Waccamaw River, LLC: IQ 2024 Update

Remains Rated CCR 5 And An Important Underperformer

May 16, 2024

Barings BDC (BBDC) has had a propensity for investing in - let's say - "idiosyncratic" financial vehicles over the years. The current management seems to have regrets about some of these, which includes Waccamaw River, LLC. BBDC has a 20% interest in this vehicle. As of March 31, 2024, Waccamaw River had $154.9 million in unsecured consumer loans and $7.2 million in cash. Management - as far back as August 2023 - made clear its intention to wind up Waccamaw.

However, the value of the $25mn invested by BBDC (another $50mn is provided by two other Barings non-traded BDCs) has dropped substantially in value. In the IVQ 2022, we downgraded the vehicle from CCR 2 to CCR 3 and then to CCR 4 in the IVQ 2023 when the discount was increased to (38%). At that point, Waccamaw became an Important Underperformer. This quarter the value was essentially unchanged, with BBDC's share worth $15.8mn - an unrealized loss of ($9.2mn) so far.

By our math, using the latest 10-Q, Waccamaw has a net value after debt of $68mn against a $125mn invested by all the partners - i.e. a realized loss is likely to be booked when this finally gets wound up. Moreover - in the most recent quarter, the investment is not even generating the dividend income BBDC used to receive. We're guessing the ultimate loss will be in the 25%-50% range - or ($12.5mn) at the outer limit.

This is not over yet, but the odds of this yet ending up in the win column for BBDC - and the other Barings BDCs - seem slim. Still - as is typically the case with BBDC - management has kept its exposure modest and that potential realized loss of ($12.5mn) is equal to only a tiny fraction of its capital. The BDC will also probably console itself by remembering all income received along the way as this was - from the outset - a "total return" vehicle, with little or no asset appreciation expected but plenty of dividend income expected.