BlackRock TCP Capital Corp (TCPC) 2016 Q2 法說會逐字稿

Ladies and gentlemen, good afternoon. Welcome, everyone, to the TCP Capital Corp.'s second-quarter 2016 earnings conference call. (Operator Instructions)

And now, I would like to turn the call over to Jessica Ekeberg, Vice President of the 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 select events and presentations. Our earnings release and 10-Q are also available on our site.

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

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

This morning, we issued our earnings release for the second quarter ended June 30, 2016. 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 details on our financial results. Next, I will provide some additional perspective on the market before we take your questions.

I will begin with a review of the highlights from our second quarter. We had strong originations totaling $119.1 million during the quarter and maintained 80% of our portfolio in floating-rate instruments. We also, coincidentally, had $119.9 million in dispositions.

Today, we declared a second-quarter dividend of $0.36 per share. Slide four details our history of consistent dividend coverage since our IPO. As you can see, in the second quarter of 2016 we continued to outearn our dividend by delivering net investment income of $0.38 per share.

Turning to slide five, our net asset value increased to 14.74% from 14.66% during the quarter as yield spreads generally tightened on the majority of the portfolio. Also on slide five, you can see that our accumulated dividends, plus NAV, have delivered a total return to our shareholders of approximately 43% since our IPO four years ago. In addition, we fully funded our SBIC equity commitment following quarter-end and anticipate obtaining the second $75 million leverage commitment from the SBA in the near future.

Finally, we raised a total of $65 million in new equity through two transactions. This included $30 million in equity through the issuance and conversion during the quarter of a privately placed convertible note. We also raised an additional $35.3 million after quarter-end in early July through a registered direct offering of common stock. TCPC incurred no placement agent or underwriting fees in either transaction.

We are especially pleased that we've been able to efficiently raise growth capital in a challenging market environment. Our equity has been raised in a disciplined fashion for the benefit of our existing and new investors. The additional liquidity is available for deployment.

For those viewing our presentation, please turn to slide six. At the end of second quarter, our highly diversified portfolio had a fair value of $1.23 billion invested in 89 companies across numerous industries. Our largest position represented 3.7% of the portfolio.

As you can see on slide seven, at quarter-end senior secured debt comprised approximately 96% of the portfolio, with floating-rate debt comprising approximately 80% of our debt position. As shown in the chart at the bottom of the page, with most of our debt portfolio in floating-rate assets, we are well positioned if interest rates ever rise materially.

Turning to slide eight, during the second quarter we deployed $119.1 million primarily in nine investments, each of which was senior secured, in addition to draws under existing commitments. These included investments in five new companies and four existing portfolio companies. Our investments in existing portfolio companies continue to be a source of strong risk-adjusted returns for our shareholders and reflect the value we deliver to our borrowers.

Our five largest investments in the second quarter reflect our commitment to maintain the diversified portfolio and continued focus on the top of the capital structure. They include a $22 million senior secured loan to Newscycle, an enterprise software company; an $11 million senior secured loan to Gander Mountain, a retail store network of outdoor recreational products and services; a $10 million draw on our existing senior secured loan to [Danemark], a residential real estate company; a $10 million senior secured note to in-flight connectivity company, Gogo, as our large holding in the term loan was repaid and we participated in the refinancing; and a $9.6 million senior secured loan to Gymboree, one of the largest children's apparel retail chains in North America.

In the second quarter, investment exits totaled $119.9 million. These include the repayment of an $11 million senior secured loan to Confie Seguros; a $7 million senior secured loan to [MD] America -- we no longer have any direct energy investments; a $4 million senior secured loan to institutional shareholder services; and the sale of our MD-80s back to Delta Airlines.

New investments in the quarter had a weighted average effective yield of 11.5% and the investments we exited during the quarter had a weighted average effective yield of 11%. Our overall effective portfolio yield at the end of the quarter was 11%. We are pleased with the overall quality of our portfolio and that we had another quarter without any new non-accruals.

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

Thanks, Howard.

