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BlackRock TCP Capital Corp. - Quarter Report: 2013 June (Form 10-Q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

 

FORM 10-Q

 

 

 

xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the Quarter Ended June 30, 2013

 

¨Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number: 814-00899

 

TCP CAPITAL CORP.

(Exact Name of Registrant as Specified in Charter)

 

Delaware       56-2594706

(State or Other Jurisdiction

of Incorporation)

     

(IRS Employer

Identification No.)

 

2951 28 th Street, Suite 1000

Santa Monica, California

  90405
(Address of Principal Executive Offices)   (Zip Code)

 

Registrant’s telephone number, including area code (310) 566-1000

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨   Accelerated filer                ¨
     
Non-accelerated filer   x   Smaller Reporting company ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

 

The number of shares of the Registrant’s common stock, $0.001 par value, outstanding as of August 8, 2013 was 26,654,701.

 

 

 

 
 

 

Table of Contents

TCP CAPITAL CORP.

 

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2013

 

TABLE OF CONTENTS

 

        Page
Part I.   Financial Information    
         
Item 1.   Financial Statements    
    Consolidated Statements of Assets and Liabilities as of June 30, 2013 (unaudited) and December 31, 2012   2
    Consolidated Statements of Investments as of June 30, 2013 (unaudited) and December 31, 2012   3
    Consolidated Statements of Operations for the three and six months ended June 30, 2013 (unaudited) and June 30, 2012 (unaudited)   15
    Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2013 (unaudited) and year ended December 31, 2012   16
    Consolidated Statements of Cash Flows for the six months ended June 30, 2013 (unaudited) and June 30, 2012 (unaudited)   17
    Notes to Consolidated Financial Statements (unaudited)   18
    Consolidated Schedule of Changes in Investments in Affiliates for the six months ended June 30, 2013 (unaudited) and year ended December 31, 2012   35
    Consolidated Schedule of Restricted Securities of Unaffiliated Issuers as of June 30, 2013 (unaudited) and December 31, 2012   37
    Consolidating Statement of Assets and Liabilities as of June 30, 2013 (unaudited) and December 31, 2012   38
    Consolidating Statement of Operations for the six months ended June 30, 2013 (unaudited) and June 30, 2012 (unaudited)   40
         
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   42
         
Item 3.   Quantitative and Qualitative Disclosures About Market Risk   54
         
Item 4.   Controls and Procedures   55
         
Part II.   Other Information    
         
Item 1.   Legal Proceedings   56
         
Item 1A.   Risk Factors   56
         
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   56
         
Item 3.   Defaults upon Senior Securities   56
         
Item 4.   Mine Safety Disclosures   56
         
Item 5.   Other Information   56
         
Item 6.   Exhibits   56

 

1
 

 

TCP Capital Corp.

 

Consolidated Statements of Assets and Liabilities

 

   June 30, 2013   December 31, 2012 
   (unaudited)     
Assets          
Investments, at fair value:          
Unaffiliated issuers (cost of $561,129,297 and $508,302,758, respectively)  $501,648,852   $440,772,190 
Controlled companies (cost of $43,776,456 and $44,964,189 respectively)   20,863,780    22,489,208 
Other affiliates (cost of $51,724,840 and $55,803,421, respectively)   49,249,412    54,421,689 
Total investments (cost of $656,630,593 and $609,070,368, respectively)   571,762,044    517,683,087 
           
Cash and cash equivalents   40,065,668    18,035,189 
Accrued interest income:          
Unaffiliated issuers   5,483,176    4,039,149 
Controlled companies   47,773    53,524 
Other affiliates   807,362    482,634 
Receivable for investments sold   2,695,000    7,727,415 
Deferred debt issuance costs   1,234,215    696,018 
Unrealized appreciation on swaps   271,816    179,364 
Prepaid expenses and other assets   1,041,845    345,722 
Total assets   623,408,899    549,242,102 
           
Liabilities          
Debt   33,000,000    74,000,000 
Incentive allocation payable   2,476,035    - 
Payable for investments purchased   50,179,344    21,814,819 
Interest payable   225,981    119,233 
Payable to the Investment Manager   625,006    109,200 
Management and advisory fees payable   1,940,295    - 
Accrued expenses and other liabilities   1,938,607    2,685,015 
Total liabilities   90,385,268    98,728,267 
           
Preferred equity facility          
Series A preferred limited partner interests in Special Value Continuation Partners, LP; $20,000/interest liquidation preference; 6,700 interests authorized, issued and outstanding   134,000,000    134,000,000 
Accumulated dividends on Series A preferred equity facility   491,163    526,285 
Total preferred limited partner interests   134,491,163    134,526,285 
           
Non-controlling interest          
General Partner interest in Special Value Continuation Partners, LP   344,310    - 
           
Net assets applicable to common shareholders  $398,188,158   $315,987,550 
           
Composition of net assets applicable to common shareholders          
Common stock, $0.001 par value; 200,000,000 shares authorized, 26,654,701 and  21,477,628 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively   26,655    21,478 
Paid-in capital in excess of par   522,439,540    444,234,060 
Accumulated net investment income   23,502,379    22,526,179 
Accumulated net realized losses   (62,601,363)   (59,023,861)
Accumulated net unrealized depreciation   (85,179,053)   (91,770,306)
Net assets applicable to common shareholders  $398,188,158   $315,987,550 
           
Net assets per share  $14.94   $14.71 

 

See accompanying notes.

 

2
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Unaudited)

 

June 30, 2013

 

Showing Percentage of Total Cash and Investments of the Company

 

               Percent of 
   Principal       Fair   Cash and 
Investment  Amount   Cost   Value   Investments 
                    
Debt Investments (87.32%)                    
Bank Debt (73.66%) (1)                    
Accounting, Tax Preparation, Bookkeeping, and Payroll Services (1.34%)                    
Expert Global Solutions, LLC, Senior Secured 1st Lien Term Loan B, LIBOR + 7.25%, 1.25% LIBOR Floor, due 4/3/18  $709,433   $703,672   $722,025    0.12%
Expert Global Solutions, LLC, Senior Secured 2nd Lien Term Loan, LIBOR + 11%, 1.5% LIBOR Floor, due 10/3/18  $7,434,877    7,212,837    7,479,487    1.22%
Total Accounting, Tax Preparation, Bookkeeping, and Payroll Services        7,916,509    8,201,512      
                     
Artificial Synthetic Fibers and Filaments Manufacturing (0.34%)                    
AGY Holding Corp., Senior Secured Term Loan, 12%, due 9/15/16 (2)  $2,056,927    2,056,927    2,056,927    0.34%
                     
Business Support Services (2.42%)                    
STG-Fairway Acquisitions, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 9.25%, 1.25% LIBOR Floor, due 8/28/19  $14,643,455    13,901,546    14,804,534    2.42%
                     
Computer Equipment Manufacturing (1.23%)                    
ELO Touch Solutions, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 10.5%, 1.5% LIBOR Floor, due 12/1/18  $10,000,000    9,643,220    7,500,000    1.23%
                     
Converted Paper Products Manufacturing (0.57%)                    
Ranpak Corp., Senior Secured 2nd Lien Term Loan, LIBOR + 7.25%, 1.25% LIBOR Floor, due 4/23/20  $3,469,573    3,434,877    3,504,269    0.57%
                     
Electric Power Generation, Transmission and Distribution (2.83%)                    
Panda Sherman Power, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 7.5%, 1.5% LIBOR Floor, due 9/14/18  $11,070,172    10,921,028    11,319,251    1.86%
Panda Temple Power II, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 6%, 1.25% LIBOR Floor, due 4/3/19  $5,892,970    5,834,041    5,951,900    0.97%
Total Electric Power Generation, Transmission and Distribution        16,755,069    17,271,151      
                     
Electronic Shopping (1.32%)                    
Shopzilla, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 9.5%, due 3/31/16  $8,055,057    7,758,926    8,063,112    1.32%
                     
Financial Investment Activities (0.38%)                    
Marsico Capital Management, Senior Secured 1st Lien Term Loan, LIBOR + 5%, due 12/31/22  $10,805,431    13,605,476    2,296,154    0.38%
                     
Freight Transportation Arrangement (0.62%)                    
Livingston International, Inc., 2nd Lien Term Loan, LIBOR + 7.75%, 1.25% LIBOR Floor, due 4/18/20  $3,750,000    3,676,841    3,801,563    0.62%
                     
Full-Service Restaurants (2.83%)                    
RM Holdco, LLC, Subordinated Convertible Term Loan, 1.12% PIK, due 3/21/18 (2)  $5,106,805    5,106,805    3,648,813    0.60%
RM OpCo, LLC, Convertible 1st Lien Term Loan Tranche B-1, 12% Cash + 7% PIK, due 3/21/16 (2)  $1,307,280    1,271,799    1,307,280    0.21%
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche A, 11%, due 3/21/16 (2)  $3,723,322    3,723,322    3,723,322    0.62%
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B, 12% Cash + 7% PIK,  due 3/21/16 (2)  $6,503,573    6,503,573    6,503,573    1.06%
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B-1, 12% Cash + 7% PIK, due 3/21/16 (2)  $2,051,179    2,003,078    2,051,179    0.34%
Total Full-Service Restaurants        18,608,577    17,234,167      
                     
Gaming Industries (5.09%)                    
Golden Gaming, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 7% Cash + 1% PIK, 2% LIBOR Floor, due 3/1/16  $15,977,036    15,604,224    15,737,380    2.58%
AGS LLC, 1st Lien Term Loan, LIBOR + 10%, 1.5% LIBOR Floor, due 8/15/16  $13,269,231    12,835,230    13,581,058    2.22%
AGS LLC, DDTL 1st Lien Term Loan, LIBOR + 10%, 1.5% LIBOR Floor, due 8/15/16  $1,730,769    1,668,147    1,771,442    0.29%
Total Gaming Industries        30,107,601    31,089,880      

 

3
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Unaudited) (Continued)

 

June 30, 2013

 

Showing Percentage of Total Cash and Investments of the Company

 

               Percent of 
   Principal       Fair   Cash and 
Investment  Amount   Cost   Value   Investments 
                 
Debt Investments (continued)                    
Grocery Stores (2.07%)                    
Bashas, Inc., Senior Secured 1st Lien FILO Term Loan, LIBOR + 9.35%, 1.5% LIBOR Floor, due 12/28/15  $12,386,974   $12,386,974   $12,678,067    2.07%
                     
Inland Water Transportation (2.08%)                    
US Shipping Corp, Senior Secured 1st Lien Term Loan B, LIBOR + 7.75%,  1.25% LIBOR Floor, due 4/30/18  $12,666,667    12,540,000    12,708,847    2.08%
                     
Insurance Related Activities (0.92%)                    
Confie Seguros Holding II Co., 2nd Lien Term Loan, LIBOR + 9%, 1.25% LIBOR  Floor, due 5/8/19  $5,541,809    5,439,149    5,624,936    0.92%
                     
Iron and Steel Mills and Ferroalloy Manufacturing (1.09%)                    
Essar Steel Algoma, Inc., Senior Secured Term Loan, LIBOR + 7.5%,  1.25% LIBOR Floor, due 9/20/14  $6,548,242    6,464,067    6,691,518    1.09%
                     
Motion Picture and Video Industries (2.54%)                    
CORE Entertainment, Inc., Senior Secured 1st Lien Term Loan, 9%, due 6/21/17  $9,462,231    9,371,287    8,563,319    1.40%
CORE Entertainment, Inc., Senior Secured 2nd Lien Term Loan, 13.5%, due 6/21/18  $7,569,785    7,494,745    6,964,202    1.14%
Total Motion Picture and Video Industries        16,866,032    15,527,521      
                     
Motor Vehicle Parts Manufacturing (2.14%)                    
DMI SMW Holding Corporation, 1st Lien Senior Secured Term Loan, LIBOR + 7.75%,  1.5% LIBOR Floor, due 12/21/17  $12,864,180    12,725,052    13,121,463    2.14%
                     
Newspaper, Periodical, Book, and Directory Publishers (2.17%)                    
MediMedia USA, Inc., 1st Lien Revolver, LIBOR + 6.75%, due 5/20/18  $2,170,000    2,557,500    3,593,520    0.59%
MediMedia USA, Inc., 1st Lien Term Loan, LIBOR + 6.75%,  1.25% LIBOR Floor, due 11/20/18  $9,750,000    9,457,500    9,689,063    1.58%
Total Newspaper, Periodical, Book, and Directory Publishers        12,015,000    13,282,583      
                     
Other Amusement and Recreation Industries (1.92%)                    
Intrawest Cayman L.P., 1st Lien Term Loan, LIBOR + 5.75%, 1.25% LIBOR Floor,  due 12/4/17 - (Cayman Islands)  $1,243,750    1,226,886    1,261,890    0.21%
Intrawest Cayman L.P., 2nd Lien Term Loan, LIBOR + 9.5%, 1.25% LIBOR Floor, due 12/4/18 - (Cayman Islands)  $10,250,000    10,012,402    10,480,625    1.71%
Total Other Amusement and Recreation Industries        11,239,288    11,742,515      
                     
Other Electrical Equipment and Component Manufacturing (2.76%)                    
Palladium Energy, Inc., 1st Lien Senior Secured Term Loan, LIBOR + 9%,  1% LIBOR Floor, due 12/26/17  $16,500,317    16,199,303    16,888,074    2.76%
                     
Other Professional, Scientific, and Technical Services (4.15%)                    
Connolly, LLC, Senior Secured 2nd Lien Term Loan, LIBOR + 9.25%, 1.25%  LIBOR Floor, due 7/15/19  $12,000,000    11,818,600    12,120,000    1.98%
ConvergeOne Holdings, 1st Lien Term Loan, LIBOR + 8%, 1.25% LIBOR Floor, due 5/8/19  $13,500,000    13,297,500    13,297,500    2.17%
Total Other Professional, Scientific, and Technical Services        25,116,100    25,417,500      
                     
Other Telecommunications (2.30%)                    
Securus Technologies, Inc., 2nd Lien Term Loan, LIBOR + 7.75%, 1.25% LIBOR    Floor, due 4/30/21  $14,000,000    13,860,000    14,065,660    2.30%
                     
Petroleum and Coal Products Manufacturing (1.34%)                    
Boomerang Tube, LLC, 2nd Lien Term Loan, LIBOR + 9.5%, 1.5% LIBOR Floor, due 10/11/17  $8,306,975    8,087,150    8,223,905    1.34%
                     
Pharmaceutical and Medicine Manufacturing (1.33%)                    
Pharmaceutical Research Associates, Inc., 2nd Lien Term Loan, LIBOR + 9.25%, 1.25% LIBOR Floor, due 6/10/19  $7,996,875    7,836,938    8,121,826    1.33%
                     
Promoters of Performing Arts, Sports, and Similar Events (1.82%)                    
Stadium Management Group, Senior Secured 2nd Lien Term Loan, LIBOR + 9.50%, 1.25% LIBOR Floor, due 12/7/18  $11,000,000    10,804,248    11,165,000    1.82%

 

4
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Unaudited) (Continued)

 

June 30, 2013

 

Showing Percentage of Total Cash and Investments of the Company

 

               Percent of 
   Principal       Fair   Cash and 
Investment  Amount   Cost   Value   Investments 
                 
Debt Investments (continued)                    
Radio and Television Broadcasting (3.92%)                    
SiTV, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 6% Cash + 4% PIK,  2% LIBOR Floor, due 8/3/16  $6,910,700   $6,539,175   $6,689,558    1.09%
The Tennis Channel, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 8.5%, due 5/29/17  $17,347,866    16,842,708    17,295,822    2.83%
Total Radio and Television Broadcasting        23,381,883    23,985,380      
                     
Retail (1.59%)                    
Kenneth Cole Productions, Inc., Senior Secured 1st Lien FILO Term Loan,  LIBOR + 10.60%, 1% LIBOR Floor, due 9/25/17  $9,590,909    9,342,431    9,734,773    1.59%
                     
Scheduled Air Transportation (2.38%)                    
Aircraft Secured Mortgages - Aircraft Leased to Delta Air Lines, Inc.                    
N913DL, 8%, due 3/15/17 (6)  $328,575    328,575    334,560    0.05%
N918DL, 8%, due 8/15/18 (6)  $422,991    422,991    428,230    0.07%
N954DL, 8%, due 3/20/19 (6)  $554,573    554,573    559,130    0.09%
N955DL, 8%, due 6/20/19 (6)  $571,950    571,950    575,790    0.09%
N956DL, 8%, due 5/20/19 (6)  $571,586    571,586    575,790    0.09%
N957DL, 8%, due 6/20/19 (6)  $576,953    576,953    580,890    0.09%
N959DL, 8%, due 7/20/19 (6)  $582,277    582,277    585,990    0.10%
N960DL, 8%, due 10/20/19 (6)  $602,988    602,988    605,710    0.10%
N961DL, 8%, due 8/20/19 (6)  $597,481    597,481    600,950    0.10%
N976DL, 8%, due 2/15/18 (6)  $434,977    434,977    441,490    0.07%
Aircraft Secured Mortgages - Aircraft Leased to United Airlines, Inc.                    
N510UA, 20%, due 10/26/16 (2)  $371,650    371,650    473,195    0.08%
N512UA, 20%, due 10/26/16 (2)  $376,416    376,416    481,935    0.08%
N536UA, 16%, due 9/29/14 (2)  $183,234    183,234    197,695    0.03%
N545UA, 16%, due 8/29/15 (2)  $316,357    316,357    359,005    0.06%
N585UA, 20%, due 10/25/16 (2)  $441,969    441,969    565,915    0.09%
N659UA, 12%, due 2/28/16 (6)  $3,222,700    3,222,700    3,485,737    0.57%
N661UA, 12%, due 5/4/16 (6)  $3,379,195    3,379,195    3,788,310    0.62%
Total Scheduled Air Transportation        13,535,872    14,640,322      
                     
Semiconductor and Other Electronic Component Manufacturing (2.29%)                    
Isola USA Corporation, 1st Lien Term Loan, LIBOR + 8%, 2% LIBOR Floor, due 9/30/15  $14,000,000    13,975,000    14,000,000    2.29%
                     
Software Publishers (8.57%)                    
Blue Coat Systems, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 8.5%,  1% LIBOR Floor, due 6/28/20  $15,000,000    14,878,125    15,000,000    2.45%
Deltek, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 8.75%, 1.25% LIBOR  Floor, due 10/10/19  $15,000,000    14,793,064    15,187,500    2.48%
Edmentum, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 9.75%, 1.5% LIBOR   Floor, due 5/17/19  $15,000,000    14,732,239    15,075,000    2.46%
Websense, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 7.25%, 1% LIBOR  Floor, due 12/27/20  $7,200,000    7,164,000    7,209,000    1.18%
Total Software Publishers        51,567,428    52,471,500      
                     
Wired Telecommunications Carriers (3.36%)                    
Bulgaria Telecom Company AD, 1st Lien Facility 1A Term Loan,  EURIBOR + 5.5%, due 11/9/17 - (Bulgaria) (4)  3,261,237    3,523,974    3,967,083    0.65%
Integra Telecom Holdings, Inc., 2nd Lien Term Loan, LIBOR + 8.5%, 1.25% LIBOR  Floor, due 2/22/20  $15,000,000    14,683,897    15,420,525    2.52%
Viva Telecom Bulgaria EAD, 1st Lien Facility 1B Term Loan, EURIBOR + 5.5%,  due 11/9/17 - (Luxembourg) (4)  980,713    1,059,723    1,192,973    0.19%
Total Wired Telecommunications Carriers        19,267,594    20,580,581      

 

5
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Unaudited) (Continued)

 

June 30, 2013

 

Showing Percentage of Total Cash and Investments of the Company

 

   Principal           Percent of 
   Amount or       Fair   Cash and 
Investment  Shares   Cost   Value   Investments 
                 
Debt Investments (continued)                    
Wireless Telecommunications Carriers (3.95%)                    
Globalive Wireless Management Corp., Senior Secured 1st Lien Term Loan,  LIBOR + 10.9%, due 4/30/14 - (Canada)  $3,037,292   $2,933,872   $3,028,180    0.49%
Gogo, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 9.75%, 1.5% LIBOR Floor, due 6/21/17  $19,839,573    18,948,000    21,148,984    3.46%
Total Wireless Telecommunications Carriers        21,881,872    24,177,164      
                     
