ScentAir Technologies nets buyout loan from TPG Specialty Lending

TPG Specialty Lending added a loan backing scent marketing company ScentAir Technologies to its investment portfolio late last year.

The 7.5% first-lien loan due 2019, at $15.6 million on a cost basis and at fair value, was initially acquired in December 2014, a Form 10-K for 2014 filed yesterday showed. The loan was originated in connection with a buyout by a sponsor.

There were other lenders, in addition to TPG Specialty Lending, behind the acquisition financing for ScentAir, sources said.

The ScentAir Technologies loan is held at least in part by TPG SL SPV, LLC, which is a subsidiary formed in March 2012 that has a revolving credit agreement with Natixis.

ScentAir Technologies, based in Charlotte, N.C., sells scent delivery systems to create ambient scents in business settings worldwide, including retail environments, hotels, and healthcare industries. Darien, Conn.-based Alerion Partners had been an investor in the company, according to S&P Capital IQ.

TPG Specialty Lending is a BDC that lends to middle-market companies and trades on the New York Stock Exchange under the symbol TSLX. The company targets U.S.-based middle-market companies generating annual EBITDA of $10-250 million, mainly through direct origination of senior loans, but also through mezzanine loans, bonds, and equity investments. – Abby Latour

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THL Credit, Perspecta form JV to lend to middle-market companies

THL Credit will form a joint venture with Perspecta Trust to lend to middle-market companies.

THL Credit committed $120 million to the new venture, THL Credit Logan. Perspecta Trident, an affiliate of Perspecta Trust, has committed $30 million.

The new venture plans to begin funding new investments this month.

The joint venture will invest in first-lien loans and other debt to middle-market companies that fit with THL Credit’s origination and underwriting strategy.

Perspecta Trust is a non-depository trust company based in New Hampshire.

THL Credit lends to companies generating revenue of $25-500 million that require capital for growth and acquisitions. THL Credit Advisors manages THL Credit’s investment activities.

THL Credit is an externally managed business-development company that trades on the NASDAQ under the ticker TCRD. As of Sept. 30, THL had $718 million of portfolio investments, of which 44.5% were first-lien, 27% were second-lien, 15% were subordinated debt, 5% were CLO, and 6% were equity. – Abby Latour


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Oak Hill Advisors to debut as a BDC manager, advisor to the former NGP Capital Resources

oak hillOak Hill Advisors is making a debut as a BDC manager, becoming the advisor to the former NGP Capital Resources.

The new manager was selected to execute an investment strategy as a lender to middle market companies across industries, away from NGP’s traditional focus on smaller upstream energy companies.

“We are well positioned to both maximize the value of the current portfolio and to deploy capital to increase the earnings of the company over time. We intend to do both,” said Bob Long, CEO of the BDC, which is now called OHA Investment.

OHA has $8 million of cash and a $72 million bank credit facility to increase the portfolio.

The original company was formed as a BDC investing in small and mid-size private upstream energy companies, but expanded in 2012 to invest in middle market companies across sectors. The plans to change management was unveiled in July.

As of Sept. 30, some 70% of the portfolio was invested in oil and gas, exploration and production assets, and 4% in coal services. The remaining 26% was spread among three middle market companies in other sectors. Most investments are structured as debt.

“Over time, we expect to substantially diversify the portfolio, so that energy assets do not represent such a major concentration,” Long said.

The transaction greatly compresses the timeframe needed to ramp up a BDC.

However, the new manager will need to deal with some legacy trouble spots. These, along with the portfolio’s sector concentration, may have accounted for some of the lagging share performance under the BDC’s previous management.

One such holding is ATP Oil & Gas, which filed a Chapter 11 liquidation plan in May. ATP’s troubles stem from the blowout of BP’s Macondo well in April 2010 and the ensuing moratoria on drilling and related activities in the Gulf of Mexico, which prevented ATP from bringing six development wells into production.

OHA’s unrecovered investment on that company totaled $27.7 million as of Sept. 30. In addition, OHA had received aggregate production payments of $30.1 million, subject to a disgorgement agreement. Both of these amounts are subjects of litigation disputes.

