BlackRock TCP Capital Corp (TCPC) 2018 Q1 法說會逐字稿

Ladies and gentlemen, good afternoon. Welcome, everyone, to the TCP Capital Corp. First Quarter 2018 Earnings Conference Call. Today's conference call is being recorded for replay purposes. (Operator Instructions)

And now I would like to turn the call over to Katie McGlynn, Vice President of the TCP Capital Corp. Global Investor Relations team. Katie, please proceed.

Thank you, Michelle. Before we begin, I'll 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.

This morning, we issued our earnings release for the first quarter ended March 31, 2018. We also posted a supplemental earnings presentation to our website at tcpcapital.com. To view the slide presentation, which we will refer to on today's call, please click on the Investor Relations link and select Events and Presentations.

I will now turn the call over to our Chairman and CEO, Howard Levkowitz.

Thanks, Katie. I'm here with our TCPC team. And we thank everyone for participating on our call today. I will begin with highlights from the first quarter, followed by a few remarks on the recently announced transaction between BlackRock and our external adviser. Our CFO, Paul Davis, will then review our financial results. After Paul's comments, I will provide some closing remarks before opening the call to your questions.

Now let's begin with highlights from the first quarter, which are summarized on Slide 4 of our presentation.

We delivered another strong quarter of originations in the first quarter totaling $169 million, demonstrating our ability to source unique investment opportunities even in a competitive environment. As shown on Slide 5, we earned net investment income of $0.37 per share in the first quarter, outearning our dividend, despite a relatively low level of prepayments. And today, we declared a second quarter dividend of $0.36 per share payable on June 29 to holders of record as of June 15. This represents the 24th consecutive quarter, in which net investment income exceeded the dividend.

Our net asset value increased in the quarter to $14.90, as shown on Slide 6. Our cumulative dividends plus NAV appreciation have generated a return in excess of 60% since our IPO in April 2012. And as demonstrated on Slide 7, TCPC has outperformed the Wells Fargo BDC Index by 42% over the same period.

Turning to Slide 8. We continue to hold a diverse portfolio of investments. At quarter-end, our portfolio, which had a fair market value in excess of $1.6 billion, was invested in 97 companies across a wide variety of industries. Our largest position represented only 3% of the portfolio. And our 5 largest positions together represent only 13.1% of the portfolio at quarter-end.

As you can see, in the chart, on the left side of Slide 8, our recurring income is distributed across a diverse set of portfolio companies. We are not heavily reliant on income from any individual portfolio company.

In fact, over half of our portfolio companies contribute less than 1% to our recurring income.

At quarter-end, 93% of our assets were senior secured debt instruments. In addition, as shown on Slide 9, 88% of our debt investments were floating rate. We have discussed the potential for rates to rise for several years and positioning our portfolio accordingly has allowed us to benefit from the recent increases in LIBOR as our floating rate investments reset. This benefit has been enhanced by our predominantly fixed rate liabilities.

Turning to Slide 10. Of the $169 million deployed in the first quarter, $165 million was in senior secured loans and notes. These included investments in 6 new companies and 6 existing portfolio companies. Follow-on investments in existing portfolio companies continue to be an important source of investment opportunities and reflect our strong borrower relationships and the value we deliver to them.

Our top 5 investments in the first quarter reinforce our commitment to maintaining a diversified portfolio and lending at the top of the capital structure. They include: a $38 million asset-backed credit-link note; a $21 million senior secured loan to SnapLogic, a commercial software company; a $16 million senior secured loan to Dealer-FX, a customer service management platform; a $15 million senior secured loan to HighTower, a wealth management company; and then a $11 million follow-on senior secured loan to AutoAlert, a sales solution provider to the automotive industry.

Our other investments in the first quarter were spread across a wide variety of industries, including advertising, business services, health care and entertainment. In the first quarter, our dispositions of $71 million included a $23 million payoff of our loan to Marketo and the payoff of a $15 million loan to IO Data Centers.

Prepayments in the first quarter were lower than historical levels. We believe this is more likely a result of coincidence rather than a trend.

New investments in the quarter had a weighted average effective yield of 11%, and the investments we exited during the quarter had a weighted average effective yield of 10.8%. The overall effective yield on our debt portfolio at quarter-end increased from 11% to 11.3%, as we benefited from the increase in LIBOR. Given the competitive pricing environment, we're very pleased to continue to generate consistently strong yields on our investments.

