BlackRock TCP (TCPC) Earnings Call Transcript

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DATE

Friday, February 27, 2026 at 12 p.m. ET

CALL PARTICIPANTS

• Chairman, CEO, and Co-Chief Investment Officer — Philip M. Tseng
• President — Jason A. Mehring
• Chief Financial Officer — Erik L. Cuellar
• Co-Chief Investment Officer — Dan Worrell

TAKEAWAYS

• Adjusted Net Investment Income (NII) -- $1.22 per share for the year, down from $1.52 in 2024, and $0.25 per share for the quarter, down from $0.30 in the previous quarter.
• Net Asset Value (NAV) per Share -- $7.07 as of year-end, representing a 19% sequential decline, primarily due to issuer-specific developments concentrated in six portfolio companies.
• Nonaccrual Debt Investments -- 4.0% of portfolio at fair value (down from 5.6%) and 9.7% at cost (down from 14.4%) compared to year-end 2024.
• Dividend Declaration -- Board declared a first quarter dividend of $0.17 per share, payable March 31, 2026.
• Share Repurchases -- 515,869 shares bought in Q4 at a weighted average of $5.84 per share and 233,541 shares repurchased post-quarter at $5.50 per share.
• Portfolio Fair Value -- $1.5 billion across 141 companies, with an average position size of $10.9 million at year-end.
• Senior Secured Loan Exposure -- 92.4% of the portfolio allocated to senior secured loans, all floating rate; first lien loans comprised 87.4% versus 83.6% the prior year.
• Portfolio Yield -- Weighted average effective yield was 11.1%, down from 11.5% in the previous quarter; new investments carried a 9.7% yield versus 11.1% on exits.
• Investment Activity -- $35.0 million deployed in Q4, with largest new investment a $4.5 million first lien term loan to a wealth management platform, and $80.7 million in paydowns during the quarter.
• Net Realized and Unrealized Losses -- Net realized losses totaled $73.9 million ($0.87 per share), and net unrealized losses were $66.5 million ($0.78 per share), mainly from six named investments.
• Liquidity and Debt -- Year-end liquidity was $570.2 million (including $482.8 million in borrowing capacity and $61.1 million cash); net regulatory leverage rose to 1.41 times, with a total debt-to-equity ratio of 1.74 times.
• Post-Year-End Debt Repayment -- Company repaid entire $325.0 million principal of its 2026 unsecured notes after year-end, reducing net regulatory leverage to 1.34 times and current liquidity to $290.8 million.
• Expense Waiver -- Adviser voluntarily waived one-third of the base management fee in the quarter, contributing $0.02 per share to NII.
• PIK Interest Income -- Made up 10.9% of total investment income, up from 9.5% in the prior quarter, with no new names added.
• No Incentive Compensation -- No fourth-quarter incentive compensation was accrued as cumulative total return did not exceed the hurdle.

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RISKS

• Net asset value decline was driven by issuer-specific markdowns in six portfolio companies, with management acknowledging, "the write-downs in the fourth quarter were disappointing."
• Annualized NII return on equity dropped to 12.3% from 14.5% in 2024, attributed to "portfolio markdowns and nonaccruals, as well as lower base rates and tighter spreads."
• Net regulatory leverage increased from 1.20 times to 1.41 times at year-end, a level management signaled intent to reduce, reflecting elevated balance sheet risk.
• Six challenged investments, underwritten in or prior to 2021, comprised approximately 67% of the NAV decline and 91% of markdowns, highlighting legacy credit risks.

