KBRA released research on the potential default of Khoros (formerly known as Lithium Technologies) and its effects on KBRA-rated transactions and the wider private credit market. It was recently reported that Goldman Sachs BDC lowered its fair value (FV) mark on Khoros’ first lien loan to 50, from 92.5. This markdown was preceded by earlier action from Sixth Street Specialty Lending Corp, which similarly lowered the FV on the loan to 76.8, from 91.3. As of their Q2/24 reporting date, all public business development companies (BDC) that held the Khoros loan have significantly reduced their marks on the loan, and most now report the loan as nonaccrual in their quarterly disclosures. The KBRA-rated transactions that have exposure to Khoros’ first lien debt include three rated BDCs and two private funds transactions. Khoros’ loan had also been present in two recurring revenue loan structured credit transactions, all of which sold their positions before the end of Q2/24.
KBRA does not currently expect Khoros’ potential default or restructuring to impact any of the outstanding ratings in which its debt provides collateral because of the size, diversity, and reserve levels of the relevant portfolios. However, KBRA will closely monitor the recovery value for senior secured lenders and the relative orderliness of this potential restructuring, as this situation, among others, will continue to serve as an important harbinger for how stressed portfolio companies are managed in the maturing private credit industry. KBRA has increased its focus on transactions or entities that hold exposure to both Khoros and to Pluralsight to monitor the combined impact of ultimate loss levels, as well as any other potential nonaccruals.
The full report is available online: https://www.kbra.com/publications/NcjhwrCm/private-credit-khoros-potential-default-sprinkled-across-private-credit?format=file.
