On July 13, 2020 Owl Rock Corporation (ORCC) in an 8-K filing announced in advance of the full and formal publication of its IIQ 2020 results, certain preliminary statistics and developments. This included the news that portfolio company Geodigm Corporation was placed on non-accrual in the IIQ 2020. No details as to what was happening at the dental imaging company, but we can guess given the hard times caused by Covid-19.
There are two BDCs with $142mn in exposure at cost to the company: Owl Rock Capital (ORCC) and non-traded Owl Rock Capital II. This is what we call a Major exposure, i.e. over $100mn in aggregate. Through March 31, 2020 the two BDCs had discounted their first lien debt position by (15%). We do not know what haircut has been taken now the loan is non performing. We calculate, though, that income forgone is equal to ($10.0mn) on an annual basis, with ORCC accounting for 86% of the exposure and the income missing.
We had placed Geodigm on the underperforming list for the first time in IQ 2020, leapfrogging from a CCR 2 to a CCR 4 status. Now we are downgrading the company again – to CCR 5. With the benefit of hindsight, the company should have been on our Weakest Links list given this non accrual but we did not have the information to make that call. Geodigm is an example of a Second Wave troubled credit. Through year end 2019 the company was still valued at par and seemingly in no danger. Now in less than 6 months the company has made the full trip from CCR 2 to CCR 5. We blame Covid-19 and the almost complete shut-down of the dental sector because of concerns about transmission.
We’ll learn a great deal more about what Geodigm is currently valued at and – possibly – its outlook when ORCC reports results in early August. Chances are strong the debt will be discounted further than in the IQ 2020.