XNAS:TCPC TCP Capital Corp Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

 

FORM 10-Q

 

 

 

xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the Quarter Ended June 30, 2012

 

¨Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number: 001-35494

 

TCP CAPITAL CORP.

(Exact Name of Registrant as Specified in Charter)

 

Delaware       56-2594706
(State or Other Jurisdiction
of Incorporation)
      (IRS Employer
Identification No.)

 

2951 28th Street, Suite 1000

Santa Monica, California

  90405
(Address of Principal Executive Offices)   (Zip Code)

 

Registrant’s telephone number, including area code (310) 566-1000

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨ Accelerated filer ¨
       
Non-accelerated filer x Smaller Reporting company  ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

 

The number of shares of the registrant’s Common Stock, $0.001 par value, outstanding as of August 8, 2012 was 21,475,635

 

 

  

 
 

 

TCP CAPITAL CORP.

 

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2012

TABLE OF CONTENTS

  

    PAGE
     
Part I. Financial Information  
     
Item 1. Financial Statements  
     
  Consolidated Statements of Assets and Liabilities as of June 30, 2012 (unaudited) and December 31, 2011 3
  Consolidated Statements of Investments as of June 30, 2012 (unaudited) and December 31, 2011 4
  Consolidated Statements of Operations for the three and six months ended June 30, 2012 (unaudited) and June 30, 2011 (unaudited) 16
  Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2012 (unaudited) 17
  Consolidated Statements of Cash Flows for the six months ended June 30, 2012 (unaudited) and June 30, 2011 (unaudited) 18
  Notes to Consolidated Financial Statements (unaudited) 19
  Consolidated Schedule of Changes in Investments in Affiliates for the six months ended June 30, 2012 (unaudited) 33
  Consolidated Schedule of Restricted Securities of Unaffiliated Issuers as of June 30, 2012 (unaudited) 34
  Consolidating Statement of Assets and Liabilities as of June 30, 2012 (unaudited) 35
  Consolidating Statement of Operations for the six months ended June 30, 2012 (unaudited) 36
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 49
     
Item 4. Controls and Procedures 49
     
Part II. Other Information  
     
Item 1. Legal Proceedings 50
     
Item 1A Risk Factors 50
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 50
     
Item 3. Defaults upon Senior Securities 50
     
Item 4. Mine Safety Disclosures 50
     
Item 5. Other Information 50
     
Item 6. Exhibits 50

 

 
 

 

TCP Capital Corp.

 

Consolidated Statements of Assets and Liabilities

 

   June 30, 2012   December 31, 2011 
   (unaudited)     
Assets          
Investments, at fair value:          
Unaffiliated issuers (cost of $435,413,680 and $380,905,101, respectively)  $335,442,072   $287,312,979 
Controlled companies (cost of $26,711,048 and $26,711,048 respectively)   1,305,748    740,761 
Other affiliates (cost of $90,194,742 and $92,886,265, respectively)   115,570,517    90,906,796 
Total investments (cost of $552,319,470 and $473,791,366, respectively)   452,318,337    378,960,536 
           
Cash and cash equivalents   11,208,200    10,831,678 
Accrued interest income:          
Unaffiliated issuers   5,176,675    5,505,427 
Affiliates   1,110,806    783,375 
Receivable for investments sold   213,554    4,297,270 
Deferred debt issuance costs   917,972    1,137,513 
Unrealized appreciation on swaps   437,912    172,424 
Prepaid expenses and other assets   570,129    1,765,280 
Total assets  $471,953,585   $403,453,503 
           
Liabilities          
Credit facility payable   17,000,000    29,000,000 
Payable for investments purchased   2,176,789    267,911 
Payable to the Investment Manager   2,031,096    226,100 
Management and advisory fees payable   -    565,599 
Interest payable   34,528    75,668 
Accrued expenses and other liabilities   558,382    980,933 
Total liabilities   21,800,795    31,116,211 
           
Preferred equity facility          
Series A preferred limited partner interests in Special Value Continuation Partners, LP; $20,000/interest liquidation preference; 6,700 interests authorized, issued and outstanding   134,000,000    134,000,000 
Accumulated dividends on Series A preferred equity facility   533,052    466,418 
Total preferred limited partner interests   134,533,052    134,466,418 
           
Net assets applicable to common shareholders  $315,619,738   $237,870,874 
           
Composition of net assets applicable to common shareholders          
Common stock, $0.001 par value; unlimited shares authorized, 418,955.777 shares          
issued and outstanding as of December 31, 2011  $-   $419 
Common stock, $0.001 par value; 200,000,000 shares authorized, 21,475,635 shares          
issued and outstanding as of June 30, 2012   21,476    - 
Paid-in capital in excess of par   445,713,655    364,742,957 
Accumulated net investment income   17,657,409    13,515,239 
Accumulated net realized losses   (47,796,757)   (45,411,498)
Accumulated net unrealized depreciation   (99,976,045)   (94,976,243)
Net assets applicable to common shareholders  $315,619,738   $237,870,874 
           
Net assets per share  $14.70    N/A 

 

See accompanying notes.

 

3
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Unaudited)

 

June 30, 2012

 

Showing Percentage of Total Cash and Investments of the Company

 

           Percent of 
   Principal   Fair   Cash and 
Investment  Amount   Value   Investments 
                
Debt Investments (82.23%)               
Bank Debt (61.47%) (1)               
Accounting, Tax Preparation, Bookkeeping, and Payroll Services (4.29%)               
Expert Global Solutions, LLC, Senior Secured 1st Lien Term Loan B, LIBOR + 6.75%,               
1.25% LIBOR Floor, due 4/2/18  $4,937,625   $4,919,109    1.06%
Expert Global Solutions, LLC, Senior Secured 2nd Lien Term Loan, LIBOR + 9.5%,               
1.5% LIBOR Floor, due 10/2/18  $15,000,000    14,985,000    3.23%
Total Accounting, Tax Preparation, Bookkeeping, and Payroll Services        19,904,109      
                
Business Support Services (4.17%)               
STG-Fairway Acquisitions, Inc., Senior Secured 2nd Lien Term Loan, 12.5%,               
due 12/29/15  $19,287,932    19,345,796    4.17%
                
Computer Equipment Manufacturing (2.09%)               
ELO Touch Solutions, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 10.5%,               
1.5% LIBOR Floor, due 12/4/18  $10,000,000    9,700,000    2.09%
                
Commercial and Industrial Machinery and Equipment Rental and Leasing (3.78%)          
Sky Funding AMR Lease Portfolio, Senior Subordinated 1st Lien Term Loan, 10%,               
due 9/6/16 - (Ireland)  $17,000,000    17,544,000    3.78%
                
Communications Equipment Manufacturing (2.07%)               
Mitel US Holdings, Inc., 2nd Lien Term Loan, LIBOR + 7%, due 8/16/15  $9,951,762    9,578,571    2.07%
                
Data Processing, Hosting, and Related Services (1.61%)               
The Telx Group, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 6.5%,               
1.25% LIBOR Floor, due 9/22/17  $7,443,771    7,462,381    1.61%
                
Electronic Shopping and Mail-Order Houses (2.76%)               
Shopzilla, Inc., Senior Secured 2nd Lien Term Loan, 13%, due 6/1/14  $12,827,317    12,795,248    2.76%
                
Full-Service Restaurants (3.20%)               
RM Holdco, LLC, Subordinated Convertible Term Loan, 1.12% PIK, due 3/21/18 (2)  $5,061,923    5,061,923    1.09%
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche A, 11%, due 3/19/16 (2)  $3,748,607    3,748,607    0.81%
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B, 12% Cash + 7% PIK,               
due 3/19/16 (2)  $6,019,219    6,019,219    1.30%
Total Full-Service Restaurants        14,829,749      
                
Gambling Industries (3.39%)               
Golden Gaming, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 7% Cash + 1% PIK,               
2% LIBOR Floor, due 4/15/16  $16,014,667    15,694,373    3.39%
                
Grocery Stores (3.23%)               
Bashas, Inc., Senior Secured 1st Lien FILO Term Loan, LIBOR + 9.35%,               
1.5% LIBOR Floor, due 12/28/15  $14,595,578    14,960,467    3.23%
                
Machine Shops; Turned Product; and Screw, Nut, and Bolt Manufacturing (0.67%)          
Precision Partners Holdings, 1st Lien Delayed Draw Term Loan, Prime + 6.5%,               
4.5% Prime Floor, due 10/1/13  $184,404    183,482    0.04%
Precision Partners Holdings, 1st Lien Term Loan, Prime + 6.5%, 4.5% Prime Floor,               
due 10/1/13  $2,927,644    2,913,005    0.63%
Total Machine Shops; Turned Product; and Screw, Nut, and Bolt Manufacturing         3,096,487      

 

4
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Unaudited) (Continued)

 

June 30, 2012

 

Showing Percentage of Total Cash and Investments of the Company

 

           Percent of 
   Principal   Fair   Cash and 
Investment  Amount   Value   Investments 
             
Debt Investments (continued)               
Motion Picture and Video Industries (3.18%)               
CKX Entertainment, Inc., Senior Secured 1st Lien Term Loan, 9%, due 6/21/17  $9,462,231   $7,806,341    1.68%
CKX Entertainment, Inc., Senior Secured 2nd Lien Term Loan, 13.5%, due 6/21/18  $7,569,785    6,964,202    1.50%
Total Motion Picture and Video Industries        14,770,543      
                
Motor Vehicle Parts Manufacturing (2.96%)               
Diversified Machine, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 7.75%,               
1.5% LIBOR Floor, due 12/1/16  $14,222,302    13,724,521    2.96%
                
Other Telecommunications (2.17%)               
Gogo, LLC, Senior Secured 1st Lien Term Loan, LIBOR + 9.75%, 1.5% LIBOR Floor,               
due 6/21/17  $10,297,483    10,040,046    2.17%
                
Other Financial Investment Activities (1.40%)               
Marsico Capital Management, Senior Secured 1st Lien Term Loan,               
LIBOR + 5%, due 12/14/14  $22,122,465    6,498,474    1.40%
                
Promoters of Performing Arts, Sports, and Similar Events (2.36%)               
Stadium Management Group, Senior Secured 2nd Lien Term Loan, LIBOR + 9.50%,               
1.25% LIBOR Floor, due 12/7/18  $11,000,000    10,945,000    2.36%
                
Radio and Television Broadcasting (3.97%)               
Encompass Digital Media, Inc., 1st Lien Term Loan, LIBOR + 6.5%, 1.5% LIBOR Floor,          
due 8/10/17  $7,980,000    7,970,025    1.72%
Granite Broadcasting Corporation, Senior Secured 1st Lien Term Loan B,               
LIBOR + 7.25%, 1.25% LIBOR Floor, due 5/23/18  $10,000,000    9,900,000    2.14%
Hubbard Radio, LLC, Senior Secured 2nd Lien Term Loan, LIBOR + 7.25%,               
1.5% LIBOR Floor, due 4/29/18  $500,000    501,250    0.11%
Total Radio and Television Broadcasting        18,371,275      
                
