BlackRock TCP Capital Corp (TCPC) 2016 Q3 法說會逐字稿

Welcome, everyone, to the TCP Capital Corp. third-quarter 2016 earnings conference call. (Operator Instructions). And now I would like to turn the call over to Jessica Ekeberg, Vice President of TCP Capital Corp. Global Investor Relations Team. Jessica, please proceed.

Thank you before we begin up with 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 & 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.

Thanks, Jessica. We would like to thank everyone for participating in today's call and to wish you a happy election day. 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 third quarter ended September 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 third quarter.

We had strong originations totaling $147 million during the quarter and maintained 81% of our portfolio in floating rate instruments. We had $108 million in dispositions for total net deployments of $38 million. Today we declared a third-quarter dividend of $0.36 per share.

Slide 4 details our history of consistent dividend coverage since our IPO. As you can see, in the third quarter of 2016 we continued to out earn our dividend by delivering net investment income of $0.39 per share.

Turning to slide 5. Our NAV increased to $14.84 from $14.74 during the quarter. Also on slide 5 you can see that our accumulated dividends plus NAV have delivered a total return to our shareholders of approximately 46% since our IPO in 2012.

In early July we raised $35.3 million of equity through a registered direct offering of common stock at a premium to our net asset value. We incurred no placement agent or underwriting fees in connection with this transaction making it a very efficient raise of growth capital for the benefit of both our existing and new investors and look forward to deploying this additional capital into attractive investment opportunities.

On September 6 we closed a private placement of $140 million and aggregate principal amount of convertible senior unsecured notes due March 22, 2022 with an interest rate of 4 5/8%.

Finally, on October 13 we obtained the second $75 million leverage commitment from the Small Business Administration. Our total commitment from the SBA is now $150 million.

For those viewing our presentation please turn to slide 6. At the end of the third quarter hour highly diversified portfolio had a fair value of $1.28 billion and was invested in 88 companies across numerous industries. Our largest position represented only 3.6% of the portfolio and our five largest positions were 14.7% of the portfolio.

As you can see on slide 7, at quarter end senior secured debt comprised approximately 96% of the portfolio with floating-rate debt comprising 81% of our debt positions. As shown on 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 8, during the third quarter we deployed $147 million primarily in 13 investments, most of which were senior secured, in addition to cross under existing commitments. These included investments in eight new companies and five 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 third quarter reflect our commitment to maintain a diversified portfolio and continued focus on the top of the capital structure. They include a $23 million senior secured loan to a cloud-based provider of marketing solutions, [Marketo]; a $21 million senior secured loan to [Nilco], a regional building products wholesale distributor; a $19 million senior secured follow on load to BlackLine, an accounting software vendor which just went public; a $14 million senior secured loan to [Highland] Specialty Engineering & Construction Company; a $13 million senior secured loan to [Associa], a leading provider of residential property management services in the United States.

In the third quarter investment exits totaled $108 million. These included the repayments of a $28 million senior secured loan to Cargojet; a $14 million senior secured loan to [Double Play]; and the sale and syndication of a $10 million senior secured loan to BlackLine.

New investments in the quarter had a weighted average effective yield of 10.4% and the investments we exited during the quarter had a weighted average effective yield of 9.2%. Our overall effective portfolio yield at quarter end was 11.2%. And once again we had no new nonaccruals. We are pleased with the overall quality and performance of our portfolio.

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

Thanks, Howard. The third-quarter continued our record of having out earned our dividend every quarter since our IPO in 2012. As shown on slide 10, net investment income after incentive was $0.39 per share compared to our dividend of $0.36 per share.

Net investment income included $0.73 per share of interest income, of which $0.59 per share was recurring cash interest, $0.03 was recurring PIC income, and $0.05 was recurring discounts and fee amortization. The remaining $0.06 per share came from prepayment income, including both prepayment fees and unamortized OID.

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

Expenses of $0.24 per share included interest and other debt expenses of $0.12 per share for net investment income of $0.49 per share before incentive compensation. Incentive compensation, which is subject to a cumulative 8% total return hurdle, was $0.10 per share which is computed by multiplying net investment income by 20%.

