Apax-backed Hit runs out of steam

Apax-owned Hit Entertainment, which controls the rights to Thomas the Tank Engine and other cartoon characters, has entered restructuring talks with lenders.

The Apax Partners-backed group behind children’s television favourites Thomas the Tank Engine and Bob the Builder has entered discussions with lenders as it seeks to avoid a breach of its debt covenants.

Hit Entertainment, bought by Apax in 2005 in a £489.4 million take-private, has called in bankers from Evercore Partners to help it renegotiate the terms on its debt.

Apax: Trying to avoid taking a Hit on Thomas

“It is performing off-plan, but is not a 'basket case,'” said one source close to the process, who added that no covenants had as yet been breached.

Hit made a pre-tax loss of $16 million on a turnover of $273.8 million in the year ending July 2008, according to the latest available data published by Apax. At that time it had net debt of $470 million.

Apax, which invested in the company via its sixth buyout fund, is now expected to put a revised deal on the table, which will likely suggest a waiver of debt covenants and a reset of the debt pricing, according to sources close to the situation.

The lenders, of which there are 50 in the first lien, are being led by Bank of America Merrill Lynch and advised by FTI Consulting.

Hit Entertainment is the world’s largest owner and distributor of content for pre-school children and counts among its brands Thomas the Tank Engine, Bob the Builder, Barney the Dinosaur, Pingu, Fireman Sam and Angelina Ballerina.

Apax and FTI declined to comment on the process, while Evercore was unavailable at press time.