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DigiCert secures debt financing to back buyout by Thoma Bravo

Jefferies and Fifth Street Asset Management agreed to provide the debt financing for Thoma Bravo’s majority acquisition of DigiCert from TA Associates. Details of the acquisition and the financing were not disclosed.

TA Associates, which bought the company in 2012, will retain a minority stake in the business.

DigiCert, based in Lehi, Utah, provides SSL certificates and SSL management tools for small and large companies in various industries. The company provides digital certificates to over 15,000 customers in more than 180 countries. – Jon Hemingway

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Prospect Capital investment in USG Intermediate outlined in 10-Q

Prospect Capital’s investment in USG Intermediate in the recent fiscal quarter included a $21.6 million L+650 (1% LIBOR floor) term loan A due 2020 and a $21.7 million L+1,250 (1% LIBOR floor) term loan B due 2020, a 10-Q showed.

USG Intermediate received a total of $48.5 million of first-lien term loans and a revolver from Prospect Capital in the June quarter. The investment included equity.

At closing of the deal, $43.5 million of the debt was funded. Proceeds were for business expansion.

USG Intermediate is a direct marketing company that uses direct mail, print media, digital media, television direct response, and telemarketing channels to sell collectible items.

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

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

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American Seafoods recap leveraged loan a big catch for BDC Ares Capital

Ares Capital earlier this month closed an $800 million loan financing for American Seafoods Group (ASG) in what is the latest example of a non-regulated arranger stepping in to capture business typically in the realm of large banks.

As part of a recapitalization of ASG, the Nasdaq-listed BDC recently closed a $540 million first-lien term loan due August 2021 (L+500, 1% LIBOR floor) and a $200 million second-lien term loan due February 2022 (L+900, 1% floor). A $60 million revolving credit rounded out the financing.

One of the main themes in the loan market this year is the effort by non-traditional arrangers to capture business that is outside of the parameters of the leveraged lending guidelines. While BDCs are increasingly leading larger deals, a transaction of this size for a seasoned borrower of the broadly syndicated loan and high-yield markets is a unique event.

The company’s existing loans dated to a 2011 refinancing in which ASG placed a $281.5 million B term loan due 2018 (L+300, 1.25% floor) via Bank of America Merrill Lynch, Wells Fargo and DnB NOR. It came alongside a $100 million TLA and an $85 million, five-year revolving credit. The company’s last foray into the high-yield market was in 2010 with $275 million of 10.75% subordinated notes due 2016 and $125 million of 15% senior holdco PIK notes due 2017, also via leads Bank of America Merrill Lynch and Wells Fargo. The RC and TLA had springing maturities to November 2015 if the senior subordinated notes remained outstanding.

For ASG, this new deal is a deleveraging event. In addition to refinancing the existing bank debt, the company executed a distressed exchange of its PIK notes, offering cash or equity, and received an equity infusion from private equity firm Bregal Partners and an industry group led by family-owned Pacific Seafoods. According to S&P, the company cut its overall debt burden from $911 million as of June 30.

The deal was complicated by several moving parts and a short timeline, playing to the strength of a BDC that can tailor its investment. It also helps the syndication process when the lead arranger is willing to hold a large piece of the deal, sources said. In this case it might represent as much as 25% of the total commitment. Ares is understood to have taken down $100-200 million across the first- and second-lien tranches.

Still, there were between 20-30 lenders in the group. They included similar alternative-asset managers alongside some foreign banks, sources note. Some existing investors rolled into the new deal.

Tackling a transaction of this size might not be a normal event for Ares Capital but the lender will seek similar opportunities to underwrite and syndicate larger transactions, particularly now that its joint venture with GE Capital was discontinued (Senior Secured Loan Program). “It’s not difficult for us with our capital base to underwrite deals of up to $500 million,” Ares Capital’s CEO Kipp deVeer told LCD, “Strategically, to do one or two of these a quarter would be fantastic.”

