Gladstone Capital adds GFRC Cladding Systems loan to non-accrual

Gladstone Capital added GFRC Cladding Systems to non-accrual status in the quarter ended March 31, citing declining operation performance.

The investment comprised a $4.9 million 10.5% first-lien debt due 2016, marked under one million at fair value as of March 31; $6.6 million of second-lien debt due 2016, marked at $1.9 million at fair value; and a line of credit, a Ma y 6 10-Q filing showed.

GFRC Cladding Systems designs and manufactures glass-fiber-reinforced concrete panels for commercial construction projects greater than four stories in height. It is a portfolio company of Dallas-based middle-market private equity firm Transition Capital Partners.

The other two companies on non-accrual status in the recent quarter were Sunshine Media and Heartland Communications.

Some tranches of the investment in Sunshine Media were moved to accrual status in the quarter as a result of improving profitability and liquidity.

The investment in Sunshine Media comprised first-lien debt, a line of credit, and equity. Sunshine Media, based in Chattanooga, Tenn., publishes local business-to-business custom publications with titles such asBuilder/ArchitectDoctor of Dentistry, and MD News.

The investment in Heartland Communications comprised a $4.3 million 5% term loan due 2014, a line of credit, and equity. Heartland Communications, based in Appleton, Wis., operates AM and FM radio stations in Park Falls, Eagle River, and Ashland, Wis.; and Iron River and Houghton, Mich.

As of March 31, 2015, debt of three portfolio companies on non-accrual status totaled $39.2 million on a cost basis, or 10.2% of all debt investments, and $9.2 million, or 2.8% at fair value.

As of Dec. 31, 2014, non-accrual debt on a cost basis totaled $33.6 million over two portfolio companies, or 9.4%, and $8.3 million, or 2.8%, at fair value.

Gladstone Capital, which trades on Nasdaq under the symbol GLAD, is an externally managed BDC that invests in debt and equity of small and midsize U.S. businesses. – Abby Latour

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Capitala Finance says no energy sector loans in default in Q1

Capitala Finance said that of the five companies in its investment portfolio with direct exposure to the oil-and-gas sector, all of them were current with debt payments.

“All investments continue to perform and the fair value of oil-and-gas investments was approximately 87.2% of cost at March 31, 2015, compared to 89.5% at Dec. 31, 2014,” an investor presentation today showed.

The investments are:

  • Sierra Hamilton $15 million 12.25% secured loan due 2018, marked $14.5 million at fair value as of March 31, 2015 (no change from Dec. 31, 2014), accounting for 6.1% of net assets
  • TC Safety $22.6 million investment (6.6% lower than Dec. 31, 2014 on a fair value basis), including a 12% cash, 2% PIK subordinated loan due 2018
  • U.S. Well Services $8.8 million 11.5% (0.5% floor) secured loan due 2019 (increased by $4 million since year-end due to previous unfunded commitment)
  • ABUTEC $4.9 million 12% cash, 3% PIK term loan due 2017 (down 4.2% from year-end on a fair value basis), for 2.1% of assets
  • SPARUS, Southern Cross, EZTECH $10.5 million investment fair value as of March 31, 2015, down 0.7% from year-end

These investments at fair value total $61.3 million as of March 31, 2015, or 11.8% of the total. Fair value is 3.6% higher than at year-end.

A breakdown of Capitala Finance’s portfolio by sector showed oil-and-gas services accounted for 7% of the total portfolio by fair value, and oil-and-gas engineering and consulting services accounted for 2.8% at the end of the first quarter.

As of March 31, 2015, Capitala Finance’s portfolio comprised 54 portfolio companies with a fair value of approximately $518.9 million. Of that total, 35% was senior secured debt investments, 45% was subordinated debt, 18% was equity and warrants, and 2% was the Capitala Senior Liquid Loan Fund I.

Capitala’s portfolio as of Dec. 31 consisted of 52 portfolio companies with a fair market value of $480.3 million. Of that total, 31% was senior secured debt investments, 46% was subordinated debt, and 23% was equity and warrants.

Capitala Finance targets debt and equity investments in middle-market companies generating annual EBITDA of $5-30 million. The company focuses on mezzanine and subordinated deals but also invests in first-lien, second-lien and unitranche debt. – Abby Latour

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Investors eye BDC portfolios for signs of more pain from energy sector

On the eve of first-quarter earnings, BDC investors are anxious to see whether the energy sector will inflict more pain on loan portfolios.

