Posts for Great Elm Corp.

Avanti Communications: IVQ 2020 Update

We’ve just heard from Great Elm (GECC) regarding its IVQ and full year 2020 results. This includes an update on the BDC’s valuation of its largest investment : Avanti Communications. According to the BDC, the values attached were depressed by the then-uncertainties regarding the refinancing of the satellite company’s debt, which has been subsequently extended for a year. The total investment in debt and equity by GECC is now $105.6mn and the FMV $29.3mn. This compares to $103.0 at cost in the prior quarter and FMV of $39.3mn. That’s a (25%) decrease in the FMV of the BDC’s investment in the IVQ 2020.

The BDC Credit Reporter continues to believe that a complete loss is possible where Avanti is concerned, and that’s increasingly reflected in the valuation. All the debt instruments the BDC holds are accruing interest on a non-cash basis while the other BDC with exposure – BlackRock TCP Capital (TCPC) – has its loans showing as non performing. Effectively, despite $118mn invested at cost between the two BDCs – of which $62.4mn is in the form of debt – no cash income is being received already.

We maintain our CCR 5 rating and have Avanti on our Trending List. Next quarter we expect to see the total amount invested increase due to the previously mentioned refinancing. GECC will be adding $3.7mn to one of the debt facilities – as disclosed in its 10-K. TCPC may also invest further funds, but on a smaller scale. The valuation may increase as a result of the refinancing achieved but that will not necessarily continue in future quarters. We will revert back when the IQ 2021 results come out for GECC and TCPC or if something new transpires at Avanti.

Aptim Corp: S&P Global Ratings Update

According to a news report, S&P Global Ratings is feeling a little better about Aptim Corporation, an environmental consulting and remediation company. APTIM Corp. was “affirmed” on Feb. 11 2021 at CCC+ and its outlook revised to “stable” from “negative”. Apparently some receivables that had been of questionable collectibility have come in, improving liquidity.

The CCC+ rating on the company’s $515 million of 7.75% senior secured notes due 2025 was affirmed as well.S&P Global Ratings believes Aptim’s balance sheet cash will be sufficient to handle fixed charges over the next 12 months“. However, as you can see by the speculative rating, Aptim is hardly free and clear of trouble as leverage is high, operating profitability poor and the company’s capital structure as “unsustainable”.

Nonetheless, these developments – and the modestly positive signal from S&P – might result in shrinking the discount on the value of the 2025 debt – with a cost of $30.5mn and a IIIQ 2020 discount that ranges between -37% and -48%. We note that Main Street (MAIN); Great Elm (GECC); FS KKR Capital II (FSKR) and non-traded HMS Income all hold the same debt but their valuations differ. In fact, FSKR even carries the debt as non-performing.

The -$13mn in unrealized losses might shrink either in the IVQ 2020 valuation or in the IQ 2021 based on the improving situation at Aptim. We have rated the company as underperforming since the IVQ 2018; and further downgraded the business to a CCR 5 when we first saw the FSKR non-accrual in the IIQ 2020.

The BDC Credit Reporter will circle back as the IVQ 2020 results come in from the BDCs involved and see what we’ll learn. We have no view as to the likelihood of an eventual loss but that “unsustainable” capital structure remains cause for concern, especially as the BDC debt outstanding is in junior debt capital. Still, in the short term values might be going up rather than going down or getting written off.

UPDATE: We have added Aptim to our Alerts list of companies whose value is expected to materially change in the next 1-2 quarters.

Avanti Communications: New Financing Arranged

On January 20, 2021 we wrote that Avanti Communications was in “financial difficulty”, based on a news report. The satellite launcher and operator has a huge debt load and a bond deadline was looming. We’ve now learned that today – February 8, 2021 – the $145 million debt (Super Senior Facility/SSF) needed to be refinanced or extended.

Apparently, the existing lenders have blinked and offered a one year extension. Here’s what “Advanced Television” – a trade publication – had to say:

In a statement on February 8th, Avanti said: “Today the Company announces that it has agreed on the headline terms of an amendment and extension of the SSF to 31 January 2022 (the “A&E Transaction”). When completed, the A&E Transaction will provide a material maturity extension of the SSF combined with a new capital injection of $30 million provided by the Company’s existing junior lenders, enabling the Company to execute on its growth plan including the closing of its exciting pipeline of significant contracts.”Avanti added: “In order to provide time to finalise (i) requisite consent processes and (ii) definitive long form documentation, the Company has agreed a short-term extension of the maturity of the SSF from 8 February 2021 to 15 February 2021“.

