We last wrote about refrigerants distributor Hudson Technologies Company back on February 14, 2020. Then, we wondered aloud how the BDC term lenders to the troubled company – who have just participated in a restructuring and amendment of their debt – would value their exposure at year end 2019. As of the third quarter, FS KKR Capital (FSK) – for one – had applied a (44%) discount to their $38mn position. Now FSK has reported its latest IVQ 2019 valuation and the valuation remains essentially unchanged – discounted (42%), albeit the public BDC has reduced its capital at risk by ($5.3mn). No reason was mentioned by management for the lower debt level on the latest FSK conference call, but we’re guessing it’s part of a general debt paydown of its obligations by the company.
The unchanged discount suggests that the lenders remain unsure that the turnaround measures which the lenders – including Wells Fargo , which provides the company’s Revolver – will succeed.
On February 4, 2020 the company released its IVQ 2019 earnings and held a conference call. We’ve read both documents and are impressed by management’s optimism about market conditions and about the $22mn of availability supporting the company’s liquidity. The CEO said the following to sum up the financial re-engineering that has been accomplished:
“The amendment [ of the Term Loan ] reset the maximum total leverage ratio of financial covenant through December 31, 2021, reset the minimum liquidity requirement; and added a minimum LTM adjusted EBITDA covenant. With the new revolving credit facility and the amendment of the term loan in place, we believe we have the financial flexibility and liquidity that drive improved operating performance as we move through 2020 and beyond”.
With the stock price of the public company at $0.85 and with the FSK debt still deeply discounted, Hudson Technologies lives on to fight another day. We cannot tell if the procurement issues arising in China from the coronavirus will help or hinder its results going forward. We continue to have a CCR 4 rating on the company, which means we expect the odds of a loss are greater than of full recovery. For 2020, given what we know, we still expect further deterioration in value but don’t predict a move to non performing (CCR 5).