BlackRock TCP Capital Corp (TCPC) Q3 2021 Earnings Call Transcript

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BlackRock TCP Capital Corp (TCPC 0.54%)
Q3 2021 Earnings Call
Nov 3, 2021, 1:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, good afternoon. Welcome, everyone, to BlackRock TCP Capital Corporation's Third Quarter 2021 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 the BlackRock TCP Capital Corporation's Investor Relations team. Katie, please proceed.

Kathleen McGlynn -- Vice President of Investor Relations

Thank you, Jason. Before we begin, all 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 third quarter ended September 30, 2021. 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-Q, which was filed with the SEC earlier today. I will now turn the call over to our Chairman and CEO, Raj Vig.

Rajneesh Vig -- Chairman of the Board & Chief Executive Officer

Thanks, Katie, and thank you all for joining us today for TCP's third quarter earnings call. Before we begin, I wanted to take a moment to thank our team for all of their hard work and dedication through this challenging period. As many of you know, I have served as TCPC's President and COO since our IPO almost 10 years ago and have been a senior member of the investment team for over 15 years. It has been very rewarding to be a part of the group that has consistently delivered for our investors, and I look forward to serving as TCPC's Chairman and CEO going forward. Also, I'm excited to formally welcome my longtime partner, Phil Tseng, as President and COO, and reiterate my congratulations to our CFO, Erik Cuellar, for his new role. As part of my commentary, I will be continuing our quarterly tradition and begin with a few comments on the market environment as well as highlights from our third quarter. I will then turn the call over to Phil, who will provide an update on our portfolio and investment activity. Erik will then review our financial results and our capital and liquidity positioning in greater detail. After our prepared remarks, we will all be available to take your questions. Now turning to the current market environment. Overall, activity levels in the middle market remain very robust. Direct lending and broader private capital markets have clearly emerged from the global pandemic as a reliable and well-positioned source of financing for a broad spectrum of businesses. This has typically been the case at times other avenues of financing have been less accessible, but appears now to be an even more systemic shift as a wider array of companies are looking to private credit as a primary source of capital. We continue to work with a broad range of businesses as they seek to finance growth, make acquisitions or simply refinance existing debt. We also believe that our investors benefit from these efforts as our direct lending investments continue to deliver a reliable and resilient source of income. I'd now like to review our third quarter earnings and discuss some highlights from the quarter. In summary, TCPC delivered another solid quarter of results. First, net investment income in the quarter was $18.7 million or $0.32 per share, which again exceeded our dividend of $0.30 per share.

Second, portfolio credit quality remains strong. While we added one additional portfolio company to our nonaccruals during the quarter, nonaccruals remained low at just 1% of the portfolio at fair value. Third, and as Philip will discuss in more detail, investment activity continues to be robust. We deployed more than $150 million in capital during the quarter and continue to identify attractive opportunities across our target sectors. Direct lending remains a relationship business, and we continue to benefit from the more than two decades of developing and cultivating strong relationships. We also continue to benefit from the extensive resources for the broader BlackRock platform. In the third quarter, we also experienced an elevated level of refinancing activity with approximately $227 million of repayments, resulting in prepayments and exits that outpace deployment and slightly reduced our total portfolio size quarter-over-quarter. Fourth, we continue to manage our balance sheet and liability profile. In August, we issued a $150 million add-on to our existing February 2026 notes at a yield to maturity of 2.475%, bringing the total issuance to $325 million. In conjunction with this financing, we redeemed $175 million of outstanding notes that were due next August, which had a much higher coupon of 4% and 8%. We will continue to seek ways to diversify and enhance our strong balance sheet and liquidity positioning given overall market conditions. And finally, we have maintained NAV stability.