SUMMARY

Management confirmed that six specific portfolio investments accounted for the majority of the net asset value decrease, with $1.11 per share attributed to these names through both realized and unrealized portfolio markdowns. Year-end restructuring efforts resulted in the full write-down of the Razer position, the reduction of Adminim and SellerX values, and substantial markdowns to Renovo, Hyland, and InMobi. New capital deployment focused exclusively on senior secured first lien loans, and management emphasized a continued portfolio rotation into lower-risk assets, reflected by an increased allocation to first lien exposure and reduced average investment size. Adviser fee waivers and the post-year-end repayment of outstanding unsecured notes improved liquidity flexibility and reduced leverage. No change was reported to the company's valuation procedures, and management underscored its commitment to methodically repositioning the portfolio while actively managing challenged credits.

• In response to the question on frequent asset restructurings, management stated, "The road to recovery, as we have discussed on past calls, is not always linear. In fact, it is rarely linear," affirming ongoing engagement to maximize recovery outcomes.
• Jason A. Mehring explicitly clarified, "There has not been any sort of change to our valuation policy," addressing concerns of procedural adjustments in response to NAV declines.
• Portfolio paydowns in the quarter outpaced new investments by $45.7 million, indicating a net reduction in risk exposure and a tilt toward balance sheet deleveraging.

INDUSTRY GLOSSARY

• Nonaccrual: Debt investments no longer generating contractual interest income due to borrower financial distress, typically reflecting heightened credit risk and requiring valuation adjustments.
• PIK (Payment-in-Kind) Interest: Interest income accrued in the form of additional debt or equity rather than cash, increasing portfolio exposure to non-cash returns and potential collectability risk.
• First Lien Loan: A senior secured loan that holds the highest repayment priority in the event of borrower default, enhancing recovery prospects relative to junior or unsecured debt.

Full Conference Call Transcript

Earlier today, we issued our earnings release for the fourth quarter and full year ended 12/31/2025 and posted a supplemental earnings presentation on our website at www.tcpcapital.com. To view the slide presentation we will refer to on today's call, please click on the Investor Relations link and select Events and Presentations. These documents should be reviewed in conjunction with the company's Form 10-K which was filed with the SEC earlier today. Now I will turn the call over to our chairman, CEO, and co-CIO, Philip M. Tseng. Thank you, Alex, and thank you to our investors and analysts for joining us today.

Philip M. Tseng: I will begin with an overview of our fourth quarter and full year 2025 performance. Our President, Jason A. Mehring, will then provide details on our portfolio and investment activity, and Erik L. Cuellar, our CFO, will review our financial results. Then I will provide closing comments before we open the call up for your questions. We are also joined today by Dan Worrell, our co-CIO, who will be available to answer questions. Since we preannounced our preliminary fourth quarter results on January 23, I will focus my remarks on providing more detail on the results and the key factors behind our performance. I will begin with an overview of our financial results.

Full year 2025 adjusted NII was $1.22 per share, compared to $1.52 in 2024. Annualized NII ROE for the year was 12.3%, compared to 14.5% in 2024. Adjusted NII was $0.25 per share in the fourth quarter compared to $0.30 per share last quarter and $0.36 per share for 2024. The decline in NII primarily reflects the impact of portfolio markdowns and nonaccruals, as well as lower base rates and tighter spreads year over year. Fourth quarter NII includes the benefit of a voluntary waiver by our adviser of one-third of the base management fee, which added approximately $0.02 per share.

As of 12/31/2025, nonaccrual debt investments represented 4.0% of the portfolio at fair market value and 9.7% at cost, compared to 5.6% at fair market value and 14.4% at cost for 2024. NAV declined 19% to $7.07 per share as of 12/31/2025, from $8.71 as of September 30, in line with the midpoint of the range we previously provided on January 23. The portfolio markdowns for the quarter largely reflect issuer-specific developments during the period. Six portfolio companies contributed approximately 67%, or $1.11 per share, of the NAV decline. Now I will provide details on these six investments.

