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BlackRock TCP Capital Corp. - Quarter Report: 2014 March (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

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

 

For the Quarter Ended March 31, 2014

 

  ¨ 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   (IRS Employer
of Incorporation)   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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Common Stock, par value $0.001 per share   NASDAQ Global Select Market
(Title of each class)   (Name of each exchange where registered)

 

Securities registered pursuant to Section 12(g) of the Act: None

 

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                x
     
Non-accelerated filer   ¨   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 May 7, 2014 was 36,200,020.

 

 
 

 

Table of Contents

TCP CAPITAL CORP.

 

FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2014

 

TABLE OF CONTENTS

 

Part I. Financial Information  
     
Item 1. Financial Statements  
  Consolidated Statements of Assets and Liabilities as of March 31, 2014 (unaudited) and December 31, 2013 2
  Consolidated Statements of Investments as of March 31, 2014 (unaudited) and December 31, 2013 3
  Consolidated Statements of Operations for the three months ended March 31, 2014 (unaudited) and March 31, 2013 (unaudited) 15
  Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2014 (unaudited) and year ended December 31, 2013 16
  Consolidated Statements of Cash Flows for the three months ended March 31, 2014 (unaudited) and March 31, 2013 (unaudited) 17
  Notes to Consolidated Financial Statements (unaudited) 18
  Consolidated Schedule of Changes in Investments in Affiliates for the three months ended March 31, 2014 (unaudited) and year ended December 31, 2013 35
  Consolidated Schedule of Restricted Securities of Unaffiliated Issuers as of March 31, 2014 (unaudited) and December 31, 2013 37
  Consolidating Statement of Assets and Liabilities as of March 31, 2014 (unaudited) and December 31, 2013 38
  Consolidating Statement of Operations for the three months ended March 31, 2014 (unaudited) and March 31, 2013 (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 53
     
Item 4. Controls and Procedures 54
     
Part II. Other Information  
     
Item 1. Legal Proceedings 55
     
Item 1A. Risk Factors 55
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 55
     
Item 3. Defaults upon Senior Securities 55
     
Item 4. Mine Safety Disclosures 55
     
Item 5. Other Information 55
     
Item 6. Exhibits 55

 

1
 

 

TCP Capital Corp.

 

Consolidated Statements of Assets and Liabilities

 

   March 31, 2014   December 31, 2013 
   (unaudited)     
Assets          
Investments, at fair value:          
Companies less than 5% owned (cost of $741,804,363 and $684,569,508, respectively)  $744,016,378   $678,326,915 
Companies 5% to 25% owned (cost of $54,759,445 and $73,946,547, respectively)   53,487,621    69,068,808 
Companies more than 25% owned (cost of $41,985,865 and $42,588,724 respectively)   18,153,749    18,867,236 
Total investments (cost of $838,549,673 and $801,104,779, respectively)   815,657,748    766,262,959 
           
Cash and cash equivalents   27,141,436    22,984,182 
Accrued interest income:          
Companies less than 5% owned   8,279,978    6,282,353 
Companies 5% to 25% owned   679,599    415,061 
Companies more than 25% owned   38,519    41,691 
Deferred debt issuance costs   3,360,310    2,969,085 
Receivable for investments sold   1,031,717    3,605,964 
Options (cost $51,750)   8,605    14,139 
Prepaid expenses and other assets   1,184,123    753,768 
Total assets   857,382,035    803,329,202 
           
Liabilities          
Debt   157,000,000    95,000,000 
Incentive allocation payable   3,486,403    3,318,900 
Payable for investments purchased   1,514,602    14,706,942 
Payable to the Investment Manager   463,629    1,121,108 
Interest payable   332,040    430,969 
Unrealized depreciation on swaps   300,684    331,183 
Accrued expenses and other liabilities   2,915,706    3,136,010 
Total liabilities   166,013,064    118,045,112 
           
Commitments and contingencies (Note 5)          
           
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   493,757    504,252 
Total preferred limited partner interests   134,493,757    134,504,252 
           
Non-controlling interest          
General Partner interest in Special Value Continuation Partners, LP   2,204,587    1,168,583 
           
Net assets applicable to common shareholders  $554,670,627   $549,611,255 
           
Composition of net assets applicable to common shareholders          
Common stock, $0.001 par value; 200,000,000 shares authorized, 36,200,020 and 36,199,916 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively   36,200    36,200 
Paid-in capital in excess of par   667,843,737    667,842,020 
Accumulated net investment income   24,929,736    24,016,095 
Accumulated net realized losses   (112,595,624)   (105,800,278)
Accumulated net unrealized depreciation   (23,338,835)   (35,314,199)
Non-controlling interest   (2,204,587)   (1,168,583)
Net assets applicable to common shareholders  $554,670,627   $549,611,255 
           
Net assets per share  $15.32   $15.18 

 

See accompanying notes.

 

2
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Unaudited)

 

March 31, 2014

 

Showing Percentage of Total Cash and Investments of the Company

 

               Percent of 
   Principal       Fair   Cash and 
Investment  Amount   Cost   Value   Investments 
                 
Debt Investments (92.87%)                    
Bank Debt (76.36%) (1)                    
Accounting, Tax Preparation, Bookkeeping, and Payroll Services (0.93%)                    
Expert Global Solutions, LLC, Senior Secured 1st Lien Term Loan B, LIBOR + 7.25%                    
(Q),1.25% LIBOR Floor, due 4/3/18  $694,441   $699,603   $679,684    0.08%
Expert Global Solutions, LLC, Senior Secured 2nd Lien Term Loan, LIBOR + 11% (Q),                    
1.5% LIBOR Floor, due 10/3/18  $7,434,877    7,235,805    7,174,657    0.85%
Total Accounting, Tax Preparation, Bookkeeping, and Payroll Services        7,935,408    7,854,341      
                     
Activities Related to Real Estate (1.97%)                    
Greystone Select Holdings, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 8% (M),                    
1% LIBOR Floor, due 3/26/21  $16,594,230    16,366,059    16,635,715    1.97%
                     
Advertising, Public Relations, and Related Services (2.15%)                    
Doubleplay III Limited, Senior Secured 1st Lien Facility A1 Term Loan, EURIBOR +                    
6.25% (Q), 1.25% EURIBOR Floor, due 3/18/18 - (United Kingdom) (4), (10)  $13,165,705    16,495,992    18,082,540    2.15%
                     
Artificial Synthetic Fibers and Filaments Manufacturing (0.24%)                    
AGY Holding Corp., Senior Secured Term Loan, 12%, due 9/15/16 (2)  $2,056,927    2,056,927    2,056,927    0.24%
                     
Basic Chemical Manufacturing (1.79%)                    
PeroxyChem, LLC, Senior Secured Term Loan, LIBOR + 6.5% (M), 1% LIBOR Floor, due 2/28/20  $15,000,000    14,702,579    15,075,000    1.79%
                     
Business Support Services (1.76%)                    
STG-Fairway Acquisitions, Inc., Senior Secured 2nd Lien Term Loan,                    
LIBOR + 9.25% (Q), 1.25% LIBOR Floor, due 8/28/19  $14,643,455    13,965,887    14,863,107    1.76%
                     
Chemical Manufacturing (2.08%)                    
Archroma, Senior Secured Lien Term Loan B, LIBOR + 8.25% (Q), 1.25% LIBOR Floor, due 9/30/18  $17,412,500    17,088,698    17,499,563    2.08%
                     
Communications Equipment Manufacturing (1.79%)                    
Globecomm Systems Inc., Senior Secured 1st Lien Term Loan, LIBOR + 7.625% (Q),                    
1.25% LIBOR Floor, due 12/11/18 (2)  $14,962,500    14,812,875    15,059,756    1.79%
                     
Computer Equipment Manufacturing (1.08%)                    
ELO Touch Solutions, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 10.5% (Q),                    
1.5% LIBOR Floor, due 12/1/18  $10,000,000    9,678,717    9,075,000    1.08%
                     
Converted Paper Products Manufacturing (0.42%)                    
Ranpak Corp., Senior Secured 2nd Lien Term Loan, LIBOR + 7.25% (Q),                    
1.25% LIBOR Floor, due 4/23/20  $3,469,573    3,434,877    3,551,976    0.42%
                     
Computer Systems Design and Related Services (9.73%)                    
Autoalert, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 4.75%                    
(Q) Cash + 4% PIK, 0.25%  LIBOR Floor, due 3/31/19  $30,000,000    29,400,000    29,940,000    3.55%
Blue Coat Systems, Inc., Senior Secured 1st Lien Revolver Term Loan, LIBOR + 3.5%                    
(Q), 1% LIBOR Floor, due 5/31/18 (13)  $    (960,000)   (441,060)   (0.05)%
Blue Coat Systems, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 8.5% (Q),                    
1% LIBOR Floor, due 6/28/20  $15,000,000    14,878,125    15,581,250    1.85%
CoreOne Technologies, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 3.75%                     
(Q) Cash + 5% PIK, 1% LIBOR Floor, due 9/4/18  $13,726,261    13,412,993    13,643,903    1.62%
OnX Enterprise Solutions, Ltd., Senior Secured 1st Lien Term Loan, LIBOR + 7% (Q),                    
 due 9/3/18  $10,613,333    10,468,033    10,708,853    1.27%
OnX USA, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 7% (Q), due 9/3/18  $5,306,667    5,237,760    5,354,427    0.64%
Websense, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 7.25% (Q), 1% LIBOR                    
Floor, due 12/27/20  $7,200,000    7,164,000    7,254,000    0.85%
Total Computer Systems Design and Related Services        79,600,911    82,041,373      
                     
Electric Power Generation, Transmission and Distribution (2.07%)                    
Panda Sherman Power, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 7.5% (Q),                    
1.5% LIBOR Floor, due 9/14/18  $11,070,172    10,938,274    11,402,277    1.35%
Panda Temple Power II, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 6% (Q),                    
1.25% LIBOR Floor, due 4/3/19  $5,892,970    5,834,041    6,062,393    0.72%
Total Electric Power Generation, Transmission and Distribution        16,772,315    17,464,670      
                     
Electrical Equipment and Component Manufacturing (1.99%)                    
Palladium Energy, Inc., 1st Lien Senior Secured Term Loan, LIBOR + 9% (Q),                    
1% LIBOR Floor, due 12/26/17  $16,500,317    16,239,377    16,739,572    1.99%
                     
Electrical Equipment Manufacturing (0.82%)                    
API Technologies Corp., Senior Secured 1st Lien Term Loan, LIBOR + 7.5% (M),                    
1.5% LIBOR Floor, due 2/6/18  $6,947,590    6,878,114    6,912,852    0.82%
                     
Financial Investment Activities (0.70%)                    
Marsico Capital Management, Senior Secured 1st Lien Term Loan,                    
LIBOR + 5% (M), due 12/31/22 (11)  $10,606,841    13,355,425    5,939,831    0.70%
3
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Unaudited) (Continued)

 

March 31, 2014

 

Showing Percentage of Total Cash and Investments of the Company

 

                      Percent of  
    Principal           Fair     Cash and  
Investment   Amount     Cost     Value     Investments  
                         
Debt Investments (continued)                                
Freight Transportation Arrangement (0.44%)                                
Livingston International, Inc., 2nd Lien Term Loan, LIBOR + 7.75% (Q), 1.25% LIBOR Floor, due 4/18/20 (10)   $ 3,665,217     $ 3,599,623     $ 3,724,777       0.44 %
                                 
Full-Service Restaurants (1.87%)                                
RM Holdco, LLC, Subordinated Convertible Term Loan, 1.12% PIK, due 3/21/18 (2)   $ 5,164,796       5,164,796       1,402,242       0.17 %
RM OpCo, LLC, Convertible 1st Lien Term Loan Tranche B-1,  12% Cash + 7% PIK, due 3/21/16 (2)   $ 1,422,456       1,394,868       1,422,456       0.17 %
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche A, 11%, due 3/21/16 (2)   $ 3,647,717       3,647,717       3,647,717       0.43 %
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B, 12% Cash + 7% PIK, due 3/21/16 (2)   $ 7,087,612       7,087,612       7,087,612       0.84 %
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B-1, 12% Cash + 7% PIK, due 3/21/16 (2)   $ 2,232,131       2,194,774       2,232,131       0.26 %
Total Full-Service Restaurants             19,489,767       15,792,158          
                                 
Gaming Industries (1.66%)                                
AP Gaming I, LLC, Senior Secured 1st Lien Revolver Term Loan, LIBOR + 8.25% (Q), 1% LIBOR Floor, due 12/20/18 (13)   $       (1,000,000 )     (984,375 )     (0.12 )%
AP Gaming I, LLC, Senior Secured 1st Lien Term Loan B, LIBOR + 8.25% (Q), 1% LIBOR Floor, due 12/20/20   $ 14,962,500       14,523,696       14,962,500       1.78 %
Total Gaming Industries             13,523,696       13,978,125          
                                 
Grocery Stores (1.78%)                                
Bashas, Inc., Senior Secured 1st Lien FILO Term Loan, LIBOR + 9.35% (M), 1.5% LIBOR Floor, due 12/28/15   $ 14,781,475       14,740,030       15,003,197       1.78 %
                                 
Insurance Carriers (1.39%)                                
Acrisure, LLC, 2nd Lien Additional Notes, LIBOR + 10.5% (Q), 1% LIBOR Floor, due 3/7/20   $ 680,363       564,204       674,555       0.08 %
Acrisure, LLC, 2nd Lien Notes, LIBOR + 10.5% (Q), 1% LIBOR Floor, due 3/7/20   $ 11,051,757       10,832,378       11,040,705       1.31 %
Total Insurance Carriers             11,396,582       11,715,260          
                                 
Insurance Related Activities (0.76%)                                
Confie Seguros Holding II Co., 2nd Lien Term Loan, LIBOR + 9% (M), 1.25% LIBOR Floor, due 5/8/19   $ 6,341,809       6,249,086       6,397,332       0.76 %
                                 
Merchant Wholesalers (1.09%)                                
Envision Acquisition Company, LLC, 2nd Lien Term Loan, LIBOR + 8.75% (M), 1% LIBOR Floor, due 11/4/21   $ 9,079,011       8,897,430       9,158,452       1.09 %
                                 
Motion Picture and Video Industries (1.82%)                                
CORE Entertainment, Inc., Senior Secured 1st Lien Term Loan, 9%, due 6/21/17   $ 9,462,231       9,386,095       8,421,386       1.00 %
CORE Entertainment, Inc., Senior Secured 2nd Lien Term Loan, 13.5%, due 6/21/18   $ 7,569,785       7,505,822       6,933,923       0.82 %
Total Motion Picture and Video Industries             16,891,917       15,355,309          
                                 
Newspaper, Periodical, Book, and Directory Publishers (3.64%)                                
Hanley-Wood, LLC, 1st Lien FILO Term Loan, LIBOR + 6.75% (Q), 1.25% LIBOR Floor, due 7/15/18   $ 16,561,400       16,561,400       16,420,628       1.95 %
MediMedia USA, Inc., 1st Lien Revolver, LIBOR + 6.75% (M), due 5/20/18   $ 5,270,000       4,107,500       4,833,908       0.57 %
MediMedia USA, Inc., 1st Lien Term Loan, LIBOR + 6.75% (M),  1.25% LIBOR Floor, due 11/20/18   $ 9,676,875       9,420,314       9,434,953       1.12 %
Total Newspaper, Periodical, Book, and Directory Publishers             30,089,214       30,689,489          
                                 
Nonresidential Building Construction (1.20%)                                
NCM Group Holdings, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 11.5% (Q), 1% LIBOR Floor, due 8/29/18   $ 10,000,000       9,620,619       10,145,000       1.20 %
                                 
