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RAAM Global Energy extends deadline for bond exchange again

Struggling oil and gas exploration and production company RAAM Global Energy has extended an exchange offer for its 12.5% secured notes due 2015 by an additional week.

The exchange offer, which is for new 12.5% notes due 2019 and RAAM common stock, was due to expire on July 16. The new deadline is July 23.

So far, roughly $226.5 million in principal of the 12.5% secured notes due 2015, or 95.2% of outstanding notes, has been tendered, a statement said. The company has previously extended the deadline several times.

In April, RAAM Global Energy said it would enter into discussions with senior term loan lenders and bondholders after failing to pay a $14.75 million coupon on the bonds due 2015.

Standard & Poor’s cut RAAM Global Energy’s corporate credit rating to D, from CCC-, and the issue-level rating on the company’s senior secured debt to D, from CCC-, after the missed bond interest payment. A month later, the ratings were withdrawn at the company’s request.

RAAM Global Energy sold $150 million of 12.5% secured notes due 2015 in September 2010 through bookrunners Global Hunter Securities and Knight Libertas. Proceeds funded general corporate purposes. The bond issue was reopened by $50 million in July 2011 and by another $50 million in April 2013.

The company also owes debt under an $85 million first-lien term loan due 2016. Wilmington Trust is agent.

RAAM Global Energy Company’s production facilities are in the Gulf of Mexico, offshore Louisiana and onshore Louisiana, Texas, Oklahoma, and California. – Abby Latour

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CORE Entertainment downgraded again; grace period on loan lapses

Moody’s downgraded ratings on CORE Entertainment, citing deteriorating earnings for its U.S. Idol franchise that Fox will not renew after the 2016 season, and the expiration of a 30-day grace period to make a missed loan interest payment.

“The negative outlook reflects the very high leverage, the decline of its Idol franchise, the missed interest payment on the 2nd-lien term loan, and negative free cash flow that elevates restructuring risk,” Moody’s said in a July 15 research note.

Leverage for the company, which owns and develops entertainment content, exceeded 10x as of the first quarter of 2015.

Standard & Poor’s cut CORE Entertainment ratings last month after the company missed the interest payment on a $160 million second-lien loan due 2018.

Moody’s cut CORE Entertainment’s corporate family rating yesterday to Ca, from Caa3, and a $200 million senior secured first-lien term loan due 2017 to Caa2, from Caa1. Moody’s affirmed a Ca rating on the $160 million second-lien term loan due 2018.

“Following the 2016 season of Idol, the company will be reliant on its So You Think You Can Dance (Dance), International Idol format revenue, and its Sharp Entertainment division for earnings which will increase the unsustainability of its capital structure with debt that starts to mature in June 2017,” Moody’s said.

“The cash balance has not been used to acquire EBITDA producing assets to offset the EBITDA lost following the Elvis Presley Enterprises sale and development of new programming content has been slower than expected.”

In June, Standard & Poor’s cut the rating on the 13.5% second-lien term loan due 2018 to C, from CCC-, lowered the company’s corporate rating to CCC-, from CCC+, and the rating on a $200 million senior first-lien term loan due 2017 to CCC-, from CCC+.

Investors in the company are Apollo Global Management and Crestview Partners.

CORE Entertainment, and its operating subsidiary Core Media Group, owns stakes in the American Idol television franchise and the So You Think You Can Dance television franchise.

The loans stem from Apollo’s buyout of the company, formerly known as CKx Entertainment, in 2012. – Abby Latour

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JW Resources, backed by HIG Capital affiliate, files Chapter 11

Kentucky coal producer JW Resources, backed by an affiliate of HIG Capital, filed for bankruptcy intending to sell assets through a 363 sale.

The filing was in the U.S. Bankruptcy Court for the Eastern District of Kentucky on June 30.

The filing listed debt of $50-100 million. The secured lenders to the company are GB Credit Partners and Bayside JW Resources.

In March 2014, middle market lender GB Credit Partners, the investment management operation of Gordon Brothers Group, provided a $15 million term loan and revolver to JW Resources. Proceeds funded working capital.

The company blamed the bankruptcy on a 26% drop in coal prices through April 2015, higher mining and processing costs due to government regulations, and declining demand for coal. The company failed to find more funding from secured lenders, equityholders, or third parties.

JW Resources hired Energy Ventures Analysis (EVA) as investment bankers to help carry out the sale through an open auction process.

Bayside Capital is the majority owner of JW Resources, with an equity holding of 74.4%, court filings showed. Investment firm Bayside Capital is an affiliate of HIG Capital and provides debt and equity investments to middle-market companies.

