content

Oak Hill Advisors to debut as a BDC manager, advisor to the former NGP Capital Resources

oak hillOak Hill Advisors is making a debut as a BDC manager, becoming the advisor to the former NGP Capital Resources.

The new manager was selected to execute an investment strategy as a lender to middle market companies across industries, away from NGP’s traditional focus on smaller upstream energy companies.

“We are well positioned to both maximize the value of the current portfolio and to deploy capital to increase the earnings of the company over time. We intend to do both,” said Bob Long, CEO of the BDC, which is now called OHA Investment.

OHA has $8 million of cash and a $72 million bank credit facility to increase the portfolio.

The original company was formed as a BDC investing in small and mid-size private upstream energy companies, but expanded in 2012 to invest in middle market companies across sectors. The plans to change management was unveiled in July.

As of Sept. 30, some 70% of the portfolio was invested in oil and gas, exploration and production assets, and 4% in coal services. The remaining 26% was spread among three middle market companies in other sectors. Most investments are structured as debt.

“Over time, we expect to substantially diversify the portfolio, so that energy assets do not represent such a major concentration,” Long said.

The transaction greatly compresses the timeframe needed to ramp up a BDC.

However, the new manager will need to deal with some legacy trouble spots. These, along with the portfolio’s sector concentration, may have accounted for some of the lagging share performance under the BDC’s previous management.

One such holding is ATP Oil & Gas, which filed a Chapter 11 liquidation plan in May. ATP’s troubles stem from the blowout of BP’s Macondo well in April 2010 and the ensuing moratoria on drilling and related activities in the Gulf of Mexico, which prevented ATP from bringing six development wells into production.

OHA’s unrecovered investment on that company totaled $27.7 million as of Sept. 30. In addition, OHA had received aggregate production payments of $30.1 million, subject to a disgorgement agreement. Both of these amounts are subjects of litigation disputes.

The company has spent $4.5 million on legal and consulting fees to help enforce overriding royalty interests formerly operated by ATP and currently operated by Bennu Oil & Gas, which is a newly formed company owned by the DIP lenders.

But this is one of the new manager’s specialties.

“OHA brings deep experience in distressed credits and complex litigation, having made over $8 billion of distressed investments over the last 20 years,” Long said.

During the recent quarter, OHA booked a $3.9 million write down for an investment in a $10.8 million term loan in Contour Highwall Mining, reducing its value to $7.5 million. The coal miner missed interest payments in September and October, and OHA is in talks with the borrower over a potential restructuring.

Away from the energy and coal, OHA’s investments include an $18 million second-lien 13% (2% PIK) term loan due 2018 to specialty paper company Nekoosa Coated Products; $9 million of 12.75% subordinated notes due 2018 for medical supplier KOVA International; and $15 million of 12% subordinated notes due 2018 to home health services company OCI.

A new board was put in place at the BDC. It comprises two senior managers from Oak Hill Advisors, Glenn August, the CEO and company founder, and Robert Okun, Oak Hill’s chief investment officer of U.S. credit.

There are also three independent directors: Stuart Oran, a partner of a middle-market private equity firm Liberty Hall Capital; Jim Stern, the chairman of Cypress Group; and Frank Tannura, former CEO of Packaging Dynamics and of iVEX Packaging.

As part of the transfer from NGP Investment Advisor as the external manager, an affiliate of Oak Hill Advisors agreed to buy $5 million of common stock in the BDC.

On Sept. 30, the private equity sale of $1 million was completed for $8.53 per share following shareholder approval of the transaction. As of Nov. 6, the Oak Hill Advisors affiliate had purchased $1.7 million of shares in the open market, at an average price of $6.38, and has a year after the agreement to complete the remaining purchases, totaling $4 million at prices equal to net asset value.

