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Leveraged loans: LBC Credit Partners closes $839M fund for middle-market lending

lbc credit partnersLBC Credit Partners closed an $839 million fund aimed at middle-market investments, exceeding an $800 million target, with commitments from existing and new institutional investors.

The LBC Credit Partners III fund will “continue LBC’s strategy of originating, executing, and managing a diversified portfolio of direct loans and investments in U.S. middle-market companies across a broad range of industry sectors.”

LBC Credit Partners’ capital commitments total more than $1.75 billion. In 2010, LBC closed the LBC Credit Partners II, a $642 million fund. In 2006, the firm closed its first fund, totaling $300 million.

Since LBC closed its first fund in 2006, the market has changed. Besides fewer banks, there are more alternative lenders, such as business-development companies, with organized platforms to provide financing solutions to middle-market loans.

“The market is probably as liquid today as in 2007. There are fewer hedge funds today and more alternative lenders,” John Brignola, a managing partner at LBC, told LCD News.

“During the last cycle, CLOs had more baskets for middle-market loans. My sense is those baskets are not as great this time as they once were.”

The developments are positive for the market and for middle-market borrowers, Brignola said.

“Some of those players didn’t have the same type of permanency. Someone with longer-term capital is better aligned with middle-market borrowers.”

LBC Credit Partners provides senior loans, unitranche, second-lien, junior secured and mezzanine debt and equity co-investments for sponsored and non-sponsored transactions. The new fund will cover the same spectrum of loans across industries.

Among LBC Credit Partners’ recent deals, LBC announced this month it was administrative agent on a second-lien term loan to Florida-based Diversified Maintenance Systems for an acquisition and to refinance debt. Diversified Maintenance Systems, a portfolio company of middle-market investment firm Frontenac Company, is acquiring Rite Way Service.

In March, LBC Credit Partners said it was agent on an $80 million term loan backing the acquisition of Frontier Spinning Mills, a producer of cotton and blended yarns, by private equity firm American Securities. – Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, distressed debt, private equity, and more

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Leveraged loan funds see $475M outflow; third straight withdrawal

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Cash flows to bank loan funds were in negative territory for a third consecutive week, at $475 million, in the week ended May 28, according to Lipper. It’s the sixth withdrawal over the past seven readings, after a 95-week inflow streak totaling $66.7 billion.

The outflow is down from $636 million last week, but it was equally 8% related to redemption from the exchange-traded-fund segment, as compared to last week. The trailing four-week reading moderates, however, to negative $325 million per week from negative $373 million last week, though it was negative $220 million the week prior.

Year-to-date inflows now total $4.7 billion, of which $927,048, or 20% of the sum, is ETF-related. In the comparable year-ago period inflows were $22 billion, with 14% tied to ETFs.

The change due to market conditions was negative $11 million this week. That’s essentially nil against total assets, which stood at $110.1 billion at the end of the observation period, with ETFs comprising $8.3 billion of the total, or approximately 8%.

Follow Matt on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, and trading news

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LightSquared headed to mediation after deal eludes the parties

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LightSquared’s Chapter 11 case will proceed to mediation in an effort to develop a consensual reorganization plan for the company, after key stakeholders failed to agree on a reorganization plan by the May 27 deadline set earlier this month by U.S. Bankruptcy Judge Shelley Chapman.

According to a report yesterday from Reuters, an attorney for one of the committees acting in the case said at a status hearing held Tuesday in Manhattan that there had been progress made toward a plan, but more help was needed. According to Reuters, the attorney said the parties had discussed a global restructuring that would be backed by new financing, but did not provide further details.

As reported, Chapman denied confirmation of LightSquared’s proposed reorganization plan earlier this month. In a decision read aloud in court on May 8, Chapman told the company and the major parties in the case, “You have two weeks to come up with a deal.”

Chapman added that if a deal wasn’t reached by May 27, she would enter an order assigning U.S. Bankruptcy Judge Robert Drain as mediator to oversee plan negotiations.

The case docket does not yet show the entry of a mediation order.

Drain is a bankruptcy court judge for the Southern District in the White Plains, N.Y., location. Drain served as a mediator for the Cengage bankruptcy and was the presiding judge in the Chapter 11 case of Hostess Brands.

At the core of the dispute that consumed the company’s Chapter 11 is the $844 million claim in the company’s senior debt acquired by Dish Networks’ founder, Charles Ergen. At issue has been whether Ergen, who claimed he bought the debt as a personal investment, fraudulently acquired the position on behalf of Dish, which would have been prohibited from owning the debt itself as a competitor of LightSquared.

Chapman ruled that Ergen’s acquisition of the LightSquared debt, which was accomplished via a third-party vehicle, SPSO, did not technically violate the debt indenture, and therefore would not be disallowed.