Although our NAV declined 80 basis points during the quarter. This was primarily a result of a $6.2 million loss associated with prepayment charges on the early redemption of the August 2022 notes. Excluding the impact of this charge, NAV was essentially flat quarter-over-quarter and year-over-year is up approximately 11%. It's also worth noting that we continue to exceed our total return hurdle. As a reminder, TCPC maintains a 7% hurdle rate with a cumulative look back based on total returns, including realized and unrealized gains and losses. Since 2012, we have generated a 10.7% annualized return on invested assets and a total annualized cash return of 9.7%, consistently outperforming the Wells Fargo BDC index. And in the last 12 months alone, TCPC has delivered a 19% ROE. Outside of performance and financial results and as an indication of our commitment to strong corporate governance, TCPC's Board of Directors recently elected Eric Draut to serve in the newly created role of lead Independent Director, effective October 28. Eric's outstanding commitment to serving TCPC shareholders throughout his more than 10 years of service on the Board has been invaluable, and we look forward to his continued contributions as lead Independent Director. In conjunction with this appointment, the Board also appointed existing board members, Peter Schwab as Chair of the Governance and Compensation Committee; and Freddie Reiss as Chair of the Audit Committee. Now I will turn it over to Phil to discuss our investment activity and portfolio positioning.

Philip Tseng

Thanks, Raj. As a member of the TCP and now BlackRock U.S. private capital team for more than 16 years, I've had the benefit of getting to know many of you, and I look forward to getting to work with you more closely. As Raj noted earlier, we are capitalizing on the scale of our platform and breadth of our team's experience to capture an increasing share of this expanding market. At quarter end, our portfolio had a fair market value of approximately $1.8 billion. 90% of our investments are senior secured debt and are spread across a wide range of industries, providing portfolio diversity and minimizing concentration risk. Our portfolio is also weighted toward companies established business models in less cyclical industries. The portfolio at quarter end was made up of investments in 106 companies. As the chart on the left side of Slide six of the presentation illustrates, our recurring income is distributed broadly across our portfolio and is not reliant on income from any one company. In fact, over half of our portfolio companies each contribute less than 1% to our recurring income. Additionally, 86% of our debt investments are first lien, providing substantial downside protection. And 94% of our debt investments are floating rate, positioning us well for when rates eventually rise. Now moving on to our investment activity. In our view, many of the competitive market dynamics that existed prior to the pandemic have reserviced. However, we remain one of a small group of reputable lenders that are able to provide complete and customized financing solutions. As such, we act as a lead or co-lead lender in the majority of our transactions. Also of note, while the environment is competitive, our team continues to find attractive opportunities to invest at a higher spread than the average market transaction. We continue to source a wide range of investment opportunities. And while we have been actively deploying capital in this market, we maintain a very disciplined approach to investing. We regularly review a substantial number of opportunities, but we end up investing in only a small percentage of them. Investment activity in the third quarter was robust for both new deployments and repayments. We invested $157 million, primarily in 16 investments, including loans to seven new portfolio companies and nine existing companies.

Follow-on investments in existing holdings continue to be an important source of opportunity for us, accounting for more than 40% of our total investments over the last 12 months alone. Incumbency clearly has become a differentiator. And from a risk management perspective, these are companies we already know, and we understand it very well, and therefore, we're comfortable making these follow-on investments. As we analyze new investment opportunities, we continue to emphasize seniority in the capital structure, portfolio diversity and transactions where we can act as lead or co-lead. Our largest new investment during the third quarter was a first lien loan to James Perse, a founder-owned luxury fashion apparel brand with a strong long-term operating history and a growing e-commerce presence. BlackRock acted as the sole lender, and our loan was structured with a low leverage profile and strong collateral protection. Our second largest investment in the quarter was a first lien term loan to Infobip. Infobip offers a mobile-first omnichannel customer engagement platform that leverages direct connections to a global network of over 650 telecom operators. The company has a diversified customer base with strong blue-chip representation. And the investment represents a new loan -- sorry, a low loan-to-value with structured downside protection and the proceeds will support the company's growth initiatives. New investments in the third quarter were offset by disposition and repayments totaling $227 million. These included the partial sale of our equity investment in Edmentum and the payoff of our loans to Sphera, Paula's choice, GlobalTranz as well as Apex. Our investment in Sphera is a great example of how our team leverages our industry expertise to identify opportunities in situations that may not be widely understood. Sphera software helps energy companies, ensure that they are complying with environmental regulations.

