TSLX Highlights Discrepancies in TICC’s Public Statements
Compared to the Reality of its Investment Portfolio and Recently
Reported Financial Results
Calls for TICC’s Independent Directors to Resign if Directors
Are Unwilling or Unable to Fulfill Their Duties to Stockholders
TSLX Poses Six Important Questions on Behalf of All Stockholders
to TICC’s Board Regarding the State of Stockholders’ Investment in
TICC
TSLX Encourages TICC Stockholders to Vote the GOLD Proxy
Card to Terminate TICC’s External Adviser’s Advisory Contract and
Elect T. Kelley Millet to the TICC Board of Directors at the 2016
Annual Meeting on September 2, 2016
TPG Specialty Lending, Inc. (“TSLX”; NYSE: TSLX), a specialty
finance company focused on lending to middle-market companies, has
delivered a letter to Mr. Steven P. Novak, Mr. G. Peter O’Brien and
Ms. Tonia L. Pankopf, the independent members of the Board of
Directors of TICC Capital Corp. (“TICC”; NASDAQ:TICC), urging that
they answer six important questions for all stockholders as part of
an objective evaluation of the facts regarding TICC’s
underperformance. In the letter, TSLX notes several discrepancies
between TICC’s public statements and the reality of its investment
portfolio and recently reported financial performance.
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View the full release here:
http://www.businesswire.com/news/home/20160829005496/en/
Appendix A - GAAP Net Investment Income
Bridge (Q2 2016 versus Q1 2016)(Graphic: Business Wire)
TSLX strongly encourages stockholders to sign and return the
GOLD proxy card today. TSLX urges stockholders to ignore
TICC’s self-serving actions and discard any WHITE proxy cards. Even
if a WHITE card has been submitted, stockholders can still
change their vote, simply by returning the GOLD proxy card now.
Voting instructions and TSLX’s proxy materials are also available
through the SEC’s website and at www.changeTICCnow.com.
A copy of the letter follows:
Mr. Steven P. Novak Mr. G. Peter O’Brien Ms. Tonia L. Pankopf TICC
Capital Corp. 8 Sound Shore Drive, Suite 255 Greenwich, CT 06830
Dear Independent Directors,
We are writing as the largest single stockholder of TICC Capital
Corp. (“TICC” or the “Company”) to urge you to critically evaluate
TICC’s recent performance and public statements. Although it may be
difficult, given TICC’s substantial underperformance during your
tenure, we are hoping that you will take a step back and look at
the facts objectively.
Like many others in the investment community, we continue to be
frustrated by the actions taken by TICC’s external adviser to avoid
a constructive dialogue regarding the Company’s operations and
results. A case in point is TICC’s refusal to issue its quarterly
report on Form 10-Q prior to conducting its earnings call with
stockholders. Not only does this demonstrate a profound lack of
respect for the views of TICC’s stockholders and equity research
analysts, it prevents any meaningful public discourse regarding
TICC’s performance, strategy and execution, thereby enabling poor
performance to continue unchecked. As a result, we feel obligated
to raise publicly several important questions to TICC’s Board on
behalf of all stockholders regarding the state of their
investment:
1.
What drove the change in the level
yield at which TICC recognized GAAP revenue from CLO equity
investments in the second quarter of 2016 – the quarter immediately
preceding the annual meeting at which stockholders will vote on a
proposal to terminate the external adviser’s contract?
Based on the schedule of investments
included in TICC’s Form 10-Q filing, it appears that substantially
all of the reported increase in investment income per share
resulted from a change in the level yield assumptions that TICC
utilizes to recognize GAAP revenue from its Collateralized Loan
Obligation (“CLO”) equity investments.1 During the second quarter
of 2016, the level yield at which TICC recognized revenue from CLO
equity investments increased by approximately 50.6%, to 12.8% from
8.5% in the preceding quarter.2 This increase included an
approximately 24.8% increase in the cost-weighted average level
yield applied to existing positions compared to the yield used for
the three months prior.
We note that, by contrast, the key metrics
reflecting the underlying strength of your CLO equity investments
appear to have deteriorated. For example, cash-on-cash
distributions declined by approximately 14% quarter-over-quarter
and 27% year-over-year while junior over-collateralization
cushions, which measure the health of CLOs and can be used as a
means to predict possible future cash distributions to equity
holders, declined by approximately 5% quarter-over-quarter and 17%
year-over-year.3 Although GAAP permits management to revisit
level yield assumptions from time to time, as a stockholder, we
want to understand the underlying rationale that drove TICC to
undertake discretionary changes to these assumptions in the second
quarter of 2016, at a time when the external adviser’s performance
is being questioned by numerous independent analysts and advisors
and the termination of its contract is up for a vote of
stockholders.
2.
Why was the $0.14 per share in realized
losses not highlighted to stockholders?
Although TICC reported $0.13 per share in GAAP net
investment income (“NII”) for the second quarter of 2016, the
Company’s statement of operations show that this was driven
principally by reduced expenses and the change in level yield at
which TICC recognized revenue on its CLO equity investments
discussed above, neither of which have much to do with the
Company’s investment strategy or ability to deliver future
earnings.4
Even more important to stockholders, we
believe the Company’s second quarter earnings release glosses over
the magnitude of TICC’s net realized losses. Put simply, the
$0.13 per share in GAAP NII that TICC reported in Q2 2016 is more
than offset by $0.14 per share in losses realized during the
quarter.5 That means the economic value within the control of
management (excluding unrealized gains) that TICC delivered to
stockholders in the most recent quarter was NEGATIVE. It is not
lost on stockholders that realized losses represent a permanent
impairment of stockholder capital.
3.
Why did TICC’s external adviser collect
an NII incentive fee in the second quarter of this year when the
Company reported realized losses of $7.3 million? How can it
justify any fee at all?
