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Pabst to be acquired by Russia’s Oasis Beverages, PE firm TSG nets minority stake

pabst2UBS is leading the debt financing that will back the acquisition of Pabst Brewing Company by Oasis Beverages, according to sources. Private equity firm TSG Consumer Partners will take a minority stake in the business. No other details of the acquisition or the financing were disclosed.

Oasis is a beer and beverage company with operations in Russia, Ukraine, Kazakhstan, and Belarus. Current Oasis chairman and founder Eugene Kashper will serve as the CEO of Pabst.

Current owner C. Dean Metropoulos & Co. acquired Pabst in 2010 from Kalmanovitz Charitable Foundation for $250 million, according to S&P Capital IQ.

Pabst Brewing’s portfolio includes iconic brands such as Pabst Blue Ribbon, Lone Star, Rainier, Ballantine IPA, Schlitz, Old Style, Stroh’s and Old Milwaukee. The company was founded in 1844 and is based in Los Angeles, Calif. – Staff reports

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Senior team from Brazos forms new middle market PE firm

A senior team from Brazos Private Equity Partners, a private equity firm that is winding down, today unveiled plans to set up a new firm targeting control investments of middle market companies.

 brazosRandall Fojtasek, former co-founder and co-CEO of Brazos Private Equity Partners, LLC, will lead CenterOak Partners. Ex-Brazos senior executives Michael SalimLucas CutlerJason Sutherland, and William Henry are joining him.

Dallas-based CenterOak Partners is targeting buyouts and recapitalizations in the U.S. industrial growth, consumer, and business services sectors, with a particular focus on southern and southwestern companies. The new firm plans to build a diversified portfolio of platform investments and invest $20-70 million of equity.

At Brazos, Fojtasek managed $1.4 billion of private equity capital across three funds and oversaw the deployment of over $2.5 billion in transaction value.

In March, peHub reported that Brazos Private Equity Partners would split and raise separate funds in an amicable departure of partners that also included Jeff Fronterhouse and Patrick McGee.

Last week, Brazos announced the close of a dividend recapitalization of optometrist and dentist supplier Vision Source with financing from Golub Capital. In June, Brazos-backed wine distributor Winebow placed debt backing a merger with Vintner Group, a portfolio company of Brockway Moran & Partners.

“They’re still going to manage the portfolio companies at Brazos through the entire lifecycle,” said Megan Griffin at BackBay Communications. “It was a timely moment for the partners to pursue other business opportunities.”

The Brazos Equity Fund III closed oversubscribed in September 2008 with capital commitments of over $700 million, targeting middle market companies with enterprise values of $50-400 million mainly in southwestern U.S. manufacturing, consumer, healthcare, distribution, and financial services companies.

Brazos II closed in 2005 with commitments of $400 million. The first Brazos fund closed in 2000 with commitments of $250 million. – Abby Latour

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Gates Global on deck for tomorrow with cross-border LBO loan

A Credit Suisse-led arranger group has scheduled a bank meeting for 10:00 a.m. EDT tomorrow, June 5, to launch a cross-border loan package backing the Blackstone Group’s purchase of industrial manufacturer Gates Global, according to sources.

The loan financing includes a $2.49 billion term loan, a €200 million ($272 million) term loan, a $125 million cash-flow revolver, and a $325 million asset-based RC. The seven-year term loans will be covenant-lite. The revolvers will mature in five years.

Credit Suisse, Citigroup, Morgan Stanley, Goldman Sachs, and Deutsche Bank, UBS, and Macquarie are arranging the transaction, while Citi will be left lead on the adjoining bond deal.

Commitments on the loan will be due on Thursday, June 19, sources added.

Blackstone in early April agreed to acquire Gates for $5.4 billion. Gates, which makes transmission belts and fluid-power products, is a division of global engineering firm Tomkins/Pinafore, which Onex Corp. and the Canada Pension Plan Investment Board jointly acquired in 2010 for roughly $5 billion.

For reference, Pinafore currently has roughly $1.3 billion outstanding under its B loan, according to a regulatory filing. –

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American Capital forms group to target lower middle market investments

American-Capital-AgencyPrivate equity firm American Capital has formed a group that will target lower middle-market companies generating EBITDA of $5-25 million for equity-control investments.

