Junior lenders lose out at the Car Wash trial

A GROUP of junior lenders yesterday lost their legal fight to prevent a controversial debt-for-equity rescue plan for failed firm IMO Car Wash.<br /><br />The landmark ruling sparked fears that creditors further down the seniority scale will be pushed aside when it comes to recovering value from failed firms.<br /><br />Lord Justice Mann ruled in favour of IMO&rsquo;s senior lenders, which include Lloyds Banking Group and US distressed debt investor Angelo Gordon, after their plans to salvage Europe&rsquo;s biggest car wash firm were resisted by the junior backers.<br /><br />The junior or &ldquo;mezzanine&rdquo; lenders had brought the matter to court to prevent a restructure plan that will see the senior lenders take ownership of IMO, after it failed to keep up with interest repayments on its &pound;300m debt pile.<br /><br />The juniors had argued the deal values IMO at excessively low levels and they would unfairly lose out.<br /><br />They wanted the firm to continue without the debt restructuring, which achieved the required 75 per cent level of support from the senior lenders in July.<br /><br />After a three-day trial in a packed courtroom, the mezzanine lenders, who include Partners Group, failed to persuade the judge that the senior creditors&rsquo; valuation of IMO was too low.<br /><br />Lenders who tend to take junior debt positions in companies had been hoping for a sign the legal system takes mezzanine investors&rsquo; wishes seriously.<br /><br />Paul McLoughlin, who led the Lovells team that advised the senior lenders, said the restructuring can now go ahead and produce a &ldquo;much improved financial structure&rdquo; at IMO.<br /><br />IMO&rsquo;s senior lenders have proposed a debt-for-equity swap where they will seize control of the company from present owner Carlyle Group in exchange for a big cut in the value of its debts.<br /><br />Following a failed sales process in May, senior lenders believe the value of IMO, which operates in 13 countries, is now less than the amount it owes them, meaning they have control of the company&rsquo;s future.