Posts for TriplePoint Venture Growth

Casper Sleep: Company To Be Sold

Casper Sleep is a mixed e-commerce and brick and mortar retailer of “sleep products” – i.e. mattresses. Through the dint of good marketing, the company gained a celebrity following and became a growth story in a highly competitive, non glamorous corner of retail. In February 2020, the company went public but already the bloom was off the rose as the final price was half the initial target. Since then, matters have gotten worse as the company has been burning through cash to fuel its growth, and its stock price has dropped sharply. A few days ago, though, the Board agreed to a take-private buyout offer by Durational Management, whose offer is supported by debt from KKR Credit and Callodine Commercial Finance. $30mn in bridge finance is being made immediately available and has been agreed to by the existing lenders.

Right in the middle of all this is publicly-traded BDC TriplePoint Venture Growth (TPVG), a subordinated lender and investor in Casper since 2017. (Wells Fargo administers a secured, asset based revolver, senior to TPVG). As of the IIIQ 2021, the venture-debt BDC had invested $32.0mn to the company, mostly in the form of two subordinated term loans due in 2022 and 2023. The debt is valued at par. Also, the BDC has invested $1.2mn of preferred and equity, which has been almost completely written down. (By the way, Casper in its official filings says TriplePoint has invested $50mn. The discrepancy might be a related TriplePoint fund being also involved).

We imagine that upon hearing of the buy-out offer TPVG sighed in relief. In recent months, Casper’s liquidity has greatly tightened and management has taken a hacksaw to costs to survive. Lenders have had to waive defaults while a solution was found by the stakeholders. In any case, both Wells Fargo and TPVG quickly agreed to the $30mn of additional “bridge financing” involved.

Based on what we’ve heard, TPVG is likely to get out of this sticky situation with nary a credit scratch, with even its equity stake valued a little higher than just before the LBO announcement. However, the transaction has not yet been consummated, so neither TPVG, nor the BDC Credit Reporter, can count its chickens as yet.

For the moment, we’re rating the company CCR 3, where the likelihood of full repayment is greater than of loss. That could change in a New York minute should something go wrong. We are tagging this company as Trending for obvious reasons. We will provide an update whenever a material new development occurs. We expect the company – even in the best of circumstances – will remain on TPVG’s books through the end of 2021.

Knotel Inc. : Files Chapter 11

Shared work-space company Knotel Inc. has filed Chapter 11 on January 30, 2021, according to multiple reports. We quote below from the company’s press release on the subject:

As part of its strategic path forward, Knotel has reached an agreement to sell the business to an affiliate of Newmark Group, Inc. (Nasdaq: NMRK) (“Newmark”), a leading full-service commercial real estate firm. The Company has also made the decision to exit multiple locations in the U.S. as part of the process“.

Not so long ago Knotel was an investor darling with an enterprise value of over $1.0bn, but then the pandemic came along and you can guess the rest, especially if you’ve followed the travails of better known competitor WeWork.

From a BDC perspective, there is only one fund involved: publicly traded, venture oriented TriplePoint Venture Growth (TPVG_ that has been involved since IQ 2019. (Bain Capital Specialty Finance – or BCSF – was a lender briefly in 2019 but has long departed). TPVG has invested as of September 30, 2020 a significant $31.1mn in Knotel, almost all in the form of senior debt due in 2022 and 2023. This has been generating close to $3.0mn in annual investment income and was performing last time TPVG reported. The BDC Reporter had a CCR 3 rating on the company, just added in the most recent quarter.

However, we’ve also learned from Bloomberg that in the month prior to the bankruptcy filing, an affiliate of the group that seeks to acquire the business has bought out the first and second lien lenders. That suggests there is no further BDC exposure to Knotel and we’re changing our rating from CCR 3 to CCR 6. Effectively, the company went bankrupt after TPVG – and the other lenders departed – but we’re still counting this on the BDC Credit reporter’s soon to be world famous Bankruptcy List. What we don’t know – and these details matter – is whether the debt was sold at par, including accrued interest – or at a discount. We assume the $0.160mn invested in preferred by TPVG will be lost.

Overall – and making some optimistic assumptions – it seems like TPVG may have (largely) dodged the Knotel bullet helped by a market full of buyers looking for opportunity and its position towards the top of Knotel’s balance sheet. We will learn more – most likely – when IVQ 2020 results are discussed.

Roli, Ltd: IIQ 2020 Update

On August 6, 2020, TriplePoint Venture Growth (TPVG) offered up an update on troubled portfolio company Roli, Ltd on its IIQ 2020 conference call:

We have one company rated 4 on our watch list, Roli, a music technology company. During the quarter, we further marked down our loans on Roli, reflecting the impact of COVID on some of our recovery assumptions associated with the ongoing turnaround of the company. Here in Q3, the company has made good progress, and we expect to see some favorable trends over the next couple of quarters“.

