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Middle Market 2Q Snapshot: Leverage spikes above large caps again

Note: The following story is excerpted from LCD’s second-quarter Middle-Market Review. The full report is available to Research subscribers. Contact Marc Auerbach to learn more: (212) 438-2703.

Amid growing demand from non-banks in the second quarter, middle-market leverage climbed beyond large-cap averages for the second time in the last 12 months. Total debt for middle-market transactions averaged a record 5.2x for the quarter, according to LCD. Senior debt averaged 5.1x for the quarter and 4.8x for the first half.

Helping prop up debt multiples is the new guard of middle-market lenders. Exchange-traded BDCs and middle-market CLOs collectively raised roughly $4 billion in new issuance during the second quarter, and $7.4 billion for the first half. And that doesn’t include private BDCs, middle-market buckets of large-cap CLOs, or separate managed accounts that arrangers are raising on the sidelines. (Non-listed BDCs file quarterly and have yet to disclose their fundraising efforts for the second quarter.)

LCD subscribers can click here for full story, analysis, and the following chart:

  • Cov-lite share of middle market institutional volume


– Kelly Thompson

For this article, LCD defines middle-market issuers as companies that generate EBITDA of up to $50 million, except where noted.

Follow Kelly on Twitter @MMktDoyenne for middle-market financing news.

 

 

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KeyCorp buys middle market investment bank Pacific Crest

keyIn a drive to become the leading middle market corporate and investment bank, KeyCorp said it acquired Pacific Crest Securities.

Pacific Crest Securities, which is a technology-focused investment bank and capital markets firm, will become part of KeyBanc Capital Markets. The transaction is expected to close in the third quarter if regulators approve the deal.

Pacific Crest Securities, based in Portland, Oregon, employs 170 and has expertise in internet and digital media, software and systems, communications, semiconductors, and clean technology. – Abby Latour

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Lagunitas Brewery nets $20M credit facility from GE Capital

GE Capital, Corporate Finance provided a $20 million credit facility to Lagunitas Brewery.

The facility will be used to finance equipment leases for a new brewery in Chicago. The company is opening a 600,000-barrel capacity brewery in the city’s Douglas Park neighborhood.

The company also has a $20 million term loan from Portland-based Umpqua Bank.

Lagunitas, based in Petaluma, Calif., is a craft brewer. – Abby Latour

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Middle-market lender Monroe fires partner/managing director for confidentiality breach

MonroeCapitalMiddle-market lender Monroe Capital has terminated a managing director for allegedly stealing proprietary information and siphoning-off trade secrets to a new firm, Breakaway Capital.

Monroe Capital said the firm terminated former partner Warren Woo, effective last week, for violating the company’s policies and use of information systems.

A complaint filed on June 19 by Monroe Capital with the Circuit Court of Cook County, Ill., alleged that for more than 18 months, Woo forwarded hundreds of emails to another email at Breakaway Capital. He then deleted the forwarded emails from his sent-items folder at Monroe Capital to avoid detection.

Some of the emails instructed recipients to communicate with Woo in the future at Breakaway Capital only.

“Woo and his new company, acting in concert with his new partner and Breakaway Capital co-founder, Michael Connolly, arrogated to themselves critical business opportunities which belonged to Monroe Capital and which Woo had a clear duty to consider the exploit for Monroe Capital and not for his new company and new partners,” the complaint said.

Included in the 308 emails Woo forwarded, as well as 157 attachments, were new-business prospects, individual deal structures and pricing memos, internal underwriting analysis, and third-party analysis that Monroe Capital paid for as part of new-business pitches.

Monroe Capital uncovered the scheme after the firm received an SEC subpoena requesting information about Breakaway Capital. As a result of the subpoena, Monroe looked into Woo’s email.

“The investigation revealed that not only did Woo improperly transfer confidential and proprietary company and customer information and trade secrets, but that he actively intends to use this information to compete with Monroe Capital by taking deal source leads generated by Monroe Capital and made, or attempted to make, them his own for his benefit and that of Breakaway Capital.”

“Monroe Capital has suffered irreparable harm as a result of Woo’s unlawful conduct,” the complaint said.

Neither Warren Woo nor Michael Connolly returned calls or emails seeking comment. Woo and Connolly founded Breakaway Capital as a limited partnership.

Breakaway Capital, based in Los Angeles, is a private investment firm with $50 million of committed capital, seeking debt and structured equity investments in small and middle-market businesses across a variety of industries, the company’s website said. The company was formed in March 2014, the complaint said.

Chicago-based Monroe Capital, established in 2004, provides debt and equity co-investments to middle-market companies in North America, including unitranche financings, acquisition facilities, mezzanine debt and second-lien loans. – Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, distressed debt, private equity, and more

 

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Europe: Beechbrook Capital raises €110M for Mezzanine II fund; hires Deregowski, Moore

beechbrookSpecialist lender Beechbrook Capital has raised €110 million after a second close for its Beechbrook Mezzanine II fund, paving the way for it to lend more to small and medium-size (SME) businesses.

Two new investors joined the fund, while three existing investors increased their commitments, the London-based fund manager said today. With several further commitments expected, Beechbrook targets a final close in late June.

Additionally, Beechbrook has hired two new associates: David Deregowski, previously of Lincoln International, and Adam Moore, formerly with Ares.  Further appointments are planned for the second half of the year.