Nonscheduled Air Transportation (2.11%)                                
One Sky Flight, LLC, Senior Secured 2nd Lien Term Loan, 12% Cash + 3% PIK, due 6/3/19   $ 18,243,983       16,984,017       17,742,274       2.11 %
                                 
Oil and Gas Extraction (1.83%)                                
Willbros Group, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 9.75% (Q), 1.25% LIBOR Floor, due 8/7/19   $ 15,246,603       14,876,555       15,443,512       1.83 %
                                 
Other Telecommunications (1.67%)                                
Securus Technologies, Inc., 2nd Lien Term Loan, LIBOR + 7.75% (Q), 1.25% LIBOR  Floor, due 4/30/21   $ 14,000,000       13,860,000       14,072,940       1.67 %
                                 
Petroleum and Coal Products Manufacturing (0.46%)                                
Boomerang Tube, LLC, 2nd Lien Term Loan, LIBOR + 9.5% (Q), 1.5% LIBOR Floor, due 10/11/17   $ 3,987,092       3,902,548       3,887,415       0.46 %

 

4
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Unaudited) (Continued)

 

March 31, 2014

 

Showing Percentage of Total Cash and Investments of the Company

 

               Percent of 
   Principal       Fair   Cash and 
Investment  Amount   Cost   Value   Investments 
                 
Debt Investments (continued)                
Professional, Scientific, and Technical Services (1.91%)                    
ConvergeOne Holdings, 1st Lien Term Loan, LIBOR + 8% (Q), 1.25% LIBOR Floor, due 5/8/19  $16,112,709   $15,930,795   $16,112,709    1.91%
                     
Radio and Television Broadcasting (2.94%)                    
SiTV, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 6% (Q) Cash + 4% PIK,                    
2% LIBOR Floor, due 8/3/16  $7,014,361    6,678,521    6,856,537    0.82%
The Tennis Channel, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 8.5% (Q), due 5/29/17  $17,771,217    17,344,546    17,842,301    2.12%
Total Radio and Television Broadcasting        24,023,067    24,698,838      
                     
Retail (2.10%)                    
Kenneth Cole Productions, Inc., Senior Secured 1st Lien FILO Term Loan,                    
 LIBOR + 10.40% (M), 1% LIBOR Floor, due 9/25/17  $11,000,000    10,796,475    11,055,000    1.31%
Shopzilla, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 9.5% (Q), due 3/31/16  $6,710,057    6,584,026    6,699,991    0.79%
Total Retail        17,380,501    17,754,991      
                     
Scheduled Air Transportation (1.40%)                    
Aircraft Secured Mortgages - Aircraft Leased to Delta Air Lines, Inc.                    
N913DL, 8%, due 3/15/17 (6)  $268,686    268,686    275,740    0.03%
N918DL, 8%, due 8/15/18 (6)  $369,976    369,976    379,440    0.05%
N954DL, 8%, due 3/20/19 (6)  $493,667    493,667    504,730    0.06%
N955DL, 8%, due 6/20/19 (6)  $513,363    513,363    524,620    0.06%
N956DL, 8%, due 5/20/19 (6)  $512,024    512,024    523,430    0.06%
N957DL, 8%, due 6/20/19 (6)  $517,853    517,853    529,210    0.06%
N959DL, 8%, due 7/20/19 (6)  $523,634    523,634    534,990    0.06%
N960DL, 8%, due 10/20/19 (6)  $545,211    545,211    556,410    0.07%
N961DL, 8%, due 8/20/19 (6)  $538,309    538,309    549,780    0.07%
N976DL, 8%, due 2/15/18 (6)  $373,436    373,436    383,520    0.05%
Aircraft Secured Mortgages - Aircraft Leased to United Airlines, Inc.                    
N510UA, 20%, due 10/26/16 (2)  $305,802    305,802    370,358    0.04%
N512UA, 20%, due 10/26/16 (2)  $311,984    311,984    380,048    0.05%
N536UA, 16%, due 9/29/14 (2)  $69,373    69,373    71,630    0.01%
N545UA, 16%, due 8/29/15 (2)  $214,325    214,325    233,415    0.03%
N585UA, 20%, due 10/25/16 (2)  $366,316    366,316    446,310    0.05%
N659UA, 12%, due 2/28/16 (6)  $2,439,123    2,439,123    2,635,667    0.31%
N661UA, 12%, due 5/4/16 (6)  $2,619,284    2,619,284    2,862,717    0.34%
Total Scheduled Air Transportation        10,982,366    11,762,015      
                     
Semiconductor and Other Electronic Component Manufacturing (1.64%)                    
Isola USA Corporation, Senior Secured Term Loan B, LIBOR + 8.25% (Q), 1% LIBOR                    
Floor, due 11/29/18  $14,492,188    14,285,320    14,854,492    1.76%
SunEdison, Inc., Senior Secured Letters of Credit, 3.75%, due 2/28/17 (12), (13)  $    (1,031,717)   (1,031,717)   (0.12)%
Total Semiconductor and Other Electronic Component Manufacturing        13,253,603    13,822,775      
                     
Software Publishers (6.91%)                    
Acronis International GmbH, 1st Lien Term Loan, LIBOR + 9.5% (Q),  1% LIBOR Floor,                    
due 2/21/17 - Switzerland (10)  $13,628,929    13,363,718    13,676,630    1.62%
BlackLine Systems, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 0.4% (Q)                    
Cash + 7.6% PIK, 1.5% LIBOR Floor, due 9/25/18  $12,818,762    12,050,059    12,440,609    1.48%
Deltek, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 8.75% (Q), 1.25% LIBOR                    
Floor, due 10/10/19  $15,000,000    14,811,452    15,324,975    1.82%
Edmentum, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 9.75% (Q), 1.5% LIBOR                    
 Floor, due 5/17/19  $16,500,000    16,271,792    16,788,750    1.99%
Total Software Publishers        56,497,021    58,230,964      
                     
Specialty Hospitals (0.59%)                    
UBC Healthcare Analytics, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 9% (Q),                    
1% LIBOR Floor, due 7/1/18  $4,933,947    4,909,278    4,958,617    0.59%
                     
Support Activities for Mining (0.00%)                    
McDermott International, Inc., Bridge Facility Commitment   $-    -    -    - 

 

5
 

  

TCP Capital Corp.

 

Consolidated Statement of Investments (Unaudited) (Continued)

 

March 31, 2014

 

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)                    
Textile Furnishings Mills (1.96%)                    
Lexmark Carpet Mills, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 10% (Q),                    
1% LIBOR Floor, due 9/30/18  $16,351,467   $15,942,680   $16,523,158    1.96%
                     
Wired Telecommunications Carriers (1.83%)                    
Integra Telecom Holdings, Inc., 2nd Lien Term Loan, LIBOR + 8.5% (Q), 1.25% LIBOR                    
Floor, due 2/22/20  $15,000,000    14,709,735    15,390,000    1.83%
                     
Wireless Telecommunications Carriers (3.84%)                    
Alpheus Communications, LLC, Senior Secured 1st Lien Delayed Draw FILO Term                    
Loan, LIBOR + 6.92% (Q), 1% LIBOR Floor, due 5/31/18 (13)  $    (11,183)   (7,874)   - 
Alpheus Communications, LLC, Senior Secured 1st Lien FILO Term Loan, LIBOR +                    
6.92% (Q), 1% LIBOR Floor, due 5/31/18  $8,248,124    8,166,127    8,190,387    0.97%
Globalive Wireless Management Corp., Senior Secured 1st Lien Term Loan,                    
LIBOR + 10.9% (Q), due 4/30/14 - (Canada) (10)  $3,037,292    2,933,872    3,067,665    0.36%
Gogo, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 9.75% (Q), 1.5% LIBOR                    
Floor, due 6/21/17  $19,461,356    18,587,291    21,115,572    2.51%
Total Wireless Telecommunications Carriers        29,676,107    32,365,750      
                     
Total Bank Debt        636,810,398    643,577,280      
                     
Other Corporate Debt Securities (16.51%)                    
Artificial Synthetic Fibers and Filaments Manufacturing (1.10%)                    
AGY Holding Corporation, Senior Secured 2nd Lien Notes, 11%, due 11/15/16 (2), (5)  $9,268,000    7,586,317    9,268,000    1.10%
                     
Beverage Manufacturing (1.00%)                    
Carolina Beverage Group, LLC, Secured Notes, 10.625%, due 8/1/18 (5)  $7,780,000    7,780,000    8,441,300    1.00%
                     
Data Processing, Hosting, and Related Services (0.90%)                    
The Telx Group, Inc., Senior Unsecured Notes, 10% Cash + 2% PIK, due 9/26/19 (5)  $7,098,916    6,960,435    7,560,346    0.90%
                     
Fabricated Metal Product Manufacturing (1.31%)                    
Constellation Enterprises, LLC, Senior Secured 1st Lien Notes, 10.625%, due 2/1/16 (5), (7)  $12,500,000    12,322,875    11,000,000    1.31%
                     
Lessors of Real Estate (1.60%)                    
Hunt Companies, Inc., Senior Secured Notes, 9.625%, due 3/1/21 (5)  $13,084,000    12,922,359    13,476,520    1.60%
                     
Nondepository Credit Intermediation (3.07%)                    
Caribbean Financial Group, Senior Secured Notes, 11.5%, due 11/15/19 - (Cayman Islands) (5), (8), (10)  $10,000,000    9,829,350    10,850,000    1.29%
Trade Finance Funding I, Ltd., Secured Class B Notes, 10.75%, due 11/13/18 (5), (10)  $15,084,000    15,084,000    15,084,000    1.78%
Total Nondepository Credit Intermediation        24,913,350    25,934,000      
                     
Plastics Products Manufacturing (1.72%)                    
Iracore International, Inc., Senior Secured Notes, 9.5%, due 6/1/18 (5)  $13,600,000    13,600,000    14,478,995    1.72%
                     
Retail (0.01%)                    
Shop Holding LLC, Convertible Promissory Note, 5%, due 8/5/15 (5)  $73,140    73,140    71,494    0.01%
                     
Satellite Telecommunications (1.25%)                    
Avanti Communications Group, PLC, Senior Secured Notes, 10%, due 10/1/19 (5), (7), (10)  $9,914,000    9,914,000    10,576,999    1.25%
                     
Scientific Research and Development Services (2.14%)                    
BPA Laboratories, Inc., Senior Secured Notes, 12.25%, due 4/1/17 (5)  $17,200,000    16,536,295    18,060,000    2.14%
                     
Specialty Hospitals (0.61%)                    
Vantage Oncology, LLC, Senior Secured Notes, 9.5%, due 6/15/17 (5)  $5,000,000    5,000,000    5,150,000    0.61%
                     
Structured Note Funds (1.80%)                    
Magnolia Finance V plc, Asset-Backed Credit Linked Notes, 13.125%,                    
 due 8/2/21 - (Cayman Islands) (5), (10)  $15,000,000    15,000,000    15,147,000    1.80%
                     
Total Other Corporate Debt Securities        132,608,771    139,164,654      
                     
Total Debt Investments        769,419,169    782,741,934      

 

6
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Unaudited) (Continued)

 

March 31, 2014

 

Showing Percentage of Total Cash and Investments of the Company

 

               Percent of 
           Fair   Cash and 
Investment  Shares   Cost   Value   Investments 
                 
Equity Securities (3.91%)                    
Business Support Services (0.26%)                    
Findly Talent, LLC, Membership Units (3), (5)   708,229   $230,938   $162,185    0.02%
STG-Fairway Holdings, LLC, Class A Units (3), (5)   841,479    943,287    1,990,939    0.24%
Total Business Support Services        1,174,225    2,153,124      
                     
Communications Equipment Manufacturing (0.59%)                    
Wasserstein Cosmos Co-Invest, L.P., Limited Partnership Units (2), (3), (5)   5,000,000    5,000,000    5,000,000    0.59%
                     
Data Processing, Hosting, and Related Services (0.11%)                    
Anacomp, Inc., Class A Common Stock (3), (5), (6)   1,255,527    26,711,048    891,424    0.11%
                     
Depository Credit Intermediation (0.06%)                    
Doral Financial Corporation, Common Stock - (Puerto Rico) (3), (12)   53,890    11,699,417    467,763    0.06%
                     
Financial Investment Activities (0.00%)                    
Marsico Holdings, LLC, Common Interest Units (3), (5), (11)   168,698    172,694    25,305    - 
                     
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    -    7,397    - 
                     
Nonmetallic Mineral Mining and Quarrying (0.19%)                    
EPMC HoldCo, LLC, Membership Units (2), (5)   1,312,720    -    1,562,137    0.19%
                     
Nonscheduled Air Transportation  (0.17%)                    
Flight Options Holdings I, Inc., Warrants to Purchase Common Stock (3), (5)   1,843    1,274,000    1,412,078    0.17%
                     
Radio and Television Broadcasting (0.04%)                    
SiTV, Inc., Warrants to Purchase Common Stock (3), (5)   233,470    300,322    357,209    0.04%
                     
Retail (0.06%)                    
Shop Holding, LLC, Class A Units (3), (5)   507,167    480,049    476,628    0.06%
Shop Holding, LLC, Warrants to Purchase Class A Units (3), (5)   326,691    -    17,834    - 
Total Electronic Shopping        480,049    494,462      
                     
Scheduled Air Transportation (1.11%)                    
Equipment Trusts - Aircraft Leased to Delta Air Lines, Inc.                    
N913DL Trust Beneficial Interests (5), (6)   795    94,231    123,930    0.01%
N918DL Trust Beneficial Interests (5), (6)   673    105,629    141,270    0.02%
N954DL Trust Beneficial Interests (5), (6)   636    126,797    69,190    0.01%
N955DL Trust Beneficial Interests (5), (6)   618    127,179    112,710    0.01%
N956DL Trust Beneficial Interests (5), (6)   623    118,190    108,290    0.01%
N957DL Trust Beneficial Interests (5), (6)   618    128,014    109,140    0.01%
N959DL Trust Beneficial Interests (5), (6)   614    128,843    109,990    0.01%
N960DL Trust Beneficial Interests (5), (6)   602    132,148    109,140    0.01%
N961DL Trust Beneficial Interests (5), (6)   610    131,332    103,700    0.01%
N976DL Trust Beneficial Interests (5), (6)   709    108,697    102,862    0.01%
Equipment Trusts - Aircraft Leased to United Airlines, Inc.                    
N510UA Trust Beneficial Interests (2), (5)   56    211,477    453,896    0.05%
N512UA Trust Beneficial Interests (2), (5)   56    206,766    446,071    0.05%
N536UA Trust Beneficial Interests (2), (5)   86    424,460    526,943    0.06%
N545UA Trust Beneficial Interests (2), (5)   71    371,557    632,959    0.08%
N585UA Trust Beneficial Interests (2), (5)   56    229,521    465,546    0.06%
United N659UA-767, LLC (N659UA) (5), (6)   439    2,197,988    2,950,833    0.35%
United N661UA-767, LLC (N661UA) (5), (6)   426    2,161,205    2,961,015    0.35%
Total Scheduled Air Transportation        7,004,034    9,527,485      
                     
Resin, Synthetic Rubber, and Artificial Synthetic Fibers and Filaments Manufacturing (0.09%)                    
KAGY Holding Company, Inc., Series A Preferred Stock (2), (3), (5)   9,778    1,091,200    721,467    0.09%
                     
Semiconductor and Other Electronic Component Manufacturing (0.03%)                    
AIP/IS Holdings, LLC, Membership Units (3), (5)   352    -    229,504    0.03%
                     
Software Publishers (0.06%)                    
SLS Breeze Intermediate Holdings, Inc., Warrants to Purchase Common Stock (3), (5)   1,232,731    522,678    530,074    0.06%

 

7
 

  

TCP Capital Corp.

