We learn from a recent Seeking Alpha article (Trapping Value on February 21, 2021) that NGL Energy Partners LP (ticker: NGL) has recently refinanced its debt. As part of the agreement with the public company’s new lenders, all common and preferred dividends have been suspended. Admittedly, the suspension is supposedly only temporary and the payouts will resume once a target leverage is met. Still, given the pressures in the oil patch, we don’t suggest shareholders should hold their breath.
For the only BDC with exposure – FS Energy & Power – this looks like a body blow from what we can tell. That’s because the BDC has $173mn invested at cost in equity and preferred, of which $166mn is in the latter and yielded 14.3% from distributions. Our calculator indicates that’s ($23.7mn) of annual dividend income lost. A glance at the non-traded’s BDC IIIQ 2020 financial statements indicates that’s equal to 13% of total investment income and over 50% of Net Investment Income.
We had already rated NGL CCR 4 but now downgrade the company to CCR 5, given this was a yield producing investment. If this settled out today we’d expect the BDC to lose (25%-50%) of its investment, but that’s not happening, giving NGL – buoyed by its debt refinancing – the chance to fight on. However, this is a Major investment by our standards (over $100mn) and will be of concern to the manager of the BDC and its shareholders.