Our investment in InVentum, an educational technology business, is comprised entirely of preferred and common equity, making it inherently sensitive to changes in enterprise value. Adminim's valuation declined as a result of overall underperformance in the fourth quarter and lower anticipated future growth. This markdown accounted for 23%, or $0.38 per share, of the NAV decline for the quarter. RZR and CELRx are Amazon aggregators that have been restructured previously and continued to underperform during the quarter, resulting in further reduction to their outlooks. Razer contributed $0.24 per share, or 15% of the NAV decline, and we have now fully written our position down to zero. SellerX contributed $0.22 per share, or 13% of the NAV decline.

On Renovo, as discussed on our last earnings call, we moved forward with writing down our investment in the fourth quarter. This negatively impacted NAV by $0.15 per share, in line with the expectations we communicated previously. Next is Hyland, a provider of telecom, wireless engineering, and construction services, which was also previously restructured. Due to ongoing underperformance in this quarter, as well as liquidity concerns, we marked down this position. It includes both debt and equity. This resulted in a $0.06 per share impact to NAV. And last, we marked down our position in InMobi, a digital advertising company. Our remaining exposure consisted solely of warrants for equity that we retained after the company fully repaid its term loan.

Based on InMobi's underperformance in the fourth quarter and an associated impact on the company's outlook, we reduced the valuation of this position, resulting in a $0.06 per share impact to NAV. Looking at the reduction in NAV for the quarter more broadly, approximately 91% was from investments that we underwrote in 2021 or earlier. Certain of the companies, including Amazon aggregators and e-learning platforms, benefited from high levels of pandemic-era demand but have since seen results soften. All of these positions were underwritten in a significantly lower base rate environment and have faced challenges adjusting to sustained higher interest rates.

Regarding our challenged investments, we continue to work diligently with our borrowers, their sponsors, and creditors to optimize recovery values, including pursuing restructurings and other transaction-driven outcomes when appropriate. Now I will share an update on capital allocation. Starting with our dividend, our Board declared a first quarter dividend of $0.17 per share, payable on 03/31/2026 to shareholders of record on 03/17/2026. As we have said before, our goal is to maintain a dividend that is both sustainable and covered by NII. As part of our commitment to supporting our shareholders, we repurchased 515,869 shares of BlackRock TCP Capital Corp. stock during the fourth quarter at a weighted average price of $5.84 per share.

We also purchased an additional 233,541 shares after quarter-end at a weighted average share price of $5.50 per share. Now I will turn the call over to Jason to discuss our portfolio as well as our recent investment activity. Thanks, Phil, and welcome, everyone. I will begin with an overview of our portfolio composition.

Jason A. Mehring: At year-end, our portfolio had a fair market value of $1.5 billion, invested across 141 companies in more than 20 industry sectors, with an average position size of $10.9 million. 92.4% of our portfolio was invested in senior secured loans, all of which were floating rate. 7.5% was in equity investments. Our largest investment based on fair value represented 7.2% of our portfolio, and our five largest investments accounted for 23.1%. Investment income was distributed broadly across our diverse portfolio, with more than 75% of our portfolio companies each contributing less than 1%.

During 2025, the average size of our investments in new portfolio companies was $5.8 million, compared to an $11.7 million average position size at the end of last year, demonstrating our ongoing effort to reduce concentration risk. All new portfolio company investments during 2025 were in first lien loans, bringing total portfolio exposure to first lien loans to 87.4% on a fair value basis, up from 83.6% last year. At the end of the fourth quarter, the weighted average effective yield of our portfolio was 11.1%, compared to 11.5% last quarter. Investments during the quarter had a weighted average yield of 9.7%, while those we exited had a weighted average yield of 11.1%.

Current yields reflect lower base rates and spread compression during the period. In the fourth quarter, in line with our strategy, we deployed $35.0 million into senior secured loans across five new and existing portfolio companies. Our largest new investment was a $4.5 million first lien term loan to a highly scaled wealth management platform with a focus on high-net-worth individuals. This financing was made in connection with the recapitalization; BlackRock Private Financing Solutions, or PFS, was the second-largest lender in a $2.0 billion credit facility.

