Tailored Brands Inc., the parent of Men’s Wearhouse clothing stores, announced on March 19, 2020 that it will close its e-commerce fulfillment centers from March 20 through at least March 28, out of concern over the COVID-19 pandemic. The company is also suspending operations in its retail stores during that period. The stock price of the retailer – already headed downward for months – has dropped to just over $1 share.
We last wrote about Men’s Wearhouse in December 14, 2019, when we maintained our CCR 3 rating that has been in play since IIQ 2019. Since then, conditions have changed – to say the least. The effective closure of the business and the two-thirds drop of the company’s public stock price in one month are more than enough to cause us to downgrade Men’s Wearhouse to CCR 4, one step above non accrual.
The only BDC lender with exposure – Barings BDC (BBDC) – with $9.9mn in the 2025 Term Loan had already discounted its position by (21%) at year end 2019. Now, that syndicated loan is trading at a (41%) discount, we feel validated about our increased pessimism and the sense that BBDC will not be able to extract itself without a material realized loss. Income wise – given that this was an aggressively priced facility that dates back to 2018, the impact will be modest should the worst occur. The loan is priced at L + 325bps. At the current rock bottom level of LIBOR the loan yield is just over 4.0% all-in and earning BBDC only $0.400mn annually, or only 0.3% of the BDC’s total investment income in 2019.