Gladstone restructures loans in Galaxy Tool, Tread; sells Funko

Gladstone Investment Corporation has restructured investments in Galaxy Tool and Tread Corp. in the recent fiscal quarter, exchanging debt holdings for equity, an SEC filing showed.

Gladstone Investment booked a realized loss of $10.5 million when the lender restructured its investment in Galaxy Tool. Debt to Galaxy Tool with a cost basis of $10.5 million was converted into preferred equity with a cost basis and fair value of zero through the restructuring transaction, the SEC filing showed.

Galaxy Tool, based in Winfield, Kan., manufactures tooling, precision components, and molds for the aerospace and plastics industries.

An investment in Tread included debt with a cost basis of $9.26 million. This was also converted into preferred equity. Gladstone Investment realized a loss of $8.6 million through the transaction.

Tread was Gladstone Investment’s sole non-accrual investment as of Sept. 30. As of Dec. 31, 2015, a revolving line of credit to Tread remained on non-accrual. Tread remains Gladstone Investment’s sole non-accrual investment.

Based in Roanoke, Va., Tread manufactures explosives-handling equipment including bulk loading trucks, storage bids, and aftermarket parts.

Also in the quarter, Gladstone Investment sold an investment in bobblehead and toy maker Funko, realizing a gain of $17 million. Gladstone Investment received cash of $14.8 million and full repayment of $9.5 million in debt as part of the sale.

Gladstone Investment Corporation, based in McLean, Va., is an externally managed business development company that trades on the Nasdaq under the ticker GAIN. The BDC aims for significant equity investments, alongside debt, of small and mid-sized U.S. companies as part of acquisitions, changes in control, and recapitalizations. — Abby Latour

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Amid Market Turmoil, Buyout Loans Buoy Europe at Levels not Seen Since 2008

europe sponsored leveraged loan volume

Despite upheaval in the in the global economic markets and turmoil in the European leveraged loan secondary, this year’s buyout loan market is off to a swift start, with 16 deals launching to syndication in January, according to S&P Capital IQ and SNL.

By the end of the month, loan issuance to support these buyouts amounted to €5.9 billion of paper hitting the European market – the highest monthly reading since July 2008. For reference, buyout-related volume totalled just €3.2 billion from 10 transactions at this time in 2015.

All of January’s new-issue activity came from private equity backed borrowers. – Luke Millar

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This story first appeared on, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here


Middle market: Cadence Credit Partners launching today, founded by Miller Buckfire’s Kubick

Cadence Credit Partners, a new independent capital markets advisory firm specializing in strategic finance, is launching today.

The founder of the firm is Ron Kubick.

Cadence Credit Partners will specialize in arranging secured credit facilities of $35–500 million for public, private, and sponsor-owned companies that are undergoing a turnaround, executing an acquisition, or need incremental working capital.

Cadence Credit Partners intends to draw upon established relationships with regulated and non-regulated sources of financing, including commercial banks, investment banks, insurance companies, BDCs, specialty finance companies, family offices, and credit hedge funds.

Prior to launching the new firm, Kubick was a managing director at Miller Buckfire & Co. Also, Kubick created and led strategic finance groups at Morgan Stanley and Barclays Capital, and he was a founding member of GE Capital’s Retail and Restructuring Finance Group.

The firm will have offices in New York and is actively recruiting for up to two associate level positions and one director level banker. Each position will have deal-execution responsibilities and direct client interaction. — Abby Latour

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Europe: LBO Loans Race Out of Gate to Start 2016

europe LBO buyout volume

The buyout market is off to a swift start in Europe, with an array of deals launching to syndication in the opening weeks of the year. Launches include LGC, Infinitas, Euro Garages, Webhelp, Hunkemoller, Solar Winds, Saverglass, and Armacell, while B&B Hotels, Element Materials, Solera and others are waiting in the wings.

As of Jan. 18, loan issuance to support these buyouts amounts to €3.1 billion of paper hitting the European market, which is in pursuit of the €21 billion target set in 2015 from 62 transactions. – Ruth McGavin

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This story first appeared on, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here


Keurig Green Mountain sets pro rata pricing, nets ratings

Pricing has emerged on the pro rata component backing the $13.9 billion purchase of Keurig Green Mountain by a JAB Holding Co.–led investor group. Also, BB–/Ba3 ratings have emerged following yesterday’s launch to U.S. investors of the senior secured debt package. The secured loans have drawn BB/Ba3 ratings, with a 2H recovery rating. The rated entity is Maple Holdings Acquisition Corp.