Despite serving some of the largest global energy companies, we did not believe Sphera's business is directly impacted by energy price volatility, which was a perceived market concern actually at the time of our investment in 2016. As a result of our team's software expertise, we identified this unique opportunity to invest in a strong company that performed well throughout our 5-year investment period and will just ultimately acquired at an attractive valuation in September of this year. The overall effective yield on our portfolio was 9.4% as of September 30. Investments in new portfolio companies during the quarter had a weighted average effective yield of 8.5%, in line with the 8.6% weighted average yield on exited positions. Since December 31, 2018, LIBOR has declined by 268 basis points or by 95%, which has pressured our overall portfolio yield. However, 94% of our loans are floating rate with approximately 90% of them operating with LIBOR floors. Therefore, we believe that we're well positioned to benefit when rates eventually rise. So we continue to invest selectively, as I noted, that maintaining our discipline and focusing on companies with established business models that are well positioned in the current economic environment. Our investment activity in the fourth quarter-to-date totals approximately $32 million, primarily in two senior secured loans with a combined effective yield of approximately 10%. While it is still early in the quarter, we remain encouraged by the opportunities in our pipeline and continue to source from a broad range of industry sectors. The yields on investments in our pipeline are generally in line with our current portfolio. And to date, we have had limited prepayment income in the fourth quarter. I'll now turn it over to Erik to walk through our financial results as well as our capital and liquidity positioning.

Erik L. Cuellar -- Chief Financial Officer

Thanks, Phil. Turning to our financial results for the third quarter. We generated net investment income of $0.32 per share, which exceeded our dividend of $0.30 per share. We continue to be 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. Today, we declared a third quarter dividend of $0.30 per share. Investment income for the third 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 $0.02. Notably, our PIK income continues to be at the lowest level in more than 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 at the time the investment is made. Investment income included $0.03 of dividend income and $0.06 from accelerated OID and exit fees. Dividend income in the third quarter included $1.2 million or $0.02 per share of dividend income from our equity investment in Edmentum, including $600,000 from the portion of our investment that was sold during the quarter. Operating expenses for the third quarter were $0.33 per share and included interest and other debt expenses of $0.18 per share. Incentive fees in the quarter, which included $600,000 of previously deferred fees totaled $4.7 million or $0.08 per share. As we have previously noted, we voluntarily deferred incentive fees related to our income from 2020 over a period of six quarters, amounting to $0.01 per share per quarter, with the final catch-up amount having been recognized this quarter. Our net increase in net assets for the quarter was $10.9 million or $0.19 per share, which included net realized gains of $7.9 million or $0.14 per share. Unrealized losses of $9.5 million or $0.16 per share and a $6.2 million realized loss associated with the early redemption of the August 2022 notes. Unrealized losses during the third quarter primarily reflected a $6.8 million reversal of previously unrealized gains on Edmentum and a $3.7 million unrealized loss on our investment in Hylan, partially offset by a $5.1 million unrealized gain on our investment in Razor Group.

