US Leveraged Loans Gain 0.12% today; YTD return is -1.18%

U.S. leveraged loans gained 0.12% today after gaining 0.12% on Friday, according to the LCD Daily Loan Index.

The S&P/LSTA US Leveraged Loan 100, which tracks the 100 largest loans in the broader Index, gained 0.20% today.

In the year to date, loans overall have lost 1.18%.

A full xls of the Daily Index is attached.

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With Eyes on Solera, US Leveraged Loan, High Yield Bond Markets Continue Cautious

US leveraged finance issuance

The U.S. leveraged loan and high yield bond markets continued their respective new-issue struggles last week, with a combined $4.9 billion in deals, according to S&P Global Market Intelligence LCD.

While that number is up from the previous week, it’s the second-lightest week of the year, issuance-wise, as both asset classes continue to focus on deals already in market – like Solera – and as investors continue to tread lightly around all things risk.

Year to date, the U.S. high yield bond market has seen $13.65 billion in issuance. That’s down a whopping 75% from the same period in 2015.

On the face of it, leveraged loans have fared better, with $51.3 billion in issuance so far this year, down some 5% from the same period in 2015. Though the asset class, of course, has been hurt by investor withdrawals and limited CLO issuance. – Staff reports

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Riding Market Currents, Solera Shifts $300M to Leveraged Loan from High Yield Bond Issue

As expected, a Goldman Sachs–led arranger group has increased the size of a Solera Holdings term loan to ease pressure on the concurrent high-yield bond execution, while steepening the issue price to 97 to compensate lenders for the additional secured leverage and interest expense as the expected bond yield moves higher, sources said.

Respective U.S. and European recommitments are due Monday at noon EST and 2 p.m. GMT. Allocations are expected on Monday.

The $300 million upsize brings the term loan to $2.2 billion, shrinking the senior notes to $1.73 billion, sources said. Investors were told earlier that the originally targeted $1.3 billion dollar portion of the cross-border term loan had drawn $2.8 billion of orders, along with €1 billion of orders against a roughly $600 million equivalent euro tranche. Investors were told the upsize likely would be split evenly between dollars and euros; although official currency splits aren’t yet available.

The deal was launched at L/E+450–475, with a 1% LIBOR floor, at 98, and has firmed at L+475, with a 1% floor, to yield 6.45%, as revised.

Solera is also dropping a proposed 12-month MFN sunset and extending the 101 soft call protection to 12 months, from six months. A slate of documentation changes includes a reduction in the incremental free-and-clear tranche to $300 million, from $475 million, and removal of the EBITDA grower basket.

Bookrunners Goldman Sachs, Citi, Jefferies, Macquarie, Nomura, and UBS are expected to price the accompanying dual-currency (dollars and euros) bond offering on Monday. Guidance is now 10.5%, at 94–95 pricing, to yield 11.5–11.7%, The bonds also saw extensive covenant changes.

Proceeds from the debt financing will be used to finance Vista Equity Partners’ $6.5 billion purchase of Solera Holdings.

Pro forma net leverage is 6.8x, according to the preliminary offering memorandum, based on pro forma adjusted EBITDA of $551.7 million.

With the shift, net secured leverage is now expected to be just under 4x, according to market sources. Goldman Sachs and Koch Industries are separately providing $1.05 billion of mezzanine financing, which is structured as 9.875% preferred equity that will be payable in kind for life, sources noted.

Solera is rated B/B2. The term debt is rated B/Ba3, with a 3H recovery rating. The bonds are rated B–/Caa1, with a 5 recovery rating.

Solera provides software and services to the automobile insurance claims-processing industry. It is headquartered in Westlake, Texas., and trades on the NYSE under the symbol SLH. — Chris Donnelly

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JC Penney debt gains, CDS halved on strong year-end report

J.C. Penney bonds and loans were higher this morning after the company released better-than-expected quarterly results and improved guidance for the year ahead. Credit protection costs were essentially halved, and shares gained, with JCP trading up roughly 14% on the NYSE, at $9.50 per share.

The 5.65% notes due 2020 surged six points, to 91/92, according to sources, while the 8.125% notes due 2019 added roughly four points, with trades reported at 101 and 101.5. Long-tenor 6.375% bonds due 2036, meanwhile, jumped 10 points, to 73/74, the sources added.

Over in the loan market, J.C. Penney covenant-lite term debt due 2018 (L+500, 1% floor) is also firmer following the results, rising about a point to bracket 99, according to sources.

