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LONDON, May 4 (Reuters) - Lenders to Spanish retailer Cortefiel are set to meet with the company and its private equity owners on May 11, ahead of a potential sale of the business, according to several sources close to the situation.
Lenders will meet with the company and its owners CVC, Permira and PAI next Thursday for Cortefiel’s annual results presentation. This will be the first time the lenders and the company have met since rumours began that the private equity trio are gearing up to sell the business.
Goldman Sachs is running the sales process, according to the sources. The process has not yet formally been launched but the firm has already made some informal approaches to potential buyers, one of the sources said.
At the same time, a group of funds that bought into Cortefiel's debt in Europe’s secondary loan market has mandated financial restructuring advisers Houlihan Lokey to represent their interests.
The funds have bought around €900m of Cortefiel's term loan B debt, which matures in March 2018, according to a second source close to the situation.
If a strong enough bid for the company does not materialise it is possible that the owners will do a deal with these lenders that could see them talking control of the business, the second source said.
“It is unclear what is going to happen. Lenders (who bought into the debt) will want a good return on their investment which means a bid of at least €750m-€1bn,” he said. “If they don’t get that creditors could end up taking Cortefiel over.”
Goldman Sachs, PAI, CVC and Cortefiel declined to comment, while Permira did not reply to a request for comment.
Cortefiel has been through a number of financial restructuring rounds since it was acquired by its present owners in 2005 for €1.8bn against a backdrop of a difficult retail environment in Spain.
The last restructuring was in March 2014 when Cortefiel amended and extended around €1.4bn of debt through a scheme of arrangement which saw covenant headroom extended by 25%.
There was also a provision put in place that Cortefiel will automatically pass into the hands of its creditors if the company does not hit targets and Ebitda falls below €70m, according to Thomson Reuters LPC.
The group’s performance has picked up over the last year, however, and the decision to sell the group is related to the private equity firm’s investment horizons and desire to exit the business after ten years of ownership, a third source said.
“Cortefiel registered a positive performance in 2016 and has also enjoyed a strong start to 2017. It has met fully with all commitments in terms of covenants and earnings in 2016 and is absolutely confident that it will continue to do so this year,” he said.
This is reflected in the rise in the price of Cortefiel’s loans on Europe’s secondary loans market, with the price of the group’s average bids increasing from 65 cents in the euro on January 2 to 75.9 cents on April 28, according to data from Thomson Reuters LPC.
Cortefiel's improved balance sheet and the growing strength of the Spanish economy could make a takeover by lenders less likely at present.
“The company is doing well now and if a good bid does not come in they do not necessarily have to come to an agreement with the banks,” a fourth source said.
Following the 2005 buyout, the sponsors recapitalised the debt in 2007, removing a mezzanine loan and putting in place a €1.385bn all-senior loan structure. That was followed in 2009 by a debt buyback and a €60m equity injection to reset the facilities put in place in the 2007 recapitalisation, according to Thomson Reuters LPC. (Additional reporting by Sonya Dowsett in Madrid; Editing by Christopher Mangham)