Apax Partners to launch listed fund investing in equity and debt

Private equity group Apax Partners is to launch a listed investment vehicle that will invest in public and private debt, as well in private equity deals backed by its traditional buyout funds.

Apax Global Alpha (AGA) is hoping to raise €250 million when it debuts on the LSE next month. It has already secured commitments from a group of cornerstone investors totalling €135 million so far, Apax said.

The fund will aim to invest in private equity investments made by Apax funds, as well as committing capital to the funds themselves. It will also invest in public and private debt opportunities derived through Apax’s insights from its private equity activities, which Apax calls “derived investments”. Once fully invested, the fund will aim to be equally invested between private equity and derived investments. Debt investments will include sub-investment grade and unrated debt instruments, Apax said.

Prior to admission, the fund will acquire PCV Lux, a fund formed in 2008 as an investment vehicle for Apax employees. PCV’s NAV as of March 31, 2015 stood at €611.1 million, and PCV’s assets include investments in and commitments to four Apax buyout funds, as well as investments in debt and equities.

The fund is targeting an annualised total shareholder return of 12-15% (net of fees and expenses), including a dividend yield of 5% of NAV once fully invested. – Oliver Smiddy


Leveraged loans: 1Q earnings growth falls to post-recession lows

earnings growth - leveraged loan issuers

In the first quarter, EBITDA growth among S&P/LSTA Index issuers that file publicly dropped to a post-recession low of 5.9%, year-over-year, from 10.2% during the final three months of 2014 and 7.1% during the comparable period last year, according to data from S&P Capital IQ.

The slowdown was a result of three trends, participants say.

  • First, America’s economy cooled significantly in the first quarter. GDP inched up 0.2% – the slowest pace in a year and down from 2.2% in the fourth quarter – according to the Bureau of Commerce’s preliminary estimate. What’s more, some economists calculate the final reading is likely to be slightly negative when the larger-than-expected trade deficit is taken into account.
  • Second, a stronger dollar was a headwind to earnings in the first quarter.
  • Finally, the beleaguered energy sector subtracted roughly 0.4 percentage points from the overall EBITDA gain of S&P/LSTA Index issuers in the first quarter. For the record, Oil & Gas issuers in the S&P/LSTA Index posted a 2% year-over-year decline in EBITDA during the first quarter. Ex-energy, EBITDA across the Index climbed 6.2% during the opening three months of 2015.

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

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Burger King reigns in HY bonds during busiest week in 6 months

Sixteen issuers waded into the high-yield bond market this week, for the busiest period by number of deals in six months. The largest deal was restaurant chain Burger King/Tim Hortons, which issued $1.25 billion of bonds to refinance other debt.

It was the busiest week since Nov. 17, 2014 by number of deals, though not the highest by volume. Volume for the week is expected at $8.915 billion, short of last week’s $9.475 billion.

US high yield bond volume May 2015

Besides Burger King/Tim Hortons, the largest deals of the week were electricity generator PPL Energy Supply, insurer CNO Financial Group, Black and Decker toolmaker Spectrum Brands, car loan provider Ally Financial, and Energizer Holdings. Most of them were for debt repayment.

Energizer was an exception. The company, which trades on the New York Stock Exchange under the ticker symbol ENR, sold $600 million of 10-year notes to fund a spinoff of its Household Products business, as announced in April 2014. The company manages business in two units: personal care, which includes shaving and infant care, and household products, which includes batteries and flashlights.

The new bonds this week are brought by Energizer SpinCo (New Energizer), the recently formed holding company for the Household Products business of Energizer Holdings, with proceeds being used by Energizer Holdings (ParentCo) to fund the tax-free spin-off of the business. As part of the deal, ParentCo will be renamed Edgewell Personal Care Company, and New Energizer will be renamed Energizer Holdings, Inc., according to filings.

By rating, the junk bonds issued this week were concentrated as single- and double-B rated issues. However, insurance broker NFP Corp. and HRG Group, the holding company previously known as Harbinger Group, priced lower-rated triple-C offerings. Notably, Spectrum Brands, the Wisconsin-based company whose products range from Rayovac batteries to Cutter-branded mosquito repellent, received an investment by HRG Group this week with proceeds from its $300 million, two-part offering.

Interestingly, issuers continue to have success placing longer-dated 10-year offerings, despite ongoing volatility in Treasury and equity markets, and growing investor caution toward longer-dated bonds.

