Holland Intermediate Acquisition: In Default

THL Credit (TCRD) reported IVQ 2019 results on March 6, 2020, which included the revelation that portfolio energy company Holland Intermediate Company had defaulted on its $21.3mn Term Loan. There goes ($2.3mn) in annual income for the BDC. (Sierra Income – which has not reported – also has $4.3mn of debt exposure in the same facility). TCRD wrote down the investment to a (68%) discount from (32%) in the prior quarter. Sierra had already applied a (68%) discount as of September 2019.

None of the above is any great surprise to the BDC Credit Reporter. As we wrote in our prior post on December 15, 2019, we had long ago rated the company CCR 4, where we believe the chance of an eventual loss is greater than a full recovery.

The question now is whether if there’s any chance of recovery. We don’t know because the company is closely held and TCRD is close-lipped about the operations and financial performance of the business. To be realistic, though, with the oil price in freefall thanks to the global impact of Covid-19, which happened subsequent to the default and the IVQ 2019 valuation, we’re estimating this might be – at worst- a complete write-off. At best – barring a massive change in market conditions – this will be a non performing and devalued investment for some time to come.

What we also don’t know is whether the lenders might be asked to put more money up to support/save the business which might result in greater exposure. This will be a theme across the energy space and a conundrum many more BDCs than TCRD and and Sierra Income will face.