BlackRock TCP Capital Corp (TCPC) Q4 2020 Earnings Call Transcript

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BlackRock TCP Capital Corp (TCPC 0.29%)
Q4 2020 Earnings Call
Feb 25, 2021, 1:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Well. Ladies and gentlemen, good afternoon. Welcome, everyone, to BlackRock TCP Capital Corp.'s Fourth Quarter 2020 Earnings Conference Call. Today's conference call is being recorded for replay purposes. [Operator Instructions]

And now I would like to turn the call over to Katie McGlynn, Director of BlackRock TCP Capital Corp. Global Investor Relations team. Katy, you may begin.

Katie McGlynn -- Investor Relations

Thank you, Towanda. 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.

Earlier today, we issued our earnings release for the fourth quarter and fiscal year ended December 31, 2020. 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 and presentations. These documents should be reviewed in conjunction with the company's Form 10-K, which was filed with the SEC earlier today.

I will now turn the call over to our Chairman and CEO, Howard Levkowitz.

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

Thanks, Katie. And thank you for joining us today. First and foremost, we hope everyone is staying healthy and safe. There are several members of the TCPC team on the call with me, including our President and Chief Operating Officer, Raj Vig, and our Chief Financial Officer, Paul Davis. I will start with a few comments on our performance in 2020, and then I'll provide an update on our portfolio and key highlights from the fourth quarter. Next, Paul will review our financial results as well as a robust liquidity position.After that, I'll provide some closing comments before opening the call to your questions.

On last year's fourth quarter earnings call, we noted several risks to the economic environment, including the coronavirus. The magnitude of the impact that the pandemic has had on our day-to-day lives and across the world, exceeded almost everyone's expectations. We would like to thank our entire team for their flexibility and hard work together with the management teams and employees at our portfolio companies, which enabled us to deliver strong results for the year. Our ability to navigate the unique and evolving conditions in 2020 and deliver for our shareholders is a testament to our dedicated and skilled team and the strength of our carefully constructed, highly diversified portfolio.

Despite the significant disruption in Q1, our net asset value increased year-over-year, and the credit quality of our portfolio remains strong through outlook proved to be a challenging year. The strong performance was due in part to our focus on less cyclical industries and middle market businesses that are more likely to withstand the downturn. In 2020, we meaningfully enhanced our strong capital and liquidity position. We extended our SVCP facility, replaced our TCPC funding facility on better terms, and we opportunistically added to our existing 2024 notes. Earlier this month, we also took advantage of the favorable bond market environment and issued an additional $175 million of unsecured notes at an attractive rate of 2.85%, record pricing for a sub index eligible BDC bond issuance.

Additionally, we opportunistically repurchased one million shares of our stock during the first quarter of 2020. This contributed $0.09 per share of accretion to our NAV. Finally, in August, we welcomed Andrea Petro to our Board of Directors. Andrea has nearly 30 years of experience in credit and specialty finance and to our addition to the Board, continues our long-term commitment to diversity. Following Andrea's appointment, half of our independent directors are winning.

Turning to our fourth quarter results. Our NAV increased 4.2% from the prior quarter, reflecting a 1.7% net market value gain on our investments. This was driven by further spread narrowing on middle market private credit transactions as well as significant gains resulting from improved financial performance at many of our portfolio companies. Among our significant investment gains in the fourth quarter was our investment in Edmentum, a leading provider of online educational programs. Edmentum received an equity investment from a new majority investor in the quarter, and we were able to realize a gain on our position while retaining a minority ownership interest in the company.

This outcome demonstrates our team's ability to leverage its deep special situations expertise to work with the company through a challenging situation and deliver strongly improved financial performance. Edmentum is also currently benefiting from the accelerated demand for online learning solutions amid the pandemic. Given our retained ownership of the company, we believe we will continue to participate in Edmentum's ongoing success.

Turning to our portfolio positioning. At year-end, our portfolio had a fair market value of approximately $1.6 billion, essentially unchanged from the prior quarter. 89% of our investments are in senior secured debt and represent a wide range of industries. Our diverse portfolio is weighted toward businesses with limited direct exposure to sectors that have been more severely affected by the pandemic. Furthermore, our loans to companies in more impacted industries, including retail and airlines are generally supported by strong collateral protections, and most of our investments in these industries continue to perform well.

As an example, the value of our investment in Onesky, the second largest provider of private jet aviation services in the country, again, appreciated during the quarter. The company is performing well given strong demand for charter flights despite challenges facing most businesses in the travel sector. Our diverse portfolio included 96 companies at year-end. Our largest on $75 million represents 4.5% of the total portfolio and provides further diversification given its highly diversified underlying portfolio of lease assets. As the chart on the left side of Slide seven of the presentation illustrates, our recurring income is not reliant on income from any one portfolio company.

