"The Company was formed as TCP Capital (TCPC) on April 2, 2012. The following day , the BDC priced its initial public offering. On August 1, 2018, the BDC's investment advisor merged with and into a wholly-owned subsidiary of BlackRock Capital Investment Advisors, LLC, an indirect wholly-owned subsidiary of BlackRock, Inc. with the Advisor as the surviving entity. The BDC's name was changed to BlackRock TCP Capital".
We’ve just heard from Great Elm (GECC) regarding its IVQ and full year 2020 results. This includes an update on the BDC’s valuation of its largest investment : Avanti Communications. According to the BDC, the values attached were depressed by the then-uncertainties regarding the refinancing of the satellite company’s debt, which has been subsequently extended for a year. The total investment in debt and equity by GECC is now $105.6mn and the FMV $29.3mn. This compares to $103.0 at cost in the prior quarter and FMV of $39.3mn. That’s a (25%) decrease in the FMV of the BDC’s investment in the IVQ 2020.
The BDC Credit Reporter continues to believe that a complete loss is possible where Avanti is concerned, and that’s increasingly reflected in the valuation. All the debt instruments the BDC holds are accruing interest on a non-cash basis while the other BDC with exposure – BlackRock TCP Capital (TCPC) – has its loans showing as non performing. Effectively, despite $118mn invested at cost between the two BDCs – of which $62.4mn is in the form of debt – no cash income is being received already.
We maintain our CCR 5 rating and have Avanti on our Trending List. Next quarter we expect to see the total amount invested increase due to the previously mentioned refinancing. GECC will be adding $3.7mn to one of the debt facilities – as disclosed in its 10-K. TCPC may also invest further funds, but on a smaller scale. The valuation may increase as a result of the refinancing achieved but that will not necessarily continue in future quarters. We will revert back when the IQ 2021 results come out for GECC and TCPC or if something new transpires at Avanti.
In December 2020 , the Vistria Group – a private equity firm – acquired Edmentum Inc. and its parent, Edmentum Ultimate Holdings. Terms were not disclosed but the press release announcing the acquisition indicated “New Mountain Finance Corporation and funds managed by BlackRock will retain ownership positions“.
From a BDC perspective this is a very important transaction as Edmentum was – through September 30, 2020 – one of the larger BDC-financed portfolio companies (number 79 on the list maintained by Advantage Data). Also, there are five BDCs involved, many of them with very large dollar exposure. These include New Mountain Finance (NMFC) and BlackRock TCP Capital (TCPC). Also important is that with the Vistria Group acquisition the future exposure of the 5 BDCs involved is changing. See the Advantage Data Table for IIIQ 2020 of all BDC exposure:
Edmentum has been on BDC books since IVQ 2012 – initially only in the form of first and second lien debt -and has had a chequered past. In 2015 the company was restructured and several of the lenders recognized realized losses. (For example, NMFC lost half of its $31mn then invested). In the restructuring, Oaktree Specialty Lending (OCSL); Prospect Capital (PSEC), NMFC and BKCC initiated equity stakes. To keep a long story short, over the years BDC exposure increased to reach $204.4mn even as some of the debt outstanding was carried as non-performing at different times by different lenders. The BDC Credit Reporter has carried Edmentum on its underperforming list since the IVQ 2014.
However, in recent quarters the valuation of the BDC investments has been improving. As of September 2020 virtually all the different debt and equity stakes held by BDCs were valued at par or at a premium, with the exception of a small equity stake held by Gladstone Capital (GLAD). Now as we begin to hear from BDCs about IVQ 2020 results the outcome of their investments is becoming known, with varying results. GLAD reported the following :
In December 2020, our investment in Edmentum Ultimate Holdings, LLC was sold, which resulted in a realized loss of approximately $2.4 million on our equity investment. In connection with the sale, we received net cash proceeds of approximately $4.9 million, including the repayment of our debt investment of $4.6 million at par.
PSEC fared better:On December 11, 2020, we sold our 11.51% Class A voting interest in Edmentum Holdings and recorded a realized gain of $3,724 in our Consolidated Statement of Operations for the quarter ended December 30, 2020. Concurrently, Edmentum Holdings fully repaid the $9,312 Unsecured Senior PIK Note and the $45,277 Unsecured Junior PIK Note, and Edmentum, Inc. fully repaid the $8,758 Second Lien Revolving Credit Facility receivable to us at par.