The Company paid its external adviser an incentive fee of approximately $1.2
million6 during the most recent quarter, at the same time that the
Company reported realized losses of $7.3 million. We were
surprised to learn that this was a quid pro quo for the so-called
“best-in-class” fee waiver that was trumpeted by the Board earlier
this year as a stockholder-friendly measure. In connection with the
fee waiver, the Board agreed that the look-back reference date for
the payment of NII incentive fees would be reset to April 1, 2016.
As a result, any losses suffered by TICC’s
portfolio prior to April 1, 2016, whether realized or unrealized,
will not affect the adviser’s ability to reap NII incentive fees
going forward. Using the term “waiver”
to describe this is itself thus a misnomer. There was no
unilateral concession by the external adviser; instead the Board
agreed to wipe clean the slate of accumulated losses. This
certainly cannot be in the best interest of stockholders, given the
external adviser’s past performance. Through this reset, the
external adviser gets to start over, despite the decade of
underperformance delivered prior to the resetting of the threshold.
As a result, TICC could realize losses of up to approximately
$155.3 million7 and still be in a position that it might have to
pay incentive fees, this most recently completed quarter being a
case in point. We suspect that long-suffering TICC stockholders
wish they could similarly wipe clean their losses in TICC’s
shares.
4.
Has the Company actually implemented a
new investment strategy?
In a November 18, 2015 public statement, the Company
announced the sale of certain syndicated corporate loans and stated
that “a rotation out of lower-yielding corporate loan assets held
within a leveraged credit facility into higher-yielding loans held
on a less levered basis represents a compelling strategy,” and on
March 10, 2016, TICC CEO Jonathan Cohen announced on the fourth
quarter of 2015 earnings call that management was “committed to
rotating out of CLO equity over time.” Your actions, however,
appear to contradict your stated intent to implement a new
investment strategy.
Instead of exiting CLO equity investments,
however, TICC reported a meaningful increase in CLO equity investments during the
second quarter of 2016, with $37.9 million of CLO equity purchased
during the quarter, which represented 51.6% of the second quarter’s
new investment activity.8 CLO equity investments now represent
approximately 32% of TICC’s total investment portfolio at fair
value, a meaningful increase from the first quarter of 2016.9
5.
Why did TICC state that its new
investment strategy is “already yielding results”?
In its August 18, 2016 public statement,
TICC claimed that “[t]he Company has revised its investment
strategy, which is already yielding results.” Setting aside the
increase in CLO equity investments, which is certainly a part of
the old strategy, we must note that the Company’s financial
statements show that interest income from debt investments (where
the impact of new middle market originations would be presented in
your income statement) actually decreased to $8.7 million in the second quarter of
2016 versus $8.9 million in the first quarter of 2016,10 resulting
in virtually no change in these debt investments’ contribution to
total investment income on a per share basis.11 Does a
quarter-over-quarter decrease in income from debt investments
really equate to “yielding results”? How does TICC explain the
discrepancy between how the Board describes its investment strategy
and the reality of the performance of its portfolio?
6.
Shouldn’t stockholders judge the
performance of the Company for as long as management has been in
charge and not from the bottom of the market?
We agree with TICC’s August 18, 2016
public statement that the Company’s performance should be
“evaluated over a longer period.” On this point the facts are
clear: TICC has underperformed nearly every
significant benchmark since its IPO in 2003.
Since 2003, the Company has delivered
underperformance of NEGATIVE 182.9% as compared to the BDC
Composite.12 TICC’s Board and external advisor have been the
stewards of an investment strategy that has resulted in a 52%
decline in net asset value (“NAV”) per share since 2004.13 How
can the Company continue to defend this drastic level of
underperformance?
You have argued that stockholders should look only at a
single period of time—since 2009. However, we find it misleading to
only look at the Company’s results since 2009, because your results
since that point essentially reflect a recovery from your severe
underperformance relative to peers prior to and during the
financial crisis.14 We note your attempt to cherry-pick results
didn’t persuade ISS or the other proxy advisors. In fact, TICC has
delivered year-to-date returns of 14.7% in 2016, compared to 17.5%
for the BDC Composite, demonstrating that even TICC’s recent
performance has been subpar.
As TICC’s largest single stockholder, we continue to reiterate
our commitment to enhancing the value of stockholders’ investment
in the Company. The above questions are critical to helping us and
our fellow stockholders understand the leadership decisions being
made by you, TICC’s Board, and management. Stockholders deserve
real answers.
We genuinely hope that the TICC board will look critically at
its strategies, capital allocation policies and corresponding
performance. Independent experts have overwhelmingly expressed
concern with TICC’s actions and underperformance, and have
urged stockholders to support our campaign
for change. All three leading proxy advisors have
recommended that stockholders support our efforts. Even if you
ignore the facts outlined above, consider what well-respected
independent third parties have said:
- “As a result of the current advisor's
investment strategy, TICC has delivered negative [Total Shareholder
Return] and underperformed peers and the index over the past five
years . . . As such, terminating the current advisor appears to be
in the best interest of TICC shareholders.”
– ISS proxy advisory report, Aug. 17,
2016
- “[W]e believe that voting FOR the
[TSLX] nominee and voting FOR the termination of the investment
advisory agreement is in the best interest of the Company and its
shareholders. In arriving at that conclusion, we have considered
the following factors: 1. Our belief that the [e]xisting
[a]dviser’s investment strategy did not work on the benefit of the
Company and its stockholders. 2. We believe that [TSLX] would work
on offering an opportunity to the Company to be under a reputable
external adviser with a reasonable amount of investment adviser
fees to protect and maximize stockholder value.”
