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Capitala and Kemper form new loan-focused JV fund

Business-development company Capitala Finance Corp. has formed a new investment joint venture with Trinity Universal Insurance Company, a subsidiary of Kemper Corp. The new venture, Capitala Senior Liquid Loan Fund I, will focus on investments in broadly syndicated loans beginning in the second quarter.

The initial equity contribution is $25 million, of which Capitala is funding $20 million and Trinity is providing $5 million. In addition to that the new fund secured third-party asset-level financing.

Capitala Finance, a BDC that trades on the Nasdaq under the ticker CPTA, traditionally targets debt and equity investments in middle-market companies generating EBITDA of $5-30 million. The firm focuses on mezzanine and subordinated deals but also invests in first-lien, second-lien and unitranche debt. Capitala’s portfolio as of Dec. 31 consisted of 52 portfolio companies with a fair market value of $480.3 million. Of that total, 31% was senior secured debt investments, 46% was subordinated debt, and 23% was equity and warrants. – Jon Hemingway

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Amid “challenging” commodities mart, California Resources lenders OK easing of leveraged loan covenants

California Resources disclosed today that its lender group has approved amendment provisions to its credit facility to provide the company with flexibility under its leverage and interest covenants during a challenging commodities market.

The company’s 6% notes due 2024 gained a point, to 87.50, to yield 7.85%, on the amendment news, while its 5% notes due 2021 were up about seven eighths of a point, to 89.5%, to yield 7.58%.

Under the terms of the amendment, California Resources is now allowed to maintain a leverage ratio based on the schedule below. Previously, the leverage ratio was set at 4.5x.

The interest expense ratio, meanwhile, has been set at 2.5x through the third quarter of 2015 and then at 2.25x in the fourth quarter of 2015, and then back to 2.5x in the first quarter of 2016 and thereafter. The interest expense ratio was previously set at 2.5x.

Also, the lien basket has been reduced to 5%, from 15%. The asset coverage ratio has also been set at 1.05x through Dec. 31, 2016 and at 1.5x thereafter.

The company’s pro rata credit facility is split between a $2 billion revolver and a $1 billion A term loan, both due 2019. Pricing is based on a leverage-based grid, ranging from L+150-225, with commitment fees ranging from 30-50 bps.

J.P. Morgan is administrative agent. The lender group also consists of Bank of America Merrill Lynch, Citigroup, Bank of Tokyo-Mitsubishi UFJ, U.S. Bank, Morgan Stanley, HSBC, Goldman Sachs, Bank of Nova Scotia, Societe Generale, PNC Bank, BB&T, Bank of New York Mellon, Sumitomo Mitsui, Intesa Sanpaolo, and KeyBank.

Los Angeles-based California Resources is an oil and natural gas exploration and production company and is rated BB+/Ba2. – Richard Kellerhals/Joy Ferguson

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US Trustee names New York lawyer Richard Davis as Caesars examiner

The U.S. Trustee for the bankruptcy court in Chicago has named Richard J. Davis as the examiner in the Chapter 11 case of Caesars Entertainment Operating Co., court filings show.

The appointment is subject to approval by the bankruptcy court in Chicago that is overseeing CEOC’s Chapter 11.

As reported, the Chicago bankruptcy court on March 12 ordered the U.S. Trustee to appoint the examiner. In a setback for the company, the bankruptcy court appeared to set a wide scope for the contemplated investigation, and did not set specific limits on either the cost or length of the investigation, both of which were sought by the company (see “Caesars’ examiner probe to have broad scope, judge rules,” LCD, March 12, 2015 $).

The order does require the examiner to submit an interim report every 45 days, and to file a final report within 60 days of completing his investigation.

According to materials submitted to the bankruptcy court, Davis, 68, is in individual practice in New York City. From 1981 to 2012, he was a litigation partner at Weil, Gotshal & Manges, and from 1977 to 1981, during the administration of President Jimmy Carter, he was an Assistant Secretary of the Treasury for Enforcement and Operations.

