Frankly, the BDC Credit Reporter does not want to wait around passively till the next round of BDC results comes out or a development occurs in the public record that causes us to add a BDC portfolio company to our database of underperforming companies. Instead – where we can – we’re pro-actively reviewing companies that were previously performing and sought to determine – even in the absence of tangible information – whether their credit status is likely to have changed with the new Covid-19 situation.
Alliance Sports Group “designs and markets a broad range of branded consumer products known for their innovative designs, unique features, and high quality across multiple product categories in the outdoor enthusiast and active lifestyle market. The Company distributes these products through six different brands: NEBO (flashlights and lighting tools), iProtec (lighting and firearm accessories), True Utility (utility and everyday carry tools), Bollinger (fitness accessories) and WeatherRite and Quarrow (outdoor lighting and fishing accessories)“.
We’re surmising business activity must be greatly curtailed at the current time. Capital Southwest (CSWC) is the only BDC with $12.5mn of exposure to the company, which consists of Subordinated debt and a 3.88% equity interest, both of which were valued very close to par at 12/31/2019. Thankfully, there is a private equity group involved: LKCM Headwater Investments, which bought the company in 2017, which was when CSWC got involved.
Out of an abundance of caution, because of the economic situation; the industries in which the company operates and its reliance on retail customers; as well as the junior nature of the CSWC capital at risk, we’re downgrading Alliance to a Corporate Credit Rating of 3, from a CCR of 2 – Performing. We’ll re-assess when CSWC reports IQ 2020 results and we’ll begin to see if we were unduly conservative or (slightly) ahead of the curve.