The Escape Game, LLC: Debt Valuation Drops

The BDC Credit Reporter is pro-actively – if randomly – seeking out companies and sectors that are likely to be disproportionately impacted by the Covid-19 crisis. We don’t just want to wait around till BDCs start reporting new under-performing portfolio companies weeks from now, or longer. (The SEC is now allowing delays in valuations, according to a legal update we saw from a law firm that a reader passed on).

In this regard, we’re downgrading The Escape Game, LLC from performing (CCR 2) to CCR 3 (Watch List). Three reasons: First, the very nature of the business. This involves small groups of people choosing to go into a small enclosed space to play the “escape game”. Fun, but not recommended at this time and we believe most locations must be closed or closing. Second, the two Term loans in which lenders are involved (2020 and 2022) are trading – if Advantage Data’s records are correct – at a (20%) discount. Third, the 2020 Term Loan matures at the end of March, just 4 days away. Will that be refinanced, extended or what in this environment ?

There are two BDCs with $20.0 of exposure at cost, and all performing as hoped at 12/31/2019: The first is publicly traded OFS Capital (OFS) with $18.6mn. The remainder – which does not amount to much – is held by non-traded Hancock Capital. With first quarter 2020 valuations about to be fixed, we expect to see the debt valuations drop by at least 20%, or ($4mn) of unrealized depreciation. We’ll check back after OFS and Hancock Park report results, or earlier, if there’s any new information on this closely held company acquired in a leveraged buyout back in late 2017.