Posts for Cion Investment Corporation

Tensar Corp: Added To Under Performers

On March 25, 2020, we added Tensar Corp. – previously rated as performing and CCR 2 – as under-performing and CCR 3, our Watch List. The global engineering’ company’s downgrade was due principally to what has happened to the value of its 2021 Term Loan, which has been discounted by (30%) in the market and a 2022 Term Loan which is off by (40%). Otherwise, we have very little new information about the company except that its plant in Wuhan (!) has recently reopened after being closed because of you-know-what.

There are 4 BDCs with exposure that totals $49.8mn and all in the 2021 Term Loan. The larger exposure is publicly traded Pennant Park Floating Rate (PFLT) with $22.5mn. Also a lender is Great Elm (GECC), which has been adding to its position of late, and non-traded Sierra Income and Cion Investment. At year end 2019, the debt was only modestly discounted by the BDCs involved. In years past Tensar had some difficulties and had a speculative rating from Moody’s but since IVQ 2016 has been valued closer to par and given a B- rating by S&P.

Frankly, we understand very little about the company’s most recent performance and how much Covid-19 has affected its business, although its website admits management is taking all precautions. Apparently, all the company’s factories are open but that does not tell us much. The drop in the debt value – which only accelerated in the last few days – might be a knee-jerk market reaction, or something else. We’re not ready yet to assume a realized loss will occur down the road, but we’ll be looking out for news from the company, the press or the rating groups. At the moment, though, we expect this credit will return to performing status when the world gets back to work, but you never know in these unprecedented conditions for leveraged companies.

KLO Acquisition: Closes Plant

We don’t have the full picture on KLO Acquisition (aka Hemisphere Design Works). As always with privately-held companies with financial difficulties, information is doled out unevenly. We most recently wrote about the company – which boasted of being the largest manufacturer of kayaks over several brands – back on November 24, 2019.

Now we hear from local publications that the manufacturer is preparing to close a third – and final – manufacturing plant in Muskegon, Michigan. As required by law, the company informed its employees and the state, on January 27, 2020 of the projected closure of a plant at Remembrance Road in Muskegon. In October 2019 two other plants in the town were officially slated for closure.

That does not mean the company is out of business. Management may be retrenching to other facilities in other areas. However, the news does suggest that the troubles that have plagued the company – a combination of of Muskegon-based KL Outdoor and Montreal, Canada-based GSC Technologies – have not abated.

The public debt in which the two BDCs with $16.6mn of exposure at cost continues to be on non-accrual and discounted by two-thirds in value. We hope to hear more – and get fresh valuations – when Apollo Investment (AINV) and sister non-traded BDC Cion Investment report results in the next few weeks. At the moment, though, this “first lien” loan investment in KLO looks like a bust, with likely realized losses of ($11mn) or more. That’s twice the amount provided for at September 30, 2020 so chances are we’ll see further write-downs in the IVQ 2019 results.

Harland Clarke Holdings: Dispute Between Creditors

Back on November 29, 2019 when we first wrote about Harland Clarke Holdings Corp. we warned that we might be writing again about the troubled check printer before long. That’s because the day of reckoning about how to handle debt maturing was fast approaching. Just three weeks later and we hear from the Wall Street Journal that the struggle to reorganize the company’s balance sheet is underway.

Apparently, the company has reached out to junior creditors to swap their claims for cash or more senior ranked debt. As you might expect, the existing senior lenders are not happy about such a move. That’s all we know for now, but we see that the value of the 2023 Term Loan held by Cion Investment – the only BDC lender to the company – has dropped from a (21%) discount at September 30, 2019 to (28%). We’re quoting from Advantage Data’s Syndicated Loans real-time pricing module.

The BDC Credit Reporter is still new to this particular under-performing company, but it’s fair to say that all the ingredients exist for a default or restructuring that could happen sooner rather than later and would affect Cion and many other creditors. Nearly $0.900mn of investment income is at risk of interruption for the sole BDC with exposure, and a further unrealized depreciation is likely when IVQ 2019 results are published. We expect to posting about the company once again before too much time passes.

Murray Energy: Lenders Seek To Acquire Company

As we’ve written about earlier, controversial coal company Murray Energy is in Chapter 11. According to Law360, though, progress is being made towards a plan that will get Murray out of Chapter 11. Apparently, senior lenders with $1.7bn of debt outstanding have clubbed together to offer themselves as a buyer for essentially all the company’s assets. Given that so much of business news is hidden behind a paywall – an ironic complaint from the publisher of the BDC Reporter with its own premium version – we don’t know many of the details.

