LevFin Insights BDC Portfolio News 11-19-18

Posted by Thomas Dunford on Nov 20, 2018 10:00:00 AM
Thomas Dunford
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Repricings at Avantor and MRO to reduce yield on credits held by CCT, BDVC, OCSI, BBDC, CION and Flat Rock

Editor’s note: Due to the Thanksgiving holiday, LFI BDC Portfolio News will not publish on Monday, Nov. 26. The report will resume publication on Monday, Dec. 3.

Download: LFI BDC Portfolio News 11-19-18 

The tone in the broader leveraged loan market deteriorated as last week progressed, complicated by a handful of high-profile earnings misses that came in as the traditional 45-day reporting period trailed off and the jumbo LifePoint Health deal that quickly faded in the secondary loan and bond markets despite a host of investor-friendly revisions. In many cases, price talk and structure are deeply in flux, and investors are increasingly skittish amid poor secondary performance as the list of recently issued loans bid below their OIDs grows.

To make matters worse, bonds deteriorated over the week, pushing the average yield north of 7% for the first time in just over two years. Performance adjoined the October inflection for what’s now likely developed into a full-blown fall 2018 correction despite a mild rebound to the recent oil sell-off to the tune of 25% since mid-October and some inflows after a streak of big retail cash outflows.

In loans, the average bid of the Credit Suisse Leveraged Loan Index declined 31 bps on the five days ended Nov. 15, to 97.76% of par, leaving the average bid up a mere 13 bps from 97.63 at the end of 2017. Data from BAML’s Instinct Loans electronic trading platform delineate the erosion in sentiment as the week progressed, with modest net buying interest Monday and Tuesday turning into triple-digit net selling interest Thursday and Friday. Similarly, three BWICs emerged late in the week that collectively total some $650 million.


Portfolios in brief: Holds reflect most recent reporting period available

PFLT, SUNS: Alera Group (B3/B) — add-on, M&A, refi
Investors received allocations of the $100 million add-on term loan for Alera Group (L+450, 0% floor), which was issued at par, sources said. J.P. Morgan was left lead on the deal, which priced at the tight end of talk. Proceeds will back acquisitions under letters of intent and repay the company’s revolver due 2023. The issuer is also placing privately a $50 million delayed-draw term loan. Genstar Capital-controlled Alera is an independent insurance brokerage and advisory firm operating in both the employee benefits and property and casualty space. Holders of the existing 1L debt include PennantPark Floating Rate Capital with $10M and Solar Senior Capital with $3M. 

ARCC, CION, American Capital: American Residential Services (B2/B) — add-on, M&A
Keybanc Capital Markets is offering its first-lien add-on term loan for American Residential Services at 99.5, sources said. The proceeds from incremental term loans will be used to fund an acquisition currently under a letter of intent, as well as to increase balance sheet cash for other potential future acquisitions, sources said. The issuer also is seeking to amend its credit agreement to loosen covenants and allow a shift from operating leases to capital leases. A $16 million add-on would bring first-lien term loan outstandings to roughly $305 million. The issuer will add $4 million to its second-lien term loan due December 2022 (L+800), increasing that tranche to $84 million, according to sources. The first-lien term loan due June 2022 was repriced in early 2017 to L+400 with a 1% floor. Ares holds the second-lien tranche. The proceeds from incremental term loans will be used to fund an acquisition currently under a letter of intent, as well as to increase balance sheet cash for other potential future acquisitions. American Capital Senior Floating holds $2M of the existing 1L debt. Holders of the existing 2L debt include Ares Capital with $67M in principal amount and CION Investment Corp. with $5M.

CCT, BDVC, BBDC, FSIC, OHAI, OCSI, OCSL: Avantor Performance Materials (B3/B/B) — repricing
Goldman Sachs this morning softened the proposed repricing of Avantor’s $1.938 billion TLB due November 2024 to L+375, from original talk of L+350. There’s no change to the 1% floor or the par offer price, and as before, the issuer is offering to reset the 101 soft call protection for six months, sources said. The current coupon on the dollar tranche is L+400, with a 1% floor; the 101 soft call protection rolls off this week. There’s no change to price talk on the euro tranche, which is E+375, 0% floor, at par. The existing euro tranche is priced at E+425. Commitments are due by the end of the day today, with allocations expected tomorrow. Holders of the existing TLB debt include Corporate Capital Trust with $10.25M in principal amount, Business Development Corp. of America with $8M, Oaktree Strategic Income Corp. with $5 and Barings BDC, formerly Triangle Capital Corp., with $15M. Holders of the company’s 6% senior note due October 2024 include Corporate Capital Trust II - T with $776,000, FS Investment Corp. III with $1.4M, FS Investment Corp. IV with $1.3M and Oaktree Specialty Lending Corp. with $8M. Holders of the company’s 9% subordinated note due October 2025 include FS Investment Corp. II with $20M, FS Investment Corp. III with $52.5M, FS Investment Corp. IV with $12.5M, Oaktree Specialty Lending Corp. with $3M and Barings BDC with $500,000. 

