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European Leveraged Loan Issuance Surges to €6.4B as Refinancings Emerge

european leveraged loan issuance

European new-issue loan volume rose to €6.4 billion in April, making it the second-busiest month so far in 2016, behind January’s buyout-fuelled tally of €8.6 billion. Half of April’s total — €3.2 billion — came from refinancings, as market conditions warmed, allowing a greater range of activity than was seen in the M&A-heavy first quarter.

In April, borrowers raised the highest volume of new loans for refinancing purposes since March 2015, thanks to large transactions such as Inovyn and Numericable. In all, seven borrowers tapped the loan market to refinance existing senior debt, high-yield bonds, or a combination of various debt structures. – Staff reports

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Bankruptcy: Aeropostale Files Chapter 11 in Manhattan; has $160M DIP

Aéropostale today filed for Chapter 11 in bankruptcy court in Manhattan, the company announced.

The company said it intends to emerge from Chapter 11 within the next six months “as a standalone enterprise with a smaller store base, increased operating efficiencies and reduced SG&A expenses.”

The company announced an initial store closure list of 113 U.S. locations, as well as all of it 41 stores in Canada, with closings set to begin in the U.S. this weekend and in Canada next week.

The company further said it was continuing its previously announced sale process, adding that it expects that any potential sale would also be completed within the next six months.

According to Bloomberg, the company has more than 700 locations in the U.S. Over the past three years, it has closed more than 200 locations.

In addition to store closings, the company said it would use Chapter 11 to resolve its ongoing dispute with Sycamore Partners, the company’s largest secured lender and owner of its second largest supplier, that the company said has “put substantial strain on our liquidity while also preventing us from realizing the full benefits of our turnaround plans.”

Among other things, according to court papers, the supplier, MGF Sourcing, has demanded onerous payment terms from the company.

Among other first day motions, the company filed a motion asking the bankruptcy court to require MGF Sourcing, to perform its obligations under its agreements with the company.

Lastly, in connection with the Chapter 11 filing the company has a $160 million DIP facility commitment form Crystal Financial.

In court papers, the company said it received four DIP proposals from prospective lenders, which it narrowed down to two options, one from Crystal Financial and the other from Bank of America.

The facility is comprised of a $75 million term facility and an $85 million revolver, of which the company is seeking immediate access to $45 million and $55 million, respectively, on an interim basis.

Interest under the facility is at L+500. Among others, the facility carries a 5% underwriting fee.

As for milestones, the DIP requires the company to file a reorganization plan within 60 days (July 3), obtain disclosure statement approval within 95 days (Aug. 7), begin soliciting votes on the reorganization plan within 100 days (Aug. 12), begin a plan confirmation hearing within 130 days (Sept. 11), obtain plan confirmation within 140 days (Sept. 21), and emerge from bankruptcy within 145 days (Sept. 26).

In addition, the DIP requires the company to pursue a Section 363 sale process simultaneously with the plan confirmation process on the following timeline: file a motion with the bankruptcy court to approve bid procedures within 75 days (July 18), which shall include a form of a stalking horse purchase agreement; forward bid packages to potential bidders within 75 days (July 18); obtain approval of a stalking horse sale and bid packages within 105 days (Aug. 17); conduct an auction within 141 days (Sept. 22); obtain approval of a sale within 143 days (Sept. 24); and close on a sale within 145 days (Sept. 26).

The DIP provides that while the company may abandon the reorganization plan confirmation process at any time during the proceedings, it may not abandon the sale process without the lenders’ consents. — Alan Zimmerman

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Fairway Group Files Prepackaged Chapter 11 in Manhattan

Fairway Group Holdings today filed a prepackaged Chapter 11 in bankruptcy court in Manhattan, implementing the terms of a restructuring-support agreement reached with holders of more than 70% of the company’s senior secured debt, according to court filings.

The New York-based grocery chain listed its total assets at about $230 million and its total liabilities at roughly $386.7 million.

The terms of the deal reached with senior lenders would convert $279 million of the company’s secured loans into 90% of the equity and $84 million of new debt in the reorganized company, comprised of a $45 million last-out secured exit term loan (a 42-month term with interest at 4.5% payable in cash and 4.5% payable in-kind, with the company holding the option to pay all interest in-kind at a rate of 10%) and $39 million of subordinated unsecured loans (interest at 4% payable in cash 6% in-kind) at the holding company level.

