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Foundation Building Materials, backed by CI Capital Partners, receives $80M loan

Foundation Building Materials received an $80 million incremental second-lien term loan during the recent quarter, an SEC filing today showed.

BlackRock Capital Investment Corporation provided $25 million of the loan, an earnings statement for the quarter ended March 31 showed. 
Pricing on the loan was L+1,100, with a 1% LIBOR floor and a 99 OID.

Foundation Building Materials, based in Orange, Calif., distributes drywall, steel studs, stucco and related building products to commercial and residential contractors. The company announced an acquisition of Phoenix-based Great Western Building Materials in March.

Middle-market private equity firm CI Capital Partners acquired Foundation in 2012, and has since expanded the company through seven add-on acquisitions. CIC Capital focuses on buyouts in North America, with initial equity investments of $25-100 million.

BlackRock Capital Investment Corporation, formerly known as BlackRock Kelso Capital Corporation, is a BDC that trades on Nasdaq under the ticker BKCC. The company invests in debt and equity of middle-market companies. – Abby Latour

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FSFR funds $87M of investments with Glick JV, sees low-teens return

Fifth Street Senior Floating Rate Corp., a BDC that trades on Nasdaq under the ticker symbol FSFR, said that its joint venture with affiliates of the Glick family had funded $86.6 million of investments in a portfolio of senior secured loans of middle-market companies of an expected $300 million total.

Fifth Street’s origination platform sourced the asset portfolio. It is funded by the JV’s $200 million revolver with Credit Suisse and equity of $60 million, which is the required minimum for the RC.

“FSFR believes that funding this initial portfolio of assets should generate a low-teens return on its investment, which is higher than the return on FSFR’s current portfolio. FSFR expects to continue funding FSFR Glick JV to its target size of $300 million over the next few quarters,” a statement on April 29 said.

FSFR and GF Funding have committed to $100 million of subordinated notes and equity for the new joint venture, FSFR Glick JV, which was unveiled in November. 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.

At year-end, FSFR’s portfolio at fair value totaled $595.9 million invested in 57 companies.

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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PennantPark, a BDC, to buy assets of struggling rival lender MCG Capital

PennantPark Floating Rate Capital, a business-development company, announced plans today to expand its portfolio through the acquisition of MCG Capital, a struggling lender to middle-market companies that had taken steps to wind down its portfolio.

PennantPark Floating Rate Capital, which trades on the NASDAQ under the symbol PFLT, will acquire MCGC in a $175 million cash-and-stock transaction, or $4.75 per MCGC share. MCGC stockholders will receive $4.521 in PFLT shares and $0.226 per share in cash from PennantPark Investment Advisers, and possibly an additional $0.25 depending on PFLT’s NAV over a 10-day period.

MCGC shares jumped 10% today, to $4.51, from $4.10 at yesterday’s close on the Nasdaq.

Boards of both companies approved the transaction. Stockholders of both companies need to agree to the transaction. The deal is expected to close in the third quarter.

The equity base of the combined company is expected to total $376 million.

“A balance sheet of this size will allow the combined company to be a more important provider of capital to middle-market sponsors and corporate borrowers,” a joint statement today said.

“PFLT expects, over time, to deploy most of MCGC’s cash into an investment portfolio consistent with that of PFLT’s existing loan portfolio.”

The deal is a boon to MCGC shareholders. In October, MCG Capital announced it was winding down its portfolio and buying back its stock with asset-sale proceeds, citing a credit-cycle peak. In February, MCG Capital announced it was exploring a potential sale.

“Our stockholders should benefit through resumed receipt of dividends and ownership in a company with a strong balance sheet and proven track record,” said Richard Neu, Board Chairman of MCG Capital.

PennantPark Floating Rate Capital shares traded higher after the announcement, touching $14.23, but have since erased gains to trade steady, at $14.15 on the Nasdaq, which was overall lower. Investments in middle-market companies can be difficult to acquire, except over an extended period. Buying an entire portfolio can be an attractive way to acquire a significant amount of assets at once in the competitive marketplace. Investors of debt in middle-market companies usually find economies of scale from larger holdings.

Another huge portfolio of middle-market assets is currently on the auction block. GE unveiled plans this month to sell GE Capital, the dominant player in middle-market lending. Leveraged Commentary & Data defines the business as lending to companies that generate EBITDA of $50 million or less, or $350 million or less by debt size, although definitions vary among lenders.

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. Over the past decade, the company managed to shed some underperforming assets and diversify, but the company remained saddled with legacy assets from poorly performing traditional businesses.

PennantPark Floating Rate Capital is an externally managed business-development company, or BDC. The lender targets 65% of its portfolio for investments in senior secured loans and 35% in second-lien, high yield, mezzanine, distressed debt, and equity of below-investment-grade U.S. middle-market companies. The portfolio totaled $354 million at year-end on a fair-value basis.

PennantPark Investment Advisers receives fees from PennantPark Floating Rate Capital for investment advising, some of which are linked to performance of PFLT.

In December, MCG Capital announced the results of a Dutch auction, saying it bought 4.86 million shares for $3.75 each, representing 11.2% of shares outstanding, for a total of $18.2 million. MCG also reinstated an open market share repurchase program. In total, MCG Capital bought more than 31 million shares in 2014, totaling more than $117 million.

In April, MCG Capital completed a sale of Pharmalogic, marking the exit of all of the lender’s control investments. MCG Capital provided a $17.5 million, 8.5% first-lien loan due 2017, and a revolver, to facilitate the sale. Pharmalogic is a nuclear compounding pharmacy for regional hospitals and imaging centers.

MCG Capital had also struggled with a few poor, but isolated, bets, market sources said.

One misstep was MCG’s 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.