Speculating, though, remains free. Should the senior lenders successfully become the buyers of the highly troubled company in a declining industry – the likely format is the exchange of much – if not all – existing debt for equity. Most likely, new monies would have to be advanced by those same lenders in some form as well. For the 6 BDCs involved with $52.5mn of debt exposure at September 30, 2019, that’s likely to mean no or little income forthcoming from capital already invested and the prospect of dipping into their pockets for more advances. The $5.7mn of investment income that was being collected before the filing is unlikely to be returning any time soon.

Most affected by the Murray Energy debacle is the FS-KKR complex with roughly $40mn of the BDC debt outstanding, led by FS-KKR Capital (FSK) with $18.9mn already at risk, according to Advantage Data.

How this all plays out remains up in the air, and is subject to further updates before Murray exits bankruptcy court protection. Even after that, given the industry in which the company operates, we imagine we’ll be discussing the company – possibly under a new name – for some time to come as its lenders seem to be digging in.

Harland Clarke Holdings: Downgraded By Moody’s

On November 25, 2019 downgraded Harland Clarke Holdings to Caa1 from B3, amongst other measures. Frankly, the company was not even in our database because held exclusively by a non-listed BDC (Cion Investment), but has now been added to the under-performing company list with a Corporate Credit Rating of 4 (Worry List). Based on valuation, the company should have been rated an under-performer since IQ 2019, when Cion’s position in the company’s 2023 debt was discounted to (15%) from (9%) the quarter before. At September 30, 2019, the discount had risen to (21%). Currently, the traded debt is at a (25%) discount. Cion has, according to Advantage Data, $13.3mn invested at cost, and nearly $0.9mn of investment income at risk.

What ails Harland Clarke, if Moody’s is to be believed ? A secular decline in the business, alongside high debt to adjusted EBITDA of 6.3x (so what’s new ?) and weak liquidity. That’s certainly enough to win the company a place on the under-performing list. Given that there is a major debt maturity coming up in 2021 (just around the corner in credit terms), the rubber will need to meet the road soon. We expect to be updating readers before long, but at first blush, we expect Cion may have to take a multi-million realized loss at some point in the medium term.

KLO Acquisition: Further Details On Credit Problems

We first wrote about KLO Acquisition (aka Hemisphere Design Works) back on November 3, 2019, although the company has been on non-accrual since the IIQ 2019. Then – and now – we were concerned about the future of the world’s largest kayak manufacturer. With Apollo Investment’s (AINV) IIIQ 2019 Conference Call, we have learned a little more about what ails the company and what to expect next, albeit in that shorthand that BDCs use when conveying bad news about a portfolio company. Here is what was said:

Regarding KLO, our investment was placed on non accrual status last quarter due to the underperformance from lower customer demand, consolidation challenges and higher costs. The company’s liquidity position has continued to weaken. The company expects to complete a comprehensive restructuring in the coming months“.

The credit is already rated CCR 5 (Non Accrual), but AINV reduced its fair market value to $4.8mn from $11.8mn at the end of June. That suggests the BDC expects – despite its first lien secured status – a major haircut from the $13.9mn at cost. We also have a Bankruptcy Imminent rating on the company, which would include any kind of major restructuring that would occur. Given what little AINV grudgingly revealed that seems on the cards at any moment.

KLO Acquisition: Laying Off Employees

A news report on October 29, 2019 indicated Hemisphere Design Works (the new name of KLO Acquisition, also known as KLO Intermediate Acquisition or KLO) is laying off employees and shutting down operations in Muskegon,MI.

Phones were turned off at the company’s headquarters in downtown Muskegon and doors were locked at the Muskegon Lake-front headquarters.

According to a notice of the facility’s closing obtained by Muskegon Chronicle/MLive.com from a Hemisphere employee, the company plans to close its operations at 1790 and 1880 Sun Dolphin Drive in Muskegon, but did not specify when the closure would become permanent.

There was more damning information in the article which suggests that the manufacturer’s problems involve more than work force reduction, but might result in Chapter 11 or Chapter 7 liquidation.

 The company admitted in a letter to experiencing “challenging business circumstances” and that they had been working to secure additional funding sources, but had failed.

Although we anticipated receiving additional capital as we worked through these circumstances, we have now learned that the term lender will not provide additional funding,” the letter reads.

