McGraw-Hill Unveils PIK Toggle Offering as High Yield Mart Heats Up

McGraw-Hill has set talk in the 9.5% area for a $250 million offering of five-year (non-call one) PIK toggle notes, sources say. Pricing is expected today, Dec. 7, via bookrunners Credit Suisse (lead) and Jefferies, following the closing of books at noon EST.

Proceeds, along with those from a term loan add-on, will be used to refinance $443.6 million of 8.5% PIK toggle notes due 2019.

The educational concern is the third issuer since the middle of November to come to the high yield market with a PIK toggle offering, which allows the issuer to pay interest with additional debt, as opposed to cash. The other two:

  • Technology/healthcare concern Multiplan last month issued $1.3 billion in PIK toggle notes backing a dividend to private equity sponsor Hellman & Friedman. The offering priced to yield 9.25% (8.5% if repaid in cash). Multiplan was the largest PIK toggle since the financial crisis. The issue was rated B-/Caa2.
  • Lab testing company Sotera in November completed a $75 million PIK toggle offering to yield 8.875% (8.125% if repaid in cash), backing a distribution to sponsor Warburg Pincus. The issue was rated CCC+/Caa2.

As reported, McGraw-Hill is currently in market with a $150 million incremental first-lien term loan. Price talk is for an issue price of 99.75. Commitments are due today. The add-on will be fungible with the existing covenant-lite TLB due May 2022, which is priced at L+400, with a 1% LIBOR floor.

The company has launched a tender offer for the $443.6 million outstanding of its 8.50%/9.25% PIK toggle notes due 2019 at total consideration of $1,002.75 per note, including a $30 consent payment for notes tendered by the early deadline of Dec. 12. Credit Suisse is running the tender. The bonds are also currently callable at par.

The new notes will slip behind its 7.875% senior notes due 2024, which closed last night at par, yielding 7.87%, according to S&P Global Market Intelligence. The 2024s mark its last visit to the bond market, in April 2016.

Current PIK toggle ratings are CCC+/Caa1/B, and term facility ratings are B+/B1, with a 2 recovery rating from S&P Global Ratings. Moody’s earlier this week downgraded the term loan facility rating by one notch. Corporate ratings are B/B2, with stable and negative outlooks.

McGraw-Hill Global Education Holdings is a provider of outcome-focused learning solutions, delivering curated content and digital products to students in higher education, K–12, professionals, and corporations across 140 countries. — Staff reports

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Sterigenics Tests US High Yield Bond Mart with Pay-in-Kind Deal

Sterigenics-Nordion is driving by the high-yield bond market with $350 million of five-year (non-call one) PIK-toggle notes, sources said. An investor call was set for 11 a.m. EDT today through bookrunners J.P. Morgan, Jefferies, Credit Suisse, Goldman Sachs, and RBC Capital Markets.

PIK notes – as in pay-in-kind – allow an option whereby the coupon on the note can be paid via additional bonds, as opposed to cash. You can read more about this type of debt here.

The borrower will use the proceeds to fund a dividend and for general corporate purposes. Banks are guiding the 144A-for-life notes with expected CCC+/Caa2 ratings.

The PIK-toggle notes will have the first payment in cash. The deal’s structure is said to also include an equity claw of up to 100% at 102.

Sterigenics-Nordion last tapped the bond market in May 2015 to place $450 million of 6.5% notes due 2023. This offering makes the company the latest borrower to utilize the PIK structure.

Last month, the largest-ever cross-border PIK-toggle transaction (€3.59 billion/US$4.02 billion) was completed by Schaeffler. Additionally, Ardagh issued $770 million of 7.125% PIK-toggle notes due 2023, in a deal which also included €845 million of 6.625% PIK notes due 2023.

Deerfield, Ill.–based Sterigenics-Nordion provides contract sterilization and ionization services for the medical device, pharmaceutical, food safety, and high performance/specialty materials industries in the U.S. and internationally. The company has $36.6 million in total debt, and a market cap of $212 million, according to S&P Global Market Intelligence. Warburg Pincus acquired a majority stake in the company last year.  Jakema Lewis

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Claire’s announces PIK exchange of notes held by Apollo, CEO resigns

Claire’s Stores has entered into an agreement with funds managed by affiliates of Apollo to swap out their subordinated debt holdings for new PIK notes.

The agreement comes after the company’s equity sponsor acquired a significant portion of the existing debt through open market purchases, a move that would potentially give Apollo a greater position around the bargaining table in the event of a bankruptcy filing.

