Restructuring review

The dominance of the restructuring deal in private equity headlines has been one of 2009’s defining trends as business after business has fallen foul of the treacherous economy. No enclave of the financial world has been immune from the pain, but it has been the largest LBOs that have attracted the most attention.

There follows a review of the restructuring efforts undertaken at some of Europe’s biggest LBOs of the boom time. Not every deal has been included, such as multi-deals like Numericable/Completel, or businesses that have only indulged in uncontroversial debt buybacks like Alliance Boots or TDC.

Bavaria Yachtbau

Bavaria Yachtbau is a German boat builder that was the subject of a €1.3bn LBO in the summer of 2007 by Bain Capital. Backed by a €900m loan that failed to syndicate, it was one of the first deals to suffer following the sub-prime crisis and distressed investors managed quickly to build-up an influential position.

In October 2009, Anchorage Advisors and Oaktree signed an agreement to swap their 95% of Bavaria debt for ownership of the business in a deal that will cut debt by 90%, along with investing €55m of new money.


BorsodChem was bought by Permira in early 2007, with the UK LBO giant paying €1.63bn alongside Vienna Capital Partners for the Hungarian chemicals company. The deal was backed by a €1.15bn debt package.

Following the write-down to zero at the beginning of 2009, it was offered a €100m capital injection from the Hungarian state-owned bank MFB during the summer on the provision that Permira agreed to restructure BorsodChem’s debt in a way that was acceptable to the Hungarian Government.

However, the restructuring was complicated by China’s Yantai Wanhua building up a significant position in mezzanine loans and subsequently indicating it might like to buy the company from Permira.

The end result was a senior lender-supported restructuring which sees Yantai Wanhua take an equity stake in the business in exchange for putting in new money.


Cortefiel, a Spanish clothing retailer, was acquired by a consortium of CVC, PAI Partners and Permira in 2005 with a €1.43 loan, which was recapitalised two years later.

In July this year the business undertook a restructuring exercise which saw the covenants on the debt facilities reset for the life of the deal in exchange for a 75bp fee, a 25bp early bird fee and a 100bp increase across all coupons on the all senior debt deal. The deal also saw a waiver consent, which paved the way for a debt buyback at a significant discount (less than 60 cents in the euro) and a sponsor capital injection of €60m.


A €6.2bn deal, the EMI LBO hit the headlines, as was befitting of one of the world’s largest music companies. It’s been in the news since then, with stories of a euphemistic slush fund to supply musicians with “fruits and flowers” being axed, as well as numerous acts, such as The Rolling Stones and Radiohead, leaving the roster.

Terra Firma acquired EMI in September 2007 for nearly £4bn, including £2.5bn of debt and £1.47bn of equity, one of the largest deployments of equity at the time.

The business has had a difficult time of it since. Two equity injections have been made, the last, a £28m investment, in May, following missed targets in the banking covenants. The last anyone heard, in July, was that Blackstone was advising Terra Firma on plans to restructure the debt though a high-yield bond issue, an idea greeted with scepticism by industry sources who doubted that the bond market had the stomach for such a large issue.

Also rumoured, in EVCJ’s sister publication IFR, was a £250m to £300m equity injection by Terra Firma in return for Citigroup writing off £500m of its debt, but pressure from the US Government for banks to reduce “toxic assets” made it more likely that the loan would be sold whole rather than taking a write-down and retaining exposure to EMI.


Candover took control of the Italian yacht maker Ferretti at the back end of 2006 in a €1.7bn deal from Permira, which reinvested for a significant minority stake. Backed by €1.28bn of debt in 2007, it was tipped for an IPO in the spring of 2008, just months before Lehman Brothers collapsed.

Since then, it has not fared so well. Both Candover and Permira wrote down their investment to zero, and Ferretti defaulted on a mezzanine repayment which led to a restructuring proposal by Candover and Ferretti management which would see them pump in €100m of new equity in exchange for senior lenders taking a 30% equity stake as well as a 33.33% write-down on loans, with junior debt written off and lenders given a 15% equity stake.

This proved unsuccessful, leading to both sponsors walking away from the deal at the end of February 2009. A €85m MBO took place (€70m from Ferretti’s management and €15m from Mediobanca), which saw lenders take a 53% stake in the company, with management holding 38.5% and Mediobanca 8.5%. The company’s long-term debt has halved to €550m, RBS has extended a new €65m loan and a group of three lenders has extended the maturity of €24m of existing short-term loans.

Gala Coral

Another deal involving Permira, the €6.6bn merger between UK casino operator Gala and betting shop chain Coral Eurobet came in 2005. Permira acquired a 30% interest in Gala as part of a £1.1bn recapitalisation just months before the merger, joining existing shareholder Candover and Cinven. All three sponsors put in an extra £275m of equity at the time of the merger.

Signs of trouble first emerged in the spring of 2008 when the private equity owners completed a £125m equity cure in return for debt amendments after concern from creditors the company might breach covenants over the next few years.

The investment has since been written down to zero and the latest is that mezzanine lenders, led by Intermediate Capital Group and Park Square, are to take half of the group’s equity and sit alongside the three sponsors on the board. This will see Gala Coral reduce its debt from £2.5bn to £2bn, with the junior noteholders converting £540m of debt into equity.


German forklift company KION was acquired by KKR and Goldman Sachs Capital Partners in a €4bn LBO with a €3.3bn debt package. Despite being hugely popular with the debt market upon syndication in 2007, the company entered restructuring talks in September this year.

Seeking a covenant reset and a new business plan following a 30% fall in sales, KKR and Goldman Sachs looked to inject capital into the business in the form of a loan on the same terms as existing senior debt, but with later maturity. After winning approval, KION offered a 75bp fee to lenders who consented to the request. The amendment increased coupons across all its facilities bar the second-lien debt of between 125bp and 150bp, depending on leverage, taking the coupon on the most expensive tranche of debt up to a maximum 400bp.

