Commentaries

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A bit of a mezz in the Carwash

It’s not all bad news for mezzanine investors after the recent UK court verdict on the debt restructuring of IMO Carwash, the Carlyle-backed management buyout which defaulted earlier this year. Senior lenders devised a plan transfer its assets to a new company, leaving junior-ranking mezzanine investors with nothing.  The mezzanine debtholders contested the plan, but a UK judge disagreed and approved it.

That is a blow for mezzanine investors everywhere, because it tips the balance in favour of senior lenders for future restructurings under so-called schemes of arrangement. But they shouldn’t feel too hard done by, and the judge’s arguments may even help them in future.

Schemes of arrangement are designed to keep businesses alive. Provided they are approved by the court, they can be implemented with only 75 percent of creditors in each class of debt agreeing. Junior creditors can be excluded, and may be wiped out.

The mezzanine investors challenged the Carwash scheme, arguing that senior lenders were getting the company on the cheap simply because valuations are currently so depressed.

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