Artera Services: Default Concerns Increase

10/6/2022: We were reminded about Artera Services by a Twitter post today speculating as to whether there might be an inter-creditor fight coming up:

Twitter - October 6, 2022

Maybe there will and maybe not. What we do know is that two of the three BDC lenders to the company suddenly discounted their first lien debt exposure - previously carried close to cost - by (20%) in the IIQ 2022. As a result, we rated Artera CCR 3, but a move to CCR 4 - or worse - may be coming.

We had a look at the not very reassuring words of Moody's back in August upon downgrading the company and its different debt agreements. Here is an extract lifted from Moody's publicly available review:

"Liquidity is deteriorating, as its revolver will mature in March 2023, and working capital needs are typically high for project rollouts in the first half of the year. The likelihood of a financial restructuring is increasing given the large amount of debt and lack of free cash flow generation," says Jiming Zou, Moody's Vice President and lead analyst for Artera"

BDC exposure totals $13.7mn at cost, but we're mostly concerned with the only public player - New Mountain Finance (NMFC), whose JV has invested $5.3mn in the company's first lien 2025 debt, and has now booked a ($1.1mn) unrealized loss. This was underwritten as a relatively "safe" loan given the pricing profile - LIBOR + 350 basis points.

Thankfully for NMFC, the debt and income at risk is modest. Moreover, the senior status of the obligation means any prospective final loss should not be very needle moving for the BDC and its shareholders. Nonetheless, we'll continue to track developments.

By the way, here's what Artera does, according to Pitchbook:

Provider of outsourced services for the maintenance, repair and installation of electric and natural gas infrastructure. The company repair for natural gas and electric transmission and distribution infrastructure, underground construction and drilling services, enabling utility customers to expand, improve and repair their infrastructure to better meet the demands for energy.