On October 30, 2019 oil services company Basic Energy Services reported third quarter 2019 results. The company is public, so we were able to review a press release, 10-Q, Investor Presentation and Conference Call transcript. We also had a look at Basic Energy’s stock price – ticker BAS – which is not encouraging. Finally, we used Advantage Data’s real-time records to see how the company’s 2023 debt – the only instrument held by a BDC and its largest debt piece – is performing. Also, not encouraging. Last time we checked back in September, the 2023 debt was trading at a (27%) discount. Now the discount has risen to (30%).
We are writing this post because the recent financial performance, where Adjusted EBITDA does not even cover interest and mandatory capex, and the weak outlook for the sector as a whole, lead us to the conclusion that the chances of a default and loss and greater than that of full recovery. As a result, we are downgrading our internal credit rating to a CCR 4 (Worry List) from CCR 3 (Watch List). Luckily for Guggenheim Credit Income Fund – a non listed BDC – the amount at risk is modest at $2.0mn in a portfolio of $376mn.