Pricing on the pro rata component, which includes a $2.95 billion, five-year A term loan and a $500 million, five-year revolver, is tied to a leverage-based grid, at L+125–225 and at 25-45 undrawn, sources said.

As reported, arrangers J.P. Morgan, Goldman Sachs, Morgan Stanley, BNP Paribas, Citi, HSBC, and Rabobank yesterday launched to U.S. investors the cross-border financing, which also includes a $2.675 billion, seven-year B term loan, offering the domestic TLB at L+375–400, with a 0.75% LIBOR floor, at 99, for a yield to maturity of roughly 4.76–5.025%. The loans include a 101 soft call premium for six months.

The deal also includes a $275 million (roughly (€250 million), seven-year euro-denominated TLB. A London lender meeting is set for tomorrow, Jan. 21 at 11 a.m. GMT.

Commitments will be due on Tuesday, Feb. 2.

The pro rata facilities are governed by maintenance covenants, while the institutional debt is expected to be covenant-lite.

The purchase price also would include $8.5 billion of common equity.

Keurig, a maker of single-serve coffee brewers, will be privately owned and independently operated following the $92-per-share buyout. JAB separately owns a controlling stake of Jacobs Douwe Egberts, Peet’s Coffee & Tea, Caribou Coffee, Einstein Noah Restaurant Group, Espresso House and Baresso Coffee, along with other non-drinks-related businesses. — Richard Kellerhals/Chris Donnelly

This story first appeared on, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here


Petco Boosts Pricing on LBO Loan, Carves Out Floorless Tranche

A Citigroup-led arranger group this morning offered revisions to the $2.5 billion institutional loan backing CVC Capital Partners and Canada Pension Plan Investment Board’s acquisition of Petco Animal Supplies, including sweetening pricing and carving out a B-1 tranche with a higher spread but no LIBOR floor.

The arrangers boosted pricing on the seven-year term loan to L+475, with a 1% LIBOR floor and a 98 offer price, which compares with original guidance of L+450, with a 1% floor and a 98.5–99 OID, sources said. The B-1 carve-out, which will be sized at a minimum of $500 million, is talked at L+500, with no floor, also offered at 98.

At the proposed guidance, the TLB offers a yield to maturity of about 6.26%, which compares with 5.8–5.9% at the original guidance. The B-1 tranche would yield 6.12%. Note LCD’s yield calculation does not take into account the forward curve; three-month LIBOR stands at 62 bps this morning.

Commitments are due by 5 p.m. EST today, with allocations to follow tomorrow.

The arrangers sweetened other terms of the covenant-lite transaction, including extending the 101 soft call protection to 12 months, from six months initially.

Also, the free-and-clear component of the incremental facility has been scaled back to $300 million, from $500 million. Unlimited amounts are permissible up to 4.5x first-lien net leverage for pari passu debt and up to closing net leverage for junior or unsecured debt. Lenders are offered 50 bps of MFN protection, which sources note will encompass the issuance of secured notes.

The excess-cash-flow sweep opens at 50%, but the step-downs to 25% and 0% were tightened by a half-turn, to 3.5x and 3x net senior secured leverage, respectively.

With respect to the definition of EBITDA, pro forma cost savings are now capped at 20%.

As reported, Citigroup, Barclays, RBC Capital Markets, Credit Suisse, Nomura, and Macquarie have committed to provide the financing. The acquisition, which was announced in November, is expected to close in early 2016. CVC and CPPIB are acquiring the business from an owner group led by TPG and Leonard Green & Partners. Citi will be administrative agent.

The deal drew B/B2 corporate and B/B1 facility ratings, with a 3L recovery rating from S&P. The loan will include six months of 101 soft call protection.

Financing for the transaction also includes a $500 million, five-year asset-based revolver, $750 million of unsecured notes which have been taken by Goldman Sachs, along with $1.45 billion of equity, sources said. Leverage is marketed as 4.8x secured and 6.1x total.

As noted earlier, pricing on the ABL revolver has been outlined as L+125–175. Alongside this morning’s changes to the institutional loan, the accordion for the asset-based revolver was reduced to $100 million, from $250 million.

