AG Kings Holdings: IIIQ 2020 Update

We have just heard from one of the two BDC lenders to AG Kings HoldingsCapital Southwest Corporation (CSWC) about where things stand for the grocery chain in bankruptcy. Apparently, the purchase of the business by Albertson’s is proceeding. CSWC had only this to say ” That’s in process of closing/documentation process“. As of September 2020, CSWC is valuing its non performing senior debt (except for a DIP loan which is valued at par) at a (26%) discount. That’s better than two quarters ago when the debt was discounted by as much as (48%).

Given that we seem to be in the final furlong, the BDC Credit Reporter believes the current valuation is likely to be very close to the final outcome. That means CSWC will be booking a permanent ($2mn) realized loss, but will be recouping $6mn or so (including that DIP advance) to reinvest into new deals elsewhere. Chances are good that will show up by year end 2020.

Also affected is WhiteHorse Finance (WHF) – which has not reported yet – but which holds a much bigger position and much of which was recently added. We’ll refrain from guessing what loss – if any – WHF might incur till that BDC files its results.

At a time when so many troubled companies are finding an exit only by a “debt for equity swap” with their lenders, this outcome is more traditional with a sale to a third party. Ironically, AG Kings was lucky enough to be in the right segment of the food and supplies business in the time of Covid-19, which has reduced what looked like a significant loss for the lenders to a modest one. We expect to be able to close the file when CSWC and WHF report IVQ 2020 results, or by IQ 2021 at the latest.