OCSL also ended up in the black : “We realized a full par recovery on our debt investment and recorded a total gain of $23 million”.
Not heard from yet are NMFC and BKCC. However, we get the impression from the press release and comments made by TCPC after the IIIQ 2020 results that New Mountain and BlackRock intend to maintain investments in post-sale Edmentum. Here’s what NMFC said on its November 5, 2021 conference call in answer to a question about its intentions for Edmentum: “We’d like to maybe take some chips off the table, recapitalize the balance sheet, maybe bring in a partner. But at the same time, we do think there’s very significant upside from here that you probably wouldn’t quite get until you show the sustainability of the earnings trend, which we absolutely believe in. And so we may elect to hold some exposure for another period of time to get the benefit of that incremental value gain”.
So while 3 BDCs are going out the door, these two others are likely to remain, but we’ll need the IVQ 2020 results to suss out all the details. The GLAD realized loss and the earlier 2015 losses notwithstanding, this is a positive turnaround for Edmentum, which was rated CCR 5 as recently as September 2019 and which we have maintained at a CCR 3 rating ever since. After we hear from TCPC and NMFC we’re likely to return Edmentum to CCR 2 status, especially if and when we get a better understanding of the new capital structure and prospects for the business.
On January 20, 2021 we wrote that Avanti Communications was in “financial difficulty”, based on a news report. The satellite launcher and operator has a huge debt load and a bond deadline was looming. We’ve now learned that today – February 8, 2021 – the $145 million debt (Super Senior Facility/SSF) needed to be refinanced or extended.
Apparently, the existing lenders have blinked and offered a one year extension. Here’s what “Advanced Television” – a trade publication – had to say:
“In a statement on February 8th, Avanti said: “Today the Company announces that it has agreed on the headline terms of an amendment and extension of the SSF to 31 January 2022 (the “A&E Transaction”). When completed, the A&E Transaction will provide a material maturity extension of the SSF combined with a new capital injection of $30 million provided by the Company’s existing junior lenders, enabling the Company to execute on its growth plan including the closing of its exciting pipeline of significant contracts.”Avanti added: “In order to provide time to finalise (i) requisite consent processes and (ii) definitive long form documentation, the Company has agreed a short-term extension of the maturity of the SSF from 8 February 2021 to 15 February 2021“.
This news suggests that Avanti will live to fight another day but that Great Elm (GECC) and BlackRock TCP Capital (TCPC) – both of whom are junior lenders – will be anteing up more capital. Currently – using data through September 30, 2020 – the two BDCs have advanced $115mn.
There’s no change to our CCR 5 rating for Avanti (TCPC carries the debt as non performing but GECC as performing – a subject unto itself). We will learn more about both BDCs exposure to Avanti either when IVQ 2020 results are discussed. Or, if the BDCs are being coy, when IQ 2021 results are updated as this new capital seems likely to be advanced in the current quarter.
Space IntelReport – basing itself off a company press release – indicates satellite operator Avanti Communications may be in a “spot of bother” as the British say in their understated way. Here is everything we learned from the trade publication, and which we were not able to duplicate elsewhere:
“[Avanti] is back on a cliff edge and facing a British Chapter 11-type restructuring as a bond payment deadline approaches that would trigger a broader default. Avanti said it was in “advanced discussions with a financing source” to cover the debt payment, due Feb. 8, but a recent change in Britain’s bankruptcy code could make a Chapter 11-type filing more appealing than a refinancing on onerous terms“.
BDC exposure to Avanti is “Major”, i.e. over $100mn, or $115mn to be exact as of September 30, 2020. Of that $103mn at cost is held by Great Elm (GECC) and the $12mn remainder by BlackRock TCP Capital (TCPC). At fair market value GECC has $39mn, split between debt and equity and TCPC $5mn. The latter BDC has some of its debt carried as non accrual but GECC does not. All GECC’s debt is paid is kind at rates that range from 9.5% and 12.0%.
We’ve written about Avanti both at the BDC Credit Reporter and at the BDC Reporter for years, ever since Great Elm contributed its position when taking over Full Circle Capital and changing the BDC’s ownership. The company has faced many financial challenges and has been restructured before, leaving the business hugely leveraged. This last challenge could be the proverbial straw but we have no way of really knowing.
