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TCP Capital Corp  (NASDAQ:TCPC)
Q4 2018 Earnings Conference Call
Feb. 28, 2019, 1:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, good afternoon. Welcome everyone to the BlackRock TCP Capital Corp.'s Fourth Quarter and Full-Year 2018 Earnings Conference Call. Today's conference call is being recorded for replay purposes. During the presentation, all participants will be in a listen-only mode. A question-and-answer session will follow the Company's formal remarks. (Operator Instructions) And now, I would like to turn the call over to Katie McGlynn, Director of the BlackRock TCP Capital Corp. Global Investor Relations team. Katie, please proceed.

Katie McGlynn -- Vice President

Thank you, Candice. 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. This morning, we issued our earnings press release for the fourth quarter and full-year ended December 31st, 2018. We also posted a supplemental earnings presentation to our website at 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 & Presentations. I will now turn the call over to our Chairman and CEO, Howard Levkowitz.

Howard Levkowitz -- Chairman and CEO

Thank you, Katie. I'm here with our TCPC team and we thank everyone for participating on our call today. I will begin with an overview of our key accomplishments for 2018 and then our CFO, Paul Davis, will review our financial results. After Paul's comments, I will provide some closing remarks before opening the call to your questions.

As summarized on Slide 4 of our presentation, 2018 was an active year for TCPC as we continually looked for opportunities to create value for our shareholders. Earlier this month, our shareholders voted overwhelmingly to approve an increase in our regulatory leverage limitation. This provides TCPC with additional operating and regulatory flexibility. Along with this change and in line with our commitment to maintaining an investor-friendly fee structure, we lowered the management fee to 1% on assets financed with leverage greater than 1:1 (ph) and lowered our incentive fee to 17.5%. We also maintained our cumulative total return hurdle while lowering the hurdle rate to 7%.

Second, we were pleased that S&P affirmed our investment grade rating after we adopted the modified asset coverage ratio. Moody's also initiated an investment grade rating for TCPC, making us one of only a few BDCs with investment grade rating from both Moody's and S&P. This is an affirmation of our strong long-term track record in private credit investing and ensures we are well-positioned to maintain our diverse funding sources and low cost of financing.

Third, we continue to seek debt financing on attractive and shareholder-friendly terms. Toward this effort in February of last year, we refinanced our SVCP credit facility with a new ING facility at LIBOR plus 2.25%. And in June, we renegotiated the terms on our TCPC funding facility reducing the interest rate by 50 basis points and extending the mature date to 2022.

Finally, on August 1, our advisor successfully merged with a subsidiary of BlackRock. As a result, TCPC shareholders benefit from the greater scale and resources available to our advisor including an enhanced ability to source transactions. We also committed to lowering the administration expense ratio and gained access to new technological capabilities as part of the transaction.

Before moving on to highlights from the fourth quarter, I'd like to make a few comments on the market environment. As you are aware, there was significant market volatility across asset classes in the quarter. The S&P 500 fell 14% and the NASDAQ lost nearly 18%, its biggest quarterly fall since 2008. Credit markets experienced similar volatility as traded leverage loan and high yield indices fell nearly 5%. While the underlying credit performance of our portfolio was strong and the impact of the year-end volatility on middle market loans was less pronounced, the disciplined and comprehensive third-party valuation process we have used since 1999 reflected the decline in valuations that occurred across asset classes between September 30th and December 31.

Our NAV declined from $14.51 to $14.13 in the fourth quarter with more than 90% of the markdowns resulting from the market disruption we saw in the fourth quarter. Our realized loss was from previously markdown positions. Although this market dislocation quickly reversed in January, it's worth remembering that while these periods can create a short-term mark-to-market volatility in our existing portfolio, when more extended, they can also present investment opportunities for long-term fundamental credit investors like BlackRock TCP.

Now, on to highlights from the fourth quarter. As shown on Slide 6, we earned net investment income of $0.40 per share in the fourth quarter, out-earning our dividend by $0.04 and extending our record of net investment income covering our dividend to 27 consecutive quarters. This was accomplished despite a relatively low level of repayment income in the quarter. And today we declared a first quarter dividend of $0.36 per share payable on March 29 to shareholders of record as of March 15.

We delivered another strong quarter of originations totaling $176 million as new and existing borrowers sought our industry expertise and our flexible and tailored financing solutions. Dispositions in the quarter were $117 million resulting in net acquisitions of $59 million. Although 2018 was an active year for originations, we maintained our disciplined investment approach. We continue to review a significant number of investment opportunities that execute only a small fraction of those deals.

Turning to our investment portfolio on Slide 7, at quarter-end, our portfolio had a fair market value of $1.6 billion, 92% of which was in senior secured debt. We held investments in 95 companies across a wide variety of industries. Our largest position represented only 3.3% of the portfolio and taken together, our five largest positions represented only 15.5% of the portfolio.

