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Amynta add-on deal would boost margin on debt held by Ares Capital Corp.

Last week’s holiday-abbreviated calendar offered little action in the primary markets—loan arrangers launched a mere six deals for a paltry $3.2 billion of volume, while high-yield offered a string of well-received, refinancing-related drive-by deals. However, the week offered real drama as market participants digested the fallout from the bombshell news that Windstream Services lost a default ruling to Aurelius Capital Management. That ruling cast a long shadow over the nearly $10.5 billion of debt issued by Windstream and spinoff Uniti Group.

Who’s Next ?:  Clearly, the capital markets for both debt and equity are open for business where public Business Development Companies are concerned.  Admittedly, there’s not been a flood of new capital raised but New Mountain Finance(NMFC) once again undertook a secondary stock offering at a premium to book value (even if that required some subsidizing by the External Manager) and Gladstone Capital (GLAD) entered into an equity distribution arrangement with Jefferies. On the fixed income side of the street,  mid-sized BDC Fidus Investment (FDUS) launched a second Baby Bond not long after Saratoga Investment (SAR) piled on additional issuance to its own second Baby Bond offering, while Prospect Capital (PSEC) indefatigably continued to issue InterNotes, albeit in relatively small sizes. That’s all happened just in the month of February. Also worth mentioning – but less subject to the enthusiasms of the capital markets – multiple BDCs have been not only extending but expanding their secured debt financings, including TPG Specialty (TSLX) and Hercules Capital (HTGC).

Janus, Neustar adding more first-lien debt; PSEC, Triton Pacific hold respective companies’ second-lien credits

The secondary market commanded investors’ attention last week, what with earnings and other headline news sparking some big swings in widely held credits against the backdrop of a muted new-issue loan market and a high-yield secondary firm at three-month highs since the rebound rally in January.

Here is our preview of the most important developments likely to occur in the  BDC sector in the coming week.  Pretty much everything highlighted in last week’s report came to pass. This week may be a little less frantic, as we explain below. However – as always – the BDC common stock market remains in a volatile state as investors – who just a few weeks ago – were bailing out have bailed back in, but now face what to do next. BDC Fixed Income investors have a more propitious environment than at any time since November 2018. 

Medley Merger: As we anticipated in last week’s Preview, the dogfight about the future of Medley Capital (MCC), as well as Medley Management(MDLY) and Sierra Income, dominated the BDC news headlines. The BDC Reporter wrote three (!)  more full length articles on the subject during the week for our Premium subscribers, the most recent over the week-end. We won’t repeat all the twists and turns of the week past. However, this is where we are right now: MCC and Sierra have rebuffed the NexPoint offer to serve as the Investment Advisor of the two merged BDCs. Also, MCC, Sierra and MDLY have set a new date for a shareholder vote for each entity: March 8, 2019. Plus, MCC’s Board has changed some of its by-laws to maintain control over when and by whom shareholder meetings are called. NexPoint has offered some very harsh criticism of the management and Boards of the Medley empire. Oh, and we’ve learnt about several lawsuits underway which MCC and MDLY have to contend with by disgruntled parties, including FrontFour.

Genstar-backed companies drive M&A activity in positions held by AINV, PFLT, SUNS, Audax, TCPC and GSBD

The new-issue loan market turned a corner last week with a procession of closely watched, larger transactions wrapping—due in part to a resurgent high-yield market—leaving investors with little else to chew on. The sudden prospect of a slowing calendar flipped a switch, and accounts flooded into transactions they had previously been viewing with a cautious eye. The frenzy generated seven reverse flexes, including some that were being discussed wide of official guidance just a few days earlier. Indeed no loan deals widened as the market heated up.