Dentistry Sector: Credit Advisory

Almost every sector and company out there is being impacted by the Covid-19 situation. In this case, the BDC Credit Reporter was spurred by a trade article we read regarding SIC Code 8021 – “Offices & Clinics Of Dentists” to undertake an initial sector review. We have identified 14 BDC portfolio companies with this SIC with $227mn outstanding at cost , spread out over multiple public and non-traded BDCs. Before the crisis began, 7 were under-performing and 7 were performing. Amongst the former, 4 were rated CCR 3, 1 CCR 4 and two CCR 5. That was already a high level of under-performers as a percentage of total participants.

The trade article indicated that. in several states, dental practices are being encouraged or ordered by state authorities to postpone elective dental work of all kinds, which has emptied the clinics and silenced the drills. The initial periods of inactivity sought are short (two weeks) but could be extended if the Covid-19 crisis continues as expected.

This will put pressure on the companies involved in the field – regardless of their prior credit rating – and may result in unexpected business failures and investment write-downs. We’ll be formally looking at individual companies in the weeks ahead, but we’ve already checked the most recent valuation of traded debt to several of the dentistal companies involved and found that big drops from the IVQ 2019 valuation levels have occurred.

A resumption of business as usual should improve the overall credit picture – when that occurs. However, the current almost complete absence of income may have more lasting consequences.