NEWS

On March 18, 2024, BlackRock TCP Capital Corp. (the “Company”) completed its previously announced acquisition of BlackRock Capital Investment Corporation, a Delaware corporation (“BCIC”), pursuant to that certain Amended and Restated Agreement and Plan of Merger (the “Merger Agreement”), dated as of January 10, 2024, by and among the Company, BCIC, the Successor Company, and solely for the limited purposes set forth therein, BlackRock Capital Investment Advisors, LLC, a Delaware limited liability company and investment adviser to BCIC (“BCIA”), and Tennenbaum Capital Partners, LLC, a Delaware limited liability company and wholly-owned subsidiary of BCIA and investment adviser to the Company. Pursuant to the Merger Agreement, BCIC was merged with and into the Successor Company, with the Successor Company continuing as the surviving company and as a subsidiary of Special Value Continuation Partners LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (the “Merger”). 

The Merger closed with an exchange ratio of 0.3834, based on the Company’s net asset value (“NAV”) per share of $10.95 and BCIC’s NAV per share of $4.20, each as of March 15, 2024. The change in the Company’s NAV between December 31, 2023 and March 15, 2024 was primarily the result of further markdowns on investments that were previously addressed in the Company’s fourth quarter and full year ended December 31, 2023 earnings press release and/or conference call, including unrealized losses on the Company’s investments in Edmentum, Aventiv Technologies (Securus), Razor, Thras.io, and Astra Acquisition. 

The NAV determinations described in this report were made pursuant to the requirements of, and solely for the purposes of, the Merger Agreement. The net asset value was not reviewed or approved for purposes of financial statement preparation or as part of a comprehensive statement of the Company’s or BCIC’s financial results. The adjusted NAV per share of the Company’s common stock as of March 15, 2024 may not be indicative of the actual NAV per share of the Company as of December 31, 2023 or March 31, 2024. 

BlackRock TCP Capital – 8-K Filing March 21, 2024

ANALYSIS

Advance Notice

One of the benefits for TCPC’s shareholders of the merger with BKCC – now fully consummated – is that they receive an up-to-date assessment of the surviving BDC’s net book value weeks before the next release.

Unfortunately the news is not good.

NAV Per Share (NAVPS) has dropped from $11.90 at the end of 2023 to $10.95 less than 3 months later – an (8%) drop.

Anybody who reviews the BDC NAV Change Table regularly will know that an unrealized write-down of that size is very rare and not a good sign.

Moreover, as the press release makes clear, TCPC has credit challenges on several fronts, with 5 different companies mentioned.

We last wrote about TCPC’s credit performance on March 2, 2024. Here was our conclusion:

Our view? It’s time for investors to be a little afraid about TCPC. The BDC’s realized and unrealized losses came to ($68mn) in 2023, offsetting two-thirds of NII. In 2022 the losses were even worse – greater than NII. 29% of all equity capital has been lost over the BDC’s history, as per the balance sheet. 

BDC Reporter – BlackRock Tcp: IVQ 2023 Credit Review

VIEWS

Humble Opinion

As is often said in a different context but which is applicable here, the first step to getting better is admitting you have a problem.

From our reading of the latest TCPC earnings conference call, management is not yet willing to concede that anything is amiss where its credit performance is concerned.

Not Pretty

However, the numbers speak for themselves.

The BDC has booked ($128mn) in realized losses over the past 5 years, the equivalent of nearly 30% of all net investment income generated over that same period.

In this last year, realized and unrealized losses came to ($68mn), only overshadowed by the year before at ($97mn).

To put that into context, those losses exceed 10% of the BDC’s total capital at par before the BKCC merger.

Most tellingly of all, since the end of 2021 – not that very long ago – TCPC’s NAVPS has dropped by (24%).

To compare and contrast, Golub Capital’s (GBDC) NAPS has dropped only (2%) and market leader Ares Capital (ARCC) has increased by 1%.

Even the just-departed BKCC registered only an (11%) NAVPS deterioration.

First Things First

Maybe management has been distracted by the merger, but regardless, shareholders are likely to appreciate a recognition that TCPC recognizes that a turnaround is required and has a plan.

The BDC was once a credit high flyer when Tennenbaum was in charge between 2012 and 2018.

In the years since the acquisition of Tennenbaum by BlackRock, the BDC has lost a quarter of its net book value.

Otherwise, the market might suspect that BlackRock – despite its famous name – might not have the chops to succeed in the serious business of leveraged lending.

BKCC – which also carried the BlackRock name – initially along Kelso and later by itself – saw its stock price drop (75%) over its just-ended lifetime.