Scheduled Air Transportation (3.98%)               
Delta Air Lines, Inc., Aircraft Secured Mortgage (N913DL), 8%, due 7/15/18 (2)  $403,947    403,947    0.09%
Delta Air Lines, Inc., Aircraft Secured Mortgage (N918DL), 8%, due 7/15/18 (2)  $490,003    490,003    0.11%
Delta Air Lines, Inc., Aircraft Secured Mortgage (N954DL), 8%, due 9/20/19 (2)  $631,014    631,014    0.14%
Delta Air Lines, Inc., Aircraft Secured Mortgage (N955DL), 8%, due 9/20/19 (2)  $645,523    645,523    0.14%
Delta Air Lines, Inc., Aircraft Secured Mortgage (N956DL), 8%, due 9/20/19 (2)  $646,372    646,372    0.14%
Delta Air Lines, Inc., Aircraft Secured Mortgage (N957DL), 8%, due 9/20/19 (2)  $651,170    651,170    0.14%
Delta Air Lines, Inc., Aircraft Secured Mortgage (N959DL), 8%, due 9/20/19 (2)  $655,930    655,930    0.14%
Delta Air Lines, Inc., Aircraft Secured Mortgage (N960DL), 8%, due 9/20/19 (2)  $675,587    675,587    0.15%
Delta Air Lines, Inc., Aircraft Secured Mortgage (N961DL), 8%, due 9/20/19 (2)  $671,812    671,812    0.14%
Delta Air Lines, Inc., Aircraft Secured Mortgage (N976DL), 8%, due 7/15/18 (2)  $512,643    512,643    0.11%
United Air Lines, Inc., Aircraft Secured Mortgage (N510UA), 20%, due 9/26/16 (2)  $445,510    596,984    0.13%
United Air Lines, Inc., Aircraft Secured Mortgage (N512UA), 20%, due 10/26/16 (2)  $448,689    603,936    0.13%
United Air Lines, Inc., Aircraft Secured Mortgage (N536UA), 16%, due 8/21/14 (2)  $315,399    358,293    0.08%
United Air Lines, Inc., Aircraft Secured Mortgage (N545UA), 16%, due 7/17/15 (2)  $434,790    516,096    0.11%
United Air Lines, Inc., Aircraft Secured Mortgage (N585UA), 20%, due 10/25/16 (2)  $526,829    709,638    0.15%
United Air Lines, Inc., Aircraft Secured Mortgage (N659UA), 12%, due 3/28/16 (2)  $4,164,067    4,726,216    1.02%
United Air Lines, Inc., Aircraft Secured Mortgage (N661UA), 12%, due 5/4/16 (2)  $4,292,129    4,918,780    1.06%
Total Scheduled Air Transportation        18,413,944      

 

5
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Unaudited) (Continued)

 

June 30, 2012

 

Showing Percentage of Total Cash and Investments of the Company

 

           Percent of 
   Principal   Fair   Cash and 
Investment  Amount   Value   Investments 
             
Debt Investments (continued)               
Software Publishers (6.24%)               
Blackboard, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 6%, 1.5% LIBOR Floor,               
due 10/4/18  $13,581,750   $13,106,389    2.83%
Blackboard, Inc., Senior Secured Incremental 1st Lien Term Loan, LIBOR + 6%,               
1.5% LIBOR Floor, due 10/4/18  $997,500    962,588    0.21%
Plato, Inc., Senior Secured 2nd Lien Term Loan, LIBOR + 9.75%, 1.5% LIBOR Floor,               
 due 5/8/19  $15,000,000    14,821,875    3.20%
Total Software Publishers        28,890,852      
                
Support Activities for Mining (0.05%)               
Trico Shipping AS, 1st Lien Term Loan A, LIBOR + 8.5%, 1.5% LIBOR Floor,               
due 5/13/14 - (Norway)  $228,803    228,803    0.05%
                
Wired Telecommunications Carriers (3.33%)               
Bulgaria Telecom Company AD, 1st Lien Tranche B Term Loan,               
EURIBOR + 2.75%, due 8/9/15 - (Bulgaria) (4)  2,084,507    1,650,278    0.36%
Integra Telecom Holdings, Inc., 1st Lien Term Loan, LIBOR + 7.25%,               
2% LIBOR Floor, due 4/15/15  $8,520,963    8,222,730    1.77%
NEF Telecom Company BV, 1st Lien Tranche C Term Loan,               
EURIBOR + 3.5%, due 8/9/16 - (Netherlands) (4)  4,927,730    3,745,173    0.81%
NEF Telecom Company BV, 2nd Lien Tranche D Term Loan,               
EURIBOR + 5.5%, due 2/16/17 - (Netherlands) (3), (4)  4,736,002    1,799,728    0.39%
Total Wired Telecommunications Carriers        15,417,909      
                
Wireless Telecommunications Carriers (0.57%)               
Globalive Wireless Management Corp., Senior Secured 1st Lien Term Loan,               
EURIBOR + 8.9%, due 8/18/12 - (Canada) (4)  2,423,823    2,648,396    0.57%
                
Total Bank Debt (Cost $290,153,363)        284,860,944      
                
Other Corporate Debt Securities (20.76%)               
Architectural, Engineering, and Related Services (1.42%)               
ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes,               
6% Cash + 10% PIK, due 12/31/19 (2), (5)  $6,572,593    6,572,593    1.42%
                
Data Processing, Hosting, and Related Services (1.64%)               
The Telx Group, Inc., Senior Unsecured Notes, 10% Cash + 2% PIK, due 9/26/19 (5)  $7,615,168    7,615,168    1.64%
                
Gambling Industries (0.76%)               
Harrah's Operating Company, Inc., 2nd Priority Secured Notes, 10%, due 12/15/18  $5,169,000    3,540,765    0.76%
                
Metal and Mineral (except Petroleum) Merchant Wholesalers (5.51%)               
Constellation Enterprises, LLC, Senior Secured 1st Lien Notes, 10.625%, due 2/1/16 (5)  $12,500,000    12,449,500    2.69%
Edgen Murray Corporation, Senior Secured Notes, 12.25%, due 1/15/15  $13,076,000    13,076,523    2.82%
Total Metal and Mineral (except Petroleum) Merchant Wholesalers        25,526,023      

 

6
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Unaudited) (Continued)

 

June 30, 2012

 

Showing Percentage of Total Cash and Investments of the Company

 

   Principal       Percent of 
   Amount   Fair   Cash and 
Investment  or Shares   Value   Investments 
             
Debt Investments (continued)               
Nonferrous Metal (except Aluminum) Production and Processing (4.02%)               
International Wire Group Holdings, Inc., Senior Notes, 11.5% Cash or 12.25% PIK,               
due 4/15/15 (2), (5)  $18,000,000   $18,630,000    4.02%
                
Oil and Gas Extraction (0.32%)               
Saratoga Resources, Inc., Senior Secured Notes, 12.5%, due 7/1/16  $1,500,000    1,496,250    0.32%
                
Resin, Synthetic Rubber, and Artificial Synthetic Fibers and Filaments               
Manufacturing (1.77%)               
AGY Holding Corporation, Senior Secured 2nd Lien Notes, 11%, due 11/15/14  $18,536,000    8,208,297    1.77%
                
Scientific Research and Development Services (3.12%)               
BPA Laboratories, Inc., Senior Secured Notes, 12.25%, due 4/1/17 (5)  $15,000,000    14,475,000    3.12%
                
Wired Telecommunications Carriers (2.20%)               
ITC^DeltaCom, Inc., Senior Secured Notes, 10.5%, due 4/1/16 (5)  $8,945,000    9,571,150    2.06%
NEF Telecom Company BV, Mezzanine Term Loan,               
EURIBOR + 4.5% Cash + 7.5% PIK, due 8/16/17 - (Netherlands) (3), (4), (5)  20,523,306    649,922    0.14%
Total Wired Telecommunications Carriers        10,221,072      
                
Total Other Corporate Debt Securities (Cost $125,944,591)        96,285,168      
                
Total Debt Investments (Cost $416,097,954)        381,146,112      
                
Equity Securities (15.35%)               
Architectural, Engineering, and Related Services (2.27%)               
ESP Holdings, Inc., Cumulative Preferred 15% (2), (3), (5), (6)   20,297    3,491,056    0.75%
ESP Holdings, Inc., Common Stock (2), (3), (5), (6)   88,670    7,055,790    1.52%
Total Architectural, Engineering, and Related Services        10,546,846      
                
Business Support Services (0.26%)               
STG-Fairway Holdings, LLC, Class A Units (3), (5)   80,396    1,193,077    0.26%
                
Data Processing, Hosting, and Related Services (0.28%)               
Anacomp, Inc., Class A Common Stock (2), (3), (5), (7)   1,255,527    1,305,748    0.28%
                
Depository Credit Intermediation (0.35%)               
Doral Financial Corporation, Common Stock (3)   1,077,795    1,616,693    0.35%
                
Electric Power Generation, Transmission and Distribution (0.01%)               
La Paloma Generating Company, Residual Claim (3), (5)   1,830,453    51,253    0.01%
                
Electronic Shopping and Mail-Order Houses (0.27%)               
Shop Holding, LLC, Class A Units (3), (5)   490,037    957,441    0.20%
Shop Holding, LLC, Warrants to Purchase Class A Units (3), (5)   326,691    311,641    0.07%
Total Electronic Shopping and Mail-Order Houses        1,269,082      
                
Full-Service Restaurants (0.43%)               
RM Holdco, LLC, Membership Units (2), (3), (5), (6)   13,161,000    2,010,777    0.43%

 

7
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Unaudited) (Continued)

 

June 30, 2012

 

Showing Percentage of Total Cash and Investments of the Company

 

           Percent of 
       Fair   Cash and 
Investment  Shares   Value   Investments 
             
Equity Securities (continued)               
Machine Shops; Turned Product; and Screw, Nut, and Bolt Manufacturing (0.00%)               
Precision Holdings, LLC, Class C Membership Interests (3), (5)   33   $19,659    - 
                
Nonferrous Metal (except Aluminum) Production and Processing (6.51%)               
International Wire Group Holdings, Inc., Common Stock (2), (5), (6)   1,979,441    30,186,475    6.51%
                
Nonmetallic Mineral Mining and Quarrying (0.99%)               
EPMC HoldCo, LLC, Membership Units (2), (5), (6)   1,312,720    4,581,393    0.99%
                
Other Amusement and Recreation Industries (0.01%)               
Bally Total Fitness Holding Corporation, Common Stock (3), (5)   6,058    28,715    0.01%
Bally Total Fitness Holding Corporation, Warrants (3), (5)   10,924    1    - 
Total Other Amusement and Recreation Industries        28,716      
                
