TCP Capital Corp. Aktie

Hello, everyone. Thank you for joining us, and welcome to the BlackRock TCP Capital Corp. Q1 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Alex Doll, Executive Director. Alex, please go ahead.

Thank you, operator. Before we begin, I will note that this conference call may contain forward-looking statements based on management's estimates and assumptions at the time such statements are made, which are not guarantees of future performance. Forward-looking statements involve risks and uncertainties, and actual results could differ materially from those projected.

For more information, please refer to the risk factors discussed in our most recently filed report on Form 10-Q and the Form 8-K filed with the SEC today, along with the associated press release. Any forward-looking statements made on this call are as of today and are subject to change without notice. Additionally, certain information discussed and presented may have been derived from third-party sources and has not been independently verified.

Accordingly, we will make no representation or warranty with respect to such information. Earlier today, we issued our earnings release for the first quarter ended March 31, 2026, and posted a supplemental earnings presentation on our website at www.tcpcapital.com. To view the slide presentation, which we will refer to on today's call, please click the Investor Relations link and select Events and Presentations.

These documents should be reviewed in conjunction with the company's Form 10-Q, which was filed with the SEC earlier today. Now I will turn the call over to our Chairman, CEO and Co-CIO, Phil Tseng.

Thank you, Alex, and thank you to our investors and analysts for joining us today. I'll start with an overview of our first quarter 2026 performance. Then Jason Mehring, our President, will cover portfolio and investment activity; and Erik Cuellar, our CFO, will walk through our financial results. And then I'll come back with closing remarks before we open up the call for questions.

We're also joined today by Dan Worrell, our Co-CIO, who will be available to answer your questions. In the first quarter, we executed against our strategic priorities, which are improving credit quality, further repositioning our investment portfolio and strengthening our balance sheet. We are deploying capital selectively into high-quality opportunities, leveraging the origination power of the PFS platform while reducing average position sizes, increasing the portion of the portfolio in first lien loans and reducing leverage.

While there is work to do, we are taking steps to drive value for our shareholders. One of the most important metrics for us is nonaccruals. And during this quarter, these declined to 2.8% of the portfolio at fair value and 7.6% at cost, down from 4% and 9.7%, respectively, last quarter. This improvement reflects the completion of the restructurings of Alpine, 48forty and Suited Connector and the sale of Fishbowl.

Importantly, net leverage declined to 1.29x at quarter end, down from 1.41x last quarter, bringing it closer to our target range of 0.9 to 1.2x. The reduction in leverage was driven primarily by exits, partial paydowns and proactive balance sheet management. Full exits and partial paydowns during the quarter totaled $135.3 million and included sizable payoffs of our investments in TEAM Services, James Perse, Cart.com and Eddie Bauer with average position size of more than $28 million.

Further, TEAM Services, our largest repayment during the period was a second lien position. In addition to generating attractive returns, these repayments helped to reduce leverage, enhanced diversification by lowering portfolio concentration and supported our continued focus on increasing the percentage of the portfolio allocated to senior positions in the capital structure. Since quarter end, we received more than $50 million of additional paydowns, including approximately $13 million from AutoAlert, which was previously restructured and recently sold to a strategic buyer.

While we still have equity in the combined company, we view this repayment as a positive outcome that meaningfully reduces our exposure while preserving potential upside. At the end of the quarter, our portfolio had a fair market value of $1.4 billion, invested across 139 companies in more than 20 industry sectors with an average position size of $10 million. 91.8% of the portfolio was invested in senior secured loans and 8.2% was in equity investments and 94.4% of our debt investments were floating rate.

Adjusted net investment income for the quarter was $0.21 per share compared to $0.25 last quarter, primarily reflecting a smaller portfolio as paydowns outpaced investments, lower investment income and higher expenses. Annualized net investment income ROE was 11.8%. PIK interest income for the quarter was 8.5% of total investment income, down from 10.9% last quarter and nearly 80% of PIK was from positions that contemplated PIK when the loans were underwritten.

NAV declined 4.9% to $6.72 per share at quarter end from $7.07 last quarter, reflecting $35 million of net portfolio markdowns during the quarter. Job&Talent, a staffing company, was the largest contributor to the markdowns at approximately $11 million or 32% of the total markdowns during the quarter. Weaker operating performance during the quarter, combined with lower industry-wide valuation multiples put pressure on the company's enterprise value. Our current exposure includes both the first lien term loan and preferred equity.

The preferred equity drove a meaningful portion of this quarter's mark-to-market movement given its greater sensitivity to changes in enterprise value. Separately, software-related investments also accounted for approximately $11 million or 32% of total markdowns in the period. These reductions were driven primarily by valuation multiple compression, revised growth expectations and AI-related disruption risk in certain subsectors. The balance of the NAV decline was attributable to unrealized losses across the portfolio related to wider market spreads and lower market multiples in addition to borrower-specific factors.

These markdowns were more spread out and hence, limited in size per borrower, the largest of which was $2.8 million. Now I want to provide some perspective on our software portfolio. As we mentioned on our last call, we don't view software as monolithic because some segments are fundamentally more resilient than others. We have considered the potential for AI disruption in our underwriting of potential software investments for some time now.

And as a result, we have pursued businesses where we believe AI is more likely to enhance a company's offering rather than displace it. As of March 31, software represented 30.5% of the portfolio at fair value and was spread across 47 companies with 95% in debt positions and the remaining 5% in equity. These companies had an LTV of approximately 26% at origination, providing a considerable equity cushion.

While public software companies have seen valuations reprice, we have not seen a corresponding decline in the operating performance of our private portfolio companies. That said, we will continue to closely monitor our software investments. Now I'll turn the call over to Jason to discuss our portfolio as well as our recent investment activity.

Thanks, Phil, and welcome, everyone. I'll begin with some additional details on our portfolio composition. As Phil mentioned, we made continued progress in diversifying our portfolio and reducing the average position size of our investments. At the end of the first quarter, our five largest investments accounted for 24.9% of our portfolio and investment income was broadly distributed with more than 70% of our portfolio companies each contributing less than 1% of the total.

New investments this quarter had an effective yield of approximately 8.3% versus 11.2% on those we exited, reflecting lower base rates and the impact of spread compression relative to when the repaid deals were booked. As a result, our average portfolio yield declined from 11.1% last quarter to 10.9% at March 31. During the first quarter, we invested approximately $22.5 million across six new and two existing portfolio companies.

Each of the new investments leverage sourcing and underwriting capabilities across the broader BlackRock PFS platform. Originations were intentionally modest this quarter as we prioritize paydowns and exits to strengthen our balance sheet and reduce leverage while being highly selective on new commitments. All new investments were in senior secured loans and reflect our continued focus on building a diverse portfolio that mitigates industry and individual concentration risk while also being mindful of our goal to reduce leverage.

Turning to capital allocation. On May 7, 2026, our Board of Directors declared a second quarter dividend of $0.17 per share payable on June 30 to stockholders of record on June 16. We repurchased 505,433 shares of TCPC stock during the quarter at a weighted average share price of $4.51 and an additional 156,370 shares subsequent to quarter end at a weighted average share price of $3.78.

On April 29, 2026, our Board of Directors reapproved our stock repurchase plan to acquire up to $50 million in the aggregate of our common stock. Now I'll turn the call over to Erik to discuss our financial results, capital and liquidity positioning.

Thank you, Jason. I'll begin with a review of our financial results for the first quarter of 2026. As detailed in our earnings press release, adjusted net investment income excludes the amortization of the purchase accounting discount resulting from our merger with BCIC and is calculated in accordance with GAAP. A full reconciliation of adjusted net investment income to GAAP net investment income as well as other non-GAAP financial metrics is included in our earnings press release and 10-Q.

Total investment income for the first quarter was $42.6 million or $0.51 per share. This included recurring cash interest of $0.39, nonrecurring income of $0.03, recurring discount and fee amortization of $0.03, PIK income of $0.04 and dividend income of $0.02 per share. Operating expenses for the first quarter were $0.29 per share, including $0.19 per share of interest and other debt expenses. Net investment income was $0.22 per share and adjusted net investment income was $0.21 per share.