 

Consolidated Statement of Investments (Unaudited) (Continued)

 

March 31, 2014

 

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 (1.14%)                    
Integra Telecom, Inc., Common Stock (3), (5)   1,274,522   8,433,884   5,586,951    0.67%
Integra Telecom, Inc., Warrants (3), (5)   346,939    19,920    186,275    0.02%
V Telecom Investment S.C.A., Common Shares - (Luxembourg) (3), (4), (5), (10)   1,393    3,236,256    3,763,159    0.45%
Total Wired Telecommunications Carriers        11,690,060    9,536,385      
                     
Total Equity Securities        69,130,504    32,915,814      
                     
Total Investments        838,549,673    815,657,748      
                     
Cash and Cash Equivalents (3.22%)                    
Wells Fargo & Company, Overnight Repurchase Agreement, 0.03%,                    
Collateralized by Freddie Mac Note            $16,373,605    1.95%
Union Bank of California, Commercial Paper, 0.10%, due 4/1/14             6,000,000    0.71%
Cash Denominated in Foreign Currencies             121,879    0.01%
Cash Held on Account at Various Institutions             4,645,952    0.55%
Cash and Cash Equivalents             27,141,436      
                     
Total Cash and Investments (9)            $842,799,184    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). See Consolidated Schedule of Changes in Investments in Affiliates.

 

(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). Investment is not more than 50% owned nor deemed to be a significant subsidiary. See Consolidated Schedule of Changes in Investments in Affiliates.

 

(7)Investment has been segregated to collateralize certain unfunded commitments.

 

(8)$5,000,000 principal amount of this investment has been segregated to collateralize certain unfunded commitments.

 

(9)All cash and investments, except those referenced in Notes 7 and 8 above, are pledged as collateral under the Revolving Facilities as described in Note 4 to the Consolidated Financial Statements.

 

(10)Non-U.S. company or principal place of business outside the U.S. and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company's total assets.

 

(11)Excepted from the definition of investment company under Section 3(c) of the Investment Company Act and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company's total assets.

 

(12)Publicly traded company with a market capitalization greater than $250 million and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company's total assets.

 

(13)Negative balances relate to an unfunded commitment that was acquired and valued at a discount.

 

LIBOR or EURIBOR resets monthly (M), quarterly (Q), or semiannually (S).

 

Aggregate acquisitions and aggregate dispositions of investments, other than government securities, totaled $110,386,498, and $66,876,929, respectively for the three months ended March 31, 2014. 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 March 31, 2014 was $815,189,985, or 96.7% of total cash and investments of the Company.

 

Options and Swaps at March 31, 2014 were as follows:

  

Investment  Notional
Amount
   Fair Value 
         
Interest Rate Cap, 4%, expires 5/15/2016  $25,000,000   $8,605 
Euro/US Dollar Cross-Currency Basis Swap, Pay Euros/Receive USD, Expires 3/31/17  $4,289,019   $(300,684)

  

See accompanying notes.

 

8
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments

 

December 31, 2013

 

Showing Percentage of Total Cash and Investments of the Company

 

               Percent of 
   Principal       Fair   Cash and 
Investment  Amount   Cost   Value   Investments 
                 
Debt Investments (92.05%)                    
Bank Debt (74.53%) (1)                    
Accounting, Tax Preparation, Bookkeeping, and Payroll Services (1.03%)                    
Expert Global Solutions, LLC, Senior Secured 1st Lien Term Loan B, LIBOR + 7.25% (Q),                    
1.25% LIBOR Floor, due 4/3/18  $699,754   $701,280   $703,691    0.09%
Expert Global Solutions, LLC, Senior Secured 2nd Lien Term Loan, LIBOR + 11% (Q),                    
1.5% LIBOR Floor, due 10/3/18  $7,434,877    7,228,004    7,382,833    0.94%
Total Accounting, Tax Preparation, Bookkeeping, and Payroll Services        7,929,284    8,086,524      
                     
Advertising, Public Relations, and Related Services (2.12%)                    
Doubleplay III Limited, Senior Secured 1st Lien Facility A1 Term Loan, EURIBOR + 6.25% (Q),                    
1.25% EURIBOR Floor, due 3/18/18 - (United Kingdom) (4), (10)  $13,165,705    16,428,630    16,736,606    2.12%
                     
Artificial Synthetic Fibers and Filaments Manufacturing (0.26%)                    
AGY Holding Corp., Senior Secured Term Loan, 12%, due 9/15/16 (2)  $2,056,927    2,056,927    2,056,927    0.26%
                     
Business Support Services (1.89%)                    
STG-Fairway Acquisitions, Inc., Senior Secured 2nd Lien Term Loan,                    
LIBOR + 9.25% (Q), 1.25% LIBOR Floor, due 8/28/19  $14,643,455    13,944,123    14,929,002    1.89%
                     
Chemical Manufacturing (2.20%)                    
Archroma, Senior Secured Lien Term Loan B, LIBOR + 8.25% (Q), 1.25% LIBOR Floor,                    
due 9/30/18  $17,456,250    17,107,125    17,401,699    2.20%
                     
Communications Equipment Manufacturing (1.91%)                    
Globecomm Systems Inc., Senior Secured 1st Lien Term Loan, LIBOR + 7.625% (Q),                    
1.25% LIBOR Floor, due 12/11/18 (2)  $15,000,000    14,850,000    15,097,500    1.91%
                     
Computer Equipment Manufacturing (1.15%)                    
ELO Touch Solutions, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 10.5% (Q),                    
1.5% LIBOR Floor, due 12/1/18  $10,000,000    9,666,672    9,100,000    1.15%
                     
Converted Paper Products Manufacturing (0.45%)                    
Ranpak Corp., Senior Secured 2nd Lien Term Loan, LIBOR + 7.25% (Q),                    
1.25% LIBOR Floor, due 4/23/20  $3,469,573    3,434,877    3,573,660    0.45%
                     
Computer Systems Design and Related Services (5.40%)                    
Blue Coat Systems, Inc., Senior Secured 1st Lien Revolver Term Loan, LIBOR + 3.5% (Q),                    
1% LIBOR Floor, due 5/31/18  $4,500,000    3,540,000    4,060,800    0.51%
Blue Coat Systems, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 8.5% (Q),                    
1% LIBOR Floor, due 6/28/20  $15,000,000    14,878,125    15,300,000    1.94%
OnX Enterprise Solutions, Ltd., Senior Secured 1st Lien Term Loan, LIBOR + 7% (Q),                    
 due 9/3/18   $10,640,000    10,483,300    10,709,160    1.36%
OnX USA, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 7% (Q), due 9/3/18  $5,320,000    5,244,790    5,354,580    0.68%
Websense, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 7.25% (Q), 1% LIBOR                    
Floor, due 12/27/20  $7,200,000    7,164,000    7,218,000    0.91%
Total Computer Systems Design and Related Services        41,310,215    42,642,540      
                     
Electric Power Generation, Transmission and Distribution (2.21%)                    
Panda Sherman Power, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 7.5% (Q),                    
1.5% LIBOR Floor, due 9/14/18  $11,070,172    10,932,474    11,402,277    1.44%
Panda Temple Power II, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 6% (Q),                    
1.25% LIBOR Floor, due 4/3/19  $5,892,970    5,834,041    6,069,759    0.77%
Total Electric Power Generation, Transmission and Distribution        16,766,515    17,472,036      
                     
Electrical Equipment and Component Manufacturing (2.08%)                    
Palladium Energy, Inc., 1st Lien Senior Secured Term Loan, LIBOR + 9% (Q),                    
1% LIBOR Floor, due 12/26/17  $16,500,317    16,225,541    16,426,066    2.08%
                     
Financial Investment Activities (0.49%)                    
Marsico Capital Management, Senior Secured 1st Lien Term Loan,                    
LIBOR + 5% (M), due 12/31/22 (11)  $10,637,623    13,394,183    3,882,732    0.49%
                     
Freight Transportation Arrangement (0.48%)                    
Livingston International, Inc., 2nd Lien Term Loan, LIBOR + 7.75% (Q),                    
1.25% LIBOR Floor, due 4/18/20 (10)  $3,665,217    3,597,620    3,756,848    0.48%

 

9
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Continued)

 

December 31, 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)                    
Full-Service Restaurants (2.04%)                    
RM Holdco, LLC, Subordinated Convertible Term Loan, 1.12% PIK, due 3/21/18 (2)  $5,164,796   $5,164,796   $2,197,621    0.28%
RM OpCo, LLC, Convertible 1st Lien Term Loan Tranche B-1,                    
 12% Cash + 7% PIK, due 3/21/16 (2)  $1,370,199    1,339,883    1,370,199    0.17%
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche A, 11%, due 3/21/16 (2)  $3,626,947    3,626,947    3,626,947    0.46%
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B, 12% Cash + 7% PIK,                    
due 3/21/16 (2)  $6,825,328    6,825,328    6,825,328    0.86%
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B-1, 12% Cash + 7%                    
PIK, due 3/21/16 (2)  $2,150,088    2,109,019    2,150,088    0.27%
Total Full-Service Restaurants        19,065,973    16,170,183      
                     
Gaming Industries (1.87%)                    
AP Gaming I, LLC, Senior Secured 1st Lien Term Loan B, LIBOR + 8.25% (Q),                    
1% LIBOR Floor, due 12/20/20  $15,000,000    14,550,000    14,737,500    1.87%
                     
Grocery Stores (1.91%)                    
Bashas, Inc., Senior Secured 1st Lien FILO Term Loan, LIBOR + 9.35% (M),                    
1.5% LIBOR Floor, due 12/28/15  $14,843,788    14,802,168    15,066,445    1.91%
                     
Inland Water Transportation (1.64%)                    
US Shipping Corp, Senior Secured 1st Lien Term Loan B, LIBOR + 7.75% (Q),                    
1.25% LIBOR Floor, due 4/30/18  $12,603,333    12,477,300    12,965,679    1.64%
                     
Insurance Related Activities (0.81%)                    
Confie Seguros Holding II Co., 2nd Lien Term Loan, LIBOR + 9% (M), 1.25% LIBOR                    
Floor, due 5/8/19  $6,341,809    6,245,733    6,391,370    0.81%
                     
Merchant Wholesalers (1.16%)                    
Envision Acquisition Company, LLC, 2nd Lien Term Loan, LIBOR + 8.75% (M),                    
1% LIBOR Floor, due 11/4/21  $9,079,011    8,897,430    9,192,498    1.16%
                     
Motion Picture and Video Industries (1.97%)                    
CORE Entertainment, Inc., Senior Secured 1st Lien Term Loan, 9%, due 6/21/17  $9,462,231    9,381,116    8,610,631    1.09%
CORE Entertainment, Inc., Senior Secured 2nd Lien Term Loan, 13.5%, due 6/21/18  $7,569,785    7,502,054    6,858,225    0.88%
Total Motion Picture and Video Industries        16,883,170    15,468,856      
                     
Newspaper, Periodical, Book, and Directory Publishers (3.90%)                    
Hanley-Wood, LLC, 1st Lien FILO Term Loan, LIBOR + 6.75% (Q),                    
1.25% LIBOR Floor, due 7/15/18  $16,707,600    16,707,600    16,699,246    2.13%
MediMedia USA, Inc., 1st Lien Revolver, LIBOR + 6.75% (M), due 5/20/18  $4,960,000    3,797,500    4,523,908    0.57%
MediMedia USA, Inc., 1st Lien Term Loan, LIBOR + 6.75% (M),                    
 1.25% LIBOR Floor, due 11/20/18  $9,701,250    9,433,029    9,458,719    1.20%
Total Newspaper, Periodical, Book, and Directory Publishers        29,938,129    30,681,873      
                     
Nonresidential Building Construction (1.25%)                    
NCM Group Holdings, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 11.5%                    
(Q), 1% LIBOR Floor, due 8/29/18  $10,000,000    9,620,619    9,875,000    1.25%
                     
Nonscheduled Air Transportation (2.24%)                    
One Sky Flight, LLC, Senior Secured 2nd Lien Term Loan, 12% Cash + 3% PIK, due 5/4/19  $18,200,000    16,929,086    17,708,600    2.24%
                     
Oil and Gas Extraction (1.98%)                    
Willbros Group, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 9.75% (Q),                    
1.25% LIBOR Floor, due 8/7/19  $15,426,118    15,051,713    15,657,510    1.98%
                     
Other Telecommunications (1.76%)                    
Securus Technologies, Inc., 2nd Lien Term Loan, LIBOR + 7.75% (Q), 1.25% LIBOR                    
 Floor, due 4/30/21  $14,000,000    13,860,000    13,925,660    1.76%
                     
Petroleum and Coal Products Manufacturing (0.95%)                    
Boomerang Tube, LLC, 2nd Lien Term Loan, LIBOR + 9.5% (Q), 1.5% LIBOR Floor,                    
due 10/11/17  $7,749,023    7,563,978    7,477,807    0.95%
                     
Professional, Scientific, and Technical Services (3.14%)                    
Connolly, LLC, Senior Secured 2nd Lien Term Loan, LIBOR + 9.25% (Q), 1.25%                    
 LIBOR Floor, due 7/15/19  $12,000,000    11,829,534    12,270,000    1.55%
ConvergeOne Holdings, 1st Lien Term Loan, LIBOR + 8% (Q), 1.25% LIBOR Floor, due 5/8/19  $12,654,643    12,464,823    12,570,236    1.59%
Total Professional, Scientific, and Technical Services        24,294,357    24,840,236      
                     
Promoters of Performing Arts, Sports, and Similar Events (1.40%)                    
Stadium Management Group, Senior Secured 2nd Lien Term Loan, LIBOR + 9.50%                    
(M), 1.25% LIBOR Floor, due 12/7/18  $11,000,000    10,817,390    11,055,000    1.40%

 

10
 

 

TCP Capital Corp.

