On August 3, 2020 dental support business Benevis Holdings filed voluntary Chapter 11. The Georgia-based mid-market company blamed Covid-19 for the need to close clinics across the country, and the resulting need to seek court protection. No official Restructuring Support Agreement was filed by the company but management indicated that its lenders were supportive of a restructuring of its balance sheet and sale of the business. Benevis has already arranged $30mn in Debtor In Possession (“DIP”) financing, to be provided by its existing bank group, headed by New Mountain Finance. We’re not yet clear if the parties intend to undertake a “debt for equity swap” or are preparing Benevis to be sold to a third party, but we believe the former is most likely. The company indicated assets and liabilities are between $100mn-$500mn.
The only BDC lender to Benevis is publicly traded New Mountain Finance (NMFC), but we imagine other funds managed by its eponymous parent are involved in the current loan and in the DIP financing. NMFC has invested $85.6mn at cost, all in first lien Benevis debt and discounted by (25%) as of March 31, 2020. We cannot tell whether that value remains reasonable or not. However, something under ($6.0mn) in annual investment income is at risk of temporary or permanent interruption from the filing. Moreover, total exposure is likely to increase with the new DIP loan and – potentially – any new capital that might be required.
We get the impression from the company’s press release that management believes the loss of income is a temporary phenomenon and the business will bounce back shortly. After all, Benevis was performing normally – judging by NMFC’s year end 2019 valuation of its debt – which was at par. However, if we get a second wave of business closings, management’s optimism may prove to be misplaced.
The BDC Credit Reporter is leapfrogging our credit rating down from CCR 3 to CCR 5, and adding Benevis to the list of BDC-financed bankrupt companies. We’re only at August 3, and this is the fourth bankruptcy of the month and the 43rd of the year…
This is a material investment for NMFC: 5.8% of net book value as of March 31, 2020. We would expect to see that value drop further in the IIQ 2020 when results are announced shortly. However, what the final outcome might be is impossible to speculate about, but we’ll be keeping close tabs on the company’s progress through bankruptcy court and will be listening out to whatever NMFC chooses to share about its plans.