IMO Lenders Battle as Debt-for-Equity Swap Looms

LONDON (Reuters) – The fate of Europe’s biggest car-cleaning company, IMO Car Wash, may be decided in the courts, two sources with knowledge of the situation said, as lenders battle over terms of a debt-for-equity deal.

Junior lenders, owed up to 90 million pounds ($147.2 million), are fighting a proposed restructuring deal that sees their debts written off, left only with warrants to be used in the case of a stock sale or flotation, and a share in the company’s future profits.

IMO’s senior lenders have proposed a debt-for-equity swap where they would seize control of the company from present owner Carlyle Group in exchange for a big cut in the value of its debts.

The senior creditors, owed more than 200 million pounds, have suggested a scheme of arrangement deal that would need to be approved by the courts.

IMO’s lenders include Lloyds Banking Group (LLOY.L) unit Bank of Scotland, arranger of the 350 million pound loan package backing Carlyle’s leveraged buyout of the group in March 2006.

Following a failed sales process in May, senior lenders believe the value of IMO, which operates in 13 countries across Europe, is now less than the amount it owes them, meaning they have control of the company’s future, one of the sources said.

This means junior debtholders have no economic interest left in the company, the source added.

Carlyle Group could not be reached for comment. IMO Car Wash declined to comment.

The senior lenders believe the sale process, and an earlier restructuring bid from present owner Carlyle Group, has established a defendable market price for the company, despite the objections from junior lenders.

But junior creditors are willing to challenge the senior lenders’ valuation of the company in the courts, the source said, as they believe the value of the company is higher than that suggested by the senior lenders.

Establishing agreed valuations for companies is very difficult in the present market because of a lack of buyers and credit, market experts say.

“Valuations are depressed, debt multiplies are down and it is not clear how much of a distressed discount to apply,” said Gareth Davies, a restructuring expert at Close Brothers.

“Given the uncertainty, many people don’t really want to know how the valuation process will work out,” he said.

“There aren’t many buyers out there so even doing a sales process is not necessarily proof of a value — it is still a very subjective process,” Davies added. ($1=.6113 Pound)

By Tom Freke
(Editing by Rupert Winchester)