If a British bankruptcy should occur, though, a day of reckoning might be here for the bulk of the GECC and TCPC exposure. Just over $100mn of the $115mn invested is in second lien and equity and is very unlikely to have any value. Even the roughly $15mn in “senior debt” might be subject to a haircut. This could prove the biggest BDC portfolio company mishap of 2021 so fat, admittedly only three weeks in.
Far and away most at risk is GECC, despite regularly writing down its position over the years. At cost Avanti represents 38% of GECC’s portfolio assets and a less overpowering 16% at FMV. Also importantly, Avanti seems to represent 17% of investment income, which is the equivalent of 50% of the BDC’s latest Net Investment Income.
“the company continues to grow revenue and EBITDA and unleveraged free cash flow. And we are pleased with that progress. We expect them to continue upon that trajectory and are hopeful that the continuation of that trajectory leads to a good result for our investment in the company and ultimately, a successful exit for our investment in the company“.
We’ve just heard from BlackRock TCP Capital (TCPC) about its IIIQ 2020 performance. That included the latest valuation of the $24mn at cost lent to regional air carrier Mesa Air Group Inc (dba Mesa Airlines). Management – as has often been the case this year – specifically discussed the company on its conference call, expressing confidence all is well despite the impact of the pandemic on flying in metal tubes in the sky. As has been the case since the crisis began, TCPC has valued all debt outstanding at close to par and pointed to its aircraft collateral as one reason for its confidence. Here’s the latest commentary made by TCPC on November 2, 2020:
“In the case of Mesa, they are a regional operator, they connect jet service to American and United feeding into their hubs. They’ve obviously been impacted that dramatically. They have gotten federal money under the CARES Act that loans continue to perform fully on amortization and interest, of course we all know that the sector has been impacted.We do think our approach to underwriting focusing typically on somewhat older equipment, These are all backed by assets and engines has proved highly effective since we started in this business, financing planes and playing parts since 2003, but clearly there is some disruption there”
The BDC Credit Reporter most of the time will defer to a BDC’s valuation judgement as they have much more information available and are often supported by an independent firm. However, there are times when our credit antennae are up and we differ. This is one of those times. We don’t pretend to have special insights but believe that the market conditions – the worst we’ve ever seen – warrant more caution.
As a result, we have unilaterally decided to downgrade Mesa from CCR 2 to CCR 3 until conditions are clearer. There’s over $1.8mn of annual investment income in play, all of which is still being paid in cash.
As recently as yesterday the company announced borrowing an additional $200mn of secured debt under the CARES Act. Those funds may have repaid the TCPC obligations and may explain the high valuation as of September but no mention was made of that publicly revealed development on the BDC’s conference call. We apologize for being alarmist if TCPC has just been – or shortly will be – repaid. If not, though, this latest borrowing expedition only increases our concern about the company’s financial condition. We will circle back once new information becomes available.
Last time we wrote about AGY Holding Corp in May 2020, we darkly warned that “caution is warranted. Forewarned is forearmed“. This was not a very bold statement as at the time the company had been on partial non accrual since IIIQ 2019. Still, the two BlackRock public BDCs, BlackRock Investment (BKCC) and BlackRock TCP Capital (TCPC) were continuing to carry first lien obligations as current and at full value.
Now we hear from TCPC on its IIIQ 2020 conference call that the company has been restructured. Apparently, all the debt has been sold for a nominal amount and the TCPC and BKCC left with small preferred stock positions with little immediate value. Furthermore, TCPC has booked a realized loss of somewhere between ($16.5mn and ($18.0mn). Just from last quarter, the FMV of the BDC’s exposure has dropped by ($4.0mn).
Management put a brave face on the subject but the truth of the matter is that the company is an almost complete loss for the BlackRock BDCs, with over ($70mn) in capital invested likely to be written off. In an even worse position than TCPC is BKCC, which was showing $57mn invested at cost as of June 2020. The coming realized loss is greater than 12% of all the losses BKCC has booked over its long history. Even the loss of net book value per share between this quarter and June will knock about ($0.20) out of BKCC, or about (4%).
The amount of investment income lost is over ($8.0mn) on an annual basis, some of which was still being taken into income all the way through June and – maybe – beyond. Now the realized losses have been booked, per our system, we are upgrading the remaining preferred investment in a restructured AGY to CCR 3 from CCR 5. However, judging by the $0.5mn left on TCPC’s books as a preferred stock investment from the IIIQ 2020 on, the size of the public BDC exposure may not be material by the BDC Credit Reporter’s standards and may get dropped from coverage.
