EQT offers EUR70m for covenant breach of Sanitec

According to financial press, EQT has asked the banks that supplied the debt for the acquisition of Sanitec, a Finnish bathroom products group, which was completed in 2005, to waive and amend the covenants on its EUR1bn debt. EQT has offered to inject EUR70m of new funds into the company to pay down EUR51m of its tranche A loan and a restructuring facility called tranche D. According to the same sources, the remaining will stay on the company's balance sheet to use for general purposes and liquidity.

The management is also proposing the margin on the three tranches of its EUR895m of senior debt. Its tranche A will have its margin increased 25 basis points to 250 basis points over Euribor, if the debt providers agree. The B and C tranches would have their margins increased by 50 basis points to 325 and 375 respectively. The interest on the second lien debt of EUR135m, according to the reports, will be increased by 4% paid in kind (PIK), from the current 6% cash pay interest. The overall strategy is to bring the leverage down to 5.1x. The lenders would also be paid a 25 basis point fee for agreeing to the changes.

Sanitec has struggled after the buyout to deliver according to expectations. Despite margins and EBITDA growing over the past two years, management informed lenders on 12 May that the company is likely to breach its first quarter covenants. Bjorn Hoi Jensen, EQT senior partner, said in a statement that EBITDA is expected to grow from EUR156.7m in 2007 to EUR167m in 2008. He also said that the equity injection was a result of heavy investments in new production facilities and making add-ons.

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