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Foundation Building Materials, backed by CI Capital Partners, receives $80M loan

Foundation Building Materials received an $80 million incremental second-lien term loan during the recent quarter, an SEC filing today showed.

BlackRock Capital Investment Corporation provided $25 million of the loan, an earnings statement for the quarter ended March 31 showed. 
Pricing on the loan was L+1,100, with a 1% LIBOR floor and a 99 OID.

Foundation Building Materials, based in Orange, Calif., distributes drywall, steel studs, stucco and related building products to commercial and residential contractors. The company announced an acquisition of Phoenix-based Great Western Building Materials in March.

Middle-market private equity firm CI Capital Partners acquired Foundation in 2012, and has since expanded the company through seven add-on acquisitions. CIC Capital focuses on buyouts in North America, with initial equity investments of $25-100 million.

BlackRock Capital Investment Corporation, formerly known as BlackRock Kelso Capital Corporation, is a BDC that trades on Nasdaq under the ticker BKCC. The company invests in debt and equity of middle-market companies. – Abby Latour

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FSFR funds $87M of investments with Glick JV, sees low-teens return

Fifth Street Senior Floating Rate Corp., a BDC that trades on Nasdaq under the ticker symbol FSFR, said that its joint venture with affiliates of the Glick family had funded $86.6 million of investments in a portfolio of senior secured loans of middle-market companies of an expected $300 million total.

Fifth Street’s origination platform sourced the asset portfolio. It is funded by the JV’s $200 million revolver with Credit Suisse and equity of $60 million, which is the required minimum for the RC.

“FSFR believes that funding this initial portfolio of assets should generate a low-teens return on its investment, which is higher than the return on FSFR’s current portfolio. FSFR expects to continue funding FSFR Glick JV to its target size of $300 million over the next few quarters,” a statement on April 29 said.

FSFR and GF Funding have committed to $100 million of subordinated notes and equity for the new joint venture, FSFR Glick JV, which was unveiled in November. FSFR is providing $87.5 million and GF Funding is investing $12.5 million.

The Glick family office manages a wide range of asset classes, including a stake of more than 25% in Songbird Estates, the holding company of Canary Wharf.

The structure of FSFR Glick JV is similar to a joint venture between Fifth Street Finance Corp., which trades under the ticker symbol FSC, and a subsidiary of Kemper Corp.

At year-end, FSFR’s portfolio at fair value totaled $595.9 million invested in 57 companies.

FSFR is advised by Fifth Street Asset Management, which listed shares on Nasdaq last month under the ticker symbol FSAM. – Abby Latour

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Avaya firms upsized TLB-7 at wide end of talk

Avaya’s new five-year B-7 term loan has been increased to $2.125 billion, as pricing firmed at the wide end of talk, L+525, with a 1% LIBOR floor, at 99, sources said. Arranger Citi is expected to allocate the deal later this week.

The new loan, originally $1.5 billion, had been talked at L+500-525, with a 1% floor, offered at 99, sources said. The loan will include six months of 101 soft call protection. As finalized, the B-7 will yield roughly 6.65% to maturity.

The issuer had been candid about its desire to upsize, as the deal will refinance a portion of Avaya’s soon to mature roughly $3.3 billion of covenant-lite term loans, sources said. The roughly $2.1 billion B-3 term loan due 2017 is priced at L+450, while the roughly $1.1 billion B-6 term loan due 2018 is priced at L+550, with a 1% floor.

Much of the B-7 support came from holders of the issuer’s B-3 term loan rolling into the new deal at higher pricing. Holders of the B-6 loan showed little interest in rolling into the longer maturity, sources said. The new money committed to the B-7 loan will be used to reduce the B-3 and B-6 ratably on the post-rollover amounts.

As noted earlier, Avaya will carve out foreign receivables and inventory for a new international ABL revolver to refinance drawings under its $200 million cash-flow revolver, sources said.