As you can see in the chart on the left side in Slide 7, a recurring income is distributed across a diverse set of portfolio companies. We are not reliant on income from any one portfolio company. In fact, on an individual company basis, over half of our portfolio companies contribute less than 1% to our recurring income. Additionally, over the last several years, we have positioned our portfolio to benefit from a rising rate environment. At quarter-end, 93% of our debt investments were floating rate as demonstrated on Slide 8. Our successful efforts to position our portfolio have been further enhanced by our primarily fixed rate liabilities. Finally, we increased the capacity of our SVCP facility by $45 million, bringing the total capacity to $170 million.

As I noted earlier, we deployed $176 million in the fourth quarter, substantially all of which was in senior secured loans and notes. These included investments in seven new companies and seven existing portfolio companies. Follow on investments in existing portfolio companies continue to be an important source of investment opportunities and reflect our strong borrower relationships and the value we deliver to them. We also continue to focus on underwriting investments where we are the lead or co-lead underwriter, leveraging our industry expertise and allowing us to set deal terms with solid creditor protection. Our top five investments in the fourth quarter, evidence our commitment to maintaining a diversified portfolio and lending at the top of the capital structure. They include a $40 million senior secured asset backed loan to PSEB LLC, a multi-branded, multi-channel retailer; a $21 million senior secured loan to NEP Group, a broadcast and live events solution provider and a long time borrower that has performed well and as a result refinanced its capital structure; a $16 million senior secured loan to Certify, an expense management solutions provider; a $15 million senior secured loan to support a refinancing of our existing borrower InMobi which is a global provider of enterprise platforms for mobile and marketing; and a $12 million senior secured loan to BendDip, a long time borrower and a provider of cloud-based risk management claims and safety software solutions.

Our other investments in the fourth quarter provide exposure to a variety of industries including business services, software, social media, marketing, and real estate. Dispositions in the fourth quarter were $117 million. These included a $24 million payoff of our loan to Asentinel, a $12 million payoff of our loan to NEP Group associated with the refinancing mentioned above, and a $10 million payoff of our loan to Gladstone. New investments in the quarter had a weighted average effective yield of 11.4% and the investments we exited during the quarter had a weighted average yield of 10.9%. The overall effective yield on our debt portfolio at quarter-end was 11.4%. TCPC's consistent strong performance has been a function of our long-term relationships with deal sources, portfolio companies and other constituents, our deep industry knowledge and our disciplined approach to sourcing underwriting and managing our portfolio.

As shown on Slide 9, our dividends have returned $9.92 per share since our IPO in 2012 and as demonstrated on Slide 10, TCPC has outperformed the Wells Fargo BDC Index by 52% over the same period. Over the past few years we have seen many new entrants into direct lending and substantially more capital seeking investment opportunities in the middle market. Against this backdrop being part of the world's largest global asset manager greatly enhances our ability to source deals and build upon TCP's successful 20-year track record in direct lending. Now I will turn the call over to Paul who will discuss our financial results. Paul?

Paul Davis -- Chief Financial Officer

Thanks, Howard and hello everyone. Starting on Slide 15, we generated net investment income in the fourth quarter of $0.40 per share, exceeding our dividend of $0.36 per share. On an annual basis, net investment income was $1.59, substantially out-earning our dividends for the year. This extends our nearly seven-year record of covering our regular dividend every quarter since we went public. Over this period, on a cumulative basis, we've out-earned our dividends by an aggregate $34 million or $0.58 per share based on total shares outstanding at year-end.

Investment income for the fourth quarter was $0.82 per share, substantially all of which was interest income. This includes recurring cash interest of $0.67, recurring discount and fee amortization of $0.03 and recurring PIK income of $0.08 (ph) as well as $0.04 per share from prepayment income including both prepayment fees and unamortized OID. Our income recognition follows our conservative policy of generally amortizing upfront economics over the life of an investment rather than recognizing all of it at the time the investment is made.

Operating expenses for the fourth quarter were $0.42 per share and included incentive compensation of $0.10 per share and interest and other expenses of $0.18 per share for net investment income of $0.40 per share. As Howard noted, earlier this month on February 8th, our shareholders approved a reduction to our fees reducing our incentive fee rate from 20% to 17.5%, reducing our management fee rate from 1.5% to 1% on assets financed using leverage over 1:1 (ph) and reducing our cumulative hurdle rate from 8% to 7%. These reductions became effective the day following the vote.

Had the reduced incentive fee been in effect during the fourth quarter, the impact to our net investment income would have been additional net earnings of more than $0.01. Net markdowns during the quarter of $24.4 million came primarily from mark-to-mark adjustments in connection with year-end volatility as Howard noted. Although the non-traded middle-market tends to be more insulated from this market volatility, our consistent and disciplined valuation process factored in price movements from the traded markets and our comp sets. Our net realized loss of $30 million came primarily from the sale of our position to Real Mex, a legacy special situations investment from before our IPO which had already been marked down on an unrealized basis in prior quarters. Our credit quality remains strong with none of our debt investments on non-accrual at year-end.

