Standard & Poor’s cuts ratings on Prospect Capital, outlook stable

Standard & Poor’s Ratings Services cut ratings on Prospect Capital, citing weaker capital, leverage, and earnings metrics than sector peers and expectations that the company will continue to operate with relatively “higher portfolio risk” away from its core lending portfolio.

Standard & Poor’s cut the issuer and the unsecured debt ratings to BBB-, from BBB. The outlook is stable, in part due to an expected debt-to-equity ratio of less than 0.85x moving forward.

“Prospect Capital Corp.’s (PSEC) capital, leverage, and earnings metrics have been weaker relative to similarly rated peers over several quarters,” Standard & Poor’s analyst Olga Roman said in a Sept. 29 research note.

“Additionally, we have changed our expectations regarding the reduction of portfolio risk based on updated management guidance on the potential size of the spin-offs of certain businesses.”

Prospect Capital management plans to sell certain operations, including its CLO structured credit business, online lending, and real estate business, or roughly 10% of the company’s asset base. Standard & Poor’s had expected a larger share of spin-offs.

Prospect Capital’s largest investment holding as of June 30 was National Property REIT Corp. (NPRC), whose portfolio consisted of multifamily properties, commercial properties, and consumer online lending portfolios.

After NPRC, Prospect’s top five investments accounted for 56% of its adjusted total equity (ATE) in the last 12 months ended June 30. The share should decline to below 50% due to expected syndication of these investments.

“Although our assessment of the company’s capital, leverage, and earnings (CLE) and risk position remain unchanged, the above mentioned factors resulted in a negative one notch comparable ratings adjustment.”

Prospect Capital’s debt-to-equity was 0.81x, and asset coverage was 228% as of June 30.

“The stable rating outlook reflects our expectation that PSEC will continue to operate with debt to equity below 0.85x and will improve its realized return on average portfolio investments above 5% and its non-deal-dependent income coverage of both interest and dividend above 1x,” Roman said.

As of June 30, Prospect Capital’s investment portfolio totaled $6.6 billion, covering 131 portfolio companies, and was generating an annualized yield of 12.7%.

“Our ratings on PSEC also reflect the company’s “adequate” business position, based on its market position as the second-largest externally managed BDC; its focus on senior secured investments; and its relatively diversified portfolio.”

Prospect Capital, a BDC, lends to and invests in privately held middle-market companies. Shares trade on the Nasdaq under the ticker PSEC. – Abby Latour

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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



Albertson’s/Safeway, prepping for IPO, eyes potential refinancing

Albertson’s disclosed in an updated regulatory filing tied to its proposed initial public offering that it has held preliminary discussions with potential lenders, financial intermediaries, and advisors about a refinancing of its loans. The refinancing would include a new $4 billion asset-based loan agreement, new term debt, and new senior unsecured notes, according to the filing.

Underwriters on the IPO include Goldman Sachs, Bank of America Merrill Lynch, Citigroup, Morgan Stanley, Deutsche Bank, Credit Suisse, Barclays, Lazard, Guggenheim, Jefferies, RBC, Wells Fargo, BMO Capital Markets, SunTrust Robinson Humphrey, and others.

Albertson’s intend to use the net proceeds from the equity offering to repay all amounts outstanding under the new Albertson’s term loan, including $845.7 million of principal, plus accrued and unpaid interest; to redeem $243.8 million of ABS/Safeway notes at a redemption price of 107.750%, plus accrued and unpaid interest; to pay fees and expenses; with remaining amounts used to reduce Albertson’s term debt, which totaled $6.084 billion as of June 30.

Last year’s $9 billion merger of Cerberus Capital Management-controlled Albertson’s with Safeway was backed by financing commitments from Credit Suisse, Bank of America Merrill Lynch, Citigroup, Morgan Stanley, Barclays, Deutsche Bank, PNC Bank, US Bank, and SunTrust Robinson Humphrey.

Loan financing for the deal included a $3.609 billion, seven-year B-4 term loan (L+450, 1% LIBOR floor), that was later increased via a $300 million add-on, and a $950 million, five-year amortizing B-3 term loan (L+400, 1% floor). Both loans included 12 months of 101 soft call protection. – Staff reports


Poll shows 81% of middle market leaders mulling M&A over next 3 yrs

In a survey of nearly 700 leaders of privately owned middle market companies, 81% say they are interested in some form of M&A activity over the next three years.

Middle market investment bank Harris Williams & Co. partnered with Inc. to carry out the survey, for which owners, partners, and managers at middle market companies were questioned about future growth plans.

Asked about choice of a potential buyer, the preferred choice was for a public or private corporation that is a strategic buyer. The second ranked response was split between a private equity firm and employees.

“M&A is top of mind for high-growth companies and new, high-quality assets will continue to come to market as these companies explore their options for the next phase of the business,” the survey results said.

“With the current M&A market at its strongest since 2007, the supply of high-quality companies coming to market continues to show great promise. While some business leaders intend to buy or merge with another company to drive further growth, 51.8% indicated that they anticipated selling their business.”

Of the respondents, 25% said they have a detailed exit strategy planned. The largest group, or 43%, reported that their strategy was still evolving, and 30% said they did not yet have one, the survey said. – Abby Latour

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Sirius Computer nets B+/B1 ratings as buyout credit launches

Sirius Computer Solutions has drawn ratings of B+/B1 ahead of this morning’s launch by Credit Suisse, Barclays, and Citi of the $655 million first- and second-lien financing backing Kelso & Co.’s roughly $830 million purchase of a majority stake in the business. The first-lien loan is rated B+/Ba3, with a 3H recovery rating, while the second-lien debt has drawn B-/B3 ratings, with a 6 recovery rating.

