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Antares Capital to expand junior debt offering under new owner

Antares Capital will expand its product offering in subordinated, or junior debt under new ownership by the Canada Pension Plan Investment Board (CPPIB).

Antares Capital expects to underwrite, and potentially hold, second-lien and mezzanine debt as a result of the new partnership, according to David Brackett and John Martin, who will lead the group under its new owner. Historically, GE Capital and GE Antares had almost focused entirely on senior secure loans.

After weeks of speculation over who would buy the business, GE today announced plans to sell Antares Capital to CPPIB as part of a $12 billion transaction. Speculation had focused on a non-bank lender as the buyer of pieces of the GE Capital assets up for sale, including of a company trying to enter middle market lending.

In buying the GE business, CPPIB makes a debut in the U.S. middle market business with a splash. GE Capital has long reigned as the dominant player in the middle market lending, defined by LCD as lending to companies that generate EBITDA of $50 million or less, or $350 million or less by deal size, although definitions vary among lenders.

Until now, CPPIB’s focus had been on larger deals. Its junior debt business included high-yield bonds and mezzanine debt. Since 2009, CPPIB’s credit investments have totaled $17 billion, through primary and secondary market purchases. CPPIB’s credit investments are managed by a team of 36 globally.

CPPIB will retain Antares’ team. Antares employs around 300, led by managing partners Brackett and Martin, who have led Antares since its formation. Antares will operate as an independent, stand-alone company.

Moreover, Antares will strengthen its unitranche loan product via the new partnership.

“CPPIB Credit Investments will stand ready to immediately invest follow-on capital into Antares post-closing to support origination of unitranche loans for its clients at scale, as we believe this is a differentiated product that will support Antares’ market leading position,” CPPIB said in a statement today.

Any impact on middle market lending overall as a result of GE Capital’s exit is likely to be minimal.

“There truly isn’t going to be any void. Whatever we’ve been able to provide in the past is what we’ll be able to provide in the future,” said Martin in an interview with LCD News.

The Antares purchase will open CPPIB’s credit investment portfolio to the U.S. middle market. GE Antares specializes in middle market lending to private-equity-backed transactions.

“They had been studying the market for some time and liked the risk-reward scenario. This gave them an opportunity to enter the market in a meaningful way, with scale,” said Brackett in the interview.

The geographic footprint of Antares will likely remain much as it is today, with its headquarters in Chicago, a significant presence in New York, and operations near Atlanta. Antares Capital will operate as an independent business, and retain the name.

The sale is expected to close in the third quarter.

The Senior Secured Loan Program (SSLP), so far not part of the sale, will continue to operate for a time prior to the closing of the deal, giving “Ares and CPPIB the opportunity to work together on a go-forward basis.” The SSLP is a joint venture between GE Capital and Ares Capital. Without an agreement, the program may be wound down (see GE’s sale to CPPIB leaves fate uncertain for $9.6B SSLP partnership).

A similar strategy holds for the Middle Market Growth Program (MMGP), which is a joint venture between affiliates of GE Capital and affiliates of Lone Star Funds, GE said. That program accounts for $600 million of GE Capital investment.

GE announced in April it would divest GE Capital, including its $16 billion sponsor finance business and focus on its core industrial businesses. – Abby Latour

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GE selling Antares to Canada pension fund CPPIB as part of $12B deal

GE will sell Antares Capital to Canada Pension Plan Investment Board (CPPIB) as part of a $12 billion transaction.

The sale includes a $3 billion bank loan portfolio. Antares Capital will operate as an independent business, and retain the name. The sale is expected to close in the third quarter.

Managing partners David Brackett and John Martin, who have led Antares since its formation, will continue to lead the stand-alone business. CPPIB will retain the Antares team, a statement today said.

Stuart Aronson, the CEO of GE Capital Sponsor Finance, will stay at GE Capital.

The sale accounts for $11 billion of ending net investment. GE Capital has announced sales of roughly $55 billion, and plans to complete $100 billion of sales this year.