Turning now to Slide 19, we closed the year with total liquidity of $255.0 million. This includes available leverage of $228 million and net cash of $27 million. During the fourth quarter, we increased the capacity of our SVCP revolving credit facility by an additional $45 million to $170 million, further expanding our diverse lending program which includes two low-cost credit facilities, two convertible note issuances, a straight unsecured note issuance and an SBA program. Outstanding draws on our $150 million SBA program remained at $98 million at the end of the year. Regulatory leverage at year-end which is net of SBIC debt was 0.86 times common equity on a gross basis and 0.83 times net of cash and outstanding trades. In connection with fairvote (ph) to reduce our fee rates earlier this month, our shareholders also approved a reduction of our minimum asset coverage ratio from 200% to 150% which also went into effect on February 9th. As a result, we now have additional flexibility to modestly increase our leverage should it be prudent in the investment environment.

After considering this amendment to our asset coverage requirement, Standard & Poor's reaffirmed our investment grade rating during the quarter and Moody's initiated coverage of the TCPC also with an investment grade rating, making us one of only three investment grade rated BDCs with two to one leverage. With our stock trading at a small discount to NAV during the quarter, we made modest share repurchases under our algorithm based share repurchase program. I'll now turn the call back over to Howard.

Howard Levkowitz -- Chairman and CEO

Thanks, Paul. 2018 was a year of volatility with negative investment performance in almost all major asset categories. In this environment of idiosyncratic company and industry shifts, we are reminded of the importance of our patient and disciplined investment approach. We believe we are well-positioned for the current investment environment for several reasons.

Our 20 plus years of experience which spans several market cycles is a key advantage in attracting borrowers and deal sources as well as managing risk. Additionally, a robust platform gives us the ability to source unique and attractive investment opportunities. Joining the BlackRock platform has further enhanced our deal flow supporting our selective approach to underwriting. As the lead or co-lead on the majority of the loans we underwrite, we take an active role in due diligence, deal structuring, establishing terms and monitoring investments. The direct relationship we form with borrowers as part of this process helps to protect TCPC and it shareholders.

BlackRock TCP's team is structured so that the deal team members source, structure and monitor investments to ensure interests are aligned over the life of an investment. And finally, the Blackrock TCP team has deep experience in both performing and distressed credit and we use this experience to structure deals that are downside protected. Looking forward, we continue to leverage our risk mitigated platform to pursue attractive investment opportunities. In the first quarter to date including a loan we funded this morning, we have invested approximately $107 million primarily enforced (ph) senior secured loans. The combined effective yield of these investments is approximately 10.2%.

In closing, we remain relentlessly focused on generating superior risk adjusted returns for our investors while preserving capital with downside protection. We would like to thank all of our shareholders for your confidence and your continued support. And with that operator, please open the call for questions.

Questions and Answers:

Operator

(Operator Instructions) And our first question comes from Chris Kotowski of Oppenheimer. Your line is now open.

Chris Kotowski -- Oppenheimer -- Analyst

Yes, good afternoon. I mean I guess the quarter seemed fairly straightforward, but I guess between covering the dividend 27 times in a -- quarters in a row and all else being equal, the reduction in the incentive fee should increase earnings and leverage would conceivably increase earnings, and your 30% bucket is under underutilized and could be utilized and I guess just philosophically, is there room to drive up the base dividend or is the philosophy that a 10% plus yield is a darn good place to be and no need to push that up and just keep generating it with less risk? Philosophically, how do you think about earnings and dividend in light of all that?

Howard Levkowitz -- Chairman and CEO

Chris, thanks for the question. Starting with the end of your question, we think your statement is spot on. The level of yield in an absolute low-yield environment we think is attractive to investors on a risk-adjusted basis and an absolute basis. Having said all of that, the math you did was all very sensible. It's something that we are thinking about. As you're aware, our shareholders just voted overwhelmingly to give us the ability to increase leverage and we've been earning our dividend very comfortably without that. So as we talk about our Board we will continue to assess our dividend policy going forward.

Chris Kotowski -- Oppenheimer -- Analyst

Okay and I guess just secondarily on the market in general, I mean, I honestly cannot remember a December kind of quite like the one we just had and I'm wondering if the transaction that you've closed in recent weeks, were they impacted by that at all or is what you've closed mainly a function of what you were working on in October and November, and December didn't really have an influence on it or did December change kind of the tone, outlook, pricing in your trend dealings with sponsors and other borrowers?

Rajneesh Vig -- President and Chief Operating Officer

Hi, Chris, it's Raj, I'll take that one. I agree with you, December was an interesting, but very, you know, in the scheme of things quick and finite period. At the margin, it probably helped a little bit in defending and sticking to certain terms, maybe improving them marginally, but I wouldn't characterize it as a long-lasting change -- fundamental change in the market, but that being said, I think we've always taken a bit more of a differentiated, defensive approach to stick to our knitting and stick to our guns on the things that are important to us. So it helped at the margin, but I wouldn't read more into it than that and it was obviously a reasonably quick reversal on a number of things that will flow through Q1 I believe.

