CLOs hit by bankruptcy of Envision as zero recovery predicted for first lien loans

Charlie Dinning

Data journalist

Envision has joined the growing number of companies to have filed for Chapter 11 bankruptcy. The emergency medical services company, which has been owned by KKR since 2018, announced on 15 May that it was entering a restructuring support agreement.

CLOs had a combined exposure of around $1.3 billion to Envision’s debt as of the latest April trustee reports, according to CLO-i. This year CLOs have only had a larger exposure to Diamond Sports ($1.6 billion at the time of Diamond Sports’ filing). In total, around $5.5 billion of loans in CLOs have defaulted year-to-date, according to Bank of America research.

Blackstone Credit was the manager with the largest exposure to Envision across its CLOs. The CLO behemoth had just shy of $100 million of Envision’s debt across 26 of its US CLOs, as of its latest April trustee reports.

Neuberger Berman and Redding Ridge Asset Management (Apollo) both had around $70 million of exposure for second and third place, respectively.

However, for these top three the amount each manager owned barely made a ripple across their entire CLO portfolios. Blackstone’s $99.1 million of exposure only equates to 0.28% of the firm’s entire CLO portfolio. For Neuberger Berman, Envision made up 0.36%, and for Redding Ridge it was 0.42%.

The manager that had the highest exposure to Envision as a percentage of its CLO portfolio was Newfleet Asset Management. The manager only owned $3.3 million of Envision debt in its CLOs, as of the April trustee reports, but this comes to 2.35% of its portfolio. Black Diamond Capital Management was the only other manager that had above 1% of its portfolio invested in Envision’s debt.

As Creditflux reported last month, the recovery rate for defaults in 2023 has declined considerably due to a combination of factors, such as cov-lite loans, priming activity in previous years, loan-only borrowers defaulting, and the sectors in which the defaults have been concentrated.

A year ago, Envision moved its Amsurg ambulatory services business away from its existing lender group’s collateral package to an unrestricted subsidiary. This meant Envision’s original first lien became the fourth out term loan in the new structure, and is now expected to have a zero recovery rate, according to sources.

BofA research states that, based on loan prices for the third out term loan, the recovery is nearly zero for that facility as well, with the loan trading close to 10 cents.

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Global credit funds & CLO's

June 2023 | Issue 255

Published in London & New York.