The group will focus on business and technology services companies, healthcare products and services companies, and industrial growth end market companies.

Sean Eagle, Eugene Krichevsky, David Steinglass, and Justin DuFour, all of American Capital, will lead the Bethesda, Md.-based group, which will initially comprise ten people.

The group, which will be part of American Capital Asset Management, will manage $445 million of committed capital.

The lower middle market buyout group will also manage a new $1.1 billion private equity fund, the American Capital Equity III (ACE III), unveiled earlier this month. The fund will purchase seven middle market companies from American Capital upon closing.

“The Lower Middle Market Buyout group complements our larger investment platform where we target middle and upper middle market buyout opportunities up to $750 million in size, as well as energy, infrastructure, and special situations investment strategies,” American Capital said in a statement.

ACE III was established by American Capital together with an investor group comprising funds advised by Coller Capital, Goldman Sachs Asset Management, and StepStone Group, as well as some sovereign wealth funds, state retirement and pension systems, high net worth family offices, superannuation funds, and certain foundations.

Portfolio companies of Nasdaq-listed American Capital include Luminator Technology Group, Datapipe, Potpourri Group, and SMG. – Abby Latour

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AllianceBernstein launches middle-market direct lending platform

alliance-bernstein-logo1AllianceBernstein has launched a new platform to lend directly to U.S. middle-market companies, according to a company statement.

The platform is called AllianceBernstein Private Credit Investors and the company has raised $500 million for the business.

The platform will focus on privately negotiated, directly sourced first-lien, unitranche and second-lien loans, as well as select mezzanine, structured preferred stock, and minority investments with co-investors. Longer term, the platform also plans to target global borrowers.

Brent Humphries, the former president of Barclays Private Credit Partners LLC, will lead the new initiative at AllianceBernstein. He will be joined by several former senior team members from Barclays: Jay Ramakrishnan, Patrick Fear, and Shishir Agrawal. Wesley Raper will be chief operating officer for the business.

The team has particular expertise in health care services and health care IT, communications infrastructure, software and technology-enabled services, and non-discretionary consumer businesses.

“We have strong growth ambitions for the business, but first and foremost our focus is making good loans to good companies. We will grow as the market demand presents itself,” said Humphries.

The team will target companies generating annual EBITDA of $5-50 million for directly sourced loans of up to $75 million.

The middle market has experienced an influx of new participants due to changing regulations and the resulting pullback from banks.

“Our clients are increasingly looking to increase their exposure to direct lending strategies which offer potential for increased yield and lower mark-to-market volatility. For investors willing to give up some liquidity, this asset class makes a lot of sense as part of their core credit portfolio,” said Matthew Bass, COO of AllianceBernstein’s Alternatives business. – Abby Latour

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Ortho-Clinical sets price talk as LBO loan launches

A Barclays-led arranger group this afternoon outlined price talk of L+350, with a 1% LIBOR floor and a 99-99.5 offer price on the B term loan backing The Carlyle Group’s $4.15 billion purchase of Johnson & Johnson’s Ortho-Clinical Diagnostics business, sources said.

Lenders to the institutional loan are offered six months of 101 soft call protection. At the proposed guidance, the loan would yield about 4.67-4.76% to maturity.

As noted earlier, the senior secured financing is split between a $2.175 billion, seven-year B term loan and a $350 million, five-year revolving credit.

Barclays, Goldman Sachs, Credit Suisse, UBS, and Nomura are arranging the loan. Commitments are due on Wednesday, May 7.

Lenders are offered a ticking fee of half of the drawn spread that kicks in 45 days after the allocation date, and steps up to the full spread after 75 days. The ticking fee is payable until Aug. 12.

Agencies assigned B/B2 corporate and B/B1 facility ratings to the deal, with a 3 recovery rating from S&P.

Goldman Sachs will be left lead on the adjoining bond execution. As reported, underwriters in February syndicated a $1.15 billion high-yield bridge loan. Pro forma for the transaction, net leverage runs 3.2x through the secured debt and 5.1x on a total basis, sources said.