The company’s disclosure statement values that recovery at 42.4–52%, court filings show. Note, however, that the company’s term loan due August 2018 (L+400, 1% LIBOR floor) was marked around 70 on Monday, according to sources. The issuer also has in place a $40 million revolver due August 2017.

Existing senior secured lenders are providing the company with a $55 million DIP term facility, convertible into a first-out secured exit facility, priced at L+800, with a 1% LIBOR floor. The company would also pay in connection with the term loan portion of the DIP a backstop fee of 2% and an exit conversion fee of 10% of the equity in the reorganized company.

The DIP also includes letters of credit for $30.6 million.

In sum, the company said, the proposed reorganization would eliminate about $140 million of secured debt from its balance sheet.

Upon its exit from Chapter 11, the company estimates that Fairway will have about $42 million of cash and cash equivalents.

Typically, in a prepackaged reorganization a company will have already solicited and obtained the acceptances to a proposed reorganization plan from the requisite numbers of impaired creditors prior to filing for Chapter 11, using the Chapter 11 process for the bankruptcy court merely to confirm that the solicitation process and the terms of the proposed reorganization plan comport with the law. A prepackaged bankruptcy can often be completed in as few as 45–60 days.

According to the company, however, its solicitation of votes will remain open until May 12, although the company noted that creditors holding more than 70% of its secured debt have already voted to accept the plan.

In the meantime, the company asked the bankruptcy court to schedule a combined hearing to approve the disclosure statement and confirm the proposed reorganization plan for “on or about June 1.”

Fairway is represented by Weil, Gotshal & Manges as its legal counsel, and Alvarez and Marsal as its financial advisor. The company’s senior secured lenders are being advised by King & Spalding, as legal counsel, and Moelis & Company as financial advisor. — Rachelle Kakouris

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US Leveraged Loan Default Rate Slips to 1.69% in April

US leveraged loan default rate

Despite a fresh default from coal concern Peabody Energy, the default rate of the S&P/LSTA Leveraged Loan Index slipped slightly in April, to 1.69% by principal amount, versus 1.75% at the end of March. By number of issuers, the rate dipped to 1.93%, from 2.03% at the end of March.

Though Peabody’s default was sizable at just shy of $1.2 billion, it was canceled out as two April 2015 defaults—Walter Energy and Sabine Oil & Gas—fell from the rolling-12-month calculation.

With only one Index default in April—versus four in March—it is the lowest reported by number for any month thus far in 2016. It brings the 2016 tally to 11, versus 10 defaults in all of 2015. What’s more, this is the most defaults by number for the first four months of a year since 2010.

While the consensus among market participants is that the credit cycle is in the later innings, as the rising number of defaults implies, thus far the damage has been fairly contained among commodity-related credits. April’s activity continued that trend. – Kerry Kantin

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Default Protection Costs on Community Health Debt Soars After 1Q Earnings Miss

Debt backing Community Health Systems was under pressure this morning after the hospital operator yesterday afternoon released weaker-than-expected first-quarter results. The benchmark 6.875% notes due 2022 traded off a point, at 87.5, while the 8% notes due 2019 changed hands in large blocks two points lower, at 98.625, trade data show.

Five-year credit protection on the issuer blew out roughly 49%, to 10.875/12.875 points upfront, according to Markit. That’s essentially $388,000 more expensive, at a roughly $1.2 million upfront payment at the midpoint, in addition to the $500,000 annual payment, to protect $10 million of Community Health bonds.

Over in the leveraged loan market, the hospital operator’s debt is lower following the first-quarter report. The H term loan due 2021 (L+300, 1% LIBOR floor) slid roughly a point, to a 97.5/98 market, according to sources.

First-quarter net sales were approximately $5 billion, up from $4.9 billion in the year-ago period and in line with the S&P Global Market Intelligence consensus mean analyst estimate, filings showed. However, the EBITDA figure of $633 million in the quarter was down from $715 million last year and well below the consensus mean estimate for $700 million.

The company’s shares, which trade on the NYSE under the ticker CYH, tumbled roughly 14% on the report, to $13.53.

In addition to the results, the company surprised investors with a partial tender offer targeting $900 million of its most pressing maturity, the $1.6 billion issue of 5.125% notes due 2018. The paper jumped nearly two points on the news, to 102/102.5, versus the tender offer price of $1,023, inclusive of an early tender premium of $30 per bond. Valuation essentially represents the middle of the current call price of 102.5625 and the upcoming decline to 101.281 in August.

