Altice buys 70% of Suddenlink; new debt financing to be raised

Altice has announced that it will acquire 70% of Suddenlink from BC Partners, CPP Investment Board and Suddenlink management, with BC Partners and CPP Investment Board retaining a 30% stake. The purchase values Suddenlink at an enterprise value of $9.1 billion and 7.6x synergy-adjusted EBITDA. J.P. Morgan, PJT Partners and BNP Paribas acted as financial advisors to Altice.

The transaction is to be financed with $6.7 billion of new and existing debt at Suddenlink, a $500 million vendor loan note from BC Partners and CPP Investment Board, and $1.2 billion of cash from Altice. Market sources suggest that given the size of the debt raise, loan and bond issuance on both sides of the Atlantic is a distinct possibility.

The transaction is expected to close in the fourth quarter of 2015 once applicable regulatory approvals have been obtained.

Altice S.A. (holdco) bonds are underperforming on the news while Altice International bonds are largely stable. The 7.25% and 6.25% euro-denominated notes due 2022 and 2025 are both down a point, at 104.25 and 99.75, respectively, while the 7.7% dollar-denominated notes due 2022 are indicated down 75 bps, at 102.25.

This will be Altice’s third jumbo takeover in just over a year. Earlier this year it completed a roughly €6 billion cross-border loan-and-bond financing backing the purchase of the Portuguese assets of Portugal Telecom from Oi for a €7.4 billion enterprise value.

In April last year Numericable and Altice completed a $16.67 billion, seven-tranche, euro and U.S. dollar offering that shattered records to become the largest bond deal on record, along with $5.2 billion in Numericable loans. The offerings were part of a multi-pronged M&A-related recapitalization under which Numericable purchased telecom firm SFR from Vivendi.

Suddenlink is the 7th largest U.S. cable operator with 1.5 million residential and 90,000 business customers, primarily focused in Texas, West Virginia, Louisiana, Arkansas and Arizona. In 2014, Suddenlink generated revenue of $2.3 billion and EBITDA of more than $900 million. – Luke Millar


After credit downgrades, McDonald’s markets bond deal

On the heels of downgrades across all three ratings agencies, McDonald’s (NYSE: MCD) is in market today with a benchmark offering of SEC-registered senior notes across five-, 10-, and 30-year issues via bookrunners BAML, Goldman Sachs, J.P. Morgan, and Morgan Stanley, sources said. The U.S. dollar deal was announced as the quick-service restauranteur concurrently placed €2 billion of intermediate notes overseas.

Initial whispers for today’s U.S. dollar offering were reported in the areas of T+80, T+120, and T+170, respectively. For reference, the issuer last June placed $500 million of 3.25% 10-year notes due June 10, 2024 at T+67, and the issue changed hands earlier this month at wider date-adjusted levels near T+90.

On April 29, 2014, McDonald’s inked a $500 million, “no-grow” offering of 3.625% bonds due May 2043 at T+83. That issue changed hands last week at date-adjusted levels in the low T+140s, and in the low T+150s this morning.

McDonald’s recently named a new CEO amid slumping sales trends and tension with franchisees, and the new officer quickly announced plans to refranchise materially more company-owned restaurants under a simplified menu offering, while pulling forward direct returns to shareholders to this year.

Ratings agencies responded to the capital-return plan earlier this month with downgrades to A-/A3/BBB+, from A/A2/A. Outlooks are stable at the lower ratings.

“The return to shareholders of about $8.5 billion this year will necessitate higher leverage than we forecast and represents a more aggressive shift toward shareholders returns than we previously assumed,” S&P stated on May 4. “While we see credit and cash flow benefits from refranchising, lower capital spending and cost reductions, these are largely offset by our current assumption that absent specifics on longer term financial policy, the company will return much of this cash to shareholders and credit measures will not return to the low-2x area.”

A year ago, McDonald’s announced plans to return $18-20 billion to shareholders through 2016 via share repurchases and dividends. For reference, bought back roughly $3.4 billion of its shares over the 12 months through March this year, up from $1.9 billion over the year-earlier period, while paying out more than $3.2 billion of dividends over the latest 12-month period, according to S&P Capital IQ.

The company’s share buybacks peaked at $5.2 billion over the 12 months ahead of the collapse of Lehman Brothers in September 2008, filings show. – John Atkins


Burger King reigns in HY bonds during busiest week in 6 months

Sixteen issuers waded into the high-yield bond market this week, for the busiest period by number of deals in six months. The largest deal was restaurant chain Burger King/Tim Hortons, which issued $1.25 billion of bonds to refinance other debt.

It was the busiest week since Nov. 17, 2014 by number of deals, though not the highest by volume. Volume for the week is expected at $8.915 billion, short of last week’s $9.475 billion.

