Posts for Crescent Capital BDC

Battery Solutions: Company Sold

Back in the day, Battery Solutions was an underperforming portfolio company of Alcentra, a BDC since acquired by Crescent Capital (CCAP). At its worst point, Alcentra/CCAP had nearly $5mn invested at cost in subordinated debt and preferred, the latter discounted by (78%). Even as recently as the IIIQ 2021, the preferred and debt were both discounted and rated CCR 3.

However, in the IVQ 2021 CCAP valued the preferred at a premium of 43% all of a sudden and the debt outstanding almost at par. We now know why: Battery Solutions has been sold to Retriev Technologies, according to the Lancaster Gazette. Terms were not disclosed, but we get the impression CCAP has booked itself a realized gain in the IQ 2021 of about $1.5mn above the $5.5mn invested at cost as of the IVQ 2021.

That’s a positive outcome for the Crescent organization, and for an investment that was first booked by the late Alcentra way back in 2014 and has suffered through plenty of ups and downs. We’ll be interested to see if CCAP is in any way involved in Retriev’s financing package or whether the investment is truly off the books. IQ 2022 results should tell the story.

Ansira Holdings/Ansira Partners: IIIQ 2021 Update

We understand very little about what’s happening at Ansira Holdings (aka Ansira Partners) except that the marketing services company seems to be underperforming. Most everything we’ve divined is from the valuations of 6 BDCs with exposure of $106mn at cost – all in a unitranche loan maturing in 2024, and discounted (18%) at fair value. As of September 2021, Crescent Capital (CCAP) is carrying the debt as non performing and has been since IQ 2020. Just over $0.6mn of annual investment income is being forgone by CCAP.

Confusingly, all the other BDCs – using a similar valuation discount – count their unitranche loan to Ansira as performing. Pricing on the debt is LIBOR + 6.50% with a 1.00% floor, or 7.50% in total. The valuation has been stable since the unitranche loan was minted in IIQ 2020.

It’s possible that CCAP is being more conservative than the other BDCs, or there are undisclosed “last out” arrangements involved, none of which show up in the BDC’s footnotes. Unfortunately, none of the public BDCs with exposure have provided any color on this credit so investors will have to contend with uncertainty.

We rate Ansira CCR 5, even if only one BDC has the debt as non performing. Given that we hear of new developments at the business and the valuation is stable, Ansira is not Trending. We’ll just wait and see what we hear from its lenders or from the public record.

BJ Services Company: IIIQ 2021 Update

Last time we wrote about oil field services company BJ Services Company, the business had just filed for Chapter 11, and without a pre-packaged plan. Subsequently – as we’ve gleaned from the public record – at least some of BJ’s assets were sold to other entities such as American Cementing. More recently, BJ’s former headquarter’s building was sold for $40mn.

Where does this leave the 4 BDCs previously with $25.2mn invested in the company’s unitranche debt when bankruptcy occurred ? As of September 30, 2021, total exposure at cost was down to $10.6mn and only Crescent Capital (CCAP) and Portman Ridge (PTMN) – who acquired the loan from now defunct Garrison Capital – are still involved. PTMN is carrying its modest $1.4mn position at par. The BDC has a “first out” status in the unitranche loan and that might explain the valuation and why the debt is carried as performing.

Over at CCAP – which has most of the exposure – one tranche of debt with a cost of $8.0mn is valued at $5.5mn, down (35%), just slightly off the prior quarter and the lowest value given since the bankruptcy occurred. The debt remains on non-accrual, and is a “last out” structure. (Confusingly, there’s also a $1.2mn senior loan from CCAP that is carried as current and valued at cost.)

We’re surmising – because neither PTMN or CCAP are explaining anything – that the BDCs are waiting for the asset sales to be complete to tot up their losses – if any – on BJ Services and close out these loans. With the sale of the HQ, we’d guess this process is almost complete and the BJ Services book will shortly be closed.

