Murray Energy: Assessing Restructuring Options

e don’t want to bury the lead: Murray Energy is likely to file for bankruptcy or re-organize and the BDC lenders involved are going to absorb some rather large losses. On September 10, 2019 the Wall Street Journal’s bankruptcy publication reported that the privately-held coal miner had hired Kirkland & Ellis and Evercore to assess restructuring options.

That follows a recent downturn in the short term prospects for the U.S. coal industry, according to Moody’s and as reported by S&P… That’s not to mention the obvious secular decline in the prospects for coal mining and coal usage. Previously in 2019 , the rating groups had downgraded the company’s debt to SD or Selective Default, so the writing has been on the wall.

BDC exposure totals $52.4mn, spread over 6 BDCs. These include publicly traded FS-KKR Capital (FSK) and three sister non-traded BDCs funds (FSIC II, FSIC III and FSIC IV but not – surprisingly – FS Energy). Then there are two others: Cion Investment and Business Development Corporation Of America.The exposure is in two different loans, one which matures in 2021 and the other in 2022. The debt has been on our under-performing list since IVQ 2018 and is currently rated CCR 4 (Worry List), where the chances of an eventual loss are greater than a full recovery.

As of June 2019, the 2021 debt was carried at par but the 2022 debt was discounted by a third. Currently, though, the 2022 debt trades at twice that discount, suggesting holders are not optimistic. We wouldn’t be surprised to see the 2022 debt fully written off once the dust settles, which would result in ($8.5mn) of further losses and ($12.5mn) in Realized Losses, to be absorbed by Cion and BDCA. Less clear is what might happen to the 2021 debt, which still trades at par. We won’t speculate at this point but will point out that – overall – $5.5mn of annual investment income is at risk.

In any case, we expect we’ll be discussing Murray Energy again in the weeks ahead.

Men’s Wearhouse: Earnings “Mixed”. Dividend Cut.

On September 11, 2019 publicly traded Tailored Brands (ticker: TLRD) – owner of Men’s Wearhouse and other clothing businesses – reported “mixed” second quarter 2019 earnings, according to a news report . Adjusting for a special one time item, EPS is down a fifth from a year ago and sales are off 4%. Most indicative of all, the company has suspended its dividend “to pay down debt”.

There is only one BDC with exposure: Barings BDC (BBDC). We placed the senior loan on the under-performing list from the IIQ 2019, when the BDC discounted the value of the debt by (12%) from (5%) previously. BBDC’s exposure started in IIIQ 2018 and this was expected to be a super-safe loan judging by pricing (L + 325%). Annual investment income of just under $0.600mn is ultimately at risk.

The latest news is likely to cause a further unrealized write-down in the next earnings release, unless the valuation folk take comfort from the savings in cash flow to come from the dividend elimination. We note the 80% drop in TLRD’s stock price in the space of a year and we worry. The credit is rated a CCR 3 (Watch List), but could be headed lower before the year is out.

Blackhawk Mining: Court Approves Chapter 11 Plan

On September 4,2019 coal company Blackhawk Mining received approval from the bankruptcy court of its restructuring plan, opening the door for a return to normal status. We’ve written about Blackhawk 4 times previously, and have expected this relatively expedited trip through bankruptcy land.

According to the news report:

The plan will eliminate more than 60 percent of Blackhawk’s total debt and provide for more than $50 million in incremental liquidity and the restructuring transaction will be effectuated with no disruption to the company’s employees, vendors, customers or landlords, the release stated.

Under the plan, Blackhawk’s $639 million first-lien term loan will be discharged and lenders will receive 71 percent of the company’s equity and a newly issued $375 million first-lien term loan.

Blackhawk’s $318 million second-lien term loan will also be discharged and lenders will receive 29 percent of the company’s equity”.

For the two BDCs with the $10.5mn of first lien exposure (FS-KKR Capital or FSK and Solar Capital or SLRC) , this means a realized loss is likely to be booked soon and we’ll be learning exactly how the new exposure – a mix of debt and equity – will look like. Looking forward, coal mining continues to be a challenging business so even if whatever debt remains gets placed back on “performing” status, the BDC Credit Reporter will continue to carry all ongoing investments as under performing for the foreseeable future.