US high yield bond volume May 2015

Besides Burger King/Tim Hortons, the largest deals of the week were electricity generator PPL Energy Supply, insurer CNO Financial Group, Black and Decker toolmaker Spectrum Brands, car loan provider Ally Financial, and Energizer Holdings. Most of them were for debt repayment.

Energizer was an exception. The company, which trades on the New York Stock Exchange under the ticker symbol ENR, sold $600 million of 10-year notes to fund a spinoff of its Household Products business, as announced in April 2014. The company manages business in two units: personal care, which includes shaving and infant care, and household products, which includes batteries and flashlights.

The new bonds this week are brought by Energizer SpinCo (New Energizer), the recently formed holding company for the Household Products business of Energizer Holdings, with proceeds being used by Energizer Holdings (ParentCo) to fund the tax-free spin-off of the business. As part of the deal, ParentCo will be renamed Edgewell Personal Care Company, and New Energizer will be renamed Energizer Holdings, Inc., according to filings.

By rating, the junk bonds issued this week were concentrated as single- and double-B rated issues. However, insurance broker NFP Corp. and HRG Group, the holding company previously known as Harbinger Group, priced lower-rated triple-C offerings. Notably, Spectrum Brands, the Wisconsin-based company whose products range from Rayovac batteries to Cutter-branded mosquito repellent, received an investment by HRG Group this week with proceeds from its $300 million, two-part offering.

Interestingly, issuers continue to have success placing longer-dated 10-year offerings, despite ongoing volatility in Treasury and equity markets, and growing investor caution toward longer-dated bonds.

The surge in high-yield issuance comes alongside a rush by higher-rated counterparts to sell bonds before underlying interest rates rise more. In the high-grade market, companies have been rushing to issue bonds as Treasury yields march higher. The yield on the 10-year Treasury is 2.14% today, after touching 2.35% on May 12, versus 1.90% on April 15.

This week, 10-year bonds were sold by CNO Financial Group, PPL Energy Supply, Spectrum Brands, Energizer Holdings, andFelcor Lodging, which is a publicly traded REIT whose properties include the Knickerbocker Hotel in New York.

Last week, 10-year bonds were sold by drug clinical trial provider Quintiles Transnational, aircraft component supplierTransDigm, and oil-and-gas producers Range Resources and SM Energy. The bookrunners on Quintiles marketed the 10-year tranche in terms of spread, not yield, investor sources say.

Demand was strong for the marquee high-yield bond offering this week, Burger King’s issue of secured notes due 2022. J.P. Morgan led the deal. Talk emerged in the 4.75% area, slightly inside of 4.75-5% whispers, and sources relay that the order book reached north of $4 billion. Proceeds, along with cash on hand, will be used to repay roughly $1.5 billion of bank debt. The bonds priced at par to yield 4.625%.

The issuer of the debt, Restaurant Brands International, trades on the New York Stock Exchange under the ticker QSR with an approximate market capitalization of $19.5 billion.

Restaurant Brands was created in December 2014 through the merger of Burger King Worldwide and Canadian coffee and breakfast chain Tim Hortons, with over 19,000 restaurants in 100 countries and U.S. territories. Warren Buffet’s Berkshire Hathaway acquired $3 billion of preferred shares in the transaction.

Burger King is no stranger to the junk bond market. In September 2014, Burger King issued $2.25 billion offering of second-lien secured notes yielding 6% to fund the acquisition of Tim Hortons.

The new Burger King bonds stayed in demand as they began trading in the secondary market. They were quoted steady today, at 100/100.5. Buying interest also remained for other new issues.

Ally Financial, whose ratings are both junk and low-tier investment grade, were also bid higher. The 3.6% notes due 2018 that were sold at 99.44, to yield 3.8%, gained from those levels to a 100 mid-point, sources said. Ally 4.625% notes due 2022 were sold at 98.39, to yield 4.9%, and traded as high as par earlier today, trade data showed. – Joy Ferguson/Matt Fuller


JC Penney bonds gain on earnings, loan investors eye call protection

Bonds backing J.C. Penney advanced this morning, just as credit protection cheapened, after the retailer reported better-than-expected quarterly results. Shares dropped, however, with JCP trading on the NYSE roughly 7% lower, at $8.07 per.

The 8.125% notes due 2019 advanced two points, to 101/101.5, while the 5.65% notes due 2020 ticked up half of a point, to 87/88, according to sources. Long-tenor 7.4% bonds due 2027 changed hands in blocks at 83.5, which is up roughly two points from recent prints, trade data show.

