Fri 07/10/2020 04:02 AM
KKR & Co is finalising details of a deal to resume majority control of MMI Holdings, as a restructuring deal nears completion, three sources told Reorg. The unusual outcome means the New York-headquartered private equity firm will resume control of an asset it first acquired through a leveraged buyout in 2007, but which was forced into restructuring in 2019 after prospective buyers - a Chinese consortium - failed to complete their obligations under a signed sales and purchase agreement (SPA), as reported.


MMI entered into restructuring talks after a consortium led by Beijing HBH Innovation Industry Fund failed to transfer funds on a final payment deadline on Sept. 26, 2019 to complete a $645 million buyout, having paid a deposit of $100 million, as reported.


MMI had earlier cured a June 27, 2019 payment default on $31.2 million due on an originally $520 million loan, through two instalments paid on June 28, 2019 and July 26, 2019 - KKR and MMI tipped in equity as well as balance sheet money to ensure the payment was made. Around $13 million to $14 million of funds came from the company’s balance sheet, with the remainder from KKR and MMI management, said a source close to the situation.


Under terms of the new deal, KKR and company management will tip in an additional around $20 million, with the private equity firm putting around $17 million of that amount, said the source close.


As of May 2020, at the time a restructuring proposal was put to the company’s bank lenders, total debt was $358.3 million, total cash was $62 million and net debt $296.4 million, the source close said, adding that LTM EBITDA was above $80 million, and net debt to EBITDA around 3.5x. The figures exclude the $20 million injection.


The restructured loan is expected to be below $358.3 million, but final size has not yet been decided, the source added.


KKR is swapping a $113 million vendor note provided to the prospective buyers, which is held at the TopCo, Precision Capital Pte. Ltd. (PCPL) and which converts to 99.99% equity of PCPL under default provisions in the SPA documentation, said the source. KKR will be the majority owner under the restructure, with management holding a portion, and the Chinese consortium granted a small portion of equity but as a passive investor with no board seats, said the source close.


As Reorg reported in September 2019, the vendor note was structured as a debt instrument under the terms of the sale of MMI Holdings from KKR to the Chinese consortium. The note is sub debt to the original $520 million senior loan and $60 million revolver. As reported at the time, KKR had indicated to lenders that it was willing to consider converting the note to equity and returning as owner of MMI.

Bank Resolution


The Chinese consortium’s failure to complete the transaction - and KKR and MMI management having cured the loan default - had led to heated discussions with lender banks, as reported. KKR having signed the SPA maintained it was under no obligation to make the cure payment, or any subsequent payment, while lender banks, particularly Taiwanese lenders who had funded the loan partly on name reputation of the blue chip private equity firm, maintained that KKR was ducking out of its obligations under the facility, as reported.


The Taiwanese lenders, who offer a ready supply of cheaper funding for private equity firms buying assets in Asia, had at one point threatened KKR with not lending to future buyout loans, as also reported.


KKR, is currently raising its fourth Asian buyout fund - which would establish a new record $12.5 billion for the region on completion - and is now set to return to an asset that it invested in through a S$1.005 billion ($721 million) LBO in 2007.


KKR’s return as a shareholder of MMI is conditional partly upon all lenders’ consent to the restructuring terms sent to lenders in May, two of the sources said. As of today, only one lender has not provided consent with the company, the sources said.


MMI’s outstanding $358 million syndicated loan is expected to be reduced in size, and extended by five years, said the source close. The facility extension also comes with a lower margin of L+250 bps to L+ 300bps, down from the previous L+ 425bps level, one of the first sources and a fourth source familiar said. The amended facility is only slightly amortising, with a balloon payment of around 80% at maturity, said the same sources.


After a number of secondary loan trades, lenders to the loan now include Dignari Capital, HSBC, DBS Bank, UOB Bank, Sumitomo Mitsui Banking Corp, CTBC Bank, E. Sun Commercial Bank, Mega International Commercial Bank, Bank of Taiwan, First Commercial Bank, Chang Hwa Commercial Bank, Land Bank of Taiwan, Taishin International Commercial Bank, Taiwan Co-operative Bank, Ta Chong Bank, and Taichung Commercial Bank, said one of the sources.


KKR declined to comment.


--Stephen Aldred, Serla Rusli
 
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