We heard on April 19, 2020 that Moody’s had downgraded Academy, Ltd (dba Academy Sports) to a Caa2 rating from a Caa1. The outlook is Negative. Nothing very surprising given that the company is a retailer of sporting goods at a time when most of its customers are sheltering in place and sporting activities are greatly limited. Academy , in any case was already on the BDC Credit Reporter’s Underperforming list since IVQ 2018 and has a Corporate Credit Rating of 4. Our rating remains unchanged with this new rating step down by Moody’s but we’re reassured enough by word that the company has $649mn in cash as of February 2020 not to add its name to our Weakest Links list of soon-to-be defaulting borrowers. In this regard we may slightly less conservative than Moody’s, not a situation we’re accustomed to.
In any case, BDC exposure to Academy Ltd consists of just one non-listed player – Cion Investment – with $12.6mn at cost in the 2022 Term Loan. At year-end 2019 that was discounted only (7%). According to Advantage Data, this syndicated loan was trading at a (37%) discount on April 24. That suggests the BDC will be recognizing a material unrealized loss in the IQ 2020. There’s $0.7mn of investment income in play here but – as mentioned – no immediate sign that there’s a danger of interruption.
How companies like Academy perform going forward depends largely on that great unknown – the length and the breadth of the Covid-19 disruption. If we get back to something akin to normal by the summer, odds look good for no further deterioration. If we’re all hunkered down for months more, or there’s a second wave of closings, then matters could get worse.