One employee said workers were told Dicks Sporting Goods had canceled a major contract for kayaks, leading to financial troubles and a bank taking control of the company. There have been other layoffs and work slow-downs leading up to Tuesday’s announcement, he said.

There are two BDCs with exposure, which totals $16.1mn, both in the 2022 Term Loan and which has been on non-accrual at the end of the IIQ 2019. Apollo Investment (AINV) has a $5mn position, with the rest held by non-listed Cion Investment. The debt is priced at LIBOR + 775 bps. and valued at a (14%) discount as of mid-year. More recently, the debt – which is institutionally traded – was valued a little lower but we don’t know if that reflects real market value. From what we’ve learned to date, including this damning expose, things could go from bad to worse. Here’s an extract to give you a sense:

After the company moved employees into a facility behind Pizza Ranch in East Muskegon, Kolberg [a former employee] said there were significant issues, from little heat to plumbing problems (things got so bad that Kolberg said employees would often use the portable toilet outside their office).

People actually started to go to the bathroom on the floor in the building,” Kolberg said. “After that happened, human resources came over and said one day a month, each person would have to clean the bathroom. When someone said they wouldn’t, she [the human resources employee] said, ‘You will or there will be disciplinary action.

We are adding the company – the world’s largest kayak manufacturer – to our Bankruptcy Imminent List (our version of Loans Of Concern that the rating groups publish).

Murray Energy: Files For Chapter 11

Back on September 13, we wrote when first posting about Murray Energy: “We don’t want to bury the lead: Murray Energy is likely to file for bankruptcy or re-organize and the BDC lenders involved are going to absorb some rather large losses“. On October 29, 2019 the coal company filed for Chapter 11 protection.

Given that we have already quoted ourselves once, here is what we said about BDC exposure at the time, which remains the most up to date picture we have:

BDC exposure totals $52.4mn, spread over 6 BDCs. These include publicly traded FS-KKR Capital (FSK) and three sister non-traded BDCs funds (FSIC IIFSIC III and FSIC IV but not – surprisingly – FS Energy). Then there are two others: Cion Investment and Business Development Corporation Of America.The exposure is in two different loans, one which matures in 2021 and the other in 2022. The debt has been on our under-performing list since IVQ 2018 and is currently rated CCR 4 (Worry List), where the chances of an eventual loss are greater than a full recovery.

As of June 2019, the 2021 debt was carried at par but the 2022 debt was discounted by a third. Currently, though, the 2022 debt trades at twice that discount, suggesting holders are not optimistic. We wouldn’t be surprised to see the 2022 debt fully written off once the dust settles, which would result in ($8.5mn) of further losses and ($12.5mn) in Realized Losses, to be absorbed by Cion and BDCA. Less clear is what might happen to the 2021 debt, which still trades at par. We won’t speculate at this point but will point out that – overall – $5.5mn of annual investment income is at risk.

This was a useful first test of our Bankruptcy Imminent list, on which Murray Energy had been placed since October 4, 2019, when we were told the company’s banks were in forbearance. Like snow in May, loan forbearances rarely stays around for long – unless you’re Greece.

We won’t speculate too much about the way forward at this stage or try to evaluate how much more capital the existing BDC lenders might advance and what ultimate credit and investment income losses might look like. We’ll wait till more is heard about Murray’s exit plans and just how bad its financial position is. Even if the coal giant does successfully leave Chapter 11, with coal industry fundamentals headed ever further downwards, any remaining BDC exposure post-bankruptcy will remain on the under-performing list.

Deluxe Entertainment: Receives Court Approval To Exit Chapter 11

Deluxe Entertainment Group will be shortly exiting from bankruptcy, after receiving court approval of a “comprehensive refinancing”. According to the company’s press release – which is short on details but big on reassurances – debt will be cut “by more than half” and $115mn of new financing will come available. If Bloomberg Law is correct, $800mn of debt will be written off. Bankruptcy should be officially exited within a month.

We’ve written extensively about this bankruptcy, and we will again. After all, the BDC lenders involved seem to be moving from creditors to owners, or maybe both. Most likely, any realized loss to be taken will occur in the IVQ for Harvest Capital (HCAP) and non-listed Cion Investment and TP Flexible Income Fund. Before that, we’re likely to see an unrealized write-down in the IIIQ results, given that HCAP was carrying its debt investment at par as of June 2019, while the other two BDCs discounted their positions no more than (10%).

