Snagajobcom Inc.: IIQ 2024 Update
Remains Rated CCR 5 And Important Underperformer
August 26, 2024
We've been a little slow getting round to writing about the deliciously named Snagajob.com - "Find work you'll love, fast." Going by its diminished equity valuation, the job placement company has been underperforming since the IIIQ 2018, with a rating of 3 on our 5 point scale. However, most of the BDC exposure is in debt form and that was performing normally till the IQ 2024. At that point, the only BDC lender - Runway Growth Finance (RWAY) - placed the debt on non-accrual status and we downgraded the business from a CCR 3 to a CCR 5 rating, and added the name to our Important Underperformers list. The first lien loan - with a cost of $42.7mn - was discounted (17%), from (11%) at the end of 2023. Of the two equity positions RWAY holds one was written to zero and the other discounted "only" (25%). Two others venture debt BDCs are also equity owners - Hercules Capital (HTGC) and Horizon Technology Finance (HRZN) but the amounts invested are so small at to be begligible so we will focus on RWAY.
In the IIQ 2024, the debt remains on non-accrual and the discount on the loan has been increased to (30%) and the one equity position in the black has seen its discount more than doubled. RWAY spells out the immediate damage to its revenues:
From being placed on non-accrual status through June 30, 2024, cumulative interest of $1.8 million would be receivable from Snagajob, Inc. and $0.1 million OID would be accreted into the cost basis, for a total of $1.9 million not recorded in "Interest income" on the Consolidated Statements of Operations.
We calculate that on an annual basis ($6.7mn) of investment income in the form of interest and End Of Term Payments (ETP) could be forgone by RWAY. To put that into context, in 2023 the BDC's total investment income came to $164mn and its NII to $78mn.
At the moment, we are estimating any ultimate loss would be in the 50%-75% range. As you'll see in the Company File, that translates into a further loss of ($20mn) from the level at mid-year 2024 and ($33mn) in total, in the form of a realized loss. We admit that's just a sensible estimate based on what we've learned. Unfortunately, the management of RWAY had nothing to say - this quarter or last - about what's gone wrong at Snagajob or what its plans might be to effect a turnaround. All we've been told is that the company is rated 5 in its own 5 point Investment Rating Scale and that bucket as of the IIQ 2024 had a value of $33mn, 90% of which presumably is Snagajob.
Both in terms of potential capital loss and income forgone, Snagajob represents - already - a material setback for RWAY. This reflects the BDC's concentrated loan portfolio - over a $1bn in debt investments to just 31 companies. When a company missteps, the impact can be over-sized, as in this case.
The good news is that we've just completed a full review of those 31 companies at the end of June 2024 and found that Snagajob to the the only Important Underperformer. There are 3 other companies in different degrees of trouble but none of them that seriously, as you can see for yourself in our database of all RWAY's underperforming companies.
The only other non-accrual is Mingle Healthcare, but the FMV is below our threshold at $3.1mn. We project only ($0.4mn) of further losses.
Then there's a non-income producing investment in public company Carecloud. The investment has been written down to $3.7mn. Hope still exists at RWAY that the company will resume paying a dividend. We are projecting a 75%-100% loss, most of which is already booked.
Finally, there's Circadence Corp, which is rated 3, and has been modestly underperforming for some time. Nothing much changed this quarter, but if the $25mn in debt was to go on non-accrual, nearly ($4mn) of annual interest income might get suspended.
This is hardly a clean scoresheet, but not a dire one either. We calculate that since the end of 2018, the BDC's net realized losses have amounted to ($19mn). We like to compare that metric with Net Investment Income earned in the same time frame to put the loss into context. That amounts to (7%). Also RWAY's change in Net Asset Value Per Share (NAVPS) is down (17%) since 2018, and (10%) since the end of 2021 when the venture market began to soften. To our mind those metrics are neither great nor terrible, but everyone will have their own opinion.
Looking forward, we estimate further losses budgeted for Snagajob, Mingle and Carecloud should not exceed (4.7%) of the BDC's net assets as of June 2024 ($24mn/$506mn). That's not too worrying - again in our view - but we should note that RWAY's own rating system indicates 35% of its debt and one-third of its portfolio companies are in the underperforming bucket. To be fair and balanced, 90% are in category 3, none in category 4 and - as we've seen - the rest in category 5. Warning signal or not? We shall see.