BlackRock TCP Capital Corp.'s Proposed Unsecured Notes Due 2024 Rated 'BBB-'

NEW YORK (S&P Global Ratings) Aug. 16, 2019--S&P Global Ratings today assigned its 'BBB-' debt rating on BlackRock TCP Capital Corp.'s (TCPC) proposed issuance of unsecured notes due 2024. TCPC intends to use the proceeds from this offering to pay down its revolving credit facilities. As of June 2019, TCPC's leverage, measured as debt to adjusted total equity (ATE), was 1.06x, compared with 0.95x at year-end 2018. As of June 2019, the firm's loans on nonaccrual at cost were 3.2% and its investment portfolio at fair value was about $1.7 billion ($1.78 billion cost), compared with 0% and $1.6 billion ($1.65 billion), respectively, at year-end 2018. As of June 2019, the asset coverage ratio was 200%, above the 150% requirement under the SVPC and TCPC funding facilities. The key earnings metrics for 12 months ending June 2019 relative to our key thresholds for assessing earnings are:
  • Non-deal-dependent coverage of interest expense: 2.9x (3.0x threshold),
  • Non-deal-dependent coverage of interest and dividends: 0.97x (1.0x threshold), and
  • Realized return on average investments: 3.99% (5.0% threshold).
The negative outlook on TCPC reflects S&P Global Ratings' expectation that it will increase leverage, measured as debt to ATE, above 1.0x. To maintain the current ratings, we expect TCPC will operate with debt to ATE of less than 1.25x and asset coverage of at least 165% over the next 18-24 months.
Our rating also depends on the company's key earnings ratios--non-deal-dependent income coverage of interest and dividends, non-deal-dependent income coverage of interest, and realized return on average portfolio investments--being consistently above our targets (1.0x, 3.0x, and 5%, respectively). We expect portfolio asset quality to remain consistent with prior asset allocation and for the company to maintain its funding profile mix.
We could lower the rating if TCPC's debt to ATE were to increase above 1.25x or asset coverage were to fall below 165%. We could also lower the rating if its key earnings metrics fall below the thresholds, or--counter to expectations--the company rotates its portfolio into riskier assets. If we see that the company does not exceed the earnings thresholds, a downgrade may become likely, even if the company operates between 1.0x and 1.25x debt-to-ATE leverage.
An upgrade is unlikely over the next 12-24 months given TCPC's expected leverage and key earnings metrics, as well as competition in midmarket lending.
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