Petco last approached the loan market in early 2013 with a repricing of its then $1.2 billion covenant-lite B term loan due November 2017 to L+300, with a 1% LIBOR floor. There was about $1.17 billion outstanding on the loan as of Aug. 1, SEC filings show.

Based in San Diego, Petco is a specialty retailer of premium pet food, supplies, and services. The company operates more than 1,400 locations across the U.S., Mexico, and Puerto Rico, along with one of the leading e-commerce platforms in the pet industry. — Kerry Kantin/Chris Donnelly

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Sutherland Perennials nets investment from Acacia, loan via Cadence

Cadence Bank is providing a senior credit facility backing an investment in Sutherland Perennials Group(SPG) by Acacia Partners. ORIX Mezzanine & Private Equity and other family offices contributed to the equity from Acacia.

Sutherland Perennials Group sells high-quality fabrics, outdoor furniture, and interior design products through retail showrooms through the brands Perennials Fabrics, Sutherland Furniture, and David Sutherland Showrooms.

Acacia Partners, based in Austin, Texas, invests in U.S. lower middle market companies generating EBITDA of more than $5 million and sales exceeding $20 million across industries. — Abby Latour

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SolarWinds Sets $1.5B Leveraged Loan Backing LBO by Silver Lake, Thoma Bravo

Arrangers Goldman Sachs, Credit Suisse, Nomura, and Macquarie have set lender meetings next week in New York and London to launch its roughly $1.5 billion first-lien term loan financing backing Silver Lake Partners and Thoma Bravo $4.5 billion purchase of publicly traded IT-management-software provider SolarWinds. The New York meeting is set for Wednesday, Jan. 13 at 1 p.m. EST, while the London meeting kicks off on Thursday, Jan. 14 at 11 a.m. GMT.

Goldman’s mezzanine fund has taken the $580 million junior debt piece, according to sources.

The seven-year covenant-lite term loan deal has garnered early momentum via a recent early look round, sources said.

The purchase price represents a 43.5% premium to the closing price of SolarWinds’ common stock on Oct. 8, 2015, one day prior to the company’s announcement that it was exploring strategic alternatives. The transaction, which is expected to close in the first calendar quarter of 2016, is subject to approval by SolarWinds stockholders, regulatory approvals, and other customary closing conditions. — Chris Donnelly

This story first appeared on, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here


Middle market LBO loan volume fell 9% in 2015 year-on-year after weak 4Q

LBO loan volume was $5.5 billion in 2015, down roughly 9% from the 2014 tally of $6.1 billion among middle-market issuers generating $50 million or less of EBITDA, according to LCD. While down from last year, the 2015 total still represents the second highest post-crisis level. Moreover, the final tally was hampered by a weak $400 million volume total in the fourth quarter, well off the $1.7 billion average over the first three quarters of the year and the $1.5 billion quarterly average of 2014. — Staff reports

MiddleMarket volume 2015


More activism likely in 2016 as BDCs grow up

The BDC industry is experiencing growing pains.

Shares of most BDCs are trading below net asset value. Several BDCs are under attack by activist investors for stock underperformance, and these very public, acerbic battles are casting a pall over the entire sector. The recent market sell-off also punished BDCs as investors fled the credit-focused asset class.

Looking ahead, 2016 is likely to be a year of more shareholder activism for BDCs, market players say, a trend that could ultimately lift BDC share prices in 2016.

“We believe the BDC group could see stock prices increase 5% in 2016. When combined with an average dividend yield of 10%, we expect BDC total returns of 15%. In addition, the growth in shareholder activism could be a further catalyst for the group, particularly for some of the more discounted stocks,” said Troy Ward, an equity analyst at Keefe, Bruyette & Woods, in a Dec. 7 research note.

What won’t likely be a theme next year is raising capital through equity offerings.

“In a period where few BDCs have access to equity capital at accretive levels, earnings growth will be a function of recycling capital and taking optimum advantage of debt capital,” said Merrill Ross, an equity analyst at Wunderlich Securities. “We are looking for earnings growth of approximately 6.7% in 2016.”

Sector dramas unfold
Rifts within the BDC sector will likely widen next year, with battle lines drawn over management fees, the willingness of boards to buy back stock, and whether investors perceive management to be aligned with shareholder interests.

“Activism is going to be a big issue,” said Golub Capital CEO David Golub. Shares in Golub Capital BDC were trading at $16.70 at midday on Dec. 18, a premium to NAV of $15.80 per share as of Sept. 30.

