AG Kings Holdings

About

High-end grocery chain located in New England.

BDC Credit Reporter View

6/8/2019: According to CSWC, one of two BDCs with exposure, the first lien debt remains on non accrual but performance is “generally the same” in a “tough business”. The valuation by CSWC was lowered slightly to (9%) from (6%) but WHF – which still carries the debt as performing – marked its position at (12%). Both are in the 2021 Term Loan. None of this is particularly encouraging and leaves open the possibility of a credit loss down the road whether in senior debt or not. With CSWC at $8.3mn in FMV and WHF at $11mn, the possibility of a moderate hit is possible. Nor are we pleased that both BDCs carried the Company at very modest discounts to par (2% and 6%) in the quarter before the non-accrual. No warning of trouble.

Highlights

6/13/2019: WHF places loan on non accrual and widens unrealized loss, suggesting a deteriorating situation at the Company. 

6/3/2019: CSWC discussed the Company on its IQ 2019 CC in response to a question:

Generally, the company is kind of performing generally the same. Management team is doing a great job managing a tough business, and the lender group is supportive of the business and kind of working through the situation. So that’s really all I can say about the company itself, though we brought the evaluation down slightly this quarter…

2/5/2019: CSWC management seeks to explain differential in valuation from WHF on IVQ 2018 CC:

Christopher John York, JMP Securities LLC, Research Division – MD & Senior Research Analyst

And then in reference to AG Kings, so another club lender had the loan marked at 94% versus your September 30 mark of 98% on the percentage of amortized path. So it appears the market is down to 92% in this quarter, but maybe just — I don’t think that BDC is recorded yet, but in November is the residual (inaudible) mark in there? What explains the previous quarter residual in valuation?

 Bowen S. Diehl, Capital Southwest Corporation – President, CEO & Director 

I don’t really know. I can’t speak for — I mean, it’s WhiteHorse is the other one in there that you’re probably referring to because they’re probably public BDC like us. And I can’t explain the difference between the 2. I mean, we’ve got our valuation process, actually, I’ll tell you that our valuations are — have always been within the range of our third-party valuation consultants’ range. And frankly, vast majority of the time, it’s been at the lower end of the range from our third-party consultant. So we try to be conservative — on the conservative end of correct. And frankly, there’s a debate, it would probably be interesting to see across the BDC space as why we put this on nonaccrual. We think it was the right thing to do based on the criteria we look at. We think that it would maybe in hindsight be viewed as conservative, who knows, but that’s what we decided to do. So last quarter, I don’t really know. I would tell you that it’s — that our valuation is within what our third-parties tell us, and so we tend to be conservative in that range. But I can’t really speak to WhiteHorse’s view on that.

IVQ 2018: CSWC carries the debt on non-accrual for first time. WHF does not.

We add Company to under-performing (CCR 5) for first time.

IIIQ 2016: CSWC and WHF initiate exposure in 2021 Term Loan for $23.2mn.