General Nutrition Inc: Company Sold

On October 7, 2020 General Nutrition Inc (parent General Nutrition Holdings) was sold to Chinese-firm Harbin Pharmaceuticals as previously agreed to by the bankruptcy court. Just as well given that the $780mn purchase offer for the troubled supplements retailer was the only one on the table. Thankful creditors – both secured and unsecured – overwhelmingly voted for the Harbin plan even though virtually every constituency will lose money. General Nutrition admitted to owing $895mn when first filing bankruptcy. As to the future of the company ? “New GNC will be a wholly owned subsidiary of Harbin and registered in Delaware as a limited liability company“.

For the only BDC involved – publicly traded Harvest Capital (HCAP) – this will be a relief and may even involve in some improvement in net proceeds than the (63%) discount booked as of June 2020 on its $4.0mn in first lien term debt to GNC. Furthermore, as revealed in a footnote in the 10-Q, HCAP advanced additional monies as well:

Subsequent to GNC’s bankruptcy filing and quarter-end, the Company [HCAP] invested $1.0 million in a debtor-in-possession term loan to GNC, which carries an interest rate of LIBOR + 13.0% with a 1.00% LIBOR floor. In addition, the Company converted approximately $1.0 million of its existing senior secured term loan into a new first lien first-out term loan that carries an interest rate of L + 10.0%“. 

We can’t tell you exactly how much of the $5.0mn at cost that HCAP has advanced will end up back in the BDC’s pocket but – we’ll guess – more than $3.0mn. That suggests any realized loss will be minimal, even though HCAP will be losing a nice little 14% earning asset in that DIP loan mentioned above. More importantly, the BDC will have $3mn or more to recycle into new investments or to pay its April dividend, which has been declared but no payment date set. The GNC final tally will show up in the IVQ 2020 books.

We are re-rating General Nutrition to CCR 6 (no longer a BDC portfolio company) from CCR 5. If we’re right, this could be an almost happy ending for a credit that HCAP booked in IQ 2019 and which performed normally till 2020 when Covid-19 was its undoing. This also removes one more BDC-financed portfolio company from the ranks of the bankruptcy list. There are now more exits than entries as troubled companies like GNC get sorted out in a variety of ways.