“New Trident Holdcorp. Inc., is a 100% owned financing subsidiary of Trident Holding Company, LLC. Trident Holding Company LLC, through its principal operating subsidiary TridentUSA Health Services, provides outsourced ancillary healthcare and clinical services. These include mobile x-ray, ultrasound, teleradiology, mobile clinical and laboratory services to skilled nursing facilities, assisted living, home healthcare, hospice and correctional markets. Trident Holding Company LLC is owned by private equity sponsors Formation Capital, Audax Group, and RevelstokeCapital Partners”. From Moody’s.
New Trident Holdcorp, Inc. was formed by Formation Capital and Audax (FundIV and affiliates) to acquire TridentUSA Health Services, LLC, a nationwide vertically-integrated provider of bedside diagnostics services, offering mobile x-ray, ultrasound, teleradiology and laboratory services to skilled nursing home, assisted living, home healthcare, hospice and correctional markets. In addition, through Life Choice Hospice, it provides hospice services specifically to skilled nursing facilities.
BDC Credit Reporter View
The BDC Reporter can’t tell from the publicly available information what exactly is happening to the Company and its subsidiaries. The August 2018 Caa3 affirmation with a negative outlook was discouraging. The most telling item is that the various tranches of debt held by 5 BDCs keep on getting written down in value. As of September 2018, the discount vary from 90% to 20%, and the second lien debt appears to have been on non accrual for several quarters. As the song goes “something goes to give” and given the number of BDCs involved and the amounts outstanding (including over $132mn in junior debt tranches) the potential write-offs – not to mention interruption of income – could be substantial. We will continue to monitor and seek out better information. In the interim: worry.
IIQ 2018: Based on valuations, the Company appears to be performing worse. The Holdings second lien debt due in 2020 is marked as being on non accrual at Ares Capital (ARCC) and performing at Gladstone Capital (GLAD), even though the latter has written down the value to zero. The first lien debt – held by PennantPark Floating (PFLT) is still performing but has been discounted by 20% versus 12% at the end of the IQ 2018. There are 5 BDCs with exposure. Besides the BDCs listed above, Solar Senior (SUNS) and CM Finance (CMFN) also have exposure, but to the wholly owned subsidiary Trident USA. ( OakTree Strategic Income (OCSI) sold off its position in the quarter). Values there dropped in the IIIQ 2018 too.
4/26/2018: Trident USA Health Services was restructured in the IVQ 2017, according to one of its lenders, CM Finance. Second lien debt appears to have been recast into two tranches: A and B, due in 2020. Based on CMFN’s IVQ 2017 valuations, the B Tranche is superior to the A tranche. Both are priced at LIBOR + 9.50%. In addition CMFN has shares in Trident USA Health Services ,LLC – Holdco, with no cost but a value of $823,695 that first appeared in the final quarter of 2017. Solar Senior Capital has a First Lien position in Trident USA Health Services, which is performing, but marked at a (15%) discount and matures in 2019 and bears a lower rate.
Four BDCs are invested in New Trident Holdcorp with aggregate exposure of $118mn. Ares Capital (ARCC) and PennantPark Floating Rate (PFLT) have $24.6mn in Senior Secured debt, which is performing and marked at par to a discount of (10%). Then there is second lien debt held by ARCC, Gladstone Capital (GLAD) and Oaktree Strategic Income (OCSI), with an aggregate cost of $84.2, mostly by the first two BDCs. According to Advantage Data ARCC and OCSI have the second lien as non-performing but GLAD does not. Finally there is a Subordinated Note for $8.9mn held by ARCC which has no value, and is on non accrual. (OCSI sold almost all its $13.3mn position in the first lien debt of New Trident Holdcorp in the IVQ 2017, resulting in a Realized Loss of close to ($4.4mn).
We have not been able to find any more recent information, besides the BDC comments and valuations for the IVQ 2017 results, since the Moody’s downgrade of New Trident Holdcorp to Caa3 in November 2017. Here’s most of what the ratings group wrote:
The downgrade primarily reflects the company’s severe liquidity situation, the very high refinancing risk, and increased leverage beyond Moody’s previous expectations. The company has funded cash outflows with borrowings under its $70 million revolving credit facility. As of September 30, 2017, the company had fully drawn its revolving facility and will need to tap new sources of liquidity in order to maintain operations. The cash outflows are a result of weak earnings as well as a build up in accounts receivables following difficulty converting to a different billing system. New Trident’s leverage has increased beyond Moody’s previous expectations and its adjusted debt/EBITDA leverage is currently in excess of nine times. The company’s total net leverage ratio now exceeds 7.5x — the maximum level permitted within the leverage covenant in its bank credit facilities. This will become a breach under the facilities following the cure period which ends on November 29th. Given New Trident’s operating difficulties and near term debt maturities, Moody’s expects the company to restructure its borrowings in the next 3-6 months. This may well involve a transaction which Moody’s deems a distressed exchange, and hence a default.