On March 23, 2020 Moody’s downgraded GK Hldng Inc. to Ca from Caa2. More recently Fitch has added the company to its Loans Of Concern list for April. For our part, we had initially added the global training company to our Underperformers list way back in IVQ 2017, but only at CCR 3. There the rating remained even through an earlier Moody’s downgrade in 2019 and a valuation drop of the second lien to as low as (30%) at year-end 2019 and before the Covid-19 crisis.
Now – and a little late – we are downgrading the global training company to CCR 4 AND adding the name to our own list of potential defaults that might occur in the short term to BDC-financed companies. Like the other groups, we are concerned about current market conditions impact on the training business; matched with already high leverage; debt coming due and liquidity challenges ahead. There’s no denying that companies such as GK Holdings with debt to EBITDA north of 8.0x are especially vulnerable to difficult conditions like the one we face. This is another example of a company that was already in some trouble before Covid-19 facing an accelerated decline brought on by the current crisis.
In Advantage Data’s records, BDC exposure is under two names – GK Hldng Inc. and Global Knowledge Training LLC, and is also referred to by BDCs as GK Holdings Inc. but all speak to the same risk. At cost $25.7mn is at risk, spread over 5 BDCs including Goldman Sachs BDC (GSBD); Harvest Capital (HCAP), as well as non-traded Audax Credit; TP Flexible Income and Sierra Income. GSBD is the largest debt holder, with $11.5mn in first and second lien exposure. (HCAP, by contrast, has lent only $3mn). Total investment income in play is nearing $3.0mn, as this was a riskier credit from the outset.
We’ll be keeping an even closer eye on the company going forward as some sort of resolution seems to be appearing on the horizon. In the past, the company’s private equity owner has put in new capital. Maybe that will happen again. Till we have reason to believe otherwise, we are worried.