Chris Kotowski -- Oppenheimer -- Analyst

Okay, that's it from me. Thank you.

Operator

Thank you. And our next question comes from Robert Dodd of Raymond James. Your line is now open.

Robert Dodd -- Raymond James -- Analyst

Hi guys, one quick follow-up to that one. On the reversal of what happened in Q4, can you give us any color, a rough opinion of how much of the NAV markdown that you experienced is kind of back if we would look at values today, obviously, the range referred as anywhere from here kind of 40% to two-thirds, I mean, where would you characterize your portfolio mix in that -- the reversal?

Howard Levkowitz -- Chairman and CEO

Yes, there's been a substantial snapback. We're not going to give an absolute number for two reasons. One is the quarter is not yet over. And as we've seen volatility can continue and the other thing is although we flow through prices on a lot of our marks on a very regular basis, they don't all flow through at the same time. So it would be a little bit of mixed and matched numbers if we did that and we like to whenever we give out any disclosure make sure that it is completely consistent, but directionally, what you're saying is absolutely accurate. The snapback has been dramatic and very noticeable and I think a lot of the markdowns, certainly on liquid securities in our book were not a function that anything was actually transacting at that level, but simply based on market spreads and comparables moving down and in some cases on very low or no volume.

Robert Dodd -- Raymond James -- Analyst

Got it, got it. Appreciate that. On the prepaid fee line and I realize obviously it could be volatile, it's really hard to kind of nail down. It was down slightly versus the prior quarter, but we've seen lower amounts even this year. So would you say that there is anything structural you think going forward in prepays that's going to result in it being lower levels in terms of is your portfolio relatively younger with higher rates, is that affecting it and/or did -- obviously, the market volatility deter people prepaying in Q4. I mean, any color on shifting dynamics in that number?

Howard Levkowitz -- Chairman and CEO

Yes, I'll try to give a little color there. I think it's hard to predict is the overarching point. It's always been episodic at a company by company level. I think when rates were falling or people were seeing that to be the case, there might've been a little bit of an element of driving a higher prepay, but I think the flipside is that we are able to monetize our positions longer, I think that's a good thing. I think you'd also see an element where the portfolio itself is generating its own opportunities from existing companies and if you ask me a preference of investing a company you know and one that's performing, I think that's, you know, for the sake of a one-off payment, the ability to have a longer stream of income, that's actually a good trade as well, but to answer your question of something structural or something that will change the dynamic, I don't think that's the case. I think it's just the nature of these companies. Some will grow up and grow out of this segment into maybe a more efficient type of capital market. Some will have an organic or an event that drives a prepayment like a sale of the business, but it's very hard to predict those, but I wouldn't call it any structural change other than the dynamics in the portfolio that have always existed.

Robert Dodd -- Raymond James -- Analyst

Got it, got it. I appreciate that. And then one more if I can, in the fourth quarter, you formed a JV obviously with Newtek, it is public record. The purpose to originate loans -- commercial loans, middle market and small businesses, I mean, historically, and you emphasized it kind of on this call, Howard, your track record is really focused on originating and controlling your loan originations. With this JV, particularly if it's smaller business, what expertise do you guys bring to the table for truly small business given your historic track record is middle market, which I wouldn't exactly call small businesses. So can you give us any more color on what you're doing with that JV and what you bring to the table?

Howard Levkowitz -- Chairman and CEO

Sure. Yes, so I'll try that one as well. I would just say it's early days. I think we find that for select -- we haven't been active in sort of the, what I'll use the phrase the run of the mill or the more normative senior loan JVs where we have deployed that approach or in that 30% bucket, it's trying to find an area where there is a good opportunity, where there is a partnership that makes sense versus doing it entirely ourselves and really where it makes sense is on something that hasn't added origination benefit, absolutely does not outsource control or a diligence or a discipline of making our own decision on capital deployment that I would characterize a Newtek JV consistent with that approach. To answer your question on what expertise we have here, I think it's the same lens we apply to our companies. It's an industry based review. There's probably more of an asset-heavy whether it's real estate or operating assets in the nature of these loans that we will see coming through and you know, we'll asses that as they come in. Again, it's early days, but it's really an additive origination channel deploying our same approach from a company or an asset collateral basis and keeping structures that are very conservative, maybe even more conservative given the segment of the companies we're talking about for downside protection. So I think all of that is very consistent with how we do things in the more traditional middle market with the benefit of the source things that we may not normally source given the size and the location of these companies.

Robert Dodd -- Raymond James -- Analyst

Got it, Appreciate it. Thank you.

Operator

Thank you. And our next question comes from Fin O'Shea of Wells Fargo. Your line is now open.

Finian O'Shea -- Wells Fargo Securities -- Analyst

Hi guys, good afternoon, thanks for taking my question. I'll just start a small question on the funding profile. It looks like you have about $228 million (ph) available, which would bring you, correct me if I'm wrong up to 1.25 (ph) to one and then within that, you have converts due this year. So perhaps this sets the stage for a bit of change, perhaps a larger facility for the private credit family there or on the other hand, perhaps a richer unsecured note profile if you're going to drive higher leverage. So can you give us some context on what's historically been a pretty diverse revolver notes and debentures split, if we can expect any change in the mold going forward?