In fact, over half of our individual portfolio companies contribute less than 1% to our recurring income. 95% of our debt investments are floating rate. 80% of these are subject to interest rate floors, all of which are now in effect. Additionally, 88% of our debt investments are first lien. Moving on to our investment activity. Market origination volumes were robust in the fourth quarter. While we have been active deploying capital, we are maintaining our disciplined approach to investing, executing only a small percentage of the opportunities we review. As a result, we invested $183 million during the fourth quarter, including investments in 15 new loans, nearly 2/3 of which were with existing borrowers.

Follow-on investments in existing portfolio companies continue to be an important source of opportunities. From a risk management perspective, these are companies we know and understand well. As we analyze new investment opportunities, we continue to emphasize seniority in the capital structure, industry diversity and transactions where we act as a leader, Co lead. Our largest new investment during the fourth quarter was a loan to team services, a leading provider of home care assistance for the elderly and people with disabilities. Team is benefiting from an acceleration in the shift toward home care and away from institutional settings as a result of COVID. Given our extensive experience and deep relationships in healthcare, we were chosen to lead the second lien financing.

The company's niche focus within the healthcare sector and our industry expertise provided us the opportunity to invest in a successful but overlooked business with a quality management team and strong support from their equity owner. Dispositions in the fourth quarter were $213 million and included payoffs of our $28 million loan to Higg in Boston and our $25 million loan to ECI as well as the payoff of our loans to Edmentum, resulting from the company's acquisition, which I referred to earlier. Investments in new portfolio companies during the quarter had a weighted average effective yield of 9.6%. Investments we exited had a weighted average effective yield of 9.9%. The overall effective yield on our debt portfolio was 9.6%.

Over the last two years, LIBOR has declined 256 basis points or by 91%, which has put pressure on our portfolio yield over this period. However, our portfolio is largely protected from any further declines in interest rates as nearly 80% of our floating rate loans are currently operating with LIBOR floors. Our investment activity in the first quarter-to-date continues to be selective and focused on companies that are minimally impacted by the pandemic or a beneficiary as of the COVID impacted operating environment. Our investment activity to date totals approximately $107 million, primarily in five senior secured loans with a combined effective yield of approximately 10.2%. The yields on investments in our pipeline are generally in line with our current portfolio yield.

Now I'll turn the call over to Paul, who will discuss our financial results in more detail. Paul?

Paul L. Davis -- Chief Financial Officer

Thanks, Howard, and hello, everyone. Net investment income for the fourth quarter of $0.35 per share again exceeded our dividend of $0.30 per share. And today, we declared a first quarter dividend of $0.30 per share. We remain committed to paying a sustainable dividend that is fully covered by net investment income as we have done every quarter since our IPO in 2012. Net investment income for the full year was $1.44 per share. Investment income for the fourth quarter was $0.74 per share. This included recurring cash interest of $0.60, recurring discount and fee amortization of $0.03 and PIK income of $0.04. This was our lowest level of PIK income in three years.

As a reminder, our income recognition follows our conservative policy of generally amortizing upfront economics over the life of an investment rather than recognizing all of it of the timing investment is made. Investment income also included $0.03 of other income, $0.01 from dividend income and $0.04 from prepayment income. While prepayment income is always lumpy, it's been historically lower in the first quarter of each year. And has been particularly minimal so far in 2021. Operating expenses for the fourth quarter were $0.31 per share and included interest and other debt expenses of $0.17 per share. Incentive fees in the fourth quarter, including $0.6 million of previously deferred fees, totaled $5.0 million or $0.09 per share for total net investment income of $0.35 per share.

As noted in our second quarter earnings call, incentive fees related to our income for the first quarter of 2020 were deferred. While the full amount was earned in the second quarter, when our performance again surpassed our total return hurdle, we voluntarily further deferred the amount over six quarters, subject to our cumulative performance remaining above the hurdle. We believe this further aligns our interest with those of our shareholders and demonstrates our confidence in the strength of our portfolio and its earnings capacity over time. Our net increase in net assets for the quarter was $48 million or $0.83 per share, which included net unrealized gains of $20 million and net realized gains of $7.9 million.

Unrealized gains reflected both continued spread tightening and credit specific gains at a number of portfolio companies. The largest gains included $5 million on our investment in Seqirus, $3.9 million from One sky, $3.8 million from Amtech, and each company saw continued improvements in their financial performance. We also realized gains of $9.3 million on our investment in Edmentum for an overall net gain this quarter of $2.9 million on this investment. Substantially, all of our investments are valued every quarter using prices provided by independent third-party sources.