The Ortho-Clinical Diagnostics unit is a global provider of solutions for screening, diagnosing, monitoring and confirming diseases. Headquartered in Raritan, N.J., with manufacturing operations in Rochester, N.Y., Pompano Beach, Fla. and Pencoed, Wales, the business operates in 130 countries. – Staff reports

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Avago cuts pricing on $4.6B M&A term loan amid oversubscription

A Deutsche Bank-led arranger group this morning cut pricing on Avago Technologies‘ $4.6 billion M&A term loan to L+300, with a 0.75% LIBOR floor, at 99.5, sources said. The 101 soft call premium has been extended to 12 months from six months, sources said.

Investors earlier oversubscribed the loan line with talk of L+325, with a 0.75% LIBOR floor and a 99 offer price, according to sources. As revised, the loan will yield 3.89% to maturity, down from 4.24% at initial guidance.

Recommitments are due by close of business today. Allocations are expected on Wednesday.

Additional changes include a ticking fee that kicks in at 150 bps on June 1, rising to 300 bps on July 1. MFN has been added with a 24 month sunset, and a Luxco borrower has been added to what was previously a Cayman Islands borrower, sources explained.

The seven-year B term loan is part of the financing for Avago’s $6.6 billion acquisition of LSI Corp. The financing also includes a $500 million, five-year revolver.

Issuer ratings have firmed at BB+/Ba2/BB+, and the term loan is rated BBB-/Ba1/BBB-, with a 2 recovery rating from Standard & Poor’s. The loan is being arranged by Deutsche Bank, Barclays, Bank of America Merrill Lynch, and Citigroup.

As reported, Avago is also planning to fund the deal with a $1 billion investment from Silver Lake Partners, which would be in the form of a seven-year 2% convertible note with a conversion price of $48.04 per share or preferred stock. Deutsche Bank is acting as lead manager. Avago also intends to put $1 billion of cash into the transaction.

Avago is acquiring LSI for $11.15 per share. Including the SLP note, gross debt/LTM EBITDA is 3.8x.

Avago manufactures semiconductor devices. LSI Corp. makes storage and networking products. – Chris Donnelly/Richard Kellerhals

 

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Middle Market: 1Q14 updates to LCD’s Mezzanine Tracker now available

spcapThe middle market Mezzanine Tracker is now updated through the first quarter of 2014. In addition to U.S. mezzanine and unitranche investments, the spreadsheet includes non-syndicated second-liens for 2013 and later.

As before, the information is gleaned from market sources and SEC filings. The majority of deals are sponsored transactions.

Find the file on the web at lcdcomps.com > Research > US Data > Current Data > Mezzanine Tracker.

Subscribers can find a list of all second-lien loans, including syndicated tranches, in LCD’s separate Second Lien Pipeline and quarterly reports found within the Research > US Data tab.

Questions? Feedback? Let us know! Contact Kelly Thompson at kelly.thompson@spcapitaliq.com or at (312) 233-7054.

Find Kelly on Twitter @MMktDoyenne for middle-market financing news. Check out LCD on Twitter @lcdnews.

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Europe: Leveraged loans compete with high yield bonds for LBO deals

The European credit markets are set to undergo a shift this year, as private equity sponsors sway back towards the loan product to finance buyouts, sources say. The nuances of the loan product and the perception of a highly liquid loan investor base – coupled with the arrival of cov-lite cross-border loans – means the European loan market will be able to compete with its bond counterpart once again.

High-yield issuance has surged in recent years, allowing it to move out the loan market’s shadow, helped by the bond-for-loan refinancing juggernaut as sponsors tapped into the liquid, cheap, and cov-lite financing option offered by bonds.

In 2006 and 2007, bonds accounted for just 16% and 17% of the leveraged finance deal count, respectively. That compares to an average of 50% since 2010. Moreover, last year’s bank-to-bond deal count was 62 – nearly twice the next-largest full-year supply of 36, tracked in 2010. In 2010 through 2013, there have been 150 bank-to-bond transactions for a volume of €51 billion, in a sweeping transition of money from one asset class to another unprecedented in the European leveraged market.

Now, not only has the flood of loan-to-bond refinancings slowed, but market players expect loans to move back into favour versus high-yield when it comes to new buyout situations.

