Acosta Holdco: Exits Bankruptcy

As anticipated in our article of December 17, 2019 Acosta Inc. (owned by Acosta Holdco) has exited bankruptcy after a very brief stay. As a trade article indicates, the company went into court protection on December 1 2019 and now – just 30 days later – is back to business as usual. This follows, as detailed in the company’s press release, a monumental shedding of debt and the input of new capital by the new owner group, which composed of the company’s former lenders: “Through the process, Acosta eliminated all of its approximately $3 billion of long-term debt, and its new investors have funded $325 million in new equity capital“.

What we don’t know is which of the 5 FS Investments – KKR non-listed and public BDCs still have exposure to Acosta. At September 30, 2019 the BDCs had exposure of $39.7mn at cost, written down on an unrealized basis by (58%) to (64%), and all in the same 2021 Term Loan. The debt was on non accrual. Acosta had been on the Under Performers list since 2017, but only moved to non accrual in the weeks before the bankruptcy.

We did hear from FS Investment -KKR Capital (FSK) that its $17.3mn invested in $19.0mn of the par debt, which was valued at just $6.0mn, was sold after the third quarter end and at a premium to the published September price. This is what was said on the most recent Conference Call by FSK: “We placed Acosta on nonaccrual due to ongoing restructuring negotiations during the quarter and chose to exit this position after the quarter end at a gain to our third quarter mark“. That implies the public BDC will be taking a ($10mn-$11mn) realized loss in the IVQ 2019. That’s roughly $1.0mn of investment income permanently lost, a material but not market moving set-back.

That leaves $22.6mn held by the other 4 sister BDCs which may have been sold off as well or are now converted into equity. If the BDCs stayed put, their exposure may actually have increased if participating in the new capital infusion. We’ll circle back after the IVQ 2019 results are published to get the lay of the land. It’s too early to undertake a post mortem on this BDC investment as exposure may go on for years. For FSK, though, which jumped in during the IVQ 2018 – according to Advantage Data records – and then jumped out at a loss a year later, this was not anything to write home about.