Europe: Sheil Aggarwal joins Cantor’s European structured credit desk

cantfitzCantor Fitzgerald Europe has appointed Sheil Aggarwal as managing director in the firm’s European Structured Credit desk. He will be based in London and focus on asset-backed securities, mortgage-backed securities and collateralized loan obligations (CLO).

Aggarwal joins Cantor from Pamplona Credit Opportunities, where he was a partner. Before that, he was a senior managing director at Bear Stearns, overseeing the trading and syndication of European Structured Credit. – Sarah Husband



Tribune launches $4.1B financing, backs Local TV (Oak Hill) buy; TL draws BB+/Ba3 ratings

Tribune_Company_logo-lpJ.P. Morgan, Bank of America Merrill Lynch, Citigroup, Deutsche Bank, and Credit Suisse today launched their $4.1 billion debt financing backing Tribune Co.’s planned acquisition of Local TV from Oak Hill Capital Partners, offering the B loan at L+350, with a 1% LIBOR floor, at 99, sources said.

The financing includes a $300 million, five-year revolving credit and a $3.8 billion, seven-year TLB. The loan drew BB+/Ba3 ratings, along with a 1 recovery rating from Standard & Poor’s. Tribune is rated BB-/Ba3. The term loan was said to be generating strong momentum in advance of the bank meeting.

Tribune in July agreed to purchase Local TV’s 19 television stations for $2.725 billion in cash. Tribune will also refinance its existing debt alongside the purchase and is spinning off its publishing assets into an independent company, ultimately leaving a pure-play broadcaster. In a July statement, the company said that it would develop “detailed separation plans” over the next 9-12 months.

With the purchase, the media company’s broadcast portfolio will increase to 42 stations, from 23. Tribune expects the merger to generate more than $100 million in annual run-rate synergies within five years of closing.

The transaction will be structured to deliver to Tribune a step up in the tax basis of the acquired assets. Taking into account the company’s estimate of run-rate synergies and the present value of this tax asset, the effective purchase-price multiple on a pro forma basis is approximately 7x 2011 and 2012 average EBITDA, the company said.

Tribune’s existing bank debt – a $1.1 billion B term loan and a $300 million asset-based revolver – was put in place in December to back the media company’s exit from Chapter 11. The covenant-lite TLB due 2019 is priced at L+300, with a 1% LIBOR floor.

Local TV, meanwhile, last tapped the loan market in September for a fungible $70 million add-on to its $181 million covenant-lite term loan due 2015 (L+400). The original loan stems from Oak Hill’s 2007 purchase of the New York Times’ Broadcast Media Group, though the company extended the maturity of a majority of its term debt by two years, to 2015, via an amend-to-extend transaction early last year. The company exited Chapter 11 on Dec. 31. – Chris Donnelly


LSTA Proposes Risk Retention Options After Dodd-Frank Scrutiny

The LSTA Wednesday evening submitted its comment letter on the revised risk-retention requirements outlined under Dodd-Frank to joint federal regulators (including the Federal Reserve, the Office of the Comptroller of the Currency, the FDIC, and the SEC).

In the letter, the LSTA – at the request of the federal agencies for additional ideas – lays out two proposals that it hopes could mitigate the issues raised by risk retention in its current form. It also repeats its view that in its current form, risk retention would seriously harm the market.

The first proposal expands the concept of a qualified commercial loan (QCL), which is currently used to preclude residential mortgages from risk retention. The idea here would be to redefine the QCL concept using a set of predefined criteria to create a class of leveraged loans that if used as CLO collateral would exempt the loans from the retention requirement.

The LSTA suggests there are a number of key attributes to the leveraged loan market that would support the concept of creating a subset of loans or QCLs that are exempt from retention, not least the rigorous three-tiered underwriting process underpinning CLO construction. Other supportive factors include the fact that CLO managers are active managers engaged in buying and selling loans to maintain a track record, and that as registered advisors, CLO managers operate with a fiduciary responsibility to their investors.

Finally, the LSTA cites the overall strength of the CLO market, which has demonstrated a continued strong performance over the years, and which boasts a default rate that is lower than that of the loan market.

This robust set of conditions should underpin the ability to create a set of higher-quality loans that would be exempt from retention, says the LSTA.