Going back even further, Davis was a special prosecutor for the Watergate Special Prosecution Force, including serving as chief trial counsel in the trails of Dwight Chapin, an advisor to President Nixon, and Edward Reinecke, a former Lieutenant Governor of California. Both were convicted of perjury; Chapin served nine months in prison, while Reinecke, sentenced to 18 months, saw his conviction overturned on appeal.

A hearing on the U.S. Trustee’s emergency motion to name Davis as the examiner is scheduled for tomorrow. – Alan Zimmerman

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Leveraged loans: Global CLO issuance hits $27.58B YTD

global CLO volume

It was another busy week of marketing and pricing in the U.S. CLO market, while Europe saw a single new print, with more expected shortly.

  • Year-to-date, global volume rose to $27.58 billion.
  • U.S. CLO volume totals $24.84 billion for 46 deals, versus $19.92 billion for 39 deals in the same period last year.
  • European CLO volume stands at €2.44 billion from six transactions, versus €2.06 billion for five deals in the same period last year. – Sarah Husband

 

This story was taken from a longer piece of analysis available to LCD News subscribers also detailing

  • March CLOs
  • CLO pipeline
  • Volume: CLO vs Inst’l loans (US and Europe)

 

Follow Sarah on Twitter for CLO market news and insight. 

For more on the CLO market check out LCD’s free Loan Market Primer/Almanac.

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Leveraged loan funds see another $228M investor cash outflow

Bank loan outflows were grew to $228 million for the week ended March 18, versus outflows of $31 million in the prior week, according to Lipper. The latest outflow was split between mutual funds and ETFs, with mutual funds recording $160 million of the full amount, while ETF outflows continued for the second week in a row following a six-week period where ETFs reported inflows against mostly outflows at mutual funds.

leveraged loan fund flows

There has now been a total of $27.6 billion of outflows recorded over the last 49 weeks, with only three weeks seeing inflows over that span. The year-to-date outflow now sits at $3.1 billion, with 4% tied to ETFs, versus an inflow of $6.5 billion at this point last year, with 16% tied to ETFs.

The trailing four-week average fell to negative $143 million, from negative $54 million last week and negative $52 million two weeks ago. Recall that the negative four-week observation 12 weeks ago, at $1.3 billion, was the deepest in roughly 3.5 years, or since the week ended Aug. 31, 2011.

In today’s report, the change due to market conditions was negative $172.9 million, a change of 0.20% against total assets, which were $92.6 billion at the end of the observation period. The ETF segment comprises $6.7 billion of the total, or approximately 7%. – Joy Ferguson

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LifeTime Fitness nets leveraged loan backing LBO by Leonard Green

Deutsche Bank, Goldman, Sachs, Jefferies, BMO Capital Markets, RBC Capital Markets, Macquarie Capital, and Nomura will provide debt financing for the acquisition of Life Time Fitness by Leonard Green & Partners and TPG.

The transaction announced earlier today is valued at more than $4 billion. Other key investors include LNK Partners and Life Time CEO Bahram Akradi, who will remain in his role and has committed to make a rollover investment of $125 million in Life Time common stock.

Under the terms of the merger agreement, the investors will acquire all of the outstanding shares of Life Time Fitness common stock for $72.10 per share in cash. This price represents a significant premium to Life Time’s closing share price of $41.60 on Aug. 22, 2014, the last trading day prior to the announcement that the issuer was exploring a potential conversion of real estate assets into a real estate investment trust.

Life Time had total debt of roughly $1.2 billion at year-end 2014, according to an SEC filing. EBITDA for the fourth quarter of 2014 was $86.8 million compared to $80.4 million in the year-ago equivalent period. For 2014, EBITDA was $374.3 million compared with $351.8 million in the prior-year period.

The merger is subject to approval from Life Time’s shareholders and other customary closing conditions. The transaction is currently expected to close in the third quarter of 2015. – Staff reports

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US Leveraged loan issuance for week ended 3/13: $8.7B

leveraged loan issuance

U.S. leveraged loan issuance totaled $8.7 billion last week, in what was a relatively quiet market. The big deal, volume-wise: Valeant‘s $4.55 billion (in new money) credit backing it’s proposed acquisition of Salix.

