Dynamic Product Tankers: IIIQ 2021 Update

Last time we wrote about Dynamic Product Tankers – in June 2021 – we were optimistic that valuations might improve going forward. In fact, we were wrong. As of the IQ 2021, Apollo Investment (AINV) valued its debt and equity position – with a cost of $71.8mn – at $47.5mn. Two quarters later and the value has dropped to $38.1mn. All the deterioration came in the equity stake AINV owns in its 85% of the business. The $22mn unsecured Term Loan remains valued at par and continues to charge a subsidized 5.16% rate to the shipper. The equity has dropped from $25.5mn to $16.1mn.

This is a closely held company with no useful public information found, so we’re reliant on disclosures from AINV. Unfortunately, the BDC has said nothing on its conference calls since 2018. We’re left to speculate – due to the valuation numbers – that the business is softening.

It’s impossible to determine if this “non core” asset will get sold any time soon. However, even at this lower valuation a considerable amount of pro-forma income is involved. Assuming a FMV of $38.1mn invested at 9%, AINV could generate $3.4mn of annual investment income, as opposed to $1.1mn currently. That’s nearly $0.04 a share of hypothetical incremental investment income.

On the other hand, should AINV be forced to write off just the remaining equity, the loss of NAV Per Share would be ($0.25). We have no view either way given the absence of information, but the ultimate resolution of Dynamic will be important to AINV.

For the moment, the company is rated CCR 4, and is possibly trending as the unrealized loss last quarter was substantial and could be repeated. We’ll probably report again when the IVQ 2021 AINV results are released in 2022.