Medical Depot Holdings: Raises New Equity, Restructures Debt

Last time we wrote about Medical Depot Holdings, also known as Drive DeVilbiss, we concluded in this manner: “It’s hard to envisage a scenario where some sort of loss does not occur given the amount of debt involved, but we’ll have to wait and see. We have a Corporate Credit Rating of 4. That’s our Worry List”.

On September 20, 2019 the company announced by press release that it “had agreed in principle” to receive $35mn of additional capital “together with a reduction in cash debt service obligations from its current
lenders
“. This was quickly picked up and repeated in different forms by financial and trade publications as evidence of a successful “rescue operation”.

However, from the BDC Credit Reporter’s standpoint, the company’s announcement raises more questions than answers. There’s the “in principle” part; the source and form of the $35mn and what is meant by “reduction in cash debt service“. Also not clear is what the lenders have received in return – besides the heartfelt thanks of the company and its owners. So we’re marking this development as trending positive, but not changing our Credit Rating till the many blanks get filled in. When that might occur – and from what source- remains unclear.

We have reported that there are two BDCs with $32.4mn of exposure at cost: Bain Capital Specialty Finance (BCSF) and Business Development Corporation of America (BDCA). We may learn from them what “reduction in cash debt service” means. We’re guessing: a lower interest rate on the debt (but whose ?) and – potentially – lower income.