Apax moves to buy back debt

Apax is understood to have been involved in two debt buybacks at its portfolio companies, Trader Media Group and New Look.

Apax bought a 49.9% stake in Trader Media Group from Guardian Media Group in 2007 with £825m of debt. The company is now planning to buy back £20m of that loan with cash on its balance sheet.

Loans trading at severely discounted prices in the secondary market are attracting companies that want to deleverage.

Some companies will need their lending syndicate to approve buybacks but there is no such clause on the Trader Media Group deal. Agreed at the top of the market, the cov-lite deal has few restrictions and means Trader Media Group can proceed with a buyback.

It plans to acquire the £20m of its debt, which despite being a performing credit has been trading at around 40% of its face value lately, through a Dutch auction process run by JP Morgan. The auction was scheduled to end on January 27, at which point the company would decide which offers to accept.

If the buyback goes ahead, Trader Media Group will hold the debt in a separate entity without voting rights. It will not be able to resell the debt.

The £825m loan is primarily in the hands of institutional investors, with distressed holders expected to place offers for the debt in order to exit an otherwise illiquid asset.

Apax, together with co-investor Permira, has also been taking advantage of the discounted price of debt in the secondary market to buy back some of retail portfolio New Look’s payment-in-kind (PIK) debt. In 2006, New Look raised £359m through PIK notes.

Buyback deals are expected to become more of a theme in 2009 as the holders of debt become more willing to sell parts of their positions for a price below par in order to liquidate their holdings.

Private equity firms will probably have mixed reasons for seeking to buy back a portfolio companies’ debt. In some cases, the driver will be deleveraging the business but where a company is trading well, it is a chance to take advantage of discounted but performing debt in pursuit of the returns on offer.