In the CDS marketplace, five-year protection costs were chopped down approximately 47%, to 4.8/6.6 points upfront, according to Markit. That’s essentially $500,000 cheaper, at $570,000 for an upfront payment, in addition to the $500,000 annual payment, to protect $10 million of the issuer’s bonds.

Comparable store sales grew 4.1% for the fourth quarter and 4.5% for the full year, according to the company statement. Full-year adjusted EBITDA surged $435 million year over year, to $715 million, besting both the company guidance for $645 million and the S&P Global Market Intelligence consensus mean estimate for $648 million.

Management cited a renewed focus on private brands and omnichannel sales, as well as effective inventory management. Looking ahead, the company put forth guidance for 2016 EBITDA to be $1 billion, the filing showed.

The Plano, Texas–based company is rated CCC+/Caa2. S&P today placed the ratings on CreditWatch with positive implications due to the improved fourth-quarter results and 2016 guidance, which includes a same-store sales increase of 3–4% with further margin improvements.  — Matt Fuller/Kerry Kantin

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Crestline Prices $359M Risk Retention-Compliant CLO; That’s 5 Deals in February

BNP Paribas today priced a $358.84 million CLO for manager Crestline Denali, according to market sources.

The pricing details of the transaction are as follows:

Crestline Denali will serve as the originator and retention holder of at least 5% of the equity tranche to comply with European risk retention.

The transaction will settle on March 30 with a non-call period of a little over two years after and a reinvestment period of slightly more than four years.

Year-to-date issuance is now $2.9 billion from seven CLOs. February issuance is now $2.1 billion from five CLOs, according to LCD data. — Andrew Park

This story first appeared on, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here

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TPG sees near-record originations in 4Q, helped by Idera investment

TPG Specialty Lending, a BDC trading on the NYSE under the ticker TSLX, said originations totaled a near-record $399 million in the recent quarter.

These originations compare to a gross total of $305 million in the final quarter of 2014 and $185 million in the quarter ended Sept. 30. The most recent quarter was the second strongest quarter for originations since TPG’s inception.

Among the new additions to the portfolio in the final quarter of 2015 was a significant piece of M&A financing for Idera, a loan deal that priced wide to talk in volatile market conditions. The loan funded an acquisition of Embarcadero Technologies, which was a portfolio company of TPG.

In October, TPG added a $62.5 million piece of Idera’s loan due 2021 at a cost basis of $56.4 million and $55.9 million at fair value. The loan accounts for 6.8% of TPG’s net assets.

Asked about the loan in an earnings call today, co-CEO Josh Easterly said TPG was able to co-invest in Idera across platforms and was motivated by an intimate knowledge of the software industry and the acquisition target.

“We were able to go in with size, with a big order, to drive terms on a credit we knew that benefited TSLX shareholders,” Easterly said.

Another addition to the investment portfolio was a $45 million first-lien loan due 2021 to MatrixCare, the company’s 10-K filed yesterday after market close showed. Interest on the loan is 6.25%. Fair value and the cost of the loan was $44.1 million as of Dec. 31, the 10-K showed.

GI Partners acquired Canadian healthcare IT company Logibec from OMERS Private Equity in December. OMERS retained Logibec’s former U.S. subsidiary, MatrixCare, which provides health records to long-term care and senior-living facilities.

Also during the quarter, TPG received repayment of a loan to bankrupt grocery store chain operator Great Atlantic & Pacific Tea Co. (A&P).

Exits and repayments totaled $155 million in the most recent quarter, for a net portfolio increase of $129 million in principal. The fair value of the investment portfolio was $1.49 billion as of Dec. 31, reflecting positions in 46 companies. Some 88% of the portfolio was in the first-lien debt of U.S. middle market companies.

Oil and gas

The BDC’s exposure to the troubled oil and gas sector was 3.2%, at fair value, in two investments: Mississippi Resources and Key Energy Services. This compared to oil and gas exposure of 4% for the portfolio as of Sept. 30, which included a loan to Milagro Oil & Gas. A bankruptcy judge confirmed a reorganization plan for Milagro on Oct. 8.

The investment in upstream E&P company Mississippi Resources included a $46.7 million 13% (including 1.5% PIK) first-lien loan due 2018 and equity. The Key Energy investment is a $13.5 million first-lien loan due 2020, booked with a fair value of $10.5 million in TPG’s portfolio, the SEC filing showed.

“We will opportunistically review situations,” Easterly said of potential lending to the oil and gas sector.