In terms of capital outstanding and investment income at risk, the amounts risked by FSK and SLRC are modest. However, we continue to wonder how the investment committees of these BDCs could convince themselves that investing in coal mining – even in early 2018 when the loans were first taken on – was a good idea from an underwriting standpoint. Industries that used to be the province of specialist lenders have become targets for generalist lenders like these two well known and respected public BDCs. Now those same lenders have become owners…

Mallinckrodt Plc: Bankruptcy Possible – Analyst

On September 3, 2019, one of the 15 analysts covering publicly traded opioid pharmaceutical manufacturer Mallinckrodt Plc (ticker: MNK) suggested a bankruptcy filing is”possible”, according to a financial publication. This sounds plausible as the company has “more than $5 billion of debt, most of which will start to come due in 2020, according to Bloomberg“. The publication added that “the company recently announced that it borrowed the final $95 million on its revolving credit line, meaning that it has no more capacity to borrow“. Showing how dire conditions have become Reuters reported the company has hired restructuring firms, including two of the usual suspects in this situation, Latham & Watkins and Alix Partners.

Of all that $5.0bn of debt, there is only $11.2mn at cost held by a BDC, and that’s Barings BDC (BBDC). This was supposed to be a “safe as houses” position for BBDC, priced at just LIBOR + 2.75%. At June 30, 2019 the position was valued at 90% of cost. However, based on Advantage Data’s real time loan pricing we know this debt is now trading at 77 cents on the dollar and could drop lower given the many lawsuits pending against the business and the myriad uncertainties facing the segment, even if a restructuring becomes possible.

Should Mallinckrodt Plc end up in bankruptcy or restructured, the NAV or income loss to BBDC will be modest but will be one of the first credit reverses since the new external manager took over and renamed Triangle Capital (TCAP).

Deluxe Entertainment Services Group: Agrees Debt For Equity Swap

On September 4, 2019 Variety reports Deluxe Entertainment Services Group , which was headed for bankruptcy, has agreed for a debt to equity swap instead. “In a deal announced on Saturday, Deluxe said it would offer a deal to all of its term-loan lenders to exchange their debt for 100% of the equity of the newly organized company”.

BDC exposure – Harvest Capital (HCAP) and non-traded Cion Investment – is material at $20.3mn, all in senior debt and carried at par or at a modest discount at June 30, 2019. The income likely to be lost – and right away – is approximately $1.6mn annually. We had a quick look at HCAP and calculated that investment income lost is equal to 11% of its latest Net Investment Income annualized.

Based on other news reports we’ve seen, the company will be writing off half its senior debt, suggesting the losses – both realized and unrealized – will be around ($10mn).

A bankruptcy is not yet out of the question. If all the lenders do not agree to the “reorganization”, a pre-packaged bankruptcy will be filed.

The BDC Credit Reporter had the company rated as under-performing since the IVQ 2018 with a CCR 3 rating. However, the situation deteriorated more recently. In July, the company announced it had abandoned plans to spin off its Creative Services division. The company – and its lenders – had hoped that the proceeds of which, along with a debt raise, would repay a sizable amount of the company’s term loans and ABL borrowings. The value of the existing debt dropped to 20 cents on the dollar on the negative news.

We are now rating Deluxe Entertainment CCR 5 on our 1-5 scale as a material loss is baked in. Nonetheless, as in all these situations where lenders become owners after the traditional PE sponsor has failed, we have to wonder if additional capital will be injected and whether the business can ultimately be made to work. We’ll be hearing more about Deluxe Entertainment for some time.

Hollander Sleep Products: Change In Exit Plan

On September 3, 2019 mattress retailer Hollander Sleep Products asked a New York bankruptcy court for permission to switch from a reorganization plan centered on a debt-for-equity swap to a $102 million asset sale.

Details are scarce at this point, but does suggest chances are higher the company will shortly exit from bankruptcy. We don’t have enough data, though, to evaluate whether the price offered will increase or decrease the roughly 50% of debt and equity value written down through June 2019 by PennantPark Investment (PNNT) and PennantPark Floating Rate (PFLT), or ($16mn).

As we wrote on August 16, Hollander has been on non accrual in both the first and second quarter of 2019 and in bankruptcy since May. It’s likely that both the BDCs involved will be booking a significant realized loss in the third or fourth quarter, depending when the judge responds to the latest request and the proposed acquisition becomes effective.

AAC Holdings: Reports IIQ Results, Addresses Debt Defaults

We have written about AAC Holdings (aka American Addiction Centers) 5 times already since April 2019. That’s for two reasons. First, this is a public company (ticker:AAC), which means there’s plenty of information available to relay. Second, the $66mn of BDC exposure – mostly carried at a small discount or even at a premium to cost by 4 funds – means the stakes are high.

