Covia : Downgrade To CCR 4 From CCR 3

We hear that Covia Corp. – “a minerals and materials supplier for industrial and energy markets” – has been engaged in drastic cost cutting in the wake of the Covid-19 crisis “designed to reduce overhead expenses by about $25 million from 2019 levels”. The company had been struggling even before Covid-19 – and lower oil prices came along – due to its status as a supplier to the energy sector.

We initiated the company on the Underperformers list back on January 1, 2020, with an initial Corporate Credit Rating of 3. With the latest news and with the 2025 Term Loan trading at a (55%) discount compared to (22%) at year end 2019, we have downgraded the outlook to CCR 4 from CCR 3. We’re not yet placing the company on our Weakest Links list – companies deemed highly likely to become non performers shortly – but it’s early days yet. The stock it at risk of being delisted from the NYSE and trades at just $0.45. A year ago that was $6.25…

The only BDC with exposure to publicly traded Covia remains Oaktree Specialty Lending (OCSL) with a cost of $7.9mn and a current value probably close to $3.5mn. That means an unrealized loss of ($2.6mn) is likely to be booked at the end of the IQ 2020. Income at risk – should Covia default – is about $0.400mn a year. We’ll check back after OCSL reports IQ 2020 results or earlier if anything new transpires.