LONDON (Reuters) – Privately-owned publisher Trader Media Group is seeking to buy back 20 million pounds ($27.5 million) of its syndicated loan in a bid to reduce its debt and interest payments, a company spokesman said on Wednesday.
If successful, the move could prompt a raft of similar loan buybacks as troubled companies try to deleverage and cut their debt by exploiting the low secondary price of loans, which allows them to buy more of their debt.
“This is the first substantial buyback of the year. If it does well, there will be more,” a banker close to the deal said.
Trader Media is owned by Guardian Media Group, which sold a 49.9 percent stake to private equity firm Apax Partners [APAX.UL] in 2007, backed by a 835 million pounds loan.
The company is now seeking to buy back 20 million pounds of that loan using cash on its balance sheet, bankers said.
Debt buybacks proved controversial in 2008, but Trader Media has been able to go ahead as its ‘covenant lite’ loan carried few restrictions and did not need investors to approve an amendment to allow the buyback.
Travel reservations service Amadeus IT Group was refused permission to buy its leveraged loans back at a discount in October, but secondary bids on leveraged loans have sunk to around 60 percent of face value in the interim.
Troubled banks or hedge fund investors seeking to raise cash may have to be more pragmatic about buybacks faced with few other options in an illiquid secondary market with few buyers, bankers said.
“I think investors will be a little less emotional about buybacks this year. Buybacks bring liquidity to the market and a way to delever, these are two things that the market needs,” a leveraged banker said.
Trader Media is asking investors that are interested in selling to tender their debt in a ‘Dutch auction’ that will end next Tuesday at 1700 GMT, when the company will decide which of their offers to accept.
JP Morgan, which is managing the auction through its secondary loan trading desk, made a market in Trader Media’s loan on Wednesday at 42 percent to 44 percent of face value. A cap or reserve price will be issued closer to the end of the auction, bankers close to the deal said.
This would allow Trader Media to retire around 40 million pounds of its debt if the auction is successful.
“This will give a debt decrease of more than 40 million pounds if the company gets it at or around the trading price,” a banker close to the deal said.
The debt, which will not have voting rights, would be bought by a newly-created company and lenders will have a pledge over the new company. In addition Trader Media has vowed to maintain its cash sweep, which funnels excess cash into debt repayment, sources said. ($1=.7275 Pound)
By Tessa Walsh