The financing includes a $445 million, seven-year first-lien term loan; a $150 million, eight-year second-lien term loan; and a $60 million revolver. The term loans will be covenant-lite.

Kelso is acquiring a majority stake in the IT-services provider from Thoma Bravo, which acquired a controlling stake in the business in 2006, and Harvey Najim, the company’s founder. Closing is expected in the fourth quarter.

The transaction includes $261 million of sponsor-contributed and roll-over equity.

Sirius last tapped the loan market in April via Wells Fargo for a $35 million add-on, proceeds of which were earmarked to fund an acquisition. Alongside the add-on, the issuer repriced its 2012 vintage term loan, originally $260 million, to L+525, with a 1% floor, from L+575, with a 1.25% floor.

San Antonio, Texas-based Sirius provides customers with hardware, software, and services that support data storage, network security, network access, application development, and web hosting. – Chris Donnelly/Kerry Kantin


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


IGeneX receives unitranche debt for management buyout of company

IGeneX received unitranche debt and preferred equity from Balance Point Capital Partners and 4C Capital. Proceeds backed a management buyout of the company.

IGeneX, based in Palo Alto, Calif., provides clinical testing and laboratory services for Lyme disease and other tick-borne illnesses.

Balance Point Capital Partners invests in mezzanine and unitranche debt, as well as equity capital, of U.S. lower middle market companies generating annual EBITDA of $2-$25 million.

Among the firm’s investments are game and toymaker Patch Products, baby care products company HALO Innovations, gourmet food product company Food Evolution; and radio broadcasters Digity Media and Connoisseur Media. – Abby Latour

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Battle heats up over management fees from TICC Capital

A fight is heating up over lucrative management fees from TICC Capital.

TICC Capital is a business development company that invests in debt through syndicated bank loans and debt and equity of CLOs. It is managed by TICC Management, which collects a 2% base fee annually, as well as an incentive fee. As of June 30, $5.3 million was due to TICC Management in advisory fees for the quarter, in line with the fee for the same quarter a year earlier.

In early August, TICC Capital announced an affiliate of Benefit Street Partners would acquire TICC Management. Benefit Street Partners is the credit investment arm of Providence Equity Partners. UBS Investment Bank advised TICC Management on the transaction.

Soon after, NexPoint Advisors submitted a proposal to the board of TICC Capital for a management agreement that would cut advisory fees by an estimated $35 million and include a $10 million investment in TICC Capital shares. NexPoint later sweetened its offer. NexPoint is an affiliate of Highland Capital Management.

Benefit Street Partners followed up with a revised offer, saying the base fee would be cut to 1.5% annually, from 2%, permanently. The offer would include an investment in TICC Capital of at least $20 million through common stock purchases over the next year. Benefit Street Partners would transition TICC Capital’s strategy to private debt investments.

A special committee for TICC Capital’s board of directors unanimously supported the new agreement with Benefit Street, a Sept. 3 statement said.

Now, a new party has entered the fray.

TPG Specialty Lending unveiled a stock-for-stock bid for TICC Capital Corp., saying the offer was superior to the competing proposals from Benefit Street Partners and NexPoint.

Under terms of the offer, released today, TICC stockholders would receive common stock of TPG Specialty Lending equivalent to $7.50 in value, or a 20% premium to TICC Capital’s Sept. 15, 2015, closing stock price. TPG Specialty Lending shares, which trade on NYSE under the ticker symbol TSLX, eased $0.12 today, to $17.23, while the broader market indices were higher.

TPG Specialty Lending publicized its offer today, after proposing the offer privately to the special committee of TICC Capital’s board. TPG Specialty Lending added that the TICC special committee had rejected the offer.

But TPG Specialty Lending has urged the board to reconsider, arguing the transaction would result in long-term value for both shares, in addition to the immediate premium for TICC stockholders.

“TSLX remains fully committed to pursuing this transaction for the benefit of all stockholders and urges the special committee to enter into constructive discussions with TSLX pursuant to its fiduciary duties,” TPG Specialty Lending said in a statement today.

At a special meeting of TICC shareholders on Oct. 27, TPG Specialty Lending said it intends to solicit support to block the Benefit Street Partners’ proposal.

“We agree with NexPoint that stockholders should reject the Benefit Street Partners proposal. However, the NexPoint proposal is equally flawed as both transactions provide returns only for external managers and offer no immediate value to stockholders,” TPG Specialty Lending said in a statement.

Shares in TICC Capital closed higher today, at $6.87, up nearly 10%, in firmer market conditions. Still, they are trading at a discount to net asset value, which was $8.60 per share as of June 30. – Abby Latour

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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 


International Medical Group to be acquired by ABRY Partners

ABRY Partners has agreed to buy insurance firm International Medical Group from existing sponsors Altaris Capital Partners and Galen Partners, according to the company. Details of the transaction were not disclosed.

Altaris and Galen have controlled the company since 2012.

International Medical Group, founded in 1990, provides international medical insurance and travel insurance. The company is headquartered in Indianapolis, Ind., and has a European subsidiary that is based in the U.K. – Jon Hemingway