Debt package to be organised
Private equity firm Bain Capital is expected to hand over the helm of German sailboat builder Bavaria Yachtbau to two distressed-debt investors, according to reports appearing in the financial press this week, says IBI magazine. US-based investors Oaktree Capital Management and Anchorage Advisors are thought likely to take equal equity stakes in Bavaria Yachtbau after buying its debt for a total of about ?300m, reported Private Equity News.
Bain Capital bought Bavaria in 2007 at the height of the private equity boom for a reported ?1.3bn, and is said to have put ?400m of equity from its own funds into the deal. The remainder of the deal was backed by a ?900m debt package with ?600m arranged by Goldman Sachs and ?300m from Germany’s Dresdner Bank, which was subsequently acquired by its rival Commerzbank in August 2008.
Oaktree acquired about a third of Bavaria’s debt last year at discounts of up to 35 per cent of nominal value from Goldman Sachs when it began offloading its debt in early 2008. German newspapers reported that Bavaria was in financial difficulties in July, at which point Commerzbank and Oaktree agreed to defer interest on loan payments, setting in motion the negotiations for a debt-for-equity swap that culminated this week. Industry insiders believe that the final tranches of debt acquired by Oaktree and Anchorage were at well below 30 per cent of nominal value.
Such debt-for-equity swaps have become increasingly popular in recent months as more and more acquisition deals falter under the weight of debt and poor results. Bain’s high-price, high-leverage acquisition of Bavaria is the third such private equity deal in the marine industry to run aground this year as the recession sank boat sales ? and profits ? leaving companies without enough cash to make loan payments and satisfy covenants.
Ferretti defaulted on its debt at the start of this year following plunging sales. The default forced private equity owners Candover and minority investor Permira to hand over control of the yacht builder to a consortium of banks including Royal Bank of Scotland and Mediobanca. Private equity firm BC Partners was also forced to relinquish ownership of marine equipment manufacturer Dometic to a consortium of banks and the management team in September.