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Dollar Tree readies $7B leveraged loan backing Family Dollar buy

Arrangers J.P. Morgan, Wells Fargo, Bank of America Merrill Lynch, RBC Capital Markets, and US Bank have scheduled Dollar Tree’s M&A loan deal for launch with a lender meeting on Monday, Jan. 26, at 2:00 p.m. EST, sources said.

The financing backing the purchase of Family Dollar is now structured as a $1.25 billion, five-year revolver, a $500 million, five-year term loan A, and a $5.2 billion, seven-year term loan B.

The underwriting group now includes PNC, TD Securities, Capital One, Regions Bank, Citizens Bank, Bank of Tokyo-Mitsubishi UFJ, SunTrust Robinson Humphrey, SMBC, HSBC, Fifth Third, and Huntington National.

The original commitment called for $5.4 billion of term debt and $2.8 billion in new senior unsecured notes, sources said. Earlier, Dollar Tree said it would also use $569 million of available cash and a $240 million revolver draw to back the acquisition.

Family Dollar shareholders approved the transaction earlier this week, and closing is expected in March.

The combination of Dollar Tree and Family Dollar would create the largest discount retailer in North America by number of stores.

Chesapeake, Va.-based Dollar Tree operates variety stores in the U.S. and Canada. – Chris Donnelly/Richard Kellerhals

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S&P: CLO exposure to recent Oil & Gas rating actions is limited

Standard & Poor’s Ratings Services has reviewed exposure in U.S. CLO transactions to the 23 oil and gas exploration and production companies whose ratings were affected by its Jan. 16, 2015 rating actions.

As per that report, the following borrowers were downgraded:

  • WPX Energy, to BB/Stable from BB+/Negative
  • Energy XXI, to B/Negative from B+/Negative
  • Warren Resources, to B-/Stable from B/Stable
  • Swift Energy, to B-/Stable from B/Stable
  • Midstates Petroleum Co., to B-/Negative from B/Stable
  • Magnum Hunter Resources Corp., to CCC+/Negative from B-/Negative
  • Black Elk Energy Offshore Operations, to CCC-/Negative from CCC+/Negative
  • Rooster Energy, to CCC-/Negative from CCC+/Developing.

 

The following borrowers had their outlook revised:

  • Chesapeake Energy Corp., to stable from positive (affirmed ‘BB+’ corporate credit rating)
  • Whiting Petroleum Corp., to negative from stable (affirmed ‘BB+’ corporate credit rating)
  • SM Energy Co., to stable from positive (affirmed ‘BB’ corporate credit rating)
  • Denbury Resources, to negative from stable (affirmed ‘BB’ corporate credit rating)
  • Legacy Reserves, to negative from stable (affirmed ‘B+’ corporate credit rating)
  • Chaparral Energy, to stable from positive (affirmed ‘B’ corporate credit rating)
  • Halcon Resources Corp., to negative from stable (affirmed ‘B’ corporate credit rating)
  • SandRidge Energy, to negative from stable (affirmed ‘B’ corporate credit rating)
  • Sabine Oil & Gas, to negative from stable (affirmed ‘B’ corporate credit rating)
  • Clayton Williams Energy, to negative from stable (affirmed ‘B’ corporate credit rating)
  • EXCO Resources, to negative from stable (affirmed ‘B’ corporate credit rating)
  • American Eagle Energy Corp., to negative from stable (affirmed ‘CCC+’ corporate credit rating).

 

The following borrowers had their rating placed on CreditWatch negative:

  • Apache Corp. – ‘A-’ rating on CreditWatch with negative implications
  • Breitburn Energy Partners – ratings placed on CreditWatch with negative implications.

 

The following borrower had its rating affirmed:

  • Continental Resources – ‘BBB-’ corporate credit rating affirmed. The outlook is stable.

 

Based on the agency’s review, a total of 17 U.S. CLOs have exposure to companies whose ratings were either lowered or placed on CreditWatch negative as part of the Jan. 16 rating actions. The largest exposure was 0.62%. All other exposures were less than 0.5%. Based on the small exposure, S&P doesn’t expect any rating actions for U.S. CLO transactions as a result of the Jan. 16 rating actions.

Based on its review in December 2014 of roughly 700 U.S. CLOs, the average CLO exposure to loans issued out of the oil and gas sector was only about 3.3%.

