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Swift Energy emerges from Chapter 11

Swift Energy today emerged from Chapter 11, the company announced this morning, adding that it closed on a new $320 million senior secured credit facility in connection with the emergence.

As reported, proceeds of the exit facility were used to repay holders of the company’s prepetition $330 million RBL. The company did not provide further details of the exit facility.

As also reported, the Wilmington, Del., bankruptcy court overseeing the company’s Chapter 11 confirmed the company’s reorganization plan on March 30.

Under the plan, senior notes will be exchanged for about 96% of the reorganized company’s equity, subject to dilution on account of the equitization of the company’s $75 million DIP facility via a rights offering.

According to court documents, the DIP equitization will dilute the distribution to senior noteholders by 75%. Consequently, after giving effect to the rights offering backstop fee of 7.5% of the equity, the final equity distribution to noteholders on account of their claims will be 22.1%, resulting in a recovery rate of 4.6–12.8%, depending upon plan equity value.

At a midpoint value of $680 million, court documents show, the senior notes recovery rate stands at 8.7%.

Existing equityholders retained 4% of the reorganized company’s equity, subject only to a proposed new management-incentive program. In addition, existing equityholders are also to receive warrants for up to 30% of the post-petition equity exercisable upon the company reaching certain benchmarks. — Alan Zimmerman

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Mid-States Supply bought by Staple Street in bankruptcy court sale

Middle-market private equity firm Staple Street Capital has acquired Mid-States Supply Company through a bankruptcy court sale.

The buyer was the stalking-horse bidder in a Section 363 bankruptcy court auction. The purchase price was $25 million in cash, with a negative adjustment for working capital, plus certain liabilities, court documents showed.

The company filed Chapter 11 in February in the Western District of Missouri.

The bankruptcy court documents said Mid-States Supply Company initially owed $45 million under a credit agreement with Wells Fargo dating from 2011, a loan which eventually increased to $60 million. However, this amount had shrunk to $16 million by the time of the asset-sale closing, and was not assumed by the buyer.

SSG Advisors and Frontier Investment Banc Corporation were hired as investment bankers for the sale process.

Kansas City, Mo.–based Mid-States Supply sells pipes, valves, fittings, and controls, and provides related services to the refining, oil-and-gas, and industrial markets.

Staple Street Capital is investing from a $265 million fund, and targets $15–75 million of equity per transaction, aiming at control investments. Founders are Stephen Owens, formerly of the Carlyle Group, and Hootan Yaghoobzadeh, formerly of Cerberus Capital Management. — Abby Latour

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

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Southcross Holdings emerges from Chapter 11

Southcross Holdings, the parent company of Southcross Energy Partners, has emerged from Chapter 11, the company announced yesterday.

As reported, the bankruptcy court overseeing the company’s Chapter 11 on April 11 confirmed the company’s reorganization plan and approved the adequacy of its disclosure statement following a combined hearing.

As also reported, the company filed a prepackaged Chapter 11 on March 28 in Corpus Christi, Texas (see “Southcross Holdings files prepack Ch. 11 with new $170M investment,” LCD News, March 28, 2016). The reorganization plan will result in the elimination of almost $700 million of funded debt and preferred equity obligations, along with a new $170 million equity investment from the company’s existing equity holders, EIG Global Energy Partners and Tailwater Capital.

Among other things, under the company’s contemplated reorganization plan, an $85 million DIP from existing equity holders is to be converted into one-third of the equity of the reorganized company. DIP lenders are also to provide an additional exit investment of $85 million for an additional one-third of the reorganized equity. The company’s term lenders are slated to receive, among other things, the remaining one-third of the reorganized equity. — Alan Zimmerman

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TPG sees near-record originations in 4Q, helped by Idera investment

TPG Specialty Lending, a BDC trading on the NYSE under the ticker TSLX, said originations totaled a near-record $399 million in the recent quarter.

These originations compare to a gross total of $305 million in the final quarter of 2014 and $185 million in the quarter ended Sept. 30. The most recent quarter was the second strongest quarter for originations since TPG’s inception.

Among the new additions to the portfolio in the final quarter of 2015 was a significant piece of M&A financing for Idera, a loan deal that priced wide to talk in volatile market conditions. The loan funded an acquisition of Embarcadero Technologies, which was a portfolio company of TPG.

In October, TPG added a $62.5 million piece of Idera’s loan due 2021 at a cost basis of $56.4 million and $55.9 million at fair value. The loan accounts for 6.8% of TPG’s net assets.