These include quotation services and independent valuation services, and our process is also subject to rigorous oversight, including back testing of every disposition against our valuations. Our overall credit quality remains sound with no new nonaccruals in the fourth quarter. Our loans to the three portfolio companies on nonaccrual, glass point, CIBT and Avanti, together represented only 0.5% of the portfolio at fair value and 1.2% at cost. We ended the year with total liquidity of $342 million.

This included available leverage of $355 million and cash of $20 million, less net pending settlements of $33 million. Unfunded loan commitments to portfolio companies at quarter end equaled 4% of total investments or $69 million, of which $23 million were revolver commitments. During 2020, we further strengthened our diverse and flexible leverage program, which included two low-cost credit facilities, a convertible note issuance, two straight unsecured note issuances and an SBA program. Enhancements included replacing our TCPC funding facility with a new one on improved terms, including a two-year maturity extension. Extending the maturity of our operating facility and adding a $100 million accordion and issuing, an additional $50 million of our 2024 unsecured notes.

Furthermore, earlier this month, we opportunistically issued an additional $175 million of unsecured notes at a record low coupon of 2.85%. Our unsecured debt continues to be investment-grade rated by both Moody's and Fitch. Earlier this month, Fitch reaffirmed our investment-grade rating with stable outlook noting, among other items, our solid track record in credit, experienced management team and strong funding flexibility.

And today, Moody's also reaffirmed their investment-grade rating for TCPC with stable outlook. Given the modest size of each of our debt issuances, we are not overly reliant on any single source of financing, and our leverage program is well laddered. Our nearest maturity is March of 2022. And given the success of our recent bond issuance, we are very well positioned to redeem those notes when due. Combined, the weighted average interest rate on our outstanding liabilities decreased 30 basis points to 3.54%, down from 3.84% at the end of 2019.

I'll now turn the call back over to Howard.

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

Thanks, Paul. The past year emphasized the key role at the BDCs play in providing capital to middle market businesses that account for roughly 1/3 of private sector GDP. These businesses have again proved to be resilient, demonstrating the collective appeal for investment. Middle market companies, for example, reported significantly fewer job declines last year than both larger companies and smaller businesses. BDCs like TCPC helped to ensure that these companies have consistent access to financing solutions. Our team has been lending to middle market companies for more than two decades through multiple cycles, including the dot-com bubble global financial crisis, the energy bust of 2015, '16 and now the COVID-19 pandemic.

We have drawn upon this experience to inform our investment decisions and perform throughout this most recent market dislocation. Since our IPO in 2012, TCPC has returned more than $12 per share in dividends, which translates to an annualized cash return to investors of 9.8% and is reflective of our return on invested assets of 10.5%. TCPC has also consistently outperformed the Wells Fargo BDC index. The overall market environment continues to improve, and we're seeing a pickup in activity. That said, we remain extremely selective, executing on only a small number of opportunities we review and focusing on companies we believe have minimal COVID exposure are those that are positioned to outperform in this environment.

Overall, as we navigate the persistent uncertainty in the market, we are guided by our experience managing through prior downturns and periods of market volatility, and we will continue to seek to; one maintain a diversified portfolio that under its highly cyclical industries; two, take advantage of unique and not widely understood industry dynamics; three, take structurally senior secured positions in the capital stack; and four, structured transactions to include specific collateral and assets for downside risk mitigation.

Our performance to date and our confidence in our ability to succeed in this environment are driven by our team's two decades of experience in both performing and distressed credit, the strength of our underwriting platform as well as the depth and breadth of firmwide resources of BlackRock. In closing, we would like to thank our entire team for their dedication and focus on generating strong risk-adjusted returns for our shareholders even in these challenging times.

And with that, operator, please open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question will come from Devin Ryan from JMP Securities. Your line is open.

Devin Ryan -- JMP Securities -- Analyst

Great, good afternoon everyone.

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

Hi there.

Devin Ryan -- JMP Securities -- Analyst

Hi. First question, I appreciate all the detail that you guys provided, but love to maybe think about the potential to expand or grow the portfolio in 2021. Obviously, the portfolio size has been fairly steady for the past couple of years. And just given the strong capital markets backdrop and kind of what you're seeing more broadly, just expectations that and kind of opportunity to expand the absolute size here?

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

Sure. Thanks for the question. Our primary focus is on generating long-term consistent returns for our shareholders. We're very proud of the fact that we have covered the dividend for 35 consecutive quarters. We've been able to generate, as we noted before, 10.5% gross returns on assets. And as we think about the vehicle, that is our primary focus. We have grown over time. Like any business, we like to grow. And if we see opportunities that are appropriate that would enable us to do the right thing for shareholders over the long term, we would certainly look at doing that, but we are not focused on growth for the sake of growth. And we're happy to have the portfolio maintain a consistent size or to the extent appropriate, shrink a little bit if we're not seeing appropriate deal flow.