Total Bank Debt        451,996,950    450,672,404      
                     
Other Corporate Debt Securities (13.66%)                    
Architectural, Engineering, and Related Services (1.18%)                    
ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes,  6% Cash + 10% PIK, due 12/31/19 (2), (5)   $7,209,840    7,209,840    7,209,840    1.18%
                     
Artificial Synthetic Fibers and Filaments Manufacturing (1.49%)                    
AGY Holding Corporation, Senior Secured 2nd Lien Notes, 11%, due 11/15/16 (2)  $9,268,000    7,586,317    9,128,980    1.49%
                     
Data Processing, Hosting, and Related Services (1.24%)                    
The Telx Group, Inc., Senior Unsecured Notes, 10% Cash + 2% PIK, due 9/26/19 (5)  $7,028,456    6,889,974    7,590,732    1.24%
                     
Metal and Mineral (except Petroleum) Merchant Wholesalers (2.02%)                    
Constellation Enterprises, LLC, Senior Secured 1st Lien Notes, 10.625%, due 2/1/16 (5)  $12,500,000    12,322,875    12,326,174    2.02%
                     
Metal Ore Mining (1.11%)                    
St Barbara Ltd., 1st Priority Senior Secured Notes, 8.875%, due 4/15/18 (5)  $7,359,000    7,323,241    6,770,280    1.11%
                     
Nondepository Credit Intermediation (1.68%)                    
Caribbean Financial Group, Senior Secured Notes, 11.5%, due 11/15/19 (5)  $10,000,000    9,813,857    10,300,000    1.68%
                     
Plastics Products Manufacturing (2.26%)                    
Iracore International, Inc., Senior Secured Notes, 9.5%, due 6/1/18 (5)  $13,600,000    13,600,000    13,804,000    2.26%
                     
Scientific Research and Development Services (2.68%)                    
BPA Laboratories, Inc., Senior Secured Notes, 12.25%, due 4/1/17 (5)  $17,110,000    16,446,295    16,425,600    2.68%
                     
Total Other Corporate Debt Securities        81,192,399    83,555,606      
                     
Total Debt Investments        533,189,349    534,228,010      
                     
Equity Securities (6.13%)                    
Architectural, Engineering, and Related Services (1.10%)                    
ESP Holdings, Inc., Cumulative Preferred 15% (2), (3), (5)   20,297    2,249,930    3,947,863    0.65%
ESP Holdings, Inc., Common Stock (2), (3), (5)   88,670    9,311,782    2,782,460    0.45%
Total Architectural, Engineering, and Related Services        11,561,712    6,730,323      
                     
Business Support Services (0.21%)                    
STG-Fairway Holdings, LLC, Class A Units (3), (5)   80,396    1,100,348    1,279,342    0.21%
                     
Data Processing, Hosting, and Related Services (0.17%)                    
Anacomp, Inc., Class A Common Stock (3), (5), (6)   1,255,527    26,711,048    1,016,977    0.17%
                     
Depository Credit Intermediation (0.15%)                    
Doral Financial Corporation, Common Stock (3)   1,077,795    11,699,417    894,570    0.15%
                     
Electric Power Generation, Transmission and Distribution (0.01%)                    
La Paloma Residual Bank Debt Claim (3), (5)   1,830,453    1,574,284    51,253    0.01%
                     
Electronic Shopping (0.21%)                    
Shop Holding, LLC, Class A Units (3), (5)   490,037    462,576    992,709    0.16%
Shop Holding, LLC, Warrants to Purchase Class A Units (3), (5)   326,691    -    335,154    0.05%
Total Electronic Shopping        462,576    1,327,863      

 

6
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Unaudited) (Continued)

 

June 30, 2013

 

Showing Percentage of Total Cash and Investments of the Company

 

               Percent of
Cash and
 
Investment  Shares   Cost   Fair Value   Investments 
                 
Equity Securities (continued)                    
Financial Investment Activities (0.00%)                    
Marsico Holdings, LLC, Common Interest Units (3), (5)   168,698   $172,694   $843    - 
                     
Full-Service Restaurants (0.00%)                    
RM Holdco, LLC, Membership Units (2), (3), (5)   13,161,000    2,010,777    -    - 
                     
Machine Shops; Turned Product; and Screw, Nut, and Bolt Manufacturing (0.00%)                    
Precision Holdings, LLC, Class C Membership Interests (3), (5)   33    1,396    17,240    - 
                     
Nonmetallic Mineral Mining and Quarrying (0.35%)                    
EPMC HoldCo, LLC, Membership Units (2), (5)   1,312,720    -    2,152,862    0.35%
                     
Other Amusement and Recreation Industries (0.00%)                    
Bally Total Fitness Holding Corporation, Common Stock (3), (5)   6,058    45,186,963    18,174    - 
Bally Total Fitness Holding Corporation, Warrants (3), (5)   10,924    -    1    - 
Total Other Amusement and Recreation Industries        45,186,963    18,175      
                     
Radio and Television Broadcasting (0.06%)                    
SiTV, Inc., Warrants to Purchase Common Stock (3), (5)   233,470    300,322    352,540    0.06%
                     
Scheduled Air Transportation (1.66%)                    
Equipment Trusts - Aircraft Leased to Delta Air Lines, Inc.                    
N913DL Trust Beneficial Interests (5), (6)   594    104,865    129,540    0.02%
N918DL Trust Beneficial Interests (5), (6)   526    119,617    145,860    0.02%
N954DL Trust Beneficial Interests (5), (6)   505    146,704    81,430    0.01%
N955DL Trust Beneficial Interests (5), (6)   495    148,419    130,560    0.02%
N956DL Trust Beneficial Interests (5), (6)   497    148,548    133,450    0.02%
N957DL Trust Beneficial Interests (5), (6)   495    149,508    134,300    0.02%
N959DL Trust Beneficial Interests (5), (6)   493    150,462    135,320    0.02%
N960DL Trust Beneficial Interests (5), (6)   486    154,379    141,780    0.02%
N961DL Trust Beneficial Interests (5), (6)   490    153,569    143,820    0.02%
N976DL Trust Beneficial Interests (5), (6)   546    124,076    103,530    0.02%
Equipment Trusts - Aircraft Leased to United Airlines, Inc.                    
N510UA Trust Beneficial Interests (2), (5)   48    172,564    487,575    0.08%
N512UA Trust Beneficial Interests (2), (5)   48    168,826    480,801    0.08%
N536UA Trust Beneficial Interests (2), (5)   71    344,500    653,724    0.11%
N545UA Trust Beneficial Interests (2), (5)   59    305,178    656,847    0.11%
N585UA Trust Beneficial Interests (2), (5)   48    188,950    594,043    0.10%
United N659UA-767, LLC (N659UA) (5), (6)   361    1,920,445    3,029,575    0.50%
United N661UA-767, LLC (N661UA) (5), (6)   350    1,898,569    2,975,061    0.49%
Total Scheduled Air Transportation        6,399,179    10,157,216      
                     
Resin, Synthetic Rubber, and Artificial Synthetic Fibers and Filaments Manufacturing (0.18%)                    
KAGY Holding Company, Inc., Series A Preferred Stock (2), (3), (5)   9,777,740    1,092,844    1,092,858    0.18%
                     
Semiconductor and Other Electronic Component Manufacturing (0.04%)                    
AIP/IS Holdings, LLC, Membership Units (3), (5)   352    -    229,504    0.04%
                     
Support Activities for Mining (0.58%)                    
DeepOcean Group Holding BV, Common Stock - (Norway) (3), (5)   145,824    3,477,624    3,572,909    0.58%

 

7
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Unaudited) (Continued)

 

June 30, 2013

 

Showing Percentage of Total Cash and Investments of the Company

 

               Percent of 
           Fair   Cash and 
Investment  Shares   Cost   Value   Investments 
                 
Equity Securities (continued)                    
Wired Telecommunications Carriers (1.41%)                    
Integra Telecom, Inc., Common Stock (3), (5)   1,274,522   $8,433,884   $5,265,976    0.86%
Integra Telecom, Inc., Warrants (3), (5)   346,939    19,920    -    - 
V Telecom Investment S.C.A, Common Shares - (Luxembourg) (3), (4), (5)   1,393    3,236,256    3,373,583    0.55%
Total Wired Telecommunications Carriers        11,690,060    8,639,559      
                     
Total Equity Securities        123,441,244    37,534,034      
                     
Total Investments (7)        656,630,593    571,762,044      
                     
Cash and Cash Equivalents             40,065,668    6.55%
                     
Total Cash and Investments            $611,827,712    100.00%

 

 

Notes to Statement of Investments:

 

(1)Investments in bank debt generally are bought and sold among institutional investors in transactions not subject to registration under the Securities Act of 1933. Such transactions are generally subject to contractual restrictions, such as approval of the agent or borrower.
(2)Non-controlled affiliate – as defined under the Investment Company Act of 1940 (ownership of between 5% and 25% of the outstanding voting securities of this issuer).
(3)Non-income producing security.
(4)Principal amount denominated in foreign currency. Amortized cost and fair value converted from foreign currency to US dollars. (See Note 2)
(5)Restricted security. (See Note 2)
(6)Controlled issuer – as defined under the Investment Company Act of 1940 (ownership of 25% or more of the outstanding voting securities of this issuer).
(7)Includes investments with an aggregate market value of $5,916,563 that have been segregated to collateralize certain unfunded commitments.

 

Aggregate acquisitions and aggregate dispositions of investments, other than government securities, totaled $170,863,503 and $121,049,823, respectively for the six months ended June 30, 2013. Aggregate acquisitions includes investment assets received as payment in kind. Aggregate dispositions includes principal paydowns on and maturities of debt investments. The total value of restricted securities and bank debt as of June 30, 2013 was $561,738,494, or 91.8% of total cash and investments of the Company.

 

Swaps at June 30, 2013 were as follows:

 

Investment  Notional Amount   Fair Value 
         
Euro/US Dollar Cross-Currency Basis Swap, Pay Euros/Receive USD, Expires 5/16/14  $6,040,944   $271,816 

 

See accompanying notes.

 

8
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments

 

December 31, 2012

 

Showing Percentage of Total Cash and Investments of the Company

 

               Percent of 
   Principal       Fair   Cash and 
Investment  Amount   Cost   Value   Investments 
                 
Debt Investments (90.12%)                    
Bank Debt (75.60%) (1)                    
Accounting, Tax Preparation, Bookkeeping, and Payroll Services (3.16%)                    
Expert Global Solutions, LLC, Senior Secured 1st Lien Term Loan B, LIBOR + 6.75%, 1.25% LIBOR Floor, due 4/2/18  $1,916,252   $1,882,302   $1,925,239    0.36%
Expert Global Solutions, LLC, Senior Secured 2nd Lien Term Loan, LIBOR + 9.5%, 1.5% LIBOR Floor, due 10/2/18  $14,976,011    14,493,414    14,953,547    2.80%
Total Accounting, Tax Preparation, Bookkeeping, and Payroll Services        16,375,716    16,878,786      
                     
Business Support Services (3.58%)                    
STG-Fairway Acquisitions, Inc., Senior Secured 2nd Lien Term Loan, 12.5%, due 12/29/15  $19,878,935    18,821,586    19,193,112    3.58%
                     
Computer Equipment Manufacturing (1.78%)                    
ELO Touch Solutions, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 10.5%, 1.5% LIBOR Floor, due 12/4/18  $10,000,000    9,621,530    9,550,000    1.78%
                     
Electric Power Generation, Transmission and Distribution (3.41%)                    
Panda Sherman Power, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 7.5%, 1.5% LIBOR Floor, due 9/14/18  $11,070,172    10,910,286    11,263,900    2.10%
Astoria Generating Company Acquisitions, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 9.35%, 1.5% LIBOR Floor, due 12/28/15  $7,000,000    6,727,929    7,040,845    1.31%
Total Electric Power Generation, Transmission and Distribution        17,638,215    18,304,745      
                     
Electronic Shopping (2.13%)                    
Shopzilla, Inc., Senior Secured 2nd Lien Term Loan, 13%, due 6/1/14  $11,382,687    10,869,637    11,422,526    2.13%
                     
Equipment Rental and Leasing (3.28%)                    
Sky Funding AMR Lease Portfolio, Senior Subordinated 1st Lien Term Loan, 10%, due 9/6/16 - (Ireland)  $17,000,000    16,412,490    17,595,000    3.28%
                     
Financial Investment Activities (0.02%)                    
Marsico Capital Management, Senior Secured 1st Lien Term Loan, LIBOR + 5%, due 12/31/22  $11,281,905    14,205,420    5,753,772    1.07%
                     
Full-Service Restaurants (3.20%)                    
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche A, 11%, due 3/19/16 (2)  $3,759,156    3,759,156    3,759,156    0.70%
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B, 12% Cash + 7% PIK, due 3/19/16 (2)  $6,258,122    6,258,122    6,258,122    1.17%
RM Holdco, LLC, Subordinated Convertible Term Loan, 1.12% PIK, due 3/21/18 (2)  $5,106,805    5,106,805    5,106,805    0.96%
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B-1, 12% Cash + 7% PIK, due 3/19/16 (2)  $1,976,470    1,922,118    1,976,470    0.37%
Total Full-Service Restaurants        17,046,201    17,100,553      
                     
Gaming Industries (5.61%)                    
Golden Gaming, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 7% Cash + 1% PIK, 2% LIBOR Floor, due 4/15/16  $15,975,628    15,600,947    15,735,993    2.94%
AGS LLC, 1st Lien Term Loan, LIBOR + 10%, 1.5% LIBOR Floor, due 8/15/16  $13,269,231    12,781,083    13,395,288    2.50%
AGS LLC, DDTL 1st Lien Term Loan, LIBOR + 10%, 1.5% LIBOR Floor, due 8/15/16  $865,385    796,154    881,827    0.17%
Total Gaming Industries        29,178,184    30,013,108      
                     
Grocery Stores (2.58%)                    
Bashas, Inc., Senior Secured 1st Lien FILO Term Loan, LIBOR + 9.35%, 1.5% LIBOR Floor, due 12/28/15  $13,461,182    13,461,182    13,797,711    2.58%

 

9
 

 

 TCP Capital Corp.

 

Consolidated Statement of Investments (Continued)

 

December 31, 2012

 

Showing Percentage of Total Cash and Investments of the Company

 

               Percent of 
   Principal       Fair   Cash and 
Investment  Amount   Cost   Value   Investments 
                 
Debt Investments (continued)                    
Insurance Related Activities (1.04%)                    
Confie Seguros Holding II Co., 2nd Lien Term Loan, LIBOR + 9%, 1.25% LIBOR Floor, due 7/26/19  $5,600,000   $5,490,103   $5,590,676    1.04%
                     
Iron and Steel Mills and Ferroalloy Manufacturing (1.22%)                    
Essar Steel Algoma, Inc., Senior Secured Term Loan, LIBOR + 7.5%, 1.25% LIBOR Floor, due 9/20/14  $6,581,231    6,464,979    6,537,367    1.22%
                     
Motion Picture and Video Industries (2.83%)                    
CORE Entertainment, Inc., Senior Secured 1st Lien Term Loan, 9%, due 6/21/17  $9,462,231    9,362,125    8,220,313    1.53%
CORE Entertainment, Inc., Senior Secured 2nd Lien Term Loan, 13.5%, due 6/21/18  $7,569,785    7,488,038    6,964,202    1.30%
Total Motion Picture and Video Industries        16,850,163    15,184,515      
                     
Motor Vehicle Parts Manufacturing (2.41%)                    
DMI SMW Holding Corporation, Term Loan, LIBOR + 7.75%, 1.5% LIBOR Floor, due 12/21/17  $12,935,000    12,938,292    12,902,663    2.41%
                     
Other Amusement and Recreation Industries (2.14%)                    
Intrawest Cayman L.P., 1st Lien Term Loan, LIBOR + 5.75%, 1.25% LIBOR Floor, due 12/4/17 - (Cayman Islands)  $1,250,000    1,231,250    1,257,813    0.23%
Intrawest Cayman L.P., 2nd Lien Term Loan, LIBOR + 9.5%, 1.25% LIBOR Floor, due 12/4/18 - (Cayman Islands)  $10,250,000    9,993,750    10,250,000    1.91%
Total Other Amusement and Recreation Industries        11,225,000    11,507,813      
                     
Other Electrical Equipment and Component Manufacturing (3.03%)                    
Palladium Energy, Inc., Term Loan, LIBOR + 9%, 1% LIBOR Floor, due 12/21/17  $16,500,317    16,170,991    16,219,812    3.03%
                     
Other Professional, Scientific, and Technical Services (2.27%)                    
Connolly, LLC, Senior Secured 2nd Lien Term Loan, LIBOR + 9.25%, 1.25% LIBOR Floor, due 7/26/19  $12,000,000    11,808,454    12,157,500    2.27%
                     
Petroleum and Coal Products Manufacturing (1.57%)                    
Boomerang Tube, LLC, 2nd Lien Term Loan, LIBOR + 9.5%, 1.5% LIBOR Floor, due 10/2/17  $8,522,741    8,277,159    8,416,206    1.57%
                     
Pharmaceutical and Medicine Manufacturing (1.51%)                    
Pharmaceutical Research Associates, Inc., 2nd Lien Term Loan, LIBOR + 9.25%, 1.25% LIBOR Floor, due 6/10/19  $8,000,000    7,840,000    8,085,000    1.51%
                     
Promoters of Performing Arts, Sports, and Similar Events (2.06%)                    
Stadium Management Group, Senior Secured 2nd Lien Term Loan, LIBOR + 9.50%, 1.25% LIBOR Floor, due 12/7/18  $11,000,000    10,792,091    11,055,000    2.06%
                     
Radio and Television Broadcasting (4.58%)                    
Encompass Digital Media, Inc., 1st Lien Term Loan, LIBOR + 6.5%, 1.5% LIBOR Floor, due 8/10/17  $7,940,000    7,802,595    8,039,250    1.50%
Granite Broadcasting Corporation, Senior Secured 1st Lien Term Loan B, LIBOR + 7.25%, 1.25% LIBOR Floor, due 5/23/18  $9,950,000    9,719,719    9,974,875    1.86%
SiTV, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 6% Cash + 4% PIK, 2% LIBOR Floor, due 8/3/16  $6,806,343    6,421,282    6,523,880    1.22%
Total Radio and Television Broadcasting        23,943,596    24,538,005      
                     
Retail (1.90%)                    
Kenneth Cole Productions, Inc., Senior Secured 1st Lien FILO Term Loan, LIBOR + 10.60%, 1% LIBOR Floor, due 9/25/17  $10,000,000    9,717,763    10,200,000    1.90%

 

10
 

 

 TCP Capital Corp.