JW Resources produces mines coal with mineral reserves in the Central Appalachian regions of Kentucky. JW Resources acquired its assets and business operations from Xinergy Corp. in February 2013. – Abby Latour

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With blemish-free June, leveraged loan default rate ticks to 1.24%, well within historical lows

leveraged loan default rate

June’s leveraged loan default rates stand well inside the historical averages of 3.2% by amount and 2.9% by number.

Looking ahead, managers who took part in LCD’s latest buy-side poll from early June predicted that the default rate by amount will inch higher by the end of 2015, before topping 2% by June 2016, mainly as a result of woes in the coal sector and the increase in loans trading at distressed levels. – Steve Miller

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This analysis is part of a longer LCD News story, available to subscribers here.

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Energy sector, Colt Defense focus of LCD’s Restructuring Watchlist

The beleaguered energy sector dominated activity this quarter on LCD’s Restructuring Watchlist, with Sabine Oil & Gas missing an interest payment on a bond and Hercules Offshore striking a deal with bondholders for a prepackaged bankruptcy.

Another high-profile bankruptcy this month was the Chapter 11 filing of gunmaker Colt Defense. Colt’s sponsor, Sciens Capital Management, agreed to act as a stalking-horse bidder in a proposed Section 363 asset sale. The bid comprises Sciens’ assumption of a $72.9 million term loan, a $35 million senior secured loan, and a $20 million DIP, and other liabilities.

The missed bond interest payment for Sabine Oil & Gas was due to holders of $578 million left outstanding of Forest Oil 7.25% notes due 2019, assumed through a merger of the two companies late last year.

The skipped payment comes after a host of other problems. Sabine Oil has already been determined to have committed a “failure to pay” event by the International Swaps and Derivatives Association, and will head to a credit-default-swap auction. The determination by ISDA is related to previously skipped interest on a $700 million second-lien term loan due 2018 (L+750, 1.25% LIBOR floor).

Meantime, Hercules Offshore on June 17 announced it entered a restructuring agreement with a steering group of bondholders over a Chapter 11 reorganization. The agreement was with holders of roughly 67% of its10.25% notes due 2019; the 8.75% notes due 2021; the 7.5% notes due 2021; and the 6.75% notes due 2022, which total $1.2 billion.

Among other developments for energy companies, Saratoga Resources filed for Chapter 11 for a second time, blaming challenges in field operations, the decline in oil and gas prices, and an unexpected arbitration award against the company. Thus, Saratoga Resources has been removed from the list. Another company previously on the Watchlist, American Eagle Energy, has been removed following a Chapter 11 filing in May.

Another energy company, American Energy-Woodford, could work itself off the Watchlist through a refinancing. On June 8, the company said 96% of holders of a $350 million issue of 9% notes due 2022, the company’s sole bond issue, have accepted an offer to swap into new PIK notes.

Also, eyes are on Walter Energy. The company opted to use a 30-day grace period under 9.875% notes due 2020 for an interest payment due on June 15.

Another energy company removed from the Watchlist was Connacher Oil and Gas. The Canadian oil sands company completed a restructuring in May under which bondholders received equity. The restructuring included an exchange of C$1 billion of debt for common shares, including interest. A first-lien term loan agreement from May 2014 was amended to allow for loans of $24.8 million to replace an existing revolver. A first-lien L+600 (1% floor) term loan, dating from May 2014, was left in place. Credit Suisse is administrative agent.

Away from the energy sector, troubles deepened for rare-earths miner Molycorp. The company skipped a $32.5 million interest payment owed to bondholders on a $650 million issue of first-lien notes. Restructuring negotiations are ongoing as the company uses a 30-day grace period to potentially make the payment.

In other news, Standard & Poor’s downgraded the Tunica-Biloxi Gaming Authority to D, from CCC, following a skipped interest payment on $150 million of 9% notes due 2015. Roughly $7 million was due to bondholders on May 15, and the notes were also cut to D, from CCC with a negative outlook. The company operates the Paragon Casino in Louisiana.

Constituents occasionally escape the Watchlist due to improving operational trends. Bonds backing J. C. Penney advanced in May after the retailer reported better-than-expected quarterly earnings and improved sales.

In another positive development, debt backing play and music franchise Gymboree advanced after the retailer reported steady first-quarter sales and earnings that beat forecasts. Similarly, debt backing Rue 21 gained in May after the teen-fashion retailer privately reported financial results, according to sources. – Abby Latour

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Here is the full Watchlist, which is updated weekly by LCD (Watchlist is compiled by Matthew Fuller):

Watchlist 2Q June 2015

 

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Sabine Oil skips interest payment on acquired Forest Oil bonds after loan default

Sabine Oil & Gas yesterday did not make the coupon payment due to holders of the $578 million left outstanding of Forest Oil 7.25% notes due 2019 that were assumed via the merger of the two companies late last year. Instead of making the approximately $21 million payment, the company will enter a typical 30-day grace period amid “continuing discussions with its creditors and their respective professionals,” according to a statement.

