CPM Holdings: Downgraded By S&P

S&P downgraded CPM Holdings to CCC+, with a negative outlook. The company ” designs and produces process systems and equipment”. The ratings group is worried about the coming recession (which, apparently, is now a given) and high leverage. Demand is expected to drop and leverage is expected to reach 9x in 2020 and 2021. There’s a first lien term loan and a second lien loan due in 2026.

BDC exposure is tiny, so we won’t be spending too much time on this credit. The only BDC involved is Gladstone Capital (GLAD), which is involved in the $200mn second lien. At December 31, 2019 the company was rated as performing with a Corporate Credit Rating of 2. The position was valued at par. That syndicated loan – according to Advantage Data – is currently trading at a (27%) discount, and continues to move down since March 31, 2020 quarter end. $100,000 of annual investment income is at risk for GLAD. We are adding the company to our Underperformers list, with a CCR 4 rating. CPM is what we’re beginning to call a “leapfrog” credit, jumping down two notches from CCR 2 to CCR 4. At another time we might have moved more slowly to assume a loss is more likely than full repayment, but these are not ordinary times.