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Hercules Capital: Portfolio Company Files Chapter 11

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We republish a post from the BDC Credit Reporter about a post Christmas bankruptcy by Melinta Therapeutics. Hercules Capital (HTGC) has a long history with the company and used to have tens of millions of dollars advanced in the form of debt and equity. As the article shows, though, HTGC should not be too greatly impacted by the bad news.  During a quiet week for any financial news – let alone for the BDC sector – this deserves mention for anyone keeping close tabs on the largest venture-debt BDC’s progress. 

Melinta Therapeutics: Files Chapter 11

It’s never too late in the year to file for bankruptcy. On December 27, 2019 Melinta Therapeutics, which manufacturers antibiotics, sought court protection in a Chapter 11 filing. Apparently, the company has arranged a debt for equity swap which see $140mn be wiped out in return for taking on Deerfield Management as its new owner.

The only BDC with exposure is Hercules Capital (HTGC), which had $2.6mn in equity at cost invested in the company. We surmise that the investment – already non income producing and written down to almost nothing – will get written off. Expect a modest but predictable Realized Loss this quarter or next.

The BDC will consider itself lucky to have gotten away with so little damage. Not so long ago HTGC had as much as $30mn advanced in the form of debt to the company but that got repaid in a transaction back in 2017 when Melinta merged with a subsidiary of Cempra, according to a footnote in the 10-Q. You win some and you lose some in venture debt investing, but HTGC will probably be glad this loss was a modest one that will have no impact on NAV or even on its total realized loss column.

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