According to an 8-K form filed with the SEC, the company has agreed to exchange $174.4 million held by the funds of the $259.6 million 10.5% senior subordinated notes due 2017 for new $174.4 million of 10.5% PIK subordinated notes due 2017.

The new notes will be paid in kind with respect to the June 1 coupon, and may be PIK, paid in cash, or 50/50 on the Dec. 1, 2016 interest payment. Though the company will save some cash through this exchange, analysts at Citi expressed concern that this could suggest a need for liquidity to stay compliant with the first-lien leverage ratio, and also that Apollo is not jumping to equitize the subordinated notes, which has been part of its base case scenario.

Claire’s also announced today the appointment of Ron Marshall as its new CEO. Commenting on the hire, Citi Analysts note that Marshall has been at the helm of a number of struggling companies that no longer exist in their original form, including A&P, Pathmark, and Borders.

“We view both pieces of today’s news as potentially tactical on the sponsor’s part in terms of the decision and timing, as lower bond prices are preferable in the event Apollo buys back more bonds (to gain control elsewhere in structure and more optionality) or attempts to negotiate with existing lenders,” Citi analyst Jenna Giannelli said in a note.

“Our thesis has been one in which Apollo utilizes its leverage as the majority owner of the ’17s and agrees to equitize, in exchange for cooperation with existing lenders elsewhere in the capital structure. We don’t think it makes sense for the Sponsor to tap into the small basket available at International subs, given the little value it would recover on the notes, still looming ’19 maturities and over levered structure,” Giannelli said.

The first-lien 9% notes due 2019 traded down 2.5 points, at 67.5, trade data show. Unsecured 8.875% notes due 2019 were trading in small batches in the high 20s, which is unchanged from recent valuation, the data show.

Hoffman Estates, Ill.–based Claire’s Stores operates as a specialty retailer of fashionable jewelry and accessories for young women, teens, and children worldwide. The company was taken private by Apollo Management in early 2007 for roughly $3.3 billion. As of January 30, 2016, Claire’s total debt was approximately $2.41 billion, consisting of notes, U.S. credit facility, Europe credit facility, and a capital lease obligation. — Rachelle Kakouris


TPG sees near-record originations in 4Q, helped by Idera investment

TPG Specialty Lending, a BDC trading on the NYSE under the ticker TSLX, said originations totaled a near-record $399 million in the recent quarter.

These originations compare to a gross total of $305 million in the final quarter of 2014 and $185 million in the quarter ended Sept. 30. The most recent quarter was the second strongest quarter for originations since TPG’s inception.

Among the new additions to the portfolio in the final quarter of 2015 was a significant piece of M&A financing for Idera, a loan deal that priced wide to talk in volatile market conditions. The loan funded an acquisition of Embarcadero Technologies, which was a portfolio company of TPG.

In October, TPG added a $62.5 million piece of Idera’s loan due 2021 at a cost basis of $56.4 million and $55.9 million at fair value. The loan accounts for 6.8% of TPG’s net assets.

Asked about the loan in an earnings call today, co-CEO Josh Easterly said TPG was able to co-invest in Idera across platforms and was motivated by an intimate knowledge of the software industry and the acquisition target.

“We were able to go in with size, with a big order, to drive terms on a credit we knew that benefited TSLX shareholders,” Easterly said.

Another addition to the investment portfolio was a $45 million first-lien loan due 2021 to MatrixCare, the company’s 10-K filed yesterday after market close showed. Interest on the loan is 6.25%. Fair value and the cost of the loan was $44.1 million as of Dec. 31, the 10-K showed.

GI Partners acquired Canadian healthcare IT company Logibec from OMERS Private Equity in December. OMERS retained Logibec’s former U.S. subsidiary, MatrixCare, which provides health records to long-term care and senior-living facilities.

Also during the quarter, TPG received repayment of a loan to bankrupt grocery store chain operator Great Atlantic & Pacific Tea Co. (A&P).

Exits and repayments totaled $155 million in the most recent quarter, for a net portfolio increase of $129 million in principal. The fair value of the investment portfolio was $1.49 billion as of Dec. 31, reflecting positions in 46 companies. Some 88% of the portfolio was in the first-lien debt of U.S. middle market companies.

Oil and gas

The BDC’s exposure to the troubled oil and gas sector was 3.2%, at fair value, in two investments: Mississippi Resources and Key Energy Services. This compared to oil and gas exposure of 4% for the portfolio as of Sept. 30, which included a loan to Milagro Oil & Gas. A bankruptcy judge confirmed a reorganization plan for Milagro on Oct. 8.