Asked about the loan in an earnings call today, co-CEO Josh Easterly said TPG was able to co-invest in Idera across platforms and was motivated by an intimate knowledge of the software industry and the acquisition target.

“We were able to go in with size, with a big order, to drive terms on a credit we knew that benefited TSLX shareholders,” Easterly said.

Another addition to the investment portfolio was a $45 million first-lien loan due 2021 to MatrixCare, the company’s 10-K filed yesterday after market close showed. Interest on the loan is 6.25%. Fair value and the cost of the loan was $44.1 million as of Dec. 31, the 10-K showed.

GI Partners acquired Canadian healthcare IT company Logibec from OMERS Private Equity in December. OMERS retained Logibec’s former U.S. subsidiary, MatrixCare, which provides health records to long-term care and senior-living facilities.

Also during the quarter, TPG received repayment of a loan to bankrupt grocery store chain operator Great Atlantic & Pacific Tea Co. (A&P).

Exits and repayments totaled $155 million in the most recent quarter, for a net portfolio increase of $129 million in principal. The fair value of the investment portfolio was $1.49 billion as of Dec. 31, reflecting positions in 46 companies. Some 88% of the portfolio was in the first-lien debt of U.S. middle market companies.

Oil and gas

The BDC’s exposure to the troubled oil and gas sector was 3.2%, at fair value, in two investments: Mississippi Resources and Key Energy Services. This compared to oil and gas exposure of 4% for the portfolio as of Sept. 30, which included a loan to Milagro Oil & Gas. A bankruptcy judge confirmed a reorganization plan for Milagro on Oct. 8.

The investment in upstream E&P company Mississippi Resources included a $46.7 million 13% (including 1.5% PIK) first-lien loan due 2018 and equity. The Key Energy investment is a $13.5 million first-lien loan due 2020, booked with a fair value of $10.5 million in TPG’s portfolio, the SEC filing showed.

“We will opportunistically review situations,” Easterly said of potential lending to the oil and gas sector.

Non-accruals

TPG Specialty Lending had no investments on non-accrual status at the end of the quarter.

TICC Capital

The portfolio reflected TPG’s ongoing interest in TICC Capital. TPG owns 1.6 million TICC shares, representing 1.2% of its investment portfolio. TPG is trying to acquire TICC Capital, saying TICC’s external manager has failed the BDC and, given the chance, TPG could improve returns for shareholders.

Earlier this month, TPG nominated a board member and proposed severing what it called TICC Capital’s failed management agreement with TICC Management. TPG owns roughly 3% of TICC Capital stock. An earlier stock-for-stock offer by TPG for TICC was rejected.

The move by TPG came after a shareholder vote at TICC in December that blocked a plan to change TICC Capital’s investment advisor to Benefit Street Partners.

“We believe the result of the shareholder vote not only reflects the demand for TICC shareholders for better management and governance, but also heralds an inflection point for the broader BDC industry to build a culture of accountability and shareholder alignment,” Easterly said today.

NAV

Net asset value per share declined to $15.15 at year-end, from $15.62 as of Sept. 30, and from $15.53 a year earlier. The decline was due to unrealized losses, widening credit spreads in the broader market, and volatility in the energy sector.

Shares of TPG were trading at $16.01 at midday today, up more than 1%, but the stock drifted down to $15.89 in afternoon trade. — Abby Latour

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

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Third Ave’s liquidating debt fund holds concentrated, inactive paper

The leveraged finance marketplace is abuzz this morning ahead of a conference call to address to a plan of liquidation for the Third Avenue Focused Credit mutual fund following big losses this year, mild losses last year, heavy redemptions, and now a freeze on withdrawals. The news was publicly announced last night by the fund, and there will be a call at 11 a.m. EST for shareholders with lead portfolio manager Thomas Lapointe, according to the company.

Market sources yesterday relayed rumors of a near-$2 billion redemption from the asset class, and as one sources put forth, “the odd thing was it was difficult to trace the money that left, what was sold, and where it went.”

That was followed up by last night’s whopping, $3.5 billion retail cash withdrawal from mutual funds (72%) and ETFs (18%) in the week ended Dec. 9, according to Lipper, although it’s not entirely clear if that figure—the largest one-week redemption in 70 weeks—can be linked to Third Avenue. (LCD subscribes to weekly fund flow data from Lipper, but cannot see inside the aggregate observation.)

