LONDON/FRANKFURT Apollo (APO.N) and TPG Capital TPG.UL are among buyout funds holding the debt of IVG IVGG.DE with the aim of taking control of the Germany property group as last-ditch talks with creditors near an end, three sources close to the situation told Reuters.
The company, which runs a fund that co-owns the Gherkin skyscraper in London, said earlier this week it had failed to agree a restructuring of 4.2 billion euros ($5.6 billion) of debt, sending its shares 42 percent lower.
IVG built up debts during an expansion spree but some costly projects have since declined in value.
Chief Executive Wolfgang Schaefers has said he would seek creditor protection to buy breathing room if no deal was possible. After the expiry of a July 30 deadline, IVG now has only a few days left to strike a revamped deal before court insolvency proceedings begin.
If a way to a restructuring is not found, a sell-off of all or parts of the company could begin.
Private equity funds like Apollo and TPG have been buying IVG's debt to gain a negotiating position in talks over its future that could allow them to take control via a debt-for-equity swap, sources familiar with the matter said.
But no single company has amassed a large enough stake to take control on its own, three sources told Reuters. And the large number of creditors, which one source said was about 250, complicates the task of getting a deal done.
Apollo was not immediately available for comment and TPG and IVG both declined to comment.
Debtholders would normally need about 75 percent to push through such a takeover. But the picture at IVG is made even more complicated by the fact there are four separate packages of debt with differing amounts of collateral and negotiating power attached, plus the interest of shareholders.
"Time is running out and although a deal is still possible, I do not see everyone pulling in the same direction," a person familiar with the negotiations said.
About 70 to 75 percent of 2.2 billion euros of syndicated loans are held by various funds after several banks sold out, according to people familiar with the matter. IVG also has a 400 million euro hybrid bond and a convertible bond for the same amount held almost 100 percent by funds, the sources said.
The holders of a 1.3 billion euros syndicated loan from 2007 - dubbed Syn Loan I - have proposed swapping their complete holdings for 88 percent of the equity, a source familiar with the negotiations said.
Under this proposal, holders of the convertible bonds would receive 12 percent of the equity, while current shareholders as well as holders of hybrid bonds would be wiped out completely or be left with a combined stake of up to 5 percent.
Holders of another loan - Syn Loan II - would see no debt swapped for equity but have the debt maturity extended.
"The holders of the Syn Loan I are the only creditor group which has also offered new money," a person familiar with the proposal said, adding the creditor group was willing to supply the 120 million euros that IVG has said it needs immediately to keep afloat.
Other creditor groups, however, feel they would be outsmarted in a such deal.
"There is no need to rush things," a person familiar with the junior lenders' position said. Germany's property market was in good shape and some of IVG's assets - which have a market value of roughly 5 billion euros - could likely be sold without large discounts to plug financing needs, the person said.
He said IVG's projection that it could recover only 3.1 billion euros in case of an insolvency was too conservative.
IVG has said it needs to cut its liabilities by up to 1.75 billion euros and completely restructure its debt to make sure it has enough capital to refinance loans maturing this year and in 2014.
Its share price has plummeted 92 percent this year against the backdrop of the restructuring talks. ($1 = 0.7531 euros)
(Additional reporting by Alexander Hubner and Kathrin Jones. Editing by Patrick Graham and Jane Merriman)