Madison Capital taps Brazier for loan syndications, promotes Day

Madison Capital Funding has hired Daniel Brazier for its loan syndications team, and also announced that Jeffrey Day was promoted to Managing Director and Head of Loan Syndications.

Brazier was previously with GE Capital and Antares Capital. Day has been with Madison Capital since 2011, and prior to that held positions at J.P. Morgan, CapitalSource, and GE Capital.

Chicago-based Madison Capital, which focuses on the financing needs of middle market private equity firms, provides enterprise-value leveraged financing for acquisitions, recapitalizations, MBOs, and LBOs. The firm is a wholly owned subsidiary of New York Life Investment Management Holdings. — Staff Reports


Valitas cut to CCC by S&P on expected loan covenant breach

Correctional health care provider Valitas could be at risk of breaching its financial covenant step-downs for the September testing period, according to Standard & Poor’s.

The rating agency on Thursday lowered its corporate credit rating on Valitas, and the company’s senior secured debt, to CCC from B-.

The ratings remain on CreditWatch with negative implications, reflecting S&P’s expectation that the company could be in covenant default in November, and could experience a liquidity event within the next year if it is unable to maintain revolver access.

In the secondary market, the term loan did not appear active following the downgrade, but note the off-the-run credit had recently been quoted in wide markets wrapped around 80, according to sources.

The loans were syndicated in May 2011 via Barclays Capital and Bank of America Merrill Lynch to back Valitas’ merger with America Service Group.

Lead credit analyst Shannan Murphy warns that the company’s ability to negotiate an amendment to these financial covenants is highly uncertain given the short time frame until its financial statements are filed, as well as some recent negative operating trends affecting the business, including the recent loss of a contract in New York and underperformance under the company’s Florida prison contract (its largest).

“Moreover, our rating action also reflects our expectation that the company will continue to require access to a revolving credit facility or other source of backup liquidity, especially in the first half of each fiscal year where cash flow is traditionally negative; without this access, we believe that the company could encounter a liquidity event due to normal month-to-month working capital swings,” Murphy said.

S&P expects low-double-digit EBITDA growth in 2015 and very modest EBITDA growth in 2016.

Valitas Health Services, Inc., through its operating subsidiaries, Corizon, Inc. and Corizon Health, Inc., is a provider of contract healthcare services to correctional facilities. Based in Brentwood, Tenn., Valitas is controlled by Beecken Petty O’Keefe & Company. — Rachelle Kakouris


Apollo’s Galowski moves to London as co-head of structured credit

Apollo’s Jim Galowski has relocated to London as co-head of structured credit.

Currently a senior portfolio manager in the firm’s corporate structured credit division, Galowski will look to develop the firm’s global structured credit business.

Prior to joining Apollo in 2012, Galowski was a partner at Stone Tower Capital, responsible for overseeing its investment activities in structured credit. Previously, he had worked at WestLB since 1990 in New York, London, and Singapore, and prior to WestLB he was with CIBC. — Sarah Husband

Follow Sarah on Twitter for CLO market news and insight. 


Bond prices surge again, reach 2.5-week high with broad gains

The average bid of LCD’s flow-name high-yield bonds surged 154 bps in today’s reading, to 95.10% of par, yielding 7.62%, from 93.56% of par, yielding 8.05%, on Oct. 6. Performance within the 15-bond sample was broadly positive, with nine of the 14 gainers up more than a point, and a single constituent unchanged.

Today’s gain follows a 146 bps boost on Tuesday, for an overall rally of 300 bps this week. The advance puts the average at a 2.5-week high and 312 bps above the recent low of 91.98 recorded on Sept. 29, which itself was not just a 2015 trough, but also a four-year low, or the deepest average bid price since 91.25 on Oct. 6, 2011.

Dating back two weeks, however, includes some of the September slump, so the average is up just 66 bps over that span. And for the trailing four-week observation, the average is negative 334 bps.

As for the year to date, the average is down 60 bps, which is much moderated from the deeper negative year-to-date reading of 372 bps at the end of September. Recall that the 2014 decline was 536 bps, which followed a loss of 463 bps in 2014.

Today’s gain was driven by ongoing strength in heavily shorted names in sectors that have recently been under pressure, like Energy and Telecom. Today’s lead gainer was the Dish Network 5.875% notes due 2022, which jumped 6.5 points, to 95, after selling off heavily in recent weeks. Moreover, buying interest has been buoyed by heavy cash inflows to the asset class this week, with $1.1 billion plowed into the exchanged-traded fund JNK over the past three days alone.