A conference call was scheduled for 11 a.m. EDT today.

Community Health is rated B+/B1/B+, with negative/negative/stable outlooks. The loans are rated BB/Ba2/B+, with a 1 recovery rating from S&P, while the unsecured bonds are rated B–/B3/B, with a 6 recovery rating from S&P. — Matt Fuller/Kerry Kantin

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US CLO Issuance Hits 2016 High in April. That’s the Good News …

US CLO issuance

If you’re looking for good news in today’s structured finance market: At $4.8 billion in April, the U.S. CLO market just completed its best month of 2016.

Of course, the April number is less than any month in 2015, when an impressive $97 billion of CLOs were issued (that’s the second-best year ever, behind the $124 billion in 2014). As we’ve reported, analysts have cut expectations for CLO issuance for 2016, what with early-year capital markets headwinds and new CLO-related constraints set to take effect at year-end. – Staff reports

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Bankruptcy: Ultra Petroleum files Chapter 11 in Houston

Ultra Petroleum on April 30 filed for Chapter 11 in bankruptcy court in Houston, Texas, the company announced, citing the energy industry’s “difficult commodity price environment.”

In an investor FAQ posted over the weekend on the company’s website, the company said it has been working with “key financial stakeholders on a comprehensive solution to deleverage our balance sheet and strengthen our financial position, but have not yet achieved agreement on those terms.”

The company’s Chapter 11 petition listed $1.3 billion in assets and $3.9 billion in total debts, all of it unsecured, including $1.5 billion in ten tranches of private placement notes issued by Ultra Resources between 2008–2011 and maturing 2016–2025, $1.3 billion in 6.125% notes issued by Ultra Petroleum due 2024, and a $1 billion revolving credit facility.

The company’s first-day motions did not include any proposed DIP funding.

The Chapter 11 filing was expected. As reported, on April 29, the company said in its first quarter Form 10-Q filed with the Securities and Exchange Commission that it saw a “substantial risk” of a Chapter 11 filing. While that SEC filing did not provide the timing of the potential Chapter 11, as also reported, the 30-day grace period resulting from the company’s non-payment of a $26 million interest payment due April 1 on the Ultra Petroleum–issued notes expired yesterday, and waivers of the company’s earlier non-payment of the maturity and interest due under the private placement notes expired on April 30, suggesting that a filing would come this weekend.

According to the first-day declaration filed in the case by Garland Shaw, the company’s CFO, the company had presented lenders and noteholders with an out-of-court restructuring proposal on March 8.

On April 4, the lenders and noteholders provided a joint counterproposal to the company, after which, Shaw said, the company “realized” that first, it would struggle to conclude an agreement prior to the April 30 deadline, and second, that a comprehensive restructuring could only be achieved via a Chapter 11 filing. — Alan Zimmerman

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US Leveraged Loan Funds See Fifth Straight Week of Withdrawals

us loan fund flows

U.S. leveraged loan funds saw a net outflow for a fifth consecutive week, with the redemption of $75 million in the week ended April 27, boosting the outflow to $692 million over the five-week span, according to Lipper. But with moderating redemption, the trailing-four-week observation contracts a bit, to negative $126 million this past week, from negative $154 million last week.

Today’s negative reading shows mutual fund outflows of $98 million filled in by ETF inflows of $23 million. There hasn’t been a misaligned reading like this since seven weeks ago, when mutual fund outflows of $432 million were dented by ETF inflows of $75 million.

Year-to-date outflows from leveraged loan funds are essentially steady at $5.4 billion, with just 4% ETF-related. A year ago at this juncture, it was also mostly all mutual fund outflows, at $3.5 billion, but versus a small inflow of $144 million to ETFs, for a net negative reading of $3.4 billion.

The change due to market conditions this past week was barely positive, at 0.4%, with a gain of $240 million against total assets, which were $60.5 billion at the end of the observation period. ETFs represented about 9% of the total, at $5.5 billion. — Matt Fuller

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CORE Entertainment files Ch. 11 as American Idol popularity wanes

CORE Entertainment, the owner and producer of American Idol, has filed for bankruptcy as the once-popular television show concluded its final season.

The company’s debt included a $200 million 9% senior secured first-lien term loan due 2017 dating from 2011, and a $160 million 13.5% second-lien term loan due 2018. U.S. Bank replaced Goldman Sachs as agent on both loans, which stem from Apollo’s buyout of the company, formerly known as CKx Entertainment, in 2012.

