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Oil & Gas companies account for more than a quarter of 2015 defaults

The global corporate default tally climbed to 70 issuers after two U.S.-based exploration-and-productions companies triggered a default in the past week. Oil & Gas companies now account for more than a quarter of defaults so far this year, according to a report published by Standard & Poor’s on Friday.

SandRidge Energy entered into an agreement to repurchase a portion of its senior unsecured notes at a significant discount to par, prompting S&P to lower its corporate credit rating on Aug. 14 to D, from CCC+, on what the agency considers to be a distressed transaction and “tantamount to a default”.

Samson Resources failed to make the interest payments due on its $2.25 billion of 9.75% unsecured 2020 notes due Aug. 15. Standard & Poor’s subsequently lowered Samson’s corporate credit rating to D, from CCC-.

Of the 70 defaulting entities, 40 are based in the U.S., 14 in emerging markets, 12 in Europe, and 4 in the other developed nations. By default type, 22 defaulted due to missed interest or principal payments, 19 because of distressed exchanges, 14 reflected bankruptcy filings, seven were due to regulatory intervention, six were confidential defaults, one resulted from a judicial reorganization, and one came after the completion of a de facto debt-for-equity swap.

Standard & Poor’s Global Fixed Income Research estimates that the U.S. corporate trailing-12-month speculative-grade default rate will rise to 2.8% by March 2016, from 1.8% in March 2015 and 1.6% in March 2014. – Staff reports

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Loan bids post fourth consecutive drop amid outflows, slowing CLO issuance

The average bid of LCD’s flow-name composite fell 11 bps in today’s reading to 98.78% of par, from 98.89 on Tuesday, Aug. 11.

Among the 15 names in the sample, eight declined, three advanced, and four were unchanged from the prior reading. Avaya’s B-7 term loan due 2020 (L+525, 1% floor) was once again the biggest mover in either direction, falling another point in today’s reading to an 88.5 bid, extending losses on its 3Q results released last week amid the volatile market conditions.

After losses deepened Wednesday morning, loans began clawing back losses yesterday afternoon, with the recovery continuing today, as some buyers stepped in to capitalize on the recent weakness.

Overall, the market has had a slightly negative bias in recent sessions with loan mutual funds recording outflows and CLO issuance slowing, while traders also say that some high-yield and crossover accounts have been selling loans amid the recent downdraft in high-yield. Lipper last week reported an outflow of $594 million, the largest in 26 weeks, and the market appears poised for an even more considerable outflow this week. LCD data project an outflow, per the Lipper sample of weekly reporters, of $775 million for the five days ended Aug. 12.

With prices well off recent highs – the percentage of performing Index loans bid at par or higher fell to 23.1% as of yesterday’s close, from 40.6% a week earlier and 54% three weeks ago – some accounts are viewing the recent weakness as a buying opportunity, and there’s speculation that today’s relative bargains could revive the lackluster CLO issuance as of late. Regardless, buyers began coming out of the woodwork.

Nevertheless, this recent secondary weakness has bled into the primary market. While there’s ample demand to get deals done, issuers and arrangers can’t be as aggressive as they might have been a week ago, especially with a few recently issued deals that cleared tight relative to their ratings profiles bid below their issue prices, such as Pharmaceutical Product Development and HD Supply.

With the average loan bid tumbling 11 bps, the average spread to maturity gained two basis points, to L+415.

By ratings, here’s how bids and the discounted spreads stand:

  • 99.63/L+367 to a four-year call for the nine flow names rated B+ or higher by S&P or Moody’s; STM in this category is L+365.
  • 97.52/L+499 for the six loans rated B or lower by one of the agencies; STM in this category is L+474.

