Executive Summary / Key Takeaways

• Strategic Repositioning Amidst Headwinds: BlackRock TCP Capital Corp. (TCPC) is actively repositioning its portfolio and strategy, leveraging its enhanced BlackRock-HPS platform to navigate a challenging credit environment marked by higher rates and uneven economic recovery. The focus is on core middle-market, first-lien loans, and a "lender of influence" approach.
• Progress on Non-Accruals, Yet Volatility Persists: TCPC has made meaningful strides in reducing non-accrual investments, with fair value declining to 3.7% of the portfolio by Q2 2025. However, the path to recovery for restructured assets remains non-linear, as evidenced by new non-accruals like Thrasio and 48forty, and ongoing markdowns on names like Razor.
• Platform Synergy as a Differentiator: The recent integration of HPS Investment Partners into BlackRock's new Private Financing Solutions (PFS) platform significantly bolsters TCPC's deal sourcing, underwriting, and portfolio management capabilities. This expanded ecosystem is a critical competitive advantage, enabling participation in larger, more complex transactions.
• Disciplined Capital Management & Shareholder Alignment: Management is proactively managing its capital structure, having repaid $92 million in 2025 notes and extended a credit facility. A revised dividend policy, coupled with a voluntary management fee waiver and share repurchases, underscores a strong commitment to sustainable shareholder returns and alignment.
• Outlook: Cautious Optimism for M&A and Stability: While macroeconomic uncertainties persist, management anticipates a pickup in M&A activity driven by potential rate stabilization and post-election clarity. This could accelerate resolutions for challenged assets and provide attractive new investment opportunities, reinforcing TCPC's long-term growth trajectory.

A New Chapter in Middle-Market Lending

BlackRock TCP Capital Corp. (TCPC) operates as a specialized business development company (BDC), deeply entrenched in providing direct equity and debt financing to the dynamic middle-market sector. Its core mission is to deliver high total returns through a blend of current income and capital appreciation, with a steadfast emphasis on principal protection. TCPC's investment strategy is primarily centered on senior secured loans, complemented by junior loans, mezzanine debt, and strategic equity investments, often in complex situations. This approach positions TCPC as a crucial capital provider in an attractive, often underserved segment of the economy.

The company's journey began in April 2012, evolving from Special Value Continuation Fund, LLC, and quickly establishing its public presence. A pivotal moment arrived in August 2018 when its investment manager, Tennenbaum Capital Partners, LLC (the Advisor), merged with a subsidiary of BlackRock, Inc. (BLK), integrating TCPC into one of the world's largest asset management platforms. This affiliation has been a cornerstone of TCPC's competitive strategy, providing unparalleled access to resources, deal flow, and expertise. Further solidifying its market footprint, TCPC completed a significant merger with BlackRock Capital Investment Corporation (BCIC) in March 2024, expanding its portfolio and reinforcing its position in the middle-market lending landscape.

TCPC's competitive edge is significantly amplified by its differentiated operational and analytical platform, powered by the vast resources of BlackRock and, more recently, HPS Investment Partners. While TCPC does not develop product-specific technology, its "technological differentiation" lies in its sophisticated investment platform and data-driven insights. This platform centralizes private investment sourcing and origination, maximizing collaboration and effectiveness across BlackRock's global network of private equity sponsors, advisors, intermediaries, and banks. This robust infrastructure is designed to expand TCPC's investment pipeline, ensuring access to a broader array of high-quality middle-market opportunities.

The integration of HPS Investment Partners, completed in July 2025, is akin to a major platform development initiative. This new Private Financing Solutions (PFS) platform combines BlackRock's private credit and liquid/private credit CLO businesses, boasting over $280 billion in total assets under management. This strategic move enhances TCPC's investment expertise and resources, bringing decades of experience in executing thousands of private credit transactions across various market cycles and special situations. The tangible benefits for TCPC include enhanced sourcing, underwriting, and portfolio management capabilities, allowing it to participate in and lead larger, more complex credit transactions. This deep integration and access to specialized restructuring expertise from HPS professionals provide a critical competitive moat, enabling TCPC to better manage risk, optimize recovery values for challenged assets, and ultimately drive superior risk-adjusted returns for investors.

