American Capital portfolio shows $691M of new investments in 3Q

Like other middle market lenders, American Capital experienced a slowdown in underwriting activity in the third quarter. The finance company (NASDAQ: ACAS) underwrote $691 million in new investments in the three months ended Sept. 30, compared with $976 million in the the second quarter, according to company presentations and public filings.

Minus $494 million in exits, net new investments totaled $197 million in the latest quarter, down from $382 million in the second quarter.

Among the company’s recent investments is a $170 million unitranche loan backing the buyout of Kele Inc. ACAS underwrites amounts up to $400 million, with holds of up to $150 million.

The following are highlights of select business lines under the ACAS umbrella:

Senior Floating Rate Loans Portfolio
This unit generated $223 million in new commitments during the quarter across 20 investments against $262 million of exits. There are 257 companies in the portfolio, with one listed on non-accrual status with a cost value of $8 million and a fair value of $3 million. This unit targets senior floating rate loans only via the primary and secondary markets. The overall portfolio totals $2.2 billion at fair value, as of Sept. 30. Less than 2.5% of this portfolio is exposed to the energy sector.

One Stop Buyouts Portfolio
This line, which underwrites products up and down the capital stack along with unitranche loans and equity investments, generated $5 million in new investments to existing portfolio companies in the third quarter against $7 million of exits. The portfolio totals $1.2 billion overall.

Sponsor Finance Portfolio
This sponsor-focused business line generated $214 million in third-quarter investments, adding five new companies to the portfolio. Those five deals accounted for $155 million in capital at an average interest rate of 9%, down from 9.2% across second-quarter bookings. Four existing companies absorbed $22 million of third-quarter commitments. The overall portfolio totals $1.5 billion at fair value. The group kicked off the fourth quarter with $138 million in commitments for October.

Structured Products
This group has $514 million in outstanding investments at fair value, mostly among CLO investments. In the third quarter, the group booked $147 million in new investments at an average yield of 16.6%, up from 16% among second-quarter bookings, which totaled $155 million.

Overall, non-accruals stood at 7.3% at the end of the third quarter, including non-accruals within the European Capital unit. Stripping out the European component, the non-accrual rate lowers to 4.1%. ACAS said it expects recovery rates of about 47.5%.

American Capital’s spin-off plan remains a work in progress.

The finance company is pursuing a revised proposal that calls for ACAS to spin off all debt and equity assets, excluding the ACAM unit (American Capital Asset Management), into a new BDC, American Capital Income: (ticker: ACAP).

After the spin-off, ACAS will operate primarily as an asset manager and no longer as a BDC. The ACAM unit has $1.1 billion in assets mainly concentrated among CLO and private equity investments.

The revised spin-off plan follows a 2014 proposal that was scrapped early this year. The initial plan called for ACAS to spin off two BDCs—one that would hold control assets, and the other non-control assets.

ACAS is trading at about a 30% discount to book value: $14.04 vs. $20.44. During the quarter, ACAS repurchased 9.7 million shares for $135 million, which helped lift NAV by $0.23 per share. ACAS remains committed to a previously announced share repurchase program, CFO John Erickson stated last week. If the share price remains at current levels, ACAS would expect to repurchase toward the high end of the $300–600 million range, Erickson said. — Kelly Thompson


High yield bond prices fall further as some constituents notch large declines

The average bid of LCD’s flow-name high-yield bonds fell 132 bps in today’s reading, to 89.03% of par, yielding 10.58%, from 90.35% of par, yielding 10.05%, on Nov. 19. Performance within the 15-bond sample was deeply negative, with 12 decliners against two gainers and a lone constituent unchanged.

Today’s decline is a seventh-consecutive observation in the red, and it pushes the average deeper below the previous four-year low of 91.98 recorded on Sept. 29. As such, the current reading that has finally pierced the 90 threshold is now a fresh 49-month low, or a level not seen since 87.93 on Oct. 4, 2011.

The decrease in the average bid price builds on the negative 58 bps reading on Thursday for a net decline of 190 bps for the week. Last week’s losses were also heavy, so the average is negative 369 bps dating back two weeks, and the trailing-four-week measure is much worse, at negative 545 bps.

Certainly there has been red across the board, but several big movers of late continue to greatly influence the small sample. For example, in today’s reading, Intelsat Jackson 7.75% notes were off six full points—the largest downside mover today, to 44, and now 20.5 points lower on the month—while Hexion 6.625% paper was off five points, at 73.5, and Sprint 7.875% notes fell 5.5 points, to 77.

The market has been crumbling especially hard this week, with energy and TMT credits leading the charge, amid a lack of participation, the influence of speculative short-sellers, and despite signs that retail cash has been flowing into the asset class. There was a similar dynamic after Thanksgiving last year, sending the average to the year-end low of 93.33 on Dec. 16, 2014.