After paying our third-quarter dividend of $0.36 per share we closed the quarter with tax basis undistributed ordinary income of approximately $21.7 million or $0.41 per share, which provides us with a significant reserve for the future. Net realized and unrealized gains totaled $0.2 million or less than $0.01 per share.

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 $383.0 million included available leverage of $245.0 million and cash and cash equivalents of $140.9 million less net pending settlements of $2.9 million.

Available leverage includes the remaining $14 million available on our first $75 million leverage commitment from the SBA, but excludes the additional $75 million SBA leverage commitment that we just received last month following quarter end. Total leverage net of cash and SBIC debt at quarter end was approximately 0.56 times common equity.

As Howard mentioned, we raised equity in July through a registered direct offering of approximately 2.3 million shares for gross 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 the transaction making it significantly more beneficial than a traditional secondary offering.

During the quarter we also closed a private placement of $140 million par of convertible unsecured notes due March 2022 with a coupon of 4 5/8. With these issuances we are in an excellent position to take advantage of our strong pipeline.

Given the above NAV trading levels of our stock we did not repurchase any stock under our share repurchase program during the quarter. However, our Board nonetheless renewed the program again 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 3.8%. This reflects our TCPC funding facility, SVCP revolver and term loan each at a rate of LIBOR plus 2.5%; our convertible notes at 4 5/8% and 5.25%; and our SBA debentures at a blended rate of 2.58%. I will 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 traded credit markets causing borrowers to look to alternative lenders such as TCPC for lending solutions. As a result we continue to see numerous origination opportunities across many sectors.

We are cognizant that there are many new competitors, some of whom are being aggressive, so we continue to take a highly disciplined and selective approach to new investments. And while we are passing on many opportunities, we have a considerable number of attractive opportunities in our pipeline that meet our standards.

In the fourth quarter through November 4, 2016 we have invested approximately $83 million primarily in five senior secured loans as well as equity interest in a portfolio of debt assets. The combined effective yield of these investments is approximately 10%.

It is still early in the quarter and our pipeline includes many deals that are well within our historical yield range. Therefore the level and yield of originations to date are not necessarily indicative of what we would expect for the quarter.

Our primary focus remains on effectively deploying new liquidity from our diversified funding sources and optimizing our portfolio by preserving shareholder capital and maintaining a recurring earnings stream.

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 over 10 years ago, enables us to co-invest alongside 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, 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 dividends that we know are valued by our shareholders. While we invest in many different industries we invest in companies we know and understand well. 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 out earn our regular dividend every quarter and our portfolio is well-positioned for any meaningful increase in interest rates. Even a 25 basis point increase in rates would be accretive.

Third, our low cost of capital and diverse funding sources continue to be competitive advantages for TCPC. The recent $35.3 million registered direct public offering and the private placement of $140 million of convertible notes 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 the registered direct offering. TCPC remains well-positioned with attractively priced leverage and financing flexibility that includes our convertible notes, 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.

In closing, we are pleased with our performance and achievements thus far in 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 delivers 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). Robert Dodd, Raymond James.

I had -- one of your comments I think was in the deployments after the end of the quarter, $83 million at [10], that included a piece of an equity tranche in a portfolio of debt investments. So it sounds kind of like a senior credit fund type structure or some other kind of structured product.

I mean so far you have resisted the kind of the trend for the industry to build those kind of structures and higher income but potentially higher risk that comes with them. So could you give us a little bit more color on what that is, why you did it and what is unique about that that got you to kind of change your mind on whether that is appropriate for your BDC [arm]?

Robert, thank you for the question. There is nothing unusual or different about that. It is not in one of the structures you have described. We have an agreement with an institution with whom we invest and the nature of the structure that we have been funding investments is through equity interest that owned underlying pools of senior secured loans.

It has been on our balance sheet for a long time. It is small, it is in an area in which we have invested for many years and have a unique niche. And we like doing it with this partner and that is why we use that structure.

Okay, got it. On just kind of the overall environment you talk about -- what effect do you think towards the end of the year -- with the elections getting out of the way today, we've got potentially a rate increase which, as you say, even 25 basis points is accretive to you.