Devin Ryan -- JMP Securities -- Analyst

Appreciate that. So I guess that's the follow-up here. Just in terms of the backdrop, obviously, you've been hearing about a very strong conditions for borrowers, which is great. But obviously, it can create more challenges deploying capital. So I'd just love to get some thoughts around kind of where you guys are seeing the most attractive risk rewards in the market? And just more broadly, how you feel like risk is being valued right now just given that I think we're or in kind of a, what's been a very positive or even some people say frothy markets? So I'd just love to kind of get a little bit more granularity on what you guys are seeing there.

Rajneesh Vig -- President and Chief Operating Officer

Yes. Maybe I'll add on to that. And I think just to highlight, in addition to Howard's comments, our challenge has not been deployment. If you look at even this last quarter, the number we deployed is a pretty healthy number, not a record setting, but a good number. We just had a lot of repayments. And I think there's a lot of unusual activity in '20 culminating in an incredibly active fourth quarter, to be honest, the team was full out. We just had also a lot of opportunistic refinancings, which in some sense is segues to your second question around risk and opportunity. I think we are really finding opportunity in many of the same areas.

We have always looked even pre COVID defensive industries, well positioned businesses, industries that we find A cyclical, very predictable top line revenues and earnings. And in fact, I think of 2020, is, in many ways, the validation given the performance, both through the toughest time and also into the early stages of the recovery of the business model of finding proprietary and consistently repeatable sources in the industry approach that lets us diligence with a very, very active view of downside protection. Some of those industries, you're seeing quite a bit of activity in such as healthcare, ongoing activity in software and services.

We have seen a pickup in, I would say, financial services across the portfolio, not financial risk assets, but financial services. And so those I would say are some of the areas that we've been focusing on the pipeline is strong, and you've seen the deployment in Q4 reflect that. There clearly has been a tightening up since the COVID spike in March on rates and on pricing. The approach we've always taken has been to be very selective to source a lot of opportunities from a lot of different areas and to try to pick the best from those, and that doesn't change. I think we remain defensive in terms of our structures, predominantly secured first lien.

We are very thankful we have real covenants in the portfolio that has been helpful through the tough, sort of some of the more defensive efforts we've had in 2020. So it's a long-winded way of saying, we're going to just keep focusing on the areas we focused on. It's worked for us. The performance, I think, has been strong. And it feels like the pipeline is good, but there are a lot of areas where people are asking for things that maybe a bridge too far and that we will pass on, and that's OK.

Devin Ryan -- JMP Securities -- Analyst

Yes. No, I really appreciate the color. I'll leave it there, but congrats on a really nice end of the year and all the progress you guys have made on the liability side as well.

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

Thank you and thanks for joining us today.

Operator

Thank you. Our next question comes from Robert Dodd from Raymond James. Your line is open.

Robert Dodd -- Raymond James -- Analyst

Hi guys. Congratulations on the performance NAV earnings exactly in a very tough year. So if I can kind of tie to Devin's question. On prepaid, more than anything else. Obviously, Q4, $0.04 in prepayment piece has pretty normal, right? 2020 obviously was low given the environment. Paul, I think, said that it's been quite muted so far, I mean, it's February this year. And I realize it's very hard to predict, I'm not actually back quarter-to-quarter. But over the course of the year, do you expect this to be kind of a normal kind of prepayment activity year, obviously, in terms of fee income and portfolio rotation? Or do you think it's going to be elevated given how appealing the market is to borrowers right now or muted this year. If there's any feel on that?

Rajneesh Vig -- President and Chief Operating Officer

Yes. Robert, thanks for the question, and good to hear from you. I think the first word I would, I don't know how to define what normal is anymore. We've seen a lot. So I guess I don't know if that is a thing we can define given 2020, given some of the activity in different quarters, even before COVID, I do think there is some settling down of the market and the cadence of deals. I think there has been maybe more in the liquid markets, but certainly in our markets, a rush of people taking advantage to finance in the context of some real business model acceleration and transformations, both positive and negative. And there's been two to three quarters of that into Q1.

So maybe that means that we're back to some sort of business as usual, but I still think there is a question of what business as usual is for some time, and we're hopeful for that, but do I think it's going to be as crazy as it was in 2020 and Q3 and Q4, probably not, but there could be a lingering effect that we just have to respond to as best we can.

