Crescent Capital BDC and Alcentra Capital — a middle-market BDC managed by Alcentra NY, LLC (“Alcentra NY”), a majority-owned subsidiary of BNY Alcentra Group Holdings, Inc. — announced today that they have entered into a definitive merger agreement under which Crescent BDC will acquire Alcentra Capital.
This transaction is the result of Alcentra Capital’s previously announced review of strategic alternatives led by an independent director committee (the “Committee of Independent Directors”) of its board of directors, and has been unanimously approved by the Committee of Independent Directors, the independent directors of Crescent BDC and the boards of directors of both companies.
Under the terms of the transaction, in exchange for approximately 12.9 million shares of Alcentra Capital common stock, Alcentra Capital’s stockholders will receive approximately (i) $19.3 million in cash, or $1.50 per share, from Crescent BDC; (ii) 5.2 million shares of Crescent BDC common stock; and (iii) $21.6 million in cash, or $1.68 per share, from CBDC Advisors, LLC, Crescent BDC’s investment adviser (“Crescent Cap Advisors”).
Any final dividend that Alcentra Capital must pay in connection with the closing of the transaction to comply with applicable tax requirements that is in excess of Alcentra Capital’s regular quarterly dividends will reduce the cash consideration to be paid by Crescent BDC on a dollar-for-dollar basis. The total cash and stock consideration to be received at closing is currently estimated to be approximately $141.9 million after taking into account certain post-closing adjustments, or approximately $11.02 per share, representing 1.0x Alcentra Capital’s net asset value per share as of June 30, 2019, and 1.36x the closing price of Alcentra Capital’s common stock on August 12, 2019.
The total value of the consideration to be received by Alcentra Capital stockholders at closing is variable and may be different than the estimated total consideration described herein depending on a number of factors, including as a result of transaction costs that are different than those estimated by the parties, fair value adjustments, operating performance subsequent to June 30, 2019 and share issuances.
Crescent Cap Advisors will provide significant financial support to the transaction, including approximately $1.68 per share referenced above of the total approximately $3.18 per share cash consideration to be paid to Alcentra Capital’s stockholders at closing and the fee waivers discussed below. In addition, Crescent Cap Advisors has agreed to fund at closing approximately $1.4 million of Crescent BDC’s transaction expenses incurred related to this transaction.
Prior to the consummation of the transaction, Crescent BDC will convert to a Maryland corporation, and as a result, the combined company will be incorporated in Maryland. Crescent BDC will apply for listing on the NASDAQ under the ticker symbol “CCAP” and is expected to trade publicly immediately upon the consummation of the transaction.
Jean-Marc Chapus, Co-Founder and Managing Partner of Crescent Capital Group LP commented, “Over 25 years ago, we had a vision to establish a research-driven investment firm focused solely on one market, below investment grade credit. Since that time, we have differentiated ourselves in the marketplace, strategically growing our asset base across multiple economic and business cycles to be more effective and relevant to our clients, both our investors and the private equity community whose companies we finance. The Crescent Capital Group platform is unmatched, and now with the addition of Alcentra Capital to our Crescent BDC portfolio, we will be able to provide our combined shareholders with even further opportunities for income generation and capital appreciation.”
“At Crescent Capital Group, we look to invest in niche companies with defensible market strategies and experienced management teams that can survive market cycles,” added Mark Attanasio, Co-Founder and Managing Partner of Crescent Capital Group LP. “We have the right people and the right investment processes in place to promote long-term growth for our clients, and we look forward to broadening our investment portfolio with the acquisition of Alcentra Capital.”
“Crescent Capital Group’s $25 billion platform, longstanding sponsor origination relationships and disciplined underwriting and investment processes serve as a strong foundation to continue to deliver attractive, risk-adjusted returns to our shareholders,” commented Jason Breaux, Chief Executive Officer of Crescent BDC. “We believe this transaction is the right next step in the development of our BDC and provides our investors with improved scale and flexibility as we continue to enhance our private credit capabilities.”
