* Landmark ruling on IMO Car Wash blow for junior lenders
* Financiers watching case closely for future deals
* Should help senior lenders take control of troubled firms
(Adds industry comments, details)
By Tom Freke
LONDON, Aug 11 A group of senior lenders won
court approval to take control of British car cleaning company
IMO Car Wash on Tuesday in a landmark ruling that junior lenders
fear will weaken their hand in future restructuring cases.
Distressed debt and mezzanine investors packed into a
cramped London courtroom to be told that IMO's senior lenders
could take ownership of the company, despite objections of
lower-ranked mezzanine lenders owed about 90 million pounds
"This is an example of where a steep fall in the value of a
business leaves junior creditors under a rising tide," said Karl
Clowry, a restructuring partner at Paul Hastings.
Mezzanine lenders objected to the scheme partly because of
the low valuation of the company used by the senior lenders,
including Lloyds Banking Group (LLOY.L), who are owed just over
300 million pounds.
The judgment, after three days of hearings, gives a "clear
indication" of the view of the courts when valuing distressed
assets in restructurings, said Paul McLoughlin, a restructuring
partner at law firm Lovells, adviser to the senior lenders.
DUSTING OFF PLANS
Senior lenders will now dust off plans to take control of
other firms through similar schemes of arrangement, a
distressed-debt investor source said.
Many companies, particularly those owned by private-equity
companies bought through leveraged buyouts, have large amounts
of senior debt, meaning those lower down the capital structure
may be squeezed out through restructurings, the investor said.
"This may end up being disastrous for junior lenders, as
their leverage in restructurings has gone. It's back to the old
days of senior lenders calling the shots," he said.
Mezzanine lenders to IMO Car Wash, which include Partners
Group PGGO.L, failed to persuade the judge that senior
creditors' valuation of IMO was too low and the company would be
better served without the proposed debt restructuring.
In a restructuring from earlier this year, junior lenders to
Four Seasons Healthcare blocked a debt for equity proposal from
the company, delaying a deal for months [ID:nLD720606].
Private equity firm Carlyle loaded IMO Car Wash with debt in
a leveraged buyout in 2006. Restructuring talks began earlier
this year when IMO failed to meet terms on its debts as it
struggled with volatile sales and its debt burden.
"Refusing to sanction the scheme in order to throw the
parties into a further negotiation is not a legitimate or
sensible use of the court's power," Justice Mann said after the
three day case.
"I do not consider they (the mezzanine lenders) have a
relevant economic interest in the scheme companies," Mann said.
(Editing by Jon Loades-Carter)