The only loss that will ensue – if we’re right – is a realized one by CCAP for ($2.5mn) or so, offset by receiving some proceeds to be re-invested. If that’s the case, CCAP will probably be mildly pleased as the BDC had nearly $13mn invested when BJ Services – seemingly out of the blue – filed for Chapter 11 back in 2020.

All this should be confirmed shortly, possibly when the IVQ 2021 results BDC results are published. For the moment, we’re retaining BJ Services as a CCR 5 – i.e. non performing – credit and Trending, because we expect something material to occur.

Isagenix Intl LLC: S&P Rates D

S&P is not happy that Isagenix Intl LLC has bought back $65mn of its $375mn term loan at a discount, and given the company a D rating. The discount was said to be substantial.

We know less than we’d like to: such as which term loan is involved and which lenders were involved ? Nonetheless, this is a reminder that 5 BDCs have $34.5mn in exposure to the company – all in the 2025 term loan. At year-end 2020, the positions were valued at discounts that ranged from (28%) to (45%).

Isagenix is rated CCR 4, and some $2.3mn of investment income is involved. We last wrote about the company on August 28, 2020 when the principals of the business injected new capital. At the time, we concluded: “Maybe this capital infusion will be what it takes to return Isagenix to the ranks of normal performance“. Based on the latest valuation discount that does not seem to have been the case and material losses – of both capital and income – seem likely.

We’ll learn more in the days and weeks ahead – and whether some BDCs have crystallized some or all of their losses. The BDC Credit Reporter will return to Isagenix once we have more information.

My Alarm Center: Files Chapter 11

You might have expected in this period of easy money and hot markets, that leveraged companies had become immune from failure. That’s not the case, as proven by My Alarm Center, LLC, which has just filed for Chapter 11 bankruptcy protection, as discussed in trade publication SecurityInfoWatch:

“In a statement provided to SecurityInfoWatch.com, My Alarm Center said that its lenders and other key stakeholder have agreed to support its reorganization plan, which provides for the elimination of approximately $235 million in legacy debt obligations, strengthens its financial structure and supports its long-term growth plans“. 

We won’t spend a great deal of time on the company’s restructuring plans because the three BDCs with exposure are all currently in the equity and preferred. Chances are high the $8.0mn invested at cost – and with an aggregate FMV of $0.4mn at year-end 2020 – will all be written off. The BDCs involved are Saratoga Investment (SAR); Crescent Capital (CCAP), which inherited the investment from Alcentra Capital, and OFS Capital (OFS). SAR has the biggest exposure at just under $5mn at cost, but a FMV of just $0.3mn. The BDC already booked a realized loss of ($7.7mn) back in 2017 when the company was previously restructured. At that point SAR – and others – fronted more capital, which is now likely to be lost as well.

We had already rated the company CCR 5 due to SAR carrying one of its preferred positions as non performing. The rating remains unchanged. We expect to see realized losses booked by the BDCs involved in the second or third quarter 2021, probably the former. From a fair market value standpoint, the impact on the BDCs will be minimal.

All in all, a sorry episode for all the BDCs involved and in an industry famous for its allegedly high, stable cash flows where companies are sold for multiples of revenue. However, technological change and competition have resulted in a number of setbacks in the alarm monitoring business. For the BDC sector a rare new bankruptcy in 2021.

Integro Parent Inc: Downgraded By Moody’s

Integro Parent Inc. (aka Tyser’s) is a London-based specialty insurance broker and has just seen its corporate credit rating and debt tranches downgraded by Moody’s. The outlook is “Negative”. Apparently, the pandemic has impacted business conditions in many markets, leaving the company in a classic highly leveraged state, with weak liquidity and cash flow. The company rating has been lowered to a speculative Caa1.

