BDC Credit Reporter View

Copperweld Bimetallics is a specialty manufacturer with a 100 year history. However, the Company is privately held and useful public information to help analyze its creditworthiness is virtually unavailable. Moreover, only one BDC has exposure to the mid-sized Company: THL Credit or TCRD. What little we know comes from the BDC's sparse filings. We know TCRD first booked a $21mn Senior Loan to the Company in the IVQ of 2013. As Advantage Data records show, till the IIIQ of 2015, the 12.0% yielding loan, due in 2018, was carried at a slight premium to par and was Performing. However, the Company went on our Watch List from the IVQ 2015 when modestly written down and the interest rate was raised to 16%. By the IIQ of 2016, the Company was on non-accrual, which lasted till the end of the IIIQ. We were surprised by the modest write-down by the BDC. On October 5, 2016, THL Credit completed the restructuring of its investment,exchanging the cost basis of its senior secured loan totaling $19.3 million for a debt-like preferred equity position of $3.4 million and a controlled equity position of an affiliate of Copperweld valued at $9.0 million, with $5.4 million remaining as a senior secured term loan. In connection with the restructuring, THL Credit recognized a $1.5 million loss in the fourth quarter.This appears like a classic debt for equity swap and we now carry the Company as a lender-owned entity. Even now details are sparse, but the Credit Credit Reporter is keeping the Company on its Watch List with a Credit Rating of 4. The very large drop in the debt component suggests Copperweld continues to have cash flow difficulties even under new ownership. As in all these situations where lenders take over companies the prospect of further Realized Losses down the road remains high. Nonetheless, the Credit Trend in the next quarter is likely to be up now the restructuring has been effected and a Realized Loss booked.