Women’s clothing retailer Jill Acquisition LLC (dba J Jill) is hiring advisers to help restructure its debt, “according to people familiar with the matter“, says the Wall Street Journal on May 1, 2020. The company joins a long line of companies seeking a way out of its Covid-19 caused troubles. “J. Jill is aiming to obtain relief from lenders on certain of its loan agreements, as well as to potentially obtain some additional liquidity to tide it over until its business can reopen, the people said“. As a result, we have downgraded J Jill from CCR 3 to CCR 4 as the chances of some sort of loss appear to be rising. Furthermore – given that we’ve seen this movie before – we’re adding J Jill to the BDC Credit Reporter‘s ever growing Weakest Links list of companies we expect to become non-performing in short order.
BDC exposure is modest and limited to Goldman Sachs BDC (GSBD), which bought $6.8mn of the 2022 Term Loan as recently as IIQ 2019, when the investment was trading very close to par. Even at year end 2019, the discount taken by the BDC was just (18%). Now the same debt trades at a (29%) discount, according to the WSJ. The company’s stock is trading at $0.42 and its market capitalization is tiny. This is a credit hurtling towards some kind of resolution, with the principal question being how much lenders like GSBD will lose if J Jill restructures. Or liquidates. With the de-retailing of America that’s also on the cards. For GSBD, the likely income interruption is ($0.5mn) per annum and we’re estimating the probable realized loss at 50% or ($3.4mn).
Last word: We’re a little surprised GSBD would put money to work in a women’s retailer so recently. In mid- 2019 J.Jill’s stock had lost 90% of its market capitalization and the writing was on the retailer’s walls that all was not well. Not a huge black mark credit-wise, but certainly a question mark.