Financing

Urban Capital of America today announced that Sanford Robertson, Co-Founder of Francisco Partners, is investing in Urban Capital Royalty Fund I, a new mezzanine fund that uses royalties instead of warrants.

In its simplest form, a royalty is paid to the investor on the business’s revenue growth over an agreed upon and limited time frame. The funding is typically structured as a loan to the company and principal, interest and the royalty are returned over a term that meets the business’s cash flow requirements; with no valuation debate or exit necessary. After the loan term ends, the investor has realized a fair return on their capital, the company has grown in size and the business owner still owns and controls the company. According to Urban Capital, this “pay as you grow” approach creates a correct alignment of interests between owner and investor.

Mr. Robertson pioneered the creation of West Coast technology banking as an industry in the late 1960s and has remained one of the industry’s most renowned participants. He served as vice president and director at Smith Barney before founding a firm that later became Montgomery Securities. In 1978, he founded Robertson, Stephens & Co, one of the most significant underwriters of IPOs, mergers, and acquisitions. After selling the company in 1998, he founded Francisco Partners, a technology-focused private equity fund.

“I am so pleased to have Sandy invest in our U.C. Royalty Fund I,” said Urban Capital Chairman and CEO, Barry Wilson. “Sandy Robertson is a legend in our industry and I am proud to have him as an investor in this very important fund.”

Mr. Robertson has had significant financing involvement in over 500 growth technology companies, including 3Com, America Online, Applied Materials, Ascend, Dell Computer, E*Trade, Siebel, and Sun. He serves on the boards of Dolby Laboratories, Pain Therapeutics, Salesforce.com and the Schwab Fund for Charitable Giving, as well as on the President’s Board at the University of Michigan.

Urban Capital of America provides growth capital to small and medium-sized businesses. Urban uses Royalty-Based Financing instead of warrants or equity. The firm is led by Barry Wilson and is based in Laguna Niguel, CA (www.urbancapital.com).

© 2012 PEPD • Private Equity’s Leading News Magazine • 8-21-12

GE Antares served as administrative agent on a $85 million senior credit facility for Kele, a supplier of commercial HVAC and building automation interface products and a portfolio company of CHS Capital.  The financing supported a dividend recapitalization.

“GE Capital committed to and placed the facility with its strategic investor relationships, limiting the need for syndication and allowing us to move quickly to closing,” said David Hawkins, partner at CHS Capital. “In addition, our relationship with GE Antares and their deep understanding of our business helped us close this transaction efficiently and successfully.”

Kele is a catalog-based supplier of peripheral control products and services to the building automation systems industry.  Products include transmitters, sensors, switches, gauges, transformers, actuators, relays and transducers. Kele also offers peripheral control products for the lighting industry and security and access control products. The company is based in Memphis, TN (www.kele.com).

“The growth of Kele requires a lender who understands our business and our goals. GE Capital has this understanding and we look forward to working with them as we continue to grow and expand our market reach,” said Tim Vargo, president and CEO of Kele.

GE Antares is a unit of GE Capital with offices in Atlanta, Chicago, Los Angeles, New York, and San Francisco. Specializing in the middle market, GE Antares is a “one-stop” source for GE’s lending and other services to middle market private equity sponsors (www.geantares.com).

“We are pleased to provide this financing to support the growth of Kele with CHS Capital,” said Brian Polomsky, senior vice president at GE Antares Capital. “Working with our strategic investor relationships we were able to provide the entire facility. We look forward to leveraging these relationships to continue delivering financing solutions for CHS Capital, Kele and other middle-market leaders.”

CHS Capital (formerly Code Hennessy & Simmons) specializes in private equity investments and recapitalizations of middle market companies in partnership with management. CHS targets companies with enterprise values between $75 million and $500 million. Industries of interest include business & consumer services; distribution; industrial products; infrastructure; and energy.  The firm is located in Chicago, IL (www.chsonline.com).

PEPD 8-16-12

Lloyds Banking Group has agreed to the sale of a portfolio of private equity-related investments with gross assets of approximately £1,050 million and the transfer of approximately £220 million of undrawn commitments to Coller Capital for £1,030 million in cash.

