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With Blemish-free February Leveraged Loan Default Rate Dips to 3.92%

leveraged loan default rate

In February, no new defaults cropped up in the S&P/LSTA Index. As a result, the lagging-12-month default rate edged down to 3.92% by amount, from 3.99% in January. By number of loans, the rate likewise fell to 0.73%, from 0.75%. – Steve Miller

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

  • Leveraged loan default rate by number of deals
  • Defaulted issuers in last 12 months
  • Shadow default rate
  • Default ‘candidates’
  • 2016 leveraged loan maturity wall
  • cash flow coverage of outstanding loans
  • LBO leverage
  • Leveraged loan secondary bids

 

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3 months after shelving loan C&J Energy revives financing backing Nabors merger

Arrangers Citigroup, Bank of America Merrill Lynch, Wells Fargo, and J.P. Morgan are reviving their M&A loan deal for C&J Energy Services. A lender call is set for Wednesday at 11:00 a.m. EST. The deal backs the merger with a unit of Nabors Industries.

Of note, the purchase price declined from $2.86 billion at the time of the June announcement, to $1.5 billion, due to a $250 million reduction in cash, to $688 million, and declines in C&J’s share price. The issuer would have roughly $1.1 billion of debt at closing, and would be leveraged at roughly 2.2x. Nabors would own 53% of the merged business, and C&J shareholders would own 47%.

Arrangers haven’t provided an updated financing plan following the purchase price reduction.

The loan deal backing C&J Energy’s with the Nabors Industries completion and production-services business originally totaled $675 million and was split between a $300 million, five-year TLB-1 and a $375 million, covenant-lite seven-year TLB-2. The TLB-1 included total-leverage, secured-leverage, and interest-coverage tests, and was talked at L+350-375, with a 0.75% LIBOR floor, offered at 99, for a yield to maturity of 4.57-4.82%. The covenant-lite TLB-2 had been talked at L+375-400, with a 1% floor, at 99, to yield 5.02-5.28%.

That structure was later revised to a $640 million, five-year TLB that was talked at L+400, with a 1% LIBOR floor, offered at 98, with total-leverage, secured-leverage, and interest-coverage tests. In addition to the four arrangers, the line-up included senior co-managers Capital One and Comerica, and co-managers Amegy, DNB, Nova Scotia, and Regions. Bank of America is administrative agent.

The issuer is rated BB-/Ba2, with a stable outlook from both agencies. The loans are rated BB+/Ba1, with a 1 recovery rating.

C&J Energy Services is an independent provider of premium hydraulic fracturing, coiled tubing, wireline, pumpdown, and other complementary oilfield services with a focus on complex, technically demanding well completions. – Chris Donnelly

 

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Leveraged loans, high yield bonds post strong Feb. returns, tho no match for equities

loan returns vs other asset classes

Given the combination of rising demand for risk assets and rising rates in February, leveraged loan returns trailed those of equities – which jumped to a three-year high – and high-yield bonds, while beating investment-grade corporate bonds and 10-year Treasuries.

Since year-end, however, rates have been relatively stable. As a result, leveraged loan returns are running behind each of the other four asset classes LCD tracks here monthly. – Steve Miller

Follow Steve for news and insight on the global leveraged loan market.

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Distressed debt: Weight Watchers B-2 term debt extends losses; co. eyes B-1 2016 maturity

Weight Watchers International covenant-lite B-2 term debt due 2020 (L+325, 0.75% LIBOR floor) is extending losses this morning, recently marked at 53.5/55.5, after coming under pressure late yesterday on the company’s fourth-quarter results, which missed Street expectations and showed declines in membership. By comparison, the paper was wrapped around 59 late yesterday following the news and was pegged in a 63/64 context ahead of the results, according to sources.

The most recent drop pushes the paper, issued in April 2013 at 98.5, to fresh lows, according to Markit.

The less-liquid B-1 term loan due 2016 (L+300) has held up better, with dealers making markets in the paper this morning at 94/96 and 95/97, which is down 1-2 points from prior to the news. Note that on yesterday’s conference call, management said it is targeting a cash balance of at least $350 million by the end of the year, which would provide it with “ample liquidity” to address the April 2016 maturity of the B-1 tranche, according to a transcript of the call provided by Bloomberg. For reference, there was about $296 million outstanding under the B-1 tranche as of Sept. 30, SEC filings show.