Realized gains of $7.9 million were primarily due to the partial sale of our equity investment in Edmentum. Substantially, all of our investments are valued every quarter using prices provided by independent third-party sources. These include quotation services and independent evaluation services, and our process is also subject to rigorous oversight, including backtesting of every disposition against our evaluations. We placed two of our loans to Hylan on nonaccrual during the third quarter. Hylan is an engineering and construction company that provides electrical, telecom, and utility services in New York City. Hylan operates in a strong sector but has faced operational challenges, and our team is working closely with the sponsor to navigate these challenges. As Raj noted earlier, our overall credit quality remains strong with nonaccrual loans limited to three portfolio companies that represent just 1% of the portfolio at fair value and 1.8% at cost at September 30. Turning to our liquidity position. We ended the quarter with total liquidity of $396 million relative to our total investments of $1.8 billion. This included available leverage of $379 million and cash of $37 million, net of trade spending settlements of $20 million. Unfunded loan commitments to portfolio companies at quarter end equaled 3.8% of total investments or approximately $67 million, of which $32 million were revolver commitments. We continue to opportunistically take advantage of the favorable bond market environment to refinance higher-cost debt. In August, we successfully issued an additional $150 million of our notes due February 2026 at a yield to maturity of 2.475%, bringing the total issuance of the 2026 notes to $325 million. Additionally, we redeemed $175 million of outstanding 4.125% notes due August 2022 as we continue to reduce our overall cost of capital. Our diverse and flexible leverage program now includes two low-cost credit facilities, a convertible note issuance, two unsecured note issuances and an SBA program. Our unsecured debt continues to be investment-grade rated by both Moody's and Fitch. Additionally, given the modest size of each of our debt issuances, we are not overly reliant on any single source of financing, and our maturities are well-laddered. Our nearest maturity is March of 2022. And given the success of our latest bond issuance, we are very well positioned to redeem or refinance those notes. Combined, the weighted average interest rate on our outstanding liabilities decreased to 3.22% from 3.54% at the beginning of the year. Now I'll turn the call back over to Raj.

Rajneesh Vig -- Chairman of the Board & Chief Executive Officer

Thanks, Erik. I'll conclude now with a few comments on the market environment. We are pleased with our strong third quarter results and remain confident in our team's ability to deliver strong risk-adjusted returns for our shareholders. We also remain cautiously optimistic on the investment environment. On the one hand, transaction volumes remain at historically high levels and revenue and EBITDA growth trends are strong across the middle market. However, we remain cognizant of the broader market risks and are closely monitoring inflation trends, supply chain disruptions and energy market volatility as we analyze our pipeline of investment opportunities. In this environment, we are leveraging our team's competitive advantages, including over two decades of experience lending to middle-market companies. Our industry specialization makes us a unique and valuable partner to our borrowers and deal sponsors as well as our special situations experience to structure loans that are downside protected. These advantages enable TCPC to deliver a 19% ROE over the last 12 months and a 16.4% ROE since the start of the pandemic in March of last year. Additionally, excluding the impact of the early redemption of the August 2022 notes, our NAV is up 7.5% since the start of 2020. And with that, operator, please, let's open the call up for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Devin Ryan from JMP Securities. Please go ahead.

Unidentified Participant

Hi, good morning. This is Kevin on for Devin. Touching on quarter-to-date investment activity, can you give us a sense how originations are tracking so far as well as your expectation of portfolio growth in the fourth quarter?

Rajneesh Vig -- Chairman of the Board & Chief Executive Officer

Yes. Maybe I'll turn it over to Phil to just touch on just originations activity and getting the process, and then I'll touch on expectations for the portfolio and growth.

Philip Tseng

Yes. Thanks for the question. So our origination activity continues to be quite robust. The pipeline, as we've seen in past quarters, it continues to be -- show substantial growth year-over-year, and we're tracking that very closely. We think we've made great progress in a number of industries in terms of our mindshare with private sponsors, with advisors, with other lenders and management teams. So our origination pipeline continues to be robust, and we think it bodes well for our Q4 deployment.

Rajneesh Vig -- Chairman of the Board & Chief Executive Officer

Yes. And just in terms of overall growth, Kevin, I think we've said numerous times in the past, we really are credit focused on making the right decision and being disciplined versus being oriented growth for growth's sake. We obviously have grown successfully. I expect that we will continue to, just given the overall market dynamic, just a number of companies that are looking for private credit solutions and our -- each fill trade mindshare within that dynamic, but we will not be compromising the credit view or the credit decision to do that as a mandate, but I do expect that we'll continue to be able to grow just given the overall secular story.

