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Ares Capital hires two to expand senior debt business for energy sector

ares logoAres Capital Management added two people to expand senior and subordinated debt financing to the oil-and-gas industry.

Owen D. Hill and Jonathan M. Shepko will be based in Dallas, and join as managing directors. They will expand the Ares energy team’s focus from project finance and power-generating assets to include senior and subordinated debt financing opportunities to the upstream, midstream, and energy-service sectors.

Hill and Shepko co-founded CLG Energy Finance, the division of Beal Bank focused on lending to the energy industry. From 2009-2013, their team originated more than $1 billion in financing to the oil-and-gas industry, mainly as senior secured term loans.

The move “is a direct result of the growing market for domestic energy solutions and the changing appetite and risk tolerance of traditional banks for providing debt financing in the industry,” Ares Capital said in a statement today.

Ares Capital Management is the investment adviser to specialty finance company Ares Capital. Ares Capital, a business-development company, focuses on secured loans and mezzanine debt to U.S. middle-market companies and private equity sponsors. – Abby Latour

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

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Sale of ATP Oil & Gas assets (to Bennu Oil & Gas, DIP lender’s vehicle) nets final bankruptcy court nod

ATP-Oil-Gas_optThe bankruptcy court overseeing the Chapter 11 proceedings of ATP Oil & Gas gave final approval to the sale of the company’s Gulf of Mexico assets to its DIP lenders, according to an Oct. 17 court order.

The assets include the so-called “Clipper Wells,” which according to court filings are expected to be operational this month.

As reported, the Houston, Texas, bankruptcy court gave conditional approval to the lenders’ purchase of the assets following a two-day hearing on June 21, signing a formal interim approval order on July 9.

The purchaser of the assets is Bennu Oil & Gas, which is the vehicle formed by the DIP lenders to implement the transaction.

As reported, the purchase price is comprised of a credit bid of $580 million, cash of $55 million to fund an escrow for the purpose of satisfying legitimate liens on the purchased assets that are senior to the DIP liens, and additional cash of about $1.8 million. In addition, court documents show, Bennu will pay about $44.3 million to settle federal regulatory claims related to decommissioning obligations on the purchased assets.

The court order notes that the total amount of DIP claims as of June 27 was $792.5 million, and that claims in excess of the credit bid would remain outstanding against ATP and its remaining assets.

Bennu said in court documents filed earlier this month that it would fund the transaction through a term loan of at least $200 million, but possibly as much as $350 million. Bennu said in the filing that assuming the loan was funded at the minimum $200 million level, about $86 million of the proceeds would be available to fund the post-reorganization company’s working capital, after payment of, among other things, $55 million for the escrow, $24 million for professional fees in the Chapter 11 case, $11 million for closing costs for the term loan, $11 million for cure amounts, and $4.1 million for the regulatory settlement detailed above.

Bennu also said that its projections, assuming a $200 million term loan, show that the company would have positive cash balances annually through 2020.

That said, as reported Credit Suisse set a bank meeting for tomorrow morning to launch a $350 million second-lien term loan. Price talk on the five-year term loan is L+1,000, with a 1.25% LIBOR floor, offered at 97, sources said. At current talk the loan would yield 12.62% to maturity (see “Bennu Oil & Gas readies $350M 2nd-lien term loan for Friday launch,” LCD, Oct. 16, 2013).

Bennu said that it also contemplates obtaining a $50 million revolving loan to provide additional working capital, and that it “may also seek additional financing post-closing for the purpose of funding buy-outs of the remaining overriding royalty interests and net profits interests that burden the purchased assets.”

But, Bennu said, its projections show the company “remaining cash positive whether or not these additional sources of financing are obtained.” – Alan Zimmerman

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Terreal completes restructuring; lenders take the keys

Park Square has announced that a lender-led restructuring of Terreal has been signed, resulting in lenders taking the keys to the company through a debt-for-equity swap.

The restructuring plan, spearheaded by Park Square and ING, envisages financial stability for the company through reduced interest costs and leverage, operating flexibility through long-dated debt maturities, no debt amortisation, and a covenant holiday for a year, as well as improved corporate governance.