Beechbrook is taking advantage of direct lending opportunities in the lower middle market due to the continuing dearth of funding available from banks in this segment. Founded in 2008 by Nick Fenn and Paul Shea, the lender currently has over €200 million of assets under management and invests in SME businesses across various industries in the U.K. and Northern Europe.

Its Mezzanine II fund has made five investments in total, with two more lined up before its final close in June. It fund recently provided a mezzanine loan to support the buyout of Italian-themed restaurant chain Gusto by Palatine Private Equity and management. It also provided mezzanine financing to support the buyout of Americana, owner of the clothing brand Bench, by Emeram Capital Partners. – Staff reports

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Varagon Capital launches as new middle market lender, AIG and Oak Hill joint venture

varagonA new lender to the middle market was unveiled today with the launch of Varagon Capital Partners. The New York-based asset manager is a joint venture between American International Group (AIG) and certain partners and affiliates of Oak Hill Capital Partners.

Backed by an initial $1.5 billion investment commitment from AIG, the firm will focus on direct lending opportunities to middle-market companies with annual EBITDA in a range of $10-75 million, offering first-lien, second-lien, and unitranche loans as well as mezzanine financing. Oak Hill parties have also committed an investment, but terms were not disclosed.

Varagon will target leveraged finance opportunities of up to $350 million and its typical hold sizes will be around $20-100 million, the firm notes.

Varagon is led by President and CEO Walter Owens, an industry veteran whose prior experience includes leadership positions at GE Capital, CIT Group, and TD Bank. Denis Nayden, a managing partner at Oak Hill, joins as Varagon’s chairman. Nayden is a former chairman and CEO of GE Capital. – Jon Hemingway

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Wells Fargo Capital Finance adds Simpson to middle-market originations team

wells-fargo-capital-finance-squarelogoWells Fargo Capital Finance has hired Patrick Simpson for its middle-market loan originations team.

Simpson, who will be based in New York, will originate and structure asset-based financing for middle-market companies that need credit of $5-35 million.

Simpson joined Wells Fargo Capital Finance in 2005 and has worked at various roles in New York, Chicago, Atlanta, and Fort Lauderdale, Fla.

He reports to Rob Kinne, regional loan originations manager for the U.S. northeast and parts of Canada.

Wells Fargo Capital Finance arranges asset-based loans, senior secured loans, and other financing. – Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, distressed debt, private equity, and more

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NEW: LCD introduces the Middle-Market Weekly

Later today check out the LCD Middle-Market Weekly, a roundup of deals, data, and commentary. This new report provides readers with information on deals for issuers typically generating $50 million of EBITDA or less.

The LCD Middle-Market Weekly will be available to LCD Research subscribers every Thursday afternoon.

Send feedback to Kelly Thompson: (312) 233-7054.

To learn more about LCD’s products and services, contact Marc Auerbach: (212) 438-2703.

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Leveraged loans: LBC Credit Partners closes $839M fund for middle-market lending

lbc credit partnersLBC Credit Partners closed an $839 million fund aimed at middle-market investments, exceeding an $800 million target, with commitments from existing and new institutional investors.

The LBC Credit Partners III fund will “continue LBC’s strategy of originating, executing, and managing a diversified portfolio of direct loans and investments in U.S. middle-market companies across a broad range of industry sectors.”

LBC Credit Partners’ capital commitments total more than $1.75 billion. In 2010, LBC closed the LBC Credit Partners II, a $642 million fund. In 2006, the firm closed its first fund, totaling $300 million.

Since LBC closed its first fund in 2006, the market has changed. Besides fewer banks, there are more alternative lenders, such as business-development companies, with organized platforms to provide financing solutions to middle-market loans.

“The market is probably as liquid today as in 2007. There are fewer hedge funds today and more alternative lenders,” John Brignola, a managing partner at LBC, told LCD News.

“During the last cycle, CLOs had more baskets for middle-market loans. My sense is those baskets are not as great this time as they once were.”

The developments are positive for the market and for middle-market borrowers, Brignola said.

“Some of those players didn’t have the same type of permanency. Someone with longer-term capital is better aligned with middle-market borrowers.”

LBC Credit Partners provides senior loans, unitranche, second-lien, junior secured and mezzanine debt and equity co-investments for sponsored and non-sponsored transactions. The new fund will cover the same spectrum of loans across industries.

Among LBC Credit Partners’ recent deals, LBC announced this month it was administrative agent on a second-lien term loan to Florida-based Diversified Maintenance Systems for an acquisition and to refinance debt. Diversified Maintenance Systems, a portfolio company of middle-market investment firm Frontenac Company, is acquiring Rite Way Service.

In March, LBC Credit Partners said it was agent on an $80 million term loan backing the acquisition of Frontier Spinning Mills, a producer of cotton and blended yarns, by private equity firm American Securities. – Abby Latour

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SunTrust to set up middle-market corporate team in Boston; Greg Badger to head up

sunrobSunTrust Robinson Humphrey has set up a new corporate banking office in Boston focused on the middle market.

Greg Badger will head the Boston-based Northeast Corporate Banking group, and will hire a team. Badger will report to Brian Peters, head of National Corporate Banking, based in Atlanta.

Badger joins SunTrust Robinson Humphrey after a career spanning 20 years at Bank of America and its predecessor banks in Boston. – Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, distressed debt, private equity, and more