But Chapman also found that Ergen’s actions were clearly an “end run” around the indenture’s restrictions and showed a lack of good faith, and so while the claims would be allowed, Chapman also ruled that the claims would be equitably subordinated in an amount to be determined.

At the same time, however, Chapman also ruled that LightSquared’s plan could not be confirmed because it unfairly treated Ergen’s claims. While paying off similarly situated senior creditors in cash, the company’s reorganization plan separately classified Ergen’s claims and repaid them via a seven-year third-lien payment-in-kind note.

“It is difficult to imagine discrimination more unfair than that contemplated by the plan,” Chapman said in denying confirmation. – Alan Zimmerman

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RBS to wind down US CLO business in response to regulatory changes

Royal Bank of Scotland Group will wind down its U.S. CLO business as it looks to reduce headcount across a number of its U.S. trading businesses to comply with new U.S. regulations, according to market sources.

Under Dodd-Frank’s IHC requirement, a large foreign banking organization (FBO) must reduce its U.S. assets to less than $50 billion. As a result, the bank has undertaken a large-scale re-assessment of its capital, leading to yesterday’s announcement that it will decrease involvement in one of the most capital-intensive businesses, trading.

As a result, the bank is adjusting its U.S. Asset-Backed Product (ABP) capabilities, by downsizing its agency RMBS business, and materially reducing its non-agency MBS and U.S. CLO businesses. It will retain its non-mortgage ABS, CMBS and Repo businesses.

The reductions will take place gradually – existing mandates will be carried out – with headcount reduced over a 12-18 month time period. Effectively by 2015 the U.S. ABP business will have been scaled back by two thirds.

The bank remains committed to its European Securitization business.

Aside from the ABP business, the bank has also decided to reduce its distressed trading (SSG) business, but its Rates, Currencies, Credit (including high-yield, investment-grade and commercial paper), and Global Transaction Services business are unaffected. – Sarah Husband

 

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Institutional allocations to leveraged loan funds decline again in 1Q

Amid falling rates, pension funds and other institutional investors dialed back net new allocations to the U.S. loan market in the first quarter. In all, these accounts put $6.6 billion of net new capital to work via managers that report to eVestment Alliance, down from $9 billion in the fourth quarter and $11.1 billion in the third quarter.

Market players say these figures are directionally correct, though they add that there is likely some noise in the data based on (1) the fact that not every manager reports to eVestment, and (2) the fact that the numbers are self-reported and therefore may not all be consistent. – Steve Miller

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SunTrust to set up middle-market corporate team in Boston; Greg Badger to head up

sunrobSunTrust Robinson Humphrey has set up a new corporate banking office in Boston focused on the middle market.

Greg Badger will head the Boston-based Northeast Corporate Banking group, and will hire a team. Badger will report to Brian Peters, head of National Corporate Banking, based in Atlanta.

Badger joins SunTrust Robinson Humphrey after a career spanning 20 years at Bank of America and its predecessor banks in Boston. – Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, distressed debt, private equity, and more

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Bankruptcy: Genco Shipping plan hearing delayed to June 12; end seen on June 24

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The bankruptcy court overseeing the prepackaged Chapter 11 proceedings of Genco Shipping & Trading on Friday delayed the combined disclosure statement/confirmation hearing in the case to June 12, according to court filings. The hearing is not slated to conclude until June 24, however, as the bankruptcy court reserved four days for the hearing – June 12, 13, 23, and 24, the filings state.

As reported, the hearing on the company’s prepackaged reorganization plan was set for June 3.

The equity panel appointed in the case earlier this month had sought a delay of at least 45 days to investigate the company’s valuation (see “Genco Shipping equity panel seeks to delay plan hearing by 45 days,” LCD, May 13, 2014). The company, however, argued that it was clearly insolvent and the panel was really seeking to delay the case in the hope it would gain a tactical negotiating advantage, and that any postponement in plan confirmation hurt the company’s operations.

According to the court’s ruling, the equity panel’s expert report on valuation is due by June 11, and yesterday the equity panel filed a motion asking the bankruptcy court to permit it to hire Rothschild as a financial advisor “in connection with a valuation of, and the formulation, analysis, and implementation of various options for a restructuring, reorganization or other strategic alternative relating to, the debtors.”

To the extent that, as the company charged, the committee was simply hoping to use the prospect of delaying confirmation of the prepackaged reorganization plan as strategic leverage to finagle an increased recovery, it is unclear whether the potential three-week delay is long enough to change the negotiating dynamic in the case that has left equity with its current “gifted” recovery of warrants. – Alan Zimmerman