Good news for Travelport Worldwide and subsidiary Travelport Finance (Luxembourg) SARL. Both were upgraded on October 2, 2020 by S&P to CCC+, after completing a debt restructuring and exchange. As we’ve reported previously – and all over the financial press – Travelport was previously up in arms against its lenders and much huffing and puffing by lawyers on both sides was previously going on. That’s behind us now since a September 17 agreement where the company – and its sponsor Elliott Management – agreed not to spin off intellectual property rights and lenders agreed to advance more monies, and not call a default. Importantly – because all BDC exposure is concentrated therein – the company’s 2026 Term Loan has been given a rating of CCC-, up from D.
By no means is the business of the company – tied to the much suffering global travel and tourism industries – out of the woods yet. Liquidity has been bolstered by the restructuring and the immediate threat of lender foreclosure has passed but S&P is making forecasts about revenue levels and profits in the rest of 2020 and 2021 that must – under current conditions – be not much more than glorified guesses.
Nonetheless, the BDC Reporter is upgrading GSO Blackstone’s position to CCR 3 from CCR 4 , which is good news for the non-traded BDC which had written down its nearly $100mn debt by nearly ($30mn). Some positive reversal is likely in the IIIQ 2020. Likewise Garrison Capital (GARS) – which had placed its $2.6mn in the 2026 debt on non accrual and taken a (34%) haircut as of June – will be able to return the debt to accrual status. We’ve also removed Travelport from our Weakest Links category, as the prospect of a default now recedes, albeit after being very close to being forced into bankruptcy and a contentious dispute between the parties.
The BDC Credit Reporter, though, is not done with Travelport. We expect that we’ll be revisiting the status of the company and the substantial exposure (by Blackstone/GSO at least) for some time to come. After all, there are still 6 years left on the loan and S&P is only granting the position one of its weakest ratings. Over at Moody’s, which also adjusted its ratings on September 28, 2020, the view is that they “continue to perceive Travelport’s capital structure as unsustainable due to the continued operating performance weakness and the overall uncertainties around the extent of recovery“. Maybe a CCR 3 rating is too generous…
The Wall Street Journal reports the lenders to Travelport Worldwide Inc. are close to a deal with the company and sponsor Elliott Management wherein the former would agree not to trigger a default under their debt agreements till September 15, 2020. Bankers and borrower are arguing about how the sponsor allegedly transferred assets that should have been maintained in the company to serve as collateral for another entity’s loan. The owners of Travelport Worldwide have argued that if a default occurs, the company would be forced into bankruptcy.
Very much involved – and worried- is one non-traded BDC : GSO-Blackstone which has $97.9mn invested at cost in the company’s first lien debt due in 2026. As of March 31, 2020, the debt was discounted (31%) to $67.9mn. Some ($6mn) of annual investment income is at risk of interruption if a default does occur.
The BDC Credit Reporter downgraded the company to CCR 4 from CCR 2 after the IQ 2020 results came out, and has added the name to the Weakest Links list, as a default still seems likely to these skeptical eyes. This one credit alone has increased the aggregate cost all Watch List assets by nearly a tenth.
There will be likely be many more twists and turns where Travelport Worldwide is concerned as all the parties are taking a hard line approach and there are billions of dollars at risk. We’ll check back when the next dramatic development occurs.
According to S&P Global Market Intelligence Moody’s has downgraded Electronics for Imaging’s corporate credit rating to Caa1, from B3, and changed the outlook to negative from stable. The ratings group “expects the company’s adjusted leverage and liquidity will fall short of forecasts through 2022 as the company’s revenue recovers from an expected significant decline in 2020“. Thankfully, liquidity is “adequate” for the time being, but the business is facing economic headwinds, a not uncommon challenge going forward. BTW, Electronics for Imaging provides digital imaging and print management solutions for commercial and enterprise printing.
First lien debt has been downgraded to B3, from B2 and second lien to Caa3, from Caa2. Both loans are trading at wide discounts to par. Five BDC lenders – with an aggregate of $95mn at cost – are invested in both, so it’s worth noting. The public BDCs involved are (in order of investment size) FS-KKR Capital (FSK); FS KKR Capital II (FSKR); Bain Capital Specialty Finance (BCSF) and Garrison Capital (GARS). Non-listed GSO-Blackstone also has a big position in the first lien debt.
We first placed the company on the underperformers list in the IQ 2020, when the debt was up to (17%). [Each BDC has very different values]. Our initial rating was CCR 3. However, this latest development is causing us to downgrade the company further to CCR 4. Given the dollars involved, there’s a lot of investment income in play: nearly $6.5mn. Thankfully, we’re not placing the company on our Weakest Links register. Yet.
Still, of the four dozen companies we’ve dealt with this week in the BDC Credit Reporter, this is the largest in terms of FMV: $84.1mn so bears watching closely. This seems to be an example of a business that we would characterize as being part of the “second wave” of troubled credits: performing well enough before Covid-19 wreaked havoc on its growth prospects. The company undertook a major acquisition last year. Even though the synergies promised from that transaction have largely been realized that has not been enough to keep the company’s prior B3 rating.
According to a news report, Moody’s Investors Service “revised Bass Pro Group, L.L.C’s outlook to stable from positive and affirmed the company’s Ba3 Corporate Family Rating, Ba3-PD Probability of Default rating and B1 senior secured rating“. The change was caused by “revenue and earnings weakness“. Please read the article for the key details.
We’re far from panicking based on what we’ve learned to date but have just added the Bass Pro Group to our under-performing list, with an initial CCR 3 rating (Watch List). BDC exposure is a modest $14.4mn, shared by three BDCs. Income at risk is just over $1.0mn annually.
We’ll be keeping close tabs on this credit – leveraged over 5x – going forward.