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TCPC BlackRock TCP Capital

Participants
Kathleen McGlynn VP, IR
Howard Levkowitz Chairman & CEO
Erik Cuellar CFO
Paul Davis CFO
Rajneesh Vig President, COO & Director
Christoph Kotowski Oppenheimer
Robert Dodd Raymond James & Associates
Ryan Lynch KBW
Finian O'Shea Wells Fargo Securities
Kevin Fultz JMP Securities
Christopher Nolan Ladenburg Thalmann & Co.
Call transcript
Operator

Ladies and gentlemen, good afternoon. Welcome, everyone, to BlackRock TCP Capital Corp.'s First 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 Corp. Global Investor Relations team. Katie, please proceed.

Kathleen McGlynn

Thank you, Rocco.

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 first quarter ended March 31, 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, Howard Levkowitz.

Howard Levkowitz

Thanks, Katie, and thank you all for joining us today. We appreciate your continued interest in TCPC and hope that you are safe and well. There are several members of the TCPC team on the call with me, including our President and COO, Raj Vig; our CFO, Paul Davis; and our controller, Erik Cuellar. I will start with a few comments on our performance in the first quarter and an update on our portfolio.

Next, Paul will review our financial results as well as our capital and liquidity positioning. After that, I will provide some closing comments before opening the call to your questions. Beginning with the highlights from our first quarter. We delivered another robust quarter of results that included further NAV depreciation, continued strong credit quality, steady originations and strong investment income.

Our consistent results were driven, in part, by our focus on established middle market companies with resilient business models in less cyclical industries. Despite the significant market volatility in 2020, our NAV ended the year higher than it was at the end of 2019, and our NAV further appreciated 2.4% in the first quarter of this year. NAV appreciation in the first quarter reflected further spread narrowing on middle market private credit transactions as well as strong financial performance across most of our portfolio companies.

Our credit quality remains solid with loans to 2 portfolio companies on nonaccrual, totaling just 0.4% of the portfolio at fair value at quarter end.

We also took advantage of the favorable bond market during the quarter to lower our borrowing costs. We issued an additional $175 million of unsecured notes at an attractive rate of 2.85%, which was record pricing for sub index eligible BDC bond issuance. In February, both Moody's and Fitch, also reaffirmed our investment-grade rating with stable outlook.

Turning to our portfolio positioning. At quarter end, our portfolio had a fair market value in excess of $1.7 billion, an increase of over $100 million from the prior quarter. 89% of our investments are senior secured debt and are spread across a range of industries, providing portfolio diversity and minimizing concentration risk.

Our portfolio is also weighted towards 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 those in the retail and airline sectors, are generally supported by strong collateral protections and most of our investments in these industries continue to perform well.

During the quarter, we successfully exited our equity in OneSky, the second largest provider of private jet aviation services in the country, and our loan to Dealer-FX, a technology solutions provider for automotive dealership service departments, which was repaid.

Our diverse portfolio, including 98 companies at quarter end, our largest position, 36th Street Capital, represents 4.2% of the portfolio and provides further diversification given its underlying portfolio of lease assets.

As the chart on the left side of Slide 6 of the presentation illustrates, our recurring income is spread broadly across our portfolio and is not reliant on income from any 1 portfolio company.

In fact, over half of our portfolio companies each contribute less than 1% to our recurring income. 94% of our debt investments are floating rate.

Additionally, 86% of our debt investments are first lien.

Moving on to our investment activity. Market origination volumes were significant in the first quarter.

While we have been actively deploying capital in this market, we are also leveraging the breadth and depth of the BlackRock platform, selecting from a wide range of opportunities to maintain our disciplined approach to investing.

We continue to review a significant number of potential investment opportunities, but invest in only a small percent of them.

During the first quarter, we invested $183 million, including investments in 15 new loans, 6 of which were 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 lead or colead.

Our largest new investment during the first quarter was a senior secured first lien term loan to WorldRemit. WorldRemit is a leading global money transfer platform that facilitates international transfers using a computer or mobile device, enabling users to send money more easily and securely. The portfolio of the company is well positioned to gain market share as the volume of global remittances conducted through digital transactions is expected to continue to increase.

We are pleased that WorldRemit chose our team to lead their first lien financing in support of their M&A strategy.

