Constellis Holdings: Added To Under-Performing List

With the publication of the IIQ 2019 valuations by 8 BDCs with $107mn in various forms of debt exposure (2022-2024 and both senior and second lien), we’ve added Constellis Holdings to our under-performers list with an initial rating of CCR 3 (Watch List). The debt has been discounted between (6%-30%) from 0% to (5%) in the prior quarter.

This is not surprising as there has been a massive number of changes in senior management in recent months and downgrades from both S&P and Moody’s in the spring, worried about high leverage; cash flow losses and operational challenges. For the BDC sector, this is very big exposure in aggregate, with annual income of approx. $9mn at risk should the company default down the road. With that said $90mn of the debt is held by the three FS-KKR non traded BDCs (FS II-III and IV), which are intending to go public under one banner before long. How Constellis plays out will be of above average interest at FS Investment-KKR in the quarters ahead.

Green Biologics: Closes Down Operations

According to news reports, UK-based Green Biologics, Inc., whose plant is based in Minnesota, is closing down its U.S. operations. (We’re not clear if there are operations elsewhere). Since 2015, the company – which¬† produces acetone and 1-butanol via fermentation at a modified ethanol plant in Little Falls, Minnesota – has sought to become commercially viable. However, the board of the company has admitted to being unable to access additional funding to get the business to break-even and has chosen to close down, letting 50 staff go. Information in the public record is minimal but BlackRock TCP Capital (TCPC) appears to be the only BDC with exposure. The amount at risk at March 31 2019 was $20.5mn at cost ($34mn of face value) and valued at just $3.2mn. The exposure is all in equity, but till recently TCPC had both debt and equity exposure. We assume that debt was converted into equity in recent months as creditors and owners sought to find a way to stay afloat. We’re guessing TCPC will be taking a significant Realized Loss when the time comes – which might be in the IIIQ – and be possibly writing down at the end of June even the small amount of FMV on its books. Some other scenario is always possible but no word yet of any other alternative but liquidation of what was a major capital investment, reportedly beginning with $100mn committed in 2015. Technically speaking , till we hear otherwise, Green Biologics is not yet in Chapter 11, so we’re not adding the company to the BDC Reporter’s Bankruptcy List. If we did or do so in the future, that would bring the number of bankrupt BDC portfolio companies at 21.

Fuse Media: Files For Bankruptcy

On April 23, 2019, Jennifer Lopez backed Fuse Media filed for a pre-packaged Chapter 11 bankruptcy, seeking to unload $200mn of debt of $242mn on books. For only BDC with exposure РTCPC Рthat likely means the realizing of the $0.300mn invested at cost and already written down to zero. We have no Company File as Fuse Media was not a material investment.