This news suggests that Avanti will live to fight another day but that Great Elm (GECC) and BlackRock TCP Capital (TCPC) – both of whom are junior lenders – will be anteing up more capital. Currently – using data through September 30, 2020 – the two BDCs have advanced $115mn.

There’s no change to our CCR 5 rating for Avanti (TCPC carries the debt as non performing but GECC as performing – a subject unto itself). We will learn more about both BDCs exposure to Avanti either when IVQ 2020 results are discussed. Or, if the BDCs are being coy, when IQ 2021 results are updated as this new capital seems likely to be advanced in the current quarter.

Avanti Communications: In Financial Difficulty

Space IntelReport – basing itself off a company press release – indicates satellite operator Avanti Communications may be in a “spot of bother” as the British say in their understated way. Here is everything we learned from the trade publication, and which we were not able to duplicate elsewhere:

[Avanti] is back on a cliff edge and facing a British Chapter 11-type restructuring as a bond payment deadline approaches that would trigger a broader default. Avanti said it was in “advanced discussions with a financing source” to cover the debt payment, due Feb. 8, but a recent change in Britain’s bankruptcy code could make a Chapter 11-type filing more appealing than a refinancing on onerous terms“.

BDC exposure to Avanti is “Major”, i.e. over $100mn, or $115mn to be exact as of September 30, 2020. Of that $103mn at cost is held by Great Elm (GECC) and the $12mn remainder by BlackRock TCP Capital (TCPC). At fair market value GECC has $39mn, split between debt and equity and TCPC $5mn. The latter BDC has some of its debt carried as non accrual but GECC does not. All GECC’s debt is paid is kind at rates that range from 9.5% and 12.0%.

We’ve written about Avanti both at the BDC Credit Reporter and at the BDC Reporter for years, ever since Great Elm contributed its position when taking over Full Circle Capital and changing the BDC’s ownership. The company has faced many financial challenges and has been restructured before, leaving the business hugely leveraged. This last challenge could be the proverbial straw but we have no way of really knowing.

If a British bankruptcy should occur, though, a day of reckoning might be here for the bulk of the GECC and TCPC exposure. Just over $100mn of the $115mn invested is in second lien and equity and is very unlikely to have any value. Even the roughly $15mn in “senior debt” might be subject to a haircut. This could prove the biggest BDC portfolio company mishap of 2021 so fat, admittedly only three weeks in.

Far and away most at risk is GECC, despite regularly writing down its position over the years. At cost Avanti represents 38% of GECC’s portfolio assets and a less overpowering 16% at FMV. Also importantly, Avanti seems to represent 17% of investment income, which is the equivalent of 50% of the BDC’s latest Net Investment Income.

the company continues to grow revenue and EBITDA and unleveraged free cash flow. And we are pleased with that progress. We expect them to continue upon that trajectory and are hopeful that the continuation of that trajectory leads to a good result for our investment in the company and ultimately, a successful exit for our investment in the company“.

California Pizza Kitchen: Reaches Agreement With Lenders

According to multiple reports, California Pizza Kitchen (“CPK”) – in Chapter 11 bankruptcy – has reached an agreement in principle in late September 2020 with its first lien lenders and unsecured creditors. That should shortly allow the restaurant chain – already making operational plans for post-bankruptcy operations – to make an exit shortly from the court’s protection.

With a bit of luck CPK should exit bankruptcy in the IVQ 2020 and we’ll get a clear picture of which of the now 6 BDC lenders involved ended up where. Total outstandings from the BDC lenders is $49.5mn in IIQ 2020, slightly higher than in the IQ 2020. (BTW, Prospect Flexible Income appears to be no longer a lender). We already know, though, that this will prove to have been a misstep for all the BDCs involved.

Boardriders Inc.: Restructured

We hear from S&P that Boardriders Inc. has recently been significantly restructured by its sponsor Oaktree and with the support of some of its lenders and other parties:

“S&P noted that Boardrider recently issued $155 million of new money debt, including:

  • $65 million contributed by Boardriders’ financial sponsor owner, Oaktree, consisting of a $45 million initial term loan and a $20 million delayed draw term loan (currently undrawn);
  • $45 million contributed by other existing lenders; and
  • $45 million via a facility backed by a European government.

