Houghton Mifflin Harcourt: Debt Valuation, Stock Price Drop.

Publisher Houghton Mifflin Harcourt has gone and drawn on its revolver for a second time in two weeks. The company “drew down $100 million under the facility on March 24 and then another $50 million on March 30 to boost liquidity“.

In addition, the stock price of the publicly traded company (ticker: HMHC) has fallen precipitously and closed on Friday April 3, 2020 at just $1.52. The company has lost more than three-quarters of its market value in a few weeks.

This is bad news for the two BDCs with $9.1mn in debt exposure, which was valued at a premium as of December 31, 2019. The biggest exposure is held by Oaktree Specialty Lending (OCSL) and then there’s non-listed Guggenheim Credit Income Fund 2019. Both seem to be invested in the 2024 Term Loan, which is currently trading at 88 cents on the dollar. The income at risk is three-quarters of a million dollars annually. Sadly, both BDCs only got involved with this credit in the IVQ 2019 and must be in a state of lender’s regret given the very fast deterioration.

We have added the company to the Under Performers List, with an initial Corporate Credit Rating of 3 on our 5 point scale. At this point – based on that still modest drop in value on the debt – we are not yet projecting an ultimate realized loss. After all, the cash from those drawn revolvers will serve as a temporary buffer. We’re in wait-and-see mode here as in so many other places. Much depends on how long the stay-at-home orders last.