The company’s shares, which trade on the New York Stock Exchange under the ticker WTW, tumbled about 31% this morning on the news, to $12.12.

As reported, the company reported that fourth-quarter revenue declined 10.4% from the prior year period, to $327.8 million, and fell below the S&P Capital IQ consensus estimate of $332.7 million, as membership declined 15% in the past quarter, to 2.51 million.

Meanwhile, fourth-quarter EBITDAS (earnings before interest, taxes, depreciation, amortization and stock-based compensation) declined to $29.9 million, from $92.9 million in the year-ago period.

LTM adjusted EBITDA came in at $338.3 million, for net leverage of about 6.1x, given the $2.358 billion of debt outstanding, net of $301 million of cash. Leverage is up a full turn, from 5.1x, at the end of the third quarter, SEC filings show.

“While we still believe in our underlying strategies, I am disappointed that we are not yet where we hoped to be and our turnaround will take longer than we had anticipated,” CEO Jim Chambers warned.

Chambers also said that the company is taking more-aggressive steps with cost structure through a $100 million cost-savings initiative.

The company reported a fourth-quarter loss of $16.1 million, or $0.28 per share, versus a profit of $30.8 million, or $0.24 per share in the year-ago period.

For 2015, Weight Watchers expects earnings per share of $0.40-0.70, versus the S&P Capital IQ consensus estimate of $1.43 per share.

Weight Watchers is rated B/B1, while its term debt is rated B+/B1, with a 2 recovery rating.

Weight Watchers in April 2013 wrapped a comprehensive refinancing of its bank debt via J.P. Morgan, Bank of America Merrill Lynch, HSBC, Scotia, and U.S. Bank. J.P. Morgan is administrative agent. The transaction was comprised of a $2.1 billion, seven-year B-2 term loan; a $300 million, three-year B-1 term loan; and a $200 million, five-year revolver. The term loans are covenant-lite. – Kerry Kantin/Rachelle Kakouris

Follow Rachelle on Twitter for distressed debt news and insight.

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New LBO deals rein in leverage amid regulatory pressure

LBO leverage ratios

Regulatory pressure is curtailing how aggressively new leveraged buyouts are being structured, a fact made clear by recent credit statistics.

Since the Shared National Credit Review of last summer, the average debt multiple of new large LBOs – the most consistent sample LCD tracks when it comes to credit stats – has eased to an average of 5.6x over the past five months, from 5.8x during first three quarters of last year and a recent apex of 6.3x during the third quarter of 2014. – Steve Miller

 Follow Steve on Twitter for leveraged loan news and insight.

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Invesco prices $618M CLO via Morgan Stanley; YTD volume: $12.45B

Morgan Stanley has priced a $618 million CLO for Invesco Senior Secured Management, according to market sources.

The transaction is structured as follows:

The non-call period is 1.5 years, and the reinvestment period is 4.1 years.

Including this transaction, CLO issuance in the year to date rises to $12.45 billion from 23 transactions, according to LCD. Fourteen CLOs have priced in February for $7.3 billion. – Sarah Husband

Follow Sarah on Twitter for CLO market news and insight.

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ScentAir Technologies nets buyout loan from TPG Specialty Lending

TPG Specialty Lending added a loan backing scent marketing company ScentAir Technologies to its investment portfolio late last year.

The 7.5% first-lien loan due 2019, at $15.6 million on a cost basis and at fair value, was initially acquired in December 2014, a Form 10-K for 2014 filed yesterday showed. The loan was originated in connection with a buyout by a sponsor.

There were other lenders, in addition to TPG Specialty Lending, behind the acquisition financing for ScentAir, sources said.

The ScentAir Technologies loan is held at least in part by TPG SL SPV, LLC, which is a subsidiary formed in March 2012 that has a revolving credit agreement with Natixis.

ScentAir Technologies, based in Charlotte, N.C., sells scent delivery systems to create ambient scents in business settings worldwide, including retail environments, hotels, and healthcare industries. Darien, Conn.-based Alerion Partners had been an investor in the company, according to S&P Capital IQ.

TPG Specialty Lending is a BDC that lends to middle-market companies and trades on the New York Stock Exchange under the symbol TSLX. The company targets U.S.-based middle-market companies generating annual EBITDA of $10-250 million, mainly through direct origination of senior loans, but also through mezzanine loans, bonds, and equity investments. – Abby Latour

Follow Abby on Twitter for middle market loan news and insight. 