Loans vs. bonds
The average bid of LCD’s flow-name high-yield bonds dropped 40 bps, to 97.47% of par, yielding 7.48%, from 97.87 on Aug 11. The gap between the bond yield and discounted loan yield to maturity stands at 327 bps. – Staff reports

To-date numbers

  • August: The average flow-name loan fell 87 bps from the final July reading of 99.65.
  • Year to date: The average flow-name loan rose 186 bps from the final 2014 reading of 96.92.

Loan data

  • Bids decrease: The average bid of the 15 flow names slipped 11 bps, to 98.78% of par.
  • Bid/ask spread expand: The average bid/ask spread grew, to 38 bps.
  • Spreads higher: The average spread to maturity – based on axe levels and stated amortization schedules – inched up two basis points, to L+415.
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High yield bond prices rebound after two-week slump

The average bid of LCD’s flow-name high-yield bonds advanced 49 bps in today’s reading, to 99.92% of par, yielding 6.71%, from 99.43% of par, yielding 6.89%, on July 9. Gains were broad based within the sample, with 11 on higher ground against three unchanged and one decliner.

Today’s positive observation is the first gain after a two-week slump. It wipes out Thursday’s 16 bps decrease, for a net gain of 33 bps week over week, but with the recent losses, the average is negative 80 bps over the past two weeks and negative 72 bps in the trailing-four-week reading.

The rebound comes alongside modest equity market gains since Greece’s deal over the weekend. However, it’s been fairly tenuous in high-yield as participants continue to keep an eye on U.S. Treasury rates and commodity prices.

The average bid sits at positive 422 bps for the year to date.

Recall that prior to sample revisions at the start of the year, the average bid had plunged to a three-year low of 93.33 on Dec. 16. However, a snap-back rally followed, and the average bid closed the year at 96.4, for a total loss of 536 bps in 2014.

With today’s increase in the average bid price, the average yield to worst slipped 18 bps, to 6.71%, but the average option-adjusted spread to worst cinched inward by 29 bps, to T+506. The greater move in spread as compared to yield can be linked to the weakness in the Treasury market of late, as rising yield encourages spread-to-Treasury compression.

Today’s reading in the flow names is wider than with broad index yield, but fairly in line with spread. The S&P Dow Jones U.S. Issued High Yield Corporate Bond Index closed yesterday with a 6.4% yield to worst and an option-adjusted spread to worst of T+484.

For further reference, take note that a June 24, 2014 reading of 106.98 – close to the February 2014 market peak of 107.03 – had the flow-name bond average yield at 5.02%, an all-time low, but spreads weren’t quite there. Indeed, the average yield was 7.63% at the prior-cycle peak in 2007, and the average spread at the time was T+290.

 

Bonds vs. loans
The average bid of LCD’s flow-name loans increased 19 bps in today’s reading, to 99.82% of par, for a discounted loan yield of 4.13%. The gap between the bond yield and discounted loan yield to maturity stands at 258 bps. – Staff reports

The data:

  • Bids rise: The average bid of the 15 flow names advanced 49 bps, to 99.92.
  • Yields fall: The average yield to worst slipped 18 bps, to 6.71%.
  • Spreads tighten: The average spread to U.S. Treasuries cinched inward by 29 bps, to T+506.
  • Gainers: The largest of the 11 gainers, Dish Network 5.875% notes due 2022, added two full points, to 100.75.
  • Decliners: The lone decliner, Intelsat 7.75% notes due 2021, shed 1.5 points, to 79.5.
  • Unchanged: Three of the 15 constituents were unchanged.

 

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Middle-market company revenue up in 1st two months of 2Q, index says

Revenue of privately held middle-market companies rose 9.26% in the first two months of the second quarter of 2015, outpacing revenue growth of 7.24% in the first quarter, according to an index created by Golub Capital and credit market expert Ed Altman.

EBITDA increased by 6.93% year-over-year during the first two months of the second quarter of 2015, compared to 6.42% in the first quarter. The Golub Capital Altman Index is based on the sales and earnings data of roughly 150 private U.S. companies in Golub Capital’s loan portfolio.