– Egan-Jones proxy advisory report, Aug. 23,
2016
- “The overriding fact facing
shareholders is that the board failed to take action while
overseeing five years of TICC underperformance, which by itself
signals that change is needed at the board level. Moreover, the
long tenure of this board, with each of its five members having
served for 13 years as directors, suggests that the company should
welcome fresh perspectives to the board. As such, there seems to be
a compelling case that change is warranted at this time.
– ISS proxy advisory report, Aug. 17,
2016
- “[W]e consider the appointment of Mr.
Millet affords important benefits above and beyond his financial
expertise, most notably with respect to his ability to immediately
inject a fresh, outside perspective and a willingness to
thoughtfully evaluate TICC's present circumstances . . . [W]e
consider the election of Mr. Millet represents a more favorable
outcome for unaffiliated investors by a wide margin.”
– Glass Lewis proxy advisory report, Aug. 19,
2016
We continue to be very disappointed in your repeated and
continued assertions that we have not articulated a plan and that
terminating the existing investment advisory agreement could result
in TICC being left with no investment adviser, no management team
and no operational infrastructure. As ISS correctly pointed out,
this risk “appears to be utterly within the board's control …
literally by identifying a new advisor.” In ISS’s words, “[t]o the
extent shareholders have a risk here, … it would appear the root
cause of the risk would be the current director's unwillingness to
fulfil [sic] their responsibilities to shareholders by taking any
action at all.”
We find it wholly inappropriate for you, the independent
directors, to argue that your stockholders should vote against
change because that change may present the risk that TICC’s
independent directors will fail to act in accordance with their
fiduciary duties. If you are saying that
you are unable or unwilling to fulfill your duties to stockholders,
we respectfully request that you resign.
As a long-term participant in the BDC space, we have an interest
in seeing that TICC and other BDCs employ best-in-class corporate
governance principles, provide stockholders with real transparency,
and deliver strong results for stockholders, including through
sound capital allocation and active management. Therefore, we hope
that our efforts to date, on behalf of all TICC stockholders, will
lead you to genuinely re-examine the Company’s practices so that
stockholders have the opportunity to benefit from the changes they
need and deserve.
Respectfully, TPG SPECIALTY LENDING, INC. Joshua
Easterly Chairman and Co-Chief Executive Officer Michael
Fishman Co-Chief Executive Officer
Appendix A: GAAP Net Investment
Income Bridge (Q2 2016 versus Q1 2016)15
See multimedia carousel for chart.
Appendix B: TICC CLO Equity
Portfolio – Performance Statistics16,17
CLO Equity Position
Principal18
Cost18 Fair Value18
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
%∆ Q/Q
%∆ Y/Y
ACAS CLO 2012- 1, Ltd. $6,000,000
$2,197,157 $2,460,000
Cash-on-Cash Distribution19
4.7% 3.7% 4.0% 3.3% 2.8% (15.1%) (40.1%)
Junior Overcollateralization Cushion20
5.6% 5.6% 5.6% 4.5% 4.0% (10.6%) (27.6%)
ALM X, Ltd.
$3,801,000 $2,587,735 $2,593,317 Cash-on-Cash
Distribution 6.9% 7.6% 7.2% 6.9% 6.4% (8.5%) (8.1%) Junior
Overcollateralization Cushion 4.1% 3.8% 3.8% 3.3% 3.3% (1.7%)
(20.6%)
ALM XII, Ltd. $2,825,000
$2,451,703 $2,401,250 Cash-on-Cash Distribution n/a
5.4% 5.5% 6.4% 5.6% (12.6%) n/a Junior Overcollateralization
Cushion 4.2% 4.2% 4.3% 4.3% 4.0% (6.9%) (4.1%)
AMMC CLO
XI, Ltd. $6,000,000 $3,340,013 $2,640,000
Cash-on-Cash Distribution 3.9% 4.1% 4.0% 3.9% 3.4% (13.6%) (13.9%)
Junior Overcollateralization Cushion 4.2% 3.9% 3.9% 3.7% 4.5% 21.1%
7.2%
AMMC CLO XII, Ltd. $12,921,429
$7,872,678 $6,202,286 Cash-on-Cash Distribution 5.2%
5.2% 5.0% 6.5% 2.8% (56.9%) (46.0%) Junior Overcollateralization
Cushion 5.1% 4.5% 4.6% 4.5% 4.5% 1.5% (10.5%)
Ares XXV
CLO Ltd. $15,500,000 $10,294,819
$6,820,000 Cash-on-Cash Distribution 4.1% 3.8% 3.4% 3.6%
2.8% (20.9%) (30.7%) Junior Overcollateralization Cushion 4.1% 3.6%
3.5% 3.3% 2.7% (19.0%) (34.6%)
Ares XXVI CLO Ltd.
$10,500,000 $6,708,840 $4,258,249 Cash-on-Cash
Distribution 5.2% 5.0% 4.4% 4.7% 3.8% (18.5%) (25.9%) Junior
Overcollateralization Cushion 3.9% 3.5% 3.4% 3.0% 2.5% (18.6%)
(37.0%)
Ares XXIX CLO Ltd. $12,750,000
$9,409,679 $6,240,823 Cash-on-Cash Distribution 5.8%
4.9% 4.6% 4.5% 3.9% (13.7%) (31.8%) Junior Overcollateralization
Cushion 3.7% 3.3% 3.2% 3.0% 2.4% (21.5%) (36.2%)
Benefit
Street Partners CLO II, Ltd. $23,450,000
$20,967,353 $14,299,564 Cash-on-Cash Distribution
5.6% 7.5% 6.4% 6.4% 5.1% (19.9%) (9.0%) Junior
Overcollateralization Cushion 4.4% 4.5% 4.6% 4.5% 3.3% (27.0%)
(26.2%)
Carlyle GMS CLO 2013- 2, Ltd.