Coller Capital will fund the purchase through its sixth investment fund, Coller International Partners VI. Fund 6 had a final close in July with commitments of $5.5 billion and seeks to acquire private equity portfolios, positions in existing private equity funds and interests in privately-held companies.  Fund 6 makes individual investments ranging in size from $1 million to $1 billion.

Following the sale, Lloyds Banking Group will continue to manage the fund in return for a management fee, which is likely to be less than £10 million per year. The portfolio of private equity-related investments generated losses of £40 million in the year to 31 December 2011

Coller Capital was founded in 1990 and has offices in New York, London, and Hong Kong (www.collercapital.com).

NXT Capital has announced that its subsidiary, NXT Capital SBIC (NXT SBIC), has received a license from the United States Small Business Administration to operate as a Small Business Investment Company.

NXT Capital plans to invest up to $75 million in equity in NXT SBIC over the next three years. When combined with $150 million of ten-year debt from the SBA, this will provide as much as $225 million of capital to support the growth of the firm’s NXT Venture Finance group. NXT Capital also recently closed two separate senior secured credit facilities totaling $75 million. This amount, plus NXT SBIC and existing sources of capital, will give NXT Venture Finance approximately $500 million to invest in emerging growth companies.

“We are very appreciative of the support we have received from the SBA and our other financing partners,” said Robert Radway, NXT’s Chairman and CEO. “This substantial, stable capital base will help drive NXT Venture Finance’s ongoing growth and success.”

NXT Capital Venture Finance offers senior and subordinated term loans in the $1 million to $20 million range to growth companies backed by venture capital and private equity firms, particularly those in the technology and life science sectors. Target clients range from pre-revenue companies to late-stage businesses seeking growth capital. NXT Capital Venture Finance has offices in Boston and Silicon Valley (www.nxtcapital.com/venture-finance).

“Securing the SBIC license and closing on both credit facilities are significant milestones,” said Jan Haas, Group Head, NXT Venture Finance. “With a strong balance sheet, highly experienced team and focus on providing less dilutive and more flexible forms of capital, NXT Venture Finance is ideally positioned to meet the financing needs of entrepreneurs and their companies.”

NXT Capital provides structured financing to middle-market and growth companies through its Corporate Finance, Real Estate Finance and Venture Finance groups, originating transactions directly on a national basis. The company targets senior financing opportunities of up to $150 million with a hold size up to $50 million. NXT Capital is led by former principals of Merrill Lynch Capital and was formed in 2010 by Stone Point Capital and the founding management team. The firm is based in Chicago with offices in New York, Atlanta, Boston, Dallas, Newport Beach and Silicon Valley (www.nxtcapital.com).

Crystal Financial, a commercial finance company, has provided a senior secured term loan to support the acquisition of Freedom Communications by 2100 Trust LLC. This transaction represents the final disposition of Freedom’s newspaper assets and includes the purchase of the Orange County Register, the Pacific Community Group and the Colorado Springs Gazette.

2100 Trust is a group of entrepreneurs and former media executives who seek to invest in media properties and utilize their expertise and operational knowledge to implement performance improvements. The investment group is headed by Aaron Kushner, CEO.

“There are very few financial partners who can move with the speed, discipline and fairness that Crystal did in helping us acquire such marquee media properties as the Orange County Register,” said Mr. Kushner. “Their team was a pleasure to work with as the inevitable questions and challenges arose in the diligence and closing process.”

Crystal Financial is a commercial finance company that provides senior and junior secured loans for both asset-based and cash flow financings to middle-market companies. Since founding, Crystal Financial has made over $20 billion in loans to companies across an array of industries. The firm is based in Boston, MA (www.crystalfinco.com).

“This was a complex transaction with a short timeline that required accelerated diligence,” said Andrew Hettinger, Managing Director with Crystal Financial. “Our deal team worked closely with 2100 Trust and the management team of Freedom to create a structure that worked for all parties. Throughout the process, we were impressed with the operating strategy, discipline and industry knowledge of all of the professionals involved. We were thrilled to see the transaction come together so successfully.”

