Published on 24 Jul 2012
|Norbain's "pre-pack" sale triggered by a financing syndicate made up of its four largest creditors
It has been a matter of public record for some time that Newbury Investments paid £23.5m for Norbain in a pre-pack arrangement which left the company without any obligations to the old Norbain’s many creditors. But other than this, the background to the distributor’s sale has remained sketchy.
The sale was triggered by a financing syndicate made up of Norbain’s four largest creditors – HSBC, RBS, Bank of Ireland and Babson Capital (a $142bn investment firm) – to whom they had debts of around £50 million.
Between 2008 and 2012, Norbain’s revenue shrunk from £152m to £141m. According to a letter from KPMG to creditors (dated 4 July), earnings before interest, taxes, depreciation and amortisation fell from £13.9m to £0.3m over the course of the 4 years prior to 2012. “Commercial pressure from competitors” is cited as a reason for this, along with foreign exchange movements on US Dollars and the cessation / deferment of new project work owing to the downturn in the construction sector.
Subsequently, on 1 March 2012, KPMG were engaged. According to Court filings, this was:
- “to consider sale options”, and
- “to undertake contingency planning should a sale/investment not be secured”
Recognising that the best outcome – both for Norbain and for the financing syndicate – would be for Norbain to stay out of the insolvency process, the syndicate agreed to defer interest payments to allow Norbain to see if third-party investment could be found. A one-year covenant waiver and interest holiday was agreed.
26 financial investors and 20 trade parties were contacted to see if they would be interested in purchasing the business, and on what terms. Overall, 24 non-disclosure agreements were signed.
Massive debts, with little prospect of repayment
Other than Newbury Investment’s offer, four other offers were received. All were rejected as they would have resulted in a worse outcome for the financing syndicate.
After Norbain’s financial performance declined still further between March and June 2012, the financing syndicate confirmed in writing that the interest holiday would not extend beyond 2013.
Based on Norbain’s own forecasting of cash outflows for 2013 - 2015, this left the business unviable without additional funding.
Since the financing syndicate were unwilling to lend more money to Norbain, three asset based lenders were contacted to see if they would lend Norbain money to repay the existing lenders. All said that they were not willing to fund the business without a change of ownership and management.
The other options considered by KPMG were:
Administration – trading on
There was insufficient evidence that trading Administration would have helped in any way, and it would have been hard to fund.
Administration pre-pack (the option ultimately chosen)
CVA / Scheme of arrangement to restructure the bank debt and equity structure
While this may have had benefits for unsecured creditors, KPMG felt it did not solve the problem of long-term cash outflows, which were what made the old Norbain unsustainable. It also did not enable significant capital repayments to the financial syndicate, who were unwilling to provide additional funds.
Liquidation would have brought no more money to the financing syndicate than going into Administration. It would also have resulted in additional claims (among others, from employees, since no trading would have been possible).
On this basis, Administrators were appointed on 29 June 2012 to oversee Norbain going into Administration, and the immediate sale to Newbury.