What is an asset worth if no-one wants to buy?
With few bidders for companies — as specialist distressed investors continue to sit on their hands — many company valuations are “subjective”, one restructuring expert told me earlier today.
Such uncertainties have serious consequences. An argument has broken out between different groups of creditors to car cleaning firm IMO Car Wash, as senior lenders seek to take control of the company via a debt-for-equity swap.
Senior lenders believe the company — which has more than 300 million pounds of borrowings — is worth less than the debt they are owed, meaning they plan to take control of IMO with the debts of lower-ranked creditors completely written off.
Junior lenders disagree with this plan, arguing that the valuation used by the senior lenders is too low, and the value of the company actually “breaks” in the junior debt. If they are right, and they can convince a judge of their case, they are set to get a better pay out in the restructuring deal.
Restructuring battles usually end with agreement and compromise, but deals often take months to finalise. But until the valuation issue is resolved, likely through bidders stepping up to buy distressed assets, striking restructuring deals will be an even slower and more painful process than usual.