content

Midstates Petroleum Draws Down $249.2M Remaining on Revolving Loan

Midstates Petroleum today disclosed it has borrowed the remaining $249.2 million available under its revolving credit facility. Proceeds of the facility are earmarked for general corporate purposes.

The aggregate amount outstanding under the credit facility is approximately $252 million, including approximately $2.8 million of outstanding letters of credit. The company’s cash balance, as of Feb. 9, was $335.7 million, according to an SEC filing.

SunTrust Bank is administrative agent.

Midstates in May issued a privately placed $625 million offering of 10% second-lien notes to a small group of investors alongside an uptier exchange of some of its outstanding unsecured notes for partial-PIK third-lien notes. Prior to today’s draw-down disclosure, the second-lien notes due 2020 were pegged in a mid-to-high 20s context.

Midstates Petroleum engages in the exploration, development, and production of oil, natural gas liquids, and natural gas in the United States. It primarily focuses on oilfields in the Mississippian Lime trend in northwestern Oklahoma; the Anadarko Basin in Texas and Oklahoma; and the Upper Gulf Coast Tertiary trend in central Louisiana. The company is rated CCC+/Caa1, with stable outlook on both sides. – Rachelle Kakouris

Follow Rachelle on Twitter for distressed debt news and insight. 

This story first appeared on www.lcdcomps.com, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here

content

Sign of the Times: Where do Endownments/Foundations See 2016 Opportunity: Distressed Debt

2016 opportunities

Endowments and foundations generally are pessimistic about the 2016 economic environment, though they do see a few potential bright spots. Chief among them: Distressed debt.

“Investors believe there are opportunities for return in select asset classes for those willing to move quickly and look past short-term noise,” said Cathy Konicki, head of the NEPC’s endowment and foundation practice group. The NEPC is consulting firm that conducting a survey of endowments/foundations, on which the above responses are based. – Staff reports

content

Leveraged Loans: Amid Global Volatility, CLO Market Players Stranded on Sidelines

 

global CLO issuance

It’s not getting any better out there for U.S. and European CLO markets, and with liability spreads continuing to gap out each week, some are speaking in terms of the primary market becoming dysfunctional. The stats say it all, with just $1.28 billion pricing globally this year versus $9.24 billion in the same period last year, according to S&P Capital IQ LCD.

Managers are marketing transactions in both regions, but with the ongoing volatility and the need to reduce fees on those investing in the CLO equity portion, few managers are actually able to price a CLO. Those that can are waiting for conditions to improve. Others with warehouses that are well ramped may be under increasing pressure to act.

Unsurprisingly, no transactions priced on either side of the Atlantic last week. – Sarah Husband/Andrew Park

Year-to-date volume:

  • U.S. – $830 million from two deals versus $6.95 billion from 13 deals in the same period last year
  • Europe – €410 million from one deal versus €560 million from one CLO in the same period last year
  • Global – $1.28 billion from three deals versus $9.24 billion from 17 deals in the same period last year

This story first appeared on www.lcdcomps.com, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here

Follow Sarah on Twitter for CLO market news and insights. 

Follow Andrew on Twitter for CLO market news and insights. 

content

As Investors Shun Risk, Leveraged Loan Issuers Begin to Forego Covenant-Lite Deals

loans adding covenants

Amid the current risk-averse investor market, reverse-flexes on leveraged loans – where pricing or fees are sweetened during the marketing process in order to complete syndication of the deal – have been on the rise.

Digging deeper into the flex data, no fewer than three loans were flexed to include a maintenance test in January, or 19% of January’s class of ‘covenant-lite’ launches, compared to just 2.9% in 2015. All the same, covenant-lite loans remain the dominant structure for new institutional loans, accounting for 60% of new launches in January. – Staff reports

This story first appeared on www.lcdcomps.com, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here

You can read more about how covenant-lite loans are structured here, in LCD’s Leveraged Loan Market Primer/Almanac (it’s free).

content

European leveraged loans gain 0.17% on Friday; YTD return: 0.18%

ELLI Daily 2016-02-08

The European Leveraged Loan Index (ELLI) gained 0.17% on Friday (excluding currency). The ELLI has returned 0.06% thus far in February. The total return for the ELLI in the year to date is 0.18%.

