Incipio, LLC (also carried as Incipio Technologies) “designs and manufactures mobile device accessories. The Company produces and markets travel bags, nylon cases, sleeves, universal travel kits, headphones, audio visual solutions, and power solutions for personal computers and mobile devices“. According to a press release on August 30, 2021, investment group Armor Acquisition “announced the acquisition of the Incipio, Incase, Survivor and Griffin brands, along with select licensed category brands, from Incipio, LLC”. No terms were announced in that press release.
For the only BDC lender – Monroe Capital (MRCC) – with exposure to Incipio, this seems to mark the end of a long and twisted journey. The BDC first advanced funds to Incipio in the IVQ 2014 in the form of a $5.4mn unitranche loan. Quickly exposure increased to reach $14.7mn within a couple of years, still in unitranche debt. (Here’s an article regarding the initial acquisition of the company, which indicates that Monroe Capital LLC – the advisor of the BDC – was advancing $55mn to the business. This suggests MRCC has been sharing exposure with other Monroe funds).
By IQ 2018, MRCC had two unitranche loans – maturing in 2019 – with a cost of $15.8mn to Incipio, valued close to par. Out of the blue, in the IIQ 2018 the debt was restructured, additional capital advanced and two PIK instruments added with a par value of $10.960mn but involving no cost. Those instruments – which represent some sort of exit fee arranged as part of the restructuring – were placed on non accrual.
In subsequent quarters, MRCC continued to advance more funds to Incipio, peaking at $24.8mn at cost. From the IQ 2020 – probably due to the pandemic – one of the tranches of unitranche debt advanced also became non performing. By IIQ 2021 MRCC had 6 unitranche loans outstanding – all of which (along with that exit fee/PIK) – were on non accrual and maturing in 2022. The aggregate fair value of these investments was $7.0mn, slightly down from the prior quarter. That’s a (72%) discount from cost and some $2.2mn of annual investment income not being received from the loans.
We did find the public filing that indicated Armor Acquisition was designated the “stalking horse” bidder for Incipio’s assets in a transaction that occurred July 26, 2021. That filing gave the amount to be paid in the form of “cash or non-cash proceeds” as $155.8 mn, split between $135,816,379 term debt owed to Monroe and $20.0mn to secured Revolver lenders. This suggests the unitranche debt was repaid in full. Chances are the exit fee/PIK instruments and no cost equity MRCC owns will have no value. None of this can be confirmed as we’ve not been able to find the confirmatory filing of the asset sale.
As of June 2021, MRCC had 12 non performing portfolio companies, including Incipio. Management has been optimistic about getting satisfactory credit resolutions as has occurred at times in the past. In this case, the odds are looking good that MRCC has been repaid pretty much in full. If so, MRCC will be able to recoup over $17mn of value, and redeploy proceeds into new income generating assets shortly. We’ll know for sure when the BDC reports IIIQ 2021 results.