In 2013 loan-only financing was used to back just under 60% (by count) of all M&A financings tracked by LCD across the loan and bond markets, while the popular bond-plus-RCF structure took a 14% share. These annual readings are, respectively, the lowest and highest of the past four years.

So far in 2014 through to March 12, although the pattern of deal flow is still taking shape, loan-only M&A financing has grabbed a 77% share of all deals, while the bond-plus-RCF option is yet to appear.

For jumbo M&A situations such as Numericable, arrangers will want to tap both markets, but away from these the appeal of the loan product is evident again. “The huge driver of supply from 2010-13 has been bank-to-bond, but people are now more constructive on the loan market,” says a banker.

For prospective issuers the loan product offers cheaper financing. The 90-day rolling average yield to maturity at issue on secured bonds is 6.35%, versus 4.5% for TLBs as of March 7. Both are at historically tight levels, and while the spread between the two has narrowed over the last three months, the second half of last year saw the spread at 2.75% (it has been higher once, at 3.12% in the first quarter of 2012), which began to entice issuers to look more closely at loans again.

A key development has been a deeper bid for the loan product. The 2007 loan bonanza was fuelled by CLOs but these subsequently fell away, while banks have been reluctant to lend due to tighter regulation. However, the emergence of more managed accounts and a general pick-up in traditional institutional money have ensured there is no longer a dependence on CLOs for the leveraged loan product.

Even so, the re-emergence of the CLO product adds further comfort that the loan bid is deep and strong. The European CLO market is expected to see at least €10 billion of new issuance this year, versus €7.4 billion last year, and essentially zero during the previous post-crisis years.

“There has been a move away from the dependence on CLOs we saw in 2007,” a banker says. “There is now more traditional institutional money raised, and a new breed of CLO.”

The investor base is hungry for supply, and the €2 billion loan from Ziggo last month highlighted how deep the European market has become – albeit it for a double-B credit. “Ziggo has given sponsors a different perspective on what can get done in loans,” says a banker.

Meanwhile, banks are starting to feel underlent, and are therefore looking to add assets, according to sources. The bond-for-loan trade has resulted in a much larger run-off in bank balance sheets than expected or needed, and interest income is down, sources add. Furthermore, weak corporate M&A volumes mean there are limited opportunities for banks to provide term debt that might carry a premium.

The documentation story

Sponsors have often preferred high-yield over loans in recent years due to bonds being a more flexible asset class with fewer covenants and, in more recent years, a willingness to provide portability.

However, the acceptance of cov-lite on cross-border loans – and its anticipated arrival on at least some domestic European loans – is changing this perspective. With better options for exits available to sponsors, the open repayment aspect of loan financing also looks appealing, sources say, despite the advent of portability language in bond documentation.

“Currently the big trade-off if you go for loans, is covenants,” a sponsor says. “The big advantage of U.S. loans is they are predominantly cov-lite. In Europe, FRNs are comparable to U.S. cov-lite loans, and we can also get portability on bonds. We would, though, look at high-yield very differently in the face of cov-lite loans as you can have the same covenants, but get a pre-payable capital structure at par.”

Another emerging risk to high-yield is the reappearance and acceptance of the first- and second-lien buyout structure. Originators say this format is being heavily pitched in Europe, and add that the second-lien paper is in demand from funds looking for a return boost. This should also allow sponsors to lift leverage, which still remains conservative versus levels seen during the 2007 LBO boom.

Faced with these potential headwinds – which were a recurring theme at last week’s high-yield conference hosted by Euromoney Seminars – bond investors were asked what more they would be willing to give sponsors to keep high-yield attractive. The answer was that high-yield has already gone as far as it should on terms.

Investors cite several key features that have evolved to make the asset class attractive to sponsors, such as the advent of non-call one FRNs, and portability. In addition, they mention restricted payments leverage tests that allow sponsors to take money out of the company at will, as well as making debt incurrence easier.

So flexible has high-yield become that there is talk of sponsors demanding similar terms and features for loans. “Sponsors want loans again. They’re quite cheap, they’re flexible in terms of repayment, and they’re floating. But they’d also like no covenants, plus all the other flexibility that goes with a high-yield bond,” says an arranger. – Luke Millar/Ruth McGavin

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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