Anyway, on September 1, 2019 AAC Holdings held its IIQ 2019 Conference Call; summarizing its latest results and (sort of ) addressing some of its problems with its lenders. Here’s what’s happening with EBITDA:

“On a sequential basis, adjusted EBITDA went from a loss of $12 million in the fourth quarter of 2018 to a loss of $6.5 million in the first quarter of 2019 to positive adjusted EBITDA of $3 million in the second quarter of 2019. This represents a $15 million or 125% improvement in quarterly adjusted EBITDA since the fourth quarter of 2018. Overall, as Michael mentioned earlier on the call, while we still have a lot of work to do, I’m pleased with the sequential momentum so far in 2019.

Turning to our 2019 guidance, our full year guidance has revenue in the range of $255 million to $275 million and adjusted EBITDA in the range of $16 million to $21 million. Taking into account actual results through the first half of 2019, this implies revenue of $137 million to $157 million and adjusted EBITDA of $20 million to $25 million in the second half of 2019″.

As to the company’s relationship with its lenders:

We remain committed to our strategic initiatives to improve the balance sheet and enhance value to all stakeholders by the end of the year. Our goal is to utilize our existing assets to reduce our senior debt by at least $100 million by the end of the year in order to reduce the cost [of] capital.

Finally, we remain engaged in active discussions with our lenders on our credit agreement and are making progress on reaching an agreement that will resolve our covenant obligations in the near term.

I’m confident that we will reach an agreement that is favorable to all stakeholders”.

Later in the CC this was said in response to a question: “I mean I think our banks have been extremely supportive. They see the trajectory that we’re making. I think we see the trajectory we’re making, there’s both sides of it. Part of it hinges on us unlocking some of the value of the real estate, which we’ve been actively working on. We’re looking at all proposals, and so we certainly want to get this resolved as soon as possible“.

The BDC Credit Reporter continues to be more conservative/skeptical than either AAC’s management or lenders about the ultimate outcome, which is only appropriate. We have a CCR 4 rating on our 1-5 scale. Much of the turnaround required remains to come, especially the sale of real estate to pay down debt. How that turns out will be critical, both to AAC and its stake holders and as a validation or otherwise of the lenders – which include Capital Southwest (CSWC), New Mountain Finance (NMFC) and Main Street (MAIN) – credit underwriting. Expect to see many more updates before this file gets closed.

J.C. Penney: Downgraded by S&P

Standard & Poor’s has downgraded troubled retailer J.C. Penney to CCC from CCC+. Apparently, all the talk about restructuring the company in advance of any Chapter 11 filing, which we discussed in posts on July 23, 2019, when restructuring advisors were first called in and again on August 14, when Bloomberg reported serious talk of a debt for equity swap was in the air.

Not helping Penney’s with S&P is that the retail background for bricks and mortar stores remains challenging, notwithstanding the operational advances management has made. S&P’s view was summed up as follows:

“The negative outlook on JCP reflects the growing risk of a distressed debt exchange or restructuring in the next 12 months as industry headwinds, weak same-store sales, and a burdensome debt load contribute to its unsustainable capital structure.

“We could lower our ratings on JCP if the company announces a debt exchange or restructuring or if its operating conditions worsen such that we see a restructuring as increasingly likely in the next six months.

“Before raising our rating on JCP, we would expect the company to demonstrate a significant and sustained improvement in its performance that leads us to view a distressed exchange as less likely.”

We have rated J.C. Penney CCR 4 on our 1-5 scale, aka on our Worry List, where we believe the chances of an ultimate loss are greater than that of full recovery. Thankfully from a BDC perspective although there are 4 BDCs with exposure (including three non-traded FS Investment-KKR Capital BDCs) total exposure is very modest at $6.8mn at cost. All the debt sits towards the top of the capital structure and the biggest discount to cost is only (8%) as of June 2019. We believe the actual loss will be more substantial if and when a debt for equity swap or Chapter 11 occurs, but either way the impact on BDC net asset value and income should be modest. That’s a statement that cannot be made about the many other lenders to J.C. Penney, whose borrowings are substantial.

Medical Depot Holdings: Downgraded By Moody’s, BDC Credit Reporter.

On June 19, 2019 Moody’sdowngraded Medical Depot Holdings, Inc.’s (d/b/a Drive DeVilbiss – “Drive”) Corporate Family Rating to Caa2 from Caa1. Moody’s also downgraded the company’s Probability of Default Rating to Caa2-PD from Caa1-PD, its first lien credit facilities to Caa2 from Caa1 and its second lien term loan to Ca from Caa3. The outlook is stable“.

