Glacier Oil & Gas: Debt Placed On Non-Accrual – Updated

Glacier Oil & Gas is an Alaskan oil & gas exploration company. We learn from Apollo Investment’s (AINV) IQ 2020 conference call that – not surprisingly – the company is performing poorly. As a result, the BDC’s $37.2mn of second lien debt has been placed on non accrual. That will result in $3.7mn of investment income not being received. (We believe the income was being paid in PIK form before so the cash impact on AINV will be nil).

We are downgrading Glacier from CCR 4 to CCR 5, or non performing. We did not have the company on our Weakest Links list given that AINV – with a 98% ownership position – has great flexibility about when to choose to be paid interest or not. That makes prognostication difficult. With the benefit of hindsight considering the current market conditions moving to non accrual makes sense.

The overall investment in Glacier, which has a cost of $67.0mn is now valued at just $14.7mn. For our purposes, we are assuming AINV will eventually have to write the entire investment off, ending a journey that began in 2012 when Glacier was called Miller Energy with $40mn committed. Since then, the BDC restructured and renamed the business (in 2016) which now faces an existential challenge. We expect a further write-down will occur in AINV’s IIQ 2020 results. [Written My 23, 2020]

IIQ 2020 Update: AINV continued to write down its position in Glacier Oil & Gas by ($3.2mn). The hit was taken on the already non performing second lien loan. That leaves a FMV – all in the debt as the equity has been written down to zero already – of $11.5mn. We continue to believe that the entire investment will be written off but have little confidence of getting a full and frank update from management which said nothing about the company this last quarter. We do know that “production is hedged through 2020”. 2021 may be the year of reckoning if there’s no huge uptick in oil prices. We maintain a CCR 5 rating.