 

Consolidated Statement of Investments (Continued)

 

December 31, 2012

 

Showing Percentage of Total Cash and Investments of the Company

 

               Percent of 
   Principal       Fair   Cash and 
Investment  Amount   Cost   Value   Investments 
                 
Debt Investments (continued)                    
Scheduled Air Transportation (3.11%)                    
Delta Air Lines, Inc., Aircraft Secured Mortgage (N913DL), 8%, due 7/15/18 (6)  $366,557   $366,557   $367,370    0.07%
Delta Air Lines, Inc., Aircraft Secured Mortgage (N918DL), 8%, due 7/15/18 (6)  $456,613    456,613    454,580    0.08%
Delta Air Lines, Inc., Aircraft Secured Mortgage (N954DL), 8%, due 9/20/19 (6)  $593,200    593,200    597,720    0.11%
Delta Air Lines, Inc., Aircraft Secured Mortgage (N955DL), 8%, due 9/20/19 (6)  $609,107    609,107    612,000    0.11%
Delta Air Lines, Inc., Aircraft Secured Mortgage (N956DL), 8%, due 9/20/19 (6)  $609,360    609,360    612,850    0.11%
Delta Air Lines, Inc., Aircraft Secured Mortgage (N957DL), 8%, due 9/20/19 (6)  $614,434    614,434    617,440    0.12%
Delta Air Lines, Inc., Aircraft Secured Mortgage (N959DL), 8%, due 9/20/19 (6)  $619,468    619,468    622,030    0.12%
Delta Air Lines, Inc., Aircraft Secured Mortgage (N960DL), 8%, due 9/20/19 (6)  $639,631    639,631    640,730    0.12%
Delta Air Lines, Inc., Aircraft Secured Mortgage (N961DL), 8%, due 9/20/19 (6)  $635,009    635,009    636,990    0.12%
Delta Air Lines, Inc., Aircraft Secured Mortgage (N976DL), 8%, due 7/15/18 (6)  $474,007    474,007    473,280    0.09%
United Airlines, Inc., Aircraft Secured Mortgage (N510UA), 20%, due 9/26/16 (2)  $410,410    410,410    548,340    0.10%
United Airlines, Inc., Aircraft Secured Mortgage (N512UA), 20%, due 10/26/16 (2)  $414,343    414,343    556,225    0.10%
United Airlines, Inc., Aircraft Secured Mortgage (N536UA), 16%, due 8/21/14 (2)  $251,941    251,941    277,780    0.05%
United Airlines, Inc., Aircraft Secured Mortgage (N545UA), 16%, due 7/17/15 (2)  $377,925    377,925    436,810    0.08%
United Airlines, Inc., Aircraft Secured Mortgage (N585UA), 20%, due 10/25/16 (2)  $486,501    486,501    653,220    0.12%
United Airlines, Inc., Aircraft Secured Mortgage (N659UA), 12%, due 3/28/16 (6)  $3,707,430    3,707,430    4,264,148    0.80%
United Airlines, Inc., Aircraft Secured Mortgage (N661UA), 12%, due 5/4/16 (6)  $3,849,284    3,849,284    4,351,424    0.81%
         15,115,220    16,722,937      
Semiconductor and Other Electronic Component Manufacturing (2.61%)                    
Isola USA Corporation, 1st Lien Term Loan, LIBOR + 8%, 2% LIBOR Floor, due 9/29/15  $14,000,000    13,975,000    14,000,000    2.61%
                     
Software Publishers (8.47%)                    
Blackboard, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 6%, 1.5% LIBOR Floor, due 10/4/18  $2,671,613    2,457,884    2,705,008    0.51%
Deltek, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 8.75%, 1.25% LIBOR Floor, due 10/10/19  $15,000,000    14,781,719    15,275,025    2.85%
Edmentum, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 9.75%, 1.5% LIBOR Floor due 5/8/19  $15,000,000    14,717,168    14,831,250    2.77%
SumTotal Systems, LLC, Senior Secured 2nd Lien Term Loan, LIBOR + 9%, 1.25% LIBOR Floor, due 5/13/19  $7,600,000    7,449,234    7,524,000    1.41%
The TriZetto Group, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 7.25%, 1.25% LIBOR Floor, due 3/28/19  $5,000,000    4,927,523    4,979,175    0.93%
Total Software Publishers        44,333,528    45,314,458      
                     
Support Activities for Mining (0.06%)                    
Trico Shipping AS, 1st Lien Term Loan A, LIBOR + 8.5%, 1.5% LIBOR Floor, due 5/13/14 - (Norway)  $228,803    228,803    228,803    0.04%
Trico Shipping AS, 1st Lien Term Loan B, LIBOR + 8.5%, 1.5% LIBOR Floor, due 5/13/14 - (Norway)  $80,543    80,543    80,543    0.02%
Total Support Activities for Mining        309,346    309,346      
                     
Wired Telecommunications Carriers (2.52%)                    
Bulgaria Telecom Company AD, 1st Lien Facility 1A Term Loan, EURIBOR + 5.5%, due 11/9/17 - (Bulgaria) (4)  3,262,515    3,525,355    3,744,685    0.70%
Integra Telecom Holdings, Inc., 1st Lien Term Loan, LIBOR + 7.25%, 2% LIBOR Floor, due 4/15/15  $8,477,489    8,070,172    8,518,096    1.60%
Viva Telecom Bulgaria EAD, 1st Lien Facility 1B Term Loan, EURIBOR + 5.5%, due 11/9/17 - (Luxembourg) (4)  980,713    1,059,723    1,125,653    0.22%
Total Wired Telecommunications Carriers        12,655,250    13,388,434      

 

11
 

 

 TCP Capital Corp.

 

Consolidated Statement of Investments (Continued)

 

December 31, 2012

 

Showing Percentage of Total Cash and Investments of the Company

 

               Percent of 
   Principal       Fair   Cash and 
Investment  Amount   Cost   Value   Investments 
                 
Debt Investments (continued)                    
Wireless Telecommunications Carriers (0.56%)                    
Globalive Wireless Management Corp., Senior Secured 1st Lien Term Loan, LIBOR + 8.9%, due 10/9/12 - (Canada)  $3,037,292   $2,933,872   $3,000,845    0.56%
Gogo, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 9.75%, 1.5% LIBOR Floor, due 6/21/17  $10,168,765    9,762,014    10,270,452    1.92%
Total Wireless Telecommunications        12,695,886    13,271,297      
                     
Total Bank Debt        404,232,982    405,010,342      
                     
Other Corporate Debt Securities (14.51%)                    
Architectural, Engineering, and Related Services (1.33%)                    
ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes, 6% Cash + 10% PIK, due 12/31/19 (2), (5)  $7,209,840    7,209,840    7,134,137    1.33%
                     
Artificial Synthetic Fibers and Filaments Manufacturing (1.72%)                    
AGY Holding Corporation, Senior Secured 2nd Lien Notes, 11%, due 11/15/14  $18,536,000    15,172,634    9,221,660    1.72%
                     
Data Processing, Hosting, and Related Services (1.34%)                    
The Telx Group, Inc., Senior Unsecured Notes, 10% Cash + 2% PIK, due 9/26/19 (5)  $6,958,697    6,820,215    7,167,458    1.34%
                     
Metal and Mineral (except Petroleum) Merchant Wholesalers (2.48%)                    
Constellation Enterprises, LLC, Senior Secured 1st Lien Notes, 10.625%, due 2/1/16 (5)  $12,500,000    12,322,875    13,296,875    2.48%
                     
Nondepository Credit Intermediation (1.87%)                    
Caribbean Financial Group, Senior Secured Notes, 11.5%, due 11/15/19 (5)  $10,000,000    9,803,494    10,037,500    1.87%
                     
Nonferrous Metal Production and Processing (2.88%)                    
International Wire Group Holdings, Inc., Senior Secured Notes, 8.5%, due 10/15/17 (2), (5)  $15,000,000    15,000,000    15,450,000    2.88%
                     
Scientific Research and Development Services (2.89%)                    
BPA Laboratories, Inc., Senior Secured Notes, 12.25%, due 4/1/17 (5)  $17,110,000    16,446,295    15,484,550    2.89%
                     
Total Other Corporate Debt Securities        82,775,353    77,792,180      
                     
Total Debt Investments        487,008,335    482,802,522      
                     
Equity Securities (6.51%)                    
Other Amusement and Recreation Industries (0.01%)                    
Bally Total Fitness Holding Corporation, Common Stock (3), (5)   6,058    45,186,963    27,746    0.01%
Bally Total Fitness Holding Corporation, Warrants (3), (5)   10,924    -    1    - 
Total Other Amusement and Recreation Industries        45,186,963    27,747      
                     
Architectural, Engineering, and Related Services (1.10%)                    
ESP Holdings, Inc., Cumulative Preferred 15% (2), (3), (5)   20,297    2,249,930    3,643,088    0.68%
ESP Holdings, Inc., Common Stock (2), (3), (5)   88,670    9,311,782    2,263,124    0.42%
Total Architectural, Engineering, and Related Services        11,561,712    5,906,212      
                     
Business Support Services (0.05%)                    
STG-Fairway Holdings, LLC, Class A Units (3), (5)   80,396    1,100,348    241,188    0.05%
                     
Data Processing, Hosting, and Related Services (0.23%)                    
Anacomp, Inc., Class A Common Stock (3), (5), (6)   1,255,527    26,711,048    1,255,527    0.23%

 

12
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Continued)

 

December 31, 2012

 

Showing Percentage of Total Cash and Investments of the Company

 

               Percent of 
           Fair   Cash and 
Investment  Shares   Cost   Value   Investments 
                 
Equity Securities (continued)                    
                     
Depository Credit Intermediation (0.15%)                    
Doral Financial Corporation, Common Stock (3)   1,077,795   $11,699,417   $780,431    0.15%
                     
Electric Power Generation, Transmission and Distribution (0.01%)                    
La Paloma Residual Bank Debt Claim (3), (5)   1,830,453    1,574,284    51,253    0.01%
                     
Electronic Shopping (0.21%)                    
Shop Holding, LLC, Class A Units (3), (5)   490,037    462,576    915,198    0.16%
Shop Holding, LLC, Warrants to Purchase Class A Units (3), (5)   326,691    -    283,346    0.05%
Total Electronic Shopping        462,576    1,198,544      
                     
Financial Investment Activities (0.02%)                    
Marsico Holdings, LLC, Common Interest Units (3), (5)   168,698    172,694    84,349    0.02%
                     
Full-Service Restaurants (0.16%)                    
RM Holdco, LLC, Membership Units (2), (3), (5)   13,161,000    2,010,777    849,478    0.16%
                     
Machine Shops; Turned Product; and Screw, Nut, and Bolt Manufacturing (0.00%)                    
Precision Holdings, LLC, Class C Membership Interests (3), (5)   33    1,396    21,317    - 
                     
Nonmetallic Mineral Mining and Quarrying (0.51%)                    
EPMC HoldCo, LLC, Membership Units (2), (5)   1,312,720    -    2,730,458    0.51%
                     
Radio and Television Broadcasting (0.06%)                    
SiTV, Inc., Warrants to Purchase Common Stock (3), (5)   233,470    300,322    336,197    0.06%
                     
Scheduled Air Transportation (1.83%)                    
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N913DL) (5), (6)   466    113,899    111,520    0.02%
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N918DL) (5), (6)   433    130,664    120,530    0.02%
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N954DL) (5), (6)   421    161,952    113,390    0.02%
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N955DL) (5), (6)   417    164,481    160,650    0.03%
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N956DL) (5), (6)   418    164,726    163,200    0.03%
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N957DL) (5), (6)   417    165,755    163,880    0.03%
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N959DL) (5), (6)   416    166,778    164,390    0.03%
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N960DL) (5), (6)   412    171,075    169,660    0.03%
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N961DL) (5), (6)   415    170,315    171,360    0.03%
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N976DL) (5), (6)   442    136,326    83,300    0.02%
United Airlines, Inc., Equipment Trust Beneficial Interests (N510UA) (2), (5)   43    151,759    479,682    0.09%
United Airlines, Inc., Equipment Trust Beneficial Interests (N512UA) (2), (5)   43    148,561    473,761    0.09%
United Airlines, Inc., Equipment Trust Beneficial Interests (N536UA) (2), (5)   62    298,394    624,746    0.12%
United Airlines, Inc., Equipment Trust Beneficial Interests (N545UA) (2), (5)   52    267,249    616,897    0.12%
United Airlines, Inc., Equipment Trust Beneficial Interests (N585UA) (2), (5)   43    167,806    583,391    0.11%
United N659UA-767, LLC (N659UA) (5), (6)   312    1,773,072    2,771,428    0.52%
United N661UA-767, LLC (N661UA) (5), (6)   303    1,759,997    2,789,809    0.52%
Total Scheduled Air Transportation        6,112,809    9,761,594      
                     
Semiconductor and Other Electronic Component Manufacturing (0.01%)                    
AIP/IS Holdings, LLC, Membership Units (3), (5)   352    -    68,922    0.01%
                     
Support Activities for Mining (0.61%)                    
DeepOcean Group Holding AS, Common Stock - (Norway) (3), (5)   145,824    3,477,627    3,255,535    0.61%

 

13
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Continued)

 

December 31, 2012

 

Showing Percentage of Total Cash and Investments of the Company

 

               Percent of 
           Fair   Cash and 
Investment  Shares   Cost   Value   Investments 
                 
Equity Securities (continued)                    
                     
Wired Telecommunications Carriers (1.55%)                    
Integra Telecom, Inc., Common Stock (3), (5)   1,274,522   $8,433,884   $5,038,718    0.94%
Integra Telecom, Inc., Warrants (3), (5)   346,939    19,920    -    - 
V Telecom Investment S.C.A, Common Shares - (Luxembourg) (3), (4), (5)   1,393    3,236,256    3,273,095    0.61%
Total Wired Telecommunications Carriers        11,690,060    8,311,813      
                     
Total Equity Securities        122,062,033    34,880,565      
                     
Total Investments (7)        609,070,368    517,683,087      
                     
Cash and Cash Equivalents             18,035,189    3.37%
                     
Total Cash and Investments            $535,718,276    100.00%

 

Notes to Statement of Investments:

 

(1)Investments in bank debt generally are bought and sold among institutional investors in transactions not subject to registration under the Securities Act of 1933. Such transactions are generally subject to contractual restrictions, such as approval of the agent or borrower.
(2)Non-controlled affiliate – as defined under the Investment Company Act of 1940 (ownership of between 5% and 25% of the outstanding voting securities of this issuer).
(3)Non-income producing security.
(4)Principal amount denominated in foreign currency. Amortized cost and fair value converted from foreign currency to US dollars. (See Note 2)
(5)Restricted security. (See Note 2)
(6)Controlled issuer – as defined under the Investment Company Act of 1940 (ownership of 25% or more of the outstanding voting securities of this issuer).
(7)Includes investments with an aggregate market value of $1,382,875 that have been segregated to collateralize certain unfunded commitments.

 

Aggregate acquisitions and aggregate dispositions of investments, other than government securities, totaled $359,020,926 and $211,216,033, respectively for the year ended December 31, 2012. Aggregate acquisitions includes investment assets received as payment in kind. Aggregate dispositions includes principal paydowns on and maturities of debt investments. The total value of restricted securities and bank debt as of December 31, 2012 was $507,680,996, or 94.8% of total cash and investments of the Company.

 

Swaps at December 31, 2012 were as follows:

 

Investment  Notional
Amount
   Fair Value 
         
Euro/US Dollar Cross-Currency Basis Swap, Pay Euros/Receive USD, Expires 5/16/14  $6,040,944   $179,364 

 

See accompanying notes.

 

14
 

 

TCP Capital Corp.

 

Consolidated Statements of Operations (Unaudited)

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2013   2012 (1)   2013   2012 (1) 
                 
Investment income                    
Interest income:                    
Unaffiliated issuers  $12,247,602   $8,824,978   $27,487,968   $16,977,526 
Controlled companies   312,268    -    642,585    - 
Other affiliates   1,202,653    1,562,916    2,096,165    3,245,630 
Dividend income:                    
Other affiliates   -    -    -    1,811,189 
Other income:                    
Unaffiliated issuers   419,415    520,580    576,948    520,580 
Controlled companies   168,604    -    311,515    - 
Other affiliates   118,653    177,984    219,756    345,858 
Total investment income   14,469,195    11,086,458    31,334,937    22,900,783 
                     
Operating expenses                    
Management and advisory fees   1,940,295    1,552,867    3,905,033    3,249,664 
Professional fees relating to the Conversion   -    -    -    411,523 
Administrative expenses   167,808    -    335,616    - 
Amortization of deferred debt issuance costs   142,914    109,771    251,478    219,542 
Legal fees, professional fees and due diligence expenses   162,152    270,991    301,204    361,776 
Interest expense   186,702    9,929    323,109    56,448 
Commitment fees   38,506    70,153    61,094    132,361 
Director fees   72,000    46,500    143,809    100,000 
Insurance expense   42,522    27,072    78,795    55,963 
Custody fees   30,232    23,469    59,651    46,503 
Other operating expenses   224,535    54,668    417,506    107,863 
Total operating expenses   3,007,666    2,165,420    5,877,295    4,741,643 
                     
Net investment income before taxes   11,461,529    8,921,038    25,457,642    18,159,140 
                     
Excise tax expense   -    -    -    502,978 
Net investment income   11,461,529    8,921,038    25,457,642    17,656,162 
                     
Net realized and unrealized gain (loss) on investments and foreign currency                    
Net realized gain (loss):                    
Investments in unaffiliated issuers   (4,095,160)   2,928,909    (3,577,502)   (3,104,104)
Investments in non-controlled affiliates   -    -    -    718,845 
Net realized gain (loss)   (4,095,160)   2,928,909    (3,577,502)   (2,385,259)
                     
Net change in net unrealized appreciation/depreciation   4,753,522    (5,426,269)   6,591,253    (4,999,802)
Net realized and unrealized gain (loss)   658,362    (2,497,360)   3,013,751    (7,385,061)
                     
Dividends paid on Series A preferred equity facility   (392,669)   (373,691)   (786,082)   (745,183)
Net change in accumulated dividends on Series A preferred equity facility   19,111    (23,786)   35,122    (67,093)
Distributions of incentive allocation to the General Partner from net investment income   (2,217,594)   -    (4,941,336)   - 
Distributions of incentive allocation to the General Partner from net realized gains   (258,441)   -    (258,441)   - 
Net change in reserve for incentive allocation   126,768    -    (344,310)   - 
                     
Net increase in net assets applicable to common  shareholders resulting from operations  $9,397,066   $6,026,201   $22,176,346   $9,458,825 
                     
Basic and diluted earnings per common share  $0.40   $0.28   $0.98    N/A 
Basic and diluted weighted average common shares outstanding   23,639,742    21,475,635    22,564,670    N/A 

 

See accompanying notes.

 

(1) Prior to the Conversion on April 2, 2012, the Company's portfolio had different objectives.

 

15
 

 

TCP Capital Corp.

 

Consolidated Statements of Changes in Net Assets (Unaudited)

 

   Common Stock   Paid in Capital   Accumulated
Net Investment
   Accumulated
Net Realized
   Accumulated
Net
Unrealized
   Total Net 
   Shares   Par Amount   in Excess of Par   Income   Losses   Depreciation   Assets 
                             
Balance at December 31, 2011   418,956   $419   $364,742,957   $13,515,239   $(45,411,498)  $(94,976,243)  $237,870,874 
                                    
Retirement of old common stock in the Conversion   (418,956)   (419)   419    -    -    -    - 
Issuance of common stock in the Conversion   15,725,635    15,726    (15,726)   -    -    -    - 
Issuance of common stock in public offering   5,750,000    5,750    80,956,005    -    -    -    80,961,755 
Issuance of common stock from dividend reinvestment plan   1,993    2    30,383    -    -    -    30,385 
Net increase in net assets applicable to common shareholders resulting from operations   -    -    -    38,717,561    (15,990,188)   3,205,937    25,933,310 
Dividends paid to common shareholders   -    -    -    (28,808,774)   -    -    (28,808,774)
Tax reclassification of stockholders' equity in accordance with generally accepted accounting principles   -    -    (1,479,978)   (897,847)   2,377,825    -    - 
Balance at December 31, 2012   21,477,628   $21,478   $444,234,060   $22,526,179   $(59,023,861)  $(91,770,306)  $315,987,550 
                                    
Issuance of common stock in public offering   5,175,000    5,175    78,171,615    -    -    -    78,176,790 
Issuance of common stock from dividend reinvestment plan   2,073    2    33,865    -    -    -    33,867 
Net increase in net assets applicable to common shareholders resulting from operations   -    -    -    19,162,595    (3,577,502)   6,591,253    22,176,346 
Dividends paid to common shareholders   -    -    -    (18,186,395)   -    -    (18,186,395)
Balance at June 30, 2013   26,654,701   $26,655   $522,439,540   $23,502,379   $(62,601,363)  $(85,179,053)  $398,188,158 

 

See accompanying notes.

 

16
 

 

TCP Capital Corp.

