BDC REPORTER: Asset-based senior lender BDC Full Circle Financial (FULL) is down -12.6% from it's recent 52 week high, and -6% on the day. The reason appears to be the bankruptcy of the Company's portfolio investment in MDU Communications (NYSE:USA). FULL has 3 loans to the troubled multi-dwelling unit satellite provider, with a total cost of $6.7mn.
We've come to this subject only in the last hour or so, but did dig up this 8-K release, dated October 9th. This shows that Full Circle and another lender foreclosed on the stock of the business, as per the loan agreement, and immediately sold the assets to a third party: Access Media 3, a larger, better financed competitor. We read in the MDU parent 10-Q for the quarter ended March 31, 2013 that they had been selling assets to Access Media 3 in the preceding months, so this makes sense.
This has been a long standing relationship for Full Circle (back to 2006 !), and this failure was no great surprise. The borrower's parent 10-Q leads with the prediction that liquidity was projected to run out. The parent had hoped to merge with another player but that deal has taken too long to come to fruition and Full Circle has acted to protect it's interests.
Full Circle,in it's recent 10-K, valued the MDU loan at pretty close to full value. FULL was certainly aware of the likelihood of default at the time of the filing and may already have been in contact with the ultimate buyer of the assets (Access Media 3). This suggests Full Circle has been able to get repaid in full from the foreclosure and asset sale. The only loss will be relatively high paying assets. We quote from the filing to support our contention that FULL may be not incurring any material loss in this drama:
Simultaneously, the Lenders, acting as attorney and agent-in-fact on behalf of Parent and with control of the voting rights over Subsidiary, executed a Written Consent of Sole Stockholder in Lieu of Meeting directing Subsidiary to enter into and consummate the transaction to sell substantially all of its assets to Access Media 3, Inc. ("AM3") pursuant to the previously disclosed September 4, 2013 Asset Purchase Agreement, with such purchase price proceeds being directed to the Lenders to satisfy the outstanding balance under the Loan Agreement.
MARKET PRICE: The market seems to have been spooked initially, with 5x the usual volume trading and the stock price dropping like a stone. Cooler heads (or Google searchers like us) have prevailed,though, and the price is moving up.
We bought more stock for our Funds, even as the price turned. Talk about fast moving...
Written at 1:05 p.m. EST on the BDC Reporter (bdcreporter.com) and copied here for our Seeking Alpha readers.
Disclosure: I am long FULL.