The Distressed Debt Report - November 7, 2005

Lenders Wary of Increased Use of Leverage to Extract Dividends

Private equity firms are increasingly using leveraged loans to fund large dividends to themselves after buyouts. The trend is raising concerns among some debt investors. Full Story

This should be a record year for issuance of collateralized loan obligations backed predominately by U.S. middle market loans of under $75 million. Sean Dougherty, a director at Standard & Poor’s, expects to see another eight to 10 middle market CLOs hit the market before the end of the year, bringing the total value of rated notes issued in 2005 to about $10 billion. This would represent a 35% increase over the $7.4 billion issued for all of 2004. Full Story

The booming market for second lien debt and the increasing power of second lienholders could transform the process of recovery in bankruptcies into a free-for-all. It used to be common for first lien and second lien lenders to draft loan documents honoring each other’s lending philosophies. But as hedge funds and specialty lenders provide more second lien debt, many are drafting separate credit agreements that could trample over the rights of senior lenders in an insolvency. Full Story

• Orix to Buy Houlihan Lokey for $500M
• Rosenthal Doubles Alliance Distributors Credit to $10M
• Polygon, Ramius Loan $20M to Telkonet
• PNC Mezzanine Raises $350M Fund
• Chadbourn, Northeast Securities Place $4M in Notes for World Waste
• Ritchie's Debt Fund Makes First Loans
• Yorkville Provides $1M in Convertible Financing for BSI2000
• MCG Capital's Profit Falls Short of Estimates
• China Expert Raises $6M in Convertible Debt Placement
• American Capital Affiliate Opens London Office
• Pentagon Bernini Buys $4M Convertible from Interactive Television
• DKR Provides $5M Convertible Financing to Silverstar Holdings
• Hirings & Firings

Ironwood Capital, an Avon, Conn., boutique investment bank, is planning to raise up to $150 million to launch its second and significantly larger mezzanine fund for middle market companies by June of next year. Ironwood Mezzanine Fund II will resemble the first fund in that it will invest primarily in subordinated debt with warrants, providing growth and acquisition capital for later stage companies with annual revenues of $10 million or more. Full Story