Fitch Ratings has assigned an expected rating of 'BBB-(EXP)' to
Key Rating Drivers
The RWN reflects TCPC's relatively weak liquidity profile and elevated near-term refinancing risk, prior to completion of the proposed issuance, given the firm's upcoming unsecured note maturity in
If TCPC prices an issuance of at least
Unsecured debt accounted for 51.1% of TCPC's total debt at
As of
TCPC's ratings reflect its affiliation with
Rating constraints for business development companies (BDCs) more broadly include the market impact on leverage, given the need to fair-value the portfolio each quarter, dependence on access to the capital markets to fund portfolio growth and a limited ability to retain capital due to dividend distribution requirements. Fitch believes BDCs will experience weaker asset quality metrics in 2024 given the challenging economic backdrop, elevated interest rates and an increasingly competitive underwriting environment as private credit lenders grow and banks re-enter the space.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
An inability to successfully execute on an issuance of at least
Beyond that, negative rating momentum could be driven by further deterioration in non-accrual levels, meaningful realized credit losses, a sustained decline in the unsecured funding mix below 35% of total debt, failure to maintain a sufficient liquidity cushion for unfunded commitments and operating needs, a sustained increase in gross leverage or an inability to maintain the asset coverage cushion above 11%, weaker cash-based net investment income (NII) coverage of the dividend and/or an elevation in the portfolio risk profile, including a material decline in first lien loans as a percentage of the portfolio, without a commensurate decline in leverage.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Fitch expects to remove the RWN and affirm TCPC's ratings at 'BBB-' with a Stable Outlook if TCPC is able to price at least
Positive rating action is unlikely in the near term given the recent deterioration in credit metrics. However, over time, positive rating momentum could be driven by strong and differentiated credit performance and a sustained increase in the asset coverage cushion over 33%, maintenance of consistent core earnings performance, demonstrated economic access to unsecured funding that results in the maintenance of unsecured debt to total debt of at least 40%, and ample liquidity and solid cash-based NII coverage of the dividend.
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
The 'BBB-(EXP)' rating assigned to the new unsecured notes is equalized with the rating of the existing unsecured notes as the notes will rank equally in the capital structure. The alignment of the secured and unsecured debt ratings with the Long-Term IDR reflects Fitch's expectations for solid collateral coverage for all classes of debt since TCPC is subject to a 150% asset coverage requirement and has a meaningful unsecured funding component.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
Upon settlement of an unsecured notes issuance of at least
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visitwww.fitchratings.com/topics/esg/products#esg-relevance-scores.
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