With the recent activity, year-to-date loan volume in the U.S. totals $72.3 billion, down noticeably from the $130.5 billion seen at this point in 2013. – Staff Reports

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Survey: Leveraged loan managers expect default rate to hold below historical average

leveraged loan default rate

Leveraged loan managers remain constructive on the near-term default outlook, according to LCD’s latest quarterly buyside survey, conducted in early March. On average, participants expect the loan default rate to end 2015 at 1.63%, before ticking up to 1.81% by March 2016. By comparison, the historical average rate by amount is 3.23%. – Steve Miller

Follow Steve on Twitter for leveraged loan news and insights.

A longer version of this analysis is available to LCD News subscribers.

It includes

  • Composition of distressed ratio (by industry)
  • Imputed default rate
  • Leveraged loan maturity wall

 

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Valeant adds underwriters as interest builds in $4.55B institutional loan backing Salix buy

Valeant Pharmaceutical’s $4.55 billion institutional term loan is seeing strong momentum a day after the deal’s official launch, sources said. The deal, which backs Valeant’s $14.5 billion acquisition of Salix Pharmaceuticals, has also drawn a large group of underwriters, investors were told at yesterday’s lender meeting.

The Deutsche Bank-led arranger group now includes HSBC, Bank of Tokyo-Mitsubishi UFJ, DNB Capital Markets, SunTrust Robinson Humphrey, Barclays, Morgan Stanley, RBC Capital Markets, and Citi. Senior management agents include BMO Capital Markets, CIBC, SMBC, and TD Securities. Barclays is administrative agent.

The seven-year institutional loan is talked at L+350, with a 0.75% LIBOR floor and a 99 offer price. Of note, a $1.8 billion portion of the new institutional loan (designated tranche F-2) will be available as a delayed draw to deal with the repayment of Salix’s convertible issues.

The loan pays a ticking fee of the full spread plus LIBOR floor after 30 days. The remaining $2.75 billion tranche F-1 will be funded at closing. Accompanying $1 billion TLA, which is also being syndicated, is delayed draw and pays 25 bps from closing.

Investors are offered six months of 101 soft call protection.

Commitments are due on Friday, March 13.

The senior secured financing includes a $1 billion, five-year A term loan and a $4.55 billion, seven-year institutional tranche. Like the existing loans, the new deal will be governed by secured-leverage and interest-coverage covenants. At current talk the institutional loan would yield roughly 4.5% to maturity. According to a commitment letter filed with the SEC, pricing on the new TLA is tied to a leverage-based grid from L+175-225, opening at L+225.

The issuer is also roadshowing $9.6 billion of bonds to back the purchase.

Pro forma net secured leverage is 2.2x, and net total leverage is 5.5x, sources noted.

Existing loans include 50 bps of MFN protection. As of Sept. 30, Valeant had $182.3 million outstanding under its A-1 term loan due April 2016 (L+225, no LIBOR floor), $166.3 million outstanding under its A-2 term loan due April 2016 (L+225, no LIBOR floor), roughly $1.81 billion outstanding under its A-3 term loan due October 2018 (L+225, no LIBOR floor), roughly $1.09 billion outstanding under its series D-2 B term loan due February 2019 (L+275, with a 0.75% LIBOR floor), $837.5 million outstanding under its series C-2 B term loan due December 2019 (L+275, with a 0.75% LIBOR floor), and roughly $2.54 billion under its series E-1 B term loan due August 2020 (L+275, 0.75% floor).

Valeant does not expect any change to its credit ratings as a result of the transaction. The company is currently rated BB-/Ba3.

The transaction, which is expected to close in the second quarter of 2015, is subject to customary closing conditions and regulatory approval.

Valeant Pharmaceuticals, which is based in Laval, Canada, makes a broad range of pharmaceutical products. The company trades on the New York Stock Exchange under the ticker VRX with a market capitalization in excess of $68 billion. – Staff reports