The surge in high-yield issuance comes alongside a rush by higher-rated counterparts to sell bonds before underlying interest rates rise more. In the high-grade market, companies have been rushing to issue bonds as Treasury yields march higher. The yield on the 10-year Treasury is 2.14% today, after touching 2.35% on May 12, versus 1.90% on April 15.

This week, 10-year bonds were sold by CNO Financial Group, PPL Energy Supply, Spectrum Brands, Energizer Holdings, andFelcor Lodging, which is a publicly traded REIT whose properties include the Knickerbocker Hotel in New York.

Last week, 10-year bonds were sold by drug clinical trial provider Quintiles Transnational, aircraft component supplierTransDigm, and oil-and-gas producers Range Resources and SM Energy. The bookrunners on Quintiles marketed the 10-year tranche in terms of spread, not yield, investor sources say.

Demand was strong for the marquee high-yield bond offering this week, Burger King’s issue of secured notes due 2022. J.P. Morgan led the deal. Talk emerged in the 4.75% area, slightly inside of 4.75-5% whispers, and sources relay that the order book reached north of $4 billion. Proceeds, along with cash on hand, will be used to repay roughly $1.5 billion of bank debt. The bonds priced at par to yield 4.625%.

The issuer of the debt, Restaurant Brands International, trades on the New York Stock Exchange under the ticker QSR with an approximate market capitalization of $19.5 billion.

Restaurant Brands was created in December 2014 through the merger of Burger King Worldwide and Canadian coffee and breakfast chain Tim Hortons, with over 19,000 restaurants in 100 countries and U.S. territories. Warren Buffet’s Berkshire Hathaway acquired $3 billion of preferred shares in the transaction.

Burger King is no stranger to the junk bond market. In September 2014, Burger King issued $2.25 billion offering of second-lien secured notes yielding 6% to fund the acquisition of Tim Hortons.

The new Burger King bonds stayed in demand as they began trading in the secondary market. They were quoted steady today, at 100/100.5. Buying interest also remained for other new issues.

Ally Financial, whose ratings are both junk and low-tier investment grade, were also bid higher. The 3.6% notes due 2018 that were sold at 99.44, to yield 3.8%, gained from those levels to a 100 mid-point, sources said. Ally 4.625% notes due 2022 were sold at 98.39, to yield 4.9%, and traded as high as par earlier today, trade data showed. – Joy Ferguson/Matt Fuller


US leveraged loan funds, ETFs see $173M investor cash inflow

Bank loan mutual funds and ETFs reported a $173 million inflow for the week ended May 13, compared to a $54 million outflow last week, according to Lipper.

This week’s inflow came solely from mutual funds, which reported a $221 million inflow against a $48 million outflow from the exchange-traded-fund group. This is the third consecutive week of ETF outflows for a combined $72 million outflow, following three weeks of inflows totaling roughly $376 million.

With today’s inflow, the trailing four-week reading is positive $24.8 million, from positive $114.1 million last week, and $126.6 million two weeks ago. Recall that the negative four-week observation 19 weeks ago, at $1.3 billion, was the deepest in roughly 3.5 years, or since the week ended Aug. 31, 2011.

The year-to-date outflow is now $3.2 billion, with negative 3% tied to ETFs, versus an inflow of $5.8 billion at this point last year, with positive 17% tied to ETFs.

In today’s report, the change due to market conditions was a negative $58 million, which is negative 0.06% against total assets, which were $94.2 billion at the end of the observation period. The ETF segment comprises $7 billion of the total, or approximately 7% of the sum. – Joy Ferguson


From bad to worse: Leveraged loan managers fret as investor cash dwarfs new deal flow

leveraged loan technicals

For leveraged loan managers trying to put money to work in the loan asset class, the technical environment went from bad to worse in April. It was simply a case of too much capital chasing too few opportunities, as visible inflows exceeded net new supply by $11.2 billion, following March’s record demand surplus of $19.8 billion.

The ongoing supply drought is largely responsible for today’s technical strength. In April, the universe of S&P/LSTA Index loans contracted by $418 million, to $837.8 billion, after dropping $4.4 billion in March. It was the first back-to-back months of shrinking supply in three years – Steve Miller

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This analysis is part of a longer story, available here to LCD News subscribers, that also details

  • Leveraged loan outstandings
  • M&A loan volume
  • Monthly loan repayments
  • CLO issuance
  • Loan fund flows
  • Leveraged loan secondary prices
  • Leveraged loan yields
  • Repricing volume
  • Leveraged loan forward calendar



Capitala Finance says no energy sector loans in default in Q1

Capitala Finance said that of the five companies in its investment portfolio with direct exposure to the oil-and-gas sector, all of them were current with debt payments.