Howard Levkowitz -- Chairman and CEO

Sure. Thanks for highlighting, Fin and we should note actually, it's morning here, so good morning as well. Thanks for highlighting the diversity of funding on our balance sheet, which is comprised of two distinct, very distinct facilities and three bond yields, two of which are converts in the SBA facility. We very intentionally have staggered our funding sources. None of them is overly large. They're from different sources because we recognize the importance of the right side of the balance sheet and we don't want to be overly dependent on it. And so, we now have the ability or we've currently got aggregate leverage commitments of about $1.40 billion (ph). We now have the ability to take on more assets and more leverage on the balance sheet and we plan to pursue the same process that we have. We have the additional benefit of having the double investment grade ratings from S&P and Moody's, which is great and as we look at our balance sheet going forward, I think it's fair to assume that we will use the same philosophies that is additions to our leverage profile will come from some combination of these different types of sourcings, leverage facilities, bond deals depending on what we find to be more attractive and what gives us the best mix both from a cost basis and a flexibility basis.

Finian O'Shea -- Wells Fargo Securities -- Analyst

Sure, thanks for the color and then perhaps just another global question appreciating your comments earlier on the market disruption being very acute, can you kind of give us a higher level view of what you think despite that it was acute, it was very sharp and felt in all other markets that I'm aware of. Can you give us your view on what that means for private credit that so many transactions went through at the same aggressive terms. It was like the whole episode never happened in our market. Can you give us kind of a view on how this changes your posture perhaps this year going forward?

Howard Levkowitz -- Chairman and CEO

So I think you're highlighting a fascinating issue. Historically, when markets have traded off and you can go back to whatever period of time you want, but in more recent times certainly '08, '09, 2011 with the debt ceiling and the '15, '16, you've seen movement in the private markets not nearly at the same amount or speed, but they've tracked what's going on in the traded markets but as people have pulled back on their terms and as I think you're highlighting, the private deck markets seem to ignore that during the sell-off at year-end and you can reach one of several conclusions given the snap back in the market, you can say those people who didn't change their terms were right and didn't get bothered by all this noise and people who thought the world was ending and it sure looks much more like it did in the fall today. You can also I think rightfully question why is it that people aren't getting more concerned when there is a sell-off in the market and adjusting their terms and keep proceeding simply because they have the liquidity and I guess the way we view it is, we take all of that into account, we take pride in having been long-term providers with long-term locked up capital that don't change your terms. Having said that, we are always constantly assessing what's going on in the traded markets because if there's truly much better value in the traded markets, we like to have the flexibility to go there. You lose some advantages in diligence and documentation, but things are really cheaper and that's a question we were asking ourselves as we were pricing deals at year-end and going into the beginning of the year. Our activity wound up being a little slower than that, but we were looking at that at every deal where are comparable things trading and what is the trade-off there and it does seem that, that was a little less important to a lot of other market participants.

Finian O'Shea -- Wells Fargo Securities -- Analyst

Thank you.

Operator

Thank you. And our next question comes from Christopher Testa of National Securities. Your line is now open.

Christopher Testa -- National Securities Corporation -- Analyst

Hi, Howard. Thanks for taking my questions. Just you had mentioned that your advisor merged with another BlackRock vehicle and obviously BlackRock itself is going to allow you to scale and get a lot more opportunities and sponsor relationships, but just curious given the volatility in the syndicated market, is this creating an environment where certainty of close is getting far more valuable for many different sponsors and have also augmenting your sponsor relationships on top of BlackRock or do you expect that to be relatively the same?

Paul Davis -- Chief Financial Officer

I'll try that one. I think certainty of close is absolutely a value and I think it's always been the case and certainly as we approach the market in our sourcing relationships, it's something that we -- I think we have credibility and lead with, but that certainty of close does stem from the ability to point to a track record, it points from I think an ability to quickly and fundamentally understand the business or a situation. Certainly within the BlackRock context, that continues to exist for us and the broader team. I think we can demonstrate and give that story to a broader audience, which we've been doing with some early signs of benefits across the platform. So the things like, our timing like Q4 adds to that message, even though it was a bit short lived, but to your point, certainty of close among other things is absolutely a value that defined the prior legacy TCP platform and continues to define the platform today with a new and existing sourcing context.

Christopher Testa -- National Securities Corporation -- Analyst

Got it and would you say that given the short bout of volatility that it had some obviously hung deals in the syndicated market. Are you seeing some of those participants come to you who may not have otherwise have done it yet or are you thinking more along the lines of we would need to see sustained volatility in the syndicated market before you're getting more calls from different sponsors that you may not have done business with in the past because they're very scared about the syndicated market?

