Commercial Barge Line: To File Chapter 11

All the way back on January 18, 2020 we added Commercial Barge Line (aka American Commercial Lines) to our Bankruptcy Imminent list, based on news reports that a restructuring was in the offing. Rarely does a peaceful restructuring these days omit a quick side trip to bankruptcy court along the way. On February 4, 2020 the Wall Street Journal reported the company will shortly file for Chapter 11 protection for a “pre-packaged” transaction. In this case, the company has negotiated a $1.0bn “debt for equity swap” with its lenders and a $690mn in new financing, mostly asset-based.

For the two BDCs involved, that will actualize the losses already booked through September 2019 ($7.0mn in total of unrealized) and more. The discount in the IIIQ 2019 was (38%-41%). At the moment, the 2020 syndicated Term Loan, in which both BDCs are invested, is trading at a (55%) discount. That suggests another ($2.7mn) could be written off, or close to ($10mn) in all. However, just how Great Elm Corporation (GECC) and FS-KKR Capital (FSK) value the equity that they’re likely to receive remains to be seen. (GECC has much the bigger exposure).

Also unknown is whether the two BDCs have signed up for the new financing as well, which might see their total exposure to the company from a cost standpoint rise rather than reduce after the trip through bankruptcy court is completed. The most likely outcome, in the short term, is that no more investment income will be recognized on the 2020 Term Loan, and a great deal less when the restructuring is completed.

This could be just a way station for one or both BDCs if they retain equity in the company. For the moment, we are downgrading the company to CCR 5 from CCR 4 and waiting to learn more when GECC and FSK report results for the year end 2019 and IQ 2020. Most likely – if and when the restructuring occurs – the company will emerge with new owners and a CCR 3 rating.