TPG Specialty Lending had no investments on non-accrual status at the end of the quarter.

TICC Capital

The portfolio reflected TPG’s ongoing interest in TICC Capital. TPG owns 1.6 million TICC shares, representing 1.2% of its investment portfolio. TPG is trying to acquire TICC Capital, saying TICC’s external manager has failed the BDC and, given the chance, TPG could improve returns for shareholders.

Earlier this month, TPG nominated a board member and proposed severing what it called TICC Capital’s failed management agreement with TICC Management. TPG owns roughly 3% of TICC Capital stock. An earlier stock-for-stock offer by TPG for TICC was rejected.

The move by TPG came after a shareholder vote at TICC in December that blocked a plan to change TICC Capital’s investment advisor to Benefit Street Partners.

“We believe the result of the shareholder vote not only reflects the demand for TICC shareholders for better management and governance, but also heralds an inflection point for the broader BDC industry to build a culture of accountability and shareholder alignment,” Easterly said today.


Net asset value per share declined to $15.15 at year-end, from $15.62 as of Sept. 30, and from $15.53 a year earlier. The decline was due to unrealized losses, widening credit spreads in the broader market, and volatility in the energy sector.

Shares of TPG were trading at $16.01 at midday today, up more than 1%, but the stock drifted down to $15.89 in afternoon trade. — Abby Latour

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S&P Downgrades Apollo Investment, Citing Oil & Gas Exposure

Standard & Poor’s last night cut the rating on Apollo Investment Corp. to BBB–, from BBB, citing in part losses due to exposure to the oil and gas sector and a growing share of non-accrual loans. The ratings change is on both the issuer and the issuer’s unsecured debt.

Standard & Poor’s said in a research note yesterday that Apollo Investment realized losses totaled $131 million and unrealized losses came in at $103 million in 2015. Realized losses are expected to grow as unrealized losses become realized losses due to exits from the investments by the company, S&P said.

Apollo Investment’s asset quality is also deteriorating, the rating agency said. Non-accrual loans in the company’s investment portfolio increased last year, to 6.5% on a cost basis at year-end, from 1.4% as of March 31, 2015.

Although the company has moved away from mezzanine lending in recent years, second-lien secured and unsecured debt still accounted for 39% of the total portfolio as of Dec. 31, albeit down from 41% a year earlier. Moreover, non-yielding preferred and common equity investments accounted for 13% of the company’s investment portfolio, a higher share than seen in rivals’ portfolios, S&P said.

The company’s risk position has been hurt by industry concentration, including single-name exposure through a debt and equity investment in Merx Aviation Finance, which accounts for Apollo’s total exposure to the aviation sector.

The company has four specialty areas: 15.2% of Apollo’s total portfolio is in aviation, 12.9% is in oil and gas, 7.7% is in renewables, and 4% is in shipping. Apollo Investment’s top five positions represented 53% of adjusted total equity as of year-end, S&P said.

“We expect both the interest and interest and dividend ratios to be under pressure in the next 12 months as more investments may be classified as non-accrual, putting a burden on recurring income (non-deal-dependent income),” said Standard & Poor’s analyst Sebnem Caglayan.

The company’s leverage, which is measured by debt to adjusted total equity, was 0.90x at year-end.

“The outlook on [Apollo] is negative, reflecting that we could lower the rating if the company’s leverage exceeds 1.0x, while the company continues to operate with earnings ratios weaker than thresholds identified in our criteria,” Caglayan said.

“The negative outlook also incorporates our expectation of continuing losses and higher-than-peers’ nonaccrual loans resulting from the company’s elevated exposure to the oil and gas sector in the next 18–24 months,” Caglayan added. — Abby Latour

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Leveraged Loans: LSTA’s Coffey Makes Case for ‘Qualified’ CLO at House Hearing

The LSTA’s Meredith Coffey this morning testified to the Capital Markets Subcommittee in the House of Representatives in a hearing related to risk-retention regulation and the Barr-Scott Qualified CLO bill.

A copy of the testimony is available here.

Meredith Coffey

Meredith Coffey

Coffey pointed out that the LSTA doesn’t represent either the securitization market or the CLO market, but that she was testifying on behalf of the corporate loan market, addressing the concern that a smaller CLO market would reduce access for U.S. companies to the loan financing required to expand and create jobs.

Coffey pointed out that the upcoming regulation had already dented CLO issuance last year.

