We are updating the BDC Credit Reporter’s file on Online Tech Stores, a wholesaler of computer printing products, as of June 30, 2020. The company went on non accrual in the IQ 2020. Given that the company was performing as planned before the pandemic – based on valuation levels anyway – we expect the reason for the non-performance was the slowdown in business activity. On the other hand, we heard from a trade report that the CEO was let go in April and a new executive appointed in May by the PE group that controls the company, so the troubles at Online Tech Stores might have been going on for some time.
In any case, the only two BDCs with exposure are publicly-traded OFS Capital (OFS), which has advanced $16.1mn and non-traded Hancock Park Corporate Income with a modest $1.0mn. Both lenders are involved in a 2023 Subordinated Loan that was first launched in 2018, shortly after Blackford Capital acquired the company. As mentioned, the debt became non-performing from the IQ 2020 – resulting in ($1.8mn) of annual investment income being impacted. The discount taken by both BDCs was (54%) and that remains almost the same as of June 2020: (56%).
OFS has not been forthcoming about what the plans are to turn the company around or what the PE group might be doing. We’re not reassured by the nature of the business at this stage, nor about the junior nature of the capital advanced by the BDCs. We downgraded the company from CCR 2 to CCR 5 in one fell swoop in the IQ 2020, and that rating still obtains.
Hopefully, OFS will let us know more about what’s happening when IIIQ 2020 results are announced in late October or early November 2020. The BDC still has plenty to lose: over ($0.50) a share in book value if that Subordinated debt gets fully written off. On the other hand, if a recovery is possible, the BDC has both an increase in fair market value and in income forthcoming. Hancock Park has a much smaller upside and downside.