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BDC Portfolio Company Sold: Impact on Five BDCs

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There has been a great deal of M&A activity in the leveraged loan markets of late. BDC portfolio companies have been both buyers and sellers. Notably, on July 9, 2019 a press release indicated that Memphis-based Sedgwick will be buying York Risk Services Corp, subject to regulatory approval. Terms were not given. York is a portfolio company for 5 BDCs: 1 public and 4 non-traded. The public BDC with exposure is New Mountain Finance (NMFC) which has $3.0mn in par value subordinated debt that was valued at a (18%) discount or $2.46mn at March 31, 2019 and was yielding 8.5%. That should provide the BDC with a modest increase in book value, probably reflected in the IIQ 2019 results. The other BDCs are FS Investment II through IV as well as Blackstone/GSO Secured Lending with both senior and subordinated positions that date back several years. Total exposure, including NMFC, is $96mn at cost. The 3 FS Investment funds – all of which will shortly be combined and go public – will be the biggest beneficiaries because – like NMFC – some of their exposure is in the subordinated debt which has been written down on an unrealized basis. Of course, all the above is subject to the transaction going through, which is likely to occur in the second half of 2019.

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