The index was featured in the inaugural edition of the quarterly Golub Capital Middle Market Report, which includes an analysis of the index. – Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, BDCs, distressed debt, private equity, and more.

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CLO roundup: Greek cloud hangs over Europe; US prints eight deals

Having already paused activity last week, Greece’s debt problems now threaten to curtail new-issue CLO activity for the rest of the summer in Europe after yesterday’s rejection of austerity measures. It also remains to be seen whether the U.S. market will lose its momentum after last week’s bonanza that saw eight deals print stateside.

Global CLO volume Jul 3 2015

 

Year-to-date statistics are as follows:

• Global issuance totals $68.38 billion.
• U.S. issuance totals $59.96 billion from 113 deals, versus $64.01 billion from 119 deals during the same period last year.
• European issuance totals €7.56 billion from 19 deals, versus €6.92 billion from 16 deals during the same period last year.  – Sarah Husband

 

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High yield bond, loan markets in Europe largely resilient to Greek ‘No’ vote

Despite a resounding ‘No’ vote in the Greek referendum, which saw the country’s people vote against further austerity, the reaction in European loan and bond markets has largely been orderly and contained. The vote has however ushered in a further period of political uncertainty and economic volatility in Europe, with issuers having to wait and see how the situation develops before coming to market with new deals.

In the aftermath of the vote, Greek finance minister Yanis Varoufakis resigned. His replacement will be instrumental in the talks that will now ensue as Greece grapples with how to maintain liquidity in its banking system, and the EU ponders how to prevent (or in a worst-case scenario, manage) the country’s exit from the euro. There is much at stake, with concerns that despite stringent capital controls instigated last week, ATMs across the country may soon run out of cash.

The market’s reaction today was more muted than a week ago when the referendum was announced, with the iTraxx crossover widening by 15 points this morning to 342, and the FTSE 100 and Eurostoxx 50 shedding roughly 42 points and 58 points, respectively. “The market doesn’t seem to care. It’s less of an event than last Monday, after Tspiras called for the referendum. Even euro/dollar is not doing much,” said one investor.

The sovereign bond market followed suit, with 10-year yields on government paper from Italy, Spain, and Portugal widening by 11-14 bps. Greek 10-year bonds widened by 257 bps. Meanwhile the 10-year Bund yield tightened by five basis points, to 74.

High-yield corporates slipped 0.5-2 points across the board in early trading, while Greek-related names were more heavily hit.PPC’s 4.75% notes due 2017 were the biggest losers, down nine points, while Hellenic Petroleum’s 8% notes due 2017 fell seven points. OTE bonds, often a proxy for sovereign risk during a crisis, were also hit – the borrower’s 7.875% notes due 2018 fell six points, while its 3.5% notes due 2020 fell five points.

Loan markets have also been hampered by the volatility, and are likely to remain moribund as issuers wait to see how the Greek situation plays out. “We’ll be gazing at our navels for the next few weeks,” said one arranger. “We can’t post on pricing. There is a market, but we don’t know where it is. The market’s not closed, because there are buyers – there just aren’t any sellers. Why would anybody issue in this market?”

There are investors out there with cash, and there are also several deals ready to launch, the largest of which is the LBO financing for glass-bottle business Verallia, which is expected to total roughly €2 billion of loans and bonds. The transaction, led by BNP Paribas, Credit Suisse, Deutsche Bank, Nomura, Société Générale CIB, and UBS, was understood to be ready to launch if the Greeks had voted ‘Yes’ in the referendum, and the arrangers could still look to de-risk via an early bird phase among select lenders, rather than be on risk for the entire financing over what could be a volatile summer.

The lack of visibility may also affect the launch of expected deals from GFKL Financial Services and Motor Fuel Group, which sources say has been shown to investors already.

In bonds, DufrySynlabs, and Center Parcs remain in the pipeline, while pre-marketing took place for a small U.K. company last week, sources said.

