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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

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

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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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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

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

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Six Degrees, Stage Entertainment on LCD European mid-market auction watchlist

LCD has compiled a watchlist of auction situations in the European mid-market to track upcoming M&A deal flow in this space, and will update the list fortnightly. It will focus on deals for which the anticipated enterprise value is roughly €400 million and below, or the debt is expected to be roughly €200 million and below. The list is attached as an Excel spreadsheet (note, LCD’s large-cap auction calendar can be found here).

Penta Investments is looking to sell cloud services provider Six Degrees Group, according to market sources. In 2011, Penta invested £40 million in three platform businesses in the connectivity, data-centre and unified communications sectors, before subsequently making further bolt-ons. The firm has mandated DC Advisory to help run the auction, which has now progressed to the second round.

CVC Capital Partners is poised to acquire Stage Entertainment, a U.K.-based theatre operator. The buyout firm is in exclusive talks with the company’s founder about a deal that could value the company at as much as €400 million, according to reports. CVC is understood to have fought off a rival bid from Providence Equity Partners-owned Ambassador Theatre Group.

Dutch buyout firm Waterland Private Equity has mandated Grant Thornton to help it find a buyer for discount dining club Tastecard, according to reports, which suggest the company could fetch roughly £100 million. If the sale is successful, it would represent a quick flip for Waterland, whose portfolio company Didix only purchased Tastecard in September last year.

Several processes have however reached fruition in recent weeks, or been pulled altogether.

U.K.-headquartered special effects company The Foundry was sold by The Carlyle Group to HgCapital in a deal valued at £200 million. HgCapital financed the deal with equity initially, and will now look to the refinance the business with new debt in the coming months, according to sources.

Poundworld has also been sold, as expected, to U.S. buyout firm TPG in a £150 million deal.

CCMP Capital-owned Pure Gym snapped up rival LA Fitness in a deal thought to be sized at £60-80 million. LA Fitness had been put up for sale by a consortium of lenders that acquired it through a debt-for-equity swap in 2013. The deal has yet to be approved by the competition authorities.

The management team of U.K.-based services group SimplyBiz meanwhile are understood to have shelved plans to sell or float the company. The business had attracted interest from around five private equity firms, understood to include Lyceum Capital and Sovereign Capital, and had carried a mooted valuation of roughly £100 million. The firm’s managing director, Neil Stevens, did however reveal the company was looking at alternative funding options that keep the management team and shareholder base “consistent”, suggesting some sort of debt financing is likely in the near future. – Oliver Smiddy

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Avago Technologies nets financing for $37B Broadcom purchase

Avago Technologies plans to finance its $37 billion purchase of Broadcom, which was announced this morning, with $15.5 billion of new syndicated term loans, according to the company. Financing will come from Bank of America Merrill Lynch, Credit Suisse, Deutsche Bank, Barclays, and Citigroup, sources said.

The issuer expects to refinance $6.5 billion of existing debt facilities and raise $9 billion of new money. A $500 million revolver would be undrawn at closing. The transaction would leverage Avago at roughly 2.7x, giving full credit for $750 million of synergies. Net of $1.3 billion of cash on hand, adjusted leverage would fall to 2.5x, according to an investor presentation.

In the secondary market, Avago’s B term loan due 2021 (L+300, 0.75% floor) was steady on the news this morning, quoted at 100.125/100.375. The $4.6 billion loan was issued at 99.5 in April 2014 to support its $6.6 billion acquisition of LSI Corp.

Enterprise value of the combined company would be roughly $77 billion. The combined company will annual revenue of approximately $15 billion.

Under the terms of the deal, Avago will acquire Broadcom for $17 billion in cash and the economic equivalent of approximately 140 million Avago ordinary shares, valued at $20 billion as of May 27, 2015, resulting in Broadcom shareholders owning approximately 32% of the combined company. Based on Avago’s closing share price as of May 27, 2015, the implied value of the total transaction consideration for Broadcom is $37 billion. – Staff reports

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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.

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Europe: KKR’s Serbia Broadband/Telemach PIK loan prices at guidance

telemach

Serbia Broadband (SBB)/Telemach today issued a PIK loan via global coordinators Credit Suisse and KKR. The deal came in line with guidance. Proceeds will finance a dividend. KKR acquired SBB/Telemach from Mid Europa last November, financing the LBO with a 55% equity cheque. SBB/Telemach distributes cable and satellite pay-TV in Slovenia, Serbia, and Bosnia and Herzegovina and provides broadband Internet and fixed-line telephony services.

