Ares Capital earlier this month closed an $800 million loan financing for American Seafoods Group (ASG) in what is the latest example of a non-regulated arranger stepping in to capture business typically in the realm of large banks.
As part of a recapitalization of ASG, the Nasdaq-listed BDC recently closed a $540 million first-lien term loan due August 2021 (L+500, 1% LIBOR floor) and a $200 million second-lien term loan due February 2022 (L+900, 1% floor). A $60 million revolving credit rounded out the financing.
One of the main themes in the loan market this year is the effort by non-traditional arrangers to capture business that is outside of the parameters of the leveraged lending guidelines. While BDCs are increasingly leading larger deals, a transaction of this size for a seasoned borrower of the broadly syndicated loan and high-yield markets is a unique event.
The company’s existing loans dated to a 2011 refinancing in which ASG placed a $281.5 million B term loan due 2018 (L+300, 1.25% floor) via Bank of America Merrill Lynch, Wells Fargo and DnB NOR. It came alongside a $100 million TLA and an $85 million, five-year revolving credit. The company’s last foray into the high-yield market was in 2010 with $275 million of 10.75% subordinated notes due 2016 and $125 million of 15% senior holdco PIK notes due 2017, also via leads Bank of America Merrill Lynch and Wells Fargo. The RC and TLA had springing maturities to November 2015 if the senior subordinated notes remained outstanding.
For ASG, this new deal is a deleveraging event. In addition to refinancing the existing bank debt, the company executed a distressed exchange of its PIK notes, offering cash or equity, and received an equity infusion from private equity firm Bregal Partners and an industry group led by family-owned Pacific Seafoods. According to S&P, the company cut its overall debt burden from $911 million as of June 30.
The deal was complicated by several moving parts and a short timeline, playing to the strength of a BDC that can tailor its investment. It also helps the syndication process when the lead arranger is willing to hold a large piece of the deal, sources said. In this case it might represent as much as 25% of the total commitment. Ares is understood to have taken down $100-200 million across the first- and second-lien tranches.
Still, there were between 20-30 lenders in the group. They included similar alternative-asset managers alongside some foreign banks, sources note. Some existing investors rolled into the new deal.
Tackling a transaction of this size might not be a normal event for Ares Capital but the lender will seek similar opportunities to underwrite and syndicate larger transactions, particularly now that its joint venture with GE Capital was discontinued (Senior Secured Loan Program). “It’s not difficult for us with our capital base to underwrite deals of up to $500 million,” Ares Capital’s CEO Kipp deVeer told LCD, “Strategically, to do one or two of these a quarter would be fantastic.”
Following completion of the loan transaction agencies assigned ratings of B+/B2 to American Seafoods Group’s first-lien facility, with a recovery rating of 1 from S&P. The second-lien came in at CCC+/Caa2, with a recovery rating of 5. Corporate ratings are B-/B3, with stable outlooks from both. – Jon Hemingway