Occasionally BDCs use different corporate names for portfolio companies, which is very confusing for the BDC Credit Reporter and requires much checking and double checking. In this case we are going to discuss Ambrosia Buyer Corp; Trimark USA LLC and TMK Hawk Parent Corp. Three names but one company and set of debt. As CreditRisk Monitor explains: “Ambrosia Buyer, Corp. was formed by Centerbridge Partners, L.P. to facilitate its acquisition of TMK Hawk Parent Corp. d/b/a TriMark USA, LLC (“TriMark”) from Warburg Pincus LLC. TriMark is a leading distributor of foodservice equipment and supplies in North America serving over 80,000 customers”. Several BDC lenders are involved in a first lien Term Loan due August 2024 and a second lien maturing one year later. Total BDC exposure is a material $63.5mn at cost, split between four firms: Apollo Investment (AINV); New Mountain Finance (NMFC); Audax Credit BDC and Cion Investment, which is related to AINV.
The debt was performing normally till Covid came along but was downgraded from CCR 2 to CCR 3 in the IQ 2020 and then to CCR 4 in the IIQ 2020. We were influenced by the ever lower BDC valuations and a major downgrade of Trimark by Moody’s in the spring. As of September 2020, the BDCs involved are discounting their exposure by anywhere from (21%) to (33%). The AINV/Cion combo are in the second lien debt and the other BDCs in the 2024 first lien. However, AINV/Cion have applied the more modest discounts, which seems counter-intuitive.
In any case, Ambrosia/Trimark is caught up in a major struggle between lenders that has ended up in court. Here is the dispute in a nutshell as spelled out by Institutional Investor: “
“…a group of lenders to TriMark USA, which provides equipment to the foodservice industry, sued their fellow private credit providers, alleging that they improperly amended the credit agreement.
TriMark has been struggling during the pandemic, as its customers — restaurants — had to close. The lenders changed the credit agreement in a bid to give the company more liquidity.
Friday’s lawsuit claims that these changes devalued certain lenders’ debt and makes it less likely that they’ll get repaid if TriMark defaults. “This breach-of-contract case arises from a cannibalistic assault by one group of lenders in a syndicate against another,” the lawsuit said.”
The plaintiffs include Audax, BlueMountain Capital Management, Golub Capital Partners, Intermediate Capital Group, New Mountain Finance Corp., Shenkman Capital Management, York CLO Managed Holdings, and Z Capital Credit Partners.
..The list of asset managers and owners they are suing is long. Two of the defendants are TriMark’s private equity owners Centerbridge Partners and Blackstone, which holds a minority stake in the company. “Blackstone is a minority investor in the company and these claims are wholly without merit,” a spokesperson for the firm said via email. A spokesperson for Centerbridge declined to comment.
The plaintiffs are also suing BlackRock, Ares Management, Oaktree, Sculptor Capital Management, Australia’s Future Fund, and the Canadian construction industry pension plan, among several others“.
We can’t hope to disentangle here which BDC is on which side and who might be doing what to whom. The attached FT article is a useful primer, but may get overtaken by events. Our purpose is simply to highlight that this is a contentious credit and may yet result in significant defaults occurring. Most at risk on paper is NMFC with $33mn invested at cost, but in first lien debt. Next is AINV with $21.1mn, followed by Cion with $13.2mn, both in the 2025 Term loan. Audax has a very modest, noin material exposure.
We are maintaining the CCR 4 rating assigned earlier in the year and will revert back when this dispute plays out in a way that allows us to determine what lasting damage might occur to the BDCs involved – if any. As half of Ambrosia/Trimark’s customers – according to Moody’s – are restaurants and that the group already has a Caa rating on the company, we are not optimistic. We don’t know enough to add the company to the Weakest Links list, so we’re not “calling” an imminent payment default. Would we be surprised if one occurred ? No, given the dire economic conditions and the 10X debt to EBITDA remarked on by Moody’s as far back as April 2020.