It’s official. Arif Bhalwani’s record of ostensibly never realizing a “loss on invested capital since inception”, for more than a decade and a half, has ended.
Further, Third Eye Capital’s “core expertise” in “restructuring” or “business turnaround” is not supported by the evidence from their investment in Erikson National Energy and its predecessor.
On May 5, 2025, a Court terminated Erikson National Energy’s CCAA proceeding, since the company “does not have a viable transaction for its business or assets” and “it is not expected to make a plan to its creditors,” according to its monitor.
Below is a quick recap of the transaction, as previously detailed in our post, “Third Eye Capital: cracks in the workout playbook.”
- In 2017, Third Eye Capital made a loan of $8.5 million to an oil and gas company.
- In 2018, the borrower went kaput, and Third Eye Capital took over the borrower, which morphed into Erikson National Energy.
- By December 2023, Third Eye Capital’s total exposure to Erikson had grown to $50 million. (!)
- In October 2024, Erikson filed for creditor protection. Mark Horrox, then Third Eye Capital’s principal and also director of Erikson, said that TEC had invested “millions” into the assets of Erikson, “without return or recovery of its investments.”
The Ninepoint-TEC Private Credit Fund II, appears to be one of the largest creditors of Erikson. As of December 31, 2024, the fund's financial statements showed an investment in “ERIK” with a fair value of $19.1 million. (Keep in mind that Third Eye manages other funds besides Ninepoint-TEC, which explains their overall $50m exposure.)
As you might remember, Ninepoint CEO, John Wilson, explained in 2019, how their conservative lending was backstopped by collateral value— the value they assigned to the collateral would allow them to recover their loan in case they needed to “burn the place down” because the borrower's business went south.
John Wilson on "conservative lending"
As you would expect, after Erikson went into creditor protection, Third Eye tried to sell the assets to recover its loan. They did find a buyer for all the company's assets for $2 million. But even at that low-ball price, the buyer decided to walk away and cancelled the purchase agreement on Valentine's Day 2025.
After Valentine's Day, Erikson continued its efforts to sell all or a portion of its assets, but that proved unsuccessful. Third Eye Capital also said it was “not prepared to continue funding” the insolvency protection proceeding, according to Erikson’s monitor.
Without any other option, the British Columbia Energy Regulator would take care of Erikson’s assets, mostly now orphaned wells, according to Erikson’s monitor.
Erikson itself would be an orphan entity, since its only director (a Third Eye Capital employee) resigned. The company will have no director or officer, according to the Court.
How much would TEC’s investors recover in this transaction? Without any reported asset sale or anyone overseeing the company, it seems investors would get a complete loss.
Third Eye Capital’s exposure to Erikson or its predecessor could have been limited to a maximum loss of $8.5 million back in 2018. However, after applying Third Eye Capital’s “core expertise” in restructuring and business turnaround, the loss seems to have ballooned and become 5x larger.
Although the loan recovery is probably close to zero, Ninepoint didn’t think it was necessary to impair its loan to ERIK as of its latest financial statements. As of December 31, 2024, the fair value of the loan was 100% of its $19.1-million par value. By then, Erikson had already agreed to sell all of its assets for a mere $2 million. Auditor E&Y was OK with that valuation of a loan to a then-insolvent borrower with a potential recovery of cents on the dollar and signed off without any problems on the Ninepoint-TEC Private Credit Fund II audited financial statements.
This makes us question the real value of Ninepoint-TEC’s loan portfolio. Speaking of valuations in private debt, it is worth noting that Third Eye Capital’s competitor, R.C. Morris, marked down its portfolio by an astonishing 46.46% just in March 2025. The loss was due “to sizable unrealized revisions to the carrying values of two of the remaining four positions comprising the majority of the value of the fund.” You have to salute their honesty.
While all this was happening, Arif’s right-hand man abandoned the Third Eye Capital ship— Mark Horrox went to Polar Asset Management, where he is now in charge of Canadian Direct Lending strategy. We wish Mark the best in this new endeavour.