Comment, question or quotation of the day

02-06-2020 : Solvency, solvency (and liquidity), continued and illustrated.

Automotive equipment supplier Novares, €1.35 billion in sales, €100 million in EBITDA in 2019, 12,000 employees in 23 countries, announced last week a recapitalization operation following an express (one month!) receivership procedure.

The lock-down that has affected 40 of its 45 plants cost it €4 million a day, so much so that under LBO with a debt/EBITDA ratio of 3.3, high for a cyclical sector like the automobile industry, its days were numbered, especially since a takeover by a competitor or a fund was very complicated to organize when it was impossible to visit the plants. De facto, none of them made a firm offer.

The banks agreed to convert €260 million of the holding company's €330 million debt into equity, giving them 25% of the capital, and the shareholders contributed €30 million of new equity, solving the group's solvency problems. The banks, which had refused to grant a loan under the French PGE State Guarantee Scheme last March (and understandably so given Novares' debt), have granted €71m of such a loan and the shareholders have granted a €45m loan to reconstitute the group liquidity, just as its business is starting up again. 

It is fair to say that obtaining 25% of the capital in return for the LBO holding company waiving 79% of its debts, the banks do not seem to have abused the situation, to the greater benefit of the Equistone fund, which retains its majority. 

Be prepare to see many more rescue operations of this kind for groups whose solvency is in jeopardy.

Have a nice day. 


01-06-2020 : Quote of the day

“Creditors have better memories than debtors.“

Benjamin Franklin


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