Stellus Capital: Portfolio Company Files Chapter 11
The BDC Reporter has been writing about Stellus Capital (SCM) of late due to its recent unsecured debt issuance.
Over at the BDC Credit Reporter we were inspired to have a latest look at the BDC’s credit performance.
In terms of underperforming assets, the BDC’s own 10-Q indicates there are $63mn in this category in a $622mn portfolio, or about a tenth of the total.
That’s one of the lowest percentages of any BDC that we track. See the BDC Credit Table.
SCM even counts the number of underperforming companies involved, which most BDCs do not bother to do.
(One small step towards better BDC transparency).
However, neither SCM nor any other BDC identifies which company or investment is in which investment rating category.
That’s where the BDC Credit Reporter steps in and undertakes an independent analysis of each portfolio company to determine how many are underperforming and what fair market value is involved.
Sometimes the BDC Credit Reporter’s dovetail with the BDC’s, sometimes not.
One main difference is that the BDC’s numbers are as of the last quarter while the BDC Credit Reporter adjusts upwards and downwards in real time.
Sometimes there are inherent differences in deciding what is underperforming and what not.
Moreover, the BDC has much more financial and business information at hand than the BDC Credit Reporter, which depends on the public record.
In this case, our own up-to-date assessment of credit quality counts 8 underperforming companies with a FMV of $38mn, or just 4.5% of the portfolio.
Of the 8, we rate 3 as being IMPORTANT, i.e. likely to have a material impact on the BDC’s NAV and earnings in the next couple of quarters.
One of the three is Furniture Factory Outlet, one of several SCM loans on non accrual.
As the article below from the BDC Credit Reporter indicates, the company has recently filed Chapter 11.
All the details and the implications for SCM are discussed.
We’ll review the other two underperforming companies in the news in a future overall Credit Review of SCM.
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