Limetree Bay Ventures LLC is the holding company for a refinery and terminals owned by EIG Global Equity Partners. The businesses are held in separate subsidiary companies. On July 12, 2021, Limetree Bay Refining LLC filed for bankruptcy protection in the State of Texas, although the business operates out of the U.S. Virgin Islands. As this attached article makes clear, the terminals business has not (yet ?) filed for bankruptcy protection.
All BDC exposure – which totals $301mn – is to Limetree Bay Ventures LLC – and consists of first lien debt, subordinated debt, preferred and equity. At March 31, 2021 – weeks before the refinery was closed by the EPA and before liquidity ran out – all the equity, preferred and subordinated had been written to zero. The senior debt had a fair market value of $151mn. However, given what we’ve read from multiple sources about the financial and ecological disaster engendered by Limetree, we’d be very surprised if this does not end up being a complete write-off.
The only BDC with exposure is FS Energy & Power Fund, which began advancing $75mn in 2018 and has managed to quadruple its exposure in the intervening period. At March 31, 2021, all the debt was already on non accrual. As a result, the likely greatest impact on the BDC might be a further ($151mn) unrealized loss – which will likely be booked in the IIQ 2021. The realized loss that we expect will have to await the resolution of this bankruptcy and others that may occur. (The company is rated CCR 5 – due to the non accrual – and added to our Trending List because we expect the next set of FS Energy’s results to reflect drastic change in value).
This is obviously a major exposure for FS Energy. The $151mn of value remaining is equal to 10% of the non-traded BDC’s net book value, and continues a long list of energy faux pas that has resulted in half its equity capital being written down or off. A quick look down the BDC’s portfolio company list suggests, though, that Limetree is the biggest single exposure at cost remaining on its books.
We’ll circle back as we learn more in the weeks ahead, but at this stage “disaster” is writ large for both Limetree and FS Energy.