Following completion of the loan transaction agencies assigned ratings of B+/B2 to American Seafoods Group’s first-lien facility, with a recovery rating of 1 from S&P. The second-lien came in at CCC+/Caa2, with a recovery rating of 5. Corporate ratings are B-/B3, with stable outlooks from both. – Jon Hemingway

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Loan defaults set to hit 6-month high with Samson Resources Ch 11 filing next month

The default rate of the S&P/LSTA Leveraged Loan Index will increase to 1.27% by principal amount next month, from 1.17%, when Samson Resources via Samson Investment Company files for bankruptcy, tripping a default on its second-lien secured loan. The default rate by issuer count will tick up to 0.77%, from 0.67%, according to LCD.

The default rate would be at a six-month peak, or the highest level since 3.79% as of March 31, although that was including Energy Future Holdings, which is no longer counted in the default rate due to the rolling-12-month basis. Excluding EFH, the default rate post-Samson would hit its highest level since February 2014 when it was 1.86%, according to LCD.

Privately held, KKR-controlled Samson on Friday announced publicly that it has entered into a restructuring support agreement with certain lenders holding 45.5% of the company’s second-lien debt, and with its sponsor on a proposed balance sheet restructuring that “would significantly reduce the company’s indebtedness and result in an investment of at least $450 million of new capital.”

Under the terms of the RSA, second-lien lenders, including Silver Point, Cerberus and Anschutz, have agreed to invest at least $450 million of new capital to provide liquidity to the balance sheet post reorganization and permanently pay down existing first-lien debt, the company said.

As a result, the company said it would not make the interest payment due today under its sole outstanding corporate issue, the $2.25 billion of 9.75% unsecured notes due 2020, but instead would use the 30-day grace period triggered by its non-payment “to build broader support for the restructuring and continue efforts to document and ultimately implement the reorganization transaction as part of a Chapter 11 filing.” The debt is worthless, trading below 1 cent on the dollar, down from around 30 in March, and a par context a year ago before the bear market mauling in oil.

The Samson loan default would not be particularly large, as the second-lien term loan was originally $1 billion in the Index. However, it’s notable as the second largest loan default this year, or since Caesars Entertainment kicked off the New Year in mid-January with the sixth largest default on record, at $5.36 billion across four tranches in the Index, according to LCD.

Assuming no other defaults leading up to Samson next month, it would become sixth loan-issuer default in the Index this year, following rival coal credits Alpha Natural Resources earlier this month, Patriot Coal in May, and Walter Energy in April, as well as exploration-and-production company Sabine Oil & Gas in April. Meanwhile, the eight ex-Index defaults this year are Altegrity, Allen Systems, American Eagle Energy, Boomerang Tube, Chassix, EveryWare, Great Atlantic & Pacific Tea, and Quicksilver Resources.

The shadow default rate for the Index is currently at 0.72%, down from 0.82% last month, but nearly triple the 0.29% rate in April. There is $5.51 billion of Index outstandings on the shadow list, and that includes Samson since its hiring of Kirkland & Ellis and Blackstone Group in February. This rate includes loans that are paying default interest but which are still performing, loan issuers that have bonds in default, and issuers that have hired bankruptcy counsel or that have secured a forbearance agreement.

There are five loan issuers on the shadow list that are publicly known. Beyond Samson, it’s Gymboree, Dex Media, Millennium Health, and Vantage Drilling, all of which are consulting advisors. – Matt Fuller

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.

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Alex Toys, maker of Slinky, expanded loan from THL Credit for acquisitions

THL Credit increased an investment in Alex Toys in the fiscal second quarter to fund two acquisitions.

Alex Toys received a $13.2 million second-lien term loan and a $1 million equity investment in the quarter ended June 30, THL Credit said in a statement.

THL Credit’s debt investment in Alex Toys comprised a $30.2 million second-lien term loan due 2019 (L+1,000) as of June 30, up from a $17 million second-lien term loan due 2019 (also at L+1,000) as of March 31.

In May 2015, Alex Toys acquired Buzz Bee Toys, as well as France-based toymakers Janod and Kaloo.