Lafarge Roofing/ Monier

PAI Partners acquired the roofing division of French building materials Lafarge at the end of 2006 in a €2.38bn deal, which went to market with a €2.07bn debt package in 2007, which was so successful it completed two reverse flexes. During the first half of 2008, PAI bought back some of this debt of the business now known as Monier, before calling in the restructuring advisers in the latter half.

The resulting battle saw the sponsors face off against distressed investors. In May this year, PAI proposed a deal that included a €125m cash injection in exchange for debt being cut by two-thirds, with the equity split 70:30 between sponsor and creditors. Despite the size of the offer, lenders were unimpressed and remained so even after PAI upped their offer to €135m along with a swap of one-third of debt with 50% of equity.

The loan-to-own counter offer by distressed investors, led by Apollo, Towerbrook and York Capital, proved to be the one senior lenders backed. This would see debt slashed by 50% with an interest cut, as well as €150m of new money in the shape of super-senior secured loans. The equity swapped under the proposal was offered to senior lenders on a pro rata basis to their current holdings.

PAI has lost an estimated €256m on the deal and Monier’s old parent, Lafarge, which had taken a 35% interest, lost its stake completely.


The Spanish doughnut maker was acquired by Apax in 2005 in a deal that valued the company at €900m and included €650m of debt. Just six months after the deal, Apax refinanced with a €700m package (€585m of new debt, €115m mezzanine rolled over).

Later in 2006, a part recap was undertaken with a PIK issue, half of which went to repaying the mezzanine portion, and the other half as a dividend to Apax.

In May 2008, Apax arranged a new debt package to back Panrico’s acquisition of biscuit maker Artiach.

In July 2009, Panrico hired restructuring advisers ahead of a possible covenant breach (which didn’t occur), prompting a steering committee of PIK lenders, led by Avenue Capital, to pursue a deal which would see them inject equity into the company at the expense of existing equity owners.

Philips Semiconductors/NXP

Philips Semiconductors was bought in 2006 by KKR, Apax Partners, Silver Lake, Bain Capital and AlpInvest in a US$14.5bn LBO (this included the assumption of US$5bn worth of debt).

Quickly changing its name to NXP Semiconductors, it has undertaken a number of buybacks this year, all well under par and not without controversy. Firstly it conducted a bond exchange that saw bondholders swap subordinated notes for super senior paper, with an implied price of 17% of face value, which was met with resistance from senior secured bondholders but made its way through. The deal lacked any equity write-down or equity contribution from shareholders. It followed this up three months later in June with a cash buyback for the remaining subordinated notes at a price of between 30.5% and 35% of face value, before completing a more sedate privately negotiated buyback and bond exchange in July.


EQT acquired the Swedish bathroom fittings maker Sanitec from BC Partners in early 2005 with €1.015bn of debt. Around four years later it made history by becoming the first LCDS (Loan Credit Default Swap) default.

The business had breached in banking covenants at the end of 2008, leading EQT to propose a restructuring deal which would see €100m of new equity pumped in exchange for a debt reduction from €850m to €350m.

This was rejected by senior lenders, forcing EQT to come back with a revised equity offer of €115m. The deal sees €605m of debt wiped off, with senior lenders receiving a majority stake in Sanitec, as well as all of the new senior facilities.

Seat Pagine Gialle

Back in 2003 when this deal was completed, it was the largest LBO in European history, standing at €5.65bn, backed by €4.29bn of debt and sponsored by BC Partners, CVC, Permira and Investitori Associati.

A €2.262bn refinancing of the part-listed Italian directories company was completed in 2005, which saw the sponsors secure better covenant terms and a pricing reduction rather than take a dividend.

As 2008 drew to a close it emerged that SEAT was seeking a covenant waiver for 20% headroom in exchange for a 1% margin increase and a 50bp fee, as well as a dividend freeze, after it had warned it would be hit by the recession the following year. This opened the way for CVC, Permira and Investitori Associati – but not BC Partners – to inject new capital into the business through a €200m rights issue in March, the proceeds of which were to evenly split between paying down senior debt and for general corporate purposes.

TIM Hellas/Wind Hellas

The €3.4bn acquisition of Greek mobile phone company TIM Hellas by Weather Investments in early 2007 came just a few months after the business was the subject of a €1.4bn refinancing. On the block at the end of the 2006, sponsors Apax and TPG rejected a number of bids from trade buyers and opted to recapitalise via the high-yield bond market, which also gave the sponsors a cash dividend just two months prior to exit.

Since renamed as Wind Hellas, it was reported in August the business was facing a liquidity crisis and hired Morgan Stanley and Ernst & Young to advise on a financial restructuring. Subsequently, Weather launched a waiver and amendment request to lenders to enable it to provide a cash injection of €50m to cover a €67m interest payment

The business has also been sounding out potential bidders, either for an outright acquisition or a capital injection, and although previous owners Apax and TPG were reported to have taken a look, both declined to take it any further, with TPG blaming the complicated capital structure – which includes €1.47bn of senior secured debt, a similar amount of senior and subordinated bonds, and a €265m PIK piece.

The most recent reports are that subordinated bondholders have made a bid for the business, consisting of a €117m PIK note with a 15% coupon and a five-year maturity, although this is unlikely to see off majority shareholder Weather.


Permira acquired the Italian fashion house in a €5.3bn deal in 2007. In March this year, Permira revealed it had written down its investment by over 50% and reports in the Financial Times suggest the private equity firm is in talks over easing the terms on its €2.5bn debt to avoid breaching covenants.