We're pleased to report our 17th consecutive quarter of outearning our dividend, going back to our IPO in 2012. As shown on slide 10, net investment income after incentive was $0.38 per share, compared to our dividend of $0.36 per share. Net investment income included $0.71 per share of interest income, of which $0.60 per share was recurring cash interest, $0.03 was recurring PIK income, and $0.04 was recurring discount and fee amortization. The remaining $0.04 per share came from prepayment income, including both prepayment fees and unamortized OID.

We also earned net lease income of $0.01 per share.

Our income recognition follows our conservative policy of generally amortizing upfront economics over the life of the respective investment, rather than recognizing the income all at the time the investment is made.

Expenses of $0.25 per share included interest and other debt expenses of $0.12 per share for net investment income of $0.47 per share before incentive compensation, with the difference due to rounding. Incentive compensation, which is subject to a cumulative 8% total return hurdle, was $0.09 per share, which is computed by multiplying net investment income by 20%.

After paying our second-quarter dividend of $0.36 per share, we closed the quarter with tax basis undistributed ordinary income from outearning our dividend of approximately $23.0 million, or $0.45 per share, which provides us with a significant reserve for the future.

Net realized and unrealized gains of $0.05 per share came primarily from the fair value impact of tightening spreads. The largest single contributor to unrealized gains was the $0.03 gain on our loan to MD America, which is a company we purchased just after quarter-end. This gain was generally offset by net valuation adjustments elsewhere unrelated to spread movements.

As a reminder, our entire portfolio is marked to market each quarter using independent third-party pricing and valuation services for substantially all the investments. Realized losses for the quarter totaled $0.7 million.

We placed no new investments on nonaccrual during the quarter. Our nonaccrual debt at quarter-end represented 0.4% of the portfolio at fair value.

Turning to slide 13, we closed the quarter with significant available liquidity. Our total liquidity of $252 million included available leverage of $227 million and cash and cash equivalents of $38.3 million, less pending settlements of $13.3 million. Available leverage includes the remaining $14 million available on our current $75 million leverage commitment from the SBA, but excludes the additional $75 million SBA leverage commitment which we anticipate and for which we have just applied, having now fully funded our SBIC equity commitment following quarter-end. Total leverage net of cash and SBIC debt at quarter-end was approximately 0.58 times common equity.

As Howard mentioned, we raised equity of approximately $65.3 million in two transactions since the end of the first quarter. The first was from the conversion during the quarter of a $30 million convertible note that we issued in a private placement to CNO Financial Investments Corp. The CNO note was issued on April 18, 2016, and converted on June 7, 2016, at the holder's option into approximately 2 million shares of common equity at $15.02 per share.

The second transaction just after quarter-end on July 7 was the placement of a registered direct public offering of approximately 2.3 million shares for total proceeds of approximately $35.3 million at an above NAV price of $15.09 per share.

No placement agent or underwriting fees were incurred in connection with either transaction, making both significantly more beneficial than a traditional secondary offering. With these issuances, we are in an excellent position to take advantage of our strong pipeline.

We also may renew our ATM program during the third quarter in order to provide an efficient mechanism for other possible equity issuances on an opportunistic basis, once we have deployed our new liquidity. If we renew the ATM, we do not currently intend to use it for daily stock sales, but for infrequent block issuances of equity as opportunities arise, should such issuances be both accretive to our existing shareholders and warranted by our pipeline and projected liquidity needs at the time.

Activity in our stock buyback program was very limited during the quarter, given the high trading levels of our stock. We repurchased 1,300 shares during the quarter and have acquired approximately 278,000 shares since the inception of the program through quarter-end. We renewed the program this quarter, which provides for repurchases of up to $50 million should our stock decline below NAV.

At the end of the quarter, the combined weighted average interest rate on our outstanding debt was 3.2%. This reflects our TCPC funding facility at a rate of LIBOR plus 2.5%, our SBCP revolver and term loan at a rate of LIBOR plus 1.75%, our convertible notes at 5.25%, and our SBA debentures at a blended rate of 2.81%.

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

Thanks, Paul. I will briefly cover what we are currently seeing in the market.

As we have previously pointed out, post credit crisis regulations have substantially reduced liquidity in the credit markets, and this trend has continued in 2016. As a result, we are seeing numerous origination opportunities across many sectors. We continue to take a highly disciplined and selective approach to new investments and are passing on many opportunities.

