SVG Capital, a publicly-listed investment fund, has been forced into a series of measures to repair its balance sheet, after a year in which the private equity slowdown has torpedoed its asset values and hammered its share price. SVG said today that it would raise £200m from investors, while slashing its fund commitments and renegotiating the terms of its lending agreements. These drastic moves have wiped another 25% off its share price this morning – and shows how bad things have got for big private equity…
SVG is the biggest backer of private equity firm Permira, with over 80% of its funds ploughed into its various products. However, next year it was due to stump up £1.25bn in ‘uncalled commitments’ (the money it’s promised but not yet paid), and it only had about £1bn in the bank – hence the need to get its hands on some extra cash fast. So following a strategic review by JP Morgan Cazenove, it’s capped its contribution to Permira’s latest fund (cutting its IOU by £450m), changed its loan covenants to give it a bit more headroom (at a cost of about £7m a year in extra fees), and agreed to raise £200m via a rights issue and a share placing. No wonder the markets were spooked...
SVG's recent travails have given Permira a major headache. When it became clear that SVG might not be able to cover its commitments, Permira decided to offer all its investors a chance to cut their payments by 40% - albeit on pretty punitive terms, apparently (which partly explains why just 10% of investors took them up on it). As a result, Permira’s fourth buyout fund has been cut by 13% to €9.6bn – although given how hard it seems to be for the big firms to invest at the moment, we can’t imagine they’re too disappointed about that.
SVG also said today that it’s taken a 40% provision against the value of its current investments, which is a pretty serious write-down – this isn’t an official valuation of Permira’s portfolio, but it does give some indication of how far the big firms’ assets have fallen in value this year. For those PE investors who can still afford to keep up their commitments (and some can’t), there is at least the consolation that things may recover over the 10-year lifecycle of the fund. But the public markets are a lot less forgiving: SVG’s share price is now at a ten-year low, while 3i has also seen its share price plunge to pre-flotation levels this week, amid worries about its ability to finance its £1.8bn debt pile.
One thing’s for sure: private equity types will be glad to see the back of 2008...
In today's bulletin:
Jaguar and Land Rover seek £1bn bail-out
BA and Qantas abandon £4bn merger talks
SVG cash-call highlights private equity woes
Employers rage as Working Time opt-out abolished
Woolworths to close for good as high street woes mount