Scheduled Air Transportation (2.12%)               
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N913DL) (2), (5), (6)   340    100,987    0.02%
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N918DL) (2), (5), (6)   340    122,501    0.03%
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N954DL) (2), (5), (6)   340    157,753    0.03%
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N955DL) (2), (5), (6)   340    161,381    0.03%
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N956DL) (2), (5), (6)   340    161,593    0.03%
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N957DL) (2), (5), (6)   340    162,792    0.04%
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N959DL) (2), (5), (6)   340    163,982    0.04%
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N960DL) (2), (5), (6)   340    168,897    0.04%
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N961DL) (2), (5), (6)   340    167,953    0.04%
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N976DL) (2), (5), (6)   340    128,162    0.03%
United Air Lines, Inc., Equipment Trust Beneficial Interests (N510UA) (2), (5), (6)   39    477,765    0.10%
United Air Lines, Inc., Equipment Trust Beneficial Interests (N512UA) (2), (5), (6)   38    472,470    0.10%
United Air Lines, Inc., Equipment Trust Beneficial Interests (N536UA) (2), (5), (6)   54    616,413    0.13%
United Air Lines, Inc., Equipment Trust Beneficial Interests (N545UA) (2), (5), (6)   46    615,580    0.13%
United Air Lines, Inc., Equipment Trust Beneficial Interests (N585UA) (2), (5), (6)   38    582,805    0.13%
United N659UA-767, LLC (N659UA) (2), (5), (6)   267    2,767,528    0.60%
United N661UA-767, LLC (N661UA) (2), (5), (6)   259    2,770,176    0.60%
Total Scheduled Air Transportation        9,798,738      
                
Semiconductor and Other Electronic Component Manufacturing (0.05%)               
AIP/IS Holdings, LLC, Membership Units (3), (5)   352    229,684    0.05%
                
Support Activities for Mining (0.70%)               
DeepOcean Group Holding AS, Common Stock - (Norway) (3), (5)   145,824    3,228,990    0.70%
                
Wired Telecommunications Carriers (1.10%)               
Integra Telecom, Inc., Common Stock (3), (5)   1,274,522    5,073,990    1.09%
Integra Telecom, Inc., Warrants (3), (5)   346,939    -    - 
NEF Kamchia Co-Investment Fund, LP Interest - (Cayman Islands) (3), (4), (5)   2,455,500    31,104    0.01%
Total Wired Telecommunications Carriers        5,105,094      
                
Total Equity Securities (Cost $136,221,516)        71,172,225      
                
Total Investments (Cost $552,319,470) (8)        452,318,337      

 

8
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Unaudited) (Continued)

 

June 30, 2012

 

Showing Percentage of Total Cash and Investments of the Company

 

           Percent of 
   Principal   Fair   Cash and 
Investment  Amount   Value   Investments 
             
Cash and Cash Equivalents (2.42%)               
Wells Fargo & Company, Overnight Repurchase Agreement, 0.09%,               
Collateralized by Freddie Mac Note  $3,000,000   $3,000,000    0.65%
Union Bank of California, Commercial Paper, 0.35%, due 7/18/12  $5,500,000    5,499,091    1.19%
Cash Denominated in Foreign Currencies  CAD 15,078    14,832    - 
Cash Denominated in Foreign Currencies  1,644,642    2,083,268    0.45%
Cash Denominated in Foreign Currencies  £35,597    55,912    0.01%
Cash Held on Account at Various Institutions  $555,097    555,097    0.12%
Total Cash and Cash Equivalents        11,208,200      
                
Total Cash and Investments       $463,526,537    100.00%

 

 

Notes to Statement of Investments:

 

(1)Investments in bank debt generally are bought and sold among institutional investors in transactions not subject to registration under the Securities Act of 1933. Such transactions are generally subject to contractual restrictions, such as approval of the agent or borrower.

 

(2)Affiliated issuer - as defined under the Investment Company Act of 1940 (ownership of 5% or more of the outstanding voting securities of this issuer).

 

(3)Non-income producing security.

 

(4)Principal amount denominated in foreign currency. Amortized cost and fair value converted from foreign currency to US dollars.

 

(5)Restricted security.

 

(6)Investment is not a controlling position.

 

(7)Issuer is a controlled company.

 

(8)Includes investments with an aggregate market value of $1,130,250 that have been segregated to collateralize certain unfunded commitments.

 

Aggregate acquisitions and aggregate dispositions of investments, other than government securities, totaled $165,551,299 and $85,617,208, respectively.

Aggregate acquisitions includes investment assets received as payment in kind. Aggregate dispositions includes principal paydowns on debt investments.

 

The total value of restricted securities and bank debt as of June 30, 2012 was $424,379,809, or 91.55% of total cash and investments of the Company.

 

Swaps at June 30, 2012 were as follows:

 

Investment  Notional
Amount
   Fair Value 
         
Euro/US Dollar Cross-Currency Basis Swap, Pay Euros/Receive USD, Expires 5/16/14  $6,040,944   $403,297 
Euro/US Dollar Cross-Currency Basis Swap, Pay Euros/Receive USD, Expires 8/18/12  $2,392,611   $34,615 

 

See accompanying notes.

 

9
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments

 

December 31, 2011

 

Showing Percentage of Total Cash and Investments of the Company

 

           Percent of 
   Principal   Fair   Cash and 
Investment  Amount   Value   Investments 
             
Debt Investments (78.77%)               
Bank Debt (47.16%) (1)               
Accounting, Tax Preparation, Bookkeeping, and Payroll Services (0.18%)               
NCO Group, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 5.5%,               
2.5% LIBOR Floor, due 11/15/13  $705,163   $695,761    0.18%
                
Business Support Services (4.91%)               
STG-Fairway Acquisitions, Inc., Senior Secured 2nd Lien Term Loan, 12.5%,               
due 12/29/15  $18,820,923    19,169,110    4.92%
                
Commercial and Industrial Machinery and Equipment Rental and Leasing (2.67%)                
AerCap Holdings N.V., Secured 1st Lien Term Loan, 10.25%, due 12/3/15 - (Netherlands)  $10,411,593    10,411,591    2.67%
                
Communications Equipment Manufacturing (2.37%)               
Mitel US Holdings, Inc., 2nd Lien Term Loan, LIBOR + 7%, due 8/16/15  $9,951,762    9,230,260    2.37%
                
Data Processing, Hosting, and Related Services (1.92%)               
The Telx Group, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 6.5%,               
1.25% LIBOR Floor, due 9/22/17  $7,481,250    7,481,250    1.92%
                
Electric Power Generation, Transmission and Distribution (0.01%)               
La Paloma Generating Company, Residual Bank Debt Claim (3)  $1,830,453    51,436    0.01%
                
Electronic Shopping and Mail-Order Houses (3.59%)               
Shopzilla, Inc., Senior Secured 2nd Lien Term Loan, 13%, due 6/1/14  $13,723,983    14,002,946    3.59%
                
Grocery Stores (3.92%)               
Bashas, Inc., Senior Secured 1st Lien FILO Term Loan, LIBOR + 7.5%,               
1.5% LIBOR Floor, due 10/1/13  $15,000,000    15,262,500    3.92%
                
Machine Shops; Turned Product; and Screw, Nut, and Bolt Manufacturing (1.23%)                
Precision Partners Holdings, 1st Lien Delayed Draw Term Loan, Prime + 6.5%,               
4.5% Prime Floor, due 10/1/13  $289,734    283,940    0.07%
Precision Partners Holdings, 1st Lien Term Loan, Prime + 6.5%, 4.5% Prime Floor,               
due 10/1/13  $4,600,740    4,508,724    1.16%
Total Machine Shops; Turned Product; and Screw, Nut, and Bolt Manufacturing       4,792,664 
                
Motion Picture and Video Industries (4.26%)               
CKX Entertainment, Inc., Senior Secured 1st Lien Term Loan, 9%, due 6/21/17  $9,462,231    9,239,869    2.37%
CKX Entertainment, Inc., Senior Secured 2nd Lien Term Loan, 13.5%, due 6/21/18  $7,569,785    7,384,325    1.89%
Total Motion Picture and Video Industries        16,624,194      
                
Motor Vehicle Parts Manufacturing (2.82%)               
Diversified Machine, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 7.75%,               
1.5% LIBOR Floor, due 12/1/16  $11,000,000    11,000,000    2.82%

 

10
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Continued)

 

December 31, 2011

 

Showing Percentage of Total Cash and Investments of the Company

 

           Percent of 
   Principal   Fair   Cash and 
Investment  Amount   Value   Investments 
             
Debt Investments (continued)               
Other Financial Investment Activities (1.60%)               
Marsico Capital Management, Senior Secured 1st Lien Term Loan, LIBOR + 5%,               
due 12/14/14  $19,338,970   $6,252,927    1.60%
                
Radio and Television Broadcasting (5.09%)               
Encompass Digital Media, Inc., 1st Lien Term Loan, LIBOR + 6%, 1.75% LIBOR Floor,          
due 2/28/16  $2,713,867    2,648,734    0.68%
Encompass Digital Media, Inc., 2nd Lien Term Loan, 16.5%, due 8/28/16  $16,453,486    16,700,288    4.28%
Hubbard Radio, LLC, Senior Secured 2nd Lien Term Loan, LIBOR + 7.25%,               
1.5% LIBOR Floor, due 4/11/18  $500,000    497,500    0.13%
Total Radio and Television Broadcasting        19,846,522      
                
Resin, Synthetic Rubber, and Artificial Synthetic Fibers and Filaments               
Manufacturing (3.86%)               
Gundle/SLT Environmental, Inc., Senior Secured 2nd Lien Term Loan,               
LIBOR + 9.5% Cash + 2% PIK, 1.5% LIBOR Floor, due 11/27/16  $15,110,056    15,034,505    3.86%
                
Scheduled Air Transportation (3.38%)               
United Air Lines, Inc., Aircraft Secured Mortgage (N510UA), 20%, due 9/26/16 (2)  $477,297    624,066    0.16%
United Air Lines, Inc., Aircraft Secured Mortgage (N512UA), 20%, due 10/26/16 (2)  $479,793    630,208    0.16%
United Air Lines, Inc., Aircraft Secured Mortgage (N536UA), 16%, due 8/21/14 (2)  $374,009    414,963    0.11%
United Air Lines, Inc., Aircraft Secured Mortgage (N545UA), 16%, due 7/17/15 (2)  $487,311    563,575    0.14%
United Air Lines, Inc., Aircraft Secured Mortgage (N585UA), 20%, due 10/25/16 (2)  $563,348    739,958    0.19%
United Air Lines, Inc., Aircraft Secured Mortgage (N659UA), 12%, due 3/28/16 (2)  $4,594,240    5,014,613    1.29%
United Air Lines, Inc., Aircraft Secured Mortgage (N661UA), 12%, due 5/4/16 (2)  $4,709,310    5,192,014    1.33%
Total Scheduled Air Transportation        13,179,397      
                
Software Publishers (2.44%)               
Blackboard, Inc., Senior Secured 1st Lien Term Loan, LIBOR + 6%, 1.5% LIBOR Floor,               
due 9/23/18  $10,000,000    9,525,000    2.44%
                
Support Activities for Mining (0.06%)               
Trico Shipping AS, 1st Lien Term Loan A, LIBOR + 8.5%, 1.5% LIBOR Floor,               
due 5/13/14 - (Norway)  $228,803    228,803    0.06%
Trico Shipping AS, 1st Lien Term Loan B, LIBOR + 8.5%, 1.5% LIBOR Floor,               
due 5/13/14 - (Norway)  $402,714    -    - 
Total Support Activities for Mining        228,803      

 

11
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Continued)

 

December 31, 2011

 

Showing Percentage of Total Cash and Investments of the Company

 

           Percent of 
   Principal   Fair   Cash and 
Investment  Amount   Value   Investments 
             
