We hear from trade publications that Vology Inc. has been sold to a company called ATSG. Here’s the given rationale:
Vology’s portfolio complements ATSG’s existing digital workplace, digital infrastructure, and cybersecurity services offerings, according to the company. The deal will bolster ATSG’s security, cloud, and managed services, the company said. The acquisition also strengthens its presence in the Southeast United States, ATSG said.Ty Trumbull Channel E To E – August 15, 2022
This acquisition is important to the BDC Credit Reporter’s readers because Logan Ridge Finance (LRFC) is a “control” investor, with debt, preferred and equity invested. For those of you interested in the history, Vology was initially a portfolio company of Capitala Finance, which advanced $9mn in the form of a subordinated loan in 2015. Years later, the company defaulted and Capitala and others stepped in to undertake a recapitalization. Very quickly the valuation of the “new” Vology dropped, while in the interim Capitala Finance was acquired by Logan Ridge Finance (LRFC).
As of the IIQ 2022, LRFC had $8.9mn invested at cost in Vology but the value was only $3.6mn – par value of the senior debt. Our credit rating was CCR 4 on the 5 point scale we use. We imagine the BDC’s manager must have been aware of the acquisition plan at that date, which suggests the company might be being sold for an enterprise value that will not result in any recovery beyond the senior debt. As a result, we’re guessing LRFC will be booking a realized loss of ($5.3mn) in the IIIQ 2022.
For the BDC there is no obvious good news here except for resolving a long term troubled investment, and being able to plow the proceeds from the debt repayment back into new investments of its own choosing.
For the BDC Credit Reporter, this illustrates our frequently made point that BDCs sometimes can successfully turnaround troubled portfolio companies, and sometimes not. Capitala/LRFC seem to have tried their best, but no cigar.
The Vology story – even though the business has found a home with a bigger player – is also a reminder that “technology” companies – broadly defined – are not necessarily immune from getting into trouble. With the BDC sector heavily invested in similar businesses, we should not be complacent. On the other hand, whatever challenges Vology has been facing, they do not appear to be of recent vintage – and cannot be called any sort of “canary in the coal mine” regarding current credit conditions. If anything, the fact that Vology has been acquired signals that new investment activity continues, even for less than perfect targets.