(Reuters) – Private equity group KKR is nearing a deal to restructure the debt of loss-making car repair chain Auto-Teile Unger (ATU), a household name in Germany, hoping to draw a line under an ill-fated investment.
KKR and ATU’s management have agreed on the main points of a deal with the repair firm’s main creditors, credit investment group Centerbridge and funds managed by Goldman Sachs, ATU said in a statement on Thursday.
Centerbridge has also agreed to supply ATU with 25 million euros ($34.46 million) in fresh liquidity, and the agreement is due to be finalised before the end of the year, ATU added.
ATU is suffering from weak customer demand in the European car market, which has been a prime casualty of the continent’s economic crisis as hard-pressed consumers defer purchases. Online shops for car parts – such as Delticom – are also eating into its business.
ATU has 600 million euros of debt, comprised of 450 million euros in two senior bonds – most with coupons of 11 percent and others with a variable coupon of 9.75 percent above Euribor , as well as 150 million euros in junior bonds with a coupon of 7.25 above Euribor.
About 75 percent of the debt is held by Centerbridge and Goldman Sachs funds, most of which will be swapped for equity, two sources familiar with the negotiations said – a move that would dilute KKR’s 100 percent stake to a minority holding.
Reuters first reported in August that KKR and Centerbridge were in talks over a debt-for-equity swap.
An additional goal of the talks is to reduce the coupon of the remaining debt, one of the sources said.
KKR bought ATU from private equity peer Doughty Hanson for 1.45 billion euros in 2004, financing the deal with large sums of debt, which was loaded on to ATU’s books. In 2008, KKR injected about 140 million euros of equity into KKR to save its investment from bankruptcy.
ATU’s earnings before interest, taxes, depreciation and amortization (EBITDA) dropped to 62 million euros in its fiscal year 2012/2013, which runs until the end of June, from 103 million the year before. It posted a net loss for 2012/2013.
Centerbridge, which recently invested in bank branches being sold by Royal Bank of Scotland, has $20 billion of assets under management.