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DigiCert secures debt financing to back buyout by Thoma Bravo

Jefferies and Fifth Street Asset Management agreed to provide the debt financing for Thoma Bravo’s majority acquisition of DigiCert from TA Associates. Details of the acquisition and the financing were not disclosed.

TA Associates, which bought the company in 2012, will retain a minority stake in the business.

DigiCert, based in Lehi, Utah, provides SSL certificates and SSL management tools for small and large companies in various industries. The company provides digital certificates to over 15,000 customers in more than 180 countries. – Jon Hemingway

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Prospect Capital investment in USG Intermediate outlined in 10-Q

Prospect Capital’s investment in USG Intermediate in the recent fiscal quarter included a $21.6 million L+650 (1% LIBOR floor) term loan A due 2020 and a $21.7 million L+1,250 (1% LIBOR floor) term loan B due 2020, a 10-Q showed.

USG Intermediate received a total of $48.5 million of first-lien term loans and a revolver from Prospect Capital in the June quarter. The investment included equity.

At closing of the deal, $43.5 million of the debt was funded. Proceeds were for business expansion.

USG Intermediate is a direct marketing company that uses direct mail, print media, digital media, television direct response, and telemarketing channels to sell collectible items.

Prospect Capital, a BDC, lends to and invests in privately held middle-market companies. Shares trade on the Nasdaq under the ticker PSEC. – 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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Stellus Capital outlines junior debt investment for Douglas in 10-Q

Stellus Capital Investment Corp. outlined details of a junior debt investment in specialty chemicals company Douglas Products in an SEC filing for the second fiscal quarter.

Stellus Capital’s investment portfolio as of June 30 showed equity and a $9 million, L+1,050 (0.5% floor) second-lien loan due 2020 to Douglas Products. The loan accounted for 5% of net assets in the investment portfolio of Stellus Capital.

The debt was part of financing backing two acquisitions by Douglas Products. CIT provided senior debt.

Altamont Capital Partners also provided capital. Douglas Products has been a portfolio company of Altamont Capital Partners since 2007.

Douglas Products acquired the Vikane and ProFume businesses from Dow AgroSciences, a subsidiary of The Dow Chemical Company. As part of the transaction, Douglas acquired a manufacturing facility that Dow will continue to operate, a statement on July 6 said.

Douglas Products, based in Liberty, Mo., manufactures and distributes specialty chemical products for pest management, thermal fluids, and sanitary sewer applications.

Investments of San Francisco-based Altamont Capital Partners include Indianapolis-based used-car dealership J.D. Byrider, fabrics and furnishings designer Robert Allen Group, insurance loss adjuster McLarens Young International, snowboard maker Mervin Manufacturing, and specialty foods holding company Tall Tree Foods.

Stellus Capital Investment Corporation is a BDC that invests primarily in private middle market companies generating $5 million to $50 million of EBITDA. Shares trade on the NYSE as SCM. – 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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Loan defaults set to hit 6-month high with Samson Resources Ch 11 filing next month

The default rate of the S&P/LSTA Leveraged Loan Index will increase to 1.27% by principal amount next month, from 1.17%, when Samson Resources via Samson Investment Company files for bankruptcy, tripping a default on its second-lien secured loan. The default rate by issuer count will tick up to 0.77%, from 0.67%, according to LCD.

The default rate would be at a six-month peak, or the highest level since 3.79% as of March 31, although that was including Energy Future Holdings, which is no longer counted in the default rate due to the rolling-12-month basis. Excluding EFH, the default rate post-Samson would hit its highest level since February 2014 when it was 1.86%, according to LCD.

Privately held, KKR-controlled Samson on Friday announced publicly that it has entered into a restructuring support agreement with certain lenders holding 45.5% of the company’s second-lien debt, and with its sponsor on a proposed balance sheet restructuring that “would significantly reduce the company’s indebtedness and result in an investment of at least $450 million of new capital.”

Under the terms of the RSA, second-lien lenders, including Silver Point, Cerberus and Anschutz, have agreed to invest at least $450 million of new capital to provide liquidity to the balance sheet post reorganization and permanently pay down existing first-lien debt, the company said.

