On June 4, 2021 S&P announced that conference audio and video provider Premier Global Services Inc., (dba PGi), whose wholly owned subsidiary is American Teleconferencing Services, was downgraded to CCC-, from CCC+, with a negative outlook, with the rating agency citing “significantly” deteriorating operating performance over the past quarter. Also downgraded was the company’s senior secured debt to CCC-, from CCC+. S&P noted that the company’s declining operating performance “increases the likelihood that [PGi] will default or undertake a distressed exchange” in the next six months unless the company’s private equity sponsor injects equity. Just the day before, Moody’s was more radical and just withdrew its ratings altogether, citing “insufficient information”.
This is obviously not good for the company or for the 10 BDCs with $171mn in first lien and second lien debt exposure to PGi or its subsidiary. At March 31, 2021, a couple of lenders were already carrying their exposure as non performing but most had not yet made the move. Aggregate FMV was already down to $117mn, a (32%) discount.
Our last update on these pages dates back to August 26, 2020 when the business was already struggling, and we applied a CCR 4 rating. Now, PGi/American Teleconferencing might slip into non performing – CCR 5 – status shortly judging by the rating agency hullabaloo. Most at risk are likely to be BDC lenders holding the second lien debt, which can often get written to zero in these situations. There is currently nearly $24mn in second lien debt at FMV. Then there are wide variations in how first lien debt is discounted: from (6%) to (46%). We calculate that after netting out already non performing loans, some $12mn of investment income is still at risk of interruption temporarily, or forever should the company fail.
We expect we’ll be circling back to PGi/American Teleconferencing again shortly as the situation clarifies. At the moment, the chances of further unrealized losses seems the likeliest short term outcome, which could show up in the IIQ 2021 BDC valuations.