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Hostess recap leveraged loans enter trading mart atop new-issue price

Investors this afternoon received allocations of the first- and second-lien dividend recapitalization financing for Hostess Brands. The $925 million, seven-year first-lien term loan (L+350, 1% LIBOR floor) broke to a 100.125/100.625 market, versus issuance at 99.75, while the $300 million, eight-year second-lien term loan (L+750, 1% floor) opened bid at 100.25, from issuance at 99.5, according to sources. Credit Suisse, UBS, Deutsche Bank, Morgan Stanley, RBC Capital Markets, and Nomura arranged the covenant-lite loan, which cleared tight to original talk and with a shift of $100 million from the second-lien to the first-lien. Of note, the leads also added pre-cap language to the heavily oversubscribed deal, which will be used to refinance debt and to fund an approximately $905 million dividend. The pre-cap language allows for portability within the 18 months after the deal closes provided the M&A transaction meets the following criteria: pro forma net leverage is not above 6.3x, the deal has a minimum enterprise value of $2 billion, and the deal will be financed with a minimum of 30% equity, sources noted. Hostess is controlled by Apollo Global Management and Dean Metropoulos. Terms:

Borrower Hostess Brands
Issue $925 million first-lien term loan
UoP Dividend recapitalization
Spread L+350
LIBOR floor 1.00%
Price 99.75
Tenor seven years
YTM 4.62%
Call protection six months 101 soft call
Corporate ratings B/B2
Facility ratings B+/B1
S&P recovery rating 2H
Financial covenants none
Leverage 6.3x net total
Bookrunners CS, UBS, DB, MS, RBC, Nom
Admin agent CS
Sponsor Apollo, Dean Metropoulos
Price talk L+350-375/1%/99.5
Notes Upsized by $100 million; with a step to L+325 @ 4x senior secured leverage
Borrower Hostess Brands
Issue $300 million second-lien term loan
UoP Dividend recapitalization
Spread L+750
LIBOR floor 1.00%
Price 99.5
Tenor eight years
YTM 8.87%
Call protection 102, 101 hard call
Corporate ratings B/B2
Facility ratings CCC+/Caa1
S&P recovery rating 6
Financial covenants none
Leverage 6.3x net total
Bookrunners CS, UBS, DB, MS, RBC, Nom
Admin agent CS
Price talk L+750-775/1%/99
Sponsor Apollo, Dean Metropoulos
Notes Scaled back by $100 million
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Cast & Crew accelerates deadline to Friday on LBO credit

RBC Capital Markets, Credit Suisse, Deutsche Bank, and Societe Generale have accelerated the commitment deadline on their first- and second-lien financing backing Silver Lake’s purchase of Cast & Crew Payroll, LLC, to 5 p.m. EDT on Friday, July 31, from Aug. 4.

Arrangers haven’t revised price talk. As noted earlier, the first-lien term loan is talked at L+375-400, with a 1% LIBOR floor, and a 99-99.5 offer price, sources said. The second-lien term loan is talked in a range of L+775-800, with a 1% floor, offered at 99, sources said.

The covenant-lite deal includes a $270 million, seven-year first-lien term loan and a $95 million, eight-year second-lien term loan, along with a $65 million, five-year revolver, sources said. The first-lien term loan includes six months of 101 soft call protection and would yield roughly 4.93-5.28% to maturity. The second-lien term loan includes 102 and 101 call premiums in years one and two, respectively, and would yield roughly 9.23-9.5%.

The transaction would leverage Cast & Crew at roughly 4.4x through the first-lien debt and about 6x total. Equity will compose roughly 50% of capitalization, according to sources. The issuer is rated B/B3. The first-lien debt is rated B+/B2, with a 2H recovery rating. The second-lien debt is rated CCC+/Caa2 with a 6 recovery rating.

Private equity firm ZM Capital is the seller. In 2012, a consortium led by ZM Capital, including VSS, Emigrant Capital, and other ZMC affiliates, bought the company. ZM Capital invests in media, entertainment, and communications companies.

The issuer, which does business as Cast & Crew Entertainment Services, based in Burbank, Calif., provides payroll services and production accounting to the entertainment industry, including film and television studios, and live-event venues. – Chris Donnelly/Abby Latour

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CLO Round-up: With SEC clarity re risk-retention (finally), an active week

global CLO volume

After a sluggish start to the month, it was an active week in the U.S., both in terms of new issues and on the regulatory front. Four U.S. new-issue transactions priced, while in Europe, AXA Investment Managers priced the third deal of the month, a €362.3 million transaction, via J.P. Morgan. Through Friday, July 24, global issuance rises to $73.67 billion.

The SEC provided much-awaited guidance that CLOs issued prior to Dec. 24, 2014 – the date the final risk-retention rule was published – will be able to refinance debt tranches under certain conditions after the rule takes effect in December 2016 without being subject to risk retention. The SEC’s position is reflected in a July 17 no-action letter in response to a request from Crescent Capital Group. It provides the market with clarity around the refinancing issue, which has been a topic of discussion since the final risk-retention rule was first published in October 2014. – Kerry Kantin/Isabell Witt

Year-to-date statistics, through July 24, are as follows:

  • Global issuance totals $73.67 billion
  • U.S. issuance totals $63.94 billion from 120 deals, versus $71.11 billion from 133 deals during the same period last year
  • European issuance totals €8.75 billion from 22 deals, versus €6.92 billion from 16 deals during the same period last year

 

This analysis is taken from a longer LCD News story, available to subscribers here, that also details

  • Recently priced CLOs
  • CLO pipeline
  • US CLO volume/outstandings
  • European CLO volume/outstandings
  • European priced CLOs

 

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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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Hostess tightens pricing on $1.25B leveraged loan backing recap/dividend to apollo

A Credit Suisse-led arranger group is seeking commitments by 5 p.m. EDT today on the first- and second-lien dividend recapitalization financing for Hostess Brands after offering issuer-friendly changes to the deal, including tightening pricing and adding pre-cap language to the transaction, according to sources.

