Sur La Table: Laying Off Corporate Staff

A Seattle Times reporter appears to have found a “Deep Throat” equivalent at troubled “Sur La Table, a company already non performing and which we’ve written about twice before. As a result, we’ve learned – and the company has confirmed – that 27 employees – a fifth of its corporate employees- will be laid off. Less clear cut is the possibility that 5 stores will be closed. The most interesting development, learned from an anonymous just laid-off employee, is that the company’s troubles may have predated Covid-19 and the forced temporary closure of its 130 stores in March.

“As recently as 2018, when Sur La Table still shared sales data with employees, monthly revenues from physical locations were routinely in the ‘minus 6 and 7 percent’ range, the employee said”.

That made the BDC Credit Reporter wince because all the way through 2018 and 2019, right up to when the company’s debt was placed on non accrual in IQ 2020, its BDC lenders Capitala Finance (CPTA) and BlackRock Capital (BKCC) carried the value of the then-performing debt at par. Nor were the amounts negligible: $45mn through the IQ 2019 and $31.5mn thereafter following a partial repayment. We’d expect that if employees were being shown same store sales results so were its lenders, but cannot confirm that.

Is Sur La Table a Second Wave credit casualty, an innocent bystander but otherwise strong business brought low by the impact of the crisis or a member of the First Wave whose business was already weak before the closures made everything worse ? It’s important because the BDC Credit Reporter, and the investors who rely on quarterly BDC valuations, want to believe that the managers, and the external valuation firms engaged at great cost to shareholders, are providing loan estimates that reflect reality. There is already a high degree of skepticism amongst many users of these valuations about their accuracy and this anecdote from an insider only heightens the concern that some of these asset values cannot be relied on.

We’re not casting aspersions at the two BDCS involved or anyone else, but analysts and investors might want to ask harder questions as to what has to happen before an investment is de-valued and whether that process fully reflects the risks the businesses involved are facing.