Law360 reports that a bankruptcy judge approved the sale of 15 hospitals for $34mn by LifeCare Holdings. That brings ever closer the resolution – and likely liquidation – of the long term care chain, which filed for Chapter 11 in May, 2019. The company has been on the BDC Credit Reporter’s Bankruptcy List, but may get removed shortly.
The only BDC with exposure is PennantPark Floating Rate (PFLT), with $4.6mn at cost, written down to just $0.758mn at June 2019 and on non accrual since the IQ 2019. Presumably, the latest valuation was based on the likely proceeds from the proposed sale, so no great increase in what PFLT might receive at the end of the day is expected. The worrisome element here from a PFLT perspective is not the size of the investment – which was small, nor the minimal of income lost, but the likely severe discount of proceeds from the cost basis, despite a “first lien secured debt” status: (84%). Investors expect recovery rates on failed loans will be substantially higher for senior debt, and makes us worry about the prospects for other loans of PFLT- and similar BDC lenders – when defaults occur.