Sanitec Lenders Mull EQT Restructuring Proposals

(Reuters) – Finnish bathroom fittings manufacturer Sanitec’s lenders are considering private equity owner EQT’s restructuring proposals, sources familiar with the situation said on Wednesday.

Nordic private equity firm EQT has offered to inject 100 million euros ($127.4 million) of equity into the company in exchange for reducing its debt to 350 million euros, sources said.

EQT’s offer is viewed as an opening gambit in negotiations by lenders that may submit alternative proposals, including the injection of fresh equity from new sponsors, sources close to the deal said.

Both Sanitec and EQT declined to comment.

Sanitec said its senior lenders have meanwhile extended a standstill agreement until April 30, under which creditors agree not to take action to cause a default.

Sanitec, Europe’s largest bathroom supplier which makes toilets, showers and bathtubs, hired Close Brothers to advise it on a restructuring after struggling to service its 1.015 billion euro loan which financed EQT’s purchase of the company in 2005.

Construction-related industries like Sanitec have come under pressure amid a downturn in the real estate sector due to a combination of tough operating conditions and high debt levels.

Sanitec’s 2005 buyout loan was arranged by Royal Bank of Scotland (RBS.L), with HVB (now Unicredit (CRDI.MI)) and Mizuho (8411.T) as joint lead arrangers.

Sanitec said it had preliminary full year 2008 earnings before interest, depreciation and amortisation (EBITDA) of over 100 million euros on sales of around 880 million euros.

Low secondary market bids on its loan indicate that lenders have priced in the restructuring news. Sanitec’s junior second lien loan is trading very close to zero, data from Thomson Reuters shows, which indicates poor recovery rates.

Indicative average bids on Sanitec’s senior 225 million euro term loan B fell to 28.4 percent of face value on Tuesday from 82.8 percent a year ago, according to the data. Meanwhile bids on the junior second lien tranche inched lower to 2.2 percent of face value late on Tuesday from 65 percent a year ago.

Expecting problems with loan covenants, EQT approached its lenders to defer debt payments due in mid-December. The lenders gave the company breathing space, however they rejected the sponsor’s initial proposals.

Sanitec’s leveraged loan credit default swaps (LCDS) were auctioned in February in Europe’s first synthetic loan credit event.

Sanitec’s first lien LCDS contract settled at 33.5 percent of face value, bringing losses of 66.5 percent to sellers of protection on the loan; while the second lien LCDS settled at 4 percent.

($1=.7847 Euro) (Reporting by Tom Freke and Simon Meads; Writing by Zaida Espana; Editing by Tessa Walsh and Sharon Lindores)