The investment in upstream E&P company Mississippi Resources included a $46.7 million 13% (including 1.5% PIK) first-lien loan due 2018 and equity. The Key Energy investment is a $13.5 million first-lien loan due 2020, booked with a fair value of $10.5 million in TPG’s portfolio, the SEC filing showed.

“We will opportunistically review situations,” Easterly said of potential lending to the oil and gas sector.


TPG Specialty Lending had no investments on non-accrual status at the end of the quarter.

TICC Capital

The portfolio reflected TPG’s ongoing interest in TICC Capital. TPG owns 1.6 million TICC shares, representing 1.2% of its investment portfolio. TPG is trying to acquire TICC Capital, saying TICC’s external manager has failed the BDC and, given the chance, TPG could improve returns for shareholders.

Earlier this month, TPG nominated a board member and proposed severing what it called TICC Capital’s failed management agreement with TICC Management. TPG owns roughly 3% of TICC Capital stock. An earlier stock-for-stock offer by TPG for TICC was rejected.

The move by TPG came after a shareholder vote at TICC in December that blocked a plan to change TICC Capital’s investment advisor to Benefit Street Partners.

“We believe the result of the shareholder vote not only reflects the demand for TICC shareholders for better management and governance, but also heralds an inflection point for the broader BDC industry to build a culture of accountability and shareholder alignment,” Easterly said today.


Net asset value per share declined to $15.15 at year-end, from $15.62 as of Sept. 30, and from $15.53 a year earlier. The decline was due to unrealized losses, widening credit spreads in the broader market, and volatility in the energy sector.

Shares of TPG were trading at $16.01 at midday today, up more than 1%, but the stock drifted down to $15.89 in afternoon trade. — Abby Latour

Follow Abby on Twitter @abbynyhk for middle market deals, leveraged M&A, BDCs, distressed debt, private equity, and more.


Inaugural Paddle Battle Tournament charity event to be held on Nov 5

RBC Capital Markets is partnering with the private equity community to host an inaugural charity ping pong tournament to support NYC Youth, which will be held on Nov. 5, 2015.

The money raised by the event will be split evenly among four charity partners: Harlem RBI, The Opportunity Network, The TEAK Fellowship, and Youth INC. The winning two-person team of the tournament will receive a $25,000 grant in their name to a youth-oriented charity of their choice.

The Paddle Battle Tournament will be held at SPiN NYC on 23rd Street, beginning at 6 p.m. EDT. There will be a full bar and heavy hors d’oeuvres served.

Registration is open and teams should be finalized by Oct. 22. For more information and to register or donate, go to RBC Paddle Battle. — Staff reports


LCD’s High Yield Market Primer/Almanac Updated with 3Q Charts

LCD’s online High Yield Bond Market Primer has been updated to include third-quarter 2015 and historical volume and trend charts.

The Primer can be found at, LCD’s free website promoting the asset class. features select stories from LCD news, weekly trends, stats, and analysis, along with recent job postings.


We’ll update the U.S. Primer charts regularly, and add more as the market dictates (new this time around: an historical look at Fallen Angels, courtesy S&P).

Charts included with this release of the Primer:

  • US High Yield Issuance – Historical
  • 2015 High Yield Issuance, by Purpose
  • High Yield LBO Issuance
  • Fallen Angels – Historical
  • Cash Flows to High Yield Funds, ETFs
  • PIK Toggle Issuance (or lack thereof)
  • Yield to Maturity: Historical, Recent

LCD’s Loan Market Primer and High Yield Bond Market Primer are some of the most popular pieces LCD has published. Updated annually (print) and quarterly (online) to include emerging trends, they are widely used by originating banks, institutional investors, private equity shops, law firms and business schools worldwide.

Check them out, and please share them with anyone wanting an excellent round-up of or introduction to the leveraged finance market.


Dex Media fails to make Sept. 30 interest payment on PIK high yield bonds

Directory publisher Dex Media today announced that it will not make the Sept. 30 interest payment due on its subordinated high yield bonds, and will now enter into a customary 30-day grace period.

The directory publisher filed for Chapter 11 bankruptcy protection in 2013 as part of the merger of Dex One with SuperMedia.

The CCC-/Caa3 notes were pegged at 5.75 according to S&P Capital IQ, and have been trading right around there in odd lots of late, including a small block at 5 this morning.

