On June 3, APC Automotive Technologies (“APC”) filed for Chapter 11 bankruptcy protection as part of a broad restructuring plan with its creditors. As the press release indicates the central component of the plan is reducing “APC’s outstanding indebtedness by approximately $290 million on a net basis, significantly strengthening the Company’s balance sheet and enhancing financial flexibility going forward.” In addition, the company has organized $50mn in Debtor-In-Possession (“DIP”) financing for what is expected to be a short period under court protection.
Frankly, the BDC Credit Reporter does not have much history with APC, which only showed up on BDCs books two quarters ago. At March 31, 2020 the largest BDC lender was non-traded Cion Investment, which had advanced $11.2mn in senior debt. With a much smaller position and in equity/preferred is newly public Crescent Capital (CCAP) with $1.8mn. Both BDCs had written down their investments: CCAP to zero and Cion to a FMV of $7.8mn. One of the two debt tranches Cion was involved in was already on non accrual as of the first quarter 2020.
This restructuring probably means i) the CCAP position will be written off. It’s a small stake and should have a material impact. ii) Cion is likely to be involved in the DIP and see its overall exposure increase. In terms of valuation, though, that will have to wait till the final exit from Chapter 11 when all the details are finalized. In the short term, all the existing debt is likely to become non-performing and all or some eventually written off. Cion will become an equity owner (we have to assume) and will be keeping the company on its books – in new forms – for some time to come.
We rate APC CCR 5 and – depending on the final structure of the company – will upgrade the company to CCR 3 when the bankruptcy is finalized. Otherwise this development is notable because APC is the second BDC to file Chapter 11 in June 2020 so far. We expect many more to come, and most to adopt the “debt to equity” format where lenders become owners and extend for an indefinite period (equity is called permanent capital for a reason) their investment relationship. If APC markedly recovers Cion may yet make back its losses. For CCAP, though, it may be too late.