The BDC Reporter wrote the following in its review of TPVG’s Conference Call where Roli was discussed: “TPVG has advanced $29mn to Roli Ltd, which has been on non accrual since IIQ 2019. The current value is just $15.0mn. By the way, just before Roli became non performing, the debt and equity outstanding was valued almost at par” The company is rated CCR 5 and we expect the ultimate outcome is likely to be some sort of realized loss, but concede that – except for these occasional updates from the lender – we have little inside information about the company’s fortunes.

Rent The Runway: To Close All Stores

On August 14, 2020 CNBC reported that Rent The Runway announced its intention to permanently close its 5 retail locations, all in major U.S. cities. As you can imagine, this is the result of Covid-19 that had already forced the temporary closure of these “brick and mortar” stores. The company, though, plans to continue operating its e-commerce capability and improve its network of drop boxes.

There are two venture oriented BDCs with exposure to the company: SuRo Capital (SSSS) and public BDC TriplePoint Venture Growth (TPVG), with total exposure of $6.4mn at cost. SSSS added $5.0mn in the IIQ 2020, presumably to bolster the company’s finances. TPVG’s investment is in preferred and equity, and valued at a premium to cost. That’s likely to change given the retail location closure but the amounts involved are unlikely to have a material impact, and there is no investment income involved.

We are adding the company to the underperformers list, with a Corporate Credit Rating of 3.

Outdoor Voices Inc.: CEO Departs

Typically, the BDC Credit Reporter adds new companies to our underperforming company list following a write-down of the investment by 10% or more by a BDC. However, we watch the credit markets daily for any early signs that might cause us to add a company based on new publicly available information alone. After all, the earlier we can identify credit troublespots, the better. That’s what’s happened with retailer Outdoor Voices Inc., which at September 30, 2019 was fully valued by its only BDC lender TriplePoint Venture Growth (TPVG).

We were disturbed to hear from a trade article that the company’s CEO and co-founder Tyler Haney was either pushed out or voluntarily left the helm on February 22, 2020, which is rarely a good sign. (Ms Haney remains in other roles at the company; the benefit of being a founder and major shareholder). Adding to our concern is that the CEO’s departure may be associated with under-performance by the privately-held company. BizWomen said the following: “…despite initial excitement, the business failed to scale as quickly as expected and has been slow to introduce workout clothing staples like all-black attire, per BofF, and by last year was losing around $2 million a month in 2019 with annual sales of around $40 million“. That’s enough material for us to add Outdoor Voices to the underperformers list, with an initial credit rating on our five point scale of three.

TPVG only invested in the company recently – IQ 2019 – with both debt and equity at a total cost of $10.2mn. As we’ve said, the investment is valued at 100% of par, which seems hard to reconcile with those $2mn a month losses, but we only have a very partial picture. We may learn more from TPVG when the BDC reports IVQ 2019 results on a date yet to be scheduled.

Harvest Power Inc: Term Loan Written Off

Publicly-traded BDC TriplePoint Venture Growth (TPVG) is issuing new equity so must undertake some updated disclosures, which occurred on January 9, 2020 in a Prospectus. Included was the latest status on one of its under-performing portfolio companies: Harvest Power. The company is an organic waste management company, and went from performing normally to being sharply written down in a hurry. Until the IIQ 2019, the $14.8mn TPVG had invested in the company’s 2021 secured Term Loan was valued at only a (3%) discount. However, in the IIIQ 2019, TPVG wrote the debt down by (49%) to a value of $7.5mn, reflecting the market price of this traded loan.

According to the BDC on its Conference Call on November 11, 2019 , Harvest was exploring “strategic alternatives” – typical code language for being in deep trouble. TPVG expected the subject to be resolved in the IVQ 2019. Based on the most recent TPVG disclosure that turns out to have been correct. The BDC has now written down the value of its investment in Harvest to $4.2mn. Moreover, $2.4mn of that value has actually been collected. (No word on when the rest might be forthcoming or how). Searching in the public record, we’re assuming the fast resolution is related to the sale of two Harvest Power facilities to USA Waste of California, but we could be wrong.

For TPVG that’s a fast but unsatisfactory end to a lending relationship that began in IQ 2014 – according to Advantage Data‘s historic records – and has involved different facilities at different price points. The latest 2021 Term Loan was priced at 12.00%, which suggests a good deal of risk was anticipated when added to the books. Prior loans were priced as low as 7.0%. Now TPVG will end up booking ($10.6mn) in Realized Losses, including a further decrease of ($3.3mn) in value over the FMV at IIIQ 2019 in the year-end portfolio value. Investment income lost from the debt will be $1.8mn, but only $1.6mn once the $4.2mn in proceeds are re-deployed at a similar rate.

We hope to learn a little more – both from the public record and TPVG – when the transaction is fully removed from the books, which will allow us to undertake a credit post-mortem. Mostly, we’d like to understand why Harvest Power went so quickly from hero to zero.