Post-restructuring, the capital structure comprises €300 million of senior debt due in 2017, sources said,xa and €70 million of cash on its balance sheet. Due to a smaller debt size, Terreal’s annual interest expense decreases by €7 million. Finally, the equity-like instruments held by senior lenders following the 2009 restructuring have been reduced to €157.5 million, sources said.

Although the market in which Terreal operates is cyclical, the company has new facilities and operations are starting to stabilise, sources added. Annual EBITDA for the group is roughly €45-50 million, sources said

Following the restructuring, Park Square is the largest shareholder, and the second-largest lender to Terreal. According to the statement, Park Square accumulated a position in Terreal’s debt at a significant discount over several years.

Last summer, the French roof-tile maker breached its June covenants, and a mandataire ad hoc was appointed later in the autumn, according to sources.

This is Terreal’s second restructuring, having undergone the first in 2009, when it breached its September 2008 covenant. Then, the restructuring took Terreal’s total debt from €902 million to €500 million due in June 2014, and the facility paid an unchanged margin of E+250, with a one-year extension option, according to sources. However, senior lenders converted part of their debt into €402 million of notes redeemable in shares and preferred shares, paying 4% PIK – therefore not completely right-sizing its capital structure. Covenants were also reset, and lenders provided an additional super-senior €40 million through a short-term revolver facility and a factoring line.

Terreal was owned by LBO France prior to the current restructuring. It operates in the French roofing market for plain tiles, barrel tiles, and Roman-style interlocking tiles. – Sohko Fujimoto

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Norway’s Beerenberg Holding inks NOK950M loan backing LBO by Segulah

Beerenberg Holding, a Norwegian oil services group, has signed a NOK950 million (€127.5 million) loan via coordinator and bookrunner Danske Bank to support its Segulah-led buyout.

Segulah is buying the firm from Hercules Capital, a Norwegian private equity firm, and management. In a statement, Segulah said management will reinvest and remain a significant shareholder in the group.

Beerenberg is headquartered in Bergenand, and is primarily active on the Norwegian continental shelf. Estimated revenue for 2012 is roughly NOK1.5 billion. – Staff reports

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Bankruptcy: ATP nets final court approval of hotly contested DIP amendment

The bankruptcy court overseeing the Chapter 11 proceedings of ATP Oil & Gas gave final approval to an amendment to the company’s DIP facility, which will provide the company with roughly $99 million of additional liquidity.

As reported, the bankruptcy court gave the DIP amendment its interim approval on Feb. 12.

As also reported, earlier this month the company sought emergency approval of the amendment, which is the DIP’s third. The proposed new financing’s onerous terms, however, including a 30% OID and several additions to the existing DIP facility’s interest rate, drew both the ire of the creditors’ committee in the case, which called it “shocking and offensive,” and concern from Bankruptcy Court Judge Marvin Isgur, who refused to grant the company’s emergency motion at a Feb. 5 hearing. Rather, Isgur told the company to return to court the following week to argue for, first interim, and later, final, approval of the amended facility. Ominously, at the time Isgur suggested he might not approve the loan if the terms were not eased, even though that would mean closing the company’s operations. “If it’s time to shut it down, it’s time to shut it down,” Isgur reportedly said at that initial emergency hearing (which was delayed one day) with better financing terms (see “Monday hearing on ATP DIP brouhaha could decide company’s fate,” LCD News, Feb. 6, 2013).

By the following Monday, the company submitted revised borrowing terms which it said were “substantially better” than those it had initially submitted to the court (see “Hoping to address court’s concerns, ATP submits revised DIP terms,” LCD News, Feb. 12, 2013). Among other revisions, the revised terms reduced the OID to 15% (and possibly lower, under certain circumstances), and the pricing was pared back to match the L+850 pricing of the existing DIP facility. – Alan Zimmerman

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A rare dip for a DIP: ATP’s valuation confusion

Lenders to ATP Oil & Gas have had precious little certainty to cling to over the past few years. The one thing that secured lenders thought at least they could depend on was that in a bankruptcy, there were hard assets that would back up their claims and make them whole in the end – given that ATP extracts fuels from underwater sites with proven reserves in the Mediterranean Sea, the Gulf of Mexico and the North Sea.

