UPDATED: BlackRock Kelso Capital Extends Credit Facility. We Worry About Lender Defections.

Nicholas Marshi -

April 26, 2010: BlackRock Kelso Capital Corporation (ticker: BKCC) has closed on an amendment to its existing senior secured, multi-currency credit facility (the “Facility”). The definitive agreements relating to the Facility were executed and delivered by the Administrative Agent and the Lenders party thereto on April 20, 2010. The amendment extends through December 6, 2013 certain existing lenders’ commitments totaling $300 million, consisting of $200 million of revolving loan commitments and $100 million of term loan commitments. Subsequent to the amendment becoming effective, the Company received a binding commitment from a new lender of $50 million, subject to definitive documentation.

The addition of this revolving credit commitment would bring the total commitments that extend through December 2013 to $350 million. The bad news is that BKCC has not been able to convince all its bank group to stick with the company. Non-extending lender commitments of $245 million, consisting of $200 million of revolving loan commitments and $45 million of term loan commitments, mature on December 6, 2010 unless they are extended prior to that date. That’s 45% of lenders saying bye-bye. It also means that BKCC has less unused borrowing capacity than initially meets the eye. At 12/31/2009, BKCC had $296mn in debt outstanding. on a $545mn facility. After today’s news the Company has only $54mn in unused capacity that extends beyond the end of the year. Yes, BKCC has the option and the intention to expand the facility further. Here’s what the press release said:

The Facility includes an “accordion” feature that allows the Company, under certain circumstances, to increase the size of the Facility from its current level by up to an additional $300 million of revolving loan commitments and $250 million of term loan commitments.”

The Company expects to approach other new lenders to solicit additional commitments to the Facility, but this has been a Job 1 item for months now so it’s worrying to see what little distance BKCC has come in renewing its borrowing capacity. BKCC has been effectively handcuffed from booking much new business (there were no new portfolio companies added in all of 2009) because of the uncertainty about the renewal of this credit facility and the extension leaves the Company unlikely to put many more incremental new loans on the books.

Still, Blackrock has negotiated a decent rate of interest from its “extending” lenders. The pricing for outstanding borrowings made by extending lenders and the new lender is reset to LIBOR plus an applicable spread of either 3.00% or 3.25% for revolving loans, based on a pricing grid depending on the Company’s credit rating, and LIBOR plus 3.00% for term loans. There is no LIBOR floor. Compare, though, that pricing with the pre-recession pricing BKCC received and which it will enjoy from non-extending lenders till year end: “LIBOR plus 0.875% with respect to revolving loans and LIBOR plus 1.50% with respect to term loans”. Everything else being equal, interest expense will be going up.

We’ve been expecting BKCC to raise more equity, which many of its peers have done in recent months. Maybe the refusal of nearly half the bank group to sign up for a new tour of duty suggests no new money is coming soon. With $93mn in Realized Losses and over $200mn in Unrealized Depreciation at BKCCC cautious lenders may have wanted assurances of new equity and not received them. But we’re just speculating.

We are Long BKCC.

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