The Senior Secured Loan Program (SSLP) will continue to operate for a time prior to the closing of the deal, giving “Ares and CPPIB the opportunity to work together on a go-forward basis.” The SSLP is a joint venture between GE Capital and Ares Capital.

“If a mutual agreement is not reached, it is GE Capital’s intention to retain the SSLP in the future so that it can execute an orderly wind down of this program ($7.6 billion GE Capital investment, $6.1 billion of which is attributable to Sponsor Finance).”

A similar strategy holds for the Middle Market Growth Program (MMGP), which is a joint venture between affiliates of GE Capital and affiliates of Lone Star Funds, GE said. That program accounts for $600 million of GE Capital investment.

GE announced in April it would divest GE Capital, including its $16 billion sponsor finance business. GE Antares specializes in middle market lending to private-equity backed transactions.

GE Capital has long reigned as the dominant player in the middle market lending, defined by LCD as lending to companies that generate EBITDA of $50 million or less, or $350 million or less by deal size, although definitions vary among lenders.

In May, Ares Capital CEO Kipp deVeer said Ares plans to continue supporting sponsors and businesses, either directly or through a new program with a new partner. This new partner may be looking to expand their lending to the middle market, or be entering the business for the first time.

He cautioned that there was no guarantee that Ares would reach a deal. In recent weeks, Ares has been working with potential parties, including non-U.S. regulated banks and non-banks such as asset managers, insurance companies, and combinations thereof.

GE Capital is not allowed to unilaterally sell the loans in the SSLP. If no partner is found, the SSLP could be gradually wound down through repayment of the loans. The weighted average life of the SSLP loans was 4.3 years at the end of the first quarter. – Abby Latour

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

 

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Murray debt slips after appeals court dismisses block of EPA rule

Murray Energy 11.25% second-lien notes due 2021 have traded down four points today on news that a federal court has dismissed an appeal by the coal credit and a dozen states to block a proposed Environmental Protection Agency rule that would limit carbon dioxide emissions from existing power plants. Block trades were reported this morning at 89, versus 90.5 late yesterday and 93 going out last week, trade data show.

In the loan market, Murray’s B-2 term loan due 2020 (L+650, 1% LIBOR floor) was quoted at 94/95 this morning, which compares with 95/95.75 at the beginning of the week, according to sources. The $1.7 billion loan was issued in April at 97 alongside the $1.3 billion bond deal, proceeds of which helped support a purchase of a stake in rival Foresight Energy.

Murray Energy, along with the states of West Virginia, Alabama, Indiana, Kansas, Kentucky, Louisiana, Nebraska, Ohio, Oklahoma, South Carolina, South Dakota and Wyoming, argued that the Clean Air Act does not authorize the EPA to limit such emissions, and it sought to enjoin the EPA from issuing a final rule on the matter, according to court documents. But the EPA has so far only published a proposed rule, and the appellate court ruled that it had no authority to issue a ruling on the legality of a proposed rule, saying it is only authorized to review “final agency rules.”

Proposed rules are published by the government for the purpose of, among other things, obtaining public comment prior to final issuance. According to the Court of Appeals decision, the EPA has received more than two million comments on the proposed rule, and intends to issue a final rule this summer.

Yesterday’s ruling, however, is likely not the final word on the matter. The Court of Appeals ruling does not address the merits of the argument made by Murray and the states with respect to the legality of the rule under the Clean Air Act, and the final rule will presumably be subject to further legal challenge.

Murray Energy placed the $1.3 billion issue of 11.25% second-lien notes in April at 96.86, to yield 12%, after multiple revisions to covenants, size, structure, and price talk. Bookrunners on the B-/B3 deal were Deutsche Bank and Goldman Sachs, and terms were eventually finalized at the midpoint of re-launch talk. Proceeds, along with a coordinated loan effort, support the planned acquisition of a stake in Foresight Energy.

Changes were also made to the concurrent loan (see “Murray Energy sets revised TLs; revises Foresight Energy purchase,” LCD News, April 7, 2015). – Staff reports

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

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GE selling Antares to Canada pension fund CPPIB as part of $12B deal

GE will sell Antares Capital to Canada Pension Plan Investment Board (CPPIB) as part of a $12 billion transaction.

