Guide

We set out to prepare Company Files for as many underperforming companies as possible AND update the content periodically. The idea is to provide the reader with a full - albeit quickly scanned - credit briefing on the company involved; the extent of BDC exposure and the changing values thereof, along with our assessment of the likely outcome in term of realized losses, if any.

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All of this information in contained in nearly 40 different fields in an AirTable database. Each field comes with a description, which pops up when one's mouse over.

Beginning

At the top of the Company File the fields show which public and private BDCs currently have exposure to the company and the total amount at cost and at fair market value. The information comes from Advantage Data and is updated quarterly.

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In each case, the company receives a rating from 1 through 5. This is in imitation of the rating system applied by many BDCs on a quarterly basis. A corporate credit rating (CCR) of 1 means the company is outperforming initial expectations. This usually applies when a BDC owns equity in the company and its value is substantially above cost. A rating of 2 applies to most companies and signifies a company is performing as expected.

Watch List

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The database, though, is focused on ratings 3 through 5. A 3 rating is assigned to companies where the likelihood of receiving full repayment of all capital invested is greater than of an eventual realized loss. Technically, any drop in the value of debt greater than (10%) or (50%) for any junior capital triggers a 3 , or lower rating. However, there are other developments that might cause a company to receive an underperformance rating.

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A rating of 4 is assigned to companies where the likelihood of an eventual material realized loss is greater than of being repaid in full.

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A rating of 5 is reserved only for loans and applies when at least one debt facility is on non-accrual.

Investment History

The Company File tracks when BDC exposure began and when the first time an underperformance rating was applied. Every quarter we record if the company valuation - as given by the BDC(s) involved - has increased, decreased or remain unchanged. We also provide the key reasons for the company's rating. Given that BDCs rarely discuss portfolio companies and public information is spotty, most ratings are based on the level and direction of the periodic BDC valuations. However, we also rely on news articles; reports by rating agencies, and other data.

The Company File contains a box showing - in reverse chronological order - all the various rating upgrades and downgrades applied by the BDC Credit Reporter from inception.

Priorities

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To be able to focus on the most important data, for every company we determine if BDC exposure is Major, Material, or Non Material.

Any company where BDC exposure at cost is greater than $100mn and FMV above $5mn is considered Major. Material is reserved for companies with exposure at a cost between $5mn -$99mn and with an FMV over $5mn. Non-Material is for companies with a cost or FMV below $2mn. Likewise, we show if income is being received from the company or not. The latter may be because of loans on non-accrual, or any investment is in non-income-producing equity securities.

Developments

Next up are several fields relating to news about the company, led by the most recent date of any material development and whether that was positive or negative from a credit standpoint and sufficiently important to trigger a change in rating. Then there's a box - again in reverse chronological order - containing news highlights affecting the company, often with links to outside sources. Also listed in the NEWS field are any BDC Credit Reporter articles written.

About Them

The next group of fields provides information about the company: a description of the business, often copied from the company itself; the website address; whether the business is private or public; the main industry in which the company is involved, including - where available - its SIC code and segment description.

What Matters Most

The final few fields all relate to the central purpose of all this data amalgamation: credit evaluation. This is all subjective and includes our assessment of the principal challenges facing the company and important developments that might have happened in the past such as going bankrupt or being restructured or having already caused a realized loss. We also flag - as best we can - businesses in sectors that we consider to be vulnerable to recession in the future or to have been impacted by Covid in the past. Sometimes we do not know and mark this as TBD.

Boiled Down

In the Credit Notes field, the BDC Credit Reporter - in reverse chronological order - takes everything we have learned and provides brief credit commentary and analysis about the company involved and the likely impact on the BDCs involved. Our views will often change over time as new information comes in.

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At the end of the day, we're just trying to evaluate how each company's credit story will end for the BDCs involved.

Manipulation

As you can see, each Company File provides a wealth of objective and subjective data. The blessing and the curse involved is that these files, and all the fields involved, can be searched and sorted in every which way by the reader. If you're interested in one specific BDC, the database can be sorted to show only its portfolio companies. If you're interested in seeing the companies in one rating category - such as CCR 5 - that's easy to do. Concerned by a given industry, see which BDCs have exposure. You can also search the database by company name, or any other term you choose by going to the top right.

Bigger Will Be Better

As our database grows with coverage of ever more underperforming companies, the ability to organize and search will provide users with valuable insights and speed up credit analysis.

Going Forward

We have been streamlining and experimenting with the database for several years. This is likely to continue, which will cause us to edit this guide on occasion. We are also open to any feedback from users about ways to improve the format. Any suggestions should be directed to nmarshi.bdcreporter@gmail.com.