Debt Investments (continued)               
Wired Telecommunications Carriers (2.84%)               
Bulgaria Telecom Company AD, 1st Lien Tranche B Term Loan,               
EURIBOR + 2.75%, due 8/9/15 - (Bulgaria) (4)  2,084,507   $1,864,193    0.48%
Integra Telecom Holdings, Inc., 1st Lien Term Loan, LIBOR + 7.25%,               
2% LIBOR Floor, due 4/15/15  $1,564,438    1,332,380    0.34%
NEF Telecom Company BV, 1st Lien Tranche C Term Loan,               
EURIBOR + 3.5%, due 8/9/16 - (Netherlands) (4)  4,927,730    4,167,407    1.07%
NEF Telecom Company BV, 2nd Lien Tranche D Term Loan,               
EURIBOR + 5.5%, due 2/16/17 - (Netherlands) (3), (4)  4,736,002    3,686,069    0.95%
Total Wired Telecommunications Carriers        11,050,049      
                
Total Bank Debt (Cost $185,948,729)        183,838,915      
                
Other Corporate Debt Securities (31.61%)               
Accounting, Tax Preparation, Bookkeeping, and Payroll Services (4.25%)               
NCO Group, Inc., Senior Subordinated Notes, 11.875%, due 11/15/14  $9,655,000    9,172,250    2.35%
NCO Group, Inc., Senior Unsecured Floating Rate Notes, LIBOR + 4.875%, due 11/15/13  $7,824,000    7,394,932    1.90%
Total Accounting, Tax Preparation, Bookkeeping, and Payroll Services        16,567,182      
                
Aerospace Product and Parts Manufacturing (0.36%)               
Hawker Beechcraft, Inc., Senior Unsecured Notes, 8.5%, due 4/1/15  $7,448,000    1,402,706    0.36%
                
Architectural, Engineering, and Related Services (2.69%)               
Alion Science & Technology Corporation, Senior Secured Notes, 10% Cash + 2% PIK,               
due 11/1/14  $4,687,736    4,267,762    1.09%
ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes, 18% PIK,               
due 3/31/15 (2), (5)  $6,209,347    6,240,393    1.60%
Total Architectural, Engineering, and Related Services        10,508,155      
                
Data Processing, Hosting, and Related Services (2.19%)               
GXS Worldwide, Inc., Fixed Notes, 9.75%, due 6/15/15  $1,170,000    1,094,874    0.28%
The Telx Group, Inc., Senior Unsecured Notes, 10% Cash + 2% PIK, due 9/26/19 (5)  $7,539,583    7,464,188    1.91%
Total Data Processing, Hosting, and Related Services        8,559,062      
                
Full-Service Restaurants (3.18%)               
Real Mex Restaurants, Inc., Senior Secured Notes, 14%, due 1/1/13 (3)  $13,161,000    12,410,823    3.18%
                
Gambling Industries (1.44%)               
Harrah's Operating Company, Inc., 2nd Priority Secured Notes, 10%, due 12/15/18  $8,169,000    5,595,765    1.44%
                
Metal and Mineral (except Petroleum) Merchant Wholesalers (6.02%)               
Constellation Enterprises, LLC, Senior Secured 1st Lien Notes, 10.625%, due 2/1/16 (5)  $12,500,000    11,823,750    3.03%
Edgen Murray Corporation, Senior Secured Notes, 12.25%, due 1/15/15  $13,076,000    11,637,640    2.99%
Total Metal and Mineral (except Petroleum) Merchant Wholesalers        23,461,390      

 

12
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Continued)

 

December 31, 2011

 

Showing Percentage of Total Cash and Investments of the Company

 

   Principal       Percent of 
   Amount   Fair   Cash and 
Investment  or Shares   Value   Investments 
             
Debt Investments (continued)               
Nonferrous Metal (except Aluminum) Production and Processing (4.66%)               
International Wire Group Holdings, Inc., Senior Notes, 11.5% Cash or 12.25% PIK,               
due 4/15/15 (2), (5)  $18,000,000   $18,180,000    4.66%
                
Oil and Gas Extraction (1.27%)               
Geokinetics Holdings, Inc., Senior Secured Notes, 9.75%, due 12/15/14  $1,342,000    853,848    0.22%
Saratoga Resources, Inc., Senior Secured Notes, 12.5%, due 7/1/16  $4,000,000    4,080,000    1.05%
Total Oil and Gas Extraction        4,933,848      
                
Resin, Synthetic Rubber, and Artificial Synthetic Fibers and Filaments               
Manufacturing (2.86%)               
AGY Holding Corporation, Senior Secured 2nd Lien Notes, 11%, due 11/15/14  $18,536,000    11,134,946    2.86%
                
Wired Telecommunications Carriers (2.69%)               
ITC^DeltaCom, Inc., Senior Secured Notes, 10.5%, due 4/1/16 (5)  $8,945,000    9,168,625    2.35%
NEF Telecom Company BV, Mezzanine Term Loan,               
EURIBOR + 4.5% Cash + 7.5% PIK, due 8/16/17 - (Netherlands) (3), (4), (5)  20,523,306    1,330,013    0.34%
Total Wired Telecommunications Carriers        10,498,638      
                
Total Other Corporate Debt Securities (Cost $155,179,568)        123,252,515      
                
Total Debt Investments (Cost $341,128,297)        307,091,430      
                
Equity Securities (18.45%)               
Architectural, Engineering, and Related Services (2.80%)               
Alion Science & Technology Corporation, Warrants (3)   3,625    147,574    0.04%
ESP Holdings, Inc., 15% PIK, Preferred Stock (2), (5), (6)   20,297    3,287,872    0.84%
ESP Holdings, Inc., Common Stock (2), (3), (5), (6)   88,670    7,473,887    1.92%
Total Architectural, Engineering, and Related Services        10,909,333      
                
Business Support Services (0.43%)               
STG-Fairway Holdings, LLC, Class A Units (3), (5)   80,396    1,669,278    0.43%
                
Data Processing, Hosting, and Related Services (0.19%)               
Anacomp, Inc., Class A Common Stock (2), (3), (5), (7)   1,255,527    740,761    0.19%
                
Depository Credit Intermediation (0.26%)               
Doral Financial Corporation, Common Stock (3)   1,077,795    1,030,372    0.26%
                
Electronic Shopping and Mail-Order Houses (0.31%)               
Shop Holding, LLC, Class A Units (3), (5)   490,037    922,471    0.24%
Shop Holding, LLC, Warrants to Purchase Class A Units (3), (5)   326,691    288,328    0.07%
Total Electronic Shopping and Mail-Order Houses        1,210,799      
                
Industrial Machinery Manufacturing (0.38%)               
GSI Group, Inc., Common Stock (3), (5)   143,869    1,471,780    0.38%

 

13
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Continued)

 

December 31, 2011

 

Showing Percentage of Total Cash and Investments of the Company

 

           Percent of 
       Fair   Cash and 
Investment  Shares   Value   Investments 
             
Equity Securities (continued)               
Machine Shops; Turned Product; and Screw, Nut, and Bolt Manufacturing (0.00%)          
Precision Holdings, LLC, Class C Membership Interests (3), (5)   33   $15,704    - 
                
Nonferrous Metal (except Aluminum) Production and Processing (7.72%)               
International Wire Group Holdings, Inc., Common Stock (2), (5), (6)   1,979,441    30,077,606    7.72%
                
Nonmetallic Mineral Mining and Quarrying (1.35%)               
EPMC HoldCo, LLC, Membership Units (2), (5), (6)   1,312,720    5,264,007    1.35%
                
Other Amusement and Recreation Industries (0.03%)               
Bally Total Fitness Holding Corporation, Common Stock (3), (5)   6,058    66,032    0.02%
Bally Total Fitness Holding Corporation, Warrants (3), (5)   10,924    52,435    0.01%
Total Other Amusement and Recreation Industries        118,467      
                
Radio and Television Broadcasting (0.88%)               
Encompass Digital Media Group, Inc., Common Stock (3), (5)   183,824    3,437,509    0.88%
                
Scheduled Air Transportation (1.86%)               
United Air Lines, Inc., Equipment Trust Beneficial Interests (N510UA) (2), (5), (6)   35    467,137    0.12%
United Air Lines, Inc., Equipment Trust Beneficial Interests (N512UA) (2), (5), (6)   35    458,665    0.12%
United Air Lines, Inc., Equipment Trust Beneficial Interests (N536UA) (2), (5), (6)   46    686,303    0.18%
United Air Lines, Inc., Equipment Trust Beneficial Interests (N545UA) (2), (5), (6)   40    612,589    0.16%
United Air Lines, Inc., Equipment Trust Beneficial Interests (N585UA) (2), (5), (6)   35    498,602    0.13%
United N659UA-767, LLC (N659UA) (2), (5), (6)   224    2,274,815    0.58%
United N661UA-767, LLC (N661UA) (2), (5), (6)   217    2,205,523    0.57%
Total Scheduled Air Transportation        7,203,634      
                
Semiconductor and Other Electronic Component Manufacturing (0.06%)               
AIP/IS Holdings, LLC, Membership Units (3), (5)   352    229,684    0.06%
                
Support Activities for Mining (0.79%)               
DeepOcean Group Holding AS, Common Stock - (Norway) (3), (5)   145,824    3,093,638    0.79%
                
Wired Telecommunications Carriers (1.39%)               
Integra Telecom, Inc., Common Stock (3), (5)   1,274,522    5,364,708    1.38%
Integra Telecom, Inc., Warrants (3), (5)   346,939    -    - 
NEF Kamchia Co-Investment Fund, LP Interest - (Cayman Islands) (3), (4), (5)   2,455,500    31,826    0.01%
Total Wired Telecommunications Carriers        5,396,534      
                
Total Equity Securities (Cost $132,663,069)        71,869,106      
                
Total Investments (Cost $473,791,366) (8)        378,960,536      

 

14
 

 

TCP Capital Corp.

 

Consolidated Statement of Investments (Continued)

 

December 31, 2011

 

Showing Percentage of Total Cash and Investments of the Company

 

           Percent of 
   Principal   Fair   Cash and 
Investment  Amount   Value   Investments 
             
Cash and Cash Equivalents (2.78%)               
Wells Fargo & Company, Overnight Repurchase Agreement, 0.02%,               
Collateralized by Freddie Mac UNNT  $3,343,399   $3,343,399    0.86%
Cash Denominated in Foreign Currencies  CAD 15,078    14,764    - 
Cash Denominated in Foreign Currencies  3,357,119    4,351,161    1.12%
Cash Denominated in Foreign Currencies  £35,597    55,329    0.01%
Cash Held on Account at Various Institutions  $3,067,025    3,067,025    0.79%
Total Cash and Cash Equivalents        10,831,678      
                
Total Cash and Investments       $389,792,214    100.00%

 

 

Notes to Statement of Investments:

 

(1)Investments in bank debt generally are bought and sold among institutional investors in transactions not subject to registration under the Securities Act of 1933. Such transactions are generally subject to contractual restrictions, such as approval of the agent or borrower.

 

(2)Affiliated issuer - as defined under the Investment Company Act of 1940 (ownership of 5% or more of the outstanding voting securities of this issuer).

 

(3)Non-income producing security.

 

(4)Principal amount denominated in foreign currency. Amortized cost and fair value converted from foreign currency to US dollars.

 

(5)Restricted security.

 

(6)Investment is not a controlling position.

 

(7)Issuer is a controlled company.

