TWO MINUTE MONTH

Oaktree agrees to acquire Furniture Brands through bankruptcy 

Oaktree Capital Management recently came to an agreement to acquire the assets of St. Louis, Missouri-based Furniture Brands International for $166 million through Chapter 11 bankruptcy.

Furniture Brands has struggled over the last several years due to its reliance on consumer spending. Weaknesses in home sales and construction, in addition to woeful consumer confidence in the US for most of the last few years, contributed significantly to its liquidity issues.

“Sales have continued to be depressed as a result of a sluggish recovery in the US economy, continuing high unemployment, depressed housing prices, tight consumer lending practices, the reluctance of some households to use available credit for big ticket purchases including furniture, and continuing volatility in the retail market,” according to its bankruptcy filing.

Indeed, sales were down 7.8 percent for the six month period ending 29 June compared first half 2012. The decline in sales affected the company’s ability to borrow under its ABL facility – the company’s most significant source of liquidity alongside cash generated from working capital.

In addition to its agreement to acquire all of Furniture Brands’ assets – excluding its Lane brand (possibly because Howard Marks isn’t a fan of faux-rustic overstuffed sofas, though that could not be confirmed at press time) – Oaktree has also committed to providing the company with $140 million in debtor-in-possession financing, which includes $50 million of new liquidity. The new facility will allow the company to continue to operate and remains subject to court approval.

FUNDRAISING 

Madison Realty beats $300m targets  

Madison Realty Capital closed its Sullivan Debt Fund on $350.4 million, well above its $300 million target, the firm told PDI last month.

The LP base includes sovereign wealth funds, public funds, corporate pensions, fund of funds, universities, unions and insurance companies, firm co-founder Adam Tantleff said. The fund received commitments from the New York State Teachers’ Retirement System and the Texas Permanent School Fund, according to Private Debt Investor’s research and analytics division. Co-founder Josh Zegen believes the the firm’s fundraising effort was likely aided by the US regulatory environment, which has constricted many banks’ ability to execute and originate loans.

“There’s almost 8000 banks out there – and a huge number have a middle market focus in terms of lending,” Zegen said, adding that the ability of those banks to do deals with a special situations component has been complicated by the current regulatory environment. “We don’t really see this changing in the next couple of years.”

In addition to its origination business, Madison Realty also acquires US loans from banks and other lending institutions.

PEOPLE 

McGuireWoods hires an infra debt specialist 

Law firm McGuireWoods hired infrastructure financing specialist Asheesh Kumar Das as a partner in its debt finance department, it said in a statement.

Das had been a partner in the finance team at Stephenson Harwood. He has more than 20 years’ experience advising clients in the transportation, utilities and energy industries in connection with project financing, moveable assets, general banking and trade finance.

Das has significant experience in South and South East Asia, where he worked on projects in the oil extraction, renewable power generation and land and shore-based transportation infrastructure sectors. He also has experience in general debt financing relating to rolling stock in the UK.

McGuireWoods has been building out its debt having hired Marc Isaacs and Steven Geerlings last July. They, along with Das, report to chair of the debt finance department Bob Cramer.

REFINANCING 

Miracle Mile Shops refinances 

Las Vegas shopping mall Miracle Mile Shops completed a $580 million refinancing in  September, according to a statement released by mortgage banking firm HFF. The refinancing will allow the shopping centre to pay down existing loans and allow for the renovation of the retail area surrounding a theatre that will soon host to Britney Spears’ Las Vegas show, according to a statement. It is said to be the largest loan in Cantor’s history.

“It was closed as one loan … The loan has a 10 year term with a 5 year interest only period, and was a low leverage transaction (just over 60 percent loan-to-value),” HFF’s Claudia Steeb told PDI in an email. “Proceeds were used to retire existing debt with a 2015 maturity and provide additional proceeds to ownership.”

The mall, which is owned by TriStar Capital and RFR Holding, received a 5.25 percent fixed rate, 10 year CMBS loan. Cantor Commercial Real Estate took the largest piece of the loan, holding $290 million. JPMorgan and Citigroup each contributed $145 million, HFF’s Claudia Steeb told Private Debt Investor.

FUNDRAISING 

Torchlight reaches $414m towards $1bn target 

Torchlight Investors cleared another hurdle with its Debt Opportunity Fund IV vehicle, reaching at least $414 million in September, according to a US Securities and Exchange Commission filing.

The firm will hold a final close on the fund in the fourth quarter, a source with knowledge of the firm told Private Debt Investor at the time.

Fund IV will invest in debt interests in commercial real estate, according to May documents from a Los Angeles City Employees’ Retirement System meeting. The firm will invest in variety of securities, including CMBS, mezzanine debt, B-notes, preferred notes and financing for distressed mortgages.

“This approach gives diversification to the portfolio and allows flexibility should one area of focus become less attractive from a risk/return standpoint,” a LACERS memo says.

As an existing limited partner in Torchlight, LACERS secured a 25 basis point break on fees, resulting in a 1.25 percent management fee on committed capital. The fund also has a 9 percent preferred return with a 50/50 catch-up until the GP receives 20 percent of total distributions, with distributions being distributed on a 80 percent/20 percent split with LPs thereafter.

DEAL 

Madison Dearborn doubles money on Yankee Candle 

Despite facing a number of obstacles, Madison Dearborn has managed to generate a 2x return multiple on its sale of Yankee Candle to Jarden Corporation, a source revealed last month.

The firm cancelled a scheduled refinancing for Yankee Candle, which bills itself as the largest scented candle company in the US in June. That transaction would have distributed a $187 million dividend to the firm. Madison Dearborn had been widely reported to be shopping the candle company earlier in the year for $2 billion, attracting bids from Bain Capital – which had been in the lead to land the deal – as well as Advent International, CVC Capital Partners, Clayton Dubilier & Rice and Ares Management before the auction was aborted, according to reports.

Despite hitting a few stumbling blocks en route to an exit, Yankee Candle did relatively well under Madison Dearborn’s ownership. Net sales fell slightly to $681 million in 2009 but have grown every year since, rising to $844 million in 2012. Adjusted EBITDA also grew from $180 million in 2009 to $206 million in 2012.

Madison Dearborn bought Yankee Candle in 2007 for about $1.7 billion, including approximately $300 million in assumed debt. The deal marked Yankee Candle’s second private equity owner, as the candle company was first purchased by Forstmann Little in 1998.

INVESTOR 

CalSTRS hikes PE allocation 

The California State Teachers’ Retirement System approved a new asset mix that increases its target allocation for private equity from 12 percent to 13 percent last month. The retirement system’s private equity portfolio includes significant holdings in distressed debt and mezzanine.

CalSTRS has a 12.8 percent allocation to private equity, of which a combined $3.52 billion has been dedicated to distressed debt or mezzanine funds, according to a second quarter investment report. The $2.78 billion distressed portfolio had generated a 9.68 percent internal rate of return and 1.39x multiple since inception as of 30 June. The mezzanine portfolio had generated a 13.2 percent IRR and 1.56x multiple.

A recent portfolio report also revealed that CalSTRS made two commitments to distressed debt strategies during the second quarter. The retirement system committed $50 million to Ares Capital Europe. It also invested €38.9 million in an “Ares Cred Strat Fund” that will pursue direct lending in the European market.

“Strategic asset allocation is the single most important factor in determining the overall rate of return for investments over the long term,” said CalSTRS Chief Investment Officer Christopher Ailman in a statement. “By adopting this long-term asset mix, the committee reaffirms the plans we established after the financial crisis of 2008. To date, our performance–in the top 14th percentile over three years–demonstrates it’s been a good approach.”