$10,125,000 $7,030,284 $5,886,917 Cash-on-Cash
Distribution 6.1% 7.0% 5.6% 6.4% 5.5% (14.3%) (9.5%) Junior
Overcollateralization Cushion 5.1% 5.1% 5.1% 4.7% 4.7% – (6.7%)
Carlyle GMS CLO 2014- 4, Ltd. $25,784,000
$18,404,728 $18,003,917 Cash-on-Cash Distribution
11.7% 5.6% 4.6% 5.2% 4.2% (18.1%) (64.0%) Junior
Overcollateralization Cushion 4.4% 4.5% 4.6% 4.3% 4.5% 4.7% 3.3%
Catamaran CLO 2012- 1 Ltd. $23,000,000
$12,971,150 $4,140,000 Cash-on-Cash Distribution 4.5%
4.8% 4.6% 3.8% 4.0% 4.7% (12.8%) Junior Overcollateralization
Cushion 4.8% 4.8% 3.5% 2.4% 2.7% 13.3% (44.1%)
Catamaran
CLO 2013- 1 Ltd. $14,700,000 $9,638,879
$7,497,000 Cash-on-Cash Distribution 6.2% 5.9% 5.7% 5.3%
5.4% 0.7% (13.4%) Junior Overcollateralization Cushion 4.9% 4.9%
3.8% 4.6% 4.7% 1.2% (4.1%)
Cedar Funding II CLO, Ltd.
$18,750,000 $14,070,499 $12,187,500
Cash-on-Cash Distribution 4.3% 3.3% 3.7% 3.5% 3.3% (4.8%) (22.9%)
Junior Overcollateralization Cushion 5.2% 5.2% 4.9% 4.4% 4.5% 2.0%
(14.1%)
CIFC Funding 2012- 1, Ltd. $12,750,000
$7,303,328 $4,717,500 Cash-on-Cash Distribution 6.3%
5.4% 5.2% 5.1% 5.2% 1.2% (18.2%) Junior Overcollateralization
Cushion 5.2% 5.2% 4.8% 4.8% 4.6% (4.9%) (11.8%)
FINN
Square CLO, Ltd. $5,500,000 $2,206,069
$2,310,000 Cash-on-Cash Distribution 5.2% 4.4% 4.9% 4.1%
4.1% (0.0%) (19.8%) Junior Overcollateralization Cushion 4.6% 4.7%
4.7% 3.8% 2.9% (23.8%) (37.3%)
GoldenTree Loan
Opportunities VII $4,670,000 $2,977,127
$3,128,900 Cash-on-Cash Distribution 6.7% 6.3% 6.5% 6.4%
5.4% (15.9%) (19.8%) Junior Overcollateralization Cushion 5.1% 4.9%
4.7% 3.7% 4.4% 18.2% (14.8%)
Halcyon Loan Advisors
Funding 2014- 2 $8,000,000 $5,598,450
$3,860,000 Cash-on-Cash Distribution 7.0% 6.1% 6.4% 6.6%
5.6% (14.8%) (20.1%) Junior Overcollateralization Cushion 5.1% 5.4%
4.6% 3.5% 2.5% (29.1%) (51.6%)
Hull Street CLO Ltd.
$5,000,000 $3,592,246 $2,100,000 Cash-on-Cash
Distribution 8.5% 7.7% 6.8% 6.2% 5.0% (19.2%) (40.7%) Junior
Overcollateralization Cushion 4.6% 4.6% 3.9% 2.4% 2.5% 1.6% (46.6%)
CLO Equity Position
Principal21
Cost4 Fair Value4
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
%∆ Q/Q
%∆ Y/Y
Ivy Hill Middle Market Credit Fund VII
$14,000,000 $11,896,222 $10,173,989
Cash-on-Cash Distribution 5.1% 5.1% 4.8% 5.3% 4.8% (8.4%) (4.8%)
Junior Overcollateralization Cushion 4.9% 5.0% 5.1% 5.0% 5.1% 1.5%
4.3%
Jamestown CLO V Ltd. $8,000,000
$5,476,339 $2,880,000 Cash-on-Cash Distribution n/a
11.9% 4.8% 4.9% 4.2% (15.5%) n/a Junior Overcollateralization
Cushion 4.0% 1.8% 1.6% 1.5% 1.2% (22.8%) (70.5%)
KVK CLO
2013- 2, Ltd. $5,000,000 $1,834,437
$1,950,000 Cash-on-Cash Distribution 5.3% 5.6% 5.0% 5.5%
4.3% (21.1%) (18.4%) Junior Overcollateralization Cushion 3.8% 3.5%
3.3% 3.1% 3.3% 5.0% (14.7%)
Madison Park Funding XIX,
Ltd. $5,422,500 $6,373,537 $6,398,550
Cash-on-Cash Distribution n/a n/a n/a n/a n/a n/a n/a Junior
Overcollateralization Cushion n/a n/a 3.8% 5.6% 6.0% 7.2% n/a
Marea CLO, Ltd. $16,217,000 $10,618,808
$5,647,012 Cash-on-Cash Distribution 4.6% 3.1% 4.1% 4.1%
3.3% (20.7%) (29.2%) Junior Overcollateralization Cushion 5.3% 5.0%
3.9% 3.8% 3.6% (7.1%) (32.4%)
MidOcean Credit CLO IV
$9,500,000 $7,398,245 $7,030,000 Cash-on-Cash
Distribution n/a n/a 12.4% 6.7% 5.7% (15.2%) n/a Junior
Overcollateralization Cushion n/a 4.1% 4.1% 4.1% 4.1% (1.0%) n/a
Mountain Hawk III CLO $17,200,000
$11,155,970 $5,134,732 Cash-on-Cash Distribution 4.9%
4.7% 4.8% 4.8% 3.1% (35.9%) (37.8%) Junior Overcollateralization
Cushion 4.0% 4.0% 3.7% 1.2% 1.6% 42.5% (59.2%)
Mountain
Hawk III CLO (M Notes) $2,389,676 –
$356,978 Cash-on-Cash Distribution 1.7% 1.7% 1.7% 1.7% 1.7%
(1.8%) (0.4%) Junior Overcollateralization Cushion n/a n/a n/a n/a
n/a n/a n/a
Neuberger Berman CLO XVI, Ltd.
