The BDC Credit Reporter has a singular focus on tracking developments at all portfolio companies financed by Business Development Companies (“BDCs”), both public and private. The idea is to give subscribers up to date information about which BDC investments are not performing to plan; the impact on the income from any debt or equity invested and the likely realized losses that might eventually occur. After all, credit performance is the key determinant over the long term of any BDC’s success.
Investors no longer have to wait around for quarterly updates from the BDCs themselves; or rely on the brief or non-existent disclosures in filings ; or happen to bump into a pertinent article in the financial press to assess the value of underperforming investments. Instead, the BDC Credit Reporter provides an endless supply of company updates as early as financial weakness is shown all the way to a final sale, liquidation, reorganization or – sometimes – return to “performing” status.
The BDC Reporter tracks thousands of companies – both public and private – and focuses in on the several hundred that are at risk of not returning all invested capital. When any material development occurs – a default, a downgrade, a change in management, a new loan, a bankruptcy filing, etc – the BDC Reporter brings the news to readers almost immediately. We are not just a news aggregator, as we provide analysis and commentary on each occasion, within the framework of the ratings system that most BDCs themselves have adopted.
We believe we’re a unique resource: providing independent, unbiased credit assessments of hundreds of non-investment grade companies in near-real time. All our posts are organized by BDC name allowing a subscriber at a click to read about multiple underperforming companies and their evolving credit stories.
WHAT WE DO
There are approximately 4,000 BDC-financed portfolio companies out there, mostly privately-held but some public.
The BDC Credit Reporter starts out by identifying which are performing as expected and which are underperforming.
How Do You Distinguish Between Performing and Underperforming ?
Admittedly it’s three quarters science and one quarter art. We begin by looking at quarterly BDC valuations. Any debt investment discounted more than (10%) or any equity investment more than (25%) gets added to the list. However, valuations can be wrong or stale so if we learn of anything that suggests the risk of the company not performing normally and the capital at risk of not being returned gets added to the underperformers. This includes company press releases, external rating assessments; news stories or even tips from readers. We’d rather be too conservative than miss a company going to the chopping block unidentified.
Is there a minimum dollar size limit ?
Yes. Not to inundate readers – and ourselves – with tiny investments that won’t materially affect a BDC we don’t cover any underperforming company with less than $2mn of BDC invested capital measured at cost.
What sort of research do you undertake on underperformers ?
We review all BDC valuations quarterly to determine trends up and down. This includes reading the Consolidated Schedule Of Investments of every BDC that has exposure to determine pricing and pricing changes; loan maturity (where applicable) and whether first lien or second lien or unsecured debt, and many other details. We also read the footnotes when available.
Then we search through all current and prior conference call transcripts to see what BDC management have disclosed about any company involved.
Next we turn to the public record, searching for any relevant and material news stories to assist our evaluation. These can take any number of forms: management changes; financial results; credit rating reviews; defaults or bankruptcy filings.
Do you employ an investment rating system ?
Yes. We have unashamedly copied the 5 tier system used by most BDCs. A 1 rating applies to a company or investment performing above expectations; a 2 is for those performing as expected. We get involved in the 3 to 5 categories. We define a so-called Corporate Credit Rating (“CCR”) of 3 for companies that are underperforming but where the likelihood of a full recovery is greater than that of an ultimate loss. CCR 4 is for companies where the likelihood of loss is greater than that of recovery. Finally CCR 5 is designated for companies where any of its debt is non performing and some sort of loss is expected.
What sort of content do you include in your articles ?
Whenever we identify a material change in what’s happening to an underperforming company we undertake a new article. This will include an explanation of whatever the news development might be followed by details on the most current BDC exposure in both cost and fair market value terms. We assess the rating of the company and any changes we might apply. We estimate the odds and amounts of possible ultimate losses or recoveries to the best of our abilities. Finally, we do offer the BDC Credit Reporter’s critique- when appropriate – of the credit underwriting undertaken by the BDCs involved and what that might mean.Over time you’ll see us write multiple articles about the same company as credit conditions change.
How timely are the BDC Credit Reporter’s articles ?
We attempt to keep up with changing corporate credit conditions in almost-real time. Every day – using a proprietary search function – we sift through the public record for any new developments amongst the hundreds of companies we are tracking. Furthermore, we also undertake research online and through specialist publications on a daily basis for any previously unknown development. Quarterly, we review BDC filings for changes in value and new disclosures. As soon as we can – and as best we can with the information available – we write new updates.