Dam breached

Ideal Stelrad has breached debt covenants, according to a restructuring expert. The business is a UK-based plumbing and heating supplier bought in a 2005 LBO backed by Warburg Pincus. Warburg Pincus declined to comment.

The deal (originally named Caradon) was recapitalised last year through bookrunners BNP Paribas and RBS, with a £290m loan deal. The deal will replace the £185m debt package backing Warburg Pincus’ secondary buyout of the heating supplies business Caradon.

The senior debt package is made up of a £40m seven-and-a-quarter-year term loan A paying 200bp, a £85m eight-year term loan B paying 250bp and a £30m seven-year revolver paying 200bp. A £20m of nine-and-a-half year second lien pays 4.25% while £30m of 10 year mezzanine pays 4% cash pay plus 4.5% PIK.

French building materials group Terreal breached covenants when they were tested at the end of December, a technical default on the €912.5m debt package put in place in 2007 dividend recap.

Neither Terreal nor sponsor LBO France sought a waiver consent prior to the breach of covenants and while they have had some discussions with lenders, they are understood to have downplayed the importance of the covenant breach – to the annoyance of lenders, who would have preferred a greater and earlier level of engagement. KPMG had been advising lenders prior to the breach.

While the sponsor’s attitude has surprised lenders, they are understood to be comfortable with liquidity at the credit and have so far maintained a reasonably hands off approach – not enforcing a standstill or waiver deadline for instance, and allowing sponsors time to put together a proposal that might potentially see them put in new equity.

Given the default and the fact that the equity in the deal is now under water, lenders will probably in the meantime work out parameters around a debt for equity swap that would see them take the keys to the business.

Debt is now trading in the 5 to 10 range in the secondary market.

Terreal was recapitalised in June 2007 – one of the last deals launched ahead of the credit crunch.

The 2007 €912.5m debt package was arranged through bookrunner ING. The facility launched just before turbulence hit the market and initially found a good response. However, later fund pushback led to a flex across the structure and an OID of 1% was offered on the B tranche.

Debt was split between a €150m seven-year term A loan paying 200bp up from 187.5bp over Libor and a €627.5m eight-year B loan at 250bp up from 225bp, alongside a €45m seven-year revolver and a €90m acquisition facility both now paying 200bp.

The recapitalisation was levered at 6.2x and paid a dividend to LBO France leaving €150m of cash equity in Terreal.