In the third quarter, through August 5, 2016, we have invested approximately $27 million primarily in five senior secured loans and notes and deployed equity in our lease portfolio. The combined effective yield of these investments is approximately 9.7%. It is still early in the quarter and our pipeline is robust with many deals that are well within our historical yield range; therefore, the level and yield of originations to date are not indicative of what we would expect for the quarter.

Our primary focus remains on deploying new liquidity and optimizing our portfolio by preserving shareholder capital and maintaining a recurring earnings stream through effective deployment of our diversified liquidity sources.

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 exempted relief from the SEC, which was granted over 10 years ago, enables us to co-invest alongside the numerous private institutional funds we manage to provide a comprehensive capital solution to our borrowers.

Looking to the future, we are uniquely qualified for continued success for several reasons. First, our focus remains squarely on managing the portfolio to produce a consistent level of returns, which enables us to maintain stability in our dividend. Our disciplined underwriting has helped us maintain strong credit quality and to produce the consistent income and dividends that we know are valued by our shareholders. We are focused on continuing this approach, which has served our shareholders well.

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 outearn our dividend, and our portfolio is well positioned for any meaningful increase in interest rates.

Third, our low cost of capital and diverse funding sources continue to be key competitive advantages for TCPC. The recently placed $30 million convertible note from CNO and the $35.3 million registered direct public offering are examples of our commitment to accessing new sources of capital in ways that are advantageous to our shareholders. TCPC did not pay any placement fees in connection with those transactions and our ATM will be positioned to raise equity in an accretive manner when needed for deployment, if we establish it.

TCPC remains well positioned with attractively priced leverage and financing flexibility, which includes our convertible notes, a term loan, revolving credit facilities, and long-term SBIC 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 the most recent quarter.

In closing, we are pleased with our performance and achievements in the first half of 2016. We are optimistic about our prospects for delivering continued growth and returns to our shareholders, based on the opportunities we see. Taken together, our strong capital position, growing origination platform, and the many opportunities we see that meet our rigorous investment process that deliver strong risk-adjusted returns to our shareholders over the long term.

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). Chris Kotowski, Oppenheimer.

I was going to ask --a couple of quarters ago, you were sounding distinctly cautious about the market, and today you sound reasonably optimistic about being able to deploy the proceeds from the equity raises fairly quickly, and I'm wondering what, in your view, has changed or where are you seeing the opportunities?

Sure, Chris, thanks for the question. When you refer to several quarters ago, I suspect you are talking about Q4/Q1, which (multiple speakers) times when there was a lot of disarray in the capital markets.

I think the capital markets were probably a lot worse than the underlying fundamentals of most companies, certainly those in our portfolio. But there was very little visibility with being able to raise new and expansion capital, and so we were cautious in our deployment not because we didn't have opportunities -- we still have plenty of opportunities to put out the money, but we were cautious in how we used our money because we wanted to select among the very best opportunities, not being certain when we would be able to grow and also wanting to make sure that we had adequate capital available for existing portfolio companies, and so hopefully that distinguishes the dynamic you are talking about.

I wouldn't say that the capital markets today are robust. Clearly, equity values are up, but M&A volumes are down and there isn't quite as much borrower activity. But notwithstanding that, I think in part because of our diversified and unique sourcing platform we are seeing a number of attractive opportunities. You see in Q2 from our originations, they are really across a wide variety of sectors and opportunities, and from our pipeline, we are seeing more of the same.

Okay. And then, in terms of the deployment of the funds, the SBA debentures, we look at the last couple of quarters -- or this quarter, it was like $12 million, something like that. Is that what we should expect, that one or two deals a quarter go in there or is that ideally your first source of funding for the next year or two or couple of quarters?

Yes, Chris, it's Raj speaking. Thanks for the question. I think with the SBIC, just going back to when we first started it, the ramp up was a little slower than we expected, based on our historical deployments with eligible companies, and in many ways over the course of the last six months or so it's caught up, not only in the amount we've put in, but, to be honest, in the breadth of the types of companies we've been able to invest with, meaning in the early stages it was really disproportionately allocated to some of the venture deals and now in the latter stage or the utilization of the -- the full utilization of the equity tranche, there's a broader set of companies that are non-venture backed, as well as more traditional private and middle market.

