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In Shadow of Brexit, Burgeoning European LBO Loan Market Proceeds with Caution

european lbo loan volume

U.K. buyouts accounted for only €2.33 billion of LBO volume across the leveraged loan market in 2016’s first half, versus €14.4 billion of supply for non-U.K. buyouts, according to LCD, an offering of S&P Global Market Intelligence.

Note the €14.4 billion is the largest first-half volume for non-U.K. LBOs since the turn of the decade, indicating that sponsors were either keen to raise financing ahead of the June 23 U.K. Brexit vote, or were simply not perturbed by it.

Sponsors expect LBO activity to continue into the second half of 2016, although the U.K.’s decision to leave the European Union has left market participants in a brave new world of financing, and the biggest obstacle to a pick-up in LBOs will be new valuations. – Nina Flitman

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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TPG Specialty urges TICC shareholders to vote for its board nominee

TPG Specialty Lending, the BDC that lends to middle market companies, stepped up its fight for rival TICC Capital today as the two sides geared up for a proxy battle.

In a letter dated July 13, TPG Specialty urged TICC Capital shareholders to vote in favor of board nominee T. Kelley Millet at TICC Capital’s annual meeting on Sept. 2. TPG Specialty has tried unsuccessfully to acquire TICC Capital. Millet is CEO of Banca IMI Securities Corp.

TPG is calling to end an ineffective investment advisory agreement between TICC Capital and TICC Management. TPG says TICC Capital shares have grossly underperformed the S&P 500 and the BDC Composite Index since TICC Capital’s IPO in 2003, driven by a 57% decline in NAV. In the meantime, TICC has paid fees of over $140 million to its external adviser and management.

TICC Capital has pursued an unsustainable dividend policy, paying a dividend far exceeding net investment income, TPG Specialty said.

“Do not be fooled! These payments are not comprised solely of investment returns; stockholders are being paid back in part with their own money,” the letter to TICC Capital shareholders said. “More importantly, this strategy has unfortunately resulted in almost irreversible value destruction of NAV per share that will only continue without quick and decisive action.”

TICC Capital has countered with its own board nominee, Tonia Pankopf, who is up for re-election this year. In a letter to its shareholders yesterday, TICC Capital sought support from shareholders to vote in favor of Pankopf and reject TPG Specialty’s plan to terminate its investment advisory agreement with TICC Management.

TICC Capital’s executive officers and directors together hold 5.7% of common stock, the proxy statement filed on July 12 showed. Ahead of the previous shareholder meeting, the board owned 1.8% of common stock, a proxy filed in April 2015 showed.

TICC Capital has also been fighting on another front. NexPoint Advisors, an affiliate of Highland Capital Management, submitted a proposal to cut fees and invest in TICC Capital. In the letter yesterday, TICC Capital told shareholders not to support any potential proposal from NexPoint.

TPG Specialty Lending’s investment portfolio reflects its ongoing interest in TICC. As of March 31, TPG owned 1.6 million TICC shares, representing 0.9% of its portfolio.

TPG has repeatedly said that TICC’s external manager has failed the BDC and, given the chance, TPG could improve returns for shareholders.

“We remain committed to affecting change at TICC,” co-CEO and Chairman Josh Easterly said in an earnings call in May. — Abby Latour

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UFC Sets Leveraged Loan, High Yield Bond Backing Private Equity Buy of Co.

Financing for the $4 billion purchase of professional mixed martial arts organization UFC by WME IMG, Silver Lake Partners, KKR, and MSD Capital will include a $1.3 billion, seven-year covenant-lite term loan B and $500 million of unsecured notes, sources said. As expected, UFC will be financed on a stand-alone basis and will not result in a refinancing of talent agency WME IMG’s debt, sources said.

UFC logoGoldman Sachs will be left lead on the loan deal and is expected to commence pre-marketing of the transaction shortly, while Deutsche Bank will be left lead on the bond deal, sources said. As noted earlier, the financing package has been underwritten by Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, and KKR Capital Markets.

