AAC Holdings (aka American Addiction Centers) has been in contentious negotiations with its lenders. Back in October 2019 – after the company defaulted on its loan – lenders agreed to forebear for a period while negotiations continued. Then- just a few days ago – the lenders terminated that forbearance. At the same time, the CEO quit if the bankers would not advance additional monies. See our nine prior articles dating back to April 25 2019, but especially the last two posts.
Now, borrower and lenders have agreed that the latter will advance $12mn in new monies after all. $10mn was funded at the close on January 24, 2019 and $2mn will be drawn later, if needed The forbearance period has now been extended to February 21. Even that date is not fixed, as the parties have agreed the forbearance is “subject to extension in the discretion of the Forbearing Lenders if the Company shall not have entered into agreements embodying the material terms of a consensual financial restructuring among the Company and the parties to the Credit Facilities“. That’s when the last $2mn can be accessed. No word as to the employment status of the CEO.
This a good sign that lenders and management in the public company still have some hope of agreeing on a restructuring agreement for the highly troubled business. Whether an agreement is reached or not, a bankruptcy filing is still the most likely outcome. However, there’s a big difference between a pre-packaged Chapter 11 and an involuntary or the company seeking protection from its creditors. AAC Holdings remains on our Bankruptcy Imminent list, but the parties may have – very literally – bought themselves more time.
As unclear as before is what will happen to the different BDC debt tranches involved. About half of BDC exposure, held by Capital Southwest (CSWC), Main Street (MAIN) and non-traded HMS Income is in the more junior 2023 Term Loan, which is currently valued at a (25%) discount in the market and is on non-accrual. Sitting higher on the balance sheet is 2020 Term debt, still fully valued by sanguine holders. With so many twists and turns in the narrative, the BDC Reporter can’t be anything but a little worried that losses could be higher than already anticipated.