We wrote extensively about Borden Dairy when the milk giant filed for bankruptcy back in December 2019. At the time there were many unresolved items as management chose to proceed with a filing without the agreement of its lenders, so there was no tidy restructuring package pre-agreed to light the way forward. In the interim there has been much maneuvering between the stakeholders in and out of court, but still no exit plan is in place. Now the bondholders of the company and those of Dean Foods – also in Chapter 11 – want to merge the two companies. This is occurring even as Dean is well on its way to merging – in a $433mn deal – with a dairy co-operative. As the Wall Street Journal reports, there are anti-trust issues still plaguing that transaction.
So, the Borden and Dean bondholders are promising – sort of – to invest $1.0bn in new capital in this tie-up of two bankrupt companies. We’re not here to handicap the chances of Dean’s current deal falling apart and Borden having the chance to step up. We’re writing to point out that IF that should happen BDC exposure is likely to grow from its current $171mn level to an even higher number if FS KKR Capital (FSK) and FS Investment II are part of that $1.0bn new financing.
Obviously, the BDC lenders will argue that it’s not good money after bad, and will keep them from writing off even more if the Dean deal slips away. How much that might be is unknowable after months of no resolution. Neither the BDC Credit Reporter nor anyone else can really handicap those odds. We should learn relatively soon,though, if this “hail mary pass” from the Borden/Dean bond holders will change the narrative as the judge will – presumably – want to adjudicate on the original transaction before long. We’ll be getting back to readers when any kind of decision is made.