For weeks rumors have swirled around about a soon-to-occur Chapter 11 filing by Bumble Bee Foods, LLC. The latest comes from the Wall Street Journal on November 15, 2019, relying on “unidentified people familiar with the matter” (lawyers ? bankers ? the janitor ?). This may be posturing by one of the parties involved as part of the gamesmanship that comes with the territory. Still, we’ve been warning about bad things likely to happen since July 22, 2019, with a follow-up on July 23. We explicitly reported that a Chapter 11 was likely back in August, and noted BDC exposure at that time.
This time is different only in that the WSJ is a pretty reliable source and we have the IIIQ 2019 BDC exposure numbers to update readers on. TCW Direct Lending has two thirds of the exposure at $32.6mn at cost but has chosen to write the position down only by (3%) at FMV. Apollo Investment (AINV) has $15.2mn, and has marginally increased its fair market discount to (7%). Both lenders are in the publicly traded 2023 Term loan, which trades at that same (7%) discount at time of writing.
It seems like both lenders expect to be able to ride out any bankruptcy or restructuring with minimal damage, and we have no alternative data to suggest otherwise. Still, an interruption of investment income is likely – which may or may not be ultimately recouped. We have added Bumble Bee to our Bankruptcy Imminent List, which we’re now limiting to credits that we expect to take such action in the current (IVQ) quarter. Also, let’s not forget Bumble Bee’s Canadian subsidiary Connor Brothers Clover Leaf Seafoods, where AINV and TCW have an additional exposure at cost of $13.6mn. We’re not sure of the Canadian company would be included in the American parent’s bankruptcy, but it’s worth keeping an eye on to judge full exposure.