Going forward, we are hesitant always to lay out a specific timing or amount, as you know, because everything is quite chunky. It does feel like there will be more of a balanced approach and deployment going forward. We hope that it's at the pace that we've seen in the last quarter or two. I think, without giving a specific guidance, saying one per quarter certainly is something we hope to see even more, but I think we are just reluctant to say what it will be quarter by quarter, just given the experience to date on it. But it does feel like it's picked up a little bit.

Yes, I understand the limitations. Thanks. That's it for me.

(Operator Instructions). Ryan Lynch, [CBW].

Good afternoon, guys. First question was just around your portfolio yield. So I was looking over the past year plus, and you guys have been able to maintain a pretty steady portfolio yield of around 11%. So can you maybe just give us some color around how you've been able to maintain a very healthy 11% portfolio yield in a market where, generally speaking, yields have been compressing? So how have you been able to maintain that yield without reaching or compromising credit quality of your portfolio?

Sure, it's Raj again. I'll take that.

I think it really has come down to one of the points we try to make repeatedly, which is creating a very wide funnel of opportunities and trying to select amongst them, not only with the best return, but I would emphasize the best risk-adjusted return. You've seen a concerted effort to take the mix up to more first-lien structures. Certainly this quarter, the majority of the structures are in the first-lien basis, and I think it becomes down to being a value-added financing party to companies that, while healthy and while performing and qualify for the BDC strategy, are just not able to find a large diversity of opportunities to finance their business needs and therefore at the margin are willing to sign up for something that may be a little bit -- pricing wise a little bit wider than they would see in a more syndicated or efficient marketplace.

So it's nothing new or nothing different than what we've talked about in the past. It is being selective, but also having a wide base to choose from and in that base trying to be disciplined, and I agree with you. We are not looking to stretch for yield or return. That certainly has been more defensive, but I think we are fortunate to have a platform that can see those opportunities somewhat consistently.

Okay. I appreciate the color. You guys are one of the few BDCs who have been able to access the equity capital markets, raise additional equity capital, which gives you guys obviously available capital to deploy into the markets. I realize BDCs are not the only people you are competitors with, but are you guys seeing any additional activity from sponsors reaching out to you or any additional deal flow, being one of the few BDCs with access to additional capital to deploy?

I'll continue on that and I think the short answer is yes. Keep in mind that our BDC capital, I think this is a little bit atypical in the market, both for certainly the public funds, but even some of the private closed-end funds, is not our only source of capital to deploy for private lending.

So, I think firms, both intermediaries and sponsors and just private business owners, know us to be a, I think, reliable source of capital in different market environments, so that has certainly led from our perspective to more opportunities from people who know us and I think more opportunities from people who have come to learn about us either by word of mouth or some other experience that has fortunately led to more dialogue and more opportunities from which to choose from. So the short answer is yes and a little bit longer-winded detail behind that.

Okay. Thanks for the color. That's all for me.

Robert Dodd, Raymond James.

Hi, guys. Following up to kind of one of Chris's questions on the SBIC side and the eligibility there, could you give us a bit more color on what -- to your point, things have definitely ramped up in this last quarter, relatively speaking, for how slow that program started off. What's the driver there? Is this a market factor that just is starting to see more activity, because that's not necessarily what we've heard from other SBIC-focusing BDCs -- some choppiness in the first half of the year, certainly, or is it more of a development of your origination professionals really targeting that market a little bit more than they had done over, say, 2015?

Hi, Robert, it's Howard. It really isn't a difference in how we're managing the business. We continue to source, originate, and process loans really in the way that we have going back to 1999 in this business, long before TCPC was public, using the same process.

And the fact that they fit or don't fit into the SBIC on a very lumpy basis tends to be coincidental. Very often, a deal will come in and people who aren't as focused on it will say, this looks like it meets the criteria, and then you go through and there is a particular nuance associated with it because there are a bunch of rules about whether it qualifies and you might at first glance think it does, and then it doesn't. We don't suddenly say we are not going to do that deal. If it's a good deal, we are going to keep doing it, and we are not running around looking to do things that we otherwise wouldn't do because we have the SBIC.