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

And Robert, it's Howard. I'll just add one thing to what Raj said. As we look back at our prepayment history going back two decades, over long periods of time, it's pretty consistent, even remarkably, '07, '08, '09, if you take a series of quarters, borrowers tend to repay at something on an annual rate of 25% to 35%, but there's big differentiation. If you look at this last year, we were Q1 at about 5%, Q2 at about 6%, Q3 5% and Q4, 13%.

Q1 is seasonally light typically. But then within that, also it's not just the magnitude of prepayments. Certain instruments have higher prepayment premium and/or maybe prepaid earlier in their life cycle, generating more prepayment income. And I think Paul's comment was just intended to let you know that to date, we hadn't received those amounts. So just to provide a little bit more information.

Robert Dodd -- Raymond James -- Analyst

I appreciate that. Thank you for the color. Second one, kind of flipping to the other side of the balance sheet. Obviously, you don't have a maturity until March of next year. Then there's another one in August of next year as well. I mean it might be called for six months in advance or prepayable, I don't know. But in this environment, if the bond market opportunity for BDCs to you in particular, obviously, like you said, a very low-cost bond. Should we expect you to replace those maturities with additional unsecured? Or would you potentially want to run your revolver a little larger? Not too much of the balance sheet, obviously, but how are you thinking about the balance there?

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

We're very pleased with the right side of the balance sheet. We have great relationships long-term with our revolver lenders, and they provided us with more capacity and extensions during the worst period last year during the early spring. And we're also deeply appreciative of our relationships in the bond market and having been able to issue, what we believe is a record low-cost sub index and for those who aren't familiar with that, below $300 million is less liquid for bond issues.

Paul L. Davis -- Chief Financial Officer

And so I'm going to call you right back. I got to hop off for one second.

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

We're not sure. Operator, we'd appreciate you making sure that all other lines are unmuted, please thank you. But right today, we have seven ways of financing our balance sheet, and we like the combination of having revolvers and unsecured debt. And having the ability to utilize our revolver to pay down any of the bond issues that you mentioned gives us tremendous flexibility. And so we have ample credit capacity today. We're very pleased with the significant liquidity that we have. Obviously, we can repay bonds at maturity. And to the extent there's an opportunity to perhaps do so in some other way beforehand, that's something that can be considered as well.

Robert Dodd -- Raymond James -- Analyst

Thank you. I appreciate that.

Operator

Thank you. Our next question comes from Finian O'Shea from Wells Fargo Securities. Your line is open.

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

Hi everyone, good afternoon. First question on a portfolio company. Mesa air looks like it was grouped together and maybe one entity is just a small question there. Is it as simple as that? Or was there some sort of business change in Mesa for you?

Paul L. Davis -- Chief Financial Officer

We had several exposures to Mesa, one of which was repaid. And so that may be what you're referring to. It's broken out into a number of items on the balance sheet because there's distinct pools of collateral that are cross collateralized. But we're pleased. Obviously, it's been a difficult environment for commercial airlines. They've continued to have access to liquidity through government programs and their major airline counterparts. And in connection with that, they paid down one of our two primary exposures. The other one continues to amertize regularly and that's why that balance is being reduced.

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

Okay. Thanks, that's helpful. And then, Howard for the long queue we are making today. How do you structure documents, the loan to account for the transition away from LIBOR?

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

Sure. Yes, thanks for the question. What we do is provide provisions in there that account for a successor instruments and the fault to the extent that there isn't inaappropriate one. And I think this is pretty standard in documents where they'll refer to the reference rate or prime rate if there is anything else but that's you the default to replacement rate as a first choice. So we've spent a lot of time analysing this issue going back several years now and believed that we are appropriately in a position to deal with it.

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

Okay great. That's all for me. Thank you.

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

Thanks for the question Finian.

Operator

Thank you. Our next question comes from David Miyazaki from Confluence Investment.

David Miyazaki -- Confluence Investment -- Analyst

Hi, thank you for taking my questions. And I appreciate the way that you guys have navigated 2020. You've gotten your shareholders through a pretty surprising in volatile time frame. If I could, just to kind of extend a little bit on Fin's question with regard to the airline industry, Howard, do you have a long history investing in the credit markets. And it's been my observation that you're pretty fred in your exposure to airlines going back 20 years and really making some pretty notable loans back when the industry has disrupted in around the 911 time frame.

And then also kind of noteworthy in avoiding aircraft leasing at the wrong time in more recent years. So can you kind of provide a little bit of insight as to how you look at that industry and other industries that have experienced kind of a sea change with regard to the pandemic?