The transaction provides needed liquidity and fund an operational turnaround

S&P considers the new debt “distressed” and has lowered its rating to SD or Selective Default, but may raise it back to CCC shortly. (This is part of the complex mechanics of rating groups). S&P is not optimistic about the medium term outlook given “[Boardriders] still-unsustainable debt leverage, high debt service commitments, and our view that the company will likely have difficulty generating consistently positive free cash flow before its next significant debt maturity in 2023].

Great Elm Corporation (GECC) remains the only BDC with exposure. What we don’t know is whether the BDC participated in the restructuring and advanced new monies or did not and became structurally subordinated to the new debt in what sounds like a controversial move by the principals. We are retaining the CCR 4 rating on the company that dates back to May and are not choosing to add Boardriders to the Weakest Links list as all the new cash will temporarily help liquidity and ensure debt service. Nonetheless, the outlook for GECC – one way or another – remains highly uncertain. The BDC has discounted its 2024 Term Loan position by (28%) at the end of June, but current market indicators shown by Advantage Data suggest – not surprisingly – that the discount might be (40%).

We’ll be checking the IIIQ 2020 GECC results to learn more about how the BDC acted when asked for more funds and what that has done to total exposure and valuation. In any case, this is a credit whose tribulations are likely to continue for some time to come so – unless GECC sells out its position – expect to hear more. Attached, though, are our prior two articles.

California Pizza Kitchen: Files Chapter 11

On July 30, 2020 California Pizza Kitchen (aka CPK) filed for Chapter 11, as part of a broad restructuring plan (RSA) agreed with its first lien lenders. As readers will expect by now, the RSA envisages a “debt for equity swap” and additional financing to get the restaurant company through this difficult period, presumably financed by some or all those same lenders that are in the existing financing. CPK hopes to be in and out of bankruptcy in 3 months.

The BDC Credit Reporter has written about the company on three prior occasions. Our most recent contribution followed learning that several BDC lenders had placed their debt outstanding to the business on non accrual, but not all. In any case, bankruptcy has seemed like a forgone conclusion for some time. As a result, the seven BDCs involved (6 of whom are publicly traded) will have to face the consequences of their $48.1mn invested in the debt of CPK.

Common sense suggests the second lien debt holders : Great Elm Corporation (GECC) and Capitala Finance (CPTA) will have to write off the $4.1mn and $4.9mn respectively held. The rest of the debt is in first lien debt (including a tranche held by GECC) and will mostly become non income producing, when swapped for common shares. We expect the BDCs involved will write off 80% or more of their positions, but we’ll gather more details shortly. As usual in these situations, total exposure may increase as some of the lenders fund their share of the additional capital. For the record, the other BDCs involved are Main Street (MAIN); Capital Southwest (CSWC); Monroe Capital (MRCC) and Oaktree Specialty Lending (OCSL) ; as well as non traded TP Flexible Income with a tiny position.

CPK is – arguably an example of a “Second Wave” credit default. Admittedly, the company was already underperforming before Covid-19 but would likely not have had to file Chapter 11 if the virus had not occurred. As recently as the IIQ 2019 GECC – in a case of ill timing – bought into the second lien at a (5%) discount to par. Going forward, a much de-leveraged CPK should have a decent chance of survival, and may even thrive in the long run. This might allow the BDCs involved to recoup some of their capital but it’s going to be a long slog.

Currently, the BDC Reporter has rated CPK CCR 5 – or non performing – which remains unchanged. We’ll re-rate the company when the RSA – or some other outcome – is finalized. By the way, this is the ninth BDC-financed company to file for bankruptcy – all Chapter 11 – in the month of July, keeping up the blistering pace set in June.

APTIM Corp.: Wins Federal Contract

A subsidiary of APTIM Corp – the engineering management company – has been awarded a $129mn Federal contract for Navy barge dismantlement, according to a June 10, 2020 report. This follows the recent addition of a new CEO at the troubled company whose debt trades at a severe discount. He joined April 20, 2020. Nonetheless, we note that the 2025 bond is trading 5% points up currently versus the end of the IQ 2020. At that point, the 4 BDCs with $30.9mn exposure to that debt had applied a FMV discount to cost of as much as (65%).

