"API Heat Transfer ThermaSys Corporation, headquartered in Buffalo, NY, is a designer and manufacturer of industrial heat exchangers. The company was formed following the combination of two legacy entities: API Group Holdings, LLC and ThermaSys Group Holding in April 2012. API offers a broad range of heat transfer products through its five business segments: Air-Cooled Group, Shell & Tube Group, Plate & Thermal Systems Group, Thermal Transfer Products, and ThermaSys Tubing. The company is majority owned by private equity sponsor Wellspring Capital Partners". From Moody's.
The parent company was formed in 2013 from the merger of two legacy companies owned by the same Private Equity group: API Group Holdings, LLC and ThermaSys Group Holding. A leveraged financing was arranged which included two "senior secured" facilities: a $35mn Revolver and a $265mn Term Loan, both of which are rated. In addition, there is an unrated $135mn mezzanine tranche. Proceeds were used to refinance existing debt, pay a dividend of approximately $81 million to the owners, and cover transaction related fees and expenses. However, in subsequent years the Company has seriously under-performed against initial expectations. The Company was added to the Watch List in the IIIQ of 2015. As of November 2016, weak sales and EBITDA have caused leverage to reach 12x from 6x at the time of the original transaction. Two rating agencies have downgraded the parent and the Senior Secured issues to Speculative Status from single B. S&P expects slightly better metrics in 2017, but projects leverage will remain "Unsustainable". There are 3 BDCs with an aggregate exposure of $148mn to the Company. However, the principal BDC lender is FS Investment or FSIC. The BDC was a lender in the prior facilities which were refinanced in 2013, and greatly increased its exposure by investing in the Term Loan, Mezzanine Notes, Preferred and Equity for a total of $145mn at the time. A small portion of the Term Loan appears to have been sold to sister fund FS Investment II in 2014, according to Advantage Data records. American Capital Senior Floating or ACSF has a $445,000 position in the Term Loan.At September 30, 2016, the senior secured exposure had been written down from cost by 18%, while the mezzanine was marked down 20%. FSIC has written down to zero all Preferred and Common owned. The BDC Credit Reporter has the Company as still current on its obligations, but Under Performing. Our Credit Rating is 4, reflecting our grave concern about financial performance and leverage. Given that there are higher covenant requirements arising and no material improvement in performance underway, a default followed by a long term restructuring seems more likely than unaided return to Performing status. Give the downgrade in November 2016 from S&P, the Credit Trend should be down in the IVQ 2016.