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S&P Global Ratings Chops Oil-Price Assumptions Through End of Decade

S&P Global Ratings last week announced cuts to its annual price assumptions for Brent and West Texas Intermediate (WTI) crude oil, providing a sobering counterpoint to news today of reduced supply from OPEC nations.

The new assumptions are for $55/bbl for Brent and $50/bbl for WTI in 2019, respectively, or down $10/bbl from prior assumptions. The agency as well trimmed $5/bbl from its 2020 assumptions, also to $55/bbl and $50/bbl, respectively. Its view for 2021 and beyond is at $55/bbl for both Brent and WTI.

“It was just a few months ago that oil market soothsayers were calling for oil to reach $100/bbl,” S&P Global Ratings stated today. The abrupt reversal from that view—as prognosticators now countenance the potential for low $40/bbl in the near-term—reflects the ongoing trade war and news of China’s economic slowdown, and oversupply exacerbated by shale plays and gaping loopholes to sanctions on Iran’s oil exports.

High-yield energy credits posted strong gains this week from the December lows as crude prices found support on the heels of big trailing losses, and as Saudi Arabia and other OPEC constituents appeared to make quick moves to curtail supply in defense of prices. Bonds backing EnscoCalifornia ResourcesNobleTransocean, and Weatherford International were up 4–6 points this morning from the final trades of 2018.

LCD’s Marty Fridson today noted that October and November’s worst-performing major industry, Energy, finished dead last again in December, with a negative 3.95% return as oil prices tumbled. “In the first nine months of 2018, Energy outperformed the ICE BAML High Yield Index by 1.25 percentage points. Following the disastrous fourth quarter, however, Energy ended the year at –6.37%, versus –2.27% for the overall index,” Fridson noted.

The year’s worst performer, though, was Automotive & Auto Parts, at –8.31%. Healthcare was the strongest performer, with a 1.53% gain for all of 2018. — John Atkins

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CDO Revival Gains Pace, But These Are Not Your Pre-Crisis Debt Vehicles

The CDO market is slowly picking up steam, with 15 transactions issued since 2015, according to LCD. This year alone has featured in excess of $3.5 billion of collateralized debt obligation activity, more than double that of each of the past three years.

For many, the term CDO immediately evokes the financial crisis, with banks and investors ultimately having to write down tens of billions in losses over the ensuing years.

Consequently, since the crisis, CLOs—which share with CDOs two letters and several structural features—have been working hard to distance themselves from their pre-crisis cousins. But now, GSO, the credit arm of private equity firm Blackstone, recently became the latest high-profile fund to issue its first post-crisis CDO, out of a platform it has named Cirrus Funding.

Other CDO issuers include Anchorage Capital Group, Brigade Capital Management, Fortress Investment Group, and Credit Suisse Asset Management.

Anchorage launched the first post-crisis CDO in Europe in August, and others in that region are expected to follow suit.

Not your pre-crisis CDOs
There are notable differences between the CDOs being issued now versus those from over 10 years ago.

The most noteworthy entails underlying collateral. Many pre-crisis CDOs were filled with subprime mortgage bonds. Subsequent litigation charged that the bulk of the mortgages were fraudulently underwritten, forcing many of the originating banks to eventually repurchase them, or pay large settlements to both investors and regulators.

Today’s iteration of CDOs instead invests strictly in the credit of corporate issuers, whose financials are audited. And in many cases those issuers have a running history with investors in either the high yield or leveraged loan markets.

Part of the growing appeal of the new CDOs is, in fact, due to the regulatory regime. Following the enactment of the Volcker Rule in 2014, CLO managers could no longer purchase a single high-yield bond if they wanted to sell to banks, one of the largest buyers of the senior debt tranches on a CLO. As a result, these new CDOs, which are issued without the intent to comply with the Volcker Rule, allow managers to have the flexibility to switch between investing in high yield bonds and leveraged loans. (The LSTA, incidentally, recently made its case to regulators that CLOs be allowed bond buckets of up to 10%.)

