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Hostess recap leveraged loans enter trading mart atop new-issue price

Investors this afternoon received allocations of the first- and second-lien dividend recapitalization financing for Hostess Brands. The $925 million, seven-year first-lien term loan (L+350, 1% LIBOR floor) broke to a 100.125/100.625 market, versus issuance at 99.75, while the $300 million, eight-year second-lien term loan (L+750, 1% floor) opened bid at 100.25, from issuance at 99.5, according to sources. Credit Suisse, UBS, Deutsche Bank, Morgan Stanley, RBC Capital Markets, and Nomura arranged the covenant-lite loan, which cleared tight to original talk and with a shift of $100 million from the second-lien to the first-lien. Of note, the leads also added pre-cap language to the heavily oversubscribed deal, which will be used to refinance debt and to fund an approximately $905 million dividend. The pre-cap language allows for portability within the 18 months after the deal closes provided the M&A transaction meets the following criteria: pro forma net leverage is not above 6.3x, the deal has a minimum enterprise value of $2 billion, and the deal will be financed with a minimum of 30% equity, sources noted. Hostess is controlled by Apollo Global Management and Dean Metropoulos. Terms:

Borrower Hostess Brands
Issue $925 million first-lien term loan
UoP Dividend recapitalization
Spread L+350
LIBOR floor 1.00%
Price 99.75
Tenor seven years
YTM 4.62%
Call protection six months 101 soft call
Corporate ratings B/B2
Facility ratings B+/B1
S&P recovery rating 2H
Financial covenants none
Leverage 6.3x net total
Bookrunners CS, UBS, DB, MS, RBC, Nom
Admin agent CS
Sponsor Apollo, Dean Metropoulos
Price talk L+350-375/1%/99.5
Notes Upsized by $100 million; with a step to L+325 @ 4x senior secured leverage
Borrower Hostess Brands
Issue $300 million second-lien term loan
UoP Dividend recapitalization
Spread L+750
LIBOR floor 1.00%
Price 99.5
Tenor eight years
YTM 8.87%
Call protection 102, 101 hard call
Corporate ratings B/B2
Facility ratings CCC+/Caa1
S&P recovery rating 6
Financial covenants none
Leverage 6.3x net total
Bookrunners CS, UBS, DB, MS, RBC, Nom
Admin agent CS
Price talk L+750-775/1%/99
Sponsor Apollo, Dean Metropoulos
Notes Scaled back by $100 million
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Cast & Crew accelerates deadline to Friday on LBO credit

RBC Capital Markets, Credit Suisse, Deutsche Bank, and Societe Generale have accelerated the commitment deadline on their first- and second-lien financing backing Silver Lake’s purchase of Cast & Crew Payroll, LLC, to 5 p.m. EDT on Friday, July 31, from Aug. 4.

Arrangers haven’t revised price talk. As noted earlier, the first-lien term loan is talked at L+375-400, with a 1% LIBOR floor, and a 99-99.5 offer price, sources said. The second-lien term loan is talked in a range of L+775-800, with a 1% floor, offered at 99, sources said.

The covenant-lite deal includes a $270 million, seven-year first-lien term loan and a $95 million, eight-year second-lien term loan, along with a $65 million, five-year revolver, sources said. The first-lien term loan includes six months of 101 soft call protection and would yield roughly 4.93-5.28% to maturity. The second-lien term loan includes 102 and 101 call premiums in years one and two, respectively, and would yield roughly 9.23-9.5%.

The transaction would leverage Cast & Crew at roughly 4.4x through the first-lien debt and about 6x total. Equity will compose roughly 50% of capitalization, according to sources. The issuer is rated B/B3. The first-lien debt is rated B+/B2, with a 2H recovery rating. The second-lien debt is rated CCC+/Caa2 with a 6 recovery rating.

Private equity firm ZM Capital is the seller. In 2012, a consortium led by ZM Capital, including VSS, Emigrant Capital, and other ZMC affiliates, bought the company. ZM Capital invests in media, entertainment, and communications companies.