In the CLO market, hopes that a ‘Yes’ vote would offer a window of opportunity for those looking to price transactions ahead of the summer lull were dashed by the results of yesterday’s poll, and arrangers and investors are now busy collating investor feedback, and assessing appetite and likely price levels. However, the ‘No’ vote means new-issue activity could now be on hold until September. Carlyle via Citi, and Pramerica via Credit Suisse were among those looking to price imminently, with another handful behind them, sources say.

As reported last week, this situation may or may not be a problem for CLO managers with warehouses open – depending on the make-up of that warehouse and the future direction of the secondary market. Any significant sell off in secondary in the coming weeks raises the potential for warehouses to go underwater, but a warehouse comprising mostly primary assets bought at par or a discount will be better able to withstand secondary weakness than one constructed via secondary market purchases at par and above. Indeed for those starting to ramp new transactions, the current conditions – a mix of better M&A loan supply, a halt in repricings and spread compression, and volatility – may be ideal in terms of generating a strong equity performance. – Staff reports

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BDCs head to Washington to make case to modernize rules

In 2013, Rep. Mick Mulvaney (R-SC) toured the factory of Ajax Rolled Ring and Machine which manufactures steel rings used in construction equipment and power turbines.

The factory, which is located in York, S.C., now employs about 100 people. It has since been acquired by FOMAS Group.

But at the time of Mulvaney’s tour, Ajax was controlled by Prospect Capital, a business development company, or a BDC. Propsect Capital’s investment from April 2008 included a $22 million loan and $11.5 million of subordinated term debt.

Mulvaney said he had never heard of a BDC before that day at Ajax, nor realized how important BDCs were as an investment source in his district.

That has changed. Bringing laws for BDCs up-to-date has since become a key issue for Mulvaney, who is on the House Committee on Financial Services. He has proposed a draft bill to modernize the laws governing BDCs.

As a former small business owner himself, Mulvaney believes allowing BDCs to grow more easily, a key component of his proposed legislation, will provide much-needed financing to the mid-sized companies to which banks have cut lending since the credit crisis.

“BDCs fill a niche for companies too big to access their local banks, but too small to access public debt and equity markets. I am acutely aware of the importance of having capital for growth when you are running a company,” Mulvaney said.

Last week, the modernization of the laws governing BDCs was the subject of a hearing by the House Subcommittee on Capital Markets and Government Sponsored Enterprises. The hearing brought together titans of the BDC industry.

“The BDC industry is maturing, and growing in a meaningful way. They are beginning to realize they need to come together as a regulated industry and speak with a common voice,” said Brett Palmer, President of the Small Business Investor Alliance (SBIA).

“They are incredibly competitive, which is one of the challenges of getting them all in the same regulatory boat, rowing in the same direction.”

The timing of Prospect Capital’s purchase of Ajax Rolled Ring in April 2008 was not fortuitous. The company was heavily reliant on Caterpillar, which accounted for roughly 50% of revenue, and the global financial crisis took a heavy toll on Ajax in 2009 and 2010.

Still, Prospect Capital increased its investment in Ajax during those tough years. That investment allowed Ajax to build a machine shop, and thus deliver a more finished product to its customers. Last year, when Italy-based FOMAS unveiled an offer for Ajax in a bid to expand in the U.S. market, Ajax was a much stronger business with revenue diversified away from Caterpillar, according to Prospect Capital.

Rep. Mulvaney is hoping a bill could be ready at the end of July, and that it could be on the floor for debate by fall. The new draft of the bill addresses concerns raised over a prior proposal to reform BDC rules.

One size does not fit all
The SBIA estimated the number of active BDCs exceeds 80, and the size of the rapidly growing industry has surpassed $70 billion. “What’s a priority for one BDC is not necessarily a priority for another,” SBIA’s Palmer said.

