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Aurora Diagnostics: Debt Restructured
April 25, 2017
Pathology services company restructures its unsecured debt, but is this only a stalling tactic ?

The post Aurora Diagnostics: Debt Restructured appeared first on BDC Reporter.

April 24, 2017: “Aurora Diagnostics Holdings, LLC (the “Company”) today announced that it, together with its wholly-owned subsidiary, Aurora Diagnostics Financing, Inc. (“Aurora Financing” and together with the Company, the “Issuers”), have commenced a private exchange offer (the “Exchange Offer”) for all of their outstanding 10.750% Senior Notes due 2018 (the “Existing Notes”) for a combination of new 12.250% Increasing Rate Senior Notes due 2020 (the “New Notes”) and warrants to purchase common units of the Company (“Warrants”).

Concurrently with the Exchange Offer, the Issuers are soliciting consents (the “Consent Solicitation”) from the holders of Existing Notes to certain amendments (the “Proposed Amendments”) to the indenture governing the Existing Notes. The Proposed Amendments will, among other things, eliminate substantially all of the restrictive covenants and certain events of default from the indenture governing the Existing Notes. Holders who tender their Existing Notes pursuant to the Exchange Offer are obligated to, and are deemed to, consent to the Proposed Amendments with respect to the entire principal amount of the Existing Notes tendered by such holders.

The purpose of the Exchange Offer is to prevent the triggering of the springing maturity provision under the Company’s senior secured credit facility, which provision will cause that facility to mature on October 14, 2017 if the Issuers have not refinanced substantially all of the Existing Notes by that date.

The Exchange Offer and Consent Solicitation are currently scheduled to expire at 5:00 p.m., New York City time, on May 22, 2017, unless extended by the Issuers (such time, as it may be extended, the “Expiration Time”).”

Source: Business Wire





BDC CREDIT REPORTER ANALYSIS

Aurora Diagnostics was barely on BDC Credit Reporter’s radar as the Company has been on Watch List for years and was supposedly improving, given an increase in its valuation by its BDC lenders at 12-31-2016. However, with news of the 4-24-2017 restructuring, which Moody’s considers a “distressed debt exchange”, the outlook for the Company has shifted.

A bit of background first: According to Moody’s, which rates the public debt of this privately-held company , there are two main debt facilities. First, there is a Senior Secured Credit facility which matures in 2019. There are also $200mn of Senior Unsecured Notes, which mature in 2018, but are junior in priority. The Company has been under-performing for years and as far back as April 2016, the rating agency foresaw a restructuring and debt exchange. Under the terms of the Senior Credit facility if no refinancing should occur by October 2017, the maturity of the facility would be accelerated.

The current restructuring of the junior debt is only a delaying tactic and intended to ensure the Senior Secured Credit does not get called prematurely. The maturity of the unsecured debt is getting pushed out, but the interest expense raised. No new capital is being raised as far as we can tell.

We don’t have any access to financial statements but, based on the Moody’s reports from 2013 and 2016, we have no reason to believe business performance and liquidity has or will improve. The Company already had a Speculative grade rating from Moody’s before the restructuring, and the BDC Credit Reporter has downgraded our own rating from a Corporate Credit Rating of 3 to a CCR of 4, which means we expect an eventual loss if more likely than full recovery. However, as explained below, the potential for loss varies substantially between the senior and junior debt.

BDC EXPOSURE DETAILED

There are 3 BDCs with exposure to the Company. All of Garrison Capital’s (GARS) debt owed is in the Senior Secured facility for a total of nearly $7mn. Given its priority in the capital structure, GARS has marked the debt at par, which seems reasonable. However, FS Investment (FSIC) and sister non traded fund FS Investment II have $15mn and $6mn respectively at cost in the Senior Unsecured Notes. We would expect that the two BDCs might book a partial Realized Loss in the IIQ 2017 earnings for the debt exchange. However, that’s not for sure and there may just be a record of the change in the form of the debt, and a bigger or smaller Unrealized Depreciation. Ironically, investment income might rise given the higher interest rate on the new Notes, from 10.8% to 12.25%. The warrants will initially be given no value, we’d imagine.

Down the road, if the Company’s financial performance continues to weaken there is the prospect of a much larger loss on the unsecured debt, which would be a material amount for FSIC, and less so for FSIC II. A loss at the senior secured level still seems remote. We note that Moody’s did expect a potential loss if push came to shove for the unsecured debt in its 2016 analysis.

 

Old News!

 

question was how can I purchase these bonds? What symbol is this traded under?