The Distressed Debt Report - December 7, 2005

Golub Warns of 'Deal-Poaching Weasels'

A debate is growing over the propriety of business development corporations (BDCs) and hedge funds that both lend to middle market companies and take controlling interests in them. Analysts ask whether the practice encourages competition between lenders and their most valued customers, the private equity funds. Others questionwhether BDCs are competing unfairly for leveraged buyout deals by using confidential information from borrowers.

One officer of a private equity fund told of a BDC that used its position last year to win an auction for a telecom company that was generating $200 million in annual EBITDA. The BDC, which had an outstanding loan to the telecom company, allegedly threatened to enforce an unfavorable loan condition if the company didn’t accept its bid. The private equity officer, who asked to remain anonymous, said that he worked at the time for a firm that controlled another telecom company that had made a failed competing bid. Full Story

Mezzanine lenders, after losing out for years to second lien lenders, may finally be winning back some market share. The near doubling of LIBOR over the past year has made the price of second lien debt, which is usually tied to LIBOR, only slightly more favorable than unsecured mezzanine, according to many market players. At the same time, some senior lenders have grown leery of participating in deals with second lien lenders, fearing that they may be able to stop senior lenders from collecting all of their collateral if the borrower defaults. Full Story

Second-lien Holders Get Slim Helping of Restructured Atkins

Diet products maker Atkins Nutritionals is proposing a bankruptcy reorganization plan that would provide stock and rights valued at $18 million for second-lien noteholders. That’s less than one-fourth of the principal and unpaid interest they were due before the Chapter 11 filing. U.S. Bankruptcy Court Judge Allan Gropper in New York is expected to approve the plan on Dec. 21. The reorganization is supported by the company and both its secured and unsecured creditors, Atkins said in a Nov. 17 press statement. Full Story

• Diamond Creek, With $400M, To Loan to Consumer, Software Cos.
• Crown Capital Raises $150M Canadian for Subordinated Debt Investments
• SEC Investigating Distressed Debt Funds
• Latham Attorney Pushes Plan for European High-Yield Market to Win Back Share
• Fund Manager Fechtmeyer Opens I-Banking Shop
• Liberty, Rock Hill Buy $8M Convertible Placement by Summus
• U.K. Lender Davenham Raises £27.7M in IPO
• CSI Business Loans $1.25M to Electronics-Maker Sagamore
• Hirings and Firings

Lenders may have fewer opportunities to finance small and medium-sized manufacturing companies next year, a recent survey found. An annual poll of manufacturing company CFOs by Bank of America Business Capital found that only one-quarter of those surveyed expect their company’s financing requirements to increase in 2006. That was the lowest percentage in the eight-year history of the study. A year ago, 29% of executives said they expected to increase financings during 2005. Full Story