BDC Credit Reporter View

Answers Corp is a private company but has publicly rated debt. As a result, there are occasional public utterings from Moody's, which provides detailed insights into their financial condition. As recently as June 2016, the Company's "Corporate Rating" was downgraded to Caa2. (S&P followed suit in July). Apparently, quarterly revenues through IQ 2016 were down 15%, and by Moody's way of calculating Debt to EBITDA was 13.7x ! This is not good news for the 4 different BDC lenders with exposure to different admixtures of First Lien and Second Lien debt that aggregates $103mn (according to Advantage Data records through June 2016). Judging by the downward trend in valuations that began in IQ 2015, and the fact that the second lien debt (held by FSC and FSFR) has been on Non-Accrual for a year, and the recent drop (November 9 2016) of the publicly rated debt to new valuation lows, an ultimate loss of principal seems likely, and a possible debt-for-equity swap. In September the CEO quit. In October, the Company formally asked its second lien lenders for forbearance. As a result, we have given the Company a Credit Rating of 4 (in the case of second-lien debt holders Answers is already rated 5 or Non-Performing). The credit trend is down, and barring any new information, default is also possible on the first lien debt (held by MRCC, FSC, FSFR and BDCA). In June Moody's was still rating the First Lien debt due in 2021 a B! We're being more conservative. Based on the latest values, BDC Realized Losses could exceed $60mn, with the $45mn At Cost in Second Lien debt receiving next to nothing. Or nothing. The BDCs with the most to lose (about two-thirds of the exposure) are FSC and FSFR. (Last Update: November 9, 2016).