On February 13, 2020, we heard that APTIM Corp – an engineering services – company was “slapped” with two new lawsuits. The company is accused of not paying for the work of sub-contractors related to the clean-up after two recent hurricane disasters. The BDC Credit Reporter does not typically write an article every time a BDC portfolio company is sued because we would be posting constantly. However, this is a good opportunity to review our concerns about APTIM and its possible impact on the 5 BDCs involved. The public funds are Main Street Capital (MAIN) and Great Elm Corporation (GECC) and non-listed FS Investment III and IV and HMS Income Fund, which is managed by a MAIN subsidiary. Total exposure – all in the 6/1/2025 Term Loan – is $30.8mn at cost. The latest valuation was at September 30, 2019, and the FMV was just under $25mn. Income involved is approximately $2.7mn annually.
We’ve noticed that the value of the 2025 Term Loan has been declining. According to Advantage Data’s records, the debt was most recently discounted by (43%), suggesting the BDC values of last September will shortly be adjusted downward when year end 2019 results are published. Moreover, it’s worth remembering that the debt has been rated Caa2 by Moody’s since mid-2018.
At this stage we don’t have enough information to predict the company might file for Chapter 11 or restructure or default, but given the above context we would hardly be surprised. We will circle back – if need be – after MAIN reports on February 28, 2020. (GECC does not have an earnings release date yet).
UPDATE: (February 20, 2020) We’ve since heard S&P Global Ratings affirmed its CCC+ rating on the company, but revised its outlook to “Negative” from “Stable”. Seems to confirm that we were right to flag APTIM at this time.
UPDATE: New CEO appointed.
The 2025 Term Loan currently discounted (52%).