American Capital portfolio shows $691M of new investments in 3Q

Like other middle market lenders, American Capital experienced a slowdown in underwriting activity in the third quarter. The finance company (NASDAQ: ACAS) underwrote $691 million in new investments in the three months ended Sept. 30, compared with $976 million in the the second quarter, according to company presentations and public filings.

Minus $494 million in exits, net new investments totaled $197 million in the latest quarter, down from $382 million in the second quarter.

Among the company’s recent investments is a $170 million unitranche loan backing the buyout of Kele Inc. ACAS underwrites amounts up to $400 million, with holds of up to $150 million.

The following are highlights of select business lines under the ACAS umbrella:

Senior Floating Rate Loans Portfolio
This unit generated $223 million in new commitments during the quarter across 20 investments against $262 million of exits. There are 257 companies in the portfolio, with one listed on non-accrual status with a cost value of $8 million and a fair value of $3 million. This unit targets senior floating rate loans only via the primary and secondary markets. The overall portfolio totals $2.2 billion at fair value, as of Sept. 30. Less than 2.5% of this portfolio is exposed to the energy sector.

One Stop Buyouts Portfolio
This line, which underwrites products up and down the capital stack along with unitranche loans and equity investments, generated $5 million in new investments to existing portfolio companies in the third quarter against $7 million of exits. The portfolio totals $1.2 billion overall.

Sponsor Finance Portfolio
This sponsor-focused business line generated $214 million in third-quarter investments, adding five new companies to the portfolio. Those five deals accounted for $155 million in capital at an average interest rate of 9%, down from 9.2% across second-quarter bookings. Four existing companies absorbed $22 million of third-quarter commitments. The overall portfolio totals $1.5 billion at fair value. The group kicked off the fourth quarter with $138 million in commitments for October.

Structured Products
This group has $514 million in outstanding investments at fair value, mostly among CLO investments. In the third quarter, the group booked $147 million in new investments at an average yield of 16.6%, up from 16% among second-quarter bookings, which totaled $155 million.

Overall, non-accruals stood at 7.3% at the end of the third quarter, including non-accruals within the European Capital unit. Stripping out the European component, the non-accrual rate lowers to 4.1%. ACAS said it expects recovery rates of about 47.5%.

American Capital’s spin-off plan remains a work in progress.

The finance company is pursuing a revised proposal that calls for ACAS to spin off all debt and equity assets, excluding the ACAM unit (American Capital Asset Management), into a new BDC, American Capital Income: (ticker: ACAP).

After the spin-off, ACAS will operate primarily as an asset manager and no longer as a BDC. The ACAM unit has $1.1 billion in assets mainly concentrated among CLO and private equity investments.

The revised spin-off plan follows a 2014 proposal that was scrapped early this year. The initial plan called for ACAS to spin off two BDCs—one that would hold control assets, and the other non-control assets.

ACAS is trading at about a 30% discount to book value: $14.04 vs. $20.44. During the quarter, ACAS repurchased 9.7 million shares for $135 million, which helped lift NAV by $0.23 per share. ACAS remains committed to a previously announced share repurchase program, CFO John Erickson stated last week. If the share price remains at current levels, ACAS would expect to repurchase toward the high end of the $300–600 million range, Erickson said. — Kelly Thompson


American Capital unveils strategic review, including potential sale

American Capital’s board is reviewing strategic alternatives, including a sale of part or all of the company.

For an evaluation of American Capital’s portfolio, see “American Capital portfolio shows $691M of new investments in 3Q,” LCD News, Nov. 9, 2015.

American Capital has hired Goldman Sachs and Credit Suisse Securities as financial advisors. Results of the review are expected to be announced by January 31.

At the same time, the company expanded a stock buyback program to a range of $600 million to $1 billion, from an earlier range of $300–600 million. The program runs through June 30.

The company will buy shares at prices below 85% of net asset value per share as of Sept. 30. Net asset value per share was $20.44 as of Sept. 30.

Shares of American Capital were trading at $15.56 in late morning trade on Nasdaq today, up two cents, with the overall market slightly lower.

“The Strategic Review Committee looks forward to a full independent review with the sole goal of maximizing value for shareholders,” said Neil Hahl, chairman of the independent board committee, in a Nov. 25 statement.

The review will evaluate the previously announced plan to spin off a new business development company to shareholders. — Abby Latour

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Franklin Square BDC investor group buys JW Aluminum majority stake

A group of investors, including Franklin Square BDCs, led a buyout and recapitalization of JW Aluminum Company.

The BDCs are managed by Franklin Square Capital Partners and sub-advised by an affiliate of Blackstone’s GSO Capital Partners.

Wellspring Capital Management acquired JW Aluminum in a buyout in 2006. UBS led a $175 million L+625 second-lien term loan to finance the transaction.

The 2006 purchase was a reconnection for Wellspring and JWA. Wellspring purchased JWA in November 2003 for $125 million, and then extracted a dividend in 2004. A year later, Wellspring sold the business for $350 million to Superior Plus, a U.S. subsidiary of Canada’s Superior Plus Income Fund based in Calgary.

