Daily News Update: Thursday October 26, 2017
The BDC Reporter is a bit behind in the news reporting business because i) the markets have suddenly accelerated; ii) the flow of developments has increased this week. Here’s a on-the-fly recap, with much more to come.
With BDC earnings season beginning next week, investors have suddenly woken up to the risks in their investments and punished the under-performing BDCs mercilessly. We’ve not been able to keep up with BDCs hitting new 52 Week Lows, and worse. At time of writing, there are at least 12 names within 5% of their lowest level, pretty much all trending down. Here are the tickers: ABDC, ACSF, CPTA, CMFN, CPTA, FSIC,GECC, KCAP, MCC, PSEC, CGBD, TCRD.
If that wasn’t enough, there are another 10 BDCs on our 46 public BDC universe. That’s 22 in total, nearly half.
The Wells Fargo BDC Index is at a 1 Month Low.
The BDC UBS Exchange Traded Note with the ticker BDCS, which we also use to evaluate the direction of the sector, is at a YTD low.
BDCS is at $20.94, not so far off the 1 year $20.56 low.
The breadth of the pull-back is substantial.
Looking at the 1 Week BDC price performance 37 BDCs are down or unchanged.
8 BDCs are down more than (3.0%).
Even the better performing BDCs are feeling the heat, with many coming off recent highs as investors pause in advance of the (expected good) results.
Our Premium Subscribers get access to a constantly updated BDC Daily News Table, published in the Tools section.
We’ve been changing and expanding the format in recent days and loading up nearly 40 new items this week alone.
The BDC Daily News Table is the only comprehensive and up-to-the minute (give or take) list of everything happening in the public BDC sector.
Besides collecting all the new developments and providing a link to the original materials, we try to spell out for readers what new information (if any) has been learned on every item.
Then we briefly explain why the information is worthy of readers attention and the BDC Reporter’s own view.
Here’s the first of a number of updates:
A Dow Jones news story about Aerogroup International’s (aka footwear brand Aerosoles) ongoing Chapter 11 proceedings indirectly suggested it’s only BDC lender – TCRD – may have to write down/off most of its investment.
At June 30, 2017 TCRD had $15.3mn at cost invested in Aerogroup International, principally in senior debt as well as subordinated debt and equity.
The FMV was pegged at $12.5mn at June 30, 2017 when the debt was current.
Since then Aerogroup has filed for bankruptcy and just submitted a restructuring plan to the court, including its proposal on how to tackle $72mn in outstanding debt.
What details are available in the public domain do not suggest a positive outcome, even for the senior secured lenders.
Out of 80 stores, the company is closing 74.
Unsecured creditors and shareholders have been told not to expect any repayments.
A $25mn DIP loan has been “lined up”, but virtually all of that will go to pay off existing working capital lender Wells Fargo.
“As part of its proposed reorganization plan, Aerosoles plans to transfer its intellectual property, including its brand name, to a newly formed subsidiary, in addition to searching for a buyer for the rest of its assets”.
However, the article goes on to say: “Aerosoles has yet to address its other debts — which include an approximately $19.7 million term loan, more than $19 million in senior notes, and nearly $9 million in subordinated notes. However, these lenders and creditors will be able to cast their votes on the reorganization plan”.
From our BDC Credit Reporter perspective the very continuing existence of the company seems in doubt. Even if Aerogroup survives in some form a major debt for equity transaction will be required or an as-yet unannounced third party buyer.
We’re guessing – and it’s just that – TCRD will need to write off another $10mn at least and will lose out on $1.3mn of annual investment income.
On a gross basis, that $0.03 per share.
If we’re right about the NAV loss that’s $0.30 a share.
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