These are green shoots for APTIM, and make our last May 11, 2020 assessment of the company – which is on our Weakest Links list with a CCR 4 rating – possibly too harsh. For the moment we are not changing our corporate credit rating, but we are removing APTIM from the Weakest Links list.

Boardriders Inc: Downgraded By S&P

Bad news for Boardriders Inc., the apparel company. A few weeks after an earlier article by the BDC Credit Reporter triggered by a downgrade by Moody’s, here comes another ratings blow- from S&P. The company’s rating has been lowered to CCC+ from B. The outlook is Negative. What caught our attention was this remark: that Boardriders would “likely need additional liquidity to meet its obligations over the next 12 months; otherwise a default might become highly likely,

We had already downgraded the company in our database on May 11, 2020 to CCR 4 from CCR 3. Now we are also adding the company to our Weakest Links list, based on S&P’s comments and the still difficult market conditions. As before, the only BDC with exposure is Great Elm Corporation (GECC), whose $8.8mn invested at cost in the debt of the company was valued at $8.0mn as of March 31 2020.

California Pizza Kitchen: Second Lien Debt On Non Accrual

We’ve written about California Pizza Kitchen (or “CPK” to the world) on two prior occasions. Most recently, on April 23, 2020 we discussed the restaurant chain’s ambition to restructure its debt as both secular declines in its business which began some time ago and Covid-19 have made business conditions very difficult. Frankly, we were expecting a bankruptcy filing at any moment, but that has not happened. (That does not mean a Chapter 11 filing could not yet occur).

Now that IQ 2020 BDC results have been published we can see how the 6 different BDCs with exposure have valued their loans. We found that CPK’s first and second lien debt has been placed on non accrual by two of the BDCs and not by four others. Apparently, based on comments made by Monroe Capital Corp (MRCC) – which has not chosen to list the debt as non performing – there is a difference of views between the players. Also choosing to leave the debt on accrual is Main Street (MAIN); Great Elm (GECC) and TP Flexible Income. By contrast, CPTA Finance (CPTA) and Oaktree Specialty Lending (OCSL) have their debt positions marked as non-performing.

Total BDC exposure – spread over first and second lien term loans due in 2022- amounts to $43.3mn at cost. The debt is mostly discounted just under (50%) at FMV, but GECC does have a second lien position written down (78%), while CPTA has discounted its own debt in the same loan by (46%)…

The CPK example speaks to a wider phenomenon that’s always underway where BDC valuations are concerned: discrepancies both about what should be treated as a non accrual and fair value marks. However, the Covid-19 crisis has frequently accentuated the variations and over a much wider number of companies due to the greater degree of uncertainty. This makes taking any one valuation or accrual vs non accrual status too seriously until the credit markets settle down. That could take several quarters as the ratings groups are projecting credit troubles continuing at a heightened level through to 2021.

For our part, we have downgraded CPK from CCR 4 to CCR 5. (We tend to take the most conservative credit position). The company has been removed from the Weakest Links list of companies expected to default given that – as least in two cases – that has already happened. We still believe the chances of a bankruptcy filing are high given that full service restaurants will be challenged for some time and take-out cannot fully make up for business lost.

Update 6/2/2020: CSWC reported IQ 2020 results and placed CPK on non accrual but indicated on the conference call being impressed by management and multiple sources of income to mitigate Covid-19 impact.

ASP Chromaflo Intermediate Holdings: Downgraded To CCR 4

We don’t pretend to know what’s going on at ASP Chromaflo Intermediate Holdings, a chemicals company. However, we do have the latest valuation from the only BDC holder of the company’s traded 2024 second lien debt – Great Elm Corporation (GECC). At March 31, 2020 there was $12.1mn invested at cost, with a par value of $12.4mn and an FMV of $9.6mn. That’s a (20%) discount. However, the Advantage Data records on this syndicated loan indicate the market value has dropped since the end of the IQ 2020 and now the debt trades at 50 cents on the dollar.

We are downgrading the company from CCR 3 to CCR 4.

