Leading crane company North American Lifting Holdings (aka TNT Crane & Rigging) is seriously impacted by the economic environment spawned by Covid-19. The company missed making an interest payment on its second-lien term loan, but did pay the first-lien debt interest. On April 7, 2020 the second-lien lenders agreed to a forbearance agreement , as this situation continues to play out. Both S&P and Moody’s downgraded the company on the news and reminded us of its poor liquidity; high leverage and multiple business challenges. S&P now rates the first-lien term loan CC. The second lien goes to D, reflecting the default. Given that the company is largely focused on the energy sector, a restructuring and/or bankruptcy seems inevitable.
There are two BDCs with $13.3mn of exposure: Main Street Capital (MAIN) and its non-traded sister BDC: HMS Income Fund. Both seem to be in the syndicated first lien debt, which appears – according to Advantage Data – to be trading at a (43%) discount. That’s much below the pre-Covid discount of (12%). In any restructuring, the BDC lenders could lose two-thirds of their capital advanced and close to $0.900mn of annual investment income. We have downgraded the company from CCR 3, which was applied following the IVQ 2019 result, to CCR 4. A CCR 5 may not be far behind.
We expect to be hearing more shortly as the forbearance cannot last long and – we imagine – the owners and the lenders are in negotiations across the capital structure. Just one more company affected by the Covid-19 crisis and the depression developing in the oil patch. It’s not all oil and gas exploers feeling the pain but all their suppliers as well.