Unidentified Participant

Okay. That's helpful. And I appreciate the color of that color there. And then just on the competitive environment, obviously, geo pricing has been a prominent conversation over the past quarters. Are you still seeing continued downward pressure? Or has that begun to normalize a bit recently?

Rajneesh Vig -- Chairman of the Board & Chief Executive Officer

Yes. Let me take that one and just provide a little context. We obviously had a little bit lower effective yield in the portfolio this quarter. I would highlight, though, that it was around flat, if not slightly below the yield on the exits for the same quarter. So I think when you look at the overall portfolio yield, it doesn't really -- hasn't really changed. That's also not taking into account the benefit on the right side of the balance sheet that we've been able to create through the debt refinancing. And I think what that does is it lets us be very strategic in our pipeline, where we want to spend time, who we want to work with and make some strategic decisions without compromising the portfolio yield. And it is more competitive. But to highlight or reiterate a point Phil made earlier, 40 percent of our volume is from existing deals. So while it is competitive, incumbency and the ability to stay relevant with your deal sources. Is absolutely imperative. And what we can do with the portfolio, I think, allows us to have some flexibility there. Overall, things do seem to be settling out, but no one quarter makes a trend, as we say. But the quarter-to-date activity has been encouraging with a roughly 10 percent effective yield on deployments, although it's still early.

Unidentified Participant

Ok that's it for me and thank you for taking my questions.

Rajneesh Vig -- Chairman of the Board & Chief Executive Officer

Thank you, oops sorry.

Operator

The next question comes from Ryan Lynch from KBW. Please go ahead.

Ryan Patrick Lynch -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Hey good morning, thanks for taking my question. I just had a follow-up because on the last question, you talked about kind of a robust pipeline, which I believe you guys also had -- we've spoken about last quarter. Obviously, there's a lot of market activity, which increased repayments and prepayments. In the third quarter, you also talked about kind of some caution out there and what you guys are looking to deploy in new opportunities being pretty cautious on the environment. So I'm trying to kind of square all that away, with a robust environment and robust pipeline this quarter versus what I think you guys said was kind of the same thing last quarter. That resulted in pretty meaningful net repayments this quarter. Is there expectation that, that should flip going into the fourth quarter?

Rajneesh Vig -- Chairman of the Board & Chief Executive Officer

Yes. Let me try to start and add a little context. Keep in mind that part of a decent part of our repayments was actually an exit from the Edmentum position, which is kind of a one-off. It's a good one to exit because we've got a lot of value, picked up a lot of gain and redeploy equity into credits. But that being said, repayments were high through the quarter. In any one quarter, it's hard to tell. So far, they're low. And so I think if you took that as an indication, maybe they level off, but really, it's just hard to predict. The nice thing is when we do get the repayments, we pick up typically pick up some fees and unamortized discount, which shows up as it did this quarter as a benefit. But I just -- I don't want to predict anything that -- to make it a sort of forward-looking statement and then have it reverse on us. But thus far, has -- the potential's been low. We benefit from them when we get them. But I would also adjust our current quarter repayment level for a one-off item, which was the Edmentum exit.

Ryan Patrick Lynch -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Okay. That's fair. The only other question I had was the $6 million loss prepayment penalty loss from calling the August 2022 notes. That was very high. I mean, that's a 3.5 percent loss on those notes or acceleration of fees. I mean, those notes in total have just over a four percent coupons. So why was that number so high? And why did you choose to repay those early to incur that loss when the costs actually is looking that much higher just have it sit on your balance sheet, to use that as a source of funding for the next nine months?

Erik L. Cuellar -- Chief Financial Officer

Yes. Thanks, Ryan. I'll take that question. Yes, the prepayment fee really was a function of the MACO provision within the venture itself. But it was a decision that we did make both to take advantage of current -- the current rate environment and to lock in the rates longer term. As you saw, the execution on our new deal was -- we're very happy with it. And so overall, we think it's a good trade-off on a long-term basis.

