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

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


LBO coverage ratios fall to post-crisis lows (though debt service cushion remains)

LBO coverage ratios

In the first quarter, the average coverage ratios of newly minted leveraged buyouts fell to post-credit-crisis lows – while remaining well above the mid-2000s tights. However, while the averages have tightened, debt service cushions for most deals remain wide of the razor-thin levels of 2006/07 that led to the record high default rates of the credit crunch – Steve Miller

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

  • Distribution of cash flow coverage ratios
  • Loan default experience, by cash flow coverage


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Decline in leveraged loan covenant protection – cash flow sweep edition

leveraged loan cash flow sweep

In one of the more profound shifts in leveraged loan covenant protection, the percentage of leveraged loans that waive excess-cash-flow recapture reached an all-time high of 42% in the first quarter of 2015.

This is, managers say, a relevant data point. After all, a decade ago most loans required that 75% of excess cash flow be used to prepay the debt. For these loans, a trigger that reduced the level to 50% was common.

In recent years, however, a 50% sweep has become market standard. – Steve Miller

This chart is taken from an LCD News story, available to subscribers here, that also details

  • Covenant-lite loan outstandings
  • Distribution of loans by cash-flow sweep
  • Distribution by number of financial covenants


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Restructuring: American Eagle Energy nets forbearance after missing first coupon

American Eagle Energy has entered into a forbearance agreement to negotiate the terms for a restructuring of its balance sheet after the Colorado-based exploration-and-production operator failed to make the first coupon payment on its $175 million of 11% first-lien notes due 2019 issued in August last year.

Lenders to American Eagle Energy have agreed not to call defaults on the missed $9.8 million coupon payment due March 1 after the company made a partial interest payment of $4 million, leaving $5.8 million unpaid.

The agreement, which was put in place by four holder who collectively own more than 50% of the notes, gives American Eagle Energy until May 15 to assess its liquidity situation regarding the remaining partial interest payment, or to “negotiate and effectuate a restructuring,” the company said in a statement on Tuesday.

As part of the forbearance, the energy concern is required to retain a restructuring advisor, a temporary chief financial officer, consultant, financial advisor and/or other third-party professional no later than April 10.

SunTrust Bank, meanwhile, said it has given notice of its resignation as control agent under the agreement.

As reported, American Eagle Energy last month skipped the first coupon payment due on a $175 million issue of 11% first-lien notes due 2019 and the company entered into the typical 30-day grace as it seeks to explore “options to strengthen its balance sheet.

American Eagle debuted in market less than seven months ago with the first-lien notes via GMP Securities, and proceeds were used to refinance an existing credit facility and fund general corporate purposes. As reported, co-managers included Canaccord Genuity, Global Hunter, and Johnson Rice. A “long first coupon” due March 1 includes extra interest due prior to Sept. 1, 2014, as settlement was Aug. 27.

Issuance was 99.06 at offer, to yield 11.25%, which was wide of the 11%-area guidance. The debt edged higher on the break, but soon succumbed to the bear market in the oil patch. Indeed, valuation moved to the 50 context after the OPEC bombshell over Thanksgiving, from the high 80s earlier in autumn, and market quotes were recently quoted in the low 30s, according to sources. The bonds last traded in the 32 context in mid-March from the low 40s around the time of the default.

Ratings were CCC/Caa1 at issuance, but have since been lowered to D, from CCC+, by S&P, and Ca by Moody’s.

Denver, Colo.-based American Eagle Energy is an independent exploration-and-production operator focused on the Bakken and Three Forks shale-oil formations in the Williston Basin of North Dakota and Montana. The company trades on the NYSE under the symbol AMZG, with an approximate market capitalization of $5.5 million, down from $180 million at the time of bond issuance in August. –  Staff reports


Murray Energy sweetens loan pricing for scaled-back Foresight Energy purchase

Deutsche Bank and Goldman Sachs this morning offered a reworked structure of their loan deal for Murray Energy as the issuer scaled back its planned investment in Foresight Energy’s general partnership, sources said. Changes to the loan include a short-dated carve-out, as well as sweetened pricing.

Murray this morning announced changes to the transaction, reducing its ownership percentage in Foresight such that the deal now allows Foresight to keep its debt stack in place, sources said. Murray will now pay roughly $1.37 billion for a 34% stake in Foresight’s general partnership, and a 50% interest, as before, in the limited partnership. Murray originally planned to purchase an 80% interest in the GP.

Arrangers are now floating revised loan terms on the back of that announcement. They have carved out a $300 million, two-year B-1 term loan, which is talked at L+600, with a 1% LIBOR floor, and is offered at 99. The balance is now a $1.7 billion, B-2 term loan. The loan, previously $1.825 billion, has been scaled back to five years, from six years, and pricing has been increased to L+650, with a 1% LIBOR floor, and offered at 97.

The longer-dated term loan includes 102 and 101 hard call premiums in years one and two, respectively. The short-dated tranche includes a 101 soft call premium for 12 months.

Commitments will be due later this week, sources added.

By contrast, the longer-dated loan was launched at $1.675 billion at talk of L+575, with a 1% floor and a 98 offer price, although the issuer tweaked the loan’s size as its $1.55 billion bond deal was launched to investors, sources said.

The issuer a week ago launched the bonds as $1.55 billion, two-part second-lien bond deal while revising covenants on both the loan and bonds deals. The issuer was seeking five- and eight-year tranches, each with the now-common short call schedules, with two and three years of protection, respectively, and both with first call premiums of par plus 75% coupon. Guidance was 10.25-10.5% and 10.75-11%, respectively, sources noted. The bond deal was expected to price late last week, but remained up in the air amid whispers of widening talk, sources added.

The bonds are now expected to total $1.3 billion, sources said.

Among the covenant changes foisted last week, the drop down trigger on cash consideration was tightened 75% at greater than 2.5x (from 3x), stepping to 50% at less than 2.5x. LP units can now be received as cash below 2x, instead of 2.75x. The excess-cash-flow sweep was bolstered to 75% above 2.5x, rather than 3.25x, and 50% above 2x, rather than 2.5x. The permitted acquisitions basket was trimmed to $50 million, from $100 million, and the asset-sale basket as reduced to $100 million annually, from $150 million.

The last week’s changes also firmed other elements of documentation that hadn’t been outlined previously. For example, the leverage covenant will be set at 3x through Dec. 30, 2015, stepping down over time. As well the incremental basket has been set at $150 million plus additional amounts subject to first-lien net leverage of 1.5 x. – Chris Donnelly


Leveraged loan default rate slips to 3.79% after quiet March

leveraged loan default rate

In March, for the second month running, there were no defaults among S&P/LSTA Index loans. As a result, the default rate by amount eased to 3.79%, from 3.92%.

Looking ahead, 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

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This story is taken from LCD’s full quarter-end default analysis, available to subscribers here.


Leveraged loans return 2.13% in first quarter, besting only equities

returns-leveraged loans vs other asset classes

Spurred by more-dovish-than-anticipated comments from Fed Chair Janet Yellen, the 10-year Treasury rate fell six basis points, to 1.94%, on March 31, from 2.00% a month earlier. As a result, loans underperformed 10-year Treasuries in March, while running even with high-grade bonds. With risk assets under pressure, however, loan returns ran ahead of equities and high-yield.

For the year-to-March, likewise, the 10-year rate is down 23 bps from 2014’s final read of 2.17% and, as a result, fixed-income products are running ahead of loans and equities. – Steve Miller

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