Garden Fresh Restaurant Corp. Investment Losses
Garden Fresh Restaurant Corp. filed for bankruptcy in October. According to reports, this will have an impact on three business development companies (BDCs) that are invested in the company.
The 3 BDCs that are invested are: Ares Capital (ARCC), Apollo Investment (AINV) and Triangle Capital(TCAP).
According to BDC Credit Reporter the impact of bankruptcy and possible reorganization will be very different for each BDC. TCAP appears to just have a $500,000 equity investment, which is already marked to zero. That will probably become a realized loss.
ARCC has $40mn lent to the Garden Fresh, but all in senior secured form and marked at par as of June 2016. There is a possibility that ARCC will remain as lender or be repaid in full. However, there is always the risk of Chapter 7 liquidation. Then ARCC may face losses.
The remainder of exposure is held by AINV, according to BDC Reporter, both in first lien and second lien loans, as well as equity.
Bad news for Apollo Investment– $62mn has been invested in Garden Fresh and if the restructuring is not successful 90% or more of the exposure will get written off.
Business Development Companies
BDCs typically invest in debt of small and medium sized businesses. When those businesses are profitable, so is the BDC. However, BDCs often invest in businesses that were unable to secure bank loans and debt considered below investment grade.
BDCs are likely to be carrying non-secured debt in companies that have a higher risk of bankruptcy. Most BDCs seek to have their loans protected by receiving a property interest or equity in the companies they invest in. By doing this, the BDCs increase their chances of salvaging some of the investment’s value in the case of a bankruptcy.
In addition, BDCs typically are high commission products that carry significant upfront fees. The resemblance BDCs share with another high commission and illiquid product, Non-traded REITs, has drawn the attention of securities regulators. Brokers that sell BDCs are advised to firmly adhere to suitability requirements when recommending BDCs to clients.
For more information on BDCs, see BDCs – the good, the bad, and the UGLY.
Brokers have a fiduciary duty to perform due diligence on any investment and to insure that investment recommendations are consistent with their client’s age, net worth, risk tolerance, investment experience and objectives, risk tolerance. If a broker overlooks suitability requirements, investors may have an actionable claim to recover their losses in a product in a claim through FINRA dispute resolution.
Recovery of Investment Losses
If you have questions about your investment in a nontraded BDC and would like to speak to a securities attorney about your potential to recover losses through FINRA arbitration, please call The White Law Group at 1-888-637-5510 for a free consultation.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Vero Beach, Florida.
For more information on The White Law Group, please visit our website at www.WhiteSecuritiesLaw.com.