SES Investors: Acquires Manufacturing Plant

We had been worried about spray foam producer SES Investors (aka SES Foam) for the last several quarters. Back in the IIQ of 2018, its only BDC lender – Fidus Investment (FDUS) – had written down its second lien debt by (32%) and small equity stake to zero. Recent valuation trends, though, have been favorable and $1mn was repaid late in 2018.

Now we hear the company has just acquired “a state-of-the-art manufacturing plant in Spring, Texas, USA”. Of course, we can’t say if that’s a positive or a negative, knowing nothing of the nitty gritty financial details. Common sense, though, suggests this demonstrates the company is doing well given the “tremendous growth we have achieved over these last few years”, as mentioned in the press release.

This is a small investment even for a smaller sized BDC like FDUS, with only $3.7mn remaining of exposure (outstandings used to be $12.5mn) but is notable because chances look good that SES investors might be one of a minority of BDC under-performing companies that shortly makes its way back to the performing ranks. At June 30, 2019, we rated the company CCR 3 (Watch List) due to the 9% discount on the second lien debt and the (26%) discount on the equity stake. Maybe we’ll even see a modest increase in the value of the SES stock held ?