Akorn, Inc. has been in trouble ever since a proposed sale to a third party fell through last year for all the wrong reasons. Since mid-2019, the company has been operating under a “standstill agreement” with its lenders, and much negotiation has been happening behind the scenes. We last wrote about the company and its troubles back on December 18, 2019. At that point, we had a rating of CCR 4 on Akorn, suggesting we believed that a bankruptcy or restructuring, and some sort of realized loss, was more likely than not.
Now we hear – thanks to a February 12, 2020 press release – that certain lenders have agreed to an indefinite extension of the” standstill agreement”. More importantly – and the reason for the lenders apparent patience – is an agreement that the company will immediately seek a buyer. There’s even an agreed schedule and provisions for a “pre-packaged” Chapter 11. If no sale occurs then a default will occur and we’ll be potentially back in bankruptcy court, but under different conditions. The lenders goal: ensuring Akorn is sold to ensure their debt is paid in full. As of September 2019, Akorn reported $835mn in debt, all due the minute the borrower and the lenders cannot agree. All of the above suggests the Akorn story will come to a conclusion of some sort in 2020, and sooner rather than later if matters go well.
From a BDC perspective there’s only BDC with exposure – and not much at that. Garrison Capital (GARS) has $2.0mn invested in the 2021 Term Loan, marked at a modest (7%) discount. The BDC – and the market if we are to believe what the debt is trading for – seem to believe the lenders will “get out” without any material loss. Not so the shareholders of the company who have seen their stock price drop in the last two years from $33 a share to $1.36. That suggests there is not much room for any further decline in Akorn before lenders join common stockholders to share the financial pain. Still, with annual investment income at risk of only $0.166mn and a modest potential book value loss, GARS is unlikely to be much affected one way or another.