We’ve downgraded DTI Holdco Inc. (dba Epiq Global) to a Credit Corporate Rating of 4. The huge legal services company was first added to the Underperformers list in the IVQ 2019 with a CCR of 3. Since then, Moody’s downgraded the company in mid-March to Caa2 from B3. The ratings group was concerned about liquidity and worsening business conditions from a ransomware attack that later caused large layoffs. The traded debt of the company is now marked at a (25%) discount).
The company has over a billion dollars in debt outstanding. However, BDC exposure is modest. Ares Capital (ARCC) has invested $9.3mn, mostly in equity but also in debt. Carlyle’s TCG BDC (CGBD) and non-traded CGBD II are in the 2023 First Lien Term Loan that is being discounted by 25%. We don’t foresee any payment default any time soon, but will need watching. Should conditions in the economy – and in legal services normalize – the company is likely to recover.