Maxus Carbon: Debt For Equity Swap

This is the fourth article we’ve written about Maxus Carbon’s, Apollo Investment’s (AINV) poorly performing project finance for a chemical plant that has been around for 7 years. Click here for the prior articles and to get caught up. After placing remaining debt on non accrual in the IIQ 2020, the BDC in the IIQ 2020 has quietly restructured its position in the company. Again. We say “quietly” because management made no mention of the conversion of the $30.4mn in first lien debt – albeit non performing – into equity on its IIIQ 2020 conference call transcript. This removed Maxus from AINV’s long list of companies on non accrual but – arguably – further weakened the BDC’s position on the company’s balance sheet, which is now all equity for $77.9mn at cost. Of course, no income is being received.

AINV valued some of its earlier equity at $24.9mn at FMV and the just converted debt at zero. Counter-intutively, the latest valuation is slightly higher than last quarter, which was for $22.6mn. At this point AINV has written down 69% of invested capital and has no income coming in. When this investment started out AINV made a $60mn loan and charged 13%. That’s ($7.8mn) of annual income lost along the way.

We are “upgrading” Maxus from CCR 5 to CCR 4 because technically no longer non performing. Still, at best this is a lateral move.

Based on the ever lower valuation and the debt to equity conversion, the BDC Credit Reporter does not hold up much hope and would not be surprised if AINV – one day – would write off the entire project. The current FMV of the investment would amount to about 2.5% of net assets as of September 2020.

As always we are at the mercy of AINV in terms of updates on the chemical plant’s progress. We’ll provide the latest disclosure next quarter of what remains – even with two thirds of the value written down – a material “Legacy” investment for the BDC and an almost certain dud once the final bill comes due.