An analysis of the portfolios of 45 BDCs tracked by LCD shows that 31 energy-related companies with outstanding debt were in distressed territory at the end of 2014, in this case valued at 80 or less, which is a widely used definition of distressed debt. Of these, the average weighted fair value at year-end was 64 cents on the dollar.

Prior to last year’s oil price declines, there were just 10 energy-related companies with debt in distressed territory, at a weighted average of 38.5, an analysis by LCD of public filings of the BDCs showed.

First-quarter results for BDCs began to trickle in last week, and many more are expected this week. While oil prices have yet to recover fully, prices are off lows, and the outlook is relatively stable for the short term.

“While the energy exposure is still a concern, we are not expecting an influx of energy non-accruals in the quarter,” KBW analyst Troy Ward said in an April 27 research note. But if oil remains depressed, KBW expects to see an increase in loans booked as non-accrual in the second half of 2015.

Of all the distressed debt within BDC portfolios, energy accounts for about a quarter of the total. Distressed energy debt totaled $500 million of principal within BDC portfolios tracked by LCD, counted across various tranches of debt, at the end of the fourth quarter. That’s 23% of $2.2 billion by principal amount in total distressed assets.

Similarly, energy is the most concentrated sector of distressed assets across other measures of distress in the credit markets.

For example, the Oil & Gas sector accounted for 37.2% of the loans in the distressed ratio of the S&P/LSTA Loan Index. The distressed ratio tracks the percent of performing Index loans trading at a yield of L+1,000 or higher. Oil & Gas-related loans account for 4.7% of the overall Index.

Of all loans in the Index, Oil & Gas-related loans account for 4.7% as of April. Despite two defaults that totaled $1.7 billion –Walter Energy and Sabine Oil & Gas’ second-lien loan – the lagging default rate of the S&P/LSTA Loan Index by principal amount dropped to 1.26% in April, a one-year low, from 3.79% in March.

In another measure of distress in credit markets, S&P Capital IQ’s Distressed Debt Monitor, the ratio of U.S. distressed debt was steady, at 11.5% in April. Again, distressed credits are defined here as speculative-grade issues with option-adjusted composite spreads in excess of 1,000 bps over Treasuries.

The Oil & Gas sector had the highest proportion of debt trading at distressed levels, at 38%, and the highest share of distressed issues by count, at 72, and one of the largest by distressed amount, at 29.9%, as of April 15, according to Distressed Debt Monitor, which is published by S&P Capital IQ.

In a sign of stabilization in the sector, the Oil & Gas sector experienced the largest decline in the proportion of distressed issues, falling 3.9% in April, month over month, the Distressed Debt Monitor showed.

Within the BDC portfolios, energy debt accounts for 5.8% of all debt investments, or $60.7 billion (in outstanding principal).

“It’s not that things have dramatically improved, but the volatility has subsided for now. It’s reasonable to think that they are at a floor level now,” said Merrill Ross, an equity analyst at Wunderlich Securities.

Energy sector allocations vary between BDCs. Some have no exposure to the sector. At year end, CM Finance, PennantPark, Gladstone, Main Street, Apollo Investment, Blackrock Capital, TPG Specialty, and White Horse Finance had 10% or more exposure in oil-related energy, including equity investments, according to KBW research. The weighted-average fair value for energy debt across these eight lenders ranges between 86.5 and 97.9.

BDC Energy 4Q story May 2015

Fair values vary across portfolios and can be difficult to assess among small private companies. Sometimes differences across the same investment can be attributed to different cost-basis levels for each provider. The timing of changes in fair value also can vary.

Below are some examples of distressed Oil & Gas holdings as of Dec. 31, 2014.The implied bids are based on fair value to cost:

The 7.5% second-lien debt due Nov. 1, 2018 for Bennu Oil & Gas is marked at 83% of cost at Sierra Income Fund, whereas CM Finance and PennantPark mark it at 76 and 75, respectively.

The 8.75% senior secured loan due April 15, 2020 for exploration-and-production company Caelus Energy is marked at 93 at CM Finance, and 91 by WhiteHorse Finance.

The 12% mezzanine financing due Nov. 15, 2019 for New Gulf Resources was marked at 56 by Blackrock Capital Investment at the end of 2014, while PennantPark Investment marks the debt at 52. However, Blackrock Capital on April 30 reported first-quarter earnings, showing the 12% mezzanine loan now marked at 67.

A $7.5 million, 9.5% subordinated loan due 2020 to Comstock Resources was marked at $5.1 million at year-end by FS Investment, or 70 to cost. Comstock Resources, based in Frisco, Texas, is an oil-and-gas exploration-and-production company that trades on NYSE under the ticker symbol CRK.

