Crius Energy/U.S. Gas & Electric: Company Sold

Good news and bad news for MVC Capital (MVC) as its portfolio company Crius Energy  – in which the BDC held both equity units and debt – is sold to Vistra Energy, according to a press release issued by the buyer Crius shareholders approved the deal months ago but only now have regulatory approvals come in from the Federal Energy Regulatory Commission. MVC holds units in Crius – received when selling its biggest portfolio investment US Gas & Electric – to the Canadian company a couple of years back. MVC had already valued those units at $21.3mn at the end of April 2019, and we expect little increase in value when this deal settles as the ultimate purchase price was mostly already locked in. Also to be received are some accrued distributions which, presumably, will be booked through the income statement. We’re not clear what will happen to MVC’s second lien loan in U.S. Gas & Electric – a subsidiary of Crius since the acquisition. If that debt – which is MVC’s largest income producing investment with an FMV of nearly $40mn  – is repaid (priced at 9.50% and due in 2025), the bad news for the BDC will be redeploying the proceeds and the Crius units into new investments in a timely manner. That might leave a hole in MVC’s results for a quarter or two as $60mn (nearly 20% of the BDC’s assets) look for a new home. We’ll be waiting for the next quarterly results of MVC to try and work out the final numbers and determine whether the sale of US Gas & Electric to Crius and the subsequent sale of the acquiror by Vistra – after Crius unit prices began to head south – was a win, loss or draw for MVC and its shareholders. We know MVC had $65mn in assets when the original Crius deal was penned, and that has reduced only slightly from debt amortization. If MVC ends up with $63.5mn or more in FMV when all is said and done, MVC should be in the green.