Nonetheless, it’s worthy of a dive into the open-ended fund, which trades under the symbol TFVCX. The fund shows a decline of 24.5% this year, versus the index at negative 2.94%, after a 6.3% loss last year, versus the index at positive 2.65%, according to Bloomberg data and the S&P U.S. Issued High Yield Corporate Bond Index.

It’s an alternative fixed-income fund that’s “extremely concentrated,” and “hardly representative of a ‘high yield’ or ‘junk bond’ fund,” outlined Brean Capital’s macro strategist Peter Tchir in a note to clients this morning. He highlighted that Bloomberg analytics show a portfolio that’s almost 50% unrated, nearly 45% tiered at CCC or lower, and just 6% of holdings rated BB or B.

The holdings are all fairly to extremely off-the-run, hence the trouble selling assets to meet redemption, and thus, the liquidation. The remaining assets have been placed into a liquidating trust, and interests in that trust will be distributed to shareholders on or about Dec. 16, 2015, according to the company.

Top holdings follow, and none have traded actively or very much in size of late, trade data show:

  • Energy Future Intermediate Holdings 11.25% senior PIK toggle notes due 2018; recent trades in the Ch. 11 paper were at 107.5.
  • Sun Products 7.75% senior notes due 2021; recent trades were at 87.5, versus 90 a month ago and the low 70s a year ago.
  • iHeartCommunications 14% partial-PIK exchange notes due 2021; block trades today were at 30 and 32, from 27 last month.
  • New Enterprise Stone & Lime 11% senior notes due 2018; odd lots traded recently in the low 80s, versus mid-80s last month.
  • Liberty Tire Recycling 11% second-lien PIK notes due 2021 privately issued in an out-of-court restructuring; trades reported in the mid-60s.

Amid those any many others of a similar ilk, the fund also reports a holding in Vertellus B term debt due 2019 (L+950, 1% LIBOR floor). The chemicals credits put the $455 million facility in place in October 2014 as part of a refinancing effort, pricing was at 96.5, and it’s now at 78/82, sources said.

“Investor requests for redemption … in addition to the general reduction of liquidity in the fixed income markets, have made it impracticable for FCF going forward to create sufficient cash to pay anticipated redemptions without resorting to sales at prices that would unfairly disadvantage the remaining shareholders,” according to the company statement.

“In line with its investment approach, FCF has some investments in companies that have undergone restructurings in the last eighteen months, and while we believe that these investments are likely to generate positive returns for shareholders over time, if FCF were forced to sell those investments immediately, it would only realize a portion of those investments’ fair value given current market conditions,” the statement outlined.

Further details are available online at the Third Avenue Management website. — Matt Fuller

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.

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High yield bond prices fall further as some constituents notch large declines

The average bid of LCD’s flow-name high-yield bonds fell 132 bps in today’s reading, to 89.03% of par, yielding 10.58%, from 90.35% of par, yielding 10.05%, on Nov. 19. Performance within the 15-bond sample was deeply negative, with 12 decliners against two gainers and a lone constituent unchanged.

Today’s decline is a seventh-consecutive observation in the red, and it pushes the average deeper below the previous four-year low of 91.98 recorded on Sept. 29. As such, the current reading that has finally pierced the 90 threshold is now a fresh 49-month low, or a level not seen since 87.93 on Oct. 4, 2011.

The decrease in the average bid price builds on the negative 58 bps reading on Thursday for a net decline of 190 bps for the week. Last week’s losses were also heavy, so the average is negative 369 bps dating back two weeks, and the trailing-four-week measure is much worse, at negative 545 bps.

Certainly there has been red across the board, but several big movers of late continue to greatly influence the small sample. For example, in today’s reading, Intelsat Jackson 7.75% notes were off six full points—the largest downside mover today, to 44, and now 20.5 points lower on the month—while Hexion 6.625% paper was off five points, at 73.5, and Sprint 7.875% notes fell 5.5 points, to 77.

The market has been crumbling especially hard this week, with energy and TMT credits leading the charge, amid a lack of participation, the influence of speculative short-sellers, and despite signs that retail cash has been flowing into the asset class. There was a similar dynamic after Thanksgiving last year, sending the average to the year-end low of 93.33 on Dec. 16, 2014.