That was enough for the BDC Credit Reporter to add the company to our underperformers list – the first addition in some time – with an initial rating of CCR 3. There are two BDCs with material exposure up and down the company’s capital structure : New Mountain Finance (NMFC) and Crescent Capital (CCAP). Total exposure at cost was $48.5mn at year-end 2020, most of which is held by NMFC, as this table from Advantage Data shows:

Both BDCs are valuing both first and second lien debt at or above par. The first lien is priced at 6.75% and the second lien at 10.25%. (CCAP holds a non-material equity position as well). We have also added Integro to our Trending list because it’s possible that with the Moody’s downgrade, the BDCs involved might reduce the value of their positions in the upcoming IQ 2021 results. Just a 20% overall discount could reduce the FMV by ($10mn) or so. We’ll check back when we hear from CCAP and NMFC in the next few weeks.

Isagenix International, LLC: Capital Infusion By Owners

Did the cavalry arrive in the nick of time at Isagenix International LLC ? On almost the same day as Fitch Ratings suggested the company might default before year-end, a press release indicates the principals of the company have injected $35mn in new equity capital. Moreover – but with less specificity- we learn that the existing lenders to the troubled company “have reconfirmed their support for the business with an amendment to their credit agreement, which will give the company greater flexibility for growth“.

That’s just as well for the 6 BDCs with an aggregate of $35.6mn in first lien loans to the company. As of June 2020, the debt was being discounted by (60%) or more. The debt – priced at a moderate LIBOR + 575 bps – was poised to be added to the BDC Credit Reporter’s Weakest Links list. We’ll hold off for the moment. By the way, the principal debt holder amongst the BDCs involved is non-traded Cion Investment with $13.4mn at cost; followed by Crescent Capital (CCAP) with $6.3mn and then by sister funds Main Street Capital and HMS Income Fund, both with $5.7mn.

We will retain the current Corporate Credit Rating of 4 till further details are made available and we hear more about the financial performance of the closely-held weight loss company. Nonetheless, the news of the capital support must be a positive for everyone involved. Although we’re writing about Isagenix for the first time here, the company has been underperforming since the IIQ 2019, first with a CCR 3 rating and CCR 4 since IQ 2020. Maybe this capital infusion will be what it takes to return Isagenix to the ranks of normal performance.

BFC Solmetex LLC: Added To Underperformers

Privately-held filtration company BFC Solmetex LLC has been added to the BDC Credit Reporter’s underperforming list in the IIQ 2020 with a Corporate Credit Rating of 3.

Stellus Capital (SCM) – one of two BDCs with exposure alongside Crescent Capital (CCAP) – has discounted the 9/26/2023 first lien Term Loan to the company by (15%), from close to par in the prior period. No explanation was given. CCAP, which is involved in the same tranche, will probably follow suit when IIQ 2020 results are published. Total BDC exposure at cost is $21mn or so, and investment income involved about $1.8mn.

APC Automotive Technologies: Reorganization Confirmed

We first wrote about APC Automotive Technologies when the company first filed for Chapter 11 protection back on June 3, 2020. Relatively quickly – thanks to an agreement with its creditors – the company is exiting bankruptcy, having received court approval of their restructuring plan:

As part of the restructuring, the company has reduced the debt on its balance sheet by more than $290 million and secured a new $50 million senior secured term loan to finance its go-forward operations. The current management team, including Chief Executive Officer Tribby Warfield, will continue to lead the company forward and advance its strategic, operational, and growth transformation initiatives”. The Brake Report

At this stage we don’t know what role Cion investment and Crescent Capital (CCAP) will play in the restructured APC Automotive, if any. However, both BDCs are likely to be booking their losses in the IIIQ 2020.

We are upgrading the company from CCR 5 to CCR 3, and are awaiting further intelligence on the future business outlook.

BJ Services Company: Files Chapter 11

Reuters reports that oil field services company BJ Services Company has filed for Chapter 11 on July 20, 2020. The company reported assets and liabilities between $500mn and $1.0bn. Right away, management will be seeking to sell core assets – such as its cementing business – to pay down its debts. Not helping the situation for BJ Services is an admitted “cash crunch”.

