When the going gets tough

That insolvency has become a household concept may be a sign that we are nearing "rock bottom". If so, the phase we are going through points to a very protracted and painful way up. Every day there is news of yet another company facing financial challenges. Options range from attempting a renegotiation of the debt to being put into administration due to insolvency.

In Italy, Candover-backed yacht-maker Ferretti has defaulted. The terms of the loan (entered into in 2007) are difficult to serve in a depressed economy (Candover also faces fundraising problems; see below). Ferretti is now struggling to refinance the EUR1.7bn deal, which was closed at the height of "easy lending".

In a smaller deal in Spain, GMT Communication Partners just succeeded in closing a EUR26.5m refinancing for its billboard business Redext (page 36).

As difficult as it may be for the equity backers to accept a dilution of their returns, refinancing is is preferable to administration. When it comes to the latter, there are a handful of options (see feature, page 12). Then again, of late few actually have a say in what their preference is in terms of options.

Certainly, some sectors feel the reverberations of the system more than others; retail is not faring as well as anti-cyclical segments. While this may be a bitter tune for those having to hand over the baton, for those with the financial muscle to take over the orchestra, this may well be music to their ears.

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