Household budgets bite

High-level talks continue between Terreal sponsor LBO France and creditors, but as yet there is no agreement, document or specific proposal under discussion.

A source close to the situation said details of a €70m capital injection, which has been proposed by LBO France, remain vague. It is not clear where in the capital structure the proposed capital would sit, where LBO France would source the funds or what changes to terms and conditions the sponsor would require in exchange for the injection.

Creditors have hired KPMG for a second round of diligence work, a process which is due to be completed in the second half of February. That should create greater clarity around Terreal’s budget issues, and determining the level of new capital needed to maintain its viability.

One lender said: “Discussions around the €70m injection are back to front. We need to get the diligence done and develop the solution from there.”

However vague, the offer at least indicates a willingness by the sponsor to engage with lenders, and could point the way to a consensual solution. As yet neither side has appointed restructuring advisers.

Last week saw a second LCDS credit default event, when sellers of protection voted to hold a credit event auction to facilitate settlement of LCDS trades referencing British Vita, the second LevX constituent to suffer a default, after Sanitec.

British Vita shocked creditors in the last quarter of 2008, when it revealed the scale of the fall in its Ebitda. Sponsor TPG has agreed a standstill agreement with lenders that postpones loan repayments until the end of the first quarter 2009.

The polymer producer makes foam stuffing for furniture and pillows and has been badly hit by the collapse in consumer demand for home furnishings. TPG’s 2005 LBO of the business was backed by a £663m debt package, arranged through mandated lead arrangers JP Morgan and UBS. Debt comprises £513m of senior facilities and £150m of mezzanine.

Talks are ongoing over the future of Sanitec, with a source suggesting the good relationships between sponsor EQT and a core group of Nordic lenders could point the way for a deal similar to that seen in last month’s restructuring of Nordic Capital-backed Thule.

Sanitec is a sponsor-backed Swedish bathroom fittings maker which breached its banking covenants at the end of the year. Restructuring discussions are ongoing but have been inconclusive so far, though EQT has proposed to inject new capital into the business in a deal that would probably see second-lien lenders wiped out and senior debt reduced.

Last month Nordic Capital-owned sports equipment maker Thule agreed a restructuring deal that saw it inject €46m, with senior lenders converting part of their debt to preference shares and Goldman Sachs‘ mezzanine position wiped out.

Land of Leather, a UK-listed furniture retailer, appointed Deloitte as administrators last week, and suspended its shares on Monday.

The business, which is effectively debt free, had seen its share price plummet over the past year, from 575 pence per share in January 2008 to just 3 pence per share Monday. This left the company’s value at just more than £1m.

Land of Leather said in a statement that it “has been operating in challenging market conditions for some time as a result of the credit crunch and lack of consumer spending on bigger ticket retail purchases”.

The collapse of the business is a striking example of an otherwise solvent firm going out of business after failing to access bank financing to see out the downturn, despite being unlevered.

Also in the UK retail sector, music seller Zavvi‘s administrators Ernst & Young continues to liquidate assets. It sold 14 stores in the UK and Ireland to rival HMV, and is announcing the closure of 22 Zavvi UK stores. It continues with efforts to sell the rest of the business as a going concern.