Swipe Acquisition Corp: Restructuring Completed

Swipe Acquisition Corp is a manufacturer of gift cards and hotel key cards and – unsurprisingly – was badly impacted by Covid-19. As recently as the IQ 2020 the company was marked as performing to plan but quickly downshifted to underperforming and then to non performing by the IIIQ 2020. We now learn that the business has been taken over by its lenders in a debt for equity swap, which occurred in the IVQ 2020. One of those lenders – Owl Rock Capital (PRCC), on its February 24, 2021 outlined what has happened in recent weeks :

In order to best position the company in the near term, we rightsized the outstanding debt amount and equitize the remainder of the debt balance.”

From Advantage Data’s records we know that the Owl Rock organization – which includes non-traded Owl Rock Capital II – had $176mn advanced in senior debt to Swipe as of September 2020. We don’t have yet have ORCC II’s results, but we can see that ORCC’s own investment at cost in Stripe debt has dropped from $156mn in debt to $52mn in the post-restructuring IVQ. We know that the BDC took a realized loss of ($51mn), virtually all Swipe related.

In addition, $48mn is booked from the IVQ 2020 under “New PLI Holdings” as a common stock investment. That’s where the debt for equity swapping occurs. All of that does not recognize to the last dollar but indicates ORCC has roughly already written off one-third of its initial capital and reduced its investment income by two-thirds. That’s ($8.5mn) of annual investment income forgone.

This is a big move for Owl Rock – according to management on its conference call – making the move to owner/lender from solely a lender. Only time will tell if i) the company requires additional capital; ii) the asset manager is successful at effecting a turnaround. Still, this is an example of what we’ve been calling out for some time: the ever increasing willingness of BDCs of all stripes to turn around their own failed investments. (That must be frustrating to all those “distressed” investments funds waiting around for opportunities like Swipe). For investors in BDCs the increasing number of “control” investments created in this way make evaluating BDC value and performance more difficult than in the past.

For the moment, the BDC Credit Reporter has upgraded Swipe/PLI to CCR 3 from CCR 5, given the restructuring and the return to accrual status. We’ll continue to offer updates in the quarters ahead.