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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. 

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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. 

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European Leveraged Loan Default Rate Dips to 1.4%, From 2.1%

european leveraged loan default rate

The European leveraged loan default rate hit a low 1.4% in January, down from 2.1% in December. In the 12 months ended Jan. 31, the European Leveraged Loan Default Index tracked €1.2 billion of institutional loan defaults and restructurings, down from €2 billion at the end of the prior month. – 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

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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.

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European Leveraged Loans See Weakest January Since 2008 (Though They’re Positive)

january leveraged loan returns - europe

Although the European leveraged loan market remained relatively isolated from the broad volatility that hit the U.S. market and European high-yield bonds, leveraged loans tracked by the S&P European Leveraged Loan Index (ELLI) endured the worst opening month of any year since 2008, gaining just 0.12% in January (excluding currency).

Of course, everything’s relative. While loan returns in Europe are lagging vs years prior, they soaring compared to in the U.S.

Leveraged loans in the States lost 0.65% in January, the eighth straight decline for that market. That’s a record, surpassing even the six months spent in the red during the very dark days of 2008. – 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

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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