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ELO Touch Solutions, backed by Gores, uses equity cure after challenging quarters

ELO Touch Solutions, which is backed by private equity firm The Gores Group, used an equity cure in the recent reporting period.

As a result, Standard & Poor’s revised the company’s outlook to negative, from stable, on May 28. The ratings agency affirmed the company’s CCC+ corporate rating at the same time.

“The outlook revision reflects Elo’s use of an equity cure in the second fiscal quarter of 2015, resulting from challenged performance during the first half of the year, and our view that the company will likely require additional support in the future to maintain covenant compliance,” Standard & Poor’s analyst Christian Frank said in a research note on May 28.

Standard & Poor’s also affirmed the B- rating on the company’s $175 million first-lien term loan due 2018 and its $15 million revolving credit facility due 2017. The loan has a recovery rating of 2, indicating expectations for recovery in the higher half of a 70-90% range on the debt in case of a default.

Standard & Poor’s also affirmed the CCC- issue-level rating, with a recovery rating of 6, on the company’s $85 million second-lien term loan due 2018, of which $37.5 million is outstanding. The 6 rating indicates an expected recovery of zero to 10% if the loan defaults.

Revenue is expected to decline in the mid-single digits in fiscal 2015, after growing by that degree in the fiscal year ended Sept. 31, 2014, Standard & Poor’s said in a research note.

Investment in new products is expected to weigh on margins in the 2015 fiscal year, then rebound. A stronger U.S. dollar has also hurt revenue and earnings this year, Standard & Poor’s said.

New products will probably help leverage, which is expected “increase modestly” this year from the low-5x area as of March 27, 2015. That level is down from an 8x peak as of June 28, 2013, Standard & Poor’s said.

“We believe that ELO’s new point-of-sale, digital signage, and touch screen component products could result in revenue growth over the next few quarters,” said S&P analyst Frank. “In the longer term, we believe that the company’s financial sponsor ownership will likely preclude sustained leverage reduction.”

Investors received allocations of a $260 million first- and second-lien financing backing the Gores Group’s $380 million purchase of ELO Touch Solutions in June 2012. Arrangers were Credit Suisse and Goldman Sachs.

The deal was structured as a $175 million, six-year first-lien term loan, which was issued at 96 and priced at L+650 (1.5% LIBOR floor), and a $85 million second-lien term loan, which was also issued at 96, with pricing of L+1,050 (1.5% floor). At issuance, corporate ratings were B/B2.

Moody’s has since downgraded the company to Caa1.

ELO Touch Solutions, based in Milpitas, Calif., supplies touch screens, touch monitors, and all-in-one touch computers. – Abby Latour

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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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Lone Star Distribution bought by Sheridan Legacy Group with debt from TCF Capital

TCF Capital provided senior financing for an acquisition of Lone Star Distribution by private equity firm Sheridan Legacy Group, sources said.

Spell Capital Partners, which was among the sellers, provided mezzanine financing.

Lone Star, based in Dallas, is a wholesale distributor of sports and fitness supplements. Products are sold online, as well as distributed to stores, fitness centers, and franchise smoothie bars.

Chicago-based Sheridan Legacy Group targets lower middle-market companies for buyouts and recapitalizations for equity investments of $10-30 million.

Spell Capital Partners, based in Minneapolis, manages private equity and mezzanine capital. – Abby Latour

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DiversiTech receives $153M of loans, led by BMO Harris Bank

BMO Harris Bank was administrative agent on $153 million in first-lien credit facilities backing DiversiTech Corporation.

Middle-market private equity firm Jordan Company this month unveiled its acquisition of DiversiTech.

DiversiTech, based in Duluth, Ga., sells engineered components for heating, ventilation, air conditioning, and refrigeration systems. – Abby Latour

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BlueArc Capital’s buyout of Brunswick Bowling financed by Gladstone

Gladstone Investment Corporation provided debt for a buyout of Brunswick Bowling Products by BlueArc Capital Management.

Gladstone Investment provided equity and secured debt. Capitala Finance was also part of the transaction.

