This is embarrassing: we still don’t really know what’s happening with American Teleconferencing Services Inc (AFS), a subsidiary of Premiere Global Services (PGi). We’ve written extensively about both companies in the past, and communicated on these pages that there was much trouble afoot. The BDC Credit Reporter has written 4 times about AFS alone – most recently on August 31, 2021.
What we do know from the valuations by the multiple BDCs that hold the AFS and PGi debt is that this has been a disaster for lenders. The outstandings at both related companies amounted as of June 30, 2022 to $125mn, but the value totals only $7mn. Despite most of the exposure being “first lien”, the ultimate outcome should be an almost complete loss – one of the worst in recent memory based on the dollars and the multiple BDCs involved.
As a reminder, the BDCs involved are Capital Southwest (CSWC); Cion Investment (CION); Oxford Square Capital (OXSQ); Main Street Capital (MAIN); PennantPark Floating Rate (PFLT); SLR Investment (SLRC) and two non-traded players.
We continue to rate the company CCR 5, given the non accruals that date back to 2019. Furthermore – and more than most troubled companies that we track – we expect there will be no meaningful recovery and – at some point – over ($100mn) of realized losses will be booked. The damage, though, has been done. As noted, the exposure has been all but written off and no income is being produced.
Now that we’ve heard IIQ 2021 results, multiple BDCs have reported that American Teleconferencing Services (AFS) and parent Premiere Global Services Inc. (dba PGi) have defaulted on a tranche of their debt: one that matures 6/8/2023. We’ve written about AFS before, warning that a default was likely back on June 4, 2021. A second lien loan to PGi that matures in 2024 has been non performing for several quarters.
As many as 8 BDCs – both public and non traded are involved with the two related borrowers with a total cost of $135mn. At this point, the $13mn in the second lien debt – all held by Oxford Square (OXSQ) has been written down by as much as (98%). Odds of recovery seem low. The remainder of the debt is first lien – mostly in the 6/8/2023 debt. The discounts applied by different BDCs in the same tranche vary widely: from (14%) to (56%). However, all the lenders involved increased their discount over the prior period, as per this data from Advantage Data.
Although PGi and AFS are clearly deteriorating, we’ve had no luck finding any direct discussion of the subject by the BDCs involved or in the public record. In the interim, though, we’ve downgraded AFS to CCR 5 from CCR 4 (PGi was already CCR 5).
We’ll be posting again when we find a credible update about what is happening at AFS/PGi.
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.
We’ve written about American Teleconferencing Services before: back on August 21, 2020 when we provided a IIQ 2020 update. The company has been troubled since IVQ 2018 and is rated “speculative” by Moody’s. From a BDC perspective this is a “Major” underperformer because aggregate exposure at cost is over $100mn and involves no less than 7 BDCs. We have rated the company CCR 4.
Now Capital Southwest (CSWC) – one of the seven – has published IVQ 2020 results. No word on its conference call about American Teleconferencing. However, the BDC Credit Reporter notes that CSWC has increased its discount on the first lien and second lien held to record levels. The former debt – which matures in 2023 – is discounted -45% and the latter -60%. In the prior quarter, CSWC’s discounts were -33% and -48%.
This does not bode well for the company, or CSWC or the other BDC lenders who have yet to report. We did undertake a public search to get some color but found nothing recently. The downward trend is undeniable, though, and keeps the company rated CCR 4 on our five level scale. We don’t where CSWC rates the investment. Some $8.2mn of annual investment income is involved.
Now that IIQ 2020 BDC results have been released, we can confirm that American Teleconferencing Services – a wholly owned subsidiary of communications company Premiere Global Services – remains rated CCR 4. We’re guided mostly by the latest valuations from multiple BDCs with first lien and second lien exposure. The former is discounted by wildly varying percentages : (6%) to (35%). The latter has been nearly cut by half in value. Moody’s has given the company a Caa2 rating as recently as August . The ratings group had this to say:
“The debt restructuring in October 2019, surge in audioconferencing volumes and virtual events during the pandemic and sponsor’s equity contributions have improved the liquidity position but it is uncertain how the business will perform when the crisis abates. The rating additionally considers execution risks in plans to cross-sell services and operate under shared services agreements with TPx Communications, which was acquired in February 2020 by affiliates of Siris Capital, which also owns the parent company of American Teleconferencing Services.”
There does not seem any reason to add the company to the Weakest Links list yet but the business has some considerable way to go before lenders are out of the woods in what is a Major position in aggregate: $109.4mn at cost and $88.8mn at FMV. Most at risk – but with modest exposure – is Capital Southwest (CSWC) with $2.1mn in the second lien, which is valued at $1.1mn. The outlook is favorable in the short run, as Moody’s suggests but the company will need monitoring.