As of March 31, 2026, our cumulative total return did not exceed the total return hurdle, and therefore, no incentive compensation was accrued for the first quarter. Net realized losses for the quarter were $32.7 million or $0.39 per share, driven primarily by our sale of Fishbowl and restructuring of Alpine, 48forty, which together accounted for approximately $30 million. Net unrealized losses were $2.0 million or $0.02 per share.

This included $30.1 million in reversals of previously unrealized losses on Fishbowl and Alpine, 48forty, which moved from unrealized to realized losses as well as $32.1 million in net unrealized losses during the quarter, primarily due to the markdown on Job&Talent, along with smaller markdowns on positions in other legacy investments.

The net decrease in net assets for the quarter was $16.3 million or $0.19 per share. Now I'll discuss our balance sheet and liquidity, which remains solid, reflecting our progress in reducing leverage during the quarter. During the first quarter, we repaid all $325 million of our 2026 notes. As a result, we have no material debt maturities due in the near term.

Total liquidity at the end of the first quarter was $358.6 million, including $264.1 million in available borrowings under our revolvers and $93.3 million in cash. The combined weighted average interest rate on debt outstanding was 5.77% as of March 31, 2026. Unfunded loan commitments represented 8.7% of our $1.4 billion investment portfolio or $121 million, including $53.3 million in revolver commitments.

Net regulatory leverage was 1.29x at quarter end, down from 1.41x in the fourth quarter of 2025, resulting in a total debt-to-equity leverage ratio of 1.65x. Subsequent to quarter end, our net regulatory leverage ratio improved to 1.23x as a result of paydowns. We expect to reduce leverage further over time as we exit additional investments as part of our portfolio repositioning. We are well positioned to fund new investments with a diverse leverage program, which includes three low-cost credit facilities, an unsecured note issuance and an SBA program.

Now I will turn the call back to Phil for his closing remarks.

Thanks, Erik. Over the past year and again, in the first quarter, we continue to reposition our portfolio by reducing nonaccruals and deploying capital into new investments that align with our investment strategy. This repositioning is driving greater diversification with an emphasis on senior secured first lien loans with more granular position sizes and reduced concentration across individual credits and sectors.

We have also strengthened our balance sheet and reduced leverage, which improves our flexibility as we look ahead. While we have made meaningful progress, we recognize there is more work to do, and we remain focused on disciplined execution. As part of BlackRock's PFS platform, TCPC benefits from expanded sourcing and origination, broader investment expertise and resources and the ability to participate in larger transactions that many others don't see or don't have the capabilities to pursue.

We believe this positions TCPC for long-term success as the credit market continues to evolve. We appreciate your continued support. And now I'll turn the call back to the operator for questions.

[Operator Instructions]

Your first question comes from the line of Robert Dodd from Raymond James.

Look, without going through line by line of various portfolio companies, I just want to ask you a more general conceptual question on -- or one of my questions. The pace at which restructuring is occurring, the work is going through on dealing with troubled assets, et cetera. How would you -- obviously, you're doing it as fast as you can but how would you rank that in terms of how quick or hard or easier you thought it was going to be, say, 6 months ago in terms of dealing with these assets?

Robert, thank you for the question. I would say that we always expect restructuring and workouts to not take a linear pattern here. As you know, restructuring workouts, each deal has its own idiosyncratic issues, whether that's a company product, competitive landscape, liquidity management and so on.

Sometimes they are great businesses with weaker balance sheets that restructurings really benefit the company with. So I'd say that we didn't really go in with any specific expectation. However, we are doing everything we can to actively manage through these restructurings and monetizations and paydowns.

And as you saw in the results, we've made meaningful progress in the quarter, having exited out of 48forty and Suited Connector with respect to restructuring processes and then also exiting out of Fishbowl and AutoAlert in terms of sales of those assets, not exiting out of the entire position, but because we did roll some of the equity.

But we're doing what we can in terms of managing those processes.

Fair enough. Appreciate that. One -- another one, and it is a question about specific I'd say -- I mean, Job&Talent, which obviously marked down this quarter. I mean you said it was round numbers, 1/3 of the total markdowns. That's kind of not actually -- that business is positioned as kind of an AI-enabled Job&Talent search business.

So maybe AI enabling isn't the fix-all in one context. But on the other hand, it's like what were the drivers, if you can give any information on you said there was some softness in kind of the business and obviously, pressure on enterprise values, but it is an AI-enabled business.

So I mean, any context you can give us as kind of the interaction between how that business is valued while being AI-enabled versus how AI is or is not helping or impacting that business? I mean it's just trying to get a feel, right, because you do have a lot of other software businesses where the fear is AI, but then you've got a business that sort of is AI and it didn't seem to help.

Robert, it's Jason. What I would say is first and foremost, Job&Talent, it's a staffing and a recruitment business. And I think those businesses typically have a tech-enabled element to them and have an ability to leverage AI and other emerging technologies and approaches to sort of benefit their business.

So I think that in this quarter, the cause of drop in enterprise value is really more due to market valuation multiples as opposed to something tied specific to the business being challenged because of AI or otherwise. I'd say the relative performance of the business was more of a modest contributor as opposed to broader tech multiples, if you will.

Got it. Got it. And then on -- just one last one, if I can. On software, you said you had a 26% LTV at origination in your software book. I mean, maybe you don't want to put an exact number on that, but I presume that 26% has moved fairly significantly if we put in valuations today. So can you give us any relative scale, is that [ 26% ] doubled or up just kind of ballpark, how much have values moved on the assets that you have in the book?

Yes. So the purpose of including that metric was to indicate how much cushion we underwrote to in those deals, given that being cognizant of software and AI as a risk. And you're right, market multiples have come down meaningfully out there. And so the cushion has come down as well.

We don't have a number to disclose in terms of exactly how much, and it depends on the credit itself and what end market and what software functionality that they're offering in the market. So I would say that the cushion certainly has -- a bit, but we feel like at 26% LTV, we're still in reasonably good shape.

There are no further questions at this time. I will now turn the call back to Phil Tseng, Chairman, CEO and Co-CIO, for closing remarks.

Thank you, operator, and thank you all for joining our call today. I'd also like to thank our team for their continued hard work and dedication to TCPC. As always, please reach out with any questions. Thank you all.

This concludes today's call. Thank you for attending. You may now disconnect.

Ladies and gentlemen, good afternoon. Welcome, everyone, to the BlackRock TCP Capital Corp. Fourth Quarter Earnings Call. Today's conference call is being recorded for replay purposes. [Operator Instructions] Now I would like to turn the call over to Alex Doll, a member of the BlackRock TCP Capital Corp. Investor Relations team. Alex, please go ahead.

Thank you, operator. Before we begin, I'll note that this conference call may contain forward-looking statements based on the estimates and assumptions of management at the time of such statements and are not guarantees of future performance.

Forward-looking statements involve risks and uncertainties, and actual results could differ materially from those projected. For more information, please refer to the risk factors discussed in our most recently filed report on Form 10-K and the Form 8-K filed with the SEC today, along with the associated press release.

Any forward-looking statements made on this call are made as of today and are subject to change without notice. Additionally, certain information discussed and presented may have been derived from third-party sources and has not been independently verified. Accordingly, we make no representation or warranty with respect to such information. Earlier today, we issued our earnings release for the fourth quarter and full year ended December 31, 2025, and posted a supplemental earnings presentation on our website at www.tcpcapital.com.

To view the slide presentation, which we will refer to on today's call, please click on the Investor Relations link and select Events and Presentations. These documents should be reviewed in conjunction with the company's Form 10-K, which was filed with the SEC earlier today.

Now I will turn the call over to our Chairman, CEO and Co-CIO, Phil Tseng.

Thank you, Alex, and thank you to our investors and analysts for joining us today. I'll begin with an overview of our fourth quarter and full year 2025 performance. Our President, Jason Mehring, will then provide details on our portfolio and investment activity, and Erik Cuellar, our CFO, will review our financial results. Then I'll provide closing comments before we open the call up for your questions.

We are also joined today by Dan Worrell, our Co-CIO, who will be available to answer questions. Since we preannounced our preliminary fourth quarter results on January 23, I will focus my remarks on providing more detail on the results and the key factors behind our performance. I'll begin with an overview of our financial results. Full year 2025 adjusted NII was $1.22 per share compared to $1.52 in 2024.