With the solid rebound in the average bid price, the average yield to worst fell 43 bps, to 7.62%, and the average option-adjusted spread to worst cinched inward by 47 bps to 617 bps. Both are roughly 100 bps inside the observations at the recent trough, which were 8.62% and T+708, respectively.

The yield and spread in today’s reading are now back in line with the broad index. The S&P U.S. Issued High Yield Corporate Bond Index closed the last reading, Wednesday, Oct. 7, with a yield to worst of 7.61%, and an option-adjusted spread to worst of T+628.

Bonds vs. loans
The average bid of LCD’s flow-name loans was unchanged in today’s reading, at 97.20% of par, for a discounted loan yield of 4.35%. The gap between the bond yield and discounted loan yield to maturity is 327 bps. — Staff reports

The data:

  • Bids rise: The average bid of the 15 flow names jumped 154 bps, to 95.10.
  • Yields fall: The average yield to worst dropped 43 bps, to 7.62%.
  • Spreads tighten: The average spread to U.S. Treasuries pulled inward by 47 bps, to T+617.
  • Gainers: The largest of the 14 gainers was the Dish Network 5.875% notes due 2022, which surged 6.5 points, to 95.
  • Decliners: None.
  • Unchanged: The Fiat Chrysler 8.25% notes due 2021 were steady, at 106.5.

Heartland inks $425M pro rata facility for Splenda acquisition

Privately owned Heartland Consumer Products, in a partnership with Centerbridge Partners, has obtained a $425 million pro rata credit facility in connection with the company’s acquisition of the Splenda brand from Johnson & Johnson Consumer Inc., sources said.

The credit facility includes a $375 million, six-year A term loan and a $50 million senior secured revolver.

Rabobank, Regions Bank, Fifth Third, KeyBank, and ING acted as joint lead arrangers. Rabobank acted as left lead and is administrative agent.

Heartland is a producer of tabletop sweeteners. Centerbridge Partners is a private equity firm based in New York. — Richard Kellerhals


Like smaller peers, larger companies’ earnings likely slowed in 3Q

An index tracking private middle market companies has foreshadowed a slowdown in revenue and earnings of larger public companies in the third quarter of 2015.

“We expect to see the theme of slower growth play out this earnings season,” said Edward Altman, the Max L. Heine Professor of Finance, Emeritus at the NYU Stern School of Business.

“Middle market companies have historically outperformed their larger public peers, so we anticipate relatively low year-over-year revenue and especially EBITDA growth from S&P component companies in the third quarter,” said Altman.

Altman collaborated with Golub Capital on the Golub Capital Altman Index, which was featured today in the second edition of the quarterly Golub Capital Middle Market Report, which includes an analysis of the index. The index is based on the sales and earnings data of roughly 150 private U.S. companies in Golub Capital’s loan portfolio.

The index showed revenue of privately held middle market companies increased 7.95% year-over-year in the first two months of the third quarter of 2015, compared to 9.26% in the first two months of the second quarter of 2015.

EBITDA rose by 3.95% in the third quarter, compared to an increase of 6.93% year-over-year during the first two months of the second quarter of 2015.

Still, the index shows that private middle market companies remain a resilient driver of economic growth, said Lawrence Golub, Golub Capital’s CEO.

“While revenues and earnings in the period grew at a healthy pace, margins continued to be pressured by such factors as rising labor costs and the strength of the U.S. dollar, which is impacting the pricing power of U.S. firms with international competitors,” Golub said.

The index showed an 8.84% increase in revenue and a 9.88% increase in earnings for the healthcare sector. This was probably due to the Affordable Care Act, which increased access to health care services, the report said.

Revenue of private middle market industrial companies fell 0.68% year-on-year in the third quarter, and earnings of industrial companies fell 1.62%.

Revenue of private middle market information technology companies rose 6.65%, but earnings slumped 3.62%.

“The information technology sector saw negative profit growth, reflecting, we believe, greater investment in product development,” said Golub.

The index contains limited exposure to the financials, utilities, energy, and materials sectors. Thus, calculations are made for the public indexes both including and excluding these sectors.

The index “is the first and only index based on actual sales and earnings data for middle market companies,” the report said.

“The index has served as a reliable indicator of the overall growth rates in revenue and earnings of public companies in market indexes such as the S&P 500 and S&P SmallCap 600, as well as quarterly GDP, according to statistical backtesting dating back to 2012, when data began to be tracked,” the report said. — Abby Latour

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


Seix Advisors hires Wu from CIFC to expand CLO business

Seix Investment Advisors has announced the hiring of John Wu as managing director of structured capital markets. Wu will primarily be responsible for the expansion of the firm’s CLO business.

