The BDC Credit Reporter is having a hard time keeping up with the ever increasing number of BDC-financed companies being added to the non accrual category. This latest addition, though, is a big one, so we apologize for the delay. Production Resource Group, LLC “rents equipment, labor and production management services to end users in sports, live TV, music and film“, says bankruptcy publication Petition. As you’d expect, with Covid-19 and those end users in lockdown, business is not good.
There are three BDCs with a remarkable $511.3mn invested at cost in the company’s first lien 2024 term debt. Leading the trio is non-traded FS Investment II with $381mn, followed by Ares Capital (ARCC) and then TCW Direct Lending VII, LLC. From the IQ 2020, that debt was placed on non accrual and discounted between (30%) and (42%). [As always, there are sometimes inexplicable variations in valuations between BDCs holding the same debt tranche]. The company had been on the underperformers list since IIIQ 2019 with a CCR 3 rating, but has now leapfrogged to CCR 5, or non performing. The investment forgone to these three BDCs is huge for a credit with a middle of the road pricing of LIBOR + 700 basis points: about $42mn.
We have very few other details to offer so we’ll just wonder aloud at why the largest BDC lender to the company would take such a huge position. The FS Investment II loan represents 5% of that BDC’s total portfolio at cost and the FMV at March 31, 2020 equal to 6% of it’s net assets.
Also notable is that Production Resources Corp tops the BDC Credit Reporter’s list of so-designated Major underperforming companies – those with $100mn or more in outstandings at cost. There are 40 names on what’s we’ll begin to call our Biggest Hitters list and Production Resource Group has the dubious honor of being listed number one. These larger underperformers are important because this relatively small group amidst the 527 companies on the full underperformers list account for more than 40% of all investments at cost and FMV.
That’s all the more reason for us to keep tabs for what happens next at Production Resource Corp and other giant positions which individually can materially affect BDC returns. We expect to hear more no later than when the BDCs involved report second quarter results in the early summer.