Strategic Evolution and Portfolio Dynamics

TCPC's strategy is undergoing a deliberate evolution, driven by lessons learned and an unwavering commitment to shareholder value. The company is laser-focused on the core middle market, adopting an industry-driven, proactive approach to sourcing and underwriting. This segment, characterized by less competition and opportunities for premium yields and stronger covenant protection, remains central to TCPC's investment thesis. Opportunistic investments in the lower and upper middle market are also pursued, provided they are relationship-driven and align with efficient capital deployment.

A key strategic pillar is maintaining a highly diversified portfolio while actively limiting exposure to specific industry subsectors. This is a direct response to past challenges, particularly with concentrations in areas like Amazon aggregators. The company prioritizes first-lien loans, which constituted 86.0% of its debt investments by Q2 2025. For any second-lien opportunities, TCPC emphasizes a "lender of influence" position, ensuring significant downside protection and the ability to leverage its expertise in challenging situations. This disciplined approach is evident in recent investment activity, with 91.6% of acquisitions in the first half of 2025 being in senior secured loans, and repeat borrowers accounting for 51% of investment dollars, highlighting the value of incumbency and deep relationships.

Financial Performance and Operational Resilience

TCPC's financial performance in recent periods reflects both the ongoing challenges in the credit market and the initial impacts of its strategic repositioning. For the six months ended June 30, 2025, total investment income was $107.35 million, a decrease from $127.26 million in the prior year period. This decline was primarily attributed to a reduction in portfolio size and lower SOFR rates. Despite this, the weighted average effective yield of the debt portfolio (excluding non-accruals) remained robust at 12.0% as of Q2 2025. Profitability metrics, while under pressure, show signs of stabilization. The company reported a net decrease in net assets of $16 million, or $0.19 per share, for Q2 2025, and a net increase of $5.0 million, or $0.06 per share, for the six months ended June 30, 2025. This compares to a net increase of $51.3 million and $46.2 million for the respective prior year periods.

The decrease in net assets in Q2 2025 was primarily due to markdowns on previously restructured portfolio companies rather than new credit issues. Operating expenses saw a notable reduction, decreasing to $23.9 million in Q2 2025 from $35.7 million in Q2 2024. This improvement was driven by lower incentive fee expense (no accrual as the cumulative total return did not exceed the hurdle), reduced interest expense due to lower SOFR rates and less debt outstanding, and voluntary management fee waivers.

A critical area of focus has been the management of non-accrual investments. TCPC has made meaningful progress, reducing non-accruals to 3.7% of the portfolio's fair market value by Q2 2025, down from 4.4% in Q1 2025 and 5.6% at the end of 2024. This improvement reflects the removal of several large investments, including InMoment, SellerX, Lithium, and Renovo, from non-accrual status, often following comprehensive recapitalizations. However, the path is not linear, with new additions like Thrasio, Fishbowl, 48forty, and Brook & Whittle in Q2 2025, highlighting the ongoing volatility in restructured companies and the impact of shifts in consumer purchasing behavior. The substantial markup on Domo (DOMO), a cloud software company, following a strong Q1 2025 earnings report, demonstrates the potential for positive revaluations within the portfolio.

Liquidity and Capital Structure

TCPC maintains a solid liquidity and capital position, crucial for navigating market uncertainties and supporting new investments. As of June 30, 2025, total liquidity stood at $566 million, comprising $455 million of available leverage and $107 million in cash. Unfunded loan commitments were manageable at approximately $154 million, representing 8.6% of the investment portfolio, with only $64 million in revolver commitments.

The company's net regulatory leverage was 1.28x at Q2 2025 quarter-end, slightly above its target range of 0.9x to 1.2x. This temporary increase was attributed to the timing of new investments, delayed repayments, and a decline in NAV, with management expecting leverage to normalize to Q1 levels in Q3 2025. TCPC's diversified leverage program, including three low-cost credit facilities, three unsecured note issuances, and an SBA program, provides ample financing flexibility. Proactive capital management is a priority, as evidenced by the repayment of $92 million in 2025 notes and the extension of the $200 million Funding Facility II's maturity in July 2025. The company is also evaluating alternatives to refinance its 2026 notes, aiming to maintain its investment-grade rating and access attractively priced capital as portfolio credit quality improves.