The ratings group believes the capital structure of the medical equipment manufacturer is “unsustainable“. Added: “Adjusted debt/EBITDA (based on management’s adjusted EBITDA) exceeded 12 times for the twelve months ended March 31, 2019. At the same time, the company’s liquidity has weakened given sustained negative free cash flow and increased utilization of its revolving credit facility. This is due to the cash costs associated with restructuring activities and weaker operating performance“.

All the above is bad news for the two BDCs with exposure to the company: Bain Capital Specialty Finance (BCSF) and Business Development Corporation of America (BDCA). Both are lenders in the first lien 2023 debt, with exposure of $32.4mn and $2.7mn of income at risk of interruption. At June 20219, both lenders had sharply discounted their loans (23%) and (27%). Yet, since then the market value has dropped even further: to a (30%) discount, as we write this on August 31, 2019.

It’s hard to envisage a scenario where some sort of loss does not occur given the amount of debt involved, but we’ll have to wait and see. We have a Corporate Credit Rating of 4. That’s our Worry List.

AAC Holdings: Major Investors Selling Out

An August 26, 2019 article indicates several of the largest institutional investors in AAC Holdings (aka American Addiction Centers) have been dumping their shares in the troubled public company.

Deerfield Management, the company’s largest shareholder in March and a major investor since 2015, sold all of its holdings in AAC during the second quarter. Similarly, TimesSquare Capital Management — another of the largest shareholders early this year — and Apollo Management also had sold all of their shares by the end of June. And Morgan Stanley’s stake in the company fell from 1.4 million shares in June 2018 to about 1,600 shares in June 2019“.

So what ? The defections suggest some of the most knowledgeable investors are not buying in to management’s oft repeated plans of a turnaround plan. At $0.58 a share, the stock trades only $0.08 off its all-time low and supports the BDC Reporter’s fears that AAC will eventually file for Chapter 11 or undertake a wide ranging restructuring. Debt holders should probably pay attention.

At June 30, 2019, there were 4 BDCs with $66mn of exposure – all first lien – in the company and more than $7mn in annual income at risk. To date, discounts taken on cost have been very modest, which will make the potential impact on BDC net assets all that more telling should AAC stumble.

Charming Charlie: Selling Intellectual Property

On August 26, 2019 the Wall Street Journal reported that the bankrupt company is seeking court approval to hire Hilco IP Services to sell items of its intellectual property. That may help paying some of the bills associated with the liquidation of the business but is unlikely to end up in the pockets of its three BDC lenders (THL Credit, Cion Investments and Sierra Income) with $37.4mn invested at cost.

As of June 2019, the FMV of the investments – probably based on the hope of some recovery like this – is at $0.800mn, or 2% of capital invested. Notwithstanding the prospective intellectual property sale, we expect all BDC investments to be effectively wiped out. A resolution should occur before year end.

Lannett Company: Negative Seeking Alpha Article

An August 22, 2019 article about Lannett Company on Seeking Alpha is a useful summary of the bear case about future business prospects. For our part, we were intrigued by the argument made that the company is “dangerously leveraged at 5.8x adj. Net Debt to EBITDA and just 1.76x interest coverage”. This mirrors earlier concerns expressed by Moody’s last year when the company’s corporate and debt ratings were all downgraded following the loss of a major contract.

As of the IIQ 2019, the two BDCs with $9mn of aggregate exposure are Oaktree Strategic Income (OCSI) and Oaktree Specialty Lending (OCSL) in two senior debt loans maturing in 2020 and 2022. The biggest discount is modest – (6%) – but we have placed Lannett on our under-performing list in the Watch category (CCR 3) since the IIIQ of 2018 regardless, due to the concerns reflected above about high leverage and business reverses. As of now, the 2022 debt – which is publicly traded – remains valued at the same discount as of June 2019. However, that could change and $0.700mn of income is at risk. Neither BDC has a substantial exposure (although OCSI has the proportionately much bigger position and in the riskier 2022 loan) , but still deserves mention.

Joerns Healthcare: Restructuring Complete

On August 21, 2019 Joerns Healthcare announced the restructuring of the company – undertaken under bankruptcy court protection – is complete. As noted in our two earlier posts on July 3 and August 10, the key element of the company’s plan was a debt for equity swap which will extinguish $320mn out of $400mn of pre-petition debt, and turn lenders into owners.