The primary buyers of these new CDOs are insurance companies in the U.S. and overseas. This investor base is particularly interested in these assets given their fixed-rate coupons, which offer an investment grade rating and a long duration matching their liabilities, and exceeding most yields elsewhere in the fixed-income universe.

On GSO’s Cirrus Funding 2018-1, which matures in 18 years, the Aaa tranche (Moody’s) offers a coupon of 4.80%, while the junior-most Baa3 debt tranche pays a coupon of 7.05%.

This time is different?
At first glance, the notion of CDOs receiving investment grade ratings might raise eyebrows, considering this debt’s prominent role in the financial crisis.

These new CDOs certainly are more risky than the CLOs currently in market. However, Moody’s analysts have required more safeguards with these vehicles, compared to CLOs.

Particularly noteworthy in this iteration of CDOs is the ability of managers to buy up to 70% of the portfolio in second-lien loans and/or unsecured or subordinated bonds, according to analysts at Moody’s, who’ve rated all of the latest CDOs.

CDOs are allowed to hold up to 17.5% of their portfolio in Caa rated assets and below, compared to the 7.5% in CLOs, according to Moody’s. A number of the CDOs already have CCC rated assets of roughly 10% in their portfolios, according to trustee reports.

But these CDOs are leveraged at 2–3x, versus the 10–13x leverage of most CLOs, sources say.

On the more conservative end of recent CDOs is the $327 million Brigade Debt Funding II CDO, which Moody’s assigned a weighted average rating factor (WARF)—a numerical estimate of a portfolio’s credit risk, with a higher WARF indicating more risk—of 2748, roughly equivalent to a B2 rating. It is important to note here that the portfolio was only 19% ramped at the time Moody’s looked at the portfolio. For comparison, the median WARF on CLOs issued in 2018 was 2760.

The most recent trustee report on the debut $408 million Brigade Debt Funding I issued in February meanwhile showed that its WARF was 3331.

In order to account for the higher allowance of higher-risk second-liens and unsecured bonds, the analysts at Moody’s have required managers to hold more credit protection to achieve a rating comparable to what they would normally assign a CLO.

For example, on the CDO tranches that have been rated Aaa by the Moody’s analysts so far, those tranches have another 52% of the debt stack below them can absorb any principal losses, compared to those that have 36% of debt below them to get a Aaa rating in CLOs. Lower in the capital stack, this amount is 29% on a Baa3 CDO tranche, compared to 13% for CLOs.

But perhaps forgotten over the years—again, the negatives associated with collateralized debt obligations have been stubborn—are the benefits of how CDOs are structurally similar to CLOs: Namely, they are able to obtain term funding, just on a riskier set of underlying assets. This assumes, however, that defaults are contained so that the CDO doesn’t fail a number of tests, which would cut off payments to the equity holders, many of whom are the managers themselves.

A key test that these CDOs have, compared to CLOs: at least one of them is based on the portfolio’s market value, including a metric known as market value overcollateralization (MVOC). This is important because the CDO can fail those tests if markets become more volatile, and the underlying loans and bonds start selling off, even if they manage to avoid default later. The thresholds for those tests range anywhere from 113–118% in excess of the total outstanding debt tranches.

History may not repeat, but does it rhyme?
CLO investors often point to how well the 2006 and 2007 vintages performed, even as the volatility thereafter was at times frightening, at one point shutting off the equity to nearly half of the CLOs, in 2009. The median cumulative equity distributions on 2006- and 2007-vintage CLOs ended up at roughly 220% and 239%, respectively, according to Morgan Stanley. But those returns did not come easy, as nearly half of CLOs were not receiving equity distributions, as they were failing key tests in early 2009.

A number of investors have pointed to some important differences this time around, however, namely that the credit deterioration then was focused primarily on household debt, instead of corporate borrowers. Today, of course, the amount of corporate borrowing and leverage levels has risen in recent years, while the widespread lack of covenant protections has yet to be tested.