The spread on the first-lien term loan firmed at L+350, the tight end of L+350-375 guidance, and the offer price was tightened to 99.75, from 99.5. The 1% LIBOR floor is unchanged.

The second-lien also firmed at the tight end of the initial L+750-750 range, while the arrangers tightened the OID to 99.5, from 99. The 1% floor is unchanged.

As revised, the first-lien offers a yield to maturity of about 4.62%, while the second-lien would yield about 8.87%, which compares with 4.67-4.93% and 8.96-9.23% at the original guidance, respectively.

Credit Suisse, UBS, Deutsche Bank, Morgan Stanley, RBC Capital Markets, and Nomura are arranging the deal.

In addition, the leads shifted $100 million to the first-lien term loan from the second-lien. As revised, the deal includes a $100 million revolver; a $925 million, seven-year first-lien term loan; and a $300 million, eight-year second-lien term loan.

The issuer is rated B/B2. Prior to the shift in funds, the first-lien drew B+/B1 ratings and the second-lien drew CCC+/Caa1 ratings, with 2H and 6 recovery ratings from S&P, respectively.

The term loans will be covenant-lite. As before, the first-lien term loan is set to include six months of 101 soft call protection, and the second-lien loan will be callable at 102 and 101 in years one and two, respectively.

The recap loan follows news that the issuer – which is controlled by Apollo Global Management and Dean Metropoulos – took the company off the auction block and was instead preparing to pursue an initial public offering. The dividend is roughly $905 million. – Kerry Kantin/Chris Donnelly 

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Ares Management announces merger plan with Kayne Anderson

Alternative asset manager Ares Management announced today that it is merging with energy specialist Kayne Anderson Capital Advisors. The combination will be renamed Ares Kayne Management. The firms had a combined $113 billion of assets under management as of March 31.

Total consideration is $2.55 billion. Ares plans to pay around $1.8 billion with partnership units and the $750 million balance in cash, which will be funded with new debt, according to a presentation. The deal is expected to close around Jan. 1, 2016, subject to regulatory approvals.

The combined business will invest across five groups: tradable credit, direct lending, energy, private equity, and real estate. However, the two companies will continue to manage their existing funds and operate under existing brand names, according to a statement.

Ares Kayne will have roughly 450 investment professionals in more than 20 offices globally. Kayne Anderson alone has around 110 investment professionals in eight U.S. offices managing investments in energy and energy infrastructure, specialty real estate, middle market credit and growth private equity. Substantially all non-energy personnel will join Ares’ existing private equity, real estate,and direct lending groups, the firms said.

Both Richard Kayne, the founder and chairman of Kayne Anderson, and Ares chairman and CEO Tony Ressler will serve as co-chairmen of the new entity. Kayne’s president and CEO Robert Sinnott will become chairman of a newly formed energy group at Ares Kayne. Sinnott and Kayne’s Kevin McCarthy will join the board. Sinnott, McCarthy, and Al Rabil will join the management committee. Ressler, Michael Arougheti, and Michael McFerran will remain in their respective roles as CEO, President, and CFO. – Jon Hemingway

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Leveraged loan funds report third consecutive week of inflows

Leveraged loan funds reported inflows of $208 million for the week ended July 22, following inflows of $34 million and $19 million in the previous two weeks, which reversed a five-week outflow streak worth a combined $1.2 billion, according to Lipper.

This week’s result was attributed to a $168 million inflow to mutual funds, along with a $40 million inflow to the ETF segment. In contrast, last week’s $34 million inflow came from a $37 million inflow to ETFs offset by a $3 million outflow from mutual funds.

With today’s net inflow, the trailing four-week average improves to negative $26 million, from negative $122 million last week and negative $208 million two weeks ago.

The year-to-date outflow is now $3.9 billion, with 2% tied to ETFs, versus an inflow of $352 million at this point last year that was roughly 216% tied to ETFs.

In today’s report, the change due to market conditions was negative $98.5 million, which is essentially nil against total assets, which were $93.3 billion at the end of the observation period. The ETF segment comprises $6.8 billion of the total, or approximately 7% of the sum. – Joy Ferguson

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Tikehau hires Goold for European CLO business

Alison Goold has joined Tikehau as a portfolio manager in its European CLO business. In this new position, Goold will report to Debra Anderson, head of the CLO department.

Goold joins from BNP Paribas, where she had been a director in the leveraged syndications team. Previously she had been head of corporate credit and a portfolio manager at AgFe, an independent advisory and asset management firm, and before that was a managing partner at mezzanine fund manager Carta Capital.

Tikehau recently priced its debut €354.7 million CLO through Goldman Sachs. – Nina Flitman

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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