October 23, 2013 / 4:03 PM / 4 years ago

RLPC-PHS heading for restructuring as loans slump

LONDON, Oct 23 (Reuters) - Lenders to Charterhouse-owned UK hygiene services company PHS Group are bracing for losses and a possible debt restructuring as the value of the company’s junior debt slumps, banking sources said on Wednesday.

PHS’ loans have been among the most actively traded loans in Europe’s secondary loan market in recent weeks and are trading at distressed levels as lenders try to unload their exposure after weak company trading performance.

A potential restructuring could wipe out the company’s junior debt, which includes second lien loans.

“The value of PHS is now in its senior debt. Junior second lien debt could be wiped out in a restructuring,” a banker said.

PHS and Charterhouse declined to comment.

Intermediate Capital Group (ICG) has sold 72.9 million pounds of PHS’ loan in the last month, traders said.

Two other lenders also auctioned holdings of 17.5 million pounds and 26 million pounds of PHS’ loans in August, according to Thomson Reuters LPC data.

The value of PHS’s subordinated second lien tranche fell 40.7 percent to 26.4 percent of face value in the third quarter from 44.5 percent at the end of the second quarter, the data shows.

PHS amended and extended around 955 million pounds of loans in September 2012 and also received a 13 million pounds equity injection from Charterhouse to avoid breaching loan covenants in March.

The company passed covenant tests in September, but is expected to breach the next covenant test in December, banking sources said.

A further 3 million pounds of equity could be injected in the first three months of 2014, one source said.

“PHS is struggling and it is close to breaching its covenants so something has to be done with it. It is hanging in there for now, but the company’s next set of results are likely to be weaker and it is going in the wrong direction,” a second banker said.

Investors view PHS as a good credit with some operational issues to resolve which needs a more sustainable debt structure.

PHS was founded in 1963 as one of the first providers of sanitary disposal in the UK and now offers more than 200 products and services to over 250,000 customers.

It employs around 5,000 staff at over 140 sites throughout the UK, according to PHS’ website. ($1 = 0.6168 British pounds) (Editing by Tessa Walsh)

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