BlackRock TCP Capital Corp. (NASDAQ:TCPC) is selling a $523 million portfolio of private credit investments to shore up its balance sheet, reduce leverage and regain flexibility after mounting pressure on its publicly traded lending vehicle.
TCPC, a business development company managed by an affiliate of BlackRock, is taking aggressive steps to stabilize its portfolio after selling a majority stake in a large pool of loans to private credit secondaries investor Pantheon.
The transaction transfers 95% of the equity interests in a continuation vehicle holding approximately $523 million of investments across 78 portfolio companies, representing about 48% of TCPC’s debt portfolio by fair value before the deal, BlackRock TCP said in a press release Thursday.
While TCPC characterized the transaction as a portfolio repositioning effort, the move effectively acts as a balance-sheet reset, cutting leverage from 1.38x to an expected 0.4x and giving the fund significantly more liquidity to navigate a challenging private credit environment.
The deal also comes with a cost: TCPC expects its net asset value to decline by roughly 10.4%, or $0.68 per share, based on its June 30 NAV of $6.58.
A Lifeline for a Pressured Private Credit Vehicle
The transaction highlights growing pressure on business development companies and private credit managers as investors demand stronger balance sheets after years of rapid lending growth.
TCPC reported second-quarter net investment income of $18.1 million, or $0.22 per share, but recorded a $14.8 million realized loss on investments during the quarter, including a $10 million loss from the exit of its investment in AutoAlert.
The company’s NAV declined from $6.72 per share at the end of the first quarter to $6.58 at the end of June.
The fund also continues to carry troubled investments. While non-accrual investments improved to 1.6% of the portfolio at fair value from 2.8% in the previous quarter, it represented 7.4% of the portfolio based on cost.
Private Credit’s Liquidity Problem
The sale underscores a broader challenge facing private credit: even loans that continue generating income can become difficult to manage when investors demand liquidity, leverage falls out of favor or valuations come under pressure.
Private credit secondaries have emerged as one solution, allowing managers to move portfolios off their balance sheets without fully selling individual loans.
In TCPC’s case, the company will maintain exposure to most portfolio companies by retaining direct investments alongside a 5% stake in the continuation vehicle. However, transferring roughly two-thirds of each investment position allows the firm to reduce concentration risk and unlock capital.
Alongside the transaction, TCPC’s board has hired Keefe, Bruyette & Woods to evaluate strategic alternatives. Those options could include deploying new leverage capacity, returning capital to shareholders through buybacks, pursuing combinations with other firms or selling additional portfolio assets.
TCPC’s restructuring comes as investors increasingly question whether private credit portfolios are prepared for a prolonged period of higher rates, weaker borrowers and slower exits.
The fund’s portfolio remains heavily weighted toward senior secured lending, with 91.5% of investments in senior secured debt and 89.8% in first-lien positions. But the need to sell nearly half of its debt portfolio highlights the growing importance of liquidity management across the asset class.
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