What is kind of the feel of the market right now in terms of do you expect activity to pick up right towards the end on either deployment or repayments? Or any kind of feel there and do you expect that to have any -- whatever does happen to have longer-term kind of legs into the beginning of next year or just more color there would be really helpful.

Raj will respond to that.

Thanks for the question. There is a couple of items in there that you mentioned and obviously today is pretty notable because of the election; we have gotten that question a few times.

I would generally respond that we have not seen macro events overall be the driver of our business. A lot of what we do is idiosyncratic; it is a company-by-company effort and review and diligence process.

I would say though, depending on which way the election goes, not to say it is an overwhelming effect, we have to be aware of certain regulatory impacts to industries that even if there wasn't an election that is always the case.

Perhaps healthcare with some of the regulation. Financial is not as big an impact for us, but other areas, perhaps in some of the energy sectors, which again is not a big impact on the direct lending.

But where there may be a regulatory change or impact whether it is election driven or not we have to just be thoughtful there. But overall the election or other macro events haven't necessarily been the overall driver for our business.

I will say though that to the extent there is ongoing volatility because our capital is permanent in this vehicle and generally locked up in other vehicles that can co-invest with it, that can be an advantage.

To the extent pricing changes or spreads widen as they have occasionally this year, we can take advantage of that by being a patient and a locked up form of capital that can provide a financing solution to a company where their other markets may be backed up or unavailable for a period of time.

In terms of repayment and deployment, the last couple of quarters have seen a little bit of a higher level of repayment that -- I don't know that that is a trend; it is just an observation from what we have seen. And we benefit from that, as you know because of the OID and the focus on a prepayment structure in our loans.

It is hard to say where we go from here, but if we just think about our pipeline and our opportunity set, it is still robust. We are still seeing good opportunity from a wide range of sources.

And as you know, our focus really is on sourcing somewhat unique -- from unique areas and unique types of transactions versus a general market correlation on the broader market or the more broadly syndicated loan market.

Perfect, I appreciate that. Last question for me I think. Looking at the obviously new -- during the quarter new yields, [10.4%], exits [9.2%], yield up to 11.2%. Over the last -- and I can't remember if it has been up every quarter, but certainly the trend over the last 18 months, maybe slightly longer than that, has been for that blended yield to trend up as the exits have been at lower yields.

Where do you think you are in that cycle of shifting? Should we expect that yield to stabilize? Or do you think you have still got pieces of portfolio on the books where you can exit some lower yields and market yields today are still higher?

Robert, you are mathematically accurate. But the way we think about it it is not statistically significant. The range of change has been small and, as we think about our underwriting, we are not doing it based on a small number of basis points in the differential.

We look at each deal, determine whether or not it meets our risk adjusted reward parameters and then decide to proceed or not. And so, whereas there is a very identical viable trend you are pointing to, it is not that we are managing the business to achieve it. I think it is more coincidental.

We are very pleased that we have been able to maintain this stability with an upward bias, but wouldn't assume that that continues every quarter.

I think what is nice about it, as you can see, that despite changes in the market, yield compression and other things, that we have been able to maintain relatively consistent yields, that may change somewhat quarter over quarter given the number of deals we are doing in any given quarter though and the variance between those deals.

Okay, I appreciate that. Congratulations and thanks a lot.

Chris Kotowski, Oppenheimer.

So looking at your balance sheet -- and that is nicely presented on page 11. I mean normally in the last couple of your quarters you have had $30 million to $40 million of cash on hand and now here it is over $140 million. And typically you have had like $40 million or $50 million drawn under revolver and it is completely undrawn now.

So I guess a couple -- I mean, A, other than just that the capital markets were open and this was a good time to raise capital, is there a reason to husband liquidity like this?

And then secondly, I guess I am amazed that somehow with this much liquidity you can still cover the dividend. And I guess -- what should we expect the impact of like deploying all this liquidity be? Talk me out of radically raising our earnings estimates.

We appreciate the amazement. We are proud that we continue to cover the dividend so well this quarter, including the incremental cost from the debt issuance and the extra shares that we took on.