Now that fuel producer ATP is in bankruptcy, however, even that certainty has been wiped away, and perhaps the most secure type of lending facility that lenders could hope to participate in for a restructuring company has started to trade at a discount to par: Debt investors have traded portions of the $643 million debtor-in-possession financing – a loan arranged for a company proceeding through bankruptcy in order to allow it to continue to operate while it works its way through court – at between 84 and 86 cents on the dollar over the past week.

For a DIP loan to trade down to the mid-80s is “very rare and obviously it’s not supposed to happen,” comments Jamie Sprayregen, partner in the restructuring practice at Kirkland & Ellis. DIP lenders are typically protected ahead of other creditors in a bankruptcy by the priority status afforded to such debt by the Bankruptcy Code and priming liens arranged by lenders, but this all depends on the value of the assets, according to Sprayregen. “A DIP’s got incredibly powerful legal protections, but if the value’s not there, there’s nothing you can do,” he says.

What’s even more confounding is that the drop happened so quickly for a credit facility specifically designed to be temporary and ensure a full recovery upon the company’s exit from bankruptcy. The heavy discounting comes less than four months after the Houston-based company negotiated the loan via underwriter and lender Credit Suisse. Other original lenders to the DIP include investment funds of computer magnate Michael Dell, distressed investing firm Fortress Investment Group, the credit investing hedge fund KLS Diversified, investment advisory Trilogy Capital, and international investment bank Macquarie, among others, according to documents filed in bankruptcy court.

The impairment is so rare in fact, ATP’s is the only DIP facility of more than $100 million in 2012 to be quoted below 90 cents on the dollar, and is one of just two in the past two years to be quoted so low – the other being for Lee Enterprises, which was repaid at par – according to an S&P Capital I.Q. LCD analysis of data compiled by Markit.

DIP perception

Secondary price instability in DIPs is nominally caused by one of two factors.

First, there could be limitations in the agreement that are moving the company towards a non-monetary default, and therefore the DIP needs to be amended, according to Mitchell Seider, a global co-chair of Latham & Watkins restructuring practice. Such a circumstance shouldn’t threaten recovery, but could affect the timing in which lenders expected to be paid back.

“As a DIP lender dependent on a going concern rather than liquidation you may have to keep the borrower alive longer than you initially anticipated in order to get that recovery from the going concern value,” says Seider. “Any time you’re making a loan that’s based upon assumptions that have to do with the continuing operations of the debtor, it would seem to mean there’s more risk as well,” he said.

Indeed, at least four of the 12 most distressed DIP facilities from the past four years depended on the continuing services for the majority of the company’s value, including casino operator Greektown Casino, poultry company Pilgrim’s Pride, restaurant chain Buffets Inc., and to a certain extent chemical maker Wellman Inc. and commercial-printing company Quebecor World, according to LCD and Markit.

The second reason for the discounting of a DIP is the more significant one, namely, where the lender assessment about the value of the collateral supporting it proves incorrect. This was more prevalent early in the most recent bankruptcy cycle, late 2008 to 2009, when the credit crisis led to wide fluctuations in the market value for distressed companies and assets. Indeed, 10 of the 12 DIP facilities of more than $100 million that have been bid at lower than 90 cents on the dollar since 2008 were put in place in late 2008 and 2009.

Yet even so, of those there was only one situation in which the DIP loan wasn’t eventually repaid or taken out by an exit loan upon the company’s exit from bankruptcy. And in that one situation – Delphi Automotive, which declared bankruptcy in 2005 — DIP lenders participated in a credit bid for the company and accepted equity, which wound up being even more profitable as the company recovered. For the record, the C tranche of Delphi’s DIP issued at 98 in May 2008, and sank as low as 14 cents on the dollar before recovering to the mid-50s by the time of the company’s 2009 exit and subsequent conversion to equity; A and B tranches had also been impaired but received full recovery above the lower tranche.

