Vendex joins early recap rush

Dutch retailer Vendex could be the next European LBO to be recapitalised in less than two years since its buyout, after comments made during an investor meeting on Friday February 17.

With senior leverage at 2.5x through the bonds, analysts said the company was under-leveraged and the sponsors are believed to be looking to take a dividend. The company could sell a PIK note, seek a waiver or – most likely – refinance in a similar vein to British retailer Debenhams.

The news sent Vendex bond prices up by four points to trade in a 109/110 market. According to the documentation, bonds would have to be taken out at Bunds plus 50bp, equating to a tender price of 118.

News of the possible recapitalisation came as ratings agency Fitch published an article in which it said that the average period before an LBO is subject to a dividend recapitalisation had dropped from 29 months for deals refinanced in 2004 to just 20 months for deals refinanced in 2005. This equates to a 46% increase in the number of dividend recaps from 2004 to 2005.

The trend towards earlier recapitalisation is being driven in part by the lack of new deal-flow for the private equity community, which is having to compete with a growing number of trade buyers to win

auction processes. Degussa’s construction chemicals arm was the latest prize to be denied the LBO market, as BASF entered exclusive negotiations with the vendors earlier this month.

Combined with the relative lack of certainty offered by the IPO route and the continuing abundance of institutional money on offer to get deals done, the prospect of an early return provided by a partial exit is proving very tempting.

Sponsors KKR, Alpinvest, Cinven and Permira bought out the business early in 2004 using a €890m debt package and a €350m high-yield bond arranged by ABN AMRO, Citigroup and ING. The existing senior debt comprises a €300m seven-year term loan A at 225bp over Libor, a €162.5m eight-year term loan at 275bp, a €162.5m nine-year term loan at 325bp and a €265m seven-year revolver, while the bond debt comprises €275m of 7.875% senior notes due 2014.

The 2004 deal proved highly popular with banks and investors and was oversubscribed, despite a last minute waiver request that moved €75m out of the sub debt and revolver and into the senior tranches