VPROP Operating LLC: Files Chapter 11

VPROP Operating LLC (also known as Vista Proppants and Logistics) has filed Chapter 11, according to news reports. We had written about the supplier of sand to frackers on February 12, 2020 when we heard about the company’s debt going into default in IVQ 2019. Now we’re waiting on the bankruptcy filings to find out what direction the owners and the company’s seemingly sole lender – Ares Capital (ARCC) – take the business. Consider this a placeholder article till those details get filled in.

For ARCC this is a major reverse with $158.5mn invested at cost and a FMV that dropped to $70.7mn as of March 2020 for the non accruing first loan and a dab of common stock. That gives you an idea of the extent of the likely realized loss: (55%) or more. Some ($17.2mn) of investment income has already been lost since the end of the IVQ when $148.8mn of first lien debt became non performing. (The remainder is in now value-less equity).

From a BDC sector perspective, this is the largest BDC-company bankruptcy in cost terms since Borden filed Chapter 11 ($170.5mn) back on January 7, 2020 according to our records. This is the fourth BDC-financed company to seek court protection in June and we’re just one-third of the way through the month.

From a finger wagging perspective, this is a classic investment in the oil services space, an area that most BDCs – including ARCC – have nominally “underweighted” or avoided, a fact that the BDC’s management was boasting of on its last conference call. VPROP may be the exception to the rule but its a significant one and may result in the BDC’s largest realized losses in some time. What’s more the BDC does have a total of over half a billion dollars at cost invested in energy over 6 companies (including VPROP) so this might not be the only ARCC-financed casualty of the BDC’s only partial avoidance of this most dangerous segment of the lending market.

For our part, we’ll be adding the company to the list of BDC-financed bankruptcies in 2020, bringing the aggregate cost this year to $830mn at cost. We will report back when the likely way forward for the company and ARCC – future owner of a frac sand supplier ? – becomes clearer.