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Associated Asphalt Partners: IIQ 2022 Update

A leading asphalt company has been downgraded by a ratings group and its debt sharply discounted in value by three BDCs.

October 12, 2022

A leading asphalt company - Associated Asphalt Partners LLC - was added to the BDC Credit Reporter's underperforming companies list in the IQ 2022, based on a (16%) discount applied by one of its BDC lenders - Cion Investment (CION) to its 2024 Term Loan that matures in 2024. At the time, we downgraded the company from CCR 2 to CCR 3. Now that IIQ 2022 BDC results are out, we thought to provide an update. The highlight is that at mid-year 2022 CION, and Oaktree Specialty Lending (OCSL) and a sister non-traded BDC - also invested in the 2024 Term Loan - all discounted the debt by (22%-28%).

Furthermore, we also note that Moody's downgraded AAP to "Caa2"  - speculative grade - back in March 2022, pointing to profitability challenges brought on by the fluctuating price of oil - a major cost input in the asphalt business - high leverage (7.0x or higher); weak liquidity and "concerns" about how the 2024 Term debt might be refinanced two years out.

At this point, we are maintaining a CCR 3 rating and we are not yet anticipating any eventual loss but will be keeping a close eye on a daily basis on the company.

Total BDC exposure at cost is relatively modest - $17.2mn - and the FMV is now $12.6mn. Far and away the greatest exposure is CION's - $14.1mn at cost.