JP Intermediate: Downgraded To CCR 4
October 17, 2022
JP Intermediate is also known as Juice Plus, a purveyor of healthy fruit beverages. The company - based on BDC valuations dating back to 2018 - has seen its performance go up and down over the years. As recently as the IQ 2022, there was a modest discount of (11%) applied by Cion Investment (CION) to its 2025 Term Loan position. OFS Capital (OFS), involved in the same facility, applied only a (2%) discount. Nonetheless, sticking with our self imposed valuation policy, we rated the company CCR 3, the first notch downward on the 5 point company rating scale. In the IIQ 2022, OFS increased its discount to (10%) and CODI to (15%), validating the underperforming tag we had added.
However, word that Moody's downgraded the company from B3 to CAA1 in July caused us to pull out our pencils again and get sharpening. What we took away from the ratings giant's report is that sales dropped by double digits in its fiscal year ended April 2022 and that debt to adjusted EBITDA is being put at above 10x. We don't need to get into the weeds of any company's business- even if we could - to move our ratings around. We just need some sort of sensible reason for a downgrade, and the Moody's report in and of itself was enough.
We've now downgraded Juice Plus to CCR 4. Total BDC exposure is moderate: OFS has $13.4mn and CION $5.4mn - both in that 2025 Term Loan that they value differently. We wouldn't be surprised if both players took a further unrealized write-down in the IIIQ 2022 results, which we'll find out shortly. We're not delighted that the company uses a multi-level-marketing system to sell its products, one of those features as a lender we'd think would be a red flag but which OFS and CION seem to have gotten comfortable with before lending.
It's too early to estimate what sort of loss the BDCs might incur if Juice Plus failed. We can say that the interest income suspended if there was a default would amount to about ($1.7mn), most of which would hurt OFS.