The banks that put up the debt for Doughty Hanson’s £347 million purchase of 20:20 Mobile in late 2006 could accept a 50 per cent equity stake in the business this month.
On the back of a business plan drawn up by 20:20’s management team, Doughty Hanson has proposed it pays in the region of £25 million to gain 50 per cent equity in 20:20 and reduce the banks’ debt exposure.
Nominally, Doughty Hanson has valued 20:20 at around £120 million, which reduces the value of the original debt by roughly 50 per cent, and wipes out Doughty’s initial investment, leaving the banks, theoretically, with 100 per cent of the business.
Under the proposed debt-for-equity swap, Doughty Hanson would invest £10-£15 million cash in 20:20 now, gaining close to 50 per cent equity, and a further £10 million in nine months, splitting ownership of the business more evenly.
In the short term, the 16 banks in the debt syndicate will take a marginal controlling stake.
Compared to its actual market value, Doughty’s valuation of 20:20 is considered high by the banks, and so minimises loss on the their initial investment.
Doughty Hanson’s plan is designed to placate the banks, which visited Crewe in the past fortnight with a view to taking control of 20:20 and cutting Doughty Hanson out of the loop.
Such a move was vetoed because of the complexity of 20:20 and the good vibe from the new 20:20 management team, led by chief Meinie Oldersma (pictured).
The debt syndicate is expected to accept Doughty Hanson’s proposals by the end of June.
A source close to the financial institutions involved said: "All parties want to draw a line under this. Everyone involved supports Meinie and his team.
"The long-term complication is the debt holders look like they will hold equity positions. They don’t want to be involved in running a business, so they will plump it up for a sale when trading stabilises and the market conditions become favourable."
20:20 is expecting to record profits in 2008/9 in line with its profits last year, thought to be around £30 million, with a full year’s trading from Swedish distributor Axcom, purchased last year, offsetting a slowdown in the UK market.
20:20 was unavailable for comment.