Wu was previously the co-head of structured products, a senior portfolio manager, and managing director overseeing 15 CLO new issue/refinancing transactions at CIFC.

Prior to CIFC, he was the head of CLO structuring at UBS and director in global credit trading at Deutsche Bank. He began his career in the Credit Derivatives group at Goldman Sachs. – Staff reports


Loan bids extend decline with fifth-consecutive drop

The average bid of LCD’s flow-name composite fell 32 bps over the past few trading sessions, to 97.20% of par, from 97.52 on Oct. 1. Today’s drop marks the fifth-consecutive drop in the average bid, for a total decline of 128 bps over the 2.5-week span.

The average bid remains at its lowest level since December 2014, and of note, none of the 15 names in the sample are bid at par.

The composite remains biased towards the downside, with 12 loans lower, one unchanged and two higher; however, the two advancers gained a mere eighth of a point from the previous reading. The decliners, meanwhile, ranged from 0.125-1.75 points. Avaya’s typically volatile TLB-7 (L+525, 1% LIBOR floor) was responsible for the 1.75-point drop.

After a downcast session Friday, the market remains very choppy even as high-yield has clawed back some losses. While some loans have recovered from lows touched Friday, others continue to slide.

Traders continue to keep a close eye on the primary market, though there’s little clarity around clearing yields. Amid the recent volatility, several M&A/LBO transactions have gone into overtime and remain in price discovery, while three opportunistic transactions have been withdrawn all together.

With the average loan bid falling 32 bps, the average spread to maturity gained nine basis points, to L+461.

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

  • 99.04/L+383 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+377.
  • 94.44/L+610 for the six loans rated B or lower by one of the agencies; STM in this category is L+568.


Loans vs. bonds
The average bid of LCD’s flow-name high-yield bonds advanced 146 bps, to 93.56% of par, yielding 8.05%, from 92.10 on Oct 1st. The gap between the bond yield and discounted loan yield to maturity stands at 371 bps. – Staff reports

To-date numbers

  • October: The average flow-name loan dropped 52 bps from the final September reading of 97.72.
  • Year to date: The average flow-name loan climbed 28 bps from the final 2014 reading of 96.92.

Loan data

  • Bids slip: The average bid of the 15 flow names tumbled 32 bps, to 97.20% of par.
  • Bid/ask spreads tighter: The average bid/ask spread tightened two basis points, to 36 bps.
  • Spreads grow: The average spread to maturity – based on axe levels and stated amortization schedules – increased nine basis points, to L+461.

Rolls-Royce acts on low U.S. yields in rare bond market appearance

Another muted primary-market session was enlivened by a $1.5 billion deal for RollsRoyce, a name last seen in the U.S. debt markets more than two decades ago. The company, which sought to bolster its liquidity position amid share buybacks and capital-spending plans, launched $500 million of five-year notes at T+105 and $1 billion of 10-year notes at T+160, or firm to guidance ranges and substantially through initial whispers in the areas of T+137.5 and T+187.5, respectively.

Moody’s today noted that the company was motivated to capitalize on “historically low yields available in the U.S. bond market,” and said the ratings outlook at the A3 level was unaffected despite the attendant rise in leverage for the infrequent borrower.

The deal also came as the CDX IG 25 was, on net, little changed today in the 87.5 bps area, with most single-name constituents tighter for a second straight session, and with the index down from recent multiyear highs near 95 bps. But while the footing is firmer week to week, issuers unencumbered by earnings blackouts still have every reason to proceed with caution: many recent new issues continue to trade wide of issuance, including long-dated bonds placed by Hewlett Packard Enterprise in a $14.6 billion, curve-spanning offering backing its spin-off from the hardware business, a deal that the company was forced to pay 40-70 bps in new-issue concessions to clear.

Meantime, five-year CDS referencing the debt of DuPont rose 11% today to a four-year high in the mid-80 bps area, after the company yesterday said it would replace CEO Ellen Kullman with Tyco International Chairman Edward Breen, who was recently added to DuPont’s board amid what the company described as a “challenging environment” necessitating a “deep dive” into the company’s cost structure. The move dovetailed with steady pressure from activist investors to explore ways to unlock value, including via a possible breakup of the company. DuPont spreads vaulted higher from a low base in July 2013, after activist Nelson Peltz’s Trian Fund Management took a big stake in the company, in what was considered a contributing factor in DuPont’s later decision to spin off its titanium dioxide unit to shareholders.