Aptim Corp: Valuation Drops

Great Elm Corporation (GECC) announced IQ 2020 results on May 11, 2020. This included an update on the valuation of Aptim Corp, which we’ve discussed before. GECC wrote down its position in the 2025 Term Loan by (58%). That’s in line with Main Street Capital’s (MAIN) own valuation of the same security. Currently, the discount is even greater at (65%).

Previously we’d rated the company as CCR 4, and added the debt to the Weakest Links list. We affirm both our earlier views following these latest disclosures, and suggest the final value of the 2025 debt – held by 4 BDCs overall at an aggregate cost of $30.9mn – might end up being nil. The other BDCs involved are non-listed FS Investment II and HMS Income, which is managed by MAIN.

California Pizza Kitchen: Seeks To Restructure Debt

When we last wrote about California Pizza Kitchen (“CPK”) in December of last year, we said the following about the company and the sector in which it operates: “We will say that we’ve been concerned about negative trends in the restaurant sector since late 2018. We’re not yet at the “apocalypse” phase attached to anything in the retail sector, but there are several secular trends …that even the best and the brightest restaurant chains are having trouble working through. When you’ve got debt to EBITDA levels of 7x or more – as is the case with CPK and many others – the room for maneuver before a restructuring becomes necessary is limited“. We rated CPK a Corporate Credit Rating of 3.

Of course, in the interim we have moved into an “apocalypse” phase for eateries. Not surprisingly, an already weakened and highly leveraged CPK is not faring well. According to the Wall Street Journal on April 23, 2020 , the company has hired restructuring firm Alvarez & Marsal Holdings LLC, along with Guggenheim Partners, to facilitate deal talks with its lender. On the other side the lenders have hired FTI Consulting Inc. and Gibson, Dunn & Crutcher LLP to represent them legally. Now we know – at least – that big fees are going to get paid out by the company…

The situation is very serious, with the two Term loans in which $48.2mn of BDC exposure is invested – one maturing in 2022 and the other in 2023 – are trading in the syndicated markets at discounts of (65%) and (85%) respectively. Not to beat about the bush, we project that a drastic restructuring or a Chapter 11 filing is imminent. We are downgrading CPK to a CCR 4 rating and adding them to our Weakest Link list of companies we expect to shortly move to non accrual.

For the 6 BDCs involved that will mean – if not already happening – an interruption of over $4mn of annual investment income and potential realized losses of ($30mn-$40mn). Unfortunately, the challenges facing eat-in restaurants are not going away any time soon and the delivery business cannot make up for the switch up in how customers feed themselves.

The biggest BDC exposure in dollar terms is that of Main Street Capital (MAIN), with $14mn in the first lien 2022 Term Loan. Capital Southwest (CSWC) and Monroe Capital (MRCC) are also holders of the 2022 loan. However, likely to take it most on the chin from a write-off standpoint are Capitala Finance (CPTA) with $4.9mn invested at cost and Great Elm Corporation (GECC) ($4.0mn) , which are both in the 2023 second lien debt. If past is prolog, the chances are high a complete write-off is in the cards for the 2023 Term Loan holders. (GECC also holds a position in the first lien). We expect some sort of debt for equity swap will be the ultimate resolution as CPK continues to have a viable – albeit shrunken business model. We’re getting ahead of ourselves, though, and will wait to hear how the dueling advisers hash out a plan for the restaurant chain.

Full House Resorts: Provides Business Update

What if you had a chain of casinos and nobody was allowed in ? You’d mothball them; stop building a new garage; temporarily let go of almost all your employees; cut senior manager salaries and look for virtual business opportunities. Anyway, that’s what Full House Resorts Inc. has been doing and has managed to reduce its monthly “burn” rate to $3mn and still has $21.4mn in cash to (slowly) spend. This was all laid out in a April 17, 2020 press release.

Even the lenders to the company seem to be patient: waivers of covenant defaults are being negotiated, both recent and prospective. That seems to be good news for the only BDC with exposure: Great Elm Corporation (GECC). The total cost invested in the Senior Notes of the company, due in 2024, is $9.7mn, which was valued at par at 12/31/2019.