Double DIP trouble

ATP faces both problems. Most critically, the company needed to amend its DIP in order to avoid default following a shift in the valuation of the company’s oil reserves. The DIP was based on, among other factors, a reserve report filed by the company with the SEC as an exhibit to its 2011 Form 10-K, but subsequent to placing the facility, lenders received a new report from their own consulting firm, Netherland, Sewell & Associates (NSAI), showing significantly lower reserve levels in some of the company’s key wells.

While the DIP amendment was designed to give the company a bit of breathing space, it suggested an ominous end-game for the company’s Chapter 11.

A remarkable motion filed in the bankruptcy case requesting an examiner on behalf of the stockholders explained the situation as follows: “Barely three months after the debtor commenced this case claiming that the company suffered from a mere liquidity hiccup, we are now told that the debtor’s reserves are valued drastically less than what the debtor has previously reported publicly and that, now, the only way forward is a fire-sale liquidation to satisfy the demands of the DIP lenders. It doesn’t add up.”

The contents of the report have not yet been disclosed, despite numerous court filings urging that the report be unsealed. And while ATP had initially stood by its earlier reserve report attached to the SEC filing, when the company filed its motion to amend the DIP, it indicated the company itself now believed the NSAI report.

ATP and its outspoken founder T. Paul Bulmahn have long made headlines for brash moves: In 2006, headier times for the company, it once bought a Volvo car for every employee, along with providing them a Swedish vacation, as a bonus for achieving certain milestones. When the company filed for bankruptcy in August, Bulmahn famously blamed the Obama administration, which had place a moratorium on drilling in the Gulf of Mexico in 2010 after the Deepwater Horizon explosion.

While he remains the chairman and the largest individual shareholder, Bulmahn was replaced as CEO in June. But his chosen successor, Matt McCarroll, quit just 8 days after the company had announced his hire, something that drove the $1.5 billion in second-lien notes to new lows at the time, less than 50 cents on the dollar.

Following the new reserve report those bonds, which fall behind the DIP facility, subsequently traded even lower, at less than a dime to every dollar. With the DIP price going down because the company may be forced to sell assets that , first, may not be worth as much as the company and lenders thought, and second, may have to be marketed and sold under fire-sale conditions imposed by DIP milestone deadlines, some estimates have the second-lien bonds worth nothing.

It is virtually impossible to see any value for the company’s equity in that scenario.

Historical shift

Over the long-term, the element that has changed the most in DIP lending is the amount of secured debt that companies will already have by the time a DIP is being put in place.

There used to be next to none – such as in the case of K-Mart – according to multiple sources interviewed for this article. But following the credit boom leading up to the crisis, companies started to go into bankruptcy with balance sheets more highly leveraged with secured debt. As a result, bankrupt borrowers in the last cycle had little collateral free from existing liens for prospective DIP lenders to turn to for security.

Pre-2008 crisis, there was a more robust DIP market as the lifesaving secured debt could be put in place with minimal fuss, but between 2008 and 2010, DIPs became defensive facilities for senior secured lenders in the capital structure to protect themselves. Even though there was increased third-party interest in participating in DIPs as the cycle progressed, DIP providers continue to come predominantly from the senior ranks of bankrupt companies’ capital structures, although the motive can sometimes be as opportunistic as it is defensive.

“While liquidity has opened back up you still don’t see them being provided by strangers to the capital structure,” according to Kirkland & Ellis’ Sprayregen. “You have to underwrite the DIP in a way that it will be safe… While the legal projections reduce the risk, there’s always some,” he says.  – Max Frumes

 

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Heckmann add-on notes price at 100.25 to yield 9.81%; terms

Heckmann today completed a $150 million add-on to its 9.875% notes due 2018 via bookrunners Jefferies, Wells Fargo, and Credit Suisse, according to sources. Pricing came at the midpoint of talk, and the additional notes bring the total issue size to $400 million. The provider of water and wastewater services made its high-yield debut with placement of the original $250 million issue in April. Issuance comes via Rough Rider Escrow under Rule 144A, but the new notes will be fungible upon registration. Proceeds from the deal will be used to fund Heckmann’s acquisition of Power Fuels for approximately $381 million. Terms:

