We’ve not written about Roscoe Medical since October 16, 2019 when its junior debt and equity were being deeply discounted by its BDC lenders and some debt tranches were on non accrual. As recently as November 2020 Saratoga Investment (SAR) continued to carry its 3/28/2021 second lien Term Loan as non accruing. However, we hear from Portman Ridge Financial (PTMN) – also a lender and investor – that the debt has been removed from non accrual. (SAR admits the company is back to paying interest but still carried the loan as non performing through November). Furthermore, both BDCs have reduced the discount on their equity stakes from 100% to (55% to 75%), suggesting fundamental improvements in the business.
Overall, BDC exposure is $13.9mn and the current FMV $12.7mn. We have added Roscoe to our Trending list as we expect there is likely to material changes to value and income when the next set of PTMN and SAR earnings come out in the IQ 2021. If SAR begins to accrue its share of investment income again in future quarters like PTMN is doing that will increase investment income by close to $0.5mn annually. Furthermore, there could be further increases in the value of the smallish equity positions both SAR and PTMN hold in the company.
We are ready to upgrade Roscoe from CCR 5 to CCR 3 – based on the IVQ 2020 results but will wait till those first quarter 2021 valuations are published. At this point the medical devices company looks like a real turnaround given that the FMV of those debt and equity assets – despite one loan on non accrual – has doubled since the IQ 2020.