About that corporate borrowing: The leveraged loan market, for one, had grown to about $1.1 trillion at the end of September from $600 billion in 2008, according to the S&P/LSTA Leveraged Loan Index. Today’s larger pool of loans contains a greater share that are lower-rated: 59% are rated B+ or lower, compared to 37% in 2008. There is as much paper outstanding rated B+ and below now as there was total paper in 2008.

The percentage of lower-rated debt continues to be watched because CLOs, and the new CDOs, which are the natural buyers of this debt, have limits on how much they can hold, as mentioned earlier. – Andrew Park

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Free from S&P – Morning Briefing with the Economists: An Asia & Europe Perspective

S&P is presenting a free briefing on economic perspectives from Asia & Europe. Details and a link to register:

5 December 2017
8:30 AM – 10:45 AM
GMT Time

Andaz London Liverpool Street
40 Liverpool Street
London EC2M 7QN
United Kingdom

Agenda

  • 8:30AM – 9:00AM
    Registration and Breakfast
  • 9:00AM – 9:15AM
    Opening Remarks
  • 9:15AM – 10:00AM
    The Party Congress is Over, So What Next For China?
    Paul Gruenwald, Asia Pacific Chief Economist, S&P Global Ratings
  • 10:00AM – 10:45AM
    A Comparative View Of The Economic Outlook For Asia and Europe
    Moderator, tbc
    Paul Sheard, S&P Global Chief Economist, Executive Vice President
    Jean-Michel Six, S&P Global EMEA Chief Economist
  • 10:45AM – 11:00AM
    Networking and Close

Register for this Free event online

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Negative Earnings Growth for US Leveraged Loan Issuers; First Time Since 2009

quarterly EBITDA growth loan issuers

Downshifting profit growth in 2016 reached stall speed for leveraged loan issuers early this year, putting pressure on credit metrics at a time when market participants are increasingly alert to signals of a developing negative inflection for the credit cycle.

First-quarter earnings for S&P/LSTA Leveraged Loan Index issuers that publicly file financial results revealed the first negative year-on-year aggregate reading for EBITDA since recession dynamics settled over the global economy during the first half of 2009, according to LCD.

quarterly EBITDA growth energy loan issuers

The first-quarter results were far from uniformly doom-and-gloom, however, as the negative 1.25% reading for 1Q EBITDA was net of noisy and wide-ranging results, by sector basket.

Even so, the readings were slightly negative on net (negative 1%) when stripping out volatile oil and gas inputs from the sample, and included more dour results from retail and media credits, where distress ratios have disproportionately climbed over the last year ($$).

High-level commentary from speakers at the Milken Institute Global Conference earlier this month generally keyed on the notion that profit growth—while below the heights recorded during the recovery period over the first half of this decade—would likely prove resilient over the quarters ahead, given relative strength in credit metrics now, versus at the same point in prior credit cycles, bolstered by still-accommodative—if tightening—monetary policy.

Indeed, S&P Global’s Bob Keiser notes that corporate America writ large posted a smart 15% year-to-year increase in first-quarter earnings across the S&P 500, and projections suggest continued growth into 2018. But this sample prominently includes results from oil-and-gas players, many of which reported big year-to-year improvements on the bottom line in 1Q17 amid more stable commodity-price progressions, relative to the desperately weak comparisons from 1Q16.

When stepping back from the oil story, the slip in profits to start 2017 extends a bright-line trend for loan issuers. The negative first-quarter print across the S&P/LSTA Index, compared with 7.1% growth in the first quarter of last year and 4–6% growth rates over the last three quarters of 2016, marks a steady deceleration from quarter averages of 7% in 2015, 9% in 2014, and 13% over the recovery period from 2010–2013.