As for yield in the flow-name sample, the plunge in the average price—with many names falling into the 80s and a couple of others more deeply distressed—has prompted a surge in the average yield to worst. Today’s gain is 53 bps, to 10.58%, for a 2.92% ballooning over the trailing four week. This is a 13-month high and level not visited since 10.70% recorded on June 10, 2010.

The average option-adjusted spread to worst pushed outward by 47 bps in today’s reading, to T+791, for a net widening of 167 bps dating back four weeks. That level represents a wide not seen since the reading at T+804 on Sept. 23, 2010.

Both the spread and yield in today’s reading remain much wider than the broad index. The S&P U.S. Issued High Yield Corporate Bond Index closed its last reading on Monday, Nov. 23, with a yield to worst of 7.88% and an option-adjusted spread to worst of T+652.

Bonds vs. loans
The average bid of LCD’s flow-name loans fell nine bps, to 96.31% of par, for a discounted loan yield of 4.42%. The gap between the bond yield and discounted loan yield to maturity is 616 bps. — Staff reports

The data

Bids fall: The average bid of the 15 flow names dropped 132 bps, to 89.03.
Yields rise: The average yield to worst jumped 53 bps, to 10.58%.
Spreads widen: The average spread to U.S. Treasuries pushed outward by 47 bps, to T+791.
Gainers: The larger of the two gainers was Valeant Pharmaceuticals International 5.875% notes due 2023, which rebounded 3.25 points from the recent slump, to 85.25.
Decliners: The largest of the 12 decliners was Intelsat Jackson 7.75% notes due 2021, which dropped six full points, to 44, amid this fall’s ongoing deterioration of the credit.
Unchanged: One of the 15 constituents was unchanged in today’s reading.


Franklin Square BDC investor group buys JW Aluminum majority stake

A group of investors, including Franklin Square BDCs, led a buyout and recapitalization of JW Aluminum Company.

The BDCs are managed by Franklin Square Capital Partners and sub-advised by an affiliate of Blackstone’s GSO Capital Partners.

Wellspring Capital Management acquired JW Aluminum in a buyout in 2006. UBS led a $175 million L+625 second-lien term loan to finance the transaction.

The 2006 purchase was a reconnection for Wellspring and JWA. Wellspring purchased JWA in November 2003 for $125 million, and then extracted a dividend in 2004. A year later, Wellspring sold the business for $350 million to Superior Plus, a U.S. subsidiary of Canada’s Superior Plus Income Fund based in Calgary.

JW Aluminum, based in Mt. Holly, S.C., manufactures specialty flat-rolled aluminum products used in the heating and cooling industry, in flexible packaging, and in aerospace applications and building and construction. JWA operates plants in Mt. Holly, S.C; St. Louis, Mo.; Russellville, Ark.; and Williamsport, Pa. — Abby Latour

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



Higher yields keep middle market borrowers at bay

Amid a barrage of large institutional deals in market, some smaller loan transactions have had difficulty gaining traction. Others that were originally intended for a broader audience have been clubbed up. Wider spreads and the prospect of various other concessions have kept less time-sensitive middle market
business on the sidelines. — Jon Hemingway


Middle Market yields Nov 19 2015

Middle market loan vol Nov 19 2015


City National Bank hires Chiavetta for capital finance team

City National Bank hired Cathy Chiavetta to source and underwrite asset-based loans.

She started this month and joined as a senior vice president, based in New York. She will report to Martin Chin, who is based in Los Angeles and manages the capital finance team.

Chiavetta is responsible for both large syndicated transactions and club deals.

Previously, Chiavetta was a managing director at Z Capital Partners, where she sourced distressed senior secured debt investments. She also held sales, capital markets, and underwriting roles at Banc of America Securities, CIT Group, and TD Securities. — Abby Latour

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


Ares Corp. details 3Q15 portfolio stats, books $1.5B in new deals

Ares Corp. (NASDAQ: ARCC) booked $1.52 billion in new business during the third quarter, at an average interest rate of 7.8%, the lender detailed in its 10-Q filing yesterday alongside earnings. Exits totaled $1.34 billion, for net new investments of $183 million.

The 7.8% is 20 bps inside second-quarter investments, reflecting the better market conditions that borrowers enjoyed prior to the post-Labor Day correction. Spreads have since widened and should build up the average for fourth-quarter deals. In October, management said it funded $305 million in new investments for the fourth quarter at an average yield of 11.4%, while exiting $152 million at 8%.

First-lien commitments took a 75% share of third-quarter transactions, up from 37%, as ARCC shifted bookings away from the SSLP fund as that joint-venture with GE Capital winds down. Second-liens accounted for 21% of investments, down from 28% in the second quarter.

As of Oct. 29, the lender said it has $630 million in its backlog, which includes transactions that are approved, mandated or have a signed commitment that has been issued and that ARCC believes likely to close. There is an additional $425 million in the pipeline, which includes transactions that are in process, but have no formal mandate or signed commitment.