The PFS platform has been a lender to this business since early 2024, and the opportunity was a natural fit for BlackRock TCP Capital Corp. given our past success investing in the wealth management sector. In addition to attractive industry fundamentals, we were drawn to the company's high client retention rate, strong management team, and brand recognition. Our second-largest investment was a $4.0 million first lien loan to CoalFire, a leading cybersecurity services and solutions provider. This investment was part of a $375.0 million first lien financing, which BlackRock PFS provided approximately 30% of the facility. We believe CoalFire is well positioned to benefit from increasing cybersecurity regulation and complexity.

Given our focus on direct origination and borrower relationships, incumbency continues to be an important competitive edge for BlackRock TCP Capital Corp., and during 2025, 65.4% of our deployments came from existing portfolio companies. We continue to find opportunities within our portfolio where our deep relationships and industry expertise help as we evaluate risk. Paydowns this quarter were $80.7 million compared to $140.0 million in the prior quarter. Before I turn the call over to Erik, I want to briefly comment on the software sector, which has been the subject of considerable interest among investors and the press.

While public equities in this sector are experiencing a valuation reset following a long upward run, we have not seen that widely translate into lower operating results in our portfolio companies, although we will continue to monitor developments going forward. In addition, we believe software is not monolithic, as some segments are fundamentally more resilient than others. For some time, we have considered the potential for AI disruption in our underwriting of potential software investments, and we have sought to continue to actively pursue businesses where we believe AI is more likely to positively augment the company's offering rather than displace it.

Now I will turn the call over to Erik, who will discuss our financial results, capital, and liquidity positioning.

Erik L. Cuellar: Thank you, Jason. I will begin with a review of our financial results for the fourth quarter and year ended 12/31/2025. As detailed in our earnings press release, adjusted net investment income excludes the amortization of the purchase accounting discount resulting from our merger with BCIC and is calculated in accordance with GAAP. A full reconciliation of adjusted net investment income to GAAP net investment income, as well as other non-GAAP financial metrics, is included in our earnings press release and 10-Ks. Gross investment income for the fourth quarter was $0.52 per share.

This included recurring cash interest of $0.41, nonrecurring income of $0.01, recurring discount and fee amortization of $0.02, PIK income of $0.06, and dividend income of $0.02 per share. PIK interest income for the quarter was 10.9% of total investment income, up from 9.5% last quarter, and included no new names. Operating expenses for the fourth quarter were $0.25 per share, including $0.18 per share of interest and other debt expenses. As of 12/31/2025, our cumulative total return did not exceed the total return hurdle, and therefore, no incentive compensation was accrued for the fourth quarter. Additionally, as Phil mentioned, we waived a portion of our base management fee again this quarter.

Net realized losses for the quarter were $73.9 million, or $0.87 per share, with Anacom and Astra being the most significant portfolio company contributors. Net unrealized losses were $66.5 million, or $0.78 per share, primarily due to the unrealized markdowns on the six investments Phil discussed earlier. The net decrease in net assets for the quarter was $118.3 million, or $1.39 per share. Now I will discuss our balance sheet and liquidity positioning, which remains solid. Total liquidity at year-end was $570.2 million, including $482.8 million in available borrowings and $61.1 million of cash. The weighted average interest rate on debt outstanding at year-end was 4.9%, down from 5.0% at the end of the third quarter.

Unfunded loan commitments represented 8.4% of our $1.5 billion investment portfolio, or $129.2 million, including $53.7 million in revolver commitments. Net regulatory leverage was 1.41 times at year-end, compared to 1.20 times at the end of the third quarter, resulting in a total debt-to-equity leverage ratio of 1.74 times. Subsequent to year-end, our net regulatory leverage ratio has improved to 1.34 times as a result of paydowns. We expect to reduce leverage further over time as we exit additional investments. On 02/09/2026, we paid down the entire $325.0 million principal amount of our 2026 unsecured notes, resulting in current liquidity of approximately $290.8 million.