Flow-of-funds analysis ($$) by S&P Global for the concluding quarter of 2016 had already showcased a glaring jump in the financing gap for U.S. companies (the difference between capital spending and what is covered by internal cash generation), as a nascent uptick in capital spending—in part due to O&G credits increasing their outlays as commodity prices stabilized—dovetailed with tumbling profit growth.

outer edge credit statistics

A high financing gap is unsustainable without a pullback in spending or a substantial increase in borrowing, which may put leverage trends for some of the more at-risk loan issuers under a harsh spotlight in a low- or negative-growth environment for earnings. Indeed, issuers with “outer-edge” debt/EBITDA ratios of greater than 7x swelled to 22.56% of the sample in the latest quarter, up more than four percentage points from 4Q16 and versus 21.15% a year earlier, marking the highest proportion since 4Q14. – John Atkins

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Southcross Holdings emerges from Chapter 11

Southcross Holdings, the parent company of Southcross Energy Partners, has emerged from Chapter 11, the company announced yesterday.

As reported, the bankruptcy court overseeing the company’s Chapter 11 on April 11 confirmed the company’s reorganization plan and approved the adequacy of its disclosure statement following a combined hearing.

As also reported, the company filed a prepackaged Chapter 11 on March 28 in Corpus Christi, Texas (see “Southcross Holdings files prepack Ch. 11 with new $170M investment,” LCD News, March 28, 2016). The reorganization plan will result in the elimination of almost $700 million of funded debt and preferred equity obligations, along with a new $170 million equity investment from the company’s existing equity holders, EIG Global Energy Partners and Tailwater Capital.

Among other things, under the company’s contemplated reorganization plan, an $85 million DIP from existing equity holders is to be converted into one-third of the equity of the reorganized company. DIP lenders are also to provide an additional exit investment of $85 million for an additional one-third of the reorganized equity. The company’s term lenders are slated to receive, among other things, the remaining one-third of the reorganized equity. — Alan Zimmerman

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More activism likely in 2016 as BDCs grow up

The BDC industry is experiencing growing pains.

Shares of most BDCs are trading below net asset value. Several BDCs are under attack by activist investors for stock underperformance, and these very public, acerbic battles are casting a pall over the entire sector. The recent market sell-off also punished BDCs as investors fled the credit-focused asset class.

Looking ahead, 2016 is likely to be a year of more shareholder activism for BDCs, market players say, a trend that could ultimately lift BDC share prices in 2016.

“We believe the BDC group could see stock prices increase 5% in 2016. When combined with an average dividend yield of 10%, we expect BDC total returns of 15%. In addition, the growth in shareholder activism could be a further catalyst for the group, particularly for some of the more discounted stocks,” said Troy Ward, an equity analyst at Keefe, Bruyette & Woods, in a Dec. 7 research note.

What won’t likely be a theme next year is raising capital through equity offerings.

“In a period where few BDCs have access to equity capital at accretive levels, earnings growth will be a function of recycling capital and taking optimum advantage of debt capital,” said Merrill Ross, an equity analyst at Wunderlich Securities. “We are looking for earnings growth of approximately 6.7% in 2016.”

Sector dramas unfold
Rifts within the BDC sector will likely widen next year, with battle lines drawn over management fees, the willingness of boards to buy back stock, and whether investors perceive management to be aligned with shareholder interests.

“Activism is going to be a big issue,” said Golub Capital CEO David Golub. Shares in Golub Capital BDC were trading at $16.70 at midday on Dec. 18, a premium to NAV of $15.80 per share as of Sept. 30.

“We are in the midst of what I would characterize as a crisis of confidence in the BDC industry. Investors are skeptical because of self-serving behavior by many BDC managers, often at the expense of their shareholders,” Golub said. The comment was in response to a question on the prospects for the BDC modernization bill, the passing of which Golub believes could be marred by poor timing.

“I hope the industry comes out of this period of activism by becoming a better neighborhood—an industry that’s more focused on shareholder value, that’s more focused on doing things that are fair and good for everybody and not just good for managers. That would be good for the industry.”