JW Aluminum, based in Mt. Holly, S.C., manufactures specialty flat-rolled aluminum products used in the heating and cooling industry, in flexible packaging, and in aerospace applications and building and construction. JWA operates plants in Mt. Holly, S.C; St. Louis, Mo.; Russellville, Ark.; and Williamsport, Pa. — Abby Latour

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Higher yields keep middle market borrowers at bay

Amid a barrage of large institutional deals in market, some smaller loan transactions have had difficulty gaining traction. Others that were originally intended for a broader audience have been clubbed up. Wider spreads and the prospect of various other concessions have kept less time-sensitive middle market
business on the sidelines. — Jon Hemingway


Middle Market yields Nov 19 2015

Middle market loan vol Nov 19 2015


Garrison moves Speed Commerce, Forest Park Medical to non-accrual

Two of Garrison Capital’s investments, Speed Commerce and Forest Park Medical Center, were on non-accrual status in the recent quarter.

The investment in Speed Commerce comprised a $12 million term loan due 2019 (L+1,100 PIK, 1% floor) as of Sept. 30, a 10-Q showed. The fair value was marked at $9.7 million as of Sept. 30, and it accounted for 3.9% of assets.

In November 2014, Garrison Loan Agency Services was agent on a $100 million credit facility. Proceeds backed an acquisition of Fifth Gear and refinanced debt. Speed Commerce, based in Texas, provides web design and warehouse logistics services.

Nasdaq-listed Speed Commerce announced in April it hired Stifel, Nicolaus & Company as an advisor to explore a possible recapitalization or a sale of the company. Lenders have amended the loan several times, culminating on Nov. 16, when lenders agreed to a covenant requiring a sale of the company by Dec. 11.

Garrison Capital’s non-accrual investment in Forest Park included a lease to the San Antonio, Texas hospital and a $1.95 million term loan. The hospital has filed for bankruptcy due to a liquidity shortfall stemming from delays in obtaining third-party insurance contracts, and has hired an advisor to sell the facility.

Garrison Capital’s net asset value per share totaled $14.92 as of Sept. 30, compared to $15.29 as of June 30.

Garrison management attributed nearly half of the decline to a restructuring of SC Academy. Last quarter, that investment, a loan to Star Career Academy, was the lone non-accrual investment in the portfolio.

Star Career Academy, based in Berlin, N.J., provides occupational training for entry-level employment in health fields, cosmetology, professional cooking, baking and pastry arts, and hotel and restaurant management.

Garrison Capital is an externally managed BDC that invests in debt securities and loans of U.S. middle market companies. Shares trade on Nasdaq under the ticker symbol GARS. For additional analysis of Garrison Capital’s investment portfolio, see also “ActivStyle, Connexity loans added to Garrison Capital portfolio,” LCD News, Nov. 17, 2015. — Abby Latour

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City National Bank hires Chiavetta for capital finance team

City National Bank hired Cathy Chiavetta to source and underwrite asset-based loans.

She started this month and joined as a senior vice president, based in New York. She will report to Martin Chin, who is based in Los Angeles and manages the capital finance team.

Chiavetta is responsible for both large syndicated transactions and club deals.

Previously, Chiavetta was a managing director at Z Capital Partners, where she sourced distressed senior secured debt investments. She also held sales, capital markets, and underwriting roles at Banc of America Securities, CIT Group, and TD Securities. — Abby Latour

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DDJ Capital taps Weissenburger to lead middle market loan origination

DDJ Capital Management hired Michael Weissenburger as head of origination of middle market financing.

He joins as managing director, and will be based in Waltham, Mass. Weissenburger reports to Dave Breazzano, DDJ’s president and chief investment officer.

In the newly created role, Weissenburger will build out DDJ Capital’s private lending platform in the U.S. and Canada by developing relationships with investment banks, commercial lenders, private equity firms, BDCs, and restructuring advisors.

Weissenburger joins from Wells Fargo & Company, where he was director of direct loan origination at Wells Fargo Capital Finance. He also worked at Sonus Networks, Cognos, which was acquired by IBM Corp., and Converge.

DDJ Capital Management, based in Waltham, Mass., manages high yield bond and loan strategies for corporate and public retirement funds, insurance companies, endowments, foundations, and family offices. — Abby Latour

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LBC Credit Partners Provides Mezzanine Loan to Back Techniks Buyout

LBC Credit Partners disclosed that it is agent on a secured mezzanine loan that was part of the financing that supported the buyout of Techniks Industries by Audax Private Equity and company management. Details of the financing were not disclosed.

Antares Capital was lead arranger and is administrative agent on the senior financing for the acquisition. CIT Group was a joint lead arranger on the senior loan.

LBC is an existing lender to Techniks. The company was formed in 2012 when prior sponsor Tenex Capital Management acquired the business and merged it with existing portfolio company NAP Gladu. LBC arranged a $34 million senior secured term loan to finance that transaction.

Techniks Industries is a provider of industrial cutting tools and tool holders in North America. The company is based in Indianapolis, Ind. — Jon Hemingway


Middle market loan volume in Oct on pace to set six-year low

Heading into month-end, October volume for middle market loans is on pace to set a six-year low at just $920 million. The last time total issuance for deals with a size of $350 million or less was lower was in February 2009, at $642 million. This will mark the fifth straight month of declining new issue volume. With the slowing pace of issuance, second-half volume now stands at $9 billion, compared to more than $21 billion over the first six months of the year. — Jon Hemingway

New-issue middle-market loan volume (loans of up to $350 million)

MM loan volume Oct 28 2015