CIBT Global: Placed On Non Accrual

Owl Rock Capital (ORCC) on July 13, 2020 announced preliminary results for the IIQ 2020, including the news that portfolio company CIBT Global, Inc. had been placed on non accrual. The company is a “leading global provider of immigration and visa services with the required reach, agility and client commitment to enable corporations and individuals to more easily navigate complex regulations so they can legally work, live and visit around the world“. As you would expect business activity is very low. In fact, back on March 20, 2020 Moody’s downgraded the company to Caa1 and its second lien debt (where BDC exposure lies) to Caa2, with a Negative outlook.

There are two BDCs with $68.7mn in exposure at cost, which had already been discounted (15%) at March 31, 2020. Both the BDCs are part of the Owl Rock construct: publicly traded Owl Rock Capital (ORCC) and non-traded Owl Rock Capital II. 85% of the debt – all second lien by the way – is held by the former. The income lost amounts to ($5.4mn). We can only imagine that the value will drop even further when IIQ results are released. A doubling or tripling of the unrealized loss is possible. Given that the company is highly leveraged (7.6x EBITDA at year end and God only knows what now) a complete write-off for the Owl Rock lenders is not impossible given the junior nature of the debt held. However, we’re getting ahead of ourselves and will revert when we receive an update from the ratings groups and/or the BDC lenders.

The BDC Credit Reporter initially downgraded the company from CCR 2 to CCR 4, based on Moody’s rating the second lien deep in its “speculative” grade. With this latest news, CIBT Global has been reduced to CCR 5. This could prove an expensive mistake for ORCC, with $58.3mn invested at cost, equal to 1% of the huge BDC’s net assets.