The company has spent $4.5 million on legal and consulting fees to help enforce overriding royalty interests formerly operated by ATP and currently operated by Bennu Oil & Gas, which is a newly formed company owned by the DIP lenders.

But this is one of the new manager’s specialties.

“OHA brings deep experience in distressed credits and complex litigation, having made over $8 billion of distressed investments over the last 20 years,” Long said.

During the recent quarter, OHA booked a $3.9 million write down for an investment in a $10.8 million term loan in Contour Highwall Mining, reducing its value to $7.5 million. The coal miner missed interest payments in September and October, and OHA is in talks with the borrower over a potential restructuring.

Away from the energy and coal, OHA’s investments include an $18 million second-lien 13% (2% PIK) term loan due 2018 to specialty paper company Nekoosa Coated Products; $9 million of 12.75% subordinated notes due 2018 for medical supplier KOVA International; and $15 million of 12% subordinated notes due 2018 to home health services company OCI.

A new board was put in place at the BDC. It comprises two senior managers from Oak Hill Advisors, Glenn August, the CEO and company founder, and Robert Okun, Oak Hill’s chief investment officer of U.S. credit.

There are also three independent directors: Stuart Oran, a partner of a middle-market private equity firm Liberty Hall Capital; Jim Stern, the chairman of Cypress Group; and Frank Tannura, former CEO of Packaging Dynamics and of iVEX Packaging.

As part of the transfer from NGP Investment Advisor as the external manager, an affiliate of Oak Hill Advisors agreed to buy $5 million of common stock in the BDC.

On Sept. 30, the private equity sale of $1 million was completed for $8.53 per share following shareholder approval of the transaction. As of Nov. 6, the Oak Hill Advisors affiliate had purchased $1.7 million of shares in the open market, at an average price of $6.38, and has a year after the agreement to complete the remaining purchases, totaling $4 million at prices equal to net asset value.

The ticker changed to OHAI from NGPC as of Sept. 30. Shares in OHAI were trading at $6.45 as of midday today. Abby Latour


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Credit Value Partners launches new middle market loan fund, hires Keller

Greenwich, Conn.-based Credit Value Partners (CVP) has raised about $200 million of initial capital for a new fund focused on middle-market lending and has hired Michael Keller as partner and portfolio manager to help lead the effort, according to the firm.

CVP defines “middle market” roughly as companies that generate $5-25 million of EBITDA, and says it will extend loans of $5-50 million to any one borrower. The fund will mostly be focused on asset-based loans and restructuring-related credits, but it also will include cash-flow loans, according to Don Pollard, managing partner at CVP.

The new middle-market fund already has closed two transactions: a healthcare deal and $30 million in financing to support SouthComm’s purchase of assets from Cygnus Business Media, a trade publisher based near Madison, Wis. SouthComm, owner of the Nashville Post, announced the closing on Nov. 3.

Two more transactions are expected to close by year-end, Pollard says.

Prior to joining CVP, Keller was president of Shannon Capital Management and held senior positions at CapitalSource and Finova Group.

CVP was formed within Credit Suisse’s asset-management group in 2008 and went independent in 2010 after raising $100 million in seed money.

With the new middle-market platform, CVP now has three business lines, all focused on high-yielding and opportunistic corporate debt: (1) private-equity-style funds with $800 million in assets under management; (2) CLOs, led by Joe Matteo and Brian Conroy; and (3) the new middle-market fund.

CVP launched the CLO platform last year with the hiring of Matteo and since has printed two CLOs totaling $940 million. In October, CVP struck a deal to create a series of CLOs with Macquarie Group, which will provide equity capital, warehouse financing, and structured credit expertise. – Kelly Thompson

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SunTrust Robinson Humphrey adds middle-market offering with 9 hires

suntrust logoSunTrust Robinson Humphrey announced nine hires around the U.S. to expand its offerings to middle-market clients. They report to Brian Peters, the bank’s head of national corporate banking.