New investments in the first quarter were partially offset by dispositions totaling $96 million. These included the sale of our equity investment in OneSky and Dealer-FX, as I noted earlier, as well as repayments of our loans to web.com and PatientPoint. The overall effective yield on our debt portfolio was 9.5% as of March 31. Investments in new portfolio companies during the quarter at a weighted average yield of 9.3%, modestly above the 9% weighted average effective yield on investments we exited in the quarter. Since December 31, 2018, LIBOR has declined 261 basis points or by 94%, which has put pressure on our portfolio yield.

However, our portfolio is largely protected from any further declines in interest rates as 84% of our floating rate loans are currently operating with LIBOR floors.

We continue to invest selectively, focusing on companies that are minimally impacted by the pandemic or are beneficiaries of the current economic environment.

Our investment activity in the second quarter-to-date totals approximately $100.6 million, primarily in 7 senior secured loans with a combined effective yield of approximately 8.9%. The yields on investments in our pipeline are generally in line with our current portfolio to date. To date, we have had limited prepayment activity in the second quarter.

Before turning the call over to Paul, I would like to thank him for his tremendous contributions over the past 17 years.

As we announced last month, Paul will be leaving on June 3 to pursue new opportunities. He built a first-class operation over nearly 2 decades with our team, and we would like to acknowledge him for his dedication and his partnership. I would also like to congratulate Erik Cuellar on his promotion to CFO. Erik has been an instrumental part of the finance team working alongside Paul and serving as TCPC's Controller. Erik has extensive experience in the BDC sector and in asset management more broadly, making him highly qualified to succeed Paul. Erik, would you like to say a few quick words?

Erik Cuellar

Thank you, Howard. And I would also like to thank Paul for his leadership and guidance over the years. After serving as TCPC's Controller for the past 10 years, I've had a chance to work with most of you, and I look forward to working with all of you even more closely and continuing to work with the TCPC team to deliver strong results for our shareholders.

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

Paul Davis

Thanks, Erik. Thanks, Howard. My many congratulations to Erik on his pending appointment. I've worked alongside Erik for a decade and known to be a capable and experienced leader and well-qualified to serve as the company's CFO. I'm grateful for the trust and opportunity to have served our shareholders since our inception, and I leave our team and the company in good hands.

Now turning to our financial results for the quarter. We generated net investment income of $0.32 per share, which exceeded our dividend of $0.30 per share. We remain committed to paying a sustainable dividend that is fully covered by net investment income as we've done every quarter since our IPO in 2012. Today, we declared a second quarter dividend of $0.30 per share. Investment income for the quarter was -- for the first quarter was $0.71 per share. This included recurring cash interest of $0.57, recurring discount and fee amortization of $0.03 and PIK income of $0.02. Notably, this was our lowest level of PIK income in more than 3 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 also included $0.02 of other income, $0.06 of dividend income and $0.01 from accelerated OID and exit fees. Dividend income in the first quarter included $1.3 million or $0.02 per share of recurring dividend income on our equity investment in Edmentum. Operating expenses for the first quarter were $0.31 per share and included interest and other debt expenses of $0.17 per share. Incentive fees in the first quarter, including $0.6 million of previously deferred fees, totaled $4.7 million or $0.08 per share for total net investment income of $0.32 per share.

As we've previously noted, incentive fees related to our income from the first quarter of 2020 were deferred when our performance temporarily fell below the total return hurdle.

While the full amount was earned in the second quarter of that year, when our performance again surpassed our total return hurdle, we voluntarily further deferred the amount over 6 quarters through September of this year, subject to our cumulative performance remaining above the hurdle. We believe this deferral further aligns our interest with 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 $35 million or $0.61 per share, which included net unrealized gains of $14 million and net realized gains of $3 million. Unrealized gains reflected both continued spread tightening and credit specific gains at a number of portfolio companies. The largest driver of the unrealized gains in the quarter was $6.2 million of appreciation on our investment in Edmentum. The company delivered improved financial results as interest in its online educational products continues to increase. Realized gains of $3 million included a significant gain on the sale of our equity investment in OneSky, partially offset by the exit of our loans to GlassPoint Solar. 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 strong.

As Howard noted, with no new nonaccruals in the first quarter.

Following the exit of our loans to last point, we now just have -- we now have just 2 portfolio companies on nonaccrual, CIBT and Avanti, which together represented only 0.4% of the portfolio at fair value of 0.8% cost. We ended the quarter with total liquidity of $420 million. This included available leverage of $396 million, cash of $14 million and net pending settlements of $10 million. Unfunded loan commitments of 2 portfolio companies at quarter end equaled just 4% of total investments or $75 million, of which $29 million were revolver commitments. In February, we opportunistically issued an additional $175 million of unsecured notes at 2.85%.

