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.
Only the lawyers are cleaning up
A month of overcast skies and frequent showers indicates it is business as usual for the British summer, and for one company each day of rain brings particular displeasure.
British car cleaning firm IMO Car Wash is struggling with more than 350 million pounds of debt, and some detractors say demand for its services drops each time it rains. As such, the value of the company is almost as changeable as a British summer.
This is a headache for both its private equity owner and lenders, who have been trying to settle a restructuring of IMO’s finances since the start of the year. Disputes over valuations have sparked a battle between different groups of lenders, with the result set to be decided in a London court on Monday.
The court case has wider ramifications for European restructurings, as I wrote earlier, because the case is likely to set the tone for many restructurings to come.
Senior lenders hope to be able to clear out junior creditors from the list of borrowers if the value of the company falls below the amount of senior debt owed. The seniors think they have done enough to prove the value of the company is less than their debt; the junior lenders disagree.
The decision is now with Mr Justice Mann at London’s Royal Courts of Justice. Such is the interest amongst distressed debt and mezzanine investors it’ll likely be a tight squeeze in the court’s public gallery on Monday.
Maybe they should all have heeded Rose Royce: as the Seventies act once warned, “you might not ever get rich” working at the car wash.
