American Capital unveils strategic review, including potential sale

American Capital’s board is reviewing strategic alternatives, including a sale of part or all of the company.

For an evaluation of American Capital’s portfolio, see “American Capital portfolio shows $691M of new investments in 3Q,” LCD News, Nov. 9, 2015.

American Capital has hired Goldman Sachs and Credit Suisse Securities as financial advisors. Results of the review are expected to be announced by January 31.

At the same time, the company expanded a stock buyback program to a range of $600 million to $1 billion, from an earlier range of $300–600 million. The program runs through June 30.

The company will buy shares at prices below 85% of net asset value per share as of Sept. 30. Net asset value per share was $20.44 as of Sept. 30.

Shares of American Capital were trading at $15.56 in late morning trade on Nasdaq today, up two cents, with the overall market slightly lower.

“The Strategic Review Committee looks forward to a full independent review with the sole goal of maximizing value for shareholders,” said Neil Hahl, chairman of the independent board committee, in a Nov. 25 statement.

The review will evaluate the previously announced plan to spin off a new business development company to shareholders. — Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, BDCs, distressed debt, private equity, and more.


High yield bond prices fall further as some constituents notch large declines

The average bid of LCD’s flow-name high-yield bonds fell 132 bps in today’s reading, to 89.03% of par, yielding 10.58%, from 90.35% of par, yielding 10.05%, on Nov. 19. Performance within the 15-bond sample was deeply negative, with 12 decliners against two gainers and a lone constituent unchanged.

Today’s decline is a seventh-consecutive observation in the red, and it pushes the average deeper below the previous four-year low of 91.98 recorded on Sept. 29. As such, the current reading that has finally pierced the 90 threshold is now a fresh 49-month low, or a level not seen since 87.93 on Oct. 4, 2011.

The decrease in the average bid price builds on the negative 58 bps reading on Thursday for a net decline of 190 bps for the week. Last week’s losses were also heavy, so the average is negative 369 bps dating back two weeks, and the trailing-four-week measure is much worse, at negative 545 bps.

Certainly there has been red across the board, but several big movers of late continue to greatly influence the small sample. For example, in today’s reading, Intelsat Jackson 7.75% notes were off six full points—the largest downside mover today, to 44, and now 20.5 points lower on the month—while Hexion 6.625% paper was off five points, at 73.5, and Sprint 7.875% notes fell 5.5 points, to 77.

The market has been crumbling especially hard this week, with energy and TMT credits leading the charge, amid a lack of participation, the influence of speculative short-sellers, and despite signs that retail cash has been flowing into the asset class. There was a similar dynamic after Thanksgiving last year, sending the average to the year-end low of 93.33 on Dec. 16, 2014.

As for yield in the flow-name sample, the plunge in the average price—with many names falling into the 80s and a couple of others more deeply distressed—has prompted a surge in the average yield to worst. Today’s gain is 53 bps, to 10.58%, for a 2.92% ballooning over the trailing four week. This is a 13-month high and level not visited since 10.70% recorded on June 10, 2010.

The average option-adjusted spread to worst pushed outward by 47 bps in today’s reading, to T+791, for a net widening of 167 bps dating back four weeks. That level represents a wide not seen since the reading at T+804 on Sept. 23, 2010.

Both the spread and yield in today’s reading remain much wider than the broad index. The S&P U.S. Issued High Yield Corporate Bond Index closed its last reading on Monday, Nov. 23, with a yield to worst of 7.88% and an option-adjusted spread to worst of T+652.

Bonds vs. loans
The average bid of LCD’s flow-name loans fell nine bps, to 96.31% of par, for a discounted loan yield of 4.42%. The gap between the bond yield and discounted loan yield to maturity is 616 bps. — Staff reports

The data

Bids fall: The average bid of the 15 flow names dropped 132 bps, to 89.03.
Yields rise: The average yield to worst jumped 53 bps, to 10.58%.
Spreads widen: The average spread to U.S. Treasuries pushed outward by 47 bps, to T+791.
Gainers: The larger of the two gainers was Valeant Pharmaceuticals International 5.875% notes due 2023, which rebounded 3.25 points from the recent slump, to 85.25.
Decliners: The largest of the 12 decliners was Intelsat Jackson 7.75% notes due 2021, which dropped six full points, to 44, amid this fall’s ongoing deterioration of the credit.
Unchanged: One of the 15 constituents was unchanged in today’s reading.


JC Penney plans RC increase to pay off asset-based term loan

J. C. Penney will pay off its asset-based term loan with proceeds from an increase to its asset-based revolver. The term loan – which totals roughly $495 million – was set to mature in June 2019.

The $500 million increase will take the retailer’s asset-based revolver to $2.35 billion. Wells Fargo, J.P. Morgan, Barclays, Bank of America Merrill Lynch, Citizens Bank, Regions Bank, and HSBC are arranging the revolver increase. Closing is expected in December.

