Carestream Health: Files For Chapter 11

There are fewer Chapter 11 bankruptcies these days, but there are some and even a few that impact the BDC sector. A case in point is Carestream Health (also known as Carestream Dental), a medical imaging company owned by Onex. On August 23, 2022 we heard that the company had filed for a pre-packaged bankruptcy with the goal of reducing its $1bn debt mountain, but with the goal of continuing to operate normally. We already know that lenders and owners have a tentative agreement to eliminate about half the debt outstanding.

Thanks to Advantage Data’s records, we’ve identified two BDCs with exposure to either Carestream Health or Dental. The good news is that the amount at risk is minuscule. The only public BDC with exposure is Portman Ridge Financial (PTMN) with $1.8mn in second lien debt at cost and with a no cost equity stake. Non traded BDC Steele Creek Capital holds an $0.7mn first lien loan to Carestream Dental. Chances are any losses incurred will be in the equity and in PTMN’s second lien position, already written down by (10%) as of the IIQ 2022. That could go lower, but we don’t have enough information to be sure.

We are rating Carestream CCR 5 because of the bankruptcy and expect PTMN will see about $175,000 of annual interest income interrupted and Steele Creek possibly have to contend with a temporary income loss of $35,000 on an annual basis. Any realized losses that might occur are likely to occur in the third or fourth quarter 2022, given that a restructuring seems close.

As to the reasons for Carestream’s problems – besides all that debt – Bloomberg summed up what the company said to the court:

The company blamed the increased use of digital images by doctors and dentists instead of film-based X-rays, as well as a push by governments to drive down the cost of health care. China, for example, created an agency that buys medical equipment in high volume in order to save money, Carestream said in court papers.

Steven Church -Bloomberg – August 23, 2022

These all seem like “idiosyncratic” causes for Carestream’s troubles and nothing related to the broader economic environment and concerns about supply chain problems; payroll cost increases and inability to pass on inflationary increases. We’re still not seeing many corporate victims of the very difficult environment that has been in play all year and which many expect to result in a recession.