Fifth Street-backed platform seeks to update middle-market lending

Len Tannenbaum, the founder of Fifth Street Asset Management, is seeking to modernize middle-market lending with a new platform where arrangers of these loans intersect with investors.

“The process for middle-market loan syndications remains inefficient and cumbersome and has not changed in any meaningful way over the last few decades,” said Tannenbaum, who is also CEO of Fifth Street Asset Management.

“It involves a tight club of 50 to 100 lenders that spend an enormous amount of time scheduling calls with each other, scribbling on notepads and sending forms back and forth via fax.”

Thus, Tannenbaum is launching MMKT, which will tackle the inefficiencies of syndication to middle-market companies. A full launch of the system is slated for the first quarter of 2016.

In recent years, lenders to middle-market companies have multiplied as banks curtail lending to these borrowers in the face of stricter regulation.

MMKT’s end-to-end platform was built using advanced encryption technology. Open to qualified institutional buyers only, potential investors will be able to browse loan listings, analyze private company information, register loan commitments, purchase loans, and take assignment of loans. Lenders can also list holdings through the platform and sell loan investments.

Loan originators will be able to submit loan details, enter diligence data, and sell loans to selected private or public groups. Financial sponsors and borrowers will be able to manage the loan buying process, and carry out post-closing and agency tasks.

Technology for the project was spearheaded by Len’s brother, David, who was chief technology officer of LiftDNA, a supply side platform, before it was acquired by digital advertising company OpenX in February 2012. David Tannenbaum is president of MMKT. Len Tannenbaum is interim CEO of MMKT.

The MMKT platform offers greater functionality than existing products geared to the loan market, and is more specifically tailored to the middle market lending process, Tannenbaum said. Eventually, MMKT will expand to secondary middle market loan trading.

“A big problem today in the loan market is that many loans are not based on actual bids and offers; they are based on indicative quotes that may not be updated. These indicative quotes are not real,” Tannenbaum said.

“We believe every market started off as closed, non-transparent markets. As part of their evolution, many have opened up. As we move towards a more liquid and transparent middle market lending industry, some may not be able to take advantage of inefficiencies anymore. Those not marking their books appropriately may not like this offering.”

So far, Fifth Street has closed syndication of a Fifth Street one-stop financing via the platform. MMKT is not accepting non-Fifth Street loan listings at this time, until the technology and user process is ready. Eventually, it will be open to other loan originators, who Tannenbaum believes will similarly benefit from using the MMKT platform, saving time and resources.

Smaller lenders, too, will reap benefits from the platform by syndicating their deals in MMKT and by gaining access to deals syndicated by other lenders. MMKT’s technology will likewise work for the co-investment process.

Fifth Street defines middle market as companies generating EBITDA of $10-100 million. MMKT is set up to syndicate deals of any size, but is optimized for syndicating deals that fall within Fifth Street’s traditional definition of middle market.

MMKT is expected to syndicate several large transactions over the next few months. Tannenbaum estimates the size of the market could be $100 billion per year.

“The technology and solution is applicable to many other liquid markets as well,” he said.

Fifth Street Asset Management is an asset-management company that advises two Fifth Street BDCs. Fifth Street Floating Rate Corp. trades on the Nasdaq as FSFR and provides sponsor-backed midsize companies with senior secured loans. Fifth Street Finance Corp. trades on Nasdaq as FSC and focuses on lending to sponsor-backed small and midsize companies. – Abby Latour

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


GTT Communications eyes $450M loans for One Source Networks buy

GTT Communications disclosed that it has engaged KeyBank and SunTrust Robinson to provide a $400 million B term loan and $50 million revolver in connection with the acquisition of One Source Networks. The syndication process for this new debt will begin immediately, the company noted.

Proceeds will also be used to replace GTT’s current credit facility.

At closing, GTT expects its ratio of total debt to annualized adjusted EBITDA to be roughly 4x on a pro forma basis.

Under the terms of the acquisition, GTT will pay $175 million for One Source Networks, a provider of data and internet services. The deal is expected to close in late October.

For reference, in April, GTT boosted its pro rata credit facility by $130 million, extended the maturity to March 2020, from August 2019, and modified a leverage covenant via an amendment. The size of the A term loan was increased by $120 million, to $230 million, while the size of the revolver increased by $10 million, to $25 million. Pricing on the facility is tied to a leverage-based grid, at L+275-350.

GTT Communications, headquartered in McLean, Va., provides cloud networking services to enterprise, government, and wholesale customers. The company’s shares trade on the NYSE under the ticker GTT. –Richard Kellerhals/Jon Hemingway


Gray eyes senior secured debt for purchase of Schurz assets

Gray Television plans to issue $415 million of debt to back its planned $442.5 million purchase of Schurz Communications T.V. and radio assets, according to an investor presentation filed with the SEC this morning.

On a conference call this morning to discuss the transaction, management said its “current intention” is to finance the deal on a senior secured basis, pointing to the low coupon on the existing term loan, which is L+300, with a 0.75% LIBOR floor.

The covenant-lite term loan due June 2021, which currently totals about $556 million, is steady on the news, quoted at 100/100.375. Wells Fargo is administrative agent, and also acted as a financial advisor to Gray on the Schurz transaction.

The broadcaster’s shares, which trade on the New York Stock Exchange under the ticker GTN, advanced about 10% on the news, to $12.90.

The M&A transaction, announced after the bell yesterday, is subject to regulatory approval and is expected to close in the fourth quarter of 2015 or the first quarter of 2016.

Pro forma for the transaction, 2014 revenue would have been roughly $774 million, 2014 net political revenue would have been about $120 million and 2014 broadcast cash flow would have been about $348 million. Net leverage, on a trailing eight-quarter basis, would run about 5.5x total at closing, according to the company. Note the existing capital structure also includes a $675 million issue of 7.5% notes due 2020.

Gray last tapped the market about a year ago via Wells Fargo for a $100 million fungible add-on term loan, which was issued at 99. Proceeds helped finance the company’s purchase of two ABC-affiliated television stations.

Gray is rated B+/B2, while the existing term debt is rated BB/Ba3, with a 1 recovery rating. S&P this morning said the company’s ratings are not affected by the acquisition announcement; Moody’s has not yet weighed in on the proposed M&A transaction. – Kerry Kantin 


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


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



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


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


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


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.


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


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.


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