Annualized NII ROE for the year was 12.3% compared to 14.5% in 2024. Adjusted NII was $0.25 per share in the fourth quarter compared to $0.30 per share last quarter and $0.36 per share for the fourth quarter of 2024. The decline in NII primarily reflects the impact of portfolio markdowns and nonaccruals as well as lower base rates and tighter spreads year-over-year.

Fourth quarter NII includes the benefit of a voluntary waiver by our adviser of 1/3 of the base management fee, which added approximately $0.02 per share. As of December 31, 2025, nonaccrual debt investments represented 4% of the portfolio at fair market value and 9.7% at cost compared to 5.6% at fair market value and 14.4% at cost for the fourth quarter of 2024.

NAV declined 19% to $7.07 per share as of December 31, 2025, from $8.71 as of September 30, in line with the midpoint of the range we previously provided on January 23. The portfolio markdowns for the quarter largely reflect issuer-specific developments during the period. Six portfolio companies contributed approximately 67% or $1.11 per share of the NAV decline.

Now I'll provide details on these 6 investments. Our investment in Edmentum, an educational technology business is comprised entirely of preferred and common equity, making it inherently sensitive to changes in enterprise value. Edmentum's valuation declined as a result of overall underperformance in the fourth quarter and lower anticipated future growth. This markdown accounted for 23% or $0.38 per share of the NAV decline for the quarter.

Razor and SellerX are Amazon aggregators that have been restructured previously and continued to underperform during the quarter, resulting in further reduction to their outlooks. Razor contributed $0.24 per share or 15% of the NAV decline, and we have now fully written our position down to 0. SellerX contributed $0.22 per share or 13% of the NAV decline. On Renovo, as discussed on our last earnings call, we moved forward with writing down our investment in the fourth quarter.

This negatively impacted NAV by $0.15 per share, in line with the expectations we communicated previously. Next is Hylan, a provider of telecom and wireless engineering and construction services, which was also previously restructured. Due to ongoing underperformance in this quarter as well as liquidity concerns, we marked down this position, which includes both debt and equity. This resulted in a $0.06 per share impact to NAV.

And last, we marked down our position in InMobi, a digital advertising company. Our remaining exposure consisted solely of warrants for equity that we retained after the company fully repaid its term loan. Based on InMobi's underperformance in the fourth quarter and an associated impact on the company's outlook, we reduced the valuation of this position, resulting in a $0.06 per share impact to NAV.

Looking at the reduction in NAV for the quarter more broadly, approximately 91% was from investments that we underwrote in 2021 or earlier. Certain of the companies, including Amazon aggregators and e-learning platforms benefited from high levels of pandemic era demand but have since seen results soften. All of these positions were underwritten in a significantly lower base rate environment and have faced challenges adjusting to sustained higher interest rates.

Regarding our challenged investments, we continue to work diligently with our borrowers, their sponsors and creditors to optimize recovery values, including pursuing restructurings and other transaction-driven outcomes when appropriate.

Now I'll share an update on capital allocation, starting with our dividend. Our Board declared a first quarter dividend of $0.17 per share payable on March 31, 2026, to shareholders of record on March 17, 2026. As we have said before, our goal is to maintain a dividend that is both sustainable and covered by NII. As part of our commitment to supporting our shareholders, we repurchased 515,869 shares of TCPC stock during the fourth quarter at a weighted average price of $5.84 per share. We also purchased an additional 233,541 shares after quarter end at a weighted average share price of $5.50 per share.

Now I'll turn the call over to Jason to discuss our portfolio as well as our recent investment activity.

Thanks, Phil, and welcome, everyone. I'll begin with an overview of our portfolio composition. At year-end, our portfolio had a fair market value of $1.5 billion invested across 141 companies in more than 20 industry sectors with an average position size of $10.9 million. 92.4% of our portfolio was invested in senior secured loans, all of which were floating rate and 7.5% was in equity investments.

Our largest investment based on fair value represented 7.2% of our portfolio and our 5 largest investments accounted for 23.1%. Investment income was distributed broadly across our diverse portfolio with more than 75% of our portfolio companies each contributing less than 1%. During 2025, the average size of our investments in new portfolio companies was $5.8 million compared to an $11.7 million average position size at the end of last year, demonstrating our ongoing effort to reduce concentration risk.

All new portfolio company investments during 2025 were in first lien loans, bringing total portfolio exposure to first lien loans to 87.4% on a fair value basis, up from 83.6% last year. At the end of the fourth quarter, the weighted average effective yield of our portfolio was 11.1% compared to 11.5% last quarter. Investments during the quarter had a weighted average yield of 9.7%, while those we exited had a weighted average yield of 11.1%.

Current yields reflect lower base rates and spread compression during the period. In the fourth quarter, in line with our strategy, we deployed $35 million into senior secured loans across 5 new and 3 existing portfolio companies. Our largest new investment was a $4.5 million first lien term loan to a highly scaled wealth management platform with a focus on high net worth individuals.

This financing was made in connection with the recapitalization where BlackRock Private Financing Solutions, or PFS, was the second largest lender in a $2 billion credit facility. The PFS platform has been a lender to this business since early 2024, and the opportunity was a natural fit for TCPC given our past success investing in the wealth management sector.

In addition to attractive industry fundamentals, we were drawn to the company's high client retention rate, strong management team and brand recognition. Our second largest investment was a $4 million first lien loan to Coalfire, a leading cybersecurity services and solutions provider. This investment was part of a $375 million first lien financing in which BlackRock PFS provided approximately 30% of the facility.

We believe Coalfire is well positioned to benefit from increasing cybersecurity regulation and complexity. Given our focus on direct origination and borrower relationships, incumbency continues to be an important competitive edge for TCPC. And during 2025, 65.4% of our deployments came from existing portfolio companies. We continue to find opportunities within our portfolio where our deep relationships and industry expertise help as we evaluate risk.

Paydowns this quarter were $80.7 million compared to $140 million in the prior quarter. Before I turn the call over to Erik, I want to briefly comment on the software sector, which has been the subject of considerable interest among investors in the press. While public equities in this sector are experiencing a valuation reset following a long upward run, we haven't seen that widely translate into lower operating results in our portfolio companies, although we will continue to monitor developments going forward.

In addition, we believe software is not monolithic as some segments are fundamentally more resilient than others. For some time, we have considered the potential for AI disruption in our underwriting of potential software investments, and we have sought to continue to actively pursue businesses where we believe AI is more likely to positively augment the company's offering rather than displace it.

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

Thank you, Jason. I will begin with a review of our financial results for the fourth quarter and year ended December 31, 2025. As detailed in our earnings press release, adjusted net investment income excludes the amortization of the purchase accounting discount resulting from our merger with BCIC and is calculated in accordance with GAAP.

A full reconciliation of adjusted net investment income to GAAP net investment income as well as other non-GAAP financial metrics is included in our earnings press release and 10-K. Gross investment income for the fourth quarter was $0.52 per share. This included recurring cash interest of $0.41, nonrecurring income of $0.01, recurring discount and fee amortization of $0.02, PIK income of $0.06 and dividend income of $0.02 per share.

PIK interest income for the quarter was 10.9% of total investment income, up from 9.5% last quarter and included no new names. Operating expenses for the fourth quarter were $0.25 per share, including $0.18 per share of interest and other debt expenses. As of December 31, 2025, our cumulative total return did not exceed the total return hurdle, and therefore, no incentive compensation was accrued for the fourth quarter.

Additionally, as Phil mentioned, we waived a portion of our base management fee again this quarter. Net realized losses for the quarter were $73.9 million or $0.87 per share, with Anacomp and Astra being the most significant portfolio company contributors. Net unrealized losses were $66.5 million or $0.78 per share, primarily due to the unrealized markdowns on the 6 investments Phil discussed earlier. The net decrease in net assets for the quarter was $118.3 million or $1.39 per share.

Now I'll discuss our balance sheet and liquidity positioning, which remains solid. Total liquidity at year-end was $570.2 million, including $482.8 million in available borrowings and $61.1 million of cash. The weighted average interest rate on debt outstanding at year-end was 4.9%, down from 5.0% at the end of the third quarter.

