To be read in conjunction with the BDC Credit Table.

IVQ 2023

This was a tough quarter for BlackRock TCP Capital (TCPC) where its credit performance was concerned. Most notable was the large unrealized loss of ($39mn), 75% of which was related to unrealized losses booked at 3 portfolio companies. One was an equity write-down (Edmentum) but the company is still rated as performing to plan.

However, the poor performers on the credit side were Thrasio, which filed for bankruptcy a few days ago and is discussed on the IVQ 2023 CC, and Securus Technologies (aka Aventiv), which is having problems getting refinanced. In regards to the latter, TCPC pointed to a heavy capex program (new iPads) being a challenge, but our research suggests the company’s challenges are multi-dimensional. At the BDC Credit Reporter, we have asked whether lenders should even have lent to this type of controversial business in the first place. Lenders may want to be apolitical but the real world won’t let them. Should they lend to a business that many activists and government authorities have serious problems with?

The total number of non-accruals increased to 4 from 3 with the addition of Thrasio (Securus is still performing). Whele – already on non-accrual – dropped further in value and was discussed in broad terms on the CC. Its value decreased but remains material at $13mn. Travel company CIBT remained on non-accrual and dropped in value but the remaining exposure is non-material and the value of Avanti Communications under its new name remains nil. 

Because TCPC does not offer an investment rating, we cannot tell what percentage of the portfolio is underperforming. We do take comfort from management comments that the 3 write-downs did not reflect broader credit pressures in the portfolio and that “the majority” of portfolio companies “ continue to report revenue and margin growth in their businesses”. However, “a majority” leaves plenty of room for many companies in the 142-entity portfolio to not grow. Unfortunately, TCPC’s disclosures are generally below par on these credit issues. 

We take less comfort from the continuing commitment to the Amazon re-seller sector which has brought down Thrasio. Based on extensive commentary in the CC, TCPC believes the sector – and Thrasio – will survive. The latter is likely to be bought by its lenders – including TCPC – in a debt-for-equity swap. Overall, this segment absorbs 7% of the BDC’s assets. No other names were mentioned, but more information was promised. We are less sanguine and worry about the “good money after bad” risk. 

We added a new metric to the Credit Table starting this quarter: Total realized losses over the past 5 years. To provide context, we also calculate NII over the same period. The TCPC results are not encouraging: ($128mn) in permanent net losses versus $466mn of earnings: i.e. 27% lost- which seems high but we’re just getting going on this metric. Note that NAV Per Share has dropped (16%) over this same period – also not good. 

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.