Howard Levkowitz -- Chairman and CEO

Well, it's some combination of those. So we have outside of TCPC been able to benefit from some of the hung deals. These are things we would look at in TCPC, but just given what we've done to date, we didn't think the asset was appropriate for the kind of stability. I think it's a little bit more volatile than the kinds of things we're looking to originate in TCPC. So cross platform, we are able to take advantage of it, it's helpful to us, it's helpful to our market positioning and I do think also that there are certain like borrowers who have seen this dislocation in another situation we've been involved with, again, outside of TCP capital where I think a borrower waited too long and is now really paying a price for having waited for the public markets. People are realizing that volatility can happen and it can impact you and there's real value to having a long-term counterparty and this is something that before the acquisition by BlackRock, I think TCPC was known for being part of a manager that did what it said and having a long-term track record. There's also no question that now being part of the world's largest asset manager, there's a new group of people that is interested in doing business with us wanting a relationship with us over the long-term and seeing us as being part of a greater solution for their funding needs as they grow their businesses.

Christopher Testa -- National Securities Corporation -- Analyst

Got it, OK, that's great color, Howard. And just I guess looking at basically your ability to source the incumbent borrowers, are you expecting maybe fewer incumbent borrowers and more new companies as you keep expanding on BlackRock's ability?

Howard Levkowitz -- Chairman and CEO

We have a very nice record of renewing incumbent borrowers. If you look at our follow-on financings in our disclosures, we talked to -- about half of the deals we've been doing have been to existing investors and then also when we highlighted our larger investments during this quarter, you will note that Ventiv, InMobi and NEP, those were all existing borrowers. So, three out of the large five were deals that we were doing with existing borrowers. So I would expect us to continue to have a balance of that going forward.

Christopher Testa -- National Securities Corporation -- Analyst

Got it. And one more if I may just, I appreciated the color you gave to Robert on the Newtek JV. Just wondering if you have an idea on how big you think that might potentially be and also how about JV factors NCU (ph) going above 1:1 leverage given that the JV itself is going to increase your all-in economic leverage as well?

Rajneesh Vig -- President and Chief Operating Officer

Yes, I think it's probably early to try and find a -- even if we were well under way, I think it's always going to be opportunistic and making sure that the assets work versus targeting a certain size. I think the market is a big one in terms of that segment for companies, but we'll be very judicious in how we deploy into it. So I don't want to quote something that is implied that we're targeting certain size versus economics. In terms of the leverage, the leverage on the JV, those will be essentially at the JV level. So for us, it will be very consistently the equity portion of it in the context of leverage in our balance sheet. So I don't know that it necessarily changes the TCPC profile versus keeping the right level of leverage at the JV.

Christopher Testa -- National Securities Corporation -- Analyst

Okay. Raj. I was asking in terms of -- because obviously if you take a standard JV and we went two turns of leverage, if that does become a big part of your portfolio, obviously, the economic leverage is higher than what's shown on balance sheet. So I was just kind of getting at how you guys think about the math on that?

Howard Levkowitz -- Chairman and CEO

Yes, I think one other thing to think about is, is just how we approach risk management, which is none of our portfolio positions today are very large and that's been the case historically. So we don't have as Raj was saying sort of a target on this thing, but as we think about constructing our portfolio, we're very cautious about letting any one part of it get too big.

Christopher Testa -- National Securities Corporation -- Analyst

Got it. Okay. And, just a comment, not a question, congrats on being one of the about five (ph) BDCs to actually appropriately market above with (ph) spread widening. So I appreciate that and appreciate your time today.

Howard Levkowitz -- Chairman and CEO

Thank you and thanks for the questions, Chris.

Operator

Thank you. And our next question comes from Nick Brown of Zazove Associates. Your line is now open.

Nicholas Brown -- Zazove Associates -- Analyst

Hi. I just have two questions actually. First, can you explain the sequential decline in interest income this quarter. I just was a little surprised given that you, it seems like you were originating new loans at a higher rate than what was getting paid off?

Rajneesh Vig -- President and Chief Operating Officer

Primarily just a result of the decrease in prepayment income compared to prior quarter.

Nicholas Brown -- Zazove Associates -- Analyst

Okay, that makes sense and then the other question I have is really a clarification of a question I think the first question that was asked. As far as your -- to the extent that you actually grew your portfolio and were generating increased NII per share, wouldn't you -- so are you saying you would retain more of that income and pay taxes on that or should we expect that incremental profitability will be reflected in higher dividends?

Howard Levkowitz -- Chairman and CEO

Our dividend policy today is set on a quarterly basis in connection with our Board. So you've been an investor for a long time, you may recall that we have raised the dividend. We have done special dividends. We have left it at its current level for a considerable period of time due to the low rate environment and what we thought was a very adequate yield and wanting people to feel very comfortable with our coverage which I think they do with 27 consecutive quarters of well covering the dividend, but as our balance sheet and income statement may change over time, we will continue to analyze that, have discussions with our Board, reflect the views of other important constituents and continue to reassess our dividend policy.