As Howard noted, a record low coupon for a sub index eligible BDC bond issuance.

Our diverse and flexible leverage program now includes 2 low-cost credit facilities, convertible note issuance, 3 straight unsecured note issuances and an SBA program.

Our unsecured debt continues to be investment-grade rated by both Moody's and Fitch. In January, Fitch reaffirmed our investment-grade rating with a stable outlook. Noting, among other things, are "Solid track record in credit, experienced management team and strong funding flexibility." And in February, Moody's also reaffirmed its investment-grade rating with a stable outlook, noting TCP's "Track record of financial performance over its 8-year operating history, effective liquidity management and an investment portfolio comprised of a higher proportion of senior secured loans, which to date credit performance and earnings stability." 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 particularly now after our recent bond issuance, we are very well positioned to redeem those notes. Combined, the weighted average interest rate on our outstanding liabilities decreased to 3.48%, down from 3.54% at the beginning of the quarter. I'll now turn the call back over to Howard.

Howard Levkowitz

Thanks, Paul. The last 14 months have emphasized the key role that BDCs play in providing capital to the middle market businesses that account for roughly 1/3 of private sector GDP as well as the stability and resiliency of these businesses. Middle market companies increasingly look to direct lenders like BlackRock for tailored financing solutions to achieve their strategic growth initiatives. We remain selective in making new investments, leveraging the strength and scale of the BlackRock platform to source unique or overlooked opportunities as we've done throughout our history.

Our team has been lending to middle market companies for more than 2 decades through multiple cycles, and we continue to draw upon this experience to inform our investment decisions and to deliver strong risk-adjusted returns for our shareholders. Since our IPO in 2012, and 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 10.7%. TCPC has also consistently outperformed the Wells Fargo BDC index. The overall market environment is robust, and we continue to see a pickup in activity. That said, we remain selective and disciplined.

As we navigate the current market environment we are guided by our experience managing through several economic cycles, and we will continue to seek to maintain a diversified portfolio that underweights highly cyclical industries, take advantage of unique and not widely understood industry or company dynamics, take senior secured positions and structure transactions to include specific collateral or assets for downside risk mitigation. In closing, we would like to thank our entire team for their continued hard work, dedication and focus on generating strong risk-adjusted returns for our shareholders particularly given the challenging environment over the past year. And with that, operator, please open the call for questions.

Operator

[Operator Instructions]. Today's first question comes from Chris Kotowski with Oppenheimer.

Christoph Kotowski

Yes. I was wondering, in particular, on Page 18 of your presentation, you see a significant step down in the interest income and a significant step-up in dividend income? And you referenced $1.3 million of dividend income. But I was wondering, is there some other kind of reclassification or what happened there?

Rajneesh Vig

Chris, it's Raj. I'll take that.

I think the biggest part of that movement is probably tied to Edmentum, where we have an equity position that's accruing. And obviously, we had the recap and the repayment of the debt in prior quarters.

Erik Cuellar

And I would also -- I would say I would note that, that is -- we view it as recurring dividend income.

Rajneesh Vig

Right.

Christoph Kotowski

The $1.3 million that you referenced is recurring?

Erik Cuellar

That's most of it.

Rajneesh Vig

Yes. Anything tied to Edmentum, which I think is the majority of that is recurring contractual income.

Erik Cuellar

Correct.

Christoph Kotowski

And the step down in the interest income, is that kind of just the other side of the equation? Was it a debt equity swap? Or because you -- I mean, your interest income had been pretty steady in the $40 million, $41 million area, and then it dropped, right, like $3 million or $4 million another quarter?

Erik Cuellar

No. It wasn't big part by that switch from debt-to-equity on the Edmentum position. And really no prepayment income this quarter, which does flow into interest income.

Rajneesh Vig

Yes.

Just to be clear, it wasn't a debt equity swap within between the quarters. It was a repayment of the debt position and an ongoing income tied to the equity, which was stepped up because of the valuation upon which that transaction was closed. It wasn't a swap technically. It just was the ongoing position as equity at a higher value.