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Valeant outlines leveraged loan amendment related to $14.5B Salix purchase

Valeant this morning launched a slate of proposed changes to its credit facility that will be used to facilitate financing of its $14.5 billion acquisition of Salix Pharmaceuticals, according to an SEC filing. The company has asked lenders to waive total leverage and interest coverage tests that govern incremental borrowings.

That request is part of a larger slate of changes, and lenders are offered a 25 bps fee to approve. As reported, Deutsche Bank, HSBC, Bank of Tokyo-Mitsubishi UFJ, DNB Capital Markets, and SunTrust Robinson Humphrey have committed to provide a $1 billion, five-year incremental A term loan, a $4.55 billion, seven-year incremental B term loan, and a $9.6 billion unsecured bridge loan to finance the transaction, according to filings.

In addition to waiving the 5.25x total leverage and 3x minimum interest coverage tests to allow solely for the incremental loans to help finance the acquisition, Valeant is seeking covenant changes through the first quarter of 2016, including a modification of the interest coverage ratio to 2.25x, allowing for the incurrence of $750 million of additional unsecured debt, waiving of the 5.25x leverage governor in connection with any incremental borrowings, and altering the consolidated EBITDA definition to allow for add-backs of restructuring charges and fees and expenses tied the Salix purchase. The amendment package would also:

  • Waive mandatory prepayments from equity issuance used in the Salix deal or 2014 excess cash flow proceeds of roughly $250 million;
  • Modify the restricted payments covenant so that refinancing of Salix’s convertible notes and settlement of related warrants won’t be deemed RPs;
  • Permit the administrative agent under the credit agreement to enter into certain intercreditor agreements;
  • Increase cash netting from $350 million to $600 million;
  • For future permitted acquisitions change the no default and pro forma compliance conditions to the incremental from “at closing” to “at signing,” and waive incremental total leverage ratio conditions so that only the senior secured leverage ratio applies.

 

Ahead of this morning’s call, Valeant’s institutional loans were pegged in a 99.5/100 context, essentially unchanged from yesterday though off from levels bracketing par prior to yesterday’s M&A announcement, sources said.

Note the existing institutional loans include 50 bps of MFN protection. As of Sept. 30, 2014, Valeant had $182.3 million outstanding under its A-1 term loan due April 2016 (L+225, no LIBOR floor), $166.3 million outstanding under its A-2 term loan due April 2016 (L+225, no LIBOR floor), roughly $1.81 billion outstanding under its A-3 term loan due October 2018 (L+225, no LIBOR floor), roughly $1.09 billion outstanding under its series D-2 B term loan due February 2019 (L+275, with a 0.75% LIBOR floor), $837.5 million outstanding under its series C-2 B term loan due December 2019 (L+275, with a 0.75% LIBOR floor), and roughly $2.54 billion under its series E-1 B term loan due August 2020 (L+275, 0.75% floor). According to the commitment letter, pricing on the new TLA is tied to a leverage-based grid from L+175-225, opening at L+225. Pricing on the new TLB, meanwhile, is outlined at L+350, with a 0.75% LIBOR floor.

Pricing on the bridge loan would open at L+575, increasing 50 bps every 90 days. Note that market conditions at the time of syndication typically dictate actual price talk. The incremental TLA would amortize at a rate of 5% in the first year, 10% in the second, and at 20% thereafter. As reported, Valeant plans to acquire all of the outstanding common stock of Salix for $158 per share in cash in a transaction valued at $14.5 billion. As a result of the need to draw-down inventories, EBITDA will be artificially low in 2014 and 2015, resulting in initial pro forma net leverage of roughly 5.6x. Valeant said it is committed to reducing its net-leverage ratio to below 4x by the second half of 2016. Valeant does not expect any change to its credit ratings as a result of the transaction.

The company is currently rated BB-/Ba3. The transaction, which is expected to close in the second quarter of 2015, is subject to customary closing conditions and regulatory approval. NYSE-listed Valeant Pharmaceuticals, which is based in Laval, Canada, makes a broad range of pharmaceutical products. Salix Pharmaceuticals is based in Raleigh, N.C and is rated B/B1. – Staff reports