The telecom equipment company will also seek to extend the remainder of its cash-flow RC and $335 million domestic ABL facilities. The existing RC matures next year.

Avaya is rated B-/B3. The term debt is rated B/B1, with a 2 recovery rating. – Chris Donnelly

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PennantPark, a BDC, to buy assets of struggling rival lender MCG Capital

PennantPark Floating Rate Capital, a business-development company, announced plans today to expand its portfolio through the acquisition of MCG Capital, a struggling lender to middle-market companies that had taken steps to wind down its portfolio.

PennantPark Floating Rate Capital, which trades on the NASDAQ under the symbol PFLT, will acquire MCGC in a $175 million cash-and-stock transaction, or $4.75 per MCGC share. MCGC stockholders will receive $4.521 in PFLT shares and $0.226 per share in cash from PennantPark Investment Advisers, and possibly an additional $0.25 depending on PFLT’s NAV over a 10-day period.

MCGC shares jumped 10% today, to $4.51, from $4.10 at yesterday’s close on the Nasdaq.

Boards of both companies approved the transaction. Stockholders of both companies need to agree to the transaction. The deal is expected to close in the third quarter.

The equity base of the combined company is expected to total $376 million.

“A balance sheet of this size will allow the combined company to be a more important provider of capital to middle-market sponsors and corporate borrowers,” a joint statement today said.

“PFLT expects, over time, to deploy most of MCGC’s cash into an investment portfolio consistent with that of PFLT’s existing loan portfolio.”

The deal is a boon to MCGC shareholders. In October, MCG Capital announced it was winding down its portfolio and buying back its stock with asset-sale proceeds, citing a credit-cycle peak. In February, MCG Capital announced it was exploring a potential sale.

“Our stockholders should benefit through resumed receipt of dividends and ownership in a company with a strong balance sheet and proven track record,” said Richard Neu, Board Chairman of MCG Capital.

PennantPark Floating Rate Capital shares traded higher after the announcement, touching $14.23, but have since erased gains to trade steady, at $14.15 on the Nasdaq, which was overall lower. Investments in middle-market companies can be difficult to acquire, except over an extended period. Buying an entire portfolio can be an attractive way to acquire a significant amount of assets at once in the competitive marketplace. Investors of debt in middle-market companies usually find economies of scale from larger holdings.

Another huge portfolio of middle-market assets is currently on the auction block. GE unveiled plans this month to sell GE Capital, the dominant player in middle-market lending. Leveraged Commentary & Data defines the business as lending to companies that generate EBITDA of $50 million or less, or $350 million or less by debt size, although definitions vary among lenders.

MCG Capital, formerly known as MCG Credit Corp., was a specialty lender focused on telecoms, communications, publishing, and media companies that was spun off from Signet Bank. Over the past decade, the company managed to shed some underperforming assets and diversify, but the company remained saddled with legacy assets from poorly performing traditional businesses.

PennantPark Floating Rate Capital is an externally managed business-development company, or BDC. The lender targets 65% of its portfolio for investments in senior secured loans and 35% in second-lien, high yield, mezzanine, distressed debt, and equity of below-investment-grade U.S. middle-market companies. The portfolio totaled $354 million at year-end on a fair-value basis.

PennantPark Investment Advisers receives fees from PennantPark Floating Rate Capital for investment advising, some of which are linked to performance of PFLT.

In December, MCG Capital announced the results of a Dutch auction, saying it bought 4.86 million shares for $3.75 each, representing 11.2% of shares outstanding, for a total of $18.2 million. MCG also reinstated an open market share repurchase program. In total, MCG Capital bought more than 31 million shares in 2014, totaling more than $117 million.

In April, MCG Capital completed a sale of Pharmalogic, marking the exit of all of the lender’s control investments. MCG Capital provided a $17.5 million, 8.5% first-lien loan due 2017, and a revolver, to facilitate the sale. Pharmalogic is a nuclear compounding pharmacy for regional hospitals and imaging centers.

