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Capitala Closes $500M Private Credit Fund for Middle Market Loans

Capitala Group, which lends to middle market companies, announced today it closed a new private credit fund, the $500 million Capitala Private Credit Fund V.

The private credit fund, which closed last month, is Capitala’s largest since the company listed its BDC in September 2013. The fund has no SBIC component since Capitala has already reached the $350 million limit for borrowing across a family of funds.

“We expect to be deploying the fund promptly,” Joseph Alala, Chairman and CEO of Capitala Finance, told LCD News. “The opportunities are there, and deals are still getting done. We have the opportunity to invest now, thanks to the fund.”

The fund will target the same investments as the BDC, traditional lower middle market and middle market companies. The BDC will have the opportunity for co-investment with the private fund.

The investment committee has been expanded for Capitala Private Credit Fund V. In addition to Alala, Jack McGlinn, and Hunt Broyhill, who make investment decisions for the BDC, the private fund’s investment committee includes Chris Norton, Randall Fontes, and Adam Richeson.

Alala said Capitala Group is actively seeking to expand its investment team, adding staff in Charlotte, N.C., and the Northeastern U.S..

The news of Capitala Private Credit Fund V comes on the heels of an announcement late last month that Capitala Finance exited four investments totaling $57.1 million.

These investments included $18.4 million of subordinated debt in Merlin International, an $8 million subordinated debt and a $10.6 million equity investment in MTI Holdings, a $6.4 million subordinated debt and $2.8 million equity investment in STX Healthcare Management Services, and a full repayment of a $10.9 million senior and subordinated debt investment toSparus Holdings.

Including the exit of Sparus, Capitala’s exposure to the troubled energy sector declined to 3%, on a fair value basis, from 9% at year-end 2015.

Alala added that there had been no new development to the situation at Sierra Hamilton, an oil and gas engineering and consulting services company. As of June 30, a $15 million 12.25% senior secured term loan due 2018 was booked at $7.5 million at fair value, compared to $10.1 million as of Dec. 31. The investment consists of a first-lien loan behind a working capital revolver.

On an Aug. 10 earnings call, in response to an analyst’s question, management said the borrower was current on interest payments.

Charlotte, N.C.–based Capitala Finance targets debt and equity investments in middle market companies generating annual EBITDA of $5–30 million. The company focuses on mezzanine and subordinated deals, but also invests in first-lien, second-lien, and unitranche debt. It trades on the Nasdaq under the ticker CPTA. Capitala Investment Advisors is its external investment adviser. — Abby Latour

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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LCD’s Middle Market Weekly offers comprehensive news, analysis, charts, and data detailing the U.S. Middle Market lending segment.

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  • New-issue volume (institutional, pro rata)
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Beechbrook Capital Raises €100M for Direct Lending Fund

Private debt manager Beechbrook Capital has reached a first close of more than €100 million on its third private debt fund. Private Debt III is targeting €200–250 million in commitments from investors with a hard-cap of €300 million, said managing partner Paul Shea.

The latest vehicle in the series maintains the same investment strategy and will provide private debt, including mezzanine and unitranche, to lower mid-market buyouts in northern Europe.

beechbrookLimited partners in the first close include the European Investment Fund and British Business Bank’s investment arm as well as other European institutional investors. Beechbrook expects to hold a second close at the end of 2016 before the final close, which is now slated for 2017, to allow allocations from next year to come in.

The new fund is an English limited partnership, said Shea, adding that there will be at least two years after the U.K. triggers its departure from the EU before access to the single market becomes an issue. He said that the question of passport access to the EU single market wasn’t flagged as a major issue by investors ahead of the close.

Of more concern to investors, Shea said, was the short-term impact of Brexit on the U.K.’s economic outlook. The lower mid-market, Beechbrook’s specialty, is relatively insulated from the fallout focusing more on micro issues. Potential falls in asset prices could limit appetite for mezzanine debt, but that is balanced out by lower availability of senior debt and potential for improved returns from Beechbrook’s equity kickers, he added.

Beechbrook’s private debt fund focuses on European private equity–sponsored businesses with turnover between €10–100 million. Its loans generally range from €5–15 million per transaction and support acquisitions, shareholder re-alignments, and growth plans.

The firm has a separate UK sponsorless fund which reached a first close of more than £100 million in January.

One of the firm’s most recent deals was from the sponsorless fund, an £8.6 million loan to 4Most to support a reorganisation of shareholders and the business’ growth plan. 4Most provides regulatory and credit-risk analytics consultancy to banks, credit card providers, and other businesses with consumer credit exposure.

