US Green Fiber, LLC: Restructured

On November 1, 2019 Fidus Investment (FDUS) reported IIIQ 2019 results and updated the status of portfolio company GreenFiber, LLC. We learned that “in early September, we took control of the company via a recapitalization transaction, investing $2.8 million, primarily in second lien debt, alongside the previous control investor and a new investor. This recapitalization is intended to provide the company with sufficient liquidity to execute its strategic plan“.

In response to questioning from an analyst FDUS gave some additional color: “It was… in the works for quite a while. We were in a situation where … the private equity group did not have a lot of capital left in the fund that they invested out of, and we worked through this over a period of time. It took longer than it should have, unfortunately, but that’s what happened.They did invest a small dollar amount in this, so they’re still involved with the company. But we did invest the majority of the capital and did take control of the business on a go-forward basis.And you’re right, the company has had numerous, and I’m not going to get into them just exogenous events, if you will, that impacted the performance. Having said that, it’s a niche leader. It has real presence in its marketplace, and it’s a company that we think has some staying power. And that’s why we invested in it. And our hope is that there are better times ahead, but it remains a fluid situation. And obviously, we’ve kept it on nonaccrual. It did pay our cash portion of our interest this quarter, but we’ve kept it on nonaccrual for obvious reasons. And so our hope is that we see good improvement here over time“.

At the end of the quarter, the existing FDUS second lien loan of $14.9mn was still discounted at (69%); while its $0.6mn in equity is – understandably – marked to zero. The new debt added in the period – also second lien – which adds up to $4.6mn – is carried at par, Both loans are on non accrual even though – as FDUS mentioned above – interest was actually paid in the period. (On paper, $1.4mn of investment income annually is non accruing).

FDUS has been invested in the company since 2014, but matters only began to go sideways from the IIIQ of 2018 when we added the name to our under-performing list. Non accrual occurred one quarter later and now we have a full restructuring and FDUS taking control. This is not unusual either for the BDC or companies in this segment of the market. However, we have insufficient information to determine whether FDUS is doing the age old “throwing of good money after bad” or potentially rescuing a worthy business and all the capital invested to date and more.