$2,500,000 $1,062,818 $1,075,000 Cash-on-Cash
Distribution 4.1% 4.9% 3.8% 3.9% 3.0% (22.1%) (25.7%) Junior
Overcollateralization Cushion 3.6% 2.7% 2.7% 2.6% 2.4% (7.6%)
(33.0%)
Newmark Capital Funding 2013- 1 CLO
$20,000,000 $12,122,114 $6,600,000
Cash-on-Cash Distribution 5.7% 4.9% 5.4% 5.2% 4.6% (13.0%) (19.9%)
Junior Overcollateralization Cushion 3.3% 3.3% 3.1% 2.4% 1.8%
(25.4%) (46.0%)
Shackleton 2013- III CLO, Ltd.
$5,407,500 $3,959,337 $2,109,450 Cash-on-Cash
Distribution 6.0% 6.3% 5.8% 6.0% 4.7% (21.6%) (21.7%) Junior
Overcollateralization Cushion 4.6% 4.6% 4.1% 3.6% 3.3% (9.8%)
(28.8%)
Shackleton 2013- IV CLO, Ltd.
$21,500,000 $15,940,844 $8,695,962
Cash-on-Cash Distribution 6.5% 6.5% 5.7% 5.5% 4.8% (13.4%) (25.8%)
Junior Overcollateralization Cushion 4.4% 4.5% 4.1% 3.5% 3.3%
(6.2%) (25.6%)
Telos CLO 2013- 3, Ltd.
$10,416,666 $7,681,883 $4,687,500 Cash-on-Cash
Distribution 6.0% 5.8% 5.8% 5.6% 5.3% (6.1%) (12.6%) Junior
Overcollateralization Cushion 4.9% 5.0% 5.0% 5.0% 4.3% (14.0%)
(11.6%)
Telos CLO 2013- 4, Ltd. $11,350,000
$7,183,572 $5,536,204 Cash-on-Cash Distribution 5.4%
5.2% 5.1% 4.9% 6.0% 23.0% 10.3% Junior Overcollateralization
Cushion 4.6% 4.7% 4.8% 4.1% 3.4% (17.6%) (26.6%)
Telos
CLO 2014- 5, Ltd. $10,500,000 $7,731,246
$4,664,001 Cash-on-Cash Distribution 6.3% 5.8% 5.6% 5.6%
5.4% (4.3%) (13.9%) Junior Overcollateralization Cushion 4.2% 4.3%
4.4% 4.5% 3.9% (13.0%) (6.0%)
Venture XV CLO, Ltd.
$5,000,000 $2,408,824 $2,600,000 Cash-on-Cash
Distribution 5.3% 6.5% 5.2% 5.1% 4.5% (12.1%) (15.0%) Junior
Overcollateralization Cushion 4.0% 3.9% 3.6% 2.9% 2.5% (12.2%)
(36.9%)
Windriver 2012- 1 CLO, Ltd. $7,500,000
$5,411,574 $4,576,096 Cash-on-Cash Distribution 4.8%
5.6% 4.4% 5.0% 4.1% (17.1%) (13.6%) Junior Overcollateralization
Cushion 5.0% 5.1% 4.4% 5.2% 5.2% 1.7% 4.0%
York CLO- 1,
Ltd. $7,000,000 $5,167,978 $5,250,000
Cash-on-Cash Distribution n/a 10.9% 7.2% 4.6% 3.8% (16.2%) n/a
Junior Overcollateralization Cushion 4.8% 4.9% 4.4% 4.0% 4.5% 12.4%
(5.6%)
Totals / Fair Value-Weighted Average
Balances $400,929,771 $273,046,485
$197,112,697
Cash-on-Cash
Distributions22
6.1% 5.7% 5.4% 5.2% 4.4%
(14.4%) (27.2%)
Junior Overcollateralization
Cushion5
4.6%
4.5% 4.2% 4.0%
3.8% (4.8%) (17.2%)
Cash-on-cash distributions and
juniorovercollateralization cushions decreasedmeaningfully on a Q/Q
and Y/Y basis in Q2 2016
Appendix C: TICC CLO Equity
Portfolio – Effective Yield Comparison23
Effective Yield Comparison - Q2 2016 versus Q1 2016
At 6/30/16
Effective Yield # Investment
Principal($MM) Cost($MM) Fair Value($MM)
Jun-16 Mar-16 Difference
(% Points)
CLO Equity
Positions Held in Both Q2 2016 and Q1 2016
1 AMMC CLO XI, Ltd. $6.0 $3.3 $2.6 24.66% 22.46% 2.20% 2 AMMC CLO
XII, Ltd. $12.9 $7.9 $6.2 17.75% 13.70% 4.05% 3 Ares XXV CLO Ltd.
