Avanti Communications: Great Elm Capital Write-Downs

On May 9, 2021, the BDC Credit Reporter indicated that satellite operator Avanti Communications has seen its balance sheet restructured again. We also projected that the company’s main lender and substantive investor – Great Elm Capital (GECC) – would place any performing loan on non accrual and write-down – or off – the remaining $8mn value in Avanti carried at December 31, 2021:

We’ve not yet heard from GECC regarding IQ 2022 but everything points to all debt owed either being placed on non accrual or written off. As a result, realized losses are likely to be on the way. As far as we know, GECC and the other BDC lenders may have no debt outstanding in the restructured company. Even if they do, the huge Avanti exposure that has been around for years must have virtually no remaining value. For GECC, the $8mn of value left in Avanti at year-end will likely drop to an immaterial $0-$3mn when all the dust settles.

BDC Credit Reporter – Avanti Communications : Completes Restructuring May 9, 2022

On May 11, 2022 GECC reported IQ 2022 results and – as expected – placed the two performing loan tranches: Avanti 1.25 Lien Loan and 1.125 Lien Loan on non-accrual as of March 31, 2022, ” with any accrued but uncapitalized interest income reversed as of the accrual date”. All 4 types of debt held by GECC, amounting to $66mn at cost, are now non performing.

GECC – which had already written its $50.7mn of equity investment in Avanti to zero in previous quarters, wrote down the $8mn of remaining value in the Avanti debt to just $0.6mn – as we had anticipated. The debt will be converted to equity but is unlikely to have any value and may become a realized loss before long. In addition, we learned that new funds were advanced recently to Avanti but GECC – unlike in prior times – did not participate.

With these moves, the $117mn invested at cost by GECC in Avanti has been written down by (99.5%). No further income is being generated. The two most recent loans placed on non accrual generated $0.7mn annually in investment income by our estimate.

As we’ve said previously, the Avanti story is not yet over, but for the two public BDCs involved – which includes BlackRock TCP Capital (TCPC) with GECC – $130mn invested in the debt and equity of the satellite operator has a remaining value of just over $1mn and no investment income is being generated.

This is a credit disaster that’s been a very long time coming as Avanti – to any outside observer – has seemed way over-leveraged and unviable for years. For TCPC this is a modest reverse, given its size and relatively modest exposure. For GECC, Avanti has been its biggest investment and a major income producer till recently and frequently required special disclosures in its financial statements. Now Avanti – for better or worse – is a negligible part of the BDC’s portfolio, which is now dominated by a handful of specialty finance investments.