We added Full House to the Underperformers list a few weeks ago just on the basis of the industry and the knowledge that every location would be closed. We began with a CCR 3 rating. Given the interruption of all business activity we’d have expected to downgrade this to a CCR 4 and ultimately to a CCR 5, i.e. non-performing. However, we’re leaving our rating unchanged based on this update, and we assume what cash the company does have is still servicing debt. With the casinos likely to re-open and virtual gambling on the cards (we couldn’t resist), the company may yet revert to performing status. Ironically, we’re even going to mark the credit trend as “Up” , something we’ve had no occasion to do in weeks, because of the apparent agreement with the casino chain’s lenders.

We’ll circle back when we hear more.

APTIM Corp: Lawsuits Filed Against Company-UPDATED

On February 13, 2020, we heard that APTIM Corp – an engineering services – company was “slapped” with two new lawsuits. The company is accused of not paying for the work of sub-contractors related to the clean-up after two recent hurricane disasters. The BDC Credit Reporter does not typically write an article every time a BDC portfolio company is sued because we would be posting constantly. However, this is a good opportunity to review our concerns about APTIM and its possible impact on the 5 BDCs involved. The public funds are Main Street Capital (MAIN) and Great Elm Corporation (GECC) and non-listed FS Investment III and IV and HMS Income Fund, which is managed by a MAIN subsidiary. Total exposure – all in the 6/1/2025 Term Loan – is $30.8mn at cost. The latest valuation was at September 30, 2019, and the FMV was just under $25mn. Income involved is approximately $2.7mn annually.

We’ve noticed that the value of the 2025 Term Loan has been declining. According to Advantage Data’s records, the debt was most recently discounted by (43%), suggesting the BDC values of last September will shortly be adjusted downward when year end 2019 results are published. Moreover, it’s worth remembering that the debt has been rated Caa2 by Moody’s since mid-2018.

At this stage we don’t have enough information to predict the company might file for Chapter 11 or restructure or default, but given the above context we would hardly be surprised. We will circle back – if need be – after MAIN reports on February 28, 2020. (GECC does not have an earnings release date yet).

UPDATE: (February 20, 2020) We’ve since heard S&P Global Ratings affirmed its CCC+ rating on the company, but revised its outlook to “Negative” from “Stable”. Seems to confirm that we were right to flag APTIM at this time.

UPDATE: New CEO appointed.

The 2025 Term Loan currently discounted (52%).

Boardriders Inc: Downgraded By Moody’s

Early in March 2020 , Moody’s downgraded Boardriders Inc. to “speculative grade” or Caa1 from B3. (S&P undertook similar actions). The problem ? Cash flow is expected to be negative in the short term and the company seems to be busting through a leverage covenant with its lenders. All that before we consider the impact of Covid-19 on the “sports and lifestyle” company’s business worldwide.

Boardriders exited from Chapter 11 in 2016, and was bought out by Oaktree Capital funds and went on an acquisition and expansion spree. That’s been going well, but not enough to avoid these financial troubles. Leverage is not high by the standards of the day, but timing is bad given what we know about the global impact on consumer spending from Covid-19 (unless you’re selling food and bringing it to the door).

Despite the obvious and mounting pressures on cash flow and leverage, the company’s 2024 Term Loan was still valued at par at year-end 2019. We rated the company – not knowing about the predicted covenant breach that may have actually happened in January – as CCR 2Performing. However, currently that same loan is valued at 77 cents on the dollars, from 93 cents earlier in 2020. We are downgrading Boardriders Inc. to CCR 3.

The only BDC with exposure is Great Elm (GECC), which has a $8.8mn at cost investment in the 2024 Term Loan, a position that has been growing over several quarters as the BDC adds more exposure. Whether that will turn out to be a Good Idea or not will become clearer in the next few months as we determine if the company can fix its balance sheet and work out how much sales and operations have been impacted by Covid-19. We can readily envisage a scenario where we downgrade the company further to CCR 4 – i.e. expect a loss to ultimately occur. On the plus side, though, Boardriders sold off a subsidiary this month, but we don’t know the financial impact. Finally, Oaktree Capital has the resources to support the business, but will the PE owner step forward ?

Tensar Corp: Added To Under Performers

On March 25, 2020, we added Tensar Corp. – previously rated as performing and CCR 2 – as under-performing and CCR 3, our Watch List. The global engineering’ company’s downgrade was due principally to what has happened to the value of its 2021 Term Loan, which has been discounted by (30%) in the market and a 2022 Term Loan which is off by (40%). Otherwise, we have very little new information about the company except that its plant in Wuhan (!) has recently reopened after being closed because of you-know-what.

