One step forward, two steps back… Alcentra Capital sold off two Watch List companies after September 2016 quarter end, bringing down a relatively long list of Watch List names that had been at ten, down to eight. However, the Company- which had no Non-Performing companies (Category 5) in its portfolio at mid-year also saw one already under-performing Company unable to service its loan obligations in the IIIQ , and another company, that had been performing fine just three months before, get written off as recently as mid-October. (That brought the Watch List numbers back to 9, or one-third of the entire portfolio).

One notch down in Category 4, Alcentra has a mid-sized investment in an oil services company which the BDC Credit Reporter worries that full recovery is unlikely on,  and non-accrual and/or a Realized Loss are the most likely outcomes. That leaves Alcentra with a motley group of 6 other under-performing companies in Category 3. There were no additions or subtractions to the companies involved in the latest period. These businesses could yet turn the corner but the credit trend for half of them is down, and none are yet seen to be improving. In a Worst Case- as shown in a recent review of the BDC’s credit portfolio-the potential losses of income from Watch List companies- most of which (8 of 9) involve debt obligations- could be substantial. On the other hand, the bulk of Watch List dollars and companies remain in the higher rated, less-likely-to-go-wrong, Category 3.