Down at the Car Wash

August 11, 2009

Stock photo of man cleaning a Toyota car at a car wash in Tokyo June 23, 2009. REUTERS/Kim Kyung-Hoon Stock photo of man cleaning a Toyota car at a car wash in Tokyo June 23, 2009. REUTERS/Kim Kyung-Hoon After three days of hearings in a cramped courtroom at London’s Royal Courts of Justice, when the judge “blessed” lenders’ plan to take control of British car cleaning firm IMO Car Wash.

As I wrote earlier, this rare moment in the sunshine for Europe’s largest car-cleaning firm came as low-ranked junior lenders failed in their attempt to block senior creditors’ plans to take over the company as part of a debt restructuring.

On the first day of the hearings I counted no fewer than 72 people in the court as London’s distressed-debt and restructuring community queued to listen to the arguments in this landmark case. One day I ended up sitting on the floor of the courtroom next to one of London’s financial elite listening to lawyers putting forward complex legal arguments about valuation methodologies.

With Blackberrys banned from the courtroom, attention was sharply focused on as some of London’s top corporate lawyers went toe-to-toe in the first big restructuring court case of the year.

While Justice Mann affected not to understand the interest in the case, senior lenders say that the precedent set by the judge’s ruling makes it significantly easier to eject junior lenders in a debt restructuring.

These lower-ranked lenders have already lost out in a succession of restructuring deals this year, one senior lender source told me, so it was not surprising they wished to stand and fight at some point.

But the ruling may end up being disastrous for junior lenders, said one distressed-debt investor. Many private equity owned companies need their debt restructured and one of junior lenders’ best negotiating tools has just been erased.

“It’s back to the old days of senior lenders calling the shots,” the distressed-debt investor said.

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