Roscoe Medical: IVQ 2021 Update

Roscoe Medical is a medical equipment company, part of a constellation of such companies owned by Compass Health Brands. Roscoe itself has been a BDC portfolio entity since 2014, and has been underperforming to various degrees since 2018. From the IQ 2019, the company’s debt went on non-accrual and was written down by as much as (55%). An equity stake went to zero in value. Then matters began to turn around in late 2020. Both debt and equity began to revive in value. From early 202, the debt went back to performing status, the equity gained some value. (All this data drawn from Advantage Data’s records).

However, this is a still unfolding story with an uncertain outcome. In recent months, the valuations given by the two BDCs with exposure – Saratoga Investment (SAR) and Portman Ridge (PTMN) – have weakened again. As of November 2021, SAR valued its $5.1mn of second lien debt at par but wrote down the value of its equity by (83%) from (59%) the quarter before. PTMN is only in the second lien debt, which is discounted only (3%). The cost is $8.2mn.

Given the uneven performance in the past, and the recent (modest) downward valuation trend, the BDC Credit Reporter rates Roscoe CCR 3. Unfortunately, the public record (including the BDCs own disclosures) do not make clear what ails the company, and what the outlook might be. The only time a BDC piped up on the subject was SAR in May 2019:

I would say that the challenges that they’re facing at Roscoe have a lot less to do with the fact that they operate in and around the healthcare space, and more to do with the fact that they’re a highly competitive market. So the portion of their business that has faced the more extreme challenges really is the portion where they’re distributing to the broader retail environment. And so it’s been less indicative of a larger trend that would be natural to ask about. But we haven’t seen or experienced in our portfolio relative to health care in general.

Saratoga Investment Conference Call May 9, 2019

Given the high interest on the second lien debt (11.25%), the amount of income that could possibly be forgone is material : ($1.5mn). However, we’re not there yet, based on the relatively mild discounts being applied. The second lien debt does expire in March 2022 so either a refinancing or an extension is likely in the cards. We’ll circle back – whatever the status – when PTMN and then SAR report their next quarterly results.