I would like to caution you at looking at the quarter. That is one day out of 90 during a quarter. And if you looked at our balance sheet during the course of the quarter, in general it looked nothing like that.

There was an anomalous series of things to cause the cash to be that high. Some people engage in window dressing and other things at the end of the quarter, that is not the way we manage the business, it was simply anomalous.

And it was partly due to the fact that we did a bond issuance which we thought was opportunistic and well-timed and that gave us a bunch of cash. And normally you pay down credit facilities but some of those are subject to term borrowing agreements and so there is a cost associated with doing it.

Some of it was related to liquidity for deals that we anticipated closing. Some of it was related to deals that came back more quickly than we thought or wound up just coming that side of the quarter.

So if you put all of those things together, we wound up with an unusual amount of cash at the end of the quarter. But that is not at all reflective of the normative balance that we were running during the period.

Okay. And then I guess secondly, the strategy or outlook in terms of funding assets with the SBA debentures versus drawing on the revolver, would you have a bias in one direction or the other? I mean assuming the assets qualify and it is in the SBA program?

Yes, it is Raj, I will take that question. I think with the SBA we are obviously pleased we were able to get the second approval on or maybe arguably ahead of our expectation even though we had a slower start and had nice pickup.

I don't know that we are biased at the margin; the funding costs are reasonably close. But to the extent assets qualify for the SBA we would like to use it. And so I think it comes down to more of the asset qualification and where we can -- what the options are.

In some cases it may not be an option which it is kind of a moot question in where it is. I guess we would look to use the SBA because it is a very efficient way of funding things. And in some cases it may be actually both because of -- depending on the size of the opportunity.

So at the margin we will just look at it on a case-by-case basis with the -- I guess with a nice problem to have of having more than one option where the asset qualifies.

Okay, alrighty. Thank you, that is it for me.

Jonathan Bock, Wells Fargo Securities.

Fin O'Shea in for Jonathan this morning. How are you?

Good, how about you, Finn?

Very well. I kind of wanted to first build off of the previous line of questions from Robert and Chris. On top of the liquidity that we see, there is also more broadly a sale -- a larger equity base I think up about two-thirds since 2015.

So liquidity notwithstanding, what does this mean for your origination funnel, what kind of deals? Is this something that the platform can easily absorb today, we will see the same kind of deals or are you going to be jumping into larger hold pieces?

Yes, thanks for the question. The short answer is more of the same. We are running the business the way we have run this business for nearly two decades, which is we are focusing on middle-market credits.

We have, as I think you are aware, exemptive relief so we can do things across our platform. And so TCPC invests alongside of our other funds. And so, when it has a little more or a little less liquidity, that may impact its ability to hold a certain amount in a given deal, but it doesn't necessarily impact the deals we are doing cross-platform.

And so, we don't expect this to have a material impact on that. And I think you can see from the deals we did in Q3 and our discussion about the pipeline, the first five weeks of Q4 it has been fairly robust. We always caution don't read too much into that. The first five weeks of Q3 it was a little slow.

But in general, notwithstanding the fact that there are changes in the market, in the CLO market, more [entrants] into the middle market, there is rate pressure, there are pressures on terms and people doing deals I think on excessively generous terms.

Our business looks fairly similar to the way it did earlier in the year and last year. And that is because we are not trying to be all things to all people. We are trying to do the deals that fit. And I do think that there -- it is a lot more of the same.

Very well and appreciate that. I apologize if Chris asked this one on the -- you were talking about the SBIC. In the event that you receive more licenses and leverage from this channel, would you look at this more as permanent funding is not in your statutory debt to equity? Or is the historical leverage target something we should continue to look at? Historical leverage averages, sorry.

Yes, just to clarify, I am not sure if you -- from the earlier part of the call, just to clarify, we did receive the second approval on the first license. So just to reiterate if that was part of your question.

There is no leverage target. I think we will -- as I mentioned on the response to Chris, we will look to take advantage of the SBA facility as the assets qualify, the qualification will be the first criteria to test. And where it does qualify we are interested in deploying that cost advantaged leverage facility.