Christoph Kotowski

And then secondly, I think you indicated that there were no -- in the current quarter-to-date that there were no significant paydowns. I wonder, can you characterize the inflow side of the equation. Is there -- one would think the from theologic M&A statistics that it's a very active market.

Howard Levkowitz

Chris, thanks for the question. It is -- and just for clarity, Erik's comment was not that there weren't material prepayments, but there wasn't significant prepayment income. Making that distinction, as I think you and others are well aware, we have episodic prepayment premiums from different investments and they range in amounts from quarter-to-quarter. And we were just identifying that we hadn't, to date, gotten significant amounts of those.

Our deal activity is robust.

You can see from Q1, we added a number of investments, most of which we were the leader sole investor on, certainly in the larger ones. That continues into Q2 also, but repayments and prepayment income are both episodic. Q1 has historically been a little lighter for us, although it's been robust on the origination side. We're only 5 weeks into Q2.

So it wouldn't derive too much from 5 weeks of data.

Operator

And our next question today comes from Robert Dodd with Raymond James.

Robert Dodd

And follow-up on Chris, just to kind of drill down to the dividend income question a little first. I mean, so you had -- the control dividend was $1.7 million.

You say $1.3 million of that was related to Edmentum and is recurring. There are obviously -- so there's another $400,000, which obviously there's NEG, Iracore, couple of other control equity positions. Was the other $400,000 from them? And is that not returning?

Paul Davis

Yes. We had about $0.5 million from Iracore this quarter.

We also had about, I think, $800,000 from 36th Street and then some other income from Amtech dividend income this quarter, about $800 million from Amtech as well.

Robert Dodd

Understood. And how much is basically of the dividend income, you said that basically just the $1.3 million is recurring? I mean, the 36th Street...

Rajneesh Vig

No. -- Yes, sorry, yes.

So I don't have an exact breakdown of -- but I would say most of that should be recurring. 36th Street, as you know, has a preferred rate contractual, and then we have a participation in dividend income a majority split, which has actually been -- we're well into that each quarter, and it's growing.

So that is actually partly recurring and then the variable component actually takes us up quite a bit over the recurring amount, which we like.

So the majority -- I would say the majority of it is recurring, but then where it's not, we're actually seeing good, consistent variable income that has actually been growing as it ties to 36th Street.

Robert Dodd

Got it. Got it.

So that's kind of recurring nonrecurring.

Rajneesh Vig

Recurring, nonrecurring and growing, I guess, if you will. We get the last one.

Robert Dodd

Yes. Got it. Yes. Appreciate it. And just on the portfolio overall, I mean, when it looks to be in very, very good shape. I mean, ignoring, if I can, that you're not seeing near-term repayments. Is the -- expect -- what's the probability in your view with the hot M&A market through the rest of the year, which appears likely specific tax changes next year, that you're going to see a material acceleration in prepayment activity, whether that comes with fees or not, it's a different question, right? The prepayment activity kind of in the middle of this year? And how is your pipeline ready to cope with that? I mean, any color on that front? It looks like the market is hot and you're going to get repaid on a good number of assets?

Rajneesh Vig

So maybe I'll try to start and ask others and Howard to join in on some of the perspective. But I would say that -- so let me try to break it up a little bit. The pipeline is good. It's very good, and you've seen that in the deployment for the quarter and just the early part of the next quarter. It's hard to predict prepayment income in part because of the timing of prepayments and also the level of what gets triggered at a time of prepayment. I would also say that the portfolio has been generating good leads internally from add on opportunities.

So a lot of folks right now are actually continuing to invest in our business, grow through M&A.

So it's not so much a prepayment, it's actually additional capital to pursue those initiatives, which we like, we really like those types of deals.

So it's hard to predict, and I don't actually want to get in the game of predicting what happens with prepayment from repayment, but it's very episodic, as Howard said. Over time, I expect that we'll see some more, but it's just hard to predict within each quarter. But the pipeline, I think, just to go back to my earlier point, is in good shape to handle that as it comes.

Howard Levkowitz

Robert, just to build on what Raj is saying, it's Howard. When we look back at our portfolio historically and TCPC has been public well over 9 years, and its predecessor funds existed privately for two decades. Every quarter, it varies. But over long periods of time, prepayments are fairly consistent. And this includes even the very difficult periods through the great GFC you can see variance. In Q4, we had significant prepayments. Q1, they were low. But if you look at a multi-quarter period of time historically, you have quarter-to-quarter delta but over long periods of time, it tends to be fairly consistent. And we think that's likely to continue, albeit with Raj's comment that we are really actively working with good borrowers to retain them. And historically, for a long period of time, over half our loans have been to existing borrowers and relationships. And it's the advantage of having been doing this for a long time, having good relationships with people.

