Bridgepoint, a European buyout firm, has bought back 5.3 percent of the debt relating to its buyout of Fat Face, a UK clothing company, according to a source in the debt markets.
Fat Face: debt buy-back
The firm bought debt with the nominal value of £10 million (€12.6 million; $19.7 million) from the £190 million transaction, underwritten by BNP Paribas, a French bank. Bridgepoint bought the company for £360 million last year from Advent International.
Bridgepoint’s spokesman said: “We can confirm we are now holders of a small amount of debt in Fat Face.” He declined to comment about further details of the transaction.
The firm bought the debt at 60 percent to 65 percent to face value, according to Financial Times, a UK newspaper.
The debt market source said Bridgepoint was holding the debt through its fund.
This differentiates the transaction to the first debt buy-back last year by TDC, a private equity-backed Danish telecoms company, which bought €200 million ($312.9 million) of loans at a discount using the company balance sheet. It subsequently cleared the debt, deleveraging the company.
Lenders normally expect borrowers to buy back debt at par. But most documentation drawn up prior to August last year did not anticipate the present dislocation of the debt markets and so did not rule out debt buy-backs.
TDC’s structure is regarded as especially controversial according to a number of lawyers, although many believe it is legal and it went unchallenged.
Several firms have attempted to buy debt from their funds for deals in which they have invested. Kohlberg Kravis Roberts considered buying debt related to its buyout of Alliance Boots, a UK pharmacy, according to its spokeswoman, although it is unknown whether it was allowed to complete the deal.
Bridgepoint’s tactic is questioned by some lenders, who believe it can lead to potential conflicts of interest.
Debt buy-backs generally are being examined by the Loan Market Association, a debt market industry body.