Student travel company Lakeland Tours LLC filed for Chapter 11 on July 20, 2020. The company – whose dba is Worldstrides – was in the wrong business in the time of Covid-19: arranging student travel programs. However, the company was performing well before the current crisis so management, shareholders and “certain lenders” have managed to cobble together a restructuring plan, which is expected to be blessed by the bankruptcy judge. Details in the company’s press release announcing the Chapter 11 filing are short on details, but some kind of “debt for equity swap”, accompanied – as per the usual – by the addition of new capital is planned.
BDC exposure is limited so we won’t be undertaking any deep dives with so many other troubled companies to worry about. The only BDC involved is non-traded Business Development Corporation Of America (BDCA for short), which has invested $11.9mn at cost in the company’s first lien term loan that matures at the end of 2024, according to Advantage Data. At March 31, 2020 – the first quarter the company joined the ranks of the underperforming – the discount was only (15%). We rated Lakeland CCR 3.
With the bankruptcy filing the credit rating drops to non performing, i.e. CCR 5. BDCA will be losing just short of ($0.6mn) of annual investment income. We’re guessing that the final realized loss the BDC will have to absorb will be bigger than (15%) as well. We don’t know at this time whether BDCA is participating in the new capital being advanced or in the “debt for equity” trade. We’ll circle back as details come out but the impact on the BDC in any case should be modest.