OHA Investment Corporation, the business development company whose management was turned over to Oak Hill Advisors from NGP Capital Resources in September, saw its net asset value (NAV) decline by 8 percent to $7.48 in the fourth quarter. The decline was primarily attributed to legacy concentration in energy assets, according to an earnings presentation by OHA.
Net investment income per share came in at $0.13 and the vehicle declared a dividend of $0.12. Total realized and unrealized losses amounted to $12.3 million for the quarter and $25.4 million for the year.
The net asset value of the portfolio dropped to $154.2 million at the end of last year, compared to $188.5 million at the end of 2013. The firm’s new management said it has already worked to diversify the portfolio into other non-energy investments and restructure legacy assets to put the vehicle on better footing. A new $2.4 million stock repurchase program was approved and the vehicle deployed $37 million to four new, non-energy deals in the fourth quarter.
“We believe we have a meaningful pipeline of investment opportunities,” said the statement from OHA. As of 30 September, 2014, the BDC had 37 percent in onshore energy and power investments and 33 percent in offshore stakes. As of 31 December, these ratios had dropped to 34 percent and 28 percent, respectively. The BDC now has 10 percent invested in home health services, 6 percent in chemicals, 6 percent in information services, 5 percent in medical supplies, 5 percent in financial service, 4 percent in CLOs and 2 percent in coal services. Robert Long, the new president and chief executive of the BDC, said management plans to continue diversifying the portfolio out of energy assets.
“We’ve now reduced the energy concentration and expanded the portfolio through $37 million in new investments during the fourth quarter among other factors,” Long said on an earnings call last week.
The executives also said they’ve involved a third party valuation service to value all the firm’s more opaque ‘level 3’ assets with a fair value estimate of more than $10 million. “Level 3 investments are those that are valued using significant non-observable inputs. We received positive assurance representing 90 percent of the total value of our Level 3 investments as of 30 December,” said Scott Biar, interim chief financial and compliance officer for the BDC.
Some of the biggest losses came from investments in Spirit Resources and Contour Highwall, said Biar, “both of which had been restructured in late 2012 or early 2013 and both of which were identified as challenging distressed investments earlier in 2014, as these businesses struggle to succeed in a difficult operating environment”. The markdowns for the two businesses represented 70 percent of the net realized and unrealized losses for the quarter and 75 percent for the year. Spirit is an oil and gas exploration company. Contour is a coal miner.
Long and Bair also reported better performance on other legacy assets, such as Castex, another oil and gas exploration and development company, as well as non-energy companies. Of the four new investments, three were floating rate second lien loans, each totaling $10 million. The $37 million new deals delivered a weighted average yield of about 9.5 percent, Long said.
“I would like to emphasize that we are in the early stages of a journey toward demonstrating the integrity of our valuations and creating the more diversified portfolio of larger quality companies,” Long said in his closing remarks. “We’ll get there by leveraging OHA’s strengths as a credit manager, as we’ve discussed today, along the way we’ll strive to be transparent and candid with you.”