BAKU, Azerbaijan, November 12. Fitch Ratings has downgraded BlackRock TCP Capital Corp.'s (TCPC) Long-Term Issuer Default Rating (IDR), as well as its senior secured and senior unsecured debt ratings, to 'BB-' from 'BB'. The Rating Outlook remains Negative, according to the agency's report.
The downgrade reflects continued deterioration in the company's asset quality and weakening franchise strength following the sale of a $523 million investment portfolio and the company's announcement that it is evaluating strategic alternatives. Fitch also noted that the remaining portfolio has become increasingly concentrated following the sale, amid a lack of new investment activity.
According to the report, TCPC's non-accrual investments accounted for 3.4% of the portfolio at fair value and 14.2% at cost as of September 30, 2026, compared with 1.6% and 7.4%, respectively, at the end of the second quarter. Both figures were above the average for similarly rated peers.
Fitch also highlighted pressure on dividend coverage amid a smaller investment portfolio and elevated payment-in-kind (PIK) income. Net investment income (NII) coverage of the base dividend stood at 94.1% in the third quarter of 2026, compared with 122.7% in the first half of the year. Cash-based NII coverage also fell to 76.5%, from 94.3% over the same period. PIK income accounted for 8.8% of interest and dividend income in the third quarter.
Meanwhile, TCPC's par debt-to-equity leverage ratio fell to 0.7x in the third quarter of 2026, from 1.67x in the previous quarter, following the portfolio sale. Net leverage also declined to 0.16x from 1.38x.
Asset quality and dividend coverage are expected to remain under pressure as the investment portfolio continues to contract. The Negative Outlook reflects the risk of additional realized investment losses, sustained pressure on dividend coverage, and potential increases in leverage if the company undertakes share repurchases or incurs further losses.
Fitch said a revision of the outlook to Stable would depend on greater clarity over the company's strategic plans, a significant reduction in non-accrual investments without substantial realized losses, improved cash-based dividend coverage, and sufficient liquidity. A reduction in the share of PIK income and greater diversification of the investment portfolio would also support an improvement in the credit profile.