And so that's something that's really important to us, and we look to do where it makes sense.

Operator

And the next question today comes from Ryan Lynch at KBW.

Ryan Lynch

First one, just kind of a higher level one.

You guys obviously have had seen a nice increase in your deal flow, both in the first quarter, but also a really strong start to Q2. Can you just talk about from where you guys sit? What is kind of the main drivers that's resulting in the increase in deal flow that you guys are you able to take advantage of?

Rajneesh Vig

Yes. Thanks for the question. I would say, when you exclude the sort of immediate post-COVID period, but in the current period, it's very much what we've seen historically, which is M&A, some growth capital investments.

In fact, many sectors are we're seeing -- even in the defensive areas, we're seeing good growth and initiatives, particularly around the technology space, health care and financial services. But it's -- I think it's a good use of proceeds to invest in the business or invest in the business via acquisition of another business. And I would say those are the themes we're seeing consistently across the sector that we like and have exposure to.

Ryan Lynch

Does the -- just where we are as far as coming out of a cycle, having the outlook of very strong economic growth over the coming quarters and hopefully, coming years. Does that change the frame in which you guys are looking to deploy capital, either that be in certain sectors? Or in where you guys are looking to invest in the capital structure of the companies of the sectors that you're currently in?

Rajneesh Vig

I would say marginally. I mean, we really do -- not only the history of the public company, but just the platform, in general, we've always said we're going to -- we like focusing on the defensive industries.

I think going into COVID, we didn't anticipate Covid, but we anticipate the defensive industries being able to hold up well, and generally, they did.

I think at the margin, as we see growth, I wouldn't say it's going to change where we want to be in the capital structure. We may be willing to participate in that growth more actively. It doesn't mean we're going to stretch on our loan-to-value or our attachment points, but we -- there's some evidence in growth and some reliability on the valuations and the creditworthiness it drives.

So I think at the margin, we'll be open to those within the sectors that we follow. But generally speaking, what we've been doing we feel works, where we've been investing in the cap structure feels like the right place. And I think I very much echo that we want to do more of the same with our borrowers.

Operator

And our next question today comes from Finian O'Shea with Wells Fargo.

Finian O'Shea

Congratulations, Paul, and everyone else on the new beginnings. I just had a question tying a lot of this dialogue together on the origination environment, a slower repayment environment, I wanted to ask about your leverage. I know that you don't tie yourself to a number there, but we are on the higher end of where you'll typically run. Is this a function of when combining that with an outlook for portfolio growth. Is this a function of you have more unsecured debt and the economy is good, and there's more opportunities should we think of those things driving leverage potentially higher? Or should we think about TCP sort of relaxing on portfolio growth over the next couple of quarters?

Howard Levkowitz

So Fin, thanks for the question. It's Howard. Good afternoon to you, and still good morning from us here in Santa Monica. Appreciate the question on leverage.

We are very mindful of the leverage that we run on the right side of our balance sheet. We're very pleased with what we've been able to do there. A year ago, starting to extend facilities, add more unsecured debt.

We have ample liquidity on our revolvers and flexibility. And as we think about the balance sheet, we build it one loan at a time. And it's -- we're really focused on doing good deals how do they fit in with our portfolio construction and management, and we have the flexibility to go up and down in our leverage a little bit. And we really prefer to think about does each incremental deal fit in with the portfolio well or not as opposed to does this add just a small increment of additional leverage on it. And as long as we're within our band of safety and comfort, which we're well within that. We just received favorable treatment from both rating agencies earlier this year.

We are comfortable letting the leverage go up a little bit or come down as it did for a number of the last quarters as opposed to focusing on that as a singular issue. And our goal is to provide good solutions to our borrowers, have good loans on the books. And not get overly concerned with whether the leverage attachment point is moving up or down a little bit as long as it stays within in our comfort risk range, and we are well within that.

Finian O'Shea

Okay. And was there any -- I haven't looked at the latest rating agency review. Is there any change in their sort of target guidelines on your maintaining investment grade?

Paul Davis

No. I mean, this is Paul.