In contrast, the U.S. leveraged loan market has returned -0.72% so far in 2016. — Staff reports

This story first appeared on www.lcdcomps.com, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here

content

Linn Energy Taps Remaining $919M Under Credit Facility

Linn Energy disclosed it has borrowed roughly $919 million under its credit facility, which is the remaining amount available under the facility. Proceeds are earmarked for general corporate purposes.

S&P yesterday downgraded Linn’s corporate credit rating to CCC, from B+, and Linn’s subsidiary Berry Petroleum to CCC, from B+. Linn is rated Caa1 by Moody’s.

Linn Energy, meanwhile, yesterday announced that it has started a process to explore strategic alternatives to strengthen its balance sheet. The company has retained Lazard as its financial advisor.

Following this roughly $919 million borrowing, the aggregate utilization under the credit facility is $3.6 billion, including the $500 million term loan and roughly $6 million of outstanding letters of credit. The credit facility matures in April 2019.

Wells Fargo is administrative agent.

As reported, Linn Energy in October 2015 reduced the borrowing base under its revolver to $3.6 billion, from $4.05 billion, via an amendment that relaxed an interest-coverage covenant.

Houston-based Linn Energy is an independent oil and natural gas company that trades on the Nasdaq under the ticker LINE. LINN acquired Berry Petroleum in 2013. — Richard Kellerhals

This story first appeared on www.lcdcomps.com, LCD’s subscription service offering comprehensive coverage of the global leveraged loan and high yield debt markets. 

content

LSTA Opens Oral Arguments Challenging Regulator Views on CLO Risk Retention

The oral arguments led by the LSTA against the Federal Reserve and Securities and Exchange Commission (SEC) will take place today challenging the regulators’ interpretation of risk retention for CLOs.

Each side will present their case for 15 minutes tomorrow morning with a ruling expected around June or July.

The LSTA in the case, which has been filed in the U.S. Court of Appeals for the District of Columbia, argues that regulators are misinterpreting the definition of a “securitizer”, not properly assessing “credit risk”, and failing to consider alternatives such as the Qualified CLO.

If CLO managers are ruled not to be “securitizers,” due to judges siding with the LSTA that managers are neither directly selling nor transferring assets, CLOs would likely become exempt from risk retention, which goes into effect on December 24.

The LSTA also argues that regulators are misinterpreting the concept of “credit risk.” They argue 5% of the market value of a CLO held in the form of a vertical slice, a mix of the first-loss equity up to lower-risk senior tranches, would have a different risk profile than 5% of the CLO in all of the first-loss equity tranche.

On a third front, the LSTA argues that the regulatory agencies fail to properly explain their reasoning behind the implementation of the risk-retention rule, nor providing any sort of sufficient rebuttal to other proposed alternatives such as the Qualified CLO. “The Commission’s failure is especially stark because it must consider the effect of its rule of ‘efficiency, competition, and capital formation,’” the LSTA argues in its reply brief.

If judges rule in favor of the LSTA’s interpretation of credit risk or that regulators failed to sufficiently consider alternatives, regulators may have to re-propose the rule that would more likely entail 5% of the total equity instead of the entire transaction.

Still, while a favorable ruling would bring relief to a number of market participants across the securitized products sector, the likelihood of one is still considered to be a long shot.

The case is The Loan Syndications & Trading Association v. SEC, 14-1240, U.S. Court of Appeals, District of Columbia Circuit (Washington). — Andrew Park

Follow Andrew on Twitter for CLO market news and insight.