Prospect Capital Corporation has provided a $44 million secured subordinated loan to support the refinancing of New Century Transportation, a transportation and logistics company, and a portfolio company of Jefferies Capital Partners. “Prospect’s responsiveness and structuring flexibility, coupled with its access to capital, provided the certainty of execution that we needed in order to close this refinancing on a tight timeline,” said Seth Wilson, a Managing Director of Jefferies Capital Partners.

New Century is a provider of regional and national less-than-truckload services. The company services include the transportation of temperature-controlled and hazardous freight. New Century is based in Westhampton, NJ (www.nctrans.com).

Prospect invests from $10 million to $75 million in private and micro-cap public businesses located in the US and Canada that have from $3 million to $30 million of EBITDA. Investment structures include: senior debt; unitranche debt; 2nd lien and mezzanine debt; and “one stop” debt and equity. The firm invests in wide array of industries and is effectively industry agnostic. Prospect has closed approximately $1.1 billion of originations to date in the current 2012 calendar year. The firm is located in New York, NY (www.prospectstreet.com).

“Prospect has delivered 100% of the secured subordinated capital in support of the New Century refinancing, resulting in a financially strong company that is well positioned for the future,” said Richard Carratu, a Managing Director of Prospect Capital Management.

Jefferies Capital Partners is a private equity investment firm with over $850 million in equity funds under management. Since its founding in 1994, the firm has invested $1.4 billion in equity capital into 58 companies. Sectors of interest include energy & energy services, supply chain logistics & distribution, healthcare and restaurants. Jefferies Capital Partners is based in New York (www.jefcap.com).

Monroe Capital has provided a unitranche credit facility to Forbes Media to refinance existing debt and provide growth capital for the company. “We are excited to have partnered with Forbes, one of the premier global brands and media companies. We look forward to working with the management team as they continue to execute their business plan,” said Thomas Aronson, Managing Director of Monroe Capital. Forbes Media is owned by the Forbes family and Elevation Partners.

Forbes Media is the publisher of Forbes magazine and forbes.com which provides news and information on business, investing, technology, entrepreneurship, leadership and affluent lifestyles. Forbes.com currently reaches 30 million monthly unique visitors, and Forbes magazine, Forbes Asia and Forbes Europe attract a global audience of more than 5 million readers. The company also publishes ForbesLife magazine, as well as 23 licensed international local-language editions around the world. The company is based in New York (www.forbes.com).

“Forbes Media has been successful in placing authoritative journalism at the center of the social media experience. Building on the positive momentum of our business, the company, the Forbes family and Elevation Partners are pleased to work with Monroe Capital to put a financing structure in place that allows us to carry forward our growth plans through 2012 and into the future,” said Mike Perlis, President and CEO of Forbes Media.

Monroe Capital is a specialty finance company providing senior and junior debt to middle-market companies. Monroe Capital specializes in originating, structuring and providing one-stop financings. Investment types include senior and junior secured debt as well as bridge loans, acquisition facilities, mezzanine or last-out secured loans and equity co-investments. The firm is based in Chicago, IL (www.monroecap.com).

Babson Capital Management has formed a new Chicago-based Middle Market Lending Group to provide senior secured financing to middle-market companies. Joining Babson Capital as senior members of the new group are Ian Fowler, Brian Baldwin, and Mark Flessner. These three individuals collectively have more than 50 years of combined industry experience most notably as principal investors for Freeport Financial and GE Capital’s Global Sponsor Finance Group.

“Our team is very excited to join the Babson Capital platform which is well positioned to provide a stable source of capital in a relationship-oriented approach to the middle market,” said Mr. Fowler, Managing Director and head of the Middle Market Lending Group. “We are looking forward to building a direct origination franchise for a firm that has more than two decades of experience in the middle market.”

The addition of the Middle Market Lending Group will enable Babson Capital to offer a full suite of middle-market financing products, complementing the capabilities of the firm’s Mezzanine & Private Equity Group, a provider of mezzanine debt and equity co-investments primarily for mergers and acquisitions and leveraged buyouts.

“Babson Capital has a long track record of building strong relationships with the middle-market private equity community, and we are pleased to address a real need in the market by adding senior secured financing to the growing list of services we are able to offer our partners,” said Michael Hermsen, Managing Director and head of Babson Capital’s Global Private Finance Group.