The ticker changed to OHAI from NGPC as of Sept. 30. Shares in OHAI were trading at $6.45 as of midday today. Abby Latour

 

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

content

Leveraged loan issuers see 9% EBITDA growth in 3rd quarter

EBITDA growth loan issuers

Healthy economic growth in the third quarter helped leveraged loan issuers deliver another quarter of solid cash-flow growth. Year-over-year EBITDA growth averaged 9% among S&P/LSTA Index issuers that file publicly with the SEC, according to data from S&P Capital IQ. That is roughly on par with the second quarter’s pace, and it’s at the wide end of the recent high-single-digit range. – Steve Miller

This story is from a longer piece of analysis, available to LCD News subscribers, that also details

  • Leverage of outstanding loans
  • Leverage of LBO loans
  • Cash flow coverage
content

Credit Value Partners launches new middle market loan fund, hires Keller

Greenwich, Conn.-based Credit Value Partners (CVP) has raised about $200 million of initial capital for a new fund focused on middle-market lending and has hired Michael Keller as partner and portfolio manager to help lead the effort, according to the firm.

CVP defines “middle market” roughly as companies that generate $5-25 million of EBITDA, and says it will extend loans of $5-50 million to any one borrower. The fund will mostly be focused on asset-based loans and restructuring-related credits, but it also will include cash-flow loans, according to Don Pollard, managing partner at CVP.

The new middle-market fund already has closed two transactions: a healthcare deal and $30 million in financing to support SouthComm’s purchase of assets from Cygnus Business Media, a trade publisher based near Madison, Wis. SouthComm, owner of the Nashville Post, announced the closing on Nov. 3.

Two more transactions are expected to close by year-end, Pollard says.

Prior to joining CVP, Keller was president of Shannon Capital Management and held senior positions at CapitalSource and Finova Group.

CVP was formed within Credit Suisse’s asset-management group in 2008 and went independent in 2010 after raising $100 million in seed money.

With the new middle-market platform, CVP now has three business lines, all focused on high-yielding and opportunistic corporate debt: (1) private-equity-style funds with $800 million in assets under management; (2) CLOs, led by Joe Matteo and Brian Conroy; and (3) the new middle-market fund.

CVP launched the CLO platform last year with the hiring of Matteo and since has printed two CLOs totaling $940 million. In October, CVP struck a deal to create a series of CLOs with Macquarie Group, which will provide equity capital, warehouse financing, and structured credit expertise. – Kelly Thompson

Follow Kelly on Twitter @MMktDoyenne for Middle-Market financing news

content

Joe’s Jeans Defaults on $60M Leveraged Loan; Interest Rises to 14%

Joe’s Jeans defaulted on a $60 million term loan and will begin paying default interest of 14%, instead of 12%.

Garrison Loan Agency Service is the agent. The default, on Nov. 6, stems from the company failing to meet the minimum-EBITDA covenant for the 12 months ended Sept. 30.

As a result of the term loan default, the company defaulted on a revolving credit agreement and a factoring facility with CIT Commercial Services. The company owes $33.9 million under the RC, and has availability of $13.7 million, including the factoring facility, as of Sept. 30.

Management is in talks with Garrison and CIT over amendments and default waivers. Without a waiver, lenders could accelerate repayment, possibly triggering a bankruptcy, an SEC filing today said.

In the nine months ended Aug. 31, the company generated net income of $276 million, versus a net loss of $287 million in the same period a year earlier.

In September 2013, CIT Capital Markets and Garrison Investment Group provided $110 million in debt financing to Joe’s Jeans to back the $97.6 million acquisition of Hudson Clothing from Fireman Capital Partners, Webster Capital, and management.

The financing includes a $60 million, five-year term loan and an up to $50 million, five-year borrowing-based revolver. At syndication, the bulk of the RC was priced at L+250, while a $1 million RC-1 sliver was priced at L+350. The RC is subject to a 50 bps call in year two if Joe’s Jeans terminates the RC commitment.

At syndication the five-year term loan was priced at L+1,075 and callable at 103, 102, and 101, according to the filing. The loan is subject to fixed-charge and leverage ratios, and an EBITDA minimum.

In addition to the acquisition, proceeds funded fees and expenses, working capital and general corporate purposes. Joe’s Jeans also issued $32.4 million of convertible notes to the sellers as part of the deal.

Los Angeles-based Joe’s Jeans designs, sources and distributes branded apparel products to over 1,200 retail locations in the U.S. and abroad. The company’s shares trade on the Nasdaq under the ticker JOEZ. – Abby Latour

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