As previously announced, Sabine retained financial advisor Lazard and legal advisor Kirkland & Ellis to address strategic alternatives related to its capital structure. Cash on hand is approximately $277 million, which provides liquidity to fund operations, filings show.

The bonds changed hands yesterday at 21.5, which was fairly rangebound as compared to recent prints, trade data show. Other Sabine issues trade a bit lower, such as the 9.75% notes due 2017, which changed hands in blocks at 15.5, data show.

Sabine Oil has already been determined to have committed a “failure to pay” event by the International Swaps and Derivatives Association, and will head to a credit-default-swap auction. The determination by ISDA is related to previously skipped interest on a $700 million second-lien term loan due 2018 (L+750, 1.25% LIBOR floor).

Recall Sabine entered into a 30-day grace period after skipping a $15.313 million interest payment due to its second-lien lenders on April 21. Since that time, the issuer late last month inked a forbearance agreement to the end of June, barring any defaults under the forbearance agreement or if any other creditor accelerates payment (see “Sabine nets forbearance agreement to 2L TL as grace period ends,” LCD News, May 22, 2015).

In light of the missed interest payment, S&P in April cut Sabine’s corporate and debt ratings to D, triggering a default in the S&P LSTA Leveraged Loan Index. At the time, it was the third Index issuer to default this year after Walter Energy’s downgrade to D after skipping April 15 bond coupons and Caesars Entertainment Operating Company‘s bankruptcy in January, but since Sabine’s default, Patriot Coal last month became the fourth Index issuer to default following its Chapter 11 filing.

Wilmington Trust has replaced Bank of America Merrill Lynch as administrative agent on the second-lien loan, according to a June 1 filing.

Note the company in May also inked a forbearance agreement with lenders to its reserve-based revolver that also runs to June 30.

As of May 8, the company had a cash balance of approximately $276.9 million, which it said provides substantial liquidity to fund its current operations. – Staff Reports

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Colt Defense files Chapter 11; sponsor Sciens to purchase assets

Colt Defense today filed for Chapter 11 in Wilmington, Del., the company announced, saying that the filing would “allow for an accelerated sale of Colt’s business operations in the U.S. and Canada.”

Colt said its current sponsor, Sciens Capital Management, has agreed to act as a stalking horse bidder in the proposed asset sale. Details of the deal were not provided.

The company did say, however, that it would be soliciting competing bids and that it has appointed an independent committee of its board of managers to manage the process and evaluate bids.

Colt’s existing secured lenders have also agreed to provide a $20 million DIP facility to allow for continuation of operations during the Chapter 11 process, which the company said it expects to complete in 60-90 days.

As reported, since April Colt had been seeking consents from its noteholders for an uptier exchange offer or, alternatively, approvals for a proposed prepackaged reorganization plan implementing the exchange. Despite several extensions to the proposed exchange/prepackaged plan, however, the company fell far short of the participation threshold, and allowed the offer to expire on June 12.

O’Melveny & Myers LLP is the company’s legal counsel, and Perella Weinberg Partners is acting as financial advisor. Mackinac Partners is the company’s restructuring advisor. – Alan Zimmerman

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Judge approves $145M bankruptcy loan for Boomerang Tube, victim of oil-price downturn

The bankruptcy court overseeing the Chapter 11 proceedings of Boomerang Tube gave interim approval to the company’s proposed $145 million DIP facility.

The DIP comprises a $60 million term loan facility and an $85 million revolver. Court documents show that interest under the term portion would be at L+1,100, while interest under the revolver would be at L+450.

The interim approvals give the company access to $40 million of the term loan, consisting of $35 million of immediate borrowing capacity, and an additional $5 million thereafter upon certain circumstances. The company would have access to the entire revolver, subject, of course, to the facility’s borrowing base restrictions.

A final hearing on the DIP is scheduled for July 10, in Wilmington, Del. – Alan Zimmerman

 

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Family Christian bankruptcy sale hearing set for June 9

A bankruptcy hearing is scheduled for June 9 for a judge to approve the sale of non-profit book seller and missionary organization Family Christian Stores.

FC Special Funding, the proposed buyer, won an auction in May with a bid ranging from $39-41 million under which the company would continue to operate and assume some debt, court documents showed. FC Special Funding’s offer includes a $23 million credit bid from J.P. Morgan Chase.

Family Christian and affiliates filed for Chapter 11 on Feb. 11 in the U.S. Bankruptcy Court for the Western District of Michigan. The filing included a stalking-horse bid from FCS Acquisition that was eventually withdrawn.