Unfunded loan commitments represented 8.4% of our $1.5 billion investment portfolio or $129.2 million, including $53.7 million in revolver commitments. Net regulatory leverage was 1.41x at year-end compared to 1.2x at the end of the third quarter, resulting in a total debt-to-equity leverage ratio of 1.74x.

Subsequent to year-end, our net regulatory leverage ratio has improved to 1.34x as a result of paydowns. We expect to reduce leverage further over time as we exit additional investments. On February 9, 2026, we paid down the entire $325 million principal amount of our 2026 unsecured notes, resulting in current liquidity of approximately $290.8 million. Our diverse leverage program now includes 3 low-cost credit facilities, an unsecured note issuance and an SBA program.

Now I will turn the call back to Phil for his closing remarks.

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

This includes seeking to, one, deploy capital selectively into senior secured first lien loans where we are a lender of influence; two, build a well-diversified portfolio in terms of industry sectors and investment size to reduce concentration risk; and three, fully leverage the unparalleled resources of BlackRock's platform.

There is work to be done, but we're confident in our strategy. As Jason mentioned, in 2025, we increased first lien investments to 87.4% of the portfolio on a fair value basis, up from 83.6% last year. In addition, we improved our portfolio diversification by reducing the average size of new investments made in 2025 to $5.8 million each or 38 basis points compared to the $11.7 million average position size at the end of 2024.

We are proud to be part of BlackRock and believe the substantial resources of this industry-leading platform will support our efforts to reposition our portfolio and enhance our capabilities. We are already seeing the benefits of an expanded pipeline of investment opportunities that supports our objective of deploying capital very selectively into what we believe are high-quality investments that align with our investment strategy.

I want to thank our investors for your continued support as we reposition our portfolio. And now I'll turn the call back to the operator for questions.

[Operator Instructions] Our first question comes from Robert Dodd from Raymond James.

I appreciate all the color you gave about the individual businesses. And obviously, you've discussed kind of the new allocation efforts going forward. At what point -- and this is really a question for the Board rather than you, to be fair. But at what point does it make sense to take maybe more aggressive overall strategic adjustments to the BDC rather than continue in the current efforts.

I mean it shrunk -- leverage is up. If you buy back stock, leverage will go up even more unless you shrink the portfolio. There's a lot of issues that are going to take a -- with your best efforts, and I applaud them, and I think you put it in those best efforts, it's going to take a long time to turn this business around. At what point does it make sense to do something more aggressive on the strategic front?

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

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

I appreciate that. Now going on to the portfolio assets. I mean, several of them, as you mentioned, have been previously restructured. This is not a theme just in your portfolio. We've seen several other assets and other BDCs this quarter and in more recent quarters that have been previously restructured and are back on nonaccrual or back getting marked down.

What -- how should we take that or how should investors take that in terms of when -- over the last few years, it looks like restructurings seem to stick less often than maybe was the case if we go back further, that's just a sense, right? So I mean what's your view on that -- on when you do the initial restructuring of an asset, do you need to be more aggressive on that, maybe equitize more of the debt or take -- if you can take the keys quicker? Or what is it? I mean, again, this is not just in your book, it's elsewhere, but obviously, you've had a fair number of them. So what's your thought on how restructurings need to be done going forward?

Yes. Restructurings, they can play out in several different ways. The road to recovery, as we've discussed on past calls, are not always linear. In fact, they're rarely linear. So it's hard to predict when they may recover. And these businesses oftentimes recover into -- from a capital structure standpoint with a loan and equity component. And equity investments, as you know, are more sensitive to enterprise value changes just given that they're at the bottom of the capital stack, whereas the debt is obviously more insulated from enterprise value changes.

We think, Robert, we have a robust process in place, certainly bringing to bear the resources of the broader BlackRock platform to actively manage these challenged investments. But I appreciate your concern around when we can call bottoms on some of these restructurings, but it's challenging.

Our next question comes from Finian O'Shea from Wells Fargo.

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

Fin, it's Jason. Thanks for the question. There hasn't been any sort of change to our valuation policy. As I think we've talked about before, our end-of-quarter process includes a pretty granular review of each portfolio company, and that methodology does include, obviously, third-party valuation services and resources from within the BlackRock PFS platform. So I think that's all remained consistent.

I do think that when you look at the overall write-downs in the quarter, they were concentrated fairly heavily among those 6 names that we've outlined, which were about 2/3 of the drop in NAV. And I think that those names, generally speaking, had an equity orientation, which obviously, as everybody knows, is more volatile and is fundamentally more sensitive to changes in underlying performance. So we obviously didn't delineate specific performance level detail when we were outlining the businesses that we talked about. But it's safe to say that the inputs and just sort of the factors related to the business performance, industry outlook, et cetera, moved in a way that had on a cumulative basis, a more material impact on NAV for the quarter.

So I guess not a change in -- okay. So it sounds like go forward, we're not going to 8-K all the time when the equity market moves. It sounds like maybe less valuation, but more, yes, these 6 names had just straw that broke the camel's back kind of thing, idiosyncratic event that forced your hand to reassess the valuation and that's very one-off. This is like the one 8-K that will ever happen under those circumstances.

Yes. Listen, it's obviously difficult to predict the future, but I think there were a unique collection of factors that led to a more material markdown in the aggregate for the quarter, which is why we saw fit to release the 8-K when we did in January to make sure that the market was aware.

To your point, it's not something that we've seen on a regular basis. There were, again, idiosyncratic factors that happened to occur in unison, which drove a lot of that swing. Again, we've referenced those 6 names. But again, we're -- the process is the same, and we'll continue to consider the need to disclose things on an 8-K basis if and when they arise.

[Operator Instructions] We currently have no further questions, and I would like to hand back to Phil Tseng for any closing remarks.

Thanks, operator. In closing, I want to thank you all for joining our call today. I'd also like to thank our team for their continued hard work and dedication for TCPC. As always, please reach out with any questions. Thank you.

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

Ladies and gentlemen, good afternoon, and welcome to BlackRock TCP Capital Corp.'s Third Quarter Earnings Call. Today's conference call is being recorded for replay purposes. [Operator Instructions] Now I would like to turn the call over to Alex Doll, a member of the BlackRock TCP Capital Corp. Investor Relations team. Alex, please proceed.

Thank you, operator. Before we begin, I'll note that this conference call may contain forward-looking statements based on the estimates and assumptions of management at this time of such statements and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties, and actual results could differ materially from those projected. Any forward-looking statements made on this call are made as of today and are subject to change without notice. Additionally, certain information discussed and presented may have been derived from third-party sources and has not been independently verified. Accordingly, we make no representation or warranty with respect to such information.

Earlier today, we issued our earnings release for the third quarter ended September 30, 2025, and posted a supplemental earnings presentation to our website at www.tcpcapital.com. To view the slide presentation, which we will refer to on today's call, please click on the Investor Relations link and select Events and Presentations. These documents should be reviewed in conjunction with the company's Form 10-Q, which was filed with the SEC earlier today. Now I will turn the call over to our Chairman, CEO and Co-CIO, Phil Tseng.

Thank you, Alex, and thanks to all of our investors and analysts for joining us today. I'll begin with an overview of our third quarter performance. Our President, Jason Mehring, will then provide details on our portfolio and investment activity; and Erik Cuellar, our CFO, will review our financial results. I'll then share commentary on the current market environment before we open the call for your questions. We are also joined today by Dan Worrell, our Co-CIO, who will be available to answer your questions.

I'll begin with our results for the quarter. We made continued progress in executing on the strategic priorities we outlined at the start of the year, resolving challenged credits, improving the quality of our investment portfolio and positioning TCPC to return to historical performance levels. Third quarter NAV was unchanged from the previous quarter at $8.71. And importantly, nonaccruals improved to 3.5% of the portfolio at fair market value compared to 5.6% at the end of 2024. During the third quarter, we sold one nonaccrual investment above our valuation estimate and placed 2 smaller previously restructured investments back on nonaccrual. I'd also like to share an update on our investment in Renovo, which, as you may recall, is a direct-to-consumer home remodeling business. Renovo was previously removed from nonaccrual status following a comprehensive recapitalization in the second quarter. However, early in the fourth quarter, company-specific performance and liquidity issues led the Renovo Board to determine that the best available path forward was a liquidation process, which started on November 3, 2025.

