LONDON (Reuters) – Lehman Brothers is being replaced as agent on two European leveraged loans which backed the buyouts of UK forging industry manufacturer Firth Rixson and frozen food manufacturer Iglo Birds Eye Frozen Foods, senior banking sources said on Tuesday.
The changes mark the start of the loan market’s effort to get to grips with the administrative chaos caused by Lehman’s filing for Chapter 11 protection as Lehman is substituted in loans in which it played an active role.
Agents of leveraged loans typically act as an intermediary between the borrower and its syndicate. They channel interest payments from the borrower to its lenders and also keep an administrative record of syndicate members, which are increased by secondary market trading.
Lehman’s European agency entity is in administration and unable to fulfil its function, sources told Reuters Loan Pricing Corp.
The borrowers and their private equity owners – Oak Hill Capital Partners in Firth Rixson’s case and Permira [PERM.UL] as owner of Iglo Birds Eye Frozen Foods – are having to act quickly to avoid interest payments flowing into Lehman, sources said.
Lehman has already been replaced as agent by existing lender Lloyds TSB on the senior debt of Firth Rixson’s 450 million pounds buyout financing as an interest payment was due last Friday, sources close to the deal said.
Credit Suisse is stepping into the agency role on Iglo Birds Eye Frozen Foods 1.1 billion euros loan, which has an interest payment due next week, the sources said.
Permira declined immediate comment.
A majority of lenders is required to ask an agent to resign which has been achieved on both syndicates, but Lehman has been unable to sign the necessary documentation to resign.
Administrator Price Waterhouse Coopers has yet to authorise Lehman to sign the documentation, although verbal consent has been given to the resignation, sources said.
“There are certain risks involved but everyone is prepared to take those risks as there is not much choice. The money has been paid to Lloyds,” a Firth Rixson banker said.
Lloyds is still waiting to disburse Firth Rixson’s full interest payment to the syndicate as it is still awaiting full syndicate details and payment instructions from Lehman, sources said.
Lehman was also involved in Firth Rixson with mezzanine investments via Lehman Brothers Private Equity Partners and Lehman Brothers Mezzanine Partners and also had an equity investment in the company alongside Oak Hill Capital Partners.
Private equity firms and investors are now calling for changes to standard loan documentation that did not envisage the possibility that insolvent agents could be unable to resign.
Lehman has relatively few agency roles in European buyouts, sources said.
The firm is also understood to be acting as agent on the 280 million euro mezzanine financing backing Italian aerospace group Avio SpA’s buyout by Cinven [CINV.UL] in August 2006, sources said.
(Reporting by Tessa Walsh; Editing by Jon Loades-Carter)