Nicholas Brown -- Zazove Associates -- Analyst

But to the extent that you didn't (ph) that you were generating more income and not paying out as dividends then you would have to pay income taxes I assume on that?

Howard Levkowitz -- Chairman and CEO

Correct. Yes, there is a small excise tax.

Rajneesh Vig -- President and Chief Operating Officer

At year-end.

Howard Levkowitz -- Chairman and CEO

Yes at year-end that you pay based on the formula of undistributed income.

Nicholas Brown -- Zazove Associates -- Analyst

Okay. All right, just wanted to make sure I understood that. Thank you very much.

Howard Levkowitz -- Chairman and CEO

Thank you for the questions.

Operator

Thank you. And our next question comes from Christopher Nolan of Ladenburg Thalmann. Your line is now open.

Christopher Nolan -- Ladenburg Thalmann -- Analyst

Hi, my question has been answered. Thank you.

Howard Levkowitz -- Chairman and CEO

Thanks.

Operator

Thank you. And our next question comes from Chris York of JMP. Your line is now open.

Christopher York -- JMP Securities -- Analyst

Good morning, guys and thanks for taking another Chris' questions. So in light of some movement in the valuation of your $83 million (ph) equity investment portfolio and then the new leverage capacity and then your partnership with BlackRock, can you provide us with a strategic update on how you are using your equity portfolio today to drive value for shareholders because it appears you have some equity co-investment and then you got some restructured investments in the portfolio but you also have some sizable non-yielding equity investments in specialty finance companies.

Howard Levkowitz -- Chairman and CEO

Are you talking about 36th Street Chris or maybe you can give us more guidance on what you're pointing to?

Christopher York -- JMP Securities -- Analyst

Yes, Great American and 36th Street were the specialty finance company (multiple speakers).

Paul Davis -- Chief Financial Officer

Yes, I think the way the -- I'll take 36th Street and maybe I'll ask Howard to touch on Great American, but the way we've structured that, that's a JV and the equipment leasing business that we've had for I think over a year now and that is a yielding position. There is an equity component and a debt component that at the margin has a combines at 10% return on the aggregate position to us plus a participation and a dividend above that. So I think you have to look through all pieces of that position and how it was structured to be consistent with the JV -- GAAP JV requirements, but those are yielding positions. In fact, they're quite well yielding because when you think about the levered return on that without giving exact numbers for each position they are I believe in excess of the effective yield in the portfolio. So it's just you got to parse through that and we can take that more detailed discussion offline but for that one at least, it is a well yielding position for the aggregate dollars invested.

Howard Levkowitz -- Chairman and CEO

And the other position I think you're asking about Great American is quite simply, this is a group that we have worked with for many years. There are a handful of institutions that have liquidators that focus on hard asset liquidations including in retail. We've been doing these deals going back to 1999. We've partnered with them in deals. In this case, we're in a structure. It doesn't have a contractual return but it actually does have dividend income. So there is some yield coming out of it and from time to time, we will look at situations like this, we actually review a lot of them. I wouldn't expect to see a large number on the balance sheet. In this case, we've got a really great relationship in partnership with them and it's been symbiotic and it creates some other opportunities for us which is why we've done it and we still get yield out of it. So when we think about our ability to use our 30% basket and do some of these other things, what we're often trying to do is do something that's not just a yield generator but something that can have a broader impact, small dollars invested relatively speaking and have a broader impact on our business.

Paul Davis -- Chief Financial Officer

Yes and I'll just add to that, Chris, even beyond the 30% basket, philosophically we have not really taken an approach of leading or supplementing the ability to win deals with a co-investment -- a straight equity co-investment portion. You will see in some, in many quarters actually the ability to get warrants or some other capital gain potential component on top of a good yielding debt position that is different and I think a little bit more consistent with a strategy than equity co-invest. Occasionally, they'll have to Howard's point something that has a variable component upon a contractual return like 36th Street, like the GACP but again what we do, we think about as far as strategy and the portfolio, this is a credit yield oriented portfolio and opportunistically if we can take advantage of a situation to get something on top of that or where it's appropriate, we will look to do it, but I don't think you should expect us to be looking for a lot of equity co-invest as a substitute for the credit positions.

Christopher York -- JMP Securities -- Analyst

Got it. Yes, a comprehensive answer on all fronts and totally cognizant of the note that 36th Street that's paying you a coupon there. So this only other follow-up to that would be given that you are expanding leverage, you're going to have more capacity, would you want to add more to those type of investments with Great American, 36th Street that could provide you other opportunities kind of piggybacks on the strategic opportunities that you entered into with Newtek as well?

Howard Levkowitz -- Chairman and CEO

Yes, when we do portfolio construction, we're very broad in what we look at. We are constantly seeing different ideas and at the same time, we're very selective in what we do. So if you cut through it, most of the portfolio is still just straight off middle market loans. There are a few of these things we've talked about. There could be more of them over time. We don't have a strategic imperative or either or even goal to necessarily do more things that are distinct to the extent that they make sense, that they're incretive (ph) by themselves and or have some larger benefits. You may see some of those on the balance sheet but they've got to make sense in comparison with just doing conventional middle market loans which are what comprise the vast bulk of our balance sheet today.