John McCrackenSugeet MadanAaron Eichler and Kevin Lowe joined the western corporate banking team, based in San Francisco.

McCracken joins as a managing director from U.S. Bancorp, where he led the bank’s western region banking division for five years. Madan, who also joins as managing director, previously worked at Bank of America/Nations Bank in various marketing and credit assignments.

Eichler was a client manager and senior vice president at Bank of America Merrill Lynch.

Lowe joins as director. Previously, Lowe was with Bank of America Merrill Lynch’s global industrials investment banking group.

Erik Velastegui and Deborah Ironson Katz have also joined the western corporate banking team, based in Los Angeles.

Velastegui joins as managing director. Previously, he worked at BBVA Compass as a client manager. Ironson Katz has worked in roles focused on middle-market companies.

Mike Chryssikos, a Bank of America Merrill Lynch veteran, joins as managing director in the southwest region, with a focus in Houston.

Will Rowe joins as a managing director in the Boston-based northeast region. Rowe worked at Bank of America Merrill Lynch and RBS Citizens.

David Nackley joins as a managing director in the New York-based northeast region. Prior to this, Nackley was managing director at RBS Citizens working with capital markets. – Abby Latour

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Fifth Street Senior Floating Rating sets up JV with Glick affiliates

Fifth Street Senior Floating Rating Corp., a BDC that trades on Nasdaq under the ticker symbol FSFR, has unveiled a joint venture with affiliates of the Glick family that will invest in middle-market corporate debt.

FSFR and GF Funding have committed to $100 million of subordinated notes and equity for the new joint venture, FSFR Glick JV. FSFR is providing $87.5 million and GF Funding is investing $12.5 million.

The Glick family office manages a wide range of asset classes, including a stake of more than 25% in Songbird Estates, the holding company of Canary Wharf.

The structure of FSFR Glick JV is similar to a joint venture between Fifth Street Finance Corp., which trades under the ticker symbol FSC, and a subsidiary of Kemper Corp.

Last month, Fifth Street Finance Corp. unveiled a doubling in size of its middle-market lending joint venture with the Kemper subsidiary, the combined commitment increasing to $200 million. Ownership levels were unchanged, with FSC owning 87.5% of the Senior Loan Fund JV I (SLF JV I), and Kemper owning 12.5%.

As of June 30, 2014, FSFR’s $209 million portfolio of 100% senior floating-rate assets consisted of investments in 42 companies with a weighted average yield on debt investments of 7.0%.

FSFR is advised by Fifth Street Asset Management, which listed shares on Nasdaq last month under the ticker symbol FSAM. – Abby Latour

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Franklin Square, GSO launch middle-market venture with NewStar

Franklin Square Capital Partners and GSO Capital Partners have unveiled a partnership with NewStar Financial for lending to the lower middle market.

The partnership is through Franklin Square’s FSIC platform, which is sub-advised by GSO Capital. The FSIC funds have committed to buy $300 million of 8.25% subordinated notes due 2024 and warrants to buy 12 million shares of NewStar common stock for $12.62 each.

NewStar plans to use the proceeds to expand its ability to originate and lead transactions, which it, in turn, expects to “significantly” increase origination volume and grow assets.

The agreement was announced as NewStar released its third-quarter results, showing earnings of $0.10 per share, compared to $0.12 per share in the same quarter a year ago. The volume of new loans originated in the quarter climbed to $409 million, compared to $284 million in the third quarter of 2013.

“Higher volumes reflected consistent demand for acquisition financing from financial sponsors combined with larger credit commitments and related hold positions in the leveraged finance business, as well as, continued strong contributions from the company’s asset-based lending unit,” NewStar said in a press release.

For Franklin Square, the partnership will generate more lending and co-lending opportunities and expand its product offering to portfolio companies.

FSIC is a publicly traded BDC that lends to privately held U.S. middle-market companies. – Abby Latour

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BlackRock Kelso, Gordon set up middle-market, asset-based lender

BlackRock Kelso Capital and Gordon Brothers Group unveiled a new middle-market lending platform focused on asset-based loans.