So for us, it is a great incremental financing tool to be able to provide more capital to our borrowers, but we're not running our business differently because we have it, and I think one of the other things that you don't see is we've had a bunch of early repayments. So typically, our loans are out for two to three years, and more coincidentally than anything else, because the SBIC facility is fairly young, we've had several of them come back and so when that happens, we then redeploy that liquidity so you don't see any additional draws, and looking at the reporting statistics, it doesn't look like we've had more volume, but we actually do. It's just getting recycled.

Okay. Perfect. Great color. Thank you.

Secondly, just -- obviously, you are equity rich right now, relatively a little bit underlevered, and then when we look at the net deployments, obviously this quarter are basically level, like high repayments, good deployments but high repayments, repayments as we all know very hard to predict. But with your position, what's your comfort level that you are going to be able to deploy that capital? Implicitly, it seems to presume that the net, the repayments and originations aren't going to offset and very difficult to predict, but what's your comfort level that you are going to be in net positive portfolio growth, given the difficulty there and the choppiness of the refinancing market?

As you pointed out, we don't often know when things are going to refinance. Sometimes borrowers tell you they are going to do and they pull deals, and sometimes they just come up and surprise you when you weren't expecting it.

Our repayments were much higher than they normally are. If you look back four quarters, this was far and away the biggest repayment quarter. Now Q2 tends to be seasonally higher, so that may be a little bit more than coincidental, but normally we don't run at this repayment risk. And so, I wouldn't assume that going forward we are going to have this level of repayments. It could be higher or lower, but this was on average high.

As we look at the deals in our pipeline, we feel good about them. The position we were in for a number of quarters was that we had a lot of deals that we were either not doing or TCPC was taking a relatively smaller position versus the rest of our platform because we didn't perceive ourselves as having enough liquidity to take bigger positions. And so, having the additional equity is very helpful, and we timed it in a way that we think matches our growth, really just in time raises. So some of it was raised during Q2 and the other part right at Q3, but as we look at our pipeline, it's our expectation to be able to deploy that pretty effectively.

Okay. Great. Thank you. Those were the only questions I had.

Thanks for the questions, Robert.

Jonathan Bock, Wells Fargo Securities.

Good afternoon and thank you for taking my questions. Howard, let's talk a little bit about the types of investments that you're making, only because often times when we understand the names or the companies or the sizes of what they do, it brings to question the proprietary miss -- my apologies for the word -- of the given transaction.

So if you're looking at a Gymboree, which is a huge company, or a Gander Mountain, etc., walk us through the uniqueness of the investment thesis for a few of what we would consider larger, larger names that may have been done by a club, may not, but give us the sense that you are actually directly originating these credits as you've always done before. So, trying to understand the credit thesis there and how your platform played specifically into it on a few of the select names out there. I outlined the two retailers, but that would be very, very helpful.

Sure, happy to do that. The two retailers you outlined, in both cases we are a part of small clubs that are doing asset-backed financings. And so, I know you are familiar with those transactions and I think people have become increasingly more familiar with them.

These are transactions we here have been doing since 1999. We've done them episodically. What we basically do is partner with other lenders -- sometimes we do them on a sole basis, but usually we partner with people who focus on the retail sector, together with liquidators, analyzing the collateral of the Company and providing them with incremental borrowing capacity beyond what they would be able to have from a traditional asset-backed facility, but with a lien on all of their collateral, and so that if something happens to them, in the event of a liquidation we are covered simply by selling off the assets regardless of the performance of the retailer.

That said, it's not our hope that any of these liquidate. We are providing them incremental capital because we believe in and support the businesses. We're interested in helping them continuing to either grow or operate and execute their business plans, which is why we do these things, but they're uniquely structured. And so, yes, Gymboree has a large capital structure, but our particular tranche is just a couple of us in a very small part of the credit facility.

Some of the other transactions that we did this quarter, Newscycle was the deal we just did solely in house. Raj, do you want to give them a little color on that one?

We have a lot of focus on enterprise software businesses. This is one of those types of transaction. High visibility in the revenues, high renewals, very strong margins, and excellent absolute and relative cash -- EBITDA to cash flow conversion, all the things we like in that sector.

