Country Fresh Holdings LLC: Files Chapter 11

On February 16, 2021 fresh food distributor Country Fresh Holdings LLC filed for Chapter 11 in Texas.

Pandemic-related supply chain and business disruptions have affected Country Fresh and our customers dramatically over the past year,” said Bill Andersen, Country Fresh President and CEO. “Despite efforts to improve company results before and during COVID, we believe that this sale transaction will result in a better capitalized company and positions our customers, suppliers, employees, and all other stakeholders for maximum success going forward.”

The company already has a “stalking horse” bidder in place in the form of PE group Stellex Group and has arranged debtor-in-possession financing with certain of its existing lenders, who were not named. Country Fresh hopes to go through the bankruptcy process in 60 days.

BDC exposure to Country Fresh is significant and includes 4 public and non-traded funds. Leading the group – and the earliest lender – is PennantPark Floating Rate Capital (PFLT) which has $23mn invested in the form of “super senior” term debt; a second lien loan and equity. Only PFLT has reported IVQ 2020 results so far and placed its $5.9mn second lien loan on non accrual for the first time. The other loans were still performing at the end of 2020, but are likely now on non accrual as well. PFLT also has $10.5mn of equity in the company which has been written to zero for the past 3 quarters and is likely to stay there.

Also with substantial exposure is non-traded Cion Investment while Goldman Sachs BDC (GSBD) and Goldman Sachs Private Middle Market Fund have tiny equity stakes left over from a 2019 restructuring and written off already on an unrealized basis.

At first approach, we’d guess PFLT and Cion might be involved in the DIP financing and are likely to receive back their “super senior term loan advances”. Still, realized losses are likely to be substantial: over ($25mn) , or 77% of all capital advanced because mostly concentrated in the second lien and equity. If the “super senior” don’t pay interest investment income will be forgone from the IQ 2021 forward, but may get recouped when the business is sold.

This is second time not the charm for PFLT and Cion, both who were involved in Country Fresh’s earlier restructuring in 2019, which resulted in ($7.1mn) in realized losses at the time for PFLT.

Also notable is that Country Fresh – by our count – is just the fourth BDC-financed company to file for Chapter 11 in 2021. Whether the BDCs involved will convert debt to equity and/or advance new monies in the form of loans or equity is not yet clear. We’ll circle back when we learn more.