 

Consolidated Statements of Cash Flows (Unaudited)

 

   Six Months Ended June 30, 
   2013   2012 
         
Operating activities          
Net increase in net assets applicable to common shareholders resulting  from operations  $22,176,346   $9,458,825 
Adjustments to reconcile net increase in net assets applicable to common  shareholders resulting from operations to net cash provided by (used in) operating activities:          
Net realized loss   3,577,502    2,385,259 
Net change in unrealized appreciation/depreciation of investments   (6,611,142)   5,193,932 
Dividends paid on Series A preferred equity facility   786,082    745,183 
Net change in accumulated dividends on Series A preferred equity facility   (35,122)   67,093 
Net change in reserve for incentive allocation   344,310    - 
Accretion of original issue discount   (1,324,008)   (310,141)
Net accretion of market discount/premium   (81)   (958,708)
Interest and dividend income paid in kind   (546,987)   (1,149,175)
Amortization of deferred debt issuance costs   251,478    219,542 
Changes in assets and liabilities:          
Purchases of investment securities   (170,316,516)   (164,402,124)
Proceeds from sales, maturities and paydowns of investments   121,049,823    85,617,208 
Decrease (increase) in accrued interest income - unaffiliated issuers   (1,444,027)   328,752 
Decrease in accrued interest income - controlled companies   5,751    - 
Increase in accrued interest income - other affiliates   (324,728)   (327,431)
Decrease in receivable for investments sold   5,032,415    4,083,716 
Decrease (increase) in prepaid expenses and other assets   (696,123)   1,195,151 
Increase in payable for investments purchased   28,364,525    1,908,878 
Increase in payable to the Investment Manager   515,806    1,804,996 
Increase (decrease) in management and advisory fees payable   1,940,295    (565,599)
Increase (decrease) in interest payable   106,748    (41,140)
Increase in incentive allocation payable   2,476,035    - 
Decrease in accrued expenses and other liabilities   (746,408)   (422,551)
Net cash provided by (used in) operating activities   4,581,974    (55,168,334)
           
Financing activities          
Proceeds from draws on credit facilities   52,000,000    74,000,000 
Principal repayments on credit facilities   (93,000,000)   (86,000,000)
Payments of debt issuance costs   (789,675)   - 
Dividends paid on Series A preferred equity facility   (786,082)   (745,183)
Dividends paid to common shareholders   (18,186,395)   (12,701,716)
Proceeds from shares issued in connection with dividend reinvestment plan   33,867    - 
Proceeds from common shares sold, net of underwriting and offering costs   78,176,790    80,991,755 
Net cash provided by financing activities   17,448,505    55,544,856 
           
Net increase in cash and cash equivalents   22,030,479    376,522 
Cash and cash equivalents at beginning of period   18,035,189    10,831,678 
Cash and cash equivalents at end of period  $40,065,668   $11,208,200 
           
Supplemental cash flow information          
Interest payments  $216,361   $51,069 
Excise tax payments   969,946    502,978 

 

See accompanying notes.

 

17
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited)

 

June 30, 2013

 

1. Organization and Nature of Operations

 

TCP Capital Corp. (the “Company”) is a Delaware corporation formed on April 2, 2012 as an externally managed, closed-end, non-diversified management investment company. The Company elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company’s investment objective is to achieve high total returns through current income and capital appreciation, with an emphasis on principal protection. The Company invests primarily in the debt of middle-market companies, including senior secured loans, junior loans, mezzanine debt and bonds. Such investments may include an equity component, and, to a lesser extent, the Company may make equity investments directly. Investment operations are conducted in Special Value Continuation Partners, LP, a Delaware limited partnership (the “Partnership”), of which the Company owns 100% of the common limited partner interests, or in TCPC Funding I, LLC, a Delaware limited liability company (“TCPC Funding”), which is a wholly owned subsidiary of the Partnership. The Partnership has also elected to be treated as a BDC under the 1940 Act. These consolidated financial statements include the accounts of the Company, the Partnership and TCPC Funding. All significant intercompany transactions and balances have been eliminated in the consolidation.

 

The Company was formed through the conversion on April 2, 2012 of the Company’s predecessor, Special Value Continuation Fund, LLC (“SVCF”), from a limited liability company to a corporation in a non-taxable transaction, leaving the Company as the surviving entity (the “Conversion”). At the time of the Conversion, all limited liability company interests were exchanged for 15,725,635 shares of common stock in the Company. As a result of the Conversion, the books and records of SVCF have become the books and records of the surviving entity. On April 3, 2012, the Company completed its initial public offering. For periods prior to April 2, 2012, the consolidated financial statements and related footnotes reflect the performance of SVCF. Per share amounts prior to the conversion are not considered useful and have been marked as “N/A” in the consolidated financial statements.

 

The Company has elected to be treated as a regulated investment company (“RIC”) for U.S. federal income tax purposes. As a RIC, the Company will not be taxed on its income to the extent that it distributes such income each year and satisfies other applicable income tax requirements. The Partnership and TCPC Funding have elected to be treated as partnerships for U.S. federal income tax purposes. The General Partner of the Partnership is SVOF/MM, LLC, which also serves as the administrator of the Company and the Partnership (the “Administrator”). The managing member of the Administrator is Tennenbaum Capital Partners, LLC (the “Advisor”), which serves as the Investment Manager to the Company, the Partnership, and TCPC Funding. Most of the equity interests in the General Partner are owned directly or indirectly by the Advisor and its employees.

 

18
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2013

 

1. Organization and Nature of Operations (continued)

 

Company management consists of the Investment Manager and the Board of Directors. Partnership management consists of the General Partner and the Board of Directors. The Investment Manager and the General Partner direct and execute the day-to-day operations of the Company and the Partnership, respectively, subject to oversight from the respective Board of Directors, which sets the broad policies of the Company and performs certain functions required by the 1940 Act in the case of the Partnership.

 

The Board of Directors of the Partnership has delegated investment management of the Partnership’s assets to the Investment Manager. At June 30, 2013, each Board of Directors consists of five persons, three of whom are independent. If the Company or the Partnership has preferred equity interests outstanding, as the Partnership currently does, the holders of the preferred interests voting separately as a class are entitled to elect two of the Directors. The remaining directors will be subject to election by holders of the common shares and preferred interests voting together as a single class.

 

Preferred Equity

 

At June 30, 2013, the Partnership had 6,700 Series A preferred limited partner interests (the “Preferred Interests”) issued and outstanding with a liquidation preference of $20,000 per preferred limited interest. The Preferred Interests are redeemable at the option of the Partnership, subject to certain conditions. Additionally, under certain conditions, the Partnership may be required to either redeem certain of the Preferred Interests or repay indebtedness, at the Partnership’s option. Such conditions would include a failure by the Partnership to maintain adequate collateral as required by its credit facility agreement or by the Statement of Preferences of the Preferred Interests or a failure by the Partnership to maintain sufficient asset coverage as required by the 1940 Act. As of June 30, 2013, the Partnership was in full compliance with such requirements.

 

The Preferred Interests accrue dividends at an annual rate equal to LIBOR plus 0.85% or, in the case of any holders of Preferred Interests that are CP Conduits (as defined in the leveraging documents), the higher of (i) LIBOR plus 0.85% or (ii) the CP Conduit’s cost of funds rate plus 0.85%, subject to certain limitations and adjustments.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The following is a summary of the significant accounting policies of the Company and the Partnership.

 

19
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2013

 

2. Summary of Significant Accounting Policies (continued)

 

Use of Estimates

 

The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates and assumptions to be reasonable, actual results could differ from those estimates.

 

Investment Valuation

 

The Company’s investments are generally held by the Partnership or TCPC Funding. Management values investments at fair value based upon the principles and methods of valuation set forth in policies adopted by the Partnership’s Board of Directors and in conformity with procedures set forth in the Senior Facilities, as defined in Note 4, below, and the Statement of Preferences for the Preferred Interests. Fair value is generally defined as the amount for which an investment would be sold in an orderly transaction between market participants at the measurement date.

 

All investments are valued at least quarterly based on affirmative pricing or quotations from independent third-party sources, with the exception of investments priced directly by the Investment Manager which together comprise, in total, less than 5% of the capitalization of the Partnership. Investments listed on a recognized exchange or market quotation system, whether U.S. or foreign, are valued for financial reporting purposes as of the last business day of the reporting period using the closing price on the date of valuation. Liquid investments not listed on a recognized exchange or market quotation system are valued using prices provided by a nationally recognized pricing service or by using quotations from broker-dealers. Investments not priced by a pricing service or for which market quotations are either not readily available or are determined to be unreliable are valued using affirmative valuations performed by independent valuation services or, for investments aggregating less than 5% of the total capitalization of the Partnership, directly by the Investment Manager.

 

Fair valuations of investments are determined under guidelines adopted by the Boards of Directors of the Company and the Partnership, and are subject to their approval. Generally, to increase objectivity in valuing the investments, the Investment Manager will utilize external measures of value, such as public markets or third-party transactions, whenever possible. The Investment Manager’s valuation is not based on long-term work-out value, immediate liquidation value, nor incremental value for potential changes that may take place in the future. The values assigned to investments that are valued by the Investment Manager are based on available information and do not necessarily represent amounts that might ultimately be realized, as these amounts depend on future circumstances and cannot reasonably be determined until the individual investments are actually liquidated. The foregoing policies apply to all investments, including those in companies and groups of affiliated companies aggregating more than 5% of the Company’s assets.

 

20
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2013

 

2. Summary of Significant Accounting Policies (continued)

 

Fair valuations of investments in each asset class are determined using one or more methodologies including the market approach, income approach, or, in the case of recent investments, the cost approach, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present value amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that may be taken into account include, as relevant:  available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, our principal market and enterprise values, among other factors.

 

Unobservable inputs used in the fair value measurement of Level 3 investments as of June 30, 2013 included the following:

 

Asset Type  Fair Value   Valuation Technique  Unobservable Input  Range (Weighted Avg.)
Bank Debt  $348,965,723   Market rate approach  Market yields  4.6% - 17.6% (10.8%)
        Market quotations  Indicative bid/ask quotes  1 - 2 (1)
        Market comparable companies  Revenue multiples  0.4x (0.4x)
        Market comparable companies  EBITDA multiples  6.5x – 10.0x (9.4x)
Other Corporate Debt  $34,229,552   Market rate approach  Market yields  14.2% (14.2%)
        Market quotations  Indicative bid/ask quotes  1 (1)
        Market comparable companies  EBITDA multiples  6.5x - 10.0x (8.1x)
Equity  $36,639,463   Market rate approach  Market yields  7.0% - 18.0% (12.4%)
        Market quotations  Indicative bid/ask quotes  1 (1)
        Market comparable companies  Revenue multiples  0.4x - 1.1x (1.1x)
        Market comparable companies  EBITDA multiples  3.4x – 8.9x (5.7x)

 

Generally, a change in an unobservable input may result in a change to the value of an investment as follows:

 

Input   Impact to Value if
Input Increases
  Impact to Value if
Input Decreases
Market yields   Decrease   Increase
Revenue multiples   Increase   Decrease
EBITDA multiples   Increase   Decrease

 

Investments may be categorized based on the types of inputs used in valuing such investments. The level in the GAAP valuation hierarchy in which an investment falls is based on the lowest level input that is significant to the valuation of the investment in its entirety. Transfers between levels are recognized as of the beginning of the reporting period.

 

21
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2013

 

2. Summary of Significant Accounting Policies (continued)

 

At June 30, 2013, the Company’s investments were categorized as follows:

 

Level  Basis for Determining Fair Value  Bank Debt   Other
Corporate Debt
   Equity
Securities
 
1  Quoted prices in active markets for identical assets  $-   $-   $894,571 
2  Other observable market inputs*   101,706,681    49,326,054    - 
3  Independent third-party pricing sources that employ significant unobservable inputs   348,965,723    26,638,820    35,306,315 
3  Investment Manager valuations with significant unobservable inputs   -    7,590,732    1,333,148 
Total     $450,672,404   $83,555,606   $37,534,034 

 

* For example, quoted prices in inactive markets or quotes for comparable investments.

 

Changes in investments categorized as Level 3 during the six months ended June 30, 2013 were as follows:

 

   Independent Third-Party Valuation 
   Bank Debt   Other
Corporate Debt
   Equity
Securities
 
Beginning balance  $359,343,326   $17,171,637   $32,675,370 
Net realized and unrealized gains (losses)   (1,850,044)   7,821,477    (4,860,276)
Acquisitions   106,094,345    7,596,680    9,675,533 
Dispositions   (55,970,621)   (15,172,634)   (2,184,312)
Transfers out of Level 3    (58,651,283)   -    - 
Transfers into Level 3††    -    9,221,660    - 
Ending balance  $348,965,723   $26,638,820   $35,306,315 
                
Net change in unrealized appreciation/ depreciation during the period on investments still held at period end (included in net realized and unrealized gains/losses, above)  $(412,366)  $1,870,504   $2,101,209 

 

† Comprised of eight investments that transferred to Level 2 due to increased observable market activity.

†† Comprised of one investment that transferred from Level 2 due to reduced trading volumes.

 

22
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2013

 

 2. Summary of Significant Accounting Policies (continued)

 

   Investment Manager Valuation 
   Bank Debt   Other
Corporate Debt
   Equity
Securities
 
Beginning balance  $-   $7,167,458   $1,424,764 
Net realized and unrealized gains (losses)   -    353,516    (91,616)
Acquisitions   -    69,758    - 
Ending balance  $-   $7,590,732   $1,333,148 
                
Net change in unrealized appreciation/ depreciation during the period on investments still held at period end (included in net realized and unrealized gains/losses, above)  $-   $353,516   $(91,615)

 

There were no transfers between Level 1 and 2 during the six months ended June 30, 2013.

 

At December 31, 2012, the Company’s investments were categorized as follows:

 

Level  Basis for Determining Fair Value  Bank Debt   Other
Corporate Debt
   Equity
Securities
 
1  Quoted prices in active markets for identical assets  $-   $-   $780,431 
2  Other observable market inputs*   45,667,016    53,453,085    - 
3  Independent third-party pricing sources that employ significant  unobservable inputs   359,343,326    17,171,637    32,675,370 
3  Investment Manager valuations with significant unobservable inputs   -    7,167,458    1,424,764 
Total     $405,010,342   $77,792,180   $34,880,565 

 

* For example, quoted prices in inactive markets or quotes for comparable investments.

 

23
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2013

 

2. Summary of Significant Accounting Policies (continued)

 

Changes in investments categorized as Level 3 during the year ended December 31, 2012 were as follows:

 

   Independent Third-Party Valuation 
   Bank Debt   Other
Corporate Debt
   Equity
Securities
 
Beginning balance  $159,949,811   $24,061,229   $68,114,764 
Net realized and unrealized losses   (8,709,385)   (6,540,882)   (7,100,618)
Acquisitions   288,929,785    3,731,290    9,584,408 
Dispositions   (84,994,292)   -    (37,923,184)
Transfers out of Level 3    -    (4,080,000)   - 
Transfers into Level 3 ††   4,167,407    -    - 
Ending balance  $359,343,326   $17,171,637   $32,675,370 
                
Net change in unrealized appreciation/ depreciation during the period on investments still held at period end (included in net realized and unrealized losses, above)  $(5,856,277)  $127,255   $(9,797,319)

 

Comprised of one investment that transferred to Level 2 due to increased trading volumes.

†† Comprised of one investment that transferred from Level 2 due to reduced trading volumes.

 

   Investment Manager Valuation 
   Bank Debt   Other
Corporate Debt
   Equity
Securities
 
Beginning balance  $51,436   $7,464,188   $1,252,190 
Net realized and unrealized gains (losses)   -    284,156    274,554 
Acquisitions   -    148,281    - 
Dispositions   -    (729,167)   (5,842)
Transfers out of Level 3 #   -    -    (147,574)
Reclassifications within Level 3 ##   (51,436)   -    51,436 
Ending balance  $-   $7,167,458   $1,424,764 
                
Net change in unrealized appreciation/depreciation during the period on investments still held at period end (included in net realized and unrealized gains/losses, above)  $-   $272,637   $274,555 

 

# Comprised of one investment that transferred to Level 2 due to increased trading volumes.

## Comprised of claims in the liquidation of a portfolio company that were reclassified as equity.

 

There were no transfers between Level 1 and 2 during the year ended December 31, 2012.

 

Investment Transactions

 

Investment transactions are recorded on the trade date, except for private transactions that have conditions to closing, which are recorded on the closing date. The cost of investments purchased is based upon the purchase price plus those professional fees which are specifically identifiable to the investment transaction. Realized gains and losses on investments are recorded based on the identification method, which typically allocates the highest cost inventory to the basis of investments sold.

 

24
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2013

 

2. Summary of Significant Accounting Policies (continued)

 

 Cash and Cash Equivalents

 

Cash consists of amounts held in accounts with brokerage firms and the custodian bank. Cash equivalents consist of highly liquid investments with an original maturity of three months or less.

 

Repurchase Agreements

 

In connection with transactions in repurchase agreements, it is the Company’s policy that the custodian take possession of the underlying collateral, the fair value of which is required to exceed the principal amount of the repurchase transaction, including accrued interest, at all times. If the seller defaults, and the fair value of the collateral declines, realization of the collateral may be delayed or limited.

 

Restricted Investments

 

The Company may invest without limitation in instruments that are subject to legal or contractual restrictions on resale. These instruments generally may be resold to institutional investors in transactions exempt from registration or to the public if the securities are registered. Disposal of these investments may involve time-consuming negotiations and additional expense, and prompt sale at an acceptable price may be difficult. Information regarding restricted investments is included at the end of the Consolidated Statement of Investments. Restricted investments, including any restricted investments in affiliates, are valued in accordance with the investment valuation policies discussed above.

   

Foreign Investments

 

The Company may invest in instruments traded in foreign countries and denominated in foreign currencies. Foreign currency denominated investments comprised approximately 1.5% and 1.6% of total investments at June 30, 2013 and December 31, 2012, respectively. Such positions were converted at the respective closing rate in effect at June 30, 2013 and December 31, 2012 and reported in U.S. dollars. Purchases and sales of investments and income and expense items denominated in foreign currencies, when they occur, are translated into U.S. dollars on the respective dates of such transactions. The portion of gains and losses on foreign investments resulting from fluctuations in foreign currencies is included in net realized and unrealized gain or loss from investments. 

 

25
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2013

 

 2. Summary of Significant Accounting Policies (continued)

 

Investments in foreign companies and securities of foreign governments may involve special risks and considerations not typically associated with investing in U.S. companies and securities of the U.S. government. These risks include, among other things, revaluation of currencies, less reliable information about issuers, different transactions clearance and settlement practices, and potential future adverse political and economic developments. Moreover, investments in foreign companies and securities of foreign governments and their markets may be less liquid and their prices more volatile than those of comparable U.S. companies and the U.S. government.

 

Derivatives

 

In order to mitigate certain currency exchange and interest rate risks, the Partnership has entered into several swap, forward currency and option transactions. All derivatives are recognized as either assets or liabilities in the Statement of Assets and Liabilities. The transactions entered into are accounted for using the mark-to-market method with the resulting change in fair value recognized in earnings for the current period. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in interest rates and the value of foreign currency relative to the U.S. dollar.

 

Neither the Partnership nor TCPC Funding entered into any new derivative transactions during the six months ended June 30, 2013 or June 30, 2012. At June 30, 2013 and June 30, 2012, the Partnership held a cross currency basis swap with a notional amount of $6,040,944. Gains and losses from derivatives during the six months ended June 30, 2013 were included in net realized and unrealized loss on investments in the Statement of Operations as follows:

 

Instrument  Realized Gains/(Losses)   Unrealized Gains/(Losses) 
Cross currency basis swaps  $-   $92,452 

 

Gains and losses from derivatives during the six months ended June 30, 2012 were included in net realized and unrealized loss on investments in the Statement of Operations as follows:

 

Instrument  Realized Gains/(Losses)   Unrealized Gains/(Losses) 
Cross currency basis swaps  $-   $265,488 

 

Valuations of swaps held at June 30, 2013 and June 30, 2012 were determined using observable market inputs other than quoted prices in active markets for identical assets and, accordingly, are classified as Level 2 in the GAAP valuation hierarchy.

 

Debt Issuance Costs

 

Costs of approximately $3.5 million were incurred during 2006 in connection with placing the Partnership’s revolving credit facility. These costs were deferred and are being amortized on a straight-line basis over eight years, the estimated life of the facility. The impact of utilizing the straight-line amortization method versus the effective-interest method is not material to the operations of the Company or the Partnership.

 

26
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2013

 

2. Summary of Significant Accounting Policies (continued)

 

Costs of approximately $0.8 million were incurred during 2013 in connection with placing TCPC Funding’s revolving credit facility (See Note 4). These costs were deferred and are being amortized on a straight-line basis over three years, the estimated life of that facility. The impact of utilizing the straight-line amortization method versus the effective-interest method is not material to the operations of the Company, the Partnership or TCPC Funding.

 

Revenue Recognition

 

Interest and dividend income, including income paid in kind, is recorded on an accrual basis. Origination, structuring, closing, commitment and other upfront fees earned with respect to capital commitments are generally amortized or accreted into interest income over the life of the respective debt investment. Other fees, including certain amendment fees, prepayment fees and commitment fees on broken deals, are recognized as earned. Prepayment fees and similar income received upon the early repayment of a loan or debt security are included in interest income.