“We are in the midst of what I would characterize as a crisis of confidence in the BDC industry. Investors are skeptical because of self-serving behavior by many BDC managers, often at the expense of their shareholders,” Golub said. The comment was in response to a question on the prospects for the BDC modernization bill, the passing of which Golub believes could be marred by poor timing.

“I hope the industry comes out of this period of activism by becoming a better neighborhood—an industry that’s more focused on shareholder value, that’s more focused on doing things that are fair and good for everybody and not just good for managers. That would be good for the industry.”

For now, all eyes are on dramas involving activist investors, including Fifth Street Finance and Fifth Street Asset Management, which are targets of a class action lawsuit. The suit alleges that the firms fraudulently inflated the assets and investment income of Fifth Street Finance to increase revenue at Fifth Street Asset Management. The firms deny the allegations and are fighting them in court.

Fifth Street Finance has agreed to meet with RiverNorth Capital Management, which is currently the largest stockholder in Fifth Street Finance, with a 6% stake.

American Capital has also been the target of an activist investor since the company unveiled plans to spin off BDC assets. Last month, Elliott Management, which owns an 8.4% stake in the company, urged shareholders to vote against the plan, saying a split would further entrench an ineffective management team that has been overpaid for poor performance and placed valuable assets at risk.

American Capital followed with the launch of a strategic review aimed at maximizing shareholder value, run by an independent board committee and advised by Goldman Sachs and Credit Suisse. Results of the review, which could include a sale of all or part of the company, will be announced by Jan. 31.

American Capital also started a share-buyback program of up to $1 billion of common stock as long as shares are trading 85% below net asset value as of Sept. 30, which was $20.44 per share. Shares were trading at $14.00 at midday on Dec. 18.

In another saga, the board of KCAP Financial, an internally managed BDC, received a letter in October from funds managed by DG Capital Management, its third largest stockholder with a 3.1% stake. DG Capital told the board that selling the business to another BDC would likely reap the best yield to shareholders, who have endured a sustained period of underperformance.

A three-way battle over TICC Capital has intensified in recent months. TICC Capital is urging shareholders to allow Benefit Street Partners, the credit investment arm of Providence Equity Partners, to acquire TICC Management, which manages the investment activities of TICC Capital. NexPoint Advisors, an affiliate of Highland Capital Management, has also submitted a proposal to cut fees and invest in TICC Capital.

The third party, TPG Specialty Lending, has unveiled a stock-for-stock bid for TICC Capital Corp., saying the offer is superior to the competing proposals from either Benefit Street Partners or NexPoint.

The move thrust Josh Easterly, TPG Specialty Lending’s co-CEO, into a prominent role in the drama that could result in such drastic measures as the management company losing its ability to manage a BDC, an outcome that few expected at this time last year.

“Those familiar with our history and investment philosophy understand that it is not in our nature to be public market equity activists,” Easterly said during an earnings call on Nov. 4.

“We have reluctantly assumed this role with respect to TICC as our industry is going through an inflection point,” he said. “We believe that our ecosystem can only thrive in a culture that fosters real value creation for shareholders.”

Awkward years
One possible outcome for the industry longer term is lower management fees. Medley Capital, which has been named as a potential target of activist shareholders, this month unveiled plans to expand a share repurchase program to $50 million after buying back 1.4 million of shares in the most recent quarter, and cut its base management fee on gross assets exceeding $1 billion to 1.5%, from 1.75%, and incentive fees to 17.5%, from 20%.

Medley Capital was part of a trend last year that saw shares of its management company listed in an IPO, following in the footsteps of Ares Management and Fifth Street Asset Management. Medley Management, whose shares trade on NYSE as MDLY, derives most of its revenue from fees for managing BDCs Medley Capital and Sierra Income Corp.

Brian Chase, the CFO of Garrison Capital, said an important factor moving forward is whether a BDC manager also manages other funds, outside of their BDC, that invest in privately originated debt investments. Having access to this institutional capital will be key to staying relevant in the market, particularly in an environment where raising fresh equity is challenging.

Some upsets are possible in the near term due to activist investors’ attention on the BDC sector.

“The BDC space is going through its awkward teenage years. I expect that in due course the sector as a whole will mature and institutionalize, which should further open up access to more capital and solidify their role in the financial system,” said Chase.  — Abby Latour

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