The second proposal concerns third-party sponsors, whereby a third party holds at least 5% of the equity and is involved in structuring the CLO transaction as well as holding the consent right for the loan collateral selection.

A similar idea was considered by a number of European managers earlier this year, with Cairn Capital tapping into a third-party sponsor – in this case the San Bernardino County Employees’  Retirement  Association – to retain the equity.

However, while the EBA eliminated this option for European CLO managers via the release of the Capital Requirements Regulation (CRR) in May (this consultation ruled out the use of a third-party sponsor), the U.S. agencies have indicated that they may be willing to consider this proposal.

These latest proposals follow a previous proposal put forward by the LSTA in its April letter, whereby the CLO manager would hold 5% of equity plus unfunded Class M notes that replicate and replace the fee stream.

Accessing all options 
Clearly these proposals are not without their issues – a QCL subset of loans within the overall asset class, for instance, could impose a liquidity premium on these assets. As well, managers choosing to include non-QCL assets as collateral would still have to hold some retention to cover exempt assets in the portfolio.

Meanwhile, with regard to the second proposal, there is no real understanding of how deep the market for third-party equity investors might be, while the restriction on hedging the retention piece for the life of the deal may also prove problematic, leading the LSTA to explore the concept of including a sunset provision, limiting the prohibition on hedging/selling the piece for two years when it should be clear whether the structure works.

That said, if CLOs are to be swept up in the retention regulation, then creating as many partial solutions available to CLO managers to mitigate the impact is essential, says the LSTA.

Aside from putting forward these new proposals, the LSTA uses today’s letter to examine the alternative “lead arranger” option, put forward by the federal agencies in their reproposal issued at the end of August. In a nutshell, a lead arranger would agree to hold 5% of a CLO-eligible tranche for the life of the deal without hedging, provided it used these loans as collateral.

The initial market reaction to the August revisions suggested the proposal was unfeasible, but the LSTA has spent the intervening months holding in-depth discussions with lead arrangers to fully assess not only whether they would be able to meet the requirements, but also whether there is any iteration that might work as a solution.

The overriding response was “no.” Arranging banks said they would not hold on their books enough of these institutional loans to satisfy the requirement, even less so without the ability to hedge. Further, the arrangers agreed that any other iteration – perhaps holding a revolver rather than an institutional piece, or sharing the risk among the arranger group of a specific deal – would also not work.

Essentially that renders this “lead arranger” proposal unfeasible, while the initial “manager” option (whereby the CLO manager retains a 5% stake in the CLO vehicle either via a horizontal or vertical slice) is also considered widely damaging to the future health of the U.S. CLO market and the leveraged loan market.

Market impact
U.S. CLO issuance this year has reached $64 billion, the third-highest annual figure on record, according to LCD. After falling following the credit crisis, CLO managers now represent just over 50% of the institutional investor base for primary leveraged loans (1Q-3Q13).

There is no doubt both within the LSTA and across the broader market that the impact of the retention proposal will be significant, given that the CLO market is a crucial provider of liquidity to the broader syndicated loan market. Broadly speaking, analysts, arrangers, and CLO managers agree that risks include greater volatility in the loan market, manager consolidation, and a meaningful decrease in issuance after the rules take effect as the number of managers able to issue CLOs decreases.

According to the surveys conducted this past summer by the LSTA, the majority of managers do not have the internal funding to enable them to purchase and retain 5% of the fair value of any new CLO notes.

Indeed, while the LSTA has determined the potential for the market to shrink at least 75% under the regulation – a point recognized by the federal agencies – the agencies have not fulfilled their obligation to perform a thorough cost-benefit analysis to establish if the risks outweigh the costs. The LSTA reiterates this point in today’s letter, suggesting that there is no possibility for them to prove this assumption.

Finally, the LSTA uses the letter to reiterate several other points made previously, including the agencies’ lack of statutory authority to ask CLO managers to retain the risk. In the August reproposal the federal agencies address this legal argument, and in today’s letter the LSTA addresses that response, arguing again that securitization retention rules are intended to cover entities such as banks, which originate to distribute, rather than CLO managers, which select rather than originate assets for their securitizations.