Even after the company exits Chapter 11, we will continue to carry Deluxe on our under-performing list for an indefinite period. The weakness in the underlying business has not been eliminated by this partial de-leveraging and years may yet pass before the BDCs involved – who began lending back in 2017 – can exit this credit.

Deluxe Entertainment: Additional Info About Credit Troubles

In a broader article by Bloomberg BusinessWeek about the CLO market, was a useful backgrounder on what happened to Deluxe Entertainment Group that caused the company to recently file for bankruptcy:

Deluxe Entertainment Services Group Inc. shows just how quickly liquidity in the leveraged loan market can evaporate. A postproduction media services company for the film industry, Deluxe has struggled with a changing digital media landscape in Hollywood and an increasingly burdensome debt load. But with tens of billions pouring into the leveraged loan market and a CLO machine cranking out deal after deal, Deluxe and its owner, Ronald Perelman’s MacAndrews & Forbes, had little trouble in recent years raising new debt to keep the company afloat.

Deluxe refinanced its debt in 2014, getting enough demand from investors that it was able to upsize its loan by $35 million, to $605 million, and cut its interest rate by a full percentage point. Two years later, the company returned to the market for an additional $75 million, and it tacked on $200 million more in 2017 to refinance some of its other debt.

But as Deluxe’s problems mounted, its cash thinned. After an unsuccessful effort to sell its creative services unit, it turned to its existing lenders, who agreed to back a $73 million loan in July. That’s when it got ugly. The news of the abandoned sale and new debt caused the value of Deluxe’s loan—with $768 million still outstanding—to plunge from 89¢ on the dollar to less than 40¢ in some 24 hours. Within about a week, S&P downgraded its rating by three notches, to CCC-. The downgrade blocked some existing CLO lenders, bound by the 7.5% limit, from fronting additional cash. On Oct. 3, the company filed for Chapter 11. The existing loan now trades at less than 10¢ on the dollar. Deluxe said in a statement that “We appreciate the support we have received from our lenders throughout this process and look forward to completing the refinancing shortly.”

With BDC earnings season coming round, we’ll shortly learn how Harvest Capital (HCAP), Cion Investment and TP Flexible Income Fund, with $20.7mn invested in the bankrupt company as of June have navigated this complex situation. We expect substantial losses to be booked this quarter or next and – possibly – an increase in invested capital.

Murray Energy: Forbearance Extended Two Weeks

On October 16, 2019 Murray Energy announced that its lenders “amended a forbearance agreement regarding debt payments until Oct. 28 at 11:59 p.m. The company originally had until Oct. 14 at 11:59 p.m., but the deal allowed the agreement to be extended. Lenders have agreed to not exercise available remedies related to payments due on Sept. 30“. We had previously discussed the initial forbearance in a post on October 3.

The coal company took the opportunity to also announce its intention not to pay debt service due on two other debt agreements.

This only means that the day of reckoning – which is unlikely to be favorable to the company and its lenders – has been slightly delayed. Given the continuing weakness in the coal sector, we are not optimistic. However, we should note that the bulk of $52.4mn in BDC exposure is in the 2021 Term Loan, which continues to trade at only a (2%) discount to par.

However, non-listed Business Development Corporation of America and Cion Investment with $12.5mn of exposure in the 2022 Term Loan may be less sanguine. According to Advantage Data, that debt is trading at a (66%) discount. Last time the position was valued the discount was (33%), suggesting further unrealized write-downs are coming in the third quarter. If we get a Chapter 11 filing there’s $5.6mn of investment income at risk. A little further down the road: material Realized Losses.

ALM Media: Downgraded

On October 9, ALM Media was downgraded by S&P Global Ratings to CCC, from CCC+, on increased refinancing risk associated with upcoming debt maturities in July 2020 and 2021. The issuer’s most current maturity, its B term loan due July 2020 (L+450, 1% LIBOR floor) was downgraded to CCC+, from B–.  The downgrade reflects the increased potential for a liquidity event if there are delays in the refinancing of its debt. The first-lien term loan was quoted around a 94.25 bid today.

There is only one BDC with $22.7mn of exposure, but in both a first lien and second lien loan. That’s non-listed Cion Investment, whose $10mn in second lien debt was already discounted (35%) and remains there when we checked Advantage Data’s real-time market price records today. This company has been on the under-performing list since IIIQ 2017 and does not seem to be likely to return to performing status any time soon. We have a CCR 3 (Watch List) rating.