$15.5 $10.3 $6.8 4.28% 2.88% 1.40% 4 Ares XXVI CLO Ltd. $10.5 $6.7
$4.3 5.10% 3.71% 1.39% 5 Ares XXIX CLO Ltd. $12.8 $9.4 $6.2 9.13%
5.63% 3.50% 6 Benefit Street Partners CLO II, Ltd. $23.5 $21.0
$14.3 14.50% 15.85% (1.35%) 7 Carlyle Global Market Strategies CLO
2013- 2, Ltd. $10.1 $7.0 $5.9 16.78% 22.35% (5.57%) 8 Carlyle
Global Market Strategies CLO 2014- 4, Ltd. $25.8 $18.4 $18.0 17.36%
19.12% (1.76%) 9 Catamaran CLO 2012- 1 Ltd. $23.0 $13.0 $4.1
(14.41%) (23.25%) 8.84% 10 Catamaran CLO 2013- 1 Ltd. $14.7 $9.6
$7.5 15.41% 8.71% 6.70% 11 Cedar Funding II CLO, Ltd. $18.8 $14.1
$12.2 15.53% 10.49% 5.04% 12 CIFC Funding 2012- 1, Ltd. $12.8 $7.3
$4.7 21.53% 11.32% 10.21% 13 Halcyon Loan Advisors Funding 2014- 2
Ltd. $8.0 $5.6 $3.9 12.08% 4.87% 7.21% 14 Hull Street CLO Ltd. $5.0
$3.6 $2.1 10.51% 5.06% 5.45% 15 Ivy Hill Middle Market Credit Fund
VII, Ltd. $14.0 $11.9 $10.2 16.87% 13.79% 3.08% 16 Jamestown CLO V
Ltd. $8.0 $5.5 $2.9 7.70% 4.02% 3.68% 17 Marea CLO, Ltd. $16.2
$10.6 $5.6 (0.36%) (6.72%) 6.36% 18 MidOcean Credit CLO IV $9.5
$7.4 $7.0 19.69% 20.01% (0.32%) 19 Mountain Hawk III CLO, Ltd.
$17.2 $11.2 $5.1 (2.13%) 2.74% (4.87%) 20 Newmark Capital Funding
2013-1 CLO Ltd. $20.0 $12.1 $6.6 2.08% 2.96% (0.88%) 21 Shackleton
2013- III CLO, Ltd. $5.4 $4.0 $2.1 2.03% 1.93% 0.10% 22 Shackleton
2013- IV CLO, Ltd. $21.5 $15.9 $8.7 5.41% 6.50% (1.09%) 23 Telos
CLO 2013- 3, Ltd. $10.4 $7.7 $4.7 18.03% 13.85% 4.18% 24 Telos CLO
2013- 4, Ltd. $11.4 $7.2 $5.5 28.93% 22.82% 6.11% 25 Telos CLO
2014- 5, Ltd. $10.5 $7.7 $4.7 19.46% 16.32% 3.14% 26
Windriver 2012- 1 CLO, Ltd. $7.5 $5.4
$4.6 22.46% 20.86% 1.60%
Total /
Cost-Weighted Average $350.8
$243.8 $166.6 10.9%
8.8%
TICC increased the effective yield at
which it recognized GAAP revenue from existing CLO equity
investments by 24.8% versus Q1 2016
CLO Equity
Positions Added in Q2 2016
27 ACAS CLO 2012- 1, Ltd. $6.0 $2.2 $2.5 58.76% 28 ALM X, Ltd. $3.8
$2.6 $2.6 21.78% 29 ALM XII, Ltd. $2.8 $2.5 $2.4 18.99% 30 FINN
Square CLO, Ltd. $5.5 $2.2 $2.3 26.31% 31 GoldenTree Loan
Opportunities VII, Ltd. $4.7 $3.0 $3.1 19.81% 32 KVK CLO 2013- 2,
Ltd. $5.0 $1.8 $2.0 43.57% 33 Madison Park Funding XIX, Ltd. $5.4
$6.4 $6.4 15.80% 34 Neuberger Berman CLO XVI, Ltd. $2.5 $1.1 $1.1
31.82% 35 Venture XV CLO, Ltd. $5.0 $2.4 $2.6 28.63% 36 York
CLO- 1, Ltd. $7.0 $5.2 $5.3
18.01%
Total / Cost-Weighted Average
$47.7 $29.3 $30.2
24.8%
Total / Cost-Weighted
Average $398.5 $273.0
$196.8 12.4%
Appendix D: TICC Long-Term
Underperformance
See multimedia carousel for chart.
TICC Relative Performance
Total Return (%)24
YTD 1Y 3Y
Since IPO 25
Since IPO
Annualized22
YTD 1Y 3Y Since
IPO22
Since IPO
Annualized22
TICC 14.7% 15.7% 1.7% 76.8%
4.6% - - -
-
BDC Composite 26
17.5 16.9 12.2 259.7 10.6 (2.9)% (1.2)% (10.5)% (182.9)% (6.0)%
S&P 500 8.6 13.4 40.0 175.0 8.2 6.1% 2.3 % (38.4)% (98.3)%
(3.7)% U.S. Treasuries 5.8 4.8 13.6 70.2 4.3 8.8% 10.9 % (12.0)%
6.6% 0.3% Investment Grade Debt 11.4 10.9 24.3 106.1 5.8 3.3% 4.8 %
(22.6)% (29.4)% (1.3)% High Yield Debt 13.1 8.3 15.1 120.8 6.4 1.6%
7.4 % (13.4)% (44.0)% (1.8)%
Note: Market data as of August 23,
2016
Source: Bloomberg, fixed income benchmark
data from Markit iBoxx
Appendix E: TICC Historical
Performance
See multimedia carousel for chart.
Period Beginning November 21st 2003 2004
2005 2006 2007 2008 2009
2010 2011 2012 2013 2014 2015
TICC Total Return Greater than BDC Composite
X
X
X
X
X
X
X
X
X
X
X
X
X
To date, TICC has underperformed
the BDC Composite in 85% of the periods with start dates beginning
each year since IPO. The Board and management are cherry-picking
the best performance window (since 2008) to justify their
“long-term” performance.
(1)
Total return calculation includes share
price appreciation and cumulative dividends paid.
