Poor old restaurant chain group Craftworks Restaurant & Breweries. After filing for Chapter 11 on March 3, 2020 – shortly after our first and only article on the company so far on February 21, 2020. Then, we had predicted a bankruptcy or restructuring. Tick.
What we did not expect was the arrival on the scene of Covid-19, which has caused the company to lose its Debtor-In-Possession (“DIP”) financing and the decision to close all its locations. Craftworks hope the closures will be temporary – as does every restaurateur and diner in America – but cannot be sure.
One way or the other, the $13.4mn at cost lent to the company in the form of second lien debt – which only began a couple of quarters ago – seems to be in danger of being fully written off. At 12/31/2019, the 2024 debt was valued at a (25%) discount and was still current at a PIK rate of 12.0%, or $1.6mn a year of investment income. Chances are very high the BDC lenders will have to write down all the $10.2mn of FMV remaining in the next quarter, and lose all the income. FS-KKR (FSK) has invested $7.2mn and non-traded FS Investment II has $6.2mn.