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Cast & Crew accelerates deadline to Friday on LBO credit

RBC Capital Markets, Credit Suisse, Deutsche Bank, and Societe Generale have accelerated the commitment deadline on their first- and second-lien financing backing Silver Lake’s purchase of Cast & Crew Payroll, LLC, to 5 p.m. EDT on Friday, July 31, from Aug. 4.

Arrangers haven’t revised price talk. As noted earlier, the first-lien term loan is talked at L+375-400, with a 1% LIBOR floor, and a 99-99.5 offer price, sources said. The second-lien term loan is talked in a range of L+775-800, with a 1% floor, offered at 99, sources said.

The covenant-lite deal includes a $270 million, seven-year first-lien term loan and a $95 million, eight-year second-lien term loan, along with a $65 million, five-year revolver, sources said. The first-lien term loan includes six months of 101 soft call protection and would yield roughly 4.93-5.28% to maturity. The second-lien term loan includes 102 and 101 call premiums in years one and two, respectively, and would yield roughly 9.23-9.5%.

The transaction would leverage Cast & Crew at roughly 4.4x through the first-lien debt and about 6x total. Equity will compose roughly 50% of capitalization, according to sources. The issuer is rated B/B3. The first-lien debt is rated B+/B2, with a 2H recovery rating. The second-lien debt is rated CCC+/Caa2 with a 6 recovery rating.

Private equity firm ZM Capital is the seller. In 2012, a consortium led by ZM Capital, including VSS, Emigrant Capital, and other ZMC affiliates, bought the company. ZM Capital invests in media, entertainment, and communications companies.

The issuer, which does business as Cast & Crew Entertainment Services, based in Burbank, Calif., provides payroll services and production accounting to the entertainment industry, including film and television studios, and live-event venues. – Chris Donnelly/Abby Latour

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AssuredPartners’ buyout by Apax backed by BAML, RBC, MS

Bank of America Merrill Lynch, RBC Capital Markets, and Morgan Stanley have provided committed debt financing to back Apax Partners’ acquisition of insurance brokerage AssuredPartners from GTCR.

Sources indicate the debt financing will be U.S.-focused.

AssuredPartners is one of the largest insurance brokerage firms in the U.S. It was formed in 2011 as part of a strategic partnership between private equity firm GTCR and the company’s CEO and COO. It has offices in more than 30 states, the District of Columbia, and London. – Nina Flitman

 

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CORE Entertainment downgraded again; grace period on loan lapses

Moody’s downgraded ratings on CORE Entertainment, citing deteriorating earnings for its U.S. Idol franchise that Fox will not renew after the 2016 season, and the expiration of a 30-day grace period to make a missed loan interest payment.

“The negative outlook reflects the very high leverage, the decline of its Idol franchise, the missed interest payment on the 2nd-lien term loan, and negative free cash flow that elevates restructuring risk,” Moody’s said in a July 15 research note.

Leverage for the company, which owns and develops entertainment content, exceeded 10x as of the first quarter of 2015.

Standard & Poor’s cut CORE Entertainment ratings last month after the company missed the interest payment on a $160 million second-lien loan due 2018.

Moody’s cut CORE Entertainment’s corporate family rating yesterday to Ca, from Caa3, and a $200 million senior secured first-lien term loan due 2017 to Caa2, from Caa1. Moody’s affirmed a Ca rating on the $160 million second-lien term loan due 2018.

“Following the 2016 season of Idol, the company will be reliant on its So You Think You Can Dance (Dance), International Idol format revenue, and its Sharp Entertainment division for earnings which will increase the unsustainability of its capital structure with debt that starts to mature in June 2017,” Moody’s said.

“The cash balance has not been used to acquire EBITDA producing assets to offset the EBITDA lost following the Elvis Presley Enterprises sale and development of new programming content has been slower than expected.”

In June, Standard & Poor’s cut the rating on the 13.5% second-lien term loan due 2018 to C, from CCC-, lowered the company’s corporate rating to CCC-, from CCC+, and the rating on a $200 million senior first-lien term loan due 2017 to CCC-, from CCC+.

Investors in the company are Apollo Global Management and Crestview Partners.

CORE Entertainment, and its operating subsidiary Core Media Group, owns stakes in the American Idol television franchise and the So You Think You Can Dance television franchise.

The loans stem from Apollo’s buyout of the company, formerly known as CKx Entertainment, in 2012. – Abby Latour

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LRW nets $75M TL, RC for buyout by Tailwind Capital

Bank of Ireland and MidCap Financial were arrangers on $75 million of buyout financing backing an acquisition of LRW (Lieberman Research Worldwide) by Tailwind Capital, sources said.

The financing comprised a $60 million, six-year term loan, and a $15 million, five-year revolver. Ally Financial was also a lender.

Besides the acquisition, the proceeds will fund targeted acquisition to strengthen the company’s global footprint, a company statement said.

