Lovells, Latham lead as High Court hands down key private equity ruling
A landmark High Court judgment relating to the restructuring of IMO Car Wash has dealt a blow to junior lenders who invested in private equity deals that have turned sour. A raft of law firms and chambers including Latham & Watkins, Lovells and Gide Loyrette Nouel advised on the restructuring, with the court yesterday (11 August) approving schemes of arrangement which hand control of IMO to the consortium of banks - led by HBOS - which financed the £450m leveraged buyout of IMO in 2006. Hedge fund investors will lose their investment and receive no equity in the company.
August 12, 2009 at 09:33 AM
3 minute read
A landmark High Court judgment relating to the restructuring of IMO Car Wash has dealt a blow to junior lenders who invested in private equity deals that have turned sour.
A raft of law firms and chambers including Latham & Watkins, Lovells and Gide Loyrette Nouel advised on the restructuring, with the court yesterday (11 August) approving schemes of arrangement which hand control of IMO to the consortium of banks – led by HBOS – which financed the £450m leveraged buyout of IMO in 2006. Hedge fund investors will lose their investment and receive no equity in the company.
Lovells advised the successful syndicate of senior lenders, with restructuring partner Paul McLoughlin leading a team which included restructuring partner Debbie Gregory, corporate partner Richard Ufland and litigation partner Hugh Lyons. The top 10 City firm instructed 3-4 South Square's Gabriel Moss QC as counsel.
Latham advised IMO with a team led by London restructuring partner Dominic Newcomb, alongside European insolvency chief John Houghton and M&A partner Mike Bond. Robin Dicker QC from 3-4 South Square acted as counsel.
The mezzanine lenders turned to French independent Gide, with consultant Claire Pointing and London finance partner Michael Doran advising. Erskine Chambers' David Chivers QC was instructed as counsel.
IMO, the world's biggest car wash company, breached its financial covenants in December 2008, going on to default on interest payment obligations, which triggered a contentious restructuring.
The latest dispute arose because while the senior lenders approved the schemes of arrangement proposed by the company at a creditors meeting on 29 July, the mezzanine lenders disputed the fairness of the schemes on a number of grounds.
McLoughlin said: "This high-profile case has been watched closely by the restructuring community as it is expected to give a clear indication of what the High Court considers to be a reasonable methodology for evaluating the value of distressed assets in restructurings and, in particular, schemes of arrangement."
He added: "Steps can now be taken to implement the schemes and complete the restructuring of the group to enable it to continue with its business with a much improved financial structure."
Commenting on the significance of the case Ashley Katz, a restructuring partner at Mayer Brown in London, said: "If the IMO Carwash judgment or a similar case isn't successfully appealed, it is likely that investors will be more cautious about investing in junior debt pieces. It will be interesting to see how this judgment will impact multi-tier capital structures on [leveraged] originations going forward."
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