 

Certain debt investments are purchased at a considerable discount to par as a result of the underlying credit risks and financial results of the issuer, as well as general market factors that influence the financial markets as a whole. GAAP generally requires that discounts on the acquisition of corporate bonds, municipal bonds and treasury bonds be amortized using the effective-interest or constant-yield method. GAAP also requires the collectability of interest to be considered when making accruals. Accordingly, when accounting for purchase discounts, discount accretion income is recognized when it is probable that such amounts will be collected, generally at disposition. When principal payments on a loan are received in an amount in excess of the loan’s amortized cost, the excess principal payments are recorded as interest income.

 

Income Taxes

 

The Company intends to comply with the applicable provisions of the Internal Revenue Code of 1986, as amended, pertaining to regulated investment companies and to make distributions of taxable income sufficient to relieve it from substantially all federal income taxes. Accordingly, no provision for income taxes is required in the consolidated financial statements. The income or loss of the Partnership and TCPC Funding is reported in the respective partners’ income tax returns. In accordance with ASC Topic 740 – Income Taxes, the Company recognizes in its consolidated financial statements the effect of a tax position when it is determined that such position is more likely than not, based on the technical merits, to be sustained upon examination. As of June 30, 2013, all tax years of the Company, the Partnership, and TCPC Funding since January 1, 2009 remain subject to examination by federal tax authorities. No such examinations are currently pending.

 

27
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2013

 

2. Summary of Significant Accounting Policies (continued)

 

During the six months ended June 30, 2013, the Company paid $969,946 in excise taxes related to income earned in 2012. During the six months ended June 30, 2012, the Company paid $502,978 in excise taxes related to income earned in 2011.

  

Cost and unrealized appreciation and depreciation of investments (including derivatives) for U.S. federal income tax purposes at June 30, 2013 were as follows:

 

Unrealized appreciation  $25,487,957 
Unrealized depreciation   (112,084,690)
Net unrealized depreciation   (84,596,733)
      
Cost  $656,630,593 

 

3. Management Fees, Incentive Compensation and Other Expenses

 

Following the Conversion, the Company’s management fee is calculated at an annual rate of 1.5% of total assets (excluding cash and cash equivalents) on a consolidated basis as of the beginning of each quarter and is payable to the Investment Manager quarterly in arrears.

 

Incentive compensation is only paid to the extent the total performance of the Company exceeds a cumulative 8% annual return since January 1, 2013 (the “Total Return Hurdle”). The Company did not incur any incentive compensation prior to January 1, 2013. Beginning January 1, 2013, the incentive compensation equals 20% of net investment income (reduced by preferred dividends) and 20% of net realized gains (reduced by any net unrealized losses), subject to the Total Return Hurdle. The incentive compensation is payable quarterly in arrears as an allocation and distribution to the General Partner and is calculated as the difference between cumulative incentive compensation earned since January 1, 2013 and cumulative incentive compensation paid since January 1, 2013. A reserve for incentive compensation is accrued based on incentive compensation distributable to the General Partner assuming a hypothetical liquidation of the Company at net asset value on the balance sheet date. At June 30, 2013, the General Partner’s equity interest in the Partnership was comprised entirely of the reserve amount and is reported as a minority interest in the consolidated financial statements of the Company.

 

Prior to the Conversion, the Investment Manager received an annual management and advisory fee, payable monthly in arrears, equal to 1.0% of committed capital, defined as the sum of the maximum amount of the Preferred Interests, the maximum amount available under the revolving credit facility, the initial value of the contributed general partnership equity and the initial value of the contributed common equity, subject to reduction by the amount of the revolving credit facility commitment when the facility is no longer outstanding, and by the amount of the Preferred Interests when less than $1 million in liquidation preference of preferred securities remains outstanding. In addition to the management fee, the General Partner was entitled to a performance allocation equal to 20% of all cumulative income and gain distributions, subject to an 8% hurdle on undistributed contributed equity with a catch up for the General Partner.

 

28
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2013

 

3. Management Fees, Incentive Compensation and Other Expenses (continued)

 

The Company and the Partnership bear all respective expenses incurred in connection with the business of the Company and the Partnership, including fees and expenses of outside contracted services, such as custodian, administrative, legal, audit and tax preparation fees, costs of valuing investments, insurance costs, brokers’ and finders’ fees relating to investments, and any other transaction costs associated with the purchase and sale of investments.

 

4. Debt

 

At June 30, 2013 and December 31, 2012, debt was comprised of amounts outstanding under senior secured revolving credit facilities issued by the Partnership (the “Partnership Facility”) and TCPC Funding (the “TCPC Funding Facility,” and, together with the Partnership Facility, the “Senior Facilities”) as follows:

 

   June 30, 2013   December 31, 2012 
Partnership Facility  $8,000,000   $74,000,000 
TCPC Funding Facility   25,000,000    - 
Total Debt  $33,000,000   $74,000,000 

 

Partnership Facility

 

The Partnership Facility provides for amounts to be drawn up to $116 million, subject to certain collateral and other restrictions. The facility matures July 31, 2014, subject to extension by the lenders at the request of the Partnership for one 12-month period. Most of the cash and investments held directly by the Partnership, as well as the net assets of TCPC Funding, are included in the collateral for the facility.

 

Advances under the Partnership Facility bear interest at LIBOR plus 0.44% per annum, except in the case of loans from CP Conduits, which bear interest at the higher of LIBOR plus 0.44% or the CP Conduit’s cost of funds plus 0.44%, subject to certain limitations. The weighted-average interest rate on outstanding borrowing at June 30, 2013 and December 31, 2012 was 0.72% and 0.65%, respectively. In addition to amounts due on outstanding debt, the facility accrues commitment fees of 0.20% per annum on the unused portion of the facility, or 0.25% per annum when less than $46.4 million in borrowings are outstanding. The facility may be terminated, and any outstanding amounts thereunder may become due and payable, should the Partnership fail to satisfy certain financial or other covenants. As of June 30, 2013, the Partnership was in full compliance with such covenants.

 

29
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2013

 

4. Debt (continued)

 

TCPC Funding Facility

 

The TCPC Funding Facility, issued on May 17, 2013, provides for amounts to be drawn up to $25 million, subject to certain collateral and other restrictions. The facility automatically increases to $50 million on August 13, 2013. The facility matures May 17, 2016, subject to extension by the lender at the request of TCPC Funding, and contains an accordion feature which allows for expansion of the facility up to $100 million subject to consent from the lender and other customary conditions. The cash and investments of TCPC Funding are included in the collateral for the facility.

 

Borrowings under the TCPC Funding Facility bear interest at a rate of LIBOR plus 2.75% per annum. In addition to amounts due on outstanding debt, the facility accrues commitment fees of 0.75% per annum on the unused portion of the facility, or 1.00% per annum when the unused portion is greater than 33% of the total facility. The facility may be terminated, and any outstanding amounts thereunder may become due and payable, should TCPC Funding fail to satisfy certain financial or other covenants. As of June 30, 2013, TCPC Funding was in full compliance with such covenants.

 

The condensed balance sheet of TCPC Funding at June 30, 2013 was as follows:

 

Assets:     
Cash  $6,543,879 
Investments   44,756,343 
Other assets   1,081,047 
Total assets  $52,381,269 
      
Liabilities:     
Debt  $25,000,000 
Payables   94,503 
Total liabilities   25,094,503 
      
Equity   27,286,766 
Total liabilities and equity  $52,381,269 

 

30
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2013

 

5. Commitments, Concentration of Credit Risk and Off-Balance Sheet Risk

 

The Partnership and TCPC Funding conduct business with brokers and dealers that are primarily headquartered in New York and Los Angeles and are members of the major securities exchanges. Banking activities are conducted with a firm headquartered in the New York area.

 

In the normal course of business, investment activities involve executions, settlement and financing of various transactions resulting in receivables from, and payables to, brokers, dealers and the custodian. These activities may expose the Company, the Partnership, and TCPC Funding to risk in the event that such parties are unable to fulfill contractual obligations. Management does not anticipate any material losses from counterparties with whom it conducts business. Consistent with standard business practice, the Company, the Partnership, and TCPC Funding enter into contracts that contain a variety of indemnifications, and are engaged from time to time in various legal actions. The maximum exposure under these arrangements and activities is unknown. However, management expects the risk of material loss to be remote.

 

The Consolidated Statement of Investments includes certain revolving loan facilities held by the Partnership with aggregate unfunded balances of $5,580,000 at June 30, 2013.

 

6. Related Parties

 

The Company, the Partnership, TCPC Funding, the Investment Manager, the General Partner and their members and affiliates may be considered related parties. From time to time, the Partnership advances payments to third parties on behalf of the Company which are reimbursable through deductions from distributions to the Company. At June 30, 2013, no such amounts were outstanding. From time to time, the Investment Manager advances payments to third parties on behalf of the Company and the Partnership and receives reimbursement from the Company and the Partnership. At June 30, 2013, amounts reimbursable to the Investment Manager totaled $625,006, as reflected in the Consolidated Statement of Assets and Liabilities.

 

Pursuant to administration agreements between the Administrator and each of the Company and the Partnership (the “Administration Agreements”), the Administrator may be reimbursed for costs and expenses incurred by the Administrator for office space rental, office equipment and utilities allocable to the Company or the Partnership, as well as costs and expenses incurred by the Administrator or its affiliates relating to any administrative, operating, or other non-investment advisory services provided by the Administrator or its affiliates to the Company or the Partnership. For the six months ended June 30, 2013, expenses allocated pursuant to the Administration Agreements totaled $335,616. The Administrator waived reimbursement of all administrative expenses prior to January 1, 2013.

 

31
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2013

 

7. Stockholders’ Equity and Dividends

 

The following table summarizes the total shares issued and proceeds received in the public offering of the Company’s common stock net of underwriting discounts and offering costs as well as shares issued in connection with the Company’s dividend reinvestment plan for the six months ended June 30, 2013.

 

   Shares Issued   Price Per Share   Net Proceeds 
May 21, 2013 public offering   5,175,000   $15.63   $78,176,790 
Shares issued from dividend reinvestment plan   2,073   $16.34   $33,865 

 

The following table summarizes the total shares issued and proceeds received in the public offering of the Company’s common stock net of underwriting discounts and offering costs as well as shares issued in connection with the Company’s dividend reinvestment plan for the year ended December 31, 2012.

 

   Shares Issued   Price Per Share   Net Proceeds 
April 3, 2012 initial public offering   5,750,000   $14.75   $80,961,755 
Shares issued from dividend reinvestment plan   1,993   $15.25   $30,385 

 

The Company’s dividends are recorded on the ex-dividend date. The following table summarizes the Company’s dividends declared for the six months ended June 30, 2013:

 

Date Declared  Record Date  Payment Date  Amount Per Share   Total Amount 
March 7, 2013  March 18, 2013  March 29, 2013  $0.40*  $8,591,051 
May 8, 2013  June 7, 2013  June 28, 2013  $0.36   $9,595,344 

 

* Includes a special dividend of $0.05.

 

The following table summarizes the Company’s dividends declared for the year ended December 31, 2012:

 

Date Declared  Record Date  Payment Date  Amount Per Share   Total Amount 
March 9, 2012  March 9, 2012  April 3, 2012  $0.34*  $5,400,000 
April 3, 2012  June 15, 2012  June 29, 2012  $0.34   $7,301,716 
August 9, 2012  September 14, 2012  September 28, 2012  $0.35   $7,516,472 
November 7, 2012  December 17, 2012  December 31, 2012  $0.40**  $8,590,586 

 

*Based on 15,725,635 pro-forma converted shares before the initial public offering.

** Includes a special dividend of $0.05.

 

32
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2013

 

8. Earnings Per Share

 

The following information sets forth the computation of the net increase in net assets per share resulting from operations for the six months ended June 30, 2013:

 

    Six Months Ended
June 30, 2013
 
Net increase in net assets applicable to common shareholders resulting from operations   $ 22,176,346  
Weighted average shares outstanding     22,564,670  
Earnings per share   $ 0.98  

 

9. Subsequent Events

 

On August 8, 2013, the Company’s board of directors declared a third quarter cash dividend of $0.36 per share payable on September 30, 2013 to stockholders of record as of the close of business on September 9, 2013.

 

10. Financial Highlights

 

   Six Months
Ended
 
   June 30, 2013 
Per Common Share     
Per share NAV at the beginning of period  $14.71 
      
Investment operations:     
Net investment income   1.13 
Net realized and unrealized gain (loss)   0.13 
Dividends on Series A preferred equity facility   (0.03)
Incentive allocation reserve and distributions   (0.25)
 Total from investment operations   0.98 
      
Issuance of common stock   0.01 
Distributions to common shareholders from:     
Net investment income   (0.76)
Per share NAV at end of period  $14.94 
      
Per share market price at end of period  $16.77 
      
Total return based on market value (1), (2)   18.9%
Total return based on net asset value (1), (2)   6.7%
      
Shares outstanding at end of period   26,654,701 

 

33
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2013

 

 10. Financial Highlights (continued)

 

   Six Months
Ended
 
   June 30, 2013 
Ratios to average common equity: (4), (5)     
Net investment income (6)   13.5%
Expenses   3.4%
Expenses and incentive allocation (7)   4.8%
      
Ending common shareholder equity  $398,188,158 
Portfolio turnover rate (1)   22.6%
Weighted-average debt outstanding  $68,712,707 
Weighted-average interest rate on debt   0.9%
Weighted-average number of common shares   22,564,670 
Average debt per share  $3.05 

 

(1)Not annualized.
(2)Total return based on market value equals the change in ending market value per share during the period plus declared dividends per share during the period, divided by the market value per share at the beginning of the period.
(3)Total return based on net asset value equals the change in net asset value per share during the period plus declared dividends per share during the period, divided by the beginning net asset value per share at the beginning of the period.
(4)Annualized, except for incentive allocation.
(5)These ratios include interest expense but do not reflect the effect of dividends on the preferred equity facility.
(6)Net of incentive allocation.
(7)Includes incentive allocation payable to the General Partner and all Company expenses.

 

34
 

 

TCP Capital Corp.

 

Consolidated Schedule of Changes in Investments in Affiliates (1) (Unaudited)

 

Six Months Ended June 30, 2013

 

Security  Value,
Beginning of
Period
   Acquisitions   Dispositions (2)   Value,
End of
Period
 
                 
AGY Holding Corp., Senior Secured Term Loan, 12%, due 9/15/16  $-   $2,056,927   $-   $2,056,927 
AGY Holding Corporation, Senior Secured 2nd Lien Notes, 11%, due 11/15/16   -    7,586,317    -    9,128,980 
Anacomp, Inc., Class A Common Stock   1,255,527    -    -    1,016,977 
EPMC HoldCo, LLC, Membership Units   2,730,458    -    (891,206)   2,152,862 
ESP Holdings, Inc., Cumulative Preferred 15%   3,643,088    -    -    3,947,863 
ESP Holdings, Inc., Common Stock   2,263,124    -    -    2,782,460 
ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes, 6% Cash + 10% PIK, due 12/31/19   7,134,137    -    -    7,209,840 
KAGY Holding Company, Inc., Series A Preferred Stock   -    8,096,057         1,092,858 
N510UA Aircraft Secured Mortgage, 20%, due 10/26/16   548,340    -    (38,760)   473,195 
N512UA Aircraft Secured Mortgage, 20%, due 10/26/16   556,225    -    (37,927)   481,935 
N536UA Aircraft Secured Mortgage, 16%, due 9/29/14   277,780    -    (68,707)   197,695 
N545UA Aircraft Secured Mortgage, 16%, due 8/29/15   436,810    -    (61,569)   359,005 
N585UA Aircraft Secured Mortgage, 20%, due 10/25/16   653,220    -    (44,532)   565,915 
N659UA Aircraft Secured Mortgage, 12%, due 2/28/16   4,264,148    -    (484,730)   3,485,737 
N661UA Aircraft Secured Mortgage, 12%, due 5/4/16   4,351,424    -    (470,089)   3,788,310 
N510UA Equipment Trust Beneficial Interests   479,682    38,760    (17,956)   487,575 
N512UA Equipment Trust Beneficial Interests   473,761    37,927    (17,662)   480,801 
N536UA Equipment Trust Beneficial Interests   624,746    68,707    (22,601)   653,724 
N545UA Equipment Trust Beneficial Interests   616,897    61,697    (23,768)   656,847 
N585UA Equipment Trust Beneficial Interests   583,391    44,532    (23,388)   594,043 
N913DL Aircraft Secured Mortgage, 8%, due 3/15/17   367,370    -    (37,982)   334,560 
N918DL Aircraft Secured Mortgage, 8%, due 8/15/18   454,580    -    (33,622)   428,230 
N954DL Aircraft Secured Mortgage, 8%, due 3/20/19   597,720    -    (38,627)   559,130 
N955DL Aircraft Secured Mortgage, 8%, due 6/20/19   612,000    -    (37,156)   575,790 
N956DL Aircraft Secured Mortgage, 8%, due 5/20/19   612,850    -    (37,774)   575,790 
N957DL Aircraft Secured Mortgage, 8%, due 6/20/19   617,440    -    (37,481)   580,890 
N959DL Aircraft Secured Mortgage, 8%, due 7/20/19   622,030    -    (37,191)   585,990 
N960DL Aircraft Secured Mortgage, 8%, due 10/20/19   640,730    -    (36,643)   605,710 
N961DL Aircraft Secured Mortgage, 8%, due 8/20/19   636,990    -    (37,528)   600,950 
N976DL Aircraft Secured Mortgage, 8%, due 2/15/18   473,280    -    (39,030)   441,490 
N913DL Equipment Trust Beneficial Interests   111,520    37,982    (47,016)   129,540 
N918DL Equipment Trust Beneficial Interests   120,530    33,622    (44,669)   145,860 
N954DL Equipment Trust Beneficial Interests   113,390    38,627    (53,876)   81,430 
N955DL Equipment Trust Beneficial Interests   160,650    37,156    (53,218)   130,560 
N956DL Equipment Trust Beneficial Interests   163,200    37,774    (53,952)   133,450 
N957DL Equipment Trust Beneficial Interests   163,880    37,481    (53,729)   134,300 
N959DL Equipment Trust Beneficial Interests   164,390    37,191    (53,508)   135,320 
N960DL Equipment Trust Beneficial Interests   169,660    36,643    (53,339)   141,780 
N961DL Equipment Trust Beneficial Interests   171,360    37,528    (54,273)   143,820 
N967DL Equipment Trust Beneficial Interests   83,300    39,030    (51,280)   103,530 
RM Holdco, LLC, Membership Units   849,478    -    -    - 
RM Holdco, LLC, Subordinated Convertible Term Loan, 1.12% PIK, due 3/21/18   5,106,805    -    -    3,648,813 
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche A, 11%, due 3/19/16   3,759,156    9,202    (45,036)   3,723,322 
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B, 12% Cash + 7% PIK, due 3/19/16   6,258,122    245,451    -    6,503,573 
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B-1, 12% Cash + 7% PIK, due 3/19/16   1,976,470    80,960    -    2,051,179 
RM OpCo, LLC, Convertible 1st Lien Term Loan Tranche B-1, 12% Cash + 7% PIK, due 3/21/16   -    1,271,799    -    1,307,280 
United N659UA-767, LLC (N659UA)   2,771,428    484,730    (337,357)   3,029,575 
United N661UA-767, LLC (N661UA)   2,789,809    470,089    (331,517)   2,975,061 

 

Notes to Schedule of Changes in Investments in Affiliates:

 

(1)The issuers of the securities listed on this schedule are considered affiliates under the Investment Company Act of 1940 due to the ownership by the Company of 5% or more of the issuers' voting securities.
(2)Dispositions include sales, paydowns, mortgage amortizations, and aircraft depreciation.

 

35
 

 

TCP Capital Corp.