NMFC, OHAI: CentralSquare Technologies (B3/B-) — add-on, M&A
Antares Capital, Macquarie Capital and SunTrust Robinson Humphrey set an offer price of 99.875-100 on the $60 million add-on first-lien term loan for CentralSquare Technologies, sources said. Proceeds will be used to finance an acquisition and place cash on the balance sheet. The add-on will be fungible with the issuer’s $895 million first-lien term loan due September 2025 (L+375) that was syndicated in August to back Vista Equity Partners and Bain Capital’s merger of technology platforms Superion and TriTech Software Systems with the public sector and healthcare business of Aptean. Commitments are due by close of business on Monday, Nov. 19. The original transaction levered the issuer at 5.1x through the first-lien term loan and 7.3x through the privately placed $380 million second-lien term loan (L+750), sources said at the time. The loan cleared with an 18-month sunset on 50 bps of MFN protection. Holders of the 2L debt include New Mountain Finance with $55M and OHA Investment Corp. with $2M.

SUNS, American Capital: LegalZoom.com (B3/B-) — div recap
J.P. Morgan today set price talk of L+375-400, with a 0% floor and a 99.5 OID on the $530 million, six-year first-lien term loan for LegalZoom.com, according to sources. In addition, the loan would include a 25 bps step-down set at a half turn inside of closing net first-lien leverage, sources added.  Lenders are offered six months of 101 soft call protection. Proceeds would refinance debt and fund a sponsor dividend, which would total $112 million, according to ratings reports. The recapitalization would shift the issuer to an all first-lien structure. The issuer about a year ago put in place a $325 million first-lien term loan due November 2024 (L+425) and $105 million second-lien term loan due November 2025 (L+850) to refinance debt and fund a $249 million dividend. The covenant-lite first-lien loan is callable at par; the hard-call protection steps down to 101, from 102, on the second-lien tranche next week. Commitments are due by noon ET tomorrow, sources noted. Holders of the existing 1L debt include Solar Senior Capital with $4.9M and American Capital Senior Floating with $1.9M.

CION, Flat Rock: MRO Holdings (B2/BB-) — repricing
RBC Capital Markets set talk of L+450-475 on the proposed repricing of MRO Holdings’ $223 million term loan due October 2023, sources said. The repriced loan is offered at par. The current coupon is L+525, with a 1% floor. The issuer is offering to reset the 101 soft call protection for six months. The 101 soft call protection rolled off the existing loan in late October. Commitments will be due by 5 p.m. ET tomorrow. Credit Suisse will remain administrative agent. Holders of the existing TL debt include CION Investment Corp. with $4.5M and Flat Rock Capital Corp. with $1M.

OHAI, BDVC, Sierra: Safe Fleet (B3/B-) — add-on, M&A
Goldman Sachs set price talk of 98.6 on the $65 million add-on first-lien term loan for Safe Fleet, according to sources. The add-on would be fungible with the issuer’s existing covenant-lite first-lien term loan due February 2025, which is priced at L+300, with a 1% floor, with a step to L+275 at 6.25x net total leverage. The loan's 101 soft call protection rolled off in early August. Proceeds would be used to back the company’s purchase of Roll-Rite, according to ratings reports. The add-on will increase outstandings to $582 million. The company was last to market in late May when it completed a $85 million add-on TL to fund the acquisition of American Van Equipment, which increased the first-lien loan to approximately $520 million. The originally $435 million first-lien loan and the $165 million second-lien term loan due 2026 (L+675, 1% floor) were issued in February to back Oak Hill Capital Partners Acquisition of the company. The loan was quoted at 98.75–99.25 prior to the launch of the add-on, sources noted. 2L debt holders include OHA Investment Corp. with $700,000, Business Development Corp. of America with $3.1M and Sierra Income Corp. with $5M. – Thomas Dunford

Download LFI BDC Portfolio News 11-19-18 for BDC investment details provided by Advantage Data; click through links to view stories by LFI.


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