The position in Renovo represented approximately 0.7% of our total investments at fair value as of September 30. We do not expect to recover value on our investment in Renovo, and we expect to fully write down this position in the fourth quarter of 2025. Further, we expect this to impact fourth quarter NAV by approximately $0.15 per share on a pro forma basis. We view this outcome as a result of issues specific to the issuer rather than a reflection of broader sector weakness. We also realized portfolio gains this quarter, the largest of which was NEP Group, a global leader in broadcast and live production services for sports and entertainment. In September, NEP announced a recapitalization that closed in October, strengthening its balance sheet while adding new junior capital below our position. As a result, our investment was upgraded from a second lien to a first lien term loan, improving our recovery prospects and demonstrating our team's success in executing a complex restructuring.

Now I'll share an update on capital allocation, starting with our dividend. Our Board declared a third quarter dividend of $0.25 per share payable on December 31 to shareholders of record on December 17. This is consistent with the base dividend level we have paid since the first quarter of the year and reflects recent Fed cut rates and spreads we are seeing in the market. As part of our commitment to supporting our shareholders, we also repurchased more than 25,000 shares of TCPC stock during the third quarter and an additional 170,000 shares after quarter end.

Now I'll turn the call over to Jason to discuss our portfolio in more detail as well as our recent investment activity.

Thanks, Phil, and welcome, everyone. During the third quarter, we selectively deployed capital into opportunities that are directly aligned with our investment strategy, investing primarily in core middle market companies, maintaining a well-diversified portfolio, prioritizing first lien loans and leveraging the extensive resources of BlackRock. As we mentioned last quarter, BlackRock and HPS created a new platform called Private Financing Solutions, or PFS. PFS combines the firm's private credit, GPLP solutions, liquid and private credit CLOs and leveraged finance businesses into a single integrated platform. The integration of the BlackRock and HPS businesses has already been an important catalyst for expanding TCPC's access to deal flow. In the third quarter, we saw a 20% increase in the number of deals we reviewed relative to last quarter and a 40% increase in the number of deals we advanced to the screening stage. In today's market environment, a larger deal funnel is an advantage in identifying high-quality opportunities.

Now I'll highlight 2 of our third quarter investments, beginning with KBRA, where we invested $2.4 million as part of a new $1.1 billion first lien term loan financing for the company. KBRA is a major U.S. credit rating agency that provides independent ratings and research across corporate, financial and public markets, and it has been a portfolio company of ours for 3.5 years. The business is owned by a sector-focused sponsor that we have partnered with on multiple deals, and the BlackRock PFS platform led this transaction, which refinanced KBRA's existing debt, funded a shareholder dividend and provided growth capital for M&A. Our investment in KBRA aligns closely with our strategy of investing in companies with substantial barriers to entry that generate recurring revenue, healthy margins and strong free cash flow. We believe these characteristics support our ability to deliver risk-adjusted returns that are attractive to our shareholders.

We also made a $5.2 million follow-on investment in Syndigo, a software company that helps brands and retailers manage and share product information across online and in-store channels. This transaction was part of a $930 million first lien term loan led by PFS that facilitated Syndigo's recent acquisition of 1WorldSync, a content management company. This business combination advances Syndigo's goal of using AI to help companies deliver accurate and consistent product content across the entire customer experience. BlackRock has long been a lender to Syndigo, and this transaction demonstrates our continued commitment to the company's growth and success. We view it as an attractive opportunity to support a scaled market leader with resilient recurring revenue and strong free cash flow. Since the start of the year, we've invested $241 million in 18 new and 13 existing portfolio companies with a granular average position size of $7.8 million. This is a significant decrease from an $11.7 million average position size across our portfolio at the end of 2024 and reflects progress in creating a more diversified, lower-risk portfolio.

All of our investments in the third quarter were in first lien term loans to companies with strong fundamentals that are positioned for long-term growth. Incumbency has remained an important competitive advantage for TCPC and repeat borrowers represented 51% of our year-to-date originations. At the end of the quarter, our portfolio had a fair market value of $1.7 billion invested across 149 companies in more than 20 industry sectors. 89% of the portfolio was invested in senior secured debt, all of which is in floating rate instruments. Investment income was broadly distributed across our diverse portfolio, with 78% of the portfolio companies each contributing less than 1% of total income. The weighted average annual effective yield of our portfolio was 11.5% in the third quarter compared to 12% in the prior quarter. New investments had a weighted average yield of 10.1%, while those we exited carried an average of 11.7%. Paydowns this quarter were $140 million compared to $48 million in the prior quarter. This higher level of paydowns was mainly due to timing as several repayments we expected to close in the second quarter closed in the third quarter instead.

Now I'll turn the call over to Erik, who will walk through our financial results and capital and liquidity position.

Thank you, Jason. I will begin with a review of our financial results for the third quarter. As detailed in our earnings press release, adjusted net investment income excludes the amortization of the purchase accounting discount resulting from our merger with BCIC and is calculated in accordance with GAAP. A full reconciliation of adjusted net investment income to GAAP net investment income as well as other non-GAAP financial metrics is included in our earnings press release and 10-Q. Third quarter adjusted net investment income was $0.30 per share and gross investment income was $0.59 per share in the third quarter. This compares to $0.31 and $0.61 per share, respectively, in the second quarter. This quarter's gross investment income included recurring cash interest of $0.46 per share, nonrecurring income of $0.03, recurring discount and fee amortization of $0.02, PIK income of $0.06 and dividend income of $0.02 per share. PIK interest income represented 9.5% of total investment income, down from 11.4% last quarter. Operating expenses for the third quarter were $0.27 per share, including $0.20 per share of interest and other debt expenses. As of September 30, 2025, our cumulative total return did not exceed the total return hurdle. And therefore, no incentive compensation was accrued for the third quarter.

As you will recall, our market-leading fee structure is particularly shareholder-friendly, which aligns interest between investors and management. Additionally, we waived a portion of our base management fee again this quarter, in line with our advisers' decision to waive 1/3 of our base management fee for the first 3 quarters of 2025. Net realized losses for the quarter were approximately $97.0 million or $1.14 per share. $72.6 million of this amount was due to the restructuring of our investment in Razor, and the remaining amount was related to our dispositions of Conergy, Iracore and INH Buyer, which resulted in losses of $13.2 million, $4.1 million and $3.9 million, respectively. Importantly, these impacts were already substantially reflected in our net asset value as of June 30, 2025.

Net unrealized gains were $94.1 million or $1.11 per share, primarily reflecting the markup of NEP that Phil mentioned earlier, along with the reversal of previously recognized unrealized losses from the restructuring and disposition of the investments I mentioned. The net increase in net assets for the quarter was $24.4 million or $0.29 per share. As of September 30, 9 portfolio companies were on nonaccrual status, representing 3.5% of the portfolio at fair value and 7.0% at cost. This is down from 3.7% and 10.4%, respectively, as of June 30, and 5.6% and 14.4%, respectively, at December 31, 2024. As Phil noted, we continue to work closely with our borrowers, their sponsors and creditors to optimize our recovery value.

Now I'll discuss our balance sheet and liquidity positioning. Our balance sheet remains strong. Total liquidity at quarter end was approximately $528 million, including $466.1 million of available leverage and $61 million in cash. Unfunded loan commitments represented 9.0% of our $1.7 billion investment portfolio or approximately $154 million, including $48.3 million in revolver commitments. Net regulatory leverage was 1.2x at quarter end compared to 1.28x at the end of the second quarter and in line with our target range of 0.9 to 1.2x. The decrease was primarily due to repayments during the quarter. Our diverse leverage program includes 3 low-cost credit facilities, 3 unsecured note issuances and an SBA program. The weighted average interest rate on our debt outstanding at quarter end was 5.0%.

Looking ahead, we are taking proactive steps to manage our capital structure, including evaluating the best alternatives to refinance our 2026 notes. Given our credit debt ratings, we plan to address the notes through a combination of our credit facilities and a potential private placement. While spreads have widened over the past few weeks, we continue to monitor market conditions closely to determine the most cost-effective path forward.

Now I'll turn the call back to Phil for his closing remarks.