Other distressed debt holdings in energy within BDC portfolios are of larger companies whose financial woes are well publicized.

Apollo Investment Corp. holds Venoco 8.875% notes due 2019 and had them marked at 55 as of Dec. 31, 2014. In early April, Standard & Poor’s cut the notes to D, from CCC+, and the corporate rating was lowered to SD, after the company announced the results of a below-par debt swap.

On April 22, Standard & Poor’s raised Venoco’s corporate rating to CCC+, and the senior unsecured notes were raised to CCC-, after the release of 2014 earnings and taking into account the significant loss of principal on the unsecured notes after the exchange.

In another closely tracked credit, some distressed energy sector debt in BDC portfolios is that of Sabine Oil & Gas, which defaulted on debt last month after skipping a $15 million interest payment on its second-lien term loan. Corporate Capital Trust holds 8.75% Sabine debt due 2018 and marked it at 78 in its 2014 fourth-quarter portfolio.

FS Investment (FSIC) showed a $6.3 million holding in SandRidge Energy subordinated debt due 2020, marked at 81. SandRidge Energy unsecured notes are trading in the high 60s, according to sources and trade data.

One distressed energy credit, Halcón Resources, will better weather the slump in oil prices due to the sale of $700 million of 8.625% second-lien notes due 2020 on April 21. The exploration-and-production company operating in North Dakota and eastern Texas intends to use proceeds to repay revolver debt and to fund general corporate purposes.

Main Street Capital has a holding of existing Halcón Resources bonds, the 9.75% unsecured debt due 2020, marked at 82, and HMS Income fund debt has a holding of the same debt marked at 87 (When marked to principal amount, the debt is marked at 75 at both BDCs.). – Kelly Thompson/Abby Latour

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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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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


Distressed debt: Weight Watchers B-2 term debt extends losses; co. eyes B-1 2016 maturity

Weight Watchers International covenant-lite B-2 term debt due 2020 (L+325, 0.75% LIBOR floor) is extending losses this morning, recently marked at 53.5/55.5, after coming under pressure late yesterday on the company’s fourth-quarter results, which missed Street expectations and showed declines in membership. By comparison, the paper was wrapped around 59 late yesterday following the news and was pegged in a 63/64 context ahead of the results, according to sources.

The most recent drop pushes the paper, issued in April 2013 at 98.5, to fresh lows, according to Markit.

The less-liquid B-1 term loan due 2016 (L+300) has held up better, with dealers making markets in the paper this morning at 94/96 and 95/97, which is down 1-2 points from prior to the news. Note that on yesterday’s conference call, management said it is targeting a cash balance of at least $350 million by the end of the year, which would provide it with “ample liquidity” to address the April 2016 maturity of the B-1 tranche, according to a transcript of the call provided by Bloomberg. For reference, there was about $296 million outstanding under the B-1 tranche as of Sept. 30, SEC filings show.

The company’s shares, which trade on the New York Stock Exchange under the ticker WTW, tumbled about 31% this morning on the news, to $12.12.

As reported, the company reported that fourth-quarter revenue declined 10.4% from the prior year period, to $327.8 million, and fell below the S&P Capital IQ consensus estimate of $332.7 million, as membership declined 15% in the past quarter, to 2.51 million.

Meanwhile, fourth-quarter EBITDAS (earnings before interest, taxes, depreciation, amortization and stock-based compensation) declined to $29.9 million, from $92.9 million in the year-ago period.

LTM adjusted EBITDA came in at $338.3 million, for net leverage of about 6.1x, given the $2.358 billion of debt outstanding, net of $301 million of cash. Leverage is up a full turn, from 5.1x, at the end of the third quarter, SEC filings show.

“While we still believe in our underlying strategies, I am disappointed that we are not yet where we hoped to be and our turnaround will take longer than we had anticipated,” CEO Jim Chambers warned.

Chambers also said that the company is taking more-aggressive steps with cost structure through a $100 million cost-savings initiative.

The company reported a fourth-quarter loss of $16.1 million, or $0.28 per share, versus a profit of $30.8 million, or $0.24 per share in the year-ago period.

For 2015, Weight Watchers expects earnings per share of $0.40-0.70, versus the S&P Capital IQ consensus estimate of $1.43 per share.

Weight Watchers is rated B/B1, while its term debt is rated B+/B1, with a 2 recovery rating.

