European PE Writedowns Threaten Ailing Portfolio Cos.

LONDON (Reuters) – Heavy writedowns by European private equity firms are an extra worry for the struggling companies they own, sparking fears they may end up in the hands of the banks as their current owners drop support.

This week alone, both Candover CDI.L and SVG Capital SVI.L wrote down to zero investments in companies ranging from Swedish beds and mattresses manufacturer Hilding Anders to Italian fitness equipment maker Technogym.

The drastic cuts raise concerns that more buy-out houses will be unwilling — or unable — to support companies that have lost all value in their books.

“A lot of these cases will end up in disposal because if they need money, there is nobody with cash to support them,” said Nick Jones, a partner at advisory firm Clearwater.

In one such example, private equity owners walked away from Italian luxury yacht maker Ferretti, triggering an emergency bid for the company from its management.

“There is very little equity value in any of these buy-out businesses today. The question is whether you crystallize that loss today or not,” a head of loan syndicate said.

Private equity companies will only support those companies with a good chance of survival, where their fresh equity injections will earn high returns of 40 percent, far in excess of the industry’s standard return of 25 percent.

Zero valuations are unlikely to make life easier for portfolio companies which are already negotiating with banks to avoid breaching loan covenants.

SVG’s zero valuation of Hungarian chemicals group BorsodChem BDCD.UL is unlikely to help a current loan waiver that aims to help the company avoid a covenant breach on its 1.15 billion euro loan.

SVG also marked its investments in German cable firm ProSiebenSat.1 and UK gaming group Gala Coral to zero.

Candover has also valued Gala Coral at zero, along with Ferretti, secure mail company DX Group, Sweden’s Hilding Anders, Technogym and UK plastics group Innovia Films.

UK laboratory testing company ALcontrol was written down to 1.6 million pounds. The company is heading toward a covenant breach and appointed Close Brothers to advise on a possible restructuring, according to the Daily Telegraph.


Pressure is mounting on private equity firms’ finances as the 2006/2007 vintage of highly leveraged buyouts heads toward mass restructurings, which will make it difficult for them to raise new funds to bail out struggling companies, bankers said.

SVG Capital wrote down its portfolio by 40 percent on Thursday and valued equity in three companies at zero. Candover cut its portfolio valuation by 50 percent and said its investment in six companies was worthless.

Permira PERM.UL wrote down its porfolio by 36 percent and Terra Firma TERA.UL also marked down by 42 percent or 1.37 billion euros.

Those private equity firms with money are trying to claw back their losses by charging high rates for new funds and are looking as objectively as possible at requests for fresh cash, seeing such requests as investments which have to work on their own merits.

Their aggressive attempts to wring the best deal for new money commitments is sparking a battle for control as cash-strapped banks demand better proposals to avoid putting the cash up themselves — a last-ditch resort.

“It’s a question of who has the cash to keep companies going. Previously, senior banks would have had cash available but banks have no cash, this is handing opportunities to private equity firms with cash,” a senior investor said.

Private equity firms are also trying to win further concessions from banks to maximize any upside and are asking for new equity to rank above senior debt in a new “supersenior” tranche, as seen when Texas Pacific Group put more money into troubled UK chemicals firm British Vita BRITV.UL.

EQT also asked for preferred equity that would rank ahead of bank equity in initial restructuring proposals for Finnish bathroom manufacturer Sanitec SNTCI.UL, in return for a 100 million euro equity injection.

By Tessa Walsh

(Additional reporting by Simon Meads; Editing by David Holmes)