Alex Toys sells branded toys, sports balls, educational activity kits, games, science kits, construction sets, and novelty products under brands such as POOF, Slinky, Scientific Explorer, Ideal, ZOOB, Backyard Safari, Zillionz, Shrinky Dinks, and Ruff Stuff.

THL Credit is an externally managed business-development company that trades on the NASDAQ under the ticker TCRD. – Abby Latour

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

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Leveraged loans: Stricter guidelines send middle market debt multiples south

Debt multiples at middle market companies have retreated to a 2.5-year low following last year’s comb-through by regulators for compliance with stricter lending guidelines.

For the first half of 2015, total leverage averaged 4.6x among companies generating $50 million or less of annual EBITDA, down from a record 5x for 2014, according to LCD. Senior multiples have fallen more significantly, to 4.3x, from 4.9x last year.

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Along with the tighter leverage, fixed-charge ratios are better cushioned, increasing for the first time in four years. For the first half, the average fixed-charge ratio was 3.2x. The ratio was even better in the second quarter, at 3.8x, according to LCD.

While banks have reined in their underwriting overall, they haven’t thrown in the towel completely. Several aggressive transactions in 2015 have been led by banks that deem the relationship worthy.

In recent weeks, Barclays, Angel Island Capital, and Jefferies launched a debt-heavy transaction for Riddlesburg, Pa.-based PetroChoice, a distributor of vehicle lubricants. Barclays is subject to the lending guidelines, but it has teamed up with Angel Island Capital and Jefferies, which are not constricted by the same set of rules.

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The financing is covenant-lite and includes a $235 million, seven-year first-lien term loan that’s talked at L+375-400, with a 1% LIBOR floor, offered at 99, with six months of 101 soft call protection. The first-lien loan adjoins a $90 million, eight-year second-lien term loan talked at L+775-800, with a 1% floor, offered at 98.5, with hard calls of 102 and 101 in years one and two, respectively. Proceeds back the buyout of the company by Golden Gate Capital. Leverage multiples are 4.5x through the first-lien and 6.2x total. Commitments are due Thursday, Aug. 13. Agencies assigned B/B2 issuer ratings.

At roughly $52 million in annual EBITDA, PetroChoice sits at the larger end of the middle market spectrum and would slip just outside LCD’s traditional $50 million-and-under cutoff. Through June 30, 36 companies were boxed in that traditional category and generated average EBITDA of $34.4 million, down from $39.2 million in the first half of last year. LCD’s pool tends to skew toward the larger end of the market where banks still play a significant role in syndicated transactions.

In June, SunTrust extended 4.5x senior and 6.6x total multiples to GI Partners to back the buyout of MRI Software, a known name in the market that operates in a favorite sector with long-term contracts and strong renewal rates. It also helped that GI wrote a $216 million equity check, for about half of the pro forma capital structure. The deal’s $155 million, six-year term loan closed at original talk of L+425, but the issue price was tightened to 99.5, from 99 (with a 1% floor). The company drew a B issuer rating from Standard & Poor’s. Vista Equity is the seller. A $70 million, seven-year second-lien tranche cleared at original talk of L+800 at 98.5, also with a 1% floor.

In the shadow banking community, finance companies say that leverage has not shown any signs of deflating. In fact, pitches are aggressive as ever, with sponsors pushing hard for multiples in the 6x area on unitranche loans, or 4.5x by 6.5x on first-/second-lien structures that a year ago would have been in the 5x range, managers say. Even 7x multiples have popped up on a few outer-limit pitches recently. Fincos don’t cave on every deal, but the pressure is intense to win mandates on generous amounts of debt, these lenders say.

Ares Capital Corp. (Nasdaq: ARCC), the largest business development corporation by several measures, including assets under management with a portfolio of roughly $8.6 billion at fair value, has boosted portfolio leverage over the last year. Average net leverage through the second quarter was 5.1x, up from 4.6x in the same period last year, the company reported this week. Moreover, the average interest coverage ratio dropped to 2.8x, from 3x. Average EBITDA for the portfolio is $59.6 million, up from $54 million in the second quarter of last year.