Even with differences across the industry, possibly the most important potential change for BDCs is the asset coverage requirement. The change would effectively raise the leverage limit to a 2:1 debt-to-equity ratio, from the current 1:1 limit.

BDC managers argue that even with the change, leverage of BDCs would be conservative compared to other lenders, which can reach a level of 15:1, for banks, and even higher, to the low-20x, for hedge funds.

“It should allow BDCs to invest in lower-yielding, lower-risk assets that don’t currently fit their economic model,” Ares Capital Board Co-Chairman Michael Arougheti told the hearing. “In fact, the current asset coverage test actually forces BDCs to invest in riskier, higher-yielding securities in order to meet the dividend requirements of their shareholders.”

BDC managers say that BDCs are far more transparent than banks traditionally have been. After all, BDCs regularly publish their loans, as well as the loans’ interest rates and fair values, in quarterly disclosures with the Securities and Exchange Commission.

“We believe it would be good public policy to increase the lending capacity of BDCs, and promote the more heavily regulated, and more transparent, BDC model,” said Mike Gerber, an executive vice president at Franklin Square Capital Partners.

To garner support for the leverage change, the bill may require BDCs to give as much as a year’s notice for any increase, allowing shareholders to sell holdings before any change comes into effect, if they don’t approve.

However, the idea of “increasing leverage” has suffered a tarnished image with the public since the credit bubble and resulting global financial crisis. BDCs are popular with retail investors because of their high dividends.

Testimony of Professor J. Robert Brown, who was a Democratic witness at the June 16 hearing on BDC laws, could help repair this image problem, supporters of the change say. Brown said reducing the asset coverage for senior securities was an “appropriate” move toward giving BDCs more fundraising capacity.

“Such a change will potentially increase the risks associated with a BDC. Nonetheless, this is one area where adequate disclosure to investors appears to be a reasonable method of addressing the concern,” Brown’s published testimony said.

“In addition, the draft legislative proposal provides investors with an opportunity to exit the company before the new limits become applicable.”

Save paper
Another change under discussion is the definition of  “eligible portfolio company,” which dictates what type of companies BDCs can invest in.

BDCs were designed to furnish small developing and financially troubled businesses with capital. Existing rules dictate that BDCs invest at least 70% of total assets into “eligible portfolio companies,” leaving out many financial companies.

Some argue that the economy has changed since this BDC rule was put in place, moving away from traditional manufacturing companies.

“Changing the definition of eligible portfolio company to permit increased investment in financial firms may result in a reduction in the funds available to operating companies. It may also result in an increase in the cost of funds to operating companies,” Brown said in his published testimony.

Less controversial in a potential BDC modernization bill appears to be the desire to ease regulatory burdens for BDCs.

Main Street Capital CEO Vincent Foster drew attention to the SEC filing requirements born by even the smallest BDCs. He called for reform to the offering and registration rules, such as allowing BDCs to use “incorporation by reference” that would allow them to cite previous filings instead of repeating information in a new SEC filing. He said the change would not diminish investor protections.

By way of example, Foster held up a stack of papers at the hearing on the BDC bill, about four inches thick, that was needed by Main Street to issue $1.5 billion in stock. He then held up a stack of papers, less than one inch thick, needed by CIT, not a BDC, to allow for a $50 billion equity issuance.

“Do four more inches of paper protect better than a half an inch? Hundreds of pages represent wasted money and manpower,” Foster said.

“This discussion draft would fix this absurdity and make a host of clearly-needed reforms.” – Abby Latour

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Energy sector, Colt Defense focus of LCD’s Restructuring Watchlist

The beleaguered energy sector dominated activity this quarter on LCD’s Restructuring Watchlist, with Sabine Oil & Gas missing an interest payment on a bond and Hercules Offshore striking a deal with bondholders for a prepackaged bankruptcy.

