Cinven may take hit

Cinven is expected to lose on its investment in Photo Europe, a French film processing company currently undergoing a financial restructuring. Cinven paid €282m for its stake in the business in 2001. It acquired two assets, Photo Service and Photo Station, from GrandVision, an optical retailer with 390 stores across Europe.

The equity portion for the acquisition was an estimated 30% of the purchase price, with Cinven having majority control. Management and Michael Likierman, the co-founder and joint chairman of GrandVision, also took small stakes in Photo Europe.

Goldman Sachs, Royal Bank of Scotland and pre-merger Credit Lyonnais were mandated arrangers on the €180.5m supporting debt. BNL, Bank of Ireland, Centrabanca, Credit Agricole du Nord, Entenial, IKB and Sanpaolo IMI joined the deal in syndication.

Cinven, which declined to comment, has yet to agree to a proposal that would see substantially full control of Photo Europe pass to Likierman. France Telecom-owned Orange has teamed up with Likierman on the plan, which would see Orange provide a letter of comfort for a debt refinancing.

Likierman and Orange are exclusive with Photo Europe. Under French law, this means the deal is acceptable, but Cinven must give its consent.

“There has been a radical change in the photo market, but we are in exclusivity with the banks of Photo Europe. Orange will have no equity stake, but will help us ensure we can meet the refinancing [of the debt] in the context of our commercial partnership,” said Likierman.

The recovery, if signed, could see creditors recover positions at par depending on the performance of the company. Likierman predicts enormous opportunities in the sector to help reposition the company.

The restructuring would involve the current senior creditors getting 20 cents on the euro in cash, 50% of their loans in new debt and a convertible note worth up to 30 cents, depending on the value of the company in 2012. Bankers are still uncertain whether this equity upside would be in the form of convertible notes or a share of the proceedings from the eventual sale of the business.

Mezzanine holders would be reinstated with a convertible note at a subordinated level. Despite claims that the hypothetical package should leave creditors unimpaired on the face value, the senior debt only traded as high as the 70s after news of the proposal filtered through the market.