Capitala trims retail exposure with Vintage loan exit

The debt fund manager’s investment was paid off three-and-a-half years ahead of maturity through a refinancing.

Comvest has refinanced Capitala’s $25.4 million loan to Vintage Stock through a $24 million term loan and a $4 million capital infusion from the borrower’s parent company, Life Ventures.

The refinancing is priced at LIBOR plus 9.5 percent. The loan will amortise at a rate of 12.5 percent of principal annually plus 50-100 percent of excess cash flow. Comvest received three years of protection against prepayment risk. The loan matures 26 May, 2023 and could be redeemed without penalty after in June 2021.

“We exited as we have been reducing our retail exposure in our BDC portfolio over the last year and exiting Vintage contributed to the significant reduction in retail exposure,” Capitala chief executive Joe Alala said in an email. “We are supportive of the company’s strong management team.”

Vintage operates stores that buy and sell movies, music, video games, comics, toys and memorabilia. Located in five states, Vintage announced that it had opened its 59th retail store nationwide in April. In addition to the refinancing, Vintage intends to use its proceeds as working capital, according to an SEC filing.

In 2016, Capitala invested $22.06 million into a first lien senior secured loan for Vintage with a five-year maturity. The parties originally priced the deal at LIBOR plus 12.5 percent with a 3 percent paid-in-kind kicker. A year-and-a-half later, Capitala’s position in its Vintage position remained above 4 percent of its portfolio, at cost.

The refinancing dollars came from Comvest Capital IV, a fund which closed in January with $836 million in assets under management, well above its $650 million target. The unlevered sleeve of the fund seeks returns of 7-8 percent while the levered version shoots for 9-10 percent.

Comvest built in numerous deleveraging incentives as part of the deal. As part of its pricing grid, Vintage could decrease its interest rate to LIBOR plus 8.75 percent if can bring its senior leverage ratio below 2.25x EBITDA. That credit spread would be reduced to 8.5 percent if leverage is below 1.25x, and to 8 percent at 1x or lower.

In addition, if the senior leverage ratio remains equal to or above 1.5x, Vintage must maintain minimum levels of EBITDA production of $12 million for the trailing 12 months through the fourth quarter of 2018 and $12.5 million for each quarter thereafter.

Other covenants require certain thresholds for Vintage’s fixed coverage ratio, capital expenditures and same-store sales. Should the borrower get into any financial trouble, the agreement allows for Vintage to include capital raises as part of its EBITDA calculations on a pro forma basis.