The ABL term loan is priced at L+400, with a 1% LIBOR floor.

J.C. Penney last week reported results for its third quarter ended Oct. 31, reporting net sales of $2.88 billion, up from $2.80 billion in the same quarter last year, and ahead of the S&P Capital IQ average estimate of $2.86 billion. Same-store sales increased 4.1%. The company’s operating loss of $38 million in the latest quarter represents a 46% improvement from last year. Adjusted EBITDA was $134 million, up from $39 million in the year-ago quarter, and above the S&P Capital IQ estimate of $107 million.

Looking ahead, the company improved its SG&A and EBITDA guidance for the remainder of 2015. EBITDA is estimated at $620 million for the full year, compared to previous expectations of $600 million. SG&A expenses are expected to decrease by roughly $120 million, an improvement from the prior forecast for a $100 million decrease, filings show.

The Plano, TX.-based company is rated CCC+/Caa2, with positive and stable outlooks, respectively. — Staff reports


Leveraged Loans: Introducing LCD’s Loan Volatility Metric, a tool for gauging volatility in the asset class

Loan Volatility Metric

In order to provide subscribers with a useful gauge for secondary loan market volatility, LCD is introducing the Loan Volatility Metric (LVM).

Equity market players have long relied on the VIX to gauge volatility in the stock market. Since the VIX relies on option prices, a similar trend-line cannot be applied to the loan asset class. Consulting with numerous managers, LCD has developed the LVM to gauge volatility in the secondary loan market based on how the prices of individual loans in the S&P/LSTA Index move relative to their recent price range.

Specifically, the LVM tracks the percentage of loans that move more than the sum of the 100-day moving average of price changes and one standard deviation of those changes. To smooth the curve, we run a lagging-10-day average.

The following chart shows the LVM applied to the loan market since June 2007, with spikes in volatility annotated to provide historical context. The red line shows the average LVM over the duration of the chart. The blue shaded chart within the chart provides a closer look at the most recent trend.

We will include an LVM chart in our LCD Loan Index daily returns story each day. We appreciate any feedback.

For questions on the LVM or any LCD data or analysis contact Rob Polenberg: 212 438-2724


Scientific Games bonds slip further on CFO resignation

Bonds backing Scientific Games slipped further today after the company announced the resignation of its Chief Financial Officer, Scott Schweinfurth, according to a company release. The 10% notes due 2022 shed 2.5 points to 77.625, yielding 15%, according to trade data. Meanwhile, sources quote the 7% notes due 2022 at 96/97, down from trades at 97.50 on Friday. The company’s shares are down nearly 4% at $7.62 today.

As reported last week, Scientific Games debt and equity came under pressure after the gaming technology company released third-quarter results that came in shy of Street expectations. The 10% notes, for instance, had been trading in the high 80s prior to the earnings release, before shedding five points on the results to the mid-80s and ending the week at an 80 context.

Loans backing Scientific Games are little changed today, with the B-2 tranche due 2021 (L+500, 1% LIBOR floor) recently marked at 92.75/93.75, though note the loan is about 5.5 points lower since the earnings release. According to the statement, Schweinfurth will continue in his role through the year-end financial audit and filing of its Form 10-K and the appointment of his successor.

Conditions are soft today in the high-yield market, with the cash market down about a quarter of a point and ETF sellers circulating, sources relay. The HY CDX 25 is quoted at 101.25, unchanged today, but down 1.3% week-over-week.

B+/B2 Scientific Games placed the $950 million issue of 7% secured notes and a $2.2 billion issue of 10% unsecured notes in November 2014 via a J.P. Morgan–steered underwriting team to help fund the Bally acquisition. The company also placed the $2 billion B-2 term loan in September 2014 to support the Bally transaction; the loan was issued at 99. Bank of America Merrill Lynch is administrative agent on the term loan. —Staff reports


Ares Corp. details 3Q15 portfolio stats, books $1.5B in new deals

Ares Corp. (NASDAQ: ARCC) booked $1.52 billion in new business during the third quarter, at an average interest rate of 7.8%, the lender detailed in its 10-Q filing yesterday alongside earnings. Exits totaled $1.34 billion, for net new investments of $183 million.

The 7.8% is 20 bps inside second-quarter investments, reflecting the better market conditions that borrowers enjoyed prior to the post-Labor Day correction. Spreads have since widened and should build up the average for fourth-quarter deals. In October, management said it funded $305 million in new investments for the fourth quarter at an average yield of 11.4%, while exiting $152 million at 8%.

First-lien commitments took a 75% share of third-quarter transactions, up from 37%, as ARCC shifted bookings away from the SSLP fund as that joint-venture with GE Capital winds down. Second-liens accounted for 21% of investments, down from 28% in the second quarter.

