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Engine Group: Sells Subsidiary

5/23/2022: A troubled marketing company sells a subsidiary to raise funds.

5/23/2022: In March 2022, the Engine Group – “a global, multi-disciplined marketing services platform with leading-edge digital capabilities” – sold its British subsidiary : Engine Group UK, which is owned by Lake Capital. Since 2021, Lake Capital has been actively seeking to sell all or parts of Engine Group – now named just Engine. The proceeds here were Sterling 77.5mn, or roughly $100mn.

There is only one BDC with exposure to the Engine Group: Prospect Capital (PSEC). Advantage Data records shows that exposure began with first lien and second lien loans, first booked in IIIQ 2017, with a total cost of $40mn. Everything went to plan till 2018, when the first unrealized write-downs began. By the IIQ 2020, both loans were on non accrual, and written down to about $11mn from the-then $39mn advanced.

Some sort of restructuring appears to have occurred, with the exposure swapped into a first lien loan due in November 2023, with a cost of $12mn and equity of $27mn. The debt, though, has been amortizing in the intervening quarters and only $3.6mn was left as of March 2022, valued close to par. The equity at cost, though, was unchanged and valued at next to nothing : $294,000.

Normally, we’d expect that PSEC – as both lender and investor – might benefit from the sale of a key subsidiary. However, the transaction occurred in the first quarter of the year and did not seem to affect the equity valuation much, but may have accelerated the debt payoff.

In any case, we rate Engine CCR 4, and will wait to see if the ($27mn) of unrealized losses still booked will get realized, or if the loss will shrink. There was no word on the subject either this quarter, or at any other time, on its conference call.