Brunswick Corp. was the seller. Last year, Brunswick completed a sale of its retail bowling centers to Bowlmor AMF. Proceeds from both sales are expected to range from $270-290 million, depending on tax and liabilities.

BlueArc Capital Management, based in Atlanta, is a private investment firm.

Brunswick Corp., based in Lake Forest, Ill., targets growth investments and acquisitions in the marine and fitness segments. Brands include Mercury and Mariner outboard engines; Life Fitness and Hammer Strength fitness equipment; and Brunswick billiards tables and table tennis.

Gladstone Investment Corporation, a BDC that trades on Nasdaq under the symbol GAIN, invests in debt and equity of small- and mid-size businesses. – Abby Latour

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Loan bids essentially unchanged following long holiday weekend

The average bid of LCD’s flow-name composite was essentially unchanged in today’s reading, easing one basis point to 99.93% of par, from 99.94% on May 21. Activity was muted over the past two sessions and the market was closed yesterday in observance of Memorial Day.

Among the 15 names in the sample, three loans advanced, three declined, and nine were unchanged from the prior reading. Posting the largest move, at a quarter of a point, was the Charter Communications F term loan due 2021 (L+225, 0.75% floor), which dipped to a 99.25 bid on news that the cable operator has agreed to buy rival Time Warner Cable in a deal that values the target at $78.7 billion. While details on the structure of the debt financing have yet to surface, the cable operator disclosed in SEC filings today that it expects to incur roughly $23 billion of new debt in connection with the TWC purchase, as well as an additional $2 billion associated with the concurrent $10.4 billion proposed acquisition of Bright House Networks.

Market participants are optimistic that the mega-merger will yield a jumbo financing for the institutional loan market, which would help to balance out today’s technical imbalance that has fueled a fresh wave of opportunistic repricing and refinancing activity. In the month to date, repricing activity has accelerated to $31.9 billion, surpassing April’s recent high mark of $19.2 billion.

With the average loan bid slipping one basis point, the average spread to maturity was stable, at L+386

By ratings, here’s how bids and the discounted spreads stand:

  • 100.01/L+358 to a four-year call for the nine flow names rated B+ or higher by S&P or Moody’s; STM in this category is L+359.
  • 99.81/L+428 for the six loans rated B or lower by one of the agencies; STM in this category is L+427.

Loans vs. bonds 
The average bid of LCD’s flow-name high-yield bonds rose 31 bps, to 102.01% of par, yielding 6.21%, from 101.70 on May 21. The gap between the bond yield and discounted loan yield to maturity stands at 209 bps. – Staff reports

To-date numbers

  • May: The average flow-name loan is down 37 bps from the final April reading of 100.30.
  • Year to date: The average flow-name loan is up 301 bps from the final 2014 reading of 96.92.

Loan data

  • Bids lower: The average bid of the 15 flow names fell one basis point to, 99.93% of par.
  • Bid/ask spread wider: The average bid/ask spread widened one basis point, to 31 bps.
  • Spreads constant: The average spread to maturity – based on axe levels and stated amortization schedules – was unchanged, at L+386.
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Altice buys 70% of Suddenlink; new debt financing to be raised

Altice has announced that it will acquire 70% of Suddenlink from BC Partners, CPP Investment Board and Suddenlink management, with BC Partners and CPP Investment Board retaining a 30% stake. The purchase values Suddenlink at an enterprise value of $9.1 billion and 7.6x synergy-adjusted EBITDA. J.P. Morgan, PJT Partners and BNP Paribas acted as financial advisors to Altice.

The transaction is to be financed with $6.7 billion of new and existing debt at Suddenlink, a $500 million vendor loan note from BC Partners and CPP Investment Board, and $1.2 billion of cash from Altice. Market sources suggest that given the size of the debt raise, loan and bond issuance on both sides of the Atlantic is a distinct possibility.

The transaction is expected to close in the fourth quarter of 2015 once applicable regulatory approvals have been obtained.

Altice S.A. (holdco) bonds are underperforming on the news while Altice International bonds are largely stable. The 7.25% and 6.25% euro-denominated notes due 2022 and 2025 are both down a point, at 104.25 and 99.75, respectively, while the 7.7% dollar-denominated notes due 2022 are indicated down 75 bps, at 102.25.

