Default in action

There have been several high profile incidences of major sponsors losing control of assets to lenders over the last 18 months. Last year, Terra Firma ceded control of music publisher EMI to Citigroup after the company defaulted on its debt. Earlier this year, Oaktree bought up more than a third of the approximate $880 million debt held by Fitness First, a gym chain owned by BC Partners, with sellers reportedly including National Australia Bank (it has since completed a debt-for-equity swap).

And even more recently, Blackstone lost control of German plastics company Klöckner Pentaplast in June. Distressed debt investor Strategic Value Partners (SVP) led a group that invested €190 million into the struggling business as part of a restructuring. As part of the deal, Jefferies & Company underwrote a new debt facility, while €800 million of first lien senior secured debt was repaid.

The SVP-led group thereby assumed control of the company, Klöckner said in a statement.

The restructuring saw Klöckner’s debt fall from €1.26 billion to €630 million, made possible by the equity injection and the equitisation of second lien and mezzanine debt held by the SVP group. Blackstone – which declined to comment – was reportedly forced to write off its €100 million remaining equity stake. It had acquired the business in 2007 for €1.3 billion, including €1.2 billion of debt.

Having reportedly bought in to the debt at a 20 percent discount, repayment at par would still represent a healthy return for SVP – highlighting that returns can be there for the brave and bold…