Over in the CDS marketplace, five-year protection on the credit tightened roughly 19% this morning, to 4.8/5.7 points upfront, according to Markit. That’s approximately $125,000 cheaper upfront, with a mid-point $520,000 initial payment, in addition to the $500,000 annual expense, to protect $10 million in J.C. Penney bonds.

The company reported net sales of $2.86 billion during its fiscal first quarter ended May 2, up from $2.8 billion in the year-ago fiscal first quarter, according to a corporate filing. Results were in line with the S&P Capital IQ consensus estimate for sales; however, the adjusted EBITDA result of $82 million in the quarter was well ahead of the consensus estimate of $29 million.

Looking ahead, the company tightened its 2015 full-year guidance for a sales increase by 4-5%, from 3-5% previously, and put forth an estimate for $600 million in EBITDA, versus none prior, filings show.

Over in the loan market, J.C. Penney’s covenant-lite term loan due 2018 (L+500, 1% LIBOR floor) was little changed on the news, quoted at 99.875/100.25, according to sources. On yesterday’s conference call, CFO Edward Record noted that the 101 hard call protection rolls off the loan this month.

“It’s something we continue to look at,” Record said, according to a transcript of the call provided by S&P Capital IQ. “We know it is probably over-collateralized, and there may be some opportunity there. We also know that it doesn’t come due to 2018, so we don’t have a gun to our head to have to do anything any time soon. We’ll continue to monitor rates and see if there’s any opportunity to do something there.”

The loan, originally $2.25 billion, was placed in May 2013; it originally included 102, 101 call premiums. Goldman Sachs is administrative agent.

The Plano, Texas-based company is rated CCC+/Caa2, with positive and stable outlooks, respectively. – Matt Fuller/Kerry Kantin

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.



Burger King/Tim Hortons selling $1.25B in bonds

Burger King/Tim Hortons stepped in the market today with an anticipated $1.25 billion offering of first-lien senior secured notes via a bookrunner group led by J.P. Morgan, according to sources.

Proceeds from the bond issue, along with cash on hand, will be used to repay roughly $1.5 billion of existing term loan B borrowings.

The original $6.75 billion term loan B was syndicated in September via J.P. Morgan, Wells Fargo, and Bank of America Merrill Lynch, along with a $2.25 billion offering of second-lien notes, proceeds of which backed the fast-food chain’s acquisition of Tim Hortons. Those 6% notes due 2022 closed yesterday at 102.5 to yield 5.35%, and last week were a point higher at 103.5 to yield 5.1%, trade data show.

Burger King and Tim Hortons brand names are owned by Restaurant Brands International, which trades on the New York Stock Exchange under the ticker QSR with an approximate market capitalization of $19.35 billion. – Joy Ferguson/Kerry Kantin


High grade bond volume exceeds $50B this week, for third time ever

After one of the biggest two-session outbursts of supply on record Tuesday and Wednesday, seven more issuers piled into the primary market on Thursday, including deals for Boston Scientific ($1.85 billion), Anglo American Capital ($1.5 billion), Chevron Phillips Chemical ($1.4 billion), EnLink Midstream Partners ($900 million), Bank of America ($600 million of “green” bonds), Puget Energy($400 million), and Weingarten Realty Investors ($250 million).

This week’s torrent of bond offerings backing aggressive corporate fiscal policies resulted in a rare weekly issuance total north of $50 billion, against the backdrop of rapidly increasing absolute costs, LCD data show. Indeed, that $50-billion threshold has only been crossed twice before, including when $60 billion was printed over the week ended Sept. 13, 2013 – largely on the strength of a record-smashing, $49 billion deal for Verizon Communications – and $51.7 billion was placed over the first week of March this year.

This week’s volume also pushed the 2015 issuance total to roughly $463 billion, or 23% ahead of the 2014 pace, and 26% ahead of the total over the same period in 2013.

(Note: LCD totals exclude sovereign, quasi-sovereign, supranational, preferred and hybrid-structure, and remarked deals.)

Corporate treasurers are clearly indicating a sense of urgency to lock in funds, as underlying rates spiral higher, including through shocking bouts of intraday volatility, as was displayed in trades in the 10-year U.S. Treasury benchmark on Thursday morning.

Apple’s $8 billion deal this week perhaps most dramatically underscored the shift higher in absolute costs for borrowers this year. Coupons were printed on May 6 at 2% for five-year notes at T+45, 3.2% for 10-year notes at T+100, and 4.375% for 30-year bonds at T+140, or 45-92.5 bps more than since it placed, in early February this year, 1.55% five-year notes at T+42, 2.5% 10-year notes at T+85, and 3.45% 30-year bonds at T+125, as part of a $6.5 billion offering.