Weight Watchers in April 2013 wrapped a comprehensive refinancing of its bank debt via J.P. Morgan, Bank of America Merrill Lynch, HSBC, Scotia, and U.S. Bank. J.P. Morgan is administrative agent. The transaction was comprised of a $2.1 billion, seven-year B-2 term loan; a $300 million, three-year B-1 term loan; and a $200 million, five-year revolver. The term loans are covenant-lite. – Kerry Kantin/Rachelle Kakouris

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Joe’s Jeans Defaults on $60M Leveraged Loan; Interest Rises to 14%

Joe’s Jeans defaulted on a $60 million term loan and will begin paying default interest of 14%, instead of 12%.

Garrison Loan Agency Service is the agent. The default, on Nov. 6, stems from the company failing to meet the minimum-EBITDA covenant for the 12 months ended Sept. 30.

As a result of the term loan default, the company defaulted on a revolving credit agreement and a factoring facility with CIT Commercial Services. The company owes $33.9 million under the RC, and has availability of $13.7 million, including the factoring facility, as of Sept. 30.

Management is in talks with Garrison and CIT over amendments and default waivers. Without a waiver, lenders could accelerate repayment, possibly triggering a bankruptcy, an SEC filing today said.

In the nine months ended Aug. 31, the company generated net income of $276 million, versus a net loss of $287 million in the same period a year earlier.

In September 2013, CIT Capital Markets and Garrison Investment Group provided $110 million in debt financing to Joe’s Jeans to back the $97.6 million acquisition of Hudson Clothing from Fireman Capital Partners, Webster Capital, and management.

The financing includes a $60 million, five-year term loan and an up to $50 million, five-year borrowing-based revolver. At syndication, the bulk of the RC was priced at L+250, while a $1 million RC-1 sliver was priced at L+350. The RC is subject to a 50 bps call in year two if Joe’s Jeans terminates the RC commitment.

At syndication the five-year term loan was priced at L+1,075 and callable at 103, 102, and 101, according to the filing. The loan is subject to fixed-charge and leverage ratios, and an EBITDA minimum.

In addition to the acquisition, proceeds funded fees and expenses, working capital and general corporate purposes. Joe’s Jeans also issued $32.4 million of convertible notes to the sellers as part of the deal.

Los Angeles-based Joe’s Jeans designs, sources and distributes branded apparel products to over 1,200 retail locations in the U.S. and abroad. The company’s shares trade on the Nasdaq under the ticker JOEZ. – Abby Latour

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Spain’s Codere remains in negotiations for debt restructuring

codere logoIn a regulatory offering overnight with the Spanish stock market regulator, Codere reiterated that it remains in negotiations with bondholders over the restructuring of its debt.

To date, bondholders have presented five proposals, while the company has presented four. The firm believes its business is viable long-term, as it continues to generate positive cash flows. However, a financial restructuring of its debt is necessary for the company to be financially sustainable going forward.

If no agreement is reached, however, Codere will have to file for insolvency under Spanish bankruptcy law.

The next milestone date for the group is the beginning of February, when the 30-day extension on its SFA expires (Codere obtained this extension on Jan. 8).

Following a 30-day grace period, the Spanish gaming group missed its €31.4 million coupon payment earlier this month on its 8.25% notes due 2015, which was originally due on Dec. 15, 2013.

As of Sept. 30, 2013, the group held €1.2 billion of debt against cash of roughly €95.4 million. As of Dec. 31, this cash level totalled roughly €30 million, Codere said.

Based in Spain, Codere has major operations in Argentina, deriving a significant amount of annual revenue from its gaming and bingo halls there. The company is rated SD/Caa3. – Sohko Fujimoto

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LightSquared lawyer stonewalled by Sound Point witness on day four

lightsquared logoThe LightSquared trial to determine whether Charles Ergen fraudulently acquired about $1 billion of LightSquared’s senior debt resumed in Manhattan bankruptcy court this morning, for a fourth day, with testimony from Sound Point Capital Management head Stephen Ketchum, who carried out the trades that gave Ergen’s fund a blocking position in the case.

Philip Falcone, the head of Harbinger Capital Partners, LightSquared’s largest equity holder, will take the witness stand this afternoon.

LightSquared lawyer Michael Hirschfeld, a partner at Milbank, spent hours attempting to establish that Ketchum and Dish Treasurer Jason Kiser – who testified last week (see, “LightSquared trial continues on day two with Dish treasurer,” LCD News, Jan. 10, 2014) – set out to build a blocking position in LightSquared’s senior debt in order to gain control in the company’s bankruptcy proceedings. In the process, Ketchum and Kiser then purposely delayed the closing of many of those trades, Hirschfeld claimed. But Ketchum was a difficult witness for the plaintiffs.