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

Sure. Thank you for the question. It's an interesting one. And I think the way we've looked at the airline industry is probably emblematic of the way we look at the whole portfolio, which is we have deep expertise there. And we've been financing companies, as you pointed out, since 9/11, but we're very opportunistic. And so when other people aren't financing it or we see good risk-adjusted rewards, we have great relationships. We've done financings for most of the major U.S. carriers as well as some smaller ones.

We haven't added any exposure recently because we haven't seen what we deemed to be good risk rewards. We've seen lots of deals. But one of the advantages of our structure, which is focused on industries, and we've got 19 industry teams as we can go where the best deals are, and Raj was talking about earlier, some of the things we're focusing on. There's a lot of robust activity in a lot of less cyclical areas. And we're still doing things in cyclical industries. But the bar is high. And in the case of aircraft financing, which is really the way we look at it is, we're financing metal, hard collateral.

We haven't seen pricing come to where we think it needs to be, and that's why we haven't put out new money. I'm frankly surprised if you would have asked us in the spring, are you likely to do some things in this sector, we would have said probably. But having the discipline to avoid going into something just because you're seeing deals and it, I think, is really an important part of managing this business.

And so we're going to where we see good risk-adjusted rewards, and we've got a broad enough pipeline, but that gives us the ability to choose. But we're continuing to look at things across a broad variety of sectors, and I suspect you'll see that evolution in the portfolio going through the rest of the year.

David Miyazaki -- Confluence Investment -- Analyst

Yes. I honestly, I was sort of surprised that you guys didn't come across some opportunities because the industry has been really as or perhaps even more disrupted in this particular cycle than it has been in the past. So it rather interesting to hear that the pricing never really responded. If I could shift gears on you instead of going back that far in your history, but more to the kind of your modern or recent situation is that with now being part of the broader BlackRock platform.

Are there any generalities or specific resources that have become available to you as a part of BlackRock that were helpful during the pandemic and of particular interest, I don't know if it's manifested. I'd be interested to know if BlackRock has been able to provide any insight or resources with regard to regulation or even legislation with regard to the BDC industry.

Rajneesh Vig -- President and Chief Operating Officer

David, it's Raj. I'll take the first part of that in terms of the broader platform and benefits through this time. And even before COVID, but just on a certainly an accelerated basis in COVID. I would highlight three areas that really ramped up that helps us, I think, navigate 2020, as you said, in a positive way, and I appreciate that comment. One is, keep in mind, BlackRock has a pretty notable presence, virtually of all the capital markets in all sectors, liquid, private, infrastructure, real estate and a lot of industry insight that's available in the platform, and I think harnessed quite well to take advantage of. And we were literally having cabs daily on cross-asset pricing,

On trends tied to the virus and also implications to industries with a lot of internal industry and healthcare and just authoritative perspective that led us, I think, really put our own private capital portfolio in context, where we wanted to spend time, where we really needed to focus defensively where there might be opportunities. So I think that cross-asset perspective was very helpful in understanding risk and pricing for us in a way that we couldn't have on our own. BlackRock also at its core, is built on a risk management approach. T

Here we talked about this before, COVID and part of our integration. We have a dedicated overlay risk and quantitative analysis team that has, I think, put a lot of good rigor into how we look at our portfolio in addition to the underwriting, and that's just been on an ongoing basis that I think as managers of the portfolio, we appreciate. And finally, even on the liability side, you've seen some of the movement and the changes and the terming out of the right side of the balance sheet as you can imagine, BlackRock's presence with intermediaries both for sourcing, but also for issuing some of the liability and the debt doesn't hurt.

So I think, hopefully, that's not just a COVID related activity, but an ongoing one. But in the latter part of 2020, we were able to take some advantage of those relationships to a successful completion of issuance. And Al, I don't know, Howard has any comments on the regulatory side of it, but maybe if he does, we can turn it over to him. Yes. It's something that we obviously continue to monitor and be advocates of the fact that VDCs continue to be penalized in effect by having a more limited group of investors as a result of the Aff restrictions or rules is something that everybody, I think, who's involved in the sector is cognizant of.

And we continue to do our part to be advocates to do what we think is in the interest of everybody in the sector and shareholders more broadly, which is to expand the sector on a more institutional basis so that it's easier for mutual funds, other 40 act vehicles. And hopefully, once again, index funds. To more broadly on the sector without having the penalty associated with the way the AFFE rules are applied. And we remain hopeful, but we'll see what happens.

David Miyazaki -- Confluence Investment -- Analyst

Okay. Great, well I appreciate a good quarter and a good year and thank you for your comments

Rajneesh Vig -- President and Chief Operating Officer

Thank you and thanks for joining us.

Operator

Thank you. Our next question comes from Ryan Lynch from KBW. Your line is open.