Pitching long-dated debt exposure to investors has been complicated after the average yield across the long-dated industrial component of the Barclays U.S. high-grade index climbed to a 12-month high of 4.76% as of Wednesday, reflecting a move up of half a percentage point in less than three weeks. The category posted a sharp total-turn loss of 3% for the month-to-date through Wednesday, and 5% over the previous three months.

But curve-spanning deals continue to mount, as borrowers scramble to lock in funds for M&A and direct shareholder returns. Including today’s deals for Boston Scientific and EnLink Midstream Partners, M&A-driven deals accounted for nearly $32 billion of issuance volume, or 57% of this week’s issuance total through Thursday.

Meantime, Apple this week placed another blockbuster debt backing its recent material increase in buybacks and dividends – following big deals last week for Oracle and Amgen for the same purposes – while Chevron Phillips Chemical and Puget Energy locked in funds in part for special distributions. – John Atkins


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

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

Follow Kelly Thompson on @MMKTDoyenne.


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

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


Hi grade: Weyerhaeuser shops $1.7B bridge for Longview Timber buy

Weyerhaeuser logoMorgan Stanley is in market with a $1.7 billion, 364-day senior unsecured bridge term loan for Weyerhaeuser Company in connection with the company’s planned $2.65 billion acquisition of Longview Timber Holdings, sources said.

The company disclosed that it plans to finance the deal by raising about $2.45 billion of debt and equity. The mix between debt and equity is expected to be split 50/50.

The company is offering 28 million of its common shares and 10 million mandatory convertible preference shares at a price of $50 per share. Morgan Stanley, Deutsche Bank, and Citigroup are managing the offerings.

The acquisition is expected to close next month.

Weyerhaeuser Company makes forest products such as lumber and other wood for building products and pulp and paper. Corporate issuer ratings are BBB-/Baa3. – Richard Kellerhals

Follow Richard on Twitter @rtkellerhals for Investment-Grade and Pro Rata news


Valeant secures roughly $7B of debt financing for Bausch & Lomb buy

Valeant Pharmaceuticals disclosed that it has secured roughly $6.7-7.2 billion of debt financing from Goldman Sachs in connection with its planned $8.7 billion acquisition of Bausch & Lomb. The financing will be a mix of bank debt and bonds. Valeant expects to issue $1.5-2 billion of equity to fund the remainder of the acquisition, which is expected to close in the third quarter.

Under the terms of the agreement, Valeant will pay roughly $4.5 billion of the $8.7 billion consideration to an investor group led by Warburg Pincus, which currently owns Bausch & Lomb, and roughly $4.2 billion to repay Bausch & Lomb’s outstanding debt. With the new equity, Valeant’s leverage ratio will be approximately 4.6x, according to a company statement.

In the secondary loan market, the Bausch & Lomb TLB due 2019 (L+300, 1% LIBOR floor) cooled to 100.5/101, off about three-eighths of a point from levels early Friday before press reports began circulating about a possible deal.

As for Bausch & Lomb in the bond market, the company has $350 million left outstanding in what was originally a $650 million issue of 9.875% notes due 2015 that supported the 2007-vintage buyout financing. The B/Caa1 paper is currently callable at 102.469, declining to par in November, and therefore secondary market valuation is steady just short of 103, according to S&P Capital IQ.

Valeant’s D term loan due 2019 (L+275, 0.75% floor), meanwhile, has slid about half a point on the news, to 100.25/100.75, sources said.

In April, Bausch & Lomb refinanced a $1.92 billion dollar-denominated TLB and a $589.3 million equivalent euro term loan due May 2019. The issuer reduced pricing on the dollar-denominated tranche to L+300, with a 1% LIBOR floor, from L+425, with a 1% LIBOR floor. Pricing on the euro tranche was reduced to E+350, with a 1% floor, from E+475, with a 1% floor. Valeant also placed a $399 million delayed-draw TLB at L+325, with no floor and reduced pricing on a $500 million revolver due May 2017 to L+275, with a 50 bps unused fee. The term loans include six months of 101 soft call protection.

In February, Valeant repriced its institutional term loans at L+275, with a 0.75% LIBOR floor, from L+325, with a 1% floor. The $1 billion series C matures in December 2019, and the $1.3 billion series D matures in February 2019. The loans include six months of 101 soft call protection. In January Valeant repriced its A term loan, bringing pricing on the pro rata loan down by 75 bps across the three leverage-based tiers.

Bausch & Lomb will retain its name. Valeant’s existing ophthalmology businesses will be integrated into Bausch & Lomb., creating an eye health company with an estimated 2013 net revenue of more than $3.5 billion.

Valeant Pharmaceuticals is a Mississauga, Ontario-based pharmaceutical concern. Corporate issuer ratings are BB/Ba3. Rochester, N.Y.-based Bausch & Lomb is rated B+/B2. – Staff reports