 

 Consolidated Statement of Investments (Continued)

 

December 31, 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 (3.09%)                    
SiTV, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 6% (Q) Cash + 4% PIK,                    
2% LIBOR Floor, due 8/3/16  $6,995,124   $6,648,634   $6,774,778    0.86%
The Tennis Channel, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 8.5% (Q), due 5/29/17  $17,589,459    17,134,705    17,615,843    2.23%
Total Radio and Television Broadcasting        23,783,339    24,390,621      
                     
Retail (2.29%)                    
Kenneth Cole Productions, Inc., Senior Secured 1st Lien FILO Term Loan,                    
 LIBOR + 10.40% (M), 1% LIBOR Floor, due 9/25/17  $11,272,727    11,051,496    11,329,090    1.44%
Shopzilla, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 9.5% (Q), due 3/31/16  $6,710,057    6,525,027    6,683,216    0.85%
Total Retail        17,576,523    18,012,306      
                     
Scheduled Air Transportation (1.60%)                    
Aircraft Secured Mortgages - Aircraft Leased to Delta Air Lines, Inc.                    
N913DL, 8%, due 3/15/17 (6)  $289,048    289,048    296,820    0.04%
N918DL, 8%, due 8/15/18 (6)  $388,001    388,001    397,290    0.05%
N954DL, 8%, due 3/20/19 (6)  $514,375    514,375    524,620    0.07%
N955DL, 8%, due 6/20/19 (6)  $533,283    533,283    543,320    0.07%
N956DL, 8%, due 5/20/19 (6)  $532,275    532,275    542,640    0.07%
N957DL, 8%, due 6/20/19 (6)  $537,947    537,947    548,250    0.07%
N959DL, 8%, due 7/20/19 (6)  $543,573    543,573    553,520    0.07%
N960DL, 8%, due 10/20/19 (6)  $564,855    564,855    574,430    0.07%
N961DL, 8%, due 8/20/19 (6)  $558,427    558,427    568,310    0.07%
N976DL, 8%, due 2/15/18 (6)  $394,360    394,360    404,600    0.05%
Aircraft Secured Mortgages - Aircraft Leased to United Airlines, Inc.                    
N510UA, 20%, due 10/26/16 (2)  $328,848    328,848    404,605    0.05%
N512UA, 20%, due 10/26/16 (2)  $334,535    334,535    414,010    0.05%
N536UA, 16%, due 9/29/14 (2)  $108,845    108,845    114,000    0.01%
N545UA, 16%, due 8/29/15 (2)  $249,695    249,695    275,405    0.03%
N585UA, 20%, due 10/25/16 (2)  $392,794    392,794    486,115    0.06%
N659UA, 12%, due 2/28/16 (6)  $2,708,150    2,708,150    2,948,986    0.37%
N661UA, 12%, due 5/4/16 (6)  $2,880,186    2,880,186    3,171,026    0.40%
Total Scheduled Air Transportation        11,859,197    12,767,947      
                     
Semiconductor and Other Electronic Component Manufacturing (1.87%)                    
Isola USA Corporation, Senior Secured Term Loan B, LIBOR + 8.25% (Q), 1% LIBOR                    
Floor, due 11/29/18  $14,583,333    14,366,560    14,729,167    1.87%
                     
Software Publishers (7.13%)                    
BlackLine Systems, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 0.4% (Q)                    
Cash + 7.6% PIK, 1.5% LIBOR Floor, due 9/25/18  $12,579,747    11,811,044    12,183,485    1.56%
Coreone Technologies, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 3.75% (Q)                    
Cash + 5% PIK, 1% LIBOR Floor, due 9/4/18  $13,556,801    13,243,533    13,455,125    1.72%
Deltek, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 8.75% (Q), 1.25% LIBOR                    
Floor, due 10/10/19  $15,000,000    14,805,253    15,300,000    1.94%
Edmentum, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 9.75% (Q), 1.5% LIBOR                    
 Floor, due 5/17/19  $15,000,000    14,748,486    15,112,500    1.91%
Total Software Publishers        54,608,316    56,051,110      
                     
Specialty Hospitals (0.70%)                    
UBC Healthcare Analytics, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 9% (Q),                    
1% LIBOR Floor, due 7/1/18  $5,526,021    5,498,391    5,559,177    0.70%
                     
Textile Furnishings Mills (2.08%)                    
Lexmark Carpet Mills, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 10% (Q),                    
1% LIBOR Floor, due 9/30/18  $16,351,467    15,942,680    16,392,346    2.08%
                     
Wired Telecommunications Carriers (1.96%)                    
Integra Telecom Holdings, Inc., 2nd Lien Term Loan, LIBOR + 8.5% (Q), 1.25% LIBOR                    
Floor, due 2/22/20  $15,000,000    14,701,027    15,459,375    1.96%

 

11
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Continued)

 

December 31, 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 (4.12%)                    
Alpheus Communications, LLC, Senior Secured 1st Lien Delayed Draw FILO Term                    
Loan, LIBOR + 6.92% (Q), 1% LIBOR Floor, due 5/31/18 (13)  $   $(11,183)  $(8,437)   - 
Alpheus Communications, LLC, Senior Secured 1st Lien FILO Term Loan, LIBOR +                    
6.92% (Q), 1% LIBOR Floor, due 5/31/18  $8,248,124    8,166,127    8,186,263    1.04%
Globalive Wireless Management Corp., Senior Secured 1st Lien Term Loan,                    
LIBOR + 10.9% (Q), due 4/30/14 - (Canada) (10)   $3,037,292    2,933,872    3,067,665    0.39%
Gogo, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 9.75% (Q), 1.5% LIBOR                    
Floor, due 6/21/17  $19,587,428    18,707,700    21,252,360    2.69%
Total Wireless Telecommunications Carriers        29,796,516    32,497,851      
                     
Total Bank Debt        585,841,307    588,236,257      
                     
Other Corporate Debt Securities (17.52%)                    
Architectural, Engineering, and Related Services (1.01%)                    
ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes,                    
6% Cash + 10% PIK, due 12/31/19 (2), (5)   $7,959,369    7,959,369    7,959,369    1.01%
                     
Artificial Synthetic Fibers and Filaments Manufacturing (1.17%)                    
AGY Holding Corporation, Senior Secured 2nd Lien Notes, 11%, due 11/15/16 (2), (5)  $9,268,000    7,586,317    9,268,000    1.17%
                     
Beverage Manufacturing (1.04%)                    
Carolina Beverage Group, LLC, Secured Notes, 10.625%, due 8/1/18 (5)  $7,780,000    7,780,000    8,207,900    1.04%
                     
Data Processing, Hosting, and Related Services (0.97%)                    
The Telx Group, Inc., Senior Unsecured Notes, 10% Cash + 2% PIK, due 9/26/19 (5)  $7,098,916    6,960,435    7,631,335    0.97%
                     
Fabricated Metal Product Manufacturing (1.38%)                    
Constellation Enterprises, LLC, Senior Secured 1st Lien Notes, 10.625%, due 2/1/16 (5) , (7)  $12,500,000    12,322,875    10,875,000    1.38%
                     
Metal Ore Mining (0.78%)                    
St Barbara Ltd., 1st Priority Senior Secured Notes, 8.875%, due 4/15/18 - (Australia) (5)  $7,359,000    7,326,651    6,144,765    0.78%
                     
Nondepository Credit Intermediation (3.25%)                    
Caribbean Financial Group, Senior Secured Notes, 11.5%, due 11/15/19 - (Cayman Islands) (5), (10)  $10,000,000    9,824,072    10,700,000    1.35%
Trade Finance Funding I, Ltd., Secured Class B Notes, 10.75%, due 11/13/18 (5), (10)  $15,000,000    15,000,000    14,962,500    1.90%
Total Nondepository Credit Intermediation        24,824,072    25,662,500      
                     
Plastics Products Manufacturing (1.83%)                    
Iracore International, Inc., Senior Secured Notes, 9.5%, due 6/1/18 (5)  $13,600,000    13,600,000    14,426,622    1.83%
                     
Satellite Telecommunications (1.31%)                    
Avanti Communications Group, PLC, Senior Secured Notes, 10%, due 10/1/19 (5), (8), (10)  $9,914,000    9,914,000    10,335,345    1.31%
                     
Scientific Research and Development Services (2.23%)                    
BPA Laboratories, Inc., Senior Secured Notes, 12.25%, due 4/1/17 (5)  $17,200,000    16,536,295    17,630,000    2.23%
                     
Specialty Hospitals (0.65%)                    
Vantage Oncology, LLC, Senior Secured Notes, 9.5%, due 6/15/17 (5)  $5,000,000    5,000,000    5,137,500    0.65%
                     
Structured Note Funds (1.90%)                    
Magnolia Finance V plc, Asset-Backed Credit Linked Notes, 13.125%,                    
 due 8/2/21 - (Cayman Islands) (5), (10)  $15,000,000    15,000,000    15,000,000    1.90%
                     
Total Other Corporate Debt Securities        134,810,014    138,278,336      
                     
Total Debt Investments        720,651,321    726,514,593      
                     
Equity Securities (5.04%)                    
Architectural, Engineering, and Related Services (0.87%)                    
ESP Holdings, Inc., Cumulative Preferred 15% (2), (3), (5)   20,297    2,249,930    3,947,862    0.51%
ESP Holdings, Inc., Common Stock (2), (3), (5)   88,670    9,311,782    2,856,346    0.36%
Total Architectural, Engineering, and Related Services        11,561,712    6,804,208      
                     
Business Support Services (0.22%)                    
STG-Fairway Holdings, LLC, Class A Units (3), (5)   841,479    1,174,225    1,722,508    0.22%

 

12
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Continued)

 

December 31, 2013

 

Showing Percentage of Total Cash and Investments of the Company

 

               Percent of 
           Fair   Cash and 
Investment  Shares   Cost   Value   Investments 
                 
Equity Securities (continued)                    
Communications Equipment Manufacturing (0.64%)                    
Wasserstein Cosmos Co-Invest, L.P., Limited Partnership Units (2), (3), (5)   5,000,000   $5,000,000   $5,000,000    0.64%
                     
Data Processing, Hosting, and Related Services (0.13%)                    
Anacomp, Inc., Class A Common Stock (3), (5), (6)   1,255,527    26,711,048    1,004,422    0.13%
                     
Depository Credit Intermediation (0.11%)                    
Doral Financial Corporation, Common Stock - (Puerto Rico) (3), (12)   53,890    11,699,417    843,913    0.11%
                     
Financial Investment Activities (0.00%)                    
Marsico Holdings, LLC, Common Interest Units (3), (5), (11)   168,698    172,694    4,302    - 
                     
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 (0.01%)                    
Precision Holdings, LLC, Class C Membership Interests (3), (5)   33    -    41,645    0.01%
                     
Nonmetallic Mineral Mining and Quarrying (0.20%)                    
EPMC HoldCo, LLC, Membership Units (2), (5)   1,312,720    -    1,562,137    0.20%
                     
Nonscheduled Air Transportation  (0.16%)                    
Flight Options Holdings I, Inc., Warrants to Purchase Common Stock (3), (5)   1,843    1,274,000    1,268,904    0.16%
                     
Radio and Television Broadcasting (0.04%)                    
SiTV, Inc., Warrants to Purchase Common Stock (3), (5)   233,470    300,322    354,874    0.04%
                     
Retail (0.07%)                    
Shop Holding, LLC, Class A Units (3), (5)   490,037    462,576    532,919    0.07%
Shop Holding, LLC, Warrants to Purchase Class A Units (3), (5)   326,691    -    38,258    - 
Total Electronic Shopping        462,576    571,177      
                     
Scheduled Air Transportation (1.19%)                    
Equipment Trusts - Aircraft Leased to Delta Air Lines, Inc.                    
N913DL Trust Beneficial Interests (5), (6)   727    97,376    125,970    0.02%
N918DL Trust Beneficial Interests (5), (6)   623    109,938    142,970    0.02%
N954DL Trust Beneficial Interests (5), (6)   591    133,027    68,000    0.01%
N955DL Trust Beneficial Interests (5), (6)   576    133,868    113,560    0.01%
N956DL Trust Beneficial Interests (5), (6)   580    133,907    108,800    0.01%
N957DL Trust Beneficial Interests (5), (6)   576    134,785    109,650    0.01%
N959DL Trust Beneficial Interests (5), (6)   573    135,658    110,500    0.01%
N960DL Trust Beneficial Interests (5), (6)   563    139,173    109,650    0.01%
N961DL Trust Beneficial Interests (5), (6)   570    138,350    103,870    0.01%
N976DL Trust Beneficial Interests (5), (6)   654    113,413    103,033    0.01%
Equipment Trusts - Aircraft Leased to United Airlines, Inc.                    
N510UA Trust Beneficial Interests (2), (5)   54    197,409    465,625    0.06%
N512UA Trust Beneficial Interests (2), (5)   53    193,046    458,277    0.06%
N536UA Trust Beneficial Interests (2), (5)   81    396,289    656,766    0.08%
N545UA Trust Beneficial Interests (2), (5)   67    348,071    641,840    0.08%
N585UA Trust Beneficial Interests (2), (5)   53    214,737    571,706    0.07%
United N659UA-767, LLC (N659UA) (5), (6)   412    2,097,640    2,840,323    0.36%
United N661UA-767, LLC (N661UA) (5), (6)   400    2,066,062    2,852,677    0.36%
Total Scheduled Air Transportation        6,782,749    9,583,217      
                     
Resin, Synthetic Rubber, and Artificial Synthetic Fibers and Filaments Manufacturing (0.08%)               
KAGY Holding Company, Inc., Series A Preferred Stock (2), (3), (5)   9,778    1,091,200    662,134    0.08%
                     
Semiconductor and Other Electronic Component Manufacturing (0.03%)                    
AIP/IS Holdings, LLC, Membership Units (3), (5)   352    -    229,504    0.03%
                     
Software Publishers (0.07%)                    
SLS Breeze Intermediate Holdings, Inc., Warrants to Purchase Common Stock (3), (5)   1,232,731    522,678    561,632    0.07%

 

13
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Continued)

 

December 31, 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 (1.22%)                    
Integra Telecom, Inc., Common Stock (3), (5)   1,274,522   $8,433,884   $5,583,686    0.72%
Integra Telecom, Inc., Warrants (3), (5)   346,939    19,920    194,050    0.02%
V Telecom Investment S.C.A, Common Shares - (Luxembourg) (3), (4), (5), (10)   1,393    3,236,256    3,756,053    0.48%
Total Wired Telecommunications Carriers        11,690,060    9,533,789      
                     
Total Equity Securities        80,453,458    39,748,366      
                     
Total Investments        801,104,779    766,262,959      
                     
Cash and Cash Equivalents (2.91%)                    
Wells Fargo & Company, Overnight Repurchase Agreement, 0.09%,                    
Collateralized by Freddie Mac Note            $10,501,688    1.33%
Union Bank of California, Commercial Paper, 0.10%, due 1/2/14             8,499,976    1.07%
Cash Denominated in Foreign Currencies             121,389    0.02%
Cash Held on Account at Various Institutions             3,861,129    0.49%
Cash and Cash Equivalents             22,984,182      
                     
Total Cash and Investments (9)            $789,247,141    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). See Consolidated Schedule of Changes in Investments in Affiliates.

 

(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). Investment is not more than 50% owned nor deemed to be a significant subsidiary. See Consolidated Schedule of Changes in Investments in Affiliates.

 

(7)Investment has been segregated to collateralize certain unfunded commitments.

 

(8)$2,000,000 principal amount of this investment has been segregated to collateralize certain unfunded commitments.

 

(9)All cash and investments, except those referenced in Notes 7 and 8 above, are pledged as collateral under the Revolving Facilities as described in Note 4 to the Consolidated Financial Statements.

 

(10)Non-U.S. company or principal place of business outside the U.S. and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company's total assets.

 

(11)Excepted from the definition of investment company under Section 3(c) of the Investment Company Act and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company's total assets.

 

(12)Publicly traded company with a market capitalization greater than $250 million and as a result is not a qualifying asset under Section 55(a) of the Investment Company Act. Under the Investment Company Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of the Company's total assets.

 

(13)Negative balances relate to an unfunded commitment that was acquired and valued at a discount.

 

LIBOR or EURIBOR resets monthly (M), quarterly (Q), or semiannually (S).

 

Aggregate acquisitions and aggregate dispositions of investments, other than government securities, totaled $471,087,319, and $235,641,665, respectively for the year ended December 31, 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 December 31, 2013 was $765,419,046, or 97.0% of total cash and investments of the Company.

 

Options and Swaps at December 31, 2013 were as follows:

 

Investment  Notional
Amount
   Fair Value 
         
Interest Rate Cap, 4%, expires 5/15/2016  $25,000,000   $14,139 
Euro/US Dollar Cross-Currency Basis Swap, Pay Euros/Receive USD, Expires 3/31/17  $4,289,019   $(331,183)

 

See accompanying notes.

 

14
 

 

TCP Capital Corp.