Ryan Lynch -- KBW -- Analyst

Hey, good morning. Thanks for taking my questions.Congrats, first off, on a good quarter and maybe more importantly, a good year. And that's where I really want to start my first question. 2020, you guys were able to actually grow your net asset value throughout the year in the midst of a downturn. And generate very strong results. In fact, the results in 2020 that we generated were stronger than the results that you've generated in the last couple of years despite 2020 having a pandemic and a significant downturn. So can you reconcile why your results were so strong in 2020? And what does that say about your business? And then how did it outperform previous years?

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

Sure. Look, I think we are wired to analyze difficult situations. If you think about the heritage of our business, it really comes out of special situations investing and understanding difficult times. And I think in tougher times, we tend to shine. Ultimately, the performance of TCPC during 2020 was a function of first and foremost, a robust portfolio and not having significant causes, in fact, taking down our nonaccrual. It was also effective deployment of capital on an incremental basis, although there wasn't a huge amount of that, that's which we did was effective.

And it was also balance sheet management. We went into it well prepared. We had a small proportion of our assets in delayed draws and revolvers. We had ample liquidity. We had good financing partners who gave us more flexibility and more room. And that also put us in position when the industry sold off to buy in stock, which we thought was an appropriate use of capital at the time. And so I think it's really a combination of factors. In 2019, we did take a hit on one particular position, which we talked about, which we thought was an anomalous result.

The larger position that we've dealt with, that it's delis. But I think if you look at the over two-decade track record that we have, and even the nine-year track record as a public company, where our return on assets has been about 10.5%. 2020 is, I think, more emblematic of our history and the way we've been able to perform over a long period of time.

Ryan Lynch -- KBW -- Analyst

Okay. That's helpful color on that. One of the things that we've heard from several BDCs over the last, prior to 2020 was late cycle investing based cycle investing late cycle investor. Whatever that means that particular name. And now that we actually went through a downturn, and we're actually in now a recovery case opposed to fearing a downturn, which is what people were hearing back in 2017, 2018, 2019, do you intend to shift your investment philosophy at all? I know it's not going to be any sort of wholesale changes to how you guys look at credit and underwriting, but do you see any moderate shifts in whether it's a particular industry or industries do you choose to focus on or where you're positioning the capital structure coming out of a major downturn?

Rajneesh Vig -- President and Chief Operating Officer

Yes. Maybe I'll take that one. And I think the short answer is, well, two things. One, I think the short answer is no, because what we have been doing, it feels like it's been working for us. And if anything, I view 2020 as I don't know what the down cycle is, I mean, is the cause of this period is relatively unusual. But the performance and all the things that Howard mentioned as to the prior question is to what I think drives it is working, and I think it's further validated by some of the activity in 2020.

For me, focusing on defensive sectors, areas that we know, whether it's an asset or an industry and structures that give us both downside protection and importantly, ability to step in and protect our capital or even improve our position, which did happen through 2020 is a good way to approach a credit business versus going risk on and trying to be more proactive and maybe chasing returns or yields without the ability to protect those when you need it. So I think that there may be some evolution or nuanced differences at the margin. Certainly, we are constantly reevaluating our industry groups and where we want to focus and what we want to avoid. But I think I put that in the context of staying consistent with what we've done and very disciplined. And I think, hopefully, good things come from that.

Ryan Lynch -- KBW -- Analyst

Okay. Understood. And maybe to kind of take it to the opposite end of that versus more risk, which was kind of my previous question in the portfolio, being able to issue sub-3% unsecured debt on the right side of your balance sheet, does that change your guys' investment approach or the types of deals that you guys would be now willing to put on the left side of your balance sheet and in your portfolio, given that low-cost of unsecured debt?

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

It really doesn't, Ryan. Obviously, having a lower cost of funding is helpful. But we've been doing this a long time. We don't move around our investment philosophy, our assets based on small changes in our cost of financing or on short-term changes in the capital markets or the economy. Ultimately, what we try and do is build a robust portfolio that we think can withstand a lot of different scenarios. And as you just pointed out, we just went through another downturn, a very different kind than the last downturn during the great financial crisis. So we've got another set of criteria to use in our stress cases, which is great. But if something doesn't work in the portfolio, we don't just put it in because we can borrow against it a little bit more cheaply.

Ryan Lynch -- KBW -- Analyst

Thanks, that makes sense. I appreciate the time. Today, that's all my questions.

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

Good, thanks. Thanks for joining us.

Operator

Thank you. Our next question comes from Christopher Nolan from Ladenburg Tallman. Your line is open.