So I am not sure of that answers your question but I would just reiterate, there hasn't been a -- for the SBA nor for the overall leverage of the business, a specific leverage target. We will run the business with a buffer, so not looking to go up to the ceiling of any capacity. And we will look to take advantage of the SBA through our sourcing channels as assets come in as they have through the majority of this year.

Got it. And one last question, the (inaudible) deal, was that ABL? And further, if so was that the first of its kind for you guys?

It was an asset secured deal and we have been doing deals like that since 1999.

All right, thank you guys so much and congratulations.

Ryan Lynch, KBW.

On slide 4, that outlines your guy's dividend and earnings history. You guys have done a really good job of consistently over earning the dividend since your IPO and this has actually allowed you guys to pay some special dividends over time.

So as we sit here today can you provide any color around what your guy's spillover income is today? And then assuming that you guys aren't thinking about raising the core dividend any higher given kind of the environment we are in today, how are you guys thinking about special dividends going forward?

Sure, Ryan, this is Paul Davis, I will take that. At quarter end we had $21.7 million of undistributed ordinary income, that is $0.41 per share which gives us a reserve for the future.

We continue to monitor our dividend, currently focused on making sure that we maintain strong dividend coverage as we continue to do. No plans the present for a special but continue to monitor that.

Okay. And then we have heard -- we've seen some statistics I guess about additional capital being raised in the middle market for direct lending. So from a competitive standpoint how would you guys view the environment today for making new loans and has that changed the way you guys look to deploy or underwrite credit?

And you mentioned -- kind of taking off of that, you mentioned eight new portfolio companies this quarter and five existing portfolio companies you guys made investments to. Is that kind of a normal ratio for you all historically or are you guys focusing more on existing borrowers in today's environment?

Yes, let me try to address some of that, a couple of questions in there -- current environment, how we look to make loans, and then the ratio of new and existing.

I think the overarching point I would make is we will not change nor anticipate changing how we underwrite or make the investment decision, it is fundamentally important to us that we don't compromise a discipline that I believe has worked thus far in making good loans.

And so, even however the capital changes or the environment changes, being able to do the right work, get the right structures and identify and sign off on the best risk/reward opportunities is just a general point I would make on how we are going to make loans.

The environment, there has been, as Howard mentioned earlier, more funds coming in. There has been new entrants and growth of existing entrants. But I would just reiterate the way we have run the business we have not sought to sort of be in the areas that have been the highest populated areas for lenders.

We have seen a good diversity of sourcing from different people and where there is just less -- I believe less competition or less participants looking at the opportunity. I think that is a better area for us to maintain negotiating leverage and where we can provide a solution and get the right structure and pricing for doing that is how we will continue to I think run the business and hopefully grow it.

In terms of the ratio of new and existing it is nice to -- it is always nice to lend money to an existing portfolio Company. One that we know and that is performing -- it is an add-on decision that you can make with good context.

I think it is hard to identify any specific ratios of new or existing just given the sort of chunky nature of the business. We have seen I think some regularity of being able to take advantage of the existing portfolio and add on to them.

But it would be difficult and I would be remiss to give you any comfort that an 8 to 5 ratio is going to be consistently -- assuming you are going to see the consistency. But I do think you are going to see ongoing ability to invest or add on to investments in the existing companies as you have seen in the past.

Okay, great. And then just one last one. You mentioned you guys have exemptive relief to co-invest across funds, across your guy's platform. I was just curious, roughly what percentage of your portfolio, of TCPC's portfolio is part of a co-investment opportunity across your platforms?

A fairly significant percentage. I don't have a number for you right off the top of my head. If it is real important you can call us afterwards and we will get you some more detail on that. But it is a pretty high percentage.

Okay. Thanks. That is all for me.

Christopher Testa, National Security Corporation.

I might have missed this at the beginning of the call. How much OID acceleration was there during the quarter?

This is Paul. There was $0.03 of OID acceleration in addition to the $0.03 of prepayment income.

Got it, great. And can you provide some detail on the timing of the deals that were closed during the quarter, whether they closed towards the end of the quarter or towards the middle?