 

Consolidated Statements of Operations

 

   Three Months Ended March 31, 
   2014   2013 
         
Investment income          
Interest income:          
Companies less than 5% owned  $18,140,743   $15,240,367 
Companies 5% to 25% owned   1,336,864    893,512 
Companies more than 25% owned   257,627    330,317 
Dividend income:          
Companies 5% to 25% owned   1,968,748    - 
Other income:          
Companies less than 5% owned   634,733    157,533 
Companies 5% to 25% owned   121,039    101,103 
Companies more than 25% owned   208,890    142,911 
Total investment income   22,668,644    16,865,743 
           
Operating expenses          
Management and advisory fees   2,886,208    1,964,738 
Interest expense   456,861    136,407 
Amortization of deferred debt issuance costs   372,755    108,564 
Administrative expenses   256,806    167,808 
Legal fees, professional fees and due diligence expenses   204,156    139,052 
Commitment fees   191,199    22,589 
Director fees   85,712    71,809 
Insurance expense   53,900    36,273 
Custody fees   50,807    29,419 
Other operating expenses   319,586    192,971 
Total operating expenses   4,877,990    2,869,630 
           
Net investment income   17,790,654    13,996,113 
           
Net realized and unrealized gain (loss) on investments and foreign currency          
Net realized gain (loss):          
Investments in companies less than 5% owned   (6,795,721)   517,658 
Investments in companies 5% to 25% owned   375    - 
Net realized gain (loss)   (6,795,346)   517,658 
           
Net change in net unrealized appreciation/depreciation   11,975,364    1,837,731 
Net realized and unrealized gain   5,180,018    2,355,389 
           
Dividends on Series A preferred equity facility   (369,135)   (393,413)
Net change in accumulated dividends on Series A          
preferred equity facility   10,495    16,011 
Distributions of incentive allocation to the General Partner from:          
Net investment income   (3,486,403)   (2,723,742)
Net change in reserve for incentive allocation   (1,036,004)   (471,078)
           
Net increase in net assets applicable to common shareholders resulting from operations  $18,089,625   $12,779,280 
           
Basic and diluted earnings per common share  $0.50   $0.60 
Basic and diluted weighted average common shares outstanding   36,199,917    21,477,628 

 

See accompanying notes.

 

15
 

 

TCP Capital Corp.

 

Consolidated Statements of Changes in Net Assets

 

           Paid in   Accumulated       Accumulated         
   Common Stock   Capital   Net   Accumulated   Net   Non-     
       Par   in Excess of   Investment   Net Realized   Unrealized   controlling   Total Net 
   Shares   Amount   Par   Income   Losses   Depreciation   Interest   Assets 
                                 
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   14,720,000    14,720    224,548,170    -    -    -    -    224,562,890 
Issuance of common stock from dividend reinvestment plan   2,288    2    37,414    -    -    -    -    37,416 
Net investment income   -    -    -    54,330,262    -    -    -    54,330,262 
Realized and unrealized gains (losses)   -    -    -    -    (47,384,746)   56,456,107    -    9,071,361 
Dividends on Series A preferred equity facility   -    -    -    (1,494,552)   -    -    -    (1,494,552)
General Partner incentive allocation   -    -    -    (10,567,142)   (645,691)   -    (1,168,583)   (12,381,416)
Dividends paid to common shareholders   -    -    -    (40,502,256)   -    -    -    (40,502,256)
Tax reclassification of stockholders' equity in accordance with generally accepted accounting principles   -    -    (977,624)   (276,396)   1,254,020    -    -    - 
Balance at December 31, 2013  $36,199,916   $36,200   $667,842,020   $24,016,095   $(105,800,278)  $(35,314,199)  $(1,168,583)  $549,611,255 
                                         
Issuance of common stock in public offering   -    -    -    -    -    -    -    - 
Issuance of common stock from dividend reinvestment plan   104    -    1,717    -    -    -    -    1,717 
Net investment income   -    -    -    17,790,654    -    -    -    17,790,654 
Realized and unrealized gains (losses)   -    -    -    -    (6,795,346)   11,975,364    -    5,180,018 
Dividends on Series A preferred equity facility   -    -    -    (358,640)   -    -    -    (358,640)
General Partner incentive allocation   -    -    -    (3,486,403)   -    -    (1,036,004)   (4,522,407)
Dividends paid to common shareholders   -    -    -    (13,031,970)   -    -    -    (13,031,970)
Balance at March 31, 2014  $36,200,020   $36,200   $667,843,737   $24,929,736   $(112,595,624)  $(23,338,835)  $(2,204,587)  $554,670,627 

 

See accompanying notes.

 

16
 

 

TCP Capital Corp.

 

Consolidated Statements of Cash Flows

 

   Three Months Ended March 31, 
   2014   2013 
         
Operating activities          
Net increase in net assets applicable to common shareholders resulting from operations  $18,089,625   $12,779,280 
Adjustments to reconcile net increase in net assets applicable to common shareholders resulting from operations to net cash (used in) provided by operating activities:          
Net realized loss (gain)   6,795,346    (517,658)
Net change in unrealized appreciation/depreciation of investments   (11,974,865)   (1,880,949)
Dividends paid on Series A preferred equity facility   369,135    393,413 
Net change in accumulated dividends on Series A preferred equity facility   (10,495)   (16,011)
Net change in reserve for incentive allocation   1,036,004    471,078 
Accretion of original issue discount   (551,826)   (825,555)
Net accretion of market discount/premium   (178,840)   (81)
Interest and dividend income paid in kind   (1,084,557)   (253,156)
Amortization of deferred debt issuance costs   372,755    108,564 
Changes in assets and liabilities:          
Purchases of investment securities   (109,301,941)   (40,010,595)
Proceeds from sales, maturities and paydowns of investments   66,876,929    51,006,153 
Increase in accrued interest income - companies less than 5% owned   (1,997,625)   (2,546,216)
Increase in accrued interest income - companies 5% to 25% owned   (264,538)   (4,073)
Decrease in accrued interest income - companies more than 25% owned   3,172    2,835 
Decrease in receivable for investments sold   2,574,247    7,727,415 
Increase in prepaid expenses and other assets   (430,355)   (433,296)
Decrease in payable for investments purchased   (13,192,340)   (21,657,527)
Decrease in payable to the Investment Manager   (657,479)   (3,651)
Increase (decrease) in interest payable   (98,929)   31,937 
Increase in incentive allocation payable   167,503    2,723,742 
Decrease in accrued expenses and other liabilities   (220,304)   (986,661)
Net cash (used in) provided by operating activities   (43,679,378)   6,108,988 
           
Financing activities          
Proceeds from draws on credit facilities   114,000,000    6,000,000 
Principal repayments on credit facilities   (52,000,000)   (10,000,000)
Payments of debt issuance costs   (763,980)   - 
Dividends paid on Series A preferred equity facility   (369,135)   (393,413)
Dividends paid to common shareholders   (13,031,970)   (8,591,051)
Proceeds from shares issued in connection with dividend reinvestment plan   1,717    17,615 
Net cash provided by (used in) financing activities   47,836,632    (12,966,849)
           
Net increase (decrease) in cash and cash equivalents   4,157,254    (6,857,861)
Cash and cash equivalents at beginning of period   22,984,182    18,035,189 
Cash and cash equivalents at end of period  $27,141,436   $11,177,328 
           
Supplemental cash flow information          
    Interest payments  $235,336   $104,470 
Excise tax payments   -    969,946 

 

See accompanying notes.

 

17
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited)

 

March 31, 2014

 

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 one of the Partnership’s wholly owned subsidiaries, TCPC Funding I, LLC, a Delaware limited liability company (“TCPC Funding”) and TCPC SBIC, LP, a Delaware limited partnership (the “SBIC”). The Partnership has also elected to be treated as a BDC under the 1940 Act. The SBIC was organized in June 2013, and on April 22, 2014, received a license from the United States Small Business Administration (the “SBA”) to operate as a small business investment company under the provisions of Section 301(c) of the Small Business Investment Act of 1958. These consolidated financial statements include the accounts of the Company, the Partnership, TCPC Funding and the SBIC. All significant intercompany transactions and balances have been eliminated in the consolidation.

 

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, TCPC Funding, and the SBIC 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” or the “General Partner”). The managing member of the General Partner is Tennenbaum Capital Partners, LLC (the “Advisor”), which serves as the Investment Manager to the Company, the Partnership, TCPC Funding, and the SBIC. Most of the equity interests in the General Partner are owned directly or indirectly by the Advisor and its employees.

 

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.

 

18
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

March 31, 2014

 

1. Organization and Nature of Operations (continued)

 

The Board of Directors of the Partnership has delegated investment management of the Partnership’s assets to the Investment Manager. 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.

 

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.

 

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 and differences could be material.

 

Investment Valuation

 

The Company’s investments are generally held by the Partnership, TCPC Funding, or the SBIC. 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 Revolving Facilities and the statement of preferences for the Preferred Interests, as defined in Note 4, below. 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

 

19
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

March 31, 2014

 

2. Summary of Significant Accounting Policies (continued)

 

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.

 

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 March 31, 2014 included the following:

 

Asset Type  Fair Value   Valuation Technique  Unobservable Input    Range (Weighted Avg.) 
Bank Debt  $317,003,161   Market rate approach  Market yields   3.8% - 16.5% (10.9%) 
    238,578,988   Market quotations  Indicative bid/ask quotes   1 - 3 (2) 
    15,792,158   Market comparable companies  Revenue multiples   0.4x (0.4x) 
    2,056,927   Market comparable companies  EBITDA multiples   7.8x (7.8x) 
Other Corporate Debt   71,494   Market rate approach  Market yields   16.3% (16.3%) 
    54,707,520   Market quotations  Indicative bid/ask quotes   1 – 2 (1) 
    16,828,346   Market comparable companies  EBITDA multiples   7.8x - 10.0x (8.8x) 
Equity   9,527,486   Market rate approach  Market yields   13.0% - 18.0% (13.6%) 
    3,587,881   Market quotations  Indicative bid/ask quotes   1 - 1 (1) 
    891,424   Market comparable companies  Revenue multiples   0.4x - 1.1x (1.1x) 
    18,441,260   Market comparable companies  EBITDA multiples   4.0x – 6.6x (5.8x) 

 

20
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

March 31, 2014

 

2. Summary of Significant Accounting Policies (continued)

 

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.

 

At March 31, 2014, 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  $-   $-   $467,763 
2   Other observable market inputs *   70,146,046    67,557,294    - 
3   Independent third-party pricing sources that employ significant unobservable inputs   573,872,294    64,047,014    29,595,404 
3   Investment Manager valuations with significant unobservable inputs   (441,060)   7,560,346    2,852,647 
Total      $643,577,280   $139,164,654   $32,915,814 
                     

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

 

21
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

March 31, 2014

 

2. Summary of Significant Accounting Policies (continued)

 

Changes in investments categorized as Level 3 during the three months ended March 31, 2014 were as follows:

 

   Independent Third-Party Valuation 
   Bank Debt   Other
Corporate Debt
   Equity
Securities
 
Beginning balance  $515,953,643   $53,334,634   $36,066,746 
Net realized and unrealized gains (losses)   4,633,345    833,673    (1,034,764)
Acquisitions   98,772,793    13,080,946    894,302 
Dispositions   (30,758,320)   (14,077,239)   (6,330,880)
Transfers out of Level 3 *   (14,729,167)   -    - 
Transfers into Level 3    -    10,875,000    - 
Ending balance  $573,872,294   $64,047,014   $29,595,404 
                
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)  $5,296,423   $862,015   $325,048 

 

*  Comprised of one investment 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.

 

   Investment Manager Valuation 
   Bank Debt   Other
Corporate Debt
   Equity
Securities
 
Beginning balance  $4,060,800   $7,631,335   $2,837,707 
Net realized and unrealized gains (losses)   (1,860)   (70,989)   (188,519)
Acquisitions   -    -    230,938 
Dispositions   (4,500,000)   -    (27,479)
Ending balance  $(441,060)  $7,560,346   $2,852,647 
                
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)  $(1,860)  $(70,989)  $(215,999)

 

Negative balance relates to an unfunded commitment that was acquired and valued at a discount.

 

There were no transfers between Level 1 and 2 during the three months ended March 31, 2014.

 

22
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

March 31, 2014

 

2. Summary of Significant Accounting Policies (continued)

 

At March 31, 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  $-   $-   $759,522 
2   Other observable market inputs *   111,560,238    61,901,366    - 
3   Independent third-party pricing sources that employ significant unobservable inputs   275,074,150    17,509,840    34,225,001 
3   Investment Manager valuations with significant unobservable inputs   -    7,552,970    1,411,858 
Total      $386,634,388   $86,964,176   $36,396,381 

 

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

 

Changes in investments categorized as Level 3 during the three months ended March 31, 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)   (2,705,665)   332,962    1,418,164 
Acquisitions   15,489,607    5,241    778,020 
Dispositions   (38,401,835)   -    (646,553)
Transfers out of Level 3    (58,651,283)   -    - 
Ending balance  $275,074,150   $17,509,840   $34,225,001 
                
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)  $(1,074,858)  $332,962   $1,418,164 

  

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

 

   Investment Manager Valuation 
   Bank Debt   Other
Corporate Debt
   Equity
Securities
 
Beginning balance  $-   $7,167,458   $1,424,764 
Net realized and unrealized gains (losses)   -    350,718    (12,906)
Acquisitions   -    34,794    - 
Ending balance  $-   $7,552,970   $1,411,858 
                
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)  $-   $350,718   $(12,906)

  

There were no transfers between Level 1 and 2 during the three months ended March 31, 2013.

 

23
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

March 31, 2014

 

2. Summary of Significant Accounting Policies (continued)

 

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.

 

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 2.7% and 2.7% of total investments at March 31, 2014 and December 31, 2013, respectively. Such positions were converted at the respective closing rate in effect at March 31, 2014 and December 31, 2013 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.

 

24
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

March 31, 2014

 

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 transaction 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 certain swap and option transactions. All derivatives are recognized as either assets or liabilities in the Consolidated 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.

 

The Partnership did not enter into any new derivative transactions during the three months ended March 31, 2014. At March 31, 2014, the Partnership held an interest rate cap with a notional amount of $25,000,000 and a cross currency basis swap with a notional amount of $4,289,019. Gains and losses from derivatives during the three months ended March 31, 2014 were included in net realized and unrealized loss on investments in the Consolidated Statement of Operations as follows:

 

Instrument  Realized Gains
(Losses)
   Unrealized Gains
(Losses)
 
Cross currency basis swaps  $-   $30,499 
Interest rate cap  $-   $(5,534)

 

The Partnership did not enter into any new derivative transactions during the three months ended March 31, 2013. At March 31, 2013, the Partnership held a cross currency basis swap with a notional amount of $6,040,944. Gains and losses from derivatives during the three months ended March 31, 2013 were included in net realized and unrealized loss on investments in the Consolidated Statement of Operations as follows:

 

Instrument  Realized Gains
(Losses)
   Unrealized Gains
(Losses)
 
Cross currency basis swaps  $-   $169,983 

 

Valuations of derivatives held at March 31, 2014 and March 31, 2013 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.

 

25
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

March 31, 2014

 

2. Summary of Significant Accounting Policies (continued)

 

Debt Issuance Costs

 

Costs of approximately $3.5 million were incurred during 2006 in connection with placing the Partnership’s revolving credit facility (see Note 4). Additional costs of approximately $1.5 million were incurred during 2013 in connection with the extension of the facility. These costs were deferred and are being amortized on a straight-line basis over the estimated remaining 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.

 

Costs of approximately $1.6 million were incurred during 2013 in connection with placing TCPC Funding’s revolving credit facility (see Note 4). Additional costs of approximately $0.8 million were incurred in 2014 in connection with the extension of the facility . 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 or the Partnership.

 

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, including original issue discounts, 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, TCPC Funding and the SBIC 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 March 31, 2014, all tax years of the Company, the Partnership, TCPC Funding and the SBIC since January 1, 2010 remain subject to examination by federal tax authorities. No such examinations are currently pending.

 

26
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

March 31, 2014

 

2. Summary of Significant Accounting Policies (continued) 

 

During the three months ended March 31, 2014, the Company did not pay any excise taxes. During the three months ended March 31, 2013 the Company paid $969,946 in excise taxes related to income earned in 2012.

