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Harland-Clarke Holdings Corp: Debt Exchange Proposed

A troubled company is offering to swap some of its first lien debt for second lien. Will the lenders bite ?

October 16, 2022

Only three days ago we wrote about Harland-Clarke Holdings Corp - now operating under the name Vericast- and suggested we  "would not be surprised if we didn't hear something sooner rather than later because management has some tricky refinancing to tackle in an increasingly hostile environment". Apparently, truer words were never spoken because as we were typing out that surmise, the company was making its first lien lenders an offer they might - or might not refuse.

"Vericast announced that it is seeking to amend its existing debt agreements and exchange up to $350 million of its $1.1 billion first lien term loan due 2026 for new 12.5% second lien Notes due 2027. The transaction will be subject to a minimum 80% consent threshold and Chatham Asset Management exchanging at least $250 million of the $1.1 billion first lien term loan for new second lien notes".

This will impact the only BDC with exposure: CION Investment with $9.3mn committed to that 2026 first lien debt. At this point we don't know if the first lien lenders will say yes or no to this restructuring proposal. If they say yes, both the first lien and second lien debt should remain performing for the short term. However, Moody's will consider the transaction a "distressed exchange" i.e. a restructuring. If the lenders say no, something more drastic is likely to happen shortly.

CION has already written the debt down by (22%). For our part, we rate the company CCR 4, as explained in the prior article, and could foresee an even bigger discount when this all plays out. In the short run, though, CION - and the company - might "cheat the hangman. "

Again, we are likely to be providing an update shortly.