KLO Acquisition: Further Details On Credit Problems

We first wrote about KLO Acquisition (aka Hemisphere Design Works) back on November 3, 2019, although the company has been on non-accrual since the IIQ 2019. Then – and now – we were concerned about the future of the world’s largest kayak manufacturer. With Apollo Investment’s (AINV) IIIQ 2019 Conference Call, we have learned a little more about what ails the company and what to expect next, albeit in that shorthand that BDCs use when conveying bad news about a portfolio company. Here is what was said:

Regarding KLO, our investment was placed on non accrual status last quarter due to the underperformance from lower customer demand, consolidation challenges and higher costs. The company’s liquidity position has continued to weaken. The company expects to complete a comprehensive restructuring in the coming months“.

The credit is already rated CCR 5 (Non Accrual), but AINV reduced its fair market value to $4.8mn from $11.8mn at the end of June. That suggests the BDC expects – despite its first lien secured status – a major haircut from the $13.9mn at cost. We also have a Bankruptcy Imminent rating on the company, which would include any kind of major restructuring that would occur. Given what little AINV grudgingly revealed that seems on the cards at any moment.