 

Cost and unrealized appreciation and depreciation of the Partnership’s investments (including derivatives) for U.S. federal income tax purposes at March 31, 2014 were as follows:

 

Unrealized appreciation  $34,662,507 
Unrealized depreciation   (57,898,261)
Net unrealized depreciation   (23,235,754)
      
Cost  $838,601,423 

 

3. Management Fees, Incentive Compensation and Other Expenses

 

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”). 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 the amount of additional incentive compensation that would have been distributable to the General Partner assuming a hypothetical liquidation of the Company at net asset value on the balance sheet date. At March 31, 2014, the General Partner’s equity interest in the Partnership was comprised entirely of the reserve amount and is reported as a non-controlling interest in the consolidated financial statements of the Company.

 

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.

 

27
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

March 31, 2014

  

4. Leverage

 

At March 31, 2014 and December 31, 2013, leverage 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 “Revolving Facilities”) as well as amounts outstanding under a preferred leverage facility issued by the Partnership (the “Preferred Interests”), as follows:

 

   March 31, 2014   December 31, 2013 
Partnership Facility  $82,000,000   $45,000,000 
TCPC Funding Facility   75,000,000    50,000,000 
Total Debt  $157,000,000   $95,000,000 
           
Preferred Interests   134,000,000    134,000,000 
Total Leverage  $291,000,000   $229,000,000 

 

The combined weighted-average interest and dividend rates on total amounts outstanding under the leverage facilities at March 31, 2014 and December 31, 2013 were 1.35% and 1.38%, respectively.

 

Amounts outstanding under the Revolving Facilities are carried at cost in the Statement of Assets and Liabilities. As of March 31, 2014, the estimated fair value of the TCPC Funding Facility approximated its carrying value, and the Partnership Facility had an estimated fair value of $81,286,654. The estimated fair values of the Revolving Facilities are determined by discounting projected remaining payments using market interest rates for our borrowings and entities with similar credit risks at the measurement date. At March 31, 2014, the Revolving Facilities would be deemed to be Level 3 in the GAAP valuation hierarchy.

 

Partnership Facility

 

The Partnership Facility provides for amounts to be drawn up to $116 million, subject to certain collateral and other restrictions. The Partnership Facility matures on July 31, 2016. Most of the cash and investments held directly by the Partnership, as well as the net assets of TCPC Funding and the SBIC, are included in the collateral for the facility.

 

Advances under the Partnership Facility through July 31, 2014 bear interest at an annual rate equal to 0.44% plus either LIBOR or the lender’s cost of funds (subject to a cap of LIBOR plus 20 basis points). Advances under the Partnership Facility for periods from July 31, 2014 through the maturity date of the facility will bear interest at an annual rate equal to 2.5% plus either LIBOR or the lender’s cost of funds (subject to a cap of LIBOR plus 20 basis points). 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 March 31, 2014, the Partnership was in full compliance with such covenants.

 

28
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

March 31, 2014

 

4. Leverage (continued)

 

TCPC Funding Facility

 

The TCPC Funding Facility, issued on May 15, 2013, provides for amounts to be drawn up to $150 million, subject to certain collateral and other restrictions. The TCPC Funding Facility matures on May 15, 2017, subject to extension by the lender at the request of TCPC Funding. The facility contains an accordion feature which allows for expansion of the facility up to $200 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.

 

As of March 31, 2014, borrowings under the TCPC Funding Facility bore interest at a rate of LIBOR plus 2.50% per annum. In connection with the extension and expansion of the facility on February 21, 2014, the interest rate was reduced to a rate of LIBOR plus 2.50% effective March 15, 2014.  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 March 31, 2014, TCPC Funding was in full compliance with such covenants.

 

Preferred Equity

 

At March 31, 2014, the Preferred Interests were comprised of 6,700 Series A preferred limited partner interests issued and outstanding with a liquidation preference of $20,000 per interest. The Preferred Interests accrue dividends at an annual rate equal to 0.85% plus either LIBOR or the interestholder’s cost of funds (subject to a cap of LIBOR plus 20 basis points). 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 March 31, 2014, the Partnership was in full compliance with such requirements.

 

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

 

The Partnership, TCPC Funding and the SBIC 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 San Francisco 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, TCPC Funding and the SBIC 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, TCPC Funding and the SBIC 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.

  

29
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

March 31, 2014

 

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

 

The Consolidated Statement of Investments includes certain revolving loan facilities and other loan commitments held by the Partnership with aggregate unfunded balances of $36,361,742 at March 31, 2014. The Company has also provided a $20,861,473 guarantee on a bridge facility, which the Company believes is unlikely to be funded.

 

6. Related Parties

 

The Company, the Partnership, TCPC Funding, the SBIC, 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 March 31, 2014, 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 March 31, 2014, amounts reimbursable to the Investment Manager totaled $463,629, 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 three months ended March 31, 2014, expenses allocated pursuant to the Administration Agreements totaled $256,806. The Administrator waived reimbursement of all administrative expenses prior to January 1, 2013.

 

7. Stockholders’ Equity and Dividends

 

The following table summarizes the total shares issued in connection with the Company’s dividend reinvestment plan for the three months ended March 31, 2014.

 

   Shares Issued   Price Per Share   Net Proceeds 
Shares issued from dividend reinvestment plan   104   $16.55   $1,717 

 

30
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

March 31, 2014

 

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 year ended December 31, 2013.

 

   Shares Issued   Price Per Share   Net Proceeds 
May 21, 2013 public offering   5,175,000   $15.63   $78,176,790 
October 1, 2013 public offering   4,370,000   $15.76   $66,473,600 
December 18, 2013 public offering   5,175,000   $16.00   $79,912,500 
Shares issued from dividend reinvestment plan   2,288   $16.35   $37,416 

 

The Company’s dividends are recorded on the ex-dividend date. The following table summarizes the Company’s dividends declared for the three months ended March 31, 2014:

 

Date Declared  Record Date  Payment Date  Amount Per Share   Total Amount 
March 6, 2014  March 17, 2014  March 31, 2014  $0.36   $13,031,970 
              $13,031,970 

 

The following table summarizes the Company’s dividends declared for the three months ended March 31, 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 
              $8,591,051 

* Includes a special dividend of $0.05.

 

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 three months ended March 31, 2014 and March 31, 2013:

 

   Three Months Ended
March 31, 2014
   Three Months Ended
March 31, 2013
 
Net increase in net assets applicable to common shareholders resulting from operations  $18,089,625   $12,779,280 
Weighted average shares outstanding   36,199,917    21,477,628 
Earnings per share  $0.50   $0.60 

 

31
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

March 31, 2014

 

9. Subsequent Events

 

On April 22, 2014, the SBIC received a license from the SBA to operate as a small business investment company under the provisions of Section 301(c) of the Small Business Investment Act of 1958.

 

On May 8, 2014, the Company’s board of directors declared a regular second quarter cash dividend of $0.36 per share and a $0.05 per share special dividend. Both dividends are payable on June 30, 2014 to stockholders of record as of the close of business on June 18, 2014.

 

32
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

March 31, 2014

 

10. Financial Highlights

 

   Three Months Ended 
   March 31, 2014   March 31, 2013 
         
Per Common Share          
Per share NAV at beginning of period (1)  $15.18   $14.71 
           
Investment operations:          
Net investment income   0.49    0.65 
Net realized and unrealized gain   0.14    0.11 
Dividends on Series A preferred equity facility   (0.01)   (0.01)
Incentive allocation reserve and distributions   (0.12)   (0.15)
Total from investment operations   0.50    0.60 
           
Distributions to common shareholders from:          
Net investment income   (0.36)   (0.40)
Per share NAV at end of period  $15.32   $14.91 
           
Per share market price at end of period  $16.55   $15.96 
           
Total return based on market value (1), (2)   0.8%   11.0%
Total return based on net asset value (1), (2)   3.3%   4.1%
           
Shares outstanding at end of period   36,200,020    21,478,732 

 

33
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

March 31, 2014

 

10. Financial Highlights (continued)

 

   Three Months Ended 
   2014   2013 
         
Ratios to average common equity: (3)          
Net investment income (4)   12.4%   16.8%
Expenses    3.6%   3.6%
Expenses and incentive allocation (6)   4.2%   4.4%
           
Ending common shareholder equity  $554,670,627   $320,635,079 
Portfolio turnover rate   8.7%   7.8%
Weighted-average debt outstanding  $98,266,667   $73,355,556 
Weighted-average interest rate on debt   1.9%   0.8%
Weighted-average number of common shares   36,199,917    21,477,640 
Average debt per share  $2.71   $3.42 

 

(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)

 

Three Months Ended March 31, 2014

 

Security  Acquisitions   Dispositions (2)   Dividends or
Interest (3)
 
AGY Holding Corp., Senior Secured Term Loan, 12%, due 9/15/16  $-   $-   $316,578 
AGY Holding Corporation, Senior Secured 2nd Lien Notes, 11%, due 11/15/16   -    -    - 
Anacomp, Inc., Class A Common Stock   -    -    - 
EPMC HoldCo, LLC, Membership Units   -    -    - 
ESP Holdings, Inc., Cumulative Preferred 15%   -    (2,489,100)   1,968,748 
ESP Holdings, Inc., Common Stock   -    (2,955,297)   289,315 
ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes, 6% Cash + 10% PIK, due 12/31/19   -    (7,959,369)   205,175 
Globecomm Systems Inc., Senior Secured 1st Lien Term Loan, LIBOR + 7.625%, 1.25% LIBOR Floor, due 12/11/18   -    (37,500)   332,896 
KAGY Holding Company, Inc., Series A Preferred Stock   -    -    - 
N510UA Aircraft Secured Mortgage, 20%, due 10/26/16   -    (23,046)   15,999 
N512UA Aircraft Secured Mortgage, 20%, due 10/26/16   -    (22,551)   16,292 
N536UA Aircraft Secured Mortgage, 16%, due 9/29/14   -    (39,471)   3,551 
N545UA Aircraft Secured Mortgage, 16%, due 8/29/15   -    (35,371)   9,269 
N585UA Aircraft Secured Mortgage, 20%, due 10/25/16   -    (26,478)   19,115 
N659UA Aircraft Secured Mortgage, 12%, due 2/28/16   -    (269,027)   78,303 
N661UA Aircraft Secured Mortgage, 12%, due 5/4/16   -    (260,901)   81,466 
N510UA Equipment Trust Beneficial Interests   23,046    (8,978)   20,872 
N512UA Equipment Trust Beneficial Interests   22,551    (8,831)   20,723 
N536UA Equipment Trust Beneficial Interests   39,471    (11,300)   29,930 
N545UA Equipment Trust Beneficial Interests   35,371    (11,884)   26,412 
N585UA Equipment Trust Beneficial Interests   26,478    (11,694)   23,102 
N913DL Aircraft Secured Mortgage, 8%, due 3/15/17   -    (20,362)   5,573 
N918DL Aircraft Secured Mortgage, 8%, due 8/15/18   -    (18,025)   7,576 
N954DL Aircraft Secured Mortgage, 8%, due 3/20/19   -    (20,708)   10,099 
N955DL Aircraft Secured Mortgage, 8%, due 6/20/19   -    (19,920)   10,485 
N956DL Aircraft Secured Mortgage, 8%, due 5/20/19   -    (20,251)   10,462 
N957DL Aircraft Secured Mortgage, 8%, due 6/20/19   -    (20,094)   10,576 
N959DL Aircraft Secured Mortgage, 8%, due 7/20/19   -    (19,938)   10,690 
N960DL Aircraft Secured Mortgage, 8%, due 10/20/19   -    (19,644)   11,119 
N961DL Aircraft Secured Mortgage, 8%, due 8/20/19   -    (20,119)   10,986 
N976DL Aircraft Secured Mortgage, 8%, due 2/15/18   -    (20,924)   7,674 
N913DL Equipment Trust Beneficial Interests   20,362    (23,508)   3,996 
N918DL Equipment Trust Beneficial Interests   18,025    (22,334)   3,175 
N954DL Equipment Trust Beneficial Interests   20,708    (26,938)   2,896 
N955DL Equipment Trust Beneficial Interests   19,920    (26,609)   2,687 
N956DL Equipment Trust Beneficial Interests   20,251    (35,968)   (6,301)
N957DL Equipment Trust Beneficial Interests   20,094    (26,864)   2,634 
N959DL Equipment Trust Beneficial Interests   19,938    (26,754)   2,579 
N960DL Equipment Trust Beneficial Interests   19,644    (26,669)   2,366 
N961DL Equipment Trust Beneficial Interests   20,119    (27,137)   2,424 
N976DL Equipment Trust Beneficial Interests   20,924    (25,640)   2,776 
RM Holdco, LLC, Membership Units   -    -    - 
RM Holdco, LLC, Subordinated Convertible Term Loan, 1.12% PIK, due 3/21/18   -    -    14,461 
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche A, 11%, due 3/19/16   68,263    (47,493)   100,987 
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B, 12% Cash + 7% PIK, due 3/19/16   262,284    -    332,454 
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B-1, 12% Cash + 7% PIK, due 3/19/16   85,754    -    108,422 
RM OpCo, LLC, Convertible 1st Lien Term Loan Tranche B-1, 12% Cash + 7% PIK, due 3/21/16   54,984    -    69,456 
United N659UA-767, LLC (N659UA)   269,027    (168,678)   92,624 
United N661UA-767, LLC (N661UA)   260,901    (165,758)   97,034 
Wasserstein Cosmos Co-Invest, L.P., Limited Partnership Units   -    -    - 

  

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.
(3)Also includes fee and lease income as applicable.

 

35
 

 

TCP Capital Corp.

