Horus Infrastructure: Downgraded To CCR 3

Given the unprecedented turmoil in the U.S. energy industry, the BDC Credit Reporter is pro-actively looking at all BDC-financed companies, including those still carried as “performing” from a valuation standpoint.

Horus Infrastructure (dba OilField Water Logistics or OWL) “is a leading provider of midstream water infrastructure and services to the energy industry in Texas, New Mexico, Colorado, Utah and Wyoming, with offices in Midland, Denver and Dallas. OWL is an established leader in the Permian Basin and owns and operates the largest commercial produced water gathering and transportation system in the Northern Delaware Basin. For more information about OWL: www.oilfieldwaterlogistics.com.”

The company was acquired in October 2019 by InstarAGF Management. According to Investcorp Credit Management (ICMB) – the only BDC with exposure – the undisclosed purchase price was funded two-thirds with equity and only one-third by debt, as the new owner has future expansion plans. ICMB’s exposure at cost is $4.5mn in $5.0mn of debt and is valued at $4.5mn. Reflecting the perceived lower risk the 10/25/2022 Term Loan is only priced at LIBOR + 350 bps.

We’ve done some research and both the company and the sector in which OWL operates appear to be critical components in the energy industry and the low leverage of the transaction is encouraging. Nonetheless, given that trade publications and the Kansas City Fed are projecting a huge increase in the number of oil producers going bankrupt and a massive drop in oil production, we cannot believe a supplier like OWL will remain immune. We’ve found nothing in the public record about latest impact but are still downgrading the company to Underperforming, with a Corporate Credit Rating of 3.

We will learn more from the ICMB IQ 2020 results and in future periods. In line with our new approach – copied from the new “Current Expected Credit Losses” (CECL) policy being required of banks – we’re taking a provision of 20% or ($0.9mn) for potential losses for this credit. It’s just a swag at this point. We’ll adjust as better information comes in. To assume no losses – the favorable capital structure notwithstanding – would be unrealistic at this juncture.