Deluxe Entertainment: Files Pre-Packaged Chapter 11

On October 3, 2019 Deluxe Entertainment Group filed for a pre-packaged Chapter 11. As we had reported on September 4, 2019, the “debt burdened post-production company” had been considering a bankruptcy filing earlier but had chosen instead to undertake a debt for equity swap with its lenders out of the bankruptcy system.

A month later, Deluxe filed Chapter 11 anyway. As before, there will be debt for equity swap with its lenders which will reduce debt by half, and a further cash infusion by the new owners of $115mn. “All lenders will be offered the chance to participate“, say sources to Bloomberg. The decision to choose bankruptcy court after all was agreed to by both sides as a way to speed along the restructuring, which will see the lenders own 100% of the business. Chances are Deluxe won’t be under court protection for long. An October 24 confirmation hearing is being requested.

This means the day of reckoning is nigh for the three BDCs with exposure to the company: Cion Investment, Harvest Capital (HCAP) and TP Flexible Income Fund, with a combined $20.7mn of senior debt. Seems like half that amount will continue to be yield producing in some new loan and the rest written off or converted into equity. What we don’t know how much new capital will be forthcoming from these BDCs to fund the $115mn capital infusion.

For HCAP – the only public BDC in the group – their existing $4.7mn loan at cost, which was performing at June 30 2019 and valued at par, will end the September 30 period in non-performing status and -presumably – written down to some degree. We may have to wait till the end of the fourth quarter 2019 to ascertain HCAP’s total exposure, values and any realized loss.

Finally, we have to wonder why HCAP purchased the loan to Deluxe – as recently as March 4, 2019 – when some of the troubles facing the company must have been on the wall ? Was it a deliberate strategy or poor credit underwriting ? (The other two BDCs have been lenders for a much longer period).

Geo Group: Banks Pledge To End Relationship.

According to a September 30, 2019 news report: “All of the existing banking partners to private prison leader GEO Group have now officially committed to ending ties with the private prison and immigrant detention industry. These banks are JPMorgan Chase, Wells Fargo, Bank of America, SunTrust, BNP Paribas, Fifth Third Bancorp, Barclays, and PNC“.

This is notable because of existing BDC exposure to the private prison operator of $48.2mn, provided by two major players: Cion Investment and publicly listed New Mountain Finance (NMFC). At June 2019, the 2025 senior debt held by the two BDCs was carried at par and the traded loan maintains that value at time of writing. Nonetheless, we’ve chosen to add Geo Group to our under-performers list with an initial rating of CCR 3 (Watch List). That’s because of the risk that the bank boycott of the company – which follows lobbying by activist groups – could impact refinancing of existing debt when due, or even cause financial failure. Our sister publication – the BDC Reporterdiscussed the subject of the boycott in a recent Twitter post.

Deluxe Entertainment Services Group: Lays-Off Staff

We wrote a long report about the debt for equity swap underway at Deluxe Entertainment on September 4, 2019. This time, we’ll be brief and note that the company laid off 10 employees in Ohio, according to news reports. That’s bad news for the individuals involved but might suggest the company is re-sizing itself in an attempt to be successful with a new capital structure and with former lenders as owners.

Charming Charlie: Intellectual Property Sold

This will probably be the last post we write about Charming Charlie, the women’s accessories retailer which went bankrupt twice in a short period and is being liquidated. We wrote a major article on bankruptcy number one back in December 2017 in the BDC Reporter. In the second round, multiple BDCs with $37.4mn of debt and equity invested at cost lost (almost) everything. At June 2019 two BDCs were still holding out for $0.9mn in FMV, presumably from any net proceeds from the Chapter 7 liquidation.

In this regard, a trade publication reported that the founder of the company had acquired the intellectual property associated with Charming Charlie for $1.1mn. That will be little succor to lenders after all other expenses are paid, but brings closer the date of the ultimate Realized Loss crystallization and the end of this sad attempt to keep what was not so long ago a prosperous and fast growing business alive.

Murray Energy: Assessing Restructuring Options

We don’t want to bury the lead: Murray Energy is likely to file for bankruptcy or re-organize and the BDC lenders involved are going to absorb some rather large losses. On September 10, 2019 the Wall Street Journal’s bankruptcy publication reported that the privately-held coal miner had hired Kirkland & Ellis and Evercore to assess restructuring options.

That follows a recent downturn in the short term prospects for the U.S. coal industry, according to Moody’s and as reported by S&P… That’s not to mention the obvious secular decline in the prospects for coal mining and coal usage. Previously in 2019 , the rating groups had downgraded the company’s debt to SD or Selective Default, so the writing has been on the wall.

