E&P company Fieldwood Energy was downgraded by Fitch Ratings from B- to CCC. “Fitch also downgraded the first-lien secured term loan to ‘B’/’RR1’ from ‘BB-‘/’RR1’ and the second-lien term loan to ‘CCC-‘/’RR5’ from ‘B+’/’RR2’. The Rating Outlook was revised to Negative from Stable“. The ratings group is worrying about the company’s liquidity, as its debt facilities are fully drawn, and much else besides.
We’ve not written about Fieldwood before on these pages but have had the name on our Underperformers list since IQ 2019 with a CCR 3 rating. As of year-end 2019, the first lien Term Loan was already discounted (17%) and the second lien by (40%). As of April 15, 2020 the first lien is trading at a (70%) discount and the second at (92%). This does not bode well with the company needing a restructuring or capital infusion.
There are two BDCs with exposure, but nothing too great. The biggest lender is Barings BDC (BBDC) with $10mn invested in the first lien. With both first and second lien is non-traded NexPoint with $2.4mn. In total that $12.46mn at risk. We expect a debt for equity swap is the most likely short term outcome. That would result in the likely write-off of the second lien debt and – using the latest numbers – a two-thirds or greater realized loss for the first lien debt. That will impact the $0.9mn of income being generated here. BBDC will probably have to write-off ($7mn) or more and wait around for some time to see if Fieldwood Energy can find a long term way out of this situation.
We’ve not done a lot of analysis given i) the relatively small amounts involved; ii) the very fluid situation so we offer those predictions only as a rough estimate. There will be a restructuring of some sort soon and we will have an opportunity to take a closer look. At the moment, though, we’ve downgraded Fieldwood to CCR 4 from CCR 3 and we’ve added the name to our growing list of companies we expect to become non performing in the future.