“All investments continue to perform and the fair value of oil-and-gas investments was approximately 87.2% of cost at March 31, 2015, compared to 89.5% at Dec. 31, 2014,” an investor presentation today showed.

The investments are:

  • Sierra Hamilton $15 million 12.25% secured loan due 2018, marked $14.5 million at fair value as of March 31, 2015 (no change from Dec. 31, 2014), accounting for 6.1% of net assets
  • TC Safety $22.6 million investment (6.6% lower than Dec. 31, 2014 on a fair value basis), including a 12% cash, 2% PIK subordinated loan due 2018
  • U.S. Well Services $8.8 million 11.5% (0.5% floor) secured loan due 2019 (increased by $4 million since year-end due to previous unfunded commitment)
  • ABUTEC $4.9 million 12% cash, 3% PIK term loan due 2017 (down 4.2% from year-end on a fair value basis), for 2.1% of assets
  • SPARUS, Southern Cross, EZTECH $10.5 million investment fair value as of March 31, 2015, down 0.7% from year-end

These investments at fair value total $61.3 million as of March 31, 2015, or 11.8% of the total. Fair value is 3.6% higher than at year-end.

A breakdown of Capitala Finance’s portfolio by sector showed oil-and-gas services accounted for 7% of the total portfolio by fair value, and oil-and-gas engineering and consulting services accounted for 2.8% at the end of the first quarter.

As of March 31, 2015, Capitala Finance’s portfolio comprised 54 portfolio companies with a fair value of approximately $518.9 million. Of that total, 35% was senior secured debt investments, 45% was subordinated debt, 18% was equity and warrants, and 2% was the Capitala Senior Liquid Loan Fund I.

Capitala’s portfolio as of Dec. 31 consisted of 52 portfolio companies with a fair market value of $480.3 million. Of that total, 31% was senior secured debt investments, 46% was subordinated debt, and 23% was equity and warrants.

Capitala Finance targets debt and equity investments in middle-market companies generating annual EBITDA of $5-30 million. The company focuses on mezzanine and subordinated deals but also invests in first-lien, second-lien and unitranche debt. – Abby Latour

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High grade bond volume exceeds $50B this week, for third time ever

After one of the biggest two-session outbursts of supply on record Tuesday and Wednesday, seven more issuers piled into the primary market on Thursday, including deals for Boston Scientific ($1.85 billion), Anglo American Capital ($1.5 billion), Chevron Phillips Chemical ($1.4 billion), EnLink Midstream Partners ($900 million), Bank of America ($600 million of “green” bonds), Puget Energy($400 million), and Weingarten Realty Investors ($250 million).

This week’s torrent of bond offerings backing aggressive corporate fiscal policies resulted in a rare weekly issuance total north of $50 billion, against the backdrop of rapidly increasing absolute costs, LCD data show. Indeed, that $50-billion threshold has only been crossed twice before, including when $60 billion was printed over the week ended Sept. 13, 2013 – largely on the strength of a record-smashing, $49 billion deal for Verizon Communications – and $51.7 billion was placed over the first week of March this year.

This week’s volume also pushed the 2015 issuance total to roughly $463 billion, or 23% ahead of the 2014 pace, and 26% ahead of the total over the same period in 2013.

(Note: LCD totals exclude sovereign, quasi-sovereign, supranational, preferred and hybrid-structure, and remarked deals.)

Corporate treasurers are clearly indicating a sense of urgency to lock in funds, as underlying rates spiral higher, including through shocking bouts of intraday volatility, as was displayed in trades in the 10-year U.S. Treasury benchmark on Thursday morning.

Apple’s $8 billion deal this week perhaps most dramatically underscored the shift higher in absolute costs for borrowers this year. Coupons were printed on May 6 at 2% for five-year notes at T+45, 3.2% for 10-year notes at T+100, and 4.375% for 30-year bonds at T+140, or 45-92.5 bps more than since it placed, in early February this year, 1.55% five-year notes at T+42, 2.5% 10-year notes at T+85, and 3.45% 30-year bonds at T+125, as part of a $6.5 billion offering.

Pitching long-dated debt exposure to investors has been complicated after the average yield across the long-dated industrial component of the Barclays U.S. high-grade index climbed to a 12-month high of 4.76% as of Wednesday, reflecting a move up of half a percentage point in less than three weeks. The category posted a sharp total-turn loss of 3% for the month-to-date through Wednesday, and 5% over the previous three months.

