You might have expected in this period of easy money and hot markets, that leveraged companies had become immune from failure. That’s not the case, as proven by My Alarm Center, LLC, which has just filed for Chapter 11 bankruptcy protection, as discussed in trade publication SecurityInfoWatch:
“In a statement provided to SecurityInfoWatch.com, My Alarm Center said that its lenders and other key stakeholder have agreed to support its reorganization plan, which provides for the elimination of approximately $235 million in legacy debt obligations, strengthens its financial structure and supports its long-term growth plans“.
We won’t spend a great deal of time on the company’s restructuring plans because the three BDCs with exposure are all currently in the equity and preferred. Chances are high the $8.0mn invested at cost – and with an aggregate FMV of $0.4mn at year-end 2020 – will all be written off. The BDCs involved are Saratoga Investment (SAR); Crescent Capital (CCAP), which inherited the investment from Alcentra Capital, and OFS Capital (OFS). SAR has the biggest exposure at just under $5mn at cost, but a FMV of just $0.3mn. The BDC already booked a realized loss of ($7.7mn) back in 2017 when the company was previously restructured. At that point SAR – and others – fronted more capital, which is now likely to be lost as well.
We had already rated the company CCR 5 due to SAR carrying one of its preferred positions as non performing. The rating remains unchanged. We expect to see realized losses booked by the BDCs involved in the second or third quarter 2021, probably the former. From a fair market value standpoint, the impact on the BDCs will be minimal.
All in all, a sorry episode for all the BDCs involved and in an industry famous for its allegedly high, stable cash flows where companies are sold for multiples of revenue. However, technological change and competition have resulted in a number of setbacks in the alarm monitoring business. For the BDC sector a rare new bankruptcy in 2021.