LONDON (Reuters) – Amadeus Global Travel Distribution will be unable to profit by buying its leveraged loans back at a discount in the beaten-down secondary market after lenders rejected a key waiver to the company’s loan, senior sources said on Monday.
Lenders rejected a waiver that would have changed the company’s existing 5.2 billion euro ($7.54 billion) loan to let it use 600 million euros of excess cashflow to buy the heavily discounted loan because the proposal did not offer a fee as compensation.
“The sticking point was the question of a fee that was insisted on by a number of investors and lenders which would fundamentally have changed the economics of what was being proposed and the private equity firms were not prepared to give in,” a spokesman for the private equity firms said.
Amadeus is 52 percent owned by private equity owners BC Partners and Cinven [CINV.UL]. Airlines Air France (AIRF.PA), Iberia (IBLA.MC) and Lufthansa (LHAG.DE) also own a stake.
Slumping secondary prices currently favour loan buybacks, which save companies money on principal repayments and also increase the value of their private equity owners’ investments.
The secondary price of Europe’s top 40 leveraged loans is at a record low of 80.50 according to RLPC data. The value of Amadeus’ loans fell to 75.5-78.5 from 79-82 after the waiver was rejected, according to traders.
The result is surprising as Amadeus was the first loan buyback to adhere to new guidelines issued by industry body the Loan Market Association (LMA) which aim to make buybacks fairer and more transparent. The company had made additional concessions by giving up voting rights and capping the amount it would buy to 320 million euros.
The failure of Amadeus’ loan buyback could mark a new phase of investor activism. Investors backing large leveraged loans are already feeling the effects of the economic slowdown and are reluctant to pass any changes to documentation that might impact their position.
“In the current environment if you’re trying to get something for nothing people won’t do anything. This would have sailed through with a fee,” a senior banker said.
Although loan buy backs were initially controversial, the LMA’s guidelines on buybacks addressed many of the issues and bankers close to the deal feel that investors may have passed up a useful source of liquidity in a dysfunctional market.
“A buyer willing to invest hundreds of millions of euros at the right price would have given an underpinning to the secondary market price that’s not there,” a banker close to the deal said.
By Tessa Walsh