 

(8)Includes investments with an aggregate market value of $1,178,213 that have been segregated to collateralize certain unfunded commitments.

 

Aggregate purchases and aggregate sales of investments, other than government securities, totaled $177,185,947 and $216,916,444, respectively.

Aggregate purchases includes investment assets received as payment in kind. Aggregate sales includes principal paydowns on debt investments.

 

The total value of restricted securities and bank debt as of December 31, 2011 was $308,737,044, or 79.21% of total cash and investments of the Company.

 

Swaps at December 31, 2011 were as follows:

 

Investment  Notional
Amount
   Fair Value 
         
Euro/US Dollar Cross-Currency Basis Swap, Pay Euros/Receive USD, Expires 5/16/14  $6,040,944   $172,424 

 

See accompanying notes.

 

15
 

 

TCP Capital Corp.

 

Consolidated Statements of Operations (Unaudited)

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2012   2011 (1)   2012   2011 (1) 
                 
Investment income                    
Interest income:                    
Unaffiliated issuers  $8,824,978   $9,206,641   $16,977,526   $19,609,932 
Affiliates   1,562,916    1,169,063    3,245,630    1,419,553 
Dividend income:                    
Affiliates   -    5,912,495    1,811,189    12,542,394 
Other income:                    
Unaffiliated issuers   520,580    722,725    520,580    1,418,312 
Affiliates   177,984    246,292    345,858    254,403 
Total investment income   11,086,458    17,257,216    22,900,783    35,244,594 
                     
Operating expenses                    
Management and advisory fees   1,552,867    1,696,797    3,249,664    3,393,594 
Professional fees relating to the Conversion   -    -    411,523    - 
Amortization of deferred debt issuance costs   109,771    109,771    219,542    218,335 
Legal fees, professional fees and due diligence expenses   270,991    (95,669)   361,776    18,860 
Commitment fees   70,153    37,281    132,361    75,821 
Director fees   46,500    43,250    100,000    103,960 
Interest expense   9,929    97,475    56,448    195,119 
Insurance expense   27,072    29,279    55,963    55,381 
Custody fees   23,469    22,638    46,503    45,836 
Other operating expenses   54,668    80,617    107,863    144,398 
Total operating expenses   2,165,420    2,021,439    4,741,643    4,251,304 
                     
Net investment income before income taxes   8,921,038    15,235,777    18,159,140    30,993,290 
                     
Excise tax expense   -    -    502,978    - 
Net investment income   8,921,038    15,235,777    17,656,162    30,993,290 
                     
Net realized and unrealized gain (loss)                    
Net realized gain (loss):                    
Investments in unaffiliated issuers   2,928,909    14,603,223    (3,104,104)   16,951,296 
Investments in affiliates   -    3    718,845    238,483 
Net realized gain (loss)   2,928,909    14,603,226    (2,385,259)   17,189,779 
                     
Net change in net unrealized appreciation/depreciation   (5,426,269)   (24,160,135)   (4,999,802)   (33,074,076)
Net realized and unrealized loss   (2,497,360)   (9,556,909)   (7,385,061)   (15,884,297)
                     
Dividends paid on Series A preferred equity facility   (373,691)   (371,077)   (745,183)   (751,017)
Net change in accumulated dividends on Series A                    
preferred equity facility   (23,786)   (21,262)   (67,093)   (14,934)
                     
Net increase in net assets applicable to common                    
shareholders resulting from operations  $6,026,201   $5,286,529   $9,458,825   $14,343,042 
                     
Basic and diluted earnings per common share  $0.28     N/A     N/A     N/A 
Basic and diluted weighted average common shares                    
outstanding   21,475,635     N/A     N/A     N/A 

 

See accompanying notes.

 

(1) 2011 Consolidated Statement of Operations reflects a portfolio that was prior to the BDC Conversion and had different investment objectives.

 

16
 

 

TCP Capital Corp.

 

Consolidated Statements of Changes in Net Assets (Unaudited)

 

Six Months Ended June 30, 2012

 

   Common Stock                     
   Shares   Par
Amount
   Paid in
Capital in
Excess of
Par
   Accumulated
Net
Investment
Income
   Accumulated
Net Realized
Losses
   Accumulated
Net
Unrealized
Depreciation
   Total Net
Assets
 
Balance at December 31, 2011   418,956   $419   $364,742,957   $13,515,239   $(45,411,498)  $(94,976,243)  $237,870,874 
Retirement of old common stock in the Conversion   (418,956)   (419)   419    -    -    -    - 
Issuance of common stock in the Conversion   15,725,635    15,726    (15,726)   -    -    -    - 
Issuance of common stock in public offering   5,750,000    5,750    80,986,005    -    -    -    80,991,755 
Net increase in net assets applicable to common shareholders resulting from  operations   -    -    -    16,843,886    (2,385,259)   (4,999,802)   9,458,825 
Dividends paid   -    -    -    (12,701,716)   -    -    (12,701,716)
Balance at June 30, 2012   21,475,635   $21,476   $445,713,655   $17,657,409   $(47,796,757)  $(99,976,045)  $315,619,738 

 

See accompanying notes.

 

17
 

 

TCP Capital Corp.

 

Consolidated Statements of Cash Flows (Unaudited)

 

   Six months ended June 30, 
   2012   2011 
         
Operating activities          
Net increase in net assets applicable to common shareholders resulting from operations  $9,458,825   $14,343,042 
Adjustments to reconcile net increase in net assets applicable to common          
shareholders resulting from operations to net cash provided by operating activities:          
Net realized loss (gain)   2,385,259    (17,189,779)
Net change in unrealized appreciation/depreciation   5,193,932    33,143,437 
Dividends paid on Series A preferred equity facility   745,183    751,017 
Net change in accumulated dividends on Series A preferred equity facility   67,093    14,934 
Accretion of original issue discount   (310,141)   (619,101)
Net accretion of market discount/premium   (958,708)   (1,627,613)
Interest and dividend income paid in kind   (1,149,175)   (3,264,604)
Amortization of deferred debt issuance costs   219,542    218,335 
Changes in assets and liabilities:          
Purchases of investment securities   (164,402,124)   (102,505,765)
Proceeds from sales, maturities and paydowns of investments   85,617,208    109,545,338 
Decrease (increase) in accrued interest income - unaffiliated issuers   328,752    (3,252)
Increase in accrued interest income - affiliates   (327,431)   (264,887)
Decrease in receivable for investments sold   4,083,716    5,207,452 
Decrease (increase) in prepaid expenses and other assets   1,195,151    (1,053,279)
Increase (decrease) in payable for investments purchased   1,908,878    (3,369,013)
Increase (decrease) in payable to the Investment Manager   1,804,996    (17,305)
Decrease in management and advisory fees payable   (565,599)   - 
Decrease (increase) in interest payable   (41,140)   17,585 
Decrease in accrued expenses and other liabilities   (422,551)   (182,416)
Net cash provided by (used in) operating activities   (55,168,334)   33,144,126 
           
Financing activities          
Proceeds from draws on credit facility   74,000,000    68,000,000 
Principal repayments on credit facility   (86,000,000)   (50,000,000)
Final redemption of Series Z preferred equity   -    (24,252)
Dividends paid on Series A preferred equity facility   (745,183)   (751,017)
Dividends paid to common shareholders   (12,701,716)   (35,200,000)
Proceeds from common shares sold, net of underwriting and offering costs   80,991,755    - 
Net cash provided by (used in) financing activities   55,544,856    (17,975,269)
           
Net increase in cash and cash equivalents   376,522    15,168,857 
Cash and cash equivalents at beginning of period   10,831,678    7,749,743 
Cash and cash equivalents at end of period  $11,208,200   $22,918,600 
           
Supplemental cash flow information          
Interest payments  $51,069   $177,534 
Tax payments   502,978    - 

 

See accompanying notes.

 

18
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited)

 

June 30, 2012

 

1. Organization and Nature of Operations

 

TCP Capital Corp. (the “Company”) is a Delaware corporation formed on April 2, 2012 as an externally managed, closed-end, non-diversified management investment company. The Company has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company’s investment objective is to achieve high total returns while minimizing losses. The Company invests primarily in the debt of middle-market companies, including senior secured loans, junior loans, mezzanine debt and bonds. Such investments may include an equity component, and, to a lesser extent, the Company may make equity investments directly. Investment operations are conducted in Special Value Continuation Partners, LP, a Delaware Limited Partnership (the “Partnership”), of which the Company owns 100% of the common limited partner interests. The Partnership has also elected to be treated as a BDC under the 1940 Act. These consolidated financial statements include the accounts of the Company and the Partnership. All significant intercompany transactions and balances have been eliminated in the consolidation.

 

The Company was formed through the conversion of the Company’s predecessor, Special Value Continuation Fund, LLC (“SVCF”), from a limited liability company to a corporation, leaving the Company as the surviving entity (the “Conversion”). At the time of the Conversion, all limited liability company interests were exchanged for 15,725,635 shares of common stock in the Company. As a result of the Conversion, the books and records of SVCF have become the books and records of the surviving entity. For periods prior to April 2, 2012, the consolidated financial statements and related footnotes reflect the performance of SVCF.

 

On April 3, 2012, the Company priced its initial public offering (the “Offering”), selling 5,750,000 shares of its common stock at a public offering price of $14.75 per share.

 

The Company has elected to be treated as a regulated investment company (“RIC”) for U.S. federal income tax purposes. As a RIC, the Company will not be taxed on its income to the extent that it distributes such income each year and satisfies other applicable income tax requirements. The Partnership has elected to be treated as a partnership for U.S. federal income tax purposes. The General Partner of the Partnership is SVOF/MM, LLC (“SVOF/MM”), which also serves as the administrator of the Company and the Partnership. The managing member of SVOF/MM is Tennenbaum Capital Partners, LLC (“TCP”), which serves as the Investment Manager to both the Company and the Partnership. Most of the equity interests in the General Partner are owned directly or indirectly by TCP and its employees.

 

Company management consists of the Investment Manager and the Board of Directors. Partnership management consists of the General Partner and the Board of Directors. The Investment Manager and the General Partner direct and execute the day-to-day operations of the Company and the Partnership, respectively, subject to oversight from the respective Board of Directors, which sets the broad policies of the Company and performs certain functions required by the 1940 Act in the case of the Partnership. The Board of Directors of the Partnership has delegated investment management of the Partnership’s assets to the Investment Manager. Each Board of Directors consists of three persons, two of whom are independent. The Company will appoint an additional independent director prior to April 3, 2013. If the Company or the Partnership has preferred equity interests outstanding, as each currently does, the holders of the preferred interests voting separately as a class are entitled to elect two of the Directors. The remaining directors will be subject to election by holders of the common shares and preferred interests voting together as a single class.

 

19
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2012

 

1. Organization and Nature of Operations (continued)

 

Preferred Equity

 

At June 30, 2012, the Partnership had 6,700 Series A preferred limited partner interests (the “Preferred Interests”) issued and outstanding with a liquidation preference of $20,000 per preferred limited interest. The Preferred Interests are redeemable at the option of the Partnership, subject to certain conditions. Additionally, under certain conditions, the Partnership may be required to either redeem certain of the Preferred Interests or repay indebtedness, at the Partnership’s option. Such conditions would include a failure by the Partnership to maintain adequate collateral as required by its credit facility agreement or by the Statement of Preferences of the Preferred Interests or a failure by the Partnership to maintain sufficient asset coverage as required by the 1940 Act. As of June 30, 2012, the Partnership was in full compliance with such requirements.