In total, Beechbrook has executed 36 transactions across the European lower mid-market and has fully exited 10 of those deals. — Rachel McGovern

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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SAExploration Wraps Debt-for-Equity Restructure, Nets New Loan

SAExploration entered into a new $30 million term loan agreement as part of a successful debt-for-equity restructuring.

Bondholders received new second-lien notes and equity at below-par value.

SAExplorationIn exchange for $138 million of 10% secured notes due 2019, the company issued $69 million of new 10% (11% PIK) secured second-lien notes due 2019, and 6.4 million of new common stock, following a reverse stock split.

The company announced in June it had entered a comprehensive restructuring support agreement with holders of 66% of 10% secured notes. At the close of the offer, which expired on July 22, nearly 99% of notes were exchanged.

Liens on the new second-lien notes due 2019 are subordinate to liens on an existing $20 million revolver with Wells Fargo dating from November 2014, as well as on the $30 million multi-draw senior secured term loan that SAE entered into on June 29 with certain 10% secured noteholders.

As of May 16, the borrower owed $13.4 million under the revolver.

Low oil and natural gas prices hurt the company, as well as a delayed payment for a large receivable from a specific customer due to uncertainty over tax credits from the State of Alaska.

In a debut high-yield bond issue, SAExploration placed $150 million of 10% secured notes due 2019 at par in June 2014 via sole bookrunner Jefferies. Proceeds refinanced debt and funded equipment purchases for operations in Alaska.

SAExploration provides seismic data acquisition services to oil-and-gas E&P companies, specializing in logistically challenging, remote, and environmentally sensitive regions such as Arctic Alaska, tropical South America, and shallow and deep-water marine environments. — Abby Latour

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Craig Joins Middle Market Private Equity Co. Hidden Harbor, from HIG

Hidden Harbor Capital Partners has hired Brett Craig to source middle market investments. He joins as principal.

hidden harbor logoCraig most recently worked at H.I.G. Capital, where he sourced and managed investments, including distressed buyouts and add-on acquisitions. He previously worked at Quad-C Management and Blackstone Group.

Hidden Harbor Capital Partners, based in Fort Lauderdale, Fla., targets companies generating annual revenue of $50–500 million and EBITDA up to $25 million for control investments. The firm’s co-founders are John Caple and David Block. — Abby Latour

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Breakwater Expands Middle Market Direct Lending with Chung Hire

BreakwaterWalter Chung has joined Breakwater Investment Management to source and manage lower middle market direct loans to private companies and equity investments.

He is based in Los Angeles. He joined the firm last month as director.

Chung joined from THL Credit’s Direct Lending platform.

Previously, Chung worked at Los Angeles–based investment bank Libra Securities, on private placements and M&A transactions. He also was part of the corporate finance department of FTI Consulting and worked in the assurance and advisory practice of Ernst & Young.

Co-managing partners of Los Angeles–based Breakwater Investment Management are Eric Beckman and Saif Mansour. —Abby Latour

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Epiq Systems Eyes $1.3B of Debt for Buyout by OMERS, Harvest Partners

Bank of America Merrill Lynch, Goldman Sachs, Antares Capital, and Golub Capital have agreed to provide roughly $1.3 billion of debt financing to back the acquisition of Epiq Systems by OMERS Private Equity, the private equity arm of OMERS pension plan, and funds managed by Harvest Partners, a middle market private equity fund, according to an Epiq Systems statement.

Epiq SystemsEpiq Systems this morning announced that it had entered into an agreement to be acquired for $16.50 per share in cash, representing a total value of roughly $1 billion, including assumed debt. The acquisition is expected to close in the fourth quarter of 2016.

Upon completion of the acquisition, Epiq will become a privately held company and will be combined with DTI, a legal process outsourcing company majority-owned by OMERS and managed by OMERS Private Equity.

In April 2015, Epiq Systems obtained a $75 million fungible add-on to its B term loan due August 2020 (L+375, 0.75% LIBOR floor). As of March 31, there was roughly $366 million outstanding under the B term loan, $19 million outstanding under its $100 million revolver due 2018, and roughly $12 million outstanding under its capital leases.

Kansas City, Kan.–based Epiq is a global provider of integrated-technology solutions for the legal profession. Corporate issuer ratings are B+/B1. The company’s shares currently trade on the Nasdaq under the ticker EPIQ. — Richard Kellerhals

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Lower Middle-market Pricing Tightens on Slow Pipeline, Surge of New Platforms

Pricing in the lower middle market is starting to erode amid heated competition for mandates, despite this segment’s traditionally more stable nature.

