OEM Group: Written Down By Lender

THL Credit (TCRD) is the only BDC lender, and a control investor in OEM Group Inc. On April 20, 2020 the BDC, in a Shareholder Letter mentioned that its investment in the company had been written down by ($0.30) per share, or approximately ($9.0mn) in the IQ 2020. Furthermore TCRD said: “We took aggressive action in the first quarter to manage the cost structure at OEM to position it well to preserve value at the current price“. OEM is a Phoenix, Arizona semiconductor capital equipment provider,

The BDC Credit Reporter already had the company on its Underperformer list since IQ 2018, with a Corporate Credit Rating of 3. Management of TCRD has been waxing optimistic about the OEM’s prospects for some time, and mentioning a possible disposition of the $52.7mn invested in debt and equity in 2020. We’ve had our doubts given a look at the company’s financial statements (included in the TCRD 10-K) and lower valuations of late. At December 31, 2019 the overall OEM investment was valued at a discount of (33%) already.

The Covid-19 crisis appears to have seriously affected the company, but detail;s – besides that writedown – are sparse. However, that’s enough to downgrade OEM Group one notch further to a CCR 4. We’re not placing the company on our Weakest Links list yet, awaiting the May 2020 earnings release update. That would be an ominous move for TCRD as the debt – priced at LIBOR + 950 bps – earns annual investment income of $4.8mn annually, more than any other company in the BDC’s portfolio. We will circle back after TCRD eleases earnings and holds its conference call on May 8.