 

Consolidated Schedule of Changes in Investments in Affiliates (1)

 

Year Ended December 31, 2013

 

Security  Acquisitions   Dispositions (2)   Dividends or
Interest (3)
 
                
AGY Holding Corp., Senior Secured Term Loan, 12%, due 9/15/16  $2,056,927   $-   $128,215 
AGY Holding Corporation, Senior Secured 2nd Lien Notes, 11%, due 11/15/16   7,586,317    -    640,007 
Anacomp, Inc., Class A Common Stock   -    -    - 
EPMC HoldCo, LLC, Membership Units   -    (1,481,930)   - 
ESP Holdings, Inc., Cumulative Preferred 15%   -    -    - 
ESP Holdings, Inc., Common Stock   -    -    32,627 
ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes, 6% Cash + 10% PIK, due 12/31/19   749,529    -    1,199,575 
Globecomm Systems Inc., Senior Secured 1st Lien Term Loan, LIBOR + 7.625%, 1.25% LIBOR Floor, due 12/11/18   14,850,000    -    83,281 
International Wire Group Holdings, Inc., Senior Secured Notes, 8.5%, due 10/15/17   -    (15,759,750)   443,715 
KAGY Holding Company, Inc., Series A Preferred Stock   8,096,057    (1,644)   - 
N510UA Aircraft Secured Mortgage, 20%, due 10/26/16   -    (81,562)   74,646 
N512UA Aircraft Secured Mortgage, 20%, due 10/26/16   -    (79,808)   75,593 
N536UA Aircraft Secured Mortgage, 16%, due 9/29/14   -    (143,097)   29,100 
N545UA Aircraft Secured Mortgage, 16%, due 8/29/15   -    (128,230)   50,422 
N585UA Aircraft Secured Mortgage, 20%, due 10/25/16   -    (93,707)   88,705 
N659UA Aircraft Secured Mortgage, 12%, due 2/28/16   -    (999,280)   390,117 
N661UA Aircraft Secured Mortgage, 12%, due 5/4/16   -    (969,098)   401,041 
N510UA Equipment Trust Beneficial Interests   81,562    (35,912)   72,866 
N512UA Equipment Trust Beneficial Interests   79,808    (35,323)   72,497 
N536UA Equipment Trust Beneficial Interests   143,097    (45,201)   104,929 
N545UA Equipment Trust Beneficial Interests   128,359    (47,536)   92,525 
N585UA Equipment Trust Beneficial Interests   93,707    (46,776)   80,203 
N913DL Aircraft Secured Mortgage, 8%, due 3/15/17   -    (77,509)   26,248 
N918DL Aircraft Secured Mortgage, 8%, due 8/15/18   -    (68,612)   33,806 
N954DL Aircraft Secured Mortgage, 8%, due 3/20/19   -    (78,825)   44,415 
N955DL Aircraft Secured Mortgage, 8%, due 6/20/19   -    (75,824)   45,803 
N956DL Aircraft Secured Mortgage, 8%, due 5/20/19   -    (77,085)   45,775 
N957DL Aircraft Secured Mortgage, 8%, due 6/20/19   -    (76,487)   46,204 
N959DL Aircraft Secured Mortgage, 8%, due 7/20/19   -    (75,896)   46,629 
N960DL Aircraft Secured Mortgage, 8%, due 10/20/19   -    (74,776)   48,285 
N961DL Aircraft Secured Mortgage, 8%, due 8/20/19   -    (76,582)   47,846 
N976DL Aircraft Secured Mortgage, 8%, due 2/15/18   -    (79,647)   34,759 
N913DL Equipment Trust Beneficial Interests   77,509    (94,032)   12,045 
N918DL Equipment Trust Beneficial Interests   68,612    (89,338)   9,213 
N954DL Equipment Trust Beneficial Interests   78,825    (107,751)   7,578 
N955DL Equipment Trust Beneficial Interests   75,824    (106,437)   6,891 
N956DL Equipment Trust Beneficial Interests   77,085    (107,904)   6,845 
N957DL Equipment Trust Beneficial Interests   76,487    (107,457)   6,648 
N959DL Equipment Trust Beneficial Interests   75,896    (107,015)   6,456 
N960DL Equipment Trust Beneficial Interests   74,776    (106,678)   5,662 
N961DL Equipment Trust Beneficial Interests   76,582    (108,546)   5,805 
N967DL Equipment Trust Beneficial Interests   79,647    (102,560)   7,056 
RM Holdco, LLC, Membership Units   -    -    - 
RM Holdco, LLC, Subordinated Convertible Term Loan, 1.12% PIK, due 3/21/18   57,991    -    57,992 
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche A, 11%, due 3/19/16   16,974    (149,183)   413,430 
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B, 12% Cash + 7% PIK, due 3/19/16   567,205    -    1,258,016 
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B-1, 12% Cash + 7% PIK, due 3/19/16   186,901    -    410,004 
RM OpCo, LLC, Convertible 1st Lien Term Loan Tranche B-1, 12% Cash + 7% PIK, due 3/21/16   1,339,883    -    182,711 
United N659UA-767, LLC (N659UA)   999,280    (674,714)   316,842 
United N661UA-767, LLC (N661UA)   969,098    (663,034)   313,627 
Wasserstein Cosmos Co-Invest, L.P., Limited Partnership Units   5,000,000    -    - 

 

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.
(3)Also includes fee and lease income as applicable.

 

36
 

 

TCP Capital Corp.

 

Consolidated Schedule of Restricted Securities of Unaffiliated Issuers

 

March 31, 2014

 

Investment  Acquisition Date
    
AIP/IS Holdings, LLC, Membership Units  Var. 2009 & 2010
Avanti Communications Group, PLC, Senior Secured Notes, 10%, due 10/1/19  9/26/13
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
Carolina Beverage Group, LLC, Secured Notes, 10.625%, due 8/1/18  7/26/13
Constellation Enterprises, LLC, Senior Secured 1st Lien Notes, 10.625%, due 2/1/16  1/20/11
Findly Talent, LLC, Membership Units  1/1/14
Flight Options Holdings I, Inc., Warrants to Purchase Common Stock  12/4/13
Hunt Companies, Inc., Senior Secured Notes, 9.625%, due 3/1/21  2/25/14
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
Magnolia Finance V plc, Asset-Backed Credit Linked Notes, 13.125%, due 8/2/21  8/1/13
Marsico Holdings, LLC Common Interest Units  9/10/12
Precision Holdings, LLC, Class C Membership Interests  Var. 2010 & 2011
Shop Holdings, LLC, Convertible Promissory Note, 5%, due 8/5/15  2/5/14
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
SLS Breeze Intermediate Holdings, Inc., Warrants to Purchase Common Stock  9/25/13
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
Trade Finance Funding I, Ltd., Secured Class B Notes, 10.75%, due 11/13/18  11/13/13
V Telecom Investment S.C.A, Common Shares  11/9/12
Vantage Oncology, LLC, Senior Secured Notes, 9.5%, due 6/15/17  6/6/13

 

December 31, 2013 

Investment  Acquisition Date
    
AIP/IS Holdings, LLC, Membership Units  Var. 2009 & 2010
Avanti Communications Group, PLC, Senior Secured Notes, 10%, due 10/1/19  9/26/13
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
Carolina Beverage Group, LLC, Secured Notes, 10.625%, due 8/1/18  7/26/13
Constellation Enterprises, LLC, Senior Secured 1st Lien Notes, 10.625%, due 2/1/16  1/20/11
Flight Options Holdings I, Inc., Warrants to Purchase Common Stock  12/4/13
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
Magnolia Finance V plc, Asset-Backed Credit Linked Notes, 13.125%, due 8/2/21  8/1/13
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
SLS Breeze Intermediate Holdings, Inc., Warrants to Purchase Common Stock  9/25/13
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
Trade Finance Funding I, Ltd., Secured Class B Notes, 10.75%, due 11/13/18  11/13/13
V Telecom Investment S.C.A, Common Shares  11/9/12
Vantage Oncology, LLC, Senior Secured Notes, 9.5%, due 6/15/17  6/6/13

 

37
 

 

TCP Capital Corp

 

Consolidating Statement of Assets and Liabilities

 

March 31, 2014

 

       Special Value         
   TCP   Continuation       TCP 
   Capital Corp.   Partners, LP       Capital Corp. 
   Standalone   Consolidated   Eliminations   Consolidated 
Assets                    
Investments:                    
Companies less than 5% owned  $-   $744,016,378   $-   $744,016,378 
Companies 5% to 25% owned   -    53,487,621    -    53,487,621 
Companies more than 25% owned   -    18,153,749    -    18,153,749 
Investment in subsidiary   555,836,984    -    (555,836,984)   - 
Total investments   555,836,984    815,657,748    (555,836,984)   815,657,748 
                     
Cash and cash equivalents   -    27,141,436    -    27,141,436 
Accrued interest income   -    8,998,096    -    8,998,096 
Deferred debt issuance costs   -    3,360,310    -    3,360,310 
Receivable for investments sold   -    1,031,717    -    1,031,717 
Interest rate cap option   -    8,605    -    8,605 
Receivable from subsidiary   98,697    -    (98,697)   - 
Prepaid expenses and other assets   12,545    1,171,578    -    1,184,123 
Total assets   555,948,226    857,369,490    (555,935,681)   857,382,035 
                     
Liabilities                    
Debt   -    157,000,000    -    157,000,000 
Incentive allocation payable   -    3,486,403    -    3,486,403 
Payable for investment securities purchased   -    1,514,602    -    1,514,602 
Payable to the Investment Manager   319,323    144,306    -    463,629 
Interest payable   -    332,040    -    332,040 
Unrealized depreciation on swaps   -    300,684    -    300,684 
Payable to Parent   -    98,697    (98,697)   - 
Accrued expenses and other liabilities   958,276    1,957,430    -    2,915,706 
Total liabilities   1,277,599    164,834,162    (98,697)   166,013,064 
                     
Preferred equity facility                    
Series A preferred limited partner interests   -    134,000,000    -    134,000,000 
Accumulated dividends on Series A preferred equity facility   -    493,757    -    493,757 
Total preferred limited partner interests   -    134,493,757    -    134,493,757 
                     
Non-controlling interest                    
General Partner interest in Special Value Continuation Partners, LP   -    -    2,204,587    2,204,587 
                     
Net assets  $554,670,627   $558,041,571   $(558,041,571)  $554,670,627 
                     
Composition of net assets                    
Common stock  $36,200   $-   $-   $36,200 
Additional paid-in capital   667,843,737    666,530,318    (666,530,318)   667,843,737 
Accumulated deficit   (113,209,310)   (108,488,747)   110,693,334    (111,004,723)
Non-controlling interest   -    -    (2,204,587)   (2,204,587)
Net assets  $554,670,627   $558,041,571   $(558,041,571)  $554,670,627 

 

38
 

 

TCP Capital Corp

 

Consolidating Statement of Assets and Liabilities

 

December 31, 2013

 

      Special Value     
   TCP   Continuation       TCP 
   Capital Corp.   Partners, LP       Capital Corp. 
   Standalone   Consolidated   Eliminations   Consolidated 
Assets                    
Investments:                    
Companies less than 5% owned  $-   $678,326,915   $-   $678,326,915 
Companies 5% to 25% owned   -    69,068,808    -    69,068,808 
Companies more than 25% owned   -    18,867,236    -    18,867,236 
Investment in subsidiary   551,095,042    -    (551,095,042)   - 
Total investments   551,095,042    766,262,959    (551,095,042)   766,262,959 
                     
Cash and cash equivalents   -    22,984,182    -    22,984,182 
Accrued interest income   -    6,739,105    -    6,739,105 
Receivable for investments sold   -    3,605,964    -    3,605,964 
Deferred debt issuance costs   -    2,969,085    -    2,969,085 
Interest rate cap option   -    14,139    -    14,139 
Receivable from subsidiary   531,717    -    (531,717)   - 
Prepaid expenses and other assets   30,493    723,275    -    753,768 
Total assets   551,657,252    803,298,709    (551,626,759)   803,329,202 
                     
Liabilities                    
Debt   -    95,000,000    -    95,000,000 
Payable for investment securities purchased   -    14,706,942    -    14,706,942 
Incentive allocation payable   -    3,318,900    -    3,318,900 
Payable to the Investment Manager   833,737    287,371    -    1,121,108 
Interest payable   -    430,969    -    430,969 
Unrealized depreciation on swaps   -    331,183    -    331,183 
Payable to Parent   -    531,717    (531,717)   - 
Accrued expenses and other liabilities   1,212,260    1,923,750    -    3,136,010 
Total liabilities   2,045,997    116,530,832    (531,717)   118,045,112 
                     
Preferred equity facility                    
Series A preferred limited partner interests   -    134,000,000    -    134,000,000 
Accumulated dividends on Series A preferred equity facility   -    504,252    -    504,252 
Total preferred limited partner interests   -    134,504,252    -    134,504,252 
                     
Non-controlling interest                    
General Partner interest in Special Value Continuation Partners, LP   -    -    1,168,583    1,168,583 
                     
Net assets  $549,611,255   $552,263,625   $(552,263,625)  $549,611,255 
                     
Composition of net assets                    
Common stock  $36,200   $-   $-   $36,200 
Additional paid-in capital   667,842,020    666,530,318    (666,530,318)   667,842,020 
Accumulated deficit   (118,266,965)   (114,266,693)   115,435,276    (117,098,382)
Non-controlling interest   -    -    (1,168,583)   (1,168,583)
Net assets  $549,611,255   $552,263,625   $(552,263,625)  $549,611,255 

  

39
 

 

TCP Capital Corp.

 

Consolidating Statement of Operations (Unaudited)

 

Three Months Ended March 31, 2014

 

       Special Value         
   TCP   Continuation       TCP 
   Capital Corp.   Partners, LP       Capital Corp. 
   Standalone   Consolidated   Eliminations   Consolidated 
Investment income                    
Interest income:                    
Companies less than 5% owned  $-   $18,140,743   $-   $18,140,743 
Companies 5% to 25% owned   -    1,336,864    -    1,336,864 
Companies more than 25% owned   -    257,627    -    257,627 
Dividend income:                    
Companies 5% to 25% owned   -    1,968,748    -    1,968,748 
Other income:                    
Companies less than 5% owned   -    634,733    -    634,733 
Companies 5% to 25% owned   -    121,039    -    121,039 
Companies more than 25% owned   -    208,890    -    208,890 
Total interest and related investment income   -    22,668,644    -    22,668,644 
                     
Operating expenses                    
Management and advisory fees   -    2,886,208    -    2,886,208 
Interest expense   -    456,861    -    456,861 
Amortization of deferred debt issuance costs   -    372,755    -    372,755 
Administration expenses   -    256,806    -    256,806 
Legal fees, professional fees and due diligence expenses   86,396    117,760    -    204,156 
Commitment fees   -    191,199    -    191,199 
Director fees   28,689    57,023    -    85,712 
Insurance expense   17,948    35,952    -    53,900 
Custody fees   875    49,932    -    50,807 
Other operating expenses   303,605    15,981    -    319,586 
Total expenses   437,513    4,440,477    -    4,877,990 
                     
Net investment income (loss)   (437,513)   18,228,167    -    17,790,654 
                     
Net realized and unrealized gain (loss) on investments and foreign currency                    
Net realized loss:                    
Investments in companies less than 5% owned   -    (6,795,721)   -    (6,795,721)
Investments in companies 5% to 25% owned   -    375    -    375 
Net realized loss   -    (6,795,346)   -    (6,795,346)
Net change in unrealized appreciation/depreciation   -    11,975,364    -    11,975,364 
Net realized and unrealized gain   -    5,180,018    -    5,180,018 
                     
Interest in earnings of subsidiary   18,527,138    -    (18,527,138)   - 
Dividends paid on Series A preferred equity facility   -    (369,135)   -    (369,135)
Net change in accumulated dividends on Series A preferred equity facility   -    10,495    -    10,495 
Distributions of incentive allocation to the General Partner  from net investment income   -    -    (3,486,403)   (3,486,403)
Distributions of incentive allocation to the General Partner from net realized gains   -    -    -    - 
Net change in reserve for incentive allocation   -    -    (1,036,004)   (1,036,004)
                     
Net increase in net assets resulting from operations  $18,089,625   $23,049,545   $(23,049,545)  $18,089,625 

 

40
 

 

TCP Capital Corp.

 

Consolidating Statement of Operations

 

Three Months Ended March 31, 2013

  

      Special Value      
   TCP   Continuation       TCP 
   Capital Corp.   Partners, LP       Capital Corp. 
   Standalone   Standalone   Eliminations   Consolidated 
Investment income                    
Interest income:                    
Unaffiliated issuers  $-   $15,240,367   $-   $15,240,367 
Controlled companies   -    330,317    -    330,317 
Affiliates   -    893,512    -    893,512 
Other income:                    
Unaffiliated issuers   -    157,533    -    157,533 
Controlled companies   -    142,911    -    142,911 
Other Affiliates   -    101,103    -    101,103 
Total interest and related investment income   -    16,865,743    -    16,865,743 
                     
Operating expenses                    
Management and advisory fees   -    1,964,738    -    1,964,738 
Administration expenses   -    167,808    -    167,808 
Amortization of deferred debt issuance costs   -    108,564    -    108,564 
Legal fees, professional fees and due diligence expenses   64,590    74,462    -    139,052 
Interest expense   -    136,407    -    136,407 
Commitment fees   -    22,589    -    22,589 
Director fees   23,750    48,059    -    71,809 
Insurance expense   12,072    24,201    -    36,273 
Custody fees   875    28,544    -    29,419 
Other operating expenses   56,562    136,409    -    192,971 
Total expenses   157,849    2,711,781    -    2,869,630 
                     
Net investment income before taxes   (157,849)   14,153,962    -    13,996,113 
                     
Excise tax expense   -    -    -    - 
Net investment income   (157,849)   14,153,962    -    13,996,113 
                     
Net realized and unrealized gain (loss) on investments and foreign currency                    
Net realized gain   -    517,658    -    517,658 
Net change in unrealized appreciation/depreciation   19,326,769    1,837,731    (19,326,769)   1,837,731 
Net realized and unrealized gain (loss)   19,326,769    2,355,389    (19,326,769)   2,355,389 
                     
Dividends paid on Series A preferred equity facility   -    (393,413)   -    (393,413)
Net change in accumulated dividends on Series A preferred equity facility   -    16,011    -    16,011 
Distributions of incentive allocation to the General Partner   -    -    (2,723,742)   (2,723,742)
Net change in reserve for General Partner incentive allocation   -    -    (471,078)   (471,078)
                     
Net increase in net assets resulting from operations  $19,168,920   $16,131,949   $(22,521,589)  $12,779,280 

 

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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. 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 annual 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.

