Dynamic Product Tankers: Downgraded To CCR 4

Based on the August 7, 2020 Apollo Investment (AINV) 10-Q filing, which saw the value of its equity stake in Dynamic Product Tankers get reduced by (45%), from (27%) in the prior quarter, we’ve chosen to downgrade the tanker company to CCR 4 from CCR 3. We know very little about what’s happening at this tanker company 85% owned by AINV for 5 years now. The more a BDC controls a company the less the outside world – including its shareholders are told. However, we’re aware that the shipping business is – by and large – in poor shape and in danger of getting worse if we get an ever deepening recession. We thought the most conservative approach would be to downgrade the company to one notch above non performing.

AINV is the only BDC lender to the company, as well as its principal owner, with $42mn invested at cost in first lien debt and another $50mn in the equity. That’s nearly three times as much AINV initially advanced. The investment income involved is high: $3.5mn. Any interruption or reduction in the interest income would have a material impact on the BDC. Furthermore, the remaining FMV of debt and equity is $69.3mn, also material: 7% of AINV’s net assets. We doubt that even in a worst case much more than half the total exposure at cost is at risk of being written off, but that’s still a notable number.

We’ll probably hear about Dynamic Product Tankers only next time AINV reports its results, and we’ll dutifully report back.