We’re writing this story based on one tweet from Debtwire claiming that Great Western Petroleum’s planned debt exchange has fallen through and the beleaguered company is being helped by a major bank to find a private credit alternative. If correct – and we have no reason to doubt the author or the publication, that will be yet another setback for the company’s attempts to reshape its balance sheet and increases the risk of a Chapter 11 filing.
We first wrote about Great Western on April 26 2020 when first downgrading the company from CCR 3 to CCR 4 on news of the now-failed restructuring. At that point, the only BDC lender – FS Energy & Power – had only discounted its junior capital positions by a modest (7%) to (10%). Now with two more quarters of reported results our skepticism about those values has been – partly – vindicated. As of the IIQ 2020, preferred held is discounted (35%) and one of its two subordinated debt holdings maturing in 2021 is discounted by (38%). On the other hand, another subordinated debt position maturing in 2025 is valued at only (1%) below cost. These values may be based on an expectation of the restructuring occurring as planned.
As in our earlier post, given the strains on the industry and the junior status of all the BDC lender’s capital, we continue to believe a complete realized loss is possible and made all the more likely by the latest, hot off the bad news presses. With $93.3mn invested at cost, this a material exposure for much battered FS Energy & Power. We continue to believe a default is likely, retaining the company on our Weakest Links list.