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Corporate Capital Trust Caught Up In Rockport Group Bankruptcy

BDCs:
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NEWS

Another retailer – and shoe manufacturer- filed for bankruptcy: Rockport Group.

The filing – see the article above – occurred on May 14, 2018.

However, the voluntary filing was followed by an immediate sale of the Company’s assets to a private equity group.

See details here.

The purchase included $150mn in cash.


ANALYSIS

One And Only

There is only one BDC with exposure to the troubled footwear company: Corporate Capital Trust (CCT).

The newest public BDC has both debt and equity stakes in Rockport Group.

The principal exposure is $34.2mn invested in $38.1mn of the Company’s 2022 Senior Loan.

Loan History

CCT first invested $27.9mn in the IQ of 2017.

In that first quarter the Rockport debt was performing but written down (18%) at fair market value.

The loan  – bearing an interest rate of 9.5% – went on non-accrual in the IVQ of 2017, depriving CCT of nearly $2.7mn of annual Investment Income.

Increase

This quarter – according to Advantage Data records – CCT increased its position, buying more debt at a major discount.

At March 31, 2018, the FMV of its position was $17.7mn, roughly half its cost.

That suggests the BDC may have to book a Realized Loss in the second or third quarter of 2018 of about ($16.5mn).

Given that the valuation has just been published, we assume CCT management and its advisors were well aware of the bankruptcy and sale when valuing the investment.

VIEWS

New To Us

We have to admit that we have not been following the Rockport story very closely till today’s article.

We only added CCT itself  – the only BDC with exposure  to the borrower- in recent weeks to the BDC Reporter’s universe of BDC stocks.

This is the first quarter we’ll be digging deeply into the KKR managed BDC’s portfolio.

Big Chunk

However, we note that Rockport – according to news reports – had $287mn in debt outstanding.

The $28mn which CCT initially invested was a relatively large position.

As a result, the BDC was one of a group of lenders called on to provide $20mn in interim financing necessary to facilitate the sale.

This may explain the increase in the BDC’s exposure in recent weeks, mentioned above.

Timing

The Rockport set-back comes at an unfortunate time as KKR and FS Investments – parent to FSIC –  are talking about merging the BDC with several public and private BDCs under the latter’s label.

We also note that CCT has had its fair share of credit set-backs before this.

The March 2018 statements show aggregate Realized Losses of ($141mn) and Unrealized Losses of $(187mn).

Those amounts combined to 12% of equity capital raised.

CCT has been in business since 2011 but only grew to its current multi billion dollar size since 2013.

Full Disclosure ?

We saw no reference to Rockport in either the latest CCT press release or Investor Presentation.

Call us old fashioned, but the BDC Reporter believes BDC managers should be forthright about discussing about the inevitable reverses that occur to any lender.

First Impressions

None of the above is a very encouraging introduction to CCT, but we’ll keep an open mind.

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