This was done on a proprietary basis with a sponsor. The end customer here really is, despite the fundamentals of the business model, is in an area that not everyone can get comfortable with, which is a series of print media, daily and weekly newspaper and circulation manufacturers, and so the ability to both structure something that was quite protective and also take the time to do the work in an end market that isn't intuitively one that everyone will sign up for leads you to structure something that has both good downside protection and effective yield of a little under 15%.

But I think, John, to your point is very much in line with how we in the proprietary private deals, but just to echo some of the comments Howard was making, everything we do will be based on leveraging our team's industry knowledge, so whether it's a small club where you have a relatively unique asset lending structure or something of a cash flow loan in the software business where we have very good experience in how to diligence the metrics and validate the business model strength, we will be coming at it from a deal team basis of the deal teams being able to do that work on a domain or industry basis, which is the consistency across the platform regardless of whether it's a private or a syndicated deal.

Thank you for that, Raj, and Howard, only because -- so Gymboree makes complete sense, very strong return on a first term -- on an ABL, effectively. I just noticed that Gander is a second lien, so is that kind of a special second lien in between an ABL and a term loan or is it kind of straight-up cash flow second lien to a good company?

Gander is a secured loan. It's got a security interest in the Company's collateral.

Okay. So both, I totally understand. And look, as we look forward --

Sometimes these things are done as first lien/second out; sometimes these things are done as second lien for technical structuring reasons.

That's also highlighting your accounting, so any time you have a second at what we will call a last out/first, you will describe that in your financials as second lien?

No, if it's a second lien, it's described as a second lien, and if it's a last out, it's described as a last out.

Okay, okay, great. And then moving on to the equity capital markets, it's always a pleasure to come after Mr. Lynch when he asks an equity question, and clearly there has been a resurgence in terms of the interest. And more importantly, we are very excited to see the way kind of capital has been raised highlights institutional credibility, credit to your franchise, etc.

You know the one thing -- you mentioned the just-in-time kind of focus to equity, which is beneficial, but it's also tied to the market, and not that we ever want to relive February again, but Februarys like this past year do happen. So help us balance what you are thinking, all right? You've raised some equity, you've got a little bit of additional dry powder, but Howard, as we go through the balance of 2016, 2017, and the market gets longer in the tooth, does it not make sense to keep a little bit of reserve capacity that might be a bit higher than most in order to prevent or, more importantly, in order to enable you to take advantage of what the downturn might bring in the event of another dislocation?

Jon, thank you for the question. That is exactly the way we view the world.

I think coming out of Q4 we've got some questions about our lower leverage on the call, and privately on Q1, and our view is, generally speaking, although at the moment the equity markets are settled, they were very disrupted in Q4 and particularly in February, and this calm might not last. It may spread to the credit markets as well. Right now, there is a very strong bid for credit instruments generally, but that could change, too, and so we tend to run with more cushion perhaps than some others under the view that we do not know when we will be able to effectively and accretively raise equity, and you also don't know when you will have some deals you really want to do or some that you expected to get repaid stay on your books.

So we never max out our leverage. We tend to run with more cushion, I think, than some other people. And fortunately, our construct is such that we've been able to cover our dividend quarter after quarter every quarter with our earnings, despite being less leveraged.

Great. Thank you for taking my questions.

Thanks for the questions.

Christopher Testa, National Securities Corporation.

Hey, Howard, hey, Raj, thanks for taking my questions today. Just with the prepayments, where we are very obviously very elevated during the quarter, can you just remind me how much was OID acceleration? And for a second part of the question, I just wanted to know, given the prepayments, why fee income seemed to be down quarter over quarter?

Sure, this is Paul. We had $0.04 of prepayment income, $0.03 of that was prepayment fees, mostly from Gogo. We have $0.01 of acceleration of OID. The other income is simply miscellaneous amendment income, that sort of thing. Not a lot of that this quarter, but the prepayment income is included in interest income in the income statement.

Okay. Got it. That clarifies that, thank you. And with the growth potential through the remainder of the year, given the dry powder that you have with the additional equity raises and the SBIC granting you more debentures, would you characterize as the growth potential through the remainder of the year coming more from robust originations or step-downs and prepayments?

I think generally we like -- this is Raj speaking -- we like when we get the repayment or the prepayment. It's always nice to get money back. That's episodic. I think growth of the platform just in terms of dollars should be coming from origination and new deals.

