On August 9, KBRA DLD, a division of KBRA Analytics, added Khoros, LLC (formerly Lithium Technologies, LLC) to its Default Radar Red List. This move followed a significant markdown by Goldman Sachs BDC, which reduced its fair value mark on Khoros’ first lien loan from 92.5 to 50. Sixth Street Specialty Lending Corp had previously lowered its fair value mark on the same loan from 91.3 to 76.8. As of Q2 reporting, all public business development companies (BDCs) holding the Khoros loan have notably reduced their valuations, with many now listing the loan as nonaccrual.
Khoros, rebranded from Lithium Technologies after its 2018 merger with Spredfast, operates as a global customer engagement software provider. Despite its diverse client base, including technology, telecommunications, and financial services sectors, Khoros has faced declining financial performance since 2023, leading to discussions with lenders about potential covenant breaches.
KBRA does not anticipate that Khoros’ potential default or restructuring will impact its current ratings on collateralized debt due to the size, diversity, and reserve levels of the portfolios involved. However, KBRA will closely monitor recovery values for senior secured lenders and the overall management of this restructuring within the private credit industry. The agency is also tracking the combined impact of Khoros and Pluralsight on portfolios, as detailed in previous reports.
As of Q2 2024, Khoros’ first lien loans appear in three KBRA-rated BDCs with a fair value of approximately $128 million and in two non-KBRA rated BDCs with a fair value of $44 million. While exposure in KBRA-rated BDCs remains relatively small compared to the total portfolio size, some BDCs with exposure to both Khoros and Pluralsight are experiencing nonaccruals exceeding 5% at cost. KBRA continues to monitor these nonaccruals and overall portfolio health.
In the structured credit sector, Khoros’ first lien loans no longer appear in KBRA-rated transactions as of Q2 2024, following exits or restructurings of affected securitizations. In KBRA’s funds portfolio, Khoros’ loans make up less than 1% of the market value in two transactions.
The Default Radar is a monthly tracker identifying potential defaults in the U.S. direct lending market, categorizing credits as Red or Orange based on severity. Issuers on these lists are not guaranteed to default, defined as bankruptcy, missed payments, or distressed debt exchanges/restructuring. Factors influencing inclusion include fair values, nonaccrual status, and industry trends.