As of Oct. 29, the lender said it has $630 million in its backlog, which includes transactions that are approved, mandated or have a signed commitment that has been issued and that ARCC believes likely to close. There is an additional $425 million in the pipeline, which includes transactions that are in process, but have no formal mandate or signed commitment.

Portfolio stats
ARCC’s overall portfolio grew to $8.7 billion in assets, from $8.6 billion. The number of investments increased by nine, to 216. Average EBITDA per company is $58.8 million. As of June 30, 66% of the borrowers in ARCC’s portfolio generated less than $55 million of EBITDA.

Petroflow lifted ARCC’s loans on non-accrual status to 2.3% ($195 million) of the portfolio at cost, from 1.7%. Petroflow is one of three companies that ARCC considers true oil-and-gas-related investments, which account for roughly 3% of the portfolio. ARCC’s Petroflow investment is a first-lien position that was originated in July last year prior to the dramatic decline in oil prices. ARCC said it is working with the company and lender group to restructure Petroflow’s balance sheet. The principal investment totals $53.2 million. ARCC booked the 12% paper at a cost of $49.7 million, and the deal is now marked at a fair value of $37.9 million.

BDCs were not excluded from stock market volatility in the third quarter. ARCC’s stock slid to a 14% discount to NAV, from a 2% gap in the previous quarter. The stock closed the third quarter at $14.48, versus a book value of $16.79. The stock has since rebounded, to $15.49, to narrow the discount to 8%. By comparison, the BDC sector as a whole is trading at a roughly 15% discount. — Kelly Thompson


Golub Adds Wilson to Capital Markets Loan Sales Team

Golub Capital hired Joseph Wilson to identify and execute secondary market sales opportunities for leveraged loans.

He joins as managing director. He will report to Andy Steuerman, head of middle market lending and late stage lending.

Wilson joins Golub Capital’s existing capital markets team of seven.

Prior to Golub Capital, Wilson worked at Citigroup on the leveraged credit sales team where he was responsible for sales of primary and secondary loans and structured credit. He also worked at J.P. Morgan, including in investment banking, commercial banking, and par and distressed loan sales and trading.

“Adding a broadly syndicated sales and trading platform is a natural evolution that will enhance our ability to support our portfolio companies throughout their lifecycles—particularly as they move into larger loan sizes,” Steuerman said. — Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, BDCs, distressed debt, private equity, and more.


Leveraged Loan Secondary Break Price Hits 4-Year Low

leveraged loan break price

The average price at which first-lien leveraged loans broke into the secondary in October tumbled 1.36 points, to a 49-month low of 98.26% of par, from 99.62 in September.

The sharply lower average break price reflects the steeper discounts on offer last month. The average OID sank 1.56 points, to a four-year low of 97.53, from 99.09 in September. – Steve Miller

Follow Steve on Twitter for leveraged loan news and insight. 

This chart is taken from LCD News’ monthly analysis of leveraged loan market secondary break prices. The full version, which includes a host of other charts/data, is available to subscribers here.


GNC Leveraged Loan Debt Dips Anew On 3Q Numbers Miss; Shares Tumble

The GNC Holdings covenant-lite term loan due 2019 (L+250, 0.75% LIBOR floor) slid to a 94.5/96.5 market today after the nutritional supplements retailer this morning released third-quarter results that fell shy of Street expectations. By contrast, the loan was quoted at 97.25/98.25 prior to the results yesterday, according to sources.

The company reported third-quarter revenue of $672.2 million, which is up 2.4% from the year-ago period but shy of the S&P Capital IQ consensus estimate of $684.1 million. The company also said same-store sales fell 0.3% in domestic company-owned stores (including sales) and fell 1.3% in domestic franchise locations.

Furthermore, the company lowered its earnings-per-share guidance for the full year 2016 to $2.85–2.90, from a range of $3.00–3.10 outlined in July. The company’s shares, which trade on the New York Stock Exchange under the ticker GNC, fell nearly 26%, to $28.62.

With today’s drop, the loan is approaching recent lows touched last week on news that the Oregon Attorney General filed a lawsuit against the company, alleging it sold supplements that contain ingredients that are not approved in the United States. The company has said the claims are “without merit” and that it “intends to vigorously defend against these allegations.” The paper was quoted as low as 93.5/95.5 following that news, down from 99.25/100, though had recovered from lows prior to the earnings release.

As of Sept. 30, there was $1.178 billion outstanding under the TLB following a $164.3 million paydown in August with a portion of the proceeds from a convertible note issue, according to the company. J.P. Morgan is administrative agent.

The issuer is rated BB+/Ba3, while the term loan is rated BBB–/Ba2, with a 2H recovery rating from S&P.

General Nutrition Centers is a global specialty retailer of health and wellness products, which include vitamins, minerals, and herbal supplements, sports-nutrition products, diet products, and other wellness products. — Kerry Kantin