General Nutrition Inc: Files Chapter 11

On June 23, 2020 General Nutrition Inc. (aka GNC) filed for Chapter 11. The company and certain of its lenders have “reached an agreement to pursue a dual-path process that will allow the Company to restructure its balance sheet and accelerate its business strategy”. This includes an agreement to sell the business for $760mn. A marketing process has already begun.

The BDC Credit Reporter wrote about the deteriorating situation at the company back on May 18, 2020. At the time the company was hanging by a thread having just reached a temporary agreement with its lenders. We had expected to have till the summer before hearing from GNC again, but the descent into bankruptcy has been faster than we expected, even though we had a CCR 4 rating on the company.

The only BDC involved is Harvest Capital (HCAP) which had $4.1mn at cost advanced and $3.2mn at FMV as of March 31, 2020. $0.4mn of investment income is about to be suspended. We imagine the coming realized loss might be greater than the (22%) already booked by the BDC. It’s possible, though, that HCAP will be a party to the debtor-in-possession financing being put into into place and may end up with more capital invested than before in both debt and equity.

We are downgrading GNC from CCR 4 to CCR 5, and adding the name to the BDC-financed company bankruptcy list – the 10th one so far in June.