1888 Industrial Services: IIIQ 2021 Update

We’d like let you know what’s happening at oil field services company 1888 Industrial Services, but we can’t as the public record is sparse. Please read our earlier articles in December 2019 and May 2020. However, the valuations of the three BDCs that have an aggregate $62.3mn advanced at cost to the company tell the story. Back when we last reviewed the company the fair market value of the investments came to $19mn. As of the IIIQ 2021, the value has dropped to $7.3mn. That’s a discount from cost of (88%).

PhenixFin (PFX) – which used to be Medley Capital – has the biggest single position: a revolver of $3.5mn at cost valued at par. Still, and underlining the liquidity crunch the company must face, the 6.0% interest is paid in kind, not cash. Curiously, Investcorp Credit Management BDC (ICMB) allows has a Revolver with a cost of $2.0mn and a FMV of $0.5mn. No mention in the BDC’s footnotes as to whether the interest is paid in cash or in kind. Sierra Income – soon to be acquired by Barings BDC (BBDC) – is also funding the same Revolver. There the cost is given as $1.2mn and the FMV $1.1mn. No word of being paid in kind. A couple of the term loan tranches held have been given nominal value as of September, but the bulk of any remaining value is in the Revolver.

In our last report of a year and a half ago, we rather optimistically projected that the BDCs involved might lose 50% of their $62mn invested. Obviously – judging by the latest numbers – we were well off the mark. In the interim, we’ve had a revival in oil prices and some greater level of business activity in oil field services. None of that, though, seems to have helped the company nor has the huge influx of capital into the economy post pandemic. At this stage, we’re waxing more pessimistic and assume very little – if any – of the capital advanced will be recovered.

Most at risk of further write-downs is PFX, with a current FMV of $3.6mn, followed by ICMB ($2.6mn) and Sierra, with just $1.0mn of value left. We continue to rate the company CCR 5 and will provide an update when the IVQ 2021 results come out. We are keeping our expectations low.