Teligent, Inc.: Liquidation Of Company Completed

On July 26, 2022 pharmaceutical company Teligent Inc. officially went out of business because its assets were ordered liquidated by a bankruptcy court earlier in the month.

We last wrote about the company back on April 12, 2022. At that time, we estimated that the only BDC with exposure to the company – Ares Capital (ARCC) might end up booking a realized loss of ($57mn). We did admit, though, that these are difficult numbers to get right.

Now, with the IIQ 2022 ARCC 10-Q at hand, the likely realized loss is likely to be lower than we anticipated. Some $68.8mn remains invested at cost and the FMV is $39.3mn, which suggests the BDC will need to take a realized loss of ($29.5mn)- likely to show up in the IIIQ 2022 numbers. This quarter’s FMV is slightly higher than the $39.1mn valuation at the end of the IQ 2022.

Through the first half of 2022, ARCC has booked $55mn in net realized gains. If this Teligent realized loss happens, most of that realized gain will be wiped out, but there should be no further impact on the BDC’s net asset value. Moreover, ARCC will have nearly $40mn to re-invest into new deals.

Teligent’s troubles – as far as we can tell – were self inflicted, and liability risk so substantial that liquidation was the only way out. For ARCC – which saw the company quickly go from performing normally to non performing in the IIQ 2020 – this has been a long and winding road. The BDC seems to have taken equity control of the business back when the defaults occurred in the hope of turning Teligent around. However, those ambitions did not last and the liquidation followed.

We continue to rate the company CCR 5, but expect to drop coverage going forward as the asset is written off the books once and for all. For ARCC, this is a material – but not huge reverse. The likely realized loss is equal to just 0.3% of ARCC’s net asset value at June 30, 2022. There has been no income being generated since 2020.