Maxus Carbon: Valuation Decreased

Apollo Investment (AINV), the only lender that we know of to Maxus Carbon, a chemical plant with innovative technology, has just reported IQ 2020 results. The BDC has reduced the fair market value of its investment $76.5mn investment in Maxus by ($22.6mn), bringing the FMV of the debt and equity involved to $32.6mn. Income from the long standing investment remains very modest, just $0.318mn for the past 12 months. We last wrote about the company following a restructuring in February 2020.

Here’s what management explained on the latest conference call about Maxus Carbon:

So this is a petrochemical plant in Texas, referred to as carbon-free with a technology, think of it as a greener alternative to carbon capture and has experienced historical issues. In terms of ramp of — the facility has attracted significant equity capital over its life — it creates — it produces three separate outputs, one of which is hydrochloric acid, which itself is used heavily in fracking of wells and the prices for that have also — have obviously gone down significantly in the current market environment, offset to a certain extent by the other output or the other two outputs, and in particular, bleach and caustic soda, bleach being something that has seen demand relatively resilient and pricing relatively resilient. And so the — and then this is also an investment in which we undertook a restructuring whereby we would have a greater deal of our value with the value of the IP, which we do believe to be valuable and the company’s go-forward strategy is to find a partner for use of that that IP. And if you kind of think about in the context of the broader concerns and motivations and mandates to make more green such processes. We’re hopeful that, that will drive some value. So that’s that investment“.

The outlook remains poor for this 4th largest of AINV’s investments, which has been written down by ($32.4mn) in the past 12 months and incurred a realized loss. We are affirming our Corporate Credit Rating of 4. Should the company fail – although we’re in no position to tell if and when that might happen – we imagine most of the remaining value (which amounts to about $0.50 per share) will be lost. This is a “Legacy Investment” at AINV, and demonstrates that project finance is not an area that BDCs should be involved in.