But curve-spanning deals continue to mount, as borrowers scramble to lock in funds for M&A and direct shareholder returns. Including today’s deals for Boston Scientific and EnLink Midstream Partners, M&A-driven deals accounted for nearly $32 billion of issuance volume, or 57% of this week’s issuance total through Thursday.

Meantime, Apple this week placed another blockbuster debt backing its recent material increase in buybacks and dividends – following big deals last week for Oracle and Amgen for the same purposes – while Chevron Phillips Chemical and Puget Energy locked in funds in part for special distributions. – John Atkins


Investors eye BDC portfolios for signs of more pain from energy sector

On the eve of first-quarter earnings, BDC investors are anxious to see whether the energy sector will inflict more pain on loan portfolios.

An analysis of the portfolios of 45 BDCs tracked by LCD shows that 31 energy-related companies with outstanding debt were in distressed territory at the end of 2014, in this case valued at 80 or less, which is a widely used definition of distressed debt. Of these, the average weighted fair value at year-end was 64 cents on the dollar.

Prior to last year’s oil price declines, there were just 10 energy-related companies with debt in distressed territory, at a weighted average of 38.5, an analysis by LCD of public filings of the BDCs showed.

First-quarter results for BDCs began to trickle in last week, and many more are expected this week. While oil prices have yet to recover fully, prices are off lows, and the outlook is relatively stable for the short term.

“While the energy exposure is still a concern, we are not expecting an influx of energy non-accruals in the quarter,” KBW analyst Troy Ward said in an April 27 research note. But if oil remains depressed, KBW expects to see an increase in loans booked as non-accrual in the second half of 2015.

Of all the distressed debt within BDC portfolios, energy accounts for about a quarter of the total. Distressed energy debt totaled $500 million of principal within BDC portfolios tracked by LCD, counted across various tranches of debt, at the end of the fourth quarter. That’s 23% of $2.2 billion by principal amount in total distressed assets.

Similarly, energy is the most concentrated sector of distressed assets across other measures of distress in the credit markets.

For example, the Oil & Gas sector accounted for 37.2% of the loans in the distressed ratio of the S&P/LSTA Loan Index. The distressed ratio tracks the percent of performing Index loans trading at a yield of L+1,000 or higher. Oil & Gas-related loans account for 4.7% of the overall Index.

Of all loans in the Index, Oil & Gas-related loans account for 4.7% as of April. Despite two defaults that totaled $1.7 billion –Walter Energy and Sabine Oil & Gas’ second-lien loan – the lagging default rate of the S&P/LSTA Loan Index by principal amount dropped to 1.26% in April, a one-year low, from 3.79% in March.

In another measure of distress in credit markets, S&P Capital IQ’s Distressed Debt Monitor, the ratio of U.S. distressed debt was steady, at 11.5% in April. Again, distressed credits are defined here as speculative-grade issues with option-adjusted composite spreads in excess of 1,000 bps over Treasuries.

The Oil & Gas sector had the highest proportion of debt trading at distressed levels, at 38%, and the highest share of distressed issues by count, at 72, and one of the largest by distressed amount, at 29.9%, as of April 15, according to Distressed Debt Monitor, which is published by S&P Capital IQ.

In a sign of stabilization in the sector, the Oil & Gas sector experienced the largest decline in the proportion of distressed issues, falling 3.9% in April, month over month, the Distressed Debt Monitor showed.

Within the BDC portfolios, energy debt accounts for 5.8% of all debt investments, or $60.7 billion (in outstanding principal).

“It’s not that things have dramatically improved, but the volatility has subsided for now. It’s reasonable to think that they are at a floor level now,” said Merrill Ross, an equity analyst at Wunderlich Securities.

Energy sector allocations vary between BDCs. Some have no exposure to the sector. At year end, CM Finance, PennantPark, Gladstone, Main Street, Apollo Investment, Blackrock Capital, TPG Specialty, and White Horse Finance had 10% or more exposure in oil-related energy, including equity investments, according to KBW research. The weighted-average fair value for energy debt across these eight lenders ranges between 86.5 and 97.9.

BDC Energy 4Q story May 2015

Fair values vary across portfolios and can be difficult to assess among small private companies. Sometimes differences across the same investment can be attributed to different cost-basis levels for each provider. The timing of changes in fair value also can vary.