Over in the loan market, the company’s loans have recently been quoted at distressed levels. Earlier this week, both the Dex East term loan (L+300, 3% LIBOR floor) and the Dex West (L+500, 3% floor) were marked at 59/61, while the SuperMedia term loan (L+860, 3% floor) was quoted at 52.5/54.5, and the R.H. Donnelly term loan (L+675, 3% floor) was quoted at 47/49. All four of the company’s loans mature on Dec. 31, 2016.

The company is required to make payments of 50% in cash, and 50% in PIK interest on the 12%/14% subordinated PIK toggle notes due 1/29/2017 until maturity of the senior secured credit facilities on December 31, 2016, filings show.

If the company fails to make the required interest payment on or before Oct. 30, 2015 and subsequently falls into default, holders of the notes can declare the notes immediately payable.

The subordinated notes have approximately $270.1 million outstanding, according to Bloomberg. Dex said in today’s filing that it had a cash bank balance of approximately $251.6 million as of Sept 25, 2015.

Upon the company’s 2013 emergence from Chapter 11, the capital structure split into four parts: the R.H. Donnelley TLB, the Dex Media East term loan, the Dex Media West term loan and the senior subordinated notes due January 2017.

J.P. Morgan is administrative agent under the SuperMedia, Dex Media East, and Dex Media West credit facilities. Deutsche Bank is administrative agent under the R.H. Donnelley credit agreement. – Staff reports


American Seafoods cut to SD on distressed swap for unrated PIK notes

ASG Consolidated, the parent company of American Seafoods Group, was downgraded to SD, from CC, after the company announced that it has completed an exchange of its unrated holding company PIK notes debt at what S&P understands to be a substantial discount for either cash or equity.

“We assess the exchange offer as distressed and the completed transaction as tantamount to default,” S&P credit analyst Kim K. Logan said in the note published on Tuesday. “It is our understanding that the company has made an offer to exchange the remaining outstanding balance of the 15% notes at a 55% discount for either cash or equity on or about Aug. 19, 2015.”

The $125 million issue of unrated 15% pay-in-kind senior notes due 2017 was put in place five years ago via Bank of America and Wells Fargo as part of a debt-refinancing effort. The series has since grown to $258 million via the in-kind payments, Bloomberg data show.

According to S&P, the company and certain of its affiliates entered into a recapitalization agreement (CRA) with a potential investor on May 28, 2015, with a plan to refinance its credit agreements after netting amendments to provide covenant relief. The company expects to refinance or further extend the senior credit facility in the next few weeks, according to S&P.

The subordinated notes were lowered in June to CCC-, from CCC, and include a $275 million issue of 10.75% notes due 2016 sold alongside the PIK notes five years ago. Issuance was at 98.9, to yield 11%, while the most recent trades were at either side of 98 two weeks ago, trade data show. The current call price is par, having since declined from par plus 50% coupon initially in 2013.

Upon completion of the exchange of the remaining notes, S&P plans to raise ASG’s corporate credit rating to B-, and withdraw the secured debt and senior subordinated debt ratings.

As reported, ASG’s revolving credit facility and A term loan have springing maturities at Nov. 17, 2015, if the subordinated notes remain outstanding at that date. – Staff report


BDCs head to Washington to make case to modernize rules

In 2013, Rep. Mick Mulvaney (R-SC) toured the factory of Ajax Rolled Ring and Machine which manufactures steel rings used in construction equipment and power turbines.

The factory, which is located in York, S.C., now employs about 100 people. It has since been acquired by FOMAS Group.

But at the time of Mulvaney’s tour, Ajax was controlled by Prospect Capital, a business development company, or a BDC. Propsect Capital’s investment from April 2008 included a $22 million loan and $11.5 million of subordinated term debt.

Mulvaney said he had never heard of a BDC before that day at Ajax, nor realized how important BDCs were as an investment source in his district.

That has changed. Bringing laws for BDCs up-to-date has since become a key issue for Mulvaney, who is on the House Committee on Financial Services. He has proposed a draft bill to modernize the laws governing BDCs.

As a former small business owner himself, Mulvaney believes allowing BDCs to grow more easily, a key component of his proposed legislation, will provide much-needed financing to the mid-sized companies to which banks have cut lending since the credit crisis.

“BDCs fill a niche for companies too big to access their local banks, but too small to access public debt and equity markets. I am acutely aware of the importance of having capital for growth when you are running a company,” Mulvaney said.