WME IMG will also serve as UFC’s operating partner. Silver Lake Partners and KKR will join WME IMG as new strategic investors, along with MSD Capital, L.P. and MSD Partners, L.P., which will provide preferred equity financing, sources said.

UFC produces more than 40 live events annually and is the largest Pay-Per-View event provider in the world, broadcast in over 156 countries and territories, to nearly 1.1 billion television households worldwide, in 29 different languages. UFC continues to capitalize on digital distribution platforms via its wholly owned subscription over-the-top service, FIGHT PASS, delivering exclusive live events, thousands of fights on demand, and original content to viewers around the globe.

UFC parent Zuffa in 2014 repriced its then $475 million TLB due 2020 to L+300, with a 0.75% LIBOR floor. — Chris Donnelly

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Martini Departs Role of Financial Sponsors Head at Apollo BDC

Arthur Martini, the U.S. head of financial sponsors at Apollo Capital Management, has left the firm, sources said.

Martini joined Apollo Capital Management in August 2013, according to his LinkedIn profile. He was part of the investment team at the BDC, Apollo Investment Corp.

Prior to Apollo, Martini worked at Barclays Private Credit Partners, Cerberus Capital Management, and J.P. Morgan Chase. — Abby Latour

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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M&A, LBO Leveraged Loan Issuance Remains in Check During 2nd Quarter

M&A loan volume US

M&A leveraged loan volume declined slightly in 2016’s second quarter, to $56.4 billion from $65.3 billion in the previous three months, according to LCD.

In general, M&A activity has been lackluster, as high equity prices, stiff competition for deals, and regulatory constraints keep a lid on activity.

As for LBOs, private equity shops maintained the unspectacular pace established in the first quarter of the year, logging $18.1 billion in leveraged loan buyout loan volume during the second quarter. – Staff reports

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This story is part of analysis, written by Kerry Kantin, which first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Diamond Resorts Nets Financing for $2.2B Purchase by Apollo

Apollo Management has agreed to purchase Diamond Resorts International for $30.25 per share, or roughly $2.2 billion, backed by financing commitments from Barclays, Royal Bank of Canada, and Jefferies. PSP Investments Credit USA LLC is also providing debt financing commitments, sources said.

diamond resorts logoThe all-cash offer represents a premium of approximately 26% over Diamond Resorts’ closing share price on June 28, 2016, and a premium of roughly 58% over the closing share price in February

The transaction is conditioned upon satisfaction of the minimum tender condition which requires that shares representing more than 50% of the company’s common shares be tendered and the receipt of certain regulatory approvals and other customary closing conditions.

Diamond Resorts last approached the loan market in late 2015 with a $150 million add-on to its $455 million covenant-lite first-lien term loan due May 2021 (L+450, 1% LIBOR floor). There was roughly $574.6 million outstanding under the loan at March 31, 2016. The issuer also has roughly $601 million of other debt via securitization notes and funding facilities.

Diamond Resorts International operates a network of more than 420 vacation destinations located in 35 countries throughout the continental U.S., Hawaii, Canada, Mexico, the Caribbean, South America, Central America, Europe, Asia, Australasia and Africa. — Chris Donnelly

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Distressed Debt: Blackstone Acquires Minority Stake in Marathon Asset Management

Marathon Asset Management today announced that Blackstone Strategic Capital Holdings, a vehicle managed by Blackstone Alternative Asset Management (BAAM) acquired a passive, minority interest in the firm.

marathon logoMarathon will keep autonomy over its business management, operations, and investment processes, and will continue to be led by its existing management team, which includes Gabriel Spiegel, Andy Springer, Stuart Goldberg, and Jamie Raboy.

Marathon currently manages about $12.75 billion in assets in global corporate credit, distressed, special situations, structured credit, emerging markets, and leveraged loans.

Concurrent with the announcement, Andrew Rabinowitz will now be President and Chief Operating Officer after previously serving as a partner of the firm.