As for yield in the flow-name sample, the plunge in the average price—with many names falling into the 80s and a couple of others more deeply distressed—has prompted a surge in the average yield to worst. Today’s gain is 53 bps, to 10.58%, for a 2.92% ballooning over the trailing four week. This is a 13-month high and level not visited since 10.70% recorded on June 10, 2010.

The average option-adjusted spread to worst pushed outward by 47 bps in today’s reading, to T+791, for a net widening of 167 bps dating back four weeks. That level represents a wide not seen since the reading at T+804 on Sept. 23, 2010.

Both the spread and yield in today’s reading remain much wider than the broad index. The S&P U.S. Issued High Yield Corporate Bond Index closed its last reading on Monday, Nov. 23, with a yield to worst of 7.88% and an option-adjusted spread to worst of T+652.

Bonds vs. loans
The average bid of LCD’s flow-name loans fell nine bps, to 96.31% of par, for a discounted loan yield of 4.42%. The gap between the bond yield and discounted loan yield to maturity is 616 bps. — Staff reports

The data

Bids fall: The average bid of the 15 flow names dropped 132 bps, to 89.03.
Yields rise: The average yield to worst jumped 53 bps, to 10.58%.
Spreads widen: The average spread to U.S. Treasuries pushed outward by 47 bps, to T+791.
Gainers: The larger of the two gainers was Valeant Pharmaceuticals International 5.875% notes due 2023, which rebounded 3.25 points from the recent slump, to 85.25.
Decliners: The largest of the 12 decliners was Intelsat Jackson 7.75% notes due 2021, which dropped six full points, to 44, amid this fall’s ongoing deterioration of the credit.
Unchanged: One of the 15 constituents was unchanged in today’s reading.

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Ares Corp. details 3Q15 portfolio stats, books $1.5B in new deals

Ares Corp. (NASDAQ: ARCC) booked $1.52 billion in new business during the third quarter, at an average interest rate of 7.8%, the lender detailed in its 10-Q filing yesterday alongside earnings. Exits totaled $1.34 billion, for net new investments of $183 million.

The 7.8% is 20 bps inside second-quarter investments, reflecting the better market conditions that borrowers enjoyed prior to the post-Labor Day correction. Spreads have since widened and should build up the average for fourth-quarter deals. In October, management said it funded $305 million in new investments for the fourth quarter at an average yield of 11.4%, while exiting $152 million at 8%.

First-lien commitments took a 75% share of third-quarter transactions, up from 37%, as ARCC shifted bookings away from the SSLP fund as that joint-venture with GE Capital winds down. Second-liens accounted for 21% of investments, down from 28% in the second quarter.

As of Oct. 29, the lender said it has $630 million in its backlog, which includes transactions that are approved, mandated or have a signed commitment that has been issued and that ARCC believes likely to close. There is an additional $425 million in the pipeline, which includes transactions that are in process, but have no formal mandate or signed commitment.

Portfolio stats
ARCC’s overall portfolio grew to $8.7 billion in assets, from $8.6 billion. The number of investments increased by nine, to 216. Average EBITDA per company is $58.8 million. As of June 30, 66% of the borrowers in ARCC’s portfolio generated less than $55 million of EBITDA.

Non-Accruals
Petroflow lifted ARCC’s loans on non-accrual status to 2.3% ($195 million) of the portfolio at cost, from 1.7%. Petroflow is one of three companies that ARCC considers true oil-and-gas-related investments, which account for roughly 3% of the portfolio. ARCC’s Petroflow investment is a first-lien position that was originated in July last year prior to the dramatic decline in oil prices. ARCC said it is working with the company and lender group to restructure Petroflow’s balance sheet. The principal investment totals $53.2 million. ARCC booked the 12% paper at a cost of $49.7 million, and the deal is now marked at a fair value of $37.9 million.

NAV
BDCs were not excluded from stock market volatility in the third quarter. ARCC’s stock slid to a 14% discount to NAV, from a 2% gap in the previous quarter. The stock closed the third quarter at $14.48, versus a book value of $16.79. The stock has since rebounded, to $15.49, to narrow the discount to 8%. By comparison, the BDC sector as a whole is trading at a roughly 15% discount. — Kelly Thompson

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RAAM Global files Ch. 11, negotiating credit bid with term lenders

RAAM Global Energy filed for Chapter 11 today in Houston, court filings show.

According to court documents, the company is in the process of negotiating a stalking-horse credit bid purchase agreement with its term loan lenders that it hopes to unveil next week.