Finally, please turn to Slide 11 for an overview of the recently announced transaction between BlackRock and our external adviser, Tennenbaum Capital Partners. As many of you are aware, last month, BlackRock and TCP entered into a definitive agreement pursuant to which TCP will merge with a subsidiary of BlackRock. Upon completion of the transaction, TCP is expected to become an indirect wholly owned subsidiary of BlackRock, and subject to shareholder approval, remain the investment adviser to TCP Capital.

To us, the most important aspect of this transaction is that it provides for full continuity of our team. The same team has been responsible for the investments of TCP Capital and will continue to focus on executing the same proven investment strategies and process as we have since TCP Capital's inception.

Over the 2 decades, since we started the firm, the TCP team has generated consistently strong returns through several market cycles. TCP Capital's performance has been a function of our long-term relationships with deal sources, portfolio companies and other constituents, our deep industry knowledge and our disciplined approach to sourcing, underwriting and managing our portfolio. Upon completion of the transaction, we expect TCPC will benefit from the scale and resources to which the adviser will gain access as part of the BlackRock platform. We also expect TCPC will maintain the same team, the same strategy, the same best-in-class advisory fee structure, the same efficient cost structure and low-cost leverage and our commitment to a consistent dividend policy.

As summarized on Slide 12, we believe this transaction will enable us to further strengthen our competitive position by, first, providing access to greater scale and resources needed to provide a more complete solution to our borrowers; second, enhancing our ability to source transaction flow across a variety of deal source channels; third, our commitment to reduce the administrative expense ratio as we continue to grow the business; fourth, leveraging BlackRock's technology capabilities and innovative investment infrastructure. And finally, continuing to attract highly talented individuals.

We're very excited about the transaction and look forward to the benefits it will bring to our management of TCP Capital.

Now I will turn the call over to Paul, who will discuss our first quarter financial results. Paul?

Thanks, Howard, and hello, everyone. Starting on Slide 14. Net investment income was $0.37 per share, exceeding our dividend of $0.36 per share. This continues our 6-year record of covering our dividend every quarter since our IPO. Over this period, we have also outearned our dividends by an aggregate $25.9 million or $0.44 per share, based on total shares outstanding at quarter-end.

Investment income for the quarter was $0.75 per share. Of that amount, interest income comprised $0.74 per share, of which recurring cash interest was $0.62, recurring discount and fee amortization was $0.05 and recurring PIK income was $0.045. The remaining $0.03 per share came from prepayment income, including both prepayment fees and unamortized OID. We also earned $0.01 per share of other income.

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

Operating expenses of $0.38 per share included incentive compensation of $0.09 per share. And interest and other debt expenses of $0.16 per share for net investment income of $0.37 per share.

Net realized and unrealized gains of $5.6 million or $0.09 per share were comprised primarily of various market gains resulting from generally tighter spreads as well as a $1.9 million increase in the value of our investment in NEG, as the company's performance continues to improve.

Net realized losses were $0.6 million in the quarter. Our credit quality remains strong with only one loan on nonaccrual at quarter-end, which continues to be marked at 0.

Turning to Slide 17. We closed the quarter with total liquidity of $254.5 million. This includes available leverage of $242.0 million, and cash and cash equivalents of $13.7 million less net pending settlements of $1.2 million.

As noted in our fourth quarter earnings call, in February, we refinanced the SVCP 2018 facility with a new revolving credit facility with total capacity of $100 million at a rate of LIBOR plus 2.25%. We are pleased to be able to continue raising debt financing on attractive and shareholder-friendly terms.

We also increased outstanding draws on our $150 million SBA leverage program to $98 million during the quarter. As of quarter-end, outstanding debt included our new SVCP 2022 facility at a rate of LIBOR plus 2.25%, our TCPC funding facility at a rate of LIBOR plus 2.5%, our convertible note issuances at rates of 4.625% and 5.25%, our senior unsecured notes at 4.125% and our SBA debentures at a blended rate of 2.63%.