For the three BDCS involved (Golub Capital, Main Street and HMS Income), with $30mn of exposure – mostly in first lien pre-petition debt – this means Realized Losses will shortly be taken which will show up in the third quarter 2019 results. We expect losses taken to be over $20mn. Similarly, there will be income lost as most of the capital invested in debt form will either be written off or converted to equity.

The biggest impact will be felt by Main Street (MAIN), which has close to $15mn invested and will lose a substantial portion of its invested capital, which dates back to 2013. The Good News ? The whole bankruptcy/restructuring process has occurred over a relatively short time frame, benefiting both the company and its long term prospects and its creditors/owners.

Nonetheless, Joerns will remain on our under-performing list even now the restructuring is complete and notwithstanding the above average debt write-off. This was supposed to be a lower risk, standard loan in an industry beloved by most every lender out there. This set-back is worrisome both for Joerns itself and for the huge healthcare sector as a whole. For what it’s worth, the BDC Credit Reporter has so far identified 23 under-performing companies held by BDCs, or 10% of all under-performing credits in our database.

NPC International: Closer To Default

According to news reports, closely held NPC International – a major Pizza Hut franchisee – is getting ever closer to breaching a key financial covenant after reporting IIQ 2019 results.

“Total debt rose to 6.9 times a measure of earnings, just below the threshold that would trigger a default under the company’s revolver, according to a person with knowledge of the matter. The ratio stood at around 6.3 times in the first quarter”. 

The only BDC with exposure – both first lien and second lien – is Bain Capital Specialty Finance (BCSF). Total cost is $14.2mn. There’s $1.2mn of income at risk should NPC file for bankruptcy. We placed the company on the under-performing list from the first quarter of 2019, when the second lien debt was written down by (13%). The second quarter discount is (39%) and the current market price is discounted (57%). Judging by the challenges facing the industry; the trend of the valuation and the latest market price, chances of a further downgrade – currently CCR 4 – to CCR 5 (non accrual) is high.

Avanti Communications: IIQ 2019 Update

On August 13, 2019 Great Elm Corporation (GECC) reported its IIQ 2019 portfolio. Included were new advances to long troubled satellite operator Avanti Communications. Despite GECC and other BDC lender/investor BlackRock TCP Capital (TCPC) writing down the existing debt and equity to the company in the quarter, management waxed enthusiastically about lending out more to Avanti. CEO Peter Reed used the opportunity to re-iterate GECC’s increasing confidence in the company, and its new CEO on the most recent Conference Call:

“When we formed GECC, Avanti was struggling to monetize the capacity of its satellite network.As Avanti encountered financial difficulty, we worked with other key creditors to improve the company through deleveraging its balance sheet, launching its biggest satellite to date and identifying and recruiting new Board members who brings stability and strategic insight into company. These improvements paved the way to hire Kyle Whitehill as the new CEO in April of 2018.

 Since Kyle’s start, he has dramatically overhauled sales and marketing, resulting in large contract wins and rapidly growing recurring core bandwidth revenue. With the business heading in an exciting direction, Great Elm and other significant Avanti stakeholders were given the unique opportunity to participate in the new 1.5 lien delayed draw term loan facility.

 As you can see from the tables on the bottom of the slide, the debt carries only an attractive interest rate but also a significant [feed] that accretes to GECC’s benefit. On its current trajectory and with minimal required capital expenditure, we expect that Avanti will have visibility into generating positive unlevered free cash flow”.

There is now $105mn of senior, second lien and equity exposure by the two BDCs in Avanti, with a value of about $45mn. There is no doubt that the company has made some progress recently, with a new satellite successfully launched just a few days ago. Even more recently Avanti has chosen to de-list itself from the London stock exchange given its concentration of ownership in 5 major shareholder groups. Unfortunately, that will make even less public information available to those of us on the outside looking in.

The BDC Credit Reporter will continue to remain fair minded but skeptical, given the company’s history; high levels of debt, opaque reporting and the very large amounts of BDC capital involved. Is Avanti a proverbial can being kicked down a very long road or a bona fide turnaround in the making ? We just can’t tell as we mostly have the BDC managers – with their conflicts of interest – as one of our principal sources of information.

Zep, Inc: New CEO Hired

On August 20, 2019 Zep Inc., an industrial cleanings product developer, announced the hiring of a new CEO: Dan Smytka.