The sale includes a $3 billion bank loan portfolio. Antares Capital will operate as an independent business, and retain the name. The sale is expected to close in the third quarter.

Managing partners David Brackett and John Martin, who have led Antares since its formation, will continue to lead the stand-alone business. CPPIB will retain the Antares team, a statement today said.

Stuart Aronson, the CEO of GE Capital Sponsor Finance, will stay at GE Capital.

The sale accounts for $11 billion of ending net investment. GE Capital has announced sales of roughly $55 billion, and plans to complete $100 billion of sales this year.

The Senior Secured Loan Program (SSLP) will continue to operate for a time prior to the closing of the deal, giving “Ares and CPPIB the opportunity to work together on a go-forward basis.” The SSLP is a joint venture between GE Capital and Ares Capital.

“If a mutual agreement is not reached, it is GE Capital’s intention to retain the SSLP in the future so that it can execute an orderly wind down of this program ($7.6 billion GE Capital investment, $6.1 billion of which is attributable to Sponsor Finance).

A similar strategy holds for the Middle Market Growth Program (MMGP), which is a joint venture between affiliates of GE Capital and affiliates of Lone Star Funds, GE said. That program accounts for $600 million of GE Capital investment.

GE announced in April it would divest GE Capital, including its $16 billion sponsor finance business. GE Antares specializes in middle market lending to private-equity backed transactions.

GE Capital has long reigned as the dominant player in the middle market lending, defined by LCD as lending to companies that generate EBITDA of $50 million or less, or $350 million or less by deal size, although definitions vary among lenders.

In May, Ares Capital CEO Kipp deVeer said Ares plans to continue supporting sponsors and businesses, either directly or through a new program with a new partner. This new partner may be looking to expand their lending to the middle market, or be entering the business for the first time.

He cautioned that there was no guarantee that Ares would reach a deal. In recent weeks, Ares has been working with potential parties, including non-U.S. regulated banks and non-banks such as asset managers, insurance companies, and combinations thereof.

GE Capital is not allowed to unilaterally sell the loans in the SSLP. If no partner is found, the SSLP could be gradually wound down through repayment of the loans. The weighted average life of the SSLP loans was 4.3 years at the end of the first quarter. – Abby Latour

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

 

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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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Palmer Square, NYSE launch two new indices to benchmark CLOs

Palmer Square Capital Management has teamed up with the New York Stock Exchange (as calculation agent and distributor) to launch two new indices designed to benchmark the CLO markets.

The Palmer Square CLO Debt Index (NYSE: CLODI) and Palmer Square CLO Senior Debt Index (NYSE: CLOSE) are billed as the first broadly distributed daily benchmarks for U.S. dollar-denominated CLOs backed by broadly syndicated leveraged loans.

The Palmer Square CLO Debt Index is a rules-based observable pricing and total return index for CLO debt sold the United States, rated A, BBB or BB (or equivalent rating), i.e. mezzanine CLO debt.

By contrast, the Palmer Square CLO Senior Debt Index will track the ‘senior’, or AAA and AA (or equivalent rating) tranches.

Palmer Square’s investment team developed the proprietary methodology for calculating the indices. The NYSE serves as the calculation agent for the indices and will disseminate index values daily.

Palmer Square Capital Management, an independent asset manager and part of the Montage Investments family, provides investment advisory services and manages portfolios of corporate and structured credit, high yield municipal credit and various hedge fund strategies for a diverse set of clients across institutional investors, registered investment advisory firms, broker-dealers and high net worth individuals.

As of April 30, 2015, Palmer Square managed in excess of $3.7 billion in assets. The firm recently closed on its fourth CLO, a $435.8 million transaction via J.P. Morgan. – Sarah Husband

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Leveraged loan funds see small investor cash outflow, snapping 3-week streak

Outflows returned to loan funds for the week ending June 3, with Lipper reporting $93.9 million leaving the asset class, versus a $38.6 million inflow in the week ended May 27. The outflow follows three consecutive weeks of inflows that had totaled $442 million.

leveraged loan fund flows

Mutual funds provided the vast majority of the latest outflow result, at $92 million, joined by just $2 billion in ETF outflows, the data shows. Last week, mutual funds provided the bulk of the inflow result, at $37 million, versus just $1.5 million of inflows from ETFs.

