Lenders to European roofing company Monier Group have handed the keys to debt investors Apollo Management, TowerBrook and York Capital.
In one of Europe’s largest restructurings to date, the new owners led a bid for the company using a loan-to-own strategy, forcing out former owner PAI Partners.
PAI Partners acquired a 65% stake in Monier in a €2.4bn deal announced in December 2006 that would later prove to have been near the top of the cycle. The deal was financed by €1.97bn of debt, comprising €1.67bn of senior loans and €300m of second-lien debt.
Monier, headquartered in Germany with significant operations in France, was sold by French building group Lafarge. The vendor retained a minority stake in the company formerly known as Lafarge Roofing before being renamed Monier.
In its attempt to hold on to Monier in the face of a possible covenant breach and an interest payment looming on June 30, PAI offered to inject €135m of new money into the company in return for lenders swapping one-third of their debt for a 50% equity stake.
The PAI bid to keep control, sweetened from a previous offer of a €125m cash injection alongside lenders agreeing to cut debt by two-thirds and taking a 30% stake in Monier, was rejected by lenders in June.
“In 2007’s classic leveraged buyout deals, covenant breaches sometimes come a nanosecond before a cash crisis at a company,” said Colie Spink, co-head of the transaction advisory group at Alvarez & Marsal in London.
“This actually gives the private equity firm an advantage because they can make an offer to the lending consortium and then the lenders have very little opportunity to look for an alternative deal,” added Spink.
This was not the case with the restructuring of Monier Group, in which the lenders were presented with an alternative option.
Led by Apollo, the trio of debt investors built up a position in Monier’s debt giving them around a 20% share. They also garnered the support of a group of the 140 owners of Monier’s debt, including Alcentra, Babson and M&G, and then presented the lending consortium with an alternative option.
That deal is understood to have been approved by 78% of lenders on June 25, above the 75% threshold required.
Under the Apollo-led proposal, Monier will remain more highly geared than it would have been under PAI’s offer.
A €1bn debt-for-equity swap will see debt slashed by 50% to €700m of senior debt and €300m of PIK, with interest rates also substantially reduced to €30m a year. Monier will also benefit from a €150m injection of new capital in the shape of super-senior secured loans and a further €50m liquidity line.
PAI has seen both its €256m equity investment in Monier and the €25m it spent on junior debt in Monier wiped out.
The distressed debt investor takeover of Monier is one of the largest examples of a loan-to-own deal to take place in Europe.
It is certainly larger than another of 2009’s examples of a loan-to-own deal, where Apollo was sitting at the other side of the table.
In February, Oaktree Capital, Alchemy Partners and hedge fund Polygon built up a stake in the debt of UK estate agency chain Countrywide before launching a debt-for-equity swap plan that saw them gain positions in the company’s equity alongside Apollo, Countrywide’s original private equity backer.
Other buyout firms with portfolio companies in distress have been luckier in the last month.
UK boiler maker Baxi, owned by BC Partners and Electra Partners, secured a standstill and waiver agreement from its lenders, ensuring that it doesn’t breach covenants that were due to be tested at the end of June. It has been given breathing space until August 31.
In France, construction chemicals company Materis has undergone a restructuring of its debt package, with private equity owner Wendel retaining its position. In return for a fee and raised margins on certain loans, creditors to Materis have agreed to reset its loan covenants and ease its repayment schedule.