Candover-backed yacht maker defaults

Italian luxury yacht manufacturer Ferretti has become the latest private equity-backed company to miss an interest payment and begin debt facility renegotiations. Candover bought a controlling stake in the firm in 2006.

Candover-backed Ferretti, the Italian luxury yacht maker, has missed an interest payment on the €1.08 billion of senior loans it used to finance its 2007 buyout. The company defaulted on a €1.4 million interest payment, according to a letter from lender The Royal Bank of Scotland (RBS) seen by news agency Bloomberg.

UK buyout house Candover acquired 60 percent of Ferretti in October 2006 in a deal that reportedly valued the yacht-maker at €1.7 billion

Ferretti: choppy waters

Last week Ferretti revealed it had hired investment bank NM Rothschild to begin the process of renegotiating its debt, the terms of which were agreed in January 2007, “a time when the market was especially dynamic and therefore substantially different from the current negative economic situation”, the firm said in a statement.

“We are working with the company to find the best solution,” an RBS spokesman said in an interview. Candover declined to comment.

As economic conditions deteriorate and portfolio companies bump up against covenants, financial sponsors are more frequently required to intervene and often – as Candover may have to with Ferretti – inject more cash.

Last week private equity firm Colony Capital and entrepreneurs the Fertitta brothers, the owners of Las Vegas-based business Station Casinos, agreed to inject $244 million into the business after it missed a $14.6 million interest payment on its subordinated notes.

Other portfolio companies, such as Swedish manufacturer Thule and Finnish bathroom company Sanitec, have also recently received so-called “equity cures” from their financial sponsors, EQT and Nordic Capital respectively.

Some industry participants predict a great deal more portfolio companies will struggle under their debt burden as the downturn continues. “It really would not be surprising in this recession if 30 percent of portfolio companies in the mid-market buy-out firms actually failed,” Alchemy Partners managing partner Jon Moulton told delegates at the London School of Economics Alternative Investments Conference in London in January.