As a result, the company said it would not make the interest payment due today under its sole outstanding corporate issue, the $2.25 billion of 9.75% unsecured notes due 2020, but instead would use the 30-day grace period triggered by its non-payment “to build broader support for the restructuring and continue efforts to document and ultimately implement the reorganization transaction as part of a Chapter 11 filing.” The debt is worthless, trading below 1 cent on the dollar, down from around 30 in March, and a par context a year ago before the bear market mauling in oil.

The Samson loan default would not be particularly large, as the second-lien term loan was originally $1 billion in the Index. However, it’s notable as the second largest loan default this year, or since Caesars Entertainment kicked off the New Year in mid-January with the sixth largest default on record, at $5.36 billion across four tranches in the Index, according to LCD.

Assuming no other defaults leading up to Samson next month, it would become sixth loan-issuer default in the Index this year, following rival coal credits Alpha Natural Resources earlier this month, Patriot Coal in May, and Walter Energy in April, as well as exploration-and-production company Sabine Oil & Gas in April. Meanwhile, the eight ex-Index defaults this year are Altegrity, Allen Systems, American Eagle Energy, Boomerang Tube, Chassix, EveryWare, Great Atlantic & Pacific Tea, and Quicksilver Resources.

The shadow default rate for the Index is currently at 0.72%, down from 0.82% last month, but nearly triple the 0.29% rate in April. There is $5.51 billion of Index outstandings on the shadow list, and that includes Samson since its hiring of Kirkland & Ellis and Blackstone Group in February. This rate includes loans that are paying default interest but which are still performing, loan issuers that have bonds in default, and issuers that have hired bankruptcy counsel or that have secured a forbearance agreement.

There are five loan issuers on the shadow list that are publicly known. Beyond Samson, it’s Gymboree, Dex Media, Millennium Health, and Vantage Drilling, all of which are consulting advisors. – Matt Fuller

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

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Loan bids post fourth consecutive drop amid outflows, slowing CLO issuance

The average bid of LCD’s flow-name composite fell 11 bps in today’s reading to 98.78% of par, from 98.89 on Tuesday, Aug. 11.

Among the 15 names in the sample, eight declined, three advanced, and four were unchanged from the prior reading. Avaya’s B-7 term loan due 2020 (L+525, 1% floor) was once again the biggest mover in either direction, falling another point in today’s reading to an 88.5 bid, extending losses on its 3Q results released last week amid the volatile market conditions.

After losses deepened Wednesday morning, loans began clawing back losses yesterday afternoon, with the recovery continuing today, as some buyers stepped in to capitalize on the recent weakness.

Overall, the market has had a slightly negative bias in recent sessions with loan mutual funds recording outflows and CLO issuance slowing, while traders also say that some high-yield and crossover accounts have been selling loans amid the recent downdraft in high-yield. Lipper last week reported an outflow of $594 million, the largest in 26 weeks, and the market appears poised for an even more considerable outflow this week. LCD data project an outflow, per the Lipper sample of weekly reporters, of $775 million for the five days ended Aug. 12.

With prices well off recent highs – the percentage of performing Index loans bid at par or higher fell to 23.1% as of yesterday’s close, from 40.6% a week earlier and 54% three weeks ago – some accounts are viewing the recent weakness as a buying opportunity, and there’s speculation that today’s relative bargains could revive the lackluster CLO issuance as of late. Regardless, buyers began coming out of the woodwork.

Nevertheless, this recent secondary weakness has bled into the primary market. While there’s ample demand to get deals done, issuers and arrangers can’t be as aggressive as they might have been a week ago, especially with a few recently issued deals that cleared tight relative to their ratings profiles bid below their issue prices, such as Pharmaceutical Product Development and HD Supply.

With the average loan bid tumbling 11 bps, the average spread to maturity gained two basis points, to L+415.

By ratings, here’s how bids and the discounted spreads stand:

  • 99.63/L+367 to a four-year call for the nine flow names rated B+ or higher by S&P or Moody’s; STM in this category is L+365.
  • 97.52/L+499 for the six loans rated B or lower by one of the agencies; STM in this category is L+474.