Vijay Srinivasan, senior managing director, will also run global credit research, taking over the role from Richard Ronzetti who announced his retirement. — Staff reports

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Dell Software Group Nets Financing for EMC Buyout

Credit Suisse and RBC Capital Markets are providing an undisclosed amount of debt financing to back Francisco Partners and Elliott Management’s purchase of Dell Software Group, sources said.

dellPublished reports put the software unit’s purchase price at north of $2 billion. Dell Software provides advanced analytics, database management, data protection, endpoint systems management, identity and access management, Microsoft platform management, network security, and performance monitoring.

Details of the new financing haven’t emerged, but the software group’s two principal businesses, Quest Software and SonicWALL, are both well known to the leveraged finance markets.

A planned $2 billion buyout of Quest by Insight Venture Partners in 2012 was backed by an $820 million senior secured term loan, a $75 million senior secured revolving credit, and a $300 million senior unsecured bridge, all provided by J.P. Morgan, RBC Capital Markets, and Barclays. The company was later sold to Dell instead, and its purchase of SonicWALL occurred around the same time.

Credit Suisse arranged a $155 million first-lien term loan and a $105 million second-lien term loan to support the $717 million buyout of SonicWALL by an investor group led by Thoma Bravo that includes Teachers’ Private Capital back in 2010.

Dell, meanwhile, is expected to use proceeds from the asset sale to repay debt stemming from its recent acquisition of EMC Group, specifically a portion of its $3.2 billion, three-year term loan A-1, which is held by the deal’s underwriters and other commercial banks. —Chris Donnelly

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Leveraged Loans: Amid Issuers’ Market, Dividend Deals Continue to Thrive

US dividend leveraged loan issuance 2

Lackluster M&A and LBO leveraged loan volume, along with the recent turnaround in market technicals, have helped propel a rebound in dividend/recapitalization loan activity in the second quarter of 2016.

With another two weeks to run until quarter-end, recap-related loan volume has climbed to its busiest level in a year, totaling $13.8 billion, according to LCD, a unit of S&P Global Market Intelligence.

The leveraged loan market hasn’t been this busy with recap deals since 2015’s second quarter, when $15.6 billion was spread across 35 transactions.

It’s no coincidence that the market for recaps is as strong as it was one year ago, as the technical backdrop is similar. This year, conditions started to improve for issuers in March and April, igniting a fresh wave of opportunistic activity in May. All told, demand outpaced supply in May by $12 billion, after a $3 billion surplus in April, marking the largest issuer-friendly imbalance since June 2015. – Chris Donnelly

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Protection One Readies $1.45B of LBO Loans

A Credit Suisse-led arranger group has accelerated the deadline to Thursday, June 18 at noon EDT, from June 23, for the $1.45 billion first- and second-lien financing backing Apollo Management’s purchase of Protection One and ASG Security, according to sources.

The financing is structured as a $1.055 billion, six-year first-lien term loan; a $300 million, seven-year second-lien term loan; and a $95 million revolver. The term loans will be covenant-lite.

Price talk is at L+400, with a 1% LIBOR floor, and a 99 offer price on the first-lien term loan, and L+875, with a 1% floor, and a 98 OID on the second-lien. First-lien lenders are offered six months of 101 soft call protection, while the second-lien would include 102, 101 hard call premiums in years one and two, respectively.

At talk, the first-lien offers a yield to maturity of about 5.3%, while the second-lien would yield about 10.55%.

Credit Suisse, Barclays, Deutsche Bank, Jefferies, RBC Capital Markets, and Goldman Sachs are arranging the transaction.

Apollo last month agreed to purchase both Protection One and ASG Security and merge the two businesses. The purchase prices of the transactions were not disclosed, but the combined company is expected to generate annual revenue in excess of $500 million, according to Protection One. Closing is expected in mid-2015.

Protection One, a business and home security company, is currently owned by GTCR.

Protection One’s existing loans will be refinanced in connection with the transaction. The issuer has in place a $687 million term loan and a $55 million revolver, according to a recent S&P report. The existing term loan due March 2019 (L+325, 1% floor) is governed by a leverage test. – Richard Kellerhals/Kerry Kantin