To conclude by stating the obvious, the amount of the AGY loss – and the very high discount to cost involved – represents a serious setback for both BDC lenders. The problem appears to have been an increase in the cost of one critical ingredient in AGY’s business which management and its lenders never found a way around over a multi-quarter period of distress. As is often the case in this situation, the BDCs have been slow to write down the value of their failing investment. Even when the first non accrual occurred, the combined FMV was still $57mn versus a cost of $64mn. Roll forward one year and another $50mn plus has received the ax.
As the BDC Credit Reporter works its way through the hundreds of underperforming companies showing up in the IIQ 2020 BDC portfolios we’ve identified – a little late in the day – a liquidation. According to a trade journal GlassPoint Solar Inc. was liquidated by its owners in May 2020.
“The Omani government—GlassPoint’s largest investor—issued a statement on Sunday (17 May) confirming that it liquidated its 31% stake in the company. The move effectively shuttered the Silicon Valley company that has received an estimated $130 million in funding since it was founded in 2008.The liquidation decision of GlassPoint Solar comes after the steep fall in oil and gas prices caused by the global economic slowdown in the wake of the coronavirus pandemic and its negative impact on business across the globe, especially on hydrocarbon producers, travel, and hospitality businesses,” read a statement issued by the Omani Ministry of Finance which oversees the state’s strategic investment portfolio. The statement added that some of the current investors have expressed interest in purchasing GlassPoint’s intellectual property. Other major shareholders included the national oil company Petroleum Development Oman (PDO) and Shell which has been a minority investor since 2012″.
The only BDC involved is BlackRock TCP Capital (TCPC), which is both lender and investor in Glasspoint, dating back to IQ 2027, with $7.4mn in aggregate advanced, mostly in first lien debt. As of the IIQ 2020, the debt was placed on non-accrual. The debt was discounted by more than half and the equity written to zero. Still, the BDC’s managers remain hopeful – as expressed on their conference call – that even in liquidation some value can be found because of the interesting technology the company owns. This is what was said on the call:
“GlassPoint had been in the late stages of obtaining equity financing but the process was pulled as a result of COVID. Our team is working with the equity owner to find an alternative solution which may include a monetization of the business, assets in IP”.
That leaves hope for $3.2mn of the investment – as of June 2020 . The BDC Credit Reporter is a little more skeptical as we know – also from press reports – that the company had been having troubles long before Covid-19 came along and had been on the underperformers list since IIQ 2018. We expect most – if not all – the $7.4mn invested is likely to be written off. In the short term, TCPC will be missing out on about ($0.600mn) of investment income. We are maintaining our CCR 5 rating on Glasspoint until a final resolution is announced, and – belatedly – adding the company to our Bankruptcy list, found in the Data Room.
Even without knowing the final outcome, the BDC Credit Reporter points out that this was more of a project finance deal than a typical leveraged loan and in the energy services field to boot, added to the BDC’s books after the oil price drop of 2014-2016. Admittedly, the technology involved is intriguing: “The company was going to use concentrated solar arrays housed in glass greenhouses to produce steam at gigawatt scale instead of using natural gas“. That sounds very “green energy”, but also outside the normal ambit of what BDCs consider normal risk. The good news from TCPC’s perspective: even at worst the amount of capital involved was modest. We expect some final resolution in the months ahead, including a realized loss and – possibly – a further write down.
The BDC Credit Reporter first wrote about AGY Holding back in November 2019 when its BDC lender – BlackRock Capital (BKCC) – placed its second lien debt on non accrual. (There’s also a first lien loan which – then and now – remains performing). Two quarters later – and in the early days of Covid-19 – BKCC has almost completely written down that second lien exposure to just $0.5mn from a cost level of $24.5mn. That represents ($16.7mn) in fair market value lost in two quarters since our first mention.
BKCC sought to explain what’s happening at the company on its May 7, 2020 conference call in these terms: ” At AGY, that is a company that — the top line performance of that company has continued to hold up, but profitability is under pressure, as we have discussed before, due to a significant and atypical spike in one of the metals used in their production process. And so that has impacted profitability, which then impacted the valuation of the business in the market“. That’s instructive but not conclusive in any way.