Competitive Landscape and Market Positioning

TCPC operates in a competitive middle-market lending environment alongside prominent BDCs such as Ares Capital Corporation (ARCC), Hercules Capital, Inc. (HTGC), Goldman Sachs BDC, Inc. (GSBD), and Main Street Capital Corporation (MAIN). While ARCC's larger scale and broader deal-sourcing capabilities offer a competitive edge in high-volume markets, TCPC differentiates itself through its specialized focus on originated loans and equity stakes in complex situations. This allows TCPC to offer greater flexibility in deal structuring, fostering stronger customer loyalty in niche segments.

Compared to HTGC's tech-heavy, venture debt focus, TCPC's broader sector diversification, including energy and communications, provides a more stable market positioning, albeit with potentially less aggressive growth in specific high-growth tech areas. Against GSBD, TCPC's hands-on approach to direct investments contrasts with GSBD's reliance on institutional backing, potentially leading to qualitatively better cost efficiency in deal execution for TCPC. While MAIN focuses on the lower middle market with a conservative debt-centric strategy, TCPC's willingness to engage in complex equity stakes offers a unique value proposition for companies seeking ownership partnerships.

TCPC's primary competitive advantages, or moats, stem from its deep industry knowledge, direct relationships, and deal-structuring expertise, which are highly valued in the middle market. Its ability to leverage the extensive resources and global network of the BlackRock platform, now significantly enhanced by the HPS integration, is a distinct differentiator. This platform synergy provides access to proprietary deal flow, enabling TCPC to be highly selective in its investments and act as a "lender of influence," which offers significant downside protection. While TCPC's smaller scale compared to giants like ARCC could lead to higher operational costs and slower deal acquisition, its strategic adaptability and niche expertise allow it to compete effectively in specialized segments.

Outlook and Forward-Looking Strategy

TCPC's outlook is one of cautious optimism, underpinned by a clear strategic roadmap and the formidable backing of the BlackRock-HPS platform. Management anticipates that the long-awaited rate-cutting cycle and clarity following the U.S. election will serve as significant catalysts for M&A activity, which has been sluggish. This expected pickup in deal flow, coupled with record levels of dry powder held by private equity sponsors, should create a robust pipeline of new investment opportunities.

The company expects to be through the restructurings of its Amazon aggregator investments "probably in the next few quarters at the back end, could be sooner," noting encouraging signs of improvement in some brands. While the resolution of challenged assets is a multi-year process, an improving M&A market could accelerate exits and capital recycling. TCPC is also proactively managing its capital structure, with plans to obtain a second SBIC license to expand its investment capacity and evaluating options to refinance its 2026 notes, aiming to maintain its investment-grade rating. The voluntary management fee waiver for the first three quarters of 2025 and the revised dividend policy, including special dividends, underscore management's commitment to shareholder alignment and sustainable returns.

Conclusion

BlackRock TCP Capital Corp. is at a pivotal juncture, strategically repositioning its portfolio and operations to thrive in a dynamic private credit landscape. The core investment thesis hinges on its ability to leverage the unparalleled resources of the BlackRock-HPS Private Financing Solutions platform, focusing on disciplined, first-lien middle-market lending, and a "lender of influence" approach. Despite recent portfolio challenges and NAV markdowns, the company has demonstrated tangible progress in reducing non-accruals and is actively working to optimize recovery values for its challenged assets.

The integration of HPS significantly enhances TCPC's competitive moat, providing superior deal sourcing, underwriting, and restructuring expertise, which is critical for navigating volatile markets and delivering compelling risk-adjusted returns. With a clear strategic plan, proactive capital management, and a strong commitment to shareholder alignment through its fee structure and dividend policy, TCPC is laying the groundwork for a resilient future. Investors should monitor the continued reduction of non-accruals, the impact of the HPS integration on deal flow and portfolio performance, and the successful refinancing of upcoming debt maturities as key indicators of TCPC's trajectory towards consistent, attractive long-term returns.