Gruppo Argenta lead banks threaten enforcement as negotiations with sponsors stall

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Debt restructuring negotiations between lenders to Gruppo Argenta and its private equity owners are close to standstill, Debtwire reports. After two months of dialogue, a consensual agreement between the parties may not be achievable, said two sources close and a source familiar with the situation.

As a result of the impasse, creditor banks Mediobanca and Unicredito are set to go ahead with their threat and enforce on their pledge on the company’s shares, gaining control of the Italian vending machine company, said the sources. This would be a first in Italian leveraged buyout history. Typically a consensual deal is struck between sponsors and creditor banks, as Italian banks are traditionally adverse to taking equity stakes.

Argenta retained Rothschild as financial adviser earlier this year following a leverage covenant breach last December. Subsequently, in April, the company missed a mezzanine interest payment, putting itself in default. The mezzanine piece is solely owned by the two Italian banks.

Negotiations centered around a EUR 50m new money injection offered from equity sponsors Investitori Associati and Cognetas in exchange for a relaxation of covenants and some form debt write-off. The sponsors proposed elimination of the EUR 100m mezzanine tranche in return for a token equity stake, said the sources.

The sponsors were unwilling to countenance the provision of new money unless placed ahead of the mezzanine, but this was unacceptable for the banks, according to sources. The two sides disagreed on the size of the sponsor’s contribution, with lenders demanding nearer to EUR 100m.

A last-minute solution is still possible and a string of meetings were planned this week. The sponsors recently upped their offer to EUR 65m, said one of the sources close.

Leverage is now approaching double-digit territory, but the company remains cash generative. Until now, both sides were unwilling to concede too much ground, noted the sources. Argenta significantly underperformed to budget in 2008 as expected gains from EBITDA adjustments and pro-formas to the original deal failed to materialise. The group posted EUR 45m of EBITDA for the full year against EUR 65m forecast.

The Italian vending machine group was acquired by private equity funds Investitori Associati and Cognetas in late 2007. The consortium pipped Bain Capital and Cinven to the post with a deal valued around EUR 680m. Mediobanca joined UniCredit as underwriter and bookrunner on the planned EUR 480m-EUR 500m LBO financing. Anticipated leverage was 4.6x-4.8x senior and 6.2x-6.5x total debt/EBITDA.

The financing never launched to general syndication. Debt facilities were set to include around EUR 280m of term debt, a capex/acquisition line of approximately EUR 80m and a small revolver. A EUR 80m-EUR 100m mezzanine tranche completed the financing, sources said at the time. Senior debt pricing was talked in the region of 225bps/275bps/325bps across the term loans.

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