Reports claimed that Candover has already written off more than €100m (US$133m) of equity and could lose its entire €1bn investment in Ontex, which is said to be in default. Hedge funds have an approximately €200m stake in Ontex’s debt and could take control of the business if the talks fail.
A spokesperson for Candover confirmed that talks with the banks were ongoing, but stressed that the default situation was not one of over-leveraging, but rather macroeconomics, with a number of brand competitors entering the market for nappies and feminine products and squeezing Ontex on price issues. Close Brothers is advising Candover.
Last November, Candover told investors that Ontex was in danger of breaching certain bank covenants. The private equity firm paid approximately €1bn for Ontex in 2003, which included about €234m of equity, with debt provided by ABN AMRO, Barclays Capital and Fortis Bank.
In 2004, Candover announced that it had written off more than €100m of its original investment, in two tranches in December 2003 and June 2004. According to the spokesperson, Candover wrote off more than €174m but retains an equity stake of about €58m – approximately 25% of the original investment. The article added that Candover had secured a waiver of Ontex’s performance covenants last year following restructuring talks with its banks.
Candover appointed chief executive Michael Teacher in October 2004, along with a new financial director, and the spokesperson said that the business had since seen top-line improvement but could not disclose further details.