LRW, based in Los Angeles, provides data-driven consulting services and market research to management teams. – Abby Latour

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Things Remembered ratings cut by Moody’s after covenant violation

Moody’s downgraded retailer Things Remembered, citing a potential repeat violation of a financial-maintenance covenant as the company’s revenue declines.

Moody’s cut the company’s corporate family rating to Caa1, from B3, and senior secured credit facilities to B3, from B2. The outlook remains negative.

Things Remembered cured a violation of its financial-maintenance covenant in the first quarter of fiscal 2015 via a capital contribution. However, further sales and margin erosion is likely.

“Moody’s expects that revenue declines in the low-single-digit range, combined with step-downs to the net leverage test and minimal cushion on the interest coverage test, could result in another violation of the company’s financial maintenance covenants over the next 12-24 months,” according to a Moody’s statement on June 26.

“The downgrade reflects Things Remembered’s continued weak operating performance and Moody’s expectation that the company will be challenged to remain in compliance with its credit agreement without a meaningful improvement in operating performance or an amendment to the credit facility.”

Moody’s said that $135 million of the company’s term loan due 2018 remains outstanding.

In May 2012, KKR Capital Markets wrapped syndication of a $147 million senior secured loan due 2018 backing a $295 million buyout of Things Remembered by Madison Dearborn Partners. The transaction included $30 million of 6.5-year mezzanine debt and a $163 million of equity.

Things Remembered, based in Highland Heights, Ohio, sells personalized jewelry, drink ware, specialty gifts, home and entertaining products, office and recognition items, and baby and children memorabilia. – Abby Latour

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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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Area Wide Protective nets $124.5M loan for buyout, led by GE Antares

GE Antares Capital was administrative agent on a $124.5 million senior credit facility backing a buyout of Area Wide Protective (AWP) by The Riverside Company.

Other lenders were Madison Capital, NewStar Financial, and MidCap Financial.

Audax Mezzanine provided mezzanine debt financing.

Middle-market private equity firm Blue Point Capital Partners, the seller in the transaction, has held the business since 2008.

Area Wide Protective, based in Kent, Ohio, is a provider of traffic-control services, offering professional work zone design and execution services in support of repair, maintenance, and construction activity affecting public infrastructure. The company has more than 1,800 employees and a fleet of nearly 900 trucks. AWP works out of 43 locations in 17 states throughout the U.S. Midwest, East, and Southeast. – Abby Latour/Jon Hemingway

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Fifth Street Finance sells healthcare direct lender to rival MidCap

Fifth Street Finance Corp. has sold Healthcare Finance Group (HFG) to MidCap Financial, a competitor to HFG in direct lending to the healthcare industry.

“We decided that it was important to refocus FSC on our core lending businesses, particularly middle market sponsor-backed lending as well as technology lending and aircraft leasing,” a Fifth Street Finance Corp. statement today said.

HFG provided asset-backed lending and term loan products to healthcare companies.

As of March 31, HFG was the largest holding of FSC’s portfolio, accounting for 4.3%. The HFG investment totaled $118 million at fair value. HFG is an operating company with a portfolio consisting of individual loans to some 40 companies.

FSC acquired HFG in June 2013.

Fifth Street Finance Corp. is a business-development company that trades on NASDAQ as FSC. It is managed by Fifth Street Management. – 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

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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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CORE Entertainment, owner of rights to American Idol, misses loan interest payment

CORE Entertainment, owner of rights to the American Idol television series, has missed an interest payment on a $160 million loan. The company now enters a 30-day grace period to make the payment.

As a result of the missed interest payment, Standard & Poor’s cut the rating on the 13.5% second-lien term loan due 2018 to C from CCC-, and placed the rating on CreditWatch negative.

Other ratings were also cut. Standard & Poor’s lowered the company’s corporate rating to CCC- from CCC+, and the rating on a $200 million senior first-lien term loan due 2017 to CCC- from CCC+.

The company’s cash totaled $81 million as of March 31, 2015, Standard & Poor’s said.

“We believe that CORE Entertainment has entered the grace period to preserve liquidity, given its cash flow deficits and ongoing investment needs,” Standard & Poor’s analyst Naveen Sarma said in a June 17 research note. “We plan to resolve the CreditWatch placement within 30 days. We could lower the ratings if we believe that CORE Entertainment will not make the interest payment or if the company defaults.”

The recovery rating on the second-lien loan is the lowest possible, at 6, indicating an expected negligible recovery (0-10%) in the case of a default. The recovery rating on the first-lien loan is 4, indicating an expected recovery of 30-50%, which is considered average on the Standard & Poor’s scale.

Investors in the company are Apollo Global Management and Crestview Partners.

CORE Entertainment, and its operating subsidiary Core Media Group, owns stakes in the American Idol television franchise, and the So You Think You Can Dance television franchise.

The loans stem from Apollo’s buyout of the company, formerly known as CKx Entertainment, in 2012. – Abby Latour

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