MCG Capital had also struggled with a few poor, but isolated, bets, market sources said.

One misstep was MCG’s investment in Broadview Networks. The company, a provider of communications and IT solutions to small and midsize businesses, filed for Chapter 11 in 2012. MCG Capital owned more than 51% of the equity at the end of 2011.

Another black eye for MCG Capital was an investment in plant-and-flower producer Color Star Growers of Colorado. The company filed for bankruptcy in December 2013, resulting in a loss of $13.5 million that year for MCG Capital. Regions Bank claimed its losses totaled $35 million for the transaction.

MCG Capital filed a suit against the company’s auditor, alleging accounting fraud and material misrepresentation of Color Star’s financial state at the time of a subordinated loan transaction with Color Star in November 2012.

Some say the writing was on the wall as MCG Capital underwent a series of senior management changes. Keith Kennedy became CEO in April, succeeding B. Hagen Saville, who retired. In November 2012, Saville took over from Richard Neu, who stayed on as board chair. Neu was elected to the post in October 2011, taking over from Steven Tunney, who left the company to pursue other interests. – Abby Latour

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Middle market: Harbert Management closes third mezzanine fund at $165M

Harbert Management has held a final close for its third mezzanine debt fund, Harbert Mezzanine Partners III. The fund raised $165 million in commitments from new and existing investors, according to the firm.

It is the first non-SBIC mezzanine fund for Harbert, which closed its initial mezzanine fund in 2000, and followed it with Harbert Mezzanine Partners II in 2006. HMP III has thus far closed on ten investments.

HMP focuses on the lower end of the middle market, and typically provides $3-15 million in subordinated debt to support organic growth, acquisitions, recapitalizations, or management buyouts. The firm, based in Nashville, TN., is a subsidiary of private equity group Harbert Management. – Jon Hemingway

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Praesidian invests $10.5M more into EmpireCLS Worldwide

Limousine and chauffeured transportation provider EmpireCLS Worldwide Chauffeured Services received a $10.5 million add-on investment.

Praesidian Capital led the investment. The transaction will increase its equity position in the company. United Insurance of America (Kemper) was also an investor.

Proceeds will be used to fund a buyout of Bison Capital. In 2005, Bison Capital announced the acquisition of Empire International, saying it would merge it with portfolio company CLS Worldwide Services.

In 2013, Praesidian, Kemper, and M&T Bank provided $25.5 million to the company to refinance senior and subordinated debt.

Praesidian Capital provides senior and subordinated debt to small- and mid-sized companies. EmpireCLS has offices in Los Angeles and Secaucus, N.J., and operates in 700 cities worldwide. – Abby Latour

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Tai joins Newfleet as firm expands into distressed debt

Newfleet Asset Management today announced it has hired Edwin Tai as a senior managing director and senior portfolio manager for distressed credit.

Tai’s position is a new one for the firm, which recently filed a registration statement with the SEC for the Virtus Credit Opportunities Fund, a new open-end mutual fund with the latitude to invest in distressed debt.

He will manage the Virtus Credit Opportunities Fund as well as act as the sector head for distressed credit in multi-sector portfolios.

Tai joined Newfleet from Third Avenue Management, where he co-managed approximately $2.5 billion in distressed and high-yield credit assets as the lead portfolio manager of the Third Avenue Special Situations Fund and co-portfolio manager of the Third Avenue Focused Credit Fund.

Newfleet also recently brought on board Patrick Fleming as a managing director and senior counsel for distressed credit. The distressed debt team also includes Manases Zarco, managing director, credit research.

The Virtus Credit Opportunities Fund plans to invest in various debt products, including senior secured loans, second-lien debt, unsecured debt, subordinated debt, structured products and short-term debt products, as well as derivatives, foreign currencies and foreign currency derivatives, SEC filings show. It intends to focus on a small number of issuers and may invest in distressed or defaulted debt.