Okay. Got it. And on the origination side, especially in terms of the sponsor originations, just curious what you're seeing in terms of leverage structures and pricing from the sponsor community and whether this is reflective of the reality in the market where M&A has been very low or whether they are still trying to push really high leverage on the companies and things of that nature.

It's Raj again. I think the comment I tend to make, it's not quarterly based; it's really the nature of issuers relative to lenders.

Sponsors will -- they are a very sophisticated audience. They will look to always push things in their favor, whether it's pricing structure, covenant levels, or lack of covenant, etc. I don't know that I would characterize the environment as any different in that vein. People are looking to get more for less and the balance is providing a value-added financing and getting the right protections that you need as a lender or, in many cases, it may be increasingly just not participating or walking away.

So I think the environment is still based on that. There certainly has been a little bit of more volatility among the participants that we've seen more active in the past that has sort of abated a little bit. I think it's a function of the capital markets or portfolio management, so that's helped with the margin, but I wouldn't call it a dramatic change in how sponsors look to interact with the lenders.

Okay. Great. And aside from the tightening spreads leading to the unrealized appreciation, can you remind me which portfolio companies contributed to the positive fair value marks as well?

The biggest one was MD America, which was repurchased by the Company.

Okay. Great. And that was your only energy investment?

The only direct remaining (multiple speakers)

Direct energy. Got it. Okay. That's all for me. Thank you for taking my questions.

Thanks for the questions.

Chris York, JMP Securities.

Good afternoon, guys, and thanks for taking my questions. So given your recent equity raises, could you provide us with your estimated all-in levered yield on investments on a consolidated basis that is necessary to cover the new dividend? And then, secondly, your desire for new equity capital in the near term, given the demand for capital that you've spoken about on the call?

With respect to the first question, we don't think there has really been a hugely dramatic change. One of the other questions was about our asset yields. Our cost of leverage hasn't gone up and, yes, we've added some incremental equity, but if you put that altogether, the equation really hasn't changed significantly, in our view.

And so, we continue to be looking to opportunistically grow when we think we should do so in a way that's beneficial to our existing shareholders accretively and to new investors, but we are not on some program. It had been quite some time -- in fact, the fall of 2014 -- since we had done a capital raise before this, and in these cases, we were approached by entities that were looking to invest in us and couldn't get that kind of share volume easily in the open market and so we look to take advantage of that.

That's great. Let's see, following up on this, so maybe taking a step back, Howard, considering that the balance sheet is growing again, could we get an update on the BDC strategy long term? And then, maybe more specifically, we are at assets of $1.3 billion, so how could -- or how big could this BDC be, and then maybe giving some consideration to [quote] in the managers' platform and the coinvestment exemption that you spoke of?

Sure. We are pleased to have TCPC at its current size being part of our overall platform, which is a little north of $6 billion in assets, so this enables us to do coinvestments.

We are able to provide a lot of solutions to borrowers, but it's also clear that there are some things we can't do. And so, being bigger is something that we can certainly do, and we think continue to execute on the same types of loans and investments that we've been making. There's probably some natural limitation to that, but it's nowhere near our current size at the moment.

And then, lastly from me, were there any lockup periods associated with either the conversion or the equity placement that you made? And then, forgive me if I missed this -- I was on a bunch of calls this morning, did you disclose the investor in that equity private placement?

We have not disclosed the investors. They may as a function of their filing requirements wind up disclosing who they are when they file their documents.

CNO is -- we've been very overt about, but the second investor we have not, and with respect to any additional restrictions, we haven't put anything else out there, but I think it's safe to assume that these people anticipated being longer-term holders or they wouldn't have done what they did.

Makes sense. That's it for me. Thanks, Howard.

Stephen Laws, Deutsche Bank.

Hi, Howard. A lot of my questions on capital deployment yields and investments, etc., have been covered. Maybe just one question to follow up on the previous caller. As you get bigger, can you talk about at the manager head count, the number of originations per sale you have, any turnover that's happened or that's expected or whether or not you need to add to your team, just as you have the new capital deployed and as you have the pre-pays come in and need to recycle that capital?

