Posts for Flat Rock Global

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.

Broder Bros: Layoffs Announced

We learn from a list of layoffs in the Fresno area that Broder Bros (aka Alphabroder) had to let 253 people go due to Covid-19 closures. Another major shipping location in Pennsylvania has also been shut down since March. This is happening only a few weeks after the company was the target of a hacker ransomware attack and was forced to pay up. More fundamentally, the huge promotional products company must be facing sales and profits challenges in this period with most of its corporate clients closed down, and their own fulfillment centers shuttered. Out of an abundance of caution – that again – we are moving the BDC-financed company to the Underperforming list with a Corporate Credit Rating of 3.

This is a Major exposure for the BDC sector with $201.9mn invested at cost – all in the company’s 2022 Term Loan. The BDCs involved are headed by Prospect Capital (PSEC) with $172.8mn at cost; followed at a great distance by PennantPark Investment (PNNT) with $27.1mn. Non-traded Flat Rock Global has a minimal $1.9mn stake. There’s about $20mn of annual investment income at play here. To date, the debt has been valued at par through IVQ 2019 and interest has been paid on time. It goes without saying that an ultimate downgrade to non–performing would be disastrous for PSEC. Broder Bros is the BDC’s 4th largest single position in a portfolio filled with large exposures.

This is a private company, owned for years by LittleJohn & Co and public information is hard to find. PSEC has been lending to the company since 2013 but has not mentioned Broder by name throughout that time. PNNT has one reference in its conference call transcripts – back in 2016. Nonetheless, given the size of the exposure to PSEC (12% of the BDC’s market capitalization as of time of writing), this company’s progress is worth watching.