Reuters: Private Equity: RLPC-SVP gears up aggressive bid for Kloeckner-sources

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RLPC-SVP gears up aggressive bid for Kloeckner-sources Apr 11th 2012, 17:27 Wed Apr 11, 2012 1:27pm EDT * Litigation threatened against company to avoid 450 mln jnr debt write off * Legal action could be M&A negotiating tactic * M&A bid will need to cover par payout of 850 mln euros snr debt By Claire Ruckin LONDON, April 11 (Reuters) - Hedge fund SVP is leading a group of junior lenders in an aggressive bid to buy German plastic films firm Kloeckner Pentaplast, threatening legal action to avoid being wiped out in a restructuring of the company's 1.3 billion euro ($1.71 billion) debt pile, banking sources said on Wednesday. SVP and junior lenders are trying to find investors to back a bid for Kloeckner after rejecting a consensual debt restructuring proposal put forward by owners Blackstone and senior lender Oaktree, leading M&A adviser Lazard to push ahead with a sale of the group. Blackstone and SVP declined to comment. Applying a rare and aggressive tactic, junior lenders have hired litigation boutique Quinn Emanuel and have threatened litigation against the company and senior lenders. This will strengthen their leverage in an M&A process, debt restructuring experts said. "When junior lenders have their backs against the wall it is increasingly becoming the case that they will resort to litigation if there is no other option. It is a fairly aggressive tactic but when there are large sums of money involved people will give it a shot," lawyer Clive Zietman, partner and head of commercial litigation at Stewarts Law, said. "It is a useful commercial weapon if the threat is real and based on concrete legal principles." The expectation is that SVP's litigation threat is a negotiating tactic for buying the business and the threat will be removed if their offer for the company is accepted and a wider M&A process stopped, bankers and lawyers said. "Signalling litigation intent is aggressive around a deal. Very often, all junior lenders have is their legal rights and it can be a way of negotiating a deal effectively by leveraging their legal rights through the threat or use of litigation," a lawyer said. If a bid comes in that will pay senior lenders out their 850 million euros of debt at par then it is likely that it will be accepted and they will deliver their shares to the winning bidder, bankers said. SVP or any other interested party has until June 22 to come up with an acceptable bid for the company. Junior lenders value the company at around 6 to 8 times the company's 130 million euro EBITDA (earnings before interest, taxation, depreciation and amortisation), sources close to the company said. After June 22 a covenant breach waiver expires and it is likely that senior lenders can enforce the debt restructuring proposal as the company will be in default of its loan repayments, bankers said. Junior lenders such as SVP bought first-lien debt of around 15 percent which will be converted into equity to limit losses if the debt restructuring goes ahead, bankers added. Blackstone bought Kloeckner from Cinven in 2007, backed by 1.25 billion euros of leveraged loans. A debt restructuring proposed that Blackstone would reduce its majority stake and co-own Kloeckner with Oaktree, wiping out junior debt. They would reduce senior debt to 500 million euros from 850 million in a debt-for-equity swap and wipe out 260 million euros of mezzanine loans, mainly owned by the company itself, and 190 million euros of second-lien loans. The company is currently 10 times leveraged but this would be lowered to 3.8 times if debt reduced to 500 million euros. Link this Share this Digg this Email Reprints

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