Space IntelReport – basing itself off a company press release – indicates satellite operator Avanti Communications may be in a “spot of bother” as the British say in their understated way. Here is everything we learned from the trade publication, and which we were not able to duplicate elsewhere:
“[Avanti] is back on a cliff edge and facing a British Chapter 11-type restructuring as a bond payment deadline approaches that would trigger a broader default. Avanti said it was in “advanced discussions with a financing source” to cover the debt payment, due Feb. 8, but a recent change in Britain’s bankruptcy code could make a Chapter 11-type filing more appealing than a refinancing on onerous terms“.
BDC exposure to Avanti is “Major”, i.e. over $100mn, or $115mn to be exact as of September 30, 2020. Of that $103mn at cost is held by Great Elm (GECC) and the $12mn remainder by BlackRock TCP Capital (TCPC). At fair market value GECC has $39mn, split between debt and equity and TCPC $5mn. The latter BDC has some of its debt carried as non accrual but GECC does not. All GECC’s debt is paid is kind at rates that range from 9.5% and 12.0%.
We’ve written about Avanti both at the BDC Credit Reporter and at the BDC Reporter for years, ever since Great Elm contributed its position when taking over Full Circle Capital and changing the BDC’s ownership. The company has faced many financial challenges and has been restructured before, leaving the business hugely leveraged. This last challenge could be the proverbial straw but we have no way of really knowing.
If a British bankruptcy should occur, though, a day of reckoning might be here for the bulk of the GECC and TCPC exposure. Just over $100mn of the $115mn invested is in second lien and equity and is very unlikely to have any value. Even the roughly $15mn in “senior debt” might be subject to a haircut. This could prove the biggest BDC portfolio company mishap of 2021 so fat, admittedly only three weeks in.
Far and away most at risk is GECC, despite regularly writing down its position over the years. At cost Avanti represents 38% of GECC’s portfolio assets and a less overpowering 16% at FMV. Also importantly, Avanti seems to represent 17% of investment income, which is the equivalent of 50% of the BDC’s latest Net Investment Income.
“the company continues to grow revenue and EBITDA and unleveraged free cash flow. And we are pleased with that progress. We expect them to continue upon that trajectory and are hopeful that the continuation of that trajectory leads to a good result for our investment in the company and ultimately, a successful exit for our investment in the company“.