 

Consolidated Schedule of Changes in Investments in Affiliates (1)

 

Year Ended December 31, 2012

 

Security  Value,
Beginning
of
Period
   Acquisitions   Dispositions (2)   Value,
End of
Period
 
                 
Anacomp, Inc., Class A Common Stock  $740,761   $-   $-   $1,255,527 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N913DL), 8%, due 7/15/18   -    403,947    (37,389)   367,370 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N918DL), 8%, due 7/15/18   -    490,003    (33,390)   454,580 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N954DL), 8%, due 9/20/19   -    631,014    (37,814)   597,720 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N955DL), 8%, due 9/20/19   -    645,523    (36,417)   612,000 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N956DL), 8%, due 9/20/19   -    646,372    (37,011)   612,850 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N957DL), 8%, due 9/20/19   -    651,170    (36,735)   617,440 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N959DL), 8%, due 9/20/19   -    655,930    (36,462)   622,030 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N960DL), 8%, due 9/20/19   -    675,587    (35,956)   640,730 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N961DL), 8%, due 9/20/19   -    671,812    (36,803)   636,990 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N976DL), 8%, due 7/15/18   -    512,643    (38,636)   473,280 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N913DL)   -    145,176    (31,277)   111,520 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N918DL)   -    162,691    (32,027)   120,530 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N954DL)   -    202,368    (40,415)   113,390 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N955DL)   -    204,598    (40,116)   160,650 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N956DL)   -    205,404    (40,679)   163,200 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N957DL)   -    206,328    (40,572)   163,880 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N959DL)   -    207,244    (40,467)   164,390 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N960DL)   -    211,653    (40,578)   169,660 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N961DL)   -    211,555    (41,241)   171,360 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N976DL)   -    173,597    (37,271)   83,300 
EPMC HoldCo, LLC, Membership Units   5,264,007    -    (1,276,226)   2,730,458 
ESP Holdings, Inc., Cumulative Preferred 15%   3,287,872    -    -    3,643,088 
ESP Holdings, Inc., Common Stock   7,473,887    -    -    2,263,124 
ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes, 6% Cash + 10% PIK, due 12/31/19   6,240,393    1,000,494    -    7,134,137 
International Wire Group Holdings, Inc., Common Stock   30,077,606    -    (31,940,733)   - 
International Wire Group Holdings, Inc., Senior Notes, 11.5% Cash or 12.25% PIK, due 4/15/15   18,180,000    -    (18,000,000)   - 
International Wire Group Holdings, Inc., Senior Secured Notes, 8.5%, due 10/15/17   -    15,000,000    -    15,450,000 
Real Mex Restaurants, Inc. Senior Secured Notes, 14%, due 1/1/13   12,410,823    -    (6,627,711)   - 
RM Holdco, LLC, Membership Units   -    2,010,777    -    849,478 
RM Holdco, LLC, Subordinated Convertible Term Loan, 1.12% PIK, due 3/21/18   -    5,106,805    -    5,106,805 
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche A, 11%, due 3/19/16   -    3,759,156    -    3,759,156 
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B, 12% Cash + 7% PIK, due 3/19/16   -    6,258,122    -    6,258,122 
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B-1, 12% Cash + 7% PIK, due 3/19/16        1,922,118    -    1,976,470 
United Airlines, Inc., Aircraft Secured Mortgage (N510UA), 20%, due 9/26/16   624,066    -    (66,886)   548,340 
United Airlines, Inc., Aircraft Secured Mortgage (N512UA), 20%, due 10/26/16   630,208    -    (65,449)   556,225 
United Airlines, Inc., Aircraft Secured Mortgage (N536UA), 16%, due 8/21/14   414,963    -    (122,068)   277,780 
United Airlines, Inc., Aircraft Secured Mortgage (N545UA), 16%, due 7/17/15   563,575    -    (109,385)   436,810 
United Airlines, Inc., Aircraft Secured Mortgage (N585UA), 20%, due 10/25/16   739,958    -    (76,848)   653,220 
United Airlines, Inc., Aircraft Secured Mortgage (N659UA), 12%, due 3/28/16   5,014,613    -    (886,810)   4,264,148 
United Airlines, Inc., Aircraft Secured Mortgage (N661UA), 12%, due 5/4/16   5,192,014    -    (860,025)   4,351,424 
United Airlines, Inc., Equipment Trust Beneficial Interests (N510UA)   467,137    66,886    (35,913)   479,682 
United Airlines, Inc., Equipment Trust Beneficial Interests (N512UA)   458,665    65,449    (35,325)   473,761 
United Airlines, Inc., Equipment Trust Beneficial Interests (N536UA)   686,303    122,068    (45,201)   624,746 
United Airlines, Inc., Equipment Trust Beneficial Interests (N545UA)   612,589    109,256    (47,505)   616,897 
United Airlines, Inc., Equipment Trust Beneficial Interests (N585UA)   498,602    76,848    (46,776)   583,391 
United N659UA-767, LLC (N659UA)   2,274,815    886,810    (674,712)   2,771,428 
United N661UA-767, LLC (N661UA)   2,205,523    860,025    (663,033)   2,789,809 

 

Notes to Consolidated Schedule of Changes in Investments in Affiliates: 

 

(1)The issuers of the securities listed on this schedule are considered affiliates under the Investment Company Act of 1940 due to the ownership by the Company of 5% or more of the issuers' voting securities.
(2)Dispositions include sales, paydowns, mortgage amortizations, and aircraft depreciation.

 

36
 

 

TCP Capital Corp.

 

Consolidated Schedule of Restricted Securities of Unaffiliated Issuers

 

June 30, 2013

 

Investment   Acquisition Date    
         
AIP/IS Holdings, LLC, Membership Units   Var. 2009 & 2010    
Bally Total Fitness Holding Corporation, Common Stock   4/30/10    
Bally Total Fitness Holding Corporation, Warrants   4/30/10    
BPA Laboratories, Inc., Senior Secured Notes, 12.25%, due 4/1/17   3/5/12    
Caribbean Financial Group, Senior Secured Notes, 11.5%, due 11/15/19   10/19/12    
Constellation Enterprises, LLC, Senior Secured 1st Lien Notes, 10.625%, due 2/1/16   1/20/11    
DeepOcean Group Holding BV, Common Stock   5/13/11    
Integra Telecom, Inc., Common Stock   11/19/09    
Integra Telecom, Inc., Warrants   11/19/09    
Iracore International, Inc., Senior Secured Notes, 9.5%, due 6/1/18   5/8/13    
La Paloma Residual Bank Debt Claim   2/2/05    
Marsico Holdings, LLC Common Interest Units   9/10/12    
Precision Holdings, LLC, Class C Membership Interests   Var. 2010 & 2011    
Shop Holding, LLC, Class A Units   6/2/11    
Shop Holding, LLC, Warrants to Purchase Class A Units   6/2/11    
SiTV, Inc., Warrants to Purchase Common Stock   8/3/12    
St Barbara Ltd., 1st Priority Senior Secured Notes, 8.875%, due 4/15/18   3/22/13    
STG-Fairway Holdings, LLC, Class A Units   12/30/10    
The Telx Group, Inc., Senior Unsecured Notes, 10% Cash + 2% PIK, due 9/26/19   9/26/11    
V Telecom Investment S.C.A, Common Shares   11/9/12    

 

December 31, 2012

 

Investment   Acquisition Date    
         
AIP/IS Holdings, LLC, Membership Units   Var. 2009 & 2010    
Bally Total Fitness Holding Corporation, Common Stock   4/30/10    
Bally Total Fitness Holding Corporation, Warrants   4/30/10    
BPA Laboratories, Inc., Senior Secured Notes, 12.25%, due 4/1/17   3/5/12    
Caribbean Financial Group, Senior Secured Notes, 11.5%, due 11/15/19   10/19/12    
Constellation Enterprises, LLC, Senior Secured 1st Lien Notes, 10.625%, due 2/1/16   1/20/11    
DeepOcean Group Holding BV, Common Stock   5/13/11    
Integra Telecom, Inc., Common Stock   11/19/09    
Integra Telecom, Inc., Warrants   11/19/09    
La Paloma Residual Bank Debt Claim   2/2/05    
Marsico Holdings, LLC Common Interest Units   9/10/12    
Precision Holdings, LLC, Class C Membership Interests   Var. 2010 & 2011    
Shop Holding, LLC, Class A Units   6/2/11    
Shop Holding, LLC, Warrants to Purchase Class A Units   6/2/11    
SiTV, Inc., Warrants to Purchase Common Stock   8/3/12    
STG-Fairway Holdings, LLC, Class A Units   12/30/10    
The Telx Group, Inc., Senior Unsecured Notes, 10% Cash + 2% PIK, due 9/26/19   9/26/11    
V Telecom Investment S.C.A, Common Shares   11/9/12    

 

37
 

 

TCP Capital Corp

 

Consolidating Statement of Assets and Liabilities (Unaudited)

 

June 30, 2013

 

       Special Value         
   TCP   Continuation       TCP 
   Capital Corp.   Partners, LP       Capital Corp. 
   Standalone   Standalone   Eliminations   Consolidated 
Assets                    
Investments:                    
Unaffiliated issuers  $-   $501,648,852   $-   $501,648,852 
Investment in subsidiary   398,960,108    -    (398,960,108)   - 
Controlled companies   -    20,863,780    -    20,863,780 
Other affiliates   -    49,249,412    -    49,249,412 
Total investments   398,960,108    571,762,044    (398,960,108)   571,762,044 
                     
Cash and cash equivalents   -    40,065,668    -    40,065,668 
Accrued interest income   -    6,338,311    -    6,338,311 
Receivable for investment securities sold   -    2,695,000    -    2,695,000 
Deferred debt issuance costs   -    1,234,215    -    1,234,215 
Unrealized appreciation on swaps   -    271,816    -    271,816 
Prepaid expenses and other assets   65,656    976,189    -    1,041,845 
Total assets   399,025,764    623,343,243    (398,960,108)   623,408,899 
                     
Liabilities                    
Debt   -    33,000,000    -    33,000,000 
Incentive allocation payable        2,476,035         2,476,035 
Payable for investment securities purchased   -    50,179,344    -    50,179,344 
Interest payable   -    225,981    -    225,981 
Payable to the Investment Manager   283,975    341,031    -    625,006 
Management and advisory fees payable   -    1,940,295    -    1,940,295 
Accrued expenses and other liabilities   553,631    1,384,976    -    1,938,607 
Total liabilities   837,606    89,547,662    -    90,385,268 
                     
Preferred equity facility                    
Series A preferred limited partner interests   -    134,000,000    -    134,000,000 
Accumulated dividends on Series A preferred equity facility   -    491,163    -    491,163 
Total preferred limited partner interests   -    134,491,163    -    134,491,163 
                     
Non-controlling interest                    
General Partner interest in Special Value Continuation Partners, LP        -    344,310    344,310 
    -    -    344,310    344,310 
                     
Net assets  $398,188,158   $399,304,418   $(399,304,418)  $398,188,158 
                     
Composition of net assets                    
Common stock  $26,655   $-   $-   $26,655 
Additional paid-in capital   522,439,540    520,144,218    (520,144,218)   522,439,540 
Accumulated deficit   (124,278,037)   (120,839,800)   120,839,800    (124,278,037)
Net assets  $398,188,158   $399,304,418   $(399,304,418)  $398,188,158 

 

38
 

 

 TCP Capital Corp.

 

Consolidating Statement of Assets and Liabilities

 

December 31, 2012

 

   TCP   Special Value       TCP 
   Capital Corp.   Continuation       Capital Corp. 
   Standalone   Partners, LP   Eliminations   Consolidated 
Assets                    
Investments:                    
Unaffiliated issuers  $-   $440,772,190   $-   $440,772,190 
Investment in subsidiary   317,209,574    -    (317,209,574)   - 
Controlled companies   -    22,489,208    -    22,489,208 
Other affiliates   -    54,421,689    -    54,421,689 
Total investments   317,209,574    517,683,087    (317,209,574)   517,683,087 
                     
Cash and cash equivalents   -    18,035,189    -    18,035,189 
Accrued interest income   -    4,575,307    -    4,575,307 
Receivable for investment securities sold   -    7,727,415    -    7,727,415 
Deferred debt issuance costs   -    696,018    -    696,018 
Unrealized appreciation on swaps   -    179,364    -    179,364 
Prepaid expenses and other assets   20,606    325,116    -    345,722 
Total assets   317,230,180    549,221,496    (317,209,574)   549,242,102 
                     
Liabilities                    
Credit facility payable   -    74,000,000    -    74,000,000 
Payable for investment securities purchased   -    21,814,819    -    21,814,819 
Payable to the Investment Manager   61,051    48,149    -    109,200 
Interest payable   -    119,233    -    119,233 
Payable to subsidiary   -    -    -    - 
Accrued expenses and other liabilities   1,181,579    1,503,436    -    2,685,015 
Total liabilities   1,242,630    97,485,637    -    98,728,267 
                     
Preferred equity facility                    
Series A preferred limited partner interests   -    134,000,000    -    134,000,000 
Accumulated dividends on Series A preferred equity facility   -    526,285    -    526,285 
Total preferred limited partner interests   -    134,526,285    -    134,526,285 
Net assets  $315,987,550   $317,209,574   $(317,209,574)  $315,987,550 
                     
Composition of net assets                    
Common stock  $21,478   $-   $-   $21,478 
Additional paid-in capital   444,234,060    441,328,969    (441,328,969)   444,234,060 
Accumulated deficit   (128,267,988)   (124,119,395)   124,119,395    (128,267,988)
Net assets  $315,987,550   $317,209,574   $(317,209,574)  $315,987,550 

 

39
 

 

TCP Capital Corp.

 

Consolidating Statement of Operations (Unaudited)

 

Six Months Ended June 30, 2013

 

       Special Value         
   TCP   Continuation       TCP 
   Capital Corp.   Partners, LP       Capital Corp. 
   Standalone   Standalone   Eliminations   Consolidated 
Investment income                    
Interest income:                    
Unaffiliated issuers  $-   $27,487,968   $-   $27,487,968 
Controlled companies   -    642,585    -    642,585 
Affiliates   -    2,096,165    -    2,096,165 
Other income:                    
Unaffiliated issuers   -    576,948    -    576,948 
Controlled companies   -    311,515    -    311,515 
Other Affiliates   -    219,756    -    219,756 
Total interest and related investment income   -    31,334,937    -    31,334,937 
                     
Operating expenses                    
Management and advisory fees   -    3,905,033    -    3,905,033 
Administration expenses   -    335,616    -    335,616 
Amortization of deferred debt issuance costs   -    251,478    -    251,478 
Legal fees, professional fees and due diligence expenses   220,446    80,758    -    301,204 
Interest expense   -    323,109    -    323,109 
Commitment fees   -    61,094    -    61,094 
Director fees   47,751    96,058    -    143,809 
Insurance expense   26,228    52,567    -    78,795 
Custody fees   1,750    57,901    -    59,651 
Other operating expenses   274,629    142,877    -    417,506 
Total expenses   570,804    5,306,491    -    5,877,295 
                     
Net investment income   (570,804)   26,028,446    -    25,457,642 
                     
Net realized and unrealized gain (loss) on investments and foreign currency                    
Net realized gain (loss):                    
Investments in unaffiliated issuers   -    (3,577,502)   -    (2,034,839)
Net realized loss   -    (3,577,502)   -    (2,034,839)
Net change in unrealized appreciation/depreciation   22,747,150    6,591,253    (22,747,150)   5,048,590 
Net realized and unrealized gain (loss)   22,747,150    3,013,751    (22,747,150)   3,013,751 
                     
Dividends paid on Series A preferred equity facility   -    (786,082)   -    (786,082)
Net change in accumulated dividends on Series A  preferred equity facility   -    35,122    -    35,122 
Distributions of incentive allocation to the General  Partner from net investment income   -    -    (4,941,336)   (4,941,336)
Distributions of incentive allocation to the General   Partner from net realized gains   -    -    (258,441)   (258,441)
Net change in reserve for incentive allocation   -    -    (344,310)   (344,310)
                     
Net increase in net assets resulting from operations  $22,176,346   $28,291,237   $(28,291,237)  $22,176,346 

 

40
 

 

TCP Capital Corp.

 

Consolidating Statement of Operations (Unaudited)

 

Six Months Ended June 30, 2012

 

   TCP   Special Value       TCP 
   Capital Corp.   Continuation       Capital Corp. 
   Standalone   Partners, LP   Eliminations   Consolidated 
Investment income                    
Interest income:                    
Unaffiliated issuers  $-   $16,977,526   $-   $16,977,526 
Affiliates   -    3,245,630    -    3,245,630 
Dividend income:                    
Affiliates   -    1,811,189    -    1,811,189 
Other income:                    
Affiliates   -    345,858    -    345,858 
Total interest and related investment income   -    22,900,783    -    22,900,783 
                     
Operating expenses                    
Management and advisory fees   1292    3,248,372    -    3,249,664 
Professional fees relating to the Conversion   133,333    278,190    -    411,523 
Amortization of deferred debt issuance costs   -    219,542    -    219,542 
Legal fees, professional fees and due diligence expenses   120,844    240,932    -    361,776 
Commitment fees   -    132,361    -    132,361 
Director fees   33,333    66,667    -    100,000 
Interest expense   -    56,448    -    56,448 
Insurance expense   18,578    37,385    -    55,963 
Custody fees   1,750    44,753    -    46,503 
Other operating expenses   16,068    91,795    -    107,863 
Total operating expenses   325,198    4,416,445    -    4,741,643 
                     
Net investment income (loss) before taxes   (325,198)   18,484,338    -    18,159,140 
                     
Excise tax expense   502,978    -    -    502,978 
                     
Net investment income (loss)   (828,176)   18,484,338    -    17,656,162 
                     
Net realized and unrealized gain (loss) on investments and foreign currency                    
Net realized gain (loss):                    
Investments in unaffiliated issuers   -    (3,104,104)   -    (3,104,104)
Investments in affiliates   -    718,845    -    718,845 
Net realized loss   -    (2,385,259)   -    (2,385,259)
Net change in unrealized appreciation/depreciation   10,287,001    (4,999,802)   (10,287,001)   (4,999,802)
Net realized and unrealized gain (loss)   10,287,001    (7,385,061)   (10,287,001)   (7,385,061)
                     
Dividends paid on Series A preferred equity facility   -    (745,183)   -    (745,183)
Net change in accumulated dividends on Series A preferred equity facility   -    (67,093)   -    (67,093)
                     
Net increase in net assets resulting from operations  $9,458,825   $10,287,001   $(10,287,001)  $9,458,825 

 

41
 

 

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The information contained in this section should be read in conjunction with our unaudited consolidated financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q. For periods prior to April 2, 2012, the consolidated financial statements and related footnotes reflect the performance of Special Value Continuation Fund, LLC which was formed on July 17, 2006. In addition, some of the statements in this report (including in the following discussion) constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which relate to future events or the future performance or financial condition of TCP Capital Corp. (the “Holding Company,” “we,” “us,” or “our”). The forward-looking statements contained in this report involve a number of risks and uncertainties, including statements concerning:

 

our, or our portfolio companies’, future business, operations, operating results or prospects;

 

the return or impact of current and future investments;

 

the impact of a protracted decline in the liquidity of credit markets on our business;

 

the impact of fluctuations in interest rates on our business;

 

the impact of changes in laws or regulations governing our operations or the operations of our portfolio companies;

 

our contractual arrangements and relationships with third parties;

 

the general economy and its impact on the industries in which we invest;

 

the financial condition of and ability of our current and prospective portfolio companies to achieve their objectives;

 

our expected financings and investments;

 

the adequacy of our financing resources and working capital;

 

the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments;

 

the timing of cash flows, if any, from the operations of our portfolio companies;

 

the timing, form and amount of any dividend distributions; and

 

our ability to maintain our qualification as a regulated investment company and as a business development company.

 

We use words such as “anticipate,” “believe,” “expect,” “intend,” “will,” “should,” “could,” “may,” “plan” and similar words to identify forward-looking statements. The forward looking statements contained in this quarterly report involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth as “Risk Factors” in this report and included in our amended registration statement on Form N-2 filed with the Securities and Exchange Commission on December 7, 2012.

 

We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC, including annual reports on Form 10-K, registration statements on Form N-2, quarterly reports on Form 10-Q and current reports on Form 8-K.

 

42
 

 

Overview

  

The Holding Company is a Delaware corporation formed on April 2, 2012 and is an externally managed, closed-end, non-diversified management investment company. The Holding Company elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Holding Company’s investment objective is to achieve high total returns while minimizing losses. The Company invests primarily in the debt of middle-market companies, including senior secured loans, junior loans, mezzanine debt and bonds. Such investments may include an equity component, and, to a lesser extent, the Company may make equity investments directly. Investment operations are conducted either in Special Value Continuation Partners, LP, a Delaware Limited Partnership (the “Operating Company”), of which the Company owns 100% of the common limited partner interests, or in the Operating Company’s wholly-owned subsidiary, TCPC Funding I, LLC (“TCPC Funding”). The Operating Company has also elected to be treated as a BDC under the 1940 Act. The General Partner of the Operating Company is SVOF/MM, LLC (“SVOF/MM”), which also serves as the administrator (“Administrator”) of the Holding Company and the Operating Company. The managing member of SVOF/MM is Tennenbaum Capital Partners, LLC (the “Advisor”), which serves as the investment manager to the Holding Company, the Operating Company and TCPC Funding. Most of the equity interests in the General Partner are owned directly or indirectly by the Advisor and its employees.