Our diverse leverage program now includes three low-cost credit facilities, an unsecured note issuance, and an SBA program. Now I will turn the call back to Phil for his closing remarks.

Philip M. Tseng: Thanks, Erik. While the write-downs in the fourth quarter were disappointing, we continue to actively manage our investment portfolio with the goal of seeking to maximize recoveries and reposition our portfolio to deliver attractive returns to our shareholders over time. Our highest near-term priority is to improve the credit quality of our investment portfolio by working diligently to resolve challenged credits. At the same time, we continue to implement the refined investment strategy we set forth last year.

This includes seeking to, one, deploy capital selectively into senior secured first lien loans where we are a lender of influence; two, build a well-diversified portfolio in terms of industry sectors and investment size to reduce concentration risk; and three, fully leverage the unparalleled resources of BlackRock's platform. There is work to be done, and we are confident in our strategy. As Jason mentioned, in 2025, we increased first lien investments to 87.4% of the portfolio on a fair value basis, up from 83.6% last year.

In addition, we improved our portfolio diversification by reducing the average size of new investments made in 2025 to $5.8 million each, or 38 basis points, compared to the $11.7 million average position size at the end of 2024. We are proud to be part of BlackRock and believe the substantial resources of this industry-leading platform will support our efforts to reposition our portfolio and enhance our capabilities. We are already seeing the benefits of an expanded pipeline of opportunities that supports our objective of deploying capital very selectively into what we believe are high-quality investments that align with our investment strategy. I want to thank our investors for your continued support as we reposition our portfolio.

And now, I will turn the call back to the operator for questions.

Operator: Thank you. To ask a question, please press star followed by 1. If you change your mind, please press star followed by 2. When preparing to ask your question, please ensure your device is unmuted locally. We will now open for questions. Our first question comes from Robert James Dodd from Raymond James. Your line is now open, Robert. Please go ahead.

Robert James Dodd: Good morning or afternoon, however. I appreciate all the color you gave about the individual businesses, and, obviously, you have discussed the new allocation efforts going forward. At what point—this is really a question for the Board rather than you, to be fair—but at what point does it make sense to take maybe more aggressive overall strategic adjustments to the BDC rather than continue in the current efforts? I mean, it shrunk, leverage is up. If you buy back stock, leverage will go up even more unless you shrink the portfolio. There are a lot of issues that are going to take—with your best efforts, and I applaud them, and I think you put it in—there are best efforts.

It is going to take a long time to turn this business around. At which point does it make sense to do something more aggressive on the strategic front?

Philip M. Tseng: Thanks, Robert. I appreciate the question. We continually evaluate ways to optimize returns for the shareholders, and at this time, we believe the best path forward is to continue to focus on improving the credit quality of the portfolio and executing on the investment strategy that we have been discussing. This includes an ongoing rotation of the portfolio into first lien loans, which we have made progress on. It is up to 87.4% now versus 83.6% a year ago, and also increasing portfolio diversification, which, as you know, has been an area that has been suboptimal in causing some of the credit losses so far.

We have made progress on that front as well, where the average size of new investments has decreased to about $5.8 million per position, or about 38 basis points. And, of course, we are working on continuing to leverage the broader resources that BlackRock's platform has to offer, which has been yielding some benefits, as you heard from the prepared remarks on a couple of the new investments that we put into the portfolio this past quarter.

Robert James Dodd: I appreciate that, Phil. Thank you. Now, going on to the portfolio—several of them, as you mentioned, had been previously restructured. This is not a theme just in your portfolio. We have seen several other assets at other BDCs this quarter and in more recent quarters that have been previously restructured and are back on nonaccrual or back getting marked down. What—how should we take that, or how should we invest take that in terms of when—in the last few years, it looks like restructurings seem to stick less often than maybe that was the case if we go back further. That is just a set, right?