Average net leverage within ARCC’s separate unitranche portfolio, which totals $10 billion in principal amount, ticked up to 4.9x after holding steady at 4.8x throughout 2014. Interest coverage on these investments maintained a 3.6x ratio from the two previous quarters and improved from 3.4x in the year-ago period. Average EBITDA among unitranche issuers is $53.7 million.

Meanwhile, average leverage for Franklin Square Investment Corp.’s (NYSE: FSIC) $436 million portfolio ticked up to 4.8x from 4.6x during the six-month period from October 2014 to March 31, 2015. Average EBITDA was $50.7 million at the end of March. FSIC’s second-quarter results are due out Aug. 11.

As summer turns to fall, the market expects little to change. Banks will try to compete on pricing, while fincos will use debt to their advantage. In either case, limited supply will continue to leave both groups chasing too few mandates. – Kelly Thompson

Follow Kelly on Twitter @MMktDoyenne for Middle market financing news

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Mid-market corporate auctions in Europe to watch

Inflexion Private Equity has emerged as the frontrunner to acquire Quilvest-owned sushi chain Yo! Sushi, according to reports. Quilvest mandated Canaccord Genuity to run the process, which attracted several financial sponsors understood to include 3i Group and Morgan Stanley Private Equity, as well as Inflexion. Inflexion has subsequently won exclusivity after the final round of bidding, and is expected to acquire the company for roughly £100 million.

The auction of Dutch lingerie retailer Hunkemöller has taken an interesting twist, with U.S.-based private equity group Sycamore Partners reportedly submitting a last-minute bid that could trump offers from rival buyout groups CVC Capital Partners, Apax Partners, and The Carlyle Group, according to reports. The company, which is owned by PAI Partners, is valued at roughly €440 million.

Corsair Capital is understood to be close to launching a formal sale process for ATM company NoteMachine, according to market sources, who suggest Jefferies is likely to run the auction, which could begin in September or early October.

NoteMachine – which Corsair acquired in 2012 from buyout peer Rutland Partners – could fetch roughly £320 million. The business is backed by a £120 million unitranche loan provided by GE Capital and Ares Capital Europe joint venture the ESSLP, upsized last June from an existing £76.5 million facility.

Health and safety consultancy Santia is also set for the auction block, with turnaround investor and current owner Better Capital mandating PwC in recent weeks to advise on strategic options for the business. In Better Capital’s most recent financial statements, Santia carried a NAV of £40 million as of March 31, 2015 – up from £36.2 million a year earlier.

After a flurry of deals already in the sector this year, two more travel agents are soon to carry ‘for sale’ signs. Equistone Partners Europe is eyeing an exit for Audley Travel, according to reports, and has mandated Rothschild to run the auction. The business could be valued at more than £200 million.

Inflexion is also understood to be eyeing a realisation of its investment in On the Beach, which carries a £250 million valuation. The firm is reportedly exploring an IPO of the business, but could yet run an auction process.

Polish national airline LOT has attracted the interest of private equity group Indigo Partners, according to reports. Indigo, an experienced airline investor, is reportedly looking to buy a stake in the carrier and invest several hundred million zloty to help Warsaw, the airline’s home city, become a hub for the Central and Eastern Europe region.

In Ireland meanwhile, private equity group CapVest is lining up financing to support a bid for plastics and environmental services company One51. CapVest made a preliminary approach to the firm’s board regarding a €288 million (or €1.80 per share) offer for the Irish company. The firm generated EBITDA of €21.9 million last year, on revenue of €276.5 million. – Oliver Smiddy

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BDC Carey Credit Income Fund launches public capital raise

W. P. Carey’s new non-traded business development company, Carey Credit Income Fund (CCIF), has begun to raise capital through its initial feeder fund Carey Credit Income Fund 2016 T. The feeder fund aims to raise roughly $1 billion at an initial offering price of $9.55 per share, according to an SEC filing.