 

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.

 

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”). Our investment objective is to seek to achieve high total returns through current income and capital appreciation, with an emphasis on principal protection. We invest 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, we 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 Holding Company owns 100% of the common limited partner interests, or in one of the Operating Company’s wholly-owned subsidiaries, TCPC Funding I, LLC (“TCPC Funding”) and TCPC SBIC, LP (the “SBIC”). 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, TCPC Funding, and the SBIC. Most of the equity interests in the General Partner are owned directly or indirectly by the Advisor and its employees.

  

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The SBIC was organized as a Delaware limited partnership in June 2013. On April 22, 2014, the SBIC received a license from the United States Small Business Administration (the “SBA”) to operate as a small business investment company under the provisions of Section 301(c) of the Small Business Investment Act of 1958.

 

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, TCPC Funding, and the SBIC have elected to be treated as partnerships for U.S. federal income tax purposes.

 

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”), $150 million in available debt under a senior secured revolving credit facility issued by TCPC Funding, (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 March 31, 2014, 88.3% 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.

 

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, TCPC Funding and the SBIC), which may include those relating to:

 

43
 

 

  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

 

  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. 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. The incentive compensation equals the sum of (1) 20% of all ordinary income since January 1, 2013 and (2) 20% of all net realized capital gains (net of any net unrealized capital depreciation) since January 1, 2013, with each component being subject to a total return requirement of 8% of contributed common equity annually. The incentive compensation 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.

 

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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.

 

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.

 

45
 

 

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.

 

 As of March 31, 2014, 0.1% of our investments were categorized as Level 1, 16.9% were categorized as Level 2, 81.8% were Level 3 investments valued based on valuations by independent third party sources, and 1.2% 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.

 

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Portfolio and investment activity

 

During the three months ended March 31, 2014, we invested approximately $110.4 million across 8 new and 3 existing portfolio companies. Of these investments, 99% were in senior secured debt comprised of senior loans ($97.1 million, or 88% of the total) and senior secured notes ($13.0 million, or 11% of the total). The remaining $0.3 million (1% of the total) were comprised of two equity investments and PIK payments received on investments in unsecured debt. Additionally, we received approximately $66.9 million in proceeds from sales or repayments of investments during the three months ended March 31, 2014.

 

At March 31, 2014, our investment portfolio of $815.7 million (at fair value) consisted of 70 portfolio companies and was invested 96% in debt investments, of which 99% was in senior secured debt and 1% in unsecured or subordinated debt. In aggregate, our investment portfolio was invested 77% in senior secured loans, 18% in senior secured notes, 1% in unsecured or subordinated debt, and 4% in equity investments. Our average portfolio company investment at fair value was approximately $11.7 million. Our largest portfolio company investment by value was approximately $29.9 million and our five largest portfolio company investments by value comprised approximately 13% of our portfolio at March 31, 2014. At December 31, 2013, our investment portfolio of $766.3 million (at fair value) consisted of 67 portfolio companies and was invested 95% in debt investments, of which 98% was in senior secured debt and 2% in unsecured or subordinated debt. In aggregate, our investment portfolio was invested 76% in senior secured loans, 17% in senior secured notes, 2% in unsecured or subordinated debt, and 5% in equity investments. Our average portfolio company investment at fair value was approximately $11.4 million. Our largest portfolio company investment by value was approximately $21.3 million and our five largest portfolio company investments by value comprised approximately 13% of our portfolio at December 31, 2013.

 

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The industry composition of our portfolio at fair value at March 31, 2014 was as follows:

 

   Percent of Total 
Industry  Investments 
Computer Systems Design and Related Services   10.1%

Software Publishers

   7.2%
Wireless Telecommunications   4.0%
Newspaper, Periodical, Book, and Directory Publishers   3.8%
Nondepository Credit Intermediation   3.2%
Radio and Television Broadcasting   3.1%
Wired Telecommunications Carriers   3.1%
Scheduled Air Transportation   2.6%
Communications Equipment Manufacturing   2.5%
Nonscheduled Air Transportation   2.4%
Retail   2.2%
Advertising, Public Relations, and Related Services   2.2%
Scientific Research and Development Services   2.2%
Chemical Manufacturing   2.1%
Electric Power Generation, Transmission and Distribution   2.1%
Business Support Services   2.1%
Electrical Equipment and Component Manufacturing   2.1%
Activities Related to Real Estate   2.0%
Textile Furnishings Mills   2.0%
Professional, Scientific, and Technical Services   2.0%
Full-Service Restaurants   1.9%
Oil and Gas Extraction   1.9%
Motion Picture and Video Industries   1.9%
Structured Note Funds   1.9%
Basic Chemical Manufacturing   1.8%
Grocery Stores   1.8%
Plastics Products Manufacturing   1.8%
Other Telecommunications   1.7%
Semiconductor and Other Electronic Component Manufacturing   1.7%
Gaming Industries   1.7%
Lessors of Real Estate   1.7%
Insurance Carriers   1.4%
Artificial Synthetic Fibers and Filaments Manufacturing   1.4%
Fabricated Metal Product Manufacturing   1.3%
Satellite Telecommunications   1.3%
Nonresidential Building Construction   1.2%
Specialty Hospitals   1.2%
Merchant Wholesalers   1.1%
Computer Equipment Manufacturing   1.1%
Data Processing, Hosting, and Related Services   1.0%
Beverage Manufacturing   1.0%
Accounting, Tax Preparation, Bookkeeping, and Payroll Services   1.0%
Other   4.2%
Total   100.0%

 

The weighted average effective yield of the debt securities in our portfolio was 10.8% at March 31, 2014 and 10.9% at December 31, 2013. The weighted average effective yields on our senior debt and other debt investments were 10.7% and 4.1%, respectively, at March 31, 2014, versus 10.9% and 13.1% at December 31, 2013.

 

At March 31, 2014, 73.4% of our debt investments bore interest based on floating rates, such as LIBOR, EURIBOR, the Federal Funds Rate or the Prime Rate, and 26.6% bore interest at fixed rates. The percentage of our floating rate debt investments that bore interest based on an interest rate floor was 92.5% at March 31, 2014. At December 31, 2013, 71.2% of our debt investments bore interest based on floating rates, and 28.8% bore interest at fixed rates. The percentage of our floating rate debt investments that bore interest based on an interest rate floor was 92.1% at December 31, 2013.

 

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Results of operations

 

Investment income

 

Investment income totaled $22.7 million and $16.9 million, respectively, for the three months ended March 31, 2014 and 2013, of which $19.7 million and $16.5 million were attributable to interest and fees on our debt investments, $2.0 million and $0.0 million to dividends from equity securities, and $1.0 million and $0.4 million to other income, respectively. The increase in investment income in the three months ended March 31, 2014 compared to the three months ended March 31, 2013 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 March 31, 2014 compared to the three months ended March 31, 2013 and an increase in dividend income and other income.

 

Expenses

 

Total operating expenses for the three months ended March 31, 2014 and 2013 were $4.9 million and $2.9 million respectively, comprised of $2.9 million and $2.0 million in base management fees, $0.2 million and $0.1 million in legal and professional fees, $0.6 million and $0.2 million in interest expense and fees related to the Revolving Facilities, $0.4 million and $0.1 million in amortization of debt issuance costs, and $0.8 million and $0.5 million in other expenses, respectively. The increase in expenses in the three months ended March 31, 2014 compared to the three months ended March 31, 2013 primarily reflects the increase in management fees due to the larger portfolio and the increase in interest expense and other costs related to the increase in available and outstanding debt.

 

Net investment income

 

Net investment income was $17.8 million and $14.0 million respectively, for the three months ended March 31, 2014 and 2013. The increase in in net investment income in the three months ended March 31, 2014 compared to the three months ended March 31, 2013 primarily reflects the increased interest and dividend income in the three months ended March 31, 2014, partially offset by the increase in expenses.

 

Net realized and unrealized gain or loss

 

Net realized gains (losses) for the three months ended March 31, 2014 and 2013 were $(6.8) million and $0.5 million respectively. The net realized loss during the three months ended March 31, 2014 was due primarily to the disposition of our investment in ESP Holdings, Inc., an investment made prior to our initial public offering as part of our legacy distressed strategy. For the three months ended March 31, 2014 and 2013, the change in net unrealized appreciation was $12.0 million and $1.8 million, respectively.

 

Income tax expense, including excise tax

 

The Holding 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 Holding 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 Holding Company has made and intends to continue to make the requisite distributions to its stockholders which will generally relieve the Holding 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. Any excise tax expense is recorded at yearend as such amounts are known. There was no U.S. federal excise tax recorded during the three months ended March 31, 2014 and 2013.

 

Dividends to preferred equity holders

 

Dividends on the Preferred Interests for the three months ended March 31, 2014 and 2013 were $0.4 million and $0.4 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 March 31, 2014 and 2013 was $3.5 million and $2.7 million, respectively. Incentive compensation for the three months ended March 31, 2014 and 2013 was distributable due to our performance exceeding the total return threshold. The change in reserve for incentive compensation to the General Partner for the three months ended March 31, 2014 and 2013 was $1.0 million and $0.5 million, respectively. The change in reserve for incentive compensation for the three months ended March 31, 2014 and 2013 reflects the increase in the amount in excess of distributable incentive compensation which would have been earned by the General Partner had we liquidated at net asset value at March 31, 2014 and 2013, respectively.

 

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Net increase or decrease in net assets resulting from operations

 

The net increase in net assets resulting from operations was $18.1 million and $12.8 million for the three months ended March 31, 2014 and 2013, respectively. The higher net increase in net assets resulting from operations for the three months ended March 31, 2014 compared to the three months ended March 31, 2013 primarily reflects the increase in net investment income and the increase in net realized and unrealized gains.

 

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 Special Value Continuation Fund, LLC (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 $150 million subject to certain collateral and other restrictions. The facility is expandable to $200 million subject to the consent of the lender and other customary conditions.

 

Amounts outstanding and available under the combined Leverage Program at March 31, 2014 were as follows:

 

     Rate *   Outstanding   Available   Total Facility 
Operating Company Facility   L+44   $82,000,000   $34,000,000   $116,000,000 
TCPC Funding Facility   L+250    75,000,000    75,000,000    150,000,000 
Preferred Interests   L+85    134,000,000    -    134,000,000 
Total Leverage Program       $291,000,000   $109,000,000   $400,000,000 

 

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

 

Net cash used in operating activities during the three months ended March 31, 2014 was $43.7 million. Our primary use of cash in operating activities during this period consisted of the settlement of acquisitions of investments (net of dispositions) of $42.4 million, partially offset by net investment income less preferred dividends and incentive allocation (net of non-cash income and expenses) of approximately $1.3 million.

 

Net cash provided by financing activities was $47.8 million during the three months ended March 31, 2014, consisting primarily of $62.0 million of net draws under our Revolving Facilities, reduced by $13.0 million of dividends on common equity, $0.4 million of dividends on the Preferred Interests, and payment of $0.8 million in debt issuance costs.

 

At March 31, 2014, we had $27.1 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 a ratio of 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 March 31, 2014, we were in compliance with all financial and operational covenants required by the Leverage Program.

  

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Unfavorable economic conditions, while potentially 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. Unfavorable economic conditions 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 2016 and the Preferred Interests will be subject to mandatory redemption in July 2016. The TCPC Funding Facility matures in May 2017. 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.

 

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 our organization, offering, capitalization, operation or administration 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. 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.

 

The following tables summarize dividends declared for the three months ended March 31, 2014 and March 31, 2013:

 

Date Declared  Record Date  Payment Date  Amount Per Share   Total
Amount
 
March 6, 2014  March 17, 2014  March 31, 2014  $0.36   $13,031,970 
Total for three months ended March 31, 2014        $0.36   $13,031,970 
                 
March 7, 2013  March 18, 2013  March 29, 2013  $0.40*  $8,591,051 
Total for three months ended March 31, 2013        $0.40   $8,591,051 

 

* Includes a special dividend of $0.05.

 

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The following table summarizes the total shares issued in connection with our dividend reinvestment plan for the three months ended March 31, 2014 and 2013:

 

    2014     2013  
Shares Issued     104       1,104  
Average Price Per Share   $ 16.55     $ 15.96  
Proceeds   $ 1,717     $ 17,614  

 

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, TCPC Funding, and the SBIC 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 April 1, 2014 through May 2, 2014, the Operating Company has invested approximately $58.2 million in six senior secured loans with a combined effective yield of approximately 9.8%.

 

On April 22, 2014, the SBIC received a license from the SBA to operate as a small business investment company under the provisions of Section 301(c) of the Small Business Investment Act of 1958.

 

On May 8, 2014, the Company’s board of directors declared a regular second quarter cash dividend of $0.36 per share and a $0.05 per share special dividend. Both dividends are payable on June 30, 2014 to stockholders of record as of the close of business on June 18, 2014.

 

Item 3:     Quantitative and qualitative disclosure about market risk

 

We are subject to financial market risks, including changes in interest rates. At March 31, 2014, 73.4% 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 March 31, 2014, the percentage of our floating rate debt investments that bore interest based on an interest rate floor was 92.5%. 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. We assess our portfolio companies periodically to determine whether such companies will be able to continue making interest payments in the event that interest rates increase. There can be no assurances that the portfolio companies will be able to meet their contractual obligations at any or all levels of increases in interest rates. 

 

Based on our March 31, 2014 balance sheet, the following table shows the annual impact on net income (excluding the related incentive compensation impact) 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  $11,613,205   $(8,730,000)  $2,883,205 
Up 200 basis points  $6,142,664   $(5,820,000)  $322,664 
Up 100 basis points  $3,264,456   $(2,910,000)  $354,456 
Down 100 basis points  $(128,955)  $681,231   $552,276 
Down 200 basis points  $(128,955)  $681,231   $552,276 
Down 300 basis points  $(128,955)  $681,231   $552,276 

 

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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 March 31, 2014, 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 March 19, 2014.

 

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

 

Number   Description
3.1   Articles of Incorporation of the Registrant (1)
3.2   Bylaws of the Registrant (2)
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   Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U. S. C. 1350)*

 ________________________

* Filed herewith.

  

(1) Incorporated by reference to Exhibit (a)(2) to the Registrant's Registration Statement under the Securities Act of 1933 (File No. 333-172669), on Form N-2, filed on May 13, 2011.
(2) Incorporated by reference to Exhibit (b)(2) to the Registrant's Registration Statement under the Securities Act of 1933 (File No. 333-172669), on Form N-2, filed on May 13, 2011.

 

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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:   May 8, 2014    
  By: /s/ Howard M. Levkowitz
  Name: Howard M. Levkowitz
  Title: Chief Executive Officer
   
Date:   May 8, 2014    
  By: /s/ Paul L. Davis
  Name: Paul L. Davis
  Title: Chief Financial Officer

 

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