Loans vs. bonds
The average bid of LCD’s flow-name high-yield bonds dropped 40 bps, to 97.47% of par, yielding 7.48%, from 97.87 on Aug 11. The gap between the bond yield and discounted loan yield to maturity stands at 327 bps. – Staff reports

To-date numbers

  • August: The average flow-name loan fell 87 bps from the final July reading of 99.65.
  • Year to date: The average flow-name loan rose 186 bps from the final 2014 reading of 96.92.

Loan data

  • Bids decrease: The average bid of the 15 flow names slipped 11 bps, to 98.78% of par.
  • Bid/ask spread expand: The average bid/ask spread grew, to 38 bps.
  • Spreads higher: The average spread to maturity – based on axe levels and stated amortization schedules – inched up two basis points, to L+415.
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Alex Toys, maker of Slinky, expanded loan from THL Credit for acquisitions

THL Credit increased an investment in Alex Toys in the fiscal second quarter to fund two acquisitions.

Alex Toys received a $13.2 million second-lien term loan and a $1 million equity investment in the quarter ended June 30, THL Credit said in a statement.

THL Credit’s debt investment in Alex Toys comprised a $30.2 million second-lien term loan due 2019 (L+1,000) as of June 30, up from a $17 million second-lien term loan due 2019 (also at L+1,000) as of March 31.

In May 2015, Alex Toys acquired Buzz Bee Toys, as well as France-based toymakers Janod and Kaloo.

Alex Toys sells branded toys, sports balls, educational activity kits, games, science kits, construction sets, and novelty products under brands such as POOF, Slinky, Scientific Explorer, Ideal, ZOOB, Backyard Safari, Zillionz, Shrinky Dinks, and Ruff Stuff.

THL Credit is an externally managed business-development company that trades on the NASDAQ under the ticker TCRD. – 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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Mid-market corporate auctions in Europe to watch

Inflexion Private Equity has emerged as the frontrunner to acquire Quilvest-owned sushi chain Yo! Sushi, according to reports. Quilvest mandated Canaccord Genuity to run the process, which attracted several financial sponsors understood to include 3i Group and Morgan Stanley Private Equity, as well as Inflexion. Inflexion has subsequently won exclusivity after the final round of bidding, and is expected to acquire the company for roughly £100 million.

The auction of Dutch lingerie retailer Hunkemöller has taken an interesting twist, with U.S.-based private equity group Sycamore Partners reportedly submitting a last-minute bid that could trump offers from rival buyout groups CVC Capital Partners, Apax Partners, and The Carlyle Group, according to reports. The company, which is owned by PAI Partners, is valued at roughly €440 million.

Corsair Capital is understood to be close to launching a formal sale process for ATM company NoteMachine, according to market sources, who suggest Jefferies is likely to run the auction, which could begin in September or early October.

NoteMachine – which Corsair acquired in 2012 from buyout peer Rutland Partners – could fetch roughly £320 million. The business is backed by a £120 million unitranche loan provided by GE Capital and Ares Capital Europe joint venture the ESSLP, upsized last June from an existing £76.5 million facility.

Health and safety consultancy Santia is also set for the auction block, with turnaround investor and current owner Better Capital mandating PwC in recent weeks to advise on strategic options for the business. In Better Capital’s most recent financial statements, Santia carried a NAV of £40 million as of March 31, 2015 – up from £36.2 million a year earlier.

After a flurry of deals already in the sector this year, two more travel agents are soon to carry ‘for sale’ signs. Equistone Partners Europe is eyeing an exit for Audley Travel, according to reports, and has mandated Rothschild to run the auction. The business could be valued at more than £200 million.

Inflexion is also understood to be eyeing a realisation of its investment in On the Beach, which carries a £250 million valuation. The firm is reportedly exploring an IPO of the business, but could yet run an auction process.

Polish national airline LOT has attracted the interest of private equity group Indigo Partners, according to reports. Indigo, an experienced airline investor, is reportedly looking to buy a stake in the carrier and invest several hundred million zloty to help Warsaw, the airline’s home city, become a hub for the Central and Eastern Europe region.

In Ireland meanwhile, private equity group CapVest is lining up financing to support a bid for plastics and environmental services company One51. CapVest made a preliminary approach to the firm’s board regarding a €288 million (or €1.80 per share) offer for the Irish company. The firm generated EBITDA of €21.9 million last year, on revenue of €276.5 million. – Oliver Smiddy

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Cast & Crew accelerates deadline to Friday on LBO credit

RBC Capital Markets, Credit Suisse, Deutsche Bank, and Societe Generale have accelerated the commitment deadline on their first- and second-lien financing backing Silver Lake’s purchase of Cast & Crew Payroll, LLC, to 5 p.m. EDT on Friday, July 31, from Aug. 4.