 

The Holding Company has elected to be treated as a regulated investment company (“RIC”) for U.S. federal income tax purposes. As a RIC, the Holding Company will not be taxed on its income to the extent that it distributes such income each year and satisfies other applicable income tax requirements. The Operating Company and TCPC Funding have elected to be treated as partnerships for U.S. federal income tax purposes.

 

On April 2, 2012, Special Value Continuation Fund, LLC (“SVCF”) converted from a limited liability company to a corporation, leaving the Holding Company as the surviving entity (the “Conversion”). At the time of the Conversion, all limited liability company interests were exchanged for 15,725,635 shares of common stock in the Holding Company. As a result of the Conversion, the books and records of SVCF have become the books and records of the surviving entity and the Operating Company became a wholly owned subsidiary of the Holding Company. On April 3, 2012, the Holding Company completed its initial public offering.

 

Our leverage program is comprised of $116 million in available debt under a senior secured revolving credit facility issued by the Operating Company (the “Operating Company Facility”), $25 million in available debt under a senior secured revolving credit facility issued by TCPC Funding, increasing to $50 million on August 13, 2013 (the “TCPC Funding Facility,” and, together with the Operating Company Facility, the “Revolving Facilities”), and $134 million of outstanding preferred limited partner interests in the Operating Company (the “Preferred Interests,” and, together with the Revolving Facilities, the “Leverage Program”).

 

To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements and timely distribute to our stockholders generally at least 90% of our investment company taxable income, as defined by the Internal Revenue Code of 1986, as amended, for each year. Pursuant to this election, we generally will not have to pay corporate level taxes on any income that we distribute to our stockholders provided that we satisfy those requirements.

 

Investments

 

Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity, the general economic environment and the competitive environment for the types of investments we make.

 

As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities and indebtedness of private U.S. companies, public U.S. operating companies whose securities are not listed on a national securities exchange or registered under the Securities Exchange Act of 1934, as amended, public domestic operating companies having a market capitalization of less than $250 million, cash, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. We are also permitted to make certain follow-on investments in companies that were eligible portfolio companies at the time of initial investment but that no longer meet the definition. As of June 30, 2013, 95.9% of our total assets were invested in qualifying assets.

 

Revenues

 

We generate revenues primarily in the form of interest on the debt we hold. We also generate revenue from dividends on our equity interests and capital gains on the sale of warrants and other debt or equity interests that we acquire. Our investments in fixed income instruments generally have an expected maturity of three to five years, although we have no lower or upper constraint on maturity. Interest on our debt investments is generally payable quarterly or semi-annually. Payments of principal of our debt investments may be amortized over the stated term of the investment, deferred for several years or due entirely at maturity. In some cases, our debt investments and preferred stock investments may defer payments of cash interest or dividends or PIK. Any outstanding principal amount of our debt investments and any accrued but unpaid interest will generally become due at the maturity date. In addition, we may generate revenue in the form of prepayment fees, commitment, origination, structuring or due diligence fees, fees for providing significant managerial assistance, consulting fees and other investment related income.

 

43
 

 

Expenses

 

Our primary operating expenses include the payment of a base management fee and, depending on our operating results, incentive compensation, expenses reimbursable under the management agreement, administration fees and the allocable portion of overhead under the administration agreement. The base management fee and incentive compensation remunerates the Advisor for work in identifying, evaluating, negotiating, closing and monitoring our investments. Our administration agreement with SVOF/MM, LLC (the “Administrator”) provides that the Administrator may be reimbursed for costs and expenses incurred by the Administrator for office space rental, office equipment and utilities allocable to us under the administration agreement, as well as any costs and expenses incurred by the Administrator or its affiliates relating to any non-investment advisory, administrative or operating services provided by the Administrator or its affiliates to us. We also bear all other costs and expenses of our operations and transactions (and the Holding Company’s common stockholders indirectly bear all of the costs and expenses of the Holding Company, the Operating Company and TCPC Funding), which may include those relating to:

 

our organization;

 

calculating our net asset value (including the cost and expenses of any independent valuation firms);

 

interest payable on debt, if any, incurred to finance our investments;

 

costs of future offerings of our common stock and other securities, if any;

 

the base management fee and any incentive compensation;

 

dividends and distributions on our preferred shares, if any, and common shares;

 

administration fees payable under the administration agreement;

 

fees payable to third parties relating to, or associated with, making investments;

 

transfer agent and custodial fees;

 

registration fees;

 

listing fees;

 

taxes;

 

director fees and expenses;

 

costs of preparing and filing reports or other documents with the SEC;

 

costs of any reports, proxy statements or other notices to our stockholders, including printing costs;

 

our fidelity bond;

 

directors and officers/errors and omissions liability insurance, and any other insurance premiums;

 

indemnification payments;

 

direct costs and expenses of administration, including audit and legal costs; and

 

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all other expenses reasonably incurred by us and the Administrator in connection with administering our business, such as the allocable portion of overhead under the administration agreement, including rent and other allocable portions of the cost of certain of our officers and their respective staffs.

 

The investment management agreement provides that the base management fee be calculated at an annual rate of 1.5% of our total assets (excluding cash and cash equivalents) payable quarterly in arrears. For purposes of calculating the base management fee, “total assets” is determined without deduction for any borrowings or other liabilities. For the first calendar quarter (or portion thereof) of our operations as a BDC, the base management fee was calculated based on the initial value of our total assets (excluding cash and cash equivalents) as of a date as close as practicable to the Conversion. Beginning with our second calendar quarter of operations as a BDC, the base management fee is calculated based on the value of our total assets (excluding cash and cash equivalents) at the end of the most recently completed calendar quarter.

 

Additionally, the investment management agreement and the Amended and Restated Limited Partnership Agreement provide that the Advisor or its affiliates may be entitled to incentive compensation under certain circumstances. No incentive compensation was incurred prior to January 1, 2013. Beginning January 1, 2013, the incentive compensation equals the sum of (1) 20% of all ordinary income since that date and (2) 20% of all net realized capital gains (net of any net unrealized capital depreciation) since that date, with each component being subject to a total return requirement of 8% of contributed common equity annually. The incentive compensation initially is payable to the General Partner by the Operating Company pursuant to the Amended and Restated Limited Partnership Agreement. If the Operating Company is terminated or for any other reason incentive compensation is not paid by the Operating Company, it would be paid pursuant to the investment management agreement between us and the Advisor. The determination of incentive compensation is subject to limitations under the 1940 Act and the Advisers Act.

 

Critical accounting policies

 

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. Management considers the following critical accounting policies important to understanding the financial statements. In addition to the discussion below, our critical accounting policies are further described in the notes to our financial statements.

 

Valuation of portfolio investments

 

We value our portfolio investments at fair value based upon the principles and methods of valuation set forth in policies adopted by our board of directors. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. Market participants are buyers and sellers in the principal (or most advantageous) market for the asset that (i) are independent of us, (ii) are knowledgeable, having a reasonable understanding about the asset based on all available information (including information that might be obtained through due diligence efforts that are usual and customary), (iii) are able to transact for the asset, and (iv) are willing to transact for the asset or liability (that is, they are motivated but not forced or otherwise compelled to do so).

 

Investments for which market quotations are readily available are valued at such market quotations unless the quotations are deemed not to represent fair value. We generally obtain market quotations from recognized exchanges, market quotation systems, independent pricing services or one or more broker-dealers or market makers. However, short term debt investments with remaining maturities within 90 days are generally valued at amortized cost, which approximates fair value. Debt and equity securities for which market quotations are not readily available, which is the case for many of our investments, or for which market quotations are deemed not to represent fair value, are valued at fair value using a consistently applied valuation process in accordance with our documented valuation policy that has been reviewed and approved by our board of directors, who also approve in good faith the valuation of such securities as of the end of each quarter. Due to the inherent uncertainty and subjectivity of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments and may differ materially from the values that we may ultimately realize. In addition, changes in the market environment and other events may have differing impacts on the market quotations used to value some of our investments than on the fair values of our investments for which market quotations are not readily available. Market quotations may be deemed not to represent fair value in certain circumstances where we believe that facts and circumstances applicable to an issuer, a seller or purchaser, or the market for a particular security cause current market quotations to not reflect the fair value of the security. Examples of these events could include cases where a security trades infrequently causing a quoted purchase or sale price to become stale, where there is a “forced” sale by a distressed seller, where market quotations vary substantially among market makers, or where there is a wide bid-ask spread or significant increase in the bid-ask spread.

 

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The valuation process adopted by our board of directors with respect to investments for which market quotations are not readily available or for which market quotations are deemed not to represent fair value is as follows:

 

The investment professionals of the Advisor provide recent portfolio company financial statements and other reporting materials to independent valuation firms approved by our board of directors.

 

Such firms evaluate this information along with relevant observable market data to conduct independent appraisals each quarter, and their preliminary valuation conclusions are documented and discussed with senior management of the Advisor.

 

The fair value of smaller investments comprising in the aggregate less than 5% of our total capitalization may be determined by the Advisor in good faith in accordance with our valuation policy without the employment of an independent valuation firm.

 

The audit committee of the board of directors discusses the valuations, and the board of directors approves the fair value of each investment in our portfolio in good faith based on the input of the Advisor, the respective independent valuation firms (to the extent applicable) and the audit committee of the board of directors.

 

Those investments for which market quotations are not readily available or for which market quotations are deemed not to represent fair value are valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in determining the fair value of our investments include, as relevant and among other factors: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, merger and acquisition comparables, our principal market (as the reporting entity) and enterprise values.

 

When valuing all of our investments, we strive to maximize the use of observable inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances.

 

Our investments may be categorized based on the types of inputs used in their valuation. The level in the GAAP valuation hierarchy in which an investment falls is based on the lowest level input that is significant to the valuation of the investment in its entirety. Investments are classified by GAAP into the three broad levels as follows:

 

Level 1 — Investments valued using unadjusted quoted prices in active markets for identical assets.

 

Level 2 — Investments valued using other unadjusted observable market inputs, e.g. quoted prices in markets that are not active or quotes for comparable instruments.

 

Level 3 — Investments that are valued using quotes and other observable market data to the extent available, but which also take into consideration one or more unobservable inputs that are significant to the valuation taken as a whole. 

 

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 As of June 30, 2013, 0.2% of our investments were categorized as Level 1, 26.4% were categorized as Level 2, 71.9% were Level 3 investments valued based on valuations by independent third party sources, and 1.5% were Level 3 investments valued based on valuations by the Advisor.

 

 Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our financial statements express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on the financial statements.

 

Revenue recognition

 

Interest and dividend income, including income paid in kind, is recorded on an accrual basis to the extent that such amounts are determined to be collectible. Origination, structuring, closing, commitment and other upfront fees earned with respect to capital commitments are generally amortized or accreted into interest income over the life of the respective debt investment. Other fees, including certain amendment fees, prepayment fees and commitment fees on broken deals, are recognized as earned. Prepayment fees and similar income received upon the early repayment of a loan or debt security are included in interest income.

 

Certain of our debt investments are purchased at a considerable discount to par as a result of the underlying credit risks and financial results of the issuer, as well as general market factors that influence the financial markets as a whole. GAAP generally requires that discounts on the acquisition of corporate bonds, municipal bonds and treasury bonds be amortized using the effective-interest or constant-yield method. GAAP also requires that we consider the collectability of interest when making accruals. Accordingly, when accounting for purchase discounts, we recognize discount accretion income when it is probable that such amounts will be collected.

 

Net realized gains or losses and net change in unrealized appreciation or depreciation

 

We measure realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Realized gains and losses are computed using the specific identification method. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

 

Portfolio and investment activity

 

During the three months ended June 30, 2013, we invested approximately $130.6 million across 11 new and 2 existing portfolio companies. All of these investments were in senior secured debt comprised of senior loans ($117.0 million, or 90% of the total) and senior secured notes ($13.6 million, or 10% of the total). Additionally, we received approximately $70.0 million in proceeds from sales or repayments of investments during the three months ended June 30, 2013.

 

During the six months ended June 30, 2013, we invested approximately $170.9 million across 12 new and 6 existing portfolio companies. All of these investments were in senior secured debt comprised of senior loans ($149.9 million, or 88% of the total) and senior secured notes ($21.0 million, or 12% of the total). Additionally, we received approximately $121.0 million in proceeds from sales or repayments of investments during the six months ended June 30, 2013.

 

At June 30, 2013, our investment portfolio of $571.8 million (at fair value) consisted of 57 portfolio companies and was invested 93% in debt investments, of which 97% was in senior secured debt and 3% in unsecured or subordinated debt. In aggregate, our investment portfolio was invested 77% in senior secured loans, 13% in senior secured notes, 3% in unsecured or subordinated debt, and 7% in equity investments. Our average portfolio company investment at fair value was approximately $10.0 million. Our largest portfolio company investment by value was approximately $21.1 million and our five largest portfolio company investments by value comprised approximately 15% of our portfolio at June 30, 2013. At December 31, 2012, our investment portfolio of $517.7 million (at fair value) consisted of 54 portfolio companies and was invested 93% in debt investments, of which 96% was in senior secured debt and 4% in unsecured or subordinated debt. In aggregate, our investment portfolio was invested 77% in senior secured loans, 12% in senior secured notes, 4% in unsecured or subordinated debt, and 7% in equity investments. Our average portfolio company investment at fair value was approximately $9.6 million. Our largest portfolio company investment by value was approximately $19.4 million and our five largest portfolio company investments by value comprised approximately 17% of our portfolio at December 31, 2012.

 

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 The industry composition of our portfolio at fair value at June 30, 2013 was as follows:

 

   Percent of Total 
Industry  Investments 
Software Publishers   9.2%
Gaming Industries   5.4%
Wired Telecommunications Carriers   5.1%
Other Professional, Scientific, and Technical Services   4.4%
Scheduled Air Transportation   4.3%
Radio and Television Broadcasting   4.3%
Wireless Telecommunications   4.2%
Electric Power Generation, Transmission and Distribution   3.0%
Full-Service Restaurants   3.0%
Other Electrical Equipment and Component Manufacturing   3.0%
Scientific Research and Development Services   2.9%
Business Support Services   2.8%
Motion Picture and Video Industries   2.7%
Semiconductor and Other Electronic Component Manufacturing   2.5%
Other Telecommunications   2.5%
Architectural, Engineering, and Related Services   2.4%
Plastics Products Manufacturing   2.4%
Motor Vehicle Parts Manufacturing   2.3%
Newspaper, Periodical, Book, and Directory Publishers   2.3%
Grocery Stores   2.2%
Metal and Mineral (except Petroleum) Merchant Wholesalers   2.2%
Inland Water Transportation   2.2%
Other Amusement and Recreation Industries   2.1%
Promoters of Performing Arts, Sports, and Similar Events   2.0%
Artificial Synthetic Fibers and Filaments Manufacturing   2.0%
Nondepository Credit Intermediation   1.8%
Retail   1.7%
Electronic Shopping   1.6%
Data Processing, Hosting, and Related Services   1.5%
Accounting, Tax Preparation, Bookkeeping, and Payroll Services   1.4%
Petroleum and Coal Products Manufacturing   1.4%
Pharmaceutical and Medicine Manufacturing   1.4%
Computer Equipment Manufacturing   1.3%
Metal Ore Mining   1.2%
Iron and Steel Mills and Ferroalloy Manufacturing   1.2%
Insurance Related Activities   1.0%
Other   3.1%
Total   100.0%

 

The weighted average effective yield of the debt securities in our portfolio was 10.9% at June 30, 2013 and 11.3% at December 31, 2012. The weighted average effective yields on our senior debt and other debt investments were 10.9% and 11.2%, respectively, at June 30, 2013, versus 11.4% and 9.9% at December 31, 2012.

 

At June 30, 2013, 73.6% of our debt investments bore interest based on floating rates, such as LIBOR, EURIBOR, the Federal Funds Rate or the Prime Rate, and 26.4% bore interest at fixed rates. The percentage of our floating rate debt investments that bore interest based on an interest rate floor was 92.9% at June 30, 2013. At December 31, 2012, 63.8% of our debt investments bore interest based on floating rates and 36.2% bore interest at fixed rates. The percentage of our floating rate debt investments that bore interest based on an interest rate floor was 95.6% at December 31, 2012.

 

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Results of operations

 

Results of operations through April 2, 2012 reflect a portfolio prior to the Conversion with different investment objectives, and accordingly are not directly comparable to the same period in 2013.

 

Investment income

 

Investment income totaled $14.5 million and $11.1 million, respectively, for the three months ended June 30, 2013 and 2012, of which $13.8 million and $10.4 million were attributable to interest and fees on our debt investments and $0.7 million and $0.7 million to other income, respectively. The increase in investment income in the three months ended June 30, 2013 compared to the three months ended June 30, 2012 reflects an increase in interest income due to the larger investment portfolio and a higher percentage of the portfolio in income-producing assets in the three months ended June 30, 2013 compared to the three months ended June 30, 2012.

 

Investment income totaled $31.3 million and $22.9 million, respectively, for the six months ended June 30, 2013 and 2012, of which $30.2 million and $20.2 million were attributable to interest and fees on our debt investments, $0.0 million and $1.8 million to dividends from equity securities and $1.1 million and $0.9 million to other income, respectively. The increase in investment income in the six months ended June 30, 2013 compared to the six months ended June 30, 2012 reflects an increase in interest income due to the larger investment portfolio and a higher percentage of the portfolio in income-producing assets in the six months ended June 30, 2013 compared to the six months ended June 30, 2012, partially offset by the absence of dividend income during the six months ended June 30, 2013.

 

Expenses

 

Net expenses for the three months ended June 30, 2013 and 2012 were $3.0 million and $2.2 million, respectively, comprised of $1.9 million and $1.6 million in base management fees, $0.2 million and $0.3 million in legal and professional fees, $0.2 million and $0.1 million in interest expense and fees related to the Revolving Facilities, $0.1 million and $0.1 million in amortization of debt issuance costs, and $0.6 million and $0.1 million in other expenses, respectively. The increase in expenses in the three months ended June 30, 2013 compared to the three months ended June 30, 2012 primarily reflects the increase in management fees due to the larger portfolio and approximately $0.2 million in administration expenses previously waived by the Administrator.

 

Net expenses for the six months ended June 30, 2013 and 2012 were $5.9 million and $4.7 million, respectively, comprised of $3.9 million and $3.2 million in base management fees, $0.3 million and $0.3 million in legal and professional fees, $0.4 million and $0.2 million in interest expense and fees related to the Revolving Facilities, $0.2 million and $0.2 million in amortization of debt issuance costs, and $1.0 million and $0.7 million in other expenses, respectively. The increase in expenses in the six months ended June 30, 2013 compared to the six months ended June 30, 2012 primarily reflects the increase in management fees due to the larger portfolio and approximately $0.3 million in administration expenses waived by the Administrator prior to January 1, 2013.

 

Net investment income

 

Net investment income was $11.5 million and $8.9 million respectively, for the three months ended June 30, 2013 and 2012. The increase in in net investment income in the three months ended June 30, 2013 compared to the three months ended June 30, 2012 primarily reflects the increased interest income in the three months ended June 30, 2013, partially offset by the increase in expenses.

 

Net investment income was $25.5 million and $17.7 million respectively, for the six months ended June 30, 2013 and 2012. The increase in in net investment income in the six months ended June 30, 2013 compared to the six months ended June 30, 2012 primarily reflects the increased interest income in the six months ended June 30, 2013, partially offset by the decline in dividend income and the increase in expenses.

 

Net realized and unrealized gain or loss

 

Net realized gains (losses) for the three months ended June 30, 2013 and 2012 were $(4.1) million and $2.9 million, respectively. Net realized losses during the three months ended June 30, 2013 are primarily due to a charge on the recapitalization of AGY, a transaction in which we received both new debt and preferred equity in a deleveraged company. The initial AGY investment was part of our legacy distressed debt strategy and has generated substantial cash interest income. For the three months ended June 30, 2013 and 2012, the change in net unrealized appreciation or depreciation was $4.8 million and $(5.4) million, respectively.