Thank you, Erik. Now I will provide some market commentary. As we mentioned, we have seen an increase in deal flow and our pipeline is growing. While M&A activity has begun to show some signs of life, most borrowers are currently focused on refinancing existing debt at lower rates or extending maturities to execute on continued growth plans. At the same time, the volume of high-quality investment opportunities remains limited. Against this backdrop, we are pleased to see and review more opportunities as part of the PFS platform, and we are intently focused on deploying capital into high-quality deals. In closing, we are encouraged by the progress we've made this year in improving the credit quality and the diversity of our portfolio. Looking to the final quarter of the year, we are focused on continuing to resolve challenged positions in our portfolio and positioning TCPC to deliver strong sustainable returns to our investors.

Thank you for your continued support and interest in TCPC. And now I'll turn the call to the operator to open the call for questions.

[Operator Instructions] Our first question is from Robert Dodd at Raymond James.

First, if we can discuss the -- I think at the beginning, you said there were 2 previous restructurings that were returned to NILCO. And then obviously, Renovo was restructured and is now are going to be written off. Can you give us any color on any themes here? I mean that's 3 restructurings in relatively short order that sort of didn't stick, right? So, is there any commonality between what occurred there? Are any changes that you can make? Obviously, you might not in control of all of the restructuring steps there. But any changes you can make to the restructuring process to kind of -- I mean, maybe the restructuring to be more aggressive the first time? Or just any thoughts there? I mean, 3 in short order is not great.

Yes. Thanks, Robert. We share your sentiments. We're obviously disappointed that deals that have been restructured do come back on. So, as you know, these are restructurings that get completed with respect to their capital structure. And then it takes time for the business itself to kind of go through its operational restructuring plan and execution. So, I think that's what we're seeing here. Credit issues or operational issues don't resolve themselves quickly, and it does take time and it's not linear. With these specifically, there's no commonality amongst these. I mean there are others, by the way, that have gone through restructurings and have come out continuing to perform and on a positive path. So, we have a number of those cases that we can talk about as well. But I would say there's no common theme amongst these 3 that went back on.

Then just on the market environment and obviously, the expanded view, I mean, granularity down, like I think you said the new investments like 7.8 million positions. So that's good, right? More diversification in the portfolio. I mean, the comments that like most borrowers are still focused on lowering cost. I mean, I've heard elsewhere, right, like the M&A cycle is starting to pick up. So, I mean, are you still -- it sounds like you're still mainly experiencing refinancing activity rather than new borrower activity. I mean, how do you expect that to evolve over the next, I would say, 12 months, but that's a long time to project anything.

It is. So, I think your comments about seeing a lot of refinancings, that is certainly how I'd characterize deployment in the past several quarters, largely in the market as well. I think the thoughts around M&A activity picking up, we are seeing that, and we are seeing new platforms, sponsors coming in and bidding on assets and a lot of deals in the pipeline really picking up. So, I would say that's probably a leading indicator of hopefully higher volumes in the next several quarters. But in terms of actual deployments, we're seeing refinancings, incremental add-ons on our existing portfolio as being kind of the predominant source of deployment, probably closer to 50% at this point or last quarter rather. And on -- sorry on portfolio diversification is a good one. We've been -- since this management team really came in at the end of last year, we've really been focused on that portfolio diversification point so that we don't -- this portfolio doesn't fall victim to a lot of the concentration issues that it had previously. So, we've had 31 new investments this year at an average position size of $7 million to $8 million, and that's a stark contrast to how this portfolio was managed previously.

And then last one, I mean, are you seeing any -- and not just in the portfolio, but more broadly, even in deals that get reviewed, are you seeing any incremental indicators of stress? I mean, obviously, there's been some headlines. You don't have exposure to that in general. But are you seeing any areas of concern either in the portfolio, obviously, but also in like deals that are coming over the desk? Is there an increasing number of like any commonality between -- about why they're being rejected by or anything like that?

Yes. We're certainly always focused on credit risks in the portfolio and in new deals that we evaluate every week. Some of the common themes are, of course, always focusing around more cyclical names, really trying to understand vulnerabilities to a softer cycle or softer macro environment. And then with respect to software, a lot of folks have been talking about AI, and that's real, really trying to understand -- and by the way, not just software for any other kind of business process, really trying to understand the risks around AI in terms of displacing or if that borrower has a strong competitive solution there on the AI solution themselves. So those are some of the things that we're commonly talking about. But with respect to other specific industry sectors, nothing right now that are atypical risk factors that we wouldn't otherwise be discussing. Sure, we're talking about tariffs still. We're talking about geopolitical risks in those areas, too.

[Operator Instructions] At this time, we have no further questions on the call. So, I will hand back to management for closing comments.

Thank you, everyone, for dialing in and streaming on the webcast, and I'd like to thank our team for their continued efforts and hard work around the portfolio. Please contact us with any questions, and have a great day.

Thank you. This concludes today's conference call, and you may now disconnect.

Good afternoon, and welcome, everyone, to BlackRock TCP Capital Corp.'s Second Quarter Earnings Call. Today's conference call is being recorded for replay purposes [Operator Instructions].

Now I would like to turn the call over to Alex Doll, a member of BlackRock TCP Capital Corp.'s Investor Relations team. Alex, please proceed.

Thank you, operator. Before we begin, I'll note that this conference call may contain forward-looking statements based on the estimates and assumptions of management at the time of such statements and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties, and actual results could differ materially from those projected. Any forward-looking statements made on this call are made as of today and are subject to change without notice. Additionally, certain information discussed and presented may have been derived from third-party sources and has not been independently verified. Accordingly, we make no representation or warranty with respect to such information.

Earlier today, we issued our earnings release for the second quarter ended June 30, 2025 and posted a supplemental earnings presentation to our website at www.tcpcapital.com.

To view the slide presentation, which we will refer to on today's call, please click on the Investor Relations link and select Events and Presentations. These documents should be reviewed in conjunction with the company's Form 10-Q, which was filed with the SEC earlier today.

Now I will turn the call over to our Chairman, CEO and Co-CIO, Phil Tseng.

Thank you, Alex, and thanks to all of our investors and analysts for joining us today. I'll begin today's call with a high-level overview of our performance for the second quarter. Our President, Jason Mehring, will then provide details on our portfolio and investment activity and Eric Cuellar, our CFO, will review our financial results. Following Eric's remarks and before we open the call up to questions, I'll provide an update on BlackRock's recent acquisition of HPS and the strategic benefits it brings to TCPC. We're also joined today by Dan Worrell, our Co-CIO, who will be available to answer your questions.

Now I'll begin with an overview of our second quarter performance, full progress in reducing nonaccruals, which declined to 3.7% of the portfolio's fair market value, down from 4.4% last quarter and 5.6% at the end of 2024. That said, NAV declined during the quarter, primarily due to marks on previously restructured portfolio companies rather than any new credit issues.

Turning to more detail on nonaccruals. We removed 4 large investments from nonaccrual status this quarter, including in moment, CelleRx, Lithium and Renovo. We are pleased with this steady improvement. However, progress is not linear and situations can remain dynamic as the companies implement their turnaround plans.

We also added 4 investments to nonaccrual. These additions, Thrasio, Fishbowl, Brook Whittle and 4840 fall into 2 main categories. In the first category, we have companies that have been restructured and are continuing to demonstrate uneven performance. This includes Thrasio and Amazon Aggregator and Fishbowl, a marketing platform that helps restaurants drive guest engagement.

In our experience, restructured companies often experience some level of volatility in their financial results as they work towards long-term recovery. As you may recall, Thrasio was restructured in early 2024. We placed the company on nonaccrual this quarter following a recent agreement to extend pick interest for another 12 months. This extend provides management with the time needed to continue executing on key strategic initiatives, including streamlining the brand portfolio and diversifying beyond Amazon. It also allows the company to navigate macro uncertainties, including tariff policy changes and potential softening in consumer confidence.

Despite the PIC extension, we are encouraged that Thrasio's performance continues to improve with the support of several standout brands that are delivering strong results in their respective categories.

Fishbowl, which underwent a restructuring in 2022 continues to make progress on its turnaround strategy with improved bookings. Despite the bookings momentum, near-term liquidity remains constrained. As a result, we decided to place the credit on nonaccrual. However, Fishbowl continues to meet its interest obligations through PIC interest.