Under the agreement, the new company, Gordon Brothers Finance Company (GBFC) acquired a $269 million loan portfolio comprised of 23 loans to 20 borrowers from GB Credit Partners.

BlackRock Kelso, the majority owner of GBFC, invested $94.6 million in the transaction, comprised of $71 million of new 12% floating-rate senior notes, $13 million of new 13.5% preferred stock, and $10.6 million of common equity.

Gordon Brothers Group, the minority owner, invested $35 million in the transaction.

Deutsche Bank Securities and Credit Suisse provided senior secured debt for the transaction. – Abby Latour

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Woes of middle-market lender MCG Capital lie in portfolio missteps, BDC space remains strong

mcg-capital-co-logoThe demise of middle-market lender MCG Capital is regarded not as a harbinger of trouble for the BDC industry, but rather as a reflection of the struggling media and telecom sectors and other poor, but isolated, bets, market sources say.

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. Last week MCG Capital said it sold $106 million of its portfolio and was buying back its shares with proceeds.

Over the past decade, the company managed to shed some underperforming assets and diversify. But the transformation wasn’t swift enough. The company was saddled with legacy assets from traditional businesses.

The legacy issues, combined with a few other missteps, culminated in last week’s news that the company may liquidate.

“The BDC space as a whole has been quite good. Credit quality has been better than most people expected. MCG was an outlier,” said Troy Ward, equity analyst at Keefe, Bruyette & Woods.

The company’s plan to repurchase up to $75 million of stock at $3.25-3.75 per share may begin as early as today. The company’s shares, which trade on the Nasdaq, rose 1.4% by midday today, to $3.63.

One misstep was for MCG was its 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.

Portfolio clean-up
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.

“I believe this is a one-off liquidation that reflects the multiple changes in management. I think, in general, that it is very hard to step in as CEO or CIO and manage an investment portfolio that someone else essentially crafted,” said Merrill Ross, an equity analyst at Wunderlich Securities.

The company also endured losses for an investment in Education Management, a provider of for-profit post-secondary education that carried out an out-of-court restructuring agreement with creditors.

Among asset sales for the quarter ended Sept. 30, the company sold a holding of senior debt and preferred stock in Education Management for $3.5 million in proceeds, realizing a loss of $20.7 million.

The company also sold a holding in senior and subordinated debt in Advanced Sleep Concepts for proceeds of $4.5 million and a realized loss of $5.7 million.

In 2013, MCG Capital received $7.2 million for a sale of a debt investment in Minnesota-based radiologist group Virtual Radiologic, for a $6.3 million loss.

In 2012, MCG Capital sustained a $90.8 million realized loss after the liquidation of Jet Plastica Investors, a company that produced straws and plastic cutlery. MCG Capital had a controlling investment in that company.

The news of the wind-down – the first of a BDC since LCD News began tracking them – came as no surprise to some. Rumors had circulated that the investment portfolio was being actively shopped in the market, sources said.

Still, the saga still serves as a reminder for any BDC.

“At the end of the day, underwriting matters. If you get the cash-flow model wrong too many times, you’re going to lose a lot of money,” said KBW’s Ward. – Abby Latour

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Balance Point Capital adds hire, Nathan Elliott, for middle-market deal execution

balanceBalance Point Capital Partners hired Nathan Elliott for underwriting and execution of debt financing to middle-market companies.

He joins the Westport, Conn.-based company as a vice president. He will report to managing partner Seth Alvord and partner Justin Kaplan.

Previously, he was a vice president at Jefferies Finance, where he was responsible for due diligence and underwriting of loans and bridge financings for sponsor-led buyouts. Prior to that, he worked at GE Capital.

Balance Point Capital Partners invests mezzanine and equity capital into U.S. lower-middle-market companies generating revenue of $10-150 million, and EBITDA of at least $2 million.

Among the firm’s investments are game and toymaker Patch Products; New Jersey-based regional dental-management company Brighter Dental Care; Sacramento, Calif.-based security-alarm-monitoring company GHS Interactive Security; and radio broadcasters Digity Media and Connoisseur Media. – Abby Latour

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