So what is your view on that—when you do the initial restructuring on that asset, do you need to be more aggressive on that, maybe equitize more of the debt, or take the—if you can—take the keys quicker, or what is it? Again, this is not just—I am just—in your book as elsewhere, but, you know, obviously, you have had a fair number of them. So what is your thought on how restructurings need to be done going forward?

Philip M. Tseng: Restructurings can play out in several different ways. The road to recovery, as we have discussed on past calls, is not always linear. In fact, it is rarely linear. It is hard to predict when they may recover, and these businesses oftentimes recover into a, from a capital structure standpoint, with a loan and equity component. Equity investments, as you know, are more sensitive to enterprise value changes, just given that they are at the bottom of the capital stack, whereas the debt is obviously more insulated from enterprise value changes. We think, Robert, we have a robust process in place, certainly bringing to bear the resources of the broader BlackRock platform, to actively manage these challenged investments.

But I appreciate your concern around when we can call bottoms on some of these restructurings. It is challenging.

Robert James Dodd: Okay. That is it for me. Thank you.

Operator: Thank you. Our next question comes from Finian O'Shea from Wells Fargo. Please go ahead.

Finian O'Shea: Hey, everyone. Afternoon. To piggyback on the first topic with Robert, listening to the issuer-specific developments, and I appreciate those, but they just do not sound like that big of changes in the context of their outstanding underperformance. And in the history of BDCs, these NAV drawdowns do happen from time to time, but I cannot remember another Friday night 8-K. So the question is, is there sort of more to the story—perhaps a change in personnel, a change in procedure on the valuation team that was brought to the Board and led them to rethink and push this out there?

Jason A. Mehring: Hey, Fin. It is Jason. Thanks for the question. There has not been any sort of change to our valuation policy. As I think we have talked about before, our end-of-quarter process includes a pretty granular review of each portfolio company, and that methodology does include, obviously, third-party valuation services and resources from within the BlackRock PFS platform. So I think that has all remained consistent. I do think that when you look at the overall write-downs in the quarter, they were concentrated fairly heavily among those six names that we had outlined, which were about two-thirds of the drop in NAV.

I think that those names, generally speaking, had an equity orientation, which, obviously, as everybody knows, is more volatile and is fundamentally more sensitive to changes in underlying performance. So we obviously did not delineate specific performance-level detail when we were outlining the businesses that we talked about. But safe to say that the inputs and the factors related to the business performance, industry outlook, etc., moved in a way that had, on a cumulative basis, a more material impact on NAV for the quarter.

Finian O'Shea: So it is not a change in—okay. So it sounds like, go forward, you are not going to 8-K all the time when the equity market moves. It sounds like maybe less valuation, but more—yeah, these six names had a straw-that-broke-the-camel's-back kind of thing, idiosyncratic event that forced your hand to reassess the valuation, and that is very one-off. This is the one 8-K that will ever happen under those circumstances.

Jason A. Mehring: Yes. Listen. It is obviously difficult to predict the future, but I think there were a unique collection of factors that led to a more material markdown in the aggregate for the quarter, which is why we saw fit to release the 8-K when we did in January to make sure that the market was aware. To your point, it is not something that we have seen on a regular basis. There were, again, idiosyncratic factors that happened to occur in unison, which drove a lot of that swing. Again, we referenced those six names.

But, again, the process is the same, and we will continue to consider the need to disclose things on an 8-K basis if and when they arise.

Finian O'Shea: Appreciate it. Thanks.

Operator: Thanks, Finian. Thank you. As a reminder, to ask a question, please press star followed by 1. We currently have no further questions, and I would like to hand back to Philip M. Tseng for any closing remarks.

Philip M. Tseng: Thanks, operator. In closing, I want to thank you all for joining our call today. I would also like to thank our team for their continued hard work and dedication for BlackRock TCP Capital Corp. As always, please reach out with any questions. Thank you.

Operator: Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.

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