Deluxe Entertainment Group will be shortly exiting from bankruptcy, after receiving court approval of a “comprehensive refinancing”. According to the company’s press release – which is short on details but big on reassurances – debt will be cut “by more than half” and $115mn of new financing will come available. If Bloomberg Law is correct, $800mn of debt will be written off. Bankruptcy should be officially exited within a month.
We’ve written extensively about this bankruptcy, and we will again. After all, the BDC lenders involved seem to be moving from creditors to owners, or maybe both. Most likely, any realized loss to be taken will occur in the IVQ for Harvest Capital (HCAP) and non-listed Cion Investment and TP Flexible Income Fund. Before that, we’re likely to see an unrealized write-down in the IIIQ results, given that HCAP was carrying its debt investment at par as of June 2019, while the other two BDCs discounted their positions no more than (10%).
Even after the company exits Chapter 11, we will continue to carry Deluxe on our under-performing list for an indefinite period. The weakness in the underlying business has not been eliminated by this partial de-leveraging and years may yet pass before the BDCs involved – who began lending back in 2017 – can exit this credit.