According to a regional business publication, Barfly Ventures LLC – a bar and restaurant operator in the Midwest – has filed Chapter 11. As you’d imagine, Covid-19 has sabotaged the business and made sustaining its reported $30mn in debt untenable. Thus the bankruptcy filing and the hope that the company can survive and return after a time under court protection. In fact, re-opening of several shuttered locations is already on the cards, so patrons of HopCat – their flagship brand – will be pleased.
This was no great surprise to the BDC Credit Reporter which already had the company rated CCR 5 – non performing – following the IQ 2020 results from Main Street Capital (MAIN) and non-traded HMS Capital, which have invested $15mn in debt and equity in this ill fated company. The $1.2mn in equity has been written to nothing, and the debt – senior not – has been reduced to a value of $1.4mn. By our standards – as we seek to direct our energies towards the more impactful credits – that makes Barfly Ventures “non material” given that no income is being generated and the likely capital to be rescued at the end of the day will hardly move any needles.
Nonetheless, we’ll continue to follow the progress of the company and how the lenders relate going forward. Will MAIN/HMS seek to take an ownership situation and – maybe – double down with some additional financing ? Or will the BDCs kick themselves for having invested in the restaurant business in the first place and with a growth strategy – as the CEO himself tells it – based on growth by debt-funded acquisitions. The model was already in trouble before Covid-19 came along but the impact of the virus was the equivalent of a body slam. You can’t win them all, but this investment seems to have been dubious from the start. At worst, the two BDCs may end up writing off all ($15.0mn), which we’ll discover in the IIIQ 2020 most likely.