An analysis of six BDC portfolios that target the lower middle market shows that first-lien rates have fallen significantly year-over-year, according to LCD, an offering of S&P Global Market Intelligence.

The yield on new-issue, floating-rate first-lien debt averaged 8.82% in the first quarter, down from 11.04% in the first three months of 2015 across the six BDCs: Alcentra Capital (ABDC), Capitala (CPTA), Garrison (GARS), Harvest Capital (HCAP), Monroe Capital (MRCC), and Triangle Capital (TCAP).

Yields on middle market second-lien debt contracted less severely, to 10%, from 10.50%, in the same period.

middle market loan yields

Lending this far down the spectrum takes investors to EBITDA depths of roughly $30 million or less, below the traditional middle market marker of $35–50 million. Those brackets aren’t set in stone, but many lenders would agree the two tiers split about there.

Three of the six BDCs target companies generating up to $30 million of EBITDA, while TCAP goes a bit wider, to borrowers generating $35 million. HCAP targets much smaller businesses—typically those with no more than $15 million of EBITDA. MRCC provides a broad catchall of companies with revenue between $10 million and $2.5 billion, but most of the portfolio skews toward the lower end of the range.

Lower middle market rates remain perched well above the 6–7% levels across the upper bands of the middle market, but pricing at the bottom of the stack is expected to deflate in the months ahead unless the M&A machine kicks back into gear.

Gross new-issue volume in the first quarter was $61.86 million for the six BDCs, roughly half of the $121.67 million total in 1Q15.

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TPG Specialty urges TICC shareholders to vote for its board nominee

TPG Specialty Lending, the BDC that lends to middle market companies, stepped up its fight for rival TICC Capital today as the two sides geared up for a proxy battle.

In a letter dated July 13, TPG Specialty urged TICC Capital shareholders to vote in favor of board nominee T. Kelley Millet at TICC Capital’s annual meeting on Sept. 2. TPG Specialty has tried unsuccessfully to acquire TICC Capital. Millet is CEO of Banca IMI Securities Corp.

TPG is calling to end an ineffective investment advisory agreement between TICC Capital and TICC Management. TPG says TICC Capital shares have grossly underperformed the S&P 500 and the BDC Composite Index since TICC Capital’s IPO in 2003, driven by a 57% decline in NAV. In the meantime, TICC has paid fees of over $140 million to its external adviser and management.

TICC Capital has pursued an unsustainable dividend policy, paying a dividend far exceeding net investment income, TPG Specialty said.

“Do not be fooled! These payments are not comprised solely of investment returns; stockholders are being paid back in part with their own money,” the letter to TICC Capital shareholders said. “More importantly, this strategy has unfortunately resulted in almost irreversible value destruction of NAV per share that will only continue without quick and decisive action.”

TICC Capital has countered with its own board nominee, Tonia Pankopf, who is up for re-election this year. In a letter to its shareholders yesterday, TICC Capital sought support from shareholders to vote in favor of Pankopf and reject TPG Specialty’s plan to terminate its investment advisory agreement with TICC Management.

TICC Capital’s executive officers and directors together hold 5.7% of common stock, the proxy statement filed on July 12 showed. Ahead of the previous shareholder meeting, the board owned 1.8% of common stock, a proxy filed in April 2015 showed.

TICC Capital has also been fighting on another front. NexPoint Advisors, an affiliate of Highland Capital Management, submitted a proposal to cut fees and invest in TICC Capital. In the letter yesterday, TICC Capital told shareholders not to support any potential proposal from NexPoint.

TPG Specialty Lending’s investment portfolio reflects its ongoing interest in TICC. As of March 31, TPG owned 1.6 million TICC shares, representing 0.9% of its portfolio.

TPG has repeatedly said that TICC’s external manager has failed the BDC and, given the chance, TPG could improve returns for shareholders.

“We remain committed to affecting change at TICC,” co-CEO and Chairman Josh Easterly said in an earnings call in May. — Abby Latour

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DeMilt Joins Z Capital Corporate Development, from Oaktree Capital

David DeMilt joined the corporate development team at investment manager Z Capital Group, covering North American investors.

He reports to CEO and founder James Zenni, and will be based in New York. DeMilt joins as managing director.

z capital logoPreviously, DeMilt was a senior vice president at Oaktree Capital Management, where he developed and managed middle-market institutional investor relationships in the eastern U.S., according to his LinkedIn profile. He has worked at Oaktree Capital since January 2012.

DeMilt has also worked at Goldman Sachs, Fitch Ratings, CIBC, and HSBC in various private equity and credit strategy roles. — Abby Latour

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.