Babson Capital had $149 billion in assets under management as of June 30, 2012 and is a member of the MassMutual Financial Group. The firm is based in Boston and Springfield, MA and Charlotte, NC and has six additional offices in the US and one in Sydney, Australia, with subsidiaries in London and Tokyo (www.BabsonCapital.com).

Prospect Capital Corporation has provided an $85 million senior subordinated loan to support the acquisition of substantially all the assets of Arctic Glacier, a producer, marketer, and distributor of packaged ice, by H.I.G. Capital. “Prospect’s responsiveness and deep balance sheet provided the certainty and execution that we needed in order to close this important transaction on a tight timeline,” said Bret Wiener, a Managing Director of H.I.G.

Arctic Glacier is a producer, marketer and distributor of packaged ice primarily under the brand name of Arctic Glacier Premium Ice. Arctic Glacier operates 39 production plants and 47 distribution facilities across Canada and the northeast, central and western United States servicing more than 75,000 retail locations. The company is based in Winnipeg, Manitoba (www.arcticglacierinc.com).

“Prospect is pleased to provide 100% of the senior subordinated capital in support of the Arctic acquisition, resulting in a financially strong company that is well positioned for growth,” said Jason Wilson, a Managing Director of Prospect Capital Management.

Prospect invests from $10 million to $75 million in private and micro-cap public businesses located in the US and Canada that have from $3 million to $30 million of EBITDA. Investment structures include: senior debt; unitranche debt; 2nd lien and mezzanine debt; and “one stop” debt and equity. The firm invests in wide array of industries and is effectively industry agnostic. Prospect Capital is located in New York, NY (www.prospectstreet.com).

Prospect has closed approximately $900 million of originations to date in the current 2012 calendar year and its advanced investment pipeline totals more than $350 million of potential opportunities at the present time.

Stone Point Capital and KKR have established a new company, KKR – SPC Merchant Advisors, to provide principal and agency-based capital markets services to mid-market and sponsor-backed companies as well as make certain principal investments to support client needs. “The financial services industry is going through unprecedented change that is creating challenges for companies to conduct business. We see an opportunity for an independent capital markets business that is willing to take on principal risk and allow its clients to pursue their growth and business development initiatives,” said Chuck Davis, Co-founder of Stone Point.

Trident V and KKR will each commit $150 million of equity, or $300 million in total, to Merchant Advisors to support its capital markets activities and client base. Merchant Advisors will be overseen by a board of directors consisting of equal representation from KKR and Stone Point. The day-to-day origination, execution and underwriting activities of the company will initially be managed by KKR Capital Markets executives. Over time, Merchant Advisors may expand its business to include other services such as risk management and fundraising services. This new business will be distinct and separate from KKR’s existing capital markets business which primarily serves KKR’s private equity portfolio companies.

“Stone Point is a leading investor in the financial services sector with a strong track record of backing new and innovative platforms, and KKR is excited to partner with the team. Together with Stone Point, we believe Merchant Advisors will be well positioned to deliver a critical capital markets service to underserved corporate and sponsor clients, particularly as the structure of the financial industry is getting reshaped,” said Craig Farr, Member of KKR and Global Head of Capital Markets.

“We have known and respected Steve Friedman and Chuck Davis from Stone Point for many years and are excited to work with them in this new partnership. Middle market companies and financial sponsors need access to more services and capital and we believe KKR – SPC Merchant Advisors will be well positioned to provide both,” said Henry Kravis and George Roberts, Co-Chairmen and Co-CEOs of KKR, in a statement.

Stone Point Capital targets investments in the insurance and financial services industries including, insurance underwriting, distribution and services, benefits and healthcare, asset management and retirement savings, and banking and depository institutions. The firm is located in Greenwich, CT (www.stonepoint.com).

KKR makes private equity, fixed income and other investments in companies in North America, Europe, Asia and the Middle East. The firm has $62 billion in assets under management. In addition to its New York headquarters the firm has offices in Menlo Park, San Francisco, Houston, Washington DC, London, Paris, Hong Kong, Tokyo, Beijing, Mumbai, Dubai and Sydney (www.kkr.com).