Rajneesh Vig -- Chairman of the Board & Chief Executive Officer

And I would just add, I think Erik highlights, we can't predict where rates go. It feels like they're more inclined to go up and down. And we were blocking the lowest level we've seen for our business. I also would highlight that the benefit of that, aside from the onetime $6.2 million that's incurred the run rate benefit of that new financing does not show up really, given the timing of it in the quarter. So go forward -- on a go-forward basis, we do anticipate that to be a benefit to just NII.

Ryan Patrick Lynch -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Okay. So what was the nature of the $6.2 million make whole? Was that you paying out the remaining interest that would have been due if we held to maturity? Or what was the composition of that $6.2 million?

Rajneesh Vig -- Chairman of the Board & Chief Executive Officer

Yes. It's basically the remaining interest payments discounted. Yes. That's standard make-whole.

Ryan Patrick Lynch -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Got it. Alright that's all I have. I appreciate the time today.

Rajneesh Vig -- Chairman of the Board & Chief Executive Officer

Thank you

Operator

The next question comes from Robert Dodd from Raymond James. Please go ahead.

Robert James Dodd -- Raymond James & Associates, Inc. -- Analyst

Hi guys. Congrats on the quarter. I mean, sticking with the capital structure for the second. I mean, on the convert, which -- I mean, it matures in March next year. I mean, based on where you stand today, what do you expect to just refile that into your revolvers? Or I mean, on a blended basis, you're fixed plus convert plus SBA, I mean your fixed-rate funding, unsecured funding, so to speak, is a pretty high proportional mix. Would you like to keep it that high? Or should we expect that the most likely scenario is for that to locate into or get paid down with the revolvers and increase your floating rate liability mix a little bit.

Erik L. Cuellar -- Chief Financial Officer

Yes, this is Erik. I'll take that. And the latest deal that we did really put us in a very good position to do either one. We certainly have plenty of liquidity and room under our credit facilities to just pay those off in March when they come due. However, we're comfortable with where we are in terms of secured versus unsecured debt. So we're planning on exploring both options, and we have the ability to do either one.

Robert James Dodd -- Raymond James & Associates, Inc. -- Analyst

Okay. I appreciate that. And you certainly have the flexibility. One if I can, I know you don't like to answer questions about specific assets. But on Hylan, can you give us any color? I mean you said operate, I think it was operational challenges. I mean, are those challenges related to supply chain issues, which I can imagine there are a lot. So it's a lot easier to rectify all personnel challenges. Any color you can give us on how we should think of that in terms of how fixable it is.

Rajneesh Vig -- Chairman of the Board & Chief Executive Officer

Yes. Thank you for the question. I'll try to take that. And I will highlight, I will be a little -- obviously, given the stage, the early stage of what's going on there, we have to be a little careful not to -- just be sensitive to the discussions and the nature of them. But overall, I would say -- this is a very isolated incident. It is not a supply chain issue as their work is really more implementing and it's installing -- it's an E&C business, essentially, with good growth trends in the market --in a market in the Northeast that is experiencing the need and dollars flowing toward their services. So we believe it's a good business. In a good sector, and that's a good place to start. And we've had, obviously, based on prior experience, we have done this before. We've done it effectively, and an extreme example is Edmentum, for instance. But operationally, I would say, it's just the nature of implementing and carrying out their service wasn't run as well as it could have been. And in the meantime, the impact of that with the level of debt they've had, put challenges on them in terms of liquidity. So those seem to be resolvable issues, obviously, is going to be a longer tail process to get to the right outcome. We feel like we know what we're doing there, and we have a good asset with which to start with. But I think we'll just provide updates as we can quarter-over-quarter. We just emphasize that this is kind of a one-off versus anything systemic or characteristic for the broader portfolio, including supply chain exposure, just given our sectors, we just really don't have a lot of traditional supply chain exposure on working capital or tangible assets when you look at our end market and industry that we focus on. And that also is the case for Hylan.

