Covia: Investment Exit and Realized Loss

In the IIQ 2020, both Oaktree Strategic Lending (OCSL) and Oaktree Strategic Income (OCSI), disposed of their first lien loans to Covia, “a minerals and materials supplier for industrial and energy markets“. As we discussed in an earlier post on June 30, 2020, the two sister BDCs had $14.7mn in exposure, which had been placed on non accrual in IQ 2020 and which had been discounted by (52%).

For the record, we now know that OCSL “exited” the investment in the IIQ 2020, and booked a realized loss of ($3.3mn). As of March, OCSL had invested $7.860mn and booked an unrealized loss of ($4.140mn), leaving a FMV of $3.720mn. The actual realized loss booked was lower than the IQ 2020 valuation might have less us to expect.

We believe OCSI – which held Covia through its Glick JV – also exited its position in IIQ 2020 and booked a similar realized loss. (OCSI’s cost was $1mn lower). However, due to the loose reporting requirements for off balance sheet JVs that does not get explicitly shown in the filings. We do know, though, that Covia was no longer on the JV’s books from the IIQ 2020.

The losses are modest for both BDCs. However, for OCSL the Covia realized loss was the only material write-off in a quarter that included several realized gains. Total investment income lost for both BDCs is around a quarter of a million dollars per annum. The moral in this minor setback ? Maybe it’s to avoid any borrower involved in the highly volatile energy markets. Whether OCSL and OCSI agree with that remains to be seen. The BDCs still own several energy-related credits, but will new ones be added ?