Shattered

KPS Capital Partners, a US private equity firm that specialises in turnrounds, has signed a letter of intent to buy “major assets” from the receiver/administrators of Waterford Wedgwood.

The assets include the group’s key Waterford, Wedgwood, and Royal Doulton luxury brands. A sale would amount to a liquidation of the business in the interests of creditors, after the Irish group was taken into receivership in Ireland and administrators were appointed in the UK at the start of last week.

If a sale to KPS goes ahead it will in effect liquidate the existing group, with proceeds distributed to eligible creditors and the new buyer assuming no liabilities. According to one lender banks will benefit from the debt structure in place at the group as Waterford Wedgwood was financed on an asset-backed basis.

Individual bank lenders also have some specific guarantees from the outgoing chairman Tony O’Reilly and deputy chairman Peter Goulandris in relation to particular credit lines.

Deloitte’s David Carson was appointed receiver of Dublin listed Waterford Wedgwood plc, the ultimate group parent, with Deloitte’s Angus Martin, Neville Kahn, Nick Dargan and Dominic Wong appointed joint administrators of the UK assets.

Waterford Wedgwood’s outstanding debt includes a €201m five-year revolving credit facility put in place in 2005, arranged by Bank of America, GE Capital and Landesbanki, and €166m of mezzanine notes. According to the company net debt totalled €488m at the end of April 2008.

The demise of Waterford Wedgwood comes after five years of losses, which were sustained only because of the commitment of major shareholders O’Reilly and Goulandris, who poured in the region of €400m in equity into the business over the period.

Receivers were appointed after the expiration of a third period of forbearance granted by banks at the end of last year, following Waterford Wedgwood’s failure to pay a coupon to mezzanine note holders.

Senior lenders had extended the period of forbearance, which delays covenant tests, three times from the beginning of December to facilitate management in finding a buyer for the group, but ultimately a receiver was appointed on January 5.