Last week, the modernization of the laws governing BDCs was the subject of a hearing by the House Subcommittee on Capital Markets and Government Sponsored Enterprises. The hearing brought together titans of the BDC industry.

“The BDC industry is maturing, and growing in a meaningful way. They are beginning to realize they need to come together as a regulated industry and speak with a common voice,” said Brett Palmer, President of the Small Business Investor Alliance (SBIA).

“They are incredibly competitive, which is one of the challenges of getting them all in the same regulatory boat, rowing in the same direction.”

The timing of Prospect Capital’s purchase of Ajax Rolled Ring in April 2008 was not fortuitous. The company was heavily reliant on Caterpillar, which accounted for roughly 50% of revenue, and the global financial crisis took a heavy toll on Ajax in 2009 and 2010.

Still, Prospect Capital increased its investment in Ajax during those tough years. That investment allowed Ajax to build a machine shop, and thus deliver a more finished product to its customers. Last year, when Italy-based FOMAS unveiled an offer for Ajax in a bid to expand in the U.S. market, Ajax was a much stronger business with revenue diversified away from Caterpillar, according to Prospect Capital.

Rep. Mulvaney is hoping a bill could be ready at the end of July, and that it could be on the floor for debate by fall. The new draft of the bill addresses concerns raised over a prior proposal to reform BDC rules.

One size does not fit all
The SBIA estimated the number of active BDCs exceeds 80, and the size of the rapidly growing industry has surpassed $70 billion. “What’s a priority for one BDC is not necessarily a priority for another,” SBIA’s Palmer said.

Even with differences across the industry, possibly the most important potential change for BDCs is the asset coverage requirement. The change would effectively raise the leverage limit to a 2:1 debt-to-equity ratio, from the current 1:1 limit.

BDC managers argue that even with the change, leverage of BDCs would be conservative compared to other lenders, which can reach a level of 15:1, for banks, and even higher, to the low-20x, for hedge funds.

“It should allow BDCs to invest in lower-yielding, lower-risk assets that don’t currently fit their economic model,” Ares Capital Board Co-Chairman Michael Arougheti told the hearing. “In fact, the current asset coverage test actually forces BDCs to invest in riskier, higher-yielding securities in order to meet the dividend requirements of their shareholders.”

BDC managers say that BDCs are far more transparent than banks traditionally have been. After all, BDCs regularly publish their loans, as well as the loans’ interest rates and fair values, in quarterly disclosures with the Securities and Exchange Commission.

“We believe it would be good public policy to increase the lending capacity of BDCs, and promote the more heavily regulated, and more transparent, BDC model,” said Mike Gerber, an executive vice president at Franklin Square Capital Partners.

To garner support for the leverage change, the bill may require BDCs to give as much as a year’s notice for any increase, allowing shareholders to sell holdings before any change comes into effect, if they don’t approve.

However, the idea of “increasing leverage” has suffered a tarnished image with the public since the credit bubble and resulting global financial crisis. BDCs are popular with retail investors because of their high dividends.

Testimony of Professor J. Robert Brown, who was a Democratic witness at the June 16 hearing on BDC laws, could help repair this image problem, supporters of the change say. Brown said reducing the asset coverage for senior securities was an “appropriate” move toward giving BDCs more fundraising capacity.

“Such a change will potentially increase the risks associated with a BDC. Nonetheless, this is one area where adequate disclosure to investors appears to be a reasonable method of addressing the concern,” Brown’s published testimony said.

“In addition, the draft legislative proposal provides investors with an opportunity to exit the company before the new limits become applicable.”

Save paper
Another change under discussion is the definition of  “eligible portfolio company,” which dictates what type of companies BDCs can invest in.

BDCs were designed to furnish small developing and financially troubled businesses with capital. Existing rules dictate that BDCs invest at least 70% of total assets into “eligible portfolio companies,” leaving out many financial companies.

Some argue that the economy has changed since this BDC rule was put in place, moving away from traditional manufacturing companies.

“Changing the definition of eligible portfolio company to permit increased investment in financial firms may result in a reduction in the funds available to operating companies. It may also result in an increase in the cost of funds to operating companies,” Brown said in his published testimony.

Less controversial in a potential BDC modernization bill appears to be the desire to ease regulatory burdens for BDCs.

Main Street Capital CEO Vincent Foster drew attention to the SEC filing requirements born by even the smallest BDCs. He called for reform to the offering and registration rules, such as allowing BDCs to use “incorporation by reference” that would allow them to cite previous filings instead of repeating information in a new SEC filing. He said the change would not diminish investor protections.