Newfleet is an affiliate of Virtus Investment Partners, which manages more than $12 billion of fixed-income assets. – Kerry Kantin

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Shock Doctor Sports uses $205M loan to fund merger with McDavid

Bregal Partners portfolio company Shock Doctor Sports has closed its merger with another sports-protection and performance-equipment company, McDavid. The acquisition was supported by $130 million of first-lien financing as well as $75 million of second-lien debt, according to market sources.

The arranger group includes Ares Capital, BMO, NewStar Financial, NXT Capital, and Madison Capital, sources note.

In addition to funding the acquisition, proceeds from the deal were used to refinance debt. Ares Capital was agent on the existing senior credit for Shock Doctor that backed Bregal’s buyout of the company in March of last year from Norwest Equity Partners. That financing included a term loan and revolver.

Minnetonka, Minn.-based Shock Doctor is a maker of mouth guards, impact gear, baseball equipment, insoles, performance-sports-therapy products, and performance apparels. McDavid manufactures, designs and markets sports medicine, sports protection and performance apparel for active people and athletes. The company is headquartered in Chicago, with subsidiaries in Japan and Europe. – Jon Hemingway

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Summer Infant receives new loans from Bank of America

Baby-products supplier Summer Infant entered a new credit agreement that includes a $60 million revolver and a $10 million term loan due April 2020. Bank of America is agent.

The credit facility also includes a $5 million first-in, last-out FILO revolving facility due April 2018, according to an April 21 8-K filing.

Pricing on the RC is L+175-225. Pricing on the term loan and FILO facility is L+400. The loan agreement includes a 37.5-25 bps unused fee.

The loan agreement includes a 1x fixed-charge-coverage ratio for the most recent 12 months, and a leverage ratio starting from the quarter ended July 4, 2015.

The amended loan agreement replaces another one with Bank of America. That agreement included an $80 million asset-based revolver due 2018 (L+175-225) and a $10 million letter of credit. Borrowing capacity was subject to a borrowing base.

Debt under the prior Bank of America credit agreement totaled $45.8 million as of Jan. 3, 2015 and interest was L+250, according to the company’s 10-K.

Summer Infant also has a $15 million term loan due 2018 (L+1,000,1.25% LIBOR floor) with Salus Capital Partners. The company owed $12.75 million under the term loan as of Jan. 3, 2015.

Summer Infant, based in Woonsocket, R.I., sells nursery monitors, safety gates, bath products, bed rails, strollers, booster seats, travel accessories, highchairs, and infant feeding products to retailers globally. Shares trade on Nasdaq as SUMR. – Abby Latour

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Bankruptcy: Chassix says reorg still ‘on pace’ despite flak from creditor panel

Ahead of its hearing on the adequacy of its disclosure statement scheduled for tomorrow, Chassix confirmed that it “remains on pace to emerge from Chapter 11 on the same time frame as when [it] commenced these cases,” despite the filing of objections last week to its disclosure statement from the official unsecured creditors’ committee in the case and the U.S. Trustee for the bankruptcy court in Manhattan.

That time frame would see the company emerge from Chapter 11 by the end of July.

In that regard, it is worth noting that according to an amended disclosure statement filed yesterday, the company is seeking to schedule a confirmation hearing on June 30, and set a deadline for an effective plan date of July 31. That schedule represents only a slight delay from the company’s initial time frame, which sought a confirmation hearing on June 18 and set an emergence deadline of July 17.

As reported, Chassix filed for Chapter 11 on March 12, saying that it had reached agreement on a “comprehensive restructuring and recapitalization of the company” supported by 71.5% of its senior secured bondholders, 80% of its unsecured bondholders, its existing equity sponsor Platinum Equity, and all of its largest customers (including Ford, GM, FCA f/k/a Chrysler, Nissan, and BMW).