BDC exposure totals $52.4mn, spread over 6 BDCs. These include publicly traded FS-KKR Capital (FSK) and three sister non-traded BDCs funds (FSIC II, FSIC III and FSIC IV but not – surprisingly – FS Energy). Then there are two others: Cion Investment and Business Development Corporation Of America.The exposure is in two different loans, one which matures in 2021 and the other in 2022. The debt has been on our under-performing list since IVQ 2018 and is currently rated CCR 4 (Worry List), where the chances of an eventual loss are greater than a full recovery.

As of June 2019, the 2021 debt was carried at par but the 2022 debt was discounted by a third. Currently, though, the 2022 debt trades at twice that discount, suggesting holders are not optimistic. We wouldn’t be surprised to see the 2022 debt fully written off once the dust settles, which would result in ($8.5mn) of further losses and ($12.5mn) in Realized Losses, to be absorbed by Cion and BDCA. Less clear is what might happen to the 2021 debt, which still trades at par. We won’t speculate at this point but will point out that – overall – $5.5mn of annual investment income is at risk.

In any case, we expect we’ll be discussing Murray Energy again in the weeks ahead.

Deluxe Entertainment Services Group: Agrees Debt For Equity Swap

On September 4, 2019 Variety reports Deluxe Entertainment Services Group , which was headed for bankruptcy, has agreed for a debt to equity swap instead. “In a deal announced on Saturday, Deluxe said it would offer a deal to all of its term-loan lenders to exchange their debt for 100% of the equity of the newly organized company”.

BDC exposure – Harvest Capital (HCAP) and non-traded Cion Investment – is material at $20.3mn, all in senior debt and carried at par or at a modest discount at June 30, 2019. The income likely to be lost – and right away – is approximately $1.6mn annually. We had a quick look at HCAP and calculated that investment income lost is equal to 11% of its latest Net Investment Income annualized.

Based on other news reports we’ve seen, the company will be writing off half its senior debt, suggesting the losses – both realized and unrealized – will be around ($10mn).

A bankruptcy is not yet out of the question. If all the lenders do not agree to the “reorganization”, a pre-packaged bankruptcy will be filed.

The BDC Credit Reporter had the company rated as under-performing since the IVQ 2018 with a CCR 3 rating. However, the situation deteriorated more recently. In July, the company announced it had abandoned plans to spin off its Creative Services division. The company – and its lenders – had hoped that the proceeds of which, along with a debt raise, would repay a sizable amount of the company’s term loans and ABL borrowings. The value of the existing debt dropped to 20 cents on the dollar on the negative news.

We are now rating Deluxe Entertainment CCR 5 on our 1-5 scale as a material loss is baked in. Nonetheless, as in all these situations where lenders become owners after the traditional PE sponsor has failed, we have to wonder if additional capital will be injected and whether the business can ultimately be made to work. We’ll be hearing more about Deluxe Entertainment for some time.

Charming Charlie: Selling Intellectual Property

On August 26, 2019 the Wall Street Journal reported that the bankrupt company is seeking court approval to hire Hilco IP Services to sell items of its intellectual property. That may help paying some of the bills associated with the liquidation of the business but is unlikely to end up in the pockets of its three BDC lenders (THL Credit, Cion Investments and Sierra Income) with $37.4mn invested at cost.

As of June 2019, the FMV of the investments – probably based on the hope of some recovery like this – is at $0.800mn, or 2% of capital invested. Notwithstanding the prospective intellectual property sale, we expect all BDC investments to be effectively wiped out. A resolution should occur before year end.

Charming Charlie, LLC: Seeking Financial Adviser And New Capital

Trade publication Retail Dive – quoting Debtwire says troubled women’s accessories retailer Charming Charlie has brought in a financial adviser. In addition, the nationwide chain, which was recently recapitalized by THL Credit (TCRD), is seeking new capital, in the form of debt or equity. All this sounds worrying from a credit standpoint. To date, TCRD – alongside non-traded Cion Investments and Sierra Income – have been funding the company with debt and equity in an ambitious attempt to bring the business back to performing status. At March 31, 2019, the three BDCs had advanced $37mn at cost to Charming Charlie, mostly in debt and mostly still on non accrual. The exposure is valued at roughly half of cost. We worry that Charming Charlie, which only exited Chapter 11 in late April 2018, might do a “Chapter 22” and need to file again. This time, though, that might mean liquidation and a potential significant write-off for the lenders involved.