Arrangers haven’t revised price talk. As noted earlier, the first-lien term loan is talked at L+375-400, with a 1% LIBOR floor, and a 99-99.5 offer price, sources said. The second-lien term loan is talked in a range of L+775-800, with a 1% floor, offered at 99, sources said.

The covenant-lite deal includes a $270 million, seven-year first-lien term loan and a $95 million, eight-year second-lien term loan, along with a $65 million, five-year revolver, sources said. The first-lien term loan includes six months of 101 soft call protection and would yield roughly 4.93-5.28% to maturity. The second-lien term loan includes 102 and 101 call premiums in years one and two, respectively, and would yield roughly 9.23-9.5%.

The transaction would leverage Cast & Crew at roughly 4.4x through the first-lien debt and about 6x total. Equity will compose roughly 50% of capitalization, according to sources. The issuer is rated B/B3. The first-lien debt is rated B+/B2, with a 2H recovery rating. The second-lien debt is rated CCC+/Caa2 with a 6 recovery rating.

Private equity firm ZM Capital is the seller. In 2012, a consortium led by ZM Capital, including VSS, Emigrant Capital, and other ZMC affiliates, bought the company. ZM Capital invests in media, entertainment, and communications companies.

The issuer, which does business as Cast & Crew Entertainment Services, based in Burbank, Calif., provides payroll services and production accounting to the entertainment industry, including film and television studios, and live-event venues. – Chris Donnelly/Abby Latour

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Hostess tightens pricing on $1.25B leveraged loan backing recap/dividend to apollo

A Credit Suisse-led arranger group is seeking commitments by 5 p.m. EDT today on the first- and second-lien dividend recapitalization financing for Hostess Brands after offering issuer-friendly changes to the deal, including tightening pricing and adding pre-cap language to the transaction, according to sources.

The spread on the first-lien term loan firmed at L+350, the tight end of L+350-375 guidance, and the offer price was tightened to 99.75, from 99.5. The 1% LIBOR floor is unchanged.

The second-lien also firmed at the tight end of the initial L+750-750 range, while the arrangers tightened the OID to 99.5, from 99. The 1% floor is unchanged.

As revised, the first-lien offers a yield to maturity of about 4.62%, while the second-lien would yield about 8.87%, which compares with 4.67-4.93% and 8.96-9.23% at the original guidance, respectively.

Credit Suisse, UBS, Deutsche Bank, Morgan Stanley, RBC Capital Markets, and Nomura are arranging the deal.

In addition, the leads shifted $100 million to the first-lien term loan from the second-lien. As revised, the deal includes a $100 million revolver; a $925 million, seven-year first-lien term loan; and a $300 million, eight-year second-lien term loan.

The issuer is rated B/B2. Prior to the shift in funds, the first-lien drew B+/B1 ratings and the second-lien drew CCC+/Caa1 ratings, with 2H and 6 recovery ratings from S&P, respectively.

The term loans will be covenant-lite. As before, the first-lien term loan is set to include six months of 101 soft call protection, and the second-lien loan will be callable at 102 and 101 in years one and two, respectively.

The recap loan follows news that the issuer – which is controlled by Apollo Global Management and Dean Metropoulos – took the company off the auction block and was instead preparing to pursue an initial public offering. The dividend is roughly $905 million. – Kerry Kantin/Chris Donnelly 

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AssuredPartners’ buyout by Apax backed by BAML, RBC, MS

Bank of America Merrill Lynch, RBC Capital Markets, and Morgan Stanley have provided committed debt financing to back Apax Partners’ acquisition of insurance brokerage AssuredPartners from GTCR.

Sources indicate the debt financing will be U.S.-focused.

AssuredPartners is one of the largest insurance brokerage firms in the U.S. It was formed in 2011 as part of a strategic partnership between private equity firm GTCR and the company’s CEO and COO. It has offices in more than 30 states, the District of Columbia, and London. – Nina Flitman