Black Angus Steakhouses: To Scale Down Operations

Restaurant chain Black Angus Steakhouses LLC has closed half of its eateries in response to the pandemic. This follows the earlier permanent closure of several locations in two states. According to the San Fernando Valley Business Journal the Sherman Oaks-based chain “now has 15 restaurants operating in California, Arizona, Washington and Hawaii. The company owns a total of 34 locations in five states“.

This is bad news for the two BDC lenders to the company: PhenixFIN (PFX) and non-traded Sierra Income. (Until recently PFX was managed by Medley Management which controls Sierra and was called Medley Capital or MCC). The two BDCs have advanced just short of $31mn in first lien debt to the company that was due 12/31/2020. However, the obligations have been on non accrual since the IQ 2020 and it’s unlikely the debt has been repaid since last we heard from PFX at the end of the IIIQ 2020. At that point, both BDCs were discounting their non income producing loans by (35%) – (38%).

Common sense suggests that things may go from worse to worser at Black Angus and a further reduction in the value of the debt investment will be forthcoming. We’re changing our outlook for ultimate resolution to a loss of (50%-75%) of cost. At the upper end of the range that might result in several million dollars of further write-downs in the BDC positions before this credit gets resolved in one way or another.

We’ll revert when we hear more from Black Angus or when Sierra and PFX report IVQ 2020 results.