For now, all eyes are on dramas involving activist investors, including Fifth Street Finance and Fifth Street Asset Management, which are targets of a class action lawsuit. The suit alleges that the firms fraudulently inflated the assets and investment income of Fifth Street Finance to increase revenue at Fifth Street Asset Management. The firms deny the allegations and are fighting them in court.

Fifth Street Finance has agreed to meet with RiverNorth Capital Management, which is currently the largest stockholder in Fifth Street Finance, with a 6% stake.

American Capital has also been the target of an activist investor since the company unveiled plans to spin off BDC assets. Last month, Elliott Management, which owns an 8.4% stake in the company, urged shareholders to vote against the plan, saying a split would further entrench an ineffective management team that has been overpaid for poor performance and placed valuable assets at risk.

American Capital followed with the launch of a strategic review aimed at maximizing shareholder value, run by an independent board committee and advised by Goldman Sachs and Credit Suisse. Results of the review, which could include a sale of all or part of the company, will be announced by Jan. 31.

American Capital also started a share-buyback program of up to $1 billion of common stock as long as shares are trading 85% below net asset value as of Sept. 30, which was $20.44 per share. Shares were trading at $14.00 at midday on Dec. 18.

In another saga, the board of KCAP Financial, an internally managed BDC, received a letter in October from funds managed by DG Capital Management, its third largest stockholder with a 3.1% stake. DG Capital told the board that selling the business to another BDC would likely reap the best yield to shareholders, who have endured a sustained period of underperformance.

A three-way battle over TICC Capital has intensified in recent months. TICC Capital is urging shareholders to allow Benefit Street Partners, the credit investment arm of Providence Equity Partners, to acquire TICC Management, which manages the investment activities of TICC Capital. NexPoint Advisors, an affiliate of Highland Capital Management, has also submitted a proposal to cut fees and invest in TICC Capital.

The third party, TPG Specialty Lending, has unveiled a stock-for-stock bid for TICC Capital Corp., saying the offer is superior to the competing proposals from either Benefit Street Partners or NexPoint.

The move thrust Josh Easterly, TPG Specialty Lending’s co-CEO, into a prominent role in the drama that could result in such drastic measures as the management company losing its ability to manage a BDC, an outcome that few expected at this time last year.

“Those familiar with our history and investment philosophy understand that it is not in our nature to be public market equity activists,” Easterly said during an earnings call on Nov. 4.

“We have reluctantly assumed this role with respect to TICC as our industry is going through an inflection point,” he said. “We believe that our ecosystem can only thrive in a culture that fosters real value creation for shareholders.”

Awkward years
One possible outcome for the industry longer term is lower management fees. Medley Capital, which has been named as a potential target of activist shareholders, this month unveiled plans to expand a share repurchase program to $50 million after buying back 1.4 million of shares in the most recent quarter, and cut its base management fee on gross assets exceeding $1 billion to 1.5%, from 1.75%, and incentive fees to 17.5%, from 20%.

Medley Capital was part of a trend last year that saw shares of its management company listed in an IPO, following in the footsteps of Ares Management and Fifth Street Asset Management. Medley Management, whose shares trade on NYSE as MDLY, derives most of its revenue from fees for managing BDCs Medley Capital and Sierra Income Corp.

Brian Chase, the CFO of Garrison Capital, said an important factor moving forward is whether a BDC manager also manages other funds, outside of their BDC, that invest in privately originated debt investments. Having access to this institutional capital will be key to staying relevant in the market, particularly in an environment where raising fresh equity is challenging.

Some upsets are possible in the near term due to activist investors’ attention on the BDC sector.

“The BDC space is going through its awkward teenage years. I expect that in due course the sector as a whole will mature and institutionalize, which should further open up access to more capital and solidify their role in the financial system,” said Chase.  — Abby Latour

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Congress approves expanded borrowing for managers of SBIC licenses

Congress passed legislation on Friday that expanded borrowing capacity of managers of multiple Small Business Investment Companies (SBICs) licenses to $350 million from $225 million.

