TCP Capital Corp. is a specialty finance company that invests in mid-size businesses with strong positions in their fields.
"We provide creative and flexible financing solutions for companies that don't have easy access to the capital markets or to conventional bank financing," said Howard M. Levkowitz, 46, who has been chief executive since the Santa Monica company went public in April 2012. Levkowitz was a co-founder of Tennenbaum Capital Partners in 1999, which acts as the financial manager for TCP Capital.
TCP Capital says it is filling a void that has been left by commercial banks. In the wake of the global recession and more restrictive regulatory requirements, banks sharply curtailed lending to mid-size companies — those typically worth $100 million to $1.5 billion.
TCP Capital primarily invests in senior secured company debt, which must be repaid before non-secured debt if a firm gets into trouble. TCP Capital also makes equity investments in companies, which give it an ownership stake.
Private equity funding differs from venture capital in that it is intended for cashing out a retiring family or, more often, enabling an existing business to expand, as opposed to launching start-ups.
TCP Capital's teams work across 19 industries, providing loans that average about $12 million.
TCP Capital is a registered business development company under the Investment Company Act of 1940, which regulates certain aspects of company operations.
TCP Capital this month expanded its revolving credit facility with Deutsche Bank to $200 million from $150 million. It announced plans to sell $100 million in debt.
In May, the company reported first-quarter financial results that beat analysts' expectations, with sales rising to $22.7 million from $16.9 million a year earlier.
In April, a subsidiary of TCP Capital received approval from the Small Business Administration to operate as a Small Business Investment Company. That should add to the company's client base.
Levkowitz said this "gives us access to funding guaranteed by the government."
The company has had a broad reach.
Since it was founded in 1999, TCP has invested about $13.5 billion in more than 345 companies through its credit opportunities strategy.
TCP Capital's current $895-million investment portfolio consists of about 70 companies. Clients include software publishers, computer-assisted design firms, wireless telecommunications companies, media publishers and retail companies.
Private equity firms can make very high returns on their investment.
If deals succeed, the returns can be large. But if the deals fail, losses can be large and total, analysts say.
Chris Kotowski, an analyst for Oppenheimer & Co., said in a recent note to investors, "Our belief is that for all lending financial institutions, the biggest single risk factor is always credit quality."
In addition, "recessionary environments may make it more difficult" for players like TCP Capital "to renew their own credit facilities, on which they are very dependent to fund their own investments," he wrote. "These investments are also in private companies and are not readily salable or liquid."
Of eight analysts that regularly follow TCP Capital, two consider it a strong buy and three consider it a buy. Three others suggest holding on to the stock.
Kotowski of Oppenheimer said: "TCPC is spoiling us as analysts because it makes it all look so smooth and easy."
Christopher York, an analyst with JMP Securities, said: "In our opinion, TCP Capital continues to provide investors attractive differentiation when compared to other publicly traded" business development companies.