Fieldwood Energy LLC: Downgraded by Fitch

Not very surprisingly, Fitch Ratings has downgraded the corporate and debt ratings of Fieldwood Energy, LLC. According to a May 13, 2020 release the corporate rating has been dropped from CCC to C. As you’d expect, the company is having trouble in the energy space and has entered into a forbearance agreement with lenders under its three most senior debt agreements. Effectively, the company is already on non accrual.

The BDC Credit Reporter is not much surprised as we’ve had the company rated as underperforming with a CCR 4 rating since IQ 2019. That rating implies we expected that a loss was more likely than a full repayment and that seems to be the case here. The two BDCs with an aggregate of $12.4mn invested at cost in the company’s 2021 Term Loan are Barings BDC (BBDC) and non-traded NexPoint Capital. BBDC still had its $10.1mn of debt outstanding accruing income at 3/31/2020 but that was already discounted (69%). Currently, the debt trades at a (85%) discount in the market, so more pain is on the way. NexPoint, with less capital on the line, has not reported results but had marked the debt at a (15%) discount at year end 2019 AND held a small portion of the second lien debt due in 2022. That will result in a larger write-down shortly .

At this stage this looks like a (almost) complete wash out for both BDCs and a loss of about ($0.900mn) of investment income. Neither BDC will be hugely impacted by the likely loss but the BDC Credit Reporter is surprised that either fund is even involved with this borrower. Fieldwood was already a troubled credit back in 2017 for what is now FS-KKR Capital, and had to be restructured. As recently as IIIQ 2018 BBDC joined in the current debt. The very next quarter the debt began to be written down and the quarter after that was added to our underperformers list…

For the moment we are maintaining the company’s CCR 4 rating and its presence on our Weakest Links list of companies expected to shortly default. However, we expect a shift to CCR 5 before long.