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. – Abby Latour

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Middle market: Harbert Management closes third mezzanine fund at $165M

Harbert Management has held a final close for its third mezzanine debt fund, Harbert Mezzanine Partners III. The fund raised $165 million in commitments from new and existing investors, according to the firm.

It is the first non-SBIC mezzanine fund for Harbert, which closed its initial mezzanine fund in 2000, and followed it with Harbert Mezzanine Partners II in 2006. HMP III has thus far closed on ten investments.

HMP focuses on the lower end of the middle market, and typically provides $3-15 million in subordinated debt to support organic growth, acquisitions, recapitalizations, or management buyouts. The firm, based in Nashville, TN., is a subsidiary of private equity group Harbert Management. – Jon Hemingway

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Praesidian invests $10.5M more into EmpireCLS Worldwide

Limousine and chauffeured transportation provider EmpireCLS Worldwide Chauffeured Services received a $10.5 million add-on investment.

Praesidian Capital led the investment. The transaction will increase its equity position in the company. United Insurance of America (Kemper) was also an investor.

Proceeds will be used to fund a buyout of Bison Capital. In 2005, Bison Capital announced the acquisition of Empire International, saying it would merge it with portfolio company CLS Worldwide Services.

In 2013, Praesidian, Kemper, and M&T Bank provided $25.5 million to the company to refinance senior and subordinated debt.

Praesidian Capital provides senior and subordinated debt to small- and mid-sized companies. EmpireCLS has offices in Los Angeles and Secaucus, N.J., and operates in 700 cities worldwide. – Abby Latour

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Shock Doctor Sports uses $205M loan to fund merger with McDavid

Bregal Partners portfolio company Shock Doctor Sports has closed its merger with another sports-protection and performance-equipment company, McDavid. The acquisition was supported by $130 million of first-lien financing as well as $75 million of second-lien debt, according to market sources.

The arranger group includes Ares Capital, BMO, NewStar Financial, NXT Capital, and Madison Capital, sources note.

In addition to funding the acquisition, proceeds from the deal were used to refinance debt. Ares Capital was agent on the existing senior credit for Shock Doctor that backed Bregal’s buyout of the company in March of last year from Norwest Equity Partners. That financing included a term loan and revolver.

Minnetonka, Minn.-based Shock Doctor is a maker of mouth guards, impact gear, baseball equipment, insoles, performance-sports-therapy products, and performance apparels. McDavid manufactures, designs and markets sports medicine, sports protection and performance apparel for active people and athletes. The company is headquartered in Chicago, with subsidiaries in Japan and Europe. – Jon Hemingway

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Summer Infant receives new loans from Bank of America

Baby-products supplier Summer Infant entered a new credit agreement that includes a $60 million revolver and a $10 million term loan due April 2020. Bank of America is agent.

The credit facility also includes a $5 million first-in, last-out FILO revolving facility due April 2018, according to an April 21 8-K filing.

Pricing on the RC is L+175-225. Pricing on the term loan and FILO facility is L+400. The loan agreement includes a 37.5-25 bps unused fee.

The loan agreement includes a 1x fixed-charge-coverage ratio for the most recent 12 months, and a leverage ratio starting from the quarter ended July 4, 2015.

The amended loan agreement replaces another one with Bank of America. That agreement included an $80 million asset-based revolver due 2018 (L+175-225) and a $10 million letter of credit. Borrowing capacity was subject to a borrowing base.

Debt under the prior Bank of America credit agreement totaled $45.8 million as of Jan. 3, 2015 and interest was L+250, according to the company’s 10-K.

Summer Infant also has a $15 million term loan due 2018 (L+1,000,1.25% LIBOR floor) with Salus Capital Partners. The company owed $12.75 million under the term loan as of Jan. 3, 2015.

Summer Infant, based in Woonsocket, R.I., sells nursery monitors, safety gates, bath products, bed rails, strollers, booster seats, travel accessories, highchairs, and infant feeding products to retailers globally. Shares trade on Nasdaq as SUMR. – Abby Latour

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Ares Management fund acquires loan portfolio from First Capital

Ares Management will expand its commercial finance platform through the acquisition of an asset-based lending portfolio from First Capital.

First Capital’s investment team will join the Ares Commercial Finance team. Loan commitments under the Ares Commercial Finance platform will total $700 million through the portfolio acquisition.

New York-based First Capital provides asset-based loans and factoring to small and middle-market manufacturing, distributing, and business services companies generating sales of at least $1 million. First Capital is a portfolio company of H.I.G Capital. – Abby Latour

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Newtek Business Services hires Choksi, Fifth Street finance executive

Newtek Business Services Corp. announced that Dean Choksi would join the company as treasurer and senior vice president of finance.

Previously, Choksi was executive director of finance from Fifth Street Management.

At Fifth Street Management he assisted in the raising of over $1 billion in public debt and equity, and was the primary contact for multiple lenders for their syndicated bank credit facility. Fifth Street Asset Management manages two publicly traded BDCs, Fifth Street Finance Corp. (FSC) and Fifth Street Senior Floating Rate Corp. (FSFR).

Choksi also worked at UBS Investment Bank, where he was director of U.S. equity research, and led equity coverage of consumer finance and specialty finance companies, including BDCs.

He has also held equity research roles at Barclays Capital, Lehman Brothers, RBC Capital Markets, Wells Fargo Securities, and SoundView Technology Group.

Newtek Business Services Corp., a BDC that trades on the Nasdaq as NEWT, is an internally managed BDC that provides services and financial products to small and midsize businesses, including electronic-payments processing, lending, accounts-receivable financing, web services, and data backup and storage. It converted to a BDC in November 2014.

Early this year, Newtek Business Services was added to the Wells Fargo BDC Index. – Abby Latour

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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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