Another high-profile bankruptcy this month was the Chapter 11 filing of gunmaker Colt Defense. Colt’s sponsor, Sciens Capital Management, agreed to act as a stalking-horse bidder in a proposed Section 363 asset sale. The bid comprises Sciens’ assumption of a $72.9 million term loan, a $35 million senior secured loan, and a $20 million DIP, and other liabilities.

The missed bond interest payment for Sabine Oil & Gas was due to holders of $578 million left outstanding of Forest Oil 7.25% notes due 2019, assumed through a merger of the two companies late last year.

The skipped payment comes after a host of other problems. Sabine Oil has already been determined to have committed a “failure to pay” event by the International Swaps and Derivatives Association, and will head to a credit-default-swap auction. The determination by ISDA is related to previously skipped interest on a $700 million second-lien term loan due 2018 (L+750, 1.25% LIBOR floor).

Meantime, Hercules Offshore on June 17 announced it entered a restructuring agreement with a steering group of bondholders over a Chapter 11 reorganization. The agreement was with holders of roughly 67% of its10.25% notes due 2019; the 8.75% notes due 2021; the 7.5% notes due 2021; and the 6.75% notes due 2022, which total $1.2 billion.

Among other developments for energy companies, Saratoga Resources filed for Chapter 11 for a second time, blaming challenges in field operations, the decline in oil and gas prices, and an unexpected arbitration award against the company. Thus, Saratoga Resources has been removed from the list. Another company previously on the Watchlist, American Eagle Energy, has been removed following a Chapter 11 filing in May.

Another energy company, American Energy-Woodford, could work itself off the Watchlist through a refinancing. On June 8, the company said 96% of holders of a $350 million issue of 9% notes due 2022, the company’s sole bond issue, have accepted an offer to swap into new PIK notes.

Also, eyes are on Walter Energy. The company opted to use a 30-day grace period under 9.875% notes due 2020 for an interest payment due on June 15.

Another energy company removed from the Watchlist was Connacher Oil and Gas. The Canadian oil sands company completed a restructuring in May under which bondholders received equity. The restructuring included an exchange of C$1 billion of debt for common shares, including interest. A first-lien term loan agreement from May 2014 was amended to allow for loans of $24.8 million to replace an existing revolver. A first-lien L+600 (1% floor) term loan, dating from May 2014, was left in place. Credit Suisse is administrative agent.

Away from the energy sector, troubles deepened for rare-earths miner Molycorp. The company skipped a $32.5 million interest payment owed to bondholders on a $650 million issue of first-lien notes. Restructuring negotiations are ongoing as the company uses a 30-day grace period to potentially make the payment.

In other news, Standard & Poor’s downgraded the Tunica-Biloxi Gaming Authority to D, from CCC, following a skipped interest payment on $150 million of 9% notes due 2015. Roughly $7 million was due to bondholders on May 15, and the notes were also cut to D, from CCC with a negative outlook. The company operates the Paragon Casino in Louisiana.

Constituents occasionally escape the Watchlist due to improving operational trends. Bonds backing J. C. Penney advanced in May after the retailer reported better-than-expected quarterly earnings and improved sales.

In another positive development, debt backing play and music franchise Gymboree advanced after the retailer reported steady first-quarter sales and earnings that beat forecasts. Similarly, debt backing Rue 21 gained in May after the teen-fashion retailer privately reported financial results, according to sources. – Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, distressed debt, private equity, and more

Here is the full Watchlist, which is updated weekly by LCD (Watchlist is compiled by Matthew Fuller):

Watchlist 2Q June 2015

 

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GE selling Antares to Canada pension fund CPPIB as part of $12B deal

GE will sell Antares Capital to Canada Pension Plan Investment Board (CPPIB) as part of a $12 billion transaction.

The sale includes a $3 billion bank loan portfolio. Antares Capital will operate as an independent business, and retain the name. The sale is expected to close in the third quarter.

Managing partners David Brackett and John Martin, who have led Antares since its formation, will continue to lead the stand-alone business. CPPIB will retain the Antares team, a statement today said.

