Allied Capital restructures loan and notes, repays some borrowings

By Sara Rosenberg

New York, Sept. 1 - Allied Capital Corp. restructured its credit facility and its private notes, and repaid a portion of the debt, according to a news release.

The credit facility was restructured into a term loan maturing on Nov. 13, 2010 from a revolver and total commitments were reduced to $96 million from $115 million in July.

Borrowings under the facility are priced at a floating rate, subject to a floor. The floating-rate spread increases by 50 basis points per annum beginning on Jan. 1, 2010 and continuing through maturity. At closing, the interest rate on the facility was 8.5% per annum. There is also a 50 bps commitment fee.

There are currently $50 million of borrowings and $46 million of standby letters-of-credit outstanding under the facility.

As the letters of credit terminate and/or expire, the commitments under the facility will be reduced by a matching amount. As a result, the total commitment of $96 million will be reduced to a maximum commitment of $57.5 million on Sept. 30 and $50 million on Nov. 1.

The private notes were restructured into three new series with $253.8 million series A maturing on June 15, 2010, $253.8 million series B maturing on June 15, 2011 and $333.5 million series C maturing primarily on March 31, 2012, with the remainder maturing on April 1, 2012. Total outstanding debt under the notes was reduced through various paydowns to $841 million at closing from $1.015 billion at June 30.

Pricing on the series A notes is 8.5% through Dec. 31 and 9.25% thereafter; pricing on the series B notes is 9% through Dec. 31, 9.5% beginning Jan. 1, 2010 and 9.75% beginning Jan. 1, 2011; and pricing on the series C notes is 9.5% through Dec. 31, 10% beginning Jan. 1, 2010, 10.25% beginning Jan. 1, 2011 and 10.75% beginning Jan. 1, 2012.

Covenants under the new credit facility and the notes include an asset coverage ratio of 1.35:1 initially, increasing to 1.4:1 at June 30, 2010 and to 1.55:1 at June 30, 2011, a total adjusted assets to secured debt requirement of 1.75:1 initially, increasing to 2.0:1 at June 30, 2010 and to 2.25:1 at June 30, 2011, a ratio of adjusted EBIT to adjusted interest expense of 1.05:1 initially, decreasing to 0.95:1 at Dec. 31, 0.80:1 at March 31, 2010 and 0.75:1 at June 30, 2010, and an interest coverage covenant of 0.80:1 at Dec. 31, 2010 and 0.95:1 at Dec. 31, 2011.

The notes require the company to apply 50% of all net cash proceeds from asset sales to the repayment of the notes, while the term loan requires 6% of all net cash proceeds from assets sales be used to repay the bank debt.

For the notes restructuring, the company paid an amendment fee of $15.2 million, a make-whole fee of $79.7 million related to a contractual provision in the old notes and a restructuring fee of $50 million, which will be applied toward the principal balance of the notes if the notes are refinanced in full on or before Jan. 31, 2010.

Under the credit facility, the company agreed to pay an amendment fee at closing of $1 million, and a restructuring fee payable on Jan. 31, 2010 equal to 1% of the outstanding commitments on that date.

As part of the restructuring, bank lenders and noteholders were granted a pari-passu blanket lien on a substantial portion of the company's assets.

"We are pleased to have completed what has been a long and complex debt restructuring in a very challenging refinancing market," said John Scheurer, president and chief executive officer, in the release.

"We believe the new debt agreements provide significant financial covenant relief and result in a reasonable maturity profile. With this restructuring now behind us, we will continue to focus on de-levering the balance sheet and executing our business strategy to move the company forward and rebuild shareholder value," Scheurer added.

Allied Capital is a Washington D.C.-based business development company.

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