Output Services Group: Files Chapter 11

We admit to being late in reporting a corporate bankruptcy that impacts multiple BDC lenders. In August 2022, Output Services Group Inc. (aka OSG Group and OSG Billing Services) filed for a pre-packaged bankruptcy. The company is seeking to reduce total debt by $134mn from $824mn at the time of the filing. The second lien lenders are to become part owners and the existing equity sponsor (Aquiline Capital Partners) will retain an interest because of loans advanced to the business being converted to equity. By the way, OSG – according to Reuters – “provides print, mail, digital communications and payment services to customers in a variety of industries and countries”.

Caught up in all this are 4 BDCs, 2 public and 2 private. The former are Goldman Sachs BDC (GSBD) and PennantPark Floating Rate (PFLT) and the latter are Nuveen Churchill and Audax Business Credit. Total exposure at cost is modest at $13.1mn and all invested in a 2024 first lien loan. Amusingly and instructively the valuations applied by the different BDCs as of June 30 2022 are all over the place from a (5%) discount to (27%) for the same risk.

Presumably those values will change and reflect whatever deal has been hammered out between the parties, but any realized loss – given the senior nature of the obligations – should be modest when we get all the details reflected in the IIIQ or IVQ 2022 disclosures. From what we have learned already there may no loss at all for the first lien lenders, just an extension of the debt maturity, a higher rate going forward and interest being optionally paid partly in PIK. Hey, the BDCs involved might actually get to write up their positions. The bankruptcy court appears to have already confirmed the plan.

Given the favorable resolution, the first lien standing and the modest outstandings involved none of the BDCs mentioned should be materially affected by OSG’s troubles and metamorphosis. We just wonder if the parties went far enough to ensure the company won’t fall back into the troubled zone in the years ahead.