This will be Altice’s third jumbo takeover in just over a year. Earlier this year it completed a roughly €6 billion cross-border loan-and-bond financing backing the purchase of the Portuguese assets of Portugal Telecom from Oi for a €7.4 billion enterprise value.

In April last year Numericable and Altice completed a $16.67 billion, seven-tranche, euro and U.S. dollar offering that shattered records to become the largest bond deal on record, along with $5.2 billion in Numericable loans. The offerings were part of a multi-pronged M&A-related recapitalization under which Numericable purchased telecom firm SFR from Vivendi.

Suddenlink is the 7th largest U.S. cable operator with 1.5 million residential and 90,000 business customers, primarily focused in Texas, West Virginia, Louisiana, Arkansas and Arizona. In 2014, Suddenlink generated revenue of $2.3 billion and EBITDA of more than $900 million. – Luke Millar

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Capital Southwest affiliate to buy Strathmore Products with $70M loan

Capital Southwest, a BDC whose shares trade as CSWC on Nasdaq, announced it would buy Strathmore Products through an affiliate using a $70 million term loan.

Lenders are J.P. Morgan Chase, SunTrust Bank, Comerica Bank, and Amegy Bank, an SEC filing today showed.

The assets were acquired through the Whitmore Manufacturing Company, a subsidiary of Capital Southwest. The acquisition provides an opportunity for further acquisitions in industrial coatings.

Strathmore Products, based in Syracuse, N.Y., manufactures specialty industrial coatings such as urethanes, epoxies, acrylics, and alkyds used for rail, power generation, oil and gas, and other industrial uses.

Dallas-based Capital Southwest is a BDC that invests in controlling and minority stakes of private companies with assets of $750 million.

In December, Capital Southwest’s board approved a split of the company, creating a lender that will target middle-market companies in the Southwestern U.S.. The spin-off will create two publicly traded entities, an internally-managed BDC and a diversified growth company called Industrial Co., including Whitmore.

The spin-off is due to be completed by the end of the third quarter. – Abby Latour

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Leveraged loans: Endo nets debt commitment backing $8B Par Pharmaceutical buy

Deutsche Bank and Barclays are providing debt financing to back Endo International’s $8.05 billion purchase of Par Pharmaceutical from TPG, which was announced earlier today.

The purchase price will consist of approximately 18 million shares of Endo equity (or roughly $1.55 billion of value based on the 10-day volume weighted average share price of Endo ending on May 15, 2015) and $6.5 billion in cash that would be a mix of cash, term debt, bonds, and an equity offering of roughly $1.5-2 billion.

The transaction creates a specialty pharmaceutical company with a top-five generics business as measured by U.S. sales and 2014 pro forma revenue of $4.2 billion. Endo sees $175 million of operational and tax synergies. The issuer estimates it would deleverage to a projected 3-4x in 12-18 months.

Par Pharmaceutical tapped the loan market earlier this year for a $425 million incremental B-3 term loan that was used along with cash to fund a $535 million dividend to TPG. The issuer also has in place a $1.45 billion TLB-2 due September 2019.

Endo’s roughly $5.4 billion debt stack includes a roughly $420 million TLB due 2021 and a roughly $1.06 billion TLA due 2019. – Chris Donnelly

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Golub hires Cushman from GE Antares for middle market origination

Golub Capital has hired Chip Cushman from GE Antares to originate middle market loans.

Cushman will cover the New York metro and D.C. metro areas and be based in New York. He joins as a managing director.

At GE Antares, Cushman was responsible for developing relationships with private equity firms and originating new loans.

At the same time, Golub Capital announced that Matt Fulk and Craig Palmer would assume new roles in origination, from underwriting.

“Stepping into their new business development roles will further support Golub Capital’s intention to increase its client base,” a May 15 statement from Golub said.

GE announced in April it would divest GE Capital, including its $16 billion sponsor finance business. GE Antares specializes in middle market lending to private-equity backed transactions. – Abby Latour