The proposed restructuring would convert roughly $375 million of the company’s senior secured notes into 97.5% of the reorganized company’s equity (subject to dilution), while holders of $158 million of the company’s unsecured notes would receive 2.5% of the new equity (subject to dilution) and warrants to purchase an additional 5%. The company’s customers, meanwhile, would provide, among other things, a “long-term accommodation” that includes about $45 million in annual price increases, and new business and programs, as well as waiving certain reorganization plan distributions, agreements that the company said were “central to the plan.”

Last week, however, the unsecured creditors’ panel filed an objection to the proposed disclosure statement, saying it had “significant concerns regarding the plan’s potentially inadequate allocation of value to unsecured creditors.”

Rather that filing a full-throated objection to the disclosure statement, however, the committee asked the company to include a letter with the disclosure statement setting out its concerns, adding that it “cannot, at this time, recommend that creditors vote in favor of, or against, the plan,” and recommending that “prior to voting on the plan, each unsecured creditor carefully review the materials provided to them, including, and especially,” the committee’s letter.

The company agreed to include the letter in the disclosure statement.

More specifically, the panel’s concerns are with the company’s enterprise and distributable valuations ($450-550 million, with a midpoint of $500 million, and range of $280-380 million, respectively), which are below the amount of secured claims and therefore, as a liquidation matter, would leave no recovery for unsecured creditors. That said, the reorganization plan does allocate 2.5% of the reorganized equity to unsecured noteholders, and $1 million in cash for general unsecured claims, with the potential for an additional $6 million for certain trade claims.

Among other things, the committee said it had concerns with the company’s valuation methodologies, financial projections, valuations of potential avoidance actions, and the claims placed in the unsecured claims pool.

The committee said it was currently investigating potential causes of action against the company’s equity sponsor, Platinum Equity, for fraudulent conveyance, breach of fiduciary duty, intentional fraud, gross negligence, and willful misconduct relating to the issuance of the company’s unsecured notes and the use of the proceeds of those notes to fund a $100 million special dividend to Platinum.

“The committee believes that at the time that the special dividend was paid, the debtors’ directors were aware, or should have been aware, of the debtors’ contractual commitments (some of which had been entered into many years prior) that would ultimately contribute to the debtors’ operational and financial difficulties in 2014.”

According to the first-day declaration filed in the case by Chassix president and CEO, J. Mark Allen, the company’s financial difficulties were precipitated by a “severe liquidity crisis” in November, 2014, arising from a “perfect storm of events,” which he described as “underpriced contracts and programs, compounded by a marked spike in the demand for automobile production in North America at a time when there was limited capacity in the machining and casting sectors.” Those circumstances, Allen said, “overwhelmed the debtors’ manufacturing facilities and capabilities,” and eventually “resulted in an onslaught of quality issues and missed release dates that significantly increased the debtors’ costs of manufacturing.”

Allen’s declaration further said, “[b]y the fourth quarter of 2014, these operational issues – which had snowballed at a rate that neither the debtors, their customers, nor any of their other constituents had anticipated – had severely impacted the debtors’ cash flows and erased any operating profit they had hoped to achieve due to the increase in production demand.”

The company has argued that any potential recoveries from claims against Platinum would not be “meaningful,” and while the proposed plan does include a purported “global settlement” of potential claims against Platinum under which the equity sponsor agreed, in exchange for full releases, “to take, or not to take, certain actions that could impact the tax attributes” of the reorganized company, the creditors’ committee called this contribution “negligible,” saying it needed to independently investigate the potential claims.

In addition, the committee also raised concerns about the procedure for creditors to consent to third party releases contained in the plan, saying the process set a death trap for creditors under which they are forced to consent to the third party releases in order to accept the plan. A subsequent objection from the U.S. Trustee for the Manhattan bankruptcy court raised a similar issue.

The company, however, responded that its process was consistent with the law. – Alan Zimmerman