Christopher Nolan -- Ladenburg Tallman -- Analyst

Howard, following up on Ryan's question. Given that the stock price still trades below NAV and given that your debt costs look to be I mean unbelievably attractive there. What's the capital strategy in terms of, I know the 2022 notes, you mentioned earlier, you might wait till they're mature, but you can also redeem them at any time with a make-whole premium is given that has a 4.125% coupon, any thoughts redeeming that in 2021?

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

Yes. We will see what happens. Ultimately, one of the nice things about having the flexibility that we do in our capital structure. Significant undrawn capacity under both of our revolvers and significant headroom in regulatory capital means that we have a lot of flexibility there. And so obviously, the interest rate environment has changed fairly significantly the last couple of weeks that may affect people's views of what price they want to hold bonds. And so we will look at what makes most sense as we get further into the year.

Christopher Nolan -- Ladenburg Tallman -- Analyst

Great. And I guess a follow-up question. Given that revolving facilities have a lot of nondirect costs, legal and so forth associated with them, do you consider this new unsecured debt you guys just issued to be your cheapest form of capital?

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

Well, you can look at the math on it, and it's a good question. Ultimately, the all-in cost of the revolvers, if you really want to look at it analytically, you probably need to wait until the end. To see what happens with them, how they're extended, how much gets utilized. The bonds are easier to analyze. We'd also like to call your attention, and I think you're aware of this to our SBA financing or SBIC facilities, which also have very attractive long-term financing costs. And there's some additional costs, but the overall coupon rate on those for the long-term is really quite cost-effective also.

Christopher Nolan -- Ladenburg Tallman -- Analyst

Okay, got it. Good quarter, good year. Thank you.

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Chris Kotowski from Oppenheimer & Company. Your line is open.

Chris Kotowski -- Oppenheimer and Company -- Analyst

Good afternoon and thank you. Knowing that you folks never like to do anything in a herky jerky way and having just trimmed your dividend from 36 to 30 last year for reasons that are understandable kind of in the middle of the lockdowns. But I guess what you've been kind of earning the old dividend and there's so with no NAV diminution or your NAVs back to the pre coded levels. So theoretically, there shouldn't be any kind of underlying earnings diminution or in your earnings capability. And so I'm just kind of wondering, again, not for the next quarter, two or three. But just philosophically, what would you be looking forward to, or is it a goal to get back to the prior distribution? And what would you be looking for to get there?

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

Yes. Thanks. I just want to remind you of something that we had said earlier about a decrease in LIBOR, which basically cost $0.09 a share. So yes, we did this during the lockdown. But we were also reacting to the very significant change in LIBOR, and the math is set out. You can in our K and our Q, and you can pretty easily do it in your head as well. And so when we made that decision, it was really primarily looking at LIBOR as opposed to events in the portfolio. We're very proud of having earned our dividend every quarter.

We think investors take comfort from dividend stability, knowing that it's well-earned and appropriately covered. And that's really been our focus. I think the other thing is, as you look at our earnings, we benefited from prepayment fees. And as we discussed earlier on the call, those are lumpy. We've had significant prepayment fees the last couple of quarters. We don't always, we did into Q1 of last year.

In fact, we had very few of them. And Q1 tends to be a seasonally slower quarter. Paul pointed out, we hadn't received any in a material way yet this quarter. And so not everything is always like clockwork. We take great pride and comfort from knowing that we've got good dividend coverage. But we also know that there's a certain lumpiness to the extra earnings from additional fees, dividends and prepayments and the more unusual items.

Chris Kotowski -- Oppenheimer and Company -- Analyst

Okay. That's it for me. Thank you.

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

Thank you and thanks for hanging there with the question.

Chris Kotowski -- Oppenheimer and Company -- Analyst

Okay.

Operator

Thank you and that does conclude our question-and-answer session for today's conference. I'd now like to turn the conference back over to Howard Levkowitz for any closing remarks

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

Thank you. We appreciate your questions and our dialogue today. I would like to thank all of our shareholders for your confidence and your continued support. I'd also like to again thank our experienced and talented team of professionals at BlackRock TCP Capital Corp for your continued hard work and dedication in these challenging times. Thanks for joining us. This concludes today's call.

Operator

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Katie McGlynn -- Investor Relations

Howard M. Levkowitz -- Chairman of the Board and Chief Executive Officer

Paul L. Davis -- Chief Financial Officer

Rajneesh Vig -- President and Chief Operating Officer

Devin Ryan -- JMP Securities -- Analyst

Robert Dodd -- Raymond James -- Analyst

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

David Miyazaki -- Confluence Investment -- Analyst

Ryan Lynch -- KBW -- Analyst

Christopher Nolan -- Ladenburg Tallman -- Analyst

Chris Kotowski -- Oppenheimer and Company -- Analyst

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