The Distressed Debt Alert

Golub Capital Funds Mezz Loan to Recapitalize Biotech Firm

Golub Capital said it provided $12 million of senior subordinated debt to recapitalize biotech firm Integrated DNA Technologies.

The mezzanine loan was the first investment made by Golub's sixth middle-market mezzanine fund, GC 2009 Mezzanine Partners L.P.

Integrated DNA Technologies, based in Coralville, Iowa, supplies custom nucleic acids to U.S. academic, government and commercial researchers in biotechnology, clinical diagnostics and pharmaceutical development.

Source: Press Release

Magic Brands LLC, the parent company of the Fuddruckers and Koo Koo Roo restaurant chains, filed for Chapter 11 bankruptcy and agreed to sell its assets to private equity firm Tavistock Group for $40 million.

Magic Brands said it will file a motion to establish bidding procedures for the sale, which will allow for qualified bidders to submit higher offers. The Austin, Texas-based company expects the sale to be completed in 60 to 90 days.

Magic Brands owns 85 Fuddruckers hamburger restaurants in 11 states and 13 Koo Koo Roo chicken restaurants in California. The company plans to terminate certain leases and close 24 corporate-owned Fuddruckers restaurants by April 30. None of the 135 franchisee-owned Fuddruckers restaurants are included in the Chapter 11 filing.

Tavistock, based in Windermere, Fla., already owns restaurants including Japanese eatery Sapporo in Scottsdale Ariz.; ZED451 with locations in Chicago, Boston and Boca Raton, Fla.; and the Napa Valley Grille, with restaurants in Westwood, Calif., Paramus, N.J., and Bloomington, Minn.

Wells Fargo Capital Finance, which was already Magic Brands' senior lender, will provide $14 million in debtor-in-possession financing to facilitate the sale.

FocalPoint Securities is Magic Brands' investment banker, and Goulston & Storrs is its lead bankruptcy counsel.

Source: Press Release

Owners of five distressed Atlantic City, N.J., casino properties, ranging from the city's oldest casino Resorts to raw land for a new casino project, seek to sell their properties as competition from elsewhere cuts further into their revenues, the Wall Street Journal reported.

Source: News Story

Blackstone Group plans to invest $100 million in a bid with Centerbridge Partners and Paulson & Co. to purchase Extended Stay Inc. for $905 million, the Wall Street Journal reported.

Source: News Story

Deutsche Bank hired Stephen Byrne as its head of distressed asset trading in Europe.

Byrne, who will be based in London, joins Deutsche Bank after 14 years at Goldman Sachs, where he was recently co-head of European high yield and public loan trading. He spent the last five years in Europe building Goldman Sachs' leveraged loan trading platform.

Source: Press Release

Innkeepers USA Trust, which is controlled by private equity firm Apollo Investment Corp., defaulted on an $825 million CMBS hotel portfolio loan.

The loan was transferred to special servicer Midland Loan Services, according to Fitch Ratings.

Apollo said in a filing with the Securities and Exchange Commission last week that Innkeepers USA had failed to make payments on certain debt and may not make future payments on the debt.

Innkeepers USA currently owns 73 hotels with approximately 10,000 rooms in 19 states.

Source: SEC Filing

The default rate on loans included in commercial mortgage-backed securities will continue to rise, with an additional 4.4% likely in 2010 bringing the overall default rate past 11% on deals rated by Fitch Ratings, the firm said.

New CMBS loan defaults increased by more than five-fold in 2009, with 1,464 conduit loans totaling $17.75 billion defaulting last year. Defaults in the fourth quarter amounted to 34% of the principal balance of defaulted loans for the year, according to Fitch's U.S. CMBS 2009 Default Study.

Fitch said it is concerned about the number of large loan defaults, which rose considerably last year. A total of 56 loans over $50 million in size defaulted in 2009, while only five such loans defaulted in 2008.

Loans originated in 2007 defaulted in the largest numbers last year, accounting for 35.6% by principal balance. Fitch said that aggressive underwriting and higher leverage accounted for the higher percentage of 2007 defaults.

Retail property loans led all property types with 32.3% of all defaults in 2009, multifamily properties amounted to 22.1% of defaults, office properties had 20.2%, and hotels amounted to 17.8% of all defaults.

Source: Press Release

Inland Real Estate Auctions has set opening bids with big discounts for several commercial real estate buildings and development sites for a May 19 auction of bank-owned properties and court-ordered property sales.

Among the properties with opening bid prices significantly discounted from appraised values is a 49,978 square-foot multi-tenant office building in Rolling Meadows, Ill. The building was appraised at $3 million, but is subject to a minimum opening bid of $1.75 million.

A bank-owned 8,620 square foot office/strip center building in Richton Park, Ill., was appraised at $510,000, but will go on the block for a minimum bid of $119,000. Other properties include 1.25 acre bank-owned industrial development sites in New Lenox, Ill., previously priced at $115,000, but offered at minimum bids of $47,500.

Source: Press Release

Commercial real estate prices, as measured by Moody's/REAL Commercial Property Price Indices, recorded their first month-to-month decline in four months.

The price index fell by 2.6% in February.

Commercial real estate prices have fallen by 41.8% from their peak in October 2007, but have come back by 3.4% from their October 2009 low. Moody's said. The ratings agency said that commercial real estate prices increased by an aggregate 6.3% from November 2009 through January 2010, before falling again.

Transaction volume fell in February from January by 10% as measured by dollar value and nearly 30% by number of transactions. The index's February calculations were based on 66 repeat sales of the same properties, which totaled about $540 million.

The percentage of repeat sales classified as distressed increased from 4% in 2008 to approximately 20% in 2009. Distressed sales have continued to rise this year, reaching 25% in January and about 32% in February.

Source: Press Release