A very complex transaction involving a SPAC (“special purpose acquisition company”) is happening that will involve its merger with Skillsoft and the concurrent acquisition of Global Knowledge Training LLC (aka GK Holdings Inc. in our records). Both Skillsoft and Global Knowledge/GK Holdings are BDC-financed companies and both are currently on non accrual. Given that the value of the transactions is said to be $1.5bn, chances are the two companies involved – and their lenders – are about to experience a change of fortune.
As of June 2020, Global Knowledge/GK Holdings was financed to the tune of $15mn by three BDCs led by publicly traded Goldman Sachs BDC (GSBD). The BDC has both a first lien and second lien debt position. The latter has been on non accrual since IQ 2020, as the pandemic impacted the education business. Also with outstandings – both in the second lien – are public BDC Harvest Capital (HCAP) with $3.0mn at cost and non traded Audax Credit BDC with $1.0mn. Then there’s non traded Business Development Corporation of America (BDCA for short) which has invested $14.5mn in Skillsoft’s debt, most of which is also on non accrual since the IIQ 2020.
Most likely – as far as we can tell – all this troubled debt will be repaid as part of the envisaged two part transaction and some ($11mn) of unrealized losses reversed by the lenders to the two companies involved. The BDC with the most to gain is BDCA, with GSBD close behind. HCAP’s exposure is small but so is the BDC, which means any improvement in the value of their second lien debt, written down by (40%), will be gratefully accepted.
We’ll be digging deeper and learning more but, at first blush, this all seems to be good news in a situation that was previously headed ever southwards, as detailed in our prior article on April 27, 2020, written before either company’s debt was known to be on non accrual. Based on what we currently understand, the BDC Credit Reporter will be upgrading Skillsoft and Global Knowledge/GK Holdings from CCR 5 all the way back to CCR 2 if and when the deal closes in January 2021. Of course, at that time BDC exposure might be nil if the debt is repaid, making the rating CCR 6 (no further exposure). We will update readers when matters become clearer.