On January 15, 2020 private equity group Turnspire Capital Partners announced its acquisition of MPI Holdings, LLC, parent of MPI Products, for an undisclosed amount. MPI is a portfolio company of Goldman Sachs BDC (GSBD), which holds $20.0mn of the principal of the January 2020 second lien secured debt. At September 30, 2019, the debt was on non-accrual, and discounted ($5.5mn) from cost. Just under $0.600mn of investment income was not being received.
The debt had been placed on non-performing status only in the third quarter of 2019 and GSBD had revealed on its conference call that a “sales process” was underway. At that point, the BDC was very non committal about the likely outcome.: “…It’s a fluid situation right now. The company is in a sale process. As I mentioned, when you look at the mark today, I think what we’re looking at is industry valuations there, in particular, coming down quite dramatically. So in terms of the range of outcomes, it could be a full repayment, it could be a partial repayment, it could be a variety of different outcomes“.
Now we know the sale has occurred but not the price and cannot say if this is Good News, Bad News or Not-So Bad News. What we do know is that some kind of resolution has occurred, which means the IVQ 2019 valuation that will be published shortly should be very accurate and that some sort of realized loss or full repayment (including interest) will occur in IQ 2020. If the latter occurs, that might give a one time boost to GSBD’s earnings as previously unpaid interest income is collected. If the former happens – this is a second lien position after all – GSBD will be losing both some capital and some earnings power.
GSBD – according to Advantage Data records – had a long history with MPI dating back to 2014 in this same 2020 loan, which performed normally till only the IIQ 2019, when the debt was discounted (9%). The next quarter the non-accrual occurred and for reasons that are not yet clear. GSBD were not very forthcoming when discussing the company for the one and only time in six years on the most recent conference call, claiming the decrease in the value of the investment in the quarter was due to lower sector values:
“So I think when we look at that business, what’s impacting the mark in this go around is pretty significant valuation changes taking place in that specific industry. So I wouldn’t read anything sort of that would impact other parts of the investment. It’s very much a function of the specific industry that, that company sits within“.
We can’t quite reconcile that level of sudden write-down and the shift to non accrual and this subsequent sale of the company to a “special situations” focused PE group to just a technical change in auto industry valuations. The apparent opaqueness of GSBD’s disclosures – in answer to a direct question from an analyst – is a little disconcerting, but we might be misreading the transcript. In any case, we hope to get a clearer picture from GSBD’s management when the IVQ 2019 or IQ 2020 results are published and discussed and MPI gets placed in either the win or loss column.