At the end of the quarter, the combined weighted average interest rate on our outstanding debt was 4.18%. Regulatory leverage at quarter-end, which was net of SBIC debt was 0.77x common equity on a gross basis and 0.76x net of cash and outstanding trades. With our stock trading at a slight discount to NAV during the quarter, we made modest share repurchases under our share repurchase program, which is based on an algorithm.

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

Thanks, Paul. Our annual shareholder meeting is on June 19. And all of our shareholders are invited to attend. Included in our proxy is a proposal to approve a new investment management agreement, which will go into effect upon completion of the BlackRock-Tennenbaum transaction. The new investment management agreement will be on substantially the same terms as the existing agreement.

Consistent with prior years and in line with many of our BDC peers, we have also included in our proxy a proposal for shareholder approval to issue up to 25% of our common shares on any given date over the next 12 months at a price below net asset value. The purpose of the below NAV issuance proposal in our proxy is to provide flexibility. It is basically an insurance policy, which our shareholders have approved every year since we went public. To be clear, at this point, we do not intend to issue equity below NAV, and certainly, not unless it is accretive to our shareholders.

Additionally, there is a proposal in our proxy to withdraw our operating company SVCP's election to be regulated under the 1940 Act as a BDC. Currently, both TCP Capital, as a holding company; and SVCP, as an operating company, are regulated as BDCs. The Board of Directors has determined the continuing of SVCP's regulation as a BDC is no longer necessary and removing this election will provide cost savings.

Now I will briefly cover what we're seeing in the market. 2017 was a record year for capital raised by direct lending funds, and as a result, middle-market lending remains competitive. Against this backdrop, we're pleased that we continue to source attractive investment opportunities while remaining highly selective. With over 200,000 active businesses, the majority of the U.S. companies are middle market.

In the second quarter through May 8, we have invested approximately $57 million, primarily in 3 senior secured loans. The combined effective yield of these investments is approximately 11.5%. At this point in the quarter, our pipeline includes many transactions that are well within our historical yield range.

Looking ahead, we are well positioned for continued growth for several reasons: first, our nearly 2 decades of experience investing in middle-market companies across multiple market cycles; second, our long-term relationships with deal sources and portfolio companies, which provides us with the ability to source unique investment opportunities; third, our focus on credit quality and downside protection; fourth, our low cost of capital and diverse funding sources, which provide access to a variety of attractively priced equity and debt financing alternatives; fifth, our interests have always been and will remain closely aligned with our shareholders; and finally, our partnership with BlackRock will create a market-leading private credit platform, with significant scale, resources and geographic reach that will enhance opportunities for our shareholders.

Looking to the future, our strategy remains the same. We will continue to focus on effectively deploying capital from our diverse and attractively priced funding sources to optimize our portfolio performance by generating a strong recurring earnings stream, while we focus on preservation of capital.

In closing, we are excited about the future. We would like to thank all of our shareholders for your confidence and your continued support.

And with that, operator, please open the call for questions.

(Operator Instructions) Our first question comes from Chris Kotowski of Oppenheimer & Company.

Howard, I was wondering, first of all, if you could talk about your approach to the new leverage limits? Do you have any desire or intent to avail yourself of them or at least have the option to them?

Yes, Chris, thanks for the question. Our business model works very well today. We've been able to cover our dividend every quarter. And we are looking at the new legislation and the change that it would enable us to make.

We're discussing it with stakeholders, including our Board of Directors, shareholders, leverage providers. We are in no rush to do anything. And we are deliberately considering it and will keep you apprised if we make any decision to make any changes in the future.

Okay. And then I guess, I was also wondering you said in the prepared comments in the press release that there's only one nonaccrual, but then I see footnote C, the nonincome-producing security footnote appear on Gogo Intermediate Wireless Holdings (sic) [Gogo Intermediate Holdings] and also on Kawa the revolver. I was wondering is that just a typo? Or is there a story there?

Kawa doesn't have an interest rate. The interest rate is 0. So there would be nothing to accrue.

Okay. And Gogo, it says 12% -- 12.5%?

Gogo, I'm not seeing that. Let me look at that and get back to you.

Our next question comes from Leslie Vandegrift of Raymond James.

I have a question on -- I know you mentioned to Chris' question about considering the increased leverage, but no rush. But not necessarily on your use of that extra leverage but on the rest of the BDC space.