 

The Preferred Interests accrue dividends at an annual rate equal to LIBOR plus 0.85% or, in the case of any holders of Preferred Interests that are CP Conduits (as defined in the leveraging documents), the higher of (i) LIBOR plus 0.85% or (ii) the CP Conduit’s cost of funds rate plus 0.85%, subject to certain limitations and adjustments.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The following is a summary of the significant accounting policies of the Company and the Partnership.

 

Use of Estimates

 

The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates and assumptions to be reasonable, actual results could differ from those estimates.

 

20
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2012

 

2. Summary of Significant Accounting Policies (continued)

 

Investment Valuation

 

The Company’s investments are generally held by the Partnership. Management values investments held by the Partnership at fair value based upon the principles and methods of valuation set forth in policies adopted by the Partnership’s Board of Directors and in conformity with procedures set forth in the Senior Facility, as defined in Note 4, below, and Statement of Preferences for the Preferred Interests. Fair value is generally defined as the amount for which an investment would be sold in an orderly transaction between market participants at the measurement date.

 

All investments are valued at least quarterly based on affirmative pricing or quotations from independent third-party sources, with the exception of investments priced directly by the Investment Manager which together comprise, in total, less than 5% of the capitalization of the Partnership. Investments listed on a recognized exchange or market quotation system, whether U.S. or foreign, are valued for financial reporting purposes as of the last business day of the reporting period using the closing price on the date of valuation. Liquid investments not listed on a recognized exchange or market quotation system are valued using prices provided by a nationally recognized pricing service or by using quotations from broker-dealers. Investments not priced by a pricing service or for which market quotations are either not readily available or are determined to be unreliable are valued using affirmative valuations performed by independent valuation services or, for investments aggregating less than 5% of the total capitalization of the Partnership, directly by the Investment Manager.

 

Fair valuations of investments are determined under guidelines adopted by the Partnership’s Board of Directors, and are subject to their approval. Generally, to increase objectivity in valuing the Partnership’s investments, the Investment Manager will utilize external measures of value, such as public markets or third-party transactions, whenever possible. The Investment Manager’s valuation is not based on long-term work-out value, immediate liquidation value, nor incremental value for potential changes that may take place in the future. The values assigned to investments that are valued by the Investment Manager are based on available information and do not necessarily represent amounts that might ultimately be realized, as these amounts depend on future circumstances and cannot reasonably be determined until the individual investments are actually liquidated. The foregoing policies apply to all investments, including those in companies and groups of affiliated companies aggregating more than 5% of the Company’s assets.

 

21
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2012

 

Summary of Significant Accounting Policies (continued)

 

Fair valuations of investments in each asset class are determined using one or more methodologies including the market approach, income approach, or, in the case of recent investments, the cost approach, as appropriate.  The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets.  The income approach uses valuation techniques to convert future amounts (for example, 2. cash flows or earnings) to a single present value amount (discounted).  The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that may be taken into account include, as relevant:  available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, our principal market and enterprise values, among other factors.

 

The ranges of unobservable inputs used in the fair value measurement of the Company’s Level 3 investments as of June 30, 2012 were as follows:

 

EBITDA Multiples 3.8x to 10.0x
Market Yields 5.2% to 16.6%

 

Significant increases or decreases in any of the above inputs in isolation would result in a significantly lower or higher fair value measurement.

 

Investments of the Partnership may be categorized based on the types of inputs used in valuing such investments. The level in the GAAP valuation hierarchy in which an investment falls is based on the lowest level input that is significant to the valuation of the investment in its entirety. Transfers between levels are recognized as of the beginning of the reporting period.

 

At June 30, 2012, the investments of the Partnership were categorized as follows:

 

Level   Basis for Determining Fair Value  Bank Debt   Other
Corporate Debt
   Equity
Securities
 
 1   Quoted prices in active markets for identical assets  $-   $3,540,765   $1,616,692 
 2   Other observable market inputs*   33,223,044    77,906,720    - 
 3   Independent third-party pricing sources that employ significant unobservable inputs   245,653,900    7,222,515    66,424,472 
 3   Investment Manager valuations with significant unobservable inputs   5,984,000    7,615,168    3,131,061 
 Total      $284,860,944   $96,285,168   $71,172,225 

 

* For example, quoted prices in inactive markets or quotes for comparable investments.

 

22
 

 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2012

 

2. Summary of Significant Accounting Policies (continued)

 

Changes in investments categorized as Level 3 during the six months ended June 30, 2012 were as follows:

 

   Independent Third-Party Valuation 
   Bank Debt   Other
Corporate Debt
   Equity
Securities
 
Beginning balance  $159,949,811   $24,061,229   $68,114,764 
Net realized and unrealized losses   (2,048,699)   (6,049,261)   (955,334)
Acquisitions   137,159,282    -    3,068,670 
Dispositions   (49,406,494)   (6,709,453)   (3,803,628)
Transfers out of Level 3   -    (4,080,000)   - 
Ending balance  $245,653,900   $7,222,515   $66,424,472 
                
Net change in unrealized appreciation/ depreciation during the period on investments still held at period end (included in net realized and unrealized gains/losses, above)  $(2,308,148)  $(711,138)  $(547,203)

 

Comprised of one investment that transferred to Level 2 due to increased trading volumes.

 

   Investment Manager Valuation 
   Bank Debt   Other
Corporate Debt
   Equity
Securities
 
Beginning balance  $51,436   $7,464,188   $1,252,190 
Net realized and unrealized gains   -    75,395    479,009 
Acquisitions   5,984,000    75,585    1,496,000 
Transfers out of Level 3#   -    -    (147,574)
Reclassifications within Level 3##   (51,436)   -    51,436 
Ending balance  $5,984,000   $7,615,168   $3,131,061 
                
Net change in unrealized appreciation/ depreciation during the period on investments still held at period end (included in net realized and unrealized gains/losses, above)  $-   $75,395   $479,008 

 

# Comprised of one investment that transferred to Level 2 due to increased trading volumes.

## Comprised of claims in the liquidation of a portfolio company that were reclassified as equity.

 

There were no transfers between Level 1 and 2 during the six months ended June 30, 2012.

 

23
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2012

 

2. Summary of Significant Accounting Policies (continued)

 

Investment Transactions

 

The Partnership records investment transactions on the trade date, except for private transactions that have conditions to closing, which are recorded on the closing date. The cost of investments purchased is based upon the purchase price plus those professional fees which are specifically identifiable to the investment transaction. Realized gains and losses on investments are recorded based on the specific identification method, which typically allocates the highest cost inventory to the basis of investments sold.

 

Cash and Cash Equivalents

 

Cash consists of amounts held in accounts with brokerage firms and the custodian bank. Cash equivalents consist of highly liquid investments with an original maturity of three months or less.

 

Repurchase Agreements

 

In connection with transactions in repurchase agreements, it is the Partnership’s policy that its custodian take possession of the underlying collateral, the fair value of which is required to exceed the principal amount of the repurchase transaction, including accrued interest, at all times. If the seller defaults, and the fair value of the collateral declines, realization of the collateral by the Partnership may be delayed or limited.

 

Restricted Investments

 

The Partnership may invest without limitation in instruments that are subject to legal or contractual restrictions on resale. These instruments generally may be resold to institutional investors in transactions exempt from registration or to the public if the securities are registered. Disposal of these investments may involve time-consuming negotiations and additional expense, and prompt sale at an acceptable price may be difficult. Information regarding restricted investments is included at the end of the Consolidated Statement of Investments. Restricted investments, including any restricted investments in affiliates, are valued in accordance with the investment valuation policies discussed above.

 

Foreign Investments

 

The Partnership may invest in instruments traded in foreign countries and denominated in foreign currencies. At June 30, 2012, the Partnership held foreign currency denominated investments comprising approximately 2.3% of the Partnership’s total investments. Such positions were converted at the closing rate in effect at June 30, 2012 and reported in U.S. dollars. Purchases and sales of investments and income and expense items denominated in foreign currencies, when they occur, are translated into U.S. dollars on the respective dates of such transactions.  The portion of gains and losses on foreign investments resulting from fluctuations in foreign currencies is included in net realized and unrealized gain or loss from investments.

 

24
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2012

 

2. Summary of Significant Accounting Policies (continued)

 

Investments in foreign companies and securities of foreign governments may involve special risks and considerations not typically associated with investing in U.S. companies and securities of the U.S. government. These risks include, among other things, revaluation of currencies, less reliable information about issuers, different transactions clearance and settlement practices, and potential future adverse political and economic developments. Moreover, investments in foreign companies and securities of foreign governments and their markets may be less liquid and their prices more volatile than those of comparable U.S. companies and the U.S. government.

 

Derivatives

 

In order to mitigate certain currency exchange and interest rate risks, the Partnership has entered into several swap, forward currency and option transactions. All derivatives are recognized as either assets or liabilities in the Statement of Assets and Liabilities. The transactions entered into are accounted for using the mark-to-market method with the resulting change in fair value recognized in earnings for the current period. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in interest rates and the value of foreign currency relative to the U.S. dollar.

 

Gains and losses from derivative transactions during the six months ended June 30, 2012 were included in net realized and unrealized loss on investments in the Statement of Operations as follows:

 

Instrument  Realized   Unrealized 
Cross currency basis swaps
  $-   $265,488 

 

Valuations of swaps held at June 30, 2012 were determined using observable market inputs other than quoted prices in active markets for identical assets and, accordingly, are classified as Level 2 in the GAAP valuation hierarchy.

 

25
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2012

 

2. Summary of Significant Accounting Policies (continued)

 

Debt Issuance Costs

 

Costs of approximately $3.5 million were incurred during 2006 in connection with placing the Partnership’s Senior Facility. These costs were deferred and are being amortized on a straight-line basis over eight years, the estimated life of the Senior Facility. The impact of utilizing the straight-line amortization method versus the effective-interest method is not material to the operations of the Company or the Partnership.

 

Revenue Recognition

 

Interest and dividend income, including income paid in kind, is recorded on an accrual basis. Origination, structuring, closing, commitment and other upfront fees earned with respect to capital commitments are generally amortized or accreted into interest income over the life of the respective debt investment. Other fees, including certain amendment fees, prepayment fees and commitment fees on broken deals, are recognized as earned. Prepayment fees and similar income received upon the early repayment of a loan or debt security are included in interest income.

 

Certain of the Partnership’s debt investments are purchased at a considerable discount to par as a result of the underlying credit risks and financial results of the issuer, as well as general market factors that influence the financial markets as a whole. GAAP generally requires that discounts on the acquisition of corporate bonds, municipal bonds and treasury bonds be amortized using the effective-interest or constant-yield method. GAAP also requires the Partnership to consider the collectability of interest when making accruals. Accordingly, when accounting for purchase discounts, the Partnership recognizes discount accretion income when it is probable that such amounts will be collected.