Principal and interest under the first-lien credit agreement has grown to $209 million, and on the second-lien loan to $189 million, court documents showed.

A group of first-lien lenders consisting of Tennenbaum Capital Partners, Bayside Capital, and Hudson Bay Capital Management have hired Klee, Tuchin, Bogdanoff & Stern and Houlihan Lokey Capital as advisors. Together with Credit Suisse Asset Management and CIT Bank, these lenders hold 64% of the company’s first-lien debt.

Crestview Media Investors, which holds 34.8% of first-lien debt and 79.2% under the second-lien loan, hired Quinn Emanuel Urquhart & Sullivan and Millstein & Co. as advisors.

The debtor also owes $17 million in principal and interest under an 8% senior unsecured promissory note.

CORE Entertainment, and its operating subsidiary Core Media Group, owns stakes in the American Idol television franchise and the So You Think You Can Dance television franchise.

The company’s business model relied upon continued popularity of American Idol and So You Think You Can Dance. In late 2013, the company sold ownership of most of rights to the name and image of boxer Muhammed Ali, and of trademarks to the name and image of Elvis Presley and the operation of Graceland, and failed to acquire assets to offset the loss of that revenue.

The bankruptcy filing was blamed on the cancellation of American Idol by FOX for the 2017 season. Following a decline in ratings, FOX said that the 2016 season would be the show’s final one.

The filing was today in the U.S. Bankruptcy Court for the Southern District of New York. — Abby Latour

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Intelsat debt, shares edge higher on 1Q results, new bond guarantee

Intelsat debt and shares advanced today after the satellite giant reported better-than-expected first-quarter results and reaffirmed its 2016 sales and earnings outlook based on the ongoing demand for broadband data, a heavy backlog of contracts, the successful launch of a new satellite last month, and preparation for the launch of more of its next generation fleet.

Most notably, however, investors heard that that a first-lien guarantee is now in place on a previously non-guaranteed series of Intelsat Jackson 6.625% senior notes due 2022, and that CC/Caa3 paper surged six points, to 64/65, according to sources.

Other bonds at various spots in the multi-tiered issuer were mixed. The previously guaranteed Intelsat Jackson 5.5% senior notes due 2023, which are notched higher, at CCC/Caa2, slipped two points, with trades reported on either side of 63, while the same entity’s first-lien 8% notes due 2024 dipped three quarters of a point, to 103.25/103.75, according to sources and trade data.

Meanwhile, at parent Intelsat Luxembourg 8.125% notes due 2023, which are a deeper step lower, at CC/Ca, the paper advanced two points, to 28.5/29.5, according to sources. And other “Jackson” bonds were steady, like the 7.5% notes due 2021, which held 69.5/70.5, the sources added.

Over on the NYSE, the company’s shares, which trade under the symbol “I,” increased roughly 6.5% this morning, to $3.93.

In the loan market, the Intelsat’s B-2 term loan due 2019 (L+275, 1% floor) was marked 94.125/94.625 on the results, up from either side of 94 prior, albeit a 95 context a week ago, according to sources.

Revenue in the quarter was $552.6 million, which was down from $602.3 million in the year-ago first quarter, but roughly 2% higher than the S&P Global Market Intelligence consensus estimate for $542.8 million, filings showed. As for the EBITDA result, first-quarter earnings were $407.5 million, which was down from $460.5 million last year, but right in line with the S&P GMI consensus mean estimate for $408.4 million.

Looking ahead, the company left unchanged via reaffirmation its full-year 2016 outlook for revenue of $2.14–2.20 billion and adjusted EBITDA to $1.625–1.675 billion, filings show.

Recall that the abovementioned, first-lien 8% notes were issued at par last month, with B–/B1 ratings, via Goldman Sachs and Guggenheim to support general corporate purposes, including prepayment in full of an intercompany loan of $360 million that upstreamed a dividend to parent “Luxembourg.” That issuance halted access to the “Jackson” undrawn revolver and triggered the guarantee to the 6.625% notes, according to a company statement.

Luxembourg-based Intelsat completed its IPO in April 2013, but a BC Partners–led group named Serafina still owns a majority of the satellite concern’s common shares. Prior to today’s rally, the company’s market capitalization on the NYSE was approximately $400 million. — Matt Fuller/Kerry Kantin

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