Stuart Aronson, the CEO of GE Capital Sponsor Finance, will stay at GE Capital.

The sale accounts for $11 billion of ending net investment. GE Capital has announced sales of roughly $55 billion, and plans to complete $100 billion of sales this year.

The Senior Secured Loan Program (SSLP) will continue to operate for a time prior to the closing of the deal, giving “Ares and CPPIB the opportunity to work together on a go-forward basis.” The SSLP is a joint venture between GE Capital and Ares Capital.

“If a mutual agreement is not reached, it is GE Capital’s intention to retain the SSLP in the future so that it can execute an orderly wind down of this program ($7.6 billion GE Capital investment, $6.1 billion of which is attributable to Sponsor Finance).”

A similar strategy holds for the Middle Market Growth Program (MMGP), which is a joint venture between affiliates of GE Capital and affiliates of Lone Star Funds, GE said. That program accounts for $600 million of GE Capital investment.

GE announced in April it would divest GE Capital, including its $16 billion sponsor finance business. GE Antares specializes in middle market lending to private-equity backed transactions.

GE Capital has long reigned as the dominant player in the middle market lending, defined by LCD as lending to companies that generate EBITDA of $50 million or less, or $350 million or less by deal size, although definitions vary among lenders.

In May, Ares Capital CEO Kipp deVeer said Ares plans to continue supporting sponsors and businesses, either directly or through a new program with a new partner. This new partner may be looking to expand their lending to the middle market, or be entering the business for the first time.

He cautioned that there was no guarantee that Ares would reach a deal. In recent weeks, Ares has been working with potential parties, including non-U.S. regulated banks and non-banks such as asset managers, insurance companies, and combinations thereof.

GE Capital is not allowed to unilaterally sell the loans in the SSLP. If no partner is found, the SSLP could be gradually wound down through repayment of the loans. The weighted average life of the SSLP loans was 4.3 years at the end of the first quarter. – Abby Latour

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Speculative-grade bond defaults in May climb to highest since 2009, S&P report says

The eight speculative-grade corporate bond defaults in May marks the highest one-month count since nine defaults in October 2009, as companies remain challenged by volatility in the commodities markets, according to S&P Global Fixed Income Research (S&P GFIR).

Standard & Poor’s defines speculative-grade debt as having ratings of BB+ and lower.

The oil-and-gas sector leads with downgrades and defaults, but the number of downgrades across all sectors remains elevated. Indeed, downgrades during the month outnumbered upgrades by 35 to 12, according to S&P GFIR.

However, Diane Vazza, head of S&P GFIR tempered the data with the following statement: “Despite the increasingly negative rating actions for speculative-grade U.S. companies, we continue to see positive investor demand in the market; year-to-date issuance is up from last year, credit spreads narrowed slightly during the month, and total returns were modestly positive for the month.”

As for the eight defaults during the month, all were public. Magnetation and Patriot Coal filed for bankruptcy; Colt Defense and Tunica-Biloxi Gaming Authority/Paragon Casino skipped bond coupons; Warren Resources and Midstates Petroleum inked sub-par bond exchanges; and SandRidge Energy and Halcon Resources completed bond-for-equity exchanges, also below par.

With that, the U.S. trailing-12-month speculative-grade corporate default rate is estimated to have increased to 2.0% in May, from 1.8% in April, according to S&P GFIR. The current observation represents the highest level in 17 months, or since the rate was at 2.2% in December 2013.

The S&P GFIR forecast for the U.S. speculative-grade default rate is for a modest increase, to 2.5% by December 2015 and 2.8% by March 2016.

Today’s report, titled “Defaults Rise As Downgrades Remained Elevated In May,” is available to subscribers of premium S&P GFIR content at the S&P Global Credit Portal.

For more information or data inquiries, please call S&P Client Services at (877) 772-5436. – Staff reports