Portfolio stats
ARCC’s overall portfolio grew to $8.7 billion in assets, from $8.6 billion. The number of investments increased by nine, to 216. Average EBITDA per company is $58.8 million. As of June 30, 66% of the borrowers in ARCC’s portfolio generated less than $55 million of EBITDA.

Petroflow lifted ARCC’s loans on non-accrual status to 2.3% ($195 million) of the portfolio at cost, from 1.7%. Petroflow is one of three companies that ARCC considers true oil-and-gas-related investments, which account for roughly 3% of the portfolio. ARCC’s Petroflow investment is a first-lien position that was originated in July last year prior to the dramatic decline in oil prices. ARCC said it is working with the company and lender group to restructure Petroflow’s balance sheet. The principal investment totals $53.2 million. ARCC booked the 12% paper at a cost of $49.7 million, and the deal is now marked at a fair value of $37.9 million.

BDCs were not excluded from stock market volatility in the third quarter. ARCC’s stock slid to a 14% discount to NAV, from a 2% gap in the previous quarter. The stock closed the third quarter at $14.48, versus a book value of $16.79. The stock has since rebounded, to $15.49, to narrow the discount to 8%. By comparison, the BDC sector as a whole is trading at a roughly 15% discount. — Kelly Thompson


LFM Capital expands team with business development hire

Middle market private equity firm LFM Capital hired Jessica Ginsberg to manage business development and origination of buyout deals.

She joined as vice president, and started in September. She will be based in Nashville.

Ginsberg “will be responsible for managing LFM’s business development and origination activities, including overseeing the firm’s direct sourcing platform and outreach to transaction intermediaries,” the firm said in a statement.

Previously, Ginsberg worked at Bank of America Merrill Lynch in Nashville. Her role there was portfolio manager officer for the bank’s middle market industrials group.

She also worked at Essex Investment Management, Pamlico Capital (formerly Wachovia Capital Partners), and Willis Stein & Partners.

LFM Capital, based in Nashville, Tenn., invests in private companies generating revenue of $10–100 million and EBITDA of $3–10 million in manufacturing and industrial services. — Abby Latour

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


High-Flying LBO Deals Scarce as Regulators Keep Watchful Eye

LBOs leveraged at 7x

With highly leveraged loans under regulatory scrutiny, leveraged buyouts with debt multiples topping 7x are rare in 2015, compared to last year (and they’re way down from the free-flying pre-crash days).

Most participants expect the collar on leverage multiples to remain in place until either (1) the regulatory environment loosens, or (2) purchase multiples decrease from today’s stratospheric levels.

This chart is taken from LCD’s annual analysis of the 10 biggest LBO deals of the year. That analysis is available to subscribers here.

Follow LCD on Twitter for more leveraged loan news. You can also follow Steve Miller, who conducted this analysis. 


LCD’s High Yield Market Primer/Almanac Updated with 3Q Charts

LCD’s online High Yield Bond Market Primer has been updated to include third-quarter 2015 and historical volume and trend charts.

The Primer can be found at, LCD’s free website promoting the asset class. features select stories from LCD news, weekly trends, stats, and analysis, along with recent job postings.

We’ll update the U.S. Primer charts regularly, and add more as the market dictates (new this time around: an historical look at Fallen Angels, courtesy S&P).

Charts included with this release of the Primer:

  • US High Yield Issuance – Historical
  • 2015 High Yield Issuance, by Purpose
  • High Yield LBO Issuance
  • Fallen Angels – Historical
  • Cash Flows to High Yield Funds, ETFs
  • PIK Toggle Issuance (or lack thereof)
  • Yield to Maturity: Historical, Recent

LCD’s Loan Market Primer and High Yield Bond Market Primer are some of the most popular pieces LCD has published. Updated annually (print) and quarterly (online) to include emerging trends, they are widely used by originating banks, institutional investors, private equity shops, law firms and business schools worldwide.

Check them out, and please share them with anyone wanting an excellent round-up of or introduction to the leveraged finance market.


Ascensus to be acquired by Genstar, Aquiline

Middle-market private equity firms Genstar Capital and Aquiline Capital Partners have teamed up to buy Ascensus from J.C. Flowers & Co., according to a statement. The acquisition is subject to regulatory approvals and other customary closing conditions and is expected to wrap up in the fourth quarter.

Ascensus has existing loans that date to a November 2013 placement via lead arrangers BMO Capital Markets and Golub Capital. At the time Ascensus issued a $200 million first-lien term loan due 2019 (L+400, 1% LIBOR floor) and a $92 million second-lien term loan due 2020 (L+800, 1% floor).

Existing facility ratings are B/B1 on the first-lien debt and CCC+/Caa1 for the second-lien debt. Current corporate ratings are B/B2.

Dresher, Pa.-based Ascensus provides retirement services, including record-keeping and administrative services, supporting more than 40,000 retirement plans and 3.3 million 529 college savings accounts. It also administers more than 1.5 million IRAs and health savings accounts. – Jon Hemingway