On November 25, 2019 downgraded Harland Clarke Holdings to Caa1 from B3, amongst other measures. Frankly, the company was not even in our database because held exclusively by a non-listed BDC (Cion Investment), but has now been added to the under-performing company list with a Corporate Credit Rating of 4 (Worry List). Based on valuation, the company should have been rated an under-performer since IQ 2019, when Cion’s position in the company’s 2023 debt was discounted to (15%) from (9%) the quarter before. At September 30, 2019, the discount had risen to (21%). Currently, the traded debt is at a (25%) discount. Cion has, according to Advantage Data, $13.3mn invested at cost, and nearly $0.9mn of investment income at risk.
What ails Harland Clarke, if Moody’s is to be believed ? A secular decline in the business, alongside high debt to adjusted EBITDA of 6.3x (so what’s new ?) and weak liquidity. That’s certainly enough to win the company a place on the under-performing list. Given that there is a major debt maturity coming up in 2021 (just around the corner in credit terms), the rubber will need to meet the road soon. We expect to be updating readers before long, but at first blush, we expect Cion may have to take a multi-million realized loss at some point in the medium term.