Till we learn more, the BDC Credit Reporter is getting more concerned about the nearly $32mn in first lien debt to AGY Holding held by BKCC and sister BDC BlackRock TCP Capital (TCPC). That’s still accruing income for both lenders at 12.00% or $3.8mn of investment income annually. Note, though, that the income is Pay-In-Kind.
Furthermore, given the importance of the company to BKCC as a “Control” investment, we have access to summary results in the filings. These show sales flat but a Net Loss of ($63.3mn) in 2019. Compare that with 2018 where the loss was “only ($2.7mn). Furthermore, the $11mn invested in the equity by BKCC in the parent – KAGY Holding – remains written down to zero as of 3/31/2020. These are obvious red flags and pre-date any Covid-19 impact…
We do not have enough information to value the first lien debt – which BKCC and sister BDC TCPC – have been carrying at par or better. Common sense, though, suggests caution is warranted. Forewarned is forearmed.
Juul Labs was on a deadline with the FDA, as we discussed in an earlier posting in February, set for May. Their assignment – and those of their rival vape manufacturers is to ” present scientific studies showing that their products are safer than cigarettes. They also must demonstrate that their e-cigarettes present a net benefit to public health—in other words, that the benefit of helping adult cigarette smokers switch to a safer alternative outweighs the potential harm of hooking young people on nicotine“. If you’ve done any reading into vaping you’ll know that’s a tall order. Covid-19, though, has given Juul a reprieve till September, thanks to a judge’s decision, as the Wall Street Journal reports on April 23, 2020.
We continue to be unsure how to value the $39.1mn of BDC first lien debt exposure held by sister BDCs BlackRock Capital and BlackRock TCP Capital (TCPC), which remains valued at par. Truth be told, we’re more pessimistic than before but maybe we’re under-estimating the influence of Big Tobacco, which owns a big stake in Juul. We’ll get back to this conundrum in September.
We’ve written aboutJuul Labs, and it’s relationship with deep-pocketed minority investor Altria before. Now we hear from a Wall Street Journal report that the SEC is taking an interest in one of the largest melt-down in a company’s value in recent memory. According to the WSJ “E-cig makers have until May 20  to submit to the FDA applications to have their devices approved for sale on the market”, but Juul may have problems getting the nod, even with Altria’s help.
As before, we remain unclear how the ongoing uncertainty at Juul will affect the two BDCs with exposure – the two BlackRock public BDCs : Blackrock Capital Investment (BKCC) and BlackRock TCP Capital (TCPC). Neither BDC has yet reported IVQ 2019 results, so our valuation and exposure data remains from the IIIQ 2019. We shall wait and see.
The winner of the M&A Bad Timing Award – Altria – has written down its investment in Juul Labs. Again. The consumer products giant wrote down its investment in Juul – the controversial e-vaping company – by $4.1bn. An earlier write down had been taken for $4.5bn in October 2019. It was only in December 2018 that Altria acquired 35% of the common stock of Juul for $13bn.
Now Juul faces lawsuits both from users and from governmental authorities that could cost untold billions. Already, the toll is showing up in the company’s results : “The Richmond, Virginia, company on Thursday reported that it had swung to a loss in the fourth quarter from the associated costs, citing burgeoning legal cases that it expects to grow“.
We’ve hesitated till now to add Juul Labs to the BDC credit Reporter’s Under Performers list given that the new 2023 Term debt in which two BDCs have exposure was trading at close to par on September 30, 2019 and remains valued at only a (2%) discount to par at time of this writing. Nonetheless, we’ve decided to add the company, with a Corporate Credit Rating of 3 (Watch List) based on the possibility of a potentially huge but currently unknowable amount having to be paid out as compensation for the many vaping deaths and other damage. Not to mention the legal costs and reputational impact to the company, which may yet prove fatal. The Altria write-down was a timely trigger for our own downgrade.
Two-thirds of the $52mn of BDC debt exposure is held by BlackRock TCP (TCPC) and the other third by sister firm Blackrock Capital (BKCC). That’s $4.8mn of annual income at risk. We don’t expect there will be any immediate threat to Juul’s debt, but down the road there’s a reasonable risk of serious trouble, as we’ve seen with other companies whose products have suddenly become controversial. Think Mallinckrodt and opioids.