This story first appeared on www.lcdcomps.com, LCD’s subscription service offering comprehensive coverage of the global leveraged loan and high yield debt markets. 

content

Gladstone restructures loans in Galaxy Tool, Tread; sells Funko

Gladstone Investment Corporation has restructured investments in Galaxy Tool and Tread Corp. in the recent fiscal quarter, exchanging debt holdings for equity, an SEC filing showed.

Gladstone Investment booked a realized loss of $10.5 million when the lender restructured its investment in Galaxy Tool. Debt to Galaxy Tool with a cost basis of $10.5 million was converted into preferred equity with a cost basis and fair value of zero through the restructuring transaction, the SEC filing showed.

Galaxy Tool, based in Winfield, Kan., manufactures tooling, precision components, and molds for the aerospace and plastics industries.

An investment in Tread included debt with a cost basis of $9.26 million. This was also converted into preferred equity. Gladstone Investment realized a loss of $8.6 million through the transaction.

Tread was Gladstone Investment’s sole non-accrual investment as of Sept. 30. As of Dec. 31, 2015, a revolving line of credit to Tread remained on non-accrual. Tread remains Gladstone Investment’s sole non-accrual investment.

Based in Roanoke, Va., Tread manufactures explosives-handling equipment including bulk loading trucks, storage bids, and aftermarket parts.

Also in the quarter, Gladstone Investment sold an investment in bobblehead and toy maker Funko, realizing a gain of $17 million. Gladstone Investment received cash of $14.8 million and full repayment of $9.5 million in debt as part of the sale.

Gladstone Investment Corporation, based in McLean, Va., is an externally managed business development company that trades on the Nasdaq under the ticker GAIN. The BDC aims for significant equity investments, alongside debt, of small and mid-sized U.S. companies as part of acquisitions, changes in control, and recapitalizations. — Abby Latour

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

content

Leveraged Loans: Europe-US Yield Differential Widens; Traders Eye Relative-Value Play

secondary loan yields, US v Europe

The yield differential between the U.S. and European leveraged loan markets continues to widen as the U.S. is hit by growing concerns about the credit cycle, as well as exposure to sectors under pressure (energy).

For the week ended Jan. 29, the discounted yield to maturity on the S&P/LSTA Leveraged Loan Index reached 6.88%, versus 5.17% on the S&P European Leveraged Loan Index (ELLI) – a 172 bps difference. At the end of December the differential was 151 bps, and at the end of November it was 117 bps.

Although secondary yields have started to rise slightly at the start of this year in Europe, the loan market on this side of the Pond remains relatively isolated from the broad volatility that hit secondary bonds, and which resulted in a near-silent high-yield bond primary during January. – Isabell Witt

This story first appeared on www.lcdcomps.com, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here

content

US Leveraged Loan Market Sees Busiest Default Month Since 2010. But …

us leveraged loan defaults

Leveraged loan default activity in the U.S. kicked up in January as four issuers—Sports Authority, Arch Coal, RCS Capital, and NewPage—defaulted on $3.57 billion of S&P/LSTA Index loans.

The lagging 12-month default rate trend, however, was mixed. With Caesars Entertainment Operating Company’s $5.6 billion default in January 2014 falling from the rolls, the rate by amount eased to 1.33%, from 2015’s final read of 1.54%. Though last month’s tally of four defaults was the highest monthly total since January 2010, when six Index issuers defaulted, default rates remain inside the historical average of 3.1% by amount and 2.8% by number.-

Looking ahead, managers judge that (1) the credit cycle is now in the second half, if not the fourth quarter, but (2) the game is not over yet, and, therefore, the loan default rate will remain below trend for at least the next twelve months.

According to LCD’s latest quarterly buyside survey conducted in early December, managers on average estimated the default rate by amount will end 2016 at 2.35%, before climbing to 3.24% by year-end 2017. For the record, results were tightly clustered at 1.65–3.00% for 2016 and 2.50–4.00% for 2017.– Steve Miller

Follow Steve on Twitter for an early look at LCD analysis on the leveraged loan market.

This story first appeared on www.lcdcomps.com, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here