We’ve written about moribund Glacier Oil & Gas before on two occasions. Most recently, we noted that at the end of the IQ 2021 the FMV of the $67mn invested was worth only $8.1mn, according to Apollo Investment (AINV). $36.9mn of the exposure was in first lien debt that has been on non accrual since IQ 2020.
With the publication of AINV’s IIIQ 2021 results, we learn that the BDC booked a ($20.9mn) realized loss on Glacier, bringing the nominal cost to $45.1mn. The FMV is now just $4.9mn. Despite the increase in the price of oil, this seems like an almost certain complete loss for AINV.
With no income coming in and – apparently – little chance of any material recovery this investment is becoming increasingly non material, by dints of realized and unrealized losses, to AINV and may be dropped from coverage shortly.
For the moment, Glacier remains rated CCR 5. We’re not sure if the investment will be “Trending” in the IVQ 2021 results.
We last wrote about Glacier Oil & Gas back on August 18, 2020 shortly after Apollo Investment (AINV) placed its debt on non accrual. At the time the BDC had invested $67mn at cost in the Alaskan oil & gas company and valued its investment at $14.7mn. Not much has changed in the interim. The debt remains on non accrual and the value of the BDC’s investment has been reduced somewhat to $8.1mn. That’s unchanged from the IVQ 2020 value.
With no income being generated, and little in the way of remaining value, we were tempted to categorize Glacier as non material and not bother with providing a written update. (This is a long standing “legacy investment” of Apollo that was previously known as Miller Energy, and which was restructured back in 2016 with no success). However, with the price of oil above $70 hope springs eternal that the company may escape its CCR 5 (non performing) status.
Unfortunately AINV has not discussed the company since April 2020, so we don’t have any updates to offer. The BDC does own 47% of Glacier’s equity, as well as holding that non accruing debt and could well benefit if the economics of the industry finally turn in its favor. We’re not taking anything for granted, but are adding the company to our Trending List because the value of Glacier may increase when the IIQ 2021 results are published. In the past, we’ve assumed the final value of Apollo’s misguided foray into oil and gas investing might be zero once AINV finally settles its account. At least now there is a glimmer of hope for AINV – and its long suffering shareholders – that some recovery might be possible. We’ll provide an update after the IIQ 2021 AINV results are published.
Glacier Oil & Gas is an Alaskan oil & gas exploration company. We learn from Apollo Investment’s (AINV) IQ 2020 conference call that – not surprisingly – the company is performing poorly. As a result, the BDC’s $37.2mn of second lien debt has been placed on non accrual. That will result in $3.7mn of investment income not being received. (We believe the income was being paid in PIK form before so the cash impact on AINV will be nil).
We are downgrading Glacier from CCR 4 to CCR 5, or non performing. We did not have the company on our Weakest Links list given that AINV – with a 98% ownership position – has great flexibility about when to choose to be paid interest or not. That makes prognostication difficult. With the benefit of hindsight considering the current market conditions moving to non accrual makes sense.
The overall investment in Glacier, which has a cost of $67.0mn is now valued at just $14.7mn. For our purposes, we are assuming AINV will eventually have to write the entire investment off, ending a journey that began in 2012 when Glacier was called Miller Energy with $40mn committed. Since then, the BDC restructured and renamed the business (in 2016) which now faces an existential challenge. We expect a further write-down will occur in AINV’s IIQ 2020 results. [Written My 23, 2020]
IIQ 2020 Update: AINV continued to write down its position in Glacier Oil & Gas by ($3.2mn). The hit was taken on the already non performing second lien loan. That leaves a FMV – all in the debt as the equity has been written down to zero already – of $11.5mn. We continue to believe that the entire investment will be written off but have little confidence of getting a full and frank update from management which said nothing about the company this last quarter. We do know that “production is hedged through 2020”. 2021 may be the year of reckoning if there’s no huge uptick in oil prices. We maintain a CCR 5 rating.