Hylan Datacom & Electrical: Placed On Non Accrual.

Hylan Datacom & Electrical is a “leading provider of full-service turnkey communications solutions, electrical infrastructure design and construction services for wireline, wireless and smart city municipal services across the United States”. According to one of its BDC lenders – BlackRock TCP Capital (TCPC) – the company is facing difficulties for the following reasons:

…”[the] nature of implementing and carrying out their service wasn’t run as well as it could have been. And in the meantime, the impact of that with the level of debt they’ve had, put challenges on them in terms of liquidity”

Extract from BlackRock TCP Capital conference call, dated November 4, 2021

As a result, the company – already underperforming has seen two of its three loans with TCPC placed on non accrual. The first lien debt has a total cost of $18.1mn and an FMV of $12.1mn. Non-traded BDC Sierra Income had a $15.5mn debt exposure to Hylan as of the IIQ 2021 and that’s probably on non accrual and further written down. TCPC is facing ($1.2mn) of currently forgone investment income from becoming non performing. Given that the BDC has in excess of $160mn of annual investment income, the impact is minimal.

TCPC – in its comments about the situation – sounds hopeful that Hylan can be turned around:

“So those seem to be resolvable issues, obviously, is going to be a longer tail process to get to the right outcome. We feel like we know what we’re doing there, and we have a good asset with which to start with. But I think we’ll just provide updates as we can quarter-over-quarter”.

Extract from BlackRock TCP Capital conference call, dated November 4, 2021

The BDC Credit Reporter has downgraded Hylan from CCR III – which dates back to IIIQ 2019 – to CCR 5. For the moment, we project the ultimate loss – the first lien debt status notwithstanding – might be between 25%-50% of the investment involved, which totaled $33.1mn in June 2021 with both BDCs reporting.

TCPC went out of its way to indicate Hylan’s problems are “idiosyncratic” and not related to the current theme of supply chain disruption or other Covid-related issues.