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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

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Cumulus Media readies $2.2B loan refinancing for launch today

cumulus-logo-222featured-150x100J.P. Morgan is launching an all-first-lien refinancing for Cumulus Media Holdings with a lender call at 2:00 p.m. EST today.

The deal will repay first- and second-lien debt, resetting first-lien leverage at roughly 5x, sources said.

The new deal includes a $2.025 billion, seven-year term loan and a $200 million, five-year revolving credit.

Cumulus a year ago repriced its $1.317 billion covenant-lite first-lien term loan due September 2018 to L+350, with a 1% LIBOR floor, via J.P. Morgan and UBS. The 101 soft call rolls off this month.

The issuer in 2011 put in place a first- and second-lien deal to back its $2.4 billion acquisition of Citadel Broadcasting. In addition to the first-lien term loan, the financing included a $790 million, 7.5-year second-lien term loan priced at L+600, with a 1.5% LIBOR floor. It was non-callable in the first year, then callable at 103, 102, and 101.

The Atlanta-based broadcaster controls more than 525 radio stations in 110 U.S. media markets. – Chris Donnelly

 

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Tribune $3.8B leveraged loan backing Local TV buy enters trading above OID

tribune-company_200x200

The $3.8 billion TLB for Tribune Co. broke for trading late this afternoon at 100/100.25, from issuance at 99.75, according to sources. The seven-year loan is priced at L+300, with a 1% LIBOR floor, and includes six months of 101 soft call protection. J.P. Morgan, Bank of America Merrill Lynch, Citigroup, Deutsche Bank, and Credit Suisse arranged the loan, which backs Tribune Co.’s planned acquisition of Local TV from Oak Hill Capital Partners. The issuer is also putting in place a $300 million, five-year revolver. As reported, the leads trimmed pricing on the covenant-lite loan from original talk of L+350, with a 1% floor and a 99 offer price. Tribune in July agreed to purchase Local TV’s 19 television stations for $2.725 billion in cash. The company will also refinance its existing debt alongside the purchase and is spinning off its publishing assets into an independent company, ultimately leaving a pure-play broadcaster.

Terms:

Borrower Tribune Co.
Issue $3.8 billion TLB
UoP Finance Local TV purchase, refinance debt
Spread L+300
LIBOR floor 1.00%
Price 99.75
Tenor seven years
Call protection six months of 101 soft call
YTM 4.11%
Corporate ratings BB-/Ba3
Facility ratings BB+/Ba3
S&P recovery rating 1
Financial covenants none
Bookrunners JPM, BAML, Citi, DB, CS
Admin agent JPM
Px talk L+350/1%/99
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Tribune cuts pricing on $3.8B leveraged loan, backs Local TV buy

tribune-company_200x200A J.P. Morgan-led arranger group is seeking recommitments on Tribune Co.’s term loan by 5:00 p.m. EST today after flexing down pricing to L+300, with a 1% LIBOR floor, offered at 99.75, sources said. In addition, the 101 soft call premium was trimmed to six months from one year.

Leads J.P. Morgan, Bank of America Merrill Lynch, Citigroup, Deutsche Bank, and Credit Suisse originally talked the $3.8 billion, seven-year term loan at L+350, with a 1% LIBOR floor, at 99, sources said. As revised the loan would yield 4.11% to maturity.

The term loan, along with a $300 million, five-year revolver, will back Tribune Co.’s planned acquisition of Local TV from Oak Hill Capital Partners.

The loan drew BB+/Ba3 ratings, along with a 1 recovery rating from Standard & Poor’s. Tribune is rated BB-/Ba3.

Tribune in July agreed to purchase Local TV’s 19 television stations for $2.725 billion in cash. Tribune will also refinance its existing debt alongside the purchase and is spinning off its publishing assets into an independent company, ultimately leaving a pure-play broadcaster. In a July statement, the company said it would develop “detailed separation plans” over the next 9-12 months.

With the purchase, the media company’s broadcast portfolio will increase to 42 stations, from 23. Tribune expects the merger to generate more than $100 million in annual run-rate synergies within five years of closing.

The transaction will be structured to deliver Tribune a step up in the tax basis of the acquired assets. Taking into account the company’s estimate of run-rate synergies and the present value of this tax asset, the effective purchase-price multiple on a pro forma basis is approximately 7x 2011 and 2012 average EBITDA, the company said.

Tribune’s existing bank debt – a $1.1 billion B term loan and a $300 million asset-based revolver – was put in place in December to back the media company’s exit from Chapter 11. The covenant-lite TLB due 2019 is priced at L+300, with a 1% LIBOR floor.

Local TV, meanwhile, last tapped the loan market in September for a fungible $70 million add-on to its $181 million covenant-lite term loan due 2015 (L+400). The original loan stems from Oak Hill’s 2007 purchase of the New York Times’ Broadcast Media Group, though the company extended the maturity of a majority of its term debt by two years, to 2015, via an amend-to-extend transaction early last year. The company exited Chapter 11 on Dec. 31. – Chris Donnelly

 

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Twitter obtains $1B revolver from five banks ahead of IPO

new_twitter_logoTwitter disclosed that it has obtained a $1 billion, five-year unsecured revolver from a group of five banks ahead of its initial public offering.

Morgan Stanley and J.P. Morgan acted as joint lead arrangers. Morgan Stanley is administrative agent. Bank of America Merrill Lynch, Deutsche Bank, and Goldman Sachs also participated in the transaction.

Pricing on the revolver is tied to a leverage-based grid, ranging from L+100-175, with commitment fees ranging from 10-25 bps.

The company has not drawn any amounts under the facility.

The tech company is expected to begin trading on the New York Stock Exchange later this fall under the symbol TWTR. – Richard Kellerhals

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Verizon $12B high grade term loan nets oversubscription ahead of deadline

Verizon Communications’ $12 billion A term loan has drawn an oversubscription ahead of Tuesday’s commitment deadline, sources said.

J.P. Morgan and Morgan Stanley are acting as global coordinators. J.P. Morgan, Morgan Stanley, Barclays, and Bank of America Merrill Lynch are acting as joint lead arrangers. J.P. Morgan is administrative agent.

Proceeds from the loan, along with a record-setting $49 billion bond offering, will be used to back Verizon’s $130 billion acquisition of a 45% stake in Verizon Wireless from Vodafone.

The $12 billion A term loan is split between a $6 billion, three-year tranche and a $6 billion, five-year tranche. Pricing on the three- and five-year tranches has been set at L+137.5 and L+150, respectively. Lenders are being offered upfront fees of 35 bps for commitments of $125 million or more and 30 bps for commitments under $125 million.

The financing also includes a $2 billion revolver.

S&P and Moody’s have each downgraded Verizon’s ratings by one notch, to BBB+/Baa1, reflecting the leverage implications of adding $67 billion of new debt to Verizon’s balance sheet after the closing of the deal. Both agencies noted, however, that the outlook is stable at the lower ratings.

New York-based Verizon provides communication and information products and services. U.K.-based Vodafone provides mobile telecommunications services worldwide. – Richard Kellerhals