Christopher York -- JMP Securities -- Analyst

Got it and then one additional question and I echo some of the comments on fair value that Chris shared, but looking at one specific investment, the mark on your sub-debt to Edmentum was relatively unchanged and it remains an accrue (ph) investments and the reason why I bring it up is it differs materially from another BDC view on the valuation for this investment. So could you explain maybe your confidence in the outlook for Edmentum and then if you do have differing views on the issue or is there reason why you don't potentially look at purchasing their position in Edmentum at this point (ph) levels and then potentially picking up some value for shareholders?

Rajneesh Vig -- President and Chief Operating Officer

Yes, good questions and I'll try to answer those comprehensively. I think if you look back on the position mark for Edmentum going all the way back to when it was we first did the restructuring and took as a group ownership of the business, there would not be a single quarter where you would see any of the marks including from the investment bank that was a market maker across the various holders. Part of that results in very slight differences in the overall enterprise value of the business, not meaningful but for the majority of folks and certainly the majority owners, pretty consistent values. Some folks have taken an approach where they will take a waterfall approach on the first or the second of the senior or the junior and some have taken meaning the senior will be marked higher and then the junior will be the residual value. Some have taken a more yield based approach where they are going to mark the senior at a discount based on a yield and then the junior as well. So I think like 36th Street, it's important to look at the aggregate capital structure which may or may not be easy from where you sit, but if you look at it, I think it will make more sense. From our point of view in the business, it has certainly been under our stewardship stabilized and actually growing and performing better. So we put out quoting an exact value or exit or timing directionally, it's going in the right direction. And then finally in terms of your last question of taking advantage of differences in value or perspective from other holders, we entirely agree with you and we have tried to do that in some cases successfully, meaning if people have a different view from us proposing to buy it and so I would wholeheartedly agree with that statement and I think we've seen that come to fruition occasionally, when it's been available. Many times, it's not available at the price people will state, but where it is and we feel there is value there, we have taken advantage of that.

Christopher York -- JMP Securities -- Analyst

Got it. Great color, Raj. Thanks. And then last one I guess another portfolio company, your credit facility and I don't know how to pronounce this right, Kawa Solar was written down and to ensure (ph) that has had stress historically in your portfolio. Can you give us some color maybe qualitatively on the performance and then comfort in the issuers ability to cover debt.

Rajneesh Vig -- President and Chief Operating Officer

Yes, I think we touched on that one I want to say last quarter but if you as a reminder, we have -- that was a business we restructured and unlike in Edmentum, our decision there was really to exit and wind it down given the going forward prospects and what we thought was the best way to defend our position. We did know sell the operating -- effectively the operating business after taking ownership in Q3 and in Q4, really the effort and going forward is just to harvest the remaining assets which are mostly comprised of cash if you will. The way I think about this is really it's a receivable that we're winding down versus an operating entity which also explains the change in the rate to effectively zero percent on the remaining assets. So that one is really wind down and you will see that decreasing over time versus being an operating entity, but the Lion's share of the effort to exit has been completed as of the latter part of Q3 last year.

Christopher York -- JMP Securities -- Analyst

So the 25 (ph) roughly fair value is secured by hard assets?

Rajneesh Vig -- President and Chief Operating Officer

(multiple speakers) The fair value what I was giving a exact breakup majority of that is against cash that will as it comes down and comes out will reduce the position. There are some residual components that have an income and earnings component that we will look to maximize, but beyond that, I don't think we've disclosed the breakout but the components are essentially those components.

Christopher York -- JMP Securities -- Analyst

Sure. That's helpful. Just as you know investors are trying to understand if there is fair value?

Rajneesh Vig -- President and Chief Operating Officer

Yes, understood.

Christopher York -- JMP Securities -- Analyst

Okay, great. That's it from me. Thanks, guys.

Operator

Thank you. And that concludes our question-and-answer session. I'd like to turn the conference back over to Howard Levkowitz for any closing remarks.

Howard Levkowitz -- Chairman and CEO

We appreciate your questions and our dialog today. I'd like to thank our experienced, dedicated and talented team of professionals at BlackRock TCP Capital Corp. Thanks again for joining us. This concludes today's call.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.

Duration: 58 minutes

Call participants:

Katie McGlynn -- Vice President

Howard Levkowitz -- Chairman and CEO

Paul Davis -- Chief Financial Officer

Chris Kotowski -- Oppenheimer -- Analyst

Rajneesh Vig -- President and Chief Operating Officer

Robert Dodd -- Raymond James -- Analyst

Finian O'Shea -- Wells Fargo Securities -- Analyst

Christopher Testa -- National Securities Corporation -- Analyst

Nicholas Brown -- Zazove Associates -- Analyst

Christopher Nolan -- Ladenburg Thalmann -- Analyst

Christopher York -- JMP Securities -- Analyst

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