BDC Credit Reporter View

There are 4 BDCs with exposure to this troubled Puerto Rico hospital chain dating back to 2013, which was already experiencing financial difficulties before Hurricane Maria devastated the island in August 2017. We have been steadily marking down the credit from CCR 3 to CRR 5 or Non Performing. However, only the second lien debt is not current. The first lien debt (60% of BDC exposure at cost) continues to be paid. However, both the first lien and second lien have or will come due shortly and it's unclear if there's yet any path to repayment. All the BDCs involved have been close lipped on the subject, so this could still go either way. The hospital depends heavily on federal and state and private insurance reimbursement programs for its income, which could be affected by political and fiscal considerations. Also the Company operates in an island with major financial problems and net population migration. The first lien debt, which generates $2.2mn of annual interest income, could still default and substantial losses recorded even beyond the marks at 9/30/2018. The biggesat exposure is that of WhiteHorse Finance (WHF) but principally in the first lien. The biggest second lien exposure is KCAP Financial's (KCAP). This credit requires regular monitoring.