 

Income Taxes

 

The Company intends to comply with the applicable provisions of the Internal Revenue Code of 1986, as amended, pertaining to regulated investment companies and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes. Accordingly, no provision for income taxes is required in the consolidated financial statements. The Partnership’s income or loss is reported in the partners’ income tax returns. As of June 30, 2012, all tax years of the Company and the Partnership since January 1, 2007 remain subject to examination by federal tax authorities. No such examinations are currently pending.

 

26
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2012

 

2. Summary of Significant Accounting Policies (continued)

 

During the six months ended June 30, 2012, the Company paid $502,978 in excise taxes related to income earned in 2011.

 

Cost of the investments (including derivatives) of the Partnership, unrealized appreciation and unrealized depreciation for U.S. federal income tax purposes at June 30, 2012 were as follows:

 

Unrealized appreciation  $38,370,081 
Unrealized depreciation   (137,933,302)
Net unrealized depreciation   (99,563,221)
      
Cost  $552,319,470 

 

New Accounting Guidance

 

In May 2011, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”).  ASU 2011-04 was issued to converge guidance from the FASB and the International Accounting Standards Board on measuring fair value and for disclosing information about fair value measurements.  The changes include a consistent definition of the term “fair value” and enhanced disclosure requirements for investments that do not have readily determinable fair values, such as additional quantitative information about significant unobservable inputs and a qualitative discussion about the sensitivity of the fair value measurement to changes in the unobservable inputs.  The provisions of ASU 2011-04 were effective for the Company on January 1, 2012.  The Company’s adoption of ASU 2011-04 resulted in increased disclosures around fair value but did not impact the measurement of fair value of the Company’s investments.

 

3. Management and Advisory Fees and Other Expenses

 

Following the Conversion, the Company’s management fee is calculated at an annual rate of 1.5% of total assets (excluding cash and cash equivalents) on a consolidated basis and is payable to the Investment Manager quarterly in arrears.

 

The Company will not incur any incentive compensation until after January 1, 2013. Thereafter, the incentive compensation will equal 20% of net investment income (reduced by preferred dividends) and realized gains (net of any realized and unrealized losses). However, incentive compensation will only be paid to the extent the total performance of the Company exceeds a cumulative 8% annual return since January 1, 2013. The incentive compensation will be payable to the General Partner quarterly in arrears and will be calculated as the difference between cumulative incentive compensation earned since January 1, 2013 and cumulative incentive compensation paid since January 1, 2013.

 

27
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2012

 

3. Management and Advisory Fees and Other Expenses (continued)

 

Prior to the Conversion, the Investment Manager received an annual management and advisory fee, payable monthly in arrears, equal to 1.0% of the sum of the maximum amount of the Preferred Interests, the maximum amount available under the Senior Facility, the initial value of the contributed general partnership equity and the initial value of the contributed common equity, subject to reduction by the amount of the Senior Facility commitment when the Senior Facility is no longer outstanding, and by the amount of the Preferred Interests when less than $1 million in liquidation preference of preferred securities remains outstanding. In addition to the management fee, the General Partner was entitled to a performance allocation equal to 20% of all cumulative income and gain distributions, subject to an 8% hurdle on undistributed contributed equity with a catch up for the General Partner.

 

The Company and the Partnership pay all respective expenses incurred in connection with the business of the Company and the Partnership, including fees and expenses of outside contracted services, such as custodian, administrative, legal, audit and tax preparation fees, costs of valuing investments, insurance costs, brokers’ and finders’ fees relating to investments, and any other transaction costs associated with the purchase and sale of investments of the Partnership.

 

4. Senior Secured Revolving Credit Facility

 

The Partnership has entered into a credit agreement with certain lenders, which provides for a senior secured revolving credit facility (the “Senior Facility”), pursuant to which amounts may be drawn up to $116 million. The Senior Facility matures July 31, 2014, subject to extension by the lenders at the request of the Partnership for one 12-month period.

 

Advances under the Senior Facility bear interest at LIBOR plus 0.44% per annum, except in the case of loans from CP Conduits, which bear interest at the higher of LIBOR plus 0.44% or the CP Conduit’s cost of funds plus 0.44%, subject to certain limitations. The weighted-average interest rate on outstanding borrowings at June 30, 2012 was 0.69%. In addition to amounts due on outstanding debt, the Senior Facility accrues commitment fees of 0.20% per annum on the unused portion of the Senior Facility, or 0.25% per annum when less than $46.4 million in borrowings are outstanding. The Senior Facility may be terminated, and any outstanding amounts thereunder may become due and payable, should the Partnership fail to satisfy certain financial or other covenants.  As of June 30, 2012, the Partnership was in full compliance with such covenants.

 

28
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2012

 

5. Commitments, Concentration of Credit Risk and Off-Balance Sheet Risk

 

The Partnership conducts business with brokers and dealers that are primarily headquartered in New York and Los Angeles and are members of the major securities exchanges. Banking activities are conducted with a firm headquartered in the New York area.

 

In the normal course of business, the Partnership’s investment activities involve executions, settlement and financing of various transactions resulting in receivables from, and payables to, brokers, dealers and the Partnership’s custodian. These activities may expose the Company and the Partnership to risk in the event that such parties are unable to fulfill contractual obligations. Management does not anticipate any material losses from counterparties with whom it conducts business.

 

Consistent with standard business practice, the Company and the Partnership enter into contracts that contain a variety of indemnifications, and are engaged from time to time in various legal actions. The maximum exposure of the Company and the Partnership under these arrangements and activities is unknown. However, the Company and the Partnership expect the risk of material loss to be remote.

 

The Consolidated Statement of Investments includes certain revolving loan facilities held by the Partnership with aggregate unfunded balances of $720,556 at June 30, 2012.

 

6. Related Parties

 

The Company, the Partnership, the Investment Manager, the General Partner and their members and affiliates may be considered related parties.  From time to time, the Partnership advances payments to third parties on behalf of the Company which are reimbursable through deductions from distributions to the Company.  At June 30, 2012, the Company had a payable to the Partnership, and the Partnership had a receivable from the Company, in the amount of $1,292, as reflected in the Consolidating Statement of Assets and Liabilities. From time to time, the Investment Manager advances payments to third parties on behalf of the Company and the Partnership and receives reimbursement from the Company and the Partnership.  At June 30, 2012, amounts reimbursable to the Investment Manager totaled $2,031,096, as reflected in the Consolidated Statement of Assets and Liabilities.

 

29
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2012

 

7.  Stockholders’ Equity and Dividends

 

The following table summarizes the total shares issued and proceeds received in the public offering of the Company’s common stock net of underwriting discounts and offering costs for the three months ended June 30, 2012.

 

   Shares
Issued
   Offering
Price Per
Share
   Proceeds Net of
Underwriting and
Offering Costs
 
April 3, 2012 initial public offering   5,750,000   $14.75   $80,991,725 

 

The Company used the net proceeds from the above initial public offering to repay outstanding indebtedness and for other general corporate purposes, including funding investments.

 

The Company’s dividends are recorded on the record date. The following table summarizes the Company’s dividends declared during the three months ended June 30, 2012:

 

Date Declared  Record Date   Payment Date   Amount Per
Share
   Total Amount 
April 3, 2012   June 15, 2012    June 29, 2012   $0.34   $7,301,716 

 

8.  Earnings Per Share

 

The following information sets forth the computation of the net increase in net assets per share resulting from operations for the three months ended June 30, 2012:

 

   Three months ended
June 30, 2012
 
Net increase in net assets applicable to common shareholders resulting from operations  $6,026,201 
Weighted average shares outstanding   21,475,635 
Earnings per share  $0.28 

 

9.  Subsequent Events

 

On August 9, 2012, the Board of Directors of the Company declared a third quarter cash dividend of $0.35 per share. The third quarter dividend is payable on September 28, 2012 to stockholders of record as of the close of business on September 14, 2012.

 

30
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2012

 

 

10. Financial Highlights

 

The financial highlights shown below show the Company's results of operations for the three or six months ended June 30, 2012 as noted. The beginning NAV per share and the weighted average number of shares are based on the assumption that the number of common shares issued in the Conversion on April 2, 2012 and those sold in the initial public offering on April 3, 2012 had been issued as of the beginning of the period.

 

   Three Months Ended 
   June 30, 2012 
      
Per Common Share     
Per share NAV at beginning of period (1)  $14.76 
      
Investment operations:     
Net investment income   0.42 
Net realized and unrealized gain (loss)   (0.12)
Dividends on Series A preferred equity facility   (0.02)
Net change in accumulated dividends on Series A preferred equity facility   - 
      
Total from investment operations   0.28 
      
Distributions to common shareholders from:     
Net investment income   (0.34)
Total distributions to common shareholders   (0.34)
      
Per share NAV at end of period  $14.70 
      
Per share market price at end of period  $14.46 
      
Total return based on market value (2), (3)   0.3%
Total return based on net asset value (3)   1.9%
      
Shares outstanding at end of period   21,475,635 

 

31
 

 

TCP Capital Corp.

 

Notes to Consolidated Financial Statements (Unaudited) (Continued)

 

June 30, 2012

 

10. Financial Highlights (continued)

 

   Six Months Ended 
   June 30, 2012 
     
Ratios to average common equity: (4), (5)     
Net investment income   13.2%
Expenses   3.3%
      
Ending common shareholder equity  $315,619,738 
Portfolio turnover rate (3)   21.6%
Weighted-average debt outstanding  $12,741,758 
Weighted-average interest rate on debt   0.9%
Weighted-average number of common shares   21,475,635 
Average debt per share  $0.59 

  

 

 

(1) Pro forma as of March 31,2012, after giving effect to the Conversion and the offering.

 

(2) Total return based on an offering price of 14.75 and assuming dividends are reinvested.

 

(3) Not annualized.

 

(4) Annualized, except for professional fees relating to the Conversion and excise taxes.

Expense ratio excludes excise taxes.

 

(5) These ratios include interest expense but do not reflect the effect of dividends on the preferred equity facility.

 

32
 

 

TCP Capital Corp.