CCIF will focus on investing in senior debt of large, privately negotiated loans to private middle market companies in the U.S., typically with EBITDA of $25-100 million and annual revenue ranging from $50 million to $1 billion. The fund may also invest in broadly syndicated bank loans and corporate bonds and other investments.

Carey Credit Advisors, an affiliate of W. P. Carey, is the advisor to CCIF, and Guggenheim Partners Investment Management, an affiliate of Guggenheim Partners, is the sub-advisor. W. P. Carey and Guggenheim have each made a $25 million initial capital investment in CCIF.

NYSE-listed W. P. Carey Inc. is an independent equity real estate investment trust with an enterprise value of around $11.2 billion. Guggenheim Partners is a privately held global financial services firm with more than $240 billion in assets under management as of March 31. – Jon Hemingway

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Antares Capital seeks $13.9B credit package in purchase by CPPIB from GECC

Credit Suisse, Deutsche Bank, and Citigroup are holding a lender meeting on Monday, July 27, at 11 a.m. EDT to launch the syndication of $13.9 billion of debt facilities in connection with Canada Pension Plan Investment Board’s purchase of Antares Capital from General Electric Capital Corp.

Financing will include two credit facilities: A $3.2 billion holdco credit facility and a $10.7 billion asset-based credit facility. The holdco senior secured credit facilities will include a $2 billion, five-year revolving credit and a $1.2 billion, five-year amortizing A term loan. Pricing on the senior secured holdco credit facilities will be tied to a ratings-based grid. The holdco facilities will carry two maintenance covenants, a total-net-asset-value test and an adjusted-asset-ratio test. The term loan will amortize at 5% in year one, 7.5% in year two, 10% in year three, and 12.5% each in years four and five with the balance due at maturity, according to sources.

The lead arrangers are also syndicating $10.7 billion of seven-year senior secured asset-backed credit facilities, comprised of a $3 billion asset-based revolving credit and a $7.7 billion, asset-based secured term loan. The asset-backed credit facilities will be secured by a portfolio of predominately first-lien senior secured term loans originated by Antares Capital. The facilities will have an equity cushion of 20% of the total portfolio value, with additional protections from traditional cash-trapping mechanics, revaluation events, and events of default that will provide remedies to the lenders.

Proceeds from the two credit facilities will be used to fund CPPIB’s announced acquisition of Antares Capital’s middle market sponsor finance business, including its integrated origination, underwriting and distribution platform, and to fund future growth.

CPPIB is contributing approximately $4 billion of equity to the transaction, according to sources. The business would be on a strong footing going forward; AAA rated CPPIB is one of the largest 10 managers of retirement funds globally, with about C$265 billion of assets under management.

Commitments will be due on Aug. 12, sources said.

GE Capital has long reigned as the dominant player in the middle market lending, defined by LCD as lending to companies that generate EBITDA of $50 million or less, or $350 million or less by deal size, although definitions vary among lenders.

Going forward, Antares Capital will operate as an independent business, and retain the name. Managing partners David Brackett and John Martin, who have led Antares since its formation, will continue to lead the stand-alone business. The sale is expected to close in the third quarter.

The sale accounts for $11 billion of ending net investment. GE Capital has announced sales of roughly $55 billion in all, and plans to complete $100 billion of sales this year. GE announced in April it would divest GE Capital, including its $16 billion sponsor finance business. GE Antares specializes in middle market lending to private-equity backed transactions. – Chris Donnelly

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AssuredPartners’ buyout by Apax backed by BAML, RBC, MS

Bank of America Merrill Lynch, RBC Capital Markets, and Morgan Stanley have provided committed debt financing to back Apax Partners’ acquisition of insurance brokerage AssuredPartners from GTCR.

Sources indicate the debt financing will be U.S.-focused.

AssuredPartners is one of the largest insurance brokerage firms in the U.S. It was formed in 2011 as part of a strategic partnership between private equity firm GTCR and the company’s CEO and COO. It has offices in more than 30 states, the District of Columbia, and London. – Nina Flitman