Mid Europa refinancing defies crunch


Mid Europa Partners, a Central and Eastern Europe-focused private equity firm, has completed what is believed to be the second-largest recapitalisation in the region, raising €415m through a combination of senior, mezzanine and PIK facilities from both new and existing lenders.

Matthew Strassberg, a London-based director at Mid Europa Partners, said that the recapitalisation represented almost a full repayment of the equity in Mid Europa Partners’ original Z1.6bn (€423m) buyout of Aster from UK buyout firm Lion Capital in January of last year. This is around the time the firm closed its €650m second fund, and this recap is the first liquidity event from this fund.

The 2006 transaction saw Aster return to Mid Europa Partners’ ownership, after it sold its share in 2004 to co-investor Lion Capital, while the latter was still under the moniker Hicks Muse (Europe).

The refinancing came despite “challenging credit market conditions”, according to Strassberg.

“The market is still sane enough to be selective,” he said. “Pricing is down but some credit is holding up and Aster is the sort of credit that has been followed by the banking market for four or five years, and it has retained the same management team as in the beginning, along with a high level of credibility for consistently delivering outperformance.”

He also noted that Mid Europa Partners operated in a largely high-growth, low-volatility environment, which enjoyed the underpinnings of the EU in addition to an above-average growth rate, a “highly-fragmented market of more than a dozen countries that are cumulatively smaller than Germany”, and where competition might be increasing but less so than anywhere else in Europe.

“Much of the credit problem is driven by CLOs and institutional money, and in Eastern Europe that has not been a factor in syndication,” said Strassberg.

“In the case of Aster, the recapitalisation saw the existing banking group rolling up their existing exposure and making a top-up; the incremental money was not huge. There was relatively small risk compared with the opportunity to continue to have exposure.”

Invitel, a Hungarian telecoms business acquired by Mid Europa Partners and GMT Telecommunications in 2003 and sold earlier this year to Hungarian Telephone & Cable for €470m, is believed to be the largest leveraged recapitalisation in the CEE sector, with a financing of about €1.1bn.

Earlier this month, Mid Europa Partners closed the region’s largest ever buyout fund, raising more than €1bn for a first close of Mid Europa Fund III, which has a hard cap of €1.5bn that is expected to be reached before the end of this year.

Less reliance on financial engineering could prompt further interest in the largely untapped CEE region. According to research by Emerging Markets Private Equity Association, funds raised for CEE and Russia in 2006 totaled US$3.272bn, up from US$2.711bn in 2005 and significantly more than the US$406m garnered in 2003.

While much of private equity’s focus on emerging markets has been directed towards China, India and Australia, a number of the big Western firms have also been increasing their exposure to the CEE region. Carlyle’s recently decided to build a Poland-based CEE team, while Bridgepoint launched a Polish office in February – nabbing Khai Tan from Advent International, which itself launched a Ukraine office this week – 3i said that up to 10% of its €5bn Eurofund V would be directed at the region and Permira also entered the space with its €1.63bn take-private of Hungarian chemicals firm BorsodChem late last year