American Achievement has been renamed Balfour & Co but the old name is still used in two of its lenders 10-Q filings, so we’re sticking with the out of date nomenclature for these purposes. We have written about the company twice before, most recently on March 19, 2021 when an exit from bankruptcy occurred. Apparently a new buyer in the form of Cerberus Capital Management L.P. stepped up and kept all creditors unimpaired:
A recent large capital investment by its new owners has positioned Balfour & Co. for not only financial stability, but also a successful long-term growth strategy. This additional capital investment was in addition to its new line of credit from the new owners. Due to the recent strong performance, this capital is not currently being utilized but is available for key investments in the future such as its ongoing digital reinvention, production innovation, a new manufacturing facility, operational excellence, and strategic acquisitions to drive long-term growth.PR Newswire October 7, 2021
Just before the company went on non accrual and then went in and out of bankruptcy, there was one BDC lender: Sixth Street Specialty (TSLX), TSLX had advanced $24mn in first lien debt, with a value as of IIIQ 2020 of $22mn. All that debt went on non accrual for a quarter before the resolution. After the restructuring, the total TSLX investment increased slightly, but was split between two first lien loans, a subordinated loan and equity. Most of the advance was in first lien and performing with a small amount in the subordinated debt ($0.5mn) on non accrual. As of the IIQ 2022, total TSLX exposure was up to $27mn at cost. Both the subordinated debt and a small first lien loan – with a cost of $1.4mn – were non performing. The bulk of the debt, though, remained on accrual. The overall FMV was $19.6mn – not much changed since the bankruptcy.
Another BDC – New Mountain Finance (NMFC) – joined in the financing from the IQ 2021 – presumably helping out the new owner. The initial investment amounted to $28mn. As of the IIQ 2022, the total exposure amounted to $30mn in a variety of facilities and equity. The outstanding debt is carried as non performing.
Out of the blue, while going through the daily news update we undertake for all underperforming companies, there was good news worthy of reporting about American Achievement/Balfour. The company put out a press release on September 21, 2022 claiming:
“a nearly 100% fiscal year-over-year improvement in operating performance as well as the construction of its new, state-of-the-art printing facility…The company’s financial improvement was largely a reflection of strong sales and operating improvements across its core graduation products categories”Press Release – September 21, 2022
The rest of the press release does not offer much more in the way of concrete numbers but a reading does suggest the business is rebounding as high schoolers graduate and seek the memorabilia that one does of that important time in life.
Operating under Balfour®, GradImages®, University Photo®, Gaspard®, ArtCarved®, KeepSake®, and Taylor Publishing Company®, the Company provides personalized products such as class jewelry and apparel, yearbooks, graduation cap and gowns, announcement products, and photography through digital marketing technology, personal in-school deliveries, and customized school assortments. The Company operates throughout North America with around 5,000 team members.
For TSLX, as well as New Mountain Finance (NMFC) and First Eagle Alternative Credit (FCRD), which has immaterial exposure in its JV – this sounds like good news. With over $50mn of BDC invested in the debt – much of which is not performing – there is a good chance for both an increase in income being received and a better fair market valuation. We hope to learn more – even if it’s just by looking at valuation numbers – when TSLX and NMFC reports IIIQ 2022 earnings in 7 weeks or so.