As you hear other peers comment on wanting to use the extra leverage to go into more first lien, larger EBITDA companies for investments, do you believe that, that changes the competition in that area, which you have traditionally focused on?

Yes. Leslie, it's Raj here. I'll take that. And I think just to reiterate what Howard said, maybe more bluntly, we're in a information-gathering mode. There seems to have been a wide reaction for various reasons to the leverage rules. And I think, for us, we're not looking to rush to a conclusion versus trying to make a very informed one.

To your question about the increase and where it applies, I think we've seen a variety of folks take an off-balance sheet increase to SLF JVs. So they have been addressing that segment sort of indirectly versus on balance sheet. I don't know that that changes anything in terms of the companies that apply to the increased leverage, perhaps it changes where you put it, meaning you can do it on balance sheet versus off-balance sheet.

For us, at the end of the day, when we do underwritings, just to be very clear on what we've stated in the past, we don't actually look at the underwritings on a levered basis. We're looking at an unlevered return on the asset. And then the leverage is really a function of portfolio or fund management where we have it available and where we think it's appropriate.

So for us, I don't know that that changes very much in terms of how we look at companies and how we underwrite. And again, what we do in terms of the leverage accessibility is more of a forward-looking decision than anything we're doing today.

Okay. And then on the BlackRock platform acquisition of the manager, you gave some good color about the kind of scale that can offer, et cetera. But just TCPC's average investment, whether it would be by size of the investment or, again, by the EBITDA of the companies you're looking at, what could change there as you get on to the larger platform?

Generally speaking, we don't expect to have a significant change in the types of companies that we are lending to. Currently, we have the ability to use the exemptive order that we've had now since 2006 to invest across our platform. But there are some transactions, where even with that capacity today, we need to club up with other institutions or bring in other parties to do deals.

And one of the advantages we expect to have with being part of BlackRock is to be able to do those transactions without needing to bring in third parties, but we are targeting the same kinds of companies that we've invested in for many years.

Okay. And then just a last modeling question. What was the spillover income amount for your portfolio at the end of the quarter?

This is Paul. At the end of the quarter, we've got about $0.44 on a GAAP basis of excess earnings over the dividends.

Oh this is a follow-up on Chris's question that the Gogo, unfortunately, that's a typo. Gogo is fully earning.

Our next question comes from Doug Christopher of D.A. Davidson.

We know that your strong history and the various qualitative strengths that we have at TCPC, Tennenbaum and BlackRock. Just wondering about the spread to the dividend, the income versus the dividend is tight and is getting tighter. It seems the only way to gain more breathing room there is reduced expenses, expenses or some change to the fee structure.

Is there any thought to changing the 20% profit-sharing model, maybe as we've seen in other spaces, like the MLP space and the incentive distribution rights or in other hedge fund spaces?

Yes. So we're pleased to have what I think many analysts have considered to be a best-in-class fee structure with a cumulative hurdle rate. And we have been able to outearn our dividend every quarter. And so today, we believe that this structure works very well for us.

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

Howard, I want to get a better sense of the investment landscape in 2 areas. And TCP has the ability to underwrite across the investment spectrum, whether it's a distress situation, whether it's a asset-backed situation, complexity, you capture the complexity premium quite well as well as just a standard, what we'll call, cash flow based sponsored deal.

And in this environment just where we sit with spreads and where we sit with leverage levels in competition, do you find more value in attacking complexity premium? Or are you finding that the sponsored finance landscape, given your relationships, is giving you comparable, if not, better risk-adjusted returns?

So I understand everything separate. And your tendency will be not to want to answer this. But give us a sense of which deals are presenting the better opportunities in today's environment and why?

Jon, it's Raj. I'll try to start with the answer and ask Howard to jump in or add to it where we see fit. And thank you for that positive marketing preview to how we approach things. I think you've captured lot of how we look at things, risk-based assessments very well across a variety of approaches.

And I think to your first point on complexity. Regardless of the market, I would say, we've always looked at complex situations, given how we -- our team is situated with both the background from the special situation side as it applies to direct lending. And I think the one thing to clarify there is complexity doesn't necessarily mean more risk. It just means something that has more of a storyline to it. And oftentimes between structure or just understanding that storyline, complexity may actually mean less risk or ability to price better because it's not being looked at by 20, 30 different people versus a smaller crowd that can understand the complexity.