During the BlackRock Capital (BKCC) IIIQ 2019 Conference Call on October 31, 2019 , we learned that the $24.2mn second lien loan in AGY Holdings, subsidiary of KAGY Holdings, has been placed on non accrual. No date was given. The reason for the move was given by BKCC as the need to “fund various initiatives at the business at this time. And so it does reflect sort of things going on in the business that are generally operational things that we wanted to do“. BKCC is both investor and lender, with another $24.8mn in first lien debt still current.
With this move BKCC reduces the FMV of its second lien debt at one fell swoop from a discount of (1%) to (29%) and loses ($2.9mn) of annual investment income. That’s a material impact on BKCC: 3.7% of Investment Income and almost 8% of Net Investment Income. Should the first lien debt go the way of the second lien and the $11mn of equity and Preferred, written to zero, the loss of income would be even worse. Overall, BKCC has invested $60mn in KAGY/AGY, and still values the investment at $42mn.
We have found very little information about the glass yarn manufacturer but Advantage Data records and the occasional word from BKCC management indicates this has been a troubled credit since 2012 and has been restructured before with only limited results so far. We have to at least consider the possibility that this could yet turn out to be a complete write-off given that the common stock and Preferred have no value and the second lien has just been discounted.
The other BDC with exposure is sister fund BlackRock TCP Capital (TCPC) with $16mn invested at cost. Included therein is $8.6mn at cost in a $10.3mn second lien tranche identical to that of BKCC. If that’s placed on non accrual as well, $1.1mn of annualized investment income will be affected. The investment was carried at a big premium last quarter so the unrealized depreciation involved could be material.
For our part, we had carried KAGY Holdings in the under-performing group at CCR 5, due to the non-accrual on the Preferred. However, we’d left AGY as “performing” and a CCR 2 rating. In the absence of third party information, we were led by the high valuations given the company for both its first and second lien debt. That was too generous. We’ve now rated the second lien as CCR 5 (Non Performing) and the first lien at CCR 4 (Worry List). Fool me once, etc.
On August 13, 2019 Great Elm Corporation (GECC) reported its IIQ 2019 portfolio. Included were new advances to long troubled satellite operator Avanti Communications. Despite GECC and other BDC lender/investor BlackRock TCP Capital (TCPC) writing down the existing debt and equity to the company in the quarter, management waxed enthusiastically about lending out more to Avanti. CEO Peter Reed used the opportunity to re-iterate GECC’s increasing confidence in the company, and its new CEO on the most recent Conference Call:
“When we formed GECC, Avanti was struggling to monetize the capacity of its satellite network.As Avanti encountered financial difficulty, we worked with other key creditors to improve the company through deleveraging its balance sheet, launching its biggest satellite to date and identifying and recruiting new Board members who brings stability and strategic insight into company. These improvements paved the way to hire Kyle Whitehill as the new CEO in April of 2018.
Since Kyle’s start, he has dramatically overhauled sales and marketing, resulting in large contract wins and rapidly growing recurring core bandwidth revenue. With the business heading in an exciting direction, Great Elm and other significant Avanti stakeholders were given the unique opportunity to participate in the new 1.5 lien delayed draw term loan facility.
As you can see from the tables on the bottom of the slide, the debt carries only an attractive interest rate but also a significant [feed] that accretes to GECC’s benefit. On its current trajectory and with minimal required capital expenditure, we expect that Avanti will have visibility into generating positive unlevered free cash flow”.
There is now $105mn of senior, second lien and equity exposure by the two BDCs in Avanti, with a value of about $45mn. There is no doubt that the company has made some progress recently, with a new satellite successfully launched just a few days ago. Even more recently Avanti has chosen to de-list itself from the London stock exchange given its concentration of ownership in 5 major shareholder groups. Unfortunately, that will make even less public information available to those of us on the outside looking in.
The BDC Credit Reporter will continue to remain fair minded but skeptical, given the company’s history; high levels of debt, opaque reporting and the very large amounts of BDC capital involved. Is Avanti a proverbial can being kicked down a very long road or a bona fide turnaround in the making ? We just can’t tell as we mostly have the BDC managers – with their conflicts of interest – as one of our principal sources of information.
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.
On April 23, 2019, Jennifer Lopez backed Fuse Mediafiled for a pre-packaged Chapter 11 bankruptcy, seeking to unload $200mn of debt of $242mn on books. For only BDC with exposure – TCPC – that 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.