Coffey also clarified the distinction between a CLO and CDOs. Coffey pointed out to the committee that the risks inherent in the portfolio of senior, syndicated loans are fairly transparent to both the investors and the manager with an active secondary market. CLOs over 10-years have lost 1.52%, versus a loss of 44.47% for CDOs over the same time period, Coffey stated citing Moody’s data. No CLO AAA or AA tranches have ever lost principal, she added.

“CLOs are not complicated derivatives where some people have a stake in a portfolio’s success while others have a stake in its failure. Nor are they ‘originate-to-distribute’ structures that make loans simply to collect a fee, then sell them off and forget about them,” Coffey said distinguishing CLOs from the disparaging narrative that has plagued CDOs.

As previously reported, a CLO must meet six different tests before being classified as a Qualified CLO. Managers whose transactions meet the criteria would in addition retain 5% of the equity tranche versus the 5% of the entire CLO under the current Dodd-Frank rule. “Risk retention will be particularly harmful because CLOs do not fit the profile of securitizations that fit easily into [Dodd-Frank],” Coffey testified. Meanwhile the QCLO structure will still ensure the alignment of interests between managers and investors, but at a reduced cost that would not be as disproportionately punitive to smaller managers. There were 30 fewer managers who issued CLOs in 2015 than the year prior and most of those ‘drop outs’ were predominantly smaller managers.

“Thus, the Qualified CLO approach would accomplish precisely the objectives of Section 941, related to ensuring prudent asset selection and underwriting, protecting investors, ensuring access to and competition in the provision of capital, and achieving related public interest benefits.”

“It is, in effect, Dodd-Frank plus best practices,” said Coffey. — Andrew Park

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US Leveraged Loan Bids Hit 2016 Low – Thanks to Intelsat – Though Broader Market Gains

The average bid of LCD’s leveraged loan flow-name loan composite fell 41 bps over the past few trading sessions, to 95.55% of par, from 95.96 on Feb. 18.

Overall, however, market conditions are much more stable than the headline figure suggests. In fact, advancers outnumbered decliners seven to four, with four loans unchanged from the previous reading. Credit-specific news in a few names weighed on the composite.

First and foremost was a 7.5-point drop in the bid price of Intelsat’s B-2 term loan due 2019 (L+275, 1% LIBOR floor), which tumbled to an 87 bid after the company yesterday released disappointing 2016 guidance and disclosed it has hired Guggenheim Securities “in connection with financing and balance sheet initiatives.”

Excluding Intelsat, the average bid would have increased 10 bps, a better reflection of the action in the loan secondary over the past few sessions.

Intelsat aside, news also dinged loans backing Neiman Marcus and PetSmart, albeit to a much lesser degree. Neiman Marcus term debt due 2020 (L+325, 1% floor) was bid 1.125 points lower, at 84.125, as disappointing results from sector peer Nordstrom weighed on the loan, while PetSmart’s TLB was bid a half-point lower, at 96, following a Moody’s report stating the retailer’s owners plan to take an $800 million dividend funded by available cash.

As for upside movers, the Scientific Games B-2 term loan due 2021 (L+500, 1% floor) led the pack, popping up 1.75 points, to an 87.75 bid. The name has bounced back alongside the company’s bonds after sliding earlier this month due to heavy market conditions. – Staff reports

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PetSmart loan, bonds ease on news of cash-funded dividend

PetSmart term debt eased to a 96/97 market today following a Moody’s report stating the retailer’s owners plan to take an $800 million dividend funded by available cash. The roughly $4.3 billion term loan due March 2022 (L+325, 1% floor) was previously bracketing 97, sources said.

The company’s 7.125% notes due 2023 traded down 1.5 points in active trading, at 101, trade data show.

The planned dividend would be funded from proceeds from the sale of PetSmart’s minority interest in MMI Holdings, which operates veterinary hospitals inside PetSmart stores, to majority owner Mars Inc., sources said.

Ratings were not affected, Moody’s said. The issuer is rated B/B1. The term debt is rated BB–/Ba3, with a 2L recovery rating from Standard & Poor’s. The notes are rated B–/B3, with a 6 recovery rating.

Plans for the dividend were reported last week by Forbes.

PetSmart was purchased early last year by a consortium including funds advised by BC Partners, alongside several of its limited partners, including La Caisse de dépôt et placement du Québec and StepStone. Longview Asset Management rolled a roughly $250 million portion of its ownership stake. The sponsors, excluding Longview, contributed rough $1.83 billion of equity. — Staff reports