ATU restructuring on the cards

Sponsor KKR has hired Goldman Sachs to advise on a possible financial restructuring of German auto services chain Auto-Teile-Unger (ATU).

Two consecutive mild winters are being blamed for the company’s current problems, including a fall in demand for winter tyres in ATU‘s German, Austrian and Czech markets.

In light of recent developments, Moody’s has downgraded ATU’s corporate family rating to Caa1 from B2. The agency also downgraded €150m of senior notes to Caa3 from Caa1. The ratings remain under review.

In a statement ATU told creditors that, to date, it has met all obligations and intends to continue to do so. The company said it has sufficient cashflow for operating needs.

Goldman was hired after the company revealed that performance to November was behind budget, prompting the company’s high-yield bonds to plunge from a stressed 80s context to a distressed high 50s level in secondary trading.

As well as the appointment of Goldman, KKR this week appointed ex-VW executive Michael Kern as CEO, with a mandate to devise a new business plan.

Strategy consultant Roland Berger has been hired to support the move and Deloitte is mandated to provide due diligence on the financial aspects of the business plan.

In September last year ATU’s loan syndicate had already agreed to a loan covenant reset, which the company said would create sufficient headroom to allow for seasonal fluctuations, such as the previous mild winter, which had hurt profits.

At that time ATU said it was in a position to pursue further expansion by recourse to its own cashflow, and without additional debt. The latest figures mean that such expansion will now have to be funded via an equity injection from the sponsor.

KKR‘s 2004 buyout of ATU from Doughty Hanson, which holds a residual stake, was backed by a €1.175bn LBO loan through bookrunners HVB Group and Mizuho Corporate Bank, with MLA Morgan Stanley.

Arrangers on the deal were AIB, Bank of Ireland, Banc of America Securities, Calyon, Dresdner, Helaba, ING, KBC, LBBW, Lloyds TSB, NIB, RBS, SEB, SG and WestLB. Syndication included a €195m carve-out for institutions.

Debt was ultimately split between €955m of loan facilities and a €220m mezzanine tranche, most of the latter being a bridge to a 10-year non-call one unsecured FRN, which priced at par in 2004 to yield 725bp over three-month Euribor.