Sur La Table Inc.: May File Bankruptcy

On May 1, 2020 we heard from Bloomberg that cookware retailer Sur La Table may file for Chapter 11 bankruptcy. As usual, this came from “people familiar with the matter”. A sale of the 125 store chain is also underway, but no details were mentioned. We don’t know how poorly Sur La Table is performing but with its retail locations mostly closed, online commerce can only take the company so far. Not to mention that even without Covid-19, Sur La Table was already competing in a retail sector in a long term apocalypse of changing customer mores.

There are two BDCs with $31.6mn in first lien debt exposure to the company: BlackRock Capital (BKCC) and Capitala Finance (CPTA). Both are in a 2022 Term Loan and both are long term lenders, with the former a lender since 2011. A small relief for both BDCs will be that their exposure dropped from $45mn to the current level when an earlier 2020 Term Loan was refinanced in the IIQ 2019.

Still, there’s nearly $3.5mn of investment income at risk of being interrupted shortly. It’s hard to estimate what realized loss might be involved, especially in the current conditions, so we won’t try. We do know, though, that the two lenders discounted the debt only (5%) at year end 2019, so a bigger final loss should be expected before long, probably in the second or third quarter. The gradual re-opening of America might mitigate the damage but appears to be happening too late to save the company or private equity owner Investcorp, who bought the chain nearly ten years ago.

We have downgraded the company from performing or CCR 2 to CCR 4. Furthermore, we’ve added Sur La Table to the Weakest Links list, i.e. those companies we expect to become non performing shortly. The list can be found in the BDC Credit Reporter’s Data Room. There are now 31 companies on the list with a FMV of $1.3bn.