There are 4 BDCs with exposure that totals $49.8mn and all in the 2021 Term Loan. The larger exposure is publicly traded Pennant Park Floating Rate (PFLT) with $22.5mn. Also a lender is Great Elm (GECC), which has been adding to its position of late, and non-traded Sierra Income and Cion Investment. At year end 2019, the debt was only modestly discounted by the BDCs involved. In years past Tensar had some difficulties and had a speculative rating from Moody’s but since IVQ 2016 has been valued closer to par and given a B- rating by S&P.

Frankly, we understand very little about the company’s most recent performance and how much Covid-19 has affected its business, although its website admits management is taking all precautions. Apparently, all the company’s factories are open but that does not tell us much. The drop in the debt value – which only accelerated in the last few days – might be a knee-jerk market reaction, or something else. We’re not ready yet to assume a realized loss will occur down the road, but we’ll be looking out for news from the company, the press or the rating groups. At the moment, though, we expect this credit will return to performing status when the world gets back to work, but you never know in these unprecedented conditions for leveraged companies.

Finastra Group Holdings: Added To Under Performers

We’ve added Finastra Group Holdings, Ltd – a UK based financial technology company – to the BDC Credit Reporter’s Under Performer list. That’s because the company was hard hit by hackers a few days ago, with as-yet unclear financial consequences. Moreover, the company’s traded 2024 Term Loan appears to be trading at a (20%) discount. That triggers our standard for placing the company on the under performers list with a Corporate Credit Rating of 3 on our 5 point scale.

There are two BDCs with $28.2mn of exposure. First, there is Barings BDC (BBDC), which has been invested in that previously mentioned 2024 Term Loan (which only pays L + 350 bps) since IIIQ 2018. BBDC has $14.8mn at risk and valued its position very close to par at 12/31/2019.

More recently -in the IVQ 2019 – Great Elm (GECC) invested in the company’s higher paying second lien debt. According to Advantage Data records, the BDC has $13.4mn invested and offered up a year end 2019 valuation at a slight premium. We have no data on what the value of the second lien debt might be but if the first lien is discounted (20%), we’re assuming – very conservatively a (40%) discount.

Longer term, we’re not terribly worried about Finastra from what we know about the “world’s third largest financial technology company”, which is sponsored by deep-pocketed Vista Equity Partners and is not directly in the Covid-19 line of fire. Nonetheless, when IQ 2020 BDC results come out – and possibly in a couple of quarters to follow – we might see the BDC loans materially discounted.

Commercial Barge Line: To Exit Chapter 11

Not very long ago in calendar days, we wrote about Commercial Barge Line’s pre-agreed Chapter 11 filing. Now, about a month later, we can report that the company is poised to exit from court protection. As we knew from the outset, a debt-for-equity swap will see lenders become owners. In addition, a rights offering and new debt facilities are planned for the barge company. A law firm involved in what seems like a successful restructuring says the company will be operating normally – much to the relief of its 2,100 employees as early as April.

We won’t delve too much into the details of the new arrangement because BDC exposure to the company will be de minimis to non existent going forward. We found out today that the biggest of the two BDC lenders with exposure – Great Elm (GECC) – sold out of its $15.9mn secured Term Loan earlier in the first quarter 2020. GECC was not interested in owning a non-income producing stake in a restructured company, and took its lumps. According to GECC, the BDC received 34 cents of par or $5.4mn. At year end 2019 the position was valued at $8.0mn, so GECC will be booking an additional ($2.6mn) loss. Overall, the realized loss will amount to ($8.9mn) for GECC.

Looking at GECC’s investment history on Advantage Data we see that the opportunistically minded BDC had been invested in Commercial Barge Line debt since 2017 and was increasing its exposure as late as IVQ 2018.

That leaves a question mark as to the only other BDC with exposure: FS-KKR Capital (FSK), inherited from Corporate Capital Trust, which also began lending in 2017. As of year end 2019, FSK’s debt – in the same facility as GECC- had a cost of $4.2mn and was worth about $1.5mn, down from $2.2mn at year end. We don’t know if FSK is going to hang in there as an equity holder, but given the small amounts involved relative to the BDC’s size and the absence of any income, this company is likely to become too small to be material in our database, and be removed from our active under performers list.