Lending quartet wrest control of Biffa

After turning down an offer reportedly worth £520m in the summer, Montagu and GIP are set to cede control of Biffa to a quartet of senior lenders.

Montagu Private Equity and Global Infrastructure Partners are set to become the latest firms to hand over the keys to a portfolio company to its lenders, after UK waste-management group Biffa outlined a restructuring proposal.

Avenue Capital Group, which along with fellow lenders Goldman Sachs and GoldenTree Asset Management earlier this year won control of UK hotel chain Travelodge from Dubai International Capital, is one of four senior lenders who this week assumed control of Biffa as part of a restructuring.

The restructuring will see a majority shareholding in Biffa pass to senior creditors Avenue, Angelo Gordon & Co, Babson Capital Europe and Sankaty Advisors (the debt investment arm of Bain Capital) after the quartet agreed to write off 55 percent of the company’s debt – about £580 million (€714 million; $929 million) – and inject £75 million of equity.

“The £75 million of new investment will be used to fund a new infrastructure programme designed to reinforce the company’s position,” Biffa said in a statement outlining the proposal.

The company’s debt burden will thereby be reduced from £1.1 billion to £520 million. Mezzanine lenders, which include Intermediate Capital Group, may also lose their investments. ICG could not be reached for comment by press time.

“The proposal has support from a substantial majority of Biffa’s senior lenders and the company plans to conclude the process in early 2013,” Biffa said. The lending quartet will continue to back the incumbent management, it added.

Montagu and GIP acquired the business in 2008 in a £1.7 billion take-private underpinned with a “relatively conservative” £1 billion debt package, according to a source close to the process. The restructuring will see their combined £700 million stake (split 50:50) written off, making it a bigger loss for the sponsors than similar write-offs by DIC for Travelodge, and BC Partners for UK gym chain Fitness First.

Montagu's investors have been aware that the investment had effectively been written off for almost a year, however, so the outcome did not come as a shock according to sources close to the firm. Significantly, Montagu and GIP continued to work closely with the company throughout the year, a source added, and at no stage had the firms extracted any equity from the business.

“The firm is pleased Biffa is now on a more appropriate financial footing, and we wish them all the best for the future,” a spokesman for the firm told Private Equity International.

In August, Montagu and GIP reportedly rejected a £520 million offer for the business from a consortium including Clearbrook Capital and UK recycling group Chinook Urban Mining, having initiated a Goldman Sachs-led strategic review of the business in January.