It was really lumpy. In generally we find the deals tend to probably be a little bit more back ended, but that is not scientific and I wouldn't rely on that statement for modeling purposes. That is more anecdotal.

Got it. And can you provide us with the weighted average attachment point on the portfolio?

That is not something we have historically disclosed.

Okay. And just on the opportunities that you are passing on today, are these generally from pricing, from the structure of deals, sponsors pushing more leverage? Just what has typically been the primary reason for passing on what you have passed on during the quarter?

It is a range of things. I think you have highlighted a couple that qualify. I would say that part of it will depend on when we pass. So if it's at the early stages of seeing something new or getting an opportunity, a first look, a quick pass on pricing and structure is certainly both certainly I don't have a mix percentage but both are relevant.

As we get through a -- once it passes an initial filter and as we get through a process the later -- and we have walked away from deals at the 11th hour.

The later in the process as we do confirmatory work and validate the thesis I would say if someone has pushed back on an agreed-upon covenant structure or the levels don't make sense, really when you are trying to put in place the protective elements or even documentation issues, that has happened.

But for the most part the earlier on in the process we pass on things pricing and structure certainly I think are a big number of the elements that would qualify.

Got it. And just with the SBIC, you guys have the additional license. Would you be looking to obviously use the high cash balances you have now to sort of fund all the equity that you need upfront? Or would you be doing that more as you go along and issue the additional debentures?

We try and be efficient with our capital and do it opportunistically. We like to optimize the efficiency, it doesn't always work that way and what we found particularly in the SBIC facility is that we have gotten a number of repayments, some of them more quickly than we anticipated.

So there is often some cash in there, but we try and optimize it to the extent that we can give them the way the rules work and our funding cycles.

Got it. And last one for me, just I know you guys have touched on the exemptive relief, which is obviously a huge benefit. Are you able -- are you willing rather to use this to make some larger deal sizes across TCP's total platform? Are you seeing some potentially better opportunities more towards the upper middle market or should we just expect kind of the same size deals?

I think you can expect us to do pretty much the same size deals. We are focusing on companies that are within our sweet spot. We have historically had a pretty significant range and it is clear you are seeing as some of the banks are less able or willing to do some of these larger midmarket deals, some people stepping in with larger than historical commitments.

Those are things we have looked at. We are not always sure that the pricing may end and risk/rewards in those makes as much sense as some of the things that are closer to our historical size. So we look at these opportunities but in general I think it is reasonable to assume that it is likely to look more like what we have been doing historically.

Great. That is all for me. Thanks for taking my questions.

Christopher Nolan, FBR & Company.

The debt to equity ratio is 0.74. Is that just sort of elevated because you have elevated liquidity and you have more borrowings outstanding?

Yes, that is correct. That is -- we had the extra -- we had the issuance of the converts, we had the extra draw at quarter end.

So we should expect that -- assuming the liquidity goes to pay down debt, to sort of recede a bit in the fourth quarter?

Sorry, repeat the question?

Should we expect that debt to equity ratio to recede a bit in the fourth quarter as liquidity is used to pay down debt?

Yes, that is correct. Our average debt balances during the quarter were actually a little lower -- lower than prior quarters given the equity issuance. On a net basis though our regulatory leverage at quarter end was 0.56 times.

Okay, thanks, Paul.

Chris York, JMP Securities.

So, we've talked a little bit about how you have a fair amount of cash and liquidity available. So I would be curious if you could provide us an update on how you are thinking about or your willingness to acquire a portfolio of loans and/or team?

Thanks, Chris. It's Raj, I will try to answer that. And I think it has been asked a couple of times in the past, maybe particularly around when some of the -- there have been some more public processes.

But when we think about any acquisition, it is still a deployment of capital. And whether it is a portfolio or it is an individual asset it is very important to us to be able to do the work on a security-by-security basis.

And if we were to acquire a portfolio we would have to be able to go through with our team the same criteria that we do on an individual underwriting and make sure that it fits our criteria, particularly our industry teams or how we approach the underwriting, the structures and the documentation are particularly important, particularly when something doesn't work out exactly and having those -- awareness of those rights and the ability to act on them s important to us.