S&P will continue to review whether, in its view, the ratings currently assigned to CLO transactions exposed to the oil and gas sector remain consistent with the credit enhancement available to support them. – Staff reports

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US House passes Volcker extension legislation

The U.S. House of Representatives today passed legislation that would grant a two-year extension, to July 21, 2019, of the application of the Volcker Rule to banks’ AAA and AA CLO holdings. The bill passed by a vote of 271-154.

As reported, the legislation, H.R. 37, last week failed as it was brought to the House floor under suspension of the rules, a parliamentary measure that requires two-thirds approval.

The bill now moves to the Senate. The White House, however, has indicated President Obama would veto the bill.

“The LSTA is encouraged that the House of Representatives passed a narrow Volcker fix, which will prevent banks from engaging in a forced sale of well-performing CLO AAA and AA notes,” said Meredith Coffey, executive vice president of research and analytics at the LSTA. “We hope the Senate and the Administration support this sensible modest improvement.”

LSTA Executive Director Bram Smith yesterday wrote a letter to the House Financial Services Committee Chairman Rep. Jeb Hensarling (R-Texas) and Ranking Member Rep. Maxine Waters (D-Calif.) expressing the organization’s support for the legislation, and specifically the language that would extend to 2019 implementation of the Volcker Rule with respect to banks’ CLO holdings.

“If left unaddressed, banks will be forced to sell these safe investments to opportunistic buyers who will demand a deep discount. If Volcker implementation is extended just two years, this problem will resolve itself,” Smith wrote, noting that by 2019, the vast majority of the CLO notes that are not Volcker compliant will have matured or been redeemed.

For the text of the legislation, click here. – Kerry Kantin

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Leveraged loan mart softens in December as demand deficit deepens

loan supply v demand

Loan market technical conditions weakened in December as capital formation faded more quickly than supply. In all, the amount of S&P/LSTA Index loans outstanding exceeded visible demand from CLO formation and retail flows by $5.8 billion: $7.9 billion to $2.1 billion. It was the deepest demand deficit in three months, edging November’s $5.5 billion figure. – Steve Miller

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

  • US prime fund flows
  • US CLO issuance
  • Volume of leveraged loans breaking for trading
  • Loan outstandings
  • Secondary loan prices
  • Leveraged loan returns
  • Loan yields

 

Follow Steve on Twitter for leveraged loan insight and analysis.

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Griffin Capital, Benefit Street file IPO plans for middle-market BDC

Griffin-Benefit Street Partners BDC Corp. today filed plans to sell up to $1.5 billion of common stock in an IPO.

The company, a new BDC, will invest in debt and equity of middle-market companies. Griffin Capital BDC Advisor (GBA), an affiliate of Griffin Capital, will manage the BDC.

The senior management team of GBA will comprise Kevin A. Shields, David Rupert, Joseph Miller, Randy Anderson, and Howard S. Hirsch.

Rupert will be CEO of the new BDC. Investment decisions require unanimous approval of the investment committee, comprised of Shields, Rupert, Miller, and Anderson.

Investment professionals of Benefit Street Partners, an affiliate of Providence Equity Partners, will serve as sub-advisors to GBA. They include Richard J. Byrne, Thomas J. Gahan, Michael E. Paasche, David J. Manlowe, and Blair D. Faulstich.

Providence Equity Partners was founded as a private equity firm specializing in media, communications, education, and information sectors, and has since expanded into credit. It had more than $40 billion under management as of Nov. 30, 2014.

Investments could include senior secured, unitranche, and second-lien debt, senior unsecured and subordinated debt, and equity and equity-related securities, either issued by private U.S. companies or public ones with a market capitalization of up to $250 million. The company may invest in syndicated deals.

Investments will range from $5-$50 million initially.

“We believe that investing in the debt of private companies generally provides a more attractive relative value proposition than investing in broadly syndicated debt due to the conservative capital structures and superior default and loss characteristics typically associated with these companies,” said the prospectus, filed by the company on Dec. 23.

“The prevailing investment environment presents a compelling case for investing in secured debt of private U.S. companies primarily in the middle market.”

Shares won’t trade on an exchange. The company plans to carry out quarterly tender offers beginning one year after the initial share sale of at least $2.5 million. The IPO is aimed at a broad high-net-worth market, with a minimum purchase requirement of $2,500.