That’s notable from a BDC standpoint, both because of the substantial exposure to the company ($126.6mn at June 2019) from 6 public and non-traded BDCs and because the business has been under-performing of late. That caused the second lien debt in the latest quarter to be written down by as much as (30%) and first lien debt by (19%), according to Advantage Data‘s records. (As usual there’s much variation in values between BDCs). By comparison, a year ago the debt was valued, in all cases, close to par. We checked the latest prices on Advantage Data for both tranches of debt and found discounts of (25%) and (30%), suggesting the markets have been getting more pessimistic since mid-year.

What’s more, Moody’s downgraded the company to speculative status back in April, including the first lien secured debt. The rating group is concerned about debt to EBITDA that exceeds 10x ! A saving grace is that the earliest debt maturity is 2022.

Clearly Mr Smytka has a big challenge ahead and the BDCs involved – especially three Goldman Sachs funds with the bulk of the exposure – will be watching with great interest if a turnaround can be achieved. With over $12mn of annual investment income at risk, this is one of the largest BDC trouble spots. We have the company on our Worry List or CCR 4.

Lago Resort & Casino: Ownership Change

On August 19, 2019 news reports indicate an ownership change has occurred at upstate New York hotel/casino Del Lago. One 50/50 JV partner is buying out the other. By itself that’s not a reason for a post, but with nearby competitor Resorts World Catskills talking “voluntary Chapter 11” , attention is deserved. Note, too, that Moody’s downgraded Del Lago back in January to Caa3.

As of June 2019, only one BDC – PennantPark Floating Rate (PFLT) – has exposure to Del Lago. According to Advantage Data records, the first lien debt has been on the BDC’s books since 2016 and consistently valued close to par. That includes the period after the Moody’s downgrade. Nonetheless, we are adding Del Lago to the under-performing BDC portfolio company list, with an initial Corporate Credit Rating (Watch) of 3 on our 5 point scale.

Serta Simmons Bedding: Corporate Reorganization Completed

On August 19, 2019 a trade publication indicated that Serta Simmons Bedding had recently undertaken a major organizational restructuring. This was revealed by a senior executive of the firm.

Not by itself earth shattering news, but when associated with the recent devaluation of Barings BDC’s (BBDC) debt position in the company, now discounted from cost by (29%), after being only written down (8%) at 2018 year-end underscores that not all is well. Not helping was the departure on April 17, 2019 of Serta’s CEO and the July 2019 placing the debt on Fitch’s “Loans Of Concern” (similar to the BDC Reporter’s Worry List).

We are currently giving the company a Corporate Credit Rating of 4, in our 1-5 scale. The only BDC with exposure is BBDC with $2.7mn at cost, $3.0 at par and $1.9mn at FMV as of June 2019. The amount of investment income at risk – under $0.200mn – is modest, due to the low interest rate charged.

Constellis Holdings: Added To Under-Performing List

With the publication of the IIQ 2019 valuations by 8 BDCs with $107mn in various forms of debt exposure (2022-2024 and both senior and second lien), we’ve added Constellis Holdings to our under-performers list with an initial rating of CCR 3 (Watch List). The debt has been discounted between (6%-30%) from 0% to (5%) in the prior quarter.

This is not surprising as there has been a massive number of changes in senior management in recent months and downgrades from both S&P and Moody’s in the spring, worried about high leverage; cash flow losses and operational challenges. For the BDC sector, this is very big exposure in aggregate, with annual income of approx. $9mn at risk should the company default down the road. With that said $90mn of the debt is held by the three FS-KKR non traded BDCs (FS II-III and IV), which are intending to go public under one banner before long. How Constellis plays out will be of above average interest at FS Investment-KKR in the quarters ahead.

OCI Holdings: Increased In Value

On August 12, 2019 OHA Investment (OHAI) reported its IIQ 2019 results, which included a slight increase in the valuation of OCI Holdings, a health care provider. The Texas-based company remains on non-accrual, which began in October 2018. The subordinated debt is discounted (89%) to $2.5mn, and an equity stake written to zero. Why OCI, grappling with reimbursement challenges from the Texas government, merited this slight uptick in value was not explained by OHAI on its Conference Call.

With the upcoming transition of the OHAI portfolio to Portman Ridge Financial (PTMN), we’ll be keeping a close eye on what happens to this fallen angel in which the BDC has invested $26mn at cost and was once its largest investment at fair value. A rebound in the value is possible but so is a complete write-off. It’s PTMN shareholders who will reap the benefit or consequences.