We hear from bankruptcy monitoring publication Petition that Hoffmaster Group may be in some distress. The “specialty disposable tabletop products” manufacturer has several publicly traded loans in the market. Those loans – especially a second lien one – are trading down in value. A first lien Term Loan due in 2023 is discounted by (8%) and the aforementioned second lien by (25%). This is a private company owned by private equity shop Wellspring Capital Management LLC so any color as to why this might be happening is not available.
BDC exposure to Hoffmaster dates back to 2010. As of the IIIQ 2021, there were three BDCs with exposure to the first and second lien debt, including two public players: Barings BDC (BBDC) and Portman Ridge Finance (PTMN). Audax is the non-traded BDC involved. Total aggregate BDC exposure at cost is modest at $7.4mn. BBDC is in the first lien debt with $2.2mn which , most recently, was marked at a premium to par. PTMN, though, is exclusively invested with $1.5mn in the second lien loan, and had discounted that (14%) already. Interestingly, in recent quarters BDC valuations had been improving.
We’ve rated Hoffmaster CCR 3 since the IIQ 2020. Back in April 2020 Moody’s downgraded the company to Caa1 based on pandemic-related concerns for the business. Furthermore, Advantage Data showed certain of the loan valuations dropping. However, this is our first article on the company. The CCR 3 rating is being maintained as its too early to presume that an eventual loss is in the offing, despite the big discount being applied to the second lien debt. That may change as more formation filters in from Moody’s; the BDCs involved or elsewhere.
We’ve also added Hoffmaster to our Trending list, which means that we expect the next BDC valuations to be possibly materially different than the current one. By the time IVQ 2021 values roll around at the BDCs, the exposure held could drop by several hundred thousand dollars or more.
As always, we’ll circle back as new information occurs. The good news, though, for all the BDCs involved is that the amounts at risk of loss – and the income therefrom – are of marginal relative importance.