(2)
BDC Composite comprised of ACAS, AINV,
ARCC, BKCC, FSC, GBDC, HTGC, MAIN, MCC, NMFC, PNNT, PSEC, SLRC,
TCAP, and TCRD
Note: Market data as of August 23,
2016
Source: Bloomberg
About TPG Specialty Lending
TPG Specialty Lending, Inc. (“TSLX” or the “Company”) is a
specialty finance company focused on lending to middle-market
companies. The Company seeks to generate current income primarily
in U.S.-domiciled middle-market companies through direct
originations of senior secured loans and, to a lesser extent,
originations of mezzanine loans and investments in corporate bonds
and equity securities. The Company has elected to be regulated as a
business development company, or BDC, under the Investment Company
Act of 1940 and the rules and regulations promulgated thereunder.
TSLX is externally managed by TSL Advisers, LLC, a Securities and
Exchange Commission registered investment adviser. TSLX leverages
the deep investment, sector, and operating resources of TPG Special
Situations Partners, the dedicated special situations and credit
platform of TPG, with over $16 billion of assets under management
as of March 31, 2016, and the broader TPG platform, a global
private investment firm with over $74 billion of assets under
management as of March 31, 2016. For more information, visit the
Company’s website at www.tpgspecialtylending.com.
Forward-Looking Statements
Information set forth herein may contain forward-looking
statements, including, but not limited to, statements with regard
to the expected future financial position, results of operations,
cash flows, dividends, portfolio, financing plans, business
strategy, budgets, capital expenditures, competitive positions,
growth opportunities, plans and objectives of management of TICC
Capital Corp. (“TICC”), statements with regard to the expected
future financial position, results of operations, cash flows,
dividends, portfolio, financing plans, business strategy, budgets,
capital expenditures, competitive positions, growth opportunities,
plans and objectives of management of TPG Specialty Lending, Inc.
(“TSLX”), and statements with regard to TSLX’s proposed business
combination transaction with TICC (including any financing required
in connection with a possible transaction and the benefits,
results, effects and timing of a possible transaction). Statements
set forth herein concerning the business outlook or future economic
performance, anticipated profitability, revenues, expenses,
dividends or other financial items, and product or services line
growth of TSLX, TICC and/or the combined businesses of TSLX and
TICC, including, but not limited to, statements containing words
such as “anticipate,” “approximate,” “believe,” “plan,” “estimate,”
“expect,” “project,” “could,” “would,” “should,” “will,” “intend,”
“may,” “potential,” “upside” and other similar expressions,
together with other statements that are not historical facts, are
forward-looking statements that are estimates reflecting the best
judgment of TSLX based upon currently available information.
Such forward-looking statements are inherently uncertain, and
stockholders and other potential investors must recognize that
actual results may differ materially from TSLX’s expectations as a
result of a variety of factors including, without limitation, those
discussed below. Such forward-looking statements are based upon
TSLX’s current expectations and include known and unknown risks,
uncertainties and other factors, many of which TSLX is unable to
predict or control, that may cause TSLX’s plans with respect to
TICC or the actual results or performance of TICC, TSLX or TICC and
TSLX on a combined basis to differ materially from any plans,
future results or performance expressed or implied by such
forward-looking statements. These statements involve risks,
uncertainties and other factors discussed below and detailed from
time to time in TSLX’s filings with the Securities and Exchange
Commission (“SEC”).
Risks and uncertainties related to a possible transaction
include, among others, uncertainty as to whether TSLX will further
pursue, enter into or consummate a transaction on the terms set
forth in its proposal or on other terms, uncertainty as to whether
TICC’s board of directors will engage in good faith, substantive
discussions or negotiations with TSLX concerning its proposal or
any other possible transaction, potential adverse reactions or
changes to business relationships resulting from the announcement
or completion of a transaction, uncertainties as to the timing of a
transaction, adverse effects on TSLX’s stock price resulting from
the announcement or consummation of a transaction or any failure to
complete a transaction, competitive responses to the announcement
or consummation of a transaction, the risk that regulatory or other
approvals and any financing required in connection with the
consummation of a transaction are not obtained or are obtained
subject to terms and conditions that are not anticipated, costs and
difficulties related to a potential integration of TICC’s
businesses and operations with TSLX’s businesses and operations,
the inability to obtain, or delays in obtaining, cost savings and
synergies from a transaction, unexpected costs, liabilities,
charges or expenses resulting from a transaction, litigation
relating to a transaction, the inability to retain key personnel,
and any changes in general economic and/or industry specific
conditions.
In addition to these factors, other factors that may affect
TSLX’s plans, results or stock price are set forth in TSLX’s Annual
Report on Form 10-K and in its reports on Forms 10-Q and 8-K.
Many of these factors are beyond TSLX’s control. TSLX cautions
investors that any forward-looking statements made by TSLX are not
guarantees of future performance. TSLX disclaims any obligation to
update any such factors or to announce publicly the results of any
revisions to any of the forward-looking statements to reflect
future events or developments.
Third Party-Sourced Statements and Information
Certain statements and information included herein have been
sourced from third parties. TSLX does not make any representations
regarding the accuracy, completeness or timeliness of such third
party statements or information. Except as expressly set forth
herein, permission to cite such statements or information has
neither been sought nor obtained from such third parties. Any such
statements or information should not be viewed as an indication of
support from such third parties for the views expressed herein. All
information in this communication regarding TICC, including its
businesses, operations and financial results, was obtained from
public sources. While TSLX has no knowledge that any such
information is inaccurate or incomplete, TSLX has not verified any
of that information. TSLX reserves the right to change any of its
opinions expressed herein at any time as it deems appropriate. TSLX
disclaims any obligation to update the data, information or
opinions contained herein.
Proxy Solicitation Information
In connection with TSLX’s solicitation of proxies for the 2016
annual meeting of TICC stockholders in favor of (a) the election of
TSLX’s nominee to serve as a director of TICC and (b) TSLX’s
proposal to terminate the Investment Advisory Agreement, dated as
of July 1, 2011, by and between TICC and TICC Management, LLC, as
contemplated by Section 15(a) of the Investment Company Act of
1940, as amended, TSLX filed an amended definitive proxy statement
in connection therewith on Schedule 14A with the SEC on July 14,
2016 (the “TSLX Proxy Statement”). TSLX has mailed the TSLX Proxy
Statement and accompanying GOLD proxy card to stockholders of TICC.
