Shared work-space company Knotel Inc. has filed Chapter 11 on January 30, 2021, according to multiple reports. We quote below from the company’s press release on the subject:
“As part of its strategic path forward, Knotel has reached an agreement to sell the business to an affiliate of Newmark Group, Inc. (Nasdaq: NMRK) (“Newmark”), a leading full-service commercial real estate firm. The Company has also made the decision to exit multiple locations in the U.S. as part of the process“.
Not so long ago Knotel was an investor darling with an enterprise value of over $1.0bn, but then the pandemic came along and you can guess the rest, especially if you’ve followed the travails of better known competitor WeWork.
From a BDC perspective, there is only one fund involved: publicly traded, venture oriented TriplePoint Venture Growth (TPVG_ that has been involved since IQ 2019. (Bain Capital Specialty Finance – or BCSF – was a lender briefly in 2019 but has long departed). TPVG has invested as of September 30, 2020 a significant $31.1mn in Knotel, almost all in the form of senior debt due in 2022 and 2023. This has been generating close to $3.0mn in annual investment income and was performing last time TPVG reported. The BDC Reporter had a CCR 3 rating on the company, just added in the most recent quarter.
However, we’ve also learned from Bloomberg that in the month prior to the bankruptcy filing, an affiliate of the group that seeks to acquire the business has bought out the first and second lien lenders. That suggests there is no further BDC exposure to Knotel and we’re changing our rating from CCR 3 to CCR 6. Effectively, the company went bankrupt after TPVG – and the other lenders departed – but we’re still counting this on the BDC Credit reporter’s soon to be world famous Bankruptcy List. What we don’t know – and these details matter – is whether the debt was sold at par, including accrued interest – or at a discount. We assume the $0.160mn invested in preferred by TPVG will be lost.
Overall – and making some optimistic assumptions – it seems like TPVG may have (largely) dodged the Knotel bullet helped by a market full of buyers looking for opportunity and its position towards the top of Knotel’s balance sheet. We will learn more – most likely – when IVQ 2020 results are discussed.