Four BDCs have $25.3mn in exposure at cost in the company as of March 31, 2020: Crescent Capital (CCAP); Monroe Capital (MRCC); Garrison Capital (GARS) and non-traded Monroe Capital Income Plus. The BDCs were all in the same 2023 first lien term loan, and marked their positions at par or at a discount of only (4%). Given the industry which BJ operates in; the sizeable liabilities and the liquidity crisis, it seems unlikely that the current high valuation can be maintained in bankruptcy. However, we have no clear idea yet how this debt might fare once everything is settled. We can calculate, though, that ($1.8mn) of investment income on an annual basis will be suspended.

The BDC most at risk of loss is CCAP, which owns about half the outstandings and which is involved in a last out arrangement, which should result in a bigger eventual capital loss.

Frankly, the BDC Credit Reporter has been caught flat footed by BJ’s bankruptcy. The company was carried as performing (CCR 2) in our database because of the near-par valuation by all its lenders. In retrospect, the fact that a oil services firm like this one should stumble is no great surprise. In any case, we have leapfrogged the company’s rating down three levels to CCR 5, or non performing. We’ll be reverting with more details on how the bankruptcy might play out for the BDC lenders involved once we learn more about the company’s plans.

As a parting thought, we do wonder why any BDC would lend to an oil services company – even a giant one – given the well known wreckage of so many similar businesses since 2014. This debt was booked in 2019. Perhaps the recovery the BDC lenders will ultimately achieve will prove us wrong but – if past is prologue – expect that losses will be material and for a loan that was priced at a modest LIBOR + 7.00%.

ASP MCS Acquisition: Downgraded by S&P

On June 18, 2020 S&P downgraded ASP MCS Acquisition (dba Mortgage Contracting Services) to D from CCC, after the company failed to make a scheduled interest payment. Furthermore, the rating group grimly projects that the company is unlikely to make that payment within the allowed 5 day grace period, despite having the resources to do so. Also downgraded to D is the company’s 2024 Term Loan with a face value of $390mn.

This is all very bad – but not unexpected – news for the two BDCs with a total of $19.1mn at cost of exposure in that same 2024 Term Loan. The biggest exposure ($13.9mn) is held by non-traded Business Development Corporation of America and $5.2mn by publicly traded Crescent Capital (CCAP). Both BDCs had already greatly written down the value of their positions – by (61%) and (64%) respectively as of March 31, 2020.

The BDC Credit Reporter had already applied a CCR 4 credit rating to the company from IIQ 2019, and has been underperforming since the IIIQ 2018. However, we are now adding the company to our Weakest Links list given that non accrual seems to be inevitable. Just over $1.1mn of annual investment income will be suspended should that default occur.

We will circle back with an update shortly.

APC Automotive Technologies: Files Chapter 11.

On June 3, APC Automotive Technologies (“APC”) filed for Chapter 11 bankruptcy protection as part of a broad restructuring plan with its creditors. As the press release indicates the central component of the plan is reducing “APC’s outstanding indebtedness by approximately $290 million on a net basis, significantly strengthening the Company’s balance sheet and enhancing financial flexibility going forward.” In addition, the company has organized $50mn in Debtor-In-Possession (“DIP”) financing for what is expected to be a short period under court protection.

Frankly, the BDC Credit Reporter does not have much history with APC, which only showed up on BDCs books two quarters ago. At March 31, 2020 the largest BDC lender was non-traded Cion Investment, which had advanced $11.2mn in senior debt. With a much smaller position and in equity/preferred is newly public Crescent Capital (CCAP) with $1.8mn. Both BDCs had written down their investments: CCAP to zero and Cion to a FMV of $7.8mn. One of the two debt tranches Cion was involved in was already on non accrual as of the first quarter 2020.