Following the transaction, Crescent BDC stockholders and Alcentra Capital stockholders are expected to own approximately 81% and 19%, respectively, of the combined company, which will remain externally managed by Crescent Cap Advisors. All Crescent BDC officers and directors in office immediately prior to the closing of the transaction will remain in their current roles following closing.
In connection with the transaction, Crescent Cap Advisors has agreed to establish what we believe is a best-in-class fee structure and amend its current investment management agreement with Crescent BDC to take effect immediately after the closing of the transaction. Key terms of this fee structure include:
Annual base management fee rate reduced from 1.50% to 1.25%;Six quarters of base management fee waivers, so that only 0.75% will be charged for such time period;
Annualized incentive fee hurdle increased from 6% to 7% while maintaining a 17.5% income incentive fee; and
Six quarters of full waivers of the income-based portion of the incentive fee.
Additionally, Crescent BDC will implement a stock repurchase program for a period of twelve months following the closing of the transaction via open-market share repurchases in an aggregate amount of up to $20 million, less any amounts provided under any repurchase program for Crescent BDC stock that is entered into by affiliates of Crescent BDC or Crescent Cap Advisors, subject to certain regulatory restrictions (including Rule 10b-18 under the Securities Exchange Act of 1934).
Including the financial support provided by Crescent Cap Advisors, it is anticipated that the combination will
Establish a top-15, externally managed, publicly traded BDC with significantly increased market presence and improved economies of scale;
Enhance portfolio diversification consistent with Crescent BDC’s and Alcentra Capital’s strategy of maintaining a senior secured first lien-focused portfolio;
Facilitate a dividend policy designed to over-earn a quarterly $0.41 dividend per share; and
Further strengthen Crescent BDC’s balance sheet and augment access to growth capital.
Over two-thirds of Crescent BDC’s stockholders already support the transaction and have agreed to vote their shares in favor of the merger and related transactions. Additionally, Crescent BDC stockholders (other than those Alcentra Capital stockholders receiving Crescent BDC shares in connection with the transaction) generally will be restricted from trading their shares for at least six months following the closing of the transaction, subject to a modified lock-up schedule thereafter for an additional six months.
Commenting on Alcentra Capital’s review of strategic alternatives, which involved inbound and outbound contact and entry into confidentiality agreements with numerous parties, Edward Grebow, chair of Alcentra Capital’s Committee of Independent Directors, stated, “The transaction with Crescent BDC is the result of a thorough strategic review process by the Committee of Independent Directors, and the Board is pleased to recommend it to Alcentra Capital’s stockholders. The proposed transaction accelerates Alcentra Capital’s portfolio transition to upper middle-market senior secured investments, delivers significant short- and long-term value to Alcentra Capital’s existing stockholders and compares favorably to precedent strategic transactions in the BDC space. With a more diversified portfolio, we expect the combined company to be positioned to deliver strong, consistent performance for investors.”
Suhail A. Shaikh, Chief Executive Officer of Alcentra Capital, added, “We have made significant progress rotating our legacy portfolio and stabilizing NAV over the past four quarters. We are now in a much stronger position and, through the combination with Crescent BDC, will create a larger BDC with a highly complementary portfolio that offers immediate additional value for our stockholders.”
Consummation of Crescent BDC’s acquisition of Alcentra Capital is subject to Alcentra Capital stockholder approval, customary regulatory approvals and other closing conditions. The transaction is expected to close in the fourth quarter of 2019.
BofA Merrill Lynch served as financial advisor to Crescent BDC. Kirkland & Ellis LLP served as legal counsel to Crescent BDC. Proskauer Rose LLP served as legal counsel to the independent directors of Crescent BDC.
Houlihan Lokey served as financial advisor, and Sullivan & Worcester LLP served as legal counsel, to the Committee of Independent Directors. Dechert LLP served as legal counsel to Alcentra Capital.
In connection with the transaction, Ally Bank has provided a commitment letter dated August 12, 2019 agreeing to provide Crescent BDC with a $200 million leverage facility which is expected to close later this month. Wells Fargo Bank NA has been a lender to Crescent BDC since 2016 and currently provides a $250 million leverage facility which is expected to remain outstanding after the close of the transaction.
Source: Company Press Release
