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Multiple BDCs: Portfolio Company Downgraded By Moody’s

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Frankly, the BDC Credit Reporter cannot keep up with the constant changes in the underperforming company landscape.

Although more than two hundred different companies have been updated in the database of BDC underperformers in the past 30 days, there are plenty of names still to be analyzed.

Likewise the BDC Reporter – even if we limit ourselves to material changes at portfolio companies funded by public BDCs – cannot re-publish here every development; downgrade and bankruptcy.

Going forward we’ll limit ourselves to the newest bankruptcies and a selection of the most notable stories the BDC Credit Reporter has covered.

This next one does not involve a bankruptcy, but was selected because the number of BDCs and the amount of capital at risk – both at cost and at FMV are material.

Furthermore, the amount of investment income that could be extinguished by a default would make a serious difference to most of the BDCs involved.

The company involved is a commercial printer and there are 4 public BDCs involved.

Investment Income involved is $6.5mn per annum.

The company has been downgraded by Moody’s and by the BDC Credit Reporter.

In the case of the latter, the company is now rated CCR 4.

Electronics For Imaging: Downgraded By Moody’s

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 (BCSFand 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.

@2020 BDC Credit Reporter
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