The LSTA also highlights the fact that the options  put forward by the agencies to enable a sponsor to fulfill the statute’s requirement that a sponsor hold 5% of the credit risk are not equal. Specifically, a 5% retention via the horizontal slice equates to more than 5% of credit risk. While conceding this point in the reproposal, noting that 5% of the vertical does amount to less than 5% of the horizontal in terms of credit risk, the agencies fail to actually address the issue, the LSTA says.

Moving forward, with the comment period now closed, the federal agencies will have to assess and react to what is expected to be a multitude of comments across numerous ABS asset classes. The regulation becomes effective two years after the publication of the final rule, so likely no earlier than early 2016. – Sarah Husband


Europe: CQS prices €361.55M CLO via DB; YTD issuance €4.83B, 14 vehicles

Deutsche Bank today priced a €361.55 million CLO for CQS, according to sources.

The vehicle, which is the manager’s first 2.0 CLO, is structured as follows:

The vehicle is intended to be CRD/122a compliant via a 5% vertical slice retained by the sub-manager. The collateral pool will comprise 90% senior secured obligations, as well as up to 10% of unsecured loans, second-lien loans, mezzanine, and/or senior unsecured bonds. The portfolio is expected to be roughly 50% ramped at pricing, moving to 75% at the targeted close date of Dec. 5.

The vehicle has a 3.5-month ramp-up period from the expected closing date, a two-year non-call period, and a four-year reinvestment period. The final legal maturity is October 2026.

Including CQS, year-to-date European CLO arbitrage issuance stands at €4.83 billion from 14 vehicles.

Established in 1999, CQS is a global multi-strategy asset management firm. In terms of existing European CLOs, the firm priced three CLO 1.0s in the Grosvenor Place series between 2006 and 2007, of which two are now out of reinvestment. The firm also includes loans within its Credit Multi Asset Fund. – Sarah Husband


Crown Holdings eyes new TLA, TLB for $1.6B (€1.2B) Mivisa Envases (Blackstone) acquisition

crownCrown Holdings disclosed it has obtained financing commitments from Citigroup in connection with its planned €1.2 billion ($1.6 billion) acquisition of Mivisa Envases, a Spanish can manufacturer, from affiliates of The Blackstone Group.

The financing commitments provide for a potential amendment to Crown’s existing senior secured credit facility to allow the company to obtain a new A term loan of up to $960 million and a new $700 million B term loan, according to a regulatory filing.

The other option is for Crown to enter into a new senior secured credit facility that would be split between a $1.18 billion A term loan, a $700 million B term loan, a €110 million term loan, and a $1.2 billion revolver. The pro rata debt would mature in five years, while the TLB would mature in seven. Crown may also seek alternative forms of financings, the company noted in the filing.

The acquisition is expected to close in 2014.

As of Sept. 30, Crown had $221 million outstanding under its TLA due 2016 and the $149 million outstanding under its euro-denominated term loan due 2016. Pricing on both loans opens at L+175. The company also has $436 million outstanding under its revolver.

In January, the company completed a $1 billion offering of 4.5% senior unsecured notes due 2023 to redeem the $400 million outstanding under its senior notes due 2017 and to repay $500 million under its senior secured credit facility.

Philadelphia-based Crown Holdings, formerly Crown Cork & Seal, supplies packaging products to consumer-marketing companies around the world. Corporate issuer ratings are BB+/Ba1. – Richard Kellerhals


Onex Credit plans IPO of OCP Tactical Senior Income Fund

Onex Credit Partners plans to list a new fund, the OCP Tactical Senior Income Fund, having filed a preliminary prospectus with the securities regulatory authorities in each of the provinces and territories of Canada.

The fund is offering trust units at a price of $10 per unit.

The fund is targeting an annual yield of 5% based on the original issue price, and the underlying portfolio will comprise floating-rate first-lien senior loans and high-yield bonds of North American issuers.

Onex Credit, the credit investing platform of Onex Corporation, will manage the fund. The syndicate for the offering is co-led by RBC Capital Markets and CIBC, and includes Scotiabank, TD Securities, BMO Capital Markets, National Bank Financial, GMP Securities, Canaccord Genuity, Raymond James, Desjardins Securities, Mackie Research Capital, and Rothenberg Capital Management. – Staff reports