Below are some examples of distressed Oil & Gas holdings as of Dec. 31, 2014.The implied bids are based on fair value to cost:

The 7.5% second-lien debt due Nov. 1, 2018 for Bennu Oil & Gas is marked at 83% of cost at Sierra Income Fund, whereas CM Finance and PennantPark mark it at 76 and 75, respectively.

The 8.75% senior secured loan due April 15, 2020 for exploration-and-production company Caelus Energy is marked at 93 at CM Finance, and 91 by WhiteHorse Finance.

The 12% mezzanine financing due Nov. 15, 2019 for New Gulf Resources was marked at 56 by Blackrock Capital Investment at the end of 2014, while PennantPark Investment marks the debt at 52. However, Blackrock Capital on April 30 reported first-quarter earnings, showing the 12% mezzanine loan now marked at 67.

A $7.5 million, 9.5% subordinated loan due 2020 to Comstock Resources was marked at $5.1 million at year-end by FS Investment, or 70 to cost. Comstock Resources, based in Frisco, Texas, is an oil-and-gas exploration-and-production company that trades on NYSE under the ticker symbol CRK.

Other distressed debt holdings in energy within BDC portfolios are of larger companies whose financial woes are well publicized.

Apollo Investment Corp. holds Venoco 8.875% notes due 2019 and had them marked at 55 as of Dec. 31, 2014. In early April, Standard & Poor’s cut the notes to D, from CCC+, and the corporate rating was lowered to SD, after the company announced the results of a below-par debt swap.

On April 22, Standard & Poor’s raised Venoco’s corporate rating to CCC+, and the senior unsecured notes were raised to CCC-, after the release of 2014 earnings and taking into account the significant loss of principal on the unsecured notes after the exchange.

In another closely tracked credit, some distressed energy sector debt in BDC portfolios is that of Sabine Oil & Gas, which defaulted on debt last month after skipping a $15 million interest payment on its second-lien term loan. Corporate Capital Trust holds 8.75% Sabine debt due 2018 and marked it at 78 in its 2014 fourth-quarter portfolio.

FS Investment (FSIC) showed a $6.3 million holding in SandRidge Energy subordinated debt due 2020, marked at 81. SandRidge Energy unsecured notes are trading in the high 60s, according to sources and trade data.

One distressed energy credit, Halcón Resources, will better weather the slump in oil prices due to the sale of $700 million of 8.625% second-lien notes due 2020 on April 21. The exploration-and-production company operating in North Dakota and eastern Texas intends to use proceeds to repay revolver debt and to fund general corporate purposes.

Main Street Capital has a holding of existing Halcón Resources bonds, the 9.75% unsecured debt due 2020, marked at 82, and HMS Income fund debt has a holding of the same debt marked at 87 (When marked to principal amount, the debt is marked at 75 at both BDCs.). – Kelly Thompson/Abby Latour

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

Follow Kelly Thompson on @MMKTDoyenne.


Leveraged loan break prices hit 10-month high as market technicals favor issuer

leveraged loan break price

Amid a turbo-charged technical environment, the average break price for new issue institutional leveraged loans climbed to a 10-month high of 100.20% of par in April, from 99.99 in March. – Steve Miller

This analysis is part of a longer LCD News story, available here, that also details

  • Secondary market prices
  • Flexes, up vs down
  • Leveraged loan yields
  • Repricing volume
  • Leveraged loans outstanding
  • Visible repayments
  • Loan forward calendar


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April European Leveraged Loan Issuance Slips To €3.5B As Buyouts Fall Silent


European new-issue loan volume fell to €3.5 billion in April from €9.1 billion in March, staying on the same up-and-down pattern seen so far in 2015. The trend also looked similar by number of deals – only 12 transactions launched in April, down from the intra-year high of 21 in the prior month.

For the first time since December 2012, none of the new loans launching in April funded a buyout. The sole buyout tracked by LCD in April was financed via the high-yield bond market, namely €400 million of senior secured notes backing the buyout of Senvion by Centerbridge.

In the institutional market, the mismatch between supply and demand persisted as issuance declined to just €2.5 billion in April, less than half the €6.1 billion tracked in the prior month. Meanwhile inflows from repayments ballooned to nearly €9 billion in the month to April 24, as tracked by the S&P European Leveraged Loan Index (ELLI), pushing the Index to the lowest level since 2006 $$.

This chart is taken from a longer piece of analyis, available to LCD News subscribers here, that also details

  • European cov-lite volume
  • European sponsored loan volume
  • Leverage on European loans
  • European borrower source of funding