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Capitala Finance: Portfolio Company Restructured

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Preamble

Having just completed the annotation of the Capitala Finance (CPTA) IIQ 2020 conference call transcript, we’ve now turned to updating the BDC Credit Reporter’s records.

We’ve begun with an upgrade from non performing status (CCR 5) to a Corporate Credit Rating of 3 for a portfolio company that appears to have been recently restructured.

That has allowed the BDC to begin receiving investment income again after placing the debt on non performing status in the prior quarter. 

Along the way, CPTA appears to have booked a realized loss, as discussed in the prior article. 

Details are scarce, but the BDC Credit Reporter has drawn some inferences from the 10-Q and other data available to us.


Alternative Biomedical Solutions: Restructured

The BDC Credit Reporter believes privately-held Alternative Biomedical Solutions LLC, a Centre Lane Partners portfolio company, was restructured in the IIQ 2020. We did not find an official announcement but a review of Capitala Finance’s (CPTA) 10-Q suggested some of the 2022 Term debt due the BDC may have been converted into Preferred stock and warrants were issued. Total exposure by CPTA dropped by a third, suggesting a possible realized loss of ($6mn) in the period but that’s not explicitly confirmed in the 10-Q.

Unfortunately, all our information is from CPTA’s results and cannot address the company’s overall balance sheet or what other lenders – if any – might have done. Furthermore, we don’t know if the sponsor made any capital contribution as part of the restructuring. The company had been underperforming since the IQ 2018 and in 2019 CPTA revealed trailing EBITDA had been headed lower but was stabilizing. As of the IQ 2020, the company’s debt was carried as non performing by the BDC.

As a result of the restructuring, we have upgraded the company from CCR 5 to CCR 3. The remaining debt is valued by CPTA at par, as well as the new preferred. The original $0.800mn in equity remains valued at zero. Total cost is $13.1mn and FMV $12.3mn.

We are keeping the company on the underperformers list despite the restructuring, both because the equity remains valued at zero and due to the recent non accrual and need for restructuring. We hope to learn more in the future.

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