Furniture retailer Furniture Factory Outlet LLC was placed on non accrual by its lenders during the IIQ 2020, and rated CCR 5 by the BDC Credit Reporter. On the Stellus Capital (SCM) Conference Call on July 30, 2020, we heard the briefest of updates from the BDC: “As you know, we don’t talk specifically about companies for privacy reasons, but this is a business that’s involved in the furniture retailing aspect in the central and Southeast part of the United States, and certainly been impacted initially by what happened due to COVID. And so this is just a reflection of our current view. If it’s helpful, the business has picked up as we’ve gone further along since the COVID really hit initially”.
In our own research in the public record, we’ve discovered FFO (as its known) has closed many stores temporarily, but some have been permanently shuttered. The company continues to have dozens of store locations across the south-east and had sales – according to one report – of over $100mn before the crisis. From what little information is available, FFO has a fighting chance of staying in operation, but we know nothing about its balance sheet. We take some comfort from the opening of a new store in Kentucky as recently as May.
SCM – the only BDC with exposure – has invested $13.5mn in first lien, subordinated and equity in the company, and values the most senior capital at $4.4mn and the rest at zero as of June 30, 2020. The company was on the underperformers list from the IIIQ 2019 but Covid-19 precipitated the non accrual and substantial valuation write-downs.
We will continue to monitor the company’s progress from the public record and from whatever SCM lets us know. At this stage, with the investment written down by two-thirds and with no income coming in, SCM has more to gain than to lose.