So I think a portfolio is just a series of individual loans that we would look at in aggregate. And if you asked about the team, we feel like we have a very good investment team here, we have a lot of folks who have been with us for a long time.

So to the extent there is something additive or incremental I suppose that would be something we would have to consider. But thus far, as far as our day-to-day activities, we feel like we are quite well covered by the existing team in place.

Helpful. And then taking a step back and thinking about growth, how big do you think the portfolio could grow to over the longer term? Do you have any self-imposed targets? Or just trying to think about the business and the portfolio for a longer-term perspective.

Yeah, thanks for the question. Given where we are today, we don't see that as being a constraint. We like the size in which we are operating, there are certainly some deals that are larger than we can do within our platform; that means we will wind up bringing in syndication partners or occasionally they're simply too large for us to do.

So there are some advantages of growth over time. We don't see the compulsion for it but like to do it opportunistically when it makes sense for the shareholders long-term. And we don't have some artificial cap at the moment; I think we are far from that being an operating issue for us.

Great. That is it for me. Thanks, guys.

Arren Cyganovich, D.A. Davidson.

Just in terms of the competitive environment, you talked about being a little bit more intense. Has that intensified over the past few months or is it relatively the same?

And then additionally, with the players that you are kind of running up against, is this new private capital funds, is it BDCs? I am just curious as to the mix of folks that you are seeing that are starting to be a little bit more lax with their lending structures.

Yes, I think the comment I made was really -- was not specific to this last quarter, it was just in general. Obviously over the last year or two there has obviously been some growth in the capital -- in the sector and some participants.

We -- just for what it's worth, we don't necessarily see the exact same list every time we are in a process. In fact, I would just reiterate when we are in a process it tends to be something that is a little more unique, sourced from not necessarily the broader market.

So, not to say there isn't competition when we are looking at something, but it is not necessarily the broadly syndicated list of names where people are able -- perhaps there is some more consistency in the participants.

So there is competition, we try to be somewhat differentiated in what we can provide to a Company in terms of our value proposition. And where things don't work for us because we are not interested in a particular deployment or number of investments per quarter, we will move away or simply say no.

That is helpful. Thanks. And in terms or, you mentioned quarter to date there is about $83 million of investments. Did you highlight any potential repayments that you have identified in the portfolio or is that something that is not known at this point?

We haven't disclosed that yet at this point.

Okay, all right. Thank you very much.

Nick Brown, Zazove Associates.

I guess it just follows up on that last question. I guess why won't you -- if you didn't need the money you raised from the convertible and the equity for investing in the portfolio why did you raise all that money last quarter?

I don't think we said that we don't need the money. A couple of things. We issued the convert because we thought it was a conducive time to do so as part of our long-term strategy of having a diversified series of funding mechanisms for the balance sheet that are both floating and fixed-rate and staggered and maturity. We just think that that is a better way to run the business.

And we do -- you can see that we had a net use of just under $40 million of cash last quarter to date and we have been cautious about saying don't annualized five weeks. To date we have put out a fair amount of money this quarter. We do see opportunities and we issued that with the expectation that we will be able to effectively deploy the liquidity.

Okay. And then I guess just one follow-up related to that. You mentioned earlier I think when talking about bad debt or loans that you could pay down, that allowed some of your debt had calls -- call protection or other features that made it so you couldn't just pay down debt with the proceeds. Are there upcoming -- are there specific times in the near future where you would expect to be paying down existing debt?

I don't want to overstate that comment, these are usually we borrow for 30 days or maybe 90-day periods of time. And so it is part of a normative working capital cycle during the quarter when we draw down on our lines and pay them off.

But these are simply on pay downs of the loans. But I want to clarify that that was your question on the liability side as opposed to the asset side?

Yes, that is correct, on the liability side. Okay. Thank you very much.

Thank you. I am showing no further questions at this time. I would like to turn the call back over to Howard for closing remarks.

Thank you. We appreciate your questions in our dialogue today.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. Have a wonderful day.