With today’s outflow, the trailing four-week average dips slightly to positive $87 million, from positive $97 million last week, and positive $74 million two weeks ago.

The year-to-date outflow is still roughly $3.1 billion, with negative 3% tied to ETFs, versus an inflow of $3.6 billion at this point last year, with positive 23% tied to ETFs.

In today’s report, the change due to market conditions was a positive $127 million, which is just 0.13% against total assets, which were $94.5 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

Note: This story was updated to correct a chart data error re the week ended April 22.

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Six Degrees, Stage Entertainment on LCD European mid-market auction watchlist

LCD has compiled a watchlist of auction situations in the European mid-market to track upcoming M&A deal flow in this space, and will update the list fortnightly. It will focus on deals for which the anticipated enterprise value is roughly €400 million and below, or the debt is expected to be roughly €200 million and below. The list is attached as an Excel spreadsheet (note, LCD’s large-cap auction calendar can be found here).

Penta Investments is looking to sell cloud services provider Six Degrees Group, according to market sources. In 2011, Penta invested £40 million in three platform businesses in the connectivity, data-centre and unified communications sectors, before subsequently making further bolt-ons. The firm has mandated DC Advisory to help run the auction, which has now progressed to the second round.

CVC Capital Partners is poised to acquire Stage Entertainment, a U.K.-based theatre operator. The buyout firm is in exclusive talks with the company’s founder about a deal that could value the company at as much as €400 million, according to reports. CVC is understood to have fought off a rival bid from Providence Equity Partners-owned Ambassador Theatre Group.

Dutch buyout firm Waterland Private Equity has mandated Grant Thornton to help it find a buyer for discount dining club Tastecard, according to reports, which suggest the company could fetch roughly £100 million. If the sale is successful, it would represent a quick flip for Waterland, whose portfolio company Didix only purchased Tastecard in September last year.

Several processes have however reached fruition in recent weeks, or been pulled altogether.

U.K.-headquartered special effects company The Foundry was sold by The Carlyle Group to HgCapital in a deal valued at £200 million. HgCapital financed the deal with equity initially, and will now look to the refinance the business with new debt in the coming months, according to sources.

Poundworld has also been sold, as expected, to U.S. buyout firm TPG in a £150 million deal.

CCMP Capital-owned Pure Gym snapped up rival LA Fitness in a deal thought to be sized at £60-80 million. LA Fitness had been put up for sale by a consortium of lenders that acquired it through a debt-for-equity swap in 2013. The deal has yet to be approved by the competition authorities.

The management team of U.K.-based services group SimplyBiz meanwhile are understood to have shelved plans to sell or float the company. The business had attracted interest from around five private equity firms, understood to include Lyceum Capital and Sovereign Capital, and had carried a mooted valuation of roughly £100 million. The firm’s managing director, Neil Stevens, did however reveal the company was looking at alternative funding options that keep the management team and shareholder base “consistent”, suggesting some sort of debt financing is likely in the near future. – Oliver Smiddy

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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

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CLO issuance in May hits 11-month high in Europe, dwindles in US

CLO issuance, US vs Europe

It was a tale of two markets for CLO volume in May. The European market took a large step forward with €2.4 billion from six transactions, while in the U.S., an underwhelming $5.66 billion of issuance added further evidence that CLO formation will be compromised while loans remain in short supply.

Putting this into perspective, May volume was the highest in Europe since June 2014, according to LCD. And with at least four transactions in the marketing phase right now, June will likely be another solid month.

Meanwhile, in the U.S. May’s supply is the lowest level since January, when $5.15 billion of deals priced, and is roughly a third of March’s record $16.24 billion. – Sarah Husband

Follow Sarah on Twitter for CLO market news and insight.

You can read more on how the CLO market works here.

This story is taken from a longer piece of analysis, available to LCD News subscribers here.