😬Is Art Van Furniture the Next Bankrupt Retailer?😬

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Back in November 24th’s Members’-only briefing, we highlighted how publicly-traded BDC, FS KKR Capital Corp. ($FSK), was having a wee bit of trouble with a small portion of its portfolio. It had designated several of its loans as “non-accrual.” At the time, the subject of our affection was the in-and-out-of-bankruptcy Acosta Inc. but we also highlighted the now-seemingly-soon-to-be-in-bankruptcy Art Van Furniture Inc. You can check the piece out here.

This weekend news surfaced that, indeed, Michigan-based and private equity-owned (Thomas H. Lee Partners) Art Van may be headed to the bankruptcy bin. If so, it would mark (only) the third retailer to end up in bankruptcy in 2020 (SFP Franchise Corp., a/k/a Papyrus, and Pier 1 Imports Inc. ($PIR)). Per the Detroit Free Press:

Private equity firm Thomas H. Lee Partners LP is in the process of working with advisers and creditors to find a possible buyer for the company and potentially filing for Chapter 11 bankruptcy, according to a report from Crain's Detroit Business. 

The leak got the communications machine working over time:

Art Van Vice President of Communications Diane Charles confirmed the company is in negotiations. 

“We are actively exploring a variety of options with our creditors, investors and landlords to ensure Art Van can continue serving our guests and our communities," Charles said in a statement to the Free Press. "It is premature at this time to comment further as no final decisions have been made. In the meantime, our stores are open, and it is business as usual.” 

“No final decisions have been made” is code for “no board resolution has yet been adopted that authorizes a chapter 11 filing at this time.” But, rest assured: one is coming.

🛏KKR Tips Hand re Art Van Furniture (Short Midwest Mattresses)🛏

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n “💩Acosta = Not a Good Look, Carlyle💩,” we noted how FS KKR Capital Corp ($FSK), a publicly-traded business development corporation placed its Acosta Inc. loan “on nonaccrual” because it was, well, clearly sh*tting the bed. Ultimately, after riding the mark down to the basement, FSK offloaded the position. It wasn’t the only stain in its portfolio. In fact, as of the end of the third quarter, approximately 1.7% of the portfolio was on nonaccrual, up from 1.2% at the end of Q2. While this, in and of itself is hardly alarming, it does mean that there are other potential restructurings sitting on FSK’s books. Indeed, one loan contributing to this uptick was to a company called Art Van Furniture.

Founded in 1958, Michigan-headquartered Art Van Furniture is a furniture retail store chain with approximately 190 company-owned stores in nine states operating, thanks to various tack-on acquisitions, under various brands: Art Van Furniture, Art Van PureSleep, Scott Shuptrine Interiors, Levin Furniture, Levin Mattress and Wolf Furniture. The tack-on acquisitions were, presumably, part of the company’s growth strategy after being acquired by private equity overlords Thomas H. Lee Partners.

The Columbus Dispatch recently reported on Art Van’s strategy annnnnnnd it’s definitely a bit counter-intuitive:

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