Product Quest Manufacturing, LLC

About

Product Quest Manufacturing, LLC manufactures over-the-counter health and beauty care products on a contract basis. Its services include research and development, production, designing and packaging, warehousing, fulfillment, and sales and marketing. The company offers drugs in the nasal and ear care categories, as well as beauty products, including skin lotions, cosmetics, and shampoos. It also markets and sells Scherer Labs branded healthcare products in the United States and internationally. Product Quest Manufacturing, LLC was founded in 1996.  [From Bloomberg]

BDC Credit Reporter View

9/7/2018:  The only BDC with exposure to Product Quest, which has been facing a major product recall and other challenges, is Carlyle’s TCG BDC, with $34mn in two separate first lien loans. Until June 2017 CGBD had one Term Loan with a principal value of $33mn and carried at a discount of only 5%. However, from the IIIQ 2017, the Term Loan went on non-accrual and was written down by another 25%. Also, the BDC funded a new, shorter term loan which has increased to $4.0mn as of June 2018, but was still carried as performing. We do not know the status of the newer Term Loan which was carried at fair market value. In total CGBD has $36.3mn invested in Product Quest and a FMV of $14.0mn before the Chapter 11 announcement. We note that the $33mn Term Loan has a “last out” arrangement with other parties which increases the likelihood of loss.

If the smaller Term Loan is placed on non-accrual, CGBD will cease accruing annualized income of $400,000 a year, or $100,000 a quarter. Given the extent of the product recall problems the company faces – which have recently expanded in scope – and the last out structure, the entire $33mn Term Loan may get written off and – potentially – a portion of the newer $4mn facility. On a book value per share basis the full write off of the Term Loan would reduce book value by $0.16 from $17.93, a less than 1% hit. Total Realized Losses – if the entire $33mn loan is written off – will increase by 79% grom $41.9mn to $74.9mn, or 6% of total equity capital raised.

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