Vita Group has chemical sales of €1.5bn, 5000 employees, and manufactures in 20 countries. In December it announced that it was in talks over restructuring, to avoid breaching covenants on the €663m of debt taken on in 2005, when it was bought by private equity group, Texas Pacific (TPG).
It now looks set to emerge with a new structure. This provides an important first example of what may happen to other over-leveraged chemical companies, as the recession intensifies.
The basic principle in restructuring is that debt gets exchanged for equity. The ‘class’ of debt is critical, and in Vita’s case it seems that the debt-equity swap may end up as follows:
• ‘Junior’ debt of €200m will be exchanged for 2% of the equity
• ‘Senior’ debt of €300m will be exchanged for 32.5% equity
In addition, a further €95m of working capital is being provided by senior and junior debt holders, in exchange for further equity.