The company has applied for SEC approval to co-invest with other funds managed by Benefit Street, GBA, and affiliates.

Griffin Capital is a privately held investment management company based in Los Angeles that’s focused on real estate investments in the U.S. and Britain and managing institutional capital. – Abby Latour

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

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Leveraged loan fund outflows ease to $374M; little ETF influence

US leveraged loan fund flows

Cash outflows from bank loan funds diminished significantly in the first 2015 full-week reading, at $374 million for the week ended Jan. 7, according to Lipper. That’s down from $1 billion last week, $1.3 billion two weeks ago, and a whopping $1.8 billion in the week ended Dec. 17, 2014.

Just like last week, the influence from exchange-traded funds was essentially nil, at just 1% of the redemption, or $2.3 million over the past week. Recall that ETFs were heavy, at 18% of the big withdrawal three weeks ago, and that was anomalous to most every other reading during the year.

The latest outflow represents the 26th consecutive weekly withdrawal and the 37th outflow in 39 weeks, for a net redemption of $24.6 billion over that span.

The trailing four-week average moderates to negative $1.1 billion for the week, from negative $1.3 billion last week and negative $1.2 billion two weeks ago. Last week’s observation was the deepest in roughly 3.5 years, or since the week ended Aug. 31, 2011.

The outflow kicking off the New Year is in contrast to last year, which showed a net inflow of $1 billion during the first week of the year. For the full-year 2014, outflows were roughly $17.3 billion, with ETFs representing about 3% of that total, or $516 million.

In today’s report, the change due to market conditions was negative $272 million, for a 0.3% decline against total assets, which were $88.3 billion at the end of the observation period. The ETF segment comprises $6.8 billion of the total, or approximately 8%. – Matt Fuller

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

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Wilshire Associates launches index tracking debt-focused BDCs

Wilshire Associates has launched an index tracking debt-focused BDCs.

The Wilshire BDC Index will track publicly traded BDCs with at least 75% of their total investment portfolio focused on debt, and at least $100 million of market capitalization.

The top five holdings are Ares (ARCC) at 23%, Prospect Capital (PSEC) at 14%, Apollo (AINV) at 8%, Main Street Capital (MAIN) at 7%, and Fifth Street Finance (FSC) at 6%.

“Investors have been chasing yields in bonds and bank loans, as well as tax-advantaged equities, and the Wilshire BDC Index measures performance for investment instruments that seek to combine the best of both asset classes,” said Robert Waid, managing director of Wilshire Analytics.

Wilshire Associates manages a stable of indices, including the Wilshire 5000 Total Market Index, which tracks all U.S. equity securities with readily available prices. – Abby Latour

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European leveraged loan volume hits post-crash record €78B in 2014

European leveraged loan volume
Europe’s leveraged loan market headed into 2015 in a robust and optimistic mood, despite having encountered bouts of volatility in the latter part of 2014.

New-issue volume for the European leveraged loan market stacked up to €78.4 billion in 2014 – up 17% from the previous year, and the highest reading since 2007 – and the prospect is set fair for further growth in the year ahead.

Last year’s increase can all be attributed to the growth of the institutional market, which consumed €49 billion of new paper, as the European CLO 2.0 market re-established itself as a key part of the overall loan investor base, and a raft of other buyers stepped up their appetite for the product over the course of the year. – Ruth McGavin, Sarah Husband, Luke Millar,

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US CLO Issuance Hits Record $124.1B in 2014

US CLO issuance

The U.S. CLO market printed $124.1 billion of new issues from 234 deals in 2014, according to LCD. That’s up from $83 billion in 2013 and blows through the previous high of $97 billion in 2006.

CLO issuance in December totaled $7.75 billion from 16 deals. It was the third lightest month of the year, ahead of just January ($2.55 billion) and September ($7.73 billion) At $13.78 billion, June topped the issuance charts last year, according to LCD.

Looking to this year, the general sense is that CLO issuance will continue albeit at a reduced rate. Regulatory uncertainty (risk retention, Volcker) and rising rates are likely to be key focal points for market players, who will also be watching for risk retention consolidation/strategic partnership plays. – Sarah Husband

Follow Sarah on Twitter for CLO market news and insight.