Robert James Dodd -- Raymond James & Associates, Inc. -- Analyst

Got it, got it. I appreciate it. Thank you.

Operator

[Operator Instructions] Our next question comes from Christopher Nolan from Ladenburg Thalmann. Please go ahead.

Christopher Whitbread Patrick Nolan -- Ladenburg Thalmann & Co. Inc. -- Analyst

By the way, congrats on your first quarter as senior management team.

Rajneesh Vig -- Chairman of the Board & Chief Executive Officer

Thank you.

Christopher Whitbread Patrick Nolan -- Ladenburg Thalmann & Co. Inc. -- Analyst

Can you share with us your perspective in terms of where you think interest rates will be, how it will change in 2022?

Rajneesh Vig -- Chairman of the Board & Chief Executive Officer

Boy, if I could do that effectively, I might be in a different roofer role, but I think I said it earlier, it feels like the trend is to be higher. I don't know that we can predict that or I think all we can do is really position the portfolio to benefit from it. And between the level of fixed-rate debt on the right side of the balance sheet that we reduced the cost of and the positioning of floating-rate assets on the left side of the balance sheet, even with the floors that protect us, I feel like we're well-positioned for rising rates. We just can't predict how quickly or how much, but it feels like that's more likely than not, but it's just not our business to make explicit rate predictions versus being positioned for something that we can benefit from.

Christopher Whitbread Patrick Nolan -- Ladenburg Thalmann & Co. Inc. -- Analyst

Raj, given that it seems like a possibility of the Fed will tighten and also the long end of the curve could go up just from the Fed starting to taper. Would that impact your book value so far as your quarterly valuation of your investment portfolios are done on a discounted cash flow and the discount rate used would necessarily go up as well?

Rajneesh Vig -- Chairman of the Board & Chief Executive Officer

I think it's possible, I guess. But when we look at how our evaluations are done, it's not only discounted cash flows. There is a lot of -- a fair bit of market comp data being incorporated. And obviously, those multiples have benefited both portfolio and loan-to-value coverage on a market value basis. There are transaction comps. And again, those have all been moving up and to the right. And then there is discounted cash flow as sort of -- and they triangulate. So at the end of the day, and then there's always backtesting, which we do frequently, but that shows our book, I think, is marked quite well and accurately unrealized exits. So I think the providers, and they should probably answer for themselves, do try to take a more balanced approach and triangulate it around the nature of the asset and the fundamental business value. So I don't anticipate that any one is going to disproportionately impact us even if there is, as you say, a mechanical change in DCF.

Erik L. Cuellar -- Chief Financial Officer

Yes. and with that mostly floating rate portfolio, that should -- that sort of most of the impact from rates as far as the evaluation goes.

Christopher Whitbread Patrick Nolan -- Ladenburg Thalmann & Co. Inc. -- Analyst

Thank you.

Rajneesh Vig -- Chairman of the Board & Chief Executive Officer

Thank you.

Erik L. Cuellar -- Chief Financial Officer

Sure.

Operator

There are no more questions in the queue. This concludes our question-and-answer session. I'd like to turn the conference back over to Raj Vig for any closing remarks.

Rajneesh Vig -- Chairman of the Board & Chief Executive Officer

Thank you. We appreciate your participation on today's call. I would like to thank our team for all the continued hard work and dedication. I would also like to thank our shareholders and capital partners for your confidence and your continued support. Thanks for joining us. This concludes today's call.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Kathleen McGlynn -- Vice President of Investor Relations

Rajneesh Vig -- Chairman of the Board & Chief Executive Officer

Philip Tseng

Erik L. Cuellar -- Chief Financial Officer

Unidentified Participant

Ryan Patrick Lynch -- Keefe, Bruyette, & Woods, Inc. -- Analyst

Robert James Dodd -- Raymond James & Associates, Inc. -- Analyst

Christopher Whitbread Patrick Nolan -- Ladenburg Thalmann & Co. Inc. -- Analyst

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