After inking a deal to acquire Pharmedium Healthcare for $2.575 billion, the five-year CDS referencingAmerisourceBergen was steady today in the 40 bps area, which is where it has been indicated throughout the year, trade data show. ABC in February placed a $1 billion offering backing its $2.5 billion acquisition of MWI Veterinary Supply, an animal-health distribution company.

Standard & Poor’s Ratings Services today affirmed the A- rating and stable outlook on ABC, citing expectations for a “modest” increase in leverage to 1.6x for fiscal 2016, pro forma for the latest acquisition, from 1.2x. ABC plans to secure a $1 billion, five-year term loan in support of the transaction, and will fund the balance with cash on hand and by utilizing its credit facility, the company said today.

Today’s only other primary-market highlight was provided by Royal Bank of Canada’s $1.75 billion offering of 2.1% covered bonds due October 2020, which was placed at 72 bps over mid-swaps, or 2.107%. The issue was printed in line with guidance and at the firm end of early whispers in the area of 75 bps plus mid-swaps. The new 2020 covered bonds were inked at levels above the Canadian bank’s last five-year secured offering, in January, when it placed a $2 billion offering of 1.875% covered bonds due February 2020 at mid-swaps plus 44, or 1.878%. – Staff reports


Fifth Street-backed platform seeks to update middle-market lending

Len Tannenbaum, the founder of Fifth Street Asset Management, is seeking to modernize middle-market lending with a new platform where arrangers of these loans intersect with investors.

“The process for middle-market loan syndications remains inefficient and cumbersome and has not changed in any meaningful way over the last few decades,” said Tannenbaum, who is also CEO of Fifth Street Asset Management.

“It involves a tight club of 50 to 100 lenders that spend an enormous amount of time scheduling calls with each other, scribbling on notepads and sending forms back and forth via fax.”

Thus, Tannenbaum is launching MMKT, which will tackle the inefficiencies of syndication to middle-market companies. A full launch of the system is slated for the first quarter of 2016.

In recent years, lenders to middle-market companies have multiplied as banks curtail lending to these borrowers in the face of stricter regulation.

MMKT’s end-to-end platform was built using advanced encryption technology. Open to qualified institutional buyers only, potential investors will be able to browse loan listings, analyze private company information, register loan commitments, purchase loans, and take assignment of loans. Lenders can also list holdings through the platform and sell loan investments.

Loan originators will be able to submit loan details, enter diligence data, and sell loans to selected private or public groups. Financial sponsors and borrowers will be able to manage the loan buying process, and carry out post-closing and agency tasks.

Technology for the project was spearheaded by Len’s brother, David, who was chief technology officer of LiftDNA, a supply side platform, before it was acquired by digital advertising company OpenX in February 2012. David Tannenbaum is president of MMKT. Len Tannenbaum is interim CEO of MMKT.

The MMKT platform offers greater functionality than existing products geared to the loan market, and is more specifically tailored to the middle market lending process, Tannenbaum said. Eventually, MMKT will expand to secondary middle market loan trading.

“A big problem today in the loan market is that many loans are not based on actual bids and offers; they are based on indicative quotes that may not be updated. These indicative quotes are not real,” Tannenbaum said.

“We believe every market started off as closed, non-transparent markets. As part of their evolution, many have opened up. As we move towards a more liquid and transparent middle market lending industry, some may not be able to take advantage of inefficiencies anymore. Those not marking their books appropriately may not like this offering.”

So far, Fifth Street has closed syndication of a Fifth Street one-stop financing via the platform. MMKT is not accepting non-Fifth Street loan listings at this time, until the technology and user process is ready. Eventually, it will be open to other loan originators, who Tannenbaum believes will similarly benefit from using the MMKT platform, saving time and resources.

Smaller lenders, too, will reap benefits from the platform by syndicating their deals in MMKT and by gaining access to deals syndicated by other lenders. MMKT’s technology will likewise work for the co-investment process.

Fifth Street defines middle market as companies generating EBITDA of $10-100 million. MMKT is set up to syndicate deals of any size, but is optimized for syndicating deals that fall within Fifth Street’s traditional definition of middle market.

MMKT is expected to syndicate several large transactions over the next few months. Tannenbaum estimates the size of the market could be $100 billion per year.

“The technology and solution is applicable to many other liquid markets as well,” he said.

Fifth Street Asset Management is an asset-management company that advises two Fifth Street BDCs. Fifth Street Floating Rate Corp. trades on the Nasdaq as FSFR and provides sponsor-backed midsize companies with senior secured loans. Fifth Street Finance Corp. trades on Nasdaq as FSC and focuses on lending to sponsor-backed small and midsize companies. – Abby Latour

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