 

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Net realized gains (losses) for the six months ended June 30, 2013 and 2012 were $(3.6) million and $(2.4) million, respectively. The net realized losses during the six months ended June 30, 2013 include the restructuring charge on AGY. The net realized losses during the six months ended June 30, 2012 include a reorganization charge on one debt investment of $(5.5) million. For the six months ended June 30, 2013 and 2012, the change in net unrealized appreciation was $6.6 million and $(5.0) million, respectively.

 

Income tax expense, including excise tax

 

The Company has elected to be treated as a RIC under Subchapter M of the Internal Revenue Code (“the Code”) and operates in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, the Company must, among other things, timely distribute to its stockholders generally at least 90% of its investment company taxable income, as defined by the Code, for each year. The Company has made and intends to continue to make the requisite distributions to its stockholders which will generally relieve the Company from U.S. federal income taxes.

 

Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year dividend distributions from such current year taxable income into the next tax year and pay a 4% excise tax on such income. There was no U.S. federal excise tax recorded for the six months ended June 30, 2013. For the six months ended June 30, 2012, an expense of $0.5 million was recorded for U.S. federal excise tax, which related to 2011 income.

 

Dividends to preferred equity holders

 

Dividends on the Preferred Interests for the three months ended June 30, 2013 and 2012 were $0.4 million and $0.4 million, respectively, as average LIBOR rates for the two periods were similar. Dividends on the Preferred Interests for the six months ended June 30, 2013 and 2012 were $0.8 million and $0.8 million, respectively, as average LIBOR rates for the two periods were similar.

 

 Incentive compensation

 

Incentive compensation distributable to the General Partner for the three months ended June 30, 2013 and 2012 was $2.5 million and $0.0 million, respectively. Incentive compensation distributable to the General Partner for the six months ended June 30, 2013 and 2012 was $5.2 million and $0.0 million, respectively. Incentive compensation for the three and six months ended June 30, 2013 was distributable given the performance of the Company exceeding the total return threshold. Pursuant to the terms of the Holding Company’s and Operating Company’s management agreement, no incentive compensation was payable prior to January 1, 2013. The reserve for incentive compensation to the General Partner for the six months ended June 30, 2013 and 2012 was $0.3 million and $0.0 million, respectively. The reserve for incentive compensation for the six months ended June 30, 2013 reflects amounts in excess of distributable incentive compensation which would have been earned by the General Partner had the Company liquidated at net asset value at June 30, 2013. 

 

Net increase or decrease in net assets resulting from operations

 

The net increase in net assets resulting from operations was $9.4 million and $6.0 million for the three months ended June 30, 2013 and 2012, respectively. The net increase in net assets resulting from operations was $22.2 million and $9.5 million for the six months ended June 30, 2013 and 2012, respectively. The higher net increase in net assets resulting from operations primarily reflects the increase in net investment income and the increase in net realized and unrealized gains, partially offset by the commencement of incentive compensation.

 

Liquidity and capital resources

 

Since our inception, our liquidity and capital resources have been generated primarily through the initial private placement of common shares of SVCF (the predecessor entity) which were subsequently converted to common stock of the Holding Company, the net proceeds from the initial and secondary public offerings of our common stock, draws on our Leverage Program, and cash flows from operations, including investments sales and repayments and income earned from investments and cash equivalents. The primary uses of cash have been investments in portfolio companies, cash distributions to our equity holders, payments to service our Leverage Program and other general corporate purposes.

 

On May 17, 2013, the Leverage Program was expanded with the issuance of the TCPC Funding Facility. This facility is a senior secured revolving credit facility, pursuant to which amounts may be drawn up to $25 million subject to certain collateral and other restrictions. The total facility automatically increases to $50 million on August 13, 2013. The facility is expandable to $100 million subject to the consent of the lender and other customary conditions. Amounts outstanding and available under the combined Leverage Program at June 30, 2013 were as follows:

 

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   Rate*  Outstanding   Available   Total Facility 
Operating Company Facility  L+44  $8,000,000   $108,000,000   $116,000,000 
TCPC Funding Facility  L+250   25,000,000    -    25,000,000**
Preferred Interests  L+85   134,000,000    -    134,000,000 
Total Leverage Program     $167,000,000   $108,000,000   $275,000,000 

 

*Based on either LIBOR or the lender’s cost of funds, subject to certain limitations.

** Total facility amount as of June 30, 2013. The total facility automatically increases to $50,000,000 on August 13, 2013.

 

Net cash provided by operating activities during the six months ended June 30, 2013 was $4.6 million. Our primary source of cash from operating activities during this period consisted of net investment income less preferred dividends and incentive allocation (net of non-cash income and expenses) of approximately $20.5 million, partially offset by settlement of acquisitions of investments (net of dispositions) of $15.9 million.

 

Net cash provided by financing activities was $17.5 million during the six months ended June 30, 2013, consisting primarily of $78.2 million of net proceeds from the secondary public offering of our common stock on May 24, 2013, reduced by $41.0 million of net repayments under our Revolving Facilities, $18.2 million of dividends on common equity, $0.8 million of dividends on the Preferred Interests, and payment of $0.8 million in costs related to the issuance of the TCPC Funding Facility.

 

At June 30, 2013, we had $40.1 million in cash and cash equivalents.

 

The Revolving Facilities are secured by substantially all of the assets in our portfolio, including cash and cash equivalents, and are subject to compliance with customary affirmative and negative covenants, including the maintenance of a minimum shareholders’ equity, the maintenance of ratios of not less than 300% of total assets (less total liabilities other than indebtedness) to total indebtedness and not less than 200% of total assets (less total liabilities other than indebtedness) to the sum of total preferred equity and indebtedness, and restrictions on certain payments and issuance of debt. Economic conditions, like those that began in 2007 and which have continued, may result in a decrease in the value of our investments, which would affect both the asset coverage ratios and the value of the collateral securing the Revolving Facilities, and may therefore impact our ability to borrow under the Revolving Facilities. In addition to regulatory restrictions that restrict our ability to raise capital, the Leverage Program contains various covenants which, if not complied with, could accelerate repayment under the Revolving Facilities or require redemption of the Preferred Interests, thereby materially and adversely affecting our liquidity, financial condition and results of operations. At June 30, 2013, we were in compliance with all financial and operational covenants required by the Leverage Program.

 

Economic conditions, like those that began in 2007 and which have continued, while creating attractive opportunities for us, may decrease liquidity and raise the cost of capital generally, which could limit our ability to renew, extend or replace the Leverage Program on terms as favorable as are currently included therein. If we are unable to renew, extend or replace the Leverage Program upon the various dates of maturity, we expect to have sufficient funds to repay the outstanding balances in full from our net investment income and sales of, and repayments of principal from, our portfolio company investments, as well as from anticipated debt and equity capital raises, among other sources. Economic conditions, like those that began in 2007 and which have continued, may limit our ability to raise capital or the ability of the companies in which we invest to repay our loans or engage in a liquidity event, such as a sale, recapitalization or initial public offering. The Operating Company Facility matures in July 2014 and the Preferred Interests will be subject to mandatory redemption in July 2016. The TCPC Funding Facility matures in May 2016. Any inability to renew, extend or replace the Revolving Facilities or replace the Preferred Interests could adversely impact our liquidity and ability to find new investments or maintain distributions to our stockholders.

 

 Challenges in the market are intensified for us by certain regulatory limitations under the Code and the 1940 Act. To maintain our qualification as a RIC, we must satisfy, among other requirements, an annual distribution requirement to pay out at least 90% of our ordinary income and short-term capital gains to our stockholders. Because we are required to distribute our income in this manner, and because the illiquidity of many of our investments may make it difficult for us to finance new investments through the sale of current investments, our ability to make new investments is highly dependent upon external financing. While we anticipate being able to continue to satisfy all covenants and repay the outstanding balance under the Leverage Program when due, there can be no assurance that we will be able to do so, which could lead to an event of default. In addition to regulatory restrictions that restrict our ability to raise capital, the Leverage Program contains various covenants which, if not complied with, could accelerate repayment under the Revolving Facilities or require redemption of the Preferred Interests, thereby materially and adversely affecting our liquidity, financial condition and results of operations.

 

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Contractual obligations

 

In addition to obligations under our Leverage Program, we have entered into several contracts under which we have future commitments. Pursuant to an investment management agreement, the Advisor manages our day-to-day operations and provides investment advisory services to us. Payments under the investment management agreement will be equal to a percentage of the value of our gross assets (excluding cash and cash equivalents) and an incentive compensation, plus reimbursement of certain expenses incurred by the Advisor. Under our administration agreement, the Administrator provides us with administrative services, facilities and personnel. Payments under the administration agreement are equal to an allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations to us, and may include rent and our allocable portion of the cost of certain of our officers and their respective staffs. We are responsible for reimbursing the Advisor for due diligence and negotiation expenses, fees and expenses of custodians, administrators, transfer and distribution agents, counsel and directors, insurance, filings and registrations, proxy expenses, expenses of communications to investors, compliance expenses, interest, taxes, portfolio transaction expenses, costs of responding to regulatory inquiries and reporting to regulatory authorities, costs and expenses of preparing and maintaining our books and records, indemnification, litigation and other extraordinary expenses and such other expenses as are approved by the directors as being reasonably related to the organization, offering, capitalization, operation or administration of the Company and any portfolio investments, as applicable. The Advisor is not responsible for any of the foregoing expenses and such services are not investment advisory services under the 1940 Act. Either party may terminate each of the investment management agreement and administration agreement without penalty upon not less than 60 days’ written notice to the other.

 

Distributions

 

Our quarterly dividends and distributions to common stockholders are recorded on the ex-dividend date and are determined under guidelines established by our board of directors. Distributions are declared considering our estimate of annual taxable income available for distribution to stockholders and the amount of taxable income carried over from the prior year for distribution in the current year. We do not have a policy to pay distributions at a specific level and expect to continue to distribute substantially all of our taxable income. We cannot assure stockholders that they will receive any distributions or distributions at a particular level.

 

On May 8, 2013, the Company’s board of directors declared a second quarter cash dividend of $0.36 per share, payable on June 28, 2013 to stockholders of record as of the close of business on June 7, 2013. On June 28, 2013, we paid a cash dividend of $9.6 million.

 

The following tables summarize the Company’s dividends declared for the six months ended June 30, 2013 and June 30, 2012:

 

Date Declared  Record Date  Payment Date  Amount Per Share   Total
Amount
 
March 7, 2013  March 18, 2013  March 29, 2013  $0.40*  $8,591,051 
May 8, 2013  June 7, 2013  June 28, 2013  $0.36   $9,595,344 
Total for six months ended June 30, 2013        $0.76   $18,186,395 
                 
March 9, 2012  April 3, 2012  March 29, 2013  $0.34**  $5,400,000 
April 3, 2012  June 15, 2012  June 29, 2012  $0.34   $7,301,716 
Total for six months ended June 30, 2012        $0.68   $12,701,716 

 

* Includes a special dividend of $0.05.

** Based on 15,725,635 pro-forma converted shares before the initial public offering.

 

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The following table summarizes the total shares issued in connection with our dividend reinvestment plan for the six months ended June 30, 2013:

 

   Shares Issued   Average Price Per Share   Proceeds 
Shares issued from dividend reinvestment plan   2,073   $16.34   $33,867 

 

We have elected to be taxed as a RIC under Subchapter M of the Code. In order to maintain favorable RIC tax treatment, we must distribute annually to our stockholders at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In order to avoid certain excise taxes imposed on RICs, we must distribute during each calendar year an amount at least equal to the sum of:

 

98% of our ordinary income (not taking into account any capital gains or losses) for the calendar year;

 

98.2% of the amount by which our capital gains exceed our capital losses (adjusted for certain ordinary losses) for the one-year period generally ending on October 31 of the calendar year; and

 

certain undistributed amounts from previous years on which we paid no U.S. federal income tax.

 

We may, at our discretion, carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. If we choose to do so, all other things being equal, this would increase expenses and reduce the amounts available to be distributed to our stockholders. We will accrue excise tax on estimated taxable income as required. In addition, although we currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment.

 

We have adopted an “opt in” dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend or other distribution payable in cash, each stockholder that has not “opted in” to our dividend reinvestment plan will receive such dividends in cash, rather than having their dividends automatically reinvested in additional shares of our common stock.

 

We may not be able to achieve operating results that will allow us to make dividends and distributions at a specific level or to increase the amount of these dividends and distributions from time to time. Also, we may be limited in our ability to make dividends and distributions due to the asset coverage test applicable to us as a BDC under the 1940 Act and due to provisions in our existing and future credit facilities. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of favorable RIC tax treatment. In addition, in accordance with U.S. generally accepted accounting principles and tax regulations, we include in income certain amounts that we have not yet received in cash, such as PIK interest, which represents contractual interest added to the loan balance that becomes due at the end of the loan term, or the accrual of original issue or market discount. Since we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the requirement to distribute at least 90% of our investment company taxable income to obtain tax benefits as a RIC and may be subject to an excise tax.

 

  In order to satisfy the annual distribution requirement applicable to RICs, we have the ability to declare a large portion of a dividend in shares of our common stock instead of in cash. As long as a portion of such dividend is paid in cash and certain requirements are met, the entire distribution would be treated as a dividend for U.S. federal income tax purposes.

 

Related Parties

 

We have entered into a number of business relationships with affiliated or related parties, including the following:

 

Each of the Holding Company, the Operating Company, and TCPC Funding has entered into an investment management agreement with the Advisor.

 

The Administrator provides us with administrative services necessary to conduct our day-to-day operations. For providing these services, facilities and personnel, the Administrator may be reimbursed by us for expenses incurred by the Administrator in performing its obligations under the administration agreement, including our allocable portion of the cost of certain of our officers and the Administrator’s administrative staff and providing, at our request and on our behalf, significant managerial assistance to our portfolio companies to which we are required to provide such assistance.

 

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We have entered into a royalty-free license agreement with the Advisor, pursuant to which the Advisor has agreed to grant us a non-exclusive, royalty-free license to use the name “TCP.”

 

Pursuant to its limited partnership agreement, the general partner of the Operating Company is SVOF/MM, LLC. SVOF/MM, LLC is an affiliate of the Advisor and the general partners or managing member of certain other funds managed by the Advisor.

 

The Advisor and its affiliates, employees and associates currently do and in the future may manage other funds and accounts. The Advisor and its affiliates may determine that an investment is appropriate for us and for one or more of those other funds or accounts. Accordingly, conflicts may arise regarding the allocation of investments or opportunities among us and those accounts. In general, the Advisor will allocate investment opportunities pro rata among us and the other funds and accounts (assuming the investment satisfies the objectives of each) based on the amount of committed capital each then has available. The allocation of certain investment opportunities in private placements is subject to independent director approval pursuant to the terms of the co-investment exemptive order applicable to us. In certain cases, investment opportunities may be made other than on a pro rata basis. For example, we may desire to retain an asset at the same time that one or more other funds or accounts desire to sell it or we may not have additional capital to invest at a time the other funds or accounts do. If the Advisor is unable to manage our investments effectively, we may be unable to achieve our investment objective. In addition, the Advisor may face conflicts in allocating investment opportunities between us and certain other entities that could impact our investment returns. While our ability to enter into transactions with our affiliates is restricted under the 1940 Act, we have received an exemptive order from the SEC permitting certain affiliated investments subject to certain conditions. As a result, we may face conflict of interests and investments made pursuant to the exemptive order conditions which could in certain circumstances affect adversely the price paid or received by us or the availability or size of the position purchased or sold by us.

 

 Recent Developments

 

From July 1, 2013 through August 7, 2013, the Company has invested approximately $59 million in 6 loans with an effective yield of approximately 11.0%.

 

On August 8, 2013, the Company’s board of directors declared a third quarter cash dividend of $0.36 per share payable on September 30, 2013 to stockholders of record as of the close of business on September 9, 2013.

 

The Company submitted an application for a SBIC license and received a “Green Light” letter from the U.S. Small Business Administration allowing the Company to proceed with the application process. The Company subsequently received acceptance of its follow-up application.

 

Philip Tseng, a managing partner of Tennenbaum Capital Partners, LLC, who has been with the Advisor since 2004, will join our Investment Committee as a replacement for Michael E. Tennenbaum.

 

Item 3:   Quantitative and qualitative disclosure about market risk

 

We are subject to financial market risks, including changes in interest rates. At June 30, 2013, 73.6% of our debt investments bore interest based on floating rates, such as LIBOR, EURIBOR, the Federal Funds Rate or the Prime Rate. The interest rates on such investments generally reset by reference to the current market index after one to six months. At June 30, 2013, the percentage of our floating rate debt investments that bore interest based on an interest rate floor was 92.9%. Floating rate investments subject to a floor generally reset by reference to the current market index after one to six months only if the index exceeds the floor.

 

Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates. Because we fund a portion of our investments with borrowings, our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.

 

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Based on our June 30, 2013 balance sheet, the following table shows the annual impact on net income of base rate changes in interest rates (considering interest rate floors for variable rate instruments) assuming no changes in our investment and borrowing structure:

 

Basis Point Change  Interest income   Interest Expense   Net Income 
Up 300 basis points  $8,146,010   $(5,010,000)  $3,136,010 
Up 200 basis points  $4,113,739   $(3,340,000)  $773,739 
Up 100 basis points  $602,621   $(1,670,000)  $(1,067,379)
Down 100 basis points  $(115,488)  $457,079   $341,591 
Down 200 basis points  $(115,488)  $457,079   $341,591 
Down 300 basis points  $(115,488)  $457,079   $341,591 

 

Item 4. Controls and Procedures

 

As of the period covered by this report, we, including our chief executive officer and chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on our evaluation, our management, including the chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective in timely alerting management, including the chief executive officer and chief financial officer, of material information about us required to be included in our periodic SEC filings. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, are based upon certain assumptions about the likelihood of future events and can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. There has not been any change in our internal controls over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

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 PART II – Other Information

 

Item 1. Legal Proceedings

 

Although we may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise, as of June 30, 2013, we are currently not a party to any pending material legal proceedings.

 

Item 1A. Risk Factors

 

There have been no material changes from the risk factors previously disclosed in our most recent registration statement, as filed with the Securities and Exchange Commission on April 1, 2013.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4: Mine Safety Disclosures.

 

None.

 

Item 5: Other Information.

 

None.

 

Item 6: Exhibits

 

3.1 Articles of Incorporation (1)
3.2 Post-offering Bylaws (1)
4.1 Statement of Preferences of Preferred Interests of Special Value Continuation Partners, LP (1)
10.1 Form of Loan Financing and Servicing Agreement, dated as of May 15, 2013, by and among TCPC Funding I, LLC, as borrower, each lender and agent from time to time party thereto, Deutsche Bank AG, New York Branch, as administrative agent, and Wells Fargo Bank, National Association, as collateral agent and collateral custodian (2)
10.2 Form of Sale and Contribution Agreement, dated as of May 15, 2013, by and between Special Value Continuation Partners, LP and TCPC Funding I, LLC(2)
11 Computation of Per Share Earnings (included in the notes to the financial statements contained in this report)
12 Computation of Ratios (included in the notes to the financial statements contained in this report)
22 Published report regarding matters submitted to vote of security holders (3)
23.1 Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Registrant (4)
23.2 Consent of independent registered public accounting firm (4)
24 Power of Attorney (5)
31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 *
31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 *
32.1 Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

 

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* Filed herewith.

 

(1) Incorporated by reference to the Registrant’s Registration Statement under the Securities Act of 1933, as amended, on Form N-2 (File No. 333-172669), filed on May 13, 2011.
(2) Incorporated by reference to Exhibits 10.01 and 10.02 of the Registrant's Form 8-K filed on May 17, 2013.
(3) Incorporated by reference to Item 5.07 of the Registrant’s Form 8-K filed on May 6, 2013.
(4) Incorporated by reference to the Registrant's Registration Statement under the Securities Act of 1933 (File No. 333-185319), on Form N-2, filed on April 1, 2013.
(5) Incorporated by reference to the Registrant's Registration Statement under the Securities Act of 1933 (File No. 333-185319), on Form N-2, filed on December 7, 2012.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

 

TCP CAPITAL CORP.

 

Date:   August 8, 2013    
  By: /s/ Howard M. Levkowitz
  Name:   Howard M. Levkowitz
  Title: Chief Executive Officer
   
Date:   August 8, 2013    
  By: /s/ Paul L. Davis
  Name: Paul L. Davis
  Title: Chief Financial Officer

 

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