Yes, Stephen, thanks for the question. We feel very good about our organization today. We've expanded from what was solely a one-off this year in Santa Monica to having offices in San Francisco and New York. Each of those works together with our primary office on deals and we're comfortable with our current staffing levels. We think that there are a lot of opportunities to execute on things in the way the business is staffed today.

Having said that, we are always looking for reasonable additions to the business and we certainly could be adding people in the future. We continue to talk to people all the time, and so if we find people that are necessary and appropriate, you could expect us to add them to the Company.

Great. I appreciate all the color you guys have provided on these other topics throughout the question-and-answer period. My other questions have been covered. Thanks, Howard.

Christopher Nolan, FBR & Co.

Hi, guys. Howard, did you mention earlier the new investments to date in the third quarter? And if so, can you provide that?

We did announce those. Let me just get them. One second and we will give those back to you.

It was $27 million in five senior secured loans with an effective yield of 9.7%, and then we gave the caveat that it's early in the quarter and we don't think about annualizing that or thinking about that as our run rate for the quarter. As with every quarter, our investments span a range of yields. This is a little bit smaller level of investments than we would normally have five weeks into the quarter, but based on our pipeline, we think that's coincidence rather than a trend, and these yields are primarily weighted down by the largest of those investments being somewhat lower yielding than the others, which I think speaks to our strategy, which is do deals that make sense.

They are of varying yields. We are not trying to hit some magic number when we do these things, but don't put too much granularity into extrapolating from this very small sample size after five weeks.

Okay. And then, I notice legal cost up in the quarter. Is that simply just because of all the capital raising?

Yes, that's a big part of it.

Okay. And final question is, Paul, spillover income, did you guys disclose that? I know that you made a passing reference to that in your comments.

We did. At the end of the quarter, we had $23.0 million -- approximately $23.0 million in undistributed ordinary income at the end of the quarter.

Great. Okay. Thanks for taking my questions, guys.

Doug Christopher, D.A. Davidson.

Thanks for taking my questions. I have one macro question and one TCPC-specific question. First is one of the key macro drivers was -- of the industry was banks being derisks, opening the opportunities for the BDCs. Is that still a key macro factor? Or is there another macro factor or factors that you can add to there?

Doug, thanks for the question. The answer quite simply is yes. Normally after a financial crisis, you go through a period of regulatory tightening and then regulatory loosening as the banks get more aggressive, and this isn't normal.

We are now eight years past, depending on how you measure it, maybe nine, certainly the onset of the crisis, and the regulators just keep tightening, and not only are they tightening generally and making it more costly and difficult for banks to do business in a lot of ways, specifically in the area of leveraged lending they've made it more difficult.

And then, if you look at some of the conventional channels for syndication, there's CLOs, which have a bunch of rules, or ETFs, which are kind of a funny purchaser of loans since they don't read covenants or think about what's in them. But with respect to really holding things on their balance sheet, the banks just aren't doing a lot of that. They've cut staffing, they have regulatory charges, they are really not set up to do it and they've got a lot of regulatory pressures not to do it.

At the same time, you've got an expanding economy, albeit slowly, with lots of middle-market companies that need financing. Some need it for growth, some need it for refinancing, some need it for capital equipment, some need it for other things, but there's a lot of growth and change going on in many industries and that tends to cause businesses to need capital to finance their operations. And so, we've built this business around serving people in a more unique way and doing things that didn't easily fit on bank balance sheets. Today, there are more things that don't easily fit on balance sheets than probably any time in our history.

Thank you. Thanks for the color there. And then, the second is TCP specific, and that is your confidence to sustain what I call the core $0.36 dividend now versus year ago.

We continue to be focused on dividend coverage. We certainly think it's very important and we have a chart in our presentation that shows the amount by which we overearned the dividends every quarter. You can find that on page four. We are very proud of it. Not every quarter is the same, but we continue to think that that's one of our primary goals.

Particularly in a world in which it's very hard to find yield of any kind, certainly with credit instruments and also with stocks, we think being able to have this kind of yield with dividend stability is very important to our investors and so it's something we're very focused on.

Thank you.

Thank you.

Thank you. And I'm showing no further questions at this time. I would now like to turn the call back to Howard for any closing remarks.

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

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