So certainly, in things -- in certain areas and the asset-backed loans, as an example, or aircraft financing or other areas I have seen that are more specialty areas, I would say, we certainly look to take advantage of an ability to understand and structure around complexity for better pricing, better risk-adjusted returns. That's not a current market dynamic. That is just a -- from inception an approach that we've been able to take advantage of. It's episodic, but it's certainly something that over time has been consistent.

On the sponsor landscape, just turning -- just as a reminder of -- in the current quarter, for instance, 5 out of the 6 deals are either solo or small club. And so when we think about sponsors, the way we try to differentiate it is, it is not kind of mainline sponsor financing where there's a lot of volume, perhaps you're competing on friendlier structure or lower pricing. It really is a more direct discussion that happens to be with an institutional party than a management team.

But it's still a discussion that's either bilateral or really fundamentally driven because the discussion is not -- doesn't lend itself to a very widespread syndicated loan process or process where you're getting the most efficient pricing and market-based structure.

So in both areas, I would say, we found opportunity. Again, there's no way to predict how it rolls through, but in both cases, complexity and/or a more -- being a party that a sponsor can work with in certain situations has led us, I think, to underwrite some interesting loans with some good pricing even in the current market.

Okay. I appreciate that. And then, Raj or Howard, let's turn to the SBIC facility for a minute. Clearly, the growth here has slowed a bit. And so while you are an excellent candidate for additional licensing over time, I'm wondering is it just the rocks that you are turning over are no longer fitting this? Perhaps where you are focusing on, origination no longer make this appropriate?

Or is there an additional barrier that's effectively slowing the growth of the SBIC facility, given how attractive the financing is in a rising-rate environment?

Sure. And I actually -- just to counter your comment for a second, Jon, this last quarter was actually a pretty strong quarter for the SBIC.

It's been slower. We've said in the past it's been slower out of the box than we would have liked. But slower with the right investments is better in my mind than faster with a compromised lens. But we have seen some better deployment: one new name and a add-on and 2 names for this quarter, which in a dollar amount is approximately...

About $30 million.

About $30 million or so. That's a nice chunk across those facilities. To answer your question, I don't think it's necessarily less applicable. We still find the facility attractive. At the margin, we are seeing some good opportunities there, but they're just not with the same frequency as the rest of the business.

We will continue on with that and continue to look for good names versus shying away from it. And I agree with your comment that we do think we are a good candidate to increase it and plan on doing so in a prudent manner.

Jon, just one addition to that, which is our repayment rate in the facility has been higher than it has been across the rest of the portfolio. And we don't know that there is any particular reason for that. Our sense is that that's probably more coincidental, but we've had a lot of recycling of capital. So it's actually more active than it might appear from our bond draws.

I appreciate that. And then additionally, if we can, perhaps, revisit a few of the 2:1 general thinking and the idea here is to get a sense of thought process and in no way peg into a decision. And I appreciate it, Howard, the quality of your board and the folks that sit there. I clearly I know and understand this can be deliberated to the fullest extent.

Howard, do you find that if you had 2:1 that there would be an additional opportunity to pursue what we might call lower yield, but also lower-risk transactions that sit in the first-lien term market that perhaps cannot be made, given your current leverage constraint as well as perhaps the fee load with which you charge requires a yield perhaps in excess of an L4 or an L5 50?

I think you summarized it well. This starts with the discussion with our board, our shareholders, our leverage providers and the other important constituents. There is no question that the change in the regulation enables people to do different things, including what you are suggesting, which is all the way from doing lower-rate transactions to doing the same kinds of transactions. Of course, there may be an offsetting cost of leverage depending on how people do that.

We are analyzing the whole thing. Our legislative focus has been AFFE, which we think is really important to institutions. And that's what we're really focused on. Clearly, the change in regulation creates an opportunity. And as we think about it, we're looking at it, really, sort of, on a holistic basis, and the opportunities.

We have been managing leveraged vehicles since 1999, including some with more and some with less leverage than you can do as a BDC. And so we have the risk analytics and processes in place to do this, but we also recognize that it's a significant change for our constituencies. And because our model works today, we're just in no rush.