The second category of underperformance includes companies that are being impacted by lower demand. principally due to shifts in consumer purchasing behavior. One example is 4840, a shipping and packaging service provider, which we discussed last quarter. In light of 4840's recent performance and outlook, we decided to place it on nonaccrual. In a similar situation, Brook & Whittle, a sustainable packaging and label manufacturer has felt the effect of customers trading down to lower cost providers to reduce their expenses. We are actively engaged with the management teams of each one of these portfolio companies as they work to address operational challenges and improve performance.

In the second quarter, we marked down our position in AutoAlert, an automotive data analytics platform. As part of our restructuring in March of 2023, we assumed control of the company. And since then, its performance has improved. Even so, valuations for similar companies in the sector have recently come down. and our third-party valuation providers adjusted AutoAlert's valuation to reflect those broader market trends.

We also substantially marked up several portfolio companies this quarter. Our largest gain was on Domo, a publicly traded cloud software company. We marked this investment up following a better-than-expected earnings report in the first quarter and are confident that Domo is on the right track for continued outperformance.

Now turning to our dividend. Our Board declared a second quarter dividend of $0.25 and a special dividend of $0.04 per share, both of which are payable on September 30 to shareholders of record on September 16. As part of our commitment to supporting our shareholders, we also repurchased 40,830 shares of TCPC stock this quarter.

Now I'll turn the call over to Jason to address our portfolio in more detail as well as our recent investment activity.

Thanks, Phil, and welcome, everyone. During the second quarter, we remained focused on selectively deploying capital into opportunities directly aligned with our stated investment strategy. As a reminder, this includes investing in the core middle market, maintaining a well-diversified portfolio, prioritizing bursting loans and leveraging the extensive resources of the BlackRock platform to optimize your opportunity set.

Since the start of the year, we invested $178 million in 13 new and 11 existing portfolio mix. Our average position size this year has been granular at $7.4 million lower than in prior years and in line with our overall diversification strategy. All of these investments were first lien loans, and we have continued to focus on companies supported by long-term growth drivers with strong fundamentals that exhibit economic resilience. In addition, repeat borrowers remain an important source of originations, and existing portfolio companies have accounted for 51% of our investment dollars year-to-date.

Now I'll discuss 3 investments we made this quarter to illustrate how we're executing our strategy, particularly our emphasis on acting as a lender of influence. In each transaction, BlackRock served a view of the sole or lead lender. First, we invested $4.1 million as part of a $160 million first lien financing for the difference card or TBC. TBC enables small and midsized businesses to lower health care expenses repairing high deductible health plans with employer-funded reimbursement programs. allowing them to offer competitive coverage and reduce cost. We were drawn to TBC's 20-plus year operating history, high customer retention rates and ability to deliver meaningful savings to employers. The company benefits from a predictable recurring revenue model with healthy margins and loan capital needs, resulting on cash flow generation.

In addition, the transaction was structured with downside protection and supported by a conservative loan-to-value profile. This investment aligns with our strategy of backing resilient, capital-efficient businesses and essential less cyclical sectors like health care, and our platform is able to serve as the lead lender in this transaction.

Second, we invested $6.9 million as part of a BlackRock lead $150 million first lien credit facility in Dragos a leader in protecting operational technology and industrial control systems from cyberattacks. Dragos serves critical infrastructure sectors such as oil and gas and utilities, where its deeply embedded platform provides real-time threat detection and risk mitigation. Dragos has a large addressable market and is poised to benefit from favorable regulatory and secular tailwinds. We invested in Dragos due to its strong market position, mission-critical offering with high switching costs, impressive annual top line growth of more than 50% and improving profitability. This deal highlights our emphasis on originating senior secured loans through resilient high-growth businesses in less -- sectors and was structured with drawing downside protection.

Third, we invested $10 million as part of the $205 million first in credit facility in Brown & Settle, a leader in site development for the construction of large commercial buildings such as data centers. Brown & Settle is well positioned for sustained growth, supported by a fully contracted backlog, strong relationships with blue-chip general contractors and a significant footprint in Northern Virginia, one of the world's largest and fastest-growing data center hubs. This investment also reflects our focus on originating senior secured loans to middle-market borrowers and sectors that are benefiting from long-term tailwinds.

BlackRock was the sole provider of the credit facility, which includes a [ $180 million ] term loan and a $20 million revolver. This investment was sourced directly from the sponsor and structured to support Brown & Settle's continued growth while providing downside lender protection.

At the end of the quarter, our portfolio had a fear market value of approximately $1.8 billion, invested across 153 companies in more than 20 industry sites. Our average investment size was $11.7 million or 65 basis points of the portfolio. The vast majority or 89% of that portfolio was invested in senior secured debt, all of which was in floating rate instruments. Investment income remains broadly distributed across our diverse portfolio with 76% of portfolio companies each contributing less than 1% of total company. The weighted average annual effective yield of our portfolio was 12% in the second quarter compared to 12.2% in the prior quarter. New investments had a weighted average yield of 10.8%. Although we exited carried an average yield of 10.5%.

Now I'll turn the call over to Eric, who will walk through our financial results and capital and liquidity positions.

Thank you, Jason. I will begin with a review of our financial results for the second quarter. As detailed in our earnings press release, adjusted net investment income excludes the amortization of the purchase accounting discount resulting from our merger with BCIC and is calculated in accordance with GAAP. A full reconciliation of adjusted net investment income to GAAP net investment income as well as other non-GAAP financial metrics is included in our earnings press release and 10-Q.

Second quarter adjusted net investment income was $0.31 per share and gross investment income was $0.61 per share in the second quarter. This compares to $0.36 and $0.66 per share, respectively, in the first quarter. This quarter's gross investment income included recurring cash interest of $0.48 per share nonrecurring income of $0.01, recurring discount and fee amortization of $0.03 PIK income of $0.07 and dividend income of $0.02 per share. PIK interest income represented 11.4% of total investment income, down from 11.6% last quarter.

Operating expenses for the second quarter were $0.28 per share, including $0.20 per share of interest and other debt expenses. As of June 30, 2025, our cumulative total return did not exceed the total return hurdle. And therefore, no incentive compensation was accrued for the second quarter. Additionally, we waived a portion of our base management fee again this quarter in line with our advisers decision to waive 1/3 of our base management fee for the first 3 quarters of 2025.

Net realized losses for the quarter were approximately $66 million or $0.78 per share, driven by the restructuring of our investments in CelleRx Chorus in Moment and renewal. These losses were already substantially reflected in last quarter's NAV. Net unrealized gains were $23 million or $0.27 per share, primarily reflecting the reversal of previously recognized unrealized losses from the restructuring of the investments I just mentioned, partially offset by unrealized losses in AutoAlert and Brook & Whittle. The net decrease in net assets for the quarter was $16 million or $0.19 per share.

As of June 30, 8 portfolio companies were on nonaccrual status, representing 3.7% of the portfolio at fair value and 10.4% at cost. This is down from 4.4% and 12.6%, respectively, as of March 31. The remainder of our portfolio is performing well. As Phil noted, we continue to work closely with our borrowers, their sponsors and creditors to optimize our recovery value.

Now I'll discuss our balance sheet and liquidity position. Our balance sheet remains strong. Total liquidity at quarter end was $566 million, including $455 million of available leverage and $107 million in cash. Unfunded loan commitments represented 8.6% of our $1.8 billion investment portfolio or approximately $154 million including $64 million in revolver commitments. Net regulatory leverage was 1.28x at quarter end. Compared to 1.13x in Q1, which was slightly above our target range of 0.9x to 1.2x. The increase was primarily due to the timing of new investments late in the quarter, a delay in expected repayments and a decline in NAV.

Based on our current outlook, we expect third quarter leverage to return to approximately the levels reported in Q1. Our diversified leverage program includes 3 low-cost credit facilities, 3 unsecured note issuances and an SBA program. The weighted average interest rate on debt outstanding at quarter end was 5.2%, unchanged from the prior quarter.

Subsequent to quarter end, we repaid the remaining $92 million outstanding of our 2025 notes. The first step addressing our upcoming maturities. At the end of July, we extended the maturity of our $200 million funding to credit facility to support future investment activity. Looking ahead, we are taking proactive steps to manage our capital structure, including evaluating the best alternatives to refinance our 2026 notes.

