Carlyle, TPG move to appease lenders

Carlyle wants to inject £25m into IMO Carwash, while TPG reportedly has offered to write a €60m equity cheque for UK chemicals company Vita. The actions are meant to trigger debt write-downs from portfolio company creditors.

Two of the world’s biggest private equity firms have simultaneously proposed cash injections into debt-laden portfolio companies in bids to retain control.

The Carlyle Group plans to boost the beleaguered IMO Carwash with £25 million (€25 million; $35 million) in equity if creditors will accept write-downs on its debt. The UK company breached its banking covenants on a £355 million debt a few days ago and has negotiated a standstill arrangement with its debtors. A decision has not yet been reached on the agreement and talks are ongoing, according to sources.

This is the second time Carlyle has pushed equity into IMO, having provided it with a £25 million loan early last year. The firm, which washes 33 million cars a year, was acquired by Carlyle in March 2006 from JPMorgan’s private equity arm. JPMorgan paid £350 million to purchase the business in 2004 from a Bridgepoint-led consortium that took IMO private in 1998.

TPG has also moved to reduce a European portfolio company’s debt. It has proposed a €60 million cash injection into UK chemicals company Vita in exchange for a reduction in its debt claim from €633 million to just €100 million. Two groups of creditors have agreed these terms but the move is still awaiting full approval by the lending pool, according to sources. The firm has been working towards this agreement since December when it made a standstill arrangement with debtors. A head of terms has been signed and a vote will be held on Friday, with full results to be announced on Monday. The Manchester-based Vita, which was formerly listed, agreed to be taken private by TPG in May 2005 in a £668 million transaction, after having rejected three previous private equity bids.

If the proposals are accepted by IMO’s and Vita’s lenders, the private equity firms will retain their controlling stakes in the companies. This is a significant contrast to similar situations pre-credit crunch, which would have usually resulted in banks stepping in and obtaining larger stakes in struggling companies in return for providing equity.

Two weeks ago Carlyle, which has $91 billion under management, made a €185 million loss on German car part manufacturer Edscha, which declared itself bankrupt following a drop in demand. Carlyle would have been willing to further recapitalise the car manufacturer, an industry source told PEO at the time, but the banks and automotive industry were unwilling to negotiate.

Last week TPG lost $830 million after aluminium manufacturer Aleris filed for bankruptcy citing deteriorating economy and the falling price of aluminium as responsible for its decline.

Carlyle and TPG declined to comment.