The Distressed Debt Report - February 27, 2007

Alternative Debt Volume Soars in 2006 Despite Future Uncertainty

Volume in the second lien loan market ballooned last year, further solidifying the product as a vital element of highly leveraged transactions. But the middle market failed to fully share in the growth—particularly in syndicated deals—even as second lien lenders commanded higher spreads from smaller issuers compared with large issuers. Full Story

Venture Lenders Jockey for Position in Software-As-A-Service Market

A Cincinnati venture fund is looking to get an early jump into what may become a huge new sector for debt financing – on-demand software. Blue Chip Venture plans to launch a new fund soon providing secured lines of credit and longer-term debt financing to companies that sell software via the Internet on a monthly subscription basis. That business model is known as “software-as-a-service” or “SaaS”. The fund, named SaaS Capital, is expected to grow to $300 million in outstanding loans over five years, according to Blue Chip director Todd C. Gardiner. Full Story

Babson Capital Management, the second largest issuer of collateralized debt obligations in the world, is bringing its first offering to consist substantially of middle market loans. The unit of Massachusetts Mutual Life Insurance was marketing a roughly $450 million collateralized loan obligation this week named Babson CLO 2007-2. Roughly half of the collateral pool consists of middle market loans. Most of the remainder consists of traditional highly syndicated loans to larger companies. Citibank is the lead manager. Full Story

• Fitch Raises New Concerns About Debt Levels
• Critic of Allied Capital Board May be on His Own Hot Seat
• Crystal Capital Starts Commercial Mortgage Unit
• Musicland Trade Vendors Sue Wachovia, Harris Bank

Credit Suisse Provides $580M for Knology

Wachovia is arranging a $1 billion senior credit facility for broadcasting company Gray Television in one of the biggest recent debt financing transactions by a middle market company. Full Story