Now I'll turn the call back to Phil for his closing remarks.

Thank you, Eric. Now I will provide an update on BlackRock's recently completed acquisition of HPS and the benefits to provide TCPC. Our entire team is very excited to join forces with HPS. This acquisition positions BlackRock to capitalize on the enormous opportunities that lay ahead in private credit. To fully capture those, BlackRock and HPS created a new platform called Private Financing Solutions, or PFS. PFS combines the firm's private credit and GPLP solutions and liquid and private credit CLO businesses into one single integrated platform.

With more than $280 billion total assets under management, PFS is well positioned to provide both public and private income solutions. We expect TCPC to benefit from the PFS platform in several ways. First, BlackRock is centralizing its private investment sourcing and origination teams within PFS to maximize collaboration and effectiveness. TCPC will continue to directly source investments and will also leverage PFS' extensive deal sourcing and original capabilities to expand our pipeline.

Second, the new PFS platform enhances our investment expertise and resources. With decades of experience executing thousands of successful private credit transactions spanning performing and special situations across market cycles we are already benefiting from the team's deep experience, knowledge and insights. We recently welcomed 3 senior credit investors from HPS, our Investment Committee, and expect our close collaboration with the Bunder PFS team will enhance our sourcing, underwriting and portfolio management capabilities now and over the long term.

Third, BlackRock is now positioned as one of the few firms that can lead large product credit transactions. We're excited about the opportunity to participate in larger transactions where we are a lender of influence and that offer compelling risk-adjusted returns.

In closing, while we are disappointed by the additional markdowns to our portfolio this quarter, we made progress in reducing nonaccruals and in sourcing attractive investments that position our portfolio to return to historical performance levels. Our entire team continues to focus on diligently working through portfolio challenges to deliver the best possible outcomes for our shareholders. I want to thank our investors and analysts for your continued patience and support. We appreciate it, and we'll continue to keep you apprised of our progress.

I'll now turn the call to the operator to open the call for questions.

[Operator Instructions]. Our first question today comes from Paul Johnson with KBW. Please go ahead, Paul.

I guess you outlined some of the changes that have been made with the private financing solutions kind of reorganization, I guess, within BlackRock. But you added a few new people at the investment committee. How does that change the investment process going forward, aside from kind of the benefits that you're trying to pull from the broader BlackRock and HPS sort of combined platform now? I mean is there anything notable that you guys are implementing with the new investment team members?

Paul, thanks for the question. I think it's an important one to understand the combined process and resourcing looks like, for sure. So certainly, changes, as we described in the call on the investment process first will be on the front end on the origination and sourcing side. We described that PFS will be centralizing all originations. So the idea there being to leverage the the depth of our resources with both private equity sponsors, advisers, intermediaries, banks and so on to ensure that the best middle market deals do get to the right home. So that's absolutely critical, and we're actually seeing in the past 5 weeks that we've been together, have started seeing deals that we otherwise wouldn't have seen. So I think that's certainly a positive.

With respect to our investment process, we are continuing to do our normal process around our investment committee, but we have our portfolio management process as well. That is being absolutely supplemented with the engagement of the HPS professionals, both those that are formally on our investment committee, but also much broader than that. So that's obviously very welcomed. We do think that our experience in the market in direct lending has been vast, but layering on to that, the vast experience of HPS and their decades of experience across direct lending and other credit strategies certainly is accretive to us.

I'll also add that HPS resources do come with depth on the restructuring side and portfolio management side. So there is a substantial group within HPS, that's now within PFS. That we have started to tap into. In fact, we've had a number of these restructuring professionals engaged in our portfolio companies already. And those are your financial legal restructuring professionals, but also post restructuring -- improvement, private equity-type restructuring professionals. So we've already started engaging with them. They're on a number of our portfolio companies. We have had those resources as part of BlackRock, but certainly enhancing our capabilities there is hopefully accretive to recovering value for some of our portfolio companies.

Got it. I appreciate that, Phil. And I guess kind of tagging on to this, I have touched on some of this here in your response, but BlackRock is scaling to be fast, obviously with the HPS acquisition here. And still seems like there's a lot of secular growth here left in the industry. I imagine BlackRock's kind of be looking to that. But I mean for TCPC, how do you, I guess, ensure through this period of growth. I think the sector will continue to experience continues to get the proper access and proper resources from the platform and avoid kind of falling too low and priority or falling to, I guess, off the advisers kind of priority list in terms of management, I'm sure that continues to get access to all these resources.

Yes, that's a great question. And I think that folks can be assured that TCPC is an important strategic priority and overall priority for the PFS platform in BlackRock. Keep in mind, TCPC is the only publicly traded BDC on the PFS platform. There are certainly other vehicles and pools of capital within PFS direct lending, but TCP is important. And based on our engagement and involvement, like I said, with the new committee members with the engagement outside of the committee members across our investment process, whether it's origination, underwriting or portfolio management or restructuring the engagement is deep. And so I would certainly attest to the importance of TCPC to HPS leadership as well as BlackRock.

Appreciate that. And then last question was just on AutoAlert, just on the markdown this quarter. Do you say the company was performing well but it sounds like the mark this quarter was driven more due to comps? Or was there any sort of kind of performance-related mark in that asset as well this quarter?

Yes. So our comment on AutoAlert was that the performance has improved since we restructured and took over the company. So it has made some improvements certainly on both revenue but the valuation decline was more driven by the comp. So market multiples and value associated with these automotive data analytics providers.

Our next question comes from Robert Dodd with Raymond James.

On -- you cover, obviously, you want to be a lender of influence, which obviously, I think we know why you on that. Now as a whole platform can obviously be a lender of an influence without TCPC that early being a big piece of any given loan. So should we -- how should we think about that? Is TCPC going to take more diversified smaller bite sizes, but is going to be a lender of influence in the transaction? Or is it that you want TCP itself to be that lender of influence, in which case the bite sizes might be a little larger than they would be if it was more platform an influence?

Thanks, Robert. Yes. So you saw in the last couple of quarters of deployment, our average size coming out of TCC was around $11 million, plus or minus. So clearly, TCC in and of its leading transactions. And so TCPC, as we've always kind of spoken about get the benefit of being part of a larger platform and getting allocations of these deals similar to many of our peers in the BDC world. So it's no different now with the addition of HPS or broader PFS. So there will be deals that we are now able to speak for the entirety of certainly lead, co-lead and at least be a lender of influence. And I think the percentage of those deals will increase and TCPC will get allocations to those deals. This can looking at the last couple of quarters in and of itself, that sees happening already. So of the deals we've done in the last 2 quarters, I think I would say at least 90% of them have been solar co-lead.

Got it. And then one more, if I can. I mean understood. One more second. On the point the write-downs in a lot of cases were already previously restructured assets. And it's not just your portfolio, we've seen it elsewhere where restructured assets are going through in focus as a second round of problems. Is there -- is there I see maybe first restructurings aren't as aggressive as maybe they should be. And then this is more about the restructuring market and the workout approach because it does seem to, again, not just you or not just TCPC, where we're seeing more of these things kind of revisit write-downs or nonaccrual or whatever, even after going through the process once, and it's happening more often to assets that have been through the process once, then potentially to new assets that are -- so any thoughts there on like do restructurings adjusted, do they need to be more aggressive than they have been?

I think it's difficult to say, Robert, I think it's a case-by-case basis. I think there are market conditions or economic conditions or macro, the background environment certainly has something to do with as well, right? If the higher rate environment stays higher for longer, does that impact demand? And -- or does inflation impact customer demand and so on. I think some of these estimate forecast in the macro side could have an impact on companies just like they do in new underwriting. So I think in hindsight it's always 2020, but restructured businesses, they are in challenging situations when they are going through restructuring. And as you know, the recoveries and performances of these businesses are not linear, right, in terms of their recovery. So we're working extremely hard with the management teams of each one of these businesses to address the operational challenges and work to improve performance. And I think over time, we've been on the right side of those outcomes and we're hoping to deliver on that again.

Got it. Thank you.

[Operator Instructions]. At this time, we have no further questions registered. And so I'll hand the call back to Phil Tseng for closing comments.

I'd like to thank our team for their continued efforts and our investors and our analysts for your support. Please contact us with any questions, and have a good day. Thank you all.

Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.