Got it. Maybe the last point is there are several folks that would choose to pursue a lower-risk strategy. And so the question is, when you look at incremental math on leverage, right -- on incremental leverage, if you are deploying into an asset at L4, your financing costs are going to be L2, let's just say, and then you charge another 150-basis point fee on top of that for the asset, that leaves virtually 0 incremental spread left to investors.

So if you were going to approach leverage, and particularly think about it in those terms, do you believe that dependent on where you invest that some amount of incremental ROE needs to be passed on to your shareholders?

Jon, I will not debate your math. Your math skills are very good. I think the fundamental question, though, is whether we would be making any change here. And if we were to make a change -- and again, we haven't made any decision what types of assets we would bring in.

And clearly, we could do something like you are suggesting, which is bring in lower rate assets. That has not been our business model to date in TCPC. We do, do it in some of our other private vehicles versus continuing to do exactly the same kinds of investments. And so we agree that, that is a perfectly sensible thing for some people to consider. But in our case, we haven't made any decision about making any changes in the way we operate.

Got it. And greatly appreciate it. I know you guys will continue to deliberate it. Congrats on the sale -- congrats on the process, and we look forward to talking to you next quarter.

Thank you for your questions.

Our next question comes from Christopher Nolan of Ladenburg Thalmann.

Given where your regulatory leverage levels are now, does BlackRock's ownership of the external manager become -- changes how you access new capital, new equity or debt?

Yes. So we've been pleased to have good access to the capital markets methodically on an accretive basis raising equity over time. And if you look at the right side of our balance sheet, it's intentionally structured with 2 different revolvers, multiple unsecured bonds, including regular way and converts as well as our SBA facility.

So we believe that we have good and effective access to the capital markets. Clearly, becoming part of BlackRock will open up additional opportunities to us as well, but we're pleased with what we have today.

Do you think BlackRock will invest in your next equity offering?

We have no opinion on that.

Final question. For new hires, do you have to go through BlackRock? Or can you do them directly?

No. Yes, thanks. The goal is to continue to operate the business in substantially the same form. So once we become part of them, obviously, we will become part of their organization and there will be a series of things that they're involved within that process.

But to be very clear, our entire team is intended to be part of this process, which is really a critical part of it and something we are very excited about.

And does the inclusion of BlackRock change the incentive compensation for employees there at all?

We expect to retain and place a series of incentive mechanisms across our platform that are designed to align the interests of our people with our investors, which has always been our philosophy.

Our next question comes from Christopher Testa of National Securities.

Howard, just wondering if you could quantify a little bit the scale that the BlackRock acquisition will bring TCP, just in terms of how much coinvest AUM you think is available under leveraged loans and other similar investments that you guys make and the addition of how many sponsors you think will be available to you guys that were not previously available? Just any sort of quantitative metrics you could provide would be helpful.

So, yes, I think, ultimately, that's probably more a question for them as an institution. As we think about it, we have the same team, we have the same process. It works well. And it's going to give us some incremental capacity in the beginning. We don't expect it initially to have a huge impact on the way we're doing business. Over time, that certainly might change, but initially, we don't expect it to have a huge impact.

Got it. I understand. I'm just thinking just kind of ballpark over time, I mean, one of the things you had mentioned in your comments was, obviously, the coinvest strategy for you guys has worked out extraordinarily well. But on the large end of deals, you still have to club up with some people if it's an extremely large check to write.

So what I'm getting at is do you think, let's say, a year or 2 years, even 3 years down the road, does this let TCP go from writing, let's say, a $100 million check to a $300 million check, an $800 million check? I'm just trying to get a sense of what you guys think this is going to bring to the table in terms of scale?

Yes. So good questions, fair questions. We're not generally in the business of making forward-looking statements. But the idea of being part of the largest asset manager is that it will enable us over time to be able to compete on a scale that we can't today, and it's something we are very excited about. And as we talk to our important constituents, they share that enthusiasm.

Got it. And will TCP have any affiliation with BKCC, BlackRock's current public BDC? And if not, will you guys have to coinvest with some of their deals and vice versa?

So there are no current plans to do anything other than to keep the 2 BDCs separate. With respect to coinvestment, we will have the ability to do that, which is part of the answer to your initial question about being able to do more size.

Got it. Okay. And just wondering, you had spoke about the pipeline. Can you give us a sense for what the composition of new versus incumbent borrowers in your current quarter pipeline is?

