Aptim Corp: S&P Global Ratings Update

According to a news report, S&P Global Ratings is feeling a little better about Aptim Corporation, an environmental consulting and remediation company. APTIM Corp. was “affirmed” on Feb. 11 2021 at CCC+ and its outlook revised to “stable” from “negative”. Apparently some receivables that had been of questionable collectibility have come in, improving liquidity.

The CCC+ rating on the company’s $515 million of 7.75% senior secured notes due 2025 was affirmed as well.S&P Global Ratings believes Aptim’s balance sheet cash will be sufficient to handle fixed charges over the next 12 months“. However, as you can see by the speculative rating, Aptim is hardly free and clear of trouble as leverage is high, operating profitability poor and the company’s capital structure as “unsustainable”.

Nonetheless, these developments – and the modestly positive signal from S&P – might result in shrinking the discount on the value of the 2025 debt – with a cost of $30.5mn and a IIIQ 2020 discount that ranges between -37% and -48%. We note that Main Street (MAIN); Great Elm (GECC); FS KKR Capital II (FSKR) and non-traded HMS Income all hold the same debt but their valuations differ. In fact, FSKR even carries the debt as non-performing.

The -$13mn in unrealized losses might shrink either in the IVQ 2020 valuation or in the IQ 2021 based on the improving situation at Aptim. We have rated the company as underperforming since the IVQ 2018; and further downgraded the business to a CCR 5 when we first saw the FSKR non-accrual in the IIQ 2020.

The BDC Credit Reporter will circle back as the IVQ 2020 results come in from the BDCs involved and see what we’ll learn. We have no view as to the likelihood of an eventual loss but that “unsustainable” capital structure remains cause for concern, especially as the BDC debt outstanding is in junior debt capital. Still, in the short term values might be going up rather than going down or getting written off.

UPDATE: We have added Aptim to our Alerts list of companies whose value is expected to materially change in the next 1-2 quarters.