The company, which is based in Grand Rapids, Mich., filed for bankruptcy with loans dating from 2012 that were put in place for general working capital and to facilitate an acquisition of the business.

The loans included a $40 million revolver under a November 2012 credit agreement, under which the debtor owes $23 million. J.P. Morgan Chase Bank is the agent.

The company also owes $34 million under a $38 million term loan agreement, also from November 2012. Credit Suisse is agent. The lenders are Credit Suisse Loan Funding, Medley Capital, Congruent Credit Opportunities Fund II, and Main Street Mezzanine Fund.

The debtor also owes $40 million in trade debt to suppliers and vendors.

The company sells Christian books, music, DVDs, church supplies, and other Christian-themed merchandise through 266 stores, mail-order catalogs, and online.

Operations have been weakening since 2008. Sales totaled $305 million in fiscal 2008 and had dropped to $230 million by fiscal 2014. Sales in fiscal 2015 are forecast at $216 million. The company blamed its financial problems on the recession that began in 2008, and declining industry trends that have generally hurt music and book sales.

Since the company operates as a non-profit, any available profits, as well as collected donations, fund charitable causes and missionary work, including Bible donations in Latin America and Africa, care for orphans and widows, international adoptions, rescue of women enslaved in sex trafficking, and mission trips.

The company was established in 1931 with Zondervan retail stores, later changing its name to Family Bookstores, and finally to Family Christian Stores in the 1990s after changing hands.

The operating company is owned by a Georgia-based non-profit, Family Christian Resource Centers. Because of the financial difficulties, the debtor has only paid around $300,000 to the parent company since 2012 for its mission causes, excluding third-party donations collected by retail stores.

Chicago-Based middle-market private equity firm Madison Dearborn Partners bought privately held Family Christian Stores in 1999. Before the sale, the company had been considering financing alternatives after shelving plans to list shares in an IPO in October 1998 due to market volatility. The company was acquired by the endowment arm of Minneapolis-based Christian Investors Financial in November 2012, S&P Capital IQ showed.

Main Street Capital, a BDC that trades on the NYSE under the ticker MAIN, had a non-accrual loan to FC Operating in its portfolio in the recent quarter. That investment comprised $5.4 million of secured debt due November 2017 (L+1,075, 1.25% LIBOR floor). The fair value was marked at $3.2 million as of March 31, 2015, versus $4.1 million at fair value as of Dec. 31, when it wasn’t in bankruptcy or on non-accrual status.

Medley Capital’s investment portfolio showed a $10.4 million (L+1,075, 1.25% LIBOR floor) first-lien term loan due 2017 to FC Operating on non-accrual status as of March 31. The loan was marked at $6.3 million at fair value. Medley Capital is a BDC that trades on the NYSE as MCC. – Abby Latour

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Speculative-grade bond defaults in May climb to highest since 2009, S&P report says

The eight speculative-grade corporate bond defaults in May marks the highest one-month count since nine defaults in October 2009, as companies remain challenged by volatility in the commodities markets, according to S&P Global Fixed Income Research (S&P GFIR).

Standard & Poor’s defines speculative-grade debt as having ratings of BB+ and lower.

The oil-and-gas sector leads with downgrades and defaults, but the number of downgrades across all sectors remains elevated. Indeed, downgrades during the month outnumbered upgrades by 35 to 12, according to S&P GFIR.

However, Diane Vazza, head of S&P GFIR tempered the data with the following statement: “Despite the increasingly negative rating actions for speculative-grade U.S. companies, we continue to see positive investor demand in the market; year-to-date issuance is up from last year, credit spreads narrowed slightly during the month, and total returns were modestly positive for the month.”

As for the eight defaults during the month, all were public. Magnetation and Patriot Coal filed for bankruptcy; Colt Defense and Tunica-Biloxi Gaming Authority/Paragon Casino skipped bond coupons; Warren Resources and Midstates Petroleum inked sub-par bond exchanges; and SandRidge Energy and Halcon Resources completed bond-for-equity exchanges, also below par.

With that, the U.S. trailing-12-month speculative-grade corporate default rate is estimated to have increased to 2.0% in May, from 1.8% in April, according to S&P GFIR. The current observation represents the highest level in 17 months, or since the rate was at 2.2% in December 2013.

The S&P GFIR forecast for the U.S. speculative-grade default rate is for a modest increase, to 2.5% by December 2015 and 2.8% by March 2016.

Today’s report, titled “Defaults Rise As Downgrades Remained Elevated In May,” is available to subscribers of premium S&P GFIR content at the S&P Global Credit Portal.

For more information or data inquiries, please call S&P Client Services at (877) 772-5436. – Staff reports