This communication is not a substitute for the TSLX Proxy
Statement.
TSLX STRONGLY ADVISES ALL STOCKHOLDERS OF TICC TO READ THE TSLX
PROXY STATEMENT AND THE OTHER PROXY MATERIALS AS THEY BECOME
AVAILABLE BECAUSE THEY CONTAIN IMPORTANT INFORMATION. SUCH TSLX
PROXY MATERIALS ARE AND WILL BECOME AVAILABLE AT NO CHARGE ON THE
SEC’S WEB SITE AT HTTP://WWW.SEC.GOV AND ON TSLX’S WEBSITE AT
HTTP://WWW.TPGSPECIALTYLENDING.COM. IN ADDITION, TSLX WILL PROVIDE
COPIES OF THE TSLX PROXY STATEMENT WITHOUT CHARGE UPON REQUEST.
REQUESTS FOR COPIES SHOULD BE DIRECTED TO TSLX’S PROXY SOLICITOR AT
TPG@MACKENZIEPARTNERS.COM.
The participants in the solicitation are TSLX and T. Kelley
Millet, and certain of TSLX’s directors and executive officers may
also be deemed to be participants in the solicitation. As of the
date hereof, TSLX beneficially owned 1,633,719 shares of common
stock of TICC. As of the date hereof, Mr. Millet did not directly
or indirectly beneficially own any shares of common stock of
TICC.
Security holders may obtain information regarding the names,
affiliations and interests of TSLX’s directors and executive
officers in TSLX’s Annual Report on Form 10-K for the year ended
December 31, 2015, which was filed with the SEC on February 24,
2016, its proxy statement for the 2016 annual meeting of TSLX
stockholders, which was filed with the SEC on April 8, 2016, and
certain of its Current Reports on Form 8-K. These documents can be
obtained free of charge from the sources indicated above.
Additional information regarding the interests of these
participants in the proxy solicitation and a description of their
direct and indirect interests, by security holdings or otherwise,
is available in the TSLX Proxy Statement and other relevant
materials to be filed with the SEC (if and when available).
This document shall not constitute an offer to sell, buy or
exchange or the solicitation of an offer to sell, buy or exchange
any securities, nor shall there be any sale of securities in any
jurisdiction in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such jurisdiction. No offering of securities
shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as
amended.
1 See Appendix A for further detail
2 Source: TICC Investor Presentation for the quarter ended June
30, 2016, page 4; See Appendix C for further detail
3 See Appendix C for further detail
4 See Appendix A for further detail
5 Source: TICC Capital Corp. Form 10-Q for the period ended June
30, 2016, page 16; Calculated as $7,327,598 of realized losses
divided by 51,479,409 shares outstanding
6 Source: TICC Capital Corp. Form 10-Q for the period ended June
30, 2016, page 16
7 Source: TICC Capital Corp. Form 10-Q for the period ended
March 31, 2016, page 1
8 Source: TICC Capital Corp. Form 10-Q for the period ended June
30, 2016, page 32
9 Source: TICC Capital Corp. Form 10-Q for the period ended June
30, 2016, page 34
10 Source: TICC Capital Corp. Form 10-Q for the period ended
June 30, 2016, page 16 and TICC Capital Corp. Form 10-Q for the
period ended March 31, 2016, page 16
11 See Appendix A for further detail
12 BDC Composite comprised of ACAS, AINV, ARCC, BKCC, FSC, GBDC,
HTGC, MAIN, MCC, NMFC, PNNT, PSEC, SLRC, TCAP, and TCRD Note:
Market data as of August 23, 2016
13 Source: Net asset value per share has declined from $13.71 at
December 31, 2004 to $6.54 at June 30, 2016. TICC Capital Corp.
public filings
14 See Appendix E for further detail
15 Source: TICC Capital Corp. public filings (Form 10-Q for the
period ended June 30, 2016, page 16 and Form 10-Q for the period
ended March 31, 2016, page 16)
16 Source: Intex Solutions
17 Excludes Windriver 2012-1 CLO, Ltd. equity side letter
investment
18 As of 6/30/16
19 Calculated as the quotient of (i) the amount distributed to
the equity tranche in each respective quarter, divided by (ii) the
original balance of the equity tranche
20 Calculated as the quotient of (i) the difference between the
actual overcollateralization value and the limit
overcollateralization value, divided by (ii) the limit
overcollateralization value
21 As of 6/30/16
22 Excludes investments for which there were no distributions
and/or there was no overcollateralization tests in each respective
period
23 Source: TICC Capital Corp. public filings (Form 10-Q for the
period ended 6/30/16, pages 4–7 and Form 10-Q for the period ended
3/31/16, pages 5–7)
24 Total return calculation includes share price appreciation
and cumulative dividends paid
25 TICC and benchmark returns indexed to November 21, 2003.
26 BDC Composite comprised of ACAS, AINV, ARCC, BKCC, FSC, GBDC,
HTGC, MAIN, MCC, NMFC, PNNT, PSEC, SLRC, TCAP, and TCRD
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160829005496/en/
InvestorsTPG Specialty Lending, Inc.Lucy Lu,
212-601-4753llu@tpg.comorMacKenzie Partners, Inc.Charlie Koons,
800-322-2885tpg@mackenziepartners.comorMediaTPG Specialty Lending,
Inc.Luke Barrett, 212-601-4752lbarrett@tpg.comorAbernathy
MacGregorTom Johnson or Pat Tucker212-371-5999tbj@abmac.com /
pct@abmac.com
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