We last wrote about Furniture Factory Outlet LLC on August 1, 2020 when the situation at the retailer was dire. Now the only BDC lender – Stellus Capital (SCM) – has reported IIIQ 2020 results and written down its first lien debt to the company by (84%) from (67%) the quarter before. (The subordinated debt and equity remains valued at zero). The BDC did not offer up any more color on what’s happening but the valuation speaks for itself.
The BDC Credit Reporter maintains its CCR 5 rating that dates back to IQ 2020 and expects that a complete write-off (give or take a few hundred thousand dollars) might be the most likely final outcome. In dollars and cents that might mean a further ($2mn) write-down and a ($13mn) realized loss unless there’s a drastic turn of events. We’ve checked the public record and the company seems to be still in operation and has not filed for bankruptcy. Otherwise, though, the outlook seems grim for this SCM investment that dates back to 2016, but which began to weaken in the IQ 2020. Covid-19, though, has accelerated and amplified the downturn.
This particular investment is notable principally for illustrating that being in “first lien” position is no guarantee that the ultimate loss might be not be very high or even a complete write-off. Just scanning down a BDC’s filing for its percentage of portfolio assets in first lien, second lien and equity does not tell us much about default and recovery prospects. As always, one has to look under the hood of each borrower in turn, which is no easy task.
See the Company File here.