People who shouldn’t be talking have been about what’s happening at Belk’ Inc. , the regional department store. Negotiations have been going on – as we discussed in an earlier post – between Sycamore Partners and the company’s first and second lien lenders. “According to people with knowledge of the plans” – says Bloomberg – here’s a thumbnail of the plan:
“The restructuring plan involves handing 49.9% of the company’s equity to its lenders, with parent Sycamore retaining a 50.1% stake in exchange for supplying up to $100 million of a new $225 million loan to the company, according to the people“. Plus, the company will make a quick run through bankruptcy court – one day is the goal – and come out the other side. Late February 2021 is the when this is all supposed to come down. That’s the theory anyway.
$450mn of current debt will vanish from Belk’s balance sheet, but will also add $225mn of new debt , of which $100mn might be supplied by Sycamore. We say “might” because the deal envisages Sycamore generously letting hungry lenders provide up to $65mn of its share of the new debt. There’s more besides, including juicy fees, and existing debt maturities being pushed out tp 2025 from 2023.
Given this is all hearsay – even if from people in the room where it happens – and subject to further amendation by the parties involved or by the court brought in to rubber stamp this deal doing, we won’t linger on the details till we hear something more definitive. Mostly the BDC Credit Reporter wants to emphasize that the Belk’s story is finally reaching some sort of conclusion a year after the second lien debt became non performing. (The first lien debt joined in in the IIIQ 2020). We still expect – equity notwithstanding – that major realized losses will need to be booked – see our earlier article. Furthermore – and this is new but not unexpected – the two key BDC lenders involved – FS KKR Capital (FSK) and FS KKR Capital II – will be putting up some share of the new debt monies as well. This could bring total BDC exposure up from $148mn to near $200mn, or possibly more.
This will be an excellent test of how these two BDCs fare in seeking to act as their own turnaround firm rather than taking the loss and walking away. Clearly there are a lot of the best and the brightest involved in this Chapter Two for a quintessential brick and mortar retailer, both on the lending side and from private equity. However, that’s no guarantee of success and the BDC Credit Reporter remains skeptical and in need of convincing this will all turn out alright. We’ll be back to you shortly.