By way of example, Foster held up a stack of papers at the hearing on the BDC bill, about four inches thick, that was needed by Main Street to issue $1.5 billion in stock. He then held up a stack of papers, less than one inch thick, needed by CIT, not a BDC, to allow for a $50 billion equity issuance.

“Do four more inches of paper protect better than a half an inch? Hundreds of pages represent wasted money and manpower,” Foster said.

“This discussion draft would fix this absurdity and make a host of clearly-needed reforms.” – Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, BDCs, distressed debt, private equity, and more.


Energy sector, Colt Defense focus of LCD’s Restructuring Watchlist

The beleaguered energy sector dominated activity this quarter on LCD’s Restructuring Watchlist, with Sabine Oil & Gas missing an interest payment on a bond and Hercules Offshore striking a deal with bondholders for a prepackaged bankruptcy.

Another high-profile bankruptcy this month was the Chapter 11 filing of gunmaker Colt Defense. Colt’s sponsor, Sciens Capital Management, agreed to act as a stalking-horse bidder in a proposed Section 363 asset sale. The bid comprises Sciens’ assumption of a $72.9 million term loan, a $35 million senior secured loan, and a $20 million DIP, and other liabilities.

The missed bond interest payment for Sabine Oil & Gas was due to holders of $578 million left outstanding of Forest Oil 7.25% notes due 2019, assumed through a merger of the two companies late last year.

The skipped payment comes after a host of other problems. Sabine Oil has already been determined to have committed a “failure to pay” event by the International Swaps and Derivatives Association, and will head to a credit-default-swap auction. The determination by ISDA is related to previously skipped interest on a $700 million second-lien term loan due 2018 (L+750, 1.25% LIBOR floor).

Meantime, Hercules Offshore on June 17 announced it entered a restructuring agreement with a steering group of bondholders over a Chapter 11 reorganization. The agreement was with holders of roughly 67% of its10.25% notes due 2019; the 8.75% notes due 2021; the 7.5% notes due 2021; and the 6.75% notes due 2022, which total $1.2 billion.

Among other developments for energy companies, Saratoga Resources filed for Chapter 11 for a second time, blaming challenges in field operations, the decline in oil and gas prices, and an unexpected arbitration award against the company. Thus, Saratoga Resources has been removed from the list. Another company previously on the Watchlist, American Eagle Energy, has been removed following a Chapter 11 filing in May.

Another energy company, American Energy-Woodford, could work itself off the Watchlist through a refinancing. On June 8, the company said 96% of holders of a $350 million issue of 9% notes due 2022, the company’s sole bond issue, have accepted an offer to swap into new PIK notes.

Also, eyes are on Walter Energy. The company opted to use a 30-day grace period under 9.875% notes due 2020 for an interest payment due on June 15.

Another energy company removed from the Watchlist was Connacher Oil and Gas. The Canadian oil sands company completed a restructuring in May under which bondholders received equity. The restructuring included an exchange of C$1 billion of debt for common shares, including interest. A first-lien term loan agreement from May 2014 was amended to allow for loans of $24.8 million to replace an existing revolver. A first-lien L+600 (1% floor) term loan, dating from May 2014, was left in place. Credit Suisse is administrative agent.

Away from the energy sector, troubles deepened for rare-earths miner Molycorp. The company skipped a $32.5 million interest payment owed to bondholders on a $650 million issue of first-lien notes. Restructuring negotiations are ongoing as the company uses a 30-day grace period to potentially make the payment.

In other news, Standard & Poor’s downgraded the Tunica-Biloxi Gaming Authority to D, from CCC, following a skipped interest payment on $150 million of 9% notes due 2015. Roughly $7 million was due to bondholders on May 15, and the notes were also cut to D, from CCC with a negative outlook. The company operates the Paragon Casino in Louisiana.

Constituents occasionally escape the Watchlist due to improving operational trends. Bonds backing J. C. Penney advanced in May after the retailer reported better-than-expected quarterly earnings and improved sales.

In another positive development, debt backing play and music franchise Gymboree advanced after the retailer reported steady first-quarter sales and earnings that beat forecasts. Similarly, debt backing Rue 21 gained in May after the teen-fashion retailer privately reported financial results, according to sources. – Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, distressed debt, private equity, and more

Here is the full Watchlist, which is updated weekly by LCD (Watchlist is compiled by Matthew Fuller):

Watchlist 2Q June 2015