AAE Acquisition: Details On Realized Loss

On Tuesday August 6, 2019 Capitala Finance (CPTA) on its Conference Call gave further details about the change of fortunes at equipment lifting company AAE Acquisition, which resulted in a ($20.4mn) Realized Loss. Apparently the company was up for sale but no buyers came through and the first lien lender foreclosed. CPTA was in the second lien and equity, which had been only mostly written down in the first quarter 2019. As a result, 100% of the investment was written off once and for all and $1.2mn of investment income (all previously in PIK at a 6.0% rate) lost. That’s about 2.5% of the BDC’s investment income as of March 2019 (annualized) and – for a sense of proportion rather than a calculation – 7.5% of Net Investment Income. This is a black eye for CPTA, especially given the surprise write-off. We did have the company – due to the valuation – on our under-performing list from the IQ 2019, but this was a surprise to us as well.