Heineken brews up loan-to-own deal

June 4, 2009

Distressed debt investors seek to pick out the diamonds in the rough, the good companies that can be turned around given a fair wind and the right management and capital structure.

These specialist investors buy up the debt of struggling companies aiming either to sell on the debt when the company recovers, or grab an equity stake if the company is forced to cut its borrowing via a debt-for-equity swap.

Stepping into this territory is Dutch brewer Heineken, which has bought up 49 percent of the debt of Globe Pub Company, a UK pub chain owned by property entrepreneur Robert Tchenguiz.

Writing about this earlier, I pointed out that Heineken may have an eye on taking control of Globe Pub and its 425 pubs via a restructuring, in what would be a rare example of a company’s supplier buying it via a “loan to own” strategy.

After busting loan covenants in April, and with the British pub industry in a pretty sorry state, the future of Globe Pub looks to be increasingly in the hands of its creditors.

For Heineken there are other benefits to its debt play: it has a contract with Globe Pub that ranks payments for beer behind those made to debtors. Given Globe’s financial difficulties, this means it may be forced to provide Globe Pub with free beer for more than 20 years.

The Heineken deal appears to be an opportunistic move by the brewer locked into an unusual contract. As such, it is a step not likely to be replicated by many other suppliers. More usual will be specialist distressed debt investors battling lenders for control of firms they loaded up with debt via leveraged buyouts.

Lenders to Monier are putting the finishing touches on one of the biggest loan to own proposals of the year – aiming to slash the company’s 1.7 billion euro debt load – while we wait to see if lenders to IMO Car Wash have also decided to take control of the firm.

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