Commercial Barge Line: Negotiating Restructuring

Another casualty in the slow-down in the freight industry that has been going on for several quarters is American Commercial Barge Line, one of the largest barge operators in the U.S. We’ve had the company on our Under Performers list with a CCR 3 rating since the IIIQ 2017 BDC valuations came out. That was downgraded to a CCR 4 (Worry List) when the value of the 2020 Term Loan we were tracking continued to drop. Moody’s also downgraded the company’s debt back in April 2019, which magnified our pessimism.

Now we hear from the Wall Street Journal, which does a great job covering the multitude of bankruptcy-ready companies, that Barge Line is negotiating a wide-ranging debt restructuring, covering more than $1.0bn of its debt. Still left open, though, is the possibility of a Chapter 11 filing if an agreement cannot be reached. “The company, which is owned by Platinum Equity LLC, has hired investment bank Greenhill & Co. as restructuring adviser, they said, while lenders are working with investment bank Evercore Inc. American Commercial Barge and Platinum declined to comment“, re the WSJ.

From a BDC perspective, where total exposure is $18.0mn, the chances of an upcoming loss are very high. There are two BDCs with exposure: micro-BDC Great Elm Corporation (GECC) and one of the biggest public BDCs out there: FS-KKR Capital (FSK). The latter seems to have inherited this position from when GSO Blackstone managed Corporate Capital Trust, which was recently merged into FSK. GECC started buying the debt in 2017 and has repeatedly grown its position with new purchases to reach $13.9mn from $1.7mn initially. That’s a significant exposure for a BDC of the size of GECC; less so for the $4.1mn invested by FSK, and already discounted (41%).

As of now, though, the 2020 Term debt in which both BDCs are invested is trading at a discount of (55%). That could go lower, depending on how these negotiations turn out. We expect both BDCs will taking a further haircut off their September valuations 2019 valuations when year-end results are published. If a restructuring deal is struck or even if we proceed to a bankruptcy, some sort of Realized Loss should follow in 2020. For the moment, we’re adding the company to our Bankruptcy Imminent list, which seems to be growing by leaps and bounds. We’ll be digging in a little more to what a restructuring might look like for the company and its lenders – who are at risk of losing $2.0mn of investment income for, at least, some period.