Spotted Hawk Development: IIIQ 2020 Update

Spotted Hawk Development LLC is the BDC’s largest single remaining energy investment and the only one still generating current income for the BDC. As a result, the BDC Credit Reporter is undertaking an update as of September 30, 2020. The total cost remains $115mn, essentially unchanged from the prior period. However, the fair market value has dropped to $42.3mn from $47.5mn. The reduction occurred in the Tranche A senior loan (there are three tranches), which remains on non accrual.

Currently only Tranche A of the debt is still “performing”, with a cost of $24.7mn and a slightly higher FMV. The debt is priced at a 12.0% yield, generating $3.0mn of annual investment income, equal to 2.7% of the BDC’s annualized Net Investment Income Per Share.

Management provided no update on the company this quarter and no analyst asked a question. We affirm the company’s CCR 5 rating, which has been in place since 2016 and continue to expect – given the parlous state of the energy sector – that this investment will end in a huge realized loss and – probably – a further decrease in fair market value from the IIIQ 2020 level. What’s impossible to tell – given that AINV controls this business and has – is whether Spotted Hawk will continue to pay its interest. Given the valuation trend, the outlook for payment and for valuation looks bleak.