taking my question. Howard, could you talk about that side car fund that you received exempt relief back in I think late 2014? What is the dollar value of the remaining potential purchases? Since I believe that fund was scheduled to terminate sometime late this year.

The exemptive relief that we received from the SEC enabling us to engage in those transactions has largely ran its course at this point. There might be a few remaining eligible transactions, but at this point very few.

Okay, great. Thank you very much.

Thank you. I'm showing no further questions at this time. I would like to hand the call back over to Howard Levkowitz for closing remarks.

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

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Have a great day, everyone.