 

 Consolidated Schedule of Changes in Investments in Affiliates (1) (Unaudited)

 

Six Months Ended June 30, 2012

 

Security  Value,
Beginning 
of Period
   Acquisitions   Dispositions   Value,
End of
Period
 
                 
Anacomp, Inc., Class A Common Stock  $740,761   $-   $-   $1,305,748 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N913DL), 8%, due 7/15/18   -    403,947    -    403,947 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N918DL), 8%, due 7/15/18   -    490,003    -    490,003 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N954DL), 8%, due 9/20/19   -    631,014    -    631,014 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N955DL), 8%, due 9/20/19   -    645,523    -    645,523 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N956DL), 8%, due 9/20/19   -    646,372    -    646,372 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N957DL), 8%, due 9/20/19   -    651,170    -    651,170 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N959DL), 8%, due 9/20/19   -    655,930    -    655,930 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N960DL), 8%, due 9/20/19   -    675,587    -    675,587 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N961DL), 8%, due 9/20/19   -    671,812    -    671,812 
Delta Air Lines, Inc., Aircraft Secured Mortgage (N976DL), 8%, due 7/15/18   -    512,643    -    512,643 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N913DL)   -    100,987    -    100,987 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N918DL)   -    122,501    -    122,501 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N954DL)   -    157,753    -    157,753 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N955DL)   -    161,381    -    161,381 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N956DL)   -    161,593    -    161,593 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N957DL)   -    162,792    -    162,792 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N959DL)   -    163,982    -    163,982 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N960DL)   -    168,897    -    168,897 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N961DL)   -    167,953    -    167,953 
Delta Air Lines, Inc., Equipment Trust Beneficial Interests (N976DL)   -    128,161    -    128,162 
EPMC HoldCo, LLC, Membership Units   5,264,007    -    -    4,581,393 
ESP Holdings, Inc., Cumulative Preferred 15%   3,287,872    -    -    3,491,056 
ESP Holdings, Inc., Common Stock   7,473,887    -    -    7,055,790 
ESP Holdings, Inc., Junior Unsecured Subordinated Promissory Notes, 6% Cash + 10% PIK, due 12/31/19   6,240,393    363,247    -    6,572,593 
International Wire Group Holdings, Inc., Common Stock   30,077,606    -    -    30,186,475 
International Wire Group Holdings, Inc., Senior Notes, 11.5% Cash or 12.25% PIK, due 4/15/15   18,180,000    -    -    18,630,000 
RM Holdco, LLC, Membership Units   -    2,010,777    -    2,010,777 
RM Holdco, LLC, Subordinated Convertible Term Loan, 1.12% PIK, due 3/21/18   -    5,061,923    -    5,061,923 
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche A, 11%, due 3/19/16   -    3,745,365    -    3,748,607 
RM OpCo, LLC, Senior Secured 1st Lien Term Loan Tranche B,  12% Cash + 7% PIK, due 3/19/16   -    5,945,170    -    6,019,219 
United Air Lines, Inc., Aircraft Secured Mortgage (N510UA), 20%, due 9/26/16   624,066    -    (31,786)   596,984 
United Air Lines, Inc., Aircraft Secured Mortgage (N512UA), 20%, due 10/26/16   630,208    -    (31,103)   603,936 
United Air Lines, Inc., Aircraft Secured Mortgage (N536UA), 16%, due 8/21/14   414,963    -    (58,610)   358,293 
United Air Lines, Inc., Aircraft Secured Mortgage (N545UA), 16%, due 7/17/15   563,575    -    (52,520)   516,096 
United Air Lines, Inc., Aircraft Secured Mortgage (N585UA), 20%, due 10/25/16   739,958    -    (36,520)   709,638 
United Air Lines, Inc., Aircraft Secured Mortgage (N659UA), 12%, due 3/28/16   5,014,613    -    (430,173)   4,726,216 
United Air Lines, Inc., Aircraft Secured Mortgage (N661UA), 12%, due 5/4/16   5,192,014    -    (417,180)   4,918,780 
United Air Lines, Inc., Equipment Trust Beneficial Interests (N510UA)   467,137    31,786    (17,957)   477,765 
United Air Lines, Inc., Equipment Trust Beneficial Interests (N512UA)   458,665    31,103    (17,663)   472,470 
United Air Lines, Inc., Equipment Trust Beneficial Interests (N536UA)   686,303    58,610    (22,601)   616,413 
United Air Lines, Inc., Equipment Trust Beneficial Interests (N545UA)   612,589    52,520    (23,737)   615,580 
United Air Lines, Inc., Equipment Trust Beneficial Interests (N585UA)   498,602    36,520    (23,388)   582,805 
United N659UA-767, LLC (N659UA)   2,274,815    430,173    (337,356)   2,767,528 
United N661UA-767, LLC (N661UA)   2,205,523    417,180    (331,517)   2,770,176 

 

Note to Schedule of Changes in Investments in Affiliates:

 

(1)The issuers of the securities listed on this schedule are considered affiliates under the Investment Company Act of 1940 due to the ownership by the Company of 5% or more of the issuers' voting securities.

 

33
 

 

TCP Capital Corp.

 

Consolidated Schedule of Restricted Securities of Unaffiliated Issuers (Unaudited)

 

June 30, 2012

 

Investment  Acquisition Date   Cost 
           
AIP/IS Holdings, LLC, Membership Units  Var. 2009 & 2010   $- 
Bally Total Fitness Holding Corporation, Common Stock  4/30/10    45,186,963 
Bally Total Fitness Holding Corporation, Warrants  4/30/10    - 
BPA Laboratories, Inc., Senior Secured Notes, 12.25%, due 4/1/17  3/5/12    14,458,200 
Constellation Enterprises, LLC, Senior Secured 1st Lien Notes, 10.625%, due 2/1/16  1/20/11    12,322,875 
DeepOcean Group Holding AS, Common Stock  5/13/11    3,477,627 
Integra Telecom, Inc., Common Stock  11/19/09    8,433,884 
Integra Telecom, Inc., Warrants  11/19/09    19,920 
La Paloma Generating Company, Residual Claim  2/2/05    1,580,126 
ITC^DeltaCom, Inc., Senior Secured Notes, 10.5%, due 4/1/16  4/9/10    8,753,309 
NEF Kamchia Co-Investment Fund, LP Interest   7/31/07    3,367,227 
NEF Telecom Company BV, Mezzanine Term Loan, EURIBOR + 4.5% Cash + 7.5% PIK, due 8/16/17  8/29/07    26,162,416 
Precision Holdings, LLC, Class C Membership Interests  Var. 2010 & 2011    1,396 
Shop Holding, LLC, Class A Units  6/2/11    462,576 
Shop Holding, LLC, Warrants to Purchase Class A Units  6/2/11    - 
STG-Fairway Holdings, LLC, Class A Units  12/30/10    1,100,348 
The Telx Group, Inc., Senior Unsecured Notes, 10% Cash + 2% PIK, due 9/26/19  9/26/11    7,427,281 

  

34
 

 

TCP Capital Corp

 

Consolidating Statement of Assets and Liabilities (Unaudited)

 

June 30, 2012

 

       Special Value         
   TCP   Continuation       TCP 
   Capital Corp.   Partners, LP       Capital Corp. 
   Standalone   Standalone   Eliminations   Consolidated 
Assets                    
Investments:                    
Unaffiliated issuers  $-   $335,442,072   $-   $335,442,072 
Investment in subsidiary   317,251,268    -    (317,251,268)   - 
Controlled companies   -    1,305,748    -    - 
Other affiliates   -    115,570,517    -    116,876,265 
Total investments   317,251,268    452,318,337    (317,251,268)   452,318,337 
                     
Cash and cash equivalents   -    11,208,200    -    11,208,200 
Accrued interest income   -    6,287,481    -    6,287,481 
Receivable for investment securities sold   -    213,554    -    213,554 
Deferred debt issuance costs   -    917,972    -    917,972 
Unrealized appreciation on swaps   -    437,912    -    437,912 
Receivable from parent   -    1,292    (1,292)   - 
Prepaid expenses and other assets   40,807    529,322    -    570,129 
Total assets   317,292,075    471,914,070    (317,252,560)   471,953,585 
                     
Liabilities                    
Credit facility payable   -    17,000,000    -    17,000,000 
Payable for investment securities purchased   -    2,176,789    -    2,176,789 
Payable to the Investment Manager   1,538,278    492,818    -    2,031,096 
Management and advisory fees payable   -    -    -    - 
Interest payable   -    34,528    -    34,528 
Payable to subsidiary   1,292    -    (1,292)   - 
Accrued expenses and other liabilities   132,766    425,616    -    558,382 
Total liabilities   1,672,337    20,129,750    (1,292)   21,800,795 
                     
Preferred equity facility                    
Series A preferred limited partner interests   -    134,000,000    -    134,000,000 
Accumulated dividends on Series A preferred equity facility   -    533,052    -    533,052 
Total preferred limited partner interests   -    134,533,052    -    134,533,052 
                     
Net assets  $315,619,738   $317,251,268   $(317,251,268)  $315,619,738 
                     
Composition of net assets                    
Common stock  $21,476   $-   $-   $21,476 
Additional paid-in capital   445,713,655    441,328,969    (441,328,969)   445,713,655 
Accumulated deficit   (130,115,393)   (124,077,701)   124,077,701    (130,115,393)
Net assets  $315,619,738   $317,251,268   $(317,251,268)  $315,619,738 

 

35
 

 

TCP Capital Corp.

 

Consolidating Statement of Operations (Unaudited)

 

Six Months Ended June 30, 2012

 

   TCP   Special Value
Continuation
       TCP 
   Capital Corp.   Partners, LP       Capital Corp. 
   Standalone   Standalone   Eliminations   Consolidated 
Investment income                    
Interest income:                    
Unaffiliated issuers  $-   $16,977,526   $-   $16,977,526 
Affiliates   -    3,245,630    -    3,245,630 
Dividend income:                    
Affiliates   -    1,811,189    -    1,811,189 
Other income:                    
Affiliates   -    345,858    -    345,858 
Total interest and related investment income   -    22,900,783    -    22,900,783 
                     
Operating expenses                    
Management and advisory fees   1,292    3,248,372    -    3,249,664 
Professional fees relating to the Conversion   133,333    278,190    -    411,523 
Amortization of deferred debt issuance costs   -    219,542    -    219,542 
Legal fees, professional fees and due diligence expenses   120,844    240,932    -    361,776 
Commitment fees   -    132,361    -    132,361 
Director fees   33,333    66,667    -    100,000 
Interest expense   -    56,448    -    56,448 
Insurance expense   18,578    37,385    -    55,963 
Custody fees   1,750    44,753    -    46,503 
Other operating expenses   16,068    91,795    -    107,863 
Total expenses   325,198    4,416,445    -    4,741,643 
                     
Net investment income before income taxes   (325,198)   18,484,338    -    18,159,140 
                     
Excise tax expense   502,978    -    -    502,978 
                     
Net investment income   (828,176)   18,484,338    -    17,656,162 
                     
Net realized and unrealized gain (loss)                    
Net realized gain (loss):                    
Investments in unaffiliated issuers   -    (3,104,104)   -    (3,104,104)
Investments in affiliates   -    718,845    -    718,845 
Net realized loss   -    (2,385,259)   -    (2,385,259)
Net change in unrealized appreciation/depreciation   10,287,001    (4,999,802)   (10,287,001)   (4,999,802)
Net realized and unrealized gain (loss)   10,287,001    (7,385,061)   (10,287,001)   (7,385,061)
                     
Dividends paid on Series A preferred equity facility   -    (745,183)   -    (745,183)
Net change in accumulated dividends on Series A preferred equity facility   -    (67,093)   -    (67,093)
                     
Net increase in net assets resulting from operations  $9,458,825   $10,287,001   $(10,287,001)  $9,458,825 

  

36
 

 

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The information contained in this section should be read in conjunction with our unaudited consolidated financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q. For periods prior to April 2, 2012, the consolidated financial statements and related footnotes reflect the performance of Special Value Continuation Fund, LLC which was formed on July 17, 2006. In addition, some of the statements in this report (including in the following discussion) constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which relate to future events or the future performance or financial condition of TCP Capital Corp. (the “Company,” “TCPC,” “TCP Capital,” “we,” “us,” or “our”). The forward-looking statements contained in this report involve a number of risks and uncertainties, including statements concerning:

 

·our, or our portfolio companies’, future business, operations, operating results or prospects;

 

·the return or impact of current and future investments;

 

·the impact of a protracted decline in the liquidity of credit markets on our business;

 

·the impact of fluctuations in interest rates on our business;

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