Sponsor: Saratoga Partners LLC
Target: GSC Investment Corp.
Price: $55 million for a 37 percent stake
GSC’s financial adviser: Stifel, Nicolaus & Co. Inc.
GSC’s legal counsel: Venable LLP, Davis Polk & Wardwell LLP
Saratoga Partner’s legal counsel: Sutherland, Asbill & Brennan LLP
With a $55 million rescue by Saratoga Partners LP, GSC Investment Corp. has become the latest business development company to right itself after two punishing years of losses and writedowns.
Renamed Saratoga Investment Corp., the BDC had been in default under its credit facility since July 2009, but it appears poised to become a force again in providing leverage loans and mezzanine debt.
Christian Oberbeck, managing partner at Saratoga Partners, was named chief executive of the BDC, which continues to be publicly traded, now under the ticker symbol SAR. Oberbeck and another Saratoga Partners executive, Richard A. Petrocelli, the BDC’s new CFO and CCO, took board seats to replace representatives of GSC Group, a Florham Park, N.J., firm that invests in distressed companies and corporate debt.
“We are confident that Saratoga Investment Corp. will be a successful and growing company serving the financing needs of middle-market businesses,” Oberbeck said in a press release announcing the consummation of the deal.
The Saratoga case is at least the third recapitalization of a BDC since April, when Ares Capital Corp. took over a debt-laden rival, Allied Capital Corp., in an all-stock deal valued at $648 million. In June, American Capital Ltd. restructured $2.4 billion of its unsecured revolving line of credit.
GSC Investment Corp. was a specialty finance company that invested primarily in leveraged loans and mezzanine debt issued by U.S. mid-market companies, high-yield bonds and collateralized loan obligations.
The company, like other BDCs, was hit hard by the credit crisis that followed the collapse of Lehman Brothers in September 2008, and executives then began to examine strategic alternatives, such as a sale to a stronger rival.
In the meantime, the net asset value of GSC Investment’s portfolio was plunging, from a high of $11.75 per share at the end of the first quarter of its fiscal 2009 (its fiscal year ended in February) to a low of $1.42 per share in the fourth quarter of fiscal 2010.
But the pressure on the company ratcheted up after its investment adviser withheld a scheduled principal amortization payment under its $100 million revolving debt facility with Deutsche Bank AG, resulting in a default 90 days later.
At least two other efforts to find investors fell through before GSC Investment struck its deal in April with Saratoga Partners, the New York-based private equity firm founded in 1984 as a division of the New York investment firm Dillon, Read & Co., Inc., that had been independent since 1998.
Saratoga Partners, along with another vehicle controlled by Oberbeck called CLO Partners LLC, and certain individuals put up $55 million for 9.9 million shares of GSC Investment Corp. at $1.52 per share, giving them about a 37 percent ownership stake in the company. Madison Capital Funding LLC, an affiliate of New York Life Investment Management LLC, provided a $40 million senior secured revolving credit facility. The Deutsche Bank credit line was cancelled.
Saratoga Partners plans a 1:10 reverse stock split, which promises to lift its share price from below $2 in the first week of August to the $20 range.