Issuer Rough Rider Escrow / Heckmann Corp.
Ratings B/B3
Amount $150 million
Issue add-on senior notes (144A)
Coupon 9.875%
Price 100.25
Yield 9.812%
Spread n/a
FRN eq. n/a
Maturity April 15, 2018
Call nc2.5
Trade Oct. 26, 2012
Settle Nov. 5, 2012 (T+6)
Joint Bookrunners Jeff/WF/CS
Co-leads
Co’s. RBS,Roth
Px talk 100-100.5
Notes w/ 35% equity clawback @ 109.875 until 4/15/15; carries T+50 make-whole call; w/ change-of-control put @ 101; issue size now $400 million.
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ATP Oil & Gas creditors’ committee membership amended, full list

The U.S. Trustee acting in the Chapter 11 proceedings of ATP Oil & Gas on Oct. 12 amended the membership of the official unsecured-creditors’ committee in the case for the third time.

 

The current members of the panel and their contact information are as follows:

 

  • Capital Ventures International c/o Heights Capital Management (attn: Michael L. Spolan, 415-403-6500)
  • Burnham Securities c/o KLR Group (attn: Jason T. Meek, 713-255-5261)
  • Deep South Chemical (attn: Susan Benoit, 337-837-9931)
  • ERA Helicopters (attn: Paul Robinson, Evan Behrens, or Tomas Johnston, 954-627-5206)
  • Martin Energy Services (attn: Scott McPherson, 713-350-6861)
  • Schlumberger Technology Corporation (attn: James (Jim) M. Sczudlo or Don Burell, 281-785-1964 or 281-285-8715)
  • M-I, LLC d/b/a M-I SWACO (attn: Linda Norvell, 832-295-2642)


– Alan Zimmerman

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Alon USA Energy readies $450M covenant-lite loan refinancing

Joint leads Credit Suisse and Goldman Sachs have set a bank meeting on Wednesday morning at 9:30 a.m. EDT to launch a refinancing for Alon USA Energy, sources said.

The refiner is planning a $450 million, six-year covenant-lite term loan. Pricing hasn’t been set yet, but the loan will be non-callable in year one, followed by 102, 101 call premiums in the following two years.

Alon USA Energy earlier this year backed away from a proposed $700 million term loan refinancing as investors pushed for higher pricing. The Goldman Sachs-led deal was to include an up-to $250 million delayed-draw term loan. The deal was talked initially at L+525, with a 1.25% LIBOR floor and a 98 offer price, with a 101, one-year soft call premium. Proceeds from the refinancing would have been used to refinance the $425 million outstanding under the company’s covenant-lite term loan due August 2013 (L+225) as well as the roughly $216.5 million outstanding under the 13.5% senior secured notes due 2014 issued by its Alon Refining Krotz Springs subsidiary.

Dallas-based Alon USA Energy is an oil refiner and is a subsidiary of Alon Israel Oil Company. Corporate ratings are B/B2. – Chris Donnelly

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Alta Mesa add-on notes price at 99 to yield 9.85%; terms

Alta Mesa today completed an add-on offering to its 9.625% notes due 2018 via bookrunners Wells Fargo, Citi, and Mitsubishi, according to sources.

Pricing came at the middle of guidance after a $50 million upsizing, bringing the total issue size to $450 million. Proceeds from the deal will be used to repay revolver borrowings.

Privately held Alta Mesa is an onshore oil-and-gas exploration-and-production company based in Houston, Texas

Terms:

Issuer Alta Mesa Holdings
Ratings B/B3
Amount $150 million
Issue add-on senior notes (144A)
Coupon 9.625%
Price 99
Yield 9.85%
Spread n/a
FRN eq. n/a
Maturity Oct. 15, 2018
Call nc2
Trade Oct. 3, 2012
Settle Oct. 15, 2012 (T+7)
Joint Bookrunners WF/Citi/MUFJ
Co-Leads
Co’s.
Px talk 99 area
Notes w/ equity clawback for 35% @ 109.625 until 10/15/14; carries T+50 make-whole call; upsized by $50 million; issue size now $450 million

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