This restructuring probably means i) the CCAP position will be written off. It’s a small stake and should have a material impact. ii) Cion is likely to be involved in the DIP and see its overall exposure increase. In terms of valuation, though, that will have to wait till the final exit from Chapter 11 when all the details are finalized. In the short term, all the existing debt is likely to become non-performing and all or some eventually written off. Cion will become an equity owner (we have to assume) and will be keeping the company on its books – in new forms – for some time to come.

We rate APC CCR 5 and – depending on the final structure of the company – will upgrade the company to CCR 3 when the bankruptcy is finalized. Otherwise this development is notable because APC is the second BDC to file Chapter 11 in June 2020 so far. We expect many more to come, and most to adopt the “debt to equity” format where lenders become owners and extend for an indefinite period (equity is called permanent capital for a reason) their investment relationship. If APC markedly recovers Cion may yet make back its losses. For CCAP, though, it may be too late.

Baymark Health Services Inc : Added To Under Performers

On March 14, 2020 we added opioid treatment company Baymark Health Services to the BDC Credit Reporter’s under-performers list, with an initial rating of CCR 3 on our five point scale.

We were motivated by five factors. First, the publicly traded 2025 Term Loan debt of the company dropped (8%) in value during the most recent market melt-down. Second, we noted that – after a 12 month period – the private equity owner of the fast growing chain of treatment centers “pulled” the company from being sold. Third, the BDC Credit Reporter is aware – and has written about – multiple other similar dependency treatment centers of late facing financial and operational difficulties. Fourth, the company has been growing very quickly of late – by merger and acquisition. Recently, a number of “roll-ups” in various sectors have gone wrong, raising a red flag to the BDC Credit Reporter where Baymark is concerned. Fifth, the industry is highly dependent on reimbursement by governmental authorities and insurance groups, whose track record for reliability has been unconvincing of late.

However, to be fair, the latest BDC valuation of that same 2025 Term Loan was at a slight premium to cost. That was by OFS Capital (OFS) – one of 3 BDCs with $12.9mn invested in aggregate, all in that same 2025 Term Loan. The other BDCs involved are non-traded Hancock Park and recent public BDC Crescent Capital (CCAP), which inherited the investment from Alcentra Capital, whose portfolio has been acquired. All the BDCs exposure dates back to early 2018. Investment income involved is $1.3mn.

To date, the term debt has been trouble-free, judging by the quarterly valuations. We are adding the company to our watch list (CCR 3) out an abundance of caution and remembering – if Alcentra’s disclosure back in the day when the loan was first booked – this is a second lien position. That seems to be confirmed by the pricing: LIBOR + 825 bps.

We admit that not everyone might agree that BayMark – owned by eminent PE group Webster Equity Partners – should even be on the under performers list. We leave to readers – having made our case herein – to make their own minds up.

Envocore Holding, LLC: Equity Written Down

Closely-held Envocore Holding, LLC – about which very little is known from the public record – saw its preferred stock written down by both of its BDC lenders: Alcentra Capital (ABDC) and OFS Capital (OFS). Moreover, on its March 12, 2019 Conference Call, ABDC explained that the unrealized loss was due to the company “missing earnings for a variety of reasons”. The lenders are said to be working closely with the sponsor and management. ABDC added Envocore to its recently established Watch List.

We have also added the company to the BDC company under-performer list as of the IVQ 2018, based on the equity write-down and that sliver of an update from ABDC and the sector in which the company operates (see below). Our rating is CCR 3, or Watch List. Total exposure at cost as of the end of 2018 is $37.1mn and consists of first lien debt, preferred and common, about equally divided. The potential income at risk is $4.2mn.

By the way: “Founded in 1991, Envocore Energy Solutions is the leading provider of custom energy (lighting & water) efficiency services to Energy Service Companies and utility clients. The Company acts as a sub-contractor to the Energy Service Companies and utility companies and will perform design, engineering and installation. The Company is based in Gambrills, MD“.