Monday, November 11, 2013

Company Review: TCP Capital (TCPC)

TCP Capital is exactly how I want my Business Development Companies to act. They sell stock at a premium to their NAV. They use it to increase the value of NAV and NII so existing shareholders are not diluted but benefit from the growth. They then sell stock at a higher price then before, rinse and repeat.
In fact TCPC's biggest probloem that I can see is they have $1.02/share in unpaid taxable income. Thats 6% of their market value at the time of this entry.

Last Updated: Q3-2013

Description: TCP Capital Corp. is an externally managed, non-diversified closed-end management investment company. The Company seeks its investment objective primarily through investments in debt securities of middle-market companies. The Company intends to primarily focus on privately negotiated investments in debt of middle-market companies, it may make investments of all kinds and at all levels of the capital structure, including in equity interests, such as preferred or common stock and warrants or options.

How do they make money: They give out a variety of loan and debt instruments to small businesses and then receive loan payments, dividends, warrants, and shares of stock.

Key Brands: None

Company Organization
Tennenbaum Capital Partners, LLC is the advisor of the Company.This is the external management for TCPC.

Investment by type of loan (Q3-2013)
92% Senior Secured Debt
1% Senior Unsecured Debt
2% Mezzanine Debt
5% Equity

Investment by Industry (Q3-2013)
7.9% Software Publisher
5.5% Computer Systems Design
4.4% Print Publishers
4.3% Telecom
3.6% Radio and TV Broadcasting
40 industries total

Investments overview (Q3-2013)
66 total investments
74% Investments are Floating Rate
These investments have a floor rate of Libor +1.2%
10.8% average effective yield

Company debt (Q3-2013)
$100m Revolving credit (Libor +2.75%) May 2016
$116m Senior secured credit facility (Libor + 0.44%, rises to Libor +2.5% in July 2014) due July 2016
$124m Prefered interests (Libor + 0.85%) due July 2016

Rising interest rates: TCPC will have increased costs for new loans on their credit and their older loans will not be generating as much income vs new investments.
Mitigation: This is no secret for the BDC industry and most in the industry tries to have floating rate investments. TCPC has 74% of their loans on floating rate. Ironically enough 74% of their own debt they owe is also floating rate but at far lower rates.

Externally Managed BDCs can charge high fees and bonuses to management: TCPC has management fee of 1.5% gross assets, incentive compensation of 20% cumulative net realized gains. This is similar to hedge funds fees.
Mitigation: None. The company has set this business model purposefully. TCPC does have a high water mark. I don’t know that level. The fees and compensation are at industry averages.
With a 9% - 10% yield, NAV increasing every quarter, and SPOs at above NAV this is a small complaint and plenty of profit coming to investors.

Dozens of other BDCs all serving the same base customers.

Company Fundamentals does not have an NII metric to run their calculations on. Running it on EPS would give inaccurate valuation models.

The company is 2 years old and does not have enough data to generate trending estimates.

Earning Report Notes
Q3 2013
NII: $0.40 ($0.40 dividend including special div) (+0% Y/Y)
Concerened that the company is not growing NII Y/Y
Net investment income: $0.60
NAV: $15.06 (+18% Y/Y)
Share price is ~15% premium to NAV
While NII isnt increasing the NAV is increasing nicely.
Undistributed taxable income: $1.02. Even with paying a 9% yield, 6% market cap is in undistributed taxable income.
Particularly strong quarter of new investments and do not believe can repeat for Q4.

Q2 2013
NII: $0.38 ($0.36 dividend) (-5% Y/Y)
Net investment income: $0.61
NAV: $14.94. (+10% Y/Y)
Share price is ~15% premium to NAV
SPO of 5.1m shares (~+20%)
Effective portfolio yield: 10.9%
Debt/Equity: 0.44

Company and Industry specific commonly used acronyms and terms
Floor Rate: Minimum interest rate an investment will generate.
Net interest income (NII): Income generated from loan interest payments
Net investment income: Income generated from loan interest payments AND capital gains of assets.

Company Website:

Disclaimer: The information contained in this enty is “as is” and there is no guarantee of accuracy. The information is gathered from multiple sources that sometimes conflict with each other. This is not a recommendation to buy or sell for any listed securities and there is no guarantee that the author has bought or purchased any security. Every investor is responsible for their own research and own investments.


  1. TCPC is a great BDC in my opinion. I always read BDC Buzz' articles on seeking alpha and TCPC was one of his top ranked BDCs in October. With a sizeable position in PSEC I have been hesitant to jump into other BDCs.

    One thing though, is BDCs themselves can add great diversification to one's portfolio, as they can cover companies of various industries.

    1. Yeah BDC Buzz does a great job of reviewing BDCs. His scoring method is similar to mine on my wish list... how could I not like him! He is the one I got TCPC as a tip and when my research found it a good investment, then I saw he has it at the top of his list, its always in the top 3, I pulled the trigger.
      Two BDCs are my limit though there are plenty of more good ones.

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