According to Reuters, on April 10, 2020 PE-owned Envision Healthcare Corp has begun hiring outside financial advisers to assist in restructuring its balance sheet due to falling sales and earnings brought on by the Covid-19 epidemic. The company’s revenues have “collapsed” as more elective medical care is postponed, sharply dropping demand for its services.
The only BDC with exposure is non-traded Business Development Corporation of America (BDCA), which has a $3.8mn at cost investment in the company’s 2025 Term Loan. There’s $0.22mn of annual investment income at risk. The debt was valued at a (11%) discount at year-end 2019 but was trading at a (43%) discount, according to Advantage Data, as of the latest available price. We have downgraded the company from CCR 3 to CCR 4 but do not yet have an estimate of prospective ultimate losses.
We’ll have more on this developing story in the weeks ahead. This is a microcosm of what is happening in the healthcare industry generally as the necessary focus on the Covid-19 situation impacts all other types of care and the companies involved. Given that healthcare represents a very large proportion of most BDCs portfolio, the implications are ominous.