We learn from a list of layoffs in the Fresno area that Broder Bros (aka Alphabroder) had to let 253 people go due to Covid-19 closures. Another major shipping location in Pennsylvania has also been shut down since March. This is happening only a few weeks after the company was the target of a hacker ransomware attack and was forced to pay up. More fundamentally, the huge promotional products company must be facing sales and profits challenges in this period with most of its corporate clients closed down, and their own fulfillment centers shuttered. Out of an abundance of caution – that again – we are moving the BDC-financed company to the Underperforming list with a Corporate Credit Rating of 3.
This is a Major exposure for the BDC sector with $201.9mn invested at cost – all in the company’s 2022 Term Loan. The BDCs involved are headed by Prospect Capital (PSEC) with $172.8mn at cost; followed at a great distance by PennantPark Investment (PNNT) with $27.1mn. Non-traded Flat Rock Global has a minimal $1.9mn stake. There’s about $20mn of annual investment income at play here. To date, the debt has been valued at par through IVQ 2019 and interest has been paid on time. It goes without saying that an ultimate downgrade to non–performing would be disastrous for PSEC. Broder Bros is the BDC’s 4th largest single position in a portfolio filled with large exposures.
This is a private company, owned for years by LittleJohn & Co and public information is hard to find. PSEC has been lending to the company since 2013 but has not mentioned Broder by name throughout that time. PNNT has one reference in its conference call transcripts – back in 2016. Nonetheless, given the size of the exposure to PSEC (12% of the BDC’s market capitalization as of time of writing), this company’s progress is worth watching.