The issuer, which does business as Cast & Crew Entertainment Services, based in Burbank, Calif., provides payroll services and production accounting to the entertainment industry, including film and television studios, and live-event venues. – Chris Donnelly/Abby Latour

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CLO Round-up: With SEC clarity re risk-retention (finally), an active week

global CLO volume

After a sluggish start to the month, it was an active week in the U.S., both in terms of new issues and on the regulatory front. Four U.S. new-issue transactions priced, while in Europe, AXA Investment Managers priced the third deal of the month, a €362.3 million transaction, via J.P. Morgan. Through Friday, July 24, global issuance rises to $73.67 billion.

The SEC provided much-awaited guidance that CLOs issued prior to Dec. 24, 2014 – the date the final risk-retention rule was published – will be able to refinance debt tranches under certain conditions after the rule takes effect in December 2016 without being subject to risk retention. The SEC’s position is reflected in a July 17 no-action letter in response to a request from Crescent Capital Group. It provides the market with clarity around the refinancing issue, which has been a topic of discussion since the final risk-retention rule was first published in October 2014. – Kerry Kantin/Isabell Witt

Year-to-date statistics, through July 24, are as follows:

  • Global issuance totals $73.67 billion
  • U.S. issuance totals $63.94 billion from 120 deals, versus $71.11 billion from 133 deals during the same period last year
  • European issuance totals €8.75 billion from 22 deals, versus €6.92 billion from 16 deals during the same period last year

 

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

  • Recently priced CLOs
  • CLO pipeline
  • US CLO volume/outstandings
  • European CLO volume/outstandings
  • European priced CLOs

 

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BDC Carey Credit Income Fund launches public capital raise

W. P. Carey’s new non-traded business development company, Carey Credit Income Fund (CCIF), has begun to raise capital through its initial feeder fund Carey Credit Income Fund 2016 T. The feeder fund aims to raise roughly $1 billion at an initial offering price of $9.55 per share, according to an SEC filing.

CCIF will focus on investing in senior debt of large, privately negotiated loans to private middle market companies in the U.S., typically with EBITDA of $25-100 million and annual revenue ranging from $50 million to $1 billion. The fund may also invest in broadly syndicated bank loans and corporate bonds and other investments.

Carey Credit Advisors, an affiliate of W. P. Carey, is the advisor to CCIF, and Guggenheim Partners Investment Management, an affiliate of Guggenheim Partners, is the sub-advisor. W. P. Carey and Guggenheim have each made a $25 million initial capital investment in CCIF.

NYSE-listed W. P. Carey Inc. is an independent equity real estate investment trust with an enterprise value of around $11.2 billion. Guggenheim Partners is a privately held global financial services firm with more than $240 billion in assets under management as of March 31. – Jon Hemingway

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Hostess tightens pricing on $1.25B leveraged loan backing recap/dividend to apollo

A Credit Suisse-led arranger group is seeking commitments by 5 p.m. EDT today on the first- and second-lien dividend recapitalization financing for Hostess Brands after offering issuer-friendly changes to the deal, including tightening pricing and adding pre-cap language to the transaction, according to sources.

The spread on the first-lien term loan firmed at L+350, the tight end of L+350-375 guidance, and the offer price was tightened to 99.75, from 99.5. The 1% LIBOR floor is unchanged.

The second-lien also firmed at the tight end of the initial L+750-750 range, while the arrangers tightened the OID to 99.5, from 99. The 1% floor is unchanged.

As revised, the first-lien offers a yield to maturity of about 4.62%, while the second-lien would yield about 8.87%, which compares with 4.67-4.93% and 8.96-9.23% at the original guidance, respectively.

Credit Suisse, UBS, Deutsche Bank, Morgan Stanley, RBC Capital Markets, and Nomura are arranging the deal.

In addition, the leads shifted $100 million to the first-lien term loan from the second-lien. As revised, the deal includes a $100 million revolver; a $925 million, seven-year first-lien term loan; and a $300 million, eight-year second-lien term loan.

The issuer is rated B/B2. Prior to the shift in funds, the first-lien drew B+/B1 ratings and the second-lien drew CCC+/Caa1 ratings, with 2H and 6 recovery ratings from S&P, respectively.

The term loans will be covenant-lite. As before, the first-lien term loan is set to include six months of 101 soft call protection, and the second-lien loan will be callable at 102 and 101 in years one and two, respectively.

The recap loan follows news that the issuer – which is controlled by Apollo Global Management and Dean Metropoulos – took the company off the auction block and was instead preparing to pursue an initial public offering. The dividend is roughly $905 million. – Kerry Kantin/Chris Donnelly