Holders of multiple SBIC licenses will have expanded access to low cost SBA debentures, at a rate of just under 3% currently.

One beneficiary is Monroe Capital, holder of three licenses, including through MRCC SBIC which had $40 million in SBA-guaranteed debentures outstanding as of Sept. 30.

“The potential is there for $125 million extra. It’s a game changer for the BDC,” said Monroe Capital CEO Ted Koenig.

Other beneficiaries include Main Street Capital, Capitala Finance, and Triangle Capital.

For an individual SBIC, SBA debenture borrowing is limited at $150 million. This will not change.

The change was passed as part of the Small Business Investment Company (SBIC) Capital Act of 2015, which received bipartisan support because it increased investment in job-creating small business without increasing government spending. The item was part of a fiscal package that Congress passed today granting the government over $1 trillion in spending measures.

SBICs invested over $6 billion in 2015, and account for more than $25 billion in assets across over 240 licensed SBICs, the SBIA said.

“This legislation allows proven SBICs to raise new funds and put capital to use in small businesses,” said Brett Palmer, President of the Small Business Investor Alliance (SBIA).

Other SBIA-backed proposals were part of the package and are now slated to become law. They include permanent extension of withholding exemption for foreign investors in Regulated Investment Companies (RICs), which will encourage long-term investment by foreign investors in BDCs.

In addition, Congress approved permanent extension of 100% capital gains exclusion for qualified small business investment. At the end of 2014, the exclusion was cut to 50%. — Abby Latour

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Third Ave’s liquidating debt fund holds concentrated, inactive paper

The leveraged finance marketplace is abuzz this morning ahead of a conference call to address to a plan of liquidation for the Third Avenue Focused Credit mutual fund following big losses this year, mild losses last year, heavy redemptions, and now a freeze on withdrawals. The news was publicly announced last night by the fund, and there will be a call at 11 a.m. EST for shareholders with lead portfolio manager Thomas Lapointe, according to the company.

Market sources yesterday relayed rumors of a near-$2 billion redemption from the asset class, and as one sources put forth, “the odd thing was it was difficult to trace the money that left, what was sold, and where it went.”

That was followed up by last night’s whopping, $3.5 billion retail cash withdrawal from mutual funds (72%) and ETFs (18%) in the week ended Dec. 9, according to Lipper, although it’s not entirely clear if that figure—the largest one-week redemption in 70 weeks—can be linked to Third Avenue. (LCD subscribes to weekly fund flow data from Lipper, but cannot see inside the aggregate observation.)

Nonetheless, it’s worthy of a dive into the open-ended fund, which trades under the symbol TFVCX. The fund shows a decline of 24.5% this year, versus the index at negative 2.94%, after a 6.3% loss last year, versus the index at positive 2.65%, according to Bloomberg data and the S&P U.S. Issued High Yield Corporate Bond Index.

It’s an alternative fixed-income fund that’s “extremely concentrated,” and “hardly representative of a ‘high yield’ or ‘junk bond’ fund,” outlined Brean Capital’s macro strategist Peter Tchir in a note to clients this morning. He highlighted that Bloomberg analytics show a portfolio that’s almost 50% unrated, nearly 45% tiered at CCC or lower, and just 6% of holdings rated BB or B.

The holdings are all fairly to extremely off-the-run, hence the trouble selling assets to meet redemption, and thus, the liquidation. The remaining assets have been placed into a liquidating trust, and interests in that trust will be distributed to shareholders on or about Dec. 16, 2015, according to the company.

