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This article is provided to FT.com readers by Debtwire—the most informed news service available for financial professionals in fixed income markets across the world. www.debtwire.com
European private equity investor Cinven has waded back into a three-way battle for control of beleaguered German truck parts manufacturer JOST Werke, three sources close to the matter told Debtwire. Lenders to JOST rejected a workout plan the sponsor tabled last year in favour of their own restructuring, but when US parts maker The Boler Company offered an unsolicited recapitalization in May, Cinven returned to the fray.
Cinven moved to co-opt JOST’s executive-suite in recent weeks by tabling a new workout proposal that gives management a larger slice of post reorganization equity than that proposed in the lenders’ restructuring scheme, said the sources. Creditors slapped down the PE firm’s proposal again and it will be hard pressed to wrest back control of the workout at this late stage, they said. Instead, the sponsor will likely leverage its holdout value to squeeze a larger minority stake from the lenders, said two of the sources.
JOST, which counts Mercedes-Benz and Volvo among its end customers, suffered a massive sales decline in 2009 and started restructuring talks last August just one year after Cinven’s LBO. That put the fate of the company in the hands of lenders in EUR 280m of senior loans and three investors controlling EUR 80m of mezzanine debt.
While Cinven faces the reputational risk of writing off its triple-digit investment in JOST, any restructuring will likely wipe out the mezzanine debt and its holders will demand the lion’s share of the equity in exchange. The private equity firm and the existing management team stumped up EUR 173.4m to purchase the business from Silverfleet Capital around two years ago.
The mezz investors offered late last year to provide EUR 75m of new money –EUR 60m earmarked for senior debt paydowns – and to swap their debt for a majority stake in JOST with a de minimis stump piece left for Cinven. Although Cinven rejected the mezz proposal, senior lenders were on the verge of signing on before Boler entered the picture.
Illinois-based Boler is headed up by Chief Executive Officer and President Matthew Boler and his father, Chairman John Boler. JOST presents the suspension manufacturer with a readily straightforward access route to European markets.
The family-owned company submitted a proposal directly to JOST’s board of directors in recent months that includes a EUR 75m new equity injection and repayment of the mezz at 65% of face with a partial par paydown of the senior loans, two of the sources noted.
Senior and junior debt holders gave the strategic bidder a lukewarm response and the feedback from JOST’s senior management was positively arctic, all the sources said. The senior lender steering committee annulled a meeting with Boler at the eleventh hour and management refused to allow the prospective buyer to conduct due diligence, they noted.
Opposition to Boler’s proposal rests on a combination of economics and psychology. The junior lenders anticipate a return well over par based on an expected recovery in JOST’s sales over the next three to five years, two of the sources said. Although the manufacturer’s deal treats senior lenders similarly to the mezzanine transaction, they have been reluctant to leap onto the Boler bandwagon for fear of alienating JOST executives.
“Management would be happier with Cinven remaining in the picture and striking a deal with the mezzanine [lenders] rather than the third party,” one of the sources commented.
When the Fat Lady sings
The junior creditors, however, struggled to broker an incentive package for JOST’s executives, who have continually angled for better terms, the first two sources noted. At issue were the structure as well as rights and position of management’s incentive plan within the new capital structure, the sources said.
Cinven capitalized on that schism to re-enter restructuring talks. The sponsor proposed the same EUR 75m equity injection and EUR 60m prepayment of senior debt but offered management a bigger equity payout than the mezz plan, the sources noted. The mezz rebuffed Cinven’s new proposal but the two sides are negotiating again about who puts in how much money and how to split the equity, according to the first two sources.
JOST’s senior lenders have stayed put amid the maelstrom of the tripartite discussions. “For seniors, [it’s] pretty much the same economic terms – prepayment and the rest to go into the company,” the third source commented.
The initial rebuff is unlikely to deter Boler. “There’s more fuel in the tank,” one of the first two sources said. The US bidder is expected to petition JOST’s board of directors for permission to conduct due diligence, the sources said. The two businesses are complementary and share the same customers. Advisory boutique Greenhill & Co is advising Boler on its bid.
The suitor could consider sweetening its proposal terms for the mezzanine lenders, one of which is a loan-to-own fund, and align with them to take control of the target company, the sources said. The bidder could also extend an offer to the mezzanine lenders to co-invest in the business alongside Boler. Cashout options, loan notes, as well as equity could be laid on the table, the first source specified.
Cinven, and the mezz lenders’ advisers Greenhill, and Freitag & Co declined to comment. JOST Werke and Boler did not respond to requests for comment.
Additional reporting by Chris Haffenden and Chiara Elisei
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