3rd Rock Gaming Holdings LLC: Debt On Non Accrual

We heard from publicly traded BDC OFS Capital (OFS) in a comment on their most recent conference call made on July 31, 2020 that software company 3rd Rock Gaming Holdings LLC has become non performing as of the IIQ 2020:

” 3rd Rock Gaming is a first lien, senior secured investment. We have rescheduled 3rd Rock Gaming’s June 30 principal on interest payment. The impact of COVID on its customers, which include gaming venues, has been substantial due to social distancing needs. The delays in reopening the venues and the timing associated with the return of significant customer traffic is unknown. The fair value as a percentage of cost was taken down to 61.5% this quarter from 81.4% last quarter”. 

In total, including a $2.5mn equity investment at cost that was written down to zero, OFS has $23.5mn in exposure to the company, now with a FMV of just $12.9mn. Some ($1.6mn) of annual investment interest income has been suspended.

We have downgraded the company from CCR 3 to CCR 5. See our update on March 14, 2020 for some background reading. It’s hard with what little we know to handicap the ultimate outcome. We’d venture to say the equity stake is probably a complete loss but the potential realized hit to the first lien debt – if any – is unknowable. For OFS, this is a relatively large position remaining, leaving material downside and potential further book value loss. However, if one is a glass half full sort of person, the income and value recovery could yet be substantial if the company can be returned to performing status. We will learn more when the BDC reports third quarter 2020 results. No date has yet been set.