Top holdings follow, and none have traded actively or very much in size of late, trade data show:

  • Energy Future Intermediate Holdings 11.25% senior PIK toggle notes due 2018; recent trades in the Ch. 11 paper were at 107.5.
  • Sun Products 7.75% senior notes due 2021; recent trades were at 87.5, versus 90 a month ago and the low 70s a year ago.
  • iHeartCommunications 14% partial-PIK exchange notes due 2021; block trades today were at 30 and 32, from 27 last month.
  • New Enterprise Stone & Lime 11% senior notes due 2018; odd lots traded recently in the low 80s, versus mid-80s last month.
  • Liberty Tire Recycling 11% second-lien PIK notes due 2021 privately issued in an out-of-court restructuring; trades reported in the mid-60s.

Amid those any many others of a similar ilk, the fund also reports a holding in Vertellus B term debt due 2019 (L+950, 1% LIBOR floor). The chemicals credits put the $455 million facility in place in October 2014 as part of a refinancing effort, pricing was at 96.5, and it’s now at 78/82, sources said.

“Investor requests for redemption … in addition to the general reduction of liquidity in the fixed income markets, have made it impracticable for FCF going forward to create sufficient cash to pay anticipated redemptions without resorting to sales at prices that would unfairly disadvantage the remaining shareholders,” according to the company statement.

“In line with its investment approach, FCF has some investments in companies that have undergone restructurings in the last eighteen months, and while we believe that these investments are likely to generate positive returns for shareholders over time, if FCF were forced to sell those investments immediately, it would only realize a portion of those investments’ fair value given current market conditions,” the statement outlined.

Further details are available online at the Third Avenue Management website. — Matt Fuller

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Loan technicals slide in November as supply dwarfs capital formation

In November, loan market technicals went from bad to worse as supply exceeded visible capital formation to the tune of $17.5 billion: $19.89 billion to $2.38 billion. It was the market’s biggest technical deficit since November 2007 when the prior cycle’s LBO boom crested.

As the chart illustrates, the market has experienced three successive months of technical red ink during which net new supply outran visible inflows by $32.34 billion, the largest three-month shortfall since the final quarter of 2006. — Staff reports

Loan market technicals Nov 2015

 

 

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Garrison moves Speed Commerce, Forest Park Medical to non-accrual

Two of Garrison Capital’s investments, Speed Commerce and Forest Park Medical Center, were on non-accrual status in the recent quarter.

The investment in Speed Commerce comprised a $12 million term loan due 2019 (L+1,100 PIK, 1% floor) as of Sept. 30, a 10-Q showed. The fair value was marked at $9.7 million as of Sept. 30, and it accounted for 3.9% of assets.

In November 2014, Garrison Loan Agency Services was agent on a $100 million credit facility. Proceeds backed an acquisition of Fifth Gear and refinanced debt. Speed Commerce, based in Texas, provides web design and warehouse logistics services.

Nasdaq-listed Speed Commerce announced in April it hired Stifel, Nicolaus & Company as an advisor to explore a possible recapitalization or a sale of the company. Lenders have amended the loan several times, culminating on Nov. 16, when lenders agreed to a covenant requiring a sale of the company by Dec. 11.

Garrison Capital’s non-accrual investment in Forest Park included a lease to the San Antonio, Texas hospital and a $1.95 million term loan. The hospital has filed for bankruptcy due to a liquidity shortfall stemming from delays in obtaining third-party insurance contracts, and has hired an advisor to sell the facility.

Garrison Capital’s net asset value per share totaled $14.92 as of Sept. 30, compared to $15.29 as of June 30.

Garrison management attributed nearly half of the decline to a restructuring of SC Academy. Last quarter, that investment, a loan to Star Career Academy, was the lone non-accrual investment in the portfolio.

Star Career Academy, based in Berlin, N.J., provides occupational training for entry-level employment in health fields, cosmetology, professional cooking, baking and pastry arts, and hotel and restaurant management.

Garrison Capital is an externally managed BDC that invests in debt securities and loans of U.S. middle market companies. Shares trade on Nasdaq under the ticker symbol GARS. For additional analysis of Garrison Capital’s investment portfolio, see also “ActivStyle, Connexity loans added to Garrison Capital portfolio,” LCD News, Nov. 17, 2015. — Abby Latour

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