BDC Credit Reporter View

Catalina Marketing is a digital advertiser and the subsidiary of Checkout Holding Corp, which was the entity involved in the $2.5bn buy-out from one Private Equity Group to another. The transaction was funded by a reported $1.7bn of debt. The companies are private but the debt is publicly rated so intermittent information is available. We know from valuation trends that the Company began not to achieve expectations almost immediately after the buy-out and was added to the Watch List by the IQ 2015. The rating agencies have downgraded the Company at least twice. Most recently, S&P downgraded both the Company and the Second Lien debt. A new CEO was brought on in November 20126, but the impact therefrom is not clear.

The BDC Credit Reporter has a Credit Rating of 4 on the Company given the very high debt to EBITDA levels; the consistent under-performance over several quarters and the rating agencies downgrades. Our credit view is more conservative (given the available information) than the most recent (IIIQ 2016) BDC valuations. The 3 BDCs involved-invested in both the First Lien and Second Lien debt-upgraded the value of their positions at September 2016 to a discount of -9% and -28% respectively from -19% and -45% at the end of 2015, according to Advantage Data records. We look to the S&P downgrade just 2 weeks before the quarter's end as suggesting the valuation direction should be downward. Moreover, on November 29, 2016 the market value of both debt tranches were materially lower than the September 2016 valuations (also sourced from Advantage Data), suggesting the Credit Trend is Down. However, the Company's debt remains current, aided by the ability of the borrower to pay in kind rather than in cash.