Time and time again, Ketchum answered most of Hirschfeld’s questions with “I don’t recall,” or a simple “no.” At one point, Judge Shelley Chapman paused the proceedings to remind Ketchum, “it’s your obligation to tell the truth here.”

Ketchum has known Kiser for about 20 years. Ketchum recently helped Kiser make trades in the debt of LodgeNet during its Chapter 11 proceedings, on behalf of EchoStar. The LightSquared trades mark the first time Ketchum made trades for Ergen personally, however.

Kiser testified last week that Ketchum established an entity known as SP Special Opportunities to carry out the debt trades on Ergen’s behalf. SPSO would allow Ergen to make the trades without disclosing his identity to the market. When asked this morning whether his firm formed SPSO, Ketchum simply replied: “I don’t recall.”

At one point in this morning’s proceedings, Hirschfeld mentioned an e-mail Ketchum wrote discussing the possibility of selling $5 million in face value of LightSquared debt at 88.5 cents on the dollar in order to test the market. From about May 2012 to May 2013, Ergen bought LightSquared debt, via SPSO, at prices ranging from about 48 to 96 cents on the dollar. Ketchum allegedly wanted to test the market with a sale to “send a signal to the market that we are not going to ride this thing up to the moon,” Hirschfeld said.

Discussing SPSO trades that remained open for weeks or months, Hirschfeld read from e-mails between Ketchum and Jefferies high yield salesman Stephen Sander. LightSquared alleges Ergen purposely left those trades open to thwart alternate funding the company was trying to raise in its reorganization. According to the e-mail transcripts, Sander at one point asked Ketchum if he needed to come to the office in person to discuss closing the trades “mano a mano.”

“Were you afraid this would come to fisticuffs?” Hirschfeld asked Ketchum.

“My Spanish isn’t very good, but I wasn’t worried,” Ketchum said.

LightSquared lawyer Matthew Barr told Judge Chapman this morning the company would present its engagement letter for exit financing in court on Thursday. In late December, LightSquared announced JP Morgan and Credit Suisse were arranging new exit financing that would serve as the cornerstone of the company’s reorganization plan, which calls for a new senior term loan of up to $2.5 billion; a $250 million senior secured term loan from JP Morgan; at least $1.25 billion in new equity contributions from Fortress Investment Group, Melody Capital, and Harbinger Capital; and the preservation of the multi-billion dollar litigation claims against Dish and Ergen being hashed out in this trial.

Harbinger Group, Falcone’s holding company, launched a $200 million offering of eight-year senior notes this morning via bookrunners Credit Suisse, Deutsche Bank, and Jefferies. – John Bringardner


YRC term debt settles lower in trading as default prospects increase

YRC WorldwideYRC Worldwide bank debt settled at lower levels today as the possibility of a loan-agreement default increased after the company’s recapitalization efforts unraveled.

Shares of YRC ‘s common stock were off sharply after the company failed to garner rank-and-file support for a new contract with the International Brotherhood of Teamsters yesterday. The union agreement was needed for the company to complete an equity sale and refinance its loan. The proposed recapitalization plan would have allowed YRC to address the upcoming maturity in its 6% convertible notes due Feb. 15, 2014. If those notes aren’t refinanced or extended by Feb. 1, the existing loan will slide into default.

Markets in YRC’s term loan due 2015 (L+700, 3.5% LIBOR floor) emerged at 93/94 today, sources said. Bids for the loan dropped to near 90 late yesterday, from 94/95 at midday, and compared to 97.5/99 early yesterday, when the results of the union vote were still in question.

Late yesterday, Credit Suisse cancelled a bank meeting as a result of the failed union vote. The meeting, which was scheduled for today, was to launch a $700 million, five-year term loan for refinancing purposes. A $450 million, five-year asset-based revolver was to be marketed separately.

The overall recapitalization effort was to include a $250 million investment in new shares of YRC common stock at a price of $15 per share. But with the stock plunging today, that agreement would presumably need to be revised. YRC shares were down more than 20% at $12.01 in late morning trades, adding to losses over recent days. The shares were trading at $19.89 early on Jan. 7.

The new equity investors have the ability to back out of the deal at the earliest of Feb. 13, or when a default occurs on the loan agreement as a result of not refinancing the 6% convertible notes.

The TL had ticked higher this week, and increased from 95/96 on Dec. 9, following news that YRC had reached terms on the proposed new labor agreement with the Teamsters.

YRC may yet salvage its recapitalization if a revised agreement with the IBT can be reached. However, virtually every facet of the recapitalization plan would have to be reworked. – Abby Latour/Chris Donnelly