Yes. I'll take that. I don't have an exact breakdown. I will -- when you say incumbent borrowers, do you mean companies? Or do you mean channels or sources because there are, obviously, there's a little bit of a difference...

By company.

Yes, I think, we have seen, over the course of the last few years, the opportunity to invest in our existing portfolio companies. It's been a nice source of opportunity. I don't have a exact breakdown. It's not a majority of the pipeline, but it's a nice piece of it. So I guess, I'll answer your question qualitatively, which is that is an opportunity, but let us come back to you on -- if we can come back with those specifics on a breakdown.

Okay. Great. And last one for me, just a little housekeeping question. Your other income from noncontrolled, nonaffiliated investments came in at 0 this quarter. And traditionally, there was always at least something there. Just wondering if that's just kind of a one-off event or if something ran off that, that won't be coming back on?

That's just -- that number is historically very lumpy.

Just a lumpy number. It depends on the quarter, what transactions happen during the quarter.

Our next question comes from Derek Hewett of Bank of America.

Howard, how important is maintaining an investment-grade rating to run the franchise in its current form? And then more importantly, does the association with BlackRock, given -- change that equation, given the scale of the BlackRock platform?

So thank you for the question. In reverse order, whether the association with BlackRock makes any difference is something that could probably be better addressed to the rating agencies than to us, although they seem to, generally speaking, like large institutions.

With respect to the first part of the question, we're very pleased with our current rating. It's important to us. We did operate and have a low cost of capital before we had it. And so that is something we know how to do. We have also diversified our sources of capital, but as we think about the way we operate our business, maintaining an attractive cost of capital is important to us.

Okay. Great. And then quickly on the $2 million -- roughly $2 million equity gain on core entertainment. What was driving that? Was that the revival of American Idol? Or was there something else going on?

We hope you're watching the show. And the company owns a series of assets. Clearly, that's one that is doing better and it's a combination of things.

Our next question is a follow-up from Leslie Vandegrift of Raymond James.

Sorry about that. Just 2 quick follow-ups. You mentioned earlier in the call, the SVPC (sic) [SVCP] no longer going to be electing to a BDC. So that will be cost savings.

First part of that, is it going to be cost savings to the BDC or to the manager? And secondly, if it's on the BDC balance sheet or income statement how -- what's the magnitude of savings that you would expect?

Sure, this is Paul. There will be some cost savings, mostly around filings and that sort of thing. Not large but substantial enough to make the switch.

And those will be on the BDC's statements?

Yes, those will be savings to the BDC.

Okay. And then, Howard, you mentioned a minute ago the AFFE rules and focusing on that as that seemed to be something that investors are highly interested in.

And then I guess, 2 weeks ago now the House subcommittee on financial appropriations met and spoke with the SEC Chairman and suggested that they review those rules. Do you have any color, update, since then? Or what you believe the likelihood that can move?

It sounds like you are pretty plugged in legislatively. I wish we had more information after that hearing. We remain hopeful. I think that certainly one of the better indications we've seen on this issue historically, and there seems to be a little bit more focus on it. We're cautious on assessing its probability, though, because obviously it's been on the agenda now for a number of years.

Yes. That is true. To be fair, the leverage rules were on the agenda for 6 years. So hopefully...

Well, let's hope it's not that long.

Our next question is a follow-up from Chris Kotowski of Oppenheimer & Company.

I was just curious, I mean, you are beating the base dividend almost every quarter and -- but you haven't had a special dividend since 2014. Does that reflect a difference in philosophy? Or is that just -- can you comment on that?

Sure. Yes, thanks for asking. As you point out, we used to do special dividends with some frequency. As we talked with shareholders, we reached the conclusion, although opinions weren't universal on this, that most people didn't seem to value them that much.

And we thought that retaining the spillover income seemed to be better received, and in fact, even when we did it, there seemed to be some confusion in some quarters on some of the reports around it and dividend coverage. So that's why we haven't done it. It is something we do continue to look at as we discuss our dividend policy with the board, though.

There are no further questions. I'd like to turn the call back over to Howard Levkowitz for any closing remarks.

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

Ladies and gentlemen, this does conclude today's conference. You may now disconnect. Everyone, have a great day.