Our last conversations with them have all been very positive. They're seeing the way we're tracking against their metrics from all -- everything I could tell is strong and positive and lot of confidence in our rating going forward. They have their own view is on the sector as a whole. But on us, they've both been very positive, and we're grateful for that.

Operator

And our next question today comes from Kevin Fultz with JMP Securities.

Kevin Fultz

Most of my questions have been answered already, but I just have one follow-up on prepayments. I know we're talking about a 5-week period with possibly some visibility beyond that. But would you say the cadence of prepayments quarter-to-date is similar to what you saw in the first quarter?

Howard Levkowitz

It's really too early to make that assessment.

If you look at our prepayments, Q1 versus Q4, there's a big difference. They were much larger in Q4. And year-end has its own pattern, Q1 has it to pattern, but I don't -- wouldn't derive a whole lot from that other than the fact that it's a 13-week period in any given quarter. And in a few weeks, sometimes you can have loans. We had a loan last year that we thought were going to pay off 3 quarters in a row. They kept taking it up and there kept being issues, technical issues.

And so it was a larger loan. And that's the kind of thing that happens in these portfolios. It's very normative. And at this point, we were simply highlighting the fact that we hadn't seen the significant prepayment income because we do from time to time, have quarters where it's more significant. But this quarter-to-date, we haven't yet seen much of it.

Operator

And our next question today comes from Christopher Nolan with Ladenburg Thalmann.

Christopher Nolan

First, I want to say, congratulations to both Paul and Erik. Paul, it's a pleasure working with you. And Erik, I am looking forward to working with you in the future. Most of my questions have been asked and answered, except there is one that we're talking -- we're hearing more and more about economic inflation starting to creep in. It's already affecting the economy. And looking at the Q, roughly 3/4 of your adjustments at fair value, use an income approach using a discount rate.

Now I know that according to the Q, if interest rates were to go up, your net investment income benefits. But what happens to your book value per share? I mean is it impacted? And if so, how much do you think from, let's say, 50 bp movement?

Howard Levkowitz

We have the interest rate sensitivity on there. And of course, that's tied to LIBOR. And over time, we will see a transition away from LIBOR. And I would just note that the interest rate changes that everybody is so focused on are more in the treasury market than in the LIBOR market.

And so I'd keep that in mind. But we have granular disclosure on what we would expect there with respect to interest rates.

Erik Cuellar

Yes I just add -- sorry, Yes, I was going to add that because most of our portfolio is floating rate, it's unlikely that it would have a significant effect on valuations. It's really more driven by changes in spreads versus LIBOR changes since it is mostly floating rate.

Christopher Nolan

Well, again, my concern is more about how your valuations happen because if interest rates go up and you're using a discount rate, normally, that discount rate will go up, and that would impact the fair value of your investments.

Rajneesh Vig

But yes, I think what we're saying is if the interest rates went up, the reference rate went up, and it was actually tied to LIBOR as floating rate assets, the overall rate on the loans would also go up.

And so I think that mitigates that difference between the valuation rate and what the loan rate is. But I think it also -- just speaking practically, if things went up gradually, I don't see that being a big shot to the system because the asset side and the liability side, the rates will just progressively move. If it was a sudden dramatic move in rates, perhaps that's different, something along the lines of what happened in COVID. But again, that's just -- it's hard to predict a shock to the system. But I think any gradual moves would allow us to match it on the asset side.

Howard Levkowitz

And Chris, we've been using -- we use third-party valuations for almost our entire portfolio every quarter. And we've been using this process going back decades. It's very robust. And you can actually see historically, I mean, we have had rate movement.

We have had LIBOR go up and down over the last 5 years, in fact. And certainly, the last 8 or 9 coming out of the global financial crisis and you can see quarter-over-quarter, the impacts on our books. And I think as both Erik and Raj are pointing out, if you're getting a move in LIBOR itself, we'd expect the spreads to move in the way they have historically probably and you can see how that flows through in our books. And it's -- there's a lot of precedent for.

Rajneesh Vig

Yes. And just as a punch line, we actually welcome higher rates. We said that the last time rates were on the downward trend, I think, again, on the asset side, that's something in terms of the underwriting environment would be welcome to us.

Operator

Ladies and gentlemen, this concludes your question-and-answer session. I'll turn the call back over to Howard Levkowitz for any final remarks.

Howard Levkowitz

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

Operator

Thank you, sir.

You may now disconnect your lines, and have a wonderful day.