Poor old publicly traded U.S. Well Services (USWS) is spending more time in court these days than in its business of providing drills for the oil and gas business. A Delaware judge has ruled recently against the company in a contract dispute with Smart Sand Inc. (ticker: SND) and required USWS to pay $48mn in damages. That’s a major blow for an oil services company that is going through a major transition – dropping diesel pumps for electric ones and letting go of 171 employees as part of the transition. In a filing, USWS has indicated it’s likely to appeal the judge’s decision so this legal drama will play out a little longer.
All this is bad news for the two remaining BDCs with exposure: Capitala Finance (CPTA) and PennantPark Investment (PNNT). Both own over 1mn shares each in the company. (In the past, BlackRock Investment has as much as $46mn invested at cost in the stock, but that’s been sold, leaving only CPTA and PNNT). At March 31, 2021, when the last valuation was fixed, USWS was valued at $1.040. That price has dropped to $0.9593, an (8%) drop. The total value was $2.6mn in March and should move materially lower by the end of the second quarter. Thankfully, the amounts are not significant for either BDC.
We are retaining a CCR 4 rating for USWS and adding the company to our Trending list, given the likely (modest) change in fair market value to occur in the IIQ 2021.