Down at the Car Wash
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.
Doom and glee in bankruptcy
Top-class bankruptcy lawyers, vulture investors and credit experts revealed a range of emotions at a bankruptcy conference on Thursday, from doom and gloom to subdued confidence, but some comments bordered on outright glee.
Reflecting on the prospects for distressed investing opportunities this year, Michael Psaros, managing partner at KPS Capital Partners, was blunt.
“We are going to invest an awful lot of money this year,” Psaros said, during a Dow Jones restructuring and turnaround conference in New York. “We’re just very excited about this year and next.”
KPS Capital, which manages special situations funds and private equity funds with capital exceeding $1.8 billion, is ramping up its investments, he said.
Asked whether investors should weigh creditor interests, shareholders’ concerns, company stakeholder views or even the interests of the country, Eric Zinterhofer, senior partner with Apollo Management, said distressed debt investors will pursue a strategy based on the best “dispassionate distribution of capital” in making their investment decisions.
Various experts said distressed opportunities may last between three to five years, as the U.S. recession continues to grip consumers and companies amid tight lending conditions.
Daniel Loeb, chief executive officer of Third Point LLC, an investment adviser with about $4 billion of assets under management, told participants we’re at the “bottom of first inning” in the crisis. That means for bankruptcy lawyers, “you’re probably not going to see your family much.”
Dow Jones will further collapse, since we as a nation have created illusionary wealth over past decade. Right now we are facing the harsh reality and unfortunately 2009 will get even worse for us. The economic indicators don’t look good, stimulus is not working so far, banks are not lending, retail is on the verge of collapse, food and gas prices started to increase and there are rumors about the possibility of nationalization of the largest US banks. I think 2009 will be the most difficult year for the United States and Dow might even hit 5K-6K in the second half of 2009.