Terms:

Issuer Adria Topco
Ratings NR/NR
Amount €175 million
Issue PIK loan
Coupon 9% PIK interest/8.25% if in cash
Price 99
Yield N/A
Spread N/A
Maturity 5 years
Call nc1 (102/101)
Trade June. 19, 2014
Global Coord CS (B&D), KKR
Px talk 9% PIK at 99
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Avago $4.6B loan backing LSI acquisition enters secondary north of issue price

avago-technologies_200x200Accounts this afternoon received allocations of the covenant-lite $4.6 billion B term loan for Avago Technologies, which broke for trading at 100/100.5, from issuance at 99.5, according to sources. The seven-year loan is priced at L+300, with a 0.75% LIBOR floor. Deutsche Bank, Barclays, Bank of America Merrill Lynch, and Citigroup arranged the loan, which cleared tight to original talk. The publicly traded semiconductor manufacturer will use proceeds to support its $6.6 billion acquisition of LSI Corp. The senior secured financing also includes a $500 million revolver, while Avago is also planning to fund the deal with a $1 billion investment from Silver Lake Partners, which would be in the form of a seven-year 2% convertible note, with a conversion price of $48.04 per share or preferred stock. The company will also use $1 billion of cash from the combined balance sheet to fund the transaction. Terms:

Borrower Avago Technologies
Issue $4.6 billion B term loan
UoP Fund acquisition of LSI
Spread L+300
LIBOR floor 0.75%
Price 99.5
Tenor seven years
YTM (once funded) 3.89%
Call protection 12 months 101 soft call
Corporate ratings BB+/Ba2/BB+
Facility ratings BBB-/Ba1/BBB-
S&P recovery rating 2
Financial covenants none
Arrangers DB, Barc, BAML, Citi
Admin agent DB
Price talk L+325/0.75%/99
Notes Ticking fee of 150 bps kicks in on June 1, stepping to 300 bps July 1; includes a 24-month MFN sunset provision
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Freescale $2.72B B-4 term loan enters trading above par issuance

freescale-semi-logo_optThe $2.72 billion B-4 term loan for Freescale Semiconductor broke for trading late this afternoon at 100.125/100.625, from issuance at par. The loan due March 2020 is priced at L+325, with a 1% LIBOR floor. The covenant-lite deal reprices the publicly traded chip maker’s existing $2.38 billion B-4 loan down from L+375, with a 1.25% floor, while it also refinances the company’s $350 million B-3 term loan due 2016 into the same tranche. Citigroup, Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, and Morgan Stanley arranged the financing, which cleared in line with original talk. Terms:

 

Borrower Freescale Semiconductor
Issue $2.72 billion B-4 term loan
UoP Refinancing/repricing
Spread L+325
LIBOR floor 1%
Price 100
Maturity March 2020
YTM 4.32%
Call protection six months 101 soft call
Corporate ratings B/B2
Facility ratings B/B1
S&P recovery rating 3
Financial covenants none
Arrangers/bookrunners Citi, Barc, CS, DB, GS, MS
Admin agent Citi
Px talk L+325/1%/100

 

 

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Weather Company TLB (NBC, Bain, Blackstone) drifts lower as DirecTV blackout continues

weatherch_optThe Weather Company B term loan due 2017 (L+275, 0.75% LIBOR floor) has slid about two points over the past week, which sources attribute to both the ongoing DirecTV blackout as well as the lack of investor enthusiasm for low-coupon paper.

The loan has cooled to bracket 98, after trading at 98 this morning, sources said. By comparison, the loan was quoted at 98.125/98.625 yesterday afternoon and was wrapped around par a week ago.

DirecTV last month dropped the Weather Channel as a result of a fee dispute, and there has since been no resolution. The paper initially softened a bit last month on the news, but held north of par thanks in part to strong technical conditions at the time.

The issuer is rated B/B1, while the first-lien loan is rated B+/Ba3, with a 2 recovery rating from S&P.

The issuer, formerly known as The Weather Channel, about a year ago repriced its $1.56 billion first-lien term loan, reducing the coupon from L+325, 1% floor.

In June, the company placed a $625 million covenant-lite second-lien term loan due 2021 (L+600, 1% floor), proceeds of which backed a shareholder dividend. That loan is wrapped around 98 today, versus issuance at 99 in June. The second-lien is rated CCC+/B3, with a 6 recovery rating.

The second-lien tranche is covenant-lite, though the first-lien loan is governed by a first-lien-leverage test. Deutsche Bank is administrative agent.

NBC Universal, Bain Capital, and Blackstone Group in 2008 purchased The Weather Company properties from Landmark Communications in a $3.5 billion transaction. The issuer is a provider of real-time weather information through various media platforms, including cable television and the Internet. – Kerry Kantin