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Investing.com -- Fitch Ratings has downgraded BlackRock TCP Capital Corp.’s (NASDAQ:TCPC) long-term issuer default rating and debt ratings to ’BB+’ from ’BBB-’ with a stable outlook, citing deteriorating asset quality and elevated non-accrual levels.
The business development company (BDC) reported net realized losses of 6% of its average portfolio at fair value in the first half of 2025 and 4.6% in 2024, both significantly above rated peer averages. Non-accrual investments reached 4.0% of the debt portfolio at fair value and 10.3% at cost by the second quarter of 2025.
TCPC’s leverage increased to 1.60x in the second quarter, the highest among Fitch’s rated BDC peer group. The company’s regulatory leverage implied an asset coverage cushion of 11.6%, which Fitch described as "low for the portfolio risk profile."
The rating agency expects additional credit issues across BDCs in the second half of 2025 as elevated interest rates and challenging economic conditions pressure borrower performance.
In the first quarter, TCPC cut its regular dividend by 31% to $0.25 per share, which Fitch called "prudent." This improved dividend coverage to 134% of adjusted net investment income in the second quarter, or 95.2% when adjusted for non-cash items.
Payment-in-kind income rose to 11.8% of interest and dividend income in the second quarter, up from 6.4% in 2024 and above peer averages, indicating weaker borrower performance.
While TCPC has adequate near-term liquidity, it faces refinancing risk in 2026 when $325 million of unsecured notes and $22.2 million of Small Business Administration debentures mature.
The stable outlook reflects expectations that TCPC will reduce leverage to within its targeted range in the second half of 2025, maintain its unsecured funding mix above 25%, and continue focusing on senior debt investments.
Fitch noted that TCPC’s affiliation with BlackRock Inc. provides benefits, and BlackRock’s acquisition of HPS Investment Partners in July 2025 should improve TCPC’s competitive positioning and enhance investment resources.
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