According to an affidavit in the case filed by the company’s chief restructuring officer, James Latimer, “a confluence of factors in 2014 and 2015 led to the [company’s] need to pursue a financial restructuring,” citing the “historic decline of crude oil and natural gas since the summer of 2014.”

In addition, Latimer pointed to the company’s September 2013 determination that it would be unable to meet financial certifications required to obtain permits to develop its offshore Ewing Banks 920 project in the Gulf of Mexico—as a result of which the project no longer met the requirements of reasonable certainty to remain booked as proved reserves—and the “catastrophic collapse” at the company’s Flipper Field in Texas in May 2013 that damaged four wells and cut the field’s production by 92%, to 166 BOEPD from 1,960 BOEPD, as “impairing” the company’s liquidity and “compelling” the company to restructure.

In explaining the decision to file for Chapter 11, Latimer said that the company’s proposed out-of-court exchange offer for its $238.4 million of 12.5% senior secured notes due 2019, launched in June and terminated on Aug. 20, failed to attract the requisite 99% participation, reaching only 94.77% participation (see “RAAM Global Energy cancels refi exchange as bond maturity looms,” LCD News, Aug. 24, 2015).

Further, Latimer said, the company has been unable to raise cash or identify other capital resources such as bank funding, private investments, or public debt and equity markets, “due to the current economic environment.”

As a result of the elimination of these restructuring alternatives, Latimer said, the company was “compelled … to negotiate with their creditors regarding Chapter 11 proceedings in order to address liquidity concerns and maximize the value of their assets for the benefit of their creditors and other constituencies.”

Latimer said the company was currently negotiating a stalking-horse credit bid purchase agreement with holders of about 99% of the $63.8 million of outstanding debt under the company’s term loan facility, adding that it was “seeking” to present the proposed purchase agreement and bidding procedures to the bankruptcy court by Nov. 6.

The company did not disclose any terms of the proposal, but said it would “create a defined sale process,” and that it “hoped that that interested parties will bid on its assets in such process.” — Alan Zimmerman

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Ares Management, Kayne Anderson drop merger plan

Ares Management and Kayne Anderson Capital Advisors have scrapped their plan to merge, according to a statement released today. The firms note that the decision was mutual, and Ares reiterated its conviction in energy sector opportunities with an investment commitment in Kayne.

“While we continue to strongly believe in Kayne and the long-term energy investment opportunity, it became clear this was not the right time to bring together our cultures and business models into a merged public company,” Ares Chairman and CEO Tony Ressler said in the statement.

Ares and certain principals will invest $150 million in Kayne for energy investments, including private equity, private energy income, and energy infrastructure marketable securities funds managed by Kayne. The two firms may also team up on other opportunities, such as jointly managing separately managed accounts and other products, management said.

Recall that under the proposed transaction that was unveiled in July, alternative asset manager Ares would have acquired the energy specialist for total consideration of $2.55 billion. Combined the firms would have $113 billion of assets under management as of March 31. That’s across five groups: tradable credit, direct lending, energy, private equity, and real estate. — Jon Hemingway

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LINN Energy reduces RC borrowing base to $3.6B

LINN Energy disclosed yesterday that the borrowing base under its revolving credit facility due April 2019 was reduced to $3.6 billion and netted an amendment that, among other things, relaxes its interest coverage covenant. It was previously $4.05 billion, an SEC filing shows.

LINN’s undrawn capacity was $790 million, based on outstanding borrowings as of Sept. 30.

Subsidiary Berry Petroleum’s borrowing base was reduced to $900 million, including $250 million of restricted cash previously posted as collateral with lenders, the company notes. It was previously $1.2 billion. Lenders also approved a potential combination of LINN and Berry’s facilities, subject to a combined borrowing base of $4.05 billion.

Pricing on both facilities is in a range of L+150–250. Commitment fees are 37.5–50 bps.

With the amendment, LINN and Berry reduced minimum interest coverage to 2x, from 2.5x, through Dec. 31, 2016, with steps to 2.25x through June 30, 2017, and back to 2.5x on July 1, 2017. The amendment also allows LINN and Berry to incur junior-lien debt of up to $4 billion and $500 million, respectively, subject to borrowing base reductions. LINN also gained flexibility to divest assets that do not contribute to its borrowing base, the company said.

Houston-based Linn Energy is an independent oil and natural gas company that trades on the Nasdaq under the ticker LINE. LINN acquired Berry Petroleum in 2013. Corporate ratings are B+/B2. — Jon Hemingway