Borden Dairy: Exits Bankruptcy

These days the BDC Credit Reporter is busy writing about BDC-financed companies filing for bankruptcy, or on the verge of doing so. This article, though, is about a company exiting the bankruptcy process and still BDC-financed : Borden Dairy. Capitol Peak Partners and FS Investments- KKR Capital funds purchased the business for $340mn and have “appropriately capitalized” the new business which – operationally – will continue much as before the filing.

This has been a 6 month process which we’ve written about extensively. As was clear early on, the lenders – headed by the FS Investment- KKR organization – were intent on being part of a “debt for equity swap” and that has come to pass, wiping out the equity interest of the prior owners. However, just the financial details of the new company and how much old and new capital FS-KKR has in play – and in what form – is unclear. We expect to learn more and will report back.

In the interim, we remind readers that two BDCs – FS KKR Capital (FSK) and KS KKR Capital II (FSKR) have advanced $171mn in first lien debt to the old Borden and have already written down ($95.1mn). Presumably – but not necessarily – this amount or thereabouts will become a realized loss now the transaction has been closed and will show up in the IIIQ 2020 financials. Total exposure may actually grow if the lenders have advanced more monies.

Not to be Grinchy, the future of Borden is far from assured. Milk demand in the U.S. has been on the decline for years, and the Covid-19 situation is not helping. Moreover, competition remains fierce with Dean Foods and others and regulation can be difficult as well. Furthermore, we don’t know yet how much elbow room the new owners have left themselves and what amount of debt the new Borden will have to contend with.

For the moment, we are upgrading the company from non performing, or CCR 5, to CCR 3, until we learn more about what Borden will look like in the future and how much debt will be carried. We hope to learn more when FSK and FSKR report IIQ 2020 results, which could cause a revaluation up or down. The bottom line: both BDCs – and their shareholders – will be involved in the business of milk for a very long time, having started out in IIIQ 2017 as lenders.